Court Opinion

ID: 4123717
Source: CourtListenerOpinion
Date Created: 2017-02-07 14:08:48.141757+00
Date Added: 2024-06-11T10:34:59.958047
License: Public Domain

IN THE COURT OF APPEALS OF NORTH CAROLINA

                                  No. COA16-161

                              Filed: 7 February 2017

Randolph County, No. 15 CVS 1733

T AND A AMUSEMENTS, LLC; and CRAZIE OVERSTOCK PROMOTIONS, LLC,
Plaintiffs,

             v.

PATRICK McCRORY, in his official capacity as Governor of the State of North
Carolina; FRANK L. PERRY, in his official capacity as Secretary of the North
Carolina Department of Public Safety; MARK J. SENTER, in his official capacity as
Branch Head of the Alcohol Law Enforcement Division; JODY WILLIAMS, in his
official capacity as the Chief of Police of the City of Asheboro, North Carolina; and
MAYNARD B. REID, JR., in his official capacity as the Sheriff of Randolph County,
Defendants.

      Appeal by plaintiffs from order entered 19 November 2015 by Judge Michael

D. Duncan in Randolph County Superior Court. Heard in the Court of Appeals 24

August 2016.

      Morningstar Law Group, by William J. Brian, Jr. and Keith P. Anthony, for
      plaintiffs-appellants.

      Joshua H. Stein, Attorney General, by Hal F. Askins, Special Deputy Attorney
      General, and J. Joy Strickland, Assistant Attorney General, for defendants-
      appellees Patrick McCrory, Frank L. Perry, and Mark J. Senter.

      Cranfill Sumner & Hartzog LLP, by Jaye E. Bingham-Hinch and Patrick H.
      Flanagan, for defendant-appellee Jody Williams.

      No brief filed on behalf of defendant-appellee Maynard B. Reid, Jr.

      DAVIS, Judge.
                        T & A AMUSEMENTS, LLC V. MCCRORY

                                   Opinion of the Court

      This case requires us to revisit the issue of whether lawsuits brought by

companies in the business of licensing and distributing promotional rewards

programs seeking declaratory and injunctive relief as to the legality of those

programs are barred by sovereign immunity or are otherwise nonjusticiable. Crazie

Overstock Promotions, LLC (“Crazie Overstock”) and T and A Amusements, LLC

(“T&A”) (collectively “Plaintiffs”) argue that the trial court erred in dismissing their

amended complaint pursuant to Rules 12(b)(1), (2), and (6) of the North Carolina

Rules of Civil Procedure. Because we conclude that Plaintiffs’ claims are neither

barred by sovereign immunity nor nonjusticiable, we reverse the trial court’s order

and remand for further proceedings.

                      Factual and Procedural Background

      Crazie Overstock, a retailer of various discount goods, licenses “retail

establishments” to promote and display its goods, which may then be purchased

through Crazie Overstock’s website. Customers may purchase items through the

website with either a credit card or an electronic gift certificate.       In order to

incentivize the sale of such gift certificates, Crazie Overstock has created a

promotional rewards program (the “CO Rewards Program”).

      The CO Rewards Program allows customers to receive a certain number of

“game points” for each dollar of gift certificates they purchase through kiosks located

in the retail establishments. Game points may then be used to play “reward games”

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                                 Opinion of the Court

on machines in these establishments. The reward games require no skill, and their

results are determined randomly. Customers who are successful at reward games

receive “reward points” as a result. Reward points, in turn, may be used by the

customer to play a “dexterity test,” which tests players’ hand-eye coordination and

reflexes by requiring them “to stop a simulated stopwatch within specified ranges.”

Customers who are successful at the dexterity test then receive “dexterity points,”

which may be redeemed for cash rewards.

      T&A is a distributor for Crazie Overstock and, as such, is responsible for

recruiting persons to operate retail establishments and for helping to set up and

service those establishments. In the spring of 2015, T&A recruited an entity called

Mighty Enterprises, LLC (“Mighty Enterprises”) to operate a store in Asheboro,

North Carolina. The Mighty Enterprises store, which opened in May 2015, offered

the CO Rewards Program to its customers.

