Flynt et al v. Harris et al

Filing 100

ORDER signed by District Judge John A. Mendez on 08/10/22 DENYING Plaintiffs' 86 Motion for Summary Judgment and GRANTING Defendants' 94 Motion for Summary Judgment. CASE CLOSED (Benson, A.)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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ELIZABETH FLYNT, et al.,

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Plaintiffs,

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No. 2:16-cv-02831-JAM-JDP

v.

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ROB BONTA, in his official
capacity as Attorney General of
the State of California, et al.,

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ORDER DENYING PLAINTIFFS’
MOTION FOR SUMMARY JUDGMENT
AND GRANTING DEFENDANTS’
CROSS-MOTION FOR SUMMARY
JUDGMENT

Defendants.

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This matter is before the Court on Plaintiffs’ motion for

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summary judgment and Defendants’ cross-motion for summary

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judgment.

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No. 86; Def.’s Cross-Motion for Summary Judgement (“DMSJ”), ECF

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No. 94.

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Pl.’s Opp’n, ECF No. 95.

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ECF No. 96.

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Plaintiffs’ motion for summary judgment and GRANTS Defendants’

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cross-motion for summary judgment.1

See Pl.’s Mot. for Summary Judgment (“PMSJ”), ECF

Plaintiffs oppose the Defendants’ cross-motion.
Defendants replied.

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See Def.’s Reply,

For the reasons set forth below, the Court DENIES

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See

The matter was heard on June 28, 2022.
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I.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiffs are California residents who possess state-

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issued gambling licenses to operate card clubs in California.

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Plaintiffs’ Statement of Undisputed Facts (PSUF) ¶ 34, ECF

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No. 87.

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licensing statute limit their ability to invest in and/or

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operate out-of-state casinos.

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§§ 19858-19858.5.

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Plaintiffs have restructured or divested themselves from

Plaintiffs claim that certain provisions of the

PSUF ¶ 45; Cal. Bus. Prof. Code

To comply with the challenged provisions,

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otherwise attractive business opportunities when such

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investments would cost them their California gambling licenses.

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PSUF ¶¶ 49 (disputed on other grounds), 61-62, 69-71.

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Plaintiffs move for summary judgment, contending that the

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challenged provisions place a burden on interstate commerce that

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excessively outweighs the local benefits of the law in violation

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of the dormant Commerce Clause.

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for summary judgment.

Defendants filed a cross-motion

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The Court previously dismissed two of Plaintiffs’ three

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claims in its order granting Defendants’ motion to dismiss at ECF

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No. 67.

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is Plaintiffs’ claim that §§ 19858 and 19858.5 indirectly

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regulate interstate commerce in violation of the dormant Commerce

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Clause.

The only remaining claim for summary judgment purposes

See Third Amended Complaint (“TAC”) at 34, ECF No. 81.

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II.

OPINION

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A.

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Federal Rule of Evidence 201 allows the Court to notice a

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Judicial Notice

fact if it is “not subject to reasonable dispute,” such that it
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is “generally known” or “can be accurately and readily

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determined from sources whose accuracy cannot reasonably be

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questioned.”

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notice of matters of public record.

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Angeles, 250 F.3d 668, 689 (9th Cir. 2005).

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Exhibits G-L, ECF No. 92, are matters of public record and

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therefore suitable for judicial notice.

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judicial notice of these Exhibits.

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B.

Fed. R. Evid. 201(b).

The Court may take judicial
See Lee v. City of Los
Plaintiffs’

The Court grants

Legal Standard for Summary Judgment

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Summary judgment is proper if “the movant shows that there

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is no genuine dispute as to any material fact and the movant is

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entitled to judgment as a matter of law.”

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P. 56(a).

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due respect for a party’s right to have its factually grounded

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claims and defenses tried to a jury.

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477 U.S. 317, 327, (1986).

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draw inferences in the manner most favorable to the non-moving

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party.

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Chevron Corp. v. Pennzoil Co., 974 F.2d 1156, 1161 (9th Cir.

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1992).

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demonstrating the absence of a genuine issue of material fact

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for trial, but it need not disprove the other party’s case.

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Celotex, 477 U.S. at 323.

Fed. R. Civ.

