BILL ANALYSIS �
AB 513
Page 1
Date of Hearing: May 10, 2011
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 513 (Hall) - As Amended: March 31, 2011
SUBJECT : GAMBLING DEBT: ENFORCEMENT
KEY ISSUES :
1)SHOULD CALIFORNIA COURTS ENFORCE GAMBLING DEBTS?
2)SHOULD REASONABLE CONSUMER PROteCTIONS, SUCH AS THOSE ALREADY
ADOPTED BY THE California Gambling Control Commission, BE
ADDED TO THE BILL TO HELP MINIMIZE THE harms that can result
from GAMBLING ON CREDIT?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
Since statehood, California courts have prohibited, on public
policy grounds, the enforcement of gambling debt. While
gambling has become much more available in the state, courts
continue to raise concerns about the harms that can result,
particularly to habitual gamblers, from gambling on credit. The
California Gambling Control Commission has approved regulations
authorizing card rooms to extend credit to their patrons.
However, such debt is likely still unenforceable based on case
law. This bill, modeled after a Nevada statute, allows for the
enforcement of gambling debt owed to tribal gambling entities
and card rooms in California courts. In order to help minimize
any harms that could result from gambling on credit, the
analysis suggests several minimal consumer protections
amendments, including ensuring that any credit extended for
gambling comply with state regulations, that this Committee may
wish to consider. This bill passed the Assembly Governmental
Organizations Committee on a vote of 15-1.
SUMMARY : Allows a tribal gaming operation or a gambling
enterprise to enforce a gambling debt in state court.
Specifically, this bill :
1)Allows a tribal gaming operation or a gambling enterprise, or
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a person acting on behalf of either of those entities, to
bring an action in state court to enforce a credit instrument
evidencing a gambling debt. Provides that a credit instrument
accepted by a gaming entity is valid and enforceable by legal
process. Defines "gambling enterprise" as a natural person or
an entity, whether individual, corporate, or otherwise, that
conducts a gambling operation and that by virtue thereof is
required to hold a state gambling license, as provided.
2)Allows a tribal gaming operation or a gambling enterprise to
accept a credit instrument evidencing a gambling debt before,
at the time of, or after the patron incurs the debt, and
provides that the debt is enforceable regardless of when the
credit instrument is accepted.
3)Provides that a debt is still enforceable even if the credit
instrument that evidences the debt is lost or destroyed as
long as the existence of the credit instrument can be proven.
4)Defines the terms "tribal gambling operation" and "credit
instrument."
EXISTING LAW :
1)Existing case law declares the public policy of the state
against judicial resolution of civil claims arising out of
gambling indebtedness. (See, e.g., Bryant v. Mead (1851) 1
Cal. 441; Metropolitan Creditors Service of Sacramento v.
Sadri (1993) 15 Cal.App.4th 1821.)
2)Provides that an unlawful contract is one that is contrary to
an express provision of law or otherwise contrary to good
morals. (Civil Code Section 1667.)
3)Provides, through the Gambling Control Act (Act), the
California Gambling Control Commission (CGCC) with
jurisdiction over controlled gambling and all activity that is
related to the conduct of controlled gambling. (Business &
Professions Code Section 19800 et seq. All further statutory
references are to that code unless otherwise stated.)
4)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,
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safety or welfare. (Section 19856.)
5)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. (Section 19841.)
COMMENTS : This bill allows for the enforcement of gambling debt
owed to tribal gambling entities and card rooms in California
courts. This bill is modeled after a similar statute from
Nevada. In support of the bill, the author writes:
AB 513 would allow tribal gaming operations the ability to
enforce gaming debts evidenced by a credit instrument in
State court. Current State case law prohibits the
enforcement of gaming debts through the use of state
courts. See Kelly v. First Astri Corp. , 72 Cal. App. 4th
462, 471 (Cal. App. 1999). 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, 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.
The California Gambling Control Commission (CGCC) has
recently enacted a state regulation which would authorize
and permit state licensed card rooms the ability to enforce
gaming debts evidenced by a credit instrument. As state
courts have found that the enforcement of gambling debts is
against public policy, it is questionable as to whether the
CGCC had the authority to enact that regulation.
Additionally, as CGCC regulations on this issue are not
applicable to a tribal gaming operation, this separate
legislation will confirm that tribal gaming operations may
also seek to enforce credit instruments in State court.
Some Form of Gambling is Now Legal in Almost All States, But Not
Enforcement of Gambling Debt : Forty-eight of the 50 states have
some form of legalized gambling, with Hawaii and Utah being the
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only exceptions. However, most states, like California, still
retain the prohibition on enforcement of gambling debt. The
exceptions to that general prohibition includes states that have
legalized casino gambling, such as Nevada, New Jersey and
Mississippi.