      Based on their knowledge that the Alcohol Law Enforcement Division (“ALE”)

of the North Carolina Department of Public Safety and local law enforcement

agencies had previously investigated other businesses offering similar promotional

rewards programs, the principals of Mighty Enterprises contacted the Asheboro

Police Department and offered to conduct a demonstration of the CO Rewards

Program in the hope of demonstrating that the program did not violate North

Carolina’s gambling and sweepstakes statutes.

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                                   Opinion of the Court

      On 17 June 2015, a demonstration of the CO Rewards Program was conducted

for Detective Daniel Shropshire of the Asheboro Police Department and Agent

Stephen Abernathy of ALE. After the demonstration, the officers stated that they

would review the legality of the CO Rewards Program with their respective

supervisors as well as the district attorney.

      On 25 June 2015, Detective Shropshire contacted Dawn Moffitt, a principal of

Mighty Enterprises, to inform her that “the City Police Chief, the ALE, the Office of

the District Attorney, and the Randolph [County] Sheriff considered the CO Rewards

Program to have the same elements of an illegal electronic sweepstakes which

violates both the Video Sweepstakes Law and the Gambling Statutes.” He also

warned Moffitt that “if Mighty Enterprises did not cease all operations, including the

CO Rewards Program[,] by June 30, 2015, she and the other principals and employees

of Mighty Enterprises would be charged criminally, and . . . the company’s equipment

and other personal property would be confiscated.” As a result, Mighty Enterprises

shut down its operations until the legality of the CO Rewards Program could be

determined by a court.

      On 20 August 2015, Plaintiffs filed the present action in Randolph County

Superior Court requesting, inter alia, that the trial court (1) declare that the CO

Rewards Program does not violate North Carolina law; and (2) enjoin the defendants

from taking law enforcement action against retail establishments for offering the CO

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                                  Opinion of the Court

Rewards Program. The complaint named as defendants Patrick McCrory, Governor

of North Carolina; Frank L. Perry, Secretary of the North Carolina Department of

Public Safety; Mark J. Senter, Branch Head of ALE; Jody Williams, Asheboro Police

Chief; and Maynard B. Reid, Jr., Sheriff of Randolph County (collectively

“Defendants”). All of the defendants were sued solely in their official capacities.

      Plaintiffs alleged in their amended complaint that “ALE and other state

officials desire to eradicate all electronic sweepstakes or electronic rewards programs

from the State of North Carolina, including the CO Rewards Program, without regard

to whether such sweepstakes or rewards programs violate the Gambling Statutes or

the Video Sweepstakes Statute, or other applicable law.” Plaintiffs also asserted that

ALE officers, in conjunction with local law enforcement agencies, have participated

in numerous raids of businesses offering rewards programs, resulting in both

threatened and actual prosecutions. Plaintiffs further alleged that “[a]s a direct

result of threats by ALE and increased activity by ALE and other local and state

officials, [T&A] and Crazie Overstock are being harmed because current and potential

Retail Establishments are afraid to offer the CO Rewards Program, even though that

program complies fully with all applicable laws.”

      On 1 October 2015, Defendants McCrory, Perry, and Senter filed a motion to

dismiss pursuant to Rule 12(b)(1) based on sovereign immunity and under Rule

12(b)(6) on the ground that the complaint failed to state a claim upon which relief

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                                         Opinion of the Court

could be granted against them. On 7 October 2015, Chief Williams filed a motion to

dismiss under Rules 12(b)(1), (2), and (6) in which he asserted that Plaintiffs’ claims

against him were “barred by sovereign and/or government immunity” and that

Plaintiffs had failed to show the existence of an actual controversy.

        A hearing on Defendants’ motions was held on 12 October 2015 before the

Honorable Michael D. Duncan. The arguments at the hearing were limited to the

issues of whether Defendants were entitled to sovereign or governmental immunity

and whether a justiciable controversy existed. The trial court issued an order on 19

November 2015 granting Defendants’ motions and concluding that (1) dismissal of

Plaintiffs’ claims was proper under Rule 12(b)(6); and (2) “in the absence of any

allegation of waiver, sovereign/governmental immunity bars the Plaintiff[s’] claims

against all of the Defendants in this action pursuant both to Rule 12(b)(1) and Rule

12(b)(2) . . . .”1 Plaintiffs filed a timely notice of appeal.

