Opposition Brief — Empress Casino Joliet Corp. v. Giannoulias (No. 08-945)

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FILED

WV ® APR $ - 2009

OFFICE OF THE CLERK

No. 08-945 SUPREME COURT, U.S.

In the

Supreme Court of the United States

EMPRESS CASINO JOLIET CORP., ET AL., PETITIONERS,

ALEXI GIANNOULIAS, ET AL., RESPONDENTS.

On Petition for a Writ of Certiorari

to the Supreme Court of Illinois

BRIEF IN OPPOSITION

WILLIAM J. MCKENNA

MarTIN J. BISHOP

JONATHAN W. GARILOUGH

Foley & Lardner LLP

321 North Clark Street

Chicago, Illinois 60654

Counsel for Respondents

Balmoral Racing Club, Inc.

& Maywood Park Trotting

Assoc., Inc.

EDWARD M. WHITE

MICHAEL J. MURRAY

Carey, Filter, White & Boland

33 West Jackson Boulevard

Chicago, Illinois 60604

Counsel for Respondent

Hawthorne Race Course, Inc.

LisA MADIGAN

Attorney General

of Illinois

MICHAEL A. SCODRO*

Solicitor General

JANE ELINOR NotTz

Deputy Solicitor Gencral

JERALD S. Post

Asst Attorney General

100 West Randolph Street

Chicago, Illinois 60601

(812) 814-8698

Counsel for Respondents

Alexi Giannoulias &

The Illinois Racing Board

*Counsel of Record

QUESTION PRESENTED

Nine riverboat casinos currently operate with

Illinois gambling licenses. State law makes clear that

they have no property interest in these licenses, but in

exchange for contributions to the public welfare and

complhance with comprehensive state gaming

regulations, their licenses exempt them from Illinois’

criminal anti-gambling laws.

Do these Illinois casinos have a property interest

for Takings Clause purposes in the undiminished value

of their gambling licenses and, even if so, is it a

“taking” of “property” to tax casinos on a fraction of the

gaming earnings derived from their licenses, where the

tax supports a recognized public purpose and requires

the payment of money, without regard to its source,

that is unaffiliated with any interest in property?

RULE 29.6 STATEMENT

Balmoral Racing Club, Inc. and Maywood Park

Trotting Association, Inc. are wholiy owned

subsidiaries of World Wide Wagering, Inc., a Delaware

corporation.. World Wide Wagering, Inc. has no

parent, and none of its shares is held by a publicly

traded company.

Hawthorne Race Course, Inc., an_ Illinois

corporation, has no parent and none of its shares is

held by a publicly traded company.

Petitioners and amici improperly reference

Balmoral Park Trot, Inc. as a respondent in this proceeding.

The correct entity is Balmoral Racing Club, Inc. Pet. App.

aa.

11]

TABLE OF CONTENTS

Page

QUESTION PRESENTED ......c cc cccccsees i

Pru ass 20.6 DEE MLE. wc cee tee ewe as li

TABLE OF AUTHORITI§CG .. 1... ccc vec vees 1V

a EEE: a fea Ox Oe ee Pe ee ee ee ee

REASONS FOR DENYING THE PETITION .... 10

I. This Case Does Not Pose The Question

Presented, Nor Is It A Vehicle To Revisit The

Relationship Between A “Taking” And A

ca | gene rare i gore rere ine” Harti nr tine hana gar 11

li. Petitioners Cannot Establish A _ Property

Interest In The Undiminished Value Of Their

Cr@tis LAICCNBES . 6.5 ce env evens 25

eo UR a eer ee

TABLE OF AUTHORITIES

Cases: Page:

Arch-View Casino Cruises, Inc. v. Ill.

Gaming Bd.,636 N.E.2d 42

Re Re Se | er re 4

Ass'n of Bituminous Contractors, Inc. v. Apfel,

166 F’.da 1246 (D.C. Cir. 1906) .......... 20, 21

Atlas Corp. v. United States,

895 F.2d 745 (Fed. Cir. 1990) ........... 15-16

A.T. Massey Coal Co. v. Massanari,

305 F.3d 226 (4th Cir. 2002) ............ 20, 21

Bennis v. Michigan, 516 U.S. 442 (1996) ........ 32

BHA Investments, Inc. v. Jdaho,

63 P.3d 474 (Idaho 2003) ......... 15, 16, 28, 33

Bobbie Preece Facility v. Commonwealth of Ky.,

71 S.W.3d 99 (Ct. App. Ky. 2002) ........ 11, 33

Bowen v. Gillard, 483 U.S. 587 (1987) .......... 30

Bowen v. Pub. Agencies Opposed

to Soc. Sec. Entrapment, 477 U.S. 41 (1986) .. 30

Bronco Wine Co. v. Jolly,

29 Cal. Rptr. 3d 462 (Ct. App. 2005) ...... 28, 33

Brown v. Legal Found. of Wash..,

ee WG. DRO CRO) on ee eee wees ,. 42, 33

Buhmann v. Montana,

201 P.3d 70 Gviont. 2008) ............... 32, 33

Carney v. Attorney General,

890 N.E.2d 121 (Mass. 2008) .......... 32, 33

Cleveland v. United States, 531 U.S. 12 (2000) ... 29

Commonwealth Edison Co. v. United States,

271 F.3d 1327 (Fed. Cir. 2001) ....... 15, 16, 20

Connolly v. Pension Benefit Gty. Corp.,

ee Se, ee OE EE oy os oe ime ba eek eee 31

Conti v. United States,

2el £ oa looe-Gred. Car. 2002) ... 0. cc ccccves 28

Corn v. Lauderdale Lakes,

So F.o0 1006 (2 ith Cir. 19906) ... 2... sees 26

Eastern Enterprises v. Apfel,

ee see, RD ow ce cee teu en passim

Ehrlich v. Culver City, 911 P.2d 429 (Cal. 1996) .. 18

Franklin County Convention Facilities Auth.

v. Am. Premier Underwriters, Inc.,

240 F.3d 534 (6th Cir. 2001) ......... 20, 21, 22

Hawkeye Commodity Promotions, Inc. v.

Vilsack,486 F.3d 430 (8th Cir. 2007) .. 27, 28, 33

Home Builders Ass’n v. City of Beavercreek,

Tee Chee OED CIO ZOGU) gcc cee cecnves 18

Home Builders Ass’n v. City of Scottsdale,

Soe © .20 Geo UAMiZ. 1967) 2. cc ew nee 18

Home Builders Ass’n of Greater Des Moines v.

West Des Moines, 644 N.W.2d 339

I ae Te ee ok vale O 15, 16

Hortonville Joint Sch. Dist. No. 1 v.

Hortonville Educ. Ass’n, 426 U.S. 482 (1976) .. 24

Tannelli v. United States,420 U.S. 770 (1975) .... 29

Kirk v. Denver Publ’g Co.,

BiG Pie see (000. LGPL) 6s cei ees 16, 17

Lingle v. Chevron U.S.A., Inc.,

ee es ee OD 5. kbp hv a os bree oe ee 26, 30

Loretto v. Teleprompter Manhattan CATV Corp.,

458 U.S. 419 (1968) ....... re re

Lucas v. S.C. Coastal Council,

a A or rere. S|

Rearvin vu. Trout, 180 U.S. 212 (1905)... .. 2. cee 29

McCarthy v. City of Leawood,

ee ee er Ce, LOOP ow eee ec ewewes 18

Vil

MEC Pennsylvania Racing, Inc. v. Pennsylvania

State Horse Racing Comm'n, 827 A.2d 580

boy Me Ae Sa) a eee

Mibbs, Inc. v. South Carolina Dep't of Revenue,

624 6.1.20 G26 (GL. TOGR) . ccc tc teees

Mitchell Arms, Inc. v. United States,

7 F.3d 212 (Ped. Cir. 1093) .......... 28, 30,

Northern Ill. Home Builders Ass’n v. County

of Du Page, 649 N.E.2d 384

ke | Rar ee ee eee 7, 13, 14,

Parella v. Retirement Bd. of the Rhode Island

Employees’ Retirement Sys., 173 F.3d 46

Pa es BD os a ee aa ke oe ate pene

Penn Cent. Transp. Co. v. City of N-Y.,

ee es re 30,

Phillips v. Wash. Legal Found.,

ve Le We. 6: re 12, 13,

Raceway Park, Inc. v. Ohio,

356 F.3d 677 (6th Cir. 2004) ......... 27, 31,

Ruckelshaus v. Monsanto Co.,

467 U.S. 986 (1984) ............. 25, 26, 29,

Smith v. Price Dev. Co..

