J & J Ventures Gaming, LLC v. Wild, Inc.

• Decision Date: 22 September 2016
• Docket Number: 119872,Nos. 119870,119871,119874.,119873,s. 119870
• Citation: 67 N.E.3d 243,2016 IL 119870
• Parties: J & J VENTURES GAMING, LLC, et al., Appellants, v. WILD, INC. (Accel Entertainment Gaming, LLC, et al., Appellees).
• Court: Illinois Supreme Court

2016 IL 119870
67 N.E.3d 243

J & J VENTURES GAMING, LLC, et al., Appellants,
v.
WILD, INC. (Accel Entertainment Gaming, LLC, et al., Appellees).

Nos. 119870
119871
119872
119873
119874.

Supreme Court of Illinois.

Sept. 22, 2016.
Rehearing Denied Nov. 21, 2016.

67 N.E.3d 244

Christopher A. Koester and Aaron Jones, of Taylor Law Offices, PC, of Effingham, and J. Timothy Eaton and Jonathan B. Amarilio, of Taft Stettinius & Hollister LLP, of Chicago, for appellant J&J Ventures Gaming, LLC.

William M. Gantz and Gail S. Eisenberg, of Dentons US LLP, of Chicago, for appellant Action Gaming, LLC.

Steven P. Blonder and Marissa L. Downs, of Much Shelist, P.C., of Chicago, and G. Patrick Murphy and Patricia S. Murphy, of Murphy & Murphy LLC, of

67 N.E.3d 245

Marion, for appellee Accel Entertainment Gaming LLC.

Lisa Madigan, Attorney General, of Springfield (Carolyn E. Shapiro, Solicitor General, and Frank H. Bieszczat, Assistant Attorney General, of Chicago, of counsel), for intervenor-appellee Illinois Gaming Board.

OPINION

Justice FREEMAN delivered the judgment of the court, with opinion.

¶ 1 At issue in these consolidated appeals is whether the circuit courts have subject-matter jurisdiction to determine whether the location agreements between plaintiffs and defendants are valid and enforceable contracts that control the placement of video gaming terminals in defendants' establishments. The appellate court held that the circuit courts lack subject-matter jurisdiction because the Illinois Gaming Board has exclusive authority over contracts for the placement of video gaming terminals. The appeals are before us pursuant to certificates of importance granted under article VI, section 4(c), of the Illinois Constitution of 1970 (Ill. Const. 1970, art. VI, § 4 (c)) and Illinois Supreme Court Rule 316 (eff. Dec. 6, 2006). We consolidated the appeals¹ and granted the Illinois Gaming Board leave to intervene. For the reasons that follow, we affirm the judgments of the appellate court.

¶ 2 BACKGROUND

¶ 3 In July 2009, the General Assembly enacted the Video Gaming Act (Act) ( 230 ILCS 40/1 et seq. (West 2014)), which legalized the use of video gaming terminals as a new form of commercial gambling within certain licensed establishments, including bars, veterans organizations, fraternal organizations, and truck stops. As provided in the Act, the Illinois Gaming Board (Gaming Board or Board)² has jurisdiction over and shall supervise all video gaming operations governed by the Act. 230 ILCS 40/78 (West 2014). The Board also has all powers necessary and proper to effectively execute the provisions of the Act. Id. Those powers include the authority to adopt regulations for the purpose of administering the Act and "to provide for the prevention of practices detrimental to the public interest and for the best interests of video gaming." Id. In October 2009, the Board adopted emergency regulations to administer the Act. 11 Ill. Adm. Code 1800, emergency rules adopted at 33 Ill. Reg. 14793 (eff. Oct. 19, 2009); permanent rules adopted at 34 Ill. Reg. 2893 (eff. Feb. 22, 2010). After a start-up period of approximately three years, video gaming operations commenced in October 2012.

