PEOPLE v. GREWAL

Appellants, Kirnpal Grewal and Phillip Ernest Walker, Reply Brief on the Merits

Cal.February 19, 2015

CRC | 8.25(b), No. S217896 (Court of Appeal No. F065450, consolidated with F065451 and F065689 SUPREME COURT (Kern County Superior Court Nos. CV-276959 and CV-276961) F i Yh E IY FEB 1 92015 IN THE SUPREME COURT OF i K THE STATE OF CALIFORNIA Frank A. McGuire Cler Deputy PEOPLE OF THE STATE OF CALIFORNIA Plaintiff/Respondent V. KIRNPAL GREWAL,et al, Defendant and Appellant REPLY BRIEF ON THE MERITS OF APPELLANTS GREWAL AND WALKER WESTON, GARROU & MOONEY John H. Weston (SBN 46146) johnhweston@wgdlaw.com G. Randall Garrou (SBN 74442) randygarrou@wgdlaw.com Jerome H. Mooney (SBN 199542) jerrym@mooneylaw.com 12121 Wilshire Boulevard, Suite 525 Los Angeles, CA 90025 Telephone: (310) 442-0072 Facsimile: (310) 442-0899 Attorneysfor Defendants/Appellants Kirnpal Grewal (F065450) and Phillip Ernest Walker (F065451) No. 8217896 (Court ofAppeal No. F065450, consolidated with F065451 and F065689 (Kern County Superior Court Nos. CV-276959 and CV-276961) IN THE SUPREME COURT OF THE STATE OF CALIFORNIA PEOPLE OF THE STATE OF CALIFORNIA Plaintiff/Respondent V. KIRNPAL GREWAL,et al., Defendant and Appellant REPLY BRIEF ON THE MERITS OF APPELLANTS GREWAL AND WALKER WESTON, GARROU & MOONEY John H. Weston (SBN 46146) johnhweston@wegdlaw.com G. Randall Garrou (SBN 74442) randygarrou@wgdlaw.com Jerome H. Mooney (SBN 199542) jerrym@mooneylaw.com 12121 Wilshire Boulevard, Suite 525 Los Angeles, CA 90025 Telephone: (310) 442-0072 Facsimile: (310) 442-0899 Attorneysfor Defendants/Appellants Kirnpal Grewal (F065450) and Phillip Ernest Walker (F065451) TABLE OF CONTENTS Page TABLE OF AUTHORITIES 2.0...eeecscs seseeseeescesssssecessesesnsessrsesesenees iv INTRODUCTION...00eee eeceseeceeeeeeeeeseeeessssseesseesssenssnesesssseesseessseesnnees I I II Il IV VI Vil Vil Ix CONTRARY TO STATEMENTS IN THE ANSWER BRIEF, THERE ARE SIGNIFICANT FACTUAL DIFFERENCES BETWEEN THE GREWAL AND WALKER APPEALS AND THE STIDMAN APPEAL...eeeceesteveneesesneeeessesessesseeeeees 4 RESPONDENT INCORRECTLY FRAMES THE REQUIRED STATUTORY CONSTRUCTION ANALYSIS.0...eeeseeeeeeeeeees 6 CONTROLLING DUE PROCESS PRECEDENT (UNADRESSED BY RESPONDENT) COMPELS MODIFICATION OR REVERSAL OF GREWAL 0... .cecccecccesseeseeees 8 RESPONDENT’S “GUILTY UNTIL PROVEN INNOCENT” APPROACH TURNS THE APPROPRIATE LEGAL STANDARDONITSEAR wooeccceeneeeeeceeeersseeeeesseeerseeseseesenas 10 RESPONDENT’S ANALYSIS OF TRINKLE II AND ITS SIGNIFICANCE HEREIN IS SUPERFICIAL AND DEFICIENT.. 12 RESPONDENT’S INTERPRETATION OF THE STATUTORY “INSERTION” ELEMENT IS LIKEWISE UNFAITHFUL TO TRINKLE IL woeciceesessscccccsssccescesecnssceseseessseeesssssassseeessesseeeeessseesssesaees 13 RESPONDENT HAS FAILED TO SHOW THAT GREWAL’S CONSTRUCTION WOULD NOT LEAD TO ABSURD AND UNINTENDED CONSEQUENCES... ceceeesecesseeeesseeseneeeneeees 15 RESPONDENT FAILS TO TAKE INTO ACCOUNT THE SIGNIFICANCE OF NEWLY ENACTEDAB 1439oo17 RESPONDENT’S “FLOODGATES” ARGUMENT IS ALSO WITHOUTMERITouecceessceeceesesseseesseseeneesessersseeseeeees 20 RESPONDENT PROVIDED NO SIGNIFICANT RESPONSE TO APPELLANTS’ DISCUSSIONS OF THE RULE OF LENITY, STARE DECISIS AND IMPLIED LEGISLATIVE ADOPTIONuuu... .eeececccesecececcccessssscscccecsscesssssscsssccssscsseessevseeessevens 20 A. The Rule of Lemity 00.0... ccccscessneceseeeceeeeneeeneneeeseseeesseeesearens 20 B. Stare DECISIS. ..........ccccccsssssecccesesesecccsssesccsccesescesssssecensesessececseeeeees 21 il PRG8300.doc C. Implied Legislative Adoption. 0.0.0.0... cesses eseeeeeseeeeeeseeseneeeeseeeees 23 RESPONDENT’S RELIANCE ON OUT-OF-STATE DECISIONS AND AN UNPUBLISHED FEDERAL DISTRICT COURT DECISION IS ENTIRELY MISPLACED 0...eeecceeecteeeeeeeeene 26 XII WERE THIS COURT TO ACCEPT APPELLANT STIDMAN’S CONSIDERATION ARGUMENT, APPELLANTS GREWAL AND WALKER WOULD BE ENTITLED TO THE BENEFIT OF ANY SUCH RULING.000..eeeceeeeseeeeeeceeeeeeeecseeesneseeeeseesens 28 CONCLUSION|...ieee eeeeessceescesceeseeescnseaseseessssssecessssessssesseneeseeeesenees 28 ili PRG8300.doc TABLE OF AUTHORITIES FEDERAL CASES Supreme Court Page Bouie v. City ofColumbia 378 U.S. 347 (1964) oo. eeccsccssecsececssseeeceteeesecneseaeeceseseaeeeseessaeeeaeeeneeeeaee 8 Marks v. United States 430 U.S. 188 (1977) ....ccsccccccssecseseceessesenecesseecsnecsaeecseaeersneeestaeeetaeeseaes 8,9 Memoirs v. Massachusetts 383 U.S. 413 (1966)... cece ceeeeesscecesseseeeecsseessneceaeeeesaeessaeeessaeeeseeensereees 9 Miller v. California 413 U.S. 15 (1973). .ccceecsccssccsseeceeseeecesecsenecseeeseseeaeeceeaesenseeseeaeenseneeseeeess 8 District Courts (unpublished) Lucky Bob’s Internet Café, LLC v. Cal. Dept. ofJustice No. 11-CV-148 BEN (S.D.Cal. 2013)... cece eceeeesceceeeeesereseeeeeeenes 26, 27 STATE CASES California Supreme Court Cedars-Singi Medical Center v. Superior Court 18 Cal.4° 1, 5-7 (1998)... ceecceecsseecsesseeeeceeneersnessneesseacessnsesseeeeteeseterees 24 Cole v. Rush 45 Cal.2d 345, 351 (1945) ooo... eeecccceceesneeeseeeeseeeeatecseeesesseeesneeees 7, 19-21 Fisher v. City ofBerkley 37Cal.3d 644, 654, 1.3... eccescccssecesseeeseeeeseeeceeseecsaeesaeecseessaeesseeeseeees 24 People v. Freeman 46 Cal.3d 419 (1988)... eeececesseecsessceeeeessrecseessneeessasessusesseeseneeesteseeas 7 iv PRG8300.doc Courts of Appeal Page EEEd809OdDE 1946) o.ccccscscescssscsusesssevscsssescssevessesessecesseessuesessssees 11 People v. Grewal 224 Cal.App.4th 527; 168 Cal.Rptr.3d 749 (Sth Dt. 2014)...passim People ex rel Lockyer v. Pacific Gaming Technologies al.App.4"" 699, 704 (2d Dt. 2000)........cscccseesseeeees 16, 21, 22, 24-25 Trinkle v. California State Lottery 105 Cal.App.4th 1401 (3d Dt. 2003)...eceesseeeeseesseeeeeesneeeees passim Trinkle vy. Stroh 60 Cal.App.4th 771, 781 (3d Dt. 1997).eeeseesseesseeeeeseeeees 16, 25 Wooten v. Superior Court 93 Cal.App.4th 422 (4th Dt. 2002) oo...eeeecneeceeseeeneceeessneereaeeees 6, 20 STATE STATUTES California Business and Professions Code § 175391 eeecceseneeessnreesnecesncecessceeesnsneseaeessesecanesessesssaneveeseecsseeeaaees 18 § 175391 (a)(12) ee eecccesccsccceseecesceesseeseesesececseeessceseeeenseesseeeeessees 18 California Penal Code § B30D ....ececccsssssccceessscecesseeceessssecseecseseesessesensaaeeseeeeceseeeeeeeees passim § B30.Leeeeeeseecssneeeessceseeeeesseeceessaeseneessaeenseesesaseeseeeesseaeeerseees 12,14 § B30. 1D).ee ecceesseeecstresscceessaceeensneeececeaeessneeessaeesaeeresseeesenaeeeneeens 14 § 330.5. eecccceseccessseecsacensneeeseaeceensaeeeeeseseeeaceceseaeesaeessgaeeeenaeeeaeeens 16 § 647(D) ....cccccccssccessseceeeeserecesseececssanecenecsanesseeceeeeecsneeesesaeeeseaeenaeeeseas 6 PRG8300.doc INTRODUCTION The primary thrust of Appellants’’ earlier briefing was that regardless of whether the Court of Appeal’s construction of the slot machine definition below would have been reasonable hadit been the first appellate court to construe the statutes, its ruling rejecting Trinkle v. California State Lottery (Trinkle II), 105 Cal.App.4th 1401 (3d Dt. 2003), violated due process, stare decisis, the rule of lenity and the doctrine of implied legislative adoption by not giving precedential effect to Trinkle IT’s prior authoritative construction of the statute. Surprisingly, Respondent did not discuss many of these important points and gave only cursory treatment to those few points which it did. Equally surprisingly, notwithstanding over a century of jurisprudence in this state, the extremely important, if not fundamental, issue of the weight one court of appeal must give to the opinion of another court of appeal appears to be unresolved. This Court is urged to clarify such obligations in resolving this case. Even if Grewal were the first court to construe California’s slot machinestatutes, its construction wouldstill violate the principle that even facially clear statutory language may not be construed in a manner causing absurd consequences which the Legislature could not have intended. ' Unless otherwise indicated, all references to “Appellants” will be to Appellants Grewal and Walker. PRG8300.doc Manifestly, Grewal’s construction would render every computer and device with an Internet connection an illegal slot machine and, if adopted en toto, would criminalize the California State Lottery’s Scratchers Vending Machines (SVMs). Respondent’s Answer to Appellants’ Opening Briefs (hereafter either “Answer Brief’ or “RAB”) contains no significant discussion of these issues. Most importantly, if this Court were to conclude that the Grewal court was free to render its own construction of the slot machine statutes, due process and the rule of lenity require that such construction may be applied only prospectively. Finally, Appellants will not respond