Ifrah Law helped our client profitably exit its strong position in the lead generation market within iGaming through a sale of websites and other affiliate related assets from the US-based founders in a transaction worth up to $60 million.
The acquisition included generated revenues from licensed operators in the regulated casino and poker markets in the states of New Jersey and Nevada, plus a range of other assets which are expected to generate significant revenues as other US states re-regulate iGaming. It positions the buyer to become the largest regulated casino affiliate in the US, and to take advantage of further re-regulation in what has the potential to become the world’s largest iGaming market.
Currently the US market represents approximately 20 percent of the total online Casino market. Some states have reregulated to permit online games, such as Nevada (poker), Delaware (all game types) and New Jersey (all game types), and initiatives are underway to re-regulate in other states.
A plaintiff’s law firm brought two gambling-loss recovery cases against our client, Amaya, in the United States District Court for the Southern District of Illinois. The first case addressed alleged gambling losses sustained as a result of playing on the PokerStars website. Additionally, our client was implicated in a second case that named Rational FT, which the client acquired when the client purchased Full Tilt Poker (FTP).
Both cases were instituted by a third-party – the mothers of players who allegedly suffered these losses. And in both instances, the courts ruled in favor of our clients after Ifrah won numerous motions that caused the defendants to amend their ultimately unsuccessful complaints.
After nearly three years, the judge brought finality to these proceedings by granting Ifrah’s last-filed motions to dismiss (which had been pending since mid-2014) and ordering the dismissal of both cases with prejudice. The judge’s orders in both cases were nearly identical. The cases were affirmed on appeal.
(Sonnenberg v. Oldford Group, Ltd., Rational Entertainment Enterprises, Ltd., Case No. 3:13-cv-00344-DRH (U.S. District Court Southern District of Illinois))
(Fahrner v. Bitar et al, Case No. 3:13-cv-00227 (U.S. District Court Southern District of Illinois))
When faced with an attempted class action in the plaintiff-friendly Southern District of Illinois, PokerStars turned to Ifrah Law to defend them. Not only did this case pose the risk of a multi-million dollar hit to PokerStars, but a money judgment would have opened the door for related class actions against online poker operators offering services without a license.
The plaintiffs filed the suit under the Illinois Loss Recovery Act, which allows individuals to collect losses on behalf of third parties, providing third parties fail to make their own claim within six months of losing the wager. Ifrah successfully argued that PokerStars was not liable. The court agreed with Ifrah, stating that PokerStars served as a third part service provider – only providing the forum for others to play and does not have stake decided in how the game plays out.
The Judge’s decision in this case was monumental for the online gaming industry and likely closed the door on future class actions against PokerStars. Further, this case provides precedent for other class actions that may arise against online gaming operators.
(Kelly Sonnenberg v. Oldford Group, Ltd., and Rational Entertainment Enterprises, Ltd. (No. 13-0344-Drh) (S.D. Il.))
When the state of Kentucky went to court to try to seize the domain names of 141 Internet gambling sites, it was a shot across the bow of Internet companies around the world. If the state’s lawsuit – the first of its kind anywhere – was successful in bringing about the forfeiture of the domain names, the consequences would be severe for both Internet commerce and civil liberties.
At an initial court hearing attended only by the state’s lawyers, without notice to the owners of the domain names, the judge concluded that the websites were violating Kentucky’s gambling laws. The judge ordered the domains to be seized and their ownership transferred to the state.
When it got word of what happened, the Interactive Gaming Council – the organization that represented the owners of 61 of the domain names at issue in the case – turned to Jeff Ifrah for help. As a host of other organizations – including trade associations and civil liberties groups – mobilized to join in fighting the judge’s order, Jeff became lead counsel, coordinating the legal challenge to the seizures.
Not surprisingly, the judge turned down their request that he reverse his own order. Convinced the order was unlawful, Jeff led the defense team in taking the case to the Kentucky Court of Appeals. There, Jeff persuaded the Court of Appeals to rule that the judge exceeded his jurisdiction. The Court of Appeals ordered that the seizures be blocked.
