BILL ANALYSIS �
AB 513
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Date of Hearing: April 13, 2011
ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION
Isadore Hall, Chair
AB 513 (Hall) - As Introduced: February 3, 2011
SUBJECT : Enforcement of obligations: gambling debt.
SUMMARY : Authorizes a tribal gaming operation or a gambling
enterprise, or a person acting on behalf of either of those
entities, to bring an action in state court to enforce credit
instruments that evidence gambling debt, including an action to
enforce the debt represented by a credit instrument that is lost
or destroyed if the existence of the credit instrument can be
proven. Specifically, this bill :
1) Provides a tribal gaming operation or gambling enterprise, or
a person acting on behalf of either of those entities, may bring
an action in state court to enforce a credit instrument that
evidences gambling debt.
2) States a credit instrument tendered to, and accepted by, a
tribal gaming operation or gambling enterprise, and the debt
that the credit instrument represents, are valid and enforceable
by legal process.
3) Provides a tribal gaming operation or gambling enterprise, or
a person acting on behalf of either of those entities, may
accept a credit instrument before, at the time of, or after the
patron incurs the debt. The credit instrument, and the debt that
the credit instrument represents, are enforceable without regard
to whether the credit instrument was accepted before, at the
time of, or after the debt is incurred.
4) States the debt represented by a credit instrument that is
lost or destroyed may be enforced pursuant to this section if
the existence of the credit instrument can be proven.
5) "Credit instrument" means a writing that evidences a gambling
debt owed to a tribal gaming operation or gambling enterprise,
and includes any writing taken in consolidation, redemption, or
payment of a previous credit instrument.
6) "Tribal gaming operation" means the business enterprise that
offers and operates gaming activities pursuant to a tribal-state
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gaming compact between the state and a federally recognized
Indian tribe.
EXISTING LAW :
1) Existing case law declares the public policy of the state
against judicial resolution of civil claims arising out of
gambling contracts or transactions absent a statutory right to
bring those claims.
2) The Gambling Control Act (Act) provides the California
Gambling Control Commission (CGCC) with jurisdiction over
controlled gambling and all activity that is related to the
conduct of controlled gambling.
3) Assigns CGCC with the responsibility of assuring that
gambling licenses 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.
4) Provides the CGCC shall adopt regulations, which, among other
things, would govern the
extension of credit, the cashing, deposit and redemption of
checks or other negotiable
instruments, and the verification of patron identification in
monetary transactions.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of the bill : According to the author, under current law
there is a question as to whether gambling debts are truly
enforceable in California. Unfortunately for gaming operations
in California the answer is not crystal clear. While California
law contemplates the extension of credit to patrons, nowhere in
the California Gambling Control Act (Act) does the state
authorize enforcement of gambling debts by statute. The Act
provides the California Gambling Control Commission with the
authority to adopt regulations regarding the extension of credit
but there does not appear to be a basis within the Act that
would make a "credit instrument" evidencing gambling debts
enforceable pursuant to state law.
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In addition, recent court decisions have declared that the
California judicial system does not have the authority to
resolve gambling debts.
Current California case law has prohibited the enforcement of
gaming debts through the use of state courts. This prohibition
is largely based upon state laws which historically outlawed
gaming. Accordingly, courts would refuse to enforce debts which
arose from such illegal gambling. State policy regarding
gambling has changed significantly since the granting of
statehood. Gaming is clearly permitted under state law, and is
highly regulated and is an important source of State revenue.
As the State's public policy with regard to gaming has changed,
it is appropriate to confirm that public policy has changed, and
that debts arising from legal gambling are enforceable.
By clarifying in statute, that gambling debts are enforceable in
California courts, it will ensure that debts incurred at tribal
gaming operations and other gaming operations in the state are
paid in full by the debtor.
Background :
California has always had a strong public policy against
judicial enforcement of gambling debts, going back virtually to
the inception of statehood. This prohibition is deeply rooted
in Anglo-American jurisprudence, originating in England in 1710
in the Statute of Anne, which made gambling debts "utterly void,
frustrate, and of none effect, to all intents and purposes
whatsoever ?"
Recent California court decisions have held and continue to hold
that the California judicial system is not available to resolve
gambling debts. The policy can be traced back to 1851 when the
California Supreme Court ruled against the owner of a San
Francisco gaming house who tried to collect $4,000 in gambling
debts from a man who lost the money playing faro.
More recently, in 1993, the 1st District Court of Appeal ruled
(Metropolitan Creditors Service of Sacramento v. Sadri) that a
gambling debt owed to a Nevada casino is not enforceable in
California. The assignee of a Nevada casino brought an action in
California to collect on credit instruments evidencing gambling
debts. The Defendant had written two checks and executed two
memoranda of indebtness, receiving gambling chips in exchange.
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After he lost the chips playing baccarat, he stopped payment on
the checks and memoranda. The trial court rendered judgment for
defendant, ruling that under established public policy the
gambling debts were unenforceable in California.
