ALJDEC decisions subject to certification as final

14A-020-RAC · Department of Racing · 2015-06-17

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING DATES: September 8, 2014, at 8:00 a.m.; September 9, 2014, at 8:00 a.m.; September 10, 2014, at 8:00 a.m.; January 21, 2015, at 9:00 a.m.; January 22, 2015, at 9:00 a.m.; January 23, 2015, at 9:00 a.m.; January 26, 2015, at 1:00 p.m.; January 27, 2015, at 9:00 a.m.; January 28, 2015, at 9:00 a.m.; January 29, 2015, at 9:00 a.m.; January 30, 2015, at 9:00 a.m.; March 4, 2015, at 9:00 a.m.; March 5, 2015, at 9:00 a.m.; March 10, 2015, at 9:00 a.m.; March 11, 2015, at 9:00 a.m.; April 16, 2015, at 10:00 a.m.; April 17, 2015, at 9:00 a.m.; April 20, 2015, at 1:00 p.m.; April 21, 2015, at 9:00 a.m.; and April 22, 2015, at 9:00 a.m.; the record was held open until June 1, 2015, to allow the parties to submit written closing memoranda. APPEARANCES: Ronald Alvin Simms (hereinafter “Appellant” or “Mr. Simms”) was represented by Marshall B. Grossman, Esq., Stacy W. Harrison, Esq., and Nathan Novak, Esq., Orrick, Herrington & Sutcliffe LLP (Los Angeles), each one admitted pro hac vice, and Kip M. Micuda, Esq., The Law Offices of Kip M. Micuda. From September 8, 2014, through March 11, 2015, the Arizona Department of Racing (hereinafter “ADOR”) was represented by Mary DeLaat Williams, Esq. and Stephanie Elliott, Esq., Assistant Attorneys General, until this Tribunal granted the request for recusal by the Office of the Attorney General. After March 11, 2015, ADOR was represented by Joseph Kanefield, Esq., John G. Kerkorian, Esq., Brunn W. Roysden, III, Esq., and William H. Knight, Esq., Ballard Spahr LLP. ADMINISTRATIVE LAW JUDGE: M. Douglas _____________________________________________________________________

Evidence and testimony were presented, and the following Findings of Fact, Conclusions of Law and Recommended Order are made: FINDINGS OF FACT Procedure On or about November 20, 2013, Appellant applied to ADOR for an owner’s license.[1] On December 6, 2013, ADOR denied Appellant’s license application pursuant to A.R.S. § 5-108, et seq. on the basis that Mr. Simms had failed to show the qualifications necessary to receive an owner’s license. Specifically, ADOR denied the application because it concluded Mr. Simms had committed certain disqualifying acts, to wit: a. violated the racing laws of this state or of another state or the regulations of the Arizona Racing Commission (“Commission”) when previously licensed or granted a permit as prohibited by A.R.S. § 5-108(A)(1)(c);

b. willfully violated provisions of A.R.S., Title 5, Chapter 1 (Horse and Dog Racing) or the rules and regulations of the commission as prohibited by A.R.S. § 5-108(A)(1)(g);

c. should not, in the best interest of the safety, welfare, economy, health and peace of the people of the state, be granted a license or permit as prohibited by A.R.S. § 5-108(A)(1)(h);

d. entered into a contract or contracts that would not further the interest of racing or be in the public interest as prohibited by A.R.S. § 5-108(A)(1)(i);

e. failed to inform ADOR on or before May 15 of each year in writing of any material change, occurring during the immediately preceding year of the license or permit term, in the information supplied by the applicant in the application, for a license or permit as prohibited by A.R.S. § 5-108(A)(1)(j);

f. made a knowingly false statement of material fact to ADOR as prohibited by A.R.S. § 5-108(A)(3);

g. failed to meet a monetary obligation in connection with any racing meeting held in this state as prohibited by A.R.S. § 5-108(A)(4);

h. failed to comply with all of the rules and orders of the Commission or ADOR as required by A.R.S. § 5-107.01(C);

i. obstructed an ADOR representative from performing its duties as prohibited by A.A.C. R19-2-104(E); and,

j. is not of good repute and moral character as required by A.R.S. § 5-108(A)(1)(b).[2]

