Wv Ass'n of Club Owners & Frat. Servs. v. Musgrave

• Decision Date: 28 September 2007
• Docket Number: Civil Action No. 2:07-cv-00122.
• Court: U.S. District Court — Southern District of West Virginia
• Parties: WV ASSOCIATION OF CLUB OWNERS AND FRATERNAL SERVICES, INC., Plaintiff, v. John C. MUSGRAVE, in his official capacity as Director of the State Lottery, Defendants.

512 F.Supp.2d 424

WV ASSOCIATION OF CLUB OWNERS AND FRATERNAL SERVICES, INC., Plaintiff, v. John C. MUSGRAVE, in his official capacity as Director of the State Lottery, Defendants.

Civil Action No. 2:07-cv-00122.

United States District Court, S.D. West Virginia, Charleston Division.

September 28, 2007.

Roger D. Forman, Forman & Huber, Terri S. Baur, ACLU of West Virginia Foundation, Charleston, WV, for Plaintiff.

Andrew M. Fenway Pollack, Katherine A. Schultz, Office of the Attorney General, Barbara H. Allen, Attorney General's Office, Charleston, WV, for Defendants.

MEMORANDUM OPINION AND ORDER

JOSEPH R. GOODWIN, Chief Judge.

Pending before the court is the plaintiffs Motion for a Preliminary Injunction [Docket 2]. The issue presented is whether the ban on limited video lottery advertising imposed by the Limited Video Lottery Act violates the plaintiff's First Amendment right to freedom of speech. As a doctrinal matter, the advertising ban does not directly and materially advance a substantial government interest, and is therefore an impermissible restriction on commercial speech under the First Amendment. The advertising ban infringes upon the limited video lottery retailers' right to speak and impedes the public's ability to engage in informed political discourse.

For these and the reasons set forth below, the motion is GRANTED.

I. Factual and Procedural Background

A. History of Lottery Regulation

Analysis of the legal arguments in this case is aided by a brief discussion of the history of electronic video lottery machines in West Virginia.¹ From 1863 to 1984, the West Virginia Constitution imposed a categorical ban on all lotteries. Club Ass'n of W. Va. v. Wise (Club Ass'n I), 156 F.Supp.2d 599, 601-04 (S.D.W.Va.2001), aff'd (Club Ass'n II), 293 F.3d 723 (4th Cir.2002). In 1983, the West Virginia Legislature approved a state-run lottery amendment, and on November 6, 1984, it was ratified by referendum. Id. at 604. The amendment created an exception to the lottery ban by allowing the Legislature to "authorize lotteries which are regulated, controlled, owned and operated by the State of West Virginia in the manner provided by general law." W. Va. Const. art. VI, § 36. As noted by Judge Haden in Club Ass'n I, "[f]rom its humble beginning with a latex scratch-off ticket game in January 1986, the Legislature and the Lottery Commission have gradually expanded on the concept such that the Lottery is now a prime source of much needed revenue for the State." 156 F.Supp.2d at 605.

The West Virginia State Lottery Commission ("Commission") sought to further expand the lottery in 1993 by introducing video lottery games through a pilot program at Mountaineer Park Thoroughbred Racetrack. Id. at 605. The Commission's plans were thwarted, however, when the West Virginia Supreme Court of Appeals held that the Legislature had not enacted general laws for the regulation, control, ownership, and operation of video lottery. W. Va. ex rel. Mountaineer Park, Inc. v. Polan, 190 W.Va. 276, 438 S.E.2d 308, 317-18 (1993). The court also held that the Legislature failed to prescribe adequate standards in the State Lottery Act to guide the Commission with respect to video lottery. Id. Consequently, the Commission was without authority under the West Virginia Constitution to establish electronic video lottery. Id. The court in Polan also questioned whether video lottery was actually a "lottery" as contemplated by the state-run lottery exception in West Virginia Constitution. Id. at 316.

The Legislature quickly responded to Polan and enacted the Racetrack Video Lottery Act, W. Va.Code §§ 29-22A-1 to 19 (2004). In the Act, the Legislature found that the video lottery games authorized by the legislation were lotteries as used in the West Virginia Constitution. W. Va.Code § 29-22A-2(a). The Legislature also found that

the state can control, own and operate a video lottery by possessing a proprietary interest in the main logic boards, all erasable, programmable read-only memory chips used in any video lottery equipment or games, and software consisting of computer programs, documentation and other related materials necessary for the video lottery system to be operated.

W. Va.Code § 29-22A-2(b).

The Racetrack Video Lottery Act did not address the illegal video lottery machines that existed in abundance in private establishments other than racetracks. Club Ass'n I, 156 F.Supp.2d at 606. According to the Census of Gray. Poker Machines, a report submitted to a special committee of the Legislature charged with studying gaming, about 10,000 so-called "gray" machines² were found in private establishments across West Virginia in 1999. Id. This number increased to 13,524 by early 2001. Id. at 607.

