Wednesday, August 08, 2012

Lotteries, Bets and “Commercial Gambling”

After Michael Vento was convicted of commercial gambling in violation of New Mexico Statutes § 30-19-3(A), he appealed.  State v. Vento, --- P.3d ----, 2012 WL 3101655 (New Mexico Court of Appeals 2012). 

The conviction arose from Vento’s operating an Internet café, which he also owned.  State v. Vento, supra.  Customers bought time to use the café’s computers by buying a card that was swiped at a card reader near the computer they were to use.  State v. Vento, supra. A customer received “one hundred entries into a sweepstakes that awarded cash prizes” for every ten minutes of Internet time he/she bought. State v. Vento, supra. 

It was not necessary to buy Internet time to obtain a card and enter the sweepstakes. State v. Vento, supra.  Vento’s café gave one card with one hundred free sweepstakes entries to each customer who requested one, but they were limited to one card per customer per twenty-four hour period. State v. Vento, supra.  The rules of the sweepstakes were posted throughout the café and printed on a form customers signed before obtaining the card to swipe at a computer.  State v. Vento, supra.

Vento’s computer system “predetermined” the winning sweepstakes entries, and

customers had a choice in determining how the computer would reveal whether an entry was a winner. Customers could instantly reveal whether they had a winning entry, or have the outcome of their entry revealed at a computer through what appeared to be a selection of video casino-like games. Neither method . . . diminished the customer's purchased Internet time. In addition, customers were not required to purchase Internet time or use a computer . . . to reveal whether their free entry was a winner.

State v. Vento, supra.

At some point, the New Mexico Gaming Control Board raided the café, and Vento was charged with commercial gambling by “participating in the earnings of or operating a gambling place.” State v. Vento, supra (quoting New Mexico Statutes § 30-19-3(A)).  Vento claimed the sweepstakes was a

legal promotion intended to entice customers to his recently opened café and did not constitute commercial gambling. [Vento] compared his sweepstakes to other sweepstakes programs offered by businesses such as McDonald's, Cola–Cola, and Albertsons stores. 

The State asserted that [his] sweepstakes promotion was illegal because customers rarely used any of their Internet time and could not obtain a refund for the time they did not use. Additionally, the majority of customers only participated in the sweepstakes and did not actually use the Internet time they purchased with their sweepstakes winnings.

State v. Vento, supra.

As to the latter issue, at trial the prosecution presented evidence establishing that

only 330 of 140,000 hours of Internet time purchased with cash or sweepstakes winnings were actually used by customers to access the Internet. This equated to a usage rate of less than one quarter of one percent (00.25%). Sweepstakes winnings of approximately $650,000 were used to purchase Internet time of approximately 110,000 hours. After presenting its evidence, the State argued that [Vento’s] gambling operation was accomplished under a guise of purchasing Internet time.

State v. Vento, supra.

A jury convicted but the trial judge suspended his sentence (I have been unable to find out what it was), and Vento appealed.  State v. Vento, supra. His argument on appeal was that his conviction should be reversed “because the jury returned a general verdict that did not identify the basis of conviction within the commercial gambling statute.” State v. Vento, supra. As noted above, Vento was charged under and convicted of violating New Mexico Statutes § 30-19-3(a), which makes it a crime to participate in the earnings of or operate “a gambling place.”  State v. Vento, supra.  New Mexico Statutes § 30-19-1(D) defines a “gambling place” as a building or a room that is not on the premises of

a person licensed as a lottery retailer or is not licensed pursuant to the Gaming Control Act, one of whose principal uses is:

(2) receiving, holding, recording or forwarding bets or offers to bet;
(3) conducting lotteries; or

(4) playing gambling devices[.]

The Court of Appeals noted that New Mexico Statutes 30-19-1(B)(3) “expressly excludes a lottery form classification as a bet.”  State v. Vento, supra.  It also noted that the jury

returned a general verdict that only identified guilt on the basis of `commercial gambling as charged,’ and did not identify the basis for the conviction among the alternatives set forth in the commercial gambling statute. As a result, we are unable to determine whether the jury found [Vento’s] café was a gambling place because it had a principle use related to betting, conducting a lottery, or playing gambling devices.

We also cannot determine whether the jury unanimously agreed on one of the alternatives, or whether some jurors convicted [him] based on a finding that his café was principally used for one type of illegal gambling, while others found that his café was principally used for a different type of illegal gambling.

State v. Vento, supra. 

The court then explained that a “`conviction under a general verdict must be reversed where it is based on more than one legal theory and at least one of those theories is legally ... invalid.’” State v. Vento, supra (quoting State v. Mailman, 148 N.M. 702, 242 P.3d 269 (New Mexico Supreme Court 2010).  It noted that reversal is necessary in this situation because “‘[j]urors are not generally equipped to determine whether a particular theory of conviction submitted to them is contrary to law.’” State v. Vento, supra (quoting State v. Mailman). In other words, in this situation the court does not know if all of the jurors convicted the defendant on the same theory (which is what is required, since jurors must be unanimous) or not. 

