United States ex rel. Nissman v. Southland Gaming of the Virgin Islands, Inc.

Decision Date31 March 2016
Docket NumberCivil Action No. 2011-0010
Citation182 F.Supp.3d 297
Parties UNITED STATES of America, ex rel. David Nissman, Individually, Plaintiff, v. SOUTHLAND GAMING OF THE VIRGIN ISLANDS, INC., Southland Amusement and Vending, Inc., Robert Huckabee, III, and John Does Nos. 1-10, Defendants.
CourtU.S. District Court — Virgin Islands

Attorneys: David M. Nissman, Esq., St. Croix, U.S.V.I., For PlaintiffBennett Chan, Esq., St. Thomas, U.S.V.I., Jason C. Hicks, Esq., Mark N. Poovey, Esq., Washington, D.C., For Defendants

MEMORANDUM OPINION

Lewis, Chief Judge

THIS MATTER comes before the Court on Defendant Southland Gaming of the Virgin Islands, Inc.'s "Motion to Dismiss and Strike" (Dkt. No. 28); Defendants Southland Amusement and Vending, Inc. and Robert Huckabee, III's "Motion to Dismiss and Strike" (Dkt. No. 30); Defendants' "Motion to Strike Plaintiff's Declaration" (Dkt. No. 40); Defendants' "Joint Motion for Hearing" (Dkt. No. 43); and the parties' respective Oppositions and Replies (Dkt. Nos. 37, 42, 44, 45). For the reasons that follow, the Court will grant in part and deny in part Defendants' Motions to Dismiss and Strike; deny Defendants' Motion to Strike Plaintiff's Declaration; and deny Defendants' Joint Motion for Hearing. Based on these rulings, this case will be dismissed.

I. BACKGROUND
A. Procedural History

Plaintiff David Nissman ("Plaintiff"), proceeding as a qui tam relator,1 brings this action against Defendants Southland Gaming of the Virgin Islands, Inc. ("Southland Gaming"), Southland Amusement and Vending, Inc. ("Southland Amusement"), Robert Huckabee, III ("Huckabee"), and John Does Nos. 1–10 (collectively "Defendants"), alleging violations of the False Claims Act ("FCA"), 31 U.S.C. § 3729. (Dkt. No. 1 at 41–45).2 On behalf of himself and the United States Government, Plaintiff seeks to recover civil penalties for each alleged violation of the FCA, as well as treble damages, punitive damages, attorney's fees and costs, and pre-judgment interest. (Dkt. No. 1 at 45).

As required by the FCA, the Complaint was filed under seal to allow the United States time to investigate the claims asserted by Plaintiff and to determine whether to intervene. See 31 U.S.C. § 3730(b)(2).3 The United States sought and received several extensions of time to consider intervention. See 31 U.S.C. § 3730(b)(3).4 Ultimately, the United States filed a "Notice of Election to Decline Intervention," in which it advised the Court that it had decided not to intervene in this action and requested, inter alia , that the Court unseal the Complaint. (Dkt. No. 12). The Complaint was then unsealed and served on Defendants, who subsequently filed the instant Motions to Dismiss and Strike. (Dkt. Nos. 28, 30).5

Defendants move to dismiss Plaintiff's Complaint pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(1), 12(b)(3), and 12(b)(6), for failure to plead fraud with particularity, lack of subject matter jurisdiction, improper venue, and failure to state a claim upon which relief can be granted, respectively. (See id. ). Defendants also move to strike Plaintiff's Complaint in its entirety pursuant to Federal Rule of Civil Procedure 12(f), on the grounds that the allegations contained in the Complaint are irrelevant, immaterial, scandalous, unsubstantiated, and false. (See id. at 4, 3). In response, Plaintiff has filed an Opposition, (Dkt. No. 37), along with a self-executed Declaration (Dkt. No. 37–1). Defendants have jointly moved to strike the Declaration pursuant to Local Rule of Civil Procedure 7.1(d) and Federal Rule of Civil Procedure 12(f). (Dkt. No. 40). The Court will grant Defendants' Motions to Dismiss on subject matter jurisdictional grounds, and deny Defendants' Motions to Strike. Because of the dismissal for lack of subject matter jurisdiction, the Court will not reach Defendants' remaining grounds for relief on the merits.

