McGeorge School of Law

Proposition 17

Proposition 17:
Lotteries. Charitable Raffles

By Megan Hitchcock

Copyright © 2000 by University of the McGeorge School of Law

JD, McGeorge School of Law, University of the Pacific
to be conferred 2001
B.A., Anthropology, CSU Longbeach, 1997

Table of Contents

Executive Summary

Description

Constitutional Issues

 

Executive Summary

Proposition 17 amends the California Constitution to permit the Legislature to authorize private, nonprofit, eligible organizations to conduct raffles as funding mechanisms to support their own or other private, nonprofit beneficial and charitable works. The measure would require that at least 90% of the gross receipts from the raffle go directly to beneficial or charitable purposes in California. Any person receiving compensation regarding the operation of a raffle must be an employee of the private nonprofit organization that is conducting the raffle. Proposition 17 also allows the California Legislature to amend the percentage of the raffle’s gross receipts that must go directly to beneficial or charitable purposes by enacting a statute passed by a two-thirds vote of each house and signed by the Governor.

Under current law, Sections 319-322 of the Penal Code prohibit most lotteries, including lotteries that would be authorized by Proposition 17. A bill is currently pending in the Legislature that would amend the Penal Code to conform to Proposition 17, if it is approved by the voters in March.

The purpose of this measure is to increase funding of beneficial and charitable works by enabling private nonprofit organizations to conduct raffles subject to reasonable regulation by the Legislature. (See Lotteries: Charitable Raffles, California Voter Pamphlet, p. 29 (2000)). Proposition 17 furthers the public policy goals of California by encouraging beneficial and charitable works by non-profit organizations. Raffles represent a legitimate and reasonable fund-raising mechanism to enable these organizations to perform charitable works or to support others in performing such works.

Description

 

A. Current Law

1. Historical Background

California courts have addressed several cases regarding the legality of certain types of raffles, and the general rule seems to be that those lotteries where tickets must be purchased for valuable consideration are illegal, while lotteries that are mere promotional activities where tickets are available for free are legal.

For example, in People v. Cardas, the defendant was convicted in the lower court of drawing a lottery and disposing of lottery tickets. (People v. Cardas, (2nd Dist. 1933) 137 Cal. App. Supp. 788, 788.) The defendant owned a motion picture theater and advertised, within his theater and the surrounding community, that he was going to give away two tickets to Santa Catalina Island. The tickets were distributed in the theater and to the public at large for no charge. The appellate division of the superior court held that if the holder of prize tickets did not pay a valuable consideration for the chance, then it was not a lottery and was legal. (Id. at 790.)

By contrast, in People v. Gonzales, the theater owner made lottery tickets available only to persons who had paid the price for a ticket to the theater. The theater gave a second ticket for free to theater patrons at the end of the show. The court found that the delayed delivery of another ticket until the person was leaving the theater, was the same as if two tickets had been delivered at the time of paying admission. (People v. Gonzales, (1944) 62 Cal. App. 2d 274, 280.) In order to participate in the drawing, a person was required to pay consideration, namely, the charge for at least one admission. Therefore, the drawing constituted an illegal lottery. (Id.)

People v. Carpenter involved a similar situation to the Gonzales case. (People v. Carpenter, 141 Cal.App.2d 884.) However, in Carpenter the opportunity to participate in the drawing was given free to anyone desiring to participate. (Id. at 890.) Since it was not necessary for a participant to buy a theater ticket to win a prize, the court decided that this was legal under the California Constitution. (Id.)

Furthermore, in a later case, People v. Shira, a game called "Ringo" was held by the court to be an illegal lottery because participation in the game required payment of consideration. (People v. Shira, (2nd Dist. 1976) 62 Cal. App. 3d 442, 461-62.) Each person who successfully tossed a red free ring over a peg was given two bingo cards free of charge and was allowed to participate in a second phase without charge. (Id. at 462.) Each person who was unsuccessful in encircling the peg with the free red ring could, but was not obligated to, buy as many white rings as desired. (Id.) Only the bingo winners could win a prize and most people would have to purchase the bingo cards rather than win them by successfully completing the red or white ring toss. The court held that this game was an illegal lottery, noting that the public policy against gambling known as a lottery is well settled in the California Constitution. (Id. at 452-53.)

