In the Matter of the Complaint Against                    )
                                                                               )
ANDREW R. AMADA                                              )
                   and                                                      )
POWERPICK, INC.                                                   )
               both d/b/a                                                )
POWERPICK                                                           )
8024 N. 24th Avenue #309                                    )
Phoenix, AZ 85021-4828                                       )
and at                                                                     )
P.O. Box 37467                                                      )
Phoenix, AZ 85069-7467                                       ) P.S. Docket No. FR 97-423

APPEARANCE FOR COMPLAINANT:                      Anne N. Graham, Esq.
                                                                               Rodney Gould, Esq.
                                                                               Civil Practice Section
                                                                               United States Postal Service
                                                                               475 L’Enfant Plaza, SW
                                                                               Washington, D.C. 20260-1127

APPEARANCE FOR RESPONDENT:                        Charles E. Buri, Esq.
                                                                                Friedl, Richter & Buri
                                                                                1440 East Washington Street
                                                                                Phoenix, AZ 85034-1163

This proceeding was initiated on November 3, 1997, when the General Counsel for the United States Postal Service filed a Complaint alleging that Andrew Amada and PowerPick, Inc. violated 39 U.S.C. §3005 by using the mail to conduct a lottery.^1/

In a timely filed Answer, Respondents denied that they are engaged in conducting a lottery. A hearing was held in Phoenix, Arizona on March 10, 1998. Both parties appeared and were represented by counsel. The Postal Service presented testimony from Postal Inspector Byers, who investigated this case, and from Ed Kiyler, an Arizona State Lottery official. Mr. Amada testified in his own behalf. Both sides also presented documentary evidence. Both parties filed post-hearing briefs, in the form of proposed findings of fact and conclusions of law, and Respondents filed a reply brief. To the extent indicated below, proposed findings and conclusions have been adopted; otherwise, they have been rejected as irrelevant or contrary to the evidence. The following findings of fact and conclusions of law are based on the entire record, including all testimony and documentary evidence introduced at the hearing, and observation of the witnesses and their demeanor.

FINDINGS OF FACT

1. PowerPick, Inc. was incorporated in Arizona in May 1994. Its business address is 8024 North 24^th Avenue, Suite 309, Phoenix, Arizona. Respondent Andrew Amada created PowerPick and is its president. (Tr. 72; Complaint, ¶¶ 2 and 3; Answer ¶¶ 2 and 3).^2/

2. PowerPick operates a lottery pooling service for persons who wish to participate in playing Lotto and Powerball games conducted by the Arizona Lottery (Tr. 74-75, 111-12). The Arizona Lottery is run by the State of Arizona, as authorized and regulated by state statutes (Tr. 50-51).^3/ PowerPick’s players have a choice of being placed in pools of 25 or 50 players (Tr. 75, 93; Cx. 5; Rx. 3). PowerPick offers a variety of options in terms of the amount of money players wish to bet and which games they wish to play, but the basic concept is that each player will share equally, with other players in his/her pool, any prize won by that pool. The advantage to players is that each player has many more chances to win, albeit a smaller amount, than if the player just bought tickets individually. (Tr. 75-76; Rx. 2 and Rx. 3).

3. PowerPick charges a fee for its services (Tr. 79, 82). For example, from players who wish to participate in a 50-player pool, with a total of eight drawings over a four-week period, PowerPick will collect $22.00 per person - a total of $1,100.00. PowerPick will buy a total of 256 tickets ($256.00), 32 for each drawing. The remainder of the money goes toward office expenses, general overhead, promotional activities, and profit (Tr. 96-98). For any pool that is not filled, i.e., does not have exactly 25 or 50 players, PowerPick uses its own funds to buy enough tickets to fill the pool. PowerPick would then keep its proportionate share of any winnings. (Tr. 96, 110).

4. The services provided by PowerPick include assigning players to specific pools, selecting lottery numbers to be played (this is done by PowerPick’s computer), purchasing the lottery tickets from a licensed Arizona Lottery vendor, holding the tickets, keeping records of which tickets are purchased for each pool, informing all players of the numbers they are playing in advance of each drawing, collecting winnings from the Arizona Lottery, keeping an account record for each player, and paying out winnings to the players (Tr. 75-78). PowerPick also publishes a small, bimonthly newspaper for its players, featuring various promotional activities and news items (Tr. 74; Cx. 12).

5. PowerPick uses the United States mail for sending its newspapers and other information to customers, and for receiving payments from customers (Tr. 14-16; Complaint, ¶ 1; Answer, ¶ 1; Rx. 2). PowerPick solicits business through newspaper advertisements and through its own bimonthly newspaper (Tr. 11, 91; Cx. 12).

