Opinion
2019-SC-000381-MR
02-20-2020
STARS INTERACTIVE HOLDINGS (IOM) LTD., f/k/a Amaya Group Holdings (IOM) Ltd., f/k/a Oldford Group Ltd., and Rational Entertainment Enterprises, Ltd., Appellants v. Hon. Thomas D. WINGATE, Judge, Franklin Circuit Court, Appellee and Commonwealth of Kentucky, ex rel. John Tilley, Secretary, Justice and Public Safety Cabinet, Real Party in Interest
COUNSEL FOR APPELLANTS: Sheryl G. Snyder, Griffin Terry Sumner, Jason Patrick Renzelmann, Carrie Marie Mattingly, FROST BROWN TODD LLC, Louisville. COUNSEL FOR REAL PARTY IN INTEREST: James Lee Deckard, William Cecil Hurt, Jr., William Harvey May, HURT, DECKARD & MAY, PLLC, Lexington.
COUNSEL FOR APPELLANTS: Sheryl G. Snyder, Griffin Terry Sumner, Jason Patrick Renzelmann, Carrie Marie Mattingly, FROST BROWN TODD LLC, Louisville.
COUNSEL FOR REAL PARTY IN INTEREST: James Lee Deckard, William Cecil Hurt, Jr., William Harvey May, HURT, DECKARD & MAY, PLLC, Lexington.
MEMORANDUM OPINION OF THE COURT
After the Franklin Circuit Court entered a judgment in favor of the Commonwealth of Kentucky totaling more than $1.1 billion, the defendant, Stars Interactive Holdings (hereinafter "PokerStars"), initiated an appeal and posted a $100 million supersedeas bond. The Court of Appeals reversed the trial court and directed that the case be dismissed on remand. Despite the Commonwealth’s then-pending motion for discretionary review, PokerStars sought release of the supersedeas bond in the trial court, which denied the motion. In a continuing effort to secure release of the bond, PokerStars petitioned for a writ of mandamus in the Court of Appeals, but that court also denied relief, observing inter alia that discretionary review had been granted by this Court. PokerStars now appeals to this Court the denial of its petition for a writ requiring the trial court to release the supersedeas bond. For the reasons that follow, we affirm the denial of the writ. FACTS AND PROCEDURAL HISTORY
In the underlying litigation Amaya Group Holdings Limited and Rational Entertainment Enterprises Limited (REEL) were named as defendants. These defendants own and operate the PokerStars website, an online gambling forum. As indicated in the case caption, Amaya Group Holdings Limited is now known as Stars Interactive Holdings. Throughout this litigation, these defendants have been commonly and collectively referred to as "PokerStars." For clarity, we use the same name.
Both parties have requested oral argument but the Court finds it unnecessary in this straightforward writ case.
In 2010 the Commonwealth filed suit against PokerStars seeking recovery under Kentucky’s Loss Recovery Act (LRA), a statute allowing gamblers or "any other person" to sue the winner of a gambling transaction to recover money lost. Kentucky Revised Statute (KRS) 372.020, 372.040. The complaint asserts that between 2006 and 2011 more than 34,000 Kentucky residents lost over $290 million gambling on PokerStars websites. The Commonwealth alleged that when PokerStars hosted these online poker games, the defendants took a percentage of the amount bet, won or lost as the "rake" or "commission" for hosting the poker games.
KRS 372.020 states:
If any person loses to another at one (1) time, or within twenty-four (24) hours, five dollars ($5) or more, or anything of that value, and pays, transfers or delivers it, the loser or any of his creditors may recover it, or its value, from the winner, or any transferee of the winner, having notice of the consideration, by action brought within five (5) years after the payment, transfer or delivery. Recovery may be had against the winner, although the payment, transfer or delivery was made to the endorsee, assignee, or transferee of the winner....KRS 372.040 allows "any other person" to sue the winner if the loser does not.
