Florida Senate General Counsel Investigation of “Facts and Circumstances” of 2005 Legislative Fundraising Trip to Magna Entertainment Headquarters in Ontario, Canada

Report by Florida Senate general counsel on “Facts and Circumstances” of 2005 Legislative fundraising trip Magna Entertainment Headquarters in Ontario, Canada

Reprinted from the Jacksonville Times-Union
Published Wednesday, December 21, 2005

PREFACE

On October 14th I was directed by Senate President Tom Lee to investigate the facts and circumstances of a July 12-14, 2005, legislative trip to Magna headquarters in Aurora, Ontario, Canada.

My report has three parts, followed by a summary. Part One is a description of various Magna-related entities and how they relate to each other. Part Two deals with the trip and is divided into three phases. Phase One of Part Two begins with the idea for the trip, and who and how the legislative participants were selected. Phase Two of Part Two reconstructs the 3-day trip itself, piecing together a narrative based on documents and the eyewitness recollections of all the participating legislators and their hosts and lobbyists. Phase Three of Part Two covers the post-trip reporting, payments, and relevant communications amongst a wide, but relevant, group of affected persons. Part Three of the report addresses five issues that deserve further discussion. As specified in my instruction letter, my report includes details on how the trip was organized, its purpose, and who paid for what, when, and how; but it contains no recommendations.

PART ONE

WHO ARE THE MAGNA ENTITIES?

Magna Entertainment Corp. [MEC], a Delaware-chartered, for-profit corporation is the entity at the core in this inquiry. MEC’s original parent company, Magna International, Inc. [big-Magna], was a large, Canada-based, diversified, automotive parts provider which in 1999, reorganized its corporate structure and transferred its non-automotive business and certain real estate assets to MEC. In March 2000, big-Magna spun off another wholly-owned subsidiary, MI Development, Inc. [MID], that acquired big-Magna’s controlling interest in MEC.

Interlacing these three corporations is the “Stronach Trust,” a family trust for the benefit of various members of the founding chairman’s family. The Trust apparently controls big-Magna through its holding of a majority of big-Magna’s Class B stock. The Trust apparently also controls MID through a similar arrangement. MID controls MEC’s outstanding stock and equity. In short, the Stronach Trust, along with two other entities, owns the majority interest in MEC. MEC owns 100% of the authorized and issued shares of Gulfstream Park Racing Association, Inc. [Gulfstream], a Florida corporation, the permitholder, licensee, and day-to-day operator of Gulfstream Park in Broward County.

Based on the above relationships alone, it would be fair to conclude that except for the technical or regulatory reasons for separation, that these corporations all constitute a family of closely affiliated Magna entities. This is especially true of the relationship between MEC and Gulfstream, its wholly-owned subsidiary, because both of these corporations share at least five officers and/or directors. Additionally, MEC referred to itself in its most recent annual report as the #1 racetrack operator in North America, based on revenues; and reported that its core product is horseracing and wagering, blurring the point that it is actually MEC’s wholly-owned Florida subsidiary that owns the land under, and that actually operates Gulfstream Park. In MEC’s annual report, Chairman Stronach refers to “our racetrack manager and employees” (p. 3). The report further refers to “our racetrack and properties” (p.4) and to our racing operations at Gulfstream Park (pp. 7, 22). Although each one of MEC’s subsidiary corporations that actually operates a racetrack in the U.S. is a separate profit/loss center, their separate financial statements are consolidated into one financial statement on which all significant inter-company balances and transactions are eliminated (p. 39, Annual Report, MEC).

Given the above, it is no surprise that the financial transactions of MEC and Gulfstream tend to be blurred. For example, it was MEC that made the $48,180.86 in-kind contribution to the Republican Party of Florida [RPF] representing the fair market value of the trip, but the $10,000 political contribution that was tendered during the trip was not from MEC but from Gulfstream. Nor is it a surprise that the jet was chartered by and billed to big-Magna, but the $35,462.51 invoice from Presidential Aviation, a Florida air charter service based in Ft. Lauderdale, was apparently paid by MEC on August 23, 2005. Nor is it a surprise that the Irrevocable Standby Letter of Credit issued by the Bank of Montreal on February 2, 2005, in favor of the Board of County Commissioners of Broward County, Florida, to guarantee Gulfstream’s performance under Gulfstream’s January 18, 2005 slot machine agreement with Broward County, was requested by and written not for Gulfstream, the contracting entity, but for the account of MEC, on behalf of its subsidiary, Gulfstream.

