IN THE COMMONWEALTH COURT OF PENNSYLVANIA AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES, COUNCIL 13, AFL-CIO, by its

Trustee Ad Litem, DAVID R. FILLMAN; DAWN DELLANA; PERRY PENTRONGOLA; THOMAS RUMBAUGH; KELLI SWEET; HOWARD J. ARTMAN; RICHARD TOSTI; STATE SENATOR CHRISTINE M. TARTAGLIONE, STATE SENATOR JOHN N. WOZNIAK, STATE REPRESENTATIVE ANTHONY M. DELUCA; STATE REPRESENTATIVE H. SCOTT CONKLIN; STATE REPRESENTATIVE MARGO L. DAVIDSON; STATE REPRESENTATIVE ED NEILSON; STATE REPRESENTATIVE MICHAEL H. OBRIEN, Petitioner, v. COMMONWEALTH OF PENNSYLVANIA; THE HONORABLE TOM CORBETT, Governor of the Commonwealth of Pennsylvania; DAN MEUSER, Secretary of Revenue, KELLY POWELL LOGAN, Secretary of the Governors Office of Administration, Respondents. NOTICE TO PLEAD You have been sued in Court. If you wish to defend against the claims set forth in the following pages, you must take action within twenty (20) days after this Petition for Review and Notice are served by entering a written appearance personally or by attorneys, and filing in writing with the Court your defenses or objections to the claims set forth against. You are warned that if you fail to do so, the case may proceed without you and a Judgment may be entered against you by the Court without further notice or for any money claimed in the Petition for Review or for any other claim or relief requested by the Petitioner. You may lose money or property or other rights important to you.

NO.

C.D. 2012

IN THE COMMONWEALTH COURT OF PENNSYLVANIA AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES, COUNCIL 13, AFL-CIO, by its Trustee Ad Litem, DAVID R. FILLMAN; DAWN DELLANA; PERRY PENTRONGOLA; THOMAS RUMBAUGH; KELLI SWEET; HOWARD J. ARTMAN; RICHARD TOSTI; STATE SENATOR CHRISTINE M. TARTAGLIONE, STATE SENATOR JOHN N. WOZNIAK, STATE REPRESENTATIVE ANTHONY M. DELUCA; STATE REPRESENTATIVE H. SCOTT CONKLIN; STATE REPRESENTATIVE MARGO L. DAVIDSON; STATE REPRESENTATIVE ED NEILSON; STATE REPRESENTATIVE MICHAEL H. OBRIEN, Petitioner, v. COMMONWEALTH OF PENNSYLVANIA; THE HONORABLE TOM CORBETT, Governor of the Commonwealth of Pennsylvania; DAN MEUSER, Secretary of Revenue, KELLY POWELL LOGAN, Secretary of the Governors Office of Administration, Respondents. PETITION FOR REVIEW IN THE NATURE OF A COMPLAINT FOR EQUITABLE AND DECLARATORY RELIEF Petitioner, by and through its attorneys, Willig, Williams & Davidson, hereby petitions this Honorable Court for review of the Commonwealths proposed plan to implement a private management agreement (PMA) with a private, foreign company, Camelot Global Services PA LLC (Camelot), to operate the state lottery

NO.

C.D. 2012

beginning sometime in 2013. This Petition for Review requests equitable relief to prevent the Commonwealth from implementing the PMA to operate the state lottery in violation of the Pennsylvania Constitution and the State Lottery Law. Additionally, it seeks a declaratory judgment that the Commonwealths conduct is legally impermissible. This action is brought by the American Federation of State, County and Municipal Employees, Council 13, AFL-CIO, (AFSCME) on behalf of its members who are directly impacted by the PMA, several AFSCME-represented employees who will lose their jobs at the Pennsylvania Department of Revenue (Department of Revenue) in the event that the Commonwealth implements a PMA with Camelot, several senior citizens who receive benefits from the Commonwealth through funds derived from the sale of state lottery tickets, and a number of Legislators who have legislative authority that will be circumvented by the proposed PMA. This case arises out of the Respondents unilateral decision to implement a PMA to operate the state lottery (1) in violation of the State Lottery Law and the Pennsylvania Constitution, and (2) in a usurpation by the Executive Branch of the Pennsylvania Legislatures authority to consider the matter during the next legislative session. As a result of this unprecedented conduct by the Commonwealth, approximately 100 employees represented by AFSCME are threatened with the loss of their jobs, including their contractually agreed-upon salaries and benefits; millions of senior citizen may lose benefits secured through funds derived from the sale of lottery games; and the Legislature, which has undertaken extensive statutory regulation of the lottery and other gaming in the Commonwealth, will be denied its constitutional right to review. In support thereof, Petitioners state to the Court as follows: 2

JURISDICTION

1.

This Court has jurisdiction pursuant to Section 761(a) of the Judicial

Code of 1976, P.L. 586, 142, as amended, 42 Pa.C.S. 761(a).

PARTIES

2.

Petitioner, AFSCME, is an unincorporated labor organization with

its offices at 4031 Executive Park Drive, Harrisburg, Pennsylvania. Its Trustee At Litem, David R. Fillman, is Executive Director of Council 13, and is a resident and taxpayer of the Commonwealth.

3.

Petitioner, Dawn Dellana, is employed as a Lottery Representative

by the Pennsylvania Department of Revenue, Commonwealth of Pennsylvania, and is a bargaining unit employee represented by AFSCME. She resides at 1543 Hollyrood Drive, Pittsburgh, Pennsylvania 15227, and is a taxpayer of the Commonwealth.

4.

Petitioner, Perry Petrongola, is employed as a District Lottery

Representative by the Pennsylvania Department of Revenue, Commonwealth of Pennsylvania and is a bargaining unit employee represented by AFSCME. He resides at 2631 South Chadwick Street, Philadelphia, PA 19145, and is a taxpayer of the Commonwealth. 3

5.

Petitioner, Thomas Rumbaugh is employed as a District Lottery

Representative by the Pennsylvania Department of Revenue, Commonwealth of Pennsylvania and is a bargaining unit employee represented by AFSCME. He resides at 1306 South 13th Street, Philadelphia, PA 19147, and is a taxpayer of the Commonwealth.

6.

