Kevin Cox v. SCELC

THE STATE OF SOUTH CAROLINA
In The Court of Appeals

Kevin Cox, on behalf of himself and all others similarly
situated, Appellant,

v.

South Carolina Education Lottery Commission d/b/a
South Carolina Education Lottery, and Intralot, Inc.,
Respondents.

Appellate Case No. 2019-000501

Appeal From Lee County
Kristi F. Curtis, Circuit Court Judge

Opinion No. 6012
Heard November 9, 2022 – Filed August 9, 2023

AFFIRMED

Joseph Clay Hopkins, of Charleston, for Appellant.

William Stevens Brown, V, and Miles Edward Coleman,
both of Nelson Mullins Riley & Scarborough, LLP, of
Greenville, for Respondent South Carolina Education
Lottery Commission.

Joseph Preston Strom and Bakari T. Sellers, both of
Strom Law Firm, LLC, of Columbia; and Mario Anthony
Pacella, of Strom Law Firm, LLC, of Brunswick,
Georgia, all for Respondent Intralot, Inc.
VINSON, J.: Kevin Cox, on behalf of himself and all others similarly situated,
appeals the circuit court's orders granting the South Carolina Education Lottery
Commission's (SCELC's) and Intralot, Inc.'s 1 (Intralot's; collectively,
Respondents') motions to dismiss for failure to exhaust administrative remedies.
We affirm.

FACTS AND PROCEDURAL HISTORY

Cox filed a summons and putative class action complaint in February 2018, and an
amended class action complaint in June 2018, alleging he purchased five Mega
Millions 2 lottery tickets that he later discovered included four duplicate tickets. He
estimated the purported class included at least 100,000 individuals with at least
$100 in damages incurred as a result of Respondents' alleged misconduct. 3 The
amended complaint raised the following four causes of action against Respondents:
unjust enrichment, breach of contract and breach of implied contract, promissory
estoppel, and violation of the South Carolina Unfair Trade Practices Act
(SCUTPA). 4 Under Cox's causes of action for unjust enrichment and promissory
estoppel, he specifically sought damages for the purchase of winning tickets. The
amended complaint also raised a cause of action for negligence and gross
negligence against Intralot, although Cox noted he specifically denied there was a
printing error on the tickets.

Respondents filed motions to dismiss. SCELC argued, inter alia, the circuit court
lacked jurisdiction over Cox's claims because he failed to exhaust his
administrative remedies, some or all of his claims were barred by the doctrine of
sovereign immunity, and the amended complaint failed to assert a cause of action
upon which relief could be granted. Specifically, SCELC argued the South
Carolina Education Lottery Act (the Act) 5 and SCELC regulations required any
lottery player aggrieved by an action or decision of SCELC to first file a formal
written complaint with SCELC's executive director. Thereafter, a player wishing
to challenge the executive director's decision must appeal to the SCELC board
within fifteen days of receiving the executive director's written decision and may

1
Intralot is a private company that provided administrative and technical services
to SCELC.
2
Mega Millions is a multi-state lottery game.
3
It is unclear from the record on appeal whether the circuit court certified the class.
4
S.C. Code Ann. §§ 39-5-10 to -730 (2023).
5
S.C. Code Ann. §§ 59-150-10 to -410 (2020 & Supp. 2022).
appeal the board's decision to the administrative law court (the ALC). Because
Cox failed to allege he had exhausted his administrative remedies through this
procedure, SCELC contended Cox's suit was premature and should be dismissed
on that ground. Further, SCELC argued the doctrine of sovereign immunity barred
Cox's unjust enrichment and promissory estoppel claims. It asserted the Tort
Claims Act (the TCA) 6 does not include a waiver of sovereign immunity for such
equitable claims. Finally, SCELC argued that under section 59-150-230(C)(3), 7 it
was prohibited from paying the purported prize money on the Mega Millions
tickets at issue because they were unissued, or conversely, produced or issued in
error. It asserted this statutory prohibition was also fatal to Cox's breach of
contract and implied breach of contract claims because misprinted tickets could not
form the basis for these claims.

