Tex. Lottery Comm'n v. First State Bank Of Dequeen

• Decision Date: 01 October 2010
• Docket Number: No. 08-0523.,08-0523.
• Citation: 325 S.W.3d 628
• Parties: TEXAS LOTTERY COMMISSION, Petitioner, v. FIRST STATE BANK OF DEQUEEN, Stone Street Capital, Inc., and Cletius L. Irvan, Respondents.
• Court: Texas Supreme Court

325 S.W.3d 628

TEXAS LOTTERY COMMISSION, Petitioner,

v.FIRST STATE BANK OF DEQUEEN, Stone Street Capital, Inc., and Cletius L. Irvan, Respondents.

No. 08-0523.

Supreme Court of Texas.

Argued Dec. 16, 2009.

Decided Oct. 1, 2010.

Rehearing Denied Dec. 17, 2010.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

Gregory W. Abbott, Attorney General of Texas, Kent C. Sullivan, Austin, David S. Morales, Deputy First Assistant Attorney General, Office of the Attorney General of Texas, James C. Ho, Solicitor General of Texas, Brantley David Starr, King & Spalding LLP, Ann Hartley, Office of the Attorney General of Texas, Don Wayne Cruse Jr., Law Office of Don Cruse, Austin, Michael P. Murphy, Asst. Solicitor General, Clarence Andrew Weber, First Assistant Attorney General, Alicia Key, Deputy Atty. Gen. for Petitioner.

Jeffrey S. Boyd, Schuyler Bailey Marshall V, Thompson & Knight LLP, Austin, for First State Bank of DeQueen.

Max Ralph Tarbox, Andrew Raymond Seger, Todd Jeffrey Johnston, McWhorter Cobb & Johnson LLP, Lubbock, for Cletius L. Irvan.

Justice JOHNSONdelivered the opinion of the Court.

This case arises because provisions of the Texas Uniform Commercial Code(UCC) and the Texas Lottery Act conflict as to whether installment payments of a lottery prize are assignable.The primary issues are whether the Commission has sovereign immunity from suit and whether the Lottery Act's prohibition against transferring the last two installments of a prize are negated by the UCC.

Cletius Irvan, a Texas Lottery prizewinner, assigned his final two annual installment prize payments as part of a financial arrangement by which he was to pay a bank debt.The Lottery Commission refused to recognize the assignment because the Lottery Act prohibits assignments of installment payments due within the final two years of the prize payment schedule.Irvan and other parties to the assignment sought a declaratory judgment that the UCC permits such assignments and specifically renders conflicting provisions of the Lottery Act ineffective.The trial court and court of appeals held that the UCC prevailed and the assignments were permitted.We agree and affirm the court of appeals' judgment.

I.Background

A.The Statutory Conflict

When the Lottery Act was first enacted, lottery prizes generally could not be assigned, and to the extent they could be assigned, the assignment had to be pursuant to an “appropriate judicial order” that resolved a controversy involving the prize winner.SeeAct ofAug. 12, 1991, 72nd Leg., 1st C.S., ch. 6, § 2, 1991 Tex. Gen. Laws 197, 218 (current version at Tex. Gov't Code § 466.406).In 1999, the Act was amended and restrictions on assignment of prizes were relaxed.Act of May 30, 1999, 76th Leg., R.S., ch. 1394,§§ 2, 4, 1999 Tex. Gen. Laws 4717, 4717-18.The amended provisions authorized prize winners to assign all but the last two installment prize payments if certain requirements were met.¹Tex. Gov't Code § 466.410(a).Under the amended Act, however, “prize payments due within the final two years of the prize payment schedule may not be assigned.”Id.

The apparent statutory conflict in this case arises because thirteen days before amending the Lottery Act in 1999the Legislature amended the UCC and included “winnings in a lottery or other game of chance operated or sponsored by a state” as part of the definition of “account.”Act of May 17, 1999, 76th Leg., R.S., ch. 414, § 1.01,1999 Tex. Gen. Laws 2639, 2640(codified at TEX. BUS. & COM. CODE § 9.102(a)(2)(viii)).Under the UCC, accounts are assignable.SeeTex. Bus. & Com.Code § 9.406(a).The UCC amendments, however, did not parallel the Lottery Actamendments that prohibited assignment of the last two installment payments of a lottery prize.To the contrary, the UCC reinforced the assignable character of accounts by specifying that rules of law, statutes and regulations purporting to prohibit or restrict assignment of accounts are ineffective:

[A] rule of law, statute, or regulation that prohibits, restricts, or requires the consent of a government, governmental body or official, or account debtor to the assignment or transfer of, or creation of a security interest in, an account or chattel paper is ineffective to the extent that the rule of law, statute, or regulation:

(1) prohibits, restricts, or requires the consent of the government, governmental body or official, or account debtor to the assignment or transfer of, or the creation, attachment, perfection, or enforcement of a security interest in, the account or chattel paper....

