BOBBIE PREECE FACILITY v. COMMONWEALTH OF KENTUCKY, DEPARTMENT OF CHARITABLE GAMING AND PUBLIC PROTECTION AND REGULATION CABINET
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RENDERED:
April 27, 2001; 10:00 a.m.
TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
2000-CA-001393-MR
BOBBIE PREECE FACILITY
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE WILLIAM L. GRAHAM, JUDGE
ACTION NO. 99-CI-00893
v.
COMMONWEALTH OF KENTUCKY, DEPARTMENT
OF CHARITABLE GAMING AND PUBLIC
PROTECTION AND REGULATION CABINET
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
GUDGEL, Chief Judge; COMBS and KNOPF, Judges.
COMBS, JUDGE: Bobbie Preece Facility appeals from the opinion and
order of May 18, 2000, of the Franklin Circuit Court which
affirmed the decision of the appellee, Commonwealth of Kentucky,
Department of Charitable Gaming ("the Department"), to deny the
facility’s renewal application for a license to operate a
charitable gaming establishment.
Preece challenges the
constitutionality of Kentucky Revised Statute (KRS) 238.530(3),
as amended effective April 1, 1998, pursuant to which the
Department
denied its renewal application.
Preece argues that
its property has been taken without just compensation.
After our
review of the record, the arguments, and the legal authorities
relied upon by Preece, we affirm.
The facts are undisputed and were largely stipulated to
by the parties during the administrative proceeding conducted by
the Department.
Bobbie Preece Facility, a sole proprietorship
owned by Bobbie Preece, includes a building in Catlettsburg,
Kentucky, in which charitable gaming activities (bingo games) are
conducted.
Preece has owned the building since 1985.
She is
also the President and owner of at least 10% of Preece Wholesale,
Inc., involving the distribution of gaming supplies and equipment
— a business in which she and her husband have been involved for
more than thirty years.
After the passage of the Charitable Gaming Act in 1994,
Preece applied for and was issued a license by the Department to
operate a charitable gaming facility.
Preece Wholesale, Inc.,
also applied for and was granted a license to distribute
charitable gaming supplies and equipment.
renewed annually through February 1999.
Both licenses were
However, in 1998, the
General Assembly amended KRS 238.530(3), a portion of the
Charitable Gaming Act, effective April 1, 1998, to read as
follows:
No person who is licensed as a charitable
organization, and no owner, officer,
employee, or member of the immediate family
of an owner, officer, or employee of a
licensed charitable gaming facility shall be
eligible for licensure as a distributor or
manufacturer. No affiliate of an owner,
officer, or employee, or member of the
immediate family of an owner, officer, or
employee of a licensed charitable gaming
facility shall be licensed as a distributor
or manufacturer.
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In April 1998, the Department notified Preece of the
change in the statute and informed her that when her facility and
distributor licenses expired, she would not be eligible to have
both of them renewed.
both licenses.
Nevertheless, Preece sought renewal of
On January 29, 1999, she was notified that the
renewal of her license to operate a charitable gaming facility
(the first to expire) had been denied.
was renewed.
The distributor license
At Preece’s request, a hearing was conducted before
a hearing officer, who determined that he was without authority
to address Preece’s argument that KRS 238.530(3), as amended, was
unconstitutional.
A final order of the Department was rendered
affirming the denial of the facility license, and Preece appealed
to the Franklin Circuit Court.
Preece argued that her rights pursuant to the Due
Process Clause of the Fourteenth Amendment of the United States
Constitution had been violated by the non-renewal of her license.
The court disagreed and upheld the constitutionality of KRS
238.530(3), discussing the statutory restrictions on holding
multiple licenses as follows:
This Court finds that the extended
restrictions . . . are rationally related to
the legitimate state interest of preventing
commercialization of charitable gaming . . .
[and] . . . are necessary to avoid
commingling of functions among licensees, and
to prevent a handful of individuals from
controlling the entire activity of charitable
gaming.
Opinion of Judge Graham, p. 4.
As to Preece’s argument that the
non-renewal constituted an unconstitutional taking of her
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property without just compensation, the Franklin Circuit Court
concluded as follows:
This Court cannot find that the interest Ms.
Preece has in her charitable gaming licenses
is one of entitlement that affords her the
due process protection she seeks. Ms. Preece
has no constitutional right to engage in
charitable gaming. See Commonwealth v.
Louisville Atlantis Community/Adapt, Inc.,
971 S.W.2d at 817. In fact, her right is
solely created by statute, and is then
heavily regulated. Accordingly, the
[L]egislature may prohibit charitable gaming
altogether, or it may place restrictions on
licensing as it sees fit to create them.
