in the iowa district court in and for polk …ftpcontent.worldnow.com/ktiv/news/ruling on pjr...

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IN THE IOWA DISTRICT COURT IN AND FOR POLK COUNTY

BELLE OF SIOUX CITY, L.P.,

Petitioner,

v.

IOWA RACING AND GAMING

COMMISSION,

Respondent

Case No.: CVCV047791

RULING ON PETITION FOR JUDICIAL REVIEW AND ON EMERGENCY

MOTION FOR STAY

Hearing on petitioner, Belle of Sioux City, L.P.’s, motion for emergency stay was held

June 26, 2014. The court granted a short-term stay to allow the parties time to brief and argue

the merits of the judicial review petition. The court also allowed Missouri River Historical

Development, Inc. (“MRHD”) and SCE Partners, L.P. to intervene in this action.

Argument on the merits of the petition for judicial review was held July 10, 2014. This

ruling addresses the merits of the judicial review petition, as well as the request for a temporary

stay of agency action.

The court concludes that the petition for judicial review should be dismissed, and that

petitioner is not entitled to a stay.

Introduction

This is a judicial review action of a final contested case decision of the Iowa Racing and

Gaming Commission which denied Belle’s application for renewal of a casino gambling license.

(Ex. 6, C.R. 412). The application sought to renew a riverboat gambling license for the Argosy

Casino in Sioux City for the period April 1, 2013 to March 31, 2014. The license application

was denied by the Commission at a meeting on August 15, 2013. (C.R. 25).

E-FILED 2014 JUL 14 1:23 PM POLK - CLERK OF DISTRICT COURT

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Belle sought a contested case hearing of the Commission’s decision. (C.R. 29).

Following the hearing, the Commission held that “Belle is statutorily ineligible to hold a license

to conduct gambling games and cannot be granted a license to operate the excursion boat in

absence of an operating agreement with a [Qualified Sponsoring Organization] licensed to

conduct games at this location.” (C.R. 1219). The Commission ordered that gambling at the

Argosy Casino cease on or before July 1, 2014. (Id.).

MRHD is a nonprofit entity that has been licensed as the qualified sponsoring

organization, or QSO, for the Argosy Casino since it opened. Iowa law requires every casino to

have a QSO licensed by the Iowa Racing and Gaming Commission, which dispenses a portion of

the profits to civic and charitable causes. Since 2004, MRHD and Belle were licensed by the

Iowa Racing and Gaming Commission to conduct and operate gambling at the Argosy Casino.

In 2012 the Commission expressed an interest in having a new land-based casino in Woodbury

County. MRHD and Belle had a falling-out during this time. Belle and MRHD each partnered

with a different organization and applied to obtain the licenses for the new casino. The Racing

and Gaming Commission made it clear since at least June of 2012 that before the new casino

opened, the Argosy would have to close – i.e. that there would be only one casino in Woodbury

County. In April 2013, the Commission awarded a license to MRHD and SCE Partners for a

new Hard Rock Casino to be built in downtown Sioux City. The Hard Rock Casino is scheduled

to open August 1, 2014.

Belle argues that the Commission’s decision to deny its license renewal because MRHD

is no longer licensed to conduct gambling at the Argosy riverboat casino, is not supported by

substantial evidence and is arbitrary and capricious, that the Commission failed to give adequate

notice to Belle of the issue to be determined at the contested case hearing, that the Commission

unfairly limited the issues at the contested case hearing, and that the Commission’s interpretation

of law is erroneous.


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Statement of the Case

Belle submitted a license renewal application to operate the Argosy Casino in December

2012. This was for the period of April 1, 2013 – March 31, 2014.

The Commission denied the license application at its regular meeting August 15, 2013.

(C.R. 25). IRGC Administrator Brian Ohorilko notified Belle of the denial in a letter dated

August 27, 2013. This letter states, in part, that Iowa law requires an operator of a casino (such

as Belle) to partner with a Qualified Sponsoring Organization (QSO) licensed by the

Commission to conduct gambling games at an excursion gambling boat. (C.R. 25). It notes that

MRHD is the QSO licensed to conduct gambling games at Argosy Casino, and that the operating

agreement between MRHD and Belle expired as of July 6, 2012. Id. The letter also states that

Belle submitted an application in December 2012 for an operator’s license, but because the

operating agreement with MRHD had expired, “Belle is no longer statutorily eligible to operate

the Argosy Casino.” (C.R. 25).

Belle requested an evidentiary contested case hearing on the Commission’s decision “to

deny the Belle’s December 31, 2012 request for renewal of its operator’s license for the

operation of Argosy Casino in Sioux City.” (C.R. 29). The notice of hearing issued by the

IRGC states, “The hearing shall address the following issues cited by the Commission for the

denial of the Belle of Sioux City, L.P.’s (“Applicant”) application for renewal of its operator’s

license for the Argosy Casino in Sioux City:

Whether the Applicant’s lack of an operator’s agreement with a qualified sponsoring organization that is presently licensed to conduct gambling games at the Argosy Casino in Sioux City, Iowa, precludes renewal of the Applicant’s license to operate the Argosy Casino. See Iowa Code § § 99F.3, 99F.4, 99F.5(1), 99F.6(1), 99F.7; 491 Iowa Admin Code § § 1.7. 5.1, 5.4.”

(C.R. 62). A contested case hearing was held before the Commission on March 5-6, 2014, with

assistance of Administrative Law Judge Christie Scase. On April 17, 2014, the Commission


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issued its contested case ruling, which denies Bell’s license renewal application submitted in

December 2012, and orders the casino to close by July 1, 2014. (C.R. 1209-1219). The

Commission held that Belle did not have a qualified sponsoring organization because MRHD

was no longer licensed to conduct gambling at the Argosy Casino.

Belle requested a rehearing before the Commission, which was denied by operation of

law on May 12, 2014. Belle then filed a bankruptcy proceeding in Pennsylvania, where its

parent corporation is headquartered, seeking protection of the automatic stay. The bankruptcy

judge held that the litigation in Iowa district was not subject to the automatic stay.

