PokerStars Vigorously Contests Kentucky Domain Claim, Seeks Dismissal

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A new development in the long-running legal saga involving Kentucky and PokerStars today, as PokerStars’ parent company filed a motion to dismiss Kentucky’s attempt to seize the PokerStars domain name.

OPR has acquired a copy of the motion to dismiss – review the full motion here.

The motion is connected to Kentucky Civil Action 08-CI-1409, filed in 2008.

That action was an attempt by Kentucky officials to seize 141 domain names allegedly connected to online gambling under the logic that the domains were “gambling devices.”

Read a synopsis of the action and timeline here.

Key arguments against Kentucky’s claim to the PokerStars domain

The motion presents a few core arguments, which I’ve simplified and condensed below:

  1. Kentucky doesn’t have in rem jurisdiction over the PokerStars domain. Why? Because both the registrar of the domain and the registry of the domain extension are outside of Kentucky. And because Kentucky was never able to affect seizure or otherwise show control over the domain. More to the point, if the DoJ was able to seize the domain names while Kentucky had a claim on them, the DoJ’s ability to do so moots any claim by Kentucky to have control over the names.   
  2. Kentucky didn’t serve notice properly. As the motion puts it “The Commonwealth never provided REEL nor RIHL with notice, service, or an opportunity for a hearing” – and without doing so, the motion argues, you can’t seize property in relation to a civil action under Kentucky law.
  3. Domains aren’t gambling devices. This is the most interesting area of the case, for reasons we’ll discuss below. The issue was argued successfully in front of the Kentucky Court of Appeals, who concluded that domains were not gambling devices as part of their larger decision regarding the case. That appeals court decision was reversed by the Kentucky Supreme Court, but on separate grounds – the Supreme Court did not address the issue of domains as gambling devices in their reversal.
  4. Domain forfeiture would be unconstitutional. On both the federal and state level. Free speech, interference with interstate commerce, state sovereignty and property seizure without compensation.

Review the full motion to dismiss here.

PokerStars seems to have an extremely strong position with the in rem jurisdictional issue. There’s a clear problem generated by the SDNY seizure that seems difficult to resolve.

And the issue of defining a website – especially one entirely descriptive in nature – as a “gambling device” should, at least in theory, give any court substantial pause.

Even absent the obvious free speech issues, one would imagine some difficulty crossing the logical gap between a website describing online poker and a device like a slot machine.

Case could reshape legal landscape for online gambling

Several aspects of this case carry significant implications for the online gambling industry.

For one, Kentucky’s definition of “gambling device” is fairly common. States such as Kansas use exactly the same definition in their state law, as does the federal Gambling Device Act. Several other states – such as Oklahoma – use definitions that echo the concept and language of Kentucky’s definition.

Exploding that definition to include domain names would represent a dramatic expansion that could conceivably sweep up all manner of websites, adding yet another layer of legal complexity to the already labyrinthian system of American online gambling law.

Second, it’s fair to speculate that a positive outcome for Kentucky on this matter would inspire other states to – at a minimum – explore pursuing similar seizures against online gambling operators.

Sorting Kentucky’s various online gambling actions and settlements

There’s something of an alphabet soup of legal actions related to online gambling coming out of Kentucky. Here’s a quick breakdown of what’s what:

  • domain seizure: As mentioned earlier, this is connected to the 2008 filing seeking to seize 141 domains. But it’s now quasi-branched into a new action directed specifically against PokerStars.
  • Federal settlement: Kentucky recently received $6mm from the federal pool of Black Friday funds in exchange for releasing its claims against assets seized by the federal government in connection to Black Friday. The settlement did not preclude Kentucky from pursuing other action against PokerStars.
  • Loss-recovery settlement with The $15mm settlement Kentucky extracted from is not related to the domain name seizures. It stems from a separate filing in 2010 whereby Kentucky sought to recover illegal gambling losses (as allowed by Kentucky law) by Kentucky residents on Party. There’s a good timeline of this case over at FlushDraw.
  • Loss-recovery case against PokerStars: Kentucky is also pursuing a similar loss-recovery action against PokerStars, which PokerStars is currently – and aggressively – contesting in court. While pursuing a loss-recovery case against an online casino is relatively straightforward, a poker room is an entirely different thing altogether. While some of the same issues are present in both the loss recovery and domain seizure actions, they are independent.

Impact on PokerStars’ prospects for a New Jersey license

Resolution of outstanding legal issues would certainly be a positive for PokerStars’ chances in New Jersey.

But the relative impact of the Kentucky situation on the larger body of evidence that New Jersey regulators are no doubt considering is far less obvious.

The major benefit would be the removal of any remaining ambiguity regarding PokerStars’ control over their core domain name, an ambiguity that could well be something a sticking point for regulators or PokerStars’ potential NJ partner Resorts.

- Chris is the publisher of Grove also serves as a consultant to various stakeholders in the regulated market for online gambling in the United States.
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