PART TWO – PHASE ONE

(Pre-trip)

John R. Culbreath [Mr. Culbreath] has been in Florida’s legislative process for 38 years, first as a member of the House of Representatives from November 1967 to November 1978, and from 1980 forward as a lobbyist for Gulfstream. Mr. Culbreath has had a long personal friendship with Senator Dennis Jones. They also have had an extended professional relationship related to chiropractic medicine, Senator Jones’ profession. Mr. Culbreath has lobbied for the Florida Chiropractic Association for over 25 years.

Sometime after Senator Jones was elected to the Florida Senate in 2002, Mr. Culbreath started expressing his desire to Senator Jones to show him “what was behind Magna’s stated intentions and what Magna intended to do in Florida.” Magna was fairly new on the Florida horseracing scene, having purchased Gulfstream just 3 years earlier. Mr. Culbreath wanted to “show off the headquarters of the company” because Magna was then considering very substantial capital investments in Florida’s pari-mutuel industry. Mr. Culbreath focused his general interest into a specific invitation for Senator Jones to come to Canada, but scheduling conflicts, legislative sessions, Senator Jones’ own business obligations, other paramount legislative business, or weather considerations, required at least one, and perhaps several postponements of the trip.

In the early part of 2005, Mr. Culbreath again invited Senator Jones to come to Canada. Mr. Culbreath told Senator Jones to select the other legislators who the senator wanted to include in the travel party. The trip was scheduled for July 12-14, 2005. Senator Jones extended the invitation to Senators Jim King and Mike Bennett, and to Representative Frank Farkas, who chaired the House Council that had pari-mutuel oversight. Gulfstream’s lobbyists apparently did not have a hand in selecting these three additional travelers, but it was Marc Dunbar [Mr. Dunbar], the designated lobbyist for Gulfstream, not Mr. Culbreath, who in June 2005, coordinated the scheduling with MEC headquarters in Canada to make sure that the appropriate Magna management executives would be on hand for the scheduled visit.

PART TWO – PHASE TWO

(The Trip)

At 7:42 a.m., on Tuesday, July 12th, Challenger CL601-3A, Tail Number N601GB, a commercial jet aircraft that could accommodate nine passengers very comfortably, departed with its crew of three from its home base at Ft. Lauderdale Executive Airport. Three quarters of an hour later the flight arrived at the Clearwater-St. Petersburg International Airport where Senators Jones and Bennett, Representative Farkas, and Mr. Dunbar, met and boarded in preparation for a 9:30 a.m. departure for Jacksonville. Because Mr. Dunbar had told Representative Farkas not more than a day or two earlier that he would be one of several House members on the trip, Representative Farkas’ immediate question to Mr. Dunbar was, “Where is everyone else?” or words to that effect. Mr. Dunbar assured Representative Farkas that there had been several other unidentified House members who had said they would go, but that they had changed their minds and declined at the last minute.

The plane lifted off and arrived at Jacksonville around 10:18 a.m. Senator King and Mr. Culbreath boarded. The aircraft took off at 10:48 a.m. on its 2-hour 20 minute leg to Pierson International Airport in Toronto, Ontario. For lunch, the six passengers were provided a standard tray of assorted sandwiches, a tray of fruit, and a veggie platter.

At the Toronto Airport, the party was met by limousine and an accompanying baggage van. It is not clear whether the limousine and/or the luggage van stopped first at the Hilton in Markham before going to Magna headquarters, a campus-like compound in nearby Aurora, but in either case, the party was met upon arrival at headquarters by Magna executives and seated in the executive board room for the first of their two briefing sessions to be held there.

Sometime prior to the trip, Senator Jones had suggested a list of general topics to be covered at the Tuesday afternoon session. That list was apparently passed by Mr. Dunbar to Jim McAlpine. Mr. McAlpine was on MEC’s Board of Directors and had the title of Vice Chairman-Corporate Development. He was also listed in MEC’s annual report as a MEC corporate officer. He had also been listed by Gulfstream no more than 6 months before on its annual application for a racing permit filed with the Florida Division of Pari-mutuel Wagering, as Gulfstream’s Chief Executive Officer, and as MEC’s President and Chief Executive Officer. This Gulfstream role was confirmed by his signature as Gulfstream’s Chief Executive Officer on Gulfstream’s January 20, 2005 Agreement with Broward County Regarding Operation of Slot Machines in Broward County. Mr. McAlpine was also President and Director of Gulfstream Thoroughbred Training Center, Inc., a Delaware corporation that operated the Magna facility in Boynton Beach. He was also a director of Orchid Concessions, Inc., a Florida corporation that ran the concessions operation at Gulfstream Park. Apparently, as MEC made new corporate acquisitions, Mr. McAlpine, along with several other top-level MEC managers, automatically became officers and/or directors of most of the acquisitions.

