Casino M8trix Lawsuit Is Epitome Of Clashing Interests In CA Gambling Industry

Posted By Derek Helling on February 15, 2021

What’s good for the goose isn’t always good for the gander. That’s especially true when it comes to gambling in California.

A new Casino M8trix lawsuit against the city it inhabits, San Jose, is proof of how different interests can compete with each other in the Golden State.

At the heart of the matter is the reading of a 1992 city statute, the California Gambling Control Act, and a 2020 ballot measure that the city’s voters approved by a large margin. At stake is not only the cardroom’s future but also millions of dollars in tax revenue.

Backstory on the Casino M8trix lawsuit

Our story begins nearly three decades ago. In June 1992, San Jose enacted an ordinance that limited California cardrooms to 40 tables. Thereafter, the Gambling Control Act installed a check against municipalities’ abilities to raise those caps.

The law says that cities can’t unilaterally increase those limits by 25% or more than what their limits were on Jan. 1, 1996. San Jose did not finalize any other limits between June 1992 and that date. So, the threshold sat at 40 as far as the state is concerned.

San Jose voters did approve an increase in 2010, taking the maximum up to 49. That’s just a 23% increase, so safely compliant with state law. Everything seemed peachy until last November when San Jose voters went to the polls on another increase.

The 2020 ballot measure upped the cap from 49 to 64. That’s a whopping 60% hike, well over the state’s limit. So, how did San Jose’s leadership think it would pass muster? The city argues that it has never maintained a limit on how many tables each cardroom is allowed.

Rather, it alleges, the 1992 ordinance imposed a citywide limit of 181 tables. However, state regulators haven’t bought that line of thinking. Thus, the legality of the 2020 ordinance is really in doubt.

State officials warned San Jose about compliance issues

According to The Mercury News, San Jose inquired with the Bureau of Gambling Control on the ballot measure. That’s standard procedure and just a good practice for due diligence on all city ordinances. The city didn’t get a standard answer, though.

An Oct. 19, 2020, response indicated that the proposal “appears to be inconsistent with the Gambling Control Act.” Being just two weeks before the election, however, it was too late to pull the ballots and print new ones.

So, regardless of its legality, the vote went forward. The terms of the ordinance raised the city’s tax on cardrooms by 1.5% but also gave them the aforementioned increase. It was supposed to be a win-win situation. The cardrooms get more customers while the city gets more revenue, an estimated $15 million annually.

But it seems they forget to deal the state in. That’s why Casino M8trix is suing the city.

What does Casino M8trix hope to accomplish?

Essentially, the argument from Casino M8trix is that the city can’t separate one aspect of the new ordinance from any others. If the capacity increase is illegal, then so is the tax rate hike. While San Jose leaders are trying to work out a deal with state regulators to allow the implementation of the 2020 statute to go forward, Casino M8trix is protecting itself in case that doesn’t happen.

To be clear, San Jose is the defendant in this lawsuit. However, the cardroom’s true opponent in this dispute is the application of state law. San Jose’s leadership has been nothing but supportive of its cardroom operators in the past.

It’s reminiscent of the ongoing drama among cardroom operators, city governments, state regulators and tribal casinos in California. Tribal casinos have long argued that cardrooms’ offering of certain types of games violates their compacts. They have gone as far as to sue the state to force the issue, though unsuccessfully.

Previous attempts to enforce state law on this issue have been met with staunch resistance from cities in the state. Those cities have rebutted the measures, stating the cardrooms are too crucial for their budgetary demands.

Ultimately, California judges may decide this dispute. It’s just another chapter in the story of how the multiple layers of gambling controls in California can create conflicts of interest.

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Derek Helling

Derek Helling is a freelance journalist who resides in Chicago. He is a 2013 graduate of the University of Iowa and covers the intersections of sports with business and the law.

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