This Bill is Modeled After a Nevada Statute : This bill is
modeled after a Nevada statute, which has, since 1983, permitted
judicial enforcement of gambling. This bill allows a gaming
entity to bring an action in state court to enforce a credit
instrument, defined as any writing evidencing a gambling debt
owed to the tribal gaming entity. Like the Nevada statute it is
modeled after, this bill allows enforcement of a debt instrument
that is lost or destroyed as long as the gaming entity can still
prove the existence of the credit instrument. The debt is also
enforceable regardless of whether the credit instrument was
accepted before, after or at the time the debt was incurred.
Enforcement of Gambling Debt Prohibited Since 1710 : The
prohibition on enforcement of gambling debt dates back to at
least 300 years, when England enacted the Statute of Anne. That
statute not only declared all gambling debts void, but also
allowed a gambler to recover his or her losses. (Gambling debts
are "utterly void, frustrate, and of none effect, to all intents
and purposes whatsoever." 9 Ann. Chap. 14, Sect. 1 (Eng.
1710).)
The earliest California case to address gambling debt was Bryant
v. Mead (1851) 1 Cal. 441, which was issued by the State Supreme
Court just one year after California became a state. In that
case, a gambler paid his gambling debt with two checks, but then
stopped payment on them before the gambling establishment could
collect. The gambling establishment sued. The Supreme Court
affirmed the trial court and refused to enforce the debt,
writing: "Wagers, which tend to excite a breach of the peace,
or are contra bonos mores �against good morals], or which are
against the principles of sound policy, are illegal; and no
contract arising out of any such illegal transaction, can be
enforced. These are principles of the common law which has been
adopted in this State." (Id. at 444.) While the gambling
institution had a license and operated legally, the court
determined that the license only protected it against criminal
action and did not confer a right to sue for gambling debt.
Two years later the Supreme Court again refused to enforce a
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gambling debt, noting that "the practice of gaming is vicious
and immoral in its nature, and ruinous to the harmony and
well-being of society." (Carrier v. Brannan (1853) 3 Cal. 328,
329.) The court noted that while gambling had been legally
permitted by the Legislature, it did so only because "finding a
thirst for play so universally prevalent throughout the State,
and despairing of suppressing it entirely, �the Legislature has]
attempted to control it within certain bounds, by imposing
restrictions and burdens upon persons carrying on this kind of
business. The license simply operates as a permission, and
removes or does away with the misdemeanor which existed at
common law, without changing the character of the contract."
(Id.)
More Recent Cases Uphold Historic Prohibition Against
Enforcement of Gambling Debt Not Based on A Moral Opposition to
Gambling, But Based on Dangers of Gambling on Credit . More
recently, a California resident was sued by an assignee of a
Nevada casino to collect on a gambling debt that accrued in that
state. (Metropolitan Creditors Service of Sacramento v. Sadri
(1993) 15 Cal.App.4th 1821.) As discussed above, Nevada is one
of the few states to permit enforcement of gambling debt. In
deciding that California did not have to enforce a cause of
action arising in another state, the court noted 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. While the public policy
against the former has been substantially eroded, the public
policy against the latter has not." (Id. 1828.)
The court went on to quote a Connecticut case on the dangers of
gambling on credit:
"While the state's heretofore ancient and deep-rooted
policy condemning gambling has been eroded to some degree
by its legalization of certain types of gambling, the state
has, nevertheless, been intransigent in its policy
prohibiting the extension of credit for the promotion of
gambling activity--and with good reason. One need not have
the gambling sagacity of the famed Las Vegas oddsmaker
Jimmy the Greek to recognize the potential dangers in the
extension of credit to the gambler or the possibly
unfortunate incidents, to employ a euphemism, that could
well result from the nonpayment of the gambling bettor to
his creditor."
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(Id. at 1829, quoting King International Corp. Voloshin (1976)
366 A.2d 1172, 1174-75.) The court explained that gambling
debts are characteristic of pathological gambling, which is
recognized as an impulse-control disorder by the Diagnostic and
Statistical Manual of Mental Disorders (4th Ed.). Wrote the
court:
The social gambler comes prepared to leave the game with an
empty wallet or purse, but not with a heavy debt. In
contrast, the pathological gambler is out of control,
risking extensive debt and possibly financial ruin--perhaps
even "unfortunate incidents, to employ a euphemism."
In our view, this is why enforcement of gambling debts has
always been against public policy in California and should
remain so, regardless of shifting public attitudes about
gambling itself. If Californians want to play, so be it.
But the law should not invite them to play themselves into
debt. The judiciary cannot protect pathological gamblers
from themselves, but we can refuse to participate in their
financial ruin.
(Id. at 1830 (citation omitted).) The reasoning behind this
decision was affirmed most recently in Kelly v. First Astri Corp
(1999) 72 Cal.App.4th 462.
Distinction Between Enforcement of a Judgment and Bringing a
Cause of Action : This bill allows a cause of action to be
brought in a California court to collect on a gambling debt.
That is distinct from an action to enforce a judgment issued by
another state. A judgment obtained in another state may be
enforced in California, even if that judgment is to enforce a
gambling debt. "It has long been established that a final
judgment rendered under the laws of one state must be enforced
by a sister state under the Full Faith and Credit Clause, even
though the underlying action may be against the public policy of
the state in which enforcement is sought." (Harrah's Club v.
