Court Opinion

ID: 2967595
Source: CourtListenerOpinion
Date Created: 2015-09-22 02:57:05.481303+00
Date Added: 2024-06-11T15:28:08.882874
License: Public Domain

PUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT

CLUB ASSOCIATION OF WEST VIRGINIA,      
INCORPORATED; CHRIS WAKIM;
FOUNDATION CORPORATION; BRADLEY
YEATER; TRUCKSTOP GAMES OF WV,
LLC; VIKING VENDING SERVICES,
LLC,
               Plaintiffs-Appellants,
                 v.
ROBERT E. WISE, JR., in his official
capacity as Governor of the State of             No. 01-2154
West Virginia; JOHN C. MUSGRAVE,
in his official capacity as the
Director of the West Virginia
Lottery Commission; WEST VIRGINIA
LOTTERY COMMISSION; HOWARD E.
HILL, JR., Colonel, in his official
capacity of the West Virginia State
Police,
                Defendants-Appellees.
                                        
            Appeal from the United States District Court
     for the Southern District of West Virginia, at Charleston.
             Charles H. Haden II, Chief District Judge.
                          (CA-01-634-2)

                      Argued: February 25, 2002

                       Decided: June 17, 2002

   Before WIDENER, WILLIAMS, and MOTZ, Circuit Judges.
2            CLUB ASSOCIATION OF WEST VIRGINIA v. WISE
Affirmed by published per curiam opinion.

                              COUNSEL

ARGUED: Richard B. Sandow, JONES, GREGG, CREEHAN &
GERACE, L.L.P., Pittsburgh, Pennsylvania, for Appellants. Thomas
Ryan Goodwin, Special Assistant Attorney General, GOODWIN &
GOODWIN, L.L.P., Charleston, West Virginia, for Appellees. ON
BRIEF: John P. Davis, III, JONES, GREGG, CREEHAN &
GERACE, L.L.P., Pittsburgh, Pennsylvania, for Appellants. Johnny
M. Knisely, II, Carrie Goodwin Fenwick, GOODWIN & GOODWIN,
L.L.P., Charleston, West Virginia, for Appellees.

                               OPINION

PER CURIAM:

   Club Association of West Virginia and other plaintiffs appeal the
District Court’s decision to dismiss the case pursuant to the Tax
Injunction Act, and, in the alternative, abstain pursuant to Railroad
Comm’n of Texas v. Pullman Co., 312 U.S. 496 (1941). They seek an
adjudication of the merits of their claims that, inter alia, the West Vir-
ginia Limited Video Lottery Act unconstitutionally infringes their
rights of free association, unbridled interstate travel, equal protection,
and due process. We affirm dismissal under the Tax Injunction Act,
28 U.S.C. § 1341.

                                    I.

   During a Special Session, the West Virginia legislature enacted,
and Governor Wise, the defendant below, signed, the West Virginia
Limited Video Lottery Act, W.Va. Code §§ 29-22B-101 et seq. 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 prolif-
eration of gambling in the State.1 Prior to this Act, notwithstanding
    1
   Section 29-22B-202 provides in part that the State can "control, own
and operate a video lottery by possessing a proprietary interest in the
             CLUB ASSOCIATION OF WEST VIRGINIA v. WISE                 3
the repeated attempts of the legislature to ban this type of gambling,
gambling machines were only prima facie illegal; evidence of their
use in illegal gambling had to be shown before they could be seized
and destroyed making enforcement difficult. As a result, the machines
proliferated in West Virginia clubs, taverns, and the like. The State
estimates that more than 13,000 of these machines were in West Vir-
ginia at the time of enactment.

   The Act features a licensing scheme having the following ele-
ments: 1) the act establishes four types of licenses, manufacturer’s,
operator’s, retailer’s, and service technician’s, each having its own fee
structure ranging from $100 for a service technician’s to $10,000 for
an operator’s license; 2) the licenses are awarded for renewable 10
year periods; 3) potential license holders are required to be West Vir-
ginia residents for a period of four years prior to application and dur-
ing the duration of the license; 4) 30 to 50% of the gross profits from
the operation of the machines are due to the State. W.Va. Code §§ 29-
22B-1102, 1103, 1401-8. Authority to carry out the licensing scheme
is given to the Lottery Commission. The Commission is allowed to
inspect all premises where video lottery machines are located, seize
illegal machines, books and records, and other papers. W.Va. Code
§§ 29-22B-402. The Lottery Commission must determine that poten-
tial licensees are of good character, honesty, and integrity before they
are licensed. The State Police are delegated the responsibility for
investigating these traits. W.Va. Code §§ 29-22B-502, 602.

