City of Fort Worth v. Rylie

• Citation: 602 S.W.3d 459
• Decision Date: 08 May 2020
• Docket Number: No. 18-1231,18-1231
• Parties: The CITY OF FORT WORTH and David Cooke, in His Official Capacity as Fort Worth City Manager, Petitioners, v. Stephannie Lynn RYLIE, Texas C & D Amusements, Inc., and Brian and Lisa Scott d/b/a TSCA and d/b/a River Bottom Pub, Respondents
• Court: Supreme Court of Texas

602 S.W.3d 459

The CITY OF FORT WORTH and David Cooke, in His Official Capacity as Fort Worth City Manager, Petitioners,

v.Stephannie Lynn RYLIE, Texas C & D Amusements, Inc., and Brian and Lisa Scott d/b/a TSCA and d/b/a River Bottom Pub, Respondents

No. 18-1231

Supreme Court of Texas.

Argued January 28, 2020

Opinion delivered: May 8, 2020

Christopher Bedford Mosley, Hurst, David E. Keltner, Marianne M. Auld, William Chase Medling, Gerald Pruitt, Shauna J. Wright, Fort Worth, Joseph "Joe" R. Greenhill III, Dee J. Kelly Jr., for Petitioners.

Rachel Anne Ekery, Marcy H. Greer, Houston, Mark A. Haney, W. Kelly Puls, Fort Worth, Anatole Robert Barnstone, John Stephen Fenoglio, William J. Boyce, for Respondents.

Amber Lynne McKeon-Mueller, for Amici Curiae Texas Municipal League, Texas City Attorneys Association.

Justice Boyd delivered the opinion of the Court.

The issue in this case is whether (and if so, to what extent) a state statute that regulates "coin-operated machines" preempts city ordinances that regulate "eight-liners" and the "game rooms" that offer them. We cannot reach that issue today, however, because the answer depends initially on whether the eight-liners at issue are constitutional and legal. The court of appeals did not address the constitutionality or legality of the eight-liners because it believed the question is irrelevant to the preemption issue. Because we disagree, we reverse the court of appeals' judgment and remand the case to that court so that it can decide in the first instance whether the eight-liners are constitutional and legal.

I.Background

For as long as the State of Texas has been the State of Texas, its citizens have elected to constitutionally outlaw most types of "lotteries."¹ Contrary to the term's popular understanding, a "lottery" includes not just contests involving scratch-off tickets and numbered ping-pong balls, but a wide array of activities that involve, at a minimum, (1) the payment of "consideration" (2) for a "chance" (3) to win a "prize." City of Wink v. Griffith Amusement Co. , 129 Tex. 40, 100 S.W.2d 695, 698 (1936).² Since its ratification in 1876, our current constitution has affirmatively required the legislature to "pass laws prohibiting" lotteries. TEX. CONST . art. III, § 47.³

A. Gambling and gambling devices

To fulfill its constitutional obligation, the legislature has enacted statutes making it a criminal offense to engage in or promote most forms of "gambling"⁴ or to own, manufacture, transfer, or possess a "gambling device." TEX. PENAL CODE §§ 47.02 –.06. The term "gambling device" includes "any electronic, electromechanical, or mechanical contrivance ... that for a consideration affords the player an opportunity to obtain anything of value, the award of which is determined solely or partially by chance, even though accompanied by some skill, whether or not the prize is automatically paid by the contrivance." Id. § 47.01(4). This includes, as examples, electronic or mechanical versions of "bingo, keno, blackjack, lottery, roulette, [and] video poker." Id. § 47.01(4)(A).

B. The fuzzy-animal exclusion

As technology developed in recent decades, the statutory prohibition against gambling devices presented a peculiar problem for increasingly popular "family entertainment centers."⁵ These establishments offer electronic and mechanical games that at least arguably constitute lotteries or gambling devices: patrons pay consideration for the chance to win as many tickets as possible, with an eye toward the prize counter. Behind the prize counter lies a bounty of gadgets, toys, and stuffed animals (most of which are worth far less than the amount expended to win the tickets) and a few big-ticket items (usually available only to those who win a rare jackpot or spend a few hundred hours playing Skee-Ball).

In 1993, the legislature made the policy decision to resolve this perceived problem by adopting what has become known as the "fuzzy-animal exclusion."⁶ See Act of May 31, 1993, 73d Leg., R.S., ch. 774, § 1, 1993 Tex. Gen. Laws 3027, 3027–28 (amended 1995) (codified at TEX. PENAL CODE § 47.01(4)(B) ). Under the fuzzy-animal exclusion, a machine that would otherwise constitute a "gambling device" is excluded from the definition if (1) it is used "solely for bona fide amusement purposes," (2) it rewards only "noncash merchandise prizes, toys, or novelties, or a representation of value redeemable for those items," and (3) the reward for "a single play of the game or device" is worth no more than the lesser of $5 or ten times the cost of the single play. TEX. PENAL CODE § 47.01(4)(B).

