NC law enforcement agencies pan latest video sweepstakes appeal

State law enforcement agencies are urging the North Carolina Supreme Court to reject legal arguments from a video sweepstakes operator in a Robeson County case. The court is scheduled to hear oral arguments in the dispute on Sept. 9.

Plaintiff No Limit Games is challenging a lower court ruling blocking its machines from operating in Robeson County.

Lawyers representing the North Carolina Department of Public Safety, State Bureau of Investigation, and Alcohol Law Enforcement branch filed a brief Wednesday responding to No Limit’s state Supreme Court arguments.

“Section 14-306.4(b)(1) of the General Statutes prohibits a sweepstakes that is conducted through a video game where chance, rather than skill or dexterity, predominates in determining the available prize,” the state law enforcement groups’ brief explained. “Appellant No Limit Games, LLC does not like this rule. For years, companies like No Limit have tried to evade the statute by tacking skill or dexterity tasks onto casino-style video games. Even though these tasks did not determine the available prize, the companies claimed that skill or dexterity predominated.”

“This Court repeatedly recognized this subterfuge for what it was and held that the sweepstakes were unlawful because the prize was still determined by chance,” the court filing continued.

“No Limit has done the same thing here,” the law enforcement agencies argued. “Entry into its sweepstakes allows participants to play casino-style video slot machine games. The availability of a prize is determined by chance, upon entry — before any game play. No Limit’s system gives those dealt a losing entry the opportunity to play a separate color-matching game. If players succeed at fourteen rounds of this color-matching game, they get to try the slot machine games again, where, just like the first time around, the availability of a prize is determined by chance.”

The state Appeals Court ruled against No Limit with a 2-1 vote in December 2024, but the dissent “would have held that an ‘Instant Revealer’ option — about which there is little record evidence — takes the sweepstakes outside the reach of section 14-306.4(b)(1) altogether,” according to the brief.

That dissent “misconstrued this Court’s precedent,” the law enforcement groups argued.  

“No Limit’s arguments sidestep this Court’s precedent and repeat contentions that the Court already has rejected,” according to the brief. “No Limit also displayed a lack of openness during the superior court proceedings that underscores its inability to succeed on the merits.”

No Limit Games filed its opening state Supreme Court brief in May.

“It should not be this hard to figure out how to comply with the law,” the company’s lawyers wrote.

“North Carolina’s video sweepstakes statute does not prohibit sweepstakes,” No Limit’s lawyers wrote. “To the contrary, it defines them as promotions in which prizes are determined by chance. Nor does it prohibit video gameplay. It prohibits only a narrow category of gameplay — games not dependent on skill or dexterity when used in the entry or reveal of a prize. Properly applied, the statute draws a clear line: chance determines what prizes are available; skill determines whether and how those prizes are obtained.”

No Limit Games “designed its system to operate on that line,” the company’s lawyers wrote. “Most importantly, it allows participants to obtain and claim sweepstakes prizes without engaging in any gameplay at all unless they choose to do so. Through its ‘Instant Reveal’ function, participants may reveal and receive their prizes immediately, with no video display and no game. Any gameplay that occurs is therefore entirely optional — and, when used, consists only of games of skill.”

Since the state Supreme Court’s 2015 decision in Sandhills Amusements v. Miller, “courts have sometimes described operators as modifying their systems to ‘avoid’ the statute,” the No Limits Games brief explained.

“That framing misstates the problem,” the company’s lawyers wrote. “The statute itself creates a tension, because sweepstakes prizes must be determined by chance. Yet chance cannot predominate in determining a participant’s relative winnings when gameplay is used. Operators have therefore done what the statute invites — they have attempted to design systems that comply with both requirements. The question in this case is whether No Limit has successfully done so.”

A trial judge answered yes, but the Appeals Court majority disagreed.

“It did so not by applying the statute as written or deferring to the trial court’s findings, but by substituting its own factual assessment for that of the factfinder,” No Limit’s lawyers wrote. “The majority treated the very feature the statute requires — determination of prizes by chance — as the basis for illegality. It bypassed the required inquiry into whether any gameplay was dependent on skill and instead assumed the existence of a prohibited ‘entertaining display.’ And it resolved disputed, fact-intensive questions about how No Limit’s sweepstakes operates based on its own view of a cold record.”

“That approach does more than misapply the statute in this case,” the company argued. “It leaves no room for any video sweepstakes to comply with the law. If the presence of chance is dispositive, no video sweepstakes can ever comply with § 14-306.4.”

“That is not what the statute says, and it is not what this Court has held,” the brief continued.

A trial judge issued a preliminary injunction in 2023 favoring the sweepstakes business. The Court of Appeals issued a September 2023 order blocking that lower court ruling. More than a year later, appellate judges issued their December 2024 decision reversing the trial court.

Judge Toby Hampson’s majority opinion in No Limit Games v. Sheriff of Robeson County compared the case to previous sweepstakes disputes in North Carolina’s courts.

