General Practice, Solo, and Small Firm Division The Compleat Lawyer
Winter 1997, Volume 14, No. 1 copyright American Bar Association. All rights reserved.
BY JEFFREY A. SILVER
Jeffrey A. Silver is the Administrative Partner of Gordon & Silver, Ltd., in Las Vegas, Nevada. He is a former member of the Nevada Gaming Control Board; trustee and past president of the International Association of Gaming Attorneys; and chair of the Gaming Law Committee of the ABA General Practice, Solo and Small Firm Section. His past professional assignments have included several years as a chief executive of two Las Vegas resort hotels and senior vice president of marketing of Caesars Palace.
Gambling used to be perceived as the province of organized crime and the occasional target of congressional investigations. But today, this part of the leisure and entertainment sector has reinvented itself as the "gaming" industry, a far more genteel and civilized moniker.
Respected public corporations such as ITT Sheraton, Hilton, Mirage, and Circus-Circus have now become major players. And while many government officials still labor under the misapprehension that the gaming industry is some sort of social pariah, nothing could be farther from the truth.
The gaming industry is one of the most highly regulated and scrutinized businesses in the country. Its economic vitality supports the majority of government services and private sector jobs in Nevada and is an important contributor in many other states' budgets. The rehabilitative effect of gaming is now being realized on Native American lands and financially distressed urban areas throughout our nation.
The Investigative Process
Because of gambling's illegal heritage, elected officials and gaming regulators are wary of the "suitability" of those who seek a license and the honesty of the games they offer. Lawyers who practice gaming law must understand this mind-set in order to explain to their clients why licensing investigations are so extensive, expensive, and intrusive.
Although there is certainly a need to do thorough investigations on new license applicants and a periodic audit on percentage tax revenues reported to the state, some state legislatures have used this "mob hysteria" as a reason to create elaborate and costly gaming regulatory structures in order to keep a watchful eye on the industry.
But gaming regulators are not just tough on paper. They are tough in practice and readily supported in this philosophy by the courts. The seminal case affirming the power of a state to regulate licensing matters is State of Nevada v. Rosenthal (559 P.2d 830, 93 Nev. 36 (1977)). "Lefty" Rosenthal is the same controversial individual whose life and times in Las Vegas are loosely chronicled in the recent movie "Casino." Mr. Rosenthal was required to submit an application for licensing as a "key employee" of a major casino; his application was subsequently denied by the Nevada authorities. (I was a member of the Nevada Gaming Control Board and took part in that decision).
The Nevada Supreme Court held that responsibility for gaming licensing is vested exclusively with the regulators. Further, the court stated that it was not the province of the courts to decide what shall constitute suitability to engage in gambling, nor should the federal government, since "gaming is a matter reserved to the states within the meaning of the Tenth Amendment to the United States Constitution and, thus, is a distinctively state problem to be governed, controlled and regulated by state legislatures."
The applicant appealed the decision to the U.S. Supreme Court, however, certiorari was denied. Although other states have a more "adversarial" application process, and some even permit a limited review of licensing decisions on appeal, this case remains the legal cornerstone for the tremendous administrative discretion held by a state in licensing and other regulatory matters.
Filling Out the Forms
Each year, as new states legalize gaming, "toughness" is taken to new heights. The most frustrating aspect of this for the gaming lawyer is wading through the application forms created by various regulatory bodies. The basic application used in Nevada is approximately 19 pages, including financial disclosure schedules. The latest form used by the State of Indiana is over 40 pages.
