Henry Youth Hockey Ass'n, License No. 02795, Matter of, C9-93-1437

• Citation: 511 N.W.2d 452
• Decision Date: 25 January 1994
• Docket Number: No. C9-93-1437,C9-93-1437
• Parties: In the Matter of the Lawful Gambling License of HENRY YOUTH HOCKEY ASSOCIATION, LICENSE NO. 02795.
• Court: Minnesota Court of Appeals

Page 452

511 N.W.2d 452

In the Matter of the Lawful Gambling License of HENRY YOUTH HOCKEY ASSOCIATION, LICENSE NO. 02795.

No. C9-93-1437.

Court of Appeals of Minnesota.

Jan. 25, 1994.

Review Granted in Part April 22, 1994.

Syllabus by the Court

1. Where lawful gambling licensee willfully engaged in a pattern of violations of law and rule requirements, it is within the Minnesota Lawful Gambling Board's discretion to order a permanent revocation of the lawful gambling license.

2. When adequate notice is provided, the Minnesota Lawful Gambling Board has the authority to order that if certain members of a licensee act together or individually to form or participate in the formation of another organization, that organization is ineligible to receive a gambling license.

Kevin Patrick Staunton, Caroline A. Simenson, Popham, Haik, Schnobrich & Kaufman, Ltd., Minneapolis, for relator Henry Youth Hockey Assn.

Hubert H. Humphrey, III, Atty. Gen., John Steven Garry, Asst. Atty. Gen., St. Paul, for respondent Minnesota Gambling Control Bd.

Considered and decided by ANDERSON, C.J., and KALITOWSKI and FLEMING ^*, JJ.

OPINION

ANDERSON, Judge.

The Minnesota Lawful Gambling Board (Board) ordered that relator Henry Youth Hockey Association (Association) was ineligible to obtain a permit to conduct lawful gambling at a Minneapolis supper club for 12 months. The Board later adopted an administrative law judge's findings that the Association had engaged in a pattern of willful violations of law and Board rule. The Board then (1) revoked the Association's lawful gambling license, (2) imposed a $1,500 civil penalty, and (3) held that if certain members of the Association were to act together or individually to form or participate in the formation of another organization, that organization would be ineligible to receive a gambling license from the Board. By writ of certiorari, the Association challenges the Board's decision. We affirm in part and reverse in part.

FACTS

The Henry Youth Hockey Association is a Minnesota nonprofit corporation founded to support youth hockey teams in North Minneapolis. The Association is comprised of parents whose children play hockey and it sponsors from three to seven hockey teams annually. Before 1988, the Association's members raised from $3,000 to $4,000 annually from registration fees, fundraisers, and solicitations. The Association used the money primarily for ice time and equipment purchases.

In 1988, Brad Knuth was president and William Hurley was treasurer of the Association. Early that year, Steven Peterson, a friend of Knuth, suggested that the Association obtain a lawful gambling license to increase its revenues. The Association hired Peterson as gambling manager to manage pull-tab sales and occasional raffles for the Association. Peterson's duties included hiring necessary employees, collecting funds, filing tax documents, negotiating leases, and performing all other gambling-related duties.

In June 1988, the Association filed an application for a lawful gambling license and on August 1, 1988, the Association received its first license from the Board to conduct lawful gambling. With its lawful gambling license applications, the Association completed and filed forms setting forth the system of internal controls for its lawful gambling operations, including the structure and purpose of its gaming committee. The forms only listed the Association's president, treasurer, and gambling manager as committee members. The forms filed by the Association with its license application were signed by the Association president. Instead of instituting the internal controls described in the applications and forms, the Association gave its gambling manager complete and exclusive control over its lawful gambling operations and funds. Peterson did not give Association members financial reports or written accountings at monthly meetings, but orally reported that gambling was raising in excess of $1,000 monthly.

In 1989, the Minneapolis Police Department Licensing Unit conducted a routine annual review of the Association's gambling records. The department found that the Association had not sufficiently documented the sources of its bank deposits, was unable to account for all winning tickets, filed inaccurate tax forms, maintained inaccurate written documentation for expenditures, and failed to use dual signature controls for cash disbursements.

