1 1 2 3 4 5 * * * * * * * * * * * * * * * * * 6 7 TEXAS LOTTERY COMMISSION 8 MEETING 9 10 OCTOBER 11, 2000 11 12 * * * * * * * * * * * * * * * * * 13 14 15 16 17 18 19 BE IT REMEMBERED that the TEXAS LOTTERY 20 COMMISSION meeting was held on the 11TH of OCTOBER, 21 2000, from 8:30 a.m. to 3:15 p.m., before Brenda J. 22 Wright, RPR, CSR in and for the State of Texas, 23 reported by machine shorthand, at the Offices of the 24 Texas Lottery Commission, West Sixth Street, Austin, 25 Texas, whereupon the following proceedings were had: WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 2 1 APPEARANCES 2 3 Chairman: Mr. C. Tom Clowe, Jr. 4 Commissioners: 5 Ms. Elizabeth D. Whitaker (not present) Mr. Anthony J. Sadberry 6 General Counsel: 7 Ms. Kimberly L. Kiplin 8 Executive Director: Ms. Linda Cloud 9 Charitable Bingo Operations Director: 10 Mr. Billy Atkins 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 3 Appearances...................................... 2 4 AGENDA ITEMS 5 Public Comment 6 Busald.................................... Nettles................................... 48 7 (Audiotape played)........................ 54 8 Contested Docket Cases American Business Women's Association..... 74 9 Red Men Council No. 4..................... 133 Other Contested Docket Cases.............. 202 10 Item Number 2.................................... 206 11 Item Number 3.................................... 208 Item Number 4.................................... 211 12 Item Number 5.................................... 213 Item Number 6.................................... 213 13 Item Number 7.................................... 215 Item Number 8.................................... 219 14 Item Number 9.................................... 216 Item Number 10................................... 221 15 Executive Session................................ 225 16 Item Number 16................................... 225 17 Videotape played................................. 227 18 Minority Status Report........................... 228 Item Number 14................................... 242 19 Reporter's Certificate........................... 247 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 4 1 OCTOBER 11, 2000 2 CHAIRMAN CLOWE: Good morning. At this 08:38 3 time I would like to call the Texas Lottery Commission 08:38 4 meeting to order. It is 8:33 a.m., October the 11th, 08:38 5 2000. My name is C. Tom Clowe, Junior. Commissioner 08:38 6 Anthony Sadberry is present. Commissioner Betsy 08:38 7 Whitaker is absent due to pressing business. We have 08:38 8 a quorum with two commissioners sitting in attendance 08:39 9 today, so we will go forward with the business of the 08:39 10 Commission. And my understanding is that we have 08:39 11 individuals who would like to make public comment to 08:39 12 the Commission. And in respect of those individuals, 08:39 13 we will not take up the agenda as published, but give 08:39 14 them an opportunity to speak to the Commission at this 08:39 15 time. We normally take public comment at the end of 08:39 16 the session, but we don't want to delay those 08:39 17 individuals who have made a special trip here. 08:39 18 I have one witness form, and that is 08:39 19 Mr. Gerald F. B-u-s-a-l-d, I believe. Would you like 08:39 20 to speak to us now, sir? 08:39 21 MR. BUSALD: Yes, I would. I am going 08:39 22 to be referring to a document. If you would like to 08:39 23 have a copy of that document. I have given a copy to 08:39 24 the court reporter. 08:40 25 CHAIRMAN CLOWE: Help me with the 08:40 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 5 1 correct pronunciation of your name. 08:40 2 MR. BUSALD: Busald. 08:40 3 CHAIRMAN CLOWE: Yes, sir, I think, if 08:40 4 you have copies available, we would like to have those 08:40 5 at hand. 08:40 6 MR. BUSALD: And which table? 08:40 7 CHAIRMAN CLOWE: Right there is fine. 08:40 8 Make sure that microphone is on, if you will, please. 08:40 9 We're happy that you're here and go 08:40 10 right ahead. 08:40 11 MR. BUSALD: Thank you, Commissioners. 08:40 12 I have had numerous interactions with the Lottery 08:40 13 Commission over the last three and a half years, some 08:40 14 of which you may be aware of, maybe some others you're 08:40 15 not. 08:40 16 The first thing you might notice is 08:41 17 that the title of this little piece of paper I've 08:41 18 handed you, called David versus Goliath, an 08:41 19 Introductory Statistics Class versus the Texas Lottery 08:41 20 Commission. That certainly wasn't what we hoped would 08:41 21 happen with that class. We caught an error in 08:41 22 advertising for Cash 5 about three and a half years 08:41 23 ago. When that error happened, we thought, well, you 08:41 24 know, people make mistakes. We're sure it's an honest 08:41 25 mistake and it can be corrected. But because the 08:41 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 6 1 effects of advertising that is incorrect linger, we 08:41 2 notified our school newspaper. 08:41 3 They eventually notified -- the class 08:41 4 sent a letter to the Lottery Commission, and I don't 08:41 5 want to really go through the long history of all that 08:41 6 happened because it's so long ago, but eventually we 08:41 7 sent out a letter to the Commission, and in follow up 08:42 8 by the San Antonio Express News, they had a front page 08:42 9 story that the Lottery Commission had agreed to pull 08:42 10 certain advertising. Well, the summary of that is 08:42 11 really given in just a little editorial. And 08:42 12 basically, it says that my class pointed out an error. 08:42 13 The thing that was unfortunate was the response of the 08:42 14 Commission and the Commission spokesperson. They 08:42 15 said, we're not going to say they're right, they just 08:42 16 came up with another way of doing the numbers. And 08:42 17 you know, as a mathematician, that's sort of hard to 08:42 18 accept. There are only so many ways and there is only 08:42 19 one acceptable way. 08:42 20 I -- actually, as soon as that 08:42 21 happened, as that quote appeared, you know, the 08:43 22 students were very deflated. And I felt, well, I 08:43 23 can't just let it drop at that. I called -- I had 08:43 24 jury duty one day. I called Kim. I don't know if 08:43 25 she'll remember this call or not. She was just acting 08:43 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 7 1 director at that time. And I said, because of the 08:43 2 response of the Commission, I said, Kim, is there any 08:43 3 way we can turn this negative into a positive. Her 08:43 4 reply to me was, oh, we don't consider this a 08:43 5 negative. 08:43 6 I don't know if you remember that, Kim, 08:43 7 but I certainly do. 08:43 8 So we were kind of left stranded. 08:43 9 Basically, we knew the students were right. The 08:43 10 Commission really knew they were right, and as a 08:43 11 matter of fact, eventually the Commission used the 08:43 12 numbers the students sent in lottery advertising. But 08:43 13 in my view, the Commission intentionally decided to 08:43 14 diss the students to protect their own image because 08:44 15 of the integrity -- as we've heard many times, the 08:44 16 integrity of the Commission is extremely important. 08:44 17 Anyway, that's a long story. I wrote 08:44 18 politicians because I knew of no other avenue to take, 08:44 19 I wrote letters to the editor. Fortunately, 08:44 20 Lieutenant Governor Bob Bullock intervened on our 08:44 21 behalf and wrote the Commission. I think the 08:44 22 Commission felt that they wouldn't be able to quite do 08:44 23 the same song and dance on Lieutenant Governor Bullock 08:44 24 that they could do a group of statistics students at 08:44 25 San Antonio College. So the Commission eventually did 08:44 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 8 1 admit that we were right. 08:44 2 But the timing is really important to 08:44 3 the Commission, because when that happened, it was no 08:44 4 longer an AP story, it wasn't on the wire, so the fact 08:44 5 that the students were right was never the same story 08:45 6 as, they're wrong. We're not saying they're right. 08:45 7 So the actions kind of took away from what happened 08:45 8 with the students. I have a copy of a letter, page 08:45 9 two in this document, from Governor Bush and 08:45 10 Lieutenant Governor Bullock at the time. And, you 08:45 11 know, they're both very positive about what my 08:45 12 students had done. Certainly my students got 08:45 13 recognition, but they didn't get their due recognition 08:45 14 because of the actions of the Commission. 08:45 15 If that was a one-time event and not a 08:45 16 string of events over these years, it would be, well, 08:45 17 that's the way it goes. Well, one of the things I 08:45 18 think the Commission didn't realize is that I can be a 08:45 19 pretty determined fellow. And so we continued to 08:45 20 watch the lottery's math. The next series of ads was 08:45 21 about Cash 5. And as you can see on page three, those 08:45 22 ads were found to be incorrect. And they were correct 08:45 23 at the time they were printed, the Commission said 08:46 24 they would make sure that they had an ad that would be 08:46 25 correct. However, almost immediately, because of 08:46 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 9 1 sales trends, those ads were incorrect about the 08:46 2 number of winners. Well, Mr. Littwin said, we will 08:46 3 pull the printed ads because it had no date mentions, 08:46 4 but they wouldn't pull the TV ads, even though the 08:46 5 number of winners was far below the 60,000. 08:46 6 When we did this, I -- it was a summer 08:46 7 school so I didn't have a statistics class at the 08:46 8 time, so my professional organization wrote the 08:46 9 Commission and asked to pull those ads and, of course, 08:46 10 I've told you Mr. Littwin's response. We also, of 08:46 11 course, had a follow-up class -- I had a class in the 08:46 12 fall, and that class wrote the Governor. And we also 08:46 13 sent copies of it -- this information to Lieutenant 08:47 14 Governor Bullock. Notice that in -- on page four, the 08:47 15 Governor's letter from the Governor's office, not from 08:47 16 the Governor, he says, we appreciate your -- the 08:47 17 reason the class wrote, but the Governor has no 08:47 18 authority to intervene in advertising decisions of the 08:47 19 Lottery Commission. I think that's going to be very 08:47 20 important later on as we talk about this. 08:47 21 And, of course, Lieutenant Governor 08:47 22 Bullock was supportive as always. Okay. When this 08:47 23 hit the wire and -- when it was carried in the 08:47 24 Statesman and then when it hit the wire, I got a call 08:47 25 from John Rogers, who was marketing director at the 08:47 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 10 1 time. And he was in Boston, I think, at the NAPSL, he 08:47 2 called me and wanted to come visit with me in my 08:47 3 office. And basically he said -- this is page five. 08:48 4 He said, at the time, we really want to not have this 08:48 5 happen. We really don't want these sorts of things to 08:48 6 happen. And I think he was sort of maybe suggesting 08:48 7 that what could we do, could I help to keep the 08:48 8 advertising to be not off base. But I certainly 08:48 9 couldn't do that. But I did suggest that if my 08:48 10 students could be involved, I would be very happy for 08:48 11 that to happen. 08:48 12 Excuse me. Could I get a little bit of 08:48 13 water here? 08:48 14 CHAIRMAN CLOWE: Sure. 08:48 15 MR. BUSALD: Well, he was amenable to 08:48 16 having the students get involved. The only thing that 08:48 17 he said would be difficult, the only thing I asked him 08:48 18 that he said would be difficult is if maybe somehow 08:48 19 the Lottery Commission would at least recognize the 08:48 20 fact that these students were correct. The only way 08:49 21 we found out that we were correct was we were carboned 08:49 22 a letter to Lieutenant Governor Bullock. The class 08:49 23 was never congratulated, said, well, you know what? 08:49 24 You were right after all. None of these things 08:49 25 happened from this Commission. And Mr. Rogers said, 08:49 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 11 1 well, that's one thing that's going to be kind of 08:49 2 tough to do, just because of politics or whatever. 08:49 3 But he did say that he would be happy to have our 08:49 4 students maybe look over potential advertising 08:49 5 materials, maybe get involved. 08:49 6 Well, unfortunately, Mr. Rogers was 08:49 7 fired at the same time -- or resigned, I don't know 08:49 8 what happened at the same time Mr. Littwin did. The 08:49 9 story in the paper was that he was let go. I don't 08:49 10 know. 08:49 11 Okay. Excuse me. One of the things I 08:49 12 got to do from all this, one of the joys of teaching 08:49 13 is, you get to share in the success of your students. 08:49 14 I did get to talk about all of this at mathematics 08:50 15 conventions around the state and around the nation. 08:50 16 I've talked about this issue at math conventions in 08:50 17 Atlanta, Pittsburg, Baltimore, Flagstaff, Arizona, so 08:50 18 a lot of my colleagues know some of the math issues 08:50 19 with the Texas Lottery. 08:50 20 Well, last fall, fast forward. We're 08:50 21 still watching the lottery. And the proposal came out 08:50 22 for the new 54-ball game, the one that was rejected. 08:50 23 Yes, sir. 08:50 24 CHAIRMAN CLOWE: You're changing 08:50 25 subjects just a little bit now, and I want to make 08:50 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 12 1 sure that I understand what you have covered with us 08:50 2 so far. 08:50 3 MR. BUSALD: Okay. In my mind, the 08:50 4 fact that when something happened, the Commission was 08:50 5 less than responsive to my students. Okay? That's 08:50 6 the main issue that I have. And less than 08:50 7 forthcoming, especially when this next thing happens. 08:50 8 I think you'll see that the Commission was less than 08:51 9 forthright. 08:51 10 CHAIRMAN CLOWE: And was the 08:51 11 advertising for Cash 5, which I think is the subject 08:51 12 you've been on so far -- 08:51 13 MR. BUSALD: Right. That was our 08:51 14 initial thing we were studying in class, yes. 08:51 15 CHAIRMAN CLOWE: And in your opinion, 08:51 16 were the corrections made that you call for -- 08:51 17 MR. BUSALD: Oh, yes. They used the 08:51 18 numbers the students sent to the Commission. They 08:51 19 never acknowledged the students, never did anything 08:51 20 like that, but they did use the numbers the students 08:51 21 sent in that letter, in a TV ad. 08:51 22 CHAIRMAN CLOWE: So it might be 08:51 23 properly summarized that your input was acknowledged 08:51 24 and utilized, but recognition and acknowledgment was 08:51 25 not forthcoming. 08:51 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 13 1 MR. BUSALD: No. And the thing that 08:51 2 was disturbing was the fact that they said, we are not 08:51 3 going to say they're right. That was the only 08:51 4 official response ever of the Lottery Commission. 08:52 5 CHAIRMAN CLOWE: And that came from? 08:52 6 MR. BUSALD: From Mr. Lit -- no. Who? 08:52 7 No. Let me back up. At the time it was Steve Levine 08:52 8 was the Lottery Commission spokesperson at that time 08:52 9 that made that comment. And it's on page one on the 08:52 10 editorial, we're not going to say the students are 08:52 11 right. 08:52 12 CHAIRMAN CLOWE: Not Don Rogers, but -- 08:52 13 MR. BUSALD: No. Mr. Levine was the 08:52 14 spokesperson who did that. Page one on the editorial. 08:52 15 CHAIRMAN CLOWE: Is that a quote from 08:52 16 the Express News? 08:52 17 MR. BUSALD: Yes. Uh-huh. And that is 08:52 18 the editorial from the Express News and they quoted, 08:52 19 of course, their own story. 08:52 20 CHAIRMAN CLOWE: Help me see that 08:52 21 quote, if you will. 08:52 22 MR. BUSALD: On the editorial on the 08:52 23 right. 08:52 24 CHAIRMAN CLOWE: Yes. 08:52 25 MR. BUSALD: Well, actually, at the 08:52 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 14 1 bottom of the first column, but it never admitted 08:52 2 making a mistake. The students just came up with a 08:53 3 different way of finding their figures than we did. 08:53 4 CHAIRMAN CLOWE: Okay. We're not 08:53 5 saying their way is the right way, said lottery 08:53 6 Commission spokesman Steve Levine. 08:53 7 MR. BUSALD: Yes, sir. And I firmly 08:53 8 believe that if Lieutenant Governor Bullock had not 08:53 9 interfered, they never would have. 08:53 10 CHAIRMAN CLOWE: Okay. I just want to 08:53 11 get the history straight. 08:53 12 MR. BUSALD: Yeah. Right. And it's a 08:53 13 long story and I certainly want to make it as brief as 08:53 14 possible to respect your time. 08:53 15 CHAIRMAN CLOWE: That's fine. I just 08:53 16 want to make sure I understand it. 17 MR. BUSALD: I mean, there was a lot 08:53 18 that goes on in that much period of time. I'm leaving 08:53 19 out a lot of letters and newspaper articles and all 08:53 20 the rest. 08:53 21 CHAIRMAN CLOWE: Now, I think I'm up to 08:53 22 date with you and we're ready to go forward. 08:53 23 MR. BUSALD: We're ready to go forward 08:53 24 to the fall of 1999. 08:53 25 CHAIRMAN CLOWE: Very good. 08:53 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 15 1 MR. BUSALD: And that was when the new 08:53 2 game was proposed, not the one that was adopted, but 08:53 3 the one that was proposed last fall that was rejected. 08:54 4 I have a copy on page six of this document of the 08:54 5 website before I appeared and the website after, where 08:54 6 I pointed out the math error. I pointed out the error 08:54 7 at that hearing that is mentioned in the letter. We 08:54 8 expect the number of winners to increase from 08:54 9 approximately 275,000 to over 600,000. Of course, the 08:54 10 next -- actually, later that day, the website was 08:54 11 changed to say, we expect the number of winners at 08:54 12 each drawing to increase significantly. I've circled 08:54 13 both of those. That was done that day. 08:54 14 The math error, as far as it goes, was 08:54 15 fairly significant from an agency that is the numbers 08:54 16 game, because what they were quoting was actually the 08:54 17 number of winning combinations in the two different 08:54 18 versions of the game. And there is certainly a 08:54 19 difference between a winning combination, something 08:55 20 that has at least three numbers match, and a winning 08:55 21 player. But -- so it was done wrong. My problem was 08:55 22 with the press release that was done that day 08:55 23 immediately after my appearance, which I have on page 08:55 24 seven. And it says, the Lottery responds to 08:55 25 conflicting data. 08:55 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 16 1 Once again, what I found was that when 08:55 2 the Lottery Commission responded -- of course, they 08:55 3 don't have the quote exactly right. I circled that on 08:55 4 page seven, because if you refer back to the document 08:55 5 on the previous page, that's not what it said, to as 08:55 6 many as 606,000. It didn't say that at all. And they 08:55 7 said I was right based on actual numbers, but the 08:55 8 Commission was right based on theoretical projections, 08:55 9 which of course, the Commission was not right, even 08:55 10 though this press release said they were. And 08:55 11 eventually -- well, we'll come to that in what 08:56 12 happened eventually. But the problem with the press 08:56 13 releases that I -- that has been my experience is, 08:56 14 that when we have a press release, the immediate thing 08:56 15 is to deny, news -- news coverage interest fades, and 08:56 16 then, oh, we can straighten it out later when it's not 08:56 17 a story. And that's the impression that these 08:56 18 continued incidents have built in my mind. I -- you 08:56 19 know, up until that time, we've always had the thing 08:56 20 about how important the integrity is. But I started 08:56 21 to feel the most important thing to the Commission is 08:56 22 the perception of integrity and whatever it takes to 08:56 23 have a perception of integrity is what will happen. 08:56 24 This is a totally incorrect news 08:56 25 release, but it had its -- maybe its desired effect. 08:56 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 17 1 I don't know. Because what happened, of course, was 08:57 2 when there were stories about this, well, the Lottery 08:57 3 Commission says, this just isn't so. So that's what 08:57 4 the stories run. So you have an effective way of 08:57 5 blunting news coverage by doing press releases that 08:57 6 just aren't quite true. And I just have a copy of a 08:57 7 Houston Chronicle article, I didn't even put the whole 08:57 8 article in there, on page eight of this document, 08:57 9 basically saying that I've pointed out errors, but the 08:57 10 Commission says, mine were based on actual, while the 08:57 11 Commission's were on theoretical projections. Some of 08:57 12 the TV stories in San Antonio, well, the Commission 08:57 13 says they didn't do anything wrong. That's the same 08:57 14 response we got with the initial story. 08:57 15 Fool me once, shame on you -- me. Fool 08:57 16 me twice, shame on you -- well, I got it backwards, 08:57 17 but I haven't had much sleep. You know the gist. 08:57 18 Okay. 08:58 19 There is another article on page nine 08:58 20 that ran in November of 1999 in the San Antonio 08:58 21 Express News, in which -- and, you know, I certainly 08:58 22 don't want to belabor the whole article, but 08:58 23 Ms. Cloud, you did admit at that time that we were 08:58 24 correct, and there was just an error that shouldn't 08:58 25 have happened. But, of course, the press release, in 08:58 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 18 1 my opinion, had the desired effect of making the 08:58 2 stories that covered that not accurate. And, of 08:58 3 course, that whole thing was withdrawn and we went on 08:58 4 to what happened last spring. Now, I'm not going to 08:58 5 talk about that. I know other people can talk at 08:58 6 length about some of the things that -- you've heard 08:58 7 about what happened last spring, but I want to just 08:58 8 fast forward to this semester just a little bit. 08:58 9 We had a news release on page ten of 08:58 10 this document, where when the 40 -- first 40 million 08:59 11 dollar jackpot was done, we showed the accumulated 08:59 12 portion to the six of six winner for Lotto Texas. And 08:59 13 I know the Commission is aware of these numbers. And 08:59 14 if they say somehow I'm doing my math wrong or -- I 08:59 15 would certainly like to hear from them and I will 08:59 16 certainly apologize, because I'm man enough to say I'm 08:59 17 wrong, if I am. But I don't believe they are wrong. 08:59 18 So there was about 18 and a half million, but because 08:59 19 the jackpot was advertised at 40, which was an 08:59 20 optimistic projection, the -- I'm sure -- and I don't 08:59 21 know. You have to answer this or -- but I assume that 08:59 22 this amount was paid from reserves and, of course, 08:59 23 this certainly could have been made into a positive. 08:59 24 Well, we were short, but we're going to honor whatever 09:00 25 we project, even though we don't -- I think you don't 09:00 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 19 1 have to by law, but you choose to honor your 09:00 2 projections. And that certainly could be a positive 09:00 3 rather than a negative. And certainly, someone from 09:00 4 the Commission can correct me if I'm wrong about the 09:00 5 fact that there had to be money out of reserves to pay 09:00 6 this. 09:00 7 The reason this class noticed this was 09:00 8 actually not because of this. We didn't look at this 09:00 9 when it happened. But when the 60 million dollar 09:00 10 jackpot happened, we noticed that reserves and the 09:00 11 people had got a cash value payment of over 34 09:00 12 million. And, of course, 34 million is more than 09:00 13 enough to cover a 60 million dollar jackpot. The 09:00 14 jackpot was actually more than 60 million, if it had 09:00 15 bought an annuity. But I -- in my own mind, I think 09:00 16 the Commission decided not to say that, because then 09:00 17 it would point out, well, what about the last one 09:01 18 where -- I think that it was just an issue that hoped 09:01 19 would fade away. 09:01 20 There was a radio station that did a 09:01 21 story about this, public radio in San Antonio. 09:01 22 Several stations did, but it's obviously not a big 09:01 23 deal. And my comment was, it's really not a big 09:01 24 mistake, it's a bad project projection. But when -- 09:01 25 let me get my piece of paper here, the right one. I 09:01 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 20 1 thought I had all these pieces of paper in the right 09:01 2 place here. And I have a tape of this, but I'm not 09:01 3 set up to play a tape. But Mr. Elkins appeared on the 09:01 4 radio station and -- after the story of what had 09:01 5 happened, and we're not saying take the money away or 09:01 6 anything else, but a rather terse response was that 09:01 7 Doctor Busald and his students didn't catch us at 09:02 8 anything, because there is nothing to catch. 09:02 9 We weren't trying to catch. However, 09:02 10 my students do study the lottery. It's certainly a 09:02 11 good database for mathematics. And this is one of the 09:02 12 things we noticed. We thought it would have local 09:02 13 interest because the winners were from San Antonio. 09:02 14 And if we had done it at the time, if we had been 09:02 15 looking at it at the time of the jackpot, I'm sure it 09:02 16 would have had more interest. If I'm wrong, I'm sure 09:02 17 someone from the Commission will point that out and I 09:02 18 will acknowledge that I'm wrong. But I believe I'm 09:02 19 right on the numbers based on the legislation that was 09:02 20 in place as this jackpot unfolded. 09:02 21 So that's the history of my dealings 09:02 22 with the Lottery Commission. Now, my Commission -- my 09:03 23 students are still studying lottery. They always 09:03 24 will. And we noticed a few things that we think are 09:03 25 very important. One is -- and these are just minor 09:03 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 21 1 little things, but we really wonder if we have to have 09:03 2 advertising that says, making a million is easy if you 09:03 3 know how to play the game. I would really like 09:03 4 everybody to think about that and say, is that what we 09:03 5 need to tell people to get them to buy a lottery 09:03 6 ticket. I think some of the advertising decisions of 09:03 7 the Commission really do need to be reviewed. Now, 09:03 8 that's just my -- one man's opinion. And I am not 09:03 9 anti-lottery. As a matter of fact, I have a Lotto 09:03 10 ticket here. I always buy one Scratch Off, and I'm 09:03 11 sure the Commission's worst nightmare is that I would 09:03 12 win, because then all of this would get publicity and 09:03 13 the students would get the publicity they really 09:03 14 deserved back then when the students had that. 09:04 15 Interesting thing on the thing about 09:04 16 the new Lotto Texas. Inside it says, playing the new 09:04 17 Lotto Texas is easy, and it's still just as easy to 09:04 18 win. Now, we all know what puffery is and what 09:04 19 marketing can do. But as a mathematician, it's really 09:04 20 hard for me to accept things that aren't true. What 09:04 21 we've gone from, of course, basically, is one in 15.9 09:04 22 million to one in 25.8 million. If you just stack up 09:04 23 that many pieces of paper, the original one was seven 09:04 24 Towers of the Americas tall, the new one is 25.8 09:04 25 Towers of the Americas tall. We know it's not easy to 09:04 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 22 1 win. And you can claim, well, people really know we 09:04 2 don't mean it's easy, but should we say that. It's 09:04 3 something only you can decide. Governor Bush has put 09:04 4 that in your hands. 09:04 5 But that's not the real reason I'm here 09:04 6 today. That's just to bring you a history of why do I 09:05 7 care. I care for my students and how the Commission, 09:05 8 in my perception, has treated those students over the 09:05 9 years. Well, we have another class, of course, and 09:05 10 we're looking at other things. And we're looking at 09:05 11 Scratch Off games. One of the things that happened 09:05 12 during the public comment on the new game that 09:05 13 happened last spring, the game that was initiated, in 09:05 14 the Texas Registry, a comment -- one comment was -- 09:05 15 and I don't have the page number of the Registry, but 09:05 16 I'm sure you can find this. One commenter indicated 09:05 17 that when advertising the odds of winning, it is 09:05 18 certainly deceptive advertising, if not an out and out 09:05 19 lie, to call a ticket that sells for a dollar that is 09:05 20 redeemed for a dollar, a winner. The response of the 09:05 21 Commission was, the Commission disagrees with the 09:05 22 comment because there is not a one-dollar prize amount 09:05 23 in the Lotto Texas game, which was the game under 09:06 24 question at that time. The least amount a person can 09:06 25 win is by three of six numbers is a prize for three 09:06 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 23 1 dollars. They certainly avoided the issue with that 09:06 2 comment. 09:06 3 New game coming out, Triple Blackjack. 09:06 4 We decided to look at this game. And I have the 09:06 5 little flyer in there on page 11. And it has the 09:06 6 number of tickets and the number of each -- in each 09:06 7 prize category. Notice it says, overall odds of 09:06 8 winning are one in 3.51, which actually means there 09:06 9 were actually a few more than 20 million tickets 09:06 10 printed. We tried to work that backwards as best we 09:06 11 could, and we worked that out on page 12. Okay? And 09:06 12 we looked at the winning tickets, 21,000 down to three 09:06 13 dollars, and we looked at the two-dollar tickets. The 09:07 14 two-dollar tickets, of course, are not winning 09:07 15 tickets, they're nonlosing tickets. Now, we can all 09:07 16 say that's a matter of speech and perception, but 09:07 17 we'll talk -- I would like to summarize that a little 09:07 18 bit more. Of course, using what we say is a nonlosing 09:07 19 ticket, the probability of winning is only one in 09:07 20 7.29, not one in 3.51. And we had to estimate as best 09:07 21 we could the 20.0136 million to get the one in 3.51 09:07 22 odds. We worked backwards to get that number. 09:07 23 Certainly, we get a lot of good math 09:07 24 examples from the Lottery Commission. 09:07 25 The Lottery Commission so far has 09:07 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 24 1 printed over 12 and a half billion -- or sold over 12 09:07 2 and a half billion lottery tickets with incorrect odds 09:08 3 on them, because they all have the odds of not losing 09:08 4 as opposed to the odds of winning. And if you haven't 09:08 5 played Blackjack, this is Triple Blackjack, if you 09:08 6 have a push with the dealer, you did not win. The IRS 09:08 7 will not tax you on that event. My students, ever 09:08 8 being helpful, said, well, let's look at it another 09:08 9 way. We thought we could help the Commission here. 09:08 10 Page 13. If you would change the game and eliminate 09:08 11 the two-dollar tickets, and take all of the dollars 09:08 12 from the two-dollar tickets and put them into 09:08 13 three-dollar tickets, the probability of winning would 09:08 14 only increase to one in 4.24 versus one in 3.51, and 09:08 15 yet you wouldn't have to have a -- I can't think of 09:08 16 any other word other than lie -- on the ticket. On 09:09 17 the -- now, they don't actually print it on each 09:09 18 ticket. I thought that might be a defense. If you 09:09 19 look at the back of any ticket, it says, the overall 09:09 20 odds. It doesn't say, the overall odds of winning. 09:09 21 However, in all advertisements, it says, the overall 09:09 22 odds of winning. There is no doubt that that's what's 09:09 23 pushed, that these are the odds of winning, not the 09:09 24 odds of not losing, and it's in your advertising 09:09 25 materials, including that previous page. 09:09 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 25 1 To kind of point out the folly of 09:09 2 considering someone who gets a dollar -- who bets a 09:09 3 dollar and gets their dollar back a winner, we 09:09 4 designed the ultimate game for the Lottery Commission. 09:09 5 If you want to make the argument that, well, NAPSL 09:09 6 says that that's a winning ticket, and certainly we 09:09 7 are going to go along with them, we designed a game, 09:09 8 page 14. Here is the maximum "winners" TLC Scratch 09:09 9 Off. Print 20 million tickets, have 13 million of 09:10 10 them give you your two dollars back, the other seven 09:10 11 million, lose. The odds of winning are one in 1.54. 09:10 12 Maximum odds. But according to the Commission, those 09:10 13 are all winners. Of course it's ridiculous. But 09:10 14 sometimes you need the ridiculous to show what is 09:10 15 happening. 09:10 16 The thing I guess I would like to point 09:10 17 out is, and I think my students have done a good job 09:10 18 of this, is that by changing that money into a 09:10 19 winning -- not having push amounts in there, it's 09:10 20 really not that bad in the odds. You go from one in 09:10 21 3.51 to one in 4.24. You just don't have any tickets 09:10 22 that are ties. You pay -- now, I know a part of the 09:10 23 reason, of course, for calling them tickets is, it's 09:11 24 an entertainment event. But I guarantee you, people 09:11 25 who are buying 300 dollars a day worth of Scratch Off 09:11 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 26 1 tickets are not there for entertainment. They don't 09:11 2 get that much joy off of scratching those tickets. 09:11 3 I was going to say, ladies and 09:11 4 gentlemen of the Commission, but gentlemen, and -- or 09:11 5 Ms. Whitaker, if she hears this. I respectfully 09:11 6 submit that lottery is governed -- perhaps government 09:11 7 at its worse, but it's still government. My students 09:11 8 and the people of Texas want our government to be 09:11 9 truthful. That one fact is why Lieutenant Governor 09:11 10 Bullock became our ally when we wrote them. When we 09:11 11 wrote governor Bullock, we said, my students wanted to 09:11 12 know there could be truth in government. You 09:12 13 shouldn't have to lie and/or exaggerate to sell 09:12 14 lottery tickets. The will to make sure that doesn't 09:12 15 happen, that we don't have misleading or lies or 09:12 16 exaggerations, has to come from you the Commissioners. 09:12 17 I urge you to change the sales at any price attitude 09:12 18 of this Commission and stop calling people winners 09:12 19 when even the IRS would not call them winners. 09:12 20 Because Governor Bush has no say over 09:12 21 your advertising decisions, he has put his trust in 09:12 22 you the Commissioners to be sure this agency is 09:12 23 truthful with the people of Texas. I feel confident 09:12 24 that he doesn't want to the numbers game to be the 09:12 25 number one source of fuzzy math in the state of Texas. 09:12 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 27 1 That's all have I to say. If there are 09:12 2 any questions or comments, I would be happy to 09:12 3 respond. 09:13 4 CHAIRMAN CLOWE: Let me refer you to 09:13 5 page 15. 09:13 6 MR. BUSALD: Yes, sir. 09:13 7 CHAIRMAN CLOWE: The last page of the 09:13 8 information. 09:13 9 MR. BUSALD: Right. The summary of 09:13 10 math errors. 09:13 11 CHAIRMAN CLOWE: Would you make any 09:13 12 comment on that generally for us so we could -- 09:13 13 MR. BUSALD: Well, I think the -- my 09:13 14 perception of the problem is that people who know math 09:13 15 don't get to review marketing decisions. The 09:13 16 marketing section -- I'm sure the -- and I was told 09:13 17 this, that the original information was just a 09:13 18 marketing decision that was done. The statistician 09:13 19 didn't look at it, because the statistician would know 09:13 20 that wasn't true. So I think you need a mathematician 09:13 21 to really review but, you know, there needs to be 09:13 22 ethics behind that. And there has to, you know -- I 09:13 23 think this Scratch Off issue should merit national 09:13 24 attention. 09:14 25 Now, I know the number one reason the 09:14 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 28 1 Commission -- the staff is going to give you that they 09:14 2 should continue to do that is, the rest of the kids on 09:14 3 the block, they're doing it too. That's not a good 09:14 4 reason for the people of Texas. We ought to be 09:14 5 telling the truth to the people of Texas and let them 09:14 6 make decisions about whether to play these games. I 09:14 7 know marketing is important, but it should be 09:14 8 truthful. And my students will continue to watch as 09:14 9 best they can to see that it is. But really, it's up 09:14 10 to you. Governor Bush has said, it's up to you to 09:14 11 monitor advertising. And I don't think that staff has 09:14 12 shown due diligence to do that. So I think you as 09:14 13 Commissioners are going to have to monitor that. 09:14 14 CHAIRMAN CLOWE: Very good. Let me 09:14 15 make a couple of comments of items that come to mind, 09:14 16 and I know you would like to hear some responses from 09:14 17 the staff and I'll call on them. 09:15 18 First of all, I want to thank you for 09:15 19 being here today and giving us this historical rundown 09:15 20 and bringing us to the current comments that you have. 09:15 21 I really appreciate the time and effort that you put 09:15 22 into this, and I want to thank you for that. 09:15 23 MR. BUSALD: Well, I do it for my 09:15 24 students. 09:15 25 CHAIRMAN CLOWE: And I appreciate it 09:15 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 29 1 and I know Commissioner Sadberry does, too. 09:15 2 I would like to go back to a point you 09:15 3 made about the importance of integrity versus a 09:15 4 perception of integrity. And I want to make it very 09:15 5 clear to respond to you on that issue, that the 09:15 6 integrity of the operation of the Lottery Commission 09:15 7 is first and foremost in all of our minds. 09:15 8 MR. BUSALD: Well, then we need a more 09:15 9 careful review of press releases and comments. 09:15 10 CHAIRMAN CLOWE: And I understand -- 09:16 11 MR. BUSALD: That's where the real 09:16 12 issue has come up. 09:16 13 CHAIRMAN CLOWE: And I understand 09:16 14 that's your position. But I think it's only fair for 09:16 15 me to reaffirm to you, because I think you've raised 09:16 16 the issue, you know, what is most important. And 09:16 17 integrity and the fairness and the honesty of the 09:16 18 games is most important above everything else. And 09:16 19 that applies to the players and people of Texas, the 09:16 20 leadership, across the board on all fronts. 09:16 21 MR. BUSALD: And you notice I have 09:16 22 never made any question -- had any question about how 09:16 23 the Commission handles money, how that they're doing 09:16 24 things correctly to the players as far as that goes. 09:16 25 I've never questioned financial. It's all 09:16 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 30 1 advertising, basically, decisions. 09:16 2 CHAIRMAN CLOWE: Well, I understand 09:16 3 that, and I want you to understand that that is the 09:16 4 paramount issue in our minds, and we want clarity and 09:17 5 correctness on all of these issues. I really 09:17 6 appreciate the effort that your class has gone to in 09:17 7 this and you as their leader. How many students are 09:17 8 in your class every semester? 09:17 9 MR. BUSALD: Well, it varies from -- 09:17 10 the original class had only 16 students, but that 09:17 11 class learned not only mathematics, they learned a lot 09:17 12 about government, they learned about the media, 09:17 13 certainly. They learned their writing skills. We 09:17 14 drafted letters in class, the students drafted letters 09:17 15 to send to their elected officials. So we did a lot 09:17 16 more than statistics in that class. I actually 09:17 17 thought, well, here is an error, it'll -- it's a neat 09:17 18 thing, but it's over. But because of the Lottery 09:17 19 Commission's response, it became a lot more than it 09:17 20 ever had to be. 09:17 21 CHAIRMAN CLOWE: That's great 09:18 22 experiences. It's more beneficial than some of the 09:18 23 courses I took about learning how the stock market 09:18 24 works, it sounds like to me. 09:18 25 I would like to tell you that at some 09:18 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 31 1 time in the future when it's convenient, I would like 09:18 2 to come down and visit one of your classes. 09:18 3 MR. BUSALD: We would certainly be 09:18 4 happy to invite you, sir. 09:18 5 CHAIRMAN CLOWE: I would like to be 09:18 6 there and sit in and hear the comments of your 09:18 7 students and visit with them about their work. I 09:18 8 think it would be beneficial to me and perhaps I could 09:18 9 better understand, in a more informal environment, 09:18 10 some of the work that you and your students are doing. 09:18 11 MR. BUSALD: Well, the student were 09:18 12 excited when it appeared that Mr. Rogers was going to 09:18 13 make visits to the class but, of course, that never 09:18 14 happened because of the changes that happened within 09:18 15 the Commission. 09:18 16 CHAIRMAN CLOWE: Well, that's sort of a 09:18 17 thing that might happen in the future, and let's get 09:18 18 back to the facts. 09:18 19 MR. BUSALD: Okay. 09:18 20 CHAIRMAN CLOWE: You've covered a lot 09:18 21 of ground here, and I'm not sure that at this point in 09:18 22 time, the staff can respond totally and complete, but 09:19 23 I want to give them the opportunity because, at this 09:19 24 point, we have heard your side. 09:19 25 MR. BUSALD: Absolutely. 09:19 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 32 1 CHAIRMAN CLOWE: And there are always 09:19 2 two sides to every issue. Prior to doing that, I want 09:19 3 to ask Commissioner Sadberry if he has a comment at 09:19 4 this point. 