Abstract
This case arises from allegations of breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent inducement, and unjust enrichment. Plaintiff Matthew Kirk (“Mr. Kirk”) loaned $3,000,000.00 to Defendant Leon Tsoukernik (“Mr. Tsoukernik”) during a heads‐up, or one‐on‐one, poker game between Mr. Kirk and Mr. Tsoukernik. Mr. Tsoukernik moves to dismiss the complaint filed by Mr. Kirk. Mr. Tsoukernik seeks to dismiss Mr. Kirk's complaint for failure to state a claim upon which relief can be granted pursuant because the debt relates to gambling. Parties argued the motion on August 17, 2017. The Court grants Mr. Tsoukernik's Motion to Dismiss Complaint in part: Mr. Kirk's claims for breach of contract and breach of implied covenant of good faith and fair dealing shall be dismissed. The Court denies Mr. Tsoukernik's motion as to Mr. Kirk's claims for fraudulent inducement and unjust enrichment.
I. Factual and Procedural Background
On the morning of May 27, 2017, Mr. Kirk and Mr. Tsoukernik were the sole participants in a heads‐up poker game at the Aria Resort and Casino in Las Vegas, Nevada. On four occasions that morning Mr. Kirk loaned casino chips to Mr. Tsoukernik so that Mr. Tsoukernik could continue playing the heads‐up poker game against Mr. Kirk. In total, Mr. Kirk provided $3,000,000.00 worth of casino chips to Mr. Tsoukernik.
After losing the heads‐up poker game to Mr. Kirk, Mr. Tsoukernik refused to repay Mr. Kirk for the $3,000,000.00 in chips Mr. Kirk had provided him. Following repeated demands, Mr. Tsoukernik paid $1,000,000.00 to Mr. Kirk on June 3, 2017, but has refused to pay the remaining $2,000,000.00.
Mr. Kirk then filed a complaint seeking a judgment for the outstanding balance he asserts Mr. Tsoukernik owes. Mr. Tsoukernik filed the instant motion to dismiss on June 23, 2017. Mr. Kirk filed an Opposition to Motion to Dismiss on July 7, 2017. Mr. Tsoukernik filed a Reply to Opposition to Motion to Dismiss on July 17, 2017. After the matter came before the Court on August 17, 2017, Mr. Kirk filed a Supplemental Brief in Response to Defendant's Oral Argument on August 18, 2017.
II. Motions to Dismiss
Nevada Rule of Civil Procedure 12(b)(5) authorizes dismissal of a claim if it fails to state a ground upon which relief can be granted. When considering an NRCP 12(b)(5) motion, a court must accept the allegations of the complaint as true, and draw all inferences in favor of the non‐moving party. Buzz Stew, LLC v. City of N. Las Vegas, 181 P.3d 670, 672 (Nev. 2008). Dismissal is warranted when the plaintiff “can prove no set of facts which, if accepted by the trier of fact, would entitle him [or her] to relief.” Conway v. Circus Circus Casinos, Inc., 8 P.3d 837, 839 (Nev. 2000) (quoting Edgar v. Wagner, 669 P.2d 110, 112 (Nev. 1985)).
III. Discussion
A. Enforceability of gaming debts in Nevada
Under Nevada common law, gaming debts are generally not legally enforceable. Sigel v. McEvoy, 707 P.2d 1145, 1145 (Nev. 1985). Chapter 463 of the Nevada Revised Statutes creates an express exception to the common law for state gaming licensees to recover a gaming debt, provided the debt is evidenced by a credit instrument. NRS 463.368(1). The legislature defined credit instrument as “writing which evidences a gaming debt owed to a person who holds a nonrestricted license.” NRS 463.01467. A nonrestricted license is a type of a state gaming license. NRS 463.0177. Patrons of gaming licensees, are also provided means to recover claims of gaming debts against a licensee, even without a credit instrument. NRS 463.361(2).
These statutory exceptions to the common law all require a state gaming licensee be a party to the gaming debt. State law does not provide for the enforcement of gaming debts between two parties who are not licensees. Instead, for non‐licensees, Nevada Revised Statute 463.361(1) reinforces the common law. Gaming debts not evidenced by a credit instrument with a licensee are “void and unenforceable and do not give rise to any administrative or civil cause of action.” NRS 463.361(1).
1. Mr. Kirk's claims against Mr. Tsoukernik arise from a gaming debt
Mr. Kirk argues the loans at issue are not gaming debts because Mr. Kirk loaned Mr. Tsoukernik Aria casino chips. By loaning a physical object, Mr. Kirk argues this transaction was complete before any gambling activity took place. Instead of a gaming debt, Mr. Kirk asserts that his loans represented a transfer of a debt that the Aria owed to the chip‐holder from Mr. Kirk to Mr. Tsoukernik. Mr. Kirk also argues that the heads‐up poker game was open to the public, which created the possibility of Mr. Tsoukernik using the chips to win or lose from players besides Mr. Kirk.
