State Of Washington v. William Lau ( 2013 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
STATE OF WASHINGTON, No. 67523-1-1
Respondent, DIVISION ONE
s :£&
v.
PUBLISHED OPINION
WILLIAM LAU,
CD r:;: y,
Appellant. FILED: May 20, 2013 > 'A'"---'-
Schindler, J. —The Gambling Act of 1973, chapter 9.46 RCW, authorizes^itiesf:-:
CD
to tax pull-tab game operators at a rate not to exceed five percent of gross gambling
receipts. The Washington State Gambling Commission licensed the "Lau Family Living
Trust" to operate pull-tab games at the bars it owned in the city of Burien and the city of
Federal Way. William Lau underreported the amount of gross gambling receipts for
pull-tab sales. The State charged Lau with theft in the first degree of "property
belonging to the City of Federal Way" and theft in the second degree of "property
belonging to the City of Burien." Because the State did not prove beyond a reasonable
doubt that Lau obtained control over the property of another or a superior interest in the
gross gambling receipts, we reverse.
No. 67523-1-1/2
FACTS
In 2000, William Lau and his spouse Josephine Lau established the Lau Family
Living Trust (Trust). William and Josephine are designated as the sole trustees. The
Trust formed TLF Holdings LLC and Tall Timbers Enterprise LLC. The Trust is the sole
owner and William Lau is designated as the manager of TLF Holdings and Tall Timbers
Enterprise. TLF Holdings purchased BZ's Sports Bar & Grill located in the city of
Burien. Tall Timbers Enterprise purchased Tall Timbers Tavern located in the city of
Federal Way and Good Time Ernie's in the city of Burien.
The Washington State Gambling Commission (Gambling Commission) licensed
the three bars to operate pull-tab games. State law requires pull-tab licensees to submit
a detailed monthly income summary for all pull-tab sales and gross gambling receipts
from the operation ofthe games to the Gambling Commission.1 Pull-tab operators must
also submit quarterly activity reports to the Gambling Commission.2 The Gambling
Commission has the authority to inspect and audit the records of a licensee to ensure
compliance.3
Each page of the monthly income summary has a column to record 16 pull-tab
games and compute gross gambling receipts based on the "Size of the Game,"
"Number Not Sold," "Number Played," and "Cost Per Play" before listing "Cash Prizes,"
the "Net Gambling Receipts," "Actual Cash Count," and "Cash Over or (Short)." Each
page also records the total gross receipts for all pull-tab games listed on that page. The
final page records the calculation of the "grand total" of the gross gambling receipts for
1WAC 230-14-280 {formerly WAC 230-30-072), -285 (formerly WAC 230-08-010 [in part]); WAC
230-06-070 (formerly WAC 230-08-010 [in part]).
2WAC 230-14-284 (formerly WAC 230-08-130).
3 RCW 9.46.130.
No. 67523-1-1/3
that month. The quarterly activity report records the total gross receipts for all pull-tab
games, as well as the local gambling taxes for that period.
By ordinance, the city of Burien imposed a tax of five percent on the gross
gambling receipts from the operation of pull-tab games. The city of Federal Way also
imposed a five percent tax on pull-tab operators based on gross gambling receipts.
In March 2010, Gambling Commission Special Agent Jess Lohse reviewed the
monthly income summaries prepared and signed by Lau for BZ's Sports Bar &Grill.
Special Agent Lohse discovered the grand total for the gross gambling receipts
recorded in October, November, and December 2009 did not match the gross gambling
receipts recorded in the fourth quarter activity report. The discrepancy between the
monthly income summaries and the fourth quarter activity report showed that Lau
underreported gross gambling receipts by $15,301.
Special Agent Lohse conducted an audit of the monthly income summaries, the
quarterly activity reports, and the gambling tax returns submitted by Lau for BZ's Sports
Bar & Grill and Good Time Ernie's from 2006 through 2009, and for Tall Timbers Tavern
from mid-2005 through 2009. Special Agent Lohse determined that Lau underreported
gross receipts from the operation of pull-tab games by $85,038.00 for BZ's Sports Bar &
Grill, $14,920.25 for Good Time Ernie's, and $235,479.50 for Tall Timbers Tavern.
