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Family Amusement of Northern Illinois, Inc. v. Accel Entertainment Gaming LLC

Court of Appeals of Illinois, Second District

January 19, 2018

FAMILY AMUSEMENT OF NORTHERN ILLINOIS, INC., and RICHARD E. GRAP, Plaintiffs-Appellees,
v.
ACCEL ENTERTAINMENT GAMING LLC, f/k/a Accel Entertainment, LLC, and Accel Gaming LLC; THE ILLINOIS GAMING BOARD; DONALD R. TRACY, HECTOR ALEJANDRE, THOMAS A. DUNN, and DEE ROBINSON, in Their Official Capacities as Members of the Illinois Gaming Board; and MARK OSTROWSKI, in His Official Capacity As Administrator of the Illinois Gaming Board, Defendants The Illinois Gaming Board; Donald R. Tracy, Hector Alejandre, Thomas A. Dunn, and Dee Robinson, in Their Official Capacities as Members of the Illinois Gaming Board; and Mark Ostrowski, in His Official Capacity as Administrator of the Illinois Gaming Board, Defendants-Appellants.

         Appeal from the Circuit Court of Winnebago County. No. 16-L-174 Honorable J. Edward Prochaska, Judge, Presiding.

          JUSTICE SCHOSTOK delivered the judgment of the court, with opinion. Justices Hutchinson and Birkett concurred in the judgment and opinion.

          OPINION

          SCHOSTOK JUSTICE

         ¶ 1 This is an appeal from the trial court's rulings of February 1, 2017, which denied the request of the defendants the Illinois Gaming Board and its members (collectively, the Gaming Board or the Board) to dismiss the counts against them in the complaint filed by the plaintiffs, Family Amusement of Northern Illinois, Inc. (Family), and Richard E. Grap (collectively, FA), and granted summary judgment in favor of FA on one of its requests for declaratory judgment. We affirm in part and reverse in part.

         ¶ 2 I. BACKGROUND

         ¶ 3 In 2009, the legislature enacted the Illinois Video Gaming Act (Act) (230 ILCS 40/1 et seq. (West 2016)). The Act created a comprehensive regulatory scheme legalizing, for the first time, gambling via video-gaming terminals. See J&J Ventures Gaming, LLC v. Wild, Inc., 2016 IL 119870, ¶ 3. The Act gave the Gaming Board broad powers to supervise video-gaming operations. Id. ¶ 32. Under the statute, the Gaming Board "has all powers necessary and proper to effectively execute the provisions of the Act, " including "the authority to adopt regulations for the purpose of administering the Act and 'to provide for the prevention of practices detrimental to the public interest and for the best interests of video gaming.' " Id. ¶ 3 (quoting 230 ILCS 40/78(a)(3) (West 2014)).

         ¶ 4 Section 45(a) of the Act requires licensing by the Gaming Board for any person or entity wishing to manufacture, distribute, supply, operate, or handle video-gaming terminals and for any establishment wishing to have a video-gaming terminal on its premises. 230 ILCS 40/45(a) (West 2016). The Gaming Board cannot issue a license to any person having "a background, including a criminal record, reputation, habits, social or business associations, or prior activities that pose a threat to the public interests of the State or to the security and integrity of video gaming." 230 ILCS 40/45(d)(1) (West 2016). The Act provides that the Board "may adopt rules to establish additional qualifications and requirements to preserve the integrity and security of video gaming in this State." 230 ILCS 40/45(e) (West 2016).

         ¶ 5 In early 2016, the Gaming Board adopted section 1800.330(b) of Title II of the Illinois Administrative Code (Video Gaming Rule 330), which allows the Board, after an investigation, to enter an order of "economic disassociation, " essentially requiring a licensee to stop doing business with a specified person. See 11 Ill. Adm. Code 1800.330(b) (eff. Jan. 27, 2016). Persons from whom a licensee can be ordered to disassociate are identified in section 1800.220 of the Illinois Administrative Code (Video Gaming Rule 220) and include anyone who acts as a sales agent or broker for the licensee or who "otherwise engage[s] in the solicitation of business from current or potential licensed video gaming locations." 11 Ill. Adm. Code 1800.220(a), (e)(2) (eff. Feb. 16, 2016). The Gaming Board can issue a disassociation order under the same circumstances that would justify the denial of a license under section 45(d) of the Act or section 9 of the Riverboat Gambling Act (230 ILCS 10/9 (West 2016)). 11 Ill. Adm. Code 1800.330(c) (eff. Jan. 27, 2016). Any person affected by a disassociation order can request an administrative hearing to contest it. 11 Ill. Adm. Code 1800.330(b) (eff. Jan. 27, 2016).

