3-0800-15642-2

STATE OF MINNESOTA

OFFICE OF ADMINISTRATIVE HEARINGS

FOR THE GAMBLING CONTROL BOARD

In the Matter of the Lawful Gambling License of the Waconia Lions Club, License Number 32393

FINDINGS OF FACT, CONCLUSIONS OF LAW, AND RECOMMENDATION

The above-entitled matter came on for hearing before Administrative Law Judge Kathleen Sheehy on April 20, 2004, at the Office of Administrative Hearings in Minneapolis, Minnesota.  The hearing concluded on April 20, 2004, and the record closed on that date. 

E. Joseph Newton, Assistant Attorney General, 445 Minnesota Street, Suite 1800, St. Paul, MN 55101-2134, appeared on behalf of the Minnesota Gambling Control Board (“Board”).  Paul A. Melchert, Esq., Melchert, Hubert, Sjodin, P.L.L.P., 121 West Main Street, Suite 200, Waconia, Minnesota 55387, appeared on behalf of the Waconia Lions Club (“Respondent”). 

NOTICE

This Report is a recommendation only and not a final decision.  The Minnesota Gambling Control Board will make the final decision after a review of the record and may adopt, reject, or modify any Findings of Fact, Conclusions, and Recommendations contained herein.  According to Minn. Stat. § 14.61, the Board’s final decision 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 given to each party adversely affected to file exceptions and present argument to the Board.  Parties should contact the Minnesota Gambling Control Board, Suite 300 South, 1711 West County Road B, Roseville, MN  55113, telephone no. 651-639-4000, to determine the procedure for filing exceptions or presenting argument.

If the Board fails to issue a final decision within 90 days of the close of the record, this report will constitute the final agency decision under Minn. Stat. § 14.62, subd. 2a.  The record closes upon the filing of exceptions to the report and the presentation of argument to the Board, or upon the expiration of the deadline for doing so.  The Board must notify the parties and the Administrative Law Judge of the date on which the record closes.

STATEMENT OF ISSUES

Prior to the hearing in this matter, the Administrative Law Judge granted summary disposition in favor of the Board on some of the 17 counts of violations alleged against Respondent.[1]  The remaining issues left to be determined are whether Respondent: (1) failed to provide to the Board requested documentation showing that the Waconia Chamber of Commerce is a 501(c)3 organization (Count I); (2) made expenditures of gambling funds that do not qualify as lawful purpose expenditures (Count III); (3) failed to maintain complete and accurate records of its “gun raffle” and “Las Vegas trip raffle” and failed to maintain all unsold tickets related to these raffles (Counts IV, IV-A, V, V-A); (4) failed to obtain the seller’s signature on 4 of 21 prize receipts (Count VI); (5) conducted illegal gambling by conducting three board games and two paper square games during its Wild Game Dinner (Counts VIII-XI); (6) failed to own the prizes being awarded prior to conducting the games at issue (Count XIV); and (7) failed to maintain records regarding its proceeds, allowable expenses and value of prizes awarded (Count XVII).

Based upon all of the proceedings herein, the Administrative Law Judge makes the following:

FINDINGS OF FACT

1.                The Waconia Lions Club is an organization licensed by the Gambling Control Board since April 2001 to conduct lawful gambling.  The Club holds premises permits for the Boat House Bar located at 318 E. Lake Street, Waconia, Minnesota and the Waconia Saloon, Inc., located at 16 South Elm Street, Waconia, Minnesota. 

