San Jose casino measure overwhelmingly approved by voters may be illegal, lawsuit says

An overwhelmingly approved San Jose ballot measure that was slated to raise taxes on the city’s two card rooms and increase the number of table games at each establishment may be invalid, according to a new lawsuit.

Casino M8trix — one of San Jose’s two card rooms — filed a lawsuit in against the city of San Jose late last month seeking to have a court invalidate the measure in its entirety and rule that it is unenforceable.

Since voters passed the measure in November, the California Bureau of Gambling Control has allegedly concluded the city’s plan to expand the number of card tables across the city violated state law, the lawsuit states.

Casino M8trix in December filed an application with the California Gambling Control Commission to obtain approval to increase its table games from 49 to 64, as permitted under the city’s newly passed measure, but the application is still pending.

If the commission sides with the Bureau and deems the card room’s request for additional tables illegal, then Casino M8trix argues that the tax hike should be voided as well.

“Casino M8trix believes it is only fair that the increased tax that was only one part of Measure H be deferred until the additional gaming tables, which give us the ability to pay that new tax, are approved,” Robert Lindo, vice president and director of Casino Matrix, wrote in an email Thursday to this news organization.

Measure H, which was approved by nearly 73% of San Jose voters in November, was presented as increasing taxes on San Jose’s Casino M8trix and Bay 101 card rooms from 15% to 16.5% and allowing the casinos to each add 15 new card tables.

The ballot language for the measure informed voters that it was expected to generate $15 million annually for the city services, such as fire protection, 911 emergency response, street repaid and addressing homelessness.

The increase in card tables was expected to generate $9 million — or 60% — of the anticipated funding expected to result from the measure, while the tax hike would only contribute $2 million, according to a city report. The remaining $4 million was expected to come from extending the city card room tax to businesses that provide in-house player services to the card rooms.

In the lawsuit, Casino M8trix argues that there is “no evidence that the voters would have approved such a result” if the additional revenue from the increased card tables was not a part of the equation.

“The unlawful provisions of Measure H are not severable from the lawful provisions,” the lawsuit, which was filed in Santa Clara County Superior Court late last month, states. “… the evidence of voter intent indicates that it was approved as a full and comprehensive amendment to the city’s gaming ordinance.”

The lawsuit further alleges that the city was aware of the state’s skepticism over the legality of the measure more than a month before the measure went before voters.

On Sept. 24, 2020, the city attorney sent a letter to the state’s Bureau of Gambling Control explaining the city’s legal theory for allowing the city to increase the number of card tables in each cardroom.

About three weeks later, the Bureau responded with a letter informing the city that the city’s proposal “appears to be inconsistent with the Gambling Control Act.”

Under the state’s Gambling Control Act, a city is prohibited from increasing the number of card tables in a card room by 25% or more than what it had on January 1, 1996.

The disagreement between the city and the state is fixated on exactly how many card tables were allowed in San Jose card rooms in 1996.

San Jose argues that at that time the city did not maintain a limit on how many tables each card room was permitted to operate and instead merely had a citywide limit of 181 card tables.

Yet, in June 1992, the city adopted an ordinance that limited the number of card tables per cardroom to 40, and the Bureau argues that no ordinance was adopted or amended to alter that limit between June 1992 and January 1996.

In 2010, a voter-approved ballot initiative allowed San Jose card rooms to boost their number of card tables from 40 to 49 — an increase of about 23%.

The November measure would have allowed Casino M8trix and Bay 101 to increase their table limits from 49 to 64 — a 60% increase from the 40 tables allegedly permitted in 1996.

San Jose city attorney Nora Frimann said Thursday that her office is working with Casino M8trix and the California Bureau of Gambling Control to resolve the matter.

“Casino M8trix wants the additional tables. We believe they can have them. The state has taken a contrary position. But are working to get that worked out with everybody,” Frimann said, declining to comment further, citing pending litigation.

Lindo said he hopes that the state will decide to defer to the city’s interpretation of its own laws and honor the will of the voters.

But if the state chooses not to, the card room filed the lawsuit as a “protective measure,” as the tax hike could cost Casino M8trix approximately $1 million annually without the concomitant benefit of added income from the anticipated increase in card tables.

“What Casino M8trix wants is the proposal everyone agreed to and that was approved by the voters – increased business to fund increased taxes,” Lindo wrote.