RACE-87-001-PE

4-2600-840-2

STATE OF MINNESOTA

OFFICE OF ADMINISTRATIVE HEARINGS

FOR THE MINNESOTA RACING COMMISSION

In the Matter of the Occupational FINDINGS OF_FACT,

License of Jeff L. Smith CONCLUSIONS AND

RECOMMENDATION

The above-entitled matter came on for hearing before Administrative Law

Judge Peter C. Erickson on Wednesday, August 20, 1986, at the Office of

Administrative Hearings, 400 Summit Bank Building, 310 Fourth Avenue South,

Minneapolis, Minnesota. The record on this matter closed on September 15,

1986, the date of submission of the last post-hearing brief.

Mary B. Magnuson, Special Assistant Attorney General, 200 Ford Building,

117 University Avenue, St. Paul, Minnesota 55155, appeared on behalf of the

Minnesota Racing Commission. Sam Anderson, Jr., Attorney at Law, 455 West

Grand Avenue, Hot Springs, Arkansas 71901, appeared on behalf of the Licensee,

Jeff L. Smith.

Notice is hereby given that, pursuant to Minn. Stat. 14.61, the final

decision of the Commission 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 Commission. Exceptions to this Report,

if any, shall be filed with the Commission at Suite 201, 11000 W. 78th Street,

Eden Prairie 55344. Pursuant to Minn. Stat. 214.10, subd. 2, a Commission

member who was consulted during the course of an investigation may participate

at the hearing, but may not vote on any matter pertaining to the case.

STATEMENT OF ISSUES

The issues to be determined in this proceeding are whether:

(1) The Licensee failed to disclose multiple ownership interests in his

Class C license application in violation of Minn. Rule 7877.0130, subp. 2D;

(2) The Licensee failed to fully and truthfully provide information

requested by the stewards in the course of an investigation, inquiry or

hearing in violation of Minn. Rule 7877.0155, subp. C;

(3) The Licensee conducted himself in a manner that is detrimental to the

best interest of racing in violation of Minn. Rule 7877.0155, subp. H;

(4) The Licensee knowingly made a false statement in an application

required to be submitted to the Commission in violation of Minn, Stat.

240.25, subd. 6; and

(5) The Racing Commission should take disciplinary action against Jeff

Smith's license if any of the above-violations are proved.

Based upon all of the proceedings herein, the Administrative Law Judge

makes the following:

FINDINGS OF FACT

1. Jeff L. Smith is a 23 year-old male who maintains a permanent

residence at 3313 Prince George, Memphis, Tennessee. On June 9, 1986, Mr.

Smith filed an application for a Class "C" individual owner's license with the

Minnesota Racing Commission. The application requires that the applicant

disclose all horses which the applicant owns wholly or in part. Mr. Smith

listed a 100% ownership in the following horses: Four Bet Tor Joe, Reason to

Run, Diplomat Lou, Magnus Effect, and Dreamy Croussiant. Smith Also indicated

that he owned a 50% interest in the horse Nice Step and no percentage was

listed for the horse Meloncoley Man. Mr. Smith registered the horses For Bet

Tor Joe and Nice Step at Canterbury Downs to be eligible to race as part of

the licensing procedure. On June 18, 1986, a temporary Class "C" individual

owner's license was granted to Jeff Smith.

2. At the time Mr. Smith filled out his application for licensure, he was

aware that Karen C. Tuohy, a resident of Chatfield, Minnesota, owned a 25%

interest in the horse, For Bet Tor Joe. Ms. Tuohy also became a 1/3 owner of

the horses Magnus Effect and Diplomat Lou sometime in May of 1986.

3, Jeff Smith brought a horse trainer with him to the State of Minnesota,

Javier Dominquez. Mr. Dominquez was paid by a business entity called Ford

Farms which was owned by Jeff Smith's parents, Bert and Nancy Smith, and was

located in Michigan.

4. On June 19, 1986, Jeff Smith, Bert Smith and Javier Dominquez opened

an account with the horseman's booker at Canterbury Downs. This account was

opened in the name of Jeff Smith because he was a licensed owner, at the

direction of Bert Smith. The Smith's presented a cashiers check in the amount

of $50,000 which was drawn on the United American Bank of Memphis, Tennessee.

The check was written on the account of Southeastern Racing Stables, a

horse-claiming syndicate owned and operated by Bert Smith.

