The Issue The issues for disposition in this case are whether 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 authority as defined in section 120.52(8), Florida Statutes; and whether the Department of Business and Professional Regulation, Division of Pari-Mutuel Wagering’s (Respondent), failure to prepare a statement of estimated regulatory costs constituted a material failure to follow the applicable rulemaking procedures or requirements set forth in chapter 120.
Findings Of Fact Respondent is the state agency charged with regulating pari-mutuel wagering pursuant to chapter 550, Florida Statutes, and cardrooms pursuant to section 849.086, Florida Statutes. Each Petitioner currently holds a permit and license 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. The rules proposed for repeal, rules 61D-11.001(17) and 61D-11.002(5), relate to the play of designated player games. Rule 61D-11.001(17) provides that “‘[d]esignated player’ means the player identified by the button as the player in the dealer position.” Rule 61D-11.002(5) provides that: Card games that utilize a designated player that covers other players’ potential wagers shall be governed by the cardroom operator’s house rules. The house rules shall: Establish uniform requirements to be a designated player; 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 Not require the designated player to cover all potential wagers. Both rules were adopted on July 21, 2014. Both rules list sections 550.0251(12), and 849.086(4) and (11) as rulemaking authority, and section 849.086 as the law implemented. Designated Player Games A designated player game is 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 “designated player game” is used synonymously with “player banked games.”3/ However, a designated player is not a cardroom operator. In traditional “pool” 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. In designated player games, each player at the table makes an individual bet, and compares their hand against the designated player’s hand. If the player’s hand is better than the designated player’s hand, then the designated player pays the player from the designated player’s stack of chips. If the designated player’s hand is better than the player’s hand, then the designated player collects the player’s wager. At an eight- seat table, it is as though there are seven separate “player versus designated player” games. Designated player games were first played at the Ebro (Washington County Kennel Club) cardroom in 2011. The game, known as “double hand poker,” was demonstrated to Respondent, and subsequently approved for play. Though the internal 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 Respondent’s approval of Ebro’s double hand poker, Respondent entered an order rescinding 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 “Ebro may immediately resume play of Double Hand Poker as approved by the division.” In 2012, the Palm Beach Kennel Club cardroom began offering “tree card poker” 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. Respondent investigated the playing of tree card poker at Palm Beach Kennel Club. A video demonstration was provided that showed two hands of tree card poker being played with a designated player. The video depicted a single designated player playing his hand against each other player at the table, and paying or collecting wagers based on each individual hand. After having reviewed the demonstration 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 As requests for approval of internal controls for games using 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. 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. * * * Card games that utilize a designated player that covers other players’ wagers shall: Allow for only one designated player during any single hand; Not require the designated player to cover all wagers that could be made by the other players in the game; 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; 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 Rotate a button or other object to designate which player 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. On February 14, 2014, a challenge to the proposed rule was filed that objected 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. 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: The designated player shall: Cover the table minimum for each participating player; and 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. 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 think if we had those particular parameters, we would allow the preservation of this game to continue in its current fashion . . . . And . . . we’re going to avoid [] any argument that the department has somehow created a banked card game, because the biggest thing here is that we’re not requiring that the designated player meet all the theoretical payouts of the game. On May 19, 2014, written comments were submitted on behalf of several pari-mutuel facilities. Those comments included proposed language 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 between lawful games and impermissible banked games. On June 9, 2014, Respondent filed a Notice of Change that adopted the industry’s proposed language, and changed proposed rule 61D-11.002 to its present form. 