/opinions/HTMLFiles/SC/25840.htm

THE STATE OF SOUTH CAROLINA
In The Supreme Court

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Sun Light Prepaid Phonecard Co., Inc., and DTL Companies, Inc.,        Plaintiffs,

v.

State of South Carolina and South Carolina Law Enforcement Division,        Defendants.

Phonecards R Us, Inc., R.L. Jordan Oil Company of North Carolina, Inc. and DTL Companies, Inc.,        Plaintiffs,

v.

State of South Carolina and South Carolina Law Enforcement Division,        Defendants,

Of Whom Phonecards R Us, Inc., and R.L. Jordan Oil Company of North Carolina, Inc. are        Appellants,

And State of South Carolina and South Carolina Law Enforcement Division are        Respondents.

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Appeal From Richland County
L. Casey Manning, Circuit Court Judge

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Opinion No. 25840
Heard February 4, 2004 - Filed July 6, 2004

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AFFIRMED

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Matthew A. Henderson and Joshua M. Henderson, of Henderson, Brandt & Vieth, of Spartanburg, for appellants.

Assistant Attorney General Elizabeth R. McMahon, of Columbia; William H. Davidson, II, and Andrew Lindemann, of Davidson, Morrison, and Lindemann, P.A., of Columbia, for respondents.

W. Hogan Brown, Carl W. Stent, and David M. Barden, all of Columbia, for Amicus Curiae.

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JUSTICE MOORE: We are asked to determine whether the trial court erred by finding certain long distance telephone cards and electronic phone card dispensers to be illegal gambling devices. We affirm.

PROCEDURAL FACTS

Appellants commenced this action following respondents (the States) seizure of appellants pre-paid, long distance telephone cards (phone cards) and electronic phone card dispensers. Appellants sought the return of the phone cards and dispensers and damages resulting from the seizure. Before hearing the claim for damages, a trial was first held on the declaratory judgment claim to determine the legality of the phone cards and dispensers. [1] The trial court held the phone cards and dispensers were illegal gambling devices.

FACTS

The phone card dispensers, which are entitled Lucky Shamrock, were manufactured by Diamond Games Enterprises and distributed and leased by DTL Companies, Inc. to appellants. The promotional materials furnished by the manufacturer and distributor contain a header in large print stating, Pay Winners in Cash Legally. On this same page, the promotion contains the sentence, Audio and Visual Effects Make It Look Like a Slot Machine Although Its Not! The promotional information mentions the sale of the phone cards in the following way: Sell Hundreds of Phone Cards Every Day Reaping Big Profits!

The phone cards, including the game pieces, are pre-printed by the manufacturer before they are placed in a dispenser. The cards are printed on rolls containing 7,500 cards. Attached to each phone card is a game piece that gives the customer a chance to win a cash prize. The entire card contains a paper cover, which, when pulled back, reveals a toll-free number and pin number for activating the phone service as well as an array of nine symbols in a 8-liner format. [2] If the game piece contains symbols arranged in a certain order, the customer wins a prize. The computer that prints the card randomly generates winners on the cards. Seventy percent of the revenue from the cards is paid out in prizes and the rest is a hold percentage. [3] A hold percentage is the net profit received by the sellers of the cards. The dispensers do not adjust to ensure the hold percentage is received; however, the amount of the hold percentage is predetermined based on the printing of the phone card rolls.

After printing, the roll of pre-printed phone cards are placed inside the dispenser and the dispenser cannot work without a roll of phone cards inside. [4] Each card sells for $1 and gives the customer two minutes of long distance telephone service. The customer can use the two minutes of time by dialing a toll-free number and entering a PIN number. The customer can also recharge the card and put additional long distance time on the card at the rate of 14.9 cents per minute.

Appellants contend the purpose of the game piece is to promote the sale of the phone cards. The prizes are paid to the winning customer either by the cashier in the store or by mail, but not by the dispenser itself. A customer does not need to purchase a phone card to obtain a free game piece. A free game piece could be obtained from the operator of the dispenser by mail. Instructions on how to obtain a free game piece were posted on the side of the machine and on the video screen of the machine.

The phone card dispensers are housed within a standard slot machine cabinet. The dispensers contained several features present in a gambling machine as opposed to a vending machine that simply dispenses a product: (1) the dispensers contain a video screen that has a gambling theme in that, if the user so chooses, the user can see reels turn as if the winner is chosen by the machine; [5] (2) if the machine dispenses a winning game piece, celebration music is played, whereas no music plays if the game piece is a loser; (3) the machine has a lock-out feature which freezes the operation of the machine when a pre-determined level of prize money is reached; (4) the machine contains two hard meters, one is an in-meter that records the amount of money going into the machine, and the other is labelled WON and records the value of the prizes issued by the machines; (5) the machine, although it accepts $1, $5, $10, $20, $50, and $100 bills, does not have a mechanism for returning change; and (6) the machines could be linked, a feature of a gambling device.

Further, although the sweepstakes promotion was set to run for 22 months, the long distance service on the phone cards was valid only for six months from the time the first phone card pin number was used. There was testimony that appellants, the manufacturer, and the distributor did not keep any records of the phone time used or what pin numbers had been sold via the cards. Also, some stores contained more than one phone card dispenser. According to the lease and purchase agreements, Phonecards R Us, Sun Light, and another company not involved in this case, were under contract to sell 117 million and 360 thousand (117,360,000) cards a year in the state of South Carolina. The South Carolina population in early 2000, the time of the seizures, was only about three million people. A marketing study had not been conducted to determine whether there would be such a high demand for the phone cards. Finally, the phone company from which the long distance service was purchased could not legally provide intrastate service in South Carolina because it had not been licensed to do so.

