October 22, 2010

Palmetto State Poker Litigation Tour

Earlier this week, the South Carolina supreme court heard oral arguments in Chimento v. Town of Mount Pleasant, a case that challenges whether home poker games are banned by the state's anti-gambling statute.  Although I have been unable to find any video or audio coverage of the argument online (which is typical for many state appellate courts), I was able to procure copies of the parties' appeal briefs* thanks to the Carolina-insider connections of the inestimable Otis, without question the best blogger in all the Carolinas, and likely throughout the erstwhile Confederacy.  So, let's take a tour of the legal arguments the court will consider.

Now appeals deal with legal issues, but they are driven by the underlying facts; lawyers often say, "Bad facts make bad law."  In Chimento, the court is considering whether poker players who participated in a home poker game violated the state's anti-gambling statute.  The relevant facts can be distilled as follows:
  • The game was held in a private residence.
  • The game was regular and recurring, typically being held once or twice each week.
  • There is some dispute about whether strangers could play in the game.  At a minimum, the game was open to new participants known to the game organizer or brought to the game by established players.
  • Participants—including new players—could learn about the game via an online social network, meetup.com.
  • The game involved very low stakes Texas hold 'em cash game play—blinds of 25¢ / 50¢, with a maximum buy-in of $20.
  • The game organizer (who also resided in the house with his girlfriend) took a small rake from each pot, ostensibly to cover food and beverage expenses.  Although the state's undercover investigator who infiltrated the game testified that the rake was $2 per pot, this was disputed, and appears to have been the maximum rake taken ($2 per pot flat rake is simply infeasible in such a small stakes game).  Testimony from the game organizer stated that the maximum rake was 50¢ per pot.
  • The game organizer pled guilty to "operating a house of gaming" as part of the same police investigation.
Although the Poker Players Alliance (PPA) has framed its press releases about the case in terms of their now-standard "skill vs. luck" argument, the case actually presents a Gordian knot of legal issues which the court will need to untangle in order to determine whether home poker games are legal in South Carolina.  The legal analysis, however, must begin with the language of the applicable anti-gaming statute:

If any person shall play at any tavern, inn, store for the retailing of spirituous liquors or in any house used as a place of gaming, barn, kitchen, stable or other outhouse, street, highway, open wood, race field or open place at (a) any game with cards or dice, (b) any gaming table, commonly called A, B, C, or E, O, or any gaming table known or distinguished by any other letters or by any figures, (c) any roley-poley table, (d) rouge et noir, (e) any faro bank (f) any other table or bank of the same or the like kind under any denomination whatsoever or (g) any machine or device licensed pursuant to Section 12-21-2720 and used for gambling purposes, except the games of billiards, bowls, backgammon, chess, draughts, or whist when there is no betting on any such game of billiards, bowls, backgammon, chess, draughts, or whist or shall bet on the sides or hands of such as do game, upon being convicted thereof, before any magistrate, shall be imprisoned for a period of not over thirty days or fined not over one hundred dollars, and every person so keeping such tavern, inn, retail store, public place, or house used as a place for gaming or such other house shall, upon being convicted thereof, upon indictment, be imprisoned for a period not exceeding twelve months and forfeit a sum not exceeding two thousand dollars, for each and every offense.

—S.C. Code Ann. § 16-19-40

Now there's a lot going on in this statute.  First, note that the statute distinguishes between gambling and "keeping a place of gaming".  Both activities are prohibited, but under different circumstances, with stiffer penalties for those keeping places of gaming.  Turning to just the ban on gambling, the ban is not complete, but only bans gambling that meets two requirements:  a) particular games, which are b) played in certain places.  For purposes of the Chimento appeal, both prongs of this test are in play.

Looking first at the type of game, the statute explicitly bans "any game with cards or dice".  On its face, then, the statute covers poker, which is unquestionably a game played with cards.  The defendants and the PPA, however, make two arguments:  1) the statute is vague and overbroad to the point it could arguably cover any game played with cards or dice, including family or childrens' games (e.g., Uno or Yahtzee); and 2) poker is a game of skill, not a game of chance, and thus should not be considered subject to an anti-gambling statute.

Looking at the first argument, the state counters that the statute implies a requirement that betting or wagering be a element of the game.  The defendants and the PPA respond that the courts should not read into the statute a requirement not explicitly identified by the legislature.  The problem with the defense position is twofold:  a) the statute itself does mention betting or wagering, and b) the statute has a long history of being interpreted to require an element of betting or wagering.  Looking at the statute, certain games are explicitly exempted from prosecution:

... except the games of billiards, bowls, backgammon, chess, draughts, or whist when there is no betting on any such game of billiards, bowls, backgammon, chess, draughts, or whist or shall bet on the sides or hands of such as do game ...

