In its chapter on contract legality the textbook we use in the business law class discusses the case of Soheil Sadri. Sadri went to Las Vegas, gambled, lost, and gave the casino a check for $22,000 to cover what he owed. He then returned to California, stopped payment on the check, and was sued for the underlying debt to the casino. (Note the use of the passive voice in the preceding sentence–it contains a clue.) A California Appellate Court ruled for Sadri, holding that a contract for payment of gambling debts violated California public policy and was void.
When I mentioned the case today a student asked why the lawsuit was in California, with its anti-gambling policy, instead of Nevada. Here’s why: The plaintiff was not the casino to whom Sadri wrote the check. The casino assigned its breach of contract claim against Sadri to a collection agency based in Sacramento, California. Creditors sometimes sell claims for money owed at a discount to their face value. The creditor gets ready cash without the risk, expense, and delay of a lawsuit; the collection agency gets to keep whatever it collects from the debtor–which, if it discounted the purchase price correctly, is more than it paid for the claim. The collection agency sued Sadri in California because it was home to both Sadri and the collection agency.
Could the agency have sued Sadri in Nevada? Yes, but to hear the lawsuit the Nevada court would have to determine that it could exercise long-arm jurisdiction over Sadri in Nevada. Since the basis for the suit was a promise Sadri made to a Las Vegas casino to pay $22,000 the Nevada court should have been able to exercise long-arm jurisdiction and hear the case. Would Sadri have lost at trial in a Nevada court? Probably. The reported opinion does not indicate that Sadri had any basis to contest the debt in Nevada.
A judgment for the collection agency in Nevada would not necessarily spell the end of the legal wrangling. If Sadri refused the collection agency’s request to pay the damages awarded by the Nevada court, the collection agency would have to enforce the judgment against Sadri in California. Under the Full Faith and Credit Clause of the U.S. Constitution a California court must enforce a valid judgment obtained in the courts of another state, even if it violates California public policy. How, then, can we explain the result in this case? The answer is that the collection agency sued Sadri in California to enforce a Nevada cause of action, not a judgment of a Nevada court, and the Full Faith and Credit Clause does not require a state to honor a cause of actions of another state that violates its own public policy.
A final note: given the importance of the gaming industry to Nevada’s economy, we might expect Nevada to have protected the right to sue in its courts to enforce gambling debts for many years. It is surprising to learn–I was surprised, anyway–that Nevada has had a statute allowing state court lawsuits to enforce gambling debts only since 1983.
See Metropolitan Creditors Service of Sacramento v Sadri (15 Cal. App. 4th 1821, 1993 Cal. App. LEXIS 559, 19 Cal. Rptr. 2d 646 Court of Appeal of California, First Appellate District, Division Five, 1993)