Rational Group Sues to Enforce Sale of Atlantic Club

Rational Group Sues to Enforce Sale of Atlantic Club

atlantic-clubRational Group, owner of PokerStars and Full Tilt Poker, has filed a lawsuit in New Jersey seeking to enforce the terms of its agreement to purchase the Atlantic Club casino in Atlantic City, New Jersey from Colony Capital LLC.

The acquisition, signed in December 2012, derailed ten days ago when Colony sent a termination notice to Rational, alleging that Rational failed to meet a contractual deadline to obtain regulatory approval for the purchase. Rational has alleged that Colony acted in bad faith in the month leading up to the termination of the agreement and that the termination was impermissible under the New Jersey Casino Control Act.

For the moment, Colony’s termination of the agreement has been suspended. Atlantic County Chancery Court Judge Raymond A. Batten granted Rational a temporary restraining order against Colony that prevents the termination from taking effect and prohibits Colony from shopping the property around to any other buyer pending a hearing on a permanent restraining order.

Rational’s complaint suggests that the trigger for the breakdown of the acquisition was an Information Request that Rational received from New Jersey regulators on April 1 regarding the company’s application for an Interim Casino Authorization, a regulatory approval needed to close the deal. Colony asked for a copy of the Information Request the next day, but Rational said the document was confidential and refused to provide it.

Rational changed its tune later in April. The company offered to provide the Information Request, along with certain responsive, confidential, “highly sensitive” business documents relating to its plans for the property, to Colony as long as Colony agreed not to divulge them. Colony signed a non-disclosure agreement to that effect and received the documents on April 18.

It’s unclear what prompted Rational to disclose the documents after it first refused to do so. It’s possible the change came about because state regulators notified the company on April 10 that its ICA application was finally complete, triggering the start of a 120-day regulatory clock by which a decision had to be rendered on the application.

Less than a week after providing the documents to Colony, Rational contacted Colony about extending a purchase agreement deadline that required Rational to obtain the ICA by an outside date of April 26, 2013. Although Rational’s initial filing of its ICA application on December 24, 2012 would have been timely to receive a final decision by the outside date, delays imposed by state regulators meant that the deadline would be missed.

According to Rational, the company offered to assume $7 million in workers compensation claims as part of the extension. Colony responded by requesting that Rational pay $6 million to extend the deadline for a meaningless 10 days. Colony’s counter-proposal also required that Rational allow Colony to solicit other buyers for the property.

These proposals were made despite almost daily contact between the two parties after Rational first learned on March 26, 2013 that its ICA application was delayed and despite assurances by Colony that it would work with Rational to obtain the ICA after the delay was discovered.

Rational’s final offer, made after Colony sent the termination notice, was to extend the deadline in exchange for $4 million. Colony rejected that offer.

The complaint goes on to detail what Rational alleges was Colony’s bad faith in dealing with Rational after the application delay was discovered on March 26, 2013. It also alleges that the New Jersey Casino Control Act prevents Colony from terminating the agreement until at least 121 days after the ICA application is deemed complete by regulators (in this case, August 9, 2013).

The lawsuit fills in a few other blanks regarding the potential acquisition. The purchase price for the Atlantic Club was $15 million. Rational has already provided $11 million to Colony to keep the Atlantic Club open pending finalization of the sale.

It also appears that it was Colony that approached Rational (and not the other way around) in October 2012 to gauge Rational’s interest in purchasing the property. The timing of that approach likely was keyed to reports in early October that Rational had acquired a minority share in The Hippodrome, a small London casino. Although Rational previously had collaborated on PokerStars-branded poker rooms in Macau, it never had ventured into full-fledged casino gaming prior to its Hippodrome acquisition.

At the time of Colony’s approach to Rational, the Atlantic Club had been on the market for close to two years. The property was in the midst of its fifth straight losing year (it would go on to post a 2012 operational loss of $26.8 million) and had unfunded pension liabilities of $30 million. Both numbers were sinkholes that did not make the small casino a very attractive acquisition candidate.

Rational, however, was so interested in purchasing the casino that it agreed to backstop the Atlantic Club’s operational losses to a maximum of $750,000 per week until the deal could be closed.

For now, the deal remains in limbo. Judge Batten will hear arguments on Rational’s request for a permanent restraining order on May 17.

COMMENTS

Leave a Comment

*

LATEST NEWS

filter by

Dan Katz

22nd April 2019 // Industry, Legal News, News

Two Sports Betting Bills Active in Maine Legislature

As legalized sports betting continues to creep across the United States, lawmakers in Maine are looking to help their...

Haley Hintze

21st April 2019 // Industry, Misc, News, Online Poker Action

The Death of Seating Scripts a/k/a PokerStars Expands Script Ban

One of the topics we’ve wanted to explore in greater detail are the continuing changes to the playing environment...

Haley Hintze

21st April 2019 // Industry, Legal News, Misc, News

New Hampshire v DOJ Wire Act Lawsuit Update: The Skirmish Over ‘Whoever’

The ongoing legal battle pitting the State of New Hampshire against the DOJ and its January 2019 reversal opinion...

Haley Hintze

21st April 2019 // Industry, Misc, News

US-Based Anti-Fraud Group SWIMA Announces Its Official Launch

The United States-based Sports Wagering Integrity Monitoring Association (SWIMA) has announced its official launch as...

Haley Hintze

20th April 2019 // Legal News, Misc, News

Another Guilty Plea in Kansas Underground Poker Case

The prominent underground poker game centered in Wichita, Kansas, that was raided by authorities in 2017 after years of...

Dan Katz

19th April 2019 // Industry, News

Pennsylvania Sets Online Poker Launch Date for this Summer

Pennsylvanians can finally start getting their hopes up for online poker as date has finally been set for sites to flip...