Unites States v. Pokerstars, et al

Filing 269

REPLY MEMORANDUM OF LAW in Support re: 237 MOTION For (1) the Entry of a Proposed Stipulated Order of Settlement Between the United States and Certain Absolute Poker-Affiliated Entities and (2) the Interlocutory Sale of All Assets of Those Entities. MOTION For (1) the Entry of a Proposed Stipulated Order of Settlement Between the United States and Certain Absolute Poker-Affiliated Entities and (2) the Interlocutory Sale of All Assets of Those Entities.. Document filed by United States Of America. (Cowley, Jason)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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UNITED STATES OF AMERICA,
:
Plaintiff,
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- v :
POKERSTARS, et al.
:
Defendants;
:
11 Civ. 2564 (LBS)
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 GOVERNMENT’S
MOTION FOR ENTRANCE OF STIPULATED ORDER OF SETTLEMENT AND ORDER
FOR THE INTERLOCUTORY SALE OF PROPERTY

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
The Government respectfully submits this Memorandum of
Law in further support of its motion for (1) the entry of the
proposed stipulated order of settlement between the Government
and the Absolute Poker Settlement Group (as defined in the
Government’s memorandum in support of its motion), and (2) an
order, pursuant to Rule G(7) of the Supplemental Rules for
Admiralty or Maritime Claims and Asset Forfeiture Actions (the
Supplemental Rules”), permitting the United States Marshals
Service (the “USMS”) to conduct an interlocutory sale of all
assets of the Absolute Poker Settlement Group (the “Absolute
Poker Assets”), with the net sale proceeds to be held by the
Government as substitute res for ongoing litigation with the two
claimants asserting an interest in the Absolute Poker Assets,
Avoine - Servico De Consultadoria E Marketing, LDA (“Avoine”) and
the Commonwealth of Kentucky (“Kentucky”).
Avoine has put forward no evidence contesting that
(i) the value of the Absolute Poker Assets is deteriorating; and
(ii) the longer these assets remain unused and unsold, the less
they will be worth.

Avoine’s contention that the Court lacks the

authority to order an interlocutory sale under these
circumstances runs counter to common sense and has no support in
the relevant statutes, rules, or case law.
Similarly, Avoine’s objection to the entry of the
Absolute Poker settlement stipulation based on Avoine’s desire to

take party discovery (as opposed to non-party discovery) from an
entity with no further standing in this matter, that has no
claims against Avoine, and against which Avoine has no claims in
this action, is nonsensical.

Rule 41 of the Federal Rules of

Civil Procedure provides no basis for Avoine’s objection.
DISCUSSION
I.

The Proposed Interlocutory Sale Falls Squarely Within Rule
G(7) and Is Critical to Maintaining the Value of the
Absolute Poker Assets
A.

The Absolute Poker Assets Are Deteriorating in Value
It is uncontested that the Absolute Poker Assets are

deteriorating in value, and the more time that passes the more
the assets will be diminished.

The deterioration in value is set

forth clearly in the uncontested Declaration of Jaime d’Almeida
(the “d’Almeida Declaration”), a Director at the valuation firm
Duff & Phelps.

The value of the Absolute Poker Assets includes

the Absolute Poker brand, its name recognition in the market
place, its customer base, and its software and related
intellectual property.

As d’Almeida explains, the value of the

intangible assets of the Absolute Poker Settlement Group will
continue to decline the longer that the Absolute Poker-branded
business does not operate.

(d’Almeida Decl. ¶ 11).1

1

This deterioration has become especially acute since June
2, 2012. On that date, the license held by the Absolute Poker
Settlement Group with the Kahnawake Gaming Commission expired,
and the servers supporting the Absolute Poker online platform
were disconnected. All Absolute Poker customers around the world
2

The acute depreciation and deterioration of value of
the customer list relating to Absolute Poker is especially clear.
The customer list has value to the extent that it is up-to-date
and accurate.

(d’Almeida Decl. ¶ 11).

As information on the

customer list, including player history and even contact
information, become stale, its value to any possible purchaser
diminishes.

(Id. ¶ 12).

