Opinion ID: 1060207
Heading Depth: 1
Heading Rank: 1

Heading: Hughes v. Cole

Text: The record shows that in late 1989, Cleveland Hughes, Walter Cole, and others entered into an oral agreement in Elizabeth City, North Carolina, to form a venture or association to purchase tickets in the Lotto lottery conducted by the State Lottery Department of the Commonwealth of Virginia (the Lottery Department or the Department). The agreement provided that the members would share equally the profits of the venture. The members pooled their funds to carry out the purposes of the venture and placed the funds in a strongbox located in a building in Elizabeth City, where the members regularly met. Each week, the members selected the numbers to be played from a list of 40 combinations the members had identified as prospective choices approximately one year prior to the events that are presently in dispute. The combination 03-07-08-15-27-42 was among the 40 combinations previously identified, and it was played, along with other specific combinations, in subsequent biweekly lottery games. It was the practice that one member of the venture would journey to a 7-Eleven store in Chesapeake, Virginia, to purchase the tickets containing the numbers selected for a particular week. The tickets were returned to Elizabeth City and placed in the same strongbox in which the pooled funds were kept. In the summer of 1992, Walter Cole assumed the responsibility of purchasing lottery tickets on behalf of the venture. The particular drawing that is in issue here took place on September 12, 1992. At the time, the membership of the venture consisted of Walter Cole, Cleveland Hughes, Richard Johnson, James L. Weeks, William L. Sharpe, Jr., and Hercules Trink Cole, Walter's brother. In the week before the drawing in issue, each member of the venture paid his share of the cost of purchasing lottery tickets for the week ending September 12. On September 9, Walter Cole took the funds from the strongbox, journeyed to the 7-Eleven store in Chesapeake and purchased, with the funds of the venture, tickets containing several, but not all, of the previously selected combinations of numbers, including the combination 03-07-08-15-27-42. This number was drawn on September 12 as the winning number, with an estimated prize of $18 million. [1] Another individual not involved in this dispute played the same number; therefore, the amount in dispute here is approximately $9 million. On September 13, Walter Cole advised Cleveland Hughes that he had possession of the winning ticket and that he would not share the proceeds with the other members of the venture. On September 16, Walter Cole presented and delivered the winning ticket to the Lottery Department in Richmond. At that time, on a form supplied by the Department, Cole executed in favor of his children, Hercules Cole, Leondas Cole, Alfreda Lee, and Virginia Bembury, an Agreement to Share Ownership and Proceeds of Lottery Ticket. They claimed sole ownership of the ticket and its proceeds. Also on September 16, prior to Walter Cole's presentation and delivery of the winning ticket to the Lottery Department, Cleveland Hughes, Richard Johnson, James L. Weeks, and William L. Sharpe, Jr. (the Hughes Group or the Group), had notified the Department that a dispute regarding the ownership of the ticket had arisen between Walter Cole and the Hughes Group and that a hearing on a request for temporary injunctive relief had been scheduled for the next day. The Department refused to disburse the proceeds of the ticket presented by Walter Cole pending the outcome of the injunction hearing. On September 17, 1992, the Hughes Group filed a bill of complaint in the trial court against Walter Cole and his four children (the Coles) as well as the Lottery Department. The bill prayed for a declaration that a partnership or joint venture existed among Walter Cole, Hercules Trink Cole, and the Hughes Group and that the winning lottery ticket and its proceeds were the property of the venture. The bill also prayed for an order temporarily restraining the Department from paying the proceeds of the winning ticket until further order of the court. On the same date that the bill was filed, the trial court granted the request for a temporary injunction. [2] Thereafter, the Coles filed an answer in which they denied all the essential allegations of the bill of complaint. On September 30, 1992, the Coles filed a bill of complaint against the Hughes Group and Hercules Trink Cole in the Superior Court of Pasquotank County, North Carolina, praying for a declaration that the Coles were the sole and individual owners of the winning ticket. The Hughes Group filed an answer and also filed a counterclaim in which it moved for a declaration that the winning lottery ticket and its proceeds belonged to the venture. By an order entered December 10, 1992, the Superior Court awarded the Coles judgment on the pleadings and declared that they were the sole owners of the winning ticket and its proceeds. In a second order entered the same date, the court dismissed the counterclaim filed by the Hughes Group on the ground that the venture was illegal and against the public policy of [North Carolina]. On April 19, 1994, the North Carolina Court of Appeals vacated the first order, concluding that because the winning lottery ticket was located in Virginia, the Superior