Appellant disagreed with the license denial and filed a timely request an administrative hearing on the Department’s denial of his license application. Background Mr. Simms is a licensed attorney and certified public accountant and has ownership interests in approximately 90 different entities. Mr. Simms employs a full-time CPA and house attorney to manage his various business assets, as well as various non-house attorneys and CPAs for business and legal matters outside of the normal course of business. Mr. Simms has no felony convictions, no misdemeanor convictions, and has not been the subject of any known criminal investigations. Mr. Simms disagreed with ADOR’s decision to deny his new license application and requested an administrative hearing. At the hearing, this Tribunal heard the live testimony of Geoffrey Gonsher, Elizabeth Monty, Joyce Cozby, Nolan Thompson, Andrew Kane, R. Simms, Paul Lindvay, and E. Jeffrey “Jeff” Walsh. This Tribunal also received the portions of the deposition testimony of former ADOR director Walsh, Gerald “Buzz” Alston, Brenda Brant, Marian Patricia Chakour, Emily Einhorn, Barney R. Fozzard, and John Prenzno. Appellant produced 401 Exhibits.[3] ADOR produced 76 Exhibits.[4] At all times relevant to this matter, Mr. Simms, individually and through various entities, owned more than 10% of TP Racing, L.L.P. (hereinafter “TP”), a limited liability limited partnership permitted by ADOR to host horse races at the Turf Paradise Race Course (hereinafter “Turf Paradise”) in Phoenix, Arizona. TP is an Arizona limited liability partnership that owns and operates Turf Paradise. TP has held a valid ADOR horse racing permit since it purchased the race track in 2000, and ADOR granted TP’s triennial permit renewal applications in 2003, 2006, 2009, and 2012, prior to the permit’s expiration under A.R.S. § 5-108(D).[5] The two primary partners of TP from the time the partnership was formed through at least the date of the Notice of Denial are Mr. Simms and his brother, Jerry Simms (hereinafter “J. Simms”).[6] Mr. Simms is a passive partner with respect to TP. J. Simms is the approximately 55 percent owner of TP Racing and the Manager of J&R Racing LLC.[7] J&R Racing LLC has been the designated general partner of TP Racing from the time the partnership was formed through at least the date of the Notice of Denial.[8] ADOR issued Mr. Simms an individual racing license in 2000, and granted Applicant’s triennial license renewal applications prior to the license’s expiration in 2003, 2006, and 2009. Ownership of the Bruin Corporation During the year 2000, the Bruin Corporation (hereinafter “Bruin”) purchased a parcel of real property that contained a portion of the race track oval for races at Turf Paradise. During the initial application and renewal investigations of TP, ADOR became concerned with Bruin’s relationship to TP and with Bruin’s control of a portion of the race track oval. Mr. Simms has owned Bruin since sometime in June 2000. Prior to June 2000, Bruin was owned by Mr. Simms’ wife or members of her family. There was no dispute that from June 2000 through 2006, Mr. Simms incorrectly represented to ADOR that Bruin was still owned in whole or in part by his wife. In 2003, ADOR considered whether Bruin, as the then-owner of land containing part of the race track oval, should be required to have a racing license. Even though ADOR at that time understood that Bruin was owned by a non-licensee (Mr. Simms’s wife), it did not require that Bruin or Mr. Simms’ wife be licensed. The issue of licensing Bruin or Mr. Simms’ wife became moot in 2003, when ADOR requested and Bruin agreed to and did transfer its land essential to racing, including the part of race track oval, to TP in exchange for land not essential to TP (a nearby trailer park). Bruin did so through a 1031 exchange. Since the time when the land that was essential to racing was transferred to TP in 2003, Bruin has not owned any land essential to TP Racing and there was no further concern over the ownership of Bruin until the denial of Mr. Simms’ license application.

Mr. Simms testified that his incorrect representation was the product of mistake or error by himself and third parties (his employees or attorneys) who prepared forms for filing with government agencies. In answering questions about Bruin’s ownership in his 2003 management interview by ADOR, Mr. Simms testified that he was thinking of the ownership of Bruin from a family standpoint (since his wife, Victoria Simms, had originally inherited Bruin from her family), not a legal one. Mr. Simms identified himself as the owner of Bruin since at least 2006, in his 2006 and 2009 (and 2012) ADOR interviews in connection with the permitting of TP Racing. Even after having been informed of Mr. Simms’ prior incorrect attribution of Bruin ownership to his wife and the corrections made in 2006 and thereafter, ADOR raised no concern about the ownership of Bruin until the denial of Mr. Simms’ racing license. Mr. Simms’ testimony regarding his incorrect representation from 2000 through 2006 that his wife was the owner of Bruin was the product of mistake or error by himself and third parties who prepared forms for filing with government agencies is found to be credible. Mr. Simms’ incorrect representation from 2000 through 2006 that his wife was the owner of Bruin is not found to be a knowingly false statement of material fact. The Promissory Notes There has been and now is civil litigation pending in Maricopa County Superior Court in which TP Racing, Mr. Simms, J. Simms, and others are parties. The evidence of record established that the primary issue in the civil litigation pertains to promissory notes signed, respectively, by Mr. Simms and J. Simms in favor of TP Racing. In the civil litigation, Mr. Simms contends that his promissory notes can be satisfied by either payment in cash or by the transfer of Bruin land. Lawrence Field, CPA (hereinafter “Mr. Field”) was one of two investigators employed by ADOR to conduct a licensing investigation into TP. A November 4, 2003, letter from Mr. Field provided, in relevant part, as follows:[9] As a result of the meetings held between ADOR and TP representatives, TP has represented that it is in the process of accepting the land owned by J. Simms Enterprises in exchange for a $14,065,000 note owed to TP Racing by Jerry Simms. Additionally, TP Racing is in the process of trading certain real estate, which is non-essential to its horse racing operations, for real estate held by Bruin Corporation, which is essential to those operations. These transactions, when completed, will result in TPR holding title to all of the real estate essential to the horse racing operations.

