Unites States v. Pokerstars, et al
Filing
216
MEMORANDUM OF LAW in Support re: 215 MOTION to File Amicus Brief. and Proposed Brief. Document filed by Poker Players Alliance. (Attachments: # 1 Exhibit Proposed Brief, # 2 Exhibit A, # 3 Exhibit B, # 4 Exhibit C, # 5 Exhibit D, # 6 Exhibit E)(Dreifach, Kenneth)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA
Plaintiff,
v.
POKERSTARS ET AL.
No. 11 CIV 2564 (LBS)
Defendants,
ALL RIGHT, TITLE AND INTEREST IN THE
ASSETS OF POKERSTARS, ET AL..
Defendants in rem.
MEMORANDUM OF LAW OF AMICUS CURIAE THE
POKER PLAYERS ALLIANCE IN SUPPORT OF THE
POKERSTARS DEFENDANTS’ MOTION TO DISMISS FOR
FAILURE TO STATE A CLAIM
Table of Contents
I.
INTEREST OF THE AMICUS .............................................................................................. 1
II.
FACTUAL BACKGROUND ................................................................................................. 1
III. ARGUMENT .......................................................................................................................... 5
A.
Poker Is Qualitatively Different from Games Traditionally Regarded as Gambling. ...... 5
1.
Poker Is Not a House-Banked Game. ........................................................................... 5
2.
Poker Is a Game of Skill. .............................................................................................. 7
3.
Poker Has a Long and Celebrated History in American Culture. ................................ 9
B.
Poker Is Not “Gambling” Under the IGBA. .................................................................. 10
1.
2.
C.
By Its Terms, the IGBA’s Definition of “Gambling” Does Not Extend to Poker. .... 10
The Legislative History of the IGBA Proves That It Does Not Cover Licensed,
Regulated Poker Companies....................................................................................... 15
Poker Is Not “Gambling” Under New York Penal Law § 225.00. ................................ 20
IV. CONCLUSION ..................................................................................................................... 24
2
The Poker Players Alliance (“PPA”) submits this memorandum as amicus curiae in the
above-captioned matter. This memorandum describes the nature and history of poker and
explains why poker does not constitute gambling under the Illegal Gambling Business Act
(“IGBA”), 18 U.S.C. § 1955 and New York Penal Law § 225.00.
I.
INTEREST OF THE AMICUS
The Poker Players Alliance is a nonprofit membership organization comprising over one
million poker players and enthusiasts from around the United States. The PPA’s mission is to
defend the rights of poker players and to ensure that poker—a game of skill and one of
America’s oldest recreational activities—remains free from unnecessary and misguided
intervention or punitive measures. To that end, the PPA engages in advocacy and outreach
efforts to ensure that poker players have a secure, safe, and regulated place to play. The PPA has
participated as an amicus in multiple cases concerning the legality of poker.
II.
FACTUAL BACKGROUND
Before describing the unique features of poker that establish its legality, it is useful
briefly to set forth the basic premises, terminology, and rules of poker games. 1 The Court can
take judicial notice of these facts; they are “not subject to reasonable dispute” because they are
both “generally known within the territorial jurisdiction of the trial court,” and “capable of
accurate and ready determination by resort to sources whose accuracy cannot reasonably be
questioned.” Fed. R. Evid. 201(b).
1
The word “poker” does not refer to a single game, but rather to a family of games that share
certain essential traits. The rules and characteristics of poker described in this brief are common
to all poker games.
Poker is a vying game played using standard playing cards and “chips,” which are tokens
that typically represent money. Poker games are played as a series of “hands,” each of which is a
contest for a “pot” of chips to which the players contribute. 2 At the start of each hand, some or
all of the players pay a small number of chips—known either as an “ante” or a “blind”—into the
pot. Antes and blinds are small, i.e., the minimum size bet permitted in a given game. These bets
function as a seed contribution to the pot; their presence creates an incentive for players to
participate in the hand. Antes and blinds are the only bets that any player is forced to make, and
every player must pay them, either because the rules require every player to post an ante every
hand, or because for every hand the obligation to pay the blinds rotates to a new set of players so
that all players eventually must pay them.
Once the antes or blinds are posted, the players receive cards, and “rounds” of betting
occur, during which players make strategic moves designed to influence the size of the pot, the
number of players competing for the pot, and their likelihood of winning the pot. 3 Each poker
hand involves one or more betting rounds—typically a maximum of four or five. After each
2
The word “hand” is commonly used to refer both to the contest for an individual pot—e.g., “He
won the hand,” and to a particular player’s holdings—e.g., “I have a strong hand.” For the sake
of clarity, this brief will use the word “hand” to refer only to the former, and will use the word
“holding” to refer to an individual player’s cards. However, some of the cited authorities may not
follow this convention.
3
Poker holdings are ranked according to a fixed system. The highest possible holding is a
straight flush (five cards of the same suit, in sequential rank order—the highest straight flush is
known as a “royal flush”), followed in turn by four of a kind (four cards of the same rank, e.g.,
four aces), a full house (three cards of one rank and two of another), a flush (five cards of a suit),
a straight (five cards in sequential rank), three of a kind, two pairs, one pair, and then the highest
individual card. In most games, the highest combination wins the pot. In some games, however,
the lowest wins the pot, or the highest and lowest split the pot. Regardless, the cards are only
revealed and compared if more than one player stays in the hand through every round of
betting—a situation known as a “showdown,” which is rare because typically one player bets and
induces all of his opponents to fold.
2
round (except the final one), the players receive additional cards, which alter the composition,
and therefore potentially alter the strength, of their holdings.
During betting rounds, the players act in sequence, and must choose which of the
available moves to make. If nobody has bet, then the player whose turn it is to act has two
options: he may either “check,” which means that he chooses not to act, allowing the next player
to act; or he can “bet,” which means that he wishes to contribute some chips to the pot. The act
of betting obliges the other players to at least match the size of the bet if they wish to stay in the
hand and retain the ability to win the pot. Once a player has bet, the next player has three
options: he can “fold,” which means that instead of matching the bet, he discards his cards and
forgoes any ability to win the pot; he can “call,” which means that he matches the amount of the
previous bet exactly; or he can “raise,” which means that he augments the size of the bet, and
thus imposes an obligation on all of his opponents to call his bet in order to remain in the hand.
