UNITED STATES of America, Plaintiff-Appellee, v. Daniel Patrick DAVIS; Phillip Dell Clark, Defendants-Appellants.
No. 11-40265.
United States Court of Appeals, Fifth Circuit.
Aug. 1, 2012.
III
For the foregoing reasons, we AFFIRM the district court‘s order denying the City‘s claims for damages under the contracts between the parties. We REVERSE and VACATE the district court‘s judgment awarding unjust enrichment damages to the City. We also REMAND to the district court with instructions to enter a permanent injunction, enjoining the City from enforcing the 2011 Ordinance.
Margaret Loraine Schmucker (argued), Austin, TX, Clifford Ashcroft-Smith (argued), Conroe, TX, for Defendants-Appellants.
Before REAVLEY, PRADO and OWEN, Circuit Judges.
PRADO, Circuit Judge:
Defendants-Appellants Daniel Patrick Davis and Phillip Dell Clark were convicted of illegal gambling, conspiring to commit illegal gambling, and money laundering for their roles in a “sweepstakes” promotion at three Internet cafes in Tex
I. FACTUAL AND PROCEDURAL BACKGROUND
A. The Statutory Framework
Davis and Clark were charged with violating and conspiring to violate
The superseding indictment alleges that Davis and Clark operated “electronic gambling devices” in violation of three Texas state laws: gambling promotion, keeping a gambling place, and possessing a gambling device, equipment or paraphernalia.1
To obtain a conviction under any one of those Texas statutes, the Government would have to prove either that a gambling device or a lottery was involved. A “gambling device” is “any electronic, electromechanical, or mechanical contrivance ... that for a consideration affords
B. The Sweepstakes’ Mechanics
In addition to providing Internet access and word processing, faxing, and copying services, each of the three Internet cafes involved in this case—the Dolphin in Port Arthur, Texas; the Double Click in Henderson, Texas; and the Nederland in Nederland, Texas—offered a sweepstakes promotion that allowed customers to win cash prizes. The sweepstakes ran on computer software that, at the outset, created a finite number of “entries.” Within that universe of entries, the software designated particular entries as winning entries, and assigned a cash value to each winning entry. The software then shuffled the universe of entries so that the winning entries were randomly distributed.
There were three ways for sweepstakes participants to acquire entries. First, by purchasing Internet time at one of the cafes; each dollar of Internet time purchased came with 100 entries. Second, by requesting entries in person at the cafe, up to 100 entries a day. Or third, by requesting entries by mail, also up to 100 entries a day.2 After obtaining entries, participants could choose among three ways to find out if their entries were winners; the method chosen did not affect whether a particular entry was a winner or a loser because, as noted earlier, whether it was a winner or a loser was predetermined by the computer software. First, participants could ask the clerk who sold them Internet time to instantly reveal whether any of their entries were winners and if so, what their total winnings were. Second, participants could swipe at a computer terminal the card issued by the cafes that electronically stored Internet time and entries, and then choose “reveal” or “quick win” on the screen. That option would, like the instant reveal, immediately tell the participant whether or not the entries were winners, and if so, for how much.