09:19 5 COMMISSIONER SADBERRY: I do, 09:19 6 Mr. Chairman, thank you. I first want to add my 09:19 7 thanks to you. I have followed your involvement and 09:19 8 your students' involvement on this -- these issues by 09:19 9 media reports. Looking through your package, I do see 09:19 10 where copies of the correspondence has been 09:19 11 distributed in general and when even in instances 09:19 12 where it might go -- indicated as going to one -- only 09:19 13 one commissioner, it generally is distributed to all 09:19 14 commissioners by practice of the Commission. So we're 09:20 15 certainly aware of the communication exchange, et 09:20 16 cetera. 09:20 17 I concur that staff should be entitled 09:20 18 to respond. I concur that they should respond now to 09:20 19 the extent they are in a position to do so, as well as 09:20 20 be given the opportunity to study your materials here 09:20 21 and your comments, if they feel the need to do so, to 09:20 22 respond to you even more fully. 09:20 23 I think the point that I would 09:20 24 emphasize, you made reference to some statement about 09:20 25 they didn't catch this because there is nothing to 09:20 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 33 1 catch, or something like that. I think what we as 09:20 2 Commissioners -- and you're correct. If this -- if 09:20 3 this is elevated to a level of ethics issue of the 09:20 4 appearance of the Commission, an issue of us 09:20 5 discharging our functions as appointed officials of 09:20 6 the State, entrusted by our leaders, including the 09:20 7 governor and other leaders, that's on our watch and 09:21 8 that's our charge. And one of the things that this 09:21 9 Commission has a history of and a standing practice is 09:21 10 what you have just observed, that is, the one way to 09:21 11 make certain that I can think of that, if there is a 09:21 12 perception of a problem, or if there is a problem, we 09:21 13 are receptive to the public and we're open to the 09:21 14 public to say, come to us and bring it to us. So I 09:21 15 compliment you that you have selected to do that and 09:21 16 give us the opportunity to have this dialogue. We 09:21 17 have the charge under our statute with respect to 09:21 18 advertising, and we have to strike a balance of 09:21 19 promoting the lottery without unduly influencing the 09:21 20 playing. And I'm sure you're as conversant with all 09:21 21 of that as anyone, given the time you've put into it. 09:21 22 But I hope you see, in the process, our commitment to 09:22 23 serve what were you are talking about, the utmost of 09:22 24 accuracy and truth in our dealings, which would 09:22 25 include advertising and marketing and presentations to 09:22 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 34 1 the press and otherwise. And I think you have become 09:22 2 more effective in bringing it directly to us in 09:22 3 getting our recognition of the issues that are 09:22 4 important to you and, therefore, if it's important to 09:22 5 one citizen in this state, it's important to us. 09:22 6 That's the commitment we all make by serving on this 09:22 7 Commission. So you're right on in that respect. And 09:22 8 I appreciate that you have trusted us enough to come 09:22 9 before us and to believe we will receive you seriously 09:22 10 and what you have to present. 09:22 11 I further concur with Chair that there 09:22 12 are two sides to every story or issue. We learned 09:22 13 that in -- certainly, in my practice, but in all of 09:23 14 our personal and professional endeavors. I think 09:23 15 you've presented your side, if you will, very well, 09:23 16 very effectively. You've obviously put a lot of time 09:23 17 in it. That helps us all. Mr. Chairman, I at this 09:23 18 point would yield back, but, again, saying thank you 09:23 19 for challenging us in this respect on this issue. 09:23 20 MS. KIPLIN: Commissioners, this is a 09:23 21 housekeeping matter. Mr. Busald appeared and I think 09:23 22 we took it up under the public comment item under the 09:23 23 agenda, but in listening to his comments, I think -- 09:23 24 and that's a no action item and it does preclude you 09:23 25 from any sort of broad deliberation unless it fits 09:23 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 35 1 within the narrow exceptions under the Open Meetings 09:23 2 Act. But having said that, I think his comments also 09:23 3 fit within another item on the agenda, which is the 09:23 4 one relating to lottery advertising. So I want -- and 09:23 5 that is an action item, and it does also notice up 09:23 6 discussion. So just as a housekeeping matter, I 09:24 7 wanted to put that out there for y'all to consider. 09:24 8 CHAIRMAN CLOWE: So what you're saying 09:24 9 is, the agenda is broad enough for us to go into this 09:24 10 subject and hear from staff and have the discussion. 09:24 11 MS. KIPLIN: Yes, under the 09:24 12 advertising -- lottery advertising item. 09:24 13 CHAIRMAN CLOWE: Very good. 14 Linda, I am going to call on you first. 09:24 15 You may need some assistance and you may need some 09:24 16 time to properly respond, but to the extent that 09:24 17 you're able to comment and respond to many of the 09:24 18 points that have been covered, I think it would be 09:24 19 beneficial. And then we may need to continue this 09:24 20 discussion at a further meeting. 09:24 21 MS. CLOUD: Thank you, Commissioners, 09:24 22 thank you Doctor Busald. I would like to answer on 09:24 23 two points that Doctor Busald brought before you. One 09:24 24 was on the 40 million dollar jackpot where we did go 09:24 25 into the reserve. Now, the exact amount of money, I 09:25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 36 1 have upstairs, but I don't have it in front of me, and 09:25 2 I can get that before the end of this meeting. We 09:25 3 estimated that jackpot -- did the forecasting on the 09:25 4 40 million dollar jackpot based on not having any 09:25 5 history for the new game, but having gone back two or 09:25 6 three years prior, I forget what, to try to estimate 09:25 7 what sales would be. That's what we have to do with 09:25 8 the forecasting is try to project what sales would 09:25 9 come in at. We missed it. And when we miss a jackpot 09:25 10 like that, we do go into the reserve. We do pay and 09:25 11 have paid since I've been in this job, the estimated 09:25 12 jackpot. We don't want false advertising from that 09:25 13 point, so we do come out of our reserve. We did get 09:25 14 hit on that reserve pretty hard because we missed the 09:25 15 forecast. 09:25 16 On the 60 million dollar jackpot, the 09:25 17 sales were greater than the 60 million, which we would 09:25 18 have paid out higher than the 60 million. We paid out 09:26 19 close to 64 million. So the winners did receive more 09:26 20 than the advertised amount, but our statute says that 09:26 21 we pay 50 percent of sales -- or 55 percent of sales, 09:26 22 toward the jackpot -- toward the prize pool. So, yes, 09:26 23 we did, Doctor Busald, and that was not a mistake. 09:26 24 That is something we -- that is why we have the 09:26 25 reserve. We made an error in the forecasting, but 09:26 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 37 1 we -- that's why you have the reserve, so you are able 09:26 2 to pay the amount of the estimate. 09:26 3 MR. BUSALD: Right. And may I reply? 09:26 4 MS. CLOUD: Yes. 09:26 5 MR. BUSALD: Yes. We did not say that 09:26 6 you did anything incorrect. As a matter of fact, as I 09:26 7 said, it was commendable you paid. Because by 09:26 8 statute, you didn't have to pay, I believe. That's 09:26 9 just my perception as I read the statutes. And it was 09:26 10 just a forecasting error. And in the story, all we 09:26 11 said was, there was a forecasting error and the people 09:27 12 of San Antonio, that group, was luckier than they 09:27 13 thought they were. That's all we said. 09:27 14 MS. CLOUD: Well, we don't do that very 09:27 15 often. 09:27 16 MR. BUSALD: Right. No, I know. 09:27 17 Except on low jackpots, and that's a decision for you. 09:27 18 I'm not challenging that. The main problem was with 09:27 19 the response, which I have the tape of the response 09:27 20 that was given, which sounds, well, those kids don't 09:27 21 know what they're doing again. And, you know, that's 09:27 22 the real difficulty, is every time my students do 09:27 23 something, we seem to get slammed. 09:27 24 CHAIRMAN CLOWE: And that response, if 09:27 25 I understood you correctly, was one made by Keith 09:27 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 38 1 Elkins on a radio show -- 09:27 2 MR. BUSALD: Yes. 09:27 3 CHAIRMAN CLOWE: -- in San Antonio. 09:27 4 MR. BUSALD: Correct. And I have the 09:27 5 tape of that and I'll be happy to supply that to you. 09:27 6 MS. KIPLIN: If I could, Mr. Busald, 09:27 7 I've got a court reporter who is reporting the 09:27 8 meeting. She can only pick up one voice at a time, so 09:27 9 if you would allow the Chairman to finish his 09:27 10 comments, and then I'm sure there will be no problem 09:27 11 in speaking. And likewise, with all other folks, we 09:28 12 will get a clean record. Thank you, sir. 09:28 13 CHAIRMAN CLOWE: And I just wanted to 09:28 14 make sure I understood your response. 09:28 15 MS. CLOUD: The second point that I 09:28 16 would be happy to address without going back and 09:28 17 looking at our paperwork would be the fact that Doctor 09:28 18 Busald looks at -- or his class looks at our 09:28 19 advertising of an Instant Ticket game that would pay 09:28 20 back what the player invested in the game as not being 09:28 21 a winning ticket. This is the first time in 13 years 09:28 22 I've ever heard this side of that story. It -- in my 09:28 23 opinion, and in the industry standard, it's better to 09:28 24 give the player his money back than have it be a 09:28 25 nonwinning ticket. And that allows us to put prizes 09:28 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 39 1 at the lower levels, and if you give a player back, 09:28 2 I'm sure 99 percent of the players in Texas had much 09:28 3 rather get their two dollars back than to get zero. 09:28 4 However, we can look at our game plan and we can start 09:28 5 changing that. There is nothing in the game plans 09:29 6 that say that we have to do that. So we could change 09:29 7 that to make it be a higher payout than the minimum 09:29 8 game, and we are doing that with our Christmas ticket. 09:29 9 The -- the minimum prize is greater than the 09:29 10 investment. So -- or is -- maybe I'm wrong. I need 09:29 11 to bring Toni up because she's more familiar with the 09:29 12 Instant Ticket game plans and how we do our game 09:29 13 structures. 09:29 14 CHAIRMAN CLOWE: Let's hear from Toni 09:29 15 Smith on that, if you can help us, Toni. 09:29 16 MS. SMITH: For the record, I'm Toni 09:29 17 Smith, marketing director of the Texas Lottery 09:29 18 Commission. 09:29 19 CHAIRMAN CLOWE: Check that microphone 09:29 20 and see if it's on, please. 09:29 21 MS. SMITH: For the record, I'm Toni 09:30 22 Smith, marketing director of the Texas Lottery 09:30 23 Commission. One, for clarification, to make sure that 09:30 24 Ms. Cloud and I are on the right track with Doctor 09:30 25 Busald's comment. The comment was made that suggested 09:30 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 40 1 we change the games to two-dollar tickets being 09:30 2 three-dollar tickets. I assume you meant prizes. 09:30 3 Right? 09:30 4 MR. BUSALD: Right. 09:30 5 MS. SMITH: Meaning that the lowest 09:30 6 winnable prize level not be the same as the price 09:30 7 point that the ticket would pay for the ticket. 09:30 8 MR. BUSALD: Then you could call it a 09:30 9 winner. 09:30 10 MS. SMITH: Right. I agree with Linda, 09:30 11 we do that, that is an industry standard. There are 09:30 12 other jurisdictions who actually offer a free ticket 09:30 13 and not even anything with a cash value other than the 09:30 14 fact that it's a ticket, and they also factor that 09:30 15 into their odds of winning something. We've opted not 09:30 16 to do that in Texas because we would agree with Doctor 17 Busald in that case that that's, you know, maybe not 09:30 18 winning a prize, you're given another ticket. So some 09:31 19 states even take that even further with the games that 09:31 20 they offer. We do a lot of research with our players 09:31 21 with regard to winning experiences and what they feel 09:31 22 like is a winning experience, and we have never really 09:31 23 had anybody say to us, we don't want to be able to get 09:31 24 that even dollar back for what we invest. If that was 09:31 25 something that was brought to our attention by our 09:31 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 41 1 players, obviously we would take heed to that and make 09:31 2 those kind of changes, but it's not. So it's not been 09:31 3 an issue, like Linda said, that's been brought to our 09:31 4 attention by our players or anyone else. And I think 09:31 5 they are very vocal about what they want, or they 09:31 6 would show that in their spending, and we have not 09:31 7 seen that. 09:31 8 I, like Chair Clowe, I would love to 09:31 9 come to San Antonio and speak to your students. I 09:31 10 have been invited and have spoken at the University of 09:31 11 Houston to some of their students about the lottery, 09:31 12 and I would love to visit your students and -- 09:31 13 particularly to explain the prize structures and prize 09:31 14 tables with regard to the instant tickets. I would 09:31 15 enjoy doing that. 09:31 16 And also, for the record, I just want 09:32 17 to say that we do retain an independent statistician 09:32 18 that does review, particularly on the on-line side, 09:32 19 all of our numbers. It's not something that we just 09:32 20 make up. We do have independent guidance with regard 09:32 21 to the numbers and our matrices. 09:32 22 COMMISSIONER SADBERRY: Toni, is that 09:32 23 on staff or is that outside? 09:32 24 MS. SMITH: Outside. He's independent. 09:32 25 It's Doctor Randy Eubanks, and he has spoken before 09:32 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 42 1 the Commission with regard to some of the Lotto 09:32 2 changes. 09:32 3 COMMISSIONER SADBERRY: I have a couple 09:32 4 of questions, if I may, Mr. Chairman. 09:32 5 CHAIRMAN CLOWE: Sure. 09:32 6 COMMISSIONER SADBERRY: First, is the 09:32 7 winning versus not losing distinction, is that on the 09:32 8 one dollar or two dollar -- 09:32 9 MS. SMITH: That would apply to any 09:32 10 Scratch Off -- 09:32 11 COMMISSIONER SADBERRY: So that we know 09:32 12 what we're talking about. 09:32 13 MS. SMITH: Right. It would apply to 09:32 14 all Scratch Off tickets. 09:32 15 COMMISSIONER SADBERRY: And before this 09:32 16 presentation today, were you and your staff aware of 09:32 17 this level of concern -- 09:32 18 MS. SMITH: No, sir. 09:32 19 COMMISSIONER SADBERRY: -- about the 09:32 20 communications, the interactions, the history? I know 09:32 21 you know about the history, clearly, but I mean, were 09:32 22 you aware that there was this level of concern now 09:33 23 with the San Antonio College and the students? 09:33 24 MS. SMITH: Not with regard to the 09:33 25 Scratch Off tickets at all. 09:33 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 43 1 COMMISSIONER SADBERRY: So that at 09:33 2 least has been helpful to you to know that? 09:33 3 MS. SMITH: Yes, sir. 09:33 4 COMMISSIONER SADBERRY: That this 09:33 5 concern is there? And you feel that there is at least 09:33 6 something there to talk about, possibly. Whether you 09:33 7 make any changes or not, there is at least some merit 09:33 8 in looking into it? 09:33 9 MS. SMITH: I would like to visit with 09:33 10 them, yes. 09:33 11 CHAIRMAN CLOWE: Anything else, Linda, 09:33 12 that you would like to comment on extemporaneously? 09:33 13 MS. CLOUD: I don't think so. I would 09:33 14 like to go back through this document, and anything we 09:33 15 haven't discussed, if you would like for Keith to come 09:33 16 up and talk about his news release, I'm sure he would 09:33 17 be glad to do that. 09:33 18 CHAIRMAN CLOWE: I don't think so at 09:33 19 this time. I would like to defer that until our next 09:33 20 meeting. 09:34 21 Could you come back -- 09:34 22 MR. BUSALD: Yes, sir. 09:34 23 CHAIRMAN CLOWE: -- Doctor Busald, and 09:34 24 at our next meeting next month, that date hasn't been 09:34 25 set, I would like to ask this. First of all, before 09:34 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 44 1 we adjourn this meeting, I would like to have the 09:34 2 exact number of the missed jackpot that you referred 09:34 3 to that you have available but it's not here. And -- 09:34 4 just since that is available and have it on the record 09:34 5 today. 09:34 6 MS. CLOUD: Right. 09:34 7 CHAIRMAN CLOWE: Then I would like for 09:34 8 you to give time to a thoughtful response to the 09:34 9 thoughtful document that we have here from Doctor 09:34 10 Busald. Then I would like to say this in a general 09:34 11 sense. My view is, the work that you're doing and the 09:34 12 work that your class is doing is a very beneficial 09:34 13 thing. And I sense -- maybe the right word isn't some 09:34 14 adversarial aspect to it, but I would like to do away 09:34 15 with that if that exists. 09:35 16 MR. BUSALD: I certainly would, too. 09:35 17 CHAIRMAN CLOWE: I'm going to be asking 09:35 18 the staff to give some thought to how we can establish 09:35 19 a better liaison with you and the work that you're 09:35 20 doing, and maybe appoint an individual from within the 09:35 21 Commission here to be the communicator and deal with 09:35 22 the issues that your class brings to this Commission's 09:35 23 attention. Now, I want to be correct in defining 09:35 24 this. This is a State agency that operates under a 09:35 25 charter from the legislature. It has rules and must 09:35 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 45 1 comply with the law. As I see it, you have a world in 09:35 2 the -- the world of the academician, and you're 09:35 3 studying, and you maybe have some opinions or some 09:35 4 views that must have some weight and then, in the 09:36 5 translation of that information, may be accepted at 09:36 6 some value or have to be rejected because of some 09:36 7 value. You understand the advisory nature, let's say? 09:36 8 MR. BUSALD: Certainly. 09:36 9 CHAIRMAN CLOWE: But I think that you 09:36 10 have a great deal of benefit in the work that you're 09:36 11 doing. And in my business experience, I have been 09:36 12 delighted to have groups such as yours who would 09:36 13 advise me on my product, whether it was a tangible or 09:36 14 an intangible product, because I think that if you 09:36 15 listen to the market, you're better armed to deal with 09:36 16 the market. So I'm very positive about wanting better 09:36 17 communication. 09:36 18 One other thought that comes to mind is 09:36 19 about the advertising. And I've only been on the 09:36 20 Commission, gosh, it'll almost be two years here. But 09:36 21 that is the thing that I've been very interested in, 09:37 22 on how the Commission advertises the Games of Texas. 09:37 23 And there are some very strong schools of thought 09:37 24 about that on one end of the scale and on the other 09:37 25 end of the scale. And I want you to know that I want 09:37 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 46 1 to see, as I know Commissioner Sadberry and Whitaker 09:37 2 want, truth in advertising. And we're monitoring that 09:37 3 and hoping that we come right down the middle ground 09:37 4 and do the right thing in that area. That is probably 09:37 5 one of the most difficult areas to work in and strike 09:37 6 a proper balance. So I appreciate your comments about 09:37 7 that part of the study that you've done very much. 09:37 8 I would like to say again that I'm 09:37 9 really serious about -- eager -- being eager to come 09:37 10 to San Antonio, not probably until we have this next 09:38 11 meeting and get some of these issues resolved, but at 09:38 12 some point in time in the future, I really would like 09:38 13 to come and hear your comments through your students 09:38 14 on the work that they're doing. I think it would be 09:38 15 beneficial. And I thank you again for being here. 09:38 16 MR. BUSALD: Well, thank you. I would 09:38 17 like to make one correction for the record. Former 09:38 18 Lieutenant Governor Bullock bestowed on me a Ph.D. in 09:38 19 his letter to me. And so, really, I am not a Ph.D., I 09:38 20 am a full professor, so I am just Mr. Busald or 09:38 21 Professor Busald. And, believe me, the State does not 09:38 22 pay me for a Ph.D. And so that's for the record. And 09:38 23 certainly, I would have never chosen an adversarial 09:38 24 relationship, and it just seems like that's the way 09:38 25 things developed from the first story. And to this 09:38 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 47 1 date, nothing ever positive has come from the 09:39 2 Commission. So -- but this -- it certainly sounds 09:39 3 very positive to me and we'll be thrilled to have you. 09:39 4 CHAIRMAN CLOWE: I think today maybe 09:39 5 we've made the first step in a more positive 09:39 6 direction. 09:39 7 MR. BUSALD: One other thing, 09:39 8 Commissioner, I do have the tape of the radio thing if 09:39 9 you want to hear it, if you want to not hear it on the 09:39 10 record. This was the little story that ran on public 09:39 11 radio and the response. 09:39 12 CHAIRMAN CLOWE: I would really like to 09:39 13 not take the time. I think we've aired the subject 09:39 14 fully at this point, but if you could leave us a copy 09:39 15 of it. We can take that, can't we, Kim? 09:39 16 MS. KIPLIN: Sure. 09:39 17 CHAIRMAN CLOWE: And the Commissioners 09:39 18 can't listen to it as a group, but we can listen to it 09:39 19 individually. 09:39 20 MR. BUSALD: Okay. 09:39 21 CHAIRMAN CLOWE: And then I think next 09:39 22 month when we set our meeting, I'm almost certain that 09:39 23 Commissioner Whitaker will be here and she might have 09:39 24 some questions and comments as well. 09:39 25 MR. BUSALD: Thank you very much for 09:40 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 48 1 your time and consideration. 09:40 2 CHAIRMAN CLOWE: Thank you very much. 09:40 3 I believe I have another appearance 09:40 4 form that's come to me, Ms. Dawn Nettles. 09:40 5 Ms. Nettles, did you wish to make a 09:40 6 comment to the Commission at this time? 09:40 7 MS. NETTLES: Yes, sir. 09:40 8 CHAIRMAN CLOWE: Would you come 09:40 9 forward, please. 09:40 10 MS. NETTLES: Good morning. My name is 09:40 11 Dawn Nettles. I'm the publisher of the Lotto Report 09:40 12 and I'm from Dallas. And I just have a couple of 09:40 13 things that I want to cover. I won't take very long 09:40 14 today. But I did want to tell y'all first that I did 09:40 15 bring you a prize. I brought you copies of my 09:41 16 magazines that I've done in the years past where I'm 09:41 17 better known, rather than y'all just thinking that I'm 09:41 18 with the Lotto Report. There is a big difference. So 09:41 19 I did want y'all to have that. 09:41 20 And also, I have copies that I want to 09:41 21 give you all of some documents that I am going to 09:41 22 cover, but I ran out of time and I did not get to make 09:41 23 copies. So I would like permission after I go over 09:41 24 these couple of things with you to go and make copies 09:41 25 and return them to the court reporter. Is that okay? 09:41 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 49 1 CHAIRMAN CLOWE: Certainly. 09:41 2 MS. NETTLES: Okay. Commissioners, 09:41 3 I've got a couple of problems and I'm really hoping 09:42 4 that you all will help me. I have been publishing the 09:42 5 Lotto Report since 1993. And since 1993, I have had a 09:42 6 tremendous relationship with the Commission until 09:42 7 recently. Okay? I have not been at odds with you all 09:42 8 or anything. I mean, everybody here has always been 09:42 9 very, very helpful, and I've not ever had any 09:42 10 problems. 09:42 11 On -- I don't need glasses and I can 09:42 12 get bifocals, and so I can't see far away and I can't 09:42 13 read with them on, so I can't see y'all's faces. 09:42 14 Anyway, on July the 11th, this past 09:42 15 year, I received a fax from Keith Elkins. And this 09:42 16 fax read, effective immediately, all Lottery 09:42 17 information you have previously been receiving from 09:43 18 the Texas Lottery Commission Communications Division 09:43 19 is being suspended. The Communications Division 09:43 20 provides information directly to news organizations 09:43 21 that fit the following criteria: Active members of a 09:43 22 statewide press association, or broadcasters 09:43 23 association, and/or currently listed in the 2000 Texas 09:43 24 Media Directory, and subscribe to the professional 09:43 25 code of ethics of the Society for Professional 09:43 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 50 1 Journalists. If you would like to continue receiving 09:43 2 lottery information, you may submit your request to 09:43 3 Ms. Lucy Cantu, open records coordinator of the Texas 09:43 4 Lottery Commission. Ms. Cantu's direct phone number 09:43 5 is (512) 344-5420. 09:43 6 The morning that I received this, I 09:43 7 did -- I felt like I was just kind of -- I'm a thorn, 09:44 8 so I figured this was just another little thing that 09:44 9 the Commission was doing to try to make things hard 09:44 10 for me. The faxes -- first of all, let me clarify the 09:44 11 faxes. The faxes that I received, I have received 09:44 12 these faxes since 1993. The faxes that I received are 09:44 13 the drawing results every night, every press release 09:44 14 that the Commission puts out, and the pay outs every 09:44 15 morning. Okay? I post the drawing results every 09:44 16 evening by usually a couple of minutes after 10:00. I 09:44 17 used to think I was the first one up on the Internet, 09:44 18 but now I've learned I'm not, I'm usually second. And 09:44 19 it's not the Commission beats me, but at any rate... 09:44 20 I depend on that information at night, 09:44 21 because as I know you all have heard, you cannot get 09:44 22 the drawing results. The people of Texas complain 09:44 23 constantly about not being able to get drawing 09:44 24 results. Well, I am an outlet who puts them out, 09:45 25 every day, seven days a week or six days a week. 09:45 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 51 1 Every morning with my fax, I would immediately post on 09:45 2 my Internet who sold the winning tickets. People 09:45 3 count on me for that. Okay? So -- and then when I 09:45 4 would get the press releases, usually as standard 09:45 5 procedure, I would get a press release about the 09:45 6 winner being here collecting or a game promotion or 09:45 7 whatever, and I would have it on my Internet 09:45 8 immediately. Okay? I would have it up fast. Okay? 09:45 9 Well, when I got this fax from Keith, I 09:45 10 did two things. First of all, I contacted the Texas 09:45 11 Media Directory. Right now I forgot the gentleman's 09:45 12 name that owns it. He's very familiar with my work in 09:45 13 my magazines. Okay? Because I go back to 1979 with 09:45 14 these, 1977, I believe. Okay? He knew exactly who I 09:45 15 was. He was thrilled to finally have an outlet for 09:46 16 his directory that was lottery related. He had told 09:46 17 me -- and I got this on July 11th. The July edition 09:46 18 had already been published, so needless to say, I 09:46 19 could not be in that. But he assured me that the next 09:46 20 one would be out in October and I should -- and I 09:46 21 would be listed in it. I have called him three times 09:46 22 and I have confirmed three more times since that day 09:46 23 that I was to be listed in the October directory. 09:46 24 Okay? 09:46 25 Then, strangely enough, at the time I 09:46 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 52 1 received this, I had already filled out an application 09:46 2 for the Society of Professional Journalists. I did 09:46 3 that for another project I'm working on. So I knew I 09:46 4 qualified. I called Keith. I left a message for him, 09:46 5 told him that I would -- that I qualified, so don't 09:46 6 cut me off. I really didn't think anything about it, 09:46 7 because I just thought this was the criterion and I 09:46 8 knew I met it, so I didn't worry about it. 09:47 9 Well, he -- we ended up talking the 09:47 10 next day and he said that as soon as I had proof, that 09:47 11 he would reconsider. Okay? So it was about three 09:47 12 days later -- well, it was three days later and my 09:47 13 faxes stopped coming. Okay? It was roughly a week 09:47 14 later before I -- these -- the Society of Professional 09:47 15 Journalism had moved and so there was a little bit of 09:47 16 delay for me getting my proof of membership. And, of 09:47 17 course, I couldn't have the directory because it won't 09:47 18 be published until this month now. So anyway, to 09:47 19 make -- to cut through all this stuff, the bottom line 09:47 20 is, when I got proof, which was within a week. Okay? 09:47 21 I e-mailed it to Keith. I did not hear back from him. 09:47 22 So then I called and left several messages, and he 09:48 23 finally called me back at 4:45 on a Friday afternoon. 09:48 24 And I was surprised to hear from him because I had 09:48 25 been told earlier that day that he would not be back 09:48 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 53 1 in the office until Monday. And he left a message on 09:48 2 my recorder, which I would like to play for you all. 09:48 3 Okay? It's his message that he has left. The bottom 09:48 4 line is, on this message is, even though I am a member 09:48 5 of the Society for Professional Journalists and even 09:48 6 though I'm going to be listed in the 2000 directory, 09:48 7 he would not restore my faxes. When I heard his 09:48 8 message, I was angry, but then he was, too. So as 09:48 9 soon as I heard this tape, I called him and we did 09:48 10 speak. And we both were -- we both hollered at each 09:48 11 other. Okay? When I hung up, it took me a while to 09:48 12 calm down, and that's when I decided, no more 09:49 13 discussions, I will simply put it in writing. I will 09:49 14 turn this around and be professional. So I want to 09:49 15 play that this for you, though, so that you can 09:49 16 understand. 09:49 17 CHAIRMAN CLOWE: Just a minute before 09:49 18 you do that. 09:49 19 Counselor, where are we on this issue? 09:49 20 MS. KIPLIN: So far I'm hearing public 09:49 21 comment and I'm not hearing anything more. It doesn't 09:49 22 fit within the advertisement -- the advertising. 09:49 23 CHAIRMAN CLOWE: So we're within 09:49 24 bounds? 09:49 25 MS. KIPLIN: Yeah. You can listen to 09:49 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 54 1 her comment, and if I can think of an item that it 09:49 2 would fit into where you all are in a position of 09:49 3 deliberating. 09:49 4 CHAIRMAN CLOWE: And Ms. Nettles, in 09:49 5 the interest of time -- 09:49 6 MS. NETTLES: This is only two minutes. 09:49 7 CHAIRMAN CLOWE: Okay. 8 MS. NETTLES: The tape is. Okay? But 09:49 9 I really think it's important that you all hear this. 09:49 10 CHAIRMAN CLOWE: That's fine. I want 09:49 11 to be respectful of everyone's time who has come here. 09:49 12 MS. NETTLES: I understand. 09:49 13 MS. KIPLIN: Well, and I'm also trying 09:49 14 to figure out how we're going to be able to get it 09:50 15 picked up on the record. 09:50 16 MS. NETTLES: She'll hear it. It'll be 17 real loud. 18 MS. KIPLIN: Well, I've got microphones 09:50 19 that are recording on audio back there. Ridgely, can 09:50 20 you see if we can't -- yeah. 09:50 21 MS. NETTLES: Okay. 09:50 22 "Dawn, Keith Elkins with the Texas 09:50 23 Lottery. Sorry I haven't been able to return your 09:50 24 call up to now. I've been out of the office at some 09:50 25 training with the executive staff the last couple of 09:50 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 55 1 days. I did get briefing from Howard Shapiro, who 09:50 2 hold me that you had called, felt that you had 09:50 3 qualified for getting fax information from the 09:50 4 Communications Division. He explained to me, as I 09:50 5 understood it, that you had become a member of the 09:50 6 Texas Media Directory, although it has not been 09:50 7 recorded in the 2000 version. And, you know, that's 09:50 8 interesting. But, again, I recommend that you go back 09:50 9 to the original policy that we have provided to you to 09:51 10 qualify for information directly from us to be 09:51 11 considered a member of the media. And I do not think 09:51 12 that you qualify, even as member of the 2001 media 09:51 13 directory, because the information that you put out, 09:51 14 both on your website and in your Lotto reports, does 09:51 15 not fit the criteria of subscribing to the ethics of 09:51 16 the Society of Professional Journalists. I really 09:51 17 don't want to get into a debate with you about that, 09:51 18 but suffice it to say that I think that you have gone 09:51 19 beyond the role of collecting information, trying to 09:51 20 provide answers to somebody, and it seems to me, in 09:51 21 what I have seen and read, that you have taken on more 09:51 22 of an advocate role, either for or against the 09:51 23 Commission, or you have taken on a lobbyist role to 09:51 24 prevent or accomplish something at the Commission, 09:52 25 which certainly goes beyond any written definition of 09:52 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 56 1 journalism that I have ever seen. 09:52 2 "You are free to protest my decision 09:52 3 any way you can, but again, I want to make sure that 09:52 4 we're clear. Our efforts here are not to prevent you 09:52 5 in any way from getting the information that you wish 09:52 6 to have or --" 09:52 7 MS. NETTLES: He got cut off. 09:52 8 COMMISSIONER SADBERRY: Can we have a 09:52 9 copy of that tape put in the record as well? 09:52 10 MS. KIPLIN: It's the same as 09:52 11 Mr. Busald's. If Ms. Nettles is willing to consent to 09:52 12 provide it, then that would be -- 09:52 13 MS. NETTLES: And, unfortunately, I 09:52 14 don't have a copy of that. I can make one or if I can 09:52 15 get assistance, I can. But you see, I have some other 09:52 16 things on that tape, too. So that's not the only 09:52 17 thing on there, so... 09:52 18 COMMISSIONER SADBERRY: But I guess 09:52 19 Commissioner Whitaker can hear it, both the contents, 09:52 20 by virtue of the transcript that's being made. 09:52 21 MS. KIPLIN: As long as we got a -- 09:53 22 COMMISSIONER SADBERRY: It got picked 09:53 23 up. 09:53 24 MS. KIPLIN: Yes, sir. 25 COMMISSIONER SADBERRY: I think that 09:53 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 57 1 takes care of my concern that there be an 09:53 2 opportunity -- 09:53 3 MS. NETTLES: It's also on my website. 09:53 4 I have just put it on my website. Okay? I think you 09:53 5 gentlemen could hear that he found it interesting that 09:53 6 I would be listed in the 2000 directory. And I think 09:53 7 you can also hear that he does not feel as though I 09:53 8 subscribe to the professional journalism. He doesn't 09:53 9 think that I am a good journalist, whatever. Okay. 09:53 10 At any rate, I have in writing from him what the 09:53 11 criteria is, and he is making a judgmental call that I 09:53 12 don't feel is right. 09:53 13 After I did that and after I wrote his 09:53 14 letter, I then made a number of calls to get the 09:53 15 definition of what a news organization is. The legal 09:53 16 definition of a news organization. And the legal 09:54 17 definition of a news organization is any person who 09:54 18 gathers information and disseminates it to the general 09:54 19 public. And gentlemen, I have done that for 25 years. 09:54 20 I devote 100 percent of my time to the Texas Lottery 09:54 21 and report on nothing but that. And these faxes -- 09:54 22 press releases and the faxes and the drawing results, 09:54 23 are facts. I don't distort them. They are facts. I 09:54 24 need them. I put them out, I have people who count on 09:54 25 me for that information. 09:54 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 58 1 Okay. I wrote him a letter. 09:54 2 COMMISSIONER SADBERRY: If I may add, 09:54 3 and I apologize for the interruption. 4 Mr. Chairman, may I ask a question of 09:54 5 counsel? 09:54 6 CHAIRMAN CLOWE: Sure. 7 COMMISSIONER SADBERRY: Ms. Nettles, 09:54 8 and I want to say to everybody, Mr. Chairman, we 09:54 9 certainly want to hear you and I want you to feel 09:54 10 welcome and to be heard. 11 I'm raising a point, Counsel. Part of 09:54 12 the tape included Mr. Elkins' comments concerning 09:55 13 Ms. Nettles' right to protest his decision. And I am 09:55 14 just wanting to make certain of whether or not we are 09:55 15 hearing a protest in some administrative or legal 09:55 16 contest or are we just hearing comments about 09:55 17 Ms. Nettles' views and observations as opposed to a 09:55 18 protest? 09:55 19 MS. KIPLIN: I am not aware of any sort 09:55 20 of statutory or regulatory process in which somebody 09:55 21 who would be situated as Ms. Nettles can protest to 09:55 22 the Commission. Certainly, there would be a review of 09:55 23 a decision that would be made by the executive 09:55 24 director's subordinate, and then, I guess, under the 09:55 25 public comment, unless there was an item that was 09:55 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 59 1 specifically noticed, the executive director's 09:55 2 decision, if somebody were to complain about it, you 09:55 3 all, if you wish, could review that from a 09:55 4 policy-making type body. But there is no -- there is 09:55 5 no statutory or regulatory process involved. You 09:55 6 know, and I'm thinking due process, I'm thinking, you 09:56 7 know, issues like that. From what I can -- what I 09:56 8 understand is, Ms. Nettles is not being denied access 09:56 9 to public information by this agency, you know, a 09:56 10 State agency. It -- it is simply, she is being 09:56 11 directed to the open records coordinator, and to 09:56 12 submit, consistent with the Open Records Act, or 09:56 13 Public Information Act as it's now called, a request 09:56 14 for information, from that -- from a different part 09:56 15 within the agency. And it's my understanding that 09:56 16 that is what she is dissatisfied about, is having to 09:56 17 go through the open records request process rather 09:56 18 than being provided from the communications 09:56 19 department. 09:56 20 COMMISSIONER SADBERRY: And I don't 09:56 21 mean to be technical at all, Ms. Nettles, but as you 09:56 22 know, we deal within a framework of what we are here 09:56 23 to do. And I just wanted to make sure from a legal 09:56 24 and administrative standpoint what we, in fact, are 09:57 25 doing here. And I want to hear your comments, 09:57 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 60 1 certainly, but I wanted to make sure in what context 09:57 2 we're hearing them. Because, you know, that gets into 09:57 3 issues of whether people have notice of your 09:57 4 complaint, whether there is rebuttal, and other issues 09:57 5 that might be called upon. 09:57 6 Thank you, Mr. Chairman, I just wanted 09:57 7 to clear that up. 09:57 8 MS. NETTLES: In response to all of 09:57 9 that, I am here today hoping that you will help, or 09:57 10 hoping that Linda Cloud will reinstate me. Okay? I'm 09:57 11 coming here first before moving forward on this. And 09:57 12 Kimberly has it correct. I am asking to be treated 09:57 13 like all other media, and all other media receives 09:57 14 these faxes. Okay? I am being denied these faxes 09:57 15 because Keith Elkins says that I do not subscribe to 09:57 16 the code of ethics in my reporting. That's what the 09:57 17 tape says, that's what he told me verbally, that's 09:57 18 what this entire issue is about. He is failing to 09:57 19 recognize me as a news organization, and that's what 09:58 20 I'm asking you all to change. Okay? 09:58 21 I have -- I -- to get on with my story, 09:58 22 because I really don't have much to cover with you 09:58 23 today. But to get on with my story. After I heard 09:58 24 this message, I was angry, to say the least. I called 09:58 25 Keith. He was angry, I was angry, we were both angry. 09:58 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 61 1 We were both unprofessional. Okay? And so I halted 09:58 2 and I said, no, we're going to get to some writing. 09:58 3 Because what he told me verbally, I knew he really 09:58 4 couldn't say. Okay? I knew he really couldn't do it. 09:58 5 I knew he was discriminating against me, and there was 09:58 6 no doubt in my mind as to where I stood on that issue, 09:58 7 because I was and am a news organization. And if I 09:58 8 don't get the faxes and I'm requesting them from the 09:58 9 Commission, and the Commission sends them out to news 09:58 10 organizations and I am one, then either you don't send 09:58 11 out any or you include me. Okay? And they are 09:58 12 discriminating on that particular issue. 09:59 13 At any rate, I halted, I sent Keith a 09:59 14 letter, a nice professional letter asking him to put 09:59 15 it in writing. Okay? I know Commissioner Clowe had 09:59 16 seen a copy of it because I sent copies to you. I'm 09:59 17 not going to go into detail with the letters. Okay? 09:59 18 But I gave him 30 days. I sent him -- he never 09:59 19 answered. I sent him an e-mail saying, if you've 09:59 20 answered me, I didn't receive it. Please resend it. 09:59 21 I got no response. 09:59 22 At that point, I then wrote Linda Cloud 09:59 23 a letter. It was almost 30 days before I got hers. 09:59 24 In Linda Cloud's letter, I was -- I covered with her 09:59 25 basically what I have said here. I told her the 09:59 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 62 1 definition of a news organization, I told her that I 09:59 2 felt like I was being discriminated against and why, 09:59 3 and that I needed the information in a timely fashion. 09:59 4 And I asked her to reinstate me. I covered several 10:00 5 things in here. I also went into the issue about my 10:00 6 trying to call this Commission to get information. 10:00 7 And I am going to cover that in just a second with 10:00 8 some other issues, but I made a number of things in 10:00 9 this letter that were never addressed. And I'm going 10:00 10 to make copies for you all to see this. Okay? I'm 10:00 11 not going to go into it in this meeting. Her response 10:00 12 to me, this letter was dated -- I wrote her on August 10:00 13 24th. On a letter dated to me September 18th that I 10:00 14 did not receive until like -- it was several days 10:00 15 later. It was almost 30 days to the date. Linda's 10:00 16 answer to my letter was, I received your August 24th 10:00 17 letter. After careful review, however, I stand by the 10:00 18 agency's decision to have you receive the information 10:01 19 you have requested from our open records coordinator. 