2.                Thomas Kaliher has been the gambling manager for the Waconia Lions Club since 2001.[2]

3.                There are no paid positions within the Waconia Lions Club.  All of the Club’s members and officers are volunteers.[3]

4.                Before the Waconia Lion’s Club was issued its license, both its president and gambling manager attended a two-day training session conducted by the Board on the laws and rules governing lawful gambling.  All gambling managers of organizations licensed to conduct lawful gambling must attend the Board’s training session before a license is issued.[4]

 

The Wild Game Dinner

5.                On January 28, 2002, the Club applied for a permit to conduct off-site gambling at its annual “Wild Game Dinner” to be held on February 9, 2002, at the Lakeside Ballroom in Waconia, Minnesota.  On the application, the Club identified “raffles” as the type of gambling activity it would conduct.[5]

6.                The Board approved the Club’s off-site gambling application and issued the club a permit to conduct gambling at the Lakeside Ballroom on February 9, 2002.[6]

7.                On February 9, 2002, the Waconia Lions Club held its Wild Game Dinner at the Lakeside Ballroom in Waconia, Minnesota.  The dinner is an annual fundraiser for the Club and the event draws on average approximately 600 people.  People attending pay $35 for a dinner of donated wild game, music, dancing, raffles and auctions.[7] 

8.                At the February 9, 2002, Wild Game Dinner, the Lions Club conducted three board games.  The Club identified the games as “board raffles.”  Each game consisted of a board with ten rows across and ten rows down.  The top horizontal row corresponded to the red ace through 5 in a deck of cards.  The descending vertical row corresponded to the black ace through 5.  The person operating the game picked one red-suited playing card and one black-suited playing card.  The person whose name was written in the box corresponding to the intersection of the two cards won the prize. [8]  The prizes awarded for the three board games were a “Robert Trent Jones Golf Trail” or “$650 travel voucher,”[9] a Browning 12 gauge shotgun,[10] and a Ruger with scope.[11]

9.                The board games were conducted without detachable, consecutively numbered tickets bearing the date, time, and location of the drawing as required for raffles under the rules.[12]  In addition, the Waconia Lion’s Club had not paid for the board game prizes with funds from its gambling account by the date of the drawing on February 9, 2002.[13]  The Board had sufficient records concerning the “board raffles” to calculate gross receipts for the board games.

10.            In addition to the three board games, the Lions Club conducted two prize drawings at the Wild Game Dinner.  The drawings consisted of paper squares, which had dollar amounts written on them ranging from zero to $10.00.  The squares were placed face down and when players picked a square they would pay the amount indicated to enter the raffle.  Once purchased, the players wrote their names on the squares and placed them in a receptacle.  The person operating the game drew one square from all the squares in the receptacle and that person won the prize.[14] 

11.            The paper square drawings were conducted without detachable, consecutively numbered tickets bearing the date, time, and location of the drawing as required for raffles under the rules.  Because the paper squares were not numbered, the Club was unable to account for how many chances (squares) were created and how many were actually sold.  In addition, because the cost of each square varied between zero and $10, the Board was not able to determine with complete accuracy the total gross receipts for the paper square games.[15] 

12.            The Waconia Lions Club’s auction and raffle committee created the board and paper square games in an attempt to offer something different for people to play.  Thomas Kaliher, the gambling manager for the Club, authorized the games after reviewing the governing statutes.  Mr. Kaliher interpreted the relaxed raffle ticket requirements under section 349.173 to apply to the Waconia Lions Club.[16]  His interpretation was erroneous, but not willful.  It was not made with disregard or indifference to statutory requirements or with careless disregard of statutory requirements.[17]

13.            The Waconia Lions club conducted two other raffles, referred to as the “gun raffle” and the “Las Vegas trip raffle,” at the February 9, 2002, Wild Game Dinner.  These raffles were conducted with detachable “theater-type” paper tickets that contained all of the required information except for the location and time of the drawing.[18]  Because the tickets were sold only on the evening of the event, Mr. Kaliher did not believe that the tickets needed to include the location and time of the drawing.[19]

14.            Of the 2,000 tickets printed for the gun raffle, the Waconia Lions Club could only account for 1,938 tickets (sold and unsold).  The Club was unable to provide the Board with documentation for 62 tickets, each valued at one dollar.  As a result, the Board was not able to determine with complete accuracy the total gross receipts for this game.  If all of the missing 62 tickets had been sold, the missing tickets would have produced $62 in receipts.[20]

