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Wednesday, 04 September 2013 13:48

Razing the sweepstakes: Police handcuffed in latest standoff with successor of video gambling

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coverSweepstakes-style video gambling is making bold forays into the rural communities of Western North Carolina, back for yet another skirmish in the decade-long war against the betting devices. 

State lawmakers have tried to ban them. Police have tried to bust them. Judges have tried to reprimand them. 

 

But they don’t stay gone for long. They reappear with a crow bar in hand, prying open some imperceptible loophole just enough to weasel through.

Each time, the machine operators simply declare their latest incarnation legal and start up again in plain sight. It’s a brazen strategy — so brazen in fact that cops aren’t quite sure what to do.

Now, as they brace for the next round, exasperated lawmen are trying to decide if they should bother cracking down or simply give up. 

“There is a resource question for small communities, whether it is worth fighting this,” said Jeff Welty, a legal scholar with UNC’s School of Government. “We live in a world of limited resources. Law enforcement can’t target every crime. They make decisions every day about what to prioritize or not to prioritize.”

That doesn’t sit well with Waynesville Police Chief Bill Hollingsed, however. He doesn’t believe law enforcement should brush off sweepstakes — or any criminal activity — as a mere irritant that’s not worth the hassle.

“The Waynesville Police Department is not going to sit back and pick and choose which laws we are going to enforce. If it is brought to our attention that there is a violation of the law, it is our duty to enforce that,” Hollingsed said.

A N.C. Supreme Court ruling technically pulled the plug on the gambling machines in early January. The top court declared sweepstakes a chip off the old block of video gambling, which is illegal. But the hiatus was short-lived.

Machines are once again turning up, tucked in the back corners of gas stations between the bathrooms and beer coolers. It’s easy not to notice them. The players perch silently at the rows of stools, feeding dollars into the slots as they peck at a colorful touch screen, hoping for a cash prize. 

 

Stacking the decks

The mountains have become a proving ground as sweepstakes operators test the waters with their new breed of machines. 

In apparent acts of civil disobedience, a handful of sweepstakes operators kept the lights on and machines humming even after the N.C. Supreme Court handed down its cease and desist order at the end of last year.

A memo from District Attorney Mike Bonfoey warned law enforcement to be prepared for rebellious sweepstakes operators unwilling to shut down.

“I doubt that the video gambling industry will end its efforts to dispute the North Carolina statutes on this issue,” Bonfoey wrote in a letter to sheriffs and police chiefs in the seven western counties in late December. “We have not seen the definitive end of this issue.”

Criminal charges were brought against more than half a dozen sweepstakes holdouts in Haywood, Jackson and Macon counties back in January and February. But some have been getting off as their cases come to trial. 

Three sweepstakes operators in Waynesville, Franklin and Sylva were charged and have all gotten off. All three claimed a new version of the games involve “skill and dexterity,” making them exempt from the state’s ban.

There’s another 800-pound gorilla in the sweepstakes debate: a civil suit filed against the Sylva police chief, Highlands police chief and Macon sheriff. The civil suit waged by sweepstakes company Gift Surplus claims its new style of machines are in fact legal and should be left alone. 

Bonfoey had predicted this tactic as well.

“In all likelihood additional appeals and court cases will continue. There may be additional injunctions and orders issued by various courts,” he wrote in the January memo.

In the meantime, law enforcement organizations don’t know what to do about the emboldened sweepstakes operators taking cues from the trio of not guilty verdicts and the pending civil case in Macon County. 

Local law enforcement groups are between a rock and a hard place. It certainly looks bad that sweepstakes operations are back up and running right under their noses, in full view for all to see, while law enforcement stands idly by claiming their hands are tied.

There are two gas stations in Sylva with sweepstakes machines making cash payouts to players almost daily. Yet if you ask Sylva Police Chief Davis Woodard what his position is on these operations, the answer is short and sweet.

“As long as it is a state law, it will be enforced,” Woodard said.

Woodard said he couldn’t comment further per orders from the town attorney.

Woodard is among those named in the Macon civil suit asking the court to spare the new style of machines from pesky lawmen.

 

Murky precedent

The “not guilty” verdicts handed down in three District Court cases certainly look good for the sweepstakes companies, but only on paper. District Court rulings on individual, low-level charges don’t constitute a sweeping vindication of sweepstakes. 