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. There can be little doubt that Respondent understood that it was, by its adoption of rule 61D-11.002(5), recognizing 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 determined that designated player games did not violate the prohibition against “banking games” as that term is defined in section 849.086. Internal Controls Over the course of several years, beginning generally in 2011 and extending well into 2015, Respondent was presented with internal controls from 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. The internal controls submitted by the Jacksonville 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 the table, and paid and collected wagers from the designated player’s chip stack based on the rank of the designated player’s hand against the individual players. The games described did not involve pooled wagers, and clearly described player banked games. Respondent approved the internal controls for each of the four facilities. The process of approving internal controls occasionally included the submission of video demonstrations of the games described in the internal controls for which approval was being sought. Approval of internal controls was never done without the review and assent of Respondent’s legal department or the division director. With regard to the rules of the designated player games that underwent review and approval by Respondent, “all of them are about the same, few differences.” From 2011 through mid-2015, Respondent approved internal controls for playing one-card poker, two-card poker, three-card poker, Florida Hold ‘Em, and Pai Gow poker using designated players at numerous cardroom facilities. A preponderance of the evidence establishes that Respondent was aware of the fact that, for at least several facilities, “eligible” 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 In August 2015, Mr. Taylor was invited by the Bestbet cardroom in Jacksonville4/ to participate in a training session it was offering for its employees. Mr. Taylor is an investigator for Respondent, 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. 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 approved by Respondent. In September 2015, training in designated player games was provided at Respondent’s Tallahassee offices to several of its employees. Mr. Taylor perceived the training “as an overview to give us an idea of what we are going to see.” 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 Respondent’s practice of approving the internal controls for designated player games. Current Rulemaking 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 “[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.” There 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. On August 4, 2015, Respondent published a Notice of Meeting/Workshop Hearing for a rule workshop to be held on August 18, 2015. The Notice listed each rule in chapter 61D-11 as the “general subject matter to be considered,” including those related to games of dominos. Respondent asserted that it had “posted a version of amended cardroom rules that included the [repeal of rule 61D-11.005] on its website,” though such was not published, nor did Respondent provide a record citation in support of its assertion. On October 29, 2015, Respondent published its proposed amendments to chapter 61D-11. Rule 61D-11.001(17), which defines the term “designated player” as “the player identified by the button as the player in the dealer position,” was proposed for repeal. Rule 61D-11.002(5), as set forth above, which had established the standards for designated player games, was proposed for repeal. Rule 61D-11.005 was proposed for amendment to add subsection (9), which provided that “[p]layer banked games, established by the house, are prohibited.” On December 2, 2015, the Division held a public hearing on the proposed amendments. During the public hearing, Mr. Zachem made it clear that the intent of the proposed amendments was to change the Division’s long-standing and consistently applied construction of section 849.086 as allowing designated player games to one of prohibiting 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 don’t think that the concept of 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 Respondent could not “fathom” the effect of its rules and decisions is not accepted. 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 After the December 2015 public hearing, and prior to the adoption of any amendments to chapter 61D-11, Respondent filed a series of administrative complaints against cardrooms offering designated player games. Those administrative complaints were very broadly worded, and reflected Respondent’s newly-developed position that designated player games constituted “a banking game or a game not specifically authorized by Section 849.086, Florida Statutes.” 