15.            Of the 1,000 tickets printed for the Las Vegas trip raffle, the Waconia Lions Club could only account for 761 tickets (sold and unsold).  The Club was unable to provide the Board with documentation for 239 tickets, each valued at two dollars.  As a result, the Board was not able to determine with complete accuracy the total gross receipts for this game.  If all of the missing 239 tickets had been sold, the missing tickets would have produced $478 in receipts.[21]

16.            The Waconia Lions Club reported $11,000 in gross receipts to the Department of Revenue for the raffles conducted on February 9, 2002.  Based on the records available to the Board, the raffles should have generated only $8,400 of the $11,000 reported receipts.  Because the Club did not maintain complete records as to the number of tickets printed and sold, the Board could not calculate accurately the gross receipts collected.[22] 

17.            The Club initially deposited the $11,000 in gambling receipts into its general account at the bank, despite the fact that gambling proceeds are required to be deposited in a separate gambling account.  Shortly thereafter, the Club wrote a check for $11,000 from its general account and deposited this amount into its gambling account.[23]

 

The Compliance Review

18.            Cindy Krueger[24] is a Lawful Gambling Compliance Specialist with the Board.  Ms. Krueger’s duties include conducting compliance reviews of organizations licensed to conduct lawful gambling.  As part of a compliance review, Ms. Krueger reviews licensed organizations’ financial and tax records, inventory records, gambling equipment, and prize accounting records.[25]  

19.            On January 9, 2003, Ms. Krueger met with Mr. Kaliher to conduct a compliance review of the Waconia Lions Club.  The compliance review meeting took place at the Board’s office.  During the meeting, Mr. Kaliher voluntarily showed Ms. Krueger the “board raffles” and the paper squares the Club had used at its February 9, 2002, Wild Game Dinner.  Ms. Krueger asked Michael Strauss, an investigator with the Gambling Control Board, to look at the boards and paper squares and to give his opinion as to whether they complied with the governing rules and statues.  Mr. Strauss concluded that the boards and paper squares appeared to be similar to illegal sports boards.[26]  Mr. Strauss’s opinion was based solely on looking at the boards and paper squares.  He had no knowledge as to how the games were conducted.[27]

20.            Because the Waconia Lions Club reported the proceeds from the board and paper square games to the Department of Revenue as lawful gambling revenue, Ms. Krueger suggested that Mr. Kaliher notify Department of Revenue staff that the games were not in compliance with raffle rules.  The Department of Revenue taxes lawful and unlawful gambling revenue at different rates.  Mr. Kaliher called the Department of Revenue and explained the situation to a staff person, who took no action other than advising Mr. Kaliher not to do it again.[28]

21.            On or about February 2, 2003, Ms. Krueger requested that the Waconia Lions Club provide her with a letter from the IRS demonstrating that the Waconia Chamber of Commerce is a tax-exempt 501(c)3 organization.  Ms. Krueger requested this information based on forms the Club had filed stating that it had donated $1,000 in July 2001 and $3,500 in March 2002 to the Waconia Chamber of Commerce for its annual July 4^th fireworks display.  The Club reported these contributions as lawful purpose donations to a tax-exempt 501(c)3 organization on its schedule C/D “Lawful Purpose Expenditures” form.[29] 

22.            Before making the donations to the Waconia Chamber of Commerce, Thomas Kaliher called the Chamber and asked its secretary if the Chamber was a tax-exempt 501(c)3 organization.  Because the Chamber had a separate fireworks festival committee, Mr. Kaliher thought the Chamber might be a tax-exempt 501(c)3 or 501(c)4 organization.  The secretary informed Mr. Kaliher that the Chamber was a 501(c)3 organization.  Based on this representation, Mr. Kaliher made the contributions on behalf of the Lions Club and reported the contributions to the Board as lawful purpose donations to a tax-exempt organization.  Moreover, Mr. Kaliher believed that the Club could not write a check directly to the fireworks vendor because the Club did not have a permit to buy fireworks, whereas the Chamber did.[30]

23.            The Waconia Lion’s Club was unable to provide the Board with a letter from the IRS documenting that the Waconia Chamber of Commerce is a tax-exempt 501(c)3 organization because such a letter did not exist.  The Waconia Chamber of Commerce is not a 501(c)3 organization. 

