North Carolina

Lennox-Dismissal-of-Indictments

Stanley-Dismissal-of-Indictments

Macke-Dismissal-of-Indictments

Attorneys met with Asst. US Attorney Richard Edwards in Asheville, NC.

Letter-to-Richard-Edwards-7-27-2015

Tellico-Coin-LLC-seizure-warrant

Defendants file motions for bill of particulars and motions to dismiss.

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macke-motion-for-bill-of-particulars

macke’s-motion-to-dismiss-in-violation-of-due-process

Lennox Motion for Bill of Particulars

Lennox MTD without attachments

N.C. Supreme reverses the Court of Appeals in the Sandhill / Gift Surplus case and adopts the reasoning in the dissenting opinion.  Upon remand to the trial court, the preliminary injunction will be dissolved and the Onslow declaratory judgment case will proceed in civil court.  American Treasures is still good law.

Research Sandhill Amusements v Miller (Supr Ct June 2015) (2)

Defendants file motions for discovery and motion for speedy trial.

lennox-motion-for-discovery

macke-motion-for-discovery

macke-demand-for-speedy-trial

Indictments are unsealed and games are inspected by GLI.  GLI report is dated June 19, 2015.

Expert Report GLI from County

Law enforcement (Buncombe County Sheriff and ALE) seized 21 GS machines from convenience stores in Buncombe County and Madison County.

Buncombe County grand jury indicts Michael Macke, Allister Lennox and Matthew Stanley based on the Gift Surplus sweepstakes machines operating in Buncombe County

macke-and-lennox-indictments

Letter from Todd Williams (DA) to Thomas Morgan (President of Mountain Energy) about sweepstakes gambling in Buncombe County, which is called Operation Blue Note.  At least five questionnaires are returned to the DA by Mountain Energy employees.  The letter does not demand the removal of the GS machines or characterize them as illegal.

buncombe-county-nonprosecution-agreements

US Attorney for the Eastern District of NC negotiates with certain sweepstakes software providers who have agreed to cease operations on July 1, 2015. Some companies (e.g., VS2 green screen) intend to offer new software after July 1, 2015.

VS2 email of June 4 2015 (1)

white-sands-announcement-1

Buncombe County Sheriff Duncan, DA Williams and ADA Bass hold press conference about video gaming machines.  Per the article, Duncan said: “We’ll go out and let the stores know they have a certain amount of time to get rid of those machines.”  Also, Duncan said letters would be sent to the offending businesses within the next few weeks.

Buncombe County news article (April 2015)

Charges Dismissed by State
Alamance County
15CR 000770, March 26, 2015.

Attachment-19

Petition Withdrawn
Mecklenburg County
15 ABC 00353, March 23, 2015.

Attachment-18

Per news article in the Citizen Times, Buncombe County Sheriff’s Office Spokeswoman Natalie Bailey said the department has essentially adhered to a policy of enforcement against the games that do not operate the Gifts Surplus system. They also held a meeting this week with new District Attorney Todd Williams to discuss the matter.  “The sheriff is meeting with the new district attorney to see what his philosophy is about it,” Bailey said.

are-video-gaming-machines-legal

Charges Dismissed by State
New Hanover County
14CR 005053, December 10, 2014.

Attachment-17

Court of Appeals issues opinion in State v. Spruill case upholding the jury decision of “guilty” in connection with pre-reveal sweepstakes system.  Cert was denied by the NC Supreme Court in spring 2015.

research-state-v-spruill-pre-reveal

Charges Dismissed by State
Mecklenburg County
14CR 25904, November 5, 2014.

Attachment-16

Charges Dismissed by State
Mecklenburg County

14CR 722414, November 5, 2014
14CR 722422, November 5, 2014
14CR 722426, November 5, 2014
14CR 722436, November 5, 2014.

Attachment-15

By Consent Order, Sheriff of Buncombe County was ordered, by consent of the parties, to take from the Weaverville Police Department the two Gift Surplus machines held in custody and return them to Tellico Coin, LLC.  The machines were seized from a Mountain Energy store in Weaverville in September of 2014.

Buncombe County Tellico Consent Order (Oct 2014)

Mike Macke and Lenny Lennox met with Weaverville police (Allan Wyatt) about GS machines seized by Weaverville police.  Lenny asked if Tellico Coin could put the GS kiosk back on locations and the detective’s reply was that he didn’t know.

Not Guilty
Richmond County
14CR 272, September 18, 2014
14CR 287, September 18, 2014.

Attachment-14

Weaverville city police seized two GS machines set by Tellico Coin on 9-5-14 at Mountain Energy store in Weaverville.