The Commonwealth contended that the Kentucky residents had lost five dollars or more, either at one time or within 24 hours, while playing on the PokerStars websites. Therefore, those residents were "losers" under the LRA. KRS 372.020. Additionally, the Commonwealth argued that receiving commission from the games played qualified PokerStars as "winners" under the same statute. The Commonwealth determined that because none of the Kentucky "losers" had brought a claim under the LRA that it — the Commonwealth — qualified as "any other person," and was entitled to collect treble damages from PokerStars pursuant to KRS 372.040.
PokerStars filed a motion to dismiss the complaint or, in the alternative, for a more definite statement. They argued that the Commonwealth lacked standing to pursue a claim under the LRA, and that the amended complaint failed to satisfy the notice pleading requirements of Kentucky Rule of Civil Procedure (CR) 8.01. The complaint did not identify specific transactions at issue, the names of any affected Kentucky residents, locations where the gambling took place, or the amounts bet. The Commonwealth responded that it had standing to bring the claim as "any other person" under the statute, and that the allegations in the pleadings were sufficient. The trial court denied the motion to dismiss and ordered the parties to proceed with discovery.
After PokerStars unsuccessfully attempted to remove the case to federal court, the Commonwealth moved for partial summary judgment on May 14, 2015. The Commonwealth stated that PokerStars admitted that residents of Kentucky had played and lost money on PokerStars gambling sites and that PokerStars received part, or all, of a fee charged for hosting the games. Because the only remaining issue was the amount of damages owed, the Commonwealth argued that summary judgment was appropriate.
PokerStars opposed the motion for summary judgment contending that several issues of material fact remained, such as whether the Commonwealth has standing to sue under the LRA, who the specific "losers" are, and whether poker is a game of skill or a game of chance as those terms are used in KRS 528.010(3). After hearing arguments from all parties, the trial court granted partial summary judgment on liability and granted a default judgment against PokerStars in conjunction with a motion for sanctions. The trial court held that any party who takes a portion of money lost in gambling is a "winner" under the LRA, including those who make a commission from hosting a poker game, which PokerStars admittedly did. Further, the Commonwealth was permitted to bring the claims as "any other person" under KRS 372.040. Additionally, the trial court held that it is irrelevant that the Commonwealth did not identify specific residents because PokerStars admitted that Kentucky residents had played poker on the PokerStars sites.
The trial court initially awarded the Commonwealth $290,230,077.94 in damages but later ordered a treble damage award of $870,690,233.82. On February 22, 2016, PokerStars filed a notice of appeal and posted a $100 million supersedeas bond, the maximum amount permitted under Kentucky law, to stay the execution of the trial court judgment. KRS 411.187.
In a split decision rendered December 21, 2018, the Court of Appeals held that the Commonwealth did not have standing to bring the action because the "any other person" language in the LRA is limited to natural persons and, consequently, the trial court erred in denying PokerStars’ motion to dismiss. The Court of Appeals further reasoned that even if the Commonwealth was a proper "person" to bring suit, that the complaint failed to state a valid claim because of the failure to identify particular transactions, dollar amounts, or residents who lost wagers on the PokerStars site. Judge Johnson concurred as to damages but dissented as to liability without opinion. The Court of Appeals reversed the trial court’s judgment with directions to dismiss the action on remand.
On January 18, 2019, the Commonwealth filed a motion for discretionary review. On January 23, 2019, the trial court heard PokerStars’ motion to release the supersedeas bond. Because the motion for discretionary review was pending, the trial court reasoned that the ultimate determination as to the finality of the judgment was dependent upon whether this Court granted review. After the trial court denied release, PokerStars filed a petition for writ of mandamus and a motion for intermediate relief in the Court of Appeals on February 4, 2019. Notably, this Court granted the Commonwealth’s motion for discretionary review on April 11, 2019.
On June 5, 2019, this Court granted PokerStars’ cross-motion for discretionary review. That same day, the Court of Appeals rendered a decision denying the petition for writ of mandamus, holding that the financial losses alleged by PokerStars were insufficient to establish irreparable injury justifying a writ. Further, the Court of Appeals stated that pursuant to CR 76.30(2), the Court of Appeals’ opinion was not final, and therefore not enforceable, the Commonwealth having filed a timely motion for discretionary review under CR 76.20. On appeal, PokerStars continues to maintain that it is entitled to intermediate and extraordinary relief.
