15-007012RP Jacksonville Kennel Club, Inc, vs. Department Of Business And Professional Regulation, Division Of Pari-Mutuel Wagering Status: Closed DOAH Final Order on Friday, August 26, 2016.

Summary: The proposed repeal of rules 61D-11.001(17) and 61D-11.002(5) dealing with "designated player" games, was an invalid exercise of delegated legislative authority.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DANIA ENTERTAINMENT CENTER,

LLC,

Petitioner,

vs. Case No. 15 - 7010RP

DEPARTMENT OF BUSINESS AND

PROFESSIONAL REGULATION,

DIVISION OF PARI - MUTUEL

WAGERING,

Respondent.

/

DAYTONA BEACH KENNEL CLUB,

INC. ,

Petitioner,

vs. Case No. 15 - 7011RP

DEPARTMENT OF BUSINESS AND

PROFESSIONAL REGULATION,

DIVISION OF PARI - MUTUEL

WAGERING,

Respondent.

/

JACKSONVILLE KENNEL CLUB, INC.,

Petitioner,

vs. Case No. 15 - 7012RP

DEPARTMENT OF BUSINESS AND

PROFESSIONAL REGULATION,

DIVISION OF PARI - MUTUEL

WAGERING,

Respondent.

/

MELBOURNE GREYHOUND PARK, LLC ,

Petitioner,

vs. Case No. 15 - 7013RP

DEPARTMENT OF BUSINESS AND

PROFESSIONAL REGULATION,

DIVISION OF PARI - MUT UEL

WAGERING,

Respondent.

/

BONITA - FORT MYERS CORPORATION,

Petitioner,

vs. Case No. 15 - 7014RP

DEPARTMENT OF BUSINESS AND

PROFESSIONAL REGULATION,

DIVISION OF PARI - MUTUEL

WAGERING,

Respondent.

/

INVESTMENT CORPORATION OF PALM

BEACH ,

Petitioner,

vs. Case No. 15 - 7015RP

DEPARTMENT OF BUSINESS AND

PROFESSIONAL REGULATION,

DIVISION OF PARI - MUTUEL

WAGERING,

Respondent.

/

WEST FLAGLER ASSOCIATES, LTD.,

Petitioner,

vs. Case No. 15 - 7016RP

DEPARTMENT OF BUSINESS AND

PROFESSIONAL REGULATION,

DIVISION OF PARI - MUTUEL

WAGERING,

Respondent.

/

TAMPA BAY DOWNS, INC. ; AND TBDG

ACQUISITION, LLC , d/b/a TGT

POKER AND RACEBOOK ,

Petitioner s ,

vs. Case No. 15 - 7022RP

DEPART MENT OF BUSINESS AND

PROFESSIONAL REGULATION,

DIVISION OF PARI - MUTUEL

WAGERING,

Respondent.

/

FINAL ORDER

A final hearing was conducted in this case on July 19,

2016 , in Tallahassee, Florida, before E. Ga ry Early,

Administrative Law J udge with the Division of Administrative

Hearings.

APPEARANCES

For Petitioner s Dania Entertainment Center, LLC; Daytona

Beach Kennel Club, Inc. ; Jacksonville Kennel Club,

Inc.; Melbourne Greyhound Park, LLC ; Bonita - Fort Myer s

Corporation; Investment Corporation of Palm Beach ; and

West Flagler Associates, Ltd. :

John M. Lockwood, Esq uire

Thomas J. Morton, Esq uire

Kala K. Shankle, Esquire

The Lockwood Law Firm

106 East College Avenue, Suite 810

Tallahassee, Florida 32301

Fo r Petitioner s Tampa Bay Downs, Inc. ; and TBDG

Acquisition, LLC , d/b/a TGT Poker and Racebook :

Christopher M. Kise, Esq uire

James A. McKee, Esq uire

Joshua M. Hawkes, Esq uire

Foley & Lardner LLP

106 East College Avenue, Suite 900

Tallahassee, Florida 32301

For Respondent: William D. Hall, Esquire

Louis Trombetta, Esquire

Caitlin R. Mawn, Esquire

Department of Business and

Professional Regulation

Capital Commerce Center

2601 Blair Stone Road

Tallahassee, Florida 323 99 - 2202

STATE MENT OF THE ISSUES

The issues for disposition in this case are w hether

proposed rules 61D - 11.001 (17) and 61D - 11.002 (5) , Florida

Administrative Code, which consist of the repeal of said rules,

constitute an invalid exercise of delegated legislative

authori ty as defined in section 120.52(8), Florida Statutes ; and

whether the Department of Business and Professional Regu l a tion,

Division of Pari - M utuel Wagering Ós ( Respondent ) , failure to

prepare a statement of estimated regulatory costs constituted a

material f ailure to follow the applicable rulemaking procedures

or requirements set forth in chapter 120 .

PRELIMINARY STATEMENT

On December 1 4 , 2015, Dania Entertainment Center, LLC;

Daytona Beach Kennel Club, Inc.; Jacksonville Kennel Club, Inc.;

Melbourne Greyho und Park, LLC; Bonita - Fort Myers Corp.;

Investment Corp. of Palm Beach ; West Flagler Associated, Ltd.;

Tampa Bay Downs Inc. ; and TBDG Acquisition, LLC , d/b/a TGT Poker

& Racebook (collectively ÐPetitionersÑ) , filed petitions to

challenge the validity of th e proposed repeal of rules 61D -

11.001 (17) an d 61D - 11.002 (5) , and the proposed adoption of rule

61D - 11.005(9). 1/ The petitions were consolidated on December 18,

2015 , and set for final hearing on January 13 and 14, 2016 .

On December 23, 2015, the parties filed a joint motion to

place the consolidated cases in abeyance and , as grounds

therefore , indicated that Respondent was preparing a notice of

change to revise the proposed rules. The motion was granted and

the final hearing was continued and the case ab ated .

On January 15, 2016, Respondent published a Notice of

Change/Withdrawal that withdrew proposed rule 61D - 11.005(9).

The proposed repeal of rules 61D - 11.001(17) and 61D - 11.002(5)

was unchanged. On February 4, 2016, Petitioners file d amended

p etitio ns challenging the proposed repeal of rules 61D -

11.001(17) and 61D - 11.002(5) . The case was thereafter set for

final hearing on April 13 and 14, 2016.

On February 10, 2016, Respondent filed motions to dismiss

each of the a mended p etitions, arguing that th e proposed repeal

of rules 61D - 11.001(17) and 61D - 11.002(5) Ð will [not] have the

effect of rule or [] prohibit any activity .Ñ Responses were

filed and, after due consideration, the motions were denied.

The final hearing was again continued f or good cause shown

and rescheduled for July 19 and 20, 2016.

On July 15 , 201 6 , the parties filed their Joint Prehearing

Stipulation, and concurrently filed a Joint Motion for Oral

Argument in Lieu of Evidentiary Hearing , by which the parties

agreed to the authentici ty and admissibility of all exhibits

listed in the Joint Prehearing Stipulation as constituting the

evidentiary record . Accordingly, the parties advised that an

evidentiary hearing was no longer necessary and requested that

the final hearing be limited to oral argument on the legal

issues framed by the J oint P rehearing S tipulation. That motion

was granted, and oral argument was held on July 19, 2016.

In the Joint Prehearing Stipulation, the legal issues were

framed by Petitioners as:

Specifically, the Pr oposed Rules are an

invalid exercise of delegated legislative

authority under section 120.52(8), Florida

Statutes, because: (1) the Division has

materially failed to follow the applicable

rulemaking procedures or requirements set

forth in chapter 120, Flo rida Statu t es

; (2) the Division

has exceeded its grant of rulemaking

authority [section 120.52(8)( b ; (3) the

Proposed Rules, as interpreted by the

Division, enlarge, modify or contravene the

specific provisions of the law implement ed

[section 120.52(8)( c ; (4) the Proposed

Rules, as interpreted by the Division,

impose regulatory costs which could be

reduced by the adoption of less costly

a lternatives that substantially accomplish

the statutory objectives [section

120.52(8)( f ; and (5) the Proposed Rules,

as interpreted by the Division, are

unconstitutional. [ 2 / ]

The issue of the constitutionality of the proposed rules being

beyond the jurisdiction of the Divisio n of Administrative

Hearings is not determined in this Final Order , tho ugh the

record of this proceeding may form the basis for the issue to be

raised on appeal . Key Haven Assoc . Enter s. , Inc. v. Bd. of Trs.

of the Int. Impust Fund , 427 So. 2d 153 (Fla. 1982) .

