Lottery courier accuses Texas Lottery Commission of rug pull

By Kate Northrop

A lottery courier filed a lawsuit against the Texas Lottery in an attempt to reverse its "about-face" decision to ban courier services.

This week, lottery courier Lotto.com sued the Texas Lottery Commission (TLC) and Texas Lottery Acting Deputy Executive Director Sergio Rey, accusing the agency of bowing under the pressure of State Legislature and undoing years of cooperation.

"The Commission's accusatory and self-serving statements to the Legislature and to the public in furtherance of their recent extra-statutory and ultra vires acts simply do not square with their prior years of support, cooperation, and assistance to [Lotto.com]," the courier's attorney wrote.

The lawsuit comes days after Texas Lottery Executive Director Ryan Mindell abruptly resigned and amid rising animosity against lottery courier services since a $95 million Lotto Texas jackpot was won by an entity that purchased nearly every number combination with the help of several lottery couriers.

Scrutiny against lottery couriers spiraled when a Texas resident purchased a lottery ticket through a courier service and won a separate $83.5 million jackpot. She presented the winning ticket and was denied payment of the prize due to ongoing state investigations, and it is uncertain whether she will even be paid out once those investigations conclude.

The Texas Lottery's ban on lottery couriers caught many of them by surprise. Pleas to reconsider the decision from several representatives of courier companies fell on deaf ears.

Lotto.com Chief Legal Officer Rob Porter addressed commissioners in a public TLC meeting in March to deny any involvement  and awareness of the $95 million jackpot buyout and offered full cooperation if it meant creating a world where the Lottery can safely regulate and work with courier services.

As it remains today, any retailer found to be working either with or as a courier will have their lottery license revoked. Additionally, the Lottery enacted rules to help mitigate future buyout attempts, such as slowing down the approval process for requests for additional terminals and imposing a limit of five terminals per retailer.

LTC Texas LLC [Lotto.com]'s lawsuit, filed on Thursday in Travis County, requests a judge to undo the Lottery's new policies, arguing that the terminal limit makes it impossible for their business model to succeed.

The company also alleged that the TLC did not abide by the 30-day rule change notice and public-comment processes required by state law when it announced the ban and confiscated dozens of lottery terminals. In doing so, Lotto.com says, it overstepped its authority by "changing rules on the fly" and failing to consult state legislature on a sweeping ban against all courier services, even those not involved in the buyout.

While the policy was ironically chastised by some legislators as too little, too late, it was backed by several lawmakers looking to crack down on potential illegal activities they fear it harbors, such as money laundering.

However, Lotto.com argues that the ban instead "illegally and unconstitutionally" punishes businesses that have played by the rules, and that the new policy has "all but hounded Lotto.com and other responsible lottery couriers out of business in the state."

Lastly, the lawsuit points out that the TLC said previously that it did not have the authority to regulate lottery couriers, but it had quickly shifted gear and imposed the ban after some weeks' worth of pressure from the Texas Senate. Since the TLC had consistently told legislators that it was impossible for them to regulate couriers in the past, the lawsuit says the ban should therefore be nullified.

During several hearings with lawmakers, Mindell maintained repeatedly that the Lottery interpreted its authority "narrowly," meaning it does not exercise power "beyond the plain meaning of the language" in the State Lottery Act.

To appease lawmakers, Mindell penned a letter to Attorney General Ken Paxton asking for clarification on the TLC's regulatory abilities over lottery courier companies in February.

"Just as the TLC cannot regulate a father buying scratch-off lottery tickets for his children's Christmas stockings or an office creating a pool to purchase tickets, the TLC has concluded it cannot regulate individuals purchasing tickets in person on behalf of another individual with effective consent," Mindell wrote.

In parallel, the TLC believes that taking executive action on lottery courier companies would overstep its interpretation of the law. This is why the Lottery has not taken sweeping action on lottery couriers in past years, and why Mindell reached out to the Attorney General for clarification on the Lottery's regulatory power.

"The TLC closely follows the directives of the Texas Legislature and would promptly implement the regulation or prohibition of courier services, should it be authorized by the legislature, either explicitly or implicitly in statute," Mindell says in his letter. "But the TLC is also mindful of the limits on its authority and does not seek to expand its powers without legislative directive. The TLC is uncertain what authority exists with respect to courier services and is hesitant to assume jurisdiction without clear direction."

Since the Lottery's announcement of the ban in February, some couriers like Jackpocket have pulled out of the state. Lotto.com continues to offer tickets for Texas draw games and scratch-off games. Should the TLC's rule changes surrounding lottery couriers go into effect, Lotto.com and all other couriers must shutter their operations in the state.

Lotto.com is not seeking any monetary damages in the lawsuit, rather an order from a higher authority that either invalidates the TLC's rule changes or prevents the TLC from enforcing them.

The next TLC meeting is scheduled for April 29, during which commissioners may vote to officially adopt the rule changes.