C.Capp's LLC v. Jaffe , 2014 IL App (1st) 132696 ( 2014 )

Illinois Official Reports
Appellate Court
C.Capp’s LLC v. Jaffe, 2014 IL App (1st) 132696
Appellate Court C.CAPP’S LLC, an Illinois Limited Liability Company, Plaintiff-
Caption Appellant, v. AARON JAFFE, as Chairman of the Illinois Gaming
Board, and LEE GOULD, MICHAEL HOLEWINSKI, and
MARIBETH VANDER WEELE, as Members of the Illinois Gaming
Board and the ILLINOIS GAMING BOARD, Defendants-Appellees.
District & No. First District, Second Division
Docket No. 1-13-2696
Filed September 23, 2014
Held The denial of plaintiff’s application for a video game terminal
(Note: This syllabus operator’s license without a hearing was not a clearly erroneous
constitutes no part of the decision by the Illinois Gaming Board, since the Board’s rules
opinion of the court but required that plaintiff’s petition for a hearing had to assert that the
has been prepared by the reasons the Board gave for denying a license were false, but plaintiff
Reporter of Decisions admitted that she was associated professionally and personally with a
for the convenience of convicted felon, her husband, even though she did deny that she knew
the reader.) the company where she was employed had been the subject of
investigations involving illegal gambling and other crime; therefore,
plaintiff did not state a prima facie case for a hearing, the denial of a
license was affirmed, and plaintiff’s only option would be to reapply
in one year and allow the Board to evaluate at that time whether her
circumstances had changed.
Decision Under Appeal from the Circuit Court of Cook County, No. 12-CH-27922; the
Review Hon. Mary Mikva, Judge, presiding.
Judgment Affirmed.
Counsel on Law Office of George E. Becker P.C., of Chicago (George E. Becker,
Appeal of counsel), for appellant.
Lisa Madigan, Attorney General, of Chicago (Carolyn E. Shapiro,
Solicitor General, and Timothy M. Maggio, Assistant Attorney
General, of counsel), for appellees.
Panel JUSTICE LIU delivered the judgment of the court, with opinion.
Presiding Justice Simon and Justice Neville concurred in the judgment
and opinion.
OPINION
¶1 This appeal stems from a decision of the Illinois Gaming Board (Board) to deny plaintiff,
C.Capp’s LLC (Capps), a video game terminal operator’s license pursuant to section 45 of the
Illinois Video Gaming Act (Act) (230 ILCS 40/45 (West 2012)). Capps contends on appeal
that: (1) the requirements for seeking a hearing before the Board violate due process; and (2)
the Board’s decision to deny it a terminal operator’s license without a hearing was against the
manifest weight of the evidence. For the following reasons, we affirm.
¶2 BACKGROUND
¶3 A. Capps, the Applicant
¶4 Capps is an Illinois limited liability company owned and managed exclusively by Gail
Perez. In February 2010, Perez formed Capps for the express purpose of becoming a “terminal
operator,” as defined by the Act. A “terminal operator” is a person or entity licensed under the
Act that owns, services, and maintains video gaming terminals for placement in licensed
establishments. 230 ILCS 40/5 (West 2012). “Video gaming terminals” are electronic
machines that accept cash or electronic cards or vouchers for the purpose of allowing users to
play games such as video poker or blackjack. 230 ILCS 40/5 (West 2012).
¶5 B. Capps Applies for a Terminal Operator’s License
¶6 Capps applied with the Board to obtain a terminal operator’s license in November 2010.
The Board, however, denied Capps’ application by a unanimous vote. In a letter dated May 22,
2012, the Board informed Perez of the denial and gave its reasoning. It explained:
“Staff’s investigation revealed that C.Capp’s and its owner fail to meet the
qualifications required in the Video Gaming Act, 230 ILCS 40/45 and Board Rule
1800.420. Specifically, you as 100% Owner and President continue to associate both
professionally and personally with Thomas Perez, a convicted felon. You also are
employed by Tomm’s Redemption, a company that has been the subject of Federal and
State investigations involving illegal gambling and other crime.”
