W. Va. Lottery v. A-1 Amusement, Inc.

807 S.E.2d 760

WEST VIRGINIA LOTTERY, West Virginia Lottery Commission, and Alan Larrick, Director of the West Virginia Lottery, Defendants Below, Petitioners

v.A-1 AMUSEMENT, INC., Action Gaming, Inc., Advanced Lottery Technologies, LLC, Blue Diamond, LLC, CD 3 LLC, Clay Music Corp., Coach's Club Association, Dustyn Enterprises, Inc., Elm Room, Inc., Fabulous 50's Café, LLC, Gridcoach, LLC, Hot 5 Stop, LLC, Jerry's Bar Association, Leejay, Inc., LL&M, LLC, Mimi's, Inc., Moose Nitro Lodge 565, Mountaineer Music, LLC, PDM Associates of Weirton, LLC, Palatokas Associates, LLC, Patty's, Inc., Progressive Video Lottery, Ltd., Random World, Ltd., Ta Vending, LLC, The Lounge, LLC, Tiffany's, LLC, Trans-Allegheny Enterprises, LLC, Wheeling Coin, LLC, Woldap, LLC, WV "Café" Holding Company, LLC, and West Virginia Amusement & Limited Video Lottery Association, Inc., Plaintiffs Below, Respondents

No. 16-1047

Supreme Court of Appeals of West Virginia.

Submitted: October 18, 2017

Filed: November 13, 2017

Patrick Morrisey, Esq., Attorney General, Katherine Schultz, Esq., Senior Deputy Attorney General, Mary M. Downey, Esq., Assistant Attorney General, Sean M. Whelan, Esq., Assistant Attorney General, Charleston, West Virginia, Counsel for the Petitioners

William C. Brewer, Esq., J. Tyler Slavey, Esq., Brewer & Giggenbach, PLLC, Morgantown, West Virginia, Counsel for the Respondents

WALKER, Justice:

This appeal concerns a dispute between the West Virginia State Lottery, the Lottery Commission, the Lottery Director,¹ (collectively, the State Lottery) and certain entities (Permit Holders) who were issued permits to operate limited video lottery game terminals (LVL terminals). The dispute arose after the State Lottery instructed the Permit Holders that they would be required to use a different software program at their expense. The Permit Holders sued both the State Lottery and IGT, the vendor responsible for manufacturing the software. Against the State Lottery, the Permit Holders allege a taking without just compensation (Count I), deprivation of property without due process (Count II), and civil conspiracy (Count VII). On appeal, the State Lottery challenges the circuit court's denial of a motion to dismiss on the grounds that it waived its sovereign and qualified immunity defenses. Further, the State Lottery alleges that the circuit court erred because it did not require the Permit Holders to limit their claims for constitutional violations to the limits of the state's insurance policy.

For the reasons set forth below, we conclude that the State Lottery did not waive its rights to sovereign and qualified immunity. With respect to the specific allegations contained in the Permit Holders' Amended Complaint, we find as follows: (1) the appropriate procedure seeking just compensation (Count I) through the process of inverse condemnation, is for the Permit Holders to file a complaint seeking a writ of mandamus requiring the State Lottery to institute condemnation proceedings; (2) to the extent that Count II seeks money damages from the state treasury it is barred by sovereign immunity unless the insurance policy exception is invoked, in which case recovery is limited to the limits of the state's insurance policy; and (3) because Counts II and VII are claims brought under the insurance policy exception, the State Lottery may assert qualified immunity as a defense. Because the circuit court did not make any findings or inquiries relating to qualified immunity, this case must be remanded for an exposition and determination on the facts pertinent to that issue. Accordingly, we affirm in part, reverse in part, and remand this matter to the circuit court for determination of whether the State Lottery is qualifiedly immune from Counts II and VII under these circumstances.

I. FACTUAL AND PROCEDURAL BACKGROUND

The Limited Video Lottery Act (the Act),² authorizes the West Virginia Lottery to award permits to private parties enabling them to operate LVL terminals. After a bidding process, successful bidders are awarded a ten-year permit to operate the LVL terminals. These computer-based LVL terminals require certain software or "protocols" in order to communicate with the West Virginia Lottery's central computer system. IGT, a private Nevada corporation, produces and distributes both the LVL terminals and the protocols for the West Virginia Lottery. Specifically, IGT produced two protocols for the LVL terminals capable of communicating with the West Virginia Lottery's central computer system—ICIS and SAS. Each LVL terminal operates on either the ICIS protocol or the SAS protocol. The Permit Holders' LVL terminals operate on the ICIS protocol.

