The opinion of the court was delivered by: Judge Butler
Argued: September 14, 2011
BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, President Judge HONORABLE BERNARD L. McGINLEY, Judge HONORABLE RENEE COHN JUBELIRER, Judge HONORABLE MARY HANNAH LEAVITT, Judge HONORABLE P. KEVIN BROBSON, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE JOHNNY J. BUTLER, Judge
Philadelphia Entertainment and Development Partners, L.P., d/b/a Foxwoods Casino Philadelphia (PEDP) petitions this Court for review of the December 23, 2010 final order of the Pennsylvania Gaming Control Board (Board) granting summary judgment in favor of the Board's Bureau of Investigation and Enforcement (BIE) and revoking PEDP's Category 2 Slot Machine License (License). The issues before this Court are: (1) whether the Board committed reversible error by applying an incorrect legal test to determine that PEDP violated conditions of its License; (2) whether the Board committed reversible error by applying an unconstitutionally vague standard of financial fitness and suitability as the basis for revoking PEDP's License; and, (3) whether the Board violated PEDP's due process rights by revoking its License via summary judgment without conducting an evidentiary hearing and without providing more discovery. For the reasons that follow, we affirm the Board's December 23, 2010 final order.
PEDP was formed in January of 2005 for the exclusive purpose of acquiring Delaware riverfront property in South Philadelphia and obtaining a gaming license with Foxwoods Development Company, L.L.C. (Foxwoods) and its affiliated entities to operate a slot machine facility known as Foxwoods Casino Philadelphia.*fn1 On December 28, 2005, PEDP applied to the Board for a Category 2 License.*fn2 On November 9, 2009, the Board issued a Category 2 Background Investigation and Suitability Report for PEDP (Suitability Report) which deemed PEDP financially suitable, based upon: the Mashantucket Pequot Gaming Enterprise's low risk financial profile, a proposed $30 million in equity from Foxwoods, and a commitment letter from Merrill Lynch for sufficient funds to develop the $560 million project. A licensing hearing was held on November 14, 2006. On December 20, 2006, the Board awarded PEDP one of two Category 2 slot machine licenses available for the operation of a gaming facility in the City of Philadelphia. The Board issued the License to PEDP on May 29, 2008, subject to the condition that PEDP open its casino and begin operation of 1,500 slot machines within one year.
On May 22, 2009, however, PEDP sought an extension in which to build and open its casino, due to factors beyond its control.*fn3 Following a hearing, the Board determined that PEDP had good cause for an extension and, by order issued September 1, 2009, granted PEDP an extension until May 29, 2011 to open its casino, which was then the maximum extension allowable under Section 1210 of the Pennsylvania Race Horse Development and Gaming Act (Gaming Act).*fn4 The September 1, 2009 order imposed nine extension conditions upon PEDP. Pursuant to Conditions 5 and 6 of the order, architectural and other construction plans, and a development timeline were due by December 1, 2009. The order also required PEDP to submit monthly status reports to the Board, and made clear that PEDP could not change the location of its casino facility.*fn5 PEDP did not seek reconsideration of, or appeal, the Board's September 1, 2009 order.
On November 30, 2009, because it could not meet the Board's December 1, 2009 deadline, PEDP filed a motion with the Board for another extension, this time until at least March 1, 2010, to submit its architectural plans and development timeline as required by the September 1, 2009 order. The Board's Office of Enforcement Counsel (OEC) for BIE opposed the motion and sought imposition of a sanction against PEDP due to its lack of compliance with the Board's conditions. The Board conducted a hearing on January 27, 2010, at which PEDP's counsel stated that PEDP had been working with investment advisors to obtain financing and funding for its casino since October of 2009, at which time it realized that it would need substantial funds not then available to it. PEDP said it had distributed packets to 15 potential investors.
PEDP's counsel stated at the hearing that the delay for PEDP was due to the state of the U.S. economy, and the wait for pending table gaming legislation. PEDP's counsel represented that, as of the day of the hearing, PEDP was discussing a potential agreement with a large international investor with gaming experience, and that entity had entered into a relationship with a construction manager for the proposed project. He further stated that the design agreed upon with the potential investor will be "vastly different" from its proposed design, making another public hearing necessary. Reproduced Record (R.R.) at 1407a-1408a, 1425a, 1434a. He also stated that he did not have a date certain for the agreement in principle to be reached and, when it was reached, PEDP will likely have to return to the Board for an extension of its operation date. Finally, he stated that, if the deal with the potential investor falls through, PEDP would be back on March 1st proposing a temporary, interim, slots-only facility.
