Court Opinion

ID: 4407621
Source: CourtListenerOpinion
Date Created: 2019-06-18 12:06:00.093104+00
Date Added: 2024-06-11T14:52:44.797615
License: Public Domain

IN THE COURT OF APPEALS OF NORTH CAROLINA

                                 No. COA18-1034

                                Filed: 18 June 2019

Alamance County, No. 16 CVS 990

CRAZIE OVERSTOCK PROMOTIONS, LLC, Plaintiff,

              v.

STATE OF NORTH CAROLINA; and MARK J. SENTER, in his official Capacity as
Branch Head of the Alcohol Law Enforcement Division, Defendants.

      Appeal by Plaintiff from order entered 7 August 2018 by Judge Vince M.

Rozier, Jr., in Alamance County Superior Court. Heard in the Court of Appeals 24

April 2019.

      Morning Star Law Group, by Keith P. Anthony and William J. Brian, Jr., for
      the Plaintiff.

      Attorney General Joshua H. Stein, by Special Deputy Attorney General Olga
      Vysotskaya de Brito, for the State.

      DILLON, Judge.

      Plaintiff Crazie Overstock Promotions, LLC (“Crazie Overstock”), appeals from

an order granting partial summary judgment to Defendants (the “State”) on the basis

that Crazie Overstock operates a gambling enterprise in violation of Sections 14-

306.1A and 14-306.4 of our General Statutes. After careful review, we affirm in part

and reverse in part.    Specifically, we conclude that Crazie Overstock operates

electronic gaming machines in violation of Section 14-306.4, as a matter of law,
                  CRAZIE OVERSTOCK V. STATE OF NORTH CAROLINA

                                  Opinion of the Court

because these machines award “prizes” to winning patrons in a game of chance.

However, we conclude that the State was not entitled to summary judgment as to

whether the operation of these machines violates Section 14-306.1A, as there is an

issue of fact regarding whether patrons are required to pay consideration for the

opportunity to play the machines.

                                      I. Background

       In May 2016, Crazie Overstock commenced the underlying action after the

State began investigating its retail establishments.       In its complaint, Crazie

Overstock sought, among other relief, a declaratory judgment that its gaming

machines at those establishments were lawful and an injunction to prevent the State

from interfering with its business.

       In July 2018, the State filed a motion for summary judgment.            Crazie

Overstock voluntarily dismissed its claims against any individual Defendants,

leaving only its declaratory judgment and injunctive relief claims pending for trial.

       After a hearing on the matter, the trial court granted summary judgment to

the State, declaring that Crazie Overstock was violating two of North Carolina’s

“Lotteries and Gaming” statutes, namely Sections 14-306.1A and 14-306.4. The trial

court certified its judgment for immediate appeal. Crazie Overstock timely appealed.

                          II. Crazie Overstock’s Enterprise

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                  CRAZIE OVERSTOCK V. STATE OF NORTH CAROLINA

                                 Opinion of the Court

       Crazie Overstock’s enterprise involves two games played on electronic

machines: a game of chance followed by a game of skill. These games are played as

follows:

       Crazie Overstock sells gift certificates which may be used to purchase items

from its website or its retail stores. For every ten dollars ($10.00) spent on gift

certificates, a patron also receives one thousand (1,000) Game Points. With these

Game Points, the patron is eligible to play two games on electronic machines: (1) a

game of chance, called the Reward Game, followed by (2) a game of skill, called the

Dexterity Game.

       In the first game, patrons use their Game Points to play the Reward Game, a

game of chance on an electronic machine simulating a traditional slot machine.

Patrons wager Game Points for the chance to win Reward Points. If the patron “wins”

on a particular play, he or she is awarded a number of Reward Points, equal to some

multiple of the Game Points wagered on that winning play. If the patron loses all of

his or her plays, he or she is still awarded one hundred (100) Reward Points.

