Kentucky Supreme Court Rules Against PokerStars for $1.3B

Kentucky Supreme Court Rules Against PokerStars for $1.3B

More than a decade of court battles led to this decision. The Kentucky judicial system has been battling with PokerStars since 2008, though the acts in question happened even before then.

PokerStars won a big judgement in 2018 in the Kentucky Court of Appeals – almost exactly two years ago to the date – and hoped that was the end of the case. But the state appealed the case to its Supreme Court, and those justices handed down a ruling late last week that stunned PokerStars, not to mention its new parent company, Flutter Entertainment.

According to the ruling, PokerStars now owes the Commonwealth of Kentucky more than $870 million…plus interest.

Years and Years Ago

Let’s start at the beginning.

PokerStars was one of many poker sites that offered online poker to Americans, as well as to the rest of the world. American players were a big part of the poker boom.

In 2006, the United States government enacted the Unlawful Internet Gambling Enforcement Act (UIGEA). The law prohibited gambling businesses from knowingly accepting payments in connection with people betting or wagering via the internet in a way that violates federal and state laws. Much of the wording of the law focused on financial institutions facilitating payment processing to and from gambling websites.

Lawyers found different ways to interpret the law. Some, like those representing PokerStars, pointed to ambiguities in the law that seemed to lack specifics.

PartyPoker was one of several sites that withdrew from the US market after the enactment of the UIGEA. PokerStars, Full Tilt Poker, and others remained available to US players.

Governor Steve Beshear, father of current Governor Andy Beshear, was unhappy about Kentuckians being able to play on PokerStars and other sites. He went to the Franklin Circuit Court and obtained permission to seize 141 website domains that he deemed as gambling sites. He did so under the state’s Loss Recovery Act.

Essentially, Beshear claimed he could try to demand that all monies lost by Kentuckians on any of those sites be returned to the state under that Loss Recovery Act. And he did it based on the UIGEA.

Into the Court System

Ultimately, PokerStars and many operators fought the action under internet freedom claims. The Commonwealth of Kentucky did return the domains to the custody of their rightful owners, but state officials were not happy about it.

In 2010, the Commonwealth of Kentucky sued Pocket Kings (Full Tilt) and a slew of “unknown defendants.” Ultimately, PokerStars emerged as one of those companies. Kentucky claimed that PokerStars owed damages to the state for all rake collected from Kentuckians between 2006 and 2011.

When the US government seized PokerStars, Full Tilt Poker, UltimateBet, and Absolute Poker in April 2011 (Black Friday), it fueled Kentucky’s fire. As that federal scenario played out – with all except PokerStars folding – PokerStars stepped up, paid fines to the US government, and bailed out the players of the other three sites as an effort of good faith.

All the while, attorneys for Kentucky and PokerStars exchanged motions and did lawyerly things. The case ended up in the Franklin Circuit Court. Judge Thomas Wingate ruled for the Commonwealth of Kentucky, stating that a company like PokerStars that receives any part of a losing bet – even if just the rake – is liable for the full amount of those bets under the Loss Recovery Act of Kentucky.

That amount was $870 million ($870,690,233.82 to be exact) plus interest. At that time, the total exceeded $1.1 billion.

Appeal to the Appeals Court

PokerStars – officially Stars Interactive Holdings f/k/a Amaya Group and Rational Entertainment at the time – appealed the case.

On December 21, 2018, the Kentucky Court of Appeals ruled for PokerStars. The judges stated that the Loss Recovery Act is for persons, not the state. The court also said that Kentucky’s complaint that Kentuckians lost money but none of them sued PokerStars.

Essentially, the Court of Appeals ruled that Kentucky filing a complaint on behalf of unidentified Kentuckians for unspecified damages would only “lead to an absurd, unjust result.” With that, the judges reversed the judgement of the Franklin Circuit Court and dismissed the action.

Appeal to the Supreme Court

The Commonwealth of Kentucky appealed to the state’s Supreme Court, which took the case.