Third, participants could reveal whether their entries were winners by playing a variety of casino-like games available on each computer terminal. For example, one game available looked like a video slot machine. Clicking “reveal” caused the reels to rotate and stop, revealing whether or not the played entries were winners, and for how much. Each time “reveal” was clicked, twenty-five entries were played. Winnings were displayed on the screen, and the participant could cash out those winnings in two ways. The participant could go to a clerk and receive cash, or the participant could use the winnings to purchase more Internet time at a computer terminal. The purchase of Internet time, as before, came with entries—100 for each dollar of Internet time. Playing the
C. Police Investigations
1. The Dolphin
Because of complaints that people had been gambling and losing large sums of money at the Dolphin, Port Arthur Police Officers Shawn Perron and Chris Billiot, while undercover, visited the Dolphin. The Dolphin‘s windows were tinted and a sign outside the building—which was part of a strip-center—advertised the business as Dolphin Internet. Upon entering, Perron saw several tables containing “five or six” computers each, a main counter, an area with food, and another room containing about fifteen computers. He observed “several” people at the computers playing “what appeared to be eight-liner or electronic slot machine games.” Nobody in
Billiot testified3 that when he visited the Dolphin, he was issued a card that he took to a machine that worked “like a reverse ATM machine” in which he put money, swiped his card, and sat down to play the sweepstakes. He stated that in his recollection, “when you go into the sweepstakes to a game, it converts those minutes into a cash value to where you can play these different type machines ... like slot machines.” Unlike Perron, Billiot did not win anything while playing the sweepstakes. Billiot testified that in his recollection, once he had used up all of his entries, he could not go back to surf the Internet. He admitted during cross-examination, however, that he did not ask a Dolphin clerk for assistance, and it was possible that all of his Internet time was still available.
2. The Nederland
Based on information that an illegal gambling business was being conducted at the Nederland, Nederland Police Department Officer Casey Maxwell visited the Nederland while undercover. Like the Dolphin, the Nederland was located in a strip-mall. Upon entering, Maxwell was asked to sign a piece of paper stating that he was not gambling, he was buying Internet time and playing a sweepstakes. He was handed a “credit card looking card” which was loaded with $5 free because it was his first visit, led to one of the computer terminals, offered free food, and shown how to access the sweepstakes games. There were about twelve other people sitting at computers, all playing the sweepstakes. Maxwell bought $40 of Internet time, played the sweepstakes, and did not win any money. After using all of his entries, he testified that he “couldn‘t do anything else on the computer,” but when asked if he had tried, he said, “No.”
Maxwell visited the Nederland again about a week later. He noticed signs saying “Win Cash Prizes” and “All of Your Favorite Games.” Maxwell purchased $40 of Internet time from an ATM-like terminal and played the sweepstakes without success. He purchased another $40 of Internet time and this time won about $640. Maxwell stated that as he played the sweepstakes and won, the entries displayed on the screen continuously went down, and the money he won was displayed in a different box on the screen. He approached a clerk to cash out and was told that because he won more than $500 he had to give the clerk his driver‘s license and social security numbers to file with the
3. The Double Click
There was no testimony by police officers regarding their investigation into the Double Click. Delores Ridens, the manager of the Double Click, testified as a cooperating witness. She estimated that Double Click customers actually used “a little less” than $100 worth of Internet time each week. That amount was dwarfed by the $27,770 in Internet time sales during a representative week.
D. Charges and Trial
After these investigations by local police, a federal grand jury indicted the defendants, along with five others,4 in a nine-count superseding indictment. Davis and Clark were each charged with one count of conspiring to “conduct, finance, manage, supervise and direct an illegal gambling business, said illegal gambling business involving the operation of electronic gambling devices” in violation of
Throughout the trial, Davis and Clark each maintained that they were entitled to present a mistake-of-law affirmative defense. After holding a hearing, at which
At the end of the Government‘s case, Davis and Clark each moved for a judgment of acquittal. The district court denied those motions. Davis testified, called a witness on his behalf, and elicited testimony from Nick Farley, the expert called by his co-defendant Cecil Stephens, in an attempt to bolster Farley‘s credibility. Clark did not testify or call any witnesses, but he questioned Davis, elicited favorable testimony from Farley, and referred to Farley‘s testimony during summation. Neither Davis nor Clark renewed his motion for judgment of acquittal at the close of all the evidence.