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 complaint.5/ The position of Respondent was made clear by Mr. Zachem’s statement that if a cardroom has an approved designated player game “where a banker is using their table, their dealer, their facility they [the cardroom] are establishing a bank.”6/ Thus, there can be little doubt that Respondent now construes section 849.086 to mean that player banked games constitute prohibited “banking games” because, by allowing the player banked game in its facility, the cardroom “establishes” a bank against which participants play. 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 that instruction, the internal controls for at least one facility have been disapproved, despite their being “about the same” as internal controls that had been previously approved for other facilities. Ms. Helms testified that after the December 2015 rule hearing, “things kind of turned around” with regard to Respondent’s position on designated player games. She then rethought her selection of words, stating instead that “things changed.” Given the totality of the evidence in this case, Ms. Helms’ statement that the position of Respondent towards designated player games “turned around” is the more accurate descriptor. Notice of Change On January 15, 2016, the Division published a Notice of Change/Withdrawal of proposed rules. Through the issuance of this notice, the Division withdrew proposed rule 61D-11.005(9). The proposed repeal of rules 61D-11.001(17) and 61D-11.002(5) remained unchanged. Since that notice of change, the preponderance of the evidence demonstrates that Respondent has stopped approving internal controls that propose the offering of designated player games, and has continued to take action against facilities that offer designated player games. Respondent’s statements and actions, including those made in the course of this proceeding, 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 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 adverse 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 that 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 agency. 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. 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 (“LCRA”) to the proposed amendments to chapter 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 the LCRA indicated that the rule was likely to directly or indirectly increase regulatory costs in excess of $200,000 in the aggregate within one year after the implementation of the rule. 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 Respondent’s previous long-standing interpretation of section 849.086, and thereby accomplishing the statutory objectives. 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 “claim to be an expert in statistics,” he felt qualified to conclude that the LCRA was “a bit of a challenging representation.” Thus, Respondent simply concluded, with no explanation or support, that “the numbers that we received were unreliable.” Respondent did not prepare a statement of estimated regulatory costs or otherwise respond to the LCRA. Respondent argues that its abandonment of proposed rule 61D-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 Respondent, by its decision to disapprove internal controls 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 prohibiting designated player games. Thus, 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 Petitioners’ estimated regulatory costs of the proposed rule. Ultimate Findings Respondent has taken the position that the repeal of rule 61D-11.005(9) was undertaken “[f]or clarity with the industry.” 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 “the industry” to decipher the meaning and effect of a statute that is, quite obviously, ambiguous and in need of the interpretive guidance that has been and should be provided by rule. 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 designated 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. Though there is substantial evidence to suggest that the reason for the change was related to the renegotiation 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 Petitioners. For 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 cannot, 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 agency itself has found it problematic to decipher the statute under which it exercises its regulatory authority.
The Issue Whether subsections (1) and (2) of Florida Administrative Code Rule 12A-1.074 enlarge, modify or contravene the specific provisions of law implemented, or are arbitrary or capricious, and thus constitute an invalid exercise of delegated legislative authority.
Findings Of Fact Based on the stipulated facts and the uncontested affidavit of H. French Brown, IV, the following findings of facts are made. The rule provisions at issue in this proceeding are subsections (1) and (2) of Florida Administrative Code Rule 12A- 1.074, hereinafter referenced as "the Rule." The Rule provides: 12A-1.074 Trade-Ins. Where used articles of tangible personal property, accepted and intended for resale, are taken in trade, or a series of trades, at the time of sale, as a credit or part payment on the sale of new articles of tangible personal property, the tax levied by Chapter 212, F.S., shall be paid on the sales price of the new article of tangible personal property, less credit for the used article of tangible personal property taken in trade. A separate or independent sale of tangible personal property