A gaming debt arises from the profits or losses of a game played between parties, where one party may win or lose against the other. Sigel, 707 P.2d at 1146. Parties lending money for wagering between themselves has consistently been found to create a gaming debt. Id. at 626 n.1; See also Desert Palace, Inc. v. Michael, 2017 WL 553386, 5 (D. Nev. 2017) (finding that taking on debt to wager against another person is a gaming debt).
Here, Mr. Kirk's complaint expressly states that Mr. Tsoukernik secured the loan of $3,000,000.00 in casino chips for the purpose of playing a heads‐up poker game against Mr. Kirk, which forecloses the possible participation of other players. Even if other players had joined the game, the fact would remain that Mr. Tsoukernik took on debt to wager against Mr. Kirk in a poker game. That the loan involved physical objects of value does not change the nature of the debt. Whether in the form of casino chips, cash, or gold bars, Mr. Tsoukernik received a loan for wagering against Mr. Kirk. This created a gaming debt.
Mr. Kirk also argues that there was no gaming debt because the loan transaction was completed before the gaming activity. This argument is not persuasive given the facts at hand. Generally, a loan provided for wagering between two parties may be completed before any actual wagering takes place, otherwise one party would have nothing to wager with. In this case Mr. Kirk provided the loan to Mr. Tsoukernik at a gaming table in between hands of poker. As such, Mr. Kirk's claims at issue arise from a gaming debt.
2. NRS 463.361(1) applies to Mr. Kirk's claims
Mr. Kirk argues that neither NRS 463.361(1) nor the established common law are applicable to this case. Instead, Mr. Kirk asserts that the appropriate law to apply here is section 335 of the United Kingdom's Gambling Act of 2005, which allows for the enforcement of gambling contracts. Gambling Act 2005 § 335(1). In the alternative, Mr. Kirk argues that NRS 463.361 violates the Due Process and Equal Protection clauses of the United States and Nevada Constitutions because it allows casinos to recover gaming debts from private individuals, but denies the same recourse to private individuals seeking to enforce gaming debts against another individual.
Under Nevada Revised Statute 1.030, the common law of England is the “rule of decision” for Nevada courts, except where English common law conflicts with the Constitution and laws of the both United States and Nevada. NRS 1.030. Here, even assuming an English statutory change would change the common law, the United Kingdom's Gambling Act of 2005 conflicts with NRS 463.361. Nevada law provides that aside from certain exceptions involving state gaming licensees, gaming debts are unenforceable. This Court will apply Nevada law.
As to Mr. Kirk's due process and equal protection argument, a statute will survive due process and equal protection challenges if it does not infringe on a fundamental right or discriminates against a suspect class, and is rationally related to a legitimate government purpose. Arata v. Faubion, 161 P.3d 244, 248 (Nev. 2007). Further, classifications must be uniformly applied to all who are similarly situated and classifications must not be unreasonable or arbitrary. Flamingo Paradise Gaming, LLC v. Chanos, 217 P.3d 546, 559 (Nev. 2009); See also id. at 560 (holding that restricted gaming licensees and nonrestricted gaming licensees are not similarly situated and can be treated differently provided a rational basis exists).
Here, no authority supports recovery of a gaming debt as a fundamental right. Additionally, NRS 463.361 is applied uniformly to every similarly situated individual in the state. Comparing the different application of NRS 463.361 between casinos and individuals is not an appropriate comparison because casinos and individuals are not similarly situated classes for the purposes of a due process and equal protection challenge.
Finally, state statute provides a rational basis for NRS 463.361. Nevada Revised Statute 463.0129 declares the gaming industry is vitally important to the state economy and welfare, the success of which is dependent on public confidence and trust in a licensed gaming industry. NRS 463.0129(1). Providing means for licensees to recover gaming debts can inspire industry confidence to engage in gaming business within Nevada, and likewise allowing gaming patrons to recover gaming debts from licensees encourages patrons to gamble at licensed gaming establishments, which in turn promotes businesses to obtain gaming licenses from the state. As such, NRS 463.361(1) is the appropriate law to apply to Mr. Kirk's claims, and NRS 463.361 does not violate due process or equal protection.
3. Mr. Kirk's contract with Mr. Tsoukernik is not enforceable
Neither Mr. Kirk nor Mr. Tsoukernik are state gaming licensees, and Mr. Kirk's claims arise from a gaming debt. Under NRS 463.361(1), no enforceable contract exists between Mr. Kirk and Mr. Tsoukernik. Therefore, Mr. Kirk's claims for breach of contract and breach of implied covenant of good faith and fair dealing in counts one, two, three, four, five, six, seven, and eight are dismissed.
B. Fraudulent inducement
Mr. Tsoukernik argues that Mr. Kirk's claim for fraudulent inducement fails because it arises from an illegal contract and because a claim of fraud requires a lawful contract. Mr. Tsoukernik also argues that the fundamental principles of Nevada law and public policy bar enforcement of Mr. Kirk's claims.