The jury returned a verdict, finding each defendant guilty on multiple counts. Davis was convicted of conspiracy to commit illegal gambling, two counts of illegal gambling, and two counts of money laundering. Clark was convicted of conspiracy to commit illegal gambling, two counts of illegal gambling, and two counts of money laundering. Davis was sentenced to a year and a day of imprisonment, which was below the applicable Guidelines range of 18-24 months. Clark was sentenced to two years of probation, which was also below the applicable Guidelines range of 24-30 months. The defendants timely appealed, invoking our jurisdiction under
II. DISCUSSION
As stated previously, Davis and Clark principally contend that there is insufficient evidence to sustain their convictions for illegal gambling (and conspiracy to commit illegal gambling) because their conduct did not violate Texas state law. Further, the defendants argue that the district court erred in refusing to allow them to put on a mistake-of-law defense.
A. Sufficiency of the Evidence5
1. Standard of Review
“We review properly preserved claims that a defendant was convicted on insufficient evidence with substantial deference to the jury verdict, asking only whether a rational jury could have found each essential element of the offense beyond a reasonable doubt.” United States v. Delgado, 672 F.3d 320, 330 (5th Cir. 2012) (en banc) (internal quotation marks omitted). However, where a defendant moves for a judgment of acquittal at the end of the Government‘s case but, after presenting evidence, fails to renew that motion, the defendant has forfeited his insufficiency challenge and our review is for a “manifest miscarriage of justice.”6 United States v. Salazar, 542 F.3d 139, 142 (5th Cir.2008). Because Davis failed to renew his motion for a judgment of acquittal after he testified, we review his insufficiency claim for a manifest miscarriage of justice.
A manifest miscarriage of justice exists “only if the record is devoid of evidence pointing to guilt, or because the evidence on a key element of the offense is so tenuous that a conviction would be
The proper standard of review for Clark‘s claim is a closer question. Clark did not testify or call any witnesses, but he questioned Davis and elicited favorable testimony from Farley, which he referred to during closing arguments. Had Clark not questioned Davis or elicited testimony from Farley, he would not have needed to renew his motion for a judgment of acquittal at the end of all the evidence merely because his co-defendant testified. United States v. Arias-Diaz, 497 F.2d 165, 168-69 (5th Cir.1974). If we were to determine that Clark functionally “presented evidence” by questioning Davis and Farley, he too would have forfeited his insufficiency claim by failing to renew his motion for a judgment of acquittal at the end of all the evidence. We need not reach this question because we would affirm Clark‘s convictions under either the manifest miscarriage of justice standard or the more lenient standard we apply to preserved insufficiency claims.
2. Analysis
As noted above, both Davis‘s and Clark‘s insufficiency challenges turn on whether or not there was evidence that sweepstakes participants exchanged some consideration for the privilege of playing the sweepstakes. The defendants argue that consideration in this context means paying money in exchange for playing. They maintain that the record does not contain any evidence that sweepstakes participants did, or even could, pay to play the sweepstakes. Participants either received a limited number of sweepstakes entries each day without purchasing Internet time, or received entries free with the purchase of Internet time—such Internet time, the Government concedes, was sold at fair market value.7
The defendants are correct that consideration exists if sweepstakes participants must pay money for the privilege of playing or if participants who pay have better chances of winning than non-paying participants. In Cole v. State, for example, the Texas Court of Criminal Appeals affirmed the conviction of a theater owner who randomly picked a name from a pool of names that did not require payment to enter, but the theater owner limited the amount of time in which the winner could claim her prize to such an extent that, in all practicality, the only people who could win were those paying customers in the theater. 112 S.W.2d 725, 727-27, 730 (Tex. Crim.App.1937). The court in Brice v. State distinguished Cole in overturning the conviction of a store owner who gave away prizes during the three-day opening of his store by randomly drawing a registration card out of the thousands submitted in
[I]n the absence of any character of favoritism shown to customers, the [gambling statute] is not violated under a plan whereby a merchant awards a prize or prizes by chance to a registrant without requiring any registrant to be a customer or to purchase merchandise or to do other than to register without charge at the store, though the donor may receive a benefit from the drawing in the way of advertising.
