1 1 2 3 4 5 6 *************************************************** 7 8 TEXAS LOTTERY COMMISSION 9 MEETING 10 11 September 11, 2000 12 *************************************************** 13 14 15 16 17 18 BE IT REMEMBERED that the TEXAS LOTTERY 19 COMMISSION meeting was held on the 11TH day of 20 SEPTEMBER, 2000, beginning at 8:30 a.m. and ending 21 at 6:59 p.m., before Suzanne T. Lane, RPR, CSR in 22 and for the State of Texas, reported by machine 23 shorthand, at the Offices of the Texas Lottery 24 Commission, 611 East Sixth Street, Austin, Texas, 25 whereupon the following proceedings were had: WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 2 1 APPEARANCES 2 Chairman: 3 Mr. C. Tom Clowe, Jr. 4 Commissioners: Ms. Elizabeth D. Whitaker 5 Mr. Anthony J. Sadberry 6 General Counsel: Ms. Kimberly L. Kiplin 7 Executive Director: 8 Ms. Linda Cloud 9 Charitable Bingo Operations Director: Mr. Billy Atkins 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 3 1 INDEX 2 Appearances................................... 2 3 AGENDA ITEMS 4 Item No. 12................................... 4 5 153 Item No. 2.................................... 39 6 Item No. 3.................................... 43 Item No. 14................................... 44 7 155 Item No. 5.................................... 151 8 Item No. 6.................................... 151 Item No. 7.................................... 151 9 153 Item No. 8.................................... 151 10 Item No. 9.................................... 152 Item No. 10................................... 152 11 Item No. 13................................... 154 Item No. 15................................... 156 12 Item No. 18................................... 157 Item No. 19................................... 157 13 Item No. 20................................... 160 161 14 Item No. 21................................... 167 15 Reporter's Certificate........................ 169 16 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 4 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 CHAIRMAN CLOWE: Good morning. It 2 is 8:30. I'd like to call to order the 3 September 11th, 2000 meeting of the Texas Lottery 4 Commission. My name is C. Tom Clowe, Jr., 5 and Commissioner Anthony Sadberry and 6 Commissioner Betsy Whitaker are here, present. 7 We would like to begin with 8 Item No. 12 on the agenda, which is the report, 9 possible discussion and/or action on the lottery 10 operator contract. 11 We have individuals here who wish to 12 appear before the Commission in regard to that 13 matter, from GTECH Corporation. 14 If you gentlemen will come forward, 15 please, we'll ask you to introduce yourselves for 16 the record and make whatever remarks that you would 17 like to make. And then if you're open to 18 questions, the Commissioners may wish to discuss 19 some items with you. 20 MR. TURNER: My name is Bruce 21 Turner. I am the chairman of the board of GTECH 22 Corporation. 23 MR. CALABRO: My name is David 24 Calabro. I'm senior vice president of global 25 facilities management for GTECH Corporation. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 5 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 CHAIRMAN CLOWE: Good. Welcome. 2 MR. TURNER: Thank you. 3 MR. CALABRO: Thank you for having 4 us. 5 MR. TURNER: Mr. Chairman, 6 Commissioner Whitaker, and Commissioner Sadberry, 7 good morning. I appreciate the opportunity you've 8 provided me today to come before you and update you 9 on recent events and activities that have involved 10 GTECH. I thought that a brief summary of my 11 background would be beneficial, since this is the 12 first opportunity that we've had to meet. 13 I am a graduate of the United States 14 Military Academy of West Point. As you may be 15 aware, West Point has one of the most rigorous 16 ethical training programs in the world today, 17 supported by almost 200 years of rich history. A 18 simple and straightforward code of ethics at the 19 military academy states that its members will not 20 lie, cheat, steal, nor tolerate those who do. 21 That code has remained part of my 22 basic value structure throughout my career. During 23 my final two years at West Point, I participated as 24 a member of an elite group of people designated to 25 administer and train others in this very important WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 6 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 code of ethics, which embodied both the spirit and 2 the letter of that code. 3 In 1989, I began a new career on 4 Wall Street. For almost ten years, I specialized 5 in the comprehensive evaluation of public companies 6 within the leisure-time industry, including lottery 7 service companies, gaming equipment manufacturing 8 companies, and traditional entertainment-based 9 gaming companies. 10 In four of the last five years I 11 operated on Wall Street, I was independently rated 12 as the best in the world within my specialty. This 13 unique designation of excellence was earned, in my 14 opinion, for one primary reason: The largest and 15 most respected money managers around the world knew 16 with certainty that my word could be trusted. 17 My reputation within the investment 18 community -- and this is borne out and can be borne 19 out quite easily by conversations with many people 20 around the world -- is that I make the hard calls, 21 I make those calls for the right reasons, and I 22 make those calls regardless of their popularity. 23 Simply put, I say what I mean, and I mean what I 24 say. 25 I'm confident that if you polled WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 7 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 GTECH associates around the world, based on my 2 first 60 days on the job, you would find a wealth 3 of support for the description I've just provided. 4 It is simply who I am. 5 As you can see, although I'm 6 relatively new to GTECH, I am certainly not new to 7 the gaming industry and the challenges faced by 8 everyone in optimizing value within their 9 organizations and optimizing the delivery of 10 results for the general public. 11 Beyond introducing myself to you 12 today, I wanted to thank you for the time you have 13 devoted on your schedule to allow me to respond to 14 a request for a review of events that have taken 15 place over the last 90 days in the United Kingdom. 16 The Texas Lottery is certainly one 17 of GTECH's most valued customers. I am here today 18 on behalf of both senior management, but more 19 importantly, as the primary representative of the 20 board of directors to provide you with a candid 21 appraisal of what has happened, of how we have 22 responded, and also where we go from here. 23 As has been reported to you in 24 previous meetings, in 1998, GTECH uncovered a 25 software malfunction in the system that operates WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 8 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 the United Kingdom Lottery. The prior chairman and 2 chief executive officer corrected it without 3 notifying the customer, Camelot, or the National 4 Lottery Commission. Simply, the information was 5 withheld. 6 I believe the facts surrounding this 7 incident have been well publicized and are known to 8 you. I am not here to defend those actions, 9 because there is no excuse for those actions. What 10 occurred was, without question, a serious error in 11 judgment by our then chairman and chief executive 12 officer, Bill O'Connor. 13 I am here, though, to tell you what 14 the board of directors did once we became aware of 15 this very serious problem. I submit to you that 16 these are the actions that represent the standard 17 by which we would hope that you would judge GTECH 18 in the future. I am definitely here to explain 19 and, if necessary, defend the actions of the board 20 of directors because I am proud of the manner in 21 which we have decisively and deliberately handled 22 this particular problem. 23 To start, when the board became 24 aware of this issue, an investigation was conducted 25 to ascertain the full set of facts and to ensure WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 9 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 that any individuals involved in this decision 2 would be treated fairly and with appropriate due 3 process. 4 From the outset of our discovery of 5 this problem, there was no question in the minds of 6 anyone on the board, certainly not in mine, 7 regarding the severity of this problem. We knew, 8 without a doubt, that it focused on the integrity 9 of the Lottery. And that is ultimately our most 10 important objective, to ensure that we protect that 11 integrity at all times. That is the trust that 12 customers like you have placed in us as your 13 technology provider. 14 The manner in which the malfunction 15 had been discovered, corrected, and gone unreported 16 to the regulator was simply unacceptable to the 17 board of directors. Once the facts were fully 18 known, it was clear to the board and to myself that 19 the only course of action was a radical change in 20 the leadership of the company. We acted promptly; 21 we acted decisively. 22 We sought and received the 23 resignations of the top three executives -- or 24 three top executives involved in the incident, 25 which included the chairman and chief executive WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 10 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 officer, Bill O'Connor; the chief operating 2 officer, Steve Nowick; and our head of European 3 operations, Dennis Mahoney. 4 Additionally, the structure of the 5 board of directors has changed. The post of 6 chairman and chief executive officer has now been 7 separated. The membership of the board of 8 directors is in the process of being strengthened 9 and expanded with additional independent 10 nonexecutive directors. This action will further 11 reinforce the critical role that the board of 12 directors of our company and, for that matter, any 13 public company, would have in the role of 14 governance of our operations. 15 Further, the company has created a 16 new committee within the board of directors, the 17 Compliance and Corporate Governance Committee. The 18 committee oversees the proper handling and 19 resolution of ethical issues -- including software 20 problems, should they occur -- and will be made up 21 exclusively of nonexecutive directors of the 22 company. 23 The vice president of compliance now 24 meets with this key committee on a quarterly basis. 25 Our first meeting of this committee occurred on WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 11 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 August 1st. Our compliance officer, Paul Daly, a 2 respected veteran of the FBI, reports directly to 3 the board. This is a significant change, as it 4 lifts Mr. Daly above all executives and, for that 5 matter, all associates of GTECH. He has full 6 authority to report to any member of the board at 7 any time, and he will report to us on a quarterly 8 basis to update us on any activities of which we 9 would need to be aware. 10 I believe, clearly, that this 11 strengthens our external compliance function in a 12 meaningful way. GTECH's board has been vigilant 13 and aggressive in making certain that its code of 14 conduct has become institutionalized within the 15 company. I believe it has taken root. 16 The problems that occurred in the 17 United Kingdom were errors in judgment, primarily 18 by a single individual, that were clear violations 19 of our code of conduct. That error cost three 20 parties to that decision their jobs. 21 It is my firm commitment, and that 22 of the board, to continue to actively promote our 23 code of conduct and emphasize the need to comply 24 with it at all times under all circumstances. This 25 is a substantial task for GTECH. We encompass many WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 12 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 jurisdictions with differing languages, cultures, 2 and sensitivities. 3 A global effort is underway, and 4 we'll continue to maintain ethics training as one 5 of GTECH's highest priorities. I will personally 6 participate, when I can, in that training around 7 the world to ensure that the message is delivered 8 from the highest level. 9 In regards to software, independent 10 reviews have been undertaken of all GTECH software, 11 development processes, and process documentation. 12 Also, GTECH will obtain certification beyond what 13 it has already, under a number of highly 14 specialized domestic and international standards. 15 The results of these efforts will lead to a 16 strengthened process for all of our customers 17 around the world. 18 After board assurances in a variety 19 of very specific and deliverable commitments, the 20 National Lottery Commission in the United Kingdom 21 reacted to our changes in a letter dated July 28th 22 of this year, in which it stated very clearly that 23 the changes proposed by GTECH, if implemented as 24 planned, that these actions would meet the 25 substance of their concerns. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 13 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 In that letter, the NLC also asked 2 that the GTECH board meet with them in November to 3 review our progress toward implementing those 4 goals. And they noted that some of that 5 implementation, particularly the implementation of 6 a global training program, would, by its very 7 nature, take some time. In my view and the view of 8 the board subsequent to that letter, that was the 9 end of the NLC inquiry. 10 Something changed after the 11 July 28th letter. Without any further 12 communication or developments regarding GTECH and 13 the National Lottery Commission, on August 23rd, in 14 the NLC's announcement of its decision regarding 15 the award of the next license, it contradicted 16 earlier assurances given to GTECH by asserting 17 there were unmet concerns regarding GTECH's 18 behavior. I believe that this contradiction is 19 unfair to GTECH. We have made our dissatisfaction 20 evident to the NLC in our communications with them 21 to date. 22 Despite the NLC's inexplicable 23 change in position, we continue to actively and 24 aggressively implement the range of actions which 25 we had proposed and they had agreed to. They are WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 14 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 actions which are solid business actions which 2 improve our operations throughout the world. 3 GTECH continues as a supplier in 4 good standing to the UK Lottery, and I have every 5 confidence that we will continue to meet the 6 expectations of the National Lottery Commission and 7 its regulatory mandates. They are important. 8 As you are also aware, the NLC 9 recently announced that it had rejected the bids of 10 two competitors seeking a license, and closed the 11 bidding process. Despite the process having been 12 closed, the NLC chose to continue negotiations with 13 one of the competing groups, The Peoples Lottery, 14 to permit it to improve its bid. Needless to say, 15 that was a controversial action. 16 As a result, Camelot, the consortium 17 for which GTECH is technology supplier, has 18 initiated a legal action seeking a judicial review 19 of the award. A formal hearing for that judicial 20 review in the United Kingdom has been scheduled for 21 later this month. GTECH is not asserting any 22 claims as part of the judicial review, but is 23 participating as an interested party in order to 24 ensure that our rights are being protected and that 25 we are treated fairly. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 15 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 Simply put, we are disappointed by 2 the manner in which this process in the United 3 Kingdom was handled. And of course, we are 4 disappointed in its outcome. I will be filing a 5 witness statement in the judicial review later 6 today in the United Kingdom that sets out in more 7 detail some of the concerns GTECH has with the way 8 in which this process has unfolded. If you would 9 like, I can arrange for copies of that statement to 10 be distributed to the Commission. 11 Let me reiterate, however, the GTECH 12 board reacted definitively, with great concern, and 13 intentive purpose. Individuals in the company 14 acted improperly. They were removed. Structures 15 and processes have been changed and strengthened to 16 ensure that similar circumstances would not occur 17 in the future. That is the standard by which we 18 expect to be judged. 19 I'd like to conclude my remarks by 20 saying thank you for the opportunity that GTECH has 21 had and continues to have in the State of Texas. 22 The Texas Lottery is one of the elite organizations 23 in the industry. With your leadership and that of 24 your staff, the achievements have been nothing 25 short of phenomenal and recognized throughout the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 16 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 industry as the standard that others seek to 2 attain. 3 The concept of integrating lottery 4 services into a single contract has proven both 5 wise and innovative. In the industry, this 6 approach is often referred to as the "Texas model." 7 This innovation has proven to deliver results, 8 efficiency, and lower costs. More and more other 9 jurisdictions are examining the Texas model as a 10 model for their future business. 11 In Texas, operating costs, as you're 12 aware, are only 7 percent. That is in stark 13 contrast to many other states and jurisdictions 14 that operate under a traditional format of having 15 multiple vendors and separate and often overlapping 16 services and functions. In those jurisdictions, 17 operating costs are usually significantly higher. 18 Under your guidance, the Texas 19 Lottery and GTECH have accomplished a great deal 20 together as a partnership. Together, we started 21 this Lottery in record time. We continue to pursue 22 innovations that will drive sales. I am confident 23 that the recent matrix change and other initiatives 24 in marketing and advertising will certainly help 25 the Texas Lottery maintain its status of global WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 17 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 leadership. 2 You know, I may not sound like I'm 3 from here, though I have a bit of a Southern 4 accent. But I do understand what it is to be 5 Texan. There are over 400 dedicated associates 6 working for GTECH in Texas that very much help to 7 make this lottery a success, and we're happy to 8 have them here. They are supported outside of 9 Texas by over 4,000 GTECH associates worldwide. 10 I will also add that 99 percent of 11 our Texas workforce is Texas hired. Over 12 52 percent of our workforce are minorities. That's 13 a recruitment effort that would make any Texan 14 proud, and it's certainly a recruitment effort that 15 makes me proud of the efforts of our associates 16 here in Texas. 17 We've also initiated a program here 18 in Texas that is helping young children that might 19 not otherwise have access to computer technology 20 and the opportunity to learn about this important 21 tool. The GTECH After School Advantage program has 22 been started in four locations within the state, 23 and we have another location on the drawing board 24 that should open soon. 25 We supply and set up computers and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 18 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 work stations, and our Texas-based associates 2 volunteer their time to teach young people how to 3 use this technology, which will influence their 4 lives in the future. It's another way that we can 5 help make a difference in the lives of some of our 6 young people and give something back to the 7 communities that we serve. 8 In closing, let me thank you for the 9 chance to meet with you today. I'm the first to 10 acknowledge that GTECH has faced some challenges of 11 late. There's no question of that. These have 12 been interesting times. However, I come before you 13 today, proud of how our associates around the world 14 have responded to this situation. We are stronger 15 today for that. Of that I am convinced. 16 We have made the right decisions for 17 the right reasons and acted firmly and promptly to 18 protect the integrity of the Lottery and to project 19 the public trust. We can have no greater mission. 20 We are now clearly focused on the future. 21 I want to assure you personally that 22 I take our responsibilities to the citizens of the 23 State of Texas quite seriously. I started by 24 telling you briefly of my training at West Point. 25 The core values of honor and integrity are very WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 19 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 central to me and have been a hallmark of my 2 career. I recognize that we at GTECH need to earn 3 your trust by being true to the responsibility and 4 those values, which I do embody personally, each 5 and every day. That is our duty. 6 We have accomplished a great deal 7 together. I certainly look forward to reaching 8 even greater heights with the Texas Lottery in the 9 future. 10 Thank you very much, and I'd be 11 happy to take any questions that you may have at 12 this time, Mr. Chairman. 13 CHAIRMAN CLOWE: Thank you again for 14 coming, and I wonder if the Commissioners have any 15 questions. 16 COMMISSIONER SADBERRY: Thank you, 17 Mr. Chairman. 18 Mr. Turner, thank you. I think it 19 is a significant statement that you are here today. 20 I think that's helpful in our ongoing interest in 21 dialoguing with you. 22 I, as an attorney by training, 23 appreciate the confidentiality where litigation 24 issues might be concerned, and I appreciate your 25 open disclosure of the litigation involving Camelot WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 20 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 and your anticipated participation in that. 2 Again, respecting the 3 confidentiality issue, I note that you did not 4 remark on the shareholder situation. I don't know 5 if you are at liberty to do so. If you have any 6 opinions or projections that you feel you can give 7 as to whether that will have any material effect on 8 your company and its performance in the situation, 9 or if there are any concerns that are surrounding 10 that litigation -- again, respecting the 11 confidentiality issue, you might not wish to 12 respond, but I did note that it was not mentioned 13 by you. 14 MR. TURNER: I'd be happy to address 15 that, Commissioner. As you may be aware, there has 16 been a class action lawsuit initiated against GTECH 17 for -- primarily as it surrounds disclosure of 18 material public information pursuant to Securities 19 and Exchange Commission law. 20 I'm quite familiar, of course, given 21 my ten-year tenure at Wall Street -- but with the 22 basis and foundation of that, though I am not a 23 lawyer and would not suggest that the nuances of 24 law would be things I can address, I can tell you 25 from the standpoint of the board of directors and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 21 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 from my personal standpoint, it is my fundamental 2 belief that we have complied with all requirements 3 for disclosure at all times and provided our 4 shareholders with a full and accurate documentation 5 of issues as we became aware of them, which is our 6 responsibility. It is my fiduciary obligation as a 7 director to do so, and I believe we have done that 8 fairly and promptly. 9 COMMISSIONER SADBERRY: Well, good. 10 And I know there will be matters that will be 11 addressed in the ongoing litigation. It's not our 12 concern to exacerbate or judge that, but I'm glad 13 to see there is acknowledgement, generally 14 throughout your statement, of concerns that you are 15 addressing. 16 You mentioned efforts being made to 17 strengthen the board. Could you elaborate as to 18 the direction that might take you and what the 19 efforts are and what is generated in this renewed 20 effort. Obviously, the latter could be discerned 21 from your statement. 22 MR. TURNER: The board has taken a 23 number of specific actions in order to strengthen 24 the governance and compliance aspects of the board. 25 The first, as I mentioned in my statement, was the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 22 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 separation of the functions of the chairman and 2 chief executive officer. I am operating now as a 3 full-time chairman. I have moved my family from 4 Florida to Rhode Island, and I am operating under a 5 two-year, full-time contract. 