Casino gambling is hot:
Gambling debt collection is not
by Larry
A. Strate
Gambling on credit, considered a vice by some, is
not judicially collectible based upon the Statute of Anne. This common law statute prevents the
collection of gambling losses, unless excepted by state statute. This article reviews and updates the
findings of an unenforceability of gambling debt study conducted in 1989 just
prior to the rapid expansion of gambling in the United States.
An unprecedented and unpredicted
decade of socially acceptable gambling culminated in 1994.[1] The catapult of high visibility and
acceptability of gambling as the nation's favorite recreational pastime also
spotlighted problem areas[2]
including, according to one author, "gambling on credit" as one of
three major problems facing the U.S. gambling industry.[3]
In sharp contrast to the current
social acceptance of gambling has been the existence of a vintage common law
statute, the Statute of Anne. This
historic statute has become a part of the public argument that one can prevent
gambling losses by preventing their collection; 49 of the 50 states have adopted the Statute of Anne which
precludes the judicial collection of gambling debts.[4]
The critical difference between the
acceptability of gambling and the enforcement of gambling debts is explained in
a Texas case: "Even if gambling
legislation in Texas were evidence sufficient to warrant judicial notice of a
shift in public policy with respect to legalized gambling, such a shift would
not be inconsistent with a continued public policy disfavoring gambling on
credit."[5]
The unenforceability of gambling
debts in this country was the subject of a study completed in 1989 by the
International Association of Gaming Attorneys,[6] just prior to
the most rapid growth period of casino gambling in the United States.
Would this decade of growth and the
public acceptance produce any changes in the public conscience as reflected by
changing statutes, or through new case law decisions? If change were to occur, would it be among the 27 states which
permit casino gambling?
This 1997 update of that study found
moderate change in new statutes, but not new case law. Most statutory change exempted charitable
and Indian gambling. It still appears
that only a few states are friendly toward the foreign forum approach. All states in the domestic forum approach
recognize the full faith and credit clause of the U.S. Constitution.
1990s saw experiments
History may view the 1990s as the
world's great experiment with casino gambling.[7] The great experiment brought into public
view a convenience activity that only a decade ago was a limited destination
service, i.e., legalized gambling in Atlantic City, New Jersey, and the state
of Nevada. It was only six years ago
that there was gaming in only a handful of jurisdictions. Class 3 casinos were available in a handful
of states: New Jersey, Nevada and
Mississippi. Casinos operate or are
authorized to operate in 27 states and 95 percent of all Americans are supposed
to live within a three or four-hour drive of one by the year 2000.[8]
Now casino gambling has proliferated
to nearly every pueblo, from Connecticut to California, from Washington to
Florida, and all states in between, with the exception of Hawaii and Utah. While the public eye watched this energetic
economic boon for governments and private industry, the public conscience
grappled with the rapid metamorphosis of an unacceptable activity, gambling, to
acceptable entertainment and the current politically correct term, gaming.
One author has described gaming and
its success in different terms, "There is so much money to be made in the
gambling industry that casinos do not need to cross moral and ethical
boundaries ...gambling on credit, ...has sown mistrust, resentment and anger
against the U.S. gambling industry."[9]
The current expression of the public
conscience regarding gambling on credit can be found in the legal writings of
the state statutes, and in case law.
In sharp contrast with the expansive
growth and emergence of a nationally accepted recreation activity, every state
in the Union, with the exception of Louisiana, has a common vintage statute
identified as the "Statute of Anne," one of the many which are a part
of the body of the Common Law of England.
Statute influenced all states
Dubbed "the most important
development in English gambling law prior to the American Revolution,[10]
it's main objective could be viewed as the prevention of gaming on credit.[11] The statute originated in
seventeenth-century England[12]
and is a rule holding gambling debts unenforceable. Such an ingrained and well-established public policy as a part of
the statutes and case law is resilient to change. The Statute of Anne has impacted upon every state because of its
"prohibitions" regarding the collection of gaming debts. The wording of the statute is
self-explanatory:
That all notes, bills, bonds,
judgments, mortgages, or securities or conveyances whatsoever given, granted,
drawn or entered into, or executed by any person or persons whatsoever, where
the whole, or any part of the consideration of such conveyances, or securities
shall be for any money, or other valuable thing whatsoever, or by betting on
the sides or hands or such; as do game at any of the games aforesaid, or for
the reimbursing or repaying any money knowingly lent, or advanced at the time
and place of such play, to any person or persons so gaming or betting as
aforesaid, of that shall, during such play, so
play or bet shall be utterly void, frustrate and of non effect, to all intents
and purposes whatsoever. [emphasis
added][13]
Even both states which have
abrogated the common law, i.e., New Jersey and Nevada, still preclude the
collection of all other forms of gambling debts. In Nevada, a gambling debt evidenced by a credit instrument held
by an unrestricted licensee[14]
or certain checks in New Jersey[15]
held by casinos are legally collectible.
