F.A.C.E. Trading, Inc. v. Todd

ELDRIDGE, J. The issue in this case is whether games of chance, based upon tickets or coupon cards which can be purchased from a dispensing machine for one dollar each, and which offer consumers the chance to win cash prizes, constitute illegal “gaming devices” or “games” under Maryland Code (2002, 2004 Repl.Vol.), § 12-101(d)(1)(ii) of the Criminal Law Article, and are punishable as misdemeanors under § 12-104 of the Criminal Law Article. 1 We shall hold that the games of chance here ³⁶⁶ involved are illegal and punishable under §§ 12—101(d) and 12-104. I. This case was decided in the Circuit Court for Worcester County by a grant of the defendant’s motion for summary judgment. As such, “ ‘[w]e review the record in the light most favorable to the non-moving party [here the plaintiff] and construe any reasonable inferences which may be drawn from the facts against the movant.’” Lee v. Cline, 384 Md. 245, 248 , 863 A.2d 297, 299 (2004), quoting Walk v. Hartford Casualty, 382 Md. 1, 14 , 852 A.2d 98, 106 (2004). See, Maryland Rule 2-501; Charles County Commissioners v. Johnson, 393 Md. 248, 263 , 900 A.2d 753, 762 (2006); Jurgensen v. New Phoenix, 380 Md. 106, 114 , 843 A.2d 865, 869 (2004); Sadler v. Dimensions Healthcare Corp., 378 Md. 509, 533 , 836 A.2d 655, 669 (2003); Remsburg v. Montgomery, 376 Md. 568, 579-580 , 831 A.2d 18, 24 (2003); Rite Aid v. Hagley, 374 Md. 665, 684 , 824 A.2d 107, 118 (2003); Lovelace v. Anderson, 366 Md. 690, 695 , 785 A.2d 726, 728 (2001), and cases there cited.

Appellant, F.A.C.E. Trading, Inc., doing business as Face Card Promotions, is engaged in the business of marketing and distributing Ad-TabsTM. These are coupon cards or tickets which can be purchased from a dispensing machine for one dollar each. 2 With the purchase of these coupon cards, consumers receive discounts on various consumer products and the chance to win cash prizes. F.A.C.E. Trading licenses retail establishments and restaurants in over 30 states to ³⁶⁷ carry the dispensing machines, with the coupon cards, for the use of their customers. One such dispensing machine was located in “Captain’s Pizza,” a restaurant in West Ocean City, Maryland, licensed by F.A.C.E. Trading to have the machine.

That particular machine offered consumers the option to purchase coupon cards or tickets giving them discounts on consumer products ranging from $5.00 to $30.00 from four companies which were Campbell’s Soup, Dart World, Sports Bar Clothing and Zippo Brand Products. Different coupon cards related to different products, and the amounts of the discounts, as well as the conditions, varied. In operating the machine, the customer could select which company’s products the coupon card would relate to. The coupon cards purchased from the machine also included pull-tabs offering consumers the chance to win cash prizes.

The machine was located directly adjacent to a Maryland State Lottery machine. In the windows of Captain’s Pizza and on the face of the Ad-Tab™ machine were various advertisements, which in large, bold type informed consumers of the chance to win a cash prize by using the machine. Located on the side of the Ad-Tab™ machine were mail-in cards, which customers could send in for a free chance to win the cash prizes. There was also a toll-free telephone number which could be called for a free entry.

The free chance to win was limited to one entry per family per day. In a letter to F.A.C.E. Trading’s attorney dated May 20, 2002, Joel J. Todd, State’s Attorney for Worcester County, informed the attorney for F.A.C.E. Trading that “I have instructed my investigator to see to it that the Ad-Tab dispenser located at Captain’s Pizza at the White Marlin Mall be removed as soon as possible.” In response, F.A.C.E. Trading instituted the present action by filing in the Circuit Court for Worcester County a complaint for a declaratory judgment and injunctive relief against the State’s Attorney. F.A.C.E. Trading requested the court to declare that the Ad-Tab™ machine and the coupon cards did not constitute illegal gaming and/or lottery and to enjoin the State’s Attorney from ³⁶⁸ prohibiting or interfering with the sales and marketing of the coupon cards in Captain’s Pizza. After commencement of the action, the State’s Attorney, represented by the Maryland Attorney General’s Office, filed a motion for summary judgment with supporting affidavits, asserting that the material facts were undisputed. 3 One such affidavit was from Thomas V. Manzari, an investigator for the Maryland State Lottery Agency.