The point of all this is to again demonstrate the significant interrelationship between MEC and Gulfstream. It is difficult to identify precisely which entity or entities Mr. McAlpine was representing during his July 12-14 interaction with the Florida legislators, but with over 10 years of executive management-level experience at Magna and knowledge of most all of the Magna entities’ operations, he assumed the role of chief spokesman for all Magna-related entities while the Florida legislative delegation was in Canada.

Mr. McAlpine was joined in his presentation by a second corporate executive, Honorable Paul Cellucci. Governor Cellucci had been on the job at MEC for about 2 1/2 months, hired by Chairman Stronach to supplement MEC’s senior management team. Governor Cellucci had just completed 4 years of service as United States Ambassador to Canada. Before that, he had served just under 4 years as Governor of the Commonwealth of Massachusetts, and before that he served 7 years as its Lieutenant Governor. Governor Cellucci had also served for many years in the Massachusetts Senate and House of Representatives before moving into the executive branch of Massachusetts state government.

Governor Cellucci’s new corporate title at MEC was Executive Vice President, Corporate Development; however, Chairman Stronach’s official press release dated March 18, 2005, stated that Cellucci “would play a leadership role in our efforts to bring about regulatory reform at the state level aimed at modernizing the horse racing and pari-mutuel industry.” Furthermore, initially, Governor Cellucci’s role was to work with other stakeholders (breeders, horsemen, etc.), to have management and budget oversight of the various tracks operated by MEC subsidiaries, to represent MEC at various trade meetings, and to conduct or supervise some of MEC’s government relations with state governments and legislatures. As time passed, his role evolved and expanded to include the responsibility to supervise MEC’s lobbyists, to conduct or supervise all of MEC’s governmental relations with state agencies and legislatures, and to regulate and approve all political contributions made by MEC subsidiaries, including Gulfstream. In fact, on August 3, 2005, he registered as MEC’s lobbyist in Maryland, apparently to meet some specific state regulatory requirement.

The notification letter received by the Florida Division of Pari-mutuel Wagering on May 23, 2005, signed by Gregg A. Scoggins, MEC’s National Director of Regulatory Affairs, stated specifically that “Paul Cellucci has recently been appointed to serve as Executive Vice-President, Corporate Development for MEC,” and that “this appointment applies solely to MEC; it does not affect any of its subsidiaries, including [Gulfstream] the Association.”

While the recollections of the four legislators, the two lobbyists who accompanied them, and the two Magna executives who were present differ, due to the passage of 4 or 5 months since the trip, there was general agreement amongst most of them that the following general topics were covered during the Tuesday afternoon, 2-hour wide-ranging session:

” General familiarization with Magna’s corporation organization and businesses, both in the automotive and entertainment-related sectors.

” Magna’s goals and vision for its substantial investments in Florida and the economic development potential that could be derived from it not only in Broward County but in the Ocala and West Palm Beach areas.

” More specifically, the discussion, in one form or another, covered:

o Nighttime hours for thoroughbred racing, currently specifically prohibited by 550.5251(4), F.S.

o Simulcasting, without state governmental restrictions, so that Gulfstream could transmit races to other facilities that wanted to pick up the live signal.

o Where Gulfstream ranked in purse size, the historical effect that the introduction of slots had on the size of thoroughbred racing purses in several other states, and how increased purses improve everything else.

o The rather complicated relationship between thoroughbred tracks and the other forms of gaming in the Florida pari-mutuel industry.

o Opportunities for on-line wagering and whether this expanding system that is at the core of Europe’s $85 billion/year industry could be made available in Florida.

o The general regulation of slots in Florida and the pitch that if the state’s tax rate is too high, that would result in reduced incentives to grow the industry, presumably referring to the forthcoming legislative implementation of the recently adopted slots amendment.

At the conclusion of the afternoon presentation and briefing, the delegation was taken on the 15-20 minute ride to a Hilton hotel in Markham, on the outskirts of Toronto, for a 30-45 minute break before dinner.

At about 6:15 Tuesday evening, all four legislators, accompanied by Jim McAlpine, Governor Cellucci, Mr. Dunbar, and Mr. Culbreath, took a 2-hour ride in a tourist-type bus to the Canadian side of Niagara Falls. The party had about 15 minutes to walk along the scenic overlook and watch the cascading water. They then had dinner at the Niagara Falls Casino Resort, the recently-completed, 2.5 million square foot Las Vegas style complex with over 3,000 slot machines, 150 gaming tables, themed restaurants, conference space, a 30-story hotel, a huge theatre, retail stores, and a 28,000 square foot Grand Hall, all overlooking the Horseshoe (Canadian) and American Falls.

In Canada, by law, each provincial government is responsible for operation and management of commercial and charitable casinos, and slots at horse tracks. The Falls Management Company, a consortium of five firms selected by the Ontario Lottery and Gaming Commission, financed, designed, built, and operates the Niagara Falls Casino Resort. MEC is not one of the five.

