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Medina v. Becerra

United States District Court, N.D. California

November 16, 2017

RENE MEDINA, Plaintiff,
v.
XAVIER BECERRA, in his official capacity as ATTORNEY GENERAL of the STATE of CALIFORNIA, WAYNE QUINT, JR., in his official capacity as the CHIEF of the CALIFORNIA DEPARTMENT OF JUSTICE, BUREAU of GAMBLING CONTROL, an agency of the STATE of CALIFORNIA, and JIM EVANS, LAUREN HAMMOND, and, TRANG TO, in their official capacities as members of the CALIFORNIA GAMBLING COMMISSION, an agency of the STATE of CALIFORNIA, and DOES ONE through FIFTY, inclusive., Defendants.

          ORDER DENYING DEFENDANTS' MOTION TO DISMISS AND GRANTING PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

          CHARLES R. BREYER United States District Judge

         Plaintiff Rene Medina (“Medina”) has brought suit against several defendants whom he alleges have interfered with his constitutional rights in violation of 42 U.S.C. § 1983. The source of Medina's alleged constitutional deprivations are license conditions imposed by the California Gambling Control Commission (the “Commission”) on Lucky Chances Casino (“Lucky Chances” or the “Casino”), a gambling establishment founded by Medina and currently owned by Medina's two sons.[1] The license conditions require Lucky Chances to restrict Medina's involvement with the Casino and its employees because of Medina's status as a convicted felon. Medina alleges that the Commission has unlawfully exceeded the bounds of its jurisdiction and asks for a preliminary injunction against the defendants. Defendants have moved for dismissal.

         As discussed below, the Court DENIES Defendants' Motion to Dismiss and GRANTS Plaintiff's Motion for Preliminary Injunction.

         I. BACKGROUND

         A. Plaintiff's Background

         Rene Medina emigrated from the Philippines in 1971 and has since founded several businesses in the San Francisco Bay Area. Compl. (dkt. 1) ¶¶ 12, 15; Medina Decl. (dkt. 10-1) ¶¶ 2-6.[2] In 1998, Medina founded Lucky Chances Casino in Colma, California. Compl. ¶ 15; Medina Decl. ¶ 15. In 2007, he sold the casino to his two sons, Ruell Medina and Rommel Medina, for $48, 000, 000, subject to a promissory note. Compl. ¶ 18; Medina Decl. ¶ 28.

         In 2008, Medina was convicted of three counts of felony tax evasion in violation of 26 U.S.C. § 7201. Compl. ¶ 19; Medina Decl. ¶ 32. Because of his felony convictions, Medina is “disqualified” under the California Gambling Control Act from holding an ownership interest in any gambling facility. Compl. ¶ 20; Medina Decl. ¶ 34; see Cal. Bus. & Prof. Code § 19859(c). As a result, Medina transferred the promissory note in the Casino, which he and his wife previously held personally, to the Rene and Mila Medina 2008 Irrevocable Blind Trust Agreement.[3] Compl. ¶ 21; see Medina Decl. ¶¶ 29-30.

         B. October 8, 2009 Renewal of Lucky Chances Casino's State Gambling License

         On October 8, 2009, the Commission renewed all applicable state gambling licenses for Lucky Chances, subject to the following conditions (“2009 License Conditions”):[4]

1. Rene Medina shall be prohibited from entering, being present in, or in any way patronizing (a) the areas within Lucky Chances Casino in which controlled gambling is conducted and (b) any other areas related to the gambling operation, such as count and surveillance rooms, including all of the 2nd floor.
2. All future shareholders, corporate officers, key employees, and work permit holders shall be informed of the prohibition (as identified in condition number one) by the General Manager within three business days of their start state. The General Manager shall maintain all records documenting this notification to new employees, etc., for four years following each notification. The General Manager of Lucky Chances shall maintain, for four years, all records documenting the initial action taken following the September 23, 2008, Commission Meeting to inform shareholders, corporate officers, key employees, and work permit holders of condition number one.
3. Ruell Medina and Rommel Medina, licensed as shareholders in Lucky Chances, Inc., shall each be individually responsible for ensuring that all conditions placed on the Lucky Chances license are fully complied with, including but not limited to duties placed upon the General Manager.
4. If Rene Medina is observed at any time by any employee entering, or being present in, (a) the areas within Lucky Chances Casino in which controlled gambling is conducted or (2) [sic] any other areas related to the gambling operation, such as count and surveillance rooms, including all of the 2nd floor, the General Manager or manager in charge shall within 30 minutes telephone (1) the California Gambling Control Commission (Commission), and (2) the Department of Justice, Bureau of Gambling Control (Bureau). The call to the Commission shall be made to the Executive Director at (916) 263-0700. The call to the Bureau shall be made to the Bureau Chief at (916) 263-3408.
5. Any communication between Rene Medina and any shareholder or employee of Lucky Chances concerning the operation of the Lucky Chances cardroom business shall be disclosed to the Executive Director and to the Bureau Chief within one business day of the communication. This disclosure requirement applies to both oral and written communications. This disclosure must be made in writing. The General Manager shall maintain records documenting each disclosure for four years following the disclosure.

