U.S. Court of Appeals Reverses Weinstein Decision in DiCristina Case

Scales_of_justice22On June 19, 2013, the U.S. Court of Appeals, Second Circuit, heard oral arguments in the case U.S. vs Lawrence DiCristina. Having reserved its decision at the time, today their opinion was published and the decision of the District Judge, Jack Weinstein, to set aside the jury verdict, was reversed by the appellate court.

Lawrence DiCristina was charged with operating an illegal gambling business by running a Texas Hold’em poker game in a warehouse in Brooklyn, New York. Weinstein had allowed the district court case to proceed to verdict, having denied DiCristina’s motion to dismiss based on testimony regarding the significance on the skill vs chance argument of Texas Hold’em Poker.  Following a guilty verdict for violations of the Illegal Gambling Business Act of 1970 (IGBA) and conspiracy to violate IGBA, DiCristina renewed his motion to dismiss and after reconsideration, Jusge Weinstein ruled that the jury verdict be set aside, finding that Texas Hold’em Poker was not covered by IGBA by virtue of the skill of the game predominating over chance.

The government filed a timely appeal in the Second Circuit and the courts opinion was released today. The complete opinion can be seen here.    Continue reading

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New Jersey Gets 37 Timely Applications for Internet Gaming

It’s been confirmed that 37 applications have been filed have been filed in New Jersey with hopes to take part in Internet Gaming, expected to launch later this year.  The following information was received from the N.J. Division of Gaming Enforcement with respect to the deadline yesterday for filings that give operators the chance to take part in the initial launch in November:

The Division of Gaming Enforcement has completed a preliminary review of the applications filed by Internet gaming providers and Internet ancillary companies that met the July 29 filing deadline.

To date, a total of 37 applications have been received. Of the 37, three are letters of intent to conduct Internet gaming activity by previously licensed gaming companies. A breakdown by level of licensure is as follows:

21 – 92a Casino Service Industry Enterprise License, including letters of intent (CSIE)
12 – Ancillary Casino Service Industry Enterprise License
4   – Vendor Registrants

Descriptions for the levels of licensure can be found at: http://www.nj.gov/oag/ge/internetgaming_faqs.html.    Continue reading

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United States Appellate Court Hears Poker Case in New York

Wednesday in New York City, the U.S . Court of Appeals heard oral arguments in the US vs. Lawrence DiCristina appellate case.  This case is unique as it brings to the federal appellate level the question of whether poker is meant to be included under violations of the Illegal Gambling Business Act of 1970 (IGBA) definition of “gambling”. The question of “skill vs chance” as relates to poker, is an integral part of the case.

In the original case (Eastern District of N.Y.), Lawrence DiCristina was charged with violating IGBA for operating a home poker game in a Brooklyn N.Y. warehouse. Extensive evidence was presented during trial regarding the skill vs chance argument about poker, most notably from Dr. Randall Heeb. The jury was not permitted to consider that defense at the time however, and Judge Weinstein held his decision to be considered by the bench following the verdict, if necessary.  A jury in EDNY did convict DiCristina, but then Judge Weinstein set aside the verdict and found the skill vs chance argument to be compelling evidence that IGBA would not apply.

The government appealed Weinstein’s decision and this is the case now before the 2nd Circuit Court of Appeals. The governments position is that the skill vs chance argument is moot, that poker is gambling and qualifies therefore under IBGA.   Continue reading

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PokerStars Files Brief to Support Preliminary Injunction vs Atlantic Club

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.     Continue reading

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Atlantic Club Files Their Response, Asks for Restraining Order to be Vacated

On May 6, PokerStars filed a civil complaint in a New Jersey 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 issuance of that TRO, part of which is described below:

  • 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 enrichment 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 applied 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 fulfill its responsibilities to its employees, owners, or patrons and that the order is prohibiting the preparation 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.

 

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 application 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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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”.   Continue reading

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What’s Behind the UltimateBet tapes?

