PEOPLE v. NASSERAppellants’ Petition for ReviewCal.April 22, 2014 S2179%" Case No. IN THE SUPREME COURT OF THE STATE OF CALIFORNIA THE PEOPLE OF THE STATE OF ) CALIFORNIA, ) ) Plaintiff and Respondent, ) Court of Appeal Nos. ) F066645/F066646 V. ) ) Kern County KAMAL KENNY NASSERand ) Superior Court Nos. GHASSAN ELMALIH, ) CV-276603/CV-276962 ) Defendants and Appellants. ) ) PETITION FOR REVIEW — After Decision by the Court of Appeal APR 99 2014 Fifth Appellate District Filed March 10, 2014 Frank A. McGuire Clerk Depuiy STEVEN GRAFF LEVINE 1112 Montana Avenue #309 Santa Monica, CA 90403 (310) 497-1974 Bar No. 140585 Attorney for Appellants TABLE OF CONTENTS TABLE OF AUTHORITIES...0........cceececccessescsscesseensesesesseesseseeeeessaesseseneeeseneens il PETITION FOR REVIEW...............:cccccsscsssccsesesssssessaseesseeseeensesseseesseseeeesseeesenaees 1 INTRODUCTION uo... ceccccccccsceccscenceseceesecaceesseseesacsneeecsesesessssessseasenteneeseeeseeseenes ] A. Grewal Created a Published Conflict -............0...ccccccsescsrsesesteeseeeeeeteeeeennes 3 B. Grewal Made BadLav................. aseesacesaceencensaneeeeesneeresaeeaueunsesneseseenensasesens 4 QUESTIONS PRESENTED 0.00... eeceseesseeeeneseeseeensceeeeeceseeneeneeeeeseeenssenseeseaes 6 NECESSITY FOR REVIEW.............ccccsccssccssscsserersssssssseeseeesesseesesensessseseeeesseenes 7 STATEMENTOF FACTS....00....ccccccccsescesesseesesesessseneeseeceseeeeseenecsesssssseesaeeeseaeseanes 8 DISCUSSION OF GREWAL ..0......ceccscsssssssssssscssseteseeeesenesneeensenenseeseeanensseeeeeaee 11 A. Sweepstakes or Business Promotions..................:cccccecsseeeeseeteceenetneeeeneeees 11 B. Trinkle v. California State Lottery (Trimkle ID) ..........cccccccccssceserseseeses 13 C. Phone-Sweeps’ Business Promotion and Operation..................c0:c 16 D. People v. NQSS€P ......:esccsccessscesssssssseceseeeneesessesesueensesseesseneeessesaseneesneennenees 19 ANALYSIS.....ccccccccesescesssseessesssesessneecsesseeseneeseesesesesnsuaesesessenesestenseneesseeneeeeeeeseetens 23 A. Something of Value Must Be Staked or Hazarded.................:ccccceeeees 23 B. The Chance Element Must Be From the MachineItself........................ 25 C. Grewalis Bad for Business in California ................... cc ccccesceseseeeeeseeeeesees 26 CONCLUSION..00.....cccccccccsssecseceestececeeseceeceeesssesessocsaraaeessessesceeesatenssnnseneeseaeesnenens 27 TABLE OF AUTHORITIES Cases Apple, Inc. v. Superior Court (2013) 56 Cal.4” 128.oeccccssecscscesesstesssestessesseeseesees 27 Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450 ...eeeeceseeeeeeeeen 7 City ofBell Gardens v. County ofLos Angeles (1991) 231 Cal.App.3d 1563...... 18 Cole v. Rush (1945) 45 Cal.2d 345 wo. cecececssssssesseseessssesessecseesseseeseenseseeteeseneeees 6 Hotel Employees & Restaurant Employees Internat. Union v. Davis (1999) 21 Cal4th 585 vo..cccccceccccscscsccsecssecssesseseesseseeccecssessesasensessssassceseseesssseaneseseseneaseeseeaes 24 Lucky Bob’s Internet Café, LLC v. California Dept. ofJustice, et al. (S.D. Cal. 2013) 2013 U.S. Dist. Lexis 62470...ccssseseseeseeseeseeeensensenesetestenenetees 23,n.4 McVeigh v. Burger King Corp. (2010) 2010 Cal.App.Unpub.Lexis 8247.... 25, n. 5 Morillion v. Royal Packing Co. (2000) 22 Cal.4° 575 veecsesscsscsssessssseessseessesesseeseneess 6 Newman v. Emerson Radio Corp. (1989) 973 ...ccsccsscsseseessesessensesesensenssenenensenetees 7 People v. Cardas (1933) 137 Cal.App.Supp. 788 ......:cccscsssseeeesecseseerseetersereeteres 12 People v. Carpenter (1956) 141 CalApp.2d 884........:csseeseeeeceeneeetsesteetenenscees 12 People ex rel. Lockyer v. Pacific Gaming Technologies (2000) 82 Cal.App.4" 699 evecsecuecseceusscacscsssesscssessuceseaseesuscenscessessesaesceacscerseesesseesseeeasenseesesensesssanenseneeeaeey 15, 20 People v. Shira (1976) 62 Cal.App.3d 442.......csssscsesssseeseeseeesseeseeessesseeeeess 12, 16 People v. Sobiek (1973) 30 Cal.App.3d 458........csssccssseseseeeenesersesesessnenseensensnsrseees 6 Regal Petroleum California Gasoline Retailers v. Regal Petroleum Corp. (1958) 50 Cal.2d 844 oo. ccccccccecccsscceteeereseeecesesssssessssasseseesseceseeenees 4-5, 12, 16, 19, 22, 24 Score Family Fun Center, Inc. v. County ofSan Diego (1990) 225 Cal.App.3d V2V To ceeccccecccecsccsccsesecscecsseseescessaccsceeecesseceneeenssecseneeeecsessseeseecssesseeassseeesseseeeenensee® 20 Tibbets v. Van de Kamp (1990) 222 Cal.App.3d 389 .....:cccseseeeeseeeeesseeeseeeeeneens 17 Trinkle v. California State Lottery (2003) 105 Cal.App.4” 1401...enpassim Trinkle v. Stroh (1997) 60 Cal.App.4th 771 oo... ceecesesceeteereeseeeseetecseereneeseasons 15, 20 Western Telcon,Inc. v. the California State Lottery (1996) 13 Cal.4" 475 .... 18, 24 Wilkoffv. Superior Court (1985) 38 Cal.3d 345...sssssecesseeeeteeneeretesntennee 4, 6, 25 ii Statutes Business and Professions Code section 17200 ..........ccsscccscessecceesesseeeseeneeeeees 1,5, 27 Code of Civil Procedure section 904.1 0...eeeeeeceeeseeeesesseesessessessssssseuseseneesees 1 Penal Code section 319 ........cecssssceceescesseneeessreceeseesessesscessssseeesssseseusesseesseseeseness 11 Penal Code section 330 .......cccccccssscecececcecceeecceesssssssscnsesseceeceeeecenseessseceteeeeees 17-18, 24 Penal Code Section 3308 .........cccccesesscccsecesnsecessceeesssneceeceeseesseeceeaeetsentosucoees 1, 19, 24 Penal Code section 330D..........ccsccccseccesesseeeceteeesceseserssessesuseseseeeseesseeesseesesen passim Penal Code section 330.1 ........cecesccccscsssscscceeessssceeceeeeesssceecesesesetenssanons 1, 14, 19 Penal Code section 337Z.......c.s:ceeeees sestestecenseceseceneesseceasesesceseeceseseessscsessteaeasaaeneese 24 Penal Code Chapter 10 oftitle 9, part Loc...csesssecsssssscssesccsecssseceseessneessesneessnteeneees 24 Other Authority California Rules of Court, Rule 8.500 00.0.0... ccecccssseceeseeneecesseseeseeceseeeeesenenereees 1,7 California Rules of Court, Rule 8.504 ..........ccccssccsssccsseeecesccesaaeceeeeseeseceeesseesesaseense 1 California Constitution, article TV, § 19...ceeeeseeeseceessseessseeeeseeteessecessesesseeoes 1] (http://articles.latimes.com/1996-09-06/news/mn-41050_1_state-lottery)...... 18-19 (http://www.sfgate.com/entertainment/gaming/article/California-style-card-game ~Blackjack-1873-2618922.php)..........:ccecscsssssessssesssesessessecsecensenensseeseesaeeesetaeees 18 ili IN THE SUPREME COURTOF THE STATE OF CALIFORNIA THE PEOPLE OF THE STATE OF ) CALIFORNIA, ) ) Plaintiff and Respondent, ) Court ofAppeal Nos. ) F066645/F066646 V. ) ) Kern County KAMAL KENNY NASSERand ) Superior Court Nos. GHASSAN ELMALIH, ) CV-276603/CV-276962 ) Defendants and Appellants. ) ) PETITION FOR REVIEW TO: THE HONORABLE TANI CANTIL-SAKAUDYE, CHIEF JUSTICE, AND TO THE HONORABLE ASSOCIATE JUSTICES OF THE CALIFORNIA SUPREME COURT: INTRODUCTION Appellants Kamal Nasser and Ghassan Elmalih petition for review of the decision of the Fifth Appellate District (attached as Exhibit A), pursuant to rules 8.500 and 8.504 of the California Rules of Court. The People brought a civil action under Business and Professions Code section 17200 seeking injunctive relief against appellants’ Internet cafes, claiming that appellants’ phone cards, which allowed a purchaser (and nonpurchaser) to enter a sweepstakes on computer terminals in the business, rendered the computers illegal slot machines under Penal Code sections 330a, 330b and 330.1. The trial court granted the People’s preliminary injunction and an appeal was taken pursuant to Code of Civil Procedure section 904.1, subdivision (a)(6). The Court of Appeal affirmed the trial court’s order on the basis that appellants’ computers constituted illegal slot machines under Penal Codesection 330b. | A. Grewal Created a Published Conflict In allowing appellants’ businesses to be shut down, the Court of Appeal explicitly rejected the Third District’s February 4, 2003 holding in Trinkle v. California State Lottery (2003) 105 Cal.App.4"1401 (Zrinkle IN, claiming its test for determining what constitutes an illegal slot machine, i.e., that the machine itse/f must determine the element of chance, was “in error.” (224 Cal.App.4" at p. 541.) In Trinkle II, the Third District held that “the elements of a slot machine [in section 330b] are (1) the insertion of money or other object which causes the machine to operate, (2) the operation of the machineis unpredictable and governed by chance, and (3) by reason of the chance operation of the machine, the user may be entitled to receive a thing of value.” (Trinkle IT, 105 Cal.App.4" at p. 1410) The court explained, “the Legislature linked the element of chance to the operation of the machine, requiring that the machine itself determine the element of chance and becomethe object of play.” (/d. at p. 1411.) In rejecting the Trinkle IT holding, Grewal significantly broadened the criminal reach of section 330b by holding that the element of chanceis to be determined from the user’s perspective, and it is immaterial that the ' This case is the unpublished companionto the published case ofPeople v. Grewal(2014) 224 Cal.App.4" 527; the Court of Appealstated that the fact the appellants in Grewal sold internet time instead of phone cards(as here) had no effect on the court’s analysis: “With no material differences, the same rationale and disposition follows in those cases as is stated here.” (224 Cal.App.4™ at p. 531, n. 1.) The court’s legal analysis is identical in both opinions. For the Court’s convenience, this petition will cite to the published Grewallegal analysis when appropriate. If the case is accepted for review, however, petitioner requests that the Court consider making Nasser the lead case because its phone cards are unquestionably valuable, and its business promotion clearly constitutes a legal sweepstakes under California law. (See discussion infra, at pages 16-17, 23.) that the machine itself did not determine the element of chance. Now, an illegal slot machine is found whenever “upon the payment of money(i.e., the purchase of phonecardsor Internet time), patrons can activate computer sweepstakes games on the terminals, and based on ‘chance’ or ‘other outcome of operation unpredictable by’ the patron, win cash prizes.” (Slip opn. 11; 224 Cal.App.4" at pp. 540-541, emphasis added.) In creating a published conflict, the Court of Appeal ignored the fact the Legislature had amended Penal Code section 330b three times since Trinkle IT was decided — in September 2003, 2004 and 2010 — andleft its decision and analysis intact, signifying the Legislature’s approval of the Trinkle II analysis. “‘Where a statute has been construed by judicial decision, and that construction is not altered by subsequentlegislation, it must be presumed that the Legislature is aware of the judicial construction and approvesofit.’ [Citations.] ‘There is a strong presumption that when the Legislature reenacts a statute which has been judicially construed it adopts the construction placed on the statute by the courts.’ [Citation.]” (Wilkoff v. Superior Court (1985) 38 Cal.3d 345, 353.) In other words, in changing and dramatically expanding the criminal definition of “slot machine”from thatset forth in Trinkle I, the Grewal court not only created a published conflict, it went against the Legislature’s intent as well. B. Grewal Made Bad Law Appellants sell valuable ‘““Tel-Connect” and “Inter-Connect” phone cards, which allow purchasers to pay three cents a minute for domestic calls and five cents a minute for international calls with no hidden charges. Like a wide variety of other lawful businesses, appellant promoted sales by means of a sweepstakes feature that allows customers and noncustomers alike to win cash prizes. Under Regal Petroleum California Gasoline Retailers v. Regal Petroleum Corp. (1958) 50 Cal.2d 844, 853-857 (Regal Petroleum), so long as there is a legitimate free method of entry into the sweepstakes or promotion, the promotion is perfectly legal. Appellants’ business promotion is no different than McDonald’s Monopoly, Burger King’s “Be the King” Sweepstakes, the Pepsi Bottle Cap sweepstakesor the My Coke Rewards sweepstakes, or countless others like them. And unlike the typical slot machine case, where a person hazards a coin or something of value into a machine to win a prize, in a sweepstakes, the person has purchased a legitimate product and voluntarily enters the sweepstakes, or has simply entered the sweepstakes for free; in trying to win the prize, the person hazards nothing of value; the person cannot lose, he or she can only win. Grewal failed to consider this critical fact in determining whether appellants’ sweepstakes can ever meet the definition of a “slot machine” as nothing of value is risked or hazarded to win the prize. In addition, Grewal unceremoniously cast aside the 11-year-old Trinkle II test, which required the machine itself to contain the element of chance, and now “chance” is viewed from the user’s perspective, which unjustly broadens the criminal reach ofthestatute. Overnight, appellants’ business promotion went from a legal sweepstakes where a standard desktop computer revealed a predetermined prize, to a legal sweepstakes that would be lawful if not delivered on a computer, but