Petitioner, Kelli Sweet, is employed as a Clerical Supervisor for the

Pennsylvania Department of Revenue, Commonwealth of Pennsylvania and is a bargaining unit employee represented by AFSCME. She resides at 741 Meadow Drive, Camp Hill, PA 17011, and is a taxpayer of the Commonwealth.

7.

Petitioner, Howard J. Artman, is a senior citizen and receives

benefits from the Commonwealth which are funded through the sale of state lottery tickets. He resides at 1715 Morton Avenue, West Mifflin, PA 15122, and is a taxpayer of the Commonwealth.

8.

Petitioner, Richard Tosti, is a senior citizen and receives benefits

from the Commonwealth which are funded through the sale of state lottery tickets. He resides at 205 Pond Street, Apt. 606, Bristol, PA 19007, and is a taxpayer of the Commonwealth.

9.

Petitioner, State Senator Christine M. Tartaglione (Senator

Tartaglione), represents the 2nd Senatorial District in Philadelphia, PA. Her office is located at Capital Building, Room 428, Harrisburg, PA, 17120-3002. She resides in and is a taxpayer of the Commonwealth.

10.

Petitioner, State Senator John N. Wozniak (Senator Wozniak),

represents the 35th Senatorial District in Johnstown, PA. His office is located at 10 East Wing, Harrisburg, PA, 17120-3035. He resides in and is a taxpayer of the Commonwealth.

11.

Petitioner, State Representative Anthony DeLuca (Representative

DeLuca), represents the 32nd House District in Pittsburgh, PA. His office is located at 115 Irvis Office Building, Harrisburg PA, 17120-2032. He resides in and is a taxpayer of the Commonwealth.

12.

Petitioner, State Representative H. Scott Conklin (Representative

Conklin), represents the 77th House District in Centre County, PA. His office is located at 325 Irvis Office Building, Harrisburg PA, 17120-2077. He resides in and is a taxpayer of the Commonwealth.

13.

Petitioner, State Representative Margo L. Davidson

(Representative Davidson), represents the 164th House District in Delaware County, PA. Her office is located at 105 East Wing, Harrisburg PA, 17120-2164. She resides 5

in and is a taxpayer of the Commonwealth.

14.

Petitioner, State Representative Ed Neilson (Representative

Neilson), represents the 169th House District in Philadelphia, PA. His office is located at 27A East Wing, Harrisburg PA, 17120-2169. He resides in and is a taxpayer of the Commonwealth.

15.

Petitioner, State Representative Michael H. OBrien

(Representative OBrien), represents the 175th House District in Philadelphia, PA. His office is located at 107 East Wing, Harrisburg PA, 17120-2175. He resides in and is a taxpayer of the Commonwealth.

16.

Senator Tartaglione, Senator Wozniak, Representative DeLuca,

Representative Conklin, Representative Davidson, Representative Neilson, and Representative OBrien (Legislative Petitioners) are duly elected members of the Pennsylvania Legislature authorized under Articles II and III of the Pennsylvania Constitution to participate in the legislative process leading to the enactment, amendment, repeal, or suspension of Commonwealth statutes.

17.

Respondent, the Commonwealth of Pennsylvania (hereinafter

Commonwealth), is a state within the United States. The Commonwealth is also a public employer within the meaning of Section 301 of the Public Employe Relations Act, Act of July 23, 1970, P.L. 563, 195, as amended, 43 P.S. 1101.301 (Act 195"). 6

18.

Respondent, the Honorable Tom Corbett, is Governor of the

Commonwealth of Pennsylvania (Governor), with his principal office at 225 Main Capitol Building, Harrisburg, Pennsylvania 17120. He exercises his powers as Chief Executive pursuant to Article IV of the Pennsylvania Constitution and Section 701 of the Administrative Code of 1929, 71 P.S. 241, et seq.

19.

Respondent, Dan Meuser, is Secretary of Revenue (Secretary

Meuser), with his principal office at the 11th Floor, Strawberry Square, Harrisburg, Pennsylvania 17128. He exercises powers pursuant to the Administrative Code of 1929, 71 P.S. 661, et seq.

20.

Respondent, Kelly Powell Logan, is Secretary of the Governors

Office of Administration (Secretary Logan), with her principal office at 207 Finance Building, 613 North Street, Harrisburg, Pennsylvania 17120. She exercises powers pursuant to the Administrative Code of 1929, 71 P.S. 1, et seq.

RELEVANT FACTS

Collective Bargaining Agreement

21.

AFSCME is recognized as the exclusive bargaining agent for

collective bargaining purposes for employees within several classifications included 7

under a multitude of certifications issued by the Pennsylvania Labor Relations Board (PLRB). Approximately 173 bargaining unit employees of AFSCME work for the state lottery under the Department of Revenue and fall within the purview of those certifications.

22.

AFSCME is also recognized as the exclusive representative for

meet and discuss purposes for employees within several classifications included under a multitude of certifications issued by the PLRB. Approximately 12 employees represented by AFSCME work for the state lottery under the Department of Revenue and fall within the purview of those certifications for the meet and discuss unit.

23.

Approximately 100 employees, including Petitioners Dellana,

Pentrongola, Rumbauch, and Sweet, work for the state lottery under the Department of Revenue, are represented by AFSCME, and will lose their employment in the event the Commonwealth implements a PMA.

24.

Following the certifications referenced above, Petitioner AFSCME

negotiated a series of collective bargaining agreements with the Respondent, Commonwealth of Pennsylvania. The agreements establish rates of pay, hours of work, and other terms and conditions of employment for full-time, part-time and temporary employees within the certified units. These agreements include a provision outlining the proper procedure for allowing subcontracting of bargaining unit employee work. The collective bargaining agreements, known as the Master Agreement (Agreement) and 8

Master Memorandum (Memorandum) now in effect expire June 30, 2015.

25.

Article 43 of the Agreement provides the following:

Section 1. The provisions of Sections 1 through 6 of this Article shall apply only to Master Agreement bargaining unit work performed on July 1, 1996 by employees in rank and file units represented by AFSCME in the particular agency affected.