The state appealed that ruling to the Kentucky Supreme Court, where Jeff continued to fight the forfeiture. The appeal raised significant legal issues never before decided by the court, including whether a domain name can be considered property that is subject to seizure under Kentucky law and whether a domain name can be considered a gambling device under the law.
In the end, the Supreme Court sidestepped these important questions. Instead, it ruled that the case was not properly before it because of a legal technicality. But the end of the appeal was not the end of the case. Litigation continues with Kentucky state officials. While the final outcome of the case remains to be seen, its significance will be felt throughout the Internet gaming industry.
(Commonwealth of Kentucky ex rel. J. Michael Brown, Secretary, Justice and Public Safety Cabinet v. 141 Internet Domain Names – Civil Action No.: 08-CI-1409 (Commonwealth of Kentucky, Franklin Circuit Court, Division II))
In the first class action suit brought by former U.S. poker players, Ifrah Law went all in and won a big pot on behalf of an online poker company and individual poker pros that were defendants.
The suit involved complex fraud issues arising out of claims of Racketeer Influenced and Corrupt Organizations Act (RICO) violations. These issues resulted from the plaintiff’s demand for return of U.S. player funds held in online gambler accounts after Black Friday. On that day in 2011, the U.S. government shut down the three most popular online poker sites. More than two million citizens were playing our national card game online, and they were confronted by the seals of the FBI and Department of Justice and a notice of domain name seizure as well as blocked access to each player’s account balance.
The lawsuit demanded return of plaintiff’s money under a conversion claim, and also accused the defendants of racketeering, which would have entitled the plaintiffs to three times the damages owed.
In a closely watched argument in the U.S. District Court for the Southern District of New York, Ifrah Law held all the right cards and won a dismissal of all claims against the poker pro defendants, as well as all RICO claims against the corporate defendants. The
judge’s order was a big win for the individual defendants in this case, but also a victory
for individual defendants in other class action cases pending in New York.
(Segal et al v Bitar et al. 1:11-cv-04521-LBS (S.D.N.Y.))
When a leading online poker company was sued in Nevada by a prominent poker professional and former company endorser, the company put all their chips on the experience of Ifrah Law.
The plaintiff was one of the first women to place highly in a poker tournament. She claimed that during the online company’s early years she was offered a one percent ownership in the firm in exchange for her promotional efforts as a “celebrity player.”
She also claimed that the ownership stake was worth $100,000 a month for every month that the company was making distributions. She sued for breach of contract, breach of fiduciary duty, breach of the covenant of good faith and fair dealing, unjust enrichment, and fraud. Her attorneys estimated damages to be $40 million, with the additional possibility of punitive damages.
Ifrah Law won a dismissal in the trial – and won three more move to dismiss orders in subsequent actions. The initial motion to dismiss contained allegations that the player’s “typhoon of litigation” was fueled by a “thirst for publicity.”
(Cycalona Gowen v. Tiltware LLC, et al. – Case No.: 2:08-CV-01581-RCJ-RJJ (United States District Court for the District of Nevada))
When the U.S. government seizes assets and funds, they are normally not very sympathetic or predisposed to giving any of it back. But in a case against a payment processing company, federal authorities in Maryland seized over $2 million of alleged
illegal proceeds in connection with investigation of illegal sports betting – and Ifrah Law helped get half of it back.
In claiming it was a front for the gambling industry, the Department of Justice was very aggressive in seizing the payment processor’s assets in California. But Ifrah law conducted a very precise forensic investigation and demonstrated to the government
that over 50 percent of the company’s proceeds were from legal, legitimate sources. We successfully argued that the scope of the seizure was overly broad.
In a result that is still turning heads in the legal industry, Ifrah Law obtained the first settlement on record where the Department of Justice agreed to refund over $1 million of proceeds that were initially represented to Court as illegal proceeds.