is now illegal because it is delivered on a computer, as that computer now constitutes an illegal slot machine under section 330b. In criminalizing sweepstakes in this manner, the Court of Appeal has essentially outlawed all business sweepstakes in California. After Grewal, individuals will be able to bring Business and Professions Code section 17200 unfair business practice suits against any company running a legal sweepstakes promotion where the winningprize is revealed over a smart phone or computer, or by purchase through a vending machine. QUESTIONS PRESENTED 1. Whether Grewal’s expansion of the Penal Code section 330b definition of slot machine is sound or warranted as its holding (1) violates the Legislature’s intent (Wilkoff, supra, 38 Cal.3d at p. 353); (2) constitutes improper judicial legislation (“whatever may be thought of the wisdom, expediency or policy of [a statute, a court has] no powerto rewrite the statute to make it conform to a presumed intention not expressed.” (Morillion v. Royal Packing Co. (2000) 22 Cal.4" 575, 585); (3) violates stare decisis as this Court has said this about a Court of Appeal decision: “Its judgmentstands, therefore, as a decision of a court oflast resort in this state, until and unless disapproved by this court or until change of the law by legislative action.” (Cole v. Rush (1945) 45 Cal.2d 345, 351, overruled on other grounds in Vesely v. Sager (1971) 5 Cal.3d 153, 167); (4) violates appellant’s due process rights, as a potential judicial violation of due process comes into play when a “judicial interpretation of criminal law . . alters the situation of an accusedto his disadvantage by . . . making criminal an action innocent when done.” (People v. Sobiek (1973) 30 Cal.App.3d 458, 472); and (5) is overbroad, as it criminalizes a host of activities that before were not criminal, including dispensing lottery tickets from a lottery vending machine; offering any promotional sweepstakes from a vending machine wherea prize can be won wherethe user buys the product, such as bottle cap sweepstakes; and offering any sweepstakes that has a feature where, after buying the product, the winning prize is revealed on the patron’s home computer or smart phone. 2. Whether the Court of Appeal erred in holding, in the first instance, that a legal sweepstakes promotion offering a prize revealed on a computer can ever constitute a “slot machine,” as the patron has not hazardedorrisked anything ofvalue for the chance to win the prize? NECESSITY FOR REVIEW The effect of the Grewal holding is far reaching. By failing to consider the “insertion of money” element in the context of a legal sweepstakes promotion, and by holding that “chance” is now to be viewed from the perspective of the user and not the machine itself, the court expanded section 330b so that it essentially outlaws legal business sweepstakes promotions in California where the result is revealed on a computer or smart phone. Without the Court’s review, overburdenedcivil courts can now expect a rash of unfair business practice suits to be filed against companies conducting sweepstakes promotions in California. In addition, review is necessary to resolve the published conflict with Trinkle I. (Cal. Rules of Court, rule 8.500, subd. (b) [review may be ordered “when necessary to secure uniformity of decision”].) Indeed, resolving a published conflict is the most compelling reason for the Court to grant review,as trial courts are now free to pick either opinion, as the rule ofstare decisis requiring a court of inferior jurisdiction to follow a Court of Appealopinion, “has no application where there is more than one appellate court decision, and such appellate opinions are in conflict. In such a situation, the court exercising inferior jurisdiction can and must make a choice between the conflicting decisions.” (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 456.) Accordingly, Justice Broussard said this about the Court’s function where there is a published conflict: “when Court of Appeal decisions conflict, it is our function to resolve that conflict.” (Newman v. Emerson Radio Corp. (1989) 973, 1000 (dis. opn. of Broussard, J.).) STATEMENTOF FACTS’ Appellants operate stores that sell “Tel-Connect” and “Inter- Connect” prepaid telephone cards. (Record Transcript (“RT”) 13.) Appellants’ telephone cards are furnished by Phone-Sweeps, LLC, a company based near Toronto, Canada. (RT 6.) Phone-Sweeps’ wholesale telephone service provider is located in Texas. (RT 17.) Appellants and Phone-Sweeps entered into a licensing agreement so that Appellants could sell the prepaid telephonecardsin their stores. (RT 42.) The prepaid telephone cards look like credit cards, and purchasers are registered by name, address and some form ofidentification. The back of the card contains a PIN number. To place a phonecall, customers call a toll-free access number, provide the PIN number, and then dial their desired number. Phone-Sweeps’ wholesale telephone service provider keeps track of the minutes used across the entire network. Phone Sweeps’ customers use between 900,000 and 1.5 million minutes per week. (RT 16-18.) Phone-Sweeps’ main competitors are Verizon, AT&T, and other large national brands. In order to compete with them, Phone-Sweepscards offer a lower per minute phone rate (three cents per minute for domestic calls and five cents per minute for international calls) and the card has no hidden charges, such as maintenance and PIN fees or minimum calling times. In addition, the card is re-chargeable, so minutesleft are not wasted, and are rolled into the new minutes purchased. All of these features make the card more valuable per minute than its competitors. (RT 11-14.) Phone-Sweeps’ revenue is derived solely from its phone card sales. (RT 16.) * The facts regarding appellants’ business practice are not in dispute, and are generally taken from Appellants’ Opening Brief (“AOB”) to the Court of Appeal. The trial court heard the Nasser and Elmalih cases together, and the Reporter’s Transcript is identical in both cases. The facts appear in the AOBon pages2 - 9. Despite these benefits, Phone-Sweeps found that the only way it could compete in this industry was forits licensees to offer a promotional sweepstakes to encourage the sale of its card over that of its competitors. (RT 9-10.) Phone-Sweepsalso provides the computer software system that operates its sweepstakes programs, including the computer sweepstakes games. (RT 18-20.) When a customer purchases a telephone card or purchases more time on his existing card, he receives 100 sweepstakes points for each dollar spent on prepaid telephone time. Thus, if a customer purchases $20 in telephone time, he receives 667 minutes of domestic phone time. (Nasser Clerk’s Transcript (“NCT”) 25.) Noncustomers also receive sweepstakes points because no purchase is necessary to enter the sweepstakes. Persons over the age of 18 who enters appellants’ stores can receive 100 free sweepstakes points for that day. (RT 22.) Additionally, noncustomers can also receive free sweepstakes points by mailing in request form. They receive 200 free points with each mail-in request. (RT 22.) Customers may enter the free sweepstakes by using their sweepstakes points either at the sales clerk’s point of sale terminal orat the computer terminals provided at appellants’ premises. The customers’ available telephone time is not reduced by time spent on the computer terminals revealing the results of the prize tickets, nor is the telephone time reduced by any result or outcome from the entry into the sweepstakes. The only reduction in telephone time is due to its use in makingcalls. In other words, the sweepstakes feature allows a customer to win; he or she cannot lose. (RT 62, 80-87.) Currently, a customer gains access to the computer sweepstakes function by manually entering his or her PIN number on the terminal keyboard. (RT 21.) Once the computer sweepstakes function is accessed, the customeris presented with a number of games ranging from popularcell phone gaming themes to traditional slot style gaming themes, which are activated by a touch screen or mouse. (NCT 25-26.) While using the free points to display the outcome of the sweepstakes tickets, all winning results are accumulated in a separate account (called “winning points”), which the system tracks and displays on the screen. (RT 36.) Winning points are redeemable for cash at the register for $1 per 100 points. (NCT 27.) For example, 2,400 winning points would result in a cash prize of $24.00. If a customer does not wish to play the sweepstakes games,he or she simply purchases his phonecard and leavesthe store with a valuable phone card. He mayalsoask the cashier to do a “Quick Redeem”at the register to reveal whether his sweepstakes points have won him a prize. (RT 19, 79.) Each sweepstakes consists of a finite pool or batch of entries. (RT 26, 48-49.) This is exactly the same as McDonald’s Monopoly and any other “finite pool” sweepstakes. Approximately 65 million entries are in each pool, and within those entries, a certain number are predetermined to be winners. (RT 49.) Phone-Sweeps main server in Canada creates the pools. (RT 46.) The main server randomizesthe entries in each pool, puts them into a set, in sequential order, and then delivers the pool in that sequential order to the “Point of Sale” computer (or server) in appellants’ stores. (RT 63, 81.) There is nothing appellants or their customers can do to change the sequence or contents of the entries once they leave Phone-Sweeps’ main server in Canada. (RT 23, 63, 81.) When customers enter the computer sweepstakes via Quick Redeem or by utilizing the computerized game display, they are simply receiving and obtaining the results of the next available entry or entries, in sequence. Thus, the outcomes are predetermined solely by the sequential entries, not 10 by how the customers play the games. The customer caniiot impact the result. Additionally, neither appellants’ servers (i.e., the point of sale computers) nor the computer terminals where the computer sweepstakes games are played contain a random numbergenerator or any other way to randomize or alter the sequence of the entry results. (RT 20-23, 80-82.) The computer terminals are standard, off the shelf Hewlett-Packard computers that anyone could purchaseat a retail store. (RT 19-20.) As to the prepaid telephone time actually used by customers, © appellants’ expert testified it was his understanding that the phone cards’ usage rates “came within the range of the industry which includes the big guys like AT&T and Verizon,” (RT 70) and appellants also provided the trial court with an expert declaration stating that during 2011, California customers used approximately 31 percent of the Tel-Connect and Inter- Connect phone minutes that they purchased. (NCT 194.) DISCUSSION OF GREWAL Because it is important to put Grewal in its proper context, the petition will first discuss legal sweepstakes and business promotions conducted by corporations across California, and then it will discuss the Trinkle II case. A. Sweepstakes or Business Promotions Lotteries are illegal in California (Pen. Code § 319), with the constitutionally authorized exception for the California State Lottery (article IV, § 19, subd. (a)). Sweepstakes or business promotions, on the other hand, are legal and are regularly utilized by companies to increase sales. The difference between the two is simple: so long as a sweepstakes or business promotion, in addition to purchase of a genuine product, has a legitimate free method ofentry,it is legal. 