Denaples v. Pa. Gaming Control Bd.

178 A.3d 262

Louis Anthony DENAPLES, Petitioner

v.PENNSYLVANIA GAMING CONTROL BOARD, Respondent

No. 719 C.D. 2017

Commonwealth Court of Pennsylvania.

Argued December 4, 2017

Decided January 19, 2018

Joseph W. Grad, Clarks Summit, for petitioner.

Stephen S. Cook, Deputy Chief Counsel, Harrisburg, for respondent.

BEFORE: HONORABLE ROBERT SIMPSON, Judge, HONORABLE ANNE E. COVEY, Judge, HONORABLE JAMES GARDNER COLINS, Senior Judge

OPINION BY JUDGE SIMPSON

Louis Anthony DeNaples (DeNaples) petitions for review of an order of the Pennsylvania Gaming Control Board (Board) denying DeNaples' January 2017 petition seeking a clarification regarding restrictions on his personal ability to transact business with Mount Airy # 1, LLC (Mount Airy), a casino with a Category 2 slot machine license. DeNaples, who developed, previously owned and served as president of Mount Airy, contends the restrictions imposed on him do not apply to business entities in which he has stock or some other ownership interest or affiliation (DeNaples–Affiliated Corporations), especially after his Principal license expired. DeNaples contends the Board's written limits and restrictions imposed on him as a named individual should not apply to corporations in which he owns stock absent any language or conduct by the Board indicating such intent or purpose. Further, DeNaples asserts the Board's conduct and actions do not indicate an intent to impose limits and restrictions on entities not named or referred to in the Board's orders imposing the restrictions. Upon review, we affirm.

I. Background

A. Generally

DeNaples is a northeast Pennsylvania businessman and a shareholder in many privately held corporations. DeNaples developed Mount Airy, a casino resort located in Mount Pocono, Pennsylvania. On December 20, 2006, the Board initially approved Mount Airy for a Category 2 slot machine license under the Pennsylvania Race Horse Development and Gaming Act (Gaming Act), 4 Pa. C.S. §§ 1101 – 1904. The same day, the Board approved DeNaples for a Principal license, as the president and sole owner of Mount Airy.

Prior to these approvals, DeNaples underwent a comprehensive investigation by the Board's Bureau of Investigations and Enforcement (BIE) and Office of Enforcement Counsel (OEC). The BIE established by Section 1517(a) of the Gaming Act, 4 Pa. C.S. § 1517(a), investigates applications for licenses, permits, registrations and violations of the Gaming Act. The OEC acts as the prosecutor in all noncriminal enforcement actions before the Board. During the background investigation, DeNaples provided confidential sworn testimony before the Board.

Following the license approvals, the Board filed an adjudication in support of its decision to approve the licenses. Following an appeal by another applicant, the Supreme Court affirmed the approval of Mount Airy's license. See Pocono Manor Investors, LP v. Pa. Gaming Control Bd., 592 Pa. 625, 927 A.2d 209 (2007). Therefore, in February 2007, the Board issued a Principal license to DeNaples. In July 2007, the Board issued a Category 2 slot machine license to Mount Airy. In October 2007, Mount Airy opened its doors and commenced gaming operations.

Meanwhile, in May 2007, following the Board's approval of Mount Airy's license, Dauphin County District Attorney Edward Marsico, Jr. (District Attorney) empaneled a grand jury to investigate the truthfulness of DeNaples' sworn testimony before the Board. On January 30, 2008, District Attorney filed a criminal complaint against DeNaples alleging four counts of perjury. On February 5, 2008, the Board suspended DeNaples' Principal license.

Fourteen months later, in April 2009, the Court of Common Pleas of Dauphin County entered a judgment of nolle prosse as to perjury charges against DeNaples following an agreement between the District Attorney and DeNaples, wherein DeNaples transferred 100% ownership of Mount Airy to other entities. In June 2009, after the charges were nolle prossed , the Board lifted the suspension of DeNaples' Principal license.

B. 2009 Petition Seeking Approval of Ownership Change

In July 2009, Mount Airy filed a petition seeking Board approval of an ownership change from DeNaples to Mount Airy Holdco, LLC (Holdco). On September 23, 2009 the Board issued its "2009 Order" approving the purchase of a 100% ownership interest in Holdco by the Grantor Trust II of Lisa A. DeNaples (Lisa A. DeNaples Trust). The 2009 Order included the following conditions:

12. That the Grantor II Trust [sic] of Lisa A. DeNaples shall not invest in any entities in which Louis A. DeNaples has any ownership interest or any entity in which he has control.

13. That Louis A. DeNaples may not receive, directly or indirectly, any remuneration, cash or property distributions, from [Lisa A. DeNaples Trust], [Mount Airy] or [Holdco] ....

