Unites States v. Pokerstars, et al

Filing 298

SUPPLEMENTAL REPLY MEMORANDUM OF LAW in Support re: 203 MOTION to Strike Document No. 62 (Claim of Cardroom International).. 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,

:
11 Civ. 2564 (KMW)

- v. -

:

POKERSTARS, et al.

:

Defendants;

:

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

:
:

Defendants-in-rem.
:
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MEMORANDUM OF LAW IN RESPONSE TO SUR-REPLY OF
OF CARDROOM INTERNATIONAL, LLC

PREET BHARARA,
United States Attorney for the
Southern District of New York

Sharon Cohen Levin
Jason H. Cowley
Assistant United States Attorneys
- of counsel -

PRELIMINARY STATEMENT
The Government respectfully submits this memorandum of law
in response to the sur-reply filed by Cardroom International, LLC
(“Cardroom”) relating to the Government’s motion to strike its
claim.

Cardroom has effectively conceded that its currently-

pending claim is inadequate to confer standing.

Instead, after

reaching a stipulation in which the Government agreed to hold $30
million has substitute res for Cardroom’s pending claim, Cardroom
now attempts to reinvent its theory of standing in this action.
Contrary to Cardroom’s assertion, the Government’s filing of a
Second Amended Complaint does not confer upon Cardroom a right to
completely replace its basis for standing.

Cardroom’s eleventh-

hour attempt to articulate a new standing theory to avoid
dismissal is without merit and Cardroom’s illegitimate presence
in this case continues to cause undo prejudice and delay.

For

these reasons, Cardroom’s claim should be stricken without leave
to amend.
Brief Procedural Background
Cardroom’s claim in this action was premised entirely on the
“inevitable judgment” of $30,000,000 it was to obtain in a statecourt action it filed alleging in personam claims against, inter
alia, PokerStars and Full Tilt Poker (D.E. 62).1

1

In July 2012,

See Cardroom International LLC v. Mark Scheinberg, et al.,
No. SC114330 (Super. Ct. Cal. L.A. County). Cardroom’s pending
complaint in that action appears to have been recently dismissed,
with leave to amend, for failing to state a claim. See December
31, 2012 Order, attached as Exhibit A to the Cowley Declaration.

the Government moved to strike Cardroom’s claim based on a lack
of standing (D.E. 203).
Later that month, the Government reached settlement
agreements with Full Tilt Poker and PokerStars that would involve
the forfeiture of assets from Full Tilt Poker and the conveyance
of those assets to PokerStars in exchange for, inter alia,
monetary payments from PokerStars.

Because Cardroom’s claim

asserted a blanket interest in “[a]ll other property that has
been seized or will be seized in this proceeding at any time,
directly from and/or related to . . . Pokerstars and . . . Full
Tilt Poker and any related defendant(s)” (Cardroom Claim ¶ 6),
and because the Government’s motion to strike had not yet been
adjudicated, the Government, in an abundance of caution, entered
a stipulation with Cardroom in which the Government agreed to
hold $30 million as “substitute res for the Forfeited Full Tilt
Assets subject to Cardroom’s claim.”2

Cardroom Stipulation ¶ 2,

attached as Exhibit B to the Cowley Declaration.

The Full Tilt

Poker and PokerStars Settlement Stipulations were entered on July
31, 2012 (D.E. 240 and 241).
On August 21, 2012, Cardroom responded to the Government’s
motion to strike (D.E. 253).

Cardroom did not challenge the

2

Cardroom’s sur-reply brief, like the declaration filed
with its response brief, contains allegations about
communications with the Government regarding this stipulation
which are inaccurate but nevertheless irrelevant to the merits of
this motion. Accordingly, while the Government does not concede
those allegations, we do not specifically address them here.
2

Government’s arguments relating to the inadequacy of its claim.
Rather, it set out an entirely new theory of standing premised on
Cardroom having a joint interest in the software utilized by Full
Tilt Poker and sought leave to file an amended claim and answer.
Cardroom Response Brief (D.E. 253).
On September 4, 2012, the Government filed its reply brief,
setting forth why Cardroom should not be permitted to reinvent
its basis for standing on the grounds of undue delay, prejudice,
and futility.

Gov Reply 11-15 (D.E. 259).

On about September 10, 2012, the Government filed a Second
Amended Complaint (D.E. 272).

On or about October 2, 2012, the

Court, pursuant to a letter sent by the Government and copied to
counsel of record (including counsel for Cardroom), set a
deadline of October 19, 2012, for the parties to answer the
Second Amended Complaint (D.E. 273).

Cardroom has not filed an

answer to the Second Amended Complaint.
On January 4, 2012, Cardroom filed its sur-reply brief,
arguing that it should be permitted to file a new claim and
answer in light of the Government’s filing of the Second Amended
Complaint.

3

ARGUMENT
I.