is not a trade- in, even if the proceeds from the sale are immediately applied by the seller to a purchase of new articles of tangible personal property. Where used articles of tangible personal property, accepted and intended for resale, are taken in trade, or a series of trades, at the time of sale, as a credit or part payment on the sale of used articles, the tax levied by Chapter 212, F.S., shall be paid on the sales price of the used article of tangible personal property, less credit for the used articles of tangible personal property taken in trade. A separate or independent sale of tangible personal property is not a trade-in, even if the proceeds from the sale are immediately applied by the seller to a purchase of new articles of tangible personal property.1/ The Rule states that it is intended to implement the following statutory provisions: Sections 212.02(15), 212.02(16), 212.07(2), 212.07(3), and 212.09, Florida Statutes. Section 212.02, Florida Statutes, provides, in relevant part: 212.02 Definitions -- The following terms and phrases when used in this chapter have the meanings ascribed to them in this section, except where the context clearly indicates a different meaning: * * * "Sale" means and includes: (a) Any transfer of title or possession, or both, exchange, barter, license, lease, or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property for a consideration. . . . "Sales price" means the total amount paid for tangible personal property, including any services that are a part of the sale, valued in money, whether paid in money or otherwise, and includes any amount for which credit is given to the purchaser by the seller, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service cost, interest charged, losses, or any other expense whatsoever. . . Trade-ins or discounts allowed and taken at the time of sale shall not be included within the purview of this subsection. . . Section 212.07(2), Florida Statutes, set forth the method and manner by which a dealer is to charge and collect sales tax. Section 212.07(3), Florida Statutes, sets forth penalties for a dealer who fails to collect sales tax. Neither of these provisions affects the matters at issue in this proceeding. part: Section 212.09, Florida Statutes, provides, in relevant 212.09 Trade-ins deducted; exception.-- Where used articles, accepted and intended for resale, are taken in trade, or a series of trades, as a credit or part payment on the sale of new articles, the tax levied by this chapter shall be paid on the sales price of the new article, less the credit for the used article taken in trade. Where used articles, accepted and intended for resale, are taken in trade, or a series of trades, as a credit or part payment on the sale of used articles, the tax levied by this chapter shall be paid on the sales price of the used article less the credit for the used article taken in trade. [2/] GameStop is a Minnesota corporation that is authorized to do business in the State of Florida, and a registered dealer for purposes of collecting and remitting sales and use tax to the Department. GameStop is a publicly held international retailer of new and used video game hardware, software, and accessories, with over 6,000 stores worldwide, including stores in Florida. One of GameStop's customary business practices is to accept from its customers used gaming software, hardware, and accessories that the GameStop store manager determines is in resalable or re-furbishable condition. In return for the used articles, a GameStop customer may choose among three options: Option 1: The customer may receive cash in exchange for the used items. Option 2: The customer may apply the value assigned to the item by the store manager as part payment toward the immediate purchase of another new or used item from GameStop. Option 3: The customer may receive a credit for the value of the used item, which may be used only toward the purchase of new or used items from GameStop at some time in the future. If the GameStop customer elects Option 1, he receives 20 percent less value in the cash exchange than he would have received pursuant to the part payment offered by Option 2 or the credit toward a future purchase offered by Option 3. For a customer who chooses Option 3, GameStop tracks outstanding credits by issuing to the customer an "EdgeCard." When the customer returns to a GameStop store and requests to apply credits toward the purchase of a new or used item, the GameStop salesperson can swipe the electronic strip on the back of the EdgeCard and learn the credit amount available to the customer. The EdgeCard system merely tracks the amount of ongoing credits available to the customer. It does not record any request made by the customer to reserve or identify a specific item toward which the credits will later be used. The credits on an EdgeCard never expire. Once the customer has chosen Option 3, he may go to a GameStop store or access the GameStop website at any time thereafter and apply the credit on his account toward the purchase of new or used items from GameStop. GameStop also offers traditional gift cards that are purchased via cash or credit card rather than in exchange for used articles. Purchases made using