BILL ANALYSIS
Bill No: AB
293
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
AB 293 Author: Mendoza
As Amended: April 13, 2009
Hearing Date: June 23, 2009
Consultant: Chris Lindstrom
SUBJECT
Gambling regulation.
DESCRIPTION
AB 293 makes numerous technical, substantive and conforming
changes to the Gambling Control Act (Act). Most
significantly, AB 293 allows limited liability companies
(LLCs) and its officers, managers, members, or owners to be
eligible for a state gambling license; imposes on all
partnerships and LLCs the same licensing requirements that
are applicable to limited partnerships and provides that a
partnership, instead of being formed under the laws of the
state to be eligible for a gambling license must be
registered in the state and provide specific supplemental
information; and, requires the California Gambling Control
Commission (CGCC) to develop procedures to allow for the
continuous operation of licensed gambling establishments in
cases including the death or incapacity of a licensee.
Specifically, the bill:
1)Provides that, except for preliminary injunctions, no
order may be effective for more than 15 calendar days,
and no preliminary order may be effective for more than
45 days, except by stipulation of the Department of
Justice (DOJ) or CGCC. [Business and Professions Code
Section 19804(b)]
AB 293 (Mendoza) continued
Page 2
2)Defines the term "gambling enterprise" to mean any person
that owns a gambling operation and makes conforming
changes throughout the Act. Business and Professions
Code Section 19805(m)]
3)Authorizes CGCC to condition, restrict, discipline, or
take action against the license of an individual owner
endorsed on the license certificate of the gambling
enterprise whether or not the commission takes action
against the license of the gambling enterprise.
[Business and Professions Code Section 19824(b)]
4)Deletes the requirement that CGCC adopt regulations to
require copies of all dishonored or uncollectible checks
shall be sent to DOJ. [Business and Professions Code
Section 19841(q)]
5)Requires CGCC to adopt regulations by December 31, 2011,
to provide procedures, criteria, and timelines for the
processing and approval of applications for the
licensing, temporary or interim licensing, or findings of
suitability for receivers, trustees, beneficiaries,
executors, administrators, conservators, successors in
interest, or security interest holders for a gambling
enterprise so that gambling enterprises may operate
continuously in cases including, but not limited to, the
death, insolvency, foreclosure, receivership, or
incapacity of a licensee. [Business and Professions Code
Section 19841(s)]
6)Clarifies the definition of a state gambling license by
specifying that the owner of a gambling establishment
shall be known as the owner-licensee and making other
technical and conforming changes. [Business and
Professions Code Section 19851]
7)Authorizes LLCs and its officers, managers, members, or
owners to be eligible for a state gambling license to
operate a controlled gambling operation. [Business and
Professions Code Sections 19852 (f) and (g)]
8)Requires the chief of the Bureau of Gambling Control
(BOGC) within DOJ to file with CGCC the reasons for his
or her recommendation if he or she recommends approval of
the license with restrictions or conditions. Requires
the chief, prior to filing his or her recommendation, and
AB 293 (Mendoza) continued
Page 3
not less than 10 business days prior to CGCC's meeting at
which the application is to be considered, to inform the
applicant in writing generally of the basis for any
proposed recommendation, including the legal and factual
grounds on which the recommendation is based. Does not
require DOJ to divulge any confidential information.
[Business and Professions Code Section 19868(c)]
9)Requires a corporation, in order to obtain a gambling
license, to supply specified supplemental forms and
information with the initial application, and thereafter
only on request, to DOJ. [Business and Professions Code
Section 19880(d)]
10)Requires CGCC, if at any time it denies or revokes a
license of an individual owner of any security issued by
a corporation that applies for or holds an owner license,
to immediately notify the individual and the corporation
of that fact. Requires the owner of the security to sell
the security for an amount not greater than fair market
value within 60 days, or upon a showing of due diligence,
CGCC may extend the time for selling the security.
