Judge Issues Tentative Decision in CardRoom International Suit vs. Full Tilt Defendants

scales-justiceFlushDraw has obtained a copy of a tentative verdict in the California civil case of CardRoom International LLC vs. Mark Scheinberg, et al, in which Florida-based online poker site Cardroom International brought suit against PokerStars, the original Full Tilt, and several prominent owner/executives of those sites.

The 22-page preliminary decision, mailed by presiding judge Elizabeth White on July 3, 2013 to all legal representatives of plaintiff and defendants, is a “[Proposed] Order Sustaining Demurrers to Defendants’ Second Amended Complaint Without Leave to Amend and Dismissing Action in Its Entirety.”

The likely dismissal of the $10 million civil RICO claim (with a possibly trebling to $30 million through punitive-damages remedies) which CardRoom International claimed in its suit, means that the $30 million held in escrow by the US Department of Justice against the outcome of this case would be freed from legal limbo.  Cardroom International’s claim is the final outstanding third-party action connected to the United States’ “Black Friday” case against corporate defendants Full Tilt and PokerStars.

However, CardRoom and its primary owner, California attorney Cyrus Sanai, immediately filed an objection to the proposed decision to dismiss the action with prejudice, which if unchallenged would close the matter.  Sanai’s objection, filed on July 8, 2013, suggests that a wave of appellate filings is likely to follow the finalizing of the court’s decision, which may take place as early as this week.

All Demurrers and Joinders to be Upheld

In making her proposed decision, Judge White affirmed the demurrers filed on behalf of the defendants, largely the primary owners of the original Full Tilt.  Six separate demurrers and motions to quash were considered, which had been debated in three continuing hearings in May and June.  The various demurrers and quashing motions:

1) A demurrer by defendant Tiltware to the Second Amended Complaint (SAC);

2) A joinder by Phil Ivey, adding him as a party of interest to the demurrer in #1;

3) A motion to quash by Ivey in connection with the above;

4) A demurrer by Phil Gordon to Cardroom International’s SAC;

5) A joinder by Chris Ferguson to all of the above;

6) Motions to quash both the service of summons and the initial complaint, filed by Pocket Kings, Ltd., and individual defendants Erik Seidel, Andy Bloch and Perry Friedman.

The order by Judge White as proposed to be finalized upholds all demurrers and joinders, while rendering moot all the orders to quash, since no viable causes of action would remain.

Whether or not several of the case’s defendants were properly served was one of several points of contention hashed out in the various court proceedings, and Cardroom International’s and Sanai’s second amended complaint was filed after the judge ruled that the first amended complaint, as constructed, was so contrived that according to the judge, “there was no way that Mr. Sanai would be able to proceed.”

In addition to the RICO claim, Cardroom International also alleged antitrust violations by PokerStars and Full Tilt.

Cardroom International’s RICO claims, in part, centered on an allegation that programming deals struck between PokerStars and Full Tilt and major US television networks such as ESPN and FOXSports somehow closed the market for Cardroom International’s own offerings and hopes for a TV deal.

RICO Claim Dismissed, No Proximate Causation

The proposed decision by Judge White intends to dismiss Cardroom International’s RICO claim without leave to amend.  According to the document:

The Court finds persuasive Defendant’s argument that Plaintiff lacks standing to bring a civil RICO claim because Plaintiff has failed to plead the requisite proximate causation element of a RICO cause of action.

Judge White noted that while PokerStars and Full Tilt may have victimized others, Cardroom International had not proven itself to be among them.  The tentative decision as written by White notes that the real victims were the banks that were tricked into processing gambling transactions against their knowledge, as well as the players themselves.  Wrote White:

Here, the direct victims of the fraudulent scheme to circumvent credit card companies’ policy against processing Internet gambling transaction via e-check processing are the credit card companies, banks and financial institutions who were tricked into authorizing gambling transactions.  The banks who agreed to engage in “transparent processing” to knowingly process gambling transactions in exchange for fees cannot be considered victims.

The direct victims of the Full Tilt Companies Ponzi-esque payout practices are the gamblers themselves.

Likewise, as to the alleged scheme to defraud cable companies by representing to the companies that the advertisements were not promoting illegal gambling and were not themselves illegal in any way, the direct victims were the cable companies, who were put at risk for criminal prosecution.

The above indicates that any of these other entities — the banks, the cable companies and the players themselves — may have been harmed by Full Tilt’s and PokerStars’ actions, and may have had their own cause to sue; however, that causality did not transfer to Cardroom International and its own claims.

Antitrust Allegations Also to be Dismissed

Cardroom International and Sanai further alleged that the dominant market slots occupied by Stars and Full Tilt allowed the sites to create a significant barrier to entry to CI’s own online poker site, the software for which CI and Sanai acquired in a bankruptcy auction in 2008.

However, reiterating an early finding, Judge White held that Cardroom International’s own software “solution” as a single-operator entity was part of its marketing difficulty, in that the software as offered was less desirable than competing packages for play-money sites, such as those offered by Stars, Tilt and others.

White also wrote that Cardroom International’s claims regarding PokerStars’ and Full Tilt’s alleged antitrust activities toward its competitors’ efforts generally violated the “rule of reason”.  Cardroom International alleged that the deals made by Stars and Tile with networks such as ESPN and FoxSports, which also called for the creation of exclusive play-money poker sites, were an example of “coercive reciprocal dealing” and were thus an antitrust violation.

White cited the example of Zynga’s wildly successful Zynga+ Poker as an example of a play-money poker site that rendered Cardroom International’s allegations without merit.


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