SACRAMENTO, Calif. (CN) – Hustler founder and distinguished smut king Larry Flynt is eager to diversify his business holdings and invest in several casinos across the country. But because he owns a pair of cardrooms in Southern California, an “anachronistic” California gambling law bars him from sealing casino deals in Las Vegas, Mississippi and Colorado.
While Nevada has embraced gambling and allowed publicly traded companies to run billion-dollar operations, the Golden State bars residents who hold cardroom licenses from investing in out-of-state or foreign casinos.
Citing due process and discrimination claims, Flynt and two other California cardroom operators sued the state in Federal Court Wednesday for the right to invest in out-of-state casinos.
At issue is California Business and Professions Code Section 19858, enacted in 1986 by the Legislature under the guise of crime prevention. Known as the Gambling Registration Act, the section was an attempt by state lawmakers to keep organized crime out of California gambling operations by limiting cardroom operators’ financial resources.
The legislation not only prevents residents with California gaming licenses from investing in outside casinos, it bars out-of-state residents who own gambling activities from obtaining California cardroom licenses.
Current California law allows certain types of gambling, including poker and other non-banked card games where gamblers play against each other and not the house. Tribal casinos are allowed to operate banked-card games and slot machines and the state also allows residents to bet on horse racing.
Flynt, who owns Hustler Casino and Larry Flynt’s Luck Lady Casino in Southern California, says Section 19858 has outlived its purpose because casinos are now thoroughly regulated in order to weed out organized crime holdings. He points to a 2002 state-funded nonpartisan study that recommended updating state law and allowing publicly traded companies to operate cardrooms.
“The issue before the commission was whether the ownership prohibitions are still necessary to protect the public against criminal activity. The answer is clearly no,” the Little Hoover Commission report states.
Flynt and his cohorts also highlight that the state has enacted laws to allow exemptions from the ownership restrictions and that publicly traded corporations that own casinos in other states are operating tribal casinos throughout California.
“Yet, in spite of the recognition that Section 19858 is discriminatory and has long outlived its ostensible policy rational, the provision remains in effect and to impose a criminal law barrier to otherwise lawful interstate investment,” the 25-page complaint states.
Flynt and co-plaintiffs Haig Kelegian Sr. and Haig Kelegian Jr. are suing California Attorney General Kamala Harris, the California Department of Justice and the California Gambling Control Commission.
The cardroom operators want an order blocking the state from enforcing Section 19858 and a ruling that the law unconstitutional. They are not asking for punitive or special damages.
Flynt’s attorneys, Paul Cambria and Erin McCampbell of Los Angeles, did not return email and voicemail requests for comment Friday.
The attorney general’s office declined to comment, saying it hadn’t been served with the lawsuit as of Thursday.
The argument that California’s gambling laws need reshaping seems to be supported by current California Gov. Jerry Brown.
In September, Brown vetoed a bill that would have extended the Section 19858 exemption given to the owners of the Hollywood Park Casino. A group of public-pension plan investors own both the Hollywood Park Casino and the SLS Hotel and Casino in Las Vegas.
In a veto message, Brown encouraged lawmakers to take another look California’s gambling laws.
“If our gambling laws are based on outdated policies or assumptions, we should thoughtfully examine those laws and amend them so that all participants in the industry receive the same benefits and opportunities,” Brown said.
Plaintiff Kelegian Jr., who owns stakes in three California cardrooms, has been punished by the state for violating gambling laws.
After purchasing a cardroom in Seattle in 2010, Kelegian Jr. created a corporation and gave his wife 99 percent of the ownership share and kept one percent for himself in an attempt to comply with California’s law. Despite informing state regulators of the ownership situation, he was eventually fined $210,000 by the Bureau of Gambling Control for violating California’s ownership prohibition, according to the complaint.
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