Moreover, because Absolute Poker is not

currently operating, the players on the customer list are not
playing online poker on the Absolute Poker website and their
familiarity with Absolute Poker and loyalties to the brand and
the platform are weakening with the passage of time and their
likely play on other sites.

Similarly, the value of related

items such as brand names, trademarks, and domain names, also
deteriorates.

(Id. ¶ 12).

The market value of Absolute Poker’s

software and related intellectual property is also deteriorating
as the software ages without being updated or upgraded.
B.

Rule G(7) Gives the Court Authority to Order the
Interlocutory Sale of Assets Deteriorating in Value
Rule G(7) authorizes an interlocutory sale of defendant

in rem property when, inter alia, “the property is perishable or
at risk of deterioration, decay, or injury by being detained in

could no longer play any poker, whether for “real money” or not,
or access their online player accounts. They could do nothing
other than view the inactive home pages affiliated with Absolute
Poker. See Declaration of Jerry Bernstein (the “Bernstein
Decl.”) ¶ 3 (attached as Exhibit A to the Declaration of AUSA
Jason Cowley (the “Cowley Decl.”)).
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custody pending the action;” or “the court finds other good
cause.”

Rule G(7)(b)(i)(A) & (D).

“The purpose of an

interlocutory sale of property in a civil forfeiture action is to
preserve the monetary value of the seized property.”

United

States v. $1,133,648.97 seized from Bank of Hawaii, 2008 WL
687337, at *3 (D. Hawaii March 11, 2008) (“Bank of Hawaii”).

As

a number of courts have held, the “risk of deterioration”
includes the depreciation in value of the property (and also
provides “good cause” to order the sale).

See, e.g., id. at *5.

Avoine contends that the Court lacks the authority to
order an interlocutory sale based on depreciation of value,
rather than physical deterioration.

(Avoine Mem. at 4).

This

argument is meritless -- first, it runs flatly contrary to the
purpose of the interlocutory sale provision.

Second, a number of

courts have held that “deterioration” is not limited to physical
deterioration, but includes the deterioration or depreciation of
market value.

Third, the argument ignores that the Court in any

event has authority to order an interlocutory sale for “other
good cause.”
Avoine attempts to characterize Bank of Hawaii’s
discussion of depreciation as “shorthand” without legal meaning
(Avoine Mem. at 5), but fails to note that the order in that case
included the interlocutory sale of, among other things, stock
warrants that the court found were “deteriorating and their []

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values are depreciating with the passage of time.”
Hawaii, 2008 WL 687337, at *5.

Bank of

A number of other courts have

also approved the interlocutory sale of assets based on
depreciation in value.

See, e.g., United States v. Hailey, 2011

WL 6202787, at * 1 (D. Md. Dec. 8, 2011) (granting interlocutory
sale motion, including for computers and other electronic
equipment, because of the “risk of depreciation in value”);
United States v. Dean, 835 F. Supp. 1383, 1385-86 (M.D. Fla.
1993) (pre-CAFRA, granting motion for interlocutory sale of
restaurant property “because its value was rapidly
depreciating”); United States v. One 1979 Peterbilt, VIN:
111677N, 1993 WL 543059, at *2 (E.D. La. Dec. 28, 1993) (preCAFRA, holding that the phrase “liable to deterioration” in a
provision governing interlocutory sales includes depreciation and
authorizing the sale because “the value of the defendant vehicle
is depreciating”).
The cases cited by Avoine do not hold otherwise.

In

United States v. Real Properties Situated at 105 Graff Lane,
Quarry Creek, Charleston, Kanawha County, W. Va., 2011 WL 5975820
(S.D. W.Va. Nov. 28, 2011), while the court noted that the word
“depreciation” did not appear in Rule G(7), it did not hold that
depreciation was an invalid basis for interlocutory sale.
Indeed, it expressly noted Rule G(7)(b)(i)(D), which provides for
the interlocutory sale based on “other good cause.”

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Id. at *2.

Instead, it denied the motion because (1) the Government sought
authority to sell the vehicle at issue for under its appraised
value, (2) the Court found the Government’s argument regarding
the depreciation of the vehicle was too speculative and vague,
and (3) the case had been stayed, which counseled against the
requested relief.
present case.

Id.