The Court of Appeals therefore found that it was required to reverse Vento’s conviction if any of the alternatives outlined in the statute above “are legally inadequate to support the jury’s verdict.”  State v. Vento, supra.  It began by analyzing whether his conviction for commercial gambling was based on “inadequate legal grounds or merely inadequate evidence.”  State v. Vento, supra. Addressing an issue of first impression, it found that because the “plain language of the commercial gambling statute specifically excludes” a lottery from its definition of a bet, Vento could be convicted under the statute only if his sweepstakes promotion constituted a bet OR a lottery.  State v. Vento, supra.  Logically, the jury could not convict him on both.

The court therefore found that the trial judge erred when he did not instruct the jury as to whether the sweepstakes was a lottery or a bet; such a instruction would have made it clear that they could only convict him if his sweepstakes was one or the other (not both or either). State v. Vento, supra.  

Section 30-19-(E) of the New Mexico Statutes defines a lottery as “an enterprise wherein, for a consideration, the participants are given an opportunity to win a prize, the award of which is determined by chance, even though accompanied by some skill.”  State v. Vento, supra.  Section 30-19-(E) of the New Mexico Statutes defines a bet as “a bargain in which the parties agree . . . one stands to win or lose anything of value specified in the agreement”.  State v. Vento, supra. 

After analyzing the two, Court of Appeals held that Vento’s sweepstakes was a lottery, not a bet.  State v. Vento, supra.  It found that his sweepstakes promotion was

used as a business tool to attract customers and, therefore, provided the opportunity for a wide number of potential customer participants to win a variety of pre-determined, non-specific, cash prizes. . . . No agreement as to the value of the possible prizes existed between [him] and the patrons who participated in his promotion.

State v. Vento, supra.  The court explained that this meant that if Vento’s conviction was “potentially premised upon illegal betting,” it was “improper as a matter of law”.  State v. Vento, supra.  In other words, Vento would win.

The court then turned to the evidence submitted at trial to see if “sufficient evidence supported [his] conviction on the legally adequate alternative theories of conducting a lottery and playing gambling devices.”  State v. Vento, supra.  Vento argued that the evidence was insufficient to support his conviction on any of the alternatives given in the statute the defines an “illegal gambling place”, but the prosecution claimed the evidence “was sufficient to prove [he] was either conducting an illegal lottery; providing gambling devices to his customers; or participating in betting activities.”  State v. Vento, supra. 

Since the court had already found that the evidence was “legally insufficient to convict” Vent” based on his involvement in betting, it limited its review to whether the evidence was sufficient to prove his sweepstakes was a lottery.  State v. Vento, supra.  In State v. Jones, 44 N.M. 623, 107 P.2d 324 (1940), the New Mexico Supreme Court held that a lottery “`consists of three elements, prize, chance[,] and consideration.’” State v. Vento, supra.  Neither Vento nor the prosecution “dispute[d] that [his] sweepstakes provided an opportunity for participants to win a cash prize and the award of these prizes was determined by chance.” State v. Vento, supra. The only disputed issue was whether the prosecution proved that consideration. State v. Vento, supra. 

Vento argued that “while his sweepstakes is structured to resemble a lottery, it cannot be defined as such because it lacks the element of consideration.”  State v. Vento, supra.  As noted above, Vento claimed his sweepstakes was the same kind of game and/or promotion as the promotions offered by McDonald’s and other companies, but the Court of Appeals did not agree.  It found that the evidence presented at trial was sufficient to convict him of commercial gambling by conducting a lottery:

At trial, both parties presented evidence regarding the concept of a sweepstakes promotion and the case focused on the element of consideration. The State presented evidence that customers  . . . paid consideration to participate in his sweepstakes lottery promotion. Customers could not obtain a refund for any of the Internet time they did not use, which constituted ninety-nine point seventy-five percent (99.75%) of the Internet time purchased.

Only one quarter of one percent (00.25%) of the Internet time purchased by customers was actually used or consumed. The majority of customers who still had unused Internet time utilized their sweepstakes winnings to purchase additional Internet time that they did not use.

[Vento] told the Board investigators he retained only eight percent of all the revenue received from the purported sale of Internet time, with the balance paid to patrons as prizes in the sweepstakes promotion. The lopsided percentages related to Internet usage, prizes awarded to patrons, and the significant repurchase of Internet time despite patrons already possessing unused Internet time constitute substantive evidence that [his] café operation was structured as a guise for commercial gambling.

Based upon these facts and the casino-style display of [Vento’s] ongoing sweepstakes promotion, the jury could reasonably determine that the controlling inducement for the monies being paid by customers for Internet time was in fact consideration to participate in a lottery that was disguised as a legitimate business promotion. 

State v. Vento, supra. 

The court also noted that despite the New Mexico Gaming Control Board’s “failure to provide regulations or other rules to guide this type of sweepstakes promotion, we recognize that a flexible-participation lottery promotion can be abused if the financial structure is designed to effectuate the gambling component of the scheme rather than the sale of business products actually offered to customers.”  State v. Vento, supra.  

It therefore found that the trial judge erred in submitting the case to the jury without defining the precise basis of the charge, i.e., commercial gambling based on running a lottery, and so reversed Vento’s conviction.  State v. Vento, supra. 

That was the good news.  The not-so-good news is that the Court of Appeals also remanded the case “for a new trial on the charge of commercial gambling based solely upon the theory of conducting a lottery.”  State v. Vento, supra. 

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