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    The Lawletter Blog

    ELECTION LAW: Government Regulation—Gaming—Constitutional Law

    Posted by Gale Burns on Mon, Oct 27, 2014 @ 16:10 PM

    The Lawletter Vol 39 No 8

    Tim Snider, Senior Attorney, National Legal Research Group

         We live in an increasingly politicized and polarized country. With elections occurring at least every other year and political activity ongoing, the states are struggling to contain or define the limits of political advocacy. Texas, like most states, licenses nonprofit charitable organizations to conduct games of chance, such as bingo, for fund-raising purposes. The net proceeds of those games, however, must be devoted exclusively to the charitable purposes for which the entity has qualified as a tax-exempt, charitable organization. The Texas Bingo Enabling Act ("the Act") provides, in pertinent part, that

    the net proceeds derived from bingo and any rental of premises are dedicated to the charitable purposes of the organization only if directed to a cause, deed, or activity that is consistent with the federal tax exemption the organization obtained under 26 U.S.C. § 501 and under which the organization qualifies as a nonprofit organization as defined by Section 2001.002.

    Tex. Occ. Code Ann. § 2001.454(b).

         Certain tax-qualified charitable organizations in Texas, licensed to conduct bingo games, used the proceeds of the games for purposes of advocating political causes and positions, specifically to lobby in support of, or in opposition to, certain ballot initiatives. The Texas Lottery Commission ("the Commission"), which is tasked with administering and enforcing the Act, entered an enforcement order prohibiting the organizations from using the proceeds for those purposes, concluding that doing so violated the Act. The organizations brought suit, alleging that the Commission's action amounted to an unconstitutional limitation on free speech. The district court, relying heavily on Citizens United v. FEC, 558 U.S. 310 (2010), agreed with the plaintiffs.

         The Fifth Circuit affirmed. Dep't of Tex., Veterans of Foreign Wars v. Tex. Lottery Comm'n, 760 F.3d 427 (5th Cir. 2014). Under the teaching of Citizens United, laws that burden political speech are subject to strict scrutiny, which requires the Government to prove that the restriction furthers a compelling interest and is narrowly tailored to achieve that interest. It reasoned that a state's mere licensing of an entity does not empower the state to attach unconstitutional restrictions to the granting of that license. Neither Congress nor the state legislatures may condition the conferral of a government benefit on the forfeiture of a constitutional right. Because the action of the Commission burdened the exercise of the right of expression, its action was subject to strict scrutiny.

         The Commission articulated three reasons for its restriction on the use of the charities' funds: (1) regulating gambling, including reducing the size of the gambling industry in Texas; (2) combating fraud by ensuring that bingo proceeds are used only in support of charities, not lobbyists; and (3) promoting charities—that is, ensuring charities do not forgo spending their bingo revenue on their charitable purpose by squandering those funds on political advocacy. The Fifth Circuit was skeptical that any of those reasons supported the Commission's action, but more importantly for present purposes, the court was not persuaded, and the Commission did not argue, that those interests were compelling. Accordingly, the Commission's application of the statute to the charitable plaintiffs' use of their revenues could not withstand constitutional scrutiny.

         Citizens United has had far-reaching consequences. It intrudes even into the field of trade regulation, which usually does not implicate constitutional issues. If Department of Texas is any gauge, the country will continue to be plagued with even more political disputation, even in nonelection years.

    Topics: games of chance and government regulation, nonprofit charitable organizations fundraising, use of gaming proceeds for political causes, restricting use of proceeds unconstitutional

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