None of those factors exist in the

Likewise, in United States v. $6,787.00 in U.S.

Currency, 2007 WL 496747, at *2 (N.D. Ga. Feb 13, 2007), the
court did not reach any legal conclusion that depreciation or
deterioration in value could not serve as the basis for an
interlocutory sale motion.

Rather, the Court simply noted that

the cases relied upon by the Government in that action involved
the interlocutory sale of real property under different statutory
provisions and circumstances and that the Court would not grant
the motion in “the absence of more convincing authority.”

Id. at

*2 & n.1.
C.

Avoine’s Arguments Relating to the Custody of the
Absolute Poker Assets Are Without Merit
Avoine also argues that the Court should not permit an

interlocutory sale of the Absolute Poker Assets because the
Government does not have possession of Absolute Poker’s software.
(Avoine Mem. at 3).

On or about September 18, 2012, the USMS

received a disc from Quad Dimensions, Ltd., a software company
that developed and maintained Absolute Poker’s software,
containing the source code for the software.
6

(Cowley Decl. ¶ 5).

The disc includes the “client program” software developed by Quad
Dimensions for Absolute Poker that created the player interface
for Absolute Poker’s online poker platform (the “Absolute Poker
Software”) (Cowley Decl. Ex. B (Declaration of Young Jae Lee) at
¶¶ 1 & 3), and other software to facilitate the use and operation
of the Absolute Poker Software.

(Id. at ¶ 4).

Quad Dimensions

expressly disclaims any claim to the Absolute Poker Software and
has agreed to delete any retained copies of the Absolute Poker
Software upon request.

(Id. at at ¶¶ 1 & 3).

Accordingly,

Avoine’s argument should be rejected.
D.

The Court Should Approve the Sale
Avoine urges a number of other reasons for the Court to

allow the Absolute Poker Assets to languish, rather than preserve
their value through an interlocutory sale.

Each is without

merit.
1.

The Interlocutory Sale of Assets that Can Be Used
Commercially to Generate Revenue is Not Novel

First, Avoine argues that intellectual property should
be treated differently from all other types of assets, because
“it produces revenue indefinitely.”

(Avoine Mem. at 6).

Avoine

seems to argue that assets with the ability to generate revenue
should not be subject to interlocutory sale.

Avoine further

argues that an interlocutory sale would deprive Avoine of future
profits if Avoine is ultimately successful in this action and can
restart the company.

(Id.)
7

Avoine’s argument is flawed on a number of levels.
First, other courts have approved the interlocutory sale of
business assets, including assets that can produce future
revenue.

See, e.g., United States v. Any and All Assets of That

Certain Business Known as Shane Co., 147 F.R.D. 99, 100 (M.D.N.C.
1992) (noting the court’s approval of the interlocutory sale of
all assets of a trucking company); Dean, 835 F. Supp. at 1385-86
(M.D. Fla. 1993) (noting the court’s approval of the
interlocutory sale of restaurant real property).

Items such as

commercial trucks and commercial property, like the Absolute
Poker Assets, are also revenue-generating items that were subject
to interlocutory sale.

The relief sought in this motion is far

from novel.
2.

Avoine’s Parent Company Is In Bankruptcy
Liquidation

Avoine opposes the interlocutory sale of the Absolute
Poker Assets, claiming that it hopes to retain ownership of the
Absolute Poker Assets and “restart” the company and its stream of
revenue.

(Avoine Mem. at 6).

This contention, however, is

belied by the fact that Avoine and its parent company are in
bankruptcy liquidation proceedings in Norway.

As stated in

Avoine’s answer:
In or about May 2011, Madeira [Fjord AS
(“Madeira”), the parent company of Avoine]
was declared bankrupt by [the Norwegian
Bankruptcy Court] . . . By the same order,
Thomas S. Brandi, an attorney and partner in
8

the bankruptcy department of one
largest law firms, was appointed
administrator (i.e., trustee) of
[] In addition, Mr. Brandi was
contemporaneously appointed sole
and Chairman of Avoine.
(Avoine Answer at ¶ 28).

