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Office of Attorney General disapproves Lottery contract with Camelot

Submitted Fri, 02/15/2013 - 6:54am by Andy Alm

HARRISBURG — The Pennsylvania Office of Attorney General (OAG) on Thursday announced its determination that the proposed Lottery contract with Camelot Global Services violates the Pennsylvania Constitution and is not statutorily authorized.

“The Office of Attorney General conducted a very thorough review of the Professional Management Agreement, the State Constitution, the State Lottery Act, the Gaming Act and applicable case authority and has determined that it cannot approve the contract to allow Camelot to operate and manage the Pennsylvania Lottery,” Pennsylvania Attorney General Kathleen G. Kane said.

The Attorney General is required under the Commonwealth Attorney’s Act to review contracts for ‘form and legality.’  In a memorandum to David Kraus, Chief Counsel for the Department of Revenue, Robert A. Mulle, Chief Deputy Attorney General and head of the OAG Legal Review Section, provided three reasons why the Professional Management Agreement (PMA) failed the ‘form and legality’ test.

First, the memo states that the Executive Branch exceeded its authority under Article II, Section 1 of the Pennsylvania Constitution by unlawfully infringing on the General Assembly?s power to make basic policy choices regarding the management and operation of the Lottery.

Second, the memo states that the development of monitor-based or other electronic games, such as KENO, is not authorized by the State Lottery Act and usurps the authority granted by the General Assembly to the Pennsylvania Gaming Control Board.

Lastly, the memo points out that allowing Camelot to be indemnified for “indirect expenses,” as provided in the PMA, is an unconstitutional waiver of the doctrine of Sovereign Immunity as set forth in Article I, Section 11 of the Pennsylvania Constitution.

“It is our duty to defend and protect the Constitution of our Commonwealth and that is what our office has done by declining this contract,” Kane said.  “In the course of making this determination, I have taken the advice and counsel of the Executive Deputy Attorney General in charge of the Civil Division and the Chief Deputy Attorney General in charge of the Legal Review Section.  Together, these attorneys have many years of experience reviewing Commonwealth contracts for ‘form and legality.’  It should be noted that these attorneys worked for the Governor when he was Attorney General, as well as several Attorneys General before him.”

Kane continued, “Promising money to people in need based on a contract that is not legal and then blaming those entrusted to do their job correctly is both disingenuous and a perfect example of putting the cart before the horse.  It is important that my office perform its role in the system of checks and balances that our government desperately needs and that our citizens deserve.”

The text of the memorandum issued by the Office of Attorney General to the Department of Revenue is set forth below:

COMMONWEALTH OF PENNSYLVANIA
OFFICE OF ATTORNEY GENERAL
February 14, 2013
SUBJECT: Contract 2013-005
TO:  David R. Kraus
Chief Counsel
Department of Revenue
FROM: Robert A. Mulle
Chief Deputy Attorney General
Legal Review Section
We have given careful review to proposed Contract # 2013-005 by which the Pennsylvania Department of Revenue would retain Camelot Global Services PA, LLC, to operate and manage the State Lottery.

As you know, the authority of the Secretary of Revenue to enter into this Professional Management Agreement (PMA) is being litigated before the Commonwealth Court. We would prefer to refrain from reviewing the contract pending a ruling by the Court and for that reason we requested that the contract be withdrawn.  Because the administration declined our request, we proceeded with our legal review as required by the Commonwealth Attorneys Act.  71 P.S. §732-101 et seq.

Section 204(f) of the Act requires the Office of Attorney General to approve the proposed contract unless we determine that the contract is in improper form, not statutorily authorized, or unconstitutional.

Our review of the proposed contract, the relevant law and the administration?s answers to the questions posed in our tolling memorandum of February 5, 2013, leads us to conclude that the proposed contract contravenes the Pennsylvania Constitution and is not statutorily authorized.  We therefore do not approve the PMA for the following reasons:

1. The PMA is an unlawful extension of executive authority that infringes on the General Assembly?s power to make basic policy choices regarding the management and operation of the Lottery pursuant to Article 2, §1 of the  Pennsylvania Constitution.  The State Lottery Act does not confer express or implied authority upon the Secretary of Revenue to privatize the operation and management of the Pennsylvania Lottery.  That authority rests with the General Assembly.

2. The contract provides for the development of monitor-based or other electronic games, such as KENO, which is not authorized by the State Lottery Act and usurps the authority of the Gaming Control Board with regard to slot machines as defined by the Pennsylvania Race Horse Development and Gaming Act, 4 Pa.C.S. §1103.

3. The proposed contract provides for claims by the vendor for indemnification of “indirect expenses.”  Such open and undefined indemnification constitutes an unconstitutional waiver of the doctrine of Sovereign Immunity as set forth in the Pennsylvania Constitution, Article 1, Section 11.

In reaching these legal conclusions, we express no opinion on either the wisdom of the policies or the soundness of the business decisions embodied in the contract.

Finally, as required by Section 204(f) of the Commonwealth Attorneys Act, we are providing copies of this memorandum to the Office of General Counsel and the General Assembly.

RAM:jn
cc: James D. Schultz, General Counsel
Mark R. Corrigan, Secretary of the Senate
Anthony Frank Barbush, Chief Clerk of the House of Representatives

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