5-0800-10401-2

STATE OF MINNESOTA

OFFICE OF ADMINISTRATIVE HEARINGS

FOR THE MINNESOTA GAMBLING CONTROL BOARD

In the Matter of the Premises Permits of the Knights of Columbus Council 1621, License No. 02187

FINDINGS OF FACT, CONCLUSIONS AND RECOMMENDATIONS

The above-entitled matter was submitted to Administrative Law Judge Howard L. Kaibel, Jr. on jointly stipulated facts. The record closed on June 17, 1996, upon receipt of the last filing.

Joseph H. Louwagie, of Runchey, Louwagie & Wellman, P.L.L.P., P.O. Box 1043, 533 West Main Street, Marshall, Minnesota 56258-0843, appeared on behalf of the Knights of Columbus, a licensed charitable gambling organization (hereinafter: Respondent). Fabian Hoffner, Assistant Attorney General, 1200 NCL Tower, 445 Minnesota Street, St. Paul, Minnesota 55101-2130, appeared on behalf of the Staff of the Gambling Control Board (hereinafter: Agency Staff).

NOTICE

Notice is hereby given that, pursuant to Minn. Stat. § 14.61 the final decision of the Gambling Control Board shall not be made until this Report has been made available to the parties to the proceeding for at least ten days, and an opportunity has been afforded to each party adversely affected to file exceptions and present argument to the Board. Exceptions to this Report, if any, shall be filed with the Board's Director, Harry Baltzer, 1711 West County Road B, Suite 300, Roseville, Minnesota 55113, (612/639-4000).

STATEMENT OF ISSUE

Should disciplinary action be taken against the premises permits of a licensed charitable gambling organization because a video game was found on those premises which allowed simulated playing of poker and other games of chance, though the games were never utilized for gambling and the Licensee had no idea that their possession was allegedly illegal?

FINDINGS OF FACT

The parties have jointly stipulated to adoption in this Report of the following facts:

1. Respondent is an organization licensed by the Board to conduct lawful gambling.

2. Respondent's lawful gambling license took effect February 1, 1996 and expires January 31, 1998.

3. Respondent has and had a premises permit from the Board to conduct lawful gambling at Sam's Place Restaurant & Lounge ("Sam's Place'), 236 Main Street, Marshall, Minnesota, and conducts lawful gambling at Sam's Place.

4. Respondent has and had a premises permit from the Board to conduct lawful gambling at the Chalet Club, 1419 College Drive, Marshall, Minnesota, and conducts lawful gambling at the Chalet Club.

5. On or about August 21, 1995, Special Agent Robert O'Brien (Agent O'Brien") of the Minnesota Department of Public Safety visited the premises of the Chalet Club.

6. A video game machine ("machine") was located on top of the bar at the Chalet Club that contained a touch screen which, when properly activated, played games which simulate casino card games including poker, blackjack and craps. The machine did not offer any pecuniary award or gain to players.

7. The Compliance Review Group ("CRG") of the Gambling Control Board ("Board") maintains that said video game machine ("machine") is in violation of Minn. Stat. § 609.755 (1994); Minn. Stat. § 609.75, subd. 4 (1994) and Minn. R. 7861.0050 (1995).

8. That the Respondent and its agents all deny that they had any knowledge that the video game machine ("machine") was "gambling" or that the Respondent and/or its agents were violating any gambling regulations or more specifically that Respondent was in violation of Minn. Stat. § 609.755 (1994); Minn. Stat. § 609.75, subd. 4 (1994) and Minn. R. 7861.0050 (1995).

9. On or about August 21, 1995, Agent O'Brien visited the premises of Sam's Club.

10. A video game machine was located on top of the bar at Sam's Club that contained a touch screen which, when properly activated, played games which simulate casino card games including poker, blackjack and craps. The machine did not offer any pecuniary award or gain to players.

11. The Compliance Review Group ("CRG") of the Gambling Control Board ("Board") maintains that said video game machine ("machine") is in violation of Minn. Stat. § 609.755 (1994); Minn. Stat. § 609.75, subd. 4 (1994) and Minn. R. 7861.0050 (1995).

12. That the Respondent and/or its agents all deny that they had any knowledge the video game machine ("machine") was "gambling" or that the Respondent and/or its agents were violating any gambling regulations and specifically Minn. Stat. § 609.755 (1994); Minn. Stat. § 609.75, subd. 4 (1994) and Minn. R. 7861.0050 (1995).

