The Issue The issues in these cases are whether the following rules promulgated by the Respondent, the Department of Business Regulation [now the Department of Business and Professional Regulation], Division of Pari-mutuel Wagering, are valid exercises of delegated legislative authority: F.A.C. Rules 61D-1.002(18) [formerly 7E-16.002(18)] and 61D-1.006 [formerly 7E-16.006]; and emergency rules 7ERR92-2(18) and 7EER92-6.
Findings Of Fact On or about September 30, 1991, the Petitioner, John R. Witmer, applied to the Respondent, the Department of Business Regulation (now the the Department of Business and Professional Regulation), Division of Pari-mutuel Wagering (the Division), for a three-year occupational license as a veterinarian. The license was issued with a scheduled expiration in 1994. In October, 1993, the Division filed an Administrative Complaint alleging that the Petitioner violated emergency rule 7EER92-2(18) and F.A.C. Rule 61D-1.002(18) (formerly codified as F.A.C. Rule 7E-16.002(18)) on November 11, 1992, and April 2, 1993. The charges remain pending and have been referred to the Division of Administrative Hearings, where they have been given DOAH Case No. 93-6638. On or about June 18, 1992, the Division released the legal opinion of its General Counsel that, if certain provisions of the statutes governing pari- mutuel wagering were allowed to sunset on July 1, 1992, the Division legally would be unable to regulate pari-mutuel wagering adequately, and pari-mutuel wagering would become illegal in Florida. In response to the legal opinion, several tracks and jai alai frontons filed suit in circuit court seeking declaratory and injunctive relief. On or about June 30, 1992, a temporary injunction was issued in the court case requiring the parties to maintain the status quo in effect on June 30, 1992, until further order. A final hearing in the court case was held on August 10, 1992. The court's Final Order held that the statutes that remained in effect after July 1, 1992, were "legally sufficient and not in violation of Article X, Section 7, of the Florida Constitution (1968) [a prohibition against lotteries not sanctioned by law]." The court dissolved the temporary injunction effective August 25, 1992. After the court decision, notwithstanding the earlier legal opinion issued by its General Counsel, the Division determined that it had the necessary statutory authority to promulgate emergency rules to implement what remained of the pari-mutuel wagering statutes after July 1, 1992. Approximately $1.7 billion in cash was being wagered annually. Taxes collected on the wagers amounted to approximately $105 million a year. The possibilities for cheating and stealing to obtain a piece of the action illegally are endless, requiring effective regulation and constant vigilance. It is not unusual, for example, for cheaters to attempt to drug race animals illegally. As a result, some 85,000 urine and blood samples are taken from race animals annually. It was determined that, under the remnants of the statutes that remained after July 1, 1992, there were three areas vital to the public's welfare for which sanctions or rulemaking, or both, were necessary: (1) regulation of the pari-mutuel wagering pool; (2) regulation relative to the collection of taxes; and (3) regulation of the administration of medicines and drugs to racing animals. Fifty-four emergency rules, designated 7EER92-1 through 7EER92-54, were promulgated on or about August 24, 1992. (These compare to the 340 rules previously promulgated under the authority of, and to implement, the entirety of Chapter 550, Fla. Stat. (1991), in effect before July 1, 1992.) In addition, the Division requested that the tracks and frontons promulgate "in-house" rules in an attempt to maintain, as a practical matter, the status quo as of June 30, 1992, to the extent possible. On or about November 22, 1992, the emergency rules were replaced by permanent rules, designated F.A.C. Rule Chapter 7E-16, and F.A.C. Rule Chapter 7E-4 was repealed. On or about December 16, 1992, the Legislature enacted Chapter 92-348, Laws of Florida (1992), a new comprehensive statute governing dog and horse racing pari-mutuel wagering. It replaced the prior law. The final bill analysis and economic impact statement produced by the House of Representatives Committee on Regulated Industries referred to Chapter 92-348 as a "revision" of the law on the subject. The Division suggested to the Senate Commerce Committee that an earlier Senate version of the bill contain a retroactive "savings clause" to specify that the Division would have jurisdiction to prosecute disciplinary proceedings against occupational licensees that were pending on July 1, 1992, under the Division's emergency rules and under the provisions of what would become Chapter 92-348. No such provision was included in Chapter 92-348. On or about December 17, 1992, the Division transmitted to the Department of State, Bureau of Administrative Code, as "technical changes" under F.A.C. Rule 1S-1.002(9), "corrections" to the statutory authority for, and law implemented by, F.A.C. Rule Chapter 7E-16. The "corrections" substituted appropriate provisions from Chapter 92-348. The Division interprets F.A.C. Rule 1S-1.002(9) to apply to changes in the statutory authority for, and law implemented by, rules. F.A.C. Rule Chapter 7E-16 later was redesignated as F.A.C. Rule Chapter 61D-1. Between July 1 and December 16, 1992, the Division issued some 11,000 occupational licenses and denied some 22 applications. During this time period, the Division collected some $400,000 in occupational license fees. The fees were part of the more than $800,000 collected in the fiscal year ending June 30, 1993. During the period from July 1 to December 16, 1992, the Division dismissed more than 80 pending disciplinary matters out of concern for whether the Division still had authority to impose sanctions for the violations in question. In addition, during that time period, out of the same concerns, the Division declined to prosecute more than 260 other cases in which track judges or stewards had found violations.
The Issue The issue in this case is whether Petitioner's application for licensure as a real estate salesperson should be granted even though, in 2003, NASD imposed discipline against Petitioner pursuant to a settlement agreement wherein Petitioner neither admitted nor denied allegations that he had been involved in improper trading activities.