Intralot argued Cox's complaint should be dismissed because he failed to exhaust
his administrative remedies—incorporating by reference SCELC's administrative
remedy argument—and failed to state a claim for which relief may be granted
against Intralot. Intralot first argued Cox's unjust enrichment claim failed because
he failed to plead any facts establishing a contractual relationship with Intralot,
either express or implied. Second, it argued Cox's breach of contract and breach of
implied contract claims failed for lack of standing when Cox did not allege Intralot
was involved in the approval of lottery ticket retailers or the sale of lottery tickets
or that he was in privity with Intralot. Third, Intralot argued Cox's promissory
estoppel claim failed because he did not allege reliance on a negligent
misrepresentation made by Intralot regarding payments for winning lottery tickets.
Lastly, Intralot argued Cox's negligence cause of action failed because Cox did not
include any factual allegations in his amended complaint demonstrating Intralot
owed him a duty of care or establishing a breach of any such duty.

In response to Respondents' motions to dismiss, Cox filed a memorandum only in
opposition to SCELC's motion. Cox first argued he was not required to exhaust his
administrative remedies because the Act's grievance procedure was not applicable
to his claim. He asserted his amended complaint did not allege there was an error
in the system that produced the duplicate lottery tickets and therefore, section
59-150-230(C)(3)(a), which prohibits SCELC from paying unissued or erroneously
issued lottery tickets, was inapplicable to his claim. Cox avers that because there

6
S.C. Code Ann. §§ 15-78-10 to -220 (2005 & Supp. 2022).
7
S.C. Code Ann. § 59-150-230(C)(3)(a) ("A prize must not be paid if it . . . arises
from claimed lottery game tickets that are . . . unissued, [or] produced or issued in
error . . . .").
was no alleged error, there was no need for him to file a complaint with SCELC or
appeal to the SCELC board or the ALC. In addition, Cox contended SCELC's
administrative remedy argument was moot because he initiated an administrative
review that was denied by SCELC. Second, Cox argued sovereign immunity did
not bar his equitable claims against SCELC. He asserted SCELC was not acting
in, or serving a discretionary function by running the lottery. Cox maintained
running the lottery was a commercial venture not protected by sovereign immunity
under the TCA. Finally, Cox conceded his claims under SCUTPA should be
dismissed.

At the motion hearing, 8 Respondents addressed the arguments raised in their
motions to dismiss, while Cox addressed the arguments raised in his memorandum
in opposition in addition to raising new arguments. Cox argued he was not
required to exhaust his administrative remedies because the Act used permissive
language when addressing the administrative procedures. In addition, Cox asserted
the administrative process would be futile; however, his argument only addressed
the related case. He generally stated, "[O]ut of an abundance of caution, we
filed—for all of our clients, we submitted complaints to [SCELC]. . . . I believe,
we have now received formal responses on all of those stating they reject or deny
our claim for payment . . . ." He further argued SCELC was not entitled to claim
sovereign immunity under the TCA because the lottery could not be considered "a
quintessential government function." As to Intralot, Cox argued he was in privity
with Intralot because lottery players were third-party beneficiaries of SCELC's
contract with Intralot. He conceded his claim against Intralot for promissory
estoppel should be dismissed because he could not identify an express promise
made by Intralot.

The circuit court granted Respondents' motions to dismiss on the ground Cox
failed to exhaust his administrative remedies. In its order granting SCELC's
motion to dismiss, the circuit court determined that under the Act and SCELC
regulations, any person aggrieved by an action or decision of SCELC must first file
a written complaint with the SCELC executive director. If the aggrieved person is
dissatisfied with the executive director's decision, they could then appeal the
decision to the SCELC board and then to the ALC. The circuit court
acknowledged the Act permitted, but did not mandate, an exclusive administrative
remedy; however, the court noted our supreme court has required exhaustion when

8
The circuit court held a joint hearing to consider Respondents' motions to dismiss
in this case and a related case. The hearing primarily concerned the parties'
arguments in the related case.
there is an adequate administrative remedy even though the statute did not
expressly require it. Further, the circuit court determined Cox failed to allege the
exhaustion of the entire administrative process would be futile. Finally, the circuit
court found the requirement to exhaust the entire administrative review process
applied to putative classes of claimants. Because Cox failed to allege he followed
the procedures for administrative review or that doing so would be futile, the
circuit court dismissed Cox's complaint for failure to exhaust his administrative
remedies. In its order granting Intralot's motion to dismiss, the circuit court
restated its findings on whether Cox was required to exhaust his administrative
remedies. Cox did not file a Rule 59(e), SCRCP motion to reconsider. This appeal
followed.

