Kraft v. Jacka, CV-N-86-340-ECR.

• Citation: 669 F. Supp. 333
• Decision Date: 08 September 1987
• Docket Number: No. CV-N-86-340-ECR.,CV-N-86-340-ECR.
• Parties: Sydell R. KRAFT, Levin International Corporation, Trans Atlantic Games of Nevada, Inc., and Trans Atlantic Games, Inc., Plaintiffs, v. S. Barton JACKA, Michael D. Rumbolz, Guy T. Hillyer, and Larry G. Hickman, Defendants.
• Court: United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. District of Nevada

669 F. Supp. 333

Sydell R. KRAFT, Levin International Corporation, Trans Atlantic Games of Nevada, Inc., and Trans Atlantic Games, Inc., Plaintiffs, v. S. Barton JACKA, Michael D. Rumbolz, Guy T. Hillyer, and Larry G. Hickman, Defendants.

No. CV-N-86-340-ECR.

United States District Court, D. Nevada.

September 8, 1987.

Michael J. Silverberg, New York City, William Rittenberg, New Orleans, La., and Martin J. Kravitz, Las Vegas, Nev., for plaintiffs.

Mark Lerner, Deputy Atty. Gen., Gaming Div., Las Vegas, Nev., for defendants.

ORDER

EDWARD C. REED, Jr., Chief Judge.

INTRODUCTION

The plaintiffs in this case are Sydell R. Kraft, Levin International Corporation ("LIC"), Trans Atlantic Games of Nevada, Inc. ("TAG-Nevada"), and Trans Atlantic Games, Inc. ("TAG"). They initiated the case on June 18, 1986. The defendants are S. Barton Jacka, Michael D. Rumbolz, Guy T. Hillyer, and Larry G. Hickman. Jacka, Rumbolz, and Hillyer were members of the Nevada Gaming Control Board ("GCB") when the events underlying this case occurred. Hickman was an employee of the GCB. The complaint includes six separate claims for relief. The first two claims for relief are based on the civil remedies of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968. The third claim is based on common law fraud. The fourth and fifth are based on the Civil Rights Act of 1871, 42 U.S.C. §§ 1983, 1985, and 1986. The plaintiff's last claim is one seeking injunctive relief.

The defendants, on October 3, 1986, moved for summary judgment (docket # 13). That motion was opposed by plaintiffs on December 18, 1986 (docket # 29). On January 23, 1987, the defendants replied (docket # 36). The plaintiffs requested oral argument on the motion (docket # 41). A hearing was held before the Court on August 31, 1987.

FACTS

The plaintiffs are in the business of manufacturing, distributing, and operating gaming devices. In 1984, they applied to the Nevada GCB for licenses and approvals to manufacture, distribute and operate slot machines in Nevada. The plaintiffs paid investigation fees in connection with their applications.

The GCB considered the applications at a public meeting on February 13, 1985. See Exhibit A to Motion for Summary Judgment. At the meeting, the GCB expressed concerns regarding various matters. Specifically, the GCB questioned the applicants about their engaging without a license in the sale and distribution of slot machines in Nevada. Id. at 223-25 and 236. The GCB also expressed concerns regarding information that a machine that had been approved in a particular form had been shipped into Nevada by the applicants with an unapproved modification. Id. at 238. The GCB also expressed concerns about associations with a convicted felon by Mr. Howard S. Levin, who, along with the plaintiffs, was an applicant before the GCB in February, 1984, and who, at the time, was president of all the plaintiff corporations. Id. at 240-41; see also Affidavit of Howard S. Levin attached to Opposition to the Motion for Summary Judgment. Finally, the GCB voiced concerns about the applicants' apparent difficulty in maintaining control over their slot machines in Nevada. Exhibit A to Motion for Summary Judgment at 241.

The GCB unanimously voted to recommend approval of plaintiffs' applications, subject to a one-year limitation. Id. at 249-255. The GCB reminded the applicants that its action was merely a recommendation to the Nevada Gaming Commission, which would make the final decision. Id. at 247.

The Gaming Commission considered the GCB's recommendation at a public meeting on February 21, 1985. Exhibit B to Motion for Summary Judgment. The Commission echoed some of the concerns raised by the GCB: the associations of Howard S. Levin, id. at 89-94, 108-11, 140-41; and the applicants' unlicensed sale and shipment of slot machines, id. at 94-104. The Commission also expressed concerns about the following: discrepancies between the applicants' descriptions of the apparently unlicensed transactions and those given by others, id. at 94-104, 114-18, 126; information that the applicants' slot machines had been found in use in illegal activities, id. at 104-108; the applicants' lack of attention to and apparent violations of Nevada law, id. at 107, 121-23, 147; and the applicants' lack of attention to detail and documentation in their business, id. at 112-14, 119-21. The Nevada Gaming Commission voted three to two to issue licenses and approvals in accordance with the GCB's recommendations. Id. at 148-50 ("CHAIRMAN BIBLE: The motion carries.... It is a one-year limited license." Id. at 150.).