126 P.3e O45 Ciitan ZO «nn sce ees 16,

Vill

Sowma v. Parker, 22 A.2d 513 (Vt. 1941) ....... 33

Star Northwest, Inc. v. City of Kenmore,

No. C05-2133P, 2006 WL 2372395

(W.D. Wash. Aug. 10, 2006) ...............833

Stone v. Mississippi, 101 U.S. 814(1879)........ 29

Swisher Int'l, Inc. v. Schafer,

550 F.3d 1046 (11th Cir. 2008) .......... 20, 21

Town of Flower Mound v. Stafford Estates

Ltd. P’ship, 135 S.W.3d 620 (Tex. 2004) ...... 18

Trimen Dev. Co. v. King County,

877 Pi2da 187 CWash. 1984) ......cccnccccas 18

United States & Fed. Commc’ns Comm’n v.

Edge Broad, 509 U.S. 418 (1993) ........... 29

Uni‘ed States Fidelity & Guaranty Co. v.

McKeithen, 226 F.3d 412

eet RA, SE eh os ke 4 dee es 16, 17, 20, 22

Jnited States v. Fuller,

GOR U.D. GBS CGT) 6kk kee cine vs 26, 27, 28, 32

United States v. Rands, 389 U.S. 121 (1967) ..... 32

United States v. Sperry Corp.,

i ee te re

Unity Real Estate Co. v. Hudson,

178 F.3d 649 (3d Cir. 1999) ................ 20

Vanek v. State Board of Fisheries,

OU Oe BU cc ccc cr eee 28

Webb’s Fabulous Pharmacies, Inc. v. Beckwith,

GN 12.13

Statutes and Regulations:

NE 6) rs ,or C

ES 6) 6

EC) 6

Brasees amet PWG, © UTS) dw. ce ccc ee cee 3

Ee 3

eg ON 3

230 ILCS 5/1.3(a) (2006) ............... iss ae

| ) 3

230 ILCS 5/54.5(a) (2006) ..............0.00065 6

mow bac O/O4.0(D) (2006) ..................... 7

me seme 20/1 OF B@g. (2006) ...............+++28

230 ILCS 10/2 (2006)

230 ILCS 10/2(b) (2006) 5

ee ee ee ee ee er ee ee ee ee a ee a er

Rive Boy. | anne nema o er:

230 ILCS 10/5(b)(1) (2O0G) .. wc ccc ccc cee wee 29

230 ILS 10/GQO) GOOG) og gic ce cide cctccees ®

230 ILCS 10/5(c)(11) (2006) .............2--. 4, 29

230 ILCS 10/5(c)(12) (2006) ...............005. 5

900 TA BT Gee ecb be xew ens eat cee 29

230 TELA TOT OD wiv o ie hv ck dk tees sexs e en 6

230 ILCS 10/7(b)(3) (2006) .............0006- 4

230 TLCS 10/Tle) COGS) ow cc cece ere nss 3

230 ILCS 10/7(g) (2006) ...... ey ereerT ro

STE FT k Ce. ib vo eke hese cee 4

290 TLCS 1077.38 (006) 5 ok cc cer ceveseuses 4

230 ILCS 10/7.3tc) (2006) ...... ccc cece ere ccs 5

396 TAS ert Ce ok ks es oe oe he ee ee 5

DOO TEATS 1S CS i oe he oa oh eee 5

FBO TLCS 10FO CHOBE cs ok nce da tencreowrinen 5

mae ELA MOV ID Cs os bo sec ete tia se eran 5

230 ILCS 10/12(a-5) (2006) ........

230 ILCS 10/12(b) (2006) .........

230 ILCS 10/13 (2006) ...........

230 ILCS 10/13(a-3) (2006) ........

230 ILCS 10/13(a-4) (2006) ........

230 ILCS 10/13(a-10) (2006) ...

720 ILCS 5/28-8 (2006) .......cec:

Sied Bae. EMG BO. ccc tr cesecese

86 lll. Admin. Code

3000 .230(c)(2)

86 Ill. Admin. Code

3000.235

86 Ill. Admin. Code § 3000.236(b) ..

86 Ill. Admin. Code § 3000.300.....

86 Ill. Admin. Code § 3000.310.....

86 Ill. Admin. Code § 3000.320 .

86 Ill. Admin. Code

3000.1105

ts, se’

Miscellaneous:

www.igh.stateil.us/annualreport /2008igh. pdf ]

www.igb.state.il.us/mics/index.pdf. ............. 5

94th Ill. Gen’l Assembly, H.R., April 26, 2006..... 3

]

BRIEF IN OPPOSITION

The certiorari petition should be denied. Quite

simply, this 1s not the case that petitioners make it out

to be. They stake their entire petition on the

provocative premise that the Illinois Supreme Court

has announced a “per se rule” exempting money from

protection under the Takings Clause. But this premise

is demonstrably false, for the court below carefully

jimited its holding to avoid such a sweeping rule.

Petitioners dedicate much of their petition to this

straw-man reading of the holding below—how it

purportedly conflicts with this Court’s case law and

implicates a split in lower court authority. But none of

this responds to the Hlinois Supreme Court’s actual

(and unremarkable) holding that the Takings Clause

does not apply here because petitioners are objecting to

a tax requiring them to pay moncy that 1s unaffiliated

with any fund or any interest in real or personal

property. This reflects precisely the distinction that

five members of this Court, relying on prior case law,

drew in Eastern Enterprises v. Apfel, and ultimately

petitioners ask this Court merely to reconsider the

application of this established distinction to the facts

here. But even this effort at error correction fails, for

much of what petitioners challenge are the Illinois

Supreme Court’s controlling conclusions of state law,

and petitioners ignore the dispositive fact that they are

part of a state-licensed, limited gambling monopoly.

This last point also raises a larger, threshold

problem that disqualifies this case as a vehicle to reach

the question presented in the petition. Petitioners

paint themselves as “disfavored” businesses forced to

subsidize more politically influential competitors in a

free and open market. But nothing could be further

from the truth. Unlike the “big box” stores and other

competitive market participants that petitioners

predict are next in line for a similar tax—and that

their amici seek to protect—petitioners hold revocable

licenses entitling them to operate in a limited, state-

managed gambling monopoly. These facts not only

drastically affect the traditional takings analysis

(making this an idiosyncratic case for rethinking or

even applying that analysis), but they are

independently fatal to petitioners’ takings claim

(meaning there is no way even to reach the question

that petitioners pose, were it presented). Courts refuse

to extend takings protections to laws reducing the

value of licenses, especially where, as here, state law

makes clear that the licenses are not property,

claimants operate in a field subject to comprehensive

regulation, and the State shields claimants frorn

competition from new market entrants by permitting

them to engage in conduct that the State could

eliminate entirely through its police power. Neither

petitioners nor their amici suggest that any of these

grounds is worthy of review, yet they alone require

rejection of petitioners’ takings claim.

STATEMENT

1. Gambling is illegal in Illinois, 720 LLCS 5/28-

3 (2006), with very limited exceptions. Since 1927,

Illinois has allowed parimutuel betting on horse

racing, 1927 Ill. Laws 28—provided operators obtain a

state license and submit to intensive state gaming

regulation, 230 ILCS 5/1 et seq. (2006)—“to benefit the

people of the State of Illinois by assisting economic

development and promoting Illinois tourism,” 230

ILCS 5/1.2 (2006). The results have been positive. Not

only do tracks contribute to the public fisc through a

daily tax on betting income, 230 ILCS 5/28.1 (2006),

but horse racing has created an estimated 37,000 jobs,

Pub. Act 94-0804 (“Act”), § 1(4). “Illinois agriculture

and other businesses * * * support and supply the

horse racing industry,” tbid., making horse racing “a

significant component within the agribusiness

industry,” 230 ILCS 5/1.2(a) (2006). Meanwhile, other

quarters, such as the show horse industry, enjoy

collateral benefits as well. 94th Ill. Gen’] Assembly,

H.R., April 26, 2006, at 65.

