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TABC in standoff with Austin American Legion post over sweepstakes

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On this Memorial Day weekend, let's give some applause to the American Legion Knebel Post's "Support a Veteran Sweepstakes," and hope we are not applauding illegal gambling.

First, a correction is in order. Not on my blog, but at the Austin-American Statesman, which insinuated this May 16 opinion from the Austin Court of Appeals for the Third District as a win for the American Legion.

The headline followed the lead, which said the Third District ruled the American Legion “may continue with a lawsuit alleging that state regulators improperly raided a South Austin post during a 2010 gambling investigation.”

Actually, the Third District ruled in the TABC’s favor—completely the opposite result. But let’s start at the beginning.

Case No. 03-11-00703-CV: Texas Alcoholic Beverage Commission v. American Legion Knebel Post 82

In 2009, Knebel Post 82 decided to host a fund-raising event called "Support a Veteran Sweepstakes." This was to be a sweepstakes similar to the scratch-off games sometimes promoted by McDonald’s and other national companies. However, Knebel Post’s game involved use of an electronic gaming device equipped with video display.

According to Third District Justice Jeff Rose, who wrote the opinion, the device draws entries from a predetermined pool and then “opens” those entries on the screen in the form of a video game.

Thinking proactively, Knebel Post asked TABC for pre-market approval. The TABC supervisor of marketing practices responded by letter, stating the game was permissible, if operated in the manner described.

In 2010, the TABC gets a complaint, conducts an investigation and obtains a warrant. Agents raid the post and seize the gaming devices. An administrative charge is asserted against Knebel Post. In tandem, the Travis County Attorney filed criminal charges.

No explanation is given, maybe the TABC just wanted to scare those grey beard veterans, but the administrative charge was dropped in exchange for a $1,500 fine for failure to adequately supervise employees. Likewise, the county attorney dropped the criminal charges.

Before the charges were dropped, however, Knebel Post went to court and asked for a declaratory judgment against the TABC. The veterans wanted the judge to declare that the Sweepstakes was not illegal gambling and that Texas Administrative Code 35.31, the rule the TABC relied upon, did not apply.

The TABC's response was, wait, we dropped the charges. This issue is moot and the court has no jurisdiction.

The honorable Scott H. Jenkins, judge presiding, thought otherwise. Jenkins said he did have jurisdiction. And he granted summary judgment for Knebel Post, with the requested declaration that the Sweepstakes, "as presented in the summary judgment evidence in the record in this case, is not gambling, provided that it is conducted in accordance with that evidence."

Knebel Post got everything it wanted and that would have been the end of it if the TABC had not appealed.

Rose disagreed with the TABC on the jurisdiction argument.

"TABC's argument here incorrectly assumes that TABC's imposition of administrative charges was the only issue raised by the Post's suit when, in fact, the real controversy was whether TABC rule 35.31 applied to the Post's Sweepstakes," Rose said.

The TABC voluntarily dropped the charges and is free to reassert them at its discretion, Rose noted.

However, Rose said Jenkins moved too fast when it came to dismissing the case in Knebel Post's favor.

"The Post's summary judgment evidence includes a document titled 'Affidavit For Search and Seizure Warrant.' This warrant, which was created by TABC in advance of its raid on the Post's premises, contains the testimony of a TABC agent regarding TABC's probably cause to search the Post's premises and seize the Sweepstakes machines. Specifically, the agent testifies in the warrant that a former Post bartender stated that 'to use the Sweepstakes machines a car must be received from the barender and that you must put money on the card to play.'"

Taking this as true, the warrant creates a question of fact regarding whether someone can play the Sweepstakes for free, Rose said.

With concurrence from Chief Justice Woodie Jones and Justice Melissa Goodwin, Jenkins' summary judgment was reversed and the case sent back to him for further consideration.

Knebel Post lost its court declaration, and that's all the old boys really wanted.

The Vinson & Elkins team of Travis Wimberly and Thomas Leatherbury in Austin worked this case for the Knebel Post in concert with Jennifer S. Riggs at Riggs Aleshire & Ray, also in Austin.

Robin Sanders at the Office of Texas Attorney General represented the TABC.

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