“A District Court ruling sets no precedent whatsoever. It would not prevent those same machines from being charged,” said Brian Welch, attorney for the Macon County Sherriff’s Office. “We feel like those particular machines are still illegal.”

Waynesville Police Chief Bill Hollingsed agreed.

“A judge may find an individual not guilty in a DWI case, but that doesn’t make the statewide statutes for a DWI any less valid. A DWI is still illegal in the state of North Carolina,” Hollingsed proffered as an analogy.

Yet if the cases keep getting tossed out, does it make sense for police to keep making arrests? And does it make sense for the district attorney’s office to keep prosecuting them?

Macon County Sheriff Robbie Holland said he is in wait-and-see mode and is not actively going after any sweepstakes operators, although Welch said he doesn’t know of any operations in the county anyway.

Hollingsed isn’t as lucky. He knows of two gas stations in Waynesville operating machines, and now faces a conundrum. 

“If all the cases are being thrown out for the exact same reason, then that is a decision we are going to have to make, ‘How we are going to proceed from here?’” Hollingsed said. “That is something law enforcement heads will be concurring with the district attorney on, so we are all on the same sheet of music. That decision will have to be made in the future.”

Haywood Sheriff Greg Christopher met with Hollingsed last week to begin those discussions. He wants the sheriff’s office and all four police departments in the county to act in concert so there isn’t a discrepancy in enforcement strategy, whatever that may end up being.

District Attorney Mike Bonfoey said he still stands ready to prosecute any charges law enforcement makes against sweepstakes operators. Sweepstakes operations are still illegal under state law and the three District Court rulings don’t change that, he said.

“Prosecutors look at these cases on a case-by-case basis to see if the evidence gathered and obtained is enough to go forward with a case,” Bonfoey said. “Not guilty in any case means there was not enough evidence to prove guilt beyond a reasonable doubt.”

Prosecutors and law enforcement are now catching on to the defense used by the sweepstakes operators, however, and will hone their own strategy for pending cases, Bonfoey said.

“It is a new statue, it is a complicated statue and one law enforcement has no experience investigating and enforcing,” said Jeff Welty, a legal expert with the UNC-School of Government at Chapel Hill. “So maybe it is not surprising that the early cases weren’t investigated in a way that satisfies the judges. Maybe there is a learning curve for law enforcement to know what evidence they need to document, and for prosecutors what witnesses do they have to be able to call and what boxes do they have to check.”

But on the flip side, the sweepstakes operators may indeed have honed a convincing argument that their new style of games is legit under the law.

“It is also possible what we are seeing is once again an evolution of the games to get around the law,” said Welty, citing the ubiquitous “whack-a-mole” analogy used time and again to describe sweepstakes.

“The legislature brings the hammer down on one type of game and up pops another type of game,” Welty said.

 

Secret weapon

As criminal cases come to trial, sweepstakes companies are bankrolling the legal defense of store managers and clerks who have been willing to stick their neck out and risk arrest by housing and running the machines.

When cops bust a sweepstakes operation, the person behind the counter caught in the act of paying out cash to players is the one who gets charged. But in reality, they are merely front men, parking the machines in their stores in exchange for a cut from the sweepstakes companies.

Attorney George Hyler on behalf of two sweepstakes companies, Gift Surplus and Sweet Carolina, argued the three cases tossed out in District Court so far.

Hyler believes his three cases, when viewed together, add up to a de facto precedent. After all, they spanned three counties and came before two different judges — District Court Judges Donna Forga and Monica Leslie.

“At this point I don’t think one judge would come in and say, ‘Well that other judge thinks it is legal but I don’t,’” said Hyler, a leading lawyer for the sweepstakes industry in the state.

For now, all eyes are on Hyler’s fourth and final criminal case coming up Sept. 23 in Waynesville. He will once again argue the new style of machines is exempt due to “skill and dexterity.”

Will the verdict in that case reverse the trend or be another notch in the belt for sweepstakes companies?

The upcoming case involves a high-profile defendant as well: Tami Nicholson, the owner of a shutdown sweepstakes parlor in Waynesville called Winner’s Circle.

Nicholson is not merely a hapless clerk of a convenience store, working the counter shift when cops made the bust. Nicholson has been a vocal champion of sweepstakes and spoken up at every turn in protest of the state ban that put her out of business.

