Garramone v New York State Racing & Wagering Bd.

[*1] Garramone v New York State Racing & Wagering Bd. 2006 NY Slip Op 50024(U) [10 Misc 3d 1069(A)] Decided on January 9, 2006 Supreme Court, New York County Cahn, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on January 9, 2006
Supreme Court, New York County

Anthony Garramone, Peter Marino and Carolyn Johansen, Petitioners,

against

New York State Racing and Wagering Board, Respondent.



117394/05

Herman Cahn, J.

Petitioners are licensed race track betting clerks. They commenced this Article 78 proceeding (seq. no. 001) in the nature of a Writ of Prohibition, to stay a January 10, 2006, license revocation hearing, CPLR 7801, 7803 (2).



The Alleged Facts:

Petitioners have been employed by the New York Racing Association, Inc. ("NYRA"), for nearly 25 years as betting clerks at one or more of its race tracks.[FN1] They have been licensed by respondent for that entire period.

Betting clerks staff the betting windows at the tracks, taking bets and collecting the sum bet, issuing tickets, and paying out winnings to ticket holders. Computerized records of these transactions are kept by electronic terminals known as Ticket Issuing Machines. When a track patron places a bet, the clerk enters it and the machine prints out a ticket. When the patron later presents a winning ticket, the machine calculates winnings and records the clerk's pay outs. Clerks are provided cash boxes into which they deposit cash from bets and from which they pay our winnings. They are required to reconcile the amounts remaining in their cash boxes with the amounts recorded by the Ticket Issuing Machines. Any shortage must be reported by the clerks on a daily basis, and must be reimbursed by them, accomplished typically through NYRA paycheck deductions (9 NYCRR 4009.26).[FN2]

By administrative orders to show cause dated June 13, 2005, respondent charged 36 betting clerks, of whom three are petitioners, with violation of their duties, alleging as follows: (1) you attempted and/or participated in a fraud and misrepresentation in connection with racing or in a similar, related, or like practice, in that, you falsely reported cash shortages from your teller drawer during New York Racing Association ("NYRA") race meetings 1996-98; and(2) you attempted and/or participated in a fraud and misrepresentation in connection with racing or in a similar, related, or like practice, in that, you participated in a scheme to [*2]understate taxable income of yourself and/or NYRA through false reports of cash shortages from your teller drawer during NYRA's race meetings 1996-98; and/or(3) you are financially irresponsible and have displayed financial irresponsibility reflecting on your experience, character, and general fitness, in violation of 9 (E) NYCRR §§ 4002.9 (a) and 4002.19, in that, you had large cash shortages from your teller drawer during NYRA's race meetings in 1996-99.

Petitioners assert that they have reimbursed respondent for the shortages.

The administrative orders summoned petitioners and the other 33 betting clerks to a hearing to determine the charges, providing notice of possible penalties or fines, revocation of license, and exclusion from NYRA's race tracks. The hearing is scheduled for January 10, 2006.

Petitioners seek a stay of the administrative hearing on several grounds. First, they argue that respondent is without regulatory authority to adjudicate charge no. 2, which effectively accuses them of tax fraud. Second, they argue that all the charges, asserted in 2005, are untimely, as they stem from alleged acts occurring in 1996 through 1999, and are, thus, barred by the statute of limitations. Third, that the charges rest upon an enforcement policy which was never properly promulgated by respondent.

Discussion:

The ancient Writ of Prohibition, designed to restrain the commencement or continuation of proceedings by another tribunal, is now consolidated into the modern form of an Article 78 proceeding, under CPLR 7801 (see also, CPLR 7803 [2] ["whether the body or officer proceeded, or is about to proceed without or in excess of jurisdiction"]). The burden on the proponent is weighty: The extraordinary remedy either of prohibition or mandamus lies only where there is a clear legal right, and in the case of prohibition only when a court (if a court is involved) acts or threatens to act without jurisdiction over a matter over which it has no power over the subject matter or where it exceeds its authorized powers in a proceeding over which it has jurisdiction.

(State v King, 36 NY2d 59, 62 [1975].)