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¶7 On June 1, 2012, Capps petitioned the Board for a hearing. 11 Ill. Adm. Code 1800.615(c)
(2011). Capps acknowledged in its petition that Gail Perez was married to Thomas Perez and
that Thomas Perez had pleaded guilty to making false statements on his tax returns. However,
it asserted: (1) that Gail Perez was legally separated from Thomas Perez in 2002; (2) that she
“had no choice but to associate with Thomas Perez the last 10 years if for nothing else to
discuss and agree on the day-to-day activities of their two children”; (3) that she was never a
shareholder, director, or officer of Tomm’s Redemption, Inc. (Tomm’s Redemption); (4) that
she was “without knowledge of any state or federal investigations involving gambling as they
relate to Thomas Perez”; (5) that she had demanded that Thomas Perez and/or Tomm’s
Redemption move its offices to a different address; (6) that she had submitted her resignation
as an employee of Tomm’s Redemption; and (7) that she was willing to file for dissolution of
marriage from Thomas Perez.
¶8 On June 21, 2012, the Board denied Capps’ request for a hearing. In a letter dated June 26,
2012, the Board explained that Capps’ “request did not establish a prima facie case as required
by the [sic] Section 1800.615 of the Board’s Adopted Rules.”
¶9 C. Administrative Review
¶ 10 On July 20, 2012, Capps filed a petition for administrative review in the circuit court of
Cook County. Capps alleged, inter alia, that the Board’s decision to deny its application for a
terminal operator’s license without a hearing was contrary to the law and against the manifest
weight of the evidence. Capps requested the court to either: (1) require the Board to issue it a
terminal operator’s license; or (2) order the Board to conduct an evidentiary hearing based on
its petition for a hearing.
¶ 11 On August 28, 2012, the Board answered Capps’ petition by filing the administrative
record. As pertinent here, the Board included as part of the record a summary report (the
report) that was prepared in connection with Capps’ application. The report referred to the
investigation and information that the Board considered when reviewing Capps’ application
for a terminal operator’s license. The Board had not provided a copy of the report to Capps
prior to August 28, when it filed a copy as part of the record.
¶ 12 The parties subsequently briefed the petition. Capps argued, in its brief, that it had
established a prima facie case that mandated a hearing before the Board and that the Board’s
decision to deny it a terminal operator’s license was against the manifest weight of the
evidence. The Board, meanwhile, responded: (1) that its decision to deny Capps a hearing was
not clearly erroneous; (2) that its denial of a hearing did not violate any due process rights
allegedly afforded to Capps; and (3) that its denial of the license application was not against the
manifest weight of the evidence based on Gail Perez’s continued association with Thomas
Perez and Tomm’s Redemption.
¶ 13 On May 17, 2013, the court ordered supplemental briefing on the limited issue of due
process, which had been raised for the first time in the Board’s response brief. Capps argued, in
its supplemental brief, that “[t]he procedures of the *** Board are a clear violation of the due
process rights of an Applicant in that it has denied a hearing based upon an internal report,
which the Applicant was not given the opportunity to refute and which contained erroneous
information.” The Board, in response, maintained that Capps did “not have a legitimate claim
of entitlement to a property right in having its application for a Terminal Operator’s License
granted” and, therefore, was not denied due process.
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¶ 14 At a hearing on July 26, 2013, the court denied Capps’ petition for administrative review.
The court found that Capps was not denied due process because “there simply isn’t a property
interest in an application for a gaming license.” Further, the court found that the Board’s
decision to deny Capps a hearing was not against the manifest weight of the evidence because
“the applicant did not make out a prima facie case that she was suitable for licensure.”
¶ 15 Capps timely appealed from the circuit court’s order affirming the decision of the Board.
We therefore have jurisdiction pursuant to Illinois Supreme Court Rules 301 (eff. Feb. 1, 1994)
and 303 (eff. May 30, 2008).
¶ 16 ANALYSIS
¶ 17 Our review of the Board’s decision is governed by the Administrative Review Law (735
ILCS 5/3-102 (West 2012)). 230 ILCS 10/17.1(b) (West 2012).1 In administrative review
cases, we review the decision of the administrative agency, not the determination of the circuit
court. Marconi v. Chicago Heights Police Pension Board, 225 Ill. 2d 497, 531 (2006).
¶ 18 A. Due Process
¶ 19 Capps first contends on appeal that the Board’s requirements for seeking a hearing do not
comport with due process. Specifically, Capps objects to the Board’s possession of a “secret
report,” arguing that it is “impossible” to establish the requisite prima facie case for a hearing
when the Board is allowed to use such a report to deny petitions for hearing.
¶ 20 1. Waiver
¶ 21 The Board initially maintains that Capps has waived its due process argument by failing to
raise it before the agency. In support, the Board cites Carpetland U.S.A., Inc. v. Illinois
Department of Employment Security, 201 Ill. 2d 351, 396-97 (2002), where our supreme court
stated the general rule that “issues or defenses not raised before the administrative agency will
not be considered for the first time on administrative review.”