A more recent case with facts similar to those in this case also informs the scope of consideration. Jester‘s store contained machines that, when a dollar was inserted, dispensed a three minute pre-paid telephone card and displayed 100 credits. Jester v. State, 64 S.W.3d 553, 554-55 (Tex. App.—Texarkana 2001, no pet.). The credits could be used to play a game on the machines through which it was possible to win more credits, which in turn were redeemable for gift certificates. Id. at 555. It was also possible to play for free (to a limit of 100 credits a day) by mailing a request form, receiving a certificate in the mail, and showing the certificate to the clerk at the store. Id. at 556-57. Jester argued that the scheme did not constitute a lottery, but was instead a legal sweepstakes because consideration was lacking—the customers either put in a dollar and received a phone card or played for free. Id. at 556-57.
The court stated that “consideration regarding lotteries should be measured by the same rule as in contracts,” id. at 557, and determined on the facts presented that a reasonable jury could have found the presence of consideration beyond a reasonable doubt, id. at 558. The court explained that its decision turned on “whether the sweepstakes was intended to promote the sale of telephone cards or whether the telephone cards were there as an attempt to legitimize an illegal gambling device.” Id. Driving the court‘s finding that the telephone cards were an attempt to legitimize an illegal gambling device, and that therefore the consideration requirement was satisfied, were the following facts: the telephone cards cost “much” more per minute than the market cost of telephone time; there was testimony that the telephone cards did not work; there was evidence that players did not value the telephone cards, and that some players did not know they even were telephone cards; there was testimony that the employees were aware that the customers did not value the telephone cards; there were no signs on the outside of the building advertising or indicating that telephone cards were sold at the store; and no employee tried to sell customers on the telephone cards. Id.
The court concluded:
The evidence in this case was legally sufficient for the jury to infer that the main purpose and function of the machines, and the business, was to induce people to play the game, agreeing to gain or lose something of value at least partially by chance, and not to promote telephone cards; that it was Jester‘s intent to structure the business to entice players to exchange money for chances to play, which they did; and that the telephone cards were not the primary subject of the transaction, but mere subterfuge.
Although testimony was provided regarding the redemption of the free games and the telephone card minutes, as well as the higher market price for smaller denominated telephone cards and Jester‘s intention to promote the telephone cards, the jury‘s determina
Id. at 558-59. As the Jester court‘s reasoning shows, the consideration element in the Texas gambling statutes can be fulfilled without an explicit exchange of money for the opportunity to participate in a sweepstakes. We therefore reject the defendants’ argument that consideration is limited to the exchange of money for the privilege of participating.8
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’ cafes was an attempt to legitimize an illegal lottery. Customers’ receipts indicating over 300,000 minutes of Internet time remaining were evidence that the customers did not value the Internet time they had purchased. Further evidence that customers did not value their Internet time was the investigating police officers’ uniform testimony that during each of their visits to a cafe, all of the people there were only engaged in playing the sweepstakes—not accessing the Internet or using any of the other services provided. In addition to the customers’ apparent disregard for the value of Internet time, there was evidence which casts doubt upon the defendants’ claim that they intended to be legitimate, full-service Internet, faxing, copying, and word-processing vendors. For example, the manager of the Nederland testified that Davis said that he was “not worried about” the roughly $400 every two months in revenue from services other than Internet time and simply told the manager to keep it. The defendants’ focus on income from the sale of Internet time to the exclusion of income derived from other services offered by the cafes could reasonably raise the inference that the defendants offered the other services merely as an attempt to make it appear that their sale of Internet time was part of a full-service business, instead of a mechanism for legitimizing unlawful activity. Further evidence that the defendants’ true purpose for the cafes was to create a place where people would be comfortable staying for a long time, purchasing Internet time and playing the sweepstakes, was the casino-like atmosphere at the cafes, complete with tinted windows and free food and drink. Finally, it is reasonable to infer that Davis‘s and Clark‘s purpose for the cafes was to legitimize illegal gambling from the fact that cafe customers were required to sign a form stating that they were not gambling upon entering at least one of the cafes; legitimate businesses ordinarily do not require such formalities. Reviewing all facts and inferences in the light most favorable to the jury‘s verdict, we conclude similarly to the Jester court that the main purpose and function of Davis‘s and Clark‘s Internet cafes was to induce people to play the sweepstakes, and that the Internet time sold by the cafes—albeit at fair market value—was not the primary subject of the
B. Mistake-of-Law Defense
The defendants maintained throughout the proceedings below that they were entitled to raise a mistake-of-law affirmative defense. The district court held a hearing on this issue and issued a thorough oral ruling preventing the defendants from raising the defense. “Whether a defendant should have been allowed to present an affirmative defense is a legal issue that we review de novo.” United States v. Sariles, 645 F.3d 315, 317 (5th Cir.2011).
