04-003026RP Calder Race Course, Inc. vs. Department Of Business And Professional Regulation, Division Of Pari-Mutuel Wagering Status: Closed DOAH Final Order on Wednesday, February 2, 2005.

Summary: Proposed rules prohibiting out tickets over 30 days old from being cashed at patron-operated machines are vaild exercises of delegated legislative authority.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CALDER RACE COURSE, INC., )

)

Petitioner, )

)

vs. ) Case No. 04 - 3026RP

)

DEPARTMENT OF BUSINESS AND )

PROFESSIONAL REGULATION, )

DIVISION OF PARI - MUTUEL )

WAGERING, )

)

Respondent. )

)

FINAL ORDER

Pursuant to notice, a final hearing was held in this case

on October 15, 2004, in Tallahassee, Florida, before Susan B.

Harrell, 1 a designated Administrative Law Judge of the Division

of Administrative Hear ings.

APPEARANCES

For Petitioner: Wilbur E. Brewton, Esquire

Tana Duden Storey, Esquire

Roetzel & Andress, LPA

225 South Adams Street, Suite 250

Tallahassee, Florida 32301

For Respondent: Joseph M. Helton, Jr., Esquire

Ralf E. Michels, Esquire

Department of Business and

Professional Regulation

Northwood Centre, Suite 60

1940 North Mo nroe Street

Tallahassee, Florida 32399 - 2202

STATEMENT OF THE ISSUES

Whether proposed rules 61D - 7.021(5)(f) and 61D - 7.021(5)(g)

are invalid exercises of legislative delegated authority

pursuant to Subsection 120.52(8), Florida Statutes ( 2004), 2 and,

if so, whether Petitioner is entitled to an award of costs and

attorney's fees pursuant to Subsection 120.595(2), Florida

Statutes.

PRELIMINARY STATEMENT

On August 26, 2004, Petitioner, Calder Race Course, Inc.

(Calder), filed a Petition for A dministrative Hearing,

challenging the validity of proposed rule 61D - 7.021 of

Respondent, Department of Business and Professional Regulation,

Division of Pari - Mutuel Wagering (Department). Calder filed a

Motion for Leave to Amend Petition for Administrati ve Hearing on

September 8, 2004. The motion was granted, and the Amended

Petition for Administrative Hearing was deemed filed on

September 10, 2004.

Calder filed a Motion for Official Recognition, requesting

that official recognition be taken of Chapter 5 50, Florida

Statutes (2003), and Florida Administrative Code Rule

Chapter 61D - 7. The motion was granted.

The parties entered into a Joint Prehearing Stipulation, in

which they stipulated to certain facts and issues of law

contained in Sections E and F, r espectively, of the Joint

Prehearing Stipulation. Those facts and agreed issues of law

have been incorporated in this Final Order.

At the final hearing the parties submitted Joint Exhibits 1

through 5, which were admitted in evidence. Calder called James

Hakemoller and Dian Stoess as its witnesses and submitted

Petitioner's Exhibits 1, 3, 3A, and 4, which were admitted in

evidence. The Department did not call any witnesses, and

submitted Respondent's Exhibits 1 through 3, which were admitted

in evidence.

The Transcript was filed on November 15, 2004. The parties

agreed to file their proposed final orders within ten days of

the filing of the Transcript. On November 15, 2004, the

Department filed an Agreed Motion for Extension to File Proposed

Orders, req uesting the time for filing proposed orders be

extended to November 30, 2004. The request was granted. The

parties timely filed their proposed orders.

FINDINGS OF FACT

1. Calder is a Florida corporation and a pari - mutuel

permitholder permitted and licen sed by the Department pursuant

to Chapter 550, Florida Statutes.

2. Calder seeks to challenge proposed amendments to

Florida Administrative Code Rule 61D - 7.021. Specifically,

Calder challenges Subsection (5)(f), as noticed in the Florida

Administrative W eekly , Volume 30, Number 32, August 6, 2004, and

Subsection (5)(g), as noticed in the Florida Administrative

Weekly , Volume 30, Number 21, May 21, 2004. 3 The challenged

amendments shall be referred to as the "Proposed Rules." The

Proposed Rules provide:

(f) For tickets cashed more than 30 days

after the purchase of the ticket, the ticket

may not be cashed at any type of patron -

operated machine or terminal. The

totalisator system must be configured to

instruct patrons on how to cash the ticket.