                                              Analysis

        Plaintiffs argue on appeal that the trial court erred in granting Defendants’

respective motions to dismiss because (1) neither sovereign nor governmental

        1 Our review of the hearing transcript reveals that no arguments were made at the 12 October
2015 hearing on the issue of whether the CO Rewards Program actually violated any North Carolina
statutes. Nor do the parties contend on appeal that the trial court’s ruling was based upon that issue.
Accordingly, we construe the trial court’s order as based solely on the issues of immunity and
justiciability. See Myers v. McGrady, 170 N.C. App. 501, 509, 613 S.E.2d 334, 340 (2005) (“Where the
record does not contain anything in the pleadings, transcripts, or otherwise, to indicate that an issue
was presented to the trial court we refuse to address the issue for the first time on appeal.” (citation,
quotation marks, ellipses, and brackets omitted)), rev’d on other grounds, 360 N.C. 460, 628 S.E.2d
761 (2006).

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                                         Opinion of the Court

immunity bars this action; and (2) Plaintiffs’ pleadings demonstrated the existence of

a justiciable controversy. We address each of these issues in turn.

I. Sovereign Immunity

        Under the doctrine of sovereign immunity, “a state may not be sued in its own

courts or elsewhere unless by statute it has consented to be sued or has otherwise

waived its immunity from suit.” N.C. Ins. Guar. Ass’n v. Bd. of Trs. of Guilford Tech.

Cmty. Coll., 364 N.C. 102, 107, 691 S.E.2d 694, 697 (2010) (citation omitted). This

immunity encompasses “subordinate division[s] of the state, or agenc[ies] exercising

statutory governmental functions . . . .” Id. (citation omitted). Where, as here, public

officials are sued in their official capacities, the claims against them are deemed to

be claims against the entities for which they are employed. See Moore v. City of

Creedmoor, 345 N.C. 356, 367, 481 S.E.2d 14, 21 (1997) (“[O]fficial-capacity suits

generally represent only another way of pleading an action against an entity of which

an officer is an agent.” (citation and quotation marks omitted)).2

        2 As an initial matter, with regard to Plaintiffs’ claims against Chief Williams, the parties
disagree as to whether the State’s sovereign immunity — if otherwise applicable in this case — would
cover him given that he is a local official rather than a State official. It is true that the doctrine of
governmental immunity generally applies to local entities whereas sovereign immunity applies to State
entities and that sovereign immunity is broader in scope than governmental immunity. See Craig v.
New Hanover Cty. Bd. of Educ., 363 N.C. 334, 335 n.1, 678 S.E.2d 351, 353 n.1 (2009) (noting that
immunity possessed by county agencies is “identified as governmental immunity, while sovereign
immunity applies to the State and its agencies”); Evans v. Hous. Auth. of City of Raleigh, 359 N.C. 50,
53, 602 S.E.2d 668, 670 (2004) (explaining that governmental and sovereign “immunities do not apply
uniformly”). Plaintiffs argue that local law enforcement entities are not entitled to the State’s
sovereign immunity even when sued for declaratory or injunctive relief (rather than for monetary
damages) in lawsuits arising from enforcement of state laws. However, we need not resolve this issue

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                           T & A AMUSEMENTS, LLC V. MCCRORY

                                       Opinion of the Court

       However, our Supreme Court has recognized the existence of a limited

exception to sovereign immunity in certain cases where plaintiffs seek declaratory or

injunctive relief against State agencies that act “in excess of the authority granted

[to them] under [a] statute and invade or threaten to invade personal or property

rights of a citizen in disregard of the law.” Charlotte-Mecklenburg Hosp. Auth. v. N.C.

Indus. Comm’n, 336 N.C. 200, 208, 443 S.E.2d 716, 721 (1994), superseded by statute

on other grounds as stated in Mehaffey v. Burger King, 367 N.C. 120, 749 S.E.2d 252

(2013).

