Opinion
C089329
04-04-2022
Eric G. SWALLOW, Plaintiff and Appellant, v. CALIFORNIA GAMBLING CONTROL COMMISSION, Defendant and Appellant.
Grignon Law Firm, Margaret M. Grignon, Long Beach, Anne M. Grignon, Vakili & Leus, and Sa'id Vakili, Los Angeles, for Plaintiff and Appellant. Xavier Becerra, Attorney General, Sara J. Drake, Senior Assistant Attorney General, T. Michelle Laird, William P. Torngren, and William L. Williams, Jr., Deputy Attorneys General, for Defendant and Appellant.
Certified for Partial Publication.
Pursuant to California Rules of Court, rules 8.1105 and 8.1110, this opinion is certified for publication with the exception of parts II through V of the Discussion.
Grignon Law Firm, Margaret M. Grignon, Long Beach, Anne M. Grignon, Vakili & Leus, and Sa'id Vakili, Los Angeles, for Plaintiff and Appellant.
Xavier Becerra, Attorney General, Sara J. Drake, Senior Assistant Attorney General, T. Michelle Laird, William P. Torngren, and William L. Williams, Jr., Deputy Attorneys General, for Defendant and Appellant.
MAURO, J.
After a hearing before an administrative law judge (ALJ) and review by appellant California Gambling Control Commission (Commission), the Commission revoked and refused to renew the gambling license of cross-appellant Eric G. Swallow. The Commission also imposed a $13,672,000 monetary penalty and $127,880 in costs against Swallow. Swallow petitioned the trial court for a writ of mandate, challenging the revocation and nonrenewal of his gambling license, the amount of the monetary penalty, and the costs. The trial court granted Swallow's petition in part and denied it in part. It concluded the Commission did not violate Swallow's due process rights when it revoked and refused to renew Swallow's gambling license, except that the Commission may have relied on unproven misconduct. The trial court therefore remanded to the Commission "to ensure that Swallow is not disciplined based on misconduct that was not proven." The trial court also concluded the amount of the monetary penalty imposed by the Commission was not supported by law, and the costs could only be assessed by the ALJ on remand. It therefore vacated the penalty and costs imposed and remanded for the Commission to redetermine the amount of the penalty and to refer the issue of costs to the ALJ.
Both the Commission and Swallow appeal the judgment of the trial court. The Commission contends (1) the trial court erred by ruling that Business and Professions Code section 19930, subdivision (c) limits fines and penalties to $20,000 for each violation of the Gambling Control Act or associated regulations. For his part, Swallow contends (2) the Commission did not have jurisdiction to revoke Swallow's gambling license, (3) the Commission denied Swallow a fair hearing, thus violating his due process rights, (4) the Commission's factual findings are not supported by substantial evidence, and (5) the trial court improperly remanded the issue of costs for further proceedings.
Most of the statutory provisions at issue in this case are found in the Gambling Control Act (Act). (Bus. & Prof. Code, div. 8, ch. 5; § 19800.) Undesignated statutory references are to the Business and Professions Code. Hereafter, we will refer to section 19930, subdivision (c) as section 19930(c).
In the published portion of this opinion, we conclude section 19930(c), when considered within the statutory and regulatory framework of the Act, does not authorize the $13,672,000 monetary penalty. And in the unpublished portion of the opinion, we conclude the Commission had jurisdiction to revoke Swallow's gambling license, the Commission did not violate Swallow's due process rights, Swallow fails to present a proper argument challenging the sufficiency of the evidence, and the trial court properly remanded the issue of costs for further proceedings.
Swallow's request for judicial notice, filed March 20, 2020, of legislative history documents is granted, except as to exhibits 2, 3, and 6, which pertain to bills not passed by the Legislature.
We will modify the judgment granting the peremptory writ of mandate to order the Commission to reconsider the monetary penalty in a manner consistent with this opinion instead of the trial court's order. We will affirm the judgment as modified.
In his recounting of the facts and the procedural history of this case, Swallow makes numerous claims of error by the Commission and the trial court. To the extent these claims of error were not included in the legal argument, not supported by legal authority, or not adequately stated in an argument heading or subheading, we do not address them. (See Cal. Rules of Court, rule 8.204(a)(1)(B) ; see also Pizarro v. Reynoso (2017) 10 Cal.App.5th 172, 179, 215 Cal.Rptr.3d 701 [discussing forfeiture of issues not properly raised].)