The following article was penned by guest author, Scott Bell, aka “ElevenGrover”, an expert on the UltimateBet scandal. Below, Scott explains the meaning of information made public in  secret recordings released  this past weekend.

The poker world received a jolt when recordings of former UltimateBet founders discussing internal cheating were made public. In the ensuing media maelstrom, the tapes confirm all kinds of things originally suspected, followed by calls for lawsuits and other appropriate punishments. Lost in the moment, is the meaning of the tapes and their reason for release. Before getting to that, we need to go back a few weeks/months/years.

The latest round begins with the formal start of online legal poker in Nevada at Ultimate Poker, a site begun by Station Casino owners. UP has no relation to UB, instead taking the name from the long-standing Ultimate Fighting brand. On the first day of live play, a poster on the 2+2 poker forum reported he could not create an account due to an error that read simply “iovation error”. Subsequent research determined one of UP’s licensed software providers uses Iovation technology. Iovation is a follow-up company created by UltimateBet founders when they spun off the poker site to a Canada corporation in order to take it public. Iovation is predicated on anti-fraud technology developed for UltimateBet but the company continued to provide normal development and maintenance for the poker site through 2006. Iovation technology resulted in a patent application/grant by CEO Greg Pierson and CTO Jason Dehaan.   Continue reading

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PokerStars Issues Statement Regarding the Litigation vs Atlantic Club

As reported this morning by Diamond Flush Poker, Rational Group U.S. Holdings (PokerStars) filed a lawsuit against the Atlantic Club Casino and its owners following the casino’s ‘purported’ termination of their contract to acquire it.  PokerStars asked the court for a temporary restraining order to stop the Atlantic Club from various steps that could be taken outside the realm of the purchase agreement.  That temporary restraining order was granted today.

Eric Hollreiser, Head of Corporate Communications of the Rational Group, issued the following press release on the subject today:

“The Rational Group (d/b/a PokerStars) today filed a lawsuit in New Jersey Superior Court seeking to restrain the sellers of the Atlantic Club Casino and Hotel from continuing to breach the purchase agreement which was entered between the Rational Group and the seller (who are led by Colony Capital LLC) in December 2012.  This step has been taken to protect Rational Group’s rights and interests under the purchase agreement and reflects the Group’s desire to complete the acquisition of the Atlantic Club.

Judge Raymond Batten granted our request for a temporary restraining order (TRO) shortly after the complaint was submitted, confirming the continuation of the existing agreement.

The Rational Group has funded Atlantic Club shortfalls throughout the winter season since October 2012 preventing its bankruptcy and the loss of over 1,800 jobs.

The Rational Group remains entirely committed to resolving this situation, and to its investment in New Jersey, while it continues to diligently work on completing the required licensing process.”

Diamond Flush Poker reached out to Michael Frawley’s public relations team and was told that:

“Mr. Frawley has no further comment other than the statement he made on May 1, 2013″. 

Frawley is the Chief Operating Officer of the Atlantic Club and a defendant in the suit.

A court hearing as to the order to show cause is scheduled on May 17.

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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.   Continue reading

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Deal or No Deal? Is the Contract for PokerStars to Acquire the Atlantic Club still Valid?

During the last week, the Wall Street Journal and the New Jersey blog ‘MeadowlandsMatters’ have both reported that, according to the Atlantic Club Casino and other sources, the agreement between PokerStars and the casino in Atlantic City was terminated by the Atlantic Club when the license to operate a New Jersey brick and mortar casino had not been granted to PokerStars by April 26.

In December, PokerStars confirmed that they had an agreement in place to acquire the struggling casino, and at the same time, save almost 2000 jobs that were in jeopardy.  Sources close to the situation confirmed that PokerStars subsidized the casino with payments totaling millions of dollars during the fall and winter months to keep it operating and to help keep those jobs, while the Casino Control Commission and the Division of Gaming Enforcement conducted their due diligence process to review the application to acquire the casino.  That approval process could take as long as 120 days from the date the application is considered complete, which the commission confirmed happened on April 10, 2013. Presumably both sides were aware prior to April 26 that the license could not be approved by the April 26 date reportedly in the contract.

