14-001002RU Jacksonville Kennel Club, Inc., And Orange Park Kennel Club, Inc. vs. Department Of Business And Professional Regulation, Division Of Pari-Mutuel Wagering Status: Closed DOAH Final Order on Friday, May 2, 2014.

Summary: Letter requiring pari-mutuel reporting companies (totalistators) to provide wagering data by host and guest and individually by separate permitholder reiterated existing rule requirements and was not an unpromulgated rule.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

JACKSONVILLE KENNEL CLUB, INC.,

AND ORANGE PARK KENNEL CLUB,

INC.,

Petitioners,

vs. Case No. 14 - 1002RU

DEPARTMENT OF BUSINESS AND

PROFESSIONAL REGULATION,

DIVISION OF PARI - MUTUEL

WAGERING,

Respondent.

____ ___________________________/

FINAL ORDER

Administrative Law Judge John D. C. Newton, Division of

Administrative Hearings, conducted the final hearing in this case

on April 4, 2014, in Tallahassee, Florida.

APPEARANCES

For Pet itioner: John M. Lockwood, Esquire

The Lockwood Law Firm

Suite 810

106 East College Avenue

Tallahassee, Florida 32301 - 7740

For Respondent: William Nicholson Spicola, Esquire

Department of Business and

Professional Regulation

1940 North Monroe Avenue

Tallahassee, Florida 32399 - 6506

STATEMENT OF THE ISSUE

Are the February 13, 2014, letters of Respondent, Department

of Business and Professional Regulation, Division of Pari - Mutuel

Wagering (Division), requi ring totalisator reports to "identify

the Florida [permitholder] in reports as both host and guest when

applicable ," statements that amount to a rule, as defined in

section 120.52(16), Florida Statutes (2013). 1/

PRELIMINARY STATEMENT

On March 4, 2012, the Jacksonville Kennel Club, Inc. (JKC) ,

and Orange Park Kennel Club, Inc. (OPKC) (collectively

Racetracks), filed a Petition, as permitted by sections

120.54(1)(a) and 120.56(4), seeking a final order determining

that the statements in February 13, 2014, let ters from the

Division constituted an unpromulgated and invalid rule in

violation of section 120.54(1)(a). The Petition also sought

payment of costs and fees. The Division contested the

Racetracks' claims and maintained that they did not have standing

to bring the action.

The undersigned conducted the final hearing in Tallahassee,

Florida, on April 4, 2014. The parties' Joint Exhibits 1

through 6 were accepted into evidence. Matthew Kroetz, chief

operating officer of Jacksonville Greyhound Racing, Inc.

(Jacksonville Greyhound Racing) , testified on behalf of the

Racetracks. Kyle Casey, the Division's chief auditing officer ,

testified on behalf of the Division. The parties requested and

were granted additional time to submit proposed final orders.

They timely submitted the proposed final orders , which have been

considered in the preparation of this Final Order.

FINDING S OF FACT

1. Florida permits and regulates betting on greyhound

racing, 2/ jai alai games, 3/ quarter horse racing, 4/ and harness

racing. 5 /

2. The Division is responsible for administration of

Florida's statutes and rules governing this betting.

3. JKC and OPKC are separate, individually permitted

facilities. Jacksonville Greyhound Racing owns and operates both

the JKC and the OPKC. It i s not, however, a party to this

proceeding.

4. The betting system is a pari - mutuel system. This "means

a system of betting on races or games in which the winners divide

the total amount bet, after deducting management expenses and

taxes, in proportion to the sums they have wagered individually

and with regard to the odds assigned to particular outcomes." 6/

Each race, contest, or game is an "event." 7/

5. The aggregate wagers called "contributions" to

pari - mutuel pools are labeled "handle." § 550.002(13 ), Fla.

Stat.