Mr. Manzari stated that on March 14, 2002, he traveled to Captain’s Pizza in response to a report filed by a field representative about the presence of an illegal lottery machine. Mr. Manzari stated that, upon arriving at Captain’s Pizza, he “saw a pull-tab machine that had pull-tab tickets inside it. The machine displayed a sign that said you could win various amounts from $50 to $200.” Mr. Manzari also stated that he inserted $20.00 into the machine and received 20 tickets. The 20 tickets consisted of four different types, one of which was “entitled ‘Double Money II.’ ” Four of the 20 tickets were one dollar winners, and he cashed in three of them, receiving three dollars from Terry Koshi, a person who identified herself as the manager of Captain’s Pizza.

According to Mr. Manzari, “Terry Koshi kept the three winning tickets after she paid me for them.” Mr. Manzari further stated that “[t]he front of the dispenser machine did not refer to receipt of merchandise, discount coupons, or free tickets” and that he did not see any reference elsewhere on the machine or on the front of the tickets to those alleged offers. He said that the front of each ticket referred only to the chance to win cash prizes along with the logo of the companies offering the discount coupon. The product discount information was on the back of each ticket. Additionally, the State attached the affidavits of Jeff R. Mayne, an investigator for the State’s Attorney for Worcester County, and Ruth Geddie, a District Manager for the Maryland State Lottery Agency.

Both Mr. Mayne and Ms. Geddie stated that the machine on the premises of Captain’s Pizza ³⁶⁹ dispensed pull-tab tickets for one dollar each, that the front of the machine contained an advertisement offering consumers the chance to win cash prizes, and that neither the front of the machine nor the fronts of the tickets contained any mention of product discounts, free tickets or receipt of merchandise. Mr. Mayne said that he “put $1.00 into the machine and received a ticket entitled ‘Double Money II,’ ” and that he “was able to choose between different styles of tickets.” Mr. Mayne further stated that when he visited Captain’s Pizza on March 20, 2002, there were free entry forms affixed to the side of the machine which could be used by consumers to obtain free chances to win cash prizes. In its motion and supporting memorandum, the State argued that the Ad-Tab™ machine constituted an illegal slot machine under Maryland Code (2002, 2004 Repl. Vol), § 12-301 of the Criminal Law Article.

The State also argued that the game of chance involving the coupon cards and the machine constituted illegal gaming under § 12-101(d) of the Criminal Law Article, and constituted an illegal lottery under §§ 12-201 el seq. of the Criminal Law Article. The State requested the court to enter a declaratory judgment that the machines were illegal slot machines, and that the scheme constituted illegal gaming and/or lottery. The State argued that the Ad-Tab™ machines and the cards themselves had all the elements of illegal gambling, namely that consideration is given for the chance to win a prize or reward. The State further alleged that the product discounts provided for on the backs of the coupon cards that were being sold were merely pretexts for illegal gambling activities.

F.A.C.E. Trading responded by filing its own motion for summary judgment and opposition to the State’s motion, with supporting affidavits. F.A.C.E. Trading argued that the Ad-Tab™ machines were not slot machines because they did not fit within the definition of “slot machine” set forth in § 12-301 of the Criminal Law Article. F.A.C.E. Trading further argued that the coupon cards did not constitute illegal gaming and/or lottery devices because they offered consumers the opportunity to purchase valuable products at discounts and ³⁷⁰ that the chances to win cash prizes were merely incidental to the purchases of the products. F.A.C.E. Trading contended that the advertisements, some of which are contained in the record, made clear that the purpose of the machine was to dispense coupon cards for discounts on various products.

Furthermore, F.A.C.E. Trading claimed that the existence of mail-in cards and a toll-free telephone number, which consumers could use to obtain free chances to win the cash prizes, confirmed that the promotion did not constitute illegal gambling. The advertisements, which F.A.C.E. Trading described in its motion and attached affidavits, were posters and placards in the windows of Captain’s Pizza, inside the restaurant, and on the front of the machine. They informed consumers that coupons were available for such things as a ten dollar discount on a case of Campbell’s Soup or Pork & Beans, thirty dollars in discounts on sports clothing from “Sports Bar,” and discounts on merchandise from “Dart World.” 4 The signs also stated that no purchase was necessary for the chance to win a cash prize. Consumers were referred to the mail-in forms and to the toll-free telephone number which they could use to obtain free chances to win.

