The Stars Group, parent company of PokerStars, announces that an $870m (£687m) judgment granted against it by the US state of Kentucky has been reversed on appeal. However, the company expects that the state will continue its pursuit of the judgment, which was based on Stars’ availability to Kentucky residents before April 2011.
An $870 million judgment against the parent company of PokerStars, Canada’s The Stars Group Inc., has been reversed in its entirety by the Kentucky Court of Appeals. The judgment, granted in 2015 and based on a lawsuit originally filed back in 2010, sought to extract significant penalties from PokerStars Kentucky-facing operations from the time the US’s Unlawful Internet Gambling Enforcement Act (UIGEA) was passed in late 2006 until PokerStars was forced to leave the entire US market as a result of the US Department of Justice’s “Black Friday” crackdown in April of 2011.
The Stars Group announced the reversal of the original 2015 judgment in a corporate statement. The company cited the appellate court’s rationale for dismissing the case as follows: “Allowing a complaint, like the one put forth by the Commonwealth, to move forward would lead to an absurd, unjust result.” The original judgment was issued by Franklin County (KY) Circuit Court Judge Thomas W. Wingate, who initially granted a judgment in Kentucky’s favor for $290 million, then trebled the damages to $870 million by invoking an antiquated, century-old anti-gambling statute that allowed third parties to recover losses incurred by gamblers.
“We applaud the decision of the highly-respected three-judge panel of the Kentucky Court of Appeals,” stated Marlon Goldstein, The Stars Group’s Executive Vice President & Chief Legal Officer. “The merits of the case prevailed, and we look forward to putting this matter behind us as we sharpen our focus on executing on our growth strategy going forward.” The Stars Group statement nonetheless indicated the company’s belief that Kentucky will continue pursuing the legal battle, either petitioning the Court of Appeals for a rehearing or seeking discretionary review of the appellate court’s decision.
Kentucky’s cash-grab attempts
The lawsuit filed by Kentucky against PokerStars and its original corporate parent, Rational Group. was pitched to the administration of former Governor Stephen Beshear by the Kentucky law firm of Deckard & May, which still stands to grab a 25% contingency fee from any judgment or settlement it could extract from PokerStars. The lawsuit was judge-shopped into the court of the low-level Judge Wingate, who had a previous history of insensate rulings favoring Kentucky’s dirty politics and self-serving interests.
An in-state feature examining that seedy insider-politics history noted that the Kentucky Club for Growth described Wingate as “one of the most politically stilted judges in Kentucky,” and that his rulings were often overturned on appeal. Judge Wingate was also responsible for approving Kentucky’s bizarre 2008 attempt to seize 141 international domains that were connected, more or less, to online gambling. Eventually, the US’s DOJ weighed in on that case, advising Kentucky that it had no valid claim to seize the targeted domains.
The lawsuit brought by Deckard and May (lead attorneys William H. May III and Jim Beckard were both previously high-ranking political officials in the state), was even more outlandish in how it calculated the damages suffered by PokerStars’ former 34,000 or so Kentucky players. Based on data willingly provided by Amaya (now The Stars Group), which purchased PokerStars in 2014, Kentucky calculated its claims on a hand-by-hand basis, meaning that over half of every cash-game pot and roughly 90% of all tournament buy-ins was “lost” by somebody, thus allowing any third party, such as Kentucky, to step in and make the claim.
This allowed for the original $290m (£229m) claim, which was later trebled to $870 million, even though PokerStars’ revenue from late 2006 until April of 2011 was only $18m (£14.2m).
To add insult to injury, the Kentucky lawyers behind what amounted to a legal-extortion scheme filed a motion in 2016 to bypass the Kentucky Court of Appeals, hoping to move it directly to the Kentucky Supreme Court, simply because the $870 million judgment figure (less the 25% contingency fee) was of value to Gov. Beshear’s budget plans. Instead, legal process prevailed… at least temporarily.
Added Complexities for Stars’ US Situation
Despite the ludicrous nature of Kentucky’s claims, The Stars Group could not simply ignore the case, the initial $870 million judgment, or its potential impact on Stars’ efforts to re-enter the US. Despite establishing toeholds in New Jersey and (soon) Pennsylvania, PokerStars has been targeted in other US states that are considering online gambling with suitability and “tainted assets” restrictions. Any attempt by PokerStars to ignore the Kentucky situation, ludicrous or not, would have provided extra ammunition to its foes in those other states.
The sheer immensity of the potential award also created problems. Based on Stars’ revenue computations and the nature of the antiquated statute behind Kentucky’s claims, both sides of the PokerStars’ sale in 2014 by Rational Group to Amaya made contingency plans for the worst legal outcome. The original PokerStars ownership, including father-and-son co-founders Isai and Mark Scheinberg, agreed to allow $300m (£237m) of the original deal to be held in escrow pending the resolution of the Kentucky case; $100m (£79m) of that was put up as a supercedeas bond to allow the appeal to proceed.
However, the trebled damages took Amaya/The Stars Group by surprise. It raised the separate possibility that TSG would attempt a clawback action against the Scheinbergs and other original PokerStars owners. The appellate reversal makes such a secondary clawback action far less likely, even given the expected continuing actions by Kentucky.