Injunction On Internet Gambling Fees

Special Report - October 18, 2010
A Cumberland County judge issued an injunction on October 15 to prevent Fayetteville from collecting fees from Internet sweepstakes businesses until after a separate lawsuit concludes to determine whether the city’s imposition of “privilege fees” for operation of the games are legal. The injunction will be in effect until a trial can be held, which may be next year, unless the groups agree on a settlement beforehand.

On October 11, resident Superior Court Judge E. Lynn Johnson heard arguments from attorneys for Fayetteville in support of the fees and in opposition to an injunction on their collection. Judge Johnson also heard from attorney Lonnie Player, Jr., who represents more than a dozen sweepstakes cafes that oppose the fees and requested the injunction to prevent their collection until the separate lawsuit on their merits is completed.

According to the Fayetteville Observer, Player argued that the injunction is necessary to prevent “irreparable harm” to the sweepstakes businesses. He told the court that the privilege license fees of $2,000 per location and $2,500 per terminal will cause many of the cafes in the suit to shut down, fire employees, and possibly file for bankruptcy. According to Player, the tax bills for the businesses he represents range from $32,000 to $200,000. The lawsuit argues that the cafes do not conduct “games of chance” as defined by city ordinance. Additionally, because cities are not allowed under the North Carolina Constitution to classify property for taxation, Player argues that the fees represent an “unfair, unjust, and inequitable exercise” of the city’s taxing power.

According to the Fayetteville Observer, the city’s attorney, Bobby Sullivan, explained that the fees were an “unique tax for a unique type of business.” City officials had estimated in July that at least 28 sweepstakes locations in the city owed more than $1.7 million in collective fees. He explained that the fees were higher than for other businesses because of the additional law enforcement burden presented by sweepstakes gambling locations. In his argument, Sullivan pointed out that the businesses bringing the lawsuit did not provide routine financial information that could have proven the fees would cause irreparable harm. He had argued that the injunction should be denied, and if the injunction were to be granted, asked that the businesses be required to post a bond meant to ensure full payment of the fees should the lawsuit on the merits of the fees rule in favor of the fees. Such a bond was not included in Johnson’s decision.

Johnson issued a temporary restraining order in September that was in effect until October 15, awaiting his final decision.

A similar lawsuit filed in August in Burke County seeks to overturn licensing fees in Fayetteville, Lumberton, Pembroke, Morganton, and Wilmington

In July, the General Assembly passed HB 80—Ban Electronic Sweepstakes, which goes into effect December 1, 2010, and prohibits conducting or promoting sweepstakes activities that involve gambling.

Related resources:
Gambling Operators Sue Cities - August 13, 2010
Perdue Signs Gambling Ban Bill - July 22, 2010
Video Gambling Returns to North Carolina - FNC - Spring 2010
Video Gambling Returns - Part 1 - Interview - April 17, 2010 - (mp3) — (wma)
Video Gambling Returns - Part 2 - Interview - April 24, 2010 - (mp3) — (wma)

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