9151166801_b2be467ee7_zIs a contract purporting to assign rights to place video gaming terminals in certain establishments from one unlicensed operator to another within the exclusive jurisdiction of the Illinois Gaming Board where the terminals had not yet been placed and began operation? In late September, a unanimous Illinois Supreme Court held that the answer was “yes,” affirming the Appellate Court in J&J Ventures Gaming, LLC v. Wild, Inc.

The General Assembly enacted the Video Gaming Act in 2009, legalizing the use of video gaming terminals within certain licensed establishments. The Act gave the Illinois Gaming Board jurisdiction to supervise all video gaming operations in the state. After a three-year start-up, video gaming actually began in Illinois in 2012. Shortly after the Act became effective, an unlicensed entity executed “Exclusive Location and Video Gaming Terminal Agreements” with the defendant establishments. In October 2010, it assigned its rights under the agreements to another unlicensed terminal operator. In July 2012, the Board denied the license application of the second unlicensed terminal operator (the entity which was then holding the contract rights). While the entity’s request for a hearing on the denial was pending, it assigned its rights under the agreements to the plaintiff in J&J Gaming. Not long after the assignments, the defendant establishments signed separate terminal agreements with a licensed terminal operator. The plaintiff responded by filing declaratory judgment actions.

Based upon the holding in Triple 7 Illinois, LLC v. Gaming & Entertainment Management-Illinois, LLC, the Circuit Court held that the assignments were not “use agreements” within the exclusive jurisdiction of the Gaming Board, and were therefore valid, binding and enforceable contracts. The Circuit Court therefore enjoined the licensed operator from operating terminals in the defendant establishments. The Appellate Court reversed, holding that the validity of the contracts was within the Gaming Board’s exclusive jurisdiction.

In an opinion by Justice Freeman, the Supreme Court affirmed the Appellate Court. The Court began by pointing out that there is no common law right under Illinois law to engage in or profit from gambling. The Video Gaming Act is therefore a limited exception to the general prohibition of gambling, and any contracts which fail to comply with the Act’s regulatory requirements are void.

The plaintiffs argued that the Act does not establish exclusive jurisdiction in the Gaming Board because it doesn’t expressly divest the Circuit Court of its jurisdiction. The Court disagreed. The Act constituted a comprehensive statutory scheme creating rights and duties with no counterpart in the common law or equity.   Taken as a whole, that scheme demonstrates the legislature’s intent that that Gaming Board have exclusive jurisdiction over the video gaming industry, and use agreements are a necessary prerequisite of engaging in that industry. The Act therefore confers exclusive jurisdiction on the Gaming Board to determine the validity and enforceability of any contracts which purport to control the location and operation of video gaming terminals.

The plaintiffs argued that their contracts were “precursor” contracts, not actual use agreements. But the Court held that the argument was defeated by the language of the contracts, which require the parties to obtain licenses and specifically provides that they take effect when the first video gaming termination operates in the licensed establishment – “a circumstance that cannot occur unless and until the parties are licensed and the Board has approved the agreements.” There was nothing preliminary about the agreements, so they fell within the Board’s exclusive jurisdiction.

Image courtesy of Flickr by Bob Shrader (no changes).