A round of betting ends when either all of the players have called the largest bet, or one player
has, by betting, induced all of his opponents to fold. In the latter scenario, the hand ends as well,
and the remaining player wins the pot.
The players’ decisions are independent of their cards. A player with the strongest holding
need not bet, and a player with the weakest holding need not fold. Similarly, no player can be
forced to call a bet, or to fold in the face of a bet. And the amounts that players bet are likewise
not controlled by the cards they hold. Thus, two players could compete for a very large pot even
though both have relatively weak holdings, just as two players could compete for a very small
pot even if both have very strong holdings—the size of the pot is a function of what the players
decide to bet, and of those decisions alone.
3
A player can win a hand in one of two ways. First, as noted above, he can induce all of
his opponents to fold by making a bet that they are unwilling to call. In this manner, a player can
win the hand even without holding the strongest cards (or without believing he holds the
strongest cards). Attempting to win without the best cards is referred to as “bluffing,” and it is an
essential feature of the game. Second, if more than one player stays in a hand through all of the
betting rounds, then those players reveal their cards in a “showdown,” and the player with the
best holding takes the pot. Once a hand ends, another hand begins immediately, with the
obligation to pay the blinds typically rotating around the table.
Poker games can take one of two forms. In a “ring game,” the chips have cash value, and
can be redeemed with the operator of the game. Players can enter and exit the game at their
leisure, taking their chips with them. In a tournament, by contrast, players pay an entry fee, and
these fees compose the prize pool. At the start of the tournament, each player receives the same
number of tournament chips, which do not have any cash value. Players play hands until they run
out of chips, at which point they are eliminated from the competition. Play continues until only
one player remains—that player is the winner of the tournament, but typically many players
receive prizes commensurate with how long they last in the tournament.
Regardless of the variant of poker, or the form of the game, the object of the game is for
each player to take chips from the other players, resulting in a monetary gain—in ring games, the
gain occurs when the chips are redeemed for value, and in tournaments, the gain occurs when the
player is eliminated, and paid in accordance with his overall standing in the competition. Thus, a
ring game player’s success in poker is measured not by how many hands he wins, but by the total
number of dollars he has once the pots he wins are netted against his contributions to the pots he
4
loses. For a tournament player, success is measured by subtracting the entry fee he pays from the
tournament prizes he wins. In other words, poker players seek to maximize their profits.
III.
ARGUMENT
Poker is different from games traditionally regarded as gambling in several key respects.
As a result, it does not fall within the statutory definitions of “gambling” set forth in the IGBA or
the New York Penal Law.
A.
Poker Is Qualitatively Different from Games Traditionally Regarded as
Gambling.
For three reasons, poker is qualitatively different from games traditionally regarded as
gambling. First, unlike gambling games, poker is not house-banked. Poker players compete
against each other, and not against the casino or house. Second, in poker, the players have a high
degree of control over the outcome of the game. Unlike, for example, roulette, slot machines,
lotteries, or sports betting, in which players have no control over whether they win or lose, poker
players dramatically and directly influence the outcome of the game. Finally, poker has a long
and celebrated history in the United States as an unregulated social and entertainment event, and
a hobby for millions of Americans. For centuries, players ranging from Presidents and Supreme
Court Justices to common citizens have enjoyed the game of poker. These distinctions,
individually and together, establish that absent some specific evidence of a contrary legislative
intent, poker should not be understood as gambling.
1.
Poker Is Not a House-Banked Game.
Unlike a casino or a bookmaker, the operator of a poker room does not make money by
playing against its customers. Instead, the operators earn their money by taking a fee for hosting
the game, often, but not always, collected as a small percentage of each pot, known as a “rake.”
Tournament buy-ins typically include two parts: a buy-in, which goes into the prize pool, and an
5
entry fee, which compensates the house for hosting the game. Thus, in both ring games and
tournaments, a poker room operator’s revenues are not contingent in any way on the outcome of
the game.
This is in contrast with casinos and bookmakers, which profit from beating their
customers. Because these individuals and organizations have an adversarial relationship with
their customers, they invariably retain an advantage for their side of the wagers. Thus, in the long
run, the customers invariably lose against casinos—or, as the saying goes, “the house always
wins.” The same is not true of poker. In poker, the rules and odds afford each player an equal
opportunity to win, and over the long run, players can and do win significant sums.
A poker room operator’s incentives are also different from a casino’s. Unlike a poker
room operator, a casino seeks to beat its customers rather than merely provide them with
exceptional service. An honest poker room operator has no incentive to manipulate odds the way
that a bookmaker does, or to mislead its customers about the nature of the game, as a casino
does. 4 Instead, the poker room operator's incentive is to provide the fairest game and most
comfortable setting for its customers. It is their continued use of the room's services, rather than
the results of the game, that generates profits for the operator.
The distinction between house-banked and peer-to-peer games is recognized in federal
law. For example, the Indian Gaming Regulatory Act provides that house-banked card games are
4
See Commentary On The Law Of Poker, 8 Rich. J. Global L. & Bus. 11, 12 (2008) (“It would
seem so logical . . . to distinguish games of skill from games of chance. The games of chance are
played against the house and the games of skill are played against people around the table. . . .
What I hear [some] saying is, beware of the machines, beware of the slots, and beware of this
video, audio, visual, musical industry that has as its objective the addiction of the people to poke
the button until their wallets are empty. That does not describe poker.”) (quoting Prof. Charles
Nesson, Harvard Law School). Of course, this is not to suggest that bookmakers and casino
operators are universally dishonest, or that poker room operators are universally upstanding—but
it does demonstrate why Congress would sensibly have made the judgment that casino and
bookmaking operations present greater risks to customers than poker rooms.