       North Carolina’s appellate courts have recently applied this principle in

Sandhill Amusements, Inc. v. Sheriff of Onslow County, 236 N.C. App. 340, 762
S.E.2d 666 (2014), rev’d per curiam for the reasons stated in the dissenting opinion,

368 N.C. 91, 773 S.E.2d 55 (2015), which rejected a similar sovereign immunity

argument raised by a defendant on analogous facts. In that case, one of the plaintiffs,

Gift Surplus, LLC (“Gift Surplus”), licensed to retail stores certain “sweepstakes

promotion devices used to promote the sale of gift cards and e-commerce business.”

Sandhill Amusements, 236 N.C. App. at 341 n.1, 762 S.E.2d at 669 n.1. Through

kiosks provided by Gift Surplus, customers could purchase gift certificates to use in

Gift Surplus’s online store. When customers bought these gift certificates, they also

because, for the reasons explained below, we hold that sovereign immunity does not serve as a bar to
Plaintiffs’ claims in this action.

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                             T & A AMUSEMENTS, LLC V. MCCRORY

                                         Opinion of the Court

received credits to play electronic games on the kiosks. The first phase of these games

was based purely on chance while the second phase required players to make a

judgment regarding which way to turn a reel. Id. at 343, 762 S.E.2d at 670. Another

plaintiff, Sandhill Amusements, LLC (“Sandhill”), was the distributor of Gift

Surplus’s kiosks in the Onslow County, North Carolina area. Id. at 344 n.1, 762
S.E.2d at 669 n.1.

      After receiving complaints regarding these games, officers from the Onslow

County Sheriff’s Office visited a store featuring Gift Surplus kiosks and documented

how the machines worked. After subsequently receiving an opinion from ALE that

the kiosks were “illegal video sweepstakes machines,” the sheriff and the district

attorney sent a letter to the owner of Sandhill warning him that if the promotion was

not stopped the kiosks would be seized as evidence and persons in possession of them

would be criminally prosecuted. Id. at 344, 762 S.E.2d at 670. As a result of this

letter, Sandhill removed kiosks from two Onslow County locations and decided not to

place kiosks in five other locations. Id.

      Sandhill and Gift Surplus filed a lawsuit against the sheriff and the district

attorney3 seeking a declaration that the promotion was “not prohibited gambling,

lottery or gaming products” and an injunction against further enforcement action by

the defendants in relation to the promotion. Id. at 344, 762 S.E.2d at 671. The sheriff

      3   The plaintiffs subsequently dismissed the district attorney as a party to the action.

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                        T & A AMUSEMENTS, LLC V. MCCRORY

                                   Opinion of the Court

moved to dismiss under Rules 12(b)(1), (2), and (6) based in part on sovereign

immunity and the absence of a justiciable controversy. The trial court denied the

motion to dismiss and entered a preliminary injunction barring the sheriff from

initiating criminal action against the plaintiffs in connection with the promotion. Id.

at 345, 762 S.E.2d at 671.

      In a divided opinion by this Court, the majority disagreed with the sheriff’s

argument that the plaintiffs’ claims were barred by sovereign immunity, explaining

that because “the declaratory judgment procedure is the only method by which

Plaintiffs have recourse to protect their property interests in the kiosks, we hold that

. . . sovereign immunity did not bar Plaintiffs’ claim for injunctive relief.” Id. at 351,

762 S.E.2d at 675. After further determining that the plaintiffs had shown the

existence of a justiciable controversy, the majority considered the merits of the appeal

and ultimately affirmed in part and vacated in part the preliminary injunction that

the trial court had issued. Id. at 357, 762 S.E.2d at 679.

      The dissenting judge filed a separate opinion stating his agreement with the

majority’s determination of the immunity and justiciability issues but concluding that

the preliminary injunction should be vacated in its entirety because the plaintiffs had

failed to demonstrate a likelihood that they would ultimately be able to prove that

the promotion did not violate North Carolina’s sweepstakes statute. Id. at 358, 762

S.E.2d at 679 (Ervin, J., dissenting).

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                                    Opinion of the Court

       The State appealed to our Supreme Court, which reversed the majority in a

per curiam opinion “[f]or the reasons stated in the dissenting opinion[.]” Sandhill

Amusements, 368 N.C. at 91, 773 S.E.2d at 56. Accordingly, the determination that

sovereign immunity did not bar the plaintiffs’ claims — which was agreed to by both

the majority and the dissent and was left undisturbed by the Supreme Court —

continues to have precedential value and serves to foreclose Defendants’ sovereign

immunity argument in the present case.