Blitter (1990) U.S. App. LEXIS 11580 at 8 (upholding, in a
California court, the enforceability of a Nevada judgment for a
gambling debt.)
Tribal court judgments to enforce gambling debt have also been
upheld, under the principal of comity, by courts in other states
that do not allow a cause of action to be brought for
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enforcement of gambling debt. (See, e.g., Mashantucket Pequot
Gaming Enterprise v. DiMasi (1999) Conn. Super. LEXIS 2584.) It
is important to keep in mind that this bill is not seeking to
enforce a tribal court judgment or a judgment from another
state, but rather allow a cause of action to be brought in
California courts.
CGCC Approved Regulations for Extension of Credit in Card Rooms :
In 2008, the CGCC approved regulations authorizing card rooms
to extend credit to their patrons. (4 Cal. Code of Regulation
Section 12388.) The specific authority for promulgation of
these regulations for the extension of credit is in the Act.
The regulations define the procedure for the extension of credit
to card room patrons and were adopted after a vetting with
interested stakeholders. These thoughtful regulations require,
among other things, that before credit can be extended, the
gambling entity must establish the patron's identity (which
should help limit cases of identity theft), ensure the patron is
credit worthy, and not issue additional credit if the patron is
more than 90 days delinquent in payment owed for previous
credits. The regulations also contain other sensible
requirements, such as ensuring that an automatic teller machine
is not accessible by a patron while seated at a gaming table.
These regulations provide a level of consumer protection for
gamblers seeking to gamble on credit and should help limit some
of the negatives associated with gambling on credit noted by the
court in Metropolitan Creditors Service of Sacramento v. Sadri.
Extension of Credit by Tribal Casinos : The state's Gambling
Control Act of 1993, did not prohibit the extension of credit
and 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 provided for in a compact. It appears
that most, if not all, of the compacts require tribes operating
casinos to "adopt and comply with standards that are no less
stringent than state laws, if any, prohibiting extensions of
credit." (See, e.g., Tribal-State Compact Between the State of
California and the Rincon, San Luiseno Band of Mission Indians,
Section 10.2(j) (Sept. 10, 1999).)
Internet Gambling Might Be Included Under This Bill : Two bills
currently before the Senate Governmental Organization Committee
would allow, under circumstances specified in the bills,
Internet poker and Internet gambling. (SB 40 (Correa) and SB 45
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(Wright).) At this point, since these bills have yet to be
heard in their first policy committee, it is unclear what rules
and controls will apply to these activities, as well as to any
credit that might be extended to gamblers over the Internet.
However, if credit is extended, it is quite possible that, under
the terms of this bill, the organizations operating the Internet
wagering sites may be able to sue in California courts to
collect on their gambling debt instruments.
Might it be Appropriate to Add Minimal Consumer Protections to
the Bill to Minimize Some of the Harms that Might Otherwise
Result from Gambling on Credit? : As discussed above, this bill
will allow, for the very first time in California, gambling
entities to use state courts to seek enforcement of gambling
judgments. In order to ensure that patrons of card rooms,
tribal gambling entities and, perhaps, even Internet poker
sites, are properly protected from some of the harms that could
result from gambling on credit that the court in Metropolitan
Creditors Service of Sacramento v. Sadri noted, this Committee
may wish to discuss with the author whether some minimal
consumer protections be added to the bill. These protections
could include:
A requirement that the entity seeking to enforce the
gambling debt be able to produce the credit instrument.
This appears to be required by CGCC's regulations and will
help ensure that only valid debts are sought to be enforced
in court.
A requirement that a gambling debt is only enforceable
if it complies with standards that are no less stringent
than state laws and regulations on extension of credit and
does not require that the patron waiver his or her right to
a jury trial. This is similar to what is already in the
tribal compacts and should help ensure that the CGCC's
regulations on credit are complied with. It will also help
ensure that debtors do not, unwillingly, give up their
right to a jury trial.
A requirement that any party to a credit instrument
evidencing a gambling debt may bring suit. As currently
drafted, this bill, likely inadvertently, only allows the
gambling entity to sue and does not allow a debtor to also
seek relief when appropriate. Consider the scenario in
which a gambler has executed a credit instrument for a
gambling debt and paid it off, but later learns that either
the extension of credit was not lawful or the game in which
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the extension of credit was used was not properly operated.
As drafted, the patron would likely not be able to seek
reimbursement of the funds paid, even though a wrong has
occurred, because the cause of action would be based on the
underlying credit instrument.
The Committee may find that these important consumer protections
help limit what could be "unfortunate incidents" that could
otherwise occur to Californians who choose to gamble on credit.
Prior Legislation : SB 8x (Lockyer) Chap. 837, Stats. 1997,
establishes the Gambling Control Act, creating a scheme of
regulation of card room gambling, including slot machines and
banked games.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : Leora Gershenzon / JUD. / (916)
319-2334