11 As stated by the Court in Regal Petroleum, supra, 50 Cal.2d 844, 853-854, “there are three elements necessary to constitute a lottery. These elements are: (1) The disposition of property, (2) upon a contingency determined by chance, (3) to a person who has paid a valuable consideration for the chance of winning the prize, that is to say, one who has hazarded something ofvalue upon the chance.” (Emphasis in original.) But “in order to constitute consideration within the definition of a lottery, there must be valuable consideration paid, or promised to be paid by the ticket holder.” (Id. at p. 862, emphasis in original.) Thus, so long as there is a legitimate free method of entry into the sweepstakes or promotion, the consideration element is absent. (/d. at pp. 854-857.) The fact that the business owner receives a benefit in increased sales and patronage is not consideration andis irrelevant. (/d. at pp. 854-857, 861.) Accordingly, the promotion in Regal Petroleum was deemed a legitimate business promotion, as gasoline purchasers and nonpurchasers alike were given a chance to win the prizes. (50 Cal.2d at p. 862.) The giveaways in People v. Cardas (1933) 137 Cal.App.Supp. 788 and in People v. Carpenter (1956) 141 Cal.App.2d 884, were deemed legitimate business promotions, as sweepstakes tickets were provided to theater attendees and nonattendeesalike. Asstated in People v. Shira (1976) 62 Cal.App.3d 442, which held defendant’s business promotion to be a lottery where everyone paid for a ticket and the ticket only promoted gameitself: “An obvious important factual distinction between [Cardas, Carpenter and Regal Petroleum] which found a lottery did not exist and the case at bench is that they involved promotional schemes by using prize tickets to increase the purchases of legitimate goods and services in the free market place, i.e., theater tickets (Cardas and Carpenter) and gasoline and service from filling stations (Regal). While here, the RINGO gameis conducted as a business 12 and the gameitself is the product being merchandized.” (/d. at p. 458.) And for those legitimate business promotions to be legal, the court further held that any and all persons who want a sweepstakes ticket must be given the ticket free of charge and without any of them paying for the opportunity to win the prize. (Ud. at p. 459.) Appellants’ Phone-Sweeps’ phone cards sweepstakes is a legal business promotion under California law. It promoted the sale of a legitimate phone card that gave true value to the purchaser, and any andall persons who cameinto the store wereentitled to enter the sweepstakes for free and did not have to pay for the opportunity to win prize. B. Trinkle v. California State Lottery (Trinkle IN Trinkle sought declaratory relief to determine whether the California State Lottery’s (CSL’s) use of electronic vending machines to dispense SCRATCHERSlottery tickets is an illegal use of slot machines. (Jd. at p. 1403.) Theparties stipulated that the CSL provides SCRATCHERStickets for its electromagnetic device, which is a stand-alone device containing bins into which 100 - 250 tickets are loaded. A lottery employee loads the tickets into the bin in a sequential order. A purchaser can see which SCRATCHERS game heis playing, but cannot tell whether the visible ticket is a winning ticket. The tickets are dispensed sequentially, according to how they were loaded in the bin. Winning is determined by scratching off the substance covering the symbols underneath. There are a finite number of SCRATCHERStickets available in one “game” and each ticket has its own unique number. Every SCRATCHERS game has a predetermined numberof winningtickets distributed throughout the “deal.” Once loaded, each electromagnetic device dispenses a SCRATCHERticket for cash received. The stand-alone device does not have any ability to generate random numbers or symbols, or conduct any type of process of random selection. Instead, each predetermined winningticket is dispense in 13 the orderit was loadedinto the device. (105 Cal.App.4"at pp. 1403-1405.) The court held that, “The mere use of electronic vending machines to dispense lottery tickets does not transform the lawful sale of lottery tickets into an unlawful use of slot machines, where as here, the machines inject no additional element of chance into the determination or distribution of the winninglottery ticket.” (Ud. at p. 1405.) The Trinkle II court first looked to the statute itself: “The use or possession of a slot machine is prohibited by Penal Code section 330b which defines a slot machine in pertinent part as any device ‘that is adapted .. . for use in such a way that, as a result of the insertion of any piece of money or coin or other object . . . such machine or device is caused to operate or may be operated, and by reason of any element of hazard or chance or of other outcome of such operation unpredictable by him, the 3°user may receive or becomeentitled to receive any . . . thing of value... .’ (Pen. Code, § 330b, subd. (2).) Penal Code section 330.1 similarly defines a slot machine.” (105 Cal.App.4" at p. 1409, emphasisin original.) Section 330.1, noted the court, defines slot machine as a device 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 such machine or device is caused to operate or may be operated or played, mechanically, electrically, automatically or manually, and by reason of any element of hazard or chance, the user may receive or becomeentitled to receive anything of value ....” (105 Cal.App.4" at p. 1409, n. 7.) As the two sections were enacted in the same Legislative session in 1950, and the legislative history indicated they did not conflict, the court treated the definitions as one and the same. (105 Cal.App.4"at p. 1409.) “Thus, the 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 14 chance operation of the machine, the user may becomeentitled to receive a thing of value.” (105 Cal.App.4" at p. 1410.) Relying on People ex rel. Lockyer v. Pacific Gaming Technologies (2000) 82 Cal.App.4™ 699, 703 and Trinkle v. Stroh (1997) 60 Cal.App.4th 771, 779-780, Trinkle argued that the SCRATCHERS machines “are slot machines because they meetall the elements of a slot machine, namely that by the insertion of money and purely by chance, the user may receive or becomeentitled to receive money.” (105 Cal.App.4th at p. 1410.) The court disagreed. “With respect to the element of chance, Penal Code section 330b states, ‘by reason of any element of hazard or chance or of other outcome of such operation unpredictable by him... .’ By using the words ‘such operation,’ the Legislature linked the element of chance to the operation of the machine, requiring that the machine itself determine the element of chance and becomethe object of play. [{] Without the element of chance incorporated into the operation of the machine, the machine is nothing more than a vending machine which dispenses merchandise for consideration.” (105 Cal.App.4" at pp. 1410-1411.) The court distinguished Pacific Gaming Technologies and Trinkle v. Stroh because in both cases, the Courts of Appeal found that the device in question constituted a slot machine undersection 330b because “chance and prize” were added to the machineitself: “Thus, in both Trinkle [v. Stroh] and Pacific Gaming Technologies, the machines in question were found to 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.” (105 Cal.App.4th at p. 1411.) The SRATCHERS machines were not slot machines because they “do not have computer programs that generate random numbers or symbols, nor do they have any capability of conducting a process of random selection or any other kind of chance selection. [§] In sum, the [machines] vend 15 SCRATCHERStickets in the order the ticket is stacked in the bin. The ~ purchaserinserts the purchase price and receives the next ticket(s) in line. The element of chance in a SCRATCHERSgameis essentially twofold, involving the printing of the winning tickets and the placement of those tickets in a predetermined sequence among the othertickets. It is built into the game at the time of manufacture, not at the time of purchaseorplay. Therefore, the operation of [the machine] does not in any way affect the game’s element of chance.” (105 Cal.App.4”at pp. 141 1-1412.) C. Phone-Sweeps’ Business Promotion and Operation It is readily apparent that appellants operate their Phone-Sweeps sweepstakes accordingto the rules set forth in Regal Petroleum and Shira. First, appellants promote a legitimate business product, a phone card that allows its purchaser to pay three cents a minute for domestic calls and five cents a minute for international calls with no hidden charges; and appellants offer a free sweepstakes tickets to any and all persons who request one, without those persons having to purchase a phone card in order to win a prize. Phone-Sweeps also has a method where a person can mail away for free sweepstakes tickets. Under Regal Petroleum and Shira, the Phone- Sweeps phone card is a legitimate product and its free sweepstakes entry feature makes its sweepstakes a legal business promotion. Although the sweepstakes issue had been briefed and was squarely before the Nasser court, the court bypassed the sweepstakesissue, signaling its acceptance that appellants’ Phone-Sweeps sweepstakes was legitimate sweepstakes. Instead, Nasser focused only on the issue of whether the Phone-Sweeps’ sweepstakes, as it offered cash prizes revealed on a computer terminal in appellants’ businesses, converted that computer terminal into an illegal slot machine. 16 But fo avoid the problem that its sweepstakes converted a computer into a slot machine, Phone-Sweeps patterned its sweepstakes after the methodology approved in Trinkle IJ. Appellants’ computer terminals,like the California State Lottery’s electronic vending machines, are not slot machines because they “do not have computer programs that generate random numbers or symbols, nor do they have any capability of conducting a process of random selection or any other kind of chanceselection. [{] In sun, the [computers reveala prize] in the order theticket is [preloaded into the computer]. The [customer enters his PIN and plays] and receives the next ticket(s) in line. The element of chance in a [Phone-Sweeps] gameis essentially twofold, involving the printing of the winning tickets and the placement of those tickets in a predetermined sequence among the other tickets. It is built into the gameat the time of manufacture, not at the time ofpurchaseor play.” (Trinkle IT, 105 Cal.App.4” at pp. 1411-1412.) Far from trying to exploit a “loophole,” Phone-Sweeps instead patterned its business to legally conform to statutes and case law that determined that such a method is permitted under California law. This is a time-honored method of doing business in California when allegations of illegal gambling are made. | For example, Stud Horse Poker is prohibited under Penal Code section 330. The card clubs thus offered Texas Hold ’em and the County tried to shut them down. In Tibbets v. Van de Kamp (1990) 222 Cal.App.3d 389, 395-396, the Court of Appeal held that as Texas Hold ’em utilized “community cards,” that was distinct from stud poker, and thus it was deemed to be a legal game. The court then permanently enjoined the County from interfering with the game. The card game Pai Gow was an illegal “house-banked” and “percentage” game under Penal Codesection 330 until the card clubs made the players the banker and chargeda flat fee to play the game. In City of 17 Bell Gardens v. County ofLos Angeles (1991) 231 Cal.App.3d 1563, 1568- 1569, the Court of Appeal upheld the trial court’s ruling that Pai Gow played in this manner waslegal and permanently enjoined the County from interfering with the game. Blackjack is illegal under section 330, but in 1989, Roger Wisted invented “California Blackjack,” in which the player is the designated banker, there are six jokers per sleeve, the players race to “22,” there is no “busting,” and the house charges a flat fee to play. “California Blackjack” is now legally played in all card clubs in California and Roger Wisted took the money he made from licensing agreements and opened a winery in Solvang. (http://www.sfgate.com/entertainment/gaming/article/California- style-card-game -Blackjack-1873-2618922.php). In Western Telcon, Inc. v. the California State Lottery (1996) 13 Cal.4" 475, the issue before the Court was whether the California State Lottery’s (CSL’s) popular Keno game was a lottery or “house-banked” game, as the CSL is authorized only to run lottery games. Casino operators sought to enjoin the CSL from operating the game. The Attorney General argued on the CSL’s behalf, but the Court was not persuaded, and held that as the CSL in the Keno gameacted as the bank, it was an illegal house- banked game andnota lottery, and shut it down. (13 Cal.4"at p. 495.) The Court said its June 24, 1996 decision was limited — “We express no opinion as to whether a restructured Keno gamecould be run asa lottery.” (/d. at p. 496.) Just over two monthslater, on September 6, 1996, the CSL offered a Keno replacement, “Hot Spot.” As stated in the Los Angeles Times, “Hoping to recoup some of the revenue lost when the Supreme Court outlawed one of its most lucrative games, the California Lottery is preparing to introduce a new form of keno specifically designed to comply with the state Constitution, state officials said Thursday.” (http: 18 //articles.latimes.com/1996-09-06/news/mn-41050_1State-lottery). “Hot Spot” is still legally played today on computer terminals located in stores throughoutthestate. Accordingly, appellants’ simply asked the Court of Appeal to acknowledgethatit ran a legitimate sweepstakes in accordance with Regal Petroleum and Shira, and that its sweepstakes computer program that awarded prizes followed the methodology approved the Trinkle IJ decision as the computeritself does not randomize. The Nasser court responded by ignoring the sweepstakes issue and overruling TrinkleII. D. People v. Nasser It is against this backdrop that the Grewal/Nasser decision is properly analyzed. As noted, the two opinions are substantively identical. The court, after reciting the facts listed above, framed the issue of whether the devices in question (appellants’ “Sweepstakes Gaming System” operating the computer sweepstakes games on the networked computer terminals) are unlawful slot machines. (Slip opn. 9.) The court discussed the three distinct but overlapping provisions that prohibit slot machines or devices, Penal Code sections 330a, 330b and 330.1, and focusedits analysis on “arguably the broadest,” section 330b, subdivision (4) which defines a “slot machine or device” as follows: “{A] machine, apparatus, or device that is adapted . . . for use in a way that, as a result of the insertion of any piece of moneyor coin or other object, or by any other means, the machine or device is caused to operate or may be operated, and by reason of any element of hazard or chance or of other outcome of operation unpredictable by him or her, the user may receive or becomeentitled to receive any piece of money ... or thing ofvalue... .” (Slip opn. 9-10.)