       Defendants argue, in the alternative, that even if sovereign immunity does not

serve as an absolute bar to this type of lawsuit, they are nevertheless entitled to

immunity based on Plaintiffs’ failure to expressly plead a waiver. See Can Am S.,

LLC v. State, 234 N.C. App. 119, 125, 759 S.E.2d 304, 309 (“Sovereign immunity is

not merely a defense to a cause of action; it is a bar to actions that requires a plaintiff

to establish a waiver of immunity.” (citation omitted)), disc. review denied, 367 N.C.
791, 766 S.E.2d 624 (2014).

       Citing Phillips v. Orange County Health Department, 237 N.C. App. 249, 765
S.E.2d 811 (2014), Plaintiffs respond by contending that because sovereign immunity

does not apply at all in this context, it is illogical to require them to have pled a waiver

of such immunity. See id. at 256-57, 765 S.E.2d at 817 (“It is true that plaintiffs failed

to allege that [the defendant] had waived . . . immunity in their complaint. . . .

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                            T & A AMUSEMENTS, LLC V. MCCRORY

                                         Opinion of the Court

Although defendant enjoys . . . immunity, such immunity does not bar the claims

brought by plaintiffs in the instant case. Therefore, this argument is overruled.”).

       However, we need not resolve this issue because even assuming — without

deciding — that such a pleading requirement existed, Plaintiffs met that burden in

paragraph 89 of their amended complaint by alleging that “Defendants are not

entitled to sovereign immunity . . . .” While Defendants argue that the waiver

language contained in this paragraph was legally insufficient because it failed to

plead with specificity a recognized exception to sovereign immunity, we have

previously held that “precise language alleging that the State has waived the defense

of sovereign immunity is not necessary, but, rather, the complaint need only contain

sufficient allegations to provide a reasonable forecast of waiver.” Can Am S., 234
N.C. App. at 125, 759 S.E.2d at 309 (citation, quotation marks, and brackets omitted);

see also Fabrikant v. Currituck Cty., 174 N.C. App. 30, 38, 621 S.E.2d 19, 25 (2005)

(“[A]s long as the complaint contains sufficient allegations to provide a reasonable

forecast of waiver, precise language alleging that the State has waived the defense of

sovereign immunity is not necessary.”).4

       Accordingly, even if Plaintiffs were, in fact, required to specifically plead a

waiver of Defendants’ sovereign immunity in their complaint, they met that burden

       4  We note that at oral argument counsel for Defendants were unable to state precisely how
such a waiver allegation should have been worded in Plaintiffs’ pleadings in order to properly allege a
waiver of sovereign immunity.

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                             T & A AMUSEMENTS, LLC V. MCCRORY

                                         Opinion of the Court

because the above-quoted language in paragraph 89 in conjunction with the

substantive allegations in their amended complaint clearly served to “provide a

reasonable forecast of waiver.” See Can Am S., 234 N.C. App. at 125, 759 S.E.2d at

309 (citation and quotation marks omitted). Thus, we hold that the trial court erred

in dismissing this action based on sovereign immunity.

II. Justiciability

        Plaintiffs also argue that the trial court erred in dismissing this action

pursuant to Rule 12(b)(6) based on their failure to present a justiciable controversy.5

Pursuant to the North Carolina Declaratory Judgment Act, “[a]ny person . . . whose

rights, status or other legal relations are affected by a statute . . . may have

determined any question of construction or validity arising under the . . . statute . . .

and obtain a declaration of rights, status, or other legal relations thereunder.” N.C.

