Judge refuses to maintain temporary restraining order on Atlantic Club Casino following lawsuit filed by Rational Group, writes David Schollenberger, Head of Gaming and Leisure Team at Healys LLP solicitors, London.
PokerStars has run out of time for its acquisition of the Atlantic Club in Atlantic City, New Jersey. It appears that its ambitions for an online gaming presence in New Jersey have been foiled by a poorly thought-out purchase agreement.
PokerStars, through its US subsidiary company, Rational Group US Holdings, Inc (“Rational”), entered into a purchase agreement (“Purchase Agreement”) in November of last year for the Atlantic City property with the Colony Capital subsidiary company, Resorts International Holding, LLC (“RIH”) for a purchase price of $15 million.
Under the terms agreed in the Purchase Agreement, Rational was required to fund operation shortfalls in the property until the date of regulatory approval, which could be credited towards the purchase price upon completion of the sale.
The Agreement was further subject to obtaining regulatory approval by April 26, 2013. After that date, RIH had the right to terminate the Agreement.
According to Rational’s claims, it put in over $11 million into the Atlantic Club between November and May and further contributed another $220,000 to build a poker room. The Agreement also contained a termination fee of $4 million, payable by Rational should the Purchase Agreement be terminated.
After learning that a decision by the New Jersey gaming regulator would not likely be determined before August 2013, Rational attempted to obtain agreement to an extension to the April deadline from RIH, but was refused. On April 27, 2013, RIH sent Rational a letter terminating the Purchase Agreement and demanding the termination fee of $4 million provided for in the Purchase Agreement.
Rational then quickly applied to the Superior Court of New Jersey Chancery Division for an emergency temporary restraining order to stop RIH from selling the Atlantic Club to anyone else, to declare the termination notice void, to reinstate the Purchase Agreement until regulatory approval had been obtained, and to impose a lien on the assets of the Atlantic Club in the amount Rational had expended to date funding operational shortfalls and the poker room. The Order was initially granted by Judge Raymond Batten on an emergency application of Rational. A further hearing on the temporary restraining order was held with oral arguments of both parties on Friday, May 17, 2013. Following the hearing, the Judge then lifted the temporary restraining order.
The Judge sided with the arguments of RIH’s lawyers that Rational was attempting to rewrite the Agreement between the parties. Rational took a risk that the approvals would be in place by an agreed date or forfeited its right to purchase when that time expired. His ruling will allow RIH to sell to other interested parties, of which there are purportedly numerous. In the meantime, Rational will continue to pursue RIH in the courts for monetary damages. Rational may well end up losing the $15 million it had earmarked for the purchase, a foothold in Atlantic City and its first opportunity to operate online poker legally in the US.