Opinion
Civil Action No. 5:02CV83 (STAMP)
March 30, 2004
FINDINGS OF FACT AND CONCLUSIONS OF LAW
I. Introduction
Petitioner, Wheeling Downs Race Track and Gaming Center, originally filed its petition for declaratory judgment relief in the Circuit Court of Ohio County, West Virginia against respondents, Paul A. Kovach ("Kovach"), Robert L. Whitlatch ("Whitlatch"), Kari Jo Klein ("Klein"), Internal Revenue Service ("IRS") and Child Support Enforcement Division of the State of West Virginia ("Child Support Enforcement Division").
At the time of the trial, the parties stipulated that the correct name of the petitioner is Wheeling Island Gaming, Inc. ("Wheeling Island").
The complaint asserts that the Child Support Enforcement Division of the State of West Virginia holds an abstract of judgment in favor of respondent Klein against respondent Kovach in the amount of $18,590.95, representing delinquent child support payments. Compl. at ¶ 20. However, Ms. Klein did not appear at any proceedings in this Court, including the trial, either in person or by counsel. Accordingly, all claims against her or on her behalf are DISMISSED.
By order dated March 28, 2003, this Court dismissed the Child Support Enforcement Division.
This civil action was then removed to this Court by respondent IRS. The parties seek to have the Court determine the rights of the respondents to a $90,400.73 jackpot won from a video lottery Keno machine at the Wheeling Island gaming facility on April 19, 2002. Wheeling Island is a corporation that, among other things, operates a video lottery gaming business in Wheeling, West Virginia. Respondent Whitlatch has claimed the jackpot winnings, asserting that at the time the machine "hit" the jackpot, respondent Kovach was playing the machine with Whitlatch's money and was, in effect, acting as an agent of Whitlatch. Kovach agrees with Whitlatch and maintains that the rightful winner is Whitlatch, not Kovach. Wheeling Island declined to pay the jackpot amount to Whitlatch but, instead, offered to pay the winnings to Kovach or, in the alternative, issue payment jointly to Kovach and Whitlatch. Both Kovach and Whitlatch declined both the offers and both maintain that payment should go to Whitlatch alone. Wheeling Island also confirmed that Kovach allegedly owed money to the IRS and that the IRS had several federal tax liens against Kovach. The IRS has filed a crossclaim in this action against Kovach seeking that this Court determine and adjudge, among other things, that Kovach has an interest in the jackpot of $90,400.73, plus interest, and that this interest is subject to three separate federal income tax liens which the IRS has on the property of Kovach in the amounts of $2,905.44, $32,537.56 and $77,103.71, for the tax years ending December 31, 1991, 1992 and 1993, respectively.
While this action was still pending in state court, Whitlatch filed a counterclaim against Wheeling Island contending not only that he was solely entitled to the jackpot winnings with interest, but also that he is entitled to compensatory damages for common law fraud, wrongful misrepresentation, breach of fiduciary duties by way of a constructive trust, intentional harassment, intimidation and wrongful discouragement from claiming his lawful winnings. However, at the time of the non-jury trial in this action, Whitlatch withdrew all of his claims for compensatory damages and now seeks only a determination by this Court that he is solely entitled to the jackpot winnings, plus interest thereon.
On July 8, 2003, this Court conducted a non-jury trial.
Based upon this Court's review of the evidence, upon the resolution of factual disputes after giving due consideration to both the credibility of the witnesses and the various documents produced, and based upon this Court's review of the applicable law, this Court, pursuant to Federal Rule of Civil Procedure 52(a), hereby makes the following findings of fact and conclusions of law, and finds that respondent Whitlatch is entitled to judgment in the amount of $90,400.73, with interest thereon, that respondent Kovach has no entitlement to the winnings; that the IRS has no recoverable right against Kovach; and that, therefore, the crossclaim of the IRS against Kovach shall be dismissed.
II. Findings of Fact
1. Wheeling Island is a corporation that operates, among other things, a video lottery gaming business in Wheeling, West Virginia.
2. Kovach resides in Wheeling, West Virginia.
3. Whitlatch resides in Moundsville, West Virginia.
4. The IRS is a branch of the United States Government responsible, in part, for collecting taxes and enforcing the tax laws of the United States, including, but not limited to, enforcing federal tax liens.
