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HomeMy WebLinkAbout8.3 Internet Swpstake Cafe Urgent Ord STAFF REPORT CITY CLERK File #585-50 CITY COUNCIL DATE:October 16, 2012 TO: Honorable Mayor and City Councilmembers FROM: Joni Pattillo, City Manager SUBJECT: Adoption of Urgency Ordinance and Introduction of Regular Ordinance Adding Chapter 5.50 Relating to Internet Sweepstakes Cafes to the Dublin Municipal Code Prepared by Stephen Muzio, Assistant City Attorney EXECUTIVE SUMMARY: The City has recently received inquiries regarding the establishment and operation of an internet cafe that would conduct a “sweepstakes” program whereby people may play games on the computers at the cafe in the hopes of winning prizes. These types of businesses have been opening throughout the state. Their proprietors argue that although the sweepstakes programs might appear to be gambling or a lottery, they comply with state law requirements relating to the operation of sweepstakes and are thus legal. The City Attorney’s Office has prepared a new Chapter for inclusion in the Dublin Municipal Code that would prohibit this type of “internet sweepstakes cafe.” FINANCIAL IMPACT: None. RECOMMENDATION: Staff recommends that the City Council 1) Receive Staff presentation; 2) Deliberate; 3) Waive adoptby a 4/5ths vote the reading and , ,an Urgency Ordinance adding Chapter 5.50 to the introduce Dublin Municipal Code; and 4) Waive the reading and an ordinance adding Chapter 5.50 to the Dublin Municipal Code. Submitted By Reviewed By City Attorney Assistant City Manager ITEM NO. 8.3 Page 1 of 3 DESCRIPTION: The City has recently received inquiries regarding the establishment and operation of an internet cafe that would conduct a “sweepstakes” program whereby people may play games on the computers at the cafe in the hopes of winning prizes. Similar businesses have been opening throughout the state, and some have come under investigation for being illegal gambling operations. The following description of the activities of an internet sweepstakes cafe is based on information provided by the party that submitted the inquiry as well as staff’s review of news accounts addressing similar businesses. Internet sweepstakes cafes purport to sell their customers time on computers that are connected to the internet. Based on the amount of computer time purchased, customers are provided a certain number of credits to play games on the computers. These games hold out the possibility of winning cash prizes. Frequently, the games have the appearance of Vegas- style games of chance, such as slot machines, thus creating a casino-like atmosphere at internet sweepstakes cafes. The operators of these establishments assert that although the games appear to be gambling games, which are highly restricted and regulated under state law, they are actually “sweepstakes” that are provided as a means of promoting the businesses of renting computer time in compliance with state law requirements relating to the operation of sweepstakes. That said, it appears that the resemblance of the games to casino-style games, and the possibility of winning cash prizes by playing them is a driving factor for the customers that patronize internet sweepstakes cafes. Business and Professions Code defines “sweepstakes” to mean “any procedure for the distribution of anything of value by lot or by chance that is not unlawful under other provisions of law including, but not limited to, the provisions of Section 320 of the Penal Code.” (Bus. and Prof. Code § 17539.5(a)(12).) Penal Code section 320 relates to commercial lotteries, which are illegal under State law. State law also prohibits commercially operated banked or percentage games and “gambling machines,” and highly restricts and regulates other gambling operations. Under state law, a lottery is comprised of three elements: a prize, payment of consideration to be eligible to win the prize, and distribution of the prize by chance. Though the definition of “sweepstakes” is not particularly illuminating, case law and other legal sources establish that a sweepstakes is essentially a lottery in which no purchase or payment is required to play the game. There are a number of provisions in the Business and Professions Code that regulate the conduct of sweepstakes, including a requirement that an entry submitted without a purchase or payment will be treated the same as an entry submitted with payment. Sweepstakes operators must also comply with certain noticing and advertisement requirements, including the publication of the odds of winning the sweepstakes. Operators of internet sweepstakes cafes argue that they comply with these requirements. That said, the number of entries given to a paying customer will typically greatly outnumber the number of entries that will be given to a non-paying participant in the game. There have been at least a few cases in the state where an internet sweepstakes cafe or similar operation has been deemed to be an illegal gambling operation, rather than the operator of a legitimate sweepstakes program. Due to the atmospheric similarities between a casino and an internet sweepstakes cafe and the presence of large amounts of currency on the premises, the cafes have the same potential to generate deleterious