Beyond the length of the form, the depth of the inquiry and the breadth of those categories of businesses that are expected to file are also frustrating. For example, on the Indiana form, one of the questions asks all applicants to "list all business entities with which you have been associated as a Key Person or For More Information
To learn more about gaming law, contact the Gaming Law Committee of the ABA General Practice, Solo and Small Firm Section. Another resource is the International Association of Gaming Attorneys (IAGA), a professional organization affiliated with the ABA. IAGA holds annual conferences and publishes a quarterly newsletter. Write to IAGA directly at 2600 West Oakey, Las Vegas, NV 89104.rSubstantial Creditor from age 18 to the present." While this question may arguably be pertinent to the proposed operator of a river boat casino, it may not be as crucial for a casino supplier who will have nothing to do with the receipt of revenue or operation of the games.
Assuming you are willing to endure the frustration and client's rantings over filling out the application forms and still want to become a gaming lawyer, how do you prepare yourself? There are few published decisions to rely on, and given the wide latitude of administrative discretion by the regulators, a slight modification of facts (or political reality) can change the outcome of a case. For that reason, most gaming lawyers come from the ranks of former regulators or the lawyers assigned to represent them. However, a segment of the gaming bar enters the profession via "ancillary industries," including the lawyer representing the small casino supplier or the lawyer who is called upon to do an occasional casino collection. No matter how small the assignment, you should seize the opportunity to appear before the regulatory body to learn the system--and more importantly, the personalities in charge.
Unlike a transactional lawyer who can always craft a means to arrive at a desired outcome, or the criminal lawyer whose protection of his client's constitutional rights may be superior to the question of guilt or innocence, the gaming lawyer must uphold the "integrity of the system." Unlike criminal practice, the burden of proving suitability is always on the applicant, and the claim of any privilege under the Fifth Amendment constitutes a separate and distinct grounds for denial. Moreover, if the lawyer is not convinced of his client's suitability to receive the license, not only will the lawyer's credibility suffer, but the applicant may be stigmatized for life by such denial. Consequently, the gaming lawyer is an essential part of the screening process.
Clean record. The first thing that every prospective applicant will tell you is, "I'm clean!" As a gaming lawyer, it is your job to probe what that means. It could mean that the applicant believes he has never been convicted of anything "significant." In some states, any felony conviction results in disqualification. However, "being clean" to the regulators can also mean a variety of suitability issues, not just an arrest record. Investigations delve into the applicant's personal and business associations through a review of police intelligence reports and an examination of present and past business ownership or involvement. Regulators also require the assurance that all income earned has been properly reported and that the accumulated assets are commensurate with reported earnings.
Business probity. Another basic element of the investigative process common to all jurisdictions involves the issue of "business probity." Does the applicant have a history of failed businesses? Has he been the subject of multiple lawsuits, some of which allege "sharp business practices," fraud, or misrepresentation? Has the applicant previously operated in a regulated environment or held a privileged license that was subject to disciplinary action? Each factor taken separately may be insufficient to cause a denial, but where they appear in combination, this "linkage" may be used to weave a pattern of unsuitability.
Source of funds. The third element of every investigation is an examination of the source of funds. If the monies come from a banking institution regulated by the government and the funds are derived from a general pool of depositors funds, usually no further proof is required. However, where the funding comes from individuals, by personal guarantees or otherwise, through non-banking corporations and unregulated "off-shore" banks or special trusts, a "lender suitability" investigation will usually be required. This investigation can be as extensive as that faced by the gaming applicant.
Most gaming statutes justify these broad powers based upon the need to uphold the "public confidence and trust." Again, it is the duty of the gaming lawyer to protect the system by assuring that an applicant will not tend to reflect poorly on licensed gaming activities. Lurking in the background is a constant fear that scandal or bad publicity could have a negative impact on the continued legalization of gaming.
Legalized gaming is continually under scrutiny. The president recently signed a bill to "study" gaming and its impact on our society. A commission will explore the positive and negative aspects of the gaming industry and make recommendations that could have far-reaching effects. Many states are now weighing the impact of legalization. While the gaming industry has demonstrated the ability to create jobs and revitalize the economy, has it also brought with it increased crime and other social ills such as "problem gambling"? Moreover, should this industry be subject to new federal taxation?