New lawsuit names entities in Internet poker network
Today I’m blogging about a Notice of Civil Claim against Cake Poker. You can see it here. The claim was filed last week with the Supreme Court of British Columbia in New Westminster (a suburb of Vancouver). I found out about this claim on www.calvinayre.com.
I’ll make full disclosure up front: I have acted for a party that, in the past, had interests adverse to Cake. I have not acted for anyone involved with, and I have nothing to do with, this lawsuit.
Who’s suing whom and why? Two individuals, Ryan Bennett and Francois Piette, and their partnership and a corporation controlled by them are seeking damages from a number of parties apparently associated with Cake. These parties include Cake Poker (Canada) Inc. and certain of its alleged affiliates (including Cake Gaming N.V. and Yummy Interactive (Canada) Inc.). Also named as individual defendants are Nicholaos Mellios, Christopher Ruck, and Ian Winter, who purportedly own a “substantial interest” in the Cake Gaming network and are collectively alleged to be “responsible for all major decisions regarding” the network. Finally, some other individuals said to be direct or indirect shareholders in the network were added as defendants.
The basic claim is that, in 2001, Bennett and Piette formulated “an advanced business [and] marketing model” unlike any other model then being used by an Internet poker site. This initiative by Bennett and Piette is called the “Legacy Project” in the statement of claim. Apparently, “[t]he Legacy Project included a network marketing component whereby customers/players are compensated for referring other customers/players to the Legacy Project and who then receive a portion of the referred customers’/players’ winnings. It also proposed using photo real images on the website. These were then unique ways to obtain and retain customers/players.” So: the plaintiffs claim that they invented what is essentially an affiliate model for Internet poker.
In 2004, Bennett and Mellios met to talk about how they could work together on the Legacy Project. After NDAs were exchanged and the project was outlined, it appears the parties decided to form a joint venture. Legacy Entertainment (Bennett’s and Piette’s partnership) would own 20% of the venture and would provide the poker knowledge and marketing strategy. On the other side, Yummy would own 80% of the JV and “provide all of the finances and technology for the software development to create and operate the Legacy Project.” These general terms were set out in an agreement in principle that was not attached to the plaintiffs’ claim. The agreement apparently called for a “formal binding agreement” to be concluded among the parties within two months. The plaintiffs claim that they “repeatedly” pestered Mellios for this further agreement, to no avail. This “formal agreement” was never provided or executed.
The claim goes on to set out a narrative of the plaintiffs eagerly providing their business concept, experience, and assistance, and then being gradually squeezed out by Cake and its principals. Both Bennett and Piette were eventually banished from Yummy’s offices. Piette apparently took a pay cut because “the Legacy Project was tight on cash” and Piette believed in the project and wanted to see it through. Cake Gaming N.V. was set up to operate and market the Legacy Project; Bennett and Piette didn’t receive what they say is their required 20% of the shares of that coropration. The plaintiffs allege that information about their investment (which eventually grew into the Cake Gaming network we now know) was withheld from them, that they were denied face-to-face meetings with Cake’s principals, and that they were completely excluded from the management of Cake.
The plaintiffs seek an accounting of all funds due to them from the Legacy Project, damages, dividends, and transfer of appropriate equity ownership to them. Their action is grounded in breach of contract, tort (negligent and fraudulent misrepresentation), and the provincial statutory oppression remedy in British Columbia, among other things. (This latter remedy provides a mechanism for shareholders and creditors of - and others connected with - a corporation, to seek redress for any action of the corporation that is oppressive or unfairly prejudicial to that shareholder or creditor. It’s tailor-made for minority shareholders that are being taken advantage of by a majority. Canadian courts tend to broadly construe the oppression remedy to safeguard minority shareholder rights.)
All of these allegations are just that right now. No defences or counterclaims have yet been filed. The allegations have not been proved or even backed up with evidence tendered to the court. Of course there’s another side to this story, which will come out if the Cake parties choose to defend (if the parties don’t settle their differences first). One of my first questions about this is why the plaintiffs took so long to launch a claim. The agreement in principle was signed 7 years ago. Perhaps the plaintiffs were given suitable payments since then to keep things going; Bennett and Piette acknowledge receiving “dividends” from Cake Gaming N.V., suggesting they are, in fact, shareholders of that corporation. Why didn’t alarm bells go off when the main agreement was slow-rolled in 2004? Maybe this will be addressed when the agreement in principle is placed before the court. Perhaps most important: was this really a new marketing and revenue model, even in 2004?
Still, given the interest that the poker community appears to have in the goings-on at Cake, (see here, here, and here, as only three examples), this little set-to is something that some may wish to watch unfold.