At the final hearing, the parties presented legal argument.

Joint Exhibit 1 was received in evidence, consisting of the

deposition testimony of Jonathan Zachem , RespondentÓs Division

Director . PetitionersÓ Exhibits 1 through 4 4 were received in

evidence, which included the deposition testimony of Joe

Dillmore, Re spondentÓs Deputy Division Director ; Lisa Helms,

RespondentÓs Cardroom Coordinator ; Steve Kogan, RespondentÓs

C hief of Investigations ; Chuck Taylor , an investigator with

Respondent; and Ken Lawson , Secretary of the Department of

Business and Professional R egulation . RespondentÓs Exhibits 1

through 3 were received in evidence, which included the

deposition testimony of Jamie Shelton, President of Jacksonville

Kennel Club . The deposition testimony has been given weight as

though the witnesses offered live t estimony . The stipulated

facts have been accepted and considered in the preparation of

this Final Order.

On July 28, 2016, Petitioners filed a Supplement to Motion

for Official Recognition requesting that the undersigned take

o fficial recognition of the State of FloridaÓs Response to

Motion for Summary Judgment filed in the United States District

Court , Northern District of Florida in case number 4:15 - CV -

00516 - RH - CAS . No objection was filed. The motion is granted.

The parties did not order a transcript . The parties were

to file post - hearing submittals by August 3, 2016. Upon motion,

that date was extended to August 5, 2016. Each party timely

filed Proposed Final Orders.

References to statutes are to Florida Statutes (2015),

unless otherwise noted.

FINDINGS OF FACT

1. Respondent is the state agency charged with regulating

pa ri - mutuel wagering pursuant to c hapter 550, Florida Statutes,

and cardrooms pursuant to section 849.086, Florida Statutes.

2. Each Petitioner currently holds a permit and li cense

under chapter 550 to conduct pari - mutuel wagering and a license

under section 849.086 to conduct cardroom operations.

Petitioners offer designated player games at their respective

cardrooms .

3 . The rules proposed for repeal , rules 61D - 11.001(17) and

61D - 11.002(5) , relate to the play of designated player games .

4 . Rule 61D - 11.001(17) provides that ÐÒ[d]esignated playerÓ

means the player identified by the button as the player in the

dealer position.Ñ

5 . Rule 61D - 11.002(5) provides that :

Card ga mes that utilize a designated player

that covers other players Ó potential wagers

shall be governed by the cardroom operator Ó s

house rules. The house rules shall:

(a) Establish uniform requirements to be a

designated player;

(b) Ensure that the dealer button rotates

around the table in a clockwise fashion on a

hand to hand basis to provide each player

desiring to be the designated player an equal

opportunity to participate as the designated

player; and

(c) Not require the designated player to

cover al l potential wagers.

6 . Both rules were adopted on July 21, 2014. Both rules

list sections 550.0251(12), and 849.086(4) and (11) as rule making

authority , and section 849.086 as the law implemented .

Designated Player Games

7 . A designated player game i s a subset of traditional

poker games in which a designated player plays his or her hand

against each other player at the table , instead of all players

competing against each other. The term Ðdesignated player gameÑ

is used synonymously with Ðplayer banke d games.Ñ 3 / However, a

designated player is not a cardroom operator.

8 . In traditional ÐpoolÑ poker games, each player bets into

a central pool, with the winning hand (s) among all of the players

collecting from the pool of bets , minus the cardroom rake.

9 . In designated player games, each player at the table

makes an individual bet, and compares their hand against the

designated playerÓs hand. If the playerÓs hand is better than

the designated playerÓs hand, then the designated player pays the

playe r from the designated playerÓs stack of chips . If the

designated playerÓs hand is better than the playerÓs hand, then

the designated player collects the playerÓs wager. At an eight -

seat table, it is as though there are seven separate Ð player

versus desig nated player Ñ games.

10 . Designated player games were first played at the Ebro

(Washington County Kennel Club) cardroom in 2011. The game ,

known as Ðdouble hand poker,Ñ was demonstrated to Respondent, and

subsequently approved for play. Though the inte rnal control that

describes the rules of game play was not offered in evidence, a

preponderance of the evidence demonstrates that the game used a

designated player. After RespondentÓs approval of EbroÓs double

hand poker, Respondent entered an order resci nding its approval

due to concerns that the use of a designated player resulted in

the establishment of a banking game. That decision was

challenged, and subsequently withdrawn, with the result being

that ÐEbro may immediately resume play of Double Hand P oker as

approved by the division.Ñ

11 . In 2012, the Palm Beach Kennel Club cardroom began

offering Ðtree card pokerÑ with a designated player. Although

tree card poker had been approved by Respondent, the designated

player element had not. Thus, since the game was not being

played in accordance with the approved internal control , it was

unauthorized.

12 . Respondent investigated the playing of tree card poker

at Palm Beach Kennel Club . A video demonstration was provided

that showed two hands of t ree card poker being played with a

designated player. The video depicted a single designated player

play ing his hand against each other player at the table , and

paying or col lecting wagers based on each individual hand. After

having reviewed the demonstr ation video, Respondent ultimately

determined that the use of a designated player did not violate

the prohibition against banking games as defined.

The Adoption of the Designated Player Rules

13 . As requests for approval of internal controls for games

us ing designated players became more common, Respondent

determined that it should adopt a rule to establish the

parameters under which designated player games would be

authorized.

14 . On December 16, 2013, after having taken public comment

at a series of rulemaking workshops, Respondent published

proposed rule 61D - 11.002(5) which provided as follows :

61D - 11.002 Cardroom Games.

* * *

(5) Card games that utilize a designated

player that covers other playersÓ wagers

shall:

(a) Allow for only one designa ted player

during any single hand;

(b) Not require the designated player to

cover all wagers that could be made by the

other players in the game;

(c) Not allow other players to cover wagers

to achieve winnings that the designated

player could have won had he or she covered

the same wagers;

(d) Not allow or require a player to buy in

for a different amount than any other player

in the game in order to participate as the

designated player; and

(e) Rotate a button or other object to

designate which pla yer is the designated

player. The button or other object shall

rotate clockwise around the table to give

each player the opportunity to participate as

the designated player.

15 . On February 14, 2014, a challenge to the proposed rule

was filed that obje cted to restrictions on the manner in which

designated player games could be conducted . The rule challenge

hearing was continued, and the case placed in abeyance pending

negotiations between the parties.

16 . On March 14, 2014, Respondent filed a Notice of Change

to the proposed rule 61D - 11.002, which added the following

provisions to proposed rule 61D - 11.002 :

(6) The designated player shall:

(a) Cover the table minimum for each

participating player; and

(b) Pay each player an amount above the

table minimum equal to their pro rata share

of the pot in the event the designated player

cannot cover all wagers.

17 . A public hearing on the changes to the proposed rule

was held on May 8, 2014 . As to the designated player provisions

of the proposed rule, Respondent received the following comment:

[I] f we could modify this . . . taking the

existing paragraph 5 and come up with three

new criteria, one being uniform requirements

for a designated player included within the

house rules; allowing for the dealer button

to rotate on a hand - by - hand basis for

qualified designated players; also, not

requiring the designated player to cover all

potential wagers, but nonetheless allowing

the house rules to set a designated minimum

buy - in amount or just a chip count.

I t hink if we had those particular

parameters, we would allow the preservation

of this game to continue in its current

fashion . . . .

And . . . weÓre going to avoid [] any

argument that the department has somehow

created a banked card game, because the

bigg est thing here is that weÓre not

requiring that the designated player meet all

the theoretical payouts of the game.

18 . On May 19, 2014, written comments were submitted on

behalf of several pari - mutuel facilities . Those comments

included proposed langu age that is identical to the rule that was

ultimately adopted, and included the following :

Multiple jurisdictions have determined a key

element to banked card games is the house

requiring all wagers be covered. We propose

this language to distinguish betw een lawful

games and impermissible banked games.