¶ 22 In Carpetland, the supreme court found a plaintiff’s due process claim waived where, like
here, it was not raised before the administrative agency and was asserted for the first time in the
circuit and appellate courts. Id. The supreme court explained:
“ ‘[I]t is advisable to assert a constitutional challenge on the record before the
administrative tribunal, because administrative review is confined to the proof offered
before the agency. Such a practice serves the purpose of avoiding piecemeal litigation
and, more importantly, allowing opposing parties a full opportunity to present evidence
to refute the constitutional challenge.’ ” Id. at 397 (quoting Texaco-Cities Service
Pipeline Co. v. McGaw, 182 Ill. 2d 262, 278-79 (1998)).
¶ 23 Here, the Board’s claim of waiver is not well taken due to its omission of certain adverse
facts. Specifically, the Board fails to note that the issue of due process was briefed and argued
in the circuit court only after the Board, itself, raised the issue in its response brief. The Board
also fails to acknowledge that it never argued in the circuit court that Capps’ due process
argument was waived. The doctrine of waiver is a limitation on the parties and not on this
court. First National Bank of LaGrange v. Lowrey, 375 Ill. App. 3d 181, 202 (2007). Since the
1
We note that the provisions of the Riverboat Gambling Act are incorporated into the Video
Gaming Act to the extent there is no conflict between the two acts. 230 ILCS 40/80 (West 2012).
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Board is ultimately responsible for bringing the issue of due process to the fore, we decline to
apply waiver in this case and choose to address Capps’ argument on its merits.
¶ 24 2. Whether Capps Was Entitled to Notice and a Hearing
¶ 25 “It is fundamental that the constitutional guarantees of procedural due process only
become operative where there is an actual or threatened impairment or deprivation of ‘life,
liberty or property.’ ” Polyvend, Inc. v. Puckorius, 77 Ill. 2d 287, 293-94 (1979) (quoting U.S.
Const., amend. XIV). “Therefore, the starting point in any procedural due process analysis is a
determination of whether one of these protectable interests is present, for if there is not, no
process is due.” Id. at 294.
¶ 26 “The United States Supreme Court [has] held that ‘[t]o have a property interest in a benefit,
a person clearly must have more than an abstract need or desire for it. He must have more than
a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it.’ ”
Suburban Downs, Inc. v. Illinois Racing Board, 316 Ill. App. 3d 404, 413 (2000) (quoting
Board of Regents of State Colleges v. Roth, 408 U.S. 564, 577 (1972)). “A legitimate claim of
entitlement may arise from statute, regulation, municipal ordinance, or express or implied
contract.” Id.
¶ 27 In this case, Capps does not argue that it had a protectable property interest in a terminal
operator’s license.2 Capps, rather, claims that it was entitled to due process based on the
“contested case” provisions of the Illinois Administrative Procedure Act (5 ILCS 100/1-1 et
seq. (West 2012)), which require notice and a hearing (5 ILCS 100/10-25(a) (West 2012)).
Capps argues that “[a]lthough a citizen may not be entitled to a fair hearing by the
constitutional guarantee of due process, the [A]dministrative [Procedure] [A]ct *** should in
some manner comport with due process standards of fundamental fairness.” According to
Capps, fundamental fairness in this case “required the Board to disclose its allegations against
[Capps], so [that Capps] could state a prima facie case for a hearing.”
¶ 28 We find that Capps’ due process argument necessarily fails given Capps’ concession that it
has no protectable property interest in a terminal operator’s license, a necessary component of
a procedural due process claim. Ill. S. Ct. R. 341(h)(7) (eff. Feb. 6, 2013); Suburban Downs,
316 Ill. App. 3d at 413. Moreover, insofar as Capps is arguing that it is statutorily entitled to
notice and a hearing under the “contested cases” provisions of the Illinois Administrative
Procedure Act, we find that claim to be without merit as well.
¶ 29 The provisions concerning “contested cases” apply only “[w]hen any licensing is required
by law to be preceded by notice and an opportunity for a hearing.” 5 ILCS 100/10-65(a) (West
2012). Here, the denial of a terminal operator’s license is not required by law to be preceded by
notice and a hearing; rather, the Board can deny an application for a terminal operator’s license
without ever holding a hearing. See 11 Ill. Adm. Code 1800.615(a), (f) (2011). It is only after
the Board has denied an application for a license that the applicant may contest the denial by
submitting a request for hearing to the Board. 11 Ill. Adm. Code 1800.615(c) (2011). Even
then, the Board may deny a request for hearing “if the statement of the reasons and facts that it
contains does not establish a prima facie case or fails to comply with any of the other
requirements of this Section.” 11 Ill. Adm. Code 1800.615(g) (2011). In sum, the Board’s rules
give the Board discretion to grant a hearing in connection with an application for a terminal
2
Capps specifically argues, in its reply brief, that “[t]he Plaintiff is not arguing entitlement to a
license.”