We'll return to this list of exempt games in a moment when considering the "game of skill" argument.  For now, the point to take away from the exempt games list is that the games are exempt only so long as there is no betting or wagering either by the players or by anyone not involved in the game.  Now it's true that there is no similar distinction made for the games banned as "games of cards or dice", but the historical context of the statute must be kept in mind.  The anti-gambling statute is more than two centuries old, and was enacted at a time when almost all games of dice and cards were played for money.  The legislature's purpose in addressing the ills of gambling can certainly be discerned from the text of the statute, and the South Carolina courts have long interpreted the anti-gambling statute to require betting or wagering, as in this appeal decision arising from jury instructions in a prosecution for running an illegal dice game:

The acts of our general assembly on this subject, now incorporated in the General Statutes of this state as sections 1715, 1716, do certainly denounce betting on the throwing of dice as an offense.  In general terms, the circuit judge was here seeking to enable the jury to see what was and what was not gambling.  He was seeking, in other words, to impress upon their minds that the mere handling and throwing dice, where money was not bet, was not an offense under our laws.

State v. Robinson, 40 S.C. 553, 18 S.E. 891, 892 (1894) (emphasis added).

Finally, the defense argument on this point is a bit awkward, essentially stating, "You can't convict us for gambling when we were playing cards for money, because the statute might arguably apply to the kids next door playing Old Maid."  Let's just say that the kids playing Old Maid, if they were ever arrested for gambling, would have a much stronger argument on this point than the poker players in this case.

Turning to the poker as a game of skill argument, the defense and PPA make the same familiar arguments, and even had testimony from Mike Sexton and Robert Hannum, PhD to buttress their claim that Texas Hold 'Em is a game of skill.  This evidence is really uncontroverted, and the facts are of less importance than the legal significance of those facts when the law is applied to the facts.  In other words, even though we may all be able to agree that skill plays a significant—even "predominate"—role in poker, that fact may have differing significance once the courts are asked to interpret and apply a state's anti-gambling statute.  To put it another way, the same game—Texas Hold 'Em—might be legal in one state under one definition of or test for "gambling", while being illegal in another state utilizing a different definition or test.

South Carolina has not yet explicitly adopted a legal test for whether a particular game is illegal gambling for purposes of the anti-gambling statute.  The state argues that poker falls within the "any game of cards or dice" prohibition, and thus no analysis of the relative role of skill or chance is necessary.  The defense counters that the court should apply the "dominant factor" test (sometimes also referred to as the "predominate factor" test) to discern whether a particular game—such as poker—is illegal gambling.  There is some suggestion from a dissenting opinion in a prior case that South Carolina might in fact adopt the dominant factor test. 

The problem with the defense argument is twofold.  First, as a matter of statutory construction, the legislature has identified a short list of what might be considered "games of skill" which are exempt from prosecution:  "billiards, bowls, backgammon, chess, draughts [checkers], or whist".  Whist is an old British trick-taking card game, which was frequently played for money—for example, Phileas Fogg, protagonist of Jules Verne's novel Around the World in Eighty Days, was depicted playing whist for money at his London gentlemen's club.  Modern derivatives of whist include popular trick-taking games like Hearts, Spades, Bridge, Euchre, and Pitch.  The interesting thing about Whist (and its modern derivatives) is that the game can be played simply for recreation by keeping score, or the game can be the basis for gambling, with monetary awards or penalties assigned for points scored, wins/losses, and sets (failed bids).  By contrast, games such as poker or blackjack are played only for money; money is how score is kept.  Further, a major principle of statutory interpretation is that items in a list exclude items not in the list, unless the list is merely illustrative.  In this case, the statute has carved out a very specific list of exempt games, each of which might be regarded as a "game of skill".  The failure of the legislature to designate poker as an exempt game of skill implies the legislature did not intend for poker to be exempt from the general prohibition against games of cards, even if poker is in fact a game of skill. 

