Court Opinion

ID: 9596767
Source: CourtListenerOpinion
Date Created: 2023-08-22 00:52:44.866097+00
Date Added: 2024-06-11T18:01:34.919623
License: Public Domain

SHEPARD, Justice
(dissenting).
Today this Court overturns the decision of the district court which found that chain referral sales schemes are illegal lotteries. That decision of the lower court was consistent with the unanimous suggestion of this Court in Nab v. Hills, 92 Idaho 877, 452 P.2d 981 (1969). Based on a profusion of authorities from all across the country we said in Nab:
“Before we discuss the assignments of .error, we must observe that the type of sales referral scheme which appellant attempted to prove at trial has been held by a number of jurisdictions to constitute an illegal lottery. Such 'illegal lotteries’ are considered void as against public policy. See, M. Lippincott Mortgage Investment Co. v. Childress, 204 So.2d 919 (Fla.Dist.Ct.App.1967) ; Commonwealth v. Allen, 404 S.W.2d 464 (Ky.1966) ; State by Lefkowitz v. ITM, Inc., 52 Misc.2d 39, 275 N.Y.S.2d 303 (Sup.Ct.1966) ; Sherwood & Roberts-Yakima, Inc. v. Leach, 67 Wash.2d 630, 409 P.2d 160, 14 A.L.R.3d 1411 (1965); cf., Idaho Const., art. 3, § 20; I.C. §§ 18-4901 — 18-4909; see generally, Annot., 14 A.L.R.3d 1420 (1967); Baird, Let the ‘Seller’ Beware — Another Approach to the Referral Sales Scheme, XXII U. Miami L.Rev. 861 (1968); Comment, Referral Sales Contracts: To Alter or Abolish?, 15 Buffalo L.Rev. 699 (1966); *260Note, Criminal Aspects of Chain Referral Sales, II Suffolk U.L.Rev. 93 (1968). This court undoubtedly has the power to raise the questions of illegality and public policy sua sponte. See Stearns v. Williams, 72 Idaho 276, 240 P.2d 833 (1952). Nevertheless our resolution of the issues on appeal, infra, make it unnecessary to determine the legality of a chain referral sales contract.” 92 Idaho at 882, 452 P.2d at 986 (Emphasis added)
Rather than implementing the suggestion of Nab the majority herein fastens upon language from Oneida County Fair Board v. Smylie, 86 Idaho 341, 386 P.2d 374 (1963). Obviously, Oneida preceded Nab by six years and, therefore, I believe Nab should control rather than Oneida.
In my judgment the majority opinion herein unnecessarily elevates Oneida and its definition of “lottery” to a position of controlling importance. In my opinion this is doubly unfortunate since “lottery” as defined by Oneida is so broad and elastic that the constitutional prohibition is emasculated. I believe that Oneida was an attempt to reconcile the constitutional prohibition against lotteries with the legislative desire to legitimatize horse racing. I would therefore suggest that the “rule” of Oneida best be confined in its application to the special facts of that case.
In Oneida the majority opinion suggested that the decisions of sister states should be examined to discover the best reasoned approach to a definition of lottery. Among the cases examined were: Utah State Fair Ass’n v. Green, 68 Utah 251, 249 P. 1016, 1022 (1926); Multnomah County Fair Ass’n v. Langley, 140 Or. 172, 13 P.2d 354, 356 (1932); Engle v. State, 53 Ariz. 458, 90 P.2d 988, 993 (1939), followed in Boies v. Bartell, 82 Ariz. 217, 310 P.2d 834, 837 (1957) ; Longstreth v. Cook, 215 Ark. 72, 220 S.W.2d 433, 437 (1949); Ginsberg v. Centennial Turf Club, 126 Colo. 536, 251 P.2d 926, 929 (1952). See: II Suffolk L.Rev. 93, 100 (1968). Those cases suggest a definition of lottery as one in which chance dominates over skill or judgment. Unfortunately that did not deter the majority in Oneida from finding “if skill plays any part in determining the distribution there is no lottery as prohibited by our Constitution.” 86 Idaho at 374, 386 P.2d at 395 (emphasis supplied).