On February 10, 2010, the Board issued an order: (1) denying PEDP's motion for extension; (2) imposing a $2,000.00 per diem sanction beginning December 1, 2009 and continuing until PEDP complied with the conditions of the Board's September 1, 2009 order; and, (3) issuing a rule to show cause at a hearing on March 3, 2010 why the Board should not impose additional sanctions, including revocation, for failure to comply with the order. On February 18, 2010, PEDP agreed to a non-binding Term Sheet with Wynn Resorts Limited (Wynn) that contemplated Wynn and PEDP entering into a purchase agreement which would result in Wynn becoming a controlling owner of PEDP.
At the March 3, 2010 cause hearing, PEDP acknowledged that it had not literally complied with Conditions 5 and 6, but offered testimony and documentary evidence of its proposed deal with Wynn. PEDP's counsel explained that PEDP was not capable of developing its proposed project, and it did not have an alternate plan in place in the event Wynn backed out of the deal. Despite testimony that Wynn did not require outside financing, and that only permits and the Board's approval of Wynn as the licensee stood in its way of finalizing the deal, the Board found that PEDP had not complied with Conditions 5 and 6 of the Board's September 1, 2009 order. In addition, the Board found that PEDP's progress reports had been vague, its purported delays were no longer due to opposition to PEDP's development of the casino, and that the economic downturn could not be a new cause of delay, when the same circumstances were evident before the September 1, 2009 order was issued.
Accordingly, the Board ordered that: the per diem sanctions would continue, that PEDP was to submit definitive Wynn financing documents by March 31, 2010, that PEDP was to submit architectural and other construction plans and a development timeline by April 26, 2010, and that PEDP was to report at the Board's April 29, 2010 meeting as to the need for further Board action for PEDP to achieve compliance with the Board's orders.
On March 31, 2010, copies of a partnership interest purchase agreement with Wynn were submitted to BIE, but they were unsigned. On April 2, 2010, Wynn and PEDP entered into an agreement and, on April 5, 2010, fully-signed, definitive financial documents of the transaction with Wynn were submitted to BIE. On April 6, 2010, PEDP also submitted to BIE documents in compliance with Conditions 5 and 6 of the September 1, 2009 order. On April 7, 2010, the Board's chief enforcement counsel advised the Board that PEDP had submissions in compliance with the March 3, 2010 order. On April 8, 2010, however, Wynn abruptly terminated its transaction with PEDP because the "project did not, in the end, present an opportunity that was appropriate for" Wynn. R.R. at 4725a. On April 14, 2010, PEDP met with Board chief counsel and chief enforcement counsel and executed a consent agreement which would give PEDP an extension of time to meet requirements of the September 1, 2009 order. At its April 29, 2010 meeting, however, the Board refused to approve the consent agreement.
Also, on April 29, 2010, BIE filed a complaint seeking revocation of PEDP's license for: failure to comply with the Board's September 1, 2009 and March 3, 2010 orders (Count I), failure to comply with the Statement of Conditions to a Slot Machine License (Count II), inability to have a minimum of 1,500 slot machines available for play by May 29, 2011 (Count III), and failure to maintain suitability (Count IV). PEDP filed an answer denying BIE's allegations. PEDP also filed a motion for an extension of time to submit financing documents, architectural and other construction plans, and a development timeline, pursuant to the Board's September 1, 2009 order; and a motion to toll or extend the date to apply for a table gaming certificate and pay the application fee. The motions were consolidated.*fn6
On June 18, 2010, the Board entered an order setting a discovery deadline. On October 5, 2010, BIE and PEDP filed cross-motions for summary judgment. On October 22, 2010, PEDP executed a Term Sheet with a subsidiary of Harrah's Entertainment, Inc., RBS Citizens National Association, and other parties (collectively Harrah's), for the financing, investment and management of PEDP's casino, which would be "superior to the plan that was initially contemplated," and it had Keating Building Company on board as construction manager and builder. R.R. at 4850a. Documentation purportedly memorializing the transaction was submitted to OEC on October 26, 2010, together with a request for an extension until December 31, 2012 to have 1,500 slot machines available to the public.
