Argued: May 8, 2019
BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge
HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE ROBERT
SIMPSON, Judge [1] HONORABLE PATRICIA A. McCULLOUGH,
Judge HONORABLE ANNE E. COVEY, Judge HONORABLE MICHAEL H.
WOJCIK, Judge HONORABLE CHRISTINE FIZZANO CANNON, Judge
OPINION
PATRICIA A. MCCULLOUGH, JUDGE JUDGE.
Before
this Court is the Commonwealth of Pennsylvania, Department of
Revenue's (Department) application for summary relief in
the nature of a motion for partial judgment on the pleadings
with respect to the Department's counterclaim to the
petition for review in the nature of a complaint seeking a
declaratory judgment and injunctive relief, filed in this
Court's original jurisdiction by POM of Pennsylvania, LLC
(POM). For the reasons set forth, we deny the
Department's application for summary relief.
I.
Procedural History
On June
8, 2018, POM filed a petition for review in this Court's
original jurisdiction seeking a declaratory judgment and
injunctive relief, naming as respondents the Department and
the City of Philadelphia (City). According to POM's
petition for review, POM "distributes software for a
skill-based video game machine, called the Pennsylvania
SkillTM Amusement Device 402.49 PEN" (POM
Game) throughout Pennsylvania. (Petition ¶1.) The POM
Game is primarily located in taverns, restaurants, and social
clubs that serve alcohol under license from the Pennsylvania
Liquor Control Board. (Petition ¶12.) The POM Game is a
coin-operated video machine that offers several games
including a tic-tac-toe style puzzle, a potentially
unlockable bonus session, and a "Follow MeTM
colored dot-matching second phase of game play."
(Petition ¶¶13-14.) If a player is ultimately
successful playing the POM Game he or she is awarded with a
combined total of 105% of the original amount spent to play.
(Petition ¶28.) POM asserts that the POM Game is not an
illegal gambling device under Pennsylvania criminal law, but
rather, that it is a legal game of skill. (Petition
¶29.)
POM
avers that from March 2017 until June 2018, the City
conducted 11 separate seizures of the POM Game and arrested
employees and seized funds at each location. (Petition
¶30.) POM alleges that the City's illegal seizures
of the POM Games have interfered with the Department's
mission to fairly, efficiently, and accurately administer the
tax laws and other revenue programs of the Commonwealth.
(Petition ¶36.) POM contends that the POM Game generates
revenue for the Commonwealth in various ways. (Petition
¶37.)
POM
maintains that the POM Game is not an illegal game of chance
under the relevant statute of the Pennsylvania Crimes
Code[2]
governing illegal gambling devices. (Petition
¶¶38-39.) POM also alleges that in In re
Pace-O-Matic, Inc. Equipment, Terminal I.D. No. 142613
(C.P. Beaver, No. M.D. 965-2013, filed December 23, 2014),
the Court of Common Pleas of Beaver County determined that a
similar POM game was a game in which skill predominated and,
thus, not a gambling device per se under
Pennsylvania law.[3]' [4] (Petition ¶48.) Consequently, POM
requests that this Court enter a declaratory judgment in its
favor and (1) declare that the POM Game is a legal device
under Pennsylvania law; (2) declare that the City lacks the
power and authority to seize or threaten to seize POM Games
or initiate administrative or criminal proceedings regarding
POM Games; (3) permanently enjoin the City from seizing or
threatening to seize POM Games and/or initiating
administrative or criminal proceedings regarding POM Games;
and (4) grant any other relief deemed appropriate. (Petition
¶67.) POM also requests that we enter a
preliminary injunction enjoining the City from (1) seizing or
threatening to seize POM Games; (2) initiating administrative
or criminal proceedings regarding the POM Game; and (3)
arresting or prosecuting persons in connection with operation
of the POM Game. Id.
The
Department filed an answer, new matter, and counterclaim in
response to POM's petition for review.[5] In its
counterclaim, the Department alleges that the POM Game is
considered a slot machine under section 1103 of the
Pennsylvania Race Horse Development and Gaming Act (Gaming
Act), 4 Pa.C.S. §1103. (Counterclaim ¶18.) The
Department also avers that the POM Game has not been
inspected or certified by the Pennsylvania Gaming Control
Board (Gaming Control Board) and that POM has been acting in
violation of the Gaming Act.[6](Counterclaim ¶¶20-21.)