Summary judgment should be granted cautiously, with

Celotex Corp. v. Catrett,

The Court must view the facts and

United States v. Diebold, Inc., 369 U.S. 654, (1992);

The moving party bears the initial burden of

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C.

Scope of Challenged Statutory Provisions

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California prohibits gambling for monetary gain in the form

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of banking or percentage games played with cards, dice, or any

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other device.

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include blackjack, monte, roulette, faro, and the like.

Cal. Penal Code § 330.

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Commonly banned games
Subject

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to specific restrictions, however, California permits the

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operation of cardrooms that host non-prohibited forms of

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gambling.

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non-residents may obtain a California gambling license.

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Cal. Bus. Prof. Code § 19876.

Both residents and
Id.

To be deemed suitable to hold a California gambling

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license, a prospective licensee may not hold “any financial

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interest in any business or organization that is engaged in any

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form of gambling prohibited by Section 330 of the Penal Code,

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whether within or without this state.”

Cal. Bus. Prof. Code

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§ 19858.

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restriction to allow licensees to hold up to a 1% financial

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interest in entities that engage in prohibited forms of gambling

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so long as it is legal in the state where it occurs.

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Prof. Code § 19858.5.

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California carved out a limited exception to this

Cal. Bus.

Plaintiffs claim that these provisions prevent them from

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entering any business relationships with an individual or entity

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that holds more than a 1% interest in a gambling operation

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prohibited in California, even if that business relationship is

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not itself connected to a prohibited gambling operation.

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at 15.

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broad and that the statute applies only to licensees and

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applicants for a license, not potential business partners.

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at 9.

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statutory interpretation for the purpose of resolving their

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motion to dismiss, it finds that it is appropriate to revisit

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the issue in light of the parties’ summary judgment briefings.

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PMSJ

Defendants argue that Plaintiffs’ interpretation is too

DMSJ

While this Court previously entertained Plaintiffs’ broad

To start, § 19858 bars “financial interest[s]” in
businesses engaged in prohibited gambling and not, as Plaintiffs
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contend, all business affiliations with such businesses.

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Therefore, a California gambling licensee may enter into a

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business agreement with an entity that engages in prohibited

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gambling so long as their joint venture does not also engage in

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illegal gambling.

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interests would not be imputed to the licensee.

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consideration is thus whether the licensee or prospective

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licensee has a more than 1% interest in a business that engages

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in illegal gambling, irrespective of the gambling interests of

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The second entity’s illegal gambling
The primary

the other entities involved in that business.

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Further, though Plaintiffs insist on their broad reading of

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the statute, the statute has never been enforced in such a way.

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As Defendants submit, “[t]he California agencies tasked with

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implementing the card room licensing scheme, the Commission and

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the Bureau, have consistently interpreted and applied the

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Statutes [narrowly].”

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Undisputed Facts (“DSUF”) ¶ 6, ECF No. 94-1.2

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supplied declarations to support their contention that the

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Commission has never denied a California gambling license for

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the reasons Plaintiffs suggest.

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No. 94-2.

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taken enforcement action against cardroom licensees for such

DMSJ at 9; Defendants’ Statement of
Defendants have

See Decl. of Stacy Baxter, ECF

The Bureau of Gambling Control has likewise never

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The relevance of how an agency has applied a particular statute
is limited to deciding the scope of the statute and not its
constitutionality. See United States v. Hansen, 25, F.4th 1103,
1111 (9th Cir. 2022) (observing courts do not “uphold an
unconstitutional statute merely because the government promised
to use it responsibly”); see also Doe v. San Diego, 313 F. Supp.
3d. 1212, 1217 (S.D. Cal. 2018) (“[A] facial attack does not
raise questions of fact related to the enforcement of the statute
in a particular instance”).
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reasons.

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absence of contravening evidence, the Court finds there is no

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question of material fact as to how the statute has been

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enforced since its enactment.

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See Decl. of Yolanda Morrow, ECF No. 94-3.

In the

For the forgoing reasons, the Court concludes that the

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challenged provisions apply only to licensees and prospective

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licensees.

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prospective licensees from any and all business affiliations

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with entities holding more than a 1% illegal gambling interest;

Further, the provisions do not bar licensees and

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the provisions only bar licensees and prospective licensees from

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themselves holding more than a 1% interest in a business engaged

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in illegal gambling.