Attached to F.A.C.E. Trading’s motion for summary judgment and response were the affidavits of Sandra Mitchell, President of F.A.C.E. Trading, Kenneth Glass, President of Wholesale Communications, Inc., and Robert Mitchell, President of Y.M. Ad Inc., companies which advertise and market products using Ad-TabTM coupon cards. Each of the three affiants stated that the Ad-TabTM promotion offers consumers valuable products, namely coupon cards worth at least five times the amounts paid for them, providing for product dis ³⁷¹ counts from reputable retail and/or wholesale establishments. They further stated that, pursuant to the licensing agreements, entry in the chance to win portion of the coupon card game was with a “no-purchase necessary” qualifier offering consumers mail-in cards and a toll-free telephone number which they could use to receive free chances to win cash prizes up to $300.00. This was advertised to consumers through the use of posters, starbursts, placards, and was even printed on the tickets themselves.

Furthermore, the affiants stated that this form of advertising is conducted by several major corporations with a presence in Worcester County, including, McDonald’s, Burger King and Coca-Cola, yet none of those companies’ promotional schemes had been challenged. Most of the advertisements for the Ad-Tabs™ in Captain’s Pizza, however, failed to specify the nature of the discounts which the coupon cards offered, the steps that had to be taken to redeem the coupon cards, or the type of merchandise that could be purchased with the cards. For example, when a consumer purchased a coupon card with Campbell’s Soup discount information on the back, the consumer was required to send the card and sixteen dollars to Campbell’s Soup, indicating which type of soup or beans the consumer wished to purchase, and the case of soup or beans would then be delivered to the consumer’s home within 4-6 weeks. The advertisements failed to indicate to the consumer, before he or she purchased the coupons, the types of soup or beans that were being offered, the requirement of sending in an additional sixteen dollars, or that the consumer would not receive the product for at least a month.

Additionally, while a consumer could select which company’s products a coupon card would relate to, when the consumer purchased the coupon card he or she did not learn the nature of that company’s merchandise until after the purchase was completed and the consumer read the coupon card itself. In fact, one advertisement offered the consumer thirty dollars off clothing from “Sports Bar,” but failed to specify that the discount required the consumer to purchase ninety dollars worth of clothing. In contrast, the advertisements for the ³⁷² chance to win a cash prize were in large, bold print and bright colors, and contained the picture combinations that would produce a winning coupon card. On some of the advertisements, there was either no mention of the product discount portion of the coupon cards, or the reference to that portion was in significantly smaller print than the reference to the chance to win cash prizes.

Also attached to F.A.C.E. Trading’s motion and affidavits was a chart from Y.M. Ad Inc., entitled “Coupon Redemption Rates,” setting forth the number of Ad-TabTM coupon cards redeemed on Dart World products, Zippo “engraved money clips,” and clothing from Sports Bar Clothing, and the percentage redemption rate for each. Out of 2 million Ad-TabTM coupon cards sold for Dart World products, 296,010 were redeemed for a 15% redemption rate. Out of 1.7 million AdTabTM coupon cards sold for Zippo engraved money clips, 31,485 were redeemed for a 1.8% redemption rate. Out of 550,000 Ad-TabTM coupon cards sold for “assorted” Sports Bar Clothing items, 5,483 were redeemed for a 1% redemption rate. 5 F.A.C.E. Trading argued in its summary judgment motion that the facts of the present case were similar to those in Mid-Atlantic Coca-Cola v. Chen, 296 Md. 99 , 460 A.2d 44 (1983), where this Court held that Mid-Atlantic’s offer of a valuable prize to consumers, who purchased a 6 or 16oz. soft drink with a winning bottle cap, did not constitute an illegal lottery but was incidental to the purchase of the product.

The opinion in that case, inter alia, pointed out that Mid-Atlantic allowed consumers a free chance to win, and did not raise the price of the products, the purchase of which offered the chance to win a prize during the promotion. The Court in Mid-Atlantic Coca-Cola concluded that no consideration was paid for the chance to win the prize. ³⁷³ The Circuit Court in the case at bar granted the State’s motion for summary judgment, filed an eight-page declaratory judgment, and denied F.A.C.E. Trading’s request for injunctive relief. The trial court declared that the Ad-Tab™ coupon card game constituted illegal gaming and/or lottery, and that the coupon cards could not be sold in Worcester County. The court further held that the dispensing machine alone did not qualify as an illegal slot machine, as defined in § 12-301 of the Criminal Law Article, because “the element of chance is [in] the Ad-Tabs, not in the operation of the machine.” The court distinguished the present case from Mid-Atlantic Coca-Cola v. Chen, supra, 296 Md. 99 , 460 A.2d 44 , stating: “In Mid-Atlantic, a consumer could obtain six no-purchase-necessary chances to win every day.