       After playing the Reward Game, the game of chance, the patron takes Reward

Points earned and wagers them in the Dexterity Game, a game of skill which tests

his or her hand-eye coordination.      The Dexterity Game involves a simulated

stopwatch which repeatedly and rapidly counts up from 0 to 1000 and back down to

0. A patron “wins” Dexterity Points by stopping the stopwatch between 801 and 1000.

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                    CRAZIE OVERSTOCK V. STATE OF NORTH CAROLINA

                                       Opinion of the Court

If a patron stops the stopwatch between 951 and 1000, then one hundred percent

(100%) of any wagered Reward Points are converted to Dexterity Points; if between

901 and 950, then ninety percent (90%) of any wagered Reward Points are converted

to Dexterity Points; and if between 801 and 900, then fifty percent (50%) of any

wagered Reward Points are converted. Dexterity Points are redeemable for cash at

a rate of one dollar ($1.00) for every one hundred (100) Dexterity Points. If a patron

stops the stopwatch between 0 and 800, he or she does not win any Dexterity Points;

but all wagered Reward Points are converted back into Game Points which can be

used to play the Reward Game for more chances to try and win Reward Points.1 The

patron, though, is allowed three attempts at stopping the stopwatch with each play,

with winnings based on the best result. And the evidence in the record suggests that

the Dexterity Game is not all that difficult; over ninety-five percent (95%) of patrons

playing the Dexterity Game successfully stop the stopwatch above 800 on at least one

of their three tries, and therefore win some amount of money.

        By way of example, consider a patron who enters a Crazie Overstock retail

establishment and spends one hundred dollars ($100.00) to purchase a one hundred

dollar ($100.00) gift certificate. The patron may use this gift certificate to purchase

        1 Crazie Overstock does offer every patron one hundred (100) Game Points per day with no
purchase of a gift certificate required. Patrons may also receive one hundred (100) Game Points by
requesting these points by mail.

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                  CRAZIE OVERSTOCK V. STATE OF NORTH CAROLINA

                                  Opinion of the Court

merchandise at the establishment or from Crazie Overstock’s website. In any event,

the patron also receives ten thousand (10,000) Game Points.

       The patron uses the ten thousand (10,000) Game Points to play the Reward

Game, the game of chance, betting some portion on each play, and either losing the

Game Points wagered or winning Reward Points equal to some multiple of the Game

Points wagered on that spin. After playing all of ten thousand (10,000) Game Points,

the patron is left with some number of Reward Points. Even if the patron loses every

play, the patron is still awarded a minimum of one hundred (100) Reward Points.

       But assume that the patron is lucky in the Reward Game and has turned ten

thousand (10,000) Game Points into twenty thousand (20,000) Reward Points. This

lucky patron has essentially won the right to win up to two hundred dollars ($200.00)

in the Dexterity Game. In the Dexterity Game, the patron bets all twenty thousand

(20,000) Reward Points. If the patron’s best score in three attempts is above 950, that

patron essentially wins two hundred dollars ($200.00). The lucky patron has doubled

his money. If the patron’s best result is between 901 and 950, he walks away with

one hundred eighty dollars ($180.00). If the patron’s best result is between 801 and

900, he breaks even, walking away with one hundred dollars ($100.00). If the patron

fails in any attempt to stop the stopwatch above 800, he does not win any Dexterity

Points, and therefore no cash, but is awarded twenty thousand (20,000) Game Points,

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                  CRAZIE OVERSTOCK V. STATE OF NORTH CAROLINA

                                 Opinion of the Court

which can be used to again play the Reward Game, the game of chance, with hopes of

winning Reward Points and another try at the Dexterity Game.

       But even assuming our patron is not lucky in the Reward Game and loses all

of his Game Points in that Reward Game of chance, he still receives a minimum of

one hundred (100) Reward Points, which can be used to win up to one dollar ($1.00)

in cash in the Dexterity Game, thus walking out with ninety-nine dollars ($99.00)

less in cash than when he entered.

       Therefore, a patron walking into a Crazie Overstock establishment who

successfully plays the Reward Game of chance is likely to walk out with some multiple

of the money he brought into the store. If he dedicates some amount of money into

playing but is not successful in the Reward Game, the patron is likely to walk out

with only one dollar ($1.00). In any event, the patron still walks out with gift

certificates, redeemable for merchandise on Crazie Overstock’s website and at its

retail locations. It is unclear how much this merchandise is worth, but evidence in

the record suggests that very few gift certificates are actually ever redeemed by

patrons.

                                     III. Analysis

      Crazie Overstock argues that the trial court erred in granting summary

judgment to the State, declaring that Crazie Overstock’s program is illegal under

Sections 14-306.1A and 14-306.4 of our General Statutes.

                                         -6-
                  CRAZIE OVERSTOCK V. STATE OF NORTH CAROLINA

                                  Opinion of the Court

      We review an order granting summary judgment de novo. In re Will of Jones,

362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008). A grant of summary judgment is

proper when there is no genuine issue of material fact. N.C. Gen. Stat. § 1A-1, Rule

56(c) (2018).

