State Of Minnesota Gambling Permit

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2. State Of Minnesota Gambling Permit

515 N.W.2d 604 (1994)

In the Matter of the LAWFUL GAMBLING LICENSE OF THIEF RIVER FALLS AMATEUR HOCKEY ASSOCIATION, LICENSE NO. 02008.

No. C2-93-1943.

Court of Appeals of Minnesota.

Native American gaming comprises casinos, bingo halls, and other gambling operations on Indian reservations or other tribal land in the United States. Because these areas have tribal sovereignty, states have limited ability to forbid gambling there, as codified by the Indian Gaming Regulatory Act of 1988.

April 26, 1994.

Cached

*605 Kurt J. Marben, Charlson, Marben & Jorgenson, P.A., Thief River Falls, for relator Thief River Falls Amateur Hockey Ass'n.

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

Considered and decided by RANDALL, P.J., and LANSING and MULALLY, JJ.

EDWARD D. MULALLY, Judge.

The Thief River Falls Amateur Hockey Association (the Association) challenges the State of Minnesota Lawful Gambling Control Board's (the Board) order, arguing that Minn.R. 7861.0050 violates substantive due process.

The Association operates a youth hockey program in Thief River Falls, serving 230 children between 4 and 14 years of age. Expenses for the program run approximately $87,000 per year.

The Association is licensed to conduct lawful gambling. Seventy five to eighty percent of the Association's funding comes from gambling conducted at three sites. One site is the Rusty Nail Bar. In accordance with Minn.R. 7860.0090 (1991) and Minn.R. 7861.0040 (Supp. II 1992), the Association leased space and had a premises permit for this location in order to sell pull-tabs and operate a paddlewheel game. Revenue from the Rusty Nail Bar fulfills almost sixty percent of the Association's budget.

On January 26, 1993, James Arlt and Jack Schultz, agents for the Gambling Enforcement Division of the Department of Public Safety, conducted an undercover investigation into allegations that illegal sports boards were being used at the Rusty Nail Bar.[1] While sitting at the bar, Arlt saw several sports boards for the upcoming Super Bowl game stacked on the bar's service island. Arlt bought a square on the five dollar board, and Arlt and Schultz each purchased a square on the one dollar board from one of the bartenders.

On January 29, 1993, Arlt obtained a warrant to search the Rusty Nail Bar. No sports boards were found during the search.

The Board issued a notice and order for hearing against the Association. At the hearing, the parties stipulated that the Association did not participate in the illegal gambling and was not aware of any unlawful gambling. The ALJ concluded that illegal *606 gambling was conducted at the Rusty Nail Bar on January 26, 1993 and that the Board was required to suspend the Association's premises permit for the Rusty Nail location for one year. The ALJ also concluded that neither he nor the Board had subject matter jurisdiction to rule on the Association's allegation that Minn.R. 7861.0050 was unconstitutional.

The Board adopted the ALJ's findings of fact and conclusions, with minor clerical corrections. The Board suspended the Association's premises permit for one year. The Association did not lose its gambling license, nor were its other permits suspended. By writ of certiorari, the Association challenges the Board's decision.

Is suspending an organization's premises permit for one year when illegal gambling has been conducted on the premises rationally related to ensuring the integrity of, and public confidence in, lawful gambling?

The Association brings a substantive due process challenge to Minn.R. 7861.0050 (Supp. II 1992). It does not allege that a fundamental right is at issue; hence, the rational relationship test applies. K.E. v. Hoffman, 452 N.W.2d 509, 513 (Minn.App. 1990), pet. for rev. denied (Minn. May 7, 1990). An administrative rule violates substantive due process if it is not rationally related to the objective sought to be achieved as enunciated by the legislature. Mammenga v. State, 442 N.W.2d 786, 789, 790 (Minn. 1989). '[M]inimal judicial scrutiny is the correct standard of review.' K.E., 452 N.W.2d at 513. It is not for the courts to question the political wisdom of a regulation. See id.