19 . O n June 9, 2014, Respondent filed a Notice of Change

t hat adopted the industryÓs proposed language, and changed

proposed rule 61D - 11.002 to its present form.

20 . On June 13, 2014, the challenge to proposed rule

61D - 11.002 (5) was voluntarily dismissed, and the case was closed.

On July 21, 2014, rule 61D - 11.002(5) became effective.

21 . There can be little doubt that Respondent understood

that it was, by its adoption of rule 61D - 11.002(5), re cognizing

player banked games in which a designated player plays his or her

hand against each other player at the table. The rule is

substantial evidence that, as of the date of adoption, Respondent

had determin ed that designated player games did not viol ate the

prohibition against Ðbanking gamesÑ as that term is defined in

section 849.086.

Internal Controls

22 . Over the course of several years, beginning generally

in 2011 and extending well into 2015 , Respondent was presented

with internal controls fr om cardrooms around the state for

playing designated player games. Internal controls are required

before a particular game may be offered, and describe the rules

of the game and the wagering requirements.

23 . The internal controls submitted by the Jacks onville

Kennel Club ; the Daytona Beach Kennel Club ; the West Flagler

Associates / Magic City Poker Room ; and the Naples/Ft. Myers

Greyhound Track Cardroom , described games in which designated

players played their hand against those of the other players at

th e table, and paid and collected wagers from the designated

playerÓs chip stack based on the rank of the designated playerÓs

hand against the individual players. The games described did not

involve pooled wagers, and clearly described player banked game s .

24 . Respondent approved the internal controls for each of

the four facilities.

25 . The process of approving internal controls occasionally

included the submission of video demonstrations of the games

described in the internal controls for which appro val was being

sought. Approval of internal controls was never done without the

review and assent of RespondentÓs legal department or the

division director.

26 . With regard to the rules of the designated player games

that underwent review and approval by Respondent, Ðall of them

are about the same, few differences.Ñ

27 . From 2011 through mid - 2015, Respondent approved

internal controls for playing one - card poker, two - card poker,

three - card poker, Florida Hold ÒEm, and Pai Gow poker using

designated playe rs at numerous cardroom facilities.

28 . A preponderance of the evidence establishes that

Respondent was aware of the fact that, for at least several

facilities, ÐeligibleÑ designated players were required to meet

minimum financial criteria, which ranged from a minimum of

$20,000 in chips, up to $100,000 in chips. In the case of the

Daytona Beach Kennel Club cardroom, internal controls called for

a designated player to submit an application, agree to a

background check, and submit a deposit of $100,000. Respondent

approved those internal controls .

DBPR Training

29 . In August 2015, Mr. Taylor was invited by the Bestbet

cardroom in Jacksonville 4 / to participate in a training session

it was offering for its employees. Mr. Taylor is an investigator

for R espondent, and visited the pari - mutuel facilities at least

once per week. Mr. Taylor was invited by the facility to get an

overview of how the cardroom games that had been approved by

Respondent , including designated player games, were played.

30 . The games that were the subject of the training were

substantially similar to those depicted in the April 2012

training video, and those he had observed during his weekly

inspections . The designated player games for which training was

provided had been appro ved by Respondent.

31 . In September 2015, training in designated player games

was provided at RespondentÓs Tallahassee offices to several of

its employees. Mr. Taylor perceived the training Ðas an overview

to give us an idea of what we are going to s ee .Ñ Neither

Mr. Taylor nor any other participant in the training offered any

suggestion that the training was being provided in anticipation

of a shift in RespondentÓs practice of approving the internal

controls for designated player games.

Current Rulemak ing

32 . On September 23, 2014, Respondent published a Notice of

Development of Rulemaking . The notice cited 15 of the 30

subsections of chapter 61D - 11 as being the subject areas affected

by the notice , and provided that Ð[t] he purpose and effect of the

proposed rulemaking will be to address issues discovered in the

implementation and practical application of cardroom rules

adopted on July 21, 2014. Ñ T here is nothing in the notice to

suggest that Respondent had modified its position on designated

player games, and its continued approval of institutional

controls approving such games is strong evidence that it had not.

33 . On August 4 , 2015, Respondent published a Notice of

Meeting/Workshop Hearing for a rul e workshop to be held on

August 18, 2015. The Notice listed each rule in chapter 61D - 11

as the Ðgeneral subject matter to be considered , Ñ including those

related to games of dominos. Respondent asserted that it had

Ð posted a version of amended cardroom rules that included the

[repeal of rule 61D - 11.0 05] on its website ,Ñ though such was not

published, nor did Respondent provide a record citation in

support of its assertion .

34 . On October 29, 2015, Respondent published its p ropo sed

amendments to chapter 61D - 11.

35 . R ule 61D - 11.001 (17) , which define s the term Ðdesignated

playerÑ as Ð the player identified by the button as the player in

the dealer position ,Ñ was proposed for repeal .

36 . R ule 61D - 11.002 (5) , as set forth above, which had

established the standards for designated player games, was

propos ed for repeal.

37 . R ule 61D - 11.005 was proposed for amendment to add

subsection (9), which provided that Ð[p] layer banked games,

established by the house, are prohibited. Ñ

38 . On December 2, 2015, the Division held a public hearing

on the proposed am endments. During the public hearing,

Mr. Zachem made it clear that the intent of the proposed

amendments was to change the DivisionÓs long - standing and

consistently applied construction of section 849.086 as allowing

designated player games to one of proh ibiting designated player

games , and in that regard stated that :

The rules pertaining to designated player

games are now going to be correlated with the

statute that is the prohibition against

designated player games. The statute does

not allow designated player games. There has

to be a specific authorization for a type of

game in statute, and there is none in 849.086

pertaining to designated player games . . . .

When some of these definitions in other areas

were created, I donÓt think that the concept

o f what these games could even become was

fathomed by the division .

Given the process by which internal controls for designated

player games were approved by Respondent, including written

descriptions and video demonstrations of play, the suggestion

that R espondent could not ÐfathomÑ the effect of its rules and

decisions is not accepted.

39 . On December 11, 2015, Petitioners individually filed

petitions challenging the validity of the proposed rules. The

cases were consolidated and ultimately placed into abeyance

pending efforts to resolve the issues in dispute .

Agency Action Concurrent with Rulemaking

4 0 . After the December 2015 public hearing, and prior to

the ad option of any amendments to chapter 61D - 11, Respondent

filed a series of administrative co mplaints against cardrooms

offering designated player games. Those administrative

complaints were very broadly worded, and reflected RespondentÓs

newly - developed position that designated player games constituted

Ða banking game or a game not specifically authorized by Section

849.086, Florida Statutes.Ñ In that regard, Mr. Zachem testified

that a cardroom could have been operating in full compliance with

its Respondent - approved internal controls and still have been the

subject of an administrative complai nt. 5/

4 1 . The position of R espondent was made clear by

Mr. ZachemÓs statement that if a card room has an approved

designated player game Ðwhere a banker is using their table,

their dealer, their facility they [the cardroom] are establishing

a bank.Ñ 6 / T hus, there can be little doubt that Respondent now

construes section 849.086 to mean that player banked games

constitute prohibited Ðbanking gamesÑ because, by allowing the

player banked game in its facility, the cardroom ÐestablishesÑ a

bank against which participants play.

4 2 . After the December public hearing, Ms. Helms was

instructed that she was to no longer approve internal controls if

they included provisions regarding designated players. That

blanket instruction came with no conditions. Since th at

instruction, the internal controls for at least one facility have

been disapproved, despite their being Ðabout the sameÑ as

internal controls that had been previously approved for other

facilities.

4 3 . Ms. Helms testified that after the December 2015 rule

hearing, Ðthings kind of turned aroundÑ with regard to

RespondentÓs position on designated player games. She then

rethought her selection of words, stating instead that Ðthings

changed.Ñ Given the totality of the evidence in this case,

Ms. HelmsÓ st atement that the position of Respondent towards

designated player games Ðturned aroundÑ is the more accurate

descriptor.