In the "Certification for Determination of Probable Cause" (Certification), Special
Agent Lohse sets forth a detailed description of the investigation and audit of the
records submitted by Lau for BZ's Sports Bar &Grill, Tall Timbers Tavern, and Good
Time Ernie's. The Certification states, in pertinent part:
5. After obtaining each licensee's monthly records, I tested the
mathematical accuracy of each page contained in a given month. I found
No. 67523-1-1/4
a total of 128 discrepancies. I determined that all 128 discrepancies noted
were the result of LAU intentionally and deliberately falsifying totals
recorded on monthly record pages. I found no other intentional or
deliberate discrepancies caused by employees other than LAU. LAU
almost always underreported by whole dollar amounts. In cases where
LAU did not underreport by whole dollar amounts, there were other factors
involved. . . .
7. After reviewing each licensee's monthly records, I compared the
total gross receipts I determined by review of the monthly records to
quarterly activity reports submitted to the Commission and gambling tax
returns submitted to the local taxing authority. I determined that between
2006 and 2009, a total of 39 quarterly activity reports [(QAR)] and 39
gambling tax returns were falsified by LAU. I noted that LAU completed
every QAR submitted to the Commission from 2006 through 2009. I also
noted that LAU completed every gambling tax return submitted to the local
taxing authority from 2006 through 2009
8. During the investigation, I also determined that LAU put many
pull-tab games in play and the games generated revenue. However, LAU
failed to record the revenue brought in for the games on monthly records,
QAR's, and gambling tax returns.
In the Certification, Special Agent Lohse concludes there was probable cause that Lau
committed the crimes of "Forgery, RCW 9A.60.020, a Felony; Offering False Instrument
for Filing or Record, RCW 40.16.030, a Felony; False or Misleading Entries or
Statements, RCW 9.46.170, a Gross Misdemeanor; and Violations Relating to Fraud or
Deceit, RCW 9.46.190, a Gross Misdemeanor."
The State charged Lau with one count theft in the first degree and one count of
theft in the second degree.4 Lau denied intentionally underreporting or falsifying the
gross gambling receipts. The defense argued that the calculation of gross gambling
receipts does not include pull-tab tickets that were lost, stolen, or mistakenly counted.
A number of witnesses testified at trial, including Special Agent Lohse; two
employees who worked at BZ's Sports Bar & Grill, Good Time Ernie's, and Tall Timbers
4Lau entered into a consent order with the Gambling Commission.
4
No. 67523-1-1/5
Tavern, Colleen Schroeder and Kathleen O'Neill; the finance analyst for Federal Way;
and the accounting manager for Burien.
Special Agent Lohse testified at length about the audit and calculation of gross
gambling receipts. The Burien accounting manager, Gary Coleman, testified that the
city's gambling tax was based on "each dollar received" for pull-tab games. The
Federal Way finance analyst, Phung Huynh, testified that Federal Way imposed a five
percent tax on gross gambling receipts.
Schroeder testified that employees often made errors in entering information or
mixing pull-tab receipts from one game with a different game. Schroeder also testified
that employees and customers sometimes stole pull-tabs. Schroeder and O'Neill each
testified that Lau prepared the monthly gross income gambling receipt summaries, the
quarterly activity reports, and the gambling tax returns, and identified Lau's signature on
the reports.
The jury convicted Lau as charged of theft in the first degree and theft in the
second degree.
ANALYSIS
Lau contends the State did not meet its burden of proving an essential element of
the crime of theft. Lau asserts the State did not prove that he wrongfully obtained "the
property of another." The State claims it proved beyond a reasonable doubt that the
cities had an ownership interest in five percent of the gross gambling receipts for BZ's
Sports Bar & Grill, Tall Timbers Tavern, and Good Time Ernie's.
The State has the burden to prove the elements of the crime charged beyond a
reasonable doubt. InreWinship, 397 U.S. 358, 364, 90 S. Ct. 1068, 25 L. Ed. 2d 368No. 67523-1-1/6
(1970); State v. Borrero. 147 Wn.2d 353, 364, 58 P.3d 245 (2002). Under the
Fourteenth Amendment and the Sixth Amendment of the United States Constitution,
and article 1, section 21 of the Washington State Constitution, a criminal defendant is
entitled to " la jury determination that [he] is guilty of every element of the crime with
which he is charged, beyond a reasonable doubt.'" Apprendi v. New Jersey, 530 U.S.