° 3 The Legislature amended Penal Code section 330b on September 3, 2003 to allow the sale of slot machines in California by tribal licensed manufacturers. The bill also made “various technical, nonsubstantive 19 The court then cited Pacific Gaming Technologies, supra, 82 Cal.App.4” 699, Trinkle v. Stroh, supra, 60 Cal.App.2d 771 and Score Family Fun Center, Inc. v. County of San Diego (1990) 225 Cal.App.3d 1217, for the proposition that California courts have prohibited a variety of devices under section 330b. (Slip opn. 10-11.) But these three cases predated Trinkle II, and are distinguishable under Trinkle II because in each case, the device itself generated the element of chance. (See Trinkle II, 105 Cal.App.4th at p. 1411.) Undeterred, the court stated: “Based on these authorities, the People argue that an unlawful slot machine or device under section 330b is involved [because] under defendants’ Sweepstakes Gaming Systems as operated on their computer networks and terminals, upon the payment of money(i.e., the purchase of telephone cards or Internet time), patrons can activate computer sweepstakes games on the terminals and, based on ‘chance’ or ‘other outcome of operation unpredictable by’ the patron, win cash prizes. We agree with that analysis.” (Slip opn. 11.) The court then recited the Trinkle IT three-part elements test (see discussion, supra, page 3) and said, “We take issue with this formulation because section 330b, subdivision (d) refers to chance or unpredictable outcome, while Trinkle IJ used the conjunctive ‘and’ in its articulation of the second element.” (Slip opn. 11.) The court acknowledged the two concepts were not “entirely separable” but wanted to make clear that the 6eestatute can be read to find an illegal slot machine where the “‘outcome of changesto that provision.” (Stats 2003, ch. 264 § 1 (AB 360).) In 2004, section 330b, subdivisions (1) - (6) were redesignated subdivisions(a) - (f). (Stats 2004, ch. 183 § 267 (AB 3082).) In 2010, the Legislature added subdivisions (e)(1) - (4) (Stats 2010, ch. 577 § 2 (AB 1753).) The 2003 nonsubstantive language changes to section 330b, subdivision 4, enacted after Trinkle IT was decided, are attached as Exhibit B. (See also Slip opn. 13, n. 15.) 20 operation is unpredictable by [the user].’” (Slip opn. 12, n. 14.) Most importantly, the court explicitly stated: “Additionally we disagree with Trinkle IP's description of the manner in which the chance element must be realized in order to constitute a slot machine or device under section 330b. Specifically, Trinkle I held that the chance element must be created by a randomizing process occurring at the moment the machine or device is being played. (Zrinkle II, supra, 105 Cal.App.4" at p. 1411.) As will be explained below, we think that holdingwas in error. Since we disagree with Trinkle IT on these significant matters relating to the statutory elements, we adopt a different approach here than what was articulated in that case.” (Slip opn. 12, emphasis added.) The court then “reinvented” the elements of a section 330b offense, significantly broadening it, and distilling it into two elements: (1) as a result of the insertion of money or coin or other object, or by any other means, the machine or device is caused to operate or may be operated; and (2) by reason of any element of hazard or chance or of other outcome of operation unpredictable to him or her, the user may receive or become entitled to receive any moneyorthing of value. (Slip opn.13.) As to element (1) the court rejected the notion that “insertion” required a coin or similar object to be inserted into the computer: “Here, the insertion of an account number or the swiping of a magnetic card at the computer terminal in order to activate or access the sweepstakes games and thereby use points received upon paying moneyatthe register (ostensibly to purchase a product) plainly came within the broad scope ofthe statute. The statute expressly includes the catchall phrase ‘by any other means.’ (§ 330b, subd. (d), italics added.) Even though a coin, money or object (e.g., a token) was not inserted into a slot, the games were commenced by other means analogous thereto which effectively accomplished the same result and, therefore, this element is satisfied.” (Slip opn. 13.) 21 In so holding, the court never addressed the issue whether the user had to stake something of value to win a prize; it simply treated the product purchaseas the thing of value; but Regal Petroleumteachesthat this is the wrong analysis, because the purchase of a legitimate product to get a free sweepstakesticket, so long as anyone can obtain that sameticket forfree,is not considered a thing of value under California law. As will be discussed below, no matter the method ofinsertion, a “slot machine” requires that the player risk or hazard something of value to win prize. As to element (2), the court overruled Trinkle II. “Here, it is clear that defendants’ customers may become entitled to win prizes under the Sweepstakes Gaming Systems implementing defendants’ computer sweepstakes games based on ‘hazard or chance or of other outcome of operation unpredictable’ to the user.” (Slip opn. 13.) And because it changed the Trinkle II test to the perspective of the user, the court was unimpressed that the sweepstakes were previously arranged in batches that had predetermined sequences. To the patron, the result was still unpredictable. (Slip opn. 15.) While “Trinkle I explained that unless the element of chance is generated by the machines themselves at the time the customer plays or operates it (like the spinning wheels of the original mechanical slot machines or a computer program that randomizes the entries), it is only a vending machine” (Slip opn. 16-17), “we disagree that the chance element must always be generated by some randomizing action of the device itself when it is being played.” Section 330b only requires [chance] from the perspective of the player.” (Slip opn. 17, emphasisin original.) In dicta, the court also stated that Trinkle IJ is distinguishable because(1) the lottery machine in Trinkle dispensed a ticket, while here, all the trappings of playing a traditional slot machine were present; and (2) appellants’ complex of networked terminals programs and computer 22 terminal was a single integrated system; thus, while the computer terminal standing alone maynot be a slot machine, at it was working within a single system, it was a slot machine. (Slip opn. 18-19.) ANALYSIS Appellants ran a legal business promotion under California law. Their phone cards were unquestionably valuable as in 2011 they were used at a 31 percent rate,’ which appellants’ expert stated was consistent with industry usage standards. The court acknowledged as much whenit stated that appellant’s described their “promotional giveaways as sweepstakes” under California law, and did not challenge that assertion. (Slip opn. 14.) A. Something of Value Must Be Staked or Hazarded Absent from the court’s analysis is whether, where a valid sweepstakes for prizes determined is offered by a company and the results can be determined by a computer, it now becomesan illegal sweepstakes as it converts that computer into a slot machine. Section 330b, subdivision (d) defines “slot machine or device” as a “machine, apparatus, or device that is adapted, or may readily be converted, for use in a way that, as a result of the insertion of any piece ofmoney or coin or other object, or by any other means, the machine or device is caused to operate or may be operated... .” (Italics added.) By referring to the insertion of “money or coin or other object,” the section makes clear that something valuable must be staked or hazarded in exchange for the chance to operate the slot machine or device. The operative language in section 330b is not insertion but “money”or “like object.” Indeed, in a traditional * In Lucky Bob’s Internet Café, LLC v. California Dept. of Justice, et al. (S.D. Cal. 2013) 2013 U.S. Dist. Lexis 62470, p. *8, the unpublished case cited by the Court of Appeal (Slip op. 17), the District Court noted that only three percent of the Internet time purchased at the café was used by the customer. (/d. p. *3.) 23 slot machine, a person risks a coin for the chance to win coins. That concept is further supported by the language of section 330a, which makes a misdemeanorthe possession of “any slot or card machine, contrivance, appliance or mechanical device, upon the result of action of which money or other valuable thing is staked or hazarded, and which is operated, or played, by placing or depositing therein any coins, checks, slugs, balls, or other articles or device, or in any other manner and by means whereof, or as a result of the operation of which any merchandise, money, representative or articles of value, checks, or tokens, redeemable in or exchangeable for money or any other thing of value, is won or lost... .” (Emphasis added.) Requiring stakes to be hazarded in exchange for the chanceto play is also consistent with existing case law. Chapter 10 oftitle 9, part 1 of the Penal Code, which includes sections 330 through 337z, addresses gaming. The Court has defined gaming as “the playing of any game for stakes hazarded by the players.” (Western Telcon, supra, 13 Cal.4th at p. 484, italics added; see also Trinkle IT, 105 Cal.App.4th at p. 1407.) Moreover, in gaming, the operator has an interest in the outcome because the operator must pay off all winners, while retaining the stakes hazardedby the losers. (Western Telcon, supra, 13 Cal.4" at pp. 483, 487-488.) This prompted Trinkle IT to proclaim: “An illegal slot machine is therefore a house-banked game in which the machine dispenses coins, currency, or another thing of value to the winning player, giving the operator an interest in the outcome. (See Hotel Employees & Restaurant Employees Internat. Union v. Davis [1999] 21 Cal.4th 585, 604, 608-612.)” (105 Cal.App.4" at p. 1412.) None of these characteristics are present in a sweepstakes. By buying a legitimate product, and by offering free sweepstakes tickets to anyone who wants to play, this Court in Regal Petroleum held that the sweepstakes players are not staking or offering any of their own moneyfor 24 the chance to win a prize. Indeed, the sweepstakes players playing on the computer terminals in appellants’ stores can only win money, they cannot lose money because they have not staked or hazarded any. As this element is absent where the prize is offered in the context of a legitimate business promotion, there can be noillegal slot machine. ° B. The Chance Element Must Be From the MachineItself Trinkle IT carefully analyzed the slot machine statutes and the cases that preceded its decision, and correctly concluded that the statutory language of section 330b, “by reason of any element of hazard or chance or 99 66, of other outcome of such action unpredictable by him,” “the Legislature linked the element of chance to the operation of the machine, requiring that the machine itself determine the element of chance and becomethe object of play.” (105 Cal.App.4" at p. 1411, emphasis in original.) The Legislature adopted this interpretation. (Wilkoff v. Superior Court, supra, 38 Cal.3d at p. 353.) Yet, Grewal has now adopted the very test urged by appellant Trinkle and rejected in Trinkle 17. “Trinkle contends [lottery machines] are slot machines because they meetall the elements of a slot machine, namely that by the insertion of money and purely by chance, the user may receive or become entitled to receive money.” (105 Cal.App.4th at p. 1410.) “Trinkle’s analysis [must be rejected because it] ignores the statutory language.” (Jbid.) > The only other Court of Appeal case to consider the slot machine issue in the context of a legal business promotion is McVeigh v. Burger King Corp. (2010) 2010 Cal.App.Unpub.Lexis 8247. Justice Flier, writing for Division Eight of the Second District, found that Burger King’s sweepstakes promotion wasnotan illegal “slot machine”asthe participants did not stake or hazard anything of value for the chance to win a prize. The case is mentioned not as controlling authority but because it is the only known California case to discuss this precise issue. 25 In interpreting the element of chance from the perspective of the user, the Grewal court stretched the definition of slot machine past its snapping point because every gamethat involves chance is unpredictable to the user. For example, if J buy a lottery ticket, when I scratch off the substance to reveal the secret numbers underneath, the result is unpredictable to me. When I go on my computer to reveal whether I won a sweepstakesprize from Coke, the result is unpredictable to me. When I pull off the tab of my McDonald’s Monopoly piece to see if I have wona prize, the result is unpredictable to me.