Texas A.B.C. v. Amusement & Music Oper.

• Decision Date: 06 May 1999
• Citation: 997 S.W.2d 651
• Parties: (Tex.App.-Austin 1999) Texas Alcoholic Beverage Commission, Appellant v. Amusement and Music Operators of Texas, Inc., Appellee NO. 03-98-00579-CV
• Court: Texas Court of Appeals

Page 651

997 S.W.2d 651 (Tex.App.-Austin 1999)

Texas Alcoholic Beverage Commission, Appellant v. Amusement and Music Operators of Texas, Inc., Appellee

NO. 03-98-00579-CV

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

May 6, 1999

Opinion on Rehearing July 29, 1999.

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 250TH JUDICIAL DISTRICT NO. 98-06901, HONORABLE JOHN K. DIETZ, JUDGE PRESIDING

[Copyrighted Material Omitted]

Before Justices Jones, B. A. Smith and Yeakel

Bea Ann Smith, Justice

This case comes before us on an interlocutory appeal from a temporary injunction. The Amusement and Music Operators of Texas, Inc. ("AMOT") filed a declaratory judgment action against the Texas Alcoholic Beverage Commission (the "Commission"); Doyne Bailey, the Administrator of the Commission; the Department of Public Safety; and Dudley Thomas, the Director of the Department of Public Safety. AMOT challenged the constitutionality of a Commission memorandum and interoffice communication interpreting the definition of "gambling devices" in section 47.01 of the Texas Penal Code as applied to certain machines called "eight-liners." The trial court issued a temporary injunction enjoining those agencies from relying on the memorandum and the first two paragraphs of the interoffice communication. In seven issues, the Commission appeals the temporary injunction issued. We will affirm the trial court's order.

BACKGROUND

AMOT is an association of amusement and music operators. The members of AMOT engage in the business of owning and/or operating coin-operated machines, including amusement machines known as "eight-liners." Eight-liners are electronic machines, similar to slot machines, that dispense gift certificates redeemable for prizes.

Before 1993, the Texas Penal Code made the possession and operation of all gambling devices illegal. However, in 1993, the legislature amended the Penal Code's definition of "gambling devices" to exclude

electronic, electromechanical, or mechanical contrivance designed, made, and adapted solely for bona fide amusement purposes if the contrivance rewards the player exclusively with noncash merchandise prizes, toys, or novelties, or a representation of value redeemable for those items, that have a wholesale value available from a single play of the game or device of not more than 10 times the amount charged to play the game or device once or $5, whichever is less.¹

Tex. Penal Code Ann. 47.01(4)(B) (West Supp. 1999). AMOT members relied on the plain language of this statute and on discussions with county prosecutors and police officers before entering the business of owning and operating eight-liners.

In 1998, the attorney general's office issued an opinion ruling that the amended definition of gambling devices violated the Texas Constitution because it purports to authorize the operation of certain lotteries not contemplated by the constitution. See Att'y Gen. Op. DM-466 (Jan. 23, 1998). The Texas Constitution requires the legislature to pass laws prohibiting all lotteries or gift enterprises other than those specifically authorized by the constitution. See Tex. Const. art. III, 47(a). Because the Texas Constitution allows for no exemptions to the lottery ban other than those enumerated,² the attorney general concluded that the exemption in section 47.01(4)(B) is unconstitutional. The attorney general stated in his opinion that "if the contrivances described as 'eight-liners' fit the Penal Code's definition of 'gambling device,' freed of the unconstitutional 1995 exception in paragraph (B), their possession is proscribed." Att'y Gen. Op. DM-466.

In reliance on this opinion, the Commission drafted and distributed two memoranda to its law enforcement agents. The first memorandum, dated February 9, 1998 and written by Doyne Bailey ("February 9, 1998 memo"), explained that the attorney general had determined that the statute should be read to delete Paragraph (B), and listed the three elements that make a machine illegal according to the attorney general's opinion: (1) the machine awards a prize, even if it is a prize of very small value or a redeemable coupon for anything of value; (2) the prize is awarded by chance; and (3) the player gives consideration for the opportunity to win a prize. The second memorandum, an interoffice communication written by James S. Smelser ("Smelser memo"), also listed the three elements as the basis for probable cause against gambling devices, and stated: "If in your investigation you have probable cause to believe that games violate the elements in 47.01(4)(A) then the defense under 47.01(4)(B) is not applicable."