B. Factual Background6

Acting pursuant to legislation passed in late 2002, which authorized video lottery gaming in the Virgin Islands, the Virgin Islands Lottery, an agency of the Virgin Islands Government, entered into a contract with Southland Gaming that, according to Southland Gaming, designated it "as the exclusive contractor for the placement and operation of video lottery terminals and other gaming devices (i.e., slot machines) within various retail establishments, resorts, and entertainment centers throughout St. Thomas and St. John." (Compl. ¶ 21) (quoting the Southland Gaming website) (internal quotation marks omitted) (emphasis in original).7 The Virgin Islands Lottery and Southland Gaming also entered into a Master License Agreement, under which the amounts paid to Southland Gaming for its operation of the video lottery system are classified as "commissions." (Compl. ¶ 27).8

In the Complaint, Plaintiff alleges that beginning on or about February 1, 2008 and continuing thereafter, Defendants engaged in two fraudulent schemes to defraud the Virgin Islands Government. First, Plaintiff alleges that Defendants "entered into alleged ‘negotiations' with certain [Virgin Islands] Government officials to procure a contract that purport[s] to give [them] as much as 50% of the proceeds of the video lottery gambling operation to the detriment of the [Virgin Islands] Government." (Compl. ¶ 28). As a result of this alleged "scheme and artifice," Plaintiff contends that "the Virgin Islands Government ... did not receive the contractual value to which it was entitled by law," and that Defendants have purportedly retained millions of dollars that belong to the Virgin Islands Government. (Compl. ¶¶ 29, 227–228).

Second, Plaintiff alleges that Defendants have fraudulently misrepresented to the Virgin Islands Government that they are operating a video lottery system, when in fact they are "operating slot machines and running the functional equivalent of casinos on St. Thomas and St. John, which are prohibited by Virgin Islands law." (Compl. ¶ 30).9 To support this allegation, Plaintiff states that he visited the Parrott Club on St. John, a video lottery gaming center allegedly owned by Defendants, as well as other video lottery gaming centers on St. Thomas and St. John, where he "used negative and positive skill to affect the outcome of games." (Compl ¶ 40, 41). According to Plaintiff, "there should be no element of skill that can affect the outcome" of a lottery game. (Compl. ¶ 50).

Plaintiff has asserted two causes of action against Defendants—both under the FCA, 31 U.S.C. § 3729. (See Dkt. No. 1 at 41–46).10

II. GENERAL LEGAL PRINCIPLES
A. The Virgin Islands Lottery

The Virgin Islands Lottery ("Lottery"), the "official lottery of the Virgin Islands," is a statutorily created, "instrumentality of the Government of the Virgin Islands ... managed by a Director, subject to the supervision of the Virgin Islands Lottery Commission." 32 V.I.C. § 243. The Director is appointed by the Governor and "serve[s] at the pleasure of the Governor." 32 V.I.C. 245(a). The Virgin Islands Lottery Commission (the "Commission") is a seven-member body, comprised of the Commissioner of Finance, the Director of the Office of Management and Budget (or his designee), and five members appointed by the Governor to a four-year term. 32 V.I.C. § 244.

One of the primary powers and duties of the Commission is to promulgate rules and regulations governing the establishment and operation of the Lottery. 32 V.I.C. § 246(a). Such rules and regulations consist of the types of lottery to be conducted, including "video lottery gaming machines or devices, or any similar type of gaming device," the official lottery, instant lottery, and any additional lotteries established by the Commission. 32 V.I.C. § 246(a)(1)(i)(iii) ; see also 32 V.I.C. § 246a (authorizing the Commission to establish and operate additional lotteries). The Commission is also responsible for the approval of any contracts the Director enters into "for the operation of the Lottery, or any part thereof." 32 V.I.C. § 247(h).

Another power and duty of the Commission is the distribution of all revenue generated by the Lottery. See 32 V.I.C. § 246(a)(11). By statute, the Commission allocates at least twenty percent (20%) of the net income to the General Fund of the Treasury of the Virgin Islands, see id. at § 246(a)(11)(i), which, in turn, is distributed among various Virgin Islands Government entities, funds, and programs, see id. The Commission also distributes a portion of the proceeds derived specifically from "games under each contract between the Virgin Islands Lottery and a private contractor of lottery games, including the proceeds under a contract with a contractor of video lottery games," to certain Virgin Islands Government entities, funds, and programs. See id. at § 246(a)(11)(iv). A small percentage of proceeds derived exclusively from the video lottery is also distributed to various Virgin Islands programs and departments located on St. Thomas and St. John. See id. at § 246(a)(11)(iv)(v). The remaining revenue is used to pay prizes to winning ticket holders, cover costs incurred in the operation and administration of the Lottery, and maintain a reserve fund. See id. at § 246(a)(11)(ii), (iii), (vi).

B. Reverse False Claims

Section 3729(a)(1)(G) of the False Claims Act ("FCA") imposes liability on any person who, inter alia , "knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government." 31 U.S.C. § 3729(a)(1)(G) (effective May 20, 2009). This provision of the FCA, known as the "reverse false claims" provision, imposes liability for "an alleged fraudulent effort to reduce a liability owed to the government rather than to get a false or fraudulent claim allowed or paid." United States ex rel....

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