Was a no-purchase real estate giveaway lawful under South Carolina lottery law and RESPA?

View original AG opinion (PDF)

Plain-English summary

In June 2022, the South Carolina Attorney General declined to decide whether a real estate company's proposed random giveaway was lawful. The request described a drawing with no purchase or referral required. The office explained that a prohibited lottery involved a prize, chance, and consideration; consideration could be indirect and did not necessarily have to be cash. Whether this particular promotion met the test depended on details the office could not establish in an advisory opinion.

The requester also asked about the federal Real Estate Settlement Procedures Act (RESPA). The Attorney General expressly declined that part because federal-law questions were outside the scope of the office's opinions. The opinion gives no federal-law conclusion about the giveaway.

What this means for you

Real estate companies running promotions

The opinion did not provide approval of the proposed drawing. It said the claimed absence of a required purchase or referral did not settle whether some other form of consideration was present. The office could not assess an unspecified promotion's full facts.

Sweepstakes entrants

The opinion explained that a prize and random chance alone did not make a lottery under the state test; consideration was the additional element. It did not say that every “free” drawing was lawful.

People asking about RESPA

The Attorney General stopped at its jurisdictional limit. It did not interpret RESPA or decide whether the promotion complied with that federal law.

Common questions

Q: Does “no purchase necessary” automatically make a drawing lawful in South Carolina? A: The office said no simple label settled the issue. Consideration could be indirect or noncash, and it could not evaluate this promotion without its actual details.

Q: What elements did the opinion identify for a lottery? A: It listed a prize, a method involving chance, and consideration paid by the participant.

Q: Did the Attorney General decide this company's giveaway was an illegal lottery? A: No. The office said the question was fact specific and declined to determine the particular contest's legality.

Q: Did the opinion say the giveaway complied with RESPA? A: No. The Attorney General declined to interpret that federal statute.

Background and statutory framework

A legislator described a real estate company's proposed sweepstakes and asked about state gambling law and RESPA. The Attorney General discussed South Carolina's constitutional lottery restriction, state cases distinguishing gratuitous drawings from schemes supported by consideration, and the possibility of indirect consideration. It then explained that a legal opinion could not find the facts of this promotion and did not reach the federal question.

Citations and references

• S.C. Const, art. XVII, § 7: the state lottery provision quoted in the opinion.
• S.C. Code Ann. §§ 16-19-10; 16-19-30; 16-19-20: lottery offenses cited in the opinion.

Source

• Landing page: https://www.scag.gov/opinions/opinions-archive/opinion-regarding-gambling-laws-and-the-real-estate-settlement-act-respa-12-usc-2601-et-seq/
• Original PDF: https://www.scag.gov/media/eh4am52z/03031855.pdf

Original opinion text

Ki
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Alan Wilson
Attorney General

June 28, 2022

The Honorable W. Brian White
Post Office Box 970

Anderson, SC 29621
Dear Representative White:

You have requested an opinion from this Office regarding gambling laws and RESPA [Real Estate Settlement Procedures Act, 12 U.S.C. 2601 et seq.l. You explain that a real estate company in your district would like to have a Giveaway Win for potential customers. The Giveaway Win will be run as a sweepstakes.

It will be a random drawing with people who have not sent a

referral. There is no required purchase or consideration to enter. LAW/ANALYSIS

As we have stated in many prior opinions, this Office is not empowered to make factual

findings.1 However, we can provide you with the applicable law as guidance.

The South

Carolina Constitution expressly prohibits the operation of lotteries in South Carolina, although there are certain exceptions:

Only the State may conduct lotteries, and these lotteries must be conducted in the manner that the General Assembly provides by law . . .

The game of bingo, when conducted by charitable, religious, or fraternal organizations exempt from federal income taxation or when conducted at recognized annual state and county fairs, is not considered a lottery prohibited by this section. A raffle, if provided for by general law and conducted by a

nonprofit
organization
for
charitable,
religious,
fraternal,
educational, or other eleemosynary purposes, is not a lottery prohibited by this section . . .