ANALYSIS
Before turning to the writ precedent that controls this case, we note the purpose of a supersedeas bond. While a party pursuing appeal is not required to post a supersedeas bond, a bond maintains the status quo and protects the prevailing party’s interests.
Generally a supersedeas bond is posted at or near the time that the notice of appeal is filed. Both the appellant and a "good and sufficient surety" sign the bond. The bond stays execution of the judgment and is conditioned on the "satisfaction of the judgment in full ... if
the judgment is affirmed" on appeal. In other words, it is simply a promise by an appellant and the surety to pay the judgment if it is affirmed.... A party, however, does not need to post a supersedeas bond to take an appeal from a judgment. The failure to post a bond, however, leaves the party who obtained the judgment free to execute on it, though the party who executes on a judgment during the pendency of an appeal of the judgment does so at his or her own risk because, if the judgment is reversed, any benefits obtained by virtue of the execution must be restored to the adverse party.
Elk Horn Coal Corp. v. Cheyenne Res., Inc., 163 S.W.3d 408, 419-20 (Ky. 2005). PokerStars argues that a writ of mandamus requiring the release of its supersedeas bond is necessary given the appellate reversal of the judgment awarded the Commonwealth.
A writ of mandamus is "extraordinary in nature, and the courts of this Commonwealth ‘have always been cautious and conservative both in entertaining petitions for and in granting such relief.’ " Kentucky Emp'r Mut. Ins. v. Coleman, 236 S.W.3d 9, 12 (Ky. 2007) (quoting Bender v. Eaton, 343 S.W.2d 799, 800 (Ky. 1961) ). "[C]ourts of this Commonwealth are — and should be — loath to grant the extraordinary writs unless absolutely necessary." Cox v. Braden, 266 S.W.3d 792, 795 (Ky. 2008). This Court has held that a writ may be granted:
only upon a showing that: 1) the lower court is proceeding or is about to proceed outside its jurisdiction and there is no adequate remedy by appeal, or 2) the lower court is about to act incorrectly, although within its jurisdiction, and there exists no adequate remedy by appeal or otherwise and great injustice and irreparable injury would result.
Hoskins v. Maricle, 150 S.W.3d 1, 6 (Ky. 2004) (quoting Southeastern United Medigroup, Inc. v. Hughes, 952 S.W.2d 195, 199 (Ky. 1997) ).
As the Kentucky Civil Rules of Procedure (CR) plainly indicate, the trial court has jurisdiction over supersedeas bonds. "During an appeal, the trial court shall retain original jurisdiction to determine all matters relating to the right to file a supersedeas bond, the amount and sufficiency thereof and the surety thereon." CR 73.06(2). Thus, the trial court indisputably had jurisdiction, making the second class of writs PokerStars only viable option. We review the decision of the Court of Appeals to deny the writ under an abuse of discretion standard. Grange Mut. Ins. Co. v. Trude, 151 S.W.3d 803, 810 (Ky. 2004).
A so-called second-class writ is never appropriate unless the trial court is about to act or has acted incorrectly. PokerStars maintains the trial court erred in denying release of the supersedeas bond because the underlying judgment no longer exists after the Court of Appeals’ opinion. In that vein, PokerStars argues that the fact that an opinion is not considered "final" under CR 76.30 — because it is the subject of further appellate proceedings — does not mean that it is not yet legally effective. We disagree.
CR 76.30(2), titled "Effective date of opinions," provides:
Finality:
(a) ... An opinion of the Court of Appeals becomes final on the 31st day after the date of its rendition unless a petition under Rule 76.32 [ (petition for rehearing) ] or a motion for review under Rule 76.20 [ (motion for discretionary review) ] has been timely filed or an extension of time has been granted for one of those purposes.
....
(d) Unless otherwise ordered, (i) in no event shall an opinion become final pending final disposition of a timely petition under Rule 76.32 or a timely motion for review under Rule 76.20 ; and (ii) in every case it shall become final when no such motion or petition has been filed within the time allowed for that purpose.