10:01 20 I am also unaware of any information that you are 10:01 21 being discriminated against by the Texas Lottery 10:01 22 Commission. Likewise, I am unaware of any information 10:01 23 that the change in distribution policy was implemented 10:01 24 with any intention of creating hardships or 10:01 25 maliciously trying to prevent you or anyone else 10:01 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 63 1 similarly situated from receiving timely information. 10:01 2 She did not address the issues in my 10:01 3 letter, and I hope that you all will take them, read 10:01 4 it, and see. Because I spelled out some very specific 10:01 5 things for her that she did not cover. 10:01 6 These fax -- they told me -- Keith told 10:01 7 me to get the information off the website. I had a 10:01 8 problem with that in that the website is not posted 10:01 9 until like 10:20 to 10:30. I have it up within 10:01 10 minutes after 10:00. And I also have a problem with 10:01 11 errors that the Commission makes. And I have a list 10:01 12 of -- I have a huge list that I'm going to show you 10:01 13 today of the errors that the Commission puts out. But 10:02 14 I like to get the original. I am entitled to the 10:02 15 original, because I put it out for the public to read. 10:02 16 I have a junk fax mail, e-mail that I got that I 10:02 17 usually just hit the trash can line on my computer to 10:02 18 throw it away, but this one was from a company out 10:02 19 of -- it was Roanoke Technology, and what they were 10:02 20 doing was sending me junk e-mail, trying to get me to 10:02 21 use them to promote my website. And it was a report 10:02 22 that they had done, it was a free report that they 10:02 23 were furnishing me about the status of my website. I 10:02 24 have a number one rated website. In many cases, on 10:02 25 many of the search engines, it is above the Texas 10:02 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 64 1 Lottery Commission's. I get a tremendous amount of 10:02 2 hits and I have a lot of people who count on me. In 10:02 3 fact, my hits are greater than some newspapers in 10:02 4 Texas. Okay? 10:02 5 So I am going to give you a copy of 10:02 6 this report because this is proof of where I stand 10:03 7 amongst the search engines, so that you know that I do 10:03 8 put the information out on the Commission. And I'm 10:03 9 hoping that you all will reinstate my privileges and 10:03 10 acknowledge that I am a member of the media, because I 10:03 11 am, very clearly. And they should not keep these from 10:03 12 me. I have received them since 1993. They said they 10:03 13 were trying to clean house and they really sent out 10:03 14 three. I got one and the other two that got cut off 10:03 15 from those faxes were out-of-state people. Okay? So 10:03 16 they did clean house. But they got rid of me, and I'm 10:03 17 rightfully should receive this information. So I'm 10:03 18 hoping that you all will reconsider and get me those 10:03 19 faxes back. 10:03 20 Then -- 10:03 21 CHAIRMAN CLOWE: I'm going to ask you 10:03 22 to try to summarize and draw to a conclusion if you 10:03 23 can. 10:03 24 MS. NETTLES: Okay. I am. Okay. I've 10:03 25 got one more thing, two more things I want to cover, 10:03 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 65 1 and I'll tell you one more little story. 10:03 2 I also received from the Commission 10:04 3 their pretest drawing results. I received that up 10:04 4 until September the 7th, the morning of the 7th. 10:04 5 There was a Lotto drawing on September the 6th. When 10:04 6 I got my fax that morning, I noticed that the 10:04 7 Commission -- that the drawing team had to use an 10:04 8 alternate machine because the machine broke. Any time 10:04 9 that happens, I catch that on these forms. This is 10:04 10 one of your forms in a fax. I had just wondered that 10:04 11 y'all had put this on your website, and I went to your 10:04 12 website to look to see if there was an explanation on 10:04 13 why this. There was no mention. In fact, the website 10:04 14 was wrong. It was misleading. It was telling people 10:04 15 that they used a different machine that they didn't -- 10:04 16 that they really didn't use. So I did the nice thing. 10:04 17 I called the Commission and said, hey, you've got a 10:04 18 mistake on your website. It needs to get fixed 10:04 19 because this is not what you used, and for people to 10:04 20 track that, that's important information. Two hours 10:04 21 later, I received a fax from the Commission. I'll 10:04 22 give you three guesses what it is. I will no longer 10:05 23 be receiving my pretest faxes. Okay? I got cut off 10:05 24 right then and there. 10:05 25 Years ago, I used -- okay. I won't 10:05 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 66 1 even go -- I won't go there. I have some pages. The 10:05 2 reason that I get the faxes goes back to 1993. The 10:05 3 Commission made the decision back then -- I originally 10:05 4 got the information on a form once a week sent to me, 10:05 5 a report on the pretest drawing results. And this is 10:05 6 the way I got it. Then one day, Janie Hart told me, 10:05 7 hey, did you know the Comptroller posts this 10:05 8 information? You can get it. You won't be so far 10:05 9 behind. And I said, great. I'll get this so I can 10:05 10 proof it. I will use your information for proofing, 10:05 11 but in the meantime, I'll get their information. Come 10:05 12 to find out, we had over 30 mistakes, and I thought it 10:05 13 would be the Comptroller who made the mistake. Come 10:05 14 to find out, it wasn't. It was the Texas Lottery 10:05 15 Commission who had all the errors on their reports. 10:06 16 At that point in time, Nora Linares 10:06 17 made the decision that I would receive all pretest 10:06 18 information since I tracked it extensively, had to 10:06 19 print retractions and tell, you know, what's going on 10:06 20 so the players know I'm keeping up with their data. 10:06 21 She made the decision that I would always receive them 10:06 22 from the drawing studio at night when the other faxes 10:06 23 are send out. I wanted -- the Comptroller introduced 10:06 24 me to this form. This is your official form for 10:06 25 pretest drawing information. And I've got three -- 10:06 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 67 1 I'm just giving you a sample of three to show you what 10:06 2 the continual errors are that were on them that you -- 10:06 3 that is just a human error that people make, where 10:06 4 they tell you that it's the wrong ball set of machine 10:06 5 that's used. And this is how come I've always 10:06 6 insisted to receive this form. I don't have to 10:06 7 explain to you why I want that form, I know, by law, 10:06 8 but I am nice. I like for you to understand. 10:06 9 So for many years, I received this 10:06 10 information. When there was a mistake, I -- the 10:07 11 Commission knew it before you opened at 8:00 o'clock 10:07 12 in the morning, and this way you did not pass out the 10:07 13 mistake. Okay? I was -- it's just a friendly deal. 10:07 14 Linda takes over, the first thing I do 10:07 15 is lose my faxes. Okay? My pretest stuff. So I just 10:07 16 rode the tide and said, I know she'll change her mind 10:07 17 because there will be mistakes and we'll see. So 10:07 18 finally, sure enough, there was. I called her. She 10:07 19 says, no, you can call the Commission every day and 10:07 20 get them. Still had mistakes. Ron Wilcox can tell 10:07 21 you about the errors. Linda knows of the errors. So 10:07 22 finally she said, well, we will fax you the form every 10:07 23 morning at 7:30, so they did. But the day that they 10:07 24 had this mistake, I got cut off again. I have a 10:07 25 problem with that. 10:07 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 68 1 I have been asking for two months, I 10:07 2 have -- I am tracking your sales. I have three 10:07 3 different reports from the Commission with two 10:07 4 different numbers on two different dates of sales. 10:08 5 I'm going to go make copies of this for you. Here is 10:08 6 three different reports. There is two different sets 10:08 7 of numbers. I have been asking for the correct number 10:08 8 for sales for these two dates since August, and I 10:08 9 cannot get an answer. And those are an open records 10:08 10 requests that I have. 10:08 11 When I got cut off on my faxes by 10:08 12 Linda, originally, I had an ongoing deal with Lucy 10:08 13 Cantu. I would still receive this form by open 10:08 14 records. What we would do is I would send her an Open 10:08 15 Records request. The day she was going to send them 10:08 16 out, she would send me all the pretest run results up 10:08 17 through that date. Then she would -- then I would 10:08 18 turn around, I'd get them, then I would turn around 10:08 19 and send her another one, we kept an ongoing deal like 10:08 20 that. So I thought, okay, this time this is what I'm 10:08 21 going to do. So I made an Open Records request on 10:08 22 September the 12th. At that time, I only needed it 10:09 23 from the 7th through the 12th, but through whatever 10:09 24 date she was going to go through. And this is in 10:09 25 writing. On the 20 -- on a letter dated from her on 10:09 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 69 1 the 26th of September, she answers my -- or she 10:09 2 fulfills my Open Records request with these pretest 10:09 3 information. It only contains the pretest drawing 10:09 4 results from September the 7th through September the 10:09 5 12th. So she no longer would do that. She only went 10:09 6 by writing the cutoff date. So now I've turned around 10:09 7 and had to make a request -- I'm this far behind on my 10:09 8 work due to the fact that I don't have these forms. 10:09 9 And this is a big job for me. I don't think anybody 10:09 10 understands how extensively I track this stuff. And I 10:09 11 don't want mistakes because I have to redo them. 10:09 12 So now, I have a bill from her. Just 10:09 13 yesterday I received a fax from her for 11 dollars, 10:09 14 which I have a check that I'm going to take to her in 10:09 15 just a minute, for copies of this pretest drawing 10:09 16 stuff, because I guess it went over so many copies. 10:09 17 But it had already been requested. So I know I'm a 10:10 18 thorn in your side and I know that you can't get rid 10:10 19 of me. Okay? But I still need this information 10:10 20 because I still publish the Lotto Report and I know 10:10 21 you're just trying to make things hard on me, or I 10:10 22 believe you are, but I still need this information. 10:10 23 And I think somebody up here needs to start answering 10:10 24 my questions. 25 I'm going to do one more thing and I'm 10:10 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 70 1 done. I'm going to give you an example of what I mean 10:10 2 by giving me a hard time. After you added the four 10:10 3 balls, I was sitting there thinking one day, gee, 10:10 4 you're going to start paying the players 55 percent of 10:10 5 sales instead of 50 percent. I thought, I wonder 10:10 6 where they got the five percent. Starting on 10:10 7 Wednesday, I tried to get that answer. I even spoke 10:10 8 to Kimberly. She didn't know the answer. Okay? 10:10 9 Nobody could answer my question. And at 4:00 o'clock 10:10 10 on Friday afternoon, and I have this on tape too, I 10:11 11 have a message from the Commission telling me that if 10:11 12 I want to know where that five percent came from, that 10:11 13 I have to make an Open Records request. 10:11 14 Now, gentlemen, that's wrong. That's 10:11 15 real wrong. We have discussed openly over years the 10:11 16 50, 38 percent, seven percent and five percent, but 10:11 17 now they can't tell me where the five percent comes 10:11 18 from? I had to call my State representative. She 10:11 19 called up here, got Linda Cloud. Linda Cloud told 10:11 20 her. She called me back, and she's on the recorder, 10:11 21 too. I have her message where she is telling me where 10:11 22 the five percent came from. 10:11 23 The players. 10:11 24 CHAIRMAN CLOWE: And try to sum up now 10:11 25 if you can. 10:11 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 71 1 MS. NETTLES: Okay. I'm done. I'm 10:11 2 going to make copies of all of this. And please 10:11 3 restore my faxes. That's what I came here to ask you 10:11 4 to do. I am a news media. The NASPL recognizes me as 10:12 5 media. They had me a media pass to get in their 10:12 6 convention in Dallas last week. Please restore my 10:12 7 faxes. 10:12 8 CHAIRMAN CLOWE: Ms. Nettles, you've 10:12 9 covered a lot of ground and we've heard everything 10:12 10 that you've said in the way of public comment under 10:12 11 the agenda. I am not going to take the time in this 10:12 12 meeting to ask for a detailed response from staff. We 10:12 13 have others here that I think we owe the debt to to 10:12 14 continue on the agenda. I am going to ask the staff 10:12 15 to prepare a response to the issues that you have 10:12 16 raised and see if there can be resolution between now 10:12 17 and our next meeting. If not, then Kim, I'm going to 10:12 18 ask that this issue be put on the agenda so that the 10:12 19 Commission can, under the agenda in the Open Meetings 10:13 20 record, deal with this issue and come to a conclusion, 10:13 21 which I think is the proper forum. 10:13 22 Ms. Nettles, thank you again. 10:13 23 MS. NETTLES: Okay. Commissioner 10:13 24 Clowe, I would just like to say one thing. Are you 10:13 25 going to tell me today whether or not I'm going to get 10:13 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 72 1 my faxes back? 10:13 2 CHAIRMAN CLOWE: No, ma'am. 10:13 3 MS. NETTLES: No, you're not? 10:13 4 CHAIRMAN CLOWE: No, ma'am. We cannot 10:13 5 do that today. 10:13 6 MS. NETTLES: Okay. I -- okay. 10:13 7 CHAIRMAN CLOWE: Is there someone else 10:13 8 here, I believe we have someone who has arrived who 10:13 9 wants public comment time. 10:13 10 MS. KIPLIN: I believe those are on the 10:13 11 contested cases. 10:13 12 CHAIRMAN CLOWE: Very good. We're 10:13 13 going to move to that issue. And Kim, this would be 10:13 14 under item 15, I think, and falls in your area. I 10:13 15 have -- I have two appearances by Mr. Fenoglio and 10:14 16 four appearances -- I assume these individuals are his 10:14 17 clients. 10:14 18 MS. KIPLIN: Yes, sir. My 10:14 19 understanding is that Mr. Fenoglio is here on behalf 10:14 20 of several matters, several contested case proceedings 10:14 21 that are before you: Red Men Council Number 4, there 10:14 22 are two docketed cases in connection with that; and 10:14 23 then also, American Business Women's Association, Lone 10:14 24 Star Chapter. And that's docketed. And if you want, 10:14 25 I guess at this time, if Mr. Fenoglio could come 10:14 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 73 1 forward, we could start with his items if that's the 10:14 2 pleasure of the Commission. I do know that staff does 10:14 3 have a response available for those items. 10:14 4 CHAIRMAN CLOWE: Good. 5 Are you ready, Mr. Fenoglio? 10:14 6 MR. FENOGLIO: Your Honor, I am on one, 10:15 7 Mr. Chairman and Commissioner Sadberry. Red Men 4 is 10:15 8 not here yet. They were coming from Dallas this 10:15 9 morning, and I-35 traffic being what it is. I asked 10:15 10 them to be here at 10:00, but they're not here. But 10:15 11 the ABWA, the American Business Women's Association, 10:15 12 we're ready to go. 10:15 13 CHAIRMAN CLOWE: Let's go forward on 10:15 14 that, then. 10:15 15 MR. FENOGLIO: If I could bring 10:15 16 forward -- 10:15 17 CHAIRMAN CLOWE: I have your 10:15 18 appearance, then, for that group, and I'm not clear, 10:15 19 on these appearance forms, which individuals are 10:15 20 appearing in behalf of that client. Can you help me 10:15 21 with that? 10:15 22 MR. FENOGLIO: I'm sorry, Commissioner. 10:15 23 I was trying to get the chairs up. 10:15 24 CHAIRMAN CLOWE: I'm trying to clarify 10:15 25 which individuals are here to appear in behalf of that 10:15 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 74 1 client. 10:15 2 MR. FENOGLIO: Well, they all are. 10:15 3 CHAIRMAN CLOWE: They all four are? 10:15 4 MR. FENOGLIO: Yes. And we'll keep our 10:16 5 presentation short, Mr. Chairman. 10:16 6 CHAIRMAN CLOWE: Very good. 7 And staff is ready to make their 10:16 8 appearance at the appropriate time? 10:16 9 MS. SCHULTZ: Yes, Commissioner, we're 10:16 10 ready. 10:16 11 MR. FENOGLIO: Mr. Chairman and 10:16 12 Commissioner Sadberry: My name is Stephen Fenoglio. 10:16 13 I'm an attorney practicing law in Austin, Texas, and 10:16 14 I'm representing here this morning the American 10:16 15 Business Women's Association, a charitable -- a 10:16 16 licensed charity conductor lessor of a bingo hall in 10:16 17 Waco, Texas. With me today, and this will be at -- if 10:16 18 we may, a somewhat of a unique presentation. With me 10:16 19 today is one of the witnesses who could not be in 10:17 20 attendance at the hearing we had back in April of this 10:17 21 year. Additionally, there are two other 10:17 22 representatives of two of the charities that conduct 10:17 23 bingo at the hall. Also with me today is a 10:17 24 representative of ABWA. And if I may refer to the 10:17 25 American Business Women's Association as ABWA, the 10:17 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 75 1 acronym. 10:17 2 MS. KIPLIN: At this -- and I don't 10:17 3 mean to do this, but I just want to keep the record 10:17 4 straight. You know, you have evidence that was taken 10:17 5 at the State Office of Administrative Hearings, and so 10:17 6 when Mr. Fenoglio indicated that he had a witness who 10:17 7 wasn't there, my concern is, are we going to hear 10:17 8 evidence today that was never presented at SOAH, sworn 10:17 9 testimony, because then the record is being expanded 10:17 10 and it's -- we're bringing in evidence that was not 10:17 11 presented there. 10:17 12 MR. FENOGLIO: And that was -- 10:17 13 Ms. Kiplin, that is exactly why I wanted to lay that 10:17 14 out. Yes, I intend to have a witness testify, Mr. 10:17 15 Paul Caudle, who is referenced in the record and in 10:18 16 the proposal for decision as the person who was 10:18 17 conducting bingo on behalf of the Lions Club. 10:18 18 Mr. Caudle is here today. He had started a new job, 10:18 19 could not make the hearing at the time in April of 10:18 20 this year. 10:18 21 MS. KIPLIN: Then -- 10:18 22 MR. FENOGLIO: And if I may just lay it 10:18 23 out and then -- I'm not presenting testimony, 10:18 24 Commissioners, so I think you can sift through the 10:18 25 evidence versus the statement, but if I can paint the 10:18 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 76 1 picture, if I may. ABWA -- and this is -- this will 10:18 2 be in the record until I talk about Mr. Caudle. 10:18 3 ABWA has been conducting bingo since 10:18 4 1992, in Waco, Texas. It is a charitable 10:18 5 organization. Its primary goal is as it suggests in 10:18 6 its name, a business women's organization whose 10:18 7 primary goal is to raise funds for women's groups, 10:18 8 including scholarships for ladies who are going to 10:18 9 college. And they have been successful in that 10:18 10 regard. The issue at the Commission and that's in 10:19 11 your proposal for decision is one issue and one issue 10:19 12 only. And that has to do with whether or not ABWA was 10:19 13 conducting bingo outside of its licensed time for 30 10:19 14 different dates that are referenced in footnote six on 10:19 15 page four of the PFD, the proposal for decision, and 10:19 16 are referenced in findings of facts 16 and 20. 10:19 17 ABWA contended and did present evidence 10:19 18 that it was conducting bingo lawfully three times a 10:19 19 week under a licensed time, and that the 30 occasions 10:19 20 that are at issue in this proceeding, bingo was being 10:19 21 conducted by the Central Texas Lions Club. And the 10:19 22 summary of that evidence is on page two of the PFD. 10:19 23 And it was stated on the record, and it is referenced 10:19 24 in the PFD on page two, that Mr. Paul Caudle was the 10:20 25 gentleman who was acting as the alternate operator for 10:20 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 77 1 the China Springs Lions Club, and that the times at 10:20 2 issue were China Springs Lions Club licensed bingo 10:20 3 occasions. And there is no contention, I believe, by 10:20 4 anyone that on those 30 occasions, that those 10:20 5 occasions were licensed for -- by and for the Central 10:20 6 Texas Lions Club. The only issue is, was in fact the 10:20 7 Lions Club conducting bingo on those 30 occasions or 10:20 8 was ABWA conducting bingo. And that's where the PFD 10:20 9 focuses and that's where we part ways with staff. 10:20 10 Staff contended at the hearing that the 10:20 11 ABWA, in fact, conducted six times a week, three times 10:20 12 a week more than allowed by law, bingo. To that 10:20 13 event, they said, well, where is Mr. Caudle? 10:21 14 Mr. Caudle was not available and he is here today, and 10:21 15 at the appropriate time I'll present an affidavit as 10:21 16 well. But I'm sensitive to the issue of evidence 10:21 17 outside the record. 10:21 18 By the way, one of the solutions to 10:21 19 that is to reopen the hearing, which is one of our 10:21 20 requested reliefs at this juncture, because Mr. Caudle 10:21 21 is now available. He now works evenings, so he is 10:21 22 available during a day hearing. Prior to that he 10:21 23 worked during the days and, because of a new job, 10:21 24 could not take off. And he can answer those questions 10:21 25 and put you at ease in that regard. 10:21 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 78 1 CHAIRMAN CLOWE: Counselor, are you 10:21 2 okay with that? 10:21 3 MS. KIPLIN: I guess it's up to staff 10:21 4 to object to bringing in evidence -- 10:21 5 MS. SCHULTZ: If I may respond briefly, 10:21 6 Commissioners. I would object to any additional 10:21 7 testimony that's outside the record in this case. 10:21 8 This case was heard by the administrative law judge. 10:21 9 There was no request for a continuance because a 10:21 10 witness was not available. There was no request -- 10:21 11 there was no mention at the hearing that there was a 10:22 12 witness that the parties intended to call, the 10:22 13 licensee intended to call, who was not available. It 10:22 14 just -- it never came up at the hearing. There was a 10:22 15 good deal of words put forward that were purported to 10:22 16 be of a Mr. Clarence Weikel, who was the previous 10:22 17 operator who Mr. Caudle was allegedly substituting 10:22 18 for. Nor was Mr. Weikel called at the hearing, but 10:22 19 there was no mention, and certainly the organization 10:22 20 could have requested a continuance and stated that 10:22 21 that witness was not available. That was never done. 10:22 22 And for the record, and I am Kaye Schultz, assistant 10:22 23 general counsel. 10:22 24 So we would object to any testimony 10:22 25 outside of the record in this case, and we would 10:22 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 79 1 object to a request to reopen the hearing. The 10:22 2 hearing was fully conducted. At the end of the 10:22 3 hearing, the court requested whether the record needed 10:22 4 to be left open for anything and there was no 10:23 5 indication that it should be, so it was not. 10:23 6 CHAIRMAN CLOWE: Counselor, I think we 10:23 7 need to make a determination on this issue right now, 10:23 8 don't we? 10:23 9 MS. KIPLIN: Yes, I think you do. If 10:23 10 you take evidence that's out outside the record, the 10:23 11 issue would be, you know, is it sworn, is there an 10:23 12 opportunity to cross examine. Do you as a sitting 10:23 13 Commission want to have that kind of proceeding before 10:23 14 you. Are you interested in having that evidence be 10:23 15 part of the record. If you are interested in having 10:23 16 it be part of the record, you know, over staff's 10:23 17 objection, of course, there is the opportunity to send 10:23 18 it back to the State Office of Administrative Hearings 10:23 19 to reopen and to take additional evidence. 10:23 20 Where you would have sworn testimony 10:23 21 and an opportunity to cross examine and so forth. 10:23 22 MS. SCHULTZ: If I may, Commissioner, 10:23 23 I'll read from the transcript of the hearing at page 10:23 24 231. 10:23 25 Judge Egan: Do the parties want to 10:23 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 80 1 leave the record open for any reason? 10:23 2 And that's skipping to page 232, line 10:23 3 five. 4 Mr. Fenoglio: No, Your Honor, we do 10:24 5 not. 10:24 6 COMMISSIONER SADBERRY: Is that in the 10:24 7 booklet or do you have a separate transcript? 10:24 8 MS. SCHULTZ: I have a transcript. 10:24 9 COMMISSIONER SADBERRY: We don't have 10:24 10 that? 10:24 11 MS. SCHULTZ: You do not. 10:24 12 CHAIRMAN CLOWE: And, Mr. Fenoglio, do 13 you want to respond to that? 10:24 14 MR. FENOGLIO: I would like to respond 10:24 15 to two issues. And, obviously, staff purchased the 10:24 16 transcript, we did not. We don't have the money. But 10:24 17 Mr. Caudle was referenced in the hearing and he is 10:24 18 referenced specifically in the PFD on page two, second 10:24 19 paragraph from the bottom where it says, Mr. Weikel, 10:24 20 the first gentleman, is old and very ill. He was the 10:24 21 primary operator for the Lions Club. And Paul Caudle 10:24 22 acted as the Lions Club operator in Mr. Weikel's 10:24 23 stead. Unfortunately, neither Mr. Weikel nor 10:24 24 Mr. Caudle testified. So -- and at the hearing, the 10:24 25 reason he didn't testify is because of his job 10:25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 81 1 commitments. And I've got an affidavit on that issue 10:25 2 if you want to hear it. I don't want to make this any 10:25 3 more difficult than you gentlemen want to. We're all 10:25 4 busy and I know that your time is precious. But the 10:25 5 seminal issue is in this proceeding in which 10:25 6 reputations are at stake, if this is a violation of 10:25 7 the law, it's a felony. The seminal issue is, did the 10:25 8 Lions Club conduct bingo properly, and Mr. Caudle can 10:25 9 answer that as to 28 of the 30 sessions, yes, the 10:25 10 Lions Club was conducting bingo. He was there. 10:25 11 CHAIRMAN CLOWE: You're getting into a 10:25 12 fact situation -- 10:25 13 MS. SCHULTZ: Excuse me, 10:25 14 Commissioner -- 10:25 15 CHAIRMAN CLOWE: And what I would like 10:25 16 to ask you for, if I may, is a response to your reply 10:25 17 on the record that you didn't have anything further. 10:25 18 Can you comment on that? 10:25 19 MR. FENOGLIO: Yes. We didn't, because 10:25 20 Mr. Caudle was unavailable. I mean, he was -- 10:25 21 CHAIRMAN CLOWE: You were at that time 10:25 22 prepared to close the record. 10:25 23 MR. FENOGLIO: Yes. 24 CHAIRMAN CLOWE: That would be your 10:26 25 answer? 10:26 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 82 1 MR. FENOGLIO: Yes. 10:26 2 MS. SCHULTZ: And Commissioners, I'm 10:26 3 going to object to -- and ask that that last comment 10:26 4 be stricken or disregarded about 28 of 30 sessions. I 10:26 5 think this is testimony, and I know it's outside the 10:26 6 record. 10:26 7 CHAIRMAN CLOWE: We're not ready to 10:26 8 deal with that yet. We're trying to get to whether or 10:26 9 not we're going to hear this testimony. 10:26 10 MR. FENOGLIO: And Mr. Chairman, if I 10:26 11 may, just on that -- on the issue of should you 10:26 12 reopen. The legal standard is, is there new evidence 10:26 13 available that was by due diligence unavailable at the 10:26 14 time of the hearing. That's the legal standard in a 10:26 15 reopening of a trial proceeding, if you will, or in 10:26 16 SOAH. And the answer is clearly, yes, there is new 10:26 17 evidence that was available that could not be made 10:26 18 available at the time, even with due diligence. We 10:26 19 were aware of Mr. Caudle, but his job commitments 10:26 20 prohibited him absolutely from attending the 10:26 21 proceeding. 10:26 22 MS. KIPLIN: Commissioners, it's within 10:26 23 your discretion. I hear where Mr. Fenoglio is coming 10:26 24 from, but it's -- 10:27 25 CHAIRMAN CLOWE: I think we understand 10:27 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 83 1 it. 10:27 2 Commissioner, I know where I stand. 10:27 3 I'll give you the first cut at it if you would like. 10:27 4 COMMISSIONER SADBERRY: Well, I'm 10:27 5 concerned about some of the procedural issues here, 10:27 6 because it sounds like we're getting into the Lions 10:27 7 Club issues. And I even note that the reference that 10:27 8 Mr. Fenoglio cites goes on to say something about the 10:27 9 Lions Club returning its license to the Commission. 10:27 10 Let me ask a question of counsel. Is 10:27 11 there a procedure that would be met, something like 10:27 12 the filing of a motion for new trial or motion for new 10:27 13 hearing at the SOAH level at this juncture? 10:27 14 MS. KIPLIN: No, not at this juncture. 10:27 15 What is available is an opportunity, after a proposal 10:27 16 for decision has been circulated to the parties, to 10:27 17 file exceptions, taking exception to the findings and 10:27 18 the conclusions -- findings of fact and conclusions of 10:27 19 law, in a proposal for decision, and then an 10:28 20 opportunity for replies. 10:28 21 My understanding in this case is that 10:28 22 exceptions were filed, replies were filed, an amended 10:28 23 proposal for decision was issued, which would then, 10:28 24 again, allow for subsequent filing of exceptions and 10:28 25 replies. I don't believe that the amended proposal 10:28 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 84 1 for decision responded favorably to Mr. Fenoglio's 10:28 2 exceptions, and he is here -- and he can correct -- 10:28 3 COMMISSIONER SADBERRY: -- whether the 10:28 4 TABC issued the license as opposed to the Lottery, and 10:28 5 other things like that, that this -- 10:28 6 MS. KIPLIN: That was staff's 10:28 7 exceptions, if I'm not mistaken. Mr. Fenoglio's were 10:28 8 substantive in nature and designed, I think, to take 10:28 9 exception to what his client thought was taking 10:28 10 exception. 10:28 11 In terms of a motion for rehearing, let 10:28 12 me address that. The motion for a rehearing, the 10:28 13 clock begins to tick and it's ripe to have a motion 10:28 14 for rehearing filed once the Commission enters an 10:28 15 order and the order is circulated to the parties and, 10:28 16 in this case, the attorney of record is notified of 10:29 17 that order. 10:29 18 COMMISSIONER SADBERRY: This 10:29 19 Commission. 10:29 20 MS. KIPLIN: Yes. Then there would be 10:29 21 an opportunity for a motion for rehearing. And part 10:29 22 of the motion for a rehearing, of course, is that you 10:29 23 could grant the rehearing and then remand it back to 10:29 24 the State Office of Administrative Hearings. But it 10:29 25 is within your discretion now to decide whether you 10:29 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 85 1 want to remand it to SOAH to take further evidence or 10:29 2 stand where you are and move forward with what you 10:29 3 have before you. 10:29 4 COMMISSIONER SADBERRY: And we might 10:29 5 possibly get to a point of asking you theoretically 10:29 6 what happens to a license in the interim, between an 10:29 7 order and a motion for rehearing and all of that. I 10:29 8 don't want to ask that just yet personally. 10:29 9 I want to respond, Mr. Chairman, to 10:29 10 your query and to counsel and to the staff's 10:29 11 objection. I personally, and I believe I speak -- I 10:29 12 know I speak for the Commission. We are for fairness, 10:29 13 openness, doing the right thing, et cetera, and I 10:29 14 think we have some authority to do that where we have 10:29 15 issues of discretion involved. 10:30 16 On the other hand, there is process. 10:30 17 Let me tell you what I would like to have seen, if it 10:30 18 does not exist. I would like to have seen some effort 10:30 19 in the administrative stage to address the issue of 10:30 20 the missing witness -- make sure I get the name on the 10:30 21 record -- Mr. Caudle, who apparently was considered as 10:30 22 having material knowledge. I even note that the 10:30 23 language of the PFD is "unfortunately," and I don't 10:30 24 know what that's supposed to mean, but it suggests 10:30 25 that perhaps had Mr. Caudle's testimony been available 10:30 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 86 1 that could have helped the administrative law judge. 10:30 2 That's where I see the problem is, if we circumvent 10:30 3 the process or at least if there is not a record 10:30 4 that's developed in that proceeding that says, we have 10:30 5 a witness who would like to testify, who would 10:30 6 testify, his job commitments prevent it, and here is 10:31 7 an affidavit attesting to that, and/or at the end of 10:31 8 the proceeding where the judge asks, do you want to 10:31 9 leave the record open, some suggestion of, yes, judge, 10:31 10 I think I have a witness who I can at least get an 10:31 11 affidavit from. I would like to submit that, et 10:31 12 cetera. 10:31 13 In the absence of that, what I think I 10:31 14 hear staff saying is, the process becomes problematic, 10:31 15 because we have to deal with the rules. And the rules 10:31 16 say, present your evidence at the hearing, or at least 10:31 17 request some relief to supplement the record. 10:31 18 Counsel, I -- don't you think that 10:31 19 creates problems if we don't adhere to that kind of 10:31 20 due process procedures? 10:31 21 MR. FENOGLIO: Yes and no. I think the 10:31 22 facts here are unique, so we're not going to have 10:31 23 this -- I did, by the way, in '97, under a similar 10:31 24 issue, get hired and the Commission did reopen. I 10:31 25 believe you were on the Commission at the time, 10:32 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 87 1 Mr. Sadberry, with an American Legion Post women's 10:32 2 auxiliary in East Texas, decide to reopen because of 10:32 3 some additional evidence. At that point, the record 10:32 4 had been closed, a proposal for decision was up in 10:32 5 front of the Commission, as it is today. 10:32 6 What we're asking for, I guess, though, 10:32 7 is consistent with due process, including the rights 10:32 8 of staff, due process to reopen the record. And those 10:32 9 proceedings happen at agencies all the time at this 10:32 10 level. I practice in front of the Railroad 10:32 11 Commission, Public Utility Commission, Texas Alcoholic 10:32 12 Beverage Commission, and not -- not often, and 10:32 13 certainly not to reurge evidence that was already 10:32 14 there. You know, we can get a second bite at the 10:32 15 apple. In this case, it's evidence that was 10:32 16 unavailable. 10:32 17 COMMISSIONER SADBERRY: I do recall 10:32 18 and, yes, we are fortunate, we've had very extensive 10:32 19 history that I think is helpful from my perspective. 10:33 20 Because I think you anticipated one of my points is, I 10:33 21 believe, in the case that you make reference to, you 10:33 22 were not counsel at the hearing stage and came in 10:33 23 subsequently. And I can't tell you whether or not 10:33 24 that played a factor, but that could be a material 10:33 25 distinction, I believe you would agree, from this 10:33 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 88 1 case, where you were counsel at the administrative 10:33 2 level, and apparently Mr. Caudle was very well known 10:33 3 as a material fact witness who would have facts that 10:33 4 could perhaps weigh on the outcome. That's my 10:33 5 concern, is, we're going to hear from staff, I 10:33 6 anticipate, something along the lines of, to give 10:33 7 these proceedings meaning and to have them be 10:33 8 conducted orderly and fairly from due process, from a 10:33 9 law standpoint, there must be some boundaries within 10:33 10 which we act and that our discretion to vary from that 10:33 11 as Commissioners should not be called upon or -- 10:34 12 except in those circumstances where a real urgent 10:34 13 situation that could not be avoided and could not be 10:34 14 anticipated presents itself. I am having trouble 10:34 15 seeing how that is the case. What I've heard thus far 10:34 16 is a job requirement, which we all have and 10:34 17 understand, prevented it. At a minimum, I would like 10:34 18 to have seen that issue preserved at the lower stage 10:34 19 so that at least we know there was an effort made to 10:34 20 put the judge on notice. We have the judge's time and 10:34 21 integrity as well at issue here if we permit, at this 10:34 22 level, variance from those procedures. And I'm moved, 10:34 23 at least, by some concern that the judge references it 10:34 24 in the PFD and leaves the record open, to give the 10:34 25 parties an opportunity to supplement, and there is not 10:35 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 89 1 a -- an effort to do that. These are just my 10:35 2 comments. That's my concern, if we were to overrule 10:35 3 staff's objection to hearing additional evidence 10:35 4 that's not a part of the record. 10:35 5 CHAIRMAN CLOWE: Very helpful. 10:35 6 COMMISSIONER SADBERRY: Now, let me, if 10:35 7 we could, very quickly. Kim, do I understand you to 10:35 8 say we could act on the PFD or whatever is before us 10:35 9 today and that these parties would have rights beyond 10:35 10 that to request a rehearing? 10:35 11 MS. KIPLIN: Yes, they will. Once the 10:35 12 counsel of record is notified by service on the order, 10:35 13 there is a time frame within which to file a motion 10:35 14 for rehearing, and that motion for rehearing would be 10:35 15 before you for consideration. 10:35 16 COMMISSIONER SADBERRY: And what 10:35 17 happens to the license at that point? 10:35 18 MS. KIPLIN: The order is not final 10:35 19 until the time for the motion for rehearing has been 10:35 20 overruled by operational law, there has been action 10:35 21 on the motion for rehearing, so all rights pertinent 10:35 22 to that license continue in full force and effect. 10:36 23 COMMISSIONER SADBERRY: What is 10:36 24 appropriate procedurally with respect to the objection 10:36 25 of staff to hearing evidence outside the record? I 10:36 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 90 1 mean, is it a motion or what does the Commission do? 10:36 2 Do you make a motion? 10:36 3 MS. KIPLIN: Well, I think you ought to 10:36 4 just to keep the record clean about where you stand on 10:36 5 the objection. 10:36 6 COMMISSIONER SADBERRY: Mr. Chairman, I 10:36 7 would like to make a motion. I would move to sustain 10:36 8 staff's objection to hearing testimony outside the 10:36 9 record, particularly with respect to Mr. Caudle. 10:36 10 CHAIRMAN CLOWE: Second. 10:36 11 All in favor say aye. Opposed, no. 10:36 12 The vote is two-zero in favor of 10:36 13 sustaining the motion. 10:36 14 MR. FENOGLIO: All right. Then we 10:36 15 proceed to the other issue, which is, with me today is 10:36 16 Mary Needler, the CPA and bookkeeper and one of the 10:36 17 officers of ABWA, and Mr. Curtis Parsons, who is the 10:36 18 director of the Central Texas Youth Rodeo Association, 10:37 19 would like to speak on behalf of or in behalf of the 10:37 20 ABWA. As a public comment, we have John Hertek, 10:37 21 president of Westfest, Inc., who are also charities 10:37 22 that are conducting bingo at the ABWA hall. 10:37 23 If I may now turn to the exceptions 10:37 24 themselves. 10:37 25 MS. KIPLIN: And I just need to ask to 10:37 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 91 1 keep the record clean. The comments that are made by 10:37 2 the individuals that you just mentioned will be within 10:37 3 the record? 10:37 4 MR. FENOGLIO: Well, Mr. Parsons and 10:37 5 Mr. Hertek will not be. They were not there at the 10:37 6 time. Ms. Needler was at the hearing, and her 10:37 7 comments will be within the record. 10:37 8 MS. SCHULTZ: Yes. Commissioners, 10:37 9 Ms. Needler was a witness at the hearing and we would 10:37 10 again object to any additional testimony or evidence 10:37 11 outside the record, which would include Mr. Parsons, 10:37 12 and I'm sorry, I didn't catch the other gentleman's 10:37 13 name, from Westfest. We would object to that as also 10:37 14 outside the record in this case. 10:38 15 COMMISSIONER SADBERRY: Now, I think I 10:38 16 see a difference, that these are people who have 10:38 17 assumed roles that they did not have at the time of 10:38 18 the hearing? 10:38 19 MR. FENOGLIO: Yes. 10:38 20 COMMISSIONER SADBERRY: As opposed they 10:38 21 were material witnesses who had knowledge of facts. 10:38 22 Which is it? I'm not sure. I thought you were saying 10:38 23 these were people who came on board subsequent -- 10:38 24 MR. FENOGLIO: After. Yes, after the 10:38 25 hearing. 10:38 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 92 1 COMMISSIONER SADBERRY: Well, what's 10:38 2 the situation? Are they talking about the procedures 10:38 3 of the organization or -- 10:38 4 MR. FENOGLIO: They're talking about 10:38 5 the ABWA and the beneficial impact that ABWA has had 10:38 6 on their organizations. 10:38 7 MS. SCHULTZ: Again, Commissioner, in 10:38 8 order to keep a clean record in this case, which is 10:38 9 vitally important for all of these issues, 10:38 10 particularly when there is going to be appeals, I 10:38 11 would object to any testimony outside the record. The 10:38 12 record stands in this case, the record of the hearing. 10:38 13 COMMISSIONER SADBERRY: I understand. 10:38 14 Counsel, are you able to make your 10:38 15 presentation inside the record until we reach a point 10:38 16 where you need to go outside the record, so maybe 10:39 17 we'll have a context in which it -- for me, it would 10:39 18 be more helpful. 10:39 19 CHAIRMAN CLOWE: I think that's the way 10:39 20 to go. 10:39 21 Can you do that? 10:39 22 MR. FENOGLIO: Yes, your honors, I can. 10:39 23 If I may proceed. 