Lucky Tunes #3, L.L.C. v. Smith
| Decision Date | 01 May 2020 |
| Docket Number | No. 19-40970,19-40970 |
| Parties | LUCKY TUNES #3, L.L.C., a Texas limited liability company, Plaintiff - Appellant v. LARRY R. SMITH, a Texas individual; JASON RAILSBACK, a Texas individual, Defendants - Appellees |
| Court | U.S. Court of Appeals — Fifth Circuit |
Summary Calendar
Appeal from the United States District Court for the Eastern District of Texas
Before WIENER, HAYNES, and COSTA, Circuit Judges.
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Lucky Tunes #3 LLC's suit against two Texas police officers for alleged violations of federal and Texas law was dismissed for failure to state a claim. After clarifying which claims were dismissed with prejudice and which without, we AFFIRM as modified.
Lucky Tunes is an establishment that sells certificates to redeem and download song files from lucky7downloads.com, a repository of several thousand licensed songs.1 The certificates are sold alongside "free sweepstakes" promotions. At the rate of one dollar per song, customers purchase certificates, which come with 100 entries into the sweepstakes. Patrons can also receive up to 100 free entries per day by logging in at the store and can request further free entries by mail. To find out if they have won, patrons can either instantly reveal the outcome or play games that "mimic casino attractions" via "gambling simulation." When playing the games, sweepstakes credits are "represented with a dollar sign." Prizes for winning are paid in cash regardless of the method of revealing the outcome.
In 2017, before Lucky Tunes opened for business, Sheriff Larry Smith of Smith County, Texas, sent a letter to local business owners regarding potential illegal gambling operations in the county. Sheriff Smith said that his office was "investigating complaints that illegal gambling [was] occurring" in the county and asked for "voluntary compliance" by removing illegal gambling machines. He explicitly referenced games that were being advertised as sweepstakes but were being operated illegally. A little over a year later, counsel for Lucky Tunes's parent company sent a reply explaining that the free sweepstakes promotions did not violate Texas law.
Nonetheless, Smith County police obtained two warrants to search Lucky Tunes. The first was obtained by Detective Jason Railsback in September 2018. Det. Railsback based his warrant affidavit on an undercover investigation he and Sergeant Shawn White conducted at Lucky Tunes, duringwhich the officers each purchased $20.00 in songs and played electronic games. Det. Railsback reported that in exchange for a $20.00 bill, each officer received a receipt showing that 100 entries had been added to his account, "an available balance of $21.00," and a PIN for playing games. He also said that they received "a separate receipt . . . that was a 'gift card' with $20.00 indicated" and that "advised we could use the code to go to their website . . . and get music."
Det. Railsback then described the process of playing the machines: After entering the PIN, "[t]he account showed a balance of '$21.00' with dollar sign insignia beside the amount indicating it was in fact [U.S. currency] being depicted on the machines and not 'credits.'" He "noted that the minimum 'bet' allowed on the machine was '$.32,'" "placed the $.32 bet," and won free spins that eventually turned into a prize of "approximately $7.60." He then said that after playing further and going to the attendant, He described a similar experience for Sgt. White.
The detective then alleged the following: "The devices . . . include gambling device versions of slots that operate by chance or partially so, that as a result of the game, award[] credits for cash [and] are not designed, made, and adapted solely for bona fide amusement purposes . . . ." He concluded, "Affiant believes the machines located at the location . . . are gambling devices as defined by [Texas] Penal Code [section] 47.01(4) and do not fall under the exception listed under [section] 47.01(4)(B)." A judge issued a search warrant, which Smith County officers executed, confiscating property and seizing funds totaling $30,779.00. The State of Texas then initiated a civil forfeiture action, which is still pending, against Lucky Tunes.
In February 2019, Sgt. White obtained another warrant based on his experience during the same investigation. His affidavit was substantially similar to Det. Railsback's, but Sgt. White also said in relevant part that he "placed what appear[ed] to be 'Bets' according to the definition provided by the Penal Code" and that his winnings "[did] not appear in any way to be a pre-determined outcome." A second search occurred less than five months after the first.
