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The Kentucky Court of Appeals, the state’s intermediate appellate court, issued a groundbreaking decision on Friday holding that a trade association may intervene in a long-standing civil forfeiture proceeding on behalf of its members.
Barring an appeal to and reversal by the Kentucky Supreme Court, this ruling likely brings to an end a very long battle over the seizure of 141 Internet gaming domains.
The case began in September 2008 when the Commonwealth of Kentucky filed an action seeking forfeiture of 141 Internet domain names, alleging that they were prohibited “gambling devices” under Kentucky law, and therefore subject to forfeiture.
On a motion from the Commonwealth the trial court sealed the case, conducted an ex parte hearing, and issued an order authorizing seizure of the domains.
These domains included some of the biggest names in online gaming including PokerStars.com, FullTilt.com, AbsolutePoker.com, Bodog.com, UltimateBet.com, DoylesRoom.com and Bookmaker.com.
After learning of the domain seizures, the Interactive Gaming Council (“IGC”), a trade association comprised of various entities involved in the Internet gaming industry, made a motion to intervene on behalf of the owners of the domain names.
The trial court rejected IGC’s motion to intervene and the IGC appealed the decision.
The IGC’s appeal focused on the test for associational standing outlined by the United States Supreme Court in its 1997 decision in Hunt v. Washington State Apple Advertising Commission, and, specifically, the third prong of the test which grants associational standing only if the claim or relief requested does not require individual member participation.
The Court of Appeals reversed the trial court’s decision finding that IGC does have associational standing to participate in the case.
Judge Allison Jones, who wrote the opinion for the unanimous three-judge panel, noted that the state had treated the domain names as a group for a vast part of the litigation, pointing out that even the Commonwealth’s amended complaint referred to the domain names and their use in the aggregate.
After the case had been remanded to the trial court to determine if IGC had associational standing, the Commonwealth sought to change course and argue that each individual domain must establish its claim in an attempt to eliminate IGC from participating.
This tactic forced the Interactive Media Entertainment and Gaming Association (iMEGA), who was representing the interests of several online sports books at the time to drop its claim.
The Court of Appeals also noted that the IGC is able to present the legal issues in a unified manner that is highly preferable to 141 different counsel filing similar, yet distinct, motions and appeals.
“There is little sense in applying a rule that can deny an association from advocating on behalf of its members solely due to an overly technical application of it,” gaming attorney Jeff Ifrah, who has represented IGC throughout the case, said.
“Instead we believe—and the court agreed with us—that the third prong must be applied flexibly in light of the specific nature of the claims and issues involved.”
“The Commonwealth cannot now turn the tables and ask the Court to require each domain name owner to come forward individually and assert virtually identical legal arguments through separate counsel to resolve threshold, purely legal issues that affect the validity of the entire forfeiture procedure,” wrote Jones.
The case was remanded to the trial court for further proceedings. A spokesperson for the Kentucky Justice Cabinet said that the opinion is being reviewed and there has been no decision about whether to file an appeal to the Kentucky Supreme Court.
To understand what may be next in the case, it is necessary to understand the result of the prior appeals in this case.
A prior appeal in this case challenged the trial court’s finding that domain names constituted “gambling devices” under Kentucky law.
The Kentucky Court of Appeals held that domain names were not gambling devices, and as a result, the Court of Appeals held that the trial court lacked jurisdiction to conduct a forfeiture of the domain names.
The only other issue left to resolve was if IGC had standing to participate in the case, and now that the Court of Appeals has held that it does, barring an appeal and a reversal from the Kentucky Supreme Court, this case is likely to be dismissed.
“Trying to force 141 domain name owners to pursue their claims individually—filing extremely similar, but distinct motions and appeals—would be burdensome and inefficient,” Ifrah said. “Now that associational standing has been demonstrated, we will seek to reinstate the earlier Court of Appeals decision that domain names are not ‘property’ subject to forfeiture and do not constitute ‘gambling devices.’”
Last year, in a related case in the United States District Court for the Southern District of New York, the Commonwealth of Kentucky reached a settlement with the federal government in which the state received $6 million for agreeing to dismiss its claims against the Full Tilt and Absolute Poker domains.
The value of this settlement seems to be called into question now that it seems that Kentucky does not have jurisdiction over the domains.