HomeMy WebLinkAbout2017-04-11 Item 6CITY OF
CHULA VISTA
File#: 17-0128, Item#: 6.
City of Chula Vista
Staff Report
CONSIDERATION OF AN AMENDMENT TO THE CHULA VISTA GAMING PLAN TO ALLOW CITY
COUNCIL WAIVER OF REQUIREMENTS FOR TEMPORARY REVERSION OF CLASS II
LICENSES TO CLASS I LICENSES UPON TRANSFER AND RELATED ACTIONS
A. RESOLUTION OF THE CITY COUNCIL OF THE CITY
AMENDMENT TO THE CHULA VISTA GAMING PLAN
OF REQUIREMENTS FOR TEMPORARY REVERSION
I LICENSES UPON TRANSFER
RELATED ACTIONS:
OF CHULA VISTA APPROVING AN
TO ALLOW CITY COUNCIL WAIVER
OF CLASS II LICENSES TO CLASS
B. RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA (1) RATIFYING
CHIEF OF POLICE AND STATE OF CALIFORNIA DIVISION OF GAMBLING CONTROL
APPROVALS OF THE TRANSFER OF A CONSOLIDATED CLASS II CARDROOM LICENSE
FOR THE SEVEN MILE CASINO FROM V C CARDROOM, INC. TO STONES SOUTH BAY
CORPORATION; (2) WAIVING THE REQUIREMENT FOR TEMPORARY REVERSION OF
THE CLASS II LICENSE TO A CLASS I LICENSE FOR THIS TRANSFER WITH FINDINGS
AND CONDITIONS; (3) RATIFYING CHIEF OF POLICE APPROVAL OF THE NEW OWNERS
AND OTHERS POSSESSING A FINANCIAL INTEREST IN THE GAMING OPERATIONS
AND/OR CARDROOM LICENSE FOR THE SEVEN MILE CASINO; AND (4) APPROVING
RELATED MATTERS
RECOMMENDED ACTION
Council conduct the public hearing and adopt the resolutions.
SUMMARY
This staff report and associate items are jointly submitted by the City Manager, the Police
Department and the City Attorney's Office.
V C Cardroom, Inc. ("VC Inc."), whose sole shareholder is The Harvey and Bette Souza Living Trust
(the "Trust"), has agreed to transfer its interest in the Cardroom License for Seven Mile Casino
("Casino") to the Stones South Bay Corporation ("Stones Corp."). The principal owners of the Stones
Corp. are Ryan Stone, Rodney F. Stone, Masis Kevorkian, and Kermit Schayltz. Among other things,
the transfer is conditioned on receiving approval from the State of California Division of Gambling
Control and the City of Chula Vista. The transfer and new ownership have now been approved by
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the State as of March 23, 2017. After an updated background check (the Stones Corp. principals
were previously reviewed and approved by the City as real estate "financial interest holders" in Seven
Mile Casino back in March of 2015), and an on-site evaluation of a Stones Corp. affiliate's operations
of a cardroom in Citrus Heights, California. The Chula Vista Police Chief has also approved the
transfer to the Stones Corp. and the current and proposed financial interest holders of the license for
the Seven Mile Casino.
Pursuant to the terms of the Chula Vista Gaming Plan ("Gaming Plan"), the Police Chiefs approvals
are now being presented to the City Council for its consideration and ratification. In connection with
this transfer, the Stones Corp. has also requested that the City Council waive requirements in the
Gaming Plan that would otherwise require reversion of the "Class II" Card Room License (which
allows "back line" betting games like Pai Gow), to a "Class I" license (with no "back line" betting
games) for a period of three years. Based on Stones Corp. experience and expertise with managing
"back line" betting games, the City Manager and the Chief of Police are recommending that this
waiver be granted. This item, in the form of a Gaming Plan Amendment to formally allow the waiver
and a resolution implementing the waiver with findings and conditions, is also presented for City
Council consideration.
ENVIRONMENTAL REVIEW
Environmental Notice
The City Attorney's office has reviewed the proposed activity for compliance with the California
Environmental Quality Act (CEQA) and has determined that the activity is not a "Project" as defined
under Section 15378 of the State CEQA Guidelines because the activity consists of a governmental
administrative/fiscal activity which does not involve any commitment to any specific project which
may result in a potentially significant physical impact on the environment. Therefore, pursuant to
Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus, no
environmental review is required.
Environmental Determination
The City Attorney's office has reviewed the proposed activity for compliance with the California
Environmental Quality Act (CEQA) and has determined that the activity is not a "Project" as defined
under Section 15378 of the State CEQA Guidelines because the activity consists of a governmental
administrative/fiscal activity which does not involve any commitment to any specific project which
may result in a potentially significant physical impact on the environment. Therefore, pursuant to
Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus, no
environmental review is required.
BOARD/COMMISSION RECOMMENDATION
Not applicable
DISCUSSION
A. Background
1. History of Card Rooms In California
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Cardrooms are one of California's oldest forms of legal gambling with operations
ranging from "mom and pop" storefronts, to larger, more sophisticated establishments. Historically,
card clubs were regulated by local governments. Beginning in the mid-1980s the State gradually
increased its regulatory oversight. The stated primary purpose of this increased oversight by the
State was to attempt to prevent criminal activity from being associated with these businesses.
In 1998, then Attorney General Daniel Lungren and Senate Pro Tem Bill Lockyer
introduced and passed the California Gambling Control Act. (SB 8 was enacted; the language is in
Business and Professions Code: 19800 - 19887.) The Act developed the California Gambling
Control Commission ("State Gambling Commission") and the Bureau of Gambling Control ("Bureau")
in the California Department of Justice. The State Gambling Commission and the Bureau are
responsible for the development of policy, regulatory oversight and enforcement of the States gaming
laws at California cardrooms.
With these changes, California cardrooms are now regulated at both the local and state
levels. Of the 80 or so cardrooms in California, the largest is the Commerce Club, located in the City
of Commerce, with approximately 240 tables. The largest cardroom in San Diego County is Oceans
11 in Oceanside which is currently operating fifty (50) tables.
2. History of Chula Vista Gamina Plan
Prior to enactment of the City's Gaming Plan in 1995, cardroom operations were
regulated by way of City ordinance. The ordinance was amended by the City Council on six different
occasions between 1977 and 1995 for various reasons.
The Gaming Plan concept was introduced to the City Council on November 28, 1995,
because the City Attorney's Office determined that then pending state laws would have the effect of
pre-empting local control by City code. By creating a structure under the City code where future
changes would be adopted by resolution, the Gaming Plan preserved local Chula Vista authority over
its cardroom operations. This made it so that the City Council is authorized to adopt or make
amendments to the Chula Vista Gaming Plan by resolution after a public hearing. Under this revised
structure, the initial Gaming Plan was adopted in February 1996.
In 1998, the Gaming Plan was amended at the request of the City Council to eliminate
the issuance of additional licenses without a vote of the people. At the time, there were 4 total
licenses issued in the City. Two were held by the Chula Vista Bay Club, Inc., and two were held by
Harvey Souza. In 2000, the Gaming Plan was amended again, this time to eliminate 2 of the
outstanding 4 licenses and consolidate the remaining 2 licenses under Mr. Souza's ownership. This
was accomplished by Mr. Souza acquiring 2 licenses from Chula Vista Bay Club, Inc., and
immediately turning them over to the City. Other updates at this time included: 1) expanding the
allowed hours of operation; 2) allowing more types of games to be played; 3) increasing bet limits; 4)
allowing the service of alcohol; 5) increasing license tax fees; and 6) enhancing employee screening
and security requirements.
In 2009, consistent with state law changes, the maximum number of card tables
allowed to operate was increased in the Gaming Plan from 12 to 16.
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In 2012, again consistent with state law changes, the maximum number of card tables
was increased in the Gaming Plan from 16 to 18.
In 2015, again consistent with state law changes, the maximum number of card tables
was increased in the Gaming Plan from 18 to 20. Other changes included an increase to 15 the
number of tables that could be operate as "Class II" or "Class IA" tables (allowing "back line" betting
and other "higher stakes" games). In consideration of this; the Village Cardroom agreed to an
increase in the quarterly license tax per table from the previous maximum of $5,000 up to $7,100.
