The Commonwealth Court has refused to grant a refund of the $100,000 Peter DePaul paid to the state under a consent agreement after he was accused of violating the ban on political contributions by gaming licensees, despite the fact that the state Supreme Court has since deemed the ban unconstitutional.
The en banc court unanimously ruled in an unreported opinion to uphold an order of the state Board of Finance and Revenue denying DePaul’s request for a refund on the grounds that it lacked jurisdiction.
Writing for the court, Judge Patricia A. McCullough said the $100,000 DePaul paid to the state was willingly tendered pursuant to a consent agreement and was not a fine or a penalty because the agreement specifically stated that DePaul did not admit to violating any laws.
Therefore, McCullough said, the Supreme Court’s invalidation of the ban on political contributions by gaming licensees does not retroactively entitle DePaul to a refund.
“We further conclude that public policy concerns weigh in favor of upholding agreements that were based on valid law at the time they were entered,” McCullough said.
McCullough was joined by President Judge Dan Pellegrini and Judges Bernard L. McGinley, Renee Cohn Jubelirer, Robert Simpson, Mary Hannah Leavitt and Anne E. Covey.
In DePaul v. Commonwealth, according to McCullough, Philadelphia Entertainment and Development Partners (PEDP) applied to the state Gaming Control Board for a Category 2 slot machine license in Philadelphia in December 2005.
At the same time, DePaul, who held a 9.54 percent indirect ownership interest in PEDP, applied for a gaming license as a “key employee qualifier” of PEDP and proceeded to make 21 political contributions totaling $31,745 to a number of political candidates during the first four months of 2006, while his application was still pending, according to McCullough.
McCullough said DePaul mistakenly thought that only applicants who had been granted a license were banned from making political contributions under Section 1513 of the Pennsylvania Race Horse Development and Gaming Act and was unaware that the ban also extended to those who owned stakes in license applicants.
In May 2006, after learning that the ban applied to him, DePaul contacted the candidates and received his contributions back, according to McCullough. DePaul also informed the Gaming Board.
On December 4, 2006, DePaul, PEDP and the Gaming Board’s Bureau of Investigations and Enforcement entered into a consent agreement under which DePaul agreed to pay $100,000 to the state but did not admit to breaking the law.
In November 2007, DePaul filed a petition with the Supreme Court, challenging the constitutionality of Section 1513 and on April 30, 2009, the justices ruled to overturn the ban, according to McCullough.
On May 15, 2009, according to McCullough, DePaul requested that the Gaming Board refund his $100,000, but the Gaming Board responded that it had no authority to refund money that had been deposited into the state’s General Fund.
DePaul then petitioned the Board of Finance and Revenue for a refund, maintaining that the board had jurisdiction over the petition under Section 503(a) of the Fiscal Code, according to McCullough.
The Board of Finance, however, found that DePaul’s $100,000 payment to the state memorialized an unappealable order of the Gaming Board, McCullough said.
In addition, the Board of Finance determined that Section 503 of the Fiscal Code sets a two-year statute of limitations on petitions for refunds, rendering DePaul’s petition untimely, according to McCullough.
On appeal, DePaul argued that the consent agreement was intended to settle his violation of a law that has since been overturned, therefore entitling him to a refund, according to McCullough.
The state, however, contended that DePaul’s argument was a collateral attack on the consent agreement that hinges on the mistaken premise that his payment was a fine, McCullough said.
McCullough agreed with the state’s argument.
“We note that the terms of the consent agreement specifically state that neither PEDP nor DePaul admits to any violation of the Gaming Law and that the agreement ‘resolved’ any enforcement issue relating to contributions ‘alleged herein to be a violation’ of Section 1513,” McCullough said. “Although the agreement clearly is intended to address DePaul’s apparent violation of Section 1513, the plain language of the consent agreement supports the commonwealth’s contention that the $100,000 paid by DePaul was not a fine or a penalty. Accordingly, DePaul’s argument that the subsequent Supreme Court decision requires a refund of a fine he paid under an unconstitutional statute is unavailing.”
But DePaul argued that, under the Supreme Court’s 1991 ruling in Blackwell v. State Ethics Commission, decisions announcing new rules are generally applied retroactively, according to McCullough.
But McCullough said the facts of DePaul closely resembled those of the 1967 Supreme Court case Borg-Warner v. Board of Finance and Revenue, in which the justices ruled that two parties had abandoned their claims that a tax determination was illegal when they entered into stipulations for judgment and therefore were not entitled to refunds when a similar tax assessment was later found to be unlawful.
Meanwhile, McCullough said, the state Superior Court, in the 1991 case Davis v. Government Employees Insurance, explained that court decisions announcing a new rule affect only the case in which it was announced and pending cases in which the issue has been preserved.
In Davis, according to McCullough, the court found that because the insurance provision upon which payment was made was valid at the time the release was executed, there was no basis on which to invalidate the release.
“Similarly, in the present case, at the time DePaul executed the consent agreement, Section 1513 of the Gaming Act was valid and, pursuant to the analysis in Davis, the subsequent change in the law does not invalidate any provision of the consent agreement,” McCullough said. “This court has no power to modify the contract of the parties, and the consent agreement is binding between the parties absent any fraud, duress or mutual mistake.”
McCullough also rejected DePaul’s argument that his claim was not time-barred because the statute of limitations did not begin to toll until the Supreme Court declared Section 1513 unconstitutional.
McCullough cited the Supreme Court’s 1961 ruling in Box Office Pictures v. Board of Finance and Revenue, in which it held that no refund was due for a payment that was not made under duress or protest, even though the payment was made pursuant to a law that had since been ruled unconstitutional.
In addition, McCullough said, the Box Office Pictures court held that the plaintiff’s claim was time-barred because the refund petition was not filed within the five-year statute of limitations in place at the time under the Fiscal Code.
“Here, although DePaul and PEDP undoubtedly were under pressure to resolve DePaul’s apparent, if not admitted, violations of the Gaming Act, neither asserted any challenge to the validity of Section 1513 until almost a year after executing the consent agreement and making a significant payment thereunder, and neither suggested that the payments were made under protest or duress,” McCullough said. “Although DePaul asserts that he could not have raised the constitutional challenge in another forum, he does not explain why he did not preserve a protest when he executed the consent agreement and made payment.”
DePaul’s attorney, Theodore J. Chylack of Sprague & Sprague in Philadelphia, said he and his client plan to file exceptions to the ruling.
A spokesman for the state Office of Attorney General declined to comment and referred the Law Weekly to the Gaming Board.
A spokesman for the Gaming Board said the board is no longer involved in the matter.
(Copies of the 18-page opinion in DePaul v. Commonwealth, PICS No. 12-2245, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •