Unites States v. Pokerstars, et al

Filing 261

REPLY MEMORANDUM OF LAW in Support re: 197 MOTION to Strike Document No. 150 (Claim of Avoine).. Document filed by United States Of America. (Lockard, Michael)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
UNITED STATES OF AMERICA,
:
Plaintiff,
:
- v. -

:
:

POKERSTARS, et al.

11 Civ. 2564 (LBS)
:

Defendants;
:
ALL RIGHT, TITLE AND INTEREST IN THE
ASSETS OF POKERSTARS, et al.;

:
:

Defendants-in-rem.
:
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REPLY MEMORANDUM OF LAW IN FURTHER SUPPORT OF
THE GOVERNMENT’S MOTION TO STRIKE THE CLAIM OF
AVOINE - SERVICIO DE CONSULTADORIA E MARKETING, LDA

PREET BHARARA,
United States Attorney for the
Southern District of New York
Sharon Cohen Levin
Jason H. Cowley
Michael D. Lockard
Assistant United States Attorneys
- of counsel -

PRELIMINARY STATEMENT
Because claimant Avoine - Servicio De Consultadoria E
Marketing, LDA (“Avoine” or “Claimant”), through its claim and
answer, has established that its purported ownership of the
assets of Absolute Poker is in name only, its claim should be
stricken.

Indeed, Avoine’s supplemental factual contentions in

its opposition to the motion to strike and accompanying documents
further demonstrate that Avoine was a mere straw owner.
Alternatively, if the Court were to determine that the
supplemental factual contentions and documents Avoine relies on
in its opposition bolster Avoine’s standing allegations
sufficient to survive a motion to strike at this stage, the
Government requests permission to supplement the motion to strike
after taking standing discovery pursuant to Rule (G)(6) of the of
the Supplemental Rules for Certain Admiralty and Maritime Claims.
FACTUAL AND PROCEDURAL BACKGROUND
A.

Avoine’s Claim and Answer
Avoine filed a claim on January 5, 2012, contesting the

forfeiture of the following:
1.
The domain name AbsolutePoker.com and
any other domain names that include the word
“absolutepoker” or any variation thereof (the
“Domain Names”) and
2.
All property and other assets claimed to
have been assigned to Avoine by SGS (BVI)
Inc. (“SGS”) in or about 2007, including
without limitation: (a) all tangible and
intangible property, including computer
hardware and software, developed and/or used
in the operation of the Absolute Poker online

poker business as of the date of such
assignment (the “AP Intellectual Property”);
and (b) stock and/or other equity interests
in (i) Fiducia Exchange Ltd.; (ii) Momentum
Technologies, Inc.; and (iii) Panora Tech
Belize Inc. (the “Subsidiaries”).
In its March 9, 2012, answer, Avoine asserts that:
In or about 2006 or early 2007, in a
reorganization of its affairs, SGS assigned
and transferred the AP Assets, along with all
of SGS’s equity in the Subsidiaries, to
Avoine and, at substantially the same time
SGS’s shareholders became shareholders in
Avoine’s parent company, a Norwegian company
called Madeira Fjord AS (“MFAS”).
(Avoine Answer ¶ 27(b)).

Avoine further alleges that the AP

Assets were then transferred to Absolute Entertainment S.A., a
transfer that was subsequently rescinded.

(Id. ¶ 27(c)-(d)).

According to Avoine: “From and after the 2007 Avoine-Absolute
Sale, all operation of the Absolute Poker online poker business
has been carried out by employees and/or agents of Absolute
Entertainment or its contractors and/or assignees (e.g., Blanca
Games), as express or implied licensees, and not by Avoine.”
(Id. ¶ 27(e)).
Avoine also alleges that: “During the period 2007 to
the present, neither Avoine nor its management knew of the
allegedly wrongful conduct upon which the plaintiff’s forfeiture
claim is predicated.”

(Id. ¶ 27(f)).

Thus, although Avoine

alleges that it rescinded the transfer of the AP Assets in 2007,
Avoine never actually regained those assets and the assets

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continued to be held by and managed exclusively by Absolute
Poker.
B.

The Motion to Strike
On or about July 9, 2012, the Government moved to

strike Avoine’s claim pursuant to pursuant to Rule 12(b) and (c)
of the Federal Rules of Civil Procedure and Rule G(8)(c) of the
Supplemental Rules because Avoine, by its own pleadings,
established itself as essentially a straw owner that exercised no
dominion or control of the assets in question and therefore lacks
standing.
C.

