(CN) – The former CEO of the Meadowbrook Manor chain of nursing homes must repay $1.25 million in gambling debts to the Wynn and Caesars Palace casinos, despite filing for Chapter 11 bankruptcy in his home state of Wisconsin, the 7th Circuit ruled.
The court rejected Robert Jafari’s assertion that the claims were “unenforceable” under the Wisconsin Anti-Gaming Statute. Jafari further claimed that the Nevada bankruptcy court was required to follow the choice-of-law rules of the forum state – Wisconsin – rather than follow Nevada laws.
But in its decision affirming the Nevada bankruptcy court’s ruling, the Chicago-based federal appeals court found “there is no question that Jafari was in Nevada” when he negotiated the lines of gambling credit.
Additionally, the debt was payable to Wynn and Caesars in Nevada. “In contrast, Wisconsin’s only contact with the (debt) was that Jafari happened to reside in Wisconsin at the time he entered into the agreements.”
Jafari, who “has a history of gambling problems,” according to the opinion, borrowed about $3 million from family and friends to cover his gambling losses. In 2005, however, he met with casino developer Steve Wynn, who approved a credit line at his casino that reached $1 million. Caesars Palace also extended a $250,000 line of credit.
Both Wynn and Caesars prepared markers in exchange for the credit. Both were returned with payment denied and stamped “Refer to Maker.”
Wynn and Caesars sued Feb. 6, 2006, but two days before Jafari’s deadline for filing an answer, Jafari filed for Chapter 11 bankruptcy in Wisconsin, staying the Nevada lawsuit.
In August 2006, Caesars and Wynn filed timely proofs of claim for the amounts owing.
A bankruptcy court ordered the debts unenforceable, but the district court in Wisconsin reversed the decision and remanded the case to the bankruptcy court, which then applied Nevada law and allowed the casino’s claim for the gambling debts.