Mr. Simms asserted that ADOR was fully informed of the agreement between Mr. Simms and J. Simms that their respective promissory notes could be paid in cash or by the transfer of land. Mr. Simms stated that ADOR participated in the discussion leading to that agreement. Mr. Simms testified as follows: Q. Now, Mr. Simms, before the break, you were testifying about a meeting in September of 2000 with representatives from ADOR. And I believe you testified that they had concern about the capitalization of your and Jerry's limited partnership interests in TP Racing. What did these representatives tell you in this meeting about their concerns regarding TP Racing's capitalization?

A. What they basically provided and said to us was that there wasn't any contribution that had been made for the equity that we claimed in Turf Paradise. In fact, they were correct.

Q. And what did they want you and Jerry to do to remedy that situation?

A. They wanted us to transfer the fee ownership of our respective land. The J. Simms Enterprises land, and the Bruin land, they wanted that fee title transferred to Turf Paradise –

Q. And they wanted –

A. -- in exchange for the -- for the equity. So it would be a debit to land and a credit to capital.

Q. And when you're referring to the credit to capital, you're referring to your partnership interests?

A. I'm referring to the fact that the capital -- yes, our partnership interest in TP Racing, L.L.P.

Q. And what did you and Jerry tell the ADOR representatives in response to their request?

A. They were notified actually by -- by John Mangum, who was working with tax counsel, that we were just not able to do that because of the concerns that we talked about before lunch in terms of the 1031 exchange issues. So that we were just not able to do that, based on the advice of our joint tax counsel.

Q. And what did the ADOR representatives tell you in response to Mr. Mangum's statement that you and Jerry would not or could not deed your respective entities' land to TP Racing at that time?

A. They understood. And that's why they came up with an alternative.

Q. And what alternative did the ADOR representatives come up with?

A. What they suggested was that we prepare actually have prepared a note payable, so that by creating a note payable, they would be pleased and satisfied because on the books of Turf Paradise, there would be a receivable as a debit on the books of Turf, and a credit to capital. And they wanted the -- the note to be equal to the purchase price of the land. So for J. Simms Enterprises, Jerry's -- the debit for Jerry would be on a debit to a note receivable on the books of Turf Paradise for the 14 million 065 and a credit to capital. By doing that, Jerry, for the first time, would be entitled to his ownership interest of about 50 percent. Likewise, there would be a debit to a note receivable from my entity. And there would be a credit to capital. So in both cases, they would have created something which would satisfy their need for the capital.

Q. So let's explore this a bit. The ADOR representatives requested there be two different promissory notes?

A. Identical in terms, other than the amount.

Q. And one would be where Jerry would be the maker on the promissory note for his individual partnership -- limited partnership interest?

A. That is correct.

Q. And that note would be in the value or the amount of the J. Simms Enterprises land?

A. That's correct. He had paid 14 million 065 for the land that -- that was owned by J. Simms Enterprises. And the note would be for the identical amount.

Q. And for you, there -- the ADOR representatives suggested that there would be a note where you would be the maker, you personally would be the maker, in exchange for your limited partnership interest?

A. That is correct.

Q. And the amount of that note would be what?

A. $4,635,000, which was the purchase price of the Bruin land.

Q. And ADOR wanted the notes to be in the same amount as the purchase price of the land? Is that right?

A. That's correct.

Q. Did ADOR insist at that time then that you and Jerry deed your land to TP Racing?

A. The answer is no. They preferred it. But they were quite satisfied to have the notes.

Q. And –

A. Because all they wanted was the debits and the credits on the books of Turf Paradise.[10]

Mr. Simms testified that during this meeting, he and his attorney at the time discussed with the ADOR representatives that the makers of the promissory notes could elect to pay their respective promissory notes with cash or by the transfer of their respective entities’ land to TP. Mr. Simms’ testimony regarding the conversation with ADOR representatives in 2000 is found to be credible. Consequently, ADOR did have notice of the issue that Mr. Simms believed that the makers of the promissory notes could elect to pay their respective promissory notes with cash or by the transfer of their respective entities’ land to TP in 2000. The determination as to whether Mr. Simms’ promissory note can actually be paid off by utilizing the Bruin land instead of cash will be decided by the Superior Court in the ongoing civil litigation. Provision of Financial Statements