2. In 1990, in an effort to generate additional

revenue for education, the General Assembly extended

legalized gambling to include a small number of

riverboat casinos. 230 ILCS 10/2 (2006). The

Riverboat Gambling Act (“Gambling Act”), 230 ILCS

10/1 et seg. (2006), established ten “owners licenses”

(nine are currently active) whose holders may operate

riverboat casinos in designated areas throughout the

State, with all regions of the State sharing in the

economic benefits. 230 ILCS 10/7(e) (2006). In

selecting licensees, the Gambling Act and _ its

implementing regulations require the Illinois Gaming

Board to consider nearly a dozen factors, Arch- View

Casino Cruises, Inc. v. Ill. Gaming Bd., 636 N.E.2d 42,

43 (lll. App. Ct. 1994), including “the highest

prospective revenue to be derived by the State,” 230

ILCS 10/7(b)(3) (2006); see Arch-View, 636 N.E.2d at

43; 86 Ill. Admin. Code § 3000.230(c)(2), and more

broadly “the interests of the citizens of Illinois,” Arch-

View, 636 N.E.2d at 46. The four petitioners are the

highest grossing of the current licensees.

a. Under Illinois law, a gambling license “does not

create a property right.” 86 Ill. Admin. Code

§ 3000.1105. ‘The license remains a “revocable

privilege,” ibid., which may not be transferred or even

pledged as security without Gaming Board approval,

86 Ill. Admin. Code § 3000.235. It is renewable upon

the payment of a fee and a determination that the

licensee continues to meet all statutory and regulatory

requirements, 230 ILCS 10/7(g) (2006), following a

consideration of any other information that the Board

deems appropriate, 86 Ill. Admin. Code § 3000.236(b).

The Board also may invoke procedures to revoke or

suspend licenses “as it sees fit,” 230 ILCS 10/5(c)(11)

(2006), and if a license is revoked or not renewed, the

Board may re-issue it to another applicant, 230 ILCS

10/7.1 (2006), or may choose simply to conduct the

former licensee’s gambling operations itself, 230 ILCS

10/7.3 (2006).

Meanwhile, license holders must adhere to

comprehensive state gambling rules. The Gambling

Act is “designed to strictly regulate the facilities,

persons, associations and _ practices relating to

gambling operations pursuant to the police powers of

the State.” 230 ILCS 10/2(b) (2006). And casino

owners are not the only ones who must be licensed;

those who manage the gambling must obtain

“managers licenses,” anyone who works on a casino

riverboat must obtain an “occupational license,” and

anyone who provides “any equipment, devices, or

supplies to a licensed riverboat gambling operation”

must obtain a “suppliers license.” 230 ILCS 10/7.4,

10/8, 10/9 (2006). The Gaming Board supervises all

gambling operations, and its inspectors and agents

must be present whenever gambling is in progress.

230 ILCS 10/5(b)(6), 10/7.3(c) (2006). Moreover, the

Board may exclude persons from riverboats whose

reputation it believes would call the integrity of

gambling operations into question. 230 ILCS

10/5(c)(12) (2006). And even beyond these and other

specific rules established by statute and regulation,

owner licensees must conform to a_= general,

“suitability” requirement and implement internal

control systems consistent with Board-promulgated,

“Minimum Internal Control Standards” covering over

one hundred areas of operation. 86 Ill. Admin. Code

§§ 3000.300, 3000.310, 3000.320, 3000.1105;

www.igb.state.il.us/ mics/index.pdf.

b. In addition to initial hcensing and renewal fees,

licensees are subject to a series of daily taxes, by which

the State collects a portion of the revenue derived from

its limited gaming monopoly. Each day, owners must

pay a per-capita admission tax and managers a per-

capita admission fee, both of which go in part to local

governments. 230 ILCS 10/12(a), (a-5), (b) (2006).

Owners also must pay a daily privilege tax, assessed as

a percentage of the prior day’s adjusted gross receipts

(“gross receipts less winnings paid to wagers’), which

benefits, inter alia, local governments, the State Police,

the Illinois Department of Human Services, and the

Education Assistance Fund. 230 [LCS 10/4, 10/13

(2006).

3. Riverboats and horse racing compete in the same

gambling industry, 230 ILCS 5/1.3(a) (2006), and by

2006 the General Assembly recognized that the

riverboats were having “a negative impact on horse

racing,” Act § i(1). Racing had experienced a 42%

decline in on-track wagering since riverboat gaming

was introduced, ibid., and this steep decline was

inflicting severe damage on the State’s breeding

industry, id. § 1(2)-(3).

The Genera! Assembly responded to counteract “the

decline of the Illinois horseracing and breeding

program, a $2.5 billion industry,” and thus to bolster

“Tilinois agriculture and other businesses that support

and supply the horse racing industry.” Act § 1(3)-(4).

The legislature had recently decreased the daily

privilege tax rates that all casinos paid (from a top

marginal rate of 70% of adjusted gross receipts down to

50%, 230 ILCS 10/13(a-3), (a-4) (2006)), and in 2006 it

passed the Act to add an additional, daily tax on casino

gambling earnings to improve horse racing tracks and

purses. The Act created the Horse Racing Equity

Trust Fund (“Fund”) to be administered by the Illinois

Racing Board. 230 ILCS 5/54.5(a) (2006). For two

years, riverboat licensees with adjusted gross receipts

in 2004 above $200 million (the four petitioners here)

would pay into the Fund each day an amount equal to

% of the prior day’s adjusted gross receipts. 230 [LCS

10/7(a) (2006). The Illinois Racing Board was required

to distribute these payments, with 60% going to

increase racing purses and the remaining 40% going to

“amprove, maintain, market and otherwise operate

* * * racing facilities to conduct live racing.” 230 ILCS

5/54.5(b) (2006).

Each of the petitioners chose to renew its state

owners license after the Act went into effect—Empress

in July 2006, Harrah’s in September 2007, Hollywood

in December 2006, and Elgin in June 2008—although,

in Elgin’s case, it did so after the Act’s two-year tax

period ended. See www.igb.state.il.us/annualreport

/2008igb.pdf.

4. On May 30, 2006, petitioners filed a complaint in

the Illinois courts for declaratory and injunctive relief

against the state Treasurer and the Illinois Racing

Board. R.C2. Among its claims, the complaint

challenged the Act as an unlawful taking under both

the Illinois and federal constitutions. R.C12.

On March 26, 2007, the trial court awarded

summary judgment for respondents on all of

petitioners’ theories but one; the court held that the

Act ran afoul of the Dlinois Constitution’s “Uniformity

Clause,” which hmits the State’s taxing power. Pet.

App. 39a-50a. On April 20, 2007, the court issued its

final judgment, declaring the Act unconstitutional] on

this ground and permanently enjoining respondents

from imposing or collecting the 3% tax. Pet. App. 5la-

52a (erroneously dated in the appendix as March 26,

2007).

Respondents appealed directly to the Illincis

Supreme Court, which unanimously reversed. Aftei

holding that the Act comphed with the Uniformity

Clause, Pet. App. 7a-19a, it proceeded to consider and

(like the trial court) reject petitioners’ alternative

claims, id. at 20a-33a.

As relevant here, the court rejected petitioners’

theory that the 3% surcharge was not a tax, but a

taking. Pet. App. 20a-Z6a. The court recognized that

calling the surcharge a “license fee,” as petitioners

urged, did not change its legal status, invoking

decisions from around the country rejecting takings

challenges to license fees, including in the specific

context of gaming hcenses. /d. at 22a-23a. The court

likewise rejected petitioners’ reliance on Northern Il.

Home Builders Ass'n v. County of Du Page, 649 N.E.2d

384 (Ill. 1995), and Eastern Enterprises v. Apfel, 524

U.S. 498 (1998). The court acknowledged that the

former found a monetary fee to be a taking, but that

fee “was inextricably tied to real property and, thus, a

takings analysis was appropriate.” Pet. App. 23a. And

although Apfel contemplates that money or other

intangibles can be the subject of a takings claim, the

court below recognized that five Justices in Apfel

refused to find a taking where, as here, the money need

not come from or impair any specific, cognizable

property interest. /d. at 24a-25a.