Section 2. a. Except as provided in Section 8, the Employer shall not contract/assign Master Agreement bargaining unit work included within the scope of Section 1 to independent contractors, consultants or other non-Master Agreement bargaining unit state employees where (1) such contract/assignment would result in the layoff or downgrading of an employee, or (2) such contract/assignment would prevent the return to work of an available, competent employee, or (3) the duration of the work to be performed under the contract/assignment is expected to be more than 12 consecutive months, or (4) the work is performed on an annually recurring basis; except for the reasons set forth in Subsection b. b. The Employer may contract/assign Master Agreement bargaining unit work described in Subsection a. for any of the following reasons: (1) legitimate operational reasons resulting in reasonable cost savings or improved delivery of service, (2) legitimate operational reasons resulting from technological changes, (3) or where there are insufficient numbers of available, competent employees on layoff on the applicable recall list within the agency to perform the required work. Section 3. a. Except as provided in Section 8, the Employer shall not contract/assign Master Agreement bargaining unit work included within the scope of Section 1 which becomes available as a result of a retirement, resignation, termination, promotion, demotion or reassignment of an employee to 9

independent contractors, consultants or other non-Master Agreement bargaining unit state employees, except for the reasons set forth in Subsection b. b. The Employer may contract/assign Master Agreement bargaining unit work described in Subsection a. for any of the following reasons: (1) legitimate operational reasons resulting in reasonable cost savings or improved delivery of service, (2) legitimate operational reasons resulting from technological changes, (3) or where there are insufficient numbers of available, competent employees on layoff on the applicable recall list within the agency to perform the required work. Section 4. The Employer shall provide the union with as much advanced notice as possible of a proposed contract/assignment of Master Agreement bargaining unit work included within the scope of Section 1 which meets the conditions set forth in Sections 2.a. or 3.a. Section 5. At each site where a proposed contract/assignment of Master Agreement bargaining unit work is to occur and provided the work is included within the scope of Section 1 and meets the conditions set forth in Sections 2.a. and 3.a., local labor/management committees shall meet and discuss over the reasons for the contract/assignment. At this meeting the Employer shall provide to the union all information it has to support a claim (a) of reasonable cost savings or improved service, (b) of legitimate operational reasons resulting from technological changes, (c) that there are insufficient numbers of available, competent employees on layoff on the applicable recall list within the agency to perform the required work, or (d) that the duration of the contract/assignment is not expected to exceed 12 consecutive months duration. The union shall have the opportunity to provide alternative methods to attaining the Employers desired result. In the event that the parties at the local level are unable to resolve the issue, the contract or the assignment made may be implemented and the matter shall be referred to a committee comprised of Council 13, the Agency and the Office of Administration. Should the parties by unable to resolve the issue, the union shall notify the Office of Administration in writing of its intent to submit the matter to the grievance procedure. Section 6. The Employer and the Union agree to meet and discuss, on an ongoing basis, at the statewide or agency level to 10

develop a list of contract/assignment exemptions from the provisions of Sections 1 through 5 of this Article. Examples of criteria to be used by the parties for developing the list of exemptions are: duration of the project; total cost of the contract; availability of the necessary skills and/or equipment within the agencys existing resources; ability to complete the project with the Agencys workforce within the required time frames. Section 7. The Employer agrees to meet and discuss regarding any contract/ assignment involving work of the type traditionally performed by employees covered by the Master Agreement, but excluded by Section 1 of this Article, upon request of the union and presentation by the Union of an alternative which may result in reasonable cost savings or improved delivery of service. Section 8. This agreement will not be construed so as to prevent other non-Master Agreement bargaining and first-level supervisory unit state employees who are in class titles represented by employee organizations other than AFSCME from performing Master Agreement bargaining unit work for the purpose of instruction, illustration, lending an occasional hand or in emergency situations to carry out the functions and programs of the Employer or maintain the Employers standard of service. Section 9. The Employer and the union acknowledge the above represents the results of negotiations conducted under and in accordance with the Public Employee Relations Act and constitutes the full and complete understanding regarding the issues of contracting out and transfer of bargaining unit work.

26.

Recommendation 44 of the Memorandum has nearly identical

language, but, because it concerns first level supervisors, it replaces all references to Master Agreement bargaining unit work with Master Memorandum supervisory unit work. It also contains no provision for filing a grievance regarding disputes concerning subcontracting of supervisory unit work.

11

27.

Under both the Master Agreement and the Master Memorandum,

the Commonwealth may subcontract work if it can demonstrate that there are legitimate operational reasons resulting in reasonable cost savings or improved delivery of service. Before it may subcontract, however, the Commonwealth must meet and discuss its plan with AFSCME representatives, and must provide the Union with information supporting its justification for subcontracting. Once the Commonwealth provides AFSCME the necessary information, the Union has an opportunity to provide alternative methods to attaining the Employers desired result. After the parties proceed through these steps, if they have not reached agreement, the Commonwealth may implement its plan, subject to the possibility that AFSCME may challenge the action on behalf of bargaining unit work of employees covered by the Master Agreement.

State Lottery Law

28.

On August 26, 1971, Pennsylvania enacted the State Lottery Law,

P.L. 351, No. 91. The State Lottery Law has been amended on various occasions, but the current version is contained in Pennsylvanias Statutes at 72 P.S. 3761-101 et seq. 29. The purpose of the State Lottery Law is to establish a lottery to be

operated by the State . . . . 72. P.S. 3761-301 (emphasis added).

12

30.

Under the original statute and its current amended version, the

Pennsylvania Secretary of Revenue shall have the power and it shall be his duty to operate and administer the state lottery. 72 P.S. 3671-303(a) (emphasis added). The Pennsylvania Code declares that the Secretary [of Revenue] shall have the power and duty to operate and administer the lottery. . . . 61 Pa. Code 803.11.

31.

The State Lottery Law confers on the Secretary of Revenue the

power and duty to promulgate rules and regulations concerning the establishment and operation of the state lottery, including the following: (1) [t]he type of lottery to be conducted, (2) [t]he price, or prices, of tickets or shares in the lottery, (3) [t]he numbers and sizes of the prizes on the winning tickets or shares, (4) [t]he manner of selecting the winning tickets or shares, (5) [t]he manner of payment of prizes to the holders of winning lottery tickets or shares, (6) [t]he frequency of the drawings or selections of winning tickets or shares, (7) [t]he type or types of locations at which tickets or shares may be sold, (8) [t]he method to be used in selling tickets or shares, (9) [t]he licensing of agents to sell tickets or shares provided that no person under age 21 shall be licensed as an agent, (10) [t]he manner and amount of compensation, if any, to be paid licensed agents, (11) [t]he apportionment of the total revenues accruing from the sale of lottery tickets or shares and from all other sources among . . . the payment of prizes, the payment of costs incurred in the operation and administration of the lottery, and for property tax relief or reduced fair transit service for the elderly, (12) [t]he production and merchandising of promotional items for the lottery, (13) other matters necessary or desirable for the efficient and economical operation and 13

administration of the lottery, (14) and [t]he performance and powers and duties heretofore vested in the State Lottery Commission. 72 P.S. 3671-303(a). The Pennsylvania Code enumerates the same powers and duties held by the Secretary of Revenue over the state lottery. See 61 Pa. Code 803.11.

