A judge has dismissed an illegal-exaction lawsuit filed against the Arkansas Racing Commission and its director and the state Department of Finance and Administration secretary over not providing at least $200,000 a year for compulsive gambling disorder treatment and educational programs in prior years under a 2018 constitutional amendment that authorized four full-fledged casinos in Arkansas.
Pulaski County Judge Mackie Pierce granted a motion by attorney Justin Zachary of the Little Rock law firm Denton & Zachary PLLC to dismiss the lawsuit without prejudice.
The action came after the Arkansas Supreme Court ruled last week that attorneys are not authorized to receive payment in an illegal-exaction lawsuit brought against multiple state agencies, calling into question the future of filing accountability lawsuits against the state.
The state's highest court reversed a lower court decision that required the Arkansas Department of Transportation to pay more than $18 million in attorneys' fees to Denton & Zachary PLLC. The fees were related to a lawsuit filed earlier this year by a group of taxpayers who successfully challenged the agency's spending on two major road construction projects.
In November, the Arkansas Problem Gambling Council started work as the Arkansas Racing Commission's provider of educational and treatment services for Arkansans with gambling disorders. The council's $200,000 contract with the commission runs through Oct. 31, 2023. By mutual agreement, the contract may be renewed up to six additional one-year terms.
Zachary said the Racing Commission filed responses to requests for admissions last week admitting that it refunded the entire $250,000 initial application fee to unsuccessful casino applicants when their own rules state that only "one-half (50%) of the initial application fee shall be refunded to the casino applicant."
This was done on five different applicants, meaning that a total of $625,000 was returned to unsuccessful casino license applicants in violation of the rules when these funds could have been spent on gambling addiction education and treatment, he said.
"Unfortunately, the same day these violations were admitted by the Racing Commission the Arkansas Supreme Court disallowed the ability for taxpayers to recover their attorney fees in illegal exaction cases such as this," Zachary said in a written statement. "Without the ability to recover fees, neither the law firm nor the clients can afford to proceed with the litigation."
But finance department spokesman Scott Hardin said Thursday that "we didn't accept application fees from unsuccessful applicants.
"Most importantly, applications that did not include all required information (including a letter of support) were not considered complete under the rules," he said. "Accepting an application fee from an incomplete, uncompetitive application would be unfair. If the money had been collected, the Commission couldn't simply choose to direct it to the problem gambling program. This would require an approved path through which the funding was appropriated specifically for this project."
Amendment 100 did not identify the source of the funding for the problem gambling education and treatment program, Hardin said.
The Racing Commission's initial priority was securing a funding source and ensuring money would remain available each year moving forward, he said.
Additionally, the commission had to clearly define expectations for a problem gambling education and treatment program as required by Amendment 100 and "that program is in place and will remain available to anyone seeking more information on problem gambling," Hardin said.
On July 24, the Denton & Zachary firm filed an amended complaint against the Racing Commission and its director John Campbell and state Department of Finance and Administration Secretary Larry Walther.
Among other things, the amended complaint asked Pierce to order the defendants to provide at least $200,000 a year for compulsive gambling disorder and educational programs into the future; be required to provide restitution compensating, reimbursing, rewarding and paying the funds for these programs of at least $200,000 for 2019, 2020 and 2021; and the plaintiffs be awarded reasonable attorney fees and all costs and expenses of this action.
Attorneys for the Racing Commission, Campbell and Walther had asked the judge to dismiss the complaint.
Amendment 100 to the Arkansas Constitution -- approved by voters in November 2018 -- authorized the Arkansas Racing Commission to license four full-fledged casinos, which the commission has done. Three casinos operate in Hot Springs, Pine Bluff and West Memphis, while the licensed casino in Russellville hasn't been constructed yet.
On Dec. 17, 2021, the Legislative Council approved Gov. Asa Hutchinson's request to use $200,000 from the state's rainy-day fund for the problem gambling programs.
The governor's letter dated Dec. 2. 2021, to Walther requesting the fund transfer came after a lawsuit was filed Dec. 1, 2021, by Denton & Zachary, representing plaintiff FaNeisha Yavette Mosley, against the Arkansas Racing Commission and Campbell as well as Walther.
A year ago, Hardin said the lawsuit was in no way related to the decision to seek the rainy-day funds for the problem gambling programs. General revenue included in the Racing Commission's budget will be used to fund the programs in subsequent years, he said.
In the fiscal session earlier this year, the Legislature authorized $200,000 for the programs to be funded through the state's Revenue Stabilization Act that prioritizes the distribution of state general revenue to state-supported programs in fiscal 2023.
Before voter approval of Amendment 100 in 2018, Nate Steel, a counsel for the Arkansas Driving Forward committee that promoted the proposal, said that constitutional provision requiring at least $200,000 for the problem-gambling programs was intended as a minimum to replace the funding the Legislature cut for these programs in 2015.