Is the Pennsylvania Gaming Control Board entitled to deference as to whether an applicant has the requisite “good character, honesty, and integrity” to be licensed by the Board in accordance with the Video Gaming Act?
Better Bets Ventures, LLC v. Pennsylvania Gaming Control Bd., 304 A.3d 66 (Pa. Cmwlth. 2023), allocatur granted Apr. 29, 2024, appeal dockets 27 – 31 MAP 2024
Better Bets Ventures, LLC (Better Bets), Michael Brozzetti and Frank Brozzetti, Jr. (together, the Brozzettis), Lendell Gaming, LLC (Lendell Gaming), and Richard Teitelbaum (Teitelbaum) (collectively, Petitioners or Applicants) sought Commonwealth Court review of orders entered by the Pennsylvania Gaming Control Board (Board) that denied several of Petitioners’ applications for video gaming terminal operator and video gaming terminal principal licenses pursuant the Video Gaming Act, 4 Pa. C.S. §§ 3101-4506. Commonwealth Court summarized the relevant factual history as follows:
A. Teitelbaum and Lendell Gaming
Teitelbaum is the sole owner, corporate officer, and decision-maker of Lendell Gaming, a Pennsylvania limited liability company. Teitelbaum also is the sole owner, corporate officer, and decision-maker of Lendell Vending, Inc., a Pennsylvania Corporation formed in 2003 (Lendell Vending). Lendell Vending operates amusement equipment, automated teller machines, and jukeboxes in Pennsylvania and New Jersey. Teitelbaum first became aware of “skill games”4 in 2015 when he was approached by Lou Miele, the owner of Miele Manufacturing, Inc. (Miele), which manufactures skill games for vending companies. Miele provided to Teitelbaum a copy of the Beaver County Court of Common Pleas decision in In re Pace-O-Matic, Inc. Equipment I.D. No. 142613, 2014 WL 12999182 (Pa. C.P., Beaver Cnty., No. M.D. 965-2013, filed December 23, 2014) (Beaver County Case), which held that a skill game manufactured by Miele, branded as “Pennsylvania Skill,” was not an illegal gambling device subject to forfeiture. See R.R. at 963a-75a. Miele also provided Teitelbaum with a copy of testimony given by Major Thomas Butler, the Director of the Pennsylvania State Police Bureau of Liquor Control Enforcement (BLCE), before the Pennsylvania House of Representatives regarding skill games, their distribution throughout the Commonwealth, and BLCE’s decision not to take action against skill game operators given the current state of Pennsylvania law.
In 2016, Teitelbaum, through Lendell Vending, began purchasing skill games from Miele and offering them to customers. Teitelbaum purchased and marketed only the brand of “Pennsylvania Skill” games found to be legal in the Beaver County Case. In August 2018, Lendell Gaming applied for a video gaming terminal operator license, and Teitelbaum applied for an associated video gaming terminal principal license. In October 2018, during the investigation conducted by the Board’s Bureau of Investigations and Enforcement (BIE), the Board issued Lendell Gaming and Teitelbaum conditional licenses. BIE confirmed with Teitelbaum that he operated skill games and requested a list of the names of Teitelbaum’s skill games and their locations, which Teitelbaum provided.
On June 10, 2019, the Pennsylvania House of Representatives Gaming Oversight Committee conducted a hearing on electronic gambling devices, at which Major Scott T. Miller, then-director of BLCE, and Drew Svitko, the Executive Director of the Pennsylvania Lottery (Lottery), testified regarding the problems they believed skill games posed in Pennsylvania. Major Miller testified that skill games do not have controls in place to prevent underage gambling like those that are in place at casinos. He further testified that proceeds from skill games typically are paid to owners in cash, and, because they are unregulated, the games do not have payout requirements like slot machines at licensed facilities.
Mr. Svitko gave his opinion regarding the negative impact that skill games have had on the Lottery. Specifically, he testified that (1) skill games cause an annual loss of $138 million that otherwise would be spent on programs and services for senior citizens; (2) skill games are video gambling machines; (3) skill games often resemble Lottery machines and are placed near Lottery machines in establishments to give the impression that they are a sanctioned Lottery game; and (4) if skill games remain in competition with the Lottery, such competition could result in hundreds of millions of dollars in future lost Lottery revenue. Both Major Miller and Mr. Svitko testified that skill games are illegal in Pennsylvania.