Finally, the court held that “[t]he plain language of

the Act belie[d]” petitioners’ claim that “the primary

intended beneficiaries of the surcharge are private

parties * * * and not the public.” Jd. at 29a. The court

explained that “the principle purpose of the Act is a

public one: to stimulate economic activity, including

the creation and maintenance of jobs and the

attraction and retention of sports and entertainment,

particularly betting on horse racing.” /d. at 30a.

Relatedly, the court rejected petitioners’ claim that

state law gave the tracks unfettered discretion to apply

the proceeds as they please. As a matter of Illinois

law, the court concluded, “[t]he track owners cannot

simply pocket any of the funds they receive,” as those

funds are statutorily “earmarked for specific purposes”

and “must be used by the tracks for those purposes.”

Ibid.

The court thus concluded that the Act neither

“operate[s] upon” nor “alter[s] an identifiable property

interest.” Jd. at 26a. Rather, it “involves [the State’s|

exercise of its taxing powers.” Ibid. Accordingly, “the

surcharge is not a taking of private property within the

meaning of the constitutional takings clauses.” Jbid.

The court subsequently denied rehearing, id. at

55a, but stayed its judgment pending the filing and

resolution of this petition.

REASONS FOR DENYING THE PETITION

The petition should be denied for several reasons.

Most obviously, the question it poses simply is not

presented in this case. The Illinois Supreme Court did

not purport to hold that money can never be the subject

of a takings claim, as petitioners repeatedly assert, see

Pet. i, 11, 12, 18, 23, and on which their petition

critically depends. The court carefully distinguished

its own prior decision recognizing that money may

form the basis of a takings challenge, and it quoted

lengthy passages from Apfel to the same effect. The

court’s actual holding is perfectly consistent with this

Court’s case law, and implicates neither of petitioners’

purported “splits” in authority. In the end, petitioners

merely ask this Court to recognize the Act as an

example of a monetary assessment that amounts toa

taking, either because it is not a “tax” at all or because

it is both a “tax” and a “taking.” See Pet. 26-30. But

even this effort at error correction fails, for it requires

the Court to ignore the dispositive fact—little

mentioned in the petition or by any of the amici—that

petitioners are licensees in a state-regulated, limited

gambling monopoly.”

Petitioners tried this same gambit below. As

respondents told the Illinois Supreme Court, petitioners

“portray themselves as purely private marketplace

competitors of the horse racing licensees, when in reality

both the plaintiff casinos and the intervenor racetracks hold

some of the very limited number of state gambling licenses,”

meaning they “are shielded from competition in a true

market by the State’s prohibition on other forms of

gambling.” Reply Brief of State Appellants at 1.

And petitioners’ status as licensees in the State’s

limited gambling monopoly presents’ another,

independent reason for denying the petition, consistent

with respondents’ argument below. See Reply Brief of

State Appellants at 14 (distinguishing petitioners’

takings authority, where “[tjhe business receiving the

property was not a licensee in an industry created by

the State for the purpose of meeting specific public

interests”; rather, “[iJt was, as the casinos misleadingly

attempt to portray themselves, a purely private entity

competing for the public’s entertainment dollars”).

This is because, for takings purposes, gambling and

related licensees are not entitled even to claim a

property interest in the undiminished value of their

licenses, meaning petitioners’ claim fails at the

. threshold, without reaching any of the issues raised in

the petition. See Pet. App. 23a (Illinois Supreme Court

opinion below, citing, inter alia, Bobbie Preece Facility

v. Commonwealth of Ky., 71 S.W.3d 99, 104 (Ct. App.

Ky. 2002), which concluded that “an interest which

depends totally on regulatory licensing is not a

property interest that is compensable under the

Takings Clause”).

I. This Case Does Not Pose The Question

Presented, Nor Is It A Vehicle To Revisit The

Relationship Between A “Taking” And A

“Tax.”’

The Illinois Supreme Court’s ruling neither

diverges from this Court’s precedent nor implicates any

split in authority, and petitioners claim otherwise only

by mischaracterizing that decision. In fact, the court

below did not adopt a broad rule that a “State's taking

of money from private parties is wholly outside the

scope of the Takings Clause,” Pet. i, so the petition’s

very premise is false. And petitioners’ fallback request

for error correction ignores key facts, chiefly that

petitioners participate in a regulated, limited gambling

monopoly.

1. As the Illinois Supreme Court acknowledged, see

supra pp. 8-9; infra pp. 13-14, specific property

interests in money may qualify as property for takings

purposes, see Brown v. Legal Found. of Wash., 538 U.S.

216, 240 (2003); Phillips v. Wash. Legal Found., 524

U.S. 156, 163-170 (1998); Webb's Fabulous Pharmacies,

Inc. v. Beckwith, 449 U.S. 155, 160-164 (1980). Thus,

petitioners’ claim that the court below announced a

“per se” or “categorical” rule to the contrary, Pet. 11,

23, 1s false.

Petitioners cite Webb’s, which struck down a

Florida law requiring that interpleader funds be

deposited in the registry of the county clerk, and the

interest earned retained by the county as income. See

449 U.S. at 156 n.1, 164-165. There, the Court relied

heavily on Florida law providing that the principal

sum deposited in the court’s registry was private

property, coupled with the “long established general

rule” that interest on interpleaded and deposited funds

follows the principal and should be allocated to the

owners of that principal. Jd. at 160, 162-163. In

Phillips, on which petitioners also rely, the Court

followed Webb’s to reach a’similar result. Under Texas

law, attorneys were required to pool certain client

deposits in an Interest on Lawyers Trust Accounts

(“IOLTA”) account. See 524 U.S. at 161-162. But the

interest on these accounts was diverted from the

clients to others. See id. at 162. The Court found that

the interest was the private property of the chents for

Takings Clause purposes, reasoning that the clients

owned the principal and, under Texas law, interest is

presumed to follow the underlying principal. See id. at

164-166. Finally, Brown merely confirmed the holding

in Phillips that interest income on IOLTA accounts is

client property. See 538 U.S. at 235.

The rule of Brown, Phillips, and Webb’s is that

specific property interests in money may qualify as

property for purposes of the Takings Clause, hut that

is not disputed here, where the Illinois Supreme Court

correctly determined that the need to pay money in

this case is not a taking because the Act does not

“operate upon or alter an identifiable property

interest,” in money or anything else. Pet. App. 26a.

This is also consistent with the conclusion reached by

five members of this Court in Apfel, that government

action is not a taking if it does not “target[] a specific

property interest,” “depend|[] upon any particular

property,” or (as to cash) burden a “specific, separately

identifiable fund of money.” 524 U.S. at 543 (Kennedy,

J., concurring in the judgment and dissenting in part);

id. at 554, 555 (Breyer, J., with Stevens, Souter, and

Ginsburg, -J-J., dissenting).

Petitioners seize upon a single phrase in the

decision below—that “regulatory actions requiring the

payment of money are not takings”—to erect the

straw-man argument on which much of the petition

depends. Pet. 2, 9 (quoting Pet. App. 25a). But this is

not the Illinois Supreme Court’s holding. In fact, the

court repeatedly acknowledged that the Takings

Clause can protect money alone. The court thus

distinguished its own prior decision in Northern

Illinois Home Builders, which applied takings

principles to a monetary fee “tied to real property,” and

quoted at length from Justice Kennedy’s concurrence

in Apfel, which acknowledged that not only “land” but

also “an intangible” and “even a bank account or

accrued interest” can form the basis of a takings claim.

Pet. App. 23a-24a (internal quotations omitted). In

short, although the court was not asked to decide

whether money alone can ever be the subject of a

takings claim, the court nevertheless made clear that

it can (consistent with its own prior case law, see Pet.

App. 23a).

Thus, petitioners’ suggestion that the decision

below runs afoul of this Court’s decisions “apply[ing]

takings analysis to personal property of all kinds,” Pet.

22, also fails. To reiterate, the Illinois Supreme Court

had no doubt that government action that

“appropriate[s], transfer[s], orencumber|s] an estate in

land (e.g., a lien on a particular piece of property), a

valuable interest in an intangible (e.g., intellectual

property), or even a bank account or accrued interest”

may violate the Takings Clause. Pet. App. 24a

(internal quotations omitted).

