Unites States v. Pokerstars, et al
Filing
297
MEMORANDUM OF LAW in Opposition re: 203 MOTION to Strike Document No. 62 (Claim of Cardroom International).. Document filed by Cardroom International, LLC. (Hantman, Robert)
UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA,
Plaintiff,
11 Civ. 2564 (KMW)
vs.
POKERSTARS, et. al,
Defendants,
ALL RIGHT TITLE AND
INTEREST IN THE ASSETS OF
POKERSTARS, et. al.,
Defendants.
Sur-reply in Opposition to Motion to Strike
SANAIS
433 North Camden Drive
Suite 600
Beverly Hills, California, 90210
Telephone: (310) 717-9840
The Zegans Law Group, PLLC
276 Fifth Avenue, Suite 404
New York, New York 10001
(646) 755-8732
HANTMAN & ASSOCIATES
www.hantmanlaw.com
1515 Broadway 11th Floor
New York, New York 10036
(212) 684-3933
Attorneys for Cardroom
International, LLC
I. INTRODUCTION
In August of 2012, the United States and Cardroom International,
LLC completed briefing on the United States’ motion to strike the claim of
Cardroom International, LLC. Cardroom requested leave to amend its claim and
answer in light of the actions of the United States in reaching a settlement
agreement with the Pokerstars’ defendants and certain of the Full Tilt Poker
defendants that transferred property in which Cardroom had an undivided joint
interest as well as certain other assets to the Pokerstars defendants, releasing the
forfeiture claim over all but cash assets of the Pokerstars defendants, and accepting
an additional cash payment in settlement of the action as to Pokerstars.
Thus, after charging the Pokerstars defendants with a massive fraud which
sought, inter alia, to corrupt various United States banks, the Pokerstars
defendants in this case were absolved of liability while two of their biggest
competitors on the date this case was filed, the Full Tilt Poker companies and the
Absolute Poker companies, were put out of business.
All in all, this was an amazingly favorable resolution for the Pokerstars
defendants, a transaction which would, at the time this action was unsealed, have
seemed inconceivable given the allegations made and remedies sought by the
United States.
Indeed, the United States declined to reveal any details of the
proposed settlement when it approached Cardroom’s counsel for a stipulation
allowing the substitution of the collateral.
C. Sanai Decl. Dock. # 252 at 5.
The
United States did not dispute this, instead pointing out that Counsel did not raise
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the existence of the co-ownership in certain of Full Tilt Poker’s assets. This is true;
the reason that this point was not raised with Mr. Cowley was because nothing the
United States elected to reveal about the proposed settlement, which was
essentially nothing, notified Cardroom that the software and other business assets
would be transferred to Pokerstars and they would have a free pass to seek
permission from state governments to enter the legalized real money on-line poker
market.
Had the United States provided notice that this might occur in its
complaint, the issue would have been raised.
The United States, exercising the prerogative of the government, has filed
multiple amendments to its complaint, including a Second Amended Complaint,
docket no. 272, filed AFTER this motion was completely briefed.
The
Second
Amended Complaint is the first pleading which discloses that the United States, as
a remedy, might elect to transfer the assets of Full Tilt Poker to one of the other
defendants, a defendant that Cardroom is suing in California court. See SAC at 1315.
Cardroom has and had a due process right to amend its claim and answer in
light of the pleadings and request for relief on file by the United States at any
particular time, and with the filing of the Second Amended Complaint, this right is
based on the Rules of Civil Procedure as well. The United States, having entered
into a settlement agreement that manifestly conflicts with the relief requested in
the Original and First Amended Complaint, contends that Cardroom is not
permitted to have the concomitant right to amend its claim and answer in light of
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the Government’s jack-in-the-box settlement. Cardroom submits that the Federal
Rules of Civil Procedure and due process requires that Cardroom be allowed to
amend its claim and answer in light of the facts disclosed by the Second Amended
Complaint and the proceedings to date.
For this reason, the motion of the United
States is not ripe; instead Cardroom should be allowed the opportunity to amend its
claim and answer in light of the filing of the Second Amended Complaint and the
prior proceedings, and then the Court may adjudicate the motion with all
arguments and issues fully plead and argued.
II. WHAT HAS CHANGED SINCE AUGUST OF 2012
Since the filing of the August 20, 2012 opposition to the motion to strike,
claimant Cardroom has identified and located a copy of the 2003 agreement in the
possession of John Melissinos, the attorney for the Trustee in Bankruptcy of BH
Development, LLC. Other originals or copies are in the hands of Ian Imrich, the
attorney for Chris Ferguson in California, and likely also are in the possession of
Howard Lederer. In order to obtain a physical copy, Cardroom must sort through
some difficult issues of permission because the documents held by Mr. Melissinos
are legal files of his former law firm, Rutter Hobbs & Davidoff, that is in the course
of dissolution after a multi-million dollar malpractice verdict destroyed its viability.
