A federal bankruptcy judge has recently said that an agreement made by the Office of North Dakota Attorney General and a Las Vegas gambler seems to be in breach of state law.
In his ruling, Judge Thad Collins also described the North Dakota case, which has been almost 20 years long, as an example of a runaway process that needs to be ceased. The ruling was issued on April 23rd as part of a civil lawsuit dating back to 2004 when the Fargo-based off-track horse race betting company Racing Services Inc. (RSI) filed for bankruptcy. For 17 years now, the operator and its founder, Susan Bala, have been involved in a large number of criminal and civil legal proceedings.
Shortly after the company became subject to federal authorities’ scrutiny, RSI filed for bankruptcy. Then, it faced a criminal case in federal court, with Ms. Bala being charged with illegal gambling charges in 2005, for which she faced an imprisonment sentence. However, she was released not long after she won the appeal and her convictions were overturned.
Several other legal proceedings against the company started in 2014 when a federal judge ruled that the state had no authority to collect taxes on so-called account wagering. As part of the case, North Dakota agreed to make a payment of approximately $15.8 billion to Ms. Bala. The money was wired to the estate trust account of the company at the beginning of 2018.
Court Approves Initial $2.2-Million Claim of Creditor PW Enterprises
The continuous legal issues resulted in a delay in the final distribution of the remaining money to Ms. Bala. some of the money was associated with an early stage in the company’s bankruptcy case when PW Enterprises, a large creditor of Racing Services Inc. filed a claim for about $2.2 million. After the state said it would pay the bankruptcy estate, PWE made an amendment to its original legal claim, boosting it to about $10.8 million.
Court documents have described the owner of PW Enterprises, Peter Wagner, as a high-roller gambler who had some agreements with RSI to use its facilities.
The amended claim was rejected by the US Bankruptcy Court in November 2018. Still, the creditor got its initial $2.2-million claim approved by the court, but it appealed the ruling, claiming that the company owed it part of the money paid by North Dakota to its bankruptcy estate. At the time, the state backed the PWE’s appeal with a brief but later withdrew it. The appeal of RSI’s creditor was eventually dismissed in June last year.
About a year after the two parties settled the issue for about $15.8 million – at the end of December 2018 – the state of North Dakota filed another lawsuit against the estate on behalf of local non-profit groups. At the time, PW Enterprises once again supported the legal claims of the state. During the hearing, which took place on May 30th, 2019, the judge learned there had been an agreement between PWE and the state originating from December 2018 under which any proceeds recovered by the state for charity organizations would be split with PWE.
State Had No Right to Take New Claim on Behalf of Non-Profit Group in the Gambling Case
Now, according to Judge Collins’ ruling, it turns out that the state did not have a reason to start a legal claim on behalf of the non-profit group Team Makers. The court’s decision also stated that even North Dakota did have the right to do so, there was a significant delay in asserting a claim that cannot be excused and, eventually, would bar the legal action.
The state addressed the Bankruptcy Appellate Panel to appeal the ruling, with PW Enterprises seeing to join the state in that. In September last year, the Appellate Panel announced a ruling that partly reversed and partly affirmed the ruling that Judge Collins made in January 2020. It also sent the case back to Collins, who was supposed to take the new claim on behalf of Team Makers into consideration. He was also required to rule on the state’s amended claim from May 30th, 2019.
In the ruling dated April 23rd, 2021, Judge Collins rejected both claims that had been brought by the state of North Dakota against RSI. He said that the agreement between the state and PWE seems to violate local laws or is invalid and noted that the existing law required all net proceeds derived from gambling to be distributed to charities.