State top court outlaws coffeehouse Internet gambling

The California Supreme Court dealt a death blow Thursday to Internet “sweepstakes” coffeehouses in the state, ruling that their computerized games played for cash winnings are unlawful.

The so-called sweepstakes games, played by customers who buy time on cafe computers equipped with gaming software, are just another form of casino-style slot machines outlawed in California, a unanimous high court declared.

The cafes that feature computer gambling were a growing trend and an issue to tribal casinos and law enforcement in California up until this year. But on Jan. 1, a new law took effect that effectively bans Internet sweepstakes cafes. Since then, many of the establishments have closed voluntarily and others have been forced to close by public officials.

The new law did not factor in the Supreme Court’s opinion, which says state law already barred such operations.

When someone “plays a game to learn the outcome, which is governed by chance, the user is playing a slot machine,” the court stated in a 28-page opinion. The systems are meant “to re-create the sensation of playing with a device that itself generates the chance element.”

While the customers buy Internet access, they are “clearly paying ... it appears in large part, for the opportunity to play the casino-style sweepstakes games and win cash prizes,” the seven justices stated.

“The Legislature could not have intended and, more importantly, (state law’s) language does not permit the conclusion that a business in California may lawfully operate traditional Las Vegas-style slot machines – with spinning wheels and everything else one associates with slot machines – merely by inserting into them software created elsewhere that presets the results,” Thursday’s opinion says.

The opinion was authored by Justice Ming W. Chin.

For purposes of arguments and its decision, the court consolidated separate civil lawsuits filed in 2012 by Kern County prosecutors seeking to shut down alleged illegal gambling at five Internet sweepstakes cafes in Bakersfield. Kern Superior Court Judge William D. Palmer issued preliminary injunctions halting use of the games pending trial. A three-judge panel of the 5th District Court of Appeal upheld the injunctions, and the cafe owners asked the Supreme Court to consider their plight.

In a related matter, a corporation run by a man who supplied software for one of the cafes targeted in the Kern County civil actions was scheduled to plead guilty Thursday in U.S. District Court in Sacramento to conducting illegal gambling in California, which is a federal felony and exposes the company to a maximum fine of $500,000. The same crime is a misdemeanor in California and carries a maximum fine of $1,000 for the first offense.

Capital Sweepstakes Systems Inc. was charged a week ago by federal prosecutors and was set for arraignment and a plea of guilty Thursday before U.S. District Judge Morrison C. England Jr. Because of the imminent ruling by the state Supreme Court, the proceeding was continued to July 30.

The Minden-Nev.-based company is one of several sweepstakes software distribution companies owned by 44-year-old Don Freels of Granite Bay. Another Freels company is Capital Bingo Solutions Inc., also based in Minden. Capital Bingo supplied the gaming software to the I Zone Internet Cafe owned by John Stidman, a defendant in one of the Kern County civil suits.

Denny Walsh: 916-321-1189