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 No. 32393

ORDER ON MOTION FOR SUMMARY DISPOSITION

 

This matter is before Administrative Law Judge Kathleen Sheehy on the motion of the Gambling Control Board for summary disposition.  The motion record closed on April 2, 2004, upon receipt of the Board’s reply brief.

 

E. Joseph Newton, Assistant Attorney General, 445 Minnesota Street, Suite 1800, St. Paul, Minnesota 55101-2134, appeared on behalf of the Minnesota Gambling Control Board.

 

Paul A. Melchert, Esq., 121 West Main Street, Waconia, Minnesota 55387, appeared on behalf of the Waconia Lions Club (the Respondent).

 

Based upon all of the files, records, and proceedings herein, the arguments of the parties, and for the reasons set forth in the accompanying Memorandum, the Administrative Law Judge makes the following:

ORDER

IT IS HEREBY ORDERED that the Board’s motion for summary disposition:

 

1.               Is DENIED as to Counts 1 and 3;

2.               Is GRANTED as to Count 2:

3.               Is DENIED as to Counts 4 and 5;

4.               Is GRANTED in part and DENIED in part as to Count 6;

5.               Is GRANTED as to Count 7;

6.               Is DENIED as to Counts 8-10, ¶¶ 25-27;

7.               Is DENIED as to Counts 10-11, ¶¶ 28-30;

8.               Is GRANTED as to the violations of Minn. R. 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;

9.               Is GRANTED in part and DENIED in part as to Count 17; and

          10.     This matter shall proceed to hearing as scheduled on April 20, 2004, concerning the matters identified in the Memorandum attached hereto. 

 

Dated this 12th day of April, 2004.

 

 

/s/ Kathleen D. Sheehy

KATHLEEN D. SHEEHY

Administrative Law Judge

 

MEMORANDUM

The Waconia Lions Club is an organization that has been licensed to conduct lawful gambling since April 2001.  At all relevant times, the Lions Club has held premises permits for the Boat House Bar, 318 E. Lake Street, and the Waconia Saloon, Inc., 116 South Elm Street, in Waconia.  The Board conducted a compliance review of the organization in February 2003, and based on that review alleges violations falling in three general categories.

 

First, the Respondent made two contributions totaling $3,500 to the Waconia Chamber of Commerce for the 2002 Fourth of July fireworks display.  The Board alleges that these contributions were not made for a lawful purpose in violation of Minn. Stat.           § 349.15, subd. 1, and that the Respondent failed to provide requested information about the tax-exempt status of the Chamber of Commerce, in violation of Minn. Stat.     § 349.151, subd. 9. [1]

 

Second, the Board alleges the Respondent committed a number of record-keeping violations, including failure to deposit some pull-tab receipts within four business days of the close of the game,[2] in violation of Minn. Stat. § 349.19, subd. 2; failure to account for some unsold tickets in two raffles,[3] in violation of Minn. R. 7861.0120, subp. 3A; failure to have complete information on pull tab prize receipts, such as name or address of the prize winner, type of identification provided by the winner, and use of the seller’s initials instead of full name,[4] in violation of Minn. Stat.     § 349.19, subd. 10, and Minn. R. 7861.0080, subp. 6C; and failure to fully complete a Board-required form concerning pull tab inventory tracking,[5] in violation of Minn. Stat.    § 349.19, subd. 9a, and Minn. R. 7861.0120, subp. 3B.

 

The remaining allegations concern the Respondent’s conduct of two games at its Wild Game Dinner on February 2, 2002.  The Board alleges that in conducting these games, the Respondent violated several provisions governing the proper conduct of raffles,[6] in violation of Minn. R. 7861.0110.  The Board also alleges that these games constituted an illegal lottery,[7] in violation of Minn. Stat. § 609.75, which subjects the Respondent’s license to discipline under Minn. Stat. § 349.155, subd. 4a, and Minn. R. 7861.0050, subp. 1. 

