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TWISTS AND TURNS CONTINUE FOR POKERSTARS

Poker
By Wendeen H. Eolis
Poker Player Newspaper
May 21, 2013

Last March poker aficionados attending the annual “ATLARGE” gathering in Atlantic City, were energized like never before. The buzz in the Atlantic Club and Casino and Hotel (ACC) poker room that weekend was all good news. PokerStars, a staunch supporter of the online poker community had announced its intentions to purchase the Atlantic Club Casino and Hotel (ACC), the property at which they were meeting. New Jersey had recently legalized online poker. And the world’s largest and most popular online poker site was poised to obtain an Interim Casino Authorization (ICA). PokerStars had fast plans to take online poker forward in a big way on these American shores.

The ATLARGE revelers along with ACC personnel and associates of PokerStars celebrated together their expectations of a fast slam dunk deal. Steve Eisenstein, a member of the law firm Lum, Drasco, and Positan, LLC, and an avid poker enthusiast was one of the attendees at the ATLARGE festivities; he could not have imagined at that time what would come of the deal, all too soon. Two months later, the New Jersey law firm at which he practices was hired by PokerStars to sue the ACC in an effort to preserve its investment and protect its plans to purchase the ACC property. It was the Firm’s first engagement with Poker Stars according to Eisenstein, who was otherwise more circumspect than informative as to the possible next steps in this progressively messy situation. He is schooled in the ways of big companies. He offered up the PokerStars’ Director of Communications, Eric Hollreiser as the right man for media inquiries.

Poker Player/ Lawyer in Local Law Firm is on the Case  (LDP)

Although PokerStars selected law firms from among the better known and higher priced AMLAW 200 to defend the Company and its principals in the U.S. Department of Justice’s prosecution of their online poker activities in America, for this matter the Company relied upon a small local law firm with long roots in the Garden State dating back to 1870. PokerStars’ selection of LDP reflects its well known view of the online poker community as a reservoir of talent to do work on its behalf.

Although his primary specialty is in employment law and related litigation, name partner Wayne Positan was tapped as lead counsel for the PokerStars lawsuit against ACC. Positan knows his way around the New Jersey Courts and is highly regarded among practitioners in firms large and small who have come to know him. The matter has been a shared effort according to Eisenstein, a business lawyer with substantial experience in environmental law and real estate. He also includes litigation as a regular part of his portfolio. And, Eisenstein, a former organizer of ATLARGE gatherings brings to the table an understanding of the poker world to go with his legal skills.

Why Did ACC Jilt Poker Stars?

PokerStars’ path from its Isle of Man headquarters to the shoreline of New Jersey has been periodically disrupted over the years by a fair share of sticky wickets, but by all outward appearances, during the early spring, Stars was on track to purchase the struggling casino —subject to approval of New Jersey regulators- -until the ACC saw a way out of the shockingly low price of 15 million dollars it had negotiated for itself as the sale price –before legalization of online poker in the State and prior to its improved earnings in the early months of 2013.

The Birth and Death of the Deal

It is no secret that PokerStars has had its eye firmly trained on becoming a pre-eminent force in the new world of licensed, regulated and taxed online gambling in the United States following settlement of the civil charges brought against the company in 2011 by the U.S. Department of Justice.

As part of the settlement agreement reached, PokerStars bought the brand of its arch rival, Full Tilt and paid a massive fine to the U.S Government without admitting wrongdoing. (Neither did the DOJ withdraw its allegations of wrongdoing). The final lynchpin to the settlement was Isai Scheinberg’s obligation to give up his leadership role with PokerStars, at least until/unless a resolution of his personal case, at which time the matter could be reviewed. Scheinberg remains indicted and has yet to face the related criminal charges that were brought against him in the case U.S. v Scheinberg et-al.

PokerStars and the ACC reportedly opened discussions in October. Poker Stars insiders say the initiative was a strategic move by the Stars that reflected an abundance of “well placed confidence” in the prospects for legalization of online poker and for approval of a casino license to the Company.

The process of regulatory consideration, however, went into an unexpected full on tailspin. The American Gaming Association opposed licensure of PokerStars. Then PokerStars was delayed or dawdled in its final submission for the license application. And, the hearing to determine the Company’s suitability for a license was ultimately tied up by New Jersey regulators in a manner that made it impossible for PokerStars to meet the deadline as stipulated in the sale/purchase agreement.

The ACC was seemingly better advised than PokerStars in the development of the business terms of the agreement. The conditional deal allowed the ACC to terminate the negotiations if final agreement were not reached by a date certain— April 26, 2013. By that time, Stars had invested and stood to lose at least 11 million dollars it had put into the proposed venture.

On the designated termination date of April 26, as permitted in the terms of the contract, the ACC said farewell to the deal that had been inked. During the colder days of winter, online poker legislation had passed and had become law in New Jersey. In the early months of 2013 the ACC’s earnings improved. After giving notice of termination to PokerStars, ACC’s COO, Michael Frawley took to a public podium to announce the Company’s decision to walk away from the deal and to up the price for the sale of the property.

PokerStars Moves to Quash ACC Possible Efforts to Sell Fast to Others

PokerStars cried foul and asserted bad faith dealings on the part of the ACC. Stars turned to Attorney Wayne Positan to lead the way in a bid to obtain a Temporary Restraining Order that would prevent the ACC from making a fast sale to others while the Court considered the dispute. PokerStars was successful in obtaining a TRO but the victory was short-lived.

On May 7, Attorney Eisenstein wrote to his inquiring friends on BARGE, a popular internet poker forum site, “Since it’s now on record and no longer a secret I can report that we just had argument this afternoon on whether to dissolve the TRO I got yesterday for PokerStars and the Judge put a decision on the record to continue the restraints without modification and to hold a hearing next week on an injunction.” His last line was the understatement of the week. He said, “Busy times.”

Ten days later, the New Jersey Superior Court Judge who granted the TRO had a change of heart. Judge Raymond Batten lifted the TRO he had previously granted to PokerStars. Thus, Eisenstein’s law partner Positan was left to sing the blues in the jurist’s courtroom. According to lawyers generally familiar with the case and with  the usual limitations of a TRO, the outcome was not so surprising.

The Beat Goes On

Was PokerStars misled or did the Company lull itself into believing the contractually determined termination date was of no consequence. The consensus of lawyers queried for this article is that this question is likely to be debated in mutually bruising litigation.

Despite PokerStars open indignation over the conduct of the ACC in this matter, the related legal papers have prompted various lawyers across  the country to shake their heads over the contract language that passed muster with PokerStars’ legal beagles. The consensus is that PokerStars, no matter how it proceeds from here, has put itself in quite a pickle.

Old News or Revelations: Isai Scheinberg is Still Involved With PokerStars

Even more curious are the pleadings that were put before Judge Batten concerning Isai Scheinberg’s participation in the deal.  The ACC’s chief financial officer, Eric Matejevich references substantive discussions of the proposed sale between him and Scheinberg during a time frame and in a manner that suggests that PokerStars violated its settlement agreement with the U.S. Government. One lawyer says, “ If  PokerStars allowed Scheinberg to play a leadership role in this matter, The Company and its founder  may have overplayed the hand.” Another summed up the prevalent view: “Isai believes in his innocence and in his company—completely.”