CHARLESTON – The West Virginia Supreme Court of Appeals said that the West Virginia State Lottery did not waive its rights to sovereign and qualified immunity.

The appeal concerns a dispute between the West Virginia State Lottery and certain permit holders who were issued permits to operate limited video lottery game terminals, according to the Nov. 13 opinion.

“The dispute arose after the State Lottery instructed the permit holders that they would be required to use a different software program at their expense,” Justice Beth Walker wrote in the majority opinion. “The permit holders sued both the State Lottery and IGT, the vendor responsible for manufacturing the software.”

The permit holders allege a taking without just compensation, deprivation of property without due process, and civil conspiracy.

“On appeal, the State Lottery challenges the circuit court’s denial of a motion to dismiss on the grounds that it waived its sovereign and qualified immunity defenses,” Walker wrote. “Further, the State Lottery alleges that the circuit court erred because it did not require the permit holders to limit their claims for constitutional violations to the limits of the state’s insurance policy.”

Walker authored the majority opinion. Justice Robin Jean Davis dissented and authored a separate opinion.

The Supreme Court concluded that the State Lottery did not waive its rights to sovereign and qualified immunity.

With respect to the specific allegations contained in the permit holders’ amended complaint, the court found that the appropriate procedure seeking just compensation through the process of inverse condemnation, is for the permit holders to file a complaint seeking a writ of mandamus requiring the State Lottery to institute condemnation proceedings.

The court also found that to the extent that Count II seeks money damages from the state treasury it is barred by sovereign immunity unless the insurance policy exception is invoked, in which case recovery is limited to the limits of the state’s insurance policy.

The court found that because “Counts II and VII are claims brought under the insurance policy exception, the State Lottery may assert qualified immunity as a defense.”

“Because the circuit court did not make any findings or inquiries relating to qualified immunity, this case must be remanded for an exposition and determination on the facts pertinent to that issue,” Walker wrote. “Accordingly, we affirm in part, reverse in part, and remand this matter to the circuit court for determination of whether the State Lottery is qualifiedly immune from Counts II and VII under these circumstances.”

In 2012, the State Lottery informed the permit holders that it would no longer license or support ICIS and SAS protocols as of Dec. 31, 2015.

Later, the State Lottery negotiated with IGT to extend the ICIS protocol compatibility through the end of 2017.

In a newsletter to the permit holders, the West Virginia Lottery advised that ICIS protocol terminals would be inoperable on Jan. 1, 2018, and that any costs incurred in the conversion to the SAS protocol would be borne by operators, retailers and/or permit holders.

“If the permit holders chose not to convert their terminals to the SAS protocol, those LVL terminals would be considered illegal gaming devices under the Act, as they would no longer be under the purview of the West Virginia Lottery,” the opinion states. “The permit holders filed a civil action against the State Lottery as well as IGT.”

The permit holders filed a lawsuit against the State Lottery. The State Lottery filed a motion to dismiss the complaint arguing, among other things, that the claims were barred because the pleadings were insufficient for failure to limit the recovery sought to the state’s insurance coverage.

Walker wrote that qualified immunity is available to the State Lottery as a defense to claims brought under the insurance policy exception to sovereign immunity, which would include both the permit holders so-called “constitutional tort” claim for violation of due process as well as their civil conspiracy claim.

“However, because the circuit court deemed immunity waived, there are no findings of fact and conclusions of law for our review,” Walker wrote. “These inquiries necessarily impact the application of qualified immunity for discretionary acts, and we have insufficient facts before us to make that determination. For that reason, we remand to the circuit court for it to determine whether or not the State Lottery is entitled to qualified immunity for Counts II and VII, which were brought under the authority of West Virginia Code § 29-12-5.”

Walker wrote that the court affirmed the circuit court’s holding that the measure of damages under the takings clause is just compensation rather than insurance policy limits, but determine that an inverse condemnation action is the appropriate procedure for seeking redress for the permit holders.

“We reverse the circuit court’s holding that the State Lottery waived its rights to assert sovereign and qualified immunity,” Walker wrote. “Further, the circuit court erred by not requiring that the Permit Holders’ due process claim for money damages be limited to the applicable insurance policy limits. Finally, we remand with instructions for the circuit court to make qualified immunity determinations consistent with this opinion.”

In her dissent, Davis said the case was a simple case that the majority transformed into a fiscal nightmare for the State treasury and its taxpayers.

“In this proceeding, the circuit court ruled that the plaintiffs did not have to limit their ‘takings’ claim for relief to the insurance policy limits provided by the Lottery Commission,” Davis wrote. “The circuit court found that, because the plaintiffs’ theory of liability was grounded on the Takings Clause of the State Constitution, the plaintiffs are entitled to receive whatever amount of compensation a jury decides to award them.”

Davis said the majority opinion not only agreed with the circuit court, but it went where no judicial opinion of the court has ever gone in the history of the state.

“That is, the majority of the court has now ruled that all claims against the State for injury to personal property unrelated to real estate must be litigated as an eminent domain proceeding under W. Va. Code § 54-2-1 et seq,” Davis wrote. “Such a decision is fiscally irresponsible because it extends the concept of condemnation to arenas where no one could have fathomed it would ever apply and will undoubtedly be financially devastating to this State. For the reasons set out, I firmly dissent.”

Davis said the implications of the majority’s rogue opinion are fiscally frightening.

“I urge the Legislature to act quickly to undo the potentially catastrophic financial consequences to the State that could result from the majority’s absurd and patently unfounded decision,” Davis wrote. “For example, the hundreds of personal property cases against the State that are yearly litigated in the former Court of Claims can now, thanks to the majority’s opinion, be brought as inverse condemnation actions to force the State to institute condemnation proceedings.”

Davis said the Legislature must make clear that which has always been clear until the majority inexplicably blurred the unmistakable line.

“Therefore, I implore the Legislature to swiftly enact legislation that prohibit a party from bringing an inverse condemnation proceeding to require the State to condemn purely personal property that is unrelated to the taking of land,” Davis wrote. “The sanctity of our State’s coffers depends on it.”

W.Va. Supreme Court of Appeals case number: 16-1047

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