13. The Respondent further maintains that if any illegal gambling occurred at either the Chalet Club or at Sam's Club, neither Respondent or its agents participated in any illegal gambling.

14. That the parties hereto stipulate that the video game machine ("machine") may be delivered to the Honorable Howard L. Kaibel, Jr. for his examination in conjunction with the instant action.

CONCLUSIONS

1. That the Notice of Hearing was in all respects proper with regard to form, content, execution and filing.

2. That all other procedural and substantive requirements of statute and rule have been duly complied with.

3. That the Gambling Control Board properly acquired and now has jurisdiction over this proceeding pursuant to Minn. Stat. § 349.151, subd. 4(a)(12).

4. That the Agency Staff has not met its burden of proving by a preponderance of the evidence that "illegal gambling" was "conducted" at the sites involved herein, in violation of Minnesota Rule 7861.0050.

5. That the Agency Staff has not met its further burden of proving by a preponderance of the evidence that the Respondent knowingly violated a gambling law or rule, which is a prerequisite to permit suspension in Minn. Stat. § 349.155, subd. 4 and Minnesota Rule 7865.0020, subp. 3.

6. That until someone has been convicted of "conducting" some "illegal gambling" activity at the sites involved herein, Respondent cannot be penalized for innocently exercising its permit authority to provide lawful gambling services at those locations.

7. That all statutes relating to gambling are to be taken together as one law on the subject and, as such, are construed together. Foley v. Whelan, 219 Minn. 209, 211, 17 N.W.2d 367, 369 (1945).

8. That it would be absurd to construe the gambling laws as mandating suspension of Respondent's permits for being in proximity to a nonbetting video game simulating poker, while a real game of poker using real cards without betting at the same location would bring no sanction.

9. That the Legislature never intends its laws to be construed in a way that produces unreasonable or absurd results. Minn. Stat. § 645.17(1).

10. That the definition of a "video game of chance" in Minn. Stat. § 609.75, subd. 8 as including simulation games that offer no reward to customers is consequently best construed as being intended by the Legislature to be utilized in forfeiture proceedings and in criminal prosecutions of knowing possessors, not in penalty actions against totally innocent bystanders.

11. That the Agency Staff has not met its burden of proving by a preponderance of the evidence that Respondent or the owner of the premises or anyone else had any "illegal" or criminal intent or mens rea in this proceeding.

12. That the Agency Staff has not met its burden of proving by a preponderance of the evidence that either the owners of the premises or the Respondent had any ownership or possessory interest of any kind in the video games or shared in any way in any income they may have generated or had any control of any kind over their operation.

13. That the Agency Staff has not met its burden of proving by a preponderance of the evidence that there were circumstances present which should have put either the Respondent or the owners of the premises or any other reasonable person on notice to exercise a greater degree of care or to make further inquiries in order avoid harmful or illegal activities.

14. That the Agency Staff has not met its burden of proving by a preponderance of the evidence that Respondent or any of its agents consented to or had any knowledge of the presence of the video games on the premises involved.

15. That the Agency Staff has not met its burden of proving by a preponderance of the evidence that the proposed suspension of Respondent's premises permits for 90 days, under the circumstances herein considered, would promote the purposes of the Gambling Act in Minn. Stat. § 349.11 of preventing commercialization, ensuring operational integrity or controlling utilization of net profits.

16. That the Agency Staff has not met its burden of proving by a preponderance of the evidence that the mandatory licensure actions against the owners of the premises involved, set forth in Minn. Stat. §§ 349.31 through 349.35, have been pursued or explained why they haven't.

17. That the statutory and rule requirements relied upon by Agency Staff in this proceeding are penal provisions which must be strictly construed, with all reasonable doubts interpreted in favor of Respondent. State v. Larson Transfer and Storage, Inc., 310 Minn. 295, 304, 246 N.W.2d 176, 182 (1976) and State v. Corbin, 343 N.W.2d 874, 875 (Minn. App. 1984).

RECOMMENDATION

IT IS HEREBY RECOMMENDED: That the Gambling Control Board dismiss the Statement of Charges issued herein.

Dated this

28th

day of

August

1996.

HOWARD L. KAIBEL, JR.

Administrative Law Judge

NOTICE

Pursuant to Minn. Stat. § 14.62, subd. 1, the Agency is required to serve its final decision upon each party and the Administrative Law Judge by first class mail or as otherwise provided by law.

Reported: Stipulated Facts.