These changes, and some others, were requested and granted in anticipation of the Village Card
Room moving its operations from 429 Broadway to a new establishment at 271 and 285 Bay
Boulevard now known as the Seven Mile Casino. An Operating Agreement was also entered into to
implement the license tax increase in consideration of a 5 -year "vesting" of operations under then -
applicable Gaming Plan regulations.
3. History of Village Club Card Room (now Seven Mile Casino) Ownership and Operations
Currently, VC Inc. owns the only card room gaming license issued by the City of Chula
Vista (technically, two licenses that have been consolidated) and is the only gaming operation within
the Chula Vista jurisdiction. VC Inc. also possesses and maintains the required state gambling
licenses.
As a police -regulated business, the Village Club Card Room operated by the Souza
family had a solid track record of compliance with City regulations and positive interaction with the
Police Department. The business was opened by Mr. Souza's father, and operated at the Broadway
location from 1946 until 2015. Harvey Souza has managed the business from 1963 to 2015.
In 2015, the Village Club Card Room moved its operations to a 20 -table cardroom
located at 271 and 285 Bay Boulevard, Chula Vista, California. The relocated business was renamed
"Seven Mile Casino".
The property located 271 and 285 Bay Boulevard was originally owned by VC Bay
Properties LLC. This entity was formed by Mr. Souza. Prior to moving its operations to its current
location, Mr. Souza sold a 50% interest in VC Bay Properties LLC to a new ownership group, Stone
Chula Vista Holdings, LLC. The members of the Stone Chula Vista Holdings, LLC are: 1) Ryan
Stone; 2) Rodney F. Stone; and 3) Masis Kevorkian. This gave Stone Chula Vista Holdings, LLC a
50% interest in the Seven Mile Casino real estate and an indirect "financial interest" in the Cardroom
License under the Gaming Plan. The principals of this entity also acquired'an option to acquire a fifty
percent (50%) interest in the Seven Mile Casino business.
On March 3, 2015, the City Council approved Resolution 2015-057, ratifying Chief
Bejarano's approval of Stone Chula Vista Holdings, LLC members "financial interests" in Village Club
Card Room's license after reviewing their applications and conducting background checks. The
Stone Chula Vista Holdings, LLC members were told they would need to re -apply for approval with
the Chief of Police if and when they proposed to exercise their option and obtain a direct interest in
the cardroom license.
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On September 23, 2015, the Bureau brought allegations against Seven Mile Casino
operators Mr. Souza, Mrs. Souza, and VC Inc. relative to cardroom operations that were alleged to
be in violation of state and federal laws. In connection with these proceedings, the Bureau issued an
emergency order on December 9, 2015 that, among other things, temporarily suspended gambling
activities and put in place an independent manager to oversee the day-to-day operations at Seven
Mile Casino. The cardroom was allowed to re -open two weeks later, but the independent manager
continues to oversee such operations. On February 12, 2017, Mr. Souza, Mrs. Souza, and VC Inc.
entered into a Stipulated Settlement with the Bureau to resolve the allegations brought against them,
including an agreement for payment of penalties. It is staff's understanding that the federal charges
against Mr. Souza have also been resolved.
B. Proposed Transfer to Stones Corp.
In 2016, Stones Corp. exercised its option and entered into agreements to purchase
100 percent of Seven Mile Casino from VC Inc., conditioned upon approval of the State Gambling
Commission and the City.
On December 12, 2016, Stones Corp. submitted its application to the Chula Vista
Police Department for the transfer of the consolidated "Class II" license from VC Inc. to Stones Corp.
At the time of the submittal and since, the Stones Corp.'s principals have repeatedly communicated
to the City their commitment to: (i) providing Chula Vista with a "premier entertainment facility"
including live entertainment, an "elevated dining experience" welcoming to both families and
businesses that could serve as gathering place for the local community; (ii) providing visitors and
locals with first-class gaming and state-of-the-art card rooms; and (iii) enhancing current operations,
helping further Seven Mile Casino's appeal and promoting Chula Vista as a world-class destination.
Further, Stones Corp. representatives have stated their commitment to ensuring that operations at
Seven Mile Casino are consistent with "their history of commitment to sound business practices and
City of Chula Vista's sterling reputation".
The property located at 215 Bay Blvd (formerly Anthony's Fish Grotto) has also been
acquired by Stone 215 Bay Blvd., LLC, whose members are entities owned and controlled by Rodney
Stone, Ryan Stone, and Masis Kevorkian. This property is currently being leased for overflow
parking and storage/office space for Seven Mile Casino and Stones Corp. representatives have
indicated a desire to utilize this property consistent with its commitments noted above.
The City Attorney's Office has reviewed the transfer and ownership documents in
connection with this transaction and found them to be consistent with the summary of the transaction
provided by the attorneys for Stones Corp. See Letter from Stones Corp. Attorney, dated February
15, 2017, attached hereto as Attachment 2. The City Attorney found no issues of concern in its
review.
Police Department Review of Gaming Operations
The Police Department has always been the primary staff involved with cardroom
regulations due to the amount of cash involved in business operations and the related possibility of
criminal activities. Over the years, the Police Department has actively monitored Village Club Card
Room/Seven Mile Casino in terms of security requirements and public safety. It has also worked
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closely with the California Department of Justice Division of Gambling Control.
Seven Mile Casino has not had excessive calls for service. In the last 18 months there
have been 42 calls for service associated with the Casino. Most are unrelated to crime such as lost
property, private impounds, proactive patrol, or investigative follow-ups related the DOJ investigation.
A review of the details of each call found about 14 total calls over 18 months related to crimes or
quality of life issues such as fights, drunk in public, petty theft, domestic violence, or driving while
intoxicated. Some were service calls made by staff at the Casino about problems outside or near the
Casino and not related to the business itself.
The Police Department has reviewed and approved the Seven Mile Casino security
plan as required by the Gaming Plan. As required by the Gaming Plan, the Police Department has
and will continue to conduct background checks on all new Seven Mile Casino employees.
2. Ratification of Proposed Transferees and Financial Interest Holders
The Gaming Plan requires Chief of Police approval, by way of background check, of
any persons having a financial interest in the cardroom including property owners. This approval
must be ratified by the City Council pursuant to the Gaming Plan.
The Police Department conducted a thorough investigation and background checks of
each of the interest holders identified on the Financial Interest Summary attached hereto as
Attachment 3. The Police Department's investigation included a site inspection and a meeting with
management at Stones Gambling Hall in Citrus Heights, California, which is licensed to and operated
by the principals of Stones Corp. During the visit to the Stones Gambling Hall, the Police Department
noted the Gambling Hall's positive relationships with local law enforcement and an overall positive
atmosphere and professional operation.
Based on the Police Department's investigation, the Chief of Police has determined that
the proposed transferee possesses adequate experience and expertise to operate a "Class II"
cardroom in accordance with state gaming laws, the terms and. conditions of the City's Gaming Plan,.
and existing best practices for such operations. The Chief of Police has also approved the financial
interest holders identified on Attachment 3.
3. California Gambling Control Commission Approval
Concurrent with its request for City approval, Stones Corp. submitted an application to
the State Gambling Commission to approve the sale and license transfers for the Seven Mile Casino
from VC Inc. to Stones Corp. On March 23, 2017, the State Gambling Commission issued a
Temporary State Gambling License to Stones Corp. and approved the transfer of the interests in
Seven Mile Casino from VC Inc. to Stones Corp. The State Gambling Commission's approval was
preceded by a substantial due diligence review of the Stones Corp. principals including review of the
various financial and ownership interests of the principals and entities involved in the transfer, and
confirmation of compliance with the Business and Professions Code. See Attachments 2 and 4.
C. Amendment To the Gaming Plan and Waiver of "Class II" License Reversion
Requirements Upon Transfer
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The City's Gaming Plan currently requires a temporary three year reversion of "Class 11"
licenses to "Class I" licenses upon transfer of a "Class 11" cardroom license. Stones Corp. has asked
for a waiver of the reversion requirements upon transfer of the Cardroom License in order to allow
"Class II" operations to continue without interruption, subject to findings and conditions acceptable to
the City.
Staff has considered the Stones Corp. request and recommends that the Gaming Plan
be formally amended to allow for such a waiver upon a finding by the Chief of Police, subject to
approval by the City Council, that the transferee demonstrate adequate experience and expertise to
operate a "Class II" cardroom in accordance with all state gaming laws, the terms and conditions of
the City's Gaming Plan, and then existing best practices for such cardroom operations.
