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AmVets Post No. 2 v. Delaware Board Of Charitable Gaming

Superior Court of Delaware, Sussex

September 29, 2017

AmVets Post No. 2
The Delaware Board of Charitable Gaming;

          Submitted: June 27, 2017

         On Appeal from The Delaware Board of Charitable Gaming: AFFIRMED

         Dear Counsel:

         Pending before the Court is an appeal from the Delaware Board of Charitable Gaming. For the reasons set forth herein, the Delaware Board of Charitable Gaming's decision is AFFIRMED.

         Procedural Posture

         On March 3, 2016, the State of Delaware ("the State") filed a complaint with the Delaware Board of Charitable Gaming ("the Board") against AmVets Post No. 2 ("AmVets") alleging violations of Title 10 of the Delaware Administrative Code. A hearing officer from the Delaware Division of Professional Regulation ("DPR") held a hearing on the matter on August 24, 2016.

         On December 7, 2016, the hearing officer issued her Recommendations to the Board. The hearing officer recommended the Board (1) fine AmVets for certain raffles it held prior to the obtaining a valid raffle permit; (2) fine AmVets for failing to include required information on the raffle tickets for the raffles for which it had valid raffle permits; (3) fine AmVets for failing to keep and maintain ticket stubs and other records from the raffles for which it had valid raffle permits; (4) fine AmVets for filing at least eight inaccurate or incomplete reports for the raffles for which it had valid raffle permits; (5) require AmVets to present a proposed plan for distribution of the funds seized as a result of the criminal investigation into AmVets' raffle procedure; and (6) require AmVets to submit all permit applications for gambling to the Board for review for the following twenty-four months.

         The Board considered the Recommendations and approved them in substance on December 28, 2016, pending the preparation of a final order by legal counsel. That Order modified condition 5, above, to require that AmVets' proposed plan be approved by the Board prior to the issuance of any additional permits. The final Order is dated January 25, 2017, and was mailed to counsel on January 30, 2015.

         AmVets filed a timely appeal with this Court on February 22, 2017. On March 23, 2017, the Court issued an Order staying the Board's decision pending the outcome of this appeal.

         The issues have been briefed and the matter is now ripe for decision.

         Summary of Evidence Presented Below

         DPR is responsible for "the administrative, ministerial, budgetary, clerical and exclusive investigative functions" of the Board.[1] On or about July 2, 2015, Thomas Phillips, a member of AmVets, spoke with Amanda McAtee, a board liaison with DPR. Phillips told McAtee that AmVets was hosting a bingo event in which the winning pot was in the range of ten to fifteen thousand dollars. Phillips told McAtee he had recently become aware of DPR and the possibility that AmVets may need a permit given the size of the bingo award. While speaking with Phillips, McAtee was able to search DPR's database and determine AmVets had not been issued a bingo permit since 2011 and AmVets' instant bingo permit had expired just two days before on June 30, 2015. McAtee explained to Phillips how he could renew the instant bingo permit online. Phillips continued to speak of a "bar bingo situation" with a sizeable jackpot. McAtee referred Phillips to DPR's website for instructions on how to file an application for bingo. Phillips seemed anxious to obtain a permit and said he would come into the office on the next business day to discuss the application. There was no discussion of a raffle event at this time.

         Following the discussion between Phillips and McAtee, McAtee submitted a memo to Ted K immey, a charitable gaming inspector with DPR, outlining her conversation with Phillips. Kimmey visited AmVets' Millsboro location on July 8, 2015, to see if AmVets was hosting bingo. It was not. Kimmey spoke with Thomas Jones, Commander for AmVets, who told Kimmey that AmVets was thinking about starting back up with bingo and that they were also thinking about submitting an application for a raffle. Kimmey left his contact information and encouraged Jones to contact him if Jones had any questions about the application process.

         On July 14, 2015, Phillips and Jones appeared at DPR with two applications: one for charitable gambling and one for a periodic raffle. McAtee met with Phillips to review the applications. When McAtee told Phillips the gaming regulations did not permit as many dates as were listed on AmVets' application for charitable gaming, Phillips withdrew that application. McAtee then went over the application for periodic raffles with Phillips. As required, the application listed a "maximum retail cash value" for each raffle drawing. McAtee testified Phillips did not inform her the raffle was a progressive jackpot and there was no indication on the application itself that any money carried over from one raffle to another.

