## Facts

- Sydell R. Kraft and related corporations involved in gaming devices sought Nevada licenses to manufacture, distribute, and operate slot machines.
- Nevada Gaming Control Board (GCB) members and a GCB employee investigated and evaluated the applications and made recommendations to the Nevada Gaming Commission, the ultimate licensing authority.
- In 1985, after a public meeting raising concerns about unlicensed activity, shipment of an approved machine with an unapproved modification, and the suitability of Kraft’s partner and business associate Howard Levin (including alleged gambling debts and associations), the state issued only a one-year limited license.
- Before expiration of the limited license, plaintiffs applied for more permanent licensing; the GCB again raised concerns centered on Levin’s suitability.
- Plaintiffs restructured ownership and withdrew certain applications to reduce Levin’s formal role, but the GCB recommended denial, citing concerns that Kraft intended to maintain business associations with Levin and entities previously viewed as unsuitable.
- Plaintiffs alleged the recommendation and resulting denial stigmatized them, harmed future business prospects, and effectively penalized Kraft for her intimate relationship with Levin.
- Plaintiffs sued under 42 U.S.C. §§ 1983, 1985, and 1986 (and other theories), asserting procedural due process violations (property and liberty interests) and infringement of freedom of intimate association.
- The district court granted summary judgment for defendants on immunity and merits grounds; plaintiffs appealed.

## Issues

1. Whether applicants had a constitutionally protected property interest in renewal or continuation of a one-year limited Nevada gaming license.
2. Whether the GCB’s statements and actions amounted to a deprivation of a protected liberty interest by stigma plus alteration of legal status or foreclosure of occupational opportunity.
3. Whether adverse licensing action tied to concerns about Kraft’s partner and associate violated the First Amendment right of intimate association.
4. Whether defendants were entitled to qualified immunity on the federal civil rights claims.

## Decision

- The Ninth Circuit affirmed summary judgment for the defendants.
- The court held plaintiffs had no protected property interest in renewal or continuation of the one-year limited license.
- The court held plaintiffs failed to establish a protected liberty-interest deprivation because reputational harm and increased difficulty in future licensing did not satisfy the “stigma-plus” requirement.
- The court held there was no unconstitutional burden on intimate association because the state’s action was directed to gaming-industry suitability and integrity, not punishment of a private relationship.
- The court concluded defendants were at least entitled to qualified immunity because no clearly established constitutional right was violated.

## Legal Principles

- A procedural due process property interest exists only when state law creates a legitimate claim of entitlement, not a unilateral expectation.
- When a licensing scheme confers broad agency discretion and treats licensing as a privilege, denial or nonrenewal of a limited or probationary license generally does not create a protected property interest.
- A due process liberty claim based on reputation requires “stigma plus”: stigma accompanied by an alteration or extinguishment of a legal right or status; reputational injury alone is insufficient.
- Government regulation may incidentally burden intimate relationships without violating the First Amendment when the action is directed to legitimate regulatory goals (such as suitability in a heavily regulated industry) rather than suppressing private association.
- Qualified immunity bars damages liability under § 1983 when the challenged conduct does not violate clearly established constitutional rights.

## Conclusion

The Ninth Circuit upheld Nevada gaming regulators’ denial recommendation and resulting adverse licensing decision, ruling that applicants for renewal of a one-year limited gaming license lacked protected property or liberty interests and that suitability-based scrutiny of a licensee’s close personal and business associate did not amount to unconstitutional interference with intimate association; defendants were therefore shielded by qualified immunity.


Kraft v. Jacka, 872 F.2d 862 (9th Cir. 1989)