The theme running through the preceding four cases is that, in order for a promotional giveaway scheme to be legal, participation in the game must be offered for free to anyone who wishes to participate without paying for the opportunity of a chance to win a prize. Conversely, a promotional scheme is illegal where no persons can participate in a chance for the prize unless they pay for it." (Id. at 458-59.)

2. The California Constitution

Under the California Constitution, "the Legislature has no power to authorize lotteries and shall prohibit the sale of lottery tickets in the State." (Cal. Const. art. IV, § 19(a).) Despite this general prohibition, exceptions have been created.

In particular, the California Constitution specifically authorizes the California State Lottery, but prohibits a lottery performed by any organization other than the state. (Id. at § 19(d).) The Constitution also permits wagering on horse races (id. at § 19(b)), and bingo games, "but only for charitable purposes." (Id. at § 19(c); see also Shira, 62 Cal. App. 3d at 452-53.) Finally, subsection (e) of Article IV, § 19 explicitly prohibits "casinos of the type currently operating in Nevada and New Jersey." (Cal. Const. art. IV, § 19(e).) There have yet to be any California cases that define what is meant by "Nevada and New Jersey" style gambling. Hence, it is unclear whether or not the gambling permitted under Proposition 17 would violate the California Constitution. The rather generic quality of the Nevada and New Jersey state laws defining gaming and gambling offer little assistance in clarifying this constitutional proscription. (See Nev. Rev. Stat. Ann. §§ 463.0152, 463.0153 (Michie 1997); see also N.J. Stat. Ann. §§ 5:12-5, 5:12-6 (West 1997).)

3. The California Penal Code

California Penal Code § 319 defines a "lottery" as follows:

Any scheme for disposal or distribution of property by chance, among persons who have paid or promised to pay valuable consideration for the chance of obtaining such property, upon such agreement, understanding, or expectation that it is to be distributed or disposed of by lot or chance, whether called a lottery, raffle, or gift enterprise, or by whatever name the same may be known.

(Cal. Penal Code § 319 (West 1999).)

California courts have determined that three elements are required for an activity to constitute a lottery within the meaning of the Constitution: (1) a prize; (2) distributed by chance; and (3) payment of consideration. (Haskell v. Time, Inc., (E.D. Cal. 1997) 965 F. Supp. 1398, 1403; see also Bell Gardens Bicycle Club v. Department of Justice, (2nd Dist. 1995) 36 Cal. App. 4th 717, 744.) Since a raffle is synonymous with a lottery and has the same three essential elements of a lottery, a raffle is considered illegal under the California Penal Code.

Penal Code sections 320, 321, and 322, provide the enforcement mechanism for Article IV, § 19 of the California Constitution, prohibiting unauthorized lotteries. Penal Code sections 320, 321, and 322 establish the nature of offense that can be charged for a violation of the general prohibition against lotteries. "Every person who contrives, prepares, sets up, proposes, or draws any lottery, is guilty of a misdemeanor." (Cal. Penal Code § 320 (West 1999).) Penal Code Section 321 provides that:

[e]very person who sells, gives, or in any manner whatever, furnishes or transfers to or for any other person any ticket, chance, share, or interest, or any paper, certificate, or instrument purporting or understood to be or to represent any ticket, chance, share, or interest in, or depending upon the event of any lottery, is guilty of a misdemeanor."

(Cal. Penal Code § 321 (West 1999).) "Every person who aids or assists, either by printing, writing, advertising, publishing, or otherwise in setting up, managing, or drawing any lottery, or in selling or disposing of any ticket, chance, or share therein, is guilty of a misdemeanor." (Cal. Penal Code § 322 (West 1999).)

Thus, a person conducting a raffle can be charged with a criminal misdemeanor "punishable by imprisonment in the county jail not exceeding six months, or by fine not exceeding one thousand dollars ($1,000), or by both." (Cal. Penal Code § 19 (West 1999).) Therefore, the California Constitution currently forbids any unauthorized raffle for charitable purposes and the California Penal Code enforces that prohibition.

