Court Opinion

ID: 9374186
Source: CourtListenerOpinion
Date Created: 2023-02-22 17:03:28.774436+00
Date Added: 2024-06-11T17:16:45.291633
License: Public Domain

IN THE COURT OF APPEALS OF IOWA

                                  No. 22-0465
                            Filed February 22, 2023

TRESTLE CORPORATION LIMITED,
     Plaintiff-Appellant,

vs.

IOWA DEPARTMENT OF INSPECTIONS AND APPEALS,
     Defendant-Appellee.
________________________________________________________________

      Appeal from the Iowa District Court for Polk County, Samantha Gronewald,

Judge.

      Trestle Corporation Limited (Trestle) seeks judicial review of a decision by

the Iowa Department of Inspections and Appeals requiring Trestle’s game to be

registered under Iowa’s gaming statute. AFFIRMED.

      Gary Dickey of Dickey, Campbell, & Sahag Law Firm, PLC, Des Moines, for

appellant.

      Brenna Bird, Attorney General, and David M. Ranscht and John R.

Lundquist, Assistant Attorneys General, for appellee.

      Heard by Bower, C.J., and Badding and Buller, JJ.
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BULLER, Judge.

      This case is about whether a particular computerized game is primarily a

game of skill or knowledge, contrasted with a game of chance. The Director of the

Iowa Department of Inspections and Appeals (the agency) determined a game

developed by Trestle Corporation Limited (Trestle) was not primarily one of skill or

knowledge, which means the relevant devices must be registered under Iowa’s

gaming statute. We affirm and hold that, while the game at issue relies on a mix

of chance and skill, chance dominates such that registration is required.

      I.     Background Fact and Proceedings

      In 2018, the supreme court decided Banilla Games, Inc. v. Iowa Department

of Inspections & Appeals, 919 N.W.2d 6 (Iowa 2018), providing for regulation of

certain “nudge” games.

              Nudge-style games consist of three electronic reels featuring
      different icons that spin when a player pushes the play button and
      stop automatically after a short time. The reels may also stop
      spinning if a player pushes the stop button. However, if a player
      pushes the stop button, the same icons will appear as if the player
      let the machine stop automatically. Players then determine whether
      a potential winning combination of two or more icons is present and
      choose one of the wheels to move up or down (i.e., nudge) in order
      to complete the winning pattern.[1]

Banilla, 919 N.W.2d at 10. In response to Banilla, Trestle developed the “Game

of Skill Multi-Game System version 13.3.1.1,” which we will refer to as “the game.”

1 Apparently in light of Banilla, 919 N.W.2d at 10, the General Assembly defined
“nudge game” as “any game or phase of a game in which a participant spins reels
or simulated reels and may choose to nudge one or more reels in any direction to
complete a winning combination or pattern.” 2021 Iowa Acts ch. 100, § 2 (codified
at Iowa Code § 99B.1(25)). The General Assembly also excluded nudge games
from the definition of “amusement concession.” Id. §§ 1, 4 (codified at Iowa Code
§§ 99B.1(1), .31). This legislation took effect after Trestle filed its petition for
declaratory order, but the definition appears to be consistent with Banilla.
                                          3

       The game is played using a piece of standalone machinery with a

touchscreen. Players insert cash into the front of the cabinet, and the cash

generates “credits” in the amount of one credit per cent. The game rate ranges

from 86% to 98%, meaning that only 86% to 98% of the overall credits spent to

play can be recovered through winnings.

       The game involves three phases and two different game themes—one

theme is about ducks, the other about bugs. The first phase of both themes

involves nudge-style games where, after play begins, players nudge symbols left

or right to attempt to align a winning combination. The possible outcomes for this

phase are: (1) a winnable combination with a prize greater than the cost to

play; (2) a winnable combination with a prize less than the cost to play; or (3) no

winnable combination.      In other words, the outcome at this phase is pre-

determined, regardless of what buttons a player may press.

       If a player succeeds at the first phase, they move to the second phase,

referred to by Trestle as “Skill It.” This phase presents players with a speedometer-

like display that requires the player to time a “stop” arrow that determines the prize,

which ranges from 55% to 110% of the potential prize from the first phase. It is

possible for players who successfully complete the first and second phases to

receive a prize that is less than the credits expended to play.

       The third phase, referred to by Trestle as “Follow Thru,” is optional and only

offered to players who do not progress past the first phase. This third phase,
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comparable to the children’s game “Simon,”2 requires players to repeat a correct

sequence in six rounds of play. If successful, players receive a prize in excess of

the purchase price to play. If the player fails, they do not receive any prize.

       The agency issued a declaratory order finding that Trestle’s device was an

electrical or mechanical amusement device subject to registration because the

“outcome of [the] device is not primarily determined by the skill or knowledge of

the player.” The district court, on judicial review, affirmed by finding the outcome

of the game was “dominated by chance.” This appeal follows.