(g) The totalisator system must have the

ability to identify such tickets and

indicate to a teller that the ticket falls

within this category.

3. Calder is a licensed and permitted pari - mutuel facility

which sells tickets and uses totalisator machines, and the

Proposed Rules would govern the operation of such facility. The

Proposed Rules have the effect of directly regulating the

operation of Calder's pari - mutuel facility, and, as such, Calder

is substantially affected by the Proposed Rules. The parties

h ave stipulated that Calder "may properly challenge both

Proposed Rules 61D - 7.021(5)(f) and 61D - 7.021(5)(g)."

4. A pari - mutuel ticket evidences participation in a

pari - mutuel pool. A winning or refundable pari - mutuel ticket

belongs to the purchaser and m ay be claimed by the purchaser for

a period of one year after the date the pari - mutuel ticket was

issued. An "outs" or "outs ticket" is a winning or refundable

pari - mutuel ticket which is not redeemed. If a ticket remains

unclaimed, uncashed, or abandone d after one year from the date

of issuance, such uncashed ticket escheats to the state unless

the ticket was for a live race held by a thoroughbred

permitholder such as Calder, in which case the funds are

retained by the permitholder conducting the race.

5 . A totalisator machine is "the computer system used to

accumulate wagers, record sales, calculate payoffs, and display

wagering data on a display device that is located at a pari -

mutuel facility." § 550.002(36), Fla. Stat.

6. The Department was prompte d to begin the rulemaking

process for the Proposed Rules by two major cases involving

fraud, one Florida case and one national case. The Florida case

involved two totalisator employees named Dubinsky and Thompson,

who allegedly accessed outs ticket inform ation in the

totalisator's central computer system, counterfeited outs

tickets based on the information, and cashed the tickets at

self - service machines at two pari - mutuel wagering facilities.

The fraudulent conduct involved approximately $13,000. In the

Florida case the fraudulent tickets were cashed several months

after the tickets were said to have been issued. The fraud came

to light when the ticketholder who held the true ticket

attempted to cash the ticket, but could not because the

fraudulent tick et had been cashed.

7. The national case also involved a totalisator employee

who cashed fraudulent outs tickets. In the national case, the

fraudulent tickets were cashed less than 30 days after the date

the tickets were purportedly issued.

8. The purp ose of the Proposed Rules is to deter the

cashing of fraudulent tickets. The Department received comments

from AmTote International, a totalisator company, at the rule

workshop held during the rulemaking process and received written

comments submitted by AmTote International after the workshop,

indicating that the majority of tickets are cashed within six to

nine days after the date of issuance. The older a ticket gets

the less likely it becomes that the ticket will be cashed, and

the less likely that it becomes that the cashing of a fraudulent

ticket would be revealed by the true owner attempting to cash

the ticket.

9. Staff of the Department felt that by requiring that

outs tickets older than 30 days be cashed by a live person, a

thief would be deterr ed because he would be dealing with a

person rather than a machine. The only thing that the self -

service machine requires to redeem a ticket is a bar code, so it

would be possible to submit a ticket containing nothing but the

bar code and receive a vouche r which could be submitted to a

teller for money. 4 If the fraudulent ticket looks different in

anyway from a valid ticket, a teller may be able to spot the

difference and question the transaction.

10. Calder argues that the way to deter the fraud which

has occurred is to stop totalisator employees from being able to

print fraudulent tickets. However, the Department is also

concerned about computer hackers potentially getting into the

computer system which contains the outs tickets numbers and

copying t he bar code which could be submitted to a self - service

machine. By regulating the method of cashing outs tickets, the

Department is attempting to deter fraud by totalisator employees

and others who may be able to access outs tickets information

which coul d be used in producing counterfeit tickets.

11. During the rule making process, the Department held a

workshop, received written comments from the public, and held a

hearing to receive comments from the public after the Proposed

Rules were first noticed. The Department considered the

comments it received and modified the Proposed Rules as noticed

in the Notice of Change published on August 6, 2004, to

accommodate some of the comments.