Belle filed the present judicial review action June 12, 2014. Belle also requested an

administrative stay from the Commission. The Commission held a special meeting to consider

the stay request on June 25, 2014. The Commission denied the request for stay. This court held

a hearing on the request for temporary stay on June 26. The court issued a short-term stay until it

could hear arguments and rule on the merits of the judicial review petition. The parties agreed to

an expedited briefing schedule, and argument on the judicial review petition was held July 10,

2014.

Belle has previously filed four judicial review cases in Polk County District Court. These

four actions were not appeals from contested case decisions, but rather they challenge a series of

actions by the IRGC in 2012-2013 which led to the disapproval of the operating agreement

between Belle and MRHD in 2012, and the issuance of the new license for a land-based Hard

Rock Casino. The prior four actions have been consolidated under one Polk County case

number, CVCV009254. In a separate case Belle is suing MRHD for damages for breach of

contract. (Polk County Case No. LACL126161.) In February 2014, following a remand from

the Iowa Supreme Court, this court denied a motion for temporary stay of the issuance and


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effectiveness of the new license issued for the Hard Rock Casino. The current motion for

emergency stay presents a different but related issue – whether the Argosy should be allowed to

remain open pending the final decision in this case.

The IRGC allowed the Argosy Casino to remain open while the new casino is under

construction. IRGC, MRHD, and SCE Partners resist the application for emergency stay.

Background

An overview of Iowa’s gambling statute and regulations is helpful to provide a backdrop

to the issues in this motion.

Gambling in Iowa is regulated by the IRGC. See Iowa Code Chapter 99F. Since the

mid-1980s, the legislature has incrementally expanded the types and scope of gambling allowed

in the state. Gambling has gone from betting on horse and dog races to excursion riverboats with

a $200 per day limit, to slot machines at racetracks, to moored boats, and finally, to land-based

structures that are not associated with racetracks or boats. (See Chronology of the Iowa Racing

and Gaming Commission, C.R. 592). The last major expansion of gambling occurred in 2007,

when the legislature allowed land-based casino gambling at structures outside of boats, moored

barges, or racetracks. See 2007 Iowa Acts, Chapter 188 (Senate File 263).

Each gambling venue in Iowa must have a licensed “Qualified Sponsoring Organization”

or QSO.1 Iowa Code § 99F.5. “Qualified Sponsoring Organization” is defined as a tax-exempt

nonprofit corporation. Iowa Code § 99F.1(20). The Qualified Sponsoring Organization must

donate the profits it receives to educational, civic, public, charitable, patriotic, or religious uses.

Iowa Code § 99F.6(4)(a)(2). A QSO may directly operate the riverboat or casino, or it may use a

professional operator. See Iowa Code Section 99F.5. If an operator is used, the operator must

1 In the other judicial review actions, Belle challenges that the statute requires a QSO. At the July 10, 2014 hearing, Belle’s attorneys stated they have not abandoned that argument, but do not believe they need to assert the argument in this action.


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also be licensed by the IRGC. Id. Under such an arrangement, the Qualified Sponsoring

Organization receives a minimum of three percent of adjusted gross receipts. Iowa Code §

99F.5. MRHD was the licensed QSO for the Argosy riverboat casino. Belle was the licensed

operator.

IRGC interprets Chapter 99F to state that a Qualified Sponsoring Organization holds a

license to “conduct” gambling, and an operator holds a license to “operate.” This interpretation

is supported by Iowa Code Section 99F.5(1). That section states a QSO may apply for a license

to “conduct” gambling games, and a person may apply for a license to “operate” gambling. Thus

MRHD held the license to conduct riverboat gambling in Woodbury County, and Belle held the

license to operate riverboat gambling in that county. (Belle agreed with this interpretation in its

December 2011 license renewal application. (C.R. 393)).

Facts

The court incorporates the findings of fact set forth in the contested case decision at

pages 1210-15 of the Certified Record. The court has reviewed the entire Certified Record, and

the agency’s fact findings are thorough and accurate (and, save one matter, are not challenged by

petitioner). The court sets forth the following facts, which are of particular importance to this

ruling:

1) MRHD was licensed to conduct gambling as QSO for the Argosy Casino since 1994.

(Ex. 2, C.R. 377). During the early years there was a different operator.

2) In 2004 Belle obtained the license to operate the Argosy Casino, and Belle and

MRHD entered into an operating agreement. (Ex. 2, Am. to Operating Agreement,

C.R. pp. 388-89). Belle is a subsidiary of Penn National Gaming, a large national

organization that operates casinos in several states.


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3) Belle and MRHD extended their operating agreement several times. The final

extension was to July 6, 2012. (Ex. 2, C.R. 391).

4) After the initial three years, a casino license must be renewed annually. Applications

are filed in December for the license period of April 1 to March 31 of the coming

year. Belle and MRHD filed a joint application in December 2011 for the license

period of April 1, 2012 to March 31, 2013.

5) The cover page of the joint 2011 gambling license application states:

Although this license renewal application covers the entirety of the time period from April 1, 2012 to March 31, 2013, the co-licensee/co-applicants, Missouri River Historical Development, Inc. (qualified sponsoring organization) and Belle of Sioux City, L.P (operator) acknowledge that they currently have an operating agreement in effect through July 6, 2012 as provided herein and that renewal or extension of an

operating agreement pursuant to Iowa code Chapter 99F through the applicable time period of the requested license is necessary. Missouri River Historical Development, Inc. and Belle of Sioux City, L.P. represent to the Iowa Racing and Gaming Commission (Commission) that negotiations to complete the terms of that agreement/extension are ongoing and they have reason to believe that the same will be finalized on or before the meeting of the Iowa Racing and Gaming Commission on March 8, 2012 when the matter of this license renewal application will come before the Commission for action. The Commission will be kept advised of the progress of the parties and a copy of the renewal/new operating agreement will be provided to the Commission as soon as possible.

(Ex. 4, C.R. 393).