Findings Of Fact Respondent Florida Real Estate Commission ("FREC") is the agency responsible for licensing real estate brokers and salespersons in the State of Florida. In September 2005, Petitioner Michael Silverstein ("Silverstein") applied for licensure as a real estate sales associate. In his application, Silverstein disclosed that in 2003, NASD——a private-sector securities regulator——had imposed discipline against him, pursuant to a settlement agreement known formally as a Letter of Acceptance, Waiver and Consent ("AWC"), for allegedly having engaged in improper trading activities. The disciplinary matter had arisen out of certain bids that Silverstein had made to buy shares, for his own account, in Chromatic Color Sciences International, Inc. ("CCSI"), a company whose fortunes (and stock price), Silverstein had believed, were due to rise. The bids in question——of which there were 29——had taken place over a two-month period between December 31, 1999, and February 29, 2000. At that time, Silverstein and a partner had owned a brokerage firm called Your Discount Broker, Inc. ("YDB"). Each of the 29 bids had been placed within 30 seconds or so of the close of the trading day on which the bid was made. Each bid had exceeded the day's previous highest bid for CCSI, by an amount ranging from about three cents to 20 cents per share. NASD had alleged that the bids were not bona fide offers to purchase (five had resulted in a consummated sale) but rather artifices made in furtherance of a "manipulative, deceptive, and/or fraudulent" scheme undertaken to artificially inflate the value (on paper, at least) of Silverstein's investment in CCSI.1 NASD had accused Silverstein, his partner, and YDB of violating NASD Conduct Rules 2110 and 2120.2 Ultimately, in June 2003, Silverstein and the two other respondents had entered into the aforementioned AWC, wherein, "without admitting or denying the allegations, and solely for the purposes of [the then-pending] proceeding and any other proceeding [that might later be] brought by or on behalf of NASD, or to which NASD [might be] a party," they had agreed to the imposition of specified penalties. The stipulated sanctions against Silverstein were a fine of $75,000, which he had paid, and a "suspension from association with any member firm for a period of two months," which Silverstein had served, as agreed, from July 7, 2003, through September 6, 2003. After Silverstein had served his suspension, NASD had reinstated his registrations, allowing Silverstein once again to engage in securities transactions under NASD's oversight. Later, the New York Stock Exchange ("NYSE") had granted Silverstein a license. As of the final hearing in this case, Silverstein still held his securities licenses, although he was not then active in the industry. Placing a bid near the close of the trading day was not, of itself, a violation of any NASD rule.3 Likewise, merely offering to pay more for a particular company's shares than any other investor previously had offered on a given day was not a disciplinable act under any NASD rule. Silverstein's conduct in relation to the 29 bids for which NASD disciplined him was wrongful, therefore, only if undertaken with bad intent. At hearing in this case, Silverstein denied any intent to manipulate the value of CCSI's shares. The only evidence opposing Silverstein's testimony is the AWC, which is, to be sure, some proof of wrongdoing, because Silverstein agreed therein to be punished. On the other hand, in entering into the AWC, Silverstein was not required expressly to admit wrongdoing, and he did not do so. Further, the undersigned credits Silverstein's unrebutted testimony that he agreed to accept punishment, not because he believed he was guilty of violating NASD rules, but because, at the time, YDB was being acquired by another company, and the deal could not be completed until the NASD matter had been resolved. In addition, there was no evidence about the volume of trading that typically occurred, during the relevant time period, within minutes or seconds of the trading day's close. The undersigned therefore cannot make any rational determination, based on the evidence in the record, as to whether Silverstein's 29 last-minute bids were highly unusual (and hence especially suspicious), relatively routine, or something in-between. There was, as well, no evidence concerning either the volume of trading that was then occurring in connection with CCSI shares, or the prices at which that company's shares were trading during the relevant period, making it impossible for the undersigned reasonably to draw any inferences from the dollar-amounts of Silverstein's bids. In short, there is no persuasive circumstantial evidence (besides the AWC itself) from which the undersigned might infer that Silverstein acted with fraudulent or dishonest intent when he made the 29 bids. At bottom, the evidence in the instant record is simply insufficient to persuade the undersigned that Silverstein's conduct in relation to the 29 bids for which NASD disciplined him was, in fact, manipulative, deceptive, or fraudulent. The undersigned is convinced, however, that, apart from the AWC, Silverstein's past (so far as the evidence shows) is spotless. He has maintained a reputation in his community for truth and honesty, which NASD's disciplinary action failed to sully. Silverstein's conduct after February 29, 2000 (when he stopped making last-minute bids) has been good, even exemplary. Indeed, FREC itself concedes (and the undersigned finds) that Silverstein "is a well-respected member of his community." Resp. Prop. Rec. Order at 4. In view of Silverstein's good conduct and reputation; the facts that NASD and the NYSE presently consider him fit to work in the securities industry; and the fact the that last allegedly improper bid was placed more than six years ago, the undersigned determines as a matter of ultimate fact that granting Silverstein a license to work as a real estate sales associate will not likely endanger the public generally or investors specifically.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that FREC enter a final order granting Silverstein's application for licensure as a real estate sales associate. DONE AND ENTERED this 26th day of June, 2006, in Tallahassee, Leon County, Florida. S JOHN G. VAN LANINGHAM Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 26th day of June, 2006.