1 See Op. S.C. Atty. Gen., 1989 WL 406130 (April 3, 1989) (“[b] ecause this Office does not have the authority of a court or other fact-finding body, we are not able, in a legal opinion, to adjudicate or investigate factual questions.”) Rembert C. Dennis Building

«

Post Office Box 11549

• Columbia, SC 2921 1-1549

• Telephone 803-734-3970

•

Facsimile 803-253-6283

The Honorable W. Brian White
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June 28, 2022

S.C. Const, art. XVII, § 7. In response to the State Constitution, the Legislature enacted statutes criminalizing setting up lotteries, selling lottery tickets, and even participating in a lottery. See S.C. Code Ann. §§ 16-19-10; 16-19-30; 16-19-20 (1976 Code, as amended).

We have previously explained that “[t]ypically , a raffle whereby an individual buys a ticket for the opportunity to win a prize based upon a random drawing is considered a lottery.” Op. S.C. Atty. Gen.. 2006 WL 3877513 (Dec. 11, 2006) (citations omitted). “However, other games or events may also be considered a lottery.” Id. In Darlington Theatres v. Coker, et al. 190 S.C. 282, 2 S.E.2d 782 (1939), our South Carolina

Supreme Court concluded that a lottery consists of three elements: (1) the giving of a prize, (2) by a method involving chance, (3) for a consideration paid by the participant. The Court explained “[t]o make a lottery, these three elements or ingredients must be present; chance alone, or chance coupled with consideration alone, will not do so.” kt In a prior opinion, this Office added:

If one of these essential elements is absent, the scheme is not a lottery, regardless of the motive for the omission, and, conversely, if all of the elements are present, the scheme is a lottery, regardless of the fact that the dominant purpose of its sponsor is to increase

its business.
Op, S.C. Atty. Gen.. 1966 WL 8502 (May 2, 1966).

The movie theater in Darlington Theatres held a drawing for advertising and promotional purposes. The Court found that the first two elements of a lottery, prize and chance, were clearly present.

The issue was whether consideration was given. The Court described the consideration

in a lottery:

In regard to the element of consideration, it has been said that the species of lottery which is intended to be prohibited as criminal by

the various laws of this country embraces only schemes in which a valuable consideration of some kind is paid, directly or indirectly, for the chance to draw a prize; and that the gratuitous distribution of property by lot or chance, if not resorted to as a device to evade the law, and if no consideration is derived directly or indirectly

from the party receiving the chance, does not constitute a lottery.” Darlington Theatres v. Coker. 190 S.C. 282, 2 S.E.2d at 787 (citations omitted).

The Honorable W. Brian White
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June 28, 2022

Although the Court concluded that no consideration was given for either participating in the

drawing or claiming and receiving the prize money in this particular factual situation,2 it pointed out that “[w]here no price is paid for tickets, but in order to win a person must purchase something else, this would be included in the definition of a nature of a lottery.” Id, 190 S.C. 282, 2 S.E.2d at 785.

This language in Darlington Theatres is strongly supported by other court decisions and by opinions of this Office. See Op. S.C. Atty. Gen., 1997 WL 255957 (April 16, 1997) at 3. As we stated in a prior opinion, The cases are fairly consistent in holding that where prize tickets are furnished to customers, that is, those who purchase something, the payment by the customer is for both the article purchased and

the prize, part of the consideration being for the ticket. State v. Powell, 212 N.W. 169; Matta v. Katsoulas, 212 N.W. 261. On the other hand, the cases where the participant has an opportunity to

participate free, hold such schemes legal. Yellowstone Kit v. State, 7 So. 338; People v. Mail and Express Co. , 179 N.Y.S. 640. Op. S.C. Atty. Gen., 1966 WL 8502. A court has explained:
[w]hen a person pays no additional cost for a ticket, but much [sic] purchase or rent merchandise in order to receive a ticket, then this

gift is no longer a gratuitous distribution of property .... The element of consideration is established by

showing that the

operator or merchant received something of value in return for the

2 This Office summarized the facts in Darlington Theatres in Op. S.C. Atty. Gen.. 2013 WL 5651553 at 3 (Oct. 4, 2013): In Darlington, a movie theater developed an advertising plan to direct “public attention to the type and quality of pictures displayed in the theater from day to

day.” Id., 2 S.E.2d at 783. The theater compiled a list of names from which winners would be drawn. It was not required that a person pay anything or purchase a ticket to be on the list; any person could simply ask to have their name included. A winner did not have to be present at the time of the drawing or enter the theater to claim the prize, and were given ample time to reach the

theater from his or her home to claim it. Even if the winner was out of town at

the time of the drawing, he or she could still claim the prize if they gave written notice to the theater ahead of time that he or she would be absent.