6) At the March 2012 Commission meeting, MRHD and Belle reported that they had not

finalized an operating agreement. The process was slowed by both Belle’s and

MRHD’s desire to build a new, land-based casino in Woodbury County. The

Commission approved a license renewal for MRHD and Belle for the Argosy Casino,

conditioned upon the parties submitting a new operating agreement by June 7, 2012

(the Commission’s meeting date for that month). (Ex. U, C.R. 654).

7) MRHD had signed off on an extension to the operating agreement with Belle by the

time of the June 7, 2012 Commission meeting, but Belle refused to sign the extension


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to the agreement. (See Ex. A, C.R. 499). This document is titled “Extension

Agreement,” and states that it extends the operating agreement to March 31, 2015.

Id. It further states it is “subject to approval of the Iowa Racing and Gaming

Commission.” (Ex. A, C.R. 499). The Commission has never approved this

extension. (See C.R. 495-96, 498, 624-26).

8) At the June 7, 2012 meeting, Belle’s attorney told the Commission that Penn has

spent hundreds of thousands of dollars exploring a new downtown site for a casino.

(C.R. 492). He said Belle wanted to seek approval to renew the Argosy’s gambling

license with a new non-profit organization, and MRHD had a plan to replace Belle as

operator. (Ex. 13, C.R. 493). It was noted that MRHD had sued Belle in federal

court. After considerable discussion from the Commission and comments from the

parties concerning a new land-based casino, the Commission voted to open up an

application process for a new land-based casino in Woodbury County that would be

open to all. (C.R. 496).

9) At the June 7, 2012, meeting, the Commission also voted to extend the license for the

Argosy Casino to March 31, 2013, on the condition that the parties agree to extend

the operating agreement to that date. C.R. 496-97. It was stated at that meeting, and

at subsequent meetings, that the Argosy’s license would not be valid after the new

casino opened. (See C.R. 496).

10) After the June 7, 2012 meeting, Belle signed the operating agreement extension (to

2015) it had refused to sign prior to the Commission meeting. (See Ex. A, C.R. 499.)

At several subsequent meetings, Belle asked the Commission to approve the

operating agreement extension. At the August 24, 2012, Commission meeting,


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Belle’s attorney asked for an extension to 2015 “as the parties continue to work

through a transition to what everyone wants, which is land-based gaming in Sioux

City.” (C.R. 514). However, at this same meeting, MRHD’s representative told the

Commission there was not a signed, agreed-upon extension agreement as far as

MRHD was concerned. (C.R. 517). Belle’s one-sided request for the Commission to

consider an extension of the operating agreement failed for lack of a motion. See Id.

11) At the August 2012 meeting, the Commission’s vice chair told Belle that there was no

agreed-upon operating agreement, and that the casino could not operate without one.

(C.R. 517). He stated they were in uncharted territory, but that he believed the

license would continue by operation of law pursuant to Iowa Code § 17A.18(2).

(C.R. 518). IRGC Administrator Ohorilko agreed with this statement. (C.R. 519).

12) As the end of 2012 approached, Belle’s legal counsel contacted the IRGC staff to

inquire about submitting a license application for 2013-14. Administrator Ohorilko

advised Belle’s counsel it was not necessary to file a renewal application, as the

casino was operating “by operation of law” under Section 17A.18. (All the parties

were preparing proposals for the new land-based casino during this time.)

13) Nevertheless, Belle submitted a license renewal application in December 2012. (Ex.

6, C.R. 412). The cover page of this license application states:

Although the Iowa Racing and Gaming Commission (IRGC) has not provided a renewal application form to Belle of Sioux City, L.P. (Belle), the following renewal items are submitted by Belle for the April 1, 2013 to March 31, 2014 licensing year.

The documents requested in Section VI(F) with regard to the qualified

sponsoring organization are not included in this submission; however, the Commission is referred to the license renewal application for April 1, 2012 to March 31, 2013. Furthermore, the information in Section VI(C) reflects Belle’s

contention and position with regard to the status and expiration date of the

management agreement although it acknowledges that the same are in

controversy.


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(Ex. 6, C.R. 412) (emphasis added). This application is signed only by Belle. MRHD

did not sign off on it, and MRHD refused to sign the December 2012 license renewal

application for the Argosy Casino. (Ex. 6, C.R. 430; C.R. 856-57, 902 (Monson

testimony)).

14) MRHD is the only licensed QSO approved by the Iowa Racing and Gaming

Commission for Woodbury County.

15) Belle continued to operate the Argosy riverboat casino after the August 2012

Commission meeting. It also submitted two applications to operate a land-based

casino in Woodbury County. These were submitted with a different nonprofit agency

which sought licensure as the QSO. MRHD submitted an application to conduct

gambling at a new land-based casino with SCE Partners as operator. A fourth

application was received from Ho Chunk/Warrior Entertainment and another

nonprofit entity. The Commission voted 3-2 at its April 2013 meeting to grant the

new license for Woodbury County to MRHD and SCE for a Hard Rock Casino to be

located in downtown Sioux City.

16) Belle did not seek a contested case hearing before the Commission concerning any of

the Commission’s actions described above. Rather it filed a series of judicial review

actions in Polk County District Court:

a) On July 6, 2012, Belle filed a judicial review action challenging the Commission’s

June 7, 2012, decision to accept new applications to build a land-based casino in

Woodbury County, and all other adverse actions taken regarding Belle’s license.

(Polk County No. CVCV009254).


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b) On August 10, 2012, Belle filed a judicial review action challenging the

Commission’s July 12, 2012 refusal to grant formal approval of an extension of the

operating agreement between Belle and MRHD to 2015, and an appeal from the

setting of procedures and deadlines for interested parties to submit plans to build and

operate a new land-based casino in Woodbury County (Polk County No.

