Trestle Corporation Limited v. Iowa Department of Inspections and Appeals ( 2023 )

IN THE COURT OF APPEALS OF IOWA
No. 22-0465
Filed February 22, 2023
TRESTLE CORPORATION LIMITED,
Plaintiff-Appellant,
vs.
IOWA DEPARTMENT OF INSPECTIONS AND APPEALS,
Defendant-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Samantha Gronewald,
Judge.
Trestle Corporation Limited (Trestle) seeks judicial review of a decision by
the Iowa Department of Inspections and Appeals requiring Trestle’s game to be
registered under Iowa’s gaming statute. AFFIRMED.
Gary Dickey of Dickey, Campbell, & Sahag Law Firm, PLC, Des Moines, for
appellant.
Brenna Bird, Attorney General, and David M. Ranscht and John R.
Lundquist, Assistant Attorneys General, for appellee.
Heard by Bower, C.J., and Badding and Buller, JJ.
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BULLER, Judge.
This case is about whether a particular computerized game is primarily a
game of skill or knowledge, contrasted with a game of chance. The Director of the
Iowa Department of Inspections and Appeals (the agency) determined a game
developed by Trestle Corporation Limited (Trestle) was not primarily one of skill or
knowledge, which means the relevant devices must be registered under Iowa’s
gaming statute. We affirm and hold that, while the game at issue relies on a mix
of chance and skill, chance dominates such that registration is required.
I. Background Fact and Proceedings
In 2018, the supreme court decided Banilla Games, Inc. v. Iowa Department
of Inspections & Appeals, 919 N.W.2d 6 (Iowa 2018), providing for regulation of
certain “nudge” games.
Nudge-style games consist of three electronic reels featuring
different icons that spin when a player pushes the play button and
stop automatically after a short time. The reels may also stop
spinning if a player pushes the stop button. However, if a player
pushes the stop button, the same icons will appear as if the player
let the machine stop automatically. Players then determine whether
a potential winning combination of two or more icons is present and
choose one of the wheels to move up or down (i.e., nudge) in order
to complete the winning pattern.[1]
Banilla, 919 N.W.2d at 10. In response to Banilla, Trestle developed the “Game
of Skill Multi-Game System version 13.3.1.1,” which we will refer to as “the game.”
1 Apparently in light of Banilla, 919 N.W.2d at 10, the General Assembly defined
“nudge game” as “any game or phase of a game in which a participant spins reels
or simulated reels and may choose to nudge one or more reels in any direction to
complete a winning combination or pattern.” 2021 Iowa Acts ch. 100, § 2 (codified
at Iowa Code § 99B.1(25)). The General Assembly also excluded nudge games
from the definition of “amusement concession.” Id. §§ 1, 4 (codified at Iowa Code
§§ 99B.1(1), .31). This legislation took effect after Trestle filed its petition for
declaratory order, but the definition appears to be consistent with Banilla.
3
The game is played using a piece of standalone machinery with a
touchscreen. Players insert cash into the front of the cabinet, and the cash
generates “credits” in the amount of one credit per cent. The game rate ranges
from 86% to 98%, meaning that only 86% to 98% of the overall credits spent to
play can be recovered through winnings.
The game involves three phases and two different game themes—one
theme is about ducks, the other about bugs. The first phase of both themes
involves nudge-style games where, after play begins, players nudge symbols left
or right to attempt to align a winning combination. The possible outcomes for this
phase are: (1) a winnable combination with a prize greater than the cost to
play; (2) a winnable combination with a prize less than the cost to play; or (3) no
winnable combination. In other words, the outcome at this phase is pre-
determined, regardless of what buttons a player may press.
If a player succeeds at the first phase, they move to the second phase,
referred to by Trestle as “Skill It.” This phase presents players with a speedometer-
like display that requires the player to time a “stop” arrow that determines the prize,
which ranges from 55% to 110% of the potential prize from the first phase. It is
possible for players who successfully complete the first and second phases to
receive a prize that is less than the credits expended to play.
The third phase, referred to by Trestle as “Follow Thru,” is optional and only
offered to players who do not progress past the first phase. This third phase,
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comparable to the children’s game “Simon,”2 requires players to repeat a correct
sequence in six rounds of play. If successful, players receive a prize in excess of
the purchase price to play. If the player fails, they do not receive any prize.
The agency issued a declaratory order finding that Trestle’s device was an
electrical or mechanical amusement device subject to registration because the
“outcome of [the] device is not primarily determined by the skill or knowledge of
the player.” The district court, on judicial review, affirmed by finding the outcome
of the game was “dominated by chance.” This appeal follows.