Provides that upon the date when DOJ serves notice of the
denial to the corporation, it is unlawful for the denied
security owner to receive any dividend, income, or
interest upon any security, except dividends equal to the
good faith estimate of the owner's personal share of any
income tax due on the ownership interest until the date
of the sale, as determined in writing by an independent
certified public accountant, or as may be necessary to
protect the election of the gambling enterprise to be
treated as an "S corporation". [Business and Professions
Code Sections 19882(a) and 19882(b)(1)]
11)Imposes on all partnerships the requirements for
obtaining a gambling license that are applicable to
limited partnerships, and requires a partnership to be
registered as may be required under the laws of this
state, instead of being formed under the laws of this
state. Requires partnerships to supply specified
supplemental forms and information with the initial
application, and thereafter only on request, to DOJ.
Requires LLCs to comply with specified parallel
requirements in order to obtain a gambling license.
[Business and Professions Code Sections 19890 and
19890.5]
AB 293 (Mendoza) continued
Page 4
12)Imposes on all partnerships and LLCs that hold a
gambling license the same requirements applicable to
limited partnerships that hold gambling licenses that the
purported sale, assignment, transfer, pledge, or other
disposition of any interest in a partnership or LLC that
holds a gambling license, or the grant of an option to
purchase the interest, is void unless approved in advance
by the commission. [Business and Professions Code
Section 19892(a)]
13)Requires CGCC, if at any time it denies a license to, or
revokes the license of, an individual owner of any
security issued by a partnership or LLC that applies for
or holds an owner license, to immediately notify the
individual and the partnership or LLC of that fact.
Requires the owner of the security to sell the security
for an amount not greater than fair market value within
60 days, or upon a showing of due diligence, CGCC may
extend the time for selling the security. Provides that
upon the date when DOJ serves notice of the denial to the
partnership or LLC, it is unlawful for the denied
security owner to receive any dividend, income, or
interest upon any security, except dividends equal to the
good faith estimate of the owner's personal share of any
income tax due on the ownership interest until the date
of the sale, as determined in writing by an independent
certified public accountant. [Business and Professions
Code Sections 19892(b), 19892(c), and 19892(d)]
14)Requires general partners, limited partners, lenders,
members, managers, holders of evidence of indebtedness,
underwriters, agents, or employees of a partnership or
LLC that holds or applies for a license to own a gambling
enterprise to be licensed individually. Provides that a
person who is required to be licensed by this section as
a partner, manager, or member shall not hold that
position until he or she secures the required approval
of, or a temporary license issued by, CGCC. Requires a
person who is required to be licensed to apply for a
license within 30 days after CGCC requests him or her to
do so. [Business and Professions Code Section 19893]
15)Prohibits the enforcement of a security interest with
prior approval of CGCC, except as provided by regulations
adopted by CGCC instead of DOJ. Requires CGCC instead of
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DOJ to adopt said regulations. [Business and Professions
Code Section 19900]
16)Permits the passage of a person under 21 years of age
through the gaming floor by way of a designated pathway
if accompanied by a person over 21 years of age or an
employee of the gambling establishment, and, deletes the
requirement for a separate entrance. Prohibits anyone
under 21 years of age from loitering in a gaming area.
[Business and Professions Code Section 19921(a)(4)]
17)Authorizes, if a gambling establishment is located in an
unincorporated area annexed by a city without a local
election other than the election to approve the
annexation, the city acquiring jurisdiction to adopt an
ordinance permitting and regulating controlled gaming in
the existing gambling establishment, providing hours of
operation, the games to be played, wagering limits, and
the maximum number of gambling establishments and tables
permitted in each gambling establishment, the same as
those limits in any ordinance or resolutions that
formerly applied to the gambling establishment.
[Business and Professions Code Section19966]
18)Makes other technical and conforming changes to the Act.
EXISTING LAW
Existing law, the Gambling Control Act, provides for the
licensure and regulation of various legalized gambling
activities and establishments by CGCC and the enforcement
of those activities by DOJ.
Existing law requires CGCC to ensure that licenses,
approvals, and permits are not issued to, or held by,
unqualified or disqualified persons, or by persons whose
operations are conducted in a manner that is inimical to
the public health, safety, or welfare. CGCC has the
authority to require any person to apply for a license,
permit, or approval as specified in the Act and for any
cause deemed reasonable by CGCC, deny any application for a
license or approval provided for in the Act, and limit,
condition, or restrict any license, permit, or approval, or
impose any fine upon any person licensed or approved.