10:39 24 As I discussed earlier, the only issue 10:39 25 in this proceeding is whether the bingo that was 10:39 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 93 1 conducted on 30 occasions at issue in this proceeding, 10:39 2 as referenced in finding of facts 16 and 20, and 10:39 3 conclusion of law, I believe it's number six, is 10:39 4 whether -- which organization was conducting bingo. 10:39 5 It is uncontested in the record that the Lions Club 10:39 6 was licensed to conduct bingo on those occasions. 10:39 7 Period, end of sentence. It is also uncontested that 10:39 8 Ms. Needler, who was the bookkeeper for the charities 10:39 9 at the bingo hall, regularly and carefully kept 10:39 10 records reflecting the sums that were attributed to 10:39 11 ABWA's bingo under its licensed times, and the Lions 10:40 12 Club under its licensed times. It's an unfortunate 10:40 13 set of circumstances that Mr. Weikel was not present 10:40 14 at most of these occasions. And that's in the record 10:40 15 and it's referenced in the ALJ's PFD, "unfortunately, 10:40 16 neither one could attend." 10:40 17 Ms. -- 10:40 18 COMMISSIONER SADBERRY: -- didn't want 10:40 19 to testify. 10:40 20 MR. FENOGLIO: Or attended. Well, 10:40 21 you're right. They didn't testify. They weren't 10:40 22 there. The record that Ms. Schultz has would reflect 10:40 23 that they were not there. 10:40 24 Ms. Needler's testimony was clear that 10:40 25 the revenues and expenses that were associated with 10:40 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 94 1 those 30 sessions were attributable solely to the 10:40 2 Lions Club, not to ABWA. Another witness testified, 10:41 3 Debbie Scoggins, who testified that she was present at 10:41 4 the bingo hall and acted, if you will, as the hall 10:41 5 manager, and that she kept records that reflected the 10:41 6 ABWA bingo sessions versus or vis-a-vis the Lions Club 10:41 7 sessions. 10:41 8 You are also correct in pointing out, 10:41 9 Commissioner Sadberry, that Lions Club did cease its 10:41 10 bingo operations and it ceased its bingo operations on 10:41 11 August 7th, 2000, five days after the licensed time of 10:41 12 the last Lions Club bingo session. That letter was 10:41 13 transmitted to the Commission by Ms. Needler. 10:41 14 Mr. Weikel came to her office and said, we want to 10:41 15 stop conducting bingo. And so he signed a letter, she 10:41 16 transmitted it to the Commission. And at that moment, 10:41 17 the Lions Club, and the Commission records are very 10:41 18 clear, license ceased. So the question is, was Lions 10:42 19 Club conducting bingo during those 30 sessions. We 10:42 20 suggest and we submit that the evidence from the 10:42 21 witnesses who were at the hearing said, yes. 10:42 22 Now, there is also the issue in the 10:42 23 record that -- that the cash reports and the records 10:42 24 reflected, instead of Lions Club, the ABWA. And staff 10:42 25 made a great deal out of the fact that, well, that 10:42 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 95 1 proves that ABWA was, in fact, conducting. Well, 10:42 2 actually -- there is no form, by the way, that the 10:42 3 Commission requires, it just requires that those 10:42 4 records be kept. The testimony was those were the 10:42 5 sheets that they had available, so they used them. 10:42 6 Had they used instead a record -- a sheet that said, 10:42 7 the Stephen Fenoglio retirement fund, I don't think 10:42 8 anyone would have suggested that I was actually 10:42 9 conducting bingo there. I mean, the fact -- whatever, 10:42 10 this name is on the sheet of paper is irrelevant to 10:43 11 what really happened. You need to look at the 10:43 12 substance, not what is on the sheet of paper. 10:43 13 Conversely, had it said, Lions Club, 10:43 14 versus ABWA, I don't think the staff's position would 10:43 15 have been any different that, well, it, in fact, was 10:43 16 ABWA's -- I'm sorry. That it was Lions Club's 10:43 17 session. 10:43 18 The other -- 10:43 19 COMMISSIONER SADBERRY: You would admit 10:43 20 that it is at least probative evidence. 10:43 21 MR. FENOGLIO: Yes, I would admit. 10:43 22 COMMISSIONER SADBERRY: That it should 10:43 23 be considered. 10:43 24 MR. FENOGLIO: Absolutely. And it's 10:43 25 subject, like anything, to a rebuttal. And y'all have 10:43 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 96 1 got a case that I've also got up here about the 10:43 2 rebuttal on presumption of the Commission on the rule, 10:43 3 on the mailbox rule, where you have to apply that 10:43 4 rebuttal if there is evidence that is submitted. 10:43 5 The other issue that I'm sure staff 10:43 6 will talk to you about and that's referenced in the 10:43 7 PFD is the fact that the funds that were received from 10:43 8 these 30 bingo occasions were deposited into the ABWA 10:43 9 bingo account. And the reason for that is, as it's 10:44 10 referenced in the PFD, Mr. Weikel was the only person 10:44 11 who had the checking account and had the deposit 10:44 12 slips, and he, for whatever reason, did not give those 10:44 13 to anyone else, including Mr. Caudle. So ABWA was 10:44 14 left with, we need to put the money somewhere. We 10:44 15 know we shouldn't put it in a -- leave it in a box 10:44 16 somewhere for two reasons. Number one, security, 10:44 17 obviously. And number two, the Commission has always 10:44 18 made it a point, and there is a rule to that effect, 10:44 19 of depositing those funds within 24 hours. 10:44 20 Uncontested it went into the wrong account. The 10:44 21 reason was, that account was not available. But, 10:44 22 again, when you look at the accounting records -- and 10:44 23 by the way, that's a citation of a violation of the 10:44 24 Commission statute or rule that's not cited in the PFD 10:44 25 at all. 10:44 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 97 1 When you look at what Ms. Needler's 10:44 2 testimony was and what she can testify to today, all 10:45 3 of those funds were religiously tracked as though they 10:45 4 were, and in fact they were, the Lions Club monies. 10:45 5 So what are you left with? You're left with 30 10:45 6 sessions. There is a dispute about who was really 10:45 7 conducting bingo. Ms. Needler is here and if you have 10:45 8 questions of her, I don't want to belabor this issue 10:45 9 any longer than it needs to be, can answer and address 10:45 10 those issues. Ms. Scoggins is here as well. I don't 10:45 11 think she can add anything that isn't already in the 10:45 12 record. It seems to me, and I can assure you, we will 10:45 13 be filing a motion for rehearing if we are 10:45 14 unfavorable, but in order to short circuit it and to 10:45 15 maximize time, the reopening of the record would 10:45 16 simplify matters substantially. Y'all would not have 10:45 17 to address the issues of ruling on evidentiary issues, 10:45 18 that's what SOAH is there for. And I would submit to 10:45 19 you, Mr. Chairman and Commissioner Sadberry, this is 10:45 20 an issue that needs to be remanded back because of a 10:46 21 material witness who is unavailable through no cause 10:46 22 of the ABWA, who is now available and can address the 10:46 23 seminal issue in this proceeding. Reputations are at 10:46 24 stake, et cetera. 10:46 25 So having said that, if Ms. Needler 10:46 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 98 1 wants to add anything, I would like to turn it over to 10:46 2 her. And then I'm ready to have Mr. Parsons and 10:46 3 Mr. Hertek talk about bingo actions after the hearing 10:46 4 had closed and what the bingo and ABWA has meant to 10:46 5 their organization. 10:46 6 Mr. Sadberry, I see a question. 10:46 7 COMMISSIONER SADBERRY: Yeah. I want 10:46 8 to -- do you have a presentation or observation as to 10:46 9 what the practical effect or legal effect, for that 10:46 10 matter, is for essentially Lions Club being willing to 10:46 11 fall on its sword, admit conducting bingo, going out 10:46 12 of business, tendering its license back. That seems 10:47 13 to be where this is headed, that they're the real -- 10:47 14 that they're really who was doing it, they're really 10:47 15 the parties who were at fault, and they went out of 10:47 16 business, they ceased voluntarily, but it should not 10:47 17 be visited on the current licensee. 10:47 18 MR. FENOGLIO: Yes. 10:47 19 COMMISSIONER SADBERRY: Where does that 10:47 20 leave Lions Club? 10:47 21 MR. FENOGLIO: It doesn't leave Lions 10:47 22 Club in any other position other than they are today. 10:47 23 They're not conducting bingo, it's my understanding. 10:47 24 They haven't conducted bingo since August 7th of '98. 10:47 25 I guess the Commission could institute, if it so 10:47 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 99 1 chose, some sort of enforcement proceeding against 10:47 2 Lions Club. But I would submit to you, if they were 10:47 3 conducting bingo, there might be good reason to do so. 10:47 4 But the fact of the matter is, for two years they 10:47 5 haven't conducted bingo. The maximum penalty the 10:47 6 Commission could assess against the Lions Club is a 10:47 7 one year out, and they've been out of business for at 10:47 8 least two years. It's now October the 11th, and that 10:47 9 was August 7th, '98 was the last session. So I mean, 10:47 10 from an -- from a policy position from the bingo 10:48 11 staff, I don't know why you would want to revisit the 10:48 12 issue with Lions Club. 10:48 13 COMMISSIONER SADBERRY: I have one 10:48 14 final question before I'm sure staff has a 10:48 15 presentation. Or you haven't finished, actually. 10:48 16 You said that it's undisputed that the 10:48 17 money went into this account, the ABWA account, but 10:48 18 then you said, but everything was carefully traced to 10:48 19 it being Lions Club as opposed to ABWA. 10:48 20 MR. FENOGLIO: Yes, sir. 10:48 21 COMMISSIONER SADBERRY: Are you saying 10:48 22 that there are records that somehow could isolate 10:48 23 those funds, segregate those funds? 10:48 24 MR. FENOGLIO: Absolutely. And I 10:48 25 believe all of those records are in the record, were 10:48 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 100 1 admitted into the record by staff. I have -- the 10:48 2 record itself is about this thick. I have it here and 10:48 3 I can look and see -- Ms. Needler, weren't those 10:48 4 records that showed these deposits and how you kept 10:49 5 them in the record? 10:49 6 I know that was her testimony. She's 10:49 7 saying yes. 10:49 8 COMMISSIONER SADBERRY: So bookkeeping 10:49 9 entries are in the record, you say. 10:49 10 MR. FENOGLIO: Yes, sir. 10:49 11 COMMISSIONER SADBERRY: That would show 10:49 12 tracing, that would show that ABWA was no more than a 10:49 13 custodial, innocent uninvolved stakeholder on behalf 10:49 14 of Lions Club as to those funds deposited into its 10:49 15 account? 10:49 16 MR. FENOGLIO: Yes, Your Honor. And if 10:49 17 you'll give me just a moment, I can cite you to the 10:49 18 record. 10:49 19 COMMISSIONER SADBERRY: All right. 20 CHAIRMAN CLOWE: I think before we hear 10:49 21 anything further from Mr. Fenoglio's group, we want to 10:49 22 hear from staff at this point to get some equilibrium 10:49 23 in this. I have some questions along the line that 10:49 24 you're pursuing, but before we get -- 10:49 25 COMMISSIONER SADBERRY: That's fine 10:49 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 101 1 with me, Mr. Chairman. 10:49 2 CHAIRMAN CLOWE: -- too deep into -- 10:50 3 COMMISSIONER SADBERRY: I agree. Let's 4 let them -- 5 CHAIRMAN CLOWE: I think staff ought to 10:50 6 have their crack at this point, if you're in 10:50 7 agreement. 10:50 8 COMMISSIONER SADBERRY: I'm in 10:50 9 agreement with that, because that is a -- an important 10:50 10 point that we would like input on. 10:50 11 MS. KIPLIN: Ms. Schultz, let me ask 10:50 12 you before you go on, are the documents that you just 10:50 13 handed, are these documents part of the record? 10:50 14 MS. SCHULTZ: Yes, they are. 10:50 15 CHAIRMAN CLOWE: And your comments are 10:50 16 going to be in the record? 10:50 17 MS. SCHULTZ: Yes, they are. I am Kaye 10:50 18 Schultz, for the record, assistant general counsel. I 10:50 19 represented the Commission -- 10:50 20 CHAIRMAN CLOWE: I'm going to stand up. 10:50 21 I'm not getting ready to speak. I'm going to rest my 10:50 22 knee by doing so. Will you continue. 10:50 23 MS. SCHULTZ: And please let me know if 10:50 24 you can't hear me. These are all documents that were 10:50 25 in the record. The first was in two different places. 10:50 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 102 1 I believe, in Exhibit 3, which was a voluminous 10:50 2 document, but it's the auditor's report. The second 10:50 3 is actually one of the licensee's exhibits. It's 10:50 4 handwritten on there because it was just brought to 10:50 5 the hearing this way, but that was Exhibit 21, 10:50 6 admitted by the licensee. And the third and fourth 10:51 7 pages are Exhibit 10, as indicated on the bottom. 10:51 8 Also, the fifth page is Exhibit 10. 10:51 9 Commissioners, this proposal for 10:51 10 decision supports denial of this organization's 10:51 11 license to conduct bingo. And I think we're here on 10:51 12 some serious charges, 30 illegal bingo sessions. And 10:51 13 I agree with Mr. Fenoglio, that that is the issue 10:51 14 here. We urge you to adopt this proposal for decision 10:51 15 based on the evidence that the American Business 10:51 16 Women's Association committed knowing violations of 10:51 17 the Bingo Enabling Act, and but for a complaint that 10:51 18 resulted in an audit of the organization, would have 10:51 19 continued to do so. The illegal sessions stopped on 10:51 20 August 7th, 1998. Why? Because on that date, a Texas 10:51 21 Lottery Commission investigator, and that's referenced 10:51 22 in that first page, which was part of Exhibit 3, 10:51 23 investigator Doug Shomette visited Ms. Scoggins, who 10:52 24 was the primary operator for the organization and a 10:52 25 witness at this hearing, and also spoke with 10:52 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 103 1 Ms. Needler, and informed her -- and Ms. Scoggins has 10:52 2 a degree in business, by the way. Informed them that 10:52 3 there had been a complaint that they were playing 10:52 4 outside the licensed times, that they were playing 10:52 5 these illegal sessions that were really under China 10:52 6 Springs Lions Club time. 10:52 7 That very same day, looking to the next 10:52 8 page, Mr. Clarence Weikel, a representative of the 10:52 9 China Springs Lions Club, who had been described at 10:52 10 the hearing in abstentia as very ill and very frail 10:52 11 and unable to attend these sessions and just unable to 10:52 12 participate much at all, made it into the bookkeeper's 10:52 13 office and signed a letter, and the China Springs 10:52 14 Lions Club relinquished its license. So literally on 10:52 15 that date the game was up. However, between then and 10:53 16 May, when China Springs had actually announced it was 10:53 17 going to stop playing bingo, bingo did not stop, 10:53 18 because American Business Women's was conducting 10:53 19 sessions under its own licensed times, which were 10:53 20 Tuesday, Wednesday and Thursday noon, and also under 10:53 21 China Springs' licensed times, which were Friday, 10:53 22 Saturday and Sunday evenings. 10:53 23 It's a knowing violation because the 10:53 24 organization's own records showed the organization 10:53 25 knew in June '98 that the Lions Club was not going to 10:53 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 104 1 play bingo any longer. And I'm referring you to 10:53 2 Exhibit 10. We played the weekend of June 5th, 6th, 10:53 3 7th, since the Lions Club could not, but we ran the 10:53 4 game and received the deposit of 2,626 dollars. All 10:53 5 of the records for these sessions, all of the records 10:53 6 in this case, indicate that they were American 10:53 7 Business Women's Association sessions. All of the 10:53 8 money went into American Business Women's Association 10:54 9 accounts. All of the workers at the sessions were 10:54 10 paid by American Business Women's Association checks. 10:54 11 They were never reimbursed by China Springs. China 10:54 12 Springs Lions Club never saw any of this money. The 10:54 13 American Business Women's Association's own 10:54 14 bookkeeper, Ms. Needler, admitted to the investigator 10:54 15 on the first page here that ABWA, the American 10:54 16 Business Women's Association, played on the China 10:54 17 Springs licensed nights. 10:54 18 Now, I'll read to you what the 10:54 19 administrative law judge made of Ms. Scoggins' attempt 10:54 20 to explain these meeting minutes. We played the 10:54 21 weekend of June 5th, 6th, 7th. She tried to say, we 10:54 22 meant American Business -- no. We meant China Springs 10:54 23 Lions Club, and it meant that because Mr. Weikel 10:54 24 couldn't, then Mr. Caudle came. That's what that 10:54 25 really meant. And the administrative law judge 10:54 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 105 1 states, Ms. Scoggins tried to explain away the 10:54 2 recorded minutes of the hearing by stating that 10:54 3 Mr. Weikel was always quitting and that she meant that 10:55 4 Lions Club held the bingo games. Ms. Scoggins' 10:55 5 explanation of what was said at ABWA's meetings was 10:55 6 not persuasive. And I submit that you should not be 10:55 7 persuaded either. 10:55 8 I think what counsel is trying to claim 10:55 9 is that there was no harm done here because ultimately 10:55 10 the State got the money it was due, prize fees were 10:55 11 paid, but keep that in mind that that only happened 10:55 12 because of the complaint and the audit. At the exit 10:55 13 interview of the audit after all of the discrepancies 10:55 14 had been found, this organization paid 5,400 dollars 10:55 15 in unpaid prize fees, and they also made more than 10:55 16 3,000 dollars in additional charitable contributions. 10:55 17 And the record, your first page there, indicates that 10:55 18 when asked if American Business Women's played any 10:55 19 nights on China Springs' license, that the bookkeeper, 10:55 20 Ms. Needler, replied that they did. And she said, no 10:56 21 one has filed or paid tax on those nights. And the 10:56 22 money is deposited in American Business Women's 10:56 23 Association bingo account. And I submit the evidence 10:56 24 shows that had the investigator not showed up and had 10:56 25 the audit been not ordered as a result, that money 10:56 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 106 1 would have never had prize fees paid on it. 10:56 2 A lot was made -- and again, I want to 10:56 3 reiterate that I don't think there was any diligence 10:56 4 here -- I don't think there is any new evidence to 10:56 5 warrant reopening a record when a hearing was held, no 10:56 6 request for continuance was made, no mention was made 10:56 7 of a vital witness that could not appear at that 10:56 8 point. New evidence requires due diligence and that 10:56 9 is not diligence. Mr. Caudle was mentioned at this 10:56 10 hearing, his name was invoked, and it was claimed that 10:56 11 you could prove that he worked for China Springs 10:56 12 because he only showed up on the nights when China 10:57 13 Springs played. So the mere fact that he was there 10:57 14 meant that it was a China Springs session. But that 10:57 15 is not true. The evidence shows that Caudle worked at 10:57 16 the bingo hall for whichever organization was 10:57 17 conducted there, not exclusively for China Springs. 10:57 18 There was testimony by Ms. Scoggins herself that at 10:57 19 one time, both China Springs and American Business 10:57 20 Women's Association played on Fridays, Saturday and 10:57 21 Sundays evenings. They played back to back sessions. 10:57 22 One played first, then the other. And on those times, 10:57 23 Mr. Caudle, who is a former deputy sheriff, worked for 10:57 24 both organizations. But when the American Business 10:57 25 Women's Association moves its times to noontimes 10:57 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 107 1 Tuesday, Wednesday and Thursday, he couldn't because 10:57 2 he had a day job. He couldn't work. So she testified 10:57 3 on the record that he stopped showing up and working 10:58 4 for American Business Women's Association because he 10:58 5 couldn't. The time conflicted with his day job. The 10:58 6 fact that he showed up and worked at those sessions 10:58 7 that were the illegal sessions is no evidence that 10:58 8 they were China Springs sessions. He was written 10:58 9 checks by American Business Women's Association, he 10:58 10 worked there because he was employed to work in the 10:58 11 bingo hall part-time. 10:58 12 And with regard to China Springs, the 10:58 13 evidence in the record there was that the auditor in 10:58 14 this case, Ms. Johnson, Sharon Johnson, was also 10:58 15 auditing China Springs and had spoken with 10:58 16 representatives of China Springs and they complained, 10:58 17 bingo is being conducted under our name, but we're not 10:58 18 getting any of the money. They were complaining too, 10:58 19 the evidence would show. They were not willing 10:58 20 participants in this. I submit that this Mr. Weikel, 10:58 21 who is very ill and elderly, just didn't participate, 10:58 22 and they said and their own minutes reflect that, 10:58 23 we've got to do something. You know, we have to get 10:59 24 somebody in here to play these sessions or we'll lose 10:59 25 our slots and, gee, what will we do. 10:59 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 108 1 The minutes of June 16th, 1998, 10:59 2 Ms. Scoggins had just been notified that the China 10:59 3 Springs Lions Club was discontinuing bingo effective 10:59 4 immediately, even though all times appear to be 10:59 5 increasing in attendance, it must be determined which 10:59 6 will be the best time to keep, day or evenings. We 10:59 7 can only play three games per week unless we get 10:59 8 another organization to come in. 10:59 9 Well, they had that other organization, 10:59 10 but all the money shows that it went to them, and to 10:59 11 their accounts. In fact, there were even in the 10:59 12 record slips from these daily deposit sheets, which 10:59 13 are just basically, you know, printed name at the top, 10:59 14 where they had crossed out Lions Club and written in 10:59 15 ABWA. So there is clear indication that they knew 10:59 16 these were their records. 10:59 17 Ms. Scoggins is a primary operator for 11:00 18 the American Business Women's Association, a 11:00 19 vice-president of the organization, and she is also a 11:00 20 cashier at the bingo hall, and a manager of the bingo 11:00 21 hall. She had a degree in business, so she was well 11:00 22 aware of the situation. Mary Needler, the bookkeeper, 11:00 23 who is Ms. Scoggins' sister-in-law, was a bookkeeper 11:00 24 for both organizations, she testified, but apparently 11:00 25 could only deposit money to one, not to the other. 11:00 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 109 1 The auditor asked for all records of the organization 11:00 2 when she initiated this audit in October 1998. 11:00 3 However, she nor any of us knew until the day of this 11:00 4 hearing that there was apparently, according to 11:00 5 Ms. Needler's testimony, a second set of books that 11:00 6 she testified, showing how the amounts were separated 11:00 7 out for American Business Women's Association and 11:00 8 China Springs. But they had not produced any of these 11:00 9 books because the auditor had not asked for them, 11:01 10 prompting me to respond that perhaps the auditor 11:01 11 should be adding a little box to the bottom of the 11:01 12 exit interview form saying, are there any additional 11:01 13 second set of books that you have kept that you 11:01 14 have -- they were asking for all records, and all 11:01 15 relevant records would have certainly included these 11:01 16 records, but these records were never produced, nor 11:01 17 never referred to until the day of the hearing. 11:01 18 At the hearing, the records that are in 11:01 19 evidence do show records prepared by Ms. Needler 11:01 20 herself. She testified that she prepared these 11:01 21 records herself. It was an exhibit there, listing 11:01 22 American Business Women's Association -- I don't know 11:01 23 the exact heading of it, but it was something to the 11:01 24 effect of, times played and deposits made for June, 11:01 25 July and August of 1998. And it had Tuesday, 11:01 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 110 1 Wednesday, Thursday sessions, and also, the Friday, 11:02 2 Saturday, Sunday sessions, all listed as American 11:02 3 Business Women's Association sessions. We did not 11:02 4 learn about these second set of books until the 11:02 5 hearing that would supposedly exonerate. 11:02 6 So we submit that there is -- there is 11:02 7 no fault here on the part of the Lions Club, and at 11:02 8 any rate, that would be a separate record from this 11:02 9 case. If they were audited, if they were still 11:02 10 playing, they would be up here before an audit, but 11:02 11 they had actually also complained. And I agree with 11:02 12 Mr. Fenoglio, you know, look to the substance of this. 11:02 13 And the substance of this is that this organization 11:02 14 was conducting under its own time and under the time 11:02 15 of another organization that was about to fold but 11:02 16 hadn't quite done that yet. When they were caught, 11:02 17 when the complaint came forward, the investigator came 11:02 18 forward and the audit was initiated, they said, all 11:02 19 right. It's up. And they called in Mr. Weikel and 11:02 20 had him relinquish the license and that stopped. But 11:03 21 the money did not go where it belonged until that 11:03 22 complaint was initiated, until the audit was 11:03 23 initiated. 11:03 24 And, again, I'll go back to what the 11:03 25 administrative law judge concluded. She heard all of 11:03 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 111 1 this. She said, it was clear from the evidence that 11:03 2 the Lions Club was not conducting the bingo games 11:03 3 being held from May 22nd to August 2nd at the Franklin 11:03 4 Bingo Hall on Friday, Saturday and Sunday. American 11:03 5 Business Women's Association was. The number -- the 11:03 6 amount of time and number of games played compounds 11:03 7 the violation. This was not an isolated incident. 11:03 8 ABWA's operator and its members knew they could 11:03 9 conduct bingo games only during times licensed by the 11:03 10 Commission. In fact, they filed an application to 11:03 11 amend the days and times they conducted bingo so they 11:03 12 could play Tuesday, Wednesday and Thursday. And as 11:03 13 their own records of their own meetings show, they 11:03 14 were well aware of what was going on. 11:04 15 CHAIRMAN CLOWE: Do you want to hear a 11:04 16 response? 11:04 17 COMMISSIONER SADBERRY: Yeah. I -- the 11:04 18 only thing I -- and I had raised it to Mr. Fenoglio, 11:04 19 and Mr. Chairman, I think you're correct, that staff 11:04 20 have some opportunity to merge the presentation. I 11:04 21 had asked you, Mr. Fenoglio, about the records. I am 11:04 22 interested, and I did not intend to mean, you know, 11:04 23 find it and produce it and all that. I just want to 11:04 24 know what we're talking about. What kind of record is 11:04 25 it that makes this distinction. Are these the books 11:04 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 112 1 that Ms. Schultz was talking about -- 11:04 2 MR. FENOGLIO: Yes. It is Exhibit 7 11:04 3 that was admitted into the record. 11:04 4 COMMISSIONER SADBERRY: I just wanted 11:04 5 that referenced for our record, to know what document 11:04 6 we're talking about. Is that basically the substance 11:04 7 of the defense of your client, that it -- that the 11:04 8 record supports its contention that it did not conduct 11:04 9 bingo at these sessions at issue? 11:04 10 MR. FENOGLIO: Well, the testimony 11:05 11 from -- that's in the record and the records 11:05 12 themselves, yes. It was a recap by Ms. Needler. 11:05 13 Ms. Needler wasn't at the bingo hall. Most 11:05 14 bookkeepers aren't. And so she would take records, 11:05 15 the daily cash sheets, if you will, transaction, 11:05 16 usually one-page documents, and recap them for Lions 11:05 17 Club or ABWA. And she does that today with the other 11:05 18 two charities. 11:05 19 COMMISSIONER SADBERRY: Now, do I 11:05 20 understand that the additional witnesses that you 11:05 21 propose today who were not in the record would 11:05 22 essentially tell us about the organization? 11:05 23 MR. FENOGLIO: Yes. 11:05 24 COMMISSIONER SADBERRY: As opposed to 11:05 25 the issue of conducting bingo? 11:05 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 113 1 MR. FENOGLIO: Yes. 11:05 2 COMMISSIONER SADBERRY: Mr. Chairman -- 3 MR. FENOGLIO: I would have one 11:05 4 rebuttal point to what Ms. Schultz said. 11:05 5 COMMISSIONER SADBERRY: Go ahead. I'm 11:05 6 not going -- you thought I was getting ready to make a 11:05 7 motion of substance and I'm not. I was going to make 11:05 8 a motion that we not -- that -- to sustain the 11:05 9 objection to opening the record to these additional 11:06 10 witnesses testifying at this point. 11:06 11 CHAIRMAN CLOWE: And you want to let 11:06 12 Mr. Fenoglio -- 11:06 13 COMMISSIONER SADBERRY: I do want to 11:06 14 allow him to make his -- I just want to procedurally 11:06 15 get to that issue. 11:06 16 CHAIRMAN CLOWE: Good. 11:06 17 Go right ahead, sir. 11:06 18 MR. FENOGLIO: Thank you. 19 The handout that Ms. Schultz gave 20 you -- 21 MS. KIPLIN: Wait one second. I'm 11:06 22 sorry. You said you made a motion to sustain -- 11:06 23 CHAIRMAN CLOWE: No, no. He was not -- 11:06 24 he said he was going to, but he didn't. 11:06 25 MS. KIPLIN: Okay. 11:06 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 114 1 CHAIRMAN CLOWE: He did not make a 11:06 2 motion. 11:06 3 MS. KIPLIN: It's like, where is the 11:06 4 second, or not. 11:06 5 MR. FENOGLIO: Okay. The handout 11:06 6 Ms. Schultz gave you, and I would like to request from 11:06 7 Ms. Schultz, if I may, a copy of the transcript at an 11:06 8 appropriate time. It's my recollection that this was 11:06 9 not admitted for the truth of the matters asserted in 11:06 10 the first page, for the simple reason that it 11:06 11 contained hearsay of a witness who was not available. 11:06 12 And I recall making an objection to a document 11:06 13 concerning an audit issue, and it's been since April, 11:06 14 so I don't know. So I don't want you to think that 11:07 15 I've waived that issue of considering the -- just the 11:07 16 first page. The other issues, the August 7th, '98, 11:07 17 that's Exhibit 21 that was admitted, the minutes of 11:07 18 the called meeting -- of certain meetings, is a part 11:07 19 of the Exhibit 10, but it's the first page that I 11:07 20 believe the truth of the matters asserted was 11:07 21 sustained, because neither Mr. Shomette nor 11:07 22 Mr. Gabrillo were presented as witnesses. 11:07 23 So let me -- 11:07 24 MS. SCHULTZ: If I may respond briefly 11:07 25 to that, Commissioners? 11:07 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 115 1 CHAIRMAN CLOWE: Okay. 2 MS. SCHULTZ: I reread this transcript 11:07 3 as recently as yesterday, and reread it very 11:07 4 extensively, because of a comment that had been made 11:07 5 in the exceptions by counsel to an exhibit that was 11:07 6 attempted to be admitted but was not. And there was 11:07 7 no such thing in the record, and the entire Exhibit 3, 11:07 8 of which this is a part and was actually in there 11:07 9 twice, was admitted. The only proviso was that there 11:08 10 were some violations in the audit that were not part 11:08 11 of the hearing, and the exception was that the judge 11:08 12 would make no reference to or allow testimony from 11:08 13 exhibits or parts of Exhibit 3 that did not relate to 11:08 14 the violations in question. And the violation in 11:08 15 question was the 30 illegal sessions. So there was no 11:08 16 specific discussion of this document at all. In fact, 11:08 17 the reason that Doug Shomette, this investigator, came 11:08 18 up at all is that the licensee's witnesses referred to 11:08 19 his visit and referred to him coming to talk to them 11:08 20 about the complaint. 11:08 21 CHAIRMAN CLOWE: And you had a further 11:08 22 comment, Mr. Fenoglio? 11:08 23 MR. FENOGLIO: I do. And at a 11:08 24 appropriate time I would like a copy of the 11:08 25 transcript, if I may. 11:08 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 116 1 Ms. Schultz referenced the auditor who 11:08 2 conducted the investigation, and that was most 11:09 3 revealing what she didn't tell you. Sharon Johnson 11:09 4 was her name. She testified that she did talk to two 11:09 5 Lions Club members who had complained, if you will, 11:09 6 quote unquote, of the unauthorized bingo. She 11:09 7 couldn't identify either one. Ask yourself, if you're 11:09 8 an auditor and one of the issues is, there is a 11:09 9 complaint of illegal bingo, wouldn't you think an 11:09 10 auditor, a competent auditor, would at least record 11:09 11 those names and put them in the report? The exhibits 11:09 12 that were introduced are multiple hundreds of pages. 11:09 13 There is not one reference to any person of that. 11:09 14 The other thing about Ms. Johnson, she 11:09 15 was informed and she admitted under oath that 11:09 16 Ms. Needler and Ms. Scoggins both told her that 11:09 17 Mr. Weikel and Mr. Caudle could explain the 30 bingo 11:09 18 session issue. She never once called either one of 11:09 19 those gentlemen. Ask yourselves why an auditor, who 11:10 20 is trying to get to the bottom of it, would not ask 11:10 21 two, one of -- at least one of the two who were there 11:10 22 during the times in question, and she didn't. And I 11:10 23 asked her why she didn't and she said, well, I just 11:10 24 didn't. So I mean, when I look at it, I mean, it 11:10 25 seems like someone had a conclusion and they only 11:10 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 117 1 wanted evidence that would sustain their conclusion. 11:10 2 I didn't make that up. That's not new evidence that's 11:10 3 in the record. Ms. Johnson under oath couldn't 11:10 4 identify the complaining witnesses, which as an 11:10 5 auditor, I find incredible. And when asked -- or when 11:10 6 informed there were two people who could shed light on 11:10 7 the issue that she's focused on, she doesn't ask them 11:10 8 for their questions. Had she asked Mr. Weikel, had 11:10 9 she certainly asked Mr. Caudle, Mr. Caudle could have 11:10 10 laid the issue to rest, at least in his mind. So when 11:11 11 they -- when the staff talks in terms of what the 11:11 12 record is, it's also important for you gentlemen to 11:11 13 understand what the record is not. 11:11 14 COMMISSIONER SADBERRY: That -- you did 11:11 15 all that at the hearing itself? 11:11 16 MR. FENOGLIO: Yes. That was in 11:11 17 evidence in the hearing. 11:11 18 MS. SCHULTZ: And if I may briefly 11:11 19 respond, Your Honor. 20 Ms. Johnson audited both of these 11:11 21 organizations and at that time was there to testify on 11:11 22 American Business Women's. She did state that she 11:11 23 didn't at that time recall the names of the people she 11:11 24 talked to from China Springs, but that if she could 11:11 25 look at her China Springs audit, she may bring them to 11:11 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 118 1 mind. But we weren't there on the China Springs 11:11 2 audit. 11:11 3 What auditors do when they do an audit 11:11 4 is, they contact the people who are the official 11:11 5 representatives of the organization, and that would 11:11 6 have been Ms. Needler, and also Ms. Debbie Scoggins, 11:11 7 the primary operator. They are the ones who they 11:11 8 asked for the records from, and they mainly do this 11:11 9 based on records. They're auditing the records of the 11:11 10 organization. They're following the paper trail. 11:12 11 Certainly, the organization then has an exit interview 11:12 12 where they're shown these findings and said, look. 11:12 13 Certainly, then the organization would have any 11:12 14 opportunity possible, up to and including a hearing, 11:12 15 to present evidence and present witnesses who they 11:12 16 believed could show that information in a different 11:12 17 light, so to speak, than the audit makes it appear. 11:12 18 They chose not to do that. And I don't believe it's 11:12 19 the obligation of an auditor to go to every person who 11:12 20 is mentioned in an exit interview and say, all right. 11:12 21 This is a denial, and the burden of proof is on the 11:12 22 licensee to come forward. And the opportunity at the 11:12 23 hearing, the place for that to happen, and we're 11:12 24 talking to you based on the testimony and the evidence 11:12 25 that was admitted at that hearing. 11:13 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 119 1 COMMISSIONER SADBERRY: Now, am I 11:13 2 correct that we're here on a renewal issue? 11:13 3 MS. SCHULTZ: It is a renewal, yes. 11:13 4 COMMISSIONER SADBERRY: Did the 11:13 5 investigation -- the audit investigation take place as 11:13 6 a result of the renewal process or was it independent 11:13 7 of that process? 11:13 8 MS. SCHULTZ: The audit investigation 11:13 9 took place as a result of a complaint and the 11:13 10 investigator saying that it appears to me that there 11:13 11 is something, if you look at his memo. But he is 11:13 12 writing to the audit manager and asking for the audit. 11:13 13 At the time, Mr. Gabrillo was the Dallas audit 11:13 14 manager. That's what initiated the audit. 11:13 15 MR. FENOGLIO: And my 30-second 11:13 16 response. 11:13 17 COMMISSIONER SADBERRY: And if you 11:13 18 would, take this into consideration, because I'm 11:13 19 hearing you to suggest something is wrong with the 11:13 20 investigation, although that's not specifically in 11:13 21 front of us, but as I presume you would want to make a 11:13 22 record, I want to know what you're talking about. 11:13 23 MR. FENOGLIO: If this were a highly 11:13 24 formalized process, then staff may have a valid point. 11:13 25 But the Commission, since I've been in front of this 11:14 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 120 1 agency, and I've been in front of this agency on bingo 11:14 2 matters since y'all took over bingo, has prided itself 11:14 3 on being a friendly agency to charities and wanting to 11:14 4 help charities. The type of formalistic setting that 11:14 5 Ms. Schultz is suggesting that staff has undertaken, 11:14 6 flies directly in the face of that process. To 11:14 7 suggest that, well, we got you, charity. A charity 11:14 8 that doesn't have a professional staff, we've got you. 11:14 9 We're aware that there may be some other evidence, but 11:14 10 we're not going to go out and uncover it because we 11:14 11 got you, I'm suggesting, yes, that that process is 11:14 12 flawed. That a good auditor, one that from an agency 11:14 13 that wants to pride itself for sheltering and helping 11:14 14 charities meet their commitments for charitable bingo, 11:14 15 would have gone the extra mile and said, okay. I need 11:14 16 to find out from the two people, or at least one of 11:15 17 the two people who could actually shed some light on 11:15 18 one of the central issues in my audit findings and, by 11:15 19 the way, the only issue at the hearing. 11:15 20 COMMISSIONER SADBERRY: But isn't your 11:15 21 remedy the administrative process itself, and didn't 11:15 22 you get that remedy afforded to you to present all of 11:15 23 your evidence? 11:15 24 MR. FENOGLIO: We have a hearing 11:15 25 remedy, yes, Your Honor, we do. No question about it. 11:15 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 121 1 And it's unfortunate, but that's the way it is 11:15 2 sometimes, that witnesses are unavailable for 11:15 3 whatever, you know, job commitment. Had we had the 11:15 4 hearing in Waco, Texas, I'm sure Mr. Caudle could have 11:15 5 attended, in Waco, Texas. That would have been 11:15 6 totally inconvenient for everything but Mr. Caudle, 11:15 7 but, you know, that's the process. But I mean, when 11:15 8 you look at the issue of, an auditor is confronted 11:15 9 with someone who has direct -- yes, his or her primary 11:15 10 focus is on the books issue, but one of her findings 11:16 11 is, unauthorized bingo, who can help show that. 11:16 12 Ms. Needler and Ms. Scoggins, unquestionably. Who 11:16 13 else could help show that. The people who were 11:16 14 actually there, not unnamed people who purported to 11:16 15 represent the Lions Club. And I suggest to you that 11:16 16 that's kind of -- in a highly formalistic trial 11:16 17 setting, those are the rules of the game. At the 11:16 18 Lottery Commission, what this agency has prided itself 11:16 19 on, I think that flies in the face of it. 11:16 20 COMMISSIONER SADBERRY: I understand. 11:16 21 CHAIRMAN CLOWE: I had a question that 11:16 22 I believe is within the record, based on what I heard. 11:16 23 And please correct me if I go beyond that. Is the 11:16 24 lady here who kept the books for the AWBA and made the 11:16 25 deposits to their account from bingo sessions from the 11:16 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 122 1 China Springs Lions Club activity? 11:16 2 MR. FENOGLIO: Yes. Ms. Needler kept 11:17 3 the books for both organizations. 11:17 4 CHAIRMAN CLOWE: Are you that lady? 11:17 5 Would it be within the record for me to 11:17 6 ask this lady why she did that and how she managed 11:17 7 that in her business sense? How she felt that was 11:17 8 correct? 11:17 9 MS. KIPLIN: I think if it's part of 11:17 10 the record already and it's just a redundancy and 11:17 11 you're just wanting to judge her demeanor and her 11:17 12 credibility for yourself, then it is. And I'm going 11:17 13 to have to defer to both counsel to help answer the 11:17 14 question of whether that kind of a response would be 11:17 15 within the record. 11:17 16 CHAIRMAN CLOWE: I -- the reason I'm 11:17 17 asking that is it looms in my mind as a substantial 11:17 18 issue. And if both counsel don't have any objection, 11:17 19 I would like to hear from the lady as to what her 11:17 20 thinking was when she did that. If you don't agree, 11:17 21 let me hear from you. 11:17 22 MS. SCHULTZ: To the extent that it 11:17 23 would contradict anything that's already in the 11:17 24 record, I object. But it's very difficult for me to 11:18 25 say right now exactly what she said and didn't say. 11:18 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 123 1 She did address it in the record. So to the extent 11:18 2 that it contradicts or goes outside of what is already 11:18 3 in the record, I would object. 