The Racing, Pari-Mutuel Wagering and Breeding Law [the "Racing Law"] and racing regulations both identically provide that: The board may . . . suspend or revoke a license . . . if it shall find that the applicant . . . is financially irresponsible, or . . . has violated or attempted to violate any law with respect to racing in any jurisdiction or any rule, regulation or order of the board, or shall have violated any rule of racing which shall have been approved or adopted by the board, or has been . . . engaged in similar, related or like practices.

(Racing Law § 213 [2]; 9 NYCRR 4002.9 [a].) The regulations further provide that "[a]ny participant who shall . . . display financial irresponsibility reflecting on his experience, character or general fitness, shall be subject to . . . suspension or revocation of license" (9 NYCRR 4002.19).[FN3] The foregoing provisions are cited in the administrative orders to show cause.

Petitioners first assert that any hearing on charge no. 2, focusing on an alleged scheme to defraud the taxing authority, is subject to prohibitory restraint because no statute, regulation, or rule empowers respondent to police tax violations. It is true that the charge, reasonably read, does not seek to indict petitioners for tax fraud per se. Rather, it seeks to discipline petitioners, in their capacities as Racing and Wagering Board licensees, for "fraud and misrepresentation in connection with racing" arising from acts which may have had, as their [*3]primary motive, an intent to evade tax obligations. However, effectively, the charge includes an allegation that petitioners committed a violation of the taxing statutes, as well as an allegation that they schemed to understate NYRA's (taxable) income. Whether or not they committed the violation relating to their own tax returns should, in the first instance, be adjudicated by a tribunal or agency which is specifically authorized to make such decisions, i.e., the Internal Revenue Service, the State Department of Taxation and Finance, a local department of finance, or the appropriate courts. Only when a finding of understating taxable income is made by the appropriate authority may that finding be the foundation for such a charge. To permit the charge to be initially adjudicated before respondent, may well deprive petitioners of their constitutional protections in responding to charges which may constitute criminal conduct.

Notwithstanding the above, respondent does have initial jurisdiction to determine the portion of charge no. 2 relating to an alleged scheme to understate NYRA's taxable income. NYRA is a creature of section 202 of the Racing Law, which enables the incorporation of nonprofit racing associations "for the purpose of conducting races and race meetings . . . ." Thus, any acts which wrongfully reduce NYRA's (taxable) income, necessarily relate directly to "racing" (Racing Law § 213 [2]; 9 NYCRR 4002.9 [a]).

Consequently, petitioners are entitled to a stay of the hearing insofar as charge no. 2 seeks to determine the existence of tax violations committed by them in their own behalf; but not insofar as it seeks to determine the existence of (and to assess penalties for) tax violations committed by them in connection with NYRA's (taxable) income.

Petitioners next assert that all the charges in the 2005 administrative orders to show cause are untimely, as they stem from alleged acts occurring in 1996 through 1999 a time period which is six to nine years in the past. This, too, is insufficient to support an Article 78 request for prohibition: [A]bsent extraordinary circumstances, a court may not intervene in an administrative proceeding, for reason of adjudicatory delay, until a hearing has been held and an official order rendered. It is within the province of the administrative agency, in the first instance, to determine upon a plenary hearing the cause of the delay, the interests implicated in the proceeding, and whether substantial prejudice . . . has resulted from the administrative delay. Judicial intervention prior to the rendition of a final administrative order is contraindicated by considerations of separation of powers and ripeness.

(Cortlandt Nursing Home v Axelrod, 66 NY2d 169, 180 [citations omitted], rearg denied 66 NY2d 1035 [1985], cert denied 476 US 1115 [1986].) Even an unreasonable administrative delay does not divest respondent of its original jurisdiction to convene the license revocation hearing (Geary v Commissioner of Motor Vehicles, 59 NY2d 950 [1983]; Miller v Department of Motor Vehicles, 234 AD2d 627 [3d Dept 1996]).[FN4]

Consequently, petitioners are not entitled to a stay of the hearing on grounds of inordinate delay.[FN5]

Petitioners' cited cases on the foregoing point are inapposite. In Blossom View [*4]Nursing Home v Novello (4 NY3d 581 [2005]), the Court granted Article 78 prohibitory relief on the ground of inordinate delay after finding that the Department of Health offered no explanation for its delay, other than "administrative oversight" (id., at 595). Here, respondent's counsel submits a detailed account of NYRA's decade-long collaboration with employees similarly situated to petitioners, and concealment, which led, in 1997, to a statutory grant of power to respondent to audit NYRA (Racing Law § 231-a [4]; see, Goodell Affirm. ¶¶ 2-7). Continued resistance by NYRA, and subsequent criminal investigations and indictments involving its operations, assertedly led to further delay in respondent's discovery of matters such as those raised in the administrative orders to show cause underlying this proceeding (Goodell Affirm. ¶¶ 8-14).

