Mountaineer Fin. Servs., LLC v. City of Hendersonville

MOUNTAINEER FINANCIAL SERVICES, LLC,d/b/a CAPITAL ONE REWARD ZONE OF HERNDERSONVILLE, NC, Plaintiff, v. CITY OF HENDERSONVILLE, NORTH CAROLINA, Defendant.

CIVIL CASE NO. 1:13-cv-00203-MR-DLH

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA ASHEVILLE DIVISION

Signed: October 7, 2013

MEMORANDUM OF

DECISION AND ORDER

THIS MATTER comes before the Court upon the Plaintiff's Motion for Temporary Restraining Order and Preliminary Injunction [Doc. 2].

I. PROCEDURAL BACKGROUND

The Plaintiff Mountaineer Financial Services, LLC, d/b/a Capital One Reward Zone of Hendersonville, NC, initiated this action on July 17, 2013, asserting a claim under 42 U.S.C. § 1983 for violations of procedural due process and seeking a declaratory judgment that the Plaintiff's business operation is lawful and does not violate any gaming, gambling, or sweepstakes law of the State of North Carolina. [Doc. 1]. On July 22,2013, the Plaintiff filed the present motion, seeking a temporary restraining order and preliminary injunctive relief. [Doc. 2]. On July 24, 2013, the Court denied the Plaintiff's request for a temporary restraining order on the grounds that the Plaintiff had failed to demonstrate irreparable harm. [Text-Only Order entered July 24, 2013]. The Court's Order indicated that a hearing would be scheduled on the Plaintiff's request for a preliminary injunction once counsel had made an appearance on behalf of the Defendant. [Id.] On September 3, 2013, the Defendant City of Hendersonville filed its Answer to the Plaintiff's Complaint. [Doc. 3]. The parties subsequently agreed to have the motion for preliminary injunction considered on briefs and affidavits in lieu of a hearing, and the parties were directed to file any affidavits in support or in opposition to the motion on or before September 27, 2013. [Text-Only Order entered Sept. 24, 2013]. On September 27, 2013, the parties submitted affidavits for the Court's consideration, and the Defendant filed a response in opposition to the Plaintiff's motion. [Doc. 6].

Having been fully briefed, this matter is now ripe for disposition.

II. FACTUAL BACKGROUND

The Plaintiff opened the Capital One Reward Zone in Hendersonville on June 21, 2013. [Complaint, Doc. 1 at ¶25].¹ Capital One Reward Zone is a retail outlet in which the Plaintiff sells memberships for an initial membership fee of $10.00 and a monthly fee of $10.00 thereafter. [Id. at ¶11; Affidavit of Brendon Lo ("Lo Aff."), Doc. 7 at ¶¶7, 8]. Upon payment of the initial $10.00 membership fee, the customer receives a prepaid/reloadable VISA card/virtual bank account and 1000 loyalty reward points. [Id. at ¶9; Complaint, Doc. 1 at ¶12]. Once an individual purchases a membership, his or her card may loaded or reloaded with funds and/or "loyalty reward points." [Complaint, Doc. 1 at ¶14]. These loyalty reward points may be redeemed for products at various retail businesses or for cash through a third party financial institution. [Id. at ¶13; Lo Aff., Doc. 7 at ¶21].

After the loyalty reward points are deposited in the customer's account, the customer can utilize some or all of those points to enter a sweepstakes at the Plaintiff's place of business. [Complaint, Doc. 1 at ¶ 16; Lo Aff., Doc. 7 at ¶12]. The sweepstakes is conducted utilizing acomputer server which is connected to computer terminals within the Plaintiff's store. [Affidavit of Dennis Barni ("Barni Aff."), Doc. 2-3 at ¶5]. The server contains a database of 20 million entries, each with a predetermined point value, which will redeem a total of 368,590,000 points. [Id.]. At the time that a customer enters the sweepstakes, an entry is assigned to the customer from the database. [Id.]. This assignment of the entry does not occur at the time of the reveal, and the use of the game display does not affect this point value in anyway. [Id. at ¶6].

The sweepstakes entry points are entered at the point of sale ("POS") computer terminal by the cashier. When the cashier enters the customer's loyalty reward points into the sweepstakes at the POS terminal, a receipt is printed which displays the winning entries in the sweepstakes, and the total number of points won, if any. [Id. at ¶12].

Thereafter, the customer may go to a computer terminal within the Plaintiff's business and access entertaining simulation games. [Lo Aff., Doc. 7 at ¶14]. When the customer logs into the terminal, the result of the sweepstakes is once again disclosed to the customer on a black and white display in a columnar format which depicts each winning number and the number of points won for each winning entry. [Id. at ¶15; Lo Aff. Ex. A,Doc. 7 at 8]. After the display of the results of the sweepstakes, a second screen appears which contains the following disclaimer:

By checking the box, I understand my winning sweepstakes entries have been determined at the time of purchase, and the sweepstakes is over. I have just reviewed my winning pre-revealed entries in a non-entertaining display. Any game past this screen is for entertainment purposes only and has nothing to do with the sweepstakes.

