Greenwood Gaming & Entm't, Inc. v. Dep't of Rev.

306 A.3d 319

GREENWOOD GAMING AND ENTERTAINMENT, INC.; Mountainview Thoroughbred Racing Association, LLC; Chester Downs and Marina, LLC; Washington Trotting Association, LLC; Stadium Casino LLC; Valley Forge Convention Center Partners, LP, Downs Racing, LP

v.Commonwealth of Pennsylvania, DEPARTMENT OF REVENUE; Pat Browne, Secretary of the Department of Revenue, in His Official Capacity

Appeal of: Greenwood Gaming and Entertainment, Inc., Mountainview Thoroughbred Racing Association, LLC, and Chester Downs and Marina, LLC

No. 76 MAP 2021

Supreme Court of Pennsylvania.

Argued: April 19, 2023

Decided: December 19, 2023

Appeal from the Order of the Commonwealth Court at No. 571 MD 2018 dated September 8, 2021. Renee Cohn Jubelirer, Judge

Adam Mark Shienvold, Mark Scott Stewart, Esqs., Eckert Seamans Cherin & Mellott, LLC, for Appellants.

Nicole Jeanne Boland, Karen Mascio Romano, Michael John Scarinci, Pennsylvania Office of Attorney General, 16th Floor, Strawberry Square, Harrisburg, PA, for Appellees.

TODD, C.J., DONOHUE, DOUGHERTY, WECHT, MUNDY, BROBSON, JJ.

OPINION

JUSTICE DONOHUE

Since 2017, the state lottery and privately-owned casinos have been able to operate online subject to legislative restrictions on the products each may offer in that space. At issue in this appeal is the scope of those restrictions, and consequently, the boundaries of the territories in which each may operate. Greenwood Gaming and Entertainment, Inc., Mountainview Thoroughbred Racing Association, LLC, Chester Downs and Marina, LLC, Washington Trotting Association, LLC, Stadium Casino, LLC, Valley Forge Convention Center Partners, LP and Downs Racing, LP ("Casinos") filed suit against the Pennsylvania Department of Revenue ("Department"), contending that games offered by the Lottery online impermissibly simulate slot machines, thereby violating the restrictions imposed by the General Assembly and infringing on the Casinos’ share of the online market. The Commonwealth Court disagreed and dismissed their complaint. For the reasons that follow, we find that the Commonwealth Court erred in its statutory interpretation by focusing on the individual components of an iLottery game. We conclude that the determination of whether an iLottery game violates the statutory prohibition against simulating a slot machine involves a subjective assessment of the game’s appearance and effect when in play. We therefore vacate the order of the Commonwealth Court and remand for further proceedings.

By way of background, we note that the State Lottery Law ("Lottery Law"),¹ enacted in 1971, created Pennsylvania’s state-run lottery ("Lottery"), the net proceeds of which provide benefits and services to Pennsylvanians over the age of sixty-five. 72 P.S. §§ 3761-301, 3761-311, 3761-501. The Department is charged with administering the Lottery, which includes promulgating rules and regulations relating to its operation. Perhaps the most universally-recognizable lottery games are scratch tickets, or "scratchers," which are printed tickets overlaid with a substance that the player removes to reveal symbols or numbers. The Lottery also offers draw games, in which a player selects numbers for a jackpot drawing,² as well as the monitor-based games Keno and Xpress Sports, and raffles. Privately operated gaming came to Pennsylvania in 2004 by virtue of the Race Horse Development and Gaming Act ("Gaming Act").³ The Gaming Act first authorized only slot machine play, but this was later expanded to allow table games, including poker, roulette, blackjack, craps and baccarat. See 4 Pa. C.S. § 1103.

With time and technology, lotteries and casinos in other jurisdictions began to offer their products via the internet. While our General Assembly was quick to acknowledge this change in the gaming landscape, it did not immediately embrace it. In 2014, the General Assembly amended the Lottery Law to add provisions prohibiting the Department from offering a new species of game called "internet instant games" unless specifically authorized by law. The amendments defined "internet instant games" as lottery games "in which, by the use of a computer, tablet computer or other mobile device, a player removes the covering from randomly generated numbers or letters which reveal whether the instant ticket is a winning ticket for which money is paid." 72 P.S. § 3761-302. In addition to the restriction against offering internet instant games, the 2014 amendments also prohibited the Lottery from offering "any Internet-based or monitor-based interactive lottery game or simulated casino-style lottery game, including video poker, video roulette, slot machines or video blackjack[.]" 72 P.S. § 3761-303(a.1) ("Section 303(a.1)").