   The statute also provides for criminal penalties. As of January 1,
2002, unlicenced video lottery machines are per se illegal and may be
seized at any time. W.Va. Code § 1801. Those who possess (actual
or constructive) unauthorized machines are subject to a mandatory
minimum of 1 year in jail and not less than $50,000 in fines. W.Va.
Code §§ 29-22B-1705.

   The State claims that this statutory scheme will result in $81 mil-
lion in increased revenue. When the statute is fully implemented with

main logic boards" and certain "memory chips" and "software" and "re-
lated materials."
4                CLUB ASSOCIATION OF WEST VIRGINIA v. WISE
the authorized 9,000 machines, the State would collect monies in
excess of $250,000 per day.

   Appellants are various individuals and organizations who fall into
4 classes: 1) those who are eligible to apply for a license; 2) those
who are currently ineligible because they are non-residents (whether
or not they intend to become so); 3) those who are eligible but will
soon lose eligibility because of an impending move out of West Vir-
ginia; and 4) current owners of video gambling machines located in
West Virginia. They seek declaratory and injunctive relief on the
grounds that the statute violates their rights under the First and Four-
teenth Amendments, the right of free travel, due process, and equal
protection under the Privileges and Immunities, Due Process, and
Equal Protection clauses, and the right to free interstate commerce.
With respect to the first claim, the Appellants allege that the vague
standards and delegation to the State Police to determine "good char-
acter" for potential licensees violates their right of freedom of associ-
ation.

                                      II.

   In an exhaustive opinion detailing the extensive history of illegal
gambling machines in West Virginia and the State’s repeated efforts
to curtail their use, the district court found that the West Virginia
Limited Video Lottery Act constituted a tax. See Club Ass’n. v. Rob-
ert Wise, 156 F. Supp. 2d 599, 613 (S.D.W. Va. 2001). As such, it
held that the Tax Injunction Act, 28 U.S.C. § 1341, barred the court’s
jurisdiction.2 In coming to its decision, the court reasoned that the
charges associated with licensure under the act "appear[ ] to be
imposed primarily for revenue generation purposes," and that the pro-
ceeds collected under the act "are placed into [a fund], which is ear-
marked for many causes beneficial to all West Virginians either
directly or indirectly," thus making the scheme "closely resemble[ ]
a classic tax." 156 F. Supp. 2d 613-4.
    2
     28 U.S.C. § 1341 provides:
        The district courts shall not enjoin, suspend or restrain the
        assessment, levy or collection of any tax under State law where
        a plain, speedy and efficient remedy may be had in the courts of
        such State.
             CLUB ASSOCIATION OF WEST VIRGINIA v. WISE                 5
   The court went on to detail other features of the statute that looked
like a "classic fee," and thus not subject to the Tax Injunction Act.
These countervailing features, such as the size of the population sub-
ject to the charges and the identity of the collector of the monies, were
relatively minor, but the court concluded that "the charge may fall
somewhere between the two extremes of a classic tax and classic fee."
156 F. Supp. 2d at 614. In reliance on our decision in Valero Terres-
trial Corp. v. Caffrey, 205 F.3d 130 (4th Cir. 2000), the court stated
that because the statute had features of both a tax and a fee "the most
important factor becomes the purpose behind the statute imposing the
charge." The court found that the statute’s purpose was to control a
segment of gambling the State had struggled with for years. The
enhanced control thus provided benefitted those people of West Vir-
ginia, presumably a large number, who view illegal gambling as a
problem worthy of legislative attention. Additionally, the court noted
again that the revenue derived from the statute was earmarked for
programs that would benefit the State’s populace as a whole. 156 F.
Supp. 2d 614. Accordingly, finding the state court’s doors open to
challenge the tax, the district court granted the defendant’s motion to
dismiss. 156 F. Supp. 2d 614-16.

   Having had the benefit of full briefing and oral argument, we are
of opinion, and decide, that the West Virginia Limited Video Lottery
Act is a tax for the reasons stated in the opinion of the district court.
Accordingly, the district court’s jurisdiction was barred by the Tax
Injunction Act, 28 U.S.C. § 1341.3

   The judgment appealed from is accordingly affirmed on the opin-
ion of the district court, Club Ass’n of West Virginia, Inc. v. Wise, 156
F. Supp. 2d 599 (S.D.W. Va. 2001), which we adopt as our own.

                                                            AFFIRMED
  3
    Because of our disposition, we do not consider the district court’s
alternative ruling regarding Pullman abstention.