ISSUE

Did the trial court err by finding the phone cards and phone card dispensers are illegal gambling devices?

DISCUSSION

The trial court found the phone cards and phone card dispensers are illegal under S.C. Code Ann. 12-21-2710 (2000), which provides:

It is unlawful for any person to keep on his premises or operate or permit to be kept on his premises or operated within this State . . . any . . . pull board, or other device pertaining to games of chance of whatever name or kind, including those machines, boards, or other devices that display different pictures, words, or symbols, at different plays or different numbers, whether in words or figures or, which deposit tokens or coins at regular intervals or in varying numbers to the player or in the machine, but the provisions of this section do not extend to . . . vending machines which are constructed as to give a certain uniform and fair return in value for each coin deposited and in which there is no element of chance.

(Emphasis added).

Appellants argue the phone card dispensers are legal under 12-21-2710 because they are the same as traditional vending machines and provide a uniform return for every dollar inserted, i.e. a phone card. They argue that only when a machine and its components determine who will be a winner does the machine violate 12-21-2710.

While it is true the dispenser always gives the customer the same return, i.e. a phone card with a game piece attached, and that the dispenser does not itself determine whether a customer has won, the dispenser still contains an element of chance.

When printing the phone card rolls, a computer randomly determines which game piece attached to which phone card will be a winner. The phone card roll is then placed inside the dispenser. As testified to by the designer of the dispensers and by appellants expert, the phone card rolls are an integral part of the machine, and, without them, the dispensers will not work. Therefore, the phone card rolls present the element of chance in the dispensers and cause the cards and the dispensers to violate 12-21-2710.

Although the phone cards are an integral component of the dispensers, the phone cards would be illegal if they were issued over the counter as opposed to being placed in the dispensers. As the trial court found, 12-21-2710 declares illegal any pull board or other device pertaining to games of chance. The phone card itself contains an element of chance and is a type of gambling device known as a pull-tab. Appellants expert stated that if the card did not include the long distance phone service but only included the sweepstakes portion, the card would be a gambling device. Given the characteristics of the phone cards , the phone portion of the cards is mere surplusage to the game piece. Accordingly, the trial court properly determined the phone cards themselves were illegal gambling devices.

Furthermore, the trial court correctly determined the phone card dispensers are like slot machines and not traditional vending machines. The dispensers have a gambling-themed video screen, play celebration music when a customer is a winner, have a lock-out feature which freezes the operation of the machine when a pre-determined level of prize money is reached, contain a meter that records the value of the prizes paid out, and do not give change. None of these features is present in a traditional vending machine that is exempted from 12-21-2710.

Accordingly, the trial court properly found the phone cards and dispensers to be illegal gambling devices pursuant to 12-21-2710. [6]

Appellants further argue the trial court should have found the dispensers and phone cards legal pursuant to S.C. Code Ann. 61-4-580 (Supp. 2003). [7] However, the phone cards and dispensers do not meet the requirements of 61-4-580 because the game pieces are not a legitimate promotion or sweepstakes. Accordingly, the trial court did not err by failing to find the dispensers and phone cards legal pursuant to 61-4-580. [8]

CONCLUSION

We find the trial court did not err by finding the two-minute emergency long-distance phone cards and the electronic phone card dispensers to be illegal gambling devices under 12-21-2710.

AFFIRMED.

TOAL, C.J., and Acting Justice Alexander S. Macaulay, concur. PLEICONES, J., and Acting Justice Daniel F. Pieper dissenting in separate opinions.

JUSTICE PLEICONES: I agree with the majority that the machines in question are gambling devices that violate S. C. Code Ann. 12-21-2710 (2000), but would hold they meet the exception found in S. C. Code Ann. 61-4-580(3) (Supp. 2003). Accordingly, I would reverse the circuit courts order.

In 1929, this Court held a machine that dispensed a package of mints for each nickel deposited, and in addition dispensed, at random intervals, between 2 and 20 brass tokens, was an unlawful gambling device under the predecessor to 12-21-2710. [9] Harvie v. Heise, 150 S.C. 277, 148 S.E. 66 (1929). In my opinion, that decision controls the gambling device issue raised here.

Having determined that the dispenser/phone card/game piece scheme here is a gambling device, the next issue is whether it is permitted under 61-4-580. The General Assembly has legalized games of chances in connection with the sale, promotion or advertisement of a consumer good or service . . . if conducted on premises licensed for the sale of beer or wine. 61-4-580(3). The majority concludes that the phone cards and dispensing machines are without this statute because the game pieces are not a legitimate promotion or sweepstakes. While I agree that the phone cards are a foolish investment, I do not believe the statute limits promotions or sweepstakes to those where the consumer good or product that is the subject of the promotion is deemed by a court to be legitimate or a good deal. As neither the wisdom nor the legitimacy of the promotion is an issue, I can find no basis to deny these machines and cards the exemption provided by the statute.

I would reverse the decision of the circuit court, and hold that these devices are within the ambit of 61-4-580(3), and thus are legal when placed in licensed premises. [10]

ACTING JUSTICE PIEPER: I concur with Justice Pleiconesopinion as to the interpretation of S.C. Code 12-21-2710 and strict construction of 61-4-580. However, since the record is not clear and since the trial court declined to address 61-4-580, I would first remand for a hearing to determine whether the appellants held a permit and allowed the placement of these machines upon licensed premises in accordance with 61-4-580. If the trial court finds upon remand that the permit and licensed premises requirements have been met, I would reverse and hold that the devices are legal pursuant to 61-4-580(3).

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