0001 1 TRANSCRIPT OF PROCEEDINGS 2 BEFORE THE 3 TEXAS LOTTERY COMMISSION 4 AUSTIN, TEXAS 5 6 16 TEXAS ADMINISTRATIVE CODE ) §402.100 ) 7 16 TEXAS ADMINISTRATIVE CODE ) §402.103 ) 8 16 TEXAS ADMINISTRATIVE CODE ) §402.200 ) 9 16 TEXAS ADMINISTRATIVE CODE ) §402.202 ) 10 16 TEXAS ADMINISTRATIVE CODE ) §402.203 ) 11 16 TEXAS ADMINISTRATIVE CODE ) §402.204 ) 12 16 TEXAS ADMINISTRATIVE CODE ) §402.205 ) 13 16 TEXAS ADMINISTRATIVE CODE ) §402.600 ) 14 15 16 PUBLIC COMMENT ON RULEMAKINGS 17 Wednesday, July 11, 2012 18 19 BE IT REMEMBERED THAT at 10:06 a.m., on 20 Wednesday, the 11th day of July 2012, the above-entitled 21 matter came on for hearing at the Texas Lottery 22 Commission, 611 East 6th Street, Austin, Texas, before 23 SANDRA JOSEPH, SPECIAL COUNSEL, and the following 24 proceedings were reported by Lorrie A. Schnoor, 25 Certified Shorthand Reporter. 0002 1 APPEARANCES 2 SPECIAL COUNSEL: 3 Ms. Sandra Joseph 4 TAXPAYER SERVICES MANAGER: 5 Mr. Bruce Miner 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 0003 1 P R O C E E D I N G S 2 WEDNESDAY, JULY 11, 2012 3 (10:06 a.m.) 4 MS. JOSEPH: Good morning. My name is 5 Sandra Joseph. I'm special counsel with the Legal 6 Services Division. With me is Bruce Miner, Taxpayer 7 Services Manager. 8 We're here today to conduct a public 9 hearing in order to receive public comments on the 10 following proposed rules. These are all rules 11 pertaining to charitable bingo. They are, first, 12 402.100, definitions; 402.103, training program; 13 402.200, general restrictions on the conduct of bingo; 14 402.202, transfer of funds; 402.203, unit accounting; 15 402.204, prohibited price fixing; 402.205, unit 16 agreements; and 402.600, bingo reports. 17 I do have one witness affirmation form 18 completed by Mr. Stephen Fenoglio. 19 Mr. Fenoglio, would you like to offer 20 comments? 21 MR. FENOGLIO: I would. 22 MS. JOSEPH: All right. 23 MR. FENOGLIO: Ms. Joseph, for the record, 24 my name is Stephen Fenoglio. I filed an appearance 25 slip, and I'll try to keep my comments brief. 0004 1 Have no comments -- and I'll just take 2 them in the order that you called them. 3 I have no comments on behalf of my clients 4 on 402.100. 5 On 402.103, which has to do with the 6 training program, we see where you're deleting 7 Subparagraph (8), which, under the current rule 8 provision, would allow a charity or a group of 9 charities, licensed authorized organizations, to request 10 and pay for training. And it may be because of budget 11 cuts that you -- even if the charities are willing to 12 pay for it, you don't have the funds. That strikes us 13 as odd in light of the fact that the state of Texas -- 14 not necessarily the Lottery Commission, but the state of 15 Texas -- profits from charitable bingo. And if a group 16 of charities are willing to pay money for a staff person 17 to come -- to conduct a training, as opposed to 18 conducting it over the Internet -- and I'm sure most 19 organizations would prefer to have their training over 20 the Internet, but having attended two training sessions 21 live several years ago, there's a lot of give and take 22 and Q and A that goes on in a live training session 23 that's really not involved with staring into a computer 24 screen. So we think it's a little -- it's poor public 25 policy, again, if charities are willing to pay for it, 0005 1 that the state cannot conduct -- or allow that process 2 to go forward, that practice to happen, especially in 3 light of the fact that the state of Texas profits, I 4 believe, 16 million or more a year. So... 5 MR. MINER: Steve, can I comment? I don't 6 normally comment -- 7 MR. FENOGLIO: Sure. 8 MR. MINER: -- but the issue is the 9 budget. We lost 14 staff. And the fact that they're 10 paying for it, we don't get it reappropriated to us. So 11 the fact that you're willing to pay, we don't -- we 12 can't get the money. Now, that may change based on the 13 Sunset Review; but at this time, it's -- it doesn't come 14 into our coffers. 15 MR. FENOGLIO: Did not know that. And 16 I -- I understand the agency's had significant cutbacks. 17 And, again, I don't think it would be often that a group 18 of charities would want to do that, but we would prefer 19 that they have that option. 