"Public trust and confidence can only be maintained by strict and comprehensive regulation of all persons ... related to the operation of lawful gambling establishments ...." ( § 19801, subd. (h).) "All gambling operations, all persons having a significant involvement in gambling operations, all establishments where gambling is conducted, and all manufacturers, sellers, and distributors of gambling equipment must be licensed and regulated to protect the public health, safety, and general welfare of the residents of this state as an exercise of the police powers of the state." ( § 19801, subd. (i).)
The Commission has jurisdiction over the operation and supervision of gambling establishments and over all persons or things having to do with the operations of gambling establishments. It issues gambling licenses and may also suspend or revoke the licenses. ( §§ 19811, 19870, 19930.) The Department of Justice, through its Bureau of Gambling Control (Bureau), investigates gambling license applicants, monitors the conduct of licensees, and initiates and prosecutes disciplinary actions against licensees before the Commission. ( §§ 19826, 19868, 19930.)
Under the Act, "[e]very person ... who receives, directly or indirectly, any compensation or reward, or any percentage or share of the money or property played, for keeping, running, or carrying on any controlled game in this state, shall apply for and obtain from the commission, and shall thereafter maintain, a valid state gambling license, key employee license, or work permit ...." ( § 19850.)
Beginning in 2007, Garden City, Inc., owned by Swallow with Peter and Jeanine Lunardi, operated the M8trix Casino in San Jose. Garden City, Swallow, and the Lunardis were all licensed by the Commission. The licenses were renewed every two years.
In 2008, Swallow and the Lunardis formed three limited liability companies in Nevada: Profitable Casino (owned by Swallow), Potere (owned by the Lunardis), and Dolchee (owned by Swallow and the Lunardis). The related entities (that is, related to Garden City and the M8trix gambling establishment) did not hold licenses from the Commission. Each of these related entities had contracts to provide services or licenses to Garden City. The contracts between Garden City and the related entities were for Profitable Casino to provide software for various casino operations, Dolchee to license card games, and Potere to provide general business consulting. Garden City agreed to pay each related entity $400,000 or more per month under the contracts. In 2012, for example, Garden City paid almost $12 million to Dolchee and more than $3.3 million each to Profitable Casino and Potere. Between 2009 and 2013, Garden City paid the related entities more than $81 million. The trial court noted that the parties disputed the nature of the services actually provided by the related entities in exchange for the payments.
In 2012, Swallow filed an application with the Commission to operate another gambling establishment, Hollywood Park, in Inglewood. In connection with that application, the Commission and Bureau asked for more information concerning the dealings between Garden City and the related entities. Swallow provided more than 500 pages of documents. He eventually withdrew his application to operate the Hollywood Park gambling establishment; however, as the trial court noted, "his responses to the Commission and the Bureau regarding that application lie at the heart of this case."
In 2014, the Bureau filed an accusation against Garden City, Swallow, and the Lunardis as respondents, seeking to revoke or suspend their gambling licenses and to impose fines. The Bureau stated in the accusation: "This case seeks to discipline Respondents’ licenses - by revocation, suspension, and/or fine as appropriate - for persistent and repeated violations of, and lack of suitability for continued licensing under, the [Act] and the regulations adopted pursuant to the Act. As alleged in this Accusation, Respondents provided untrue and misleading information to the Bureau and others, failed to provide information requested by the Bureau, engaged in self-dealing to siphon off monies for themselves and reduce reported net income, and benefited from payments prohibited by the Act. The acts and omissions alleged in this Accusation are inimical to the public health, safety, and welfare; those acts and omissions demonstrate that Respondents are not persons of good character, honesty, and integrity. Their acts and omissions, as alleged in this Accusation, pose a threat to the effective regulation and control of controlled gambling, and create or enhance the dangers of unsuitable, unfair, or illegal practices, methods, and activities in carrying on the business and financial arrangements incidental to the conduct of controlled gambling. Respondents’ acts and omissions not only impeded the Bureau's investigation and fact gathering, but also effectively reduced potential payments to charities located in the City of San Jose. Respondents are not suitable or qualified for continued licensure; therefore, each of their licenses should be disciplined."
