ALJDEC

99A-23311-LOT · Arizona Lottery · 1999-08-27

STATE OF ARIZONA IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Pursuant to notice, a formal hearing was held in this case on August 27, 1999, in Phoenix, Arizona, before Neal H. Jordan, Administrative Law Judge of the Office of Administrative Hearings. APPEARANCES For Complainant: Ron Wahlers, pro se For Respondent: LaDonna Ockinga, Assistant Attorney General

FINDINGS OF FACT Based upon all the evidence of record, the following findings of fact are determined: From December, 1995 to the end of December, 1997, Ron and Laurie Wahlers (“Complainant”) operated a convenience store and gas station at 4026 South Lake Mary Road, Flagstaff, Arizona, and possessed a license issued by Respondent for the sale of lottery tickets. On April 16, 1996, Complainant sold a $1.00 “Fantasy 5” ticket to one Dennis Homan (“Homan”). This ticket proved to be a winner of $500.00 and was brought to Complainant at the convenience store for validation and payment. The evidence establishes that the ticket was validated by Complainant but not paid due to a lack of adequate cash available on the premises for that purpose.[1] Respondent regulations require that all winning prizes up to $600.00 to be presented to the “on-line retailer” for payment upon the creation of a proper validation ticket. Since payment is to be made directly by the retailer, the validation process automatically will cause a credit to be issued to the retailer’s bank account on the assumption the ticket was in fact paid by the retailer. See A.A.C. R19-3-401.K.1. When Complainant was unable or declined to honor the winning ticket purchased by Homan after validation, Homan submitted the winning and validation tickets to Respondent for payment. Respondent’s Ex. 3. Respondent made payment thereon by its check number 698650, dated May 16, 1996. Respondent’s Ex. 4. The evidence also reveals that through the validation process, Complainant’s account was credited with the value of the Homan winning ticket even though Complainant did not make any direct payment thereon, resulting in Complainant receiving an unearned credit in the amount of $500.00. See Respondent’s Ex. 2. Respondent did not pursue the collection of this unearned credit until late in 1997 or early in 1998 due to a major change-over in Respondent’s computer systems, which when completed generated the necessary information to commence the collection process with Complainant. On December 30, 1997, Complainant terminated their lease agreement for the business premises and transferred all of the business assets for a cash consideration of $40,086.39, representing payment for inventory, equipment and other items. By a check issued from an account in the name of “Lake Mary Mobil” drawn on Bank One, Complainant forwarded a payment to Respondent in the amount of $621.98 containing the restrictive endorsement of “Full and Final Payment For Retailer #023311.” Respondent inked out the word “Full and Final”, indicating it was accepting payment of this check only on account. The evidence supports a finding that there remained due on Complainant’s Account #23311 the sum of $499.99, after credits and debits have been properly taken into account. Complainant disputes that the past due amount is owed by them (or him) individually since the business was a corporation, and, further, that Respondent committed laches by failing to timely notify Complainant of this balance due before the business was transferred. An examination of all the evidence of record fails to reveal any mention of the fact that Complainant was operating as a corporation. All exhibits admitted into evidence refer only to “Lake Mary Mobil” or to Ron and Laurie Wahlers. There is not one single reference to the fact that the business was indeed a corporation. However, even if the business were incorporated, it is found that: the Bank One checking account lacks any reference to a corporate name; that the business was not established on an adequate financial basis; that the name of “Lake Mary Mobil” was presumptively a trade name owned by Win Oil Company, Inc., the lessor of the business premises, and could not be used by Complainant for a corporate name; and, that the operation of the business was not in accord with customary and acceptable corporate practices. Respondent has setoff the sum of $455.00 from the Department of Revenue as provided for under A.R.S. §42-133.

CONCLUSIONS OF LAW The Office of Administrative Hearings has jurisdiction over the subject matter and the parties hereto pursuant to A.R.S. §41-1092 - 1092.12 (1998). The Respondent bears the burden of proving by a preponderance of the evidence that the debt due and the setoff under A.R.S. §42-133 is accurate and according to law. See Culpepper v. State, 187 Ariz. 431, 930 P.2d 508 (App. 1996); Smith v. Arizona Department of Transportation, 146 Ariz. 430, 706 P.2d 756 (App. 1985), (the standard of proof is that of the “preponderance of evidence.”) By a preponderance of the evidence it is established that the sum of $499.99 is or was properly due and owing on the account in the name of Complainant. The evidence suggests that Complainant is claiming insulation from the balance due on the basis the business was a corporation and, thusly, he (or they) are not personally liable. It is axiomatic in corporate law that a corporation will be treated as a separate entity unless there exists a valid and sufficient reason to disregard the corporate form of doing business. See Colberg v. Rellinger, 160 Ariz. 42, 770 P.2d 346 (App. 1988); Standage v. Standage, 147 Ariz. 473, 711 P.2d 612 (App. 1985). However, when the facts reveal that the business is the alter ego or business conduit of the perceived owner, and an injustice would occur by observing the corporate form, then it is appropriate to pierce the corporate veil. Id. at 476. This “alter ego” standing exists when there is “such unity of interest and ownership that the separate personalities of the corporation and owners cease to exist.” Id. at 476, citing Deitel v. Day, 16 Ariz. App. 206, 208, 492 P2d. 455 (1972). In this case there is clearly a unity of interest such that if there is a corporation intended for the operation of the business, that corporation became the alter ego of Complainant individually. Complainant has presented no evidence that would even suggest a contrary conclusion. A.R.S. §42-133.A provides, in part, that “[T]he department ( of revenue) shall establish a liability setoff program by which refunds under sections 42-129, 43-1072 and 43-1073 may be used to satisfy debts which the taxpayer owes this state or a court. Respondent has initiated a setoff of the debt found to be properly due and owing by Complainant against money available from the Department of Revenue for the account of Complainant. Such a setoff is proper and valid as against the Complainant individually.

RECOMMENDED ORDER In view of the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the complaint be dismissed, and that the balance due the Arizona Lottery in the amount of $499.99 determined to be the personal liability of Complainant and the setoff under A.R.S. §42-133 be affirmed. DONE AND ENTERED this day, August 27, 1999

______________________________________ Neal H. Jordan Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 1999, to:

Arizona Lottery Geoffrey Gonsher 4740 East University Drive Phoenix, Arizona 85034

ATTN: Laura Plimpton

By ___________________________

----------------------- [1] Validation is a process by which the ticket is inserted into the computer terminal and matched against winning numbers, which, in the case of a winner, will generate a validation ticket indicating the winning amount for payment.

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Office of Administrative Hearings 1700 West Washington, Suite 602 Phoenix, Arizona 85007 (602) 542-9826