In this case the Commonwealth filed a timely motion for discretionary review under CR 76.20, which was pending at the time the trial court ruled and then later granted by this Court. Therefore, the Court of Appeals’ opinion on the underlying judgment was not and is still not final. Because it is not final, it is not effective.
Further, KRS 411.187, which creates a statutory cap for supersedeas bonds, states:
In any civil action brought under any legal theory, the amount of a supersedeas bond necessary to stay execution of a judgment granting legal, equitable, or any other relief during the entire course of all appeals or discretionary reviews of the judgment by all appellate courts shall be set in accordance with applicable law, except that the total amount of the supersedeas bonds that are required collectively of all appellants during the appeal of a civil action may not exceed one hundred million dollars ($100,000,000) in the aggregate, regardless of the amount of the judgment that is appealed.
(Emphasis added). The statute suggests that a supersedeas bond is necessary to stay execution of a judgment throughout the course of all appeals and "discretionary reviews," not just until the party posting the bond receives a favorable result on a first appeal to the intermediate appellate court.
In Kentucky Utilities Co. v. South East Coal Co., 836 S.W.2d 388 (Ky. 1991), a dispute arose between a utility company and a coal company over the price owed under a coal supply contract. Kentucky Utilities (KU) paid $40 million to the trial court in accordance with CR 67.01, which provides that in an action in which the relief sought is a sum of money, parties can deposit that sum with the trial court. Id. at 389. In its final judgment, the trial court found for KU and ordered that the $40 million be released. Id. The Court of Appeals reversed, and KU filed a motion for discretionary review with the Supreme Court. Id. In ruling on an emergency motion for intermediate relief, Justice Leibson held:
CR 67.01 states:
In an action in which any part of the relief sought is a judgment for a sum of money or the disposition of a sum of money or the disposition of any other thing capable of delivery, a party, upon notice to every other party, and by leave of court, may deposit with the court all or any part of such sum or thing. Money paid into court under this rule shall be deposited in an interest-bearing account or invested in an interest-bearing instrument approved by the court. At the conclusion of the action, the interest accruing on any such account or instrument shall be paid to the person to whom the principal amount of the account is paid.
Until the motion is ruled on, or if granted, until the final decision of this Court, the "likelihood" of KU's "success" cannot be estimated, nor should it be the subject of speculation. On the contrary, the situation of the parties should be viewed as they stood when the final judgment was entered. Although CR 73.06(2) permits a trial court to modify a supersedeas bond while the case is on appeal, the right to modify is tied to the same considerations as control when setting
the bond and providing a stay in the first place....
Id. at 391 (emphasis added). The situation between the Commonwealth and PokerStars should likewise be viewed as the matter stood when the trial court judgment was entered. Because the Court of Appeals’ opinion is not yet final, and because this Court will render a final decision regarding the underlying dispute, the trial court did not abuse its discretion in concluding the status of the parties should be maintained pending the outcome on discretionary review.
Moreover, PokerStars has not cited and we have found no Kentucky authority that requires the release of a supersedeas bond prior to final disposition of a case by the Supreme Court. Although we recognize the federal case law cited by PokerStars, we believe Kentucky law mandates a different result.
PokerStars cites Revlon v. Carson Products Co., 647 F. Supp. 905 (S.D.N.Y. 1986) to support the argument that the mere possibility that an appellate decision may be reversed by a higher court does not mean that the intermediate appellate court’s decision should not be given effect. In Revlon, the defendant sought release of a bond posted to stay enforcement of the district court judgment awarding attorney’s fees. Id. The Court of Appeals for the Federal Circuit reversed the order of attorney’s fees, and the plaintiff petitioned for a writ of certiorari. Id. The U.S. District Court reasoned that
the purpose of the bond is to preserve the status quo while protecting the non-appealing party’s rights pending the appeal. If the district court's judgment is affirmed, the bond insures the judgment creditor against the risk of lack of funds to satisfy the award. Id. In contrast, if the award issued by the district court is reversed, the bond no longer serves its purpose of insuring payment of the award and therefore should be released.