The Bureau alleged the related entities did not provide invoices for the payments from Garden City, and Garden City accounted for the payments to the related entities as expenses rather than as dividends or distributions to the owners. Garden City made payments to the related entities based on its available cashflow, essentially reducing Garden City's net income to zero and thus reducing its tax liability. While the Bureau did not allege that the flow of funds to the related entities was illegal or violated the Act or that the related entities were required to be licensed, the Bureau maintained that the respondents were subject to discipline on various grounds such as the manner of operating the gambling establishment ( § 19823 ), lack of good character ( § 19857 ), and failure to provide information to the Bureau ( § 19859 ). As to Swallow, the Bureau alleged his license should be revoked or suspended because he provided false or misleading information and failed to provide requested documentation in his Hollywood Park application.
The Lunardis and Garden City entered into a stipulated settlement, admitting violations of the Act and agreeing to pay a $1.5 million fine and $275,000 in costs. They were allowed to retain their gambling licenses.
The case against Swallow was heard by an ALJ. The ALJ found Swallow provided false and misleading information and failed to provide requested information and documentation to the Bureau. Based on the findings, the ALJ found that Swallow was disqualified for licensure and ordered that Swallow's license be revoked and that he pay a $430,000 fine, which was the maximum $20,000 fine each for 21.5 violations of the Act and regulations. As the trial court noted, the parties do not explain how a half-violation could be committed.
The Commission did not adopt the ALJ's decision. Like the ALJ, the Commission found Swallow provided false and misleading information, failed to provide information and documentation to the Bureau, and was disqualified for licensure. But instead of a $430,000 fine, the Commission imposed a $13,672,000 monetary penalty and $127,880 in costs.
Swallow filed a petition for writ of mandate in the trial court, challenging the Commission's decision on numerous grounds. After briefing and argument, the trial court determined that the Commission did not abuse its discretion in revoking Swallow's gambling license and denying his application to renew it. However, the trial court concluded the Commission's imposition of a $13,672,000 monetary penalty exceeded the limit imposed by the Legislature and that the Commission did not have jurisdiction to assess costs or to discipline Swallow based on unproven misconduct. The trial court therefore granted the petition in part, denied it in part, and remanded the matter to the Commission for further proceedings consistent with the trial court's order.
Swallow and the Commission both filed a notice of appeal.
STANDARD OF REVIEW
This case reaches us as a petition for writ of administrative mandate ( Code Civ. Proc., § 1094.5 ) and for traditional mandate ( Code Civ. Proc., § 1085 ) because it concerns both the revocation of Swallow's gambling license and the refusal to renew his license. The Commission's revocation of a gambling license is reviewed by administrative mandate: "Any person aggrieved by a final decision or order of the commission that limits, conditions, suspends, or revokes any previously granted license or approval, made after hearing by the commission, may petition the Superior Court for the County of Sacramento for judicial review pursuant to Section 1094.5 of the Code of Civil Procedure ...." (§ 19932, subd. (a).) On the other hand, the Commission's refusal to grant or renew a gambling license is reviewed by traditional mandate: "A decision of the commission ... denying a license ... may be reviewed by petition pursuant to Section 1085 of the Code of Civil Procedure. Section 1094.5 of the Code of Civil Procedure does not apply to any judicial proceeding held to consider that petition, and the court may grant the petition only if the court finds that the action of the commission was arbitrary and capricious, or that the action exceeded the commission's jurisdiction." ( § 19870, subd. (f).)
"Under both Code of Civil Procedure sections 1085 and 1094.5, we evaluate the agency's exercise of judgment for abuse of discretion. [Citations.] [There is] ‘no practical difference between the standards of review applied under traditional or administrative mandamus.’ [Citation.]" ( Southern California Cement Masons Joint Apprenticeship Committee v. California Apprenticeship Council (2013) 213 Cal.App.4th 1531, 1549, 153 Cal.Rptr.3d 448.)
DISCUSSION
I
The Commission's contentions on appeal all relate to the trial court's ruling that section 19930(c) does not support the Commission's imposition of a $13,672,000 monetary penalty against Swallow. The Commission contends the trial court erred by ruling that section 19930(c) limits fines and penalties to $20,000 for each violation of the Act or regulations.
The Commission argues the Constitution places the only limit on the monetary penalties the Commission imposes. We need not reach the question of constitutional limits because, as we explain, the Act and regulations do not authorize the Commission's imposition of a $13,672,000 monetary penalty in this case.
We analyze the issue somewhat differently than the trial court. While the trial court equated fines and monetary penalties, we conclude there is no need to equate them because the statutory and regulatory framework of the Act and regulations adopted under the Act (hereafter, the Act and regulations) identify limits for monetary penalties. Construing section 19930(c) to authorize the $13,672,000 monetary penalty would be inconsistent with the statutory and regulatory framework.