effects that legal gambling operations generate, such as check and credit Page 2 of 3 card fraud, loan sharking, robbery, and money laundering. Moreover, internet sweepstakes cafes should be closely regulated to ensure that they comply with state law requirements and that they do not cross the line between a legal sweepstakes program and an illegal lottery or gambling establishment. Absent such regulation, the public would be unable to have confidence and trust in the integrity of the sweepstakes program. That said, adequate regulation and monitoring of the type of sweepstakes programs offered by internet sweepstakes cafes exceeds the City’s current financial and technical resources. For this reason, the City Attorney’s Office has prepared a new Chapter for inclusion in the Dublin Municipal Code that would prohibit this type of “sweepstakes internet cafe.” Regular ordinances must, by state law, be introduced and adopted at separate meetings of city councils. Moreover, such ordinances may not take effect sooner than thirty days after their adoption. Because the City has received inquiries about the establishment of an internet sweepstakes cafe and, absent any change to the Code, would be required to process an application to open such a business, there is at least a possibility that an internet sweepstakes cafe could be established before a regular ordinance could take effect. For this reason, staff has prepared both an urgency ordinance for adoption at tonight’s City Council meeting, and a regular ordinance for introduction at tonight’s meeting. An urgency ordinance may only be adopted “for the immediate preservation of the public peace, health or safety”, must contain a declaration of the facts constituting the urgency, and must be passed by a 4/5 vote of the City Council (Govt. Code § 36937(b)). Although staff believes that sufficient grounds exist for an urgency ordinance, staff prepared a non-urgency ordinance out of an abundance of caution. The urgency ordinance would be effective immediately. The non- urgency ordinance would be adopted at a subsequent regular meeting (anticipated to be November 6, 2012) and effective 30 days thereafter. The non-urgency ordinance will supersede the urgency ordinance when it goes into effect. The mechanics of this “dual ordinance” procedure will ensure that the regular ordinance is in effect should someone challenge the urgency ordinance findings. NOTICING REQUIREMENTS/PUBLIC OUTREACH: The Agenda for this evening’s City Council meeting was posted and published pursuant to applicable state law. Special public noticing is not required to adopt an Urgency Ordinance. ATTACHMENTS: 1. Urgency Ordinance Adding Chapter 5.50 to the Dublin Municipal Code 2. Regular Ordinance Adding Chapter 5.50 to the Dublin Municipal Code Page 3 of 3 ORDINANCE NO.___ AN URGENCY ORDINANCE OF THE CITY OF DUBLIN ADDING CHAPTER 5.50 TO THE DUBLIN MUNICIPAL CODE RELATING TO INTERNET SWEEPSTAKES CAFES WHEREAS ,Government CodeSection 36937 provides that a city council may adopt an urgency ordinance for the immediate preservation of the public peace, health or safety upon a declaration of the facts constituting the urgency, and a four-fifths vote of that city council; and WHEREAS , pursuant to Article XI, Section 7 of the California Constitution, the City may make and enforce within its limits all local police, sanitary, and other ordinances and regulations not in conflict with general laws; and WHEREAS , the City has received inquiries regarding the establishment, and operation of an internet sweepstakes cafe (as defined herein) within the City; and WHEREAS , internet sweepstakes cafes are operations that rent time on computer terminals and in conjunction therewith provide free entries into sweepstakes, with prizes typically, but not always, distributed based on the results of customers’ operation of games on the computer terminals; and WHEREAS, operators of internet sweepstakes cafes assert that their operations do not violate state gambling laws because customers pay for the right to use computer terminals and not for the privilege of entering the sweepstakes; and WHEREAS, even if the operations of internet sweepstakes cafes do not constitute illegal gambling under state law, customers of internet sweepstakes cafes experience an atmosphere that is similar to the experience that is offered on slot machines and other electronic gambling devices legally operated in the State of Nevada, and the operations therefore have the same potential to generate deleterious effects that legal gambling operations do; and WHEREAS, it is within the City’s police power authority to regulate gambling activities that are not regulated by state law; and WHEREAS, the City Council finds that internet sweepstakes cafes, like legal gambling operations, must be appropriately regulated to ensure both that the internet sweepstakes cafes do not cross the line between a legal sweepstakes program and an illegal lottery or gambling establishment and that the public can have confidence and trust in the credibility and integrity of the operations; and WHEREAS , the City Council finds that the development, establishment and operation of internet sweepstakes cafes without adequate regulation has the potential to result in associated crime such