Compl. ¶ 25; Medina Decl. ¶ 36. These conditions have remained in place continuously since October 8, 2009. Compl. ¶ 25; Medina Decl. ¶ 37.

         C. October 21, 2014 Investigation of Lucky Chances Casino by the Bureau of Gambling Control

         On October 21, 2014, Special Agents from the California Department of Justice, Bureau of Gambling Control (the “Bureau”) conducted an unannounced compliance inspection of Lucky Chances. Compl. ¶ 27; see Compl. Ex. A (Investigation Report).[5]The Special Agents interviewed employees, imaged computers, and accessed documents during the inspection. Id. The focus of the Special Agents' investigation was to determine if there was any relationship between Lucky Chances' employees and the construction and maintenance of Rene Medina's personal residence in Woodside, California. Compl. ¶ 28; Investigation Report at 1-2.

         Based on the information obtained during the inspection, Bureau Chief Wayne J. Quint, Jr. brought an Accusation before the Commission against Lucky Chances on August 12, 2015. Compl. ¶ 29; Compl. Ex. B (Accusation) ¶¶ 1-2.[6] The Accusation included two causes of action for violations of Lucky Chances Casino's license conditions.

         The first cause of action alleged a violation of License Condition Five, which required “any communication between Rene Medina and any shareholder or employee of Lucky Chances concerning the operation of Lucky Chances cardroom business” to be disclosed to the Bureau. Accusation ¶ 3. The Accusation alleged that “[o]n multiple occasions in 2013 and 2014, Lucky Chances provided construction, landscaping, housekeeping, and other valuable services incident to the construction of Rene and his wife, Mila, Medina's home . . . The wages, salaries, and other costs incurred by Lucky Chances in connection with this work were paid from the operating funds of Lucky Chances, Inc., which, in turn, derived from the proceeds of controlled gambling activities.” Id. Further, the Accusation alleged that, in order to schedule and coordinate these services, “Rene Medina communicated on numerous occasions with the employees and/or their supervisors.” Id. The Accusation alleged that, because none of the communications between Rene Medina and Lucky Chances' employees were disclosed to the Bureau, each constituted a violation of License Condition Five. Id.

         The second cause of action alleged a violation of License Condition Three, which provides that Ruell Medina and Rommel Medina are individually responsible for ensuring that Lucky Chances comply with all license conditions. Id. ¶ 4. The Accusation alleged that “[n]either Ruell Medina, nor Rommel Medina took any actions to ensure compliance with condition five of the Lucky Chances license, ” and thus violated condition three of the Lucky Chances license. Id.

         The Accusation requested a revocation of Lucky Chances Casino's licenses and denial of Ruell Medina's and Rommel Medina's applications for renewal of their owner gambling licenses. Id. at 8.

         D. The Administrative Law Judge's September 16, 2016 Proposed Decision and Order

         From August 1 through August 4, 2016, Administrative Law Judge (“ALJ”) Kirk E. Miller held an evidentiary hearing regarding the Accusation. Compl. ¶ 33; Smith Decl. ¶ 5. On September 16, 2016, ALJ Miller issued his findings in a Proposed Decision and Order. Compl. ¶ 33; Smith Decl. ¶ 6; see Compl. Ex. C (Proposed Decision and Order).[7]