In this instance, the Police Department recommends that the waiver request be
granted. Stones Corp. affiliates are already operating a "Class II" cardroom in Citrus. Heights
California. Chula Vista Police Department's on-site inspection and evaluation of this operation was
highly favorable and supports the required findings in the Gaming Plan waiver amendment.
D. Staff Recommendations
In light of the above report, City staff recommends as follows:
City Council approve a resolution amending the Chula Vista Gaming Plan to allow the City
Council to waive the "Class II" License reversion requirements upon transfer of a cardroom
license, subject to City findings that the transferee of the cardroom license has demonstrated
the necessary experience and expertise to operate a "Class II" operation, and subject to such
further terms and conditions as the City Council deems appropriate.
2. City Council ratify the Chief of Police's approval of the transfer Class II Cardroom License from
VC Inc. to Stones Corp.
3. City Council ratify the State Gambling Commission's approval of the sale of the interests in
Seven Mile Casino to Stones Corp. and its issuance of the state gambling license to Stones
Corp.
4. City Council waive the "Class II" License reversion requirements upon transfer of the
Cardroom License based on: (i) the Chief of Police's findings that Stones Corp. has
demonstrated that it possesses adequate experience and expertise to operate a "Class II"
cardroom in accordance with all state gaming laws, the terms and conditions of the City's
Gaming Plan, and existing best practices for cardroom operations; and (ii) as further condition
of such waiver, Stones Corp.'s agree to amend the Card Room Operating Agreement to
reduce the Vesting Operating Term thereunder from five (5) years to four (4) years.
5. City Council ratify the Chief of Police's approval of the proposed transferees and financial
interest holders of the Cardroom License.
DECISION -MAKER CONFLICT
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Staff has reviewed the Councilmember's real estate holdings within Chula Vista and has determined
that no property is within 500 -foot of the project location. Staff is not independently aware, and has
not been informed by any City Council member, of any other fact that may constitute a basis for a
decision maker conflict of interest in this matter.
LINK TO STRATEGIC GOALS
The City's Strategic Plan has five major goals: Operational Excellence, Economic Vitality, Healthy
Community, Strong and Secure Neighborhoods and a Connected Community. This action supports
the Economic Vitality goal as facilitates the continued operation and success of the Seven Mile
Casino under new ownership. The Seven Mile Casino employs approximately 305 people generating
significant business activity and City revenues.
CURRENT YEAR FISCAL IMPACT
The estimated license tax revenue generated by Seven Mile Casino in fiscal year 2016-17 is
$585,000. These funds are considered discretionary revenues and support overall general fund
services such as police, fire, libraries and recreation.
ONGOING FISCAL IMPACT
The estimated license tax revenue which is expected to be generated by Seven Mile Casino in fiscal
year 2017-18 is $603,000. These funds will be included in the City Manager proposed budget and
are considered discretionary revenues and support overall general fund services such as police, fire,
libraries and recreation. City Council action to approve the transfer and waiver of the reversion
requirement will help sustain these revenues. The reversion to a Class I license would materially
reduce these amounts.
ATTACHMENTS
1 - Conflict of Interest Map
2 - Letter from Stones Corp.'s Attorney
3 - Financial Interest Summary
4 - State Gambling Control Commission Approval
Staff Contact: Gary Halbert, City Manager, Roxanna Kennedy, Chief of Police, Glen Googins, City
Attorney
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RESOLUTION NO. 2017 -
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CHULA VISTA APPROVING AMENDMENTS TO THE CHULA
VISTA GAMING PLAN TO ALLOW CITY COUNCIL WAIVER
OF REQUIREMENTS FOR TEMPORARY REVERSION OF
CLASS II LICENSES TO CLASS I LICENSES UPON TRANSFER
WHEREAS, the City of Chula Vista Gaming Plan ("Gaming Plan") currently requires a temporary
three year reversion of "Class II" licenses to "Class I" licenses upon transfer; and
WHEREAS, in connection with the proposed transfer of a consolidated Class II cardroom license .
for the Seven Mile Casino from V C Cardroom, Inc. to Stones South Bay Corporation ("Stones Corp."),
Stones Corp. has asked for a waiver of this requirement to avoid the interruption of "Class II"
operations; and
WHEREAS, staff believes that such a waiver could be appropriate provided that the transferee
demonstrate the necessary experience and expertise to operate a "Class II" operation; and
WHEREAS, to clarify and establish the terms for such a waiver, staff is recommending that the
Gaming Plan be formally amended; and
WHEREAS, as required by the Chula Vista Municipal Code Section 5.20.001 and Gaming Plan
Section 5.3, prior to City Council action on the proposed Gaming Plan amendment, a public hearing was
properly noticed and held, and the City Council considered the proposed amendment and all testimony
presented with respect thereto; and
WHEREAS, the City Attorney's office has reviewed the proposed activity for compliance with the
California Environmental Quality Act (CEQA) and has determined that the activity is not a "Project" as
defined under Section 15378 of the State CEQA Guidelines because the activity consists of a
governmental administrative/fiscal activity which does riot involve any commitment to any specific
project which may result in a potentially significant physical impact on the environment. Therefore,
pursuant to Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus,
no environmental review is required.
NOW THEREFORE, BE IT RESOLVED, by the City Council of the City of Chula Vista as follows:
The Gaming Plan is hereby amended to add the following Section 2.5.6.4:
2.5.6.4 City may waive the requirements of Sections 2.5.6.1 and 2.5.6.2 upon the recommendation of
the Chief of Police and with the approval of the City Council provided that the City determines, in its sole
discretion, that the transferee has otherwise demonstrated to the City that he/she/it possesses the
adequate experience and expertise to operate a "Class II" card room in accordance with state gaming
laws, the terms and conditions of this Gaming Plan, and then existing best practices for such operations.
In connection with such waiver, the City may impose such additional terms and conditions on
transferee's operations.
Presented by:
Glen R. Googins
City Attorney
Approved as to form by:
Glen R. Googins
City Attorney
RESOLUTION NO. 2017 -
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA
(1) RATIFYING CHIEF OF POLICE AND STATE OF CALIFORNIA
DIVISION OF GAMBLING CONTROL APPROVALS OF THE TRANSFER
OF A CONSOLIDATED CLASS II CARDROOM LICENSE FOR THE
SEVEN MILE CASINO FROM V.C. CARDROOM, INC. TO STONES
SOUTH BAY CORPORATION; (2) WAIVING THE REQUIREMENT FOR
TEMPORARY REVERSION OF THE CLASS II LICENSE TO A CLASS I
LICENSE FOR THIS TRANSFER WITH FINDINGS AND CONDITIONS;
AND (3) RATIFYING CHIEF OF POLICE APPROVAL OF THE NEW
OWNERS AND OTHERS POSSESSING A FINANCIAL INTEREST IN THE
GAMING OPERATIONS AND/OR CARDROOM LICENSE FOR THE
SEVEN MILE CASINO; AND (4) APPROVING RELATED MATTERS
WHEREAS, V C Cardroom, Inc. is the owner of the only two (2) cardroom licenses issued by the
City of Chula Vista, which have been consolidated into a "Class II" cardroom license (collectively, the
"Cardroom License").