S. After a thoroughbred horse is born, the Jockey Club in New York issues

a foal certificate which indicates ownership of the horse. These certificates

are amended by the person in possession of the certificate (the owner or

trainer) if ownership changes. All of the owners appearing on a foal

certificate must be licensed by the Minnesota Racing Commission before a horse

is permitted to race at Canterbury Downs. This applies to all owners in a

multiple ownership situation. The foal certificate submitted to the track

secretary at Canterbury Downs was never amended by Jeff Smith to show that

Karen Tuohy was a part-owner of For Bet Tor Joe. Neither For Bet Tor Joe or

Nice Step were ever raced at Canterbury Downs, however.

6. On June 19, 1986, Javier Dominquez "dropped" a claim on behalf of Jeff

Smith for the horse, Royal Bargain, which was running in the sixth race. The

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claiming price was $7,500.1 Subsequent to the race, Jeff Smith appeared at

the bookkeeper's office to have his claim to the horse, Royal Bargair,

honored. However, the claim was voided because an investigation had been

commenced by Canterbury Downs and the Racing Commission concerning Jeff

Smith's qualifications for licensure.

7. On June 20, 1986, Bert Smith, Jeff Smith and Javier Dominquez appeared

at the bookkeeper's office to withdraw all monies from Jeff Smith's account.

However, the bookkeeper did not release those funds because of a pending

action initiated by the stewards.'

8. Jeff Smith and Javier Dominquez met with the stewards on June 20,

1986. At that time, the stewards stated that the reason Mr. Smith's claim was

voided were: (1) the stewards were not aware that a horse owned by Jeff Smith

had been registered at Canterbury Downs; (2) the stewards had not had a chance

to interview Jeff Smith prior to his temporary licensure; (3) the stewards had

never seen or interviewed Javier Dominquez; (4) the stewards had never

approved Mr. Dominquez' authority to act as an agent for Jeff Smith; and (5)

there was a question as to the source of the funds to claim Royal Bargain. At

this time, the stewards were aware that Jeff Smith's father, Bert Smith, owned

and operated Southeastern Racing Stables, a claiming syndicate in West

Memphis, Arkansas. They were aware that Bert Smith was a convicted felon and

thus, unable to be licensed by the Minnesota Racing Commission. During the

meeting on June 20, Jeff Smith stated that he had no business arrangement with

Southeastern Racing Stables and that he owned 100% of the horse, For Bet Tor

Joe. Additionally, Mr. Smith stated that he jointly owned Ford Farms with his

mother. A second meeting was held between Jeff Smith and the stewards on June

22, 1986. At that time, Mr. Smith admitted that Karen Tuohy owned ai least a

25% interest in For Bet Tor Joe. Mr. Smith denied any business relationship

with his father and stated that Bert Smith was only an advisor.

9. Jeff Smith has no ownership interest in Ford Farm.

10. After further investigation by investigators of the Minnesota Racing

Commission and Canterbury Downs, a hearing was held by the stewards on July

23, 1986, at which time the investigators presented the results of their

investigation. Karen Tuohy testified concerning her interest in For Bet Tor

Joe. Jeff Smith and his attorney, Sam Anderson, Jr., were present. On

'The "claiming" procedure is a process which is used to "seed" horses so

that the same quality horses run against each other. As part of this process,

a value is put on all the horses in the race which constitutes a sales price

if a claimant agrees to buy the horse after the race is run. This "agreement"

is in the form of a claim slip which is dropped at least ten minutes prior to

the race.

2 There are currently two stewards employed by the Racing Commission to

work at Canterbury Downs. A third is employed by the Canterbury Downs Racing

Association. The duties of the stewards is to enforce all applicable rules

and supervise the conduct of all persons associated with the racing industry.

The stewards are authorized by statute to take disciplinary action against

licensees up to a $500 fine and a license suspension not exceeding 30 days.

Minn. Stat. 240.16 (1985 Supp.).

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July 24, 1986, the stewards issued a ruling which provided that: (1) Jeff

Smith's license was suspended for a period of 30 days; (2) Jeff Smith was

fined the sum of $500; and (3) the matter would be referred to the Minnesota

Racing Commission for appropriate action.

11. On August 12, 1986, the Minnesota Racing Commission issued a Notice

of and Order for Hearing which set forth the allegations stated above as

issues in this proceeding.

12. Bert Smith owns and operates Southeastern Stables, a horse buying and

selling syndicate. This business solicits potential purchasers throughout the

United States. Mr. Smith purchases horses and then sells multiple interests

in them to purchasers. The foal certificates would show the owners to be Mr.