CVCV009316);

c) On September 21, 2012, Belle filed a third judicial review action challenging

Commission’s August 23, 2012, refusal to grant formal approval of the operating

agreement extension between Belle and MRHD to March 31, 2015, an appeal from

IRGC’s establishing a time frame for procedures to hold a show cause hearing on

denying Belle’s license to operate a riverboat casino, and all other adverse actions

taken regarding Belle’s license (Polk County No. CVCV009383).

d) On October 9, 2012, Belle filed a fourth judicial review action challenging the

Commission’s April 18, 2013, decision to grant the Woodbury County gaming

license to SCE and MRHD for the Hard Rock Casino, and also challenging the

decision that the Belle riverboat casino would close upon the opening of the new

land-based Hard Rock Casino (Polk County No. CVCV045760). This petition asserts

the Commission’s actions were a de facto revocation of its license.

f) The four actions are consolidated under Polk County case number CVCV009254.

Evidentiary hearing and oral argument are scheduled for September 26, 2014.

17) Also on September 21, 2012, Belle sued MRHD in Polk County District Court for

declaratory relief, injunctive relief, and damages arising out of an alleged breach of

the operating agreement between Belle and MRHD. (Polk County No.

LACL126161). MRHD has counterclaimed for interference with prospective


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business advantage. Trial in that matter has been continued indefinitely, at the

request of both parties.

18) At a meeting on August 15, 2013, the Commission took up the matter of Belle’s

December 2012 license renewal request. (Ex. N, C.R. 564 et seq). The Administrator

noted that Belle does not have an operating agreement with a qualified sponsoring

organization licensed to conduct gambling games at the Argosy location, as required

by the Code of Iowa. (C.R. 565). He opined that Belle is not statutorily able to hold

an operator’s license in the state of Iowa. (C.R. 565). Mr. Ohorilko stated that the

recent application process showed MRHD has no present intention to re-affiliate with

Belle. (C.R. 566-67). Belle’s legal counsel addressed the Commission. (C.R. 569-

74). He stated that the lack of a QSO was a pretext to non-renew or revoke Belle’s

license. (C.R. 572). He called MRHD a “pass through entity.” C.R. 572. He

acknowledged that MRHD apparently does not want to partner with Belle as a QSO,

and stated that Belle has another nonprofit group that could be a potential QSO.

(C.R. 573-74).

19) At the August 15, 2013 meeting, the Commission passed a motion “to deny Belle of

Sioux City, L.P.’s application to renew its operator’s license for the Argosy Casino in

Sioux City based on the fact that Belle is statutorily ineligible to hold a license in the

absence of an operator’s agreement with a qualified sponsoring organization.” (C.R.

442, 443). Belle requested a contested case hearing. The notice of hearing issued

November 27, 2013 , states the issue for hearing is, “Whether the Applicant’s lack of

an operator’s agreement with a qualified sponsoring organization that is presently

licensed to conduct gambling games at the Argosy Casino in Sioux City, Iowa,


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precludes renewal of the Applicant’s license to operate the Argosy Casino.” (C.R.

62).

20) Prior to hearing, Belle filed a motion to stay the hearing because the status of the

operating agreement with MRHD was in litigation. (C.R. 70). Belle argued the issue

of the validity of the operating agreement was not ripe. (Id., See also Belle’s Motion

to Continue Hearing, C.R. 164). On January 31, 2014, the ALJ denied the motion to

stay the contested case hearing, stating the issue to be determined at hearing was not

the status of the operating agreement, but whether MRHD was a QSO presently

licensed to conduct gambling at the Argosy Casino. (C.R. 122-25).

21) The contested case hearing was held March 5-6, 2014. The Commission issued its

order April 17, 2014. The Commission denied Belle’s license renewal application

and ordered the Argosy Casino to close by July 1, 2014.

Additional facts will be set forth in the discussion below.

Standard of Review

This is a judicial review action of a contested case decision pursuant to Iowa Code

Chapter 17A. The court shall reverse, modify, or grant appropriate relief from agency action if it

determines that substantial rights of the person seeking judicial relief have been prejudiced

because the agency action violates any of the provisions of Iowa Code Section 17A.19(10).

Belle argues that the agency’s findings of fact are not supported by substantial evidence in the

record; that the agency’s contested case decision is based upon an erroneous interpretation of a

provision of law whose interpretation has not clearly been vested by a provision of law in the

discretion of the agency; that the Commission’s decision is the product of reasoning that it so


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illogical as to render it wholly irrational; and that the Commission’s action is unconstitutional, in

violation of Iowa Code Sections 19A.19(10)(f), (c), (i), and (a).

Administrative agencies may be granted the authority to interpret statutes or terms within

statutes by the General Assembly. Renda v. Iowa Civil Rights Com’n, 784 N.W.2d 8, 11 (Iowa

2010). Agency interpretations made under these grants of authority are entitled to deference

from courts. Id. However, when an agency is not granted authority to interpret a statute, a court

may substitute its interpretation or judgment for that of the agency if it concludes that the agency

erred in its legal interpretation. Iowa Code § 17A.19(10)(c); Renda, 784 N.W.2d at 14–15.

Substantial evidence means the quantity and quality of evidence that would be deemed

sufficient by a neutral, detached, and reasonable person, to establish the fact at issue when the

consequences resulting from the establishment of that fact are understood to be serious and of

great importance. IOWA CODE § 17A.19(10)(f)(1). The adequacy of the evidence in the record

to support a particular finding of fact must be judged in light of all the relevant evidence in the

record that detracts from the finding as well as the evidence that supports it, including any

determinations of veracity by the presiding officer who personally observed the demeanor of the

witnesses and the agency’s explanation of why the relevant evidence in the record supports its

material findings of fact. IOWA CODE § 17A.19(10)(f)(3). The determinative factor is not

whether evidence supports a different finding, but whether the evidence supports the finding

actually made. IBP v. Al-Gharib, 604 N.W.2d 621, 632 (Iowa 2000). Evidence is not

insubstantial merely because it would have supported a contrary inference. Id.