“In this case, the game appears to be identical in many respects to those held by our Supreme Court in Gift Surplus and other cases to be illegal under Section 14-306.4: a player enters the game, their prize is determined by chance, and they must perform a dexterity task to receive the prize,” Hampson wrote. “Although dexterity and skill may be involved in a portion of the game, ‘when chance determines the relative winnings for which a player is able to play, chance can override or thwart the exercise of skill.’”

“Plaintiff argues that certain specific attributes of its game distinguish it from those previously held illegal under Section 14-306.4. We disagree,” Hampson added.

“Plaintiff’s game is exactly the type of electronic sweepstakes the legislature intended to prohibit by enacting Section 14-306.4: ‘[c]ompanies have developed electronic machines and devices to gamble through pretextual sweepstakes relationships with Internet service, telephone cards, and office supplies, among other products … such electronic sweepstakes systems utilizing video poker machines and other similar simulated game play create the same encouragement of vice and dissipation as other forms of gambling … by encouraging repeated play, even when allegedly used as a marketing technique,’” Hampson wrote.

“None of Plaintiff’s attempts to distinguish its game from the similar games previously held by our courts to be illegal change the fact that chance is core to the game and always determines the amount a player can win,” he added. “Thus, chance predominates skill or dexterity in determining the outcome of Plaintiff’s game.”

Judge April Wood joined Hampson’s decision. Judge Jefferson Griffin dissented.

“We acknowledge the legislature intended to cast a wide net in regulating electronic sweepstakes,” Griffin wrote. “However, where, as here, a plaintiff is able to design a system which ultimately elevates skill over the chance inherent in a sweepstakes, I would hold they have complied with the law. To this end, I would also affirm the trial court’s conclusion of law asserting the balance of equities tilts in Plaintiff’s favor — thus warranting an injunction to prevent harm to Plaintiff and its business.”

The secretary of the state Department of Public Safety and the directors of the State Bureau of Investigation and Alcohol Law Enforcement Branch asked in August 2023 for a “writ of supersedeas” in the Robeson County dispute. The writ blocked Superior Court Judge Michael Stone’s June 2023 ruling favoring plaintiff No Limit Games.

The company filed suit in May 2023 against the three state law enforcement officials, along with Robeson County, its sheriff, and the town of Pembroke. No Limit Games sought an injunction blocking prosecution of anyone possessing its sweepstakes kiosks. Stone granted the requested injunction.

The company defended its games in a document filed at the Appeals Court.

“No Limit’s video sweepstakes are lawful because — unlike all other games that have ever been analyzed by our Courts — no game play is involved in a participant’s entry into the sweepstakes,” wrote the company’s Greensboro-based attorneys. “With regard to winning cash prizes, game play is only used to reveal the prize and, in those games, skill predominates. Accordingly, No Limit’s video sweepstakes is legal because it does not use any video game of chance in either the entry or reveal of a sweepstakes.”

“Video sweepstakes are legal as long as they do not use video games of chance in either the entry or reveal of a sweepstakes prize,” No Limit’s lawyers wrote. “This case requires the courts to determine whether No Limit’s video kiosks use video games of chance in either of those two phases of the … sweepstakes. The relevant test is whether, ‘viewed in its entirety,’ the results of video games ‘in terms of whether the player wins or loses and the relative amount of the player’s winnings or losses varies primarily with the vagaries of chance or the extent of the player’s skill and dexterity.’”

“This analysis must be done on a game-by-game basis,” the brief continued. “Petitioners have not done this game-specific analysis but have, instead, relied on their erroneous position that all video sweepstakes are inherently illegal.”

State officials offered contrasting legal arguments in an earlier court filing.

“Since 2010, North Carolina has expressly banned the operation of video sweepstakes machines,” wrote lawyers from the NC Department of Justice. “This ban was enacted in response to the attempt of certain gambling interests to circumvent the State’s ban on video poker and similar games through sweepstakes that used those games as marketing tools for purportedly legitimate products. To address this problem, the General Assembly banned sweepstakes that are conducted through all video games of chance, such as video poker and all similar games.”

“Despite this legislative action, sweepstakes operators have repeatedly tried to evade this ban and have regularly sought to enjoin law enforcement officials from enforcing the ban for more than a decade,” the petition continued. “As a result, over the course of many cases, our Supreme Court has repeatedly heard arguments from sweepstakes operators that have claimed that their games were legal under the statute. In each instance, however, that Court has unanimously ruled against them.”

State Justice Department lawyers cited a state Supreme Court ruling in 2022 and the state Appeals Court’s August 2023 ruling in a Hickory case as evidence against the sweepstakes operators.

“Flaunting this clear precedent, the superior court in this case issued a preliminary injunction blocking enforcement of the law against another purported e-commerce retailer that … operates ‘nudging’ games: plaintiff No Limit Games, LLC,” according to the motion. “The court did so even though the report that No Limit offered below to show how its sweepstakes games work … demonstrated that chance can control ‘the relative winnings for which a player is able to play’ on each turn of its games. The superior court’s decision to grant an injunction in these circumstances was unmistakable error.”

“NC law enforcement agencies pan latest video sweepstakes appeal” was originally published on www.carolinajournal.com.