The Court holds that Tribal Internet Bingo is illegal, but what if the bet is legal where the customer is located (… and many other unanswered questions for Internet Gambling)?

The Ninth Circuit Court of Appeals has ruled that the “Desert Rose Casino” internet bingo game is illegal: a game operated from tribal lands in California but taking wagers from persons in California located off-reservation.  (California v. Iipay Nation, 898 F.3d 960 (9^th Cir. Aug. 2, 2018)).  Although this conclusion seems obvious, the Court’s decision left open the possibility that if the customers are located in a jurisdiction which permits an internet version of a gambling game, a tribe or person located in another jurisdiction could offer the internet game to residents of that first state across state lines.

In this case, the federal district court held that the internet version of bingo is a Class II game under the Indian Gaming Regulatory Act (“IGRA”) meaning that the tribe did not need a “Class III” compact or agreement with the State of California before operating the game.  Since California did not appeal this finding, the Ninth Circuit Court of Appeals did not rule on this issue.

Instead, the Ninth Circuit held that placing an off-reservation bet or wager was not protected by IGRA, which applies only to wagers made on Indians lands.  The court ruled that the game violated the Unlawful Internet Gambling Enforcement Act (“UIGEA”), which prohibits financial transactions for gaming unless the gaming activity is legal both where the bet is placed and received.  This finding was based on UIGEA’s express terms (31 U.S.C. § 5362(10)(A)) and is consistent with how the federal Wire Act is interpreted.  (See U.S. v. Lyons, (1^st. Cir. 2014) 740 F.3d 702, 718, cert. denied, 134 S. Ct. 2743 (2014)).   The Court held that:

… the UIGEA does create a system in which a “bet or wager” must be legal both where it is “initiated” and where it is “received.” This requirement makes sense in light of how the internet operates. If a bet merely had to be legal where it was received, a bettor could place an illegal bet (on a game of poker, for instance) from anywhere in the United States, so long as the bet was legal in the jurisdiction hosting the servers for a game (Las Vegas or Atlantic City, for instance, in the case of online poker). In effect, the UIGEA prevents using the internet to circumvent existing state and federal gambling laws, but it does not create any additional substantive prohibitions.

Because Desert Rose accepted California customers and playing bingo over the internet is illegal in California, the Court held that UIEGA was violated.

The Court was wise enough to recognize at least one undecided question, namely whether a tribal internet casino would violate the UIGEA by accepting bets or wagers from patrons located where the internet games are legal.  But there are many such unanswered questions.  If a game can be operated over the internet in one state could a tribe or person located in a different state offer that game to patrons of the first state?  What about overseas operators?  What if the state that permits the game also requires that the game operators be located in state?   Does the Interstate Commerce Clause limit the ways in which a state can restrict participation by out of state operators?  Given the gradual state by state legalization of internet gambling, these questions are likely to be tested in future litigation.