STATE OF IOWA BEFORE THE DEPARTMENT OF COMMERCE ALCOHOLIC BEVERAGES DIVISION IN RE: DOCKET NO. D-2009-00036 DIA NO. 09DOCBL046 Knapper Oil Company Inc. d/b/a Goldy s 106 Hiway 69 PROPOSED DECISION Forest City, Iowa 50436 Beer Permit No. BC-24905 The Iowa Department of Public Safety (DPS) filed a Hearing Complaint against Knapper Oil Company, Inc. d/b/a Goldy s (licensee) on March 6, 2009. The Hearing Complaint alleged that on or about June 23, 2008, the licensee, or an agent or employee of the licensee, knowingly possessed or controlled an illegal gambling device on the licensed premises, engaged in illegal gambling on the licensed premises, and/or permitted illegal gambling to occur on the licensed premises. The hearing was initially scheduled for May 29, 2009 but was continued at the licensee s request. The licensee s request to appear for hearing by telephone was also granted. On June 12, 2009, Doug Knapper filed a combined Motion for Change of Venue, Motion for Telephone Testimony, and Motion to Dismiss the DPS Hearing Complaint. Assistant Attorney General Kris Ensign filed a Resistance to the Motion for Change of Venue and the Motion to Dismiss on June 17, 2009. On June 18, 2009, the licensee s Motion for Change of Venue was denied but the Motion for Telephone Testimony was granted. On June 24, 2009, the licensee s Motion to Dismiss was denied. The hearing was held before Administrative Law Judge Margaret LaMarche on June 29, 2009 at 1:00 p.m. at the office of the Iowa Department of Commerce, Alcoholic Beverages Division, 1918 S.E. Hulsizer, Ankeny, Iowa. The DPS was represented by Assistant Attorney General Kris Ensign, who appeared in person with her witnesses. The licensee was self-represented by Doug Knapper, who appeared by telephone.
Page 2 THE RECORD The record includes the Hearing Complaint, the Notice of Hearing, Continuance Order, Licensee s Motions for Change of Venue, for Telephone Testimony and to Dismiss (with five attachments), State Resistance to Motion for Change of Venue and to Dismiss, Ruling Denying Motion for Change of Venue and Granting Motion for Telephone Testimony, Ruling Denying Motion to Dismiss, the testimony of the witnesses, and the following exhibits: DPS Exhibit A: DCI Investigative Communique, with attachments 1-3 Licensee Exhibit 2: Decision in Docket No. 09DIAAD003 ISSUES Whether the Hearing Complaint filed by the Department of Public Safety should be dismissed because the state s delay in prosecution was unreasonable and violated the licensee s due process rights? Whether the licensee s employee redeemed amusement device tickets for more than $5 worth of merchandise and whether he paid cash as change for the balance of the tickets face value, in violation of Iowa Code sections 123.49(2)(a) and(j) and 99B.10(1)? FINDINGS OF FACT 1. Knapper Oil Company Inc. d/b/a Goldy s (licensee) holds Beer Permit No. BC-24905 for the premises located at 106 Hiway 69 in Forest City, Iowa. Doug Knapper is the 100% owner of Knapper Oil Company, Inc. (DPS Exhibit A-1) The licensee leases one electronic amusement device (DIA registration tag #8359) from Eight-Line Vending. Goldy s customers insert money to play the amusement device, which is similar to a slot machine. The device provides tickets as awards to winning players. Customers can then redeem the tickets for store merchandise, and Eight-Line Vending reimburses Goldy s for all redeemed tickets. Eight-Line Vending also splits the amusement device s profits with the licensee. (Testimony of Doug Knapper; Dana Despenas; Heather Landwehr; DPS Exhibit A-2)
Page 3 2. Dana Despenas is the owner of Eight-Line Vending. When he leases an amusement device to a business, Mr. Despenas provides a summary of the laws and regulations governing such devices and also explains the regulations to the business owner. Doug Knapper also provides training/instruction to his employees. Goldy s has a general reputation in the local community for being a compliant business. (Testimony of Doug Knapper; Dana Despenas; Forest City Police Chief Dan Davis; DPS Exhibit A-2) 3. On June 23, 2008, eight special agents (S/A) with the DPS-Division of Criminal Investigation (DCI) participated in an undercover compliance project to determine if businesses in Winnebago County were operating their amusement devices in compliance with the state s gambling laws and regulations. The project was supervised by S/A James Thiele, who provided a briefing to the agents from approximately 6:00-7:00 p.m. The special agents were assigned to work in teams and were