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  • Lezlie Sterling /

    The Casino Royale in the Red Lion Hotel in Sacramento.

  • Lezlie Sterling /

    From left, Rafael Perez, David Hurley and Pedro Perez contend that a prominent local attorney, James Kouretas, duped them. In the foreground is a stack paperwork showing cellphone traffic between Rafael Perez and Kouretas.

  • Lezlie Sterling /

    Pedro Perez is one of three people who contend that a prominent local attorneyduped them in a business deal that led to them losing a chance to own a card room that generates $800,000 a month.

  • Lezlie Sterling /

    David Hurley is one of three people who contend that a prominent local attorney and his partner, William Blanas, duped him in a business deal that led to them losing control of a local casino that generates $800,000 a month.

  • Lezlie Sterling /

    Rafael Perez is one of three people who contend that a prominent local attorney duped them in a business deal that led to them losing a chance to own a local card room that generates $800,000 a month.

Ownership fight over Sacramento casino pulls major players into court

Published: Sunday, Sep. 29, 2013 - 12:00 am
Last Modified: Sunday, Sep. 29, 2013 - 12:24 am

Rafael Perez winces as he recalls walking into the Casino Royale on Sept. 17, 2008, to bask in the grand opening of his Sacramento card room.

Perez, 36 and an avid poker player, says he spent four years pursuing the dream of opening his own gambling hall and getting out of the bail bonds business.

He and his father, along with a friend and fellow poker enthusiast, joined forces with Faye Stearns, then an 89-year-old former card room owner to plot the opening of the new casino, a potential gold mine that Perez’s lawyer would later say could generate up to $800,000 a month in revenue.

With a large crowd watching, Perez said, introductions of the new owners began: first Stearns; then William Blanas, the son of former Sacramento County Sheriff Lou Blanas; then James Kouretas, a prominent Sacramento attorney and real estate entrepreneur.

Then – nothing. No mention of Perez, his father or the friend.

Perez and his poker buddy and would-be partner, David Hurley, said they stood in stunned silence until Perez was pulled aside by Kouretas, who had guided the card room through the labyrinth of permits and licensing that accompanies approval of a gambling establishment.

Kouretas explained that Perez’s name wasn’t actually on the gambling license, that he had included his own name as an owner “until the dust settled,” according to court papers the Perezes and Hurley would file in 2011 in a lawsuit over control of the card room.

“When I saw what was happening, it kind of killed me,” Perez said in an interview last week in his attorney’s third-floor office in a historic building on J Street in Old Sacramento. “My heart dropped to my knees.

“It was like, ‘Wow, I’ve been duped.’”

Now, five years later, Perez’s claim that the lucrative card room was stolen right out from under him by his own lawyer is the focus of a court battle involving some of Sacramento’s most influential players. Kouretas initially appeared to prevail, but earlier this month an appellate court revived the legal fight over who actually owns the card room.

Kouretas, 66, did not respond to requests for comment left at his law office, his home or on his cellphone; a woman who answered the phone at his home last week hung up on a Sacramento Bee reporter.

But in court papers, Kouretas denies as a “complete fabrication” that he ever was Perez’s attorney. He obtained approval for the license and put it in the name of a limited liability corporation controlled by Stearns, William Blanas and Kouretas, and maintains he had every right to do so. His lawyers argue that Kouretas was himself the victim of a “shakedown” by the men suing him after he used his resources and connections to revive the license for Stearns and entered a partnership with her and the former sheriff’s son.

“To boil it down to its essence, three individuals who were never asked for and never provided a penny in start-up money and who never participated in any way, shape or form in presenting or processing any of the numerous applications to a wide variety of public agencies involved in the regulation of a card room, are claiming that a partnership they formed has an ownership interest in the business,” Kouretas’ attorneys state in court filings.

That claim, the attorneys say in the documents, is a “wildly unsupported theory.”

‘Best man for the job’

The dispute is rooted in a December 2004 fire that destroyed an old card room on El Camino Avenue called Duffy’s.

