Last month, the North Carolina Court of Appeals dealt a blow to the skill-based gaming industry by overturning a trial court injunction which barred law enforcement from pursuing criminal charges against the litigants who are alleged to be operating illegal gambling machines in violation of state law. The invalidated injunction had previously provided protection against criminal prosecution for BST USA, a gaming kiosk manufacturer, and Victory Vending Co., an operator of gaming kiosk storefronts, who have asserted that their operation of skill games complies with applicable statute and does not constitute illegal gambling.

Background

The case was initiated in April 2023 when BST and Victory Vending sued state officials, seeking court intervention to prevent the law enforcement from shutting down their gaming kiosk operations and pursuing criminal charges. Forsyth County Superior Court sided with the companies and entered an injunction, prompting state officials to appeal the decision to the North Carolina Court of Appeals.

The N.C. Attorney General’s Office, representing State officials and law enforcement, argued that BST and Victory Vending were violating statutes that prohibited video gambling. The State contended that the gaming model and interface provided by these companies were games of chance rather than skill, constituting illegal gambling which posed a risk of harm to the public and the integrity of the law.

The Legal Battle

Although the State’s motion to stay the injunction was initially denied, the Court of Appeals quickly granted a motion for supersedeas by unanimous decision without an opinion on August 23, 2023, lifting the trial court’s preliminary injunction. By lifting the injunction, state officials are free to investigation and potentially pursue criminal charges against the gaming companies. The Court of Appeals Order provides that the injunction is stayed until the disposition of the appeal or until further order from the court.

BST and Victory Vending have maintained that because their games have a predominant skill element, they are legal and have invested a significant amount – approximately $2 million – in creating gaming platforms that adhere to North Carolina’s gambling laws. The gaming companies argued to the Court of Appeals that sweepstakes are legally compliant with North Carolina statute and prior case law so long as skill predominates of chance, known as the “predominant factor test.” They criticized the state officials for not conducting sufficient discovery and for petitioning the court to overturn the preliminary injunction without a comprehensive review of the merits. Their filings claim that their gaming kiosks are a lawful commercial enterprise and lifting the injunction prior to a full review of the merits of the case exposes them to unfair criminal prosecution.

Implications and Future Steps

With the injunction lifted, the case will proceed with the added risk that law enforcement could choose to pursue charges against BST USA and Victory Vending Co. The decision highlights the ongoing debate over the legality of skill-based games as compared to video gambling and the interpretation of state statutes governing such activities. As the legal process unfolds, it remains to be seen how the court will ultimately rule on the matter.

Recent Political Trends in N.C. Gaming

This case occurs against the backdrop of a swiftly developing legislation that seeks to expand gambling and video gaming in North Carolina, with several proposed bills currently under consideration by the N.C. General Assembly. In addition to the recent passage of sports gambling which becomes effective in 2024, several different locations in North Carolina have been identified as potential sites for non-tribal casinos. Additionally, House Bill 512 proposes the regulation of video gaming terminals which, if passed as currently drafted, would significantly expand the permissibility of a variety of video gaming with the objective of revenue generation for the state.

What You Need to Know

Without resolving the issue of the permissibility of the most recent evolution of skill-based games, the BST USA and Victory Vending Co. case provides a status update of the ongoing battle between the State and the gaming industry. The decision underscores the complexities of navigating state laws in the evolving landscape of digital entertainment and gambling. Additionally, the case serves as a reminder of the criminal risks associated with noncompliance. As the issue unfolds and as legislation competes with judicial rulings to control state policy, it will undoubtedly shape discussions about the boundaries of lawful commercial enterprises and the responsibilities of State regulation.