In every state, including Nevada and
New Jersey, gaming contracts have been determined to be illegal as inconsistent
with the interests of the community or at variance with the laws of morality.[16]
Policy statements are rare
Only three states have gambling
public policy statements. The first is
Nevada with its "Public Policy of State Concerning Gaming."[17] Nevada's public policy statement was the
result of a series of years of off-again, on-again, gambling, legal since the
1800s outlawed in 1919, legalized again in 1931.
The second state is Colorado. Colorado's public policy statement is under
the title of "Legislative Declaration" printed in 1993.[18]
The third state is New Jersey where
the statement is under the Casino Control Act.[19] One of the most revealing sections, which
illustrates the presence of the Statute of Anne even in New Jersey, is in
section 8: "Since the public has a
vital interest in casino operations in Atlantic City and has established an
exception to the general policy of this state concerning gaming for private
gain..."
The several states have indexed
matters regarding gambling, contracting to gamble, or engaging in betting
endeavors between criminal or civil statutes.
But, whether located in one part or the other, the prohibitions remain,
either as criminal sanctions, civil remedies, or the inability to judicially
enforce such a gaming contract.
Another expression of public
conscience is in the respective states' case decisions which are viewed as
either involving either a foreign forum or a domestic forum.
Courts in the individual states may
constitutionally refuse to enforce a cause of action in each sovereign state if
the cause of action arises out-of-state and would violate an actual strong
public policy in the state. This is
known as the "foreign forum approach." This approach used by a casino may be determinative as
illustrated in the following case:
"Even if gambling legislation in Texas were evidence sufficient to
warrant judicial notice of a shift in public policy with respect to legalized
gambling, such a shift would not be inconsistent with a continued public policy
disfavoring gambling on credit."[20] There are numerous case decisions which also
reflect the positions expressed by the statutes with regard to gaming
transactions, gambling debts, and the collectibility of those debts.
The contrary is also true. If a state court has recognized by statute
or case law that certain gambling debts are collectible in state court, they
may enforce such a cause of action. A
casino can bring an original action against a patron in the state where the
casino is located or by obtaining personal jurisdiction over the nonresident
patron, or via the long-arm statute.[21]
The domestic forum approach has a
distinct advantage that supersedes any domestic public policy argument. That advantage is explained by an appellate
court case in Michigan. Recently in
that state[22]
the appellate court, even though enforcement of gambling debts is contrary to
public policy in Michigan, was required to enforce Nevada's judgment against
the defendant on the Full Faith and Credit Clause of the federal Constitution. It was well established that in Michigan
enforcement of gambling debts is contrary to public policy. However, in the present case, "we must
treat as irrelevant our state's public policy and our courts' long standing
refusal to enforce gambling debts. We
are dealing with a fait accompli, a foreign judgment."[23]
Constitution guarantees decisions
The Full Faith and Credit Clause of
the U.S. Constitution is an enforcement mechanism to guarantee state
decisions. The clause and its
authorizing statute, 28 U.S.C. S 1738 (1948), ensures that the enforcement of a
judgment in a sister state is not dependent on that forum's public policy.
With the eruption of the
acceptability of casino gaming in 27 states, and multiple forms of gambling in
48 of the 50 states, it would seem logical for an increase in credit play.
According to one author, "The
amount of casino credit written off in Nevada as bad debt is staggering in
absolute terms, and is increasing in what may be the nascent stages of an
exponential rise which will possibly have a considerable impact on the
industry's bottom line. Between 1984
and 1993, the cumulative amount of bad debt expenses by Nevada casinos was
$811,976,817."[24]
Still others suggest that credit
gambling, both in real and relative terms, suggests that people are spending
more than they can afford. This is
bolstered by the fact that problem gamblers addicted to gambling are alleged to
constitute 5 to 7 percent of their customer base.[25] Another author has specifically identified
"gambling on credit" as one of three serious problems, "where
gambling tables gambling on credit have sown mistrust, resentment and anger
against the U.S. gambling industry."[26] "Because of credit, you have the
possibility of breeding two of the biggest problems gambling faces --
compulsive gambling and skimming."[27] While most states with legal gambling allow
credit, Iowa is an exception.[28] While many of the Native American casinos do
not allow credit play, there are some who do.[29]
Bad debt expenses rise
In addition to the problem of
overextending on credit is the problem of not wanting to pay. This idea is not a new one, and history
seems replete with stories that indicate extra-judicial or non-judicial methods
of collection have been extremely successful for casino businesses before the
adoption of the Gaming Acts in New Jersey and Nevada, as in Flamingo Resort, Inc.[30] Prior to the collection acts, recovery had
been limited to self-help procedures.
