In re Jafari
| Decision Date | 16 October 2007 |
| Docket Number | No. 06-10155-11.,06-10155-11. |
| Citation | 378 B.R. 575 |
| Parties | In re Robert Bahram JAFARI and Poopak Amanda Jafari, Debtors. |
| Court | U.S. Bankruptcy Court — Western District of Wisconsin |
Leonard Leverson, Leverson & Metz S.C., Milwaukee, WI, for Debtors.
Mark J. Wittman, Gorski & Wittman, S.C., Marshfield, WI, Chapter 11 Trustee.
Roy L. Prange, Jr., Quarles & Brady LLP, Madison, WI, Robert G. Aisenstein, Law Offices of Robert G. Aisenstein, Henderson, NV, Lawrence J. Glusman, Friebert, Finerty & St. John, S.C., Milwaukee, WI, for Creditors.
Eleven years ago, this Court had the occasion to consider the unfortunate predicament of a debtor who found herself trapped between "a modern day version of Scylla and Charybdis," Homer's mythical sea monsters, when she financed her casino binges with her credit cards. See Chevy Chase Bank, FSB v. Briese (In re Briese), 196 B.R. 440 (Bankr.W.D.Wis. 1996). Over the intervening years, the debate about the social costs associated with the rising tide of gambling has raged unabated, even as the gambler mythos has permeated ever more deeply into the societal consciousness. Today, poker tournaments are highly-rated "sporting" events on television, Las Vegas ranks as both one of the most popular tourist destinations in America and one of the nation's fastest-growing cities, and gaming is a sprawling, ever-expanding industry that rakes in billions in profits each year.1
The debtor in this case was quite familiar with Las Vegas, the glittering "Sin City" whose self-referential tourist slogan is that "what happens in Vegas stays in Vegas." Given the apparent frequency of his visits, a number of casinos in Las Vegas and elsewhere were also familiar with the debtor, quickly marking him as a high roller, undoubtedly of the best kind — one whose staggering losses totaled in the millions. Several of these casinos have filed proofs of claim for the amounts represented by the "markers" the debtor executed during his various gambling excursions. Both the debtor and the Chapter 11 trustee have objected to the allowance of these claims because gaming debts are unenforceable under Wisconsin law. Specifically, Wis. Stat. § 895.055 provides:
Gaming contracts void. (1) All promises, agreements, notes, bills, bonds, or other contracts, mortgages, conveyances or other securities, where the whole or any part of the consideration of the promise, agreement, note, bill, bond, mortgage, conveyance or other security shall be for money or other valuable thing whatsoever won or lost, laid or staked, or betted at or upon any game of any kind or under any name whatsoever, or by any means, or upon any race, fight, sport or pastime, or any wager, or for the repayment of money or other thing of value, lent or advanced at the time and for the purpose, of any game, play, bet or wager, or of being laid, staked, betted or wagered thereon shall be void.
The facts are as follows. The debtor, Robert Jafari, was the CEO of a chain of nursing homes, ostensibly a successful and wealthy entrepreneur. Unfortunately, the debtor is also a gambling addict (or "pathological gambler," as some sources define the problem).2 According to the debtor, he is currently undergoing treatment for his condition, but it has already cost him his job and was the precipitating factor in the filing of this bankruptcy case. In the throes of his obsession, he was unable to grasp the economic logic of high stakes casino gambling: namely, that the more often you wager, the more the "house" wins, because the odds are always in their favor. Apparently, like many pathological gamblers, the debtor managed to beg and borrow (if not steal) to fund his habit: Prior to 2005, he allegedly borrowed some $3 million from family friends, while his father also helped pay off other gambling debts. In 2005, the debtor continued this destructive pattern, gambling extensively at the three casinos in question: Wynn Las Vegas, a Nevada casino; Desert Palace, Inc., d/b/a Caesar's Palace, another Nevada casino; and Atlantis Casino, a casino located on Paradise Island in the Bahamas and owned by Paradise Enterprises Limited.3
According to Wynn Las Vegas, the debtor met Steve Wynn in early 2005, at which time Wynn approved the debtor's initial line of credit.4 Thereafter, the debtor gambled over a period of five weekends between April 28 and June 25, somehow managing to repay all credit advances made by Wynn during that time. From August 7 to September 2, the debtor made an additional seven trips to the Wynn casino, and again repaid his markers. On September 17, the debtor executed a credit agreement with Wynn which provided for a $150,000 line of credit; this line was ultimately increased to $1,000,000. Intriguingly, it appears that Wynn was not satisfied with waiting for the debtor to come back to Las Vegas on his own, as the casino sent solicitations to him and paid for or "comped" at least a portion of his travel during this time period, even going as far as arranging a chartered plane for him. The markers for credit advanced on September 2, and those issued during the debtor's trips to Wynn Las Vegas on September 16-19 and September 26-27, were ultimately presented to the debtor's bank account and returned with payment denied. These markers provide the basis for Wynn's proof of claim, filed in the amount of $1,205,178.60.