ISSUE ON APPEAL

Did the circuit court err in granting Respondents' motions to dismiss?

STADARD OF REVIEW

"Whether administrative remedies must be exhausted is a matter within the [circuit
court]'s sound discretion and [its] decision will not be disturbed on appeal absent
an abuse thereof." Hyde v. S.C. Dep't of Mental Health, 314 S.C. 207, 208, 442
S.E.2d 582, 582-83 (1994). "An abuse of discretion occurs where the [circuit
court] was controlled by an error of law or where [the circuit court's] order is based
on factual conclusions that are without evidentiary support." Stanton v. Town of
Pawleys Island, 309 S.C. 126, 128, 420 S.E.2d 502, 503 (1992) (quoting Coleman
v. Dunlap, 306 S.C. 491, 495, 413 S.E.2d 15, 17 (1992)).

LAW AND ANALYSIS

Cox first argues his claims for breach of contract, unjust enrichment, promissory
estoppel, and negligence were not subject to the requirement of exhaustion of
administrative remedies. Specifically, he asserts there is no administrative
exhaustion requirement for tort claims brought against a third-party and therefore,
the requirement did not apply to his claims against Intralot. Further, Cox contends
his claims were not based on a statutory violation that mandated the pursuit of an
administrative remedy. Lastly, Cox asserts the SCELC board had not notified him
of a decision prior to the filing of the amended complaint and therefore, the
administrative procedure did not apply to him.
We find these exhaustion arguments are not preserved for appellate review. See
Wilder Corp. v. Wilke, 330 S.C. 71, 76, 497 S.E.2d 731, 733 (1998) ("It is
axiomatic that an issue cannot be raised for the first time on appeal, but must have
been raised to and ruled upon by the [circuit court] to be preserved for appellate
review."); see also I'On, L.L.C. v. Town of Mt. Pleasant, 338 S.C. 406, 422, 526
S.E.2d 716, 724 (2000) ("[T]he losing party generally must both present his issues
and arguments to the lower court and obtain a ruling before an appellate court will
review those issues and arguments."). Cox did not raise these arguments in his
memorandum in opposition to SCELC's motion to dismiss or at the motion hearing
and he failed to file a Rule 59(e) motion to alter or amend. See Doe v. Doe, 370
S.C. 206, 212, 634 S.E.2d 51, 55 (Ct. App. 2006) ("[W]hen an appellant neither
raises an issue at trial nor through a Rule 59(e), SCRCP, motion, the issue is not
preserved for appellate review."); Ness v. Eckerd Corp., 350 S.C. 399, 403-04, 566
S.E.2d 193, 196 (Ct. App. 2002) ("If a [circuit court] grants 'relief not previously
contemplated or presented to the [circuit] court, the aggrieved party must move,
pursuant to Rule 59(e), SCRCP, to alter or amend the judgment in order to
preserve the issue for appeal.'" (quoting In re Est. of Timmerman, 331 S.C. 455,
460, 502 S.E.2d 920, 923 (Ct. App. 1998))); see also I'On, L.L.C., 338 S.C. at 422,
526 S.E.2d at 724 (holding that imposing preservation requirements on an
appellant "prevents a party from keeping an ace card up his sleeve—intentionally
or by chance—in the hope that an appellate court will accept that ace card and, via
a reversal, give him another opportunity to prove his case"). Accordingly, we find
these arguments are unpreserved.

Next, Cox argues the Act's grievance procedure was inapplicable to his claims
because he did not allege his lottery tickets were erroneously issued. Cox contends
the prohibition under section 59-150-230(C)(3)(a) preventing SCELC from paying
winnings on tickets unissued or erroneously issued was inapplicable, or in the
alternative, presented a question of fact. We disagree.

"[T]he doctrine of exhaustion of administrative remedies is generally considered a
rule of policy, convenience and discretion, rather than one of law, and is not
jurisdictional." Storm M.H. ex rel. McSwain v. Charleston Cnty. Bd. of Trs, 400
S.C. 478, 487, 735 S.E.2d 492, 497 (2012) (quoting Ward v. State, 343 S.C. 14, 17
n.5, 538 S.E.2d 245, 246 n.5 (2000)). "[T]he failure to exhaust administrative
remedies goes to the prematurity of a case, not subject matter jurisdiction." Id.
(quoting Ward, 343 S.C. at 17 n.5, 538 S.E.2d at 246 n.5).

