Rosenkranz v. Vassallo

Citations: 193 N.J. Super. 319; 473 A.2d 991; 1984 N.J. Super. LEXIS 957

Court: New Jersey Superior Court Appellate Division; January 25, 1984; New Jersey; State Appellate Court

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The court's opinion, delivered by Judge Michels, addresses an appeal by plaintiffs Sidney Rosenkranz and Richard Fernandez against an administrative action by John F. Vassallo, Jr., Director of the New Jersey Division of Alcoholic Beverage Control. This action, outlined in Bulletin No. 2430, Item No. 3, issued on March 31, 1983, prohibits the installation of video poker and similar gaming machines on liquor-licensed premises. The Bulletin serves as a notice to licensees regarding this prohibition, which has its roots in regulations dating back to October 11, 1934. According to current regulation N.J.A.C. 13:2-23.7, all forms of gambling are barred on such premises, including any machines that function similarly to slot machines.

The Division maintains that even machines programmed not to pay out based on player performance offer minimal amusement value due to the lack of required skill and are susceptible to gambling practices. Consequently, video machines resembling traditional gambling games like cards and dice are not permitted in liquor-licensed locations. Plaintiffs, who own companies that place vending and game machines in various establishments, report that over 75% of their business involves liquor-licensed venues. From August 1982 to March 1983, the Division received numerous inquiries about the legality of these machines from various stakeholders. Responses indicated a firm continuation of the prohibition against amusement devices resembling traditional gambling games. However, a letter from the Bureau Chief on January 27, 1983, stated that video poker games could be legal if strictly for entertainment purposes.

Chief Treger warned that the operator of video poker machines was prohibited from buying back or erasing credits, as doing so would classify the machines as gambling devices, leading to potential license charges. On February 10, 1983, Director Vassallo responded to an inquiry from Ms. Rahmig, disallowing video poker games in liquor licensed establishments. Following this, on March 8, 1983, Chief Treger informed Art Warner that due to numerous complaints about gambling linked to video poker outcomes, these machines would no longer be permitted in such venues. While the game itself is not deemed a gambling device, the context of its use encourages gambling behavior. 

On March 25, 1983, the Joseph Katz Company, representing the Amusement and Music Operators Association, sought clarification from the Attorney General regarding the legality of video poker games. The Attorney General responded on March 30, 1983, affirming that Vassallo’s February 10 letter accurately represented the Division’s stance, characterizing Treger's prior opinion as informal and not reflective of official policy. Subsequently, on March 31, 1983, the Director issued a Bulletin, asserting his role as State Commissioner of Amusement Game Control and noting he had received information regarding video poker machines that informed the Bulletin's content. 

The Director also disclosed knowledge of 13 investigations by the State Police regarding alleged payouts by liquor licensees for points earned on video poker. Notably, during one investigation, a bartender admitted to paying $5 for every 20 points won on specific machines. The operations of the video poker machines are outlined, indicating players deposit coins to register credits, wager on hands, and can either keep or replace cards drawn electronically. Winning hands yield varying "skill points," influenced by the number of coins inserted and the machine settings, which determine payout percentages and winning hand thresholds.

A player with a winning combination at the end of a game can choose to either credit their points for future betting or engage in a "double or nothing" game, where they guess if the next card will be higher or lower than a designated card. Correct guesses double the previous winnings, while incorrect ones result in a total loss of those credits. Some gaming machines include a non-operational 'knock-off switch' to erase credits, which can be activated through simple wiring adjustments or by inserting a paperclip through a pinhole. Certain machines also track the number of games erased. Players can receive cash for erased credits, facilitated by an employee of the licensee. Brochures indicate these machines can operate in various configurations, including automatic payouts via a 'token dispenser.' Plaintiffs argue their machines differ significantly from those described, claiming they only allow players to accumulate skill points for free games without automatic payouts. They assert that converting their machines to resemble those in the brochures would require extensive electronic and physical modifications. Consequently, the plaintiffs contend that their machines are not classified as slot machines under relevant statutes, challenge the Director's ruling as arbitrary and capricious without a fair hearing, and question the Director's authority in determining the nature of these machines. The regulation of intoxicating liquors falls under the State's police power, with the Alcoholic Beverage Law establishing the Department of Alcoholic Beverage Control, which oversees the regulation of gambling devices through the Director, who has the authority to create related rules and regulations, including those on gambling and slot machines.

Licensees are prohibited from possessing or allowing any materials related to lotteries or illegal gambling on licensed premises. The Director concluded that video poker, blackjack, and similar machines violate N.J.A.C. 13:2-23.7, leading to their prohibition in New Jersey liquor licensed establishments. The machines were deemed to have limited amusement value, promote gambling, and facilitate monetary awards based on player performance. Citing case law, including the Pennsylvania Supreme Court's determination that the Electro-Sport Draw Poker Machine is a gambling device, the analysis emphasized that certain machine features create intrinsic gambling connections, offering rewards that qualify them as gambling devices. As the plaintiffs argue their machines differ from those in the ruling, they are granted the opportunity to present evidence to the Director to demonstrate compliance with regulations. The case is remanded to the Director for further proceedings while a stay on the enforcement order remains in effect. It is noted that the absence of payout devices does not exempt such machines from being classified as prohibited.