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National Collegiate Athletic Association v. Governor of State of New Jersey

United States Court of Appeals, Third Circuit

September 24, 2019

NATIONAL COLLEGIATE ATHLETIC ASSOCIATION, an unincorporated association; NATIONAL BASKETBALL ASSOCIATION, a joint venture; NATIONAL FOOTBALL LEAGUE, an unincorporated association; NATIONAL HOCKEY LEAGUE, an unincorporated association; OFFICE OF THE COMMISSIONER OF BASEBALL, an unincorporated association doing business as MAJOR LEAGUE BASEBALL
GOVERNOR OF THE STATE OF NEW JERSEY; DAVID L. REBUCK, Director of the New Jersey Division of Gaming Enforcement and Assistant Attorney General of the State of New Jersey; *JUDITH A. NASON, Acting Executive Director of the New Jersey Racing Commission; NEW JERSEY THOROUGHBRED HORSEMEN'S ASSOCIATION, INC.; NEW JERSEY SPORTS & EXPOSITION AUTHORITY STEPHEN M. SWEENEY, President of the New Jersey Senate; *CRAIG J. COUGHLIN, Speaker of the New Jersey Assembly (Intervenors in District Court) New Jersey Thoroughbred Horsemen's Association, Inc., Appellant *(Amended pursuant to Clerk's Order dated 12/27/18)

          Argued on July 2, 2019

          On Appeal from the United States District Court for the District of New Jersey (District Court No.: 3-14-cv-06450) District Court Judge: Honorable Michael A. Shipp

          Anthony J. Dreyer Jeffrey A Mishkin, Skadden Arps Slate Meagher & Flom, Richard Hernandez William J . O'Shaughnessy McCarter & English Counsel for Appellees

          Eliott M. Berman McElroy Deutsch Mulvaney & Carpenter, Ronald J. Riccio, McElroy Deutsch Mulvaney & Carpenter Counsel for Appellants

          Before: McKEE, PORTER and RENDELL, Circuit Judges


         RENDELL, Circuit Judge:

         Temporary restraining orders are not always a sure bet. Federal Rule of Civil Procedure 65(c) requires the party seeking a TRO to "give[] security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained." In this case, Appellees moved for, and the District Court entered, a TRO that, among other things, barred the New Jersey Thoroughbred Horsemen's Association ("NJTHA") from conducting sports gambling on the basis that New Jersey's "authorization" of sports gambling violated the federal Professional and Amateur Sports Protection Act ("PASPA"), and required Appellees to post a bond as security. On appeal, NJTHA and the other defendants successfully challenged the constitutionality of PASPA in the Supreme Court, and, on remand, NJTHA sought to recover on the bond that Appellees had posted. The District Court denied the motion for judgment on the bond. Because we conclude that NJTHA was "wrongfully enjoined" within the meaning of Rule 65(c) and no good cause existed to deny bond damages in this case, we will vacate and remand.


         Although this appeal concerns NJTHA's ability to recover on the bond, that is only the last shoe to drop in a lengthy saga that involves other overarching issues, including the constitutionality of PASPA, its interaction with New Jersey's attempts to legalize sports gambling, and the several opinions of the District Court, this Court, and the Supreme Court in the two actions litigating these issues among the same parties. Thus, a thorough review of the unique procedural history underlying this dispute is warranted.


         In 1992, Congress enacted PASPA, making it "unlawful" for "a government entity" or a person acting at the direction of a government entity "to sponsor, operate, advertise, promote, license, or authorize by law or compact . . . a lottery, sweepstakes, or other betting, gambling, or wagering scheme based . . . on" competitive sporting events. 28 U.S.C. § 3702 (emphasis added). At that time and for the following nineteen years, New Jersey law paralleled PASPA, prohibiting sports gambling by its Constitution and by statute. See, e.g., N.J. Const. art. IV, § 7, para. 2; N.J. Stat. Ann. § 2C:37–2; N.J. Stat. Ann. § 2A:40–1. However, in 2011, New Jersey constituents voted to amend the state's Constitution to allow the legislature to authorize sports gambling, N.J. Const. art. IV, § 7, para. 2(D), (F), and the legislature did so by enacting the Sports Wagering Act in 2012 (the "2012 Act"), N.J. Stat. Ann. §§ 5:12A–1 et seq.