6. An "intertrack wager" is "a particular form of

pari - mutuel wagering in which wagers are accepted at a permitted,

in - state track, fronton, or pari - mutuel facility on a race or

game transmitted from and performed live at, or simulcast signa l

rebroadcast from another in - state pari - mutuel facility." 8/

7. The JKC offers intertrack wagering at its permitted

facility located in Jacksonville, Florida. It does not offer

live events.

8. The OPKC offers intertrack wagering and wagering on live

eve nts conducted at its permitted facility in Orange Park.

9. The Racetracks are host tracks when they transmit live

greyhound racing to other in - state and out - of - state facilities

for off - track wagers. 9/ They are guest tracks when wagers are

made at their separate permitted locations on pari - mutuel races

or games conducted at third - party facilities. 10/

10. Florida statutes and the Division's rules require

detailed reports from permitholder s to the Division and other

permitholder s, including tables of wagers , pool data, and

winnings. 11/

11. These reports are generated by "totalisators."

12. A totalisator 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." 12/

13. The Division's Form DBPR - PMW - 3570 requires host

permitholder s to report intertrack wagering "handle" by guest on

a monthly basis. The host permitholder s must sign and attest to

the accuracy of the information submitted in the for m. Also ,

Florida Administrative Code Rule 61D - 7.023(2) requires generation

of reports for each pool within each contest to be printed

immediately after the official order of finish is declared.

14. On March 9, 2012, the Division issued a letter to

AmTote International ( "A mTote"), a licensed totalisator company ,

and copied Jacksonville Greyhound Racing, notifying AmTote that

Florida permitholder s and the Division would need a breakdown of

the handle of the Racetracks in order to pay appropriate purses,

taxe s, or other liabilities. It sent a similar letter to other

totalisator companies. This was an effort to be accommodating

and flexible.

15. The letter concluded: "Please continue to provide

handle information broken down by source, which is required by

r ule to all those in the state of Florida who have been users of

that information in the past."

16. The Racetracks rely upon AmTote to provide their

totalisator services. Between March 2012 and March 2014, AmTote

commingled the Racetracks' wagering data in to a single

"community ," reporting all wagering as coming from the OPKC in

order to reduce interface fees paid for the totalisator service.

17. The guest track wagering data and reports exchanged

with the other totalisator companies from the Racetracks sh ow up

on the AmTote settlement files as OPKC. The reports do not

differentiate between wagers made at each of the Racetracks.

Before March 1, 2012, AmTote segregated wagering data as coming

from either JKC or OPKC.

18. During the two years reported by the Racetracks as a

single community, the Racetracks separately provided Florida host

tracks a supplemental report breaking down the sources within the

common community. The Racetracks provided these supplemental

reports -- via email or other means -- to assi st Florida host tracks

with reporting requirements. They did not provide them

simultaneously with the other reports and data. There were

frequently errors that had to be identified and corrected.

19. In an effort to be flexible and work with the

Racetrac ks, the Division tolerated this method of reporting for

two years. But it created problems for both the Division and for

the other permitholders in the state.

20. On February 13, 2014, the Division prepared and issued

correspondence to AmTote, as well as the two other Florida

totalisator companies, announcing that it intended to require

proper reporting of the data required by rule, including reports

of each permitholder.

21. The letter states:

This letter is to address the issue of

proper and complete ide ntification of each

individual permitholder in totalisator

reports.

Rule 61D - 7.024(1), Florida Administrative

Code, requires all Florida pari - mutuel

permitholders to use an electronically

operated totalisator. Rule 61D - 7.023(9),

F.A.C. states in part, ". . . Each report

shall include the permitholder's name

. . .," and Rule 61D - 7.024(4), F.A.C. states

in part, ". . . reports shall be kept

logically separate . . . ." Further, Rule

61D - 7.023(1), F.A.C. states, "The

totalisator licensee shall be responsible

for the correctness of all tote produced

mutual accounting reports. . . ."

In accordance with Florida Administrative

Code, the division requires each

permitholder to be properly and uniquely

identified by totalisator reports provided

to the division and to the permitholders.