32.

Additionally, the State Lottery Law authorizes the Secretary of

Revenue to wield the following additional powers over the state lottery: (1) entering into commercial advertising contracts for the promotion of the state lottery, 72 P.S. 3761304; (2) determining the persons who meet the statutory requirements to be licensed as lottery sales agents, 72 P.S. 3761-305(a); (3) approving applicants who meet the statutory requirements to be licensed lottery agents, 72 P.S. 3761-305(b); (3) denying licenses for persons seeking to become lottery sales agents, or suspending or revoking licenses from persons who are currently lottery sales agents, 72 P.S. 3761-305(c); (4) issuing temporary licenses pending final determination on whether a person meets the statutory qualifications for acting as a licensed lottery sales agent, 72 P.S. 3761305(d); and (5) entering into state compacts permitting the sale of Pennsylvania lottery tickets within the borders of other states, as well as the sale of those states lottery tickets in the Commonwealth, 72 P.S. 3761-308. The Pennsylvania Code enumerates the same powers held by the Secretary of Revenue over the state lottery. 61 Pa. Code 805.2, 805.7, 805.17.

33.

As required by the State Lottery Law and pursuant to the

procedures set forth in the Commonwealth Documents Law, 45 P.S. 1102 et seq., 14

Regulatory Review Act, 71 P.S. 745.1-745.15, the Administrative Code, 71 P.S. 232 and the Commonwealth Attorneys Act, 71 P.S. 745.1-745.15, regulations were promulgated to implement the State Lottery Law. (The relevant provisions of these four statutes are referred to collectively as the Regulatory Process Laws) Those regulations are set forth in the Pennsylvania Code, which authorizes the Bureau of State Lotteries (Bureau) to specifically administer and supervise the operation of the lottery. It shall be responsible for the distribution, sale, control and overall operation of the lottery. 61 Pa. Code 801.3.

34.

The Pennsylvania Code commands the Secretary of Revenue to

appoint a director of the Bureau who has administrative and supervisory control over the Bureau. 61 Pa. Code 803.22(1), (2).

35.

The Pennsylvania Code empowers the Secretary of Revenue to

delegate to the Director of the Bureau such authority as he deems proper and appropriate for the efficient administration of the provisions of the act. 61 Pa. Code 803.22(3).

36.

The State Lottery Law commands the Secretary of Revenue to

report monthly to the Governor and the Legislature the total lottery revenues, prize disbursements and other expenses for the preceding month, and shall make an annual report, which shall include a full and complete statement of lottery revenues, prize disbursements and other expenses, to the Governor and the Legislature, and including such recommendations for changes in 15

this chapter as the [Secretary of Revenue] deems necessary or desirable. 72 P.S. 3671-303(b).

37.

Pursuant to the Act of July 4, 2008, P.L. 629, No. 53, Cl. 72, an

Omnibus Amendment to the Fiscal Code, the Department of Revenue is required to submit on June 1st of each year a report to the Governor, the chairman and minority chairman of the Appropriations Committee of the Senate, the chairman and minority chairman of the Appropriations Committee of the House of Representatives, the chairman and minority chairman of the Aging and Youth Committee of the Senate, and the chairman and minority chairman of the Aging and Older Adult Services Committee of the House of Representatives. The report must detail the current lottery revenue, the plan for increasing revenue, and be placed on the Department of Revenues publicly accessible website.

38.

All of the aforementioned provisions of the Pennsylvania Statutes

remain, and will remain, in effect until validly amended or repealed by the Legislature exercising its constitutional authority over the statutory law of the Commonwealth.

39.

All of the aforementioned provisions of the Pennsylvania Code

remain in effect until validly amended through the processes called for under the Regulatory Process Laws.

16

State Lottery Games and Revenues

40.

The State Lottery Law does not specifically enumerate the types of

lottery games that may be established by the Secretary of Revenue, but confers on him the authority to make those determinations through rules and regulations. Upon information and belief, every lottery game created since the enactment of the State Lottery Law was accomplished through the promulgation of regulations, as required by the State Lottery Law and pursuant to the procedures set forth in the Regulatory Process Laws.

41.

Exercising their statutory authority under the State Lottery Law and

pursuant to the procedures set forth in the Regulatory Process Laws, various Secretaries of Revenue created a number of lottery games and types of games, which are still existing, including, but not limited to: Instant Lottery Games, Daily Number, Big 4, Cash 5, Quinto, Treasure Hunt, Mega Millions, Powerball, Millionaire Raffle, and Raffle Lottery Games.

42.

Exercising their statutory authority under the State Lottery Law and

pursuant to the procedures set forth in the Regulatory Process Laws, various Secretaries of Revenue created the following games, which were later terminated: Weekly Drawing, Pennsylvania Lotto, Super 7, Saturday Spin, Wild Card Lotto, Million Dollar Spin, Hearts and Diamonds, Keystone Jackpot, Super 6, Match 6 Lotto, Lucky for Life Lotto, and Mix and Match. 17

43.

Since 2011 and continuing until July 1, 2015, 27% of the total

revenues accruing from the sale of lottery tickets is dedicated to providing Pennsylvanians 65 years of age or older property tax relief, free or reduced fare transit service, and a prescription drug benefit plan. 72 P.S. 3671-303(a)(11)(iv), 72 P.S. 3671-501 et seq. The amount of total revenues dedicated to such programs increases to 30% effective July 1, 2015. 72 P.S. 3671-303(a)(11)(iv).

44.

A minimum of 40% of the revenue generated from the sale of

lottery tickets must be used to provide lottery ticket prizes. 72 P.S. 3671-311(a). All moneys remaining after payment of prizes and operating expenses shall remain in the State Lottery Fund and shall be allocated for the purpose of those programs enumerated in the statute. Id.

45.

