Swallow v. Cal. Gambling Control Comm'n

• Decision Date: 04 April 2022
• Docket Number: C089329
• Parties: ERIC G. SWALLOW, Plaintiff and Appellant, v. CALIFORNIA GAMBLING CONTROL COMMISSION, Defendant and Appellant.
• Court: California Court of Appeals

ERIC G. SWALLOW, Plaintiff and Appellant, v. CALIFORNIA GAMBLING CONTROL COMMISSION, Defendant and Appellant.

C089329

California Court of Appeals, Third District, Sacramento

April 4, 2022

Modified and Certified for Partial Publication 4/27/22

APPEAL from a judgment of the Superior Court of Sacramento County No. 34-2016-80002402-CU-WM-GDS, Allen H. Sumner, Judge.

Grignon Law Firm, Margaret M. Grignon, Anne M. Grignon Vakili & Leus, and Sa'id Vakili for Plaintiff and Appellant.

Xavier Becerra, Attorney General, Sara J. Drake, Senior Assistant Attorney General, T. Michelle Laird, William P. Torngren, and William L. Williams, Jr., Deputy Attorneys General, for Defendant and Appellant.

MAURO J.

After a hearing before an administrative law judge (ALJ) and review by appellant California Gambling Control Commission (Commission), the Commission revoked and refused to renew the gambling license of cross-appellant Eric G. Swallow. The Commission also imposed a $13, 672, 000 monetary penalty and $127, 880 in costs against Swallow. Swallow petitioned the trial court for a writ of mandate, challenging the revocation and nonrenewal of his gambling license, the amount of the monetary penalty, and the costs. The trial court granted Swallow's petition in part and denied it in part. It concluded the Commission did not violate Swallow's due process rights when it revoked and refused to renew Swallow's gambling license, except that the Commission may have relied on unproven misconduct. The trial court therefore remanded to the Commission "to ensure that Swallow is not disciplined based on misconduct that was not proven." The trial court also concluded the amount of the monetary penalty imposed by the Commission was not supported by law, and the costs could only be assessed by the ALJ on remand. It therefore vacated the penalty and costs imposed and remanded for the Commission to redetermine the amount of the penalty and to refer the issue of costs to the ALJ.

Both the Commission and Swallow appeal the judgment of the trial court. The Commission contends (1) the trial court erred by ruling that Business and Professions Code section 19930, subdivision (c) limits fines and penalties to $20, 000 for each violation of the Gambling Control Act or associated regulations.^[1] For his part, Swallow contends (2) the Commission did not have jurisdiction to revoke Swallow's gambling license, (3) the Commission denied Swallow a fair hearing, thus violating his due process rights, (4) the Commission's factual findings are not supported by substantial evidence, and (5) the trial court improperly remanded the issue of costs for further proceedings.

We conclude (1) section 19930(c), when considered within the statutory and regulatory framework of the Act, does not authorize the $13, 672, 000 monetary penalty, (2) the Commission had jurisdiction to revoke Swallow's gambling license, (3) the Commission did not violate Swallow's due process rights, (4) Swallow fails to present a proper argument challenging the sufficiency of the evidence, and (5) the trial court properly remanded the issue of costs for further proceedings.^[2]

We will modify the judgment granting the peremptory writ of mandate to order the Commission to reconsider the monetary penalty in a manner consistent with this opinion instead of the trial court's order. We will affirm the judgment as modified.

BACKGROUND^[3]

"Public trust and confidence can only be maintained by strict and comprehensive regulation of all persons . . . related to the operation of lawful gambling establishments . . . ." (§ 19801, subd. (h).) "All gambling operations, all persons having a significant involvement in gambling operations, all establishments where gambling is conducted, and all manufacturers, sellers, and distributors of gambling equipment must be licensed and regulated to protect the public health, safety, and general welfare of the residents of this state as an exercise of the police powers of the state." (§ 19801, subd. (i).)

The Commission has jurisdiction over the operation and supervision of gambling establishments and over all persons or things having to do with the operations of gambling establishments. It issues gambling licenses and may also suspend or revoke the licenses. (§§ 19811, 19870, 19930.) The Department of Justice, through its Bureau of Gambling Control (Bureau), investigates gambling license applicants, monitors the conduct of licensees, and initiates and prosecutes disciplinary actions against licensees before the Commission. (§§ 19826, 19868, 19930.)