11:18 4 MR. FENOGLIO: And Ms. Schultz has read 11:18 5 the transcript, I have not. But Ms. Needler was there 11:18 6 and described the bookkeeping practices. Exhibit 10 11:18 7 is her document that reflects the accounting 11:18 8 associated with China Springs. 11:18 9 COMMISSIONER SADBERRY: Was it ten or 11:18 10 seven? 11:18 11 MR. FENOGLIO: I'm sorry? 11:18 12 COMMISSIONER SADBERRY: Which exhibit 11:18 13 number? 11:18 14 MR. FENOGLIO: Exhibit 7, I'm sorry. 11:18 15 MS. SCHULTZ: And for the record -- 11:18 16 CHAIRMAN CLOWE: Let's take a try. 11:18 17 MS. SCHULTZ: For the record, 11:18 18 Commissioners, there is nothing in Exhibit 7 that 11:18 19 refers to China Springs. It's American Business 11:18 20 Women's Association records. 11:18 21 CHAIRMAN CLOWE: Okay. But they were 11:18 22 proceeds from bingo games and conducting the game that 11:18 23 were not AWBA. 11:19 24 MS. SCHULTZ: Correct. 11:19 25 CHAIRMAN CLOWE: And so how did you 11:19 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 124 1 deal with that? 11:19 2 MS. NEEDLER: I'm Mary Needler. 11:19 3 I'm sorry. What was the question? 11:19 4 CHAIRMAN CLOWE: How did you determine 11:19 5 in your mind to take those monies and put that in the 11:19 6 AWBA account? 11:19 7 MS. NEEDLER: Okay. Now, I did not 11:19 8 make the direct deposits because I was not in charge 11:19 9 of the deposits or -- I got the records, the daily 11:19 10 records, after the games were played. I was aware 11:19 11 that Monday -- I mean, Tuesday, Wednesdays and 11:19 12 Thursdays were ABWA games, and Friday, Saturday and 11:19 13 Sundays were China Springs Lions games. 11:19 14 CHAIRMAN CLOWE: So you did not make 11:19 15 the deposits? 11:19 16 MS. NEEDLER: I did not make deposits. 11:19 17 I was not at the games. 11:19 18 CHAIRMAN CLOWE: Okay. Who made the 11:19 19 deposits, do we know? 11:19 20 MS. KIPLIN: You're asking that of the 11:20 21 counsel or -- 11:20 22 CHAIRMAN CLOWE: I'm asking that of 11:20 23 Mr. Fenoglio. 11:20 24 MR. FENOGLIO: Ms. Scoggins, who is 11:20 25 here. 11:20 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 125 1 CHAIRMAN CLOWE: Can she answer that 11:20 2 question? 11:20 3 MR. FENOGLIO: Yes. 11:20 4 MS. KIPLIN: Is that part of the 11:20 5 record? 11:20 6 MS. SCHULTZ: I'm not aware that it is, 11:20 7 no. 11:20 8 CHAIRMAN CLOWE: Then I'm sorry. I 11:20 9 withdraw the question. 10 COMMISSIONER SADBERRY: Well, we can 11 decide that (inaudible). 12 CHAIRMAN CLOWE: Well, I think right 11:20 13 now we're staying within the record. 11:20 14 COMMISSIONER SADBERRY: You want to 11:20 15 stay within it? 11:20 16 CHAIRMAN CLOWE: I think -- yeah. I 11:20 17 would rather not get outside the record until we make 11:20 18 that decision, and so far we're -- 11:20 19 MR. FENOGLIO: I believe it's on the 11:20 20 record. I mean, the whole issue of the hearing was 11:20 21 what money was deposited and whose money was it, but 11:20 22 again, I haven't read the transcript, and it's been 11:20 23 six or nine months since the hearing. 11:20 24 CHAIRMAN CLOWE: My question I think is 11:20 25 only germane if we go outside the record and go well 11:20 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 126 1 beyond. I would like to stay in the record for this 11:20 2 discussion. 11:20 3 MS. SCHULTZ: I can tell you that the 11:20 4 record clearly indicated that the money went into 11:20 5 American Business Women's Association accounts. What 11:21 6 I am not clear on and what I do not recall is if it 11:21 7 was asked specifically who made those deposits. 11:21 8 CHAIRMAN CLOWE: Well, I think I got 11:21 9 that. I got that. But the question, how you take 11:21 10 money from some source and put it in your bank 11:21 11 account, and say, well, this isn't my money, but it's 11:21 12 there and the interest that it draws and -- it's a 11:21 13 business question. And if it's not on the record, 11:21 14 let's don't go into it at this time. 11:21 15 You spoke of a motion that you were 11:21 16 thinking about making. 11:21 17 COMMISSIONER SADBERRY: That got 11:21 18 floated out there. 11:21 19 My motion, Mr. Chairman, if I may make 11:21 20 it now, is to sustain the second objection of staff to 11:21 21 hearing presentations or testimony outside the record. 11:21 22 And I think that has to do with the additional 11:21 23 witnesses, in addition to the first witness, 11:22 24 Mr. Caudle, I believe. And I so move. 11:22 25 CHAIRMAN CLOWE: And I second. 11:22 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 127 1 All in favor say aye. Opposed, no. 11:22 2 The vote is two-zero to sustain the 11:22 3 objection. 11:22 4 I think we're now to a time where we 11:22 5 have heard this fairly completely, if you're 11:22 6 satisfied, Commissioner. 11:22 7 COMMISSIONER SADBERRY: I am. 11:22 8 CHAIRMAN CLOWE: And I think it's time 11:22 9 for a motion to uphold the recommendation to deny the 11:22 10 renewal of the license or to deny the motion of the 11:22 11 judge. 11:22 12 MS. KIPLIN: It would be from -- let me 11:22 13 say this, just to get it clean, and then you can tell 11:22 14 me if that does not capture what you're saying. I 11:22 15 hear you to be saying that you're making a motion to 11:22 16 adopt the administrative law judge's amended order, 11:22 17 which would have the effect of denying American 11:22 18 Business Women's Association, Lone Star Chapter's 11:22 19 renewal application. 11:23 20 CHAIRMAN CLOWE: That is correct. And 11:23 21 that is embodied in item seven of the proposed 11:23 22 inclusions of law on page eight of that document. 11:23 23 COMMISSIONER SADBERRY: Now, I heard 11:23 24 that the Chairman was saying it is time to entertain 11:23 25 such a motion. 11:23 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 128 1 MS. KIPLIN: Sorry. 11:23 2 COMMISSIONER SADBERRY: I'm just being 11:23 3 clear in what I heard, because the next thing, if I'm 11:23 4 accurate in what I heard, I was going to make such a 11:23 5 motion to do so. 11:23 6 CHAIRMAN CLOWE: And before you make 11:23 7 that motion. As a matter of information, assuming 11:23 8 that motion is made and carried, then the next step 11:23 9 for these folks is appeal? 11:23 10 MS. KIPLIN: No. The next step would 11:23 11 be to file a motion for a rehearing. If no motion for 11:23 12 rehearing is filed, no timely motion for rehearing is 11:23 13 filed, then there is no -- there is no right of 11:23 14 judicial review. 11:23 15 CHAIRMAN CLOWE: Then Mr. Fenoglio, if 11:23 16 he makes that application, can go back in, making a 11:23 17 motion for the hearing to be reopened and introduce 11:24 18 the witnesses and evidence that did not come before 11:24 19 the judge prior? 11:24 20 MR. FENOGLIO: Well -- 11:24 21 MS. KIPLIN: Well, the motion for 11:24 22 rehearing would be to take issue with your action 11:24 23 today, with the order, and would set out with 11:24 24 specificity the legal basis, the reasons why your 11:24 25 order today is incorrect. It would not be, without 11:24 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 129 1 some action by the Commission at a time in which that 11:24 2 action would be right, that would not allow this 11:24 3 licensee or Mr. Fenoglio to go to SOAH, to the State 11:24 4 of Administrative Hearings, to have any sort of 11:24 5 remanded hearing opportunity to take in additional 11:24 6 evidence. 11:24 7 CHAIRMAN CLOWE: And who adjudicates 11:24 8 that motion? 11:24 9 MS. KIPLIN: The motion for rehearing 11:24 10 is filed with the agency and it comes before you, the 11:24 11 Commission. 11:24 12 COMMISSIONER SADBERRY: And I think 11:24 13 Mr. Fenoglio has promised us that he would do so. I 11:24 14 guess my next question would be, what would be the 11:24 15 eligibility of Commissioner Whitaker to participate? 11:24 16 And I'm trying to hark back to law school, 11:25 17 administrative law days, and if an official who is not 11:25 18 at this hearing but does read the record, that 11:25 19 official can participate in the subsequent 11:25 20 proceedings. And I believe they can, but I want to 11:25 21 see what you say about that. 11:25 22 MS. KIPLIN: I am not aware of any bar 11:25 23 to a commissioner being part of that decision making 11:25 24 process when a motion for rehearing would be filed. 11:25 25 But I think Mr. Fenoglio and Ms. Schultz are here, and 11:25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 130 1 if they have anything to say, I'm sure they will speak 11:25 2 up. But I am not aware of any bar whatsoever to that. 11:25 3 It would be a new document that would be in front of 11:25 4 the Commission and it would stand on its own merits, 11:25 5 based on the contents of that document. 11:25 6 COMMISSIONER SADBERRY: Okay. 11:25 7 MS. KIPLIN: And then argument, of 11:25 8 course, if y'all would entertain it, that would be 11:25 9 made at the appropriate time. 11:25 10 CHAIRMAN CLOWE: Then I have another 11:25 11 question. If that motion were made and carried, and 11:25 12 the license would not be renewed, where does that put 11:26 13 the AWBA in regard to conducting games and for what 11:26 14 period of time? 11:26 15 MS. KIPLIN: The -- all rights -- 11:26 16 CHAIRMAN CLOWE: ABWA. Pardon me. 11:26 17 MS. KIPLIN: All rights appurtenant to 11:26 18 the license, notwithstanding the fact that you would 11:26 19 sign an order today denying the renewal application, 11:26 20 all rights appurtenant to that license would continue 11:26 21 until such time as the order is final. The order 11:26 22 would be final if no motion for rehearing were timely 11:26 23 filed. If a motion for rehearing was timely filed, 11:26 24 then that order is not final until such time as the 11:26 25 motion is overruled by operational law or you all take 11:26 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 131 1 action to grant the motion for rehearing and then take 11:26 2 some -- whatever that action would be. So the bottom 11:26 3 line for today is that all of their rights continue. 11:26 4 CHAIRMAN CLOWE: Thank you very much. 11:26 5 That's all the questions I have. Do 11:26 6 you have a motion, Commissioner? 11:26 7 COMMISSIONER SADBERRY: I do. And I 11:26 8 want to make sure Mr. Atkins doesn't have something to 11:26 9 say. Maybe he disagrees with something. Because this 11:27 10 is a renewal and I'm wondering -- any change? 11:27 11 MS. KIPLIN: Not from me. 11:27 12 CHAIRMAN CLOWE: Did Mr. Atkins have 11:27 13 anything he wanted to add? 11:27 14 MR. ATKINS: It's a good thing 11:27 15 Mr. Atkins is working out. 11:27 16 Staff supports the ALJ's recommendation 11:27 17 to deny the license. 11:27 18 CHAIRMAN CLOWE: And that's it? 11:27 19 MR. ATKINS: Yes, sir. 11:27 20 COMMISSIONER SADBERRY: Mr. Chairman, 11:27 21 if it's appropriate, I would move to adopt the 11:27 22 amended, I understand, proposed decision of the 11:27 23 administrative law judge to deny the application for 11:27 24 renewal of the license. 11:27 25 CHAIRMAN CLOWE: I second that motion. 11:27 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 132 1 All in favor say aye. Opposed, no. 11:27 2 The record should reflect the denial is 11:27 3 voted two-zero. 11:27 4 Is anyone else here, Mr. Fenoglio, for 11:27 5 your second case? 11:27 6 MR. FENOGLIO: I haven't looked yet. 11:28 7 If I could, could we get an indication from staff if 11:28 8 they'll oppose our request for the transcript, a copy 11:28 9 of the transcript? 11:28 10 MS. SCHULTZ: I don't oppose such a 11:28 11 request. I will state that this is the first case in 11:28 12 which I have been against Mr. Fenoglio that he has not 11:28 13 had a transcript prior to the time I had one. But I 11:28 14 have no problem with providing a copy. 11:28 15 MR. FENOGLIO: My other -- the Red Men 11:28 16 4 case is here. If I could take two minutes to powder 11:28 17 my nose as it were and visit briefly with Ms. Garland? 11:28 18 Or if there are other cases y'all want to bring up and 11:28 19 then we can come back. 11:28 20 CHAIRMAN CLOWE: I think we all want to 11:28 21 take a little break right now. We're going to recess 11:28 22 for five minutes and then return, and if you're ready, 11:28 23 we'll go forward with your second case. 11:28 24 (RECESS.) 11:29 25 CHAIRMAN CLOWE: The Commission will 11:40 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 133 1 return to order. Is Mr. Fenoglio present and ready to 11:40 2 go forward with his case? 11:40 3 MR. FENOGLIO: Yes, Your Honor, we're 11:40 4 ready. We're just filling out the witness affirmation 11:40 5 form for Ms. Garland. 11:40 6 CHAIRMAN CLOWE: Very good. If that 11:40 7 rushes you, we can handle another item. Or are you 11:40 8 ready? 11:40 9 MR. FENOGLIO: We're ready. She's just 11:40 10 signing in. 11:40 11 CHAIRMAN CLOWE: Very good. 11:40 12 MS. KIPLIN: Commissioners, just for 11:40 13 housekeeping, there are two Red Men Council Number 4 11:40 14 cases that are before you. One is docket number 11:40 15 362-00-0404.B, the other one is 362-99-1278.B. I 11:40 16 believe one is before you on a motion for rehearing. 11:41 17 The other one is before you as a proposal for decision 11:41 18 and recommended order. And I guess it is the pleasure 11:41 19 of the Commission how you wish to proceed, which case 11:41 20 you would like to hear first. I would say -- 11:41 21 CHAIRMAN CLOWE: I believe -- is it 11:41 22 Ms. Garland is with Mr. Fenoglio? 11:41 23 MR. FENOGLIO: Yes, Your Honor. Lisa 11:41 24 Garland, who is the president of Red Men Number 4. 11:41 25 CHAIRMAN CLOWE: Then let's go forward WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 134 1 with that case which is, I believe, 1278.B. 11:41 2 MS. KIPLIN: Right. And there are two 11:41 3 Red Men 4 here, and what I -- I guess I'm suggesting 11:41 4 is, to the extent that you can keep the cases 11:41 5 discrete, it will help keep a good record for the 11:41 6 purposes -- for other purposes. 11:41 7 CHAIRMAN CLOWE: I understand that. 11:41 8 And then for clarification, Ms. Garland, are you here 11:41 9 on behalf of both of the Red Men cases? 11:42 10 MS. GARLAND: Yes, sir. 11:42 11 CHAIRMAN CLOWE: Okay. Then, 11:42 12 Commissioner Sadberry, if you're agreeable and staff 11:42 13 and Mr. Fenoglio, we'll begin with number 11:42 14 362-99-1278.B. 11:42 15 COMMISSIONER SADBERRY: That's 11:42 16 understandable and I agree, Mr. Chairman. 11:42 17 MR. FENOGLIO: Okay. And that's the 11:42 18 first one that we -- I believe -- I didn't have them 11:42 19 in front of me as -- 11:42 20 MS. KIPLIN: That is the one that is 11:42 21 before you that was passed from the last time. It is 11:42 22 not the motion for rehearing. Does that help? 11:42 23 MR. FENOGLIO: Yes, it does. 11:42 24 MS. SCHULTZ: Commissioners, we have no 11:42 25 objection to taking them up the way they are on the 11:42 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 135 1 agenda, which is the 0404 first, if that's the one 11:42 2 Mr. Fenoglio is prepared to discuss first. 11:42 3 MR. FENOGLIO: No, I don't care. And 11:42 4 1278, I'm ready for. 11:42 5 Commissioners: The Red Men 11:42 6 organization is a statewide -- actually, nationwide 11:42 7 fraternal organization, originally created as the old 11:43 8 Sons of Liberty from the American Revolution days. 11:43 9 You'll recall in your American history, Indians jumped 11:43 10 on the British ship in the Boston Harbor -- or 11:43 11 patriots dressed as Indians, pardon me, jumped on the 11:43 12 ship in Boston Harbor -- 11:43 13 CHAIRMAN CLOWE: That's the way I 11:43 14 remember it. You were giving me some new history -- 11:43 15 COMMISSIONER SADBERRY: I didn't know 11:43 16 about you -- 11:43 17 MS. KIPLIN: I'm trying to keep a 11:43 18 record. You're talking over each other. 11:43 19 MR. FENOGLIO: Okay. Hence the name 11:43 20 Red Men. They were originally known as the Sons of 11:43 21 Liberty. It's a fraternal, patriotic organization. 11:43 22 And they have a Congressional charter as a fraternal 11:43 23 organization. They're headquartered -- the state 11:43 24 organization and, coincidently, the national 11:43 25 organization is headquartered in good old Waco, Texas, 11:43 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 136 1 the heart of the state, and they operate as a charity 11:44 2 conductor, a number of their lodges, if you will, or 11:44 3 local organizations, throughout the state. Red Men 4 11:44 4 has been licensed to conduct bingo since 1983. 11:44 5 Ms. Garland has been the president of the organization 11:44 6 since about 1997. 11:44 7 The first case is a case that presents 11:44 8 a novel issue to the Commission in the form of what is 11:44 9 or isn't a rule, what is or isn't a policy. 11:44 10 Background, if I may. The case concerns the failure 11:44 11 of Red Men 4 to untimely file and pay quarterly 11:44 12 reports for eight discrete periods in, I believe, 1996 11:44 13 and '97, '98 time frame. '97 and '98, time frame. 11:44 14 Pardon me. Uncontested that they did not timely pay 11:45 15 and/or file everything for those periods. They did, 11:45 16 though, finally get it right. And that was before the 11:45 17 hearing date. And it's important for the Commission 11:45 18 to understand that in addition to filing the quarterly 11:45 19 reports that were fully and completely accepted by the 11:45 20 Commission, by the staff of the Charitable Bingo 11:45 21 Division, they also paid all the sums due to the State 11:45 22 including, most importantly, penalties and interest. 11:45 23 And you have a statute, 2001.508 of the government -- 11:45 24 I'm sorry, Occupations Code, the Bingo Enabling Act, 11:45 25 that says, the penalty for failure to timely pay or 11:45 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 137 1 file quarterly reports is a civil penalty. 11:45 2 Now, staff took it a step further and 11:45 3 they said, well, we're tired of dealing with this 11:46 4 charity and we want to revoke its license for failure. 11:46 5 At the hearing, and it's referenced in both the 11:46 6 narrative and in the findings of facts, the reasons 11:46 7 for that were made abundantly clear, and there are 11:46 8 five. Number one, was an unrelated business income 11:46 9 tax issue from the IRS related to pull tab sales. And 11:46 10 I don't know, Mr. Clowe, if you've been around long 11:46 11 enough to know about that very contentious issue. I 11:46 12 know Mr. Sadberry was here, in which the IRS took a 11:46 13 novel theory and penalized and, we submit, punished 11:46 14 charities by claiming that pull tabs are unrelated to 11:46 15 bingo and therefore subject to the special tax, UBIT, 11:46 16 unrelated business income tax. And it devastated a 11:46 17 number of charities, and it devastated this charity. 11:46 18 COMMISSIONER SADBERRY: Could you give 11:46 19 the year? I do recall it. Could you give the year, 11:46 20 for point of reference, in which that occurred? 11:47 21 MR. FENOGLIO: That occurred in an IRS 11:47 22 audit period in '96 and '97. And what IRS -- and it's 11:47 23 referenced in the PFD, took about 20,000 dollars of 11:47 24 the charity's money as a tax, UBIT tax, and penalty 11:47 25 and interest. So they were behind. And Ms. Garland, 11:47 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 138 1 by the way, took over in '96. So when she took over, 11:47 2 the fire fight had already been started and it 11:47 3 certainly continued on the UBIT issue. And hundreds 11:47 4 of charities, Mr. Chairman, suffered the same fate 11:47 5 around the state. 11:47 6 In any event, so that was the first and 11:47 7 by far one of the most devastating occurrences. The 11:47 8 next one was when Ms. Garland took over, she 11:47 9 discovered, and it's referenced in the PFD, that they 11:47 10 were actually behind on some other quarters. So she 11:47 11 had to get up to date for past failures that aren't a 11:47 12 part of this record and I don't believe were part of 11:47 13 any enforcement proceeding, but she got them caught up 11:47 14 in the '96 time frame. 11:47 15 The third issue was, the lessor filed 11:48 16 for bankruptcy and the hall was shut down for a period 11:48 17 of time, for several months. 18 The fourth issue was, they had a 11:48 19 five-alarm fire and for about three months the hall 11:48 20 was again shut down. 11:48 21 And then the final issue was 11:48 22 Ms. Garland's family health issues, severe health 11:48 23 issues that prohibited her from taking as close 11:48 24 attention as she should have done, and she has 11:48 25 admitted that, and so she didn't timely file some of 11:48 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 139 1 the quarterly reports. 11:48 2 But again, the most important issue is, 11:48 3 the State has been made whole in this issue, 11:48 4 unquestionably. 11:48 5 Now, the rule making issue. What we 11:48 6 developed in the hearing, and quite frankly, I still 11:48 7 can't understand why the staff hasn't remedied this 11:48 8 issue. You have an unwritten, I call it a rule. 11:48 9 Staff will call it, I believe, a policy. It's called 11:48 10 the three strikes policy. It's not ad hoc anymore, 11:48 11 and it is -- hasn't been ad hoc for over two years, 11:48 12 and staff, I believe, will tell you that. They 11:49 13 certainly admitted it in the record on the hearing. 11:49 14 And the three strikes policy is, every charity gets an 11:49 15 opportunity to mess up three times on the failure to 11:49 16 timely file or pay quarterly reports for three 11:49 17 occasions. After that, it doesn't matter what you do, 11:49 18 we're going to take your license. 11:49 19 When you look at what the definition of 11:49 20 a rule is under the Administrative Procedure Act, 11:49 21 Chapter 2001.004 of the Government Code, that is 11:49 22 exactly what the three strikes policy is, in my 11:49 23 opinion. And we filed some briefing on that and the 11:49 24 ALJ went through all of that. The ALJ sided in 11:49 25 substance with us and said, they should be given -- 11:49 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 140 1 the license should not be terminated, they should be 11:49 2 given another chance. We're here to uphold that. We 11:49 3 oppose, and we don't understand why staff wants to 11:49 4 change the language in the rule -- I'm sorry. In the 11:49 5 proposed final order. I'm not even sure that SOAH has 11:50 6 even been given a copy of what the language that staff 11:50 7 wants to change. And in any event, SOAH hasn't 11:50 8 disturbed its original findings of fact, conclusions 11:50 9 of law, and proposed order, which is, Red Men 4 11:50 10 continues its license. That is the sum and substance 11:50 11 of the case, 1278.B. 11:50 12 Ms. Garland is here, which she was a 11:50 13 witness at the hearing, and she is here to answer any 11:50 14 questions. I don't think -- I mean, the factual 11:50 15 issues are not really in dispute on any of this case. 11:50 16 Thank you. And we would ask that you uphold the SOAH 11:50 17 ALJ's proposal for decision, which is a favorable 11:50 18 recommendation for us. 11:50 19 You've got another case that follows. 11:50 20 CHAIRMAN CLOWE: It's favorable to you. 11:50 21 If you -- 11:51 22 MR. FENOGLIO: Yes, it's favorable to 11:51 23 us, and we urge that you uphold that. 11:51 24 CHAIRMAN CLOWE: We oppose the 11:51 25 favorable recommendation -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 141 1 MR. FENOGLIO: No. We urge that you 11:51 2 uphold. 11:51 3 CHAIRMAN CLOWE: I'm sorry. I thought 11:51 4 you said oppose. 11:51 5 MR. FENOGLIO: In the words of Pogo, we 11:51 6 have met the enemy and it is us. No. We urge that 11:51 7 you uphold, u-p-h-o-l-d, the ALJ's recommendation. 11:51 8 CHAIRMAN CLOWE: Ms. Garland, you're 11:51 9 president of Red Men 4 and have been for over two 11:51 10 years. Is that right? 11:51 11 MS. GARLAND: Yes, sir. 11:51 12 CHAIRMAN CLOWE: And I have been to the 11:51 13 Red Men headquarters in Waco. You're not president of 11:51 14 that association, that national association. 11:51 15 MS. GARLAND: No. 11:51 16 CHAIRMAN CLOWE: You're president of 11:51 17 the chapter, Red Men 4. And where are they physically 11:51 18 located? 11:51 19 MS. GARLAND: At -- Goldmont Bingo is 11:51 20 where they have an office set up at the bingo hall. 11:51 21 CHAIRMAN CLOWE: And where is that? 11:52 22 MS. GARLAND: It's in Dallas. 11:52 23 CHAIRMAN CLOWE: That's where the fire 11:52 24 was? 11:52 25 MS. GARLAND: Yes. The -- we had an 11:52 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 142 1 arson and the whole shopping center burned down and 11:52 2 was condemned for three months. Actually, our 11:52 3 building was not burned completely to the ground, but 11:52 4 we had so much smoke damage and the -- the electricity 11:52 5 company would not hook -- you know, turn back on the 11:52 6 electricity for three months, so we couldn't do 11:52 7 anything. 11:52 8 CHAIRMAN CLOWE: So you're a Dallas 11:52 9 resident? 11:52 10 MS. GARLAND: Uh-huh. 11:52 11 CHAIRMAN CLOWE: Okay. Thank you. 12 Commissioner Sadberry? 11:52 13 COMMISSIONER SADBERRY: A couple of 11:52 14 questions. First of all, Ms. Shankle -- is it Terry 11:52 15 Shankle? Is she a member of your staff or -- 11:52 16 MR. ATKINS: Yes, sir. 11:52 17 COMMISSIONER SADBERRY: Is she going to 11:52 18 be involved in these proceedings at all? 11:52 19 MR. ATKINS: She can. Actually, I 11:52 20 think she went to get an additional file. 21 MS. SCHULTZ: Commissioners, I'm 11:52 22 prepared to address. I represented the Charitable 11:52 23 Bingo Division at the hearing. 11:53 24 COMMISSIONER SADBERRY: Okay. I will 11:53 25 hold my questions, then. I had a question about the 11:53 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 143 1 three strikes policy. Let me go ahead and ask it, 11:53 2 because you might want to know what I'm interested in. 11:53 3 And Kim here, too. 11:53 4 What -- I read language in conclusion 11:53 5 number eight about the unwritten three strikes policy 11:53 6 not binding in this proceeding. Is the "in this 11:53 7 proceeding" sufficiently exclusionary, if you will, 11:53 8 such that whatever we do here would not affect what we 11:53 9 might want to do with this so-called policy or rule or 11:53 10 whatever it is? 11:53 11 MS. KIPLIN: Well, think each -- in 11:53 12 terms of "in this proceeding" -- 11:54 13 COMMISSIONER SADBERRY: And I'm talking 11:54 14 precedent. 11:54 15 MS. KIPLIN: Sure. I understand 11:54 16 precedential value. I think that's probably what the 11:54 17 purpose of it is. But, you know, any order that you 11:54 18 sign will have some value as you go through the 11:54 19 process. And that's -- for example, just a contested 11:54 20 case proceeding, when you sign orders, do create ad 11:54 21 hoc, you know, rule making by doing that. 11:54 22 COMMISSIONER SADBERRY: Then I would 11:54 23 like, Mr. Chairman, to yield any further question on 11:54 24 that. But do you understand what I'm -- at least what 11:54 25 I'm focusing on at this point, Kaye, and you can 11:54 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 144 1 present whatever you think appropriate. 11:54 2 CHAIRMAN CLOWE: And I'm right there on 11:54 3 the same issue. 11:54 4 MS. SCHULTZ: If I may approach, I've 11:54 5 got a few documents. 11:54 6 And Mr. Fenoglio and I are on the same 11:55 7 page here to a certain extent because we are 11:55 8 recommending a proposed order that does not disagree 11:55 9 with the final outcome in this case. It would be that 11:55 10 we did not prevail at the hearing and we will not deny 11:55 11 a license by signing this. However, the 11:55 12 administrative law judge's proposal for decision had 11:55 13 several conclusions of law that contained incorrect 11:55 14 statements of law, and for that reason and that 11:55 15 reasonable alone we -- you should not adopt them and 11:55 16 staff's recommended order does not adopt all of those 11:55 17 conclusions of law. Now, the order the Commission -- 11:55 18 our staff's proposed order, which was provided to 11:55 19 Mr. Fenoglio and to you back in August when this was 11:55 20 originally scheduled to come before the Commission 11:55 21 contains those reasons. And I can go over those if 11:55 22 you like, but they're contained in there. 11:55 23 CHAIRMAN CLOWE: Just for 11:55 24 clarification, then. You are also recommending that 11:55 25 the respondent's license not be revoked. 11:56 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 145 1 MS. SCHULTZ: Not be denied. It's a 11:56 2 denial, Commissioner, yes, in that we are recommending 11:56 3 the same outcome as the administrative law judge 11:56 4 proposed in this case. 11:56 5 CHAIRMAN CLOWE: Why can't the parties 11:56 6 meet and come to the Commission with an agreed order? 11:56 7 MS. KIPLIN: In this proceeding or -- 11:56 8 you're talking about in this proceeding? 11:56 9 CHAIRMAN CLOWE: Yeah. Why do we have 11:56 10 to go through this in detail? 11:56 11 MS. SCHULTZ: Because the way the 11:56 12 procedure is set up, a contested case is heard before 11:56 13 the administrative law judge at the State Office of 11:56 14 Administrative Hearings. She or he -- in this case it 11:56 15 was she -- makes her proposal for decision and it's 11:56 16 put before the Commission, and then the parties have 11:56 17 an opportunity to file exceptions and replies. In 11:56 18 this case, the administrative law judge did slightly 11:56 19 amend her proposal for decision, although it wasn't -- 11:56 20 the outcome, the ultimate conclusion was not changed. 11:56 21 And then there are -- and it's under the 11:57 22 Administrative Procedures Act, there are by law only 11:57 23 four reasons that an agency cannot adopt a finding of 11:57 24 fact or a conclusion of law. And one of them is that 11:57 25 there is an error in fact and law, and that's the case 11:57 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 146 1 with three of these. 11:57 2 MS. KIPLIN: Commissioners, if -- the 11:57 3 parties can. 11:57 4 CHAIRMAN CLOWE: You understand what 11:57 5 it -- 11:57 6 MS. KIPLIN: I do. I agree -- I 11:57 7 understand exactly what you're saying and there is 11:57 8 nothing that would preclude the parties, if they can 11:57 9 reach an agreement, to entering into an agreement 11:57 10 after proposal for decision has been circulated. And 11:57 11 I understand exactly what Ms. Schultz is saying and I 11:57 12 agree with that. If there were a contested case 11:57 13 proceeding where the parties weren't in agreement, it 11:57 14 came before you, and you all took issue with an order, 11:57 15 you would have to do it in the fashion in which it's 11:57 16 set out in the Administrative Procedure Act. 11:57 17 Setting all that aside, your question 11:57 18 was, why can't the parties just reach an agreement. 11:57 19 And the answer to that is, I don't know. I don't know 11:58 20 why the parties can't, except that there must be 11:58 21 strong -- you know, strong issue with regard to the 11:58 22 proposed order that the staff sent to the licensee. 11:58 23 But I certainly don't want to think for Mr. Fenoglio 11:58 24 or his client, and he may completely disagree with me 11:58 25 and want to say why. 11:58 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 147 1 CHAIRMAN CLOWE: Have you tried? 11:58 2 MR. FENOGLIO: Well, you know, 11:58 3 Commissioner, I'll take a bite at that apple. There 11:58 4 is another case that is pending and it does us no good 11:58 5 to settle this case. I mean, we're interested in a 11:58 6 result. And that's the 0404 case, that's the second 11:58 7 on the Red Men agenda, and not only that, there is a 11:58 8 third case that's coming down the pike. And I mean, 11:58 9 Ms. Schultz and I, I guess, have never talked about 11:58 10 settling one case and then doing battle in the form of 11:58 11 this motion for rehearing on the second case, you 11:58 12 know. 11:59 13 COMMISSIONER SADBERRY: Well, let me 11:59 14 see if I can move it forward. I think what I'm 11:59 15 hearing, and I can be corrected if I'm not hearing it 11:59 16 right, is, are you insisting that we deal with the 11:59 17 three strikes, you're out, rule one way or the other 11:59 18 in lieu of -- and maybe other issues, legal issues, 11:59 19 but I think that's the one that's standing out here, 11:59 20 in lieu of, at least in that case, getting an order 11:59 21 that dispenses with the necessity of addressing that 11:59 22 policy, rule, whatever? 11:59 23 MR. FENOGLIO: I think the Commission 11:59 24 needs to address that issue. I think it's 11:59 25 fundamentally unfair to the licensee. 11:59 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 148 1 COMMISSIONER SADBERRY: Let me ask you 11:59 2 further, and if you don't think it's fair to put you 11:59 3 on this spot, then let me know. But if you got a 11:59 4 sense that the Commission is -- the Commissioners are 11:59 5 concerned, and at least I can speak for one 11:59 6 commissioner about that policy or rule or whatever it 11:59 7 is, and would think it appropriate to deal with it, 11:59 8 but not necessarily in this form in the case, would 12:00 9 that bring you any comfort in seeing if you could at 12:00 10 least reach an agreement on this order in this case? 12:00 11 MR. FENOGLIO: No. I mean, we're 12:00 12 interested in the result, Mr. Sadberry, Commissioner 12:00 13 Sadberry. They're -- the same issue is related to the 12:00 14 second case. Only in that case, we filed a motion for 12:00 15 continuance, Ms. Schultz made a big -- 12:00 16 MS. SCHULTZ: I'm going to object to 12:00 17 any reference to another case until we're taking up 12:00 18 that case, please. 12:00 19 CHAIRMAN CLOWE: Okay. We were just 12:00 20 trying to help. Okay. Let's go forward. I think, 12:00 21 Ms. Schultz, are you -- do you have a question? 12:00 22 COMMISSIONER SADBERRY: No. I think I 12:00 23 would like to hear from staff. I think that's where 12:00 24 we were. You handed out the materials, Kaye. 12:00 25 MS. SCHULTZ: That's where we were. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 149 1 And what I was stating was the reasons for the order 12:00 2 differing on those conclusions of law are stated in 12:00 3 the order. I can go into them if you like. But we 12:00 4 agreed with the ultimate conclusion of the 12:01 5 administrative law judge, and I think she stated in 12:01 6 her amended proposal for decision that this 12:01 7 organization should have, in her words, another 12:01 8 opportunity to stay current with its responsibilities 12:01 9 because of some unfortunate circumstances, including, 12:01 10 a levy of some 8,000 dollars, I think, by the IRS and 12:01 11 a fire at a bingo hall. Although, I will note that, 12:01 12 since 1995, I think, the evidence showed this 12:01 13 organization had submitted its prize fee payments 12:01 14 timely for only one quarter, and that quarter was 12:01 15 during the quarter that the hall was closed because of 12:01 16 the fire. 12:01 17 What we're talking about here and what 12:01 18 we argued at the hearing is simple discretion in the 12:01 19 way this agency enforces its statute. The statute, 12:01 20 I've had blown up in front of you there, the two 12:02 21 applicable sections, say that the Commission may deny 12:02 22 an application or may suspend or revoke a license for 12:02 23 violations of the Bingo Enabling Act or the rules. 12:02 24 And the -- and the late payment of prize fees by this 12:02 25 organization, whether it be one quarter or multiple 12:02 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 150 1 quarters, and regardless of whether they're eventually 12:02 2 paid, it's the late payment itself is a violation of 12:02 3 the Bingo Enabling Act. Since it is within the 12:02 4 agency's prosecutorial discretion to revoke or deny 12:02 5 based on a single violation, it is certainly within 12:02 6 our discretion and within the statute to do so after 12:02 7 multiple violations. As the excerpt from the Bingo 12:02 8 Bulletin in your materials indicates, the Charitable 12:02 9 Bingo Division makes a lot of effort to ensure that 12:02 10 licensees are in compliance before it actually takes a 12:03 11 case to hearing. A letter is sent out to the 12:03 12 organization, a billing indicating the late payment 12:03 13 and also the penalties and interest that will be 12:03 14 accruing and allowing 14 days for compliance. And 12:03 15 this is when the statute says that it's due 15 days 12:03 16 after the end of the quarter. So it's 15 plus 14, so 12:03 17 we're already another month into the next quarter. 12:03 18 And that's done before a case is even sent for 12:03 19 hearing. And as Ms. Shankle testified at the hearing, 12:03 20 the customer service to this particular licensee has 12:03 21 been extraordinary. At many times, on the day before 12:03 22 a hearing was set, arrangements were made for 12:03 23 Ms. Garland to drop off a check at the audit office in 12:03 24 Dallas. And by the way, this organization is licensed 12:03 25 in Dallas and plays bingo in Dallas. There were even 12:03 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 151 1 situations where the auditors went to the bingo hall, 12:04 2 or even to Ms. Garland's home to pick up a check. 12:04 3 The Charitable Bingo Division made a 12:04 4 decision to tighten its enforcement of the statute. 12:04 5 Now, there is more than 1600 bingo operators licenses 12:04 6 active in the state of Texas right now, and the number 12:04 7 that you will see reach this stage at any given point 12:04 8 is only going to be a very small handful. To again 12:04 9 and again violate the statute in terms of these late 12:04 10 payments and late filings, the Charitable Bingo 12:04 11 Division made a decision to look at each one of those 12:04 12 who violate again and again, and in some cases, to 12:04 13 make the decision to continue with enforcement action, 12:04 14 even if the money amounts have been paid. Again, the 12:04 15 statute doesn't say it's a violation if you never pay, 12:04 16 it says it's a violation to pay late. And it's within 12:04 17 the prosecutorial discretion, is the term that I used 12:05 18 for it, to do so, to decide. It would be the way a 12:05 19 D.A. would decide. Somebody who is a first time 12:05 20 offender on a theft case, I'm going to give this 12:05 21 person deferred adjudication or probation, or 12:05 22 whatever, rather than seeking a jail or a prison term. 12:05 23 It's in the statute. You can have this, but you can 12:05 24 have less. This is an organization where the evidence 12:05 25 showed at the hearing in question on this case, the 12:05 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 152 1 1278, untimely payment of prize fees for nine 12:05 2 quarters. And even if we agreed that we had to adopt 12:05 3 a rule to do this, and we're not contending that 12:05 4 that's the case, an agency does not have to adopt a 12:05 5 rule to enforce its own statute. But even if we 12:05 6 contended that, we could do so through the contested 12:05 7 case process. That's an established procedure for 12:05 8 rule making through the contested case process. And I 12:05 9 think that the administrative law judge cited one case 12:06 10 in her amended proposal for decision where she said it 12:06 11 was frowned on to do that. It was called Rodriguez v. 12:06 12 Service Lloyds Insurance. And when I read that case, 12:06 13 I just don't find it applicable here because the 12:06 14 situation there was, it was an agency that had a rule 12:06 15 and the rule -- and I think it might have been workers 12:06 16 compensation -- said, here are six cases in which 12:06 17 somebody can get it, and what the agency did was 12:06 18 created a seventh exception through the adjudicated 12:06 19 hearing process. I think that's completely different 12:06 20 than enforcing a statute that exists in deciding when 12:06 21 to go in and prosecute and when to go in and not 12:06 22 prosecute. 12:06 23 Now, if you like, I can go specifically 12:06 24 into, and probably should, the -- what the APA is 12:06 25 basically the checks and balances on the 12:07 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 153 1 administrative law judge. When a judge exceeds his or 12:07 2 her statutory authority or makes an incorrect 12:07 3 statement of law, the opportunity is for a state 12:07 4 agency to not adopt that conclusion of law. And we're 12:07 5 recommending that the Commission not adopt conclusions 12:07 6 of law seven through nine because they're either 12:07 7 incorrect interpretations of the Administrative 12:07 8 Procedures Act and the State Office of Administrative 12:07 9 Hearings rules, or because, and in addition, they 12:07 10 ignore the Commission's statutory authority to make 12:07 11 policy through contested case proceedings. 12:07 12 COMMISSIONER SADBERRY: Seven through 12:07 13 what number? 12:07 14 MS. SCHULTZ: Seven, eight and nine. 12:07 15 Seven refers to unwritten policies and that they be 12:07 16 made available for public inspection. That section of 12:07 17 the APA, 2001.004, does not require that unwritten 12:07 18 policies be available for inspection. It's written 12:08 19 policies. 12:08 20 On conclusion of law number eight, 12:08 21 there is nothing in the APA or the State Office of 12:08 22 Administrative Hearings rules that states that an 12:08 23 unwritten policy is not binding. And, again, the 12:08 24 adjudicative process is also a rule making process, 12:08 25 and neither the Administrative Procedures Act nor the 12:08 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 154 1 SOAH rules require written notice of a policy before 12:08 2 it's applied in a contested case, although there was 12:08 3 in this case, and so that's why conclusion of law 12:08 4 number nine, we contend, is incorrect. And again, the 12:08 5 bottom line here is the same result, this licensee 12:08 6 would not be denied a license as a result in this 12:08 7 case. 12:08 8 COMMISSIONER SADBERRY: Were these 12:08 9 issues that were, if you will, significantly briefed 12:08 10 and addressed -- what I'm asking is, was there an 12:09 11 intent to try to get -- and when I say "try," I don't 12:09 12 mean that in a negative way, to get these issues 12:09 13 adjudicated by the judge? 