5. Wheeling Island's petition is filed pursuant to the Uniform Declaratory Judgments Act codified at West Virginia Code § 55-13-1, et seq., for the purpose of ascertaining the rights of the respondents to a $90,400.73 jackpot won at Wheeling Island's gaming facility in Wheeling on April 19, 2002 from a video lottery Keno machine.
6. For about five years prior to April 19, 2002, respondent Whitlatch had been a frequent gambling customer at Wheeling Island's gaming facility in Wheeling. During that time, he developed a personal system for playing the progressive Keno machines, which he estimated would enhance his chances of winning jackpot prizes.
7. As part of Whitlatch's system, he would make arrangements with other persons, once he chose a particular progressive machine, for those persons to continuously occupy and operate the machine to prevent others from playing that machine after Whitlatch saw that the prospects for a jackpot on the machine were starting to get high.
8. Part of Whitlatch's system consisted of watching the video lottery machines and keeping track of those that hit jackpots. He would then record the number on these machines and, to the extent possible, the time of day when a particular jackpot was "hit" on a machine.
9. Over a certain period of time prior to April 19, 2002, respondent Whitlatch had his father and a friend, Robert Colvin, play the video lottery machines for him using respondent Whitlatch's money and following Whitlatch's directions or, in the alternative, Whitlatch had these two men relieve him on a machine he was playing. All of this was done when Whitlatch observed that, in his opinion, the chances for a potential jackpot were increasing. Often Whitlatch and/or his father and Colvin would play from opening time, 9:00 a.m., until closing time, 3:00 a.m., sometimes for days or weeks at a time.
10. For example, when Whitlatch's father would play for his son, one of them would play for about one half of the day, starting at around 9:00 a.m. and the other would play during the second half of the day, until 3:00 a.m. the following morning.
11. Under the above arrangement, respondent Whitlatch would often be able to leave the Wheeling Island gaming facility and go to his home in Moundsville, West Virginia, a town near Wheeling, while still maintaining control of a particular machine at least to the extent that other patrons would not have access to the machine during that time.
12. Whitlatch provided all funds to his father and to Robert Colvin for their use in operating the machines and also gave them directions as to how to play the machines (i.e., what numbers to use). Neither Whitlatch's father nor Colvin were paid by Whitlatch for their operation of the machines for him.
13. During the ten-month period prior to April 19, 2002, Whitlatch had won four jackpots on video lottery machines at Wheeling Island. In two of those jackpots, Whitlatch's father was playing the winning machines and on both occasions, Wheeling Island paid the winnings directly to respondent Whitlatch. It would appear that Wheeling Island was not, on those occasions, aware that Whitlatch's father was operating the machine at the time these jackpots were hit. Further, Wheeling Island officials were apparently not aware of the arrangement, or the fact that respondent Whitlatch was not operating these machines when these jackpots were hit prior to April 19, 2002.
14. After April 19, 2002, Whitlatch won another jackpot and was paid half of the winnings by Wheeling Island although at the time Whitlatch was not seated at the machine at the time the jackpot was won. Instead, the machine was being played by another person, Hoya demons, pursuant to a prior agreement between Whitlatch and Mr. Clemons in which each contributed one-half of the money to be gambled and both agreed to split the jackpot.
15. Because Whitlatch's betting system required continuous play, Whitlatch on April 18, 2002 arranged for respondent Kovach to play a particular machine, Machine No. 5, beginning around 9:00 a.m. on April 19, 2002. On that date, Whitlatch played another nearby machine at the Wheeling Island facility. Whitlatch's arrangement with Kovach was that if a jackpot came up on the machine being operated by Kovach, Whitlatch would pay Kovach $1,000.00 from the amount of the jackpot being paid to Whitlatch. Whitlatch supplied Kovach with the money to operate the machine and told Kovach the numbers he should play. Kovach supplied none of his own money in the operation of the machine on April 19, 2002 and followed Whitlatch's instructions as to what numbers to play. Kovach merely sat at the machine and pushed the button.
