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Sugarhouse HSP Gaming, LP. v. Pennsylvania Gaming Control Board

Supreme Court of Pennsylvania

June 20, 2017

SUGARHOUSE HSP GAMING, LP., Petitioner
v.
PENNSYLVANIA GAMING CONTROL BOARD, Respondent STADIUM CASINO, LLC, Intervenor MARKET EAST ASSOCIATES, LP, Petitioner
v.
PENNSYLVANIA GAMING CONTROL BOARD, Respondent STADIUM CASINO, LLC, Intervenor

          SUBMITTED: November 7, 2016

         Appeal from the Supplemental Adjudication of the Pennsylvania Gaming Control Board in the matter of the Applications for the Category 2 Slot Machine License in the City of the First Class, Philadelphia, dated June 23, 2016

          SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.

          OPINION

          TODD JUSTICE.

         These matters return to us following our prior decision on March 29, 2016, in which we affirmed in part, and vacated in part, the November 18, 2014 order of the Pennsylvania Gaming Control Board ("Board") - awarding the last remaining Category 2 slot machine license provided for by the Pennsylvania Race Horse Development and Gaming Act ("Gaming Act")[1] to applicant Stadium Casino, LLC ("Stadium") - and remanded this matter to the Board for the limited purpose of addressing two issues: (1) whether Watche Manoukian, an individual who is an affiliate of Stadium, was eligible to apply for a Category 1 slot machine license at the time of Stadium's application for the Category 2 license, in violation of Section 1304(a)(1) of the Gaming Act;[2] and (2) whether, after the issuance of the Category 2 license to Stadium, Manoukian will possess a financial interest in that entity greater than 33.3%, in violation of Section 1330 of the Gaming Act.[3] See SugarHouse HSP Gaming, LP v. Pennsylvania Gaming Control Board, 136 A.3d 457 (Pa. 2016) ("SugarHouse f).[4] The Board issued a "Supplemental Adjudication" on June 23, 2016, in which both issues were addressed.

         SugarHouse HSP Gaming ("SugarHouse"), the present holder of a Category 2 slot machine license for a casino it operates in Philadelphia, and Market East Associates, LP. ("Market East"), an unsuccessful applicant for the Category 2 license awarded to Stadium, have both filed petitions for review from that Supplemental Adjudication.[5] After careful consideration, we dismiss SugarHouse's petition for review, docketed at 124 EM 2016, finding it was not entitled to intervene in the proceedings on remand. In Market East's petition for review, docketed at 125 EM 2016, we affirm the Board's determination that Manoukian was not eligible to apply for a Category 1 slot machine license at the time of Stadium's application for its Category 2 license, and, thus, that Section 1304(a)(1) would not be violated by the issuance of a Category 2 license to Stadium. However, we reverse the Board's determination of what constitutes a "financial interest" as that term is used in Section 1330, and we define that term herein. Because the Board has admitted that it has not determined the nature of the specific "equity infusion" Manoukian will supply post-licensure to the trust which has an ownership interest in Stadium, we presently cannot affirm the Board's conclusion that Manoukian will not be in violation of Section 1330's 33.3% limit on the possession of a financial interest in a Category 2 slot machine licensee by another slot machine licensee. Thus, we again remand for further proceedings consistent with this opinion.

         I. Background

         To briefly recap the factual history of this matter, a more detailed recitation of which may be found in SugarHouse I, in 2006, the Board awarded one of the two Category 2 licenses allotted under the Gaming Act for Philadelphia to SugarHouse, which, in 2010, opened an "interim" casino located on the eastern side of Philadelphia near the Delaware River. In 2014, SugarHouse commenced construction of an expansion of this facility at that location, which has since been completed and is currently in operation.

         Initially, the Board awarded the second Category 2 license for Philadelphia to Foxwood Casino; however, in 2010, the Board revoked this license due to Foxwood's inability to raise the necessary money to build the facility, and the Board reopened the application process. Thereafter, four entities, including Stadium and Market East, filed applications with the Board seeking licensure, and the Board conducted background investigations of each of the applicants to determine whether they met the Gaming Act's eligibility and financial requirements for the issuance of a Category 2 license. After this process was complete, in 2013, the Board conducted a series of public suitability hearings to consider the merits of each application.

         Before these hearings commenced, SugarHouse filed a petition with the Board to intervene, advancing three contentions relevant to this appeal as to why, in its view, the license should not be granted: (1) the granting of a second slot machine license would result in the alleged saturation of the Philadelphia area gaming market and cause SugarHouse economic harm through the dilution of its gaming revenues; (2) Stadium was precluded from being awarded a Category 2 license by Section 1304 of the Gaming Act because one of its affiliates already was the owner or operator of a facility which had a Category 1 slot machine license; and (3) that "affiliates, owners, or financial backers" of Stadium, Market East, and other applicants owned or had a financial interest in other existing licensed gaming facilities potentially greater than the 33.3% share permitted by Section 1330 of the Gaming Act, which would preclude those applicants from receiving a Category 2 license. SugarHouse Petition to Intervene, 12/16/13, at 11. The Board granted SugarHouse limited intervention, restricted to the issue of market saturation, but denied its intervention as to the remaining issues.

         After reviewing all of the evidence which had been submitted to it, on November 18, 2014, the Board, at an open public hearing, voted 7-0 to award the Category 2 license to Stadium, and it issued an order to that effect on the same day. See Gaming Board Order, 11/18/14. This order incorporated, by reference, the reasons for the Board's approval which it set forth in a separate Adjudication, also issued on November 18, 2014. Id. In the Adjudication, the Board explained that it selected Stadium based on a variety of factors such as its proposed facility's accessibility, proximity to other casinos, impact on the surrounding community, traffic flow, past positive history of its management group in the gaming and entertainment industry, and the ability of Stadium's ownership group to self-finance the construction of the facility.

         Both SugarHouse and Market East filed petitions for review with our Court from the Board's November 18, 2014 order, which we consolidated for disposition.[6] In its petition, SugarHouse raised four claims: (1) the Board erred as a matter of law or acted arbitrarily and capriciously in limiting SugarHouse's intervention in Board proceedings to the question of market saturation; (2) the award of the license to Stadium would result in undue economic concentration in violation of Section 1102(5)[7] of the Gaming Act and the Board's regulations; (3) the award of the license to Stadium would violate the provisions of Section 1304 of the Gaming Act barring dual ownership and control of a Category 1 and a Category 2 licensed facility; and (4) renewing its argument that the award of the license to Stadium would violate Section 1330 of the Gaming Act, because it would result in its affiliates, who already possessed a slot machine license, owning or controlling more than 33.3% of a second casino.

         We rejected SugarHouse's challenge to the Board's limitation of its intervention.[8]We ruled that, because SugarHouse had a "substantial, direct, and immediate" interest in the outcome of the licensing proceedings greater than that held by the general public at large - namely, suffering possible financial detriment from the improper granting of a license to a competitor if the Board did not adequately weigh the statutory requirement that it consider the prospect of market saturation in its award of the second license, and because none of the other parties were pursuing this issue before the Board - SugarHouse was properly granted intervention in the licensing proceedings by the Board under its regulations governing intervention. See SugarHouse I, 136 A.3d at 470; see also 58 Pa. Code § 441a.7(z)(2) ("A person may file a petition to intervene [in a licensing hearing for a slot machine license] if the person has an interest in the proceeding which is substantial, direct and immediate and if the interest is not adequately represented in a licensing hearing."). However, SugarHouse did not present any argument in its brief to our Court on that issue. SugarHouse I, 136 A.3d at 470.

