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Ogden-fairmount, Inc. v. Ill. Racing Bd.

OPINION FILED OCTOBER 3, 1986.

OGDEN-FAIRMOUNT, INC., PLAINTIFF-APPELLEE,

v.

THE ILLINOIS RACING BOARD, DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Madison County; the Hon. Edward G. Ferguson, Judge, presiding.

JUSTICE JONES DELIVERED THE OPINION OF THE COURT:

The Illinois Racing Board (Board) appeals an order of the circuit court entered upon administrative review that vacated an order of the Board that had imposed certain sanctions and a penalty upon a racetrack licensee, Ogden-Fairmount, Inc. (Fairmount), the operator of Fairmount Park, a racetrack located at Collinsville. The court's order remanded the cause to the Board for a new hearing, and we granted the Board's petition for leave to appeal filed pursuant to Supreme Court Rule 306(a)(i) (103 Ill.2d R. 306(a)(i)). At issue is whether the Board had and properly exercised the authority to impose the sanctions and penalty.

The case concerns the authority of the Board to administer the Race Track Improvement Fund (RTIF). That fund was established by the legislature in section 32 of the Illinois Horse Racing Act of 1975 (Ill. Rev. Stat., 1975 Supp., ch. 8, par. 37-32). The purpose of the RTIF, as set forth in subsection (d) of section 32, is to enable the Board to make payments to racetracks "for the cost of erection, improving or acquisition of seating stands, buildings or other structures, ground or track, or for the payment of the cost of amortization of debt contracted with the approval of the Board for any or all such purposes." The source of the funds for the RTIF is the "breakage" that derives from the conduct of pari-mutuel wagering at race meets conducted at the tracks. "Breakage" is defined by section 3.02 of the Horse Racing Act of 1975 (Ill. Rev. Stat., 1975 Supp., ch. 8, par. 37-3.02) as "the odd cents by which the amount payable on each dollar wagered exceeds a multiple of 10¢ ." The term "breakage" is explained in the 1983 Illinois Racing Board Annual Report as follows:

"Race track wagers are paid in multiples of 10¢ . If, for example, the odds reflect that each winning dollar wager is worth $3.19, the patron receives only $3.10. The nine cents are defined as breakage. One half of the breakage is revenue to the state and the other half is deposited in the account of the organization licensee which operates the race track where the wager is placed. The odd cents on the dollar accumulate rapidly and over $4 million is distributed annually for capital improvement at all Illinois race tracks from the Race Track Improvement Fund. (Illinois Racing Board Annual Reports, 1980, 1981, 1982, 1983)."

Pursuant to section 32(b), 50% of the breakage from each race meet, except for charity racing meets, is to be collected by the State Department of Revenue and deposited with the State Treasurer in an account maintained for each organization licensee. Pursuant to other provisions of the Act, the other 50% of the breakage become State funds. Section 32 also contains directions to the Board to keep accurate records of the amounts deposited in each account and to promulgate rules and regulations concerning the information required, deadlines for filing, and the types of application forms to be used by tracks seeking moneys from the fund.

Acting pursuant to section 32(e) of the Act, the Board promulgated forms and procedures for licensees to withdraw money from the RTIF. The rules adopted provided that a licensee submit two forms. One would be an application that would be a description of the project and request for approval. The prescribed form required the licensee to certify that the information included with the application was true and correct. The Board would use this form and its contents to perform its function of determining whether the proposed project comes within the purview of the statute creating the fund. After the project was approved and completed, the licensee would submit the second of the forms prescribed, a request for payment from the fund. This latter form was to include the contractor's statement of services performed and the amount to be paid with evidence of payment by the licensee. Upon order of the Board, the State Treasurer would reimburse the licensee from moneys in the RTIF credited to the particular licensee.