16. No official of Wheeling Island was aware of the agreement that Whitlatch had with Kovach on April 19, 2002.
17. Wheeling Island's personnel were aware, however, that out of the seven or eight large jackpots which had been hit at the Wheeling Island gaming facility prior to April 19, 2002, respondent Whitlatch had won four or five of the jackpots and Wheeling Island officials considered Whitlatch's winnings "disproportionate." See Tr. at 35.
18. Wheeling Island, at least in part because of these prior events, undertook video surveillance of these progressive video machines on a 24-hour-a-day basis. The surveillance department was told to concentrate on respondent Whitlatch to determine if anything unusual would be observed.
19. On the morning of April 19, 2002, shortly after 9:00 a.m., Whitlatch first gave Kovach $100.00 to begin operating the machine. Kovach did not win anything, so Whitlatch gave Kovach a second $100.00 to operate the same machine. When the machine Kovach was operating again did not pay out any money, Whitlatch again gave Kovach $100.00. Kovach then continued to operate the machine during which time the "jackpot rang up." Kovach then went to Whitlatch who was operating an adjacent machine. Kovach was operating Machine No. 5; Whitlatch was operating Machine No. 4, next to Kovach's machine.
20. When Kovach originally started playing Machine No. 5 on the morning of April 19, 2002, Whitlatch had instructed him to play a certain set of numbers but later instructed Kovach to play a different set of numbers, telling Kovach to "go to the top row and play from one to nine." Tr. at 159. Kovach then continued to operate the machine using these numbers. At all times, Kovach followed Whitlatch's instructions and used only Whitlatch's money.
21. When Machine No. 5 hit the jackpot, Whitlatch assumed Kovach's seat.
22. At all times on April 19, 2002 that Kovach was operating the machine and after the jackpot was "hit," these machine operators were being videotaped by Wheeling Island. Whitlatch was aware of such videotape surveillance.
23. Before paying Whitlatch, Wheeling Island officials instructed the Wheeling Island surveillance department to review the surveillance videotapes in question on April 19, 2002. These tapes (Pl.'s Ex. 1) show that on April 19, 2002 when the No. 5 progressive machine hit the jackpot, lights came on, Kovach left his seat and walked behind a bank of machines. Whitlatch then took the seat at Machine No. 5.
24. Neither Whitlatch nor Kovach, prior the jackpot hit on Machine No. 5 on April 19, 2002, advised Wheeling Island of their arrangement — Whitlatch being entitled to the winnings and Kovach being entitled to $1,000.00 when the jackpot was hit. Wheeling Island was advised of the arrangement after the jackpot was hit on Machine No. 5.
25. Wheeling Island officials testified at the trial that it allows players to split jackpots when there may be joint pooling of funds based on an agreement to split the winnings. After Machine No. 5 hit the jackpot on April 19, 2002, Wheeling Island offered to split the proceeds between Whitlatch and Kovach. Whitlatch told Wheeling Island that he and Kovach had not agreed to share proceeds and that, therefore, they did not desire to split proceeds because Whitlatch's money was solely used to play Machine No. 5.
26. The Internal Revenue Service holds federal tax liens against Kovach, which have been duly recorded in the Office of the Clerk of the County Commission of Ohio County, West Virginia. Kovach agrees that he owes taxes to the IRS but testified that he was unable to pay them at that time. Whitlatch did not know of Kovach's tax liens on April 19, 2002.
27. Wheeling Island asserts that it has a "practice and long standing policy" to pay machine jackpot winnings only to the person actually seated and playing the machine when the jackpot is hit except that, as stated above, when two persons play together Wheeling Island will split the jackpot, paying one-half to each person, notwithstanding the practice of only paying the party seated at and playing the machine. Tr. at 14-17.
28. The policy or practice noted in Paragraph No. 27 above is not in writing and has never been posted or published (by leaflets, pamphlets, etc.) at Wheeling Island's gaming facility or elsewhere to inform the public, including Whitlatch, of Wheeling Island's alleged practice or policy. No verbal instructions or information were ever given to any gaming customers regarding this policy or practice.
