The enforcement of extraterritorial jurisdiction provides the single largest obstacle in the regulation of Internet gambling. The process of obtaining jurisdiction is difficult when a prosecutor is facing acts that are performed in another state. This process becomes radically more complex when the actions that make up the cause of action are committed in a different country. Jurisdictional determination is not unique to actions committed online. These debates have existed since the first multinational corporation began doing business. Because of this history, there is a basis for determining the appropriate standards in determining jurisdiction.
There are two prerequisites for the exercise of jurisdiction by a United States court over a foreign defendant. The court must have both subject matter jurisdiction over the controversy and personal jurisdiction over the defendant.
In 1986, the drafters of the Restatement (Third) of the Foreign Relations Law of the United States attempted to change the requirements of extraterritorial jurisdiction. Through sections 402 and 403, the Restatement has attempted to evoke a reasonableness standard. Under this doctrine of reasonableness, courts would "consider various interests, examine contacts and links, give effect to justified expectations, search for the ‘center of gravity’ of a given situation and develop priorities."" Despite the influence of these drafters, courts have chosen to maintain the
current system and continue to examine subject matter and personal jurisdiction.
A. SUBJECT MATTER JURISDICTION
The test for determining whether subject matter jurisdiction is present in a particular case is judicially created. The test created by United States courts has two prongs. The purpose of these prongs is to determine whether the particular act has had an impact upon the United States or its citizens, or whether the substantive law that is at issue was intended by Congress to be decided by U.S. courts.
With certain issues, Congress has clearly expressed an intent for U.S. courts to exercise jurisdiction. Examples of these issues are the Iran and Libya Sanctions Act of 1996 and the Antiterrorism and Effective Death Penalty Act of 1996. However, none of the areas in which Congress has expressed a clear intent for U.S. courts to exercise jurisdiction involve online gambling. Therefore, the two-pronged test established by the
judiciary must be utilized.
The two-part inquiry used by the courts is generally known as the effects test. In United States v. Aluminum Co. of America (Alcoa), the United States Second Circuit Court of Appeals addressed whether the Sherman Antitrust Act could be applied to acts committed while abroad. The Court ruled that foreign entities could be held liable under the antitrust laws in circumstances where intentional foreign conduct affects United
States commerce or where the conduct results in a demonstrated actual or presumed effect in the United States. The U.S. Supreme Court implicitly endorsed the effects test in American Tobacco v. United States.
Subsequent to the Alcoa and American Tobacco cases, the U.S. Supreme Court created an additional test known as the true conflicts test. In Hartford Fire Insurance v. California, the court held that the assertion of extraterritorial subject matter jurisdiction is valid if the effects test is met and there is no genuine contradiction between United States law and the law or policy of another nation.
Online gambling sites would most likely satisfy the two-pronged effects test. Internet sites make their service available to U.S. customers by knowingly accepting memberships to individuals from the U.S., making payments to the U.S. through checks or credit card transactions, or simply by making the site available in the states. Any of these connections could be seen as an intentional foreign act affecting U.S. commerce
or, at the very least, as leading to a demonstrated effect in the United States.
Satisfying the true conflicts test is more challenging because some countries are beginning to recognize legalized online casinos and bookmakers. In Australia’s Northern Territory resides Lasseters Online, the world’s first government-licensed, fully regulated online casino. United States Justice Department officials claim that the operation of this casino is a violation of U.S. law if Americans use the site. However,
according to the true conflicts theory, a court would have to determine (through a balancing test) that United States interests outweigh the incentive for maintaining harmonious foreign relations before American jurisdiction could be exercised. The exercise of such jurisdiction over a foreign defendant operating an online gambling operation has not yet been tested.
B.PERSONAL JURISDICTION
The Due Process Clause of the Fifth Amendment to the U.S. Constitution protects not only United States citizens, but also foreign defendants, from unfair assertions of jurisdiction over them. The Due Process Clause’s requirements were formalized in International Shoe Co. v. Washington. The test requires that the foreign defendants have a minimum number of contacts with the United States forum so that the action
does not "offend traditional notions of fair play and substantial justice."