         ALJ Miller's findings included the following: In 2013 and 2014, Rene Medina improperly used Lucky Chances employees to help design and build his new residence in Woodside, California.[8] Proposed Decision and Order ¶¶ 14-17. Either Lucky Chances' facility manager, Lucky Chances' day-shift housekeeping and maintenance supervisor, or Rene Medina himself would request employees to perform services “off-site”-sometimes during regular work hours. Id. It was not uncommon for Lucky Chances' maintenance employees to clock-in on the Kronos time keeping machine at the Casino and then leave to work off-site for Rene Medina, without clocking-out. Id. ¶ 15. Because the employees did not report their whereabouts, Lucky Chances compensated them for services performed for Rene Medina. Id. ¶¶ 15-16. Moreover, employees helped Rene Medina order and purchase materials at a discounted rate using Lucky Chances' wholesale license. Id. ¶ 18. The total value of labor, materials, and sales tax Rene Medina accrued was $244, 923.85. Id. ¶ 20. He has since reimbursed the full amount to Lucky Chances. See id.

         Based on his findings, ALJ Miller recommended dismissal of the Accusation against Lucky Chances. Id. at 17. ALJ Miller concluded that “the evidence did not establish any material involvement by a disqualified person in Lucky Chances' gaming operations”; that “[n]either Rommel Medina nor Ruell Medina had prior knowledge that Lucky Chances had incurred expenses or provided services on Rene Medina's behalf”; that “[t]he expenses incurred and services provided had nothing to do with the ‘operation of the card room business'”; and that the contacts with Rene Medina were not material to the card room business. Id. ¶¶ 32, 36, 42. ALJ Miller concluded that “no disclosure to the Bureau or the Commission was required.” Id. ¶ 42.

         E. The Commission's February 9, 2017 Decision and Order

         After receiving written arguments from both sides, the Commission ultimately rejected ALJ Miller's Proposed Decision and Order and issued its February 9, 2017 Decision and Order, based on the Accusation. Compl. ¶ 34; see Compl. Ex. D (Decision and Order).[9]

         The Commission held that there was material involvement by a disqualified person with a licensed gambling operation, and the ownership or management thereof, in violation of Business & Professions Code § 19823(a)(2). Decision and Order at 26. As a result, the Commission suspended Lucky Chances' state gambling licenses for fourteen days, and ordered that, in lieu of the suspension, Lucky Chances could pay a monetary penalty of 50% of Lucky Chances' average daily gross gaming revenue. Id. at 30-31. The Commission also imposed the following new conditions (“2017 License Conditions”) on Lucky Chances' gambling license:

1. Rene Medina shall be prohibited from entering, being present in, or in any way patronizing any areas on Lucky Chances' property.
2. All future shareholders, corporate officers, key employees, and work permit holders shall be informed of the prohibition (as identified in condition number one) by the General Manager within three business days of their start date and shall maintain a record of this notification while they are affiliated with the cardroom.
3. Ruell Medina and Rommel Medina, licensed as shareholders in Lucky Chances, Inc. shall each be individually responsible for ensuring that all conditions placed on the Lucky Chances license are fully complied with, including but not limited to duties placed upon the General Manager.
4. If Rene Medina is observed at any time by any employee entering, or being present in any areas of Lucky Chances' property, the General Manager or manager in charge shall within 30 minutes telephone (1) the California Gambling Control Commission (Commission) and (2) the Department of Justice, Bureau of Gambling Control (Bureau). The call to the Commission shall be made to the Executive Director at (916) 263-0700. The call to the Bureau shall be made to the Bureau Chief at (916) 227-2377.
5. Rene Medina shall not have any communication, directly or indirectly, with any employee or owner of Lucky Chances, except that Rene Medina may communicate with his immediate family members provided the communication does not relate to any part of [Lucky Chances'] business.
6. Any communication between Rene Medina and any shareholder or employee of Lucky Chances concerning the operation of the Lucky Chances card room business shall be disclosed to the Executive Director and to the Bureau Chief within one business day of the communication. This disclosure requirement applies to both oral and written communications. This disclosure must be made in writing. The General Manager shall maintain records documenting each disclosure for four years following the disclosure.

Compl. ¶ 35; Decision and Order at 31-32 (emphasis added). On March 28, 2017, the Commission clarified that the new conditions “require the licensees to exclude Rene Medina from the entire property, including the non-gaming areas . . . the gift shop, restaurant, and common areas.” Compl. ¶ 43; Compl. Ex. E (Letter).[10]

         F. Litigation ...


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