In November of last year, California's legislature enacted SB 549, also recognized as the Tribal Nations Access to Justice Act. This significant legislation enables state gaming tribes to pursue lawsuits against cardrooms and third-party providers of proposition services (TPPs). Previously, tribes lacked the legal standing to initiate such actions due to their status as sovereign nations.
Following the passage of this law, a coalition of tribes filed a lawsuit in January against more than 90 defendants, encompassing cardrooms and TPPs. The case is currently in progress at the Sacramento Superior Court under case number 25CV000001, with the next hearing scheduled for August 8.
The lawsuit centers around the long-standing conflict regarding the legality of games operated by cardrooms, particularly whether they qualify as "house-banked" games. Such games pit players against the house, as opposed to each other. Tribal nations have held exclusive rights to Class III gaming, which includes house-banked play, since 2000.
According to state law, cardrooms can offer certain table games so long as they are played and dealt between players, similar to recreational or charitable settings. However, cardrooms have increasingly engaged TPPs to facilitate gameplay, catering to the preference of recreational players who wish to enjoy Class III-style gaming without assuming the role of the house dealer. TPPs collaborate with cardrooms to provide these services and must operate independently of the cardrooms.
Tribes argue that this relationship infringes upon their exclusivity rights by effectively creating banking games. The SB 549 lawsuit represents a culmination of tensions that have built up over the years, and its outcome may have far-reaching implications for California's gambling landscape.
The Rincon Band of Luiseno Mission Indians filed a complaint on April 23, while the Agua Caliente Band of Cahuilla Indians filed one on February 18. The Rincon complaint asserts that cardrooms and TPP providers violate state law and the state constitution by offering games like blackjack and baccarat in a manner that amounts to house banking.
The complaint states, "The TPP defendants maintain and operate a bank by maintaining and occupying the player dealer position in the blackjack-style games offered by the cardroom defendants." It further notes the uncertainties surrounding how much the banking player or entity wins or loses, which is characteristic of banked games.
Additionally, the complaint critiques the contractual relationships between cardrooms and TPPs. Despite claims of independence, analyses suggest that these distinctions are complex. The Rincon complaint emphasizes that TPPs enter into contracts that require them to pay cardrooms for the right to occupy player-dealer positions in games, indicating that cardrooms retain an illegal interest in the funds wagered in sessions where a TPP is banking the game.
On May 2, Artichoke Joe's, a cardroom in San Bruno, filed a rebuttal, arguing that tribes previously attempted similar lawsuits without success prior to the passage of SB 549. An effort in 2021 was dismissed due to the lack of standing from tribes, and in 2022, a provision added to Proposition 26 aimed to allow any person or entity to sue cardrooms, although it ultimately failed at the polls.
Artichoke Joe's claims that the new legislation represents an "end run" around the issues faced by the tribes, avoiding voter input. The facility also pointed to Proposition 64 from 2004, which stipulates that each plaintiff must demonstrate individual standing and an injury due to illegal actions before being able to sue.
Due to the collective nature of the tribes' lawsuit, the motion contends that each tribe must have standing to support the claims against the specific cardrooms they allege harm from, indicating potential challenges given geographical considerations. Furthermore, it argues that Proposition 64 can only be amended through voter approval, calling for the dismissal of claims based on SB 549, which it deems unenforceable without such approval.
Amidst the ongoing litigation, the situation is made even more complex by the concurrent regulatory proposals from the state. In 2023, California Attorney General Rob Bonta and the Bureau of Gambling Control (BGC) initiated changes to regulations regarding blackjack games and player-dealer roles. Similar to the lawsuit, the new regulations would require adjustments to how cardrooms operate these games, including defining a new target point.
In late May, the BGC held public comment hearings where most feedback supported the cardrooms. The public comment period has since closed, and the BGC is now considering the proposals. Past impact assessments have indicated that any new regulations could cost cardrooms substantial revenue and result in significant job losses.
Many small cities depend on the tax revenue generated by these cardrooms, some relying on them for up to half of their municipal funding. This shared interest in sustaining their businesses underscores the complexities ahead as state officials weigh the interests of both tribes and cardrooms in an evolving regulatory and legal environment.