of Norway’s
insolvency
the Estate.
director of

In a sworn declaration filed in an

action in federal court in Illinois to take discovery relating to
the Norwegian bankruptcy proceedings (the “Brandi Decl.”), Mr.
Brandi expressly stated that the purpose of the Norwegian
bankruptcy proceedings is to liquidate and distribute assets:
The purpose of the Norwegian bankruptcy
proceeding is to marshal the assets of the
debtor for orderly distribution to creditors.
The proceedings in the Norwegian Bankruptcy
Court are similar to those in the United
States. The Norwegian Bankruptcy Court will
review and admit evidence and hear testimony
from witnesses in connection with the
administration and liquidation of a
bankruptcy estate.
(Brandi Decl. ¶ 22 (attached as Exhibit C to the Cowley Decl.)
(emphasis added).

Thus, Avoine’s purported hopes of “restarting”

Absolute Poker and realizing a stream of income from those assets
is far from likely.

Even if Avoine were to succeed on its claim,

the end result of that success would simply be a much-delayed
sale of the Absolute Poker Assets in bankruptcy proceedings.
3.

Avoine’s Likelihood of Success Argument is
Irrelevant and Without Merit

Avoine contends that the Court should not authorize an
interlocutory sale because of an order recently issued in the
Eastern District of New York relating to the application of 18
9

U.S.C. § 1955.

See United States v. DiCristina, 2012 WL 3573895

(Aug. 21, 2012).

This sort of likelihood-of-success argument is

irrelevant to a motion for an interlocutory sale, the point of
which is to preserve the value for the res at issue.
Hawaii, 2008 WL 687337, at *3.

Bank of

Additionally, Avoine is wrong

about the implications of the order in DiCristina decision for
this action.

That order is not binding on this Court and the

Government respectfully, but strongly, disagrees with many of the
conclusions reached in that order.

But, even if DiCristina were

persuasive with respect to the application of § 1955, DiCristina
has no bearing on the forfeiture claims for the Absolute Poker
Assets premised on other statutory violations such as the Travel
Act, bank fraud, and money laundering.
4.

Avoine’s Characterization of the Interlocutory
Sale is Inaccurate

In its papers, Avoine incorrectly charges that an
interlocutory sale would be a “firesale administered by third
parties whose objectives do not even recognize the interests of
Avoine’s shareholders and creditors” (Avoine Mem. at 6),
resulting in the assets being sold at a “deeply discounted
price.”

(Avoine Mem. at 1).

The goal of the United States in

seeking an interlocutory sale is to maximize the value of the
Absolute Poker Assets.

In that respect, the interests of the

Madeira/Avoine bankruptcy estate and the United States are
aligned.

The only difference is that the United States seeks to
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liquidate the assets now, before their value diminishes further,
while Avoine apparently would wait until the conclusion of these
proceedings and, if Avoine were successful in its claim, seek to
sell the assets in a bankruptcy liquidation.
Avoine’s characterization of the interlocutory sale as
a “firesale” is simply wrong.

The USMS is not required to

conduct a firesale and would not.

The sale would be managed by

the Complex Assets Unit of the USMS, a group specifically
purposed with managing and selling complex business assets.

The

USMS has the discretion to design a sale to maximize market
value, including the authority to retain third-party advisers and
brokers to market and sell the Absolute Poker Assets.
Decl. ¶ 6).

(Cowley

Also, because the Absolute Poker Assets can be

marketed together, the USMS and their designee are in a strong
position to obtain value for the intangible assets of the
Absolute Poker Group before such further assets depreciate.

In

short, an interlocutory sale will be far from the “firesale”
strawman Avoine seeks to create.2

2

In United States v. BCCI Holdings, Luxembourg, S.A., the
District Court for the District of Columbia noted the Marshals’
expertise in managing and liquidating assets far more complex
than those of Absolute Poker:
In all of these instances [of interlocutory
sales], the U.S. Marshals Service provided
outstanding service . . . . The Marshals
managed an inventory of over $1 billion in
assets, including some that presented
peculiar problems of investment and
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II.

The Court Should Enter the Proposed Settlement Regarding
Absolute Poker
Avoine’s request that the Court not “So Order” the

settlement agreement reached with the Absolute Poker Settlement
Group has no basis in the law.