C. Eight-liners

Soon after the legislature adopted the fuzzy-animal exclusion, owners of machines known as "eight-liners" began taking the position that their machines fall within the exclusion's protection.⁷ Eight-liners generally operate like a video slot machine: a patron pays to play the machine, which displays nine electronic symbols arranged in three columns and three rows; the machine records the payment as credits; and the player bets some or all of those credits by pushing a button to cause the three columns to start spinning. If the columns stop (either automatically or when the player pushes the button a second time) with three of the same symbols in one of eight possible lines—three vertical, three horizontal, and two diagonal—the player wins a predetermined amount of additional credits. At that point, the player can either push the button to play again or end the game and withdraw a ticket or coupon representing the value of the player's remaining credits. The player can then exchange the coupon for a "prize"—much like the children at Chuck E. Cheese—or for a "right of replay," meaning credits to use on a different machine.

Community opposition to eight-liners and the "game rooms" that offer them led not only to arguments that the machines do not qualify under the fuzzy-animal exclusion, but also to arguments that the exclusion itself is unconstitutional because it authorizes lotteries—games involving consideration, chance, and a prize.⁸ Because the constitution affirmatively requires the legislature to prohibit lotteries, the opponents argued, it necessarily prohibits the legislature from enacting an exclusion that allows them. A few years after the legislature adopted the fuzzy-animal exclusion, Texas Attorney General Dan Morales issued an opinion agreeing that the exclusion is unconstitutional "because it contravenes the Texas Constitution's proscription of ‘lotteries.’ " Tex. Att'y Gen. Op. No. DM-466, 1998 WL 78772, at *3 (Jan. 23, 1998). About ten years later, then-Attorney General Greg Abbott reaffirmed that conclusion. Tex. Att'y Gen. Op. No. GA-0527, 2007 WL 709285, at *3 n.6 (Mar. 6, 2007). We have never addressed that issue,⁹ and the exclusion remains intact, giving rise to legal disputes over whether the exclusion covers particular variations of eight-liners.¹⁰

D. Chapter 2153

Meanwhile, chapter 2153 of the Texas Occupations Code¹¹ "provide[s] comprehensive and uniform statewide regulation" of "skill or pleasure coin-operated machines." TEX. OCC. CODE § 2153.001.¹² Subject to certain exceptions, see id. §§ 2153.004–.008, chapter 2153 requires any person who manufactures, owns, buys, sells, rents, trades, maintains, transports, stores, or imports a skill or pleasure coin-operated machine to first obtain a license or registration from the comptroller, id. §§ 2153.151–.153, to pay an annual fee for the license or registration, id. §§ 2153.154, .157, to maintain detailed records regarding the machine, id. §§ 2153.201–.204, and to pay an annual occupations tax on each machine, id. § 2153.401. The chapter allows a county or municipality to impose an additional local tax on each machine, but only in an amount not greater than one-fourth of the state tax. Id. § 2153.451. It also allows them to impose zoning restrictions on places that "exhibit" the machines based on the property's "principal use," and specifically permits them to restrict the exhibition of a machine "within 300 feet of a church, school, or hospital." Id. § 2153.452. However, the chapter expressly does not "authorize or permit the keeping, exhibition, operation, display, or maintenance of a machine [that is] prohibited by the constitution of this state or the Penal Code." Id. § 2153.003.

E. The Fort Worth Ordinances

In 2014, the Fort Worth City Council grew weary of what it concluded were the "deleterious" effects of eight-liners in their communities. According to the City, eight-liner game rooms cause "increased crime, such as gambling, theft, criminal trespass, criminal mischief, and burglary," contribute "to urban blight," and "downgrad[e] the quality of life" in their surrounding areas. So the City Council passed two ordinances to regulate "amusement redemption machines" and associated "game rooms" within the City. The "zoning ordinance" imposes, among other things, zoning restrictions confining game rooms to industrial-zoned areas and prohibiting them from operating within 1000 feet of a residential district, church, school, hospital, or another game room. The "licensing ordinance" generally requires game-room operators to obtain a license from the City and to pay a licensing and inspection fee.

F. The lawsuit

Stephannie Rylie, Texas C & D Amusements, Inc., and Brian and Lisa Scott (doing business as TSCA and River Bottom Pub) (collectively "the Operators") own and operate eight-liners in Fort Worth. At least for purposes of this case, the Operators admit that their eight-liners qualify as "gambling devices," but they contend that they operate their machines in a way that brings them within the fuzzy-animal exclusion. The Operators filed this suit against the City seeking a declaration that chapter 2153 completely preempts the ordinances, or alternatively, that it partially preempts the ordinances to the extent of any conflict between the two.¹³

In response, the City argued that chapter 2153 does not preempt...