MEMORANDUM

This proceeding arose when two bars in Marshall, Minnesota installed (or allowed some other entrepreneur to install) on their premises, an electronic video amusement game which allowed players to simulate card games similar to computer solitaire. The video games included poker and blackjack. There was no actual gambling of any sort associated with playing these machines, but the State nonetheless insists they were illegal. Players couldn't wager or bet on their play in any way and evidently there was no way that they could or ever did win anything of value for playing these devices, not even a free replay.

In contrast, Respondent is a charitable organization that sponsored and derived income from actual, real live "lawful" gambling. It was licensed by the State to engage in such wagering and had "premises permits" issued by the Gambling Control Board specifically authorizing it to offer gamblers attractive cash prizes for betting in propria persona at the two bars in question.

Although Respondent did not deliberately violate any gambling law or rule and no one has suggested that the organization had reason to exercise more prudence in any particular way in the conduct of its licensed activities, Agency Staff proposed that it sign a "consent" order "voluntarily" suspending its licensed activities at both locations for 90 days because "illegal gambling" was allegedly "conducted" at those locations in violation of Minn. Rule 7861.0050.

When Respondent demurred, Agency Staff initiated this proceeding seeking a recommendation that the Board take unspecified "disciplinary action" against Respondent which could include fines, civil penalties and/or suspension or revocation of its authority to continue to engage in lawful gambling at these locations. The Minnesota Supreme Court has on one occasion emphasized the severity of the potential impact of such proceedings on occupational licensees, by referring to them as "a drastic sanction" that was "a clear abuse of discretion" and "completely uncalled for, based on the evidence" in a case where the Respondent acted "in good faith." In re Haugen, 278 N.W.2d 75, 80 (Minn. 1979). Such state deprivation of commercial privileges is often called "regulatory capital punishment."

This case thus has distinctive Lewis Carroll parallels, sans a white rabbit speaking of "unbirthdays". Like the renowned Alice, a bewildered Respondent resists a governmental "off with your head" for minding its own government sanctioned gambling business at a gathering where someone else had the capacity to engage in "ungambling".

The "ungambling" here was, quite literally, not gambling. No wagers were placed. No one risked so much as an ante. There is no evidence or even any allegation here, that anyone, including the video game players, the bar owners, the Respondent or anyone else believed or had any reason to believe that anyone playing these video games was gambling.

Moreover, ironically, Respondent would not be in any trouble if actual ungambling had been going on in both locations that evening. The trouble stems from video games that allowed simulated or pretend ungambling.

There would be no disciplinary action proposed here at all if bar patrons had openly set up actual tables of poker in the bars, played with real cards, truly wagering on their hands with tangible, non-monetary poker chip bets. As long as no money changed hands, such real ungambling would have been completely legal under Minn. Rule 7861.0050.

The villain of the piece for Respondent was that patrons in this case could potentially have engaged in simulated ungambling. They could pretend to play video card games on a preprogrammed computer screen.

The Agency Staff insists that this kind of video game machine was an illegal "gambling device", even though that has evidently never been determined in a court of law. While these machines appear to fit the statutory definition of a "gambling device," there is no evidence that anyone has ever been convicted or even charged with any crime based on their use or possession.

There is not even any indication in the stipulated facts that any patrons ever actually played these video games or that any of them ever used the poker or blackjack programs particularly to engage in simulated gambling activities with them. Such use would evidently be entirely legal, but the stipulated facts do not indicate that it has ever taken place.

Both sides have stipulated that the machines "did not offer any pecuniary award or gain to players". This evidently included no free replays. It has not been suggested that anyone using these machines (if anyone did) ever received any other rewards, awards or compensation of any kind from bar owners or employees or anyone else.

There is no evidence that these video games contained any features which would make them readily convertible to or useable for illicit purposes. They evidently did not contain any "knock off devices" or meters for recording credits.

Two reported cases have upheld the confiscation of legal equipment because it could have potentially been used for illegal gambling purposes, even though there was no evidence that it would be. See, United States v. Sixteen Electronic Gambling Devices, 603 F. Supp. 32 (U.S.D.C. Hawaii, 1984) and Playboy Hotel v. Chicago, 498 N.E.2d 663 (Ill. App. 1986) (upholding forfeiture of blackjack tables despite proposed innocent use in a promotion involving simulated gambling). However, innocuous video games simulating nongambling are usually held to be legal and not subject to forfeiture, if they do not contain meters or knock off features. Commissioner v. Twelve Poker Machines, 537 A.2d 812 (Pa. 1988).