12. Calder did not submit a good faith, written proposal

for a lower cost regulatory alternative within 21 days after the

notice of the Proposed Rules was published in the Florida

Administrative Weekly on May 21, 2004, or after the Notice of

Change was published.

CONCLUSIONS OF LAW

13. The Division of Administrative Hearin gs has

jurisdiction over the parties to and the subject matter of this

proceeding. §§ 120.56(1) and 120.56(2), Fla. Stat.

14. Calder has challenged the validity of the Proposed

Rules and has the burden of going forward and stating its

objections to the p roposed rules. § 120.56(2)(a), Fla.

Stat. Calder alleges that the Proposed Rules are invalid

exercises of delegated legislative authority pursuant to

Subsection 120.52(8), Florida Statutes, in that the Department

exceeded its grant of rulemaking author ity; that the Proposed

Rules enlarge, modify, or contravene the laws implemented; and

that the Proposed Rules are arbitrary and capricious. The

Department has the burden to prove by a preponderance of the

evidence that the Proposed Rules are not an invali d delegation

of legislative authority as to the objections raised.

§ 120.56(2)(a), Fla. Stat.

15. Subsection 120.52(8), Florida Statutes, provides that

a rule is an invalid exercise of delegated legislative authority

if the agency promulgating the rule h as exceeded its grant of

rulemaking authority and further provides:

A grant of rulemaking authority is necessary

but not sufficient to allow an agency to

adopt a rule; a specific law to be

implemented is also required. An agency may

adopt only rules that implement or interpret

the specific powers and duties generated by

the enabling statute. No agency shall have

the authority to adopt a rule only because

it is reasonably related to the purpose of

the enabling legislation and is not

arbitrary and capriciou s or is within the

agency's class of powers and duties, nor

shall an agency have the authority to

implement statutory provisions setting forth

general legislative intent or policy.

Statutory language granting rulemaking

authority or generally describing t he powers

and functions of an agency shall be

construed to extend no further than

implementing or interpreting the specific

powers and duties conferred by the same

statute.

16. In Southwest Florida Water Management District v. Save

the Manatee Club, Inc. , 773 So. 2d 594, (Fla. 1st DCA 2000), the

court discussed the statutory requirement that rules must

implement or interpret specific powers and duties granted by the

enabling statute.

In the absence of a special statutory

definition, we may assume that the word

"specific" was used according to the

ordinary dictionary definition. The

ordinary meaning of the term "specific" is

"limiting or limited; specifying or

specified; precise, definite, [or]

explicit." "Specific" is used as an

adjective in the 1999 version of section

120.52(8) to modify the phrase "powers and

duties." In the context of the entire

sentence, it is clear that the authority to

adopt an administrative rule must be based

on an explicit power or duty identified in

the enabling statute. Ot herwise, the rule

is not a valid exercise of delegated

legislative authority. . . . [T]he term

"specific" was not used in the 1999 version

of the statute as a synonym for the term

"detailed." . . . The new law gives the

agencies authority to "implement or

interpret" specific powers and duties

contained in the enabling statute. A rule

that is used to implement or carry out a

directive will necessarily contain language

more detailed than that used in the

directive itself. Likewise, the use of the

term "int erpret" suggests that a rule will

be more detailed than the applicable

enabling statute. There would be no need

for interpretation if all of the details

were contained in the statute itself.

It follows that the authority for an

administrative rule is n ot a matter of

degree. The question is whether the statute

contains a specific grant of legislative

authority for the rule, not whether the

grant of authority is specific enough.

Either the enabling statute authorizes the

rule at issue or it does not. . . [T]his

question is one that must be determined on a

case - by - case basis. (citations omitted)

Id. at 599.

17. The Proposed Rules list Subsections 550.025(3), (7),

550.155(1), and 550.495(4), (5), Florida Statutes, as the

specific authority for the Prop osed Rules and Sections 550.251,

550.155, 550.2633, and 550.495, Florida Statutes, as the laws

being implemented.

