Commonwealth ex rel. Brown v. Stars Interactive Holdings (IOM) Ltd.

• Decision Date: 17 December 2020
• Docket Number: 2019-SC-0209-DG,2019-SC-0058-DG
• Citation: 617 S.W.3d 792
• Parties: COMMONWEALTH of Kentucky, EX REL. J. Michael BROWN, Secretary of the Governor's Executive Cabinet, Appellant/Cross-Appellee v. STARS INTERACTIVE HOLDINGS (IOM) LTD., f/k/a Amaya Group Holdings (IOM) Ltd. and Rational Entertainment Enterprises, Ltd., Appellees/Cross-Appellants
• Court: United States State Supreme Court — District of Kentucky

617 S.W.3d 792

COMMONWEALTH of Kentucky, EX REL. J. Michael BROWN, Secretary of the Governor's Executive Cabinet, Appellant/Cross-Appellee

v.STARS INTERACTIVE HOLDINGS (IOM) LTD., f/k/a Amaya Group Holdings (IOM) Ltd. and Rational Entertainment Enterprises, Ltd., Appellees/Cross-Appellants

2019-SC-0058-DG

2019-SC-0209-DG

Supreme Court of Kentucky.

DECEMBER 17, 2020

Rehearing Denied March 23, 2021

COUNSEL FOR APPELLANT/CROSS-APPELLEE: James Lee Deckard, William Cecil Hurt, Jr., William Harvey May, Hurt, Deckard & May, PLLC, Lexington.

COUNSEL FOR APPELLEE/CROSS-APPELLANT: Sheryl G. Snyder, Griffin Terry Sumner, Theresa Agnes Canaday, Jason Patrick Renzelmann, Frost Brown Todd LLC, Louisville.

OPINION OF THE COURT BY JUSTICE WRIGHT

This case originated as an action in Franklin Circuit Court brought pursuant to Kentucky's Loss Recovery Act, Kentucky Revised Statutes (KRS) Chapter 372. The trial court granted summary judgment in favor of Appellant/Cross-Appellee and Appellees/Cross-Appellants appealed to the Court of Appeals. The Court of Appeals reversed, holding there was no standing under the Loss Recovery Act in the present case. Appellant/Cross-Appellee petitioned this Court for discretionary review, and we granted the motion. Thereafter, Appellees/Cross-Appellants filed a cross-motion for discretionary review, which we also granted. Because we disagree with the Court of Appeals’ construction and interpretation of the Loss Recovery Act, we reverse its holding that "person" is limited to a natural person and that the Commonwealth lacked standing to bring this suit. Since we reverse the Court of Appeals’ holding on this issue, we must address the remaining issues in the parties’ appeal and cross-appeal.

I. BACKGROUND

In 2010, Appellant/Cross-Appellee, the Commonwealth of Kentucky, through the Secretary of the Justice and Public Safety Cabinet, John Tilley, filed the underlying complaint in Franklin Circuit Court against Pocket Kings, Ltd. and "Unknown Defendants"¹ seeking to recover under Kentucky's Loss Recovery Act.

In bringing suit, the Commonwealth relied on portions of the Loss Recovery Act, including KRS 372.020 and KRS 372.040. KRS 372.020 provides a losing gambler with a first-party cause of action to recover any losses suffered. It reads:

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. If the conveyance or transfer was of real estate, or the right thereto, in violation of KRS 372.010, the heirs of the loser may recover it back by action brought within two (2) years after his death, unless it has passed to a purchaser in good faith for valuable consideration without notice.

Id. If a losing gambler fails to bring a recovery action under KRS 372.020 within six months, KRS 372.040 permits a third-party cause of action to be brought against the winning gambler by "any other person" and allows for the recovery of treble damages. It reads:

If the loser or his creditor does not, within six (6) months after its payment or delivery to the winner, sue for the money or thing lost, and prosecute the suit to recovery with due diligence, any other person may sue the winner, and recover treble the value of the money or thing lost, if suit is brought within five (5) years from the delivery or payment.

Id.

In this case, the Commonwealth of Kentucky filed a civil lawsuit to recover statutory treble damages for money lost by its citizens playing real-money poker on an illegal internet website called PokerStars, which is owned by Appellees (collectively referred to as PokerStars). PokerStars does not participate as a player in the real-money poker games played on its site; instead, a "rake" is charged. A rake is a portion of the amounts wagered during the poker game. PokerStars charged a rake on the poker hands played on its website. Kentuckians lost at least $290,230,077.94 in the five years prior to the filing of this lawsuit (representing but a fraction of the amount of real dollars lost by Kentuckians over the entirety of PokerStars’ operating history in Kentucky).