The proper test of whether a video poker machine is an illegal "gambling device" under statutes imposing criminal or quasi-criminal penalties is whether the machine was ever actually used for gambling, not whether the machine could be used for gambling purposes. In Webb v. City of Rossville, 198 Ga. App. 294, 401 S.E.2d 312 (1991), the Georgia Supreme Court rejected the argument,

that a machine is a gambling device merely because it mimics a card game that "historically" had been used for gambling. . . .

See also, Commonwealth v. One Electronic Poker Game Machine, 302 Pa. 350, 448 A.2d 1077 (Pa. 1982); Ferguson v. State, 628 S.W.2d 37 (Tenn. 1981) and Games Management, Inc. v. Owens, 662 P.2d 260 (Kan. 1983).

It is important to understand that these decisions are cited, not because they prove the legality or illegality of the video games involved in this case. Minnesota statutes were not involved in any of them. They are cited because they indicate that the question is often a close one, turning on the circumstances of use or potential use in the particular case. Until it has been established in a court proceeding that these machines were used in such a way as to make them illegal, the law assumes that they were legal. In forfeiture cases, and more so in a case where Respondent is accused of some association with an evidently inoffensive video game, the device must be treated as innocent until it has been proven to be guilty.

The Agency Staff also insists that "illegal gambling" occurred at the premises considered herein merely because the (allegedly illegal) machines existed at those locations. It argues that the video games must have been possessed by someone at these locations; that possession of an illegal gambling device is a crime; and that, therefore, there must have been "illegal gambling" taking place at these premises. The attached report rejects this construction of the statutes.

The burden of proof of illegality is upon the Agency Staff. The "conduct" of "illegal gambling" is not defined in the statute or in Board rules. The "conduct" of "illegal gambling" is consequently interpreted by giving it ordinary everyday meaning: persons knowingly placing and taking illegal bets or illicitly wagering. This is obviously the kind of activity the Board meant to foreclose when it adopted the penalties for conducting lawful gambling on premises where "illegal gambling" is taking place. It is important to the integrity of lawful wagering to limit licensed activity to locations where there is no unlawful wagering openly practiced. In short, in order to penalize the Respondent, there must have been detectable illegal gambling activity going on which a prudent person would avoid. Mere existence on the premises of equipment that might be used for illegal gambling is not the same as using that equipment for the "conduct" of "illegal gambling" which mandates sanctions under the rule.

Moreover, the Agency Staff argument slides over the necessity of proving that some "illegal possession" occurred. It is well established that there must be a conviction of the crime of illegal possession under Minnesota law before the other legal consequences of that possession can be invoked. In St. Louis County v. $24,643.01 and Twenty-four Video Poker Machines, 524 N.W.2d 542 (Minn. App. 1994), for example, the court upheld a district court ruling returning confiscated money and machines because the respondent was never charged and convicted under Minnesota law. There was no doubt in that case that illegal gambling took place, with profits split between the bar owners and the machine owners, but respondent pled guilty to a federal RICO count, without being charged with gambling under Minnesota law. Noting that the government must be held to a strict burden of proof in such penalty cases, the court refused to assume respondent's guilt without proof of a conviction.

If there were actual possession in this case of an illegal gambling device, authorities would be required to initiate action under a very specific mandatory procedure set forth in the statutes against the licenses of the alleged possessors -- the bar owners. Minn. Stat. § 349.31 provides expressly and unequivocally:

The intentional possession or willful keeping of a gambling device on a licensed premises is cause for suspension or revocation of any license under which the licensed business is carried on upon the premises where the gambling device is found.

Minn. Stat. § 349.34 provides for a mandatory order to show cause in such cases and Minn. Stat. § 349.35 provides that upon adjudication the local unit of government is prohibited from reissuing a license for the same business on the same premises for at least one year.

There is no evidence in this case that the bar owners have ever been charged or convicted or pled guilty to any violations of these statutory provisions that would apply to any possession of illegal gambling devices. Absent such evidence, the Staff has failed to prove that any alleged illegal possession of an allegedly illegal gambling device ever occurred.