6 It's somewhat unusual to have a 7 full-time chairman who is actually primarily an 8 independent director who is overseeing the 9 operations of the company. I have full authority 10 of the board to act in the capacity of chief 11 executive officer until such time as we locate the 12 appropriate individual to fill that position. 13 We are also engaged in a search for 14 not only a chief executive officer for that 15 executive position, but we are engaged in a search 16 for additional independent directors. Our 17 long-term goal is to have approximately ten to 18 twelve members on the board of directories, of 19 which eight or nine would be independent directors. 20 We currently have six independent directors. We 21 have no executive directors at the present time. 22 I think those actions, once they are 23 completed, will further strengthen the independent 24 nature of the board. And obviously, the new 25 corporate governance and compliance function, which WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 23 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 is currently chaired by Lord John Moore, one of our 2 directors, is a very significant change. And 3 having Paul Daly, our director of compliance, 4 report to that committee and to the independent 5 directors should ensure that we have greater 6 oversight throughout the company. 7 COMMISSIONER SADBERRY: My final 8 question, perhaps a combination question and 9 comment, is exactly -- I mean, when you just 10 mentioned Mr. Daly -- if I'm correct, I believe I 11 met him when he first came with the company, in 12 another building, I believe, which at that time was 13 Texas -- he stated his mission, which we understood 14 then to be centered around some of the things you 15 are saying now. 16 And I guess my general query is -- 17 it's kind of simplistic to state it -- what 18 happened; what went wrong with the process which we 19 thought we had a handle on as far back as back 20 then; and whether there is any perception if 21 Mr. Daly, or any other person associated with the 22 ethics issues, experienced any perceived or actual 23 difficulties that are resulting in some of these 24 changes to allow him to report directly, et cetera. 25 In other words, is he functioning to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 24 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 your satisfaction and, as importantly, I suppose, 2 to his satisfaction in getting this job done, or 3 are there obstacles or problems that you can 4 foresee that you are still working on? 5 MR. TURNER: You have two primary 6 questions there, and hopefully, I'll get them both 7 right. 8 The more challenging of those two 9 questions is what went wrong in the process. I can 10 offer you my opinion, as a fresh set of eyes that 11 has come in, in great detail. I joined the board 12 of directors in the fall of last year, so I am the 13 newest member of the board and certainly have been 14 involved in great detail in the last 60-plus days. 15 From my perspective, the primary 16 thing that went wrong is that a single individual, 17 Bill O'Connor, made a fateful decision, over two 18 years ago, in which he failed to appreciate and 19 acknowledge the ethical issues caused by that 20 decision. And unfortunately, his immediate reports 21 involved in that decision failed to follow up 22 and/or failed to pick up the phone and contact 23 Mr. Daly. 24 That's my impression of what 25 happened at that time, what went wrong in the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 25 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 process. It is very difficult, as I'm sure you can 2 appreciate -- and anyone in business can -- when 3 the primary leader of a company makes a decision of 4 that type. Obviously, at that time, Paul Daly was 5 never informed; the board wasn't informed; and 6 thus, the issue was never raised. 7 In terms of the second question you 8 had, which I think also helps us to address the 9 future, I don't believe there have been any 10 difficulties at all in the change. Actually, I 11 think you'll find that Mr. Daly is quite happy with 12 the increased opportunity to go directly to the 13 board. His independence and autonomy is further 14 enhanced. Any pressure that could be brought to 15 bear internally because he's in a functional 16 reporting responsibility to executives has been 17 eliminated. 18 So I don't believe there are any 19 obstacles whatsoever to that process. We also have 20 been very rigorous already, and will continue to be 21 so, in the ethical training program. And that's 22 quite important here in terms of the future. 23 Part of the challenge for all of 24 us -- this would include our competitors -- is to 25 ensure that everyone in each of our organizations WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 26 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 understands that if a problem is detected, that we 2 must follow the proper reporting requirements to 3 ensure that that's communicated. I think that's a 4 point, Commissioner Sadberry, that you've made in 5 the past here, which is, we deal with highly 6 complex, highly customized technological solutions 7 that are software based. 8 By the nature of that complexity, 9 from time to time, there will be malfunctions 10 and/or errors. That's to be expected. While we 11 strive for perfection, it is unlikely to be 12 anything that anyone can achieve. It is very 13 critical, however, that when a flaw or malfunction 14 is detected, that we follow the proper reporting 15 procedures immediately and promptly to ensure that 16 the public trust is never jeopardized. 17 The ethical training program that we 18 are relaunching around the world is very important 19 to ensure that we keep that top of mind with every 20 associate in GTECH, anywhere we operate. That will 21 include a wide range, not only of specific 22 training, but we actually will have an individual 23 designated within our training function, which we 24 have now funded with an incremental $1.5 million. 25 And one of their primary WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 27 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 responsibilities will be, as a full-time employee, 2 to deliver that ethical training message throughout 3 the world. We will have a number of support 4 materials which identify the toll free number that 5 goes directly, not to GTECH, but to the Council for 6 Ethical Organizations, an external compliance 7 activity, so that anyone at any time, if they 8 aren't comfortable with any decision by anyone in 9 the organization, they can pick up that telephone, 10 they can call that organization, and they can share 11 their concerns. Those concerns will then be 12 funneled directly to Paul Daly, and directly, as a 13 result, to the board of directors. 14 We will soon have, throughout the 15 company, a variety of marketing-based mediums to 16 ensure that people are aware of their 17 responsibilities and that they also are aware of 18 the phone numbers that are available throughout the 19 world for them to call toll free, so that it's 20 something that's easy to do. 21 And these are things that sometimes 22 are simple, like a mouse pad that's right on your 23 desk which provides the phone number. If it's top 24 of mind, you'll ensure you that you do the right 25 thing. So I am confident, based on the collection WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 28 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 of these type of activities we are now conducting, 2 that a problem of this type is very unlikely to 3 occur again in the future. 4 COMMISSIONER SADBERRY: 5 Mr. Turner -- and thank you, 6 Mr. Chairman -- I again say thank you for being 7 here. I think it's helpful for you to show this 8 concern and priority for Texas. Texans do watch 9 us. They do look. And our leaders, members of our 10 legislature, do watch us, and they look. It's 11 important. It's critical. The integrity issues, 12 the integrity of the game, the integrity of the 13 people: That's a priority uppermost to us. 14 And I'm glad, personally, given my 15 time and service here, that you are focusing on 16 that, and I trust you will be able to discharge 17 that. And I am happy that we concur in your code 18 of honor. I went a different path, but we've come 19 out the same place on that. 20 MR. TURNER: Well, I'm happy to do 21 that. It's our duty to ensure that we do that, and 22 that duty will be met. 23 COMMISSIONER SADBERRY: Thank you, 24 sir. 25 COMMISSIONER WHITAKER: Mr. Turner. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 29 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 MR. TURNER: Yes, ma'am? 2 COMMISSIONER WHITAKER: Thank you 3 for coming. I have just a few questions because I 4 can hardly talk today. 5 MR. TURNER: I'm sorry to hear that. 6 COMMISSIONER WHITAKER: How long do 7 you intend to stay in the position as active CEO 8 and as active chair? 9 MR. TURNER: Well, I am actually a 10 full-time chairperson, so that's a permanent 11 position. I stand for election for a three-year 12 term in our upcoming annual meeting on the 24th of 13 October, and it's our belief at this time that that 14 position will be affirmed by our owners. The chief 15 executive officer position is acting, at the 16 present time, in terms of my capacity. 17 We are engaged in a formal search. 18 We have engaged the search firm of Korn/Ferry to 19 seek out the proper individual to fill that role. 20 At this time, they are in the very early stages of 21 that search. I'm not sure how long it will take, 22 but we are moving as expeditiously as possible. We 23 will ensure that the person that we hire has the 24 requisite background to lead GTECH future -- to 25 lead our future to greater heights and also to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 30 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 provide enhanced products and services for all of 2 our customers. 3 COMMISSIONER WHITAKER: Do you 4 intend to stay in your current role, though, until 5 that new CEO comes on board? 6 MR. TURNER: I have a full-time, 7 two-year contract, and I am certain we will have 8 that. So I will remain as chairperson as long as 9 the owners wish me to do so, for a minimum of two 10 years. 11 COMMISSIONER WHITAKER: How do you 12 interpret the stock prices of the company and what 13 that means for the company? And what plans -- why 14 do you think it is at the level it's at, and where 15 do you see it going in the future? 16 I realize you can't answer that as 17 directly as I put it, but... 18 MR. TURNER: Well, not exactly, 19 although as you're aware, that was my career for 20 the last ten years, and GTECH was one of the 21 companies I covered. 22 The stocks move for a variety of 23 different reasons in this world, I do know 24 extremely well. I think at the present time, the 25 uncertainty that's flowed from the situation in the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 31 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 United Kingdom is one that has caused anxiety 2 amongst the investment community. From my personal 3 experience and professional experience, uncertainty 4 is the thing that investors hate the most. 5 I am confident that once that 6 uncertainty clears its way, that the future for 7 GTECH is bright. It would be inappropriate for me 8 to comment in a public forum -- or any forum, 9 actually, with potential investors, anywhere -- 10 about where I think the stock price could go. 11 I do believe, though, that the 12 long-term outlook is favorable. My particular 13 contract is based on that premise, because 14 80 percent of my compensation is at-risk, 15 stock-based compensation, so it certainly is our 16 belief and my personal belief that the outlook is 17 quite good, long term. 18 COMMISSIONER WHITAKER: You say that 19 three individuals lost their jobs in connection 20 with the United Kingdom issue. 21 MR. TURNER: That's correct. 22 COMMISSIONER WHITAKER: What reason 23 do you have to believe that there are no other 24 individuals currently at GTECH that had any 25 knowledge of that? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 32 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 MR. TURNER: We conducted a full 2 investigation. There were four specific 3 individuals that were involved in the decision 4 process. Three of those four no longer work at 5 GTECH. The one that remains was the individual who 6 runs the United Kingdom. 7 He had tried, in a formal forum, to 8 raise the issue properly and decisively. He 9 recommended specific action that was the correct 10 course of action. That action was ignored. I have 11 spoken with him personally and informed him that we 12 must ensure and he must ensure that while he did 13 everything reasonably possible to secure the right 14 outcome, that one step more could have helped 15 greatly. 16 But we did not consider, in his 17 case, given the magnitude of effort he did in 18 trying to do the right thing, that that was an 19 offense that was worthy of his termination. It 20 appears quite clear to the board of directors 21 that -- based on our investigation, that knowledge 22 of that decision did not disclose, was isolated to 23 those four individuals. 24 CHAIRMAN CLOWE: Have you run out of 25 voice? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 33 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 COMMISSIONER WHITAKER: I've run out 2 of voice. 3 CHAIRMAN CLOWE: Mr. Turner, you 4 wrote a letter to Linda Cloud on August the 24th of 5 this year. Do you recall that? 6 MR. TURNER: Yes, sir, I do. 7 CHAIRMAN CLOWE: I'd like to make 8 that letter a part of the record if you have no 9 objections. 10 MR. TURNER: I have no objections, 11 sir. 12 CHAIRMAN CLOWE: It will be 13 complete. 14 And I'd like to clarify the record, 15 by way of a statement, that to your knowledge and 16 ours, the problems you discussed in the United 17 Kingdom, although we found some similar type of 18 activity in Texas at a prior period, there have 19 been numerous audits conducted and we are not 20 affected by that problem in any significant way, to 21 the best of everyone's knowledge. Is that correct? 22 MR. TURNER: That is correct, sir. 23 To the best of my knowledge, Texas is not affected 24 by that problem. 25 CHAIRMAN CLOWE: We had a few WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 34 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 incidences, I think, where there was some effect, 2 but they were not significant, if I remember the 3 results. 4 MR. TURNER: That is my 5 understanding, also, sir. 6 CHAIRMAN CLOWE: I want to take this 7 opportunity to tell you our opinion of your local 8 management. 9 You mentioned the Texas employees 10 and the Texas operation. My view is -- and I think 11 I can speak for the other Commissioners and for our 12 staff here -- is that they are very competent and 13 that they are very informative and cooperative with 14 us. 15 And we have an excellent 16 relationship with them, which is very necessary for 17 the close work that we do together. And so as the 18 acting CEO of the company, I think it's important 19 for you to hear that from us and take that into 20 consideration as you deal with local management. 21 And then maybe I ought to answer the 22 question for you, you know: What do those people 23 really think of us? You've come down here and 24 you've made your presentation, and that's probably 25 a question in your mind. And I'd like to answer WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 35 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 that, from myself. We've been trying to get to the 2 top of the mountain, and now I think we're there, 3 in that you represent the leadership of the 4 corporation. 5 MR. TURNER: Yes. 6 CHAIRMAN CLOWE: And you have told 7 us how you view what's happened, and you have given 8 us your personal assurance that you are in charge 9 and that you are going to operate in a totally 10 ethical manner throughout the entire company. 11 That's very important to us, and 12 we're going to depend on you to do that. We have 13 had those assurances from the leadership of GTECH 14 in the past. I have had that personal assurance 15 from the individuals that you mentioned who are no 16 longer with the company. And that was a matter of 17 concern to us when these events began to be 18 discovered and we got information about what was 19 going on in your company. 20 And as you are aware, I know, we 21 have sent our own investigator to your company and 22 to numerous locations to conduct our own 23 investigation into matters, in an attempt to 24 satisfy this Commission and this agency, in 25 addition to the work that you've done yourself. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 36 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 You know, in a sense, we're partners 2 here, and we cannot go forward without the trust 3 and the confidence that is implicit in our 4 relationship. My view is, you have a tough job. 5 It's a large company; it's worldwide. And you have 6 a number of employees who make decisions that 7 impact the very core of the operation of your 8 company. 9 And I think the person that you 10 select as a CEO is critical to your policies being 11 implemented in a very effective and meaningful way. 12 To that end, I think it's fair to ask you to come 13 back and to bring the CEO of the company when that 14 person is selected -- not immediately upon that 15 decision being made, but perhaps within about six 16 months -- and tell us how you feel about the 17 progress that you have made and where you feel you 18 are with the CEO, and talk to us about your 19 company. 20 This is not a one-time-it's-done 21 kind of thing that you, I think, should walk away 22 from and leave us feeling good. I want some 23 further assurance. 24 I would tell you that the three 25 Commissioners here don't have the expertise that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 37 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 you have and the background that you have in the 2 gaming industry, but we have a very heavy 3 responsibility, which I think at the top of the 4 list is integrity, honesty, and fairness. And the 5 people in this state look to us to maintain an 6 impeccable performance. It just cannot be 7 blemished in any way. 8 My view is, there is a segment in 9 the state that would like to have no gambling at 10 all. And I respect that, and I understand that, 11 and I listen to it. And if ever there is any 12 blemish on the integrity of this Commission -- and 13 our largest vendor, as I said, is a partner in the 14 business of this agency, day by day -- I don't know 15 how we'd defend that. And I hope to be never put 16 in that position. 17 So I take very seriously your 18 appearance here this morning and the assurances 19 you've given us, and I do hold you personally 20 responsible. And I hope that you will tell others 21 in your company that this Commission said that to 22 you, and that that will help you in the tough job 23 that you have to do in the future. 24 And if it isn't an imposition, on 25 behalf of the Commissioners, I would like to ask WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 38 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 you to come back and give us a progress report and 2 let us know how you're moving along with the goals 3 and objectives that you've set. 4 MR. TURNER: Mr. Chairman, I would 5 be happy to do that. And I would also tell you 6 that while I acknowledge your points -- it's a 7 challenge and it's certainly a tough job, and 8 you've had some of these, I know, in your own 9 personal business experience -- I am comforted by 10 the fact that we have 4,500 associates around the 11 world who have clearly demonstrated to me, 12 personally, that they have the skill set, they have 13 the ethical basis, they have the desire to ensure 14 that we are meeting the public trust every day. 15 And I am confident that we will continue to do 16 that. 17 I will happily bring the new chief 18 executive officer back with me, and we can provide 19 you with frequent progress reports as you'd like. 20 The running of any company, as you are well aware, 21 is a process of continuous improvement. That is 22 our obligation to not only our shareholders, but 23 also to our customers and to our associates around 24 the world. That is how we run effective 25 businesses, that's how we satisfy your needs on a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 39 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 daily basis, and we never stop trying to do better. 2 You have my personal guarantee, sir, 3 that I take your comments to heart. I am 4 personally responsible for the actions of GTECH, 5 all that we do or do not do. That is my duty. You 6 have my word on that, and I can provide no stronger 7 guarantee. So I look forward to continuing a long 8 relationship with all of you. 9 CHAIRMAN CLOWE: Great. Thank you 10 very much. 11 MR. TURNER: Thank you, sir. 12 CHAIRMAN CLOWE: Let's go down to 13 Item 2 on the agenda: the report, possible 14 discussion and/or action on lottery sales and 15 trends. 16 Linda, I think you or Toni will 17 brief us on this. 18 MS. SMITH: Yes, sir. Good morning, 19 Commissioners. For the record, my name is 20 Toni Smith, Marketing Director of the Texas 21 Lottery Commission. 22 CHAIRMAN CLOWE: Good morning. 23 MS. SMITH: Good morning. 24 CHAIRMAN CLOWE: Pardon me, Toni, go 25 right ahead. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 40 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 MS. SMITH: That's okay, sir. 2 To take a look at sales in the 3 normal view that we do in these meetings, we 4 typically look at weeks ending. I just wanted to 5 make note before I got started that this past week, 6 the week that I'm now reporting on, is the first 7 full week of this fiscal year. But what's in the 8 packets only represented a couple of days of the 9 first of the fiscal year, so this report is for the 10 full week ending September the 9th. 11 So total FY '01 sales to date are 12 101,474,591. This is up 36.65 percent from fiscal 13 year 2000 total sales to date of 74,259,855. Our 14 fiscal year '01, current weekly average sales is 15 50,737,295.5. Again, this reflects a 36.65 percent 16 increase over last year's weekly average of 17 37,129,927.5. 18 And then to go on and look at 19 year-to-date sales comparison by product, the 20 Instant products for fiscal year '01 are at 21 41,499,460, which is a 43 percent increase over 22 last year's 41,320,955. 23 And I think the good news is where 24 we are with our Lotto Texas game for this week. 25 We're currently at 49,624,871, compared to only WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 41 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 19,948,928, which was a 148.76 increase. Now, that 2 increase is, for this week, directly related to our 3 $60 million jackpot that we had last week. 4 We're very excited that those sales 5 are going in the right direction, that the jackpots 6 are doing what we had planned; and that we had a 7 $60 million jackpot, and the game is working for 8 us. 9 To go on and just look at weekly 10 sales, for the past week by product, product for -- 11 comparing this week to the previous week, which 12 we'll go ahead and look at the full week, even 13 though it wasn't part of the fiscal year. 14 Instant tickets were 39.85 percent 15 of sales at 31,268,686, and compared to the 16 previous week, they were 30,979,551. So this was a 17 .93 percent increase. 18 Lotto Texas, on the other hand, 19 though, was at 39,725,265, compared to 19,827,339 20 for the previous full week. So that was 21 100.36 percent increase. So I guess we were real 22 excited to see that Lotto had done for us what we 23 hoped that it would do. And that wouldn't have 24 made that -- 25 MS. CLOUD: Commissioners, I'd like WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 42 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 to point out one thing in our projections that 2 we -- in our proposed change for the matrix, we 3 gave you numbers relating to the number of jackpots 4 and the sizes of those jackpots that we projected. 5 I'd like to say that this past week, we originally 6 projected that we would have between -- we would 7 have four rolls between 37 million and 67 million. 8 So that's one of our four for the 9 year. So we're on our way now. The game is 10 working the way we had hoped it would. Our players 11 have been tremendously excited about this jackpot. 12 All the rollovers, the top rollovers the last 13 couple of weeks -- Saturday night, just to give you 14 an indication, from 1:00 Saturday until 9:30 or 15 9:45, when we had the draw break, we were doing 16 over a million dollars in each hour. It increased 17 itself in the last hour between 8:00 p.m. and 9:00. 