AB 293 (Mendoza) continued
Page 6
Existing law requires DOJ to investigate the qualifications
of applicants before any license or other approval is
issued and, if necessary, recommends the denial or the
limitation, conditioning, or restriction of any license or
other approval. DOJ is also required to monitor the
conduct of all licensees and other persons having a
material involvement, directly or indirectly, with a
gambling operation or its holding company, for the purpose
of ensuring that licenses are not issued or held by, and
that there is no direct or indirect material involvement
with, a gambling operation or holding company by
ineligible, unqualified, disqualified, or unsuitable
persons, or persons whose operations are conducted in a
manner that is adverse to the public health, safety, or
welfare. DOJ may investigate suspected violations of the
Act and relevant provisions of the Penal Code to
investigate complaints that are lodged against licensees,
or other persons associated with a gambling operation, by
members of the public, and to initiate, where appropriate,
disciplinary actions as provided in the Act.
Existing law requires every person who, either as owner,
licensee, or employee, either solely or in conjunction with
others operates any controlled game in this state, or who
receives any compensation or share of the money or property
played, for carrying on any controlled game in this state,
to apply for and obtain from CGCC a valid state gambling
license, key employee license, or work permit.
Existing law defines "person" for purposes of the Act's
licensing requirements as a natural person, corporation,
partnership, limited partnership, trust, joint venture,
association, or any other business organization, and
provides that an owner of a card club that is not a natural
person is not eligible for a state gambling license unless,
defined persons individually apply for and obtain a state
gambling license.
BACKGROUND
Purpose of the bill. According to the material provided by
the author and supporters of the bill, the Gambling Control
Act, the basic law governing licensed card clubs, was
enacted in 1997 and has not undergone any comprehensive
update since then. AB 293 improves a number of procedural
issues relating to licenses and licensees where
AB 293 (Mendoza) continued
Page 7
shortcomings in the law have become evident during the
intervening years. The bill, however, does not make any
significant changes to gaming policy. AB 293 was developed
with input from the Gambling Control Commission, the Bureau
of Gambling Control, and attorneys representing licensed
card clubs.
Background. Prior to 1998, California's gambling industry
was essentially unregulated. In 1984, the Legislature
enacted the Gaming Registration Act, which required the
Attorney General's office to provide uniform, minimum
regulation of California's cardrooms. However, the scope
of the Attorney General's authority was extremely limited
and funding was inadequate. Recognizing the need for
broader oversight of California's gambling industry, the
Legislature enacted the Gambling Control Act (Chapter 867,
Statutes of 1997). The Act created a comprehensive scheme
for statewide regulation of legal gambling.
The provisions of the Act are administered through a
bifurcated system. The Bureau of Gambling Control (BOGC)
was created to investigate, among other things, the
qualifications of persons who apply for state gambling
licenses and to monitor the conduct of these persons to
ensure compliance with the Act. In addition, the Act
created a five-member, Governor-appointed California
Gambling Control Commission to establish minimum regulatory
standards for the gambling industry and to ensure that
state gambling licenses are not issued to or held by
unsuitable or unqualified individuals.
Most significant changes proposed by AB 293. Most
provisions of the bill are very technical in nature. The
changes have been vetted among DOJ, CGCC, and the industry.
Among the more meaningful changes are:
1)Section 19804(b). This change provides CGCC, BOGC, and
enjoined parties more time (45 days rather than the
current 15 days) to prepare for trial.
2)Defines the term "gambling enterprise" to mean any person
that owns a gambling operation and makes conforming
changes throughout the Act. [Government Code Section
19805(m)]
This change is intended to reflect that business entities,
AB 293 (Mendoza) continued
Page 8
as well as, people may own and be licensed to operate a
gambling operation.
3)Section 19824(b). This change clarifies the power of
CGCC to condition, restrict, discipline, or take action
against an individual owner with or without taking action
against the gambling enterprise which may be composed of
multiple owners having nothing to do with the issues or
concerns affecting the license of another individual
owner. Previously, it was unclear whether CGCC could
take action against an individual owner without affecting
or jeopardizing the gambling enterprise and/or all other
individual owner licenses. This change separates the
business entity license and individual owner licenses.
