EMAIL: ALUSTIGMAN@OLSHANLAW.COM DIRECT DIAL: 212.451.2258 January 20, 2016 Via E-mail: mark@dggroupinc.com Mr. Mark Breiner Chief Executive Officer DG Group Marketing Solutions 4911 Creekside Dr., Suite B Clearwater, FL 33760 Re: Dream Giveaway Sweepstakes Dear Mr. Breiner: You have requested that we submit a legal opinion as to the legality of the 2016 New Beginning Children s Home Sweepstakes promotions, which include the 2016 Corvette Dream Giveaway as well as other 1 identically structured sweepstakes, whose only changes will be in the prizing. 2 Subject to the reasons and limitations set forth below, we believe that the Sweepstakes are advertised and structured in a manner that would not reasonably be considered to violate the relevant laws in the United States governing gambling and sweepstakes promotions. 3 This opinion letter assumes that the structure of each 2016 Dream Giveaway is the same with the only variance the prizing. For purposes of our opinion, we rely on the rules set forth in your email dated December 9, 2015 and the 2015 Multi-Giveaway materials, which cover each of the prizes identified in the Sweepstakes. The Sweepstakes Our opinion is based on the following assumptions set forth in this section. The Sweepstakes are sponsored by New Beginning Children's Homes, Inc. (the Charity ), a registered section 501(c)(3) charity. The Sweepstakes structure is based on the random selection 1 At the time of this letter, we have only been provided with the rules for the 2016 Corvette Dream Giveaway. We are advised that the other promotions will be structured in the same manner as the 2016 Corvette Dream Giveaway and the 2015 Dream Giveaways. 2 The promotions are collectively referred to as the Sweepstakes and the individual giveaways identified generically as the Dream Giveaway. 3 We understand that the sweepstakes will not be mailed to Texas addresses. This opinion does not cover Oregon as to which we understand you have retained separate counsel. This letter does not address any tax issues or representations as to the tax deductibility of a donation.
Page 2 of a single entry form of all valid entries entered into a particular Dream Giveaway competing for one grand prize. For example, the Grand Prize in the 2016 Corvette Dream Giveaway is a 1965 Corvette and a 2016 Corvette, plus fifty thousand dollars ($50,000) to be applied toward the winner's IRS withholding requirement for federal income taxes (approximate current retail value of the Grand Prize is $200,000). Alternatively, a winner can select an all cash prize of $133,400. As set forth in the Official Rules (a copy of which is attached), there are four ways in which a person can enter the Sweepstakes: Entering via the published web site with a donation. With this method, after donating and completing the entry process, entrants may choose to receive a return e-mail that contains an entry receipt or pay to have the entry receipt mailed for a nominal service fee. Placing a toll-free call making a minimum donation of $20.00. With this method, after donating and completing the entry process, entrants may choose to receive a return e-mail that contains an entry receipt or pay to have the entry receipt mailed for a nominal service fee. Mailing in an entry form with a donation. With this method, after donating and completing the entry process, entrants may choose to receive a return e-mail that contains an entry receipt or pay to have the entry receipt mailed for a nominal service fee. Free Entry Method. Mail a self-addressed postage paid envelope to NBCH P.O. Box 1388, Cedar Rapids, IA 52406-1388, (except Vermont residents are not required to affix return postage). Requests for free entry codes must be postmarked by the Sweepstakes entry deadline and received by New Beginning within seven days. One entry code will be returned in the envelope provided. Upon receipt of the entry code, Entrant must register the entry code into the particular Dream Giveaway by either registering online or calling a toll free number within 14 days after the close of the sweepstakes entry period. Based on the above, there are essentially two ways a person can enter the Dream Giveaway. A person can enter the Dream Giveaway by making a donation to the charity and receiving a corresponding number of entry chances into a specified Dream Giveaway which vary depending on the amount of the donation. Alternatively, a person can enter the Dream Giveaway for free without making a donation by mailing in and requesting a free entry code and then specifying the Dream Giveaway the person wishes to enter. There is no limit to the number of free entries that can be requested, although each such entry must be mailed in separately. Each entry, whether obtained by donating or not donating, has an equal chance to win and competes for the same prize in each Dream Giveaway. The time frame for a donating or a non-donating entrant is also the same in that any requests for a free entry must be made during the sweepstakes entry period. A non-donating entrant is given reasonably sufficient time post the sweepstakes entry period to have the request processed and entered by the person, who is given a number of ways to enter the code. For the reasons set forth herein, it is our opinion that the Sweepstakes would not reasonably be considered to violate the applicable sweepstakes and gambling laws enforced by the United States government (other than the mailings to addresses in the state of Texas) and the relevant states and is otherwise properly structured.