The Honorable W. Brian White
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June 28, 2022

distribution of the prizes. See People v. Cardas, 137 Ca. App.

Supp. 788, 28 P. 2d 99.
S.C. Dep't of Revenue v. Fraternal Order of Police Foothills Lodge, #9, No. Docket No.: 15ALJ-17-0047-CC, 2016 WL 1168408 at 4 (Mar. 17, 2016) (emphasis added). This Office has previously concluded that this type of payment is an indirect consideration:

It is nothing but a ruse where an individual pays money for one thing, but in reality, is paying for the chance to compete for a prize even if such chance is labelled “free.” The “indirect” payment is generally sufficient consideration to constitute a lottery. Op. S.C. Atty. Gen., 1997 WL 255957 at 14.

Although consideration must be something of value, it does not have to be money.3 The Court in Darlington Theatres did not decide whether requiring attendance to participate in a drawing constituted consideration.

Within its opinion, it cited Maughs v. Porter, 157 Va. 415, 161 S. E.

242. In Maughs, every person attending a public sale of residence lots was given the opportunity

to get his name into a receptacle for a drawing where the prize was a car. concluded that the scheme constituted a lottery.

The Virginia court

Consideration passed from the ticket holder to

the promoter because the ticket holder suffered the detriment of attending the sale to enter the drawing.

Regarding Maughs, our State Supreme Court said that “[t]his holding, however, is not in accord with the general current of authority in America, and has met with pointed criticism.” Darlington Theatres v. Coker, 190 S.C. 282, 2 S.E.2d at 788 (citations omitted). The Court also

distinguished Maughs from the case at hand, stating that “[i]f voluntary attendance, without obligation, is a legal consideration for participation in a drawing, that element is not present here,

for actual attendance at the drawing in the present case is not a requirement of the winner.”4 Id. Thus, the Court left open the question of whether “voluntary attendance, without obligation, is a

legal consideration for participation in a drawing.”
3 See Op. S.C. Atty. Gen., 1997 WL 255957 at 16:
[t]he Court [in Darlington Theatresl

clearly suggests that the element of

‘consideration’ does not necessarily have to involve the actual payment of

money. 190 S.C. at 296 [‘Having found as a fact from the undisputed testimony in the case that the distribution of money by the plaintiff involves no payment of

money or

the

parting

with

any

other

consideration

on

the

part

of the

participants ... .’] (emphasis added).

4 The Court also found that the Maughs case was distinguishable because the winner of the drawing was required to pay the auctioneer $5.00 for his services in drawing the lucky number.

The Honorable W. Brian White
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June 28, 2022

Courts in other jurisdictions have found consideration was present when a participant was required to go in person to enter a contest, even where “no purchase is required.” In an April 6,

1997 opinion, we discussed an article in the Arizona Law Review5 regarding consideration in “no purchase required” contests:
[t]his article noted that a large number of courts have determined

consideration to be present in “no purchase required” contests pursuant to a number of legal theories. Included among these theories is the so-called “peppercorn” theory of consideration — that any benefit or detriment -- no matter how trivial -- is sufficient. Also, the author notes:
[s]ome courts conclude that the prize promises in
games

requiring

no

purchase

are

nevertheless

promises supported by consideration because they
are

designed

to

increase

sales

and,

in

some

instances actually do ... .
Other courts find consideration for the promises
contained

in promotional

games

by

a

slightly

different, though related path. For example some of

the courts point out that, even though a game or
other promotional device requires no purchase or
fee, a number of the individuals who participate
actually do buy goods from the sponsoring grocery

store or magazines from the sponsoring magazine
distributors or admission tickets to the sponsoring
movie theater. Those who do buy, it is said, supply
consideration for the contingent promise of a prize,

and the consideration they supply supports the same
promise to others ....
The article, however, expresses the opinion that another theory finding consideration where no purchase is required is legally sounder and more logical. The author states that:

[s]ome courts, however come much closer to the
truth by identifying the desire to increase “traffic
flow” as the motive behind promotional games or,

more formally, by finding the consideration for the

5 Wessman, “Is 'Contract the Name of the Game? Promotional Games as Test Cases For Contract Theory,” 34 Arizona Law Review 635 (Winter 1992).