Exhaustion is generally required as a matter of
preventing premature interference with agency processes,
so that the agency may function efficiently and so that it
may have an opportunity to correct its own errors, to
afford the parties and the courts the benefit of its
experience and expertise, and to compile a record which
is adequate for judicial review.

Video Gaming Consultants, Inc. v. S.C. Dep't of Revenue, 342 S.C. 34, 38, 535
S.E.2d 642, 644 (2000). "Where an adequate administrative remedy is available to
determine a question of fact, one must pursue the administrative remedy or be
precluded from seeking relief in the courts." Hyde, 314 S.C. at 208, 442 S.E.2d at
583. "[The circuit court] must have a sound basis for excusing the failure to
exhaust administrative relief." Id. at 209, 442 S.E.2d at 583.

We hold the circuit court did not abuse its discretion in finding Cox was required
to exhaust his administrative remedies under the Act and SCELC regulations.
Initially, Cox did not argue to the circuit court that the administrative process
under the Act and SCELC regulations was not applicable to claims concerning the
determination of whether a prize should be paid on a lottery ticket. Thus, we find
this argument is not preserved. See Wilder Corp., 330 S.C. at 76, 497 S.E.2d at
733 ("It is axiomatic that an issue cannot be raised for the first time on appeal, but
must have been raised to and ruled upon by the [circuit court] to be preserved for
appellate review."). Instead, Cox argued the administrative process was only
applicable to tickets that were alleged to have been produced or issued in error.
We conclude Cox's argument misconstrues the Act.

The Act and SCELC regulations provide an administrative remedy to determine
whether a prize should be paid on a lottery ticket. See Hyde, 314 S.C. at 208, 442
S.E.2d at 583 ("Where an adequate administrative remedy is available to determine
a question of fact, one must pursue the administrative remedy or be precluded from
seeking relief in the courts."). Section 59-150-230(C) provides, "[SCELC] shall
promulgate regulations and adopt policies and procedures to establish a system of
verifying the validity of lottery games tickets or shares claimed to win prizes and
to effect payment of prizes." Regulations 44-70(E)-(F) (2011) of the South
Carolina Code of Regulations state the SCELC executive director may deny
awarding a prize to a claimant if the ticket was issued or produced in error and the
executive director's decision is subject to an appeal to SCELC. Section
59-150-300(A) provides that any "lottery game ticket holder aggrieved by an
action of the [SCELC] board may appeal that decision to the [ALC]." A final
decision of the ALC involving SCELC must be appealed to the circuit court. See
S.C. Code Ann. § 59-150-300(D). Although section 59-150-230(C)(3)(a)
provides, "A prize must not be paid if it . . . arises from claimed lottery game
tickets that are . . . unissued, [or] produced or issued in error," we find the
administrative procedure was applicable to all claims concerning the payment of a
prize on a lottery ticket regardless of whether the claimant alleged there was an
error. The determination of whether the ticket was issued or printed in error was a
factual determination to be made by SCELC through the administrative process.
Furthermore, we reject Cox's assertion that the circuit court accepted Respondents'
claim the lottery tickets were printed in error in determining Cox was required to
exhaust his administrative remedies. Accordingly, we hold the circuit court did not
abuse its discretion in finding Cox was required to exhaust his administrative
remedies under the Act and SCELC regulations. See Kiawah Dev. Partners, II v.
S.C. Dep't of Health & Env't Control, 411 S.C. 16, 32, 766 S.E.2d 707, 717 (2014)
(holding if "the language of a statute or regulation directly speaks to the issue. . . .
the court must utilize the clear meaning of the statute or regulation").

Cox further argues an administrative review of his claims would be futile because
SCELC refused to offer any relief to him and the SCELC board's decision "was
certain to be unfavorable." Similarly, Cox argues Respondents' administrative
remedy argument is moot because SCELC denied his claims for payment and was
a matter of statutory construction. 9 We disagree.