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 The Administrative Complaint, as amended, in this case alleges that Respondent engaged in or permitted gambling activity on the licensed premises in violation of Sections 849.14 and 561.29(1)(a), Florida Statutes. The issue for resolution is whether that violation occurred and, if so, what discipline is appropriate.
Findings Of Fact Petitioner is the agency responsible for issuing licenses permitting the sale of alcoholic beverages in Florida and is responsible for enforcing the beverage laws, Chapters 561-568, Florida Statutes. Respondent is a Florida corporation holding alcoholic beverage license number 15-00185, series 4COP, which authorizes it to sell alcoholic beverages at retail at the licensed premises, Bottoms Up Bar, located at 8400 US-1, South, Micco, in Brevard County, Florida. Lynette Tummolo is the president of Bottoms Up Bar, Inc. Ms. Tummolo's first bar was a restaurant and liquor bar in Palm Bay, Florida: Duke's Place. She and Robert Bench owned the bar as 50/50 partners. Duke's Place was moved to a new location after a hurricane and in August 1996, Ms. Tummolo and Mr. Bench sold their license to David Oliver. In March 1997, Ms. Tummolo started another business, a beer and wine bar, which opened in Micco, Florida. The Articles of Incorporation dated February 19, 1997, and filed with the Secretary of State for Bottoms Up Bar, Inc., list the incorporator as Lynette Tummolo, and the members of the board of directors as Lynette Tummolo and Robert Bench. The most recent annual report, dated March 23, 1998, and filed with the Secretary of State, reflects that Lynette Tummolo and Robert Bench are both directors of the corporation. In June 1997, after David Oliver defaulted on his payments for the license, Lynette Tummolo purchased back the liquor license and had it transferred to Bottoms Up Bar, Inc. Ms. Tummolo applied to the Department of Business and Professional Regulation, Division of Alcoholic Beverages and Tobacco (DABT) and had approved, a transfer of the liquor license and change of location to Bottoms Up Bar in Micco. The application submitted by Ms. Tummolo lists herself as president and 60% stockholder, Robert Bench as secretary and 40% stockholder, herself as treasurer, and Robert Bench as director. A personal questionnaire form for Robert Bench is attached to Ms. Tummolo's application. This form states that Mr. Bench is the director/manager of Bottoms Up Bar and that he was investing no funds in the business. At the hearing in this proceeding, Ms. Tummolo stated that Robert Bench was not an owner or officer of the corporation Bottoms Up Bar, Inc., but the only reason she put him on the application form was that a staff person from DABT told her that she had to put officers of the corporation and had to show a percentage of stock. Ms. Tummolo's testimony is inconsistent with her sworn affidavit at the end of the form. The testimony is also inconsistent with any established policy of DABT. Ann (Annie) Raftery works as manager of Captain Hiram's, a restaurant and lounge in Sebastian, Florida, near Micco. She regularly patronizes Bottoms Up Bar and is a friend of Robert Bench. She also sometimes helps clean up at Bottoms Up Bar after closing. In January 1998, Ms. Raftery decided on her own to start a football pool for the Super Bowl. She drew the grid and collected $20 for each square on the grid representing a wager. Individuals placing a wager wrote their names or some identification on the square they selected. Ms. Raftery carried the grid sheet around with her on a plastic clip-board. On the Friday night before Super Bowl Sunday 1998, Annie Raftery arrived at Bottoms Up Bar around 10:30 p.m. She handed the football pool sheet on the plastic clip-board, for safekeeping, to Robert Bench, who was working as bartender. He stashed it behind the bar for her. On that same Friday, January 23, 1998, in response to a complaint, Sergeant Sam Brewer (at that time, a DABT special agent) commenced an undercover investigation of Bottoms Up Bar. Late that evening he and other agents entered the bar, mingled with the crowd, played darts, and socialized. At one point, Special Agent Brewer asked an individual whether she knew of any pools for the upcoming Super Bowl football game. She responded that he would have to talk to "the boss" and pointed out Robert Bench behind the bar. Agent Brewer then sat at the bar and started talking to Mr. Bench. During the course of the conversation, Mr. Bench reached next to the cash register behind the bar and handed a plastic clip-board with the football pool sheet to a female patron sitting at the bar. This individual looked at it and handed it to another woman, later identified as Annie Raftery. Annie Raftery then gave the clip-board to Lynette Tummolo. Agent Brewer asked Robert Bench about the pool and Bench replied that it belonged to Captain Hiram's. Mr. Bench then got Ms. Raftery and directed her to Agent Brewer. Agent Brewer conversed with Ms. Raftery about the pool. She had the clip-board again and explained how to place a wager. Agent Brewer selected a square and put the name, Steve B., on the grid and paid Ms. Raftery $20. She told him she would be at Captain Hiram's or Bottoms Up Bar on Sunday, and he left, as it was closing time. Agent Brewer returned on Sunday, around half-time of the Super Bowl. He approached Mr. Bench at the bar and asked where he could see the football pool sheet to check his numbers. Mr. Bench replied that they had copies, but Ms. Raftery had the original and pointed her out at the end of the bar. Ms. Raftery showed Agent Brewer the pool sheet and he confirmed that it was the one he had marked earlier. He then made a covert telephone call to the other agents waiting outside. They, and assisting officers of the sheriff's office, arrested Mr. Bench and Ms. Raftery. They retrieved $1,200 from Ms. Raftery's car and $440 from her home. The remainder of the $2,000 she collected had already been paid out for the first quarter of the game. Ms. Tummolo is at Bottoms Up Bar every night, seven nights a week. She remembers Friday, January 23, 1998, was particularly busy. At the hearing she described a plastic clip- board kept at the bar with a sheet on which the bartenders must record the liquor they remove from the back stockroom. Ms. Tummolo insists that if she had been seen with a clip-board, it would have been the liquor record and not a football pool. Agent Brewer saw Ms. Tummolo with the football pool, however, the night he placed his wager. Bottoms Up Bar does not participate in the Responsible Vendors Program. Ms. Tummolo meets regularly with her bartenders and, at least since the Super Bowl Sunday event, she reminds them that gambling in any form is not tolerated.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law set forth herein, it is RECOMMENDED: That the agency enter its Final Order finding Respondent guilty of violating Sections 561.29(1)(a), Florida Statutes, and 849.14, Florida Statutes, and assessing a penalty of $250.00. DONE AND ENTERED this 19th day of November, 1998, in Tallahassee, Leon County, Florida. MARY CLARK Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 19th day of November, 1998. COPIES FURNISHED: Thomas D. Winokur, Esquire Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-1007 Joe Teague Caruso, Esquire 800 East Merritt Boulevard Merritt Island, Florida 32954-1271 Richard Boyd, Director 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