Despite its earlier reticence, in 2017 the General Assembly took steps to allow the Lottery and casinos to operate online. Through Act 42,⁴ the General Assembly amended the Lottery Law and the Gaming Act to allow expansion into the virtual world. Act 42 authorized the creation of "iLottery," a platform through which players access lottery products,⁵ and the offering of "iLottery games," which it defined as "[i]nternet instant games and other lottery products offered through iLottery. The term does not include games that represent physical, Internet-based or monitor-based interactive lottery games which simulate casino-style lottery games, specifically including poker, roulette, slot machines or blackjack." 4 Pa.C.S. § 502 ("Section 502"). Within Section 502, the General Assembly also included a definition of "internet instant game" that differs from the definition it used when amending the Lottery Law in 2014. Act 42 defines internet instant game as follows:

Internet instant game. A lottery game of chance in which, by the use of a computer, tablet computer or other mobile device, a player purchases a lottery play, with the result of play being a reveal on the device of numbers, letters or symbols indicating whether a lottery prize has been won according to an established methodology as provided by the lottery.

Id.

Act 42’s amendments allowed casinos to offer "interactive gaming," defining "interactive game," inter alia, as "[a]ny gambling game offered through the use of communications technology that allows a person, utilizing money, checks, electronic checks, electronic transfers of money, credit cards or any other instrumentality to transmit electronic information to assist in the placement of a bet or wager and corresponding information related to the display of the game, game outcomes or other similar information[,]" but expressly excluding "[a] lottery game or [i]nternet instant game as defined in [the Lottery Law]" and " iLottery under Chapter 5 (relating to lottery)." 4 Pa.C.S. § 1103. The Department began offering iLottery games on May 22, 2018, while casinos that had obtained the proper licenses began offering interactive gaming in July 2019.

In August 2018, during the period between the launch of iLottery and interactive casino gaming, the Casinos filed a petition for review in the Commonwealth Court, alleging that the Department was offering iLottery games that simulate slot machines in violation of Section 502 and Section 303(a.1).⁶ They asked the court to declare that the Lottery was so violating the law and to enjoin the Lottery from offering any such offending games. Peti- tion for Review, 8/22/2018, at 19.⁷

In October 2020, a five day trial commenced, at which the Casinos focused on what they deemed to be features, both in the technical design of the games and in features observable by players, that caused the iLottery games to simulate slot machines. The technical aspects included the use of random number generators, par sheets, certification of their mathematical model and the use of a return to player ratios ("RTP") similar to slot RTFs. As for customer-facing features, the Casinos alleged that iLottery games mimic the way that slot machines reveal wins, and that their use of reveal all and auto play functions, the availability of bonus games and adjustable bets, and the use of unlimited play and nondepleting prize pools are all characteristics of slot machines and therefore, any iLottery game that utilizes these features impermissibly simulates a slot machine. In its defense, the Department conceded that iLottery games do incorporate most of the features identified by the Casinos; however, it argued, those features are not unique to slot machines. Rather, the Department maintained that those features are found in traditional lottery products. The Department contended that the only defining features of slot machines are spinning reels and pay lines, and because no iLottery games use those features, they cannot simulate slot machines. The Department presented a robust body of evidence in support of its position, including the testimony of Michael Lightman, who was offered as an expert in the development and design of slot-style games, internet slot games, and iLottery games.⁸ Mr. Lightman’s opinion provided the basis for the Department’s position that that the defining features of slot machines are spinning reels and pay lines, such that without their presence, an iLottery game could not be deemed to simulate a slot. N.T., 10/29/2020, at 970.

In the end, the Commonwealth Court agreed with the Department. The court determined that resolution of the Casinos’ claims turned on determining "whether the legislature intended iLottery games to merely be online versions of instant tickets … and … what the legislature intended to authorize and prohibit when it described the prohibition as relating to the simulation of ‘casino-style’ games." Commonwealth Court Opinion, 5/25/2021, at 29. It answered the first question in the negative. It recognized that in Section 502, the General Assembly provided a definition for "internet instant game" that differed from the definition contained in the Lottery Law. The court observed that the definition contained in the Lottery Law...