Fifth Circuit affirms illegal gambling convictions for use of sweepstakes software

In United States v. Davis, 2012 U.S. App. LEXIS 15875 (5th Cir. 2012), the Fifth Circuit affirmed the defendants' convictions for illegal gambling after they used computer software to allow users to participate in a sweepstakes in violation of federal and Texas law.

The defendants were charged with conducting an illegal gambling business under 18 U.S.C. § 1955 for their actions in a sweepstakes promotion at three Texas Internet cafés. Under the statute, the act must "violate[] the law of the state in which it is conducted." The relevant issue was whether the defendants operated an "electronic gambling device" in violation of Texas law. If participants paid consideration for the privilege of playing, it would be considered such a device.

Software running on computers at the Internet cafés allowed users to participate in the sweepstakes in three ways: (1) purchasing Internet time - $1 = 100 entries, (2) requesting entries in person, up to 100 per day, or (3) requesting entries by mail, up to 100 per day. Winning entries were predetermined, and participants could discover whether they won by asking an employee, swiping their card, or playing games on the computers.

Thus, the defendants argued that since entries were received without purchase or free with the purchase of Internet time, there was no consideration. The Fifth Circuit, however, held:

[T]he consideration element in the Texas gambling statutes can be fulfilled without an explicit exchange of money for the opportunity to participate in a sweepstakes.... Here, as in Jester, there is legally sufficient evidence from which a reasonable fact-finder could infer that the sale of Internet time at the defendants’ cafés was an attempt to legitimize an illegal lottery.

The court also struck down an argument that the defendants were entitled to a mistake of law defense. The defendants argued they had read opinions from the Texas Attorney General prior to the sweepstakes which supported their plan. Because the federal statute criminalizes what is illegal under state law, a defense should be available based on mistake of state law. The Fifth Circuit, however, found that the defendants did not "reasonably rely on any 'official statements'" because more recent opinions would have shown the act was illegal.

Therefore, the convictions for illegal gambling and conspiracy to commit illegal gambling were affirmed (though a money laundering conviction was reversed).