Stearns, now 94, owned the card room when it burned and retained control of the license, which can be lucrative and difficult to obtain. The Sacramento City Council allows four card rooms in the city and killed a measure in 2011 to add a fifth city license.

But Stearns didn’t have the resources to rebuild and began talking to Perez, who had visited her card room, about helping her out. Over the course of 10 meetings, they struck a deal, according to Perez’s lawsuit: Perez would get a 60 percent share of the business in exchange for coming up with the necessary funding; Stearns would get 40 percent and turn the business over to Perez in five years.

Perez says he saw the deal as a way out of the bail bonds business, and that he found two willing investors in his retired father, Pedro Perez, 66; and Hurley, a 45-year-old real estate salesman.

Eventually, Hurley said, he spent $260,000 of his money buying poker chips, tables and other items he thought would be used at Casino Royale. The men said they believed that they needed only to get the gambling license renewed and then would be off and running.

They hired an attorney, eventually paying him $15,000. But, after deadlines to file on the renewal passed without any activity, they realized they needed more muscle, according to Perez’s lawsuit.

By then, Kouretas had contacted Stearns, inquiring about helping her renew the license, and by October 2006 Stearns, Perez and his partners met with Kouretas, court documents state. Neither side’s filings reflect why Kouretas contacted Stearns initially, but both sides agree Kouretas later met with her and the would-be partners.

The Perez group contends they met to hire Kouretas as their lawyer; Kouretas’ court filings say he “clearly explained that he entered into no agreement with anyone at that time, but simply obtained information.” Both sides agree nothing was ever put into writing.

“Kouretas told them that there was ‘huge potential’ for them to make money,” Perez’s court papers state. “He bragged that he was the ‘best man’ for the job as he had worked with card rooms and been involved with many legal issues concerning gambling establishments, including Cache Creek.

“He boasted that he was an expert in the field, knew many politicians and had a personal relationship with the city manager.”

Court papers show that Kouretas eventually enlisted the aid of some major players to help get the license approved – including Lou Blanas, who had retired as sheriff in July 2006; former City Manager Bob Thomas; and political consultant David Townsend. A question-and-answer session for the public, featuring Sacramento City Councilman Steve Cohn, was organized, and Kouretas’ team “contacted neighbors of the card room, sent out mailers and even contacted the city’s police department to obtain support,” his lawyers wrote in court papers.

Kouretas’ efforts paid off. The city issued a license for Casino Royale in March 2008 and, according to Perez, Kouretas called him with the good news.

“We got your casino,” the lawsuit quotes Kouretas as telling Perez.

But Perez and his partners claim in the suit that, unknown to them, Kouretas had formed a partnership with Stearns and William Blanas. They allege that, without their knowledge, Kouretas withdrew applications that Hurley and Pedro Perez had filed with the state gambling commission to be listed as “key employees” of the card room.

Kouretas contends in his court filings that the new casino intended to hire Hurley and Rafael Perez only as independent contractors.

William Blanas, who is not named in the lawsuit, did not respond to requests for comment. His father, Lou Blanas, said he didn’t know the plaintiffs and has no role in the card room, although he says he “attended a couple of City Council meetings” when the card room was on the agenda. “My son paid for his share,” the former sheriff said.

“I have nothing to do with it,” he added. “That’s my son’s deal. I have no interest in it.”

From the day the casino opened in September 2008 until March 2010, Perez’s lawsuit claims, Perez and Kouretas met multiple times and exchanged more than 155 phone calls, with Kouretas frequently assuring him that it would be just “a temporary formality” until he could transfer the casino ownership to Perez and his partners.

At other times, Perez recalled, Kouretas would say they would talk about it later, but later never came.

Perez said he frequented the casino daily at first, and that Kouretas tried to placate him by giving him an SUV and substantial sums of money that were described as Perez’s cut of the card room’s profits as a “shareholder.”