In the past there have been allegations that some collection procedures
exceeded socially acceptable behavior:[31]
In better ordered times, a man with
gaming debts paid up immediately or repaired to a French coastal resort and
introduced himself to the effects of a service revolver fired into the head at
close range. Nowadays, things are less satisfactory: indeed... the Rendezvous Casino Club at the Hilton Hotel has
deemed it necessary to sue Prince Abdulaziz Al Sudairy, a member of the Saudi
Arabian royal family, for a six-year-old debt.[32]
Debt collection statistics remain
confidential on an individual basis.[33] Although comfort may be taken in the
apparently high collection rate of casino credit, it’s being estimated by some
authors as 92 percent and others as high as 95 percent. The amount of bad debt expenses on an annual
basis, in absolute terms, is staggering, and in relationship to the period of
time, on the rise.[34]
Many states will not enforce casino debts
The International Association of
Gaming Attorneys conducted a state by state survey in 1989 of courts unlikely
to enforce gambling debts.[35] It concluded that the courts of the
following states and the District of Columbia were unlikely to enforce gaming
debts arising out of state-authorized casinos:
Alabama, Connecticut, Colorado, Florida, Georgia, Illinois, Kansas,
Louisiana, Missouri, Ohio, Texas, Virginia, and Wyoming.
In addition, the following states
had early case law (pre-1950) which prohibits the enforceability of foreign
gaming debts: Kentucky, Mississippi,
North Carolina, Oklahoma, Rhode Island and South Carolina.
California has case law suggesting
both that it would and would not assist in the enforcement of gaming debts.
Arkansas, Delaware, Massachusetts
and Vermont have early case law which would assist in attempting to enforce
gaming debts.
Courts in the following states have
no published decisions addressing the issue:
Alaska, Arizona, Hawaii, Idaho, Indiana, Iowa, Maine, Minnesota,
Montana, Nebraska, New Hampshire, New Mexico, North Dakota, Oregon, South
Dakota, Tennessee, Utah, Washington, West Virginia, and Wisconsin.
The 1997 survey update was limited
to the 27 states that currently permit casino gambling.
Common law is basis
The English Common Law has been
adopted as the basis of jurisprudence in all the states of the union with the
exception of Louisiana, where the civil law prevails in civil matters.[36] Thus, every state in the union adopted the
Statute of Anne (except Louisiana), which prevents the collection of gambling
debts. While 27 states permit casino
gambling, only 13 states permit the collection of some form of gambling debts.
Table 1
Status, 1989 and 1997
|
1989 |
1997 |
|
|
|
|
|
||
States
Unlikely To Enforce Gambling Debts
|
|
||
|
Connecticut |
Connecticut |
|
|
|
Colorado |
|
|
|
|
Illinois |
|
|
|
|
Kansas |
Kansas |
|
|
|
Louisiana |
Louisiana |
|
|
|
Missouri |
Missouri |
|
|
|
|
Mississippi |
|
|
|
|
New Mexico |
|
|
|
Rhode Island |
Rhode Island |
|
|
|
South
Carolina |
South
Carolina |
|
|
|
|
South Dakota |
|
|
|
|
Wisconsin |
|
|
|
|
|
|
|
No Published
Decisions
|
|
||
|
Arizona |
Arizona |
|
|
|
Idaho |
Idaho |
|
|
|
Indiana |
Indiana |
|
|
|
Iowa |
|
|
|
|
Minnesota |
Minnesota |
|
|
|
Montana |
|
|
|
|
New Mexico |
|
|
|
|
North Dakota |
|
|
|
|
South Dakota |
|
|
|
|
Washington |
Washington |
|
|
|
Wisconsin |
|
|
|
|
|
|
||
Debts States Unlikely To Enforce Gambling
|
|
||
|
|
Colorado |
|
|
|
|
Illinois |
|
|
|
|
Iowa |
|
|
|
Maryland |
Maryland |
|
|
|
|
Minnesota |
|
|
|
Michigan |
Michigan |
|
|
|
|
Montana |
|
|
|
Nevada |
Nevada |
|
|
|
New Jersey |
New Jersey |
|
|
|
New York |
New York |
|
|
|
|
Oregon |
|
|
|
|
Wisconsin |
|
|
|
|
|
||
State
Would/Would Not Enforce Gambling Debts
|
|
||
|
California |
California |
|
|
This study concludes that as of
1997 10 of the 27 states remain unlikely to enforce gaming debts arising out of
state-authorized casinos: Connecticut,
Kansas, Louisiana, Mississippi, Missouri, New Mexico, Oregon, Rhode Island,
South Carolina, South Dakota, and Wisconsin.