In similar fashion, the claims of Caesar's Palace are related to a trip made by the debtor where he signed markers totaling $250,000.5 Finally, Paradise's claim of $368,411 appears to be the result of gaining credit extended to the debtor during a trip to the Bahamas in October of 2005. The markers all contain enforcement terms which provide that they are to be governed by the laws of states which permit the enforcement of gambling debts: Nevada law in the context of Wynn and Caesar's Palace, and New Jersey law in the case of Paradise. Notwithstanding these provisions, the debtor and the trustee contend that this Court should look to Wisconsin law and disallow the claims.
Historically, gaming debts were almost universally and categorically regarded as unenforceable obligations in a court of law. See Darren A. Prum, Enforcement of Gaming Debt, 7 Gaming L.Rev. 17, 21 (2003) (); Joseph Kelly, Caught in the Intersection . Between Public Policy and Practicality: A Survey of the Legal Treatment of Gambling-Related Obligations in the United States, 5 Chap. L.Rev. 87, 122 (Spring 2002) ("All states in the Union, influenced by the historical traditions against gambling, have started from the premise that gambling debts are unenforceable."). The legal principles codified in England's Statute of Anne, which prohibited enforcement of these debts, were transplanted to America and those laws remain on the books in the majority of states. As a California court recently noted, the legal philosophy reflected by these rules was that the law should not invite gamblers to play themselves into debt, and that the judiciary should not thereafter "participate in their financial ruin." Metropolitan Creditors Service v. Sadri, 15 Cal.App.4th 1821, 19 Cal.Rptr.2d 646, 652 (1993).
Despite the expansion of legalized gaming and tribal casinos, many jurisdictions — including Wisconsin — continue to recognize the strong public policy perspectives reflected in these statutes. For example, in State v. Gonnelly, 173 Wis.2d 503, 496 N.W.2d 671 (Wis.Ct.App.1992), the court rejected the argument that the Wisconsin legislature had "impliedly repealed" its long-held ban on the collection of gambling debts, even in the context of gaming that had been legalized. Other states have reached similar conclusions about the continuing significance of their anti-gaming policies. See Sadri, 19 Cal.Rptr.2d at 650-51; Kentucky Off-Track Betting v. McBurney, 993 S.W.2d 946, 949 (Ky.1999); Carnival Leisure Indus. v. Aubin, 53 F.3d 716 (5th Cir.1995); Condado Aruba Caribbean Hotel, N.V. v. Ticket, 39 Colo.App. 51, 561 P.2d 23 (1977).6
Indeed, even as recently as twenty-five years ago gaming debts could not be enforced in Nevada courts. See Sandler v. Eighth Judicial Dist. Court, 96 Nev. 622, 614 P.2d 10 (1980); Sea Air Support v. Herrmann, 96 Nev. 574, 613 P.2d 413 (1980).7 The advent of easy credit and the exploding interest in gambling transformed the landscape, as casinos now issue billions of dollars in credit markers to tourists each year and want to collect on those claims after the visitors return home. The changes made to Nevada law were viewed as part of the solution, not just to the enforcement of claims within the borders of the state but also to the challenge of collecting debts from gamblers who lived in states still reluctant to enforce such claims. In this regard, the genesis of the casinos' litigation strategy can be traced to a principle of constitutional law. A century ago, the U.S. Supreme Court required the state of Mississippi to honor a valid gambling judgment obtained in Missouri notwithstanding the fact that the enforcement of gambling debts was prohibited by Mississippi law. See Fauntleroy v. Lum, 210 U.S. 230, 28 S.Ct. 641, 52 L.Ed. 1039 (1908). Under the full faith and credit clause of the Constitution, a state court judgment must be given the "same credit, validity, and effect" in other jurisdictions as it would receive in the state rendering the judgment, and "as the jurisdiction of the Missouri court [was] not open to dispute the judgment cannot be impeached in Mississippi." Id., 28 S.Ct. at 643.
Dusting off this ancient precedent, casinos now frequently obtain judgments in "friendly" states and thereafter domesticate the judgments wherever the debtor might reside. Even states that generally refuse to honor gaming debts are forced to...
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In re Baum, 07-61471.
...the enforceability of gambling debts accrued in a debtor's unsuccessful gambling efforts in Las Vegas and the Bahamas. In re Jafari, 378 B.R. 575 (Bankr.W.D.Wis.2007). The Jafari court stated the Wisconsin rule that "the parties to a contract may expressly agree that the law of a particular......