Page 3 Applicable Laws: State Gambling and Lottery Laws A majority of the states have most commonly defined gambling as staking or risking something of value on the outcome of an event that is determined at least in part by chance. 4 Other states have defined gambling as the act of making a bet or wager. 5 However, only a few states have defined what a bet or wager means. 6 These terms are typically defined as an agreement that is dependent upon chance, even if accompanied by some skill in which the participant stands to win or lose something of value or hazard something of value on the outcome of an event. A lottery is generally defined as any game in which the elements of prize, chance, and consideration are present. 7 States prohibit private non-governmental entities from conducting a lottery, although in most states a charity can conduct a prize promotion containing these elements (i.e., a raffle), if the charity complies with state and local raffle laws. It is our understanding that the Charity does not wish to conduct a raffle and does not plan on complying with state and local raffle laws as it relates to the Sweepstakes. The model Anti-Gambling Act defines gambling as risking any money credit, deposit or other thing of value on an event contingent in whole or in part upon lot, chance or the operation of a gambling device. Some states intermingle the definition of an illegal lottery with that of prohibited gambling activity. For example, in Georgia, setting up or promoting any lottery constitutes the offense of commercial gambling. As it relates to the Sweepstakes, the elements of prize and chance are undoubtedly present. The respective grand prizes have pecuniary value. Chance is involved in a promotion where the winners will be determined at random. Here, the respective grand prize winners will be selected at random. 4 This definition has been adopted by the states of Alabama, Alaska, Arizona, Colorado, Connecticut, Florida, Hawaii, Indiana, Kentucky, Louisiana, Maine, Michigan, Missouri, New Hampshire, New Jersey, New York, North Dakota, Oregon, Tennessee, Utah, Washington and Wyoming. 5 These states are Arkansas, Georgia, Illinois, Kansas, Maryland, Minnesota, Mississippi, Nebraska, New Mexico, North Carolina, Ohio, Oklahoma, Texas and West Virginia. 6 These states are Georgia, Kansas, Minnesota, New Mexico, Ohio, Oklahoma, Texas and Wisconsin. 7 See, e.g., Tex. Gov t Code Ann. 466.002(5) (A lottery is the procedures operated by the state under this chapter [466] through which prizes are awarded or distributed by chance among persons who have paid, or unconditionally agreed to pay, for a chance or other opportunity to receive a prize. ); Ga. Code Ann. 16-12-20(4) (A lottery is any scheme or procedure whereby one or more prizes are distributed by chance among persons who have paid or promised consideration for a chance to win such prize, whether such scheme or procedure is called a pool, lottery, raffle, gift, gift enterprise, sale, policy game, or by some other name. ).
Page 4 If a promotion contains the elements of prize and chance, its legality turns on whether consideration, or something of value required to be paid by the entrant, is present. If a purchase or other direct payment of property or money is required to participate in a promotion, consideration exists and the promotion is an illegal lottery. It is generally accepted that the availability of a free method of participation that places all entrants on equal footing avoids the problem of consideration in a promotion. Here, the Sweepstakes has been structured to eliminate the requirement of consideration. While making a donation is available as an entry method, the rules and the advertising make clear that a donation is not required to enter or win. All advertising for a Dream Giveaway conspicuously highlights the fact a donation is not required to enter or win. For example, on the wintthevettes.com website, the top portion of the Official Rules states in bold all caps: NO PURCHASE, CONTRIBUTION, DONATION OR PAYMENT NECESSARY. A PURCHASE, CONTRIBUTION, DONATION, OR PAYMENT OF ANY KIND WILL NOT INCREASE YOUR CHANCES OF WINNING. The Free Entry Method title set forth above is stated in bold and underline type in the official rules: Free Entry Method. Each web page and entry page advertising the sweepstakes and entry method include a clear and more conspicuous disclosure that no donation is necessary to win and that a donation will not increase the chances of winning. This advertising specifically directs the user to the terms of the free method of entry, the url for the official rules ( free entry method visit http://www.dreamgiveaway.com/dg/garage/official-rules ) (emphasis in original). Thus, the only payment by an entrant is for postage to mail in the request and return postage to receive the entry code. The cost of postage, however, is paid to a third-party (the United States Postal Service), and not to the Charity in exchange for the opportunity to participate. With the exception of Vermont (which restricts return postage), 8 it is well settled that postage does not constitute consideration for purposes of a lottery-law analysis. See Haskell v. Time, Inc., 857 F. Supp. 1392, 1404 (E.D. Cal. 1994) (holding that the payment of postage to mail in an entry form was not valuable consideration); Wis. Stats. 945.01(5) (postage does not constitute consideration). The Southern District of New York held that a $2.00 charge for using a 900 number to phone in an entry to a sweepstakes did not constitute something of value for purposes of 8 For games of chance, Vermont residents cannot be required to include return postage with mail-in requests for free game pieces, official entry forms or official rules. In the past, Washington prohibited a Charity from requiring return postage from consumers who requested official rules or game pieces by mail. However, Washington repealed this prohibition. Therefore, the Charity need not exempt Washington residents from return postage requirements for free mail-in requests.