         By contrast, regarding SugarHouse's other issues, because they were raised and pursued by the other parties before the Board, and since the Board also received evidence on these questions from its own Bureau of Investigations and Office of Enforcement Counsel, we found no legal error, nor any arbitrary or capricious disregard of competent evidence by the Board, in denying SugarHouse's intervention as to these matters. We further noted that, in any event, Appellant Market East had raised the same challenges in its petition for review and continued to argue them in its appellate brief, rendering SugarHouse's arguments duplicative; hence, for all of these reasons, our Court did not address the other issues raised by SugarHouse.

         Addressing the issues Market East raised on appeal, we first rejected its claim that the Board failed to consider and explicitly analyze certain evidentiary factors, which it averred established that the award of the license to Stadium would result in undue concentration of economic opportunities in violation of Section 1102(5). We, therefore, affirmed the Board's ruling on this issue. Id. at 474-75.

         Our Court next considered the question of whether Stadium was eligible to apply for a Category 2 license under Section 1304 of the Gaming Act which provides, in relevant part: "A person may be eligible to apply for a Category 2 license if the applicant, its affiliate, intermediary, subsidiary or holding company is not otherwise eligible to apply for a Category 1 license." 4 Pa.C.S. § 1304(a)(1). Market East contended that Stadium was disqualified under this section because its affiliate, Manoukian, was, at the time of Stadium's application, "eligible to apply for a Category 1 license, " due to the fact he had an 85% ownership interest in an entity known as Greenwood Racing ("Greenwood"), which is the parent company of Category 1 license holder Parx Casino.

         The crux of Market East's argument in this regard was that, because a Category 1 license holder had to reapply for the renewal of that license prior to its expiration, both it, and any of its affiliates, must be deemed eligible to apply for the license as if they were applying for it the very first time. We rejected this claim based on the Gaming Act's differing requirements for the issuance of a slot license and the renewal of said license, as well as the Act's definition of applicant. SugarHouse I, 136 A.3d at 478 (citing 4 Pa.C.S. §§ 1103, 1325(a), 1326(a)). However, we noted that these statutory provisions did not establish the eligibility requirements to apply for a Category 1 license; rather, those requirements are set forth in Section 1302 of the Gaming Act.[9]

         Noting that Section 1302, by its terms, does not disqualify a Category 1 licensee or any of its affiliates from applying for another Category 1 license for a separate racetrack facility, we recognized that Manoukian, even though an affiliate of a Category 1 license holder Parx Casino, was, nevertheless, potentially eligible to apply for another Category 1 license for another racetrack facility in the Commonwealth. Due to the fact that such eligibility would arguably trigger disqualification for the issuance of a Category 2 license under the prohibitory language of Section 1304(a)(1), and because we agreed with Market East's contention that the Board did not sufficiently explain its consideration of this statutory provision in its Adjudication, we remanded the matter to the Board to address, in the first instance, whether Manoukian was, in fact, eligible to apply for a Category 1 license at the time of Stadium's application. SugarHouse I, 136 A.3d at 478.

         Our Court next examined Market East's contention that Stadium's proposed post-licensure ownership structure[10] violated Section 1330 of the Gaming Act, which states:

No slot machine licensee, its affiliate, intermediary, subsidiary or holding company may possess an ownership or financial interest that is greater than 33.3% of another slot machine licensee or person eligible to apply for a Category 1 license, its affiliate, intermediary, subsidiary or holding company.
No such slot machine license applicant shall be issued a slot machine license until the applicant has completely divested its ownership or financial interest that is in excess of 33.3% in another slot machine licensee or person eligible to apply for a Category 1 license, its affiliate, intermediary, subsidiary or holding company.

4Pa.C.S. §1330.

