Following the Atlantic Club’s attempted termination of the contract with PokerStars through which PokerStars would acquire the casino, PokerStars sought immediate relief via a temporary restraining order to bar the Atlantic Club from nullifying the contract and seeking a new buyer. After the judge in the case issued the restraining order, the casino motioned for an immediate emergency hearing to lift the ban. That hearing was held by teleconference and the judge upheld his decision for restraint pending the formal hearing. The Atlantic Club then filed their brief on the motion and now PokerStars has also filed their brief for the court’s review. That brief is described below.
PokerStars asserts that the contract with the casino “expressly contemplates that the defendants will sell the Atlantic Club to plaintiffs as soon as the New Jersey Division of Gaming Enforcement and Casino Control Commission complete their 120 day review of plaintiffs’ application for an Interim Casino Authorization”.
Since the application by PokerStars is one that only requests injunctive relief, the brief claims that the casino’s motion opposing the “order to show cause” and to set aside the temporary restraining order fail to show any reason why the court should alter its original finding for the restraint.
The brief makes the following assertions:
- The defendants attempt to confuse the issues and “brazenly admit that they would otherwise market the Atlantic Club to third party buyers”.
- Defendants sole reason as to the harm that would result from the temporary restraining order being upheld was mentioned in the affidavit from the Chief Financial Officer of the Casino, Eric Matejevich, who stated: “the restraining order is preventing the RIH from fulfilling its responsibilities to its constituents, including the owners, management, 1743 employees, vendors and patrons of the Atlantic Club” but Matejevich never stated what those responsibilities were or how they are impacted.
- The fact that Matejevich certified that it is the casinos responsibility to its shareholders to review all the options, and that seeking a third party buyer would be an orderly process “vividly illustrates” why PokerStars is entitled to the TRO and preliminary restraints to prevent the irreparable harm that would befall PokerStars if the status quo of the contract was not maintained.
- While the defendants assert that they are being prevented from taking steps to prepare for online gaming like their competition, they would be able to do that by standing by their contract with PokerStars. The Atlantic Club did not, and could not, claim that the value of the their assets would lessen between now and the expected determination by August 2013.
- With the 121 day rule being in effect now following the application for the ICA being deemed complete, the latest date for the decision on the application would be August 2013, long before the earliest possible date for launch of igaming in New jersey (November 2013), giving the casino plenty of time to address any issues if the ICA were not granted.
- Matejevich had claimed that media coverage of deal has caused “significant employee, vendor and customer uncertainty” yet Michael Frawley (Chief Operating Officer of the Atlantic Club) stated in his press release of May 1: “The Atlantic Club’s 2013 revenue and net revenue trends are proof positive that customers are rediscovering us and our popularity is higher than ever”.
- The claim of their renewed popularity and revenue happened only because PokerStars had paid the losses suffered by the casino ($ 11 million).
- PokerStars have already paid $ 11 million in advances to cover the casino’s operating shortfalls, they agreed to an obligation to fund the $ 32 million dollar pension fund shortfall following the deal closure and its there is a provision in the contract that PokerStars would be notified of any intention of the casino to file bankruptcy proceedings once the original $ 11 million advance had been paid, giving PokerStars the option of again bailing out the casino, in effect have indemnified the loss of business during the license process, hence giving PokerStars a vested interest in continuing to fund the Casino until closing as long as the agreement is in place.
- PokerStars took a risk entering into the agreement with the defendants prior to the enactment of the igaming statute. Even though there was a chance that the Governor could veto the legislation again, PokerStars did not attempt to terminate the agreement to look for a “better deal”.
- The agreement is clear that the casino intended to sell the business to PokerStars and since the Casino Act requires that a closing of the deal may never be completed before an ICA is issued, the “outside date” or “drop dead” date cannot be enforced if it falls before the time of such statutory period as the 121 days. If the termination is based, as defendants claim, pursuit to the section which permits the parties to terminate “if the transaction contemplated hereby shall not have been consummate on or prior to the outside date”, the two dates, closing date (dependent upon DGE) and outside date (defined) are tied together. Because the transactions contemplated cannot occur without a closing, both provisions must be considered together. The interpretation by the casino is that PokerStars must complete the transaction by April 26. Completing the transaction means closing which would specifically prohibited by the casino act which requires no closing to take place prior to an ICA being issued.
- Defendants brief discusses matters, for example the position of the CFO that he may think that PokerStars is unlikely to be licensed, which are irrelevant to the motion for the restraint. The determination for a license remains with the DGE and the CCC and both entities have always been aware of issues raised by Matejevich and have given no indication that any past events would disqualify the buyers from being licensed.
Claims that sellers were unaware of any facts regarding PokerStars history are proved false by several examples:
- Michael Frawley forwarded a media report to PokerStars in December 2012 outlining PokerStars history
- Issues regarding the legal history of the company were discussed between the parties even before signing a term sheet.
- The credibility of the casino’s attorney that certified he was unaware of the magnitude of past and present legal issues for PokerStars is called into question since his own firm’s law blog contains an article dated Jyly 31, 2012, describing the settlement of PokerStars with the DOJ stating:
“By resolving the DOJ claims from the civil forfeiture actions, PokerStars will excite the online poker community. Not only are US and non-US players of Full Tilt Poker being compensated, but these leading brands are expressly preserved for the inevitable licensing by a federal or state-by-state-regulatory systems of online poker play. PokerStars now emerges as the brightest star of the on-line poker community.”
Defendants cannot wrongfully terminate the agreement without violating the covenant of good faith and fair dealing. The casino claims to have a good faith basis to terminate because they are concerned by “the prospect of a continued lengthy regulatory process with an uncertain outcome”, but were well aware of the likely delays in the ICA process, in fact memorializing them in the purchase agreement.
Defendants claim they only recently discovered irrelevant information about PokerStars yet they knew well in advance of the claims of recent discovery.
In an interview on March 21, COO Michael Frawley made the following statement when asked about the resistance from elements in the community to have PokerStars licensed and whether it was possible that Caesars was behind it:
“I believe the AGA, which certainly Caesars is a part of, probably has a little bit more of an agenda. PokerStars is the largest internet gaming company in the world, they’re a great company, their customers are absolutely loyal to the. I think it’s an issue before anybody makes a judgment, they should look at what ulterior motive should be behind it”.
If there is any potential harm to the casino by keeping the restraints in place, those would be far outweighed by the potential harm to PokerStars without the restraining order being in place.
The hearing to determine if a preliminary injunction shall be ordered is set for May 17.