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T and A Amusements, LLC v. McCrory

Court of Appeals of North Carolina

February 7, 2017

T AND A AMUSEMENTS, LLC; and CRAZIE OVERSTOCK PROMOTIONS, LLC, Plaintiffs,
v.
PATRICK McCRORY, in his official capacity as Governor of the State of North Carolina; FRANK L. PERRY, in his official capacity as Secretary of the North Carolina Department of Public Safety; MARK J. SENTER, in his official capacity as Branch Head of the Alcohol Law Enforcement Division; JODY WILLIAMS, in his official capacity as the Chief of Police of the City of Asheboro, North Carolina; and MAYNARD B. REID, JR., in his official capacity as the Sheriff of Randolph County, Defendants.

          Heard in the Court of Appeals 24 August 2016.

         Appeal by plaintiffs from order entered 19 November 2015 by Judge Michael D. Duncan in Randolph County Superior Court No. 15 CVS 1733.

          Morningstar Law Group, by William J. Brian, Jr. and Keith P. Anthony, for plaintiffs-appellants.

          Joshua H. Stein, Attorney General, by Hal F. Askins, Special Deputy Attorney General, and J. Joy Strickland, Assistant Attorney General, for defendants-appellees Patrick McCrory, Frank L. Perry, and Mark J. Senter.

          Cranfill Sumner & Hartzog LLP, by Jaye E. Bingham-Hinch and Patrick H. Flanagan, for defendant-appellee Jody Williams.

          No brief filed on behalf of defendant-appellee Maynard B. Reid, Jr.

          DAVIS, JUDGE.

         This case requires us to revisit the issue of whether lawsuits brought by companies in the business of licensing and distributing promotional rewards programs seeking declaratory and injunctive relief as to the legality of those programs are barred by sovereign immunity or are otherwise nonjusticiable. Crazie Overstock Promotions, LLC ("Crazie Overstock") and T and A Amusements, LLC ("T&A") (collectively "Plaintiffs") argue that the trial court erred in dismissing their amended complaint pursuant to Rules 12(b)(1), (2), and (6) of the North Carolina Rules of Civil Procedure. Because we conclude that Plaintiffs' claims are neither barred by sovereign immunity nor nonjusticiable, we reverse the trial court's order and remand for further proceedings.

         Factual and Procedural Background

         Crazie Overstock, a retailer of various discount goods, licenses "retail establishments" to promote and display its goods, which may then be purchased through Crazie Overstock's website. Customers may purchase items through the website with either a credit card or an electronic gift certificate. In order to incentivize the sale of such gift certificates, Crazie Overstock has created a promotional rewards program (the "CO Rewards Program").

         The CO Rewards Program allows customers to receive a certain number of "game points" for each dollar of gift certificates they purchase through kiosks located in the retail establishments. Game points may then be used to play "reward games" on machines in these establishments. The reward games require no skill, and their results are determined randomly. Customers who are successful at reward games receive "reward points" as a result. Reward points, in turn, may be used by the customer to play a "dexterity test, " which tests players' hand-eye coordination and reflexes by requiring them "to stop a simulated stopwatch within specified ranges." Customers who are successful at the dexterity test then receive "dexterity points, " which may be redeemed for cash rewards.

         T&A is a distributor for Crazie Overstock and, as such, is responsible for recruiting persons to operate retail establishments and for helping to set up and service those establishments. In the spring of 2015, T&A recruited an entity called Mighty Enterprises, LLC ("Mighty Enterprises") to operate a store in Asheboro, North Carolina. The Mighty Enterprises store, which opened in May 2015, offered the CO Rewards Program to its customers.

         Based on their knowledge that the Alcohol Law Enforcement Division ("ALE") of the North Carolina Department of Public Safety and local law enforcement agencies had previously investigated other businesses offering similar promotional rewards programs, the principals of Mighty Enterprises contacted the Asheboro Police Department and offered to conduct a demonstration of the CO Rewards Program in the hope of demonstrating that the program did not violate North Carolina's gambling and sweepstakes statutes.

         On 17 June 2015, a demonstration of the CO Rewards Program was conducted for Detective Daniel Shropshire of the Asheboro Police Department and Agent Stephen Abernathy of ALE. After the demonstration, the officers stated that they would review the legality of the CO Rewards Program with their respective supervisors as well as the district attorney.

         On 25 June 2015, Detective Shropshire contacted Dawn Moffitt, a principal of Mighty Enterprises, to inform her that "the City Police Chief, the ALE, the Office of the District Attorney, and the Randolph [County] Sheriff considered the CO Rewards Program to have the same elements of an illegal electronic sweepstakes which violates both the Video Sweepstakes Law and the Gambling Statutes." He also warned Moffitt that "if Mighty Enterprises did not cease all operations, including the CO Rewards Program[, ] by June 30, 2015, she and the other principals and employees of Mighty Enterprises would be charged criminally, and . . . the company's equipment and other personal property would be confiscated." As a result, Mighty Enterprises shut down its operations until the legality of the CO Rewards Program could be determined by a court.

         On 20 August 2015, Plaintiffs filed the present action in Randolph County Superior Court requesting, inter alia, that the trial court (1) declare that the CO Rewards Program does not violate North Carolina law; and (2) enjoin the defendants from taking law enforcement action against retail establishments for offering the CO Rewards Program. The complaint named as defendants Patrick McCrory, Governor of North Carolina; Frank L. Perry, Secretary of the North Carolina Department of Public Safety; Mark J. Senter, Branch Head of ALE; Jody Williams, Asheboro Police Chief; and Maynard B. Reid, Jr., Sheriff of Randolph County (collectively "Defendants"). All of the defendants were sued solely in their official capacities.

         Plaintiffs alleged in their amended complaint that "ALE and other state officials desire to eradicate all electronic sweepstakes or electronic rewards programs from the State of North Carolina, including the CO Rewards Program, without regard to whether such sweepstakes or rewards programs violate the Gambling Statutes or the Video Sweepstakes Statute, or other applicable law." Plaintiffs also asserted that ALE officers, in conjunction with local law enforcement agencies, have participated in numerous raids of businesses offering rewards programs, resulting in both threatened and actual prosecutions. Plaintiffs further alleged that "[a]s a direct result of threats by ALE and increased activity by ALE and other local and state officials, [T&A] and Crazie ...


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