Gen. Stat. § 1-254 (2015).           In construing this statute, the Supreme Court has

explained that

                [a]lthough a declaratory judgment action must involve an
                actual controversy between the parties, plaintiffs are not
                required to allege or prove that a traditional cause of action
                exists against defendants in order to establish an actual
                controversy. A declaratory judgment should issue (1) when

        5 While the trial court appears to have viewed Rule 12(b)(6) as the appropriate provision of
Rule 12 under which to dismiss a claim on nonjusticiability grounds, the failure to present a justiciable
controversy is actually an issue of subject matter jurisdiction and, therefore, within the scope of Rule
12(b)(1). See Sharpe v. Park Newspapers of Lumberton, Inc., 317 N.C. 579, 584, 347 S.E.2d 25, 29
(1986) (“[I]n order for a court to have subject matter jurisdiction to render a declaratory judgment, an
actual controversy must exist between the parties . . . .”); Yeager v. Yeager, 228 N.C. App. 562, 565,
746 S.E.2d 427, 430 (2013) (“[A] trial court does not have subject matter jurisdiction over a non-
justiciable claim.”).

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                        T & A AMUSEMENTS, LLC V. MCCRORY

                                   Opinion of the Court

             it will serve a useful purpose in clarifying and settling the
             legal relations at issue, and (2) when it will terminate and
             afford relief from the uncertainty, insecurity and
             controversy giving rise to the proceeding.

Goldston v. State, 361 N.C. 26, 33, 637 S.E.2d 876, 881 (2006) (internal citations,

quotation marks, and brackets omitted). The Supreme Court has also stated that

“[p]laintiffs are not required to sustain actual losses in order to make a test case; such

a requirement would thwart the remedial purpose of the Declaratory Judgment Act.”

Charlotte-Mecklenburg Hosp. Auth., 336 N.C. at 214, 443 S.E.2d at 725 (citation,

quotation marks, and brackets omitted).

      We have addressed on several prior occasions the issue of whether justiciable

controversies existed under the Declaratory Judgment Act where plaintiffs alleged

that law enforcement agencies were improperly seeking to prohibit them from

offering promotional rewards programs. Most recently, in Sandhill Amusements —

as discussed above — a disagreement existed between the plaintiffs and the sheriff,

the district attorney, and ALE regarding the legality of the kiosks that Gift Surplus

licensed and Sandhill distributed to retail stores. Sandhill Amusements, 236 N.C.

App. at 356, 762 S.E.2d at 678. The controversy culminated in the sheriff and district

attorney sending the owner of Sandhill a letter threatening enforcement action. Id.

      The majority in this Court held that a justiciable controversy existed given that

the plaintiffs’ allegations centered on “whether the kiosks at issue were illegal and

the uncertainty concerning the legality of these kiosks ultimately impacts Plaintiffs’

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                                         Opinion of the Court

ability to operate a business going forward.” Id. at 357, 762 S.E.2d at 678. As further

support for its conclusion that the plaintiffs’ claims were justiciable, the majority

noted that the “Plaintiffs alleged in their complaint that, since Sheriff Brown issued

the . . . letter [threatening criminal action], existing retail outlets that used Plaintiffs’

products had removed the kiosks or chosen not to use the kiosks due to the

uncertainty surrounding their legality.” Id.6

        In making this determination, the majority relied upon our decision in

American Treasures, Inc. v. State, 173 N.C. App. 170, 617 S.E.2d 346 (2005). In that

case, the plaintiff, Treasured Arts, Inc. (“Treasured Arts”), was in the business of

selling pre-paid long-distance phone cards, which it distributed through convenience

stores. Attached to each phone card was a free promotional “scratch-off” game piece

that allowed purchasers to win cash awards. Although the State did not actually

bring — or even threaten — enforcement action against Treasured Arts itself,

Treasured Arts received reports that ALE agents were threating to revoke the

alcoholic beverage licenses of convenience stores carrying its phone cards on the

ground that the accompanying promotional scratch-off game constituted illegal

gambling. Id. at 173-74, 617 S.E.2d at 348.

        6The dissent in Sandhill Amusements — which, as noted above, was adopted by our Supreme
Court — stated its agreement with the majority’s holding regarding the justiciability of the plaintiffs’
claims. See id. at 358, 762 S.E.2d at 679 (Ervin, J., dissenting).

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                                  Opinion of the Court

      The plaintiff brought an action for declaratory and injunctive relief against the

Governor, the Department of Crime Control and Public Safety, and ALE to determine

the legality of the promotion. The trial court entered an order declaring that the

promotion did not constitute illegal gambling and enjoining the defendants from

interfering with the alcohol licenses or sale of Treasured Arts’ phone cards by

convenience stores. Id. at 174, 617 S.E.2d at 349.

