A Cumberland County judge is expected to rule later this week on whether to grant a preliminary injunction to block Fayetteville's enforcement of fees on Internet sweepstakes cafes.
Senior Resident Superior Court Judge E. Lynn Johnson heard arguments from both sides during an hourlong hearing Monday.
Lonnie Player Jr., a lawyer representing more than a dozen business owners, argued that the injunction was needed to prevent "irreparable harm" until a lawsuit seeking to strike down the city fees is litigated.
Player said that many of the businesses he represents will be forced to shut down, fire employees and possibly even file for bankruptcy if forced to pay the privilege license fees that call for $2,000 per sweepstakes location and $2,500 per computer terminal.
A lawyer for the city, Bobby Sullivan, argued that the fees were a "unique tax for a unique type of business."
Sullivan said the fees were higher than for other businesses because the sweepstakes locations added an additional burden on law enforcement.
"These aren't dry cleaners or florists and the city is saying 'We won't tax them like dry cleaners or florists,'" he said.
Sullivan asked that the injunction be denied and, if it is approved, that the judge require the businesses to post a bond to ensure that the fees will eventually be paid if a judge eventually rules in the city's favor.
Johnson said he would rule on the injunction on Friday of this week.
Last month, he approved a temporary restraining order to prevent the city from collecting the fees. That order will remain in effect until at least Friday morning.
Following presentations by both sides, Johnson quizzed lawyers on their arguments, the impetus behind the state law banning the businesses that takes affect in December and the history that led to the city's raising the fees.
Player said the fees were effectively raised 9,000 percent, since the lowest possible fee would be a total of $4,500.
Brian Leonard, a city attorney, defended the fees, saying they were comparable to other municipalities.
Leonard said the fees were passed with the city budget in mind and are meant to provide the city with additional revenue, not to punish businesses or attempt to tax them out of business, an allegation made by Player.
Player has referred to the fee as being punitive and said that the city was attempting to cash in on what is perceived to be a lucrative business, even though the businesses are set to be outlawed later this year.
"They are supposed to be cash cows," Player said. "Despite the fact that many of these locations haven't broke even yet."
Of the businesses that Player represents, the lowest tax bill is for $32,000 and the highest is more than $200,000, he said.
"My clients have no choice but to challenge this tax," he said.
But Sullivan said the city instituted the new fees assuming that sweepstakes locations would not actually be shut down by state law.
"If history is any guide, that's not going to happen," he said, citing ongoing legal attempts to overturn the state law. "They'll operate past Dec. 1 and into the foreseeable future."
Sullivan argued that the businesses bringing the lawsuit failed to meet the burden of proof to show that they would be irreparably harmed by the new fees.
He said routine financial information that could show the detriment the fees potentially pose to the businesses was not provided to the court.
Fayetteville is a co-defendant in another lawsuit filed in regards to Internet sweepstakes businesses.
That lawsuit, filed in August in Burke County by two companies that provide software for the businesses, is seeking to overturn the licensing fees that have been imposed by Fayetteville, Lumberton, Pembroke, Morganton and Wilmington.
The sweepstakes businesses began to appear across the state after a 2007 state ban on gambling. Customers buy Internet time to use computer terminals to win sweepstakes, which can be redeemed for cash.
The state legislature voted this year to close a loophole allowing such cafes to operate, setting the Dec. 1 deadline.
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