given cash to play amusement devices. The special agents were also provided cash to purchase food and beverages at the businesses they visited so that they would appear to be typical customers. It is not unusual for law enforcement officers to purchase and consume alcoholic beverages during undercover compliance operations in licensed liquor establishments. (Testimony of James Thiele; Heather Landwehr; DPS Exhibit A) 4. S/A Heather Landwehr works in the DCI s gambling bureau and has been assigned to the Diamond Jo Worth Casino in Northwood, Iowa since she completed DPS basic training in 2007. S/A Landwehr and S/A Scott Reger were assigned to visit five businesses the evening of June 23, 2008. S/A Reger and S/A Landwehr visited Cruisers in Lake Mills, Iowa from 7:11 p.m. to 7:45 p.m. While at Cruisers, S/A Landwehr drank one 12 ounce bottle of Bud Light beer. They visited Squid Willie s in Thompson, Iowa from 8:22-8:55 p.m., where S/A Landwehr drank one 12 ounce bottle of Bud Light beer. They visited Shooter s in Forest City from 9:16-10:14 p.m. While at Shooter s, S/A Landwehr ate ½ of a pizza and drank ½ of a 10-12 ounce margarita. S/A Landwehr testified that she would not have proceeded with the investigation if she felt under the influence of the alcohol she had consumed. (Testimony of Heather Landwehr) 5. At approximately 10:30 p.m., S/A Landwehr and S/A Reger entered Goldy s in Forest City. S/A Reger purchased food items for $1.27 and then returned to his vehicle in the parking lot. S/A Landwehr stayed inside the store and played Goldy s Cherry 96 amusement device by inserting a $20 bill. S/A
Page 4 Landwehr was eventually awarded two amusement device tickets with a face value of $5.00 each. At about 10:42 p.m., S/A Landwehr presented her two tickets to the male cashier on duty at Goldy s, who told her that she could use them to purchase anything in the store except lottery tickets. S/A Landwehr took six- 16 ounce cans of Bud Light beer, with a price of $5.75, to the cashier. S/A Landwehr paid for the beer with her two $5 amusement device tickets, and the cashier gave her $4.25 in change. S/A Landwehr testified that she was certain that she gave the cashier only her two amusement device tickets and that she did not give him any additional paper money to pay for the beer. (Testimony of Heather Landwehr; DPS Exhibit 1, 1-3) 6. The special agents made notes after visiting each business and documented what tickets they received for playing the amusement devices and what they purchased with the tickets. If they received any receipts, they turned them over to S/A Thiele at the end of the night, along with any cash that they received for the tickets and any items they purchased with the tickets. Mostly the special agents purchased beer. The beer was photographed and later destroyed because the DCI has a policy not to store alcoholic beverages as evidence. S/A Thiele did not have a receipt for S/A Landwehr s beer purchase from Goldy s. S/A Landwehr could not specifically recall whether or not the cashier gave her a receipt. However, S/A Landwehr does not request a receipt unless one is offered because she does not want to arouse suspicion and does not think that the typical customer would demand a receipt. It is unlikely that the Goldy s cashier provided a receipt if the beer purchase was paid for with amusement device tickets, and change was given. (Testimony of Heather Landwehr; James Thiele) 7. After a compliance project is completed, the special agents prepare their own written reports and send them to S/A Thiele. S/A Landwehr typed her report and emailed it to S/A Thiele on June 25, 2008. In her report, S/A Landwehr described her activities at Goldy s and described the cashier who waited on her as a Caucasian male, approximately 16 years old with braces, approximately 5 10, 180 lbs., and wearing a green Celtics t-shirt. (Testimony of James Thiele; Heather Landwehr; Exhibit A-3) After receiving the agents reports and making any necessary follow-up visits to the businesses, S/A Thiele dictates his own report and sends it to the DCI typing
