The parent company of online poker outfit PokerStars has been granted a court order blocking the owners of Atlantic City gaming joint the Atlantic Club Casino Hotel from selling the property to another buyer. On Monday, attorneys for Rational Group US Holdings and Oldford Group Limited (aka PokerStars) sought and received a temporary restraining order barring the sale of the Atlantic Club prior to a hearing in New Jersey Superior Court on May 17 at 1:30pm.
News broke last week that the Atlantic Club had declared the pending sale of the casino to Stars to be null and void due to delays in processing PokerStars’ New Jersey casino license application. Speculation was rampant that since the deal to sell the casino to PokerStars was reached prior to New Jersey authorizing online gambling by Atlantic City casino licensees, Colony Capital LLC (the investment firm that owns the Atlantic Club) were now convinced they could get a better offer on the open market.
On Monday, Stars filed a complaint with the Court based on their claim that the Atlantic Club’s owners and executives (aka the Defendants) had acted in bad faith. The original purchase agreement between the two parties stipulated an outside closing date of April 26, based on Stars having submitted its interim casino license application to New Jersey gaming regulators on Dec. 24, 2012. Stars claims that the purchase agreement anticipated the likelihood that the licensing process could be delayed if regulators requested additional information from Stars.
HE SAID, HE SAID
When Stars and the Atlantic Club agreed to terms in November 2012, the purchase price was to be $15m. Since then, Stars claims to have advanced the Atlantic Club $11m so the financially struggling casino could continue to pay its bills. The Defendants allegedly told Stars that the casino had more than $30m in unfunded pension liabilities and would be forced to declare bankruptcy were the sale not to go forward. Stars claims these liabilities were the primary reason why the Defendants had been unable to sell the Atlantic Club, despite actively flogging the property for the past two years.
Stars allege that in late March, even after it had alerted the Defendants that regulators had informed Stars that its application paperwork wasn’t complete, at no time did the Defendants indicate any intention to scuttle the purchase deal. What’s more, the Defendants asked Stars for additional funds to construct a new poker room at the Atlantic Club. Stars had already provided the Defendants with over $224k to help pay for the room’s construction.
On April 2, the Defendants asked to see the extra information the regulators had requested from Stars. Stars initially denied this request, based on its claim that the information was highly sensitive and confidential. Stars eventually provided the Defendants with this information, but only after requiring the Defendants to sign a nondisclosure agreement.
On April 23, Stars approached the Defendants about formally extending the closing date of the purchase agreement. The following day, Stars submitted a written proposal to assume the Atlantic Club’s past and current workers’ compensation claims, a “significant concession” that wasn’t part of the original agreement. On April 26, the Defendants offered to extend the closing date by a mere 10 days, and only on condition that Stars “offer” to pay the Defendants an additional $6m. Meanwhile, the Defendants wanted the right to talk with other buyers during this 10-day period.
On April 27, the Defendants told Stars they wanted to terminate the purchase agreement. Stars responded with an offer to pay an additional $4m and continue to pay the Atlantic Club’s operating losses in exchange for extending the closing date until Stars learned the fate of its license application. Unmoved, the Defendants formally declared the purchase agreement to be terminated on May 1.
STARS’ POUND OF FLESH
Stars asserts that the Defendants had no legal right to terminate the sale agreement, in that the New Jersey Casino Control Act requires such agreements to stipulate an outside closing date of at least 121 days following submission of a completed license application. Should the sale not go forward, Stars says the Defendants will have received $11m without having given up anything in return, and Stars has also spent over $1m in legal fees to set up this deal. Stars further argue that failure to complete the sale will result in Stars suffering “immediate and irreparable harm … for which monetary damages could not compensate.”
Stars has asked the Court to reinstate the purchase agreement until regulators pronounce a verdict on Stars’ license application. Stars also wants the Court to impose an equitable lien and a resulting trust on the Atlantic Club’s assets in the amount of the money Stars has advanced the Defendants. Stars also seeks compensatory and consequential damages, attorney’s fees, interest and costs associated with its lawsuit.
The Atlantic Club’s owners have until May 13 to file a response with the court. Based on Stars’ claims, it’s hard to see what legal arguments the Defendants could offer to justify their actions. If the Defendants are engaged in active talks with other prospective buyers, said buyers have yet to be identified, although Global Gaming Business’ Roger Gros has suggested Station Casinos as likely lads. Colony Capital owns a chunk of Station, which owns a chunk of UltimatePoker.com, the site that became the first Nevada-licensed operator to offer real-money online poker to Nevada residents last week. Such a deal would considerably broaden Ultimate Poker’s scope.
QuadJacks.com has posted Stars’ legal paperwork online, including the verified complaint, the brief supporting the temporary restraining order application and the restraining order itself.