20 Subparagraph 402.200 concerning general 21 restrictions on the conduct of bingo, and there is new 22 language in Subparagraph (f), as in Fenoglio, "All 23 pull-tab bingo instant and pull-tab event bingo ticket 24 games must be played in the manner in which they were 25 approved for use in Texas." We believe that language is 0006 1 arbitrary and will invite unintended consequences. 2 Consider the following: The light -- 3 this -- and this provision affects a licensed authorized 4 organization, the charities that are conducting bingo. 5 How will the 1100, roughly, bingo chairpersons know the 6 manner in which the pull-tab game was approved for use 7 in Texas? Because -- and they won't -- because that is 8 a two-way conversation between the manufacturer and the 9 Lottery Commission staff as far as the manner which it 10 is approved for use. 11 I'm familiar with it. I've worked with 12 manufacturers in getting pull-tab product approved, and 13 sometimes we didn't get it approved. But the point is, 14 the Commission requires verbiage from the manufacturer 15 as to the -- how it's going to be played. We get that. 16 Many times, there's emails back and forth 17 to clarify a variety of issues with a new event game. 18 Sometimes it -- the verbiage in the email string, 19 perhaps a phone call or a letter, will also touch on the 20 manner in which this game is going to get played. 21 That's a conversation between the manufacturer and the 22 Commission. The charity's not part of that. 23 Charity -- in -- in order to know exactly 24 the manner, it would have to file an Open Records 25 request. I don't know how many thousands of pull-tab 0007 1 games have been approved in Texas, but you see the 2 point. 3 I brought with me several flares from 4 games, none of which -- which is what the charity will 5 get, none of which discusses -- and I've got DoubleUp 6 HorsePower Racing, which was approved by the Commission, 7 the Lightning Betty Boop pull-tab game. None of it has 8 verbiage on how the game is to be played. And there's a 9 Money Shots game that's been approved by the Commission. 10 And so it invites arbitrariness on behalf 11 of the bingo staff of the Commission. It invites 12 arbitrariness from the standpoint of what the charities 13 are doing and -- and whether and how they would know the 14 manner in which the pull-tab game was approved for use 15 in Texas. And, again, there's no dialogue -- the 16 charity is left out of that dialogue. 17 The manufacturer, arguably, cannot 18 communicate directly to the charity if, as a part of it, 19 they're trying to promote their bingo product. We have 20 this tier structure. So your -- could be inviting 21 inappropriate communication between the manufacturer and 22 the charity. 23 And I know that's not what the intent is. 24 I don't know what the intent is. I hear stories out 25 there that there is a jackpot game that may have been 0008 1 misused in how it's played. I don't know that for a 2 fact. I don't represent anyone in that proceeding, but 3 I understand there's an inquiry. 4 I would ask that Subparagraph (f) be 5 rewritten -- again, I sit on -- and, Sandy, we've had 6 this conversation: I sit on my side of the table. You 7 sit on yours. I see problems from my side that you 8 don't see necessarily, and you see issues and problems 9 on your side of the table that I don't see. So I don't 10 know what the problem is that this new language is 11 trying to fix, but I do know that it's an invitation for 12 arbitrariness and huge confusion, which I don't think -- 13 that's not the hallmark of this agency. 14 So I'll be happy to have a conversation 15 later. I think our deadline is July 21, or thereabouts, 16 for written comments. 17 MS. JOSEPH: Uh-huh. 18 MR. FENOGLIO: And I'd like to have that 19 conversation because when I advise clients what this 20 language means, I don't have a clue what it means. 21 MS. JOSEPH: All right. So are you saying 22 that when conductors purchase games or -- there are no 23 instructions included with the games? 24 MR. FENOGLIO: There may be, but there's 25 so many products out there that bingo hall managers 0009 1 or -- and -- and sometimes the active bingo 2 chairpersons, are very familiar. They don't need an 3 instruction. They see how the game is to be played. 