Page 5 pool in Des Moines. S/A Thiele did not dictate his report for the June 23, 2008 gambling compliance project until October 9, 2008. S/A Thiele s report was checked in by the typing pool on October 24, 2008 and was transcribed on November 13, 2008. The DCI does not usually file criminal charges for first violations involving amusement devices, and no criminal charges were filed against this licensee. DCI does not routinely return to the businesses immediately after the undercover operation to notify the business that they had a violation. It is not unusual for there to be a time lag of months between the undercover operation and the issuance of an administrative complaint. (Testimony of James Thiele; DPS Exhibit 1) 8. On January 29, 2009, the Iowa Department of Inspections and Appeals (DIA) sent a Notice of Intent To Revoke Registration of the Cherry 96 amusement device that was owned by Eight-Line Vending and placed at Goldy s. The Notice of Intent to Revoke was based on the same facts as the Administrative Hearing Complaint that is the subject of this hearing. Eight-Line Vending appealed the revocation of its amusement device registration, and an evidentiary hearing was held before another administrative law judge (ALJ) on April 30, 2009. Doug Knapper testified as a witness for Eight-Line Vending at the DIA hearing. On May 27, 2009, the ALJ issued a proposed decision rescinding DIA s Notice of Intent to Revoke Registration, after finding that pre-accusatorial delay violated the due process rights of Eight-Line Vending. (Licensee Exhibit 2) On March 6, 2009,DPS filed its administrative Hearing Complaint against the licensee with the Alcoholic Beverages Division, and a Notice of Hearing was issued and served on Doug Knapper. (Hearing Complaint and Notice of Hearing). Although Mr. Knapper was aware of the enforcement action taken by DIA against Eight-Line Vending, this was his first notice that the DPS was pursuing suspension of his beer permit. (Testimony of Doug Knapper; Licensee Exhibit 2) 9. S/A Thiele explained some of the reasons for the delay in completing his report. S/A Thiele is responsible for monitoring gambling compliance in 29 counties in north central and north eastern Iowa. He receives a number of new complaints each month. In addition, after the compliance check at Goldy s and prior to filing his report, S/A Thiele was on vacation leave to address flood damage at his home. S/A Thiele also attended training and was called in to cover
Page 6 for a DCI agent shortage in Des Moines. (Testimony of James Thiele; DPS Exhibit 1) Based on this record, it is unknown what caused the delay between S/A Thiele s submission of his report and DPS filing of the Hearing Complaint with the division. 10. Doug Knapper believes that his 16-year old son (who has braces and is a big Celtic s fan) was the cashier who waited on S/A Landwehr on June 23, 2008. However, Mr. Knapper estimates that his son was only about 5 4 and 140 pounds in June 2008, not 5 10 and 180 pounds as described by S/A Landwehr. However, Goldy s cashiers stand on a raised platform, and S/A Landwehr believes that this may have affected her estimate of the cashier s height and weight. According to Mr. Knapper, his son is unable to recall waiting on S/A Landwehr. (Testimony of Doug Knapper; Heather Landwehr; Licensee Exhibit A) 11. Goldy s has two DVR surveillance cameras on its premises. One camera is focused on the amusement device, and the other camera is focused on the cash register. The surveillance camera s recordings may be retrieved for approximately three weeks to one month before they are recirculated. The recordings for June 23, 2008 were no longer available for review when Mr. Knapper was notified that the state was seeking sanctions based on a June 23, 2008 transaction. S/A Thiele did not know that Goldy s had surveillance cameras until he testified at the DIA hearing. (Testimony of Doug Knapper; James Thiele) CONCLUSIONS OF LAW I. Was The Delay in Prosecution a Due Process Violation? The division s rules provide the following statute of limitations: 185-10.4(123,17A) Statute of limitations. Requests for a contested case proceeding alleging a violation of Iowa Code chapter 123 must be filed with the division or the local authority within one year from the date of the alleged violation or the date of conviction for the violation, whichever is later. The Hearing Complaint in this case was filed with the division 8½ months after the date of the alleged violation, which is within the division s one year statute