WHEREAS, pursuant to the Cardroom License, the sole gaming operation within the City is
known as Seven Mile Casino, which is located at 271 and 285 Bay Boulevard, Chula Vista, California
91910; and
WHEREAS, on December 12, 2016, Stones South Bay Corporation ("Stones Corp.") submitted an
application ("Application") to the Chula Vista Police Department per section 2.4 of the City of Chula Vista
Gaming Plan (the "Gaming Plan") for the transfer of the Cardroom License from V C Cardroom, Inc. to
Stones Corp.; and
WHEREAS, on February 15, 2017, Stones Corp. requested that the City Council ratify the
Application for the Cardroom License per section 2.5 of the Gaming Plan; and
WHEREAS, on March 23, 2017, the State of California Division of Gambling Control conditionally
issued a Temporary State Gambling License to Stones Corp. and approved the transfer of the interests in
Seven Mile Casino from V C Cardroom, Inc. to Stones Corp.;
WHEREAS, on or about April 11, 2017, the City Council approved an Amendment to the Gaming
Plan allowing the City Council to waive the requirement for a temporary reversion of "Class II" licenses
to "Class I" licenses upon transfer of a cardroom license where the Chief of Police determines, and the
City Council approves, that the proposed transferee possesses adequate experience and expertise to
operate a "Class II" cardroom in accordance with state gaming laws, the terms and conditions of the
City's Gaming Plan, and existing best practices for such operations (the "Gaming Plan Amendment"); and
WHEREAS, the Chula Vista Police Department has thoroughly reviewed the Application and
conducted background investigations of the proposed transferees and financial interest holders in the
Cardroom License; and
WHEREAS, based on these background investigations, and an on-site visit and evaluation of
Stones Corp. affiliate operations of a "Class 11" cardroom in Citrus Heights, California, the Chief of Police
has determined that Stones Corp. possesses adequate experience and expertise to operate a "Class II"
cardroom in accordance with state gaming laws, the terms and conditions of the City's Gaming Plan, and
existing best practices for such operations and therefore recommends City approval of a waiver under
the Gaming Plan Amendment ("Waiver"); and
WHEREAS, the Chief of Police has approved the proposed transferees and proposed financial
interest holders in the Cardroom License.
WHEREAS, as a condition of the approval of a transfer of the Cardroom License, and the Waiver,
the City and Stones Corp. have agreed to amend the Card Room Operating Agreement, consistent with
the terms provided therein, to reduce the Vested Operating Term from a period of five (5) years to a
period of four (4) years, whereby such Vested Operating Term shall expire on March 3, 2019.
WHEREAS, the City Attorney's office has reviewed the proposed activity for compliance with the
California Environmental Quality Act (CEQA) and has determined that the activity is not a "Project" as
defined under Section 15378 of the State CEQA Guidelines because the activity consists of a
governmental administrative/fiscal activity which does not involve any commitment to any specific
project which may result in a potentially significant physical impact on the environment. Therefore,
pursuant to Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus,
no environmental review is required.
NOW THEREFORE, based on the recitals set forth alone, the City Council of the City of Chula
Vista hereby resolves as follows:
1. The City Council hereby ratifies Chief of Police and State of California Division of Gambling
Control approvals of the transfer of the Cardroom License from V C Cardroom, Inc. to Stones
South Bay Corporation.
2. The City Council hereby determines that Stones Corp. possesses adequate experience, and
expertise to operate a "Class 11" cardroom in accordance with state gaming laws, the terms and
conditions of the City's Gaming Plan, and existing best practices for such operations and,
accordingly waives the requirement for a temporary reversion of the Class II License to a Class I
License for the transfer of the Cardroom License from V C Cardroom, Inc. to Stones South Bay
Corporation.-
3.
orporation:
3. The City Council hereby ratifies the approval by the Chief of Police of the new owners and
financial interest holders in the Cardroom License per the attached Exhibit A.
4. As a condition of the approval and waiver provided in Sections 1 and 2, above, the City Manager
is hereby authorized and directed to finalize and execute on behalf of the City an Amendment to
the Card Room Operating Agreement with the Cardroom License interest holders, consistent
with the terms provided therein, to reduce the Vested Operating Term to a period of four (4)
years, whereby such Vested Operating Term shall expire on March 3, 2019.
5. The City Council hereby authorizes and directs the City Manager to take such further actions and
execute such further agreements as deemed necessary, in the City Manager's sole discretion, to
effectuate the transfer of the Cardroom License from V C Cardroom, Inc. to Stones South Bay
Corporation.
Presented by:
Glen R. Googins
City Attorney
Approved as to form by:
Glen R. Googins
City Attorney
EXHIBIT A
FINANCIAL INTEREST HOLDERS IN THE CARDROOM LICENSE FOR SEVEN MILE CASINO
NEW YORK
T u ane Nfo rri s
ATLANTA
LONDON
111
.BALTIMORE
SINGAPORE
WILMINGTON
PHILADELPHIA
FIRA9..1 APT11JA7Y OFFICES
MIAMI
CHICAGO,
BOCA RATON
WASHINGTON, DC
PITTSBURGH
SAN FRANCISCO
HEATHER U. GUERENA
NEWARK
SILICON VALLEY
DIRECT DIAL: +l 619 744 2208
LAS VEGAS
SAN DIEGO
PERSONAL FAX: +I 619 923 2624
CHERRY HILL
SHANGHAI
E-MAIL: HUGuerena@duanemorris.com
LAKETAHOE
TAIWAN
MYANMAR
BOSTON
MICHAEL L. LIPMAN
OMAN
HOUSTON
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February 15, 2017
CONFIDENTIAL
Mr. Glen R. Googins Mr. Gary Halbert
City .Attorney City Manager
City of Chula Vista City of Chula Vista
276 Fourth Avenue 276 Fourth Avenue
Chula Vista, CA 91910 Chula Vista, CA 91910
Chief Roxana Kennedy
Police Chief
Chula Vista Police Department
31 5 Fourth Avenue
Chula Vista, CA 91910
Re: Application for the Transfer of the Gambling. License for Seven Mile Casino
From VC Cardroom Inc. to Stones South Bav Corp.
License Numbers 078333 and 078334
Dear Mr. Googins, Mr. Halbert, and Chief Kennedy:
This letter is submitted pursuant to Section 2.5 of the Chula Vista Gaming Plan to
formally request the City of Chula Vista approve and ratify the transfer of the two consolidated
licenses to own and operate Seven Mile Casino ("Seven Mile") from V.C. Cardroom; Inc. to
Stones South Bay Corporation.
As You know, we represent Stones South Bay Corporation. "vhich is owned by Rodney
Stonc, Ryan Stone, Masis Kevorkian; and Kermit Schayltz, (collectively referred to as the
"Stones Group"), which has entered into agreements to purchase 100 percent of Seven Mile from
V.C. Cardroom. Inc., conditioned upon the approval of the California Gambling Control
Commission and the City of Chula Vista.
DUANE MORRIS LLP
750 B STREET, SUITE 2900 SAN DIEGO, CA 92101-4681 PHONE: 1 1 619 744 2200 FAX: 41 619 744 2201
Duane orris
February 15, 2017
Pa6e 2
Pursuant to section 2.4 of the Gaming Plan, the Stones Group previously submitted the
required applications to the Chula Vista Police Department on December 12, 2016. We
understand that those applications have been reviewed andsubmitted to the City. Through this
letter, we now request the applications and transaction be submitted to the City Council to ratify
the transfer of the consolidated gaming licenses for Seven Mile and all related business licenses
and permits.
Current Ownership and Licensing
Currently, V.C. Cardroom, Inc. is wholly owned by the Harvey and Bette Souza Living
Trust dated February 7, 2010 (the "Trust"), which operates Seven Mile. Following the
Emergency Order issued by the Bureau of Gambling Control (the "Bureau") in December of
2015, Seven Mile is currently operated by an independent manager who reports directly to the
Bureau.
Seven Mile currently operates out of the building located at 285 Bay Blvd., Chula Vista,
California 91910 (the "Property"). The Property is owned by V.C. Bay Properties, LLC, which
has two members — the Trust and Stone Chula Vista Holdings, LLC, which is owned by Ryan
Stone; Rodney Stone; and Masis Kevorkian. On March 3, 2015, the City approved the Stones
Group's landlord interest as a financial interest holders under the Gaming Plan, as set forth in
Resolution No. 2015-057.
In November of 2016, Seven Mile also began leasing additional parking and storage
space located at 215 Bay Blvd., Chula Vista, California, which is owned by Stone 215 Bay Blvd.
LLC ("Stone 215"). Stone 215 is owned by Rodney Stone and Ryan Stone, and Masis
Kevorkian will become a member shortly.
Agreements to Sell Seven Mile Casino
V.C. Cardroom, Inc. and the Stones Group have entered into two Agreements to purchase
100% of Seven Mile.
