Thursday, September 19, 2013

Third Circuit Upholds Federal Prohibition on State-Licensed Gambling

The Third Circuit panel this week in NCAA v. Governor of New Jersey upheld the federal law prohibiting states from licensing sports gambling against a challenge that it exceeded congressional authority under the Commerce Clause, impermissibly commandeered the states, and violated the principle of equal sovereignty among the states. 

The case was a significant test of congressional authority after NFIB v. Sebelius (upholding the ACA's individual mandate under congressional taxing authority, but ruling that it exceeded congressional Commerce Clause authority) and a significant test of the principle of equal sovereignty among the states after Shelby County v. Holder (ruling that the preclearance formula in the Voting Rights Act violated the principle of equal sovereignty among the states and exceeded congressional authority under the Fifteenth Amendment).

The Third Circuit panel rejected both arguments--and the commandeering argument, too--and upheld the federal prohibition.  (The court also ruled that the plaintiffs, sports leagues, had standing to challenge the New Jersey law--in part because the law was directed at them (even if indirectly) and because they would have suffered a reputational injury by association with gambling.)

In 1992, Congress enacted the Professional and Amateur Sports Protection Act, or PASPA, to prohibit sports gambling conducted by, or authorized under the law of, any state or governmental entity and to stop the spread of state-sponsored sports gambling.  PASPA's key provision says that neither states nor persons may
sponsor, operate, advertise, or promote . . . a lottery, sweepstakes, or other betting, gambling, or wagering scheme based directly or indirectly (through the use of geographical references or otherwise), on one or more competitive games in which amateur or professional athletes participate, or are intended to participate, or on one or more performances of such athletes in such games.
28 U.S.C. Sec. 3702.  The PASPA also prohibits states from licensing or authorizing "by law or compact" any such gambling activities.  28 U.S.C. Sec. 3702(1), 3701.
The PASPA contains three relevant exceptions--a clause that exempts Nevada, a clause that permitted New Jersey to license sports wagering in Atlantic City had it chosen to do so within one year of PASPA's enactment, and a provision that allows states like Delaware and Oregon to continue the limited "sports lotteries" that they had previously conducted.  
New Jersey did not take advantage of its exemption under the PASPA, but New Jersey voters later passed a referendum to amend the state constitution to permit the state legislature to "authorize by law wagering . . . on the results of any professional, college, or amateur sport or athletic event."  N.J. Const. Art. IV, Sec. VII, Para. 2(D), (F).  The legislature then enacted the "Sports Wagering Law," which permits state authorities to license sports gambling in casinos and racetracks and to license casinos to operate "sports pools."
The plaintiffs, sports leagues, sued, arguing that the New Jersey law was preempted by PASPA.  New Jersey argued that PASPA exceeded congressional authority and violated the anti-commandeering rule and equal state sovereignty principle.
The court held that "it is self-evident that the activity PASPA targets, state-licensed wagering on sports, may be regulated consisted with the Commerce Clause."  The court said that wagering and national sports are both economic activities, and that professional and amateur sports, and wagering on them, substantially affect interstate commerce.  The court rejected the argument that the PASPA improperly reaches purely intrastate activity--a friendly bet between family members, for example--because the PASPA doesn't reach that activity, and even if it did, under Wickard v. Filburn and Gonzales v. Raich, Congress could have concluded that in the aggregate they have a substantial effect on interstate commerce.
The court also held that the PASPA doesn't impermissibly commandeer the states.  Instead, it said, the PASPA is a proper exercise of congressional authority and properly preempts state licensing laws under the Supremacy Clause.  The said that New Jersey's argument amounted to saying that impermissible anti-commandeering may occur even when all a federal law does is supercede state law via the Supremacy Clause--a position that the Supreme Court has never accepted.  The court distinguished New York and Printz by saying that the PASPA doesn't require the states to do anything or coerce the states at all; instead, it validly prohibits them from licensing gambling.
Finally, the court held that PASPA doesn't violate the principle of equal sovereignty of the states.  The court distinguished Shelby County and said that the equal sovereignty principle operates differently when Congress regulates "in an area 'the Framers of the Constitution intended the States to keep for themselves . . . the power to regulate elections.'"  Op. at 96-97 (quoting Shelby County).  The court also said that PASPA was designed to stop the spread of state-sanctioned sports gambling, and so regulating states in which sports gambling already existed would have been irrational.  And in any event the remedy for an equal sovereignty violation should be to strike the provisions in PASPA that exempt certain states, not to strike PASPA's principal provision.
The court also held that the plaintiffs in the case, sports leagues, had standing.
Judge Vanaskie dissented from the court's holding on commandeering, arguing that "PASPA prohibits states from authorizing sports gambling and thereby directs how states must treat such activity.  Indeed . . . PASPA essentially gives states the choice of allowing totally unregulated betting on sporting events or prohibiting all such gambling. . . . [T]his congressional directive violates the principles of federalism [in New York and Printz]."  Dissent at 1.

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