Crazie Overstock Promotions, LLC v. State

858 S.E.2d 581

CRAZIE OVERSTOCK PROMOTIONS, LLC

v.STATE of North Carolina; and Mark J. Senter, in his official capacity as Branch Head of the Alcohol Law Enforcement Division

No. 345PA19

Supreme Court of North Carolina.

Filed June 11, 2021

Morningstar Law Group, Durham, by Keith P. Anthony and William J. Brian, Jr., for plaintiff-appellant.

Joshua H. Stein, Attorney General, by Olga E. Vysotskaya de Brito, Special Deputy Attorney General; Ryan Y. Park, Solicitor General; and James W. Doggett, Deputy Solicitor General, for the State-appellees.

Edmond W. Caldwell, Jr., and Matthew L. Boyatt, for North Carolina Sheriffs’ Association; Fred P. Baggett, for North Carolina Association of Chiefs of Police; and Jim O'Neill, for North Carolina Conference of District Attorneys, amici curiae.

ERVIN, Justice.

¶ 1 This case arises from an enterprise developed and operated by plaintiff Crazie Overstock, LLC, which has sought in this litigation to enjoin enforcement measures taken by the State and certain members of the State's Alcohol and Law Enforcement Division¹ stemming from the belief that a Rewards Program encompassed within the operation of Crazie Overstock's enterprise violates various provisions contained in Article 37 of Chapter 14 of the North Carolina General Statutes. For the reasons set forth in more detail below, we modify and affirm the decision of the Court of Appeals.

¶ 2 Crazie Overstock sells discount goods, such as furniture, jewelry, kitchen goods, movies, music, and electronics on its website and through licensed retail establishments which are operated by independent owners. Although Crazie Overstock's customers have the ability to view the goods that are offered for sale, both in these retail establishments and on Crazie Overstock's website, the goods in question may only be purchased through its website.

¶ 3 The retail establishments through which Crazie Overstock operates feature a "showroom" in which samples of the goods that are available through Crazie Overstock's website are displayed. In addition, these retail establishments contain computers, which Crazie Overstock refers to as "order stations," that are connected to the internet and through which customers have the ability to order products from Crazie Overstock's website. In addition, customers are also entitled to place orders through Crazie Overstock's website from any location at which an internet connection is available. Crazie Overstock's customers have the ability to either order goods through the website using a credit card or to purchase electronic gift certificates at retail establishments which the customer can use to purchase goods through Crazie Overstock's website.

¶ 4 The customers who purchase gift certificates at the retail establishments through which Crazie Overstock operates pay $1.00 for each $1.00 of credit that is available in connection with a particular gift certificate. Each customer who purchases a gift certificate receives a receipt bearing a number which can be registered with and credited to the customer's account, which, in turn, can be accessed using an individual username and password at an order station or on any device that is connected to the Crazie Overstock website through the internet. In view of the fact that the value of any gift certificate that a customer may purchase is not automatically loaded into the customer's account, gift certificates may be freely transferred from the customer to other persons. Although customers may utilize gift certificates to purchase goods through the Crazie Overstock website, any such purchases involve separately stated shipping and handling charges that the customer must cover using a credit card.

¶ 5 The portion of Crazie Overstock's enterprise that underlies this case is known as the Rewards Program and revolves around the use of gift certificates to play two electronic games. In order to play these games, a customer is required to obtain Game Points by either (1) purchasing a gift certificate, with 100 Games Points being provided to the customer for every $1.00 that the customer pays in order to purchase that gift certificate; (2) "mailing a handwritten post card ... contain[ing] the [customer's] name; address; city; state; zip code; age; date of the request for Game Points; and the name and store address" at which the points are to be used; (3) making an "in-store request from the cashier at a Retail Establishment's point-of-sale terminal"; or (4) "through the award of bonus Game Points by Retail Establishments to customers who purchase certain amounts of gift certificates." After obtaining the required Game Points, the customer may use them to play the two electronic games.

