The title of West Virginia Lottery v. A-1 Amusement, Inc., No. 16-1047 (Nov. 13, 2017) alone may not give you an indication that this is a takings case, but yes, it’s a takings case. 

As the title might indicate, it’s a case involving the state-run lottery and video lottery machines. If we’re reading the details right, the lottery issued permits to the plaintiffs, after which they were instructed to use a different software program, and informed that using any other software would render their machines illegal. The amusement companies were not prepared to retool (they’d have to buy new machines, they alleged), and brought regulatory takings, due process, and civil conspiracy claims. 

The trial court refused to dismiss the complaint, concluding that damages for the takings and due process claims could not be limited to the lottery’s insurance policy limits, and that the lottery had waived its sovereign immunity on the conspiracy claim.

The West Virginia Supreme Court reversed the sovereign immunity holding regarding the conspiracy claim, but agreed with the trial court that the takings claim should proceed. The court concluded that that the way a property owner raises these type of claims is through a mandamus action to compel the government to institute condemnation.

It’s a long opinion with a pretty vociferous dissent, and we won’t go through the entire thing, but instead will focus on the takings stuff. The court first articulated the essence of the takings claim:

In Count I, the Permit Holders allege that the State Lottery had previously assured that the ICIS protocol would be functional for the full ten-year permit period. Further, the Permit Holders allege the State Lottery’s requirement that all LVL terminals be converted to the SAS protocol at the cost of the Permit Holders amounted to a taking under both the West Virginia and United States Constitutions because the failure to convert to the SAS protocol would render their LVL terminals economically useless and would even subject them to criminal penalties for continued possession.

Slip op. at 12. The court noted this was a taking of personal property and not real property, but that this doesn’t take it outside of the takings clause. Slip op. at 14 (“Discussing personal property we have observed, ‘[l]ong ago, this Court acknowledged that [the constitutional prohibition on takings without just compensation] ‘protects private property in personalty as fully as in real estate.” This conclusion is consistent with the view held by the Supreme Court as to the broad definition of what constitutes an interest in property.” (footnotes omitted). 

Having crossed that bridge, the court next dealt with the procedural question of how these issues get raised. Inverse condemnation is the way to go, and in West Virginia, that means you bring an action to compel condemnation:

Nevertheless, consistent with the United States Supreme Court’s broad interpretation of “property” for eminent domain purposes and the leanings implicit in our precedent, we find that the procedures outlined for eminent domain and inverse condemnation may be applied in this case where the Permit Holders seek just compensation for what they allege is a regulatory taking of their personal property.

Slip op. at 17-18 (footnotes omitted). Responding to the lottery’s argument that the West Virginia Constitution contains a provision which says that the State “shall never be made a defendant in any court of law or equity” (i.e., sovereign immunity), the court concluded that it was common under West Virginia law to use the mandamus process for inverse condemnation claims involving land, and there was no reason to not apply that same process to claims involving personal property. And you don’t have to formally file a writ proceeding (which were abolished in WVA back in the day). As long as the plaintiff seeks the right remedy compelling the government to institute condemnation, they’ll be okay, even if the plaintiffs here sought just compensation. The solution to that problem is to allow the plaintiffs to amend their complaint to seek the right remedy. 

Ultimately, the court left the merits question — did the lottery take the plaintiffs’ personal property — for another day:

We wish to make clear, however, that whether the State Lottery’s mandate compromised a property interest such that it amounted to a regulatory taking for which just compensation is required is not currently before this Court. Moreover, in issuing our new syllabus point recognizing the availability of eminent domain proceedings for a personal property taking, we make no judgment regarding whether the Permit Holders have asserted a viable cause of action in that regard.

Slip op. at 24.

The court treated the due process claims somewhat similarly. It held that if the plaintiffs sought invalidation of the regulation, there’s no sovereign immunity because the State’s purse isn’t going to be affected. But here, the plaintiffs sought money damages for due process violations, which the court characterized as a “constitutional tort” [sidebar: we understand where that term came from, but we dislike it nonetheless]. Thus, the court concluded that to the extent that the plaintiffs’ due process claims seek recovery beyond the amount of the State’s insurance coverage, the State is immune from payment of the excess, because that would impact the State’s money (and not the insurer’s). 

As we noted above, one Justice didn’t agree with the court’s takings analysis because takings is just for land and not personal property. He filed what in our opinion is a wrong (but fun-to-read) dissenting opinion that begins this way:

This was a simple case that the majority has 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. 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. The majority opinion not only agreed with the circuit court, but it went where no judicial opinion of this Court has ever gone in the history of this 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. 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.1

Dissent at 1-2.

Eminent domain and inverse condemnation are limited to real property, he concluded. To emphasize his point, the Justice noted: “The majority opinion resolved two other issues that pale in comparison to the profoundly catastrophic eminent domain ruling.”

Take that! 

We thought the U.S. Supreme Court settled this issue in Koontz and Horne. Or are we missing something? 

West Virginia Lottery v. A-1 Amusement, Inc., No. 16-1047 (W. Va. Nov. 13, 2017)