The original agreements (the "First Tranche'') contemplated a transfer of the assets and
liabilities of Seven. Mile from V.C. Cardroom, Inc. into V.C. Cardroom, General Partnership (the
"Partnership"). The Partnership would then issue partnership interests to V.C. Cardroom, Inc.
and the Stones Group, which would have a partnership interest of 10.71 % with the option to
purchase up to an additional 3929%. The Purchase and Option Agreements were submitted to
the Bureau; which recommended approval of the transaction to the California Gambling Control
Commission (the "Commission",). The Commission approved the transfers of interest in Seven
Mile Casino, the Purchase and Option Agreements (pursuant to Business and Professions Code
sections 19824(c), 19892, and- 19904), and the issuance of a Temporary State Gambling license
to VC Cardroom, General Partnership to operate Seven Mile (pursuant to Business and
Professions Code sections 19824(f), 19852, and 19000, CCR, Title 4 sections 12054 and 12342).
nuaneMorris
February 15, 2017
Page 3
Attached as Exhibit A is a true and correct copy of the excerpt for the minutes from the
November 17, 2016 Commission Meeting, which reflect that approval.
The second agreement (the "Second Tranche") was an agreement entered into in
November of 2016, which contemplated the sale of the second fifty percent of the Partnership
from V.C. Cardroom, Inc. to the Stones Group. To finance the purchase of the Second Tranche,
the Stones Group will obtain a loan from Comerica Bank and V.C. Cardroom, Inc. will take back
a note for a portion of the purchase price. The Second Tranche has been submitted to the Bureau
for its recommendation and approval. It is anticipated that the Bureau will recommend approval
of the Second Tranche to the Commission.
If both the Commission and the City approve the transactions and transfer of the gaming
licenses, both the First Tranche and the Second Tranche will close simultaneously. Upon
closing, the Stones Group would be the sole member of the Partnership; therefore, the
Partnership would dissolve by operation of law, and all of the assets and liabilities of the
Partnership would transfer to Stones South Bay Corp.
Ownership and Financial Interest After the Closing
Following the closing of the First and Second Tranches, the Stones Group will own one
hundred percent of the gambling establishment, Seven Mile. The Stones Group will also have
complete control over the gaming operations, presuming that the Commission adopts the
recommendation to dissolve the Emergency Order upon the closing of the First and Second
Tranches. After the closing, V.C. Cardroom, Inc., the Trust, Harvey Souza, and Betty Souza will
not have any interest in ownership or the operation of Seven Mile or the licenses.
Gaming Plan section 2.4.3, includes a more expansive definition for "financial interest"
in the cardroom. Based on section 2.4.3, the following entities and individuals gill have a
"'financial interest" after the closing:
Comerica Bank — lender to the Stones Group, to be secured by the gambling
assets
V.C. Cardroom, Inc. — lender on the Note to the Stones Group, subordinate to the
Comerica loan
3. Ryan and Ashley Stone Family Trust dated April 24, 2002, Ryan Stone, and
Ashley Stone — Guarantors on the Note to V.C. Cardroom, Inc.
4. 2005 Kevorkian Family Trust dated June 10, 2005, Masis Kevorkian, and Willa
Kevorkian — Guarantors on the Note to V.C. Cardroom. Inc.
5. VC Bay Properties LLC — landlord to Seven Mile
uane orris
February 15, 2017
Page 4
6. Stone 215 Bay Blvd, LLC — landlord to Seven Mile
The Stones Group Operation of Seven Mile Casino
The Stones Group intends to take an active role in the day to day management and
operations of Seven -Mile after the closing. Ryan Stone, Masis Kevorkian, and Kermit Schayltz
will take an active role in the oversight of Seven Mile. The current general manager, Joe
Olivieri, will report directly to them in discussing the daily operations, management, and
compliance issues. Rodney Stone will also be involved in decisions regarding operation strategy
and global management decisions.
Additionally, Art Van Loon, who has a portable key employee license and more than30
years of experience managing casinos and cardrooms, will be retained to assist with overseeing
the operations at Seven Mile and providing input and guidance to the current management and
the Stones Group.
Request to Waive Gaming Plan section 2.5.6 Regarding the Transfer of Class II Licenses
Seven Mile currently operates pursuant to two separate licenses, which have been
consolidated pursuant to Gaming Plan section 2.6. The City Council adopted Resolution No. 15-
056, which authorized the owner of the gaming license to operate a maximum of 20 tables and
increase the number of Class II tables to 15. The Stones Group requests the Police Chief
recommend transfer of the license and the ability to operate Class I, IA and II tables and games
as set forth in section 3.5.4 of the Gaming Plan.
Gaming Plan section 2.5.6 governs the transfer of Class II Licenses. The section
contemplates that the transfer of a Class II license will cause the license to revert to a Class I
license if a material or controlling interest in a Class II license is transferred, unless the chief of
police determines that the transferee is a "pre -qualified transferee". (Gaming Plan sections
2.5.6.1 and 2.5.6.2.) A review of this section shows that the purpose of the "pre -qualified
transferee" language is to ensure that the licensed person has sufficient experience managing and
operating a licensed cardroom for a continuous period of time to be able to handle the
responsibility of additional players and increased betting authorized at Class IA and Class II
tables.
The Stones Group has the required experience to operate the tables in compliance with
local and state laws. Kermit Schavltz has either managed or owned cardrooms in California for
over 27 years. Ryan Stone and Masis Kevorkian; through King's Casino Management Corp.,
purchased the cardroom in which 1`4r. Schayltz had an interest. Together, they have operated two
17 table cardrooms in Citrus Heights, California since 2013. Additionally, as mentioned above;
they will also bring in Art Van Loon; who has substantial experience both in California
cardrooms and indian gaming casinos as a gaming operations manager and has held titles
including Chief Operating Office, Vice President of Gaming, and General Manager. Further,
wane orris
February 15, 201"t
Nee 5
permitting. Seven Mile to continue operating with its current Class Land Class II tables will
ensure continuity for the community and the employees.
Therefore, the Stones Group respectfully requests that the City approve the transfer of the
Qaming and business licenses to own and operate Seven Rile Casino to the Stones Group
without modification.
Respectfully,
Michael L. Lipman
HUG
Enclosures
EXHIBIT A
California Gambling Control Commission
2399 GATEWAY OAKS DRIVE, SUITE 220
SACRAMENTO, CA 95833
(916) 263-0700 FAx (916) 263-0499
www.cgcc.ca.gov
MINUTES OF NOVEMBER 17, 2016
COMMISSION MEETING
1. Call to Order and Pledge of Allegiance
Chairman Evans called the meeting to order at 10:00 a.m., and asked everyone to
stand for the Pledge of Allegiance.
2. Roll Call of Commissioners.
Roll Call of Commissioners was taken with Chairman Jim Evans and Commissioners
Tiffany Conklin, Roger Dunstan, Lauren Hammond, and Trang To present.
3. Approval of Commission Meeting Minutes for:
A. September 8, 2016
B. September 22, 2016
C. October 5, 2016 — Regulations Hearing
D. October 6, 2016
Action:
Upon motion of Commissioner To seconded by Commissioner Hammond and
unanimously carried in a vote by roll call with Chairman Evans and Commissioners
Conklin, Dunstan, Hammond, and To voting yes; the Commission approved the
minutes for September 8, 2016, September 22, 2016, October 5, 2016 Regulations
Hearing, and October 6, 2016.
4. Consideration of Approval of Transfers of Interest in Seven Mile Casino: Purchase
and Option Agreements (Pursuant to Business and Professions Code sections
19824(c), 19892, and 19904):
A. Seven Mile Casino (Security Interest): VC Cardroom, Inc. (Transferor)
VC Cardroom General
Partnership (Transferee)
B. Seven Mile Casino (Partnership Interest): VC Cardroom, Inc. (Transferor)
Harvey Souza (Transferee)
C. Seven Mile Casino (Partnership Interest): Harvey Souza (Seller)
Stones South Bay Corporation (Buyer)
Commission Meeting Minutes of November 17, 2016
D. Seven Mile Casino (Partnership Interest): VC Cardroom, Inc. (Seller)
Stones South Bay Corporation (Buyer)
By Concurrence of the Commissioners, items 4. A. through 4.D.were heard as a
group.
Comments Received From:
Michael Lipman, representing the Stones Group
Chairman Evans asked Michael Lipman if he understood the conditions placed on
items 4A through 4D. Mr. Lipman stated that he understood and accepts the
conditions.