         After McAtee confirmed all fields of the application were complete, including the area for designating a charitable purpose for the use of the funds generated by the raffle, [2] she added it to the Board's July meeting agenda. The Board subsequently approved permits for weekly raffles beginning August 1, 2015, and extending through October 31, 2015.[3]

         On October 10, 2015, Kimmey was inspecting a different bingo location when he heard that AmVets was holding a Joker's Wild raffle at their Millsboro location with a large jackpot. Kimmey consulted Facebook and confirmed that the jackpot seemed to be increasing.[4] Kimmey researched and understood Joker's Wild was played by placing a deck of cards in an envelope. When a winner is called, the winner draws a card from the envelope. If it is the joker, the winner takes home the jackpot. If it is not the joker, the card is displayed and the raffle continues until someone draws the joker and wins the jackpot.

         Kimmey reviewed AmVets' raffle application as well as the After Occasion Reports ("AORs") it had submitted to date. K immey noticed that the receipts from raffle sales reported on the AORs did not appear to match the number of tickets sold as indicated on Facebook and from other sources. Kimmey also found the AORs to be inconsistent as to the total cash value of prizes to be awarded compared to the description of the jackpot as described on Facebook.[5]Although no one testified as to when, exactly, it became clear to DPR that AmVets was operating a progressive raffle with an extraordinarily high jackpot, reason would point to October 10th. Kimmey and another charitable gaming inspector decided to visit the AmVets' Millsboro location as a result of the discrepancy between what they were hearing and AmVets' application and AORs.

         At AmVets, the inspectors spoke with Jones and asked to see the raffle ticket and the log of tickets sold. They were told the member sign-in sheet was being used as a log. This sheet was comprised solely of names of members and their guests. The inspectors observed that the raffle ticket itself was of the type commonly used for 50/50 raffles and contained no identifying information. The tickets were approximately 1" X 2" in size. One side contained four lines for the name, address, and telephone number of the purchaser and the other side read, "DROP THIS TICKET IN PROPER PLACE." The amount of the prizes were posted in the hall but the rules of the game were not.

         At 6:30 p.m., the second and third place winners were announced, winning $330.00 and $270.00, respectively. The first place winner was announced and given an opportunity to select an envelope containing one card of a fifty-four card deck in a display case. Approximately forty cards were already exposed, face-up, in the case. The card selected by the winner was not a joker and her card was posted, face-up, along side the other cards chosen from previous weeks. Based on the number of cards left on the board, Kimmey estimated the game had been played for roughly forty weeks. If so, the weekly raffle would have originated sometime in December of 2014. James Bailey, the comptroller for AmVets, testified he estimated the Joker's Wild jackpot reached $5, 000.00 in March of 2015.

         On October 10th, the jackpot was approximately $140, 000 and the permit application listed $600.00 as the total cash value of prizes to be awarded at the October 10th raffle.

         After the raffle, Kimmey followed up with his supervisor, Jean Betley, and drafted a complaint to be filed with DPR. The day before he filed the complaint, Kimmey called Phillips to relay his concerns about the discrepancy between the number of tickets actually sold and the revenue from tickets sold reported on the AORs.[6] Phillips expressed concern and a desire to comply with the rules. After October 10, 2015, the number of tickets sold and total sales recorded on the AORs began to align.

         On October 16, 2015, K immey filed the complaint alleging that the prizes awarded exceeded the application/permit amounts, the tickets failed to contain the required information, the AORs did not contain accurate information, and the raffle had been conducted "unlicensed" since approximately December of 2014.