a gift card or gift certificate are taxable for the full purchase price.3/ When a customer uses a gift card to purchase an item at a GameStop store, GameStop does not reduce the taxable sales price by the amount of the credit or value stored on the gift card and used in the purchase. GameStop assigns no redeemable cash value to the EdgeCard or to traditional gift cards. GameStop does not allow a gift card to be used to store credits obtained through the exchange of used items, reserving that function exclusively to the EdgeCard. The value of a GameStop gift card can be redeemed only through the purchase of new or used items from GameStop. Credits can be added to an EdgeCard only by turning over used articles to GameStop. A customer may not purchase credits. A credit on an EdgeCard can only be redeemed by the subsequent purchase of new or used items from GameStop. The GameStop customer who selects Option 3 first submits his used game or item of hardware to the GameStop store, which assigns it a dollar value and credits that amount to the customer's EdgeCard account in exchange for the item. At some later date, the customer returns to the GameStop store and trades the credit stored on the EdgeCard for some used or new item. The customer may build up credits on the EdgeCard with any number of transactions over any length of time before trading in the credits for an item from GameStop. The customer is not required to identify the item toward which he wishes to apply his EdgeCard credits until the time he actually trades the credits for the item. The Edge Card system replaced GameStop's former practice of requiring a customer who chose to obtain a credit for the submission of used articles to retain a cash register receipt showing the amount of the credit. This "paper credit" would then be redeemable toward the purchase of another item at a later date. There is no expiration date on an EdgeCard, a gift card, or a paper credit. GameStop does not replace the credits on a lost EdgeCard or a lost gift card. For purposes of accounting, GameStop carries unredeemed EdgeCard credits on its books for a period of three years as customer liabilities. GameStop does the same for unredeemed value on gift cards. GameStop continues to honor unredeemed EdgeCard credits and gift card values that are more than three years old, but no longer carries them on its books as customer liabilities. Prior to 2007, for the purpose of collecting sales tax from its customers, GameStop deducted the value of EdgeCard or any paper credits used in the purchase of new or used items from the purchase price for the purpose of calculating sales tax due. GameStop has remitted to the Department tax for the entire sales price of new or used items purchased from approximately January 2007 through August 31, 2007, in response to an audit by the Department, without reducing the taxable sales price by the value of any EdgeCard or paper credits used. GameStop has a return policy that allows a customer who is not satisfied with an item purchased from GameStop to return the item within a certain period of time and under certain conditions. When a customer returns an item in compliance with GameStop's return policy, the customer receives full retail value back, including the amount of the tax paid on the original purchase. A customer who returns an item in compliance with GameStop's return policy can elect to receive the return value in the form of cash, as a reimbursement to the customer's credit card, or as value stored on a GameStop merchandise card. The GameStop merchandise card does not record credits received via the return of used articles. The Department states that its historical administration and interpretation of the Rule and the statutes it implements do not strictly limit trade-in credits to a simultaneous exchange situation, or to transactions occurring within any particular time frame. However, the Department states that it does require the customer to identify the merchandise to be purchased with the EdgeCard credits at the time the credits are acquired. The Department does not consider the transaction to constitute a "trade-in" unless the item to be purchased with the EdgeCard credits has been specifically identified by the customer at the time the customer first returned a used item to GameStop.
The Issue The issues in this case are whether Big Poker Twenty-One, Sure 2 Win, and Florida Twenty-One are authorized games of poker under Sections 849.085(2)(a) and 849.086(2)(a), Florida Statutes (Supp. 1996).