The Department also maintains that POM is a manufacturer of
slot machines under section 1103 of the Gaming Act, 4 Pa.C.S.
§1103, and that it has violated the Gaming Act by
manufacturing slot machines without a manufacturer's
license. (Counterclaim ¶¶25-27, 29-30.) Similarly,
the Department contends that POM is a supplier of slot
machines under the Gaming Act and that POM has violated the
Gaming Act by distributing slot machines without a supplier
license. (Counterclaim ¶¶37-40, 42.)
The
Department seeks a declaration that (1) the Gaming Act
regulates the manufacture, possession, and operation of slot
machines; (2) the Gaming Act and its regulations prohibit any
person from possessing a slot machine unless lawfully
manufactured by a licensed manufacturer; (3) the Gaming Act
prohibits the possession and operation of any slot machines
unless on the premises of a licensed casino facility; (4) the
POM Game is an illegal gambling device under the Gaming Act;
(5) the POM Game is a slot machine under the Gaming Act and
subject to a daily tax of 34% of its revenue; and (6) POM is
a manufacturer and/or supplier of slot machines and is
required to obtain a license from the Gaming Control Board.
(Counterclaim ¶51.) The Department also requests that
POM be ordered to remove its machines from all Pennsylvania
establishments and cease further sale and distribution of its
machines within Pennsylvania unless and until POM obtains the
proper licenses from the Gaming Control Board. (Counterclaim
¶52.) While the Department repeatedly argues that the
POM Games are subject to the Gaming Act and the authority of
the Gaming Control Board, the Gaming Control Board has not
sought to intervene in this matter.
POM
filed a reply to the Department's new matter and
counterclaim. Thereafter, the Department filed an application
for summary relief in the nature of a motion for partial
judgment on the pleadings with respect to its counterclaim.
The
Department raises the following issues in its application for
summary relief in the nature of a motion for judgment on the
pleadings:[7] (1) The POM Game is a slot machine under
the Gaming Act; (2) POM is a manufacturer and/or a supplier
of slot machines under the Gaming Act; and (3) POM is acting
in violation of the Gaming Act.
II.
The Department's Argument
In
support of its application, the Department argues that the
Gaming Act sets forth a comprehensive regulatory structure
that controls every aspect of gaming in the Commonwealth,
including the manufacture, possession, and operation of slot
machines. The Department notes that section 1102(1) of the
Gaming Act provides that the primary objective of the Gaming
Act is to "protect the public through the regulation and
policing of all activities involving gaming and practices
that continue to be unlawful." 4 Pa.C.S.
§1102(1).[8] Consequently, the Department asserts that
the General Assembly intended for the Gaming Act to regulate
all gaming in Pennsylvania, including all
slot machines, regardless of their location or whether they
are "licensed" by the Gaming Control Board. The
Department asserts that the Gaming Act regulates both legal
and illegal gambling, including POM Games, which it contends
constitute illegal gambling devices. It also avers that the
General Assembly entrusted the Gaming Control Board with the
authority to establish procedures for the inspection and
certification of compliance of all slot
machines, but that the POM Game has never been inspected or
certified.
The
Department argues that under the Gaming Act, a slot machine
is defined as any mechanical device that is played for
consideration and, whether by reason of skill or chance,
provides anything of value. The Department argues that
because POM admits in its petition for review that the POM
Game is a skill-based game, the game is available to play
upon payment of money/consideration, and the game provides a
reward, POM's game is, by definition, considered a slot
machine under the Gaming Act. The Department notes that in
2017 the definition of slot machine was amended to include
both games of skill and of chance. Accordingly, it asserts
that POM's game of skill fits squarely within the
definition of slot machine under the Gaming Act. The
Department alleges that POM is violating the Gaming Act
because the POM Game is not being regulated and is not
subject to monitoring or enforcement controls, and that
POM's violations have prevented the Commonwealth from
protecting the public from unregulated gaming activities,
which is the primary intent of the Gaming Act.