as check and credit card fraud, loan sharking, robbery, and money laundering; and WHEREAS, City Council further finds that the City at present does not have the financial and technical resources to appropriately regulate internet sweepstakes cafes; and WHEREAS, the City Council believes, for all the foregoing reasons, that it is in the public interest to prohibit the operation internet sweepstakes cafes in the City; and WHEREAS , without the immediate enactment of this Ordinance, multiple applicants could receive entitlements that would allow the establishment of internet sweepstakes cafes that pose a threat to the public peace, health, and safety; and NOW, THEREFORE,the City Council of the City of Dublin does hereby ordain as follows: Section 1. Chapter 5.50 is hereby added to the Dublin Municipal Code to read as follows: Chapter 5.50 INTERNET SWEEPSTAKES CAFES Sections: 5.50.010 Definitions. 5.50.020 Prohibitions. 5.50.030 Violations. 5.50.040 Exceptions. 5.50.010 Definitions A. “Computerized sweepstakes device” shall mean any computer, machine, game or apparatus which upon insertion of a coin, token, access number, magnetic card or similar object, or upon payment of anything of value, may be operated by the public generally for use in a contest of skill, entertainment, amusement or chance whether or not registering a score, and which provides the user with a chance to win anything of value or any cash payout or anything that could be redeemed, directly or indirectly for any cash payout and which is not regulated as gambling, a lottery or as a gaming device under state or local law. B. “Internet sweepstakes cafe" shall mean any premises upon which a computerized sweepstakes device is located for the use or entertainment of the public, whether or not such premises has other business purposes of any nature whatsoever. 5.50.020 Prohibitions. A. Internet sweepstakes cafes are prohibited within the City. B. It is unlawful for any person toestablish, manage or otherwise engage in the business of operating an internet sweepstakes cafe. C. It is unlawful for any person, either as owner, lessee, agent, employee, mortgagor, or otherwise, to knowingly permit any room, building or premises, or any furniture, fixtures, equipment or other article or anything of value to be used in the City for or in connection with any internet sweepstakes cafe. D. The operation, conduct or maintenance of an internet sweepstakes cafe is a public nuisance. 5.50.030 Violations. Any person violating, or causing or permitting to be violated, any of the provisions of this Chapter shall be deemed guilty of a misdemeanor. 5.50.040 Exceptions. Nothing in this chapter includes or applies to any act which is made a public offense by any section of the California Penal Code or by any other law of the state of California. Section 2. Severability. The provisions of this Ordinance are severable and if any provision, clause, sentence, word or part thereof is held illegal, invalid, unconstitutional, or inapplicable to any person or circumstances, such illegality, invalidity, unconstitutionality, or inapplicability shall not affect or impair any of the remaining provisions, clauses, sentences, sections, words or parts thereof of the ordinance or their applicability to other persons or circumstances. Section 3. Urgency Findings and Declaration. The City Council finds and declares that this Ordinance must be adopted as an urgency matter because it is necessary for the immediate preservation of the public peace, health and safety. The facts and circumstances described in the Recitals of this Ordinance support such necessity and are hereby incorporated into this Ordinance. Based on said findings, facts and circumstances, the City Council finds that this Ordinance should be adopted as an urgency ordinance for the immediate preservation of the public peace, health and safety, and that it is necessary that this Ordinance should go into effect immediately so as to ensure its effectiveness. Section 4. Effective Immediately. This Ordinance shall become effective immediately upon adoption by at least a four-fifths vote of the City Council. Section 5. Posting. The City Clerk of the City of Dublin shall cause this Ordinance to be posted in at least three (3) public places in the City of Dublin in accordance with Section 36933 of the Government Code of the State of California. PASSED, APPROVED AND ADOPTED this _____ day of ___________, 2012. AYES: NOES: ABSENT: ABSTAIN: ______________________________ Tim Sbranti, Mayor ATTEST: _____________________________ Caroline Soto, City Clerk 1980049.4 ORDINANCE NO.