After dinner, there was the opportunity for a brief walk-through of the casino area. Except for Mr. McAlpine who left early and made his own way home, the party, including all four legislators, reboarded the waiting vehicle for the 2-hour trip back to their hotel.

Wednesday, July 12, 2005, began with a standard hotel-type breakfast and a ride back to the same conference room at big-Magna headquarters for a 2+ hour, wide-ranging presentation that mainly featured economic development issues with questions and answers sprinkled throughout. The presenters showed models and renderings of Gulfstream improvements in Florida that were being made and planned, with or without slots as a component. There was a specific discussion of expansion of operations in the Ocala area. The party was also taken to a nearby vehicle plant to view big-Magna’s high-tech prototype automobile. Several of the legislators expressed the desire to find out what it would take to lure a piece of the Magna automobile operation to Florida, and the presenters, including Jim McAlpine and Governor Cellucci, expressed big-Magna’s desire to open discussions about the possibility of doing so.

At the end of the Wednesday morning business meeting, the legislative delegation had lunch at the nearby Magna Golf Club which is part of a golf course, club house, meeting, dining, and related-use complex owned by big-Magna or a subsidiary and made available for MEC and other big-Magna subsidiaries for their respective private use and that of their guests. Wednesday afternoon was free time. Senator Bennett and Representative Farkas, joined by Mr. McAlpine, Governor Cellucci, and Mr. Dunbar, played 18 holes of golf on Magna’s private course. Senators King and Jones took advantage of some personal recharge time and remained in the vicinity of their hotel.

Dinner was scheduled at the Woodbine Racetrack, a historic group of racetracks located on the outskirts of Toronto about a half hour away from Magna’s campus. Woodbine had been expanded about 5 years ago to add over 1,700 slots in a large themed gaming area that was open 24/7. Senator Jones, as the apparent delegation leader, had requested to see what a “racino,” one of these new combination forms of pari-mutuel gaming actually looked like. The party dined at “Favourites,” a large buffet-style dining area overlooking the thoroughbred track. The party stayed together to dine, but after dinner, apparently some of the participants preferred to watch and/or bet on the rest of the 11 races. One or two visited the adjoining casino and there tried their luck. Some went to the paddock area for an up-close look at the horses and the brief opportunity to speak to some trainers and/or owners. Others did a quick walk-through of the casino. Governor Cellucci and Brian Budden, an acquisitions attorney employed by MEC, left early and made their own way back. The remaining legislative delegation was transported to their hotel in Markham.

Thursday, July 14, 2005, began with a breakfast discussion amongst the legislators during which they decided that they had accomplished about all they had set out to do. They moved the scheduled departure time up by 3 hours. Because Representative Farkas had said the night before that he would like to play an early round of golf, he and Governor Cellucci got out by about 7:00 a.m. and played another 9 holes at Magna’s private course while the others had their breakfast and attended a pre-departure briefing at Magna headquarters.

The return flight departed from Pierson International at 10:30 a.m. It was uneventful other than on it, Mr. Dunbar handed Senator Jones an envelope with the $10,000 check #44594 dated July 7, 2005, drawn on Gulfstream’s Wells Fargo Texas bank account and payable to the order of “Senate Majority 2006 Campaign Fund.” A brief discussion ensued between them during which Mr. Dunbar said that there would be another $40,000 coming, or words to that effect. This is generally consistent with what was apparently an earlier separate discussion between Senator King and Mr. Dunbar during which a figure of $50,000 was suggested as the balance of Gulfstream’s pledge to the RPF for the Senate’s 2006 election cycle.

Representative Farkas had his own separate House fundraising discussion with Mr. Dunbar sometime during the trip. Mr. Farkas asked Mr. Dunbar if his lobbying principal was also going to support the House Majority 2006 Campaign Fund and was told they were. No dollar amounts were specified and no “down payment” check was delivered during the trip. Mr. Farkas didn’t hear the figure of $200,000 until sometime after the trip was over. The source of the so-called “commitment” (actually more in the nature of an “assessment”) was probably someone at the RPF, not Gulfstream or MEC, or any of its lobbyists.

The jet arrived at Jacksonville at 2:18 p.m. Senator King and Mr. Culbreath deplaned. Senators Bennett and Jones, Representative Farkas, and Mr. Dunbar continued on to the Clearwater-St. Petersburg International Airport, where they all deplaned.

N601GB flew its final leg to Ft. Lauderdale with no passengers aboard. Captain Perez and First Officer Hart rolled N601GB up to its hangar on Thursday, July 14, 2005, at about 5:00 p.m. At that moment, the plane went off the meter.