Minn.R. 7861.0050 provides:

(Emphasis added.) The legislature stated that gambling would be regulated '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 Board has a duty 'to regulate lawful gambling to ensure it is conducted in the public interest,' and has the authority 'to take all necessary steps to ensure the integrity of and public confidence in lawful gambling.' Minn.Stat. § 349.151, subd. 4(a)(1), (15) (1992).

We conclude that the agency rule is rationally related to maintaining the integrity of, and public confidence in, lawful gambling because it ensures that the public can enter an establishment where there is lawful gambling and be confident that no illegal gambling has been conducted on the premises.[2]

Next, the Association argues that the rule is unfair in its application because it penalized the organization, even though it had no knowledge of the wrongdoing and did *607 not participate in the illegal activity, without taking into account its impact on the organization's finances.

A rule may be invalid as applied when situations arise of which the rulemaking body was not aware. Mammenga, 442 N.W.2d at 789. When the enacted rule is applied to this new situation, the rule sometimes will lack a rational relationship to the legislative objective. Id. However, the fact that in a particular case the rule yields a harsh result does not invalidate the rule. Id.

Because Minn.R. 7865.0050 provides for increased penalties for organizations that actually participate in the illegal activity, it appears that the agency realized that an 'innocent' organization could be penalized. Moreover, we note that the states have police power in order to protect the health, safety, and welfare of its citizens. Abeln v. City of Shakopee, 224 Minn. 262, 267, 28 N.W.2d 642, 645 (1947). The purpose of the rule is not penal, but was enacted to protect the public. Cf. In re Lawful Gambling License of Henry Youth Hockey Association, License No. 02795, 511 N.W.2d 452, 457 (Minn.App.1994) (Board must regulate to insure gambling is conducted in public interest and must not only look at acts of licensee, but also harm to public if acts unpunished); Spilotro v. State, ex rel. Nevada Gaming Comm'n, 99 Nev. 187, 661 P.2d 467, 470 (1983) (purpose of 'black list' not to punish for past behavior but to protect gaming industry and maintain public trust). Thus, the rule was applied as intended and is not unconstitutional.

Minn.R. 7865.0050 does not contravene substantive due process on its face, nor is it invalid as applied to the Association because it passes the rational basis test and was applied as the agency intended.

Affirmed.

RANDALL, Judge (concurring specially).

I concur in the result, but I write specially to point out the inherent inequities in the way controlling law is framed, and to suggest alternatives which would remove those inequities and yet allow the state to properly punish wrongdoers.

The majority correctly sets out the law controlling our affirmance:

Minn.R. 7861.0050 (Supp. II 1992) provides:

When you have the fact situation we have here, the liquor establishment location, not the charity, is guilty of an infraction; it makes no sense for the bulk of the punishment to fall on the charity. Through warnings, suspension, and fines on the liquor establishment, including possible civil and criminal action, the state has the power to control and penalize the liquor establishment separately. If the charity is found to have aided and abetted the liquor establishment, then so be it, the punishment can fall equally. That would be proper. But here, all parties stipulate that the charity was an innocent bystander. Thus, subpart 2, 'Discipline,' is capricious when it requires the gambling control board to suspend the charity's permit for a full year. The answer is simple. If the charity aided and abetted the liquor establishment in the infraction, use the law. But if the charity did not, the board should have the authority to suspend the charity's permit for less than a year, or not at all, depending on the facts.

In other words, put common sense flexibility in the 'discipline' portion.

All the arguments for and against charitable gambling were hashed and rehashed and argued before the present law setting up charitable gambling as a social good was passed. Thus, for better or for worse, charitable gambling is here.

*608 Since that underpinning is firmly in place, it is rational and fair to give the board discipline discretion when the charity is found innocent, at least as to its part, of any intentional wrongdoing. The state's message is better delivered by penalizing the specific wrongdoer, rather than a scatter gun approach, as here.

[1] A sports board is used to award cash or prizes based on a score of a sporting event.