 

On March 12, 2004, the Board moved for summary disposition, contending that based on the Respondent’s Answers to the Board’s Requests for Admissions there are no disputed issues of material fact.  The Respondent filed its response on March 29, 2004, and the Board submitted a reply brief on April 1, 2004.

 

Procedural Posture

 

Summary disposition is the administrative equivalent of summary judgment.  Summary disposition is appropriate where there is no genuine issue as to any material fact and one party is entitled to judgment as a matter of law.[8]  The Office of Administrative Hearings has generally followed the summary judgment standards developed in judicial courts in considering motions for summary disposition regarding contested case matters.[9]  A genuine issue is one that is not sham or frivolous.  A material fact is a fact whose resolution will affect the result or outcome of the case.[10] 

 

The moving party, in this case the Committee, has the initial burden of showing the absence of a genuine issue concerning any material fact.  To successfully resist a motion for summary judgment, the non-moving party must show that there are specific facts in dispute that have a bearing on the outcome of the case.[11]  The nonmoving party must establish the existence of a genuine issue of material fact by substantial evidence; general averments are not enough to meet the nonmoving party’s burden under Minn. R. Civ. P. 56.05.[12]  The evidence presented to defeat a summary judgment motion, however, need not be in a form that would be admissible at trial.[13]

 

When considering a motion for summary judgment, the Court must view the facts in the light most favorable to the non-moving party.[14]  All doubts and factual inferences must be resolved against the moving party.[15]  If reasonable minds could differ as to the import of the evidence, judgment as a matter of law should not be granted.[16] 

 

Legal Analysis

 

The Board is empowered to censure, fine, or suspend a license for violation of  the provisions of Chapter 349 if such action would be in the public interest, but it may revoke a license for violations of Chapter 349 only if the violations were willful.[17]  In determining the length of a suspension, the board is to consider the severity of the conduct as indicated by the potential harm to the integrity of lawful gambling; the culpability of the violator; the frequency of the violator’s failure to comply with laws or rules related to lawful gambling; the actual harm caused to the integrity of lawful gambling; the likelihood that the violations will occur again; and the degree of the violator’s cooperation during the course of the investigation into its activities.[18] 

 

Willfulness is an element that must be proved, just as the underlying violation must be proved, in a contested case hearing.[19]  The Respondent is entitled to a hearing on the willfulness of its conduct unless the Board can show that there are no disputed issues of material fact.  The Board contends that the “repetitive and ongoing nature of the civil violations” alleged against the Respondent demonstrate careless disregard of the governing statutes and rules and are willful violations as a matter of law.[20]  The Respondent denies that its violations were willful or that the violations were of the repeated or severe nature alleged by the Board.  The Administrative Law Judge concludes that there are genuine issues of material fact on the issue of willfulness that require a hearing.

 

If a licensee engages in illegal gambling the Board may take disciplinary action up to and including revocation, but it may suspend or revoke a license only if the organization knowingly participated in illegal gambling and if the organization’s chief executive officer, gambling manager, or one or more of its assistant gambling managers participated in or authorized the illegal gambling.[21] The Board contends, in reliance on Minn. R. 7861.0050, subp. 2, that with regard to illegal gambling, it need show only that illegal gambling occurred and that the Respondent or its agents participated in the illegal gambling.  The statute, however, requires proof that the organization “knowingly participated in the illegal gambling.”[22] The Respondent disputes that it knowingly participated in illegal gambling.[23]  Again, there are genuine issues of material fact that require a hearing on this issue.

 

 

Contributions for Fireworks Display

 

          Licensees may expend gross profits from lawful gambling only for lawful purposes.[24]  A lawful purpose is defined to include, among other purposes, an expenditure or contribution to a 501(c)(3) or 501(c)(4) festival organization, as defined in the Internal Revenue Code.[25]  In addition, licensees are obligated, pursuant to Minn. Stat. § 349.151, subd. 9, to comply with requests for information or documents made by the Board. 