PART TWO – PHASE THREE

Of course, no one could determine the “fair market value” of the in-kind contribution from MEC to the RPF before the trip, but the general plan for how the trip would be reported had been established. The “in-kind to the RPF” method was discussed at least by Rep. Farkas and Mr. Dunbar. Before he boarded the plane, Rep. Farkas asked whether this trip was a fundraiser for the RPF, or words to that effect, and was told that it was. The method was legal and familiar. However, there were issues with, and limits to, using it. For example, “fair market value” was mandated by 106.055, F.S. And, the in-kind contributions were required by 106.011(3)(a), F.S., to be made “for the purpose of influencing an election.” The trip actually raised $10,000 for the RPF that presumably would be spent by the RPF, directly or indirectly, for the donor-designated purpose of influencing the results of the 2006 cycle of elections to the Florida Senate.

On August 11, 2005, Mr. Dunbar, using his law firm’s letterhead, wrote to RPF chairman, Carole Jean Jordan, and reported in a one-page letter that MEC had made the following three in-kind contributions to RPF on July 12-14, 2005:

“Transportation $40,812.41

Catering $4,152.85

Lodging and Entertainment $3,215.60”

That letter contains three additional items of note, handwritten on its face, apparently by someone at the RPF:

1. The above three items had a handwritten total of $48,180.86 entered at the foot of the column;

2. The word “Horse Racing” was written apparently by the same person, in a space after MEC’s business address; and

3. At the right-hand foot of the page, the words “Rcvd & Enterd 8/23/05” were handwritten, followed by unintelligible initials of apparently the same writer, most likely an employee in the RFP’s accounting department.

That day, Chairman Jordan sent Mr. Dunbar a personalized letter thanking him and MEC “for the In-Kind Contributions for the Senate Majority 2006 Fundraiser held July 12-14, 2005.”

As required by law, on October 10, 2005, the RPF duly reported the $48,180.86 contribution from MEC to the Florida Division of Elections.

What was later dubbed “the Magna Trip” story was first brought to public attention by a news article in the Miami Herald posted on Thursday, October 13, 2005.

In the meanwhile, the $10,000 check dated July 7, 2005, payable to the “Senate Majority 2006 Campaign Fund” that had been handed to Senator Jones by Mr. Dunbar on the final day of the trip, Thursday, July 14th was slowly working its way toward the RPF’s bank account, not covered by the 5-day deposit rule in 106.05, F.S., that applies to candidates, but not to political parties.

Senator Jones mailed the $10,000 check to Senator Pruitt with a brief cover letter dated July 20, 2005, requesting Senator Pruitt to write a personalized acknowledgement and thank-you letter to Gov. Cellucci at his Hudson, Massachusetts residence.

Senator Pruitt then forwarded the check to the RPF headquarters in Tallahassee where it remained in someone’s work-in-progress pile until it surfaced on September 8th or 9th when the RPF’s Finance Director of Senate Campaigns, puzzled about what specific fundraising event, if any, to credit it with, placed a phone call to Mr. Dunbar to ask him. She failed to reach him. There is some confusion about what occurred with the $10,000 check between September 8th or 9th and either September 30th, October 3rd, or October 4th when the RPF Finance Director of Senate campaigns finally spoke to Mr. Dunbar on the phone from RPF headquarters.

But one thing is clear beyond peradventure, and that is that the check that had been delivered to Senator Jones on July 14, 2005, was not deposited until Tuesday, October 11, and was not credited to the RPF general account at Sun Trust Bank until Wednesday, October 12, 2005, which coincidentally was one day before the first news story appeared in the Miami Herald and 3 months after Mr. Dunbar had handed the check to Senator Jones.

The remainder of the story is generally well-known. On Tuesday, October 11th, Senate President Lee publicly questioned the propriety of the acceptance by the RPF of the $48,180.86 in-kind contribution from MEC, and the process by which it was accepted. At the Senate President’s request, the RPF wrote a $48,180.86 refund check payable to MEC which was subsequently delivered on Monday, December 5, 2005, to Mr. Culbreath and Mr. Dunbar, two of the 12 currently registered Gulfstream lobbyists.

Once having written the refund check, the RPF filed an amended contribution report on November 1, 2005, covering the July-September reporting quarter. That filing deleted the $48,180.85 in-kind contribution that the RPF had reported to the Division of Elections on October 10th.