° C. Grewalis Bad for Business in California The interpretation urged by the Nasser/Grewal court is bad for business in California. Here is the slot machine test espoused by the court: Now, an illegal slot machine is found whenever “upon the payment of money(i.e., the purchase of telephone cards or Internet time), patrons can activate computer sweepstakes games on the terminals, and based on ‘chance’ or ‘other outcomeof operation unpredictable by’ the patron, win cash prizes.” (Slip opn. 11; 224 Cal.App.4™ at pp. 540-541, emphasis added.) By a simple substitution of terms, it is readily apparent that formerly legitimate business promotions are now illegal in California. McDonald’s — upon the payment of money (for food), a patron goes on his computer, and based on a chance or other outcome of operation unpredictable to the patron, wins cash prizes. Genera] Mills — upon the payment of money (for ° Appellant Grewal’s Reply Brief to the Court of Appeallisted ten national companies whose sweepstakes results were revealed via computer terminal: SanDisk, General Mills, McDonald’s, Carl’s Jr., Pepsi, Irish Spring, Green Mountain Coffee, Walmart, Coca-Cola and Fed Ex. (Grewal Reply Brief, p. 11, n. 10.) There are dozens more, as sweepstakes promotions are a common way for companiesto stimulate business. 26 Chex Mix), a patron goes on her computer, andbased on a chance or other outcome of operation unpredictable to the patron, wins cashprizes. . Indeed, lottery vending machines will now again be illegal in California — upon the payment of money (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. The “Hot Spot” game is clearly illegal as the results are revealed on a computer terminal, the patron wins cash prizes, and the result is unpredictable to the patron. Those computer terminals, which are operated by the California State Lottery, are now illegal slot machines under Grewal. CONCLUSION There is a reason the Legislature left the Trinkle IJ decision intact — it set reasonable limits on the reach of the section 330b slot machinestatute. By overruling Trinkle II, the Court of Appeal in Grewal usurped this Court’s and the Legislature’s function; it created a published conflict and the uncertainty that accompaniesit; and it rendered a decision that is bad for business in California. AsJustice Liu recently said in Apple, Inc. v. Superior Court (2013) 56 Cal.4™ 128, 150, where technology is not consistent with the statutory scheme, a court “cannot make a square peg fit a round hole.” But that is precisely what the Grewalcourt did in this case. If the Grewal definition of “slot machine”is left to stand, it will outlaw legitimate business promotions in California, and it will not be long before a legion of private attorneys general sue each and every business establishment conducting a sweepstakes for damages under Business and Professions Code section 17200. 27 Review is desperately needed to resolve this published conflict and to rein in a decision that is overbroad and criminalizes business promotions and Lottery gamesthat had been legal under long-standing and established California law. Respectfully Submitted, LAW OFFICES OF SYEVEN GRAFF LEVINE By: Steven Graff Levine Attorney for Appellants 28 WORD COUNT CERTIFICATE Counsel of record hereby certifies, pursuant to rule 8.504, subdivision (d)(1) and rule 8.204 of the California Rules of Court, that the enclosed brief has been produced using 13-point Times Roman type including footnotes, the margins are 1 4 inches on the left and right and 1 inch on the top and bottom, and the brief contains 28 pages and 7,800 words, a total below the 8,400 allotted amount of words for computer generated briefs under the rule. Counsel relies on the word count feature of the computer program usedto prepare thisbrief. Dated: April 18, 2014 STEVEN GRAFF LEVINE PROOF OF SERVICEBY U.S. MAIL AND ELECTRONIC SERVICE (Pursuant to C.C.P. sections 1013, 1010.6 and Court Rules 8.212 and 8.500) I, the undersigned, declare under the penalty of perjury under the laws of the State of California: I am a resident of the County of Los Angeles, California. I am over the age of 18 years and not a party to the within action; my business address is 1112 Montana Avenue, #309, Santa Monica, CA 90403. On April 18, 2014, I served copies of the foregoing document entitled PETITION FOR REVIEW onthe interested parties in this action by delivering a true copy thereof, by U.S. Mail, addressedas follows: Judge William D. Palmer Fifth District Court of Appeal Kern County Superior Court 2424 Ventura Street Metropolitan Division Fresno, CA 93721 1415 Truxtun Avenue Bakersfield, CA 93301 Deputy District Attorney Gregory Pulskamp 1215 Truxtun Avenue Bakersfield, CA 93301 (With a courtesy copy sent to gpulskamp@co.kern.ca.us John Weston Attorney for Appellants Grewal and Walker 12121 Wilshire Blvd., Suite 525 Los Angeles, CA 90025 (With a courtesy copy sent to johnhweston@wgdlaw.com) William H. Slocumb Attorney for Appellant Stidman 1929 Truxtun AvenueSuite C Bakersfield, CA 93301 (With a courtesy copysent to bill@billslocumblaw.com) AND BYElectronic Service and Fed Ex to the California Supreme Court. Executed this 18” day of April 2014, at Los Angeles, California. | STEVEN GRAFFLEVINE Filed 3/10/14 P. v. Nasser CAS NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citingor relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not beencertified for publication or ordered published for purposesofrule 8.1115. IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIFTH APPELLATE DISTRICT THE PEOPLE, F066645/F066646 Plaintiff and Respondent, (Super. Ct. Nos. CV-276603 & V. CV-276962) KAMAL KENNY NASSERet al., OPINION Defendants and Appellants. APPEALfrom a judgmentof the Superior Court of Kern County. William D. Palmer, Judge. _ Dowling Aaron, Daniel K. Klingenberger, Lynne Thaxter Brown and Stephanie Hamilton Borchers for Defendants and Appellants. Lisa S. Green, District Attorney, and Gregory A. Pulskamp, Deputy District Attorney, for Plaintiff and Respondent. -o0000- Kamal Kenny Nasser and Ghassan Elmalih (together defendants) each own and operate Internet café! businesses that feature a sweepstakes whereby customers may ascertain their winnings,if any, by playing computer game programson terminals provided at defendants’ business premises. Although the games played on defendants’ terminals simulate the look and feel of slot machines or other gamesof chance, defendants maintain that the programs are merely an entertaining way for customers to reveal sweepstakesresults. Further, according to defendants, the sweepstakes are a legitimate means to promotethe sale of certain products—namely, telephone cards. - The People of the State of California by and through the Kern County District Attorney (the People)filed civil actions under the unfair competition law (Bus. & Prof. Code, § 17200 et seq.), seeking injunctive relief on the ground that defendants’ sweepstakes practices violated the gambling prohibitions set forth at Penal Code sections 319 (unlawfullottery) and 330a, 330b and 330.1 (unlawful slot machines or gambling devices). After the complaints werefiled, the trial court heard and granted the People’s motions for preliminary injunctions. Defendants appeal from the orders granting such provisional relief.3 Because we conclude the People will likely prevail on the claims that defendants 1 Broadly speaking, the term “Internet café” depicts a café or similar establishment that sells computer use and/or Internet access on its premises. As commentators have pointed out, many such businesses now promotethe sale of their products (e.g., computer time, Internet access or telephone cards) by offering a sweepstakes giveaway such as the ones offered here. (See e.g., Dunbar & Russell, The History ofInternet Cafes and the Current Approach to Their Regulation (2012) 3 UNLV Gaming L.J. 243, 243-245; Silver, The Curious Case ofConvenience Casinos: How Internet Sweepstakes Cafes Survive in a Gray Area Between Unlawful Gambling andLegitimate Business Promotions (2012) 29 J. Marshall J. Computer & Info. L. 593, 594-599.) 2 Unless otherwise indicated, al] further statutory references are to the Penal Code. 3 Weordered defendants’ appeals consolidated. Three other related cases(i.e., People v. Grewal, case No. F065450, People v. Walker, case No. F065451, and Peoplev. Stidman, case No. F065689) are addressed by us in a separate, published opinion. violated the prohibitions against slot machines or gambling devices under section 330b, weaffirm the trial court’s orders. FACTS AND PROCEDURAL BACKGROUND Defendants operate stores that sell, among other things,“Tel-Connect” and “Inter- Connect” prepaid telephone cards. Nasser’s stores do business as “Fun Zone Internet Café[s],” while Elmalih’s store does business as “Happy Land.” Defendants promote the sale of telephonecardsat their stores by offering sweepstakes to their customers. The Tel-Connect and Inter-Connect telephone cards are furnished by Phone-Sweeps, LLC (Phone-Sweeps), a companybased near Toronto, Canada. Phone-Sweepsis also the provider of the computer software system that operates defendants’ sweepstakes programs,including the computer sweepstakes games(hereafter, the Sweepstakes Gaming System). The Sweepstakes Gaming System is provided to defendants through licensing agreements between defendants and Phone-Sweeps.4 When a customer purchasesa telephone card or purchases more time on his existing card, he receives 100 sweepstakes points for each dollar spent on prepaid telephone time. Thus, if a customer purchases $20 in telephone time, he would receive 2,000 sweepstakes points with his purchase.> Customers mayuse their points by playing sweepstakes computer gameson the terminals provided at defendants’ premises. The customers’ available telephone time is not reduced by time spent on the terminals playing the computer sweepstakes games. Initially, the way a customer gains accessto the 4 Phone-Sweeps found that the only way it could compete in the telephone card industry was through havingits licensee’s offer a continuous sweepstakes. Although the facts and circumstances shown below were as ofthe time ofthe hearings below,for ease of expression we primarily use the present tense. 5 Noncustomers can receive sweepstakes points as well; that is, no purchaseis necessary to enter. Persons over the age of 18 who enter defendants’ stores can receive 100 free sweepstakesentries or points for that day. Additionally, free points can be received by mailing in a request form. computer sweepstakes games was to swipehis or her telephone card into an electronic card reader at the computer terminal. More recently, the process followedis that a customer manually enters his or her account number shown onthe back ofthe telephone card at the terminal keyboard. Once the computer sweepstakes gamesare displayed, the customeris presented with a numberofslot machine style games activated by a touch screen. The customer selects, based on available increments (such as 25, 50 or 100), how many pointsto useat one time. The customereither loses the points played, or is awarded additional points (called “winning points”), which the system tracks and displays on the screen. If the customer ends up with a positive number of winning points, they are redeemable at $1 per 100 points at the register. For example, 2,400 winning points would result in a cash prize of $24. According to an oddstable, within each poolofentries there are entry results that range from $0.01 to $4,200 (based on redeemable points won).