         Market East argued that the Board engaged in no meaningful analysis in its Adjudication of whether Manoukian's interests in Stadium, through his interests in Sterling Fiduciary, violated the requirements of Section 1330. Market East took the position that, because Manoukian's family members held all of the ownership shares in Sterling Fiduciary not owned by Manoukian, Manoukian's business ally occupied all of the corporate officer positions of Sterling Fiduciary, and because Manoukian pledged an "equity infusion" of $34 million[11] to Sterling Investors Trust, which would be used as capital by Stadium, this raised the question of whether the trust was being used by Manoukian to evade the requirements of Section 1330 by making it appear that his total interest in Stadium through Sterling Fiduciary and Greenwood was below the 33.3% limit imposed by that Section. Because Section 1330 expressly permits a license applicant to divest any ownership or financial interest prior to the issuance of a license in order to comply with this statute, we agreed with the Board that the relevant ownership structure of a Category 2 license applicant was that which the applicant would have post-licensure.

         Although our Court found no fault with the Board's calculation of Manoukian's ultimate ownership interests in Stadium through Sterling Financial under Section 1330, we noted that the language of this section additionally required the Board to examine the percentage of "the financial interest that an existing license holder will possess in a licensee after the license is issued." SugarHouse I, 136 A.3d at 481 (emphasis original and footnote omitted). Market East argued to our Court that the Board's Adjudication did not sufficiently support its apparent conclusion that Manoukian's financial interest in Stadium was also within the 33.3% limit of Section 1330, [12] and Market East further highlighted in its confidential brief to our Court its concerns over the equity infusion pledged by Manoukian to Sterling Investors Trust, which will, in turn, be used by the trust to purchase an interest in Stadium. Because the Board's Adjudication did not address these matters, we remanded to the Board to explicate whether Manoukian, post-licensure, would possess a financial interest in Stadium which exceeds that section's 33.3% limit on financial interests. SugarHouse I, 136 A.3d at 481. Due to the fact that the definition of financial interest as used in Section 1330 was integral to the Board's consideration of this issue, we additionally directed the Board, as the administrative agency charged with interpreting the Gaming Act, to articulate how it defined that term. Id. at 481 n.30.

         We, thus, affirmed in part, and vacated in part, the Board's order of November 18, 2014, and issued both a public remand order and a separate sealed version of that order to protect certain confidential personal information provided to the Board which is not a matter of public record. Both versions of the remand order directed the Board to conduct "further proceedings" to address the two matters discussed above.[13]

         On June 8, 2016, the certified record in this case was remanded to the Board. Thereafter, on June 23, 2016, the Board issued a Supplemental Adjudication in which it determined "that adequate factual basis exists within the record of the proceedings before it, as well as within official records of the Board, to address [the remanded] issues. As such, an additional hearing for the purpose of taking further evidence is not necessary." Supplemental Adjudication, 6/23/16, at 4-5. Based on the extensive evidentiary record, which had been previously developed during the licensing proceedings, its prior 2014 Adjudication, and its taking of judicial notice of matters published in the Pennsylvania Bulletin, [14] the Board first found that neither Manoukian, nor any other affiliate, intermediary, or holding company of Stadium was otherwise eligible to apply for a Category 1 slot machine license, and, consequently, that Section 1304 would not be violated by the issuance of a Category 2 license to Stadium. Second, the Board elucidated its definition of what it considered to be a financial interest under Section 1330, and found that, under that definition, Manoukian will not have a financial interest in Stadium, post-licensure, greater than 33.3%.[15] The Board, thus concluded, based on its prior Adjudication, that its November 18, 2014 order awarding the Category 2 license to Stadium was "supported by the extensive evidentiary record and consistent with the relevant provisions of the Gaming Act." Id. at 23.

         The same day the Board issued its Supplemental Adjudication, SugarHouse filed a petition to intervene with the Board, requesting that it be granted "full party status as an Intervener in the proceedings on remand." SugarHouse Petition to Intervene, 6/23/16, at 1. SugarHouse sought to "raise and present . . . matters" pertaining to the questions that we directed the Board to answer on remand. Id. at 4. As per the Board's rules of procedure, Sugarhouse's petition to intervene was referred to the Board's Office of Hearings and Appeals ("OHA"), to which, as explained more fully herein, the Board has assigned responsibility for the disposition of "all matters, except for hearings under § 441 a.7 (relating to licensing hearings for slot machine licenses)." 58 Pa. Code § 491 a.8.