Court lacked in rem jurisdiction to adjudicate title to the ticket. Cole v. Hughes, 114 N.C.App. 424, 442 S.E.2d 86, 89 (1994). However, the Court of Appeals held that the Superior Court did have jurisdiction to adjudicate the rights of the parties under the alleged joint venture agreement since all the parties to the agreement resided in North Carolina and had entered into the agreement there. Id. The Court of Appeals then proceeded to affirm the Superior Court's second order, holding it was indisputable that the agreement is void as against North Carolina public policy and is unenforceable in North Carolina. Id. 442 S.E.2d at 90. The court stated that its disposition of the case leaves resolution of the issue of ownership of the lottery ticket and entitlement to its proceeds to the Virginia authorities. Id. In the meantime, the trial court had stayed proceedings in the Virginia case pending the outcome of the North Carolina litigation. On May 4, 1994, after the North Carolina Court of Appeals handed down its opinion, the Coles filed in the trial court a motion for summary judgment and for dissolution of the temporary injunction that had been in effect since September 17, 1992. The trial court took the motion under advisement pending a decision by the Supreme Court of North Carolina on the Hughes Group's appeal. On July 28, 1994, the Supreme Court of North Carolina denied review. Cole v. Hughes, 336 N.C. 778, 447 S.E.2d 418 (1994). Ruling in a letter opinion that under Virginia's choice of law doctrine, the law of the place of making governs the determination of a contract's validity, the trial court concluded that the law of North Carolina shall govern the validity of the agreement and the obligation between the parties. The court then held that [t]he North Carolina courts having decided that the agreement is illegal and against the public policy of North Carolina and is accordingly void and unenforceable in that State, there exists no agreement which may be enforced in Virginia. Alternatively, the trial court ruled that if North Carolina law did not apply, the agreement was void and unenforceable under Virginia law. Accordingly, on December 22, 1994, the trial court entered an order granting summary judgment in favor of the Coles and dissolving the temporary injunction. The court ordered that after withholding taxes, the Lottery Department pay the annual installments on the lottery prize to the clerk of the trial court. After directing the clerk to distribute certain amounts to the Coles' previous counsel to satisfy attorneys' liens for services and expenses, see infra, the court ordered the clerk to distribute the balance of all lottery prize payments to the Coles in accordance with the Agreement to Share Ownership and Proceeds of Lottery Ticket, which Walter Cole executed in favor of his children on September 16, 1992. [3] On appeal, the parties debate at length the question whether Virginia law or North Carolina law controls the disposition of this case. The Coles argue that the North Carolina decision declaring the agreement between the parties void and unenforceable should be given full faith and credit, with the result that the Hughes Group is barred by principles of res judicata from prosecuting its cause of action in Virginia. The Hughes Group points out, however, that the trial court did not decide the case upon full faith and credit grounds but upon choice of law principles. Furthermore, the Hughes Group maintains, the North Carolina Court of Appeals merely ruled that the agreement between the parties was unenforceable in North Carolina, and the court specifically left resolution of the ownership of the winning ticket and its proceeds to the Virginia authorities. Hence, the Hughes Group concludes, [p]rinciples of full faith and credit and res judicata ... have no application in the determination whether the agreement to share in the proceeds of the winning Lotto ticket is valid in Virginia.  The Coles have not assigned cross-error to the trial court's failure to decide the case on full faith and credit grounds. Rule 5:18. Accordingly, we will consider the case, as the trial court considered it, without reference to the principles of full faith and credit and res judicata. And, in our consideration, we will accept the North Carolina decision as the final word that the agreement is void and unenforceable in North Carolina. [4] The Hughes Group argues that under applicable choice of law principles, Virginia law should control and that, contrary to the trial court's alternative ruling, the agreement is valid and enforceable under Virginia law. On the other hand, the Coles argue that the trial court applied the proper choice of law rule in determining the validity of the agreement according to the law of North Carolina. The Coles also support the trial court's alternative holding that the agreement is void and unenforceable under Virginia law. In the view we take of this case, if we agree with the Coles that the agreement is void and unenforceable under the law of both North Carolina and Virginia, we would not need to make a choice of law. Because the agreement would be unenforceable under the law of both states, our decision would be to affirm the judgment of the trial court. It remains to be seen, therefore, whether the agreement is void and unenforceable under Virginia law. At the heart of the