This Court find [sic] that an interest in a
[charitable gaming] license is more akin to a
privilege than to a property right. See Ladt
v. Arnold, Ky.App., 583 S.W.2d 702 (1979).
Therefore, we cannot agree that KRS
238.530(3) rises to the level of leaving
property without beneficial use as that
contemplated in Lucas [v. South Carolina
Coastal Council, 505 U.S. 1003 (1992)]. We
find a distinct difference in rights and
protection between the actual physical use of
land, and the acquiring of a license to
perform a specific function on the land, the
latter requiring a lower level of protection.
Accordingly, this Court finds that KRS
238.530(3) has not constituted a taking of
Ms. Preece’s property interests within the
meaning of the Fifth Amendment’s Takings
Clause.
Opinion of Judge Graham, pp. 4-5.
In this appeal, Preece argues that the Franklin Circuit
Court erred in failing to find a violation of her substantive due
process rights as guaranteed by the Fourteenth Amendment to the
United States Constitution by virtue of the application of the
amended version of KRS 238.530(3) to deny her license.
She
contends that the statute forces her “to choose between the
deprivation of two (2) property interests” and that it has
resulted in the “taking” of her property.
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Preece observes that
in a town the size of Catlettsburg, there are very few other uses
for a bingo hall — and certainly none that “would provide as
significant a source of revenue as a charitable gaming facility.”
A party challenging governmental action as amounting to
an unconstitutional taking bears a rather hefty burden.
Our courts are sensitive to the presumption
of constitutionality, i.e., the rule that an
act should be held valid unless it clearly
offends the limitations and prohibitions of
the Constitution. The one who questions the
validity of an act bears the burden to
sustain such contention.
Stephens v. State Farm Mutual Automobile Insurance Company, Ky.,
894 S.W.2d 624, 626 (1995).
The alleged “violation of the
Constitution must be clear, complete and unmistakable” in order
to succeed on a claim that the law is unconstitutional.
Kentucky Industrial Utility Customers, Inc. v. Kentucky Utilities
Company, Ky., 983 S.W.2d 493, 499 (1998).
With respect to claims
of substantive due process affecting “economic and business
rights . . . rather than fundamental rights,”
the statute at
issue must be evaluated by the rational basis test -- and the
analysis is deferential in nature.
Stephens, supra at 627; see
also Earthgrains v. Cranz, Ky.App., 999 S.W.2d 218, 223 (1999).
Preece has no “fundamental right” to a license to
operate a charitable gaming facility as noted in Louisville
Atlantis, supra, at 817, where this Court stated: “[T]here is no
constitutional right to engage in charitable gaming[.]”
Additionally, Preece has failed to establish that the statute is
either arbitrary or unreasonable so as to render it
unconstitutional on its face.
As was stressed repeatedly in
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Louisville Atlantis, supra, the Legislature has a legitimate
objective of “[k]eeping charitable gaming from becoming
commercial, preventing participation by criminals, and preventing
the diversion of funds from legitimate charitable purposes[.]”
Id. at 816.
See also, KRS 238.500, and Pigeons’ Roost, Inc. v.
Commonwealth, Division of Charitable Gaming, Ky.App., 10 S.W.3d
133 (1999).
By denying multiple licenses to an individual, KRS
238.530(3), as altered by the 1998 amendment, promotes the
Legislature’s goal of preventing the commercialization of
charitable gaming, of preventing the concentration of profits in
one individual, and of “insuring that funds raised by charitable
gaming actually benefit charitable works.”
Id. at 135.
We hold
that the statute is rationally related to a legitimate state
objective and thus that it does not violate Preece’s substantive
due process rights.
Preece vigorously argues in the alternative that even
if a legitimate basis for the statute exists, the Department has
taken her property without just compensation.
The "Takings
Clause" of the Fifth Amendment to the United States Constitution
provides: “[N]or shall private property be taken for public use,
without just compensation.”
Section 13 of the Kentucky
Constitution mirrors that provision: “[N]or shall any man’s
property be taken or applied to public use without the consent of
his representatives, and without just compensation being
previously made to him.”
Preece correctly argues that the
concept of “taking” has evolved over the years to include
regulatory interference with one’s use or enjoyment of his
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property in addition to the more traditional notion of a taking
as a physical seizure of property.
[W]hen the owner of real property has been
called upon to sacrifice all economically
beneficial uses in the name of the common
good, that is, to leave his property
economically idle, he has suffered a taking.
