CA cardrooms, tribes gear up for epic legal battle

The ongoing conflict between California tribes and cardrooms regarding the use of third-party providers (TPPs) has escalated into a significant legal battle, influenced by the recent passing of legislation. The outcome of these proceedings could reshape the future of the gambling landscape in California.

In November 2022, California’s legislature enacted SB 549, known as the Tribal Nations Access to Justice Act. This pivotal legislation grants state gaming tribes the authority to sue cardrooms and TPPs for violations, a right previously unavailable due to their sovereign status. The law aimed to create a pathway for tribes to protect their interests against what they perceive as encroachment on their gaming exclusivity.

Following the passage of SB 549, a coalition of tribes initiated legal action in January 2023, targeting over 90 defendants, comprising various cardrooms and TPP providers. The case is currently under review by the Sacramento Superior Court and is set for its next hearing on August 8.

Central to the dispute is the classification of games being offered by cardrooms. Tribes argue that these games are essentially “house-banked”—meaning players wager against the house rather than one another—which violates the exclusive rights granted to them over Class III gaming since 2000. Class III gaming includes traditional casino games like blackjack and poker.

According to state law, cardrooms are allowed to offer specific table games that involve player-to-player interaction, akin to recreational or charitable gaming. However, in response to player demand for Class III-style experiences, many cardrooms have turned to TPPs to serve as facilitators. These providers operate under a requirement of financial independence while partnering with cardrooms to meet the gaming aspirations of their clients.

Tribal leaders assert that this arrangement oversteps legal boundaries, pushing the envelope into banking games and infringing upon tribal rights. As such, the SB 549 lawsuit represents a culmination of long-standing tensions, and its resolution has the potential to significantly alter the operational dynamics of California’s gambling industry.

Tribes Challenge Cardroom Operations

On April 23, 2023, the Rincon Band of Luiseno Mission Indians filed a complaint challenging cardroom operations, with a similar suit from the Agua Caliente Band of Cahuilla Indians filed on February 18. The Rincon complaint argues that the games offered by cardrooms, such as blackjack and baccarat, violate both state constitutional and penal codes by constituting house banking.

The complaint highlights that TPPs maintain a player-dealer position in blackjack-style games, mimicking banking operations typical of traditional casinos in states like Nevada and New Jersey. Such operations engender uncertainty for players regarding possible winnings or losses, characteristic of a banked game.

Legal Relationships Under Scrutiny

The complaints also scrutinize the contractual entanglements between cardrooms and TPPs. As per the law, these entities are supposed to be independent; however, investigations reveal complex financial linkages that call this independence into question.

“TPPs pay cardrooms for the right to occupy player-dealer positions in games,” states the complaint. “Their revenue streams are directly derived from the wagers placed in these games, suggesting an unlawful interest on the part of cardrooms in the game outcomes.”

Cardrooms Defend Their Operations

On May 2, 2023, attorneys representing Artichoke Joe’s, a San Bruno cardroom, registered their rebuttal. They emphasized that tribes have previously attempted to initiate similar lawsuits without success before the enactment of SB 549. A prior lawsuit in 2021 failed due to lack of standing, and a 2022 amendment to Proposition 26—a failed effort at retail sports betting—added provisions allowing any entity to sue cardrooms, though this initiative ultimately did not pass.

Artichoke Joe’s contends that the passage of SB 549 may circumvent existing legal frameworks, presenting challenges for the courts due to conflicting state laws.

The Impact of Proposition 64

Compounding the issue is the legacy of Proposition 64 from 2004, which mandates that any plaintiff must demonstrate individual standing to sue for damages. In this instance, the tribes’ collective lawsuit could potentially render the claims nonviable under the auspices of Prop 64, as it may not satisfy the requirement for individual injuries linked to illegal acts.

The defense argues that since the tribes hail from disparate regions of the state, their individual grievances may not collectively substantiate a legal claim against the cardrooms. Furthermore, any changes to Prop 64 can only be enacted via voter approval, complicating the legal landscape.

Ongoing Regulatory Process Complicating Matters

As these legal proceedings advance, they are intertwined with parallel regulatory developments initiated by Attorney General Rob Bonta and the state’s Bureau of Gambling Control (BGC). In 2023, the BGC proposed reforms concerning blackjack games and the player-dealer structure, with changes mirroring issues raised in the current lawsuit.

Public hearings in late May garnered considerable opposition from cardrooms, with advocates warning that these changes could lead to substantial revenue loss and job reductions. According to the BGC’s assessments, new regulations could potentially cost cardrooms hundreds of millions in revenue, significantly impacting local economies reliant on these establishments.

With numerous small cities depending on tax revenue from cardrooms—a cornerstone of their municipal funding—the stakes are incredibly high for both tribes and cardrooms alike as state officials deliberate the future of gambling in California.