PART THREE – ISSUE ONE

Issues Warranting Further Discussion

PURPOSE

The trip’s participants had varying purposes and beyond that, several of the purposes changed as the trip progressed. For example, Senators Jones, King, and Bennett shared the purpose of fundraising for the Senate Majority 2006 effort of the RPF. Representative Frank Farkas had a separate (but apparently unproductive) purpose of fundraising for the House of Representatives’ equivalent effort. Some of the trip’s participants had the additional purpose of giving and/or receiving entertainment and/or goodwill. Several of the hosts had an apparent additional purpose of providing information to, and responding to questions from the legislators about pari-mutuel issues. All four legislators had the apparent additional purpose of learning more about their hosts’ positions on pari-mutuel issues important in the hosts’ Florida operations, especially Senator Jones who was the current chairman of the Senate Committee on Regulated Industries, and Representative Farkas who was the current chairman of the House Commerce Council, each of which had legislative oversight of Florida’s pari-mutuel industry. Many of the participants, on both sides of the table, had the joint purpose of exploring economic development and expansion opportunities, particularly the legislators who perceived the possibility of enticing a piece of Magna’s automobile parts operation to Florida. The hosts had the additional general purpose of vetting a wide range of economic development issues and responding to questions from these legislators with whom they had uninterrupted and exclusive access for most of three consecutive days, on those issues important to horseracing and to the pari-mutuel side of their affiliated companies.

In short, there were multi-faceted, mixed, and multi-dimensional purposes, some of which changed over the course of the trip.

PART THREE – ISSUE TWO

[The Gift Law Issue]

The plain language of 112.312(12)(b), F.S., says that for the purpose of the gift law, “gift” does not include contributions reported pursuant to chapter 106 (the campaign financing law). The $48,180.86 in-kind contribution which was given to the party by MEC on or about July 12-14, 2005; reported to the RPF on or about August 12, 2005; personally acknowledged by the RPF chairman, in writing, on August 23, 2005; and publicly reported by the RPF to the Division of Elections on October 10, 2005, in my view puts the $48,180.86 outside the scope of the gift law.

There are two separate but overlapping ways that what might otherwise be a prohibited “gift” under the gift law are excluded from the definition of “gift.”

The first way is if it is “a contribution reported under chapter 106.” The second way is if it constitutes “any other contribution or expenditure by a political party.”

In 1999, the Florida Commission on Ethics issued a formal Advisory Opinion to the Republican Party of Florida that had asked if the party could accept free rooms, tickets, and golf fees given to it gratis by Disney World to use for an RPF fundraiser.

The Commission focused on the second of the above methods and went into a long discussion about who could designate the ultimate recipient of the comped items. The Commission explored the concept of indirect vs. direct gifts. Under the narrow and precise factual scenario upon which that opinion was based, the Commission approved the entire procedure to be followed in the Disney case.

My conclusion regarding Magna is based on the other prong of the statutory exception. My choice has the virtue of clarity and simplicity. The in-kind expenditure from MEC was properly reported to the Division of Elections, and lobbying under either the influencing legislative action leg, or the goodwill engendering leg, was its apparent purpose.

It is unnecessary to determine whether MEC is in the so-called prohibited class as the affiliated wholly-owning parent of an entity that is clearly itself within the prohibited class. In my view, under the chapter 106 exclusion to the gift law, the report filed by the RPF on October 10, 2005, legalized what would otherwise have been either an illegal or a reportable gift, depending on the legal status of the donor being either within or without the prohibited class.

There is no gift law violation apparent to me here.

PART THREE – ISSUE THREE

[The Lobbyist Registration Issue]

[Did MEC have a “lobbyist” who was obliged to register showing it as his principal?]

Plainly stated, a person who contracts for money, or a person who is employed for money, for the purpose of influencing or attempting to influence legislative action or non-action through oral or written communication, OR who attempts to obtain the goodwill of a member or employee of the Florida Legislature, is a “lobbyist.”

Furthermore, a person who is principally employed for government affairs (one of his main or most significant responsibilities to his employer is overseeing the employer’s various relationships with government) for the purpose of influencing or attempting to influence legislative action or non-action through oral or written communication, OR who attempts to obtain goodwill of a member of the Florida Legislature also is a “lobbyist.”

Every “lobbyist” must separately register and list the name and business address of every principal whose interests that lobbyist represents before the Florida Legislature.

There has been no Florida legislative lobbyist registered for MEC during 2005, or, for that matter, for any of the prior years since 1999 when MEC was chartered in Delaware.

There are two categories of individuals in this story upon whom the obligation to register might have attached: in-house persons on the MEC payroll, and outside contract lobbyists, but only if paid compensation by MEC.

There are two categories of activities that trigger the registration requirement on an individual who is in either of the above categories. One of the triggers is influencing or attempting to influence legislative action or non-action through oral or written communication. The other trigger is the attempt to obtain the goodwill of a member of the Florida Legislature.

