Kentucky Quarter

Kentucky v PokerStars: Directorship Issue Complicated Failed Depositions

More information has come to light in the ongoing court battle pitting the Commonwealth of Kentucky against former and present owners of PokerStars, the online-poker giant which was tentatively ruled liable last month for a $290 million settlement now possibly due to the state.

kentucky-quarterAmong the most important is a clarification and a correction made to an earlier story published here at FlushDraw: An unprovided deposition in the case which Kentucky Circuit Court Judge Thomas D. Wingate cited as pivotal in his decision to issue the massive partial summary judgment involved not PokerStars co-founder Isai Scheinberg, but his son (and also co-founder, Mark Scheinberg.)  Mark’s name appears only once in the order, and that in a footnote, but this author apologizes to both its readership and to Isai Scheinberg for the error.

FlushDraw has also received a communication from a source with knowledge of the ongoing proceedings, asserting that the entire deposition process was faulty, incorrectly naming Mark Scheinberg and another co-founder, Pinhas Schapira, as co-founders of Pyr and ordering the company to provide the pair for depositions, when they did not have roles with the company and could not thus be ordered to provide themselves for deposition via that channel.

In what has been described as “a factual mistake in the [Wingate] order,” Judge Wingate supposedly requested Pyr to depose Mark Scheinberg and Schapira in March of 2014, in their purported role as Pyr directors. Except, neither the junior Scheinberg nor Schapira were ever directors at Pyr, a Stars-related software entity based in Toronto.

All this occurred in the timeframe of the case being temporarily removed to a federal court on jurisdictional grounds, though that defense claim was turned down by the federal judge, who returned it to Kentucky.  When the case did return to Kentucky at the end of March, 2015, Wingate corrected his error and ordered REEL (Rational Entertainment Enterprises Ltd.) to provide Mark Scheinberg and Schapira for the depositions, but by that time, the entire Stars operation had been sold to Amaya.  REEL still existed, but Scheinberg and Schapira were no longer a part of the company, and again, could not be ordered to be deposed.

At that point, Amaya lacked the legal means to force Mark Scheinberg and Schapira to appear, and thus the deposition requests went unfulfilled.  However, Wingate’s order makes no mention of the supposed error his court and Kentucky officials made regarding Pyr Software directorships, even though it provides a logical explanation — and yet another likely basis for appeal — in the case.

Whether or not the failure of Mark Scheinberg and Schapira to avail themselves for depositions was the proverbial straw that broke the camel’s back in the matter remains a topic for debate.  Though even the counsel representing Kentucky’s interests may have described the lack of the depositions as having “no material impact,” those missing depositions and the year-long removal to a US federal court figured prominently in the language and flavor of the order and opinion as crafted by Judge Wingate himself.

The following excerpt from the November 20th order shows fully the pique prominently displayed by Judge Wingate.  Wingate appeared to rush this case through to judgment after having seen the matter delayed through various appeals, and simply makes no mention of or does not accept as factual the assertions made regarding the purported Pyr Software directorship error. (Unlike Judge Wingate, perhaps, FlushDraw corrects its errors.)

From the order, in which Wingate infers that PokerStars should somehow be grateful for his not imposing the original, threatened judgment of over $1.6 billion:

The Defendants in this case have willfully engaged in a clear and obvious pattern of delay, and they should not be able to benefit from it.  Indeed, Amaya and REEL did eventually produce the gaming data last month [in October], within two weeks of being ordered to do so, but only after the court granted default judgment [in August] and after the Commonwealth moved to assess damages against Amaya and REEL in excess of $1.6 billion.  Much litigation and expense of time, money and judicial resources could have been avoided had the Defendants complied with the Commonwealth’s discovery requests earlier in this litigation.  Indeed, there is nothing in the record to indicate that they could not have produced the requested gaming data in early 2014 as readily as they did in October 2015.

Finally, Amaya and REEL argue that they did not have the opportunity to produce the documents because the Court had not first ruled on their objections prior to granting default judgment.  Rather, they argue, the court overruled their objections and granted default judgment in the same August 12, 2015 Opinion and Order thereby denying them the opportunity to produce the data.  The court will briefly make three finding before dispensing with this argument.  First the Commonwealth made its request for discovery on REEL almost two years ago.  Oldford and REEL had ample opportunity to object or produce the data, notwithstanding the time the case spent removed to federal court.  Second as the Court found in its August 12, 2015 Opinion and Order, it did not direct Oldford and REEL in its previous Orders to simply respond, and thereby, interpose objections; rather, the court instructed Oldford and REEL to produce documents and answers.  Moreover, at the May 20 [2015] hearing in which Oldford and REEL indicated that they may object to written discovery, the Court stated that it would have to look at their objections once submitted and determine “whether they’re legitimate or not.” …

This led directly to Wingate’s example of the company asking the judge to consider extending Fifth Amendment protections against self-incrimination to corporations, much as it provides protection to individuals.  Wingate rightly scoffed at that, but whether he used that as justification to dispense with other, more valid objections is left utterly to the readers’ imagination.

Amaya also could not have have any early role in any stonewalling done by REEL and Oldford Group in the 2013-14 portion of the case, before its nearly-year-long removal to a US district court.  Amaya had not even been involving in its plans to acquire PokerStars until early 2014, the sale of which wasn’t even confirmed until May.

Wingate, in several passages in the order, seems to lump all online-gambling businesses outside of Kentucky’s borders into some amorphous mass that has “fleeced hundreds of millions of dollars” from Kentuckians while doing business under the PokerStars banner.  This sum is in vast excess of the amount actually deposited by Kentuckians on PokerStars in the years 2006-11, the timeframe covered by the lawsuit.  Also of importance: the Commonwealth of Kentucky has no plans to share any judgment with those players.

When combined with statements Wingate made during his adjudication of Kentucky’s attempted seizure of 141 online-gambling domains back in 2008, he’s established a spotty track record regarding his ability to understand the full nature of the Internet world.  Whether the above represents a rush to home-court judgment and a trampling of defendants’ rights is sure to be another issue as the case moves to inevitable appeals.

In yet another follow-up, we’ll look at how Wingate reached the amount in his decision, a total of just over $290 million.  Wingate has already stated that he is unlikely to lower that amount when issuing his final judgment.  All that remains is whether he chooses to assess trebled damages in the case, and given his stilted findings to date, that’s probably the betting line.


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