# Flynt v. Harris

> District Court, E.D. California · August 11, 2022

URL: https://www.frixlaw.com/law-library/cases/10046489

## Case

- **Court:** District Court, E.D. California
- **Decided:** August 11, 2022
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10046489

## Opinion text

1
2
3
4
5
6
7
8 UNITED STATES DISTRICT COURT
9 EASTERN DISTRICT OF CALIFORNIA
10
11 ELIZABETH FLYNT, et al., No. 2:16-cv-02831-JAM-JDP
12 Plaintiffs, ORDER DENYING PLAINTIFFS’
MOTION FOR SUMMARY JUDGMENT
13 v. AND GRANTING DEFENDANTS’
CROSS-MOTION FOR SUMMARY
14 ROB BONTA, in his official JUDGMENT
capacity as Attorney General of
15 the State of California, et al.,
16 Defendants.
17
18 This matter is before the Court on Plaintiffs’ motion for
19 summary judgment and Defendants’ cross-motion for summary
20 judgment. See Pl.’s Mot. for Summary Judgment (“PMSJ”), ECF
21 No. 86; Def.’s Cross-Motion for Summary Judgement (“DMSJ”), ECF
22 No. 94. Plaintiffs oppose the Defendants’ cross-motion. See
23 Pl.’s Opp’n, ECF No. 95. Defendants replied. See Def.’s Reply,
24 ECF No. 96. For the reasons set forth below, the Court DENIES
25 Plaintiffs’ motion for summary judgment and GRANTS Defendants’
26 cross-motion for summary judgment.1
27