This is not a mere legal technicality. There is serious doubt in this case as to whether any "illegal possession" could ever be proven in such a case against the bar owners. It is consequently absurd to penalize Respondent based on a disputed allegation that the bar owner's conduct was illegal. There is longstanding advice from the Minnesota Attorney General to prosecutors in such cases (Attorney General Opinion 733, May 12, 1947) that an owner cannot be held responsible if s/he has no knowledge of the existence of an illegal device on the premises. The advice hinges on the necessity of proving "scienter" or guilty knowledge in obtaining a conviction. See, Pitts v. Atlanta, 14 Ga. 399, 81 S.E. 249 (1914). "Criminal intent is a sine qua non of criminal responsibility." 22 CJS Criminal Law § 31 (emphasis original). "Without guilty knowledge, criminal intent cannot exist." Id., § 36.

In any case, Respondent is an "innocent third person" who had nothing to do with the alleged illegal activity. There is no indication in the Stipulation of Facts that this charitable organization was even vaguely aware that some kind of illegal activity might be occurring on the premises or that a prudent licensee would have had the slightest reason under the circumstances to inquire. See, Herrly v. Muzik, 374 N.W.2d 275 (Minn. 1985) at 278, and Turk v. Long Branch Saloon, 280 Minn. 438, 159 N.W.2d 903 (Minn. 1968). There is no indication that Respondent was aware of any "facts as would lead an ordinary prudent man using ordinary caution to make further inquiries." Sahlin v. American Casualty, 5 Ariz. App. 126, 423 P.2d 897 at 904 (1967). It would appear that Respondent was an innocent "bystander", a spectator who had no concern with any potential simulated gambling on the computer game machines. Griffith v. Casteel, 313 S.W.2d 149 (Tex. Civ. App.) at 153. If there were an attempt to prosecute the owners in this case, Respondent would appear to be entitled to a "mere presence" jury instruction which is available to such bystanders who have no criminal intent and who do not participate in any way in the alleged commission of the crime. People v. Moldenhauer, 533 N.W.2d 9 (Mich. App. 1995). It is not alleged that Respondent had anything to do with the installation of these video games or benefited in the slightest from their installation or that any of Respondent's agents were even aware of their existence.

There is no indication in this case that Respondent had any prior history of any "patterns" of questionable conduct or that the organization had deliberately ignored any warning issued by the Agency Staff to Licensees regarding simulated video gambling, factors cited by the court in upholding licensure action in Hibbing VFW Post 8510, 529 N.W.2d 476 (Minn. App. 1995). Indeed, there is no evidence that the Agency Staff has ever endeavored to issue any warning of any kind regarding video machines to its list of lawful gambling licensees or to the owners of permitted premises.

Neither party has cited to any court cases in this or any other jurisdiction remotely similar to the one at bar, factually or legally. Limited research suggests that this may be because this is the first time that any state or federal authority has ever endeavored to take licensure action against an innocent bystander for being in proximity to potential simulated ungambling. There is one case in Minnesota involving action against the premises permits of a licensed charitable gambling organization where there was open and flagrant illegal actual gambling on the premises in Thief River Falls Amateur Hockey Association, 515 N.W.2d 604 (Minn. App. 1994). That decision upheld the constitutionality and validity of a previous version of the rule in question here in a disciplinary action against a licensee's premises permit where easily discernible "illegal gambling" took place in association with licensed lawful gambling. The premises owners in that case openly solicited bets on illegal Super Bowl sports boards, which were stacked conspicuously on the bar's service island. An investigator purchased squares on a $5.00 and a $1.00 board from one of the bartenders. Two of the three judges on the Appeals Court Panel expressly exercised judicial restraint in declining the request to invalidate the rule as applied in that case on constitutional grounds, "it is not for the courts to question the political wisdom of a regulation." However, Judge Randall filed a concurring opinion to highlight the "inherent inequities" involved in the Gambling Board action against the licensee's premises permit in that case where, "the liquor establishment location, not the charity, is guilty of an infraction; it makes no sense for the bulk of the punishment to fall on the charity." He urged revision of the rule and "common sense flexibility" in future proceedings where the licensee is an innocent bystander.

This is clearly a case where "common sense" would dictate dismissal of the Statement of Charges, avoiding further appellate litigation on the revised rule. The evidence in this case and the law in this and other jurisdictions indicates that it would be more prudent to put together a warning to licensees and premises owners to be on the lookout for simulated gambling video games. The warning could spell out the Agency Staff's interpretation of the law and the steps that licensees should take if the games are encountered, to avoid further adverse disciplinary action. HLK

STATE OF MINNESOTA)
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COUNTY OF HENNEPIN)