[2] We note that other states have addressed the constitutionality of laws regulating the gaming industry and have concluded that they do not violate substantive due process. Cf. DeMarco v. Colorado Ltd. Gaming Control Comm'n, 855 P.2d 23, 25-26 (Colo.App.1993) (statute where person convicted of gambling-related offense was forever barred from obtaining gambling license upheld because rationally related to purpose of ensuring that public perceived games were being conducted honestly); Greenberg v. Kimmelman, 99 N.J. 552, 494 A.2d 294, 300, 305-07 (1985) (statute preventing family members of state officers from working in gambling industry upheld because bore rational relationship to purpose of maintaining public confidence in integrity of casino industry); Spilotro v. State, ex rel. Nevada Gaming Comm'n, 99 Nev. 187, 661 P.2d 467, 470, 472 (1983) (statutory scheme providing for list to be made of persons to be excluded or ejected from casinos including those convicted of felonies and others whose unsavory reputation would adversely affect the public's confidence or trust in the gaming industry upheld because protected industry from corruptive taint thus maintaining the public's confidence in gaming industry).

A brief letter from a major player in the world of legal gambling has changed the politics around the issue of sports betting in Minnesota. At least for now.

Last week, Charles Vig, the chair of the Minnesota Indian Gaming Association, wrote Gov. Tim Walz and the four legislative leaders to say the state's gambling tribes weren't interested in adding sports betting to their offerings.

But he didn't stop there. In the letter, Vig said the tribes will oppose passage of legislation to add Minnesota to the growing list of states with legalized sports betting. 'The Minnesota Indian Gaming Association continues to oppose the expansion of off-reservation gambling, including the legalization of sports betting,' he wrote.

The seven casino-owning tribes in Minnesota join a group of unusual allies in opposing sports betting bills this year, including groups like Citizens Against Gambling Expansion, which worries about the ill effects of gambling, including addiction.

No. C2-93-1943.

Court of Appeals of Minnesota.

Native American gaming comprises casinos, bingo halls, and other gambling operations on Indian reservations or other tribal land in the United States. Because these areas have tribal sovereignty, states have limited ability to forbid gambling there, as codified by the Indian Gaming Regulatory Act of 1988.

April 26, 1994.

Cached

*605 Kurt J. Marben, Charlson, Marben & Jorgenson, P.A., Thief River Falls, for relator Thief River Falls Amateur Hockey Ass'n.

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

Considered and decided by RANDALL, P.J., and LANSING and MULALLY, JJ.

EDWARD D. MULALLY, Judge.

The Thief River Falls Amateur Hockey Association (the Association) challenges the State of Minnesota Lawful Gambling Control Board's (the Board) order, arguing that Minn.R. 7861.0050 violates substantive due process.

The Association operates a youth hockey program in Thief River Falls, serving 230 children between 4 and 14 years of age. Expenses for the program run approximately $87,000 per year.

The Association is licensed to conduct lawful gambling. Seventy five to eighty percent of the Association's funding comes from gambling conducted at three sites. One site is the Rusty Nail Bar. In accordance with Minn.R. 7860.0090 (1991) and Minn.R. 7861.0040 (Supp. II 1992), the Association leased space and had a premises permit for this location in order to sell pull-tabs and operate a paddlewheel game. Revenue from the Rusty Nail Bar fulfills almost sixty percent of the Association's budget.

On January 26, 1993, James Arlt and Jack Schultz, agents for the Gambling Enforcement Division of the Department of Public Safety, conducted an undercover investigation into allegations that illegal sports boards were being used at the Rusty Nail Bar.[1] While sitting at the bar, Arlt saw several sports boards for the upcoming Super Bowl game stacked on the bar's service island. Arlt bought a square on the five dollar board, and Arlt and Schultz each purchased a square on the one dollar board from one of the bartenders.

On January 29, 1993, Arlt obtained a warrant to search the Rusty Nail Bar. No sports boards were found during the search.