Findings Of Fact Rule 61D-11.002(2)(a) and the Incipient Policy During the 1996 Session of the Florida Legislature, pari-mutuel permit holders were authorized, for the first time, to operate cardrooms at their facilities on days when live racing is being conducted, effective January 1, 1997. Only certain card games were authorized, and games have to be approved by the Respondent, the Department of Business and Professional Regulation, Division of Pari-Mutuel Wagering (the Division). Chapter 96-364, Laws of Florida (1996). When the Division first began implementing the new cardroom statute, it anticipated that it would be receiving requests for card games as they appeared in Hoyle's Modern Encyclopedia of Card Games, by Walter B. Gibson, published by Doubleday and Company, Inc., April 1974 1st Edition (Hoyle’s). Hoyle’s includes many games besides poker; in addition to a special section on poker, it includes special sections on pinochle and solitaire; the evidence is not clear as to the other kinds of card games in Hoyle’s. Initially, the Division promulgated Florida Administrative Code Rule 61D-11.002(2)(a) which provides: (2)(a) All card games in Hoyle's Modern Encyclopedia of Card Games, by Walter B. Gibson, published by Doubleday and Company, Inc., April 1974 1st Edition hereinafter (Hoyle's) incorporated herein by reference, that are authorized by and played in a manner consistent with Section 849.085(2)(a) and Section 849.086, Florida Statutes, and the rules promulgated thereunder, shall be approved by the division. All other card games shall be approved by the division if the type of card games and the rules of the card games, as specified in BPR Form 16-001, meet the requirements of Section 849.085(2)(a) and Section 849.086, Florida Statutes, and the rules promulgated thereunder. The Division soon noticed that it was receiving requests for the approval of games alleged to be “poker,” but which deviated from the standard features of poker. In November, 1996, the Division began to develop a policy for the review of such games and began to require card games to use standard poker card and hand ranking and afford players the opportunity to bluff after seeing their hands. The Requests and Denials On or about November 8, 1996, the Petitioner, the St. Petersburg Kennel Club, submitted a request for approval for Big Poker 21. The Division denied approval on December 3, 1996. On or about December 19, 1996, the Petitioner submitted a request for approval Sure 2 Win. The Division denied approval on January 2, 1997. On or about January 23, 1997, the Petitioner submitted a request for approval for Florida Twenty-One. The Division denied approval on February 14, 1997. All three games are played in a non-banking manner. (The house is not a player in games played in a non-banking manner, a requirement for approval.) The Division initially simply advised the Petitioner that its proposed games were not authorized. Subsequently, in discovery depositions in this case, the Division advised the Petitioner more specifically, as follows: approval of Big Poker 21 was denied because Big Poker 21 fails to adhere to standard poker-hand rankings and does not allow for the possibility of bluffing, calling or raising; approval of Florida Twenty-One was denied because Florida Twenty- One fails to adhere to standard poker-hand rankings; and approval of Sure 2 Win was denied because in the five-card portion of Sure 2 Win, the players have no opportunity to wager or bluff after viewing the cards and simply win or lose on the hand dealt. The Division has approved 35 out of 39 card games submitted by cardroom operators. The four denied include Sure 2 Win, Big Poker 21, Florida Twenty-One, and Pompano 22. Pompano 22 is very similar to Florida Twenty-One. The card games, Hollywood 2-3 Flash and Hollywood 4-3 Flash, were approved by the Division on January 10, 1997. The Petitioner contends that, under the Division’s incipient policy and proposed rule, these games should not have been approved because they “do not provide for bluffing.” However, both afford players the opportunity to check or bet after seeing their first cards (the first two in 2-3 Flash, or the first four in 4-3 Flash). The card game, Three-Card Stud, also was approved by the Division on January 10, 1997. The Petitioner contends that, under the Division’s incipient policy and proposed rule, this game should not have been approved because it does not follow the standard poker hand rankings. However, the hand rankings are consistent with the standard poker-hand-ranking system, just adapted for a three-card hand. The Proposed Rule Notice of a rule workshop regarding the definition of poker was published in December 1996, and a workshop was held in January, 1997. The Division distributed a hand-out on poker at the January workshop, but the evidence is not clear as to the content of the hand-out. It appears to have been a list of seven issues for discussion, including: whether there has to be one or more betting intervals in a poker game; whether the players of poker have to be able to wager on the quality of his/her hand by either folding, calling, passing, or raising; and whether a poker game must use the standard poker hand rankings. On March 18, 1997, the Division proposed a rule to reflect its incipient policy regarding the elements of poker on which Sure 2 Win, Big Poker 21, and Florida Twenty-One were denied, and on which other games were approved. Standard Poker Standard poker is a non-banking game played with cards or tiles that generally include the following features: at least part of the player’s hand is known only to the player and is solely under the player’s control; there are two or more players; there is a pot created by wagers which constitutes the prize for winning; there is a standard ranking of hands which is not arbitrary and which is based on the mathematical expectation or difficulty of achieving a particular combination