24.            Contributions to a community fireworks display are considered to be lawful purpose expenditures.[31]  Had the Club written the checks directly to the fireworks vendor, the Board would have deemed the donations to be lawful purpose expenditures.  But because the Board does not permit donations to go through a third party, such as the Chamber, the Board was unable to verify that the money actually went to the fireworks vendor for the stated purpose.[32]

25.            The Waconia Chamber of Commerce did use the $4,500 contribution from the Waconia Lions Club to purchase fireworks for its public fireworks display held on July 4, 2002.[33]

26.            Apart from the Club’s error in writing its fireworks donations to the Waconia Chamber of Commerce, there is no evidence that the Waconia Lions Club used its profits from gambling for anything other than lawful purposes.

27.            The Compliance Review found other errors in record-keeping for certain pull tab games and errors in the timing of making bank deposits, to which the Club has admitted.[34]  In addition, four of 21 prize receipts for pull tab games conducted by the Waconia Lion’s Club had only the initials of the seller instead of the seller’s full signature as required by Minn. Rule 7861.0080, subp. 6C(2).[35]  None of these violations were willful or done with careless disregard of statutory requirements.

28.            On or about February 10, 2003, Ms. Krueger requested that the Waconia Lions Club provide her with deposit slips and bank receipts by April 22, 2003, for its games that closed in March 2003.  Ms. Krueger received partial deposit slips and bank receipts from the Lions Club on April 24, 2003, but she never received deposit slips for three or four pull-tab games that closed in March 2003.[36] 

29.            In a report issued February 10, 2003, the Board found the Waconia Lions Club violated various statutes and rules governing its license.  Despite finding some violations in the manner in which the gun raffle and the Las Vegas raffle were conducted, the Board did not identify these raffles as possibly constituting illegal gambling.  The Board determined, however, that the board and paper square games “may constitute illegal gambling,” and it notified the Club that it would refer the information it had gathered to the Department of Public Safety’s Gambling Enforcement Division to determine whether these games constitute illegal gambling.[37]

30.            If the Board determines that a licensed organization may have conducted illegal gambling, it may refer the matter to the Department of Public Safety’s Gambling Enforcement Division for possible criminal charges.[38]

31.            In the end, the Board did not refer the violations regarding the Waconia Lions Club’s board and paper square games to the Department of Public Safety for possible criminal charges because the Club had fully cooperated with the Board and the violations had occurred more than a year before and were not an ongoing activity.[39]

32.            The Waconia Lions Club fully cooperated with the Board throughout the compliance review process and subsequent investigation.[40]

Procedural Findings

33.            Pursuant to a Notice of Conference, Respondent appeared before the Compliance Review Group (“CRG”) of the Board on July 22, 2003. 

34.            On November 26, 2003, the Board served and filed a Notice of and Order for Prehearing Conference alleging 17 counts of gambling violations against Respondent, including allegations of illegal gambling.

35.          On March 12, 2004, the Board moved for summary disposition.  By Order dated April 12, 2004, the Administrative Law Judge granted summary disposition for the Board on Counts 2 and 7, and on the violations of Minn. Rule 7861.0110 alleged in Counts 11-13 (¶¶ 31-36) and Counts 15-16, but not as to the allegations contained therein that the raffles were illegal.  The Administrative Law Judge also granted summary disposition for the Board in part and denied it in part as to Counts 6 and 17, and denied summary disposition as to counts 1, 3, 4, 5, and 8-11.[41] 

36.          On April 15, 2004, the Board served and filed an Amended Notice of and Order for Prehearing Conference, which contained two additional counts alleging that Respondent had failed to maintain all unsold raffle tickets for a period of 3 ½ years as required by Minn. Rule 7861.0110, subp. 6F.

37.          The contested case hearing in this matter was held on April 20, 2004, at the Office of Administrative Hearings in Minneapolis.