6. PowerPick offers its services only to people with an Arizona address. It sends no mail out of state and accepts no orders from out of state. (Tr. 83-85).

7. PowerPick has no control over what numbers are selected as winners in any drawing. Drawings are conducted by the Arizona Lottery. (Tr. 87). PowerPick is not affiliated with the Arizona Lottery, nor does it claim to be, and is not licensed to sell lottery tickets. The State of Arizona is aware of PowerPick’s activities and has never charged PowerPick with selling lottery tickets without a license (Tr. 51-52).

8. PowerPick also provides several "bonuses" to its players. These are described in the PowerPick Player’s Handbook that is sent to each customer who responds to PowerPick’s solicitation (Cx. 5, p. 6; Rx. 3, pp. 2-3). These bonuses are called "free" by PowerPick because there is no separate, identified cost to the customer, and they are available to all customers who buy into one of the pools. In order to obtain them, however, the customer must purchase an entry into one of the lottery pools. (Tr. 107-08). Included are a "Frequent Player Bonus" (extra lottery numbers, purchased by PowerPick and assigned to the account of one who qualifies as a "frequent player"); "Referral Bonus" (free play to a player who recruits a friend, if the friend places an order with PowerPick); "MegaPool Bonus" (extra Powerball tickets purchased by PowerPick and shared among all current players regardless which 25 or 50 player pool the customer is in); and "Scratcher Tickets" (small cards sold by the Arizona Lottery for $1 to $3, with a latex area to scratch off and reveal the prize, if any - PowerPick distributes some number of these cards to its customers, depending on the dollar amount of the customer’s order). (Tr. 47-48, 97).

Contentions of the Parties

Complainant’s basic contention is that lottery pools, even though the pool operator does not control the drawings that determine winners, contain the three elements of a lottery - prize, chance and consideration - and, therefore, the operators are "engaged in conducting a lottery, gift enterprise, or scheme for the distribution of money or of real or personal property, by lottery, chance, or drawing of any kind, . .," within the meaning if 5 U.S.C. §3005. Complainant also argues that the exception in §3005(d) for "a lottery conducted by a State" has no applicability to Respondent’s activities. Further, Complainant argues that the restriction of Respondent’s services only to persons with an Arizona address, and the fact that the State of Arizona has not taken any action to curtail Respondent’s enterprise, are not relevant to the enforcement of postal statutes. Finally, in response to Respondent’s argument that this case must be governed by the definition of "lottery" used in criminal cases brought under Title 18 of the United States Code, Complainant asserts that there is no legal authority for that proposition, but also that Respondent’s enterprise constitutes a lottery even under the 18 U.S.C. §1307 definition.

Respondent argues that, because of the legal relationship between the two Federal Statutes dealing with lotteries, 39 U.S.C. §3005 and 18 U.S.C. §1301-1307, all Federal agencies must use the same definition of what constitutes a lottery and, following the principle that penal statutes must be strictly construed, the more narrow definition of the penal statute (18 U.S.C. §1307) should be controlling. Under this definition, according to Respondent, Respondent’s enterprise does not amount to a lottery. Respondent contends that it is the State of Arizona, not Respondent, that awards prizes, and that the consideration that customers pay to Respondent is strictly for PowerPick’s administrative services, not for a chance to win a prize. Respondent also contends that the exception in 39 U.S.C. §3005(d) does apply to PowerPick. That subsection states, in pertinent part, "Nothing in this section shall prohibit the mailing of . . . (2) tickets or other materials concerning [a lottery conducted by a State acting under authority of State law] to addresses within that State, . . .." Finally, Respondent argues that there is no consideration or chance involved in the promotional bonuses that PowerPick gives its customers, and that these types of promotional activities are excluded by 18 U.S.C. §1307(a)(2)(B) from the lottery-related activities that are prohibited.

CONCLUSIONS OF LAW

1. The elements of a lottery are prize, chance and consideration. Federal Communications Commission v. American Broadcasting Co., 347 U.S. 284, 290 (1954); Horner v. United States, 147 U.S. 449, 458-60 (1893); James R. Phipps, P.S. Docket No. 29/35 (P.S.D. March 24, 1994); Great American Giveaway, et al., P.S. Docket No. 36/102 (P.S.D. Feb. 5, 1993).