NC Court of Appeals upholds the Sandhill / Gift Surplus injunction with only minor modifications.  The Court did not review the merits of the injunction because the issue was interlocutory.  One judge dissents saying that the court can review the entire trial court order and the injunction should not have been granted.  The dissent cites Collins Coin which had not been cited by a NC court with any discussion since Collins Coin was decided.  American Treasures is confirmed as good law.

Research Sandhill Amusements Inc v Sheriff of Onslow County (1)

Charges Dismissed by State
Buncombe County
2014CR 051594, August 21, 2014.

Attachment-13

Charges Dismissed by State
Buncombe County
2014CR 01932, August 21, 2014

2014CR 50712, August 21, 2014

In State v. Ammar, ADA Ingle in Buncombe County took a voluntary dismissal just prior to trial on behalf of the State of North Carolina.  The City of Asheville Police Department had seized four GS machines. The GS machines were ordered to be returned by the Buncombe County District Court.

Attachment-12

Charges Dismissed by State
New Hanover County
PD-140088, June 11, 2014.

Attachment-11

Charges Dismissed by State
Duplin County
13CR 961, June 11, 2014.

Attachment-10

Charges Dismissed by Court
Cherokee County
13CR 00440, March 13, 2014.

Attachment-9

Charges Dismissed by Court
Lee County
13CR 1242, January 8, 2014.

Attachment-8

Charges Dismissed by Court
Cherokee County
13CR 000428, November 5, 2013.

Attachment-7

Sandhill and Gift Surplus obtain a preliminary injunction in Onslow County regarding the GS sweepstakes system with games “dependent” on skill or dexterity.

Attachment 1

Charges Dismissed by Court
Robeson County
C 2193727-4, September 11, 2013.

Attachment-6

Charges Dismissed by Court
Robeson County
C 2193730-4, September 11, 2013.

Attachment-5

Not Guilty
Jackson County
13CR 233, July 9, 2013.

Attachment-4

Not Guilty – 218, 219, 220
Charges Dismissed by Court – 221
Macon County
13CR 218, 219, 220, 221, April 18, 2013.

Attachment-3

In response to the Hest decision, the industry changed its software and systems to use (i) a pre-reveal feature, or (ii) skill or dexterity.

NC Supreme Court issued the Hest opinion and the Sandhill opinion and said 14-306.4 was constitutional.  The Court said in Hest: “The General Assembly has chosen, through N.C.G.S. § 14–306.4, to address a specific type of sweepstakes operation that exploits a loophole in the state’s gambling laws but presents the same social evils as gambling, while deciding that the majority of sweepstakes operations (which do not pose the same risks) are legitimate marketing tools.”  It also said: “…the factual record here does not show whether the telephone or Internet time that sweepstakes participants purchase is ever used. Thus, legislative findings and common sense notwithstanding, we cannot on this record summarily conclude that these plaintiffs are involved in an illegal gambling operation that uses the sale of legal products as a pretext to avoid state gambling laws.”

Hest Tech case (Dec 2012) Research Sandhill Amusements Inc v State (Dec 2012)

NC Court of Appeals affirms the trial court in Hest case and said: “The trial court erred by only invalidating the single example of an entertaining display contained in subsection (i). Instead, the entire statute must be invalidated.”  In the Sandhill case, the Court of Appeals said: “Since N.C. Gen.Stat. § 14–306.4 has been declared void as unconstitutionally overbroad, the trial court’s order in the instant case must be reversed.”  So, Sandhill got its injunction back.  The State appealed to the NC Supreme Court.

Research Hest Technologies (Ct of App case) research Sandhill Amusements v State 734 (March 2012)

Superior Court of Guilford County in the Hest case rules part of 14-306.4 to be unconstitutional and dissolves the injunction preventing enforcement of the gambling laws against owners and operators of plaintiffs’ sweepstakes systems.  Both parties appeal.  During the same month, the Sandhill trial court determined that 14–306.4 was constitutional, dismissed the complaint in its entirety, and dissolved Sandhill’s preliminary injunction.

hest-v-state-order–final-judgment-11-2010

N.C. General Assembly enacted House Bill 80 which is now codified as 14–306.4.  Thus, effective December 1, 2010, NC outlawed the use of an “entertaining display” to promote a sweepstakes.  According to the NC Supreme Court: “In an effort to curtail the use of a perceived loophole in the State’s gambling laws, the General Assembly passed N.C.G.S. § 14–306.4…”  Hest and Sandhill amended their complaints to include a claim that 14-306.4 is unconstitutional.

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On May 13, 2010, several operators receive an injunction in Burke County Superior Court against various defendants regarding sweepstakes systems using telephone time.  The plaintiffs’ systems were identical or substantially similar to the Sandhill system.

burke-order-for-preliminary-injunction-10-cvs-568-5-2010

On March 26, 2010, Hest and IIT receive a clarification to their earlier injunction.