 

The Respondent does not dispute that it made the two contributions, dated May 27, 2002, and July 12, 2001, to the Waconia Chamber of Commerce.  It maintains the funds were used for the July 4, 2002 fireworks display.  During the compliance review, the Board requested that the Respondent provide a copy of a letter from the IRS demonstrating that the Waconia Chamber of Commerce is a § 501(c)(3) organization.  Board alleges that the Respondent failed to file the 501(c)(3) letter as requested, and as a consequence violated Minn. Stat. § 349.151, subd. 9.  The Respondent contends that it relied on statements of the executive director of the Waconia Chamber of Commerce as to the chamber’s 501(c)(3) status; when the Board made its request for the letter, the Respondent determined that although the chamber is a non-profit, it does not have 501(c)(3) status.  This information was provided to the Board in response to the Board’s request.  No document was provided because no document exists.

 

The Board has not alleged that the Respondent failed to provide requested information, only that the Respondent failed to file a document that apparently does not exist.  It is not clear whether the Board disputes the facts alleged by the Respondent or whether it maintains that these facts are not material.  It contends only that the Respondent’s “subjective thoughts and understandings” do not exonerate admitted violations of the law.  When the violation alleged is the failure to file a document, however, it is material whether the document in fact exists.[26]

 

In addition, the Board maintains that because the Chamber of Commerce is not a 501(c)(3) or 501(c)(4) organization, the contributions were not made for a lawful purpose in violation of Minn. Stat. § 349.15, subd. 1.  The Respondent contends that the funds were used for lawful purposes within the meaning of Minn. Stat. § 349.12, subd. 25.  Although the statutory definition does encompass contributions made to organizations for recognition of military service and for recreational or community activities intended primarily for persons under age 21,[27] the Respondent has not identified which of these lawful purposes it claims were satisfied. 

 

The Administrative Law Judge concludes that factual disputes preclude summary judgment for the board on the allegations concerning the contributions to the Chamber of Commerce for the fireworks display and that summary disposition is not appropriate on Counts 1 and 3.

 

Record-Keeping Issues             

 

Timing of Bank Deposits.  Licensees must deposit gambling receipts into the gambling bank account within four business days of the completion of the game from which they are received.[28]  The Respondent admits that in September and October of 2002, the receipts were deposited more than four business days after the closing of 11 pulltab games.[29]  The Respondent contends that this was an oversight on the part of volunteers who had assumed these responsibilities during this period of time.  Although the Respondent’s explanation of how and why these violations occurred is relevant to a determination of whether the violations were willful, it is not material to the issue whether the violations in fact occurred.  The Board is entitled to summary disposition on the allegations of Count 2.

 

Incomplete Records of Raffle Tickets.  Licensees must retain for a period of 3-1/2 years certain records concerning raffles, including unsold tickets from the raffle.[30]  The Respondent conducted two raffles, a “gun raffle” and a “Las Vegas trip” raffle, for which it is unable to locate all of the unsold tickets.  The Board does not allege that this conduct violated the rule requiring retention of unsold raffle tickets; rather, it alleges that Respondent violated a rule requiring each organization to maintain “complete, accurate, and legible general accounting records with detailed supporting subsidiary records sufficient to furnish information regarding all gambling transactions.”[31]  The Respondent denied the Board’s Request for Admission that that it was unable to account for 62 of the 2000 tickets printed for the gun raffle and 239 of the 1,000 tickets printed for the Las Vegas trip raffle, maintaining it could account for all the tickets but could not locate the unsold tickets.[32]

 

It appears from the record that the Respondent kept all required records pertaining to these raffles except for the unsold tickets identified above.  It is unclear from the record whether the records retained were “sufficient to furnish information” to adequately reflect gross receipts, prizes, net receipts, expenses, and other accounting transactions regarding these raffles, as required by Minn. R. 7861.0120, subp. 3A.  Summary disposition is denied as to Counts 4 and 5.  If the Board desires instead to allege a violation of the rule requiring retention of unsold raffle tickets, Minn. R. 7861.0110, subp. 6F, it must properly amend its Notice and Order for Hearing/Prehearing to add this violation.