¶ 6 In the first of the two electronic games, which consists of a game of chance called the Reward Game, the customer is entitled to utilize Game Points for the purpose of attempting to win Reward Points. The Reward Game features eighteen reel-spinning games which are played on an electronic machine during which various icons appear when the reel is spun. The results derived from playing the Reward Game are "drawn randomly for each of the [eighteen] different Reward Games ... from a finite pool of possible results," with "some results [being] associated with Reward Points while others are not." A customer who is successful in playing the Reward Game receives a number of Reward Points equal to a multiple of the number of Game Points which the customer utilized in order to play the Reward Game. In the event that the customer is unsuccessful during his or her attempts to play the Reward Game, he or she is still awarded 100 Reward Points.

¶ 7 After playing the Reward Game, the customer is entitled to take the Reward Points that he or she earned playing the Reward Game and utilize them to participate in a game of skill called the Dexterity Test. The Dexterity Test involves the use of a simulated stopwatch that counts from 0 to 1,000 and back at a rapid rate. During the course of the Dexterity Test, the customer is allowed three attempts to stop the stopwatch on a number as close to 1,000 as possible, with the customer being awarded Dexterity Points based upon his or her best result. In the event that the customer stops the simulated stopwatch at a point between 951 and 1,000, one-hundred percent of the Reward Points that the customer used to play the Dexterity Test are converted to Dexterity Points, which can be redeemed for a cash payment calculated at the rate of $1.00 for every 100 Dexterity Points. In the event that the customer stops the simulated stopwatch at a point between 901 and 950, ninety percent of the Reward Points that the customer used to play the Dexterity Test are converted to Dexterity Points. In the event that a customer stops the simulated stopwatch at a point between 801 and 900, fifty percent of the Reward Points that the customer used to play the Dexterity Test are converted to Dexterity Points. In the event that the customer stops the simulated stopwatch at a point between 0 and 800, he or she does not win any Dexterity Points. On the other hand, the Reward Points that any such unsuccessful customer utilized to play the Dexterity Test are converted into Game Points so as to allow the customer to play the Reward Game in the hope of winning additional Reward Points.

¶ 8 The record reflects that ninety-five percent of the customers who play the Dexterity Test successfully stop the simulated stopwatch at a point above 800 on at least one of their three attempts so as to win some amount of money. As a result, a customer who successfully plays the Reward Game and proceeds to play the Dexterity Test will likely recoup some portion of the money that he or she utilized in purchasing the gift certificate that allowed him or her to play the games. However, in the event that the customer does not successfully play the Reward Game, the cash price that he or she is able to win is limited to a maximum of $1.00. In addition, the customer retains the full value of the gift certificate that he or she purchased and is entitled to use it to purchase merchandise from Crazie Overstock's website.

¶ 9 On 24 May 2016, Crazie Overstock filed a complaint against defendants in which it sought (1) a declaratory judgment that the Rewards Program is lawful and did not violate N.C.G.S. §§ 14-289 (prohibiting the advertisement of lotteries), 14-290 (prohibiting "[d]ealing in lotteries"), 14-292 (prohibiting gambling, defined as "any game of chance or any person who plays at or bets on any game of chance at which any money, property or other thing of value is bet, whether the same be in stake or not"), 14-306 (defining slot machines), 14-306.1A (prohibiting the use of video gaming machines, including a "video game not dependent on skill or dexterity that is played while revealing a prize as the result of an entry into a sweepstakes"), 14-306.3 (prohibiting certain game promotions), 14-306.4 (prohibiting the operation of "an electronic machine or device" to play a "video game not dependent on skill or dexterity that is played while revealing a prize as the result of an entry into a sweepstakes," with a "prize" being "any gift, award, gratuity, good, service, credit, or anything else of value"), or "any other applicable law of this State"; (2) permanent injunctive relief; (3) a request for a declaratory judgment that Director Senter and Agents McMurray, Poole, Doward, and Redd had deprived Crazie Overstock of its constitutional right to procedural due process; (4) prospective injunctive relief against Director Senter and Agents McMurray, Poole, Doward, and Redd based upon alleged violations of 42 U.S.C. § 1983 ; and (5) damages against Agents McMurray, Poole, Doward, and Redd, in their individual capacities, jointly and severally, for violations of 42 U.S.C. § 1983. The injunctive relief that Crazie Overstock sought in its complaint included enjoining defendants from (1) warning or threatening any current or potential...