Marina Dist. Dev. Co. v. Ivey

216 F.Supp.3d 426

MARINA DISTRICT DEVELOPMENT CO., LLC doing business as Borgata Hotel Casino & SPA, Plaintiff,

v.Phillip D. IVEY, Jr., Gemaco Inc., and Cheng Yin Sun, Defendants.

CIVIL NO. 14–2283(NLH/AMD)

United States District Court, D. New Jersey.

Signed October 21, 2016

JEREMY M. KLAUSNER, AGOSTINO & ASSOCIATES, PC, 14 WASHINGTON PLACE, HACKENSACK, NJ 07601, On behalf of plaintiff.

JEFFREY W. MAZZOLA, LAW OFFICES OF WILLIAM E. STAEHLE, 445 South Street, P.O. BOX 1938, MORRISTOWN, NJ 07962–1938, On behalf of defendant Gemaco, Inc.

EDWIN JOSEPH JACOBS, JR., MICHAEL F. MYERS, LOUIS M. BARBONE, JOEL SOLOMON JUFFE, JACOBS & BARBONE, 1125 PACIFIC AVENUE, ATLANTIC CITY, NJ 08401, On Behalf of defendants Phillip D. Ivey and Cheng Yin Sun

OPINION

HILLMAN, District Judge

Every breaking wave on the shore

Tells the next one "there'll be one more"

Every gambler knows that to lose

Is what you're really there for¹

As a general matter, gambling is illegal. This is because the law considers gambling malum per se , a function of the age-old belief, arising perhaps from Judeo–Christian doctrine, that gambling is an immoral vice. Hence, it is prohibited by both the state and the federal government.

But like most vices, which would exist in some measure whether banned by governments or not, many states choose to allow, regulate, and tax some versions of it while preserving the ban on unregulated enterprises. The theory is a simple one. State-sanctioned gambling will be cleansed of its most unsavory elements and the games will be conducted under a defined set of published rules overseen by an administrative body.

Most importantly, the odds will be set up to benefit the "house", and the state will tax the revenue. In short, and by design, over time every gambler who plays against the house will eventually bet—and lose—more than they win. Of course, some games allow for more skill than others and there is always lady luck. But the principle that the odds are against you is literally true and eventually wins out. This is something every gambler knows.

In this case, the uncontroverted facts establish that defendants Phillip D. Ivey and Cheng Yin Sun, "high-stakes" professional gamblers, set out to shift the odds of the casino game of Baccarat away from the house and in their favor. They achieved this, and profited handsomely from it, by the use of an elaborate and hidden "edge-sorting" scheme to create, and thereafter use, a deck of cards aligned in such a way as to reveal to them the face value of a card before it was turned over. Knowing the value of the card beforehand (here within a range they chose) dramatically increased the odds their resulting bets would beat the house. And beat the house they did.

Not surprisingly, when the scheme was revealed, the Plaintiff Marina District Development Co., LLC, which does business as Borgata Hotel Casino & Spa in Atlantic City, New Jersey, cried "fraud," among other things, and brought this suit. Ivey and Sun previously moved to dismiss Borgata's complaint against them, but the Court permitted the case to proceed through discovery.

The outcome of the discovery process reveals that not much has changed since the Court issued the decision denying Ivey and Sun's motion to dismiss, other than that each side's position is more fully supported by additional facts and testimony. Ivey and Sun and Borgata agree that the primary issue to be decided by the Court in order to resolve Borgata's claims against Ivey and Sun is whether their use of the edge sorting technique in Baccarat constitutes fair play, breach of contract, or fraud. Accordingly, the parties have each moved for summary judgment in their favor.²

Because the Court issued a comprehensive Opinion in resolving Ivey and Sun's motion to dismiss that recounted the timeline of events, the details of the parties' conduct, the nature of Borgata's claims, and Ivey and Sun's arguments in opposition, the Court will fully incorporate that Opinion into this decision. (See Docket No. 32.) This Opinion will supplement the contents of the prior decision, and restate facts and law only to the extent necessary to support the Court's findings.

For the reasons expressed below, the Court will grant-in-part and deny-in-part Ivey and Sun's motion for summary judgment and Borgata's cross-motion for summary judgment.

