Deon v. Barasch

960 F.3d 152

Pasquale T. DEON, Sr.; Maggie Hardy Magerko

v.David M. BARASCH; Kevin F. O’Toole; Richard G. Jewell; Sean Logan; Kathy M. Manderino; William H. Ryan, Jr., Member, PA Gaming Control Board, in his official capacity; Dante Santoni, Jr., Member, PA Gaming Control Board, in his official capacity; Paul Mauro, Director, PA Gaming Control Board’s Bureau of Investigation and Enforcement, in his official capacity; Cyrus Pitre, Director, PA Gaming Control Board’s Office of Enforcement Counsel, in his official capacity; Attorney General Pennsylvania; Merritt C. Reitzel, Appellants

No. 18-3325

United States Court of Appeals, Third Circuit.

Argued June 11, 2019

Filed May 29, 2020

Howard G. Hopkirk [Argued], Office of Attorney General of Pennsylvania, Strawberry Square, Harrisburg, PA 17120, Counsel for Appellant, David M. Barasch

Ilana H. Eisenstein, Ben C. Fabens-Lassen, Courtney G. Saleski, DLA Piper, 1650 Market Street, One Liberty Place, Suite 5000, Philadelphia, PA 19103, John J. Hamill [Argued], DLA Piper, 444 West Lake Street, Suite 900, Chicago, IL 60606, Timothy J. Lowry, DLA Piper, 17 Gordon’s Alley, Atlantic City, NJ 08401, Jesse C. Medlong, Amanda L. Morgan, DLA Piper, 555 Mission Street, Suite 2400, San Francisco, CA 94105, Counsel for Appellee, Pasquale T. Deon, Sr.

Lee K. Goldfarb, Alexander W. Saksen, Gordon Rees Scully Mansukhani, 707 Grant Street, Suite 3800, Pittsburgh, PA 15219, Counsel for Appellee, Maggie Hardy Magerko

William W. Warren, Jr., Saul Ewing Arnstein & Lehr, 2 North Second Street, Penn National Insurance Plaza, 7th Floor, Harrisburg, PA 17101, Counsel for Amicus Appellants, Campaign Legal Center and Common Cause

Burt M. Rublin, Ballard Spahr, 1735 Market Street, 51st Floor, Philadelphia, PA 19103, Counsel for Amicus Appellees, Penn National Gaming, Inc. and Mountainview Thoroughbred Racing Association, Inc.

Michael M. Miller, Kevin M. Skjoldal, Eckert Seamans Cherin & Mellott, 213 Market Street, 8th Floor, Harrisburg, PA 17101, Counsel for Amicus Appellees, Downs Racing, Greenwood Gaming and Entertainment, and Stadium Casino, LLC

BEFORE: JORDAN, BIBAS, and NYGAARD, Circuit Judges

OPINION OF THE COURT

NYGAARD, Circuit Judge.

Section 1513 of the Pennsylvania Race Horse Development and Gaming Act¹ prevents appellees Pasquale T. Deon, Sr. ("Deon") and Maggie Hardy Magerko ("Hardy") from making any political contributions because they hold interests in businesses that have gaming licenses. They sued the Gaming Board² and the Attorney General of Pennsylvania (collectively "the Commonwealth") claiming First Amendment and Equal Protection violations. The District Court concluded "that Section 1513 of the Gaming Act furthers a substantially important state interest" in preventing quid pro quo corruption.³ But it ruled that the restriction it imposes on political contributions is unconstitutional because the Commonwealth did not draw it closely enough. It granted summary judgment in favor of Deon and Hardy, permanently enjoining enforcement of this section of the Act.⁴

The Commonwealth says the District Court erred because Section 1513 is a critical element of a robust effort to prevent well-documented corruption in the gaming industry from taking root in Pennsylvania. They contend that the District Court’s order will make it impossible to take proactive steps to protect against a known threat to its integrity.

It is axiomatic that a democratic government must make every effort to fight corruption, and the perception of it, to protect the integrity of its electoral, legislative, and regulatory processes. But when it acts it must be mindful of the fundamental speech and associational rights guaranteed by the First Amendment of the United States Constitution at stake.⁵ We conclude that the District Court did not err and we will affirm the order.

I.

A.

The Contribution Restriction . In 2004, the Gaming Act legalized casinos and racehorse tracks in Pennsylvania. It also established the Gaming Control Board, tasking it with regulating the industry and issuing slot machine licenses. Section 1513 imposes a political contribution restriction.

