- GOVERNMENT + POLITICS
Queen of Virginia, one of the main skill-game companies operating in the state, has long characterized its enterprise as a way to let small business owners get a piece of the new moneymaking opportunities that have come with Virginia’s newly relaxed approach to gambling.
By agreeing to host the company’s slots-like machines, convenience stores and restaurants would get a share of the profits, an opportunity many business owners have said helped them get through the pandemic. But those deals don’t always end on friendly terms.
A Virginia Mercury review of state court records found Queen of Virginia has filed nearly 150 breach-of-contract lawsuits against convenience store owners who agreed to host the company’s video games.
In dozens of nearly identical lawsuits reviewed by the Mercury, Queen of Virginia claims a store owes tens of thousands in damages for removing Queen machines and/or replacing them with similar games from a competitor. Court records show Queen of Virginia contracts include a broad non-competition clause that gives the company exclusive rights to have its games at a particular store.
“Like most companies, we vigorously defend our contractual terms,” said Michael Barley, a spokesman for Georgia-based Pace-O-Matic, Queen of Virginia’s parent company. One of the most preeminent skill-game companies, Pace-O-Matic has made more than $820,000 in political donations to both parties in Virginia, according to the Virginia Public Access Project, including six-figure support for both Gov. Glenn Youngkin and former Gov. Terry McAuliffe.
The lawsuits are the latest example of the hardball tactics being deployed in pursuit of gaming profits after Virginia opened its doors to casinos, poker, sports betting and a variety of games that resemble slot machines.
Attorney and former state delegate Steve Heretick, who is representing several convenience store owners facing lawsuits, said Queen of Virginia is acting like a “bully” by trying to “corner the marketplace” at the expense of small business owners with limited legal resources.
“It’s an extremely aggressive tactic,” Heretick said. “Most of the smaller owners, especially convenience stores that have been working with us, they really don’t understand the legal nuances of the situation. All they know is they’re being threatened.”
Legal uncertainty
The cases also reveal another aspect of the legal chaos caused by Virginia’s inability to set and enforce a clear policy on skill games.
Virginia seemed to greenlight the machines in 2017 through an unofficial determination by Virginia ABC that they were games of skill, not chance. At least one Virginia prosecutor disagreed and said he felt the machines violated the state’s laws on illegal gambling, a statement that drew a lawsuit from Queen of Virginia.
The Virginia Lottery also complained the machines’ growing presence in convenience stores was eating into state revenues, because skill games were rolled out before the state could enact gaming taxes and regulations for them.
Lawmakers discussed banning the machines in 2020 but ended up giving them a one-year reprieve to raise money for COVID-19 relief. When that time was up, the ban was put into effect in July 2021. But a truck-stop owner challenging the ban won an initial legal victory last year when a judge temporarily suspended enforcement of it. That challenge, which will be heard Nov. 2 in Greensville Circuit Court, argues the ban amounts to unlawful discrimination against a particular type of arcade-style game people can play to win something of value.
Despite an effort by the General Assembly to strengthen the ban this year, the pending lawsuit has created uncertainty over whether the machines will or won’t have to be unplugged for good.
The skill machines now exist in a sort of limbo, with no regulation from the state and widespread complaints of illegal machines proliferating due to the lack of oversight.
“I think there’s a lot of lawsuits because the law is in flux,” said Todd Knode, a Richmond-based lawyer defending convenience store owners in multiple cases.
Unenforceable contracts?
In court filings, Heretick and other attorneys representing store owners have argued the deals convenience stores and restaurants signed with Queen of Virginia became void when the state banned the machines. The contracts can’t be enforced now, the lawyers claim, because they require store owners to break the law.
A Richmond judge recently ruled the contracts were unenforceable, Heretick said. With so many cases pending across the state the question may ultimately be decided by a higher court.
“Our contracts have been ruled time and time again to be valid,” said Barley, the Pace-O-Matic spokesman. Queen of Virginia attorneys have also pointed out that any store bringing in new skill machines from other companies is already violating the ban.