On June 12, 2019, BLCE notified Teitelbaum and other liquor licensees that skill games are illegal and that their operation would result in citations against their liquor licenses. As of July 1, 2019, Lendell Vending had provided 211 “Pennsylvania Skill” games to 125 businesses in Pennsylvania. On February 27, 2020, the Board’s Office of Enforcement Counsel (OEC) sent Lendell Gaming and Teitelbaum’s counsel a Notice of Recommendation of Denial of Initial Application (Lendell Denial Notice) indicating that OEC would recommend to the Board that their license Applications be denied. In pertinent part, the Lendell Denial Notice advised as follows:
Please be advised that [OEC] is of the opinion that these [skill games] are unlicensed and unregulated video gaming terminals and/or slot machines, skilled slot machines, or hybrid slot machines that have not been approved by the Board for manufacturing or distribution in Pennsylvania. As a result of the unapproved distribution of these unlicensed and unregulated video gaming terminals and/or [s]lot [m]achines by [ ] Teitelbaum, through Lendell Vending, [OEC] is of the opinion that [ ] Teitelbaum and/or Lendell Gaming have failed to meet the character requirements pursuant to 4 Pa. C.S. § 3502(b) and (f) and/or the overall suitability requirements of a principal applicant and/or terminal operator applicant.
….
[OEC] is of the opinion that by providing, and continuing to provide, these unlicensed and unregulated video gaming terminals and/or [s]lot [m]achines, without Board authorization and proper licensure, [ ] Teitelbaum has violated the Video Gaming Act, the Gaming Act, and the Board’s regulations. …
….
[OEC] is also of the opinion that these violations of the Video Gaming Act, the Gaming Act, and the Board’s regulations, along with the underlying facts[,] demonstrate that [ ] Teitelbaum does not possess the requisite good character, honesty, and integrity required by the Video Gaming Act, and is therefore not suitable for a [v]ideo [g]aming [t]erminal [p]rincipal [l]icense. [OEC] holds the position that unregulated, untested, and unapproved video gaming terminals and/or [s]lot [m]achines pose a threat to the public interest and the effective regulation and control of video gaming operations. Therefore, it is in the public interest to deny video gaming terminal applications in such cases. As such, [OEC] is OBJECTING to [ ] Teitelbaum’s [A]pplication for a [v]ideo [g]aming [t]erminal [p]rincipal [l]icense and recommending that the Board DENY [ ] Teitelbaum’s [A]pplication.
….
[OEC] is of the opinion that denial of [ ] Teitelbaum’s application for a [v]ideo [g]aming [t]erminal [p]rincipal [l]icense and Lendell Gaming’s application for a [v]ideo [g]aming [t]erminal [o]perator [l]icense is consistent with the requirements of the Video Gaming Act and the Board’s regulations and is overall in the public interest. …
(R.R. at 13a-18a) (emphasis in original).
B. Better Bets and the Brozzettis
Better Bets is a limited liability company based in Moscow, Pennsylvania. The Brozzettis each own a 50% interest in Better Bets. The Brozzettis also each own a 33.33% interest in another business, Hugo Amusements, LLC (Hugo). Their father, Frank Brozzetti, Sr., owns the remainder of Hugo. Since 2015, Hugo has been in the business of providing skill games to Pennsylvania businesses and, as of July 16, 2020, had provided 155 skill games to 86 businesses in the Commonwealth. Included among the skill games provided to businesses by Hugo are the “Diamond Choice Skill Game 1” and “Diamond Choice Skill Game 2” games (Diamond Choice Games). On March 23, 2017, the Luzerne County Court of Common Pleas held that the Diamond Choice Games were illegal gambling devices subject to forfeiture under Section 5513 of the Crimes Code, 18 Pa. C.S. § 5513 (Luzerne County Case). (R.R. at 976a.)
On January 17, 2019, Better Bets submitted Applications for both a video gaming terminal operator license for itself and a video gaming terminal principal license on behalf of the Brozzettis. (R.R. at 31a.) In March 2019, the Board issued conditional licenses to both Better Bets and the Brozzettis, which conditional licenses were extended in June 2020. On August 19, 2020, OEC sent to Better Bets’ and the Brozzettis’ counsel a Notice of Recommendation of Denial of Initial Application for Video Gaming Terminal Operator License (Better Bets Denial Notice) (with Lendell Denial Notice, the Denial Notices). Id. In the Better Bets Denial Notice, OEC justified the recommended license denials on substantially the same grounds as those set forth in the Lendell Denial Notice. Specifically, OEC concluded that the Brozzettis, through Hugo, marketed “unregulated” and “unlicensed” skill games to businesses throughout Pennsylvania and, accordingly, failed to meet the character and suitability requirements of the Video Gaming Act. (R.R. at 33a.) OEC further concluded that, by marketing the skill games through Hugo, the Brozzettis also violated the Video Gaming Act, the Gaming Act, and the Board’s regulations. (R.R. at 36a.) Additionally, OEC relied on the Luzerne County Case to conclude that the Brozzettis, through Hugo, violated the Crimes Code by distributing skill games. Id.