Notice of Change

4 4 . On January 15, 2016, the Division published a Notice of

Change/Withdrawal of proposed rules. Through the issuan ce of

this notice, the Division withdrew proposed rule 61D - 11.005(9) .

The proposed repeal of rules 61 D - 11.001(17) and 61D - 11.002(5)

remained unchanged . Since that notice of change, t he

preponderance of the evidence demonstrates that Respondent has

stoppe d approving internal controls that propose the offering of

designated player games, and has continued to take action against

facilities that offer designated player games. RespondentÓs

statements and actions , including those made in the course of

this pro ceeding, demonstrate that Respondent intends the repeal

of rules 61D - 11.001(17) and 61D - 11.002(5) , to effectuate the

prohibition of designated player games despite the withdrawal of

proposed rule 61D - 11.005(9) .

Lower Cost Regulatory Alternative

4 5 . When it proposed the subject amendments to rule 61D - 11

on October 29, 2014 , Respondent had not prepared a statement of

estimated regulatory costs. Rather, the notice of proposed rule

provided that :

The agency has determined that this rule

will not have an ad verse impact on small

business or likely increase directly or

indirectly regulatory costs in excess of

$200,000 in the aggregate within one year

after the implementation of the rule. A

SERC has not been prepared by the agency .

The agency has determined t hat the proposed

rule is not expected to require legislative

ratification based on the statement of

estimated regulatory costs or if no SERC is

required, the information expressly relied

upon and described herein: the economic

review conducted by the agen cy. Any person

who wishes to provide information regarding

the statement of estimated regulatory costs,

or to provide a proposal for a lower cost

regulatory alternative must do so in writing

within 21 days of this notice.

46 . On November 19, 2015, in conjunction with the

rulemaking process described above, a number of licensed cardroom

operators, including some of the Petitioners, timely submitted a

good faith proposal for a lower cost regulatory alternative

(ÐLCRAÑ) to the proposed amendments to chapt er 61D - 11 that would

have the effect of prohibiting designated player games , citing

not only the creation of rule 61D - 11.005(9), but the repeal of

rule 61D - 11.002(5) . A preponderance of the evidence demonstrates

that t he LCRA indicated that the rule was l ikely to directly or

indirectly increase regulatory costs in excess of $200,000 in the

aggregate within one year after the implementation of the rule.

47 . The LCRA , as described in the letter of transmittal,

also concluded that regulatory costs could be reduced by not

adopting the proposed rule amendments, thus maintaining

RespondentÓs previous long - standing interpretation of section

849.086, and thereby accomplishing the statutory objectives.

48 . Respondent employed no statisticians or economists, and

there was no evidence to suggest that any such persons were

retained to review the LCRA. Though Mr. Zachem did not Ðclaim to

be an expert in statistics, Ñ he felt qualified to conclude that

the LCRA was Ða bit of a challenging representation.Ñ Thus,

R espondent simply concluded, with no explanation or support , that

Ðthe numbers that we received were unreliable.Ñ

49 . Respondent did not prepare a statement of estimated

regulatory costs or otherwise respond to the LCRA .

5 0 . R espondent argues that its a bandonment of proposed rule

61 D - 11.005(9), which was the more explicit expression of its

intent to prohibit designated player games, made the LCRA

inapplicable to the rule as it was proposed for amendment after

the January 15, 2016 , notice of change. That argument is

undercut by the fact that Respondent did not amend its statement

of estimated regulatory costs as a result of the change in the

proposed rule. Moreover , the evidence is overwhelming that

R espondent, by its decision to disapprove internal cont rols that

included designated player games, and its enforcement actions

taken against cardrooms offering designated player games,

specifically intended the amendments repealing the designated

player standards to have the effect of prohibit ing designated

pl ayer games. T hus, despite the elimination of the specific

prohibition on designated player games , there was no substantive

effect of the change. Therefore, the LCRA remained an accurate

expression of P etitionersÓ es t imated regulatory costs of the

propose d rule.

Ultimate Findings

5 1 . Respondent has taken the position that the repeal of

rule 61D - 11.005 (9) was undertaken Ð[f]or clarity with the

industry. Ñ That position is simply untenable . Rather,

Respondent has taken an activity that it previously found to be

legal and authorized and , by repealing the rule and simply being

silent on its effect, determined that activity to be prohibited.

By so doing, Respondent has left it to Ðthe industryÑ to decipher

the meaning and effect of a statute that is, quite o bviously,

ambiguous and in need o f the interpretive guidance that has been

and should be provided by rule .

5 2 . The evidence is conclusive that, by its repeal of rule

61D - 11.002(5), Respondent simply changed its mind as to whether

playing with a designate d player constituted the establishment of

a prohibited banking game . 7 / It previously determined that such

games were lawful under the terms of section 849.086 ; it has now

determined they are not.

5 3 . Though there is substantial evidence to suggest tha t

the reason for the change was related to the renego tiation of the

Seminole Compact, the reason is not important. What is important

is that Respondent has taken divergent views of the statute in a

manner that has substantially affected the interests of

P etitioners. F or Respondent to suggest that its repeal of the

rules is a clarification, a simplification, or a reflection of

the unambiguous terms of the statute, and that Petitioners should

just tailor their actions to the statute without any interpretive

guidance from Respondent , works contrary to the role of

government to provide meaningful and understandable standards for

the regulation of business in Florida. Respondent c annot , with

little more than a wave and well - wishes , expect regulated

businesses to expose themselves to liability through their

actions under a statute that is open to more than one

interpretation , when the a gency itself has found it problematic

to decipher the statute under which it exercises its regulatory

authority.

C ONCLUSIONS OF LAW

5 4 . The Division of Administrative Hearings has

jurisdiction of the subject matter and the parties to this

proceeding. §§ 120.569 and 120.57(1), Fla. Stat. (2015).

5 5 . Section 120.56(1)(a) provides that Ðany person

substantially affected by . . . a proposed rule may seek an

administrative determination of the invalidity of the rule on

the ground that the rule is an invalid exercise of delegated

legislative authority.Ñ

Standing

56 . Petitioners operate pari - mutuel facilities , and each

has bee n licensed to operate a cardroom. Petitioners have been

approved to offer designated player games at their cardrooms.

If allowed to become effective, Petitioners would be affected by

RespondentÓs stated purpose for the proposed rule , i.e. to

prohibit pla y er banked games . Therefore, each Petitioner is

substantially affected in a manner and degree sufficient to

confer administrative standing in this case. See, e.g. , Abbott

Labs. v. Mylan Pharms. , 15 So. 3d 642, 651 n.2 (Fla. 1st DCA

2009); Dep't of Prof'1 Reg., Bd. of Dentistry v. Fla. Dental

Hygienist Ass'n , 612 So. 2d 646, 651 (Fla. 1st DCA 1993); see

also Cole Vision Corp. v. Dep't of Bus. & Prof'l Reg. ,

688 So. 2d 404, 407 (Fla. 1st DCA 1997 ) ( recognizing that Ða

less demanding standard applies in a ru le challenge proceeding

than in an action at law, and that the standard differs from the

Òsubstantial interestÓ standard of a licensure proceeding.Ñ).

If the rule directly regulates a partyÓs behavior or limits its

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

Firefighters v. DepÓt of H RS , 396 So. 2d 1194 (Fla. 1st DCA

1981).

57 . Petitioners have demonstrated their standing in this

proceeding.

Rule Repeal

58 . Section 120.52(16) defines a rule, with exceptions

that do not apply here, as:

ÐR uleÑ means each 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 informat ion

not specifically required by statute or by an

existing rule. The term also includes the

amendment or repeal of a rule.

59 . A repeal of a rule is subject to challenge, so long as

the repeal satisfies the definition of a rule that it is Ðan

agency st atement of general applicability that implements,

interprets, or prescribes law or policy or describes the

organization, procedure, or practice requirements of an agency .Ñ

FedÓn of Mobile Hom e Owners of Fla., Inc. v. Fl a . Manufactured

Hous. AssÓn, Inc. , 6 83 So. 2d 586, 590 - 91 (Fla. 1st DCA 1996 ) ;

see also Osterback v. Agwunobi , 873 So. 2d 437, 439 (Fla. 1st DCA

2004) ( Ð An agency's repeal of a rule is considered a rule subject

to challenge when it has Ò the effect of creating or implementing

a new rule or po licy. ÓÑ) . The proposed repeal of rules 61D -

11.001(17) and 61D - 11.002(5) ha s the effect of implementing

RespondentÓs new policy with regard to designated player games .

