Video Gaming Company drops Lawsuit Against Morgantown

Morganton --
The two software companies who sued the city of Morganton because of the business license fee it charges Internet sweepstakes cafes have dismissed the lawsuit. Attorneys for the two companies requested a voluntary dismissal of the lawsuit. They asked the court to do so “without prejudice,” which means they could re-file the lawsuit within the next 12 months.Meanwhile, lawyers for both sides are watching a separate lawsuit filed last month in Cumberland County Superior Court by 13 Internet cafe owners in Fayetteville who are fighting the license fees on constitutional and other grounds.International Internet Technologies and Hest Technologies filed suit in early August against Morganton, Fayetteville, Lumberton, Pembroke and Wilmington. The lawsuit alleged the cities’ business license fee, or privilege license, violates the federal Internet Tax Freedom Act. The act prevents local and state governments from taxing Internet access.The lawsuit ended up in business court before Judge Ben F. Tennille.The cities named in the lawsuit contended that because the two software companies weren’t paying the privilege fees — the fees only apply to local business operators — they didn’t have a dog in the fight, said Steve Settlemyer, attorney for the city of Morganton. Settlemyer also said he doesn’t believe the Internet Tax Freedom Act applies to privilege licenses. During depositions taken in the case, he pointed out, lawyers for the companies said people don’t have to go on the Internet to reveal a sweepstakes win and that the games are a local server-based program. The city has spent around $8,000 so far to retain an attorney who regularly practices in business court to fight the lawsuit, Settlemyer said. The Kilpatrick Stockton law firm in Winston-Salem represented IIT. Attorney Richard Gottlieb said the company decided to dismiss the lawsuit because of the similar suit filed against the city of Fayetteville. He said it made more sense to his clients and was more efficient to allow the Fayetteville case to proceed and then consider their options. Gottlieb said IIT is not a party to the lawsuit against Fayetteville. According to the Fayetteville Observer, the Cumberland County Superior Court judge in that case granted a preliminary injunction to block the city’s ability to collect the fees from those owners until the case is settled, either by trial or out of court. Gottlieb and Settlemyer both said they want to see how that lawsuit is resolved.In the meantime, Settlemyer said, Internet sweepstakes gaming operators have to pay the privilege license in Morganton. Settlemyer said that of the 17 operating in the city in the spring, 10 paid Morganton’s privilege license, three got rid of their machines and one closed up shop. Two have yet to pay the fee, he continued. The combined total due is $58,050. The Morganton City Council voted in May to require businesses who offer video gaming to pay for a privilege license. It costs $2,000 per business and $1,500 per machine (city staff originally proposed $2,000 and $2,500). City officials projected the 2010-11 municipal budget would get $125,000 for the Internet sweepstakes cafe privilege license. Settlemyer said that if the two businesses don’t pay the privilege license fee, the city could file a lawsuit to collect the money or the city could get a court order to close down the businesses. Those offering the Internet sweepstakes gaming say they provide a way for people to access the Internet for e-mail, social networking, entertainment and religious purposes. They say they use the sweepstakes to promote their business. Opponents say the operators — whether they call themselves Internet cafes, business centers or something else — are nothing more than gambling parlors.The North Carolina General Assembly voted on July 7 to outlaw the electronic sweepstakes gaming. The law is scheduled to take effect Dec. 1. Gottlieb said he and his clients believe the law the General Assembly passed is unconstitutional because it infringes on the First Amendment right of free speech and, specifically, on the way the sweepstakes can be played and displayed.