It is likely, but a little less clear to me that Messrs. McAlpine, Cellucci, Culbreath, or Dunbar were attempting to influence legislative action while on the trip, but it is substantially more clear to me that at least some of them were engaged in attempting to obtain the goodwill of one or more members of the Florida Legislature.

Three commonly-accepted American dictionaries define “goodwill” as “a friendly attitude” or “a kindly feeling” or “an attitude of friendliness” or “a good relationship” or just plain “friendliness.” These definitions are supplemented by Joint Rule 1.4(4) that says “an expenditure shall be considered to have been intended to be for the purpose of engendering goodwill if it is a gift, an entertainment, any food or beverage, or any other item or service of similar personal benefit to a member . . . of the Legislature . . . .”

Once the legal obligation to register attaches, the fact that a lobbyist’s contacts with a member of the Florida Legislature are solely and strictly in response to an inquiry from a legislator relieves the lobbyist for that principal from the expenditure reporting provisions, but in my view, not from the basic registration requirement.

There are several additional background factors, albeit of only tangential relevance:

1. Mr. Dunbar, a registered lobbyist for Gulfstream, in his October 1, 2003 letter to a Senate staff attorney in the Senate Regulated Industries Committee, began his letter responding to her request for information by saying, “Thank you for your time to listen to the perspectives on pari-mutuel regulation of my client, Gulfstream Park Racing Association and its parent company, Magna Entertainment Corporation,” and

2. As described in the Phase One scenario above, although Mr. McAlpine, Governor Cellucci, and other MEC personnel were responding to the legislators’ questions in Canada, the legislators were in Canada to begin with because of the repeated offer of John Culbreath, the Gulfstream lobbyist, who first suggested the trip to Senator Jones and to those other legislators who were designated by Senator Jones.

The apparent core reason for legislative lobbyist registration in the Florida Senate since registration was first required by Senate Rule 12.1 adopted in 1966 and enacted 12 years later in Chapter 78-268, Laws of Florida, was and remains so that the public can determine whose interests are being lobbied in the legislative process.

Separate from the issue of registration is the issue of reporting. Joint Rule 1.4(4)(d)1. says that an in-kind contribution reported pursuant to Chapter 106, F.S., is not an expenditure for the purpose of the Joint Rule. The RPF did properly and timely report the $48,180.86 in-kind expenditure from MEC on October 10, 2005, so I see no further expenditure reporting obligation under the Joint Rule.

Finally, when SB 6B goes into effect on January 1, 2005, although virtually all other direct expenditures by lobbyists and their principals to legislators or legislative employees for the purpose of lobbying will be prohibited, in-kind expenditures properly authorized and made to political parties will continue to be legal. The public purpose for, and the vitality of, the lobbyist registration requirement will also continue uninterrupted and unabated.

PART THREE – ISSUE FOUR

[The In-kind Reporting Issue – Resolved Going Forward]

Senate Bill 8B (2005) was signed into law this morning. It modifies the existing practice and will provide a procedure by which political parties in Florida, at the state and local levels, accept in-kind contributions.

Under the new procedure, there will be a written, signed, dated, double-entry paper trail for a Magna-type of in-kind contribution to a political party. For more isolated food and beverage contributions with a value under $1,500, there will be a verbal trail; however, two things seem apparent:

1. Prudent chairmen at both the state and local executive committee levels would be well advised to set up a log-in system to keep track of every verbal request received and approved by the chairman or the chairman’s designee, with the date, name of the requestor, the fair market value, and a brief description of the contribution(s), and

2. Having a party chairman accountable to monitor the nature of the incoming in-kind contributions to the party will provide a screening method to insure that each contribution is of some direct benefit to the party, and qualifies as a political contribution, both elements required by Chapter 106, F.S.

PART THREE – ISSUE FIVE

[Verification of $48,180.86 Amount of the In-kind Contribution]

As part of my inquiry, I requested of MEC to inspect and copy the original or actual file copies of the bills, invoices, vouchers, or other indicia of payment that MEC used to determine the $48,180.86 fair market value of its in-kind contribution to the RPF. Governor Cellucci, acting as an officer of MEC, declined to allow me to inspect the requested documents. Peter M. Dunbar, apparently acting as attorney at law for MEC, stated in his December 8, 2005 letter to me essentially that MEC already fully complied with the valuation and disclosure provisions of Chapter 106, F.S., when its representative, Mr. Dunbar, reported to the RPF the fair market values of the in-kind contributions, and that MEC would not place any additional proprietary information into the public domain to the company’s disadvantage in the marketplace.

