On August 21, 2012, the federal U.S. District Court for the Eastern District of New York – in the “DiCristina” case (U.S. v. DiCristina, 886 F. Supp. 2d 164 (E.D.N.Y. 2012)) – determined that Texas Hold’em poker was a game of skill not chance, for purposes of the federal “Illegal Gambling Business Act” (the “IGBA,” codified at 18 U.S.C. § 1955).  As a result, the Court held that the game was not among the activities prohibited by the IGBA, and it therefore entered a judgment acquitting DiCristina under that Act after a jury had found him guilty.

Lawrence DiCristina had operated regular games of “Texas Hold’em” poker as a business. Acting as the “house,” he received a 5% “rake” from each pot. Dealers were paid 25% of the rake, and the remainder was used for expenses relating to the operation of the business and constituted his profit. As mentioned, a jury convicted DiCristina of operating an illegal gambling business in violation of the IGBA.

In acquitting DiCristina notwithstanding the jury verdict, the Court held that for there to be a violation of the IGBA, the government must show that the defendant conducted a business involving “gambling” as defined under that federal statute, not merely that the defendant’s conduct constituted illegal gambling under state law. Because the term “gambling” under the IGBA was ambiguous, the Court decided that it was compelled to adopt the defendant’s more narrow construction of the statute – that the IGBA applies only to games in which chance predominates over skill. After hearing and analysing extensive expert testimony on the issue, the Court determined that Texas Hold’em poker was not such a game – i.e., in that game, skill predominated over chance. Thus, even though DiCristina’s conduct violated New York State gambling laws, his conduct did not give rise to a violation of the IGBA, because it did not involve “gambling” under that federal law.

Almost one year later – on August 6, 2013 – the U.S. Court of Appeals for the Second Circuit reversed the DiCristina decision and remanded the case back to the District Court with instructions to reinstate the jury verdicts finding DiCristina guilty and to proceed with sentencing. (U.S. v. DiCristina, 2013 U.S. App. LEXIS 16197 (2d Cir. N.Y., Aug. 6, 2013) In its opinion, the Court of Appeals determined that the critical question in the case was not whether Texas Hold’em poker constituted “gambling,” but whether DiCristina operated a “gambling business,” as defined in the IGBA, and whether that business was prohibited under New York State law.

The Court stated that, when enacting the IGBA, Congress did not “intend[ ] to create a definition of “gambling” unique to the IGBA, or to confine the reach of the IGBA to businesses involving certain types of gambling, . . .” Further, Congress did not intend to limit the scope of the IGBA to businesses operating games of chance. Thus, it was not relevant to the case whether poker constituted a game of skill or chance. Only three elements had to be established for there to be a violation of the IGBA: (1) the conduct of a gambling business which violated the law of the state in which the business activities were conducted; (2) the involvement of five or more persons who conduct, finance, manage, supervise, direct, or own all or part of such business; and (3) substantially continuous operation for a period in excess of thirty days or gross revenue of $2,000 in any single day. Because it was uncontested that DiCristina’s gambling activities violated New York State law, and it was undisputed that DiCristina’s business satisfied the second and third requirements of the IGBA, the Court held that DiCristina operated an “illegal gambling business” as defined by the IGBA.

Notably, the Appeals Court’s decision did not contest the lower court’s finding that skill predominates over chance in determining the outcome of Texas Hold ‘Em poker played over time. Rather, the Appeals Court’s holding decided merely that such question was not relevant in DiCristina’s case, since his gambling business was unlawful under New York State law, and therefore constituted an illegal gambling business under the IGBA. Thus, although undoubtedly of less significance, the lower court’s decision still may be used to support the argument that Texas Hold’em poker is a game of skill, and not chance, and thus not “gambling” in jurisdictions where a gambling game is defined as one in which chance predominates over skill. Because of its detailed examination of Texas Hold’em poker and its recitation and analysis of expert testimony, the lower court’s opinion should remain useful in such other jurisdictions. Nothing in the Appeals Court’s decision discredited or cast doubt upon the expert testimony presented in the lower court or the lower court’s analysis thereof. (Indeed, already there is evidence that the lower court’s decision in DiCristina is viable to support future legal arguments. In an unpublished opinion dated September 3, 2013, the Court of Appeals of Minnesota cited the lower court’s decision in DiCristina as support for its conclusion that the outcome of the game of blackjack (“21”) is determined predominately by chance. (In the Matter of the Request of North Metro Harness Initiative, LLC, to Amend its Plan of Operation, 2013 Minn. App. Unpub. LEXIS 838) Notwithstanding the subsequent reversal, the lower court’s decision in DiCristina is important to state lotteries because it supports the position that peer-to-peer Texas Hold’em poker is a game in which skill predominates over chance in determining the outcome. In many states, the state’s lottery is limited to conducting “lottery” games, defined often as games in which chance predominates over skill in determining the outcome (and also involving “consideration” and a “prize”). In those states, therefore, the state lottery would be precluded from offering peer-to-peer Texas Hold’em poker, since that game would not be considered a “lottery” game (since skill predominated over chance in determining the outcome). Thus, the lower court’s decision in DiCristina may continue to be important to state lotteries, notwithstanding its reversal, since that reversal did not discredit or cast doubt upon the expert testimony presented in the lower court or the lower court’s analysis thereof.