® The Sweepstakes Gaming System used to operate defendants’ sweepstakes program and computer sweepstakes gamesis an integrated system that forms a network of computers and servers. The main Phone-Sweepsserveris located in Canada andis electronically connected to the servers in defendants’ places of business. The server used in each place ofbusinessis, in turn, electronically connected to each of the numerous computer terminals that the customers useat that place of business to play the computer sweepstakes games. Each sweepstakesconsists of a finite pool or batch of entries. Depending on the size ofthe retail store, the numberofentries in a sweepstakes pool maybeas high as 65 million. The pools are created by Phone-Sweeps main server in Canada. The main server randomizesthe entries in each pool, puts them into a set sequential order, and then 6 If a customer does not wish to play the sweepstakes games, he or she mayask the cashier to do a “Quick Redeem”at the register to reveal a result at the time. delivers the pool in that sequential order to the “Point of Sale” computer(or server) in defendants’ stores. There is nothing defendants or their customers can do to change the sequenceorcontents (i-e., results) of the entries. Phone-Sweeps main server can detect whenthe poolin any particular store is nearing the end, andit then creates a new pool, in the same manner,and deliversit to the Point of Sale computer(orserver). Whencustomers play the computer sweepstakes games, they are simply receiving and obtaining the results of the next available entry or entries, in sequence. Thus, the outcomesare predetermined solely by the sequential entries, not by how the customers play the games. The customer cannot impactthe result that is determined by the next available entry. Additionally, neither defendants’ servers(i.e., the Point of Sale computers) nor the terminals where the computer sweepstakes games are played contain a random numbergenerator or any other way to randomizeoralter the sequence of the entry results. Asto the telephone cards (or prepaid telephone time) purchased by customers, defendants providedthe trial court with a declaration to the effect that over a one-year period, 31 to 32 percentof the total telephone time sold by Phone-Sweepsthroughits licensees (such as defendants) wasactually used. The cases against defendants were commenced in Mayand June 2012 by the Kern County District Attorney’s Office on behalf of the People, filed as separate civil actions. Each complaint sought injunctive relief under Business and Professions Code section 17200 based on defendants’ alleged violations of antigambling provisionsofthe Penal Codein the operation of their respective Internet café businesses. The Penal Code provisionsat issue under the pleadings were those relating to unlawful lotteries (§ 319) and unlawful slot machines or gambling devices (§§ 330a, 330b & 330.1). A hearing was held in thetrial court on the question of whether the court should issue preliminary injunctions as requested by the People, with both cases heard together. The evidence consisted of the parties’ moving and opposing declarations along with oral testimony presented at the hearing. Theoral testimony wasthat of defendants’ experts, including Julius Kiss, owner of Phone-Sweeps, and Nicola Farley, an expert in the gaming industry whopersonally examined defendants’ Sweepstakes Gaming System as it operated in conjunction with Phone-Sweeps’s main server. Following the hearing, the trial court granted the People’s motions for preliminary injunctions. Defendants’ appeals followed, which weordered consolidated. DISCUSSION I. TheIssuein the Trial Court and Our Standard of Review The decision to grant a preliminary injunctionrests in the sounddiscretion of the trial court. UT Corp. v. County ofImperial (1983) 35 Cal.3d 63, 69.) Ordinarily, “two interrelated factors” are evaluated bythetrial court in deciding whetherto exerciseits discretion to issue a preliminary injunction: “Thefirst is the likelihoodthat the plaintiff will prevail on the meritsat trial. The secondis the interim harm thatthe plaintiff is likely to sustain if the injunction were denied as comparedto the harm that the defendant is likely to suffer if the preliminary injunction were issued.” (/d. at pp. 69-70.)7 An order granting or denying suchinterlocutory relief reflects the trial court’s evaluation of the controversy on the record beforeit at the time of its ruling; thus, “it is not an adjudication of the ultimate merits of the dispute.” (People ex rel. Gallo v. Acuna (1997) 14 Cal.4th 1090, 1109.) In view ofthat latter principle, we base our opinion on thestate of the record that was beforethe trial court in granting interlocutory relief, and although on thoseinitial facts we reach certain conclusions, we leave open the possibility that a 7 Where, as here, a governmental entity seeks specifically provided injunctive relief to prohibit an alleged violation of a statute, once that governmental entity makes a showingthatit is likely to prevail at trial, a rebuttable presumptionarises that the potential harm to the public outweighs the potential harm to the defendant. (IT Corp.v. County ofImperial, supra, 35 Cal.3d. at pp. 71-72; see Bus. & Prof. Code, §§ 17203 [providing for injunctive relief against unlawful business practices], 17202 [includes specific or preventive relief to enforce penal law].) trial on the merits based on a more fully developed factual record may cast these matters in a differentlight. Wereview an order granting a preliminary injunction underthe abuseofdiscretion standard. (People ex rel. Gallo v. Acuna, supra, 14 Cal.4th at p. 1109.) If the evidenceis in conflict, we interpret the facts in the light most favorable to the prevailing party. (Cinquegrani v. Department ofMotor Vehicles (2008) 163 Cal.App.4th 741, 746.) To the extent that the grant of a preliminary injunction was based onstatutory construction, we review the issue of statutory construction de novo. (Jbid.) The question of whether, under a given state of facts, a particular device is an unlawful slot machine is one oflaw. (Trinkle v. California State Lottery (2003) 105 Cal.App.4th 1401, 1405 (Trinkle IT.) We review that question of law de novo. In the instant appeal, defendants contendthat the trial court erred or abusedits discretion in issuing the preliminary injunctions because, allegedly, there was no likelihood that the People would be able to prevail on the merits. We proceed onthis understanding of defendants’ claims. (See Tosi v. County ofFresno (2008) 161 Cal.App.4th 799, 803-804.) II. Statutory Construction of Penal Code Sections Because our review ofthetrial court’s rulings requires that we interpret or apply certain Penal Code provisions on the record before us, we briefly set forth the relevant principles of statutory construction. “T]he objective of statutory interpretation is to ascertain and effectuate legislative intent. [Citations.] To determinelegislative intent, we turn first to the words of the statute, giving them their usual and ordinary meaning. [Citations.] When the language ofa statute is clear, we need go no further.’” (People v. Beaver (2010) 186 Cal.App.4th 107, 117.) When the languageis susceptible of more than one reasonable interpretation, however, welook to extrinsic aids, including the objects to be achieved, the evils to be remedied,the legislative history, public policy, and the statutory scheme of which thestatute is a part. (Ibid.; accord, People v. Woodhead (1987) 43 Cal.3d 1002, 1008.) Underthe rule of lenity, which defendants argue should be applied here, any doubts as to the meaning of a criminal statute are ordinarily resolved in a defendant’s favor. (See, e.g., People v. Overstreet (1986) 42 Cal.3d 891, 896; Walsh v. Dept. Alcoholic Bev. Control (1963) 59 Cal.2d 757, 764-765).8 However,that rule ofstatutory interpretation is only applied wherethe statute is reasonably susceptible of two constructions that are in relative equipoise—thatis, resolution ofthe statute’s ambiguity in a convincing manneris impracticable. (People v. Lee (2003) 31 Cal.4th 613, 627; People v. Avery, supra, 27 Cal.4th at p. 58; People v. Jones (1988) 46 Cal.3d 585, 599.) “Thus, although true ambiguities are resolved in a defendant’s favor, an appellate court shouldnotstrain to interpret a penal statute in defendant’s favor if it can fairly discern a contrary legislative intent.” (People v. Avery, supra, at p. 58 [citing § 4].)? As recently stated by our Supreme Court, “‘[t]he rule of lenity does not apply every time there are two or more reasonable interpretations of a penal statute. [Citation.] Rather, the rule applies “‘only if the court can do no more than guess whatthelegislative body intended; there must be an egregious ambiguity and uncertainty to justify invokingthe rule.’” [Citation.]’ [Citation.]” (People v. Nuckles (2013) 56 Cal.4th 601, 611.) 8 Therule is sometimesalso describedas a principle ofstrict construction. (See, e.g., People v. Overstreet, supra, 42 Cal.3d at p. 896; People v. Avery (2002) 27 Cal.4th 49, 58.) 9 Section 4 provides: “The rule of the commonlaw,that penal statutes are to be strictly construed, has no application to this code. All its provisions are to be construed accordingto the fair import of their terms, with a view to effect its objects and to promote justice.” Nosuch ambiguity exists in this case, as will become apparent in the discussion that follows and, therefore, the rule of lenity does not apply.!° HI. An Unlawful Slot Machine or Device Was Shownby the Record Webegin with the issue of whether the devices in question (i.e., defendants’ Sweepstakes Gaming System operating the computer sweepstakes games on the networked terminals provided to customers) are unlawful slot machines or gambling devices under the applicable penal statutes. Sections 330a, 330b and 330.1 contain distinct but overlapping provisions that prohibit “slot machine[s] or device[s]” as defined in each section.!! The definitional language in each section is similar, but not identical. (Cf. §§ 330a, subd. (a), 330b, | subd.(d) & 330.1, subd.(f).)!2 Arguably the broadest of the three is section 330b, which defines a “‘slot machine or device’”in the following terms: “[A] machine, apparatus, or device that is adapted ... for use in a waythat, as a result of the insertion of any piece of moneyor coin or other object, or by any other means, the machine or device is caused to operate or may be operated, and by reason of any element of hazard or chanceorof other 10 Even assuminga strict construction, however, that would not require the statutory wording to be strained or distorted to exclude conductclearly intendedto be withinits scope, where the wordsare given their fair meaning in accord with the evident intent of the Legislature. (Trinkle v. Stroh (1997) 60 Cal.App.4th 771, 783 [so holding, construing provisionrelating to slot machines]; People v. Shira (1976) 62 Cal.App.3d 442, 460 [same, construing statute relating to lotteries]; cf. § 4 [penal provisions construed according to their fair import].) 11 Section 330a wasenacted in 1911, while sections 330b and 330.1 were both enacted in 1950. (Stats. 1911, ch. 483, § 1, p. 951 [re: § 330a]; Stats. 1950, Ist Ex. Sess., ch. 17, § 1, p. 452 [re: § 330b]; Stats. 1950, Ist Ex. Sess., ch. 18, § 1, p. 454 [re: § 330.1].) 2 Our courts have recognizedthe three provisions are “similar” in their terms(e.g., Hotel Employees & Restaurant Employees Internat. Union v. Davis (1999) 21 Cal.4th 585, 593), but also have differences (e.g., People ex rel. Lockyer v. Pacific Gaming Technologies (2000) 82 Cal.App.4th 699, 703,fh. 6; but see Trinkle I, supra, 105 Cal.App.4th at pp. 1409-1410 [treating §§ 330b & 330.1 as identical]). outcomeofoperation unpredictable by him orher, the user may receive or become entitled to receive any piece of money... or thing of value ....” (§ 330b, subd. (d).)& The People centerits discussion on section 330b; we will do the same. California courts have found section 330b to prohibit a variety of devices where prizes may be won based on chance. In People ex rel. Lockyer v. Pacific Gaming Technologies, supra, 82 Cal.App.4th 699, a vending machine that dispensed telephone cards for $1 included a sweepstakes feature with audio-video displays resembling a slot machine. When customers purchased a phonecard for $1, they were given a chanceto win a cash prize of up to $100. A “preset computer program” determinedthe results of the sweepstakes; the user could not control or alter the results. (/d. at pp. 701-702.) The Court ofAppeal held the vending machine wasa prohibited slot machine underthe plain language of section 330b, because “[b]y the insertion of money and purely by chance (without any skill whatsoever), the user may receive or becomeentitled to receive money.” (/d. at p. 703.) Similarly, in Trinkle v. Stroh, supra, 60 Cal.App.4th 771, a jukebox that dispensed four songs for $1 was found to be a prohibited slot machine or device under section 330b because the operators also received a chance to win a cash 13 Section 330.1, subdivision (f), defines a “slot machine or device” in relevantpart as “onethat is, or may be, used or operated in such a waythat, as a result of the insertion of any piece of moneyor coin or other object the machine or device is caused to operate or may be operated or played, mechanically, electrically, automatically, or manually, and by reason of any elementofhazard or chance, the user may receive or becomeentitled to receive anything of value ....” Section 330a, subdivision (a), prohibits “any slot or card machine, contrivance, appliance or mechanical device, upon the result of action of which moneyor other valuable thing is staked or hazarded, and whichis operated, or played, by placing or depositing therein any coins, checks,slugs, balls, or otherarticles or device, or in any other manner and by means whereof,or as a result of the operation of which any merchandise, money ... or any other thing of value, is wonorlost, or taken from or obtained from the machine, whenthe result of action or operation of the machine, contrivance, appliance, or mechanical device is dependent upon hazard or chance....” 