OEC finally advised that it “holds the position that unregulated, untested, and unapproved video gaming terminals and/or [s]lot [m]achines, as well as illegal gambling devices, pose a threat to the public interest,” and, therefore, “it is in the public interest to deny these video gaming terminal applications.” Id.
Slip. op. at 3-8. The Board denied the Applications on the basis that the Applicants do not possess the character required for the issuance of video gaming terminal licenses. Commonwealth Court summarized the Board’s reasoning as follows:
the Board rejected Petitioners’ arguments that they had not been adequately advised by OEC that its denial recommendations would be based on its finding that granting the Applications would be contrary to the public interest. The Board concluded that the Denial Notices contained specific findings that denying the Applications would be in the public interest. (Corrected Adjudication at 25-26.) The Board also noted that, “[u]ltimately, the issue in these matters is whether [Petitioners’] ties or former ties to [skill games] support a finding that they lack the good character and integrity required for licensure,” and, “regardless of the legality of [Petitioners’] conduct, should the Board determine that their actions are otherwise contrary to the public interest, this could also support such a finding.” (Corrected Adjudication at 26.)
On the merits, the Board first concluded that, because the Brozzettis were part owners of Hugo, which distributed the Diamond Choice Games found to be illegal gambling devices in the Luzerne County Case, there was “substantial evidence” that Hugo operated illegal gambling devices in violation of the Crimes Code. The Board secondly concluded that, regardless of skill games’ legality in the Commonwealth, their “offer for play and operation is contrary to the positions taken by various government agencies.” Id. at 28. The Board relied on Major Miller’s and Mr. Svitko’s testimony presented before the Pennsylvania House of Representatives to conclude as follows regarding Petitioners’ suitability for the issuance of video gaming terminal licenses:
(1) Regardless of skill games[’] legality, their offer for play and operation is contrary to the positions taken by various government agencies, namely, BLCE and the Lottery.
(2) Skill games are not regulated and are not operated in a controlled environment, which makes regulation of underage and illegal gambling more difficult.
(3) Skill games do not have payout requirements.
(4) Skill games cause millions of dollars of revenue losses to the Lottery and often are positioned in establishments to look like sanctioned Lottery machines.
(5) BLCE considers skill games to be illegal and their operation may justify a citation against the liquor licenses of establishments where they are housed.
(6) Skill games do not contain any of the protections that are required for licensed gambling operations, including character and suitability requirements, protections against underage gambling, minimum payout requirements, and compulsive and problem gambling protections.
(Corrected Adjudication at 27-31.) The Board contrasted these protections with the fact that the operation of skill games is unregulated and therefore (1) does not provide any protections against problem and compulsive gambling; (2) will not necessarily self-regulate to guard against underage and problem gambling; (3) does not produce the same level of tax revenue as other regulated gambling operations, such as the Lottery; and (4) negatively impacts public confidence in, and the operation of, legalized gambling venues, especially casinos that house licensed slot machines. Id. at 31-36.
The Board ultimately concluded that Petitioners do not possess the character required for the issuance of video gaming terminal licenses, stating:
Overall, the Board believes that gaming is best conducted in an environment that is strictly controlled and regulated. Such an environment requires surveillance and security measures, protections against underage gaming, protections against compulsive and problem gambling, the requiring of approved internal controls to safeguard assets, an overarching body of law to regulate the conduct, and a government agency to oversee and enforce these protections. [Skill games] in unlicensed locations do not contain any of these protections. The Board, therefore, considers [skill games] to be a substantial public threat.
Collectively, the record shows that [Petitioners] are, or were, involved in an industry that possesses none of the oversight and public protection[s] required to ensure the integrity of their gaming operations. The Brozzettis’ and Teitelbaum’s continued involvement in this industry casts substantial doubt on whether they possess the good character and integrity required for a video gaming terminal principal license. Additionally, the suitability of the Brozzettis is further tarnished by their operation of [the Diamond Choice Games] that were determined to be illegal gambling devices by a Pennsylvania court. Consequently, the Board finds that [ ] Teitelbaum and the Brozzettis have failed to establish by clear and convincing evidence that they are suitable for licensure.
Since the principals of Better Bets [ ] and Lendell Gaming are unsuitable for a principal license, the Board must find that these entities are not eligible for video gaming terminal operator license[s].
Id. at 37.
Slip op. at 9-11. Petitioners appealed to Commonwealth Court arguing, inter alia, that the Board erred and abused its discretion in concluding that Petitioners do not possess the “good character, honesty, and integrity” required for licensure.
