Queen of Virginia, one of the leading skill gaming companies operating in the state, has long characterized its business as a way for small business owners to get a slice of lucrative new opportunities. who came with Virginia’s newly relaxed approach to the game.
By agreeing to host the slot-like machines, the company’s convenience stores and restaurants would get a share of the profits, an opportunity that many business owners said has helped them through the pandemic. But these deals don’t always end on friendly terms.
A Virginia Mercury review of state court records found that the Queen of Virginia had 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 that the Queen of Virginia’s contracts include a broad non-compete clause that gives the company the exclusive right to have its games in a particular store.
“Like most companies, we vigorously defend our contract terms,” said Michael Barley, spokesman for Pace-O-Matic, parent company of Georgia-based Queen of Virginia. One of the largest skill game companies, Pace-O-Matic has made over $820,000 in political donations to both parties in Virginia, according to the Virginia Public Access Projectincluding six-figure support for Governor Glenn Youngkin and former Governor Terry McAuliffe.
The lawsuits are the latest example of hardball tactics being deployed in pursuit of gambling profits after Virginia opened its doors to casinos, poker, sports betting and a variety of slot-like games.
Attorney and former state delegate Steve Heretick, who represents several convenience store owners facing lawsuits, said the Queen of Virginia was acting like a ‘bully’ trying to ‘hog the market’ at the expense small business owners with limited legal resources.
“It’s an extremely aggressive tactic,” Heretick said. “Most of the small owners, especially the convenience stores that work with us, really don’t understand the legal nuances of the situation. All they know is that they are threatened.
The cases also reveal another aspect of the legal chaos caused by Virginia’s failure to define and enforce a clear policy on games of skill.
Virginia appeared to give the machines the green light in 2017 thanks to an unofficial determination by Virginia ABC that they were games of skill, not chance. At least one Virginia prosecutor disagreed and said he believed the machines violated state illegal gambling laws, a statement that drew a lawsuit of the Queen of Virginia.
The Virginia Lottery also complained that the machines’ growing presence in convenience stores was eating away at state revenue as games of skill were rolled out before the state could enact taxes and regulations on gambling. games 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. After that deadline, the ban went into effect in July 2021. But a truck stop owner challenging the ban won a first legal victory last year when a judge temporarily suspended its enforcement. The challenge, which will be heard Nov. 2 in Greensville Circuit Court, argues that the ban amounts to unlawful discrimination against a particular type of arcade-style game that people can play to win something of value.
Despite an effort by the General Assembly to strengthen the ban this year, the ongoing lawsuit has created uncertainty over whether or not the machines will have to be unplugged for good.
Skill machines now exist in a sort of limbo, with no state regulation and many complaints of illegal machines proliferate due to the lack of oversight.
“I think there are a lot of lawsuits because the law is changing,” said Todd Knode, a Richmond-based attorney who defends convenience store owners in several cases.
In court filings, Heretick and other attorneys representing store owners have argued that agreements convenience stores and restaurants signed with the Queen of Virginia became void when the state banned the machines. Contracts cannot be enforced now, lawyers say, because they force 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 matter may ultimately be decided by a higher court.
“Our contracts have been deemed valid time and time again,” said Pace-O-Matic spokesperson Barley. Lawyers for the Queen of Virginia also pointed out that any store bringing in new skill machines from other companies is already violating the ban.
Many lawsuits predate the 2021 ban, and the Queen of Virginia doesn’t appear to be pursuing them all aggressively. In some cases, there has been no legal activity since the initial complaint was filed, indicating that both parties may try to work things out out of court. Many convenience stores have never filed a response, which could allow the Queen of Virginia to ask the courts for a default judgment ordering store owners to pay damages. Some cases have simply been dropped. But some store owners choose to fight back.
One argument made is that non-competition and exclusivity clauses in contracts could conflict with the Virginia Antitrust Act.
The company’s contracts specify that even when the stores’ initial five-year agreements with Queen of Virginia end, the company owner cannot install non-Queen of Virginia machines for another year, either at the original store location or anywhere within a 50-mile radius. Agreements automatically renew for additional five-year terms unless either party sends, by certified mail, written notice of cancellation within 180 days of the expiration of the agreement. The agreements also give the Queen of Virginia the right to make a “final decision” on whether other games compete with hers.
“It is clear that the public interest of this Commonwealth is competition in the free market,” Robert Drewry and Stephen Faraci Sr. of Richmond-based firm Whiteford, Taylor & Preston wrote in defense of a Richmond store. “The plaintiffs’ actions in relation to the State’s regulatory system are solely designed to limit competition and force competitors out of the market at the expense of Commonwealth small businesses. The plaintiffs’ actions are not only contrary to the public interest, but potentially illegal.
In court documents, lawyers for the Queen of Virginia said they “vehemently disagree” with that claim.
A State Law which explicitly declares “gaming contracts” void except where clearly permitted, does not apply to Queen of Virginia games, say the company’s attorneys, because the outcome is based on player skill, as in d 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 any contract relating to any game which 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,” attorneys for the Queen of Virginia Ian Dickinson and Jason Hicks, from the Charlottesville office of Womble Bond Dickinson, wrote in a court filing.
Although proponents of the game of skill insist that the games are ddifferent from forms of gambling based primarily on chancecontracts suggest that Queen of Virginia took care to protect this image, specifying that store owners cannot use game themes to advertise games without the company’s prior approval.
One document that has repeatedly appeared in the lawsuits is a letter that the general manager of Queen of Virginia sent to store owners in June 2021 asking them to unplug all Queen machines in accordance with the impending ban. Lawyers defending the store owners argued that it was a farewell note that could reasonably be interpreted as marking the end of its agreements with the Virginia companies.
“We appreciate the business we have enjoyed with you and are proud to know that we have helped small businesses (to) survive during the pandemic,” Queen of Virginia chief executive Jeanna Bouzek wrote in the letter.
Bouzek’s memo told store owners that failure to comply with the ban could result in fines.
“My defense is that once that letter was sent, the contract was over,” Knode said. “And the Queen of Virginia is now trying to revive it.”
The court documents also shed light on the finances of the skill games deals.
Under the contracts, convenience store owners were entitled to 40% of net machine revenue (minus some fees), with the remaining 60% split between Queen of Virginia and third-party machine distributors. According to spreadsheets filed to provide financial support for the company’s claims of how much it is owed, the transactions were often worth between $2,000 and $7,000 a month for the stores.
Generally speaking, the Queen of Virginia argued in court that some of her former partners are coming up with new legal arguments in an attempt to evade clear contractual obligations and continue making money from similar machines.
“If agreements for the distribution or operation of skill games in Virginia are unenforceable, skill game companies will likely remove games from the state to avoid business transaction risks in Virginia,” wrote company in a court case.
Heretick, who said he supports some form of state-sanctioned gambling in Virginia, said he believed it was the Queen of Virginia who was “behaving badly” by pressuring the store owners to continue operating machines that the legislature has classified as illegal gambling devices.
“It’s my standard advice to my clients that it’s illegal,” Heretick said. “Despite Queen’s threats, this is illegal.”
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