Oral arguments on the motions for summary judgment were held before the Board on October 27, 2010. At PEDP's urging, so that it had more time to work out its deal with Harrah's, the Board took the motions under advisement until its November 18, 2010 meeting. At the November 18, 2010 meeting, PEDP advised the Board that it was very close to concluding definitive documents with Harrah's and making necessary filings with the Board, but it was not yet final.*fn7 PEDP anticipated having all necessary documents filed before the Board's December 16, 2010 meeting. In light of those circumstances, PEDP asked the Board to continue to defer its ruling on the motions for summary judgment. In its November 19, 2010 order, however, the Board denied PEDP's motion for summary judgment. However, the Board tabled a ruling on BIE's motion for summary judgment and gave PEDP until December 10, 2010 to provide definitive documentation of a transaction with Harrah's, and report at the Board's December 16, 2010 meeting.
PEDP submitted documents to the Board by December 10, 2010 seeking the Board's approval for: a change of ownership/control (leaving Foxwoods and Washington Philadelphia Investors, L.P., each with 1.25 percent interest in PEDP as restructured), modifications to the proposed facility, and an extension until December 31, 2012 to make 1,500 slot machines available for play. PEDP also reported to the Board at the December 16, 2010 meeting. BIE raised issues with the documents as noted in the sealed record, which related to unsigned and incomplete documentation, a shortfall of committed funds and debt financing, a dilution of PEDP's proposed commitments to charities, and anticipated additional negotiations and contingencies that included table games licensing. By order issued December 23, 2010, the Board granted summary judgment in favor of BIE, and revoked PEDP's license. The Board issued its adjudication on January 26, 2011.
On January 14, 2011, PEDP filed a petition for review with this Court, seeking review of not only the Board's December 23, 2010 order, but the November 18, 2010 order denying PEDP's motion for summary judgment, and prior, non-final discovery orders dated June 18, June 30, July 15, July 28, August 10, August 11 (order and adjudication dated the same day), August 20, and September 8, 2010.*fn8
Although not specifically raised in its petition for review, PEDP states in its brief that its appeal also seeks review of the Board's adjudication and order dated September 1, 2009, its adjudication and order dated February 10, 2010, and its order dated March 3, 2010.
Initially, we note that this Court has held that "in accordance with 4 Pa.C.S. § 1202(a)(1) of the Gaming Act, the Board has sole regulatory authority over the conduct of gaming and related activities in the Commonwealth, vesting broad discretion with the Board to administer all aspects of the gaming industry in Pennsylvania." Rubino v. Pennsylvania Gaming Control Bd., 1 A.3d 976, 981 (Pa. Cmwlth. 2010). Accordingly, this Court's "review of Board decisions is limited to determining whether the Board: (1) erred as a matter of law; or (2) acted arbitrarily and in capricious disregard of the evidence." Greenwood Gaming & Entm't, Inc. v. Pennsylvania Gaming Control Bd., 15 A.3d 884, 886-87 (Pa. 2011).
Section 1202(b)(12) of the Gaming Act, 4 Pa.C.S. § 1202(b)(12), specifically authorizes the Board, at its discretion, to revoke a slot machine license. Section 1207(1) of the Gaming Act, 4 Pa.C.S. § 1207, provides in relevant part:
The board shall have the power and its duties shall be to:
(1) . . . revoke . . . any license . . . if the board finds in its sole discretion that a licensee . . . failed to comply with the provisions of this part or the rules and regulations of the board and that it would be in the public interest to . . . revoke . . . the license . . .
(Emphasis added). Section 1518(c)(1)(iii) of the Gaming Act, 4 Pa.C.S. § 1518(c)(1)(iii), specifically authorizes the Board to revoke a license on the basis of a willful and knowing violation of an order of the Board. The Board's Regulations, at Section 423a.6(b)(5), 58 Pa. Code § 423a.6(b)(5), also state:
Failure to fully comply with any provision contained in an executed Statement of Conditions constitutes a violation of the Statement of Conditions and may result in the imposition of Board-imposed administrative sanctions, up to and including revocation, against the individual to whom the license, permit, certification or registration was issued
It is clear, therefore, that violating the Gaming Act or the Board's Regulations, failing to comply with the Board's orders, and even failing to comply with a Statement of Conditions, authorizes the Board to exercise its discretion to revoke a license. With that in mind we will address the merits of PEDP's appeal.