2. Petitioners’ mischaracterization of the decision

below is also essential to their claim that this case

implicates two splits in lower court authority—one

over “whether, and in what circumstances, a state’s

taking of money from private persons may constitute

a ‘taking’ in the constitutional sense,” and another over

the proper application of Apfel. Pet. 10-11, 15. Again,

the I[llinois Supreme Court did not hold that

government action requiring the payment of money is

never a “taking”; it merely rejected petitioners’ effort to

claim a tax—which petitioners may pay from any

source and does not deprive them of any recognized

property interest in specific funds—as a taking.

Petitioners cannot marshal a single case at odds with

this principle. To the contrary, the distinction between

specific property interests in money (which may qualify

for Takings Clause protections), and _ general

obligations to pay a tax, whatever the source of funds

(which do not), explains the result in every case in

petitioners’ first alleged split. And even if there were

a split as petitioners describe it, with some courts

announcing a per se takings exception for cases

involving money and others applying something short

of a per se rule, the Illinois Supreme Court is already

in the latter camp, which is the one that petitioners

favor. See supra pp. 8-9, 13-14. The second suggested

split fares no better, for every court to address the

issue has concluded that five members of the Apfel

Court rejected the view, which petitioners seek to

resurrect here, that a general liability to pay money is

an unconstitutional taking. We consider each

purported split in turn.

To manufacture the first, petitioners substantially

overstate the holdings of Commonwealth Edison Co. v.

United States, 271 F.3d 1327 (Fed. Cir. 2001) (en banc);

Atlas Corp. v. United States, 895 F.2d 745 (Fed. Cir.

1990); BHA Investments, Inc. v. Idaho, 63 P.3d 474

(Idaho 2003); and Home Builders Ass’n of Greater Des

Moines v. West Des Moines, 644 N.W.2d 339 (lowa

2002). Petitioners claim that these decisions

announced a “per se rule” that the required payment of

money can never be a taking. Pet. 11. But in reality,

each court merely declined to apply a takings analysis

to a general obligation to pay money. See

Commonwealth Edison, 271 F.3d at 1338-1340

(upholding requirement that utilities pay special

assessment toward remediation of environmentally

contaminated facilities); Atlas Corp., 895 F.2d at 756-

758 (upholding law requiring uranium producers to

fund clean-up of uranium tailings piles); BHA

Investments, 63 P.3d at 480-481 (upholding

requirement that buyer of state liquor license pay

State 10% of purchase price as transfer fee); Home

Builders Ass'n, 644 N.W.2d at 351 (upholding law

requiring builders and developers to pay fees, as

condition of obtaining permits, to maintain local park

system). In not one of these cases did the challengers

argue that the assessments targeted a property

interest in money, much less did the court hold that

such an interest cannot form the basis of a takings

claim. In language that petitioners omit, the Federal

Circuit in Commonwealth Edison thus made “clear

that a fund of money can be property protected under

the Takings Clause,” 271 F.3d at 1338 (citing Phillips

and Webb’s), while “the mere imposition of an

obligation to pay money, as here, does not give rise” to

a takings claim, id. at 1340.

Because none of these decisions questions the

settled principle that specific property interests in

money can be the subject of an unlawful taking, they

do not conflict with Smith v. Price Dev. Co., 125 P.3d

945 (Utah 2005); Kirk v. Denver Publ’g Co., 818 P.2d

262 (Colo. 1991); or United States Fidelity & Guaranty

Co. v. McKeithen, 226 F.3d 412 (5th Cir. 2000), as

petitioners contend. See Pet. 11-12. In each case, the

court found an unconstitutional taking only after first

finding that the government appropriated money

protected by a _ specific property interest. The

provisions at issue did not merely impose “an ordinary

hability to pay money,” Apfel, 524 U.S. at 554 (Breyer,

J.), but instead “target|ed] a specific property interest,”

id. at 543 (Kennedy, J.). Accordingly, these decisions

are perfectly in line with the Illinois Supreme Court’s

decision below and with the lower court cases discussed

above.

Kirk and Smith struck down laws providing States

with a share of certain punitive or exemplary damages

awards. See Kirk, 818 P.3d at 266; Smith, 125 P.3d at

948. As these courts recognized, the payments

depleted plaintiffs’ specific, identifiable property

interest in favorable htigation judgments. In Kirk,

state law recognized a property interest in exemplary

damages. See 818 P.3d at 267, 272-273. And the law

in Smith was, “for all intents and purposes, identical to

the provision invalidated” in Kirk. 125 P.3d at 952. It

“gave the State no interest in the judgment entered by

the district court,’ while the plaintiffs “owned the

entire punitive damages judgment” and thus had a

“vested property interest therein.” Jd. at 950, 952.

Likewise, the law invalidated in United States Fidelity

imposed a retroactive burden on insurers who

contributed (or who once had contributed) to a state

workers’ compensation fund. See 226 F.3d at 414-415.

“The assessments against [the] plaintiffs ar[o]se from

the specific fund of benefits they pa[id] to’claimants in

Louisiana each year” and were “charged by the

insurers against the fund of reserves set aside from the

premiums collected under specific insurance policies.”

Id. at 420. The insurers’ monetary obligation therefore

“refer[red] to an identifiable property interest or fund,”

tbid., and was properly characterized as protected

property for takings purposes.

Petitioners’ reliance on state court decisions

striking down fees, assessments, and exactions is

equally misplaced. See Pet. 14 & n.8 (citing Town of

Flower Mound v. Stafford Estates Ltd. P’ship, 135

S.W.3d 620 (Tex. 2004); Home Builders Ass’n v. City of

Beavercreek, 729 N.E.2d 349 (Ohio 2000); EKhrlich v.

Culver City, 911 P.2d 429 (Cal. 1996); Trimen Dev. Co.

v. King County, 877 P.2d 187 (Wash. 1994)). In each,

the money due was tied directly to the development of

a parcel of real property. The Illinois Supreme Court’s

ruling is fully consistent with these decisions, for it

specifically recognized that assessments “inextricably

tied to real property” are subject to a takings analysis.

Pet. App. 23a (distinguishing its decision in Northern

Illinois Home Builders Ass’n).°

The basis for petitioners’ second alleged split is

purported “uncertainty” surrounding this Court’s

decision in Apfel. Pet. 15. But there is no uncertainty

over the single dimension of Apfel at issue here.

° Petitioners cite Home Builders Ass'n v. City of

Scottsdale, 930 P.2d 993 (Ariz. 1997), and McCarthy v. City

of Leawood, 894 P.2d 836 (Kan. 1995), in a footnote. See

Pet. 14-15 n.8. Rut the challengers in both cases waived

their takings claims. See Scottsdale, 930 P.2d at 999-1000;

McCarthy, 894 P.2d at 580. Even so, Scottsdale indicated

that, had a takings claim been preserved, the court would

have applied a takings analysis. See 930 P.2d at 1000. And

although the court in McCarthy suggested that a takings

analysis might not be applicable, see 894 P.2d at 580, this

statement was dicta because the challengers had forfeited

their takings claim

{In his concurrence, Justice Kennedy rejected the

plurality’s determination that the Coal Act, which

required former plant operators to fund retiree health

benefits, “takes property.” 524 U.S. at 539-540.

Although the Coal Act “imposeled] a staggering

financial burden” on former employers, Justice

Kennedy recognized that, under this Court’s prior

decisions, a statute that “is indifferent as to how the

regulated entity elects to comply or the property it uses

to do so” is not a “taking.” Jd. at 540.

Four other members of the Court agreed that the

“Takings Clause [did] not apply.” Jd. at 554 (Breyer,

J., with Stevens, Souter, and Ginsburg, Jd.,

dissenting). These Justices recognized that the

contrary rule would make every tax a “taking”; it

would cast doubt on any law that “creat[es] burdens for

some that directly benefit others” and thus subject

every tax to a takings challenge. Jd. at 556 (internal

quotations emitted); see also ibid. (“If the Clause

applies when the government simply orders A to pay B,

why does it not apply when the government simply

orders A to pay the government, i.e., when it assesses

a tax?’). A majority of the Court thus reaffirmed the

rule that, in Justice Kennedy’s words, an obligation to

pay money does not “implicate the Takings Clause” if

it does not “relate to a specific property interest.” Id.

at 544 (Kennedy, -/.).