Many of the lawsuits predate the 2021 ban, and Queen of Virginia doesn’t appear to be aggressively pursuing all of them. In some, there has been no legal activity since the initial complaint was filed, an indication the two parties could be trying to work things out outside of court. Many of the convenience stores haven’t ever filed a response, which could allow Queen of Virginia to ask courts for a default judgment ordering store owners to pay damages. Some cases have simply been dropped. But some store owners are choosing to fight.
One argument being made is that the non-competition and exclusivity clauses in the contracts could be in conflict with the Virginia Antitrust Act.
The company’s contracts specify that even when the initial five-year deals between the stores and Queen of Virginia end, the business owner can’t install non-Queen of Virginia machines for another year, either at the initial store location or anywhere within a 50-mile radius. The contracts automatically renew for additional five-year terms unless one side sends, via certified mail, a written cancellation notice within 180 days of the deal expiring. The deals also give Queen of Virginia the right to make a “final determination” on whether other games compete with its own.
“It is clear the public interest of this commonwealth is competition in the free market,” Robert Drewry and Stephen Faraci Sr. of the Richmond firm Whiteford, Taylor & Preston wrote in defense of a Richmond store. “Plaintiffs’ actions in connection with the state’s regulatory system are solely designed to limit competition and force competitors out of the market at the expense of small businesses in the commonwealth. The plaintiffs’ actions are not only contrary to the public interest, but potentially unlawful.”
In court filings, Queen of Virginia’s lawyers said they “vehemently disagree” with that claim.
A state law that explicitly declares “gaming contracts” void except where clearly permitted doesn’t apply to Queen of Virginia games, the company’s lawyers contend, because the outcome is based on the player’s skill, similar to other games where players spend money for the chance to win a prize.
“Acceptance of defendant’s argument would also have the effect of voiding every contract related to any game that awards prizes, such as carnival games or any crane game or coin-pusher of the type found at Dave & Buster’s or Chuck-E-Cheese,” Queen of Virginia lawyers Ian Dickinson and Jason Hicks, of the Charlottesville office of Womble Bond Dickinson, wrote in one court filing.
Though skill-game proponents insist the games are different from forms of gambling that are based mostly on chance, the contracts suggest Queen of Virginia took pains to protect that image, specifying that store owners can’t use gambling themes to advertise the games without the company’s prior approval.
One document that has repeatedly shown up in the lawsuits is a letter Queen of Virginia’s general manager sent to store owners in June of 2021 instructing them to unplug all Queen machines in accordance with the looming ban. Lawyers defending the store owners have argued it was a goodbye note that could reasonably be read as marking the end of its deals with Virginia businesses.
“We appreciate the business we have enjoyed with you and take pride in knowing we assisted small businesses (to) survive during the pandemic,” Queen of Virginia General Manager Jeanna Bouzek wrote in the letter.
Bouzek’s note told store owners that failing to adhere to the ban could lead to fines.
“My defense is that once that letter went out the contract was over,” Knode said. “And Queen of Virginia is now trying to revive it.”
Financial details
The court filings also shed light on the financials of skill-game deals.
According to the contracts, convenience store owners were entitled to 40% of the machines’ net revenues (minus a few fees), with the other 60% split between Queen of Virginia and the third-party machine distributors. According to spreadsheets filed to provide financial backing for the company’s claims about how much money it’s owed, the deals were often worth $2,000 to $7,000 per month for the stores.
Broadly, Queen of Virginia has argued in court that some of its onetime partners are coming up with novel legal arguments to try to get out of clear contractual obligations and continue to make money off similar machines.
“If agreements for the distribution or operation of skill games in Virginia are unenforceable, skill gaming businesses will likely remove games from the state to avoid the risks of transaction business in Virginia,” the company wrote in one court filing.
Heretick, who said he supports some form of state-sanctioned skill gaming in Virginia, said he feels it’s Queen of Virginia that’s “behaving badly” by pressuring store owners to keep running machines the legislature has classified as illegal gambling devices.
“It’s my standard advice to my clients that this is illegal,” Heretick said. “Queen’s threats notwithstanding, it is illegal.”
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