of cards; there is a standard ranking of cards from lowest to highest; each player has an opportunity to bet on the cards which comprise the player’s hand; and there are one or more betting rounds. The fundamental element that differentiates poker from all other forms of gambling is the bluff: the possibility that a player can win the game with a hand that ranks lower than another player’s. The game of poker is an American invention whose rules have been fairly standardized for almost a century. There is no mention of poker in Hoyle’s 1776 text. The rules of poker developed during the 19th century. The first reference to rules for a game resembling poker is in Hoyle’s 1857 text. Although draw and stud poker did not exist in 1857, the hand rankings were the same then as they are today, only without the straight or straight flush. The straight was introduced into the ranking system below the flush at the turn of this century. Draw poker and five-card stud developed during the Civil War, although straight poker was clearly the most important form of poker at that time. The ranking system that is in use today was firmly established by 1885. The standard poker-hand rankings of today, given in order from highest to lowest, are as follows: five of a kind (possible only when wild cards are used), straight flush (royal flush is highest), four of a kind, full house, flush, straight, three of a kind, two pair, pair, high card. The standard poker-card rankings of today, in order from highest to lowest, are as follows: A, K, Q, J, 10, 9, 8, 7, 6, 5, 4, 3, 2, with the ace sometimes low instead of high. Petitioner’s Expert On July 19, 1996, the Petitioner’s expert, Steven Fox, submitted to the Division a set of suggested revisions to the Division’s proposed cardroom rules. Fox stated that the games of poker in Hoyle’s are inappropriate for commercial cardroom use and that it was better for the State to develop its own generic standard of poker: “Attached are some of my own [generic standard of poker] on commercial poker games and a generic definition of poker for reference.” As applied to commercial poker games, the features of poker that Fox suggested the Division use as a guideline “to evaluate whether a game should be classified as poker” include: (a) usually played with cards; (b) cards are ranked from designated lowest or worst to highest or best; (c) there is a ranking system which assigns relative value to each player’s combination of cards, where the ranking system is not arbitrary and is based on the mathematical expectation for receiving each combination; (d) each player can participate in the action based upon cards solely under his control . . . and knowledge of other players’ habits or styles; (e) at least some of the cards under a player’s control are known only to him; (f) each player has the opportunity to bet on the cards which comprise his hand and there may be more than one betting round; and (g) players bet against the relative holdings of other players. In his July 1996 materials Fox suggested that the Division consider the traditional poker ranking system of cards, in order from lowest or worst to highest or best, as follows: 2, 3, 4, 5, 6, 7, 8, 9, 10, Jack, Queen, King, Ace. “The Ace shall be treated as a one in low poker and in low straight sequences (A, 2, 3, 4, 5). Otherwise it will be assumed to be valued higher than all the other cards in assuming standard 52 card deck.” This is the exact same card ranking system listed in Hoyle’s. In his July 1996 materials, Fox suggested that the Division consider the traditional poker-ranking system of hands in descending order of value as: five aces (includes the joker when available), straight flush, four of a kind, full house, flush, straight, three of a kind, two pair, one pair, no pair (high card). This is the same hand-ranking system listed in Hoyle’s. At final hearing, Fox testified that it is “extremely difficult to pin down what exactly is poker”; that poker hand rankings are arbitrary and established by agreement of the players, i.e., “whatever the players want”; and that, because of the $10 pot limitation, games in Florida lend themselves more to “home-style” or “showdown” games. When questioned on cross- examination about these apparent contradictions, Fox asserted that his definition as submitted to the Division in July 1996, was “something that I used in more of the casino versions of poker, and I use this as a suggestion so that people can understand a casino version of poker.” But, nowhere in Fox’s July 1996 materials, does he state, suggest, or infer that his definition of poker is a “casino version” of poker, or that his definition would be inappropriate for use in Florida because of the $10 pot limitation. To the contrary, it was Fox’s desire that the Division incorporate his suggested definition of poker into its regulations. At the time he submitted his suggested definition of poker to the Division in July 1996, Fox was fully aware of the $10 pot limitation in Florida. Fox was paid by the Petitioner to provide expert testimony on its behalf at the hearing in the case at bar. Fox was not paid by the Petitioner for his proposed revisions and definition of poker submitted to the Division in July 1996. Dealer’s