At the close of fiscal year 2011-2012, the total revenue from the

sale of lottery games was over $3.4 billion, and the total lottery prize payments to lottery game purchasers was slightly over $2.1 billion. Thus, approximately 62% of the total revenue from the sale of lottery games was paid out in the form of prizes to lottery ticket purchasers.

46.

At the close of fiscal year 2011-2012, the percentage of total

revenue from the sale of lottery games devoted to providing benefits to senior citizens was 29.2%. 18

Private Management Agreement

47.

Upon information and belief, sometime in 2012, without any

statutory authority, the Commonwealth entered into contracts with Greenhill & Co., LLC, a Chicago-based private equity firm, and DLA Piper, LLC, a multinational law firm, to handle the bidding process to secure a private entity to enter into a PMA to operate the state lottery.

48.

On or about April 2, 2012, without any statutory authority, the Office

of Governor announced a bidder prequalification process (Request for Qualifications) for private entities interested in entering into a PMA to operate the state lottery.

49.

Upon information and belief, beginning on April 2, 2012 and ending

on May 1, 2012, private entities were permitted to submit prequalification bids to Greenhill & Co. if they were interested in entering into a PMA with the Department of Revenue to operate the state lottery.

50.

Upon information and belief, Camelot submitted a prequalification

bid by May 1, 2012. However, that prequalification bid has never been disclosed to the general public or AFSCME, despite AFSCMEs repeated requests.

19

51.

On or about June 12, 2012, the Department of Revenue

announced that, without any statutory authority, the Commonwealth would conduct due diligence regarding its plan to have a private entity operate the state lottery. In a press release, Secretary Meuser stated that the Commonwealth and any qualified bidders will interact to learn about each others business, explore ideas on improving operations and maximizing Lottery profits, and determine what a private management agreement for the Pennsylvania Lottery might look like.

52.

On the same day, the Department of Revenue announced that it

engaged Scientific Games International, the state lotterys current vendor for terminalbased gaming systems and instant games, as a partner in the due diligence phase of the bidding process. The Commonwealth also announced that it entered into an agreement with Scientific Games to exercise all available extensions regarding its instant games and terminal-based gaming systems contracts with the Commonwealth in the event a private management agreement is executed.

53.

Upon information and belief, on June 22, 2012, without any

statutory authority, the Commonwealth initiated an invitation to bid amongst those bidders found to be qualified in the prequalification bidding process. The invitation to bid required the qualified bidders to present a business plan among other things.

54.

On July 9, 2012, the Department of Revenue announced that the

Commonwealth entered into a contract with Kroll Advisory Solutions to conduct 20

comprehensive probity investigations on companies qualified to bid on a private management agreement for the state lottery.

55.

On November 14, 2012, the State Senate and State House

adjourned, and the legislative session officially ended on November 30, 2012. Under the Pennsylvania Constitution, the Pennsylvania Legislature does not return until the New Year. The new legislative session for the Pennsylvania House of Representatives begins on January 14, 2013, and the new legislative session for the Pennsylvania Senate begins on January 22, 2013.

56.

Upon information and belief, on November 15, 2012, the

Commonwealth notified qualified bidders which presented acceptable business plans to provide a priced bid by 1:00 pm on November 16, 2012.

57.

Upon information and belief, without any statutory authority, on

November 16, 2012, the Commonwealth received the bid of Camelot to enter into a PMA to operate the state lottery. Camelot was the sole bidder, and its bid has never been disclosed to the general public, AFSCME or any of the Petitioners.

58.

Under the proposed terms and conditions of the PMA, without any

statutory amendment or legislative involvement whatsoever, Camelot will assume many of the powers and/or duties specifically conferred upon the Secretary of Revenue by the State Lottery Law, including the following: (1) determining the types of lottery games 21

available for the public, including enhancing existing games, introducing new games, and terminating existing games; (2) establishing prize structures for lottery games; (3) recruiting new lottery sales agents; (4) supervising lottery sales agents; (5) determining commissions and other incentives for lottery sales agents; (6) executing suspension and revocation orders of lottery sales agents; (7) designing, implementing, and maintaining advertising and promotional campaigns for lottery games; (8) directing and controlling the duties of lottery employees hired by Camelot; (9) maintaining compliance with all Commonwealth laws, rules, regulations and policies; and (10) preparing, negotiating, and monitoring contracts with subcontractors and vendors. (A true and correct copy of Schedule 2.1 of the PMA [Operational Responsibilities of Manager] are attached this Complaint as Exhibit 1). These private assumptions of powers and duties are in direct contravention of the State Lottery Law.

59.

Under the proposed terms and conditions of the PMA, the

Commonwealth, acting through the Department of Revenue, will have a severely limited role in the operation, administration, and management of the state lottery. The Commonwealth will (1) validate and verify winning lottery tickets; (2) manage the payment of winning lottery games; (3) manage and operate the primary drawings of lottery games; (4) control the transfer of lottery proceeds to appropriate funds, handle electronic transfers from lottery sales agents bank accounts, and collect past due accounts from lottery sales agents; (5) administer payments of commissions and bonuses to lottery sales agents, and (6) process, issue, revoke and suspend licenses for lottery sales agents (though Camelot may submit to the Commonwealth requests to 22

issue, revoke, and suspend certain licenses). (A true and correct copy of Schedule 2.2 of the PMA [Operational Responsibilities of the Commonwealth] are attached this Complaint as Exhibit 2).

60.

Upon information and belief, under the terms of the proposed PMA,

Camelot will guarantee the Commonwealth an annual profit commitment (APC) that is a fixed amount that it agrees to increase gradually each year during the term of the PMA. In the event that the revenues in any given year exceed the APC, Camelot will be paid 25% of any additional revenues earned up to 1% of the APC. Camelot will be paid 50% of additional revenues earned above 1% of the APC up to a cap of 5% of the overall lottery system profits. Additionally, upon information and belief, under the terms of the proposed PMA, Camelot will be paid a management fee at the rate of 0.75% of lottery system profits.

61.

Upon information and belief, under the terms of the proposed PMA,

Camelot will be required to provide $150 million of cash collateral to the Commonwealth, and provide a $50 million line of credit. In the event that the company does not make its projected revenue targets, the Commonwealth will make up the funding shortfall by drawing from the $150 million cash collateral to pay senior citizen benefits funded through the state lottery funds. In the event that the cash collateral is diminished to less than $50 million, the $50 million line of credit is activated and will increase annually based on the consumer price index. Under the proposed PMA, such cash collateral and payments would be made to the Commonwealth without any 23

legislative budgetary authority whatsoever.