Page 5 gambling under New Jersey law since an alternate method of entering the sweepstakes for free was available. 9 Nor do we believe requiring a non-donating entrant to utilize a simple no-cost method to enroll in a particular sweepstakes to rise to the level of consideration and there is a bona fide purpose for a non-donating entrant to be required to register for a particular Dream Giveaway. All non-donating entrants receive an entry code. The recipient of the entry code must advise the Charity as to the specific Dream Giveaway to be entered, and does so by either registering online or calling a toll-free number. The practice of requiring registration is consistent with the operation of innumerable sweepstakes conducted today and does not require the entrant to incur any monetary consideration or significant effort. Even if the consumer does not have a computer, there is a toll-free method of designating an entry code into a particular Dream Giveaway. In our opinion, the Sweepstakes is structured so that the element of consideration has been removed. While the recipient has the option of making a donation in order to be entered into the Sweepstakes, a donation is not required to enter or win. A person who enters by making a donation has the same chances of winning as someone who enters the Sweepstakes by mailing in a request for a free entry. 10 Florida recently amended its sweepstakes law to restrict sweepstakes conducted by nonprofit organizations. However, as we understand the law, it restricts instant win and pre-selected winner sweepstakes, and not contests involving post-entry random selection. Here, the Dream Giveaway winners are selected by a post-entry random draw. While three states, New York, Florida, and Rhode Island, potentially require prize promotions to register and bond (only New York and Florida), those state laws do not require registration for promotions that are run by charitable organizations. Thus, no registration and bonding are required. Nevertheless, our opinion is that the Sweepstakes cannot be mailed to addresses in the State of Texas. Texas has unique restrictions for sweepstakes solicitation that are mailed to Texas addresses in which the largest prize is in excess of $50,000. 11 Those provisions preclude tying the payment of money with a sweepstakes entry and requiring a separate entry for entering the sweepstakes and making a payment. Here, the sweepstakes is advertised, in part, by direct 9 Glick v. MTV, 796 F. Supp. 743 (S.D.N.Y. 1992) (holding that a $2.00 charge for using a 900 number to phone in an entry to a sweepstakes did not constitute something of value for purposes of gambling under New Jersey law since an alternate method of entering the sweepstakes for free was available). 10 There are some old state court decisions which when read literally prohibit the charging of any consideration (whether optional or not) in order to enter the sweepstakes. For example, in 1949, West Virginia held that a random drawing for prizes at a theater constituted an illegal lottery because, even though no purchase was required, many participants had given consideration for a chance to win a prize. This case, while still good law, is not currently being enforced, to our knowledge. We also understand that the State of Oregon has recently challenged the structure of a similar promotion based on a similar case. You have retained separate counsel on the issue of the legality of offering the Sweepstakes in Oregon. 11 Texas Bus. & Commerce Code 45.000, et seq.