6
always “class III” games, 25 U.S.C. § 2703(7)(B)(i), and thus subject to the strictest regulation,
while other card games (including poker) can be “class II” games if they meet other relevant
conditions, see 25 U.S.C. § 2703(7)(A)(ii). State gambling statutes likewise differentiate between
house-banked and non-house-banked games. See Cal. Penal C. § 330 (prohibiting “any banking
. . . game played with cards, dice, or any device”); Fla. Stat. Ann. § 849.086(1), (12) (prohibiting
cardrooms from offering “any banking game”); Mont. Code Ann. § 23-5-311(1) (authorizing
“bridge, cribbage, hearts, panguingue, pinochle, pitch, poker, rummy, solo, and whist,” but no
house-banked card games); Ind. C. Ann. § 4-32.2-2-12 (permitting approved card games for
charity game nights, but not permitting, inter alia, bookmaking, slots, policy, numbers, or housebanked card games); Okla. Stat. Ann. tit. 3A §§ 262(H), 281(19) (authorizing tribal gaming, but
not permitting house-banked card games).
2.
Poker Is a Game of Skill.
Poker is a game in which skill predominantly determines the outcome. In poker the
players compete against each other on a level playing field, and use an array of talents to
influence and indeed control the outcome of the game. Although the deal of the cards is a chance
element within the game, it only rarely determines the outcome of a hand, and does not
determine the outcome of the game over the long run.
This conclusion finds support in both an analysis of the rules of the game and an analysis
of the data regarding poker. 5 Not only do the rules afford all players an equal opportunity to win,
but they also provide the players with tools (i.e., bluffing and folding) that enable the players to
5
This Court can take notice of these facts. See Neeld v. Nat’l Hockey League, 594 F.2d 1297 (9th
Cir. 1979) (taking judicial notice of the fact that hockey is a rough physical contact sport);
Seminole Tribe of Florida v. Butterworth, 491 F.Supp. 1015 (S.D. Fla. 1980) (taking judicial
notice that bingo was largely a senior citizen pastime); Driebel v. City of Milwaukee, 298 F.3d
622 (7th Cir. 2002) (taking judicial notice of a police department’s rules manual).
7
determine the outcome of the game. Thus, in order to prevail in poker, players need not “get
lucky” the way that they must in casino games. In poker, unlike casino games, the players can
exercise their skills not only to play the odds, but to alter the odds in their favor.
The data regarding poker overwhelmingly demonstrate that skill, and not chance,
determines who succeeds at the game. 6 Indeed, the skill level in poker has been compared
favorably with that in tennis, golf, baseball, and investment advising—all commonly regarded as
being dominated by skill despite the role of chance. 7 In contrast with the litany of studies
concluding that skill plays a dominant role in poker, the PPA has seen no studies concluding that
poker is a game in which chance predominates over skill over any meaningful period of time.
There is a great deal more that can be said about the role of skill in poker, but at this
stage, it is sufficient for the Court to acknowledge a point that the Government cannot sincerely
6
Statistical analyses of large samples of poker hands demonstrate that the vast majority of poker
hands are settled without a showdown, and so the players’ cards are never even revealed. This
data shows empirically that poker results depend on the players’ choices and decisions, not on
the cards they are dealt. See, e.g., Paco Hope & Sean McCulloch, Statistical Analysis of Texas
Hold ’Em 5 (2009) (attached as Exhibit A) (considering more than 100 million online poker
hands and concluding that 76 percent of hands are resolved without the cards being revealed, and
that half of the remaining hands were won by the player who did not hold the best cards because
the player with the best cards had folded before the conclusion of the hand). Mathematical
models of poker likewise demonstrate that over a series of hands a skilled player’s advantage
over an unskilled player is “overwhelming,” such that poker is “almost entirely a game of skill.”
Noga Alon, Poker, Chance, and Skill 15 (2006) (attached as Exhibit B) (concluding that after 90
hands, the probability that an unskilled player will have done better than a skilled one is
approximately .187 percent, and over 140 hands, the number drops to .016 percent).
7
See Alon, Poker, Chance, & Skill 15 (2006) (arguing that in poker “the influence of [chance] is
not necessarily larger, and in fact appears to be smaller, than the influence of chance elements in
tennis”); Rachel Croson, Peter Fishman & Devin G. Pope, Poker Superstars: Skill or Luck?, 21
Chance, no.4, at 25, 28 (2008) (Attached as Exhibit C) (comparing poker to golf); Steven D.
Levitt & Thomas J. Miles, The Role of Skill Versus Luck In Poker: Evidence From the World
Series of Poker, NBER Working Paper 17023 (May 2011) (attached as Exhibit D) (comparing
poker to major league baseball and investment advising).
8
dispute: in poker, the players can—and do—exercise their skills to alter the outcome of the
game, in a way that is not possible in traditional casino games.
3.
Poker Has a Long and Celebrated History in American Culture.
Poker is also different from other gambling games because it is an American tradition. As
early as 1875, the New York Times editorial page opined that “the national game is not baseball, but poker.” “The National Game,” The New York Times, Feb. 2, 1875, available at
http://tinyurl.com/3kwtdom. And the popularity of poker has only grown. As many as 55 million
Americans
play
the
game
today.
See
Poker
Players
Alliance,
Poker
Facts,
http://theppa.org/resources/facts/ (last visited June 27, 2012). Poker enthusiasts have included
U.S. Presidents, Members of Congress, and Supreme Court Justices. See generally James
McManus, Cowboys Full: The Story of Poker (2010) (describing the poker proclivities of
presidents including Ulysses Grant, Harry Truman, Franklin Roosevelt, and Barack Obama,
among others); “Harvard Ponders Just What It Takes To Excel at Poker,” The Wall Street
Journal, May 3, 2007 (noting that Justice Scalia plays in a regular poker game). Indeed, Richard
Nixon, who signed the IGBA into law in 1970, “played poker every free occasion” while in the
military, and is reported to have financed his first congressional campaign with poker winnings.
See Conrad Black, Richard M. Nixon: A Life in Full 61 (2007); Christopher Matthews, Kennedy
& Nixon 156 (1998). Moreover, movies and books about poker are ubiquitous, and poker terms
such as “calling a bluff,” “raising the stakes,” “going all in” and “sweetening the pot” are fixtures
in the popular vernacular.
9
B.
Poker Is Not “Gambling” Under the IGBA.