Avoine’s Opposition and Supplemental Factual Contentions
On or about August 13, 2012, Avoine opposed the motion

to strike.

Accompanying Avoine’s opposition brief is an attorney

declaration attaching several documents that purport to relate to
the transfer of the AP Assets and the rescission of that
transfer.

According to Avoine, these documents “prove[] that at

all relevant times, Avoine exercised its rights as owner,
security interest holder, or licensor” of the Absolute Poker
assets in question.

(Avoine Br. at 5).

Avoine did not seek

leave to amend its claim to include these documents or to
incorporate them by reference into its claim.
The agreements Avoine relies on appear to demonstrate,
inter alia, that on or about December 12, 2008, Avoine and AE
entered into an agreement rescinding the transfer of the AP

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Assets from Avoine to AE.

Paragraph 4(A) of this rescission

agreement, entitled “Operations,” states, in part, that:
Until the earlier of the transfer by Avoine
of the Assets to a third party, the
determination by Avoine itself to assume the
use of the Assets for business operations or
one year of the date hereof [December 12,
2008], AE shall continue to manage the Assets
and operate the business to which the Assets
apply as the licensee of Avoine for the use
of the Assets solely for such purposes[.]
This paragraph further provides that: “The parties shall proceed
with respect to management and operations under this Paragraph in
such manner as they may agree and deem appropriate and shall make
such reasonable arrangements as they may from time to time agree
for the use and distribution of the proceeds of the management
and operation of the Assets and business.”
Notwithstanding the rescission agreement’s provision
that any license from Avoine to AE to operate the AP Assets would
terminate, at the latest, on or about December 12, 2009, Avoine
concedes that Absolute Poker continued at all relevant times to
maintain control and operation of the Absolute Poker Defendant
Property.

(Avoine Answer ¶ 27(e)).
ARGUMENT
The Government has moved under both Rule 12(b) and Rule

12(c) to strike the claim of Avoine.

“It is well ingrained in

the law that subject-matter jurisdiction can be called into
question either by challenging the sufficiency of the allegation

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or by challenging the accuracy of the jurisdictional facts
alleged.”

United States v. All Funds on Deposit at Citigroup

Smith Barney Account No. 600-00338, 617 F. Supp. 2d 103, 112-113
(E.D.N.Y. 2007) (quotation omitted).

If parties present factual

evidence that is relevant to the jurisdictional issue, the court
may consider such evidence.

Id. at 112-113.

In its claim and answer, Avoine has alleged nothing
more than mere legal ownership and has affirmatively alleged that
it had no involvement in or control over the operation of those
assets for at least the last several years.
claim should be stricken.

Accordingly, its

Alternatively, if the Court were to

consider the additional factual contentions and the documents
submitted by Avoine outside the pleadings and determine that they
are sufficient to overcome Avoine’s pleading deficiency, the
Government should be permitted to supplement its motion after
taking standing discovery pursuant to Rule (G)(6) of the of the
Supplemental Rules.

Accord Fed. R. Civ. P. 12(d) (“If, on a

motion under Rule 12(b)(6) or 12(c), matters outside the
pleadings are presented to and not excluded by the court, the
motion must be treated as one for summary judgment under Rule 56.
All parties must be given a reasonable opportunity to present all
the material that is pertinent to the motion.”).

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I.

AVOINE’s ALLEGATIONS DEMONSTRATE AN OWNERSHIP IN NAME ONLY
A.

Relevant Law
“In order to contest a governmental forfeiture action,

claimants must have both standing under the statute or statutes
governing their claims and standing under Article III of the
Constitution as required for any action brought in federal
court.”

United States v. Cambio Exacto, S.A., 166 F.3d 522, 526

(2d Cir. 1999).

Standing is a threshold issue.

If the claimant

lacks standing, the court lacks jurisdiction to consider his
challenge of the forfeiture.

The burden of proof to establish

sufficient standing rests with the claimant.

Mercado v. U.S.

Customs Service, 873 F.2d 641, 644 (2d Cir. 1989); United States
v. One 1986 Volvo 750T, 765 F. Supp. 90, 91 (S.D.N.Y. 1991);
United States v. One 1982 Porsche 928, 732 F. Supp. 447, 451
(S.D.N.Y. 1990) (abbreviated title).

Where the claimant’s own

allegations are insufficient to demonstrate standing, a motion to
strike his claim should be granted.

See United States v. $38,570

U.S. Currency, 950 F.2d 1108, 1111-13 (5th Cir. 1992) (“Unless
claimant can first establish his standing he has no right to put
the government to its proof”).

