HomePublicationsNewsletter ArchiveVolume 27Issue 17Michigan Court of Appeals Hears Arguments on Request for Declaratory Ruling on Games

In February of 2020 the Michigan Gaming Control Board (“MGCB”) issued a press release announcing that more than a dozen businesses (including the Waterford Redemption Center and the Burton Redemption Center) were issued cease-and-desist orders to stop offering illegal gambling games during 2019 through a joint enforcement effort by Michigan Attorney General Dana Nessel’s office and the MGCB.

“Illegal gambling can lead to money laundering and other crimes that impact the safety and security of Michigan communities,” said Richard S. Kalm, Michigan Gaming Control Board (“MGCB”) executive director at the time. “Legal gambling is taxed and regulated, and taxes go back into the community as funding for K-12 education. An illegal gambling operation doesn’t support the community but instead siphons funds away from it.”

According to a press release issued at the time:

“MGCB investigators visited 14 businesses that claimed to operate redemption games, which are legal in Michigan. Investigators determined the locations instead were offering casino-style video slot machines for patrons’ use. Outcomes on these types of machines are based on chance and not on skill.”

“When given the opportunity to cease operations, each location chose to close rather than face potential criminal charges,” Kalm said. “An unlicensed gambling business operator can face a 10-year felony charge.”

 

https://www.michigan.gov/mgcb/0,4620,7-351-79131_57111-519419--,00.html

“Gambling regulations are in place for a reason, and when bad actors choose to ignore the law, they must be held accountable,” Attorney General Dana Nessel said. “We’re grateful for the opportunity to work with our partners at the Michigan Gaming Control Board in putting a stop to these illegal operations.”

Last week, the Michigan Court of Appeals heard oral arguments in the case of Waterford Redemption Center v. Michigan Gaming Control Board, in which the plaintiffs sought declaratory relief to try to nullify a cease and desist letter that they had received from the MGCB with regard to their operation of facilities with various forms of games which the MGCB determined were illegal.   The Court of Claims in Michigan summarily dismissed the plaintiffs’ case in the lower court proceedings, and the operators involved appealed.   The oral argument can be viewed at the following link, starting at the 1:39 point:  https://www.youtube.com/watch?v=6m-ykfuLwjs

Robert W. Stocker, II, attorney for the Waterford Redemption Center and the Burton Redemption Center, said his clients shut down their businesses in light of the cease and desist letter.  He argued that unless his clients can obtain declaratory relief from the courts, they will be required to reopen the businesses and face possible criminal sanctions to get a ruling on the matter.

Assistant Attorney General Felepe Hall argued that the recently passed Lawful Internet Gaming Act (“LIGA”) makes it clear that these games are illegal. The Assistant Attorney General argued that even if LIGA does not apply, the Court of Claims had been correct in granting summary disposition, as the issues involved are factual issues rather than a challenge to the constitutionality of a statute.  He went on to note that the operations involved had other problems with complying with the Michigan redemption game standards.  He likened the situation to that of a corner druggist operating without a pharmacy license.  He suggested that the operators should remain shut down given the problems with their operations fitting within the Penal Code exemptions.  

MCL 750.301, a provision of the Michigan Penal Code, makes it clear that it is unlawful in Michigan to accept money or a valuable thing contingent on any type of uncertain outcome. 

750.301 Accepting money or valuable thing contingent on uncertain event.

Sec. 301. Any person or his or her agent or employee who, directly or indirectly, takes, receives, or accepts from any person any money or valuable thing with the agreement, understanding or allegation that any money or valuable thing will be paid or delivered to any person where the payment or delivery is alleged to be or will be contingent upon the result of any race, contest, or game or upon the happening of any event not known by the parties to be certain, is guilty of a misdemeanor punishable by imprisonment for not more than 1 year or a fine of not more than $1,000.00.

 

MCL 750.310b creates exceptions to this broad prohibition for “redemption games” meeting various technical requirements and that are subject to operational limitations.   According to the MGCB press release issued last year, the redemption game requirements were not being met by the operators involved.  

As reported in The Michigan Gaming newsletter Volume 27, Issue 13, the American Gaming Association recently issued a White Paper entitled “SKILLED AT DECEPTION: How Unregulated Gaming Machines Endanger Consumers and Dilute Investments in Local Economies”.  The top recommendation that the AGA made in the whitepaper is the following:

Law enforcement and policymakers must prioritize robust enforcement of laws to root out illegal and unregulated gaming machines. This includes enforcing laws already in force but also clarifying the law to make the illegality of these machines clear where any ambiguity exists.

If the Court of Claims decision is upheld by the Court of Appeals in the Waterford Redemption Center case, the MGCB’s practice of issuing cease and desist letters to operations that they view as violating the law can continue.  Alternatively, if the Court of Appeals reverses the case, the Michigan Court of Claims may then be put in the position of making determinations with regard to ambiguous gaming machines and whether they fit within exemptions existing under the Penal Code.  

Court of Appeals decisions typically take several months to be decided after oral arguments, thus a ruling on the case may be issued later this summer.

 

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