Id. at 905-06. The plaintiff opposed release of the bond, arguing that if the Supreme Court granted certiorari it would not be insured against the defendant’s potential financial inability to pay the judgment. Id. at 906.
The U.S. District Court held that "a stay granted by a district court pending appeal to a court of appeals should be limited to the latter court" and that the limitation should logically apply to supersedeas bonds as well. Id. In that court’s view, the bond should be released if an appellate court reverses the judgment. Id. Because the plaintiff presented no evidence of the defendant’s potential inability to satisfy a judgment if the award were reinstated, the district court found no reason to conclude that irreparable injury may occur. Id.
Although the trial court record in this case is not included in this writ appeal, the trial court order denying release of the bond states that throughout the litigation the parties debated the possibility of collecting a judgment as being speculative at best. The trial court stated that releasing the bond could result in irreparable injury to the Commonwealth "based upon numerous allegations in the record of [PokerStars] potentially attempting to disperse assets to avoid payment of a judgment." Apparently, the Commonwealth filed multiple motions "seeking to preclude various corporate maneuvers that [the Commonwealth] argued would delete assets for a potential recovery." In light of these statements, we note that the trial court has handled this case since its inception in 2010 and is therefore most knowledgeable about the parties and the potential risks of the inability to collect a judgment. The Revlon case contemplates that the trial court has the ability to decline to release a bond under the federal rules if the trial court believes a party may potentially be unable to satisfy a judgment first reversed on appeal and then later affirmed. Id. at 906. In that case, the U.S. District Court was satisfied that there was no risk of an inability to satisfy the judgment. Id. Here, the trial court’s concerns about the Commonwealth’s ability to collect on an eventual judgment distinguish this case from Revlon.
Additionally, the Commonwealth attached the affidavit of Andrew English, General Counsel for the Commonwealth’s Justice and Public Safety Cabinet. The affidavit states that in November 2016 the parties met to discuss potential resolution of the case. Once it became clear that the parties were not going to agree, counsel for Amaya Group Holdings allegedly stated that the Commonwealth will never collect on any judgment against them because Amaya has many "tools in its toolbox" to ensure that the Commonwealth will "never recover a dime," even if the judgment was affirmed by the Supreme Court. Further, regarding the $100 million bond, counsel allegedly stated that Amaya even has tools to prevent payment of bonds.
PokerStars also cites Ely v. Cabot Oil & Gas Corp., 2017 WL 1493481, *1 (M.D. Pa. Apr. 26, 2017), a case in which a United States District Court released a bond despite the losing party’s intent to appeal. In Ely a jury returned a verdict for the plaintiff and the defendant posted a supersedeas bond. Id. The trial court later vacated the jury verdict and granted the defendant a new trial. Id. The defendant sought release of the bond, but the plaintiff argued that the bond should remain in place during the appeal of the trial court’s post-trial motions. Id. The U.S. District Court held that "courts should release the bond when the outstanding judgment that the bond was intended to protect no longer remains." Id. Ely is also distinguishable from this case because in Ely the trial court’s judgment was vacated, not reversed on appeal. Id. at *2.
In sum, PokerStars has failed to establish that the trial court acted incorrectly in denying release of the bond. Without this necessary element, we need not address whether PokerStars has an adequate remedy on appeal or will suffer great injustice and irreparable injury. The Court of Appeals properly denied the writ.
Finally, we turn to the alternative argument that this case falls into the "certain special cases" exception to writ entitlement. To fall within this exception, PokerStars must demonstrate a substantial miscarriage of justice and that correction of the trial court’s error is necessary and appropriate in the interest of the orderly administration of justice. Grange, 151 S.W.3d at 808. This exception is a modification of the second-class writ test but it still is premised on an error by the trial court. Where, as here, the trial court did not err the orderly administration of justice is not threatened and a writ is not justified.
CONCLUSION
The trial court did not err in its handling of the supersedeas bond and the Court of Appeals consequently was correct in its denial of the requested writ of mandamus. For the foregoing reasons, we affirm the Court of Appeals.
All sitting. All concur.