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Maker of electronic pull tab machines suing North Dakota over machine shutdowns

Maker of electronic pull tab machines suing North Dakota over machine shutdowns

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The California-based builder of hundreds of electronic pull tab machines that were shut down in North Dakota by state order two weeks ago is suing the state in federal court.

Powerhouse Gaming attorneys say the company was unfairly targeted by the state’s top law enforcement official and gaming director, and they're asking a federal judge to allow it to continue operating in North Dakota. The company also claims the July 8 order was issued without advance warning or notice “except apparently to Powerhouse Gaming’s manufacturing competitors who were waiting in the wings to replace its machines,” the company says in court documents.

Liz Brocker, spokeswoman for Attorney General Wayne Stenehjem, on Tuesday said the attorney general was not available for comment and added “we do not discuss or comment on pending cases.”

Powerhouse built nearly 500 machines that were operating in the state -- about one-fifth of the roughly 2,500 machines at about 600 sites across North Dakota, according to the attorney general's office.

Stenehjem suspended Powerhouse's gambling license because he said the company had failed to show it had purchased a software license for each device in the state. He also ordered that the company’s machines in North Dakota be immediately disabled. The suspension is to stay in effect until the company can prove it is in compliance with gambling regulations.

Stenehjem said Powerhouse was using illegal or pirated software in the machines, terms the company says are slanderous. Powerhouse said the suspension order costs it $60,000 per week and threatens the jobs of 69 employees in five states because of the loss of business and harm to the company’s reputation.

Powerhouse attorneys argue that the company owns one type of software in the machines and that the state has no regulatory authority over another type of software. Even so, they say, the company complied with the state's request for evidence, and that no other gambling manufacturer has been required to provide such proof, the documents state.

Powerhouse President Nathan Freels claims Stenehjem and Gaming Director Deborah McDaniel have interfered with his business and contracts and violated his right to due process. The two “exercised pre-hearing discretion” to enforce a temporary licensing suspension “which in reality had a final effect,” according to the documents. Stenehjem’s claims in a news release were made “maliciously, recklessly and with intentional disregard for the truth,” the documents state.

Freels asks a judge to stop enforcement of the suspension order and McDaniel’s order of violation, and halt further issuance of an email McDaniel sent to the state’s charities, bars and distributors that the company says “poisons the well for Powerhouse Gaming with all those entities.” A temporary restraining order would allow the company to turn machines on in locations that are willing to take them, “but most of the charity locations have replaced (them) with competitor machines,” the documents state.

Powerhouse in documents claims McDaniel has “exhibited a pattern and practice of singling out” the company “for particularly harsh oversight,” in her interpretation of marketing regulations and “enforcement of unwritten rules.” She also forced the company to undergo laboratory testing of its equipment when she claimed she got inconsistent sales and payout numbers from reports she ran on Powerhouse Gaming's server, the lawsuit alleges. That was a step no other manufacturer has had to complete, the company claims.

Reach Travis Svihovec at 701-250-8260 or Travis.Svihovec@bismarcktribune.com

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