NY DFS Suit Update: State Appeals Order Declaring Daily Fantasy Sports Unconstitutional, Plaintiffs Seek Reargument

After Judge Gerald Connolly of Supreme Court, Albany County (the trial level in New York) recently declared that New York’s Interactive Fantasy Sports Law violated the New York Constitution’s outright ban on gambling, the case was bound to head on appeal. To me, the only question was to which court. Would the State appeal to the Appellate Division, Third Department (the intermediate appellate court) or directly to the New York Court of Appeals under a little used provision of the Court’s direction that allows cases that directly involve only the constitutionality of a state statute to be directly appealed to the state’s top appellate court? Well, now we have our answer.

The State filed a notice of appeal to take the case to the Third Department. Because the Appellate Division’s new e-filing rules have now kicked in, the case documents should be available on the Third Department’s electronic docket as soon as they are filed with the Court. From here, the State has 6 months to perfect its appeal by filing the brief and the record with the Third Department, and gets an automatic stay of Judge Connolly’s decision. That’s good news to the DFS industry, which will continue to enjoy the status quo of DFS gameplay in New York (and plenty of profits) as the appeals are ongoing.

For the plaintiffs, because they lost in part below, they have two options: (1) file a notice of cross appeal to take that part of Judge Connolly’s decision that held that the Legislature could exempt DFS from the criminal definition of gambling to the Third Department, or (2) file a reargument motion with Judge Connolly to get him to change his mind on that issue.  And it appears that they will pursue both avenues of relief.

Just a few days ago, the plaintiffs moved for reargument of Judge Connolly’s decision, arguing that by holding that the Legislature could decriminalize DFS even though the constitution prohibits it, the decision allows FanDuel and DraftKings to continue to operate in violation of the constitutional ban. That, the plaintiffs argue, allowed the Legislature to skirt the express terms of the New York Constitution merely because no other civil statutory scheme has been enacted to execute the constitutional ban. As the plaintiffs put it,

Thus, the plaintiffs argue, because the purpose of removing DFS from the definition of “gambling” in the criminal statutes was to authorize the practice, which the Court correctly held violates New York’s constitutional ban on “gambling,” the Legislature lacked authority to authorizes what the Constitution had already prohibited. Splitting the decision as Judge Connolly did would “‘invalidate the dog while preserving the tail'” (that’s such a great quote!), the plaintiffs contend, and the Court should have invalidated the entire IFS Law, not just its regulatory scheme.

Based on that argument, the plaintiffs ask Judge Connolly to impose a permanent injunction that would compel the State to stop the current DFS operators from continuing to offer games in New York. Even if the Court did so, however, DFS games likely would still continue during the appeals as a result of the State’s entitlement to an automatic stay of any decision that Judge Connolly makes.

Although I certainly understand the plaintiffs’ point that Judge Connolly’s decision effectively found a constitutional violation without any real remedy, I think they’ll be hard pressed to convince the Judge to change his mind. Usually, any mind changing is made by the Appellate Division upon appellate review, not by the Judge that just issued the decision the party is seeking to reargue.  But, here, the plaintiffs had nothing to lose by making the motion, and we’ll see how it comes out.

Next up, the State will get a chance to oppose the plaintiffs’ reargument motion on December 19th, and the plaintiffs will reply by December 28th. I would expect a decision, likely a short and sweet denial of reargument, in late January or early February. And then the real appellate fireworks will begin.