Lucky Tunes 3, L.L.C. v. Larry Smith

Case: 19-40970 Document: 00515402379 Page: 1 Date Filed: 05/01/2020

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

United States Court of Appeals

Fifth Circuit

FILED

No. 19-40970 May 1, 2020

Summary Calendar

Lyle W. Cayce

Clerk

LUCKY TUNES #3, L.L.C., a Texas limited liability company,

Plaintiff - Appellant

v.

LARRY R. SMITH, a Texas individual; JASON RAILSBACK, a Texas

individual,

Defendants - Appellees

Appeal from the United States District Court

for the Eastern District of Texas

USDC No. 6:18-CV-563

Before WIENER, HAYNES, and COSTA, Circuit Judges.

PER CURIAM:*

Lucky Tunes #3 LLC’s suit against two Texas police officers for alleged

violations of federal and Texas law was dismissed for failure to state a claim.

After clarifying which claims were dismissed with prejudice and which

without, we AFFIRM as modified.

* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not

be published and is not precedent except under the limited circumstances set forth in 5TH

CIR. R. 47.5.4.

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No. 19-40970

I. Background

Lucky Tunes is an establishment that sells certificates to redeem and

download song files from lucky7downloads.com, a repository of several

thousand licensed songs. 1 The certificates are sold alongside “free

sweepstakes” promotions. At the rate of one dollar per song, customers

purchase certificates, which come with 100 entries into the sweepstakes.

Patrons can also receive up to 100 free entries per day by logging in at the store

and can request further free entries by mail. To find out if they have won,

patrons can either instantly reveal the outcome or play games that “mimic

casino attractions” via “gambling simulation.” When playing the games,

sweepstakes credits are “represented with a dollar sign.” Prizes for winning

are paid in cash regardless of the method of revealing the outcome.

In 2017, before Lucky Tunes opened for business, Sheriff Larry Smith of

Smith County, Texas, sent a letter to local business owners regarding potential

illegal gambling operations in the county. Sheriff Smith said that his office

was “investigating complaints that illegal gambling [was] occurring” in the

county and asked for “voluntary compliance” by removing illegal gambling

machines. He explicitly referenced games that were being advertised as

sweepstakes but were being operated illegally. A little over a year later,

counsel for Lucky Tunes’s parent company sent a reply explaining that the free

sweepstakes promotions did not violate Texas law.

Nonetheless, Smith County police obtained two warrants to search

Lucky Tunes. The first was obtained by Detective Jason Railsback in

September 2018. Det. Railsback based his warrant affidavit on an undercover

investigation he and Sergeant Shawn White conducted at Lucky Tunes, during

1 The website is run by Lucky Tunes’s parent company, Lucky 7 Downloads LLC.

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which the officers each purchased $20.00 in songs and played electronic games.

Det. Railsback reported that in exchange for a $20.00 bill, each officer received

a receipt showing that 100 entries had been added to his account, “an available

balance of $21.00,” and a PIN for playing games. He also said that they

received “a separate receipt . . . that was a ‘gift card’ with $20.00 indicated”

and that “advised we could use the code to go to their website . . . and get

music.”

Det. Railsback then described the process of playing the machines: After

entering the PIN, “[t]he account showed a balance of ‘$21.00’ with dollar sign

insignia beside the amount indicating it was in fact [U.S. currency] being

depicted on the machines and not ‘credits.’” He “noted that the minimum ‘bet’

allowed on the machine was ‘$.32,’” “placed the $.32 bet,” and won free spins

that eventually turned into a prize of “approximately $7.60.” He then said that

after playing further and going to the attendant, “[t]he machine I was playing

on showed a balance of ‘$25.60’ and the cashier . . . pulled up my account and

then provided me with $25.00 . . . as payout.” He described a similar

experience for Sgt. White.

The detective then alleged the following: “The devices . . . include

gambling device versions of slots that operate by chance or partially so, that as

a result of the game, award[] credits for cash [and] are not designed, made, and

adapted solely for bona fide amusement purposes . . . .” He concluded, “Affiant

believes the machines located at the location . . . are gambling devices as

defined by [Texas] Penal Code [section] 47.01(4) and do not fall under the

exception listed under [section] 47.01(4)(B).” A judge issued a search warrant,

which Smith County officers executed, confiscating property and seizing funds

totaling $30,779.00. The State of Texas then initiated a civil forfeiture action,

which is still pending, against Lucky Tunes.