When consider the adequacy of a

party’s pleadings, the Court should accept the allegations
contained in the complaint as true, but does not need to “accept
conclusory allegations or legal conclusions masquerading as
factual conclusions.”

Rolon v. Henneman, 517 F.3d 140, 149 (2d

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Cir. 2008) (internal citations and quotations omitted).
“[P]ossession of mere legal title by one who does not
exercise dominion and control over the property is insufficient
even to establish standing to challenge a forfeiture.”
States v. Nava, 404 F.3d 1119, 1130 n.6 (9th Cir. 2005)

United
See also

United States v. Contents of Accounts Nos. 3034504504 & 144-07143
at Merrill Lynch, Pierce, Fenner & Smith, Inc., 971 F.2d 974, 985
(3d Cir. 1992) (upholding district court’s ruling that corporate
claimant was a straw owner that lacked standing and stating that
“[c]ourts have uniformly rejected standing claims put forward by
nominal or straw owners”).
B.

Discussion
Under these established legal principles, Avoine has

failed to plead facts adequate to demonstrate standing.

Avoine

alleges an ownership interest in the assets in question, but then
goes on to expressly plead that since 2007, despite Avoine being
the legal owner, “all operation of the Absolute Poker online
poker business has been carried out by employees and/or agents of
Absolute Entertainment or its contractors and/or assignees (e.g.,
Blanca Games), as express or implied licensees, and not by
Avoine.”

(Avoine Answer ¶ 27(e)).
Thus, according to its own pleadings, Avoine has

exercised no possession of, control over, or involvement in the
operations of the Absolute assets even following the rescission

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of the transfer of those assets to Absolute Entertainment.
Avoine seeks to overcome this by alleging that it had licensed
the assets to AE pursuant either to an “express or implied
license.”

Any express license terminated at the latest by the

end of 2009, and Avoine cannot rely on the bare legal assertion
of an implied license.

Accord Cornell University v.

Hewlett-Packard Co., 609 F. Supp. 2d 279, 290 (N.D.N.Y. 2009) (in
patent context, stating that “[t]he existence of an implied
license is a question of law reserved for the court”).

Avoine

cannot seek to convert its straw ownership into an implied
license arrangement by naked ipse dixit.
II.

THE DOCUMENTS SUBMITTED BY AVOINE SUPPORT THE CONCLUSION
THAT AVOINE’S OWNERSHIP INTEREST WAS IN NAME ONLY
In an effort to overcome its failure to adequately plea

standing, Avoine seeks to supplement its pleadings with
additional documents and factual contentions.

As explained

below, even considering these documents, Avoine has not met its
burden to establish standing.

Indeed, the documents further

support the conclusion that Avoine’s ownership is in name only.
In the event, however, that the Court concludes that these
additional materials are sufficient for Avoine to cure its
standing allegations, the Government requests that it be
permitted to supplement its motion to strike after taking
standing discovery pursuant to Rule (G)(6) of the of the
Supplemental Rules.
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Avoine relies on the purported recision agreement
attached as Exhibit E to its counsel’s declaration to support the
contention that Avoine owned the assets in question and that the
Absolute Poker companies were licensees of Avoine.

Paragraph

4(A) of the agreement, entitled “Operations,” however, provides
that the purported license from Avoine to AE would expire upon
the earlier of a number of events, including the passage of one
year from the date of the agreement.

Thus, by on or about

December 12, 2009, at the latest, Avoine’s purported license to
AE expired.

Absolute Poker nonetheless at all relevant times has

continued to exercise possession and control over the assets,
without any provision in the rescission agreement for the payment
of license fees from Absolute Poker to Avoine or requirement that
Absolute Poker share profits with Avoine.
Thus, these documents actually support the conclusion
that Avoine’s purported ownership of the assets was in name only.
Accordingly, the Government’s motion to strike Avoine’s claim
should be granted.

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CONCLUSION
For the foregoing reasons, the Government respectfully
requests that the Court enter an order striking the claim of
Avoine or, in the alternative, granting the Government permission
to supplement its motion to strike after taking standing
discovery pursuant to Rule (G)(6) of the of the Supplemental
Rules.
Dated:

New York, New York
September 4, 2012
Respectfully submitted,
PREET BHARARA
United States Attorney for the
Southern District of New York
By:

/s/
Sharon Cohen Levin
Jason H. Cowley
Michael D. Lockard
Assistant United States Attorney
[phone]/2479/2193

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