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Cook Co. judge ends bid by Dotty's, other 'gaming cafes' to challenge rules over video gambling take

By Scott Holland | Dec 9, 2017

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The house doesn’t always win — at least not in court, against a state regulatory body it has accused of setting bad rules over how the take gets split.

In an opinion issued Dec. 4, Cook County Circuit Court Judge Neil H. Cohen dismissed the amended complaint brought by owners of hundreds of storefront video gambling facilities – so-called “gaming cafes” - locked in a dispute with state gaming regulators.

Illinois Café & Services Company LLC, which runs the Dotty’s Café chain, filed a complaint April 4 with co-plaintiff, Laredo Hospitality Ventures LLC, which operates the Stella’s and Shelby’s branded establishments. The companies own hundreds of small gaming cafes — among more than 5,800 Illinois establishments licensed to host video wagering machines — and sued the Illinois Gaming Board and Illinois Machine Gaming Operators Association saying a board policy and two provisions of the state’s 2009 Video Gaming Act are unconstitutionally depriving them of the chance to negotiate better business deals for a larger share of the revenue they generate.

The complaint said the state law forces establishments that want to offer video gaming to contract with “terminal operators” — companies that install the actual game machines — and mandates “they split the profits of video gaming without taking into account their relative investments, expenses and efforts; and then forbids them from freely negotiating the terms of their legislatively imposed joint venture.”

According to the complaint, the law has two flaws — a prohibition on locations with gaming licenses from serving as their own terminal operator and a stipulation that post-tax profits be split 50-50 between licensees and terminal operators.

In arguing for dismissal, the Gaming Board said while board members and the administrator can be sued in such a manner, the agency itself cannot. Cohen agreed, but disagreed with the board’s attempt to invoke sovereign immunity based on the State Supreme Court’s 2015 ruling in Leetaru v. Board of Trustee of the University of Illinois as it relates to agents of the state accused of violating statutory or constitutional law. Cohen likewise sided with the casino operators and said the gaming board was not protected by any statute of limitations.

Where the gaming operators failed, however, is in trying to argue there is no rational basis for the state’s gaming law to be constructed in its current form. Specifically, they questioned the necessity of the dual licensing prohibition, which keeps parlor operators from also serving terminal operators.

“The dual licensing requirement is clearly rationally related to the legitimate legislative purpose of ensuring public confidence and trust in the integrity of video gaming operations in Illinois,” Cohen wrote, explaining that allowing a parlor operator to also operate and service the machines could lead people to believe the machines are rigged. The prohibition therefore serves to “help ensure the public believes in the integrity of video gambling,” he wrote, and although there may be different or better ways of preventing fraud, that doesn’t mean legislators were irrational in using this logic as basis for the law’s provision.

Cohen likewise said the after-tax equal profit distribution requirement had a rational basis in promoting public confidence, and also supported the board’s contention the split “prevents economic concentration in the terminal operator segment.”

The board also succeeded in persuading Cohen to dismiss the parts of the complaint targeting its advertising and promotions policy. The board said it removed that policy from its website and will not repost or distribute, or use the policy as the basis for any action. Cohen agreed that action moots any controversy regarding the policy.

All 11 counts were dismissed with prejudice, ending the action, unless the plaintiffs appeal.

Attorneys with the firm of Winston & Strawn represented the gaming operators in the matter.

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Organizations in this Story

Winston and Strawn LLPIllinois Gaming Board