         On November 5, 2015, representatives from DPR met with representatives from AmVets. Betley requested records of the numbers of tickets sold, the names of those who purchased tickets, the amount of prizes awarded, the names and addresses of the winners, and checks, money orders or other receipts as proof of money given to charity. K immey and Betley testified the DPR representatives were told no such records existed. AmVets representatives present for the meeting denied any such requests were made and stated that records were readily available for inspection. The hearing officer found Kimmey and Betley's testimony more credible on this point. None of the "readily available" records were submitted to DPR or produced at the hearing. At this November 5th meeting, the AmVets representatives candidly admitted that, while AmVets donates to charitable causes year-round, the net proceeds from the raffles themselves did not go to charity; to the contrary, the proceeds rolled over into the growing jackpot.

         Also on November 5, 2015, AmVets submitted another raffle application. Permits were granted for weekly raffles from November 7, 2015, through January 16, 2016. This application was identical in substance to the original application but covered a different date range. The Division of Gaming Enforcement ("DGE") seized the jackpot money before the raffle scheduled for November 7, 2015, could be held.

         Standard of Review

         The Court has jurisdiction to entertain appeals from the Board pursuant to the Delaware Administrative Procedures Act.[7] In the absence of fraud, the Court's review is "limited to a determination of whether the [Board's] decision was supported by substantial evidence on the record before the [Board]."[8] When factual determinations are at issue, the Court must take "due account of the experience and specialized competence of the [Board] and of the purposes of the basic law under which the [Board] has acted."[9] However, "[w]hen the issue is one of agency interpretation of statutory law, and application of that law to undisputed facts, " the Court's review is plenary.[10]

         Discussion A. Applicable Law

         Gambling is prohibited by the Delaware Constitution, except in limited circumstances. The Constitution provides, "All forms of gambling are prohibited in this State except the following: ... (b) Lotteries (other than slot machines, roulette, craps and baccarat games) provided that each is sponsored and conducted under the limitations of Section 17B...."[11] Section 17B encompasses lotteries held by charitable organizations and reads, in relevant part:

Lotteries not under State control shall be lawful when sponsored and conducted by volunteer fire companies, veterans organizations, religious or charitable organizations, or by fraternal societies provided that said company, organization or society has been in existence a minimum of 2 years and provided the net receipts or profits arising from the conducting or operating of such lotteries by the aforementioned companies, organizations or societies are used solely for the promotion or achievement of the purposes of aforementioned companies, organizations or societies, and provided further that the aforementioned companies, organizations or societies are operated in a manner so as to come within § 170 of the United States Revenue Code and regulations promulgated thereunder by the United States Secretary of the Treasury.[12]

         AmVets is in good standing with the nationwide American Veterans organization, which is a tax-exempt 501(c)(19) national organization chartered by Congress in 1944 with approximately 250, 000 members nationwide. AmVets is therefore authorized to conduct charitable gaming events and gambling under the administration of the Board and the Delaware Lottery Commission.

         Title 28 of the Delaware Code establishes the Board and charges the Board with "protect[ing] the public through the regulation of activities which involve charitable gaming."[13]The Board is directed to "develop standards assuring professional competence; ... develop rules and regulations; and ... impose sanctions where necessary against persons or occupational groups regulated by the Board."[14] In order to do so, the Board is authorized to adopt rules and regulations to govern the issuance of permits and licenses to conduct games and these rules and regulations have the force of law.[15] As provided in the Constitution, these permits and licenses may be issued to qualified charitable organizations and the Board "shall prevent the game from being conducted for commercial purposes or private profit" except as otherwise authorized by law.[16] Title 28 also delineates the details of the financial records that must be submitted to the Board after a game is held.[17]

         The Board has, in fact, adopted a number of regulations concerning the administration of charitable gambling and raffles, in particular. The Regulations apply to any raffle held under Title 28 "in which the value of the prize or prizes to be awarded is $5, 000 or more ...."[18] No raffle tickets may be sold before the charitable organization has obtained a permit from the Board.[19]Raffle tickets must contain the following information: (1) a full and fair description of the prize; (2) the appraised value of the prize; (3) if there is a minimum number of tickets to be sold, what the minimum is and the procedure to be employed to secure a refund in the even the minimum is not reached; (4) the drawing date of the raffle; and (5) the exact nature of the charitable purpose for which the proceeds will be used.[20] The sponsoring organization has several financial and bookkeeping responsibilities, including maintaining (1) a log of raffle ticket purchasers; (2) records with respect to the sale and distribution of the raffle tickets; and (3) an account of the proceeds and expenses of the raffle.[21] Within thirty days of the date of a raffle, the record keeper must "furnish in writing to the Board, the name and address of each person to whom a prize was awarded, the gross receipts derived from the selling of the raffle tickets, and the total expenses incurred for the raffle."[22] This report is the aforementioned AOR. Failure to comply with the Regulations subjects the violator to suspension or revocation of its license[23] and fines.[24]