Findings Of Fact Based upon the evidence adduced at hearing, the stipulations of the parties, matters officially recognized and the record as a whole, the following Findings of Fact are made: Petitioner is a Florida corporation that was at all times material to the instant case (but is no longer) in the coin-operated machine business. It owned various amusement and game machines that were placed at different locations pursuant to agreements with the location operators. Most of these agreements were not reduced to writing. In those instances where there was a written agreement, a "Location Lease Agreement" form was used, with insertions made where appropriate in the spaces provided. The form indicated, among other things, that Petitioner was "in the business of leasing, renting, servicing, maintaining and repairing of coin-operated machines" and that the agreement was "for the placement, servicing and maintaining of certain coin-operated machines" in the location specified in the agreement. In the coin-operated machine trade, the custom (hereinafter referred to as the "industry custom") was for the parties to an oral or written agreement for the placement of an amusement or game machine on the property of another to treat such an agreement as involving the location operator's rental of the machine owner's tangible personal property rather than the machine owner's rental of the location operator's real property. Petitioner and the location operators with whom it contracted followed this custom of the trade in their dealings with one another. They construed their agreements as involving the rental of Petitioner's tangible personal property by the location operators and acted accordingly. Petitioner collected from the location operators the sales tax due on such rentals and remitted the monies collected to Respondent. 1/ It engaged in this practice for approximately a decade without challenge by Respondent. In late 1990 and early 1991, Respondent conducted a routine audit (Audit No. 90-19801486) of Petitioner's records. The audit covered the period from January 1, 1988, to September 30, 1990 (referred to herein as the "audit period"). The Department's auditors are, for the most part, college-trained accountants. While they receive Department-sponsored training in the general procedures and standards they are expected to adhere to in conducting their audits, they are not provided with training and information regarding the trade customs and practices that are unique to particular industries or businesses they audit. The Department auditors who conducted the audit of Petitioner's records reviewed, among other things, those agreements between Petitioner and location operators that were reduced to writing. Based upon their reading of these agreements, the auditors erroneously, yet not unreasonably given the imprecise contractual language used, believed that the agreements into which Petitioner had entered were actually for the rental of the location operators' real property, not the rental of Petitioner's machines. They therefore concluded that, in light of then existing provisions of Rule 12A-1.044, Florida Administrative Code (hereinafter referred to as the "Rule"), Petitioner, as opposed to the location operators, should have paid sales tax and that Petitioner's purchase of machines and parts should not have been treated as tax exempt. In March of 1991, the Department sent Petitioner a Notice of Intent to Make Sales and Use Tax Audit Changes for the audit period based upon the auditors' findings. The Notice advised Petitioner of its right to meet with the Department and discuss these findings made by the auditors. Petitioner requested such a meeting. The meeting was held on May 7, 1991, in Tallahassee. Petitioner's attorney, Marie A. Mattox, Esquire, represented Petitioner at the meeting. Mattox was accompanied by Robert Matthews, one of Petitioner's officers. The Department was represented by the head of the its Bureau of Hearings and Appeals and several other employees. Mattox and the Department representatives discussed the contents of the written agreements the auditors had reviewed. During the discussion, Mattox reminded the Department representatives of the "industry custom." 2/ In addition, she brought to their attention that the agreements under review involved amusement and game, not vending, machines. The meeting lasted only approximately ten minutes. Mattox and Matthews left the meeting with the impression, based upon the comments made by the Department representatives, that the matter would be resolved in Petitioner's favor. To their surprise, on May 23, 1991, the Department issued a Notice of Proposed Assessment in which it announced its intention, based upon Audit No. 90-19801486, to issue an assessment against Petitioner in the amount of $238,780.06 for taxes owed (plus penalty and interest) for Petitioner's alleged use, during the audit period, of real property in connection with its coin- operated machine business. The Notice of Proposed Assessment contained a statement advising Petitioner of its right to protest the Department's proposed action. Mattox, on behalf of Petitioner, responded to the Notice of Proposed Assessment by sending a letter, dated July 22, 1991, to the Department's General Counsel. In her letter, Mattox advised the General Counsel that Petitioner was contesting the proposed assessment and made the following argument in support of Petitioner's position that the Department had made "an error:" This tax has been assessed apparently because of a misunderstanding on the part of the auditors as to the arrangements under which