Mr. Simms submitted to financial investigations in connection with his initial application for an owner’s license in 2000 and his renewal applications in 2003, 2006, and 2009. Veriti Consulting LLC (hereinafter “Veriti”) was engaged by ADOR to determine the financial solvency of TP and its principals in connection with TP’s 2012 application for the renewal of its racing permit.[11] On or about November 18, 2013, Veriti issued its report on the TP application showing the positive results of its determination that TP and its principals, Mr. Simms and J. Simms, had the requisite financial solvency required in order to renew TP’s racing license. In assessing Mr. Simms’ financial position during the renewal of TP’s racing license, Veriti originally requested that Mr. Simms provide a physical copy of his CPA-reviewed financial statements for the time period ending September 30, 2012, to Veriti for its inspection. In view of a past kidnapping threat against his family, Mr. Simms requested an alternative means of providing the information contained in his CPA- reviewed financial statements. Veriti and the previous director for ADOR, former Director William Walsh (hereinafter “W. Walsh”), agreed that Mr. Simms could provide his CPA- reviewed personal financial statements for Veriti’s inspection and hand copying at an in-person meeting and without the need to provide them a physical copy for Veriti’s retention and placement in public records. The requested CPA-reviewed financial statements were presented and reviewed at a meeting held on April 3, 2013. It was attended by Mr. Simms, his financial advisor, Andrew Kane, CPA (“Mr. Kane”), and representatives from Veriti. At that meeting, Mr. Simms complied with Veriti’s request for CPA- reviewed personal financial statements. Mr. Kane, who is also the chief operating officer and chief financial officer for the Simms-Mann family, testified as follows: Well, let's call up Exhibit 93-TX404. Let's blow up that bottom e- mail, please. This is an e-mail from you, Mr. Kane, dated February 22nd, to J.W. at Veriti Consulting. Do you know who that is?

A. John White.

Q. Okay. And copying others, including former Director Walsh, Ms. Cozby, and Mr. Simms. And you wrote, "As previously explained, the last time financials were released, the Simms family experienced kidnapping and ransom matters, which necessitated kidnap and ransom insurance, as well as armed guards." Now, was this your understanding when you e-mailed this to Mr. White?

A. That's correct.

Q. Had you spoken to Mr. White previously or after this e-mail about this concern?

A. I recall I did have a conversation with him.

Q. Do you recall generally what you told him?

A. My recollection is that I had said to him that Mr. Simms had expressed a deep concern that he had had a prior experience of releasing his financial statements that had resulted in a kidnapping and ransom demand. And he was very, very concerned and adamant that he didn't want to have the same situation re-occur.

Q. When you refer to the previous time Mr. Simms released the financial statements, released them to whom?

A. I believe it was to [ADOR].

Q. And in furtherance of these concerns, what actions did you take when you spoke to Veriti?

A. I discussed with John White if there was an alternate way that we could satisfy their needs that would not require leaving behind a copy of very confidential financial information.

Q. Did you feel you had a good working relationship with Veriti?

A. I thought I had a very constructive and professional working relationship with both John White and Ms. Monty.

Q. Did you ever form an understanding as to why Veriti needed to review [Mr. Simms’] financial information?

A. My understanding was that as part of their renewal of the Turf Paradise permit, they were seeking to establish the financial stability of the key owners of Turf Paradise.

Q. And as you understood that, who were those key owners?

A. [Mr.] Simms and [J.] Simms.

Q. Can I see Exhibit 89-TX394, please? The second e-mail down is an e-mail from Ms. Monty to former Director Walsh and Mr. White, copying counsel, Ms. Williams. Ms. Monty writes, "that she believes it is critical to receive" his, meaning [Mr. Simms’], "tax returns and CPA 'reviewed' financial statements to ensure his financial stability." I want to focus on that last language "to ensure his financial stability." Does that comport with your understanding of what Veriti was doing its investigation for?