Id.§ 9.406(f).The amendments to the UCC were effective in 2001.In 2001, section 9.406(f) was amended in part and reenacted; the provisions making conflicting statutes ineffective were not changed by the amendment.SeeAct ofMay 17, 2001, 77th Leg., R.S. ch. 705, § 11, 2001 Tex. Gen. Laws 1403, 1405 (codified at TEX. BUS. & COM. CODE § 9.406(f)).

B.Facts

Cletius Irvan won a Texas Lottery prize in 1995.The prize was payable in twenty annual installments of just over $440,000 each, with the final two payments to be made in 2013 and 2014.After the Legislature amended the Act so prize payments could be assigned, Irvan assigned his rights to all but the last two of his prize payments in exchange for a lump sum.²He later became indebted to First State Bank of DeQueen(FSB DeQueen).Arrangements were made in 2006 for Irvan to pay the debt through a common-law Composition of Creditors proceeding in Arkansas.The creditors' arrangement provided for Irvan to assign the rights to his final two annual lottery payments to Stone Street Capital, which would in turn assign the rights to Great-West Life and Annuity.In consideration for assigning his rights, Irvan was to receive a lump sum of $308,032, out of which he would pay FSB DeQueen.The arrangement was approved by an Arkansas court.FSB DeQueen notified the Lottery Commission of the assignment and filed an application in Travis County to register the Arkansas judgment approving the arrangement.SeeTex. Civ. Prac. & Rem.Code § 35.003.The Commission advised FSB DeQueen and Irvan that it did not recognize the validity of the Arkansas judgment and it intended to make the final prize payments to Irvan.

FSB DeQueen, Irvan, and Stone Street Capital (collectively, FSB) filed suit pursuant to the Declaratory Judgments Act (DJA) seeking declaratory and injunctive relief.Seeid.§§ 37.001-.011.Specifically, FSB sought declaratory judgment that (1) the final Arkansas order is effective as a Travis County judgment, (2)Section 9.406(c) of the UCC renders Lottery Act sections 466.406and466.410 ineffective, (3) the assignments of the final prize payments from Irvan to Stone Street and from Stone Street to Great-West are enforceable, and alternatively, (4) the Arkansas Final Order is an “appropriate judicial order pursuant to which the Commission shall make the final prize payments to Great-West.”SeeTex. Gov't Code § 466.406(f)(“A prize to which a winner is otherwise entitled may be paid to any person under an appropriate judicial order.”).FSB also requested the court to enjoin the Commission and to require it to make the final lottery payments to Great-West.

FSB moved for partial summary judgment on its claim that the UCC renders the anti-assignment provisions of the Lottery Act ineffective.The trial court granted the motion and declared that UCC sections 9.406and9.102 render Lottery Act sections 466.406and466.410 ineffective to the extent those sections purport to restrict or prohibit assignment of prize payments.At the parties' request, the trial court severed the UCC claim and the Commission appealed the summary judgment.The court of appeals affirmed.254 S.W.3d 677.

In this Court, the Commission seeks reversal of the court of appeals judgment on the bases that: (1) the Commission has sovereign immunity from suit, thus the appeal and suit should be dismissed for lack of jurisdiction; (2) under the UCC, conflicts should be resolved in favor of the Lottery Act because the act is a consumer protection law; and (3) under established canons of statutory interpretation regarding conflicting statutes, the Lottery Act controls.³We disagree with the Commission and affirm the judgment of the court of appeals.

II.Jurisdiction

The Commission first argues that it has sovereign immunity from suit so the appeal and suit should be dismissed for lack of jurisdiction.It urges that this is an ultra vires suit which must be brought against a state official and it cannot be brought against the Commission because the Commission is a governmental entity.SeeCity of El Paso v. Heinrich,284 S.W.3d 366, 372-73(Tex.2009).FSB counters that this appeal involves a challenge to the validity of a statute and the DJA waives the Commission's immunity as to such claims.We agree with FSB.As we explain below, the claim in this appeal is not one involving a government officer's action or inaction, but is a challenge to a statute.Thus this is not an ultra vires claim to which a government officer must be a party.

An ultra vires suit is one to require a state official to comply with statutory or constitutional provisions.Id. at 372.In Heinrichwe distinguished between claims seeking declaratory relief in an ultra vires suit, which must be brought against governmental officials, and suits challenging the validity of an ordinance or statute.Id. at 373 n. 6(“For claims challenging the validity of ordinances or statutes ... the Declaratory Judgment Act requires that the relevant governmental entities be made parties, and thereby waives immunity.”(citingTex. Civ. Prac. & Rem.Code § 37.006(b))).While FSB filed an initial claim challenging Commission actions and requesting the Commission be required to comply with statutory provisions, that is not the claim at issue here.FSB asserted in its pleadings that the Commission did not recognize the validity of the final...