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Court of Appeal:
Actions on Gambling Debts Remain Barred in California
Hoffstadt Says Judgment on Pleadings Was Properly Granted in Favor of Defendant in Suit to Collect on Loans Made by Gambling Hall in Foreign Country Where Wagering Is Lawful; Common Law Rule Remains in Effect
By a MetNews Staff Writer
The English common law rule against enforcement of gambling debts through court actions retains its vitality as a principle of California law despite the state’s legalization of some forms of gambling, the Court of Appeal for this district has held.
Justice Brian M. Hoffstadt of Div. Two authored the opinion, filed Thursday. It affirms a judgment on the pleadings granted by Los Angeles Superior Court Judge John J. Kralik in favor of defendant Kevin C.S. Long, a Chinese national who resides in Arcadia.
Suing him was Tak Chun Gaming Promotion Company Limited, which owns gambling halls in Macau—also known as Macao—an autonomous region in China where gambling is legal. It makes loans to gamblers and sued here to recover $9.9 million, in U.S. currency, it allegedly advanced to Chun in Macau that was not repaid.
Hoffstadt said:
“Although Tak Chun’s complaint alleges three causes of action, all seek to enforce the gambling debts Long incurred in Macau. Thus, the legal viability of Tak Chun’s claims turns on whether California provides a judicial forum for their adjudication.
“It does not.”
Civil Code §22.2
He pointed to Civil Code §22.2, which harks to a statute enacted in 1850. The current statute says (as it did at its inception as Stats.1850, p. 219, and when it was codified in 1872 as Political Code §4468, and in its current incarnation, adopted in 1951):
“The common law of England, so far as it is not repugnant to or inconsistent with the Constitution of the United States, or the Constitution or laws of this State, is the rule of decision in all the courts of this State.”
Hoffstadt said that in so providing, “our state imported the English common law rule that prohibits resort to the courts to enforce gambling debts.”
The jurist cited the California Supreme Court’s 1851 decision in Bryant v. Mead. The opinion in that case says:
“Wagers, which tend to excite a breach of the peace, or are contra bonos mores, or which are against the principles of sound policy, are illegal; and no contract arising out of any such illegal transaction, can be enforced. These are principles of the common law which has been adopted in this State….”
Legal Gambling
Just as some gambling in California is now legal, so it was in 1851. Nathaniel Bennett, one of California’s first two associate justices (on a three-justice court), noted in Bryant that statutes “permit the keeping of a gaming-house, after a license granted for that purpose” but said that even if the plaintiff, proprietor of the San Francisco gambling room that was suing on a debt, had such a license, it wouldn’t matter.
Bennett explained that “such license should not be construed as conferring a right to sue for a gaming debt, but as a protection solely against a criminal action.”
Hoffstadt did not explain why the state high court’s 1851 pronouncement that even a debt incurred in lawful gambling is non-enforceable is not dispositive of the issue, rendering unnecessary further discussion in a published intermediate appellate court opinion.
However, he wrote that “from the very beginning,” California has declined to entertain suits based on gambling debts on a public policy basis, whether the wagering was lawful or not, citing Bryant, a 1949 California Supreme Court opinion, and a 1999 Court of Appeal decision.
No Abandonment
Hoffstadt said that in the 173 years since the antecedent of §22.2 was enacted, “our state has legalized many discrete types of gambling.” He referred, in particular, to the state’s own lottery, to pari-mutuel horse racing, permissible card games entailing wagers, and to the federally sanctioned gambling on tribal reservations.
Posing the question as to whether “this shift to a selective and partial legalization of gambling” warrants “the abandonment of the common law rule shuttering the California courts to lawsuits seeking to enforce gambling debts,” he answered:
“We hold that it does not. The public policy basis for not legalizing gambling and the public policy basis for not providing a judicial forum to enforce gambling debts are distinct; erosion of the former does not call the latter into question.”
Hoffstadt went on to say:
“[W]e conclude that the common law rule barring resort to the California courts to collect gambling debts rests on a rationale with continued vitality—namely, a policy of discouraging the creation of those debts and the financially ruinous consequences that often flow from them, regardless of whether those debts were lawfully incurred.”
Suit on Loans
Hoffstadt did not view as significant that Tak Chun was not suing on a gambling debt per se, but on loans advanced for the purpose of gambling.
“…California courts may ostensibly entertain a lawsuit by a credit card company to enforce its unpaid debts, even if its customer has used the card to purchase one or more lottery tickets, but in such a situation, the credit card company would have no foreknowledge that the card would be used to purchase lottery tickets,” he wrote, adding:
“Where, as in this case, the lender knows that the money will be used for gambling (as Tak Chun knew because it tendered Long casino tokens), the common law rule applies.”
Contrary Decision
Note was made of a contrary 1988 Court of Appeal decision by this district’s Div. Three in Crockford’s Club Ltd. v. Si-Ahmed. Presiding Justice Joan Dempsey Klein, now deceased, labeled as “unpersuasive” the defendant’s contention that a debt he incurred at a lawful gambling casino in England “is unenforceable as against public policy.”
She wrote:
“In view of the expanded acceptance of gambling in this state as manifested by the introduction of the California lottery and other innovations…, it cannot seriously be maintained that enforcement of said judgment ‘is so antagonistic to California public policy interests as to preclude the extension of comity in the present case.’ ”
Hoffstadt remarked:
“Not surprisingly, every court to subsequently consider the issue has rejected Crockford’s Club.”
In a footnote, he observed that there is “one potential way to harmonize Crockford’s Club…with the bulk of other precedent,” pointing out that “[t]he plaintiff in that case sought to enforce a foreign country’s judgment.” He continued:
“Because full faith and credit only applies to the judgments of other states and not other countries, full faith and credit considerations did not trump….That being said, the fact that the plaintiff was seeking to enforce a judgment makes that case different from the typical case where, as here, the plaintiff is seeking to litigate their claim in the first instance.”
Historical Inaccuracy
The opinion contains a minor historical inaccuracy. It recites that the 1850 statute was enacted “[d]uring our state’s infancy.”
Statehood was not in its infancy, but in a fetal stage. The statute supplanting Mexican law with English common law was passed by California’s first Legislature on April 13, 1850; it was not until Sept. 9 of that year that President Millard Fillmore signed the bill granting statehood.
Operating under a constitution adopted in 1849, California functioned as if it were a state before it became one.
The case is Tak Chun Gaming Promotion Company Limited v. Long, B317918.
Attorneys on appeal were John P. Makin, Nelson S. Hsieh, and Helen H. Chen of the San Ramon firm of Greenan, Peffer, Sallander & Lally for Tak Chun and Thomas R. Freeman, Ekwan E. Rhow, and Kimmy Yu of the Century City firm of Bird, Marella, Boxer, Wolpert, Nessim, Drooks, Lincenberg & Rhow for Long.
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