Belle asserts that the Commission’s ruling violates Iowa Code Sections 17A.19(10)(i),

(j), (m), and (n) (reasoning that is so illogical as to render it wholly irrational; the product of a

decision-making process in which the agency did not consider a relevant and important matter


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relating to the propriety or desirability of the action in question that a rational decision maker in

similar circumstances would have considered; unreasonable, arbitrary and capricious; or an

irrational, illogical, or wholly unjustifiable application of law to fact). These subsections are

specifications of actions that have been found to be arbitrary, capricious, or an abuse of

discretion. Bonfield, “Amendments to Iowa Administrative Procedure Act, Report on Selected

Provisions to Iowa State Bar Association and Iowa State Government,” p. 69 (1998). An

agency’s action is arbitrary and capricious “when it is taken without regard to the law or facts of

the case.” Dico, Inc. v. Iowa Employment Appeal Board, 576 N.W.2d 352, 355 (Iowa 1998).

Agency action is unreasonable when it is “clearly against reason and evidence.” Id. An agency

abuses its discretion when its decision “involves [a] lack of rationality,” and is “clearly against

reason and evidence.” Id.

When a party raises constitutional issues in an administrative agency proceeding under

Section 17A.19(10)(a), judicial review is de novo. ABC Disposal Systems, Inc. v. Dep’t of

Natural Resources, 681 N.W.2d 596, 605 (Iowa 2004).

I. JUDICIAL REVIEW PETITION

Belle’s arguments in support of its petition for judicial review are addressed below.

Substantial Evidence. Belle asserts a fact finding of the Commission is not supported by

substantial evidence. In its brief on the motion for emergency stay, Belle challenged only one

statement in the Commission’s order as not supported by substantial evidence, “IRGC’s

erroneous factual determination that MRHD let its license to conduct gambling games at the

Argosy Casino expire on April 1, 2013. (Order at 10 [C.R.1218]).” (Belle’s Stay Br. p. 8). In

its brief on the merits, Belle challenges the following language in the Commission’s order as not

supported by substantial evidence: “MRHD made a conscious decision not to apply for renewal


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of its license to conduct games at the Argosy Casino” and “the license for MRHD for that

location has expired.” (Belle’s Br. on Jud. Rev, p. 29, citing C.R. at 1215, 1218).

One problem with this argument is that the statement at C.R. 1218 that MRHD’s license

has expired is not a finding of fact, but rather is a conclusion of law. This statement is not

contained in the five pages of fact findings in the order, but near the end in the conclusions of

law. (C.R. 1218). The substantial evidence test is not applicable to this statement.

Moreover, Belle mischaracterizes the Commission’s conclusion by saying MRHD “let its

license” expire. The actual language in the Commission order states, “MRHD chose not to seek

renewal of its license to conduct gambling games at the Argosy Casino for the 2013-2014

licensing year and the license MRHD held for that location expired.” (C.R. 1218). Insofar as it

contains a factual statement – that MRHD chose not to seek renewal of its license for the

Argosy for the 2013-2014 license period – it is supported by substantial evidence in the record.

(See Ex. 6, C.R. 412-436; Monson testimony at C.R. 855-56; 902). MRHD president Mike

Monson testified that Belle asked MRHD to sign the December 2012 renewal application, but

MRHD refused to sign. (C.R. 855-56, 902). The court has considered evidence to the contrary,

but concludes Belle has not proven that this statement is not supported by substantial evidence

when the record is viewed as a whole.

Belle also argues that if this statement is a conclusion of law, it violates Iowa Code

Sections 17A.19(10)(i), (j), (m), and (n). (Belle’s Br., p. 29, n 8). These are the provisions

providing relief from agency action that is arbitrary and capricious, or an abuse of discretion.

Because casino licenses must be renewed annually, and because MRHD’s president testified

MRHD chose not to seek renewal of its license for the Argosy Casino for the 2013-14 license

year, it is not irrational for the Commission to conclude that MRHD’s license to conduct

gambling games at the Argosy Casino had expired. In December 2012, Belle submitted a license


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renewal application without a licensed QSO. Belle asked MRHD to sign off on the December

2012 license renewal application, and MRHD refused to do so.2 Petitioner has not proven a

violation of Sections 17A.19(10)(i), (j), (m), or (n).

The court addresses whether MRHD’s license to conduct gambling at the Argosy Casino

continued by operation of law under Iowa Code Section 17A.18(2) in the next section of this

ruling.

Section 17A.18(2). Belle argues the Commission erred in its interpretation of Iowa Code

Section 17A.18(2). Belle argues the Commission’s decision should be reversed because it is

based on an erroneous interpretation of a provision of law whose interpretation has not clearly

been vested by a provision of law in the discretion of the agency, in violation of Iowa Code

Section 17A.19(10)(c), and is the product of reasoning that is so illogical as to render it wholly

irrational, in violation of Iowa Code § 17A.19(10)(i). Section 17A.18(2) allows a license issued

by an administrative agency to continue by operation of law under certain circumstances.

Section 17A.18 is not a statute whose interpretation is vested by a provision of law with the Iowa

Racing and Gaming Commission, therefore the Commission’s interpretation of this statute is not

entitled to deference. See Iowa Code § 17A.19(11); Renda v. Iowa Civil Rights Com’n., 784

N.W.2d 8, 13-14 (Iowa 2010).

Belle argues that it was not required to submit the renewal application for 2013-14,

because its license continued by operation of law under Section 17A.18(2). It also argues

MRHD’s license to conduct gambling at the Argosy Casino continues by operation of law;

therefore MRHD did not need to sign off on the December 2012 license renewal application.

Section 17A.18(2) states:

2 MRHD appears in this case, and asserts that it does not hold a license to conduct gambling at the Argosy Casino.


18

2. When a licensee has made timely and sufficient application for the renewal of a license or a new license with reference to any activity of a continuing nature, the existing license does not expire until the application has been finally determined by the agency, and, in case the application is denied or the terms of the new license limited, until the last day for seeking judicial review of the agency order or a later date fixed by order of the agency or the reviewing court.

Iowa Code § 17A.18(2).

Belle points out that the IRGC informed Belle and MRHD in 2012 that their licenses

would continue by operation of law under Section 17A.18(2); that the IRGC staff informed Belle

it need not apply for a renewal license in December 2012 because the joint license would

continue by operation of law; that Assistant Attorney General Jeff Peterzalek told Belle to

remove references to “renewal application” in its draft letter submitted in December 2012; and

that Belle was never informed that MRHD’s license would expire on March 31, 2013.

