Larry Flynt Scores With Ninth Circuit Court in Bid to Expand Gambling Business Outside California

Posted on: October 8, 2019, 12:31h. 

Last updated on: October 8, 2019, 02:29h.

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Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Larry Flynt notched a legal win Monday in his effort to expand his gambling business outside California, when a Ninth Circuit of Appeals panel ruled he can challenge a Golden State law restricting owners of gaming properties there from investing in casinos in other states.

Larry Flynt has been contesting a California casino law and he finally won a round in the fight on Monday. (Image: Fortune)

Flynt, the publisher of Hustler magazine, owns two cardrooms in the Los Angeles area: Hustler Casino and Larry Flynt’s Lucky Lady Casino. He’s contesting a California law passed in 1986 that stipulates holders of gaming licenses in the state cannot own interests exceeding one percent of casinos located in other regions.

The porn publisher says the law, which was signed by then Gov. George Deukmejian, a Republican, has caused him to lose out on other gaming-related opportunities outside of California. The law was originally passed with the intent of preventing organized crime from interfering with legitimate casino gaming in the state.

Flynt asserts the law is outdated and unconstitutional. He’s pursuing the matter with co-plaintiffs Haig Kelegian, Sr. and Jr., a father-son duo that operate the Crystal Casino, a cardroom located in Compton, Calif. The Hustler mogul said that, over the years, he’s been approached about buying gaming properties in Colorado, Iowa, Louisiana, Mississippi and Nevada. But he could not act on those deals because of California law.

That all three licensees continue to be precluded from exploring other investment opportunities is not a consequence of the commission’s decision, as the dissent would have us conclude, but rather a result of the continued existence of the statutes themselves and the realistic threat of future enforcement,” said US Circuit Judge Diarmuid O’Scannlain in his majority opinion.

In the 2-1 vote, O’Scannlain was joined by US Circuit Judge Mary Schroeder. US Circuit Judge Johnnie Rawlinson was the dissenter.

Long-Running Feud

Flynt and the Kelegians have been at this for several years. The trio originally sued California in 2016, but US District Judge John Mendez dismissed the case, saying it fell outside a two-year statute of limitations.

The matter can be traced back to a $210,000 fine levied by the California Gambling Control Commission (CGCC) against Kelegian Jr. due to his stake in a casino located in another state. He had to sell that interest so that his California gaming license could be renewed.

Flynt and the Kelegians filed suit in 2016, and lawyers for the state were able to persuade Mendez that the case had been filed too late.

However, the Ninth Circuit panel didn’t see things that way, noting that if the 1986 law causes repeated harm to the Flynt and the Kelegians, the statute of limitations can be started anew.

Challenging Viability

In her dissent, Rawlinson, who was previously a judge on the US District Court for Southern Nevada, a region including Las Vegas, said there are issues with precedent regarding the ongoing violation theory.

“Because the continuing violation theory is not viable under our precedent, I agree with the district court that plaintiffs’ action is barred by the applicable statute of limitations,” she wrote.

California cardrooms differ from the tribal venues that dominate the state’s casino landscape because cardrooms don’t feature slot machines. Nor does the property act as the house in hands played. Dealers play the role of the house, and the cardrooms take a percentage of each hand played.