Opinion
No. C3-94-1864.
April 4, 1995.
Kevin P. Staunton, Popham, Haik, Schnobrich Kaufman, Ltd., Minneapolis, for relator VFW Post.
Hubert H. Humphrey, III, Minn. Atty. Gen., John Garry, Asst. Atty. Gen., St. Paul, for respondent Minn. Gambling Control Bd.
OPINION
Relator Hibbing VFW Post 8510 sought certiorari review of a Minnesota Gambling Control Board order that revoked relator's lawful gambling license and imposed additional sanctions. The Gambling Control Board specifically found that relator's willful violation of several statutes and rules governing organizations licensed to conduct lawful gambling warranted revocation of the license. We affirm.
FACTS
Since July 1985, relator Hibbing VFW Post 8510 ("Post") has been licensed by the Minnesota Gambling Control Board ("Board") to conduct lawful gambling. John Shock, a member of the Post, became its gambling manager in 1985. For approximately two years, Shock and a member of the Post's auxiliary who had some bookkeeping experience prepared the Post's monthly gambling tax returns.
The Post was required to report its gross receipts from gambling, the amounts paid as prizes, and the amounts spent for other allowable expenses. The Post's net profit from gambling was calculated by subtracting the prize amounts and the other allowable expenses from gross receipts. The net profit was available to the Post to make lawful purpose expenditures, which included charitable contributions and certain other expenditures.
Deducting lawful purpose expenditures from net profit left a profit figure. This profit figure was carried over from one month to the next and, at any point in time, the profit carryover should have equalled the total amount of cash in the Post's gambling bank accounts. Any difference between the Post's reported profit and the amount in its gambling bank accounts is referred to as a "profit carryover variance."
The Post began developing a profit carryover variance in September 1985, two months after it was initially licensed by the Board. Between 1985 and 1988, the Post consistently spent more out of its gambling account than it reported on its gambling tax returns as allowable expenses and lawful purpose expenditures. The Post's profit carryover variance grew to more than $15,000 in 1985, more than $36,000 in 1986, and more than $83,000 in 1987.
In 1987 or 1988, the Post hired an accountant, Tom Teasick, to prepare the monthly reports. Shock and Teasick discussed the outstanding profit carryover variance. Shock also discussed the variance with the executive director of the Board. The executive director told Shock to have Teasick discuss the variance with a Board staff member. Apparently, however, no steps were taken to reconcile the variance.
By the end of 1988, the profit carryover variance had increased to $196,841.56. By September 1991, when Teasick left his accountant position with the Post, the variance had increased to $220,336. The Post hired a new accountant, Jack Pusateri, in October 1991. As of February 29, 1992, the Post's profit carryover variance was $229,533.
In March 1992, the profit carryover variance was eliminated when the Post submitted a gambling tax return listing "Board-approved expenditures" of $228,899. This amount included $2,900 for the Post's building mortgage. The Post claimed that the remaining amount, $225,999, was for expenditures incurred and approved by the Board prior to 1988. The Post, however, could not produce checks or other records documenting the expenditures because, in August 1989, many of the Post's gambling records were destroyed when a sewer backup flooded the basement where the records were kept.
In February 1992, the Board conducted a compliance review of the Post's gambling operations. The review revealed a number of violations of gambling statutes and Board rules. As a result, the Board filed a Statement of Charges and a subsequent Amended Statement of Charges against the Post. The statement of charges included allegations that the Post had failed to properly reconcile its profit carryover variance and had conducted gambling at sites in Chisholm and Hibbing after the lawful gambling licenses for those sites had expired.
An Administrative Law Judge (ALJ) conducted a contested case hearing and received evidence from the Post and the Board. The ALJ concluded that the Post's failure to reconcile its profit carryover variance was not a violation of law and, if it was a violation, it was not willful. The ALJ also specifically found that the Post willfully continued its gambling operations at the Chisholm and Hibbing sites after expiration of its licenses. The ALJ concluded that grounds existed to take disciplinary action against the Post's lawful gambling licenses, including the revocation or suspension of the licenses. The ALJ recommended that the Board take disciplinary action.
