Kentucky’s $870M Judgment v PokerStars Reversed on Appeal

It’s taken years, but the Commonwealth of Kentucky’s legal extortion attempts targeting PokerStars over that site’s availability to Kentuckians from 2006-11 has taken a giant hit, as the Kentucky Court of Appeal has reversed in its entirety both the initial $290 million judgment and a later trebled-damages ruling that had PokerStars’ parent entity The Stars Group facing a potential $870 million hit.

The ruling issued yesterday (Friday, December 21, 2018) by the three-judge Kentucky appellate court reverses the initial rulings issued in the state’s favor by Franklin County Circuit Court Judge Thomas Wingate. Judge Wingate, once referred to in a Kentucky-based legal column as perhaps the state’s “most stilted” judge, has been utilized by politically connected officials in Kentucky to launch legal attacks on online gambling in several matters. The long-running PokerStars matter was among the highest-profile of these matters, yet it was Wingate who also signed off on Kentucky’s ridiculous attempt several years ago to seize 141 Internet domain names connected to online gambling.

Kentucky StampThe appellate court left little doubt that the scheme engineered by the politically-connected law firm that concocted the lawsuit on Kentucky’s behalf was a blatant misuse of Kentucky’s Loss Recovery Act (LRA). That antiquated, 19th-century law was designed to allow the families of victimized gamblers to recover a gambler’s losses, not for the state to implement what, with interest and legal expenses added, might have been a billion-dollar shakedown.

The appellate court’s opinion offered this as explanation:

Allowing a complaint, like the one put forth by the Commonwealth, to move forward would lead to an absurd, unjust result. It would mean that any private person with knowledge of the general nature of Appellants’ electronic gaming format could allege an LRA claim in a wholly conclusory and generic fashion and walk away a billionaire without ever having identified a single gaming transaction with specificity. The LRA was never intended to be used in this fashion. It was intended to promote natural persons who had knowledge of specific instances of illegal gambling to file suit to assist the Commonwealth in enforcing its anti-gambling regulations.

The appellate court also agreed with the arguments offered by The Stars Group’s counsel that the Commonwealth of Kentucky lacked standing to bring the claim, in essence because the state was clearly not a “person” as envisioned by the crafters of the state’s LGA. As with similar laws in other states, it was intended to restore money for basic living needs to people being supported by breadwinners who had lost funds for basic necessities via gambling.

The trebled-damages claim was additionally shredded by the appellate court, who took pains to note that Kentucky could not enrich itself via an unjust trebled-damages claim any laws that the state was already sworn to uphold — regardless of the legality of PokerStars’ services to Kentuckians during the years in question. The appellate ruling detailed this point:

[I]t is abundantly clear that treble damages were made available to incentivize private persons to bring LRA actions. [] A private individual who knows of illegal gambling activity is not under any obligation to report it to authorities. The LRA sought to encourage private persons to bring LRA actions by increasing the judgment available to them. The hope was that the provision for treble damages would incentivize private individuals to undergo the burdens associated with enforcing the LRA. The Commonwealth, in this case the Secretary acting on the Governor’s order, is already under an obligation to enforce the laws of the Commonwealth. We cannot accept that the Commonwealth must be incentivized with the promise of treble damages before it can be expected to bring suit to enforce its own laws.

The ridiculous nature of the initial $290 million judgment received a more general panning. The firm who submitted the claim for damages calculated the $290 million figure based on each and every hand played by Kentuckians during the 2006-11 period, rather than on a session-by-session basis. This artificially inflated the supposed “damages” by roughly two orders of magnitude, since PokerStars had generated only $18 million in rake from the state’s players during the period covered by the lawsuit. The artificial inflation of the damages was a part of the legal scheme designed by the Kentucky law firm of Deckard & My, which worked closely with the administration of former Kentucky Governor Steve Beshear in launching the lawsuit in 2008. Deckard & May also stand to gain a preposterous 25% of any judgment of settlement eventually paid in the case.

“We applaud the decision of the highly-respected three-judge panel of the Kentucky Court of Appeals,” stated Marlon Goldstein, Executive Vice President & Chief Legal Officer of The Stars Group, in a statement offered via TSG’s corporate website. “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 appellate ruling also stated that an order dismissing the action would be issued upon remand, thus removing the suspect Judge Wingate from the case. However, the statement issued by TSG also offered notice that the company expects the Commonwealth of Kentucky to attempt to take the case to Kentucky’s own Supreme Court, though the state’s chances for success have taken a significant hit with the appellate ruling.

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