Page 6 mail. Thus, the sweepstakes should not be mailed to Texas addresses as the largest prize (i.e., the only prize in each Dream Giveaway) is in excess of $50,000. However, these restrictions would not appear to apply on their face to advertisements on the web or sweepstakes materials delivered by means of another carrier (i.e., UPS) as the statute is limited to sweepstakes conducted through the mail. Texas Bus. & Commerce Code 45.002. Deceptive Mail Prevention and Enforcement Act On the federal side, the Deceptive Mail Prevention and Enforcement Act ( DMPEA ), 39 U.S.C. 30lb and 39 U.S.C. 3017, applies to sweepstakes entries which are sent through the mail. There are several affirmative disclosures that must be placed in any solicitation or advertisement subject to the Act. First, there must be a statement disclosing that no purchase or contribution is necessary to enter. Second, there must be a statement disclosing that making a purchase or contribution will not improve the entrant s chance of winning a prize. Both of these statements must appear three times in the material: in the solicitation materials; on the order or entry form; and in the official rules. They must also be displayed more conspicuously than the surrounding text. Additionally, there must be a clear and conspicuous disclosure of the terms and conditions of the promotion, including entry procedures and rules. This must include the estimated odds of winning each prize, the quantity, estimated retail value, and nature of each prize, and the schedule of any payments which are to be made to the winner over time. There must also be a clear and conspicuous disclosure of the name of the Charity or mailer of such material and the principal place of business or address where the Charity or mailer may be contacted. All such disclosures are typically made in standard official rules. The DMPEA also prohibits certain representations that might be construed as deceptive. These prohibited practices include representing that individuals who do not make a purchase or donation may be disqualified from receiving future sweepstakes mailings, and making a representation that contradicts other sweepstakes rules required to be made (e.g., The more you buy, the more chances you have to win ). The DMPEA also prohibits a party from representing that an individual is a winner of a prize unless that individual has won such prize, and disallows requiring that sweepstakes entries be accompanied by an order or payment. The DMPEA also provides for two separate name removal mechanisms for all parties not wishing to participate. The first applies to any person who uses the mails for solicitation of the purchase or payment of a product or service, requests for information or contributions or membership fees, or sweepstakes or skill contests. Under this name removal mechanism, the mailer must maintain a record of all requests against future mailings in a form that allows for the suppression of the applicable name at the applicable address for five years. It also requires that the mailer adopt reasonable practices to prevent the mailing of future materials to any person who submits to either the mailer or the attorney general of his or her state written notice to cease such mailings. The second name removal mechanism applies to promoters of skill contests or sweepstakes, where a promoter is defined as any person who originates and mails any skill contest or sweepstakes. In addition to the above requirements, the promoter must also include a clear and conspicuous statement on each sweepstakes mailing that such name removal system
Page 7 exists, and provide an address or toll-free number of the notification system. The promoter must remove the requestor s name within 60 days after request is received, and the election remains in effect until further notified by the party making the request. We believe the Sweepstakes reasonably complies with the DMPEA. The mail-in form states in more conspicuous type the fact that NO PURCHASE, CONTRIBUTION, DONATION OR PAYMENT IS NECESSARY AND MAKING ONE WILL NOT INCREASE YOUR CHANCES OF WINNING. The official rules contain each of the disclosures required under the DMPEA, including entry procedures and rules. The rules set forth the estimated odds of winning the prize, the quantity, estimated retail value, and nature of each prize, the name of the Charity, and the principal place of business or address where the Charity or mailer may be contacted. The mailed brochure also contains the no purchase necessary statement in the advertising portion. The mailed brochure and the Official Rules contain the name removal disclosure in more conspicuous type. We assume that all name removal requests will be promptly honored. Interstate Wire Act The Interstate Wire Act is the principal federal anti-gambling statue. It prohibits the use of wire communication facilities for the transmission of bets or wagers in interstate commerce, as well as information assisting in the placing of bets or wagers. The legislative history of this statute indicates that the federal anti-gambling law was intended to only regulate traditional forms of gambling. 12 In essence, the Interstate Wire Act applies to: i) anyone engaged in the business of gambling or wagering who knowingly uses a wire communication facility for transmission in Interstate Commerce or foreign commerce of bets or wagers or information to assist in placing bets or wagers on any sporting event or contest or for transmission of a wire communication which entitles the recipient to receive money or credit as a result of bets or wagers, or for information to assist in placing bets or wagers. 12 See United States v. Reeder, 614 F.2d 1179 (8 th Cir. 1980); United States v. Tomeo, 459 F.2d 445 (10 th Cir. 1972), cert. denied, 459 U.S. 914 (1972); see also Department of Justice's Office of Legal Counsel's September 20, 2011 Memorandum Opinion.