The
Department also argues that POM is, by definition, a
manufacturer and supplier of slot machines under the Gaming
Act. Because sections 1317 and 1317.1 of the Gaming Act, 4
Pa.C.S. §§1317, 1317.1, [9] require manufacturers and
suppliers of slot machines to obtain licenses and POM does
not hold the required licenses, the Department maintains that
POM is violating the Gaming Act. Because it alleges that
there are no facts in dispute relating to its counterclaim,
the Department asserts that it is entitled to judgment as a
matter of law on its counterclaim.
III.
POM's Argument
In
contrast, POM argues that its game is not a regulated gaming
device under the Gaming Act because its game is not a
regulated "skill slot machine," as defined by the
statute, and the amended Gaming Act was never intended to
change existing Pennsylvania law regarding what is an illegal
gambling device. (POM's Br. at 7.) POM attempts to
distinguish "gaming" from "gambling." POM
contends that "gaming" occurs in licensed
facilities regulated by the Gaming Control Board pursuant to
the Gaming Act, whereas the Pennsylvania Crimes Code
regulates alleged illegal "gambling" devices. POM
also asserts that the 2017 amendments to the Gaming Act did
not expand the scope of the Gaming Act, but continued to only
regulate gaming in licensed facilities. POM contends that
several well-established principles of statutory construction
support its interpretation of the Gaming Act.
POM
maintains that the POM Game is entirely outside of the
regulatory scheme of the Gaming Act because the Gaming Act
only applies to licensed games located in regulated gaming
locations, such as casinos and horse racing tracks. Thus, POM
argues that the Gaming Act does not regulate the types of
places that operate the POM Game, including taverns, bars,
restaurants and convenience stores. Moreover, POM alleges
that if the POM Game is subject to the Gaming Act and, hence,
illegal, so are arcade games located at establishments such
as Chuck E. Cheese or Dave & Buster's. In addition,
POM maintains that if the Department is correct that the POM
Game is subject to the Gaming Act, then the Department has
failed to join an indispensable party to the counterclaim,
i.e., the Gaming Control Board and, therefore, the
counterclaim is jurisdictionally defective.
IV.
Analysis
A.
"Slot Machine," "Manufacturer," and
"Supplier" of Slot Machines Under the Gaming
Act.
We
first address the definitions of "Slot machine,"
"Manufacturer," and "Supplier" under the
Gaming Act to determine whether-if the Gaming Act applies to
unlicensed slot machines-the POM Game would be considered a
slot machine and POM a manufacturer and/or supplier of slot
machines. Thus, at the outset, we are merely deciding
whether, based on the factual allegations, the POM Games are
slot machines pursuant to the definitions in the Gaming Act.
If the POM Games do not fit within the definitions, our
analysis ends at this stage because the Gaming Act would not
apply to the POM Game under any circumstances. On the other
hand, if the POM Game does fit within the slot machine
definitions, we will next determine whether the Gaming Act
applies to unlicensed slot machines like the POM Game.
The
Department argues that, based on POM's factual
allegations, POM's activities vis-à-vis its game
fit squarely within the definitions of "Slot
Machine," "Manufacturer," and
"Supplier." If the Department is correct that,
based on the factual allegations in the pleadings, POM's
activities fit within these definitions, then the question of
whether the Gaming Act applies to POM's activities would
be a pure question of law.
"Slot
machine" is defined under the Gaming Act as follows:
(1) The term includes:
(i) Any mechanical, electrical or computerized
contrivance, terminal, machine or other device approved by
the Pennsylvania Gaming Control Board which, upon
insertion of a coin, bill, ticket, token or similar object
therein or upon payment of any consideration whatsoever, . .
. is available to play or operate, the play or
operation of which, whether by reason of
skill or application of the element of chance or
both:
(A) May deliver or entitle the person or persons
playing or operating the contrivance, terminal, machine or
other device to receive cash, billets, tickets, tokens or
electronic credits to be exchanged for cash or to receive
merchandise or anything of value whatsoever, . . . .