A. Yes.

Q. Did you and Veriti agree on a procedure for Veriti to review [Mr. Simms’] financial statements?

A. We did.

Q. Exhibit 114-TX426, please. The bottom e-mail again. This is an e-mail sent by [Mr. Simms] on March 21st, 2013, to Ms. Joyce Cozby, copying others. Mr. Simms writes, "My understanding is that I would show supporting real estate valuations along with my completed financial statements, to Mr. White and Ms. Monty of Veriti when I meet with them, which has now been arranged for 2:00 p.m. on April 3rd. "I plan to meet with them, show them the CPA- reviewed personal financial statements as of September 30th, 2012. I will provide access to the real estate valuations, brokers letters, et cetera, that support the values while at that meeting." Was it your understanding that this was the procedure that Veriti accepted and agreed to?

A. It is.

Q. And you see in the top paragraph, this e-mail is referring to a meeting of April 3rd, 2013. Do you see that?

A. I do.

Q. Were you present at that meeting?

A. I was.

Q. Was [Mr. Simms]?

A. He was.

Q. Who attended from Veriti?

A. John White and Ms. Monty.

Q. And at the April 3rd meeting, did Veriti have the opportunity to review [Mr. Simms’] CPA-reviewed financial statements?

THE WITNESS: Can you repeat the question, please?

Q. Sure. At the April 3rd, 2013 meeting, did Veriti have the opportunity to review Mr. Simms' CPA-reviewed financial statements?

A. They did.

Q. At the same meeting, did Veriti have the opportunity to review the real estate valuations they requested?

A. I had sent them to Veriti before the meeting.

Q. Exhibit 113-TX424. This is a letter to Mr. Simms dated November 28th, 2012. The signature block, I believe, is Ms. Cozby? Have you seen -- strike that. Do you recall seeing this during your work with Veriti, Mr. Kane?

A. Yes.

Q. I want to focus on -- it's the first paragraph. It's not the portion that's highlighted. The very first sentence says, "This request for submission supersedes the request of November 13th, 2012." Do you see that language, Mr. Kane?

A. I do.

Q. Did you have an understanding that this request superseded previous requests for information?

A. I do. Or I did.

Q. Let's look at paragraph one now where it says that "ADOR wants an independent CPA firm to provide reviewed' -- that's in quotes and bold --"personal financial statement as of September 30th, 2012." Now, do you recall Veriti wanted this information?

A. I do.

Q. Is this what was presented to Veriti?

A. It is.

Q. Now, we see the information CPA-reviewed -- reviewed a couple times now. Can you explain what that is?

A. I can. Under the American Institute of Certified Public Accountants, wherein a licensed CPA is asked to provide an opinion, there are various levels of opinions. One can be a simple compilation, which is just the accumulation of financial information. And at the other extreme could be a full audit, which requires a very intense amount of work. In between, there is terminology called a review, which is a fairly-accepted document, and it requires an opinion of expression from a CPA firm. And it provides an opinion of expression based upon a known quantity of work that they do that stands behind those financial statements they issue.

Q. What work do they do to look into what stands behind the financial statements? Briefly.

A. Well, in addition to presenting the financial information in a format in accordance with the American Institute of Certified Public Accountants, they have to go behind all of the source information from third parties to collaborate the information, so that the work is one of sustaining the values, tying the values back to the underlying support, making sure there are appropriate footnotes and disclosures, and presenting a fair value review, based upon the work that's been conducted by the CPA firm.

Q. Did an independent CPA firm review the financial statement that you submitted to Veriti for review and analysis on April 3rd, 2013?

A. They did.

Q. And did Veriti, in fact, review those financial statements at that meeting?

A. They did.[12]

In an April 3, 2013 text message, Ms. Cozby confirmed Mr. Simms’ cooperation and compliance with the parties’ agreement: “Veriti got what they asked for. They will retain in notes.”[13] September 11, 2013 Interview with Veriti The interview that Veriti conducted on behalf of ADOR on September 11, 2013, concerned Mr. Simms’ financial solvency in connection with TP Racing’s permit renewal application, not Mr. Simms’s personal application for a racing license or Mr. Simms’ fitness for licensure. The questions that Mr. Simms did not answer during the September 11, 2013 interview with Veriti were deemed to be inappropriate questions by Mr. Simms’ legal counsel at the time, Jeffrey R. Walsh (hereinafter “J. Walsh”). Former Director W. Walsh had informed J. Walsh that he did not want to interject ADOR into the issues in the ongoing civil litigation involving Mr. Simms and J. Simms. Prior to the interview, J. Walsh informed W. Walsh that if any relevant questions about the civil litigation were asked, J. Walsh would respond to them rather than Mr. Simms. J. Walsh testified as follows: On September 11th, 2013, did you represent [Mr. Simms] at his interview with Veriti?

A. Yes, I did.

Q. And what did you understand the purpose of this interview was?

A. There were always interviews that went with the financial reviews that I could see going back in the file. They had told us there would be an interview. ADOR had said "always required." So that's what I understood is they would ask whatever questions about the finances and, you know, I guess the operations to the extent that [Mr. Simms] knew anything about it of TP Racing.