466, 476-77, 120 S. Ct. 2348, 147 L. Ed. 2d 435 (2000)5 (quoting United States v.
Gaudin. 515 U.S. 506. 510. 115 S. Ct. 2310, 132 L. Ed. 2d 444 (1995)); State v.
Abrams. 163 Wn.2d 277, 285, 178 P.3d 1021 (2008).
Under the Gambling Act of 1973, chapter 9.46 RCW (Gambling Act), the State is
designated as the exclusive authority for regulating gambling activity. RCW 9.46.285
states:
This chapter constitutes the exclusive legislative authority for the licensing
and regulation of any gambling activity and the state preempts such
licensing and regulatory functions, except as to the powers and duties of
any city, town, city-county, or county which are specifically set forth in this
chapter. Any ordinance, resolution, or other legislative act by any city,
town, city-county, or county relating to gambling in existence on
September 27, 1973 shall be as of that date null and void and of no effect.
Any such city, town, city-county, or county may thereafter enact only such
local law as is consistent with the powers and duties expressly granted to
and imposed upon it by chapter 9.46 RCW and which is not in conflict with
that chapter or with the rules of the commission.
The legislature gives municipalities the authority to adopt ordinances to tax pull-
tab operators based on five percent of gross gambling receipts. RCW 9.46.110
provides, in pertinent part:
(1) The legislative authority of any county, city-county, city, or town, by
local law and ordinance, and in accordance with the provisions of this
chapter and rules adopted under this chapter, may provide for the taxing
of any gambling activity authorized by this chapter within its jurisdiction,
5(Alteration in original.)
No. 67523-1-1/7
the tax receipts to go to the county, city-county, city, or town so taxing the
activity. . . .
(3)(e)... At the option of the county, city-county, city, or town, the
taxation of punchboards and pull-tabs for commercial stimulant
operators161 may be based on gross receipts from the operation ofthe
games, and may not exceed a rate of five percent, or may be based on
gross receipts from the operation of the games less the amount awarded
as cash or merchandise prizes, and may not exceed a rate often
percent.171
The Gambling Act identifies a number of criminal offenses, including making a
false or misleading statement or entry in the mandatory reports that the pull-tab operator
must submit and maintain. For example, under RCW 9.46.170, it is a gross
misdemeanor to make a false or misleading statement or "misleading entry" in any
record maintained for or report submitted to the Gambling Commission.8 And under
RCW 9.46.190, it is a gross misdemeanor for "[a]ny person or association or
organization operating any gambling activity" to:
(1) Employ any device, scheme, or artifice to defraud; or
(2) Make any untrue statement of a material fact, or omit to state a
material fact necessary in order to make the statement made not
misleading, in the light of the circumstances under which said statement is
made; or
6 Under RCW 9.46.0217, a "commercial stimulant" is an activity "operated in connection with an
established business, with the purpose of increasing the volume of sales of food or drink for consumption
on that business premises."
7Former RCW 9.46.113 (1975) states:
Any county, city or town which collects a tax on gambling activities authorized pursuant to
RCW 9.46.110 shall use the revenue from such tax primarily for the purpose of
enforcement of the provisions of this chapter by the county, city or town law enforcement
agency.
The legislature amended RCW 9.46.113 in 2010. Laws of 2010, ch. 127, §6. As amended, RCW
9.46.113 states that a city "must" use the revenue from taxes received from gambling activities for "public
safety."
8 RCW 9.46.170 states, in pertinent part:
Whoever, in any . . . book or record required to be maintained by the commission or in
any report required to be submitted to the commission, shall make any false or
misleading statement, or make any false or misleading entry or willfully fail to maintain or
make any entry required to be maintained or made, .. . shall be guiltyof a gross
misdemeanor subject to the penalty set forth in RCW 9A.20.021.
No. 67523-1-1/8
(3) Engage in any act, practice or course of operation as would
operate as a fraud or deceit upon any person.