___ AN ORDINANCE OF THE CITY OF DUBLIN ADDING CHAPTER 5.50 TO THE DUBLIN MUNICIPAL CODE RELATING TO INTERNET SWEEPSTAKES CAFES WHEREAS , pursuant to Article XI, Section 7 of the California Constitution, the City may make and enforce within its limits all local police, sanitary, and other ordinances and regulations not in conflict with general laws; and WHEREAS , the City has received inquiries regarding the establishment, and operation of an internet sweepstakes cafe (as defined herein) within the City; and WHEREAS , internet sweepstakes cafes are operations that rent time on computer terminals and in conjunction therewith provide free entries into sweepstakes, with prizes typically, but not always, distributed based on the results of customers’ operation of games on the computer terminals; and WHEREAS, operators of internet sweepstakes cafes assert that their operations do not violate state gambling laws because customers pay for the right to use computer terminals and not for the privilege of entering the sweepstakes; and WHEREAS, even if the operations of internet sweepstakes cafes do not constitute illegal gambling under state law, customers of internet sweepstakes cafes experience an atmosphere that is similar to the experience that is offered on slot machines and other electronic gambling devices legally operated in the State of Nevada, and the operations therefore have the same potential to generate deleterious effects that legal gambling operations do; and WHEREAS, it is within the City’s police power authority to regulate gambling activities that are not regulated by state law; and WHEREAS, the City Council finds that internet sweepstakes cafes, like legal gambling operations, must be appropriately regulated to ensure both that the internet sweepstakes cafes do not cross the line between a legal sweepstakes program and an illegal lottery or gambling establishment and that the public can have confidence and trust in the credibility and integrity of the operations; and WHEREAS , the City Council finds that the development, establishment and operation of internet sweepstakes cafes without adequate regulation has the potential to result in associated crime such as check and credit card fraud, loan sharking, robbery, and money laundering; and WHEREAS, City Council further finds that the City at present does not have the financial and technical resources to appropriately regulate internet sweepstakes cafes; and WHEREAS, the City Council believes, for all the foregoing reasons, that it is in the public interest to prohibit the operation internet sweepstakes cafes in the City. NOW, THEREFORE,the City Council of the City of Dublin does hereby ordain as follows: Section 1. Chapter 5.50 is hereby added to the Dublin Municipal Code to read as follows: Chapter 5.50 INTERNET SWEEPSTAKES CAFES Sections: 5.50.010 Definitions. 5.50.020 Prohibitions. 5.50.030 Violations. 5.50.040 Exceptions. 5.50.010 Definitions A. “Computerized sweepstakes device” shall mean any computer, machine, game or apparatus which upon insertion of a coin, token, access number, magnetic card or similar object, or upon payment of anything of value, may be operated by the public generally for use in a contest of skill, entertainment, amusement or chance whether or not registering a score, and which provides the user with a chance to win anything of value or any cash payout or anything that could be redeemed, directly or indirectly for any cash payout and which is not regulated as gambling, a lottery or as a gaming device under state or local law. B. “Internet sweepstakes cafe" shall mean any premises upon which a computerized sweepstakes device is located for the use or entertainment of the public, whether or not such premises has other business purposes of any nature whatsoever. 5.50.020 Prohibitions. A. Internet sweepstakes cafes are prohibited within the City. B. It is unlawful for any person toestablish, manage or otherwise engage in the business of operating an internet sweepstakes cafe. C. It is unlawful for any person, either as owner, lessee, agent, employee, mortgagor, or otherwise, to knowingly permit any room, building or premises, or any furniture, fixtures, equipment or other article or anything of value to be used in the City for or in connection with any internet sweepstakes cafe. D. The operation, conduct or maintenance of an internet sweepstakes cafe is a public nuisance. 5.50.030 Violations. Any person violating, or causing or permitting to be violated, any of the provisions of this Chapter shall be deemed guilty of a misdemeanor. 5.50.040 Exceptions. Nothing in this chapter includes or applies to any act which is made a public offense by any section of the California Penal Code or by any other law of the state of California. Section 2. This Ordinance shall supersede any previously adopted urgency ordinance adding Chapter 5.50 to the Dublin Municipal Code. Section 3. Severability. The provisions of this Ordinance are severable and if any provision, clause, sentence, word or part thereof is held illegal, invalid, unconstitutional, or inapplicable to any person or circumstances, such illegality, invalidity, unconstitutionality, or inapplicability shall not affect or impair any of the remaining provisions, clauses, sentences, sections, words or parts thereof of the ordinance or their applicability to other persons or circumstances. Section 4. Effective Date. This Ordinance shall take effect and be enforced thirty (30) days following its adoption. Section 5. Posting. The City Clerk of the City of Dublin shall cause this Ordinance to be posted in at least three (3) public places in the City of Dublin in accordance with Section 36933 of the Government Code of the State of California. PASSED, APPROVED AND ADOPTED this _____ day of ___________, 2012. AYES: NOES: ABSENT: ABSTAIN: ______________________________ Tim Sbranti, Mayor ATTEST: _____________________________ Caroline Soto, City Clerk 1980535.1