Q. Did you understand the interview had anything to do with [Mr. Simms] Racing license?

A. I understood that it was not part of [Mr. Simms’] Racing license; that it was part of the permit renewal process.

Q. Did anyone ever tell you that Veriti's interview was for any other purpose than Veriti's financial investigation in connection with the TP Racing permit renewal?

A. No one ever said it was for any other purpose.

Q. During this interview on September 11th, 2013, did Veriti ask [Mr. Simms] some questions about the ownership of Bruin Corporation?

A. Yes. Either Liz or John did ask some questions.

Q. And did you send a letter to Veriti after the interview to follow up on their questions regarding the ownership of Bruin?

A. Yes, I did.

Q. I'd like to show Exhibit 71-TX262. And this is a letter dated September 18th, 2013 to John White and Elizabeth Monty of Veriti. Is this a letter from you?

A. That's the letter that you just referred to a minute ago where I talked about the ownership of Bruin.

Q. Did Veriti ever respond to this letter?

A. Not to me or anybody in my firm.[14]

Internal Revenue Service Mr. Simms testified that he filed a report with the Internal Revenue Service (hereinafter “IRS”) for the Internal Revenue Code 1031 land exchange (hereinafter “1031 Exchange”).[15] Mr. Simms relied on a tax attorney for the 1031 land exchange. The tax attorney advised him that the 1031 Exchange met the requirements of controlling law and was legal in 2000.[16] The Internal Revenue Service has never challenged the 1031 Exchange. Investigation for Licensure On November 18, 2013, Veriti issued its report on the TP application showing the positive results of its determination that TP and its principals, Mr. Simms and J. Simms, had the requisite financial solvency required of permittees and licensees. In or about November 2013, Mr. Simms filed the license application at issue. Nolan Thompson (hereinafter “Mr. Thompson”) is the Assistant Director of Enforcement and Operations for ADOR. At the time of Mr. Simms’ license application, Mr. Thompson was normally in charge of processing and investigating whether or not a racing license should be issued. With regard to the Simms license application, Former Director W. Walsh instructed Mr. Thompson that he would handle Mr. Simms’ license application personally. Former Direcctor W. Walsh signed the Notice of Denial issued in this matter. Mr. Thompson was unaware of any investigation having been conducted regarding Mr. Simms’ license application. The Veriti report did not address any investigation of Mr. Simms’ fitness for licensure or his application for an owner’s personal racing license. Former Director W. Walsh testified that Veriti performed a second investigation for Mr. Simms’ license application and that he relied upon the information in the second Veriti investigation in making his determination to deny Mr. Simms’ application for licensure. The Veriti report was the only report Veriti prepared for TP. Ms. Monti testified that she was not aware of a second or supplemental report prepared by Veriti for Former Director W. Walsh regarding Mr. Simms’ application for licensure. Ms. Monti testified that she received thousands of documents from J. Simms and his attorney through a file sharing website known as Box.com regarding the ongoing civil litigation between Mr. Simms and R. Simms. The documents provided to Veriti by J. Simms and his attorney were then given to Former Director W. Walsh Veriti did not inform Mr. Simms or his attorney that Former Director W. Walsh had asked Veriti to look into issues related to the civil litigation between Mr. Simms and J. Simms separate and apart from the financial stability of TP. Ms. Monty testified as follows: In any event, did you ever inform [Attorney J. Walsh] or [Mr. Simms] that ADOR had asked you to look into issues related to the litigation?

A. That's –

Q. Did you ever tell them that?

A. That would not be my role to do so.

Q. Whose role would that have been?

A. I do not know.[17]

Ms. Monty further testified as follows: Q. When you received these very pointed communications, for example, accusing [Mr. Simms] of committing a felony or of being a threat to racing, did you take care to make sure that those types of communications were put in the drop box location so [Mr. Simms] and his lawyer could see them?

A. That -- we did not have the responsibility of putting things into box.com. That was set up for the attorneys to provide us information.

Q. So you don't know whether Mr. Manning or [J. Simms] ever put them where Ron and his lawyer could access them; do you?

A. That's correct.[18]

Mr. Simms’ attorney, J. Walsh, testified that he believed that only J. Simms and TP could upload to Box.com documents specifically requested by Veriti from the civil litigation because of a court order in the civil case. J. Walsh testified as follows: Did your law firm upload the documents requested in Ms. Monty's September 21st, 2012 e-mail to Box.com?

