Holdings v. Six

• Decision Date: 10 June 2011
• Docket Number: No. 103,457.,103,457.
• Citation: 45 Kan.App.2d 1043,255 P.3d 1218
• Parties: THREE KINGS HOLDINGS, L.L.C., and Cobra Crew, L.L.C., Appellants,v.Stephen SIX, Kansas Attorney General; Patrick Martin, Chief Counsel, Kansas Racing and Gaming Commission; Nola Foulston, Sedgwick County District Attorney; and Gary Rebenstorf, City Attorney for the City of Wichita, Appellees.
• Court: Kansas Court of Appeals

45 Kan.App.2d 1043

255 P.3d 1218

THREE KINGS HOLDINGS, L.L.C., and Cobra Crew, L.L.C., Appellants,

v.Stephen SIX, Kansas Attorney General; Patrick Martin, Chief Counsel, Kansas Racing and Gaming Commission; Nola Foulston, Sedgwick County District Attorney; and Gary Rebenstorf, City Attorney for the City of Wichita, Appellees.

No. 103,457.

Court of Appeals of Kansas.

June 10, 2011.

[255 P.3d 1219 , 45 Kan.App.2d 1043]

Syllabus by the Court

1. There are three elements to a lottery as defined by K.S.A. 21–4302(b): (1) consideration, (2) a prize, and (3) the award of the prize is determined by chance.

2. Whether a game is one of chance or skill is determined by the dominant factor test.

3. Whether Kandu Challenge is a game of chance or skill is a factual question and the district court's finding should be reviewed for support of substantial competent evidence.

4. Under the facts of this case, the district court's finding that Kandu Challenge is a game of chance, hence, a lottery, is supported by substantial competent evidence.

James D. Oliver, of Foulston Siefkin LLP, of Overland Park, Jeffery A. Jordan, of Foulston Siefkin LLP, of Wichita, and Edward L. Keeley and Paul F. Good, of McDonald, Tinker, Skaer, Quinn & Herrington, P.A., of Wichita, for appellants.Tim J. Riemann, assistant attorney general, for appellee.Before HILL, P.J., BUSER, J., and BRAZIL, S.J.BRAZIL, J.

Plaintiff Three Kings Holdings, L.L.C. (Three Kings) appeals the district court's denial of its petition seeking a declaration that Kandu Challenge is not an illegal lottery under K.S.A. 21–4302. We affirm.

Kandu Challenge is a card game invented by Curtis Shawn Riley, Kurt McPhail, and Shane McCullough. These three individuals are the owners of Three Kings, a Kansas limited liability company that in turn owns the rights to the game. Three Kings has applied for a patent protecting Kandu Challenge. Three Kings licensed the rights to Kandu Challenge to Cobra Crew, L.L.C. (Cobra Crew). Cobra Crew is a Kansas limited liability company that has done business as Highlands Gastropub and Cardroom (Highlands) in Wichita. Highlands hosted games of Kandu Challenge through the licensing agreement with Three Kings.

Kandu Challenge is a modification of the card game of poker. Specifically, it is a form of Texas Hold'Em. The basic objectives and rules of Texas Hold'Em are unchanged in Kandu Challenge; it is a game played for money and won by the best five-card hand.

Initially, Kandu Challenge changes some of the terminology of poker to decrease the perception of chance. A “game” is called a “contest.” The initial “ante” bet is called an “entry fee.” A “bet” is referred to as a “challenge,” and the “pot” is called the “purse.”

The most important modification in Kandu Challenge is the addition of the “spread.” After shuffling the deck, the dealer spreads the cards face up across the table for 3 to 5 seconds. This gives the players the opportunity to see all of the cards before they are dealt. A player may object if a card is not visible, and the deck will be respread. After the spread, the dealer collects the cards in order, cuts the deck, and announces the cut card. According to the rules of the game, the visible spread and cut announcement “[provides players] with advanced knowledge of the order of the cards in play thereby offering a contest in which a player's ability to memorize, and recall, the information presented becomes the determining factor in winning.”

Another modification from Texas Hold'Em is the elimination of “blind” bets. In Texas Hold'Em, the two players sitting immediately to the left of the dealer are required to place bets before the cards are dealt, thus, their initial bets are blind. In Kandu Challenge, there are no blind bets as players are not required to pay the entry fee until the cut card is displayed. However, players must pay the entry fee before being dealt any cards.

