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Monday, August 29, 2016

Florida judge rules against gambling regulators in card games

Posted By on Mon, Aug 29, 2016 at 12:08 PM

Florida gambling overseers were wrong to do away with a rule governing controversial "designated player" card games at pari-mutuel facilities without replacing the regulations, an administrative law judge said Friday.

Judge E. Gary Early's ruling could have widespread implications within the state's gambling industry and could have an impact on a lawsuit filed by the Seminole Tribe of Florida challenging the card games.

In Friday's ruling, Early sided with gambling operators in West Palm Beach, Jacksonville, Melbourne, Miami and other parts of the state, who challenged the Department of Business and Professional Regulation's attempt to repeal a rule governing what are known as "designated player games" or "banked card games," years after regulators first approved the games.

First launched in 2012, the games have become wildly popular among gamblers and are now hosted by nearly every pari-mutuel that operates a cardroom in Florida. The industry maintains that doing away with the rule, adopted in 2014, would put an end to games that bring in $87 million a year.

Regulators proposed doing away with the rule late last year, insisting that the way the games are being conducted —- and not the games themselves —- violates a state gambling law, which prohibits pari-mutuels from acting as the "bank."

Under Florida law, a "banking game" is defined as one "in which the house is a participant in the game, taking on players, paying winners, and collecting from losers or in which the cardroom establishes a bank against which participants play." Pari-mutuel cardrooms are allowed to conduct games in which players compete only against each other.

But John Lockwood, a lawyer representing the gambling operators challenging the repeal of the rule, argued that doing away with the regulation effectively prohibited the cardrooms from offering the lucrative games, some of which require players to post $100,000 in order to participate.

Gambling regulators' argument that they did away with the rule to provide "clarity with the industry" is "simply untenable," Early wrote.

"Rather, respondent (the department) 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," Early wrote in the 52-page order Friday. "The evidence is conclusive that, by its repeal of (the rule), respondent simply changed its mind as to whether playing with a designated player constituted the establishment of a prohibited banking game. It previously determined that such games were lawful. … It has now determined they are not."

Because state law involving the designated player games is ambiguous, gambling operators require direction from the department's Division of Pari-mutuel Wagering, Early wrote, meaning regulators must replace the old rule with a new one.

"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 judge wrote.

Early also found that "the effort to restrict gameplay by repeal of the rules" is beyond the scope of regulators' authority.

The rule "specifically recognized a particular manner of game play as being allowable and, by repealing that rule, has established a policy that the same manner of game play is not allowable," Early wrote.

Early's ruling appears at odds with a recent decision by Administrative Law Judge Suzanne Van Wyk in a case involving Jacksonville Kennel Club Inc., one of more than two-dozen cardroom operators that received complaints from regulators in January. Van Wyk ruled Aug. 1 that the way the Jacksonville facility operated the games "did indeed violate" state law.

But, in a footnote in Friday's order, Early wrote that Van Wyk's decision in the Jacksonville case was based more on "case-specific proof" about the manner in which the games were played at the facility "and was not a sweeping conclusion that designated player games as approved constituted prohibited banking games."

The card games are also at the heart of a dispute between the Seminole Tribe and the state. Pari-mutuel operators say that dispute is the main reason gambling regulators had a sudden change of heart about the card games after earlier signing off on them.

Lockwood had accused regulators of abruptly changing their view of the games after Gov. Rick Scott and the Seminole Tribe signed a proposed $3 billion gambling deal, called a "compact," in December. The deal was never approved by the Legislature and never went into effect.

The designated-player games are also an issue in a lawsuit between the tribe and the state. A five-year deal giving the tribe exclusive rights to operate banked games expired last summer, prompting the Seminoles' lawsuit.

But the tribe's lawsuit did not excuse regulators' reversal about the rule, Early wrote on Friday.

"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 the respondent has taken divergent views of the statute in a manner that has substantially affected the interests of petitioners," the judge wrote.

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