California card rooms win injunction in fight with AG over new rules

California card rooms breathed a small sigh of relief on Thursday after securing a preliminary injunction in two lawsuits filed against the state’s attorney general’s office, which will temporarily pause two new sets of regulations related to blackjack-style games and player-dealers from taking effect while the cases play out.

The injunction, which lasts for 45 days, was granted by San Francisco Superior Court Judge Richard Darwin. On the outset of the hearing, Darwin gave his tentative ruling in favour of the card rooms, which he later affirmed after arguments were presented from both sides. The next hearing is scheduled for 30 June.

“I find that petitioners are very likely to prevail on their argument that in issuing the new regulations, the [Bureau of Gambling Control] acted in excess of its jurisdiction,” Darwin said. “The law in California is clear: an agency like the Bureau possesses only those powers that have been granted to it by statute. Any act by an agency not authorised by the relevant, enabling legislation is beyond its jurisdiction and void.”

The new regulations promulgated by the BGC, which sits under the AG’s office and is separate from the California Gambling Control Commission, are part of an extremely complex and prolonged legal and regulatory fight between card rooms and state gaming tribes.

Tribes hold exclusivity for Class III gaming in California and have long contended that card rooms are illegally offering banked games, instead of their allotted parimutuel framework. Card rooms, in turn, argue that blackjack-style games and player-dealers had been approved and regulated by state authorities for years prior to the new rules.

The AG’s office told iGB it is aware of the injunction and “will respond appropriately in court”. The California Nations Indian Gaming Association did not respond to requests for comment on the ruling.

Card rooms pleased but challenges remain

Kyle Kirkland, president of the California Gaming Association and owner of the Club One Casino in Fresno, told iGB Thursday the CGA is “pleased with the ruling”, but the sector is still on high alert.

“It reinforces what we’ve said all along, that the Bureau of Gambling Control is overstepping its authority, and that these regulations would bring irreparable harm to these communities,” Kirkland said.

Kirkland purchased Club One in 2008 and became president of the CGA in 2013. These rule changes and subsequent litigation are “the most critical issue that’s faced the card room industry” since he entered it, he said, and there’s still a long way to go before the matter is resolved. For the time being, card rooms are largely in limbo, having to operate as if the changes will hold while also fighting them in court.

“We’re deeply appreciative to the judge, but you also have to think about what your Plan B is if our arguments for some reason don’t find traction,” Kirkland said.

State acknowledges high degree of harm

The two sets of rule changes were approved by the state on 9 February and took effect 1 April. Prior to the ruling, card rooms faced a deadline of 31 May to submit new compliance plans. Both parties agreed Thursday that should the state prevail, card rooms will be granted additional time to become compliant based on the time lost. The rulemaking process had begun last spring, with two public hearings held and over 1,700 comments submitted.

With regard to blackjack-style games, the new rules would significantly change gameplay by eliminating the “bust” feature and a target point of 21, among other changes. Additionally, the player-dealer changes would beef up existing rules to require that the dealer role be rotated periodically in order to keep a game active, along with other requirements.

As card rooms contended in the lawsuits, the state has been blunt in its analysis of the rule changes. The Department of Justice said in its rulemaking proposal last year that card rooms “would be directly affected by the proposed regulations”, and estimated that 50% of existing blackjack revenue would be lost. Moreover, the DOJ said the changes were largely clarifying in nature, meant to “ensure that the public does not engage in, and the regulated industries do not offer, gambling games that are prohibited” under state law.

At this week’s hearing, state attorneys contended that the BGC and DOJ hold exclusive jurisdiction to make such changes, not the Gambling Control Commission, which oversees more of the day-to-day regulatory duties.

“We decide what is a controlled game, and our regulations enable us to enforce our statutory role,” argued Deputy Attorney General Sharon O’Grady.

Tribes assert sovereignty, exclusivity

That stance is somewhat surprising for the state, given its acknowledgement that the rules would ultimately lower local tax revenue for several cities throughout California. Tribal casinos do have certain financial obligations under their gaming compacts and employ many non-tribal citizens, but several card rooms contribute a high percentage of their host cities’ municipal funds.

Two cities, Commerce and Bell Gardens, declared fiscal emergencies in the wake of the new rules. The cities host the largest and third-largest cardrooms in the state, respectively, and both placed sales tax increases on the June ballot in light of the expected shortfalls. Tax revenues from one card room, Parkwest Bicycle Casino, comprise about 40% of the general fund in Bell Gardens. Kirkland, meanwhile, said he wasn’t sure on the status of the initiatives in light of the injunction.

Card rooms assert that Attorney General Rob Bonta, who is up for reelection this year, is merely pushing tribes’ agenda by advancing the rules. Tribes, in response, have maintained the state is doing its job by cracking down on enforcement and upholding their exclusivity. Both sectors are extremely active politically and have donated to Bonta’s campaigns on multiple occasions.

“We were excited about the decision. It’s something that tribes have been advocating for the last 10 years,” CNIGA Chairman James Siva told iGB in April. “We firmly believe that the games they’re offering were illegal house-banked games, which is in violation of our exclusivity, our sovereignty.” 

Jess Marquez

Jess has covered the global gaming industry since 2022. A native of Reno, Nevada, he’d like to note that it’s Ne-va-da, not Ne-VAH-da.