B. Proposed Changes

1. Senate Constitutional Amendment 4

Senate Constitutional Amendment 4 ("SCA 4") will amend California Constitution Article IV, § 19 if Proposition 17 is approved by voters. Similar to prior amendments to Article IV, § 19, allowing for horse race wagering and bingo games, SCA 4 would create yet another exception. SCA 4 would specifically give the Legislature the power to authorize "private, nonprofit, eligible organizations, as defined by the Legislature, to conduct raffles as a funding mechanism to provide support for their own or another private, nonprofit, eligible organization’s beneficial and charitable works." (Voter Pamphlet, at 117.)

The exception provided for by Proposition 17 is proposed to be added to subdivision (f) of Section 19. Another proposition on the ballot, Proposition 1A dealing with gambling on Tribal lands, would also add a subdivision (f) to Section 19, if approved by the voters. Although both provisions propose to add a new subdivision (f) to Section 19, if both propositions are approved, both will be given effect by the courts since Proposition 17 and Proposition 1A deal with different subjects matters and do not conflict with each other.

2.Senate Bill 639

If Proposition 17 is approved by voters to amend the California Constitution, Senate Bill 639 ("SB 639") will also become operative. (See Gambling: charitable raffles, SB 639 (1999), to be codified at Cal. Penal Code § 320.5.) SB 639 helps define the exception created by SCA 4 and is necessary for its proper implementation and regulation. SB 639 will define "raffle" as: "a scheme for the distribution of prizes by chance among persons who have paid money for paper tickets that provide the opportunity to win these prizes" and prescribes certain procedures regarding the drawing. (SB 639 (1999), to be codified at Cal. Penal Code § 320.5(b)(1-4).)

SB 639 further defines what organizations are eligible to conduct charitable raffles. To be eligible, an organization must be "a private, nonprofit organization that maintains physical offices in California and is exempt from taxation." (SB 639 (1999), to be codified at Cal. Penal Code § 320.5(c).) Additionally, SB 639 prohibits raffle ticket selling on horse racetrack property, at any gambling establishment already licensed by the State, and over or through the Internet. (SB 639 (1999), to be codified at Cal. Penal Code § 320.5(f).)

Finally, SB 639 gives new powers to the California Gambling Control Commission in relation to charitable raffles. The Commission would be authorized to "establish regulations for a registration and permit system" and to deny such a registration or permit "if it determines that the purposes for which a raffle’s revenues would not be for a beneficial or charitable purpose or would not be used in California." (SB 639 (1999), to be codified at Cal. Penal Code § 320.5(h).)

SB 639’s implementation of Penal Code Section 320.5 will eliminate the potential conflict between SCA 4’s authorization of charitable raffles and previously mentioned Penal Code sections 319-321 that make it a crime to conduct raffles. Section 320.5 will create an exception for raffles conducted in accordance with that section. Therefore, none of the Penal Code Sections previously enforcing the prohibition against conducting raffles would apply if the prescribed guidelines are followed. However, all raffles that fall outside of the definition provided by the new Penal Code Section 320.5 will still be illegal and subject to criminal penalty. (SB 639 (1999), to be codified at Cal. Penal Code § 320.5(a).)

Constitutional Issues

Proposition 17 does not raise any issues under the California Constitution since it amends the California Constitution and does not appear to conflict with any other provision.

The United States Constitution does not explicitly contain any provisions regarding the legality of raffles. Moreover, in United States v. Edge Broadcasting Company, the Supreme Court stated that gambling implicates no constitutionally protected right. (United States v. Edge Broadcasting Company, (1993) 509 U.S. 418, 425-26.) However, it falls into a category of vice activity that can be, and frequently has been, banned altogether by state legislatures. (Id.) Therefore, the Court has customarily left it up to the state governments to decide whether or not to allow gambling.

As defined, there are no equal protection problems. To satisfy the Equal Protection clause the government only needs to pursue a legitimate governmental objective which is rationally related to the classification. (See New Orleans v. Dukes, (1976) 427 U.S. 297, 303.) Here, the legitimate government interest is to encourage beneficial or charitable works by private nonprofit organizations. Neither the state or federal government has purposely discriminated against a specific group in order to separate them and render them inferior to another class of people; therefore, Proposition 17 does not create a suspect classification. Additionally, neither the state nor federal government has impaired the receipt of a constitutionally guaranteed freedom. Additionally, there is no impairment of a fundamental right, where the state or federal government impairs the receipt of a constitutionally guaranteed freedom. (See, e.g., Skinner v. Oklahoma, (1942) 316 U.S. 535.)