60 . T he policy that Respondent intends to implement by the

rule is clearly a change i n the direction of the agency since it

adopted the designated player rules . The ability of Respondent

to change direction in reaction to what it perceives to be

changed or better understood circumstances is not questioned.

However, eliminating all interp retive rules, leaving regulated

entities to decipher the agencyÓs current policy regarding the

construction of its enabling legislation, is not the appropriate

way to change direction . As stated by the First District Court

of Appeal:

Aside from AHCA's dec ision to reinterpret

the governing statutes, that is, to simply

Ðchange its mind,Ñ there is no good reason

why the agency's abrupt change of

established policy, practice and procedure

should be sanctioned. Without question, an

agency must follow its own r ules, but if

the rule, as it plainly reads, should prove

impractical in operation, the rule can be

amended pursuant to established rulemaking

procedures. However, Ðabsent such

amendment, expedience cannot be permitted

to dictate its terms.Ñ That is, whil e an

administrative agency Ðis not necessarily

bound by its initial construction of a

statute evidenced by the adoption of a

rule,Ñ the agency may implement its changed

interpretation only by Ðvalidly adopting

subsequent rule changes.Ñ The statutory

frame work under which administrative

agencies must operate in this state

provides adequate mechanisms for the

adoption or amendment of rules. See

Section 120.535 and 120.54, Florida

Statutes. To the extent that the results

sought by an agency cannot be accomp lished

by changes in the administrative rules,

interested parties must seek a remedy in

the legislature. (emphasis added) (internal

citations omitted).

Cleve land Clinic Fla. Hosp. v. Ag. for Health Care Admin. ,

679 So. 2d 1237, 1242 - 1243 (Fla. 1st DCA 199 6) .

Burden of Proof

6 1 . Section 120.56(2)(a) was amended by chapter 2016 - 116,

Laws of Florida, and altered the PetitionersÓ burden from that

of Ðgoing forwardÑ to Ðprov[ing] by a preponderance of the

evidence that the petitioner would be substantially af fected by

the proposed rule.Ñ The 2016 version of s ection 120.56(2)(a)

applies to Petitioners in this case. See Walker & LaBerge, Inc.

v. Halligan , 344 So. 2d 239, 243 (Fla. 1977) (ÐBurden of proof

requirements are procedural in nature . . . [and] could be

abrogated retroactively because Òno one has a vested right in

any given mode of procedure . Ó Ñ) (Internal citations omitted ) ;

see also Shaps v. Provident Life & Accident Ins. Co. , 826 So. 2d

250 , 254 (Fla. 2002) (Ð[G] enerally in Florida the burden of

proo f is a procedural issue .Ñ).

6 2 . Petitioners established that they are substantially

affected by the proposed rule. Upon th at showing by

Petitioners, Respondent Ð has the burden to prove by a

preponderance of the evidence that the proposed rule is not an

invalid exercise of delegated legislative authority as to the

objections raised. Ñ § 120.56(2)( a ), Fla. Stat.

6 3 . Ð A Ò preponderance Ó of the evidence is defined as Ò the

greater weight of the evidence, Ó . . . or evidence that Ò more

likely than not Ó tends to prove a certain proposition. Ñ

(citations omitted) Gross v. Lyons , 763 So. 2d 276, 280 n.1

(Fla. 2000).

6 4 . When a substantially affected person seeks a

determination of the invalidity of a proposed rule pursuant to

section 120.56(2), the proposed rul e is not presumed to be valid

or invalid. § 120.56(2)(c), Fla. Stat.

Rulemaking Standards

6 5 . Section 120.52(8) defines an Ðinvalid exercise of

delegated legislative authority.Ñ As Petitioners have framed

the issues in the Joint Prehearing Stipulation , only sections

120.52(8)( a ), (8)( b ), (8)( c ), and (8)( f ) are at issue in this

proceeding. Those provisions establish that a rule is an

invalid exercise of delegated legislative authority under the

following circumstances:

(8) ÐInvalid exercise of delega ted

legislative authorityÑ means action that

goes beyond the powers, functions, and

duties delegated by the Legislature. A

proposed or existing rule is an invalid

exercise of delegated legislative authority

if any one of the following applies:

(a) The agency has materially failed to

follow the applicable rulemaking procedures

or requirements set forth in this chapter;

(b) The agency has exceeded its grant of

rulemaking authority, citation to which is

required by s. 120.54(3)(a)1.;

(c) The rule enl arges, modifies, or

contravenes the specific provisions of law

implemented, citation to which is required

by s. 120.54(3)(a)1.;

* * *

(f) The rule imposes regulatory costs on

the regulated person, county, or city which

could be reduced by the adoption of less

costly alternatives that substantially

accomplish the statutory objectives.

66 . In addition to the subsections of 120.52(8)

specifically pled, the Ðflush leftÑ paragraph at the end of

section 120.52(8) has been described as Ð a set of general

st andards to be used in determining the validity of a rule in

all cases. Ñ S.W. Fla. Water Mgmt. Dist. v. Save the Manatee

Club, Inc. , 773 So. 2d 594, 597 - 598 (Fla. 1st DCA 2000) . The

Ðflush leftÑ section provides that:

A grant of rulemaking authority is n ecessary

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 granted by

the enabling statute. No agency shall have

authority to adopt a rule only because it is

reasonably related to the purpose of the

enabling legislation and is not arbitrary

and capricious or is within the agencyÓs

class of powers and duties, nor shall an

agency have the authority to implement

st atutory provisions setting forth general

legislative intent or policy. Statutory

language granting rulemaking authority or

generally describing the 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 enabling statute.

Statement of Estimated Regulatory Costs

67 . Section 120.541(1), which governs the preparation and

consideration of statements of estimated regulatory costs,

provides, in pertinent part, that:

(a) Within 21 days after publication of the

notice required under s. 120.54(3)(a), a

substantially affected person may submit to

an agency a good faith written proposal for

a lower cost regulatory alternative to a

proposed rule which substantially

a ccomplishes the objectives of the law being

implemented. The proposal may include the

alternative of not adopting any rule if the

proposal explains how the lower costs and

objectives of the law will be achieved by

not adopting any rule. If such a proposa l

is submitted, the 90 - day period for filing

the rule is extended 21 days. Upon the

submission of the lower cost regulatory

alternative, the agency shall prepare a

statement of estimated regulatory costs as

provided in subsection (2), or shall revise

its prior statement of estimated regulatory

costs, and either adopt the alternative or

provide a statement of the reasons for

rejecting the alternative in favor of the

proposed rule.

(b) If a proposed rule will have an adverse

impact on small business or if the proposed

rule is likely to directly or indirectly

increase regulatory costs in excess of

$200,000 in the aggregate within 1 year

after the implementation of the rule, the

agency shall prepare a statement of

estimated reg ulatory costs as required by

s. 120.54(3)(b).

(c) The agency shall revise a statement of

estimated regulatory costs if any change to

the rule made under s. 120.54(3)(d)

increases the regulatory costs of the rule.

(d) At least 21 days before filing the rule

for adoption, an agency tha t is required to

revise a statement of estimated regulatory

costs shall provide the statement to the

person who submitted the lower cost

regulatory alternative and to the committee

and shall provide notice on the agencyÓs

website that it is available to th e public.

(e) Notwithstanding s. 120.56(1)(c), the

failure of the agency to prepare a statement

of estimated regulatory costs or to respond

to a written lower cost regulatory

alternative as provided in this subsection

is a material failure to follow the

applicable rulemaking procedures or

requirements set forth in this chapter.