to two points which Respondent belabored, but which are irrelevant to Appellants’ arguments: (1) that Appellants’ business of selling Internet and computer time is not “legitimate” but, as asserted by Respondent, is simply an illegal “sweepstakes” and (2) that the facial statutory language of Penal Code § 330b’s definition of “slot machine” prior to its authoritative construction by Trinkle IT supports the ruling of the court below. As to (1), nothing in the record supports Respondent’s claim that Appellants Grewal and Walker’s businesses do not provide a legitimate business product, nor did Respondent adduce any evidence at the preliminary injunction hearing supporting such claim against these Appellants. Also, even if the Court were to so conclude, that would be 2 PRG8300.doc germane only as to whether their businesses operated “lotteries” (not “slot machines”), an issue not present in this appeal. As to (2), Appellants did not discuss the facial statutory language in their Opening Brief and do not do so here. Once 7rinkle II rendered its definitive and authoritative construction, its ruling was binding, and applicable to all conduct occurring before the Legislature or any higher court might disapprove it. Second, Respondent’s proffered interpretations are barred by the doctrine of avoiding absurd consequences, discussed supra, since they would not only make every SVM an illegal slot machine, but leading to even more absurd results, would make a slot machine of every computer, cell phone or other device capable of an Internet connection. PRG8300.doc I CONTRARY TO STATEMENTS IN THE ANSWER BRIEF, THERE ARE SIGNIFICANT FACTUAL DIFFERENCES BETWEEN THE GREWAL AND WALKER APPEALS AND THE STIDMAN APPEAL The Answer Brief unfairly describes Appellants Grewal and Walker’s businesses in ways which are both factually inaccurate and unsupported in the record. The Answer Brief correctly summarizes testimony regarding the Stidman store, but then asserts that “there is no material difference” (RAB 9, n. 4) between the operation of the Stidman store and those of Walker and Grewal. That assertion is not only unsupported in the record, but inaccurate. One material difference is that the Grewal and Walker machines required no insertion of any physical object to activate the machines. In contrast, a card with a magnetic strip had to be inserted into a card-reading device at Stidman’sstore in order to activate the machines. Given Grewal and Walker’s position that Trinkle IT requires insertion of a physical object, this is a significant factual difference. Another significant difference is that there is no evidence in the record (nor wasit the case) that there was random shuffling in the operation of Grewal and Walker’s machines. In contrast, Respondentasserts that at the Stidman store, sweepstakes entry cards were shuffled at an in-store Management Terminal (RAB 4) once a given sweepstakes pool had been exhausted. See also RAB 21 where Respondentasserts that “electronic game pieces” were “randomly arranged”by “albeit connected ... computers and servers,” and that this was the caseat all three stores (including Grewal 4 PRG8300.doc and Walker’s), even though the only proffered evidence of this asserted shuffling was at the Stidman store. All random arrangement of game pieces into “pools” for the Grewal and Walker stores was done andfixed in advance entirely off-site — weil before the software was installed in the machines, in much the same waythat Scratchers game cards are arranged in a pre-ordained fixed sequence of “winners and losers” long before they are physically loaded into the SVMs. Next, while the Answer Brief referenced testimony in the Stidman case regarding loud ringing sounds of the sweepstakes games in Stidman’s store (RAB 5) but no observations of anyone using the Internet at that store (RAB 8), no such evidence was introduced regarding the Grewal and Walkerstores. Finally, Respondent goes even further outside the record regarding the operation of Grewal and Walker’s businesses by extensively quoting an article from an out-of-state law journal which provided general observations of a number of unidentified “Internet cafes” seemingly all outside of California. Obviously, the article provides no credible (or admissible) evidence of how Grewal and Walker operated their businesses. Respondent’s assertion that there was “no material difference” between the operation of Grewal and Walker’s stores and the Stidmanstore wassignificantly erroneous, potentially prejudicial to Grewal and Walker, and should not be relied upon by this Court. PRG8300.doc il RESPONDENT INCORRECTLY FRAMES THE REQUIRED STATUTORY CONSTRUCTION ANALYSIS At p. 14 of its Answer Brief, Respondent asserts that “the starting place for statutory constructionis a plain reading of the statutes based upon the “ordinary import of the language employed.” Then, focusing almost exclusively on this “starting point,” it devotes nearly the entirety of its Brief to its facial construction arguments. However, where a statute has previously been authoritatively construed in a published court of appeal or Supreme Court opinion, the appropriate approachis significantly different. Appellants submit that the guiding principle instead, is: “statutory construction should be based on a plain reading of the statute and any authoritative construction ofthat statute.” Appellants cited a relatively recent case providing guidance on this issue, Wooten v. Superior Court, 93 Cal.App.4th 422 (4th Dt. 2002). In construing the term “lewd” from Penal Code § 647(b)’s definition of “prostitution,” the court examinednotonly the statute’s facial language, but also a numberof published opinions, both of this Court and the courts of appeal, which had authoritatively construed “lewd.” The court did not suggest that it would be free to ignore any of them, nor did it focus solely on the facial statutory language. Rather, it treated all of the opinions as having precedential value, except those court of appeal opinions which had been expressly disapproved bythis Court.’ * Appellants’ Opening Brief (“AOB”)at 31-32. > Of course, this Court is free to disapprove statutory constructions provided in prior final published opinions of the courts of appeal, as it did 6 PRG8300.doc Moreover, since a judgmentofa state court of appeal “stands... as a decision of a court oflast resort in this state, until and unless disapproved by this Court” (Cole v. Rush, 45 Cal.2d 345, 351 (1945)), there is no question that the holding of the court of appeal in Trinkle II on at least the “chance operation” element of Penal Code § 330b was an authoritative construction of that element ofthe statute.* Consequently, Grewal was not free to disregard Trinkle IT’s authoritative construction. in People v. Freeman, 46 Cal.3d 419 (1988) (cited by Wooten), where it disapproved two prior court of appeal decisions it found to have misconstrued the statutory term “lewd.” * The other significant statutory element construed in Trinkle II was that insertion of some type of physical object is a statutory prerequisite under § 330b. Because Trinkle II's construction of the insertion element of § 330b was dictum (given that the machines before it all required physical insertion), principles of statutory construction did not compel Grewal to follow Trinkle II's insertion ruling. However, as noted infra and in Appellants’ Opening Brief, Grewal was constitutionally obliged to follow Trinkle II’s construction of the statutory "insertion" element, at least for retroactive application purposes, because of due process requirements. PRG8300.doc Il CONTROLLING DUE PROCESS PRECEDENT (UNADRESSED BY RESPONDENT) COMPELS MODIFICATION OR REVERSAL OF GREWAL While it is unclear under California law whether one court of appeal may prospectively reject a construction of a statute rendered in final published opinion of another court of appeal (and hopefully, this Court will resolve that issue in this case), applicable principles of due process discussed in Appellants’ Opening Brief clearly prohibit application of a statute to conduct which was lawful under a prior authoritative construction of the statute then in effect.