Prior to the start of the bidding process for the LVL permits, the West Virginia Lottery held educational seminars for potential bidders. The Permit Holders allege that IGT representatives also attended the seminars. The Permit Holders further allege that at these seminars, the Director of the West Virginia Lottery (Lottery Director) and/or his staff told them that both the ICIS and SAS protocols could be used for the entirety of the ten-year permit period. After three rounds of bids in October 2010, February 2011, and June 2011, the bids were awarded to the Permit Holders and others for the period of July 1, 2011 through June 30, 2021.³

The Permit Holders allege that in 2012, the Lottery Director discussed the upcoming expiration of the West Virginia Lottery's contract with IGT relating to the central computer system. On October 16, 2012, a Vice President of IGT wrote to the Lottery Director and stated that "as a follow-up to their telephone conversation, the company would no longer license or support the ICIS protocol after December 31, 2015." An association representing the Permit Holders contacted the Lottery Director to express concerns of its member Permit Holders regarding the discontinuation of the ICIS protocol and the impact on Permit Holders who would have to either purchase new LVL terminals or conversion kits to enable their terminals to communicate using the SAS protocol. In response, the Lottery Director negotiated with IGT to extend the ICIS protocol compatibility through the end of 2017 and to allow IGT to exclusively sell "IGT conversion kits" to convert ICIS protocol terminals into SAS protocol terminals.

In a newsletter to the Permit Holders, the West Virginia Lottery advised that ICIS protocol terminals would be inoperable on January 1, 2018, and that any costs incurred in the conversion to the SAS protocol would be borne by operators, retailers, and/or permit holders. If the Permit Holders chose not to convert their terminals to the SAS protocol, those LVL terminals would be considered illegal gaming devices under the Act, as they would no longer be under the purview of the West Virginia Lottery.

The Permit Holders filed a civil action against the State Lottery as well as IGT.⁴ Against the State Lottery, the Permit Holders allege a regulatory taking of their property without just compensation in violation of the West Virginia and United States Constitutions (Count I); deprivation of a property right without due process in violation of the due process clause of the West Virginia and United States Constitutions (Count II); and civil conspiracy (Count VII).⁵

The State Lottery filed a motion to dismiss the complaint (First Motion to Dismiss) arguing, among other things, that the claims were barred because the pleadings were insufficient for failure to limit the recovery sought to the state's insurance coverage. The State Lottery cited this Court's holding in syllabus point three of Parkulo v. WestVirginia Board of Probation and Parole⁶ with regard to its requirement that suits brought under the exception to sovereign immunity based on the state's purchase of insurance coverage limit the recovery sought to the limits of the state's insurance policy. Additionally, in a footnote, the State Lottery argued: "Because the Plaintiffs' Complaint is untimely, it is unnecessary for the State Defendants to assert any and all immunities it has to the Plaintiffs' Complaint. However, these Defendants reserve their right to assert any and all immunities available to them, including, but not limited to, constitutional⁷ and qualified immunity."

Based on Parkulo , the Permit Holders were given leave to amend their complaint. In their Amended Complaint, the Permit Holders limited the recovery sought for their civil conspiracy claim to the applicable insurance policy limits, but declined to do so for their regulatory taking and due process claims. The Permit Holders reasoned that the measure of damages for their regulatory taking and due process claims is governed by the just compensation standard applicable to relief awarded under the takings clause,⁸ not the insurance policy limits. The State Lottery then filed a second motion to dismiss (Second Motion to Dismiss) asserting that the Amended Complaint did not limit the constitutional claims to the insurance policy limits, and further asserting that the claims were barred by the state's sovereign and qualified immunity. The circuit court denied the Second Motion to Dismiss, determining that the regulatory taking and due process claims did not sound in tort and, therefore, the recovery need not be limited to the insurance policy limits because they did not fall under the Parkulo holding. As to the State Lottery's invocation of sovereign and qualified immunity, the circuit court found that the State Lottery had waived immunity by failing to raise it in the First Motion to Dismiss. It is from this order that the State Lottery appeals.

II. STANDARD OF REVIEW

Although the denial of a motion to dismiss is, under normal circumstances, not properly before this court because it is not a final, appealable order, "we recognize an exception to this general rule 'when the defense is in the nature of an immunity.' "⁹ Immunity determinations are excepted because "the...