62.

Under the terms and conditions of the proposed PMA, and without

any legislative authorization, the Commonwealth will enter into a twenty (20) year contract with Camelot to operate the state lottery.

63.

Under the terms and conditions of the proposed PMA, and without

any legislative authorization, Camelot will be authorized to create new market opportunities, presumably by expanding existing lottery games and creating new lottery games, but nowhere does the PMA describe or identify what those new market opportunities will be.

64.

Pursuant to the proposed PMA, the Commonwealth anticipates that

the Department of Revenue will subcontract a portion of the bargaining unit work of AFSCME. The Department of Revenue contends that 101 of the 173 bargaining unit employees working for the Department of Revenue would lose their employment with the Commonwealth.

65.

There is no provision within the PMA prohibiting Camelot from

reducing the percentage of the payouts to lottery game winners from the current 62% of total lottery game sales revenues to the statutory limit of 40% of total lottery game sales revenues. These payouts currently are authorized through legislatively-enacted appropriations. 24

66.

Upon information and belief, the priced bid of Camelot states that it

and the Commonwealth must finalize and execute the PMA by December 31, 2012, prior to the constitutionally-established commencement of the next session of the Legislature, or its offer expires.

Notice to AFSCME of PMA

67.

On November 9, 2012, Stacy Hastings, the Chief of the Labor

Relations Division of the Department of Revenue (Ms. Hastings) notified a representative in AFSCMEs Grievance and Arbitration Department of the Department of Revenues intent, without any statutory authorization, to explore a PMA agreement to operate the state lottery. The letter indicated the Department of Revenues willingness to proceed under Article 43 of the Master Agreement.

68.

On or about November 19, 2012, Kristie Wolf-Maloney (Ms. Wolf-

Maloney), Director of AFSCMEs Grievance and Arbitration Department, sent a letter to Ms. Hastings, requesting information regarding the Department of Revenues proposed plan to enter into a private management agreement to operate the lottery.

69.

On November 28, 2012, AFSCME representatives and its legal

counsel met with various representatives of the Department of Revenue and the Commonwealth Office of Administration, as well as with an attorney from DLA Piper, 25

LLC, to discuss the proposed PMA. AFSCME sought answers to several questions regarding the PMA, and made an additional information request at the meeting.

70.

At the November 28, 2012 meeting, the Department of Revenue

representatives asserted that Camelots contractual requirement under the PMA to pay $150 million to the Commonwealth as well as the guaranteed profit from the deal constituted legitimate operational reasons resulting in reasonable cost savings or improved delivery of service, as required by Article 43, Section 3 and Recommendation 44, Section 3.

71.

At the meeting, Department of Revenue representatives provided

some answers to the information request sent by Ms. Wolf-Maloney, but AFSCME raised additional questions for which it sought answers. Other questions previously raised by AFSCME were left unanswered.

72.

After the meeting, AFSCME representatives sought additional

information concerning the PMA for which the Department of Revenue provided some, but not all, the answers.

73.

Subsequently, the Department of Revenue informed AFSCME that

they anticipated that 101 employees represented by AFSCME and working for the state lottery under the Department of Revenue would lose their employment in the event that the Commonwealth implemented the PMA. 26

74.

As of the filing of this Petition for Review, there still remains

information sought by AFSCME which the Commonwealth refuses to provide, and the Commonwealth and the Department of Revenue have cited no valid legal authorization to initiate the bidding process or to enter into and implement the proposed PMA.

75.

On December 17, 2012, AFSCME filed a grievance against the

Commonwealth, due to its failure to provide all information responsive to its requests. The failure to provide this information constitutes a violation of the Master Agreement and Master Memorandum.

76.

On December 17, 2012, AFSCME filed an unfair labor practice

charge against the Commonwealth, due to its failure to provide all information responsive to its requests, and amounts to a repudiation of the pre-subcontracting procedure set forth in the Master Agreement and Master Memorandum. The failure to provide this information constitutes a violation of Act 195.

77.

Notwithstanding the outstanding information requests, it is

anticipated that AFSCME will present under protest an alternative proposal to attain reasonable cost savings or improved delivery of service.

78.

Upon information and belief, the Commonwealth and the

Department of Revenue intend, without legislative authorization, to implement the proposed PMA with Camelot. 27

COUNT I (VIOLATION OF STATE LOTTERY LAW)

79.

Paragraphs 1 through 78 are incorporated herein as though set

forth in their entirety.

80.

The Commonwealth and the Department of Revenue lack the

statutory authority to enter into a PMA to operate the state lottery in ways inconsistent with existing statutory law.

81. state lottery.

The State Lottery Law specifically established the creation of a

82.

The State Lottery Law enumerates powers and duties to be

exercised and performed by the Secretary of Revenue for establishing, operating, and administering the state lottery.

83.

Nothing in the State Lottery Law, other Pennsylvania statutes,

and/or Pennsylvania regulations grant the Secretary of Revenue or other Executive Branch official the authority to delegate the Secretary of Revenues statutory powers and duties over the state lottery to a private entity.

28

84.

Nothing in the State Lottery Law, other Pennsylvania statutes,

and/or Pennsylvania regulations grant the Secretary of Revenue or other Executive Branch official the authority to enter into or implement a PMA to operate the state lottery.

85.

Under the proposed PMA, Camelot will perform powers and duties

statutorily designated to be performed by the Secretary of Revenue. Specifically, the proposed PMA designates that Camelots responsibilities over the state lottery would include (1) determining the types of lottery games available for the public, including enhancing existing games, introducing new games, and terminating existing games; (2) establishing prize structures for lottery games; (3) recruiting new lottery sales agents; (4) supervising lottery sales agents; (5) determining commissions and other incentives for lottery sales agents; (6) executing suspension and revocation orders of lottery sales agents; (7) designing, implementing, and maintaining advertising and promotional campaigns for lottery games; (8) directing and controlling the duties of employees who aid in operating and maintaining the state lottery; (9) maintaining compliance with all Commonwealth laws, rules, regulations and policies; and (10) preparing, negotiating, and monitoring contracts with subcontractors and vendors. All of these enumerated functions are statutorily created powers and duties specifically delegated by the Legislature to be performed by the Secretary of Revenue and, therefore, cannot be modified except by valid legislative enactment.