° Appellants cited Marks v. United States, 430 U.S. 188 (1977), for exactly this principle in their Opening Brief,’ explaining how the Government violated due process by applying the more expansive construction of the federal obscenity statute rendered in Miller v. California, 413 U.S 15 (1973), when the charged conduct took place years earlier when the narrower (and more favorable to defendants) definition of > The court of appeal clearly applied the statute in question retroactively; it affirmed the Superior Court’s preliminary injunction, even though when the Superior Court issued it, Trinkle II still articulated the authoritative and controlling statewide definition of “slot machine.” At most, the court of appeal could have issued its own injunction (but see discussion at AOB 23, n.21), but should have reversed the Superior Court as having abusedits discretion. That would have kept Appellants from facing unfair crippling multi-million-dollar penalties on remand for their prior conduct. ° Appellants also cited Bouie v. City of Columbia, 378 U.S. 347 (1964) for the applicable principle. PRG8300.doc obscenity established by Memoirs v. Massachusetts, 383 U.S. 413 (1966), was in effect. However, although Marks would seem to be controlling here, Respondentneither distinguished, nor even mentionedit. Trinkle II construed § 330b such that: (1) its “chance” element required proof that the machine in question,itself, operated in a random or chance manner; and (2) the statutory “insertion” element required insertion of some type of physical object. Although only part of this construction was holding (i.e., the “chance operation” construction), the other being dictum (i.e., the “insertion” construction), the opinion purported to rationalize the statutory elements and prior confusing precedent and provide clear guidance throughout the state as to the statutory elements. As a matter of due process under Marks, Appellants were entitled to rely on those two constructions until they were legislatively changed or overruled. Trinkle II was the only published court of appeal opinion to render a holding authoritatively construing the statute’s “chance operation” element, and was the only court of appeal opinion, in dictum or holding, to discuss whether the statutory insertion element required insertion of a physical object, concluding that it did. Consequently, as a matter of due process, Appellants wereentitled to the benefit of it (as the law) until such time, if ever, aS it was disapproved or overruled — and its constructions should have been accorded precedential and controlling significance by both of the courts below at least regarding Appellant’s prior conduct. By affirming the Superior Court’s preliminary injunction (issued when Trinkle II’s was the authoritative construction of these two key statutory elements), Grewal violated due process by applying its construction of § 330b to Appellants’ antecedent conduct, rather than what was in effect when Appellants engaged in that conduct. In so doing,it 9 PRG8300.doc opened the door to multimillion dollar fines against Appellants on remand for their conduct which gaverise to the Superior Court injunction — all of which occurred when Trinkle II’s constructions of § 330b were the definitive and controlling law. Consequently, as a matter of due process, Grewal unquestionably erred in affirming the Superior Court’s issuance of its preliminary injunction.’ IV RESPONDENT’S “GUILTY UNTIL PROVEN INNOCENT” APPROACH TURNS THE APPROPRIATE LEGAL STANDARD ON ITS EAR In its Introduction, Respondent makes the astonishingly inappropriate statement that “Appellants themselves, kn[e]w that the product being purveyedis illegal gambling.” Of course, there is nothing in the record which justifies this seriously inappropriate remark. More importantly though, the record is quite to the contrary. Relying on Trinkle II, a decision that the Legislature has left untouched for well over a decade, Appellants had every reason to believe that their business operations were ’ Appellants do not contend that the court of appeal would have been barred by due process from issuing only a prospectively-operating construction of the statute at variance with Trinkle II. However, Appellants believe that such a construction is nonetheless barred by the doctrinesof: (1) stare decisis; (2) implied legislative adoption; and (3) the principle that statutes, even those clear on their face, should not be construed in a manner which would lead to absurd consequences. See the discussion of these points in Appellants' Opening Brief and infra herein. 10 PRG8300.doc entirely lawful. They were entirely compliant with Trinkle II’s controlling three-part test for slot machines, and Respondent does not dispute this. In essence, Respondent condemns Appellants for having cleverly designed a system which would not violate the applicable slot machine laws. Respondent suggests it is cheating and wrongfulto strive to conform to the applicable law in order to avoid violating it, and that such efforts should not be tolerated by this Court. The best response to Respondent’s position was perhaps provided nearly a century ago by Judge Learned Hand: Anyone mayarrangehis affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and overagain the courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands. Gregory v. Helvering, 69 F.2d 809, 810 (2d Cir. 1934), aff'd, 293 U.S. 465 (1935).° Respondent appears to be suggesting that Appellants should have known that Trinkle IJ was “wrong” and would be overruled some day. The law does not require one to comply with what might becomethe law at some unspecified future time. ® This principle remains the law. See, e.g., Apple Computer’s recent exploitation of the tax laws to minimize its tax liability http://online.wsj.com/article/SB 10001424127887324102604578497263976 945032.html While condemned by many (though not all, see above), Apple was not indicted; to the contrary, scores of America's corporations have done the same — and legislative attempts to ban such actions have been zealously opposed by pro-business groups and their political representatives. 11 PRG8300.doc V RESPONDENT’S ANALYSIS OF TRINKLE I AND ITS SIGNIFICANCE HEREIN JIS SUPERFICIAL AND DEFICIENT Respondent does not discuss Trinkle HI until p. 37 of its brief, apparently considering it of only minor importance to this case. Even though 7rinkle IT discussed and distinguished the leading cases involving slot machines and summarizedthe entire history of slot machine regulation in the state, all before articulating its three-part test to authoritatively construe the state’s slot machine statutes, and even though Appellants entirely complied with that three-part test, Respondent asserts that Appellants have given Trinkle IJ a “breathtakingly expansive” reading. (RAB 37). Yet, Respondent supplies absolutely no support for its assertion that Appellants have given Trinkle IT an expansive reading, much less a “breathtakingly” expansive one. Trinkle IJ was extremely clear in articulating the three critical elements of any slot machine under either Penal Code § 330b or § 330.1: ‘{T]he elements of a slot machine are (1) the insertion of money or other object which causes the machine to operate, (2) the operation of the machine is unpredictable and governed by chance, and (3) by reason of the chance operation of the machine, the user may becomeentitled to receive a thing of value." Trinkle If, 105 Cal.App.4th at 1410 (emphases added). As noted above, Respondent has not suggested that Appellants’ machines failed to comply with this test. Also, Appellants have never stretched or exaggerated the meaning of any of the wordsin the test above. They invokedit exactly as written, and exactly as Trinkle I had intendedit 12 PRG8300.doc to be read. It was key to the Trinkle II decision that the chance element of the statute could only be satisfied if the machine itse/f engaged in chance operation: By using the words “such operation,” the Legislature linked the element of chance to the operation of the machine, requiring that the machine itse/f determine the element of chance and becomethe object of play (emphasis added). 