4 Whether that's the way it was intended to 5 be played -- I mean, what's the intent of Lightning 6 Betty Boop? It's -- it's an instant game. I don't know 7 that a seasoned bingo salesperson needs to be given any 8 instructions on how to sell Lightning Betty Boop; but if 9 there is some specific manner, how will you know, how 10 will we know, that it's going to be effectively 11 communicated from the manufacturer? And, again, there 12 could be a miscommunication between the testing staff 13 and the manufacturer. That has happened in the past. 14 But the charity's going to be the one that will pay the 15 price. 16 So you depend on good communication 17 between the manufacturer and the testing person. Once 18 that is approved, you depend on good communication 19 between the manufacturers and the distributor. Once 20 that happens, then you depend on good communication 21 between the distributor and the charity. And we all 22 know as professionals, and certainly litigators, that 23 three people can watch a car wreck occur and three 24 different opinions or facts will come out of that from 25 three different persons who watched the same event. 0010 1 And so, again, I don't know what the harm 2 is that someone's trying to correct. It just seems to 3 me that putting this onus on the charity to know -- have 4 scienter, as we lawyers like to say -- what was intended 5 and who do they ask? Do they pick the up the phone? 6 They don't trust the distributor; they don't trust the 7 manufacturer. Do they talk -- trust the testing person 8 at the Lottery Commission or bingo division? Do y'all 9 really want that to happen? I don't think you do. And 10 I'm not suggesting that it would always happen, but it 11 just seems like there should be more clarity as what 12 those words mean. 13 Turning to 402.203, unit accounting, 14 Subparagraph (e), new language -- and I'll read it -- 15 "If all unit members of a unit place their license in 16 administrative hold or all unit members depart the unit, 17 the Charitable Bingo Operations Division will" -- and 18 here's the language that's the problem -- dissolve -- 19 quote, unquote, dissolve -- "the unit effective the last 20 day of the quarter during which the last member left the 21 unit," period. 22 The Commission -- the bingo division 23 doesn't have any authority to dissolve. Most -- many 24 unit agreements are considered, for IRS tax purposes, as 25 partnerships, and they file a partnership return. The 0011 1 partners have to decide to dissolve. 2 I don't think that's what y'all meant is 3 you're going to actually dissolve a unit. You don't 4 have authority to dissolve -- I would argue don't have 5 authority. Maybe what was meant by treat -- instead of 6 the word dissolve, treat the unit as terminated for 7 purposes of -- I don't know -- this section, the Bingo 8 Enabling Act, or whatever. But when you say the 9 division is going to dissolve something, I think that's 10 a inarticulate use of what you're intending. 11 Subparagraph (f)(5) concerns unit 12 representation. And the language at the end of 13 Subparagraph (F)(5) requires the designated agent or 14 unit manager to provide and maintain a current email 15 address. 16 Not everyone in the universe has an email 17 address. And I mean, I regularly run into this in my 18 representation of both licensed authorized 19 organizations, representatives, as well as oil and gas 20 operators, et cetera. Not everyone -- I wish everyone 21 did use an email address. 22 So I would question why you need -- I 23 understand why you would prefer an email address. And I 24 certainly do. But now you're mandating someone to have 25 that as opposed to a postal address, and I don't know if 0012 1 that will cause unintended consequences. 2 We like the Subparagraph (g)(D), which is 3 repeated -- you're giving 30 calendar days as opposed to 4 25 on several provisions in that. We salute that. 5 In subparagraph -- and I guess that's 6 (h)(1)(D) -- in Subparagraph (h)(2) -- and, again, we're 7 on Rule 402.203 -- "If a member of a unit is in 8 default" -- and I must confess, I did not do a word 9 search on the word default. I think that's covered, 10 Sandy, somewhere else what constitutes default. If it's 11 not, it's -- what is meant by default? There's a whole 12 body of case law that goes -- construes a variety of 13 terms to determine when someone's in default. And it 14 may be -- and I'll do that after this conversation, go 15 back and do a word search on default if y'all define 16 that. 17 This is in the area of Kim -- a classic 18 Kim Kiplin nitpick. Subparagraph (i)(1) states, "The 19 bingo account must adhere." Well, I'm not sure how a 20 bingo account adheres to anything since it's an 21 inanimate object. The unit must -- "The unit must 22 ensure that its bingo account contains the same 23 provisions," et cetera, something like that, but 24 technically, I don't know how a bingo account can or 25 cannot adhere. 