18 We did $2.2 million in sales in one hour. 19 So this answers our question. Our 20 players like the big jackpots. They come into the 21 game. They play. We've had numerous -- we've had 22 wonderful media with this. Our newspapers around 23 the state have gone out in the field and talked to 24 players and talked to retailers. And most of what 25 we've seen in print has been very positive, and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 43 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 we're real thankful for that. 2 So we ended the week in sales with 3 78,462,037. And that's the highest sales figure 4 for a weekly figure that we've had in a very long 5 time. So I am delighted. 6 I was at the studio Saturday night. 7 It's much more exciting to be there to watch those 8 balls drop in person than to be at home. So a 9 number of us, actually, were at the studio, and the 10 anticipation of waiting that 20 minutes until the 11 computer has time to search for those winning 12 numbers just keeps you on the edge of your seat. 13 And then it was announced that we 14 had one winner. You're excited for that winner 15 because that's what we're here for, to make 16 millionaires. And I think most of our players have 17 had a lot of fun with this rollover, and I just 18 think it's the first of many. And I'm really happy 19 to feel that we have brought our Lotto game back, 20 and the players have shown us that this is what 21 they want. 22 CHAIRMAN CLOWE: Very good. 23 Toni, do you have any comments on 24 Item 3, the advertising and promotions and print 25 media criteria? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 44 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 MS. SMITH: No, sir. I have nothing 2 new to report. 3 CHAIRMAN CLOWE: Linda, do you have 4 anything? 5 MS. CLOUD: No, sir, not at this 6 time. 7 CHAIRMAN CLOWE: Very good. Thank 8 you. 9 We're going to go to Item 14. There 10 is an appearance to be made here on a matter. I 11 believe it's letter "L." 12 Kim, I'm going to ask you to help me 13 on the pronunciation of this. 14 MS. KIPLIN: Certainly. 15 CHAIRMAN CLOWE: Mr. Eric Roberson 16 is here and wants to make an appearance before the 17 Commission. 18 Kim, would you discuss this so that 19 we understand what we're being called on for. 20 MS. KIPLIN: Sure. 21 Commissioners, what you have in your 22 notebooks today are actually two items that 23 Mr. Roberson is here and wishes to make an 24 appearance on. The matter that you just itemized, 25 Item L, Docket No. 362-00-0061.B, Dance Et Vous, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 45 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 that matter is before you for a motion for 2 rehearing that Dance Et Vous filed by and through 3 their attorney, Mr. Roberson. That matter -- there 4 is a bunch of documentation that's in your 5 notebook. 6 We did extend the time by order for 7 the agency to act on that motion for a rehearing to 8 ensure that it would not be overruled by operation 9 of law. I've sent a letter, consistent with past 10 practice, Commissioners, to Mr. Roberson, and 11 circulated a copy to staff's attorney, Kaye 12 Schultz, indicating that each of them would have 20 13 minutes to present their oral argument. He has 14 made a request to make an oral argument in 15 conjunction with his motion for rehearing. 16 Next, Mr. Roberson is also here for 17 Item P. That's Docket No. 362-00-0060.B, Minor 18 Considerations, Inc. In that matter, he has also 19 made a request for oral argument. That is a matter 20 in which there is a recommendation by the State 21 Office of Administration Hearings' Administrative 22 Law Judge, and a proposed order, which is in your 23 notebook. 24 It's Mr. Roberson's motion, and so I 25 imagine that he'll want to make his argument first. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 46 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 Mr. Roberson, are you ready? 2 MR. ROBERSON: I'm ready to make my 3 argument. Unfortunately, the Commission's 4 projector has gone into sleep mode and won't wake 5 up. I'm turning on my projector right now, and 6 that will be on with the visuals in approximately 7 the three and a half minutes it takes to warm up, 8 unless we can get the other one to wake up. 9 MS. KIPLIN: Commissioner, maybe in 10 the interest of time, there are other matters that 11 we might be able to take up -- 12 MR. ROBERSON: Actually, Ms. Schultz 13 just said it's coming up, and we'll be ready to go 14 in about ten seconds. 15 MS. KIPLIN: Okay. 16 CHAIRMAN CLOWE: Okay. Now, I need 17 a little clarification. In Mr. Roberson's 18 appearance form, he listed only Dance Et Vous. 19 Is that the correct pronunciation? 20 MS. KIPLIN: It's my understanding 21 he -- in a conversation I had with him Thursday, he 22 said he wanted to present an oral argument on both 23 matters. So I will ask him to present -- to 24 complete, at the end of his presentation today, 25 another witness affirmation form for Minor WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 47 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 Considerations. 2 MR. ROBERSON: Yes, Mr. Clowe. And 3 I apologize for that. It was my understanding that 4 because the Minor Considerations matter was set 5 separately on the docket and I filed a motion for 6 oral argument, that I didn't have to file a 7 separate affidavit. But I'll gladly file an 8 additional one. 9 CHAIRMAN CLOWE: I'm just interested 10 in keeping the record straight. So if you will do 11 that -- 12 MR. ROBERSON: Yes, sir. 13 CHAIRMAN CLOWE: -- we will have 14 that on the record. 15 MS. KIPLIN: Mr. Roberson, for 16 clarity, I see that you've got your very first 17 point -- it's a conjunction, Minor Considerations, 18 Inc. and Dance Et Vous. Do you intend to argue 19 these at the same time? 20 MR. ROBERSON: Yes, Ms. Kiplin, I 21 will, and the reason will be very clear. The 22 allegations are identical. The charities are made 23 up predominantly of the same individuals. As a 24 matter of fact, it's almost scary how identical the 25 audits are. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 48 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 So because of that, to ease the 2 transition, to help the Commission out, and also to 3 give assistance to both charities' arguments, I'm 4 going to argue them together unless the 5 Commissioners object. 6 CHAIRMAN CLOWE: I don't think we 7 have any objection to that. 8 Could you give us an idea of what 9 time period that you think you're going to take. 10 MR. ROBERSON: In the letter the 11 Commissioner's counsel sent, it was stated that 12 there would 20 minutes given to each side. If the 13 Commission feels that that is inappropriate due to 14 the items in this agenda, I'm certainly willing to 15 alter my presentation. I want the Commission to 16 have all the information they can, but I certainly 17 understand we do have a big agenda today, and I 18 think -- 19 CHAIRMAN CLOWE: We're comfortable 20 with that. And you think you can finish within 21 that time period? 22 MR. ROBERSON: Oh, certainly, sir. 23 CHAIRMAN CLOWE: That's fine. 24 MR. ROBERSON: And the other item -- 25 Ms. Schultz and I haven't had a chance to discuss WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 49 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 this previously, but I assume this is standard in a 2 variety of other Commission and appellate type 3 formats -- that I can split my time, 15/5, if that 4 is acceptable with the Commission. 5 CHAIRMAN CLOWE: We'll be flexible 6 on that. And you'll be open to questions as well? 7 MR. ROBERSON: Yes, sir. 8 CHAIRMAN CLOWE: Ms. Schultz, for 9 the record, are you under 20 minutes? 10 MS. SCHULTZ: Yes, sir. 11 CHAIRMAN CLOWE: She's responded 12 affirmatively. 13 All right, sir. 14 MR. ROBERSON: All right. And is 15 the court reporter picking me up for the record? 16 THE REPORTER: Yes. 17 MR. ROBERSON: All right. Thank 18 you. 19 Honorable Commissioners, my name is 20 Eric Roberson, from the Law Office of Eric 21 Roberson. I'm also the head of the Trinity Legal 22 Foundation. We're the only foundation in Texas 23 that primarily performs legal ethics seminars for 24 other attorneys. 25 And that's what I do with most of my WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 50 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 time. I use the foundation in order to fund my law 2 office so that I can accept work for charities, 3 churches, and synagogues at a greatly reduced rate. 4 And I won't even tell you how reduced it was for 5 this, because quite frankly, this ended up being a 6 lot bigger of a case than I thought when we first 7 looked at it. 8 What we have here are two charities: 9 Minor Considerations, Inc., and Dance Et Vous. For 10 Minor Considerations, we're here for a motion for 11 reversal of a denial of license. The State Office 12 of Administrative Hearings has issued a PFD which 13 affirms the Commission's denial of a bingo license 14 for the charity. 15 We're also here for both 16 Dance Et Vous and Minor Considerations on motions 17 for rehearing. Basically, what we have for both 18 charities, an audit was performed. The audit found 19 15 separate types of errors. These errors 20 basically break into three categories. The first 21 13 in both were accounting errors, the next errors 22 were bingo games on improper nights, and then the 23 last allegation contained in the audit and in the 24 notice letters was whether or not we have a bona 25 fide charity in both events. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 51 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 Now, what I'll do is, I'll address 2 those in three broad categories. And in the 3 interest of time, I'm not going to go line by line 4 into each 14 -- 13 -- 15 points. The last two, I 5 am going to break out in much greater detail. 6 Now, basically, the auditing errors 7 are multiple. They're admitted. And the question 8 is, given the fact that the Commission has the 9 authority under the statute, but isn't mandated 10 under the statute to review and revoke this license 11 for Minor Considerations or Dance Et Vous, the 12 question is, given the amounts of the errors 13 involved, should the license be revoked. 14 Now, when we take a look at Minor 15 Considerations, we show that the audit, which was 16 submitted by the Commission, shows a total cash 17 flow of $379,000 over the audit period. After all 18 the pluses and minuses are added, all the 19 accounting errors are taken into effect, we have a 20 total of $2,800 that the charity was told they had 21 to repay. 22 Of course, that comes to less than 23 1 percent of that total amount. And of that 24 $2,800, the vast majority of that was theft that 25 the charity wasn't able to prove, and, given some WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 52 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 of the circumstances that happened in the hearing 2 itself, did not have the ability to prove. And 3 that's one of the items involved in the motion for 4 rehearing. 5 For Dance Et Vous, we had a cash 6 flow of $190,000; after offsets, $73. $73 was all 7 the charity had to repay. 8 Now, I know we have a couple of 9 attorneys and one businessperson. That might seem 10 like a lot, $2,800. $73, I don't think anyone 11 would think seems like a lot. It's amazing to me 12 that a charity that has no business acumen at all, 13 that really is staffed with a bunch of good-hearted 14 but business-naive people can go into this industry 15 and have $73. Now, the fact is, it's a lot more 16 than $73 if you break the items up in certain ways. 17 You know, for example, timely 18 deposits. During various phases in the 19 organization's time frame, the organization did not 20 follow, was not aware of, the importance of turning 21 the deposits in the next night. They now 22 understand. They have now pledged that they are 23 going to do that right. 24 But there's a good number of 25 deposits that weren't made in a timely manner. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 53 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 Because of that, some of the deposits don't match 2 up. Some of the withdrawals don't match up. And 3 under accounting principles, you have to list those 4 separately. Under accounting principles, maybe 5 these things look like they add up, but still, 6 we're talking $73 dollars out of almost 200,000. 7 We're talking 2,800, the majority of which is 8 theft, out of over 300,000. 9 So when you take a look at that, the 10 charities would argue that you've got to take a 11 big-picture item. The limited -- some of the 12 withdrawals were made for cash. Because of that, 13 they had to be listed that they couldn't be proven 14 as to what they were. 15 But again, when you add offset -- 16 and let's take a look at some of the offsets I'm 17 talking about. For Minor Considerations, the first 18 quarter of '98 shows $924 of deposits that were, 19 quote, short, that couldn't be proven. But yet in 20 that same quarter, we had $922 of deposits that 21 couldn't be identified. So what they were told to 22 do in this quarter -- and it shows up, when you add 23 it up, oh, they're short $924 -- and you add all 24 these up, and it looks like that's a thousand 25 dollars that conceivably could be argued was stolen WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 54 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 because you can't -- your deposits are short. 2 But in that same quarter, we've got 3 unidentified deposits that are $920 -- now, just -- 4 now, as a person who is not an accountant, it would 5 appear to me that these items would show that the 6 deposits were made in -- somewhere along the way, 7 in a cash business, $2 was mixed up. But because 8 they're accounting errors and because of the way 9 audits work, this looks like a big thing. 10 I think the Commission can see these 11 types of -- the same thing in the fourth quarter. 12 We had $102 short on our deposits, but we had 13 unidentified deposits that we couldn't, quote, 14 trace directly to bingo even though charity, 15 realistically, doesn't have anything else that's 16 bringing in cash flow of $125. It looks to me like 17 you should say, well, we've got $23 here that's 18 unidentified. 19 But under accounting rules, you've 20 got to really line item separate it. So if you 21 take a look at these line items, it might look 22 shocking. But when you take a look at the bottom 23 line, the auditing errors don't add up. 24 And it's interesting today -- one of 25 items that Ms. Shultz rightly argued in front of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 55 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 the State Office of Administrative Hearings is, 2 hey, the charity is responsible. The charity is 3 the bottom line in the same way the Commission is 4 the bottom line for what the subcontractors do. 5 Some people could argue that the 6 item that was just discussed earlier today should 7 be held against the Commission. I don't think it 8 should be. I think you're doing the best job you 9 can to make sure your subcontractors are doing 10 their job. The fact is, is that when a lot of 11 business happens, things can get undone. 12 There's an article that we pulled 13 out, $40 million -- and I'm sure the Commission is 14 aware of it because it was such a newsworthy 15 item -- $40 million in advertisements for the 16 Commission, $300,000 of advertisements that were 17 purchased that were never actually used. 18 Well, the fact is, is that this 19 amount is substantially similar, percentage-wise, 20 in regards to Commission advertising as opposed to 21 what our charities did with their money. Yet maybe 22 the fact that the entire $300,000 is more than one 23 of the charities involved, you could say, well, 24 that's a lot of money. But when you look at 25 $40 million, it's not that much money for $300,000 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 56 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 of Commission advertisements not to actually be 2 used. 3 And that's something that's not in 4 the record, but because it's Commission business, 5 you, through notice of the Commission's business, 6 can take that into account when you try to balance: 7 Is this a good charity; is this not a good charity; 8 or have they been following through with the public 9 trust that's been given them with this bingo's 10 money? 11 And both times, your response was 12 appropriate and adequate. And part of the response 13 was, we're going to get to the bottom of it; we're 14 going to take responsibility for it. But also, an 15 identification of the fact that, hey, this is a 16 small amount, especially the $18,000 in redeposits 17 compared to the vast sum. And the charities would 18 argue the same thing here. 19 Now, in regards to the bingo on 20 wrong nights, you know, the fact is, the charity 21 messed up. Now, there are three different ways 22 they messed up. One of the ways was, they didn't 23 know what the proper procedure was to amend. So 24 when they first started operating, a lessor said, 25 "Well, all you've got to do is to send it in. I've WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 57 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 got some extra nights. Send it in, and let's start 2 playing right away." 3 They were naive. They're just good 4 folks from the east side of Dallas. They said 5 great, we'll do it. And they sent it in and they 6 started playing on the wrong night. They admitted 7 it when it was pointed out to them that they didn't 8 follow the right procedure. They admitted it. 9 That's one of the things about this. 10 I got this case after it was argued, after the 11 hearing was held. There was no attorney that was 12 present when it was held. Despite the fact that 13 they had spoken to an attorney ahead of time, that 14 attorney was unable to take the case. 15 And so because of that, you know, 16 they went in there, they honestly said this is what 17 we did, this is what we didn't do. There was 18 absolutely no prevarication in regards to these 19 things. And as an attorney, I mean, I was sitting 20 there thinking, you know, we've admitted to 21 everything in the audit. 22 I can't come here and argue that you 23 would be outside of your authority to deny this 24 license, but just because it's within your 25 authority doesn't mean you have to do it, and it WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 58 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 doesn't mean it's the right thing for you to do. 2 And it's interesting. This is a 3 confusing area. Not only is it a confusing area to 4 small charities, it's a confusing area to the 5 Commission. The fact is, is that on both 6 charities, there were dates that were originally 7 included in the notice that the Commission, on 8 further review of the paperwork, realized that 9 those were the proper nights. 10 So moving right along quickly here, 11 the last issue: What's a bona fide charity? 12 It's interesting here. There are 13 two separate statutes that talk about what the 14 definition of a charity is. Both charities were 15 only given notice of one. The notice of the 16 statute that they were given a notice of does not 17 have the word "continuous" within it. 18 You know, and that's an interesting 19 item, because both ALJs started -- got off really 20 into the idea that their operations were not 21 continuous and they weren't, quote, primarily 22 engaged. 23 Well, we think the record is clear, 24 despite the fact that it wasn't presented by an 25 attorney, that there is a continuous nature. But WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 59 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 more than that, we think it shows that that's 2 primarily what they were doing, was charity. 3 And it's interesting. You know, 4 there's no limits on the Commission's regulations 5 or in the statute as to how big or how small a 6 charity should be. There's no limits as to how 7 often they should meet. Should they meet on a 8 weekly basis, a monthly basis; should they meet on 9 a quarterly basis, a semiannual basis? It just 10 says they have to be primarily engaged in charity. 11 And so because of that, we think the record is 12 clear that they have met the statutory requirement 13 that they were primarily engaged. 14 One of the items that we have is, 15 say you're an organization, a small charity. You 16 have less than 20 members. You only do three or 17 four events a year. Now you start operating a 18 bingo account. 19 You get a license to operate -- now, 20 if you operate a bingo game once a week, now you've 21 got 52 events of charitable bingo. But if you keep 22 up the three or four events that you had a year, it 23 looks like, well, only 2 percent or 3 percent of 24 your operations are charity and the rest is bingo. 25 But you're still doing everything you've been doing WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 60 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 as a charity. Now you've just added a fundraising 2 effort on the side so that you can actually be 3 fully funded. 4 And what Ms. Schultz did -- and it's 5 an ingenious argument. I'm not going to say that 6 it's an argument that is unethical or anything. 7 But when you think about it, that means any small 8 charity that only does three or four events a year 9 but is legally a charity under Texas law, is a 10 charity under federal tax law, is incorporated as a 11 nonprofit charity. 12 But now, because they add bingo, if 13 "primarily engaged" means they have to have more 14 non-bingo events than bingo events, then that means 15 half the charities out there can't do bingo. And I 16 don't think, when you look at it from a public 17 policy perspective, that that's what this 18 Commission wants to say. 19 The record is clear, though, that 20 Minor Considerations -- we put evidence on that our 21 activities remained constant. We still had 22 spaghetti suppers that we were sponsoring. There 23 was still school program sponsoring. Over $13,000 24 was given to charity during the audit period. 25 Those are items in the transcript there. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 61 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 Operations at Dance Et Vous, the 2 annual collection of dance wear given away to 3 underprivileged individuals continued. The 4 sponsoring of dancers continued. Now, there was an 5 item when we lost the Dance Et Vous group. We were 6 trying to find a new dance group to send the 7 children that we wanted to sponsor to. So during 8 that period of time, they had to do research. 9 There wasn't actively a person going for a period 10 of time because they no longer had a dance school 11 to send them to. 12 Small, yes. Continuous, yes. 13 Primarily engaged in charity, yes. 14 Other issues -- and I've only got 15 two minutes left in my fifteen minutes -- waiver 16 estoppel. We had an auditor for the Commission who 17 admitted under oath that she had told Ms. Landrum, 18 the head of both of these charities, the 19 representatives of both of these charities, at the 20 meeting that the things that they discussed would 21 not be admitted, would not be included on the 22 record. It was admitted. It was admitted under 23 oath. 24 There is some dispute as to how big 25 of an admission that is. I think it's clear that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 62 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 she said, "I told Ms. Landrum the items we 2 discussed wouldn't be admitted." 3 COMMISSIONER SADBERRY: Can I 4 interrupt you on that point? 5 MR. ROBERSON: Yes, sir. 6 COMMISSIONER SADBERRY: Is estoppel 7 in both of your cases? 8 MR. ROBERSON: Yes, sir. 9 COMMISSIONER SADBERRY: And I know 10 that you have put a selected -- well, strike 11 "selected." 12 You put a certain portion of the 13 admission in your brief, and the Commission has put 14 an extended portion in their responses. Is there 15 any problem there? It seems like the numerical 16 difference is emphasized in the staff's position as 17 to which items were, in fact, subject to the 18 hearing. I just want to be clear on your point. 19 What's your position on that? 20 MR. ROBERSON: My position is, is 21 there's a statement by the auditor that says the 22 items we discussed would not be admitted. Now 23 there's a disagreement as to what items were 24 discussed, and I admit there is a disagreement. 25 And I admit that the Office of Administrative WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 63 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 Hearings, because it was a record hearing, could 2 take a look at that, but especially when we're 3 dealing with a pro se litigant here. 4 COMMISSIONER SADBERRY: That's 5 another thing I wanted to ask you about. 