Tribal suit against cardrooms struck down…for now

More than a year ago, Gov. Gavin Newsom signed legislation to give California’s gaming tribes special standing in court to settle, once and for all, a long-simmering dispute they’ve had with their rival gaming rivals, the state’s cardrooms.

Friday, however, the judge in the case ruled that despite the Legislature’s best efforts the tribes’ suit is preempted by federal law and cannot move forward.

The tribes’ lead lawyer indicated they will appeal, but the ruling is nonetheless a blow to a powerful force in California politics. It’s also something of a rebuke to the Legislature and governor whose actions were invalidated – for now, at least – by Sacramento County Superior Court Judge Lauri A. Damrell.

The complex case centers on card games like Blackjack, where gamblers bet against the house in their quest for 21. Proposition 1A, the 2000 ballot measure that authorized tribal gaming in California, gives the tribes the exclusive right to offer such banked games, in which gamblers are competing against the house.

Cardrooms, however, offer similar games thanks to approvals by state regulators and a convoluted system involving licensed entities known as third-party proposition players or TPPPs.

The tribes had been searching for a forum in which to argue their case for years and thought they finally had it thanks to Newsom’s signing of SB 549 by former Sen. Josh Newman in September 2024. Damrell’s ruling now puts all of that in jeopardy.

The cardrooms, while pleased, seem to recognize this is far from over.

“Cardrooms for many decades have proudly operated lawful games with full transparency and stringent oversight by the office of the Attorney General of the State of California and the California Gambling Control Commission,” said California Gaming Association President Kyle Kirkland in a statement. “We are encouraged by today’s decision. Our member cardrooms will continue to support good jobs, vital public services, and local economies across California while upholding the highest standards of integrity, accountability, and compliance.”

Convoluted system
Products of the Gold Rush era, California’s cardrooms preceded tribal casinos by decades. In the mid-1800s, cardrooms were saloons where bored miners could while away the time drinking and gambling. But the Legislature back then was worried cardrooms would hustle miners out of all of their money, so it barred them from offering banked games that pitted gamblers against the house itself.

For a long while, cardrooms just offered games like poker, where gambles wager against each other, and they grew into glitzy casinos in their own right. But when tribal gaming came to California, they were in trouble. Prop. 1A’s exclusive rights to banked games meant tribal casinos could now offer more popular games like Blackjack.

However, the cardrooms got a lifeline in 2007 when Bob Lytle, then the director of what was once known as the Division of Gambling Control within the Department of Justice, said that if cardrooms offered every player at a Blackjack table the chance to serve as the house for a hand or two, and so long as cardrooms never acted as the bank themselves, it’s legal to offer such games under both the state’s prohibition of banked games and Prop. 1A.

For years, that is exactly what cardrooms have done, and the state’s approval of these so-called player-dealer games has allowed cardrooms to legally insist their offerings do not qualify as banked games, despite them operating like them. This environment has also given rise to TPPPs, which facilitate games like Blackjack within cardrooms.

TPPP workers, who wear badges to distinguish themselves from cardroom employees, sit at the tables where versions of traditionally banked games like Blackjack and Baccarat are offered. Every hand, the dealer, who is a cardroom employee, offers the players at the table the chance to serve as the house. Most cardroom players don’t have the funds to cover that kind of action and therefore decline. But TPPP workers are funded to perform this specific task.

Thus, TPPP workers volunteer to cover the action over and over again at traditionally banked games at cardrooms, helping the facilities to continue to offer them.

Federal preemption
The tribes think this arrangement flies in the face of the voters’ will and have tried to challenge it. But they were dumped out of court repeatedly; judges ruled as sovereign nations they lacked standing to bring forth a lawsuit.

SB 549 sought to rectify that by giving the tribes special standing to sue cardrooms over banked games.

But after the tribes filed suit in January, the cardrooms challenged its legal basis, arguing that the federal Indian Gaming Regulatory Act or IGRA preempts whatever the Legislature intended.

Until then, IGRA had only been recognized to preempt state law in narrow circumstances and specifically in relation to gambling on reservations.

Two months ago, Damrell, issued a tentative ruling agreeing with the cardrooms’ arguments but deferred making a final ruling until Friday to hear more from both sides. She again issued a tentative ruling before Friday’s hearing telegraphing her support for the cardrooms’ position, but still listened to arguments from the tribes.

“There is no actual conflict here that should trigger preemption,” Adam Lauridsen, the tribes’ lead attorney, told Damrell on Friday, arguing that IGRA pertains to tribal gaming, not off-reservation gaming, the subject of the tribes’ suit.

In response, the cardrooms doubled down on their argument that the tribes had their chance to challenge the cardrooms’ practices through their negotiations with the governor over their gaming compacts, a process established under IGRA.

“There is a process through things work,” Benjamin Horwich, the cardrooms’ lead attorney, told Damrell.

After less than an hour of debate, the judge ruled.

“I am going to adopt my tentative (ruling),” Damrell said. “I may be wrong. And I expect there will be an appeal. And so, I welcome the guidance from the Court of Appeal on this as well and we’ll see where it goes.”

“I believe we do plan to appeal,” Lauridsen immediately responded, and requested that all evidence preserved according to the judge’s orders continue to be preserved through any appeal.

Damrell scheduled a conference for Nov. 4 to discuss the matter further. The tribes’ appeal is presumed to now go to the Third District Court of Appeal. That’s the typical destination for appeals from Sacramento County Superior Court, although this is special case.

It’s likely to be months before the case can be argued again.