28 1 The matter was heard on June 28, 2022.
1 I. FACTUAL AND PROCEDURAL BACKGROUND
2 Plaintiffs are California residents who possess state-
3 issued gambling licenses to operate card clubs in California.
4 Plaintiffs’ Statement of Undisputed Facts (PSUF) ¶ 34, ECF
5 No. 87. Plaintiffs claim that certain provisions of the
6 licensing statute limit their ability to invest in and/or
7 operate out-of-state casinos. PSUF ¶ 45; Cal. Bus. Prof. Code
8 §§ 19858-19858.5. To comply with the challenged provisions,
9 Plaintiffs have restructured or divested themselves from
10 otherwise attractive business opportunities when such
11 investments would cost them their California gambling licenses.
12 PSUF ¶¶ 49 (disputed on other grounds), 61-62, 69-71.
13 Plaintiffs move for summary judgment, contending that the
14 challenged provisions place a burden on interstate commerce that
15 excessively outweighs the local benefits of the law in violation
16 of the dormant Commerce Clause. Defendants filed a cross-motion
17 for summary judgment.
18 The Court previously dismissed two of Plaintiffs’ three
19 claims in its order granting Defendants’ motion to dismiss at ECF
20 No. 67. The only remaining claim for summary judgment purposes
21 is Plaintiffs’ claim that §§ 19858 and 19858.5 indirectly
22 regulate interstate commerce in violation of the dormant Commerce
23 Clause. See Third Amended Complaint (“TAC”) at 34, ECF No. 81.
24
25 II. OPINION
26 A. Judicial Notice
27 Federal Rule of Evidence 201 allows the Court to notice a
28 fact if it is “not subject to reasonable dispute,” such that it
1 is “generally known” or “can be accurately and readily
2 determined from sources whose accuracy cannot reasonably be
3 questioned.” Fed. R. Evid. 201(b). The Court may take judicial
4 notice of matters of public record. See Lee v. City of Los
5 Angeles, 250 F.3d 668, 689 (9th Cir. 2005). Plaintiffs’
6 Exhibits G-L, ECF No. 92, are matters of public record and
7 therefore suitable for judicial notice. The Court grants
8 judicial notice of these Exhibits.
9 B. Legal Standard for Summary Judgment
10 Summary judgment is proper if “the movant shows that there
11 is no genuine dispute as to any material fact and the movant is
12 entitled to judgment as a matter of law.” Fed. R. Civ.
13 P. 56(a). Summary judgment should be granted cautiously, with
14 due respect for a party’s right to have its factually grounded
15 claims and defenses tried to a jury. Celotex Corp. v. Catrett,
16 477 U.S. 317, 327, (1986). The Court must view the facts and
17 draw inferences in the manner most favorable to the non-moving
18 party. United States v. Diebold, Inc., 369 U.S. 654, (1992);
19 Chevron Corp. v. Pennzoil Co., 974 F.2d 1156, 1161 (9th Cir.
20 1992). The moving party bears the initial burden of
21 demonstrating the absence of a genuine issue of material fact
22 for trial, but it need not disprove the other party’s case.
23 Celotex, 477 U.S. at 323.
24 C. Scope of Challenged Statutory Provisions
25 California prohibits gambling for monetary gain in the form
26 of banking or percentage games played with cards, dice, or any
27 other device. Cal. Penal Code § 330. Commonly banned games
28 include blackjack, monte, roulette, faro, and the like. Subject
1 to specific restrictions, however, California permits the
2 operation of cardrooms that host non-prohibited forms of
3 gambling. Cal. Bus. Prof. Code § 19876. Both residents and
4 non-residents may obtain a California gambling license. Id.
5 To be deemed suitable to hold a California gambling
6 license, a prospective licensee may not hold “any financial
7 interest in any business or organization that is engaged in any
8 form of gambling prohibited by Section 330 of the Penal Code,
9 whether within or without this state.” Cal. Bus. Prof. Code
10 § 19858. California carved out a limited exception to this
11 restriction to allow licensees to hold up to a 1% financial
12 interest in entities that engage in prohibited forms of gambling
13 so long as it is legal in the state where it occurs. Cal. Bus.
14 Prof. Code § 19858.5.
15 Plaintiffs claim that these provisions prevent them from
16 entering any business relationships with an individual or entity
17 that holds more than a 1% interest in a gambling operation
18 prohibited in California, even if that business relationship is
19 not itself connected to a prohibited gambling operation. PMSJ
20 at 15. Defendants argue that Plaintiffs’ interpretation is too
21 broad and that the statute applies only to licensees and
22 applicants for a license, not potential business partners. DMSJ
23 at 9. While this Court previously entertained Plaintiffs’ broad
24 statutory interpretation for the purpose of resolving their
25 motion to dismiss, it finds that it is appropriate to revisit
26 the issue in light of the parties’ summary judgment briefings.
27 To start, § 19858 bars “financial interest[s]” in
28 businesses engaged in prohibited gambling and not, as Plaintiffs
1 contend, all business affiliations with such businesses.
2 Therefore, a California gambling licensee may enter into a
3 business agreement with an entity that engages in prohibited
4 gambling so long as their joint venture does not also engage in
5 illegal gambling. The second entity’s illegal gambling
6 interests would not be imputed to the licensee. The primary
7 consideration is thus whether the licensee or prospective
8 licensee has a more than 1% interest in a business that engages
9 in illegal gambling, irrespective of the gambling interests of