. . .
(iii) A skill slot machine, hybrid
slot machine . . . .
(iv) A slot machine used in a multistate wide-area
progressive slot machine system and devices and associated
equipment as defined by the Pennsylvania Gaming Control Board
through regulations.
(v) A multi-use computing device which is capable of
simulating, either digitally or electronically, a slot
machine.
Section
1103 of the Gaming Act, 4 Pa.C.S. §1103 (emphasis
added). Further, a "Skill slot machine" is defined
as "[a] slot machine in which the skill of the player,
rather than the element of chance is the predominant factor
in affecting the outcome of the game," and "Hybrid
slot machine" is defined as "[a] slot machine in
which a combination of the skill of the player and elements
of chance affect the outcome of the game." Id.
Therefore, if a player must primarily use skill to affect the
game's result, it is considered a "Skill slot
machine." If the skill of the player is not the primary
factor, but outcome of the game is affected by both skill and
chance, it is a "Hybrid slot machine."
In its
petition, POM alleges that the POM Game is a coin-operated
video machine that provides a reward of up to a combined
total of 105% of the original amount spent to play. (Petition
¶¶13, 28.) POM also states that for the purposes of
its petition it does not dispute that its game requires
consideration to play and provides a reward. (Petition
¶44.) POM avers that the POM Game is a game of skill
because the element of skill predominates over the element of
chance. (Petition ¶¶29, 47, 50.)
Section
1103 of the Gaming Act defines "Slot machine" as
any mechanical or computerized machine, which upon payment of
a coin or any consideration provides something of value. The
definition includes what are termed "Skill slot
machines," which are defined as slot machines where the
skill of the player is the predominant factor in determining
the outcome of the game. Because POM alleges that its game
requires consideration to play, provides something of value,
and is skill-based, if POM's activities are subject to
the Gaming Act, then the POM Game fits within the definition
of "Slot machine" under the Gaming Act. Similarly,
since POM alleges that players of the POM game must use
skill, if the Gaming Act applies to unlicensed games then the
POM Game would fit within the definition of "Skill slot
machine" under the Act.
"Manufacturer"
is defined, in pertinent part, under section 1103 of the
Gaming Act as, "A person who manufactures,
builds, rebuilds, fabricates, assembles, produces, programs,
designs or otherwise makes modifications to any slot
machine . . . . Id. (emphasis added). Under
this definition, if the Gaming Act applies to POM's
activities, POM is a "Manufacturer" of slot
machines because it alleges that it "designs . . . the
essential components" of the POM Game. (Petition
¶56.)
"Supplier"
is defined, in relevant part, as follows: "A person that
sells, leases, offers or otherwise provides,
distributes or services any slot machine . . . in
this Commonwealth. Id. (emphasis added). Likewise,
if the Gaming Act were to apply to POM's activities,
POM's factual allegations would also establish POM as a
"Supplier" of slot machines. For example, POM avers
that it "sells the essential components" of the POM
Game, that it distributes software for the POM Game,
(Petition ¶¶1, 56), and admits that it does not
hold a manufacturer's license under the Gaming Act (Reply
to Counterclaim ¶30). The definition of
"Supplier" includes anyone that sells or
distributes slot machines. As POM alleges it sells and
distributes the POM Game, it would also be considered a
supplier of slot machines under the Gaming Act.
Accordingly,
there is one dispositive question remaining before us, which
is a pure question of law: whether the Gaming Act applies to
POM's conduct.[10] As argued by the Department, the Gaming
Act sets forth a comprehensive regulatory regime that applies
to both legal and illegal gambling, including POM's
allegedly illegal game. To answer the question of whether the
Gaming Act applies to the POM Game, we must analyze the
language of the Gaming Act to determine the overall intent of
the General Assembly in enacting the Gaming Act and its
amendments.
B.
Whether, As a Matter of Law, the Gaming Act Applies to
POM's Activities.
1.
Gaming Act Statutory Framework.
We now
turn to the crux of the matter, i.e., whether the
Gaming Act applies to the unlicensed POM Game. In order to
answer this question we must first conduct a ...