(United States v. Contents of Various Accounts, etc., Case No. CCB-10-774 (U.S. District Court, District of Maryland))
Jacksonville attorney Kelly Mathis got some good news this week: State prosecutors have decided not to retry him on more than one hundred charges for gambling-related offenses. The State brought the charges against Mathis and fifty-six co-defendants in 2011, following a state-wide investigation of “internet cafes”—businesses that sell internet time to customers, who, with their purchase, receive a free entry into sweepstakes for promotional prizes.
Mathis went to trial in 2013 and was convicted on 103 counts for conspiracy to commit racketeering, conducting an illegal lottery, and possessing slot machines. The charges stemmed from legal counsel he gave to three businessmen who asked his advice as to whether Florida law permits the operation of internet cafes. Mathis did some research, discussed the clients’ proposed business model with state and local officials, and concluded that cafes could operate. Based on that advice, the clients coordinated with a veteran’s organization and agreed to operate the cafes in the organization’s name. The first café opened in Jacksonville. When the clients expanded to other locations, Mathis provided ongoing legal support to ensure the business complied with zoning ordinances and other local laws in the new locations.
In 2011, state authorities began cracking down on internet cafes. As a result, Mathis and his co-defendants were arrested and charged with racketeering and gambling-related offenses. Before trial, the circuit court judge held that Mathis could not proffer evidence showing that he believed internet cafes to be lawful. No such limits were placed on the prosecution. At trial, the State presented evidence that Mathis knew the cafes were prohibited under Florida law, but the court’s pre-trial order prevented Mathis from answering the charge.
Based on this one-sided presentation of evidence, a jury convicted Mathis on 103 counts, and he was sentenced to six years in prison. Last year, the Court of Appeals overturned the convictions and ordered a new trial so Mathis could rebut the allegation that he knowingly assisted in his clients’ violation of the law. In light of that decision, prosecutors have decided to drop the charges to avoid the expense and trouble of another trial.
After his first trial, Mathis—once a President of the Jacksonville Bar—was suspended from the practice of law. According to Mathis’ attorney, the case has cost Mathis his earnings, his law practice, and his marriage. Now that the Court of Appeals has raised the bar for a conviction, prosecutors have decided it’s not worth the effort. No one could have delivered the State’s decision better than Emily Litella, famous for concluding heated disputes with a single word: “nevermind.” Mathis surely welcomed the news, but one could forgive him if he also found it a little hard to take.
The lawsuits against Valve Corporation are continuing their tortured procedural paths from various federal courts to state court and back again. After filing a complaint against Valve and several co-defendants in federal court, the case was ultimately dismissed. Not dissuaded, the plaintiffs refiled against Valve in state court, in King County, Washington. Yet, as of December 2016, the case is back in federal court. After months of procedural wrangling, do these plaintiffs stand a chance?
Initially, plaintiffs filed a class action lawsuit in Connecticut. See McLeod v. Valve Corp., Case No. 16-cv-01018 (D.Conn. June 28, 2016). The plaintiffs made claims of racketeering, illegal gambling, and unjust enrichment. Before reaching any of the merits, Valve persuaded plaintiffs and the court that the proper forum for the suit was its home state of Washington. Accordingly, the case was dismissed and refiled in Washington federal court. McLeod et al. v. Valve Corp., Case No. 16-cv-1227-JCC (W.D.Wash., Aug. 4, 2016). The claims and substance of the complaint remained the same.
Once in Washington, Valve moved to compel arbitration. However, Valve’s co-defendants, Trevor Martin and CSGOLotto, moved to dismiss the case, arguing that the plaintiffs had failed to adequately plead the amount in controversy, and thus the court lacked subject matter jurisdiction. The court agreed with Martin and CSGOLotto, extended the holding to all defendants, and dismissed the case.
