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Legal Lottery

Can Texas lottery winners sell all of their payments to private finance companies? State attorneys say no. A state appeals court says yes. The Texas Supreme Court will decide.

The state’s ability to protect lottery winners from predatory finance companies comes before the Texas Supreme Court on Wednesday. At issue? Whether a measure lawmakers passed in 1999 banning winners from “selling off” their final two lottery payments to finance companies violates the state’s own commercial code.

So far, the courts have sided with Cletius Irvan, who won $9 million in the Texas lottery in 1995. In 2006, while living in Arkansas, Irvan sold off his last two payments — worth $900,000 — for a lump sum of $300,000 to pay off a bank debt. When the Texas Lottery Commission refused to recognize the sale, the bank sued in Texas, arguing that the state’s commercial code allowed the sales.

A state appeals court agreed that the commercial code trumped the 1999 Texas Lottery Act, which required lottery winners to seek legal advice before selling off lottery payments and banned the sale of the final two installments.

“The Lottery Act has its prohibition, but the commercial code says you can do it, and that any law that says you can’t is ineffective,” said Jeffrey Boyd, the attorney representing Irvan and the Arkansas bank. “The question in this case is whether the proper role of the court is to rewrite the laws, or to apply them as written.”

But Texas Solicitor General James Ho said he’s confident the Supreme Court will uphold the state’s Lottery Act, and that courts around the country have rejected similar efforts. The state commercial code authorizes the legislature to pass additional consumer protections where needed.

“In 1999, the Texas Legislature passed a consumer protection law to protect Texas lottery winners from being cheated out of their winnings,” Ho said. “We are defending the Legislature’s prerogative to protect lottery winners.”

Traditionally, Texas lottery winners always received their pay-outs in installments. But starting in 1997, the state started offering winners lump sum payments — a large up-front sum that was far short of their total winnings.

Two years later, lawmakers passed the Lottery Act, allowing lottery winners receiving installment payments to sell them to private financing companies in exchange for a lump sum payment, as long as they didn’t sell their final two payments.

The idea, according to the state’s petition to the Supreme Court, was to protect winners from finance companies that “seduce lottery winners into selling those payments for an immediate payout worth only pennies on the dollar.” The last two years of prize payments are the accounts most vulnerable to being undervalued by prizewinners.

That same legislative session, however, lawmakers updated the state’s commercial code, including language that state “accounts” — including lottery winnings — are “freely assignable.”

“I think it’s pretty clear that the 1999 legislature had two ships passing in the night,” Boyd said. “In the debates, in the legislative history, neither one refers to the other.”

But Don Baylor, a senior policy analyst with the Center for Public Policy Priorities, said it's obvious what lawmakers were trying to do: protect consumers.

"We all know how things happen at the end of the legislative session, with contradicting provisions," Baylor said. "We support what the state is trying to do: defend the legislative intent of that Legislature."

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