29. Wheeling Island never disclosed any evidence that Whitlatch did anything illegal in the way he was playing or having the machine played in the sense that he altered or tampered with the machine or that Whitlatch or Kovach were involved in any tax avoidance scheme. Machine No. 5 was functioning properly at the time the jackpot was hit.
30. This is the only occasion according to the testimony of Scott Cooper, the President of Wheeling Island, that a jackpot has been withheld because of the payment issues that exist in this civil action.
31. Wheeling Island never reviewed or attempted to review any surveillance tape or tapes on any occasion where Whitlatch's father was seated at and playing a machine that hit the jackpot and the winnings were paid to respondent Whitlatch, not his father.
32. There is no way that a gaming customer at Wheeling Island would know of the above-stated practice or policy unless that customer was affected by the policy after winning a jackpot.
33. It is not uncommon for persons at Wheeling Island to have other people play for them.
34. No one at Wheeling Island told respondent Whitlatch of the above-mentioned policy or practice until after Machine No. 5 hit the jackpot on April 19, 2002.
35. Whitlatch then took possession of the ticket produced by the winning machine and taken from the machine by Wheeling Island's floor manager.
36. Wheeling Island personnel verified the jackpot. Whitlatch then signed a form as part of the process to claim the jackpot winnings.
37. Whitlatch presented the winning video lottery ticket to Scott Cooper, the manager of Wheeling Island, who at that time did not permit payment to be made. Instead, Whitlatch was told to return to Wheeling Island on April 22, 2002.
38. When Whitlatch returned to Wheeling Island on April 22, 2002, he was told by Mr. Cooper that the surveillance videotape had been reviewed and that the videotape reflected that Kovach, not Whitlatch, was seated at the machine when the jackpot was won. Wheeling Island, therefore, declined to tender payment to Whitlatch since he had not been seated at Machine No. 5 when that machine hit the jackpot.
39. Whitlatch and Kovach believe that Whitlatch is entitled to the entire jackpot payment and that Kovach is entitled to $1,000.00 under the terms of their agreement.
40. Wheeling Island has not made any payment pending a determination by this Court in this civil action.
41. Any finding made by this Court which is not a finding of fact shall be deemed a conclusion of law.
III. Conclusions of Law
1. This Court has jurisdiction over this civil action under 28 U.S.C. § 1444 and 2410(a). Venue is proper in this Court.
2. The Federal tax liens recorded by the Internal Revenue Service in the Office of the Clerk of the County Commission of Ohio County, West Virginia are valid. The subject taxes were timely assessed against Kovach.
3. The exhibits reflecting Kovach's tax liabilities for the years 1989 through 1993 were properly admitted, without objection. Fed.R.Evid. 902(1).
4. The public policy of West Virginia prohibits gambling on lotteries or games of chance except those lotteries regulated, controlled, owned and operated by the State of West Virginia in the manner provided by general law, W. Va. Const. Art. VI, § 36.
5. The West Virginia Legislature in 1985 enacted the "State Lottery Act," W. Va. Code § 29-22-1, et seq., the expressed purpose of which is to "establish and implement a state-operated lottery under the supervision of the state lottery commission and the director of the state lottery office who . . . hold broad authority to administer the system in a manner which will provide the state with a highly efficient operation." W. Va. Code § 29-22-2.
6. In 1994, the West Virginia Legislature enacted the "Racetrack Video Lottery Act," W. Va. Code § 29-22A-1, et seq., which declared that video lottery games authorized under that article were "lotteries" as that term is understood and used in Article VI of the West Virginia Constitution, which grants to the Legislature the authority to establish, by general law, the manner of regulation, control, ownership, and operation of lottery games in West Virginia. That statute regulates video gambling. The "Limited Video Lottery Act," W. Va. Code § 29-22B-101, et seq., was enacted in 2001.
7. West Virginia Code § 29-22A-9(f)(10) provides as follows:
(f) The specific duties required of all licensed racetracks are as follows:
(10) Pay for all credits won upon presentation of a valid winning video lottery ticket; . . . .
W. Va. Code § 29-22A-9(f)(10).
8. West Virginia Code § 29-22A-13(a)(4) provides as follows:
(a) No payment for credits awarded on a video lottery terminal may be made unless the ticket meets the following requirements:
(4) The ticket is presented by a person authorized to play video lottery pursuant to this article.