As part of the Gambling Act, the legislature gives municipalities the authority to
enact an ordinance making violations of the Gambling Act a misdemeanor or gross
misdemeanor. RCW 9.46.192 provides:
Every city or town is authorized to enact as an ordinance of that city or
town any or all of the sections of this chapter the violation of which
constitutes a misdemeanor or gross misdemeanor. The city or town may
not modify the language of any section of this chapter in enacting such
section except as necessary to put the section in the proper form of an
ordinance or to provide for a sentence be served in the appropriate
detention facility. The ordinance must provide for the same maximum
penalty for its violation as may be imposed under the section in this
chapter.
In addition, the Gambling Act authorizes the imposition of a lien for delinquent
gambling taxes on personal and real property used "in the gambling activity." RCW
9.46.110(4). The Gambling Act also authorizes municipalities to bring collection actions
for delinquent taxes. RCW 9.46.350 states:
At any time within five years after any amount of fees, interest, penalties,
or tax which is imposed pursuant to this chapter, or rules adopted
pursuant thereto, shall become due and payable, the attorney general, on
behalf of the commission, may bring a civil action in the courts of this
state, or any other state, or of the United States, to collect the amount
delinquent, together with penalties and interest: PROVIDED, That where
the tax is one imposed by a county, city or town under RCW 9.46.110, any
such action shall be brought by that county, city or town on its own behalf.
An action may be brought whether or not the person owing the amount is
at such time a licensee pursuant to the provisions of this chapter.
If such an action is brought in the courts of this state, a writ of
attachment may be issued and no bond or affidavit prior to the issuance
thereof shall be required. In all actions in this state, the records of the
commission, or the appropriate county, city or town, shall be prima facie
evidence of the determination of the tax due or the amount of the
delinquency.
8
No. 67523-1-1/9
As authorized by the Gambling Act, the city of Burien adopted Burien Municipal
Code (BMC) 3.25.010 to impose on pull-tab operators a tax on five percent of gross
gambling receipts from pull-tab games. BMC 3.25.010 provides, in pertinent part:
There is hereby imposed a tax, at the rates set forth below, upon the
following gambling activities, when authorized by Chapter 9.46 RCW, and
when conducted in the city:
(1) Five percent of the gross receipts from punchboards and pull-
tabs, as those terms are defined by RCW 9.46.0273 and the Rules and
Regulations of the Gambling Commission.
The city of Federal Way also adopted a code provision imposing a five percent tax on
the gross receipts from pull-tab games. Former Federal Way City Code (FWCC) 14-
144 (2002)9 states, in pertinent part:
(a) In accordance with RCW 9.46.110, there is levied upon all persons a
tax on every gambling activity permitted by this division at the following
rates:
(3) .... Taxation of punchboards or pull-tabs for commercial
stimulant operators shall be at a rate of five percent on gross receipts from
the operation of the games.
Here, the State charged Lau with one count of theft in the first degree of "U.S.
Currency . . . belonging to the City of Federal Way" and one count oftheft in the second
degree of "U.S. Currency . . . belonging to the city of Burien." The State alleged that
with intent to deprive the cities of property, Lau obtained unauthorized control over "U.S.
Currency" belonging to the cities "by colorand aid of deception." The information
alleged as follows:
COUNT I
I, Daniel T. Satterberg, Prosecuting Attorney for King County in the
name and by the authority of the State of Washington, do accuse
9We note that the FWCC was "re-codif[ied], reorganize^], and republish[ed]" as the Federal Way
Revised Code (FWRC) in 2009, and FWCC 14-144 was recodified as FWRC 3.40.040. See Federal Way
Resolution 09-539 (Jan. 6, 2009); Federal Way Ordinance (FWO) 02-422 (Sept. 17, 2002).
9
No. 67523-1-1/10
WILLIAM LAU of the crime of Theft in the First Degree, committed as
follow[s]:
That the defendant WILLIAM LAU, in King County, Washington,
during a period of time intervening between July 1, 2005, through January
31, 2010, with intent to deprive another of property, to wit: U.S. Currency,
having a value in excess of $5,000, did obtain control over such property
belonging to the City of Federal Way, by color and aid of deception, and
did exert unauthorized control over such property;
Contrary to RCW9A.56.030(1)(a) and 9A.56.020(1)(a), (b), and
against the peace and dignity of the State of Washington.
