Texas Lottery Com'n v. First State Bank

• Court: Texas Court of Appeals
• Writing for the Court: Bob Pemberton
• Citation: Texas Lottery Com'n v. First State Bank, 254 S.W.3d 677 (Tex. App. 2008)
• Decision Date: 16 May 2008
• Docket Number: No. 03-07-00249-CV.,03-07-00249-CV.
• Parties: TEXAS LOTTERY COMMISSION, Appellant v. FIRST STATE BANK OF DeQUEEN, Stone Street Capital, Inc. and Cletius L. Irvan, Appellees.

254 S.W.3d 677

TEXAS LOTTERY COMMISSION, Appellant v. FIRST STATE BANK OF DeQUEEN, Stone Street Capital, Inc. and Cletius L. Irvan, Appellees.

No. 03-07-00249-CV.

Court of Appeals of Texas, Austin.

May 16, 2008.

Rance L. Craft, Austin, for Appellant.

Jeffrey S. Boyd, Thompson & Knight LLP, Austin, for Appellee.

Before Justices PATTERSON, PURYEAR and PEMBERTON.

OPINION

BOB PEMBERTON, Justice.

In 1995, appellee Cletius Irvan won approximately $9 million in the Texas Lottery, to be paid in annual installments of around $450,000. Pursuant to an Arkansas court order that has been domesticated in Texas, Irvan has attempted to sell and assign his right to receive the last two installment payments, which are due in 2013 and 2014. The lottery act (at least as interpreted by the Texas Lottery Commission) explicitly prohibits this assignment, while the Texas UCC not only allows such assignments, but provides that any state law restricting them is, to that extent, rendered ineffective. The question presented in this appeal is which statute controls. Agreeing with the district court that the UCC controls, we affirm its judgment.

THE STATUTES

Lottery act

Section 466.406 of the government code prohibits the assignment of a right to receive a Texas Lottery prize "[e]xcept as provided in this section and Section 466.410." Tex. Gov't Code Ann. § 466.406(a) (West 2004). Section 466.406 provides that (1) prize payments to a deceased individual prizewinner can be made to his estate; and (2) a winner's prize can be "paid to any person under an appropriate judicial order." Id. § 466.406(b)-(c). In section 466.410, the legislature authorized assignment of the right to receive future installment prize payments made by the lottery commission if approved by an order of a Travis County district court. Id. § 466.410(a)(West 2004).¹ Such an order shall issue if several procedural and consumer-protection requirements are satisfied. Id. § 466.410(b). Among other requirements:

• a petition for the order must be filed and a copy served on the Commission, which is entitled to intervene "to protect the interests of the commission"

• the assignment must be in writing and, by its terms, made subject to the laws of this state

• the assignor must provide a sworn and notarized statement that the assignor is of sound mind and is not acting under duress; has been advised regarding the assignment by independent legal counsel and "has had the opportunity to receive independent financial and tax advice concerning the effects of the assignment; understands that the assignor will not receive the prize payments ... for the assigned years"; understands and agrees that the state, the commission, and its personnel shall have no further liability to make the assigned payments to the assignor; has been provided a one-page disclosure statement stating, in boldfaced, 14-point type, the payments being assigned, purchase price, discount rate, and any fees; and that the assignor was advised of the right to cancel the transaction within three days of execution

• the court shall make specific findings regarding compliance with these and other requirements

Id. § 466.410(b), (e).

The assignment right under section 466.410 is subject to an additional limitation of significance to this case: "installment prize payments due within the final two years of the prize payment schedule may not be assigned." Id. § 466.410(a).

UCC

Article 9 of the Texas UCC also addresses the assignability of Texas Lottery prizes. Under the UCC, "accounts" are expressly made assignable, see Tex. Bus. & Com.Code Ann. § 9.406(a) (West 2002), and "account" is defined to include "winnings in a lottery or other game of chance operated or sponsored by a state, governmental unit of a state, or person licensed or authorized to operate the game by a state or governmental unit of a state." Id. § 9.102(a)(2)(viii)(West Supp.2007). Furthermore, UCC section 9.406(f) provides, in relevant part:

a rule of law, statute, or regulation that prohibits, restricts, or requires consent of a government, governmental body or official, or account debtor to the assignment or transfer of, 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 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).