68 . Section 120.541(2) provides, in pertinent part, that:

A statement of estimated regulatory costs

shall include:

(a) An economic analysis showing whether

the rule directly o r indirectly:

1. Is likely to have an adverse impact on

economic growth, private sector job creation

or employment, or private sector investment

in excess of $1 million in the aggregate

within 5 years after the implementation of

the rule;

2. Is likely to have an adverse impact on

business competitiveness, including the

ability of persons doing business in the

state to compete with persons doing business

in other states or domestic markets,

productivity , or innovation in excess of

$1 million in the aggr egate within 5 years

after the implementation of the rule; or

3. Is likely to increase regulatory costs,

including any transactional costs, in excess

of $1 mi llion in the aggregate within

5 years after the implementation of the

rule.

69 . Section 120.5 41(3) provides that:

If the adverse impact or regulatory costs of

the rule exceed any of the criteria

established in paragraph (2)(a), the rule

shall be submitted to the President of the

Senate and Speaker of the House of

Representatives no later than 30 d ays prior

to the next regular legislative session, and

the rule may not take effect until it is

ratified by the Legislature.

General Provisions Related to Gambling

7 0 . Gambling in Florida is historically disfavored, to the

extent of criminalizing casino - type gambling. The keeping of

Ðgambling housesÑ is a third - degree felony. § 849.01, Fla.

Stat. Playing or engaging in any game of chance, including

cards, for money or Ðother thing of valueÑ is a second - degree

misdemeanor. § 849.08, Fla. Stat.

7 1 . T he Florida Legislature has established a narrow

exception to these criminal statutes by allowing certain card

games to be played in cardrooms at licensed pari - mutuel

facilities Ð if such game and cardroom operation are conducted

strictly in accordance with the provisions of this section. Ñ

§ 849.086(3), Fla. Stat. ÐThe legislature finds that authorized

games as herein defined are considered to be pari - mutuel style

games and not casino gaming because the participants play

against each other instead of agai nst the house.Ñ § 894.086(1),

Fla. Stat.

7 2 . A n Ðauthorized gameÑ is Ða game or series of games of

poker or dominoes which are played in a non - banking manner.Ñ

§ 849.086(2)(a), Fla. Stat.

7 3 . A Ðbanking gameÑ is a Ðgame in which the house is a

p articipant in the game, taking on players, paying winners, and

collecting from losers or in which the cardroom establishes a

bank against which participants play.Ñ § 849.086(2)(b), Fla.

Stat.

Rulemaking Authority

7 4 . Ð[I]t is well established that the legislature has

broad discretion in regulating and controlling pari - mutuel

wagering and gambling under its police powers.Ñ Div. of Pari -

Mutuel Wagering, Dep't of Bus. Reg. v. Fla. Horse Council, Inc. ,

464 So. 2d 128, 130 (Fla. 1985). Thus, the authority of the

legislature to empower the Division to adopt pari - mutuel rules

to establish standards for cardroom operations and activities is

recognized by the undersigned.

7 5 . Despite the for e going broad grant of authority, the

authority to adopt rules is not without limits. See

St. Petersburg Kennel Club v. DepÓt of Bus. & Prof'l Reg. ,

719 So. 2d 1210 , 1211 (Fla . 2d DCA 1998)(holding that neither

section 550.0251(12) nor section 849.086(4)(a), Florida Statutes

(Supp. 1996) , authorized Respondent to adopt a d efinition of

Ðpoker,Ñ or to approve games based thereon ).

76 . Rule s 61D - 11.001 and 61D - 11.002 list sections

550.0251(12) and 849.086(4) and (11) as the rulemaking

authority .

77 . Section 550.0251(12) provides that:

The division shall have full authority and

power to make, adopt, amend, or repeal rules

relating to cardroom operations, to enforce

and to carry out the provisions of

s. 849.086, and to regulate the authorized

cardroom activities in the state.

78 . Section 849.086(4), e ntitled ÐAuthority of Division,Ñ

provides, in pertinent part, that:

The Division of Pari - mutuel Wagering of the

Department of Business and Professional

Regulation shall administer this section and

regulate the operation of cardrooms under

this section and the rules adopted purs uant

thereto, and is hereby authorized to:

(a) Adopt rules, including, but not limited

to: the issuance of cardroom and employee

licenses for cardroom operations; the

operation of a cardroom; recordkeeping and

reporting requirements; and the collection

o f all fees and taxes imposed by this

section.

(b) Conduct investigations and monitor the

operation of cardrooms and the playing of

authorized games therein.

* * *

(d) Suspend or revoke any license or

permit, after hearing, for any violation of

the pro visions of this section or the

administrative rules adopted pursuant

thereto.

79 . Section 849.086(11) establishes the requirement that

cardroom operators keep and maintain records of cardroom

operations, with Ð[t]he information required in such records

shall be determined by division rule ,Ñ and to report such

records Ð on forms prescribed by the division .Ñ That statutory

section is not applicable to the proposed rules at issue.

8 0 . Petitioners have characterized the dispute in this

case as centering o n Ðthe frequency in which the designated

player button must be rotated around the poker table and offered

to players.Ñ To the contrary, the preponderance of the evidence

demonstrates that the fundamental disagreement is whether the

manner in which the gam es are being played, in which the players

play against a banked designated player rather than against each

other with a pooled pot, constitutes a Ðbanking gameÑ that is

prohibited by section 849.086(12)(a).

The Designated Player Rules

8 1 . The rules prop osed for repeal , rules 61D - 11.001(17)

and 61D - 11.002(5) , relate to the play of designated player

games .

8 2 . Rule 61D - 11.001(17) provides that ÐÒ[d]esignated

playerÓ means the player identified by the button as the player

in the dealer position.Ñ

8 3 . Ru le 61D - 11.002(5) provides that :

Card games that utilize a designated player

that covers other players Ó potential wagers

shall be governed by the cardroom operator Ó s

house rules. The house rules shall:

(a) Establish uniform requirements to be a

designate d player;

(b) Ensure that the dealer button rotates

around the table in a clockwise fashion on a

hand to hand basis to provide each player

desiring to be the designated player an equal

opportunity to participate as the designated

player; and

(c) Not re quire the designated player to

cover all potential wagers.

Internal Control Rules

8 4 . Rule 61D - 11.019, entitled ÐInternal Controls,Ñ 8 / and

last amended on July 21, 2014, provides, in pertinent part,

that:

(1) Initial applications for a cardroom

license shall include a complete set of

written internal controls established in

compliance with Section 849.086, F.S., and

the rules promulgated thereunder .

Subsequent changes to the internal controls

must be submitted to the division for

approval prior to impl ementation, as one

complete set, in a format which will include

underlining additions and striking through

deletions, since the last date of approved

revisions with a footnote of the current

revision date.

(2) Failure of any cardroom operator to

follow t he internal controls once approved

by the division shall be a violation of

these rules.

* * *

(4) The cardroom manager or general manager

shall sign and submit the internal controls

to the division. The internal controls

shall at a minimum contain the following:

* * *

(i) A list of all authorized games offered

for play and a description of the rules of

play and wagering requirements for each

game [ . ]

Invalid Exercise of Delegated Legislative Authority

8 5 . Petitioners have alleged that the propos ed rules at

issue constitute an invalid exercise of delegated legislative

authority pursuant to subsection 120.52 (8)(a), (b), (c),

and (f).

A . 120.52(8)(a) - Respondent m aterial ly fail ed to follow

applicable rulemaking procedures or requirements

86 . When it propose d the subject amendments to chapter

61D - 11, Respondent had not prepared a statement of estimated

regulatory costs , relying on its determination that such was not

required since the amendments would have little economic effect.

87 . On November 19, 2015, Petitioners timely filed a

written LCRA that, on its face, demonstrated that the proposed

rule was likely to have adverse impact in excess of $1 m illion

in the aggregate within five years after the implementation of

the rule . When that LCRA was filed, a statutory obligation was

triggered that required R espondent to prepare a statement of

estimated regulatory costs and either adopt the LCRA or provide

a statement of the reasons for rejecting the alternative in

favor of the proposed rule. § 120.541(1)(a), Fla. Stat.

88 . Respondent did not prepare a statement of estimated

regulatory costs or respond to a written lower cost regulatory

alternative . Other than vague assertions that the numbers

provided to it by Petitioners were Ðunreliabl e,Ñ assertions that

were made without the assistance of qualified economists or

statisticians, Respondent provide d little in support of its

decision.