2. Several Postal Service Decisions have held that lottery pooling services constitute lotteries within the meaning of 39 U.S.C. §3005. The Canadian Express Club, P.S. Docket No. 28/52 (P.S.D. December 23, 1991); Canadian Express Services, P.S. Docket No. 28/149 (P.S.D. December 30, 1988); Universal Life Church, P.S. Docket No. 7/62 (P.S.D. February 14, 1980); Thomas Giel d/b/a Florida Lotto Players, P.S. Docket No. 34/178 (I.D. October 20, 1989). While Respondent’s evidence and arguments are persuasive as to Mr. Amada’s lack of evil motivations or any intent to mislead unwitting customers, Respondent makes no attempt to distinguish these precedents. Respondent’s business is nearly identical to those in The Canadian Express Club and Canadian Express Services. The arguments that Respondent is only an agent of lottery players, and that it is the Arizona Lottery, not Respondent, that awards prizes based on chance were made in these earlier cases, without success. "The activities of Respondents in this case place them squarely within the Universal holding that the distribution of solicitations inviting individuals to purchase lottery tickets or shares in lottery pools constitutes the conduct of a lottery." Canadian Express Services, supra at 5.^4/

3. Respondent’s argument that the definition of a "lottery" found in 18 U.S.C. §1307(d) establishes a different definition than has been used in Postal Service cases is off the mark. Cases brought under the penal statutes, 18 U.S.C. §1301-1306 and predecessor statutes, have always described lotteries in terms of the same three elements - prize, chance and consideration. "All the parties agree that there are three essential elements of a ‘lottery, gift enterprise, or similar scheme’: (1) the distribution of prizes; (2) according to chance; (3) for a consideration." FCC v. American Broadcasting Co., Inc., supra at 290; Horner v. United States, supra; "The term ‘lottery’ has been defined as a ‘scheme for the distribution of prizes or things of value by lot or chance among persons who have paid or agreed to pay a valuable consideration for the chance to obtain a prize.’" United States v. Tansley, 986 F.2d 880, 886 (5^th Cir. 1993)(quoting Peek v. United States, 61 F.2d 973, 974 (5^th Cir. 1932). 18 U.S.C. §1307 sets forth exceptions to the activities prohibited by the preceding sections of Title 18, to allow "State-conducted lotteries" to operate. Section 1307(d) only defines such lotteries.

(d) For the purposes of subsection (b) of this section "lottery" means the pooling of proceeds derived from the sale of tickets or chances and allotting those proceeds or parts thereof by chance to one or more chance takers or ticket purchasers.

No court has declared that this definition is intended to override the definition used in the cases cited above.^5/ I find no support for Respondent’s argument that the definition used in Postal Service cases is contrary to that used by the Department of Justice in criminal cases. Nor has any court declared that pooling operations are not lotteries. As noted above, several Postal Service Decisions have said they are.

4. PowerPick’s pooling service contains the three elements of a lottery. The following statements from The Canadian Express Club, supra, are dispositive:

"The fact that the drawings themselves are conducted by the Canadian lottery authorities is of no consequence. Rather, it is Respondent’s distribution of a prize which flows from a random drawing conducted by another entity which establishes the lottery element of prize." (P.S.D. at 9)

"While Respondent does not exert control over the Canadian lottery which conducts the drawing, its pooling activities are dependent on the chance its numbers will be selected in that drawing. Thus, its pooling activity which is dependent on the Canadian lottery drawing sufficiently involves the element of chance to constitute a lottery or scheme for the distribution of money by lottery, chance or drawing of any kind in violation of 39 U.S.C. §3005(a)." (P.S.D. at 5)

"Respondent solicits remittances for participation in its pooling activities which have already been found to involve the lottery element of chance. A portion of those remittances is retained by Respondent for the opportunity to win a prize and therefore serves as consideration for participation in a lottery. (P.S.D. at 8)

5. Even if one were to ignore the Postal Service precedents and accept Respondent’s argument that it is merely an agent, and that the elements of prize and chance are present only in the Arizona Lottery itself, PowerPick’s "bonuses" constitute lotteries in and of themselves. These are additional chances for prizes that are sold to players directly by PowerPick, not by the Arizona lottery. Respondent’s contention that they are "free" is inaccurate. This same argument was rejected on similar facts in Giel, supra at 6. The only way a player can get "scratcher tickets" from PowerPick, or numbers in a "megapool," is to remit money to PowerPick. This constitutes consideration. Respondent’s argument that these bonuses, or promotional awards, are not based on chance because all customers receive them is also unpersuasive. Receipt of the tickets may not be based on chance, but chance determines what, if anything, the customer actually wins with the tickets.