         The National Collegiate Athletic Association and four professional sports leagues[1] (collectively, "Appellees" or "the Leagues"), initiated an action in federal court ("Christie I") against the New Jersey Governor and other state officials (collectively, the "State Defendants"), seeking to enjoin the 2012 Act as violative of PASPA and arguing that they would be irreparably injured unless an injunction was issued. Because it intended to offer sports gambling at Monmouth Park racetrack, NJTHA intervened.[2] The defendants did not dispute that the 2012 Act violated PASPA and instead argued, among other things, that PASPA unconstitutionally commandeered the states' sovereign authority. The District Court disagreed, held that PASPA was constitutional, and enjoined the implementation of the 2012 Act. See Nat'l Collegiate Athletic Ass'n v. Christie, 926 F.Supp.2d 551, 573, 578–79 (D.N.J. 2013). We affirmed, reasoning that PASPA does not affirmatively command the states to act and consequently did not prohibit them from repealing any existing bans on sports wagering. See Nat'l Collegiate Athletic Ass'n v. Christie, 730 F.3d 208, 231–32 (2013). The Supreme Court denied certiorari. Christie v. Nat'l Collegiate Athletic Ass'n, 537 U.S. 931 (2014).


         In response to our reasoning that PASPA does not prohibit states from repealing any existing bans on sports gambling, the New Jersey legislature enacted a law repealing certain state law provisions that prohibited gambling at horserace tracks and casinos (the "2014 Act"). See 2014 N.J. Sess. Law Serv. Ch. 62 (codified at N.J. Stat. Ann. §§ 5:12A-7 to -9 (repealed 2018)). NJTHA immediately announced its intention to conduct sports gambling at Monmouth Park. Appellees filed the instant suit ("Christie II") and, at the outset, requested a TRO and preliminary injunction to enjoin NJTHA from doing so, again asserting irreparable injury. Appellees also asked the District Court to restrain the State Defendants from implementing the 2014 Act and to enforce the injunction entered in Christie I. They filed their request on both the Christie I and Christie II dockets.

         In response, the defendants relied on our reasoning in Christie I that the federal law allowed a repeal of state sports gambling prohibitions. The State Defendants specifically asserted that a grant of Appellees' request would again raise the issue of PASPA's constitutionality. See A. 240–41 ("[E]ither PASPA permits States to repeal their prohibitions against sports wagering in whole or in part, as does the 2014 Act, or PASPA unconstitutionally commandeers states['] authority by forcing States to maintain unwanted prohibitions."). Additionally, NJTHA argued, among other things, that the Leagues' assertion that sports gambling would harm them was false, since they "support, participate in, and significantly profit from betting on the outcomes of their games as well as the performances of the players in their games." Br. in Opp'n to Pls.' Appl. for a TRO at 35, Nat'l Collegiate Athletic Ass'n v. Christie, No. 3:14-cv-06450 (D.N.J. Oct. 24, 2014), ECF No. 21. NJTHA also complained that the Leagues had not posted a bond, as required by Federal Rule of Civil Procedure 65, and attached a certification asserting that they would lose $1, 170, 219 per week if a TRO was granted.[3]

         The District Court granted the requested TRO and, in doing so, relied on our holding in Christie I that PASPA is constitutional. The Court ordered Appellees to post a $1.7 million bond, which it believed was "on the high side to avoid any potential loss to defendants." A. 64. Shortly thereafter, it extended the TRO for an additional two weeks and increased the bond amount to a total of $3.4 million.

         Just before the TRO was set to expire, the District Court converted the scheduled hearing on the Leagues' request for a preliminary injunction into a final summary judgment hearing. The Court granted summary judgment to Appellees, holding that the 2014 Act was "invalid as preempted by PASPA." Nat'l Collegiate Athletic Ass'n v. Christie, 61 F.Supp. 3d 488, 506 (D.N.J. 2014). It also entered a permanent injunction against the State Defendants, enjoining them "from violating PASPA through giving operation or effect to the 2014 [Act] in its entirety."[4] Id.