The Honorable W. Brian White
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June 28, 2022

promises contained in a promotional game, not in

increased sales, but in increased “traffic.”
. . . The act for which the disadvantaged party is
bargaining is the grant of a chance to impress the
opposite party, at no risk to the latter. By making
the agreement and perhaps commencing business

dealings, the party with the unlimited termination
right effectively grants a chance to draw him or her

further

into

a

mutually

beneficial

course

of

business.
The promotional game for which no purchase is

required seems to fit this model of “bargaining for a
chance admirably .... But the contestant who
responds by going to the store is placed in a position

in which he or she is subject to the influence of
unrelated in-store advertising, attractive packaging,
price

specials,

and

all

the

other

devices

supermarkets use to peddle groceries. It is thus quite
realistic to regard the sponsor as bargaining for a
chance, in the sense that he or she is seeking to

induce the contestant into a position in which other
inducements (or sheer inertia) result in sales. And if
enough people respond to the game by going to the
store, that is, if “traffic” builds, there is a statistical

likelihood sales will increase.
Op. S.C. Atty. Gen., 1997 WL 255957 at 1 1.

Both the April 6, 1 997 opinion and a January 11,1 996 opinion6 discuss participating in a “free” contest in some detail. They provide excellent summaries of decisions in other jurisdictions. We will provide you with the decisions that are relevant to your question: In Great Atlantic & Pacific Tea Co. v. Cook, 240 N.E.2d 1 14 (Ohio 1968), the court stated:
[t]he question of whether or not one has to be a purchaser of merchandise from the retailer is not germane to this issue. The claim that one does not have to buy merchandise from the retailer, but is permitted to enter the store or write in for a ticket to participate in the game or contest is the very intent that the retailer

6 Op, S.C, Atty, Gen., 1996 WL 82893 (Jan. 11, 1996).

The Honorable W. Brian White
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June 28, 2022

seeks to procure and that is either a customer who buys and participates in the game or a prospective customer, who, without purchasing, enters the store to procure a game card and then participates in the game does the very thing that the retailer sets out to accomplish, and that is using a lottery-type scheme to promote business. The increased business which the operator receives through employment of the plan supplies adequate consideration, (citations omitted).

This Office stated that the Court’s analysis in Midwest Television, Inc, v. Waaler, 44 Ill.App.2d 401, 194 N.E.2d 653 (1963), “went to the heart of the question of consideration for purposes of a lottery.” Ops. S.C. Atty. Gen., 1997 WL 255957 at 9; 1996 WL 82893 at 8 (Jan. 11. 1996). The court analyzed the issue as follows:
[w]hether [consideration] is present in any given
scheme depends upon the method of operation.
Thus the definition of consideration must remain
flexible...

A

commonly

accepted

definition

of

valuable consideration... [is that such] “consists of

some right, interest, profit or benefit accruing to one
party,

or

some

forbearance,

detriment,

loss

or

responsibility given, suffered or undertaken by the
other.” According to such definition, it appears to
be immaterial whether one party sustains an actual
pecuniary

loss,

or

the

other

reaps

an

actual

pecuniary benefit. In the case at bar, a participant in
the sweepstakes event could obtain tickets without
paying any money or making a purchase. However,

these free tickets could be picked up only at the
store conducting the event. Those making purchases
at such store could also secure such tickets. As to
the non-purchasers it must be concluded that they
were induced to visit the store only by the lure of

the chance to win a prize. What other reason could
be given for them to visit? Obviously free ticket

seekers

entering

the

store

became

potential

customers. The benefit accruing to the sponsor is
the increase in the number of persons entering the
store, regardless of whether or not they all come to
buy his goods. The cost of the gift certificates
awarded to winners comes out of the store profits.

The source of the prize won by both non-purchasing

The Honorable W. Brian White
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June 28, 2022

ticketholders and those making purchases is the
profit realized by the store from the event. The fact

that winners paid no money for their chances is
significance. The profits realized from

without

participants making purchases from the sponsor
paid for their free chances. There can be no serious
doubt concerning the fact that as a result of the
event a benefit accrued to the sponsor. This leaves
only the question as to the consideration, if any
moving from the participants. To comply with the

rules governing the event, every participant was
required to go to the sponsor's store. Such
requirement entailed the effort involved in leaving
home and making a trip to the store to obtain a
ticket. The further away from the store the ticket
seeker lived the more effort was involved.
In Knox Industries Corp, v. State ex rel. Scanland. 258 P.2d 910 (Okl. 1953), all that was necessary to qualify to win a prize was to go into any Knox service station or store and obtain a

ticket, and leave the stub in a container. The Court found that the following specific acts constituted consideration: 1 . the expenditure of participant's time and inconvenience in going to some Knox store and asking for a ticket.