6 MR. ROBERSON: Yes, sir. 7 COMMISSIONER SADBERRY: Again, not 8 that it makes a big difference. I just want to be 9 clear. 10 My reading suggested that your 11 client had consulted with counsel and had elected 12 to be pro se. And I heard -- if I understand you 13 correctly, you said that the counsel had not 14 committed -- and these are my words, but that's the 15 sense I'm getting. Is there a distinction there 16 that I'm not picking up? 17 MR. ROBERSON: Yes. And it's one of 18 those things. And the worst part is -- the record 19 is clear, and I think that's something -- and I'm 20 not the Administrative Law Judge, and I'm not the 21 Commission's attorney, and I'm not going to say 22 they did anything that was beyond the pale of 23 unethicalness. But when someone says, well, we 24 did -- and I can't remember what the verb -- I 25 don't think they had any verb after that. That's WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 64 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 all it said: "Do you have an attorney," or 2 something like that. And it was, "Well, we did, 3 but she had a baby." 4 Now you've got someone who is there, 5 and it's my understanding that this person who had 6 a baby was never formally put under a retainer, 7 that there was the informal discussions. Then 8 there's the statement, "I can't do it because I had 9 the baby early," blah-blah-blah. 10 And the fact is, would anyone -- if 11 she had retained an attorney, and that attorney had 12 a baby, that attorney would have called up and 13 said, "Can we reschedule this?" And the fact that 14 that wasn't offered is where I'm drawing the line 15 on the fact that we have a pro se litigant here. 16 Now, the fact is, is that we're not 17 asking for a special substantive standard because 18 we were pro se at the hearing. What we're asking 19 for was the fact you've got someone that's showing 20 up pro se; the very first thing that happens in the 21 hearings is, you know, there's a disagreement as to 22 what was even going to be included here, which is 23 the type of thing that's going to happen when you 24 have an uneducated non-lawyer. 25 And when I say "uneducated," she WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 65 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 is -- Ms. Landrum is a paralegal, but she's -- I 2 mean, she's one of the most trusting souls I've 3 ever met. And, I mean, she was told these things 4 weren't going to be included, and she trusted that. 5 And then she got there, and things were different. 6 She didn't -- because she's not an attorney, didn't 7 have the acumen to say, "Can we move for a 8 continuance here? This is a different picture than 9 what I thought." 10 And that's the kind of thing that I 11 think, when you have a pro se litigant, that the 12 Commission's staff ought to be mindful of, because 13 it wouldn't have hurt the Commission to sit down 14 and talk to the auditor and say, "Did you make 15 these promises?" 16 And it's my opinion, based on the 17 testimony, that basically, you have organizational 18 mass, and the mass was moving forward, and it 19 didn't want to contemplate the idea that, well, 20 maybe we should pull back here because it might be 21 more fair to a citizen that's a charity. 22 And again, I'm not saying anything 23 unethical was done. What I'm saying is, is that -- 24 and I've got a case here, Thomas v. Collins, both 25 at the trial court and the appellate court level, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 66 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 pro se litigants are to be treated with patience 2 and liberality. 3 The patient, liberal thing to do 4 would have been, "You don't have an attorney. 5 There's been some statements made. Let's come back 6 and do this later because we're not going to listen 7 to what this person said. If they promised you 8 anything they didn't have authority, let's start 9 from scratch a month from now." It wouldn't have 10 hurt the Commission a bit to do that. It would 11 have given both charities the chance to represent 12 themselves. 13 With the Commission's questions, I 14 am now down to the last two minutes. I do want to 15 put up a couple things that I think you, as the 16 Commission, should know, and Ms. Shultz would 17 agree. It's been very, very painful going through 18 this process because the Commission and the State 19 Office of Administrative Hearings are not on the 20 same page. There's a difference as to who has 21 authority to do what. 22 There's a regulation that says the 23 State Office of Administrative Hearings should hear 24 this motion for rehearing. It's your regulation. 25 I filed it with them. They sent it back to me. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 67 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 Despite there's a regulation on the books that says 2 they have authority, they're saying they don't. 3 Your regulation says that they get 4 to keep authority for additions of time. 5 Ms. Schultz and I agree on that. We filed an 6 agreed motion. One of their judges signed it, in 7 Dance Et Vous. In the Minor Considerations issues, 8 the judge said she didn't have authority to sign 9 it. 10 There are some statutory problems 11 with how the administrative process works that you, 12 as the Commission, need to know about. The lack of 13 training. We have $40 million for advertising 14 Lotto, but we don't have enough in the budget for a 15 single videotape so that a small charity can know 16 how the rules work. There is a training program, 17 but it's basically read the book, come back and 18 talk to us after your first month. 19 There are tons of charities out 20 there. They are operating, thinking they are doing 21 it right, and they're not. And yes, they should be 22 held accountable, but the Commission needs to know 23 that this is an endemic problem, and it's not just 24 these two small charities. 25 My thesis in law school was: How do WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 68 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 honest politicians get in trouble? There are a lot 2 of ways. How do honest charities get in trouble? 3 There are a lot of ways. This is an honest 4 charity. You need to know that there are more 5 things that you can be doing, because I think the 6 State of Texas wants charities to be running bingo 7 games, even small charities with less than 20 8 members that only do two or three things a year. 9 Thank you very much. 10 CHAIRMAN CLOWE: Thank you. 11 MR. ROBERSON: And Ms. Schultz, I'll 12 set you up here. 13 And also, I appreciate the Lottery 14 Commission's sharing the projector. It makes life 15 easier for... 16 MS. SCHULTZ: I appreciate your 17 patience. I'm having technical difficulties here. 18 I have mine divided -- 19 MS. KIPLIN: Kaye, identify 20 yourself, please. 21 MS. SCHULTZ: I'm Kaye Schultz, 22 Assistant General Counsel. I represented the 23 Charitable Bingo Division in these cases. And let 24 me first say that auditors in Charitable Bingo have 25 a tough job. They go in -- and bingo is an WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 69 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 all-cash business, basically, so they do what 2 "Deepthroat" told Woodward and Bernstein to do in 3 Watergate: They follow the money. 4 And they go in and audit for a year 5 period, going through, requesting the books and 6 records of the organization. And that's why it's 7 important that the organization have kept accurate 8 books and records. Organizations do undergo 9 training when they are licensed, and there are 10 1,600 bingo conductors in the State of Texas. 11 Bingo -- as Chairman Clowe 12 mentioned, there are a lot of people who would 13 rather not see gambling in this state, and bingo is 14 closely regulated because only charities are 15 supposed to conduct bingo and it's supposed to be 16 for charitable purposes. And that is one of the 17 reasons the audits take place, to make sure the 18 money is going where it is supposed to be going. 19 In both of these cases, size was not 20 a factor in a decision to deny license renewals. 21 If size was a factor, these organizations would not 22 have been licensed in the first place. It's the 23 magnitude of violations and the seriousness of some 24 of the violations, the most serious being what 25 Counsel referred to as, I believe, playing the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 70 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 wrong dates. 2 It's actually playing illegal 3 sessions. The reason a license is for a particular 4 time is so that auditors and others could come in, 5 know that the organization is playing these times, 6 and the money is going to the proper place. 7 Playing illegal sessions is one of the most serious 8 violations of the Bingo Enabling Act. It's also a 9 felony. 10 And the other most serious violation 11 is -- the sheer lack of any charitable activities 12 during the audit period and for some time before 13 and after that is an indication that -- an 14 organization can play bingo. It's a charitable 15 organization. But it's supposed to have a 16 charitable purpose and existence outside the 17 playing of bingo. In other words, It's not 18 supposed to exist just to play bingo. 19 In the Minor Considerations case, 20 this is an organization that's stated purpose is to 21 distribute its charitable money to other charities, 22 churches, and other nonprofit organizations. The 23 denial of the license renewal resulting from the 24 audit began with a notice letter that alleged 15 25 violations of the Bingo Enabling Act. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 71 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 At the hearing and in response in 2 the motion for rehearing, the applicant admitted to 3 9 of those violations, 9 of the 15. There was some 4 testimony that some of these were resolved. 5 And to clear up a point that 6 Mr. Roberson mentioned, the allegation by the 7 operator of the bingo charities and the person, 8 Cynthia Landrum, who is the primary operator for 9 both these charities, that an auditor made some 10 type of promise to her, was basically her 11 testimony. And it was not supported by our 12 auditor's testimony. There were two separate 13 judges, two separate hearings, but the same primary 14 operator, and also the same auditor in both cases, 15 Ms. Jody Mehaffey. 16 And the testimony of the hearing, I 17 quote from it, was, "Ms. Landrum, the operator, 18 made the representation that she was only prepared 19 to discuss two violations of the Bingo Enabling Act 20 because she had been told by the auditor that 21 everything else had been resolved." 22 And at one of the hearings, when 23 Ms. Mehaffey was asked about this, she said, "Yes, 24 Your Honor. I did tell her that the things she 25 addressed to me that she had corrected would not be WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 72 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 admitted, would not be discussed. We would just 2 say that she had this violation during the audit 3 period, but that she had corrected it. 4 "There were more than two violations 5 left. I believe there were maybe about five things 6 that she addressed in here. The rest of them were 7 still here. I did tell her that there were two 8 main violations, which were the last two." 9 And those are the playing outside 10 licensed times, the playing illegal times, and the 11 lack of charitable activity. And she said those 12 were "the worst violations in the audit period." 13 Then the judge asked, "And if I 14 understand what you said, you said that five issues 15 had been resolved, but the other ten had not." 16 And the auditor's response was, 17 "That's correct." 18 So to make a representation that our 19 auditor had promised this woman only two violations 20 would be taken up and that's why she came 21 unprepared, is incorrect. That's her 22 representation. 23 And in the other hearing that took 24 place, the auditor's testimony was that there were, 25 I believe, 11 violations that have not been WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 73 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 corrected, and those -- that testimony stood on its 2 own. And when Ms. Landrum got up to testify, one 3 of the first words out of her mouth, one of the 4 first statements, was, "I agree with what the 5 auditor testified to." So in other words, she did 6 not contest the fact that these were the violations 7 that were still pending. 8 The Administrative Law Judge found, 9 in Minor Considerations, 11 violations. The 10 applicant admitted to 9 of those 11, so there were 11 2 that were still at issue. 12 COMMISSIONER SADBERRY: If this is a 13 good point, if I can ask a question and interrupt 14 you, please, do I correctly read your response that 15 on this issue of continuance, that it was the duty 16 of the licensee to request a continuance if there 17 was some issue about what exactly would be in the 18 hearing? Or, I understand Counsel to state that 19 perhaps staff should have recognized the need, out 20 of fairness -- what am I reading in your response? 21 What's your position on that? 22 MS. SCHULTZ: I do not believe it is 23 my obligation, or it's -- we have many 24 organizations that come before hearings at the 25 State Office of Administrative Hearings that choose WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 74 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 to represent themselves. In both of these cases, 2 there was testimony on the record that the judge 3 stated, "Do you have an attorney? Do you realize 4 that you're entitled to an attorney?" 5 And the respondent said "Yes, we had 6 hired an attorney, but she unexpectedly had a 7 baby." 8 So the judge said, "Well, so are you 9 choosing to represent yourself here?" And her 10 response was, "Yes we were." 11 These are both denials of license 12 renewals. The applicant makes a renewal 13 application, and because of the timing of the 14 audit, the violations uncovered in the audit result 15 in denial of that application. When the denial 16 letter goes out with these 15 violations in it, the 17 process is that the applicant has the burden of 18 proof to show that they're entitled to a license 19 renewal. It's the applicant's burden of proof. 20 The applicant gets a letter saying 21 here's the violations, and you are entitled to 22 request a hearing on those violations. And then 23 the applicant makes that hearing request. 24 And the hearing request was made. 25 The hearing was set, and of course, we would not WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 75 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 oppose a continuance request if someone made one. 2 But there was, at no time, even after the judge 3 stated, "Well, you realize you have the right to an 4 attorney" -- but she's saying she chose to 5 represent herself. 6 I don't even feel it's my place to 7 state -- here's a person who is stating she works 8 for a law firm, she feels comfortable proceeding on 9 her own. And the issue of how many violations were 10 pending and what she had been told or not told 11 didn't come up immediately then. It came up after 12 she had already made the choice: I'm going to go 13 ahead and represent myself in this case. 14 I think it would be frankly imposing 15 to state, "Judge, I think we'd like to have a 16 continuance at this point," when this person has 17 gone ahead and said, "I've brought these documents, 18 I've brought exhibits. I'm prepared to go," to 19 demand that there be a continuance. It's their 20 prerogative to do that, and certainly, we would not 21 oppose it. 22 And we routinely grant continuances, 23 but at no time did she ask for one in either of 24 these cases. And they went over two days. I 25 believe Dance Et Vous was the first-day hearing and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 76 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 took a substantial part of the day, and then Minor 2 Considerations was the very next day. In neither 3 of them, with two different judges, did she come 4 forward and say she would like a continuance, or, 5 prior to that, if she had an attorney who had 6 unexpectedly had her baby early, file any kind of 7 written continuance with SOAH, The State Office of 8 Administrative Hearings, to say, you know, can we 9 go ahead and continue this. 10 Certainly, the auditors and we don't 11 go through all the preparation that's required in a 12 case like this, simply to say we're going to take 13 advantage of somebody because they showed up with 14 or without an attorney. 15 Prior to the hearing date, I did not 16 have contact from an attorney on behalf of 17 Ms. Landrum, so I had no indication either way. 18 And as I said, frequently we do, even in audit 19 cases, have parties come and represent themselves 20 and present evidence on their behalf. 21 Does that answer your question? 22 COMMISSIONER SADBERRY: It does. 23 Thank you. 24 MS. SCHULTZ: All right. 25 To return to Minor Considerations, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 77 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 some of the violations admitted by Applicant 2 included failure to timely pay the prize fees; 3 failure to keep a paid invoice file; failure to 4 report transactions on a cash register; failure to 5 deposit all funds from a bingo conduct -- the 6 conduct of bingo into the bingo account; use of 7 bingo funds for unauthorized purposes. 8 And regarding the notice, on the 9 record, Ms. Landrum did state that she had received 10 the letter. The only letter that came from the 11 Commission indicating the number of violations was 12 the notice letter that she received that stated the 13 full 15 violations. 14 Now, admittedly, between the time 15 that letter went out and the hearing, she was 16 faxing materials back and forth to Ms. Mehaffey, 17 the auditor, speaking with her and trying to get 18 some of these resolved. But it was not 19 Ms. Mehaffey's testimony that these were resolved, 20 but for two. 21 In fact, she did not contest the 22 conclusion of Law No. 3 in the Proposal for 23 Decision in this case, which said that there was 24 notice and it was proper and timely; and did admit 25 9 of the 11 violations found by the Administrative WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 78 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 Law Judge in the Proposal for Decision. 2 Regarding estoppel, there was an 3 argument made that because of -- something about 4 the inherent unfairness of someone choosing to 5 proceed on their own and then later regretting it, 6 that we should somehow be estopped. Estoppel is a 7 power that does not apply to the exercise of 8 government. In a license renewal, a license denial 9 is that type of situation. 10 In addition, Ms. Landrum testified 11 that she agreed with the auditor's testimony 12 outlining all of the violations. After the auditor 13 finished her testimony, she said she agreed with 14 that testimony. 15 Regarding the minor inaccuracies 16 that are alleged by Applicant, there were some 17 rather large discrepancies considering the amounts 18 involved, $5,500 to $7,000. And again, at the 19 hearing, this applicant admitted to these 20 violations, admitted that there were inaccuracies. 21 There were amounts of cash withdrawals that they 22 just did not know where the money went. And they 23 admittedly did not know where the money went, and 24 they admitted that they did not keep as close 25 control over their books as they should have. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 79 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 And also, conclusion of Law No. 4 in 2 the Proposal for Decision, which is before the 3 Commission, was not objected to by Applicant. And 4 that has to do with failure to submit the accurate 5 quarterly reports. The allegation that the 6 organization was not primarily, actively, and 7 continuously engaged in charitable functions came 8 from the auditor's findings that for a full year 9 after the organization began playing bingo, there 10 were no funds in the operating account. 11 Now, in bingo, the operating account 12 is the account that's used to make charitable 13 distributions. You have to make them from the 14 operating account. You cannot make them from the 15 bingo account. A week after our auditor, 16 Ms. Mehaffey, sent a letter to the organization 17 saying "we are planning to audit you, please have 18 all your books and records ready," they opened an 19 operating account. 20 There was no evidence of any 21 charitable activities presented, none whatsoever, 22 during the audit period. The organization, again, 23 is supposed to exist to have donations made to 24 other types of charitable organizations, and in 25 their original application, they state things like WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 80 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 churches and charities. 2 There was some testimony or some 3 mention by Mr. Roberson of spaghetti suppers. 4 There was no testimony or no evidence to support 5 that, except when Ms. Landrum made her closing 6 argument in her case. She basically made a vague 7 reference to spaghetti suppers, but there was no 8 evidence presented during the hearing of any of 9 that taking place, no evidence of any fund raising 10 whatsoever. 11 In connection with one of the two 12 organizations, Ms. Landrum self-described that "we 13 are a coffee klatch organization." Basically, it 14 was herself, her mother, her daughter, and a few 15 other people sort of sitting around thinking, We 16 can do good some works. 17 But I think in these cases, the 18 reading from the Proposal for Decision gets more 19 accurate representation of how two different judges 20 viewed this testimony, which was similar because 21 they were run by similar individuals, even though 22 they had stated different purpose. 23 Ms. Landrum admitted she did not 24 assume sufficient control of the operations. The 25 evidence presented proved that Applicant had a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 81 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 very limited understanding of the regulations that 2 applied to bingo conductors. Applicant failed to 3 grasp the most basic requirements of its license, 4 that the dates and times it was authorized to 5 conduct games were those indicated on its license 6 and that it was required to have a member of a 7 charity involved in each of the sessions. In 8 addition, the many accounting errors that were 9 found during the audit demonstrated a serious lack 10 of required knowledge. 11 Again, the size of the organization 12 was not at issue in the denial. An organization 13 can be very small and can have only one charitable 14 function per year and still qualify. The key is 15 that there has to be some ongoing charitable 16 activity. It cannot be the reason that you're in 17 existence, to play bingo to get money. 18 The number and the magnitude of the 19 violations was at issue in this case: the 15 20 violations, 11 of them found by the Administrative 21 Law Judge, the playing outside licensed times 22 during two different time periods. 23 And the evidence in this case was 24 that the auditor uncovered unlicensed playing 25 times. And then, based on a complaint at a time WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 82 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 after the audit period, one of the Texas Lottery 2 Commission investigators went to the bingo hall and 3 uncovered a second instance, a completely separate 4 time period, of playing outside the licensed times, 5 playing illegal sessions. So there were two 6 separate time periods where this organization was 7 playing outside licensed times. 8 And then again, the complete lack of 9 evidence of any activities supporting the 10 authorized charitable purpose. There was just 11 nothing there. And this was one of the violations 12 that Ms. Landrum had said she was prepared to 13 contest. She did come prepared to contest this one 14 of the two, but she didn't offer any evidence to 15 contest it. 16 All right, then. I'll devote the 17 remainder of the time to talking about -- and I did 18 want to mention that I think -- to reiterate that 19 these are at different stages in the process. In 20 this case, Minor Considerations, the Proposal for 21 Decision is before the Commission right now. It 22 has not been signed yet. The Proposal for Decision 23 upholds denial of the license. 24 In Dance Et Vous, the other case, 25 the Commission signed the Proposal for Decision WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 83 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 denying the license in June, and it's up on what's 2 called motion for rehearing. 