Karen's Cookie Carnival, Inc. v. West Virginia Lottery Commission ( 2022 )

FILED
December 6, 2022
EDYTHE NASH GAISER, CLERK
STATE OF WEST VIRGINIA SUPREME COURT OF APPEALS
SUPREME COURT OF APPEALS OF WEST VIRGINIA
Karen’s Cookie Carnival, Inc.,
Petitioner Below, Petitioner
vs.) No. 21-0896 (Kanawha County 21-AA-20)
West Virginia Lottery Commission,
Respondent Below, Respondent
MEMORANDUM DECISION
Petitioner Karen’s Cookie Carnival, Inc., appeals the Circuit Court of Kanawha County’s
October 6, 2021, order affirming the West Virginia Lottery Commission’s July 22, 2020, order
imposing a $92,100 penalty and revoking petitioner’s limited video lottery (“LVL”) license. 1 The
Commission’s order was based on its finding that petitioner accepted and held personal and payroll
checks from customers to allow the customers to play the LVL terminals on credit in violation of
West Virginia Code § 29-22B-702(10) and 179 C.S.R. § 5-35. Upon our review, we determine that
oral argument is unnecessary and that a memorandum decision affirming the circuit court’s order
is appropriate. See W. Va. R. App. Proc. 21.
Petitioner, which was under the same ownership and in the same location as Phillip Mann
Realty, Inc. (“Mann Realty”), obtained a LVL license in 2002. In 2009 petitioner was issued a
civil penalty warning letter for cashing patrons’ checks to be used in LVL terminals in violation
of West Virginia Code § 29-22B-702(10), which provides, in relevant part:
In addition to the general duties imposed on all licensees in § 29-22B-701 of this
code, a limited video lottery retailer shall: . . . (10) Provide no access by a player to
an automated teller machine (ATM) in the restricted access adult-only facility
where video lottery games are played, accept no credit card or debit card from a
player for the exchange or purchase of video lottery game credits or for an advance
of coins or currency to be utilized by a player to play video lottery games, and
extend no credit, in any manner, to a player so as to enable the player to play a
video lottery game; . . . .
In 2018, a former employee of petitioner reported that it was common practice for petitioner to
1
Petitioner is represented by Johnson W. Gabhart, and the Commission is represented by
Patrick Morrisey and Cassandra L. Means.
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accept checks and provide proceeds to patrons for LVL play. Following an investigation, by letter
dated July 16, 2018, the Commission assessed a $100 civil penalty against petitioner for a first
offense of extending credit in violation of § 29-2B-702(10).
In 2019, petitioner again came to the Commission’s attention when the Commission
received a complaint from another former employee of petitioner, who reported that petitioner was
cashing checks for certain LVL players. The Commission again investigated, obtaining financial
records for both petitioner and Mann Realty (because the vast majority of the checks at issue were
payable to Mann Realty), in addition to video footage from inside petitioner’s establishment and
information from witnesses. After conducting meetings, during which Phillip Mann appeared with
counsel, the Commission voted unanimously to issue a civil penalty to petitioner in the amount of
$92,100, which represented a fine of $100 per violation, and to revoke petitioner’s LVL license
for “blatant” and “egregious” violations of extending credit.
Petitioner requested a hearing, and a hearing examiner was appointed. The hearing
examiner held a two-day hearing in November and December of 2020, and issued his
recommended decision affirming the Commission’s order on February 1, 2021. By order entered
on February 24, 2021, the Commission adopted that recommended decision. This appeal stems
from the circuit court’s affirmation of the Commission’s order. This is an administrative appeal,
and, as this Court has long held, insofar as our review is governed by the same standards that apply
to the circuit court, we recognize that,
[u]pon judicial review of a contested case under the West
Virginia Administrative Procedure[s] Act, Chapter 29A, Article 5,
Section 4(g), the circuit court may affirm the order or decision of the
agency or remand the case for further proceedings. The circuit court
shall reverse, vacate or modify the order or decision of the agency if
the substantial rights of the petitioner or petitioners have been
prejudiced because the administrative findings, inferences,
conclusions, decisions or order are “(1) In violation of constitutional
or statutory provisions; or (2) In excess of the statutory authority or
jurisdiction of the agency; or (3) Made upon unlawful procedures;
or (4) Affected by other error of law; or (5) Clearly wrong in view
of the reliable, probative and substantial evidence on the whole
record; or (6) Arbitrary or capricious or characterized by abuse of
discretion or clearly unwarranted exercise of discretion.”
Syl. Pt. 2, Shepherdstown Volunteer Fire Department v. Human Rights Commission, 172 W. Va.
627, 309 S.E.2d 342 (1983). Accord, Texas E. Transmission, LP v. W. Virginia Dep’t of Env’t
Prot., Div. of Mining & Reclamation, 240 W. Va. 131, 137, 807 S.E.2d 802, 808 (2017).
