The judge questions the legality of the deal between the Las Vegas player and the North Dakota Attorney General
Judge Thad Collins’ ruling also cited a nearly two-decade case in North Dakota as an example of a “runaway process that must stop”.
Collins, chief bankruptcy judge for the Northern District of Iowa, ruled on April 23 under a civil case dating back to 2004 as Racing Services Inc. (RSI), an off-track horse racing betting company in Fargo, Filed for bankruptcy.
Since then, RSI and the company’s founder, Susan Bala, have been the focus of numerous civil and criminal proceedings.
RSI filed for bankruptcy shortly after the company was scrutinized by federal agencies. A criminal case was initiated in federal court, and in 2005 Bala was convicted of illegal gambling allegations and was eventually sentenced to prison. She was released early after her appeal was broken.
A number of RSI-related lawsuits came to a head in 2014 when a federal judge ruled that the state of North Dakota did not have the power to levy taxes on account bets, a form of gambling that used services such as RSI.
In this case, the state of North Dakota agreed to pay approximately $ 15.8 million to the bankruptcy estate of RSI and its sole owner Bala.
The state transferred the funds to the RSI Estate Trust account in early 2018. Since then, the balance has fallen by several million dollars due to payouts to creditors and legal fees.
The final distribution of the remaining money to Bala has been delayed by ongoing litigation, some of which can be traced back to RSI’s early bankruptcy when a major creditor – PW Enterprises – filed an initial claim for approximately $ 2.2 million.
PWE’s owner, Peter Wagner, has been described in court documents as a high volume gamer who had agreements with RSI about game discounts and use of the company’s facilities.
After the state of North Dakota agreed to pay the approximately $ 15.8 million bankruptcy estate, PWE modified its original claim of $ 2.2 million and increased what it asked of the property, by about $ 10.8 million.
In November 2018, the U.S. bankruptcy court denied PWE’s amended claim, but approved PWE’s original claim of $ 2.2 million. PWE appealed the decision, claiming it was entitled to money North Dakota paid to the bankruptcy estate. Alternatively, according to PWE, the money North Dakota returned to RSI should go to charities.
North Dakota State, represented by Stenehjem’s office, filed a pleading in support of PWE’s appeal, but later withdrew the pleading. PWE’s appeal was finally rejected in June 2020.
In late December 2018 – about a year after the state of North Dakota and the RSI bankruptcy estate settled for approximately $ 15.8 million – the state filed a new lawsuit against the property on behalf of nonprofit groups. PWE filed a brief in support of the state’s request.
On May 30, 2019, an evidence hearing about the state’s new claim was held.
During that hearing – and only after direct and prolonged questioning of Judge Collins – the judge learned that an agreement had existed between the state and PWE as of around December 2018 asking the state to share any income it made with PWE for charity brought in, split up.
In January 2020, Collins issued a decision denying the state’s new lawsuit against the RSI bankruptcy estate. That lawsuit was filed specifically for only one nonprofit group – Team Makers, the fundraiser for the sports division of North Dakota State University.
Susan Bala. Especially for the forum
The verdict found that North Dakota was not entitled to make a claim on Team Makers’ behalf, and even if it did, the claim was dismissed as the record overwhelmingly showed that it was an “inexcusable.” “There was delay in making a claim.
The state appealed this decision to the Bankruptcy Appellate Panel (BAP), and PWE sought to join the state on the appeal.
In September 2020, the Appellate Body issued a decision that partially upheld and partially overturned Judge Collins’ January 2020 decision.
The appellate body’s decision sent the case back to Collins, who was tasked with retrying the state’s new claim again on behalf of Team Makers, although this time the bankruptcy judge was supposed to rule the lawsuit on its merits, not its timeliness.
The bankruptcy judge was also required to rule on an amended claim filed by the state on May 30, 2019, an evidence hearing on the state’s new claim, the amended claim alleging a breach of contract against RSI on behalf of Team Makers.
In his April 23 ruling, Collins ruled against both claims the state made on behalf of Team Makers against the RSI bankruptcy estate.
In his decision, Collins targets the agreement that existed between the state and PWE.
Describing the state’s partnership with PWE as puzzling, the judge noted that if the state really argued that North Dakota law requires all net gambling proceeds to go to charities, “it remains totally unexplained why the state should agrees to share any amount of ‘net proceeds’ it reclaimed for Team Maker with PWE – an entity that is not a charity. “
According to the state’s arguments, the judge said, “the agreement” appears to be in violation of North Dakota law or is at first sight invalid “.
In response to a request for comment, a spokeswoman for Stenehjem’s office referred to the state’s official briefs on file with the court. Efforts to solicit comments from PWE and Team Maker were unsuccessful.
Also in the ruling, Collins made clear his displeasure with the infinity of the case, noting that the BAP decision and its tolerance for late filing of claims essentially allow parties to a lawsuit to “abuse the system and directly oppose positions.” to take to those represented. ” Suffering from significant litigation years ago and no consequences at all, while legal fees and judicial resources are spent endlessly. “
Collins said in his ruling that after the RSI’s bankruptcy estate ran into unexpected money, the parties involved decided to essentially start over and litigate again.
“The absurdity of this process is progressing and the state claims to do so with the blessing of the BAP,” wrote Collins, describing the state’s attempts to change its claim against RSI as part of a “runaway process that must stop.” .
On May 10, the state of North Dakota filed a notice that it would appeal the bankruptcy judge’s latest decision.
Lorelle Moeckel, an attorney who works with Bala, said the state of North Dakota transferred the RSI settlement amount of approximately $ 15.8 million to the RSI bankruptcy administration accounts on Jan. 2, 2018.
Since then, Moeckel says, approximately $ 6 million has been paid out in creditors and legal fees, “caused by protracted state litigation involving illegal taxes. So far, three federal courts have ruled that the money belongs to RSI, and Susan Bala as sole owner Owner. “
The balance in the RSI escrow account is currently approximately $ 9.7 million, according to Moeckel. He added that the money does not earn interest and legal fees for taxpayers in Bala and North Dakota continue to rise.
“Susan was the one who has suffered the business, financial and personal losses of the past 18 years because she constantly struggled to achieve justice and gave back what was rightfully her own,” said Möckel.
According to Moeckel, the trustee of the RSI bankruptcy estate has announced that it will soon close the property, regardless of whether further complaints are filed by the state or PWE. In this case, the balance of the estate account will be released to Bala.