89 . Section 120.541 (1) (e) provides that:

Notwithstanding s. 120.56(1)(c), the failure

of the agency to prepare a statement of

estimated regulatory costs or to respond to

a written lower cost regulatory alternative

as provided in this subsection is a material

failure to follow the applicable rulemaking

procedures or require ments set forth in this

chapter.

90 . As a result of its failure to comply with section

120.541, Respondent has materially failed to follow the

applicable rulemaking procedures or requirements set forth in

chapter 120.

B . 120.52(8)(b) - Respondent has exceeded its grant of

rulemaking au thority

9 1 . As a legislative function, rulemaking is within the

exclusive authority of the legislature. S .W. Fla. Water Mgmt.

Dist. v. Save the Manatee Club, Inc. , 773 So. 2d at 598. It is

not sufficient that the rule is Ðwithin the agencyÓs powers an d

duties,Ñ there must be a specific grant of rulemaking authority.

Id. at 598 - 99.

9 2 . The opinions in Southwest Florida Water Management

District , supra , and Board of Trustees of the Internal

Improvement Trust Fund v. Day Cruise Association, Inc.,

794 So. 2d 696 (Fla. 1st DCA 2001), recognize that the flush -

left paragraph of section 120.52(8) is applicable to challenges

involving allegations that an agency has exceeded its rulemaking

authority, and is intended to restrict and narrow the scope of

agency rulemaking. As established in Day Cruise :

It is now clear, agencies have rulemaking

authority only where the Legislature has

enacted a specific statute, and authorized

the agency to implement, and then only if

the (proposed) rule implements or interprets

specific powers or duties, as opposed to

improvising in an area that can be said to

fall only generally within some class or

powers or duties the Legislature has

conferred on the agency.

794 So. 2d at 700. Nonetheless, Ð[i]t follows that the

authority f or an administrative rule is not 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 .Ñ S .W. Fla. Water Mgmt. Dist. v.

Save the Mana tee Club, Inc. , 773 So. 2d at 599 .

9 3 . An Ðauthorized gameÑ is Ða game or series of games of

poker or dominoes which are played in a non - banking manner.Ñ

£ 849.086(2)(a), Fla. Stat. A Ðbanking gameÑ is a Ðgame in which

the house is a participant in the game, taking on players, paying

winners, and collecting from losers or in which the cardroom

establishes a bank against which participants play.Ñ

§ 849.086(2)(b), Fla. Stat.

9 4 . Section 849.086(1) provides that Ð authorized games as

her ein defined Ñ have been determined by the Legislature to be

pari - mutuel style games because players play against each other ,

and do not play against the cardroom operator.

9 5 . Respondent has cited section s 550.0251(12) and

849.086(4) and (11) as the rulem aking authority for rules

61D - 11.001 and 61D - 11.002. As set forth above, the authority in

section 849.086(11) regarding recordkeeping and reporting is not

applicable to the issues in this case.

96 . In St. Petersburg Kennel Club v. Dep artment of Bus i ness

and Professional Regulation , 719 So. 2d 1210 , 2011 (Fla. 2d DCA

1998) , the Second District Court of Appeal determined that

neither section 550.0251(12) nor section 849.086(4) Ðstate, for

example, that the Division shall have the authority to make rule s

which set forth the definition of poker .Ñ

97 . S ection 550.0251 has been amended twice since the 1996

version of Florida Statutes cited in St. Petersburg Kennel Club .

Neither of the amendments made changes to the rulemaking

authority in section 550.02 51(12).

98 . S ection 849.086 has been amended eight times s ince the

1996 version of Florida Statutes cited in St. Petersburg Kennel

Club . None of the amendments made changes to the rulemaking

authority in section 849.086(4).

99 . As with the effort in S t. Petersburg Kennel Club , th e

effort to further define, prohibit, or limit activities

authorized by statute , in this case by the repeal of a rule that

authorized and set standards for designated player (i.e. player

banked) games, exceed s RespondentÓs rule making authority.

See also Calder Race Course, Inc. v. DepÓt of Bus. & ProfÓl Reg. ,

Case No. 04 - 2950RX (Fla. DOAH Dec. 21, 2004), affÓd per curiam

DepÓt of Bus. & ProfÓl Reg. v. Calder Race Course, Inc. , 913 So.

2d 601 (Fla. 1st DCA 2005).

10 0 . As set forth herein, the result in this case is

predicated on the fact that Respondent developed a rule that

specifically recognized a particu lar manner of game play as being

allowable and , by repealing that rule, has e stablished a policy

that the same manner of game play is not allowabl e. The effort

to restrict gameplay by the repeal of the rules , and by so doing

to establish what is an Ðauthorized game,Ñ is beyond the

authority conferred under sections 550.0251(12) and 849.086(4).

10 1 . The undersigned fully recognizes the seemingly

incongruous result created by this conclusion, as did Respondent.

See Respond entÓs Proposed Final Order, ¥ 60. ( Ð T hese exact

statutory sections were also cited when the rules were first

promulgated in July 2014 . . . . However, if the Petitioners Ó

position is accepted, then the current version of the rules would

be invalid because those sections were the exact ones cited when

the rule was enacted. Ñ ). That may well be the case. However, no

party has argued that the existing rul es are an invalid exercise

of delegated legislative authority. Thus, the validity of the

existing rules is not before the undersigned . 9/

C . 120.52(8)(c) - The rule enlarges, modifies, or

contravenes the specific provisions of law implemented

10 2 . A n agency is limited in its rulemaking authority to

implementing and interpreting specific laws and may not

promulgate a rule simply because the subject matter of the rule

is within the general scope of its powers and duties. In that

regard, Ð[u]nder Secti on 120.52(8)(c), the test is whether a

(proposed) rule gives effect to a Òspecific law to be

implemented,Ó and whether the (proposed) rule implements or

interprets Òspecific powers and duties.ÓÑ Bd . of Trs. of the

Int. Impust Fund v. Day Cruise Ass'n , 794 So. 2d at 701.

10 3 . Respondent has cited section 849.086 as the law

implemented by rules 61D - 11.001 and 61D - 11.002.

10 4 . The issue is, therefore , whether RespondentÓs

proposed repeal of rule 61D - 11.001(17) and 61D - 11.002(5), which

has the effe ct of establishing a prohibition on designated

player games, implements specific powers and duties established

by section 849.086 .

10 5 . The powers and duties established by section 849.086

do not include the establishment of rules to define the manner

of play or wagering for Ðauthorized games.Ñ 10 /

1 06 . A preponderance of the evidence demonstrates that , b y

its repeal of the rules at issue, Respondent intends to not only

repeal the conditions for implementing authorized designated

player games, but to r epeal the authority for such games

altogether , a restriction on Ðauthorized gamesÑ that is not

apparent from section 849.086.

1 07 . For the reasons set forth herein with regard to

whether the repeal of rules 61D - 11.001(17) and 61D - 11.002(5)

exceed Respo ndentÓs rulemaking authority, and recognizing the

apparent incongruity created thereby, the undersigned similarly

concludes that the repeal of the rules has been undertaken with

the specific intent to define, prohibit, or limit activities

authorized by sta tute , and thus enlarges, modifies, or

contravenes the specific provisions of law implemented .

D . 120.52(8)(f) - The rule imposes regulatory costs on the

regulated person which could be reduced by the adoption

of less costly alternatives that substantiall y

accomplish the statutory objectives

1 08 . Petitioners argue that the proposed repeal is invalid

because Respondent is imposing regulatory costs on Petitioners

that could be reduced through the adoption of less costly

regulatory alternatives that substa ntially achieve the statutory

objectives. The statutory objectives are, generally, Ðto

provide additional entertainment choices for the residents of

and visitors to the state, promote tourism in the state, and

provide additional state revenues.Ñ § 849.08 6(1), Fla. Stat.

1 09 . In support of its argument, Petitioners refer to the

LCRA filed on their behalf. While the existence of the LCRA was

acknowle d ged by all parties, and evidence was sufficient to

establish that it triggered the duties set forth in se ction

120.541, the LCRA itself was not entered in evidence.

