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Kentucky Court of Appeals Rules for PokerStars

Written by Jennifer Newell
Last updated on
Jennifer Newell

The Commonwealth of Kentucky has been in a long, drawn out, and complicated battle with online gaming companies since 2008. PokerStars didn’t take the actions of the state lightly then, and the company has continued to fight ever since.

From the governor to the courts of Kentucky, rulings have been tough for PokerStars and its parent companies through the years – Rational Group, then Amaya, and now The Stars Group. The circuit court ruling in 2015 put PokerStars on the hook for $870 million, but the company appealed the case. Years later and just days before the Christmas holiday, the Kentucky Court of Appeals reversed that circuit decision and ruled for PokerStars.

While the case is likely to continue with Kentucky pursuing it to the Kentucky Supreme Court, the win is a significant one for PokerStars in the decade-old case.

Where It All Started

Once upon a time, poker was very popular. Many Americans played poker online at sites like PokerStars. Some people became professional poker players, but most people just had fun.

But the United States government wanted the people to stop having so much fun, so it enacted the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006. It scared some online poker sites, but PokerStars was one that didn’t run away. It kept offering internet poker games to Americans.

The Commonwealth of Kentucky got mad. Governor Steve Beshear huffed and puffed and obtained the court’s permission to seize 141 online gaming domains in 2008. PokerStars was one of them.

Beshear justified the actions because online gambling was part of the “underworld” and online poker/gaming operators were “leeches on our communities.” At that time, he noted, “The owners and operators of these illegal sites prey on Kentucky citizens, including our youth, and deprive the Commonwealth of millions of dollars in revenue.”

Years of Court Battles

PokerStars fought the action, and Kentucky was more than a little displeased. In 2010, the Commonwealth of Kentucky filed suit against Pocket Kings and “Unknown Defendants,” and subsequent claims found PokerStars as one of those defendants. The basis of the allegations was that PokerStars provided real-money online poker to Kentucky residents and collected rake from those players. Kentucky claimed that this happened between 2006 and 2011 in violation of the UIGEA, and PokerStars owed damages to the state.

Motions to dismiss were considered going forward, but the case ultimately made it to the federal district court in 2015, at which point the judge ruled that an entity that receives any part of a losing bet, even if only the rake, is liable for the full amount of the bet, per Kentucky law.

When all was said and done, the judge estimated that the PokerStars players in Kentucky lost approximately $290 million during those five years. And since Kentucky law allowed a judge to award three times the damages (treble damages) in such a case, the judge ruled that PokerStars owed $870 million ($870,690,233.82 to be exact).

PokerStars appealed the case on the basis of several arguments, first and foremost that the circuit court should have accepted PokerStars’ original motion to dismiss because Kentucky did not have standing under the state’s Loss Recovery Act. Moreover, there was not enough detail in the original case to justify a cause of action against PokerStars in the first place.

In Favor of PokerStars

The Kentucky Court of Appeals took the case and handed down its ruling on December 21, 2018.

With regard to the Loss Recovery Act of Kentucky, the appeals court ruled that it should not have been used to pursue money from PokerStars because the statute permits actions only for persons, not on behalf of the Commonwealth. “The circuit court erred in denying the PokerStars Defendants’ motions to dismiss this action.”

Secondly, the court addressed the notion that Kentucky claim that “thousands of Kentucky residents” lost five dollars or more in PokerStars games but none of them sued PokerStars. The court determined that the complaint issued by Kentucky was not a valid one. The court ruled that allowing a complaint from the state on behalf of unidentified Kentuckians for unspecified damages would “lead to an absurd, unjust result,” which the court determined that it did.

The conclusion of the court was simple: “In light of the foregoing, we reverse the judgment of the Franklin Circuit Court. On remand, an order shall be entered dismissing the action.”

PokerStars Celebrates

The Stars Group issued a statement upon the announcement of the appeals court ruling. The Stars Group Executive VP and Chief Legal Officer Marlon Goldstein said, “We applaud the decision of the highly-respected three-judge panel of the Kentucky Court of Appeals. 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.”

Originally, The Stars Group had been forced to post bond in the amount of $100 million to stay the enforcement of the original court order of $870 million, and it did so. The company now wants that money back and plans to petition for its release.

According to the press release, “The Stars Group expects the Commonwealth to either petition the Court of Appeals for a rehearing or seek discretionary review of the Court of Appeals decision by the Kentucky Supreme Court and intends to vigorously dispute any and all liability in the event the Kentucky Supreme Court grants reviews and hears the appeal.”

Despite the likelihood of an appeal by Kentucky, PokerStars should be able to retrieve its funds from the state and remove the $300 million from escrow that was held with regard to the case. And The Stars Group no longer has an $870 million judgment hanging over its head.

 

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