In 2001, the criminal syndicate that ran PokerStars began operation of its internet-based gambling website from Costa Rica and later moved to the Isle of Man, a small island in the middle of the Irish Sea. In 2006, Congress enacted the Unlawful Internet Gambling Enforcement Act, a powerful tool for prosecution of illegal internet gambling. 31 U.S.C. §§ 5361 - 5367. Section 5361 of the Unlawful Internet Gambling Enforcement Act provides the purpose of the Act, stating in pertinent part: "(4) New mechanisms for enforcing gambling laws on the Internet are necessary because traditional law enforcement mechanisms are often inadequate for enforcing gambling prohibitions or regulations on the Internet, especially where such gambling crosses State or national borders."

The Commonwealth of Kentucky began investigating unlawful online gambling and the damage it was doing to the citizens of the Commonwealth in 2007 during the administration of then-Governor Ernie Fletcher. In 2008, during the administration of then-Governor Steve Beshear, the Commonwealth filed an in rem action in Franklin Circuit Court targeting the internet domain names owned and registered by operators of offshore internet gambling.

In 2010, the Commonwealth of Kentucky filed the underlying case before the Franklin Circuit Court seeking recovery of gambling losses by Kentucky citizens along with treble damages as allowed by KRS 372.040. In April 2011, the U.S. Department of Justice unsealed indictments against PokerStars, its founder, and others for criminal violations of the Unlawful Internet Gambling Enforcement Act, and PokerStars’ deposits of gambling funds in the United States were frozen. PokerStars had survived and even flourished under every enforcement effort until its capital funds were frozen, which finally led to the cessation of its illegal operations in the United States.

During the pendency of this matter before the trial court, PokerStars refused to produce its Kentucky data for five years. The Commonwealth filed a motion for summary judgment based on evidence from their expert witness, an economist. At that point, PokerStars finally offered to turn over its Kentucky gaming data after the 5-year limitation to sue the other winners had expired. The other winners are the individual players who conspired with PokerStars to violate the gambling laws and from whose winnings PokerStars took their rake or percentage of the winnings. The Franklin Circuit Court entered partial summary judgment against defendants REEL and Oldford on liability and a default judgment against defendants Amaya Group Holdings (IOM) and REEL. The judgments were based on the actual amount that Kentucky players lost on PokerStars’ websites. As that court succinctly—and correctly—stated:

Here, the Defendants reached into Kentucky in willful violation of its laws, and for over four and a half years, invited over 34,000 Kentucky players to place over 246,000,000 bets, at least 10 million of which resulted in losses of five dollars or more. In part due to the profit earned during that four-and-a-half-year period. PokerStars grew to the point that by 2014, it could be sold to Amaya for $4.9 billion dollars. While part of the Defendants’ profit came at the expense of Kentucky players’ calculable losses incurred while playing the defendants’ illegal online games, another part of their profits came at the incalculable expense of the violation of Kentucky's laws. For even when Kentucky players won, the defendants still took a rake. And with the money that the defendants took from Kentucky's players, it was able to invest and expand its illicit operations making themselves all the more profitable.

PokerStars appealed and the Court of Appeals reversed the trial court, holding the Commonwealth lacked standing, as it did not qualify as "any other person." The Commonwealth filed a motion for discretionary review which we granted. PokerStars filed a cross-motion, raising other issues not addressed by the Court of Appeals. Specifically, PokerStars now argues: (1) the Court of Appeals should be affirmed, as the Commonwealth is not "any other person" under the Loss Recovery Act; (2) PokerStars could not be sued under the statute, as they were not the "winner" in any of the illegal real-money poker games; (3) the trial court imposed the wrong amount of damages for various reasons; (4) the judgment violates PokerStars’ Due Process rights; (5) the Commonwealth's failure to allege specific players, dates, money lost and players violates required pleading under Kentucky Rules of Civil Procedure (CR) 8; and (6) allowing the Commonwealth to sue under the Loss Recovery Act to recover money lost in gambling goes against statutory limitations on the state's forfeiture powers. We granted PokerStars’ cross motion, and now reverse the Court of Appeals and reinstate the well-reasoned judgment of the Franklin Circuit Court.

II. ANALYSIS

A. The Commonwealth Qualifies as a ‘Person’ under Kentucky's Loss Recovery Act.

The Court of Appeals held the Commonwealth of Kentucky did not qualify as a person under Kentucky's Loss Recovery Act. Rather, that court would limit the term to a natural person. However, this interpretation does not follow our guideposts of statutory interpretation. We have held: "the plain meaning of the statutory language is presumed to be what the Legislature intended, and if the meaning is plain, then the court cannot base its interpretation on any other...