BACKGROUND

For ease of reference, the following timeline of events and description of the "edge sorting scheme" are restated from the Court's prior Opinion. In April 2012, Ivey contacted Borgata to arrange a visit to play high-stakes Baccarat.³ Ivey made five requests: (1) a private area or "pit" in which to play; (2) a casino dealer who spoke Mandarin Chinese; (3) a guest (defendant Sun) to sit with him at the table while he played; (4) one 8–deck shoe of purple Gemaco Borgata playing cards to be used for the entirety of each session of play; and (5) an automatic card shuffling device to be used to shuffle the cards after each shoe was dealt. Borgata agreed to Ivey's requests. In return, Ivey agreed to wire a "front money" deposit of $1 million to Borgata, and that the maximum bet would be $50,000 per hand.

Under these parameters, Ivey played sixteen hours on April 11, 2012 and won $2,416,000, with his average bet of $25,000. With the same terms, Ivey returned to Borgata in May 2012, and over the course of fifty-six hours of Baccarat play, Ivey won $1,597,400, with his average bet of $36,000.

In July 2012, Ivey returned to Borgata a third time to play Baccarat with his same five requests, but this time he had prearranged to raise his front money to $3 million, and raise his maximum bet to $100,000 per hand. Over the course of seventeen hours of Baccarat play, Ivey won $4,787,700, with his average bet of $89,000. Under these same terms, Ivey came back to Borgata one more in October 2012, and over the course of eighteen hours, Ivey won $824,900 (after being up almost $3.5 million) with an average bet of $93,800.⁴ After each visit to Borgata, Ivey requested that his front money and winnings be wired to a bank account in Mexico. Ivey's total winnings for his four visits to Borgata was $9,626,000.

During his last visit to Borgata on October 7, 2012, Borgata learned through a media report that a casino in London, Crockfords, was withholding £7.3 million won by Ivey playing Punto Banco, which is essentially the same game as Baccarat. After Ivey left Borgata on October 8, 2012, Borgata learned more about the Crockfords matter, and discovered that Ivey had made the same five requests to Crockfords as he had to Borgata. Borgata also discovered that Ivey and Sun committed what it considers to be an "edge sorting scam."

According to Borgata, as well as Ivey's own representations in his suit against Crockfords to recover his winnings as described in Borgata's complaint in this case, the mechanics of "edge sorting" are as follows:

126. The backs of casino playing cards generally contain a repeating diamond or geometrical pattern as seen in Exhibit A.

127. If the cards are not cut symmetrically during the manufacturing process, the two long edges of the cards will not be identical. In other words, one edge will have more of the geometrical pattern than the other. See Exhibit B.

128. During play, Ivey and Sun used the accommodations they requested from Borgata to "turn" strategically important cards so that they could be distinguished from all other cards in the deck.

129. The dealer would first lift the card so that Sun could see its value before it was flipped over all the way and placed on the table. If Sun told the dealer "Hao" (pronounced "how"), which translates to English as "good card," he was instructed to continue to flip the card over so that the orientation of the long edges of the card would stay on the same side when flipped. In other words, the right edge of the card as seen by Sun before the card was turned all the way over would still be the right edge of the card as she looked at when it was laid face up on the table.

130. If Sun told the dealer "Buhao" (pronounced "boohow"), which translates into English as "bad card," he was instructed to flip the card side to side, so that the long edges would be reversed when flipped. In other words, the right edge of the card as seen by Sun before the card was turned all the way over would now be the left edge of the card as she looked at it when it was laid face up on the table.

131. By telling the dealer "good card" or "bad card" in Mandarin, the dealer would place the cards on the table so that when the cards were cleared and put in the used card holder, the leading edges of the strategically important cards could be distinguished from the leading edges of the other cards in the deck.

132. Upon information and belief Ivey and Sun "turned" the cards with values of 6, 7, 8, and 9, so that they could be distinguished from all other cards in the deck.

133. The process of "edge sorting" all the cards in the decks took more than one shoe.

134. Ivey and Sun knew that if an automatic card shuffler was used, the edges of the cards would remain facing in the same direction after they were shuffled.

135. Conversely, Ivey and Sun knew that if the cards were shuffled by hand, the dealer would turn part of the deck, rendering their attempts to "turn" the strategically important cards useless.

136. Keeping the edges of the cards facing the same direction is the reason Ivey requested the use of an automatic card shuffler.

137. Ivey also knew that if the same cards were not reused for each shoe, there would be no benefit to "edge sorting."

138. That is why Ivey requested that the same cards be reused for each shoe.

139. The leading edge of the first card in the shoe is visible before the cards are dealt.

140. Once the "edge sorting" was completed, Ivey and Sun were able to see the leading edge of the first card in the shoe before it was dealt, giving them "first card knowledge."

141. If the first card in the shoe was turned, that meant a strategically

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