Cardroom International LLC v. Mark Scheinberg, et. al. (Ferguson, Chris) Lawsuit Tossed
An expert on the American gaming scene, Maurice “Mac” VerStandig is well-versed in casino management from common issues of fraud and theft prevention to the Unlawful Internet Gambling Enforcement Act and Indian Gaming Regulatory Act. With a strong background in bankruptcy work, VerStandig is also skilled in the strategic valuation and monetizing of complex assets, and applies that knowledge to all areas of his practice, from fraud recoveries to traditional insolvency proceedings. Here, Verstandig takes a look at the Order Sustaining Demurrers To Plaintiff's Second Amended Complaint in Cardroom International LLC v. Mark Scheinberg, et. al. (Ferguson, Chris).
Good news has come for the tattered remains of PokerStars and Full Tilt Poker, as both brands seek to regain some modicum of goodwill whilst outwardly flirting with a legal reemergence in the American marketplace.Judge Elizabeth White, of the Los Angeles County Superior Court, has tossed a seemingly spurious – albeit markedly long-lived – lawsuit brought by Cardroom International, LLC, with an array of defendants including Phil Ivey, Chris Ferguson, Pocket Kings, Ltd., Andy Bloch and Erik Seidel. In a firm, if not occasionally temperamental, opinion, the court recently dismissed the plaintiff’s racketeering and antitrust claims for good, prohibiting most future efforts to restart litigation, and leaving Cardroom International’s litigation on the variety of dreary life support rarely dignified by appellate courts.
Some six months after Black Friday, the first of several iterations of this case was commenced, with amended theories – judicial mulligans, so to speak – and a brief detour into another court allowing nearly two years to pass before the recent pre-trial conclusion. The claims propagated served to group the defendants into two admittedly amorphous categories, with “Full Tilt Defendants” and “PokerStars Defendants” each being accused of myriad of actionable, and oft-overlapping, wrongs. While decidedly intricate in nature, these claims predominately fell into a duo of legal categories: allegations of illicit racketeering activities, and allegations of illicit antitrust activities.
Racketeering, a legal concept with a propensity to cameo gambling litigation, is a theory initially codified to aid in government prosecution of organized crime figures. The applicable laws, long ago soldered into the United States Code, create enhanced criminal penalties for individuals and entities that engage in a habitual pattern of already-illegal behaviors. Originally, these were thought to help secure the prolonged incarceration of individuals against whom the grizzly likes of murder indictments could not be sustained, but whose fingerprints readily abounded money laundering and extortion rackets. With time, however, this criminal prosecution aid – and its somewhat unusual, but not altogether unique, allowance that private citizens may use its terms to institute monetary lawsuits – found additional applications, becoming a sort of “super fraud” and often appearing atop the billing of high dollar lawsuits sounding in claims of delicately orchestrated mischievous behavior.
However, as the plaintiff here slowly learned, racketeering claims are amongst the most difficult of civil actions to prosecute, and courts scarcely allow such efforts to proceed beyond even the initial stages of a lawsuit. These are not allegations of a single wrong on the part of a defendant, but, rather, complex arguments that myriad of conjunctive elements – many with equally maze-like underlying elements – all have come to pass in seeming unison. (Stated more personally and plainly: In the bowels of LexisNexis, there exists a published civil racketeering opinion in which I am listed as counsel for the plaintiff, and that case easily stands out as being amongst the most intricate and intense of matters I have ever handled.)
Here, Cardroom International lodged its ill-fated racketeering claim on a theory that the defendants erred in chiefly three cognizable ways. First, it is claimed that PokerStars and Full Tilt used illegal conduct to achieve a dominant market position. Specifically, the plaintiff argues that by massaging the checks put in place by financial institutions to allow for money transfers even after passage of the Unlawful Internet Gambling Enforcement Act, these online behemoths were able to unfairly attract a disproportionate swath of the online gaming clientele.
Second, it is contended that the defendants acted unfairly in striking deals with one or more networks – Fox Sports being the programmer afforded the most ink by Judge White – whereby purchases of programming and advertising content were tied to exclusive web content provision packages. In short, the claim here is that the defendants approached Fox Sports and agreed to sponsor on air programming on the condition that poker games operated on the network’s website use only the defendants’ software, to the necessary exclusion of all other vendors (including Cardroom International).