The plaintiffs refiled the matter in state court in November 2016, where the amount in controversy standard did not apply. Without this different pleading standard, plaintiffs apparently concluded their complaint was otherwise satisfactory: the complaint filed in state court was nearly identical to the one just dismissed in federal court. However, this time, the only defendant in Washington state court is Valve; plaintiffs filed separate state court proceedings in Florida against CSGOLotto and Martin.
Despite just being dismissed from federal court for lack of jurisdiction, Valve removed the case back to federal court, asserting diversity jurisdiction in G.G. v. Valve Corp., Case No. 16-cv-01941-RSL (W.D.Wash. Dec. 20, 2016). The practical result of this removal is that now the complaint pending before the federal court is the same as the complaint that was already dismissed by this court for lack of jurisdiction.
At this point, no new facts have emerged to differentiate this case from its predecessor – but now Valve bears the burden of establishing that federal court jurisdiction is appropriate. This case will likely be tied up on procedural matters for some time. As the parties have found themselves in a unique situation with the filings, dismissals, refiling, and removal.
Even if the parties can get past these thorny jurisdictional issues, the substance of the claims is still at issue. Since the complaint is the same as the prior case, it is still unlikely it would survive a motion to dismiss for failure to state a claim. The plaintiffs must demonstrate that they suffered real world harm for “gambling” virtual goods and that Valve should be held responsible for this loss. They protest that Valve has supported a third-party marketplace that allowed players to cash out their virtual goods for real money.
In similar cases, other courts have been skeptical of such arguments. For example, in Mason v. Machine Zone, 140 F. Supp. 3d 457 (D. Md. Oct. 20, 2015), a court dismissed a class action case based on very similar arguments. In Machine Zone, the plaintiffs played a mobile app game, in which they could make real money purchases for the ability to play more turns or otherwise enhance their gameplay. Through this, the plaintiffs would win virtual prizes. Plaintiffs argued that this amounted to illegal gambling and they should be refunded their money. However, the court noted that there was no mechanism in the game in which the players could “cash out” and receive real money prizes. That is, once the money was spent, it was gone.
Further, the court even noted that the existence of an illicit third-party website to sell player accounts or virtual prizes was not evidence of “real world” value. The plaintiffs contended that the ability to sell their virtual prizes and accounts established that there was real money to be won and lost. The court disagreed and even explicitly stated that the plaintiffs should not be rewarded for violating the game’s terms of service and selling their accounts or virtual prizes on third-party sites. The case was dismissed, but is now on appeal and awaiting oral arguments before the Fourth Circuit.
As in Machine Zone, the complaint against Valve fails to address how selling the virtual items was not a violation of Valve’s terms of service in the first place. The plaintiffs need to show why their selling of skins on a third-party site in violation of Valve’s terms of service entitles to them to a recovery from Valve. They have made an initial attempt to overcome this by arguing Valve endorsed or supported the third-party sites. This argument is likely familiar, as much has been made about Valve’s involvement with skin betting in the gaming press. However, establishing such a link in a court of law is different and difficult.
What will become of this case? Unfortunately, it is unlikely we will know anytime soon. Valve has, like they did in McLeod, filed a motion to compel arbitration. It seems that Valve wants to hold the plaintiffs to its terms of service, which require arbitration, and settle this matter outside of court. Plaintiffs, perhaps sensing an unfriendly federal court, have asked that the case be remanded to state court.
The Machine Zone case gives hope to would-be defendants tied up in the various skin betting scandals. At this point, it is a positive precedent in the industry. Now, we’ll see if the case will be applied as the lawsuit against Valve moves forward. Unfortunately, given the procedural predicament, we will have to wait a bit longer to see the full impact.
The NJ Division of Gaming Enforcement (DGE) regulates various licensees that provide services to the online gaming industry within the state. The agency recently demonstrated its power of regulatory enforcement over the online gaming industry and its unique ability to protect consumers with its recent discovery that a licensee may have provided US residents with access to unlicensed offshore sports wagering sites via an out-of-country server located on the Mohawk Territory of Kahnawake in Canada.