Page 7 of limitations. Nevertheless, the licensee argues that the Hearing Complaint against him should be dismissed because the delay between the alleged transaction and filing the Hearing Complaint violated his due process rights. In support of his argument, the licensee submitted the ALJ proposed decision rescinding DIA s registration revocation action against Dana Despenas and Eight-Line Vending based on pre-accusatorial delay. (Licensee Exhibit 2) The licensee previously argued that the administrative hearing complaint against him should be dismissed prior to hearing based on this same rationale, but his motion was denied. (See Licensee Motion to Dismiss, DPS Resistance, Ruling) The licensee raises the same legal argument following the evidentiary hearing. In the Eight-Line Vending proposed decision, the ALJ concluded that the seven month delay between the date of the DCI undercover operation and DIA s issuance of its Notice of Intent to Revoke constituted impermissible preaccusatorial delay. The Iowa Supreme Court has held that in order to prove that pre-accusatorial delay violated the due process rights of a criminal defendant, the defendant must show: (1) that the delay was unreasonable; and (2) that his defense is thereby prejudiced. Unreasonable delay involves a consideration of both the length of the delay and the State s reason for it. 1 A claim of preaccusatorial delay in violation of due process is distinct from a statute of limitations claim and can be asserted even if the statute of limitations has not run. 2 However, prejudice to the defendant must be actual; the defendant cannot rely on mere general claims of prejudice. 3 The length of the delay, and any valid reason for it, must be balanced against the resulting prejudice against the defendant. 4 The Supreme Court cases discussing and/or recognizing a claim of preaccusatorial delay all involved criminal defendants, who have significantly greater due process rights than appellants in administrative enforcement proceedings. It is unclear whether the Supreme Court would extend its holding concerning pre-accusatorial delay from criminal cases to administrative proceedings. Nevertheless, even if an administrative enforcement proceeding is also subject to dismissal for pre-accusatorial delay, the licensee still bears a heavy burden. He 1 State v. Williams, 574 N.W.2d 293, 299-300 (Iowa 1998) 2 State v. Trompeter, 555 N.W.2d 468, 470(Iowa 1996) 3 Id. (citations omitted). 4 Id.
Page 8 must show both that the delay was unreasonable and that it caused actual prejudice to his defense. The licensee was unable to meet that burden in this case. A series of events unrelated to the prosecution of this case contributed to the delay in filing the Hearing Complaint. There is no evidence that either the delay in submitting the final report or the delay in filing the Hearing Complaint was intentional or for the purpose of compromising the licensee s ability to defend the allegations. There is insufficient evidence to establish that delay was unreasonable. The licensee has also failed to show actual prejudice to his defense. Although Mr. Knapper s video surveillance was no longer available when he received notice of the allegations, the video surveillance would not have been available unless the Hearing Complaint had been filed within 3 or 4 weeks of June 23, 2008. Given law enforcement and agency work loads, it is unreasonable to expect administrative hearing complaints to be consistently filed within three or four weeks of an observed violation. In addition, it is unlikely that the surveillance camera recording would have provided evidence favorable to the licensee s defense when the transaction involved an undercover operation by a trained DCI agent. It is more likely that the surveillance camera would have provided evidence favorable to the prosecution. Finally, although Mr. Knapper testified that his son was unable to recall waiting on S/A Landwehr, there is no indication that he would have been able to recall the specific transaction if the Hearing Complaint had been filed earlier. Mr. Knapper chose not to call his son to testify concerning his memory (or lack thereof) of the transaction or his general handling of amusement device ticket redemption. Licensees should be notified as promptly as possible, without jeopardizing an ongoing investigation, that law enforcement has observed a liquor law violation at their licensed premises. This is in the public interest because it provides an opportunity for the licensee to correct any compliance problems and prevent future violations. In at least some cases it will also provide the licensee and the prosecuting agency with a better opportunity to identify relevant evidence, including the business records, video surveillance, or possible witnesses. Nevertheless, the licensee has failed to establish that this case should be dismissed outright because the delay in prosecution was both unreasonable and caused actual prejudice to his defense.