The Filing of the Second Amended Complaint Does Not Confer
Upon Cardroom the Right To File a New Claim Asserting an
Entirely New Theory of Standing
In seeking to reinvent its theory of standing in this case

almost two years after its initiation, Cardroom conflates the
filing of a claim and the filing of an answer and the very
different purposes that these two pleadings serve.

As one court

has succinctly explained:
The claim and the answer, though similar, serve
distinct purposes. The former insures that [a]ny party
who wishes to defend a forfeiture action [will] be
forced to swear to his interest in the forfeited
property. [] The answer serves its normal function— to
state in short and plain terms [the] defense to each
claim assert ... and to admit or deny the avertments
upon which the adverse party relies.
United States v. U.S. Currency in the Sum of $261,480, No. 00
Civ. 3028, 2002 WL 827420, *1 n.3 (E.D.N.Y. May 2, 2002)
(citations and quotations omitted).
While Cardroom is correct that the filing of the Second
Amended Complaint would have allowed it to file an answer setting
forth its answers and defenses, if any, to the forfeiture
allegations set forth in the Second Amended Complaint, the filing
of that complaint did not provide it with the right to file a new
claim setting forth an entirely new theory as to how Cardroom has
standing to assert an interest in the subject res.3
3

The Second Amended Complaint did add new defendant
property that was held by Full Tilt-related individual defendants
Lederer and Bitar. The addition of that property is not relevant
4

Cardroom is also incorrect that the filing of the
Second Amended Complaint somehow moots the Government’s motion to
strike Cardroom’s claim.

That motion is premised on Cardroom’s

lack of standing based on Cardroom’s alleged interest in the res
at issue as set forth in its claim.

It is a party’s claim, not

its answer, that sets forth the basis for its interest in the res
in question.

See

Rule G(5)(a)(i), Supplemental Rules For

Certain Admiralty and Maritime Claims (the “Supplemental Rules”);
United States v. $25,790 in U.S. Currency, 2010 WL 2671754, at *3
(D. Md. July 2, 2010) (“An answer, however, is not adequate to
endow the government with knowledge of ownership; only a verified
claim can do that.”).

The motion to strike Cardroom’s claim

remains ripe for consideration.
II.

Cardroom Failed to File a Timely Answer, Providing a New and
Independent Basis to Strike Its Claim
While Cardroom did have a right to answer the Second Amended

Complaint, it has failed to do so, and its claim should be
stricken for this independent and additional reason.
Rule G(5)(b) of the of the Supplemental Rules states that a
claimant “must” file an answer in the time provided by the rule.
In this case, the Court set a deadline of October 19, 2012 for
the parties to answer the Second Amended Complaint.

See D.E.

to the issues addressed in this brief. Additionally, Cardroom’s
original claim asserted an interest in “[a]ll other property that
has been seized or will be seized in this proceeding at any time,
directly from and/or related to . . Full Tilt Poker and any
related defendant(s).” (Cardroom Claim ¶ 6).
5

273.
While Cardroom argues that it should be excused for failing
to file an answer because its request to file a new claim and
answer has been pending, this excuse is without merit.

Cardroom

made that request in its reply brief filed on August 20, 2012
(D.E. 253) in regard to the First Amended Complaint.
Amended Complaint had not yet even been filed.

The Second

When the Second

Amended Complaint was filed and the Court ordered a deadline by
which the parties must answer, Cardroom failed to answer or to
otherwise take steps to preserve its ability to answer.
Pursuant to Rule G(8)(c), the Government may move to strike
a claim based on a claimant’s failing to comply with Rule G(5),
which includes the requirements of filing a timely answer, and
for the resulting lack of statutory standing.
Rule G(8)(c)(i).

See Supplemental

“When a claimant fails to file an answer, he or

she does not have statutory standing to bring a claim.”

United

States v. 479 Tamarind Drive, Hallendale, Florida, 2011 WL
1045095, at *3 (S.D.N.Y. Mar. 11, 2011) (DLC).

See also United

States v. $27,601.00 in U.S. Currency,2011 WL 3296170, at *2
(W.D.N.Y. Aug. 1, 2011) (striking claim for failing to file a
timely answer and collecting cases requiring strict compliance
with Rule G(5)); United States v. $14,132.00 in U.S. Currency,
2011 WL 3235720, at *1 (D. Col. July 28, 2011) (same).
The Court should strike Cardroom’s claim on these grounds.
Cardroom’s baseless presence in this action continues to cause
6

substantial prejudice and its repeated frivolous and far-fetched
theories of standing should not be tolerated.

In terms of

prejudice, the $30 million held as substitute res for Cardroom’s
pending claim cannot be finally forfeited for disposition
according to law.

Additionally, because Cardroom has asserted a

claim to “[a]ll other property that has been seized or will be
seized in this proceeding at any time, directly from and/or
related to . . . Pokerstars and . . . Full Tilt Poker and any
related defendant(s)” (Cardroom Claim ¶ 6), funds from almost
every settlement that has been entered in this matter are being
held in limbo pending the resolution of Cardroom’s claim.