Page 8 In our opinion, the Sweepstakes could not reasonably be considered as constituting betting or wagering. Any payments made are for donations which become final 14 days prior to the drawing. No part of the fee charged is used for the Sweepstakes prize and thus the transaction should not be considered to be gambling. In addition the awarding of the prize is not contingent on the amount of donations that are made. Illegal Gambling Business Act This law applies to anyone who (A) conducts (B) finances (C) manages (D) supervises (E) directs or (F) owns, all or part of an illegal gambling business that is in violation of law where it is conducted. The Illegal Gambling Business Act has been deemed to apply only to those businesses that are considered to be engaged in illegal gambling under state law. We do not believe that the Charity would reasonably be considered to be engaged in illegal gambling under state law as the fee is for a charitable donation. Travel Act (18 USC 1952) Applies to interstate travel with intent to promote illegal activity and acts in furtherance of it. We do not see this statute reasonably applying. Unlawful Internet Gambling Enforcement Act ( UIGEA ) The UIGEA Provides that no person engaged in the business of gambling or wagering may knowingly accept credit cards or electronic funds transfer for gambling transactions. The law specifically exempts Internet games and promotions that do not involve betting. Given the lack of consideration, this law should not reasonably apply to the activities of the Sweepstakes. Deceptive Trade Practice Laws Federal and state law prohibits false, deceptive or unfair acts or practices in connection with the advertising of a promotion. Here, as we understand the Sweepstakes, the terms of promotion are set forth in the official rules and a short summary in the abbreviated rules which appear on each Internet page. Assuming the Sweepstakes is conducted in strict accordance with the Official Rules, we believe that the Sweepstakes would not reasonably be considered to violate these types of laws. * * * Based on the foregoing applicable laws, it is our opinion that the Sweepstakes is structured in a manner that does not violate relevant laws in the United States governing gambling and sweepstakes promotions. We otherwise believe that with the exception of the State of Oregon, with which you have received separate clearance and mailings to Texas addresses for which we understand you will not be mailing, the promotion complies with state laws governing sweepstakes and contest promotions as such laws are currently enforced and interpreted.
Page 9 To these conclusions, we add the following comments: The practice of our advertising, marketing and promotions group is devoted primarily to the review and defense of advertising and promotional marketing promotions to help assure compliance with applicable state and federal laws. The members of the group are active in bar association and industry legal committees. This opinion is based on our general knowledge and understanding of federal and state laws governing games of chance promotions. No attempt has been made to specifically research the laws of all jurisdictions, or review all cases in the field. The statutory references are to such laws as are reported in the latest unofficial compilations available to us of the various jurisdictions set forth above and in certain instances, the rules, regulations and policy statements of the authorities administering such laws. While this firm attempts to remain informed at all times with respect to the state laws of the fifty states, the individual attorneys associated with this letter are only admitted to practice in the states of New York and New Jersey. We are not licensed to issue opinions with respect to the state laws of any other states. No opinions have been obtained from local counsel, and we do not purport to be experts of the laws of any jurisdiction covered by this opinion other than the states of New York and New Jersey. No local or other counsel was consulted in connection with the requirements of these other jurisdictions nor was any general interpretive advice obtained from representatives of authorities administering such laws. No attempt was made to review the promotion under the laws of any country other than the United States. State laws in the area of promotion are subject to almost daily interpretation by Attorneys General and in some jurisdictions, even County and District Attorneys, as well as plaintiff s class action attorneys. The area of promotion is fluid and different states have interpreted substantially similar statutes and rules differently. Therefore, the opinions stated herein are subject to the broad discretionary powers vested in administrative officials in the jurisdictions referred to herein. Thus, there is no guarantee that a regulator may not take a position contrary to our analysis or that the company may not be faced with a claim brought by an enterprising plaintiff s attorney seeking to assert a private right of action challenging the bona fides of the Sweepstakes. At almost all times there may be relevant pending legislation or pending administrative rules in different states which may become effective before the Sweepstakes actually goes into effect, or perhaps during the pendency of the mailing. This opinion is therefore subject to changes in legislation, administrative regulations and rulings and like matters, which information in whole or in part may not be currently available to us through accepted unofficial publications, and no attempt has been made to research such pending legislation. It will not be updated unless requested by the client. This opinion is limited solely to the Sweepstakes which is referenced in this letter and to the federal and state laws and regulations specifically addressed in this letter. We express no opinion as to any international law. Nor do we express any opinion as to the structure of the charity and the donation aspect of the Sweepstakes.
Page 10 This letter is written for the specified addressee and is not intended to be relied upon by any third-party. Any third-party should seek independent counsel regarding the issues described herein. Should you require any further information concerning this matter, please let us know. Very truly yours, Olshan Frome Wolosky, LLP Encl. ABL: kmn Andrew B. Lustigman