Marina District Development Co. v. Ivey

Citations: 223 F. Supp. 3d 216; 2016 U.S. Dist. LEXIS 173432; 2016 WL 7246074Docket: CIVIL NO. 14-2283(NLH/AMD)

Court: District Court, D. New Jersey; December 14, 2016; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

On October 21, 2016, the Court ruled that defendants Phillip D. Ivey and Cheng Yin Sun breached their contract with plaintiff Marina District Development Co. LLC (Borgata Hotel Casino Spa) by failing to comply with New Jersey’s Casino Control Act (CCA) during four Baccarat games in 2012. The Court established that Ivey and Sun engaged in "edge-sorting" by using marked cards to gain an unfair advantage, which violated N.J.S.A. 5:12—115(a)(2) and (b) of the CCA. They required specific accommodations from Borgata, including a private playing area, a Mandarin-speaking dealer, and a particular deck of cards to facilitate their scheme.

The Court emphasized that both parties were required to adhere to CCA regulations and Baccarat rules, and determined that Ivey and Sun’s actions constituted a breach of their contractual obligation to abide by the CCA. Borgata was instructed to submit a brief regarding damages, proposing two methods: reverting to the status quo ante or calculating expectation damages based on potential winnings absent the edge-sorting. The Court favored the status quo ante approach as the expectation damages were deemed too speculative.

Ivey and Sun contested the applicability of the status quo ante principle, referencing the Golden Nugget v. Gemaco case, but the Court found its application appropriate and ruled that Borgata sufficiently articulated its damages under this theory to warrant an award without a jury trial. The Golden Nugget case clarified that a game played in violation of the CCA, such as with unshuffled cards, is unauthorized and constitutes a breach of contract. The Court concluded that a contract related to winnings in a game authorized by the CCA remains enforceable, despite the violations.

If a game is not authorized by the Act, any contract involving winnings from that game is void and unenforceable unless an exception to N.J.S.A. 2A:40-14 applies. N.J.S.A. 2A:40-35 voids contracts based on illegal gaming. In the Golden Nugget case, the court ruled in favor of the casino for breach of contract, determining that rescission was the appropriate remedy, returning the parties to their pre-contract positions. Ivey and Sun contended that the Golden Nugget ruling was not applicable because their Baccarat games were not deemed "illegal." However, the court found that their use of marked cards violated the CCA, analogous to the illegal game finding in Golden Nugget. Thus, their Baccarat games were unauthorized under the CCA, voiding their contract with Borgata.

Consequently, the remedy for Ivey and Sun’s breach is also to return to status quo ante. Borgata detailed the financial positions before the contract formation, claiming total damages of $10,130,000, along with an additional $249,199.83 for complimentary goods and services. Ivey and Sun argued against these damages, asserting that their edge-sorting technique did not guarantee wins due to reliance on chance. The court rejected this argument, emphasizing that restitution damages restore parties to their prior positions regardless of the certainty of future outcomes. The court noted that the essence of edge-sorting is to shift the odds in favor of the player, contrasting with the casino's established odds.

Allowing a player to unilaterally adjust game odds undermines the core principles of legalized gambling. The defendants successfully manipulated the odds in their favor, leading to substantial winnings. The Court ruled that both Borgata and the defendants, Ivey and Sun, should revert to their pre-contract positions due to a contract that was invalid from inception and breached immediately upon execution. Borgata is entitled to recover all winnings from Ivey and Sun, including amounts won at Craps after Baccarat play. However, Borgata cannot reclaim the value of "comps" given to the defendants, as these were not contingent on winning or losing and were intended to attract high-profile gamblers. The Court affirmed that Ivey and Sun must forfeit benefits gained from the breached contract, restoring the parties to their original state. The ruling also noted that Ivey and Sun did not commit fraud through their edge-sorting scheme, as they adhered to Baccarat rules and Borgata did not suffer from any material misrepresentation. Borgata's request for additional damages based on expected profits from standard betting odds was also discussed.

The theory of damages proposed by Borgata, which estimates potential winnings had the game not involved marked cards, is deemed too speculative to provide a valid remedy. Under New Jersey law, breach of contract allows for three remedies: restitution, compensatory damages, and performance. The aim is to place the injured party in the position they would have been in had the contract been fulfilled. However, for losses to be compensable, they must result from a reasonably certain consequence of the breach. Although mathematical calculations could suggest Borgata's potential winnings based on factors like house edge and average bets, the unpredictable nature of gambling introduces significant uncertainty. The outcome of any game is ultimately influenced by chance, making it impossible to ascertain whether the defendants would have achieved winnings in a fair game. Consequently, any expert estimation regarding potential damages is merely speculative, rendering expectation damages unavailable under New Jersey common law due to their lack of sufficient ascertainability.