Page 9 II. The Gambling Violations-Redemption of Amusement Device Tickets for Merchandise With a Value Exceeding $5 and Illegal Cash Award Iowa Code section 123.49(2)(a) and (j) (2007) provide: 2. A person or club holding a liquor control license or retail wine or beer permit under this chapter, and the person's or club's agents or employees, shall not do any of the following:... a. Knowingly permit any gambling, except in accordance with chapter 99B, 99D, 99F, or 99G... on the premises covered by the license or permit.... j. Knowingly permit or engage in any criminal activity on the premises covered by the license or permit. (emphasis added) Possession of gambling devices, including slot machines, is prohibited unless the use of the device is licensed pursuant to Iowa Code chapters 99B or 99G. 5 "Amusement device" means an electrical or mechanical device possessed and used in accordance with section 99B.10. When possessed and used in accordance with that section, an amusement device is not a game of skill or game of chance, and is not a gambling device. 6 Iowa Code section 99B.10 (2007 Supp.) provides, in relevant part: 99B.10 Electrical and mechanical amusement devices. 1. It is lawful to own, possess, and offer for use by any person at any location an electrical or mechanical amusement device and the use of the electrical or mechanical amusement device shall not be deemed gambling, but only if all of the following are complied with: a. A prize of merchandise exceeding five dollars in value or cash shall not be awarded for use of the device... 5 Iowa Code section 725.9 (2007 Supp.) 6 Iowa Code section 99B.1(2) (2007 Supp.).
Page 10 b. A prize of cash shall not be awarded for use of the device. In addition, DIA has promulgated rules that provide if an amusement device is designed or adapted to issue tickets or tokens, the tickets and tokens may be accumulated to purchase merchandise not greater than $5 per transaction in retail value. 7 The rules further provide that if the entire amount of the ticket or token issued by the amusement device is not redeemed for merchandise, the balance shall not be redeemed for cash. 8 The testimony of S/A Landwehr was credible. She was experienced in gambling enforcement and had participated in prior undercover compliance operations. Following each stop, she made notes concerning the transaction. In this case, she noted the money she spent, the number of tickets she earned and their face value, a specific description of the beer she purchased and its price, the change she received, and a detailed description of the cashier who waited on her. She turned the six-pack of beer that she purchased and the cash she received over to S/A Thiele, and she wrote her report in a timely manner. Mr. Knapper admits that S/A Landwehr s description of the cashier matched his son, who had braces and was a Celtic s fan, except that her estimation of his height and weight was inaccurate. However, this inaccuracy could be explained by the fact that the cashier was standing on a raised platform. S/A Landwehr s moderate consumption of alcoholic beverages that evening did not diminish the credibility of her testimony or her report. It is reasonable for undercover officers in these circumstances to consume some alcohol in order to blend in and appear as ordinary customers. S/A Landwehr s consumption of 2½ alcoholic beverages and ½ of a pizza over a three hour period was unlikely to alter either the accuracy of her observations or her inclination to make truthful reports. There was no evidence or indication that S/A Landwehr was motivated or inclined to fabricate violations against Goldy s. Doug Knapper disputed that any of his employees, including his son, would redeem amusement device tickets for more than $5 worth of merchandise or would give cash as change for a purchase made with amusement device tickets. Mr. Knapper presented his own testimony and the testimony of the amusement device s owner concerning information and instructions that were provided to 7 481 IAC 104.4(3) d. 8 481 IAC 104.4(3) f.
