New York Daily Fantasy Sports Suit: The Amici Bring an Interesting Twist to Whether DFS Violates the NY Constitution’s Ban on Gambling

The State and the Plaintiffs aren’t the only ones who want to be heard on whether the New York Interactive Fantasy Sports Law violates New York’s constitutional ban on gambling. And New York courts are happy to hear their opinions. In White v Cuomo, three parties have sought and been granted leave to file amici briefs—FanDuel and DraftKings in support of the State, and Rivers Casino, one of New York’s four licensed brick and mortar casinos, in support of the Plaintiffs.

Let’s take a quick run through the amici briefs to see what new arguments they bring to the table.

FanDuel and DraftKings

FanDuel’s and DraftKings’ arguments are remarkable similar to the State’s arguments in its opening brief. They both argue that DFS is not gambling prohibited by the New Yor Constitution because the skill required dominates chance-based elements. Thus, it is a bona fide contest for a prize, they argue.

What distinguishes FanDuel’s and DraftKings’ arguments from the State’s is the legal test that they each apply. While the State seeks to have the Appellate Division apply the “dominating element” test that holds that a game constitutes prohibited gambling when chance dominates any skill involved instead of the “material degree” test that holds a game is gambling when chance is involved in a material respect, which Supreme Court applied to hold the IFS Law unconstitutional, FanDuel and DraftKings argue that the tests are substantively identical. It’s just that Supreme Court got it wrong under both.

Particularly, FanDuel and DraftKings trace the “dominating element” test back to a 1904 Court of Appeals’ decision in People ex rel. Ellison v Lavin (179 NY 164, 170-171 [1904]), where the Court held:

Throwing dice is purely a game of chance, and chess is purely a game of skill. But games of cards do not cease to be games of chance because they call for the exercise of skill by the players, nor do games of billiards cease to be games of skill because at times, especially in the case of tyros, their result is determined by some unforeseen accident, usually called luck. The test of the character of the game is not whether it contains an element of chance or an element of skill, but which is the dominating element that determines the result of the game.

The dominating element test was long applied in New York, until at least the 1965 Penal Law amendments that defined gambling to include any contest the outcome of which “depends in a material degree upon an element of chance, notwithstanding that skill of the contestants may also be a factor therein.” Penal Law § 225.00 (1) (emphasis added). The State argues that these amendments changed the test for gambling to the stricter “material degree” test. FanDuel and DraftKings, on the other hand, argue for two reasons that the amendment changed nothing at all.

First, after the 1965 Penal Law amendments, New York courts continued to apply Lavin’s dominating element test to determine when a game depended on chance to a material degree. If skill dominated, the courts held, the game didn’t depend in a material degree on an element of chance, and it wasn’t prohibited gambling.  And vice versa.

Second, FanDuel and DraftKings argue, the legislative history underlying the 1965 Penal Law amendments do not identify any explicit desire to overrule the Court of Appeals’ common law “dominating element” test. The Court, in other contexts, has been very reluctant to find a wholesale abrogation of the common law absent the Legislature’s expressed intention to do so. That simply isn’t present here, they argue.  Instead, the Bartlett Commission that proposed these revisions actually said they weren’t intending to make many changes of substance at all, and the “dominating element” vs. “material degree” test conflict does not appear anywhere in the Commission’s report. Thus, FanDuel and DraftKings argue, the Legislature can’t have intended to replace more than 60 years of precedent applying the “dominating element” test to determine whether a game is prohibited gambling without so much as a word on the subject.

This interpretation is in line with numerous holdings across the country, they argue, including many holding that fantasy sports and daily fantasy sports, in particular, are not gambling because they are contests for which the players pay set entry fees, compete against others in picking the best roster, and play for a set prize pool. One such holding was from New Jersey, and was eventually endorsed by the Third Circuit and Congress. Where DFS games involve “(1) prizes [that] are established and announced in advance; (2) outcomes [that] reflect the ‘relative knowledge and skill of the participants’; and (3) the result is not determined by the outcome for a real-world team or teams or an athlete’s performance in a single real-world sporting event (FanDuel and DraftKings Amici Brf, at 14, quoting Unlawful Internet Gambling Enforcement Act, 31 U.S.C. § 5362(1) (E) (ix) (2006)), they are not gambling.

Rivers Casino

On the other side, Rivers Casino appeared in support of the Plaintiffs’ arguments that the IFS Law is unconstitutional, arguing that the law had fundamentally upset the casino gambling industry’s legitimate expectations that gambling can only be authorized in New York by a constitutional amendment. That’s what the casinos had to do, and so too should the fantasy sports industry, it argues.

Beyond the “we had to get a constitutional amendment, and so should you” rhetoric, Rivers Casino’s legal argument is fairly straightforward. It offers a definition of constitutionally prohibited gambling that is far more strict than any party to this case has previously discussed and doesn’t rely at all on the skill vs. chance dichotomy. As Rivers’ puts it,

Before considering the meaning and scope of the Penal Law, this Court first must decide if DFS constitutes gambling as that term is used in the Constitution. For reasons explained below, the term gambling as used in the Constitution means simply: to wager on games of skill or chance. Whether DFS is viewed as a game of skill or chance, or should be subject to criminal penalties in New York, it is still unauthorized “gambling” as that term is used in the Constitution. From there, the Legislature presumably may decide to criminalize DFS, or to prescribe civil penalties, but the Legislature cannot somehow “authorize” DFS. Chapter 237, therefore violates the Constitution’s general prohibition against gambling. (Rivers’ Brf, at 3-4).

To support this argument, Rivers breaks out the early 1900s dictionaries, which appear to define gambling as wagering money on games of either chance or skill, without differentiation. Rivers, thus, argues that selling access to the DFS pool is prohibited gambling under the Constitution, even if it involves a measure of skill. Indeed, at the time the constitutional ban was implemented for the first time, the Legislature also amended the Penal Law to criminalize wagering on “the skill, speed, or power of endurance of man or beast” involving “any unknown or contingent event whatsoever” (Rivers Brf, at 8, quoting L. 1895, ch. 1, § 1, amending § 351 of the Penal Law). That, Rivers argues, is a conclusive construction that even games of skill are subject to the constitutional ban.

Rivers also argues that the constitutional ban itself was intended to prohibit the Legislature from authorizing any form of gambling by merely calling it not gambling. The debates surrounding the constitutional ban show that the intent was to take the decision about what is gambling and what is not out of the Legislature’s purview, because, the convention delegates believed, the temptation to grab the gambling tax revenues and run would always be strong and often too strong to resist. Thus, Rivers argues, while the Legislature can decide how to enforce the constitutional ban on gambling, it can’t redefine it and authorize what the Constitution prohibits.

Oral Argument

In addition to seeking leave to file an amici brief, FanDuel and DraftKings also sought leave to participate in the oral argument of the appeals. The Third Department, however, denied that request. It’s not often in New York appeals that an appellate court will grant oral argument to an amicus party. In fact, the only time I’ve seen it is when it’s the State asking for divided argument. That’s not a hard and fast rule, but it seems to be the way that these high profile cases play out.

With the case now fully briefed, and the amici briefs in, we now have to wait until November for the oral argument, with a decision expected in late December 2019 or January 2020.

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