California's most recent case law
suggests still that it would and would not assist in the enforcement of gaming
debts, and in the most recent [1997] cases, the same courthouse in two
different courtrooms reinforced this.
Courts in the following six states
have no published decisions addressing the issue: Arizona, Idaho, Indiana, Iowa, Minnesota, Montana, North Dakota,
and Washington.
Only moderate change was observed
from 1989 to 1997 among the three categories of states “unlikely to enforce
gambling debts,” states with “no published decisions,” and states “likely to
enforce” gambling debts.
In the “unlikely to enforce gambling
debts” category, four states were involved;
Colorado and Illinois moved out to “likely to enforce,” and New Mexico
and South Dakota moved from “no published decisions” into “unlikely to
enforce.” Four states, Iowa, Montana,
Oregon and Wisconsin, moved from the “no published decisions” to “likely to
enforce.”
The “likely to enforce” category
includes the nine statutory exceptions enacted during the time covered in this
study as well as the three states that already would have been “likely to
enforce gambling debts” because of their case decisions, Maryland, Michigan,
and New York.
Exceptions do exist
The following states have enacted
statutory exceptions to the Statute of Anne:
Colorado (social gambling), Illinois (riverboat gambling), Iowa (Chapter
99B compliance, pari-mutual wagering, state lottery, or excursion boat gambling
and gambling on Indian lands), Minnesota (pari-mutual wagering, state lottery,
and Indian gaming activities), Nevada (for credit instruments), New Jersey (for
checks cashed in conformity with the act), Montana (raffles), Oregon
(charitable bingo games), and Wisconsin (gambling permitted under Ch. 561-569,
and gaming on Indian lands).
Only seven states have changed their
statutes since Nevada and New Jersey did in 1984 and 1977, and it has taken a
decade and a half or more for any other state to grant statutory exceptions.
The wait for change of enforcing
gaming contracts based upon the Nevada and New Jersey historical time frames
could be several more years in the offing, according to the survey update. Waiting too long may negate the need for
statutory change. At least one author
has predicted that the new gaming boom may be short-lived in some regions:[37] "Throughout history, every society that
has allowed casinos to cater to local customers has eventually outlawed
gambling."[38]
References
[2]
Keith Chrostowski and Rick Alm, "Gambling's Social Toll. In the Midst of All the Neon Are Those Who
Can't Quench Their Thirst For Action.
KC Sees Addiction Rise With Boats," The Kansas City Star, March 10, 1997, p. Al.
[3]
Jeff Lee, "Casino Industry Author Warns of The Three Vices," The Vancouver Sun, May 10, 1994, p. D8.
[6]
Anthony N. Cabot, editor, "Casino Credit and Collection Law,"
International Association of Gaming Attorneys, 1989.
[7]
Jason Ader, and Clayton Moran, "Smith Barney Shearson National Gaming
Review," December 1993, p. 2.
[9]
Jeff Lee, "Casino Industry Author Warns of the Three Vices," The Vancouver Sun, May 10, 1994,
p. D8.
[10]
G. Robert Blakey, "Gaming Lotteries & Wagering: The Pre Revolutionary Roots of the Law of
Gambling," 16 Rutgers L.J. 211, 221,
no.5, (1985).
[11]
Applegarth v. Colley, 152 Eng. Rep.
663 (Ex. 1842) "One great object of the Statutes of Charles II and Anne
(both of which must be construed together) was to prevent gaming on credit, and
to confine parties who were playing for money to such sums as they should pay
down at the time of play."
[24]
Martin S. Kenney, "International Gaming Credit, Due Diligence and
Enforcement: How Can The Risks Be
Mitigated?" Gaming Research &
Review Journal, l, No. l (1994):
77-87.
[25]
Shaun McKinnon,
"Study Links Gambling, Suicide,"
The Las Vegas Review Journal, December 17, 1997, p. B-l.
[28]
Patrick E. Gauen,
"Gamblers Borrow Millions When The Odds Are Down," St. Louis Post-Dispatch, April 19, 1994,
p. 5A.
[29]
Larry A. Strate and Glynda White, "Resolution of Gambling Debts,"
Proceedings, Pacific Southwest Academy of Legal Studies, 1995.
[30]
Flamingo Resort, Inc. v. U.S., 485 F.
Supp 926; 80-1 U.S. Tax Case. 1980.
"The record indicates that the Flamingo's estimates of collectibility on
outstanding casino receivables ranged as high as 96 percent."
[33]
Martin S. Kenny, "International Gaming Credit, Due Diligence and
Enforcement: How Can The Risks Be
Mitigated?" 1 Gaming and Research
Journal 77 (1994).