Tech & Telecom Law News

$871 Million Online Gambling Verdict Thrown Out (1)

Dec. 21, 2018, 3:22 PMUpdated: Dec. 21, 2018, 7:13 PM

The Kentucky Court of Appeals has thrown out an $871 million judgment against online gaming giant Stars Interactive Holdings Ltd.

The ruling, coming just six months after the U.S. Supreme Court struck down the ban on sports betting in most states, is yet another sign that the courts aren’t likely to stand in the way of growing public support for online gambling, industry representatives said.

“Cases like the one in Kentucky are a relic of the past, and we are happy to be looking forward to a more entertaining future,” Jeff Ifrah, a gaming attorney and founding member of Ifrah Law PLLC in Washington, told Bloomberg Law.

The judgment, imposed by a trial court in December 2015, was based on an 18th-century Kentucky statute allowing a gambler’s family members to recover the gambler’s losses from the winners.

The state argued that a provision of the statute allowed third parties, including the state, to sue the winner. The trial court agreed, and trebled the damages sought by the state.

But the court of appeals reversed the judgment in a 34-page ruling, holding that the state wasn’t authorized under the statute to bring suit for recovery of gambling losses. Kentucky plans to appeal to the state Supreme Court, a spokesman said.

“We are disappointed by today’s Court of Appeals ruling in the PokerStars case, which will take away from the Commonwealth a billion dollar judgment, including interest,” Mike Wynn, spokesman for the Kentucky Justice and Public Safety Cabinet, said in a statement. “The decision doesn’t appear to even address the substantive issues in the case, but rests entirely on procedural questions of first impression in Kentucky.”

Stars Interactive said in a statement that it will “vigorously dispute any and all liability” should the state appeal the case to the state Supreme Court or seek a rehearing before the appeals court.

Gambling Losses

The lawsuit concerned losses by Kentucky gamblers on the PokerStars website between 2006 and 2011. Around 34,000 Kentuckians placed 246 million bets on the website during that period.

The Stars Group, then called Amaya, acquired the parent of PokerStars in 2014.

Gambling other than on horse racing and the state lottery was generally illegal in Kentucky during the period covered by the lawsuit, and remains so to this day.

The main issue in the lawsuit was whether the state could bring a lawsuit under the centuries-old Loss Recovery Act (LRA) to recover gambling losses, the court said.

The statute provided for a lawsuit by a losing gambler or the gambler’s creditor, or by “any other person,” the court said. But the law didn’t say clearly whether the state should be included in the definition of “person,” it said.

Third-Party Lawsuits

The court said that allowing third parties to sue supported the two main purposes of the act: suppressing gambling and making a losing gambler whole. But allowing the state to sue for recovery of treble damages would only serve the purpose of suppressing gambling, it said.

“The Commonwealth is not bringing this action to collect the money and then return losses to the ‘losers,’” the court said. “It is bringing this action to collect treble damages for its own benefit.”

The court also said it was “abundantly clear” that the treble damages provision was made available to provide an incentive to private persons to bring LRA actions.

“Neither the purpose nor history of the statute support the Commonwealth’s inclusion as a ‘person’ authorized to bring suit and recover treble damages under the LRA,” the court said.

The state is already under an obligation to enforce the laws, the court said. “We cannot accept that Commonwealth must be incentivized with the promise of treble damages before it can be expected to bring suit to enforce its own laws,” it said.

The case is Stars Interactive Holdings Ltd. v. Commonwealth of Kentucky, Ky. Ct. App., No. 2016-CA-000221, ruling 12/21/18.

(Updated with additional reporting throughout)

To contact the reporter on this story: Christopher Brown in St. Louis at ChrisBrown@bloomberglaw.com
To contact the editor on this story: Keith Perine at kperine@bloomberglaw.com

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