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In February 2019, Sgt. White obtained another warrant based on his

experience during the same investigation. His affidavit was substantially

similar to Det. Railsback’s, but Sgt. White also said in relevant part that he

“placed what appear[ed] to be ‘Bets’ according to the definition provided by the

Penal Code” and that his winnings “[did] not appear in any way to be a pre-

determined outcome.” A second search occurred less than five months after

the first.

Lucky Tunes sued Sheriff Smith in his individual and official capacities

and Det. Railsback in his individual capacity in federal district court under 42

U.S.C. § 1983. Its complaint alleged violations of the Fourth, Fifth, and

Fourteenth Amendments to the U.S. Constitution, violations of sections 9, 13,

and 19 of Article I of the Texas Constitution, and Texas common-law

conversion. Lucky Tunes requested damages and injunctive and declaratory

relief. Sheriff Smith and Det. Railsback moved to dismiss, arguing that they

were protected by qualified immunity and that Lucky Tunes had failed to state

a claim on which relief could be granted. They attached records of gambling

charges against Lucky Tunes patrons to their motion.

The district court granted the officers’ motion to dismiss, holding that

Lucky Tunes failed to meet the pleading standard of Federal Rules of Civil

Procedure 8(a)(2) and 12(b)(6) and that the officers were entitled to qualified

immunity. Lucky Tunes timely appealed.

II. Standard of Review

We review dismissals under Rule 12(b)(6) de novo. Romero v. City of

Grapevine, 888 F.3d 170, 176 (5th Cir. 2018). “To survive a motion to dismiss

under Rule 12(b)(6), ‘a complaint must contain sufficient factual matter,

accepted as true, to state a claim to relief that is plausible on its face.’” Id.

(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). The pleaded facts must

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“allow[] the court to draw the reasonable inference that the defendant is liable

for the misconduct alleged.” Iqbal, 556 U.S. at 678. We accept all well-pleaded

facts as true and view them in the light most favorable to the nonmoving party.

Romero, 888 F.3d at 176.

III. Discussion

We first address Lucky Tunes’s federal claims. A plaintiff suing an

individual under § 1983 must show the following: (1) “a violation of rights

secured by the Constitution or laws of the United States” (2) perpetrated by “a

person or entity acting under color of state law.” Doe ex rel. Doe v. Dall. Indep.

Sch. Dist., 153 F.3d 211, 215 (5th Cir. 1998) (brackets and quotation omitted).

The doctrine of qualified immunity shields government officials sued in their

individual capacity “from liability for civil damages insofar as their conduct

does not violate clearly established statutory or constitutional rights of which

a reasonable person would have known.” Harlow v. Fitzgerald, 457 U.S. 800,

818 (1982).

Lucky Tunes argues that it adequately stated a claim under § 1983 by

alleging that Sheriff Smith and Det. Railsback acted under color of state law

and violated (1) the Fourth Amendment by conducting two unreasonable

searches and seizures and (2) the Fifth Amendment, as incorporated by the

Fourteenth Amendment, by taking Lucky Tunes’s property without just

compensation. Lucky Tunes submits that the district court erred by failing to

accept the well-pleaded facts as true or view them in the light most favorable

to Lucky Tunes.

A. Fourth Amendment Claims

Lucky Tunes’s Fourth Amendment claim is premised on Franks v.

Delaware, 438 U.S. 154 (1978). Under Franks, a search and seizure backed by

a search warrant nevertheless may be unreasonable if “a false statement

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knowingly and intentionally, or with reckless disregard for the truth, was

included by the affiant in the warrant affidavit, and if the allegedly false

statement is necessary to the finding of probable cause.” Id. at 155–56. A

challenger may also show an “intentional or reckless omission of material facts

from a warrant application.” Kohler v. Englade, 470 F.3d 1104, 1113 (5th Cir.

2006). When determining whether a false statement or omission is material,

a court must excise any false statements and “insert [any] omitted facts into

the affidavit and ask whether the reconstructed affidavit would still support a

finding of probable cause.” Id.; see also United States v. Namer, 680 F.2d 1088,

1093 (5th Cir. 1982).

In this case, the affidavits alleged that Lucky Tunes had violated

sections 47.03, .04, and .06 of the Texas Penal Code, which prohibit knowingly

using real property for gambling, promoting gambling, and possessing

gambling devices. In relevant part, section 47.01(4) defines a “gambling

device” as one “that for consideration affords the player an opportunity to

obtain anything of value, the award of which is determined solely or partly by

chance.” Lucky Tunes complains that the affidavits both falsely stated that

the officers placed “bets” at Lucky Tunes and omitted “the known fact that all

of [Lucky Tunes’s] sweepstakes games were at all times free.” The district

court, it says, erred by considering the possibility that Lucky Tunes was

running an illegal gambling operation that involved bets despite its allegations

that the sweepstakes were free and advertised as such, and therefore legal.