AMOT filed suit to enjoin the Commission and the Department of Public Safety from relying on these memoranda in enforcing the provisions of the Texas Penal Code governing the operation of gambling devices. The Veterans of Foreign Wars, Department of Texas, intervened in support of the injunctive suit. AMOT alleged that the enforcement of the internal memoranda violated their rights to due process under the law, and challenged the authority of the two agencies to suspend section 47.01(4)(B) of the Texas Penal Code pursuant to an opinion of the attorney general. The defendants filed a plea to the jurisdiction. At a hearing on the temporary injunction held July 14, 1998, the trial court indicated that it was granting the plea to the jurisdiction on the grounds that AMOT lacked associational standing to pursue its constitutional claims. On October 5, 1998, however, the trial court ruled that AMOT did have standing to pursue its claims under the Administrative Procedure Act³ ("APA"), and found that the two memoranda constituted invalid rules because they were not passed in accordance with the APA's rulemaking requirements. The court therefore ordered that the defendants were temporarily enjoined from relying on the February 9, 1998 memo and the first and second paragraphs of the Smelser memo.

On appeal, the Commission argues that (1) the temporary injunction is void because it was denied notice and a hearing on the issues addressed in the order; (2) the trial court lacked subject matter jurisdiction; (3) the trial court erred in finding that the memoranda constitute rules under the APA; (4) the trial court lacked subject matter jurisdiction to enjoin the enforcement of a criminal law matter; (5) the trial court erred in construing section 47.01(4)(B) of the Texas Penal Code as an exemption; (6) the trial court erred in concluding that the Smelser memo directed agents to ignore section 47.01(4)(B); and (7) the trial court's order is void because it seeks to enjoin a state agency.

DISCUSSION

The purpose of a temporary injunction is to preserve the status quo of the subject matter of a suit pending final disposition of the case on its merits. See Davis v. Huey, 571 S.W.2d 859, 862 (Tex. 1978). Because of this limited purpose, the trial court has broad discretion to determine whether to issue a temporary injunction. See LeFaucheur v. Williams, 807 S.W.2d 20, 22 (Tex. App.-Austin 1991, no writ). We therefore may reverse the trial court's order granting a temporary injunction only for a clear abuse of discretion. See Walling v. Metcalfe, 863 S.W.2d 56, 57-58 (Tex. 1993); Iranian Muslim Org. v. City of San Antonio, 615 S.W.2d 202, 208 (Tex. 1981).

Notice

In its first issue on appeal, the Commission contends that it was denied notice and a hearing on the substance of the temporary injunction in violation of Rule 681 of the Texas Rules of Civil Procedure. The Commission concedes that a hearing was held on the temporary injunction but argues that no "live" pleading filed by AMOT prior to the day of the hearing discussed whether the February 9, 1998 memo or the Smelser memo were "rules" within the meaning of the APA. AMOT's supplemental petition, on file at the time of the hearing, briefed the applicability of the APA to the two memoranda. However, the Commission argues that the trial court explicitly stated that it had not looked at the supplemental petition at the time of the hearing. The Commission therefore believes that it did not have adequate notice and opportunity to be heard on the issue that became the basis for the trial court's issuance of the temporary injunction.

Rule 681 states that no temporary injunction shall be issued without notice to the adverse party. Tex. R. Civ. P. 681. In City of Austin v. Texas Public Employees Ass'n, 528 S.W.2d 637, 640 (Tex. Civ. App.-Austin 1975, no writ), this Court held that the requirement of notice impliedly requires an adequate opportunity to be heard. After reviewing the record, we find that the Commission had adequate opportunity to be heard on the question of whether the internal memoranda constituted invalid rules under the APA. During the hearing on the temporary injunction, counsel for AMOT elicited testimony from the Commission's witnesses regarding the procedures followed in promulgating the internal memoranda and whether they complied with APA requirements. The Commission was therefore on notice that the applicability of the APA was an issue before the court, and had the opportunity to present evidence as to whether it had complied with the APA, or in the alternative, why it was not required to do so.

Moreover, AMOT's amended petition, filed after the hearing, specifically pleaded that the directives issued in the memoranda were invalid rules. The Commission responded to these allegations in a subsequently filed pleading, arguing that the internal memoranda were not rules and therefore were not subject to APA requirements. Obviously, the Commission understood that the applicability of the APA was at issue because it briefed the matter in its reply to the amended petition. All of these pleadings were on file before the trial court when it issued the temporary injunction. We fail to see how the Commission was deprived of its opportunity to be heard under Rule 681. We therefore overrule the...