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operator’s license; however, they by no means require the Board to grant a hearing before
denying an application so as to trigger the provisions for contested cases. We therefore
conclude that Capps is not entitled to due process or notice and a hearing under the Illinois
Administrative Procedure Act.
¶ 30 B. The Board’s Denial of a Terminal Operator’s
License Without a Hearing
¶ 31 Capps next challenges the Board’s decision to deny it a terminal operator’s license without
a hearing. Capps maintains that Gail Perez met all of the criteria for a terminal operator’s
license and that “a decision denying a license to a lady because she fathered children with a
man convicted of a 17 year old tax crime is against the manifest weight of the evidence.” Capps
claims that the Board, at a minimum, should have granted a hearing where it filed a petition
that addressed the Board’s reasons for denying a license.
¶ 32 The Board argues that it properly denied Capps a terminal operator’s license without a
hearing where Capps: (1) did not contest that Tomm’s Redemption was the subject of a
criminal investigation; and (2) affirmatively admitted facts supporting the Board’s other
objections. The Board maintains that Capps is ultimately asking this court to reweigh the
evidence and substitute its judgment for that of the Board, which is not this court’s function on
administrative review.
¶ 33 1. Standard of Review
¶ 34 Before addressing the Board’s decision, we must first determine the appropriate standard
of review. Under the Administrative Review Law, the applicable standard of review depends
upon whether the question presented is one of fact or law or a mixed question of law and fact.
AFM Messenger Service, Inc. v. Department of Employment Security, 198 Ill. 2d 380, 390
(2001).
¶ 35 In the case at bar, Capps does not specifically challenge any of the factual findings made by
the Board. Instead, it challenges the Board’s ultimate decision to deny a terminal operator’s
license without a hearing based on those findings. This is clearly a mixed question of law and
fact in that it “ ‘involv[es] an examination of the legal effect of a given set of facts.’ ” Id. at 391
(quoting City of Belvidere v. Illinois State Labor Relations Board, 181 Ill. 2d 191, 205 (1998)).
In other words, “ ‘the historical facts are admitted or established, the rule of law is undisputed,
and the issue is whether the facts satisfy the statutory standard, or *** whether the rule of law
as applied to the established facts is or is not violated.’ ” Id. (quoting Pullman-Standard v.
Swint, 456 U.S. 273, 289 n.19 (1982)).
¶ 36 When an issue involves a mixed question of law and fact, “deference will be given to the
agency’s decision and we will reverse only when the decision is clearly erroneous.” Czajka v.
Department of Employment Security, 387 Ill. App. 3d 168, 173 (2008). “The agency’s decision
will be deemed clearly erroneous only where the reviewing court, on the entire record, is ‘left
with the definite and firm conviction that a mistake has been committed.’ ” (Internal quotation
marks omitted.) Id. (quoting AFM Messenger Service, 198 Ill. 2d at 393).
¶ 37 2. The Board’s Determination
¶ 38 The Board determined in this case that Capps did not meet the requirements for obtaining a
terminal operator’s license. Specifically, the Board found that Gail Perez, Capps’ owner and
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manager: (1) associated professionally and personally with Thomas Perez, a conviction felon;
and (2) was employed by Tomm’s Redemption, a company that had been the subject of federal
and state investigations involving illegal gambling and other crime.
¶ 39 As an initial matter, we address the issue of whether the Board was required to tender a
copy of the report that it reviewed when considering Capps’ request for a license. Section 6(d)
of the Riverboat Gambling Act provides:
“All information, records, interviews, reports, statements, memoranda or other data
supplied to or used by the Board in the course of its review or investigation of an
application for a license or a renewal under this Act shall be privileged, strictly
confidential and shall be used only for the purpose of evaluating an applicant for a
license or a renewal. Such information, records, interviews, reports, statements,
memoranda or other data shall not be admissible as evidence, nor discoverable in any
action of any kind in any court or before any tribunal, board, agency or person, except
for any action deemed necessary by the Board.” 230 ILCS 10/6(d) (West 2012).