Third, the plaintiff claims a so-called barrier to market entry. Judge White recasts this effort chiefly through the lens of Full Tilt Poker and its alleged ponzi-like attributes, noting that since the website was illegally spending player funds on advertising, it was able to gain an unfair advantage by flooding the market with commercials and dominating front-of-mind presence amongst poker players.
The problem with these three claims, as more eloquently noted by the court, is that they are wantonly thin when examined in concert with controlling law. The law demands that civil damages be directly traceable to complained-of behaviors, and frowns upon theories reliant on intervening steps. Here, Full Tilt and PokerStars certainly did violate gaming laws by endrunning money transfer regulations, but Cardroom International was not hurt by that actual action. Rather, Cardroom International claims that it was hurt by the result of that action – namely, these gaming centers being able to lure a large client base. This is simply too attenuated a theory to survive scrutiny. The Unlawful Internet Gambling Enforcement Act is not intended to protect small scale operators; it is intended to stop the flow of money into online gaming. What the plaintiff is claiming is neither the purpose of the act nor the direct result of the act, but a remote consequence of the act being enforced on an only fleeting level for a series of years. And this is simply not a strong enough foundation upon which to construct a racketeering claim.
Similarly, the suggestion that a deal with Fox Sports ran afoul of the law seems only a few steps elevated above the pits of frivolity. As aptly noted by Judge White, it is ludicrous to think that a couple of upstart online gaming websites had the muscle to bully an established broadcast network into striking an advertising deal that was otherwise unpalatable. And, as further observed by the court, even if one could suspend belief and assume PokerStars did strong arm Fox Sports, there still existed numerous other networks to which Cardroom International could have marketed its services and pitched its products. Even at the height of the pre-Black Friday renaissance, the media position of PokerStars and Full Tilt was far from omnipresent.
As for the claim that such advertising was a barrier to market entry, this seems laced with the greatest chutzpah. Judge White aptly notes that Cardroom International likely had trouble licensing its software because companies preferred the interfaces set up by Full Tilt and PokerStars. Phrased differently, the plaintiff had trouble garnering market share because the plaintiff minted a subpar product – not because those with superior products were able to deftly advertise their superior attributes.
The suit also contains claims under federal copyright law and state antitrust laws. The copyright matter is the most easily disposed of, if only because the law is clear that such claims must be brought in federal, not state, courts. Frankly, it is somewhat stunning that the plaintiff proceeded in apparent oblivion of this rather fundamental concept, as law school students nationwide have a tendency to correctly spot and identify the same issue on exams. Nothing short of the United States Constitution itself reserves such matters to the federal government, and corresponding law has long been succinctly clear that this issue, in particular, may not be examined by state courts. Indeed, the constitutional language in question is actually known as the “Copyright Clause.”
The antitrust issues, conversely, appear to be those claims over which the court had the greatest difficulty in reaching its decision. The suit specifically points to two states’ antitrust laws (as opposed to the more ubiquitous federal Sherman Antitrust Act), arguing that the aforementioned television contracts constituted unfair restraints on trade. Exclusivity clauses are often subject to antitrust scrutiny, as all manner of antitrust laws aim to preempt entities from excluding competitors from economic marketplaces and depriving one another economic opportunities. Yet here the court, again relying on the wide swath of broadcast networks in the United States, and preposterous thought that an online card room could freely dictate terms to a media giant, found the exclusivity deals to be seemingly permissive.
Other more technical issues contributed equally to the demise of this lawsuit, many of which relate solely to matters of legal formality. Yet formality matters little when substance is lacking, and Judge White has sent a stunningly firm message that this is a case nearly devoid of substance. The more than ten million dollars in damages claimed by Cardroom International largely strike as the result of a poor business model and substandard product, in the court’s view, and those are ills for which a company has only itself to blame.
Maurice “Mac” VerStandig, Esq. is the managing partner of The VerStandig Law Firm, LLC, where he focusses his practice on counseling professional poker players, sports bettors and advantage players across the United States. He is licensed to practice law in Maryland, Virginia and Florida, as well as in nearly a dozen federal courts, and regularly affiliates with attorneys licensed in numerous other states and jurisdictions. He can be reached at [email protected].
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