12:09 14 MR. FENOGLIO: Yes. 15 COMMISSIONER SADBERRY: So you want 16 some adjudication -- 12:09 17 MR. FENOGLIO: Yes. I want it in all 12:09 18 three of them. 12:09 19 COMMISSIONER SADBERRY: All right. And 12:09 20 we'll come back to staff. I suppose this goes as far 12:09 21 back as when we took over from TABC, where the 12:09 22 informal policy of current before hearing versus 12:09 23 current after hearing, Mr. Atkins, came about, and the 12:09 24 ad hoc, so-called ad hoc rule, ad hoc policy 12:09 25 developed. 12:09 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 155 1 MS. KIPLIN: It came about through 12:09 2 entry of orders in contested case proceedings. 12:09 3 COMMISSIONER SADBERRY: By this 4 process. If I understand correctly, you're saying, 12:09 5 Ms. Schultz, that staff could have no policy at all, 12:09 6 no practice at all, and just say, across the board, 12:09 7 late compliance means we have the right to take action 12:09 8 and we might do it with -- on the first time. That's 12:10 9 what I understand you to say. 12:10 10 MS. SCHULTZ: We have -- the statute 12:10 11 gives us the authority to do it the first, the second, 12:10 12 the third, and then we could, through the adjudicative 12:10 13 process, establish that these are the repeat 12:10 14 violators, we're looking at them on a case-by-case 12:10 15 basis and these are repeat violators that we are going 12:10 16 to take to hearing, regardless of whether the amounts 12:10 17 have been paid before the time of hearing. 12:10 18 COMMISSIONER SADBERRY: But you could 12:10 19 take a late payment and go to hearing on it with a 12:10 20 disciplinary action, win or lose, but you would be 12:10 21 within your authority to do that if you wanted to? 12:10 22 MS. SCHULTZ: Yes. Because the statute 12:10 23 does not say that the late payment is the violation, 12:10 24 it's the violation to pay late, not to not ultimately 12:10 25 pay. 12:10 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 156 1 COMMISSIONER SADBERRY: So you see the 12:10 2 policy as being helpful to the repeat violators, I 12:10 3 take it. If you -- the three strikes you're out 12:10 4 policy is an attempt to help them as opposed to hurt 12:11 5 them. 12:11 6 MS. SCHULTZ: I think everything the 12:11 7 Charitable Bingo Division tries to do to get them into 12:11 8 compliance is helpful to them, including, through the 12:11 9 Bingo Bulletin and through personal conversations with 12:11 10 Ms. Garland, telling her that we are no longer going 12:11 11 to accept last-second payment as -- in exchange for 12:11 12 dismissal of these cases. 12:11 13 COMMISSIONER SADBERRY: I understand. 12:11 14 I'm developing some things that I wanted to make sure 12:11 15 I'm clear on, but also clear for the record, 12:11 16 particularly if another commissioner, Commissioner 12:11 17 Whitaker is who I'm speaking of, might become involved 12:11 18 at some later date, of what we're talking about here 12:11 19 today. 12:11 20 Mr. Chairman, I'm going to have some 12:11 21 views on this. I don't really have any additional 12:11 22 questions at this time. 12:11 23 CHAIRMAN CLOWE: Are you ready to vote? 12:11 24 COMMISSIONER SADBERRY: I am. 12:11 25 CHAIRMAN CLOWE: I am, too. Would you 12:11 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 157 1 like to make a motion? 12:11 2 COMMISSIONER SADBERRY: I would move to 12:11 3 adopt and approve staff's recommendation, which if I 12:12 4 understand correctly, is to agree with the result of 12:12 5 the licensee being given another chance for 12:12 6 compliance, but to reject the findings with -- the 12:12 7 conclusions with respect to items seven, eight and 12:12 8 nine concerning this so-called policy or rule or 12:12 9 whatever it is. 12:12 10 CHAIRMAN CLOWE: Second. 12:12 11 All in favor say aye. Opposed, no. 12:12 12 The adoption is approved by a vote of 12:12 13 two-zero of the administrative law judge as laid out 12:12 14 in the motion, omitting or not adopting items seven, 12:12 15 eight and nine under conclusions of law. 12:12 16 Billy, I'm sorry. I failed to call on 12:12 17 you prior to the vote and I wanted to do that. Did 12:12 18 you have any comment? 12:12 19 MR. ATKINS: No, sir. 12:12 20 MS. KIPLIN: Commissioners, just for 12:13 21 the record, let me sure what you're signing. What 12:13 22 you're signing is the staff's proposed order, which 12:13 23 rejects conclusions of law seven through ten that were 12:13 24 contained -- 12:13 25 CHAIRMAN CLOWE: No. Seven through WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 158 1 nine. 2 MS. SCHULTZ: Seven through nine. 12:13 3 COMMISSIONER SADBERRY: Yeah. Did I 12:13 4 say ten? Should I just line through it or do you want 5 to do another one? 6 MS. KIPLIN: Let me line through it, 12:13 7 because I thought -- what I have is one that I -- was 12:13 8 filed with me that reflects ten. 12:13 9 CHAIRMAN CLOWE: Well, I'm looking at 12:13 10 seven, eight and nine, and I think Ms. Schultz said 12:13 11 seven, eight and nine. 12:13 12 MS. KIPLIN: I'm sorry. I'm looking at 12:13 13 a staff's proposed order that also references 12:13 14 conclusion of law number ten and orders that it not be 12:13 15 adopted. 12:13 16 COMMISSIONER SADBERRY: That's why I 12:13 17 wanted to ask the question -- 12:13 18 MS. SCHULTZ: Yes. And I apologize. I 12:13 19 didn't mention that one. That's just on the basis 12:13 20 that it's the ultimate decision, and we take the 12:13 21 position that the ultimate decision is for this 12:13 22 Commission to make, not for the ALJ. The ultimate 12:13 23 decision is not deny the license, but that you make 12:13 24 that in terms of making your order and adopting those 12:13 25 portions of the PFD not through a conclusion of law 12:14 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 159 1 that does that. 12:14 2 COMMISSIONER SADBERRY: Do you want to 12:14 3 include ten is what you're saying? 12:14 4 MS. SCHULTZ: Yes. 5 CHAIRMAN CLOWE: Well, how do you get 12:14 6 the order adopted if you don't have something like 12:14 7 that in there? 12:14 8 MS. SCHULTZ: Well, the order states 12:14 9 that the license is not... 12:14 10 MS. KIPLIN: It's order language. 12:14 11 MR. FENOGLIO: Well, no, but -- 12 CHAIRMAN CLOWE: Go ahead. 12:14 13 MS. SCHULTZ: It's says, based on the 12:14 14 record of this contested case, the Texas Lottery 12:14 15 Commission does not believe the subject license should 12:14 16 be revoked. Therefore, it is ordered, based on the 12:14 17 adopted findings of fact and conclusions of law in 12:14 18 this contested proceeding that respondent's license to 12:14 19 conduct bingo games should not be revoked for the 12:14 20 reasons contained in the July 6th, 1999 notice of 12:14 21 hearing issued in the proceeding. 12:14 22 Rather than having a conclusion of law 12:14 23 stating it, it would be in the order itself of the 12:14 24 Commission. 12:14 25 CHAIRMAN CLOWE: Okay. 12:14 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 160 1 COMMISSIONER SADBERRY: But wouldn't 12:14 2 your order need to be supported by a conclusion? In 12:15 3 reading ten, it just refers to, after due 12:15 4 consideration of the division's unwritten policy. 12:15 5 That means we have considered it and find that the 12:15 6 license should not be revoked, but it doesn't adopt 12:15 7 the seven, eight and nine concerning the legal 12:15 8 application or effectiveness of the policy. So ten -- 12:15 9 MS. KIPLIN: I think the difference, 12:15 10 seven, eight and nine set out a conclusion of law 12:15 11 based on facts. Ten, sets out -- in the proposed 12:15 12 order, sets out a recommended disposition, which is 12:15 13 not a proper subject matter for a conclusion of law. 12:15 14 It's a proper subject matter for an order, you know, 12:15 15 whether you're going to grant, you're not going to 12:15 16 grant, you're going to revoke, you're not going to 17 revoke. 12:15 18 COMMISSIONER SADBERRY: So is ten in or 12:15 19 out of the order? Is it proposed to be in or out? 12:15 20 MS. KIPLIN: Ten is out on the staff's 12:15 21 proposed order, in on the ALJ's recommended order. 12:15 22 COMMISSIONER SADBERRY: The one I just 12:16 23 signed includes ten. 12:16 24 MS. KIPLIN: Not being adopted. 12:16 25 COMMISSIONER SADBERRY: Right. So by 12:16 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 161 1 signing this order, we need to amend the motion, then. 12:16 2 MS. KIPLIN: Yes. 12:16 3 CHAIRMAN CLOWE: Or withdraw it. I'll 12:16 4 withdraw the second if you'll -- 12:16 5 COMMISSIONER SADBERRY: I'll withdraw 12:16 6 the motion and refile it, and move to adopt staff's 12:16 7 proposed order, which would have the effect of 12:16 8 agreeing with the administrative law judge's ultimate 12:16 9 resolution that the licensee be given another 12:16 10 opportunity to comply, but rejecting proposed 12:16 11 conclusions of law seven, eight, nine and ten. 12:16 12 CHAIRMAN CLOWE: Second. 12:16 13 All in favor say aye. Opposed, no. 12:16 14 The order is approved by a vote of 12:16 15 two-zero. 12:16 16 MR. FENOGLIO: Suffice it to say, 12:16 17 Commissioners, we take exception to that. We didn't 12:16 18 have an opportunity to really discuss the substantive 12:16 19 issues. We're pleased we're going to get at least 12:16 20 another bite, but I mean, what you're setting is a 12:16 21 precedent of this unwritten policy that no one knows 12:17 22 about until they come to the Commission, that's 12:17 23 adversely affecting a license. 12:17 24 COMMISSIONER SADBERRY: And I 12:17 25 understand that. And I think we did discuss it. 12:17 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 162 1 Maybe not to the full extent you would like to see, 12:17 2 and I don't ever want to cut anybody off. But I will 12:17 3 just say, from my perspective, that I personally as 12:17 4 one commissioner am not finished with concentrating on 12:17 5 that issue. Now, I'm only one commissioner and I'm 12:17 6 not saying what I even think is the right way of 12:17 7 dealing with it. But I don't want it to be perceived, 12:17 8 since I spoke and address it, that from my perspective 12:17 9 that's a finality. I just think there is a way you 12:17 10 properly get to that, and I am particularly going to 12:17 11 cite to some language that even the ALJ speaks of as 12:17 12 to whether or not there was any knowledge or 12:17 13 discussion with Commissioners and general counsel. 12:17 14 I'm not going to go any further than that. But I just 12:17 15 think there is a way you get at addressing that. I 12:18 16 think we certainly want to be fair. And I think the 12:18 17 result to your client on this particular case reaches 12:18 18 a fair result, but I think how we deal with policy and 12:18 19 rules on an ongoing forward basis, which this proposed 12:18 20 decision might affect, that's a different issue, and I 12:18 21 think there is a way to get at that issue as 12:18 22 Commissioners that I want to see it addressed in that 12:18 23 forum as opposed to in this contested case. That's my 12:18 24 rationale to this. 12:18 25 MS. KIPLIN: I heard Mr. Fenoglio say 12:18 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 163 1 you're taking action that adversely affects the 12:18 2 license. The license, at least in my position, has 12:18 3 not been adversely affected because it is in full 12:18 4 force and effect. 12:18 5 MR. FENOGLIO: The licensee's rights. 12:18 6 MS. KIPLIN: Have not been adversely 12:18 7 affected. 12:18 8 MR. FENOGLIO: They have been adversely 9 affected, I submit to you, by the unwritten policy. 12:18 10 The policy isn't defined under the APA, but it does 12:18 11 say that that is what a rule includes is a policy. 12:19 12 And it's uncontested that this agency has never 12:19 13 adopted a rule on this issue. Has never indexed it or 12:19 14 made -- otherwise made it available for the licensing 12:19 15 public's inspection, comment, review, like any other 12:19 16 rule. I mean, that's -- I mean, Mr. -- the testimony 12:19 17 is, Mr. Atkins and Ms. Shankle came up with this 12:19 18 policy, and they apply it uniformly to everyone, not 12:19 19 just one entity licensee, they apply it to all 1600 12:19 20 licensees. 12:19 21 COMMISSIONER SADBERRY: You're talking 12:19 22 about the Bingo Bulletin? 12:19 23 MR. FENOGLIO: Yes, sir. 12:19 24 COMMISSIONER SADBERRY: Or 12:19 25 distribution? 12:19 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 164 1 MR. FENOGLIO: But -- 12:19 2 COMMISSIONER SADBERRY: For the record, 12:19 3 that's Exhibit 23. Is that correct? 12:19 4 MS. SCHULTZ: It was Exhibit 23 in the 12:19 5 record, Commissioner. 12:19 6 COMMISSIONER SADBERRY: Okay. I wanted 12:20 7 to identify it because I think the terms speak for 12:20 8 itself. Because I have read it hurriedly, I agree, 12:20 9 but I don't see any reference in here to a three 12:20 10 strikes -- 12:20 11 MR. FENOGLIO: Well, and that's part of 12:20 12 the problem, Mr. Sadberry, is -- 12:20 13 COMMISSIONER SADBERRY: And as I 12:20 14 understand it, what they're saying is, if you're late 12:20 15 one time, there is discretion to take action if the 12:20 16 staff feels it appropriate. I think they're putting 12:20 17 people on notice of that, through Exhibit 23. 12:20 18 MR. FENOGLIO: And my only comment to 12:20 19 that is, assuming everyone gets the Bingo Bulletin. 12:20 20 But, I mean, if you want to know what the Commission's 12:20 21 policies under the APA, there is either a website 12:20 22 where you can go and look at the rules that have been 12:20 23 adopted, you can go to te Secretary of State's office, 12:20 24 or y'all publish your own rules, and that's not 12:20 25 anywhere referenced -- and you're absolutely correct, 12:20 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 165 1 Mr. Sadberry, the three strikes policy isn't really 12:20 2 defined in this. It's code words. I mean, it is code 12:21 3 words. No one knows, unless you happen to be like me 12:21 4 who is aware of this policy. Ms. Garland wasn't aware 12:21 5 of it. And so, you know, when the testimony came out 12:21 6 in the hearing, which the PFD references in some 12:21 7 detail, it's very clear what the policy is that they 12:21 8 apply to every -- to every charity. 12:21 9 COMMISSIONER SADBERRY: I hear what 12:21 10 you're saying. 12:21 11 MS. SCHULTZ: Commissioners, I will 12:21 12 also point out that the record in this case did 12:21 13 reflect the fact that Ms. Garland was personally 12:21 14 notified through Ms. Shankle and her staff that the 12:21 15 next time they came up with a violation, she would not 12:21 16 be able to make payment the day before the hearing or 12:21 17 have the payment picked up the day before the hearing 12:21 18 and have it dismissed, that they intended to proceed 12:21 19 with action. She was personally notified of that. 12:21 20 She was aware of that. 12:21 21 COMMISSIONER SADBERRY: I hear both 12:21 22 sides, and my own view of it, and I'm just making a 12:21 23 complete record, or trying to, at least, from my 12:21 24 perspective. I think that, what you just said as an 12:22 25 example, Counsel, is one thing. That's a fact, that's 12:22 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 166 1 testimony about history in the case. I think what 12:22 2 Mr. Fenoglio is saying, the testimony about a policy 12:22 3 or procedure as a stand-alone matter is perceived on 12:22 4 his side of the table, his side of the aisle, as a 12:22 5 different matter. I'm just making that distinction 12:22 6 that I'm hearing in my mind. 12:22 7 CHAIRMAN CLOWE: Where are we on a 12:22 8 discussion of this type of a matter in the middle of 12:22 9 hearing contested cases? 12:22 10 MS. KIPLIN: Well, I think with regard 12:22 11 to this particular contested case, it's germane. It 12:22 12 was an issue that was raised at the time of the 12:22 13 hearing and it was certainly an issue that 12:22 14 Mr. Fenoglio raised during his exceptions, so it's 12:22 15 germane. With regard to having a broader discussion, 12:22 16 my sense is that it would -- it should be properly 12:22 17 noticed for a future Commission meeting. 12:22 18 COMMISSIONER SADBERRY: In what way is 12:23 19 it to be noticed? Not as a proposed rule, but what? 12:23 20 MS. KIPLIN: I think you could have it 12:23 21 as a report and possible discussion and interaction 12:23 22 on, you know, alleged staff's creation of a policy. 12:23 23 You know, three strikes and you're out. Or you could 12:23 24 have it broader if you wanted, on staff's enforcement 12:23 25 policy. Or enforcement position. 12:23 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 167 1 COMMISSIONER SADBERRY: And people like 12:23 2 Mr. Fenoglio and others affected or potentially 12:23 3 affected could come, discuss it. Would it be an 12:23 4 action item or would it just be information purposes? 12:23 5 MS. KIPLIN: It could be an action 12:23 6 item. I generally notice items as an action item just 12:23 7 to give you all an opportunity, if there is something 12:23 8 I can't foresee, consistent with the staff -- pardon 12:23 9 me, the Commission's practice, you all have -- as far 12:23 10 as I know, have never denied anybody an opportunity to 12:23 11 come and address the Commission on any item that's on 12:23 12 your agenda, with the exception of items that may 12:23 13 relate to litigation. 12:23 14 CHAIRMAN CLOWE: Sure. Well, 12:24 15 Commissioner Sadberry, I'm a little troubled by this, 12:24 16 and I would like to see it noticed and have some 12:24 17 discussion on it. I have sat on both sides of this 12:24 18 table. I've been an operator and a violator, and I've 12:24 19 been a regulator, and a director of a transportation 12:24 20 division. And I understand the problems that 12:24 21 Mr. Fenoglio's clients have to some extent, and I 12:24 22 understand the problems that Mr. Atkins and his staff 12:24 23 have to some extent. It seems like to me a policy 12:24 24 that is not codified in some way and subject to 12:24 25 interpretation is difficult to uniformly enforce. And 12:24 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 168 1 I think what we're after is uniform enforcement. And 12:24 2 I think it would be helpful to those in the industry 12:25 3 as well as to the Charitable Bingo staff, to notice 12:25 4 this and determine if there is such a policy within 12:25 5 the division and have conversation about it and then 12:25 6 have comments from the public about it so that perhaps 12:25 7 a higher level of understanding can be achieved among 12:25 8 all those that might be touched by it, and the 12:25 9 Commissioners would be more comfortable than perhaps I 12:25 10 am as one right now. 12:25 11 COMMISSIONER SADBERRY: I share your 12:25 12 views, Mr. Chairman, verbatim and adopt them. And 12:25 13 that's the direction I've been headed in all day long 12:25 14 on this issue. I do think putting it on the agenda 12:25 15 outside of the context of a contested case, in my 12:25 16 mind, is the proper way to address it. I think it 12:25 17 must be addressed. I would hope that staff would take 12:26 18 these views into consideration in terms of applying 12:26 19 whatever this is to any case between now and the point 12:26 20 in time that we do get a chance to address it in a 12:26 21 Commission meeting. So that what Mr. Fenoglio is 12:26 22 saying, the rights of this clients, of this one or any 12:26 23 other client or any potential client or party are not 12:26 24 affected because we did not address it in the context 12:26 25 of this contested case, so that we sort of have a 12:26 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 169 1 status quo, if you will. And then we can address it. 12:26 2 I do see both sides of the issue and I 12:26 3 understand the history by which this practice has 12:26 4 evolved. I will have to say, until I read this 12:26 5 proposed decision, I was not aware that it had evolved 12:26 6 to this point. And I don't mean that in any way 12:26 7 critically. I'm just saying I wasn't aware of it. I 12:27 8 was aware of the ad hoc policy and I know we have had 12:27 9 to address it in contested cases, specifically dealing 12:27 10 with the repeat violations and the problems that 12:27 11 creates and whether or not that, in fact, visciates 12:27 12 the rule. That is the law. So I understand the sense 12:27 13 of it, and I'm not intending to criticize it. I'm 12:27 14 just saying, I think as Commissioners, it does rise to 12:27 15 the level of a policy issue that the Commissioners 12:27 16 should have input in an appropriate context, and I 12:27 17 think putting it on the agenda as an item, discussion, 12:27 18 action, or otherwise, is the way to do that as opposed 12:27 19 to adopting the administrative law judge's proposed 12:27 20 conclusions. And I think that's where we are. And I 12:27 21 have tried to see if I could give comfort to both 12:27 22 sides to say, I believe you can trust us that we're 12:27 23 going to deal with this and going to deal with it in 12:27 24 good faith, realizing the importance to both the staff 12:28 25 and the licensees. But it does need to be spelled out 12:28 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 170 1 and have a chance that everybody can address it. I'm 12:28 2 even wondering, and I'm going a little bit beyond 12:28 3 perhaps the scope of what's on the table now, whether 12:28 4 this has ever gone before the advisory committee. I 12:28 5 know Mr. Neinast is here and I'm not suggesting that. 12:28 6 But I'm wondering, you know -- I wanted -- I think it 12:28 7 is important and I think we are getting there, and I 12:28 8 think Mr. Fenoglio's client today is certainly not 12:28 9 prejudiced in terms of a license, but I think he's 12:28 10 saying, we're going to have future issues arise and we 12:28 11 don't want to have to come through the forum of a 12:28 12 contested case to get it aired. Staff is saying, but 12:28 13 we are a State agency with regulatory authority and we 12:28 14 have bent over backwards. We have a history of why we 12:28 15 got here, and that is by cooperating and helping 12:28 16 licensees meet compliance and not striking at the 12:28 17 first violation. And that perhaps is what is now 12:28 18 coming back to bite the staff. And they're compelling 12:29 19 issues and I think that's why we sit here. We get 12:29 20 them when they get hot like that. 12:29 21 And I agree with you, Mr. Chairman, I 12:29 22 think we've got to address it. And I think it should 12:29 23 be at the next meeting. 12:29 24 CHAIRMAN CLOWE: If you can, and I want 12:29 25 to make certain that I am in clear agreement with 12:29 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 171 1 Commissioner Sadberry, I think our call is not on you, 12:29 2 Billy, to come up with any defense of the practice 12:29 3 that you have, and I'm not calling on you, Steve, to 12:29 4 attack. You know, I think what we need is some 12:29 5 understanding and, you know, equal enforcement is what 12:29 6 we want. If we all got tickets at 72 miles an hour, 12:29 7 this would be a happier state. And some people get 12:29 8 tickets at 76 and some don't get any at 80. And I 12:29 9 think what the DPS is trying to do is give us equal 12:30 10 enforcement, and that's what I think makes for a happy 12:30 11 citizen. And so there is no bias on this issue. I 12:30 12 think we're coming to you with a call for some good, 12:30 13 positive discussion about it and understanding. 12:30 14 MR. FENOGLIO: And we'll be happy to 12:30 15 participate, and I think there is an easy way to do 12:30 16 that through the Bingo Advisory Committee. I mean, I 12:30 17 think the Commissioners probably need to tee it up and 12:30 18 then delegate it to Bingo Advisory for input, even 12:30 19 before you go any further with perhaps a rule 12:30 20 making -- whether you make that decision or not. But 12:30 21 I think there are a lot of people out there who are 12:30 22 not aware of the decision -- of this policy. 12:30 23 CHAIRMAN CLOWE: We'll take your word 12:30 24 for it. 12:30 25 Billy, did you have a comment? 12:30 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 172 1 MR. ATKINS: I was just going to say, 12:30 2 Commissioners, I think from a staff level it would be 12:30 3 a great idea because it would give us the opportunity 12:30 4 to put forward, outside of a contested case hearing, 12:30 5 you know, just the -- the big piles of violations, you 12:30 6 know, that certain organizations, you know, come up 12:31 7 with. And I was going to, Commissioner Sadberry, for 12:31 8 your benefit, say there is a tentative advisory 12:31 9 committee meeting scheduled for November 1st, if you 12:31 10 want -- 12:31 11 COMMISSIONER SADBERRY: Yeah. I may 12:31 12 want to be there for that one. We have Mr. Neinast 12:31 13 here today. We have a good advisory committee. You 12:31 14 know, we've worked hard to get that one. And that's 12:31 15 the kind of thing we see where they can really help 12:31 16 us. And you can -- I know the hat you wear, Billy, 12:31 17 and what you're having to deal with. I understand 12:31 18 that. We're certainly supportive of your efforts. We 12:31 19 just want to -- when we get this bump in the road, we 12:31 20 get the issue presented to us, we just can't act as 12:31 21 though it's not there. That's not say we're going to 12:31 22 do anything that's going to hinder enforcement, 12:31 23 because that ultimately is what we have to do and your 12:31 24 staff has to do. 12:31 25 CHAIRMAN CLOWE: And while we're sort 12:31 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 173 1 of waxing on this. Mr. Fenoglio, you were chopping a 12:31 2 little wood earlier about agency, you know, this 12:31 3 agency has always been very friendly and we want to 12:32 4 encourage gaming, and I just need to chop a little on 12:32 5 the other side of that tree now and have you 12:32 6 understand that -- and you and I have known each other 12:32 7 in different lives. You know, there is the law and 12:32 8 the statute and the administrative practice, and I 12:32 9 think the Commission does the best it can to walk down 12:32 10 the middle of the road, but that means doing the right 12:32 11 thing. And I know you're going to try to win your 12:32 12 cases when you come before the Commission, and I know 12:32 13 Billy, every day, and Linda are trying to do the right 12:32 14 thing with the statutes and the administrative law 12:32 15 that they have to work with. So I like the way you've 12:32 16 praised this Commission as customer friendly, I think 12:32 17 was the term, but that doesn't give you the right to 12:32 18 make laws and bend over backwards. So I just wanted 12:32 19 to kind of take a lick at that on the other side. 12:32 20 MR. FENOGLIO: Fair enough. 12:32 21 CHAIRMAN CLOWE: Very good. 22 I think you're still in the batter's 12:32 23 box on -- 12:33 24 MS. KIPLIN: We're on Red Men Number 4, 12:33 25 docket number 362-00-0404.B. what's before you is a 12:33 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 174 1 consideration on a motion for rehearing that was filed 12:33 2 by Red Men Number 4 on a proceeding that you heard on 12:33 3 August 11th, and denied the renewal application 12:33 4 license. 12:33 5 MR. FENOGLIO: This is the same 12:33 6 organization, different twist. And we talked earlier 12:33 7 today about motions for continuance. A motion for 12:33 8 continuance was filed on this case, on April 21st. 12:33 9 It's referenced in the footnote of the proposal for 12:33 10 decision in the case on page one. And it was denied 12:33 11 at the hearing. Stated a different way, I filed -- I 12:33 12 was retained, I believe it was April 21st -- or April 12:33 13 20th, to represent Red Men 4 in the current 12:34 14 proceeding. I had a schedule such that I was set for 12:34 15 jury trial in Abilene, Texas -- I'm sorry. A bench 12:34 16 trial in Abilene, Texas, beginning on the 22nd, and 12:34 17 left my office at around noon on the 21st in order to 12:34 18 go interview witnesses in connection with that. So I 12:34 19 could not make it for the hearing. I asked for about 12:34 20 a ten day -- I gave several dates, asked for a ten-day 12:34 21 extension or a continuous, and staff opposed it. We 12:34 22 did not get a ruling. I called the docket clerk to 12:34 23 determine if, in fact, we were going to have a hearing 12:34 24 and they indicated that ALJ would rule when the ALJ 12:34 25 ruled. 12:34 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 175 1 I was in my automobile headed to 12:34 2 Abilene when the hearing was convened on the 21st -- 12:34 3 or 24th, pardon me. Ms. Garland had the opportunity 12:34 4 to come to town. It was my belief and it turned out 12:34 5 to be erroneous belief that the ALJ would grant the 12:35 6 continuance, and I think staff probably expected that 12:35 7 the continuance would be granted. Nonetheless, the 12:35 8 continuous was not granted. They went to hearing. As 12:35 9 the PFD makes reference to, all of the fees and 12:35 10 reports and with penalties and interest had been paid. 12:35 11 The Lottery Commission had been made whole before the 12:35 12 day of hearing. You have the same three strikes 12:35 13 policy present here. Of course, you don't have -- 12:35 14 MS. SCHULTZ: Excuse me. I'm going to 12:35 15 object. This is completely outside the record of this 12:35 16 hearing. This -- counsel is now trying to import 12:35 17 facts from the other hearing into this hearing. I 12:35 18 really want to keep these separate and a clean record. 12:35 19 There was no testimony about any kind of three strikes 12:35 20 or so-called -- 12:35 21 MR. FENOGLIO: And there wasn't. Staff 12:35 22 didn't tell the ALJ about this other docket, by the 12:35 23 way, and there certainly wasn't any mention of a three 12:36 24 strikes policy. You're right, it's not in the record. 12:36 25 COMMISSIONER SADBERRY: Let me back up 12:36 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 176 1 a minute. I thought we were invited to sign this 12:36 2 order. Am I wrong, or am I thinking about a different 3 case? 12:36 4 MS. KIPLIN: You're now on the case in 12:36 5 which it was a denial of application. You signed the 12:36 6 order denying the renewal application. Mr. Fenoglio 12:36 7 filed a motion for rehearing. If you will recall, he 12:36 8 appeared, I think it was in August, on one of them. 12:36 9 MR. FENOGLIO: On 1278. 12:36 10 COMMISSIONER SADBERRY: Okay. So this 12:36 11 is not the one you asked us to sign? 12:36 12 MR. FENOGLIO: Well, I didn't ask you 12:36 13 to sign the other one. I asked you not to sign 1278, 12:36 14 and you did not sign 1278. You did sign 0404, this 12:36 15 one. 12:36 16 COMMISSIONER SADBERRY: Right. 12:36 17 MR. FENOGLIO: I had been retained to 12:36 18 represent the charity at the hearing. The hearing, 12:36 19 obviously, occurred without me, so my representation 12:36 20 was stayed, if you will. I was not retained until 12:36 21 after the final order to file the motion for 12:36 22 rehearing. This charity doesn't have unlimited 12:36 23 resources, Mr. Sadberry, to have an attorney on 12:37 24 retainer at all times. 12:37 25 COMMISSIONER SADBERRY: I understand. 12:37 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 177 1 Still, procedurally, this order I'm looking at is one, 12:37 2 if I recall, we were asked to sign. 12:37 3 MR. FENOGLIO: Well, I guess staff 12:37 4 asked you. I didn't ask you to sign it. 12:37 5 MS. KIPLIN: Let me say this. I don't 12:37 6 think Mr. Fenoglio did ask you to sign it. 12:37 7 Mr. Fenoglio said on the record he was not the 12:37 8 attorney of record in that matter. He did understand, 12:37 9 though, that in signing -- I guess, in signing that, 12:37 10 with regard to the -- there was some mention of that 12:37 11 would cut off your legs or -- you know, something 12:37 12 along those line. 12:37 13 CHAIRMAN CLOWE: That was my comment. 12:37 14 He was not retained at that time. 12:37 15 COMMISSIONER SADBERRY: Okay. So he 12:37 16 couldn't ask us not to sign it. 12:37 17 CHAIRMAN CLOWE: That's right. 18 COMMISSIONER SADBERRY: He couldn't ask 12:37 19 either way. 12:37 20 CHAIRMAN CLOWE: But I think 12:37 21 Ms. Schultz's comment is valid. And the other subject 12:37 22 that we've been discussing is closed and we're now on 12:37 23 this case. 12:37 24 COMMISSIONER SADBERRY: I'm clear. 12:37 25 MR. FENOGLIO: Well, and I'll submit 12:37 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 178 1 it's outside the record, but rest assured, the record 12:37 2 doesn't reflect this policy. Rest assured the record 12:37 3 does not reflect that there was another proceeding 12:37 4 with the Red Men pending. As to my motion for 12:38 5 continuance and asking for a ten-day -- again, we gave 12:38 6 several dates. The earliest date was ten days from 12:38 7 this currently scheduled hearing date. And staff 12:38 8 opposed that on the basis of, apparently, the world -- 12:38 9 the Western world would come to an end if they didn't 12:38 10 have the hearing on the 24th as opposed to the Friday 12:38 11 following the week of the 24th. 12:38 12 I don't know what the ALJ would have 12:38 13 decided had we had an opportunity to be present with 12:38 14 counsel. We'll never know that. But I submit to you 12:38 15 that some of the same results that you saw in 1278 12:38 16 would -- well, the evidence certainly would have been 12:38 17 in the record, and I think the ALJ may have had a 12:38 18 different view. And our motion for rehearing is 12:38 19 geared -- 12:38 20 MS. SCHULTZ: I'm going to object to 12:38 21 this as speculative and completely outside the record. 12:38 22 Counsel was not there and cannot speculate as to what 12:38 23 may or may not have been in the record. 12:39 24 MR. FENOGLIO: This is a point of oral 12:39 25 argument, Commissioners. 12:39 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 179 1 Thank you. The -- as referenced in 12:39 2 1278, this charity has suffered horrendous events 12:39 3 through no cause or fault of its own. 12:39 4 MS. SCHULTZ: Again, I'll object to any 12:39 5 reference to the other case, the 0404 -- 12:39 6 MR. FENOGLIO: It's in the Commission 12:39 7 body of knowledge. I mean, we just went through that 12:39 8 40 minutes ago. It's within the Commission's body of 12:39 9 knowledge in a contested case that this licensee 12:39 10 suffered horrendous devastation through no fault of 12:39 11 its own. 12:39 12 MS. SCHULTZ: And, again, I'll put on 12:39 13 the record my objection that I am trying to keep this 12:39 14 a clean hearing, a clean argument on this particular 12:39 15 motion for rehearing that's in front of the 12:39 16 Commissioners right now. I understand that you can't 12:40 17 erase your memory banks, but it's important to -- 12:40 18 MR. FENOGLIO: In my motion for 12:40 19 rehearing, Commissioners, I attached the PFD that 12:40 20 we've already gone through. They didn't oppose the 12:40 21 submission of that PFD in this motion for rehearing. 12:40 22 MS. SCHULTZ: And excuse me, but that 12:40 23 is untrue. 12:40 24 CHAIRMAN CLOWE: Where are you on this, 12:40 25 Ms. Schultz? Help us understand your position. 12:40 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 180 1 MS. SCHULTZ: All right. Ms. Garland 12:40 2 and I agreed back in February -- when this case was 12:40 3 first set for hearing in March, she was not 12:40 4 represented by counsel, and she contacted me and 12:40 5 specifically requested the April 24th date for a 12:40 6 hearing. We did not oppose that and an order was 12:40 7 signed by the administrative law judge setting that 12:40 8 hearing date. On the Friday afternoon before that 12:40 9 Monday hearing, we received a faxed motion indicating 12:40 10 that this hearing now needed to be continued. I had 12:41 11 spoken with Ms. Garland as recently as the Tuesday 12:41 12 before that Friday about another case and had no 12:41 13 indication from her that there was any problem, that 12:41 14 she had just hired counsel -- 12:41 15 MR. FENOGLIO: And Your Honors, if I 12:41 16 may, I'm going to object that this is outside the 12:41 17 record. Ms. Schultz seems to be on a gamut of nothing 12:41 18 is discussed here that's outside the record. I wasn't 12:41 19 there. Perhaps all of that is in the record. 12:41 20 MS. SCHULTZ: It is in the record 12:41 21 because it was in the argument for the motion for 12:41 22 continuance at which counsel was not present. I 12:41 23 explained my conversations with Ms. Garland and how we 12:41 24 had worked this out and agreed on it. And the Tuesday 12:41 25 before this Friday, she was still fine with it. On 12:41 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 181 1 that Friday afternoon, she was not. 12:41 2 I don't believe that the Commission 12:41 3 should have to be penalized for a client waiting more 12:41 4 than two months from getting a continuance to hire a 12:41 5 lawyer. We shouldn't have to pay the price for that 12:42 6 by saying, yes, we'll rearrange everything and just 12:42 7 give another continuance. The more continuances there 12:42 8 are, we're prejudiced because our witnesses' memories 12:42 9 don't last forever, either. Our materials are there 12:42 10 and ready to go, but people are human. Counsel in 12:42 11 this case filed a second continuance and didn't show 12:42 12 up to argue the motion, didn't -- SOAH -- the State 12:42 13 Office of Administrative Hearings will do telephone 12:42 14 hearings on these type of things. That could have 12:42 15 been done in five minutes. We had no expectation or 12:42 16 belief either way about what would happen with this 12:42 17 motion. 12:42 18 On Monday morning of the hearing, I 12:42 19 called over repeatedly to the State Office of 12:42 20 Administrative Hearings and was finally told, the 12:42 21 motion will be heard, show up at the scheduled hearing 12:42 22 time. I showed up at 1:00, the scheduled hearing 12:42 23 time, with my witness. The first item before the 12:43 24 judge was the second motion for continuance. There 12:43 25 was no one there from the organization or its counsel, 12:43 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 182 1 so that motion was argued. I had no expectation that 12:43 2 that judge -- what she was going to do with that 12:43 3 motion. She denied the motion and we proceeded with 12:43 4 the hearing and put on our evidence. 12:43 5 The only real issue in this case is 12:43 6 whether that administrative law judge, in denying that 12:43 7 motion, abused her discretion, and it is not abuse of 12:43 8 discretion to deny a late-filed motion for 12:43 9 continuance. By the SOAH rules, that was way outside 12:43 10 the time, the Friday afternoon less than a business 12:43 11 day before the hearing was to take place. Failure of 12:43 12 counsel to -- the whole purpose of a motion for 12:43 13 rehearing is to point out errors, errors in findings 12:43 14 of fact, conclusions of law, to give an agency notice 12:43 15 so that we can either correct the records or we can 12:44 16 defend the errors. And we cannot do that in this 12:44 17 case, because the only error was of counsel in failing 12:44 18 to show up to argue its motion, or to put on evidence 12:44 19 at this hearing. We cannot correct that error because 12:44 20 it was not our error. 12:44 21 These organizations take advantage of 12:44 22 delays and multiple continuances to keep playing and 12:44 23 playing. They'll think of any excuse. And it can 12:44 24 be -- well, I'm not going to go outside the record in 12:44 25 this case, but there have been many excuses. The 12:44 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 183 1 proper basis of a motion for rehearing is to give us 12:44 2 notice of claimed error, and the documents that are 12:44 3 attached have no relevance to this motion for 12:44 4 rehearing and they should be completely disregarded. 12:44 5 And we've stated that in our reply to the motion for 12:44 6 rehearing. In no way did we state that we're allowing 12:44 7 those to come in. 12:45 8 Simply put, they can claim only one 12:45 9 error in the case and that's their own failing to 12:45 10 appear to argue their motion. The arrogance of that 12:45 11 is not something that we should be liable for. And we 12:45 12 did not make that error. And I urge you again, as 12:45 13 I've stated in my reply to the motion for rehearing, 12:45 14 that anything that is not part of the record, and that 12:45 15 includes that amended proposal for decision from 12:45 16 another case, not be considered and that this motion 12:45 17 for rehearing be overruled. 12:45 18 COMMISSIONER SADBERRY: Are you saying, 12:45 19 by attaching that document, that this is my new 12:45 20 evidence, this is what I would have presented, this is 12:45 21 why I would have gotten a different result, because I 12:45 22 did it, and did get a different result in another 12:45 23 case, as I hear it. So what you're saying is, if he 12:45 24 doesn't present that to the judge, we should not 12:45 25 consider it as a basis for a rehearing. 12:46 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 184 1 MS. SCHULTZ: If it's not part of the 12:46 2 record in that contested case, yes. 12:46 3 COMMISSIONER SADBERRY: What's -- can I 12:46 4 ask this question? I'm really getting clarity here. 12:46 5 I want to come back to -- I want to really recall the 12:46 6 circumstances of us signing this order. I do not 12:46 7 remember the Chair's comments on this. But what does 12:46 8 this case do -- does it affect the result of the 12:46 9 previous case at all? I mean, could this potentially 12:46 10 wipe out that result? 12:46 11 MR. FENOGLIO: It does. It eliminates 12:46 12 the result you just voted on. 12:46 13 MS. KIPLIN: This case -- I have to 12:46 14 agree with Mr. Fenoglio. This case -- if you overrule 12:46 15 the motion for rehearing, then they don't have a 12:46 16 license and so there is no opportunity for the agency 12:46 17 to act on any other proceeding because there is no 12:46 18 license and no basis for jurisdiction at the agency 12:46 19 level. 12:46 20 MS. SCHULTZ: Commissioner, this case 12:46 21 is based on completely different facts and completely 12:46 22 different violations than the previous case was. This 12:47 23 case, although by an odd twist of fate, the proposal 12:47 24 for decision came out a day earlier than in the other 12:47 25 case, this case in time took place much later, April 12:47 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 185 1 of this year. The hearing in the other case was held 12:47 2 in 1999. 12:47 3 COMMISSIONER SADBERRY: This is a later 12:47 4 set of facts and circumstances? 