Having had his memory refreshed by reading the actual provision, counsel
can state that his characterization of the agreement was fundamentally accurate.
He did not mention that there were exceptions to the non-assignability provision,
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such as inter-affiliate transfers, but none of the exceptions were even close to being
met.
Accordingly Cardroom will be able to adequately plead the content of the
relevant agreement, as it has the right to view it, but it may take some additional
negotiation, or in the worst case, a subpoena proceeding in the Central District of
California, to bring an executed copy of the agreement before this Court.
Second, and the primary grounds for the request for a sur-reply, the United
States filed a Second Amended Complaint on September 26, 2012, Dock. #272.
III. IN LIGHT OF THE FILING OF THE SECOND AMENDED COMPLAINT,
THIS COURT MUST ALLOW THE FILING OF AN AMENDED ANSWER
AND CLAIM
The critical point this Court must realize is that Cardroom had no cognizable
claim in respect of the software assets of Full Tilt Poker while Full Tilt Poker
enjoyed its co-ownership interest in the software. Likewise, if the United States
chose to forfeit the software and erase it, Cardroom suffered no injury and had no
relief to request. The only circumstances under which a claim could arise is if the
United States elected to obtain ownership of the software and then sell it to some
entity that could injure Cardroom.
However, Cardroom had no notice that the
United States would ever contemplate such an action, and no reason to believe that
it would not have the opportunity to raise objections upon being given notice.
However, the United States took a unique tack with respect to Cardroom: it
unilaterally proposed to liquidate Cardroom’s claim in the amount of $30 million if
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Cardroom raised no objections to the settlement agreement, the terms of which
would remain secret. Cardroom’s consent explicitly provided that neither side’s
consent waived any arguments that could be raised, and the rights of Cardroom
would be the same over the substitute res as over the original res.
The proposal of the United States was explicitly designed to induce Cardroom
to waive its objections by giving it only upside. However, having offered Cardroom
a glittering prize in exchange for Cardroom consenting to a settlement the terms of
which the United States demanded be kept secret, the United States now claims
that it is prejudiced because Cardroom did not disclose the existence of coownership rights that were made relevant and enforceable by the terms of the
settlement entered into by the United States—terms it refused to disclose to
Cardroom.
To put in in a sports metaphor United States hid the ball, and now
complains that the hiding place turns out to be co-owned by Cardroom.
But any
prejudice against the United States arises because it chose to negotiate and conduct
the forfeiture and sale in secret, and then obtain the consent of parties with claims
without disclosing the terms of the secret forfeiture and sale.
However, now that the United States has elected to file a Second Amended
Complaint that discloses its plans (albeit a disclosure made post-hoc), the Federal
Rules of Civil Procedure require that Cardroom be given the opportunity to likewise
amend its pleadings in light of the new facts disclosed.
The United States does not dispute that in civil forfeiture proceedings, the
Court must evaluate the request to amend or supplement the answer in the same
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manner as a request to amend or supplement a complaint in a civil proceeding. See,
e.g. US v. Premises Known as 281 Syosset Woodbury Rd., 791 F. Supp. 61, 64-65
(E.D.N.Y. 1992). Under the Federal Rules of Civil Procedure, the amendment of a
complaint triggers the right to file an answer. Fed.R.Civ.Proc. 15. Because the
Second Amended Complaint is the first complaint filed by the United States to even
discuss the possibility that the United States would transfer the assets of Full Tilt
Poker to one of its co-defendants, Cardroom has the right to amend its answer and
claim to account for the new information.
The United States may argue that if Cardroom believed it has the right to
amend its answer, it should have done so without waiting. However, the United
States was on record as opposing the right to amend, and the Federal Rules of Civil
Procedure apply to these proceedings pursuant to case law. Accordingly, given that
the request for leave to amend had been pending for a month at the time the United
States filed its motion, Cardroom was entirely justified on awaiting a ruling on the
pending request for leave to file an amended answer and claim rather than
unilaterally doing so without waiting to hear form the Court.
IV. CONCLUSION
For the forgoing reasons, the Court should find that the motion is not ripe to
address on the merits and order that Cardroom has 30 days to amend its claim and
answer.
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Dated:
January 4, 2012
Respectfully submitted
By:
:
/s/
CYRUS SANAI
Counsel pro hac vice to
Cardroom International, LLC
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