3 Minor Considerations is not ripe for 4 a motion for rehearing because there is no order in 5 place. The Commission has not acted on an order. 6 And also, I think Mr. Roberson, at 7 one point, made a statement about revocation. This 8 is not a revocation. This is a denial. And the 9 difference is, in a denial, the burden of proof is 10 on the applicant, legally on the applicant, to come 11 forward with reasons why they should have their 12 license renewed. 13 In Dance Et Vous, the applicant has 14 done a motion for rehearing, appealing from the 15 order signed by the Commission in July. This 16 motion for rehearing is basically flawed, in that 17 the law requires that the motion set forth the 18 findings and facts or conclusions of law that are 19 particularly asserted as error, and that is not 20 done in this case. There are no particular 21 objections to the findings or the conclusions 22 adopted by the Commission. 23 And I apologize for that color 24 (indicating). It's not supposed to be that color. 25 It's rather annoying on the eyes. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 84 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 The point that Applicant appears to 2 be making in the motion, although there are no 3 specifics about the conclusions of law, are that 4 first, the applicant appeared without counsel at 5 the hearing, so that some sort of higher standard 6 applies. 7 The transcript is clear in this case 8 that the applicant chose to represent itself and 9 did not request a continuance, and the law is such 10 that a pro se applicant, an applicant who 11 represents themselves, is held to the same standard 12 as someone who has a lawyer. 13 The Court, in both of these cases, 14 clearly explained the procedure and the rulings to 15 the applicant. She was there pro se, but the Court 16 said, you know, to explain the process, this is how 17 it works, explained all of her rulings. And that's 18 clear from looking at the record. There was no 19 attempt to "pull one over" on the person. 20 MS. KIPLIN: Counsel, you're running 21 out of time. 22 MS. SCHULTZ: The second and third 23 points: estoppel, reliance on representations by 24 the staff that there were fewer violations than 25 there were. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 85 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 In this case, there was a notice 2 with 15 violations. There was no contest of the 3 conclusion of Law No. 1 stating notice was proper 4 and timely. The auditor testified that 10 were 5 unresolved, and the applicant admitted to 10 6 violations. 7 Estoppel requires evidence of 8 deception or inequitable conduct, and there just 9 simply was no evidence of either of those in this 10 case. Applicant had a full and fair opportunity to 11 present her evidence. And because she chose after 12 the fact to say, well, maybe I should have had a 13 lawyer, so now I'll hire a lawyer -- again, this is 14 part of the process. She's entitled to contest the 15 findings of fact and conclusions of law, but in 16 most cases, she has admitted these violations. 17 And am I out of time? 18 MS. KIPLIN: Yeah. You're -- 19 MS. SCHULTZ: Okay. I'll stop. 20 CHAIRMAN CLOWE: Are you satisfied 21 with your presentation? Is there any summary you 22 want to give us at this time? 23 MS. SCHULTZ: There was just one 24 final point that they have made in the motion for 25 rehearing that I didn't address. But if I'm out of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 86 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 time, I'm out of time. 2 CHAIRMAN CLOWE: Thank you, 3 Ms. Schultz. 4 Is there any -- 5 MS. KIPLIN: Sorry. I've got to 6 hold them to the same standard. 7 CHAIRMAN CLOWE: Yeah. 8 Is there anyone in the audience that 9 wishes to address the Commission on this issue? 10 Commissioners, do you have 11 questions? 12 COMMISSIONER SADBERRY: I have a 13 question, Ms. Schultz, I guess. The original audit 14 that started the process of review that kind of got 15 us here, was that a generally scheduled audit? Was 16 it in response to an application for renewal, or 17 was it in response to a complaint? I know there 18 was a complaint later on, but the initial audit. 19 MS. SCHULTZ: I did not -- it was 20 not a response to an application, because we don't 21 audit in response to that. An audit -- 22 COMMISSIONER SADBERRY: Billy knows. 23 MR. ATKINS: Commissioner Sadberry, 24 I'm told it was in response to a complaint that was 25 filed with the Commission. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 87 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 COMMISSIONER SADBERRY: Okay. And 2 is there any question about the nature of that 3 complaint, the circumstances of it? 4 MR. ATKINS: I'm going to -- 5 MS. KIPLIN: Come forward, please, 6 and identify yourself. 7 MR. ATKINS: -- refer it to Roy 8 Gabrillo, who is the senior audit manager for the 9 Charitable Bingo Division. 10 MR. GABRILLO: I'm Roy Gabrillo, the 11 senior audit manager for the Charitable Bingo 12 Operations. 13 At the time these were conducted, I 14 was the audit manager in the Dallas office. These 15 two audits were requested by security investigators 16 because of the complaint. The complaint was based 17 on playing outside licensed times, so that's what 18 generated the audit. And then eventually, all 19 these other discrepancies were found in the audit. 20 COMMISSIONER WHITAKER: While you 21 are up -- 22 MR. ROBERSON: If I -- 23 COMMISSIONER WHITAKER: -- let me 24 ask a question -- 25 MR. ROBERSON: If I may, could I ask WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 88 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 a question in regards to that, because that wasn't 2 on the record, and I would like to know -- 3 MS. KIPLIN: Commissioners, this is 4 not an opportunity for cross-examination by counsel 5 of either one. I would say that any information 6 that you get that is outside the record, I would 7 give either one of the two attorneys the 8 opportunity to tell you that it's outside the 9 record. 10 And of course, my instructions to 11 you will be to not consider that information as 12 part of the record when you're making your decision 13 on either one of these cases. 14 COMMISSIONER SADBERRY: And this is 15 outside -- 16 MS. KIPLIN: I'll -- 17 COMMISSIONER SADBERRY: -- I mean, 18 the issue about the -- 19 MS. KIPLIN: I'll leave it to either 20 one of the counsel who wishes to address the 21 Commission's question on whether that is outside of 22 the record. 23 MR. ROBERSON: To equivocally state, 24 under oath, that I know to be 100 percent 25 absolutely true that it is outside the record is WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 89 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 beyond my capability. I have read this record 2 through, several times. I have absolutely no 3 cranial memory of any identification of any 4 complaint being filed or starting the audit. 5 MS. KIPLIN: Ms. Schultz, do you 6 have any indication to the contrary, or do you 7 agree with that statement? 8 MS. SCHULTZ: I don't recall 9 specifically from the record if the audit -- if the 10 question came up, what initiated this audit. And 11 audits can be initiated for several reasons, but 12 renewal application is not one. 13 COMMISSIONER SADBERRY: Well, one of 14 the reasons I asked is because I thought I heard 15 you say there was a complaint and that it did 16 result in the discovery of the playing outside the 17 time. And what I was wanting to know is whether 18 that, in fact, started the process or if it was 19 started voluntarily or routinely, and whether or 20 not that's in the record. 21 MS. SCHULTZ: The complaint that I 22 was referring to had to do with a separate 23 investigation that took place by Investigator 24 Robbins. And that was after the audit period, to 25 the best of my recollection. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 90 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 So that was a separate complaint, 2 specifically about unlicensed times. And it was a 3 completely separate investigation, but it was 4 presented along with the audit findings as an 5 additional instance of playing outside licensed 6 times. 7 CHAIRMAN CLOWE: Any other 8 questions? 9 COMMISSIONER WHITAKER: 10 Mr. Roberson -- for either one? 11 CHAIRMAN CLOWE: Sure. 12 COMMISSIONER WHITAKER: Okay. 13 Mr. Roberson, is it your contention 14 that there is direct evidence on the record about 15 the charitable purpose of Minor Considerations -- 16 MR. ROBERSON: Yes. 17 COMMISSIONER WHITAKER: -- other 18 than the closing statement of the woman? 19 MR. ROBERSON: Well, Ms. Whitaker, 20 the closing statement was entered into the record. 21 There was no objection to that statement being 22 additional evidence. The Commission was 23 represented by counsel at the hearing, so 24 additional evidence being presented in the close is 25 admitted by operation of law as evidence. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 91 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 Additionally -- well, actually, you asked me a 2 question. I will not add something not related to 3 it. Excuse me. 4 COMMISSIONER WHITAKER: Okay. So 5 that's the source of the evidence, in your opinion, 6 is the closing statement? 7 MR. ROBERSON: I believe there is 8 also other, additional evidence, and I'll -- if 9 you'll give me about five seconds -- I believe, in 10 regards to Minor Considerations, and I hope I'm on 11 the original question, that the transcript at 131 12 and 132 is on the record and it is in the 13 evidentiary time, and it is Ms. Landrum stating as 14 her testimony, which of course was self-directed 15 testimony. You know, you don't ask yourself a 16 question and then give an answer. It's just a 17 ramble. But at 131 and 132, and that's the Minor 18 Considerations, to verify it. It's my 19 understanding that that evidence was not in the 20 close, but that was in her testimony. 21 MS. KIPLIN: Just in the interest of 22 time, I answered a question for Mr. Sadberry, and 23 I'll put this on the record. 24 Great latitude is afforded 25 Administrative Law Judges in admitting evidence WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 92 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 that -- or admitting information in the record as 2 evidence that in another setting may be objected to 3 and sustained. My practice has been if you have a 4 pro se party and they're sworn in, then anything 5 they say, you should accept as evidence of the 6 record. And so if that helps in the interest of 7 time, instead of hunting down a quote -- 8 MR. ROBERSON: Thank you. 9 COMMISSIONER WHITAKER: What was the 10 quote from this other -- 11 MR. ROBERSON: In regards to Minor 12 Considerations, the quotes were, "Our activities 13 remained constant. We continued sponsoring our 14 spaghetti suppers, which is an annual event at the 15 Catholic church that all the members belong to. 16 And we continue to sponsor school programs." 17 Not being an attorney, she didn't 18 elaborate as to what those are. It would be off 19 the record for me to tell you the things that they 20 bought at the local high school -- it was 21 charitable money -- and how they've interacted with 22 it. But that's what they did, and that's what they 23 do with the money. 24 And if I have a chance to rehear 25 this or the Dance Et Vous case, that's the kinds of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 93 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 things we are going to bring. We're going to bring 2 a principal down and say yada-yada-yada-ya. Again, 3 that would be off the record for me to fill in the 4 details. She did say, per quote, "continuing with 5 supporting school programs." 6 COMMISSIONER WHITAKER: I take it 7 that you're claiming that she would have asked for 8 a continuance, and had it been granted, she would 9 have presented additional information. Is that 10 correct? 11 MR. ROBERSON: That is exactly 12 correct, Madam Commissioner. And here is the 13 statement, and this is on page 16 in the record. 14 And I think that's substantially earlier than was 15 unintentionally implied by Counsel, and that is 16 16 -- early on in the record, we were talking about 17 admitting the notice hearing: 18 "MS. LANDRUM: Does the record 19 reflect that I do show -- that I do state, 20 unequivocally, that these exhibits and violations 21 are irrelevant to today's hearing? They are 22 settled. And even in the letter, it talks about 23 settlement. And this has been -- these issues have 24 been resolved. In that all the records are not 25 here, I cannot adequately address these topics, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 94 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 because this is the information -- I've gone by the 2 information with my last point of contact, 3 Ms. Mehaffey, prior to this hearing." 4 And in that regards -- 5 Ms. Landrum -- sometimes, I don't know what to do 6 with her. You know, yes, she said, "I agree with 7 Ms. Mehaffey." She was meaning, "Yeah, 8 Ms. Mehaffey admitted it. I agree." 9 She wasn't agreeing to every little 10 pointer, every little detail. She's a great 11 technical paralegal who officed five doors down 12 from me, but she doesn't have an attack bone in her 13 body. She doesn't have business savvy. She's just 14 a person who felt that, If I go and I show up, 15 everything that's been said to me will be true, and 16 I have no reason to not trust the Lottery 17 Commission. 18 COMMISSIONER WHITAKER: Is it your 19 contention that she was unprepared on that two 20 points as well? In other words, I understand your 21 argument is that she thought that many of the 22 violations would not come up. But she also 23 understood that certain of them would. Is it your 24 contention she was unprepared on those as well? 25 MR. ROBERSON: Yes. It's my WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 95 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 contention that she was unprepared because the 2 statements by Ms. Mehaffey had given her to believe 3 that this was not going to be a court of law 4 hearing; that this was going to be, You're going to 5 sit down, and we're going to talk to the judge. 6 COMMISSIONER WHITAKER: Thank you. 7 MR. ROBERSON: Thank you, Madam 8 Commissioner. 9 COMMISSIONER SADBERRY: 10 Mr. Chairman, do you -- 11 Mr. Chairman, may I? 12 I have a procedural question that I 13 think came up in Counsel's discussion. 14 Were we to grant the motion for 15 rehearing procedurally, where does that put things 16 in terms of what happens next? Is there a hearing? 17 Does a hearing occur here? Does it go back to 18 the -- so what happens? 19 MS. KIPLIN: Well, the broad answer 20 is, it can become whatever you want it to be. You 21 can grant the motion for a rehearing and remand it 22 back to the State Office of Administrative Hearings 23 to reopen the record and take additional evidence; 24 you can grant the motion for a rehearing and go 25 against the ALJ's recommendation and enter another WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 96 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 order. 2 So there are a couple of things that 3 you could do if you wanted to do. Or I guess you 4 need to deliberate about what you want to have 5 happen in this record or in this case, and then 6 we'll fashion an order to meet your vote. 7 Do you have any further questions of 8 Counsel? 9 CHAIRMAN CLOWE: No further 10 questions. Is there a motion? 11 Kim, guide us on dealing with these 12 issues. There are two separate -- lay that out for 13 us. 14 MS. KIPLIN: On the Dance Et Vous -- 15 and you're talking procedural issues? 16 CHAIRMAN CLOWE: Sure. Uh-huh. 17 MS. KIPLIN: You can overrule the 18 motion -- 19 CHAIRMAN CLOWE: The correct motions 20 on each issue. 21 MS. KIPLIN: Okay. On the 22 Dance Et Vous, which is the one in which there is a 23 motion for rehearing pending, you can overrule the 24 motion for rehearing; you can grant the motion for 25 rehearing. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 97 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 If you grant motion for rehearing, 2 you can overturn your order and enter a new order. 3 And when you enter a new order, that will begin 4 another clock ticking for the filing of a motion 5 for rehearing. If you grant the motion for 6 rehearing and you remand it back to the State 7 Office of Administrative Hearings, you will request 8 that the record be reopened and additional evidence 9 be taken into the case. 10 That, as I see it, are the options 11 that are before you at this time. 12 CHAIRMAN CLOWE: On Dance Et Vous? 13 MS. KIPLIN: On Dance Et Vous. 14 On Minor Considerations, what you 15 have before you is a Proposal for Decision and a 16 proposed order recommending denial of the renewal 17 application. You can modify the findings and the 18 conclusions, but you're limited in your reasons on 19 why you modify either the findings or conclusions 20 by provisions of the Administrative Procedure Act. 21 And I'll be glad to read that into 22 the record for you. If you have other questions, 23 I'll be glad to answer them. 24 COMMISSIONER SADBERRY: Well, I take 25 it -- while you're looking at that -- the citations WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 98 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 to our performance -- you know, the issues, I take 2 it, is not a part of the record. 3 MS. KIPLIN: Let me -- I've got it. 4 Just let me tell you. 5 (Reading.) A state agency may 6 change a finding of fact or a conclusion of law 7 made by the Administrative Law Judge or may vacate 8 or modify an order issued by the Administrative 9 Judge only if the agency determines, one, that the 10 Administrative Law Judge did not properly apply or 11 interpret the law, agency rules, written 12 policies -- provided under a subsection that I'll 13 read to you in a second -- require administrative 14 decisions; or that a prior administrative decision 15 on which the Administrative Law Judge relied is 16 incorrect or should be changed; or that a technical 17 error in a finding of fact should be changed. And 18 the last one that I read is the reference I'll read 19 to you in just a second. 20 So you're limited, in a sense, of 21 what you can do with an order that's before you. 22 And I think the reason behind that, you know, just 23 for public policy, is because the State Office of 24 Administrative Hearings was -- the judge was the 25 one who had the witnesses in front of them and had WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 99 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 the opportunity to judge the demeanor of the 2 witnesses and judge the credibility of the 3 witnesses and the evidence that came into the 4 record. 5 COMMISSIONER WHITAKER: If there 6 were a desire, though, to reopen the record and 7 allow there to be additional evidence, that would 8 be outside of those three categories you listed. 9 Right? We would not have to rely on an error by 10 the Administrative Judge if that was our desire. 11 Right? 12 MS. KIPLIN: I think it would be 13 outside the statute. I would have to hear more 14 about why you would want to modify a finding or a 15 conclusion, to be clear about whether it would be. 16 But if it had to do with an Administrative Law 17 Judge making a decision not to grant a continuance 18 or to offer on their own -- of course, 19 Administrative Law Judges can, on their own motion, 20 grant a continuance or recess a case, so I think it 21 would -- there are capable counsel throughout the 22 audience, though, and I'm sure if anybody thinks 23 that I'm giving you the wrong order, stand up and 24 tell me that. 25 COMMISSIONER WHITAKER: I would not WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 100 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 base it on an error by the judge. I would rather 2 it be out of a desire to have an opportunity for 3 any possible evidence to come into the record to be 4 considered. 5 COMMISSIONER SADBERRY: Well, let me 6 advance that, because I think following on what 7 Commissioner Whitaker says, I can see, 8 theoretically, you could have two different actions 9 at different times. You could have an action 10 supporting the PFD; and then a motion for rehearing 11 could be filed, and you could have an action on 12 that motion, which might be different or might be 13 the same. 14 I think what I'm hearing -- and I 15 think I'm feeling this -- I know a little bit about 16 estoppel, and I don't know that there's a case of 17 estoppel here, but there certainly are issues 18 raised about basic fairness and other things that I 19 guess should concern us. Whether we agree or 20 disagree on those issues, in terms of whether there 21 is or is not a basis for it, they have been raised. 22 And at the same time, I certainly 23 understand the critical importance of playing 24 outside the scheduled time, which one of the 25 counsel, I think Ms. Schultz, indicates that's a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 101 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 pretty serious criminal act. 2 So I see competing issues here, and 3 what I think I'm hearing is, what violence -- I 4 guess the question I would raise is, what violence 5 is done to the status quo to give an opportunity 6 for a full development of all facts and issues. 7 Do they not play in the meantime? 8 MS. KIPLIN: They continue to play 9 until such time as you have a final order before 10 you. And the order, while you signed it, is not 11 final, because there was a motion for rehearing 12 that was filed. So they continue to play. 13 COMMISSIONER SADBERRY: But you can 14 continue to monitor them? 15 MR. ATKINS: Commissioners, 16 neither -- both organizations have their licence on 17 administrative hold. They're not actually 18 conducting bingo at this time. They are licensed. 19 To the best of my knowledge, the license is active, 20 but they are not conducting at this time. 21 It's my understanding they don't 22 have an organization to conduct; however, what I 23 think Counsel is going to say is that at a moment's 24 notice, they could find a hall and start -- and 25 continue with these violations. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 102 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 COMMISSIONER SADBERRY: They would 2 have to tell you about that. 3 MR. ATKINS: Yes, sir. 4 MS. KIPLIN: You will have to state, 5 in writing, your specific reason and legal basis 6 for a change made under the subsection. You know, 7 I guess you could -- I'm just thinking out loud, 8 but if you wanted to remand -- I guess I should ask 9 you, or when you're thinking -- are you considering 10 both items, the one for the motion for rehearing 11 and the one that has a Proposal for Decision before 12 you. 13 The reason I say that is, with the 14 motion for rehearing, if it's the desire of the 15 Commission, you just enter an order granting the 16 motion for rehearing and remanding the matter back 17 for additional evidence to be taken into the 18 record, and you would request it to be reopened for 19 that purpose. 20 CHAIRMAN CLOWE: That's 21 Dance Et Vous? 22 MS. KIPLIN: That's Dance Et Vous. 23 And of course, you can narrow the 24 scope of what evidence you want so that it does not 25 then again become a full-blown evidentiary case, or WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 103 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 you could have the scope as broad as you want. 2 On the other matter, you do have 3 what's before you as an Administrative Law Judge's 4 Proposal for Decision and recommended order. I 5 guess you could defer and not enter that order, and 6 request that it be remanded and request that the 7 record be reopened for further taking and do that 8 by order. 9 You do, at some point, have that 10 order, so you're going to have to do something with 11 that order at some time. And the problem is that 12 that order is a -- proposal order and Proposal for 13 Decision are only supported by the evidence in the 14 record at that time. 15 COMMISSIONER WHITAKER: And that's 16 my question, Kim, is if our order would have to be 17 based on our articulating an error by the judge or 18 on our sense that there is additional evidence 19 that, if entered into the record, might lead to 20 different results. 