Constitutionality of gaming regulations to be challenged by denied applicant

David Strow

Friday, March 23, 2001 | 11:08 a.m.

A San Francisco developer is vowing to mount a legal challenge to the constitutionality of Nevada's gaming regulations, following the Nevada Gaming Commission's unanimous decision to deny him a gaming license Thursday.

The state Gaming Control Board had recommended earlier this month that Luke Brugnara's application to reopen the Silver City Casino on the Las Vegas Strip be denied. Only a unanimous vote of the commission in Brugnara's favor could have overturned that recommendation.

Brugnara had hoped to build a San Francisco-themed megaresort at the Silver City site.

Following a three-hour hearing, Brugnara said he planned to file a federal lawsuit in the next several months challenging the constitutionality of Nevada's gaming regulations. He vowed to take the case as far as the U.S. Supreme Court if necessary.

Brugnara argued that Nevada's gaming regulations were unconstitutional, since they lacked objective standards for determining an applicant's suitability and allowed the commissioners "to play God" over applicants.

"It will be challenged," Brugnara told the commissioners just before they voted against him. "We do live in the United States, and Nevada is not a sovereign nation."

"I've contacted several very well-known national attorneys ... and they're extremely interested in delving into how the Nevada Gaming Commission conducts itself," Brugnara said after the hearing. "If the president of the United States can be held accountable for his actions, the gaming commission can be held accountable."

Commission Chairman Brian Sandoval, however, was unfazed by Brugnara's threat, noting that test cases at both the state and federal level have upheld the commission's immunity from having decisions reviewed by the courts.

"I encourage him to take advantage of whatever legal rights he has," Sandoval said. "Perhaps it (gaming regulations) is ripe for a new test, and that's what the courts can offer."

Brugnara portrayed himself during the hearing as the personification of "the American dream," a young real estate star who would turn his energies toward revitalizing the north end of the Strip.

But it became clear the commission was more concerned with a long list of issues uncovered during the board's investigation of Brugnara.

"When an applicant comes forward before us (the commission), he has two or three or maybe zero items of concern, and those are resolved or documented so the control board is satisfied," said commissioner Augie Gurrola. "I have a list here of at least 24 areas of concern. This is mind-boggling. I've never seen anything like this."

"We don't live in Russia or China," Brugnara retorted. "You could have a thousand items on that list, and it doesn't mean anything if it's not backed up by facts."

Unlike the board hearing, which focused heavily on issues in Brugnara's personal life and allegations of death threats, commissioners zeroed in primarily on financial and tax issues. That's a crucial topic for Nevada gaming regulators, since the chief role of the Gaming Control Board is the collection of gaming taxes from licensees.

Commissioners centered much of their questioning on tax returns filed by Brugnara's development companies. From 1992 to 1996, the Internal Revenue Service said in a 1998 letter, no tax returns had been received from Brugnara's companies.

Brugnara said no return had been filed in 1992, as his company reported no income, but that the rest were lost by the IRS.

"You expect that it's reasonable to believe the federal government would lose your tax returns for four years?" Commissioner Arthur Marshall said.

Commissioner Radha Chanderraj, an accountant, then noted that his 1999 tax returns failed to report capital gains from the sale of a building in his portfolio, and called his return from that year "inaccurate."

Brugnara responded that his accounting firm was filing returns retroactively to correct any errors.

"They tell me there will be no taxable consequence," he said.

Brugnara did acknowledge certain forms hadn't been filed, but that he had since filed the forms with the IRS after the agency requested the documents. But since its last request for documents in May 2000, he said, the IRS has not demanded any back taxes or new returns.

"The burden for collecting any fees owed the federal government lies with the federal government," Brugnara said.

Brugnara said repeatedly that he hadn't been notified of any on-going investigation or audit by the IRS. He acknowledged, however, that he hadn't contacted the IRS to confirm there wasn't an on-going investigation, saying his attorneys had advised him against doing so.

"I don't have any particular concerns about it," Brugnara said.

But Sandoval pointed out that history caused reasons to be concerned about Brugnara, saying the commission could not accept "compliance after the fact."

"We have to have all the confidence in the world there will be regulatory compliance after we license an applicant.

Toward the end, several commissioners appeared almost sorry they had to vote against Brugnara. Gurrola urged Brugnara to withdraw his application so he could avoid the stigma of a denial, but Brugnara refused.

"I have a lot of respect for you," Sandoval said. "We're the same age, and you have accomplished a lot. But what needs to happen in California and what needs to happen in Nevada are very different things."

"We place great importance in historical analysis in the granting of a gaming license," added Commissioner Sue Wagner. "It's important that every single person that gets a gaming license is someone we don't have to be concerned with in the future."

After each commissioner had told Brugnara they would vote no, Brugnara's temper began to boil over. He accused the commission of costing the city thousands of jobs that would have been associated with his new hotel-casino development.

"You had an opportunity to do a great thing for the state of Nevada, for the 1.2 million residents of Las Vegas, that don't have the benefit of lunching with you at the country club," Brugnara fumed. "Those people needed your affirmative vote. At the end of the day, your decision wasn't based on the principles of what's fair. If you compare me to (other gaming licensees), I can measure up to any of them.

"You're doing this for political reasons. What else could it be? You're just a bunch of wind-up dolls."

Brugnara then claimed he was in negotiations to acquire both the Riviera and the Maxim resorts in Las Vegas, saying he was the only person that could preserve both properties in the long-term.

Contacted Thursday afternoon, Riviera Chief Financial Officer Duane Krohn acknowledged company officials had heard a proposal from Brugnara, but did not proceed beyond that.

"We didn't believe it was legitimate," Krohn said.

In other actions, the commission:

* Formally added Ramon David Pereira of Las Vegas to the list of persons excluded from Nevada casinos, a list usually called "The Black Book."

Pereira was nominated by the control board for the Black Book in January. In 1999, he was indicted on federal charges related to his alleged involvement in an interstate slot cheating ring that authorities believe cost casinos across the country more than $5 million.

According to the FBI, the ring was designing a device that could trigger slot machines remotely without leaving evidence of foul play -- a device that "could jeopardize the entire casino industry in the United States."

Prior to this arrest, Pereira was convicted on four separate occasions on felony charges related to slot machine cheating. He was imprisoned for nine years following his final conviction in 1989.

Pereira was nominated because of his felony convictions and "notorious and unsavory reputation." He is under house arrest in Las Vegas awaiting federal trial and did not appear Thursday before the commission.

* Ordered the shutdown of gaming operations at Desert Sands R.V. Park & Motel, located on Boulder Highway in Henderson. The Desert Sands held a restricted gaming license and operated eight slot machines.

The move came after the Desert Sands failed to pay its quarterly gaming taxes on time for the first quarter of 2001. A tax payment of $778.75 was due Jan. 2.

The board received the tax payment Jan. 24, but the check bounced. The board then received a cashier's check for $775.50 on Feb. 14, but did not receive payment for the final $3 owed until this week.

Since the Desert Sands failed to make its tax payment within the 30-day grace period allowed under state law, the property's gaming license had to be considered surrendered under state law, agents with the attorney general's office said.

Robert McMackin, owner of the Desert Sands, said the problems arose after the manager of the property had severe health problems, and said he was unaware the tax payments hadn't been made.

"I'm very embarrassed to be here. I can assure you it won't happen again," McMackin said.

But Sandoval said the commission had no choice but to order the shutdown of the machines.

"We're not trying to be harsh on you, but we have to apply the law," Sandoval said.

Since the license was deemed surrendered, rather than revoked or denied, McMackin will be able to immediately re-apply for a license.

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