In addition, the totalisators are

responsible for the correctness of all tote

produced mutual accounting reports. Reports

provided after February 28, 2014 must

properly identify the Florida Permitholder

in reports as both host and g uest when

applicable. Improper identification of

permitholders will be considered a violation

of the Florida Administrative Code.

22. On March 11, 2014, AmTote began segregating wagering

data from the Racetracks in compliance with the February 13,

2014, letter.

23. The Racetracks will incur additional financial costs if

AmTote ends the reporting of all wagering data as coming from

OPKC for purposes of reports provided to other totalisator

companies licensed in Florida and begins segregating their

wagerin g data by individual permitholder s. These costs stem from

additional interface fees incurred outside the regulatory

jurisdiction of Florida.

24. The only evidence of these costs is the testimony of

Matthew Kroetz, vice - president of Operations for Jacksonv ille

Greyhound Racing. The testimony of Mr. Kroetz about the cost of

the required change is confusing because he mingles assumed costs

for a third closed track as if it were reactivated and

operational.

25. Bayard Raceways is that track. The Racetracks' parent

company owns it. But the likelihood and timing of that

reactivation is speculative. In addition, Bayard is not a party

to this proceeding. Neither is the parent company.

26. Mr. Kroetz' testimony establishes that the current cost

for the two pe titioners is a total of $1,500 per month. He

projects that costs for reporting, as the letter requires, would

be $4,500 per month for the two Petitioners and the track that

may reopen in the future. That testimony is unrebutted and

consistent with his te stimony that the recurring fees for all

three tracks would total over $50,000 annually. It is accepted

as accurate.

27. But the $3,000 increase from $1,500 to $4,500 per month

is not due solely to the reporting requirement. It is also due

to lumping in the non - active track. The evidence does not

support including that track, the opening of which is

speculative.

28. The monthly fee for the two operating tracks is $1,500

divided by two or $750. Subtracting that , as the current cost

for an existing trac k , from the $3,000 increase , lowers the

estimated increase to $2,250. Dividing that by three gives the

increased monthly cost per track, or $750 per track. This

results in the projected annual cost increase for each of the

Racetracks of $9,000.

29. Alt hough Mr. Kroetz testified in summary that the

changes would result in an increased cost of "about a thousand

dollars per month per facility," that testimony is not

persuasive. It is inconsistent with the more detailed testimony

relied upon above and woul d require the improbable and

unsupported conclusion that the monthly increase would be more

than the existing fees.

CONCLUSIONS OF LAW

30. The Division of Administrative Hearings has

jurisdiction over the parties and the subject matter of this

proceedin g pursuant to sections 120.56(4), 120.569 and 120.57(1),

Florida Statutes.

31. In order to prosecute this action the Racetracks must

prove that they are substantially affected by the requirements

imposed on the totalisators by the February 13 letter. They must

establish: " (1) a real and sufficiently immediate injury in

fact; and (2) that the alleged interest is arguably within the

zone of interest to be protected or regulated." Ward v. Bd. of

Trs. of the Int. Impust Fund , 651 So. 2d 1236, 1237 (Fla. 4th

DCA 1995). If a rule has the effect of directly regulating a

person's profession, chances are the person is substantially

affected for purposes of rule challenge standing. Id. See also

Fla. Bd. of Med. v. Fla. Acad. of Cosmetic Surgery, Inc. , 808

So . 2 d 243, 250 (Fla. 1st DCA 2002). Standing must be determined

solely by the impact upon the Racetracks.

32. If the rule directly regulates a party's behavior or

limits its rights, it will cause injury in fact to the party.

Reiff v. N.E. Fla. State Hos p. , 710 So. 2d 1030 (Fla. 1st DCA

1998); Coal. of Mental Health Professions , 546 So. 2d 27 (Fla.

1st DCA 1989); Prof'l Firefighters v. Dep't of HRS , 396 So. 2d

1194 (Fla. 1st DCA 1981).