The department's findings and recommendations were sent to the Board of Directors of the Association and were received by Peterson. It is unclear, however, if this correspondence was actually distributed to anyone within the Association other than Peterson. Peterson did mention the review at a monthly board meeting, but reported that, with the exception of "a few little discrepancies," everything was fine and the Association "passed" its "audit."

In June 1989, Robert Teachman (an officer, team manager, and active member in the Association), Knuth and another unidentified Association member decided Peterson should be dismissed because he was not pursuing new gambling sites. Teachman took over Peterson's duties. After reviewing the gambling records, Teachman estimated that approximately $33,700 was "missing" and concluded that monthly tax reports were not being filed. The Association reported the suspected theft of funds to the Minneapolis Police Department. The police department requested that the Association obtain an independent audit of its gambling records. The audit revealed that the Association had cash shortages of $98,727.49.

Teachman served as gambling manager for approximately one year, when his duties were assumed by Hurley. Under Teachman's tenure, the Association made over $1 million in gambling sales. In January 1991, the Minneapolis Police Department conducted a second review of the Association's gambling records and found that during Teachman's tenure, the Association's expenditures were not properly recorded, expenditures were not adequately documented, there were no receipts for lawful-purpose donations, and unauthorized "bar loans" were made to individuals.

The Minnesota Department of Revenue subsequently audited the Association's records and uncovered cash shortages of $117,376 for the year ending July 31, 1989. The Department of Revenue notified the Board of the audit results.

Once the Board received the audit results, it issued a Statement of Charges in which it alleged that the Association willfully (1) failed to deposit or account for $117,376 in gambling receipts, (2) failed to expend the undeposited funds for lawful purposes or allowable expenses, (3) failed to maintain records accounting for its assets, liabilities, and fund balances, and (4) failed to properly account for its assets or to discover that large sums were not deposited. Further, it alleged that another organization had engaged in illegal gambling at one of the Association's permitted sites.

The police department then conducted a third review of the Association's gambling records. This review showed that, while the Association was improving in its compliance with the gambling statutes and rules, the Association still failed to document lawful-purpose donations and allowable expenses.

On July 7, 1993, the Board affirmed the administrative law judge's grant of summary disposition with respect to the illegal gambling at one of the Association's permitted sites, ordered the Association to pay a civil penalty of $1,500, revoked the Association's lawful gambling license, ruled that the Association was ineligible to obtain a premises permit to conduct lawful gambling at a Minneapolis supper club for 12 months, and held that, if Association members who have served as its chief executive officer, director(s), officer(s), or gambling manager since the Association was first licensed were to act together or individually to form another organization, that organization would be ineligible to receive a lawful gambling license from the Board.

ISSUES

I. Did the Board err as a matter of law in concluding that the Association engaged in a pattern of willful violations of law and Board rule within the meaning of Minn.Stat. § 349.16, subd. 1 (1988)?

II. Did the Board abuse its discretion in revoking the Association's lawful gambling license?

III. Did the Board improperly order that if certain members of the Association were to act together or individually to form or participate in the formation of another organization, that organization would be ineligible to receive a gambling license?

ANALYSIS

I.

A party seeking review has the burden of proving that an agency decision is affected by error of law, is unsupported by substantial evidence in view of the entire record as submitted, or is arbitrary and capricious. Markwardt v. State, 254 N.W.2d 371, 374 (Minn.1977).

Although reviewing courts are not bound by an agency's interpretation of the law, "an agency's interpretation of the statutes it administers is entitled to deference and should be upheld, absent a finding that it is in conflict with the express purpose of the Act and the intention of the legislature." Geo. A. Hormel & Co. v. Asper, 428 N.W.2d 47, 50 (Minn.1988). In accordance with that principle, this court has stated that when an agency makes a reasonable interpretation of a statute, it is not the role of this court to change that interpretation. In re Hyman Freightways, Inc., 488 N.W.2d 503, 505 (Minn.App.1992) (it is the role of the legislature or the supreme court to change a reasonable interpretation of a statute made by an agency).

The legislature has provided for the regulation of lawful gambling "to prevent its commercialization, to ensure integrity of operations, and to provide for the use of net profits only for lawful purposes." Minn.Stat. § 349.11 (1992). The legislature created a gambling control board to oversee lawful gambling. Minn.Stat. § 349.151, subd. 1 (1992). Among other things, the Board is...