Michael Frawley, Chief Operating Officer of the Atlantic Club, offered the following statement dated May 1, via the casino’s public relations firm:

“Our purchase agreement with PokerStars has been terminated in accordance with its terms. The Atlantic Club remains committed to the aggressive pursuit of the opportunities presented by online gaming.  The advent of New Jersey’s online gaming legislation has changed Atlantic City’s future for the better and The Atlantic Club is absolutely going to be a part of that future.

In the interim, our intentions are to maintain our year over year market share gains through our unique brand positioning as ‘the best deal in Atlantic City’.   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.”

Frawley has not returned phone calls this week and through his P.R. firm, has declined to take part in an in-person interview.

Eric Hollreiser, Head of Corporate Communications at PokerStars offered the following comment late on May 2:

“In December 2012, The Rational Group (d/b/a PokerStars) entered into a purchase agreement for the acquisition of the Atlantic Club.  Several days ago we received a purported notice of termination of this agreement from the current owners of the Atlantic Club. It was the Rational Group’s expectation and understanding, based on the ongoing dealings between the parties, that the closing date would be extended to allow the transaction to be completed.  The Rational Group remains entirely committed to resolving this situation and to our investment in New Jersey”.

How Important is the Date April 26?

Many questions have arisen about how the “hard date” of April 26, 2013 could be part of a contract that might allow an out for one of the parties to terminate the agreement.  The regulations for licensing in New Jersey are public and it is clear in the statute  that a person or entity that is attempting to acquire a casino ,in whole or in part, may not “close” on the transaction until such time that an Interim Casino Authorization (ICA) is granted.

It is well known that PokerStars applied for that license, which is now pending before the Casino Control Commission. According to the Commission, although PokerStars submitted their application months ago, it was not deemed a “completed” application until April 10. That is the date in which the clock would begin for the Division of Gaming Enforcement to conduct their investigation (they have a 60 day window from that date to accomplish that and then submit their recommendations to the commission) and then the Commission has up to an additional 30 days to render its decision as to the granting of the license. Therefore the deadline for the license decision would be in August.

What this author has also found in the regulations however, is that a provision date in a contract which stipulates a settlement or closing date that is less than 121 days from the date of a completed application makes that provision void. As taken from Article 6B, 5:12-95.12, a, of the Statute:

the contract shall not specify a closing or settlement date which is earlier than the 121st day after the submission of a completed application for licensure or qualification, which application shall include a fully executed and approved trust agreement in accordance with section 5 of this 1987 amendatory and supplementary act. Any contract provision which specifies an earlier closing or settlement date shall be void for all purposes”.

Therefore, if, as has been reported, the termination by Atlantic Club was sent based on the fact that the closing had not taken place by April 26, that is not a legally valid reason to terminate the agreement.  Furthermore, although the contract terms have not been made public by either side, it is quite common, if not almost mandatory, to include a “severability clause” into any such contract. That would mean that, if the alleged terms that caused the termination letter to be sent were based on a provision that was not in keeping with law, that provision being struck would not stop the rest of the contract from being deemed intact.

This author is not an attorney, but even though the Atlantic Club has said the deal is terminated, it would appear that there could still be a question about whether there is a legal, binding contract between the parties to complete the acquisition. As long as a severability clause is present in the contract, removing the provision that gave a deadline of April 26 would not, nor could not, deem the rest of the contract invalid.

While there has been a lot of speculation as to what may have precipitated this breakdown in the agreement, no one at either the Atlantic Club or PokerStars say that this has anything to do with any issues surrounding PokerStars receiving approval for an Interim Casino Authorization in Atlantic City. Sources within Atlantic City say that there have been no indications made to either side that such a license would not be approved.

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

 

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