See,

e.g., Dec. 15, 2012 and Nov. 16, 2012 Letters to the Court
Regarding Various Settlements; compiled as Exhibit C to Cowley
Declaration.

Also, the Government cannot seek default judgments

on certain defendant rem in the action because of Cardroom’s
blanket claim.
III. Cardroom Should Not Be Permitted to File a New Claim
Additionally, the Court should not otherwise permit Cardroom
to file a revised claim (or answer) reinventing its basis for
standing.

Cardroom’s desperate attempt to remain in the action

should be denied based on undue delay, prejudice, and futility.
The Government’s arguments regarding these issues are set
forth in detail in its reply brief of September 5, 2012 (D.E.
259).

As explained in that brief, Cardroom’s new theory of

standing is devoid of merit.

Gov. Reply at 13-15.
7

At its core,

Cardroom alleges a joint interest in software also jointly owned
by Full Tilt Poker.

However, only Full Tilt Poker’s assets were

forfeited and conveyed by virtue of the settlements in this
action.

Cardroom’s interests, whatever they are, were not

forfeited or transferred.

To the extent that there was a

contractual provision precluding Full Tilt Poker from
transferring its joint interest (which the Government does not
believe is the case), Cardroom alleges, at best, some sort of
breach of contract against Full Tilt Poker.

Such an allegation

does not confer standing in regard to any particular res.

See,

e.g., United States v. Gianelli, 686 F. Supp. 2d 116, 117 (D.
Mass. 2009) (dismissing claim filed by petitioner based on
criminal defendant’s alleged tortuous conduct).

Accordingly,

Cardroom’s amended claim would be futile.4
Cardroom’s attempt to recast its standing in this case at
this late stage should also be rejected on the grounds of undue
delay and prejudice.

Cardroom’s opaque argument that standing

was somehow created by the settlements reached with the Full Tilt
Poker and PokerStars is baseless.

The Government first filed

this action seeking the forfeiture of all assets of Full Tilt

4

Cardroom’s claim is also futile in that it appears to be
based on the Government’s liquidation of a forfeited asset,
rather than any ownership interest that Cardroom had in that
asset (i.e. Full Tilt’s interest in its software). Such a theory
has no legal basis. Standing is premised on an ownership
interest in an asset, not on a third party’s preference regarding
how the Government liquidates an asset after it is forfeited.
8

Poker in April 2011.

Cardroom’s alleged interest in Full Tilt

Poker’s software purportedly derives from a 2003 agreement.

If

Cardroom wanted to allege an ownership interest in Full Tilt
Poker’s software, it could, and should, have done so as part of
its original claim.

See $25,790 in U.S. Currency, 2010 WL

2671754, at *3 (“A claim is an important safeguard against the
filing of false or frivolous claims because the Government has an
opportunity to know the nature of the interest in the property at
the outset of the forfeiture action. . .”) (emphasis added);
accord United States v. Strube, 58 F. Supp. 2d 576, 585 (M.D. Pa.
1999) (in ancillary forfeiture proceeding, declining to consider
theory of recovery that was not set forth in timely forfeiture
petition); United States v. Caro, 2010 WL 680939, at *5 (S.D.
Fla. Feb. 23, 2010) (same).
Cardroom’s actions smacks of dilatory motive and
gamesmanship.

Cardroom chose to enter a substitute res

stipulation that provided for the maintenance of $30 million in a
seized asset account, the exact amount Cardroom was to obtain in
its “inevitable judgment” which served as the sole and exclusive
basis for its claim in this action.5
benefit of that stipulation –

Cardroom chose to reap the

$30 million being held in the bank

– while now claiming that it also has a previously undisclosed,

5

Indeed, Cardroom would not have been in the position to
obtain such a stipulation had it not filed its patently frivolous
claim in this action, the merits of which it has never defended.
9

unalleged joint interest in Full Tilt’s software that should
permit it to remain in the action while abandoning its original
basis for filing a claim.6
Cardroom’s continued presence in this matter and its whacka-mole theories of standing continue to cause prejudice including
rendering funds from a number of settlements unavailable for
final disposition.

Additionally, a party’s reinvention of its

claim frustrates the ability of the government and other parties
to make informed decisions regarding motions, settlements, and
the like based on each party’s assertion of ownership interests
in various res, and generally frustrates the resolution of the
action.
CONCLUSION
For the foregoing reasons, the Government respectfully
requests that the Court strike the claim of Cardroom
International for lack of standing, without leave to amend.
Dated:

New York, New York
January 14, 2013
Respectfully submitted,
PREET BHARARA
United States Attorney for the
Southern District of New York
By: :

/s/
Sharon Cohen Levin/Jason H. Cowley
Assistant United States Attorneys
[phone]/2479

6

This new theory is entirely premised on a document that
Cardroom claims it still does not possess a “physical” copy of.
Cardroom Sur-Reply at 3
10