 

 Completion of Prize Receipts for Winning Pull-Tab Tickets.  Licensees are obligated to require each winner of a pull-tab prize of $50 or more to present identification in the form of a driver’s license, Minnesota identification card, or other identification sufficient to allow the identification and tracing of the winner.  This information must be retained for 3-1/2 years.[33]  The Respondent admits as follows:

 

Game Serial No.     Violation

 

D926941                 Two of the 25 prize receipts did not have the name or address of the prize winner; two of 25 did not identify the form of identification used by the prize winner.[34]

 

D927231                 12 of 21 prize receipts did not identify the form of identification provided by the prize winner; one of the 21 prize receipts did not have the address of the recipient written on the prize receipt.[35]

 

           The Respondent alleges that some of the violations concerning the incomplete prize receipts occurred because the information was stapled to the pull-tab receipt and later fell off; in the case of one game, the form of identification was not completed because the seller believed scanning of the driver’s license was sufficient.  The Respondent denies the allegation that it failed to complete the seller’s full signature, as opposed to using the seller’s initials, on four prize receipts from this game.

 

          The Respondent’s explanations again are relevant to willfulness, but are not material to the issue whether the violations concerning Game Nos. D926941 and D927231 occurred as alleged.  The Board is entitled to summary disposition on Count 6 with regard to the allegations admitted by the Respondent.  The allegation concerning use of the seller’s initials as opposed to the seller’s full signature shall proceed to hearing.[36]

 

          Use of LG 861 Inventory Control Form.  Licensees are required to use a specific form provided by the board, or in a format approved by the board, called the LG 861 Site Control-Tracking and Auditing of Pull Tab Games Form.[37]  The Board alleges that one form was not fully completed, but it does not describe what information was missing.  The Respondent denied this allegation, contending that although one of its premises did not use the specific form approved by the board, it provided all the required information on a form it developed itself.[38]  The Board maintains it has proved a violation simply by demonstrating that the required form was not used.

 

          The rule provides that all inventory records, including perpetual, physical, and site inventory records, and all prize accounting records must be recorded on forms “prescribed by the board or in a format approved by the board.”  The Respondent did not seek Board approval of its form before using it.  Although there is no evidence as to why the Respondent’s form was inadequate, a fair reading of the rule is that this form is of such importance that the Board must approve the use of a different form before it is used, not after the fact.  The Respondent’s evidence as to the completeness of the information provided goes to willfulness, but is not material to the determination that the violation occurred.  The Board has established that it is entitled to summary disposition on Count 7.

 

          The Wild Game Dinner.  

 

          A raffle is “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.”[39]  The Board has detailed rules concerning the conduct of raffles and raffle tickets.  Raffle tickets must have a detachable section and be consecutively numbered.  The detachable section must contain the purchaser’s name, address, and telephone number.  Tickets must be printed with information concerning the date, time, and location of the drawing; the name and license number of the organization conducting the raffle; the price of the ticket, and the prize to be awarded.[40]  Each ticket must be sold for the same price and no ticket may be provided free of charge or for any other consideration.[41]            

 

The Board issued an off-site permit to the Respondent for its annual Wild Game Dinner/fundraiser on February 2, 2002.  Among a variety of activities at the fundraiser, the Respondent operated three board games and two paper square games.  The board games involved use of a board divided into ten columns across (corresponding to the red ace through 5 in a deck of cards) and ten columns down (corresponding to the black ace through 5).  Participants paid some amount of money to write their names in each of the 100 boxes.  The person operating the game picked one red-suited playing card and one black-suited playing card, and the person whose name appeared in the box where the two cards corresponded won the prize.[42]  For the paper square games, the Respondent wrote a dollar amount between zero and $10 on paper squares.  The squares were placed face down.  Participants then picked a paper square, paid the amount shown, wrote their names on the paper, and the squares were placed in a receptacle.  The squares were later drawn out of the receptacle and winners announced.[43]