The following persons shall be prohibited from contributing any money or in-kind contribution to a candidate for nomination or election to any public office in this Commonwealth, or to any political party committee or other political committee in this Commonwealth or to any group, committee or association organized in support of a candidate, political party committee or other political committee in this Commonwealth: (1) An applicant for a slot machine license, manufacturer license, supplier license, principal license, key employee license, interactive gaming license or horse or harness racing license. (2) A slot machine licensee, licensed manufacturer, licensed supplier, interactive gaming operator or licensed racing entity. (3) A licensed principal or licensed key employee of a slot machine licensee, licensed manufacturer, licensed supplier, interactive gaming operator or licensed racing entity. (4) An affiliate, intermediary, subsidiary or holding company of a slot machine licensee, licensed manufacturer, licensed supplier, interactive gaming operator or licensed racing entity. (5) A licensed principal or licensed key employee of an affiliate, intermediary, subsidiary or holding company of a slot machine licensee, licensed manufacturer, licensed supplier, interactive gaming operator or licensed racing entity. (6) A person who holds a similar gaming license in another jurisdiction and the affiliates, intermediaries, subsidiaries, holding companies, principals or key employees thereof.⁶

The Commonwealth intended the political contribution restriction in Section 1513 (in the original language of the Act) to "prevent the actual or appearance of corruption that may result from large campaign contributions; ensure the bipartisan administration of this part; and avoid actions that may erode public confidence in the system of representative government."⁷ But a casino owner sued and successfully argued that this restriction violated Free Speech rights guaranteed by the Pennsylvania Constitution.⁸ The Pennsylvania Supreme Court ruled:

Here, we have found a wholesale banning of political contributions to be impermissible when read in light of the legislative purpose of addressing the impact of large contributions on public confidence and trust. In this context, it is apparent that the scope of the impermissible effects, i.e., the banning of small contributions and/or contributions unlikely to affect public confidence, is quite substantial.⁹

So Pennsylvania lawmakers amended the Act to read as follows:

The General Assembly has a compelling interest in protecting the integrity of both the electoral process and the legislative process by preventing corruption and the appearance of corruption which may arise through permitting any type of political campaign contributions by certain persons involved in the gaming industry and regulated under this part. Banning all types of political campaign contributions by certain persons subject to this part is necessary to prevent corruption and the appearance of corruption that may arise when political campaign contributions and gaming regulated under this part are intermingled. It is necessary to maintain the integrity of the regulatory control and legislative oversight over the operation and play of slot machines, table games and interactive gaming in this Commonwealth; to ensure the bipartisan administration of this part; and avoid actions that may erode public confidence in the system of representative government.¹⁰

Lawmakers left the restriction in Section 1513 intact, changing instead the focus of the statement of legislative intent from "large contributions" to "all types of political contributions." That language remains today.

B.

Applicability . Deon is a shareholder of Sands Pennsylvania Inc., and it owns 90 percent of privately held Sands Bethworks Gaming LLC ("Sands"). Section 1513 imposes political contribution restrictions on an array of people and entities with financial interests in gaming industry operations.¹¹ The portion of Section 1513 relevant to Deon is the application of the restriction to a "licensed principal ... of a slot machine licensee."¹² The term "principal"¹³ is defined as "[a]n officer; director; person who directly holds a beneficial interest in or ownership of the securities of an applicant or licensee; person who has a controlling interest in an applicant or licensee, or has the ability to elect a majority of the board of directors of a licensee or to otherwise control a licensee...."¹⁴ Sands has held a "Category 2" slot machine license since 2005.¹⁵ Deon has a "controlling interest" in Sands under the Act and has been licensed as a principal since it obtained its license.

As for Hardy, Section 1325(d)(1) of the Gaming Act states the following: "No trust or similar business entity shall be eligible to hold any beneficial interest in a licensed entity under this part unless each trustee, grantor and beneficiary of the trust, including a minor child beneficiary, qualifies for and is granted a license as a principal."¹⁶ Hardy is the beneficiary of a trust that owns Nemacolin Woodlands, Inc. ("Nemacolin") Nemacolin owns the privately held Woodlands Fayette, LLC. which has a "Category 3" slot machine license.¹⁷ Hardy has been licensed as a principal since the Pennsylvania Supreme Court confirmed approval of Nemacolin’s license. No one disputes that Section 1513 applies to either Deon or Hardy.

C.

The Constitutional Harm . Deon and Hardy claim the Section 1513 restriction on political contributions significantly infringes on their political speech. Deon portrays himself as a politically engaged citizen and says he regularly contributed to candidates from 1978 until the Gaming Act in 2004 became law, preventing him from continuing to do so.¹⁸ Similarly, Hardy made political contributions up through the time she...