The Board issued a notice and order for hearing against the Association. At the hearing, the parties stipulated that the Association did not participate in the illegal gambling and was not aware of any unlawful gambling. The ALJ concluded that illegal *606 gambling was conducted at the Rusty Nail Bar on January 26, 1993 and that the Board was required to suspend the Association's premises permit for the Rusty Nail location for one year. The ALJ also concluded that neither he nor the Board had subject matter jurisdiction to rule on the Association's allegation that Minn.R. 7861.0050 was unconstitutional.

The Board adopted the ALJ's findings of fact and conclusions, with minor clerical corrections. The Board suspended the Association's premises permit for one year. The Association did not lose its gambling license, nor were its other permits suspended. By writ of certiorari, the Association challenges the Board's decision.

Is suspending an organization's premises permit for one year when illegal gambling has been conducted on the premises rationally related to ensuring the integrity of, and public confidence in, lawful gambling?

The Association brings a substantive due process challenge to Minn.R. 7861.0050 (Supp. II 1992). It does not allege that a fundamental right is at issue; hence, the rational relationship test applies. K.E. v. Hoffman, 452 N.W.2d 509, 513 (Minn.App. 1990), pet. for rev. denied (Minn. May 7, 1990). An administrative rule violates substantive due process if it is not rationally related to the objective sought to be achieved as enunciated by the legislature. Mammenga v. State, 442 N.W.2d 786, 789, 790 (Minn. 1989). '[M]inimal judicial scrutiny is the correct standard of review.' K.E., 452 N.W.2d at 513. It is not for the courts to question the political wisdom of a regulation. See id.

Minn.R. 7861.0050 provides:

(Emphasis added.) The legislature stated that gambling would be regulated '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 Board has a duty 'to regulate lawful gambling to ensure it is conducted in the public interest,' and has the authority 'to take all necessary steps to ensure the integrity of and public confidence in lawful gambling.' Minn.Stat. § 349.151, subd. 4(a)(1), (15) (1992).

We conclude that the agency rule is rationally related to maintaining the integrity of, and public confidence in, lawful gambling because it ensures that the public can enter an establishment where there is lawful gambling and be confident that no illegal gambling has been conducted on the premises.[2]

Next, the Association argues that the rule is unfair in its application because it penalized the organization, even though it had no knowledge of the wrongdoing and did *607 not participate in the illegal activity, without taking into account its impact on the organization's finances.

A rule may be invalid as applied when situations arise of which the rulemaking body was not aware. Mammenga, 442 N.W.2d at 789. When the enacted rule is applied to this new situation, the rule sometimes will lack a rational relationship to the legislative objective. Id. However, the fact that in a particular case the rule yields a harsh result does not invalidate the rule. Id.

Because Minn.R. 7865.0050 provides for increased penalties for organizations that actually participate in the illegal activity, it appears that the agency realized that an 'innocent' organization could be penalized. Moreover, we note that the states have police power in order to protect the health, safety, and welfare of its citizens. Abeln v. City of Shakopee, 224 Minn. 262, 267, 28 N.W.2d 642, 645 (1947). The purpose of the rule is not penal, but was enacted to protect the public. Cf. In re Lawful Gambling License of Henry Youth Hockey Association, License No. 02795, 511 N.W.2d 452, 457 (Minn.App.1994) (Board must regulate to insure gambling is conducted in public interest and must not only look at acts of licensee, but also harm to public if acts unpunished); Spilotro v. State, ex rel. Nevada Gaming Comm'n, 99 Nev. 187, 661 P.2d 467, 470 (1983) (purpose of 'black list' not to punish for past behavior but to protect gaming industry and maintain public trust). Thus, the rule was applied as intended and is not unconstitutional.

Minn.R. 7865.0050 does not contravene substantive due process on its face, nor is it invalid as applied to the Association because it passes the rational basis test and was applied as the agency intended.

Affirmed.

RANDALL, Judge (concurring specially).