21 CHAIRMAN CLOWE: Well, I think 22 Commissioner Sadberry commented on a sense of 23 fairness. I think that there is not so much an 24 error here, as a concern that has been raised as a 25 valid consideration that another look would be the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 104 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 proper way to approach this on both of these items, 2 regardless of which stage each of them is at. 3 COMMISSIONER WHITAKER: But if 4 you're telling us that we must, in fact, rest our 5 decision on finding an actual error by the judge, 6 then I would have a hard time with that. 7 MS. KIPLIN: I think it's a pretty 8 stout section, and it stands for, in my view, 9 limiting the discretion of the decision maker and 10 giving that discretion, in terms of what occurs at 11 a hearing, to the Administrative Law Judge to be 12 the trier of the facts. 13 COMMISSIONER SADBERRY: Don't I 14 recall there was a policy thing early on in that 15 section or another section? 16 MS. KIPLIN: That was deleted by 17 legislative enactment to eliminate the agency's 18 ability to make changes based on policy and state 19 their legal reasons -- 20 COMMISSIONER SADBERRY: That's gone. 21 MS. KIPLIN: That's gone. 22 COMMISSIONER SADBERRY: I guess 23 there was a message in that. Because I'm sensing 24 the same thing as Commission Whitaker and, I 25 believe, the Chairman. I have a problem with WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 105 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 talking about an error unless I see one. But I 2 have my duty to let the end of the day bring about 3 fairness, however I have to get there. So I guess 4 the problem -- 5 COMMISSIONER WHITAKER: Could I ask 6 Counsel, Mr. Roberson -- 7 CHAIRMAN CLOWE: Sure. 8 COMMISSIONER WHITAKER: 9 Mr. Roberson, do you have a legal 10 view on this? 11 MR. ROBERSON: Yes, I do, 12 Commissioner Whitaker, although unfortunately, I 13 think it might have just been trumped. There was 14 previous case law, and on Shepardizing that case 15 law, it still holds up, but if the statue's out -- 16 it's a '94 case that said you can review a PFD for 17 policy reasons. And the statute's replaced it, and 18 I didn't pick that up on a Shepard's. I apologize. 19 But I would say that it does appear 20 to me that Ms. Kiplin has said that you can do it 21 on a motion for rehearing. Your regulation says 22 the motion for rehearing comes after you act. I 23 have no problem with doing a Texas two-step and 24 filing a motion for rehearing and having that -- 25 and I don't know if Ms. Kiplin can state whether or WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 106 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 not you can rule on an oral motion for rehearing or 2 if I need to actually file it instantaneously and 3 get an instantaneous ruling in writing. 4 My thought would be that the State 5 Office of Administrative Hearings and this 6 Commission have some very interesting legal 7 problems in regards to administrative law and 8 making sure everyone agrees. And the last thing in 9 the world I want to do is have y'all do something 10 today that I go across the street for, and they 11 say, "You still lose despite the fact that the 12 Commission wants this to be reheard." So if y'all 13 want to do what I'll call a Texas two-step, I would 14 love to dance. 15 MS. KIPLIN: You know, I wanted to 16 try to answer a question. 17 I think if you wanted to send back 18 the one that's pending before you for the taking of 19 additional evidence, you could do that without 20 entering an order that would be characterized as a 21 final order. That's what I was talking about. It 22 would be -- I would call it an interlocutory-type 23 order to send it back. 24 COMMISSIONER WHITAKER: And that's 25 on Minor Considerations? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 107 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 MS. KIPLIN: If you wanted to -- 2 yes, for Minor Considerations. That's the one 3 where you have the Proposal for Decision and the 4 recommended order before you. 5 COMMISSIONER WHITAKER: Okay. And 6 we could do that without citing error by the 7 Administrative Judge? 8 MS. KIPLIN: I think you could say 9 that you -- you know, based on the argument of 10 Counsel, you would like further evidence taken. I 11 guess you have to decide whether you want it to be 12 full blown or if you want it to be limited in 13 scope, in terms of what evidence you want taken. 14 CHAIRMAN CLOWE: I think we've got 15 where you wanted to go here. 16 COMMISSIONER WHITAKER: And the same 17 is true on that Dance Et Vous, the same 18 principle -- 19 MS. KIPLIN: Well, a little bit more 20 procedure, because you have a motion for rehearing 21 pending before you. And what you would do is grant 22 the motion for rehearing and then order what you 23 want ordered as a result of granting the motion for 24 rehearing. 25 COMMISSIONER WHITAKER: Okay. Well, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 108 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 may I make a motion? 2 CHAIRMAN CLOWE: Yes, ma'am. 3 COMMISSIONER WHITAKER: Let's see if 4 I can state it -- 5 MS. KIPLIN: Wait. Let me get 6 ready. 7 COMMISSIONER WHITAKER: Okay. 8 MS. KIPLIN: I'm going to have to 9 get orders drafted -- 10 CHAIRMAN CLOWE: Identify which 11 case, if you would, please. 12 COMMISSIONER WHITAKER: On the 13 Dance Et Vous case, I would move that we grant the 14 motion for rehearing and remand to the State Office 15 of Administrative Hearings and have the record 16 reopened for further consideration on the Minor 17 Considerations. 18 MS. KIPLIN: For further 19 consideration of what, Commissioner? 20 COMMISSIONER WHITAKER: Well, to 21 have the record reopened so that additional 22 evidence can be obtained. And I would not limit 23 it. I would just make it subject to what's 24 relevant to the case. 25 MS. KIPLIN: For further WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 109 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 consideration of all the issues that were presented 2 in the -- 3 COMMISSIONER WHITAKER: Correct. 4 MS. KIPLIN: -- denial letter and 5 the notice of hearing? 6 COMMISSIONER WHITAKER: Yes. 7 On the Minor Considerations I would 8 move that -- how did you say that? 9 MS. KIPLIN: You would want to enter 10 in an order that would -- and I would think it 11 would be an interlocutory order, but I may be 12 emphasizing that word too much, but you would enter 13 into an order that would remand it back to the 14 State Office of Administrative Hearings and request 15 that the record be reopened for the taking of 16 additional evidence. 17 COMMISSIONER WHITAKER: I will so 18 move. 19 COMMISSIONER SADBERRY: And I will 20 second both motions. 21 CHAIRMAN CLOWE: Motion has been 22 made and seconded. 23 All in favor, say aye. Opposed, no. 24 The vote is approved 3-0. 25 Billy, I don't want to take the time WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 110 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 to get into it in depth right now, but at our next 2 meeting, I would like for you, in cooperation with 3 the General Counsel's office, to come back to us 4 with some helpful comments on the criticisms that 5 were made regarding these hearings and the lack of 6 training, particularly in how we might be more 7 helpful and efficient in having Bingo Charitable 8 Operations schooled in the matter of procedurally 9 being correct. I'm sensitive to those comments, 10 and I'd like to give you time to give us some 11 response and be thoughtful about it. 12 MR. ATKINS: Yes, sir. 13 COMMISSIONER SADBERRY: It's so 14 noted. 15 MR. ATKINS: And I have some 16 preliminary comments, but -- 17 CHAIRMAN CLOWE: And I don't think 18 this is the time or place, but I'd like for you to 19 give that some thought and help us understand. And 20 I don't want to get into a back-and-forth right 21 now. 22 MR. ATKINS: Yes, sir. 23 CHAIRMAN CLOWE: Okay. 24 MR. ATKINS: Yes, sir. 25 COMMISSIONER SADBERRY: WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 111 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 Mr. Chairman, since we might move 2 back from these cases and we might lose a 3 Commissioner, I'm asking whether that 4 three-strikes-you're-out case is going to come up 5 before we lose our Commissioner because of -- 6 CHAIRMAN CLOWE: Which case? 7 COMMISSIONER SADBERRY: It's the 8 three-strikes-you're-out case. 9 MS. KIPLIN: That -- I apologize. 10 We're moving on to contested cases? 11 COMMISSIONER SADBERRY: No, no. I'm 12 asking whether that's going to be heard. 13 MS. KIPLIN: No, it will not be 14 heard. Mr. Fenoglio was the counsel in that -- in 15 the Red Men, along with American Business Women's 16 Association. He has sent a letter indicating that 17 he is going to be in Longview for a jury trial 18 beginning today. He has indicated as recently as, 19 I believe, Friday afternoon that he is counsel of 20 record in that case. He will not be here. He has 21 asked that the matter be passed. 22 Of course, it's the Commission's 23 call whether you will pass, but I will say that 24 it's my understanding that staff does not oppose 25 the passing of those two items until the next WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 112 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 Commission hearing. 2 COMMISSIONER SADBERRY: That's 3 fortuitous, because I think that kind of dovetails 4 with what the Chairman just addressed, to my mind, 5 at least. 6 CHAIRMAN CLOWE: Commissioners, we 7 have individuals who are here to assist us in 8 discussions which are going to take place in the 9 Executive Session. I'm entertaining, in light of a 10 Commissioner's need to be excused in about an hour 11 and 45 minutes, going into Executive Session at 12 this time, if it's approved by a motion, rather 13 than going forward with the public agenda and 14 renewing that later this afternoon. 15 Is there any concern about that with 16 the Commissioners or with staff or with anyone 17 else? 18 Then at this time, I move the Texas 19 Lottery Commission go into Executive Session to 20 deliberate the duties and evaluation of the 21 Executive Director, the Internal Auditor, and the 22 Charitable Bingo Operations Director, pursuant to 23 Section 551.074 of the Texas Government Code; 24 To deliberate the duties of the 25 General Counsel and Security Director pursuant to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 113 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 Section 551.074 of the Texas Government Code; 2 To receive legal advice regarding 3 pending or contemplated litigation and/or to 4 receive legal advice pursuant to Section 5 551.071 (1) (A) or (B) of the Texas Government Code 6 and/or to receive legal advice pursuant to 7 Section 551.071 (2) of the Texas Government Code, 8 including but not limited to T&T Interest, Inc. 9 v. Texas Lottery Commission et al; 10 Matter involving the Department of 11 Justice pursuit of a complaint regarding the 12 Americans with Disabilities Act; 13 Matter involving Request for Open 14 Records Decision in Attorney General Open Records 15 file No. 119718-98 relating to request for 16 information in connection with the lottery operator 17 audit; 18 Matter involving employee complaint; 19 Matter involving agency purchases; 20 Employment law, personnel law, 21 procurement law, and general government law. 22 Is there a second? 23 COMMISSIONER WHITAKER: Second. 24 CHAIRMAN CLOWE: All in favor, say 25 aye. All Opposed, no. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 114 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 The vote is 3-0 in favor. 2 The Texas Lottery Commission will go 3 into Executive Session. The time is 11:53 a.m. 4 Today is September the 11th, 2000. 5 MS. KIPLIN: I need to make one 6 correction on the record. One correction on the 7 record, please. The time is 10:53, not 11:53. 8 (EXECUTIVE SESSION.) 9 CHAIRMAN CLOWE: The Texas Lottery 10 Commission is out of Executive Session. The time 11 is 1:06 p.m. Is there any action to be taken as a 12 result of Executive Session? 13 If not, the Texas Lottery Commission 14 will recess its meeting and resume the meeting at 15 2:00 p.m., approximately, 2:00 p.m., Central Time, 16 E1.010, 1400 North Congress Avenue, Capitol 17 Extension, Austin, Texas, for report, possible 18 discussion, and/or action on the agency's strategic 19 plan and appropriations request for the 2002-03 20 biennium. 21 Is there anyone who wishes to make 22 public comment before our recess? 23 Hearing none, we are recessed. 24 (RECESS.) 25 Back on the record. At this time, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 115 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 we have a quorum. Let the record reflect that 2 Commissioner Sadberry and I are present, and we 3 will be joined shortly by Commissioner Whitaker. 4 We have a quorum, and therefore, we are now back in 5 session, reconvened from the session which has been 6 concluded at the Capitol for the purpose of 7 appearance before the Legislative Appropriations 8 Request Committee. The time is 4:05 p.m, 9 September 11th, 2000. 10 At this time, I move the Texas 11 Lottery Commission go into Executive Session to 12 deliberate the duties and evaluation of the 13 Executive Director, Internal Auditor, and the 14 Charitable Bingo Operations Director, pursuant to 15 Section 551.074 of the Texas Government Code; 16 To receive legal advice regarding 17 pending or contemplated litigation and/or 18 to receive legal advice pursuant to 19 Section 551.071 (1) (A) or (B) of the Texas 20 Government Code and/or to receive legal advice 21 pursuant to Section 551.071 (2) of the Texas 22 Government Code, including but not limited to 23 employment law, personnel law, procurement law, and 24 general government law. 25 All in favor, please say aye. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 116 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 Opposed, no. 2 The vote is 3-0. 3 The Texas Lottery Commission will go 4 into Executive Session. The time is 4:06 p.m. 5 Today is September the 11th, 2000. 6 MS. KIPLIN: I'm sorry. Who 7 seconded that? 8 COMMISSIONER SADBERRY: I seconded 9 it. 10 CHAIRMAN CLOWE: Okay. 11 MS. KIPLIN: Okay. 12 (EXECUTIVE SESSION.) 13 CHAIRMAN CLOWE: The Texas Lottery 14 Commission is out of Executive Session. The time 15 is 6:00 p.m. Is there any action to be taken as a 16 result of Executive Session? 17 If not, let's move back to the 18 agenda. 19 Is Mr. Gene Bowen here? 20 Mr. Bowen, could you come up, 21 please. Do you have another gentleman with you 22 or -- 23 MR. BOWEN: Just a companion. 24 CHAIRMAN CLOWE: Right. You're the 25 only one desiring to make an appearance? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 117 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 MR. BOWEN: Yes, sir. 2 CHAIRMAN CLOWE: Mr. Bowen, I want 3 to apologize to you on behalf of Commissioner 4 Sadberry and Commissioner Whitaker and myself. We 5 were not aware that you were in the audience and 6 that you wished to make an appearance before the 7 Commission, and we've gone on with a very lengthy 8 schedule. 9 And we've just been made aware, 10 within the last few minutes, that you are here and 11 that you wish to make an appearance. And I want to 12 tell you that I am very, very sorry and the 13 Commission is very sorry. We would not have kept 14 you here all day, and we do apologize. 15 MR. BOWEN: I understand you have 16 plenty of other important things going on. 17 CHAIRMAN CLOWE: Well, I hope you'll 18 accept our apology -- 19 MR. BOWEN: Yes, sir. Yes, sir. 20 CHAIRMAN CLOWE: -- and we just feel 21 very badly about keeping you here all day. And let 22 me ask the General Counsel, what issue is it that 23 Mr. Bowen is here about? 24 MS. KIPLIN: Commissioners, he's on 25 a contested case matter. That docket number is WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 118 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 362-00-1156.B, Charitable Bingo Division versus the 2 Elks Lodge 1105, out of Wichita Falls. 3 CHAIRMAN CLOWE: Is that letter "J"? 4 MS. KIPLIN: Let me just get there 5 as quick as I can. 6 Yes. Yes, it is. It's letter "J" 7 under the contested case matter. 8 CHAIRMAN CLOWE: Okay. We're going 9 to deal with that case right now, and if you'll 10 help us with that. 11 MS. KIPLIN: I will. 12 Commissioners, this is a case that 13 went to a hearing over at the State Office of 14 Administrative Hearings for failure to pay prize 15 fees or timely file quarterly reports. The hearing 16 was properly noticed, and there was no appearance 17 on behalf of the respondent. Kaye Schultz is the 18 attorney -- staff attorney of record for the staff. 19 And I would defer to her any substantive matters. 20 CHAIRMAN CLOWE: Mr. Bowen, may we 21 hear from you first. Would you tell us what you'd 22 like us to know about this situation. 23 MR. BOWEN: I really don't know how 24 to go about this. You've had some eloquent 25 speakers today that I've heard. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 119 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 CHAIRMAN CLOWE: Just tell us your 2 story. That will be fine. 3 MR. BOWEN: Okay. Thank you very 4 much, sir. 5 CHAIRMAN CLOWE: You bet. 6 MR. BOWEN: I received a letter back 7 in -- I believe it was April. I'm not certain of 8 the date. It was a certified letter saying that we 9 owe on the fourth quarter of '99 and the first 10 three quarters, evidently up to this here 11 particular time. But now we're in the third 12 quarter session. 13 At that particular time, I called 14 and talked to a lady named Beth -- I don't have her 15 last name at this particular time -- and I was 16 informed that if I paid the fourth quarter of '99 17 and first quarter of 2000, that the possibility of 18 me putting up a $2,100 bond would possibly be 19 waived. So we did send in a check for fourth 20 quarter of '99 and first quarter of 2000. 21 I then come to find out that there 22 was a fine of $78.66 on the fourth quarter. I am 23 prepared -- and I would -- either way, I have to 24 pay that fine. I do understand that, and I 25 apologize it not being made with a payment for the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 120 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 fourth quarter and first quarter payments. 2 I then -- evidently, I received a 3 letter also here, certified mail, as of last week. 4 And I had a lodge secretary that was going to come 5 down with a representative to, you know, fix up 6 this problem. He has been called away on other 7 business, and the secretary was sick. So I -- 8 myself, I just come down on my own last night so I 9 could make the meetings this morning and such like 10 that. 11 We would like to keep our bingo 12 license in Wichita Falls. I am prepared to pay the 13 $2,000 bond and the $78. And I don't have the 14 paperwork on our second quarter 2000, but I know 15 that they are working on that. But myself, right 16 now, I do not have that paperwork. And I would be 17 willing pay them just as soon as that paperwork can 18 be done. And I do apologize for it being late. 19 At the Elks Lodge, we're volunteers, 20 but we're all put in this office. We each expect 21 another individual to do their individual job. I 22 was under the belief that this job was being took 23 care of. Then when I received the certified 24 letters and found out that this was not being 25 done -- I didn't take my office until April 1st, so WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 121 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 this is actually last year's business that I'm 2 trying to take care of, and I will try to do this 3 to the utmost of my ability. 4 CHAIRMAN CLOWE: April 1st of this 5 year? 6 MR. BOWEN: Yes, sir. April 1st of 7 this year. 8 CHAIRMAN CLOWE: Right. 9 MR. BOWEN: 2000. Yes, sir. 10 CHAIRMAN CLOWE: Okay. 11 Now, Mr. Bowen, I'm going to ask 12 Ms. Schultz, who is an attorney here with the 13 Commission, to tell us the facts as she sees them. 14 MR. BOWEN: Yes, sir. 15 CHAIRMAN CLOWE: Do you understand 16 that? 17 MR. BOWEN: Yes, sir. 18 CHAIRMAN CLOWE: All right. 19 Ms. Schultz, would you help us, 20 please. 21 MS. SCHULTZ: Commissioners, I'm 22 Kaye Schultz, Assistant General Counsel, and I 23 represented the Charitable Bingo Division in this 24 case. 25 The hearing was held May 31st, and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 122 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 the respondent did not appear at the hearing. We 2 presented evidence to the Administrative Law Judge 3 based on failure to pay prize fees and file 4 quarterly reports timely for four quarters, which 5 would have been the fourth quarter of 1997, the 6 first quarter of 1998, the fourth quarter of 1998, 7 and the fourth quarter of 1999. 8 And then also at the time of that 9 hearing, the prize fee for the fourth quarter of 10 1999 in the amount of $662.70, plus penalties and 11 interest, had not been paid at that time. 12 And the PFD is before you today and 13 finds late filing for those fourth quarters and 14 then the prize fees still owed for that one quarter 15 plus penalties and interest at that time. And the 16 Administrative Law Judge indicated that, based on 17 those violations, revocation was warranted. 18 MR. ATKINS: And Commissioners, as 19 Mr. Bowen indicated, there is still an outstanding 20 penalty and interest for the first quarter of 1999 21 in the amount $78.66. There is still the issue of 22 the bond not being posted, nor has a quarterly 23 report for the second quarter of 2000 been filed. 24 MS. KIPLIN: And Commissioners, to 25 the extent that the remarks by Mr. Atkins are WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 123 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 evidence that's not in the record -- and I'm 2 specifically referring to the bond and to the 3 information with regard to the first quarter of 4 2000 -- 5 MR. ATKINS: The bond information is 6 contained in the show compliance letter. 7 MS. KIPLIN: Okay. I stand 8 corrected. 9 The noncompliance with regard to the 10 first quarter of the year 2000, that is not 11 evidence in the record, and that is not information 12 that you can consider in making your decision. 13 And having said that, for the 14 benefit of Commissioner Whitaker, I do want to give 15 you a bit of history with regard to these 16 enforcement matters that come from bingo. 17 What the staff experienced early on, 18 I guess, in the history of having bingo at the 19 Lottery Commission, was noticing up hearings, going 20 to hearing, not having anybody appear at the 21 hearing, and then coming before the Commission and 22 asking that the Commission not revoke their license 23 and that they would come in compliance. That was 24 after they had already received a Proposal for 25 Decision indicating revocation. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 124 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 The staff's position then and the 2 staff's position now is that that's an opportunity 3 to get two bites of the apple. The staff puts on a 4 lot of effort to take these cases to hearing. We 5 send notices on revocations. There is an 6 opportunity to show compliance letter that goes to 7 the respondent, and there is also an opportunity 8 for notice of hearing letter that goes to the 9 respondent. And then there is a hearing, and at 10 the end, there is a Proposal for Decision with an 11 opportunity to file exceptions. 12 Now, admittedly, what you have that 13 come before you a great deal of time are pro se 14 litigants, but -- and you will hear the same that 15 you heard from this gentleman, and that is that 16 they're volunteers. That's the business of 17 charitable bingo. They are comprised of 18 volunteers. That's what they do. 19 But at the same time, if they're 20 going to hold a license that's issued by this 21 Commission, they need to comply with the provisions 22 of the Bingo Enabling Act and the Bingo rules and 23 regulations. 24 The staff doesn't take putting on 25 these cases lightly and taking these respondents to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 125 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 hearing. They do it when they're looking at 2 violations that have occurred with the Bingo 3 Enabling Act where they're not able to achieve 4 compliance. 5 So I wanted to give you an 6 opportunity to understand the history of where 7 we've come now through an ad hoc rule-making 8 process where the Commissioners have taken up cases 9 on enforcement matters. The Commission 10 established, through their contested case 11 proceedings, what is called ad hoc rule making. 12 And that is, that at the time that the case is put 13 on, where there is an announcement of ready, if the 14 party is not in compliance, then that matter will 15 come before the Commission and stand on its own 16 merits on the Proposal for Decision. 17 So I wanted to make sure you had 18 that history and what the staff's position is with 19 regard to these enforcement proceedings. 