There is no lack of “uniform|ity]” among lower

courts on this score. Pet. 15. In every one of

petitioners’ cases, the court drew precisely the same

conclusion—that five members of this Court rejected

the takings theory in Apfel because there was no

connection between the employers’ monetary obligation

and any specific, identifiable property interest. See

A.T. Massey Coal Co. v. Massanari, 305 F.3d 226, 237

n.17 (4th Cir. 2002): Commonwealth Edison, 271 F.3d

at 1339: Franklin County Convention Facilities Auth.

v. Am. Premier Underwriters, Inc., 240 F.3d 534, 551

(6th Cir. 2001); United States Fidelity, 226 F.3d at 420;

Unity Real Estate Co. v. Hudson, 178 F.3d 649, 674 (3d

Cir. 1999); Parella v. Retirement Bd. of tlhe Khode

Island Employees’ Retirement Sys., 173 F.3¢c 46, 58 (1st

Cir. 1999); Ass’n of Bituminous Contrac:ors, Inc. uv.

Apfel, 156 F.3d 1246, 1254 n.5 (D.C. Cir. 1998). In its

decision below, the Illinois Supreme Court merely

echoed this universally accepted understanding. See

Pet. App. 25a.

To be sure, Justice Kennedy and the plurality had

different reasons for finding the Coal Act

unconstitutional, and thus courts have quibbled over

what precedential weight to afford Apfel. Some have

treated the votes of Justice Kennedy and the four

dissenters as a holding. See, e.g., Commonwealth

Edison, 271 F.3d at 1389 (“We agree with the

prevailing view that we are obligated to follow the

views of that majority.”); see also id. at 1339 n.10

(collecting cases). Others have given the decision

somewhat narrower effect. ‘See Swisher Int'l, Inc. v.

Schafer, 550 F.3d 1046, 1054 & n.5 (11th Cir. 2008)

(declining to decide whether concurring opinion is

binding precedent but “agree[ing] with Justice

Kennedy that the takings analysis is not an

appropriate analysis for the constitutional evaluation

of an obligation imposed by Congress merely to pay

mone"); A.J. Massey, 305 F.3d at 237 (Apfel

“manuates judgment for * * * plaintiffs only if they

stand in a substantially identical position to Eastern

Enterprises with respect to both the plurality and

Justice Kennedy’s concurrence.”) (internal quotations

omitted). But the Illinois Supreme Court is in the

latter camp in any event. It did not purport to be

bound by the conclusion reached by the concurrence

and dissent in Apfel; it merely rejected petitioners’

attempt to use Apfel affirmatively to find a taking. See

Pet. App. 23a-25a.

In fact, no court has ever done what petitioners

asked the Illinois Supreme Court to do—adopt the

Apfel plurality’s reasoning and, on that basis,

invalidate a law as an unconstitutional taking based

on reasoning that five Justices expressly rejected. See

Brief of Plaintiffs-Appellees at 38-39. Rather, courts

have properly recognized that this part of the plurality

opinion cannot be binding. See, e.g., Swisher Intl, 550

F.3d at 1054 n.5. And therefore no court has held, as

petitioners urge, that after Apfel government action

creating a general obligation to pay money violates the

Takings Clause.

Indeed, while petitioners trumpet Ass’n_ of

Bituminous Contractors, see Pet. 16-17, the challengers

in that case did not even forward a takings claim, see

156 F.3d at 1254. And the court there recognized that

Apfel “renders takings claims Jess attractive to litigants

because of the possibility that the five dissenters on the

takings issue could form a majority in a later case.” Id.

at 1254 n.5. Likewise, in A.7. Massey and Franklin

County Convention Facility (cited at Pet. 17), courts

declined to find a Takings Clause violation—or any

other constitutional harm—under Apfel because the

plaintiffs were not “ina substantially identical position

to” the coal operators. A.7. Massey, 305 F.3d at 237;

accord Franklin County Convention Facility, 240 F.3d

at 552 (reasoning that Apfel lacks “precedential weight

beyond its own facts”). Finally, while the Fifth Circuit

identified a Takings Clause violation in United States

Fidelity, the court acknowledged that the Apfel

plurality’s “takings clause rationale was accepted by

only four justices” and carefully reconciled its decision

with the concurrence, concluding that a “taking must

refer to an identifiable property interest or fund.” 226

F.3d at 419-420.

In short, petitioners cannot identify a single case

whose holding would spelJ victory for them here, and

thus the resolution of any uncertainty regarding Apfel

cannot inure in their favor. Accordingly, even ifit were

necessary for this Court to clarify the precedential

effect of Apfel (and it is not), this case does not provide

a vehicle to do so.

3. Ultimately, petitioners appear to concede the

distinction the Court has drawn—and the [Illinois

Supreme Court acknowledged below—between a

general obligation to pay money, like a tax (not a

taking) and an obligation to pay part of a specifically

identified property ‘nterest in money (a taking). But

petitioners and their amici nevertheless urge the Court

to use this case to previde an example of an assessment

that is not truly a tax, see Pet. 26-27, or of a tax that is

also a taking, see id. at 27-30. This effort also fails.

Petitioners rely chiefly on their claim that, unlike a

proper tax, the Act demands money from a small

number of casinos and eventually gives it to a small

number of their compet) ors, not for the public good but

for “essentially any purpose” that track owners desire.

Pet. 26-29. Petitioners (in line with their amici) thus

compare themselves to “big box” stores forced to

subsidize more politically potent “local retailers.” Id.

at 30. But this is wrong for several reasons.

First and most obviously, petitioners are not open

market competitors. They are licensees in a small,

regulated gambling industry, which the State could

eliminate entirely under its police powers and that

continues to exist only so long as the industry as a

whole yields substantial public benefits—including

jobs, revenue, and tourism. The Takings Clause does

not apply where, as here, the State merely reduces or

eliminates value that the State itself has created for

private parties, as petitioners themselves recognized

below. See Brief of Plaintiffs-Appellees at 60 n.30

(arguing that racetracks “had no night to [a] monopoly”

on lawful gambling in Illinois, “[aJnd the State

committed no wrong in taking it away from them, in

order to promote tourism in the communities with

riverboats and to raise * * * revenue”); see also infra

pp. 32-33. ‘The 3% tax is no more than a reduction in

part of the value that the —tate-regulated gambling

monopoly creates for its few licensees, in response to

the negative effect that casinos are having on another

part of that monopoly. Indeed, the Act is an effort to

sustain the gambling industry by ensuring the

continued viability of its racing component, with its

critical employment and other benefits. See supra p. 3.

And the tax currently apples to only four casinos

because it is a progressive tax, and these are the four

highest grossing (of only nine total). Moreover, quite

unlike the “big box” example, petitioners undeniably

“receive something in return” for the tax. Pet. 28. The

State’s gambling industry remains healthy enough to

provide its anticipated public benefits, meaning

petitioners retain the valuable right to pursue super-

competitive profits in Illinois’ limited gambling

monopoly.

Second, the Illinois Supreme Court expressly

rejected petitioners’ argument that the tax serves no

public purpose, and that track owners have unfettered

discretion to spend its proceeds. Applying its “plain

language,” the Illinois Supreme Court held that “the

principle purpose of the Act is a public one’—“to

stimulate economic activity, including the creation and

maintenance of jobs and the attraction of sports and

entertainment”—and, in addition, that “[t]he track

owners cannot simply pocket any of the funds they

received,” as those funds are statutorily “earmarked for

specific purposes and must be used for those purposes”

as a matter of [lhnois law. Pet. App. 29a-30a. These

conclusions of state law are dispositive here. See, e.g.,

Hortonville Joint Sch. Dist. No. 1 v. Hortonville Educ.

Ass'n, 426 U.S. 482, 488 (1976).

Finally, petitioners claim that the Act requires

payments “drawn :rom a specified corpus of gross

receipts’—making it more like a taking than a general

obligation to pay—because casinos “must make daily

payments of a specified portion of the prior day’s

adjusted gross receipts for a two-year period.” Pet. 18,

27. Petitioners compare this to the tax man hovering

behind their dealers to seize 3% of each day’s take. See

Pet. 27. But the Act merely taxes an amount equal to

3% of adjusted gross receipts. It is entirely “indifferent

as to how the regulated entity elects to comply or the

property it uses to do so.” Apfel, 524 U.S. at 540

(Kennedy, /.). Petitioners’ reliance on the requirement

that they remit their payment by 3 p.m. the following

day is equally misplaced, for this is nothing more than

an easily administrable, bright-line rule (like having to

pay personal income tax by the close of business on

April 15). As a matter of fact, it is the same deadline

that all riverboat casinos must meet in paying the

daily privilege tax that petitioners do not challenge,

see 230 ILCS 10/13(a-10) (2006), and is akin to the race

tracks’ daily payment obligation. See supra pp. 3, 5-6.