The Board adopted most of the ALJ's findings and conclusions. In addition to finding that the Post's continuation of unlicensed gambling operations at its Chisholm and Hibbing sites was willful, justifying revocation of the Post's license, the Board also found that the Post's failure to reconcile its profit carryover variance was a willful violation of Minnesota's gambling laws and rules. The Board ordered the Post's license revoked. The Board also ordered the Post to pay a civil penalty of $5,500 and to reimburse $225,999 to its gambling bank account.
ISSUES
1. Did the Board err by concluding that the Post violated Minnesota's gambling laws by failing to reconcile its profit carryover variance?
2 Did the Board err by finding that the Post's failure to reconcile its profit carryover variance was willful?
3. Did the Board abuse its discretion by revoking the Post's license to conduct lawful gambling?
4. Did the Board abuse its discretion by ordering the Post to reimburse its gambling account by the amount of the profit carryover variance?
ANALYSIS
1. Since 1984, Minnesota gambling statutes have provided:
A licensed organization must report to the board and to its membership monthly on its gross receipts, expenses, profits, and expenditure of profits from lawful gambling.
Minn.Stat. § 349.19, subd. 5 (1984). Effective March 1, 1992, the legislature added the following provision to the above statute:
The report must include a reconciliation of the organization's profit carryover with its cash balance on hand.
1991 Minn. Laws ch. 336, art. 2, §§ 29, 54(f).
In its proceedings, the Board focused on the Post's profit carryover variance that developed from September 1985 through June 1988. The Post argues that because this profit carryover variance accrued before the reconciliation requirement became effective on March 1, 1992, applying the reconciliation requirement to the 1988 profit carryover variance constitutes an impermissible retroactive application of the reconciliation requirement. See Minn.Stat. § 645.21 (1992) ("No law shall be construed to be retroactive unless clearly and manifestly so intended by the legislature.") We disagree.
A retrospective law relates back to a previous transaction and gives it some legal effect different from what it had under the law when it occurred.
Baron v. Lens Crafters, Inc., 514 N.W.2d 305, 307 (Minn.App. 1994). The reconciliation requirement was simply a reporting requirement. It required only that monthly reports made after March 1, 1992 "include a reconciliation of the organization's profit carryover with its cash balance on hand." Minn.Stat. § 349.19, subd. 5. (Supp. 1991). The reconciliation requirement did not affect reports made prior to March 1, 1992.
Although the profit carryover variance at issue accrued between 1985 and 1988, it remained on the Post's books on March 1, 1992 when the reconciliation requirement became effective. The reconciliation requirement did not give any legal effect to any transaction that occurred before March 1, 1992; it only required that additional information about a current profit carryover variance be reported.
The Board did not retrospectively apply the reconciliation requirement when it concluded that the Post's March 1992 reports did not contain the required profit carryover reconciliations. The requirement was applied only to the March 1992 reports, which were prepared after March 1, 1992, the effective date of the reconciliation requirement.
Between 1986 and 1989, Minn.Stat. § 349.19, subd. 6 permitted the Board to require an organization licensed to conduct lawful gambling to retain its required monthly reports and other records for at least two years for inspection by the Board. In 1989, the statute was amended to require an organization to keep its records for at least three and one-half years for inspection. 1989 Minn. Laws 1st Spec.Sess. ch. 1, art. 13, § 11. The Post argues that at the time the reconciliation requirement became effective in March 1992, the Post was not required to retain records and reports from more than three and one-half years earlier. Therefore, the Post concludes, requiring it to resurrect records that it was not required to retain in order to reconcile its 1988 profit carryover variance is patently unfair because it converts the lawful disposal of records more than three and one-half years old into unlawful conduct.
The Post misconstrues the Board's decision. The Board did not determine that the Post violated its statutory duty to retain records for three and one-half years. There is no indication in the Board's findings of fact, conclusions of law and order that the Board's decision was in any way based upon the Post's failure to retain records. The Board concluded that:
The March 1992 adjustment made to zero out the profit carryover variance by reporting extra Board-approved expenditures of $228,899 was not a reconciliation of the organization's profit carryover to its cash balance on hand because it failed to adequately explain the reasons for the adjustment and was based upon an inaccurate assumption that the profit carryover variance was largely due to not including Board-approved expenditures on prior gambling tax returns.
Instead of including a reconciliation of its profit carryover variance in its March 1992 reports to its membership and the Board, the Post reported Board-approved expenditures in an amount that eliminated the variance. The Post, however, could not substantiate the expenditures it reported. The Board did not conclude merely that the Post's records were inadequate to allow the Post to reconcile its 1988 profit carryover variance. The Board concluded that the purported reconciliation was not a reconciliation at all because it was based only on an assumption about past reporting errors.
Having chosen to deal with the reconciliation requirement by simply reporting expenditures in the amount necessary to eliminate the profit carryover variance, the Post cannot now complain that it is patently unfair to require it to complete a reconciliation that it lacks the records to complete. The reports actually made by the Post were not based on its records and the inadequacy of the reports was not the result of inadequate records.
2. The Board has authority to revoke an organization's gambling license for "a willful violation of law or board rule." Minn.Stat. § 349.163, subd. 2a (1992). In In re the Lawful Gambling License of Henry Youth Hockey Ass'n, License No. 02795, this court concluded that for purposes of Minnesota's gambling laws, the Board properly defined "willful" as "a disregard for governing statutes and an indifference to their requirements, or a careless disregard of statutory requirements." 511 N.W.2d 452, 456 (Minn.App. 1944), aff'd as modified (Minn. Apr. 22, 1994) (unrelated issue modified). Applying this definition, the Board was correct in concluding that the Post "willfully" failed to reconcile the profit carryover variance.
The Board found that, when required to reconcile its profit carryover variance, the Post simply reported extra Board-approved expenditures in an amount that eliminated the variance. The Post was required to report a reconciliation of its reported profit carryover with its actual account balance. By instead reporting expenditures that may or may not have been made, the Post demonstrated its indifference to the reporting requirement.
3. Even if we disagreed with the Board's conclusion that the Post willfully failed to reconcile the profit carryover variance, there is further justification for revoking the Post's lawful gambling license. As the Board concluded:
The fact that the violations were so numerous and that they were continuing in nature, combined with the fact that some of the violations were intentional, leads the Board to the conclusion that the Post is simply not capable of operating in a heavily regulated industry such as the gambling area. If there had been no finding of willful violations, the Board would still order a lengthy suspension. However, here, in addition to the numerous other violations, several willful violations were committed. Therefore the Board finds that revocation is necessary to preserve the integrity of lawful gambling. The Board also specifically finds that even if the Post did not violate Minn.Stat. § 349.19, subd. 5 and/or Minn.R. 7860.0150, subpt. 2D * * * the willful conduct of gambling without a license is sufficiently serious to warrant revocation of [the Post's] license.
This court may not interfere with the Board's imposition of a sanction absent a clear abuse of discretion. In re Distributor's License of Minn. Tipboard Co., 453 N.W.2d 567, 569 (Minn.App. 1990), pet. for rev. denied (Minn. May 30, 1990). In light of the Post's willful operation of two sites without licenses, the Board did not abuse its discretion by revoking the Post's lawful gambling license.
4. The Board also ordered the Post to reimburse $225,999 to its gambling account. Again, the clear abuse of discretion standard is applicable when reviewing the Board's imposition of penalties or sanctions. Id. The Post never submitted proof that the $225,999 profit carryover variance was the result of failing to report lawful expenses or expenditures. As the Board stated:
It is not at all clear what those unreported expenditures were for. * * * It is possible * * * that the 1988 [profit carryover variance] was due in large part to unreported expenses. * * * It is just as possible that the money was going in somebody's pocket.
The Post may only use gambling receipts to pay for prizes, allowable expenses, or lawful expenditures. Because the Post could not establish that it spent the $225,999 for one of these permitted purposes, the Board did not abuse its discretion by requiring the Post to reimburse its gambling account for the full amount of the variance.
DECISION
The Board did not apply Minn.Stat. § 349.19, subd. 5 (Supp. 1991) retroactively. The Post willfully violated Minn.Stat. § 349.19, subd. 5. The Board did not abuse its discretion by revoking the Post's license to conduct lawful gambling or by requiring the Post to reimburse $225,999 to its gambling account.
Affirmed.