Based upon the foregoing Findings of Fact, the Administrative Law Judge makes the following:

CONCLUSIONS

1.               The Gambling Control Board issues lawful gambling licenses and permits.  The Board has the authority to revoke or suspend licenses and permits, and censure licensees and assess civil penalties for a violation of gambling law and rule.[42]

2.               The State of Minnesota Gambling Control Board and the Administrative Law Judge have authority to consider the alleged violations by the Respondent pursuant to Minn. Stat. §§ 14.50, 14.58, and 349.155, subd. 5, and Minnesota Rules parts 7861.0050 and 7865.0020. 

3.               The Respondent received timely and appropriate notice of the allegations against it and the time and place of the hearing.

4.               The Board has complied with all relevant substantive and procedural requirements of statute and rule.

5.               The Board has the burden of proving by a preponderance of the evidence that Respondent violated statutes and rules governing its lawful gambling license.[43]

6.               Lawful gambling is defined as “the operation, conduct, or sale of bingo, raffles, paddlewheels, tip boards and pull tabs.”[44]

7.               Gross profits from lawful gambling may be used only for lawful purposes or allowable expenses as authorized by the membership of the conducting organization at a monthly meeting of the organization’s membership.[45]

8.               “Lawful purpose” is defined to include, among other purposes, contributions to a 501(c)(3) or 501(c)4 festival organization as defined in the Internal Revenue Code.[46]

9.               “Festival organization” is defined as “an organization conducting a community festival that is exempt from the payment of federal income taxes under section 501(c)(4) of the Internal Revenue Code.”[47]

10.            Respondent’s contributions of gambling funds to the Waconia Chamber of Commerce for its fireworks display did not qualify as lawful purpose expenditures under Minn. Stat. § 349.12, subd. 25, and therefore violated Minn. Stat. § 349.15, subd. 1.

11.            A raffle is defined by Minn. Stat. § 349.12, subd. 33, as follows:

“Raffle” means a game in which a participant buys a ticket for a chance at a prize with the winner determined by a random drawing to take place at a location and date printed upon the ticket.

12.            Minn. Stat. § 349.173, defines “conduct of raffles” as follows:

Raffle tickets at a minimum must list the three most expensive prizes to be awarded.  If additional prizes will be awarded that are not contained on the raffle ticket, the raffle ticket must contain the statement “A complete list of additional prizes is available upon request.”  Notwithstanding section 349.12, subdivision 33, raffles conducted under the exemptions in section 349.166 may use tickets that contain only the sequential number of the raffle ticket and no other information if the organization makes a list of prizes and a statement of other relevant information required by rule available to persons purchasing tickets and if tickets are only sold at the event and on the date when the tickets are drawn.

13.            The regulatory exclusions and exemptions permitted under Minnesota Statutes § 349.166, apply only to organizations without a license to conduct lawful gambling.

14.            The Respondent conducted board and paper square “raffles” on February 9, 2002, without detachable, consecutively numbered tickets bearing the date, time and location of the drawing, or name and license number of the organization conducting the raffle, in violation of the requirements set out in Minn. Rule 7861.0110. 

15.            By failing to purchase the prizes from funds in its gambling account prior to the drawings on February 9, 2002, Respondent did not own the “raffle” prizes in violation of Minnesota Rule 7861.0110, subp. 2D.

16.            Respondent failed to maintain complete and accurate records on its February 9, 2002, “gun raffle” and “Las Vegas trip raffle,” including maintaining all unsold tickets, in violation of Minnesota Rules 7861.0120, subp. 3A and 7861.0110, subp. 6F.

17.            Respondent failed to maintain complete and accurate records regarding the total amount of proceeds received from the two paper square games conducted on February 9, 2002, in violation of Minnesota Rule 7861.0110, subp. 6A.

18.            The Board failed to establish by a preponderance of the evidence that Respondent failed to maintain complete and accurate records regarding the total amount of proceeds received from the three board games conducted on February 9, 2002, in violation of Minnesota Rule 7861.0110, subp. 6A.