Under the Act, "[e]very person . . . who receives, directly or indirectly, any compensation or reward, or any percentage or share of the money or property played, for keeping, running, or carrying on any controlled game in this state, shall apply for and obtain from the commission, and shall thereafter maintain, a valid state gambling license, key employee license, or work permit . . . ." (§ 19850.)

Beginning in 2007, Garden City, Inc., owned by Swallow with Peter and Jeanine Lunardi, operated the M8trix Casino in San Jose. Garden City, Swallow, and the Lunardis were all licensed by the Commission. The licenses were renewed every two years.

In 2008, Swallow and the Lunardis formed three limited liability companies in Nevada: Profitable Casino (owned by Swallow), Potere (owned by the Lunardis), and Dolchee (owned by Swallow and the Lunardis). The related entities (that is, related to Garden City and the M8trix gambling establishment) did not hold licenses from the Commission. Each of these related entities had contracts to provide services or licenses to Garden City. The contracts between Garden City and the related entities were for Profitable Casino to provide software for various casino operations, Dolchee to license card games, and Potere to provide general business consulting. Garden City agreed to pay each related entity $400, 000 or more per month under the contracts. In 2012, for example, Garden City paid almost $12 million to Dolchee and more than $3.3 million each to Profitable Casino and Potere. Between 2009 and 2013, Garden City paid the related entities more than $81 million. The trial court noted that the parties disputed the nature of the services actually provided by the related entities in exchange for the payments.

In 2012, Swallow filed an application with the Commission to operate another gambling establishment, Hollywood Park, in Inglewood. In connection with that application, the Commission and Bureau asked for more information concerning the dealings between Garden City and the related entities. Swallow provided more than 500 pages of documents. He eventually withdrew his application to operate the Hollywood Park gambling establishment; however, as the trial court noted, "his responses to the Commission and the Bureau regarding that application lie at the heart of this case."

In 2014, the Bureau filed an accusation against Garden City, Swallow, and the Lunardis as respondents, seeking to revoke or suspend their gambling licenses and to impose fines. The Bureau stated in the accusation: "This case seeks to discipline Respondents' licenses - by revocation, suspension, and/or fine as appropriate - for persistent and repeated violations of, and lack of suitability for continued licensing under, the [Act] and the regulations adopted pursuant to the Act. As alleged in this Accusation, Respondents provided untrue and misleading information to the Bureau and others, failed to provide information requested by the Bureau, engaged in self-dealing to siphon off monies for themselves and reduce reported net income, and benefited from payments prohibited by the Act. The acts and omissions alleged in this Accusation are inimical to the public health, safety, and welfare; those acts and omissions demonstrate that Respondents are not persons of good character, honesty, and integrity. Their acts and omissions, as alleged in this Accusation, pose a threat to the effective regulation and control of controlled gambling, and create or enhance the dangers of unsuitable, unfair, or illegal practices, methods, and activities in carrying on the business and financial arrangements incidental to the conduct of controlled gambling. Respondents' acts and omissions not only impeded the Bureau's investigation and fact gathering, but also effectively reduced potential payments to charities located in the City of San Jose. Respondents are not suitable or qualified for continued licensure; therefore, each of their licenses should be disciplined."

The Bureau alleged the related entities did not provide invoices for the payments from Garden City, and Garden City accounted for the payments to the related entities as expenses rather than as dividends or distributions to the owners. Garden City made payments to the related entities based on its available cashflow, essentially reducing Garden City's net income to zero and thus reducing its tax liability. While the Bureau did not allege that the flow of funds to the related entities was illegal or violated the Act or that the related entities were required to be licensed, the Bureau maintained that the respondents were subject to discipline on various grounds such as the manner of operating the gambling establishment (§ 19823), lack of good character (§ 19857), and failure to provide information to the Bureau (§ 19859). As to Swallow, the Bureau alleged his license should be revoked or suspended because he provided false or misleading information and failed to provide requested documentation in his Hollywood Park application.

The Lunardis and Garden City entered into a stipulated settlement, admitting violations of the Act and agreeing to pay a $1.5 million fine and $275, 000 in costs. They...