20 COMMISSIONER WHITAKER: And can't 21 the staff attempt to determine if there is ever a 22 good cause for not showing up, as opposed to not 23 showing up? 24 MS. KIPLIN: No. We don't attempt 25 to determine if there is good cause. If we did WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 126 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 that, then we would be building into the 2 administrative process an additional burden imposed 3 on the staff of then having to make a decision of 4 what's good cause and what's not good cause. 5 I will tell you that it is the 6 practice of my office -- and the attorneys that 7 work within that office know my practice -- that if 8 we are called and there is a request for a first 9 continuance, we do not, as a matter of practice, 10 oppose a request for a first continuance unless 11 there is some sort of an extraordinary issue that 12 is before the Commission. 13 Likewise, as you've seen, we do not 14 oppose first passes before the Commission at 15 Commission meetings. So in my view, you get that 16 bite; you get that opportunity. 17 COMMISSIONER SADBERRY: Kim and 18 Billy, do we know the identity of the person -- 19 Mr. Bowen, who was the person -- you 20 had a first name -- 21 MR. BOWEN: The person I first 22 notified was a Beth. I'm not certain of the last 23 name. And then the second time, it was a Bruce 24 and -- a Bruce Miner, and he transferred me to 25 Terry Shankle, who told me about the meeting WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 127 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 tonight -- today, I apologize. And he give me the 2 amounts from the fourth quarter of '99, the first 3 quarter of 2000, and the second quarter. 4 COMMISSIONER SADBERRY: Okay. Now, 5 keep that question in mind, Billy. 6 What do your records show as the 7 history of the payment -- apparently, the prize fee 8 was paid at some point, but there is a penalty that 9 wasn't paid. 10 Do you have record of -- Kaye, 11 perhaps you -- in the record, when the payment was 12 made and received? 13 MS. SCHULTZ: It would have been 14 sometime after this hearing. It was for the fourth 15 quarter of 1999, which ends December 31st, 1999, so 16 that would have been due by January 15th, 2000, I 17 believe. And this hearing was held May 31st, 2000, 18 and had not been paid as of that time. 19 COMMISSIONER SADBERRY: Okay. Does 20 staff have any position on the fact that the 21 hearing proceeded on facts that go back as far as 22 1997 and coming forward, and apparently no action 23 was taken with regard to the late filing of the 24 quarterly reports and timely payment of the fees? 25 Was there a decision made to not WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 128 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 pursue the matter, or was it an oversight, or did 2 these things come up as a result of the ultimate 3 issue which seemed to have brought the attention, 4 which was the nonpayment of the $662? 5 MS. SCHULTZ: At the point it was 6 referred to legal as a case, those were the 7 quarters that were included in the notice hearing 8 for the 054. 9 COMMISSIONER SADBERRY: Now, if I 10 may -- and Counsel -- Kim, correct me -- now, you 11 have told us this morning, this public policy thing 12 is gone. But I recall there have been instances in 13 reference to the ad hoc rule where justification 14 was considered, such as a change in ownership, 15 change in officer position, sending the certified 16 mail to the wrong person because records and files 17 are not updated, et cetera; where, not taking into 18 account, necessarily, the failure to appear at the 19 hearing, but taking into account the overall 20 conduct of the licensee with respect to the 21 administrative proceeding, those factors have been 22 considered by us and in some instances have been 23 received as sufficient and, indeed, sufficient 24 bases for refusing to adopt the decision. 25 And I believe, while you have WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 129 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 appropriately addressed the issue of Billy Atkins' 2 comments, I think the policy issues -- and to the 3 extent we can consider those -- of his office as to 4 what his position is in respect of -- in other 5 words, if these people work with you, when it's a 6 history, do you have a position on what we should 7 do? 8 We'll make our own decision, but 9 what's your take on all this, Billy? 10 MR. ATKINS: Commissioners, it would 11 be staff's recommendation that you uphold the ALJ's 12 recommendation for revocation. The number of 13 quarters that the organization failed to timely pay 14 and the fact that there are still outstanding 15 liabilities -- 16 COMMISSIONER SADBERRY: If we were 17 to do that, where do they go from here? I mean, 18 can they apply again? 19 MR. ATKINS: They can apply after a 20 year. 21 COMMISSIONER SADBERRY: After a 22 year. 23 MS. KIPLIN: They will need to hold 24 out a year, but they can reapply, and their 25 application will be judged on its own merits at WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 130 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 that time. And if they are eligible, then it will 2 be granted; and if they're not or in noncompliance 3 with the Act, then it will be denied and they will 4 have an opportunity for a hearing if they request 5 one timely. 6 MR. ATKINS: Now, the current 7 liabilities would remain on their record, and if 8 those were not paid, if they applied again in a 9 year, we would still deny that application based on 10 those outstanding liabilities. 11 Additionally, the failure to pay 12 those liabilities, the organization would be placed 13 on pay hold at the comptroller's office. 14 MR. BOWEN: Sir, I have at this time 15 a check. I'm willing to pay the fine, you know, 16 the $2,000 bond and the $76 or $78.68. I have a 17 check from the bingo committee to pay those, and 18 that was the purpose, you know, of me coming down 19 here. 20 I brought two separate checks 21 because I wasn't certain if I had to have one check 22 for the bond, a $2,248 -- in a previous letter, it 23 was $2,190. I imagine there was penalties on that, 24 you know, but whichever. I know ignorance is no 25 case, but that's all I've got to plead on. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 131 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 COMMISSIONER SADBERRY: We have -- 2 and you may have heard some of the comments here -- 3 we have, as Commissioners, worked and striven to 4 come up with a balance. And out of that effort, 5 we've kind of developed some ways of proceeding 6 that we try to do on a consistent basis, and that 7 is that the time to act is before the investment of 8 the time and effort of staff and Administrative Law 9 Judges, where you're not the only one that they're 10 having to deal with in this incident. 11 What would be helpful would be some 12 understanding of why you feel, from a fairness 13 standpoint, you could not address these matters 14 before today, quite frankly. And you might 15 understand, and I might try to explain to you, we 16 could potentially open the floodgates. 17 And that's not meant as a criticism 18 to you and your organization, but we could be faced 19 with this over and over again. Pretty soon, it 20 could become very difficult for staff to enforce 21 the law. And that's really what this is all about. 22 These are things that are matters of law and that 23 people who have licenses, like yourself, have to 24 abide by them. 25 So it really is not as helpful to us WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 132 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 to know that you brought that with you today as 2 much it might be for you to explain, if you have 3 anything else to say, why you did not comply with 4 these requirements before the hearing or around 5 that time. 6 MR. BOWEN: For the past probably 7 six to seven months, our lodge secretary has been 8 sick, and we've had more than just this one little 9 problem as far as paying bills. Letters were 10 coming in. He was telling us the things he took 11 care of, and then we were finding out that these 12 things weren't took care of. 13 And it's due to physical and 14 medication problems that he's having right now. 15 The doctors are trying him on this kind of 16 medication and that kind of medication, and it just 17 messes with him, and his faculties aren't about him 18 right now. 19 They have asked us, as far as the 20 Grand Lodge, for the Elks Lodge to remove this 21 gentleman. At this particular time, we still have 22 some paperwork that he is the only person that 23 knows where this paperwork is. And I've had to 24 keep him in this position until I can straighten up 25 the problems that I do have, because he is the only WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 133 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 one that knows where to go get the information. 2 But he will be replaced. But I 3 can't say he is being replaced right now at this 4 time. But our Grand Lodge of the Elks has 5 requested that we do replace this gentleman because 6 of his physical and emotional problems right now. 7 CHAIRMAN CLOWE: And you're the 8 president of the lodge. Is that correct? 9 MR. BOWEN: Yes, sir, I am the 10 president of the Elks Lodge. 11 CHAIRMAN CLOWE: Of the Elks Lodge. 12 You went into office April 1st? 13 MR. BOWEN: April 1st, yes, sir. 14 CHAIRMAN CLOWE: And although -- 15 Ms. Schultz, there was not a payment as early as 16 the fourth quarter of '97 -- 17 MS. SCHULTZ: There was untimely 18 payment as early as the fourth quarter of 1997, 19 which would -- 20 CHAIRMAN CLOWE: '97? 21 MS. SCHULTZ: '97. 22 CHAIRMAN CLOWE: '97. That's what I 23 thought I heard. 24 And then there were quarters in '98, 25 and then we got into '99. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 134 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 MS. SCHULTZ: Yes, sir. 2 CHAIRMAN CLOWE: So we've actually 3 got a two-and-a-half-year history of nonpayment; 4 not one quarter after another, but a number of 5 quarters in that two-and-a-half-year period. Is 6 that correct? 7 MR. ATKINS: Yes, sir. 8 MS. SCHULTZ: Yes, sir. 9 CHAIRMAN CLOWE: And with Mr. Bowen 10 just coming into office in April, how did you find 11 out about this? 12 MR. BOWEN: Myself, sir? 13 CHAIRMAN CLOWE: Yes. 14 MR. BOWEN: The certified letters 15 that were sent to me. I was sent one here in -- my 16 first letter was July 14th of 2000. My first 17 letter, it's Exhibit A, what they have on this. 18 CHAIRMAN CLOWE: How did we get your 19 name? 20 MR. BOWEN: I'm not certain, sir. I 21 should be on the bingo license, you know, as far as 22 the -- I'm not certain if they call that conductor 23 or operator or whatever it be. 24 CHAIRMAN CLOWE: Yeah. Yeah. So 25 that's how we got the notice to you. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 135 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 MR. BOWEN: Yes, sir. I've received 2 this other one, September 1st, this one that I'm 3 holding here now. 4 CHAIRMAN CLOWE: Uh-huh. What's the 5 total amount of money in arrears, including the 6 fine? 7 MR. BOWEN: When I talked to Terry, 8 it was the $2,248 bond and the penalties that 9 weren't paid on the fourth quarter, $78.66. Now, 10 we still have the third quarter -- or I should say 11 the second quarter, and we only have just a few 12 days left of our third quarter, so we do owe for 13 second and third quarters yet. 14 CHAIRMAN CLOWE: Can you verify that 15 amount of money as being correct? 16 MR. ATKINS: We generated an 17 estimated prize fee and penalty for the second 18 quarter of $2,813.30. It's estimated because 19 nothing has been filed. 20 CHAIRMAN CLOWE: Uh-huh. 21 MR. ATKINS: So that estimation is 22 based on previous quarters. 23 CHAIRMAN CLOWE: Uh-huh. 24 MS. KIPLIN: Commissioners, now, if 25 I -- and you can tell me that you want to ask some WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 136 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 more questions, but I've heard what the gentleman 2 has to say, and I do sympathize with the 3 circumstances surrounding the lodge secretary's 4 illness. But we looked at the organization, and 5 you had people before you that had come with the 6 same explanation for why they haven't been able to 7 comply with the Bingo Enabling Act and the Bingo 8 rules. 9 CHAIRMAN CLOWE: I understand that. 10 I'm just trying to give Mr. Bowen, as I think the 11 other Commissioners are, a full hearing and 12 understanding of everything that he wants to say to 13 us. 14 COMMISSIONER WHITAKER: I have a few 15 questions. 16 Why were timely payments not made in 17 '97 and '98? 18 MR. BOWEN: I believe, paperwork. 19 You know, I cannot say what the instance or 20 circumstance was at that particular time. I was an 21 officer in the lodge but not, you know, to that 22 capacity to where I would know what was going on at 23 that particular time. It's been a five-year 24 process, you know, coming up through the chairs to 25 be president of the lodge. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 137 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 COMMISSIONER WHITAKER: Who would 2 have gotten notice of the hearing itself? 3 MR. BOWEN: It would have been a 4 secretary -- 5 COMMISSIONER WHITAKER: And that's 6 the one that's -- 7 MR. BOWEN: -- and the Exalted 8 Ruler. The first letter, the August 31st, was 9 addressed to Richard Crislin, is what my copy 10 showed, and he was Exalted Ruler before me, the 11 president. 12 COMMISSIONER WHITAKER: And -- but 13 you're saying that you think that the notice of 14 hearing itself went to this person that's sick, or 15 not? 16 MR. BOWEN: I believe it would have, 17 you know. 18 COMMISSIONER WHITAKER: But you 19 don't know? 20 MR. BOWEN: I was thinking he 21 received a copy as well. Here on the very last 22 page, it shows who all the other copies were sent 23 to, and it says, you know, Charles Preston, and 24 that would be Larry. 25 COMMISSIONER WHITAKER: Did you know WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 138 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 about the hearing? 2 MR. BOWEN: No, ma'am, I didn't, or 3 I would have been there at that one. I know it's 4 not a big thing. Y'all have rules and stuff, and I 5 understand that. There in Wichita Falls, we got a 6 good-sized town, you know, and such like that. But 7 little things that we do with our bingo moneys, I 8 really feel are important. We do Christmas 9 programs for the kids. 10 I mean, this is all, you know, what 11 we do at our place. But we do put those moneys to 12 good use even though we're only making maybe a 13 hundred dollars a week playing bingo. We use that 14 money for drug literature for kids in junior high 15 and such like that, scholarships, free-throw hoops 16 programs. 17 There's a lot of things that we do 18 with that little bit of money that we gain each 19 week, and I'd like to keep our bingo license, if 20 possible. But I understand that there is rules, 21 and everybody has to a abide by the rules. 22 COMMISSIONER WHITAKER: Okay. 23 MS. SCHULTZ: Let me just point out 24 to the Commissioners, unless the organization 25 changed the person to receive the official notice WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 139 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 from Mr. Crislin, between April, when that hearing 2 notice would have gone out, and August, the hearing 3 notice should have gone to Mr. Crislin as well. 4 COMMISSIONER SADBERRY: That's what 5 I thought the rule was. Something had to happen. 6 It seems, from what I understand of the procedure, 7 Billy, for that -- for this particular letter and 8 the one that preceded it to go to a different 9 person than the notice of the hearing, what has to 10 happen for that? 11 MR. ATKINS: Well, the notice of the 12 hearing that I have in my notebook shows it going 13 to Richard Crislin. 14 MR. BOWEN: I have that -- 15 COMMISSIONER SADBERRY: Well, how 16 did you -- what do your records show as to how 17 Mr. Bowen gets these notices? 18 MR. ATKINS: We mailed the letter to 19 who is identified as the primary operator. So the 20 organization would have to change it -- 21 COMMISSIONER SADBERRY: Right. 22 MR. ATKINS: -- through an amended 23 process. 24 COMMISSIONER SADBERRY: Do you have 25 any such thing in your files? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 140 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 MR. ATKINS: Not that I'm aware of. 2 COMMISSIONER SADBERRY: And you have 3 the file? 4 MR. ATKINS: I don't have the file 5 with me. I just have the summary. 6 CHAIRMAN CLOWE: Is it normal that 7 it would take this period of time to get to the 8 hearing with nonpayment of the quarterly dues 9 beginning in the fourth quarter of '97? 10 MR. ATKINS: Those were included in 11 this hearing. I'm sorry, Mr. Chairman, we went to 12 the hearing based on their failure to timely file 13 in the fourth quarter of '99. And when we went to 14 the hearing, the staff did a review of any other 15 occasions when the organization may not have timely 16 filed. Even though any action wasn't taken against 17 that organization at that time, it's still a 18 violation of the Act, and so those were included in 19 that show compliance letter of the -- I'm sorry, 20 March 9. 21 CHAIRMAN CLOWE: Yeah. I understand 22 that. But I'm puzzled by the fact that action 23 wasn't taken prior to the time it was on the fourth 24 quarter of '99. You've got two years that have 25 passed there with numerous violations. Can you WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 141 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 help me understand that? 2 MR. ATKINS: Because when the staff 3 looks at it, if there's an organization that keeps 4 coming up and there appears that there is some type 5 of pattern that's occurring, we'll move ahead to 6 take action. 7 COMMISSIONER SADBERRY: I'm not sure 8 I understood that as an answer that I can 9 understand. Because I had the same concern, 10 certainly in the interest of -- here's what I 11 sensed, is that absent the $662 issue being brought 12 to action, the other matters would probably not 13 have resulted in action. I could be wrong, but 14 that's the sense I get. 15 MR. ATKINS: They probably should 16 have resulted in action. 17 COMMISSIONER SADBERRY: But up to 18 that point, they did not and wouldn't have, but for 19 this most recent -- 20 MR. ATKINS: That's correct. 21 MS. KIPLIN: Commissioners, I think 22 what we've seen, if I can just add this -- I think 23 what we've seen is, since the time that the 24 Commission said, well, through ad hoc rule making, 25 we want you to pay -- you need to clear out WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 142 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 whatever your noncompliance is before announcement 2 of readying, or that case is coming up. 3 Well, what we saw -- and we talked 4 about this probably eight months ago, and I may be 5 wrong on the time -- but what we saw then are the 6 people -- the word got out, and people would be in 7 noncompliance. 8 And then we'd go through the process 9 of sending letters and trying to get in touch with 10 these people, and they would just pay before the 11 time of the hearing. And then it would happen the 12 next quarter, and then it would happen the next 13 quarter. 14 And so it's the staff's position 15 that it's important for the Commission, the 16 decision making body, to get a full picture of the 17 respondent's history in terms of noncompliance so 18 that the Commission can see whether we're dealing 19 with a one-time issue or we're dealing with 20 somebody who has created, for lack of a better 21 word, a pattern. 22 Now, obviously, these were on 23 individual cases, but my suspicion is that that is 24 why this matter is before you and those quarters 25 have been noticed up before you, so that you can WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 143 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 see exactly the history with this particular 2 respondent. 3 COMMISSIONER SADBERRY: Kim, I 4 appreciate that, but I want to come back. 5 What discretion, if any, do we have, 6 short of revocation, if we were to take action with 7 respect to this proposal? 8 MS. KIPLIN: Well, I think you have 9 the discretion to decide whether you want to take 10 disciplinary action against the licensee or not. 11 You know, my position has always been that it is an 12 inappropriate subject matter for a conclusion of 13 law to include the recommended disposition of a 14 case. 15 COMMISSIONER SADBERRY: Right. 16 MS. KIPLIN: Now, the State Office 17 of Administrative Hearings continues to put that 18 in. I think that there are delegation of authority 19 problems with that. Under the Administrative 20 Procedure Act, that authority has not been 21 delegated to the State Office of Administrative 22 Hearings. So with that as a backdrop, I think your 23 discretion is very broad. 24 COMMISSIONER SADBERRY: Let me ask 25 it again, then. What can we do? I mean, we can WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 144 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 levy fines, we can suspend. 2 MS. KIPLIN: Yes, you can. You can 3 not impose any sort of disciplinary action 4 whatsoever and have the findings and the 5 conclusions stand where they are. You can -- I 6 guess you could enter -- and this is where it gets 7 tricky, because actually, under the Bingo Enabling 8 Act, the Bingo Director is the one that has the 9 authority to impose monetary forfeitures. 10 COMMISSIONER SADBERRY: Right. 11 MS. KIPLIN: Now, you might be able 12 to get the parties -- you know, direct the parties 13 to try to work out an agreement for some sort of 14 monetary forfeiture, but I do think it would 15 require both parties to do that. 16 You have suspension power, and you 17 have revocation power. You could suspend. You 18 could suspend for -- you know, starting from one 19 occasion all the way up to days and so forth, or 20 you can revoke. 21 COMMISSIONER SADBERRY: Well, let me 22 just say, I appreciate, Kim, very much your 23 position. I've been there through the years. 24 Historically, when we took over bingo -- and 25 Mr. Bowen, you may not want to hear all this, and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 145 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 this may help you, I don't know. But historically, 2 when we took over from TABC, there were a number of 3 agreements which were -- had their own share of 4 difficulties to understand, interpret, enforce, 5 et cetera. And there was this serious pattern that 6 required a serious reaction to it. 7 I'm not sure, as time has gone on, 8 what I've sensed as to the -- what has happened to 9 the pattern. I try to see what's the right thing. 10 I think it is very important to support staff in 11 what you are doing and that the message gets sent 12 to the industry. 13 And I think when you back away from 14 that, Mr. Bowen, it's a serious matter because that 15 does send messages. Whether we realize it or 16 whether you understand it or not, it does. It also 17 sends a message to our staff, and we have to expect 18 them to enforce the rules and the law. 19 But we sit here because it does come 20 to us, and we do take our job seriously -- I can 21 speak, I'm sure, for the other Commissioners -- and 22 I'm trying to get a sense of what's right here. I 23 think that there should have been quicker and more 24 decisive action, in my own personal view, to 25 address these issues from the licensee's WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 146 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 standpoint. I also wonder about what we did to not 2 pick up the breaches in the past. 3 Those are just rambling words of 4 mine, but I wanted to put it in perspective since 5 we are creating a record as well as dealing with 6 this individual case before us. 7 CHAIRMAN CLOWE: Mr. Bowen, do you 8 have anything else to say to us? 9 MR. BOWEN: No, sir. 10 CHAIRMAN CLOWE: Ms. Schultz, do you 11 have anything to add? 12 MS. SCHULTZ: Nothing, 13 Commissioners, unless you have other questions. 14 CHAIRMAN CLOWE: Mr. Atkins, do you 15 have anything to add? 16 MR. ATKINS: I appreciate the 17 General Counsel bringing it up. Staff would have 18 no opposition to some sort of agreed upon 19 suspension. 20 COMMISSIONER WHITAKER: Would staff 21 have any opposition to -- almost like a -- put it 22 on probation so that there can be an effort to see 23 if they can comply with zero tolerance? 24 MR. ATKINS: Does staff have that 25 authority, is -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 147 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 COMMISSIONER WHITAKER: In other 2 words, if there's -- well, staff -- 3 MS. KIPLIN: Staff would object. 