Smith's daughters or son, Jeff Smith, and not be amended to show the correct

proportional ownership of the horses. Additionally, Bert Smith owns, with his

wife, Ford Farms in Michigan. Jeff Smith is listed on a certificate of

co-partnership as a business partner with Bert Smith in the Ford Farm

operation.

13. All of Jeff Smith's business transactions are channeled through

Southeastern Racing Stables. Mr. Smith's accountant, Joe Wilkerson is

employed by Southeastern. Jeff Smith's name appears on a business card as an

agent for Southeastern Racing Stables.

14: Karen Tuohy purchased a 25% interest in For Bet Tor Joe in November

of 1985 by remitting a check for $3,500 to Bert L. Smith payable to

Southeastern Racing Stables. On May 7, 1986, Ms. Tuohy purchased an

additional 25% interest in For Bet Tor Joe by remitting a check for $3,400 to

Bert Smith payable to Southeastern Racing Stables. This second, 25% interest,

was purchased from Jeff Smith's 50% interest in the horse. The estate of a

deceased owner, Nelly Cole, also owned a 25% interest in For Bet Tor Joe.

That interest was purchased in November of 1985.

15. Jeff Smith claimed the horses Magnus Effect and Diplomat Lou in

Michigan in mid-May of 1986. At that time, he informed his father that he

would be willing to sell ownership interests in those horses. Subsequently,

Bert Smith sold 1/3 interest in both horses to Karen Tuohy in May of 1986.

Jeff Smith was not aware of those purchases at the time his application was

,filed in June of 1986.

Based upon the foregoing Findings of Fact, the Administrative Law Judge

makes the following:

CONCLUSIONS

1. The Administrative Law Judge and the Minnesota Racing Commission have

jurisdiction over this matter pursuant to Minn. Stat. 240.08, subd. 5 (1985

Supp.) and 14.50 (1984).

2. The Notice of hearing in this matter was proper in all respects and

the Commission has complied with all substantive and procedural requirements

of law or rule.3

3. The Commission has proved by a preponderance of the evidence that Jeff

Smith violated Minn. Stat. 240.25, subd. 6 (1984) and Minn. Rule 7877.0130,

subp. 2D. by failing to disclose the multiple ownership interests in the horse

For Bet Tor Joe, when his application for licensure was filed with the

Minnesota Racing Commission.

4. The Commission has proved by a preponderance of the evidence that Jeff

Smith failed to fully and truthfully provide information requested by the

stewards in the course of their investigation concerning his licensure in

violation of Minn. Rule 7877.0155, subp. C.

5. The Commission has proved by a preponderance of the evidence that Jeff

Smith has conducted himself in a manner which is detrimental to the best

interest of racing in violation of Minn. Rule 7877.0155, subp. H.

6. Due to the above-violations of statute and rules, the Racing

Commission is empowered to impose additional disciplinary sanctions against

the owner's license of Jeff L. Smith pursuant to Minn. Stat. 240.08, subd. 5

(1985 Supp.).

Based upon the foregoing Conclusions, the Administrative Law Judge makes

the following:

RECOMMENDATION

IT IS HEREBY RECOMMENDED that the Racing Commission take action consistent

with the Findings and Conclusions set forth above.

Dated this day of October, 1986.

PETER C. ERICKSON

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

cl ass mai I .

Reported: Taped, no transcript prepared.

'The statutory notice and report issuance requirements contained in

Minn. Stat. 240.08, sobd. 5 (1985 Supp.) were waived by both parties in this

proceeding.

MEMORANDUM

Pertinent Rules and Statutes

Minn. Rule 7877.0130, subp. 2D.

A multiple owner must make its best effort, as defined in

part 7870.0030, item E, to disclose to the commission in

writing at the time of each Class C license application and

renewal request, the nature and extent of every direct or

indirect record of beneficial ownership or other voting

interest or contingent, in the multiple owner. The

disclosure shall include the names and addresses of every

individual and other entity. The individuals and other

entities identified, except those required to be licensed

pursuant to item B, shall not be licensed and shall not

have access to restricted areas at racetracks.

Minn. Rule 7877.0155.

Acceptance of a Class C license, including a temporary or

emergency license shall mean that the licensee consents and

agrees to the following conditions.