4)Section 19841(s). The Act requires that a gambling
enterprise and each individual owner to be continuously
licensed in order for the gambling enterprise to operate
but does not provide for a comprehensive process to allow
for the necessary licensing to allow for such operation
in the event of death, insolvency, etc.. This
requirement could create a potential hardship for owners,
employees and others in the event the gambling enterprise
was forced to close because an individual owner was no
longer continuously licensed. This amendment requires
that the Commission adopt regulations that allow the
gambling enterprise to remain in operation during the
transition period.
5)Section 19868(c). Currently, the Act requires that the
chief of BOGC file written reasons with CGCC if a
"denial" of a license is recommended and inform the
applicant of the reasons for the recommendation in
advance. This change extends similar requirements to
situations in which the chief of BOGC is recommending
that a license be "restricted or conditioned".
6)Section 19882(a). This change is necessary to encompass
the "revocation" of licenses in addition to denials and
to conform it to other sections requiring that the
affected party receive notification. In recognition of
the economic realities of the marketplace in terms of
selling card rooms, it provides shareholders 60 days
rather than 30 days to sell their interest if their
license is revoked or denied, and allows the Commission
to grant more time if the seller is using due diligence.
AB 293 (Mendoza) continued
Page 9
7)Section 19882(b)(1). This change enhances the
description of the types of remuneration a licensee
cannot receive from the gambling enterprise once the
licensee's license has been denied or revoked and allows
for the licensee to receive only necessary dividends to
pay income tax due until the date of sale (as determined
in writing by an independent CPA) in order to prevent a
default in the payment of taxes due.
8)Section 19890. The changes to this section are made to
make it applicable to "general" as well as "limited"
partnerships, in recognition of the fact that a
partnership may be formed outside the state but must be
registered with the state, must maintain an "ongoing"
ledger as per the Bureau's request, and must provide
certain documents upon application for initial licensure
and, upon subsequent licensure, at the request of BOGC.
9)Section 19890.5. This section is added in recognition of
the growing use of limited liability companies as legal
entities since the inception of the Act. At the time the
Act was enacted, LLC's were not generally in use. These
provisions essentially mimic those applicable to the
licensing of corporations and partnerships.
10)Section 19921. These revisions clarify the
circumstances and conditions under which persons under 21
years of age may access specified non-gaming areas in a
gambling establishment without the establishment being
required to make physical alterations to the gambling
establishment or requiring persons under 21 to pass
through areas of the establishment which could put them
at risk (i.e., kitchens, employee break rooms, etc.).
This section also makes clear that no such under 21
persons may loiter in a gaming area.
11)Section 19966. This change allows a city that annexes
an unincorporated area of a county with a card to adopt
the same gaming ordinance as the county.
PRIOR/RELATED LEGISLATION
AB 2627 (Mendoza), 2007-2008 Legislative Session . Similar
to AB 293 (2009). (Vetoed by the Governor)
AB 293 (Mendoza) continued
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Veto Message :
To the Members of the California State Assembly:
I am returning Assembly Bill 2627 without my
signature.
The historic delay in passing the 2008-2009 State
Budget has forced me to prioritize the bills sent to
my desk at the end of the year's legislative session.
Given the delay, I am only signing bills that are the
highest priority for California. This bill does not
meet that standard and I cannot sign it at this time.
AB 2431 (Governmental Organization Committee), Chapter 738,
Statutes of 2002 . Renumbers various sections and article
headings within the Gambling Control Act, eliminates
outdated references, resolves conflicting provisions, and
makes other technical and clarifying changes.
SB 8 (Lockyer), Chapter 867, Statutes of 1997 . Repealed
the Gaming Regulation Act, and instead enacted the Gambling
Control Act, which provided for DOJ to investigate and
enforce controlled gambling in the state. It also
establishes CGCC to regulate gambling in this state to
issue, suspend, or revoke gambling licenses.
SUPPORT: As of June 19, 2009:
California Gaming Association (sponsor)
OPPOSE: None on file as of June 19, 2009.
FISCAL COMMITTEE: Senate Appropriations Committee
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