The basic game play of Kandu Challenge is as follows: After the cards are shuffled, spread, and cut, each player who desires to play or “accept the CHALLENGE,” places the entry fee in front of their position on the table. The dealer deals two cards to each player and pulls the entry fees into the middle of the table. Beginning with the player to the left of the dealer button, the dealer asks the players if they would like to “issue a challenge” to the other players. Continuing around the table, players may issue, meet, or raise challenges. They may also fold or “surrender” their hand. After the first round of betting is complete, the dealer “burns” the top card on the deck, removing it from play, and deals the next three cards face up in the center of the table. This is the “flop” and these three cards are used by all of the players to create their hands. Another round of challenging continues after the flop. At the conclusion of this challenge round, the dealer burns another card and deals an additional community card onto the center of the table. This is the “turn.” The players then engage in another round of challenges. After this action has concluded, the dealer burns one card, then deals a final community card, “the river,” and the players begin a final round of challenges. Once all of the challenges are completed, “the remaining players expose their cards and the player(s) with the best five card hand is awarded the prize PURSE.”

There are no inherent time restrictions in Kandu Challenge, and a player is free to play as long as they are able. However, the rules require players to pay a fee for “table time” at the rate of $6 every half hour. No table fee is charged for the first 30 minutes a player spends at a table.

Before opening the game to the public, Three Kings and Cobra Crew sought assurances from law enforcement that the game was legal and invited officers from the Wichita Police Department to play the game. According to the game's creators, the officers concluded that Kandu Challenge was a game of skill and was therefore permissible under this state's gambling laws.

On June 22, 2009, Kansas Attorney General Stephen Six, Sedgwick County District Attorney Nola Foulston, Chief Counsel for the Kansas Racing and Gaming Commission Patrick Martin, and Wichita City Attorney Gary Rebenstorf, sent Highlands a letter ordering it to cease and desist from operating the Kandu Challenge game. Highlands stopped hosting the game on June 26, 2009.

Subsequently on June 26, 2009, Three Kings and Cobra Crew filed a petition in Sedgwick County District Court, seeking declaratory judgment that Kandu Challenge was legal and injunctive relief against defendants Six, Foulston, Martin, and Rebenstorf from applying gambling restrictions to the game.

The district court held a hearing on Three Kings' temporary injunction request on July 21 and 22, 2009. After hearing testimony from the game's inventors, players, experts, and law enforcement, the court denied the injunction. The court found that Three Kings failed to demonstrate the likelihood that it would prevail on the merits of their claim that Kandu Challenge was legal and that it was against public policy for the court to interfere with law enforcement prior to a decision on the merits.

The court held a bench trial on September 8 and 9, 2009. Three Kings presented six witnesses who generally testified in support of the theory that Kandu Challenge was a game of skill that is properly judged in the long run rather than by a single hand.

The game's inventor, Shane McCullough, testified that Kandu Challenge is different from regular Texas Hold'Em and all other card games because the spread provides players the opportunity to see the cards prior to the deal. He testified that the skills involved in Kandu Challenge include choosing a table to play, finding a dealer, reading the dealer, reading the spread, reading the cut, reading opponents, choosing whether to play, folding, and knowing the hand and pot odds. McCullough testified that the only chance event in Kandu Challenge was the location of the cut. He also testified that no one really plays a single hand of poker, that people usually play the game for a long period of time in a single sitting, and that the true aim of the game is to win money rather than a single hand. However, he admitted that there is no prohibition against playing a single hand.

Jared Bruce, a Ph.D. psychologist at the University of Missouri–Kansas City, testified that players can use certain memory techniques to improve their ability to remember the spread and obtain a competitive advantage in Kandu Challenge. He admitted, however, that while he had seen a video of people playing Kandu Challenge, no studies had been done concerning the impact of the spread and memory on competition in Kandu Challenge.

Next to testify was Robert Hannum, Ph.D., a statistics professor at the University of Denver. Hannum testified to his opinion that Kandu Challenge is predominately a skill game. He based this opinion primarily on a statistical analysis of Texas Hold'Em by the Cigital Group (Cigital study) which concluded that skill prevailed over chance in that game because 76% of all Texas Hold'Em hands end before going to “showdown,” or a direct comparison of cards to determine a winner. According to Hannum, this indicates the decisions of players, rather than the quality of their cards, is the ultimate determining factor in a game of Texas Hold'Em. He further reasoned that the more complex a game is, the more skill is required to play it and found that Kandu Challenge was more complex than Texas Hold'Em because of the spread. According to Hannum, the spread also decreased the role of chance in the deal, flop, turn, and river cards because the players can know their identity prior to betting. Hannum admitted that no study had been done on the relative level of skill and chance in a single hand. He was unable to identify how long the long run would be.

Three Kings' final three witnesses all had...