In addition, the campaign was widely publicized and the price of the soft drink remained the same before and after the game. “However in the instant case, the official rules enunciate that ‘participants will be allowed one [free] entry per day per family....’ This factual distinction between Mid-Atlantic and the case sub judice is unavoidable. The obvious implication is that some consumers are required to pay consideration to participate in the game of chance. Accordingly, the element of consideration is present as applied to some, and for that reason the game qualifies as an illegal lottery.” The trial court continued: “This Court further observes that the undisputed facts support the supposition that the Ad-Tab campaign is a pretext, designed to evade Maryland’s gambling statutes. The Court of Appeals has repeatedly noted that it is very difficult, if not impossible, for the most ingenious and subtle mind to devise any scheme or plan, short of a gratuitous distribution of property, which has not been held by the courts of this country to be in violation of the lottery or gaming laws ... in the various States of the Union.” In concluding that the Ad-Tab™ coupon card game constituted illegal gaming and/or lottery, the Circuit Court empha ³⁷⁴ sized the “obscure nature” of the product discounts that were being offered and stated that “it is the position of [the] Court that the chance to win money is not incidental to the purchase of [product discount] coupons, but rather the purchase of [such] coupons [is] incidental to the game of chance.” As an example, the trial court explained that one coupon card offered the consumer a discount on a Zippo product, but to obtain the product the consumer first had to mail-in three Ad-Tab™ proofs of purchase along with thirteen dollars.

The consumer in that instance was never given a complete description of the product, nor was the consumer offered any indication of its value before sending away for the product. Although the record indicated that a small percentage of the coupon cards were redeemed, the Circuit Court concluded that the principal function of the Ad-Tab™ machine-card operation is the game of chance. F.A.C.E. Trading appealed to the Court of Special Appeals. Before argument in the intermediate appellate court, this Court issued a writ of certiorari.

F.A.C.E. v. Todd, 379 Md. 224 , 841 A.2d 339 (2004).

II

F.A.C.E. Trading argues on this appeal, as it did in the trial court, that the game of chance is incidental to the purchase of valuable coupon cards providing discounts on consumer merchandise. F.A.C.E. Trading maintains that the facts of the instant case are similar to those in Mid-Atlantic Coca-Cola v. Chen, supra, and that this Court should reverse the decision of the trial judge based upon the holding in that case. The State relies on the definition of “gaming device” found in § 12-101(d) of the Criminal Law Article, arguing that the illegality of the Ad-Tab™ game is based solely on that definition, and asserting that “the question presented in this case is not whether [the] pull-tab game constitutes ‘an illegal lottery.’ ” (Appellee’s brief at 9). While noting that the essential elements of all forms of gambling are the same, namely consideration for the chance to win a prize or reward, ³⁷⁵ the State points out that lotteries have been viewed in a separate category from other forms of gaming.

(Id. at 9-10). This is because of additional considerations under the Maryland Constitution. 6 The constitutional prohibition against “lottery grants,” where applicable, is very sweeping; consequently, the prohibition’s applicability has been narrowly construed in more recent cases. The Legislature has exempted various other forms of “gaming,” however, from gambling prohibitions and made them legal. See American Legion Post No. 10 v. State, 294 Md. 1, 5-9 , 447 A.2d 842 (1982) (discussing the distinction under Maryland law between games of chance and lotteries, and pointing out that a “lottery” has a narrow meaning in Maryland); Bender v. Arundel Arena, 248 Md. 181, 189-195 , 236 A.2d 7 (1967) (same), and cases there cited.

In this Court, therefore, the State concedes that the Ad-Tab™ game at Captain’s Pizza does not fall within the illegal lottery prohibition in §§ 12-201 et seq. of the Criminal Law Article. We hold that the Circuit Court correctly declared that the Ad-Tab™ coupon card game constitutes illegal gaming prohibited by §§ 12—101(d) and 12-104 of the Criminal Law Article. The Ad-Tab™ game has all of the elements of gambling, namely that consideration is paid for the chance to win a prize or reward. Unlike the situation in Mid-Atlantic Coca-Cola v. Chen, supra, the Ad-Tab™ game of chance is not incidental to the purchase of products.

Instead, as the Circuit Court held, the product discount aspect of the operation is merely incidental to the game of chance. In light of the State’s position that the Ad-Tab™ game is not an illegal lottery within the meaning of § 12-201 et seq. of the Criminal Law Article, we need not, and shall not, decide ³⁷⁶ the lottery issue. 7 Accordingly, we shall modify the declaratory judgment so as to delete the declaration that the Ad-Tab™ game is an illegal lottery and, as modified, affirm.

III

Although gambling was not illegal under common law principles, English statutes prohibiting certain types of gambling, and applicable in Maryland, were enacted during the latter part of the seventeenth century and during the eighteenth century. In addition, gambling prohibitions were enacted by the Maryland General Assembly from the early part of the nineteenth century. For a comprehensive