19.            The Board failed to establish by a preponderance of the evidence that Respondent failed to maintain complete and accurate records regarding the allowable expenses deducted from the net receipts of the board games and paper square games, and the total value of the prizes awarded in each board game and paper square game conducted on February 9, 2002, in violation of Minnesota Rule 7861.0110, subps. 6B and 6G. 

20.            By including only the initials and not the signature of the seller on 4 of 21 winning pull-tab prize receipts, Respondent failed to complete prize receipts in violation of Minnesota Rule 7861.0080, subp. 6C.

21.            The Board failed to establish by a preponderance of the evidence that Respondent failed to comply with the Board’s request in a timely manner to provide documentation from the IRS that the Waconia Chamber of Commerce is a 501(c)3 organization in violation of Minn. Stat. § 349.151, subd. 9.  Because such a document did not exist, Respondent was not able to comply with the Board’s request.

22.            Respondent failed to comply with the Board’s request in a timely manner to provide deposit slips and bank receipts for the games that closed in March 2003 in violation of Minn. Stat. § 349.151, subd. 9. 

23.            Respondent’s three board games and two paper square games were non-compliant raffles conducted under Minnesota Statutes chapter 349. 

24.            Based on the violations of statutes and rules established by the Board, Respondent’s license and premises permit are subject to discipline pursuant to Minnesota Statute § 349.155, subd. 4 and Minnesota Rule 7865.0020.

25.            The Board may by order suspend or refuse to renew any license or premises permit if it finds that the order is in the public interest and that the licensee after a contested case hearing has violated or failed to comply with any provision of Minnesota Statutes chapter 349 or any rule adopted thereunder.[48]

26.            In determining the length of any suspension of a lawful gambling license, the Board shall consider:

A.      the severity of the conduct as indicated by the potential harm to the integrity of lawful gambling;

B.      the culpability of the violator;

C.     the frequency of the violator’s failure to comply with laws or rules related to lawful gambling;

D.     the actual harm caused to the integrity of lawful gambling;

E.      the likelihood that the violations will occur again; and

F.      the degree of the violator’s cooperation during the course of the investigation into its activities.[49]

27.            The Board may revoke the license of any organization after a hearing for what it determines to be a willful violation of laws or rules related to lawful gambling.[50]

28.            For purposes of Minnesota’s gambling laws, “willful” is defined as “a disregard for governing statutes and an indifference to their requirements, or a careless disregard of statutory requirements.”[51]

29.            The Board has failed to establish that Respondent willfully violated the laws and rules governing its license or conducted games with careless disregard of statutory requirements. 

30.            The criminal code defines a lottery as “a plan which provides for the distribution of money, property, or other reward or benefit to persons selected by chance from among participants some or all of whom have given a consideration for the chance of being selected.”[52] 

31.            It is a misdemeanor to sell a chance to participate in a lottery and a gross misdemeanor to conduct a lottery.  Minn. Stat. § 609.755 and § 609.76.

32.            Pursuant to Minn. Stat. § 349.13, lawful gambling conducted under chapter 349 is not a lottery or gambling within the meaning of §§ 609.75 to 609.76. 

33.            Illegal gambling may not be conducted at a site for which a licensed organization has a premises permit to conduct lawful gambling.[53]

34.            The Board has failed to establish that Respondent engaged in illegal gambling on its premises in violation of Minn. Rule 7861.0050 by conducting the three board games and two paper square games at its February 9, 2002, Wild Game Dinner.

35.            The above Conclusions are arrived at for the reasons set out in the Memorandum that follows and which is incorporated into these Conclusions by reference.

Based upon the foregoing Conclusions, the Administrative Law Judge makes the following:

RECOMMENDATION

IT IS HEREBY RECOMMENDED:

That the Minnesota State Gambling Control Board take appropriate disciplinary action against the Waconia Lions Club’s lawful gambling license and premises permit.

 

Dated:  May 20, 2004

 

/s/ Kathleen D. Sheehy

KATHLEEN D. SHEEHY

Administrative Law Judge

 

 

Reported:  Tape Recorded (five tapes); No Transcript Prepared.