COUNT II
And I, Daniel T. Satterberg, Prosecuting Attorney aforesaid, further
do accuse WILLIAM LAU of the crime of Theft in the Second Degree, a
crime of the same or similar character as another crime charged herein,
which crimes were part of a common scheme or plan and which crimes
were so closely connected in respect to time, place and occasion that it
would be difficult to separate proof of one charge from proof of the other,
committed as follows:
That the defendant WILLIAM LAU, in King County, Washington,
during a period of time intervening between January 1, 2006, through
January 31, 2010, with intent to deprive another of property, to wit: U.S.
Currency, did obtain control over such property belonging to the City of
Burien, by colorand aid of deception, and did exert unauthorized control
over such property; that the value of such property did exceed $750.
Contrary to RCW 9A.56.040(1)(a) and 9A.56.020(1)(a), (b), and
against the peace and dignity of the State of Washington.
To convict Lau of theft, the State had the burden of proving beyond a reasonable
doubt that with the intent to deprive, he either wrongfully obtained and exerted
unauthorized control, or by color and aid of deception obtained control over the property
of the city of Federal Way and the city of Burien. RCW 9A.56.020(1)(a), (b).
RCW 9A.56.020(1) defines the crime of "theft" as follows:
(a) To wrongfully obtain or exert unauthorized control over the
property or services of another or the value thereof, with intent to deprive
him or her of such property or services; or
(b) By color or aid of deception to obtain control over the property
or services of another or the value thereof, with intent to deprive him or
her of such property or services.
10
No. 67523-1-1/11
The meaning of "property of another" is derived from the definition of "owner."
State v. Pike. 118 Wn.2d 585, 589, 826 P.2d 152 (1992). The definition of "owner"
"establishes the level of interest necessary to claim a right to property." Pike, 118
Wn.2d at 589. The statute defines "owner" as "a person, other than the actor, who has
possession of or any other interest in the property or services involved, and without
whose consent the actor has no authority to exert control over the property or services."
RCW 9A.56.010(11).10
Lau relies on Pike to argue the State did not prove the cities had a property
interest in the gross gambling receipts from pull-tab sales. The court in Pike held that in
order "to constitute the property of another, the item must be one in which another
person has an interest, and the defendant may not lawfully exert control over the item
absent the permission of that other person." Pike, 118 Wn.2d at 590. The court also
held that an owner could commit theft of property he had legal title to if the State proved
there was another superior possessory interest in the property.
[E]ven where a person possesses legal title to a given item, theft can
occur if that person takes the item from another who has a superior
possessory interest. Liens, pledges, and bailments all have the potential
to satisfy the theft statute by creating a superior possessory interest in
another as against the owner of the item.
Pike. 118Wn.2dat590.
The court in Pike concluded that because the mechanic did not comply with the
statutory lien provisions of the Automotive Repair Act, chapter 46.71 RCW, the owner's
failure to pay for repairs resulted in an unsecured contractual claim but not a
10 We note the legislature renumbered the subsections of RCW 9A.56.010 in 2011. Laws of
2011, ch. 164, § 2. Because the definition of "owner" did not change, we cite to the statute currently in
effect.
11
No. 67523-1-1/12
possessory interest that would support a theft conviction. Pike, 118 Wn.2d at 594-95.
As with all nonsecured contractual debts, the debt Pike owes [the
mechanic] for the cost of repairs is a personal debt; it is not chargeable to
any particular piece of property. State v. Polzin, 197 Wash. 612, 618, 85
P.2d 1057 (1939).
Such a general contractual debt cannot support a theft conviction.
First, it does not satisfy the "property of another" element because [the
mechanic] has no possessory interest in the car, only a right to recover
damages from Pike in a civil lawsuit. Second, mere breach of a
contractual obligation to pay does not create criminal liability absent a
specific statute, or contractual fraud.
Pike. 118Wn.2dat595.
Here, the State did not present any evidence that Lau could not lawfully exert
control over the gross gambling receipts without the permission of the cities or that the
cities had a superior possessory interest in the gross gambling receipts. The only
evidence the State presented to establish an ownership interest in the gross gambling
receipts was the testimony of Huynh, the financial analyst for the city of Federal Way,
and Coleman, the accounting manager for the city of Burien.
Huynh testified that Federal Way taxed pull-tab gross gambling receipts at five
percent, did not allow deductions, and that gross gambling receipts did not include
"bounced checks or stolen things." Likewise, Coleman testified that Burien imposed a
tax of five percent on each dollar received for the sale of pull-tabs.