18. Subsections 550.025(3) and (7), Florida Statutes,

provide:

(3) The division shall adopt reasonable

rules for the control, supervision, and

direction of all applicants, permittees, and

licensees and for the holding, conducting

and operating of all racetracks, race meets,

and races held in this state. Such rules

must be uniform in their application and

effect, and the duty of exercising t his

control and power is made mandatory upon the

division.

* * *

(7) The division may oversee the making of,

and distribution from all pari - mutuel pools.

19. Subsection 550.155(1), Florida Statutes, provides:

(1) Wagering on the results of a

hor serace, dograce, or on the scores or

points of a jai alai game and the sale of

tickets or other evidences showing an

interest in or a contribution to a pari -

mutuel pool are allowed within the enclosure

of any pari - mutuel facility licensed and

conducted und er this chapter but are not

allowed elsewhere in this state, must be

supervised by the division, and are subject

to such reasonable rules that the division

prescribes.

20. Subsection 550.495(4), Florida Statutes, provides that

"[e]ach totalisator company shall conduct operations in

accordance with rules adopted by the division, in such form,

content, and frequency as the division by rule determines."

21. The Proposed Rules deal with the method of cashing

tickets more than 30 days after their purchase and the

requirements of totalisator systems to identify such tickets.

The Department has the authority to adopt reasonable rules that

govern the regulation of racetracks, that govern wagering and

the sale of tickets, and that control, supervise, and direct a ll

permittees and licensees. Specifically, the Department is given

the authority to oversee the distribution from all pari - mutuel

pools.

22. Subsection 550.155(3), Florida Statutes, requires that

a pari - mutuel pool be redistributed to the contributors, i.e.

the ticketholders, after the takeouts and breaks are deducted.

The permitholders, having control of the money in the pari -

mutuel pool pursuant to Subsection 550.2633, Florida Statutes,

are the entities which redistribute the pari - mutuel pool to the

c ontributors. The cashing of a ticket is a distribution of a

pari - mutuel fund. It is done at the racetracks, either through

a machine furnished by the permitholders or by personnel hired

by the permitholders. Thus, the Department has the authority to

ado pt rules which deal with the cashing of tickets by

permitholders at race tracks. Subsection 550.495(4), Florida

Statutes, authorizes the Department to promulgate rules

governing the operations of the totalisator companies relating

to the cashing of ticket s.

23. Calder alleges that the Proposed Rules are invalid

because they exceed, enlarge, or modify the laws implemented.

Calder argues that the Department cannot prohibit tickets

that are over 30 days old from being cashed at a

patron - operated machine o r terminal because the only

statutory time frames connected with cashing tickets are

contained in Sections 550.1645 and 550.2633, Florida Statutes.

Those statutes provide that tickets which are not cashed within

a year of the purchase are no longer valid , and the money or

property represented by the ticket will escheat to the state or

will be paid to others as set forth in Section 550.2633, Florida

Statutes. "Uncashed tickets and breaks on live racing conducted

by thoroughbred permitholders shall be reta ined by the

permitholder conducting the live race." § 550.2633(3), Fla.

Stat.

24. The statutes cited by Calder do not deal with the

methods through which tickets may be cashed, only with the

period for which a ticket is valid. It does not prohibit the

D epartment from requiring certain tickets to be cashed by a live

person rather than by a patron - operated device. The Proposed

Rules do not enlarge, exceed, or modify the laws implemented.

25. Calder claims that the Proposed Rules are arbitrary

and caprici ous. "A rule is arbitrary if it is not supported by

logic or the necessary facts; a rule is capricious if it is

adopted without thought or reason or is irrational . . . ."

§ 120.52(8)(e), Fla. Stat.; Florida Board of Medicine v. Florida

Academy of Cosmet ic Surgery, Inc. , 808 So. 2d 243 (Fla. 1st DCA

2002); Board of Trustees of the Internal Improvement Trust Fund

v. Levy , 656 So. 2d 1359 (Fla. 1st DCA 1995).