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D.

Dormant Commerce Clause Analysis

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Plaintiffs allege that §§ 19858 and 19858.5 indirectly

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regulate interstate commerce in violation of the dormant

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Commerce Clause.

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affirmative grant of power to Congress to regulate interstate

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and foreign commerce.

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an implied, “self-executing limitation on the power of the

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States to enact laws imposing substantial burdens on such

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commerce.”

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682 F.3d 1144, 1147 (9th Cir. 2012).

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states to regulate commerce is “known as the dormant Commerce

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Clause.”

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enacting statutes that discriminate against interstate commerce

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by “burdening out-of-state competitors” to protect in-state

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economic interests.

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Davis, 553 U.S. 328, 337 (2008)).

PMSJ at 1.

The Commerce Clause is an

The inverse of this affirmative grant is

Nat'l Ass'n of Optometrists & Opticians v. Harris,

Id.

This limitation on the

The dormant Commerce Clause prohibits states from

Id. at 1148 (quoting Dep't of Revenue v.

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“When a state statute directly regulates or discriminates

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against interstate commerce, or when its effect is to favor in-

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state economic interests over out-of-state interests . . . [it]

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is virtually per se invalid under the Commerce Clause.”

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Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S.

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573 (1986) (original emphasis).

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state statute regulates evenhandedly and only indirectly affects

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interstate commerce, courts must engage in Pike balancing and

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consider “whether the State’s interest is legitimate and whether

Brown-

When, on the other hand, the

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the burden on interstate commerce clearly exceeds the local

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benefits.”

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(1970).

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affects in some way the flow of commerce between the States.”

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Nat'l Ass'n of Optometrists, 682 F.3d at 1148 (quoting Great

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Atl. & Pac. Tea Co. v. Cottrell, 424 U.S. 366, 371 (1976)).

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“[A] plaintiff must first show that the statute imposes a

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substantial burden before the court will determine whether the

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benefits of the challenged laws are illusory.”

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Eleveurs de Canards et d'Oies du Quebec v. Harris, 729 F.3d 937,

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951-52 (9th Cir. 2013) (internal citations omitted).

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Pike v. Bruce Church, Inc., 397 U.S. 137, 142

A statute, however, is not “invalid merely because it

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Ass'n des

Sections 19858 and 19858.5 Are Not Per Se Invalid

The Court has previously held that the statutes do not

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directly regulate interstate commerce.

Order at 9, ECF No. 67.

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Further, it is undisputed that the Statutes are not

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discriminatory on their face.

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Statutes apply equally to residents and non-residents and that

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there is no bar to out-of-state ownership or operation of

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cardrooms in California.

The parties agree that the

DSUF ¶ 1.
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Further, Plaintiffs have

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not shown that the provisions’ effect is to “benefit in-state

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economic interests by burdening out-of-state competitors.”

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Nat'l Ass'n of Optometrists, 682 F.3d at 1148 (quoting Dep't of

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Revenue, 553 U.S. at 337-38.).

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California licensees are subject to more restrictions on their

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investments in the gambling industry than non-California

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licensees cuts against any potential economic protectionism that

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is the chief concern for modern dormant Commerce Clause

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jurisprudence.

If anything, the fact that

For these reasons, the Court holds that §§ 19858

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and 19858.5 are not per se invalid under the dormant Commerce

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Clause.

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2.

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Sections 19858 and 19858.5 Do Not Substantially
Burden Interstate Commerce

The remaining question for the Court is whether the

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Statutes, though non-discriminatory, nevertheless impose a

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significant burden on interstate commerce in violation of the

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dormant Commerce Clause.

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is a substantial burden on interstate commerce before the Court

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will determine whether the benefits of the challenged laws are

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illusory under Pike.

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951-52.

It is Plaintiffs’ burden to show there

Ass’n des Eleveurs de Canards, 729 F.3d at

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Most statutes that impose a substantial burden on

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interstate commerce do so because they are discriminatory.

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Nat’l Ass’n of Optometrists, 682 F.3d at 1148.

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above, this Court has held that the Statutes are not

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discriminatory.