Page 11 Goldy s employees. However, Mr. Knapper did not present testimony from his son, who was the likely cashier on duty. In addition, even if Goldy s employees were well-trained and understood the gambling regulations, that does not mean that the individual employee will necessarily act in conformance with the regulations in every transaction. The preponderance of the evidence established that on June 23, 2008, the licensee violated Iowa Code sections 123.49(2)(a) and (j) when his employee redeemed two $5 amusement device tickets for a single purchase of six cans of beer costing $5.75 and when the employee returned $4.25 in cash to the customer as change. Iowa Code section 99B.10(1)(a) and (b) clearly prohibit the redemption of amusement device tickets for merchandise with a value of more than $5 and further prohibit cash refunds for the tickets remaining face value. III. Sanction Iowa Code section 99B.10B(2)(b)(2007 Supp.) provides, in relevant part: 99B.10B Revocation of registration-electrical and mechanical amusement devices-suspension of liquor license or beer permit.... b. If a person owning or employed by an establishment having a class B or class C beer permit issued pursuant to chapter 123 awards a cash prize in violation of section 99B.10, subsection 1, paragraph b, pursuant to rules adopted by the department, the beer permit of the establishment and the establishment s sales tax permit shall be suspended for a period of fourteen days in the same manner as provided in section 123.50, subsection 3, subparagraph a. The legislature has mandated a 14 day license suspension as the sanction for a beer permit holder who pays cash as an award for amusement device tickets. ORDER IT IS THEREFORE ORDERED, pursuant to Iowa Code section 123.39 and 99B.10B(2)(b), that for knowingly engaging in illegal gambling on the licensed premises, Beer Permit No. BC-24905 issued to Knapper Oil Company Inc. d/b/a Goldy s, shall be suspended for a period of fourteen (14) days. The suspension
Page 12 shall begin at 6:00 a.m. on Monday, September 14, 2009 and shall end at 6:00 a.m. on Monday, September 28, 2009. IT IS FURTHER ORDERED that no alcoholic liquor, wine, or beer may be sold, dispensed or consumed on the premises during the period of suspension. Pursuant to the administrative rules of the division, any adversely affected party may appeal a proposed decision to the Administrator of the Alcoholic Beverages Division within thirty (30) days after issuance of the proposed decision. In addition, the Administrator may initiate review of a proposed decision on the Administrator's own motion at any time within thirty (30) days following the issuance of a proposed decision. 185 IAC 10.27(1) and (2). Requests for review shall be sent to the Administrator of the Alcoholic Beverages Division, 1918 S.E. Hulsizer, Ankeny, IA 50021. Unless otherwise ordered, each appealing party may file exceptions and briefs within thirty (30) days of the notice of appeal or order for review. Within thirty (30) days thereafter, any party may file a responsive brief. The Administrator may shorten or extend the briefing period as appropriate. The Administrator may resolve the appeal on the briefs or provide an opportunity for oral argument. 185 IAC 10.27(6). The administrator may affirm, reverse or modify the proposed decision. A party who is adversely affected by the proposed decision shall not be deemed to have exhausted administrative remedies unless the adversely affected party files a request for review of the proposed decision within the time provided and the Administrator has reviewed the proposed decision and has affirmed, reversed, or modified the proposed decision. Dated this 17th day of July, 2009. Margaret LaMarche Administrative Law Judge Department of Inspections and Appeals Division of Administrative Hearings 3rd Floor, Wallace State Office Building Des Moines, IA 50319 CC: See Attached Mailing List
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