      Based on our review of the record, for the following reasons we affirm the grant

of summary judgment as to Section 14-306.4; but we agree with Crazie Overstock

that it was error for the trial court to grant summary judgment as to Section 14-

306.1A and reverse that portion of the order.

      Section 14-306.1A prohibits one from placing into operation a video gaming

machine which allows a patron to make a wager for the opportunity to win money or

another thing of value through a game of chance. N.C. Gen. Stat. § 14-306.1A (2016).

      Section 14-306.4 prohibits one from placing into operation an electronic

machine which allows a patron, with or without the payment of consideration, the

opportunity to win a prize in a game or promotion, the determination of which is

based on chance. N.C. Gen. Stat. § 14-306.4 (2016). One key difference between this

Section and Section 14-306.1A is that a violation of this Section can occur even if the

patron is not required to wager anything for the opportunity to win a prize.

      One of the issues on appeal is whether Crazie Overstock operates a “game of

skill” rather than a “game of chance,” as Sections 14-306.4 and 14-306.1A only

proscribe machines where prizes can be won through a game of chance. Our Supreme

                                         -7-
                  CRAZIE OVERSTOCK V. STATE OF NORTH CAROLINA

                                  Opinion of the Court

Court has been rather consistent on the standard to apply in delineating between a

game of chance and a game of skill. For instance, in 1848, in holding that bowling is

a game of skill, Chief Justice Ruffin took great pains to describe the difference

between a “game of chance” and a “game of skill,” as follows:

             The phrase, “game of chance,” is not one long known in the
             law and having therein a settled signification, but was
             introduced into our statute book by the act of 1835. . . .
             [This term] must be understood [] as descriptive of a certain
             kind of games of chance in contra-distinction to a certain
             other kind, commonly known as games of skill. [We hold
             that] “a game of chance” is such a game, as is determined
             entirely or in part by lot or mere luck, and in which
             judgment, practice, skill, or adroitness have honestly no
             office at all, or are thwarted by chance.

State v. Gupton, 30 N.C. 271, 273-74 (1848). More recently, in a dissent adopted by

our Supreme Court, Judge (now Justice) Ervin similarly reasoned that “the essential

difference between a game of skill and a game of chance for purposes of our gambling

statutes . . . is whether skill or chance determines the final outcome and whether

chance can override or thwart the exercise of skill.” Sandhill Amusements, Inc., v.

Sheriff of Onslow Cnty., 236 N.C. App. 340, 369, 762 S.E.2d 666, 685 (2014) (Ervin,

J., dissenting), adopted by our Supreme Court, 368 N.C. 91, 773 S.E.2d 55 (2015).

      As recognized by our Supreme Court, there are elements of “chance” in many

“games of skill.” For instance, in Gupton, Chief Justice Ruffin stated that “an

unexpected puff of wind” or “unseen gravel” may turn aside a skillfully tossed ring

or ball towards its target, but that such element of chance does not convert a ring

                                         -8-
                   CRAZIE OVERSTOCK V. STATE OF NORTH CAROLINA

                                    Opinion of the Court

toss game or bowling game into a game of chance. Gupton, 30 N.C. at 274. Similarly,

it has been recognized that there are sometimes elements of skill present in games

of chance. See, e.g., Collins Coin Music Co. of N.C., Inc., v. N.C. Alcoholic Beverage

Control Comm’n, 117 N.C. App. 405, 409, 451, S.E.2d 306, 308 (1994) (holding that

video poker is a game of chance as chance “negates [the] limited skill element”).

Ultimately, whether a game is one of chance or one of skill is dependent on which

element “is the dominating element that determines the result of the game.” State

v. Eisen, 16 N.C. App. 532, 535, 192 S.E.2d 613, 616 (1972) (recognizing that

blackjack has some elements of skill and chance).

      In the present case, Crazie Overstock argues that its game is one of skill since

skill is the dominating element in determining whether a patron wins money: no

matter how lucky a patron is in the first part of the game in racking up Reward

Points, the patron can only win money by performing well in the Dexterity Game.

      We agree with Crazie Overstock that, though it appears little skill is truly

required, its Dexterity Game alone is one of skill, which, by itself, does not violate

either Section 14-306.4 or 14-306.1A. Though patrons can win money playing the

Dexterity Game, the outcome of the game is dependent primarily on the patrons’

ability to react in a timely fashion.

