(CN) — A Ninth Circuit panel on Friday dealt a losing hand to Larry Flynt’s widow, ruling that a California law restricting ownership of a cardroom license doesn’t violate the federal dormant commerce clause.
Elizabeth Flynt and two other cardroom owners appealed a 2022 lower court decision finding that the state licensing restriction didn’t affect interstate commerce. That restriction prohibits someone from holding a California cardroom license if they own over a 1% financial interest in a business that has casino-style gambling.
Flynt, along with Haig Kelegian Sr. and Haig Kelegian Jr., argued a state couldn’t place a condition on a California business’s operation based on lawful activity outside the state that had no Golden State connection. They’ve also called it an “anachronistic” 1986 law meant to keep the mob away from legal gambling in California.
“We must decide whether this limitation on cardroom licensure violates the dormant commerce clause,” wrote Ninth Circuit Judge Daniel Bress, a Donald Trump appointee. “We hold it does not.”
Attorneys for the plaintiffs and spokespeople for the state couldn’t be reached for comment as of publication time.
The three-judge panel rejected three main arguments made by the plaintiffs: that the state law discriminates against interstate commerce, that it is unconstitutional because it regulates commerce that’s outside of California, and that it creates an undue burden on interstate commerce.
Writing the decision, Bress said antidiscrimination is at the core of the dormant commerce clause. That clause prohibits states from creating regulations meant to bolster in-state economic interests by hurting those out of state.
For such a law to prevail, it must have a narrow tailoring to advance a local purpose.
Bress wrote that, if plaintiffs can show that a substantial burden on interstate commerce exists, a court must then examine if that burden is excessive when compared to local benefits. Additionally, courts have ruled that state rules hinging on public safety concerns carry a significant presumption of being valid.
“The cardroom licensing restrictions at issue here do not implicate the core concern at the heart of the dormant commerce clause: laws that ‘benefit in-state economic interests by burdening out-of-state competitors,’” Bress wrote.
The plaintiffs argued that state law was discriminatory because it targeted people with a gambling-related business outside of California. However, Bress wrote that the state sought to stop crime and gambling-related corruption — acts that don’t equate to economic protectionism.
The plaintiffs also argued that state law created an improper barrier around California’s gambling industry. They claimed outside companies couldn’t invest in California cardrooms. However, as Bress noted the lower court found, they lacked standing to make a claim for non-California casino owners.
“Regardless, whether premised on out-of-state economic interests or the interests of those within the state who cannot invest in out-of-state gambling businesses, plaintiffs’ ‘interstate capital’ theory does not demonstrate an improper discriminatory effect,” Bress wrote.
The panel also rejected the argument that California’s law impermissibly regulates interstate commerce that’s entirely outside the state, as plaintiffs can’t invest in out-of-state casinos and keep their cardroom licenses.
However, California didn’t do that, Bress wrote. Instead, it regulated conduct within its borders: the licensing and operation of cardrooms.
A commission over 20 years ago issued a report that stated the card club ownership limitations were no longer needed to curb illegality, the judge wrote.
“But that debate is one for state policymakers, not the courts, to resolve,” he added. “The California Legislature’s judgment that the licensing of in-state cardrooms should not coincide with ownership or control over gambling operations that are prohibited in California — whether those businesses are located ‘within or without this state’ … — does not violate any dormant commerce clause command.”
Turning to the final argument — that the law places a significant burden on interstate commerce — Bress wrote that the plaintiffs failed to prove it. The law affects only a small amount of people: those who have state cardroom licenses. Additionally, the law protects the market, not particular people, from burdensome regulations.
“The burden on plaintiffs thus does not alone demonstrate a substantial burden on interstate commerce,” Bress wrote.
The appeals panel was rounded out by Circuit Judge Lawrence VanDyke, a Trump appointee, and U.S. District Judge Robert Lasnik, an appointee of Bill Clinton, sitting by designation.