When construing a statute, as we must in this case, we consider the matter de novo. We give the agency's interpretation deference if it is appropriate under the circumstances, such as when the statute is complex or technical. ( California Building Industry Assn. v. Bay Area Air Quality Management Dist. (2015) 62 Cal.4th 369, 381, 196 Cal.Rptr.3d 94, 362 P.3d 792.) While an administrative interpretation of a statute is entitled to great weight, it must be rejected if it is "erroneous or unauthorized by the applicable laws." ( Bekins Van Lines, Inc. v. State Board of Equalization (1964) 62 Cal.2d 84, 91, 41 Cal.Rptr. 297, 396 P.2d 713.) We must attempt to harmonize all parts of the statutory and regulatory framework as a whole and avoid an interpretation that would render any part meaningless. ( Renee J. v. Superior Court (2001) 26 Cal.4th 735, 743, 110 Cal.Rptr.2d 828, 28 P.3d 876 ; Moyer v. Workmen's Comp. Appeals Bd. (1973) 10 Cal.3d 222, 230-231, 110 Cal.Rptr. 144, 514 P.2d 1224.)
As noted, the ALJ recommended fines totaling $430,000 for 21.5 violations of the Act, $20,000 for each violation. The Commission rejected the recommendation as inadequate and, instead, imposed a monetary penalty of $13,672,000. In its decision, the Commission wrote that section 19300(c) provides a limitation on fines but not on monetary penalties, reasoning: "It is apparent that the [L]egislature authorized fines per violation with a limit to remedy specific behavior whereas penalties were not correspondingly limited. Instead, penalties were meant to further other purposes of the [Act]."
Section 19930(c) provides: "In addition to any action that the commission may take against a license, permit, finding of suitability, or approval, the commission may also require the payment of fines or penalties. However, no fine imposed shall exceed twenty thousand dollars ($20,000) for each separate violation of any provision of this chapter or any regulation adopted thereunder."
Invoking canons of statutory construction, the Commission argues we must give the words of the statute their usual meaning and also give effect to both the word "fines" and the word "penalties" in section 19930(c). The Commission asserts that if we do so, the second sentence of section 19930(c) limits fines only and not penalties. According to the Commission, penalties are unlimited under the statute. In addition, the Commission claims fines are imposed for specific violations of the Act and regulations, whereas monetary penalties are imposed for activities that do not violate express provisions of the Act and regulations.
The statutory and regulatory framework of the Act and regulations does not support the Commission's interpretation. For example, section 19841 of the Act authorizes regulations that "[r]equire owner licensees to report and keep records of transactions ...." ( § 19841, subd. (d).) And section 19943 authorizes a "monetary penalty" for violation of those regulations and provides limits for those penalties according to how many times the person or business has violated the pertinent regulations (ranging from $10,000 for a first proceeding to $100,000 for two or more prior proceedings). ( § 19943, subd. (b).)
"Any person or business described in subdivision (a), with actual knowledge of the requirements of regulations adopted by the commission pursuant to subdivision (d) of Section 19841, that knowingly and willfully fails to comply with the requirements of those regulations shall be liable for a monetary penalty. The commission may impose a monetary penalty for each violation. However, in the first proceeding that is initiated pursuant to this subdivision, the penalties for all violations shall not exceed a total sum of ten thousand dollars ($10,000). If a penalty was imposed in a prior proceeding before the commission, the penalties for all violations shall not exceed a total sum of twenty-five thousand dollars ($25,000). If a penalty was imposed in two or more prior proceedings before the commission, the penalties for all violations shall not exceed a total sum of one hundred thousand dollars ($100,000)." (§ 19943, subd. (b).)
Several of the Commission's own regulations also provide for a "fine" or a "monetary penalty" for specific violations of the Act or regulations, and each has a limit on the amount to be imposed. (See, e.g., Cal. Code Regs., tit. 4, §§ 12304 ["fine" against manufacturer or distributor limited to $20,000 for each violation]; 12466, subd. (d) ["monetary penalty" against cardroom for failure to provide certain records limited to $1,000 for each violation]; 12566 ["monetary penalty" against cardroom for certain violations with limits on the penalty ranging from $50 to $10,000 for each violation depending on the circumstances].)