Assuming, arguendo, that the Oneida “solely based on chance” test should be extended to enterprizes other than horse racing it is clear to me at least that the scheme devised in the instant case provided no opportunity for the exercise of skill. As stated in Sherwood & Roberts-Yakima, Inc. v. Leach, 67 Wash.2d 630, 409 P.2d 160 (1965)
“ * * * Assuming that respondents in
fact used skill or judgment in selecting the referrals, the trial court properly held that chance permeates the entire scheme. The court found that respondents took a chance that the referrals might not be interested; that the salesman might not adequately make his presentation; that the referral might have already been referred by someone else; that the market might be saturated; and that the salesman might not even contact the referral. In addition, the trial court noted that respondents have no control over the general operation after they gave the names of referrals. In fact, respondents were told not to contact the referrals before the Lifetone salesman made his presentation, and respondents were told to emphasize the money-making program in case the referrals contacted them.” 409 P.2d at p. 163.
The element of chance which permeated Sease’s scheme in the instant case is heightened by its so-called chain-letter effect. Coincidentally, the factual discussion in Sherwood & Roberts applies precisely to Sease’s “allotment privilege” and its chain-letter effect:
“ * * * For ease of demonstration, respondents must earn 12 commissions of $100 each in order to get, as promised, something for nothing. This means that 12 of respondents’ referrals must pur*261chase as respondents did; they, in turn, to get something for nothing, must find 12 more people to purchase, and so forth, as follows:
Number of Purchasers
1
1st round 12
2d round 144
3d round 1,728
4th round 20,736
5th round 248,832
“Soon the scheme will run itself out; the market will become saturated.” Sherwood & Roberts-Yakima, Inc. v. Leach, supra, 409 P.2d at 163.
I would take judicial notice that in 1968 the population of Coeur d’Alene, Idaho was less than 20,000 people. If every man, woman, and child in Coeur d’Alene bought a stereo set, the allotment privilege had to play itself out and the market become completely saturated between the third and fourth round. The inherent fallacies and dangers of such sales referral schemes are aptly stated:
“[t]he inherent fallacy of all referral contracts [is] the ‘chain letter effect.’ Any given single buyer may get the benefit of his agreement, if none of the foregoing defects arise. And if the referral payment could be earned simply by providing a name at random, regardless of the potential customer’s financial condition or his ownership of the item or need for the service in question, all buyers could satisfy their obligation; the telephone directory would assure that. But the seller could ill afford such an arrangement. The seller will therefore restrict the buyers in providing names: to earn a payment the buyer must provide the name of a person who actually buys the product or service, or at least one who could afford it, who is presently without it, and who has not been referred. The seller must thus insure himself a chance to convert names into sales to stay in business.
“This restriction means that no matter how large the financial resources or how pure the methods of the seller, the success of the buyers as a group depends on an inexhaustible supply of bona fide potential customers. Whatever the number of referrals required of each buyer to avail himself of the full benefits, there cannot be enough remaining potential customers to prolong the chain indefinitely. The early and rapid success of the plan (should such occur) only hastens its end, as far as the buyers are concerned. The last buyers in any given market, whether because of the seller’s failure or the exhaustion of potential customers, must pay for whatever benefit their predecessors received, without themselves benefiting at all. This feature is built into most of the plans — thus if the seller can hold on long enough to exhaust the market, he will ultimately make enormous profits from the last round of buyers. And the buyer who is unaware of the history, in his area, of the particular plan offered him is at a considerable disadvantage.” (Emphasis supplied) Comment, Referral Sales Contracts: To Alter or Abolish, 15 Buffalo L.Rev. 669, 684-685 (1966).
Thus even under the Oneida rule I would conclude that the referral sales scheme in the instant case was in fact an illegal lottery because skill plays no part in determining whether the participants gain any reward from the scheme.
In my judgment there is no genuine issue of material fact in the instant case. Sease’s referral sales scheme contained the requisite elements of chance, consideration and prize and in my opinion is clearly an illegal lottery. Sherwood & Roberts-Yakima v. Leach, supra; See also: State by Lefkowitz v. ITM, Inc., 52 Misc.2d 39, 275 N.Y.S.2d 303 (1966); Commonwealth v. Allen, 404 S.W.2d 464 (Ky.1966); M. Lippincott Mortgage Investment Co. v. Childress, 204 So.2d 919 (Fla.App.1967).
The judgment of should be affirmed. the district court