The Commission acknowledges in its ruling that Commission members and IRGC staff

informed MRHD and Belle that their licenses for the Argosy Casino would continue by

operation of law through the 2013-2014 licensing year. (C.R. 1213, 1214, 1218). The

Commission’s ruling, however, concludes that this advice was apparently incorrect because the

prior year’s application - submitted in December 2011 - did not contain an operating agreement

for the full licensing year; therefore the license application submitted in December 2011 was not

a “sufficient” application within the meaning of Section 17A.18(2). (C.R. 1218-1219). The

Commission reasoned that if the December 2011 application was not “sufficient,” it would not

trigger the stay provision of Section 17A.18(2).

The Commission contested case ruling states:

Given that the 2012-2013 renewal application submitted by MRHD and Belle did not include an operating agreement for the entire term of the licensing year, that application was arguably insufficient to trigger continuation of the prior licenses by operation of law under section 17A.18(2). In August of 2012 and during the months that followed, the Commission and the parties assumed that the Argosy Casino licenses remained in effect by operation of law under this section. The Commission may have erred in allowing gambling to continue at the Argosy Casino, but if so, the error was harmless: employees of the casino continued


19

working; patrons continued to frequent the excursion boat; three percent of the adjusted receipts continued to be distributed for educational charitable purposes; and Belle and Penn National Gaming continued to generate profits.

(C.R. 1218-2019).

Belle has not proven this is an erroneous interpretation of law, nor that it is wholly

irrational. Section 17A.18(2) states that when “sufficient” application has been made, a license

may continue until final determination by the agency. The Commission’s contested case ruling

states the 2012-2013 application was not sufficient because of the lack of an operating agreement

for the entire term of the licensing year. (C.R.1218). This interpretation is not erroneous.

Iowa Code Section 99F.5 states that a QSO may apply for a license to conduct

gambling games, and a person may apply to the commission for a license to operate a gambling

facility. It goes on to state, “An operating agreement entered into on or after May 6, 2004,

between a qualified sponsoring organization and an operator of an excursion gambling boat or

gambling structure shall provide for a minimum distribution by the [QSO] for educational, civic .

. . uses . . . that averages at least three percent of the adjusted gross receipts for each license year.

The application shall . . . be in a form and contain information as the commission prescribes.”

Iowa Code § 99F.5(1). Implicit in this Code section is a requirement that a Qualified Sponsoring

Organization and an operator will have an operating agreement. The Code section also gives

IRGC broad discretion to determine what information should be in an application for a gambling

license. IRGC rules require approval of all agreements between QSOs and operators. 491 I.A.C.

§ 5.4(8). In addition, Belle admits in the 2011 license application that an operating agreement is

a requirement for a license. (C.R. 393). The court concludes that the IRGC is correct in

interpreting the law to require an operating agreement between a QSO and an operator for the

entire term of a licensing year. Thus the Commission is also correct when it concludes the 2011


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application was not “sufficient” under 17A.18(2) because of the lack of an approved operating

agreement that extended throughout the entire licensing year.

At the time the parties applied for licenses for 2012-2013, their operating agreement

was set to expire in July 2012. The Commission conditionally approved licenses for the Argosy,

with the requirement MRHD and Belle submit a new operating agreement by the June 7, 2012

Commission meeting. MRHD signed off on an operating agreement prior to the meeting. Belle

did not.

At this point, the Commission opened up an application process for a new land-based

casino in Woodbury County. The Commission stated its intention that the Argosy riverboat

would close when the new facility opened. Belle partnered with a new QSO and submitted two

proposals. MRHD partnered with SCE and submitted a proposal. In April 2013 the Commission

selected the MRHD/SCE proposal. However, it allowed the Argosy to continue to operate until

the new casino opened.

IRGC Administrator Ohorilko described the license application process for the Argosy

as “unprecedented.” (C.R. 955). The court agrees the situation was unusual. The Commission

told Belle not to submit a license renewal for 2013-2014, because its license would continue by

operation of law. Belle nevertheless submitted a license renewal application. MRHD had

completely withdrawn from the process. MRHD did not co-sign the application submitted for

2013-2014. It did not seek renewal of its license to conduct gambling at the Argosy. The

Commission denied Belle’s application because of the lack of a licensed QSO for the Argosy.

Following the contested case hearing, the Commission determined it apparently erred in

informing Belle the casino could operate under Section 17A.18(2). Although unusual, the

Commission’s interpretation of Section 17A.18(2) is correct.


21

The Commission stated that if it had decided in 2012 that the Argosy’s application for

2012-2013 was not “sufficient” under Section 17A.18(2), the result would have been an order to

close the casino earlier. Belle was not harmed by this interpretation. If there was error it was

harmless. In a judicial review action, the court may grant relief from agency action if it

determines “that substantial rights of the person seeking judicial review have been prejudiced.”

Iowa Code § 17A.19(10). Belle has not proven it was prejudiced by an erroneous interpretation

of law, or by wholly irrational reasoning, because the result of the allegedly erroneous

interpretation was to allow it to continue to operate longer than it should have.

For the reasons set forth above, the court rejects this argument.

Section 99F. Belle argues the Commission’s order conflicts with Section 99F.3. Belle

argues the Commission’s decision should be reversed because it is based on an erroneous

interpretation of a provision of law whose interpretation has not clearly been vested by a

provision of law in the discretion of the agency, in violation of Iowa Code Section

17A.19(10)(c), and is the product of reasoning that is so illogical as to render it wholly irrational,

in violation of Iowa Code § 17A.19(10)(i).

Iowa Code Section 99F.3 states, “[t]he system of wagering on a gambling game as

provided by this chapter is legal, when conducted on an excursion gambling boat, gambling

structure, or racetrack enclosure at authorized locations by a licensee as provided in this

chapter.” Belle argues the Commission’s interpretation of Section 17A.18(2) is in conflict with

this section, in that it would allow gambling to continue at a facility that did not have a valid

QSO licensed to conduct gambling therein.