Lucky Tunes argues that the district court should have, and this court must,

take as true “that its sweepstakes are all always free, and that ‘bets’ are

impossible.” Therefore, Lucky Tunes claims, “there was categorically no crime,

and hence no probable cause.”

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This argument is fantasy. Probable cause “requires only a probability or

substantial chance of criminal activity.” District of Columbia v. Wesby, 138 S.

Ct. 577, 586 (2018) (quotation omitted). It has never been the case that a

constitutional violation arises when the conduct in question turns out to be

legal. Instead, we must ask whether, under the totality of the circumstances,

the facts known to the officer at the time of the affidavit would lead an

objectively reasonable officer to believe there was probable cause. See id. We

hold that the affidavits established probable cause even if we omit the

references to betting and insert the facts that the sweepstakes were advertised

as free and did not involve a transaction separate from the music download

certificates. 2 Therefore, Lucky Tunes did not plead facts to support a showing

of materiality under Franks. See Kohler, 470 F.3d at 1113.

Under Texas law, “free sweepstakes” can nevertheless violate Chapter

47. See, e.g., United States v. Davis, 690 F.3d 330, 339–40 (5th Cir. 2012);

Texas v. Ysleta del sur Pueblo, EP-99-CV-320-KC, 2015 WL 1003879, at *23

(W.D. Tex. Mar. 6, 2015); State v. Fellows, 471 S.W.3d 555, 567 (Tex. App.—

Corpus Christi, 2015, pet. ref’d); Jester v. State, 64 S.W.3d 553, 558–59 (Tex.

App.—Texarkana 2001, no pet.). This is because “the consideration element in

the Texas gambling statutes can be fulfilled without an explicit exchange of

money for the opportunity to participate in a sweepstakes.” Davis, 690 F.3d at

339. The question in this case would be “whether the sweepstakes was

intended to promote the sale of [music downloads] or whether the [downloads]

were there as an attempt to legitimize an illegal gambling device.” See Jester,

64 S.W.3d 553 at 558.

We note that, under the case law cited below, whether a “bet” takes place or a

2

sweepstakes is truly “free” is a question of law—indeed, a crucial question in determining

whether a sweepstakes is gambling—and is therefore not a fact that we must accept as true.

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Given the similarity of Lucky Tunes’s business model to those that have

been found illegal, we conclude that the affidavits demonstrated probable

cause to believe that the true object of transactions at Lucky Tunes was the

sweepstakes and not the music downloads. See, e.g., Davis, 690 F.3d at 333,

339 (internet time was sold alongside sweepstakes entries that could also be

obtained for free); Jester, 64 S.W.3d at 558 (telephone cards were sold alongside

sweepstakes entries that could also be obtained for free). Lucky Tunes’s

storefront housed casino-themed games, which represented the “free entries”

as currency. Lucky Tunes paid out cash prizes multiple times larger than the

amount paid for the music downloads, which could only be accessed by

independently visiting the Lucky 7 Downloads website. We of course do not

determine whether this was gambling under the definition of the statute—we

hold only that the affidavits established probable cause that it was. 3

Therefore, Lucky Tunes failed to allege that the affidavits were materially false

or misleading.

B. Other Federal Claims

Lucky Tunes’s Fifth and Fourteenth Amendment due process claims fail

because (1) the Fifth Amendment’s due process clause applies only to federal

actors, see Jones v. City of Jackson, 203 F.3d 875, 880 (5th Cir. 2000), and (2) a

Fourteenth Amendment due process claim is not the proper means to challenge

conduct specifically addressed by the Fourth Amendment, see Cuadra v. Hous.

Indep. Sch. Dist., 626 F.3d 808, 814 (5th Cir. 2010). Lucky Tunes asserts that

it also stated a claim under the Fifth Amendment’s Takings Clause, but to the

3We also do not make “a finding of fact that the music was a subterfuge, that the $20

was paid to play the games and not purchase music, and that [Lucky Tunes] violated the

gambling laws,” as Lucky Tunes charged the district court with doing. Nor did the district

court.

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extent that it invoked that clause at all, it has not alleged facts showing how

its property was taken for public use in contravention of a clearly established

right. See U.S. CONST. amend. V.

Because Lucky Tunes has failed to plead a violation of any constitutional

right, much less a clearly established one, the officers are entitled to qualified

immunity. See Harlow, 457 U.S. at 818. Consequently, the claims against

Sheriff Smith in his official capacity fail as well. See City of Los Angeles v.