       II.    Standard of Review

       Because the supreme court has held the agency’s interpretation of Iowa

Code section 99B.53(1) (2021) is not entitled to deference, our review is for

correction of errors at law. Banilla, 919 N.W.2d at 14. Under chapter 17A, we may

“reverse, modify, or grant other appropriate relief from agency action if we

determine that the substantial rights of the petitioner have been prejudiced

because the agency action is unreasonable, arbitrary, capricious, or an abuse of

discretion.” Id. at 18–19 (citing Iowa Code § 17A.19(10)(n)).

2      The electronic game “Simon,” emblematic of the late 1970s,
       consisted of a round plastic disc with four, large different colored
       buttons. Players tried to memorize and then repeat increasingly long
       sequences of musical tones after they were emitted from the disc
       and displayed by the illumination of the different colored buttons.
Mattel, Inc. v. United States, 346 F. Supp. 2d 1295, 1303 (Ct. Int’l Trade 2004).
                                         5

       III.   Discussion3

       An electrical or mechanical amusement device “that awards a prize where

the outcome is not primarily determined by skill or knowledge of the operator” must

be registered with the agency. Iowa Code § 99B.53(1) (emphasis added). The

term “‘primarily’ requires the fact finder to determine whether skill, knowledge, or

chance dominates the outcome. If chance dominates the outcome, the device

must be registered.” Banilla, 919 N.W.2d at 15.

       We agree with the agency and the district court that chance dominates the

first (nudge) phase of the device. We put significant weight on the possibility that

a player in this phase may not be able to align a winning combination. This “nudge”

game would, on its own, clearly be a game of chance rather than skill. See id. at

10. We also agree with the agency and district court that there is some level of

skill involved in the second (“stop” arrow) phase. While skill in timing the arrow

impacts the percentage of prize won, the total possible winnings are governed by

the chance-determined nudge phase. Last, we agree with the district court that

the third (memory) phase relies on skill and knowledge, though it is undisputed this

phase can be skipped in favor of a return to chance.

       To the extent the agency claims that a device is subject to registration

whenever one of multiple game phases is based on chance (such as a nudge

game), we find that interpretation is not compatible with the statute and Banilla.

3 Trestle’s reply brief includes a photograph from a commercial website, purporting
to depict what the appellant calls a “quintessential amusement device.” This
photograph is outside the record and we do not consider it. See Iowa R. App.
P. 6.801 (defining the record on appeal); State v. Lilly, 969 N.W.2d 794, 799
(Iowa 2022) (noting appellate consideration is limited to record on appeal).
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However, based on the facts presented here, we find that the game at issue is not

primarily one of skill or knowledge. While Trestle has perhaps innovated beyond

the game reviewed in Banilla by adding features that involve at least some degree

of skill or knowledge, we conclude chance dominates because the subsequent

phases progress from the initial chance-driven phase. For example, based solely

on the chance phase, a player can be locked into winning no prize or a prize less

than what they expend to play the game. The second and third phases really are

just modifications (either enhancements or reductions) of the prize won during the

initial chance phase. Chance dominates the game, even if skill can magnify or

diminish potential winnings.

      Much of Trestle’s argument challenging the agency action and judicial

review below consists of fact-driven complaints that disagree with how the

underlying fact-finder resolved conflicts in the evidence. We have considered all

of these factual complaints and find they do not warrant reversal, either because

the complaints are immaterial to our analysis or because they involve the type of

disputed inference that we owe deference on appeal from judicial review of agency

action. See Iowa Code § 17A.19(10)(m); see also Burton v. Hilltop Care Ctr., 813

N.W.2d 250, 256 (Iowa 2012) (on deference to agency fact-findings). We have

also considered the naming conventions Trestle adopted for the second and third

phases (“Skill It” and “Follow Thru” respectively). But, as our supreme court noted

eighty years ago, "[C]ourts have, in general, looked behind the name and style of

the device to ascertain its true character.” State v. Wiley, 3 N.W.2d 620, 624

(Iowa 1942).
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       Last, we reject Trestle’s argument that the amount of prize does not matter

to the analysis. Taking Trestle’s argument to its logical conclusion, if it cost one

dollar to play the game, but the player could always win at least one cent through

exercise of skill or knowledge, registration is not required. This would be an

unreasonable application of the law, and we decline to affirmatively undermine the

statute based on Trestle’s lipstick-on-a-pig4 approach to game design. Cf. Gift

Surplus, LLC v. State ex rel. Cooper, 868 S.E.2d 20, 26 (N.C. 2022) (looking past

a “‘winner-every-time’ modification to permit a nominal award of a few cents” and

finding a game subject to regulation).

       Finding no error in law, nor any unreasonable, arbitrary or capricious

application of the law to the facts, we affirm.

       AFFIRMED.

4 See generally Ben Zimmer, Who First Put Lipstick on a Pig?, Slate Magazine,
(Sept. 10, 2008), https://slate.com/news-and-politics/2008/09/where-does-the-
expression-lipstick-on-a-pig-come-from.html.