 

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.  If the Board fails to issue a final decision within 90 days of the close of the record under Minn. Stat. § 14.61, this report becomes a final decision.  In order to comply with Minn. Stat. § 14.62, subd. 2a, the Board must then return the record to the Administrative Law Judge within 10 working days to allow the Judge to determine the discipline to be imposed.

MEMORANDUM

The Board contends that the board and paper square games conducted by Respondent constitute illegal gambling within the meaning of Minn. Rule 7861.0050 because they fall within the definition of a lottery, which is prohibited by the criminal statutes at Minn. Stat. §§ 609.755 and 609.76.  The five games conducted by Respondent on the night of February 9, 2002, did not comply with Board rules regarding raffle ticket requirements.  Specifically, the three board games and two paper square games were conducted without detachable, consecutively numbered tickets bearing the date, time, and location of the drawing as required for raffles under the rules.[54]  Instead, people simply wrote their names and telephone numbers either directly on the boards or on the squares of paper.  The Board argues that these five games involved such wholesale violations of the statutes and rules governing raffles that they fell outside the parameters of chapter 349 and amounted to illegal gambling under Minn. Stat. § 609.75.   

The Legislature’s stated purpose in regulating lawful gambling is: “to prevent its commercialization, to ensure integrity of operations, and to provide for the use of net profits only for lawful purposes.”[55]  The Board has a duty to ensure that lawful gambling is conducted in the public interest, and to maintain the integrity of and public confidence in lawful gambling.[56]  Most violations of chapter 349 and the rules of the Board by a licensee are governed by Minn. Stat. § 349.155, subd. 4, and Minn. Rule ch. 7865.[57]  Illegal gambling is governed by separate provisions that provide for harsher sanctions than violations of law relating to licensed activity.[58]  Under the statutory scheme governing lawful gambling, a licensee has the right to a hearing if the Board seeks to suspend or revoke its license.[59]

The burden of proving illegality is on the Board.  The conduct of illegal gambling, however, is not defined in either chapter 349 or the Board’s rules.  Instead, an illegal lottery is defined by the criminal statute as a plan that provides for the distribution of money to persons selected by chance from among participants, some or all of whom have given consideration for the chance of being selected.[60]  Since all raffles fall within this definition, the criminal statute provides little guidance.  However, raffles that are conducted under Minnesota Statutes chapter 349 are not considered to be illegal lotteries.[61]  Therefore, in order for the Board to establish that Respondent engaged in illegal gambling it must show that the games at issue were not conducted under Minnesota Statutes chapter 349.

The Board argues that the games fall outside of chapter 349 because of the Club’s failure to comply with ticket requirements.  The Board’s witnesses, however, contradicted this argument.  They were consistently unable to identify what criteria were or should be used to distinguish between a noncompliant raffle under chapter 349 and an illegal raffle under chapter 609.[62]  The Board’s compliance officer testified that games “totally outside” of chapter 349—like poker games and sports betting—are illegal.  Ultimately, he testified that the Board relies on the Department of Public Safety (DPS) to determine whether a particular form of gambling is illegal.  He had no knowledge of the criteria used by the DPS.[63] 

The only evidence in the record of how the DPS might view these games is the hearsay statement of a DPS agent who happened to be in the Board’s office at the time Mr. Strauss and Mr. Kaliher were looking at the materials.  As related by Mr. Strauss, the agent opined that the board games “looked like a sports board.”[64]  Because neither the agent nor Mr. Strauss had any knowledge of how the Club conducted the games, the Administrative Law Judge concludes that this evidence is insufficiently reliable to prove that the games were illegal.

