Originally published by Guest Blogger.
Despite a criminal statute banning gambling in Texas, approximately 30 establishments have taken advantage of perceived loopholes in the law to operate openly as private poker clubs.
Until recently, there has been little pushback from law enforcement. Perhaps realizing the potential for lucrative seizures, several of these private clubs recently came under the scrutiny of Harris County prosecutors, presenting significant legal implications for civil and criminal practitioners.
Early Enforcement at the Balinese Room
In the past, the Office of the Texas Attorney General has made clear its position that clubs promoting poker and/or gambling were illegal. Operating at the direction of then-Texas Attorney General Will Wilson, who campaigned on a platform to close down casinos, the Texas Rangers spent several years in the mid-1950s trying to shut down Galveston’s famous Balinese Room. The club, founded by the Sicilian Maceo brothers, and a hub of Mafia activity drew the rich and famous with a backroom equipped with the era’s most up-to-date gambling equipment as well as top entertainers like Frank Sinatra.
The Rangers’ early efforts to catch the club’s gambling operations in the act were thwarted by the club’s unique location at the end of a pier and its band, which routinely signaled operators of the Rangers’ arrival with a lively rendition of “The Eyes of Texas.” Further, the club’s long, narrow layout along the length of the pier, otherwise known as “Rangers Run,” gave operators time to conceal gambling paraphernalia before law enforcement reached the club’s tail end where the gambling took place.
Ultimately, the Rangers resorted to an undercover operation that resulted in the club’s closure in 1957.
Today’s gambling climate is not so clear-cut. Poker clubs now operate within a perceived legal loophole contained within the language of the gambling statute.
Prosecution for gambling is authorized under Section 47.02 of the Texas Penal Code, which provides that a person commits an offense if he or she:
(1) makes a bet on the partial or final result of a game or contest or on the performance of a participant in a game or contest;
(2) makes a bet on the result of any political nomination, appointment, or election or on the degree of success of any nominee, appointee, or candidate; or
(3) plays and bets for money or other thing of value at any game played with cards, dice, balls, or any other gambling device.
The statute provides the following defenses to prosecution:
(1) the actor engaged in gambling in a private place;
(2) no person received any economic benefit other than personal winnings; and
(3) except for the advantage of skill or luck, the risks of losing and the chances of winning were the same for all participants.
Gambling participants are subject to prosecution for a Class C misdemeanor while those who promote gambling or keep a gambling place face Class A misdemeanor liability.
Seeking to operate as legitimate businesses, current day gambling concerns have taken advantage of the “private place” and “economic benefit” provisions outlined as defenses to gambling prosecutions. The gambling statute provides no definition for the term “economic benefit”; thus, appellate courts have looked elsewhere for guidance and now rely on the meaning ascribed in Section 1.07(a)(7) of the Texas Penal Code: “Anything reasonably regarded as economic gain or advantage, including benefit to any other person whose welfare the beneficiary is interested.” (Miller v. State, 874 S.W.2d 908 (Tex. App.–Houston [1st Dist.] 1994, pet. ref’d)).
As a result, present-day establishments operate as “private clubs” and enlist the advantage of the “economic benefit” clause by not taking a “rake” or percentage of the game for hosting. Instead, these private poker clubs assess fees for membership as well as for the time that participants spend at the gaming tables. Some clubs also profit from alcohol and food sales.
Policing for Profit
Until 2019, Houston’s private poker clubs operated without interference from law enforcement. After all, prosecutions under the present gambling statute would result in nothing more than misdemeanor convictions. Attitudes changed, however, with the increased prominence of the Houston clubs, the numbers of patrons they attracted, and the growing awareness of the clubs’ profits. For instance, one Houston club garnered over $6 million in just a two-year period.