22

This is similar to the argument presented in the preceding section. Again, if the

Commission erroneously allowed Belle to remain open longer than it should have, Belle’s rights

were not prejudiced, and it has not shown a violation of Iowa Code Section 17A.19(10).

Alleged Violation of Constitutional Rights. Belle next argues that the agency action is

an unconstitutional violation of its due process rights. Iowa Code Section 17A.19(10)(a).

Belle argues it was denied a meaningful opportunity to be heard concerning the closing

of the Argosy Casino. The fundamental requirement of due process is the opportunity to be

heard at a meaningful time and in a meaningful manner. Silva v. Employment Appeal Board, 547

N.W.2d 232, 234 (Iowa Ct. App. 1996). The central requirements are notice and an opportunity

to be heard. Id. These principles apply to contested case proceedings. Id. The

Administrative Procedures Act requires parties to a contested case shall be given notice of

hearing, with a reference to the particular sections of statutes and rules implicated and a short

and plain statement of the matters asserted. Iowa Code § 17A.12(2).

Concerning the actions of the Iowa Racing and Gaming Commission in 2012-2013,

Belle requested a contested case hearing only on the Commission’s August 15, 2013 decision to

deny its gambling operator license for the 2013-2014 year. (C.R. 29). (Belle earlier sought

judicial review of the Commission’s actions in 2012 and early 2013 that found its December

2011 application was insufficient, and that granted a new casino license to MRHD and SCE.

(See CVCV009254)). Belle’s letter requesting a contested case hearing states, “[W]e write on

behalf of Belle of Sioux City, L.P. d/b/a Argosy Casino (the “Belle’) to request a contested case

proceeding and evidentiary hearing on the decision of the Iowa Racing and Gaming Commission

(the “Commission”), as stated orally at the Commission meeting on August 15, 2013 and in

writing in Mr. Ohorilko’s August 27 letter, to deny the Belle’s December 31, 2012 request for


23

renewal of its operator’s license for the operation of Argosy Casino in Sioux City.” C.R. 29

(emphasis added).

The notice of hearing in this contested case stated that the issue before the commission

was:

Whether the Applicant’s lack of an operator’s agreement with a qualified sponsoring organization that is presently licensed to conduct gambling games at the Argosy Casino in Sioux City, Iowa, precludes renewal of the Applicant’s license to operate the Argosy Casino. See Iowa Code § § 99F.3, 99F.4, 99F.5(1), 99F.6(1), 99F.7; 491 Iowa Admin Code § § 1.7. 5.1, 5.4.

(C.R. 62).

Now Belle argues it was denied due process because the Commission only considered the

denial of the application submitted in December 2012 for the 2013-2014 license. However,

Belle only requested a contested case hearing on the denial of its application submitted in

December 2012. The Commission cannot be faulted for not granting a hearing on a request that

was not submitted to it. There was no denial of due process in limiting the hearing to matter

raised by the applicant.

In reviewing the contested case record, the court concludes that Belle was not denied due

process. Holding a casino gambling license is a privilege, and the burden of proof to renew a

license is on the applicant. 491 I.A.C. § 5.1. At the contested case hearing Belle submitted

exhibits, but did not call any witnesses. The State called three witnesses, who were subject to

cross-examination by Belle’s counsel. Belle was given the opportunity to present exhibits, to

call witnesses, and to cross-examine witnesses. The notice of hearing contained a fair

description of the issues to be heard. Belle received a fair hearing.

Belle also argues it was not aware that the status of MRHD’s license for the Argosy

Casino would be the focus of the contested case hearing. Belle argues that it believed the issue


24

would be whether there was a valid operating agreement with MRHD, and that it received

insufficient notice that MRHD’s licensure for the Argosy would be at issue. The court rejects

this argument. At the August 15, 2013 meeting, Belle’s counsel argued that a QSO is a mere

“pass through entity,” and that the lack of a QSO was a pretext to non-renew or revoke Belle’s

license. (C.R. 572). He also acknowledged that MRHD apparently does not want to partner with

Belle as a QSO, and stated that Belle has another nonprofit group able to act as its QSO. (C.R.

573-74). This indicates Belle understood that the lack of a licensed QSO was an issue.

The notice of hearing for the contested case was issued November 27, 2013. It states that

the issue for hearing is: “Whether the Applicant’s lack of an operator’s agreement with a

qualified sponsoring organization that is presently licensed to conduct gambling games at the

Argosy Casino in Sioux City, Iowa, precludes renewal of the Applicant’s license to operate the

Argosy Casino.” (C.R. 62). This clearly sets forth the issue whether MRHD is presently

licensed to conduct gambling games at the Argosy Casino.

In December 2013, Belle moved to stay the contested case hearing until after resolution

of the pending litigation concerning the validity of the operating agreement with MRHD. (C.R.

70). Belle argued the Commission should not address the issue whether a valid operating

agreement existed between Belle and MRHD while that issue was in litigation in the courts. The

State resisted the motion on January 6, 2013, arguing that MRHD had allowed its QSO license

for the Argosy to lapse when it did not join in the December 2012 license renewal application,

that the casino could not operate without a licensed QSO, and therefore the Commission would

not need to reach the issue of the existence of an operating agreement between Belle and MRHD.

(C.R. 92). The administrative law judge denied the motion for stay on January 31, 2014. (C.R.

122). That ruling states the Commission could determine the issue whether there was a qualified


25

sponsoring organization that is presently licensed to conduct gambling games at the Argosy

Casino “without addressing the validity of the operating agreements between Belle and MRHD

or Belle and GSIA.” (C.R. 125). The ALJ reasoned that the issues concerning the operating

agreement pending in district court in the other litigation need not be addressed by the

Commission. (C.R. 124-25). Thus the reason that the issue of the operating agreement was not

litigated to the Commission was based on Belle’s argument that the Commission should not

address the matter while it was in litigation. This and several other pretrial motions made it clear

that the IRGC staff, as represented by the attorney general’s office, intended to focus on

MRHD’s license status at the contested case hearing. (See C.R. 122-24; 346).