We find that the language of section 6(d) is clear and unambiguous and supports the Board’s
rationale for not submitting a copy of the report to Capps until it was “deemed necessary” to
include it as part of the administrative record on review.
¶ 40 Under the Act, the Board has discretion to issue or deny a terminal operator’s license
pursuant to the criteria set forth in section 9 of the Riverboat Gambling Act (230 ILCS 10/9
(West 2012)). 230 ILCS 40/45(a) (West 2012). The Board’s rules also provide, however, that
“the Board may not grant any video gaming license until the Board is satisfied that the
applicant is,” among other things:
“1) A person of good character, honesty and integrity;
2) A person whose background, including criminal record, reputation and
associations, is not injurious to the public health, safety, morals, good order and general
welfare of the people of the State of Illinois; [and]
3) A person whose background, including criminal record, reputation and
associations, does not discredit or tend to discredit the Illinois gaming industry or the
State of Illinois[.]” 11 Ill. Adm. Code 1800.420(a)(1)-(3) (2013).
The burden is ultimately on the applicant to “demonstrate [its] suitability for licensure.” 230
ILCS 40/45(a) (West 2012). Moreover, as pertinent here, any person who holds significant
influence or control in an applicant company must be in compliance with the Act and the
Board’s rules. 11 Ill. Adm. Code 1800.430(b)(2) (2012).
¶ 41 Here, there is no dispute that at the time Capps filed its application for a terminal operator’s
license: (1) Gail Perez associated both professionally and personally with Thomas Perez; (2)
Thomas Perez was a convicted felon; (3) Gail Perez worked for Tomm’s Redemption; and (4)
Tomm’s Redemption was the subject of federal and state investigations involving illegal
gambling and/or other unlawful acts. The only real issue is whether the Board properly
exercised its discretion in determining whether these associations were injurious to the public
health, safety, morals, good order and general welfare of the people of the State of Illinois, and
whether they discredited or tended to discredit the Illinois gaming industry or the State of
Illinois. It is not our function to reweigh the evidence or substitute our judgment for that of the
administrative agency. Lojek v. Department of Employment Security, 2013 IL App (1st)
120679, ¶ 31. We therefore cannot say, under the circumstances, that the Board clearly erred in
denying Capps a terminal operator’s license. See Czajka, 387 Ill. App. 3d at 173.
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¶ 42 Capps argues that the Board should have granted it a hearing based on the facts asserted in
its petition. We disagree. The Board’s rules require an applicant to include in its request for a
hearing “[d]etailed reasons why and the facts upon which the petitioner will rely to show that
the petitioner is suitable for licensure, including specific responses to any facts enumerated in
the Board’s notice of denial.” 11 Ill. Adm. Code 1800.615(d)(2) (2011). The rules provide that
“[t]he Board may deny a request for hearing if the statement of the reasons and facts that it
contains does not establish a prima facie case or fails to comply with any of the other
requirements of this Section.” 11 Ill. Adm. Code 1800.615(g) (2011).
¶ 43 Here, Capps did not assert in its petition for hearing that the Board’s reasons for denying it
a terminal operator’s license were, in fact, false. Instead, it admitted that all but one of the
Board’s reasons were true–Capps stated that it had no knowledge as to any federal or state
investigations of Thomas Perez–and sought to explain why it should have been granted a
license regardless. We cannot say that Capps’ petition stated a prima facie case for a hearing
where it simply reaffirmed the Board’s reasons for denying it a terminal operator’s license in
the first place. Furthermore, we find that the Board was not required to grant Capps a hearing
simply because Gail Perez “demanded” that Tomm’s Redemption move its offices; “submitted
her resignation” as an employee of Tomm’s Redemption; and was “willing to file for
dissolution of marriage from Thomas Perez if this remains the only stumbling block to
obtaining a license.” These were nothing more than promises that Gail Perez was in the process
of cutting her ties with Tomm’s Redemption and Thomas Perez, with no bearing on the
Board’s determination that she was still associated with both. The proper avenue for Capps
was not to file a petition for hearing alleging that Gail Perez was working on distancing herself
from Tomm’s Redemption and Thomas Perez; it was to reapply for a license after “one year
from the date on which the final order of denial was voted upon by the Board.” 11 Ill. Adm.
Code 1800.560(b) (2013). Only at that point could the Board realistically evaluate whether
there was a change in circumstances. We find that the Board’s decision to deny Capps a
terminal operator’s license without a hearing was not clearly erroneous.
¶ 44 Accordingly, we affirm the judgment of the circuit court of Cook County.
¶ 45 Affirmed.
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