12:47 5 MS. SCHULTZ: It is a later set of 12:47 6 facts and circumstances, later violations than the 12:47 7 violations that were addressed in the previous case. 12:47 8 COMMISSIONER SADBERRY: So if you 12:47 9 literally took the previous decision and said, the 12:47 10 judge in that case said they should have another 12:47 11 chance, what you're saying is, this is now what we see 12:47 12 happened after they got another chance. 12:47 13 MS. SCHULTZ: Bingo, so to speak. 12:47 14 CHAIRMAN CLOWE: Well, Commissioner, if 12:48 15 I may, are we then in the record properly to ask 12:48 16 Ms. Garland why these violations took place? 12:48 17 MS. KIPLIN: No. You're -- that's not 12:48 18 within the record. 12:48 19 CHAIRMAN CLOWE: That's not within the 12:48 20 record. 12:48 21 COMMISSIONER SADBERRY: Because they 12:48 22 defaulted at the hearing. 12:48 23 MS. KIPLIN: No. My understanding is 12:48 24 there was not a default per se because there was 12:48 25 evidence that was actually taken in the record 12:48 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 186 1 beyond -- you know, we sent notice of hearing and -- 12:48 2 CHAIRMAN CLOWE: So all of this 12:48 3 evidence is from the Charitable Bingo Division. 12:48 4 MS. KIPLIN: Yes, sir. 12:48 5 CHAIRMAN CLOWE: She has not responded 12:48 6 on the record because she was not there. She wasn't 12:48 7 recognized by -- 12:48 8 MS. KIPLIN: Right. There was no 12:48 9 testimony that was taken on -- at the time of the 12:48 10 hearing on the respondent's side or the applicant's 12:48 11 side, but of course there was the -- well, I'm not 12:48 12 sure there were exceptions that were filed. There was 12:48 13 a motion for rehearing. I don't recall -- 12:48 14 CHAIRMAN CLOWE: But this is all 12:48 15 evidence that you submitted? 12:48 16 MS. SCHULTZ: Yes. 12:48 17 CHAIRMAN CLOWE: So what we're down to, 12:48 18 if I may state how I'm seeing it, and tell me if you 12:48 19 agree or not, is that they haven't been there, they 12:48 20 didn't appear, you did, you put the evidence in the 12:49 21 record, the recommendation was made, and you say they 12:49 22 had their chance, and they failed to appear, they 12:49 23 haven't submitted any evidence, and they shouldn't 12:49 24 have an opportunity. 12:49 25 MS. SCHULTZ: The record should stand 12:49 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 187 1 as it is, yes. 12:49 2 CHAIRMAN CLOWE: And that includes the 12:49 3 recommendation to uphold the Commission's denial of 12:49 4 the license renewal. 12:49 5 MS. SCHULTZ: Yes, sir. 12:49 6 CHAIRMAN CLOWE: That's the issue. So, 12:49 7 really, we can't go into the facts of this at all. 12:49 8 MS. SCHULTZ: The facts that are in the 12:49 9 record, and because counsel was not present and the 12:49 10 witnesses, you know, were not present. 12:49 11 MS. KIPLIN: Well, I think I may have 12:49 12 misstated. Procedurally, what -- and counsel, keep me 12:49 13 straight, there was a hearing, there was an appearance 12:49 14 by staff, no appearance by the licensee, a proposal 12:49 15 for decision was issued, no exceptions or replies. 12:50 16 MS. SCHULTZ: There were no exceptions 12:50 17 filed to this by the organization. 12:50 18 MS. KIPLIN: Then an order was entered 12:50 19 and there was a motion for rehearing and in reply to 12:50 20 the motion for rehearing. 12:50 21 MS. SCHULTZ: That's correct. 12:50 22 COMMISSIONER SADBERRY: On the 12:50 23 administrative level. 12:50 24 MS. KIPLIN: Yeah. I'm just thinking 12:50 25 procedurally what was before you on this case. 12:50 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 188 1 COMMISSIONER SADBERRY: When we signed 12:50 2 this order. 12:50 3 MS. KIPLIN: Yeah. There were no 12:50 4 exceptions or replies at the time that you signed the 12:50 5 order. 12:50 6 COMMISSIONER SADBERRY: Mr. Fenoglio 12:50 7 could not do anything because he had not been 12:50 8 retained. 12:50 9 MR. FENOGLIO: That is correct. 12:50 10 MS. KIPLIN: But that doesn't preclude 12:50 11 a -- I guess a party, but they're somewhat 12:50 12 disadvantaged. 12:50 13 COMMISSIONER SADBERRY: I'm asking a 12:50 14 technical point here because I'm trying to get at the 12:50 15 right result for the right reasons, and I want to also 12:50 16 stay in compliance with the rules and the law. If I 12:50 17 file a pleading in this -- if Mr. Fenoglio files a 12:50 18 pleading in this case that makes an attachment that 12:50 19 does not have support in the record below because he 12:50 20 did not present it there, in this instance it's the 12:51 21 PFD in the other case, but that is nevertheless a part 12:51 22 of my pleading, my pleading is now in this record, 12:51 23 isn't it? 12:51 24 MS. KIPLIN: Your pleading is in the 12:51 25 record. 12:51 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 189 1 COMMISSIONER SADBERRY: And the 12:51 2 attachments to my pleadings are in this record. So we 12:51 3 are dealing with now whether the three strikes rule 12:51 4 becomes a part of this record by virtue to the 12:51 5 attachment to the pleadings in this record of this 12:51 6 case, or whether it is not because it is not part of 12:51 7 the administrative agency record. 12:51 8 MS. KIPLIN: Well, the pleadings are 12:51 9 part -- they are part of the administrative record. I 12:51 10 mean, there is no denying that. Likewise, the reply 12:51 11 is part of the administrative record. And -- 12:51 12 COMMISSIONER SADBERRY: So I'm trying 12:51 13 to get at, do I look at some point that this rule or 12:51 14 whatever we're talking about on the three strikes 12:51 15 thing that we said we want to deal with at next 12:51 16 month's meeting is, in fact, an issue of what -- that 12:51 17 we are considering in this particular case, because 12:52 18 it's an attachment to a pleading. 12:52 19 MR. FENOGLIO: No. If I may -- 12:52 20 CHAIRMAN CLOWE: I would like to hear 12:52 21 Kim answer that, if I may. 12:52 22 MS. KIPLIN: I think it is a pleading 12:52 23 and to the extent that you have got -- well, you have 12:52 24 a reply that has said that it should be disregarded 12:52 25 and there is a standard for what a motion for 12:52 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 190 1 rehearing is supposed to do under case law, and it's 12:52 2 to put you on sufficient notice of error that you 12:52 3 created on your findings and conclusions that's based 12:52 4 on the evidence in the record. 12:52 5 MS. SCHULTZ: May I may, Commissioners. 12:52 6 Just as we were discussing, and I think it was the 12:52 7 American Business Women's Association case, bringing a 12:52 8 witness before you to talk about things that weren't 12:52 9 in the record at the hearing distorts the record. 12:52 10 It's outside the record. I think we had a case before 12:52 11 us last month, the Dance Et Vous, where counsel had 12:52 12 done that. In their exceptions, they actually 12:52 13 included documents that were not in evidence at the 12:53 14 hearing. That's exactly what's happened in this case. 12:53 15 These documents were not in evidence at this hearing. 12:53 16 The motion for rehearing is improper if it includes 12:53 17 that. It is supposed to be based only on the findings 12:53 18 of fact and conclusions of law in that judge's 12:53 19 proposal for decision. 12:53 20 MR. FENOGLIO: If I may direct to her 12:53 21 point on that point. If she's right, you can't 12:53 22 consider the order you just rendered that incorporated 12:53 23 City of El Paso v. Public Utility Commission, 883 S.W. 12:53 24 2d 179, 188-189. That was wasn't in the first Red Men 12:53 25 case. This is simple, Commissioner. The PFD is an -- 12:53 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 191 1 is a document of this Commission. And if the agency 12:53 2 is going to take the position, which I can't believe, 12:53 3 that a proposal for decision issued by SOAH, we don't 12:53 4 take reference to if it's not introduced into 12:53 5 evidence, you turn hearings on their head, because -- 12:54 6 MS. SCHULTZ: Wrong. 12:54 7 MR. FENOGLIO: -- again, under Red Men 12:54 8 4, you can't consider any of their legal arguments, 12:54 9 but that are incorporated in the document that y'all 12:54 10 clearly incorporated and granted the staff's 12:54 11 affirmative release based at least in part on the 12:54 12 legal authorities they cited. This PFD is a legal 12:54 13 authority. I would submit to you it's not necessarily 12:54 14 binding on the agency, but you can't ignore the fact 12:54 15 that it's a legal authority. 12:54 16 MS. SCHULTZ: No. 12:54 17 MR. FENOGLIO: That affects this 12:54 18 agency. 19 MS. SCHULTZ: I respectfully disagree. 12:54 20 There is a major difference. When you're citing a 12:54 21 case, a published case in S.W. 2d, you're citing an 12:54 22 opinion that's been ratified by a court and issued by 12:54 23 a court. This PFD was issued by the administrative 12:54 24 law judge, it was not signed into order by the 12:54 25 Commission. 12:54 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 192 1 MR. FENOGLIO: But it's a published 12:54 2 case. 12:54 3 MS. KIPLIN: Can I just say one thing? 12:54 4 I've been reminded, I did respond, pleadings are part 12:54 5 of the record, but I've been reminded to make sure 12:54 6 that I make it clear, pleadings are not evidence. You 12:55 7 know, the evidence, of course, is sworn testimony, the 12:55 8 exhibits that are put into the -- 12:55 9 COMMISSIONER SADBERRY: No. I 12:55 10 understand that. What I'm getting at, to be specific, 12:55 11 if I go to a point of review beyond this agency and go 12:55 12 to a judge and say, I want you to look at that second 12:55 13 Red Men case that the Lottery Commission dealt with, 12:55 14 here is what was before them, here are my pleadings 12:55 15 and my attachment to my pleadings, is that judge 12:55 16 probably going to say, yes, then you raised that issue 12:55 17 and it's ripe for me to review that issue as to 12:55 18 whether that Commission should have listened to you. 12:55 19 MS. KIPLIN: I think, if you wanted to 12:55 20 grant a motion for rehearing and remand it back to 12:55 21 take further evidence and to consider other issues, 12:55 22 you have the authority to do that within the scope of 12:55 23 the proceedings. 12:55 24 COMMISSIONER SADBERRY: I don't want to 12:55 25 go that far. I'm saying, what would a district judge 12:55 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 193 1 say were the issues we were looking at in this 12:55 2 action -- 12:55 3 MS. KIPLIN: Okay. 4 COMMISSIONER SADBERRY: -- based upon 12:55 5 the pleadings before us. 12:55 6 MS. KIPLIN: Okay. The scope of 12:56 7 judicial review for an administrative contested case 12:56 8 order is one of substantial evidence. And that -- and 12:56 9 that -- and, of course, there is the issue of whether 12:56 10 you -- you have violated the law in terms of some sort 12:56 11 of erroneous legal conclusion. In this particular 12:56 12 case, what would go to the -- the trial court would be 12:56 13 the administrative record, which would -- the judge 12:56 14 would review to determine whether there was 12:56 15 substantial evidence that supported the order of the 12:56 16 Commission. 12:56 17 COMMISSIONER SADBERRY: And that 12:56 18 substantial evidence would have to be in the record of 12:56 19 the administrative law judge? 12:56 20 MS. KIPLIN: Yes. 21 MR. FENOGLIO: It can be what's in the 12:56 22 agency record. 12:56 23 MS. KIPLIN: Well -- 12:56 24 MR. FENOGLIO: That PFD is in the 12:56 25 agency record. I mean, again, Commissioner, if you're 12:56 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 194 1 thinking -- 12:56 2 MS. SCHULTZ: Not the PFD that was 12:56 3 signed by this Commission. 12:56 4 MS. KIPLIN: It's a docketed case. I 12:56 5 guess I'm confused if Mr. Fenoglio is saying that a 12:56 6 judge looks beyond the scope of the docketed case -- 12:56 7 contested case proceeding administrative record, I 12:57 8 don't agree with that. If you're looking at it on a 12:57 9 substantial evidence review. 12:57 10 COMMISSIONER SADBERRY: Because 12:57 11 conceptually, then, anybody can attach anything to a 12:57 12 pleading and make it relevant to that action if it's 12:57 13 not something that the administrative law judge looked 12:57 14 at, and they can make any case relevant to that action 12:57 15 by attaching it to the pleading. 12:57 16 MR. FENOGLIO: Well, I would disagree 12:57 17 with that. 12:57 18 COMMISSIONER SADBERRY: I'm just -- I'm 12:57 19 doing a hypothetical. I'm not saying -- 12:57 20 MR. FENOGLIO: -- your hypothetical, 12:57 21 and I can easily distinguish it. If I attach some 12:57 22 document that doesn't have anything to do with this 12:57 23 case, then clearly it's -- you know, the judge 12:57 24 isn't -- the district court judge in Travis County is 12:57 25 probably not going to consider it. But in this case, 12:57 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 195 1 what I attached is an -- is the only intelligent 12:57 2 explanation of the Commission's policy, and it's a 12:57 3 policy the Commission hasn't denied. As a matter of 12:57 4 fact it referenced and y'all voted to recognize, in 12:57 5 conclusion of law number five, that you have this 12:57 6 unwritten three strikes policy. I mean, it's a part 12:57 7 of the body of law of this agency. It is now. 12:58 8 COMMISSIONER SADBERRY: But the record 12:58 9 of this case does not say whether or not that policy 12:58 10 was applied in this instance to -- that resulted in 12:58 11 the disciplinary action. And we don't know that as 12:58 12 Commissioners whether or not it was implied and we 12:58 13 can't know that. 12:58 14 MR. FENOGLIO: I think you know that. 12:58 15 I think you can put common sense to work here -- 12:58 16 MS. KIPLIN: No, sir. The substantial 12:58 17 evidence of the record is what the judge reviews at -- 12:58 18 on scope of judicial review, not speculation or what 12:58 19 somebody may think was applied. It's what is 12:58 20 before -- what is before the court in an 12:58 21 administrative record. 12:58 22 COMMISSIONER SADBERRY: I think my 12:58 23 question has been answered to my satisfaction. I'm 12:58 24 not sure I'm satisfied with where all this is, but I 12:58 25 need to get clear and I'm doing so on what exactly the 12:58 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 196 1 basis is. I think the substantial evidence issue and 12:58 2 what is before the administrative law judge helps me 12:58 3 understand what I can consider as a commissioner, one 12:59 4 commissioner, at this level, in reviewing this 12:59 5 particular action. Which I know both parties were 12:59 6 careful not to seek consolidation to these two, as a 12:59 7 matter of fact, to make certain that they were kept 12:59 8 separate in presentation. I think both sides agreed 12:59 9 to that before we started these two cases today, if I 12:59 10 understand -- if I recall correctly. 12:59 11 MS. SCHULTZ: I don't know that there 12:59 12 was any agreement. I just think that it's very 12:59 13 important that a case stand on its own facts and its 12:59 14 own record. 12:59 15 COMMISSIONER SADBERRY: Well, I think 12:59 16 we asked if everybody saw it that way, at one time. 12:59 17 CHAIRMAN CLOWE: Any more questions? 12:59 18 Is there a motion? 12:59 19 COMMISSIONER SADBERRY: I would like to 12:59 20 ask counsel what the options are in terms of what is 12:59 21 proposed here by way of remedy, and are there other 12:59 22 options. 13:00 23 MS. KIPLIN: Sure. Let me -- what you 13:00 24 have before you is the motion for rehearing. And you 13:00 25 can grant the motion for rehearing and you can not 13:00 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 197 1 deny the application and provide the license, you can 13:00 2 grant the motion for rehearing and you can remand it 13:00 3 back to the State Office of Administrative Hearings to 13:00 4 take further evidence, further argument of counsel, 13:00 5 you can overrule the motion for rehearing, you can 13:00 6 pass the matter, and I have calculated up and, you 13:00 7 know, I'm hoping I calculated it up right or counted 13:00 8 it up right. But the motion would expire by 13:00 9 operational law if you did not act on or before 13:00 10 November 17th. That's 90 days. We've already 13:00 11 extended it for an additional 45 days, so those are 13:00 12 the options that I see. Pass, deny, grant, grant and 13:00 13 just outright issue the renewal license, or grant and 13:00 14 send it back over to SOAH. 13:01 15 COMMISSIONER SADBERRY: Is it 13:01 16 appropriate to ask, although obviously outside the 13:01 17 record, what the current status of the licensee is as 13:01 18 far as compliance? 13:01 19 MS. KIPLIN: No. It's outside the 13:01 20 record. No. 13:01 21 COMMISSIONER SADBERRY: Can't ask that. 13:01 22 MR. FENOGLIO: We are ready to answer 13:01 23 it if you're really interested. 13:01 24 COMMISSIONER SADBERRY: Where would 13:01 25 that put this licensee, to agree with this action? 13:01 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 198 1 MS. KIPLIN: I'm sorry? 13:01 2 COMMISSIONER SADBERRY: Where are they? 13:01 3 MS. KIPLIN: The licensee would be 13:01 4 sitting out for a year. Now, let me think about this. 13:01 5 I guess, if the licensee decided to seek judicial 13:01 6 review and was able to obtain some sort of injunctive 13:01 7 remedy, then, of course, whatever judicial order would 13:01 8 control. 13:01 9 MR. FENOGLIO: But what -- if you deny 13:01 10 the motion for rehearing, what you're telling the 13:01 11 licensee is, even though all penalties and interest 13:01 12 and everything has been paid, that you're out for a 13:01 13 year. Unless we can get a district court -- 13:01 14 COMMISSIONER SADBERRY: You put that in 13:01 15 the record, didn't you? 13:01 16 MR. FENOGLIO: No. That is in the 13:02 17 record, Commissioner, that we paid everything that is 13:02 18 in this hearing and filed everything that is required. 13:02 19 COMMISSIONER SADBERRY: Since you've 13:02 20 been allowed to argue as a matter of oral argument, do 13:02 21 you have a defense to the appearance of what appears 13:02 22 to be the fact that this action we're talking about 13:02 23 now is even a subsequent action of default or 13:02 24 violation, if you will, to the one in which the 13:02 25 administrative law judge found it meritorious that 13:02 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 199 1 your client have another chance. Can you defend that? 13:02 2 MR. FENOGLIO: Yes. 13:02 3 COMMISSIONER SADBERRY: And I don't 13:02 4 mean by evidence that goes outside the record, but do 13:02 5 you have a policy defense to that? 13:02 6 MR. FENOGLIO: A policy defense. I 13:02 7 mean -- 13:02 8 COMMISSIONER SADBERRY: What I mean is, 13:02 9 I don't want you to give me testimony that, you know, 13:02 10 somebody had this problem and we've got another bank 13:02 11 problem. I mean, can you tell me why that should 13:02 12 appeal to us as Commissioners -- 13:03 13 MR. FENOGLIO: I think it should appeal 13:03 14 to you because the licensee, even in the hearing in 13:03 15 this record as well as the hearing in the other 13:03 16 regard, they've come into compliance before the date 13:03 17 of the hearing. Fully in compliance, have properly 13:03 18 filed everything, paid everything, with penalties and 13:03 19 interest. I submit to you, Commissioner Sadberry, the 13:03 20 punishment does not fit the crime, quote unquote, if 13:03 21 you will. It may be appropriate for a lesser 13:03 22 sanction, which you have, but what staff is asking for 13:03 23 is the maximum punishment. 13:03 24 COMMISSIONER SADBERRY: Well, I thought 13:03 25 that's what I was asking by my -- I meant, what other 13:03 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 200 1 things can be done. 13:03 2 MS. KIPLIN: I'm sorry. You could also 13:03 3 grant the motion for rehearing and, I suppose, include 13:03 4 a lesser penalty. But, of course, that would have to 13:03 5 be supported by, you know, findings and conclusion. 13:03 6 CHAIRMAN CLOWE: Billy, did you have 13:03 7 anything for comment? 13:03 8 MR. ATKINS: Commissioners, staff would 13:03 9 recommend that you deny the motion for rehearing and 13:03 10 uphold the ALJ's recommendation for denial of the 13:04 11 license. Unfortunately, there are other things I 13:04 12 would like to admit, but they would be outside the 13:04 13 record and counsel would chastise me for that. 13:04 14 MR. FENOGLIO: And we would also like 13:04 15 other things outside the record, too, by the way, so 13:04 16 just so that the record is clear. 13:04 17 MS. KIPLIN: And I would probably 13:04 18 chastise both of you. 13:04 19 MR. FENOGLIO: I consider myself duly 13:04 20 chastised. 13:04 21 MS. SCHULTZ: And I would submit that, 13:04 22 you know, perhaps if this isn't considered -- and I 13:04 23 don't like using the term, coming into compliance, 13:04 24 because the late filing itself, the late payment 13:04 25 itself is a violation. There were 11 violations that 13:04 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 201 1 you have heard about so far today. So if you were to 13:04 2 consider a one-month suspension for each to be 13:04 3 adequate, you're almost at a year anyhow. You're at 13:04 4 11 months. 13:04 5 COMMISSIONER SADBERRY: Mr. Chairman, 6 I'm ready to make a motion. 13:04 7 CHAIRMAN CLOWE: Please. 13:04 8 COMMISSIONER SADBERRY: I would move to 13:04 9 adopt the ALJ proposed decision and the -- 13:04 10 MS. KIPLIN: No, I'm sorry. What's 13:04 11 before you is a motion for rehearing. 13:05 12 COMMISSIONER SADBERRY: I would move to 13:05 13 deny the motion for rehearing. 13:05 14 CHAIRMAN CLOWE: Second. 13:05 15 All in favor say aye. 13:05 16 MS. KIPLIN: So you're actually -- I 13:05 17 know this is a nitpicky issue, but in the 13:05 18 Administrative Procedure Act, it doesn't really use 13:05 19 the word "deny," it uses the word "overrule". 13:05 20 COMMISSIONER SADBERRY: I would 13:05 21 amend -- if I may be permitted to overrule -- move to 13:05 22 overrule the motion for rehearing. 13:05 23 CHAIRMAN CLOWE: And I second that and 13:05 24 the vote is, all in favor, aye. 13:05 25 Opposed, no. 13:05 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 202 1 MS. KIPLIN: Commissioners, we'll have 13:05 2 an order prepared and presented to you before the 13:05 3 closing of the Commission meeting today. 13:05 4 Do y'all want to work on that? 13:05 5 CHAIRMAN CLOWE: We are now to item two 13:05 6 on the agenda. 13:05 7 MS. KIPLIN: While we're here, would 13:05 8 you like to go ahead and take up the rest of the 13:05 9 contested case proceedings? Would you consider that? 13:05 10 CHAIRMAN CLOWE: Is that your request? 13:05 11 MS. KIPLIN: I would like for you to go 13:05 12 ahead so we could just move on after this item. 13:05 13 CHAIRMAN CLOWE: Yes. 14 MS. KIPLIN: Okay. Commissioners, what 13:05 15 you have in your notebook are other contested case 13:06 16 proceedings. If I'm not mistaken, all but one left 13:06 17 are bingo case -- pardon me, lottery cases. Minor 13:06 18 Considerations and Dance Et Vous, we are asking that 13:06 19 that be passed. I was hopeful that we might be able 13:06 20 to arrive at a creative solution, and -- but to no 13:06 21 avail. Staff is recommending -- I'm going to put Elks 13:06 22 Lodge aside for the time. Elks Lodge -- and staff is 13:06 23 recommending that you do adopt the administrative law 13:06 24 judge's proposal for decision and recommended order in 25 the remaining cases, which are all lottery cases. 13:06 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 203 1 CHAIRMAN CLOWE: So moved. 13:06 2 COMMISSIONER SADBERRY: Second. 13:06 3 CHAIRMAN CLOWE: All in favor say aye. 13:06 4 Opposed, no. 13:06 5 MS. KIPLIN: Commissioners, with regard 6 to Elks Lodge 1105 out of Wichita Falls. If you'll 13:06 7 recall, last Commission meeting you had appearances 13:06 8 that came before you from a representative from Elks 13:06 9 Lodge 1105. The staff requested that you pass that 13:06 10 item for further consideration until the meeting today 13:07 11 to give the parties an opportunity to try to resolve 13:07 12 their differences. I will tell you that I am aware 13:07 13 that there has been communication between the two 13:07 14 parties. And as of -- I think it was this morning, 13:07 15 there has been an agreed order or proposed order that 13:07 16 was tendered with a faxed signature by the 13:07 17 representative. But my understanding is that no 13:07 18 monies were paid. So I want to make sure that you do 13:07 19 have the benefit of knowing that there was -- that 13:07 20 there has been, as of this morning, I believe it's 13:07 21 this morning, the proposed -- the agreed proposed 13:07 22 order, fax filed with the representative's signature, 13:07 23 but -- but no monies. And I'll allow Ms. Schultz and 13:07 24 Mr. Atkins to take over. 13:07 25 MS. SCHULTZ: Yes, Commissioners. 13:07 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 204 1 They -- by telephone, contact with the organization 13:07 2 representative, he indicated that the checks and the 13:07 3 original of the signed agreement had been overnighted. 13:08 4 However, we have not received them yet. We did 13:08 5 receive a fax of the signed agreement, which then 13:08 6 would be presented to Mr. Atkins for signature and 13:08 7 then to the Commission. We just do not have that 13:08 8 overnight mail package yet which was sent from Wichita 13:08 9 Falls. 13:08 10 CHAIRMAN CLOWE: So no action is called 13:08 11 for on that issue at this time? 13:08 12 MR. ATKINS: Commissioners, actually, 13:08 13 based on the efforts that staff went to to resolve 13:08 14 this matter with the licensee, Ms. Schultz put in a 13:08 15 lot of time and effort to draft these documents. They 13:08 16 were sent to the licensee on September 30th -- I'm 13:08 17 sorry, they were mailed the 29th. They were received 13:08 18 by the licensee on September 30th. They took no 13:08 19 action until yesterday to resolve this matter. I 13:08 20 cannot in good conscience recommend that you pass this 13:08 21 matter. I would recommend that you adopt ALJ's 13:09 22 recommendation to deny the license. 13:09 23 COMMISSIONER SADBERRY: Is that ripe 13:09 24 for action? 13:09 25 MS. KIPLIN: It is ripe. It's noticed WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 205 1 for -- you know, generic in terms of orders, so it is 13:09 2 ripe if you want to take that action. 13:09 3 COMMISSIONER SADBERRY: I remember that 13:09 4 case. 13:09 5 MR. ATKINS: It's a revocation, 13:09 6 Commissioners, and also I'm informed by Ms. Schultz 13:09 7 that the licensee was notified in her letter to them 13:09 8 of the 29th that it was going to be noticed for this 13:09 9 hearing. 13:09 10 CHAIRMAN CLOWE: The 29th of September? 13:09 11 MR. ATKINS: Yes, sir. 13:09 12 MS. SCHULTZ: I overnighted it to him 13:09 13 on that date and it was confirmed received on 13:09 14 Saturday, the 30th. The person who contacted me 13:09 15 yesterday indicated that they were working on this and 13:09 16 basically asked for more time, was not that same 13:09 17 individual. It was another individual with the Elks 13:09 18 organization, but the individual I had originally 13:09 19 mailed it to was Mr. Bowen, who had appeared before 13:10 20 you last week -- last month. 13:10 21 COMMISSIONER SADBERRY: Is a motion in 13:10 22 order? 13:10 23 CHAIRMAN CLOWE: Yes, sir. 13:10 24 COMMISSIONER SADBERRY: I would move to 13:10 25 accept the staff's recommendation for revocation. 13:10 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 206 1 CHAIRMAN CLOWE: Second. 13:10 2 All in favor say aye. Opposed, no. 13:10 3 MS. KIPLIN: So what you're saying 13:10 4 today is the recommended order by the administrative 13:10 5 law judge, accompanied by the proposal for decision. 13:10 6 CHAIRMAN CLOWE: That's correct. 13:10 7 MS. KIPLIN: Commissioners, that all 13:10 8 the contested case matters that we have that are ripe 13:10 9 for your consideration today. 13:10 10 CHAIRMAN CLOWE: Well, then, we're back 13:10 11 to item number two on the agenda. What I would like 13:10 12 to do, if it's possible, and everyone can stay with 13:10 13 us, is go through the public docket until we reach the 13:10 14 executive session item, and then at that point in 13:10 15 time, go into executive session, and that would give 13:10 16 those of you a chance to get a bite of lunch who feel 13:10 17 the need for it. 13:11 18 Kim, I think this item two is -- 13:11 19 MS. KIPLIN: Commissioners, what you 13:11 20 have before you is consideration of and possible 13:11 21 discussion and/or action on the minutes of the 13:11 22 September 11th, 2000 Commission meeting. There is a 13:11 23 need for you all to approval Commission meeting 13:11 24 minutes because under the Open Meetings Act, a 13:11 25 governing body is either required to maintain an audio 13:11 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 207 1 recording of its meetings or is required to have 13:11 2 minutes approved of its meeting. This Commission has 13:11 3 maintained audio recordings of each meeting, and as a 13:11 4 result, have eliminated the need for -- frankly, need 13:11 5 to draft these minutes and have them in front of you. 13:11 6 But the -- obviously the -- it was predicated on the 13:11 7 basis that there would be a complete audio recording 13:11 8 of the Commission meeting. Last Commission meeting, 13:11 9 if you'll recall, we recessed and resumed our meeting 13:12 10 over at the Capitol to take up the agency's 13:12 11 Legislative Appropriations Request. While there was 13:12 12 an effort to have an audio recording, that audio 13:12 13 recording did not occur, and so we have a portion of 13:12 14 the meeting that was not recorded, which requires, in 13:12 15 my view, a complete set of the minutes for the entire 13:12 16 Commission meeting so that we're not applying these in 13:12 17 piecemeal fashion. The Open Meetings Act does not 13:12 18 address a piecemeal fashion. So I would recommend at 13:12 19 this time that you approve the Commission meeting 13:12 20 minutes. 13:12 21 CHAIRMAN CLOWE: And Commissioners have 13:12 22 been furnished a copy of that prior to this meeting 13:12 23 and had an opportunity to review it. 13:12 24 MS. KIPLIN: Yes, they were. And I'll 13:12 25 admitted that they came out yesterday late, it was 13:12 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 208 1 late yesterday afternoon. And if you would -- if you 13:12 2 didn't get it didn't have a chance to read it, then 13:12 3 I'm happy to have this deferred till later in the 13:12 4 Commission meeting. 13:13 5 CHAIRMAN CLOWE: I would move the 13:13 6 adoption of the minutes. 13:13 7 COMMISSIONER SADBERRY: Second. 13:13 8 CHAIRMAN CLOWE: All in favor say aye. 13:13 9 Opposed, no. 13:13 10 They are adopted. 13:13 11 Now we're ready to go to item number 13:13 12 three, report, possible discussion and/or action on 13:13 13 lottery sales and trends. Linda and Toni. 13:13 14 MS. SMITH: Commissioners: Total 13:13 15 fiscal year 2001 sales to date are two million -- I'm 13:13 16 sorry. 294,281,102.50. This is up 17.36 percent from 13:13 17 fiscal year 2000 total sales to date of 250,742,772. 13:13 18 To look at the weekly sales average 13:13 19 from fiscal year 2001, we are 49,046,850, which also 13:13 20 that reflects a 17.36 percent increase from fiscal 13:14 21 year 2000 weekly sales average of 41,790,462. 13:14 22 Our Instant Ticket sales for fiscal 23 year 2001 year to date are 162,993,278. That 13:14 24 represents 55 percent of the total market share for 13:14 25 this year -- for where we are this year, and it's a 13:14 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 209 1 9.86 percent increase over fiscal year 2000 sales of 13:14 2 148,367,899. 13:14 3 And then if you look at Lotto Texas, 13:14 4 fiscal year to date sales for 2001 are 89,794,560. 13:14 5 The Lotto Texas game represents 30.51 percent of the 13:14 6 market share, and is -- has -- reflects an increase of 13:15 7 54.52 percent over last fiscal year, at 58,111,201. 13:15 8 And just to glance at last week, 13:15 9 Instant Tickets were up 1.85 percent, from 29,938,947 13:15 10 the previous year, we were -- and this year we're at 13:15 11 30,491,773. Lotto Texas, from this past week to the 13:15 12 prior week, is down 13.92 percent. We came in at 13:15 13 9,700,264, versus an 11,269,436 the previous week, but 13:15 14 that was -- actually, just contributed to the jackpot 13:15 15 amount we had gotten ahead, so there was a decline. 13:15 16 MS. CLOUD: Commissioners, I would like 13:15 17 to share with you. I had Larry King run some sales 13:16 18 numbers for me late yesterday on where we are today 13:16 19 such that our Lotto matrix change and where we were an 13:16 20 equal amount of weeks prior to the change. We -- he 13:16 21 did the summary on the 12-week basis. The 12 weeks 13:16 22 prior to the matrix change, our average weekly sales 13:16 23 was 9,687.411. The average jackpot was 8,291,667. 13:16 24 The 12 weeks since the Lotto matrix change, our 13:16 25 sales -- average sales of 14,493,653, and the average 13:16 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 210 1 jackpot has been 17,708,000. So we have succeeded in 13:16 2 changing our sales trends with this Lotto matrix 13:16 3 change. 13:16 4 CHAIRMAN CLOWE: 12 weeks does not a 13:16 5 year make. 13:16 6 MS. CLOUD: That's all right. But 13:17 7 that's only one big jackpot thrown in there, so we've 13:17 8 got more to come. 13:17 9 CHAIRMAN CLOWE: Let's not be counting 13:17 10 our chickens until they -- 13:17 11 MS. CLOUD: You'll hear this on a 13:17 12 monthly basis. 13:17 13 The other thing I would like to 13:17 14 address, if it's timely for me to address this, is to 13:17 15 give you the summation of what Mr. Busald has 13:17 16 presented as being the amount hit the reserve on the 13:17 17 40 million dollar jackpot. 13:17 18 CHAIRMAN CLOWE: We asked for that 13:17 19 number. 13:17 20 MS. CLOUD: Right. In his report, he 13:17 21 states that we hit -- that we had a negative balance 13:17 22 of 1,979,805. Actually, that's very close to the 13:17 23 gross amount of what we would have had, that being 13:17 24 1,979,763. However, every draw, we have a one percent 13:17 25 of that draw sales that goes into the prize reserve, 13:17 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 211 1 so we had 559,696,028 that was contributed to the 13:18 2 reserve from those draws, making our net hit to the 13:18 3 draw for that 40 million dollar jackpot of one million 13:18 4 four-twenty sixty-six seventy-two. So we realized 13:18 5 that we -- in fact, I've shared this information with 13:18 6 y'all already, because it was a big hit against the 13:18 7 reserve. But that's what the reserve is for. 13:18 8 CHAIRMAN CLOWE: Would you pass that 13:18 9 information on to him? 13:18 10 MS. CLOUD: I certainly will. 13:18 11 CHAIRMAN CLOWE: Good. Anything 13:18 12 further on this, Linda? 13:18 13 MS. CLOUD: No, sir. 13:18 14 CHAIRMAN CLOWE: The next item, I 13:18 15 think, is again you and Toni, report, possible 13:18 16 discussion and/or action on lottery advertising and 13:18 17 promotions, including print media criteria. 13:18 18 MS. SMITH: Regarding general market 13:18 19 advertising, we're continuing Lotto ball campaign on 13:18 20 TV and it will run through September and October -- 13:18 21 well, through the rest of this month every other week 13:18 22 and with radio spots running concurrently. Our 13:19 23 Scratch Off coin TV campaign and radio campaign is 13:19 24 currently on air and will run through the end of 13:19 25 October. We're working on new spots for the coin 13:19 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 212 1 campaign that will start in November in the general 13:19 2 market, and then with regard to minority market, The 13:19 3 King Group is working on new concepts for Cash 5, Pick 13:19 4 3, and Scratch Off that will begin in November, also, 13:19 5 for both radio and TV. And we continue to run our 13:19 6 print advertising for end of game notices and minority 13:19 7 vendor recruitment ads. And we do have our usual 13:19 8 presence at the State Fair. We have a staff out there 13:19 9 right now. And we have partnered with a retailer 10 within for selling tickets and we've been very 13:19 11 successful despite some of the weather conditions 13:19 12 they've had. It's been a successful year for us to 13:19 13 far. 14 CHAIRMAN CLOWE: Did it rain in Dallas? 13:19 15 MS. SMITH: Yes, sir, it did. It 13:19 16 poured down the day of the OU game. 13:19 17 CHAIRMAN CLOWE: A lot of church goers 13:19 18 up there. I wish we had some in Central Texas. We 13:19 19 missed it entirely. 13:19 20 Toni, I'm getting a number of 13:20 21 compliments on the Lotto ball and the Scratch ads on 13:20 22 television. Those are clean cut, they're interesting 13:20 23 and attractive. People find them positive, and not 13:20 24 offensive, and it's a positive as far as the feedback 13:20 25 I'm getting. 13:20 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 213 1 MS. SMITH: Thank you, sir. I'll be 13:20 2 sure to pass that on to our staff and to Fogarty 13:20 3 Klein. 13:20 4 CHAIRMAN CLOWE: Thank you, ma'am. 13:20 5 The next item is the status report, 13:20 6 possible discussion and/or action on the lottery 13:20 7 operator audit procurement. 13:20 8 Ridgely, is that you? 13:20 9 MR. BENNETT: Yes, Commissioners. 13:20 10 Good afternoon. For the record -- 13:20 11 not -- yes, it is afternoon. Good afternoon. For the 13:20 12 record, my name is Ridgely Bennett. I'm the deputy 13:20 13 general counsel of the Texas Lottery Commission. 13:20 14 Regarding the lottery operator audit procurement, the 13:20 15 final draft of the RFP has been approved by the 13:20 16 executive director. It's now being printed, bound, 13:20 17 and ready for distribution, so that should be on the 13:20 18 street within the next couple of days. 13:21 19 CHAIRMAN CLOWE: Very good. The next 13:21 20 item, I believe, is also yours, Ridgely. Status 13:21 21 report, possible discussion and/or action on the 13:21 22 lottery operator procurement and/or lottery operator 13:21 23 consultant. 13:21 24 Does that look strange to you? 13:21 25 MR. BENNETT: No. I was -- we are 13:21 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 214 1 currently going through the process on those. Of 13:21 2 course, on the lottery operator consultant, of course, 13:21 3 that one has been awarded to Patel (phonetic) and 13:21 4 they're on board, and staff is working on the other 13:21 5 procurement. 13:21 6 CHAIRMAN CLOWE: And you're in the 13:21 7 process of interviewing legal support on this issue, 13:21 8 are you not? 13:21 9 MS. KIPLIN: Yes, sir, that is correct. 13:21 10 CHAIRMAN CLOWE: Are you at a point 13:21 11 where you want to comment on that or are you just 13:21 12 wanting to report that you're in the process? 13:21 13 MS. KIPLIN: No, sir, I don't want to 13:22 14 comment any further than we're in the process. Once 13:22 15 we're in a position of having awarded contractor 13:22 16 contracts, then I'll be glad to make further comment. 13:22 17 CHAIRMAN CLOWE: Then I would just 13:22 18 simply go as far as to say that Commissioner Betsy 13:22 19 Whitaker is involved in that process and I'm very 13:22 20 pleased with that, and I think that that's the 13:22 21 proactive position that the Commission ought to have 13:22 22 in this issue. 13:22 23 Thank you, Ridgely. 13:22 24 MR. BENNETT: Thank you. 13:22 25 CHAIRMAN CLOWE: I didn't mean to throw 13:22 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 215 1 you a curve. 13:22 2 MR. BENNETT: Oh, that's okay. I just 13:22 3 had a little brain drain for a second. 13:22 4 CHAIRMAN CLOWE: Next is item seven, 13:22 5 consideration of and possible discussion and/or action 13:22 6 on state audit reports relating to the Texas Lottery 13:22 7 Commission. 13:22 8 Debra McLeod. Good afternoon, Debra. 13:22 9 MS. McLEOD: Good morning, 13:22 10 Commissioners. I'm pleased to announce that we were 13:22 11 able to get a written report to the executive director 13:22 12 regarding this print media circulation issue that's 13:22 13 been looming here for several months. And I have not 13:23 14 had an opportunity to discuss it with the director of 13:23 15 marketing, but I have with the executive director, and 13:23 16 feel that they've made excellent recommendations as to 13:23 17 how we can go forward and be assured that we're 13:23 18 steered from some pretty rocky waters that we faced 13:23 19 with some of these print media vendors. So it keeps 13:23 20 us from becoming the auditors and yet gives us very 13:23 21 clear guidance as to how we can go forward in this 13:23 22 area. 13:23 23 CHAIRMAN CLOWE: Very good. Any 13:23 24 questions, Commissioner? Thank you, Debra. 13:23 25 MS. KIPLIN: If I might suggest taking 13:23 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 216 1 the other two out -- items out of order and taking the 13:23 2 Bingo Advisory Committee Meeting first. It would 13:23 3 dovetail into the topic on the legislation. Because I 13:23 4 believe that the Bingo Advisory Committee, part of 13:23 5 that was considering legislation. 13:23 6 CHAIRMAN CLOWE: All right, then. 13:23 7 That's item nine, report, possible discussion and/or 13:23 8 action on the Bingo Advisory Committee's meeting. 13:23 9 And Bill, you've been very patient. 13:24 10 Thank you. 13:24 11 MR. NEINAST: Thank you, Mr. Chairman. 12 For the record, I'm Bill Neinast, chair 13:24 13 of the Bingo Advisory Committee. You have an 13:24 14 executive summary of our September 21 meeting, the 13:24 15 whole committee meeting. None of this will require 13:24 16 action on your part. This is just to elaborate on 13:24 17 those notes. I would like to mention at the beginning 13:24 18 that your four new appointees are excellent. In my 13:24 19 opinion, we now have the most informed, the most 13:24 20 involved and the most active committee on which I've 13:24 21 been privileged to serve. I think you're going to see 13:24 22 some real results from them. 13:24 23 You have summarized for you there the 13:24 24 items that the subcommittee met on and considered 13:24 25 yesterday. The committee -- the subcommittee report 13:24 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 217 1 will be referred to the full committee that is now 13:24 2 scheduled to meet, as Billy mentioned, on 1 November. 