iMEGA still optimistic in case against UIGEA

Interactive Media Entertainment & Gambling Association

iMega vs UIGEA

The gambling industry as a whole has followed the case of iMEGA vs. Alberto Gonzales, et al., since it was first filed on June 5, 2007. After nine long months of waiting, U.S. District Judge Mary Cooper handed down her ruling on March 6. Despite ruling against most of the key points, her decision has been seen as a victory for the gambling group.

The Interactive Media Entertainment & Gambling Association, or iMEGA for short, is a non-profit group made up mainly of internet gambling companies. Their mission statement according the their website is as “an association dedicated to the continued growth and innovation of the Internet”. iMEGA's goal with the suit was to force the repeal of the latest legislation of the United States against internet gambling.

The Unlawful Internet Gambling Enforcement Act (UIGEA) was passed in 3006 as an add-on to a post security bill. The Act made it illegal for U.S. banks and credit card companies to process most payments involving online gambling. UIGEA certainly shut out foreign gambling companies but the act has also hurt companies based in the United States, as well.

The iMEGA case has experienced some setbacks along the way. The original court hearing was set up for August 17, 2007. Just before the hearing, the defense asked for an extension which pushed arguments over to September 4, 2007. At the end of August, the named defendant (Alberto Gonzales) resigned his position unexpectedly. Some thought iMEGA would have to start all over but in the end there were no changes made to the lawsuit.

An iMEGA representative issued a statement that Mr. Gonzales was not personally targeted in the suit but that the real defendants were the U.S. Department of Justice, the Federal Reserve Board of Governors and the Federal Trade Commission. The rep explained this as a matter of common practice, “Gonzales' name was mentioned in the suit merely because a name had to be mentioned, you can't file a suit 'XXX v. The United States, for instance”.

Despite these setbacks, iMEGA remained optimistic on the outcome of the case. The fact that the judge agreed to hear oral arguments at all boded ill for the defense's expected request for dismissal. The gambling group and the industry at large felt this agreement bolstered the validity of the complaints made in the suit.

The defense may have put more stock in iMEGA's complaints than they were willing to admit since they barely made the September 21, 2007 limit that the judge had set to submit their response. Despite taking so much time in crafting their response, the brief did not introduce anything new. Instead, the defense essentially reiterated their position that iMEGA did not have legal standing to file the suit and that since the U.S. government had failed to provide the regulations needed to enforce the law, then it was too soon to challenge it's validity.

The lawsuit asked for a temporary restraining order against the implementation of the UIGEA stating that it was unconstitutional, as well as in violation of World Trade Organization rules. The group claimed the unfair gambling law was infringing upon at least three areas covered by the U.S. Constitution. They also point to the fact that the World Trade Organization has already placed sanctions upon the United States for previous violations of trade agreements made with other countries concerning gambling issues.

The three areas of the Constitution that were brought into question by this law was the First Amendment covering freedom of speech, the Tenth Amendment which covers the rights of states, and Article 1 which prohibits the making of ex post facto laws which are applied retroactively to previously legal actions. After long deliberation, Judge Cooper did rule against iMEGA on most of these issues.

There is no violation of the First Amendment according to Judge Cooper. She stated that “Acceptance of a financial transfer is not speech. As the UIGEA does not impact expression, it does not come within the purview of the First Amendment”. She did grant iMEGA with the standing to appeal that ruling which they intend to do within the next two months.

Her ruling also states that the Tenth Amendment is not applicable to individuals as it only applies to states' rights. However, the ruling does support the assertion made by Eric Bernstein, iMEGA's lead attorney, that “online gambling is only illegal in states where a statute specifically says it is”.

She also ruled that the law does not violate ex post facto statutes of the Constitution as she says the UIGEA does not demand retroactive penalties. That portion of the ruling is good news for the gambling industry that has been concerned with being penalized for business conducted prior to the laws passing.

Judge Cooper ruling also exempted financial institutions from criminal sanctions under the UIGEA. This is taken by the gambling group as a sign of weakness in the gambling legislation. Joe Brennan Jr., chairman of iMEGA, made this statement: “Judge Cooper found that banks, credit card companies and other payment system instruments are exempt from criminal sanctions under UIGEA, significantly undercutting UIGEA's enforcement mechanism. Her ruling echoes the growing consensus of opinion that UIGEA is a fundamentally flawed statute”.

Despite losing it's case on many major points, Judge Cooper did grant legal standing to the iMEGA group which means that they have the right to appeal her decision. Although the judge did not find the law unconstitutional, she did not commit to any findings as to the effectiveness of the law saying, “it is not the court's role to pass on the wisdom of a congressional act or speculate as to its effectiveness”.

All in all, this ruling is good news for the gambling industry and gives credence to claims that the UIGEA is an unfair and unenforceable piece of legislation. As Eric Bernstein states, “her honor's decision significantly undercuts the federal government's argument that UIGEA is a well-drafted, effective and enforceable law”. It certainly is a good opening salvo in the fight against what U.S. Congressman Barney Frank called “the stupidest law ever passed”.

For more updates on the legal status of online gambling in the United States, please view our news page: UIGEA news