Lauren, Inc. conducts business. As I am sure you are aware, under Rule 12A-1.004, Florida Administrative Code, there are various arrange- ments and agreements through which amusement and game machine owners conduct business. The first arrangement is where the machine owner rents the real property upon which the machine is located from the location owner. Under this arrangement, the machine owner pays a "lease fee" to the location owner, which fee is subject to sales and use tax. Under this arrangement, the location owner collects tax upon the lease fee and remits said tax to the state. The second arrangement through which amusement and machine owners conduct business is where the machine is rented by the location owner. Under this scenario, the machine owner acts as tax collector for the State and submits sales and use tax paid on the "rental fee" paid to the machine owner by the location owner. On March 25, 1991, Carmen R. Cordoba, C.P.N., Audit Group Supervisor with the Department of Revenue, wrote to Mr. Matthews indicating that the Department was construing the arrangement under which Mr. Matthews operated to be a lease of real property as opposed to the rental of personal property. Specifically, the Department stated the following: "we found them to be agreements to lease space to place the vending machines." To the contrary, Mr. Matthews' agreements are not for the rental of real property. Instead, he rents his personal property (the amusement and game machines) to the various locations. Under this scenario, Mr. Matthews is responsible for collecting sales and use tax on the rental fee paid to him and transmitting the sales and use tax thereon to the Department of Revenue. Apparently, the Department of Revenue has assessed an additional use tax on the payments made to the location owners where the Department has construed that Lauren, Inc. "rents space" for the machines. An additional tax has been assessed on the purchase of the machines, purchases of parts, etc... because the Department found that he was not renting these machines. This is simply in error. The Department has specified that Lauren, Inc. must refund all taxes collected from the location owners where Lauren, Inc., purportedly "rents space." At that point, Lauren, Inc. can apply for a refund on the taxes paid by Lauren, Inc. on the rental of the personal property. It is my opinion that this is a simple misunderstanding by the Department of Revenue staff as not under- standing the arrangements made by Lauren, Inc. in conducting its business with various location owners. On July 25, 1991, Mattox sent a copy of this letter to the Disposition Section of the Department's Bureau of Hearings and Appeals. By letter dated September 6, 1991, the Administrator of the Sales Tax Appeals Section of the Department's Bureau of Hearings and Appeals gave notice that Mattox's July 22, 1991, letter, had "been accepted for review as a qualifying protest." On November 13, 1991, a Notice of Decision was issued denying the protest. The nature of the protest was described in the Notice of Decision as follows: Lauren, Inc. is protesting the assessment of use taxation for the rental of real property involving the following situations: Taxation of purchases of vending machines, repairs and purchasers [sic] of parts; and Tax erroneously collected to be reimbursed to customers/landlords and taxpayer to request a refund from D.O.R. The following were set forth in the Notice of Decision as the "facts" pertinent to the protest: This is a first time audit of the taxpayer. The taxpayer is a full service vending machine business. The taxpayer has furnished representative con- tracts between his business and the location owners where his machines are placed. The specifics of the contracts are discussed below. According to the agreement, the taxpayer "installs, operates, services, and maintains coin operated machines on the proprietor's premises." The taxpayer has collected tax from location owners on their share of the proceeds, which he refers to as "rentals of the machine" to the location owners. The contract provides for the location owner to provide a space for the vending machines. It makes no reference whatsoever to a lease of the machine to the location owner. The taxpayer collects the money from the machines, and when applicable, also provides and owns the merchandise. The Notice of Decision contained the following discussion and analysis of the "law and [Petitioner's] argument:" You argue in the letter of protest that the Lauren, Inc. lease agreements are for the rental of personal property (the vending machines) to various locations. You state that "Mr. Matthews is responsible for collecting sales and use tax on the rental fee paid to him and transmitting the sales and use tax thereon to the Department of Revenue." You also state "an additional tax has been assessed on the purchase of the machine, purchases of parts, etc.... because the Department found that he was not renting these machines. This is simply in error." A tax is imposed on the privilege of engaging in the business of coin operated vending and amusement machines by Rule 12A-1.044(2)(A), F.A.C., which is written as follows: "(a) When coin-operated vending and amusement machines or devices dispensing tangible personal property are placed on location by the owner of the machines under a written agreement, the terms of the agreement will govern whether the agreement is a lease or license to use tangible personal property or whether it is a lease or license to use real property." Rule 12A-1.044(4), F.A.C., states..."the purchase of amusement machines or merchandise vending machines and devices is taxable, unless purchased for exclusive rental." The effect of the agreement is utterly clear. Lauren, Inc. provides the food and cigarette items to be sold. The sales revenues belong to Lauren, Inc. Sales tax is due the state from Lauren, Inc. on the entire amount of those sales revenues. A share of the sales revenues is paid to the location owner by Lauren, Inc. as consideration for what the location owner has provided, a license to use his realty by placing the vending machines on the premises. NO RENT WHATSOEVER FOR THE MACHINES IS PAYABLE BY THE LOCATION OWNER TO LAUREN, INC. UNDER THE AGREEMENT. Generally, whether an agreement is a lease or a license depends upon the intent of the parties as determined from the entire agreement. In determining the intent of the parties, the fact that the parties may use terms such as "lease," "lessor," "lessee," or "rent" will not be determinative of whether an agreement is a lease. In Napoleon v. Glass, supra, 224 So.2d 883 (3d Dist. Ct. App. 1968), the court, at 884-885 states: "Although the parking concession agreement was called a Concession Lease and provided for the payment of 'rent,' the document unquestionably created a licensor-licensee relationship rather than a landlord-tenant relationship." The "conclusion" that the Department reached by applying the foregoing principles of "law" to the pertinent "facts" in Petitioner's case was articulated as follows in the Notice of Decision: It is the Department's position that based upon the terms of the agreements provided by Lauren, Inc. that this is a license to use the location owner's real property rather than a lease of Lauren, Inc.'s tangible personal property to the location owners. Likewise, absent a re-rental of the vending machines, the sales tax is due from, Lauren, Inc. on its purchases of and repairs to its vending machines. Likewise, the taxes collected in error by the taxpayer from his customers should be reimbursed to the taxpayer's customers. The audit findings shall, therefore, remain as assessed. The Notice of Decision advised Petitioner of its right to file a Petition for Reconsideration. Such a Petition for Reconsideration was subsequently submitted on or about December 10, 1991, by Mattox on Petitioner's behalf. In the Petition for Reconsideration, Mattox made the following argument: The Notice of Decision is flawed in all respects. With respect to issue No. 1, which the Tax Conferee [the author of the Notice] has entitled "Vending Machines," even the situations set forth are incorrect. Lauren, Inc. does not contest nor is there any issue related to any finding regarding its vending machines. There is simply no issue regarding vending machines. There is also no issue regarding the taxation of purchases of vending machines, repairs, and/or purchases or parts. Lauren, Inc., purchases its machines and performs repairs for machines that are rented to various locations. Therefore, under Rule 12A-1.044, Florida Admini- strative Code, these purchases and repairs are exempt from taxation. The only issue in this case is the factual scenario with which Lauren, Inc. conducts business. Under Rule 12A-1.044, Florida Administrative Code, there are several instances in which the rental of tangible personal property are recognized. The Tax Conferee has apparently ignored the industry standards in this regard and has misinterpreted the manner and method in which Lauren, Inc., conducts business. As I originally stated in my July 22, 1991 correspondence to the Department protesting the assessment of Sales and Use Tax, Lauren, Inc. has agreements with various location owners to place amusement and game machines at any particular location and the location owner rents Lauren, Inc.'s personal property (amusement and game machines). Even under the Location Lease Agreements that Lauren, Inc. has with its customers, they specify that the company (Lauren, Inc.) is in "the business of leasing, renting, servicing, operating, maintaining and repairing... coin operated machines..." I am absolutely confounded as to why the Department has determined that Lauren, Inc., owes the above- stated tax and penalty. There has never been any question that Lauren, Inc. collected tax from the various locations and remitted this tax to the Department of Revenue. It appears that Lauren, Inc. is now to apply for a refund to the Department of Revenue, pay all sums already paid to the Depart- ment of Revenue to the various locations where its machines are located, for the various locations to remit this same amount back to the Department of Revenue. This simply does not make sense to me. With respect to the statement made in the Notice of Decision that the "effect of the agreement is utterly clear," Mattox continued: We are in complete agreement with the Tax Conferee in this regard, except for the fact that our conclusions are utterly inapposite. Lauren, Inc. does provide food and cigarette items to be sold out of the various machines, however, in this audit and protest, there is no issue regarding food and cigarette items or the tax paid thereon. The only issue is the [e]ffect of the agreement between Lauren, Inc. and the location owners. If the Tax Conferee had characterized this relationship correctly, a completely different result would have been reached. Lauren, Inc. does have vending machines as well as amusement and game machines. The Tax Conferee may have confused the vending arrangements with location owners with the amusement and game agreements. There is a recognized difference industry wide in the method and manner within which vending businesses and amusement and game business are conducted. There has been no such recognition by the Tax Conferee and we would sincerely appreciate the opportunity to present additional evidence, if necessary, to the Department of Revenue for its reconsideration of the issues raised herein. Sometime after it received the Petition for Reconsideration, the Department, through one of its employees, Vicki Allen, telephoned Mattox and asked her to provide the Department with any additional materials she wanted the Department to consider. Mattox responded to this request by letter dated February 19, 1992, in which she stated the following: You have requested that I provide additional information regarding Lauren, Inc. however, in lieu of providing this information through the mails, I would like the opportunity to sit down and explain in person our position regarding the sales and use tax assessments set forth in the recent assessment. Moreover, I am not certain as to whether any additional documentation or information exists or the nature of the documentation that will be helpful to you. Upon your receipt of this correspondence, please contact me to discuss this matter further. We are more than willing to provide additional information, but truly believe that the issues involved in this assessment could be resolved through a meeting between all parties concerned. Please advise accordingly. Allen never responded to Mattox's letter. On April 21, 1992, the Department issued a Notice of Reconsideration sustaining an assessment against Petitioner in the amount of $206,017.85 for taxes owed (plus penalty and interest). Allen was the author of the Notice of Reconsideration. The following were set forth in the Notice of Reconsideration as the "facts" upon