13:24 3 The subcommittee, in effect, will recommend to the 13:25 4 full committee that each of those items be approved 13:25 5 except for the very last one, and you'll hear more 13:25 6 about that later. That's to allow to charge for the 13:25 7 cost of the training program. The subcommittee 13:25 8 disagrees with the staff on that proposal. It will 13:25 9 be, as will all of the other proposals, be considered 13:25 10 in detail at the full committee meeting on the 1st of 13:25 11 November. And you will get a report at that time with 13:25 12 the results. 13:25 13 Several things did come up that will be 13:25 14 put on the agenda for the 1 November meeting that are 13:25 15 not reflected here. It came in as a result of input 13:25 16 from the public that was present. Both of them 13:25 17 involved exemptions. One is an exemption in some 13:25 18 cases for the prize fee that is collected during bingo 13:25 19 games, the other is for an exemption from the sales 13:25 20 tax that charities must pay on certain bingo 13:26 21 equipment. They are completely different issues of 13:26 22 different considerations. They will be on the agenda 13:26 23 for the 1 November full committee meeting, and you'll 13:26 24 get a report on those from that meeting. 13:26 25 Two other items that came up at that 13:26 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 218 1 meeting that would be of interest to you, some concern 13:26 2 expressed that there was really not enough advance 13:26 3 notice given to the public of these committee 13:26 4 meetings. One of the items that we will consider in 13:26 5 November to help partly in that regard, and we 13:26 6 discussed this yesterday, will be to set specific 13:26 7 dates for the quarterly meetings so that at least that 13:26 8 will be out. As it is now, the meetings are called 13:26 9 just when there is a feeling to have a meeting, or to 13:26 10 comply with the requirement for quarterly meetings, so 13:27 11 we hope to set a specific date in each quarter for 13:27 12 those meetings and that will help some. I further 13:27 13 discussed with Billy this morning, and will add on to 13:27 14 that, the discussion of the possibility of holding 13:27 15 some of the meetings outside of Austin. To get them 13:27 16 up to Lubbock, down to south Texas, so that those 13:27 17 people who have an interest will have a better chance 13:27 18 to appear at the meetings. Again, those will be 13:27 19 considered at the 1 November meeting, and I have noted 13:27 20 on my notes from today, I assume that you would like 13:27 21 for the committee to address at its 1 November meeting 13:27 22 this question of the so-called three strike question. 13:27 23 And that will certainly be on the agenda if that's the 13:27 24 desire of the Commission. 13:27 25 COMMISSIONER SADBERRY: Absolutely. 13:27 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 219 1 CHAIRMAN CLOWE: Glad you're here to 13:27 2 hear all that discussion. That arms you very well to 13:27 3 lead that discussion. 13:28 4 MR. NEINAST: That's all I have to 13:28 5 report to -- we do have notice, by the way, that there 13:28 6 will be definitely at least a group attempting to have 13:28 7 introduced legislation on that exemption from the 13:28 8 sales tax that I mentioned, so we anticipate that that 13:28 9 legislation will -- at least there will be an attempt 13:28 10 to file it. Any other information? 13:28 11 CHAIRMAN CLOWE: Bill, I was able to 13:28 12 sit in on just the beginning of your meeting this last 13:28 13 month, and I agree with your comment about the make-up 13:28 14 and the proactivity of the group. I think you have a 13:28 15 wonderful organization there and you're going to make 13:28 16 a great contribution. 13:28 17 MR. NEINAST: Thank you. 13:28 18 CHAIRMAN CLOWE: Good choices. 13:28 19 COMMISSIONER SADBERRY: Thank you for 13:28 20 your services. 13:28 21 CHAIRMAN CLOWE: Nelda, I think we have 13:28 22 now made a segue into your item number eight, which 13:28 23 would be consideration of and possible discussion 13:29 24 and/or action on the agency's legislative proposals 13:29 25 for the 77th Legislature. 13:29 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 220 1 MS. TREVINO: Yes, sir. For the 13:29 2 record, I'm Nelda Trevino, the governmental affairs 13:29 3 director. And Commissioners, I think what we wanted 13:29 4 to do today, and Billy may want to add some comments 13:29 5 to this, at our August meeting, we talked about 13:29 6 several legislative proposals, those relating to the 13:29 7 lottery, and you went ahead and give us approval to 13:29 8 move forward in drafting legislation in regards to 13:29 9 those proposals. As far as the bingo proposals, as 13:29 10 Mr. Neinast just reported, the Bingo Advisory 13:29 11 Committee did discuss those proposals and some were 13:29 12 referred to a subcommittee that were discussed 13:29 13 yesterday. There were several proposals that the full 13:29 14 committee did approve and agreed with the staff's 13:29 15 recommendation as far as proceeding with those issues 13:29 16 for legislation. And so I think what we're looking 13:30 17 for today is just an agreement from the Commission to 13:30 18 move forward on those issues that the full committee, 13:30 19 advisory committee has already approved, in order for 13:30 20 us to start drafting legislation in regards to those 13:30 21 legislative proposals. 13:30 22 CHAIRMAN CLOWE: Very good. And you 13:30 23 continue to have meetings and further briefings on the 13:30 24 presentation that you and Linda and Patsy did such a 13:30 25 good job on, and Commissioner Sadberry and Whitaker 13:30 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 221 1 and I were present when you did the LARs. 13:30 2 MS. TREVINO: That's correct. We have 13:30 3 met with some individual staff people from some of the 13:30 4 leadership offices. We're also planning -- we're 13:30 5 having our next legislative briefing on October the 13:30 6 25th, with the oversight committees being invited and, 13:30 7 again, the leadership office is invited to that 13:30 8 particular briefing, and we are noted on the agenda 13:30 9 that we'll have some discussion in regards to the 13:30 10 legislative appropriations request and some of the 13:31 11 issues that we have laid out there, and also talk 13:31 12 about some of the legislative proposals that we've 13:31 13 discussed here, also. 13:31 14 CHAIRMAN CLOWE: Very good. Thank you, 13:31 15 Nelda. 13:31 16 The next item is number ten, 13:31 17 consideration of and possible discussion and/or action 13:31 18 on the delegation of authority to the Charitable Bingo 13:31 19 Operations Director in connection with Orders to 13:31 20 extend the time for the agency to act on a motion for 13:31 21 rehearing. 13:31 22 Kim, are you or Billy going to make 13:31 23 this presentation? 13:31 24 MS. KIPLIN: I'm going to lay this out. 13:31 25 Commissioners, you've previously, in 13:31 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 222 1 1996, signed an order that gave this authority to the 13:31 2 executive director for all orders, and at that time, 13:31 3 the executive director also administered and 13:31 4 supervised charitable bingo. It has come to my 13:31 5 attention, just because we've had a few motions for 13:31 6 rehearing that have been filed in bingo matters, that 13:32 7 in light of the legislation that occurred in the past, 13:32 8 that it would be appropriate for you to also authorize 13:32 9 the charitable bingo director to -- to be able to 13:32 10 enter into orders to extend the time for the agency to 13:32 11 act on a motion for rehearing. And that's what we're 13:32 12 recommending today. We could go ahead and continue 13:32 13 with the executive director signing those orders, but 13:32 14 it's really not even within her area of supervision. 13:32 15 So -- 13:32 16 CHAIRMAN CLOWE: Would you like to make 13:32 17 a motion? 13:32 18 COMMISSIONER SADBERRY: I would so move 13:32 19 to -- are we adopting it or proposing it? 13:32 20 MS. KIPLIN: You're actually voting to 13:32 21 approve it for the docket. 13:32 22 COMMISSIONER SADBERRY: I would move to 23 approve it. 24 CHAIRMAN CLOWE: Second. 13:32 25 All in favor say aye. Opposed, no. 13:32 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 223 1 It's approved two-zero. 13:32 2 Billy, I'm going to ask to pass on this 13:32 3 presentation, because I want to Commissioner Whitaker 13:32 4 to be present. I want all three Commissioners -- you 13:32 5 remember we asked for this last Commission meeting, 13:33 6 and I do not want to go forward and have her miss 13:33 7 this. So if you don't mind, if Commissioner Sadberry 13:33 8 doesn't -- we'll ask you to do this next month. 13:33 9 MR. ATKINS: That's fine. Just keep in 13:33 10 mind, it may get longer. 13:33 11 CHAIRMAN CLOWE: That's fine. In 13:33 12 following the public docket, we are going shortly to 13:33 13 make a motion to go into executive session, but before 13:33 14 I make that motion, I want to ask if there is anyone 13:33 15 here wishing to make public comment. We've had a 13:33 16 lengthy meeting already. 13:33 17 Seeing no one here, I am going to 13:33 18 consider that item covered. And at this time, I move 13:33 19 the Texas Lottery Commission go into executive 13:33 20 session, to deliberate the duties and evaluation of 13:33 21 the Executive Director, Internal Auditor, and 13:33 22 Charitable Bingo Operations Director, pursuant to 13:34 23 Section 551.074 of the Texas Government Code; to 13:34 24 deliberate the duties of the General Counsel and 13:34 25 Security Director, pursuant to Section 551.074 of the 13:34 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 224 1 Texas Government Code; to receive legal advice 13:34 2 regarding pending or contemplated litigation and/or to 13:34 3 receive legal advice pursuant to Section 551.071 13:34 4 (1)(A) or (B) of the Texas Government Code; and/or to 13:34 5 receive legal advice pursuant to Section 551.071 (2) 13:34 6 of the Texas Government Code, including but not 13:34 7 limited to: T&T Interest, Inc. versus Texas Lottery 13:34 8 Commission, et al; matter involving the Department of 13:35 9 Justice pursuit of a complaint regarding the Americans 13:35 10 with Disabilities Act; matter involving Request for 13:35 11 Open Records Decision in Attorney General Open Records 13:35 12 file number 119718-98 relating to request for 13:35 13 information in connection with the lottery operator 13:35 14 audit; matter involving employee complaint; matter 13:35 15 involving agency purchases; employment law, personnel 13:35 16 law, procurement law, and general government law. 13:35 17 Is there a second? 13:35 18 COMMISSIONER SADBERRY: Second. 13:35 19 CHAIRMAN CLOWE: All in favor say aye. 13:35 20 The vote is two-zero in favor. The 13:35 21 Texas Lottery Commission will go into executive 13:35 22 session. The time is 1:30 p.m. Today is October the 13:35 23 11th, 2000. The executive session will be upstairs in 13:35 24 the legal conference room on the fourth floor. 13:35 25 (OFF THE RECORD.) WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 225 1 CHAIRMAN CLOWE: The Texas Lottery 14:37 2 Commission is out of executive session. The time is 14:37 3 2:32 p.m. Is there any action to be taken as a result 14:37 4 of executive session? 14:38 5 COMMISSIONER SADBERRY: Mr. Chairman, I 14:38 6 would like to -- 14:38 7 MS. KIPLIN: Commissioners, I hate to 14:38 8 do this, but Mr. Fenoglio did want to come back, and I 14:38 9 called him about three minutes ago. I was wondering 14:38 10 if we could take items out of order and give him an 14:38 11 opportunity to come back on the litigation matter. 14:38 12 COMMISSIONER SADBERRY: Is that the one 14:38 13 we're talking about? 14:38 14 MS. KIPLIN: Yes, sir. 14:38 15 CHAIRMAN CLOWE: All right. But we can 14:38 16 go forward with the agenda preparatory to his arrival. 14:38 17 And did you have an item? 14:38 18 COMMISSIONER SADBERRY: I think we were 14:38 19 talking about an item that may be one that is under 14:38 20 consideration. 14:38 21 CHAIRMAN CLOWE: All right. Did you 14:38 22 want to move next to item 14? 14:38 23 MS. KIPLIN: Yes, sir. That's the 14:38 24 executive director's report? 14:38 25 CHAIRMAN CLOWE: No, that's T&T 14:38 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 226 1 Interest. 14:38 2 MS. KIPLIN: No, sir. I would like to 14:38 3 wait. 14:38 4 CHAIRMAN CLOWE: Okay. Then we'll move 5 to the Executive Director's report and possible 14:38 6 discussion and/or action on the agency's financial and 14:38 7 operational status, HUB and/or minority status, FTE 14:38 8 status, lottery conferences including NASPL 2000, and 14:39 9 retailer forums. Linda? 14:39 10 MS. CLOUD: Commissioners, on September 14:39 11 the 14th, we transferred to the Foundation School 14:39 12 Fund, 52,248,718 dollars, giving a total transfers, 14:39 13 since inception, of 8,446,000,743 dollars. 14:39 14 Robert Hall is going to present the 14:39 15 minority report to you, and we did call him and tell 14:39 16 him we were on the way back down, so hopefully he'll 14:39 17 be here. But I'm going to go on to the FTE totals. 14:39 18 We have 305 active FTEs. We have 26 vacant positions. 14:39 19 We have three selection, acceptance pending positions. 14:39 20 We have 17 recruiting screen and interviewing process. 14:39 21 We have one position being posted, and we have five 14:40 22 vacant positions awaiting direction in NHR at this 14:40 23 time. 14:40 24 CHAIRMAN CLOWE: How many FTEs do you 14:40 25 have total now, Linda? 14:40 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 227 1 MS. CLOUD: The total active is 305. 14:40 2 The retailer -- I want to give you an overview, the 14:40 3 final synopsis of our NASPL conference, this is the 14:40 4 wrap up. This shows pretty much things that happened 14:40 5 all along the conference time. This is about a 14:40 6 five-minute tape. And I'll let Phillip go ahead and 14:40 7 get that started for us. 14:40 8 (Videotape played of NASPL 2000 9 (conference. 14:40 10 MS. CLOUD: Thank you. The -- all 14:49 11 indications are, this conference had the biggest 14:49 12 attendance, and every breakout session had more 14:49 13 attendees than ever before. The breakouts were very 14:49 14 interesting, very good, and I was very happy to see 14:49 15 the Commissioners breakout session with as many 14:49 16 Commissioners as we had. So everything that I am 14:49 17 hearing has been absolutely nothing but positive. 14:49 18 We -- I'm getting letters daily from people talking 14:49 19 about how professional we were and how -- how much 14:49 20 they enjoyed the conference, and what a hard job it 14:49 21 was going to be to compete with it. But our staff did 14:49 22 a wonderful job. It took -- it brought the bingo 14:49 23 lottery employees and the lottery employees together 14:49 24 in unison. And I don't think we've ever done anything 14:49 25 that has been this successful as far as bringing the 14:49 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 228 1 two groups together. 14:50 2 CHAIRMAN CLOWE: Ridgely, you did a 14:50 3 great job with your intellectual properties breakout 14:50 4 session. 14:50 5 MR. BENNETT: Thank you very much. 14:50 6 CHAIRMAN CLOWE: Even though you didn't 14:50 7 get happy about your joke. 14:50 8 MR. BENNETT: I thought it was a good 14:50 9 joke. 14:50 10 MS. CLOUD: Retailer town hall 14:50 11 meetings, our next town hall meeting is October the 14:50 12 26th in El Paso, and so we plan to be there. 14:50 13 And now, if you don't mind, Robert Hall 14:50 14 is going to make the minority report for you. 14:50 15 CHAIRMAN CLOWE: You've been very 14:50 16 patient. Thank you. 14:50 17 MR. HALL: Good afternoon, 18 Commissioners. For the record, my name is Robert 14:50 19 Hall. I'm the director of minority development. I'm 14:50 20 here this afternoon with some attempt to give you an 14:50 21 overview of the minority participation report for the 14:50 22 month of August 2000 as well as for the year of -- FY 14:50 23 2000. In your booklets, if you will walk with me -- 14:50 24 if I'm not doing this 100 percent correctly, then feel 14:51 25 free to stop me and I'll be happy to do it the right 14:51 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 229 1 way. If you'll notice, that we three of our top 14:51 2 vendors, which include Gtech, Scientific Games, and 14:51 3 Fogarty Klein in reference to their minority 14:51 4 participation. If you reference from last month, in 14:51 5 the month of July 2000, these numbers in terms of the 14:51 6 total percentage are somewhat down. And this -- there 14:51 7 is no -- I can't justify as to what attributes to the 14:51 8 actual decline in terms of the total percentage as of 14:51 9 right now, but we will be focusing on what we 14:51 10 determine we'll hopefully accomplish in the next year, 14:51 11 as to what can benefit -- what benefits we can use to 14:51 12 increase minority participation through a 14:51 13 subcontracting. As a whole, the total all in all 14:51 14 utilization for HUB percentages or minority 14:51 15 percentages for the entire year was relatively, in 14:51 16 reference to the subcontracting data, about 5.30 14:51 17 percent for the entire year. That is a decline from 14:52 18 last month. And as I've noticed from last year's 14:52 19 report, that is somewhat stagnant according to what 14:52 20 the total numbers and total percentiles were as of 14:52 21 last year. 14:52 22 Now, if you note, this represents only 14:52 23 the subcontracting data for the Commission for the FY 14:52 24 2000. I also have attempted to prepare another report 14:52 25 for you, and I have a few here this afternoon and I 14:52 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 230 1 would like to share that information with you at this 14:52 2 time. 14:52 3 Commissioners, this report is a 14:52 4 summarization of, if you will, the total dollars that 14:52 5 have been spent during FY 2000. It also represents 14:52 6 the total amount of money that was spent directly with 14:52 7 our prime contractors, which include minority and 14:52 8 women, as well as HUB vendors that have been certified 14:53 9 through the General Services Commission. This report 14:53 10 will hopefully show and which will entail our total 14:53 11 Treasury dollars which were paid directly from the 14:53 12 Lottery Commission to a prime contractor, and 14:53 13 processed by the Comptroller of Public Accounts, and 14:53 14 also through to the General Services Commission for 14:53 15 its statewide HUB report. 14:53 16 If you notice in table one, it reflects 14:53 17 one particular item, total Treasury expenditures 14:53 18 consolidated by the GSC procurement categories. And 14:53 19 there are basically six different procurement 14:53 20 categories, but only three affect the Lottery 14:53 21 Commission. They are special trade construction, as 14:53 22 of this year, professional -- four different sections. 14:53 23 Professional services, other services and commodities 14:53 24 contracts. If you will notice in there, in special 14:53 25 trade, we only spent about 14,000 dollars in terms of 14:53 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 231 1 Treasury funds and there was zero minority 14:53 2 participation in that area. Professional services, we 14:53 3 spent roughly around 244,000, but there was a 14:53 4 significant increase in minority participation 14:54 5 compared to last year, FY '99, of 24.25 percent. In 14:54 6 other services, we spent about 135 million dollars and 14:54 7 about roughly 3.8 million dollars was directly awarded 14:54 8 to minorities and also HUBs that were certified 14:54 9 through the General Services Commission, equating to 14:54 10 about 2.82 percent. 14:54 11 The commodities contracts equated to 14:54 12 about three million dollars, over three million 14:54 13 dollars, and about 478,000 dollars, 12.4 percent, was 14:54 14 actually spent with HUB vendors that were certified by 14:54 15 the General Services Commission. 14:54 16 I want to make one special note. This 14:54 17 information comes to us as draft data, which is not 14:54 18 officially published by the General Services 14:54 19 Commission as of today. The official HUB report will 14:54 20 be released on October 16th, which is Monday, and 14:54 21 these numbers should be reflected as you see them 14:54 22 here, but it is not 100 percent accurate at this 14:54 23 particular date nd time. They could be up just a 14:54 24 percentile or less, depending on what they actually 14:55 25 report on next Monday. 14:55 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 232 1 The second chart actually shows you the 14:55 2 total participating by different categories, based on 14:55 3 the ethnic minority groups that we actually have 14:55 4 entertained as part of our statute. And it also 14:55 5 includes, for the HUB participation, American women. 14:55 6 And as you will see, over to your right-hand side, the 14:55 7 total percentage as it relates to total HUB slash 14:55 8 minority vendors that are clearly certified by the 14:55 9 General Services Commission, what the total percentile 14:55 10 is. 11 Now, how do we arrive at these 14:55 12 percentiles? If you look at the total expenditures 14:55 13 that were spent with African-Americans in the first 14:55 14 column, in the first row, and if you compare that 14:55 15 particular dollar amount and you divided it into the 14:55 16 total expenditures on page one, which is over 139 14:55 17 million dollars, that is referencing the 2.4 14:55 18 percent -- excuse me. 2.24 percent that was actually 14:55 19 entertained by African-Americans, and the total 14:55 20 utilization of African-Americans for all of our 14:56 21 contracts that we have for FY 2000. And the other 14:56 22 represents the same for the other categories, below 14:56 23 that. 14:56 24 COMMISSIONER SADBERRY: These are all 14:56 25 direct on subcontractor or are these -- 14:56 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 233 1 MR. HALL: These are all direct 14:56 2 expenditures paid through the Treasury fund, yes, sir. 14:56 3 Now, if you extract the total just 14:56 4 including the minority groups only, at the bottom of 14:56 5 that same table, you will see the total minority 14:56 6 participation, which equates to 2.62 percent, roughly 14:56 7 over -- about 3.6 million dollars spent directly with 14:56 8 minority women that are certified through the General 14:56 9 Services Commission. 14:56 10 In table three at the bottom of page 14:56 11 two is an analysis of the total expenditures if you 14:56 12 were to count minority spending, which also includes 14:56 13 only the minority vendors that were certified, and 14:56 14 also vendors that were reported to us for our prime 14:56 15 contractors. Our prime contractors reported to us 14:56 16 over seven million dollars that were actually awarded 14:56 17 through subcontracting opportunities to their vendors 14:57 18 that we're using, also certified by the General 14:57 19 Services Commission. Of that money, in addition to 14:57 20 that, including the Treasury funds, it equates to a 14:57 21 little over ten million dollars that was actually 14:57 22 awarded to all HUBs in which we were doing business 14:57 23 with directly or indirectly through subcontracting. 14:57 24 In addition to, if we were to try to 14:57 25 count or include -- as which we will try to do as part 14:57 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 234 1 of our minority participation reporting in accordance 14:57 2 with the Lottery Act, we will report our good faith 14:57 3 efforts with women-owned businesses that are certified 14:57 4 as HUBs as well. If you will -- if you look at the 14:57 5 bottom of chart -- bottom chart of section four -- 14:57 6 part four, excuse me, it identifies that 1.5 million 14:57 7 dollars was actually spent with women-owned businesses 14:57 8 that were HUB, equating to 1.11 percent. 14:57 9 Now, also in that, we reported as part 14:57 10 of our good faith effort and supplemental letter to 14:57 11 the General Services Commission, about eight -- over 14:57 12 871,000 dollars was also spent with minorities that 14:57 13 were not certified as of this date. Now, our goal in 14:58 14 the future is to ensure that anybody we do business 14:58 15 with that is a minority firm, we will try to work with 14:58 16 them diligently to ensure that they are certified with 14:58 17 the Commission. And, of course, if they are already 14:58 18 certified with another entity that already has a 14:58 19 certification program, this should assist us with 14:58 20 expeditiously trying to get them certified with the 14:58 21 General Services Commission. I am not sure of the 14:58 22 factors that equate to why they're not certified at 14:58 23 this particular point in time. It could effectively 14:58 24 mean they are not a Texas HUB business, which the 14:58 25 legislation changed, requiring that all HUBs be in the 14:58 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 235 1 State of Texas. It could effectively mean that they 14:58 2 were not able to process the paperwork in time in 14:58 3 order to get them certified by August 31st. 14:58 4 And in addition to that, the dollars 14:58 5 that were spent with women-owned businesses directly 14:58 6 to the Treasury fund was over 706,000 dollars. And if 14:58 7 we were able to count all those expenditures today, we 14:58 8 would equate to have utilized every minority vendor 14:58 9 that we had on contract with us, which would equate to 14:58 10 over 14 million dollars, and about 10.14 percent total 14:59 11 utilization. But in actuality, the total expenditures 14:59 12 that were actually spent with minority-owned vendors 14:59 13 that we can actually count equates to 10.02 percent 14:59 14 total today. 14:59 15 I'll be happy to entertain any 14:59 16 questions that you may have. 14:59 17 CHAIRMAN CLOWE: Very good, Robert. 14:59 18 How do we compare to the other 14:59 19 agencies? Have you had a chance to make those 14:59 20 comparisons? 14:59 21 MR. HALL: Well, if you refer back to 14:59 22 table one. In comparison to other agencies -- number 14:59 23 one, it depends on the budget. It also depends on the 14:59 24 categories that they're working under. Some agencies 14:59 25 have heavy construction, building construction. We're 14:59 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 236 1 about -- we're only faced with utilizing three 14:59 2 different categories. And also understand that from 14:59 3 talking with Ms. Cloud, that in referencing and also 14:59 4 learning that we had the lottery operators in terms of 14:59 5 utilization for HUBs is relatively low. And in terms 14:59 6 of actual performance of HUBs being directly involved 14:59 7 with those contracts, and also because it's a high 14:59 8 dollar amount, a huge dollar amount actually paid to 15:00 9 one or two of the prime contractors. So in terms of 15:00 10 how we compare with agencies, in terms of the overall 15:00 11 goal, if you were to look at professional services, 15:00 12 the total goal is 20 percent in accordance with GSC's 15:00 13 requirements, and we are exceeding that goal by four 15:00 14 percent. In terms of other services, the goal is 33 15:00 15 percent. So if you look 2.82 percent, what we're 15:00 16 currently faced with now, we've got a long way to go 15:00 17 to get there if we want to try to meet or exceed that. 15:00 18 Commodity contracts, the goal for 15:00 19 General Services Commission is 12.6 percent, and we 15:00 20 just about almost met that. And last year, FY '99, we 15:00 21 did exceed three of their goals, and this is a setback 15:00 22 for us this year, but we hope to increase those goals 15:00 23 over the next couple of years to come, especially in 15:00 24 2001. Any questions, I'll be happy to answer them. 15:00 25 COMMISSIONER SADBERRY: Well, I think 15:00 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 237 1 this is a good analysis and kind of tells us what we 15:00 2 need to do. At least it shows areas where we have to 15:01 3 look at. And I know you are getting worked into the 15:01 4 system since the time you've come here, so you have a 15:01 5 brief tenure thus far. We are pleased to have you and 15:01 6 look forward to your contribution. One thing I would 15:01 7 really kind of throw out, too, Linda and kind of the 15:01 8 staff that -- the process as a whole, and this might 15:01 9 also include Kim, and that is, the standard to which 15:01 10 these types of criteria and issues are taken into 15:01 11 account in the procurement process. We have the BABN 15:01 12 experience in terms of an RFP rating and rating 15:01 13 system, where some criteria were changed and questions 15:01 14 have been raised and I'm sure will be raised on that 15:02 15 as well on an ongoing forward basis. And I'm more 15:02 16 interested in going forward, obviously, but I can't 15:02 17 say what the legislature might be interested in. 15:02 18 That process, obviously, has to have 15:02 19 its own integrity, and we're not to get involved in 15:02 20 that. But I'm sure those factors will be taken into 15:02 21 account. As an example, you say our lottery operator 15:02 22 gets a large percentage of dollars. Whatever they do 15:02 23 or do not do in this area is going to affect us 15:02 24 materially, and what we would require or what factors 15:02 25 we include in the RFP and things like that, I guess, 15:02 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 238 1 are going to have something to do with the net result. 15:02 2 Obviously, on the other hand, we have policy and 15:02 3 public policy issues in the other direction that we 15:02 4 don't overly create an imbalance in the other 15:02 5 direction by overly emphasizing, to the detriment of 15:03 6 the integrity of the overall process, participation in 15:03 7 any particular area. Just like advertising, and I 15:03 8 guess this is a very delicate area to walk, but it is 15:03 9 a very important thing, and I know our leaders are 15:03 10 going to be looking at what we do, and I guess I am 15:03 11 very pleased to know we have staff in place, a 15:03 12 director, the position is filled, and whatever 15:03 13 staffing associated with that I presume is ongoing. 15:03 14 And we are looking at these things, and I don't recall 15:03 15 having an analysis quite like this presented to us 15:03 16 before. And while these charts are typically in here, 15:03 17 I kind of glance at them, not that we give them 15:03 18 short-shrift, but they are what they are. But to look 15:03 19 at it and talk about it and be in a position to 15:03 20 discuss it, I think, is very important. So it looks 15:03 21 like we're well on the way to doing that. And I think 15:04 22 that's a good thing. So again, I think we're moving 15:04 23 in a good direction. I compliment you, Linda, and 15:04 24 your staff for looking into areas like this, 15:04 25 proactively. As an example, I was trying to decide 15:04 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 239 1 where The King Group might fit in. 15:04 2 MS. CLOUD: They should be included in 15:04 3 the breakout of the contracts on the page that's in 15:04 4 your binder, and Robert and I did talk about that. 15:04 5 The King Group should be added on the next one as a 15:04 6 separate -- they should have been on there. 15:04 7 COMMISSIONER SADBERRY: Okay. 15:04 8 MS. CLOUD: And some of the billing 15:04 9 that took place for The King Group, since they started 15:04 10 late and they were kind of slow about getting their 15:04 11 billing in, some of that did not get credited to them 15:04 12 in year 2000, but will be in year 2001. So that's one 15:04 13 reason their numbers aren't as high as they should be. 15:05 14 COMMISSIONER SADBERRY: And there is an 15:05 15 order to -- one of the -- 15:05 16 MS. CLOUD: De Villa? They're the ones 15:05 17 that have our drawings contract now, and our financial 15:05 18 auditors are -- McCall and Jones are minorities. So 15:05 19 we're moving in the right direction, and these numbers 15:05 20 should get better. I will make a point to remind you 15:05 21 that we have had issue with the fact that the lottery 15:05 22 operator contract is part of this pool because it 15:05 23 skews our numbers so badly. That is a sales 15:05 24 commission that they're getting. That does not 15:05 25 reflect specific dollars for operation of the 15:05 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 240 1 contract. It's their total sum that we pay them, 15:05 2 which makes it very difficult, no matter who has the 15:05 3 contract, for them to meet that 35 percent good faith 15:05 4 effort. 15:05 5 COMMISSIONER SADBERRY: Because they're 15:05 6 using services where you start -- 15:05 7 MS. CLOUD: It's not minorities. 15:06 8 Right. But I think they try to use minorities every 15:06 9 place else that they can because of that, but they are 15:06 10 not reaching that goal, and that's one reason the 15:06 11 lottery operator total added into our numbers are 15:06 12 making that percentage be very low. I don't know how 15:06 13 Robert is going to fix that problem. 15:06 14 MR. HALL: Well, some of the things 15:06 15 that we can do to enhance our performance is -- one we 15:06 16 already talked about is ensuring that we -- make sure 15:06 17 that very vendor that is a minority, a qualified HUB 15:06 18 vendor that we do business with is, in fact, 15:06 19 certified. And we're trying to develop a system now 15:06 20 that can track all of that, as well as our 15:06 21 subcontracting. And, basically, to make sure that 15:06 22 every dollar that is spent with a minority firm is 15:06 23 reported and we have an account for those dollars. 15:06 24 Right now, I'll be honest, I'm not a hundred percent 15:06 25 sure of those -- of the current system that we have is 15:07 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 241 1 in place, it actually captures that. We actually want 15:07 2 to know, if we have a prime contractor that commits, 15:07 3 as part of our new requirements under our HUB rules, 15:07 4 as a part of their business subcontracting plan, they 15:07 5 plan to subcontract 25 percent of the work, then we're 15:07 6 going to monitor that and ensure that to -- we're 15:07 7 going to ensure with a system to try to meet or exceed 15:07 8 that particular goal they have defined as part of 15:07 9 their subcontracting plan. Now, if they're doing 15:07 10 that, then we want to make sure that we get the 15:07 11 dollars reported actually that they said they were 15:07 12 going to have -- that 25 percent equates to 100,000 15:07 13 dollars of the contract, we want to make sure that we 15:07 14 report that as part of our minority participation 15:07 15 report, as well as our HUB good faith effort as well. 15:07 16 So that's part of one of the enhancements to identify 15:07 17 all of our contractors and their subcontractors, and 15:07 18 in addition to that, to make sure that all HUBs that 15:07 19 we do business with are certified. 15:07 20 MS. CLOUD: And I think you had, what, 15:07 21 some 700,000 that were not -- that we spent were not 15:07 22 certified. 15:08 23 MR. HALL: I'm sorry. 871,000 dollars 15:08 24 that was not certified at the time that we put 15:08 25 together this report, which is on page two at the 15:08 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 242 1 bottom, in chart four. 15:08 2 CHAIRMAN CLOWE: Very good. Anything 15:08 3 further? 15:08 4 COMMISSIONER SADBERRY: Thank you. 15:08 5 CHAIRMAN CLOWE: Thank you, Robert. 15:08 6 Billy, we're ready for your report. 15:08 7 MR. ATKINS: Commissioners, I don't 15:08 8 have anything to add to what is included in your 15:08 9 notebook, but we'll be happy to answer any questions 15:08 10 you may have. 15:08 11 CHAIRMAN CLOWE: What days was it? You 15:08 12 can get back to us on that. 15:08 13 MR. ATKINS: I don't recall. 15:08 14 CHAIRMAN CLOWE: I believe we're back 15:08 15 now to item number 14. Consideration of and possible 15:08 16 discussion and/or action on a settlement with T&T 15:08 17 Interest, Incorporated versus Texas Lottery 15:09 18 Commission, et al. 15:09 19 MS. KIPLIN: Commissioners, what you 15:09 20 have before you is a joint motion to set aside the 15:09 21 judgment in this case, which was signed September 15:09 22 18th, and dismiss the case, and an amended final 15:09 23 judgment and a settlement agreement. Just to kind of 15:09 24 lay the groundwork. This was a matter that was in -- 15:09 25 was litigated in front of Judge McCown here in Travis 15:09 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 243 1 County, Texas, district court judge. The Lottery 15:09 2 Commission was not the prevailing party in that 15:09 3 litigation. The parties have set aside their 15:09 4 differences and are proposing a settlement agreement 15:09 5 at this point in time. The material elements of that 15:09 6 settlement agreement are that the Lottery Commission 15:09 7 shall pay 10,500 dollars and one penny in attorneys 15:09 8 fees to the attorney of record, Stephen Fenoglio and 15:09 9 T&T Interest and renew the commercial lessor's license 15:09 10 to T&T Interest in exchange for T&T Interest and, at 15:09 11 this point, I guess, the Texas Lottery Commission, 15:10 12 filing a motion to dismiss the lawsuit with prejudice. 15:10 13 Since the order was signed, we will need to go ahead 15:10 14 and get the order vacated, and that's also part of the 15:10 15 agreement. I think both parties have been represented 15:10 16 by counsel. As your counsel, my recommendation is to 15:10 17 go ahead and approve the settlement. The parties that 15:10 18 will sign the settlement agreement, just because of 15:10 19 the styling of the lawsuit, will be the bingo director 15:10 20 and executive director for the Commission. And, of 15:10 21 course, plaintiff, and I believe counsel of record for 15:10 22 plaintiff for that side -- Mr. Fenoglio is one of the 15:10 23 attorneys of record for T&T. He is here, you know, if 15:10 24 you wish to hear from him. 15:10 25 CHAIRMAN CLOWE: And he gets the money? 15:10 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 244 1 MS. KIPLIN: We're happy to pay it. As 15:10 2 to the -- how they wish to have it paid. And it's my 15:10 3 understanding that's how they wish to have it paid. 15:10 4 CHAIRMAN CLOWE: He gets the money. 15:11 5 COMMISSIONER SADBERRY: You came back 15:11 6 over here for that? We could have mailed him the 15:11 7 check. 15:11 8 MS. KIPLIN: Oh, you know what? There 15:11 9 is one thing that I forgot, and I'm sure Steve was 15:11 10 going to remind me. That is that there is a concern 15:11 11 on his client's part. The settlement agreement -- 15:11 12 none of the documents give a time frame within which 15:11 13 the attorneys fees in the amount I previously 15:11 14 mentioned will be paid. And there is good reason for 15:11 15 that, because there is a huge process that is in 15:11 16 place, once the client agrees to a settlement, where 15:11 17 there is -- regardless of what it is, money that has 15:11 18 to be paid or not, it has to go through the Attorney 15:11 19 General's Office. There is what is properly known as 15:11 20 the blue sheet that must go from the division, the 15:11 21 division director, to the first assistant, and so 15:11 22 forth, and to the Comptroller -- I'm doing this -- 15:11 23 there is a reason why I'm going this. To the 15:11 24 Comptroller's Office and -- and so that whole process, 15:11 25 I'm told by our counsel at the AG's office, can take 15:11 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 245 1 anywhere from four to six to eight weeks, but I'm told 15:12 2 eight weeks is about the maximum from when we start. 15:12 3 So I anticipate that we'll be able to pay the 15:12 4 attorneys fee within that time frame, but that's why 15:12 5 there is not a time that's in the documents before 15:12 6 you. 15:12 7 CHAIRMAN CLOWE: Do you need a motion? 15:12 8 MS. KIPLIN: Well, I do. I need a 15:12 9 motion for -- to approve the settlement agreement as 15:12 10 laid out and in the documents that have previously 15:12 11 been provided to you each on an individual basis. And 15:12 12 direct the staff -- the appropriate staff to sign 15:12 13 them, the appropriate documents. 15:12 14 COMMISSIONER SADBERRY: I so move. 15:12 15 CHAIRMAN CLOWE: Second. 16 All in favor, aye. Opposed, no. 15:12 17 Approved three to zero. 15:12 18 Any comments, Mr. Fenoglio? 15:12 19 MS. KIPLIN: That would be two-zero. 15:12 20 CHAIRMAN CLOWE: I just was wanting to 15:12 21 make sure you were listening. 15:12 22 MS. KIPLIN: I wasn't. 15:12 23 MR. FENOGLIO: My client's only 15:12 24 concern, and I appreciate -- for the record, my name 15:13 25 is Stephen Fenoglio. I'm one of the attorneys of 15:13 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 246 1 record for T&T Interest, Inc. 15:13 2 My client was very concerned about 3 making sure that there was a timely action by the 15:13 4 Commission and its agents in getting the fees paid. 15:13 5 And we appreciate the bureaucracy you have to go 15:13 6 through, but anyhow... 15:13 7 CHAIRMAN CLOWE: Very good. Thank you, 15:13 8 sir. 15:13 9 Any further business to go before this 15:13 10 Commission? 15:13 11 MS. KIPLIN: Yes, sir, there is. There 15:13 12 is a motion for rehearing that y'all overruled, and we 15:13 13 had the staff counsel go back and draft that to make 15:13 14 sure it's consistent with your vote today. I have 15:13 15 reviewed it. I believe it is. I think Mr. Fenoglio 15:13 16 had an opportunity -- while I'm sure he is not in 15:13 17 agreement as to substance, I think he has indicated it 15:13 18 is consistent with your vote. 15:13 19 CHAIRMAN CLOWE: We have read it and 15:13 20 signed it. Is there any further business to come 15:13 21 before this Commission? 15:13 22 MS. KIPLIN: Not that I can think of. 15:13 23 CHAIRMAN CLOWE: This Commission is 15:13 24 adjourned. Thank you. 15:13 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 247 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, BRENDA J. WRIGHT, Certified Shorthand 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 set 10 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 16TH day of 17 OCTOBER, 2000. 18 19 20 21 BRENDA J. WRIGHT, RPR, 22 Texas CSR No. 1780 Expiration Date: 12-31-00 23 1609 Shoal Creek Boulevard, Suite 202 Austin, Texas 78701 24 (512) 474-4363 25 JOB NO. 001011BJW WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363