[Lo Aff., Doc. 7 at ¶16; Lo Aff. Ex. B, Doc. 7 at 9]. Underneath the disclaimer is a box that the customer must click in order to continue to play the entertaining games. [Lo Aff., Doc. 7 at ¶17]. Customers who previously entered the sweepstakes can play the games and earn additional points. [See Affidavit of Doug Jones ("Jones Aff."), Doc. 6-1 at ¶¶6, 7]. Customers can also choose to go to a computer terminal to play games without entering a sweepstakes, but these customers earn no points by playing the games. [Lo Aff., Doc. 7 at ¶25].

On Monday, June 24, 2013, Hendersonville Police Captain Jones approached the Plaintiff's agent, who was operating the retail establishment, and advised him that he would be required to close the business or be charged criminally with a violation of the gambling/sweepstakes statutes. [Affidavit of Nathan Walker ("Walker Aff."),Doc. 7-3 at ¶6; Complaint, Doc. 1 at ¶27].² Based upon that encounter, the Plaintiff decided to cease operation of its business. [Id. at ¶28]. The Plaintiff continues to pay the overhead costs involved in its business in the amount of approximately $5,000.00 per week, which costs are in addition to the startup costs already expended by the Plaintiff in excess of $100,000.00. [Affidavit of James J. Monaghan ("Monaghan Aff."), Doc. 2-2 at ¶4]. The Plaintiff is currently in default on its lease payments, and the Plaintiff's suppliers have threatened to terminate their services. [Affidavit of James Callihan ("Callihan Aff."), Doc. 7-1 at ¶5; Affidavit of Julie Winnell ("Winnell Aff."), Doc. 7-4 at ¶5].

III. STANDARD OF REVIEW

A plaintiff seeking a preliminary injunction must demonstrate that (1) it is likely to succeed on the merits, (2) it is likely to suffer irreparable harm absent injunctive relief, (3) the balance of equities tips in its favor, and (4) the injunction would be in the public interest. Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). "A preliminary injunction is an extraordinary remedy never awarded as of right." Id. at 24. Thus, in eachcase the Court "must balance the competing claims of injury and must consider the effect on each party of the granting or withholding of the requested relief." Amoco Prod. Co. v. Village of Gambell, 480 U.S. 531, 542 (1987). Ultimately, a plaintiff's entitlement to preliminary injunctive relief is a matter of discretion with the Court. See Metropolitan Reg'l Info. Sys., Inc. v. American Home Realty Network, Inc., 722 F.3d 591, 595 (4^th Cir. 2013).

IV. ANALYSIS

In its first claim for relief, the Plaintiff asserts that it was deprived of procedural due process in violation of the Fourteenth Amendment. [Complaint, Doc. 1]. To succeed on its procedural due process claim, the Plaintiff must demonstrate that it had a constitutionally protected life, liberty, or property interest; that some form of state action deprived it of that interest; and that the procedure employed was "constitutionally inadequate." Sansotta v. Town of Nags Head, 724 F.3d 533, 540 (4^th Cir. 2013) (citation omitted). Here, the Plaintiff has failed to show a likelihood of success on the merits of its due process claim because it has failed to show that the Defendant deprived it of any constitutionally cognizable property right. The Plaintiff specifically claims that it "has been deprivedof its business interest and established benefits for the preservation of such benefits." [Complaint, Doc. 1 at ¶36]. The assertion of a "general right to do business," however, has not been recognized as a constitutionally protected right. See College Sav. Bank v. Florida Prepaid Postsecondary Educ. Expense Bd., 527 U.S. 666, 675 (1999) ("The assets of a business (including its good will) unquestionably are property, and any state taking of those assets is unquestionably a "deprivation" under the Fourteenth Amendment. But business in the sense of the activity of doing business, or the activity of making a profit is not property in the ordinary sense . . . ."); see also In re Premier Automotive Services, Inc., 492 F.3d 274, 283 (4^th Cir. 2007) ("The recognition of such a broad 'right to do business' would be akin to that recognized in Lochner v. New York, 198 U.S. 45, 25 S.Ct. 539, 49 L.Ed. 937 (1905), its progeny, which the Supreme Court has long since refused to recognize.") (quoting Turner v. Dammon, 848 F.2d 440, 445 n.3 (4^th Cir. 1988)).

Even assuming, however, that the Plaintiff has identified a protectable property right, the Plaintiff fails to satisfy the second element required for a procedural due process claim because the Defendant did not deprive it of these interests. While the Plaintiff claims that it was threatened withcriminal prosecution and/or seizure of its property (a claim which the Defendant vigorously disputes), none of the Plaintiff's agents or employees has been charged with a criminal offense, none of the Plaintiff's property...