Poker does not constitute gambling under the IGBA, 18 U.S.C. § 1955. The IGBA’s
definition of “gambling” includes a list of nine games, 8 but that list does not mention poker, and
poker does not resemble the enumerated games in key respects. Moreover, the legislative history
of the IGBA confirms that the statute was enacted to regulate organized crime entities, and
primarily their “numbers” rackets, as opposed to foreign Internet poker companies. Because
poker is different in kind from the games that Congress enumerated as “gambling,” this Court
should hold that it does not fall within the statutory definition of the term.
1.
By Its Terms, the IGBA’s Definition of “Gambling” Does Not Extend
to Poker.
The IGBA’s definition of “gambling” does not include poker. The ordinary meaning of
the word “gambling” is “[t]he action of gamble v.” Oxford English Dictionary (2d ed. 1989),
online version June 2012, http://oed.com/view/Entry/76450. 9 The statutory definition uses
“gambling” without a direct object, i.e., as the gerund of an intransitive verb. See 18 U.S.C. §
1955(b)(2). The Oxford English Dictionary defines the intransitive verb “gamble” as “[t]o play
games of chance for money, esp. for unduly high stakes; to stake money (esp. to an extravagant
amount) on some fortuitous event.” Id., http://oed.com/view/Entry/76447. As explained above,
poker is not a game of chance (nor can the outcome of a poker game be described as a
8
The enumerated games are “pool-selling, bookmaking, maintaining slot machines, roulette
wheels or dice tables, and conducting lotteries, policy, bolita or numbers games, or selling
chances therein.” 18 U.S.C. § 1955(b)(2).
9
The American Heritage Dictionary likewise defines the intransitive verb “gamble” is “[t]o bet
on an uncertain outcome, as of a contest,” or “[t]o play a game of chance for stakes.” See
American Heritage Dictionary of the English Language, http://ahdictionary.com/word/search.
html?q=gambling. Of course, it is possible to find other definitions that do not reference the role
of chance in gambling. However, the fact that the first definition in at least two authoritative
dictionaries includes that element is highly probative evidence of the ordinary meaning.
10
“fortuitous event”), therefore it does not fall within the ordinary meaning of the word
“gambling.”
The IGBA’s definition of “gambling” further provides that the term “includes, but is not
limited to” nine enumerated games. 18 U.S.C. § 1955(b)(2). When Congress uses the word
“includes” in a definition, it is invoking the canon of “ejusdem generis,” which means “of the
same kind.” Holley v. Lavine, 553 F.2d 845, 851 (2d Cir. 1977). This canon provides that “where
general words are accompanied by a specific enumeration of persons or things, the general words
should be limited to persons or things similar to those specifically enumerated.” City of New
York v. Beretta U.S.A. Corp., 524 F.3d 384, 401 (2d Cir. 2008) (internal quotation marks
omitted). Thus, a game cannot be gambling if it is not similar to the enumerated games.
Under this standard, poker does not fall within the IGBA’s definition of gambling. Unlike
the listed “gambling” games, poker is not a house-banked or lottery game. Furthermore, unlike
the enumerated games, poker is not a game in which chance determines the outcome. An
examination of the nine enumerated games reveals that they exhibit these traits:
•
Pool-selling is the selling or distribution of chances in a betting pool—i.e., “[a] gambling
scheme in which numerous persons contribute stakes for betting on a particular event
(such as a sporting event).” 10 Pool-selling is similar to a lottery in that the players all
purchase chances to win a prize. Some, though not all, betting pools are house-banked as
well. Pool-selling is a game of chance because players cannot affect the outcome of the
underlying event. 11
10
Black’s Law Dictionary 1181 (7th ed. 1999); see also, e.g., Iowa Code § 725.10 (“Any person
who records or registers bets or wagers or sells pools upon the result of any trial or contest of
skill, speed, or power of endurance of human or beast, or upon the result of any political
nomination or election, and any person who keeps a place for the purpose of doing any such
thing . . . shall be guilty of a serious misdemeanor.”)
11
See, e.g., Nat’l Football League v. Governor of State of Del., 435 F. Supp. 1372, 1385-86 (D.
Del. 1977) (“chance rather than skill is dominant factor” in betting pool).
11
•
•
Slot machines are coin-operated mechanical or electronic devices that pay off when
random, individually selected symbols match one another on the machine’s display.
Otherwise, the bet goes to the house. Slots are thus house-banked games of chance. 15
•
Roulette is a game in which players bet whether a ball, spun along a revolving wheel, will
land on a certain color (black or red) or a certain number (00 through 36). Players make
their wagers against the house—hence roulette is a house-banked game—and the
outcome is determined purely by the chance that the ball lands on the wagered number or
color, a factor that no player can influence or control.
•
Dice tables are banking games in which players throw dice, usually in pairs, and make
wagers against the house, based on the outcome of the throw, and thus they are also
games of chance. 16
•
Lotteries are “[a] method of raising revenues, esp. state-government revenues, by selling
tickets and giving prizes . . . to those who hold tickets with winning numbers that are
drawn at random.” 17 Because lottery drawings are random, a lottery participant cannot
affect the outcome, and lotteries are games of chance. 18 Moreover, because the house
keeps any bet that does not pay out, a lottery is a house-banked game.
•
12
Bookmaking is “[g]ambling that entails the taking and recording of bets on an event, such
as a horse race.” 12 Like pool-selling, bookmaking is a game of chance, because as in
pool-selling, the bettors have no way of affecting the outcome of events. 13 In a
bookmaking scheme, the bookmaker fixes the stakes and bets against his customers, 14 so
bookmaking is a house-banked game as well.
Numbers games are essentially lotteries. In a numbers game, players wager that on a
certain day, a chosen series of numbers will occur in some event to which the numbers
Black’s Law Dictionary 194 (8th ed. 2004).
13
See Bayer v. Johnson, 349 N.W.2d 447, 449 (S.D. 1984) (“The outcome of . . . events [in a
bookmaking scheme] in no way depends upon the skill of the bettors. The wagering is therefore
a contest in which chance predominates over skill”).
14
See id.