Action:
Upon motion of Commissioner Dunstan seconded by Commissioner To and
unanimously carried in a vote by roll call with Chairman Evans and Commissioners
Conklin, Dunstan, Hammond, and To voting yes; the Commission approved the
transactions with the conditions noted below:
Within 15 days of Commission approval, VC Cardroom General
Partnership shall provide to the Bureau and the Commission copies of
the certificates evidencing the partnership interest, proof of compliance
with the requirements of Business and Professions Code section
19892, and a legend identifying the restrictions of Business and
Professions Code section 19904.
2. Within 15 days of Commission approval, Stones South Bay Corporation
shall provide to the Bureau and the Commission .copies of the stock
certificates evidencing the shares issued, proof of compliance with the
requirements of Business and Professions Code section 19882(c), and
a legend identifying the restrictions of Business and Professions Code
section 19904.
3. Within 15 days of Commission approval, the Partnership shall provide
to the Commission and the Bureau a written statement setting forth the
following: (a) EBITDA (earnings before interest, taxes, depreciation, and
amortization) as calculated pursuant to the Partnership Interest
Purchase and Sale Agreement (PSA), as amended, and the Option
Agreement, as amended, (b) the adjusted purchase price calculated
pursuant to the PSA, as amended, (c) the exercise price determined
pursuant to the Option Agreement, as amended, (d) the date, the
amount, the maker, and the payee with respect to each item of
indebtedness forgiven, or acknowledged as satisfied, pursuant to the
PSA, as amended, and (e) what indebtedness by amount, maker, and
payee that remains unsatisfied as between the parties to the
Contemplated Transactions or their affiliates.
Page 2 of 14
Commission Meeting Minutes of November 17, 2016
4. Within 15 days of Commission approval, VC Cardroom, Inc. and Stones
South Bay Corporation, either jointly or separately, shall provide to the
Bureau and the Commission written confirmation that no material
change was made to the transactions and that the transactions are
substantially the same as approved by the Commission.
5. Consideration of Approval of Request for Temporary State Gambling License
(Pursuant to Business and Professions Code sections 19824(f) 19852 and 19900:
CCR, Title 4 sections 12054 and 12342):
Seven Mile Casino: VC Cardroom General Partnership
Comments Received From:
Kermit Schayltz
Ryan Stone
Bill Torngren, Deputy Attorney General, (DAG) Department of Justice
Commissioner Hammond asked for the record if Mr. Schayltz and Mr. Stone will
abide by the conditions placed on the Temporary State Gambling License. They
both said they will.
Chairman Evans asked DAG Torngren why approval of this transaction is in the
public interest. DAG Torngren, in summary, responded by stating there are several
reasons that the transaction is in the public interest. DAG Torngren stated that it
allows the cardroom to remain open with an ownership that has the financial
wherewithal and that is committed to transparency, which is in the public interest. In
addition, there was an emergency order issued on Dec. 9, 2015, negotiations then
ensued with representatives of the cardroom. Those negotiations resulted in the
reopening of the club on Dec 31, 2015. That reopening was subject to certain
agreements as outlined in the emergency order and in order to protect the public
welfare interest. With respect to this transaction, it is the first step. DAG Torngren
stated he had received a copy of a second transaction and there has been an
agreement there will be a conveyance of the remainder of the Souza trust interest to
Stones South Bay, which is also in the public interest. As part of getting the club
open there was an infusion of money that was a loan; one of the things that came
out in the investigation and that is alleged in the accusation and statement of issues
is that there was substantial inadequate funding at the cardroom. There have been
negotiations with respect to resolution of the case at that time. DAG Torngren further
stated there are certain things we can't have in this industry including using patron's
money for someone's own use and to the extent we now have potentially a new
ownership, which is committed to transparency. That is unquestionably in the
general public interest.
Commissioner Hammond asked DAG Torngren if he was suggesting that there were
irregularities before the cardroom moved to their new location. DAG Torngren stated
that in the public documents there clearly was an indictment that has been resolved
between the Federal Government, VC Cardroom Inc. and Mr. Souza. That has been
resolved by a deferred prosecution agreement and a payment of a certain sum of
money. The basis of that indictment was well publicized and the Commissioners
Page 3 of 14
Commission Meeting Minutes of November 17, 2016
were provided a copy. The basis of that indictment was a violation of anti -money
laundering by not having an adequate anti -money laundering program. However, if
you look at the underlying facts alleged there are bookmakers, and organized crime
in certain cardrooms in San Diego, which is contrary to the public interest.
Commissioner.Hammond stated to DAG Torngren that she has concerns with
seeing very similar facts in different cardrooms some with a Financial Crimes
Enforcement Network (FinCen) violation, some not. Some owners get a stipulated
settlement, other owners get sent to trial. Commissioner Hammond went on to say
that it is not the Commissioner's job to know anything about the DAG's negotiations;
however, she wants to make sure that the Commission is making the best decisions
and not saying yes to some of the owners and no to others. DAG Torngren
responded by saying that Indian and Gaming Law Section (IGLS) does not negotiate
settlements without the Bureau's involvement and approval. Ultimately, the Chief of
the Bureau authorizes and signs every settlement stipulation. No settlement is
possible without an agreement from the Chief and by the settling respondents. No
settlement is effective without the Commission's approval. Settlements accompany a
detailed letter that explains the settlements and the terms of the settlements. He
went on to reiterate the "four C's" he stated during the April 14, 2016 Commission
meeting: Conduct, Culpability, Contrition, and Cooperation. DAG Torngren also
added Comparison and that they also look at the relative issues. Some issues are
more important than others. At the end of the day, IGLS wants transparency. The
DAGs also look at mitigation and aggravation factors and an ability to pay. They look
at general deterrence. Finally, DAG Torngren stated that since January 2011, there
were 21 accusations, which is 25% of the gambling establishments, nine emergency
cardroom orders issued, seven involved cardroom shutdowns, five Federal cases
and 16 of the 21 cardrooms accusations involved admissions of wrong doing. Lastly,
DAG Torngren stated that in all settlements the Bureau, Commission and IGLS look
at litigation risk.
Action:
Upon motion of Commissioner To seconded by Commissioner Dunstan and
unanimously carried in a vote by roll call with Chairman Evans and Commissioners
Conklin, Dunstan, Hammond, and To voting yes; the Commission approved the
request for a Temporary State Gambling License for VC Cardroom General
Partnership and its principles through Seven Mile Casino's existing Interim Renewal
Licensure period, December 17, 2017, with the conditions noted below:
This temporary license takes effect on the date of issuance and expires on
December 31, 2017. This temporary license is not subject to renewal and
may be extended only by order of the Commission at its discretion, but in
no case shall this temporary license exceed 24 months.
2. Issuance of this temporary license does not obligate the Commission to
grant a regular license. Issuance of this temporary license does not create
a vested right in the holder to either extension of the temporary license or
to a regular license.
Page 4 of 14
Commission Meeting Minutes of November 17, 2016
3. Issuance of this.temporary license does not change the license
qualification requirements of the Gambling Control Act, including the legal
requirement that the burden of proving his or her qualifications to receive
any license is on the applicant.
4. The Commission, when evaluating the applicant's pending application for
a regular state gambling license, will consider the conduct of the applicant
and its employees, if applicable, during the term of the applicant's
temporary license.
5. Notwithstanding any other limitations on this temporary license, it is also
subject to the discipline and penalties provided in Article 10 and Article 11
of the Gambling Control Act. The issuance of this temporary license is
without prejudice to the Bureau's prosecution of an accusation.
6. The granting of this temporary license in no way diminishes the
responsibilities or powers of the Bureau in enforcing the Gambling Control
Act and other applicable laws and regulations with respect to the
temporary license.
7. This temporary license will only be valid as long as an application for a
regular license is currently pending.
8. The holder of this temporary license shall pay all applicable fees
associated with that license as if the temporary were a regular license.
9. If a regular license is not issued within the valid time period of the
temporary license, the temporary licensee may submit a request for a new
temporary license.
10. Upon issuance or denial of a regular license, this temporary license shall
become invalid.
11. The holder of a temporary license shall comply with all applicable
provisions of the Gambling Control Act and Commission and Bureau
Regulations.
12. The Commission may impose additional conditions to this temporary
license in its sole discretion at any noticed public meeting. The imposition
of additional conditions does not entitle the temporary licensee to an
evidentiary hearing under the Gambling Control Act or Commission
regulations.