10. jackpot. (/d. at pp. 776-780; see also Score Family Fun Center, Inc. v. County ofSan Diego (1990) 225 Cal.App.3d 1217, 1221-1223 [holding that an arcade video gamethat simulated card gamesviolated § 330b because operators could, as a matter of chance, win free games or extended play].) | Based on these authorities, the People argue that an unlawful slot machine or device under section 330b is involved in each of defendants’ businesses at issue in this consolidated appeal. According to the People, this conclusion follows from thefacts that, under defendants’ Sweepstakes Gaming Systemsas operated on their computer networks and terminals, upon the payment of money(i.e., the purchase of telephone cards or Internet time), patrons can activate computer sweepstakes games on the terminals and, based on “chance”or “other outcome of operation unpredictable by”the patron, win cash prizes. Weagree with that analysis. That is, onthe question of whetherit was appropriate for the trial court to grant the preliminary injunctions, we concludethat the record below was adequate to show the People would likely prevail on the merits under section 330b. Weexplain our conclusion by examining each ofthe statutory elements of an unlawful“‘slot machine or device’” under section 330b. Before we begin that task, a brief commentis needed concerning our approach. One Court of Appeal decision provided the following distillation of the three elements necessary to constitute a slot machineor device under section 330b: “(1) the insertion of money or other object which causes the machineto 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 II, supra, 105 Cal.App.4th at p. 1410).) Wetake issue with this formulation because section 330b, subdivision (d), refers to chance “or” unpredictable outcome, while Trinkle IJ uses the conjunctive “and” in its articulation of the second element. As noted in Score Family Fun Center v. County ofSan Diego, supra, 225 Cal.App.3d, at page 1221, those terms are clearly in the 11. disjunctive. As result, this element of the statute (commonlyreferred to as the chance element) can be satisfied by showing that a prize may be wonbyreason of an “outcome of operation unpredictable”to the user (§ 330b, subd. (d), italics added; Score Family Fun Center v. County ofSan Diego, supra, at p. 1221). No further or additional proof relating to “chance” is needed.14 Additionally, we disagree with Trinkle IT’s description of the mannerin which the chance element mustbe realized in order to constitute a slot machine or device undersection 330b. Specifically, Trinkle I held that the chance element must be created by a randomizing process occurring at the moment the machine or device is being played. (Trinkle I, supra, at p. 1411.) As will be explained below, we think that holding was in error. Since we disagree with Trinkle IT on these significant matters relating to the statutory elements, we adopt a different approach here than what wasarticulated in that case. In light of the foregoing, and in view of the complexities of the present case, we believe it is best to frame our discussion of the elements of section 330b in termsthat are closely tethered to the language ofthestatute itself. We now turn to those statutory elements as revealed in the statutory language. The first element specified in thestatute is that “as a result ofthe insertion ofany piece ofmoney orcoin or other object, or by any other means, the machine or deviceis caused to operate or may be operated ....” (§ 330b, subd. (d), italics added.) Defendants 14‘ The disjunctive statutory wording does not mean that chance and unpredictability are entirely separable, but only that they may be distinguished in terms of what must be shown. Obviously, when the outcome of operation of a deviceis entirely unpredictable to the user,it is also involving chance, since for purposes of our gambling laws ““Tc]hance’” meansthat “winning and losing depend on luck and fortunerather than,or at least more than, judgmentand skill.” (Hotel Employees & Restaurant Employees Internat. Union v. Davis, supra, 21 Cal.4th at p. 592.) Here, we believe the statute is simply making clearthat it is sufficient to establish this element of an unlawfulslot machineor device if a prize may be wonbyreason of an “outcome of operation unpredictable by [the user].” (§ 330b, subd.(d).) 12. argue that this elementis lacking because no coin or similar object wasinserted into a slot by customers at the computer terminal to cause the sweepstakes computer games to operate. Wereject that argument. Here, the insertion of an account numberor the swiping of a magnetic card at the computer terminalin order to activate or access the sweepstakes gamesand thereby use points received upon paying moneyatthe register (ostensibly to purchase a product) plainly came within the broad scopeofthe statute. The statute expressly includesthe catchall phrase “by any other means.” (§ 330b, subd. (d), italics added.) Even though a coin, moneyorobject (e.g., a token) wasnotinserted into a slot, the games were commencedby other means analogousthereto which effectively accomplished the sameresult and, therefore, this element is satisfied. The second element ofa “slot machine or device”articulated in section 330bis that “by reason ofany elementofhazard or chance or ofother outcomeofoperation unpredictable by him or her, the user may receive or becomeentitled to receive any... money... or thing ofvalue ....” (§ 330b, subd. (d), italics added.)!5 This language describes the so-called “chance” element—thatis, the requirementthat any potential to win a prize must be based on hazard, chance or other outcomeof operation unpredictable to the user of the machine or device. Here, it is clear that defendants’ customers may becomeentitled to win prizes under the Sweepstakes Gaming Systems implementing defendants’ computer sweepstakes gamesbased on “hazard or chanceor of other outcomeofoperation unpredictable”to the user. (§ 330b, subd. (d).) That is, we agree with the People that the 15 Prior to 2004,this portion of the statute was wordedas follows: “‘by reason of any element of hazard or chanceor of other outcome of such operation unpredictable by him....’” (Trinkle IT, supra, 105 Cal.App.4th at p. 1409, fn. 6, italics added.) In 2004,as a result of housekeepinglegislation that made technical, nonsubstantive changes to numerousstatutes, the word “such” appearing before the word “operation” was removed from section 330b. (Stats. 2003, ch. 264, § 1.) 13. COEchance elementis satisfied. Under California gambling law,““‘{c]hance’” meansthat “winning and losing depend on luck and fortunerather than, or at least more than, judgmentand skill.” (Hotel Employees & Restaurant Employees Internat. Unionv. Davis, supra, 21 Cal.4th at p. 592.) Since customers playing defendants’ computer sweepstakes games can exert no influence over the outcomeof their sweepstakes entries by meansof skill, judgment or how well they play the game,it follows that we are dealing with systems that are based on chance or luck. Moreover, by describing their promotional giveaways as sweepstakes, defendants have effectively admitted to the chance element because a “‘[s]weepstakes’”is, by definition, “any procedure for the distribution of anything of value by lot or by chancethat is not unlawful under other provisionsof law....” (Bus. & Prof. Code, § 17539.5, subd. (a)(12).)!© Our conclusionis further supported by the official rules and printed materials regarding defendants’ sweepstakes, which refer to odds or chances of winning andreiterate that the manner of playing the game doesnotalter the outcomeofan entry. (A) We Follow People ex rel. Lockyer v. Pacific Gaming Technologies Moreover, even though all sweepstakes entries were previously arranged in batches(or pools) that had predetermined sequences, that fact does not change our opinion of this issue(i.e., the chance element) because the results would still be unpredictable and random from the perspective of the user. Section 330b, subdivision (d), refers to chance “or of other outcomeof operation unpredictable by him 16 The difference between a lawful sweepstakes and an unlawfullottery is that a sweepstakes does not require that consideration be paid to enter. (See § 319 [elements of lottery include consideration]; California Gasoline Retailers v. Regal Petroleum Corp. (1958) 50 Cal.2d 844, 861-862 [promotional sweepstakes was not an unlawfullottery since consideration element was absent where no purchase necessary to enter].) 14. or her ....” (Italics added.)!7 Thesituation here is clearly analogous to what was described in People ex rel. Lockyer v. Pacific Gaming Technologies, supra, 82 Cal.App.4th 699, where “[a] preset computer program determine[d] the results of the sweepstakes.” (/d. at p. 702.) The machine or device in that case (a “VendaTel”that distributed a telephone card to each customer while entering them in a chance to win a 399prize) had a “‘10 percent payout structure’” where it would “pay[] out $500 in prizes for Oeevery $5,000 paid into the machine”with “‘predetermined winners’ spread out over a period of time.” (/d. at p. 702, fn. 4.) Under those facts, the Court of Appeal held that the users of the device becameentitled to receive cash prizes “purely by chance (without any skill whatsoever).” (Id. at p. 703, italics added.)!8 The sameis true here. On the record before thetrial court, the Sweepstakes Gaming Systems and networked terminals were integrated systems or devices through which patrons win cash prizes based upon “hazard or chanceor of other outcome of operation unpredictable by [the patron]”in violation of section 330b, subdivision (d).!9 17 In the wordsof an out-of-state case addressing this sameissue, ““[w]hat the machine “knows”does not affect the player’s gamble.’” (Moore v. Miss. Gaming Com’n (2011) 64 So.3d 537, 541.) 18 Asthe Court of Appeal remarkedlater in that same case, “if it isn’t chance, whatis it that determines whether the customer wins $100 for his $1?” (People ex rel. Lockyerv. Pacific Gaming Technologies, supra, 82 Cal.App.4th at p. 707.) 19 If that were not the case, then even a casino-style slot machine would be legal as long as it was operated by a software system that had previously programmedthe sequence ofentry results in a fixed order. A customer inserting moneyand pulling the handle would receive the outcomeassignedto the next available entry result in sequence. Such a computer program might conceivably include millions of discrete entry results in a predetermined sequence. A customer using that device would be surprised to learn that merely becausethere is a preset sequence,he is not playing a game of chance. Of course, in reality, that is exactly what he is doing. As aptly remarked in People ex rel. Lockyerv. Pacific Gaming Technologies, supra, 82 Cal.App.4th at page 701, “if it looks like a duck, walks like a duck, and soundslike a duck,it is a duck.” (Fn. omitted.) 15. Finally, whether viewed as a third element or an aspect of the second, the statute requires that “by reason of’ the chance element, a prize or thing of value may be won. (§ 330b, subd.(d), italics added.) Here, it is clear that defendants’ customers may becomeentitled to receive a thing of value (i.e., cash prizes in varying amounts) by reason of the “chance”or “unpredictable” operation of defendants’ Sweepstakes Gaming Systems. (/bid.) (B) WeDistinguish 7rinkle IT In Trinkle II, the Court of Appeal reached the unsurprising conclusion that a vending machinethat simply dispenses California State Lottery tickets in the sequential orderthat they were loaded into the machineis not an unlawful slot machine. However, certain statements made by the Court of Appeal in reaching that conclusion are specifically relied on by defendants herein. In explaining why the element of chance was not present, Trinkle II observed: “If a player purchaseshis ticket from a [Scratcher’s vending machine, or SVM],the player obtainsthe ticket by inserting moneyinto the machine and pushing a button, which releases the next ticket in sequence, according to the order in which it was printed and loaded into the SVM bin. Nothing about the machineor its operation by the customeralters the order in whichthe tickets were arrangedat the time they were printed.” (Trinkle IT, supra, 105 Cal.App.4th at p. 1411.) The court further observed that “SVM’s do not have computer programsthat generate random numbersor symbols, nor do they have any capability of conducting a process of random selection or other kind of chance selection.” (Jd. at pp. 1411-1412.) Since the only element of chance was dueto “the printing of the winning tickets and the placement of those tickets in a predetermined sequence”at the time the tickets were manufactured, the SVMitself had no role in outcomes becauseno further element of chance was involved in connection with the operation or play of the machine. (/d. at p. 1412.) In other words, Trinkle I explained that unless the element of chance is generated by the machines themselvesat the time the customer plays or operates it (like the spmning 16. wheels of the original mechanical slot machines or a computer program that randomizes the entries), it is only a vending machine. Defendants insist that their systems are on par with the vending machinesin Trinkle I, since customers playing defendants’ computer sweepstakes games merely receive the next available entry result from a stack that is in a previously arranged, sequential order. Wedisagree. For at least two reasons, we hold that Trinkle IT does not salvage the devices at issue in the present appeal. First, we disagree that the chance element must always be generated by some randomizing action ofthe device itself whenit is being played. Section 330b only requires that prizes may be won “by reason of any element of hazard or chance or of other outcome of operation unpredictable by him orher....” (§ 330b, subd. (d).) Under this broad wording,if the entries are arranged in a particular order beforehand, rather than rearranged each time the gameis played,it will still suffice. Either way, the next sequential entry/result that is dealt out by the software system will be, from the perspective of the player, by “chance or of other outcomeof operation unpredictable by him or her....”2® (Ibid.) Second, Trinkle I is distinguishable factually because, in the words of a recent federal district court decision, it involved a passive vending machinethat“simply delivered a finished product—thelottery ticket.” (Lucky Bob’s Internet Café, LLC v. California Dept. ofJustice, et al. (S.D.Cal. 2013) 2013 U.S. Dist. Lexis 62470, p. *8 (Lucky Bob’s).) Here, in contrast, all the trappings and experiences involved in playing traditional slot machinesare actualized in one form or another by defendants’ Sweepstakes Gaming Systems and networked computer terminals, since in each case 20 To use an analogy, whether a deck of cards was shuffled the day before,or at the moment the player sits down at the table and placesa bet,it is still a matter of chance whetherthe ace of spades is the next card dealt. 