PROCEEDINGS BELOW

Appellees Irvan, First State Bank of DeQueen (FSB), and Stone Street Capital, Inc., filed the underlying action under the Uniform Declaratory Judgments Act.² They alleged that after Irvan won his Texas Lottery prize in 1995, he became indebted to FSB for approximately $195,000, plus interest, which he ultimately was unable to pay. Irvan and FSB worked out a "Composition of Creditors" under Arkansas state law. The Composition of Creditors provided that, in full satisfaction of his debt, Irvan would pay to FSB a sum from monies received from the sale of the final two lottery prize installment payments due in 2013 and 2014.³ Irvan was to sell and assign these payments to Stone Street, which, in turn, would sell and assign the payments to Great-West Life & Annuity. The proposed plan was filed in Arkansas state court, which entered a final order approving the Composition of Creditors. The Arkansas court ordered that Irvan sell and assign the payments to Stone Street and that Stone Street, in turn, sell and assign the payments to Great-West. The final order also stated that it constituted "an appropriate judicial order" under section 466.406(c) of the Texas Government Code and that the Travis County district court shall grant full faith and credit to its order. FSB then filed an authenticated copy of the final Arkansas order in Travis County district court pursuant to the Uniform Enforcement of Foreign Judgments Act. See Tex. Civ. Prac. & Rem.Code Ann. § 35.001-.008 (West 1997 & Supp. 2007).

Appellees further pled that following the filing and entry of the final order in Travis County, the Commission "advised Plaintiffs that the Commission does not recognize the validity of the Final Order and intends to make the ... Payments to Plaintiff Irvan, in spite of the Final Order." Appellees alleged that the Commission had contended that Irvan's assignment was prohibited by sections 466.406 and 466.410 of the government code. Appellees sought declarations that (1) the final order of the Arkansas court was, pursuant to the UEFJA, effective as a final order of the Travis County district court; (2) section 9.406(f) of the Texas UCC renders ineffective any provision of the Lottery Act that purports to restrict or prohibit the assignment of lottery winnings; (3) the assignments were valid transfers and Great-West is the sole and lawful owner of the right to receive the 2013 and 2014 payments; and (4) in the alternative, that the final order is "an appropriate judicial order" under section 466.406(c).⁴

Soon thereafter, appellees filed a motion for partial summary judgment on their declaratory-judgment claim that the Texas UCC rendered ineffective the anti-assignment provisions of the lottery act. The Commission filed a response and a plea to the jurisdiction, arguing in the plea that a justiciable controversy existed only as to the effectiveness of government code 466.410 but not as to 466.406(c). The district court granted appellees' motion for partial summary judgment, declaring that "Tex. Bus. & Com.Code §§ 9.406 and 9.102 render ineffective Tex. Gov't Code §§ 466.406 and 466.410 to the extent that Tex. Gov't Code §§ 466.406 and 466.410 purport to restrict or prohibit the assignment of Texas Lottery prize payments." By separate order, the court also denied the Commission's plea to the jurisdiction. Subsequently, by agreed motion, the district court severed out appellees' UCC claim and rendered a final judgment in that proceeding based on its partial summary judgment ruling. The Commission subsequently filed this appeal.⁵

ANALYSIS

The Commission brings forward three issues on appeal challenging the district court's judgment that article 9 of the Texas UCC renders ineffective government code sections 466.406 and 466.410 to the extent that they purport to restrict assignments of Texas Lottery prizes.⁶ The Commission emphasizes the legislative history of the two sets of provisions. Prior to 1999, the lottery act had prohibited all assignments of prizes. During its 76th regular session that year, the legislature amended section 466.406 to its current form and added section 466.410.⁷ During the same session, the legislature adopted revised article 9 of the UCC, including the language in sections 9.102 and 9.406 on which appellees rely.⁸ The lottery act amendments were enacted approximately two weeks after the UCC amendments (May 17 versus May 30). The Commission urges that the legislature could not have intended to enact regulations and restrictions on lottery prize assignments in government code sections 466.406 and 466.410 that would be rendered wholly ineffective by the UCC provisions enacted a few days earlier. See Lexington Ins. Co. v. Strayhorn, 209 S.W.3d 83, 86 (Tex.2006) ("We must presume that the entire statute ... was intended to be effective."); Liberty Mut. Ins. Co. v. Garrison Contractors, Inc., 966 S.W.2d 482, 485 (Tex.1998) ("[W]e do not lightly presume that the Legislature may have done a useless act."); Tex. Gov't Code Ann. § 311.021(2) (West 2005)(we presume that "the entire statute is to be effective"). This is especially so, the Commission suggests, because the lottery act amendments were the sole focus of the bill through which they were enacted. Relatedly, the Commission argues that the policy goals embodied in the lottery act provisions—including consumer-protection elements aimed at...