         B. The Findings of Fact and Conclusions of Law

         The hearing officer made several findings of fact. The majority of the findings are laid out, supra, as evidence presented below. However, a number of findings are worth emphasizing. First, the hearing officer found McAtee credible when she testified that during the application process the rules of the raffle would have been disclosed to her and, if a jackpot or carryover had been mentioned, she would have directed the applicant to fully explain that process on the application. McAtee did not see any written game rules at the time the application was filed on July 14th. Although no individual raffle's cash value exceeded $5, 000, the total cash value over the time period covered by the application was $6, 930 and, therefore, permits were deemed necessary. The hearing officer also found that the Regulations did not require that an applicant submit a game's rules with its application and that the Board approved AmVets' application without the inclusion of the rules of Joker's Wild.

         Although AmVets timely filed all of its AORs from 8/1/15 through 10/31/15, there was no evidence that AmVets filed the names and addresses of the winning raffle ticket holders to the Board, in violation of Regulation 7.0. The hearing officer also concluded it was unclear when the jackpot exceeded $5, 000. After weighing the witnesses' testimony, she discerned that the $5, 000 threshold was met at some point between March and July of 2015 but, at a minimum, was met by July of 2015.

         On the night of October 10th, Kimmey did not advise Jones of any concerns he had regarding the handling of the raffle. Thus, the hearing officer concluded it was reasonable for Jones - and AmVets, in general, by extension - to assume there were no issues with the manner in which the raffle was being held. Concerning the follow up visit to AmVets by the DPR representatives, the hearing officer made the following findings of fact:

No subpoena or written request for records was made of AmVets 2 but during the November 5, 2015 meeting Ms. Betley requested records as to the number of tickets sold, the list of ticket purchasers, amount of prizes given, name and address of winners, and checks, money orders or other receipts showing what was paid to charity. The members claimed they did not recall a request for records being made. Mr. Kimmey recalled Ms. Betley making the request at the meeting. Ms. Betley testified to asking and clearly recalled Mr. Phillips' response: "What are you talking about?" I find Mr. Kimmey's and Ms. Betley's testimony more credible on this point, and I find that no records were kept.[25]

         The hearing officer carefully reviewed the AORs and noted discrepancies between the prize amounts listed on the application and the submitted AORs. During September, the listed total cash value of prizes on the AORs matched the maximum amounts for which AmVets applied and were permitted to award. On October 3, 2015, AmVets did not hold the raffle. The hearing officer observed the following:

A review of the AmVets 2 October 10, 2015 raffle paints a true picture of what occurred week-to-week. Ticket sales were $13, 865 on that date. AmVets 2 applied to award $600 in prizes on that date as its permit reflected. According to Mr. Kimmey they awarded $600 in cash prizes on that date, which complied with the permit. However, the first [place] prize of $500 was not actually awarded on the date since no joker was drawn by the woman choosing a card. The $500 was thus added (on paper) to the $600 that was awarded on that date, and the total cost of prizes listed on the AOR was $1, 100. The AOR was thus not accurate in that the $500 was never awarded. Instead the $500 amount was "carried over" to the next week to add to the jackpot with no indication to the Board of what was actually occurring. There was no line on the AOR forms to list a carryover amount so it was simply not delineated on the AOR[] or disclosed by [AmVets].
Moreover, net profits each week were being added to the jackpot, and net profits grew exponentially over time. ... This was the process that had been occurring since December 2014 and continued through October 31, 2015, causing the jackpot to grow to well over $100, 000. While AmVets insisted the net proceeds went to charity at some point, the amount of net proceeds listed on the AOR's did not specifically match records of any charitable contributions made. In ...

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