33. The requirements articulated by the Division's

February 1 3 letter i mpose a significant financial burden upon the

Racetracks , which must pay for preparation of the reports. The

record contains no evidence that would support a finding that

annual additional costs of $9,000 per year throughout the

existence of a business is not a substantial burden. In

addition, although the letter is directed to the totalisator

companies, it substantially affects the Racetracks since they are

the entities that must pay for the creation and distribution of

the totalisator reports.

34. An "unpromulgated rule challenge" presents a narrow and

limited issue. That issue is whether an agency has by

declaration or action established a statement of general

applicability that is a "rule," as defined in section 120.52(16),

without going through th e required public rulemaking process

required by section 120.54. The validity of the agency's

statement is not an issue decided in an "unpromulgated rule

challenge." The Petitioners bear the burden of establishing by a

preponderance of the evidence that the challenged agency

statements are unpromulgated rules. See Bravo Basic Material

Co., Inc. v. Dep't of Transp. , 602 So. 2d 632 (Fla. 2d DCA 1992);

Fla. Dep't of Transp. v. J.W.C. Co. , 396 So. 2d 778 (Fla. 1st DCA

1981).

35. The Racetracks argue that th e terms of the February 13,

2014, letter amount to an unpromulgated rule. The Division argues

that the letter merely requires compliance with existing rules.

36. Section 120.52(16) defines rule, with exceptions that

do not apply here, as:

"Rule" means ea ch agency statement of

general applicability that implements,

interprets, or prescribes law or policy or

describes the procedure or practice

requirements of an agency and includes any

form which imposes any requirement or

solicits any information not speci fically

required by statute or by an existing rule.

The term also includes the amendment or

repeal of a rule.

37. The question is , does the Division's letter implement,

interpret, or prescribe law or policy ? Rules are:

"[T]hose statements which are in tended by

their own effect to create rights, or to

require compliance, or otherwise to have the

direct and consistent effect of law."

Agency for Health Care Admin. v. Custom

Mobility , 995 So. 2d 984, 986 (Fla. 1st DCA

2008)(quoting McDonald v. Dep't of Ba nking &

Fin . , 346 So. 2d 569, 581 (Fla. 1st DCA

1977). If the effect of an agency statement

is to create certain rights or adversely

affect other rights, it is a rule. Dep't of

Admin. v. Harvey , 356 So. 2d 323, 325 (Fla.

1st DCA 1977).

Coventry First, L LC v. Ofc. of Ins. Reg. , 38 So. 3d 200, 203

(Fla. 1st DCA 2010).

38. The Coventry opinion emphasizes that the effect of the

sta tement is a consideration in answering the question. If the

effect is to create certain rights or adversely affect other

right s, the statement is a rule. Id. at 204.

39. The requirements of the February 13 letter do not

create certain rights or adversely affect other rights. They

recite requirements of existing rules and announce the

termination of unsuccessful efforts to acco mmodate the Racetracks

while still obtaining the data and reports required by law.

40. The letter merely requires compliance with the rules

that it cites.

41. Florida Administrative Code Rule 61D - 7.023 provides:

(1) The totalisator licensee shall be

res ponsible for the correctness of all tote

produced mutuel accounting reports. The

Mutuels Manager shall be responsible for the

correctness of the non - totalisator mutuel

department accounting reports.

* * *

(9) All the above - indicated totalisator

rep orts shall be printed at the pari - mutuel

facility serving as a totalisator hub. In

addition, each totalisator company shall

provide electronic downloads of wagering

data compatible with the division's

centralized database. Each report shall

include the p ermitholder's name, date of

report, and time of generation. The

totalisator operator shall provide to the

division hub personnel a copy of each

totalisator report produced pursuant to

this rule immediately upon printing.

(e mphasis added ) .

42. Rule 61D - 7.024(1) provides:

(1) All permitholders under the

jurisdiction of the division are required to

use electronically operated totalisators

located at a site approved by the division.