17. points are received upon making a purchase, a game program is activated by the customer at a terminal, points are used or bet in selected increments, audio-visual scenes are played out on the screen to create the feel and anticipation of a slot machine or other gambling game,and prizes are won. For these reasons, the integrated systems or devices in our case are in a different category than the vending machines in Trinkle IJ. The mere fact that winnings are based on a predetermined sequenceofentry results that were delivered into defendants’ Sweepstakes Gaming System by an outside server, rather than on a randomly spinning wheel(or the like), does not change the nature and character of devices herein, which as integrated systems function as slot machines.”! Asshould be apparent from the above analysis, we are treating each defendant’s complex of networked terminals, software gaming programs and computer servers as a single, integrated system. Undersection 330b, subdivision (d), an unlawful ““‘slot machine or device’”is not limited to an isolated or stand-alone piece of physical hardware, but broadly includes “a machine, apparatus, or device that is adapted’ for use as a slot machine or device. (Italics added.) As defined in dictionaries, the ordinary meaning for the term “apparatus” includes “a group or combination of instruments, machinery,tools, or materials having a particular function” (Random House Webster’s College Dict. (1992)p. 66), as well as “(t]he totality of means by which a designated function is performedora specific task executed” (Webster’s II New College Dict. (2001) p. 54). Here, each defendant’s system of gaming software, servers and computer 21 In Lucky Bob’s,the district court correctly focused on all the components of an integrated system functioning together in that case: “Plaintiff's operating system can be distinguished from the vending machine in Trinkle by the integrative nature ofits components. Here, the sweepstakes winnings necessarily involved the ‘value added’ of each componentofPlaintiffs integrative system—from the computersthat read the magnetic strip card; the database server controlling the games; and the point of sale computer that allowed the employee to create the accounts, add Internet time and sweepstakesentries and play out redeemedentries.” (Lucky Bob’s, supra, 2013 U.S. Dist. Lexis 62470 at pp. *8-9.) 18. terminals plainly operated together as a single apparatus. (§ 330b, subd. (d).) Whileit is true that the end terminals or computer monitors used by patrons—if considered in isolation—maynotintrinsically or standing alone contain all the elements ofa slot machine,in each case they are part of an integrated system or apparatus wherein the various parts or components work together so as to operate in a mannerthat does constitute an unlawful slot machine or device. (C) Other Issues Webriefly address two remaining issues. Defendants suggest that the devices in question cannot qualify as slot machines or devices under section 330b due to a lack of an adequate showing of consideration. We find the argument unpersuasive. Unlike section 319 (regardinglotteries), section 330b doesnot directly specify that consideration is an element. Therefore, it would seem that as long as the express statutory elements of ‘section 330b are satisfied, no separate showing of consideration is needed. In other words, to the extent that consideration is a factor under section 330b,it is simply subsumed bythe existing statutory elements. Since those elements were shown here, nothing more was required. (Trinkle v. Stroh, supra, 60 Cal.App.4th at pp. 780-781.) ‘Other cases have essentially followed this approach by concludingthat even if ‘ consideration is necessary in slot machinecases, its existence will be found where a connection exists between purchasing a product from a vending machine or device and being given chances to win prize. (Id. at pp. 781-782; People ex rel. Lockyer v. Pacific Gaming Technologies, supra, 82 Cal.App.4th at pp. 705-706.) “‘Once the element[s] of 999chance [andprize]’” are added to a vending machineor device, it is reasonable to assume that“people are no longer paying just for the product regardless of the value given that 999product by the vender.’” (Trinkle v. Stroh, supra, at p. 782; accord, People ex rel. Lockyerv. Pacific Gaming Technologies, supra, at pp. 704-707.) That is the case here as well, since points are given to play the computer sweepstakes games on defendants’ terminals based on dollars spent in purchasing products—thatis, the elements of chance 19. and prize are added to the purchase. Additionally, to the extent that defendants are raising the issue of consideration by analogy to the cases addressinglotteries(e.g., California Gasoline Retailers v. Regal Petroleum Corp., supra, 50 Cal.2d at pp. 851-862 [consideration element of § 319 lacking where no purchase necessary to enter]), that argumentlikewise fails because “lottery cases (which are governed by § 319) are not controlling on the issue ofillegal slot machines,” since they are separate things under the law. (Trinkle v. Stroh, supra, at p. 781.)?” Finally, defendants argue their integrated systems cannotbe slot machines on the groundthat they are not house-banked games in which the ownerhasan interest or stake in the outcome. (See Trinkle I, supra, 105 Cal.App.4th at p. 1412 [so indicating].) We disagree with the premise that only a house-banked game mayconstitute an unlawful slot machine or device. Section 330 forbids persons from playing or conducting any “banking ... game played with cards, dice, or any device.” Sections 330a, 330b and 330.1 separately prohibit slot machines or devices, as defined therein. No mentionis made inthe latter statutes of any requirementthat the slot machine or device be a house- banked game. Weare constrained to follow the explicit definition of an unlawful slot machineor device provided in the applicable statutory language, whichis broad enough to include defendants’ devices whether or not they are house-banked.” (Hotel Employees & Restaurant Employees Internat. Union v. Davis, supra, 21 Cal.4th at pp. 593-594 [noting broad scope of slot machinestatutes].) 22 Additionally, we note that section 330b, subdivision(d), explicitly states that a device meeting the statutory criteria set forth therein constitutes an unlawful slot machine or device “irrespective” of whether a product is also sold by that same machine or device. (See also § 330.1, subd. (f) [same wording].) 23 To put it another way, we decline to insert a new elementinto section 330b (that the device be house-banked) that the Legislature did not put there. 20. Weconcludeonthe record before us that the Peopleare likely to prevail on the merits of their claimsthat the particular devices at issue are unlawful “slot machine[s] or device[s]” under section 330b. Accordingly, we affirm the trial court’s orders granting preliminary injunctions. Because the foregoing analysis provides sufficient grounds to affirm the trial court’s orders, it is unnecessary to address the additionalissue raised by the parties of whetheror not the sweepstakes programs mayalso haveconstituted unlawful lotteries under section 319. DISPOSITION The orders ofthe trial court are affirmed. Costs on appeal are awarded to the People. Kane,J. WE CONCUR: Levy, Acting P.J. Franson, J. 21. CALIFORNIA LEGISLATURE—2003-04 REGULAR,SESSION ASSEMBLYBILL No. 360 Introduced by Assembly Member Jerome Horton February 14, 2003 Anact to amend Section 330b of the Penal Code, relating to gaming. LEGISLATIVE COUNSEL'S DIGEST AB 360,as introduced, Jerome Horton. Slot machines or devices. Existing law prohibits possession and sale of slot machines or devices, except in limited instances. This bill would create an exception to this prohibition for manufacturers that are licensed pursuant to tribal-state gaming compacts and that satisfy specified conditions. The bill would also make various technical, nonsubstantive changesto that provision. Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no. The people of the State of California do enactasfollows: 1 SECTION 1. Section 330b of the Penal Code is amended to 2 read: 3 330b. Possession or keeping of slot machinesor devices. 4 (1) It is unlawful for any person to manufacture, repair, own, 5 store, possess, sell, rent, lease, let on shares, lend or give away, 6 transport, or expose for sale orlease, or to offer to repair, sell, rent, 7 lease,let on shares, lend or give away, or-te permit the operation, 8 9 0 placement, maintenance, or keeping of, or-fer-any-personte-permit in any place, room, space, orte-be-placed_maintained-cr-kept 1 building owned, leased, or occupied—by—him—er—-under—his AB 360 —2— O o o n r A M A P W N = management, managed, or controlled by that person, any slot machine or device, as—hereinafter defined;-er in this section. (2) It is unlawfulfor any person to make or to permitte-be-made with-any-personany the making ofan agreement with-referenee-+to another person regarding any slot machine or device,—as hereinafterd fined, by which the user-thereef of the slot machine or device, as a result of-arry the element of hazard or chanceorother unpredictable outcome wapredictable-by-him, may becomeentitled to receive-any money,credit, allowance, or other thing of value or additional chance or right to use sueh the slot machine or device, or to receive any check, slug, token, or memorandum entitling the holder to receive~any money,credit, allowance , or other thing of eaeie adieN naneaNl (3) The limitations ofparagraphs (1) and (2) do not apply in the following instances: (A) To any slot machine or device—es—hereinafter—defined, located uponor being transported by any vessel regularly operated and engagedin interstate or foreign commerce,so long as such the slot machine or device is located in a locked compartmentof the vessel, is not accessible for use , and is not used or operated within the territorial jurisdiction of this State. @)-Any-machine,-apparatus , or device is a slot machine or device within the provisions (B) To a manufacturer licensed pursuant to the tribal-state gaming compacts entered into in accordance with the Indian Gaming Regulatory Act (18 U.S.C. Sec. 1166 to 1168, inclusive, and 25 U.S.C. Sec. 2701 et seq.) by a tribal gaming agency if the manufacturer’s application for a determination of suitability has been properly submitted to the State Division of Gambling Control, and has not beenfound to be unsuitable by the Division of Gambling Control. (4) For purposesofthis section #-it-+s-one , “slot machine or device” means a machine, apparatus, or device that is adapted, or may readily be converted inte-one hatis adapted, for use in such a waythat, as a result of the insertion of any piece of money or coin or other object, or by any other means, suek the machine or device 99 ok, —3— AB 360 I™.is caused to operate or may be operated, and by reason of any elementofhazard or chance or of other outcome of sueh operation unpredictable by him or her, the user may receive or become entitled to receive any piece of money,credit, allowanceor thing of value or additional chanceorright to use sueh the slot machine or device, or any check, slug, token or memorandum, whether of value or otherwise, which may be exchanged for any money, credit, allowance or thing of value, or which may begiven in trade, irrespective of whether it may, apart from any elementof hazard or chance or unpredictable outcome of-seek operation, also sell, deliver or present some merchandise, indication of weight, entertainmentor other thing of value. @) (5) Every person who violates this section is guilty of a misdemeanor.pH - ided-that wil os (6) Pin ball, and other amusement machines or devices , which are predominantly games of skill, whether affording the opportunity of additional chances or free plays or not, are not intendedte-be- included within the term slot machine or device, as defined in saitd-Sectien this-eede section. 99