10 the other entities involved in that business.
11 Further, though Plaintiffs insist on their broad reading of
12 the statute, the statute has never been enforced in such a way.
13 As Defendants submit, “[t]he California agencies tasked with
14 implementing the card room licensing scheme, the Commission and
15 the Bureau, have consistently interpreted and applied the
16 Statutes [narrowly].” DMSJ at 9; Defendants’ Statement of
17 Undisputed Facts (“DSUF”) ¶ 6, ECF No. 94-1.2 Defendants have
18 supplied declarations to support their contention that the
19 Commission has never denied a California gambling license for
20 the reasons Plaintiffs suggest. See Decl. of Stacy Baxter, ECF
21 No. 94-2. The Bureau of Gambling Control has likewise never
22 taken enforcement action against cardroom licensees for such
23
2 The relevance of how an agency has applied a particular statute
24 is limited to deciding the scope of the statute and not its
constitutionality. See United States v. Hansen, 25, F.4th 1103,
25
1111 (9th Cir. 2022) (observing courts do not “uphold an
unconstitutional statute merely because the government promised
26
to use it responsibly”); see also Doe v. San Diego, 313 F. Supp.
27 3d. 1212, 1217 (S.D. Cal. 2018) (“[A] facial attack does not
raise questions of fact related to the enforcement of the statute
28 in a particular instance”).
1 reasons. See Decl. of Yolanda Morrow, ECF No. 94-3. In the
2 absence of contravening evidence, the Court finds there is no
3 question of material fact as to how the statute has been
4 enforced since its enactment.
5 For the forgoing reasons, the Court concludes that the
6 challenged provisions apply only to licensees and prospective
7 licensees. Further, the provisions do not bar licensees and
8 prospective licensees from any and all business affiliations
9 with entities holding more than a 1% illegal gambling interest;
10 the provisions only bar licensees and prospective licensees from
11 themselves holding more than a 1% interest in a business engaged
12 in illegal gambling.
13 D. Dormant Commerce Clause Analysis
14 Plaintiffs allege that §§ 19858 and 19858.5 indirectly
15 regulate interstate commerce in violation of the dormant
16 Commerce Clause. PMSJ at 1. The Commerce Clause is an
17 affirmative grant of power to Congress to regulate interstate
18 and foreign commerce. The inverse of this affirmative grant is
19 an implied, “self-executing limitation on the power of the
20 States to enact laws imposing substantial burdens on such
21 commerce.” Nat'l Ass'n of Optometrists & Opticians v. Harris,
22 682 F.3d 1144, 1147 (9th Cir. 2012). This limitation on the
23 states to regulate commerce is “known as the dormant Commerce
24 Clause.” Id. The dormant Commerce Clause prohibits states from
25 enacting statutes that discriminate against interstate commerce
26 by “burdening out-of-state competitors” to protect in-state
27 economic interests. Id. at 1148 (quoting Dep't of Revenue v.
28 Davis, 553 U.S. 328, 337 (2008)).
1 “When a state statute directly regulates or discriminates
2 against interstate commerce, or when its effect is to favor in-
3 state economic interests over out-of-state interests . . . [it]
4 is virtually per se invalid under the Commerce Clause.” Brown-
5 Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S.
6 573 (1986) (original emphasis). When, on the other hand, the
7 state statute regulates evenhandedly and only indirectly affects
8 interstate commerce, courts must engage in Pike balancing and
9 consider “whether the State’s interest is legitimate and whether
10 the burden on interstate commerce clearly exceeds the local
11 benefits.” Pike v. Bruce Church, Inc., 397 U.S. 137, 142
12 (1970). A statute, however, is not “invalid merely because it
13 affects in some way the flow of commerce between the States.”
14 Nat'l Ass'n of Optometrists, 682 F.3d at 1148 (quoting Great
15 Atl. & Pac. Tea Co. v. Cottrell, 424 U.S. 366, 371 (1976)).
16 “[A] plaintiff must first show that the statute imposes a
17 substantial burden before the court will determine whether the
18 benefits of the challenged laws are illusory.” Ass'n des
19 Eleveurs de Canards et d'Oies du Quebec v. Harris, 729 F.3d 937,
20 951-52 (9th Cir. 2013) (internal citations omitted).
21 1. Sections 19858 and 19858.5 Are Not Per Se Invalid
22 The Court has previously held that the statutes do not
23 directly regulate interstate commerce. Order at 9, ECF No. 67.
24 Further, it is undisputed that the Statutes are not
25 discriminatory on their face. The parties agree that the
26 Statutes apply equally to residents and non-residents and that
27 there is no bar to out-of-state ownership or operation of
28 cardrooms in California. DSUF ¶ 1. Further, Plaintiffs have
1 not shown that the provisions’ effect is to “benefit in-state
2 economic interests by burdening out-of-state competitors.”
3 Nat'l Ass'n of Optometrists, 682 F.3d at 1148 (quoting Dep't of
4 Revenue, 553 U.S. at 337-38.). If anything, the fact that
5 California licensees are subject to more restrictions on their
6 investments in the gambling industry than non-California
7 licensees cuts against any potential economic protectionism that
8 is the chief concern for modern dormant Commerce Clause
9 jurisprudence. For these reasons, the Court holds that §§ 19858
10 and 19858.5 are not per se invalid under the dormant Commerce
11 Clause.
12 2. Sections 19858 and 19858.5 Do Not Substantially
13 Burden Interstate Commerce
14 The remaining question for the Court is whether the