105 Cal.App.4th at 1410. In sum,the only “breathtakingly” tortured interpretation of Trinkle I is Respondent’s. VI RESPONDENT’S INTERPRETATION OF THE STATUTORY “INSERTION” ELEMENT IS LIKEWISE UNFAITHFUL TO TRINKLEI Because the SVMsatissue in Trinkle II required physical insertion of an object to activate them (as did the machines analyzed in every prior California published opinion involving slot machines), TZrinkle II's construction of the “insertion” element to require insertion of an object is admittedly dictum. Nonetheless, it purported to be an authoritative construction to synthesize complicated multiple statutes and provide guidanceto all throughout the state. Appellants were certainly entitled to rely on it, at least until such time as it might be legislatively jettisoned or overruled by a court of equal or higher authority. Nonetheless, Respondent labors mightily to suggest that the other slot machine statute which was before the court in 7rinkle II (i.e., Penal 13 PRG8300.doc Code § 330.1) also had language dispensing with the requirement of insertion of a physical object. See RAB 17: “Penal Code § 330.1[(f)] adds even greater clarity and consistency in the law by including devices that may be operated by the insertion of a physical item “.. . or may be operated or played, mechanically, electrically, automatically, or manually.” Thatis a clear misreading ofthestatute. Thefull text of the relevant portion of § 330.1(f) makes clear thatit requires insertion of a physical object: “f) A slot machine . . . is one that is, or may be, used or operated in such a waythat, as a result of the insertion of any piece of money or coin or other object the machine or device is caused to operate or may be operated or played, mechanically, electrically, automatically, or manually . . . .” (Emphases added.) It is clear that after restoring the portions of the statute omitted by Respondent, § 330.1 unquestionably requires insertion of some physical object, i.e., “any piece of money or coin or other object.” Nonetheless, the critical factors, at this point, are not the facial statutory language, but: (a) whether Appellants must be given the benefit of Trinkle II’s clear authoritative construction of § 330b’s insertion element, at least prior to the ruling in Grewal; and (b) whether the controlling factors for interpreting these provisions to be applied only prospectively include: (1) the principle that constructions of even facially clear language must be avoided if they lead to absurd consequencesand (2) the doctrine of implied legislative adoption. Respondent has failed to demonstrate how the Grewal ruling complies with any of the above principles of construction. 14 PRG8300.doc Vil RESPONDENT HAS FAILED TO SHOW THAT GREWAL’S CONSTRUCTION WOULD NOT LEAD TO ABSURD AND UNINTENDED CONSEQUENCES In their Opening Brief, Appellants proffered two distinct and equally absurd consequences of the statutory construction rendered by the court of appeal below:(1) it would makeillegal “slot machines” of every computer, cell phone and other device capable of an Internet connection; and (2) it would make SVMs (both those in Trinkle II and today’s) illegal “slot machines” and it offered no modified and workable definition of the term “slot machine” that would exempt them. With respect to (1) above, Respondent’s only discussion of this appears at pp. 42-43 and erroneously asserts that the only way point (1) would be relevant were if Appellants were asserting a “disparate treatment” claim, which, of course, they are not. Respondent presents no analysis of Grewal’s now-vacated statutory test for “slot machines” which in any way refutes Appellants’ assertion that Grewal would transform every computer and other device capable of an Internet connection into an illegal “slot machine.” Grewal construed § 330b to encompass any device accessed by typing in a PIN or password to participate in a sweepstakes or game of chance, the outcome of which is unknown to the user and includes the possibility of winning a prize or anything else of value, including even a free game. Nothing in Grewal would exempt a personal computer, cell phone or other device connected to the Internet and used to play online games of chance, ranging from McDonald’s Monopoly sweepstakes to ESPN’s 15 PRG8300.doc fantasy sports leagues, to lawful state lottery websites allowing online participation. Moreover, as noted in Appellants’ Opening Brief, such devices need not even be used to play such games. It is enough under the statute that they are capable of being used to play such games. In short, nothing provided by Respondent refutes the absurd consequences for owners of computers, smart phones and other Internet-connected devices which would flow from adoption of Grewal’s construction of § 330b pointed out by Appellants. Neither does Respondent undermine the similarly absurd consequence advanced by Appellants that Grewal’s definition of “slot machine” would unquestionably include and prohibit SVMs. Grewal’s primary ruling outright rejected Trinkle II’s slot machine definition, such that the new definition would include machines offering any game of chance to win something of value. Under Grewal, it is immaterial whether the operation of the machine is random;all that matters is that the user does not know the outcome in advance. Underthattest, SVMs would unquestionably be illegal slot machines.” Accordingly, ” At RAB 38, Respondent attempts to distinguish SVMsfrom slot machines because "a customer using the [CSL’s] vending machines paid money and consideration, and in return got exactly what they expected, a legal lottery ticket, and nothing more from the machines." Ironically, that same argument wasrejected in Stroh and Lockyer, two of the primary cases relied on by Respondent, when advanced to exempt as “vending machines” under Penal Code § 330.5 two devices which otherwise metthe criteria for being illegal slot machines. See, e.g., Trinkle v. Stroh, 60 Cal.App.4th 771, 781 (3d Dt. 1997), where the court of appeal expressly rejected plaintiffs’ argumentthat “the Match 5 Jukeboxesfall within this exemption because in every case the customer gets what he or she pays for — songs;” and People ex rel Lockyer v. Pacific Gaming Technologies, 82 Cal.App.4th 699, 704 (2d Dt. 2000), which, citing Stroh, rejected this identical argument as well. Both courts noted that devices offering a chance to win a prize offer more than just the face value of whateverit is that the machine provides to every 16 PRG8300.doc Respondent failed to show that under Grewal, SVMs wouldnotbeillegal slot machines, nor has it shown that the Legislature might have intended by that result to eliminate SVMs. Alternatively, Grewal proposed that SVMs might constitute a one- of-a-kind exception to its test for a slot machine, without articulating exactly whatits test would then be. However, manifestly, if such statutory re-working were to be made,it should be doneby the Legislature, not by a court, so that all could participate in the process and ultimately know, in advance, exactly what the test is. A court cannot simply, by judicial fiat, declare some uses exempt and others not, without articulating the statutory language supporting the differential treatment. For the reasons provided in Appellants Opening Brief (at pp. 40-43), Grewal’s attempt to distinguish SVMsand Trinkle II has no basis in the text of any of the slot machine statutes and is far too imprecise to provide a prospectively usable statutory construction (given the far-reaching scope of such construction). Vill RESPONDENT FAILS TO TAKE INTO ACCOUNT THE SIGNIFICANCE OF NEWLY ENACTEDAB1439 Respondent makesat least two points that appear to be obliviousto, and entirely refuted by, the obvious impact of recently enacted AB 1439. First, in footnote 8 (RAB 16), Respondentasserts that: “Appellants would like to force law enforcement to ignore the actual operation of their devices as can be observed by anyone, user. 17 PRG8300.doe and require a painstaking review oftheir sophisticated software to see if they have somehow managed to build outcome predictability into their systems. But such a showingis simply not required by thestatute.” Finessing the above issue in late 2014, the Legislature, being fully aware of this Court’s grant of review in this case,'° directly prohibited Appellants’ machines and any others with casino gambling-type video imagery by enacting AB 1439, making examination of the inner workings of the machines totally unnecessary. See AB 1439, which amended Business and Professions Code § 17539.1,'' and notably choosing to leave unchanged the statutory definition of illegal slot machines (replete with Trinkle II’s construction).'” Additionally, Respondent’s footnote 8 above does not take into account that unless the internal operation of the ‘machineis meaningful, there is no other statutory basis in the existing statutes to exempt SVMs. '0 See pp. 3-4 of the Staff Analysis of the Senate Committee on Governmental Organization prepared for the hearing before that committee on June 24, 2014, a copy ofwhich is attached as an Exhibit hereto. '' Specifically, see BPC § 17539.1(a)(12), which makesit an unfair act to: offer[] for use any method intended to be used by a person interacting with an electronic video monitor to simulate gambling or play gambling-themed games in a business establishment that (A) directly or indirectly implements the predetermination of sweepstakes cash, cash-equivalent prizes, or other prizes of value, or (B) otherwise connects a sweepstakes player or participant with sweepstakes cash, cash- equivalentprizes, or other prizes of value. '2 Given its awareness that Grewal had been depublished by this Court's grant of review, the Legislature’s choice not to elect to amend the slot machine statutes was unquestionably intentional and significant. 