6. Respondent also argues that the bonuses, or promotional awards, are excluded from lottery prohibitions by 18 U.S.C. §1307(a)(2)(B). This exclusion covers:

(2) an advertisement, list of prizes, or other information concerning a lottery, gift enterprise, or similar scheme . . . that is authorized or not otherwise prohibited by the State in which it is conducted and which is –

* * *

(B) conducted as a promotional activity by a commercial organization and is clearly occasional and ancillary to the primary business of that organization.

The items characterized by Respondent as promotional awards are neither "occasional," nor are they "ancillary to the primary business" of PowerPick. They are an integral part of what Respondent is selling.

7. The fact that Respondent mails materials only within Arizona would be relevant only if the exception in 39 U.S.C. §3005(d) applied. That section provides:

Nothing in this section shall prohibit the mailing of (1) publications containing advertisements, lists of prizes, or information concerning a [State-conducted] lottery, (2) tickets or other materials concerning such a lottery within that State to addresses within that State ….

This subsection was written to permit State-run lotteries to operate. The following excerpt from the legislative history (Department of Justice testimony) suggests that it was intended to be a narrow exception to the general prohibition against lotteries:

In explaining the Department’s recommendations, the witness stated that the Department would not favor any change in the law which would have the effect of opening up the channels of commerce to individuals who would seize upon the existence of a State authorized lottery to "commercialize the process." It was explained that this meant that the Department didn’t want it to be possible for criminals to engage in interstate traffic in lottery tickets.^6/

Respondent argues that because he is not a criminal, this language was not directed at him and the language of the statute need not be read as narrowly as Complainant suggests. I disagree. While Mr. Amada is clearly not a criminal, his business does "commercialize the process," and PowerPick’s activities involve more than merely mailing information about the Arizona Lottery. The exception for State-conducted lotteries in §3005(d) does not legitimize a pooling service such as PowerPick.

8. Complainant has established its case by a preponderance of the reliable and probative evidence of record. S.E.C. v. Savoy Industries, Inc., 587 F.2d 1149, 1168 (D.C. Cir. 1978).

Respondent’s lottery pooling service constitutes a lottery within the meaning of 39 U.S.C. §3005. The attached proposed Lottery Order and Cease and Desist Order should be issued.

Bruce R. Houston
Chief Administrative Law Judge

1. 39 U.S.C. §3005 provides, in pertinent part, as follows:

(a) Upon evidence satisfactory to the Postal Service that any person is engaged in conducting a scheme or device for obtaining money or property through the mail by means of false representations, . . ., or is engaged in conducting a lottery, gift enterprise, or scheme for the distribution of money or of real or personal property, by lottery, chance, or drawing of any kind, the Postal Service may issue an [appropriate] order . . ..

2. References to the hearing transcript are "Tr. -." References to Complainant's Exhibits are "Cx. -," and references to Respondent's Exhibits are "Rx. -."

3. Arizona Revised Statutes, Title 5, Chapter 5 (A.R.S. §5-501, etc.).

4. Further support for the proposition that a respondent need not actually be selling lottery tickets, or conducting the lottery drawings, to run afoul of 39 U.S.C. §3005 is found in Audit Office, P.S. Docket No. FOR 98-304 (P.S.D. August 25, 1998), and Fulfillment and Processing Center, P.S. Docket No. FOR 96-202 (P.S.D. August 30, 1996).

5. The legislative history of §1307 contains the following: "In this connection it can be noted that the language of the committee amendment is drafted so as to retain the present restrictions of titles 18 and 39 on all lotteries except for the exceptions provided in the amendment concerning lotteries conducted by a State acting under authority of State law." 1974 U.S. Code Congressional and Administrative News 7007, 7012.

6. 1974 U.S. Code Congressional and Administrative News 7007, 7011. See discussion in Universal Life Church, P.S. Docket No. 7/62 at 5-7 (I.D. August 31, 1979).

I. Authority and Scope

This Order is issued pursuant to 39 U.S.C. §3005(a)(3) and extends to any promotion in which the persons and/or entities identified in Paragraph II, below, individually or through any corporate or other device, attempt to obtain money or property directly or indirectly through the mail.

II. Persons Covered

This Order binds Respondents Andrew R. Amada, PowerPick, Inc., and anyone who would be bound by an injunction issued against either of them pursuant to Federal Rule of Civil Procedure 65 (hereinafter collectively referred to as "Respondents").

III. Conduct Prohibited

Respondents are hereby ordered to cease and desist from engaging in the conduct of any lottery or scheme for the distribution of money by lottery, chance or drawing of any kind.

Judicial Officer