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GAMING LAW REVIEW AND ECONOMICSVolume 14, Number 1, 2010©Mary Ann Liebert, Inc.DOI: 10.1089/glre.2010.14102

Gambling and the Law®

Casinos as Absolute Insurers

I. Nelson Rose

“Rather leave the crime of the guilty unpunished than condemn the innocent.”

—Marcus Tullius Cicero

Focus on Regulation,Compliance, and Policy

LETTING THE GUILTY GO FREE, rather than pun-ishing the innocent, might be a noble goal for

criminal law. But governments often decide it’s noway to regulate legal gambling.

The horseracing industry has long had a doctrineknown as the absolute insurer rule. If a horse runsa race with an illegal drug in its system, the traineris liable, and will be fined—even if the trainer wasin another state at the time.

Now, the Nevada Gaming Control Board has im-posed a similar standard on casinos.

Planet Hollywood was fined $500,000, and an-other $250,000 if it does it again, because the casinoknew—or should have known—that some lewd andpossibly illegal activities were taking place in thePrivé nightclub on its grounds.

The “should have” standard is common for claimsof negligence. But it can easily slip into strict lia-bility: regulators, not operators, ultimately have thefinal say on whether the casino’s actions were rea-sonable.

Here, the board held Planet Hollywood liable,even though the club was a completely independentbusiness.

The board has sent letters to as many as eightother casinos warning about improper activity. In20061 and again in April 2009,2 the board postedwarnings about problems in casino resort night-clubs, ultra lounges, and European (topless) pools.

The problems are not small stuff. From the April 9, 2009 warning, signed by board memberRandall Sayre:

Some of the issues related to the aforementionedvenues that have surfaced over the last few yearsinclude: excessive inebriation; drug distributionand abuse; violence; overt sexual acts in publicareas; acts deemed lewd, indecent or obscene;presence of minors; mishandling of incapaci-tated individuals (“dumping”); date rape, extor-tion/misquoting of service charges; restricted ac-cess by law enforcement; lack of coordinationwith licensee security; and prostitution.3

Sayre also made it clear who would be held re-sponsible, regardless of the legal structures separat-ing the casino and clubs: “[I]t is the Nevada gam-ing licensees’ responsibility to ensure operations

1Memorandum from Nevada Gaming Control Board to AllNonrestricted Licensees and Interested Persons (Feb. 7, 2006)(published at 14 GAMING L. REV. & ECON. 5 (2010)).2Letter from Randall E. Sayre, Member, Nevada Gaming Con-trol Board, to All Nonrestricted Licensees and Interested Par-ties (Apr. 9, 2009) (published at 14 GAMING L. REV. & ECON.6 (2010)).3Id.

I. Nelson Rose is a distinguished senior professor at WhittierLaw School in Costa Mesa, Cal. His latest books are GamingLaw: Cases and Materials and Internet Gaming Law. Profes-sor Rose may be reached at his . . . Web site at �http://www.GamblingAndTheLaw.com�.

© Copyright 2009, all rights reserved worldwide. Gamblingand the Law® is a registered trademark of Professor I. NelsonRose, Encino, Cal.

conducted within the boundaries of their propertyare run in accordance with all laws and regulationsand in a manner that does not reflect badly on theState of Nevada or its gaming industry.”4

The $500,000 fine, and loss of Privé’s liquor li-cense, shows the board is tired of being ignored.

“I’m not going to write any more letters,” Sayrewas quoted as saying.5

Planet Hollywood faced major legal problemssomewhat of its own making. Every casino licenseeknows that it can be held ultimately responsible foralmost anything serious that goes wrong on itsgrounds. And if it did not know when it opened, itcertainly knew after receiving more than one warn-ing from the state gaming regulator.

But Planet Hollywood made the mistake of agree-ing with the club’s owner that casino security offi-cers were not even allowed to enter without a clubemployee. So, the gaming operator was legally re-sponsible for activities in the club, but did not havea free hand to police what went on.

Of course, in hindsight, the club owner’s nameshould have been a clue that something could gowrong: Privé is owned by the Opium Group.

Planet Hollywood also suffered because the clubapparently refused to cooperate with the regulators.As we recently learned, even a Harvard professorcan get arrested on the steps of his own home whenhe yells at police and refuses to give authoritiesidentification containing his address.

The result was a potential nightmare for the casino.The board filed a 15-page-long complaint on July 9,2009, containing nine counts and 77 paragraphs.6 Be-sides the list of horribles from the prior warning let-ters, the board included descriptions of the large per-centage increases in calls to Clark County FireDepartment Emergency Medical Service and the LasVegas Metropolitan Police Department. The para-medics took 106 calls over an eight month period forthe following categories: hemorrhage/laceration,overdose/ingest poison, traumatic injuries, uncon-scious/faint, assault/rape, breathing problems, and un-known. Metro saw a doubling of calls for service re-garding guns and for fights, and a 500 percent increasefor service for narcotics.7

Enter the smart and experienced gaming lawyer.Frank Schreck, who represents Planet Holly-

wood, understands that regulators can literally im-pose the death penalty—they can take away thecasino’s gaming license. He knew that the best wayto handle a mess like this is to do exactly what theregulators want, starting with apologizing.

“We didn’t execute proper supervision and we’rethe message being sent to the rest of the industry,”said Schreck,8 a shareholder at Brownstein HyattFarber Schreck in Las Vegas.

The main thing to do when a scandal hits is to endit as quickly as possible. A public relations problemonly grows by ignoring it. We have never had a worldas hungry for news of any kind—especially if it in-volves sex and embarrasses the rich—as today.

Planet Hollywood quickly signed a stipulation,9

agreeing to every allegation in the complaint. Thiswas another smart move, because a scandal like thiswill only grow with time.

Schreck also announced that the leases betweenthe casino and its clubs had been rewritten, givingthe gaming operator control.

It is interesting to note that while the absolute in-surer rule is gaining in the casino industry, it is los-ing some of its power in horseracing. The Califor-nia Racing Board, for example, has added aregulation allowing a trainer to show “that he madeevery reasonable effort to protect the horses in hiscare from tampering. . . . ”10

That is probably the real bottom line for casinos.The owner of the gaming license has to be able toshow that it has written into its agreements with itsclubs that the casino’s agents have free access to allparts of the property at all times. The casino has tohave the last word on any dispute. And failure of theclubs to cooperate with the owners or with any of itsmany regulators is grounds for instant termination.

Then the casino has to be proactive in putting pro-cedures into place.

Because it really is a casino owner’s responsibil-ity to ensure that its nightclubs don’t look likescenes from the movie Caligula.

ROSE4

4Id.5Howard Stutz, Plant Hollywood fined for Prive nightclub’s ac-tions, CASINOCITYTIMES.COM, July 13, 2009, �http://www.casinocitytimes.com/news/article/planet-hollywood-fined-for-prive-nightclubs-actions-178848?contentID�178848�.6State Gaming Control Board v. Opbiz, LLC, No. NGC 08-18(Nev. Gaming Commission complaint filed July 9, 2009) (pub-lished at 14 GAMING L. REV. & ECON. 8 (2010)).7Id. at ¶¶ 60–67.8Stutz, supra note 5 (quoting Schreck).9State Gaming Control Board v. Opbiz, LLC, No. NGC 08-18(Nev. Gaming Commission July 9, 2009) (stipulation for set-tlement and order) (published at 14 GAMING L. REV. & ECON.23 (2010)).10Cal. Horse Racing Board Rule No. 1888, available at�http://www.chrb.ca.gov�.