However, even if the South Carolina supreme court analyzes poker under the dominant factor test, the court is unlikely to rule any differently on that issue than the many other state appellate courts which have found poker to be a game of chance.  South Carolina is a socially conservative state, certainly more conservative than states like Rhode Island, Pennsylvania**, Colorado, North Carolina, or New York which have all found poker to be a game of chance.  Further, the South Carolina supreme court has previously affirmed a conviction for maintaining a house of gaming in which poker was the game in question:

The appellants were indicted, as stated, for the crime of keeping a gaming house known as the Five O'clock Club. This night club was licensed in the name of and operated by the appellant, Douglas O'Neal, as owner. On the night of April 30, 1946, the witness, Bracey, who was visiting Columbia from his home in Virginia, went to the club about ten o'clock. The club was located on the second floor level of the building, and entrance to it was gained by a stairway on Main Street. The club comprised three rooms: One being used as a room for entertainment, where dancing was engaged in; another room or compartment was known as the ‘stag’ side, and contained two bars; and there was a third room, much smaller, in which there were two tables, which adjoined the stag room.

About two or three o'clock in the morning, after Bracey had indulged in several drinks of whiskey, a waitress, Aileen Thompson, who was employed and paid by the appellant, Douglas O'Neal, approached Bracey and asked him if he would like to play some poker.  After some short delay, Bracey entered the small room and found a poker game in progress, being participated in by four or five soldiers and the appellants, Walker and Harris, and another man named Whittle, described as the official ‘bouncer’ of the establishment.  The appellant, Harris, sold Bracey $10 worth of poker chips and he entered the game.  He proceeded to gamble until about twelve o'clock the following day.  As the game proceeded, the soldiers dropped out, and for the last eight or ten hours only Bracey, Whittle, and the two appellants, Walker and Harris, participated.  The stakes were increased in value from twenty-five cents a chip to $1, and when the game concluded Bracey, who was dazed from the effects of liquor, had lost in the neighborhood of $4,000.

During a great part of the time, appellant, Walker, who called himself the ‘house man,’ did most of the dealing.  At other times, the appellant, Harris, who acted as ‘banker’ of the game and who sold the chips and handled the cash, dealt the cards.  A short while, in which Bracey dealt, both Walker and Harris claimed the right to cut the deck before the cards were dealt.

There was testimony that Douglas O'Neal was manager of the club and Walker was manager of the gambling room, and that the latter paid Whittle from the cash box.  There was also evidence from which the conclusion could reasonably be drawn that a certain percentage of the amount staked on each game was deducted by Harris for the benefit of the ‘house.’  The evidence for the state also showed that sometime during the morning, before the game finally broke up, Douglas O'Neal approached the state's witness, Bracey, and asked him if he would like to have a cup of coffee.

Around midday two friends entered the club in search of Bracey, and realizing his condition went out and reported the situation to the city detectives.  They then returned to the club and took Bracey to his hotel.

It is the general rule that where the proprietor of a place not kept for the purpose of gaming, allows gaming to be carried on, in which he participates, or from which he in some way receives a benefit, he may be convicted as the keeper of a gaming place. [cites].

The rule is also well established that a person having general charge of a gaming place as an employee may be convicted of the offense of keeping a gaming house.  [cites]. The fact of agency need not be proved by direct evidence, but may rest in inference from facts and circumstances and the conduct of the parties.

State v. O'Neal, 210 S.C. 305, 313-15, 42 S.E.2d 523, 526-27 (1947) (citations omitted).

Given the text of the statute and the related case law, I think the South Carolina supreme court will most likely find that poker is prohibited by the anti-gambling statute, regardless of whether it is predominately a game of skill or a game of chance.  To hold otherwise would overturn decades of social agreement that poker is gambling, with the effect of essentially legalizing unregulated, for-profit poker rooms and poker tournaments statewide.  As I've discussed previously, asking courts to rule that poker is not gambling is really no better than tilting at windmills

However, the legal analysis does not end if the South Carolina supreme court should find that poker is a prohibited card game under the anti-gambling statutes.  As noted at the outset of our analysis, the statutory ban also requires that the prohibited card game be played in a prohibited place, specifically, "at any tavern, inn, store for the retailing of spirituous liquors or in any house used as a place of gaming, barn, kitchen, stable or other outhouse, street, highway, open wood, race field or open place".  The fight in the present case is whether a private residence can be considered a "house used as a place of gaming" (or "house of gaming" for short).  Although the defense advocates a fairly narrow interpretation of "house of gaming", let's look back at the prior South Carolina supreme court decsion in O'Neal, which affirmed a conviction for "keeping a place of gaming" after running a poker game at a night club:

It is the general rule that where the proprietor of a place not kept for the purpose of gaming, allows gaming to be carried on, in which he participates, or from which he in some way receives a benefit, he may be convicted as the keeper of a gaming place.

