Forsyth sweepstakes dispute ends with lawsuit dismissal

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  • A legal battle over sweepstakes enforcement in Forsyth County has ended with the voluntary dismissal of a lawsuit from two companies tied to internet kiosks.
  • The companies had secured an injunction from Superior Court Judge Todd Burke against Gov. Roy Cooper and state law enforcement officials. State leaders secured a state Court of Appeals order blocking Burke's decision.
  • With the voluntary dismissal of the companies' lawsuit, state officials have dropped their appeal.

A legal dispute over sweepstakes operations in Forsyth County has ended. Two companies tied to internet kiosks have dropped their lawsuit against the state, Gov. Roy Cooper, and state law enforcement leaders.

Paperwork filed with the state’s second-highest court Monday confirmed the news.

Cooper and the law enforcement officials had secured an August order from the state Court of Appeals blocking a trial judge’s injunction. The injunction had favored plaintiffs BST USA and Victory Vending Company.

Superior Court Judge Todd Burke blocked the state from enforcing sweepstakes laws against the plaintiffs. With the voluntary dismissal of the companies’ lawsuit, the state agencies have dropped their appeal.

“Due to the withdrawal of defendants’ appeal, the writ of supersedeas issued by this Court on August 23, 2023, which stayed the preliminary injunction issued by the trial court, is dissolved,” state Justice Department lawyers wrote in an Appeals Court filing Monday.

A split Appeals Court panel voted to block Burke’s order. Judges Donna Stroud and Jeff Carpenter supported state law enforcement officials’ request. Judge Toby Hampson dissented.

The companies had filed paperwork weeks earlier opposing that decision.

“This case raises application of a well-understood test under N.C.G.S. § 14-306.4 to the specifics of Plaintiffs’ innovative video sweepstakes games,” the companies’ lawyers wrote. “Judge L. Todd Burke, one of the most experienced and respected Superior Court judges in North Carolina, considered those specifics through hundreds of pages of evidence and briefs and extensive oral argument and entered a preliminary injunction prohibiting criminal enforcement against Plaintiffs’ promotional sweepstakes under N.C.G.S. § 14-306.4.”

Cooper and the state law enforcement agencies were considered petitioners at the Appeals Court.

“Petitioners conducted no discovery. Nor did they even play Plaintiffs’ sweepstakes games,” the companies’ lawyers wrote. “Instead, they immediately petitioned this Court to take the extraordinary step of overturning the preliminary injunction prior to a full merits review, thereby exposing Plaintiffs to criminal prosecution for what is a lawful commercial enterprise.”

“The heart of Petitioners’ argument is that they will prevail on the merits because ‘North Carolina has expressly banned the operation of video sweepstakes machines,’ and the preliminary injunction ‘enjoin[s] the sweepstakes statute, … leav[ing] the vice and dissipation that the General Assembly tried to prevent unchecked,’” according to the brief. “This is demonstrably false.”

“North Carolina has not banned video sweepstakes machines. Section 14-306.4 and the accompanying North Carolina appellate caselaw plainly permit sweepstakes so long as skill predominates over chance in the gameplay. This is known as the ‘predominance test’ or the ‘predominant-factor test,’” the brief continued. “Simply put, sweepstakes are not banned in North Carolina.”

The plaintiffs spent $2 million “to develop a sweepstakes where skill predominates,” the companies’ lawyers argue. They cite favorable court rulings for similar sweepstakes games from a different NC trial court and a Pennsylvania appellate court. “This growing consensus is unsurprising. In Plaintiffs’ sweepstakes, … (i) skilled players will outperform less skilled players, and (ii) skilled players can beat the game itself. So skill must necessarily predominate.”

The companies rebutted Cooper’s arguments about the impact of the current injunction. “Judge Burke’s order does not ‘enjoin the sweepstakes statute,’ much less in a manner that is ‘unchecked.’ It is narrowly drawn to enjoin criminal enforcement only against Plaintiffs’ specific sweepstakes games. Petitioners remain free to enforce against any and all other gaming operations.”

BST manufactures and operates internet kiosks. Victory Vending operates BST kiosks in Forsyth County. The plaintiffs use a video sweepstakes promotion for sale of internet time through the kiosks.

Cooper and top officials from DPS and ALE disagree with Burke’s assessment of N.C.G.S. § 14-306.4.

“Since 2010, North Carolina has expressly banned the operation of video sweepstakes machines,” wrote lawyers from N.C. Attorney General Josh Stein’s state Justice Department. “This ban was enacted in response to the attempt of certain gambling interests to circumvent the State’s ban on video poker and similar games through sweepstakes that used those games as marketing tools for purportedly legitimate products. To address this problem, the General Assembly banned sweepstakes that are conducted through all video games of chance, such as video poker and all similar games.”

“Despite this legislative action, sweepstakes operators have repeatedly tried to evade this ban and have regularly sought to enjoin law enforcement officials from enforcing the ban for more than a decade,” according to the document from lawyers representing Cooper. “As a result, over the course of many cases, our Supreme Court has repeatedly heard arguments from sweepstakes operators that have claimed that their games were legal under the statute. In each instance, however, that Court has unanimously ruled against them.”

“Flaunting this clear precedent, the superior court in this case issued a preliminary injunction preventing Defendants from enforcing the law against yet another sweepstakes operator,” state Justice Department lawyers wrote. “The court did so even though the report that Plaintiffs BST USA, LLC and Victory Vending Company offered … to show how their sweepstakes games work demonstrated that chance can control ‘the relative winnings for which a player is able to play’ on each turn of their games. The superior court’s decision to grant an injunction in these circumstances was unmistakable error.”

Cooper’s lawyers justified their argument by pointing to the history of sweepstakes disputes. “In at least one earlier sweepstakes case, … trial-court injunctions allowed an illegal sweepstakes to operate freely for more than seven years, even though our Supreme Court ultimately held that the games at issue there were unlawful,” according to the document. “Without supersedeas relief, the Plaintiffs here could potentially enjoy immunity from enforcement for a similarly extended period, even though their games are also illegal.”

“So too, moreover, could other sweepstakes operators. Not long after the injunction was issued in this case, another superior court enjoined the enforcement of the sweepstakes statute against another operator offering similar games,” Justice Department lawyers warned. “[I]f stays are not granted in these cases, then other operators may also seek and win similar preliminary injunctions from other superior courts to protect their own games.”

“If that occurs, then the enforcement of a duly enacted statute of the General Assembly will likely come to a standstill,” according to the document. “And it will do so even though our Supreme Court has unanimously and repeatedly reversed all trial courts that have enjoined enforcement of that same statute.”

A unanimous N.C. Supreme Court last ruled against video sweepstakes operators in the February 2022 case Gift Surplus v. State of North Carolina.