         ¶ 6 Defendant Accel Entertainment Gaming, LLC (Accel), is a licensed terminal operator under the Act and may own, service, and maintain video-gaming terminals. Family is in the business of supplying "nongaming amusements" and devices, including coin-operated video-game machines, jukeboxes, dart boards, pool tables, and the like. This "soft equipment" is not subject to oversight under the Act. Grap is Family's sole shareholder. Grap is a licensed terminal handler under the Act. However, Family is not licensed to own, operate, distribute, supply, or service video-gaming terminals.

         ¶ 7 In 2010, Accel and FA entered into a referral contract under which FA agreed to serve as a sales agent, soliciting sites for the placement of Accel's video-gaming terminals. Once FA obtained a commitment for a site, the site's owner and Accel would enter into a "terminal" or "use" agreement governing the actual placement of the video-gaming terminal. Under the referral contract, FA received commissions for successfully obtaining new sites for terminals and for renewals of terminal agreements, and it received ongoing monthly payments based on the total number of terminals in place. In addition, FA was to receive a large bonus for each terminal 10 years after the date on which the terminal "went live." The first terminals "went live" in 2013, so the first such bonus payment was not due until 2023.

         ¶ 8 On May 25, 2016, Grap was arrested and charged with the crime of possessing multiple illegal gambling devices that were found in FA's warehouse, a violation of section 35(a) of the Act (230 ILCS 40/35(a) (West 2016)). (Section 35(a) requires all video-gaming terminals to be licensed and prohibits the possession of certain types of gaming devices, including those capable of removing credits that were awarded through the operation of chance.) As a result of this arrest, on June 2, 2016, the Gaming Board voted to issue Accel a disassociation order (Disassociation Order or Order) regarding FA.

         ¶ 9 The Order was issued on June 6, 2016, and required Accel to immediately "economically disassociate" from FA. In the Order, the Gaming Board stated that it was invoking its authority under Video Gaming Rule 330. The Order also cited section 45 of the Act and section 9 of the Riverboat Gambling Act.

         ¶ 10 The Order required Accel to confirm that it had disassociated from FA. In addition, the Order prohibited Accel from making "any additional payments" to FA. The Order concluded by advising Accel and FA that they had the right to file responses within 21 days and that, if they did so, a hearing officer would be appointed and a hearing would be held.

         ¶ 11 The language barring Accel from making "any additional payments" to FA proved to be a flash point. Although the Gaming Board did not know this when it entered the Order, in addition to serving as a sales agent for Accel under the referral contract, FA had several other agreements with Accel, some of which FA contended were unrelated to gaming. (These agreements are detailed below.) In complying with the Order, Accel not only ceased employing FA as a sales agent, it stopped making payments under all of these agreements.

         ¶ 12 FA reacted swiftly. On June 17, 2016, FA filed a lawsuit in the circuit court of Winnebago County against Accel and the Gaming Board. The two counts directed against the Gaming Board sought (1) judgments declaring that the Gaming Board had exceeded its statutory authority in issuing the Disassociation Order and that, even if it had not, the Order was void, and (2) an injunction preventing the Gaming Board from enforcing the Order or requiring the cessation of payments from Accel to FA. FA also filed a petition for a temporary restraining order (TRO). On June 21, the trial court heard oral argument on the petition for a TRO and denied it.

         ¶ 13 A week later, FA also took action in the administrative proceeding, filing responses to the Disassociation Order. The responses noted that Grap was contesting the criminal charges against him and denied that the business relationship between FA and Accel posed a threat to the integrity of gambling in Illinois. FA also asked that the administrative proceeding be stayed until the criminal charges against Grap had been resolved. The Gaming Board agreed to stay the administrative proceeding pending resolution of the criminal charges.

         ¶ 14 FA then filed an amended complaint in the circuit court. Four of the six counts were directed to Accel and alleged that Accel had breached various agreements with FA, including (1) the referral contract (as amended over time); (2) a promissory note in the amount of $1, 035, 000, representing a debt owed by Accel to FA under the referral contract (the note was not due until 2020, but FA claimed that Accel's alleged breach of the referral contract was a default that triggered immediate repayment); (3) an automated-teller-machine (ATM) agreement under which FA solicited ATM placement agreements on behalf of Accel in return for quarterly commission payments based on the number of successful transactions performed at each ATM placed by FA; and (4) an asset-sale agreement under which Accel bought some nongaming assets (soft equipment) from FA for $300, 000 plus interest, to be paid over three years.

         ¶ 15 As before, the two counts against the Gaming Board included requests for declaratory judgment (count V) and injunctive relief (count VI). In count V, FA asserted (1) that the Gaming Board lacked any statutory authority to require Accel to disassociate from FA or, (2) in the alternative, that the Board exceeded its authority by requiring Accel to stop making "any additional payments" to FA. FA alleged that this language barred not only future payments under the referral contract but ...


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