2. prospective participants are subjected to the sales
   appeal

of the merchandise offered

for

sale

at

defendants' stores stations.

3. in case participant won he must expend further
   time and effort in appearing at the main office of the

Knox Industries Corp to claim the prize.
In the April 6, 1997 opinion, we concluded that requiring appearance at a business to participate

in a contest can be sufficient consideration to constitute a lottery:
[i]n my view, the fact that the promoters of a particular contest specify that “no purchase is required” in order to play and there is no

payment

necessarily

or

purchase

preclude

that

whatever

(even

particular

scheme

indirect)

or

does

contest

not

from

The Honorable W. Brian White
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June 28, 2022

constituting a lottery. I agree with the courts in other jurisdictions which have analyzed such schemes as not necessarily requiring direct or indirect monetary payment for there to be sufficient consideration to constitute a lottery. These courts have reasoned that such promotional schemes must be examined in their entirety,

and not with a focus only upon the “no purchase required” element of the contest. Such courts take the view that sufficient consideration passes from the group of players to the promoter, regardless of whether a particular player pays to participate because, inevitably, such promotions produce increased sales, greater purchases of the promoter's products and a large proportion of participating players who do in fact make purchases .... In other words, courts elsewhere have concluded that the contest participant's expenditure of time, thought, attention and energy in exchange for the attraction to the promoter's advertising or the luring of additional customers to the advertiser's place of business

is sufficient consideration to constitute a lottery. See, State v. Reader's Digest Assn., 81 Wash.2d 259, 501 P.2d 290 (1972) . . . Op. S.C. Atty. Gen., 1997 WL 255957 at 14-15.

You have also inquired as to whether the real estate company’s sweepstakes would be a violation of the Real Estate Settlement Procedures Act [RESPA], 12 U.S.C. 2601 et seq. As we stated in Op. S.C. Atty. Gen., 2012 WL 3875117 (Aug. 21, 2012):

The answer to this question requires us to examine and construe

applicable federal statutes and regulations. As we have repeatedly advised, it is the general policy of this Office not to opine on issues involving federal law. See Ops. S.C. Atty. Gen., 2010 WL 3048330 (July 9, 2010) (stating “this Office generally does not construe federal law” and “issue[s] involving federal law ... are best addressed before a federal court”); 2009 WL 2406409 (July 24, 2009) (stating that “as a matter of policy, this Office does not opine on questions of federal law” and “defers [such matters] to

the federal agency charged with the interpretation of the federal statute or regulation in question”). CONCLUSION In conclusion, we reiterate that any questions related to a specific sweepstakes are necessarily

fact-specific and beyond the proper scope of an official opinion of this Office. As this Office has

The Honorable W. Brian White
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June 28, 2022

opined

many

times,

we

do

not

have the

authority

of a court to find facts in

an

opinion.

Furthermore, we generally do not have the resources to opine on the legality of individual contests.

In this particular case, it is not clear how exactly the proposed sweepstakes will be conducted. While we cannot comment on hypothetical questions, it is not difficult to imagine numerous

scenarios where a promotional plan crosses the line to become an illegal lottery.

See 1 1 ar vic v.

Heise. 150 S.C. 277, 148 S.E. 66 (1929) (“In no field of reprehensible endeavor has the ingenuity of man been more exerted than in the invention of devices to comply with the letter but to do violence to the spirit and thwart the beneficent objects and purposes of the laws designed to suppress the vice of gambling.")

opinions of this Office.

See Op. S.C. Atty. Gen.. 1974 WL 27604 (Jan. 21, 1974) (“|a|s in all

instances where a criminal
deliberation

be

Therefore, we strongly urge caution, consistent with prior

statute might be violated,

utilized

prior

to

it

is urged that utmost caution and

effectuating

such

a

plan.”)

With respect to your question concerning the Real Estate Settlement Procedures Act [RESPA], 12 U.S.C. 2601 et seep, questions of federal law arc not within the scope of opinions issued by

this Office.
Sincerely,
i

Elinor V. Lister
Assistant Attorney General

REVIEWED AND APPROVED BY:

Iwbert D. Cook
Solicitor General