N.J. Judges Reaffirms TRO in PokerStars vs Atlantic Club Case

Casino Motions for Emergency Hearing

Sources have confirmed that on May 7th, an emergency hearing requested by the Atlantic Club, defendants in the matter, was held by telephone between the judge in the case and the attorneys for both parties.  Following the civil suit filed by plaintiffs PokerStars earlier last week, the Atlantic Club filed a motion requesting emergent relief, stating that the temporary restraining order issued in the case, placed against the casino, was causing them a severe hardship.

Reportedly the defendants claimed that the judge’s ruling for the restraint was inappropriate, that his ruling would have needed to be based on “irreparable harm” to the plaintiff’s, and that no such potential harm for PokerStars existed. Atlantic Club lawyers were reportedly emphatic that no breach on their part had been spelled out in the complaint that requested the restraining order and that they were within their rights to terminate and to expect the $ 4 million termination fee to be paid. They told the judge that restraining them from transferring any assets, no matter the size, was damaging them, even for the 10 day period.  They cancelled the contract because they had the right to do so and now, stopping them from further entertaining any other offers, even for a 10 day period, would put them behind the curve of their competition to get an online site functioning by November 2013. The defendants attorneys also told the judge that he should not have issued the restraints ‘ex parte’,that the Atlantic Club should have had notice to present their position, that there was no imminent circumstance happening that could not be undone. The above points were the basis for the “emergent relief” request to vacate the TRO.

PokerStars pointed out however, that there is a provision in the original contract that any breach in the contract would have been deemed to be “irreparable harm”.  

The plaintiffs reinforced with the judge that the Atlantic Club allegedly told PokerStars, following the termination letter, that if PokerStars were to pay them an additional, immediate $ 6 million, that the deal would be extended for a 10 day period, however the Atlantic Club would  also be free from the prior encumbrances in the original contract of not being permitted to speak to other suitors, and that the plan of the casino was to capture an additional $ 10 million from PokerStars and entertain, and perhaps strike a deal with, other offers. By the time this litigation would have come to the court without the injunction, if the casino would have (re)sold their property to another entity, it would have become even more complicated.  There was some outrage by the plaintiffs that the Atlantic Club were firm about not promising to wait just 10 days more without selling the property until a hearing could be held and this was likely indicative of what their plan was even before the termination.

Both sides apparently have a different view of what the “outside date” of April 26 means in the original contract, and both sides had opposite renditions of what transpired between the parties in the weeks leading up to the termination. This information will be covered in more detail during the hearing.

The judge apparently felt most strongly about the point of the “10 day/$ 6 million but free to get another buyer” issue. Sources say that the judge found the casino to be a “unique property”, unlike any normal real estate transaction, and one that has an impact on New Jersey and its economy.   The judge also said he relied on the papers when reviewing the case, the original contract and the exhibits, rather than the complaint itself, because the papers speak for themselves. He also found statute provisions from New Jersey’s casino law and provisions in the contract, including a severability clause, to be relevant when issuing the restraint. He further found, based on language in the contract, that both parties, even in November and December 2012, had contemplated that the process for the ICA in the case would be lengthy. The judge recognized that the possible value of the Atlantic Club could have changed following the enactment of the IGaming bill recently passed but that a third party entering a contract to purchase the Atlantic Club prior to a hearing on this matter would only serve to further complicate the matter.

The judge found that the temporary restraining order will remain in effect until the hearing and denied the casino’s motion.  He offered to move the hearing (and the responses due from both sides prior to that) forward a few days. The parties did agree to move the hearing to May 14, but then later reverted back to the original May 17th date.  The injunction will be further decided at that time.

On May 6, PokerStars filed a civil complaint in a New Jersery Court and requested a temporary restraining order to bar the Atlantic Club from attempting to sell the casino to another party.  The judge in the case did issue that restraining order, in effect keeping the purchase contract in effect until a hearing could be held. The Atlantic Club the next day filed a motion for immediate relief, saying the judge’s actions were inappropriate and asked the court to lift the restraints of the TRO. That motion hearing was held via teleconference between the parties with the judge ultimately ruling that the TRO was proper and would stay in effect pending it’s scheduled hearing. The Atlantic Club has filed their response to the complaint, part of which is described below:

The Atlantic Club (defendants) make the following assertions in their brief as to why the TRO should be vacated (partial list only):

The “outside date” in the contract is not a closing date and is not subject to the statute mentioned that would make it void. Atlantic Club alleges that PokerStars misled the court to believe that the provision in the contract violated the statute.

PokerStars are not “innocent victims” that are being taken advantage of by defendants in order to pocket the advanced monies. They had experienced lawyers aiding in contract negotiations and they are not innocent by virtue of assuring defendants that they would be confident to get approval for a license in NJ without undue delay. However, as stated by the AGA brief filed in March 2013 which characterized PokerStars as “chronic lawbreakers”, the delays in the approval process were inevitable and raise doubts that PokerStars would ever secure a license. The brief states that the information contained in AGA’s brief caused them serious concern about PokerStars ability to obtain a license.