problem is Code § 11-14, which provides in pertinent part that [a]ll ... contracts ... whereof the whole or any part of the consideration be money or other valuable thing won ... at any game ... shall be utterly void. The Hughes Group contends that Code § 11-14 voids only those contracts in which one party to a bet agrees to pay something to another party to that bet as a result of losing the bet. However, the Hughes Group reads the statutory language too narrowly. The language undoubtedly includes the type of contract the Hughes Group cites, but it also includes any contract whereof the whole or any part of the consideration is money won at any game, and this language is broad enough to include the type of agreement that Walter Cole and the Hughes Group entered into here. The Hughes Group argues, however, that the consideration for the agreement was not based in whole or in part on money won at any game, but upon the mutual promises the parties made to one another to share in the proceeds should they pick a winning combination of numbers. The Hughes Group says [i]t is this agreement, and not a gaming contract, that forms the basis for the relief sought by the ... Group. But consideration is defined as [t]he ... motive ... or impelling influence which induces a contracting party to enter into a contract. Black's Law Dictionary 306 (6th ed. 1990). To say that the parties to the agreement in this case were motivated or impelled to enter into the contract by any inducement other than to win money in the lottery would be pure sophistry. Consideration is also defined as the reason or material cause of a contract. Id. Here, the expectancy of hitting the lottery jackpot was not just the material cause but the sole cause of the agreement; without that expectancy, the venture would never have come into existence. And the whole reason for entering into the agreement was to pool funds so that each player could increase his chances of winning money in the lottery, which is undeniably a game. The agreement constituted, therefore, a gaming contract within the meaning of § 11-14. The Hughes Group points out, however, that Code § 18.2-334.3 provides that nothing in Article 1 of Chapter 8 of Title 18.2 of the Virginia Code, which article regulates gambling and imposes penalties for illegal gambling, shall apply to any lottery conducted by the Commonwealth of Virginia. The Group further points out that Code § 58.1-4007(A), a part of Virginia's lottery law, authorizes the State Lottery Board to adopt regulations governing the conduct of the lottery and that the regulations adopted by the Board permit groups to claim lottery winnings. From all this, the Hughes Group concludes that [b]ecause under § 58.1-4007, the General Assembly through the State Lottery Board has authorized group claims to the proceeds of winning Lottery tickets, § 11-14 is inapplicable. We disagree with the Hughes Group. In the first place, it should not be necessary to point out that Code § 11-14 is not a part of Chapter 8, Article 1, of Title 18.2 of the Code and, therefore, that the operation of § 11-14 is unaffected by the provisions of Code § 18.2-334.3. Furthermore, what the Hughes Group is really saying is that by giving the State Lottery Board authority to adopt regulations, the General Assembly intended that the Board would have authority to repeal § 11-14 so far as lotteries are concerned. But that would be repeal by implication. Repeal of a statute by implication is not favored, and, indeed, there is a presumption against a legislative intent to repeal `where express terms are not used.' Albemarle County v. Marshall, 215 Va. 756, 761, 214 S.E.2d 146, 150 (1975) (quoting New Market & Sperryville Turnpike Co. v. Keyser, 119 Va. 165, 170, 89 S.E. 251, 253 (1916)). Finally, the Hughes Group argues that while Code § 11-14 may make gaming contracts void, the statute does not provide that such contracts are illegal. The Group then states that [e]ven if the agreement [in question] is a `gaming contract,' it is not illegal under Virginia law. Certainly, the Group continues, the purchase of the Lotto ticket in Virginia was entirely legal. Furthermore, the Group says, [o]ther state courts have routinely upheld agreements to share in the proceeds of a lottery ticket purchased in a state or country where the lottery was legal, even though lotteries were illegal in the forum state. [5] The difficulty the Group faces is that its argument and the out-of-state decisions it cites are at odds with a recent decision of this Court that is directly on point. Kennedy v. Annandale Boys Club, Inc., 221 Va. 504, 272 S.E.2d 38 (1980), was decided after the General Assembly legalized bingo games conducted by certain nonprofit organizations. The General Assembly decriminalized bingo games the same way it decriminalized lotteries, by providing that the statutes regulating gambling and imposing penalties for illegal gambling should not apply to the conduct it intended to permit in the future. See Code § 18.2-335 (1977) (now Code § 18.2-334.2). Ms. Kennedy sought a judgment for $6,000 she claimed she had won in a bingo game conducted by the Boys Club. The trial court sustained a demurrer to Ms. Kennedy's motion for judgment, holding that the contract she sought to enforce was void and, therefore, unenforceable under Code § 11-14. We affirmed, stating as follows: By statute, the