UPDATE: San Jose City Council approves Bay 101 casino settlement

After years of legal battles between San Jose and the Bay 101 casino, the City Council voted 10-1 Sept. 22 to approve a 2020 settlement agreement and put a series of suits to bed.

Most notably, Bay 101 sued the city in 2013 for charging “unconstitutionally excessive” fees.

As a compromise, the city will consider making changes to Title 16, the section of the municipal code related to gaming, to allow jackpots, more tournaments and ownership of more than one card room in San Jose.

As a part of the settlement, the city will also let card room owners play poker at tournaments held at their casino.

“It’s good when adverse parties can settle their differences,” said Ron Werner, vice president of Bay 101.

Mayor Sam Liccardo — the only voice of opposition — has long stated he does not support the expansion of gaming in the city, due to the negative impacts it can have on residents.

According to the California Council on Problem Gambling, gaming addiction can increase a person’s likelihood to commit crimes, experience mental health disorders such as depression and anxiety and can lead to substance abuse.

San Jose currently does not allow for jackpots, while the state of California does, said Acting City Attorney Nora Frimann. She said the change will align San Jose policy with the state’s and make the city’s casinos more attractive.

“We think that it’s a good settlement that addresses a number of issues and allows the city to potentially see more revenue, which was an interest, obviously, for city administration,” Frimann said. “And it allows the cardrooms to be more competitive in their particular Northern Califoria market.”

Two lawsuits filed in 2014 and 2016 related to a 2009 settlement will also be laid to rest. Per the 2009 agreement, Bay 101 will pay $250,000 in charitable donations starting in 2021 to gambling addiction relief programs. The amount will increase by 3% percent each year.

Despite growing costs from fees, taxes and charitable donations, card rooms in San Jose will have the opportunity to bring in more customers if voters approve a November ballot measure that would increase the number of table games by 15 for each casino. The current cap is 49 tables per establishment.

The measure is yet another byproduct of the ongoing saga, according to Frimann.

“I would rather have less and less lawsuits and staff time being spent on lawsuits. And I’m glad that we’ve come to some kind of agreement,” Councilmember Johnny Khamis said. “I don’t like to be fighting with businesses in general and in our community.”

Since opening in 1994, Bay 101 has paid mandatory table fees — now called card room regulation fees — on an annual basis. The fees rose steadily, adjusting for inflation, but in 2000, the fees practically doubled and continued to rise dramatically.

In 1999, Bay 101 paid $259,600 in fees for 40 tables. The next year, it paid $444,000. By 2006, the casino’s bill totaled a whopping 786,680 per year.

Bay 101 filed a handful of claims against the city demanding reimbursement for hefty payments it made to the city. The claims were not addressed by the city, according to 2015 court documents.

The casino further challenged the fees, saying the city imposed “taxes disguised as fees,” which is against state law. Bay 101 justified the payments as specialty taxes rather than regulatory fees because the city uses revenue from casinos to add to its general fund.

The Superior Court Judge Paul Bernal ultimately ruled in the city’s favor, determining the regulatory fees were lawful.

”Judge Bernal found that the regulatory fees that the city was charging were not arbitrary, and were based on the reasonable costs of gaming regulation, and that under Prop. 218, they were legitimate regulatory fees and not some type of illegal tax,” Frimann said.

While the city benefitted, there was no clear benefit to Bay 101. The settlement, with the potential addition of jackpots, tournaments and tables, may change that.

Nevertheless, the casino will still be on the hook for steep annual fees. But per the settlement agreement, a mediation process will be required before the city raises regulatory fees or the casino’s annual required charitable contribution to mitigate the negative impacts of gambling.

This November, voters will need to decide on changes to gaming rules and the card room tax before the lawsuits can fully conclude.

Contact Carly Wipf at [email protected] or follow @CarlyChristineW on Twitter.