15
See, e.g., In re Indian Gaming Related Cases, 331 F.3d 1094, 1104 & n.12 (9th Cir. 2003)
(quoting K. Alexa Koening, Gambling on Proposition 1A: The California Indian Self Reliance
Amendment, 36 U.S.F. L. Rev. 1033, 1041 n.65 (2002)) (“‘Las Vegas-style slot machines offer
“house-banked” games, which enable the house to collect players’ losses.’”).
16
See, e.g., Kansas City v. Caresio, 447 S.W.2d 535, 537 (Mo. 1969) (finding that dice game
was “game of chance” under local ordinances).
17
Black’s Law Dictionary 966 (8th ed. 2004).
18
See, e.g., Womack v. Comm’r of IRS, 510 F.3d 1295, 1306 (11th Cir. 2007) (describing lottery
as “game of chance”); State ex rel. Kellogg v. Kan. Mercantile Ass'n, 25 P. 984, 985 (Kan. 1891)
(holding that plan for allocation of prizes “by chance” is a lottery).
12
game is pegged. For instance, a player can bet on the payoff totals of a day’s races, and
learn of the fate of the wager by checking the newspaper the next day. A banker (the
house) guarantees the payoffs to any winners, and “[i]n such a game neither the number
of winning players nor the total amount of the payoffs can be predicted in any one day,”19
making the game one of chance, as well.
•
Bolita is a form of lottery “in which one attempts to guess a variably determined 2-digit
number,” 20 sometimes derived by drawing numbered balls from a hopper, 21 or somehow
tied to the results of the state lottery. Because the numbers are “variably determined,”
bolita constitutes a game of chance. 22 Bolita is a house-banked game because it is a form
of lottery.
•
Policy is similar to bolita or a numbers game, but differs in the method of determining the
winning sequence or combination of digits. “In policy, [the winning sequence] is
ascertained by the drawing at random from a wheel in which tags, each bearing one of
the possible combinations of numbers that can be played, have been placed.” 23 Like
numbers and bolita, policy is a game of chance 24 and a house-banked game.
As noted above, and demonstrated by the accepted definitions of the enumerated games,
they share two key features: they are lottery or house-banked games in which the house plays
against the customers, and they are games of chance in that the players have no control over the
events that determine whether they win or lose.
Poker is qualitatively different from these games. First, as noted in Part II(A), poker is
not a house-banked game, but is instead a peer-to-peer game in which the players compete
against each other on a level playing field, and the house acts only in the role of a host for the
game—not as a participant. Second, as noted in Part II(B), poker involves a sufficient degree of
19
United States v. Baker, 364 F.2d 107, 112 (3d Cir. 1966).
20
Webster’s Third New Int’l Dictionary 248 (3d ed. 1971).
21
See, e.g., United States v. Spino, 345 F.2d 372, 373 (7th Cir. 1965).
22
See, e.g., Santos v. United States, 461 F.3d 886, 888 (7th Cir. 2006) (describing “bolita” as a
lottery), cert denied, 550 U.S. 902 (2007), aff’d, 128 S. Ct. 2020 (2008); Ex parte Alvarez, 94 So.
155, 155 (Fla. 1922) (describing bolita as a “game of chance”).
23
Baker, 364 F.3d at 112 (emphasis added).
24
See, e.g., Forte v. United States, 83 F.2d 612, 615-16 (D.C. Cir. 1936) (noting that “policy
game is undoubtedly a lottery,” defined by D.C. Code as game of chance).
13
skill that it is different in kind from the games enumerated in the IGBA’s definition of gambling.
The enumerated games all require the players to play the odds and get lucky in order to win.
Poker imposes no such burden on its players—rather, the players have the ability to alter the
outcome of individual hands, and to maximize their long-term profitability through skillful play.
Finally, as noted in Part II(C), poker has a long and celebrated history in American society that
makes it highly unlikely that Congress intended to ban it. At the very least, in light of the
widespread popularity of poker and of its prominence in American culture, it simply defies
reason to assume that Congress would have banned the game without ever mentioning it.
To the extent that the IGBA’s definition of “gambling” is ambiguous on this point, this
Court should resolve the ambiguity by applying the rule of lenity, which requires that criminal
statutes be strictly construed. The rule of lenity serves two purposes. First, it ensures that
“statutes . . . serve as a ‘fair warning . . . in language that the common world will understand.’”
United States v. Canales, 91 F.3d 363, 368 (2d Cir. 1996) (quoting Babbitt v. Sweet Home
Chapter, 515 U.S. 687, 704 n.18 (1995). See also McBoyle v. United States, 283 U.S. 25, 27
(1931) (holding that before criminal judgment is handed down, “the line” between lawful and
unlawful conduct “should be clear,” even though “it is not likely that a criminal will carefully
consider the text of the law” before he acts). Second, it gives force to the principle that
“legislatures and not courts should define criminal activity.” United States v. Bass, 404 U.S. 336,
350 (1971); McBoyle, 283 U.S. at 27 (a court should not broaden a criminal prohibition “simply
because it may seem to us that a similar policy applies, or upon the speculation that if the
legislature had thought of it, very likely broader words would have been used”). The term
“gambling,” as defined in the IGBA, does not clearly encompass poker. Because poker is
qualitatively different from the enumerated games, and because the definition includes no
14
guiding principle that would enable a person of ordinary intellect to conclude that poker falls
within the definition, this Court should hold that the IGBA does not regard poker as “gambling.”
2.
The Legislative History of the IGBA Proves That It Does Not Cover
Licensed, Regulated Poker Companies.
The IGBA was enacted as part of the Organized Crime Control Act of 1970 in an effort
to deprive criminal enterprises of gambling income, which President Nixon described as “the life
line of organized crime.” Measures Relating to Organized Crime: Hearings Before the
Subcomm. on Crim. Laws & Procedures of the S. Comm. on the Judiciary, 91st Cong. 449
(1969) (Message from the President of the United States Relative to the Fight Against Organized
Crime) (hereinafter “Senate Judiciary Hearings”). The Act provided the Department of Justice
with new tools to combat organized crime, including the Racketeer Influenced and Corrupt
Organizations Act (Title IX). Title VIII of the Act targeted syndicated gambling and included
two parts, the first of which made it a crime to conspire to obstruct local investigations of illegal
gambling operations, see 18 U.S.C. § 1511, and the second of which became the IGBA.
