in the Court of Appeals 23 May 2019
by Defendants from judgment entered 2 February 2018 by Judge
Ebern T. Watson III in Onslow County No. 13 CVS 3705 Superior
Rothschild LLP, by Elizabeth Brooks Scherer, Kip David
Nelson, and Troy D. Shelton; George B. Hyler, Jr.; and Grace,
Tisdale, & Clifton, P.A., by Michael A. Grace, for
Attorney General Joshua H. Stein, by Solicitor General
Matthew W. Sawchak, Deputy Solicitor General James W.
Doggett, and Assistant Solicitor General Kenzie M. Rakes, for
Gift Surplus, LLC and Sandhill Amusements, Inc. ("Gift
Surplus") sued the State, ex rel. Governor Roy Cooper,
et al. ("the State") seeking a permanent injunction
that would bar state law enforcement from enforcing State
gambling and sweepstakes laws against the operators of Gift
Surplus's sweepstakes kiosks. In a bench trial, the
Superior Court concluded Gift Surplus's kiosks do not
violate the State's prohibition of sweepstakes run
through the use of an "electronic display" and
permanently enjoined the State from enforcing these laws
against Gift Surplus. Because we conclude Gift Surplus's
kiosks operate sweepstakes through an entertaining display in
violation of N.C. G.S. § 14-306.4, we reverse and vacate
the trial court's injunction.
Surplus has been embroiled in this legal battle with the
State over its sweepstakes since 2013, when it sued the
Sherriff of Onslow County seeking a declaration that its
sweepstakes did not violate the State's gambling laws or
its ban on video sweepstakes. After the Onslow County
Sherriff's Department seized kiosks loaded with Gift
Surplus's sweepstakes games, Plaintiffs received a
preliminary injunction barring law enforcement from enforcing
state laws that the State contended prohibit the
implementation and operation of the sweepstakes. However,
that preliminary injunction was overturned by our Supreme
Court, which held Gift Surplus's sweepstakes violated
N.C. G.S. § 14-306.4. Sandhill Amusements, Inc. v.
Miller, 368 N.C. 91, 773 S.E.2d 55 (2015) (adopting
then-Judge Ervin's dissent in Sandhill Amusements,
Inc. v. Sheriff of Onslow Cnty., 236 N.C.App. 340, 762
S.E.2d 666 (2014)).
the case had been sent back to the trial court, Gift Surplus
made adjustments to its sweepstakes games, amended its
Complaint, and again placed its games into operation
around the State. One such adjustment is a "double
nudge" feature that allows players to nudge the game
reels as many as two times in order to move them into
alignment and win a prize. Other additions included a
"winner every time" feature that made 100% of spins
winnable, albeit only for a prize of several cents on 75% of
spins, and a "final ticket" feature that allowed
prizes lost through incorrect nudging to be won back in later
turns. Finally, Gift Surplus removed a "governor"
feature that had prevented players from winning large prizes
in quick succession.
second trial in this matter, in 2017, Gift Surplus sought and
received a declaration that its sweepstakes do not violate
the State's ban on video sweepstakes, codified in N.C.
G.S. § 14-306.4. In its unchallenged Findings of Fact,
the trial court found that Gift Surplus's kiosks run
"video games[.]" These video games are used as a
"promotional sweepstakes system" to reveal a
potential prize to the playing customer. Based on its
Findings of Fact, the trial court concluded:
"[p]romotional sweepstakes are legal and lawful in North
Carolina" so long as they comport with the applicable
state and federal laws; "Plaintiff Gift Surplus'[s]
proprietary sweepstakes system comports with all of the
regulatory scheme of N.C. G.S. § 14-306.4[;]" and
that Gift Surplus is "entitled to permanent injunctive
relief, as requested in their . . . Complaint." Having
reached those conclusions, the trial court entered a
permanent injunction barring the State and its agents from
enforcing the criminal law prohibiting electronic sweepstakes
against Gift Surplus. The State filed timely notice of
arguments on appeal challenge the legal conclusions drawn
from the trial court's factual findings and the trial
court's order, judgment, and decree of a permanent
injunction. The State's ultimate contention on appeal is
that the trial court erred in permanently enjoining State law
enforcement from enforcing the State's ban on certain
electronic sweepstakes against "persons who operate or
place into operation any equipment associated with . . . Gift
Surplus'[s] sweepstakes system[.]" The State argues
the trial court erred in granting Gift Surplus a permanent
injunction because Gift Surplus's sweepstakes violate (1)
the State's ban on video sweepstakes and, in the
alternative, (2) the State's separate ban on gambling
operations. We agree that Gift Surplus's sweepstakes do
not comply with the State's prohibition of certain video
sweepstakes and, as a result, need not reach the second
argument on appeal.