She has quit giving interviews, citing a pending court date later this month. But she regularly makes comments on The Smoky Mountain News’ web site whenever there’s an article on sweepstakes developments.

“Bottom line, NC residents should be allowed to spend their money how and where they want without control by the state,” Nicholson wrote in a post last week. “We have the lottery, casinos and even the stock market. Isn’t that all gambling? Yes! And all legal.

“If people don’t like the lottery, don’t play it. If people don’t like the casino, don’t go. If people don’t like the stock market, don’t invest. If people don’t like sweepstakes, don’t purchase entries. Simple as that,” she continued.

Nicholson equated the ban on sweepstakes to a “modern-day prohibition.”

“Do we not live in the ‘land of the free?’” Nicholson wrote in her comments to the newspaper last week.

Nicholson’s comments don’t square with the sweepstakes industry’s party line, however. Sweepstakes companies have tried to separate themselves from gambling, coming up with various technical arguments for why they don’t meet the legal definition.

But the latest devices still bear an uncanny resemblance to those previously outlawed. One look at their marquees confirms their pedigree, a lineage that flows from annals of old-fashioned video gambling: leprechauns waving four-leaf clovers, glittering lucky 7’s and brimming pots of gold.

The new sweepstakes machines don’t seem to be as popular with players, however.

“Not even close,” said Greg Hildebrandt, the manager of PJ’s Exxon gas station in Sylva, which currently has the new machines in operation. Hildebrandt said he didn’t know why they don’t have the same allure.

“I am not a gambler so I couldn’t tell you,” said Hildebrandt, one of the three sweepstakes operators who garnered not guilty rulings this summer.

 

Skill and dexterity — according to whom?

Three reporters with The Smoky Mountain News went to a gas station in Haywood County last week and played the new games the first day they showed up. For the record, the staff spent $6 and won $1.

But the real goal was to test claims that the games require skill and dexterity. Here’s how they work: You push a button and nine symbols appear on the screen. You have to match three of a kind to win. But more often than not, the screen doesn’t display three of a kind. No matter how skilled and dexterous you are, it’s impossible to match three of a kind because three of a kind doesn’t even show up on the screen. So you automatically lose the hand.

On occasion, three of the same symbols do in fact appear on the screen. If you match them by touching the screen, you win that hand.

Brian Welch, attorney for the Macon County Sheriff’s Office, said these games don’t meet the litmus test of requiring “skill and dexterity.” He pointed to a 2004 lawsuit waged by a poker club in Durham claiming it should be exempt under the “skill and dexterity” loophole. The poker club lost.

The N.C. Court of Appeals ruled that chance trumps skill in poker since “victory is not entirely in the player’s hand.” 

“A skilled player may give himself a statistical advantage but is always subject to defeat at the turn of a card which is an instrumentality beyond his control,” the Appeal Court ruling stated.

That’s not unlike the sweepstakes games. While it might take skill to match the images — albeit a skill typically mastered by the age of 3 — whether the images can be matched at all depends on the hand that’s dealt in the first place and thus beyond the player’s control.

Hyler disagreed. He said the matching of icons on a screen is definitely skill-based.

“There is an element of chance. But the skill has to predominate over the chance,” Hyler said. “There has to be a skill component in it.”

The skill and dexterity loophole was intended for games like pinball or ski ball, or carnival games like throwing darts at a balloon or a shooting gallery at a county fair, said Waynesville Police Chief Bill Hollingsed.

“They never thought the industry would be arguing that raising and lowering your finger an eighth of an inch is dexterity,” Hollingsed said.

Sweepstakes operators are clearly interpreting the “skill and dexterity” clause differently, however.

“If skill and dexterity is involved, even if luck is also involved, then the argument is that it is outside that category,” Welty said.

The subjective nature of measuring skill and dexterity leaves it open to a hodge-podge of rulings depending on a particular judge’s take.

Sylva Town Attorney Eric Ridenour said the “skill and dexterity” argument is a red herring anyway.

“Even if it involves skill and dexterity, it doesn’t matter because it is still gambling under this statute. If you have to do a back flip in order to win, it doesn’t matter,” Ridenour said.

As a side note, Hyler pointed out that the sweepstakes players aren’t technically getting cash payouts, despite being handed cash from the store clerk when they win.  