A two-pronged test was developed in International Shoe Co. v. Washington to determine whether the minimum contacts standard has been satisfied. The first prong of the test focuses upon the nature and quality of the defendant’s contacts with the forum. The second prong analyzes the sufficiency of these contacts. Obviously, the system set up by the court in International Shoe was open to an extreme amount of interpretation. The court realized that further specifics were necessary and clarified the personal jurisdiction analysis in its subsequent opinions.
The Court first noted that involuntary contacts were insufficient to satisfy the minimum contacts standard. Next, the type of voluntary contacts that would satisfy the minimum contacts standard was clarified in World-Wide Volkswagen Corp. v. Woodson. In this case, the court stated that contacts with a foreign jurisdiction would meet the minimum contacts standard if (1) the defendant "purposely avail[ed]" himself of the protections
provided by the forum state’s laws and (2) it was reasonably foreseeable to the defendant that her actions would force her to be subject to the forum state’s jurisdiction. Finally, the Court provided further clarification concerning the degree of relation required between the defendant’s actions and the contacts with the forum state in Helicopteros Nacionales de Columbia v. Hall
In Helicopteros, the Court set up two categories for personal jurisdiction analysis. The category labeled general jurisdiction is used when the defendant’s contacts with the forum state are so "continuous and systematic" that personal jurisdiction may by granted even if there is no connection between the contacts and the act which has led to the claim. The category labeled specific jurisdiction is utilized when the
defendant’s actions which are the basis for the claim "aris[e] out of or [are] related to the defendant’s contacts with the forum." If a court can legitimately claim that general or specific jurisdiction exists, then the minimum contacts between the defendant and the forum state exist and personal jurisdiction can be exercised.
The contacts between an online gambling company and a state within the United States could, certainly, vary. If the site developed a large number of customers from one particular state, then the general jurisdiction parameters might be met. Even if the general jurisdiction standards were not met, however, specific jurisdiction requirements would surely be satisfied. This is because the suit would arise from the contacts that
the defendant made with the forum state. In other words, specific jurisdiction conditions would be met because the defendant’s contact with the state (the customers activity with the company) is the basis for the criminal claim against them.
One further level is added to this puzzle by the U.S. Supreme Court’s decision in Asahi Metal Industry Co. v. Superior Court. In this case, the Court, through a plurality decision, found that even when the minimum contacts with a forum are present, the exercise of personal jurisdiction is unreasonable when these contacts "arose out of the defendant’s mere placement of its goods into ‘the stream of commerce’." Thus, if a court
were to rule that the defendant online gambling company simply placed its services into the stream of commerce without advertising or further soliciting its services to the residents of the forum state in question, then the assertion of personal jurisdiction would be unreasonable.
In recent cases, courts have focused upon the type of transmission used by the Internet company. Courts "have developed a continuum, whereby personal jurisdiction can be asserted over a Web site operation depending on the degree of interactivity the site allows or encourages with users in the forum state." Courts generally do not find personal jurisdiction if the Web site is purely passive (simply provides information).
However, courts have usually found jurisdiction in cases where the site interacts with users or conducts online business.
As the portrayal above suggests, the exercise of jurisdiction over foreign online gambling companies is anything but certain. Only recently has the first case with a defendant online gambling operation gone to the trial stage. In February, the U.S. attorney for the Southern District of New York obtained a conviction against Jay Cohen, the co-owner of the World Sports Exchange sports book. Until the jurisdictional issues from this case, or one similar to it, are answered, the Internet gambling companies of the world can only look to cases against similar online businesses. Since most of the owners of online gambling operations choose to remain overseas to avoid the initiation of any prosecution, jurisdictional challenges in the gambling context could remain unresolved for some time.
Taken from www.worldonlinegambling.com
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