29

86.

Thus, neither the Governor, Secretary Meuser, nor any other

Executive Branch official has the legal authority to implement the proposed PMA to operate the lottery.

87.

Absent equitable relief to prevent this violation of the State Lottery

Law, the Legislature, AFSCMEs bargaining unit employees working for the Department of Revenue, and senior citizens receiving benefits from funds derived from the sale of lottery games will suffer irreparable and immediate harm.

88.

Other than the issuance of equitable relief, there exists no

adequate remedy at law which can redress this irreparable and immediate harm to the Legislature, AFSCMEs bargaining unit employees, and senior citizens.

89.

Greater injury to the Legislature, AFSCMEs bargaining unit

employees, and senior citizens will result from refusing to issue equitable relief than will result to the Respondents from granting it.

WHEREFORE, Petitioners pray that this Honorable Court issue a permanent injunction to enjoin Respondents, their agents or representatives, from implementing the PMA to operate the state lottery as such conduct constitutes a violation of the State Lottery Law; issue a declaratory judgment that the State Lottery Law prohibits the Commonwealth from implementing the PMA to operate the state lottery; award Petitioners costs and reasonable attorneys fees; and grant such other 30

and further relief as the Court deems just and necessary under the circumstances.

COUNT II (VIOLATION OF ARTICLE II, SECTION 1 OF THE PENNSYLVANIA CONSTITUTION)

90.

Paragraphs 1 through 89 are incorporated herein as though set

forth in their entirety.

91.

Neither the Governor nor the Department of Revenue has cited, nor

can they cite, any legal authority for the actions they have taken and propose to take. The authority of Executive Branch officials, including the Governor, is not plenary; such officials must be able to cite to a specific grant of authority for their actions.

92.

Article II, Section 1 of the Pennsylvania Constitution (Article II,

Section 1) states that [t]he legislative power of this Commonwealth shall be vested in a General Assembly, which shall consist of a Senate and House of Representatives.

93.

Pursuant to Article II, Section 1, the legislative power of the

Commonwealth is held exclusively by the Pennsylvania Legislature, and neither the Governor nor other officials in the Executive Branch may exercise such powers.

94.

The Legislature has enacted a detailed statutory scheme governing

the operation of the state lottery, in the form of the State Lottery Law. It is the Executive 31

Branchs constitutional duty to carry out that statutory scheme. The actions of the Governor and the Secretary of Revenue in entering into the PMA amounts to usurpation by the Executive Branch of the Legislatures constitutional authority to enact and amend the State Lottery Law and its comprehensive regulation of the state lottery.

95.

Pursuant to Article II, Section 1, neither the Governor, Secretary

Meuser, nor any other Executive Branch official has the constitutional authority to implement the PMA as such action necessarily requires legislative action.

96.

Any attempt by the Governor, Secretary Meuser, or other officials of

the Executive Branch to implement the PMA to operate the state lottery constitutes a violation of Article II, Section 1 as such an action necessarily involves legislative competence.

97.

The State Lottery Law, as a duly enacted Commonwealth statute,

may only be amended, repealed, or suspended by the legislative process set forth in Articles II and III of the Pennsylvania Constitution.

98.

The Legislative Petitioners have the constitutional authority and

duty to participate in any legislative process leading to the amendment, repeal or suspension of the State Lottery Law.

32

99.

The actions of the Governor and the Department of Revenue in

opening bidding for, entering into, and moving to implement a PMA without legislative authority directly encroaches on and displaces the Legislative Petitioners constitutional authority to act as legislators and represent their constituents under Article II, Section 1 of the Pennsylvania Constitution.

100.

If the Governor and Secretary Meuser are permitted to proceed

with implementation of the PMA, the Legislative Petitioners will be unable to perform their constitutional functions as Legislators and representatives of their constituents.

101.

For all these reasons, the Governor and Secretary Meusers

attempt to implement the PMA to operate the state lottery constitutes ultra vires conduct, encroaching on the Legislatures constitutional authority, in violation of Article II, Section 1 of the Pennsylvania Constitution.

102.

Absent equitable relief to prevent this violation of Article II, Section

1, the Legislature, AFSCMEs bargaining unit employees working for the Department of Revenue, and senior citizens receiving benefits from funds derived from the sale of lottery games will suffer irreparable and immediate harm.

103.

Other than the issuance of equitable relief, there exists no

adequate remedy at law which can redress this irreparable and immediate harm to the Legislature, AFSCMEs bargaining unit employees, and senior citizens. 33

104.

Greater injury to the Legislature, AFSCMEs bargaining unit

employees, and senior citizens will result from refusing to issue equitable relief than will result to the Respondents from granting it.

WHEREFORE, Petitioners pray that this Honorable Court issue a permanent injunction to enjoin Respondents, their agents or representatives, from implementing the PMA to operate the state lottery as such an action violates Article II, Section 1 of the Pennsylvania Constitution; issue a declaratory judgment that Article II, Section 1 prohibits the Commonwealth from implementing the PMA to operate the state lottery; award Petitioners costs and reasonable attorneys fees; and grant such other and further relief as the Court deems just and necessary under the circumstances.

COUNT III (VIOLATION OF ARTICLE I, SECTION 12 OF THE PENNSYLVANIA CONSTITUTION)

105.

Paragraphs 1 through 104 are incorporated herein as though set

forth in their entirety.

106.

Article I, Section 12 of the Pennsylvania Constitution (Article I,

Section 12) states that [n]o power of suspending laws shall be exercised unless by the Legislature or by its authority.

34

107.

Under Article 1, Section 12, the Governor and other officials of the

Executive Branch are barred from suspending laws duly enacted by the Legislature.

108.

Under Article I, Section 12, only the Legislature may amend, repeal

or otherwise suspend a statute.

109.

Currently, there is no legislative authority or enactment to allow the

state lottery to be operated in any fashion other than as outlined in the State Lottery Law. 110. Any attempt by the Governor, Secretary Meuser, or other officials of

the Executive Branch to implement the PMA to operate the state lottery constitutes a violation of Article I, Section 12 as it effectively acts as a suspension of the State Lottery Law by Executive fiat.

111.

