Opinion ID: 745343
Heading Depth: 1
Heading Rank: 1

Heading: history and background

Text: Lotteries in various forms have been a part of the American life since colonial times. Among the beneficiaries of early colonial lotteries were such notable institutions as Harvard and Yale Universities. However, until the early 1980's, States have traditionally been suspicious of lotteries believing them to be potentially injurious to their citizens. Congress has long supported state efforts to closely regulate lotteries or ban them entirely. State attitudes toward lotteries began to change in part because of taxpayer resistance to the imposition of new taxes and state needs for new sources of revenue. A substantial majority of states have now enacted some form of state lottery. In 1992, Texas established a state lottery which is operated by the Texas Lottery Commission (TLC). This case arose when the TLC refused to honor a winning lottery ticket bought through the services of a private corporation by an out-of-state player. Before 1994, the sale of lottery tickets in interstate commerce was controlled by: 1) 18 U.S.C. § 1084(a), which made it illegal for one engaged in the business of betting or wagering to knowingly use a wire facility for transmitting bets or wagers in interstate commerce; 2) 18 U.S.C. § 1301, which made it illegal to physically carry lottery tickets in interstate commerce; and 3) 18 U.S.C. § 1953, which made it illegal to transport wagering paraphernalia in interstate commerce. These code sections created a web which, under most circumstances, adequately protected state lottery monopolies. However, Pic-A-State, a Pennsylvania Corporation with its principal place of business in New Jersey, was able to exploit a loophole 2 in this web by creating a computer network between its agents in every lottery state and transmitting its customer's lottery ticket orders over that network. Pic-A-State's operation enabled its customers to legally purchase a chance in any lottery in the nation. Because Pic-A-State's operation potentially affected each state's stream of lottery revenues 3 and prevented each state from maintaining exclusive control over its lottery, the states lobbied Congress to close this loophole by amending the code. 4 On September 13, 1994, Congress enacted the Interstate Wagering Amendment as part of the Violent Crime Control and Law Enforcement Act of 1994. This amendment closed the loophole through which Pic-A-State was operating by revising 18 U.S.C. §§ 1084, 1301, and 1953. Pic-A-State promptly challenged the constitutionality of the Interstate Wagering Amendment in the Federal District Court for the Middle District of Pennsylvania (Pennsylvania Court). Pic-A-State also sought to enjoin the enforcement of the revised code sections until the merits of its challenge could be heard. Because, it met the dual burdens of showing irreparable harm and the probability of success on the merits the Pennsylvania Court enjoined the Department of Justice (DOJ) from enforcing revised code sections against Pic-A-State. In November 1994, while the injunction was in effect, Scott Wenner bought two Texas Lottery tickets for face value plus a one-dollar per ticket service charge from a Pic-A-State outlet in Croyden, Pennsylvania. One of Wenner's tickets matched all six numbers drawn by the TLC, entitling Wenner to the grand prize of $10,000,000. Wenner promptly claimed his prize. In January, 1995, the TLC refused to honor Wenner's claim alleging violations of both federal and Texas law. In February 1995, the Pennsylvania Court denied Pic-A-State's constitutional challenge to the Interstate Wagering Amendment and dissolved the injunction. The Third Circuit affirmed and Pic-A-State ultimately dissolved. Wenner filed suit in the Southern District of Texas seeking a declaratory judgment that his winning ticket was valid and an order enforcing the contract arising therefrom. BDM Enterprises, which sold the actual lottery ticket, intervened seeking its one-percent seller's bonus. The TLC raised a number of defenses, most notably: 1) Wenner purchased his ticket in violation of the Interstate Wagering Amendment; 2) Wenner purchased his ticket in violation of various sections of the Texas Lottery Code; and 3) Wenner's claim against the TLC was barred by sovereign immunity. 5 Both parties moved for summary judgment. The district court granted summary judgment in favor of the TLC. It reasoned that, despite the pendency of the injunction, Wenner's purchase of the ticket through Pic-A-State violated the Interstate Wagering Amendment and therefore the resulting contract was unenforceable. We disagree with the district court and therefore reverse and remand.