Lucky Tunes sued Sheriff Smith in his individual and official capacities and Det. Railsback in his individual capacity in federal district court under 42 U.S.C. § 1983. Its complaint alleged violations of the Fourth, Fifth, and Fourteenth Amendments to the U.S. Constitution, violations of sections 9, 13, and 19 of Article I of the Texas Constitution, and Texas common-law conversion. Lucky Tunes requested damages and injunctive and declaratory relief. Sheriff Smith and Det. Railsback moved to dismiss, arguing that they were protected by qualified immunity and that Lucky Tunes had failed to state a claim on which relief could be granted. They attached records of gambling charges against Lucky Tunes patrons to their motion.
The district court granted the officers' motion to dismiss, holding that Lucky Tunes failed to meet the pleading standard of Federal Rules of Civil Procedure 8(a)(2) and 12(b)(6) and that the officers were entitled to qualified immunity. Lucky Tunes timely appealed.
We review dismissals under Rule 12(b)(6) de novo. Romero v. City of Grapevine, 888 F.3d 170, 176 (5th Cir. 2018). "To survive a motion to dismiss under Rule 12(b)(6), 'a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). The pleaded facts must"allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. We accept all well-pleaded facts as true and view them in the light most favorable to the nonmoving party. Romero, 888 F.3d at 176.
We first address Lucky Tunes's federal claims. A plaintiff suing an individual under § 1983 must show the following: (1) "a violation of rights secured by the Constitution or laws of the United States" (2) perpetrated by "a person or entity acting under color of state law." Doe ex rel. Doe v. Dall. Indep. Sch. Dist., 153 F.3d 211, 215 (5th Cir. 1998) (brackets and quotation omitted). The doctrine of qualified immunity shields government officials sued in their individual capacity "from liability for civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known." Harlow v. Fitzgerald, 457 U.S. 800, 818 (1982).
Lucky Tunes argues that it adequately stated a claim under § 1983 by alleging that Sheriff Smith and Det. Railsback acted under color of state law and violated (1) the Fourth Amendment by conducting two unreasonable searches and seizures and (2) the Fifth Amendment, as incorporated by the Fourteenth Amendment, by taking Lucky Tunes's property without just compensation. Lucky Tunes submits that the district court erred by failing to accept the well-pleaded facts as true or view them in the light most favorable to Lucky Tunes.
Lucky Tunes's Fourth Amendment claim is premised on Franks v. Delaware, 438 U.S. 154 (1978). Under Franks, a search and seizure backed by a search warrant nevertheless may be unreasonable if "a false statementknowingly and intentionally, or with reckless disregard for the truth, was included by the affiant in the warrant affidavit, and if the allegedly false statement is necessary to the finding of probable cause." Id. at 155-56. A challenger may also show an "intentional or reckless omission of material facts from a warrant application." Kohler v. Englade, 470 F.3d 1104, 1113 (5th Cir. 2006). When determining whether a false statement or omission is material, a court must excise any false statements and "insert [any] omitted facts into the affidavit and ask whether the reconstructed affidavit would still support a finding of probable cause." Id.; see also United States v. Namer, 680 F.2d 1088, 1093 (5th Cir. 1982).
In this case, the affidavits alleged that Lucky Tunes had violated sections 47.03, .04, and .06 of the Texas Penal Code, which prohibit knowingly using real property for gambling, promoting gambling, and possessing gambling devices. In relevant part, section 47.01(4) defines a "gambling device" as one "that for consideration affords the player an opportunity to obtain anything of value, the award of which is determined solely or partly by chance." Lucky Tunes complains that the affidavits both falsely stated that the officers placed "bets" at Lucky Tunes and omitted "the known fact that all of [Lucky Tunes's] sweepstakes games were at all times free." The district court, it says, erred by considering the possibility that Lucky Tunes was running an illegal gambling operation that involved bets despite its allegations that the sweepstakes were free and advertised as such, and therefore legal. Lucky Tunes argues that the district court should have, and this court must, take as true "that its sweepstakes are all always free, and that 'bets' are impossible." Therefore, Lucky Tunes claims, "there was categorically no crime, and hence no probable cause."
This argument is fantasy. Probable cause "requires only a probability or substantial chance of criminal...
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