In general, under both federal and Texas state law, ignorance of the law is not a defense. See, e.g., Ratzlaf v. United States, 510 U.S. 135, 149 (1994);
As correctly noted by the district court in its oral ruling,
Davis and Clark argue that in this sort of “hybrid” prosecution, where federal law borrows state substantive law, defendants should be able to raise a mistake-of-law defense that is rooted in state law. Texas allows an affirmative defense where:
the actor reasonably believed the conduct charged did not constitute a crime and that he acted in reasonable reliance upon:
(1) an official statement of the law contained in a written order or grant of permission by an administrative agency charged by law with responsibility for interpreting the law in question; or
(2) a written interpretation of the law contained in an opinion of a court of record or made by a public official charged by law with responsibility for interpreting the law in question.
Davis claims to have reasonably relied upon a variety of “official statements of the law” and “written interpretations of the law.” Clark claims to have relied upon a single judicial opinion. First, Davis claims to have read “five or six” Texas Attorney General (“AG“) opinions, and to have relied upon three.11 We agree with the district court that Davis‘s reliance on those AG opinions was not reasonable because, as noted by the district court, he ignored more recent and more factually analogous opinions that would support a conclusion that his conduct was illegal. Next, Davis claims that he relied upon three cases: G2, Inc. v. Midwest Gaming, Inc., 485 F.Supp.2d 757 (W.D.Tex.2007); Brice; and In re $1,189.51 U.S. Currency, No.2009-01-160A (107th Dist. Ct., Cameron County, Tex. Apr. 24, 2009). The Texas mistake-of-law defense “was not created to allow a criminal defendant to rely upon old interpretive opinions, opinions that conflict with others, or on overruled opinions.” Green v. State, 829 S.W.2d 222, 223 (Tex. Crim. App.1992) (en banc) (internal quotation marks omitted). Davis‘s reliance on G2 was not reasonable because its discussion of the gambling statutes followed immediately after the court had determined that it lacked jurisdiction. G2, 485 F.Supp.2d at 766. Clark only claims to have relied upon G2; for the same reason as for Davis, Clark‘s reliance on G2 was not reasonable. Davis‘s reliance on Brice was not reasonable because the language in it that is most helpful to Davis conflicts with language in Jester—a much more recent decision. Finally, Davis‘s reliance on In re $1,189.51 was not reasonable because the court there did not actually rule on the scheme‘s illegality, as the parties had stipulated to its illegality for the purpose of civil forfeiture.
We further agree with the district court that Davis‘s claimed reliance on the texts of the Texas Sweepstakes Act,
III. CONCLUSION
For the foregoing reasons, we affirm Davis‘s and Clark‘s convictions for illegal gambling and conspiracy to commit illegal gambling; reverse Davis‘s and Clark‘s convictions for money laundering; and remand to the district court for resentencing and a forfeiture redetermination.
AFFIRMED in part; REVERSED in part; and REMANDED.