A. No, the Court's order said that TP Racing and [J. Simms] were going to do that. And that was the prearrangement anyway.[19]

Ex Parte Influence On or about June 14, 2012, J. Simms wrote ADOR accusing Mr. Simms of possible fraud, perjury, and tax fraud.[20] Notice of the accusations against Mr. Simms were not provided to Mr. Simms until after the denial of his license application. On or about September 18, 2013, J. Simms’ attorney delivered to Former Director W. Walsh and Ms. Cozby ten binders of material adverse to Mr. Simms. Ms. Cozby stated that the ten binders filled a banker’s box. Until the hearing, neither Mr. Simms nor his attorney knew about the existence of these ten binders or that they had been sent to ADOR or Veriti. Mr. Simms’ attorney, J. Walsh, testified as follows: Well, there's an assumption in your question. I didn't have any knowledge that [J. Simms] was giving any information about [Mr. Simms]. If the objective was to get the permit, and the two brothers were partners in the permit, it seemed to us the last thing you wanted to do was have ADOR dealing with, you know, issues between [Mr. Simms] and [J. Simms]. You want a united front in terms of we can run the business, it's adequately financed, it's being operated in accordance with the law, things like that. I had absolutely no idea that I was supposed to, at that or any other time, present some sort of a defense on [Mr. Simms’] behalf to anything [J. Simms] was saying, which we were not being told that he was saying anything anyway.[21]

In early November 2013, J. Simms’ attorney contacted Former Director W. Walsh directly and encouraged W. Walsh to revoke Mr. Simms’ racing license. W. Walsh had a draft notice of hearing and revocation of Mr. Simms’ individual racing license on November 15, 2013.[22] Before the draft notice could be finalized, Former Director W. Walsh discovered that Mr. Simms’ individual racing license had expired. On November 18, 2013, Former Director W. Walsh notified J. Simms and the attorney for TP that Mr. Simms did not hold a current racing license.[23] Former Director W. Walsh did not disclose that he had previously prepared a draft notice of hearing and revocation of Mr. Simms’ expired racing license. On December 1, 2013, W. Walsh emailed a draft Notice of Denial of Mr. Simms’ individual racing license to J. Simms’ attorney for his review and comment. W. Walsh asked J. Simms’ attorney to review the document and to “keep them to yourself.”[24] In response, J. Simms’ attorney emailed W. Walsh, “Bill: You did a terrific job…. I think you did an A+ job in your presentation. The two documents nails it. Please call if you have other questions.”[25] On December 2, 2013, J. Simms’ attorney sent another email directly to Former Director W. Walsh requesting changes to the Notice of Denial. In the same email, J. Simms’ attorney requested that W. Walsh issue the revised Notice of Denial in time for J. Simms to use in court at a hearing in the civil litigation between Mr. Simms and J. Simms.[26] During the week leading to December 6, 2013, Former Director W. Walsh and J. Simms’ attorney collaborated in drafting the Notice of Denial of Mr. Simms’ license application. Their ex parte communications and the documents prepared and exchanged were intended to be kept to themselves.[27] CONCLUSIONS OF LAW 1. Under A.R.S. § 41-1092.07, in a hearing on a denial of a permit or a license, the burden of proof is on the Applicant.[28] Mr. Simms bears the burden of proof in this appeal and must establish that he is qualified to be licensed by the Department by a preponderance of the evidence.[29] 1. A preponderance of the evidence is “evidence which is of greater weight or more convincing than evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.”[30] 2. Mr. Simms established that he did not violate the racing laws of this state or of another state or the regulations of the Arizona Racing Commission (“Commission”) when he was previously licensed or granted a permit. 3. Mr. Simms established that he did not make a knowingly false statement of material fact to ADOR, as prohibited by A.R.S. § 5-108(A)(3). 4. Mr. Simms established that he had not failed to meet a monetary obligation in connection with any racing meeting held in this state, as prohibited by A.R.S. § 5-108(A)(4). 5. Mr. Simms established that he had not entered into a contract or contracts that would not further the interest of racing or be in the public interest, as prohibited by A.R.S. § 5-108(A)(1)(i). 6. Mr. Simms established that he had not failed to inform ADOR on or before May 15 of each year in writing of any material change that had occurred during the immediately preceding year of the license or permit term, in the information supplied by the him in the application for a license or permit, as prohibited by A.R.S. § 5-108(A)(1)(j). 7. The issue of what constitutes good repute and moral character or a lack thereof is nebulous at best. A review of cases does not provide a ready or facile definition. As stated by Justice Frankfurter in his concurring opinion in Schware v. Board of Bar Examiners of the State of New Mexico, 533 U. S. 234, 248, 77 S. Ct. 752, 761 (1957): No doubt satisfaction of the requirement of moral character involves an exercise of delicate judgment on the part of those who reach a conclusion, having heard and seen the applicant . . . , a judgment of which it may be said as it was of "many honest and sensible judgments" in a different context that it expresses "an intuition of experience which outruns analysis and sums up many unnamed and tangled impressions; impressions which may lie beneath consciousness without losing their worth." . . .