         On appeal, this Court first affirmed the District Court's order. See Nat'l Collegiate Athletic Ass'n v. Governor of New Jersey, 799 F.3d 259, 261 (3d Cir. 2015). We then granted NJTHA's petition for rehearing en banc and again affirmed the grant of summary judgment. See Nat'l Collegiate Athletic Ass'n v. Governor of New Jersey, 832 F.3d 389, 392 (3d Cir. 2016) (en banc). In doing so, we determined that the 2014 Act, like its predecessor, "authorize[d]" sports gambling in violation of PASPA. Id. at 396. We explicitly rejected our reasoning in Christie I that a repeal is not an "affirmative authorization." Id. at 396–97. Instead, we looked to "what the provision actually does" and held that, "[w]hile artfully couched in terms of a repealer, the 2014 [Act] essentially provides that, notwithstanding any other prohibition by law, casinos and racetracks shall hereafter be permitted to have sports gambling, " which "is an authorization." Id. at 397. We then went on to again reiterate PASPA's constitutionality. Id. at 399.

         The Supreme Court granted certiorari and reversed our en banc judgment. See Murphy v. Nat'l Collegiate Athletic Ass'n, 138 S.Ct. 1461, 1485 (2018). Although the Court agreed with one aspect of our ruling, namely, that a repeal of a law banning an activity constitutes an "authoriz[ation]" of that activity, id. at 1474, the Court concluded that PASPA's prohibition of sports gambling violated the Constitution's anticommandeering principle because "state legislatures are [still] put under the direct control of Congress, " id. at 1478.


         After prevailing in the Supreme Court, NJTHA filed a motion in the District Court for judgment on the bond.[5] The Court ordered briefing on whether NJTHA was "wrongfully enjoined, " whether NJTHA was entitled to recover the full bond amount as a matter of law without proving actual loss, and whether NJTHA's claim for damages greater than the bond amount could be decided as a matter of law. There was no discovery on the actual loss amount.

         The District Court denied NJTHA's motion. First, it determined that NJTHA was not "wrongfully enjoined" per Federal Rule of Civil Procedure 65(c). The Court thought that "NJTHA's contention that it is entitled to damages under the injunction bond conflate[d] the issue of whether the 2014 [Act] authorized sports betting with the Supreme Court's ultimate holding that PASPA is unconstitutional." A. 18. The District Court narrowly characterized the issue before it at the TRO stage as "whether the 2014 [Act] . . . effectively authorized sports betting in violation of PASPA" and noted that both the Third Circuit and the Supreme Court agreed with its conclusion that the 2014 Act did so. A. 16 (citation and internal quotation marks omitted). The Court stated, "That PASPA's constitutionality was introduced on appeal does not convert the bond, which assured that the 2014 [Act] amounted to an authorization, into a bond that assured any and all possibilities." A. 19.

         The District Court also held that, even if NJTHA had been wrongfully enjoined, good cause existed to deny NJTHA's motion. In doing so, the Court relied on Coyne-Delany Co. v. Capital Development Board, in which the Seventh Circuit held that "a prevailing defendant is entitled to damages on the injunction bond unless there is a good reason for not requiring the plaintiff to pay in the particular case" and listed factors to be considered in determining whether good reason exists. 717 F.2d 385, 391–392 (7th Cir. 1983). The District Court considered one factor that had been relied upon by the Court in Coyne, namely, a change in the law. The District Court here reasoned that the law in this case had changed, characterizing PASPA as "constitutionally valid" in 2014, when the TRO was entered, and invalid in 2018. A. 20. NJTHA timely appealed the District Court's order.

         On appeal, NJTHA urges that the District Court was wrong on both counts. Specifically, NJTHA argues that the Court erred in holding that it was not "wrongfully enjoined" because (1) entry of the TRO was premised on the constitutionality of PASPA, which the Supreme Court ultimately held was unconstitutional, and (2) the District Court incorrectly considered the law at the time it entered the TRO, as opposed to the law at the time of the Supreme Court's final judgment, in making that determination. NJTHA also urges that the District Court erred by exercising its discretion to deny bond damages and in concluding that there was good cause to do so. On this front, NJTHA claims that discretion to deny bond damages under Rule 65(c) does not exist and the Seventh Circuit case relied upon by the District Court is not controlling.[6]


         The District Court had jurisdiction pursuant to 28 U.S.C. § 1331. This Court has jurisdiction under 28 U.S.C. § 1291. Because NJTHA challenges the District Court's interpretation of Federal Rule of Civil Procedure 65(c), we review the District Court's order de novo. Garza v. Citigroup, Inc., 881 F.3d 277, 280 (3d Cir. 2018).


         Federal Rule of Civil Procedure 65(c) ...

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