18 PRG8300.doc Trinkle II’s determination that SVMs were not slot machines rests on its conclusion that they did not operate in a chance manner. Under the existing statutes, there is no other provision which possibly keeps SVMs from being illegal slot machines. While the Legislature may enact an express exemption for SVMs, there is no such exemption in the statutes presently before this Court. Finally, Respondent (at RAB 43), asserts that “the harm to the public will be great if the . . . preliminary injunction is not affirmed.” This, as well, ignores the intended fatal impact on Appellants’ businesses of AB 1439. Assuming, arguendo, that businesses like Appellants’ cause “great harm,” the irreparable injury supporting a preliminary injunction must be such that the injunction is necessary prospectively. There is no prospective “harm” that will be caused by Appellants’ machines or their long-closed businesses because the machines are so clearly barred by AB 1439. ° Finally, if the Legislature considered the harm presumably caused by businesses like Appellants’ to be irreparable, it would surely have enacted AB 1439 as an emergency measure rather than one taking effect, like most other new laws, on thefirst of the following year. For each and all of these reasons, Respondent has ignored the unquestionedsignificance of AB 1439. '3 Nonetheless, the enactment of AB 1439 did not render these appeals moot, given the continuing danger of draconian monetary sanctions for past conduct threatening Appellants on remand. 19 PRG8300.doc Ix RESPONDENT?’S “FLOODGATES” ARGUMENTIS ALSO WITHOUT MERIT At RAB 23, Respondent asserts that if Appellants prevail, the “floodgates” would open for casino style video slot machines. However, newly enacted AB 1439 expressly bans casino game imagery from “electronic video monitors” which offer prizes of any type, effectively eliminating Respondent’s concern. x RESPONDENT PROVIDED NO SIGNIFICANT RESPONSE TO APPELLANTS’ DISCUSSIONS OF THE RULE OF LENITY, STARE DECISIS AND IMPLIED LEGISLATIVE ADOPTION A. The Rule of Lenity Respondent’s only discussion of the rule of lenity is at RAB 39-40 and entirely avoids the cornerstone of Appellants’ argument, i.e., that the rule of lenity must always be analyzed from the perspective of both the facial language of the relevant statute and any authoritative judicial constructions of the statute. Wooten v. Superior Court, 93 Cal.App.4th 422 (4th Dt. 2002). This is because the rule of lenity always entitles one charged undera criminalstatute to the benefit of any prior construction of a statute rendered by a court of last resort. As this Court stated in Cole v. Rush, 45 Cal.2d 345, 351 (1945), a judgment of a state court of appeal “stands, therefore, as a decision of a court of last resort in this state, until 20 PRG8300.doc and unless disapproved by this Court or until change of the law by legislative action.” Since Trinkle IT is “a decision of a court of last resort,” Respondent is unquestionably wrong that Appellants would not be entitled to its authoritative slot machine definition under the rule of lenity even if this Court were to construe the slot machine statutes to apply to their future conduct. B. Stare Decisis. Respondent devotes but a half page to stare decisis, even thoughit is potentially dispositive of this appeal, and certainly important. To Appellants’ knowledge, this Court has never squarely addressed whether a published final decision of a court of appeal (and particularly one construing a state criminal statute) has controlling stare decisis effect on another court of appeal. As noted, supra, this Court observed in Cole vy. Rush that final judgments of the courts of appeal shall be treated as decisions of “‘a court of last resort in this state.”” Given that, no other court of appeal is free to expressly reject a prior holding of another court of appeal rendered in a final published opinion. This is an important issue which this Court should now definitively resolve. Respondent countered (at p. 41) merely by saying that both Grewal and one unpublished federal district court opinion opted to follow the contrary language regarding the statute’s “chance” element in People ex rel. Lockyer v. Pacific Gaming Technologies, 82 Cal.App.4th 699 (2d Dt. 2000), which defined it as being met whenever the outcome is unknown to the user. 21 PRG8300.doc Anticipating this argument, Appellants explained’* that this statement in Pacific Gaming Technologies was dictum, because the machinesat issue there all had chance operation, as the court in Trinkle IT expressly found. See 105 Cal.App.4th at 1410: “Thus, in both Trinkle [v. Stroh] and Pacific Gaming Technologies, the machines in question were foundto be slot machines under Penal Code section 330b because the outcome was dependent upon the element of chance that was generated by the machines themselves.” (Emphases added.) Stare decisis, of course, is not triggered by mere dictum, but only by a holding. Significantly, Respondent has not disputed that the “contrary” language in Pacific Gaming Technologies was dictum, nor that the machines in Pacific Gaming Technologies had chance operation. Accordingly, Respondent essentially concedes that Trinkle LI is the only court of appeal opinion to have ruled on the chance operation element of a slot machine as a matter of its essential holding. Respondent has thus failed to demonstrate any cognizable conflict between the holdings in Trinkle II and Pacific Gaming Technologies. Consequently, it has not justified Grewal’s rejection of stare decisis. A fortiori, it has not explained the Superior Court’s more egregious departure from Trinkle II’s controlling authority nor how Grewal’s affirmance of the Superior Court’s preliminary injunction could have been correct under any understanding of stare re decisis.’° ‘4 AOB 24,n.23 and accompanyingtext. 'S Again, affirmance of the preliminary injunction would be a de facto determination that the Superior Court was correct in determining that Appellants' conduct wasillegal in 2012 — two years before the ruling of the court of appeal announcing its new test. Consequently, it is important that this Court clarify, regardless of whether Grewalitselfviolated stare decisis, 22 PRG8300.doc C. Implied Legislative Adoption. Respondent similarly devotes only a half page to the doctrine of implied legislative adoption. (RAB 41.) It primarily asserts that Appellants waived this point by not raising it previously. While it may not have beenarticulated as a distinct point below, this argumentis purely legal and stems from Appellants’ briefing in the court of appeal. For example, Appellants argued: “The Legislature could amend existing laws to specifically prohibit the type of sweepstakes program offered at Mr. Walker’s business; that is its prerogative. However, until such time as the Legislature may do so (if ever) this Court has made clear that neither the People nor the courts may expandthe scopeof existing criminal statutes[, '°]” and emphasizedthat: “Trinkle is the most recent appellate decision to construe the California slot machine statutes. It is not in conflict with any prior decisions, and is therefore controlling.”'’ Respectfully, Appellants never imagined that the court of appeal would merely assert that Trinkle IT was wrongly decided. Faced for the first time with such a ruling, it was appropriate for Appellants to raise the doctrine of implied legislative adoption by namein this Court, even if for the first time, as an additional ground addressing the incorrectness of the unexpected and seemingly impermissible court of appealruling. This Court has discretion to address any matters raised before it even that, at the very least, the Superior Court violated stare decisis. '© Appellants’ Court ofAppeal OpeningBriefat 14. '7 Ibid. at 26, n. 60. 23 PRG8300.doc for the first time. See, e.g., Cedars-Sinai Medical Center v. Superior Court, 18 Cal.4th 1, 5-7 (1998), recognizing and exercising this Court’s discretion to address issues not raised below, where the issue “‘is an issue of law that does not turn on the facts of this case, ... is a significant issue of widespread importance, andit is in the public interest to decide the issue.” Id. at 6. Clearly, application of the doctrine of implied legislative adoption in this case is entirely an issue of law, an important issue, and it would be in the public interest to decide the issue.'