Abstract
A recent decision out of the district court in Clark County, Nevada, underscores the law regarding the enforceability of gaming debts in Nevada and related causes of action that might allow for recovery of such debts notwithstanding their lack of enforceability. The case should be of interest to any parties who participate in private gaming activities.
The case arose out of a heads-up poker game between two private individuals—Plaintiff Matthew Kirk and Defendant Leon Tsoukernik—that took place at the Aria Resort and Casino in Las Vegas. During the course of the game, Kirk loaned $3,000,000 in casino chips to Tsoukernik so that he could continue playing the heads-up poker game. Following repeated demands, Tsourkernik paid $1,000,000 back to Kirk, but refused to pay the remaining $2,000,000. Kirk filed a complaint against Tsoukernik alleging three causes of action: (1) breach of contract and implied covenant of good faith and fair dealing relating to the gaming debt; (2) fraudulent inducement; and (3) unjust enrichment.
The court granted the defendant's motion to dismiss the claims for breach of contract and breach of implied covenant of good faith and fair dealing based on the lack of enforceability of gaming debts in the state of Nevada. The court did, however, allow the plaintiff's claims for fraudulent inducement and unjust enrichment to proceed.
With regard to the breach of contract and implied covenant of good faith, the court reiterated that gaming debts are not legally enforceable under Nevada common law. While Nevada law does create an express exception to the common law which allows state gaming licensees to recover a gaming debt that is evidenced by a credit instrument and patrons of gaming licensees to recover gaming debts from a licensee, even without a credit instrument, the court noted that these exceptions all require that a state gaming licensee be a party to the gaming debt. Since neither of the two parties were licensees, the court ruled that the gaming debt was void and unenforceable and cannot give rise to any administrative or civil cause of action.
The plaintiff, Kirk, attempted to argue that the loans were not gaming debts because he loaned the defendant Aria the casino chips before any gambling activity took place and that, accordingly, his loan represented a transfer of a debt that Aria owed to the chip holder from Kirk to Tsoukernik. That argument, while creative, did not move the court which held that obviously any loan provided for purposes of gambling would have to be completed before the actual wagering takes place. The plaintiff also tried to attack the Nevada statute on constitutional grounds arguing that it violates due process and equal protection to allow casinos to recover gaming debts from private individuals while denying the same remedies to private individuals. That argument likewise fell on deaf ears with the court. The court, in upholding the constitutionality of the statute, noted that because the gaming industry is so important to the economy and welfare of the state of Nevada, it is critical that the state adopt laws designed to ensure consumer confidence in that industry. Accordingly, the court concluded that the plaintiff's contract, which related solely to a gaming debt, was unenforceable.
Despite the unenforceability of the contract, however, the court ruled that the plaintiff could proceed with his claims for fraudulent inducement and unjust enrichment. While the defendant attempted to rely on another case in which the court refused to allow such claims to proceed where the underlying contract was illegal, the court distinguished this case. Specifically, the court noted that although the underlying gaming debt was not enforceable, the contract was not illegal because contracts involving gaming debts between individuals is not a crime in Nevada. The court's decision also appears to have been impacted by the fact that, minutes after the defendant received the loan from the plaintiff, he texted the plaintiff that the debt was invalid. This, the court felt, evidenced that the defendant entered into the contract intending to use its unenforceability to refuse payment. Thus, the court refused to dismiss the plaintiff's claims for unjust enrichment and fraudulent inducement.
It is important to remember that a ruling on a motion to dismiss is not a ruling on the merits, but a decision by the judge as to whether the facts, if true, could support a cause of action. Thus, it remains to be seen how the court will ultimately rule. The case is an important reminder, however, that just because private gaming debts are not enforceable in the state of Nevada does not mean that the failure to repay those debts will not give rise to other causes of action. The court's ruling on the constitutionality of its statute is also further testament to the importance courts in Nevada will give to maintaining the integrity and public confidence in the gaming industry in that state.