Lawyers head to Superior Court today to argue whether Atlantic Club Casino Hotel can walk away from a sales deal with Rational Group now or wait for a licensing decision to be made in several months.
Atlantic Club is arguing the sales contract provides a termination clause. The casino says Rational Group — the parent company of online gambling giant PokerStars — will unlikely be awarded a license by regulators. Atlantic Club wants to pursue other options in anticipation of Internet gambling beginning in New Jersey in November.
But Rational Group, which has won a temporary restraining order on the matter, wants the deal to proceed at least until the New Jersey Division of Gaming Enforcement issues its licensing decision in August. The Isle of Man-based company wants Judge Raymond Batten to prohibit Atlantic Club from negotiating a new sales contract with another company until then.
The legal dispute comes as a surprise to lawmakers who praised the deal as an example of how the enactment of New Jersey’s Internet gambling law earlier this year was spurring investment in Atlantic City casinos.
“It’s disappointing, for sure,” said state Sen. Raymond Lesniak, D-Union, one of the proponents of the Internet gambling bill. “PokerStars and Atlantic Club are a significant part of the economy, and it’s troubling that this dispute is being waged.”
Atlantic Club, which had struggled near the bottom of the industry in gambling revenues, had told lawmakers it was on the brink of closing unless the state legalized Internet gambling as a way to attract online buyers such as PokerStars.
A few weeks after the Legislature passed the measure, the sale was announced — with Atlantic Club officials proclaiming that the acquisition would secure up to 2,000 jobs and other economic benefits.
Rational Group argues it already has invested much in the deal, including financially helping Atlantic Club by advancing up to $750,000 weekly — or up to $11 million of the $15 million purchase price. Rational said it also agreed to fund the $32 million shortfall in Atlantic Club’s pension fund once the sales deal is finalized. The company says Atlantic Club cannot legally terminate the contract because regulators have not yet rendered a licensing decision.
Atlantic Club, on the other hand, said because Rational Group was unable to receive interim casino authorization by April 26, the contract can be terminated and Atlantic Club is owed $4 million. The casino wants time to look at its other options.
Casino officials said at the time the deal was made they knew PokerStars had legal troubles with the U.S. Department of Justice but were unaware of the extent. Last year, PokerStars agreed to pay $731 million to settle the Justice Department lawsuit alleging charges of money laundering, bank fraud and illegal gambling.
Atlantic Club lawyer Gilbert Brooks said in court documents that when he was first brought on to review the sales contract, he had little knowledge of PokerStars, although he “was generally aware that PokerStars had a prior legal issue with the Department of Justice.”
But after news reports of PokerStars’ past highlighted “allegations of prior conduct that appeared troubling from a gaming regulatory perspective,” Brooks said he searched for files on the case.
“There was a great deal of troubling information,” Brooks said, adding he grew more concerned after reviewing additional documents Rational Group had provided to regulators. “I am not in a position to provide or comment upon these documents, but they heightened concerns related to the ability of Rational to obtain (interim casino authorization) from the (Casino Control Commission).”
State Sen. Jim Whelan, D-Atlantic — who also was a proponent of the Internet gambling law and held conference calls with representatives of Atlantic Club and Rational Group discussing the legislation prior to its passage in the Senate — said he wanted the court to decide the matter.
But Whelan said he found it difficult to believe Atlantic Club wasn’t fully aware of PokerStars’ past and likely problems with securing interim casino authorization.
“That’s part of the court argument and that’s a matter for the courts to sort out,” he said. “I don’t know how they could not know PokerStars had issues. That was very well known throughout.”
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