At a meeting of the Board held on September 6, 1979, the Board adopted a "sense of the Board" resolution. Because of its importance to the decision in this case, we will set out in full the action of the Board in adopting the resolution:

"AGENDA ITEM II(b)

Ms. Gordon reads Agenda Item II(b): `Request submitted by Chicago Downs Association, Inc. for Race Track Improvement Fund (RTIF) Application for Disbursement #80-002 for the installation of new sewers, lighting, planters, and pavement in the west parking lot.'

Ms. Gordon questioned Mr. Johnston on particulars of the project, and as to whether competitive bids had been obtained. A discussion ensued among the Board members as to the propriety of requiring competitive bids in Applications for Disbursement to the Race Track Improvement Fund. Mr. Garrison moved that it be the sense of the Board that an association accompany an Application for Disbursement with three competitive bids. He made clear that this is not an amendment of the rules, only a sense of the Board. Mr. Kellman seconded the motion. A call of the roll was taken, and the motion was approved by a vote of 7-0. Mr. Ciambrone moved, and Mr. Ward seconded, that the request submitted by Chicago Downs Association be approved." (Emphasis added.)

Neither the statute creating the RTIF nor the rules adopted by the Board to implement the statute require a licensee to submit competitive bids from contractors for proposed work either with the application for project approval or the request for payment. The sole authority for the requirement that three competitive bids be submitted with an application was the "sense of the Board" resolution.

Between 1976 and 1984 Fairmount submitted 43 applications for improvement-project reimbursement from the RTIF. In June 1984 the Board learned that 19 of these applications had been submitted with two of the required three bids for each application being spurious. The Board requested Fairmount to conduct an internal investigation of the matter. That was done, and the spurious bids revealed. The investigation disclosed that spurious submissions were used in a practice followed by three successive managers/employees of Fairmount. These managers apparently would negotiate an arms length, or legitimate, contract for improvements with Hayden, a contractor favored by them for his prompt and satisfactory performance of work. Hayden would then obtain bids higher than his own for the same work from other contractors or companies controlled by himself, other members of his family or his friends. These other bids were prepared by Hayden, were spurious and were submitted by Fairmount's managers or employees, along with Hayden's legitimate bid, with the full knowledge that they were spurious. The Board, under the impression that all the bids were legitimate, approved all 19 of Fairmount's applications and authorized total payments of $2,101,570.06 for these applications.

On November 2, 1984, counsel for the Board filed a petition to show cause why certain orders of the Illinois Racing Board should not be vacated and why civil penalties should not be imposed. The petition recited the foregoing facts in specific detail in two counts. Count I concluded with a prayer that Fairmount show cause why the order of the Board approving the applications and payment for the 19 projects should not be vacated and why Fairmount should not be directed to return the $2,101,570.06 to the RTIF. Count II of the petition concluded with a request for issuance of a rule against Fairmount requiring it to show cause why civil penalties not to exceed $470,000 should not be imposed against it for the "submission of 47 false documents to the Board."

Hearing on the petition for a rule to show cause was conducted by the Board on November 13, 1984. The Board and Fairmount entered into a stipulation of facts that we have summarized; Fairmount agreeing that each of the 19 applications for improvement projects and reimbursement were accompanied by two spurious bids and that Fairmount had received $2,101,570.06 as a result of those applications. Fairmount produced evidence to show that the improvement that were the subject of the 19 applications in question were legitimate, as shown by the fact that the Board had approved them. Expert testimony was utilized to establish the fact that the bids from Hayden had been reasonable ones and had yielded "fair value received" for the amounts of the various bids. There was also evidence to show that the bids from Hayden could reasonably have been higher than they actually were because the value of the improvements to Fairmount actually exceeded their cost. It was also developed that there were no kickbacks or payments of any nature made to the managers of Fairmount that had utilized the spurious bids. Finally, Fairmount was able to show that none of the officers or employees of the corporate owner of Fairmount, Ogden Leisure, Inc., had any knowledge whatsoever of the use of the spurious bids by Fairmount's managers and employees and that they had cooperated fully in the investigation of the matter. This effort included the retention of a private law firm to make a full and detailed investigation and report, all of which had been furnished to ...


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