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significant burdens on interstate commerce do so because they

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seek to regulate an activity that is inherently national or

See

As discussed

Other statutes that have been found to impose

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require a uniform system of regulation.

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has held that the Commerce Clause precludes state regulation

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where “a lack of national uniformity would impede the flow of

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interstate goods.”

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117, 128 (1978).

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field that requires a uniform system of regulation is interstate

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transportation and its instrumentalities.

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v. Tracy, 519 U.S. 278 (1997).

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Id.

The Supreme Court

Exxon Corp. v. Governor of Md., 437 U.S.
The classic example of an inherently national

See Gen. Motors Corp.

Plaintiffs have failed to identify a similar national

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market for gambling investment.

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Statutes “operate as a roadblock to the transfer of investments

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and expertise in and out of California with respect to the

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gambling industry,” but have not supplied any authority to show

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that a flow of capital or expertise is subject to the same level

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of protections under the dormant Commerce Clause as a flow of

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tangible goods in a national market.

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contrary, dormant Commerce Clause jurisprudence has suggestively

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focused on the flow of material goods to the exclusion of

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considering monetary profits.

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Maryland, 437 U.S. 117 (1978) (focusing on the free flow of

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petroleum into the state and not on who ultimately profited);

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Minnesota v. Clover Leaf Creamery, Co., 449 U.S. 456 (1981)

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(where the Court’s analysis turned on the change in the flow of

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goods into the state and not on profits).

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Court finds Plaintiffs have not shown that the gambling market

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is inherently national and that a uniform system of regulation

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is required.

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Plaintiffs claim that the

PMSJ at 15.

To the

See Exxon Corp. v. Governor of

Accordingly, the

To the extent that Plaintiffs argue the state licensing
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provisions imposes a substantial burden on interstate commerce

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by impeding investment opportunities, commercial transactions

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and commercial relationships, the Court acknowledges that the

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provisions do in fact force a choice between holding a

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California gambling license and a greater than 1% interest in a

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business engaged in gambling prohibited in California.

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Plaintiffs have not shown, however, how this choice represents a

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substantial burden on interstate commerce and not, as Defendants

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point out, merely lost individual economic interests.

Def.’s

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Reply at 9.

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California’s gambling market or the market outside of

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California, but you cannot do both.”

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while it is true that Plaintiffs and other card room licensees

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have been limited in kinds of gambling investments they can

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make, it is also true that they have in turn received the

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privilege of participating in California’s cardroom industry.

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It is not for the Court to say if one is better than the other.

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The Supreme Court in Exxon made clear that the dormant Commerce

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Clause does not protect a particular company’s profits.

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437 U.S. at 127-28.

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loss of business opportunity or profits constitute a burden on

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interstate commerce, that argument has no merit.

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In Plaintiffs’ own words, “you can either invest in

Pl.’s Opp’n at 4.

If so,

Exxon,

To the extent Plaintiffs are arguing that a

As the Supreme Court observed, beyond the contours of

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facial discrimination, the “negative-Commerce-Clause

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jurisprudence becomes (and has long been) a quagmire.”

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Creamery, Inc. v. Healy, 512 U.S. 186, 210 (1994) (Scalia, J.,

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concurring).

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on the Plaintiffs to marshal evidence that there is a

W. Lynn

At this stage in the proceedings, the Court relies

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substantial burden on interstate commerce.

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Plaintiffs have not made a sufficient showing that the

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challenged provisions impose a substantial burden on interstate

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commerce.

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parties’ arguments on Pike balancing. See Nat'l Ass'n of

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Optometrists, 682 F.3d at 1155 (“If a regulation merely has an

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effect on interstate commerce, but does not impose a significant

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burden on interstate commerce, it follows that there cannot be a

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burden on interstate commerce that is ‘clearly excessive in

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The Court finds that

Given this finding the Court need not reach the

relation to the putative local benefits’ under Pike.”).
There being no issues of material fact, the Court grants
summary judgment to Defendants as a matter of law.

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III.

ORDER

For the reasons set forth above, the Court DENIES

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Plaintiffs’ Motion for Summary Judgment and GRANTS Defendants’

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Cross-Motion for Summary Judgment.

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IT IS SO ORDERED.

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Dated: August 10, 2022

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