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Best of Liz Benston

Gaming Guru

Liz Benston

California Court Asserts Jurisdiction Over Nevada Casinos

5 April 2004

CALIFORNIA -- A California appeals court has issued a ruling that may make it easier for people to file suit in California against Nevada businesses -- and may even fuel more lawsuits by Californians.

In Business Las Vegas, a sister publication to the Las Vegas Sun, reported Friday that the issue is of special concern to casinos here, since California is the No. 1 feeder market for the Nevada gambling industry.

Last month, a three-judge panel in California's Second Appellate District reversed the dismissal of a lawsuit against Harrah's Entertainment Inc. filed by Los Angeles area resident Frank Snowney.

Harrah's won't appeal the ruling to the California Supreme Court, meaning that the case will now return to be tried in Los Angeles County Superior Court, where it originated.

Snowney filed suit against Harrah's Las Vegas and several other Harrah's hotels and business entities in February 2002, alleging that the company billed him an energy surcharge of $3.00 for a one-night stay in the fall of 2001. He wasn't told of the charge beforehand, the suit said. The suit included counts for violation of an unfair competition law, breach of contract, unjust enrichment and false advertising.

Harrah's moved to dismiss the complaint based on a lack of jurisdiction. Los Angeles County Superior Court Judge Peter Lichtman in December 2002 concluded that "the fact that a defendant advertises in the forum state, induces readers of its advertisements to patronize its business and profits substantially from this forseeable economic reality does not automatically confer specific jurisdiction."

But the appeals court was swayed by evidence that a substantial number of Harrah's hotel guests are from California, that the company advertises its Nevada hotels through California billboards, newspaper ads, TV spots and radio announcements and that it accepts reservations from California residents via the Internet and telephone. The company also provides driving directions on the Internet from California locations to its hotels, while a marketing company affiliated with Harrah's maintains offices in California to solicit business from high-rollers, Snowney argued.

"We conclude that the defendants who own and operate the Nevada hotels have sufficient contacts with California to justify the exercise of personal jurisdiction," the three-judge panel ruled. The merits of the case have yet to be considered.

Harrah's representatives declined to comment on the appeals court decision or the merits of the case.

The appeals court ruling is significant because it marks the first time in recent years that a California court has been able to claim jurisdiction over a Nevada casino, Snowney's Los Angeles attorney Edwin Schreiber said.

Casinos that have been sued in California have long relied on a 1981 decision that said a guest at Circus Circus couldn't sue the property in California over a hotel room break-in, he said. The appeals court in the Snowney case disputed that ruling in its decision, meaning that California courts are now in disagreement, he said.

A casino insider familiar with the case, who declined to be named, said the appeals court decision "sets a disturbing precedent" for the Nevada casino industry. It may lead other Californians to sue casinos in California, which may be more receptive to suits against casinos than Nevada courts, the source said.

The decision also has significance for suits involving the Internet because the court considered the way Harrah's solicited business online, Schreiber said.

"The courts are just beginning to consider (whether) doing business on the Internet will subject you to jurisdiction in (another) state," he said. "When you start using the 'Net, at what point are you doing business in that state as opposed to jurisdiction in the home state?"

Nevada Resort Association President Bill Bible said the decision is probably more significant for its implications beyond the casino industry. Many enterprises use the Internet to conduct business and may also solicit tourists in California, he said.

"To some extent it becomes a fact of life because of the way companies conduct themselves (on the Internet) that was not possible 10 years ago," he said.

But Jeff Silver, a Las Vegas gaming attorney, said the appeals court decision may have limited influence outside its immediate district. California is also known for its liberal interpretations of the law compared to other states, he said.

Snowney's suit seeks class-action status on behalf of all California residents who stayed at Harrah's six hotels in Nevada and were billed an energy surcharge without being informed of the charge. Harrah's billed guests for the surcharge from April 1, 2001, through the end of that year, the suit said. The appeals court dismissed some of the Harrah's business entities from the suit but didn't drop the company's Nevada hotels as defendants.

Other Nevada hotels and casino companies won't be added to the suit even though many hotels in California and Nevada likely tacked on extra fees in 2001 during California's energy crisis, Schreiber said.

Schreiber said he has litigated other cases involving extra fees charged by hotels, including a case that was settled with the Ritz-Carlton and Marriott chains involving mandatory "resort fees" for use of amenities such as a hotel pool.

"We don't mind that (the fees) are there, but people have to be told (beforehand) that they're there," he said.

The number of potential members of the class action and the amount of damages hasn't yet been determined because the suit was dismissed in the early stages, he said. Harrah's has about 9,000 rooms across its six Nevada properties, including Harrah's Las Vegas, Harrah's Laughlin, Harrah's Reno, Harrah's Lake Tahoe, Harvey's Lake Tahoe and the Rio in Las Vegas.