The focus of the IGBA has always been on organized crime. The IGBA facilitates federal
intervention when local authorities prove corrupt or incapable of dealing with syndicated
gambling operations within their jurisdictions. But the statute has no provision targeting
regulated international businesses like PokerStars, and the legislative history plainly indicates
that Congress was not concerned with such businesses when it passed the IGBA. Indeed, there
was no discussion or contemplation by Congress in 1970 of proscribing gambling operations
conducted from foreign locations, especially if lawful or regulated by such jurisdictions.
Moreover, in contrast with other gambling statutes, nothing in the text of the IGBA provides for
its extraterritorial application, nor is there any congressional intent manifested in the legislative
history calling for such application.
15
The Department of Justice, which drafted the IGBA, regarded it as necessary to “fill[] a
loophole that presently prevents the Federal prosecution of huge gambling rings . . . .” Senate
Judiciary Hearings 382-83 (Statement of Will Wilson, Asst. Att’y Gen.). The “loophole” was
that “[u]nder existing Federal legislation ([the Wire Act, the Travel Act, and the Paraphernalia
Act]), interstate travel or use of an interstate facility must be proved as part of each case. Under
[the IGBA], the need for such proof would be obviated on the basis of congressional findings
that illegal gambling as a whole has an adverse effect upon interstate commerce and its
facilities.” Id. at 383; see also Organized Crime Control: Hearings Before Subcomm. No. 5 of
the H. Comm. on the Judiciary, 91st Cong. 156-57 (1970) (Statement of John N. Mitchell)
(hereinafter “House Judiciary Hearings”) (“Federal jurisdiction under existing law . . . depends
upon the establishment of a specific link to interstate commerce on a case-by-case basis. As a
result, many large-scale and lucrative illegal gambling operations, which we have reason to
believe are dominated by the Cosa Nostra, escape prosecution.”); id. at 170 (“Huge gambling
rings, whose activities are of legitimate concern to the Federal Government, now flourish in
metropolitan areas immune from our law enforcement efforts.”). Thus, the IGBA serves a
fundamentally different purpose from other federal gambling laws: it does not target foreign
businesses or interstate wagering activity, but rather domestic illegal gambling businesses that
previously had eluded federal authorities because they lacked interstate components.
In fact, the principal targets of the IGBA were numbers rackets. These were intrastate
lotteries—operated by organized crime groups—that offered lopsided odds and thus leached
significant sums from poor communities. In his message to Congress on Organized Crime, the
President singled out “the numbers racket” as a particularly important and pernicious form of
gambling. See Senate Judiciary Hearings 444 (Message from the President of the United States
16
Relative to the Fight Against Organized Crime). The Attorney General did the same in his
remarks to the Senate. See id. at 108 (statement of John N. Mitchell). And Senators and other
witnesses noted that “[t]he greatest single source of revenue for organized crime is its gambling
activities, which net an estimated seven (7) to fifty (50) billion dollars a year . . . . A great
portion of this is gained through numbers rackets, draining from the poorest inhabitants of our
ghettos and slums and their families precious dollars which should be spent for food, shelter and
clothing.” Senate Judiciary Hearings 158 (Statement of Sen. Tydings); see also House Judiciary
Hearings at 87 (Statement of Sen. McClellan) (expressing concern over the effect of the stilted
odds in numbers and its contribution to organized crime revenues); id. at 400 (Statement of
Vincent L. Broderick, Chairman N.Y. Cnty. Lawyers Ass’n) (similar statement to Senator
McClellan’s).
Even though numbers rackets clearly implicated the federal interest in eradicating
organized crime, they had been difficult to prosecute because many did not involve interstate
conduct. See Senate Judiciary Hearings 383 (Statement of Will Wilson) (“Very few numbers
operations have been prosecuted at a Federal level because very seldom are state lines crossed . .
. .”). Through a congressional finding that large-scale gambling operations affect interstate
commerce, the IGBA enabled prosecution of intrastate numbers rackets. William Hundley, who
had served for seven years as the head of the Organized Crime and Racketeering Section at the
Department of Justice, testified that:
[P]robably the only area where [the IGBA] would be helpful would be in getting
at big numbers rackets, because in my experience in the Justice Department any
gambling operation that was worth Federal concern had an interstate aspect, and
that you could proceed under 1953 and the other bills. But some of the really big
numbers operations, particularly in a place like New York, can be, by the nature
of the operation, self-contained . . . and you could use this new [statute] against
those. I don’t see that it would be really of much use otherwise in the gambling
area.
17
Senate Judiciary Hearings 425 (Statement of William Hundley) (emphasis added).
Of course, syndicated gambling was broader than numbers, and the IGBA was therefore
broader as well. But the sponsors of the statute were concerned not with all activities that one
might conceivably describe as gambling, but rather with games that generated revenue for
organized crime and permitted it to flourish. They identified, in addition to numbers, betting on
horse racing, sporting events, lotteries, dice games, and illegal casinos as important forms of
syndicated gambling. See 116 Cong. Rec. 590 (1970) (statement of Sen. McClellan); see also
President’s Commission on Law Enforcement & Administration of Justice, The Challenge of
Crime in a Free Society 188 (1967) (noting that organized criminals offered a range of games
from “lotteries, such as ‘numbers’ or ‘bolita,’ to off-track horse betting, bets on sporting events,
large dice games and illegal casinos.”). 25 Congress recognized that “[t]he directors and managers
of the major numbers, booking, and sports gambling operations across the country are, of course,
the same Mafia leaders who engage in extortion, labor racketeering, corruption of legitimate
business, and the panoply of other illegitimate enterprises which support organized crime,” and
so targeted them for enforcement. House Judiciary Hearings 105 (Statement of Sen. McClellan).