Sandhill Amusements initiated a declaratory judgment action against NC in Wake County Superior Court. Plaintiffs sought a declaration that its promotional sweepstakes did not violate any North Carolina gaming or gambling laws which were in effect at that time. Plaintiffs also sought injunctive relief.  On July 2, 2009, Sandhill obtained a preliminary (state-wide) injunction prohibiting defendants from taking any enforcement action against plaintiffs for the possession, use, or operation of the sweepstakes system. As a result of these injunctions, law enforcement stopped enforcing the gambling laws and illegal machines (including POGs) invaded the NC market.

order-for-preliminary-injunction—09-cvs-5719-03-2009

It appears video sweepstakes exploded as a result of the 2008 injunction and the 2009 injunction listed below. The argument is that no consideration is required to activate play and the consideration is paid for the product being sold, not gambling.

Hest receives a modification of the preliminary injunction to reflect these adjustments.

hest-v-state-preliminary-injunction-12-30-08

NC General Assembly enacted Senate Bill 180, which became effective December 1, 2008.  The bill outlawed a server-based electronic game promotion (see 14-306.3).  The industry thereafter dropped the use of a server or modified their systems to substitute gaming displays that did not involve simulations of traditional gambling games like slot machines or video poker.

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Hest Technologies and I.I.T. sought a declaratory judgment and preliminary injunction and the trial court granted a preliminary (state-wide) injunction in April 2008.

hest-v-state-preliminary-injunction-small

NC General Assembly voted to end video poker, except for the Cherokee Indians.  It passed a bill that became effective in July 1, 2007 (after a phase-out period) banning all types of video poker, video bingo, video craps, and 14-306.1 was repealed and replaced with 14-306.1A.  According to the NC Supreme Court  the the Hest case, “In 2006 the legislature banned video poker and similar video gambling games. In response, businesses reformatted their machines to include sweepstakes rather than direct betting, but used the same video gambling interfaces to simulate the gambling experience.”

14-3061a

NC Court of Appeals issued opinion in American Treasures case.  Court said it was not a lottery under NC law.  The court said: “We hold the price paid for and the value received from the pre-paid phone cards is sufficiently commensurate to support the determination that the sale of the product is not a mere subterfuge to engage in an illegal lottery scheme, whereby consideration is paid merely to engage in a game of chance.”

american-treasures

In American Treasures trial court case, Wake County Superior Court said in declaratory judgment action that pre-paid phone cards sold by Treasured Arts are not an impermissible form of gambling. Attached to each phone card was a free promotional game piece in which the consumer may win a prize based on what is revealed under a scratch-off area (i.e., not a video game). The court granted a permanent injunction to American Treasures. The State appealed.

Late 1990’s through early 2000’s:  Sweepstakes is introduced into the NC coin-op market so players can be paid in cash and without the $10 limit.

Harrah’s Casino opens in Cherokee, N.C.

Sometime between the signing of the Compact and the opening of the casino, the Certification Commission created by the Compact approves video poker as a game involving skill or dexterity. (See reference in second Hatcher case – Hatcher v. Harrah’s, 610 S.E. 210 (NC Ct App 2005).

research-hatcher-v-harrahs

NC Court of Appeals decides Collins Coin case under the old 14-306(b) language stating that video poker did not “depend” upon skill or dexterity of player within meaning of exception to statute prohibiting slot machines.

Research Collins Coin v NC ABC (1994)(2)

A Tribal-State Compact (the “Compact”) was signed by NC with the Eastern Band of the Cherokee Indians pursuant to IGRA.  Since NC cannot regulate gaming on Indian lands (See Cabazon US Supreme Court case (1987)), the $10 cap, no cash payouts and other restrictions did not apply to the Indians.  So, the Cherokee were permitted to operate video games “involving the use of skill or dexterity as is permitted by the laws of the State” without the regulatory restrictions and thus could pay cash rewards.  For the coin-op industry, video poker was regulated under 14-306(b)(2) and 14-306.1.  It is likely that the coin-op industry was paying cash on multiple $10 tickets in violation of the law.

Research Cabazon case (prohibit but not regulate Indians) Tribal State Compact (1994) (1) Tribal State Compact (1996 Amendment) Tribal State Compact (2000 Amendment) Tribal State Compact (2002 Amendment) Tribal State Compact (First A&R Nov 2011) Tribal State Compact (Addendum to First A&R)

Trial court granted partial summary judgment for ABC against Collins Coin. Collins Coin appealed to the Court of Appeals.

14-306(b) was amended by changing “depends upon the skill or dexterity of the player” to “involve the use of skill or dexterity”. There was still a $10 cap and a restriction on cash payouts under 14-306(b)(2).

14-306

Collins Coin brought declaratory judgment action against NC ABC.