0013 1 No comments on the Rule 402.204, price 2 fixing. Probably a good idea to go from 36 months to 48 3 months. 4 402.205, unit agreements, and I think I've 5 written more than anyone. I'm not sure what is meant by 6 the language in Subparagraph (g)(4). This is -- the 7 context of this, "The original unit or trust agreement 8 must contain the following information." Subparagraph 9 (4), "The trust organization if a trust agreement." I 10 don't know what you mean by the words trust 11 organization. Is that the organizing instrument? I 12 don't know what that means. 13 In subparagraph -- same Subparagraph (g), 14 Subparagraph (9), "The original unit or trust agreement 15 must contain the following information, the amount of 16 payment for inventory or disposition of inventory for 17 dissolution or withdrawal." That number will not be 18 known at the time you're beginning the unit. 19 It may be that you meant the calculation 20 or termination -- how it's going to be determined, the 21 payment, when there's a dis -- there's disposition or 22 dissolution or withdrawal. I think that's what you 23 meant; but, again, when you're first organizing the -- 24 you know, you're first forming it, you won't know the 25 amount of payment. 0014 1 You'll know, hopefully, if someone -- it's 2 either dissolved or someone withdraws, you'll know the 3 formula that will be calculated for that charity to be 4 paid for. Either they get one -- if there are five 5 charities in the unit, they get one-fifth of the 6 inventory or they get one-fifth of the working capital 7 or something like that. The provisions I've drafted 8 have that so you don't argue about it after the fact; 9 but, again, the amount is not going to be known. 10 We like the new language in Subparagraph 11 (h), which, again, goes to 30 days, and the same with 12 (k) and (l) and (m). 13 Section 402.600, bingo reports and 14 payments, the same comment in Subparagraph (d)(3) and 15 (e)(3), the Commission can deny a renewal application 16 where the licensee issues two insufficient checks within 17 one year, four quarters. 18 My question is: Two insufficient checks 19 to whom? If it's to the Commission, I get that. But if 20 it's to a vendor where there's a dispute about it, why 21 does the Commission care? And so we would argue that it 22 doesn't matter to the Commission if they didn't have -- 23 if they truly didn't have sufficient funds or if there's 24 a dispute, someone cancels the check, it gets rung up 25 with the bank as an insufficient fund, but, in fact, 0015 1 there's some contract dispute, we don't think that's the 2 Commission's business. Again, if it's a check written 3 to the Lottery Commission, we understand why you would 4 want to sanction the lessor or charity. 5 Believe it or not, those are all the 6 comments I have. Thank you. 7 MS. JOSEPH: Thank you, Mr. Fenoglio. I'm 8 sure your comments will enable us to improve these rules 9 and clarify them on the points -- many of the points 10 you've made. 11 MR. FENOGLIO: Okay. 12 MS. JOSEPH: I see no one else has 13 appeared to offer comments at this time. Therefore, 14 this hearing is adjourned at 10:24. Thank you. 15 (Proceedings concluded at 10:24 a.m.) 16 17 18 19 20 21 22 23 24 25 0016 1 C E R T I F I C A T E 2 STATE OF TEXAS ) 3 COUNTY OF TRAVIS ) 4 I, Lorrie A. Schnoor, Certified Shorthand 5 Reporter in and for the State of Texas, Registered Merit 6 Reporter and Texas Certified Realtime Reporter, do 7 hereby certify that the above-mentioned matter occurred 8 as hereinbefore set out. 9 I FURTHER CERTIFY THAT the proceedings of such 10 were reported by me or under my supervision, later 11 reduced to typewritten form under my supervision and 12 control and that the foregoing pages are a full, true, 13 and correct transcription of the original notes. 14 IN WITNESS WHEREOF, I have hereunto set my hand 15 and seal this 18th day of July 2012. 16 17 _______________________________ LORRIE A. SCHNOOR, RMR, TCRR 18 Certified Shorthand Reporter CSR No. 4642 - Expires 12/31/13 19 Firm Registration No. 276 20 Kennedy Reporting Service, Inc. 1016 La Posada Drive, Suite 294 21 Austin, Texas 78752 512.474.2233 22 23 24 Job No. 101713 25