"South Carolina, like most jurisdictions, recognizes exceptions to the exhaustion of
administrative remedies requirement. The general rule is that administrative
remedies must be exhausted absent circumstances supporting an exception to
application of the general rule." Brown v. James, 389 S.C. 41, 54, 697 S.E.2d 604,
611 (Ct. App. 2010). "Futility, however, must be demonstrated by a showing
comparable to the administrative agency taking 'a hard and fast position that makes
an adverse ruling a certainty.'" Id. (quoting Law v. S.C. Dep't of Corr., 368 S.C.
424, 438, 629 S.E.2d 642, 650 (2006)); see also Stanton, 309 S.C. at 128, 420
S.E.2d at 503 (holding the party seeking to avoid the exhaustion requirement has
the burden of showing "that as a matter of law, he was not required to exhaust
administrative remedies or that the [circuit court]'s ruling was based upon facts for
which there is no evidentiary support").

9
Cox does not explain what aspect of Respondents' administrative remedy
argument raises a question of statutory construction. We construe his argument to
refer to the issue of whether the Act's grievance procedure was inapplicable to his
claims because he did not allege his lottery tickets were erroneously issued.
We hold the circuit court did not abuse its discretion in finding Cox's failure to
exhaust his administrative remedies was not excused by the futility exception. Cox
failed to provide any evidence showing SCELC had made any decision on his
claim, much less a "hard and fast decision." The record does not contain evidence
of any decision made by SCELC and it is unclear from the hearing transcript
whether Cox's assertion at the motion hearing regarding SCELC's formal response
denying a claim pertained to this case. Thus, Cox failed to satisfy his burden to
show the futility exception applied. Accordingly, we hold the circuit court did not
abuse its discretion in finding Cox's failure to exhaust his administrative remedies
was not excused by the futility exception.

As to Cox's mootness argument regarding statutory construction, we find this issue
is not preserved for appellate review because it was not raised to or ruled upon by
the circuit court. See Wilder Corp., 330 S.C. at 76, 497 S.E.2d at 733 ("It is
axiomatic that an issue cannot be raised for the first time on appeal, but must have
been raised to and ruled upon by the [circuit court] to be preserved for appellate
review."); see also I'On, L.L.C., 338 S.C. at 422, 526 S.E.2d at 724 ("[T]he losing
party generally must both present his issues and arguments to the lower court and
obtain a ruling before an appellate court will review those issues and arguments.").

Lastly, Cox argues he should be excused from exhausting his administrative
remedies because class actions are not permitted in the ALC. We find this issue is
not preserved for appellate review. See Wilder Corp., 330 S.C. at 76, 497 S.E.2d at
733 ("It is axiomatic that an issue cannot be raised for the first time on appeal, but
must have been raised to and ruled upon by the [circuit court] to be preserved for
appellate review."); see also I'On, L.L.C., 338 S.C. at 422, 526 S.E.2d at 724
("[T]he losing party generally must both present his issues and arguments to the
lower court and obtain a ruling before an appellate court will review those issues
and arguments."). Although the circuit court found in its orders of dismissal that
the requirement to exhaust the entire administrative review process applied to
putative classes of claimants, Cox did not raise this argument in his memorandum
in opposition to SCELC's motion to dismiss or at the motion hearing and he failed
to file a Rule 59(e) motion to alter or amend. See Doe, 370 S.C. at 212, 634 S.E.2d
at 55 ("[W]hen an appellant neither raises an issue at trial nor through a Rule 59(e),
SCRCP, motion, the issue is not preserved for appellate review."); Ness, 350 S.C.
at 403-04, 566 S.E.2d at 196 ("If a [circuit court] grants 'relief not previously
contemplated or presented to the [circuit] court, the aggrieved party must move,
pursuant to Rule 59(e), SCRCP, to alter or amend the judgment in order to
preserve the issue for appeal.'" (quoting In re Est. of Timmerman, 331 S.C. at 460,
502 S.E.2d at 923)); see also I'On, L.L.C., 338 S.C. at 422, 526 S.E.2d at 724
(holding that imposing preservation requirements on an appellant "prevents a party
from keeping an ace card up his sleeve—intentionally or by chance—in the hope
that an appellate court will accept that ace card and, via a reversal, give him
another opportunity to prove his case"). Accordingly, we find this argument is
unpreserved.

CONCLUSION

Based on the foregoing, the circuit court's orders granting SCELC's and Intralot's
motions to dismiss are

AFFIRMED.

HEWITT, J., and LOCKEMY, A.J., concur.