In May 2019, police raided two of Houston’s largest private poker clubs: Prime Social Poker Club and Post Oak Poker Club. The Harris County District Attorney held a press conference announcing the raid and issued the following news release:
Poker rooms are illegal in the State of Texas. We are changing the paradigm regarding illegal gambling by moving up the criminal chain and pursuing felony money laundering and engaging in organized criminal crime charges against owners and operators. Players are not being targeted. (Press Release, Office of District Attorney Kim Ogg, Harris County, Texas, Poker Clubs Raided; Nine Owner-Operators Charged with Money Laundering in Joint Effort, (May 1, 2019), http:// app.dao.hctx.net/prosecutors-dismiss-poker-room-money-laundering-charges-refer-cases-fbi).
The Harris County attorney even joined in what appeared to be a countywide effort to eradicate the clubs, filing civil suits alleging that the clubs were nuisances because they were places of illegal gambling, gambling promotion, money laundering, and organized crime.
Instead of charging the clubs’ owners and employees with misdemeanors under the gambling statute, however, the Harris County District Attorney’s Office upped the ante by prosecuting the cases as first-degree felonies—specifically, money laundering and engaging in organized crime.
Section 34.02 of the Texas Penal Code states that a person commits the offense of money laundering if the person:
(1) acquires or maintains an interest in, conceals, possesses, transfers, or transports the proceeds of criminal activity;
(2) conducts, supervises, or facilitates a transaction involving the proceeds of criminal activity;
(3) invests, expends, or receives, or offers to invest, expend, or receive, the proceeds of criminal activity or funds that the person believes are the proceeds of criminal activity; or
(4) finances or invests or intends to finance or invest funds that the person believes are intended to further the commission of criminal activity.
The statute provides that “Knowledge of the specific nature of the criminal activity giving rise to the proceeds is not required to establish a culpable mental state.” (Tex. Penal Code § 34.02(a-1)).
Under Section 71.02 of the Texas Penal Code, a person commits the offense of engaging in organized criminal activity if “with the intent to establish, maintain, or participate in a combination or in the profits of a combination or as a member of a criminal street gang, the person commits or conspires to commit … any gambling offense punishable as a Class A misdemeanor.”
The decision by the Harris County District Attorney’s Office to charge the cases as felonies was significant because it opened the door for law enforcement to seize the clubs’ assets, potentially including cash, bank account assets, and real estate. Texas forfeiture law applies to any felony of the first or second degree in the Texas Penal Code, as well as many other expressly listed offenses.
Harris County Folds
While Harris County ultimately folded its litigation against the local poker clubs, such resolution was situationally unique. In July 2019, 69 days after the initiation of charges against the owners and employees of the two aforementioned Houston poker clubs, all criminal charges as well as the county’s nuisance lawsuits were dismissed with none of the fanfare heralding the initiation of the original actions. Significantly, the cessation of criminal and civil litigation was not prompted by reconsideration of the initial charging decisions under the current gambling statute but by a conflict within the Harris County District Attorney’s Office, a conflict that attorneys for the defendants brought to the district attorney’s attention.
Ironically, the impetus for the dismissals was the realization that several members of the Harris County District Attorney’s Office had frequented the clubs. More importantly, a trusted district attorney adviser and employee was engaged as a political consultant to one of the clubs. (Zach Despart, Houston poker club, DA consultant trade accusations as officials seek distance from donor, Houston Chronicle (Sept. 16, 2019, 12:07 PM), www.houstonchronicle.com/news/houston-texas/houston/article/Houston-poker-club-DA-consultant-trade-14435780.php). Citing the conflict of interest, the district attorney filed dismissals of all charges and paperwork for the return of over $200,000 in gambling proceeds seized from the defendants.
In the future, however, it is anticipated that Texas prosecutors and local agencies, tempted by lucrative seizure opportunities, will once again attempt to shut down local gambling clubs. Certainly such efforts will not cease in Harris County as the district attorney made clear that such establishments are illegal. Moreover, the club owners and employees of Prime Social and the Post Oak clubs are not in the clear as their cases were referred to the FBI for consideration.
is a partner in the Houston law firm of Fertitta Reynal. He represented Prime Social and secured the dismissal of criminal charges associated with the club.