Rather than seek third-party

discovery from the Absolute Poker Settlement Group, Avoine
opposes entry of the settlement stipulation solely so that it can
seek party discovery from these entities.

The relief that Avoine

seems to request – that a claimant can only enter a settlement in
which it withdraws its entire claim if it agrees to remain in the
case for the sole purpose of providing discovery to another
claimant – is unreasonable on its face.
Rule 41 of the Federal Rules of Civil procedure, the
rule upon which Avoine premises its unusual request, provides no
basis for the relief it seeks.

First, Avoine misapprehends the

in rem nature of the action as it relates to the Absolute Poker
Assets.

While the Absolute Poker Settlement Group, as a

claimant, will withdraw its claim to the Absolute Poker Assets,
the Government is not seeking to dismiss the in rem action in

liquidation, as well as expertise in the
fields of securities and bankruptcy law. The
Marshals Service demonstrated a level of
competence and imagination in resolving
nettlesome issues for which it should feel
justly proud.
69 F. Supp. 2d 36, 45 (D.D.C. 1999).
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relation to the Absolute Poker Assets.

Instead, in its motion

papers and proposed order, the Government recognizes that
Avoine’s claim to those assets, or the funds resulting from the
liquidation of those assets, remains to be litigated.

Accord

United States v. One Parcel of Property Located at 414 Kings
Highway, Fairfield, Conn., 128 F.3d 125, 126 (2d Cir. 1997)
(treating differently, without discussion, a “So Ordered”
settlement agreement reached with one claimant and a later
request, pursuant to Rule 41, for the voluntary dismissal of the
in rem action).

The only thing being dismissed by virtue of the

proposed settlement agreement is the Government’s in personam
civil money laundering penalty claim against the Absolute Poker
Settlement Group, a request for relief entirely irrelevant to
Avoine’s in rem claim.
Additionally, even assuming Rule 41 governs the Court’s
entrance of the proposed settlement agreement, it provides no
basis for Avoine’s requested relief.

“The thrust of the rule is

primarily to prevent voluntary dismissals which unfairly affect
the defendants, and to permit the imposition of curative
conditions.”

Scandinavian Airlines System v. Reactive Metals,

Inc., 1972 WL 123078, at *2 (E.D.N.Y. Nov. 15, 1972) (emphasis
added).

The purpose is to prevent prejudice to the defendant

against whom an action has been brought who may have already
expended substantial resources defending a claim or who may have

13

to face the same claim in a different forum.

The factors a Court

considers when assessing a Rule 41 request all relate to these
issues.

These factors include: “[1] the plaintiff’s diligence in

bringing the motion; [2] any undue vexatiousness on plaintiff’s
part; [3] the extent to which the suit has progressed, including
the defendant’s effort and expense in preparation for trial; [4]
the duplicative expense of relitigation; and [5] the adequacy of
plaintiff’s explanation for the need to dismiss.”

Catanzano v.

Wing, 277 F.3d 99, 109-10 (2d Cir. 2001) (quotations omitted).
The Absolute Poker Settlement Group, of course, consents to the
proposed settlement.

Avoine cites no basis for its claim that

Rule 41 is meant to safeguard one claimant’s ability to take
discovery from another claimant in order to prove standing.
To the extent that Avoine complains that the Absolute
Poker Settlement Group has not responded to discovery requests,
such issue is moot as the Absolute Poker Settlement Group is
seeking to withdraw its claim as part of the settlement, which
would presumably constitute the ultimate sanction for failing to
comply with discovery requests.3

3

In any event, counsel for the Absolute Poker Settlement
Group states that he discussed the requests with counsel for
Avoine and was told that he could put the requests aside for
future discussion. Bernstein Declaration ¶ 4. A discussion that
has not occurred. Id.
14

CONCLUSION
For the reasons set forth above, the Government
respectfully requests that the Court (1) enter the Absolute
Settlement; and (2) enter an order authorizing the United States
Marshals Service to take custody of the Absolute Assets and
conduct an interlocutory sale of those assets.
Dated:

New York, New York
September 21, 2012
Respectfully submitted,
PREET BHARARA
United States Attorney for the
Southern District of New York
Attorney for the Plaintiff
United States of America
By:

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

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