W. Va. Code § 29-22A-13(a)(4).
9. West Virginia Code § 29-22A-3(w) of the Racetrack Video Lottery Act provides as follows:
"Player" means a person who plays a video lottery game on a video lottery terminal at a racetrack licensed by the commission to conduct video lottery games.
10. The Racetrack Video Lottery Act further defines a "video lottery game" as "a commission approved, owned and controlled electronically simulated game of chance which is displayed on a video lottery terminal and which
(3) Allows a player to win additional game play credits, coins or tokens based upon game rules which establish the random selection of winning combinations of symbols or numbers or both and the number of free play credits, coins or tokens to be awarded for each winning combination of symbols or numbers or both.
(5) In the case of a video lottery game which allows the player an option to select replacement symbols or numbers or additional symbols or numbers after the game is initiated and in the course of play, either: (A) Signals the player prior to any optional selection by the player of randomly generated replacement symbols or numbers, as to which symbols or numbers should be retained by the player to present the best chance, based upon probabilities, that the player may select a winning combination; (B) signals the player, prior to any optional selection by the player of randomly generated additional symbols or numbers, as to whether such additional selection presents the best change, based upon probabilities, that the player may select a winning combination; or (C) randomly generates additional or replacement symbols and numbers for the player after automatically selecting the symbols and numbers which should be retained to present the best chance, based upon probabilities, for a winning combination, so that in any event, the player is not permitted to benefit from any personal skill, based upon a knowledge of probabilities, before deciding which optional numbers or symbols to choose in the course of video lottery game play;
(6) Allows a player at any time to simultaneously clear all game play credits and print a redemption ticket entitling the player to receive the cash value of the free plays cleared from the video lottery terminal;
W. Va. Code § 29-22A-3(y)(3), (5) and (6).
11. Wheeling Island argues that on April 19, 2001, Whitlatch was not a "player" as defined by the statute, but that he was merely a person who controlled the player, Kovach, and that, therefore, he is not entitled to the jackpot, at least not the full amount.
12. This Court disagrees. West Virginia Code § 29-22A-3(w), which defines a "player" is, in this Court's opinion, ambiguous, or at the very least, circular (i.e., a "player" is a "player"). This statute in no way prevents a person like Kovach from operating a video lottery machine as an agent or representative of Whitlatch or, stated another way, says that a person like Whitlatch who provided the money and operating instructions to Kovach under an undisputed agreement as set forth above, would not be entitled to the jackpot as agreed upon by Kovach and Whitlatch.
13. Since West Virginia Code § 29-22A-3(w) defines a "player" as a "person," it should be noted that § 29-22A-3(v) defines a "person" as meaning "any natural person, corporation, association, partnership, limited partnership, or other entity, regardless of its forum, structure or nature." No reasonable reader of the statute would interpret it to mean that each member of a partnership or association would be required to be situated at and playing a machine in order to be entitled to a jackpot or other prize.
14. It is clear that even if Wheeling Island had a policy or practice that would prevent payment of the jackpot to Whitlatch or, for that matter, any other person having another person operate a machine, such a policy was not in writing and, significantly, was never made known to Whitlatch, Kovach, or any other Wheeling Island gaming customer or visitor at any time.
15. If Wheeling Island had wanted to limit payments of jackpots, or any prizes to only that person seated at and operating the video lottery machine at the time the machine signaled a jackpot (or the award of any other prize), it could have easily done so by committing the rule to writing and giving appropriate notice of such rule to its gaming customers. Wheeling Island did not do so.
16. Similarly, if the West Virginia Lottery Commission created under West Virginia Code § 29-22-4, and authorized, among other things, to "[e]stablish rules for conducting lottery games, a manner of selecting winning tickets and manner of payment of prizes to the holders of winning tickets," pursuant to West Virginia Code § 29-22-5(a)(2), wanted to promulgate a rule or regulation that would have prohibited payments to individuals like Whitlatch who acted under the above-stated arrangement, it could have easily done so, as long as the adopted rule was reasonable and consistent with the law. There is no evidence that the lottery commission ever did so.