In addition, section 12554, subdivision (d) of the Commission's regulations provides that the Commission may impose a "fine or monetary penalty" under sections 19930(c) and 19943, subdivision (b) of the Business and Professions Code if it finds (1) a violation of the Act or regulations, (2) a violation of any other law related to gambling, (3) a violation of a previously imposed disciplinary or license condition, or (4) a violation of "laws whose violation is materially related to suitability for a license, registration, permit, or approval." ( Cal. Code Regs., tit. 4, § 12554, subd. (d) & (d)(5).) The regulation does not allow imposition of a monetary penalty for conduct that falls outside its express enumerated scope. And as we have explained, section 19943, subdivision (b) of the Business and Professions Code sets limits on the penalty ranging from $10,000 to $100,000 depending on the circumstances.
"Upon a finding of a violation of the Act, any regulations adopted pursuant thereto, any law related to gambling or gambling establishments, violation of a previously imposed disciplinary or license condition, or laws whose violation is materially related to suitability for a license, registration, permit, or approval, the Commission may do any one or more of the following: [¶] ... [¶] (5) Impose any fine or monetary penalty consistent with Business and Professions Code sections 19930, subdivision (c), and 19943, subdivision (b) ...." (Cal. Code Regs., tit. 4, § 12554, subd. (d).)
The size of the monetary penalty in this case appears to be unprecedented. In its decision, the Commission noted that the penalty in this case is "different in magnitude than past fines and penalties." In oral argument for this appeal, the Attorney General admitted there has been no other case like this in which fines were capped but a much larger penalty was imposed. Apparently recognizing that this has never been done before, the Commission's order rejecting the ALJ's proposed decision and setting a calendar for written arguments asked the parties to address the following question: "Are penalties distinguishable from fines under the Gambling Control Act and are penalties limited in any fashion?" The Bureau requested a total of $12,950,000 in fines and penalties and encouraged the Commission to make its decision precedential under Government Code section 11425.60, subdivision (b) because "fines are capped at $20,000 per violation in an industry awash with cash."
The Commission ultimately reasoned that Swallow's conduct could only be viewed as "globally" out of compliance with the Act and addressed as such. It asserted that the Act gives it "broad discretion in assessing penalties to protect the public health, safety, and welfare" and cited section 12554, subdivision (d)(7) of the regulations as showing that a large penalty is sometimes appropriate and authorized. But section 12554, subdivision (d)(7) specifies that such a penalty must be consistent with the guidelines of section 19943, subdivision (b) of the Business and Professions Code. As we have explained, section 19943, subdivision (b) sets penalty limits ranging from $10,000 to $100,000 depending on the circumstances. Moreover, section 12554, subdivision (d)(7) is different than section 19930(c) because section 12554, subdivision (d)(7) applies in lieu of a suspension and the penalty is imposed only for the number of days the suspension is stayed. Because no such circumstance exists in this case, the Commission noted in footnote 18 of its decision that section 12554, subdivision (d)(7) does not apply here, and the Bureau agreed. Section 12554, subdivision (d)(7) does not support the $13,672,000 monetary penalty in this case.
The Commission cited other provisions of the Act and the Penal Code to support its conclusion that a large monetary penalty is appropriate here because Swallow's conduct was egregious. However, those provisions do not support its argument that its statutory authority to impose a monetary penalty is unlimited. For example, it cited section 19850 of the Act, which sets forth the licensing requirements for those who participate in a gambling enterprise. Section 19850 provides that if a violation of the statute is criminally prosecuted, "the punishment shall be as provided in Section 337j of the Penal Code." (§ 19850.) Penal Code section 337j provides for a maximum fine of $10,000. ( Pen. Code, § 337j, subd. (d).)
Although section 19930(c) does not itself expressly mention a limit on monetary penalties, the statutory and regulatory framework of the Act and regulations identifies a range of fine and penalty limits in the neighborhood of between $50 and $20,000, with a higher penalty up to $100,000 authorized in specified circumstances in subsequent proceedings. We decline to interpret section 19930(c) in a manner inconsistent with those limits.
The size of the monetary penalty imposed by the Commission was unauthorized, and the matter must be remanded to the Commission with directions to reconsider its decision consistent with this opinion.
See footnote *, ante .
DISPOSITION
The judgment granting the peremptory writ of mandate is modified to order the Commission to reconsider the monetary penalty in a manner consistent with this opinion instead of the trial court's order. As modified, the judgment granting the petition in part and denying it in part is affirmed. The parties shall bear their own costs on appeal. ( Cal. Rules of Court, rule 8.278(a).)
We concur:
HULL, Acting P. J.
Retired Associate Justice of the Court of Appeal, Third Appellate District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.