In sum, this case does not present the question set

out in the petition, implicates no split in authority, and

1s a far cry from the case that petitioners describe in

which free market participants are forced to subsidize

their more politically powerful competitors.

Il. Petitioners Cannot Establish A Property

Interest In The Undiminished Value Of Their

Gambling Licenses.

Even if this case presented the question that

petitioners pose, and the question were otherwise

worthy of review, the fact that petitioners are licensees

in a state-regulated, limited gambling monopoly puts

that question out of reach, for these circumstances

alone require affirmance of the judgment below.

1. To prevail on their Takings Claim, petitioners

first must establish a protected property interest. See,

e.g., Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1000-

1001 (1984). Only then does one ask whether the Act

“effect[s] a taking” of that interest. Jbid. Here,

petitioners assume that they have a property interest

in avoiding the 3% tax on their adjusted gross receipts.

But this ignores that these receipts are returns on

gambling licenses, and that such government-issued

licenses (and financial returns thereon) are not

property within the meaning of the Takings Clause.’

This alone is grounds to reject petitioners’ takings

claim, although it is not an issue presented in the

petition or worthy of certiorari review, for it applies

only to the small subset of cases involving government

licensees, especially licensees in heavily regulated,

limited monopolies subject to outright prohibition

under the State’s police power, and it implicates no

alleged split in authority.

“

Whether something is protected property “is

determined by reference to existing rules or

understandings that stem from an independent source

such as state law.” Phillips, 524 U.S. at 164 (internal

quotations omitted). Accordingly, when determining

whether a license is property for purposes of the

Takings Clause, courts rely on state law for indicia of

property ownership, inquiring whether the license may

be transferred, assigned, or sold; whether the license

holder has the right to exclude others—as

demonstrated by the extent of the government’s power

to regulate the underlying activity—-as well as to

revoke, suspend, or modify the license; and whether

the government has provided by statute or regulation

that the hcense does not confer a property right. See

Ruckelshaus, 467 U.S. at 1002-1003; United States v.

Fuller, 409 U.S. 488, 494 (1973).

* That a license is not property under the Takings

Clause does not mean that it cannot qualify for procedural

due process protections. Property “is defined much more

narrowly” for takings than for duc process purposes. Corn

vu. Lauderdale Lakes, 95 F.3d 1066, 1075 (11th Cir. 1996);

see also Lingle v. Chevron U.S.A., Inc., 544 U.S. 528, 540

(2005).

Applying these principles, this and other courts

have held that government-issued licenses and permits

generally do not create property interests protected by

the Takings Clause and, as a result, that government

action that diminishes the value of those licenses and

permits—including, as here, by taxing a portion of the

earnings realized on them—cannot be the subject of a

takings claim. Thus, in Raceway Park, Inc. v. Ohio,

356 F.3d 677 (6th Cir. 2004), the court held that horse-

track owners had no property interest in their

wagering revenues, for purposes of a takings challenge

to an Ohio law redistributing a share of those revenues

to competing tracks. See id. at 683. Based on its

review of state law, the court concluded that “there is

no long-standing right to the revenues earned from

gambling on horse racing.” Id. at 682-683; see also

Hawkeye Commodity Promotions, Inc. v. Vilsack, 486

F.3d 430, 439-440 (8th Cir. 2007) (licensed lottery

machine owner lacked property interest for takings

purposes in state-issued license and, accordingly, in

“continued operation of its enterprise,” where lowa law

provided that possession of lottery machine license “is

a privilege personal to that person or entity and is not

a legal right” and prohibited licensees from selling,

assigning, or transferring their licenses) (internal

quotations and citation omitted).

And in Fuller, claimants had no property interest in

grazing permits issued for neighboring land under the

Taylor Grazing Act, and therefore no right to

compensation for the component of their own land

value attributable to the right to graze on the adjoining

federal property. The permits were revocable, and

Congress made clear that they “shall not create any

right, title, interest or estate in or to the lands.” 409

U.S. at 489 (quoting statute).

Other cases are to the same effect, finding no

property right in the undiminished value of a

government-issued license, and therefore sustaining

laws reducing that value. See, e.g., Conti v. United

States, 291 F.3d 1334, 1341-1342 (Fed. Cir. 2002)

(fishing permit); Vanek v. State Board of Fisheries, 193

P.3d 283, 293 (Ak. 2008) (same); BHA Investments, 63

at 480-481 (liquor license); Bronco Wine Co. v. Jolly, 29

Cal. Rptr. 3d 462, 495-496 (Ct. App. 2005) (certificates

of approval for wine labels); MEC Pennsylvania

Racing, Inc. v. Pennsylvania State Horse Racing

Comm'n, 827 A.2d 580, 593 (Pa. Commw. Ct. 2003)

(horse-racing license). In short, the Takings Clause

simply is not implicated where, as here, the alleged

“taking” of money “is associated with a [license] or

permit” that is not itself protected property. BHA

Investments, 63 P.3d at 481; accord Mitchell Arms, Inc.

uv. United States, 7 F.3d 212, 216 (Fed. Cir. 1993). The

State has not confiscated petitioners’ boats; it has

assessed a tax limited by its terms to a small

percentage of earnings derived from petitioners’

participation in a limited gambling monopoly—a

monopoly in which petitioners have no property right

to participate at all.

As in Hawkeye Commodity Promotions, Fuller, and

other cases, Illinois law expressly denies casino

licensees a “property right” in their licenses. See 86 III.

Admin. Code § 3000.1105. The license is a “revocable

privilege,” and holders may not assign, transfer or sell

their licenses without state approval, see 86 Ill.

Admin. Code §§ 3000.235, 3000.1105—all strikes

against finding a property interest, see, e.g.,

Ruckelshaus, 467 U.S. at 1002-1003. As is the fact

that these licensees lack the right to exclude others—in

fact, the Gaming Board has exclusive control over the

issuance of the licenses, see 230 ILCS 10/5(b)(1), 10/7

(2006), and may revoke or suspend them as the Board

“see[s] fit,” 230 ILCS 10/5(c)(11).

2. It is thus enough to defeat petitioners’ takings

claim that the Act taxes a small share of the value of

petitioners’ gambling licenses, a value in which

petitioners have no property interest for takings

purposes. But other facts ignored by the petition are

themseives independentiy fatal to petitioners’ claim.

Petitioners are willing participants in a heavily

regulated industry subject to complete elimination

under the police power (and all but one opted to renew

their license while the Act was in effect, see supra p. 7).

Gambling “could be, and frequently has been, banned

altogether.” United States & Fed. Commc’ns Comm’n

v. Edge Broad. Co., 509 U.S. 418, 426 (1993); accord

Marvin v. Trout, 199 U:S. 212, 224 (1905). In addition,

“sambling activitics are normally matters of state

concern,” Jannelli v. United States, 420 U.S. 770, 790

(1975), and “[t]he power of the State to enact laws to

suppress gambling cannot be doubted,” Marvin, 199

U.S. at 224; see also Cleveland v. United States, 531

U.S. 12, 21 (2000) (Louisiana gaming statute “licenses

** * ongagement in pursuits that private actors may

not undertake without official authorization”).

Historically, an entity that accepts a state-issued

gambling license obtains no more than “a suspension

of certain governmental rights in their favor, subject to

withdrawal at will.” Stone v. Mississippi, 101 U.S. 814,

821 (1879).

Even petitioners must concede, as they did below,

that Illinois is “not required to allow gambling” at all.

Brief of Plaintiffs-Appellees at 64. Rather than

banning it altogether, however, the General Assembly

authorizes gambling in limited circumstances, subject

to comprehensive regulation and provided it continues

to yield public benefits. See supra pp. 3-6, 23. Such

comprehensive regulation is inconsistent with a

takings claim for several reasons. It suggests that any

rights in the property have not “vested,” Bowen v. Pub.