17. If the West Virginia Legislature in enacting the State Lottery Act, the Racetrack Video Lottery Act, or the Limited Lottery Act had wanted to provide for the above-mentioned prohibition, it could have done so. However, no such prohibition exists, either through enactment of these statutes or later amendment's thereto.
18. While Wheeling Island argues that the "oral agreement between Robert Whitlatch and Paul Kovach operated in such a manner as to circumvent the intent of the Legislature and violate the public policy of fair play and opportunity for customers and patrons of Wheeling Island Gaming, Inc.," there is no evidence in the record that this, in fact, occurred. See Joint Findings of Fact and Conclusions of Law Submitted on Behalf of Pet'r Wheeling Island Gaming, Inc. and Def. Internal Revenue Service, Proposed Conclusions of Law ¶ 18.
19. While Wheeling Island argues that when Whitlatch agreed to pay Kovach under the above-stated arrangements, "the two men were, in essence, separating wagering and gambling among themselves and participating in an unauthorized and unregulated game of chance," Id. ¶ 19, there is insufficient evidence in the record to support that claim, particularly in the absence of any clear definition by statute or regulation, and in light of the fact that Wheeling Island never put any of its customers, including Whitlatch, on notice as to its alleged longstanding practice and policy.
20. Wheeling Island further asserts, apparently in support of its alternative position, that it is willing to pay Whitlatch 50% of the jackpot and Kovach 50% of the jackpot, and that there are instances in the state video lottery where sharing a prize is appropriate, citing to West Virginia Code § 22-9(b) (10), which provides that when there is a "binding determination by the commission that more than one person is entitled to a particular prize, the sole remedy of the claimants shall be the award to each of them of an equal share in the single prize." But here there is no evidence of any binding determination by the commission and Whitlatch is the only claimant. Indeed, Kovach disclaims any interest in the payment of the jackpot from Wheeling Island. Kovach has, at most, a claim to $1,000.00 to be paid by Whitlatch not by Wheeling Island. In addition, the situation in this case is different from the situation described in paragraph 14 above in which Whitlatch and Hoya Clemons had a prior agreement that each person would put in one-half of the money to be gambled and they agreed to then split the jackpot.
21. Based upon the above findings of fact and conclusions of law, respondent Robert L. Whitlatch alone is the appropriate winner of the April 19, 2002 video lottery Keno machine jackpot in the amount of $90,400.73 as Paul A. Kovach has no direct interest in the payment to be made by Wheeling Island to Whitlatch.
22. No amount of this jackpot is subject to the three federal tax liens related to Paul A. Kovach. This Court makes no finding as to whether the $1,000.00 which Whitlatch has agreed to pay Kovach is subject to any IRS lien. The crossclaim of the IRS against Kovach is DISMISSED.
23. Respondent Whitlatch is also entitled to recover pre-judgment interest on the above-stated amount of damages awarded to the plaintiffs pursuant to the applicable West Virginia statute. Since no specific amount of pre-judgment interest has previously been presented to this Court, the parties shall confer and attempt to agree upon the amount of pre-judgment interest to be awarded. The parties shall then present a stipulated amount to this Court within ten days from the date of the entry of these findings of fact and conclusions of law. If the parties cannot agree as to the amount of pre-judgment interest, then each party shall, within ten days from the date of the entry of these findings of fact and conclusions of law, present to this Court a written statement as to that party's detailed calculation of the amount of pre-judgment interest that each party contends shall be awarded as well as a detailed statement of the factual and legal basis for such calculation. This Court will then enter a supplemental judgment order as to the amount of pre-judgment interest.
24. Therefore, judgment is awarded to Robert L. Whitlatch in the amount of $90,400.73, with prejudgment interest thereon. Post judgment interest shall accrue under the applicable federal statute. Judgment is awarded to Robert L. Whitlatch on the crossclaim filed by the Internal Revenue Service.
25. Any conclusion by this Court which is not a conclusion of law shall be deemed a finding of fact.
Pursuant to Federal Rule of Civil Procedure 58, the Clerk is DIRECTED to enter judgment on this matter.
IT IS SO ORDERED.
The Clerk is DIRECTED to transmit a copy of these findings of fact and conclusions of law to counsel of record herein.