S.I.A. Ltd. v. Wingate

• Docket Number: 2022-SC-0561-MR
• Decision Date: 28 September 2023
• Citation: 677 S.W.3d 487
• Parties: S.I.A. LIMITED, INCORPORATED in Gibraltar Under the Corporate Act of the Lawson May 2, 2000, Having Voluntarily Dissolved as a Company on March 16, 2022, Appellant v. Honorable Thomas D. WINGATE, Judge, Franklin Circuit Court, Appellee and Commonwealth of Kentucky, ex rel. John Hicks, Secretary of Governor's Executive Cabinet, Real Party in Interest/Appellee
• Court: Supreme Court of Kentucky

677 S.W.3d 487

S.I.A. LIMITED, INCORPORATED in Gibraltar Under the Corporate Act of the Lawson May 2, 2000, Having Voluntarily Dissolved as a Company on March 16, 2022, Appellant

v. Honorable Thomas D. WINGATE, Judge, Franklin Circuit Court, AppelleeandCommonwealth of Kentucky, ex rel. John Hicks, Secretary of Governor's Executive Cabinet, Real Party in Interest/Appellee

2022-SC-0561-MR

Supreme Court of Kentucky.

September 28, 2023

COUNSEL FOR APPELLANT: William E. Johnson, Fort Thomas, Patrick Brennan.

COUNSEL FOR REAL PARTY IN INTEREST/APPELLEE: James L. Deckard, William C. Hurt, William H. May, III, Hurt, Deckard & May, PLLC, Lexington.

OPINION OF THE COURT BY JUSTICE THOMPSON

S.I.A. Limited (SIA) appeals as a matter of right from the Court of Appeal's denial of a writ of prohibition against the Franklin Circuit Court. Ky. Const. § 115. SIA argues the circuit court lacks jurisdiction over it after SIA voluntarily dissolved. We disagree and affirm.

The Court of Appeals did not abuse its discretion in denying the writ because the circuit court has subject matter jurisdiction over the underlying matter and, therefore, was not proceeding outside of its jurisdiction. Additionally, under the circumstances, the circuit court is not acting erroneously within its jurisdiction, there is an adequate remedy by appeal and no great injustice or irreparable injury will result if the petition is not granted. Equitable relief would also be inappropriate if, as it appears, SIA has unclean hands.

It would work a great injustice on our residents if this petition were granted. There is a strong appearance of fraud in the manner in which the dissolution was carried out. The law does not allow a foreign corporation, which engaged in organized criminal activities expressly forbidden by our statutes, to use our Courts to further its criminal schemes and escape justice. SIA should not be permitted to hide behind a dissolution carried out solely for the apparent purpose of thwarting pending litigation. Whether or not this civil action will ultimately result in liability against SIA and force disgorgement of its ill-gotten profits, the Commonwealth is entitled to conduct discovery to investigate whether the corporate veil may be pierced, if there was any prior transfer of assets to avoid forfeiture or liability which may result in a constructive trust of such assets, whether there are any successors in interest and to conduct other discovery. Under these circumstances, it is appropriate that the suit be permitted to proceed.

I. FACTUAL AND PROCEDURAL BACKGROUND

SIA, a foreign Gibraltar¹ corporation, is alleged to be an online gambling syndicate directed by Tina McComber.² SIA allegedly engaged in illegal gambling activities involving Kentucky residents. See Kentucky Revised Statutes (KRS) Chapter 528 (containing laws relating to gambling crimes). SIA allegedly profited illegally from Kentucky citizens by taking a percentage of the funds gambled (a "rake") on its website, www.sportsinteraction.com.

In 2010, the Attorney General of the Commonwealth sought redress against foreign entities engaging in illegal gambling practices with our residents by filing an in rem action seeking forfeiture of internet domain names. Commonwealth v. 141 Internet Domain Names , Franklin Circuit Court, No. 08-CI-01409.³ To avoid forfeiture of their domain names, the entities which owned them had to appear in the action. On May 21, 2012, SIA entered an appearance in the 141 Internet Domain Names litigation, asserting ownership of the domain name sportsinteraction.com.

Based on the initial information learned in 141 Internet Domain Names , the Commonwealth could have pursued criminal charges against the responsible entities, including: promoting gambling in the first or second degree, KRS 528.020 -.030; conspiracy to promote gambling, KRS 528.040 ; possession of gambling records in the first or second degree, KRS 528.050 -.060; permitting gambling, KRS 528.070 ; possession of a gambling device, KRS 528.080 ; and engaging in organized crime as a criminal gang syndicate to promote gambling, KRS 506.120(4)(d). The Commonwealth chose instead to file a civil action under the Loss Recovery Act, KRS Chapter 372, to seek damages from entities that received illegal gambling winnings from Commonwealth residents. Justice and Public Safety Cabinet v. Pocket Kings, Ltd. , Franklin Circuit Court, Action No. 10-CI-00505.