8. The above tends to support an ad hoc decision-making process. Absent specific standards, there is little to give clear direction to an applicant as to what he must do to satisfy his burden to establish his good character. A.R.S. § 5-108, et seq., is permissive.[31] ADOR is given discretion to deny a license if the applicant has been shown not to be a person of good repute and moral character. Absent specific rules, discretion as used in the statute means an exercise of sound judgment based on the application of reason and generally accepted principles of what current conduct constitutes good character, or lack thereof, as applied to the facts presented in the case. Good repute and moral character is not amenable to being described with mathematical precision, and in the absence of such precision or clearly defined standards, good repute and moral character, or the lack thereof, must be decided on a case-by-case basis. 9. After full review, this Tribunal concludes that the preponderance of the evidence presented at hearing established that Mr. Simms is qualified to be licensed by ADOR and that he has sufficient good repute and moral character to satisfy the statutory requirement for a license. Recommended Order It is recommended that the determination of the Arizona Department of Racing to refuse to issue a license to Applicant to participate in or be employed at any horse or greyhound race track licensed to operate in the State of Arizona be reversed and that Ronald Alvin Simms’ application for an owner’s license be granted. In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order will be five days from the date of that certification. Done this day, June 17, 2015.

/s/ M. Douglas Administrative Law Judge

Transmitted electronically to:

Rudy Casillas, Acting Director Department of Racing

----------------------- [1] See Simms Ex. 230-TX0541. [2] See generally [ADOR Ex. 001-A (“Notice of Denial”)]. [3] See Appellant’s Fourth Amended Exhibit List. [4] See ADOR’s Third Supplemental Exhibit List. [5] See Exh. 11-TX 18; HT 1740:2-12 [6] See Ex. 11-TX 18 and Ex. 244-TX 556. [7] See Exh. 10-TX 017 § 5. [8] See Ex. 10-TX 17. [9] See Ex. 43-TX192. [10] See Hearing Transcript for January 28, 2015, pages 1878, ll 6-25, 1879, ll 1-25, 1880, ll 1-25, 1881, ll 1-25, 1882, ll 1-3. [11] Veriti Consulting LLC is a forensic accounting firm. [12] See Hearing Transcript for 1/26/15 page 1306, ll 14-25, through page 1313, ll 1-14. [13] See Exhibit. 214-TX 514 and Exhibit 260-TX 572 [14] See Hearing Transcript for March 5, 2015, at page 2764, ll 1-25, and page 2765, ll 1-17. [15] See Exhibit 144-TX445. [16] See Exhibit 109-TX419. [17] See Hearing Transcript for September 9, 2014, at page 306, l 25, page 307 ll 1-7. [18] See Hearing Transcript for September 9, 2014, at page 321, ll 2-14. [19] See Hearing Transcript for March 5, 2015, at page 2737, ll 12-17. [20] See Exhibit 143-TX 444. [21] See Hearing Transcript for March 5, 2015, at page 2729, l-25, and page 2730, ll 1-14. [22] See Exhibit 49-TX 230. [23] See Exhibit 390-TX 699, [24] See Exhibit 227-TX 538. [25] See Exhibit 227-TX 538. [26] See Exhibit 53-T 240. [27] See Exhibit 227-TX 538. [28] A.R.S. § 41.1092.07 provides, in relevant part, as follows: G. Except as otherwise provided by law: 1. At a hearing on an agency's denial of a license or permit or a denial of an application or request for modification of a license or permit, the applicant has the burden of persuasion.

[29] See A.R.S. §41-1092.07(6); A.A.C. R2-19-119(a) and (B)(1). [30] See BLACK’S LAW DICTIONARY at page 1064 (6th ed. 1990). [31] A.R.S. § 5-108 provides, in relevant part, as follows: A. The department shall conduct a thorough investigation concerning the application for a permit or a license and: 1. The department may refuse to issue or renew a license or the commission may refuse to approve or renew a permit for any applicant if there is substantial evidence to find that the applicant: (b) Is not of good repute and moral character. (c) Has, when previously licensed or granted a permit, violated the racing laws of this state or of any other state or the regulations of the commission. (e) If an individual, has been convicted of a felony or any crime involving moral turpitude. (g) Has wilfully violated any provision of this chapter or any of the rules and regulations of the commission. (h) Should not, in the best interest of the safety, welfare, economy, health and peace of the people of the state, be granted a license or permit.

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