Kentucky Court of Appeals Rules in Gambling Domains Case

The Kentucky Court of appeals has ruled that the Commonwealth can not seize 141 domain names due to their alleged affiliation with online gambling. The Commonwealth initially filed an in rem (against the item, not against a person) action against the domain names -- seeking to seize the domains as "gambling devices." However, the statute does not seem to fit around domain names. The statute was designed to permit the seizure of slot machines and the like. The court of appeals wrote:

Suffice it to say that given the exhaustive argument both in brief and oral form as to the nature of an Internet domain name, it stretches credulity to conclude that a series of numbers, or Internet address, can be said to constitute "a machine or any mechanical or other device...designed and manufactured primarily for use in connection with gambling." We are thus convinced that the trial court clearly erred in concluding that the domain names can be construed to be gambling devices subject to forfeiture under KRS 528.100. (Op. at 8)
The Court of Appeals seemed to sympathize with the Commonwealth, but exercised judicial restraint and refused to legislate from the bench.
Regardless of our view as the advisability of regulating or crimininalizing Internet gambling sites, the General Assembly has not seen fit to amend KRS 528.010(4) so as to bring domain names within the definition of gambling devices. Neither we, nor the Justice Cabinet, are free to add to the statutory definition. If domain names cannot be considered gambling devices, Chapter 528 simply does not give the circuit court jurisdiction over them. (Op. at 9)

The Court of Appeals also ruled on whether Kentucky law permitted the in rem proceeding against the domains. The court found that the in rem proceedings were not authorized by the statute. Given that KRS 528.100 is a penal statute, in order to seize the domains, it requires charges to be filed -- none were. Without a conviction under KRS Chapter 528, there can be no forfeiture. (Op. at 14)

What is absent from the opinion is just as important as what is in the opinion. The Court did not address the constitutional issues including whether the use of the domain names was Commercial Speech and thus protected by the First Amendment. The Court also avoided discussing whether due process would permit Kentucky to exercise jurisdiction over domain names that had no nexus to that state other than the fact that they could be accessed there. However, this is not a criticism of the decision. Courts are supposed to avoid sweeping constitutional issues if a case can be decided on narrower statutory grounds, and the Court exercised this proper judicial restraint. The decision leaves it open to the Kentucky legislature to amend its statute to include domain names as "gambling devices." However, I don't think this will result in a renewed effort. As the court discussed the fact that domains could not be seized in an in rem proceeding of this kind, it hinted that the entire case had a bit of a foul smell to it. Instead of bringing criminal charges, with their higher burden of proof, the Commonwealth farmed this case out to a private law firm that was working on a contingent fee basis -- apparently banking on a big payday if the domain owners wrote checks rather than standing and fighting. The Kentucky Court of Appeals appeared to find this a bit distasteful.

This deficiency in the Commonwealth's case is further amplified by the conspicuous absence of the Kentucky Attorney General, the Commonwealth's chief law officer, who pursuant to KRS 15.020 clearly has the authority to pursue the prosecution of crimes under KRS Chapter 528. The Secretary of the Justice and Public Safety Cabinet has no such authorty. (Op. at 15)

Accordingly, Kentucky could amend KRS 528.100 to include domain names, but that still wouldn't authorize a civil in rem proceeding to seize domain names owned by foreign companies and operated outside the Commonwealth. If Kentucky wants to seize these domain names, they will have to amend KRS.100, then bring criminal charges against the domain owners, meet the higher burden of proof required in a criminal case, and if they score a conviction (despite the obvious constitutional issues), they can move for an order of forfeiture. However, bringing criminal charges takes the profit motive out of the equation, as the domains (if seized) would have no resale value to the Commonwealth, and a private firm could not take a criminal prosecution on contingency.

Full opinion available here.


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