4 And I'll just speak on behalf of staff if that's 5 okay -- you can tell me if I'm wrong -- but the 6 reason is because I don't a probation -- what I 7 think we've had in this case is, in '97, there was 8 noncompliance and they came square; in '98, there 9 was noncompliance and they came square. 10 So in my view, they have already had 11 a probationary period; and that is, for the next 12 time, do they come square? I don't think 13 probation, in my view, is an effective mechanism. 14 I think that it sends -- in my view, its sends a 15 bad message. And I've got a prosecutor hat on 16 right now. I understand the dilemma that y'all are 17 facing, but my view is, staff would object to 18 the -- 19 COMMISSIONER WHITAKER: What would 20 suspension accomplish? 21 MS. KIPLIN: Suspension would 22 require this licensee to not conduct bingo for the 23 requisite period of time for suspension. 24 COMMISSIONER WHITAKER: Which is? 25 MS. KIPLIN: It's whatever you would WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 148 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 like it to be. Now, if you're going to suspend for 2 a year, then you're really revoking. So clearly, I 3 would think that you would to want consider a 4 reduced time for suspension. It could be -- you 5 know, it could be one occasion, it could be three 6 days, it could be two weeks, it could be not -- it 7 could be anything. 8 It may be that if the parties are 9 inclined to consider a lesser included offense, 10 that perhaps this matter could be passed until the 11 next Commission meeting to see if there is an 12 opportunity for some sort of an agreed order to 13 come out. I don't know. 14 COMMISSIONER SADBERRY: Well, I 15 would have a question in that regard, and that is 16 whether it's clear to Mr. Atkins that he had that 17 authority, given what the ALJ -- the SOAH judge put 18 as far as the recommended penalty. I think it's 19 important, if he does have that authority, that he 20 know it and that when he comes to us, he has 21 exercised his authority to his satisfaction. And 22 that's for this case and any other case. 23 MS. KIPLIN: Sure. And I would say 24 that that is the entire purpose on a revocation of 25 the opportunity to show compliance -- well, not the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 149 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 entire. That is a purpose of the opportunity to 2 show compliance letter. Those letters are required 3 by the Administrative Procedure Act to be sent to a 4 licensee at the time that an agency is 5 contemplating taking disciplinary action, 6 suspension, or revocation against a license. It 7 gives that party an opportunity to contact the 8 agency and to sit down and try to negotiate some 9 lesser included discipline. That is not what 10 occurred in this case. 11 COMMISSIONER SADBERRY: No, I mean 12 after the decision comes down. 13 MS. KIPLIN: After the decision 14 comes down, the staff has put on a case. We've 15 been over there and have amassed the resources and 16 the time and engaged with the State Office of 17 Administrative Hearings. 18 MR. ATKINS: I think to answer your 19 question, Commissioner Sadberry, if I understand 20 correctly, after the PFD has been issued, I don't 21 have the authority as Bingo Director to negotiate 22 any kind of suspension or anything. 23 MS. KIPLIN: I think you could still 24 reach out to enter into an agreed order, but it 25 seems to me that goes against the Commission's WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 150 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 ad hoc rule making for contested case proceedings 2 where you are in compliance at the time you 3 announce ready or it's coming to the Commission. 4 And in my view, that's an 5 appropriate place to be, because the time to try to 6 work out an agreement on a staff level is before 7 the case is noticed for hearing and perhaps during 8 the time that you are over there putting on a case. 9 But, you know, obviously, we'll do whatever the 10 Commission directs. But I don't think it's the 11 time after the Proposal for Decision has come out 12 for revocation. 13 CHAIRMAN CLOWE: Last call. 14 MR. ATKINS: If it's amenable to the 15 Commission, staff would like the opportunity to 16 work with the licensee to come back with an agreed 17 order. 18 CHAIRMAN CLOWE: Any objections to 19 that? 20 COMMISSIONER WHITAKER: No. 21 COMMISSIONER SADBERRY: No. 22 CHAIRMAN CLOWE: Thank you. 23 MS. KIPLIN: We'll pass that on 24 until the next Commission meeting. 25 CHAIRMAN CLOWE: Again, Mr. Bowen, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 151 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 we apologize to you for keeping you here all day. 2 It was entirely an oversight on our part, and I'm 3 responsible for it and I hope you'll accept our 4 apologies. 5 MR. BOWEN: Thank you for your time, 6 sir -- ladies and gentlemen. Thank you. 7 CHAIRMAN CLOWE: We're ready now to 8 go back to the agenda and in order of being 9 published -- my understanding is that, Linda, you 10 want to pass on Item 5. Is that correct? 11 MS. CLOUD: That's correct. 12 CHAIRMAN CLOWE: So we're then to 13 Item 6, consideration of and possible discussion 14 and/or action on state audit reports relating to 15 the Texas Lottery Commission. 16 And Debra, did you want to pass? 17 MS. MCLEOD: If that's all right, 18 unless you have any questions. 19 CHAIRMAN CLOWE: Thank you. Very 20 good. 21 We have conducted the Item 7 22 business. 23 And that would take us to Item 8, 24 report, possible discussion and/or action on the 25 drawings audit services procurement. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 152 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 Linda, that's your item. 2 MS. CLOUD: Yes, Commissioners. I 3 just wanted to announce that we have awarded a 4 contract for the drawings audit procurement. That 5 award went to Vanderslice and Davila, P.C. This 6 was a subcontractor for PricewaterhouseCoopers that 7 was actually performing the drawings out at 8 functions under Coopers. And they are a minority, 9 and they have been awarded the contract. And 10 that's on that item. 11 CHAIRMAN CLOWE: Very good. Do you 12 have the next, Item, No. 9 -- 13 MS. CLOUD: Yes. 14 CHAIRMAN CLOWE: -- report, possible 15 discussion and/or action on the financial audit 16 services procurement? 17 MS. CLOUD: Yes, sir. The financial 18 audit services have been awarded to 19 McConnell & Jones. The total sum of that purchase 20 order is an estimated $52,000 for the financial 21 audit. They, too, are a minority contractor. 22 CHAIRMAN CLOWE: Thank you. And do 23 you have the next item, No. 10, report, possible 24 discussion and/or action on the security audit 25 services procurement? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 153 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 MS. CLOUD: The apparent successful 2 proposer for the security audit is 3 PricewaterhouseCoopers. There has not been a 4 contract signed as yet, so we have not awarded that 5 contract. 6 CHAIRMAN CLOWE: You have nothing 7 further on that? 8 MS. CLOUD: No, I don't. 9 CHAIRMAN CLOWE: The next item is 10 yours as well, a report, possible discussion and/or 11 action on the Texas Lottery Commission headquarters 12 security procurement. 13 MS. KIPLIN: Commissioners, I'll go 14 ahead and handle that. 15 That contract was awarded. There 16 has been a protest filed on that matter. It is not 17 ripe for your consideration, and frankly, at the 18 time that this was noticed, we didn't have the 19 protest received. And if it is ever ripe for your 20 consideration, we'll bring it to you. 21 CHAIRMAN CLOWE: Very good. 22 Let me correct myself. I misspoke, 23 in that we have had the business under Item 12 24 that's been covered. And Linda, I believe you 25 wished to have Item 7, report, possible discussion WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 154 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 and/or action on the production studio procurement 2 pass -- 3 MS. CLOUD: Pass. 4 CHAIRMAN CLOWE: -- is that correct? 5 All right. Fine. 6 That takes us to Item 13, 7 consideration of and possible discussion and/or 8 action, including adoption on new rule 9 16 TAC 403.301, relating to historically 10 underutilized businesses. 11 Ridgely? 12 MS. KIPLIN: Commissioners, I'll go 13 ahead and handle that -- 14 CHAIRMAN CLOWE: All right. 15 MS. KIPLIN: -- just in the interest 16 of time. 17 If you'll recall, you voted to 18 propose this new rule, and it was published in the 19 Texas Register for public comment, August 4 of the 20 2000 issue. No comments were received. 21 We are requesting and recommending 22 that you adopt this rule without changes to the 23 proposed text. 24 COMMISSIONER SADBERRY: And this is 25 in conjunction with GSA? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 155 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 MS. KIPLIN: Yes, sir, it is. What 2 you are doing is adopting by way of reference to 3 the Commission rules, which this is required by 4 statute. 5 COMMISSIONER WHITAKER: So moved. 6 COMMISSIONER SADBERRY: Second. 7 CHAIRMAN CLOWE: All in favor, say 8 aye. Opposed, no. 9 The record should reflect the vote 10 is approved 3-0. 11 And now to Item 14, consideration of 12 and possible discussion and/or action, including 13 adoption on new rules 16 TAC 403.201-403.223, 14 relating to procedures for resolving certain breach 15 of contract claims. 16 MS. KIPLIN: Commissioners, if 17 you'll recall, you voted to propose this set of new 18 rules. In a previous Commission meeting, the 19 proposed text was published in the August 4th, 2000 20 issue of the Texas Register. No comments were 21 received in connection with the proposed rule 22 making, and the staff recommends that you adopt 23 these rules without change to the proposed texts. 24 It is required by the 1999 legislation. 25 COMMISSIONER WHITAKER: So vote. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 156 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 COMMISSIONER SADBERRY: Second. 2 CHAIRMAN CLOWE: All in favor, say 3 aye. Opposed, no. 4 The record should reflect it's 5 approved 3-0. 6 Item 15 is next, consideration and 7 possible discussion and/or action, including 8 adoption on new rule 16 TAC 402.550, relating to 9 Bingo Training Program. 10 MS. KIPLIN: Commissioners, this is 11 another rule making. This is a new rule that you 12 voted to propose in a previous rule making. The 13 proposed text was published, again in the 14 August 4 of 2000 issue of the Texas Register. No 15 comments were received in connection with this 16 proposed rule making. This is also a required rule 17 making from the last legislative session to 18 implement a statute in the Bingo Enabling Act. 19 Staff recommends that you do vote to 20 adopt this rule without changes to the proposed 21 text. 22 COMMISSIONER WHITAKER: So vote. 23 COMMISSIONER SADBERRY: Second. 24 CHAIRMAN CLOWE: All in favor, say 25 aye. Opposed, no. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 157 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 I vote aye. The vote is 3-0 2 approved. 3 I believe now we are to Item 18, 4 consideration of and possible discussion and/or 5 action on a proposed settlement in T&T Interest, 6 Inc., v. Texas Lottery Commission. 7 MS. KIPLIN: Commissioners, I don't 8 believe there is any information that needs to be 9 put on the record in the Commission meeting, and I 10 would recommend we move to Item 19 if that's 11 appropriate. 12 CHAIRMAN CLOWE: This item will be 13 passed without any further consideration. 14 Then to Item 19. We have disposed 15 of two cases in this matter, and the remaining, 16 Kim, will be handled by you and the staff? 17 MS. KIPLIN: Yes. Commissioners, 18 first, just by way of housekeeping, I have -- in 19 the matter of Dance Et Vous and Minor 20 Considerations, I have two orders as a result of 21 this morning's discussion. In Dance Et Vous, it's 22 an order granting a motion for rehearing, and in 23 Minor Considerations, Inc., it's an order remanding 24 the case to the State Office of Administrative 25 Hearings. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 158 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 I'd like to present both of these 2 orders to you to make sure that they're consistent 3 with your vote this morning -- or pardon me, your 4 direction this morning. 5 CHAIRMAN CLOWE: A motion is not 6 required at this time on either one of these? 7 MS. KIPLIN: No. I think what I 8 would like is a -- did we vote on a motion? I 9 don't think we did. 10 CHAIRMAN CLOWE: I don't think we 11 did. 12 MS. KIPLIN: And if you would, I 13 need a motion on -- a motion to vote -- 14 COMMISSIONER SADBERRY: Well, yes -- 15 yes, we did. 16 COMMISSIONER WHITAKER: Yeah, we 17 did. 18 COMMISSIONER SADBERRY: Commissioner 19 Whitaker made the motion. I seconded it, and we 20 voted. 21 MS. KIPLIN: That's right. I 22 thought we did. 23 And now it's just important that 24 that is consistent with your vote. 25 COMMISSIONER SADBERRY: And is it? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 159 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 MS. KIPLIN: Yes, it is. 2 CHAIRMAN CLOWE: I thought so. 3 MS. KIPLIN: Commissioners, the 4 remainder of the cases are -- I don't believe we 5 have any appearances that are here for those cases. 6 They are, you know, for lack of a better word, 7 generic lottery cases. And we do have a -- we are 8 passing American Business Women's and Red Men 9 Council No. 4. 10 In the Red Men Tribe 22, you do have 11 a motion to dismiss this matter as moot. There was 12 a Proposal for Decision that was issued, and an 13 order was signed by the Commission on 14 July 18, 2000, revoking the respondent's license. 15 So as a result, there is nothing -- no action that 16 needs to be taken, other than dismissing this 17 particular docket as moot. And staff would 18 recommend that. 19 COMMISSIONER SADBERRY: And the 20 so-called three-strike issue is included in the 21 case as being passed? 22 MS. KIPLIN: Yes, sir, it is. 23 CHAIRMAN CLOWE: Would you, for the 24 record, indicate by letter those cases which you're 25 asking for the Commission to act on. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 160 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 MS. KIPLIN: Yes, I will. 2 It's A, B, C, D, E, F, G, H, I; 3 pass J; take up K; you're signing an order already 4 on L; pass M; pass N; staff recommends an order 5 dismissing O; and you would sign an order on P. 6 CHAIRMAN CLOWE: Very good. 7 We have signed orders on L and P. 8 You're asking for a motion now for the entry of 9 orders on those cases you indicated by the 10 appropriate letter? 11 MS. KIPLIN: Yes, I am. Staff is 12 recommending that you enter an order as recommended 13 by the State Office of Administrative Hearings 14 Administrative Law Judges. 15 COMMISSIONER WHITAKER: So vote. 16 COMMISSIONER SADBERRY: Second. 17 CHAIRMAN CLOWE: All in favor, say 18 aye. 19 The record should reflect the vote 20 is 3-0 in favor. 21 We're now to Item 20. And we're 22 going to pause just a minute to sign these orders, 23 Linda, before you begin your report. 24 MS. CLOUD: Okay. 25 CHAIRMAN CLOWE: We're now to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 161 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 Item 20 on the agenda, report by the Executive 2 Director and/or possible discussion and/or action 3 on the agency's financial and operational status, 4 HUB and/or minority status, FTE status, lottery 5 conferences, and retailer forums. 6 MS. CLOUD: Commissioners, our 7 transfer to the foundation school fund was made on 8 August 15th. The amount we transferred was 9 $68,083,418, making a total, since inception, of 10 $7,082,337,668 to the State. 11 You have in your notebooks the HUB 12 report that was effective September 1st, '99 13 through July 31st of 2000. That report hasn't 14 changed. At the next Commission meeting, we will 15 have Robert Hall present the HUB reports and let 16 you know what he is working on and the -- like I 17 said earlier, the two contracts we've just awarded 18 were to HUB vendors. 19 Our FTE status, we have 301 active 20 FTEs. We have 29 vacant positions at this time: 21 We have five in the selection acceptance pending 22 category; we have 16 applicants in the recruiting, 23 screening, and interviewing; we have no positions 24 being processed at this time for postings; and we 25 have 8 vacant positions that are not -- that have WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 162 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 no activity; we have a number of -- we have 5 as 2 newly filled positions in the agency in the last 3 week. 4 CHAIRMAN CLOWE: I thought the 5 information that was presented earlier this 6 afternoon to the Committee on the Legislative 7 Appropriations Request was very interesting, and I 8 note that our agency turnover rate for fiscal 9 year 2000, overall, is 17.1 percent. 10 Do you have any idea, offhand, how 11 that compares to other agencies of our size and 12 type? 13 MS. CLOUD: Jim, can you respond to 14 that? 15 MR. RICHARDSON: I'm Jim Richardson, 16 the Human Resource Director. 17 I believe the statewide average is 18 17.74, so we're right in there. 19 MS. CLOUD: I think some of the 20 areas that they pointed out today being in the 21 accounting end, as well as information technology, 22 seems to be the hard jobs to fill. And Mike has 23 had a lot of problems filling positions in the 24 Dallas and Houston area for investigators. 25 CHAIRMAN CLOWE: And Bart, in the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 163 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 accounting area, what problems are you running 2 into? 3 MR. SANCHEZ: In relation -- my name 4 is Bart Sanchez. I'm the Financial Administration 5 Director. 6 Problems in relation to FTEs? 7 CHAIRMAN CLOWE: Yes. I'm sorry. I 8 should be more specific. Too broad a question. 9 MR. SANCHEZ: I recently had a 10 senior financial manager. Her last day was last 11 week. So in a sense, I'm trying to restructure 12 some of the positions, so they haven't been posted, 13 about two or three of them. 14 But the financial that you see right 15 there, that's not only my division; that's a 16 category that includes reimbursement specialists -- 17 MS. CLOUD: Playing center 18 specialists -- 19 MR. RICHARDSON: It could be -- 20 yeah, reimbursement officers, auditors, 21 accountants, accounts examiners. So it could be 22 both bingo and financial people, as well as lottery 23 operations people out in the field. It's a 24 classification category is what that is. 25 CHAIRMAN CLOWE: I see. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 164 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 MR. RICHARDSON: It's not the 2 financial division. 3 CHAIRMAN CLOWE: Are you having 4 particularly difficult turnover problems? 5 MR. SANCHEZ: Right now, I'm 6 experiencing it because right now we're going 7 through -- every agency is going through the 8 financial biggest -- busiest season. And it seems 9 like there is far more demand than supply and 10 experience in the Uniform Statewide Accounting 11 System. And the way this system is set up for the 12 Lottery, I really need somebody with private 13 enterprise experience and also a statewide 14 accounting assistant. So it's a little bit 15 probably more difficult than any other average 16 state agency. 17 CHAIRMAN CLOWE: But you feel that 18 you are able to handle the workload, and you're 19 hopeful of being able to bring new people in? 20 MR. SANCHEZ: Yes, plus we're trying 21 to get avenues -- temporary avenues through 22 temporary agencies or contractors in the meantime. 23 We're trying to pursue all that, and Linda and 24 Patsy are giving their support, and they're helping 25 me as to how to go about -- to be able to get that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 165 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 job done, since right now, we have to get our 2 annual financial report on November. And then 3 we've got the audit financials -- the audit coming 4 up, too. 5 MS. CLOUD: Bart had a very similar 6 situation happen to him before this session and 7 before the last session on the financial audit. He 8 had two major accounting people in his organization 9 just up and quit and go to another state agency at 10 the time the audit was to take place. And that's 11 basically what's happened again this year. His 12 account manager left, and she -- you know, right 13 here when we're going into an audit. So -- 14 MR. SANCHEZ: I've had the 15 assistant -- Linda and Patsy have given me an 16 opportunity to post an assistant director to help 17 me manage the area. And that position has been 18 posted since June 1st. I just cannot find 19 qualified applicants at that level. So I'm kind of 20 taking another look and see whether I can find 21 middle managers or just senior accountants, also. 22 Try different approaches. 23 CHAIRMAN CLOWE: Jim, I think we 24 would urge you to work with Bart and Robert and 25 others who have special needs to help them find WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 166 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 applicants and hold the turnover down in the agency 2 to the benefit of the work product that's being 3 produced. 4 MR. RICHARDSON: We do. We work 5 well together in the different divisions. Of the 6 17 positions you are looking at here in financial, 7 I believe 8 of those were accounts examiners, and 5 8 were lottery operations people out in the field. 9 So they're not all financial. 10 CHAIRMAN CLOWE: Very good. 11 MS. CLOUD: Okay. Lottery 12 conferences. Again, we're coming up close to the 13 national conference. We'll soon have that behind 14 us. Our staff has done a fantastic job with the 15 planning of this conference. I think you'll be 16 real proud of them when you see them in action. 17 We had our retailer forum. Our last 18 retailer forum was in Laredo. And I will say it 19 was about 114 degrees that day, and it was very 20 hot. But it was a very good conference, very 21 positive retailer responses. We got some feedback 22 from the retailers about our Lotto rule change, and 23 all of it was positive. Nobody had any problems 24 with it. So these always tend to be very 25 encouraging for me. I enjoy the retailer WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 167 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 conferences. 2 And that's all I have to report. 3 CHAIRMAN CLOWE: Any questions? 4 Linda, on behalf of the 5 Commissioners, I want to compliment you and Patsy 6 and all of those who participated this afternoon in 7 the presentation that was made at the LAR. I think 8 it was very professional, and it shows that there's 9 a high level of expertise and hard work going into 10 these kinds of presentations. 11 I think it reflects credit not only 12 on this agency, but on the individuals who 13 participate as well. And as I say, I think I can 14 speak for all the Commissioners to say how proud we 15 are of the quality of work that you're doing in 16 those presentations, and I know it will inure to 17 the benefit of this agency as time goes on, so -- 18 MS. CLOUD: Thank you. 19 CHAIRMAN CLOWE: -- thanks to all of 20 you. 21 COMMISSIONER SADBERRY: Absolutely. 22 CHAIRMAN CLOWE: We are now to 23 Item 21, report by the Charitable Bingo Operations 24 Director and possible discussion and/or action on 25 the Charitable Bingo Operations Division's WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 168 TEXAS LOTTERY COMMISSION MEETING, 9-11-00 1 activities. 2 We're about to the end of this 3 meeting. Billy, have you got anything to say? 4 MR. ATKINS: The only thing I have 5 to add to my report, Commissioners, is we're trying 6 to schedule an advisory Committee meeting on 7 September 21st, and we'll notify each of you when 8 we get that finalized. 9 CHAIRMAN CLOWE: Thank you, sir. 10 Is there any person who wishes to 11 make a comment to the Commission at this time? 12 Hearing done. We are adjourned at 13 6:59. Thank you all for enduring with us, and I 14 apologize for the length of this meeting to you. 15 (Proceeding concluded.) 16 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 169 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, SUZANNE T. LANE, Certified Court 7 Reporter for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing 9 before the TEXAS LOTTERY COMMISSION as hereinafter 10 set out, that I did, in shorthand, report said 11 proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 16 Witness my hand on this the _______ 17 day of ______________, 2000. 18 19 20 SUZANNE T. LANE 21 Texas CSR No. 6992 Expiration Date: 12/31/01 22 1609 Shoal Creek Boulevard Suite 202 23 Austin, Texas 78701 (512) 474-4363 24 25 JOB NO. 000911STL WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363