New York Judge Denies State’s Motion to Dismiss Suit Challenging Constitutionality of New York’s DFS Law

Last year, a wave of uncertainty surrounded the legality of daily fantasy sports. In New York, Attorney General Eric Schneiderman brought a high profile suit to enjoin the operation of Draft Kings and FanDuel, arguing that their DFS games violated New York’s constitutional ban on gambling. Specifically, Article I, § 9 of the New York Constitution provides, in relevant part: “no lottery or the sale of lottery tickets, pool-selling, book-making, or any other kind of gambling, except [the State lottery, betting on horse races, and casino gambling] shall hereafter be authorized or allowed within this state.”  New York is different.  Gambling isn’t just prohibited by statute that can be easily amended by the Legislature; it is banned by the State Constitution.

In addition to opposing the AG’s lawsuit, Draft Kings, FanDuel, and the entire DFS industry undertook a substantial lobbying effort to legalize DFS in New York.  Instead of pushing for a constitutional amendment to create an exception for DFS from the definition of “gambling” prohibited under the New York Constitution, like the Legislature has done before for the State lottery, horse racing, and most recently to allow casinos, however, the industry decided to try a shorter path.  In New York, a constitutional amendment is, at minimum, a two-plus-year process.  The proposed amendment—here the DFS legalization bill—must be passed in two successive legislatures and then approved at a referendum by the people of the State at a general election.  The DFS industry didn’t want to wait that long.  Instead, they pushed for a one off bill. And that’s just what they got.

In 2016, the New York Legislature passed Chapter 237 of the Laws of 2016, which exempts “interactive fantasy sports” from the New York Constitution’s ban on gambling. Chapter 237, codified in Article 14 of the Racing, Pari-Mutuel Wagering and Breeding Law, provides:

The AG settled the DFS suit against DraftKings and FanDuel, and DFS was up and running in New York for last year’s football season.

Unsurprisingly, a group of plaintiffs challenged the new DFS law, arguing that DFS is gambling prohibited by the New York Constitution, just as the AG had argued in the DraftKings and FanDuel suit.  So, the plaintiffs argued, the Legislature couldn’t just pass a single bill to exempt the games from the constitutional ban.

The State moved to dismiss, arguing that the Legislature has been granted the authority to enforce the constitutional gambling prohibition. which includes the power to define DFS as outside of that prohibition.  The State argues that the Legislature’s enactment was rational, and unless the plaintiffs could establish otherwise beyond a reasonable doubt, the case should be dismissed.

As I had predicted when the motion to dismiss was filed, the Albany County trial judge, Gerald Connolly, denied the State’s motion to dismiss.  The Court essentially held that the State’s arguments are better suited for a post-answer motion for summary judgment, not a pre-answer motion to dismiss on the pleadings.  Accepting each of the allegations of the complaint as true, as the Court must on the pre-answer motion, the Court held that the plaintiffs had sufficiently stated a claim that the DFS law violates New York’s constitutional ban on gambling.

It’s a straightforward and unsurprising decision.  A copy of the Court’s decision denying the motion to dismiss can be found here.

Now, the fireworks really begin.  The parties will fully brief the issues on the merits, and soon enough the Judge will decide whether the legislation authorizing DFS in New York passes constitutional muster.  That decision will not be the end of the case, however.  An appeal to the Appellate Division, Third Department will follow, possibly a stay application depending on how the merits come out below, and then on to the Court of Appeals because a substantial constitutional question is at the heart of the case.  The moral of the story is that this won’t be finally resolved any time soon, and the fate of DFS in New York hangs in the balance.

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