The Financial Fitness/Suitability Standard Applied to PEDP.
PEDP first argues that the Board applied an incorrect legal test when it revoked PEDP's license on the basis of financial unsuitability, because the Gaming Act does not impose an obligation of financial suitability on Board licensees. Specifically, PEDP contends that Condition 5 of the September 1, 2009 order created such an obligation, and it failed to define the standard. We disagree.
The parties' cross-motions for summary judgment were based upon BIE's complaint for revocation of PEDP's Category 2 License. Count II of the complaint sought revocation due to PEDP's failure to comply with Condition 5 of the Statement of Conditions it executed in consideration of the receipt of its License. Count IV of the complaint sought revocation due to PEDP's failure to maintain suitability and/or financial fitness to possess its License.
The Board revoked PEDP's license on the basis that, PEDP was in violation of its Statement of Conditions and the Gaming Act because it did not have "the wherewithal to develop the proposed project and the ability to maintain a steady level and growth of revenue to the Commonwealth and the demonstration by clear and convincing evidence of financial suitability, integrity and responsibility." R.R. at 6301a-6302a. PEDP argues that because Section 1313 of the Gaming Act, 4 Pa.C.S. § 1313, and Section 441a.7(f) of the Board's Regulations, 58 Pa. Code § 441a.7(f), apply to slot machine applicants,*fn9 the criteria set forth therein cannot form the basis for the Board's determination as to whether PEDP, as a licensee, has maintained financial suitability. PEDP's position is without merit.
Section 1313 of the Gaming Act, which is clearly applicable to slot machine applicants, provides in pertinent part:
(a) Applicant financial information.--The board shall require each applicant for a slot machine license to produce the information, documentation and assurances concerning financial background and resources as the board deems necessary to establish by clear and convincing evidence the financial stability, integrity and responsibility of the applicant, its affiliate, intermediary, subsidiary or holding company, including, but not limited to, bank references, business and personal income and disbursement schedules, tax returns and other reports filed with governmental agencies, and business and personal accounting and check records and ledgers. In addition, each applicant shall in writing authorize the examination of all bank accounts and records as may be deemed necessary by the board.
(e) Applicant's operational viability.--In assessing the financial viability of the proposed licensed facility, the board shall make a finding, after review of the application, that the applicant is likely to maintain a financially successful, viable and efficient business operation and will likely be able to maintain a steady level of growth of revenue to the Commonwealth pursuant to section 1403 (relating to establishment of State Gaming Fund and net slot machine revenue distribution). Notwithstanding any provision of this part to the contrary, an applicant that includes a commitment or promise to pay a slot machine license fee in excess of the amount provided in section 1209 or a distribution of terminal revenue in excess of the amounts provided in sections 1403, 1405 (relating to
Pennsylvania Race Horse Development Fund) and 1407 (relating to Pennsylvania Gaming Economic Development and Tourism Fund) shall not be deemed a financially successful, viable or efficient business operation and shall not be approved for a slot machine license.
(f) Additional information.--In addition to other information required by this part, a person applying for a slot machine license shall provide the following information:
(1) The organization, financial structure and nature of all businesses operated by the person, including any affiliate, intermediary, subsidiary or holding companies, the names and personal employment and criminal histories of all officers, directors and key employees of the corporation; the names of all holding, intermediary, affiliate and subsidiary companies of the corporation; and the organization, financial structure and nature of all businesses operated by such holding, intermediary and subsidiary companies as the board may require, including names and personal employment and criminal histories of such officers, directors and principal employees of such corporations and companies as the board may require.
(2) The extent of securities held in the corporation by all officers, directors and underwriters and their remuneration in the form of salary, wages, fees or otherwise.
(3) Copies of all management and service contracts.
In addition, Section 441a.7(f) of the Board's Regulations states that a slot machine applicant's demonstration of suitability at a licensing hearing, must include a showing of:
(1) Good character, honesty and integrity in compliance with section 1310 of the act (relating to slot machine license application character requirements).
(2) Financial fitness in compliance with section 1313 of the act (relating to slot machine license application ...