The court battle between the Atlantic Club Casino Hotel and PokerStars is over, with Atlantic Club besting the much larger online poker giant.
The Rational Group, parent company of PokerStars, was granted a temporary injunction on May 6 that prevented the Atlantic Club from seeking a new buyer. Rational had negotiated with the casino last winter to purchase the struggling property for $15 million. The deal was expected to preserve the jobs of some 1,800 workers and prevent the Atlantic Club from closing its doors. In return, PokerStars would gain a foothold in New Jersey’s online gaming market with its first brick and mortar operation.
But Atlantic Club terminated the agreement on April 27—the day after the cut-off date stipulated in its contract in which PokerStars was to have been approved for an interim casino license. PokerStars was granted an injunction to prevent Atlantic Club from seeking another buyer.
The court decided last week that the Atlantic Club was free to proceed with negotiations the seek another buyer. The judge said the contract clearly stated that either party could terminate the deal if PokerStars had not received a temporary authorization to operate the casino by April 26.
“They (Rational) took the risk they could get it done,” Atlantic Club lawyer Tariq Mundiya told the judge. “They couldn’t get it done, and now they want to rewrite the contract. Once that date came and went, all bets were off.”
Atlantic Club is also seeking a termination fee of $4 million—on top of the $11 million PokerStars has already invested in the property so far. PokerStars also began work on a poker room at the casino, a project that incurred $94,000 in preliminary construction—expenses that PokerStars has agreed to pay.
“Plaintiffs also portray themselves as innocent victims of regulatory red tape who have been taken advantage of by Defendants to pocket Plaintiffs’ advance monies. This portrayal is as wrong as their legal arguments. Plaintiffs are far from innocent victims,” court filings for the Atalntic Club stated.
Attorneys for the casino asserted that PokerStars knew the risks it was taking in attempting to acquire the property, and it was aware of the “drop dead deadline.” To bolster its argument, the casino called on four prominent New Jersey casino officials that all came to the same conclusion—that the deadline in the private contract was valid, despite the fact that the 120-day review by the Division of Gaming Enforcement would stretch past the deadline.
“It would be a catastrophic result for the Atlantic Club if the temporary restraining order is not vacated and the request for a preliminary injunction is not denied,” casino attorneys wrote. “Sellers would almost certainly miss the opportunity to pursue other options during the critical summer season and prior to the November 2013 launch of online gaming in New Jersey.”
In its filings the Atlantic Club also asserted that its owners only became aware in March that PokerStars officials “were associated with serious criminal activities more extensive and unresolved than previously disclosed.”
This assertion has to do with PokerStars senior executives, who were charged with criminal offenses by the Department of Justice when it shut down the company’s U.S.-facing poker sites in April 2011. Although the company settled a civil suit with the DOJ—agreeing to pay $731 million in exchange for a chance to reenter the U.S. gaming market in jurisdictions where online betting was legal—the criminal charges against the principals are still outstanding.
One of those principals is Isai Scheinberg, PokerStars former CEO. As part of the DOJ settlement, Scheinberg was barred from holding any management or director role in any PokerStars company, and could not be involved in the decision making process. Scheinberg, who presumably resides in Europe (PokerStars gaming license is with the Isle of Man), has not entered the U.S. to face those charges. In its court filings, Atlantic Club officials have categorized him as a “fugitive” (the DOJ has not officially made that designation, and has not filed for extradition).
Scheinberg has stepped down from his role with PokerStars and is not on the application for a New Jersey casino license. However, his son, Mark Scheinberg, remains one of the principal s of PokerStars and is on the application—an affiliation that could have caused a red flag for New Jersey regulators.
In the court filings, Atlantic Club CFO Eric Matejevich asserted that he had a phone conversation with Isai Scheinberg in October 2012 that began the process for a PokerStars purchase of the casino. Matejevich claims he was aware of PokerStars previous run in with the DOJ, but was assured that the company had settled the matter. Matejevich wrote that he was not aware that Scheinberg and his business associate Paul Tate were “fugitives evading arrest by the U.S. Government.”
Matejevich said that that news only came to light in March after the American Gaming Association officially protested the licensing of PokerStars in New Jersey.
Matejevich goes on to assert that he received a call from Isai Scheinberg around 3 p.m. on April 26, 2013 where the former head of PokerStars said his advisers estimated a “90 percent chance” the company would receive an ICA. Scheinberg encouraged Matejevich to contact the DGE about its positive meetings with the agency. He also said that PokerStars was not willing at this point to pay the $4 million termination fee.
“It was clear that Scheinberg was fully involved in, and conversant with, details regarding the sale of Atlantic Club and was being kept up to date on Rational’s licensing matters on a real time basis,” Matejevich’s brief claims.
After that conversation Matejevich and his team were highly “highly dubious” that a license could be obtained by PokerStars. The agreement was terminated the next day.