         On June 29, 2016, a Board hearing officer returned the petition by mail to counsel of record for SugarHouse, along with the accompanying explanatory letter:

We are returning the Petition and marking the proceeding where it was docketed (OHA Docket No. 4745-2016) closed. Upon review of the Petition, it was determined that the relief sought ("the right to intervene and participate in the Proceedings on Remand") could not be granted because, in fact, the Board held no additional proceedings on remand as it relied upon the existing evidence of record.

         Letter from Board Hearing Officer Kenneth Zielonis, 6/29/16 (emphasis original). Thereafter, on July 22, 2016, SugarHouse filed a petition for review in our Court, docketed at 124 EM 2016, and Market East subsequently filed a petition for review, docketed at 125 EM 2016, on July 27, 2016.

         In response to SugarHouse's petition, the Board filed an application for relief with our Court, asserting that SugarHouse's petition should be "quashed and dismissed, inasmuch as our Court, in SugarHouse I, previously upheld the Board's limitation of SugarHouse's intervention in the licensing process to the subject of market saturation. Board Application for Relief, 8/12/16, at 1. After SugarHouse filed an answer to the application, our Court entered an order deferring action on the application and directing the parties to address this question in their respective briefs. See SugarHouse HSP Gaming v. Pa. Gaming Control Board, 124 EM 2016 (Pa. filed Sept, 13, 2016) (order).

         II. Analysis

         SugarHouse and Market East raise the following issues in their briefs:

         Appeal of SugarHouse at 124 EM 2016, J-133-2016: 16

1. Did the Board err as a matter of law, or at the very least act arbitrarily and with a capricious disregard of the evidence, when it failed to even consider, much less grant, SugarHouse's pending Petition to Intervene on Remand before issuing the Supplemental Adjudication?
2. Did the Board err as a matter of law, or at the very least act arbitrarily and with a capricious disregard of the evidence, when it denied SugarHouse due process by failing to give it notice and an opportunity to be heard before issuing the Supplemental Adjudication?
3 Did the Board err as a matter of law, or at the very least act arbitrarily and with a capricious disregard of the evidence, in issuing its Supplemental Adjudication when it failed to comply with this Court's March 29, 2016 Remand Order?
4. Did the Board err as a matter of law, or at the very least act arbitrarily and with a capricious disregard of the evidence, when it issued its Supplemental Adjudication in violation of the Pennsylvania Sunshine Act?

SugarHouse Brief (J-133-2016) (Public Version) at 5-6.

         Appeal of Market East 125 EM 2016, J-134-2016:

1. Did the Board commit an error of law in confirming its award of the License to Stadium without actually conducting further proceedings as specifically directed by this Court's March 29, 2016 Order vacating in part the Board's original order granting the License to Stadium?
2. Did the Board commit an error of law in confirming its award of the License to Stadium because granting the license to Stadium violates Section 1330 of the Gaming Act, 4 Pa.C.S. § 1330, which prohibits a slot machine licensee, its affiliate, intermediary, subsidiary, or holding company from possessing an ownership or financial interest greater than 33.3% of another slot machine licensee or person eligible to apply for a Category 1 license, its affiliate, intermediary, subsidiary, or holding company, and by adopting an impermissibly narrow definition of what constitutes a "financial interest" under this section of the Gaming Act with respect to Watche Manoukian?
3. Did the Board commit an error of law in confirming its award of the License to Stadium even though granting the License to Stadium violates Section 1304(a)(1) of the Gaming Act, 4 Pa.C.S. § 1304(a)(1), which makes Stadium ineligible for a Category 2 license because an entity is only eligible to apply for a Category 2 license if the applicant, its affiliate, intermediary, subsidiary or holding company is not otherwise eligible to apply for a Category 1 license?