On appeal, petitioner first asserts that the circuit court erred by concluding there was
substantial evidence in the record that petitioner knew or had reason to know that the proceeds of
cashed checks would be used solely to play LVL games. Petitioner does not dispute that 921 checks
were cashed in its establishment between January 5, 2018, and December 20, 2019, totaling
$277,663.94. One witness testified that she cashed her payroll checks at the petitioner business at
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least every week for a year, that “they [petitioner’s employees] knew I was going to use the cash I
received from them to play the poker machines,” and she was not a client of Mann Realty. Further,
petitioner’s counsel agreed at the hearing that it was “quite obvious,” given the proximity of the
counter to the machines in the petitioner business, that some people who cashed checks used the
money to play the LVL machines. Another witness admitted that all checks written by her and
accepted by petitioner were for the sole purpose of playing LVL games. 2 Based upon this evidence
and testimony, we find that petitioner has not shown that the Commission’s findings are in
violation of any of the standards set forth in Shepherdstown Volunteer Fire Department.
Petitioner next asserts that it did not “hold” checks and it, therefore, did not convert them
into credit instruments. However, this argument ignores the fact that, as the circuit court found
seven checks were postdated for a sufficient length of time to lead a reasonable person to believe
that the checks were being held to ensure sufficient funds in the patrons’ accounts. Furthermore,
seventy of the checks were held past petitioner’s typical weekly deposit cycle. Based on the large
number of postdated checks and “held” checks, we find that petitioner failed to show that the
Commission’s or the circuit court’s orders satisfy the Shepherdstown Volunteer Fire Department
standards.
Finally, petitioner argues that the imposition of a $92,100 fine and revocation of its license
is arbitrary and capricious and constitutes an abuse of discretion. West Virginia Code § 29-22B-
1602(f) provides:
For violating the provisions of subdivision (10), subdivision (13) or subdivision
(14) of section 29-22B-702 of this article, the limited video lottery retailer shall be
fined:
(1) One hundred dollars for a first violation;
(2) One thousand dollars for a second violation;
(3) Five thousand dollars for a third violation.
For each subsequent violation the fine imposed by the commission shall increase
by an additional five thousand dollars.
The $92,100 penalty was a “first violation” fine of $100 for each of the 921 checks. The
Commission did not graduate the monetary penalties to $1,000 or $5,000 for the subsequent
violations, which, by statute, it could have done, particularly because petitioner had been cited for
previous violations in 2009 and 2018. In addition, the Commission had the authority to revoke
petitioner’s LVL license pursuant to West Virginia Code § 29-22B-1601. 3 Moreover, the
2
Further, as the circuit court found, the preponderance of the evidence establishes that the
proceeds of the checks made out to Mann Realty were initially deposited in a Mann Realty account
and then transferred to petitioner’s account in order to fund its Lottery “sweep” account.
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The commission may impose the civil penalties provided for in this part 16. These
civil penalties may be imposed in conjunction with one or more other civil penalties
(Continued . . .)
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Legislature specifically set forth the following:
In addition to any other powers and duties set forth in this article or article 22 of
this chapter, the lottery commission has the following powers and duties: . . .
(12) Upon complaint, or upon its own motion, to levy civil penalties and to suspend
or revoke licenses that the lottery commission has issued for failure to comply with
any applicable provision of this article or rule of the commission; . . .
(17) To impose and collect civil penalties as provided for under this article; . . . .
W. Va. Code § 29-22B-402, in part. Under the statutory penalty scheme and the authority granted
to the Commission by statute, it is clear that the monetary penalty and revocation of petitioner’s
license are supported by substantial evidence or a rational basis. Syl. Pt. 3, Curry v. W. Va. Consol.
Pub. Ret. Bd., 236 W. Va. 188, 778 S.E.2d 637 (2015). Therefore, the Commission’s imposition
of the same is entitled to deference. Id. For these reasons, we find that petitioner is not entitled to
relief on this ground.
Affirmed.
ISSUED: December 6, 2022
CONCURRED IN BY:
Justice Elizabeth D. Walker
Justice Tim Armstead
Justice William R. Wooton
DISSENTING:
Chief Justice John A. Hutchison
Justice C. Haley Bunn
HUTCHISON, Chief Justice, dissenting, joined by Justice Bunn:
I dissent to the majority’s resolution of this case. I would have set this case for oral
argument to thoroughly address the error alleged in this appeal. Having reviewed the parties’
briefs and the issues raised therein, I believe a formal opinion of this Court was warranted—not a
memorandum decision. Accordingly, I respectfully dissent.
I am authorized to state that Justice Bunn joins me in this dissent.
provided in this part 16 and in conjunction with a license suspension or revocation
or other administrative action taken against a licensee, . . . .
W. Va. Code § 29-22B-1601, in part.
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