15 Statutes, though non-discriminatory, nevertheless impose a
16 significant burden on interstate commerce in violation of the
17 dormant Commerce Clause. It is Plaintiffs’ burden to show there
18 is a substantial burden on interstate commerce before the Court
19 will determine whether the benefits of the challenged laws are
20 illusory under Pike. Ass’n des Eleveurs de Canards, 729 F.3d at
21 951-52.
22 Most statutes that impose a substantial burden on
23 interstate commerce do so because they are discriminatory. See
24 Nat’l Ass’n of Optometrists, 682 F.3d at 1148. As discussed
25 above, this Court has held that the Statutes are not
26 discriminatory. Other statutes that have been found to impose
27 significant burdens on interstate commerce do so because they
28 seek to regulate an activity that is inherently national or
1 require a uniform system of regulation. Id. The Supreme Court
2 has held that the Commerce Clause precludes state regulation
3 where “a lack of national uniformity would impede the flow of
4 interstate goods.” Exxon Corp. v. Governor of Md., 437 U.S.
5 117, 128 (1978). The classic example of an inherently national
6 field that requires a uniform system of regulation is interstate
7 transportation and its instrumentalities. See Gen. Motors Corp.
8 v. Tracy, 519 U.S. 278 (1997).
9 Plaintiffs have failed to identify a similar national
10 market for gambling investment. Plaintiffs claim that the
11 Statutes “operate as a roadblock to the transfer of investments
12 and expertise in and out of California with respect to the
13 gambling industry,” but have not supplied any authority to show
14 that a flow of capital or expertise is subject to the same level
15 of protections under the dormant Commerce Clause as a flow of
16 tangible goods in a national market. PMSJ at 15. To the
17 contrary, dormant Commerce Clause jurisprudence has suggestively
18 focused on the flow of material goods to the exclusion of
19 considering monetary profits. See Exxon Corp. v. Governor of
20 Maryland, 437 U.S. 117 (1978) (focusing on the free flow of
21 petroleum into the state and not on who ultimately profited);
22 Minnesota v. Clover Leaf Creamery, Co., 449 U.S. 456 (1981)
23 (where the Court’s analysis turned on the change in the flow of
24 goods into the state and not on profits). Accordingly, the
25 Court finds Plaintiffs have not shown that the gambling market
26 is inherently national and that a uniform system of regulation
27 is required.
28 To the extent that Plaintiffs argue the state licensing
1 provisions imposes a substantial burden on interstate commerce
2 by impeding investment opportunities, commercial transactions
3 and commercial relationships, the Court acknowledges that the
4 provisions do in fact force a choice between holding a
5 California gambling license and a greater than 1% interest in a
6 business engaged in gambling prohibited in California.
7 Plaintiffs have not shown, however, how this choice represents a
8 substantial burden on interstate commerce and not, as Defendants
9 point out, merely lost individual economic interests. Def.’s
10 Reply at 9. In Plaintiffs’ own words, “you can either invest in
11 California’s gambling market or the market outside of
12 California, but you cannot do both.” Pl.’s Opp’n at 4. If so,
13 while it is true that Plaintiffs and other card room licensees
14 have been limited in kinds of gambling investments they can
15 make, it is also true that they have in turn received the
16 privilege of participating in California’s cardroom industry.
17 It is not for the Court to say if one is better than the other.
18 The Supreme Court in Exxon made clear that the dormant Commerce
19 Clause does not protect a particular company’s profits. Exxon,
20 437 U.S. at 127-28. To the extent Plaintiffs are arguing that a
21 loss of business opportunity or profits constitute a burden on
22 interstate commerce, that argument has no merit.
23 As the Supreme Court observed, beyond the contours of
24 facial discrimination, the “negative-Commerce-Clause
25 jurisprudence becomes (and has long been) a quagmire.” W. Lynn
26 Creamery, Inc. v. Healy, 512 U.S. 186, 210 (1994) (Scalia, J.,
27 concurring). At this stage in the proceedings, the Court relies
28 on the Plaintiffs to marshal evidence that there is a
eee REI NRE OS IIE IRIE IIIS ENERO III OS III NE EEE LUE IIIS See eee

1 substantial burden on interstate commerce. The Court finds that
2 Plaintiffs have not made a sufficient showing that the
3 challenged provisions impose a substantial burden on interstate
4 commerce. Given this finding the Court need not reach the
5 | parties’ arguments on Pike balancing. See Nat'l Ass'n of
6 Optometrists, 682 F.3d at 1155 (“If a regulation merely has an
7 effect on interstate commerce, but does not impose a significant
8 burden on interstate commerce, it follows that there cannot be a
9 | burden on interstate commerce that is ‘clearly excessive in
10 | relation to the putative local benefits’ under Pike.”).
11 There being no issues of material fact, the Court grants
12 summary judgment to Defendants as a matter of law.
13
14 Til. ORDER
15 For the reasons set forth above, the Court DENIES
16 Plaintiffs’ Motion for Summary Judgment and GRANTS Defendants’
17 Cross-Motion for Summary Judgment.
18 IT IS SO ORDERED.
19 Dated: August 10, 2022
20
open
JOHN A. MENDEZ
22 SENIOR UNITED*STATES DISTRICT JUDGE
23
24
25
26
27
28
11

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10046489. Public record. Not legal advice.