A divided panel of the U.S. Court of Appeals for the Third Circuit has allowed the New Jersey Thoroughbred Horsemen's Association to recover some or all of a $3.4 million litigation bond put up by collegiate and professional sports leagues while the legality of sports betting in the state was being litigated.

The U.S. Supreme Court invalidated the federal Professional and Amateur Sports Protection Act (PASPA) on constitutional grounds in May 2018. But before that, the district court, based on PASPA, initially granted the injunction stopping Monmouth Park Racetrack, which is operated by the association, from opening its sports book. At the time, the NCAA, NFL, NBA, NHL and MLB posted the bond in 2014 to protect any party claiming it was wrongfully enjoined.

The association argued that it was "wrongfully enjoined" by the temporary restraining order (TRO) that prevented its members from offering sports gambling in its sports books for 28 days in 2014. Failing below, the association appealed, and the circuit panel reversed.

"Here, PASPA provided the only basis for enjoining NJTHA from conducting sports gambling, and the Supreme Court ultimately held that that law is unconstitutional," wrote Third Circuit Judge Marjorie Rendell for the majority in the 2-1 decision Tuesday. Rendell was joined by Judge Theodore McKee. "Therefore, NJTHA had a right to conduct sports gambling all along. We conclude that NJTHA was wrongfully enjoined and should be able to call on the bond."

There were two major legal proceedings involving these parties: Christie I and Christie II, named after former New Jersey Gov. Chris Christie, during whose tenure the effort to legalize sports gambling in the state began, with Christie as a main proponent of that effort.

Christie I started when the NCAA and the major professional sports leagues filed suit opposing 2012 New Jersey legislation seeking to allow sports betting at racetracks and casinos.

The defendants, including the horsemen's association, directly challenged "PASPA's constitutionality; specifically, whether it violated the Commerce Clause, the Tenth Amendment, the Due Process Clause and related Equal Protection principles, or the Equal Footing Doctrine," the panel noted.

In early 2013, the district court denied the defendants' constitutional challenge, upheld PASPA and permanently enjoined New Jersey officials from enforcing the 2012 law. The Third Circuit affirmed, and the Supreme Court denied certiorari.

Christie II started in 2014, when the New Jersey Legislature enacted a revised law to repeal restrictions on gambling, prompting the sports leagues to again sue. That year, the District Court granted the leagues' TRO request. The leagues, however, were ordered to post a security bond under Rule 65(c) of the Federal Rules of Civil Procedure. The bond was originally set at $1.7 million, and later increased to $3.4 million.

The injunction lasted 28 days, according to the decision. And later in 2014, the leagues won on summary judgment based on PASPA. The Third Circuit again affirmed.

But this time, the horsemen's association and others sought review from the U.S. Supreme Court, and were successful. The nation's highest court struck down PASPA as unconstitutional in May 2018.

The ruling prompted the horsemen's association to ask the district court to award it the $3.4 million injunction bond previously posted by the leagues. But U.S. District Judge Michael Shipp found that the association was not wrongfully enjoined, and found good cause to deny its bid for damages under the bond. Shipp said PASPA was presumed constitutionally valid in 2014. "Thus, the law as it existed in 2014 clearly favored the leagues, and it would be unreasonable for the court to allow NJTHA to recover under the injunction bond in light of the Leagues' correct interpretation that the 2014 Repealer Law authorized sports betting in violation of the governing law at that time," Shipp wrote.

On Tuesday, the circuit court majority disagreed, rejecting, among other arguments from the leagues, that holding that the association was wrongfully restrained would require the circuit to apply the U.S. Supreme Court's ruling retroactively.

The leagues' "arguments are flawed for three reasons," wrote Rendell. "Even though the case before the Supreme Court emanated from two discrete actions, the Supreme Court clearly considered the cases to be the proverbial 'whole ball of wax,'" she wrote.

The Third Circuit noted how Christie I was "all about the constitutional implications of removing prohibitions on sports gambling," rather than affirmatively authorizing it.

Secondly, the panel said the leagues' view conflates the issue of whether the horsemen's association was "wrongfully enjoined" with the issue of whether the district court abused its discretion in issuing the TRO.

"The entire concept of 'wrongfully enjoined' envisions a look back from the ultimate conclusion of the case: Should the enjoined party have been permitted to do what it was prevented from doing?" Rendell wrote.

She added that "the fact that the District Court may not have erred in its ruling in entering the TRO in Christie II does not speak to whether NJTHA had a right all along to conduct sports gambling. Because a court can only be certain of an enjoined party's rights after a case has been fully litigated, 'wrongfully enjoined' can only be determined after a final judgment on the merits."

The dissenter was Judge David Porter, who said that while he agreed with Rule 65's standard, he disagreed with its application in this case.

"The majority thus commits the 'writ-of-erasure fallacy,' or the mistaken 'assumption that a judicial pronouncement of unconstitutionality has canceled or blotted out a duly enacted statute' and rendered it a nullity," Porter wrote in his dissent.

The majority said that was not the relevant issue. "Rather, it is whether the defendant was wrongfully enjoined given what we know today," the majority said.

"Accordingly, we conclude that NJTHA is entitled to recover provable damages up to the bond amount," the majority wrote, remanding the case.

"We're very pleased with the victory. It's been a long time coming and we will pursue our opportunity to prove the damages that were sustained," said Ronald Riccio of McElroy, Deutsch, Mulvaney & Carpenter in Morristown, who, along with colleague Eliott M. Berman, represented defendant NJTHA.

Jeffrey Mishkin of Skadden, Arps, Slate, Meagher & Flom in New York, who argued the case on behalf of the sports leagues, could not be reached for comment.