 

The Board maintains that conduct of these games violated a number of its rules concerning raffles.  The Respondent admits that it did not sell tickets consisting of a two-part detachable stub with consecutive numbers; that it failed to print the required material on tickets; that as to the paper square games, it sold tickets for different dollar amounts; and that it failed to maintain the required log book.  Although the Respondent maintains that much of this information was available in other forms, there are no genuine disputes of material fact as to the substance of the violations.  The Board is entitled to summary disposition as to Count 11 (¶¶ 31-32), Count 12, Count 13, Count 15, and Count 16.[44]

 

The Board alleged in Count 14 that the Respondent did not own the prizes being awarded before conducting the raffles, in violation of Minn. R. 7861.0110, subp. 2D.  The Respondent denies this allegation, maintaining it has provided the documentation to the Board to substantiate its purchase of the prizes before the raffles.  The Board did not move for summary judgment on this count, and it is not clear whether the Board intends to proceed to hearing or to abandon these allegations.

 

In Count 17, the Board alleges that by violating several of the rules concerning raffle tickets, the Respondent failed to maintain required records in violation of Minn. R. 7861.0110, subp. 6.  The Respondent has admitted factual allegations concerning the failure to retain unsold and winning ticket stubs, the detachable sections of the tickets, and failure to use the log book, but it has denied allegations that it failed to maintain records concerning the proceeds and allowable expenses and the value of all prizes awarded. The Board is entitled to summary disposition on the admitted violations of Count 17. 

 

The Board also maintains that the conduct of these games is “so far removed” from the rules concerning raffles that these games constitute illegal gambling prohibited by Minn. Stat. § 609.75-.76.  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.”  Although the definitions of a raffle under chapter 349 and a lottery under chapter 609 are similar, lawful gambling that is authorized and conducted under chapter 349 is not a lottery.[45]

 

          The issue here is whether the games as conducted by the Respondent are raffles that were conducted improperly under Chapter 349, or whether the games were “so far removed” from the rules that one could conclude the Respondent intended to operate them outside of Chapter 349.  The Respondent maintains that it did not knowingly operate outside of the rules, that all proceeds generated from the games were reported as raffle proceeds to the Department of Revenue, and that all proceeds of the Wild Game Dinner were disbursed for legitimate charitable purposes or retained for future contributions.

 

          In support of its argument the Board cites In the Matter of the Lawful Gambling License of American Legion Post 92, Rochester, OAH No. 1-0800-10364-2 (July 15, 1996), which the Board maintains involved “almost identical” facts.  There, the organization conducted a weekly drawing in which members could participate by writing their names on a piece of paper and paying $2.00.  At the time of the weekly drawing, someone drew a chip from a container holding the membership numbers assigned to each member of the Post.  If the member in question had participated that week and was current on dues, the member would win the pot.  If the number drawn was for someone who had not participated that week, the pot carried over to the next week’s drawing.  The funds represented by the various pots were kept separate from the gambling funds of the Post, and their receipt and disbursement were not reported on the appropriate forms to the IRS, the Department of Revenue, or the Board.  There were no gross profits to be expended for charitable purposes because the proceeds were paid out in their entirety to the winner of the pot.  This weekly drawing was conducted for a period of six to eight years, including a period of about 20 months after agents from the Department of Public Safety, Gambling Enforcement Division, advised the Post that the drawing was being conducted illegally.  These facts clearly establish that the organization in question was knowingly operating so far outside of the Board’s regulation that the drawing constituted an illegal lottery; the facts, however, are clearly distinguishable from those in this case.

 

          The Administrative Law Judge concludes that there are genuine issues of material fact as to whether the board and paper square games at the Wild Game Dinner constituted an illegal lottery.  Summary disposition on Counts 8-10 (¶¶ 25-27) and Counts 10-11 (¶¶ 28-30) is denied.

 

                                                                      K.D.S.