Choice Games Included among the poker games described in Hoyle’s are many dealer’s choice poker games. According to Hoyle’s, these games “run the gamut from mere variants of standard games to those that are wild beyond belief.” Some of these games— including Jacks High, Lalapalooza, Low Poker, One Card Poker, Place Poker, Second Hand Low, Tens High, Two Card Poker, and Zebra Poker—vary from the standard poker-hand rankings. Others— including High Spade Split, Jacks High, Tens High, and Zebra Poker—vary from the standard poker-card rankings. Some—including Cold Hands, Cold Hands Poker with a Draw, Blind Poker, and Show Down Poker—do not afford players the opportunity to bluff after seeing their hands. There also are other homestyle, dealer’s choice “poker” games, not listed in Hoyle’s, which do not conform to the Division’s definition of poker. These include 727 and 333, in which the object is to obtain a certain numerical total by adding the point values of cards. It was reasonable for the Division to want to narrow the definition of “poker” through its incipient policy and proposed rule. If all of the homestyle dealer’s choice poker games described in Hoyle’s (and games like them) were authorized, there would in effect be no definition of poker at all; whatever a dealer called poker would be poker. Big Poker Twenty-One and Florida Twenty-One Big Poker Twenty-One and Florida Twenty-One do not conform to the standard poker card ranking system. Face cards are all given exactly the same rank or value; each is worth 10 points, while aces are worth 1 or 11 points. The object of both Big Poker Twenty-One and Florida Twenty-One is to total 21 points, or as close to 21 points as possible, by adding the point values of cards. Players accumulate cards by drawing cards face up until a certain point value is reached, whereupon they “stand.” Big Poker Twenty-One and Florida Twenty-One both allow for an automatic win if the player’s first two cards total 21 points. An ace-king, ace-queen, ace-jack, and ace-10 each total 21 and are automatic winners. There are no automatic wins in poker. Big Poker Twenty-One and Florida Twenty-One both restrict the player’s ability to draw cards. This restriction is based on the point total. A player who accumulates 20 points is not allowed to draw any more cards. The game of poker does not restrict a player’s ability to draw cards simply because the player has attained a particular hand. There is no possibility of bluffing in Big Poker Twenty-One since players make their bets before they view their cards. It was reasonable for the Division to decide that neither Big Poker Twenty-One nor Florida Twenty-One are poker. Instead, they are variations of the game of Black Jack, or “Twenty-One,” as it is often called. Black Jack developed in the 1850s and was often played in a non-banking manner. It is still sometimes played today in a non-banking manner. Sure 2 Win The five-card hand, or “showdown” portion, of Sure 2 Win violates the fundamental rule of poker that players have to be able to make a bet after viewing their cards so that bluffing is possible. All participants must participate in the “showdown” portion. In the “showdown” portion of the game, the players wager before viewing their cards, which are then turned up to reveal the winning hand, with no further opportunity to bet. The winner of the showdown portion of Sure 2 Win wins strictly by chance since the player has no control over the deal of the cards, no opportunity to view the cards before making a bet, no opportunity to bluff, no opportunity to draw cards in order construct a higher ranked hand, and no control over the outcome of the showdown portion. The player who wins in the showdown portion of the game is not eligible to play the seven-card portion of the game. Other players can decide whether to bet on the seven-card portion of the game; however, that decision has absolutely no effect on the outcome of the five-card portion of the game. It was reasonable for the Division to decide that Sure 2 Win is not poker. The five-card showdown portion of the game is strictly a game of chance, and the winner cannot play the second, seven-card portion.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Respondent, the Department of Business and Professional Regulation, Division of Pari-Mutuel Wagering enter a final order denying approval of Big Poker Twenty-One, Sure 2 Win, and Florida Twenty-One as authorized games of poker under Sections 849.085(2)(a) and 849.086(2)(a), Florida Statutes (Supp. 1996). RECOMMENDED this 5th day of August, 1997, at Tallahassee, Leon County, Florida. J. LAWRENCE JOHNSTON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax FILING (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 5th day of August, 1997. COPIES FURNISHED: Miriam S. Wilkinson, Esquire Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-1007 Harold F. X. Purnell, Esquire Rutledge, Ecenia, Underwood, Purnell and Hoffman 215 South Monroe Street, Suite 420 Tallahassee, Florida 32301-1841 Deborah R. Miller, Director Division of Pari-Mutuel Wagering Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-1007 Lynda L. Goodgame General Counsel Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792