Page 5 of 14
Commission Meeting 'Minutes of November 17, 2016
13. Within 15 days of Commission approval, VC Cardroom, Inc. must provide
an updated agreement with Francis Burger reflecting any applicable
change due to the restructured ownership of the cardroom.
14. VC Cardroom General Partnership, as the licensed entity owning and
operating Seven Mile Casino, shall abide by all applicable conditions
placed on VC Cardroom, Inc. listed in the Emergency Order dated
December 9, 2015.
6. Graton Mitigation Fund Final Report for Distribution to County of Sonoma and City of
Rohnert Park — Quarter Ending September 30, 2016 (Pursuant to Government Code
section 12012.56 & Compact section 4.5.1):
Federated Indians of Graton Rancheria
Action:
Upon motion of Commissioner Hammond seconded by Commissioner Conklin and
unanimously carried in a vote by roll call with Chairman Evans and Commissioners
Conklin, Dunstan, Hammond, and To voting yes; the Commission approved the
distribution payments as listed in the report.
7. Consideration of A) Transfer of Interest; and, B) Applications for Initial State
Gambling Licenses (Pursuant to Business and Professions Code sections 19824(c)
19892; and 19900 CCR, Title 4. sections 12054 and 12342):
A. The Bicycle Casino: The Bicycle Casino, L.P.
Hashem Minaiy, Transferor
Thousand Palms Enterprises, Inc., Transferee
Comments Received From:
Joy Harn, Designated Agent
Commissioner Conklin asked Joy Harn if her clients are aware and accept the
conditions. Ms. Harn stated they are.
Commissioner Dunstan then asked Ms. Harn if the purpose for the Transfer of
Interest was for business planning and what does that mean. DA Harn responded
that in a general partnership the general partners are exposed to personal liability
while the limited partnerships are not. There are two general partners: Cardroom
Management Group Inc. and Mr. Minaiy as an individual. For personal protection,
Mr. Minaiy has formed a corporation, and placed all of his general partnership
interest in a corporation. He is the only shareholder which allows protection should
there be a liability imposed on the general partner; that general partnership is a
corporation, therefore, Minaiy's personal assets cannot be accessed.
Action:
Upon motion of Commissioner Conklin seconded by Commissioner Hammond and
unanimously carried in a vote by roll call with Chairman Evans and Commissioners
Page 6 of 14
Attachment 3 - Financial Interest(s) Summary
Person(s)/Entity(ies)
Financial Interest(s)
Harvey Souza
Trustee - Souza Trust
Bette Souza
Trustee - Souza Trust
Harvey and Bette Souza Living Trust ("Souza Trust")
Sole Shareholder - V.C. Cardroom, Inc.
Partner - V.C. Cardroom General Partnership
Member - V.C. Bay Properties, LLC
V.C. Cardroom Inc.
Sole Owner - Seven Mile Casino
Licensee - Consolidated cardroom license for Seven Mile Casino issued by City
Licensee - California State Gambling (License No. GEGE-000466)
Licensee -Type 47 On-Sale General Eating Place liquor license (License No. 551492) issued by California
Gambling Control Commission
Partner - V.C. Cardroom General Partnership
Lender - To Stones Corp.
Stones South Bay Corporation ("Stones Corp")
Partner - V.C. Cardroom General Partnership
(Prop"osed) Sole Partner - V.C. Cardroom General Partnership
(Proposed) Sole Owner - Seven Mile Casino
Lessee - 285 Bay Blvd from V.C. Bay Properties, LLC
Lessee - 21S Bay Blvd from Stone 215 Bay Blvd. LLC
Borrower - From V.C. Cardroom, Inc.
Borrower - From Comerica Bank.
Rodney Stone
Shareholder - Stones Corp.
[Proposed] Casino Operator - Operation strategy and global management decisions
Member -'Stone 215 Bay Blvd. LLC
Member - Stone Chula Vista Holdings LLC
Manager - La Jolla Investment Company
Trustee - Rodney Stone Family Trust
Lender -To Souza Trust.
Lender - To V.C. Cardroom Inc.
Gloria Stone
Trustee - Rodney Stone Family Trust
Stone Family Trust dated April 8, 1982 ("Rodney
Stone Family Trust")
Member - La Jolla Investment Company LLC
Ryan Stone
Shareholder - Stones Corp.
[Proposed] Operator - Seven Mile Casino. Day-to-day operations.
Member - Stone 215 Bay Blvd. LLC
Member - Stone Chula Vista Holdings LLC
Trustee - Ryan Stone Family Trust
Member - Monarch Investments LLC
Lender - To V.C. Cardroom Inc.
Guarantor - Promissory Note from Stones Corp. to V.C. Cardroom Inc.
Guarantor - Loan from Comerica Bank to Stones Corp.
Ashley Stone
Trustee - Ryan Stone Family Trust
Member - Monarch Investments LLC
Guarantor - Promissory Note from Stones Corp. to V.C. Cardroom Inc.
Guarantor - Loan from Comerica Bank to Stones Corp.
Ryan and Ashley Stone Family trust dated April 24,
2002 ("Ryan Stone Family Trust")
Guarantor - Promissory Note from Stones Corp. to V.C. Cardroom Inc.
Guarantor - Loan from Comerica Bank to Stones Corp.
Masis Kevorkian
Shareholder - Stones Corp.
[Proposed] Operator - Seven Mile Casino. Day-to-day operations.
Member - Stone Chula Vista Holdings LLC
Member - Stone 215 Bay Blvd. LLC
Trustee - Kevorkian Family Trust
Guarantor - Promissory Note from Stones to V.C. Cardroom Inc.
Guarantor - Loan from Comerica Bank to Stones Corp.
Willa Kevorkian
Trustee- Kevorkian Family Trust
Guarantor - Promissory Note from Stones Corp. to V.C. Cardroom Inc.
Guarantor - loan from Comerica Bank to Stones Corp.
2005 Kevorkian Family Trust dated June 10, 2005
("Kevorkian Family Trust")
Guarantor - Promissory Note from Stones Corp. to V.C. Cardroom Inc.
Guarantor - Loan from Comerica Bank to Stones Corp.
Member - Stone 215 Bay Blvd. LLC
Pledgor - Membership interest in Stone 215 Bay Blvd. LLC
Kermit Schayltz
Shareholder - Stones Corp.
(Proposed) Operator - Seven Mile Casino. Day-to-day operations.
V.C. Cardroom General Partnership
(Proposed) Transferor of Seven Mile Casino Interests to Stones Corp.
V.C. Bay Properties, LLC
Members - Stone Chula Vista Holdings LLC and Souza Trust
Fee Owner - Real Property located at 285 Bay Blvd
Lessor - 285 Bay Blvd to Stones Corp. for Casino Operations
Lender - To V.C. Cardroom Inc.
Stone Chula Vista Holdings LLC
Members - Rodney Stone, Ryan Stone, and Masis Kevorkian
Lender - To Souza Trust.
Member - V.C. Bay Properties, LLC
Pledgor - Membership interest in V.C. Bay Properties, LLC
Stone 215 Bay Blvd. LLC
Members - La Jolla Investment Company, LLC, Monarch Investments LLC, and Kevorkian Trust
[Proposed) Members - Souza Trust, La Jolla Investment Company, LLC, Monarch Investments LLC, and
Kevorkian Trust
Fee Owner - Real Property located at 215 Bay Blvd
Lessor - 215 Bay Blvd to Stones South Bay Corporation for Office/Parking Operations
La Jolla Investment Company LLC
Sole Member - Rodney Stone Family Trust
Pledgor - Membership interest in Stone 215 Bay Blvd. LLC
Monarch Investments LLC
Sole Members - Ryan Stone and Ashley Stone
Pledgor - Membership interest in Stone 215 Bay Blvd. LLC
Comerica Bank
Lender - To Stones Corp.
Joe Olivieri
Casino Operator - General Manager
Art Van Loon
lCasino Operator - Employee license
y
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April 3, 2017
Ms. Heather Guerena
Seven Mile Casino
750 B Street, Suite 2900
San Diego, CA 92101
VIA CERTIFIED MAIL
Re: Approval of Temoorary State Gambling License and Purchase Agreement
Dear Ms. Guerena:
At its March 23, 2017 meeting, the California Gambling Control Commission
(Commission) approved Stones South Bay Corporation's Temporary State Gambling
License with the following conditions:
This temporary license takes effect on the date of issuance and expires on
December 31, 2017. This temporary license is not subject to renewal and may be
extended only by order of the Commission at its discretion, but in no case shall
this temporary license exceed 24 months.