® As to the merits, Respondent offered little in response to Appellants’ wealth of authority regarding the statutory construction principle of implied legislative adoption. First, Respondent merely posits that the Legislature, assertedly believing that Pacific Gaming Technologies involved “an almost identical sweepstakes gambling scheme[to Appellants’]”,'’ saw no reason to change the existing legislation. However, by expressly distinguishing the randomly operating machines in Pacific Gaming Technologies from the non- randomly operating SVMs before it (which function exactly like Appellants’ machines for purposes of the “chance operation” elements), Trinkle II clarified that these differences were controlling. 105 Cal.App.4th '8 Accord, Fisher v. City of Berkeley, 37 Cal.3d 644, 654, n.3. (1984), stating: “parties may advance new theories on appeal when the issue posed is purely a question of law based on undisputed facts, and involves important questions of public policy.” '? They were decidedly not “almost identical” systems. Pacific Gaming Technologies involved a phone card sweepstakes system, Appellants’ businesses sold computer and Internet time. Most significantly though, Pacific Gaming Technologies’ machines operated randomly to assign winners; Appellants’ machines, like the SVMs in Trinkle II, merely dispensed previously arranged outcomes. 24 PRG8300.doc at 1410. Consequently, the Legislature would not have been lulled into misreading Trinkle II as Respondent suggests. Second, Respondent attempted to trivialize Trinkle II by erroneously characterizing it as a vending machine decision. As noted supra, Respondent’s own cases refute that possibility. See RAB at 16, noting that Trinkle v Stroh, 60 Cal.App.4th 771 (3d Dt. 1997) and Pacific Gaming Technologies (both of which involved the “vending machine” exemption of § 330.5) found that devices offering a product or service plus a chance at more were not exempted vending machines. The Legislature had over a decade to consider the significance of the chance operation concept articulated in two of the three statutory elements identified by 7rinkle IJ and chose not to disturb those definitional elements. The Legislature just a few months ago declined to modify that holding whenit passed AB 1439 without in any way modifying Trinkle IT’s existing slot machine definition (again, knowing that Grewal became unpublished when this Court granted review). There could hardly be a more eloquent legislative affirmation of Trinkle [I than the Legislature’s 2014 choice not to modify its slot machine definition while otherwise effectively dealing with Appellants’ business operations by enacting AB 1439. 25 PRG8300.doc XI RESPONDENT’S RELIANCE ON OUT-OF- STATE DECISIONS AND AN UNPUBLISHED FEDERAL DISTRICT COURT DECISION IS ENTIRELY MISPLACED In support of its interpretation of the California criminal statutes here at issue, Respondent begins by devoting 6 1/2 pages to decisions from other jurisdictions, all but one of which are outside California. The out-of- state cases are, of course, entirely irrelevant to the issues before this Court since each one is sui generis and depends upon the exact wording of the statute in each of those states. None has any relevance to the present appeal and, peculiarly,are all cited before Respondent’s first mention of Trinkle II. The only other decision cited by Respondent is an unpublished federal district court opinion from the Southern District of California, Lucky Bob’s Internet Café, LLC v. California Department OfJustice, 2013 U.S.Dist. Lexis 62470 (Lucky Bob’s). However, federal courts have no power to authoritatively construe state statutes but must follow the interpretations of those statutes provided by state’s court of last resort. Trinkle I is the only California published decision to have interpreted the meaning ofthe “insertion” element of the slot machine definition, and is the only California published decision to have addressed the “chance operation” elementof the definition as part of its holding. Consequently, it is telling that Respondent discusses Lucky Bob’s long before first mentioning Trinkle II’s controlling decision. Lastly, in n. 11 at RAB 34, Respondent asserts that Appellants Grewal and Walker mischaracterized Lucky Bob’s “because there was no 26 PRG8300.doc statement that there was a ‘random number generator’ in Lucky Bob’s.” However, Respondent’s commentdoes not change what wasactually found by the federal district court. As Appellants correctly noted in n. 37 of their Opening Brief at p. 43, the Lucky Bob’s court stated that the software system there at issue “randomly generated numbers”andthat “the operation of [defendant’s] machine was . . . unpredictable and governed by chance.” The Lucky Bob’s court additionally found that the “mathematical algorithms necessary to determine winning entries” in the software system there at issue “were computed at the time Internet time was purchased.” Lucky Bob’s Internet Café, LLC v. Cal. DepartmentofJustice, 8.D.Cal. No. 11-CV-148 BEN, Order of March 25, 2013, Doc. No. 79, Order Granting Defendant Key’s Motion For Summary Judgment,at p. 3, lines 12-14. That wasnot the case with Appellants Grewal and Walker’s machines which had no chance operation whatsoever (nor has Respondent ever contended otherwise). 27 PRG8300.doc XII WERE THIS COURT TO ACCEPT APPELLANT STIDMAN’S CONSIDERATION ARGUMENT, APPELLANTS GREWAL AND WALKER WOULD BE ENTITLED TO THE BENEFIT OF ANY SUCH RULING Appellants Grewal and Walker have not previously asserted the argument that consideration is an element of a slot machine under Penal Code § 330b and do not assert it now. However, consolidated appellant Stidman has preserved and pressed this point on appeal. Should appellant Stidman prevail on this point, Appellants Grewal and Walker, on remand, should be entitled to the benefit of any such ruling becausetheir facts are at least as strong, and arguably stronger, on this point than those in Stidman. Depending on howthis Court resolves this issue, the preliminary injunction record here on appeal may or may not be adequate fora final resolution of such claim.” CONCLUSION Appellants’ Opening Brief identified a large number of problems with the ruling of the court of appeal below, several of which were uniquely created by its disregarding of Trinkle II (e.g., it violated the principles of due process, implied legislative adoption, stare decisis and the rule of °° If this Court finds consideration to be a required statutory element of a slot machine, and if the presence of a free play option is found sufficient, alone, to establish the absence of required consideration, then the preliminary injunction record would be adequate for a final resolution, since the record is clear that Appellants Grewal and Walker provided a variety of free play options. 28 PRG8300.doc lenity). Other problems are that, if the Grewal construction were allowed to become law, it would create absurd consequences obviously unintended by the Legislature, including not only creating a test which would make SVMsillegal, but, more significantly, would make slot machines of every computer, cell phone or other device with Internet access. Respondent has hardly addressed any of these problems, and none with persuasive reasoning. For each and all of the reasons above, the judgment of the Court of Appeal should be reversed andthetrial court should be orderedto strikeall allegations in the Complaint alleging operation of illegal slot machines. Respectfully submitted, Dated: February 18, 2015 John H. Weston G. Randall Gaérrou Jerome H. Mooney Weston, /Garrou & Mooney \ John H. Weston Attorneys for Appellants by 29 PRG8300.doc CERTIFICATE OF WORD COUNT BY APPELLATE COUNSEL I am one of the attorneys who participated in preparation ofthis Reply Brief on the Merits and hereby certify, per the requirements of CRC 8.504(d), that it consists of 6,950 words, exclusive of the cover, tables, signature blocks, proof of service and appendices. G. RandallGarrou 30 PRG8300.doc EXHIBIT Staff Analysis of Senate Committee on Governmental Organization prepared for the hearing before that committee on June 24, 2014 Bill No: AB 1439 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Lou Correa, Chair 2013-2014 Regular Session Staff Analysis AB 1439 Author: Salas As Amended: June 16, 2014 Hearing Date: June 24, 2014 Consultant: Paul Donahue SUBJECT Unfair business practices: Contests and sweepstakes DESCRIPTION Prohibits any person, when conducting a contest or sweepstakes, from using anelectronic video monitor to simulate gambling or play gambling-themed gamesthat offers the opportunity to win sweepstakes cash, cash equivalent prizes, or other prizes of value. Specifically, this bill: 1) Designates as prohibited unfair busmess practices the following acts undertaken by a person in the operation of a contest or sweepstakes: a) Using or offermg for use any method intended to be used by a person mnteracting with an electronic video monitor to smulate gambling or play gambling-themed games in a business establishment that: i) Directly or indirectly implements the predetermination of sweepstakes cash, cash-equivalent prizes, or other prizes of value, or it) Otherwise connects a sweepstakes player or participant with sweepstakes cash, cash-equivalent prizes, or other prizes of value. 