I concur in the result, but I write specially to point out the inherent inequities in the way controlling law is framed, and to suggest alternatives which would remove those inequities and yet allow the state to properly punish wrongdoers.

The majority correctly sets out the law controlling our affirmance:

Minn.R. 7861.0050 (Supp. II 1992) provides:

When you have the fact situation we have here, the liquor establishment location, not the charity, is guilty of an infraction; it makes no sense for the bulk of the punishment to fall on the charity. Through warnings, suspension, and fines on the liquor establishment, including possible civil and criminal action, the state has the power to control and penalize the liquor establishment separately. If the charity is found to have aided and abetted the liquor establishment, then so be it, the punishment can fall equally. That would be proper. But here, all parties stipulate that the charity was an innocent bystander. Thus, subpart 2, 'Discipline,' is capricious when it requires the gambling control board to suspend the charity's permit for a full year. The answer is simple. If the charity aided and abetted the liquor establishment in the infraction, use the law. But if the charity did not, the board should have the authority to suspend the charity's permit for less than a year, or not at all, depending on the facts.

In other words, put common sense flexibility in the 'discipline' portion.

All the arguments for and against charitable gambling were hashed and rehashed and argued before the present law setting up charitable gambling as a social good was passed. Thus, for better or for worse, charitable gambling is here.

*608 Since that underpinning is firmly in place, it is rational and fair to give the board discipline discretion when the charity is found innocent, at least as to its part, of any intentional wrongdoing. The state's message is better delivered by penalizing the specific wrongdoer, rather than a scatter gun approach, as here.

[1] A sports board is used to award cash or prizes based on a score of a sporting event.

[2] We note that other states have addressed the constitutionality of laws regulating the gaming industry and have concluded that they do not violate substantive due process. Cf. DeMarco v. Colorado Ltd. Gaming Control Comm'n, 855 P.2d 23, 25-26 (Colo.App.1993) (statute where person convicted of gambling-related offense was forever barred from obtaining gambling license upheld because rationally related to purpose of ensuring that public perceived games were being conducted honestly); Greenberg v. Kimmelman, 99 N.J. 552, 494 A.2d 294, 300, 305-07 (1985) (statute preventing family members of state officers from working in gambling industry upheld because bore rational relationship to purpose of maintaining public confidence in integrity of casino industry); Spilotro v. State, ex rel. Nevada Gaming Comm'n, 99 Nev. 187, 661 P.2d 467, 470, 472 (1983) (statutory scheme providing for list to be made of persons to be excluded or ejected from casinos including those convicted of felonies and others whose unsavory reputation would adversely affect the public's confidence or trust in the gaming industry upheld because protected industry from corruptive taint thus maintaining the public's confidence in gaming industry).

A brief letter from a major player in the world of legal gambling has changed the politics around the issue of sports betting in Minnesota. At least for now.

Last week, Charles Vig, the chair of the Minnesota Indian Gaming Association, wrote Gov. Tim Walz and the four legislative leaders to say the state's gambling tribes weren't interested in adding sports betting to their offerings.

But he didn't stop there. In the letter, Vig said the tribes will oppose passage of legislation to add Minnesota to the growing list of states with legalized sports betting. 'The Minnesota Indian Gaming Association continues to oppose the expansion of off-reservation gambling, including the legalization of sports betting,' he wrote.

The seven casino-owning tribes in Minnesota join a group of unusual allies in opposing sports betting bills this year, including groups like Citizens Against Gambling Expansion, which worries about the ill effects of gambling, including addiction.

The tribes don't have a veto over non-tribal gambling, but their voices are influential, especially among DFLers like Gov. Tim Walz and the new House majority. Under federal law, states must bargain in good faith to permit tribes to offer the same types of gambling that is legal off-reservation.

Until a U.S. Supreme Court decision last spring cleared the way for states to offer sports betting similar to what is legal in Nevada casino sports books, that law wasn't an issue in Minnesota. Now it is. By a 6-3 majority, the court ruled in Murphy v. NCAA that Congress exceeded its authority by preventing states from legalizing and regulating sports betting. The case had been brought by New Jersey, which wanted to give a boost to its struggling Atlantic City casinos, and had tried a series of legal moves to end the federal ban against sports betting in all states except Nevada.

