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Carolina Beach Police To Send Letter To Sweepstakes Parlors

Managing Editor

CAROLINA BEACH - The Carolina Beach Police Department is preparing to send letters to local internet sweepstakes parlors informing them of a recent North Carolina Supreme Court decision that upholds a state law banning operation of video sweepstakes machines.
On Tuesday January 29, Police Chief Kurt Bartley said he was putting the finishing touches on a letter that, "Basically talks about the Supreme Court decision and informs owners that operating the sweepstakes machines is illegal. It will ask them to cease operation."
In December the Town began preparing to enforce the state law which bans machines operated by sweepstakes parlors.
The Carolina Beach Town Council was informed December 18, the Town would no longer issue permits for Internet Sweepstakes Parlors or machines and will not issue refunds for license fees.
That resulted from a decision of the North Carolina Supreme Court on Friday December 14, upholding a state law banning such electronic machines deeming it gambling. There are a number of businesses in Carolina Beach that operate as standalone Internet sweepstakes parlors while other existing businesses such as restaurants offer a small number of machines for play.
On January 29, Chief Bartley said some sweepstakes machines have been updated since the ruling in an effort to comply in some manner and continue operation. He said it's his understanding the law will cover the machines in general and hopes that rulings from pending court cases will add some clarity to the issue of enforcement.
During the Council's December 18, meeting Town Finance Director Dawn Johnson said, "That is an on going process and the police department is definitely involved with determining the dates for not allowing the businesses anymore. We will keep you updated on what we find out. A pending date now is January 3rd, but we are waiting to hear from the Attorney General."
She said, "As it stands now we are not to issue any refunds for anything and we are not to issue any new sweepstakes licenses."
Councilman Steve Shuttleworth said it's not a Town issue, but, "It was the North Carolina Supreme Courts opinion the ban on Internet sweepstakes is upheld and therefore are not an allowable use. We have several of those in Carolina Beach so it’s going to impact some private business owners unfortunately in a negative way."
According to an opinion issued by the NC Supreme Court, "After careful constitutional analysis, we conclude that" North Carolina General Statute 14-306.4 "as enacted in 2010 does not violate the First Amendment because it regulates conduct, not protected speech."
The opinion states, "In an effort to curtail the use of a perceived loophole in the State’s gambling laws, the General Assembly passed N.C.G.S. § 14-306.4, which bans the operation of electronic machines that conduct sweepstakes through the use of an “entertaining display.”... Claiming an unconstitutional restriction on their freedom of speech, plaintiffs challenged the new law. The Court of Appeals declared the statute an overbroad restriction on protected speech and struck it down as unconstitutional.  We conclude that this legislation regulates conduct and not protected speech and now reverse" the Court of Appeals opinion.
In 2006 the General Assembly banned video poker and all other forms of electronic gambling. Since that time companies have developed systems that appear to sidestep traditional gambling restrictions by combining legal sweepstakes with video games that simulate a gambling environment, thus purportedly removing the “bet” or consideration element of gambling.
Since the ban on video poker in 2006, the manufacture’s have found ways to reprogram the machines in an effort to capitalize on perceived loopholes in state law. Several times they have been granted injunctions by courts protecting them from law enforcement. They claimed the state could not legally regulate what appears on the screens because it was protected by the U.S. Constitution as free speech.
The Supreme Court decision states that sweepstakes operators, "market and sell prepaid products, primarily long-distance telephone and/or high-speed Internet service.”  As a promotion, plaintiffs have developed electronic sweepstakes systems. Sweepstakes participants obtain entries from a predetermined, finite pool of entries - some of which are associated with a prize value and some of which are not - either after a qualifying purchase of plaintiffs products or at no charge upon request. Participants receive a magnetic stripe card which allows them to access a game station terminal and stores the information related to their individual sweepstakes entries. At the terminal “the program reveals the content of the sweepstakes entry using different displays that simulate various game themes.”  These simulated games do not determine, and cannot modify, the sweepstakes outcome or any prize that might be associated with a sweepstakes entry. Any prize amount won through the sweepstakes may be claimed in cash at the counter of the establishment or may be used at the game terminal to purchase more of the product in one-dollar increments, thereby enabling the customer to immediately receive more sweepstakes entries." The Court of Appeals majority concluded that both the announcement of the sweepstakes result and the video games are protected speech and that the definition of “entertaining display” in the statute is virtually unlimited.  The State Supreme Court reversed that decision saying the state law regulates putting the machines into operation which is conduct and not free speech.
District Attorneys Jon David and Ben David who represent New Hanover, Brunswick, Pender, Bladen and Columbus counties sent a letter earlier this month to area law enforcement agencies regarding enforcement.
The letter states, "Society has long struggled with the issue of whether or not to permit gambling. While some states authorize the practice of electronic sweepstakes, North Carolina has been consistent in doing everything possible to make this behavior illegal. The Legislature has spoken clearly in enacting Statute 14-306.4. In doing so, the Legislature determined that the social costs associated with gambling (e.g. addiction and secondary deviance) far outweigh the economic benefit derived from the industry."
The letter - carrying the names of District Attorneys Benjamin R. David and Jonathan M. David - states, "The Legislature made video gambling illegal under N.C. Gen. Stat. 14-306.4. The Supreme Court interpreted the law in Hest Technologies, Inc. v. Perdue. (Prior to this ruling, our courts have struggled with whether or not the law was overbroad and violated First Amendment protections regarding free speech.)
Last month, the Supreme Court ruled that 14-306.4 does not violate the First Amendment because the law regulates conduct and not speech."
The letter states, "The Legislature's job is to define the law, the Courts' job is to interpret the law, and it is the role of Law Enforcement to enforce the law. The law changed effective January 3, 2013 and moving forward law enforcement will investigate and we will prosecute legal violations. As such, you are going to have to determine on a case-by-case basis, through investigations, whether the law is being violated."
The letter states, "Prosecutors have a duty to advise law enforcement pursuant to North Carolina Constitution Article IV, Section 18. You can call any of the designated prosecutors for each county at any time to confer about the merits of your criminal investigation. We are not permitted to give advisory opinions or practice civil law. Accordingly, we will not be answering any questions by gaming establishments or their attorneys about the lawfulness of their behavior."
The letter explained the effective date of the law was January 3, and, "The gaming industry has indicated that they may appeal the decision to the United States Supreme Court. The US Supreme Court has denied the gaming industry's request for a stay of the imposition of this precedent."
The City of Wilmington has begun enforcing the law. Their Code Enforcement department recently notified owners of Sweepstakes Parlors they are in violation and will be subject to fines after February 11th if they fail to comply with the state law. That fine will be $100 for the first offense and then $200 a day until they comply. That's a civil penalty imposed by the City. Operators would also be in violation of state law and subject to criminal prosecution.