      We conclude, however, that Crazie Overstock’s Reward Game is a separate

game in which patrons have the opportunity to win something of value. And there

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                   CRAZIE OVERSTOCK V. STATE OF NORTH CAROLINA

                                   Opinion of the Court

is no argument that the outcome of the Reward Game is based on chance, as the

game involves a simulated slot machine. Further, we conclude that the Reward

Game indeed offers a “prize,” that is, something of value. See N.C. Gen. Stat. § 14-

306.4(a)(4) (2016) (defining “prize[,]” in part, as “anything [] of value”). Namely,

lucky patrons win the opportunity to play an easy game of skill for money; and this

opportunity to win money, itself, is a thing of value.

      The exact odds and payouts for a winning spin of the virtual reels in the

Reward Game is not in the record. But assume that a patron buys a twenty dollar

($20.00) gift certificate and, thus, receives two thousand (2,000) Reward Points. If

the patron risks all these points in a single “spin” and the result is a winning

combination which pays double, she is awarded the opportunity to play an easy game

of skill, the Dexterity Game, where she has a high likelihood of walking away with

forty dollars ($40.00). But if the patron’s “spin” in the Reward Game results in a

losing combination, she is awarded only the opportunity to win one dollar ($1.00) in

the Dexterity Game. Thus, in the Reward Game of chance, the patron may win the

opportunity to win thirty-nine ($39.00) extra dollars, just for being lucky.

      If we were to hold that Crazie Overstock’s Reward Game and Dexterity Game

were together a game of skill, then our gambling statutes as a whole would be

rendered largely meaningless, as illustrated in the following example: The operation

of a typical roulette wheel, with eighteen (18) red slots, eighteen (18) black slots, and

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                      CRAZIE OVERSTOCK V. STATE OF NORTH CAROLINA

                                         Opinion of the Court

two green slots, is clearly illegal gambling in North Carolina. For example, an

establishment who allows patrons to wager twenty dollars ($20.00) on “red” and then

pays those patrons twenty additional dollars ($20.00) if the ball indeed falls into a

red slot would be violating our gambling laws. See N.C. Gen. Stat. § 14-292 (2016)

(proscribing most forms of gambling on games of chance). However, applying the

logic of Crazie Overstock’s argument, an establishment offering roulette could

circumvent our proscription against gambling by simply not paying winners an

additional twenty dollars ($20.00) in cash but rather award them each the

opportunity to win an additional twenty dollars ($40.00) in cash by making at least

one out of three lay-ups on a three-foot high basketball goal.2 Such an outcome is, of

course, absurd. Therefore, we must reject Crazie Overstock’s analysis.3

       2   The fact that Crazie Overstock allows “losers” of the Reward Game of chance the opportunity
to win one dollar ($1.00) in the Dexterity Game does not change our analysis. In our example, an
establishment is still operating an illegal game even if it offers losers the opportunity to win twenty-
five (25) cents by making a lay-up, as the odds remain with the establishment.
         3 Even analyzing the Reward Game and the Dexterity Game as a single game, as advocated
by Crazie Overstock, we conclude that the element of chance overrides any element of dexterity. In
reaching this conclusion, we follow the reasoning applied in Judge Ervin’s dissent in Sandhills that
was adopted by our Supreme Court. Sandhill Amusements, 236 N.C. App. at 369, 762 S.E.2d at 685
(Ervin, J., dissenting). The game at issue in Sandhills involved a video machine displaying a virtual,
three-reel slot machine. If the spin produced a winning combination, the player won. In that game,
the position of the three reels after a spin was determined totally by chance, but the game also had a
skill element. The game allowed the player after the spin to then “nudge” one of the reels by one
position to produce a different, and perhaps winning, combination. Thus, in some plays, the player
had the ability to change a losing spin into a winning spin. Notwithstanding, our Supreme Court still
concluded that the game as a whole was one of chance, as a matter of law:

               [U]se of the equipment at issue here will result in the playing of certain
               games in which the player will be unable to win anything of value
               regardless of the skill or dexterity that he or she displays. Finally, the

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                     CRAZIE OVERSTOCK V. STATE OF NORTH CAROLINA

                                         Opinion of the Court

       Our General Assembly has prohibited certain forms of gambling, including

certain video games which offers prizes. Such is within the police power of that body.

Hech Techs., Inc. v. State, 366 N.C. 289, 290, 749 S.E.2d 429, 431 (2012) (recognizing

that “[s]ince the founding of this nation, states have exercised the police power to

regulate gambling”). It is not for the Courts to legalize gambling video games but

rather is within the province of our General Assembly to make that decision.