Their can be no claim of unjust enrichments since PokerStars knew that Atlantic Club could retain any advances made to the casino if there was a termination of the contract.

The defendants will be irreparably harmed if the TRO is not vacated as any delay in the ability to discuss purchase options with other potential suitors would be crippling to its chance to take part in the online gaming now approved in the state.

PokerStars did not demonstrate immediate and irreparable harm to cause the TRO. The brief says that PokerStars knew that the $ 11 million was to be forfeited if the contract were terminated, as well as the $ 4 million now owing, and they took that risk.

Eric Matejevich, Chief Financial Officer and Senior Vice President of Resorts International Holdings (for purposes of this article “Atlantic Club”), asserts that he is familiar will all aspects of the company and has been a part of it since its inception. He admits to being one of the owners and claims to be familiar with all aspects of the discussions, negotiations and other issues surrounding the deal.

In his affidavit he claims:

Atlantic Club hired an investment bank in April 2012 to sell the casino. By September of 2012, having been unsuccessful in selling the casino, the owners decided to “press for the passage of legislation in New Jersey that would permit online gaming”.

Matejevich became aware (sometime after September 2012) that PokerStars was interested in entering the US market,and had a telephone call with Isai Scheinberg, founder of the company, who “expressed interest in a potential acquisition” and both sides agreed to continue discussions.

He was aware that PokerStars had offered poker in the US despite “federal law prohibiting such activity”.

He claims to not have known or have been advised by anyone that Scheinberg or anyone else at PokerStars had been charged by the US government.

November 2012 a term sheet was signed which called for advance payments by PokerStars to cover shortfalls by Atlantic Club while due diligence was in progress, the amount of which was to be appied against the purchase price.

Matejevich claims that everyone was on board with the fact that if PokerStars was unable to get a license in a timely fashion, that the casino would be able to pursue other offers before the introduction of gaming in NJ.

He admits by February 1, 2013, PokerStars had reached the cap of funding the shortfalls of the casino allowed by the contract ($ 11 million)

He says that the casino agreed to cooperate in building a poker room, which PokerStars was funding and says the casino would never have began those renovations had PokerStars not requested it.

He claims that he had discussions with DGE in February 2013, and the Division said that PokerStars was not submitting the requested information in a timely manner. He further claims that PokerStars told him they were “stalling” with respect to funding commitments.

In March 2013 he notes the press had widely reported the AGA motion to participate in the licensing hearing of PokerStars.

In late March he claims to have received a call from DGE advising that the application from PokerStars was not complete and that it would take 90 additional days to issue findings. It was at this time, according to Matejevich, that the Atlantic Club began evaluating the information put out by the AGA and considered the termination clause in the contract.  He alleges to have told PokerStars that this was under consideration.

On April 26, Matejevich says he received a call from Scheinberg who claimed that PokerStars had a 90% chance of being successful in licensing and further if the Atlantic Club terminated that the termination fee of $ 4 million would not be paid and litigation would ensue.

He discusses a letter received from PokerStars following the termination in which PokerStars “threatened” to tie the casino up in litigation.

He claims the impact of the restraining order does not allow the casino to fullfill its responsibilities to its employees, owners, or patrons and that the order is prohibiting the prepartation of the Atlantic Club for the entry to the online gaming market.

He claims the media coverage has caused significant uncertainty to employees and customers.

Missing from the filings are any word at all from Atlantic Club Chief Operating Officer William Frawley.

 

Two previous directors of the Division of Gaming Enforcement and two former chairmen of the Casino Control Commission (now in private business within the gaming industry, not employed by the state) issued statements asserting that it is common for agreements to acquire casinos in Atlantic City to have an “outside date” or “drop dead” date within its provisions. Both say that, in their experience the waiting period that is discussed in statute N.J.S.A. 5:12-95.12(a) only is there to bar parties from closing prior to 121 days after a completed appplication is filed, and in their experience, if the parties agree to abort the contract via an “outside date” then that would be of no interest to regulators.

Finally, one of the attorneys for the Atlantic Club, who is in New Jersey and has been involved in casino transactions for several years, filed an affidavit that he was retained by the Atlantic Club to aid in regulatory issues surrounding the sale, but had little knowledge of PokerStars, although he was “generally aware” that they had a prior issue with the US DOJ. It was only after the press reports in February 2013 and later with the AGA brief being filed that this attorney for the defendants researched public documents to become familiar with the civil case against PokerStars (now settled) and the criminal indictments against individuals. According to his filing, he found the information “troubling”.

The hearing regarding the Temporary Restraining Order is scheduled for Friday May 17.

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