Pocket Kings was the named lead defendant, and the circuit court approved the Commonwealth filing amended complaints to add additional defendants as they became known. Included among these defendants was Stars Interactive Holdings, the entity that operates PokerStars.

SIA was joined as a party in the Pocket Kings litigation on July 12, 2012. SIA appeared, answered, and filed counterclaims which were subsequently dismissed.

On March 17, 2014, the Commonwealth served its first set of interrogatories and first set of requests for production on SIA (the discovery requests). On May 6, 2014, SIA filed objections, including that it had a privilege against self-incrimination. On June 1, 2015, the Commonwealth sent SIA a letter requesting it comply with the outstanding discovery requests. SIA declined to respond to discovery before receiving a ruling on this matter.

In commencing the Pocket Kings litigation, the Commonwealth was in certain respects treading on uncertain ground; while the Loss Recovery Act was not new, the Commonwealth initiating such an action to seek recovery against gambling websites was a new approach. KRS 372.020 generally provides that persons losing in illegal gambling operations (the "losers") can recover their funds from the winner. Pursuant to KRS 372.040, the losers have the exclusive right to pursue such recovery for six months. After that, KRS 372.040 allows for a third-party cause of action to be brought by "any other" person and the recovery of treble damages.

This litigation was complex in that it involved many different entities domiciled around the world. Additionally, portions of the Pocket Kings litigation were essentially put on hold while Stars Interactive Holdings/PokerStars challenged whether the Loss Recovery Act allowed the Commonwealth to sue as "any other person" to seek treble damages and whether the entities’ "rake" of a portion of the funds gambled on their site could be considered "winnings." Those questions were resolved in Commonwealth ex rel. Brown v. Stars Interactive Holdings (IOM) Ltd. , 617 S.W.3d 792 (Ky. 2020), with our Court holding that the Commonwealth had standing and that the "rake" qualified as winnings.

On September 22, 2021, it was publicly reported that Kentucky had reached a sizeable settlement with PokerStars.⁴ This concluded the Stars Interactive Holdings/PokerStars's portion of the Pocket Kings litigation, but the Pocket Kings litigation continued against SIA and other parties.

On September 24, 2021, pursuant to the requirements of Gibraltar's Companies Act of 2014,⁵ McComber resolved that SIA be placed in liquidation and scheduled a meeting, required under Gibraltar law, to carry out such resolution for October 1, 2021. On September 27, 2021, pursuant to the Companies Act § 362, McComber provided a statutory declaration of solvency to Gibraltar's Registry of Companies, declaring that SIA had no outstanding debts.⁶ On October 1, 2021, McComber formally voted that SIA be placed into liquidation and Derek Galliano be appointed liquidator.⁷ No notice of any of these actions was provided to the Commonwealth, the trial court or even SIA's Kentucky counsel.

On January 7, 2022, the Commonwealth sent SIA a letter noting the finality of the Stars Interactive case and requesting SIA reevaluate its prior objections considering this ruling and provide substantive responses by February 15, 2022. On February 2, 2022, SIA requested an extension until March 17, 2022, to provide discovery and the Commonwealth consented to SIA's request.

However, SIA never responded to these outstanding discovery requests. Instead, on April 4, 2022, SIA filed a notice of its liquidation before the circuit court. The notice stated that SIA was dissolved effective March 16, 2022, and SIA attached the affidavit of Galliano in support.⁸ Galliano claimed to have complied with all the requirements of Gibraltar law. This included his posting of prior notice of the voluntary dissolution to creditors in a newspaper there. However, glaringly missing was any prior notice being provided to the Commonwealth as a known creditor⁹ of SIA so that the Commonwealth could exercise its rights and object to the dissolution.

Galliano denied knowing about the proceedings in Kentucky or the pending discovery requests when the general meeting took place or when the final accounting was approved. McComber neglected to inform him about it.¹⁰

On May 3, 2022, the Commonwealth filed a motion to compel SIA to answer its discovery requests and an order compelling the remote depositions of McComber and Galliano. The Commonwealth argued that SIA's objections were either moot or had no merit. The Commonwealth disagreed that SIA as a company could claim a privilege to refuse to answer pursuant to a right against self-incrimination. On May 27, 2020, SIA filed a response opposing this motion and, in a single paragraph, also argued that the circuit court no longer had jurisdiction over it as it had dissolved.

On June 6, 2022, the circuit court granted the Commonwealth's motion to compel and to take the remote depositions of McComber and Galliano.

On June 10, 2022, SIA filed a motion to reconsider and a motion to dismiss. SIA requested that the circuit court apply the law of Gibraltar to determine that the case must be dismissed because SIA is no longer a legal entity capable of being sued.

In opposing this motion, the Commonwealth argued that public policy disfavored the application of Gibraltar law to allow SIA to avoid liability "through fraudulent corporate maneuvers" and argued that...