Commonwealth Court reserved the Board’s denials of the Applications and remanded the matter back to the Board with instructions to issue the requested licenses on the basis that the Board abused its discretion in denying the Applications based on its conclusion that Petitioners lack the requisite character for the issuance of the requested licenses. The court concluded:
…pursuant to Section 3301(b)(11) of the Video Gaming Act, the Board has the power to grant an application for a video gaming terminal license if it is satisfied that the applicant “has demonstrated by clear and convincing evidence that the person is of good character, honesty and integrity whose prior activities, criminal record, if any, reputation, habits and associations do not pose a threat to the public interest ….” 4 Pa. C.S. § 3301(b)(11). See also 4 Pa. C.S. § 3301(b)(2) (the Board has the discretion to issue or deny issuance of terminal operator licenses). The Board also has the authority to deny a license if it finds that an applicant, or its officers, employees, or agents “have furnished false or misleading information to the [B]oard or failed to comply with the provisions of this part or the rules and regulations of the [B]oard and that it would be in the public interest to deny … the license ….” 4 Pa. C.S. § 3302(a)(1) (emphasis added). See also 4 Pa. C.S. § 3502(f) (principals of potential operators also must obtain necessary licenses “to meet the character requirements of this section … ”); 4 Pa. C.S. § 3504(c) (“[T]he [B]oard may issue a principal license if the applicant has proven by clear and convincing evidence that the applicant is a person of good character, honesty and integrity and is eligible and suitable to be licensed as a principal.”).
We find these provisions of the Video Gaming Act to be clear and free from ambiguity, and, therefore, the Board’s interpretation of them is entitled to no deference by this Court. Crown Castle. The Board’s Corrected Adjudication includes a broad and detailed discussion of the Board’s opinions of, and policy objectives regarding, the skill games industry. (Corrected Adjudication at 27-37.) The Board indicates that, overall, it believes that “gaming is best conducted in an environment that is strictly controlled and regulated” and that skill games are a “substantial public threat.” Id. at 37. The Board then precipitously concludes that “the Brozzettis and Teitelbaum’s continued involvement in this industry casts substantial doubt on whether they possess the good character and integrity required for a video gaming terminal principal license.” Id.
The Board identifies in its Corrected Adjudication two overarching problems with the skill games industry: (1) it is entirely unregulated and, therefore, is not required to, and does not, provide adequate protections against underage and problem gambling; and (2) its existence causes a substantial decrease in tax revenue generated by the legalized gambling industry, from casinos particularly. The Board bases these conclusions on testimony given by Major Miller and Mr. Svitko before the Pennsylvania House of Representatives and other testimony and evidence submitted to the Board by casino representatives in unrelated proceedings. Even assuming that the issues identified by the Board correspond to some degree with the reality of the skill games industry (which we do not, because we need not, address), the General Assembly has not made any legislative findings in this respect and has not enacted any legislation to date that attempts to remove the veritable scourge that the Board believes the skill games industry has left in its wake. Thus, the Board’s findings in this regard remain its own policy determinations and nothing more.
More importantly, the Board does not indicate anywhere in its Corrected Adjudication how the problems it finds with the skill games industry denigrate and render unsuitable the “character, honesty and integrity” of these specific Petitioners. The Board nowhere in its Corrected Adjudication identifies any criminal convictions or investigations, tax-evading financial practices, connections with organized crime, false statements, or other nefarious or even allegedly nefarious conduct by any of the Petitioners. Nor does the Board indicate anywhere that any of the Petitioners refused to participate in, or provide information in association with, the extensive licensure investigations conducted by BIE. As Petitioners point out in their brief, the evidence suggests quite the contrary. See Petitioners’ Br. at 30-32. The Board’s findings and conclusions that Petitioners do not have the requisite character, integrity, and honesty for licensure is based exclusively on their association with the skill games industry and the problems the Board perceives to be associated with it. We find such association in itself to be wholly insufficient to support the Board’s denial of the Applications. The Board’s denunciation of Petitioners’ character by mere association with this industry, which the Board simply does not like, cannot, without more, constitute a valid and reasonable exercise of the Board’s discretion in considering and denying these Applications.
Slip op. at 15-17 (emphasis in original).
The Pennsylvania Supreme Court granted allocatur, limited to the following issue:
Did the Commonwealth Court err in ruling, contrary to previous holdings by both the Commonwealth Court and Supreme Court, that the Board is not entitled to deference in determining whether an applicant has the requisite “good character, honest[y], and integrity” to be licensed by the Board?
For more information, contact Kevin McKeon or Dennis Whitaker.