Heller, 475 U.S. 796, 799 (1986) (per curiam) (holding that claims for damages

based on an officer’s actions in his official capacity fail when there has been

“no constitutional injury at the hands of the individual police officer”).

C. State Claims

The district court dismissed some of Lucky Tunes’s state-law claims for

failure to state a claim and declined to exercise supplemental jurisdiction over

the rest. Supplemental jurisdiction over state-law claims is proper when they

“form part of the same case or controversy” as federal claims over which the

district court has original jurisdiction. 28 U.S.C. § 1367(a). In other words,

the state and federal claims must “derive from a common nucleus of operative

fact.” United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725 (1966). Even if

supplemental jurisdiction is proper, a court may decline to exercise it in light

of “the statutory factors set forth by 28 U.S.C. § 1367(c), and . . . the common

law factors of judicial economy, convenience, fairness, and comity.” Enochs v.

Lampasas Cty., 641 F.3d 155, 159 (5th Cir. 2011) (citing Carnegie-Mellon Univ.

v. Cohill, 484 U.S. 343, 350 (1988) (listing the common-law factors)). We

review decisions of supplemental jurisdiction for abuse of discretion. Priester

v. Lowndes Cty., 354 F.3d 414, 425 (5th Cir. 2004).

Lucky Tunes alleged that the officers violated Article I, sections 9, 13,

and 19, of the Texas Constitution. Its section 9 claims fail because that

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provision “and the Fourth Amendment are the same in all material respects”

and Lucky Tunes has not argued or provided authority that it should be

interpreted more expansively. See Gates v. Tex. Dep’t of Protective & Reg.

Servs., 537 F.3d 404, 437–38 (5th Cir. 2008). Similarly, section 19’s “due course

of law provision provides the same protections as the federal Due Process

Clause,” so these claims fail as well. See Fleming v. State, 376 S.W.3d 854, 857

(Tex. App.—Fort Worth 2012), aff’d, 455 S.W.3d 577 (Tex. Crim. App. 2014).

Lucky Tunes failed to state a claim under section 13 by making only a

passing reference with no mention of excessive bail or cruel or unusual

punishment. Lucky Tunes also waived this issue by failing to argue for it on

appeal. See United States v. Martinez, 263 F.3d 436, 438 (5th Cir. 2001).

We also affirm the dismissal of the requests for injunctive and

declaratory relief. Injunctive relief is unavailable on the claims dismissed

under Rule 12(b)(6) because of the lack of an underlying cause of action. See

Crook v. Galaviz, 616 F. App’x 747, 753 (5th Cir. 2015) (per curiam). The

requests for declaratory judgment that rely on “the United States and Texas

constitutions and the laws of Texas” fail for the reasons discussed above.

Therefore, we affirm the district court’s dismissal of the foregoing state

claims for failure to state a claim. We also hold that the district court did not

abuse its discretion by exercising supplemental jurisdiction over these claims,

even though it dismissed the federal claims, because they concern the same

facts and similar law as the federal claims, making it more convenient to

dispose of them in this action. See Gibbs, 383 U.S. at 726–28 (holding that “if

the federal claims are dismissed[,] . . . the state claims should be dismissed as

well,” but exercising jurisdiction is nonetheless proper when state and federal

claims are “closely tied”). The district court’s final judgment failed to reflect

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whether the dismissals were with or without prejudice. The dismissals of these

claims, of course, were with prejudice.

The final state law claims, however, should have been dismissed without

prejudice. We hold that the district court did not abuse its discretion by

declining to exercise supplemental jurisdiction over the remainder of the

declaratory-judgment claims and the Texas conversion claim, which involve

distinct questions of state law. See id. Such dismissals, of course, are without

prejudice. 4 See Bass v. Parkwood Hosp., 180 F.3d 234, 246 (5th Cir. 1999). The

judgment should be clarified to reflect these different dismissals.

Accordingly, we modify the judgment to make clear that the claims

dismissed under Rule 12(b)(6) are dismissed with prejudice and the claims

dismissed based on a decision not to exercise supplemental jurisdiction, as

discussed above, are dismissed without prejudice. AFFIRMED as modified.

4 The court made conflicting statements about whether it dismissed Lucky Tunes’s

conversion claim for failure to state a claim or declined to exercise supplemental jurisdiction

over it. Given that federal courts are courts of limited jurisdiction and that these state law

claims were distinct from the federal claims and the other state law claims, we construe the

order as declining to exercise supplemental jurisdiction, resulting in a dismissal without

prejudice of the conversion claim.

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