2) Defines “sweepstakes” as a procedure, activity, or event, for the distribution, donation, or sale of anything ofvalue by lot, chance, predetermmmed selection, or random selection that is not unlawful under other provisions of law, mcluding laws governing lotteries and slot machmes. 3) Declares that the above prohibitions shall not legalize any activity that is currently illegal pursuant to laws prohibiting slot machines, lottenes, or unlicensed gambling. AB 1439 (Salas) continued Page 2 4) Declares that the prohibitions in the bill shall not render unlawful otherwise lawful games and methods used by a licensed gambling enterprise, and shall not restrict operations of the California State Lottery. . EXISTING LAW 1) Prohibits false advertising, unfair competition and unlawful business practices, specifically prohibiting certam acts or practices undertaken by a person in the operation of a contest, mcluding misrepresenting the odds of winning prize or failing to award and distribute all prizes, providing for civil penalties and other remedies. 2) Outlaws use ofa “slot machine or device,” which “may be operated, and by reason of ... hazard or chance or of other outcome of operation unpredictable by [the user], the user may receive or become entitled to receive ... [an] additional chance or right to use the slot machine or device” or a “token, or memorandum ... which may be exchanged for any money, credit, allowance, orthing of value.” 7 3) Prohibits lotteries,’ with exceptions for the California State Lottery, bingo for charitable purposes, and charitable raffles conducted by a non-profit, tax-exempt organizations. BACKGROUND Purpose ofthe bill: According to the author, a loophole in the law has permitted internet gambling sweepstakes to operate m a “gray area” and evade law enforcement. The author states that these Internet sweepstakes are thinly veiled gambling operations, and the law must be updated to prohibit these activities and provide authorities with necessary enforcement tools to regain local control of the public safety issues that arise because of illegal Internet gambling sweepstakes. The author further states that local business owners have voiced concerns about the negative consequences of these business activities, which have been proliferating in the state, including many reports of ncreased crime. As a result, nearby businesses are hurting as their customers seek to avoid the crowd and crime that these illegal gaming cafes attract. The author states that AB 1439 will close the loophole that has allowed these illegal cafes to operate. Whatis an Internet_sweepstakes café? Before the days ofubiquitous broadband Internet access via mobile cellular networks, an Internet café provided Internet accessto the public, usually for a fee. These businesses usually provided snacks and drinks, hence the ' See Bus. & Prof. Code §§ 17200, et seq., 17500, et seq. ? Penal Code § 330b (d) ? A lottery is defined as any scheme forthe disposal ordistribution of property by chance among people whohave paid any valuable considerationfor the chance of obtaining such property, with the understanding oragreementthat it is distributed by chance, whetherit is called lottery, raffle or gift enterprise. (Penal Code § 319) AB 1439 (Salas) continued Page 3 café in the name. Nowadays, many such businesses often promote the sale oftheir products (e.g., computer time, Internet access or telephone cards) by offermg a sweepstakes giveaway that allows customers to ascertam their wmnings, if any, by playmg specialized game programs on the businesses’ own computer termmals. Often these programs simulate casino slot machines or other gambling games. Are these Internet sweepstakes operating illegal lotteries? As noted above,lotteries are illegal in California, except for the State Lottery.* Sweepstakes or business promotions, on the other hand, are legal and are regularly utilized by companies to increase sales. Typical examples mclude McDonali's Monopoly, Burger King's “Be the King” sweepstakes, and the My Coke Rewards sweepstakes. Under California law, these sweepstakes and promotions are legal as long asthere is a legitimate free method for customers and non-customers to enter the contest or sweepstakes.° The differences between a contest or sweepstakes and anillegal lottery are that, m lottery, there is a disposition of money or other property on a contingency determined by chanceto a person who has paid money for the chance of winning a prize.° As long asthere is a legitimate free method of entry into the sweepstakes or promotion, the consideration element is absent, and the “sweepstakes” is not an illegal lottery. Thus, it would appear that most Internet cafes are not operatmg illegal lotteries under California law. Are these Internet_sweepstakes cafes operating illegal slot machmes? Proponents ofAB 1439 note that under the sweepstakes software systems used by Internet café operators on their computer networks and terminals, upon the payment ofmoney (such as the purchase of Internet time or a phone card), patrons can activate computer sweepstakes games on the termmals and, based on “chance” or “other outcome of operation unpredictable by” the patron, win cash prizes — which appears to describe anillegal slot machine.’ Recent law enforcement actions and corresponding litigation: In December 2012 the Attorney General’s Bureau of Gambling Control issued a law enforcement advisory stating that Internet cafés that offer the type of sweepstakes described aboveareillegal gambling operations. Among other things, the Bureau said that it “will assist California law enforcement agencies workmg toward prosecution or pursuing civil or admmistrative actions mn connection with Internet Café gambling operations. Assistance may encompass advice, Bureau personnel and equipment, search and arrest warrants examples, and other experienced assistance with enforcement operations.’”® Some jurisdictions in the state have filed civil actions under the Unfar Competition law seeking to enjoin several Internet café businesses from continuing to engage in practices that allegedly violated the gambling prohibitions on unlawful lotteries and/or slot 4 Penal Code § 319; Cal. Const. art. IV, § 19 (a) > Regal PetroleumCalifornia Gasoline Retailers v. Regal Petroleum Corp. (1958) 50 Cal.2d 844 ° Regal Petroleum, 50 Cal.2d 844, 853-854 [one whohas hazarded something ofvalue uponthe chance”] 7A device operated, and by reasonof... hazard or chanceorof otheroutcome of operation unpredictable by [the user], the usermay receive ...[a prize or another chanceto play]. See Penal Code § 330b. ® Bureau of Gambling Control Law Enforcement Advisory, Number 11, December 5, 2012 AB 1439 (Salas) continued Page 4 machines or devices. Defendants in consolidated Kern County cases recently appealed from trial court orders grantng the preliminary mjunctions against their businesses. The reviewing appellate court upheld the injunctions, holding that an unlawful slot machine was involved in each of the defendants’ businesses. Among other things the court in the Grewal’case said that the customers in the Intemet cafés may become entitled to win prizes under the software systems implementing defendants’ computer sweepstakes games based on “hazard or chance or of other outcome of operation unpredictable” to the user... Thus, the court agreed that the “chance” '° element ofillegal slot machine law is satisfied. Since customers playing the computer sweepstakes games can exert no influence over the outcome oftheir sweepstakes entries by means ofskill, judgment or how well they play the game, it follows that we are dealng with systems that are based on chanceor luck."? The defendants in the Grewalcase have petitioned the California Supreme Court for review (or de-publication of the opmion) because it reached a result that ts m conflict with an earlier slot machine case involving the State Lottery.’