U.S. Bankruptcy judge rules Las Vegas gambling debt is not valid in a Wisconsin bankruptcy court.

Byline: David Ziemer

In keeping with the city's tourism slogan, these liabilities happened in Vegas, and they must stay in Vegas.

So concludes U.S. Bankruptcy Judge Thomas S. Utschig, in holding that, without an out-of-state judgment, the debts owed by a Wisconsin gambler to Las Vegas casinos are not valid in a Wisconsin bankruptcy court.

As a result, if a client returns from Las Vegas bankrupt and in debt to the casinos, the best and only strategy is to win the race to the courthouse by filing for bankruptcy before the casinos reduce the debt to a judgment in Nevada.

Robert Bahram and Poopak Amanda Jafari filed for bankruptcy after Robert lost millions in Vegas casinos and millions more advanced him by two casinos in Las Vegas, and one in the Bahamas.

At the time of the filing, the casinos had not reduced their debts to judgments in Nevada or New Jersey (the contract with the Bahamas casino provided that New Jersey provided the law and forum for any disputes).

In addition, the casinos could not legally proceed against Jafari in Wisconsin courts, because sec. 895.055 provides that gambling contracts (except for those with Indian casinos) are void and unenforceable.

Beginning with a history of the enforceability of gambling debts, the court noted that, traditionally, gambling debts were universally unenforceable, and that remains the case in Wisconsin, with the noted exception.

Other states, however, now allow enforcement; in addition, longstanding U.S. Supreme Court precedent requires even those states that prohibit enforcement of gambling debts to honor judgments obtained in other states. Fauntleroy v. Lum, 210 U.S. 230 (1908).

Thus, the court noted, casinos frequently obtain judgments in friendly states, and then domesticate them in the state of the debtor's residence.

Describing the current legal environment, the court colorfully explained, it seems that both parties seek to claim the law and the forum which is most favorable to them: one as a sword, and one as a shield. Both sides have played their best cards, as it were, and the issue is now which hand trumps the other.

The court framed the issue as follows: Can these debts be enforced in the absence of a valid judgment which would compel respect by Wisconsin courts, or does Wisconsin law render the claims unenforceable as against the debtor or the debtor's estate?

The court chose the latter.

Conflict Preemption

The court first held that the Wisconsin statute is not preempted by the...