CA Judge Sides With Flynt That CA Cardroom Licensing Laws Are Problematic

Written By Joe Boozell on June 22, 2020

Hustler founder Larry Flynt has long taken aim at a California law barring cardroom operators from investing in out-of-state casinos. And last week, US District Judge John Mendez sided with him, at least in part. Mendez is calling for a deeper look into the law, denying state officials’ efforts to spike Flynt’s lawsuit.

Flynt owns Hustler Casino and Larry Flynt’s Lucky Lady Casino, both located in California. He claims he’s been unable to broaden his casino and gaming business outside of California because of a 1986 law designed to keep the mob out of casinos and legal cardrooms.

Flynt has argued that the law is outdated. He notes former California politicians and governors have said the same. Fellow cardroom owners  Haig Kelegian Sr. and Haig Kelegian Jr. are joining Flynt in this legal fight. Flynt also pointed out that legislators have exempted other businesses from the law. Moreover, he points out that casinos are now heavily regulated to identify and eliminate organized crime.

Judge and Flynt both push to change CA cardroom law

As evidence, Flynt cited a 2002 nonpartisan study funded by the state that suggested updating the law. In 2016, then-Governor Jerry Brown vetoed a bill that would have exempted Hollywood Park Casino owners from the law. But, in the veto message, he encouraged legislators to “thoughtfully examine those laws and amend them so that all participants in the industry receive the same benefits and opportunities.”

Judging by last week’s ruling, it looks like there is momentum toward doing just that. From the 14-page ruling:

“Defendants fail to illustrate how these allegations are insufficient as a matter of law. To the extent that plaintiffs’ dormant commerce doctrine claims rest upon an indirect-regulation theory of liability, the court denies defendants’ motion to dismiss.”

Flynt also says the law could have the unintended effect of incentivizing him to divest from his business outside of gambling. Mendez appears to believe that has some merit.

Other gambling operators who would like to see a change in the law are keeping a close eye on the case. Enacted in 1986, the Gambling Registration Act was designed to keep the mob out of California gambling operations by restricting financial resources. The law works both ways. California residents with gaming licenses can’t operate out of state. Conversely, out-of-state residents who own gambling entities are not allowed to own a California cardroom license.

CA cardroom owners hoping courts overturn license law

Mendez originally rejected the matter in 2017, asserting that the plaintiffs’ claims fell outside the statute of limitations. Flynt, Kelegian Sr., and Kelegian Jr. appealed in 2019, and a Ninth Circuit panel demanded Mendez reopen the case.

“That all three licensees continue to be precluded from exploring other investment opportunities is not a consequence of the commission’s decision, as the dissent would have us conclude, but rather a result of the continued existence of the statutes themselves and the realistic threat of future enforcement,” Ninth Circuit Judge Diarmuid F. O’Scannlain wrote.

One of the primary areas of dispute is that Flynt says the law is an attempt to regulate interstate commerce. While Mendez sided with the state in saying the law doesn’t directly do so, he left the door open by allowing Flynt to argue it indirectly does. Mendez gave the plaintiffs 20 days to amend their complaint.

So they did. The response:

“Thus, with respect to Mr. Flynt’s investment in an out-of-state adult entertainment establishment, the California ownership restrictions currently impact the ability of a cardroom licensee to maintain an ownership interest in an entity that has nothing to do with gambling, to the extent that the majority owner in that entity elects to pursue an ownership interest in an out-of-state casino-style gambling entity in excess of 1%.”

Flynt, Kelegian Sr., and Kelegian Jr. are not seeking damages. However, they are hoping the court finds the law unconstitutional.

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