If New Jersey had not legalized and regulated online gaming, then there would likely be little action that it (or any other state) could take to prevent a company from offering unlicensed offshore sports wagering to its residents. Indeed, this is an ongoing issue for law enforcement agencies as they have been unable to prevent the estimated billions of dollars wagered annually by US residents on unlicensed offshore sports wagering. However, because New Jersey has legalized online gaming and the DGE is a regulatory enforcement authority, it was able to reach an agreement with the Kahnawake Gaming Commission (KGC), its counterpart in Kahnawake.
The DGE reached a series of agreements with the KGC which ensured that all access to US residents through data servers located in Kahnawake would be blocked as of October 1, 2016. The DGE’s deal with the KGC will prevent unlicensed online sports wagering and online gaming (such as Bovada) from operating out of the Kahnawake data center and ensure that only regulated operators are offering online wagering in New Jersey. As noted by David Rebuck, Director of DGE: “This agreement is an important step in ensuring the integrity of Internet gaming operations in New Jersey and helps ensure that online gaming patrons can play on fair, regulated sites.”
Additionally, the KGC committed to taking regulatory action against its licensees that are taking such wagers, thus also preventing future unlicensed and harmful wagering. The consequences of this arrangement should benefit consumers because unlicensed and unregulated sports wagering operators can pose significant risks to them, such as operating scams portrayed as sports wagering, presenting cash-out issues, and running rigged wagering books.
Similarly, the DGE has lately taken enforcement action to ensure that its licensees with an online presence are not simultaneously promoting unlicensed offshore betting. The DGE’s renewed enforcement action will serve to protect both consumers and industry participants while enabling the growth of online gaming; ideally creating a win-win for everyone involved.
Despite the old saying “the customer is always right,” the law places limits on customer service in the casino industry. Normandie Casino has found this out the hard way. The operator of the casino has agreed to plead guilty to charges that it violated anti-money laundering provisions of the Bank Secrecy Act, according to a Department of Justice press release.
Normandie Casino is one of the few remaining family-owned casinos in the country and one of the original card clubs in California. In the 1980s, the casino expanded its offerings and now features Seven-card Stud, Texas Hold-em, Five-card Draw, Blackjack, Pai Gow Poker, and Super 9, among other games and entertainment.
However, amid all these offerings, it appears the casino failed to consistently observe the banking regulations. Under the Bank Secrecy Act, casinos are required to take measures to prevent criminals from using the casino for money laundering. In particular, casinos must report transactions involving more than $10,000 by any one gambler in a 24-hour period.
Under the agreement with the Department of Justice, Normandie Club, which operates Normandie Casino, has agreed to plead guilty to two felony offenses. In the agreement, Normandie will admit that the casino used independent gambling “promoters” to locate high-rollers. Once the high-rollers were at the casino, high-level employees would help the high-rollers avoid transaction reporting requirements. Normandie would use the name of the promoter on the Currency Transaction Report, rather than the high-roller, and also structure the payments to make them appear to fall under the federal transaction reporting requirements.
Normandie has agreed to pay a $500,000 fine per charge, for a total of $1 million, plus the casino will forfeit the nearly $1.4 million it received in 2013 when failing to file accurate Currency Transaction Reports.
While the casino industry runs on making its customers happy, the casino must also do so within the bounds of the law. Gamblers may seek anonymity, but casinos cannot guarantee this to high-rollers who are making significant transactions.
The post Normandie Casino Operator Pleads Guilty to Charges Stemming from Protection of High-Rollers appeared first on Crime In The Suites.
Photo Credit: Meinzahn
Three more casinos are set to close in Atlantic City. Unions, politicians and lobbyists are pointing fingers. One thing is for certain, newly introduced online gaming legislation is not to blame. If experts had been paying attention to the trends, they would have introduced regulated online gaming into New Jersey years ago…
Want to know more? Read the full post on Ifrah Law’s new iGaming Blog
The post Atlantic City Needed to Go Online Years Ago appeared first on Crime In The Suites.