The plaintiffs were, thereafter, formally notified of the Commission's action. Exhibits C-1, C-2, and C-3 to Motion for Summary Judgment. They were issued licenses, each of which stated: "Limited license to expire on date of Nevada Gaming Commission meeting of February, 1986," Exhibits D-1 and D-2 to Motion for Summary Judgment.

The Commission's orders of registration of plaintiffs' LIC and TAG provided:

Any offer for the sale of any equity security ... shall be void unless approved in advance by the State Gaming Control Board. Such approval is deemed granted if an application for same has been filed with the Board for 30 days and the Board has not ordered acceleration or extension of time, or issued a stop order during such period.

In October, 1985, LIC filed a preliminary prospectus with the Securities and Exchange Commission ("SEC") in connection with a proposed public offering. Exhibit E to Motion for Summary Judgment. The proposed offering was highly speculative. Id. at 5. According to the prospectus, a substantial portion of the proceeds were to be advanced to TAG. Id. at 14. The GCB issued an order on November 20, 1985, stopping the offering. Exhibit F-1 to Motion for Summary Judgment. Two days later the GCB rescinded the stop order. Exhibit F-2 to Motion for Summary Judgment.

Subsequently, the plaintiffs and Howard Levin applied for licenses to become effective upon the expiration of the one-year licenses issued previously. These applications were considered by the GCB at a public meeting in Las Vegas, Nevada, on February 6, 1986. Exhibit G to Motion for Summary Judgment. Kraft and Howard Levin attended the meeting with their attorney. Id. at 178.

At this meeting, the GCB expressed several concerns: the possibility that the applicants had failed to comply in a timely fashion with at least one condition of the one-year license, id. at 209, 213-14, 216; the applicants' failure to supply an explanation of discrepancies between their actual and reported income, id. at 229-47, 326-31; the applicants' failure to comply with a regulation requiring their reporting a certain transaction, id. at 249-61; the applicants' poor record-keeping procedures, id. at 264-70, 331; the applicants' choice of an underwriter and the underwriter's motives for underwriting LIC's stock offering, id. at 276-90; the applicants' failure to supply, upon request, documents regarding personal finances, id. at 293; Levin's substantial gambling debts, id. at 307-12, 315-24; and the possibility that Levin had employed a subterfuge to avoid repayment of those debts, id. at 316-22. At the meeting, the applicants' counsel eventually requested withdrawal of the applications of LIC and TAG. Counsel also asked for a continuance of the GCB's consideration of the application of TAG-Nevada until just before the Gaming Commission's next meeting. This was meant to allow LIC and TAG, as well as Levin, time to transfer their interests to Kraft so that only Kraft and TAG-Nevada would be under consideration. Id. at 375-76. The GCB accommodated the revision of the applications, id. at 384-85, and granted the requests for withdrawal, id. at 392.

A week later, the GCB considered the revised applications at a special, public meeting in Las Vegas. Exhibit H to Motion for Summary Judgment. Kraft attended the meeting with her attorney. Id. at 9. At the meeting, the GCB expressed its concerns about the financial strength of TAG-Nevada. Id. at 22-39. The GCB also was troubled by the continued involvement of Levin. Id. at 10-15. The GCB was doubtful that Levin's transfer of interests to Kraft constituted a true separation of Levin from Kraft and TAG-Nevada. The GCB apparently felt that TAG would stand as a creditor able to exercise considerable influence over Kraft and TAG-Nevada. Id. at 42-44. The GCB also worried about the ability of Kraft to pay the debt to TAG. Id. at 39-42. The GCB worried the payment of the debt to TAG would come out of the assets of TAG-Nevada, weakening that corporation. Id. at 43-47. The GCB voted unanimously to recommend denial of the applications. Exhibit H to Motion for Summary Judgment at 60, 62, and 64. The GCB recommended denial "without prejudice," meaning that the applicants could cure the problems with their applications and reapply. Id. at 60. Chairman Jacka of the GCB again stressed to the applicants that the GCB action was only a recommendation to the Gaming Commission. Id. at 65.

The Gaming Commission considered the GCB recommendation at a public meeting on February 20, 1986. Exhibit J to Motion for Summary Judgment. Kraft attended the meeting with her attorney. Id. at 243. The commissioners expressed doubts about the adequacy of the separation of Howard Levin from TAG-Nevada and Kraft. Id. at 283-85. At the meeting, the Commission voted four to one against approval of a six-month limited license. Exhibit J at 303. A motion to deny licensing carried by the same majority. Id. at 303, 306; Exhibits K-1 and K-2 to Motion for Summary Judgment.

On February 21, 1986, the plaintiffs' one-year limited licenses expired. See Exhibits D-1 and D-2 to Motion for Summary Judgment.

On March 7, 1986, GCB Chairman Jacka wrote to all Nevada licensees and their affiliates. Exhibit L to Motion for Summary Judgment. The letter notified licensees that the Gaming...