which the sustained assessment was based: Lauren, Inc. is in the business of owning and operating coin-operated vending machines. The corporation entered into various agreements under which it received permission to install, place, operate, service and maintain its coin-operated vending machines on the premises of various location owners in return for an agreement to pay the location owners a percentage of the gross receipts from the machines. The corporation interpreted the agreements to be transactions involving the rental of tangible personal property and not for the license to use real property. Therefore the corporation collected and remitted tax on the gross receipts taken from the machines and from the location owners on the rental of the machines as provided under Rule 12A- 1.044(2)(b), F.A.C. The auditor determined that the agreements between Lauren, Inc. and the location owners, involving the placement of vending machines at the various location owner's premises, were agreements made for the license to use real property and not for the rental of tangible personal property. Therefore, the auditor assessed use tax on these transactions. In addition, the auditor assessed use tax on the purchases made by Lauren, Inc. for the coin-operated machines, parts, and accessories. The only issue maintained by you is whether or not the agreements between Lauren, Inc. and the location owners were agreements for the license to use real property or whether the agreements constitute the rental of tangible personal property and would therefore, exempt the purchases of the coin operated vending machines, parts, and accessories as provided under Rule 12A-1.044(2)(B), F.A.C. In the Notice of Reconsideration, the Department cited Section 66 of Chapter 86-152, Laws of Florida, which, the Department stated in the Notice, "amended Section 212.031, Florida Statutes, (F.S.), effective July 1, 1986, to make licenses to use real property, as well as leases, subject to tax." The Notice of Reconsideration also contained the following excerpt from Rule 12A-1.070, Florida Administrative Code: "(g) An agreement whereby the owner of real property grants another person permission to install and maintain a full service coin-operated vending machine, coin-operated amusement machine, coin-operated laundry machine, or any like items, on the premises is a taxable use of real property. The consideration paid by the machine owner to the real property owner is taxable." [Emphasis in original.] In addition, the provisions of subsections (2)(a), (b) and (c) of the Rule were recited in the Notice of Reconsideration. Allen stated her "conclusion" as follows in the Notice of Reconsideration: A review of the agreements presented in the audit file was made by this writer and the following conclusion was made: The agreements clearly reflect that Lauren, Inc. is installing, placing, operating and maintaining the coin-operated vending machines on the various location owner's realty for a percentage of the gross proceeds. Nowhere in the agreements does it state that Lauren, Inc. is leasing or renting the coin- operated vending machines to the location owner for a percentage of the gross proceeds. The agreements do, however, specifically state that the location owner will provide a space for Lauren, Inc. to install, operate, service, and maintain a coin-operated vending machine on the location owner's premises. The agreements made between Lauren, Inc., the owner of the machines[,] is and has been since July 1, 1986, a taxable license to use real property. Before that date, amounts paid for leases of real property were taxable, but licenses to use were not. Black's Law Dictionary defines a license to use real property as: "a privilege to go on premises for a certain purpose, but does not operate to confer on, or vest in a licensee any title, interest, or estate in such property." The agreements did not confer to Lauren, Inc. any "title, interest, or estate" in the location owner's realty, but, instead, only permitted Lauren, Inc. to come onto the property and place the coin- operated vending machines on the property for the purpose of making the machines available to those who wanted to use them. It is the Department's decision that the subject tax was assessed correctly pursuant to Rule 12A- 1.070(1)(g), F.A.C. and 12A-1.044(2)(a) and (c), F.A.C. and in accordance with Departmental policies and procedures. The audit findings shall remain as assessed in the enclosed closing statement. Particularly in light of the provision of Rule 12A-1.070, Florida Administrative Code, set forth in the Notice of Reconsideration, the agreements that Petitioner had provided the Department were reasonably susceptible to the interpretation that they were, as Allen had concluded, "taxable license[s] to use real property," notwithstanding that the parties to these agreements had intended that they be interpreted otherwise. The Notice of Reconsideration advised Petitioner of its right "to file a petition for a Chapter 120 administrative hearing with the Department." Petitioner filed such a petition with the Department on May 8, 1992. The Department referred the matter to the Division of Administrative Hearings on June 18, 1992, for the assignment of a Hearing Officer to conduct the hearing Petitioner had requested. The hearing was held on October 6, 1992. Two witnesses testified at the hearing, Matthews and Manley Lawson, a member of the Board of Directors of the Florida Amusement and Vending Association. In addition to the testimony of these two witnesses, a total of 11 exhibits were offered and received into evidence. The evidence presented at hearing was supplemented by a stipulation into which the parties had entered prior to hearing. On November 23, 1992, the Hearing Officer issued a Recommended Order recommending that the Department "enter a final order withdrawing the assessment that is the subject of the instant proceeding." The Hearing Officer's recommendation was based upon the following Conclusions of Law set forth in his Recommended Order: The instant case is governed by the version of Rule 12A-1.044, Florida Administrative Code, that was in effect during the audit period (referred to herein as the "Rule"). It read in pertinent part as follows: "(2) Vending and amusement machines, machine parts, and locations. When coin-operated vending and amusement machines or devices dispensing tangible personal property are placed on location by the owner of the machines under a written