* * *

(4) Each totalisator system shall be

programmed to record, cl assify, accumulate

wagering data, automatically determine

winning priorities, perform calculations and

provide reports. For intertrack wagering

purposes, the intertrack wagering data and

related accounting reports shall be kept

logically separate by host. (emphasis

added ) .

43. The reports the Racetracks had been supplying

represented wagers as coming only from the permitholder OPKC.

They were inaccurate. Mr. Kroetz conceded that AmTote does not

differentiate where the wagers are coming from and that t he

Racetracks send reports separate from the AmTote totalisator

reports to accurately identify where the wagers originate.

Consequently, all the February 13 letter did was require the end

of the inaccurate reports and compliance with the existing rules.

O RDER

Based on the foregoing Findings of Fact and Conclusions of

Law, it is ORDERED that the Division's February 13, 2014, letters

to AmTote International, Sportech Racing LLC, and United Tote

Company are not statements that meet the definition of a rule

th at has not been adopted pursuant to section 120.54(1).

DONE AND ORDERED this 30th day of May , 2014 , in Tallahassee,

Leon County, Florida.

S

JOHN D. C. NEWTON, II

Administrative Law Judge

Division of Administrative Hearing s

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 30th day of May , 2014 .

ENDNOTE S

1/ All ref erences to Florida Statutes are to the 2013

codification, unless otherwise noted.

2/ "'Racing greyhound' means a greyhound that is or was used,

or is being bred, raised or trained to be used, in racing at a

pari - mutuel facility and is registered with the National

Greyhound Association." § 550.002(29), Fla. Stat.

3/ Jai alai is "a ball game of Spanish origin played on a court

with three walls." § 550.002(18), Fla. Stat.

4/ "'Quarter horse' means a breed of horse developed in the

western United States which is capable of high speed for a short

distance and used in quarter horse racing registered with the

American Quarter Horse Association." § 550.002(28), Fla. Stat.

5/ "'Harness racing' means a type of horseracing which is limited

to standard bred h orses using a pacing or trotting gait in which

each horse pulls a two - wheeled cart called a sulky, guided by a

driver." § 550.002(14), Fla. Stat.

6/ § 550.002(22), Fla. Stat.

7/ § 550.002(8), Fla. Stat.

8/ § 550.002(17), Fla. Stat.

9/ § 550.002(1 6), Fla. Stat.

10/ § 550.002(12), Fla. Stat.

11/ Fla. Admin. Code R. 61D - 7.023 and 61D - 7.024

12/ § 550.002(36), Fla. Stat.

13/ § 550.002(13), Fla. Stat.

COPIES FURNISHED:

Ken Lawson, Secretary

Department of Business and

Professional Regulatio n

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399 - 0792

Liz Cloud, Program Administrator

Administrative Code

Department of State

R.A. Gray Building, Suite 101

Tallahassee, Florida 32399

(eServed)

Ken Plante, Coordinator

Joint Admini strative Procedures

Committee

Room 680, Pepper Building

111 West Madison Street

Tallahassee, Florida 32399

(eServed)

Leon M. Biegalski, Director

Division of Pari - Mutuel Wagering

Department of Business and

Professional Regulation

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399 - 0792

(eServed)

J. Layne Smith, General Counsel

Department of Business and

Professional Regulation

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399 - 0792

(eServed)

William Nicholson Sp icola, Esquire

Department of Business and

Professional Regulation

1940 North Monroe Avenue

Tallahassee, Florida 32399 - 6506

John M. Lockwood, Esquire

The Lockwood Law Firm

Suite 810

106 East College Avenue

Tallahassee, Florida 32301 - 7740

NOTICE OF R IGHT 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 administrative appeal with the agency clerk of the

Division of Administrative Hearings within 30 days of rendition

of the order to be reviewed, and a copy of the notice,

accompanied by any filing fees prescribed b y law, with the clerk

of the District Court of Appeal in the appellate district where

the agency maintains its headquarters or where a party resides or

as otherwise provided by law.