General Assembly removed the taint of illegality from the operation of a bingo game by certain organizations and under certain conditions, and the taint of illegality from participating in and playing bingo, and in giving and receiving prizes and consideration incident thereto. However, the General Assembly did not repeal or amend Code § 11-14. While its action may be construed as legalizing bingo in that no criminal sanctions can be imposed upon those who either conduct or play the game, it nevertheless did not render valid and enforceable the contract between the operators of the game and those who play. The statute is couched in plain, unambiguous, and strict language. A gaming contract in Virginia is held to be a contract that is utterly void. A void contract is a complete nullity, one that has no legal force or binding effect. Id. at 506, 272 S.E.2d at 39. The Hughes Group states on brief that the General Assembly demonstrated its displeasure with the Kennedy trial court's decision by enacting [what is now] Va.Code § 18.2-340.9(H) [and] which provides in pertinent part, `the award of any prize money for any bingo game or raffle shall not be deemed to be part of any gaming contract within the purview of § 11-14.' However, the Group does not tell us how it became privy to the information that the General Assembly made the enactment out of displeasure with the trial court's decision. While the enactment was made subsequent to the trial court's decision, it was part of a sizeable overall revision of the statutes relating to bingo games, and nothing can be discerned from a reading of the text to indicate what motivated enactment of the provision. Unfortunately for the Hughes Group, the General Assembly did not include a similar provision when it legalized lotteries. The Hughes Group cites American-LaFrance & Foamite Indus., Inc. v. Arlington County, 169 Va. 1, 192 S.E. 758 (1937), as an instance where, the Group says, this Court refused to allow [a party] to avoid its obligation under [a] contract that was void because made in contravention of law. The Group, however, misreads our opinion. Indeed, we did not enforce the contract in American-LaFrance, and what we said there actually supports the action we take here. In American-LaFrance, Arlington County purchased fire-fighting equipment under a contract calling for a certain amount down with the balance to be paid in one, two, and three years. Title to the equipment was reserved in the seller until the purchase price was paid in full. The County made the down payment and one of the installments, but refused to pay the remainder because the contract had not been approved by the voters as required by statutory and constitutional provisions. The County continued to use the equipment even after it refused to pay the balance due. The seller filed with the County Board a claim for the rental of the equipment and a demand for its return. Upon the Board's denial, the seller appealed to the circuit court. The County filed a plea asserting that the entire transaction was illegal, contrary to public policy, and void. The trial court held that the seller was not entitled to any compensation for the use of the equipment or to its return but was entitled to a sale of the equipment, with the proceeds applied to the balance of the purchase price due under the contract. Both sides appealed. This Court reversed, stating that [i]f [a] contract is ... merely invalid, or is based upon a transaction involving no moral turpitude, and is simply contrary to some legal provision relating to the manner, method, or terms of its performance, with no penalty provided other than its invalidity, the court will not require performance of either the express contract or a contract by implication. In the latter class of cases, the courts have not declined to undertake to restore the status quo of the parties where in doing so no injustice is done to either party. The effort of the court is to promote justice and honesty without giving recognition to the contract. Id. at 9, 192 S.E. at 761 (emphasis added). The Court stated that while the contract in dispute was merely invalid and void, and not illegal[,] neither party [could] rely upon [it], or upon any of its provisions. Id. at 10, 192 S.E. at 762. However, recognizing the duty of the courts to render impartial justice and to implant the spirit of common honesty in dealings between men, id. at 14, 192 S.E. at 763, the Court held that the equipment should be returned to its owner, with consideration given both to compensation for its use while retained by the county, and to the payments made by it. We cannot lend our aid to promote any other condition any more than we can enforce the invalid contract, id. at 15, 192 S.E. at 764. There is simply no similarity between the situation in American-LaFrance and the circumstances of the present case. A return to the status quo here, i.e., a refund of the $10 contribution each member made to the purchase of lottery tickets, could not possibly be of any interest to the Hughes Group. Furthermore, to promote honesty and justice, we must give recognition to the agreement in dispute here, and this we are forbidden to do by both Code § 11-14 and American-La-France. Accordingly, we will affirm the trial court's action in granting the Coles' motion for summary judgment and dissolving the temporary injunction.