At the contested case hearing, the State focused its case on whether MRHD was currently

licensed to conduct gambling games at the Argosy Casino. Belle argues it was denied due

process because the attorneys for the State shifted their argument away from whether there was a

valid operating agreement with MRHD, to whether MRHD was currently licensed. It is true that

the State’s attorneys focused on the licensing status of MRHD. (See State’s closing argument,

C.R. 1170). However, this is well within the issue set forth in the notice of hearing. The

attorneys for the State appear to have been trying to avoid an issue in litigation in the courts. See

Christiansen v. Iowa Bd. of Educational Examiners, 831 N.W.2d 179, 190 (Iowa 2013)

(ordinarily filing a petition for judicial review with the district court divests an agency of

jurisdiction until the court remands the case). They focused on an issue within the notice of

hearing, as did the Commission in its ruling. Belle had ample notice that this would be the

position of the State at the contested case hearing. It has not proven a violation of due process.

The Commission’s ultimate decision was that Belle’s December 2012 license renewal

application for 2013-2014 was deficient, in that no QSO joined Belle in submitting the


26

application, and that Belle is not eligible to hold a license to conduct gambling at the Argosy

casino without a licensed QSO. (C.R. 1219). Belle had fair notice and opportunity to be heard

on this issue. It has not proven a denial of due process.

For the reasons set forth above, the petition for judicial review should be denied.

II. STAY APPLICATION

Belle seeks a temporary stay of the Commission’s order. The court may grant a stay of

agency action only after considering and balancing the following factors:

1) Applicant’s likelihood of success on the merits.

2) The extent to which applicant will suffer irreparable injury if relief is not granted.

3) The extent to which granting a stay will substantially harm other parties.

4) The extent to which the public interest justifies the agency’s actions.

See Iowa Code § 17A.19(5)(c). The applicant for a stay of agency action has the burden to show

the requirements for a stay, and must present evidence of the relevant statutory factors. Grinnell

College v. Osborn, 751 N.W.2d 396, 403 (Iowa 2008).

As to the first factor, the court incorporates its ruling on the merits of the petition for

judicial review, and concludes Belle has not shown likelihood of success on the merits.

Therefore the court turns to the remaining elements of the request for temporary stay.

A. Irreparable Harm

The next factor is the extent to which Belle will suffer irreparable injury if a stay is not

granted. Iowa Code § 17A.19(5)(c). The loss of revenue, even if substantial, does not generally

amount to irreparable injury to support a stay of administrative agency action. Grinnell College

v. Osborn, 751 N.W.2d at 402. However, extreme circumstances of financial loss, even if

recoverable, can amount to irreparable injury. Id. This court previously found that Belle would


27

suffer irreparable harm if the casino were to close down. (See Polk County Case No.

CVCV009254, Ruling Following Limited Remand, p. 22-23, filed 2/24/14). This is an instance

of extreme financial loss. While Belle has sued MRHD for breach of contract in another Polk

County Case (No. LACL 126161), even if successful, its opportunity to recover damages from

the nonprofit MRHD would be limited. Moreover, the casino will be closed, which is the

ultimate in extreme financial loss. Belle has shown irreparable injury.

B. The Extent to Which a Stay will Harm Other Parties

The third factor for a stay of agency action is the extent to which a stay will harm other

parties to the action. The Iowa Racing and Gaming Commission would be affected by a stay, in

that it would have to continue to regulate the Argosy Casino, and its decision to have one

licensed casino in Woodbury County will be in a state of flux. Gambling is a highly regulated

industry. See Iowa Code Chapter 99F. The Commission has a strong interest in seeing that its

licensing decisions are followed.

MRHD will be affected. Belle has stopped paying it the statutorily require three percent

of gaming profits. In addition, MRHD’s agreement with SCE requires payment of 4.25 percent

of profits. If SCE’s profits are diminished because another casino is operating nearby, the

percentage it pays to MRHD will be lower.

SCE will be harmed because it will have a competitor, and its profits will undoubtedly be

less than if it were the only casino in Woodbury County.

This factor weighs against granting a stay.


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C. Public Interest

The court must next consider the extent to which the public interest justifies the agency’s

action. There is a public interest in requiring gambling facilities to comply with the licensing

laws. This interest would be adversely affected if a stay is entered.

Belle’s 260 employees will lose their jobs if the Argosy Casino closes. While it is

possible that many of them could be hired at the new Hard Rock Casino, which expects to hire

500 people, there will be an adverse effect on Belle’s employees. By the same token, there is a

public interest in creating the 500 new projected jobs at the Hard Rock Casino. There is also a

danger that if the Argosy remains open after the Hard Rock is finished hiring new employees, the

Argosy employees will lose out on their ability to be hired by Hard Rock.

This factor does not weigh heavily in favor of either granting or denying a stay.

Conclusion

In conclusion, the court finds that Belle has not proven likelihood of success on the

merits of this case, or that the public interest favors granting a stay. Allowing the Argosy Casino

to remain open would be prolonging the inevitable. The court is aware of the effect this ruling

will have on the Argosy Casino and its current employees and patrons. However, in balancing

all the factors for a stay, the court concludes Belle has not proven it is entitled to a stay of the

Commission’s contested case decision pending resolution of this litigation.

IT IS THEREFORE ORDERED that the petition for judicial review is dismissed, with

costs taxed to petitioner.

IT IS FURTHER ORDERED that petitioner’s application for temporary stay is denied.

However, a stay will remain in effect for seven days after this ruling to allow petitioner time to


29

seek relief from the Iowa Supreme Court. If a new stay is not granted by the Supreme Court by

July 21, 2014, the Commission’s order will go into effect as of July 22, 2014.

Dated July 14, 2014.


State of Iowa Courts

Type: OTHER ORDER

Case Number Case TitleCVCV047791 BELLE OF SIOUX CITY, L.P. V. IOWA RACING AND GAMIN

So Ordered

Electronically signed on 2014-07-14 13:23:04 page 30 of 30


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