26. The Proposed Rules are neither arbitrary nor

capricious. The purpose of the Proposed Rules is to deter

fraud, and it cannot be said that the Proposed Rules will not

deter fraud. Requiring a thief to confront a live teller

without knowing whether the valid ticket has been cashed could

deter fraud. It is not necessary that the method sought by the

Department to deter fraud be the only method which could be used

nor does it matter that there may be methods which others feel

may be more effective. If the record supports the rule, the

rule cannot be arbitrary or capricious. See General Telephone

Co. of Florida v. Florida Public Service Commission , 446 So. 2d

1063, 1067 (Fla. 1984).

27. The Department held a workshop and a public hearing

and received written and verbal comments from the public,

including a totalisator company, and representatives of pari -

mutuel facilities. The comments were considered by the

Department, so it cannot be said that the Proposed Rules were

made without thought. The fraud case which occurred in Florida

and prompted the promulgation of the Proposed Rules occurred

several months after the valid tickets had been issued, and

self - service machines were used to redeem the tickets. Thus, it

cannot be said that the Proposed Rules were promulgated without

reason or are irrational.

28. The Department has established that the Prop osed Rules

are valid exercises of delegated legislative authority.

FINAL ORDER

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

ORDERED that the Amended Petition for Administrative

Hearing is DISMISSED.

DONE AND ORDERED this 2nd day of February, 2005, in

Tallahassee, Leon County, Florida.

S

SUSAN B. HARRELL

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 4 88 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 2nd day of February, 2005.

ENDNOTES

1/ At the time of the final hearing, Administrative Law Judge

Susan B. Ha rrell was named Susan B. Kirkland.

2/ Unless otherwise indicated all references in this Final

Order are to the Florida Statutes shall be to the 2004 version.

3/ Subsections 5(f) and (g) were originally noticed in the

Administrative Law Weekly , Volume 3 0, Number 21, May 21, 2004.

A Notice of Changes was published in the Administrative Law

Weekly , Volume 30, Number 32, August 6, 2004, in which changes

were made to Subsection (5)(f), but not to Subsection (5)(g).

Calder filed its petition challenging the proposed amendments on

August 26, 2004. The Department has not raised the issue of

whether Calder's challenge to Subsection (5)(g) is timely since

the subsection was not challenged when it was noticed on May 21,

2004, and the subsection was not changed b y the Notice of

Changes published on August 6, 2004. Thus, the issue of

timeliness will not be addressed.

4/ The self - service machines do not actually give cash for the

tickets, but do give vouchers which may be redeemed by a teller

for cash. The vouch er that is given would be the same for

fraudulent tickets as well as valid tickets. Thus, the teller

could not tell if the voucher were for a fraudulent ticket or a

valid ticket.

COPIES FURNISHED :

Wilbur E. Brewton, Esquire

Tana Duden Storey, Esquire

Roetzel & Andress, LPA

225 South Adams Street, Suite 250

Tallahassee, Florida 32301

Joseph M. Helton, Jr., Esquire

Ralf E. Michels, Esquire

Department of Business and

Professional Regulation

Northwood Centre, Suite 60

1940 North Monroe Street

Tallahas see, Florida 32399 - 2202

Leon Biegalski, General Counsel

Department of Business and

Professional Regulation

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399 - 2202

Diane Carr, Secretary

Department of Business and

Professional Regul ation

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399 - 0792

David J. Roberts, Director

Division of Pari - Mutuel Wagering

Department of Business and

Professional Regulation

Northwood Centre

1940 North Monroe Street

Tallahassee, Flori da 32399 - 0792

Scott Boyd

Executive Director and General Counsel

Joint Administrative Procedures Committee

120 Holland Building

Tallahassee, Florida 32399 - 1300

Liz Cloud, Program Administrator

Administrative Code

Department of State

R. A. Gray Building, Suite 101

Tallahassee, Florida 32399

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is

entitled to judicial review pursuant to Section 120.68, Florida

Statutes. Review proceedings are governed by the Florida Rules

of Appellate Procedure. Such proceedings are commenced by

filing the original Notice of Appeal with the agency clerk of

the Division of Administrative Hearings and a copy, accompanied

by filing fees prescribed by law, with the District Court of

Appe al, First District, or with the District Court of Appeal in

the Appellate District where the party resides. The notice of

appeal must be filed within 30 days of rendition of the order to

be reviewed.