II. Standard of Review
Because the supreme court has held the agency’s interpretation of Iowa
Code section 99B.53(1) (2021) is not entitled to deference, our review is for
correction of errors at law. Banilla, 919 N.W.2d at 14. Under chapter 17A, we may
“reverse, modify, or grant other appropriate relief from agency action if we
determine that the substantial rights of the petitioner have been prejudiced
because the agency action is unreasonable, arbitrary, capricious, or an abuse of
discretion.” Id. at 18–19 (citing Iowa Code § 17A.19(10)(n)).
2 The electronic game “Simon,” emblematic of the late 1970s,
consisted of a round plastic disc with four, large different colored
buttons. Players tried to memorize and then repeat increasingly long
sequences of musical tones after they were emitted from the disc
and displayed by the illumination of the different colored buttons.
Mattel, Inc. v. United States, 346 F. Supp. 2d 1295, 1303 (Ct. Int’l Trade 2004).
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III. Discussion3
An electrical or mechanical amusement device “that awards a prize where
the outcome is not primarily determined by skill or knowledge of the operator” must
be registered with the agency. Iowa Code § 99B.53(1) (emphasis added). The
term “‘primarily’ requires the fact finder to determine whether skill, knowledge, or
chance dominates the outcome. If chance dominates the outcome, the device
must be registered.” Banilla, 919 N.W.2d at 15.
We agree with the agency and the district court that chance dominates the
first (nudge) phase of the device. We put significant weight on the possibility that
a player in this phase may not be able to align a winning combination. This “nudge”
game would, on its own, clearly be a game of chance rather than skill. See id. at
10. We also agree with the agency and district court that there is some level of
skill involved in the second (“stop” arrow) phase. While skill in timing the arrow
impacts the percentage of prize won, the total possible winnings are governed by
the chance-determined nudge phase. Last, we agree with the district court that
the third (memory) phase relies on skill and knowledge, though it is undisputed this
phase can be skipped in favor of a return to chance.
To the extent the agency claims that a device is subject to registration
whenever one of multiple game phases is based on chance (such as a nudge
game), we find that interpretation is not compatible with the statute and Banilla.
3 Trestle’s reply brief includes a photograph from a commercial website, purporting
to depict what the appellant calls a “quintessential amusement device.” This
photograph is outside the record and we do not consider it. See Iowa R. App.
P. 6.801 (defining the record on appeal); State v. Lilly, 969 N.W.2d 794, 799
(Iowa 2022) (noting appellate consideration is limited to record on appeal).
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However, based on the facts presented here, we find that the game at issue is not
primarily one of skill or knowledge. While Trestle has perhaps innovated beyond
the game reviewed in Banilla by adding features that involve at least some degree
of skill or knowledge, we conclude chance dominates because the subsequent
phases progress from the initial chance-driven phase. For example, based solely
on the chance phase, a player can be locked into winning no prize or a prize less
than what they expend to play the game. The second and third phases really are
just modifications (either enhancements or reductions) of the prize won during the
initial chance phase. Chance dominates the game, even if skill can magnify or
diminish potential winnings.
Much of Trestle’s argument challenging the agency action and judicial
review below consists of fact-driven complaints that disagree with how the
underlying fact-finder resolved conflicts in the evidence. We have considered all
of these factual complaints and find they do not warrant reversal, either because
the complaints are immaterial to our analysis or because they involve the type of
disputed inference that we owe deference on appeal from judicial review of agency
action. See Iowa Code § 17A.19(10)(m); see also Burton v. Hilltop Care Ctr., 813
N.W.2d 250, 256 (Iowa 2012) (on deference to agency fact-findings). We have
also considered the naming conventions Trestle adopted for the second and third
phases (“Skill It” and “Follow Thru” respectively). But, as our supreme court noted
eighty years ago, "[C]ourts have, in general, looked behind the name and style of
the device to ascertain its true character.” State v. Wiley, 3 N.W.2d 620, 624
(Iowa 1942).
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Last, we reject Trestle’s argument that the amount of prize does not matter
to the analysis. Taking Trestle’s argument to its logical conclusion, if it cost one
dollar to play the game, but the player could always win at least one cent through
exercise of skill or knowledge, registration is not required. This would be an
unreasonable application of the law, and we decline to affirmatively undermine the
statute based on Trestle’s lipstick-on-a-pig4 approach to game design. Cf. Gift
Surplus, LLC v. State ex rel. Cooper, 868 S.E.2d 20, 26 (N.C. 2022) (looking past
a “‘winner-every-time’ modification to permit a nominal award of a few cents” and
finding a game subject to regulation).
Finding no error in law, nor any unreasonable, arbitrary or capricious
application of the law to the facts, we affirm.
AFFIRMED.
4 See generally Ben Zimmer, Who First Put Lipstick on a Pig?, Slate Magazine,
(Sept. 10, 2008), https://slate.com/news-and-politics/2008/09/where-does-the-
expression-lipstick-on-a-pig-come-from.html.