agreement, the terms of the agreement will govern whether the agreement is a lease or license to use tangible personal property or whether it is a lease or license to use real property. If machines are placed on location by the owner under an agreement which is a lease or license to use tangible personal property, and the agreement provides that the machine owner receives a percentage of the proceeds and the location operator receives a percentage, the percentage the machine owner receives is rental income and is taxable. The tax is to be collected by the machine owner from the location operator. The purchase of the records, needles, tapes, cassettes, and similar items, machines, machine parts and repairs, and replacements thereof by the machine owner is exempt. If machines are placed on location by the owner under an agreement which is a lease or license to use real property, and the agreement provides that the machine owner receives a percentage of the proceeds and the location operator receives a percentage, the percentage the location operator receives is income from the lease or license to use real property and is taxable. The tax is to be collected by the location operator from the machine owner. The purchase of the records, needles, tapes, cassettes, and similar items, machines, machine parts, and repairs and replacements thereof by the machine owner is taxable. * * * (4) The purchase of amusement machines or merchandise vending machines and devices is taxable, unless purchased for exclusive rental. * * * The following examples are intended to provide further clarification of the provisions of this section: Example: The owner of Town Tavern enters into a lease agreement with Funtime Company. Under the terms of the agreement, Funtime will provide coin-operated video game machines to Town Tavern, with Funtime retaining title to the machines and providing repairs or replacement parts as necessary. As consideration for the rental of the machines, Town Tavern will give Funtime 60 percent of the proceeds from the machine. By the terms of the agreement, this arrangement is a lease of tangible personal property and Funtime, as the lessor, must collect tax from Town Tavern on the portion of the proceeds it receives. The purchase of the video game machines, machine parts, and repairs thereof by Funtime Company is exempt. The portion of the proceeds retained by Town Tavern is not taxable. Example: An amusement and vending machine owner enters into a license agreement with City Airport, which grants the machine owner the right to place amusement and vending machines in Concourse A. The amusement machines consist of several electronic games and a pinball machine. The vending machines consist of soft drink, snack food, and candy machines. City Airport has the right to designate the areas within the concourse where the machines will be located; the machine owner and owner's employees are to stock the machines and provide repairs as needed. As consideration under the agreement, City Airport will receive 15 percent of all proceeds from the machines. By the terms of the agreement, this arrangement is a license to use real property, and City Airport, as the licensor, must collect tax from the machine owner." 3/ At issue in the instant case is whether the agreements Petitioner entered into with location operators during the audit period were, as claimed by Petitioner, leases or licenses to use tangible personal property, within the meaning of subsection (2)(b) of the Rule, or whether they were, as asserted by Respondent, leases or licenses to use real property, within the meaning of sub- section (2)(c) of the Rule. After having carefully examined the record in the instant case, particularly the stipulations and evidence regarding the contents of the agreements in question, how the agreements were interpreted by Petitioner and the other parties to the agreements, and the trade customs prevailing at the time, the Hearing Officer finds that the agreements were leases or licenses to use tangible personal property, within the meaning of subsection (2)(b) of the Rule, and that therefore the assessment issued against Petitioner, which was predicated upon a contrary finding, is not valid. See Blackhawk Heating & Plumbing Co., Inc., v. Data Lease Financial Corp., 302 So.2d 404, 407 (Fla. 1974)("[i]n the construction of written contracts, it is the duty of the court, as near as may be, to place itself in the situation of the parties, and from a consideration of the surrounding circumstances, the occasion, and apparent object of the parties, to determine the meaning and intent of the language employed;" "[w]here the terms of a written agreement are in any respect doubtful or uncertain, or if the contract contains no provisions on a given point, or if it fails to define with certainty the duties of the parties with respect to a particular matter or in a given emergency, and the parties to it have, by their own conduct, placed a construction upon it which is reasonable, such construction will be adopted by the court, upon the principle that it is the duty of the court to give effect to the intention of the parties where it is not wholly at variance with the correct legal interpretation of the terms of the contract"); Oakwood Hills Company v. Horacio Toledo, Inc., 599 So.2d 1374, 1376 (Fla. 3d DCA 1992)("[i]t is a recognized principle of law that the parties' own interpretation of their contract will be followed unless it is contrary to law;" "the court may consider the conduct of the parties through their course of dealings to determine the meaning of a written agreement"); International Bulk Shipping, Inc. v. Manatee County Port Authority, 472 So.2d 1321, 1323 (Fla. 2d DCA 1985)("[w]hile we agree that the language of Item 220 [of the tariff] does not clearly cover the shifting charges at issue, we observe that a court may consider trade customs and prior dealings between the parties to give meaning to the provision"); Bay Management, Inc., v. Beau Monde, Inc., 366 So.2d 788, 793 (Fla. 2d DCA 1978)("where a contract fails to define with certainty the duties of the parties, and the parties by their conduct have placed a reasonable construction on it, . . . such construction should be adopted by the court"). Accordingly, the assessment should be withdrawn. The Department, on January 15, 1993, issued a Final Order adopting the Hearing Officer's Findings of Fact and Conclusions of Law and his recommendation that the subject assessment be withdrawn.