      On appeal, this Court rejected the defendants’ argument that the plaintiffs had

failed to show a justiciable controversy. We acknowledged that, as a general matter,

“courts of equity are without jurisdiction to interfere by injunction to restrain a

criminal prosecution for the violation of statutes . . . whether it has been merely

threatened or has already been commenced.” Id. at 175, 617 S.E.2d at 349 (citation,

quotations marks, ellipses, and brackets omitted). However, citing our Supreme

Court’s decision in McCormick v. Proctor, 217 N.C. 23, 6 S.E.2d 870 (1940), we

explained that “equity may nevertheless be invoked as an exception to those

principles and may operate to ‘interfere, even to prevent criminal prosecutions, when

this is necessary to protect effectually property rights and to prevent irremediable

injuries to the rights of persons.’ ” American Treasures, 173 N.C. App. at 175, 617
S.E.2d at 349 (quoting McCormick, 217 N.C. at 29, 6 S.E.2d at 874).

      We ultimately concluded that the complaint in American Treasures presented

a justiciable controversy because “the declaratory judgment procedure is the only way

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                                         Opinion of the Court

plaintiff can protect its property rights and prevent ALE from foreclosing the sale of

its product in convenience stores.” Id. at 176, 617 S.E.2d at 350. Moreover, we noted

that although “[t]here is no indication in the record that a prosecution is pending

against plaintiff,” the existence of an actual prosecution was not necessary in order

to present a justiciable controversy “in light of the State’s ability to curtail the sale of

plaintiff’s product by threatening retail stores with the loss of their alcohol licenses

upon failure to cease such sales.” Id.7

        In the present case, Plaintiffs have presented a justiciable controversy for

reasons similar to those set forth in Sandhill Amusements and American Treasures.

Plaintiffs are the licensor and distributor of the CO Rewards Program, which law

enforcement officers have determined to be in violation of North Carolina’s criminal

laws.       Moreover, officers have threatened criminal enforcement action against

establishments offering this promotion, and such threats impede Plaintiffs’ ability to

license and distribute the program. Therefore, the uncertainty as to whether the CO

        7 There are a number of other reported decisions in which our appellate courts have reached
the merits of declaratory judgment claims involving the proper construction of North Carolina’s
gambling statutes without first explicitly addressing the issue of justiciability. See, e.g., Joker Club,
L.L.C. v. Hardin, 183 N.C. App. 92, 93, 643 S.E.2d 626, 628 (2007) (declaratory judgment as to legality
of poker club plaintiff planned to open); Collins Coin Music Co. of N.C. v. N.C. Alcoholic Beverage
Control Comm’n, 117 N.C. App. 405, 405, 451 S.E.2d 306, 307 (1994) (declaratory judgment regarding
whether video games offered by plaintiff were illegal slot machines), disc. review denied, 340 N.C. 110,
456 S.E.2d 312 (1995); Animal Prot. Soc’y of Durham, Inc. v. State, 95 N.C. App. 258, 262, 382 S.E.2d
801, 803 (1989) (declaratory and injunctive relief sought as to whether charitable sales promotion
violated bingo statute). Defendants here have failed to offer any valid explanation as to why the
controversies existing in those cases were justiciable while the present action is not.

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                                       Opinion of the Court

Rewards Program violates North Carolina’s gambling and sweepstakes statutes

“impacts Plaintiffs’ ability to operate a business going forward.” Sandhill

Amusements, 236 N.C. App. at 357, 762 S.E.2d at 678. Accordingly, we conclude that

because Plaintiffs have presented a justiciable controversy, the trial court erred in

granting Defendants’ motions to dismiss on the ground of nonjusticiability.8

                                          Conclusion

       For the reasons stated above, we reverse the trial court’s 19 November 2015

order and remand for further proceedings not inconsistent with this opinion.

       REVERSED AND REMANDED.

       Judges CALABRIA and TYSON concur.

       8We express no opinion on the ultimate issue in this litigation as to whether the CO Rewards
Program is legal under North Carolina law.

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