Agencies Opposed to Soc. Sec. Entrapmeni, 477 U.S. 41,

55 (1986), or that the property amounts to a gratuity

that the government may alter or revoke, see Bowen v.

Gillard, 483 U.S. 587, 604 (1987). Such intrusive

regulation is also incompatible with a reasonable,

investment-backed expectation that the claimant will

enjoy a continued right to the property, meaning the

claimant cannot satisfy the ad hoc, factual inquiry for

regulatory action that diminishes the property’s value

by restricting its use. See Lingle v. Chevron, 544 U.S.

528, 538-539 (2005) (citing Penn Cent. Transp. Co. v.

City of N.Y., 438 U.S. 104, 124 (1978)); see also

Ruckelshaus, 467 U.S. at 1005; Mitchell Arms, 7 F.3d

at 216 (takings claim “cannot arise in an area

voluntarily entered into and one which, from the start,

is subject to pervasive Government control”) (internal

quotations and citation omitted).° For one or more of

* Because petitioners willingly entered an industry

that is both highly regulated and subject to outright

prohibition, there was no interference with their

investment-backed expectations, a fact that is alone

dispositive of their .akings claim. See, e.g., Ruckelshaus,

467 U.S. at 1006-1007. Should the two remaining “Penn

these reasons, “[tJ]hose who do business in the

regulated field,” hike petitioners here, “cannot object if

the legislative scheme is buttressed by subsequent

amendments to achieve the legislative end.” Connolly

v. Pension Benefit Guarantee Corp., 475 U.S. 211, 227

(1986) Ganternal quotations omitted).

Central” factors for identifying a reguiatory taking warrant

consideration, they, too, counsel against a “taking” here.

First, as to the “character of the governmental action,” Penni

Central, 438 U.S. at 124, the Act was an effort by the State

to protect and preserve its horse-racing industry, and courts

have long rejected takings challenges to such legislative

““adjust[ments of] the benefits and burdens of economic life

to promote the common good,” Raceway Park, 356 F.3d at

684 (quoting Connolly v. Pension Benefit Gty. Corp., 475

U.S. 211, 225 (1986)). Second, as for “[t]he economic impact

of the regulation on the claimant,” Penn Central, 438 U.S.

at 124, the 3% tax is reasonably related to the

encouragement of horse racing and, at worst, means that

petitioners’ gambling revenues are not as much as they

would have liked, see Raceway Park, 356 F.3d at 685-686 &

n.6. Finally, to the extent that petitioners would allege a

categorical taking, applicable where there has been a

“permanent physical invasion,” Loretto v. Teleprompter

Manhattan CATV Corp., 458 U.S. 419, 426 (1982), or a

deprivation of “all economically beneficial uses” of property,

Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1019 (1992),

this Court has rejected application of Loretto to an exaction

of money, recognizing that “[ijt is artificial to view

deductions of a percentage of a monetary award as physical

appropriations of property. Unlike real or personal

property, money is fungible.” United States v. Sperry Corp.,

493 U.S. 52, 62 n. 9 (1989).

Nor is the government required to pay for value

that it creates, see Fuller, 409 U.S. at 492, or “that it

might have destroyed under the exercise of

governmental authority other than the power of

eminent domain,” such as the police power, ibid.; see

also Bennis v. Michigan, 516 U.S. 442, 452 (1996).

Thus, in Fuller, claimants’ land enjoyed added value

because it bordered federal property for which grazing

permits were available, but this additional value was

not compensable on a takings theory, for “[t]hat is a

value which the government itself created and hence in

fairness should not be required to pay.” 409 U.S. at

491, 493 (internal quotations omitted). Acontrary rule

would require compensation for “the value of a right

that the Government * * * can grant or withhold as it

chooses,” like the value that Illinois creates for

licensees in its limited gambling monopoly. /d. at 493

(internal quotations and citation omitted). If an

industry “can be abolished at any time that the

Legislature may deem proper for the safeguarding and

protection of the public welfare,” Carney v. Attorney |

General, 890 N.E.2d 121, 132 (Mass. 2008) (internal

quotations omitted), “claimants operating in such fields

should expect that the government can effectively

regulate them out of business,” Buhmann v. Montana,

201 P.3d 70, 91 (Mont. 2008), and have no right “to

compensation where the government chooses to modify

the program that created the benefit in the first place,”

Carney, 890 N.E.2d at 132.

In the same manner, because Congress has the

power “completely to regulate navigable streams,” any

compensation due upon condemnation of riparian land

must omit the land’s value as a port site. United States

v. Rands, 389 U.S. 121, 125 (1967). “[T]hese rights and

values are not assertable against the supenior rights of

the United States” and thus “need not be paid for when

appropriated by” the federal government; in fact, to

require payment for such “value would be to create

private claims in the public domain.” Jd. at 125-126

(internal quotations omitted).

It is therefore no surprise that courts routinely

reject takings claims by gambling enterprises,

including claims like petitioners’ that arise from a tax

on wagering revenues or other restrictions limitiag the

profitability of a gambling hcense. See, e.g., Raceway

Park, 356 F.3d 685-687 (state law requiring racetracks

to contribute part of their wagering revenues for

redistribution to other racetracks); Star Northwest, Inc.

v. City of Kenmore, No. C05-2133P, 2006 WL 2372395,

at *3-*4 (W.D. Wash. Aug. 10, 2006) (municipal

ordinance banning card rooms); Carney, 890 N.E.2d at

132 (state law banning parimutuel dog racing); Mibbs,

Inc. v. South Carolina Dep’t of Revenue, 524 S.E.2d

626, 628 (S.C. 1999) (cou sy ban on cash payouts from

video poker machines); ou vma v. Parker, 22 A.2d 513,

516 (Vt. 1941) (state law banning slot machines);

Preece Facility, 71 S.W.3d at 104 (denial of renewal

application for lhcense to operate charitable gaming

establishment). A gambling industry participant’s

“expectations in its * * * business” must be “discounted

by” “the heavily regulated nature of gambling.”

Hawkeye, 486 F.3d at 442; see also Mitchell Arms, 7

F.3d at 216 (same for firearms exportation); BHA

Investments, 63 P.3d at 480 (same for lquor sales);

Bronco, 29 Cal. Rptr. 3d at 498 (same); BuAmann, 201

P.3d at 91 (same for exotic game farming). (And the

Illinois Supreme Court relied on Preece Facility and

other cases in this line for its judgment below. See Pet.

App. 22a-23a.) For this reason, too, petitioners’

takings claim fails because petitioners belong to a

heavily-regulated state gambling monopoly, an

independent ground having nothing to do with the

issues petitioners seek to have this Court consider.

* * *

In short, petitioners do not participate in an open,

competitive market. They are state licensees exempt

from Illinois’ anti-gambling laws—allowed to offer

casino gambling in exchange for their submission to

intensive regulation (backed by the threat of license

suspension, revocation, or non-renewal) and ongoing

financial and other contributions to the public welfare.

Alone or in combination, these facts require affirmance

of the Illinois Supreme Court’s judgment, making this

case a singularly flawed vehicle for addressing the

question that the petition presents, were that question

even implicated by the decision below.

CONCLUSION

The petition for a writ of certiorari should be

denied.

Respectfully submitted,

WILLIAM J. MCKENNA

MARTIN J. BISHOP

JONATHAN W. GARLOUGH

Foley & Lardner LLP

321 North Clark Street

Chicago, Illinois 60654

Counsel for Respondents

Balmoral Racing Club, Inc.

& Maywood Park Trotting

Assoc., Inc.

EDWARD M. WHITE

MICHAEL J. MURRAY

Carey, Filter, White & Boland

33 West Jackson Boulevard

Chicago, Illinois 60604

Counsel for Respondent

Hawthorne Race Course, Inc.

April 9, 2009

LisA MADIGAN

Attorney General

of Illinois

MICHAEL A. SCODRO*

Solicitor General

JANE ELINOR NOTZ

Deputy Solicitor General

JERALD S. POST

Ass't Attorney General

100 West Randolph Street

Chicago, Illinois 60601

(312) 814-8698

Counsel for Respondents

Alexi Giannoulias &

The Illinois Racing Board

*Counsel of Record

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.