Also in 2001, Governor Robert E. Wise, Jr., in his State of the State Address, advocated legalizing and regulating video lottery machines. His proposal was to "reduce, restrict and regulate the gray machines" and "provide a steady new stream of income to finance the PROMISE Scholarship, other education efforts and the infrastructure necessary to build West Virginia." Id. After vigorously debating the video lottery issue, the Legislature enacted the Limited Video Lottery Act (LVLA), W. Va.Code §§ 29-22B-101 to 1903 (2004 & Supp.2007). "The avowed purpose of this law was to establish a single state owned and regulated video lottery thus allowing the State to collect revenue therefrom, control the operators of the machines, and stem the proliferation of gambling in the State." Club Ass'n II, 293 F.3d at 724. Like the Racetrack Video Lottery Act, the LVLA contained legislative findings regarding the legality of the new "limited" video lottery under the West Virginia Constitution. The Legislature found that the limited video lottery created by the LVLA was a "lottery" as the term is used in the West Virginia Constitution. W. Va.Code § 29-22B-201(2). Similarly, the State could control, own and operate the limited video lottery by possessing a proprietary interest in the limited video lottery game software. W. Va.Code § 29-22B-202(1).

The Supreme Court of Appeals of West Virginia addressed the constitutionality of the LVLA and Racetrack Video Lottery Act in West Virginia ex rel. Cities of Charleston and Huntington v. West Virginia Economic Development Authority, 214 W.Va.277, 588 S.E.2d 655 (2003). The court first held that both racetrack video lottery and limited video lottery, as defined by the relevant statutes, satisfied the West Virginia Constitution's "broad definition of lottery." Id. at 669. The court further held that the State's proprietary interest in the video lottery machine's "main logic boards," "erasable, programmable read-only memory chips" and "software" was a sufficient degree of ownership "to bring the video lottery within the scope of the exception for authorized lotteries in W. Va. Const., Art. VI, § 36"; absolute ownership of the video lottery machines was not required. Id. at 669-70. Having held that video lottery was a "lottery" and was sufficiently regulated, controlled, owned, and operated by the State, the West Virginia Supreme Court of Appeals held that video lottery authorized by the LVLA and Racetrack Video Lottery Act fell within the exception for state-run lotteries under article VI, section 36 of the West Virginia Constitution. Id. at 670.

Although the LVLA and Racetrack Video Lottery Act were sufficiently similar for their constitutionality to be addressed simultaneously in Development Authority, the two statutes are not identical. The Racetrack Video Lottery Act allows a racetrack to advertise and promote its video lottery advertising, so long as the racetrack obtains the prior written approval of the director of the Commission. W. Va. Code § 29-22A-9(f)(12). The LVLA, on the other hand, prohibits a limited video lottery retailer from conducting advertising or promotional activities. W. Va.Code § 29-22B-702(13). The LVLA also forbids the "use of the words `video lottery' in the name of the approved location, or in any directions or advertising visible from outside the retailer's establishment." W. Va.Code § 29-22B-702(14).

The corresponding legislative rules define "advertisement" as "a media advertisement, an outdoor sign, or a sign inside the licensee's premises that may be seen from the outside of the premises, that conveys to the average reader or hearer that limited video lottery gaming is available at the retail establishment or from the licensed operator." W. Va.Code R. § 179-5-2.1 (2004). The rules also state that "[a] limited video lottery licensed retailer shall not use' words commonly associated with gambling either in its corporation name or in its doing-business-as name." W. Va. Code R. § 179-5-33.4 (2004). Similarly, "a limited video lottery licensed retailer shall not use gambling symbols, including but not limited to playing cards, roulette wheels, slot machines, or dice on any sign or in any directions or advertising visible from outside the licensed retailer's establishment." W. Va.Code R. § 179-5-33.5 (2004). The LVLA and its associated rules do not, however, bar all mention of limited video lottery. Limited video lottery retailers "may display a sign on the exterior of the establishment that states `West Virginia Lottery Products available here.'" W. Va.Code R. § 179-5-33.2 (2004). This sign, provided by the Commission, must be of uniform size and be no greater than twelve inches by twelve inches in size. W. Va.Code R. § 179-5-33.6 (2004). Finally, the rules provide that "[n]othing contained in this section prohibits the advertising on radio and television of scratch off `instant' lottery games, online numbers games such as powerball, racetrack video lottery games or new lottery games other than limited video lottery games." W. Va.Code R. § 179-5-33.6 (2004).

B. Procedural History

The plaintiff, the West Virginia Association of Club Owners and Fraternal Services, Inc., is a West...