Ultimately, the list of games that Congress used to define gambling, which includes “poolselling,
bookmaking, maintaining slot machines, roulette wheels or dice tables, and conducting lotteries,
policy, bolita or numbers games, or selling chances therein,” 18 U.S.C. § 1955(b)(2), contains
games that all generated significant revenues for organized crime. No sponsor of the bill or
official in the Department of Justice referred to poker games—let alone licensed, regulated poker
games—as a target for IGBA enforcement, and amicus does not recall that a desire to criminalize
25
Citations to the President’s Commission’s 1967 report were ubiquitous in the record. For
example, at the start of the House Judiciary Hearings, the Chairman began by reading a quote
from the report describing the harms of organized crime. See House Judiciary Hearings 77
(Remarks of Chairman Emanuel Celler).
18
poker was ever a goal in Congress. Congressional intent was to halt the flow of revenues from
illegal gambling activities that were understood to finance organized crime, and that was all.
In light of the IGBA’s text, history, and purpose, the federal interest in curbing organized
crime is manifestly not served by targeting licensed, regulated poker businesses. Both the text of
the IGBA and its legislative history illustrate that the statute does not sweep in all gambling
activity, and indeed does not cover even all large-scale, unlawful gambling activity. For
example, in an exchange during the House Hearings, amicus noted that some states criminalize
all lotteries, whether conducted by charitable organizations or not, but that the IGBA does not
target charitable lotteries, regardless of state law. Assistant Attorney General Wilson responded,
“Yes; that is correct. We want to emphasize that we are not trying to bring the whole gambling
enforcement problem into the Federal jurisdiction, the Federal courts.” House Hearings at 194.
The committee reports likewise noted that the statute was not designed to reach all gambling, but
was “intended to reach only those persons who prey systematically upon our citizens and whose
syndicated operations are so continuous and so substantial as to be of national concern, and those
corrupt State and local officials who make it possible for them to function.” Organized Crime
Control Act of 1970, H.R. Rep. No. 91-1549, at 53 (1970); see also Organized Crime Control
Act of 1969, S. Rep. No. 91-617, at 73 (1969) (Senate Report containing similar language). It
cannot reasonably be said that this description applies to licensed foreign poker operators. 26
26
To be sure, the statute punishes “[w]hoever conducts” an illegal gambling business. 18 U.S.C.
§ 1955(a). But amicus does not suggest that the statute applies only to members of organized
crime organizations. Rather, the point is first, that businesses like the poker companies—which
are licensed and regulated abroad, and which have little to no physical presence here—do not fall
into the definition of an “illegal gambling business,” especially in light of the IGBA’s legislative
history; and second, that there is doubt whether poker is the sort of “gambling” that the IGBA
seeks to regulate.
19
The Government’s decision to seek an indictment under the IGBA in this case is thus at
odds with the legislative intent. In seeking to apply the IGBA to licensed, regulated, foreign
poker companies, the Government attempts to transform the statute into something it is not.
While other gambling statutes—including the Wire Act, the Travel Act, the Paraphernalia Act,
and now the Unlawful Internet Gambling Enforcement Act—may well apply to foreign
businesses, the IGBA was enacted to serve a different purpose, and its text and legislative history
reflect that special mission.
C.
Poker Is Not “Gambling” Under New York Penal Law § 225.00.
Poker also does not fall within the New York definition of gambling. The New York
Penal Law defines gambling as follows:
A person engages in gambling when he stakes or risks something of value upon
the outcome of a contest of chance or a future contingent event not under his
control or influence, upon an agreement or understanding that he will receive
something of value in the event of a certain outcome.
N.Y. Penal Law § 225.00(2). A “contest of chance,” in turn, is “any contest, game, gaming
scheme or gaming device in which the outcome depends in a material degree upon an element of
chance, notwithstanding that skill of the contestants may also be a factor therein.” Id. §
225.00(1).
The Practice Commentary from Donnino to NY Penal Code § 225.00 (quoting Denzer
and McQuillan, Practice Commentary, McKinney’s Penal Law § 225.00, pp. 23 (1967)) explains
that under this definition, when the participants in a game of skill wager on the outcome of that
game, that act does not constitute gambling:
One illustration of the definition of “gambling,” drawn from the commentaries of
Judges Denzer and McQuillan, is the chess game between A and B, with A and B
betting against each other and X and Y making a side bet. Despite chess being a
game of skill, X and Y are “gambling” because the outcome depends upon a
future contingent event that neither has any control or influence over. The same is
20
not true of A and B, who are pitting their skills against each other and thereby,
have a material influence over the outcome; they, therefore, are not “gambling.”
As discussed in subpart II(B), supra, poker constitutes a game of skill under this analysis
because, as in chess, the players “have a material influence over the outcome” of the game. 27
To determine whether a game is one of skill or not, New York law looks to whether skill
predominates over chance in determining the outcome. Recently, the criminal court in People v.
Li Ai Hua, 885 N.Y.S.2d 380 (N.Y. City Crim. Ct. 2009), laid out the test:
[W]hile some games may involve both an element of skill and chance, if “the
outcome depends in a material degree upon an element of chance,” the game will
be deemed a contest of chance. “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?” It follows then that
wagering on the outcome of a game of skill is therefore not gambling as it falls
outside the ambit of the statute.
Id. at 384 (emphasis added) (citations omitted).
Although some have suggested that a game can involve a “material degree” of chance
even when chance does not predominate over skill, the Hua court’s understanding—that the test
is satisfied only when chance predominates over skill—comports with the expert commentary on
the matter, which suggests that, read in light of the “legislative history, case law, common sense,
and the views of many commentators, it ought to be clear that the ‘dominating element’ test . . .
remains valid law in New York State.” Bennett Liebman, Chance v. Skill in New York’s Law of
Gambling: Has the Game Changed? 13 Gaming L. Rev. 461, 467 (2009).
27
In chess, as in poker, chance sometimes plays a role. Studies have shown that playing the
white side of the chessboard—a designation typically awarded by chance—carries with it a
significant advantage. See “First-move advantage in chess,” http://en.wikipedia.org/wiki/Firstmove_advantage_in_chess (last visited Aug. 4, 2011) (collecting over 15 studies demonstrating
that white scores more than black, on average 55 percent to black’s 45). However chess, like
poker, is not properly regarded as a game of chance because the players exercise significant
influence over the outcome of the game.