Generally, courts will not enforce a contract that is illegal or otherwise contrary to public policy. Magill v. Lewis, 33 P.2d 717, 719 (Nev. 1958). This rule is fundamentally sound, but it will not be blindly applied to every contract case where illegality is involved. Id. In Magill, a Nevada contractor (Lewis) entered into a Nevada construction contract with a California contractor (Wright) who was not licensed to be a contractor under Nevada law. Id. at 718. Nevada statute made doing business as an unlicensed contractor a misdemeanor and expressly forbade an unlicensed contractor from bringing a court action for compensation of performance. Id. at 718–19. Lewis and Wright were both aware that their contract was unlawful, but Lewis promised not to use Wright's unlicensed status against him. Id. at 718. Wright completed his work and Lewis used the illegality of the contract to refuse payment of the balance on the contract. Id. Wright alleged that Lewis intended to use the illegality of the contract as an excuse not to pay from the very start. Id. The Court allowed Wright to proceed with claims for fraud and unjust enrichment because the transaction had already been completed, the contract did not involve serious moral turpitude, and the defendant had the greatest moral fault in the matter. Id. at 719. The Court also indicated that applying the rule against enforcement would unjustly enrich Lewis at Wright's expense. Id.
Here, like Magill, Mr. Kirk and Mr. Tsoukernik have entered a contract which is unenforceable by statute. Mr. Tsoukernik distinguishes Magill by characterizing the unenforceability of the contract as “tangential” to the contract because work had been performed by Wright and the only defense to payment was that Wright did not have a license. Therefore, Mr. Tsoukernik argues, Nevada policy against the enforcement of gaming debts should bar Mr. Kirk from bringing any claims before this Court.
In Magill, however, Wright was not just expressly barred by statute from pursuing a claim; he committed a criminal offense by entering into the contract. Thus, one of the primary questions in Magill was whether plaintiffs could proceed with their claims despite the unenforceability and illegality of the contract. Here, gaming plays a key role in Nevada's public policy, but unlike Magill the legislature has not made contracts involving gaming debts between individuals a crime. Also, like Magill, Mr. Kirk alleges that he has performed by providing $3,000,000.00 to Mr. Tsoukernik, of which Mr. Tsoukernik still retains $2,000,000.00.
Also, the transaction between Mr. Kirk and Mr. Tsoukernik has been completed and the contract did not involve serious moral turpitude. Like Magill, Mr. Kirk's complaint alleges that Mr. Tsoukernik entered into the contract with no intent of repaying Mr. Kirk. Mr. Kirk supports this allegation with text messages from Mr. Tsoukernik declaring the debt invalid. Mr. Tsoukernik allegedly sent the text messages less than twenty minutes after Mr. Tsoukernik acknowledged receipt of the three million from Mr. Kirk. Like Magill, this raises an inference that Mr. Tsoukernik entered into the contract intending to use its unenforceability to refuse repayment. If proven, this could place Mr. Tsoukernik at the greatest moral fault in this matter.
Additionally, the elements of fraudulent inducement are first, a false representation; second, knowledge that the representation is false; third, an intent to induce consent to contract; fourth, justifiable reliance on the misrepresentation; and fifth, damages resulting from such reliance. J.A. Jones Const. Co. v. Lehrer McGovern Bovis, Inc., 89 P.3d 1009, 1018 (Nev. 2004). There is no requirement as to the contract being legal or enforceable.
This Court finds that the allegations of this case, examined in the light most favorable to Mr. Kirk, bring this case within the scope of the holding in Magill. Therefore, Mr. Tsoukernik's motion to dismiss is denied as to count nine, fraudulent inducement.
C. Unjust enrichment
Mr. Tsoukernik argues that Mr. Kirk's claim for unjust enrichment fails because the underlying agreement is void by statute and the claim arises from an illegal contract.
Magill is also applicable here. In Magill, the contract in question was voided and criminalized by statute, but the Court allowed plaintiffs claim for unjust enrichment to proceed. Like Magill, here the transaction has been completed, the contract did not involve serious moral turpitude, and Mr. Tsoukernik is alleged to have the greatest moral fault. Mr. Kirk's claim for unjust enrichment alleges that Mr. Tsoukernik has received $3,000,000.00 from Mr. Kirk and paid back only $1,000,000.00. If proven, Mr. Tsoukernik would therefore be unjustly enriched by $2,000,000.00 at Mr. Kirk's expense.
This Court finds that the allegations of this case, examined in the light most favorable to Mr. Kirk, bring this case within the scope of the holding in Magill. Therefore, Mr. Tsoukernik's motion to dismiss is denied as to count ten, unjust enrichment.
IV. Conclusion
Mr. Kirk and Mr. Tsoukernik entered into a contract that created an unenforceable gaming debt between them. The unenforceability of their contract, however, does not preclude Mr. Kirk from pursuing claims of fraudulent inducement and unjust enrichment. Therefore. the Court grants Mr. Tsoukernik's Motion to Dismiss in part and dismisses Mr. Kirk's claims for breach of contract and breach of implied covenant of good faith and fair dealing. The Court denies Mr. Tsoukernik's Motion to Dismiss in part as to Mr. Kirk's claims for fraudulent inducement and unjust enrichment.
DATED this day of October 11, 2017.
LINDA MARIE BELL
DISTRICT COURT JUDGE