Two years minus a few days from the date of the Court of Appeals ruling, the Kentucky Supreme Court ruled in favor of Kentucky. Justice Samuel Wright III of the seven-justice court ruled wrote the majority opinion on behalf of fellow Justices Keller, Lambert, Nickell and himself. That made it a 4-to-3 decision.

Wright wrote that the majority disagreed with the Court of Appeals’ construction and interpretation of the Loss Recovery Act. He addressed all of his points in this way:

–The Commonwealth qualifies as a person under Kentucky’s Loss Recovery Act. They claim that the law does not define the word “person” and says that term may apply to “bodies-politic.” Beyond that argument, the Court states that the Commonwealth may sue under civil laws to protect its citizens. Further, PokerStars’ “illegal online gambling” harms the Commonwealth, especially on behalf of players and their families because losers on the site would not have the money, resources, or time to sue PokerStars.

–PokerStars was a “winner” in the poker games it hosted. Any party that takes part of a rake is a winner, states Wright, and benefited directly or indirectly through some part of the money lost by players.

–The amount and calculation of damages was correct. PokerStars had claimed that the award violated the excessive fines and due process clauses of the US and Kentucky Constitutions, but the majority claims the fines were not disproportionate. In fact, it was proportionate to the amount of money lost by Kentucky players over the course of five years and was calculated based on PokerStars’ records.

Interestingly, Wright concluded that Kentucky “has losses due to PokerStars’ illegal internet gambling criminal syndicate.” In fact, the amount may not even be enough to cover the actual costs suffered.

“We reverse the Court of Appeals and reinstate the judgement of the trial court.”

A Dissenting Opinion

Kentucky Supreme Court Justice Laurance VanMeter wrote the dissenting opinion on behalf of Justices Minton, Hughes and himself.

It wasn’t a complete dissent. VanMeter actually agreed with many of the policy-driven reasons behind the majority opinion but says the remedy must be authorized by the Kentucky legislature. He cited case law and legislative amendments to the Loss Recovery Act to show that lawmakers did not intend to authorize the Commonwealth to recover gambling losses.

In short, the word “person” in the Loss Recovery Act only refers to natural persons and does not include the state as a body-politic.

“I would affirm the Court of Appeals decision.”

What Now?

Now-Governor Andy Beshear was pleased with the decision, noting that Kentucky can use the money from the win after being hit so hard by the pandemic. “This will never be enough to make up for the damage to Kentucky families and to the state from their years of irresponsible and criminal actions, but this is a good day for Kentucky.”

Flutter released a statement following the ruling, noting that the new ruling reinstated the $870 million judgement and added 12% per annum compounding interest. That puts the new total up to approximately $1.3 billion.

Contrary to those numbers, Flutter said that The Stars Group generated only $18 million in gross gaming revenues during the time in question and showed documents to prove it.

“There are a number of legal processes available to Flutter and having taken legal advice, Flutter is confident that any amount it ultimately becomes liable to pay will be a limited proportion of the reinstated judgement.

“Flutter is wholly surprised by today’s ruling and strongly disputes the basis of this judgement which, it believes, runs contrary to the modern US legal precedent. … Together with its legal advisors, Flutter is currently reviewing its position.”

It is unclear if Flutter will take any further steps.

 

About Jennifer Newell

Jennifer began writing about poker while working at the World Poker Tour in the mid-2000s. Since then, her freelance writing career has taken her from Los Angeles to Las Vegas and back to her hometown of St. Louis, where she now lives with her two dogs. She continues to follow the poker world as she also launches a new subscription box company and finishes her first novel. Jennifer has written for numerous publications including PokerStars.com and has followed the US poker and gaming market closely for the last 15 years. Follow Jen on Twitter

Disclaimer: The information on this site is my interpretation of the laws as made available online. It is in no way meant to serve as legal advice or instruction. We recommend that you seek legal advice from a licensed attorney for further or official guidance.

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