The actions of the Governor and Secretary Meuser in opening

bidding for, entering into, and moving to implement the PMA without legislative authority directly encroaches on and displaces the Legislative Petitioners constitutional authority over amending, repealing, and enacting statutes, conferred upon it through Article I, Section 12.

112.

For all these reasons, the Governor and Secretary Meusers

attempt to implement the PMA to operate the state lottery constitutes ultra vires conduct, encroaching on the Legislatures constitutional authority, in violation of Article I, 35

Section 12 of the Pennsylvania Constitution.

113.

Absent equitable relief to prevent this violation of Article I, Section

12, the Legislature, AFSCMEs bargaining unit employees working for the Department of Revenue, and senior citizens receiving benefits from funds derived from the sale of lottery games will suffer irreparable and immediate harm.

114.

Other than the issuance of equitable relief, there exists no

adequate remedy at law which can redress this irreparable and immediate harm to the Legislature, AFSCMEs bargaining unit employees, and senior citizens.

115.

Greater injury to the Legislature, AFSCMEs bargaining unit

employees, and senior citizens will result from refusing to issue equitable relief than will result to the Respondents from granting it.

WHEREFORE, Petitioners pray that this Honorable Court issue a permanent injunction to enjoin Respondents, their agents or representatives, from implementing the PMA to operate the state lottery as such an action violates Article I, Section 12 of the Pennsylvania Constitution; issue a declaratory judgment that Article I, Section 12 prohibits the Commonwealth from implementing the PMA to operate the state lottery; award Petitioners costs and reasonable attorneys fees; and grant such other and further relief as the Court deems just and necessary under the circumstances.

36

COUNT IV (VIOLATION OF ARTICLE III, SECTIONS 11 AND 24 OF THE PENNSYLVANIA CONSTITUTION) 116. Paragraphs 1 through 115 are incorporated herein as though set

forth in their entirety.

117.

Article III, Section 11 of the Pennsylvania Constitution (Article III,

Section 11) states: The general appropriation bill shall embrace nothing but appropriations for the executive, legislative, and judicial departments of the Commonwealth, for the public debt and for public schools. All other appropriations shall be made by separate bills, each embracing but one subject.

118.

Article III, Section 24 of the Pennsylvania Constitution (Article III,

Section 11) states: No money shall be paid out of the treasury, except on appropriations made by law and on warrant issued by the proper officers; but cash refunds of taxes, licenses, fees, and other charges paid or collected, but not legally due, may be paid, as provided by law, without appropriation from the fund into which they were paid on warrant of the proper officer.

119.

Article III, Sections 11 and 24 make clear that the Legislature has

the power over spending in the Commonwealth and is responsible for enacting appropriations for all branches of government, including the Executive Branch. Under Article III, Section 24, no government revenue may be spent without the Legislatures approval. 37

120.

The proposed PMA contemplates that Camelot will operate the

state lottery, including enhancing existing games, terminating existing games, and creating new games. It further contemplates that Camelot will provide the Commonwealth a fixed APC to pay for programs to the elderly, and that the Commonwealth will pay Camelot to perform all of these services.

121.

Upon information and belief, the appropriations bill enacted in 2012

for the fiscal year ending June 30, 2013 provided no authority to spend taxpayer funds for any of the activities outlined in the PMA.

122.

Upon information and belief, the Legislature has never amended

the last appropriations bill enacted in 2012 for the fiscal year ending June 30, 2013.

123.

Currently, the Governor has no legislative authority to spend any

moneys derived from the sale of state lottery games or the general fund on the PMA.

124.

The actions of the Governor and the Department of Revenue in

opening bidding for, entering into, and moving to implement a PMA without legislative authority directly encroaches on and displaces the Legislative Petitioners constitutional authority over the budget and appropriations process in the Legislature, under Article III, Sections 11 and 24 of the Pennsylvania Constitution.

38

125.

Thus, pursuant to Article III, Sections 11 and 24, the

Commonwealth and the Department of Revenue lack constitutional authority to implement the PMA as such action necessarily requires legislative action in the form of an appropriations bill.

126.

Any attempt by the Governor, Secretary Meuser, or other officials of

the Executive Branch to implement the PMA to operate the state lottery without an appropriations bill constitutes a violation of Article III, Sections 11 and 24.

127.

Because the PMA involves an infusion of funds to the

Commonwealth in the form of a $150 million payment as well as guaranteed profits in later years, those monies must be directed and controlled by the Pennsylvania Legislature and any attempt by the Executive Branch to secure such funds without legislative approval violates Article III, Sections 11 and 24.

128.

For all these reasons, the Governor and Secretary Meusers

attempt to implement the PMA to operate the state lottery constitutes ultra vires conduct, encroaching on the Legislatures constitutional authority, in violation of Article III, Sections 11 and 24.

129.

Absent equitable relief to prevent this violation of Article III,

Sections 11 and 24, the Legislature, AFSCMEs bargaining unit employees working for the Department of Revenue, and senior citizens receiving benefits from funds derived 39

from the sale of lottery games will suffer irreparable and immediate harm.

130.

Other than equitable relief, there exists no adequate remedy at law

which can redress this irreparable and immediate harm to the Legislature, AFSCMEs bargaining unit employees, and senior citizens.

131.

Greater injury to the Legislature, AFSCMEs bargaining unit

employees, and senior citizens will result from refusing to issue equitable relief than will result to the Respondents from granting it.

WHEREFORE, Petitioners pray that this Honorable Court issue a permanent injunction to enjoin Respondents, their agents or representatives, from implementing the PMA to operate the state lottery as such an action violates Article III, Sections 11 and 24 of the Pennsylvania Constitution; issue a declaratory judgment that Article III, Sections 11 and 24 prohibits the Commonwealth from implementing the PMA to operate the state lottery; award Petitioners costs and reasonable attorneys fees; and grant such other and further relief as the Court deems just and necessary under the circumstances.

40

Respectfully submitted, WILLIG, WILLIAMS & DAVIDSON

BY:

_______________________________ ALAINE S. WILLIAMS, ESQUIRE Attorney I.D. No. 32489 AMY L. ROSENBERGER, ESQUIRE Attorney I.D. No. 76257 JOHN R. BIELSKI, ESQUIRE Attorney I.D. No. 86790 1845 Walnut Street, 24th Floor Philadelphia, PA 19103 (215) 656-3600 Attorneys for the American Federation of State, County and Municipal Employees, Council 13, AFL-CIO

Dated: December 17, 2012

41