Summary
The Ninth Circuit affirmed judgment for California officials in a dormant Commerce Clause challenge to California cardroom licensing restrictions. The court held that California Business and Professions Code §§ 19858(a) and 19858.5 do not discriminate against interstate commerce, impermissibly regulate wholly out-of-state conduct, or impose a substantial burden warranting Pike balancing.
Topics
Practice areas
Questions Presented
- Whether California Business and Professions Code sections 19858(a) and 19858.5 facially discriminate against interstate commerce or have a discriminatory purpose or effect favoring in-state economic interests.
- Whether the licensing restrictions impermissibly regulate interstate commerce or wholly out-of-state conduct under a dormant Commerce Clause extraterritoriality theory.
- Whether the licensing restrictions impose a substantial or significant burden on interstate commerce that is clearly excessive in relation to California's asserted local benefits under Pike balancing.
Holdings
- California Business and Professions Code sections 19858(a) and 19858.5 do not violate the dormant Commerce Clause because they are not facially discriminatory and plaintiffs failed to show a discriminatory purpose or effect favoring in-state economic interests.
- Sections 19858(a) and 19858.5 do not violate the dormant Commerce Clause by impermissibly regulating wholly out-of-state conduct.
- Plaintiffs failed to establish the substantial or significant burden on interstate commerce required before Pike balancing, and their challenge therefore fails.
Key quotations
“We first consider whether §§ 19858(a) and 19858.5 violate the dormant Commerce Clause because they discriminate against interstate commerce. They do not: these provisions are not facially discriminatory, nor do they have a discriminatory purpose or effect that favors in-state economic interests.” (at 13)
“The provisions at issue here do not reach out and purport to regulate wholly-of-state conduct; they instead condition a state license for conducting in-state activities on plaintiffs foregoing certain business interests, whether within or outside the state.” (at 24)
“Pike “protects the interstate market, not particular interstate firms, from . . . burdensome regulations.”” (at 27)
“For the reasons we have explained, the cardroom licensing restriction in California Business and Professions Code §§ 19858(a) and 19858.5 does not violate the dormant Commerce Clause. AFFIRMED.” (at 27)
Factual background
California permits regulated cardrooms but prohibits casino-style banked and percentage games, subject to exceptions for tribal gaming. Under California Business and Professions Code sections 19858(a) and 19858.5, a person is generally ineligible for a California cardroom license if the person owns more than a one-percent financial interest in, or controls, a business engaged in gambling prohibited by California law, including certain lawful out-of-state casino operations. Plaintiffs are California residents and cardroom operators who claimed that these restrictions prevented them from investing in out-of-state casinos and violated the dormant Commerce Clause.
Procedural history
The district court initially dismissed the complaint as untimely. The Ninth Circuit reversed that ruling in Flynt v. Shimazu, 940 F.3d 457 (9th Cir. 2019), and remanded. On remand, the district court rejected plaintiffs' theories that California Business and Professions Code sections 19858(a) and 19858.5 discriminated against interstate commerce, regulated extraterritorial conduct, or imposed an excessive burden under Pike. The Ninth Circuit reviewed de novo and affirmed.