Breaking: PokerStars Files Suit Against Atlantic Club, Cites “Bad Faith” and Requests TRO

 UPDATED 2:30 p.m. May 6, 2013: TRO Granted.  See bottom of page.

This morning in a New Jersey courthouse, Rational Group  (PokerStars) filed a lawsuit against Resorts International Holdings, RIH Propco, Eric Matejevich, Irwin Apartment Trust and Michael Frawley  (Atlantic Club) claiming that the defendants acted in bad faith by executing a termination of their contract. PokerStars is asking the court for a temporary restraining order.

The requested restraining order would preliminarily :

1. Restrict the Atlantic Club from selling, offering to sell, etc, the Atlantic Club to anyone other than Rational

2. Restrict the Atlantic Club from continuing to breach the purchase agreement between the parties until a new closing date is set based upon the buyer obtaining their Interim casino Authorization

3. Declare the termination notice issued by the Atlantic Club on April 27 to be void.

4. Reinstate the Purchase Agreement according to present terms until expiration of the review period the Division of Gaming Enforcement and the Casino Control Commission in New Jersey for the ICA

5. Impose a lien on the assets of the Atlantic Club in the amount of monies already paid

6. Impose a resulting trust on all assets of the Atlantic Club in the same amount.

7. Prohibit the Atlantic Club from terminating the Agreement in any manner

8. Other further relief that the court determines to be fair.  

It’s been reported that on April 27, the Atlantic Club sent a termination letter to PokerStars, cancelling their contract for sale of the casino.  The basis was believed to have been due to a provision in their contract that required closing on the sale to occur by April 26, 2013.

The actual termination does in fact reference the fact that closing was not executed by said date.  The letter references a clause in the original contract (7.1.b) that states:

Termination of the agreement may happen at any time prior to the closing with respect to sections 7.1.b thru 7.1.f. by written notice by the terminating party to the other party.

7.1 (b)The sellers representative or buyer, if the transactions contemplated hereby shall not have been consummated on or prior to the outside date, provided, however, that the right to terminate this Agreement under this Section 7.1.b shall not be available to any party whose action or failure to act has been the primary cause of or resulted in the failure of the closing to occur on or before the outside date of such action or failure to act constitutes a breach of this agreement.

Diamond Flush Poker has already reported that such a clause with an “outside” date for closing in less than 121 days from when a “completed” application were filed, would, according to statute, be considered void.

There is an additional stipulation in the contract that upon termination, PokerStars would be required to pay an additional sum of $ 4 million, within 2 days of the termination, to the seller and that the seller would be able to retain all advances made to the company prior to that time.

Documents say that PokerStars has already paid to the Atlantic Club a sum of $ 11 million since it entered the agreement, which was requested by the Atlantic Club to keep it from filing bankruptcy.  The additional $ 4 million now requested by the Atlantic Club would bring the total payments to $ 15 million, the purchase price for the property.

Documents further say that Atlantic Club was aware in late March (having been advised directly by the DGE)  that the ICA would not be granted to PokerStars before the date of April 26, and that DGE would require at least 90 more days to act on the ICA, but told PokerStars (in writing) that they were still committed to assist PokerStars  “using their best efforts to obtain…the interim casino authorization from the DGE and the CCC as promptly as practical”.

According to documents, the DGE requested further license information from PokerStars on approximately April 1, and on or about April 11, PokerStars was advised by DGE that their application was now considered complete.  Numerous conversations between PokerStars and the Atlantic Club took place during the weeks preceding the termination, where each party was kept abreast of the status of the application.

According to the lawsuit, the following timeline reflects some key points:

On April 23, PokerStars requested a formal extension of the contract terms and at the same time, offered to place an additional $ 7 million into an escrow account to cover all Atlantic Club’s past and current worker compensation claims, a provision that was not part of the original contract.

On April 24, PokerStars confirmed to Atlantic Club that the DGE request for additional documentation had been completed.

On April 25, PokerStars met with DGE and the same day advised Atlantic Club (Frawley) about the status of the ICA. That same day a PokerStars attorney was advised that Atlantic Club did not accept the offer for an extension, including the extra $ 7 million in good faith payments to cover an Atlantic Club liability not included in the original contract.

On April 26, counsel from Atlantic Club proposed that PokerStars “offer” to pay them an additional $ 6 million and the Atlantic Club would extend the contract for 10 days, minus their obligation to not speak to or solicit other interested buyers.

On April 27, the termination letter was sent from Atlantic Club to PokerStars.

On approximately April 30, PokerStars offered to make an additional payment of $ 4 million to extend the agreement until the ICA was granted. In addition, PokerStars offered to continue to pay all operating losses of the Atlantic Club throughout the extension period.  The offer expired with no reply from Atlantic Club.

Documents also show that PokerStars paid approximately $ 225, 000. towards a poker room at the casino and covering the initial costs of planning and design for other needed upgrades to the facility.

The next step would be a hearing date yet to be determined by the court.

UPDATE:  NJ Superior Court Judge Batten approved and signed the temporary restraining order today.   A hearing is scheduled for May 17, 2013.  Atlantic Club has until May 13, 2013 to file an answer, and PokerStars has then until May 15 to answer the Atlantic Club filing, if one is submitted. If the casino files no opposition to the order, the decision may take place based on papers and relief may be granted by default.

Diamond Flush Poker will continue to update this article as more information becomes available.

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5 Responses to Breaking: PokerStars Files Suit Against Atlantic Club, Cites “Bad Faith” and Requests TRO

  1. Hannes says:

    Yeah, seems all a bit dodgy. I don’t fully understand why the Atlantic now would not want to extend the waiting period a little longer if Stars is paying the operating losses as well?

    • Kevin says:

      Maybe the Atlantic thinks they can get themselves out of their current hole by doing online poker on their own. Maybe one of the big casino players in the AGA offered to partner with the the Atlantic in the online poker market. Or maybe the same casino offered a large lump sum payment to the Atlantic if they would terminate the contract with Pokerstars. Maybe some combination of all of the above.

  2. Peter Coster says:

    Personally, I’m hoping that Poker Stars gets screwed and lose millions, just like they stole from all the U.S. players. NJ needs to insert a “bad guy” clause to their existing law just like NV did. That would kick PS out of the game forever.

    • Diamond Flush says:

      Are you perhaps confusing PokerStars with Full Tilt Poker? AFAIK, PokerStars never has been accused of stealing anything from US players, in fact they paid US players post Black Friday in record time. It was Full Tilt Poker that kept players from more than $ 300million of their money when it came out that they didnt have the money. (FTP now is owned by PokerStars, but PokerStars had no interest in the “original” Full Tilt, in fact they were head to head competitors. PokerStars bailed out the customers of original Full Tilt when FTP was forced to give up their assets to the U.S. DOJ, PokerStars bought those assets and either paid “rest of world” customers directly for what FTP owed them or, for US customers, PokerStars paid the DOJ and the DOJ will be repaying US customers thru the remission process). Detailed information on all of this is available in articles here on this website.

  3. Bruce Yamron says:

    Sure seems like there are some very scared casinos operators in Atlantic City and they are doing everything they can to keep out some tough competition from PokerStars when online gaming begins. Is this the same Mike Frailey who has been praising Stars for the last 6 months ? Why is Atlantic Club now silent in responding?
    I do believe they were trying to make another deal that would keep PokerStars out of AC. Maybe the AGA is involved again in helping the Atlantic Club. A lot of politics going on here.