In the absence of any criteria developed by the Board or the DPS for distinguishing between a noncompliant raffle and an illegal lottery, the words of the statute are determinative, and the statute requires analysis of whether the games were “conducted under [chapter 349],” not just whether the raffle ticket requirements were satisfied or whether the game “looked” like a sports board.   Here, the five games at issue were conducted during the evening of February 9, 2002.  Before the fundraiser, and in accordance with Minnesota Statute § 349.165 and Minnesota Rule 7861.0040, Respondent applied for and was granted an offsite permit to conduct raffles.  Although the Respondent failed to meet the raffle ticket requirements, Respondent did meet the majority of the other raffle requirements found at 7861.0110, subparts 1-2, and 4-6.  For example, each ticket for entry in the raffles constituted an equal chance to win, no person was required to purchase more than one ticket, prizes were awarded in cash or merchandise, the prizes and cost per tickets did not exceed the prescribed limits, the prizes were awarded on the date of the drawings, and many required records were kept.  In addition, Respondent reported its gross receipts and profits from these games to the Department of Revenue as required under Minn. Stat. § 349.19, subd. 5, and there is no evidence that the profits were used for any thing other than lawful purposes.

The Administrative Law Judge concludes that the evidence is insufficient to show that Respondent engaged in illegal gambling.  Although the manner in which Respondent conducted the three board games and two paper square games violated certain statutory and rule provisions, Respondent nevertheless conducted the games within the parameters of Minnesota Statues chapter 349. 

The Board may revoke an organization’s lawful gambling license only for “willful” violations of laws or rules related to lawful gambling.[65]  For purposes of Minnesota’s gambling laws, “willful” is defined as “a disregard for governing statutes and an indifference to their requirements, or a careless disregard of statutory requirements.”[66]  The Board has also failed to establish that Respondent’s violations were willful.  Gary Danger testified on behalf of the Board that in his opinion Respondent’s games demonstrated a careless disregard for statutory requirements because, in his four years as a compliance officer, he has never seen anything like Respondent’s board games or paper square games.  The Administrative Law Judge finds Mr. Danger’s opinion to be unpersuasive.  The fact that Respondent’s board games and paper square games were unique or unusual is not sufficient grounds to support finding a willful violation on the part of Respondent.

Instead, the record established that Respondent reviewed the statutes prior to conducting the games at issue and misinterpreted the applicability of Minnesota Statute § 349.173.  Pursuant to this section, raffles conducted under the exemptions in section 349.166 may use tickets that contain only the sequential number and no other information provided the organization maintains the information required by rule and makes it available to persons purchasing tickets and the tickets are sold only at the event and on the date of the drawing. [67]  At Respondent’s Wild Game Dinner, the raffle tickets were sold only at the event, which was the date of the drawings.  Section 349.166 is not applicable, however, to licensed organizations.  The record is clear that until Mr. Strauss characterized the games as illegal during the compliance review meeting in January 2003, the Respondent absolutely believed that it had conducted the games in a lawful manner.  Respondent reported its proceeds from these games as lawful gambling proceeds to the Department of Revenue and later fully cooperated with the Board during the compliance review and subsequent investigation.  There is insufficient evidence in the record to support a finding that Respondent disregarded or was indifferent to the statutory requirements governing its license. 

Even though these violations were not illegal or willful, the Board may nonetheless suspend Respondent’s license and premises permit pursuant to Minn. Rule 7865.0020, subp. 1a, for failure to comply with the Board’s requirements.  In determining the length of the suspension, the Board must consider the following six factors:

A.                         the severity of the conduct as indicated by the potential harm to the integrity of lawful gambling;

B.                         the culpability of the violator;

C.                         the frequency of the violator’s failure to comply with laws or rules related to lawful gambling;

D.                         the actual harm caused to the integrity of lawful gambling;

E.                         the likelihood that the violations will occur again; and

F.                         the degree of the violator’s cooperation during the course of the investigation into its activities.[68] 

In this case, Respondent’s noncompliant raffles were conducted on one evening in February 2002 and were never repeated. The other violations were matters of timing or completeness or records; there is no suggestion of financial impropriety or misuse of funds.  Moreover, according to the Board’s own witnesses, Respondent fully cooperated with the Board throughout the compliance review and the course of the subsequent investigation.  The Administrative Law Judge concludes that no actual harm was caused to the integrity of lawful gambling, and there is little likelihood that these violations will occur again. 

K.D.S.