11 0 . It was the general ly stated position of Respondent

throughout the proceeding that the repeal of rules 61D -

11.001(17) and 61D - 11.002(5) had no real effect on the ability

of Petitioners to allow designated player games at their

cardrooms (though that position was not supported by the

evidence) . Thus, PetitionersÓ argument that the rule

unnecessarily imposed regulatory costs has some facial merit.

However, g iven that the LCRA was not entere d in evidence, and

given that the proposed repeal is invalid for the independent

grounds set forth herein, it is unnecessary to calculate the

effect of alternatives on the regulatory costs occasioned

thereby.

O RDER

Based upon the foregoing Findings of Fa ct and Conclusions

of Law, it is ORDERED that the proposed repeal of rules 61D -

11.001(17) and 61D - 11.002(5) constitutes an invalid exercise of

delegated legislative authority.

DONE AND ORDERED this 26th day of August , 2016, in

Tallahassee, Leon Count y, Florida.

S

E. GARY EARLY

Administrative Law Judge

Division of Administrative Hearings

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

t hi s 26th day of August , 2016 .

1/ A petition was also jointly filed by St. Petersburg Kennel

Club, Inc. ; Sarasota Kennel Club, Inc. ; Washington County Kennel

Club, Inc. ; a nd Fronton Holdings, L LC , and was assigned as

Case No. 15 - 7055. That petition was voluntarily dismissed on

February 12, 2016, and the case closed on February 15, 2016.

2 / As set forth in the Order of Pre - hearing Instructions, the

parties were, in their prehearing stipulation, to identify all

issues of fact and law remaining for consideration in this

proceeding. The failure to identify issues of fact or law

remaining to be litigated has been held to constitute a waiver

and elimination of those issues. See Palm Be ach Polo Holdings,

Inc. v. Broward Marine, Inc. , 174 So. 3d 1037 (Fla. 4th DCA

2015).

Petitioners did not identify section 120.52(8)(d), which

provides that a proposed rule is an invalid exercise of

delegated legislative authority if Ð[t]he rule is vag ue, fails

to establish adequate standards for agency decisions, or vests

unbridled discretion in the agency, as being a basis for its

challenge. Under the facts of this case, which includes

RespondentÓs decision to deny internal controls with designated

p layer games, had that section been raised, it may well have

proven to be an additional reason for the invalidation of the

proposed rule.

3 / Mr. Zachem explained, convincingly, that as a general rule,

most poker games are designated player games. Using t he example

of Texas Hold ÒEm, the Ðdesignated playerÑ would be rotated

around the table, with that person, though not physically

dealing cards, being in the position of being dealt last.

Advantages with regard to antes and being able to assess the

bets of other players go with the table position of the

Ðdesignated player. The button passes after each hand , with

each player at the table having the sequential opportunity to be

the Ðdesignated player , Ñ i.e., the player in the dealer

position. Given the adva ntages attendant to that position,

there would be little or no reason to decline the button. Thus,

the stipulation that, for purposes of this rule challenge,

Ðdesignated player gameÑ are synonymous with Ðplayer banked

games Ñ more accurately describes the situation in which players

individually play against a player with a designated amount of

chips , a situation tha t Respondent has now determined to

constitute a player maintained (but cardroom established)

Ðbank.Ñ

4 / It was not clear whether the Bestbet cardroom is affiliated

with the Orange Park Kennel Club or the Jacksonville Kennel

Club, both of which operate cardrooms.

5 / The games as played, as depicted in the December 7, 2015

surveillance videos entered in evidence, differed in certain

respects fr om those depicted in the April 2012 demonstration

video, and approved in the internal controls. Nonetheless, the

basic component of the games, i.e., that the designated players

were individually playing their hands against the other players

at the table, was consistent. The games, their manner of play,

and the extent to which the games as played deviated from those

approved in the internal controls, were ably described by Judge

Van Wyk in her Recommended Order in Department of Business and

Professional Re gulation, Division of Pari - mutuel Wagering v.

Jacksonville Kennel Club , DOAH Case No. 16 - 1009. A review of

that O rder, which is not yet final, suggests that

Judge Van WykÓs conclusion that Ðon December 7, 2015,

Jacksonville operated cardroom games in a ba nking manner, or

unauthorized games in violation of section 849.086Ñ was based

more on the case - specific proof that the games conducted on that

date deviated from the internal controls, and was not a sweeping

conclusion that designated player games as appr oved constituted

prohibited banking game s .

6 / No explanation was provided as to how that interpretation

squares with section 849.086(7)(c). (Ð The providing of . . .

dealers by a licensee does not constitute the conducting of a

banking game by the cardro om operator.Ñ).

7 / Respondent has attempted to soften its position by arguing

that it has no issue with designated player games, but that its

concern is that the (previously approved) internal controls and

house rules discourage the rotation of the butto n, and thus

participation by more designated players regardless of whether

they meet the uniform requirements. The preponderance of the

evidence in this case demonstrates that RespondentÓs goal was a

more fundamental de sire to rid cardrooms of player - bank ed games

established through the use of designated players.

8 / The procedure for the approval of internal controls has

existed in substantially similar form since September 7, 2008.

9/ It is significant that Respondent did not propose the repeal

of rul es 61D - 11.001(17) and 61D - 11.002(5) on the basis that it

had determined that it lacked rulemaking authority for those

rules. Rather, the October 29, 2015 , notice of proposed rule

provided that Ð[t] he purposes and effects of the proposed rules

are to updat e the guidelines that govern cardrooms in the state

of Florida. Each of the above listed rules has been updated for

clarity, efficiency, and congruency with statute , Ñ which

suggests that Respondent believed it had the requisite authority

to adopt the amen dments, and intended the proposed amendments to

have some substantive effect. The January 15, 2016 , notice of

change did not suggest otherwise.

10 / Until section 849.086 (8) was last amended in 2009, the

Legislature established wagering limits and requi rements , with

the requirements having been amended several times since the

initial enactment of section 849.086 in 1996. That authority is

now to be exercised by the cardroom operator. Ch. 2009 - 170 ,

§ 24, Laws of Fla.

COPIES FURNISHED:

William D. Hall, Esquire

Louis Trombetta, Esquire

Caitlin R. Mawn, Esquire

Department of Business and

Professional Regulation

Capital Commerce Center

2601 Blair Stone Road

Tallahassee, Florida 32399 - 2202

(eServed)

Jonathan Zachem, Director

Division of Pari - M u tuel Wagering

Department of Business and

Professional Regulation

Capital Commerce Center

2601 Blair Stone Road

Tallahassee, Florida 3239 9 - 2202

(eServed)

Jason Maine, General Counsel

Department of Business and

Professional Regulation

Capital Commerce Center

2601 Blair Stone Road

Tallahassee, Florida 3239 9 - 2202

(eServed)

Ken Lawson, Secretary

Department of Business and

Professional Regulation

Capital Commerce Center

2601 Blair Stone Road

Tallahassee, Florida 3239 9 - 2202

(eServed)

John M. Lockwood, Esquire

Thomas J. Morton, Esquire

Kala K. Shankle, Esquire

The Lockwood Law Firm

106 East College Avenue , Suite 810

Tallahassee, Florida 32301

(eServed)

Christopher M. Kise, Esquire

James A. McKee, Esquire

Joshua M. Hawkes, Esquire

Foley & Lardner LLP

106 East College Avenue , Suite 900

Tallahassee, Florida 32301

(eServed)

Robert W. Clark, Esquire

Clark Mueller Bierley, PLLC

102 West Whiting Street

Tampa, Florida 33602

(eServed)

Ernest Reddick, Chief

Alexandra Nam

Department of State

R. A. Gray Buil ding

500 South Bronough Street

Tallahassee, Florida 32399 - 0250

(eServed)

Ken Plante, Coordinator

Joint Admin istrative Proced ures Committee

Room 680, Pepper Building

111 West Madison Street

Tallahassee, Florida 32399 - 1400

(eServed)

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 commence d by

filing one copy of a Notice of Appeal with the agency clerk of

the Division of Administrative Hearings and a second copy,

accompanied by filing fees prescribed by law, with the District

Court of Appeal, First District, or with the District Court of

Ap peal 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.