New York Daily Fantasy Sports Suit: Despite Outspoken Opposition at the Court of Appeals Oral Argument, DFS Isn’t Dead Yet

The fate of daily fantasy sports in New York hangs in the balance after the New York Court of Appeals heard arguments in White v Cuomo, the case challenging that the Interactive Fantasy Sports law that authorized DFS in New York for the first time runs afoul of the New York Constitution’s ban on gambling. The Appellate Division, Third Department held that the law was unconstitutional, because the outcomes of DFS games involve a material degree of chance, and cannot be authorized by mere legislation.

Now, on appeal, there are two basic issues that the Court of Appeals will be addressing. First, what standard of review applies (does the Court get to review the constitutional issue de novo, or is deference owed to the Legislature’s factual conclusions concerning DFS based on the developed legislative record, as the State has argued)? And, second, does DFS fall within the constitutional definition of gambling?

The oral arguments at the Court of Appeals on Tuesday, October 5th, did not start out how the State would have liked. From the jump, Judges Eugene Fahey and Jenny Rivera flat out rejected the State’s argument that the Legislature had rationally concluded that daily fantasy sports is not gambling banned by the New York Constitution, calling it “sophistry” and “Orwellian.” Ouch.

But that’s not the entire story. The Court needs to get to four votes to decide whether the daily fantasy sports legislation will survive the Plaintiffs’ constitutional challenge. And two outspoken Judges do not rule the day, no matter how vociferously their opposition may seem. Let’s do some wildly speculative vote counting.

The Path to 4 Votes for the Plaintiffs

If you watched the arguments, you inevitably came away from it believing that Judges Fahey and Rivera were solid votes that the question of constitutional interpretation is one for the Court to decide on its own, without any deference owed to the Legislature’s factual findings, and that daily fantasy sports is unquestionably prohibited gambling under the New York Constitution. That’s my take, too. Judge Fahey, for example, specifically stated that the issue of constitutional interpretation was one for Court to decide, and that DFS is a form of gambling, akin to poker. For the game to be authorized in New York, Judge Fahey said, a constitutional amendment is required.

Judge Rivera was similarly unconvinced. She likened DFS to betting on the all-star game, noted that DFS players are not the coach, and asserted that the game turns solely on externalities over which players have no ability to control. Judge Rivera also likened the DFS companies offering the contests to bookies, and characterized the State’s arguments as “a fantasy.”

With those two votes solid for the Plaintiffs, they only need two more for an affirmance of the Appellate Division’s order that the Interactive Fantasy Sports law is unconstitutional. From what I saw, the Judge most likely to join them is Rowan Wilson. Judge Wilson likened DFS to poker, which the State conceded is gambling and was understood to be gambling when the constitutional ban was adopted in 1894, and questioned why the dichotomy between skill and chance made any difference in the resolution of this case. Based on those comments, and Judge Wilson’s prior voting record, in which he tends to join Judge Rivera, he’s a likely vote for the Plaintiffs.

Here’s where the case gets close. The Plaintiffs need one more vote, but none of the other Judges showed their hand in the Plaintiffs’ favor. The closest was probably Judge Anthony Cannataro, who legitimately seemed to struggle with where to draw the line between games that are gambling, and those that are not. For example, Judge Cannataro asked whether the Third Department had applied the wrong test to determine what is gambling— that is, whether a game is gambling should be defined by the dominating element between skill and chance rather than whether its outcome involves a material degree of chance. And he acknowledged that colorable arguments have been made that the skill involved in DFS brings more success to the skilled players than is typically found in a game of chance like the lottery.

If the Plaintiffs, or the other Judges on the Court who believe that DFS is unconstitutional gambling, can convince Judge Cannataro, he would be the necessary fourth vote to affirm the Appellate Division order, and to put a halt to DFS in New York until at least after the people approve an amendment to the Constitution, in November 2023 at the earliest.

The Path to 4 Votes for the State

If, however, Judge Cannataro falls on the State’s side of the ledger, and he did liken daily fantasy sports to investing in the stock market, which is not considered to be gambling under the New York Constitution, the State can still get to the necessary four votes to reverse the Appellate Division order and uphold the constitutionality of the Interactive Fantasy Sports law.

The other three votes for the State begins with Chief Judge Janet DiFiore. The Chief asked only one question during argument, about the definition of gambling under the Constitution. But given her past voting history in cases where the Legislature has adopted legislation following extensive hearings and upon a complete legislative record, the Chief Judge is likely to be willing to defer to the Legislature’s judgment that daily fantasy sports is not an unconstitutional game of chance or a wager on a contingent future event over which they have no control. I’d count her as a vote in the State’s favor, so that’s two.

Judge Madeline Singas, although her voting history on the Court is short, also seems likely to favor deference to the Legislature here. She specifically asked the plaintiffs’ counsel about the Legislature’s role, and questioned whether the plaintiffs had satisfied their burden to show that the Legislature had overlooked something in making its factual findings. To me, those questions seem to forecast her leaning toward the State’s arguments.

The fourth vote will be the hardest for the State to get. To win, the State will have to flip Judge Wilson, who did, like Judge Cannataro, liken DFS to investing in the stock market. Although that seems difficult, it’s not impossible.

The Complicating Factor

Here’s the catch. The Court of Appeals is usually a seven-member court. But Judge Michael Garcia has recused from this matter, so the Court is down to six votes. If the State can’t convince Judge Wilson to flip, and the Plaintiffs can’t switch Judge Cannataro to their side, the Court would be split three-three. Four votes, however, are necessary for the Court to make any decision, either to affirm or to reverse. The Court of Appeals does not have the same rule as the Supreme Court, where a tie vote leaves the order on appeal in place. The Court of Appeals has to get to four.

If the Court is deadlocked at three votes for the Plaintiffs and three votes for the State, it will set the case down for reargument in a future term, as it did for a few cases this Spring after Judge Feinman passed away. And in doing that, the Court would typically vouch in a Justice of the Appellate Division to sit in on the arguments to get the Court back to the normal seven Judges, and cast possibly the deciding vote.

But if the case is set for reargument, there’s yet another complicating factor. Judge Fahey will hit mandatory retirement on December 31, 2021, and given the Court’s scheduling, there is absolutely no chance that reargument will be heard before he leaves the Court. So, not only could the Court possibly have a vouched-in Appellate Division Justice for the reargument, it would also have a new member of the bench in Judge Fahey’s seat. Given Judge Fahey’s strong stance against the State’s arguments, that may be the best shot that DFS has to survive in New York.

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