“It is not a payout. It is redeeming what you won in a sweepstakes,” Hyler said.

 

Open season

If the sweepstakes industry racks up another win in the upcoming case against Nicholson later this month, proliferation of the machines is likely imminent. 

The devices rolling over the threshold of gas stations are already touting the District Court rulings to date as ammunition. Note cards have been taped to each machine asserting that they are legal, citing the specific the rulings by Judge Forga and Judge Leslie.

The companies themselves presumably taped the note cards there. When asked whether this declaration in fact makes them legal, Haywood County Sheriff Greg Christopher said “No.”

The sweepstakes issue is a new one for Christopher. He came into office in March. By then, a rash of arrests against defiant sweepstakes operators in Waynesville, Canton and Maggie Valley had already taken care of the stragglers who refused to heed the N.C. Supreme Court ruling.

They remained dormant in Haywood County until just last week when machines bearing the Gift Surplus name turned up in three gas stations — two in Waynesville and one just outside the town limits beside Shoney’s.

The owner of the three gas stations called the police department last week and announced that he had just gotten some new sweepstakes machines in. He asked if an officer could come down and play the machines and give them the OK since they took “skill and dexterity.”

Waynesville Police Chief Bill Hollingsed declined the invite.

“I am not going to put a police officer in the position of making that call — especially when you have judges across the state that can’t decide if those machines are legal or illegal,” Hollingsed said. “Law enforcement has been placed square in the middle of trying to decipher and interpret the statute.” 

The counties west of Asheville have been called a “hotspot” for sweepstakes’ resurgence. But it is playing out in other regions as well. A hodgepodge of criminal cases against defiant sweepstakes operators have been heard in District Courts around the state with mixed results.

“You have all these different prosecutorial districts with opinions made by District Court judges and those decisions are not valid statewide,” Hollingsed said. “It is not the enforcement that is inconsistent. What’s inconsistent is the ruling in the courts.”

Brooks Frye has been battling these same frustrations in rural counties in Eastern North Carolina. 

“There are not a whole lot of black and white answers,” said Frye, an assistant district attorney. In the Tarboro area, law enforcement brought charges against nine sweepstakes operators over the winter.

It’s one of the other “hotspots” of sweepstakes activity in the state. It’s not clear whether sweepstakes are actually more rampant in these hotspots, or whether cops in these places were simply willing to crack down.

“We told them we had their back and would be ready for trial,” Frye said. “It isn’t our job to decide whether we are going to prosecute a certain law. We aren’t going to choose among them.”

Still, Frye admits it is a drain on resources for smaller communities.

 

On the up and up, or down and out?

The state first banned video gambling in 2006. Loopholes promptly emerged, so more laws were passed in 2008 and again in 2010.

Sweepstakes’ rise to popularity during this time was questionable from the start. Sweepstakes were never technically legal, but merely operated in a state of purgatory, forging ahead with a tenuous claim that the ban on video gambling didn’t apply to them.

Across the state, leniency or severity varied from county to county, creating an even more confusing landscape over what was and wasn’t legal. 

Ultimately, the N.C. Supreme Court declared sweepstakes illegal in late 2012 — more than six years after the state first banned video gambling. But by then, the gamble had paid off. The industry had rocked on for years. Despite its legality being in limbo, each day that passed was another day of money in the bank for the machine operators.

The tried-and-true formula could be playing out once more. 

The civil lawsuit filed in Macon County is one of five around the state asking Superior Court judges to declare their newest games legal. To Sylva Town Attorney Eric Ridenour, it’s a stalling tactic.

“I think they know full well it is illegal under the statute but their hope is to keep in operation as long as they can,” Ridenour said.

In some counties, sweepstakes never shut down at all following the N.C. Supreme Court ruling earlier this year but have been operating with impunity all along.

“In some areas law enforcement went out and charged folks. In some cases they went out and warned folks they could be charged if they didn’t shut down. And in some cases, law enforcement said ‘It isn’t a priority in our community and we don’t have a lot of complaints,’ and so they didn’t actively enforce the law,” said Jeff Welty, a legal scholar at the UNC School of Government.

That wasn’t the case here. District Attorney Mike Bonfoey sent word to law enforcement agencies in January that he would gladly try any cases law enforcement brought him. Bonfoey even met with police and formulated a strategy — namely figuring out what type of evidence police had to get when making the arrest so Bonfoey would have what he needed come trial.