2.' Issuance of this temporary license does not obligate the Commission to grant a
regular license. Issuance of this temporary license does not create a vested right
in the holder to either extension of the temporary license or to a regular license.
3. Issuance of this temporary license does not change the license qualification
requirements of the Gambling Control Act, including the legal requirement that
the burden of proving his or her qualifications to receive any license is on the
applicant.
4. The Commission, when evaluating the applicant's pending application for a
regular state gambling license, will consider the conduct of the applicant and its
employees, if applicable, during the term of the applicant's temporary license.
5. Notwithstanding any other limitations on this temporary license, it is also subject
to the discipline and penalties provided in Article 10 and Article 11 of the
Gambling Control Act. The issuance of this temporary license is without prejudice
to the Bureau's prosecution of an accusation.
6. The granting of this temporary license in no way diminishes the responsibilities or
powers of the Bureau in enforcing the Gambling Control Act and other applicable
laws and regulations with respect to the temporary license.
Seven Mile Casino
April 3, 2017
Page 2
7. This temporary license will only be valid as long as an application for a regular
license is currently pending.
8. The holder of this temporary license shall pay all applicable fees associated with
that license as if the temporary were a regular license.
9. If a regular license is not issued within the valid time period of the temporary
license, the temporary licensee may submit a request for a new temporary
license.
10. Upon issuance or denial of a regular license, this temporary license shall become
invalid.
11. The holder of a temporary license shall comply with all applicable provisions of
the Gambling Control Act and Commission and Bureau Regulations.
12. The Commission may impose additional conditions to this temporary license in its
sole discretion at any noticed public meeting. The imposition of additional
conditions does not entitle the temporary licensee to an evidentiary hearing
under the Gambling Control Act or Commission regulations.
13. Ryan Stone, Masis Kevorkian, and Kermit Schayltz, as holders of State
Gambling Licenses through their ownership in Kings Casino, LLC, shall abide by
all applicable conditions placed on their licenses as listed in the Stipulated
Settlement approved by the Commission on September 8, 2016, specifically
items 17a through 17e.
The Commission also approved the Purchase Agreement between Stones South Bay
Corporation and VC Cardroom, Inc. with the following conditions:
1. Within 15 days after the close of escrow, Stones South Bay Corporation shall
provide to the Bureau and the Commission copies of the stock certificates
evidencing the shares issued, proof of compliance with the requirements of
Business and Professions Code section 19882(c), and a legend identifying the
restrictions of Business and Professions Code section 19904.
2. Within 15 days after the close of escrow, Stones South Bay Corporation shall
provide to the Bureau and the Commission copies of all closing documents,
including, without limitation:
(a) an escrow statement, bills of sale, and final "true up" statements;
(b) all transaction documents, fully executed by the parties including,
without limitation, the promissory note and assignments of notes;
(c) all documents signed in connection the Comerica loan, including,
without limitation, the Gambling Law Addendum;
Seven Mile Casino
April 3, 2017
Page 2
(d) written confirmation that Harvey Souza is no longer a manager in
VC Bay Properties, LLC; and
(e) written confirmation that Harvey Souza will have no influence over the
gaming operation.
3. Within 15 days after the close of escrow, Stones South Bay Corporation shall
provide to the Bureau and the Commission written documentation evidencing the
dissolution of VC Cardroom General Partnership.
4. Within 15 days after the close of escrow, Stones South Bay Corporation shall
provide to the Bureau and the Commission written confirmation that no material
change was made to the transactions and that the transactions are substantially
the same as approved by the Commission.
5. Stones South Bay Corporation must provide written notification to the Bureau
and the Commission if the Harvey and Bette Souza Living Trust becomes a
member of Stone 215 Bay Blvd, LLC within 15 days of the Trust joining Stone
215. The written notification must include the amount of the Trust's capital
contribution.
The Commission will forward the Temporary State Gambling License certificate and
endorsement upon receipt of the documents required by the conditions of the Purchase
Agreement.
If you have any additional questions, you may contact me at (916) 274-6393.
Sin erely,
FRED CASTANO
Licensing Division
Enclosures
cc: Chula Vista Police Department
LUA'NNE HLSIZER
420 Stonehedge Place, San Marcos, CA 92069 1 C: (760) 580-3434 1 luanne.hulsizer@gmail.com
April 5, 2017
Mayor Casillas Salas & Chula Vista City Council
City of Chula Vista
276 Fourth Avenue
Chula Vista, CA 91910
Re: Stones Group Operation of Seven Mile Casino
Dear Mayor and Councilmembers,
As an executive professional working within the city of Chula Vista since 2012, I have become very aware of the
city's goal to attract businesses that provide quality entertainment venues to attract tourism to the area as well as
for local constituents to enjoy. One facility that has potential to contribute entertainment options to -Chula Vista
and the bay front is Seven Mile Casino and their potential new operators, the Stones Group.
Earlier this year, I and other business leaders became aware of the Stones Group's potential to become the new
operators of Seven Mile Casino. We were invited to visit the Stones Gambling Hall in Citrus Heights, California to
view their facility, to meet key operation employees, as well as to understand a few of the challenges faced by a
card room that also provides dining, musical entertainment, and events. Therefore, knowing at this time that the
California Gambling Control Commission has moved forward with approval of the Stones Group to operate Seven
Mile Casino, I wanted to share with you my initial impression of the organization.
Art Van Loon, the General Manager for Stones Gambling Hall spent several hours with us providing an orientation
to the organization's goals, operational standards, and entertainment opportunities beyond the card room. During
the visit, it was apparent that the gambling hall was engaged in a quality relationship with local government as we
met with government officials who spoke highly of the organization's positive relationship with the police
department, as well as with the community. In addition and to the Stone Group's credit, Mr. Van Loon holds a
Board of Director position on both the California Gaming Association as well as on the state of California's
Gaming Policy Advisory Committee. He is working closely with both organizations to improve card room
operations and transparency throughout California.
Therefore, considering my recent trip to experience the dynamic establishment of Stones Gambling Hall along with
being able to interact with key stakeholders, employees, and public representatives, I personally recommend that
the City of Chula Vista provide the Stones Group with the opportunity to operate Seven Mile Casino. After
experiencing their current card room, I believe that the Stones Group will set high standards for operations, that
they will maintain a close relationship with city staff and CVPD, and that they will upgrade the physical
presentation of the site. Ultimately, they will offer an entertainment venue that will go beyond card room gaming
to attract visitors and residents to enjoy Chula Vista.
Respectfully submitted,
Q
Luanne Hulsizer
April 07, 2017
Mayor Mary Salas
City of Chula Vista
276 Fourth Avenue
Chula Vista, CA 91910
Re: City Council Hearing on Seven Mile Casino License Approval
Mayor Salas,
As a property owner and resident in Chula Vista, I respectfully ask that you approve the
resolution allowing Stones Casino Group to own and operate Seven Mile Casino.
Our community is very special to me. I chose to purchase my home in Chula Vista so that my
family would create roots in a tight -knit community that would grow with us. I was always
under the impression that the Bayfront was going to become a world class entertainment
center but in the last 20 yrs nothing has happened! I would love to see new entertainment and
dining options come to our City, and Stones Casino Group would do just that. Not only do the
new owners plan on transforming the existing Seven Mile Casino experience, but they have
purchased the former Anthony's site! As a resident that was extremely angry and disappointed
in the site's most recent usage I am excited to see what they have planned to breathe new life
into that property and the rest of the area. The E Street off -ramp is the front door to our city
and I am excited to see some positive changes. Allowing a responsible group like Stones to
develop the area can be the catalyst we've needed to reform the entire Bayfront.
This opportunity to transform Seven Mile Casino is one of the easiest and best decisions facing
Chula Vista in a longtime. I ask that you vote yes in support of the Stones Casino Group and
allow our community and Bayfront to thrive.
lixto Pena
Property Owner and Resident
cc:
`Councilmember John McCann
Councilmember Patricia Aguilar
Councilmember Stephen Padilla
Councilmember Mike Diaz
City Manager Gary Halbert
City Attorney Glen Googins