Petitioners argue that the 2005 administrative proceeding is time-barred by the three-year statute of limitations for causes of action based on a liability created by statute (CPLR 214 [2]), citing Sturgis v Sullivan County Harness Racing Assn., Inc. (98 AD2d 901 [3d Dept 1983], lv denied 61 NY2d 608 [1984]). Here, too, they are mistaken. The statute of limitations in that case was not directed at the timeliness of an administrative hearing; but rather, to the timeliness of a plenary action. Statutes of limitation apply only to actions and special proceedings,[FN6] as clearly indicated throughout CPLR 201, et seq. In addition, the equitable doctrine of laches is generally inapplicable against the state (Cortlandt Nursing Home, supra, 66 NY2d at 177 n 2).

Petitioners finally argue that the administrative charges rest upon a new enforcement policy which was never properly promulgated by respondent. Specifically, they assert that respondent's policy on shortages was "newly-minted" in 2000 (Petitioners' Mem. at 16) without formal promulgation procedures such as public notice, comment, and hearing (State Administrative Procedure Act § 202). This argument is without merit.

Petitioners attach a copy of the newly-minted policy, entitled "Rules and Regulations Concerning Shortages" (O.S.C. Ex. D). They classify varying amounts and frequencies of shortages as either "frequent," "excessive," or "extraordinary," and state penalties of termination or suspension for each. However, whether or not these particular rules were properly promulgated, the entire regulatory scheme prior to 2000, and existing currently, distinct of those rules, clearly empowers respondent to suspend or revoke betting clerk licenses for financial irresponsibility and similar acts bearing on licensees' character and fitness to carry on their official functions (9 NYCRR 4002.9, 4002.19, 4009.26; see also, Racing Law §§ 101, 213 [2]). As already observed, those provisions are expressly cited in the administrative orders to show cause.

Consequently, petitioners are not entitled to a stay of the hearing on grounds of improper regulatory authority.[FN7]

Accordingly, it is

ORDERED that the petition is denied except to the extent set forth herein as to charge no. 2, and the proceeding dismissed; and it is further

ORDERED that the clerk shall enter judgment accordingly.

Dated:January 9, 2006

E N T E R : [*5]

/S/

J. S. C.

Footnotes

Footnote 1:NYRA owns and operates Belmont, Aqueduct, and Saratoga race tracks.

Footnote 2:Cash box shortages are defined in the regulation as "any loss to the racing association arising from amounts missing from funds in the possession, custody or control or under the supervision of any pari-mutuel employee or employees . . . ." (9 NYCRR 4009.26.)

Footnote 3:"In addition to its powers to suspend or revoke a license or as an alternative to the exercise of any such powers, the board may impose such civil penalty as may be prescribed by law" (9 NYCRR 4002.9 [c]).

Footnote 4:This proceeding is not barred by the Article 78 four-month statute of limitations (CPLR 217 [1]). That statute does not run until the administrative body renders its final determination (id.). Rather, as explained, this proceeding is not yet ripe (Cortlandt Nursing Home v Axelrod, 66 NY2d 169, rearg denied 66 NY2d 1035 [1985], cert denied 476 US 1115 [1986]).

Footnote 5:Notwithstanding the within denial of Article 78 prohibition, the ground of inordinate delay may be raised as a defense in the administrative hearing and, after final administrative determination, may be considered by a reviewing court in determining whether the board erred in exercising its authority (Geary v Commissioner of Motor Vehicles, 59 NY2d 950 [1983]).

Footnote 6:"The word action' includes a special proceeding" (CPLR 105 [b]).

Footnote 7:Petitioners remain free to reiterate their assertions concerning the validity of the 2000 rules within the context of a post-determination Article 78 proceeding. However, prohibition in advance of administrative determination will not lie.