In a 2007 case, a California resident wrote $43,000 in checks to
casinos in California and Nevada; a judge ruled that the
gambling debts were not enforceable in California courts. The
Judge wrote, despite the state's increased acceptance and
legalization of various forms of gambling, "enforcement of such
claims is prohibited as against California's public policy," he
cited the above-mentioned ruling that found what the court
described as a "critical distinction between public acceptance
of gambling itself and California's deep-rooted policy against
enforcement of gambling debts -- that is, gambling on credit."
That same judge dismissed a lawsuit filed in 2005 by an agency
seeking to collect debts owed by another individual. The suit
claimed that individual had written checks at a casino in Nevada
and an Indian casino in California and the funds were
insufficient.
What other states do : Gambling can take a nearly infinite
number of forms, and each State generally has the freedom to
decide whether to legalize any form of gambling. The type of
gambling that a state has chosen to legalize impacts its
gambling debt enforcement or recovery body of law. In general,
states (i.e., Virginia, Wisconsin, North Carolina, and Kentucky)
that have not legalized casinos retain strict laws forbidding
the enforcement of gambling debts, while those that have
legalized casinos have slowly relaxed (i.e., Nevada, New Jersey,
Colorado, South Dakota and Louisiana ) such prohibitions.
For states that have only recently legalized casinos, most
during the 1990s, this process has just begun. For example,
Mississippi legalized dockside casino gambling in 1990. At
common law, all gambling debts were unenforceable. However,
Mississippi has passed laws creating two exceptions: patron
claims against casinos and enforcement of proper credit
instruments. Gambling debts evidenced by credit instruments are
excluded from the general unenforceability rule. These debts may
be enforced directly through Mississippi's legal process.
However, Mississippi courts will only enforce gaming credit
instruments if the extension of credit was proper under the
Mississippi Gaming Commission rules
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In 1983 Nevada legalized enforcement of gambling debts : Nevada
legalized gambling in 1931, but it did not legalize the
enforcement of gambling debts until 1983. During the intervening
fifty-two years, its courts wrestled with issues related to the
Statute of Anne.
Nevada enforces gambling debts when credit instruments, such as
markers or checks, are cashed at a casino. Under current law, a
casino may enforce gambling debts by immediately filing suit on
any enforceable credit instrument and the underlying debt.
While regulations for the issuing of credit to a patron are
stringent, failure to follow the regulations does not invalidate
the credit instrument. Rather, such violations result in
disciplinary action by the Gaming Control Board. The casinos
have an additional weapon to use against patrons who refuse to
pay their debts: unpaid markers may be handed over to the
district attorney for possible criminal prosecution.
CGCC approved regulations : In 2008, the CGCC approved
regulations authorizing card rooms to extend credit to their
patrons. The regulations defined the procedure for the
extension of credit to card room patrons which are found in the
Minimum Internal Control Standards (MICS) for gambling
establishments: Checks, Credit, ATMs and Unclaimed Property
(hereinafter "Extension of Credit Regulation"). The specific
authority for promulgation of this regulation regarding the
extension of credit is in the Act.
Extension of Credit by Tribal Casinos : The state's Gambling
Control Act (GCA) of 1993, did not prohibit the extension of
credit, a number of Tribal casinos have elected to offer their
customers credit with which to play. The extension of credit by
a tribal gaming operation is governed by tribal law, not state
law (unless otherwise in a Compact). Accordingly, assuming that
there is a tribal law permitting the extension of credit and
enforcement of credit instruments evidencing that debt, the
question then turns to enforceability of the credit instrument,
or marker, extended by a tribal gaming operation to its patrons.
An emerging issue in tribal gaming is whether gambling debts
incurred at reservations are/not enforceable in state courts;
such judgments have been enforced in Connecticut and New York.
Tribal gambling debts judgments have been enforced in
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Connecticut and New York : In Mashantucket Pequot Gaming
Enterprises v. Kennedy, a Connecticut court concluded that the
provisions of the tribal-state compact took precedence over
Connecticut statutes that did not allow the enforcement of
gambling debts. More specifically, the court focused on the
issue of whether federal law should preempt state law in the
context of Indian Gaming. The court determined that the issue
should be resolved according to "principles of federal
preemption under the Supremacy Clause of the United States
Constitution."
In Mashantucket Pequot Gaming Enterprise v. DiMasi, a
Connecticut court recognized a tribal gaming judgment under the
principle of comity. Then, in Mashantucket Pequot Gaming
Enterprise v. Renzulli, the defendant was issued two markers
totaling five thousand dollars. When the markers were returned
for insufficient funds, the tribe attempted to contact the
defendant in order to collect upon the debt, however, the
defendant refused to respond to any correspondence. Persuaded by
the fact that the Connecticut courts, pursuant to that state's
compact with the Pequots, enforced tribal court decisions "under
the principle of comity," the New York trial court enforced the
tribal court judgment.
Double-referral . This measure is double-referred to the Assembly
Committee on Judiciary.
Prior legislation . SB 8x (Lockyer) Ch. 837 of 1997.
Establishes the Gambling Control Act, creating a scheme of
regulation of card room gambling, which upon the occurrence of
certain events, will become a system of control of gambling
including slot machines and banked games.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : Eric Johnson / G. O. / (916) 319-2531
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