                                          III. Conclusion

       We, therefore, conclude that the Reward Game violates Section 14-306.4, as a

matter of law, as it offers patrons the opportunity to win a “prize,” defined, in part,

as “anything [] of value,” where the outcome is based on chance. N.C. Gen. Stat. §

14-306.4(a)(4). We further conclude that the operation of the Dexterity Game, by

itself, does not violate either Section 14-306.4 or 14-306.1A, as a matter of law.

               extent to which the opportunity arises for the “nudging” activity [to
               produce a winning combination] appears to be purely chance-
               based. . . . [T]he only basis for th[e] assertion [that the game was one
               of skill] was the player’s ability to affect the outcome by “nudging” a
               third symbol in one direction or the other after two matching symbols
               appeared at random on the screen. Assuming for purposes of argument
               that this “nudging” process does involve skill or dexterity, I am unable
               to see how this isolated opportunity for such considerations to affect
               the outcome overrides the impact of the other features which, according
               to the undisputed evidence, affect and significantly limit the impact of
               the player’s skill and dexterity on the outcome. . . . As a result, for all
               of these reasons, I am compelled by the undisputed evidence to
               conclude that the element of chance dominates the element of skill in
               the operation of Plaintiffs’ machines[.]

Id. at 369-70, 762 S.E.2d at 686. In the same way, here, chance determines whether a Crazie Overstock
patron will have the opportunity to use dexterity to win any money (over one dollar ($1.00)).

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                  CRAZIE OVERSTOCK V. STATE OF NORTH CAROLINA

                                  Opinion of the Court

      However, there is at least an issue of fact as to whether the Rewards Game

violates Section 14-306.1A. One does not violate this Section unless the game of

chance requires the patron to wager something of value. And it is unclear whether,

here, patrons are required to wager anything of value. Patrons who are awarded

two thousand (2,000) Game Points for twenty dollars ($20.00) also receive a twenty

dollar ($20.00) gift certificate, redeemable for merchandise.

      Accordingly, we affirm summary judgment awarded to the State on the claim

under Section 14-306.4 of our General Statutes, as Crazie Overstock’s business

scheme constitutes an illegal sweepstakes. We reverse summary judgment on the

claim for a declaration under Section 14-306.1A, as it is not clear whether payment

is required to play the Reward Game. On remand, the trial court may consider

whether a trial is necessary or whether this second issue is mooted by our

determination that the scheme is otherwise illegal under Section 14-306.4.

      AFFIRMED IN PART; REVERSED AND REMANDED IN PART.

      Judge MURPHY concurs.

      Judge HAMPSON concurs by separate opinion.

                                         - 13 -
 No. COA18-1034 – Crazie Overstock v. State of North Carolina

      HAMPSON, Judge, concurring.

      I concur with the majority opinion in this case. I write separately to add that,

at least in my view, our reversal of summary judgment on the question of whether

Crazie Overstock’s business model violates N.C. Gen. Stat. § 14-306.1A should not be

construed as an indication that Crazie Overstock’s business model does not violate

N.C. Gen. Stat. § 14-306.1A. Rather, Crazie Overstock has generated a triable issue

of fact as to whether the sale of gift certificates, in fact, constitutes the sale of a

legitimate product offered in the free marketplace by a business regularly engaged in

the sale of such goods or services or whether the sales of these gift certificates

constitutes a mere subterfuge for illegal gaming. See American Treasures, Inc. v.

State, 173 N.C. App. 170, 177, 617 S.E.2d 346, 350 (2005).

      Here, Crazie Overstock has forecast evidence that a customer purchasing gift

certificates receives the same face value of certificates as the amount the customer

paid (i.e., a $20 payment results in a $20 gift card that may be used to purchase $20

of merchandise, as priced by Crazie Overstock). On the other hand, the State has

forecast substantial evidence calling into question the actual value received from the

gift card, including, inter alia, as to Crazie Overstock’s practices in the operation of

the retail merchandise component of its business and in the redemption rates of the

certificates themselves.

      In particular then, at least in part, the question sub judice is whether “the price

paid for and the value received” from the gift certificates “is sufficiently
                     Crazie Overstock v. State of North Carolina

                                HAMPSON, J., concurring

commensurate to support the determination that the sale of [gift certificates] is not a

mere subterfuge to engage in [illegal gaming], whereby consideration is paid merely

to engage in a game of chance.” Id. at 178-79, 617 S.E.2d at 351 (concluding sale of

prepaid long-distance phone cards with an attached game piece did not constitute a

lottery scheme where the long-distance rate purchased was among the best in the

industry).

                                          2