In the majority opinion, Justice Samuel Alito, Jr. wrote that Congress has the authority to pass legislation to regulate sports gambling itself. But if it decides not to, each state is free to do so, and many have already done just that.

A draft bill circulated at the Minnesota capitol at the end of the 2018 session but no formal bill was ever filed and no hearings were held. Supporters of the legislation, led by Sen. Roger Chamberlain, R-Blaine, have been preparing a bill for this session,.

Chamberlain, who is chair of the Senate Taxes Committee, was surprised and a bit disappointed in the tribes' position, which he found out about via Twitter. 'We met with them and while they're not necessarily in alignment they are obviously concerned about losing their economic base, the economic engine,' Chamberlain said. 'We understand that. We've reassured them that we're not interested in harming that interest or jeopardizing tribal compacts.'

But Chamberlain said he is optimistic that it remains subject to negotiations, and he said he thinks it could be a win for the state, the tribes and for non-tribal gambling. 'There's no reason to shut out the rest of the state and the rest of the potential consumers and players and operators from taking part in a perfectly safe and legal business,' he said. 'We hope to get to a place where everyone can agree and I think we can.'

While it appears clear that tribes would be able to offer sports betting in their casinos if it is made legal for non-tribal gambling, legal advisors note that sports betting sets up some hard choices for tribes. The first issue is that betting on sports — on the results of games, on scores and other outcomes — isn't especially lucrative for casinos. The other is that under federal law, tribes can only offer gambling within the boundaries of reservations. That makes the most-promising aspect of sports betting — remote betting online or via mobile devices — might be off limits to them, but not to non-tribal sports books.

Chamberlain said mobile betting must be part of the state law because that is where much of the betting action is. Part of the rationale for legalizing it state by state is to capture some of the bets now made illegally.

'In this economy and culture you need mobile access to be profitable,' Chamberlain said.

Online betting would also make gambling available in rural and remote parts of the state that might not have casinos or commercial sports books nearby. One possible solution for the tribes is to declare that the gambling takes place not where a player's phone is, but where the computer server that processes the bet is located. That is far from resolved law, however.

'We can find our way around these problems and get it done,' Chamberlain said.

State Of Minnesota Gambling Permit

Vig is chairman of the Shakopee Mdewakanton Sioux Community of Minnesota, which owns the Mystic Lake and Little Six casinos, did not close the door on eventual tribal interest in sports betting. He did, however, ask the state to move slowly.

'While there is a desire by some to consider this matter during the present session, it seems that the public interest would be best served first by careful study of sports betting's implications in this state, examination of other states' experiences where sports betting has been legalized, and thorough consultation with the large number of stakeholders interested in it,' Vig wrote.

The chair of the House committee that would consider any sports betting bills said the tribal association's letter doesn't change her position on the issue. Rep. Laurie Halverson, DFL-Eagan, said there are still no sponsors within her caucus pushing a bill. Ever before the tribes made their position known, Halverson said she intended to be cautious and deliberate on the subject.

'I have yet to see language or have anything introduced,' she said.

But she expects legislation will surface, and she wants to have at least an information hearing so lawmakers can understand the impacts and hear from both backers and opponents. 'I think we're all in learning mode,' she said. 'When something is this new, that's the legislative model typically. Things take time and we need to be deliberative about such major changes to Minnesota law.'

At a press conference Wednesday, Walz said his basic position on the issue is to legalize and regulate. But he said that should come only after a process of hearings and discussion. 'I trust adults to make adult decisions,' he said of gambling. 'I also recognize that addiction comes in many forms, whether that be alcohol, tobacco or cannabis or sports betting and these can have societal consequences that are pretty devastating.

'If the Legislature chooses to take that up, we're certainly interested in working with them to get it right,' Walz said.

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