Considering that MEC’s participation in my investigation was totally voluntary, and considering that I have no power to coerce MEC or its officers or attorneys to do anything, and considering that enforcement of a Florida Senate subpoena over an unwilling, out-of-state foreign corporation would be an uphill battle, and considering that MEC has been entirely cooperative by voluntarily producing top-level management personnel and all the other documents that I asked for, and considering that the justification that was offered for declining to produce the back-up documentation for the in-kind contribution is reasonable, and considering the MEC officials would have had no apparent motive to report the total amounts incorrectly, and considering that I have developed some valuation information from other sources or have made an educated guess of the approximate amounts of the remaining items, I offer the following table:

Charter Jet $35,462.51

Ground Transportation

(Limousine & Van Services for 48 hrs)

$4,280.00

Hotel Accommodations (4 rooms, 2 nights)

(at the Hilton in Markham @ $195/night)

$1,250.00

Entertainment

(probably mostly the fair market value of the golfing-related activity)

$1,600.00

Food and Beverage

$3,300.00

TOTAL

$45,892.51

NOTE: Except for the chartered jet expense, all the above figures are best-guess estimates, converted to and restated in U.S. dollars.

It turns out that the $48,180.86 reported by MEC to the RPF and consequently by the RPF to the Division of Elections exceeds the actual amount of MEC’s in-kind contribution. The charter jet bill was rendered in U.S. dollars; however, it appears that most, if not all, of the remaining entries were billed and stated in Canadian dollars, unadjusted for the approximated US$1.00:Cn$1.20 conversion rate that was in effect in most of July 2005. Now that the in-kind contribution has been refunded to MEC by the RPF, the reason for delving into the calculation becomes somewhat academic and/or anecdotal, but, at a minimum, it illustrates the irony that the RPF over-refunded the amount of MEC’s in-kind contribution by something in the order of U.S. $3,000.

SUMMARY

My role was not to play judge by determining whether violations of law or rules had occurred. My job was to lay out the facts, to rule out the non-applicable provisions of law, and to make conclusions whether the facts established a type of legislative probable cause. My inquiries were legislative in nature, designed to adduce information for legislative oversight purposes. I did not offer the parties, or even purport to give them a due-process laden, adversarial-type of forum.

Given the above purpose and standards, it is my view that because of a specific exception in the definition section of the gift law, that no member of the Florida Senate violated the gift law during or associated with the July trip to Ontario.

It is further my view that there was no violation of the so-called “earmarking” provision of the campaign financing law because Senator Jones was not a “candidate” at any time in 2005 and the law prohibited donors from “earmarking” to benefit “candidates.”

As for the lobbying registration law and Joint Rule requirements for registration of lobbyists, in my view, the facts support a preliminary finding that the activities of one or more persons on the trip to Canada triggered a registration obligation for at least one of them to register and to show MEC as his legislative lobbying principal. Of course, MEC and all the affected individuals are entitled to a proper forum, if the need arises, in which to offer their defenses, explanation, and/or justification for not having registered.

Senate Rule 9 (relating to “Lobbying”) appears to me to be of very limited application to the facts of this case. Senate Rule 9 contains a more limited definition of who is required to register and a more limited scope of the activities that trigger the obligation than does the more stringent Joint Rule One. Furthermore, Senate Rule 9.7 requires committees, not individual members acting outside of their committee roles, to be diligent to ascertain whether those who appear before them have complied with all the applicable registration requirements. In my view, Joint Rule One, not Senate Rule 9, provides the operative standard applicable to the facts of this case.

Finally, public reports filed at the Division of Elections in recent years show that in-kind contributions of travel (commercial air tickets, chartered aircraft, local ground transportation) have been commonly accepted by the RPF in support of its political fundraising efforts. Based on internal bookkeeping records kept by the RPF to which I have been given access, there have been 59 in-kind contributions to the RPF on the Senate side of RPF fundraising activities since December 2003. Of these, 12 were travel. Although there was no party rule or formalized policy published and in effect at the RPF in the summer of 2005 that would have required Senator Jones to seek or obtain prior approval from RPF leaders, or officers, or the RPF Director of Senate Campaigns, or the RPF Finance Director of Senate Campaigns, before accepting either the $10,000 contribution check from Gulfstream or the $48,180.86 in-kind contribution from MEC to the RPF, the Magna trip to Ontario appears to me to be either the only, or possibly one of a very few of such trips that were organized or taken in the most recent four or five years, without the prior approval or knowledge of at least one of the five following persons: the Senate President, the Senate President Designate, the Chairman of the RPF, and the two RPF employees mentioned above. I have confirmed directly and to my satisfaction that none of these five persons knew of the Magna trip beforehand. The acknowledgement letter sent by Chairman Jordan to Mr. Dunbar was written and dated August 23, 2005, about 40 days after the trip, and about a week after Mr. Dunbar’s initial notification letter was received at RPF headquarters in Tallahassee.

D. Stephen Kahn

Senate General Counsel

Advertisements