? The differences between the cases mvolve the description of the manner mn which the chance element must be realized in order to constitute a slot machine or device under Penal Code § 330b. Among other thngs, Grewalheld that the element of chance is to be determmed from the user’s perspective, and it is immaterial that the machine itself did not determine the element of chance. Thus, an illegal slot machme is found whenever “upon the payment ofmoney (1e., the purchase of phone cards or Internet time), patrons can activate computer sweepstakes games on the termmals, and based on ‘chance’ or‘other outcome of operation unpredictable by’ the patron, win cash prizes.” '? Opponents take issue with this Ine of reasoning, alleging that it will even makelottery vending machines illegal again because, upon the payment ofmoney(for the ticket), the machine dispenses the ticket, and based on chance or other outcome of operation unpredictable to the patron, the patron reveals the secret contents and wins cash prizes. Opponents suggest that the State Lottery’s “Hot Spot’ game is clearly illegal under this interpretation, because the results are revealed on a computer termmal, the patron wins cash prizes, and the result is unpredictable to the patron. They contend that these California State Lottery-operated computer terminals are now illegal slot machines under Grewal. ? People v. Grewal (2014) 224 CalApp.4th 527 '© Under Califomia gambling law, “chance” means that “winning and losing depend onluck andfortune rather than,or at least more than, judgment and skill.” (Hofe/ Employees & Restaurant Employees Internat. Union v. Davis (1999) 21 Cal.4th 585) '! Furthermore, the court stated that, by describing their promotional giveaways as sweepstakes, the Intemet café defendants effectively admitted to the chance element becausea sweepstakesis, by definition, “any procedure for the distribution of anything of value bylot or by chance that is not unlawful under other provisions of law....” [See Bus. & Prof. Code, § 17539.5(a)(12)] 2 Trinklev. California State Lottery (2003) 105 Cal.App.4th 1401 '3.994 Cal.App.4that pp. 540-541. The Califomia Supreme Court has the Grewal case undersubmission, and on June 12, 2014, it extended thetime until July 17, 2014 to decide whether to grant or deny review, or grant or deny the de-publication request. It can act on the request any time prior to July 17. AB 1439 (Salas) continued Page 5 Amending sweepstakes law: The author and supporters believe that Internet sweepstakes cafés are by their very nature an abuse of sweepstakesas a legitimate means to promote the sale of goods and services. Thus, AB 1439 adds provisions to false advertising, unfair competition and unlawful business practices laws that prohibit a person ftom operating a gambling-themed or simulated gambling electronic video monitor in a business that gives cash or other prizes of value. In so domg, the Attorney General, district attorneys and city attorneys have an additional predicate act to form a basis on which they can commence civil lawsuits to seek penalties and other relief agamst Internet café operators. The author and supporters contend that AB 1439 will enhance the ability of law enforcement to curb illegal gambling activities and associated crimes by explicitly prohibiting a business from offering electronic video monitor gambling simulations or gambling themed games that utilize a sweepstakes prize experience — without regard to whether or not the operations are using illegal slot machmes. Opponents to AB 1439 object to this approach, and believe that this bill criminalizes sweepstakes unfairly. They contend that the bill would prevent legitimate businesses from utilizing lawful method of sweepstakes marketing to promote the sale ofproducts and services. As noted above, opponents contend that Grewalcase has already transformed their legitimate busmess promotional activity from a legal sweepstakes, where a standard desktop computer revealed a pre-determined prize, to a legal sweepstakes that would be lawful if not delivered ona computer, but is now illegal because it is delivered on a computer, as that computer now constitutes an illegal slot machine. PRIOR/RELATED LEGISLATION AB 1691 (Jones-Sawyer), 2013-2014 Session. Would have allowed professional sports franchises to operate game-day charitable raffles in which 50% ofthe proceeds go to the ticket holder and 50% ofthe proceeds go to the local charities designated by the professional sports team for that particular event or to the professional sports team’s own charitable foundation. (Held m Assembly Appropriations Committee) SUPPORT: Agua Caliente Band of Cahuilla Indians Association for Los Angeles Deputy Sheriffs Association of California Cities Allied with Public Safety Attorney General’s Office, Kamala D. Harris Bakersfield Downtown Business Association Barona Band of Mission Indians Bicycle Casino California Association of Code Enforcement Officers California College and University Police Chiefs Association Califomia Contract Cities Association California District Attorneys Association California Narcotic Officers Association California Police Chiefs Association California State Sheriffs Association AB 1439 (Salas) continued California Statewide Law Enforcement Association California Tribal Business Alhance City ofAvenal City ofBakersfield City ofBarstow City of Concord City of Delano City of Fairfield City of Hayward City of Hesperia City of McFarland City of Oakland City of Sacramento City of Southgate City of Tulare City of Vacaville City ofWasco Commerce Casino Communities of California Cardrooms Habematolel Pomo ofUpper Lake Hawaiian Gardens Hispanic Chamber of Commerce, Alameda County Inaja-Cosmit Band of Mission Indians Kern County Board of Supervisors Kern County District Attorney League of California Cities Los Angeles Police Protective League Oakland Metropolitan Chamber of Commerce Oakland Police Department Pala Band of Mission Indians Paskenta Band ofNomlaki Indians Ramona Band of Cahuilla Riverside Sheriffs Association San Diego District Attorney San Mateo County Police ChiefS and Sheriff Association Solano County District Attorney Southern California Tribal Chairmen’s Association, Inc. Viejas Band ofKumeyaay Indians Yocha Dehe Wintun Nation OPPOSE: Prepaid Telconnect, Inc. Wild Poker Tour FISCAL COMMITTEE: Senate Appropriations Committee KEKKKEKEKKE Page 6 PROOF OF SERVICE AND MANNEROFFILING [Pursuant to C.C.P. Section 1013(a) and Rule 8.212(c)(2)] I am a resident of and also employed in the County of Los Angeles, State of California. I am overthe age of eighteen years and am nota party to the within entitled action. I work at the law firm of Weston, Garrou & Mooneylocated at 12121 Wilshire Boulevard, Suite 525, Los Angeles, CA 90025. I am readily familiar with this law firm’s practice for the collecting and processing of correspondence for mailing with the United States Postal Service. In the ordinary course of business, any correspondence delivered to our firm’s mail room employee(s) is routinely stamped with postage and then deposited for mailing on the same day with the United States Postal Service. REPLY BRIEF ON THE MERITS OF APPELLANTS GREWAL AND WALKER x SERVICE BY U.S. MAIL. On the date shown below, I served the foregoing documentontheinterested parties in this action by delivering to our firm’s mail room employee a true copy thereof in a sealed envelope for delivery by U.S. Mail, addressed as follows: See attached servicelist. x ELECTRONIC FILING. On the date shown below,in satisfaction of the requirements for service of Appellate Briefs in the State of California, a true copy of the foregoing document has been served on the Supreme Court of California via its California government website, in an area specifically designated for Electronic Service of Civil Appellate Briefs. Per CRC 8.212(c)(2), such service also constitutes full service on the Court of Appeal. x} FILING PARTIALLY BY FEDERAL EXPRESS. Onthe date shown below, in satisfaction of the requirements for service of Appellate Briefs in the State of California, an original of the foregoing document and eight copies have been sent to the Supreme Court of California for filing via Priority Federal Express. , I declare under penalty of perjury under the laws of the State of California that the aboveis true and correct. Dated: February 18, 2015 dy Kusinér PRG8300.doc Service List (for Mailed Service) Lisa S. Green, District Attorney Gregory A. Pulskamp, Deputy District Attorney Kern County District Attorney’s Office 1215 Truxtun Avenue Bakersfield, California 93301 Tory E. Griffin Hunt Jeppson & Griffin LLP 1478 Stone Point Dr., Suite 100 Roseville, CA 95661 (Counsel for Consolidated Appellant Stidman) Courtesy Service List (sent by email only) Steven GraffLevine 1112 Montana Avenue #309 Santa Monica, CA 90403 By email only to: stevengrafflevine99@gmail.com (Counsel for Appellants Nasser and Elmalih in $17979)