KY Supreme Court rules the Commonwealth is a person and has status to file a claim under the Loss Recovery Act

Kentucky Supreme Court Reinstates $870 Million Judgment Against PokerStars

Two years ago, almost to the day, the Kentucky Court of Appeals overturned an $870 million judgment against PokerStars. Today, the state’s Supreme Court re-reversed that decision, putting its new parent company, Flutter, on the hook for that eye-watering amount.

The case involves the actions taken by the poker room in the period between 2006 and 2011. 2006 is the year that the US federal government passed the Unlawful Internet Gambling Enforcement Act (UIGEA) in an attempt to shut down what had, until that point, been a booming gray market for online poker in the US.

PokerStars was among the sites that elected not to comply with the government’s wishes. As a result, it was on the wrong side of the 2011 crackdown that has come to be known as Black Friday. On April 15 that year, the Department of Justice began seizing the domains of various poker sites serving US customers. Most notable among those were PokerStars, Full Tilt and Ultimate Bet.

The Kentucky lawsuit, filed by the Commonwealth itself, began just two years later. The Commonwealth, in what some might describe as an attempted cash grab, invoked an antiquated statute in the state’s laws on gambling, known as the Loss Recovery Act (LRA). It arrived at the $870 million sum by looking at the gross losses of players in Kentucky and tripling that amount, without their winnings, or bonuses paid out to them. That exceeds the amount of rake PokerStars collected from Kentucky players over that period – $18 million – by a factor of almost 50.

Although the trial court ruled in the state’s favor in 2015, the Court of Appeals disagreed. In December 2018, it reversed the decision, calling it “an absurd, unjust result.”

The story had, until today, largely faded from the public memory.

Court of Appeals found a lack of standing and specificity

Although PokerStars also challenged the amount of the fine, this didn’t enter into the appeals court’s decision. Rather, its objection was more fundamental.

The loss recovery statute was intended for use by individuals, to recoup personal losses stemming from illegal gambling. For instance, a gambler who can prove they lost, say, $2000 to an illegal underground casino operation could attempt to get that money back. So could their family, or someone else directly impacted.

The Commonwealth on the other hand, did not directly lose any money to PokerStars. Nor did it submit a list of specific individuals it alleged had lost money playing on the site. Rather, it simply arrived at an estimate of the total gross losses of players across the state and attempted to sue of its own accord, on their behalf.

In 2015, Amaya – PokerStars’ parent company at the time – asked the trial court to dismiss the case for lack of standing. It claimed that the Commonwealth did not qualify as “a person” and was attempting to apply the loss recovery statute in a manner outside its intended purpose.

The trial court disagreed, but the Court of Appeals ended up siding with The Stars Group (TSG) – as Amaya had become known – in 2018. Its ruling stressed two points:

  • Firstly, that the Commonwealth was not in fact “a person” as intended in the statute, and lacked standing to bring the claim in the first place, and
  • Secondly, that such a claim, even if brought by an appropriate party, would need to identify specific individuals and the amounts each had lost.

The Supreme Court disagrees with the Court of Appeals on all fronts

The Supreme Court’s ruling today, which can be found at the bottom of this article, contradicts the Court of Appeals in pretty much every way possible. In its analysis, it issued the following opinions:

The Commonwealth is in fact a person

Legal policy in Kentucky, as in most places, is that the court must assume that the Legislature “meant what it said and said what it meant.”

That is, if the language of the law is plain, the court cannot simply add its own interpretation. Although the LRA doesn’t specify what it means by “a person,” Kentucky’s general definitional statutes say that the word “person” may extend to political entities unless the context requires otherwise. The Supreme Court furthermore opines that because the LRA specifically says “any person,” that the lawmakers must have intended that word in its broadest possible sense.

PokerStars is in fact a winner

Another facet of PokerStars’ defense was that it merely collected rake and didn’t qualify as a “winner” in the games, as it was not itself a participant. The Supreme Court pointed out that there is precedent – dating back 130 years – that the house counts as a winner in a game of chance if it collects a percentage, even if it is not banking the game.

The damages were calculated appropriately

PokerStars feels that its liability should only cover the rake it collected, or a multiple thereof. Here, too, the Supreme Court disagreed and pointed to precedent and the plain language of the LRA. The law says nothing about the profits held by the winner, only that the loser may sue for “treble the value of the money or thing lost.”

The ruling furthermore points out that the losses used to calculate the $870 million total came directly from PokerStars’ own records.

More bizarrely, however, the Court also rejected PokerStars’ argument that players’ winnings should offset their losses. It once again pointed to precedent set in the 19th century, in which the house, collecting a percentage, was deemed liable for players’ gross losses.

The saga isn’t over yet

Although a Supreme Court is, definitionally, the last recourse in a legal battle, Flutter does not feel this fight is over.

It announced the verdict to its investors this afternoon, stating that “a number of legal processes” remain available to it. While acknowledging that it will probably end up on the hook for some portion of the fine, it said it expects that the final amount will be smaller.

Exactly where and how it will continue the battle remains to be seen.

If today’s verdict were to stand, it would represent a significant but not fatal blow for Flutter. The Supreme Court not only reimposed the $870 million fine, but applied 12% interest to it, compounded annually. This would bring the total to more than $1.2 billion, assuming the interest is retroactive to the original date of the trial court’s ruling.

As one point of comparison, the biggest gambling fine ever levied by the United Kingdom Gambling Commission was just £13 million (roughly $17.6 million). On the other hand, the biggest corporate fine in world history was $21.8 billion. That was against the oil company BP in the wake of the Deepwater Horizon spill of 2010.

The silver lining is that Flutter is a massive company, better able to absorb the blow than PokerStars itself would have been. Its 2019 revenue was roughly $2.9 billion, and that was before the acquisition of TSG. The latter’s amounted to another $2.5 billion. Thus, the fine is a bit less than a quarter of the company’s annual revenue, which, while still huge, would not be fatal.

Thus far, Flutter investors seem to believe the company’s appraisal of its chances. Its stock has traded downwards on the news, but only by a fraction of a percent. It may fall further as word spreads, however.

The Kentucky Supreme Court ruling

Commonwealth of Kentucky v. Stars Interactive Holdings
- Alex is a journalist from Dartmouth, Nova Scotia, Canada. Now site runner for Online Poker Report, he has been writing about poker and the online gambling industry in various capacities since 2014.
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