State argues "Gift Surplus's sweepstakes violate
section 14-306.4 of the General Statutes." In contrast,
the trial court concluded "Gift Surplus'[s]
proprietary sweepstakes system comports with all of the
regulatory scheme of N.C. G.S. § 14- 306.4."
"Conclusions of law are reviewed de novo and are subject
to full review." State v. Biber, 365 N.C. 162,
168, 712 S.E.2d 874, 878 (2011). After careful review, we
hold Gift Surplus's sweepstakes system does not comport
with N.C. G.S. § 14-306.4.
relevant part, N.C. G.S. § 14-306.4 states, "[I]t
shall be unlawful for any person to operate, or place into
operation, an electronic machine or device to . . . [c]onduct
a sweepstakes through the use of an entertaining display,
including the entry process or the reveal of a prize."
N.C. G.S. § 14-306.4(b), (b)(1) (2017). A sweepstakes is
"any game, advertising scheme or plan, or other
promotion, which, with or without payment of any
consideration, a person may enter to win or become eligible
to receive any prize, the determination of which is based
upon chance." Id. at (a)(5). An entertaining
display is "visual information, capable of being seen by
a sweepstakes entrant, that takes the form of actual game
play, or simulated game play, such as, by way of
illustration and not exclusion: [video poker, video
bingo, video lotto games, video games of chance, etc.]"
Id. at (a)(3) (emphasis added). There is no dispute
that Gift Surplus's game is a sweepstakes. At issue is
whether Gift Surplus's sweepstakes are conducted through
"an entertaining display" in violation of N.C. G.S.
their briefs and in oral argument the parties to this appeal
focused on the issue of whether chance or skill predominates
in the current iteration of Gift Surplus's sweepstakes.
This is likely because our sweepstakes statute explicitly use
games of chance as an illustration of an improper electronic
display and also because the distinction between games of
chance and games of skill has received considerable attention
from our appellate courts. See, e.g., N.C. G.S.
§ 14-306.4(a)(3); Sandhill Amusements, Inc. v.
Miller, 368 N.C. 91, 773 S.E.2d 55 (2015); State v.
Gupton, 30 N.C. 271 (1848); Crazie Overstock
Promotions, LLC, v. State, 830 S.E.2d 871 ( N.C. Ct.
App. 2019). However, we need not decide whether these
sweepstakes are chance or skill-based in order to hold that
they violate N.C. G.S. § 14-306.4.
sweepstakes statute explicitly proscribes sweepstakes
conducted through electronic display, which is "visual
information, capable of being seen by a sweepstakes entrant,
that takes the form of actual game play, or simulated game
play[.]" N.C. G.S. § 14-306.4(a)(3). From there,
the statute goes on to set out "by way of illustration
and not exclusion" a non-exhaustive list of specific
games that fit the definition of "electronic
display." Gift Surplus mischaracterizes this
statutory scheme in arguing a sweepstakes game "falls
within the 'entertaining display' prohibition
only when the 'video game is not dependent on
skill or dexterity while revealing a prize as the result of
an entry into a sweepstakes.'" Regardless of whether
it is dependent on skill or dexterity, a sweepstakes falls
within the entertaining display prohibition simply if it is
"visual information, capable of being seen by a
sweepstakes entrant, that takes the form of actual game play,
or simulated game play[.]" N.C. G.S. §
sweepstakes in question are run through standalone kiosks
that display a video game resembling a reel-spinning slot
machine. These kiosks undisputedly display visual information
capable of being seen by a sweepstakes entrant. At trial, one
of Gift Surplus's expert witnesses went as far as to
testify that an individual with "a visual
disability" would not be able to win the video game.
This is because doing so requires the participant to be able
to see the visual information displayed by the kiosks.
Furthermore, this visual information takes the form of game
play-the entrant's spinning and nudging of virtual reels.
Gift Surplus's sweepstakes are run through the use of an
"entertaining display." As such, regardless of
whether skill or chance predominates over the games at issue,
Gift Surplus's kiosks violate N.C. G.S. § 14-306.4
and the trial court's conclusion to the contrary must be
reversed the trial court's conclusion that Gift
Surplus's sweepstakes do not violate N.C. G.S. §
14-306.4, we vacate the permanent injunction against the
State and its "officers, agents, servants, and
employees, and any person in active concert or participation
with any of the Defendants or any of their officers, agents,
servants, and employees[.]" As a result, we need not
reach the State's argument that the sweepstakes are also
illegal independent of the video sweepstakes statute because
they violate the separate ban on gambling operations codified
in N.C. G.S. § 14-292. The trial court did not make
specific findings or conclusions regarding the gambling
operations statute; the permanent injunction was entirely
based upon the sweepstakes' compliance with N.C. G.S.
trial court erred in concluding Gift Surplus's
sweepstakes do not violate N.C. G.S. § 14-306.4 because
the sweepstakes in question are run through the use of an
entertaining display. We reverse ...