“The first payment was $2,500, and the payments quickly became $5,000 per month, sometimes as much as $10,000,” Perez’s court documents state.

But Perez maintains he never could get an answer about when he would formally become an owner; he said the last straw came in March 2010 when they met for lunch and Kouretas produced a contract carving out a position for Perez as a “consultant” to the card room’s ownership.

“At that point, plaintiffs realized that Kouretas had stolen their business opportunity from them while purporting to act as their attorney,” Perez’s lawsuit states.

A bruising battle predicted

Since the case was filed three years ago, it has devolved into a free-for-all, with claims of fraud and legal malpractice.

Kouretas has portrayed the trio suing him as men without the cash, know-how or political pull to get a card room license approved, and contends he entered into his own deal with Stearns and used people with influence to win approval for the casino.

He also maintains he was subjected to demands for cash, including one by Hurley who “wanted a minimum annual salary of $85,400 plus travel expenses for the first year ($65,000 plus $10,000 World Series of Poker entry fee plus $10,400 in poker chips).”

Tania Colderbank, the Sacramento attorney representing the trio, accused Kouretas of ethical lapses by continuing to contact her clients after they hired her and advised him they no longer considered him their lawyer.

“I would also suggest you tender this claim immediately to your professional malpractice carrier, if you have not done so already,” she wrote in an Aug. 24, 2010, letter to Kouretas that she attached to the lawsuit. She filed court documents quoting Kouretas as boasting to a friend that the casino “kinda just fell into my lap.”

“How much did that set you back?” the friend asked Kouretas, according to the allegations.

Kouretas “smirked and said ‘I stole it,’” the documents state.

Initially, it appeared as though Kouretas would win a quick victory. Before Perez’s attorney could even reach Stearns or try to depose her, Kouretas succeeded in getting the suit dismissed.

Kouretas’ lawyers argued the suit was a SLAPP suit – a “strategic lawsuit against public participation” designed to impede Kouretas’ right to advocate before public agencies for licenses and permits. Judge Shellyanne W.L. Chang agreed and threw the case out in March 2011, awarding Kouretas his attorneys’ fees.

The judge concluded that the allegations Perez’s attorney filed in the lawsuit “do not involve any conduct which was ‘illegal as a matter of law’” and that the three men had failed to meet the burden of showing they had a “probability of prevailing in the case.”

Perez and his partners retained Jay-Allen Eisen, a prominent Northern California appellate attorney, and appealed. On Sept. 4, a three-judge panel of the 3rd District Court of Appeal reversed the dismissal and sent the case back to Superior Court, concluding that Chang erred in deeming Perez’s complaint a SLAPP suit. Instead, the appellate court declared that “a complaint against a former attorney alleging negligence and conspiracy to commit fraud does not involve the exercise of protected petitioning activity ...”

The appellate court also vacated the fee award to Kouretas, and instead said Colderbank could seek attorneys’ fees in an amount the lower court decides is appropriate. The panel ruled that Kouretas failed to prove he was not the attorney for the three men and that “we must accept plaintiffs’ contentions that such a professional relationship did exist.” The 10-page opinion was authored by Associate Justice Harry E. Hull Jr., with Presiding Justice Vance W. Raye and Associate Justice Ronald B. Robie concurring.

Now, the case starts over, and Colderbank predicts it will be a lengthy, bruising fight.

Meanwhile, the casino inside the Red Lion Hotel at 500 Leisure Lane appears to be doing a booming business offering pai gow, poker and blackjack to gamblers gathered around about a dozen felt-covered tables. At midday Wednesday, there were roughly 50 people trying their luck.

Neither Blanas nor Kouretas was present. Nor was Stearns, who may be a key to untangling who the rightful owners of the casino are, and she isn’t talking.

Reached at home last week, she suggested asking the lawyers what the fuss is all about.

“I don’t really know anything about it,” she said.

Call The Bee’s Denny Walsh, (916) 321-1189.

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