Court hears arguments on Proposition 5

Wednesday, June 2, 1999 | 9:39 a.m.

Justices at Tuesday's hearing gave little indication of their views but seemed most interested in the mechanics of betting at reservation casinos and how they would compare to games in Nevada and New Jersey, the measuring stick in the California Constitution.

Proposition 5, passed by 63 percent of the voters last November after the most expensive ballot measure campaign in U.S. history, is on hold until the court rules. A ruling is due within 90 days.

The initiative would legalize a variety of lucrative, previously banned video gambling terminals and card games on California Indian reservations. Sponsors, consisting of most of the state's tribes, put the measure on the ballot after then-Gov. Pete Wilson refused to allow the expansion they sought.

Gov. Gray Davis withdrew the state's support for the legal challenge to Proposition 5 and has opened negotiations with tribes on broadening the scope of reservation gambling. But those efforts could be nullified if the court rules that the activities allowed by the initiative violate the state Constitution or federal law.

Two lawsuits before the court raise numerous challenges under state and federal laws. But the chief issue in the case appears to be the application of a little-known provision of the state lottery initiative of 1984, now part of the state Constitution.

The provision prohibited the Legislature from allowing "casinos of the type currently operating in Nevada and New Jersey."

Last year's initiative authorizes "slot machines and banked casino games," the distinctive features of Nevada and New Jersey casinos in 1984, said attorney Theodore B. Olson. He represents a group of homeowners and businesses whose opposition to expansion of nearby Indian casinos has been financially backed by Nevada casinos.

Mark Epstein, lawyer for the tribes that sponsored Proposition 5, countered that the games authorized by the measure differ from those in Nevada and New Jersey in an important way: Proposition 5 games pay winners out of a pool from the amount bet, leaving the house - the tribes - with no stake in the outcome.

"What we have here is a lottery," he said.

But Olson said a 1996 ruling by the court, outlawing a Keno game that was then part of the state lottery, defined lottery games narrowly enough to exclude the activities authorized by Proposition 5.

The so-called players' pool "pays off all winners and collects from all losers," typical of Nevada-style "banked" games, he said. He also said tribes are authorized by Proposition 5 to control the size of each pool by "seeding" it with house money.

Justice Arthur Gilbert, one of two appeals court members replacing Supreme Court justices who disqualified themselves from the case, picked up on the argument. Suppose he bet several hundred dollars on a hand and there were more winners than losers, depleting the player pool, he said. If the tribe responded by "seeding" a future pool, wouldn't that give the tribe an interest in the outcome of the bets?

Epstein, the tribes' lawyer, replied that a pool could last more than one game. He also noted that the state lottery rolls over the grand prize to a new game if no one wins.

He said the tribes would make money only by collecting a fee from each gambler or a percentage of the amount bet, rather than a Nevada-type collection of gamblers' losses.

The other lawsuit before the court comes from the Hotel Employees and Restaurant Employees International Union. Its lawyer, Richard McCracken, argued that Proposition 5 wasn't a proper subject for an initiative because it was really a special-interest contract, not a law, that the governor would be forced to sign.

"The governor by this proposition is turned into a trained monkey to do whatever he is required to do by the tribes," McCracken said.

The case is Hotel Employees and Restaurant Employees vs. Davis, S074850.