A. The licensee will abide by commission rules

C. The licensee will fully and truthfully provide

information requested by the stewards or the commission in

the course of an investigation, inquiry, or hearing

H. The licensee will conduct himself or herself in a

manner that is not detrimental to the best interests of

r acing .

Minn. Stat. 240.25, subd. 6.

No person may knowingly make a false statement in a

document or application required to be submitted to the

commission or in a sworn statement to or testimony before

the commission.

Jeff Smith admitted that at time he filed his application for licensure

with the Minnesota Racing Commiss ion, he was aware that there were mu Itip I e

ownership interests in the horse, For Bet Tor Joe. However, those interests

were not disclosed in the application. Smith contends that because the horse

was never run in Minnesota, no harm was done and he should not be further

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penalized. The Judge points out that Mr. Smith has already been fined the

amount of $500 and his license was suspended for 30 days because of this

failure to disclose.

Jeff Smith did state to the track stewards on June 20, 1986, that he was

the sole owner of For Bet Tor Joe and that he had no business relationship

with his father or Southeastern Racing Stables and he owned,at least a portion

of Ford Farm in Michigan. Mr. Smith admitted that Karen Tuohy owned at least

a 1/4 interest in For Bet Tor Joe on June 22, 1986 and later that she owned a

50% interest at the hearing on July 23, 1986. As the Findings and

above-discussion indicate, Mr. Smith knew of Ms. Touhy's part ownership before

his application was filed. The record in this matter shows clearly that Jeff

Smith has an on-going business relationship with his father. Jeff claims

(buys) horses in his name so his father can sell interests in them through

Southeastern Racing Stables. The records showing title to Ford Farm supplied

by the Shiawassee County Register of Deeds in Michigan indicate that Jeff

Smith has no ownerhsip interests. Consequently, Jeff Smith's conflicting and

untruthful statements to the stewards constitute a violation of Minn. Rule

7877.0155, subp, C.

The record in this matter shows clearly that a major reason for Jeff

Smith's appearance in Minnesota was to operate on behalf of his father and

Southeastern Racing Stables. The Judge doubts that Mr. Smith had a serious

interest in racing horses at Canterbury Downs. Rather, his primary reason for

being in Minnesota was to claim horses which could be resold by Southeastern

Racing Stables and Bert Smith. Jeff Smith stated quite candidly at the

hearing that his father "sells quite a bit of my horses." Additionally, Mr.

Smith stated that Bert Smith "does a lot of things without my knowledge.''

What happened in this case is that Bert Smith was selling interests in Jeff

Smith's horses without Jeff's knowledge, but as part of the business

arrangement between the two. The investigators and stewards testified that

this type of "undisclosed" dealing in horses is detrimental to the interest of

racing because true ownership cannot be determined. In addition, the resale

of claimed horses, which is a violation of Minnesota rules if the sale happens

within 30 days of the claim, cannot be traced. The Judge has concluded that

based upon the evidence in this record, Jeff Smith has conducted himself in a

manner that is detrimental to the best interest of racing in violation of

Minn. Rule 7877.0155, subp. H. Although this standard is very broad, the

Commission's witnesses testified as to standards in the racing community.

See, Reyburn v. Minnesota State Board of Optometry, 78 N.W.2d 351, 355 (Minn.

1 9 5 6 ) .

Lastly, the Judge points out that certain evidence received in this

proceeding was admitted over the hearsay objection of Respondent's attorney.

Respondent argues that because this evidence is hearsay, no specific findings

can be made which will result in any disciplinary action by the Commission,

citing State ex rel. Independent School District No. 276 v. Department of

Education, 256 N.W.2d 619 (Minn. 1977). That case stands for the proposition

that an administrative agency cannot rest findings of fact solely upon hearsay

evidence which is inadmissible in a judicial proceeding. 256 N.W.2d at 627.

However, in that case, the Court went on to state that the fact finder is in

the best position to judge the inherent trustworthiness and reliability of the

evidence presented. Id. The Court concluded that only where it appears that

the administrative agency clearly abused its discretion in relying upon

inherently unreliable evidence would the courts intervene. Id.

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in this case, the Judge has made a determination concerning the

trustworthiness and reliability of all of the evidence presented. Much of the

investigative report "hearsay" admitted over objection is admissible pursuant

to Exception (8)C, Public Records and Reports, contained in Rule 803 of the

Rules of Evidence. The Judge has made his findings in this case based only

upon evidence which he has determined to be reliable and trustworthy and

relevant to the issues presented.

P.C. E.