Market East Brief (J-134-2016) (Public Version) at 9-10.[17]

         A. Appeal of SugarHouse at 124 EM 2016, J-133-2016

         We first consider the contentions of the Board that SugarHouse's appeal should be quashed or dismissed, which we directed the parties to brief.

         1. Waiver.

         The Board first argues that SugarHouse has waived any right to appeal due to the fact that it failed to exhaust its administrative remedies before the Board prior to the filing its petition for review. The Board contends that, under the Administrative Code, which supplements the Board's regulations, whenever a subordinate to the agency head takes an action pursuant to his or her delegated authority, the affected party has 10 days to file a petition seeking review from the agency head. Because the OHA hearing officer returned the petition to intervene to SugarHouse, and as SugarHouse did not seek further review of this action with the Board, it has waived all of its appellate arguments in the current appeal.

         SugarHouse responds by averring that the Board's argument "misses the mark." SugarHouse Reply Brief (J-133-2016) (Public Version) at 24. In SugarHouse's view, because the Hearing Officer did not address its intervention petition, but simply rejected and returned the petition, it was performing a mere "ministerial action" at the Board's direction in the capacity of a surrogate; hence, it posits that the act of the Hearing Officer is attributable to the Board and, thus, is required to be appealed directly to this Court. However, according to SugarHouse, if the Hearing Officer was acting of his own initiative and without authorization from the Board, then his purported rejection of the appeal is a nullity, and the Board's decision is immediately appealable.

         A claim that appellate issues are waived for failing to raise them in the first instance with the Board involves a question of law, and, thus, our standard of review is de novo. Pocono Manor Investors, LP v. Pennsylvania Gaming Control Board, 927 A.2d 209, 216 (Pa. 2007). The Board's argument implicates the concept of "Dilliplaine waiver, " a doctrine arising from our seminal case of Dilliplaine Valley v. Lehigh County Trust, 322 A.2d 114 (Pa. 1974), wherein our Court abrogated the prior and longstanding jurisprudential rule that an appellate court could consider claims of trial court error which are "basic and fundamental, " even though no timely objection to the alleged error was made to the trial court. Id. at 216-17. Informing our decision to abrogate this rule, we identified two principal benefits of requiring objections to be preserved through initial presentation to a lower tribunal: (1) a timely objection made to the trial court gives that court the opportunity to take immediate corrective action, which promotes efficiency in the judicial process by allowing litigants to avoid incurring unnecessary expense and delay by being forced to resort to the appellate process; and (2) it offers a predictable and neutral standard for appellate review of claims of trial court error which is applicable to all cases, unlike the former standard which was inconsistently applied by appellate courts on a case by case basis. Id. at 117.

         Thereafter, our Court applied the rationale of Dilliplaine to administrative proceedings and ruled that a claim could be waived for purposes of appellate review for failure to present it to the administrative tribunal which rendered a final decision in the matter:

[T]he administrative law tribunal must be given the opportunity to correct its errors as early as possible; diligent preparation and effective advocacy before the tribunal must be encouraged by requiring the parties to develop complete records and advance all legal theories; and the finality of the lower tribunals' determinations must not be eroded by treating each determination as part of a sequence of piecemeal adjudications.

Wing v. Commonwealth Unemployment Compensation Board of Review, 436 A.2d 179, 181 (Pa. 1981). These precepts have been codified in Rule 1551 of the Pennsylvania Rules of Appellate Procedure governing petitions for review from administrative tribunals, which provides, in relevant part:

(a) Appellate jurisdiction petitions for review. Review of quasijudicial orders shall be conducted by the court on the record made before the government unit. No question shall be heard or considered by the court which was not raised before the government unit except:
(1)Questions involving the validity of a statute.
(2) Questions involving the jurisdiction of the government unit over the subject matter of the adjudication.
(3) Questions which the court is satisfied that the petitioner could not by the exercise of due diligence have raised ...

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