R.R. at 17a. DeNaples labeled the written restrictions or conditions in Paragraph 13 of the 2009 Order as the "Anti–Distribution Provision." See Pet'r's Br. at 14. Essentially, DeNaples interpreted these restrictions as prohibiting him from receiving any cash or property distributions in his executive capacity as a Principal licensee.

C. 2011 Consolidated Petitions to Modify

In May 2011, Mount Airy filed three consolidated petitions to modify the 2009 Order, one of which sought to disseminate ownership in Mount Airy and Holdco from solely the Lisa DeNaples Trust to seven trusts equally benefitting DeNaples children and grandchildren. The Board approved the dissemination of ownership in Mount Airy Holdco, LLC, as follows:

14.2857% shares owned by Grantor Trust II—Louis A. DeNaples, Jr.;

14.2857% shares owned by Grantor Trust II—Donna Dileo;

14.2857% shares owned by Grantor Trust II—Lisa DeNaples;

14.2857% shares owned by Grantor Trust II—Anne DeNaples;

14.2857% shares owned by Grantor Trust II—Dominica DeNaples;

14.2857% shares owned by the Trust f/b/o Children of Margaret Mary Glodzik; and

14.2857% shares owned by the Trust f/b/o Children of Nicholas DeNaples.

See Bd. Op., 5/23/17, Finding of Fact (F.F.) No. 17 n.4.

On June 13, 2012, the Board issued its "2012 Order" granting and denying some of the relief requested in Mount Airy's modification petitions. During the period of September 23, 2009 to June 13, 2012, DeNaples continued to function as a Principal licensee by loaning Mount Airy approximately $35,000,000 and guaranteeing debt in the amount of approximately $100,000,000. Thereafter, the Board allowed DeNaples' Principal license to expire.

The Board's 2012 Order included the following restrictions on Mount Airy's transaction of business with DeNaples, which are consistent with the restrictions in the 2009 Order:

4. The Children's Trusts may not invest in, or make a loan to, any entities in which Louis A. DeNaples has any ownership interest or any entity in which he has control.

5. The Children's Trusts, Mount Airy # 1, LLC (‘Mount Airy’) or Mount Airy Holdco (‘Holdco’) may not provide Louis A. DeNaples, directly or indirectly, any remuneration, cash or property distributions from any of the Children's Trusts, Mount Airy or Holdco without prior Board approval.

R.R. at 22a. Notably, even though the Board allowed DeNaples' Principal license to expire, Paragraph 5 of the Board's 2012 Order included an Anti–Distribution Provision similar to that in Paragraph 13 of the 2009 Order.

In August 2013, Mount Airy again sought to modify the Anti–Distribution Provision. At oral argument on the petition in January 2014, it became clear that Mount Airy made the request on behalf of DeNaples. See R.R. at 269a–275a. After a discussion, the Board tabled Mount Airy's request to negotiate the scope of the background investigation of DeNaples needed to lift the restrictions in the Anti–Distribution Provision; however, the parties did not reach an agreement. Consequently, in March 2014, the Board issued an order upholding the Anti–Distribution Provision until DeNaples could be properly vetted. See Joint Stip. at ¶ 31; R.R. at 59a.

D. Petitions for Clarification/Reconsideration

In late June 2012, Mount Airy filed a petition for clarification/reconsideration of the 2012 Order. The petition asked the Board to declare that the 2012 Order does not prohibit Mount Airy from contracting with a business in which DeNaples, no longer a Principal licensee, has an ownership interest. Thus, Mount Airy sought to amend Condition No. 5 to include the language: "Notwithstanding the foregoing, Mount Airy may contract with companies in which Louis A. DeNaples has an ownership interest ...." Bd. Op., F.F. No. 23.

However, the Board failed to place Mount Airy's clarification petition on its agenda. Therefore, after 30 days the petition was deemed denied by operation of law under Board regulations at 58 Pa. Code § 494a.8, and Mount Airy was so notified.

E. 2013 Petition to Modify

In August 2013, Mount Airy filed another petition seeking to modify the 2009 and 2012 Orders, again asking the Board to consider permitting Mount Airy to do business with DeNaples–Affiliated Corporations. In response, BIE and OEC objected, but indicated they would withdraw their objections if DeNaples agreed to submit to questioning to clarify and resolve the issues of whether he did or did not provide false statements during his 2006 investigation. On January 8, 2014, the Board held oral argument and tabled the modification petition for a 90–day period in order to negotiate the scope of a potential background investigation required for DeNaples. Although Mount Airy and OEC met and discussed the scope of the background investigation appropriate for DeNaples, they could not reach an agreement.

In March 2014, the Board issued an order denying Mount Airy's modification petition without prejudice. The order stated in part: "under the unique circumstances of this case, the Board will not authorize [Mount] Airy to do business with an entity affiliated with [DeNaples] given [BIE's] and [OEC's] objection to same without some level of vetting of [DeNaples]." Bd. Op.,...