21
Applying the “material degree” test, the Hua court dismissed the claim against the
defendant for playing mah-jong. In that case, the information “alleg[ed] that people were
handing co-defendants money to play mahjong ‘which is a game of chance.’” 885 N.Y.S.2d at
385. The court rejected the state’s argument, reasoning that the allegation provided “no support .
. . for the claim that mahjong is a game of chance.” Id. While played with tiles, most variants of
mahjong share a “shuffle” in common with card games, in that players are dealt tiles which they
then use to form melds, in a manner similar to western “rummy” card games. 28 Hua thus stands
for the proposition that under New York law, the mere fact of a random shuffle of tiles or cards
does not introduce a “material degree” of chance into the game.
Under the New York Penal Law’s test for gambling, poker does not qualify. Poker, like
chess, is a game in which skill can and most often does determine the outcome of the game. In
hands involving bluffs, for example, skill counteracts the chance element of the deal of the cards.
And even in other hands, a player’s skill, manifested as his choices of how much to bet,
determines how much he wins (or loses) in a hand, and thus controls the only relevant outcome:
the player’s profits. Furthermore, when the “outcome” of the game is considered over the span of
a series of hands, the role of chance diminishes further. As courts in other states have concluded,
poker is not gambling under this test. See Chimento v. Town of Mt. Pleasant, No. 2009-CP-10001551, at 10 (S.C. Ct. C.P. 2009) (holding that the evidence was “overwhelming” that skill
predominates over chance in poker), attached as Exhibit E 29; Bell Gardens Bicycle Club v. Dept.
of Justice, 36 Cal. App. 4th 717, 744 (Cal. Ct. App. 1995) (poker “predominantly implicate[s] a
player’s skill”). But see Commonwealth v. Dent, 992 A.2d 190, 197 (Pa. Super. Ct. 2010)
28
http://www.mastersgames.com/rules/mah-jong-rules.htm.
29
Town of Mt. Pleasant v. Chimento (heard Oct. 19, 2010), is currently on appeal to the Supreme
Court of South Carolina.
22
(holding that poker is predominantly a game of chance); Joker Club, L.L.C. v. Hardin, 643
S.E.2d 626, 631 (N.C. Ct. App. 2007) (same).
To be sure, some antiquated cases in New York have described poker as gambling. 30
However, these cases are not controlling because none of them included an analysis of the
element of skill in poker. Furthermore, the role of skill and chance in a game is a question of
fact, not law. See, e.g., S. & F. Corp. v. Wasmer, 91 N.Y.S.2d 132, 136 (N.Y. Sup. 1949). As a
result, these dated and distinguishable holdings should not be treated as precedential, especially
30
See Luetchford v. Lord, 11 N.Y.S. 597, 597 (N.Y. Gen. Term. 1890) rev’d on other grounds,
30 N.E. 859 (N.Y. 1892) (finding, without discussion, that poker was a game of chance); In re
Fischer, 247 N.Y.S. 168, 178–79 (N.Y. App. Div. 1930) (stating, in an attorney discipline case,
that playing cards for stakes was “technically gambling”); People v. Dubinsky, 31 N.Y.S. 2d 234,
236 (N.Y. Ct. Spec. Sess. 1941) (finding that a particular variant of stud poker was gambling);
Katz’s Delicatessen, Inc. v. O’Connell, 97 N.E.2d 906, 907 (N.Y. 1951) (poker treated as
gambling without discussion).
A more recent case involving a variant of three card monte, People v. Turner, 629 N.Y.S.2d 661,
662 (N.Y. Crim. Ct. 1995), stated in dicta that poker is a game of chance “since the outcome
depends to a material degree upon the random distribution of the cards. The skill of the player
may increase the odds in the player’s favor, but cannot determine the outcome regardless of the
degree of skill employed.” Aside from the fact that this statement was pure dicta, it was poorly
reasoned, as the premise that the players cannot determine the outcome of the game is
demonstrably false. The Turner court’s error stemmed from its reliance on In re Plato’s Cave
Corp. v. State Liquor Authority, 496 N.Y.S.2d 436 (N.Y. App. Div. 1985), aff’d, 506 N.Y.S.2d
856 (1986), a case about video poker—which is entirely distinguishable from the peer-to-peer
poker games offered here, in that the players in video poker are essentially playing a slot
machine: they cannot bluff, their wins or losses are determined solely by the turn of the cards,
and the video poker machine retains a house “edge” over the player. See United States v. 294
Various Gambling Devices, 708 F.Supp. 1236, 1243 (W.D. Pa. 1989) (“Indeed all the skill
elements associated with the ordinary game of draw poker are conspicuously absent in the video
version. In video poker there is no raising, no bluffing, no money management skills.”); Collins
Coin Music Co. of N.C., Inc. v. N.C. Alcoholic Bev. Control Comm’n, 451 S.E.2d 306, 308 (N.C.
Ct. App. 1994) (same). Moreover, Turner is questionable authority even for its holding, as other
New York courts have held that three card monte is a game of skill. See People v. Mohammed,
724 N.Y.S.2d 803, 805-06 (N.Y. Crim. Ct. 2001); People v. Hunt, 616 N.Y.S.2d 168, 170 (N.Y.
Crim. 1994).
23
given the advances made in the understanding of the game of poker over the last several
decades. 31
Because skill predominates over chance in determining the outcome in poker, this Court
should hold that poker is not gambling under New York Penal Law § 225.00.
IV.
CONCLUSION
The PPA respectfully submits this memorandum to provide the Court with pertinent
information regarding the game of poker and to present the perspective of its members regarding
the nature of poker, in the hopes that this information will aid this Court in reaching a just
decision in the case before it.
Respectfully submitted,
_____/s/____________
Kenneth Dreifach (Bar Code KD 4816)
ZwillGen PLLC
415 Madison Avenue, 11th Floor
New York, NY 10017
ken@zwillgen.com
Tel: (347) 210.1798
On Behalf of the Poker Players Alliance
31
For instance, at the time these cases were decided, there were no statistical analyses of millions
of poker hands, nor had the academy dedicated nearly as much attention to the dynamics of
poker games. Instead, these courts considered purely anecdotal evidence to arrive at their
conclusions.
24
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