¶ 4 A video gaming terminal is an electronic device that allows users to play a video game, such as video poker or blackjack, and permits the user to receive free games or credits that can be redeemed for cash. 230 ILCS 40/5 (West 2014). The Act restricts the use of video gaming terminals by requiring that they be operated only at licensed establishments and by licensed terminal operators. 230 ILCS 40/25 (West 2014). Licenses are

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granted by the Board, following a background investigation of the applicant and subject to requirements that are designed " to preserve the integrity and security of video gaming." 230 ILCS 40/45 (West 2014) ; 11 Ill. Adm. Code 1800.420, amended at 37 Ill. Reg. 7750 (eff. May 23, 2013). A video gaming terminal may be placed in a licensed establishment only if the establishment has entered into a written use agreement with the licensed terminal operator for the placement of that device. 230 ILCS 40/25(e) (West 2014). A "use agreement" is a contract between a licensed terminal operator and a licensed establishment prescribing the terms and conditions for placement and operation of terminals at that establishment. Id.; 11 Ill. Adm. Code 1800.320(a) (2010).³ A use agreement may be assigned only from one licensed terminal operator to another. 11 Ill. Adm. Code 1800.320(d) (2010).

¶ 5 Shortly after the Act became effective and prior to the Board's adoption of emergency regulations, Action Amusement Company, LLC (Action Amusement), an unlicensed terminal operator, executed agreements entitled "Exclusive Location and Video Gaming Terminal Agreements" with each of the defendant establishments involved in these consolidated appeals. Those agreements, which are substantially identical, purported to give Action Amusement the exclusive right to place and operate video gaming terminals within the defendant establishments. Each agreement included a "Recitals" portion, stating that Action Amusement and the establishment would obtain a license from the Board and wished to enter into an exclusive location agreement "for the purpose of placing and operating video gaming terminals in the Licensed Establishment." Each agreement also stated that, "[i]n accordance with the Video Gaming Act," the parties agreed to evenly split the after-tax profits from the operation of the terminals. The term of each agreement was for a period of five years, beginning on the date the first video gaming terminal was operated in the licensed establishment.

¶ 6 In addition, each agreement provided that, during the term of the agreement, the terminal operator would have the exclusive right to place video gaming terminals in the licensed establishment and further provided that the agreement would be binding upon the successors and/or assigns of the parties. Also, each agreement expressly acknowledged that nothing of value had been offered or received in exchange for the execution of the agreement and that it is a violation of the Act to offer anything as an inducement for the procurement of a location.

¶ 7 On October 5, 2010, Action Amusement assigned its rights under the location agreements to Action Gaming, LLC (Action Gaming), another unlicensed terminal operator. In exchange for the assignment of rights under the location agreements, Action Gaming agreed to pay Action Amusement $10,000 per month until August 1, 2011. After that date, once Action Gaming was operating video gaming terminals in at least 70 locations, it agreed to pay Action Amusement up to $20,000 per month for the next 10 years, depending on the number of locations at which it was operating terminals. The assignment was signed by Jason Rowell, as authorized representative of both Action Amusement and Action Gaming.

67 N.E.3d 247

¶ 8 Between January and May 2012, Action Gaming and the defendant establishments amended their location agreements by adding certain clauses, which were asserted to be "necessary in order for the Agreement to comply with the [Act] and the rules and regulations promulgated thereunder." The additional terms included a clause providing that Action Gaming could freely assign its rights until it obtained a terminal operator license, after which it could assign its right only to another licensed terminal operator. Another clause, titled "IGB Approval," provided that the parties acknowledged that their location agreement and the amendment "are subject to and contingent upon the [Gaming Board's] review of, and to the extent required by the [Board], consent to the use of this [a]mendment." When the amendments were executed, Action Gaming and the defendant establishments were not licensed by the Board to participate in video gaming.

¶ 9 On July 19, 2012, the Board notified Action Gaming that its license application had been denied based on its findings that Nicky Nichols and Jason Rowell, employees and owners of Action Gaming, were personally and professionally associated with James Koehler, who had been convicted of illegal gambling. The Board also cited its finding that Nichols had engaged in business practices and maintained associations with a number of convicted felons. Under the Board's regulations, Action Gaming was an "applicant" at the time this letter was issued. 11 Ill. Adm. Code 1800.695 (2010). Action Gaming requested a hearing to contest the denial of its license application. The Board denied the request for a hearing on September 20, 2012.

¶ 10 On August 24, 2012, while Action Gaming's request for a hearing on the denial of its application was pending, it assigned its rights under the subject location agreements to J & J Ventures Gaming, LLC (J & J Ventures), a licensed terminal operator, in exchange for a purchase price. That assignment specifically stated that, in consideration for the purchase price, Action Gaming agreed to assign and J & J Ventures agreed to accept all rights "under each Use Agreement." This assignment was executed by Nicky Nichols on behalf of Action Gaming, as its member/manager. At the time of the assignment, J...