State v. O'Neal, 210 S.C. 305, 313-15, 42 S.E.2d 523, 526-27 (1947) (citations omitted).

Under this case law, a place (business or residence) which is normally used for proper purposes, may become a prohibited "gaming place" if the proprietor permits a prohibited game to be played and either:  a) plays in the game, or b) receives a benefit from allowing the game.  In the present case, it appears the game host not only organized the game, but also played in the game and took a rake.  Those facts might be sufficient to establish a private residence as a "house of gaming", thereby making the poker game at issue in this case a prohibited game.  Now, the court might find that playing in the game is not an appropriate factor to consider in the context of a private residence, rather than a tavern, club, or similar business.  Also, the de minimis nature of the rake—if one believes the host's testimony he rarely recovered more than his expenses—might be considered insufficient to qualify as receiving a "benefit" for running the game.  However, where does one draw the appropriate line?  Can a host be reimbursed for his time in organizing the private poker game?  How about for cards, chips, and other supplies?  Electricity and other utilities?

Interestingly, news reports indicated that the state conceded at oral argument that the anti-gambling statute does not apply to casual or recreational games.  It's not clear what is meant by "casual", though presumably it means low stakes games where no rake or fee is charged.  This concession is a smart legal strategy by the state, as it focuses the court's analysis on "professional" poker games, where the house is making money from hosting the games.  This argument also seems easier to defend as being more closely tied to the language of the statute, which suggests that private poker games (i.e., those not held in public places or in "houses of gaming") where the house does not take a rake or fee are not prohibited.  In fact, this is precisely the ruling I expect the court to reach—poker is gambling, and is legal if done as a private, no-rake game, but becomes illegal when played in a public place and/or for a rake or fee.  Such a ruling would preserve the traditional notion of poker as gambling, prohibit poker in public or for-profit setting contexts, but allow casual home poker games to be played legally.  Such a ruling is actually the result most poker players should want.

Of course, my prediction of the outcome is not the result most poker players think they want.  But those players are short-sighted.  Yes, the statute is rather poorly written, though that is mostly an artifact of its age.  Yes, the statute could use clarity.  Yes, it would be really nice if a court would recognize poker is a game of skill, and exempt it from an anti-gambling statute.  But such a ruling would essentially legalize unregulated, for-profit poker rooms and poker tournaments throughout the state.  The legislature would almost certainly react swiftly and negatively to such a ruling, and likely enact draconian restrictions against playing poker, including perhaps an explicit ban on online poker.  Don't forget, this is South Carolina, where conservative "family values" politics still hold sway.  Frankly, a fully pro-poker court ruling might be the worst result for poker players, a Pyrrhic victory leading to explicit and more onerous anti-poker laws.

It will be interesting to see how the court eventually rules in this appeal.  But, given the detailed evidentiary record developed in the trial court, the high quality legal work done by attorneys for the defendants and the PPA, and the admittedly poorly drafted statute at issue, if the "poker is a game of skill" argument fails here, it is difficult to imagine circumstances where the argument would ever prevail

In other words, Chimento looks like the last, best chance for the PPA to score a meaningful win in the poker legalization-by-litigation battle. 

Poker players shouldn't hold their collective breath.

----------------------------------------------------
*  I have posted the following briefs on my Google Docs page:

State Final Brief
Respondents' (Defense) Final Brief
State Final Reply Brief
PPA Amicus Curiae Brief

The underlying district court decision was posted HERE by another person.

**  The Pennsylvania supreme court has yet to decide whether to grant further review in the Dent case, in which a Pennsylvania appellate court found poker to be a game of chance subject to the state's anti-gambling statute.

2 comments:

  1. The rake will probably be the killing point if nothing else is even if minimal. If I'm not mistaken PA allows home games and even allows a set charge of, I think, up to $10 a person for the purpose of the host's expenses for refreshment and such but any such reinbursment based on a rake system is not allowed. Don't quote me on that but I seem to remember reaing that somewhere.

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  2. On a side note, I'm moving to Mount Pleasant, South Carolina. Any municipal police department that has the funding to conduct a freaking undercover sting of a $20 max buy in gambling enterprise has to be in a place that is CRIME FREE. Otherwise I would think the law enforcement budget could be more properly spent.

    Does Mike Sexton testify as an expert for free on something like this? Or is he a PPA employee?

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