Ultimately, police would need to go in undercover, play the machines until they won something, and then collect their cash winnings in order to catch operators in the act. 

There was a reason to be so exacting. It was no secret sweepstakes operators were gunning for a fight. All they needed was a test case to get their foot back in the door of the court system.

Local law enforcement didn’t shy away from making charges at the time, but that could change if judges keep letting sweepstakes operators off.

“It is not unreasonable to say, ‘We charged someone running that system and they got an acquittal and so why would we waste our time charging the exact same type of machine?’” said Chris McLaughlin, a policy expert with the UNC School of Government. “There is a risk you may end up wasting your time.”

 

A civil threat

For the town of Sylva, going after sweepstakes operators has not only taken time, but money. The town has been to court twice this summer for hearings in a civil suit filed against Sylva Police Chief Davis Woodard by the sweepstakes company Gift Surplus.

Ridenour said if the sweepstakes companies have a beef with the ban, they should take it up with the state, not small towns like Sylva.

It’s cost the town $4,000 in legal fees so far, even with Ridenour donating half the time he’s spent on the case pro bono.

“Our entire goal is to get out as soon as possible. This has nothing to do with the town of Sylva,” Ridenour said. “We don’t want the burden of the state’s legal issues to be borne by the taxpayers of the town of Sylva.”

The civil suit could bring some real clarity to the issue that’s been lacking, said George Hyler, the attorney representing Gift Surplus.

“This is an attempt to show in a civil court that this game is legal and law enforcement should not be able to come and pick the games up,” Hyler said.

Ridenour, along with attorneys for the town of Highlands and the Macon Sheriff’s office, argued in court in early August that the case should be dismissed. Specifically, they said the civil suit erroneously targets local law enforcement, when in fact the proper party to sue is the state.

“If it gets dismissed we will appeal,” Hyler said of the suit filed in Macon.

Civil suits filed against local police chiefs and sheriffs by sweepstakes companies elsewhere in the state have been successfully dismissed on the same grounds.

Ridenour doesn’t even think local cops should be the enforcement arm over sweepstakes. Gambling enforcement is supposed to be handled by the N.C. Alcohol Law Enforcement. And sweepstakes is really just garden-variety gambling. 

“In the past this was an area that A.L.E. pretty much policed. For whatever reason they appear to be absent on this,” said District Attorney Mike Bonfoey.

Ridenour wants to see ALE take over the enforcement of sweepstakes, and the N.C. Attorney General’s office take over prosecution instead of dumping it in the laps of local jurisdictions to deal with — or not deal with — as the case may be. 

“It is putting additional case load on the town of Sylva,” Ridenour said. “It would be like saying the town of Sylva is in charge of organized crime. That is a pretty big undertaking.”

The N.C. Attorney General’s Office says it isn’t passing the buck, however. They spent years fighting video gambling and sweepstakes operators at the state level, ultimately prevailing before the N.C. Supreme Court. But it is now up to local jurisdictions to enforce the law at the local level, said Noelle Talley, spokesperson for Attorney General Roy Cooper.

“Law enforcement agencies have authority to enforce the laws in their jurisdictions and district attorneys have authority to prosecute violations of the law, just as they do with any other criminal law,” Talley said.

If sweepstakes operators are found guilty by a local court and appeal their conviction, only then would the state take over prosecution. 

Bonfoey said his office will take any charges that are made by law enforcement and prosecute them the best he can.

“There is no blanket remedy that I can do or that law enforcement can do to eliminate all the machines,” Bonfoey said.

 

 

The unrelenting, unstoppable,indefatigable industry

State lawmakers have banned video gambling and sweepstakes three times already — in 2006, 2008 and 2010 — capped off by a N.C. Supreme Court ruling in 2012. Each time the industry skirts the law by tweaking the machines and just keeps on operating. The video gambling industry has a blemished record marked with scandals. Video gambling operators were busted for running an illegal racket in Buncombe County several years ago. The corruption — including money laundering and bribing law enforcement — landed former Buncombe County Sheriff Bobby Medford in federal prison along with hard time for key deputies and the gambling operators involved. At the same time, Former House Speaker Jim Black landed in prison following a federal investigation into campaign donations by video poker industry.

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