Lucas v. South Carolina Coastal Council, 505
U.S. 1003, 1019, 112 S.Ct. 2886, 2895, 120
L.Ed.2d 798 (1992)(emphasis in original).
Preece argues that she has suffered the very type of regulatory
taking described and denounced in Lucas and that the denial of a
charitable gaming license essentially has resulted in a
substantial loss in value of her real estate and the loss of
income, amounting to a "taking without compensation.”
We agree with the Franklin Circuit Court that the
denial of Preece’s license to operate a charitable gaming
facility has not resulted in a “taking” as contemplated by Lucas
or as encompassed within the meaning of either the United States
or the Kentucky constitutions.
There is no evidence that the
real property owned by Preece has been diminished in value by the
enforcement of the statute and the denial of the facility
license.
Preece has not argued that she has been denied all
beneficial uses of the property -- only the most profitable one.
However, lost profits are “not a proper element of compensation
for land taking in condemnation proceedings.”
Siding Sales, Inc.
v. Warren County Water District, Ky.App., 984 S.W.2d 490, 494
(1998).
Furthermore, it is significant that at the time Preece
obtained the property in 1985, charitable gaming was not a legal
enterprise in Kentucky.
In order to be entitled to compensation
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under the Takings Clause of the Fifth Amendment, the owner must
be deprived of a portion of the “bundle of rights” in the
property that existed when he obtained title to the property.
Lucas, 505 U.S. at 1027.
Finally, we agree with the conclusion of the lower
court that Preece does not have an enforceable property interest
in the facility license that would support a claim under the
Takings Clause of either constitution.
As explained in Mitchell
Arms, Inc. v. United States, 7 F.3d 212, 215-216 (Fed.Cir. 1993),
cert. denied, 511 U.S. 1106, 114 S.Ct. 2100, 128 L.Ed.2d 662
(1994), an interest which depends totally on regulatory licensing
is not a property interest that is compensable under the Takings
Clause.
The chief and one of the most valuable
characteristics of the bundle of rights
commonly called “property” is “the right to
sole and exclusive possession — the right to
exclude strangers, or for that matter
friends, but especially the Government.”
Hendler v. United States, 952 F.2d 1364, 1374
(Fed.Cir. 1991) (citation omitted). In this
case, Mitchell did not possess such a right.
. . . .
. . . “[E]nforceable rights sufficient to
support a taking claim against the United
States cannot arise in an area voluntarily
entered into and one which, from the start,
is subject to pervasive Government control.”
(citation omitted). The reason “enforceable
rights sufficient to support a taking claim”
cannot arise in such an area is that when a
citizen voluntarily enters such an area, the
citizen cannot be said to possess “the right
to exclude.” Hendler, 952 F.2d at 1374. And
the reason the citizen cannot be said to
possess “the right to exclude” is that the
citizen is in an area subject to government
control. Mitchell voluntarily entered the
firearms import business, thereby knowingly
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placing itself in the governmentally
controlled arena of firearms importation
under the Gun Control Act . . . Under these
circumstances, Mitchell’s expectation of
selling the assault rifles in the United
States — which expectation necessarily flowed
from the ATF permits — could not be said to
be a property right protected under the Fifth
Amendment.
As the Franklin Circuit Court correctly found, the
subject of charitable gaming is highly regulated.
Those who hold
licenses must seek renewal annually or biennially.
KRS 238.525.
Preece first voluntarily entered the charitable gaming arena when
it was an illegal activity.
Since it was legitimized in 1994,
charitable gaming has been subjected to strict governmental
regulation.
For these reasons, we agree with the Franklin
Circuit Court that Preece’s license is more akin to a privilege
than a license.
Preece could reasonably expect that the
privilege could be taken away or encumbered as a means of meeting
the legitimate goals of the Legislature.
1028.
Lucas, supra, at 1027-
In this vein, the United States Supreme Court aptly
summarized that:
in the case of personal property, by reason
of the State’s traditionally high degree of
control over commercial dealings, [the owner]
ought to be aware of the possibility that new
regulation might even render his property
economically worthless.
We conclude that the refusal of the Department to renew
Preece’s facility license did not trigger the right to
compensation guaranteed by the Fifth Amendment to the United
States Constitution and by Section 13 of the Kentucky
Constitution.
The judgment of the Franklin Circuit Court is affirmed.
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ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Mark A. Bubenzer
Daniel Dickerson
Frankfort, KY
Scott Jones
Public Protection and
Regulation Cabinet
Frankfort, KY
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