If it's a $1 pull-tab and an individual comes in and buys one, the tax on
that would be five percent, which would become - be coming to the City.
So five percent of each dollar received on the sale of pull-tabs.
Relying heavily on State v. Monk, 42 Wn. App. 320, 711 P.2d 365 (1985), the
State argues that Lau obtained control over the property of the cities by
12
No. 67523-1-1/13
"creating]... a false impression of what that five percent figure was" and "[taking]
control of the cities' right to payment of the tax bill." Monk does not support the State's
argument.
In Monk, a jury convicted a city employee of theft by deception. The employee
transferred her utility account to a file designated for customers in bankruptcy to avoid
paying her bill. Monk, 42 Wn. App. at 321. On appeal, the court rejected the
employee's argument that the State failed to prove she exerted unauthorized control
over the property of another. Monk, 42 Wn. App. at 323. Identifying the property as the
city's account receivable, the court held that the defendant "effectively obtained control
over the City's right to payment by 'hiding' her account." Monk, 42 Wn. App. at 322-23.
The court affirmed the conviction for theft by deception on the grounds that the account
receivable was not "lawfully in [the employee's] possession."
The property here—the account receivable—was not lawfully in Ms.
Monk's possession. In order to transfer her account, office procedure
required her to secure the signed approval of one of her supervisors. She
did not do so. These circumstances are sufficient to constitute . . . proof of
theft by deception.
Monk, 42 Wn. App. at 323. Unlike in Monk, there is no evidence in this case that the
gross gambling receipts constituted an account receivable or that either the city of
Federal Way or the city of Burien had an ownership interest in the gross gambling
receipts.
The State also cites Porcelli v. United States, 303 F.3d 452 (2nd Cir. 2002), for
the proposition that the cities' right to payment establishes ownership under the theft
statute. Porcelli is inapposite.
In Porcelli, the defendant was convicted of filing fraudulent New York State sales
13
No. 67523-1-1/14
tax returns for gas stations owned by his corporations under the federal mail fraud
statute, 18 U.S.C. section 1341, and the Racketeer Influenced and Corrupt
Organizations Act, 18 U.S.C. section 1962(c). Porcelli, 303 F.3d at 453. On appeal, the
defendant argued that because uncollected and unremitted sales taxes were not the
property of the state under New York law, there was no basis for his mail fraud
conviction. Porcelli, 303 F.3d at 453. In affirming the conviction, the court specifically
points out that the defendant was not charged with theft of the state's property but with
"underreporting a sales tax obligation so as to reduce his payment of sales taxes" in
violation of the mail fraud statute's prohibition on " 'any scheme or artifice to defraud, or
for obtaining money or property by means of false or fraudulent pretenses.'" Porcelli,
303 F.3d at 456-57 (quoting 18 U.S.C. § 1341).
Finally, the State argues in passing that the city of Burien and the city of Federal
Way had a superior possessory interest in the gross gambling receipts under RCW
9.46.110(4). But the State charged Lau with theft of "U.S. Currency" belonging to the
cities. The State did not charge Lau with theft of "personal and real property used in the
gambling activity," and presented no evidence that the cities had a lien. RCW
9.46.110(4). RCW 9.46.110(4) provides:
Taxes imposed under this chapter become a lien upon personal and real
property used in the gambling activity in the same manner as provided for
under RCW 84.60.010.[11] The lien shall attach on the date the tax
11 RCW 84.60.010 provides:
All taxes and levies which may hereafter be lawfully imposed or assessed shall be and
they are hereby declared to be a lien respectively upon the real and personal property
upon which they may hereafter be imposed or assessed, which liens shall include all
charges and expenses of and concerning the said taxes which, by the provisions of this
title, are directed to be made. The said lien shall have priority to and shall be fully paid
and satisfied before any recognizance, mortgage, judgment, debt, obligation or
responsibility to or with which said real and personal property may become charged or
liable.
14
No. 67523-1-1/15
becomes due and shall relate back and have priority against real and
personal property to the same extent as ad valorem taxes.
Because the State did not prove that Lau wrongfully obtained the property of
another or a superior interest in the gross gambling receipts, we reverse.
So Q^i/^CL., cy
WE CONCUR:
i<"£