Face Trading v. Dept. of Con. & Ind. Serv.

• Decision Date: 18 April 2006
• Docket Number: Docket No. 256639.
• Citation: 717 N.W.2d 377,270 Mich. App. 653
• Parties: F.A.C.E. TRADING, INC., d/b/a Face Card Promotions, Plaintiff-Appellant, v. DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES, Liquor Control Commission, and Bureau of State Lottery, Defendants-Appellees.
• Court: Court of Appeal of Michigan — District of US

717 N.W.2d 377

270 Mich. App. 653

F.A.C.E. TRADING, INC., d/b/a Face Card Promotions, Plaintiff-Appellant, v. DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES, Liquor Control Commission, and Bureau of State Lottery, Defendants-Appellees.

Docket No. 256639.

Court of Appeals of Michigan.

Submitted September 13, 2005, at Detroit.

Decided April 18, 2006, at 9:15 a.m.

Released for Publication July 7, 2006.

COPYRIGHT MATERIAL OMITTED

Dickinson Wright PLLC (by James E. Lozier, Jeffery V. Stuckey, and Jason J. Paupore), Lansing, for the plaintiff.

Michael A. Cox, Attorney General, Thomas L. Casey, Solicitor General, and Melinda A. Leonard, Assistant Attorney General, for the defendants.

Before: ZAHRA, P.J., CAVANAGH and OWENS, JJ.

ZAHRA, P.J.

This case arises from the sale of various merchandising coupons that also feature a game that provides the coupon purchaser the opportunity to win cash instantly. In this declaratory action, defendants maintained that the sale of these coupons was contrary to Michigan's lottery law. The circuit court entered an order granting a motion for summary disposition by defendants Department of Consumer and Industry Services (DCIS), Liquor Control Commission (LCC), and Bureau of State Lottery (BSL) and denying a motion for summary disposition by F.A.C.E. Trading, Inc., doing business as FACE Card Promotions (FACE). FACE appeals this order as of right. MCR 7.203(A). The significant issues presented in this case are (1) whether plaintiff was promoting or operating a "lottery" under MCL 750.372; (2) whether plaintiff's conduct amounted to a permissible "game promotion" under MCL 750.372a; and (3) whether plaintiff's conduct was within MCL 750.372(2), an exemption for certain "promotional activity" from the prohibition against lotteries. We conclude that promoting the sale of discount coupons through games of chance constitutes the promotion of a lottery under MCL 750.372 and is not a permissible game promotion under MCL 750.372a. We further conclude that the cash prize game at issue in this case is not exempted promotional activity under MCL 750.372(2). We affirm the circuit court's order.

I. Basic Facts and Procedural History

A. Ad-Tabs

FACE is a Wisconsin corporation that sells and distributes a product called Ad-Tabs. Ad-Tabs are physically similar to "charity game tickets," "commonly referred to as a break open ticket or pull-tab." MCL 432.102(5). Ad-Tabs and pull-tabs basically are cardboard tickets that, on one side, have three to five perforated "tabs" that open to reveal hidden symbols. On the other side of a ticket is a grid with two columns. One column has five to eight rows of various combinations of symbols, and the other column contains dollar amounts that correspond to the symbol combinations. The dollar amounts begin at $1 and, depending on the game, escalate in increments up to $200, $225, $250, $300, or $500. If the once hidden symbols match the symbol combinations delineated on the other side of the Ad-Tab, the purchaser wins the dollar amount indicated next to the combination.

The feature distinguishing Ad-Tabs from pull-tabs are coupons printed on the face of Ad-Tabs.¹ Ad-Tabs offer several different coupons. One example is an Ad-Tabs entitled, "Gas and Groceries," which offers $10 off the retail price of a 24-pack of Campbell's chicken noodle soup or pork and beans. Ad-Tabs may also contain advertisements from retail companies that offer coupons on other companies' products. One such Ad-Tabs features the "Gold Creek Trading Company," which offers $5 off a "collectible Zippo lighter," a "genuine Case pocket knife" or a "Chase Authentics Nascar Driver Jacket." Similarly, Ad-Tabs from Marathon and Phillips 66 gas stations offer, with a minimum eight-gallon fill-up, a free cappuccino or a coffee and donut. Some Ad-Tabs, for example, "Sports Spin II," do not offer coupons, but novelties such as "5 Million Dollar bills" that a purchaser can receive for $2 and proof of three purchases from the Sports Spin II Ad-Tab game.

Another feature distinct to Ad-Tabs is that the phrase, "No purchase necessary," is printed somewhere on the ticket. While additional language surrounding this statement may vary slightly on different Ad-Tabs, each refers to the official Ad-Tabs game rules, which provide, in part:

To enter without a purchase: (a) ask the participating retailer for an official game piece request form and legibly hand print all the information requested on the form; or (b) call 800-603-3223 to request an official game piece request form; or (c) on a sheet of white paper no smaller than 3" by 5", legibly print your name, address, city, state, zip code, age, the name of the promotion for which you are requesting a game piece, and the name and address of the retail establishment at which you will redeem the game piece if it is a winning game piece.

B. The Sale of Ad-Tabs

FACE pays an outside company to print Ad-Tabs and ship them to FACE, which generally sells them to independent distributors,² who in turn sell them to local retailers. Retailers, including convenience stores, bowling alleys, restaurants, and taverns, sell Ad-Tabs to the general public. If a purchaser wins the cash prize game, the retailer pays the winner. However, if a person participating in the "no purchase necessary" option wins the cash prize game, FACE pays the winner.

Retailers make Ad-Tabs available for sale through mechanical dispensing machines that resemble candy or cigarette vending machines, or retailers directly sell them to purchasers out of a transparent plastic barrel. The front of the vending machines often state, in a large typeface, "Win cash instantly." Many of the vending machines have random blinking lights, some even flash "play" and "win" at three-second intervals. The vending machines accept $1, $5, $10, and $20 denominations, but do not make change.

Retailers purchase Ad-Tabs in sets of approximately 3,000, each ticket costing about ten to 12 cents. Each set of Ad-Tabs has a certain number of winning cash prize games. Along with the set of Ad-Tabs, retailers also receive the Ad-Tabs official rules, a winners list form, two Ad-Tabs "no purchase necessary forms, and a "Compliance/registration form." Retailers must complete this form before selling Ad-Tabs. The form requires, in general, that retailers redeem the cash game prizes, display posters that contain abbreviated game rules and information regarding prizes and odds near where Ad-Tabs are sold, supply customers with "no purchase necessary" entry forms when requested, load Ad-Tabs into the vending machines with the coupon side showing, not intermingle different sets of Ad-Tabs within the machines, and not sell expired Ad-Tabs.

FACE began selling Ads-Tabs to distributors in the state of Michigan on January 31, 2001. Six million Ad-Tabs have been sold in Michigan. FACE estimates its yearly sales of Ad-Tabs in Michigan at 2,067,683. In Michigan, "five [Ad-Tab tickets] have been provided in response to requests under the `no purchase necessary' free chance to win option. . . ."³

C. Procedural History

Shortly after retailers began to sell Ad-Tabs in Michigan, the LCC began issuing citations to retailers who held liquor licenses on the basis that the sale of Ad-Tabs constituted unlawful gambling.⁴ In response, FACE filed this action, seeking a declaratory judgment that Ad-Tabs were not illegal lotteries and that Ad-Tabs complied with MCL 750.372a, which regulates "game promotions." FACE also filed a motion for a preliminary injunction to stay defendants' enforcement proceedings against retailers, pending disposition of the declaratory action. Following a hearing, the circuit court granted FACE's motion.

Following discovery, FACE and defendants filed cross-motions for summary disposition. The circuit court conducted a hearing on the cross-motions for summary disposition and, on June 3, 2004, issued a written opinion granting summary disposition to defendants. The circuit court rejected FACE's argument that purchasers only pay for coupons when purchasing Ad-Tabs and concluded that the sale of Ad-Tabs constituted a lottery under MCL 750.372(1). The court also concluded that the cash prize game was not permitted "promotional activity" under MCL 750.372(2), because Ad-Tabs are primarily a lottery, and the cash prize game is not "clearly occasional and ancillary" to the sale of Ad-Tabs. Last, the court concluded that Ad-Tabs are not a "game promotion" under MCL 750.372a, reiterating that the sale of Ad-Tabs constituted a lottery under MCL 750.372(1).

After the circuit court entered the order from which FACE appealed, FACE filed a motion to "stay judgment and maintain preliminary injunction pending appeal." The circuit court entered an order maintaining the preliminary injunction pending disposition of a motion for stay that FACE had filed with this Court. This Court denied FACE's motion to stay,⁵ and our Supreme Court denied FACE's application for leave to appeal this Court's order.⁶ Thus, currently, the judgment is not stayed, the preliminary injunction is dissolved, and FACE is not currently selling Ad-Tabs in Michigan.

II. Analysis

A. Defendants Need not Establish Their Position Beyond a Reasonable Doubt

We first address FACE's assertion that defendants must prove beyond a reasonable doubt that the sale of Ad-Tabs constitutes a lottery. The applicable burden of proof presents a question of law that is reviewed de novo on appeal. See Pickering v. Pickering, 253 Mich.App. 694, 697, 659 N.W.2d 649 (2002); Kelly v. Builders Square, Inc., 465 Mich. 29, 34, 632 N.W.2d 912 (2001).

FACE brought this action under MCR 2.605 to prevent the LCC from enforcing 1999 AC, R 436.1013 against FACE's customers who sold Ad-Tabs. MCR 2.605 is contained within chapter two of the Michigan Court Rules, entitled "Civil Procedure," and provides, in part, that

[i]n a case of actual controversy within its jurisdiction, a Michigan court of record may...