Amicus Curiae Brief — Stars Interactive Holdings (IOM) Ltd., fka Amaya Group Holdings (IOM) Ltd., et al., Petitioners v. Kentucky, ex rel. J. Michael Brown, Secretary of the Governor's Executive Cabinet

No. 21-275

In The

Supreme Court of the United States

___________

STARS INTERACTIVE HOLDINGS (IOM) LTD., F/K/A

AMAYA GROUP HOLDINGS (IOM) LTD., AND

RATIONAL ENTERTAINMENT ENTERPRISES LTD.,

v.

Petitioners,

COMMONWEALTH OF KENTUCKY, EX REL. J. MICHAEL

BROWN, SECRETARY OF THE GOVERNOR’S

EXECUTIVE CABINET,

___________

Respondent.

On Petition for a Writ of Certiorari

to the Supreme Court of Kentucky

___________

BRIEF OF WASHINGTON LEGAL FOUNDATION

AS AMICUS CURIAE SUPPORTING PETITIONERS

___________

John M. Masslon II

Counsel of Record

Cory L. Andrews

WASHINGTON LEGAL FOUNDATION

2009 Massachusetts Ave. NW

Washington, DC 20036

(202) 588-0302

jmasslon@wlf.org

September 10, 2021

QUESTIONS PRESENTED

1. Whether a damages award violates due

process when it is more than thirty times any

conceivable harm.

2. Whether the Excessive Fines Clause bars a

State from imposing a penalty over fifty times the

defendant’s revenue earned from the prohibited

conduct.

iii

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED .................................... i

TABLE OF AUTHORITIES .................................. iv

INTEREST OF AMICUS CURIAE ........................ 1

INTRODUCTION ................................................... 1

STATEMENT .......................................................... 4

SUMMARY OF ARGUMENT................................. 6

ARGUMENT ........................................................... 7

I.

REVIEW IS NEEDED TO CLARIFY THAT

PROPORTIONALITY IS CENTRAL TO THE

EXCESSIVE FINES CLAUSE ANALYSIS ................. 8

A. The Kentucky Supreme Court

Deepened A Split On The Excessive

Fines Clause ........................................... 8

B. The Kentucky Supreme Court

Ignored The Actual Harm When

Examining Whether The Judgment

Was An Excessive Fine ........................ 11

II. REVIEW IS NEEDED TO CLARIFY THE DUEPROCESS LIMITS ON PUNITIVE DAMAGES ......... 20

CONCLUSION ...................................................... 23

iv

TABLE OF AUTHORITIES

Page(s)

Cases

Ashland Specialty Co. Inc. v. Steager,

818 S.E.2d 827 (W. Va. 2018) ................................9

Bach v. First Union Nat. Bank,

486 F.3d 150 (6th Cir. 2007)................................21

BMW of N. Am., Inc. v. Gore,

517 U.S. 559 (1996) ..............................................20

Browning-Ferris Indus. of Vt.,

Inc. v. Kelco Disposal, Inc.,

492 U.S. 257 (1989) ..............................................20

Cooper Indus., Inc. v. Leatherman

Tool Grp., Inc.,

532 U.S. 424 (2001) ..............................................11

Cote v. Philip Morris USA, Inc.,

985 F.3d 840 (11th Cir. 2021)..............................21

Exxon Shipping Co. v. Baker,

554 U.S. 471 (2008) ..............................................22

Honda Motor Co. v. Oberg,

512 U.S. 415 (1994) ..............................................20

Jones v. United Parcel Serv., Inc.,

674 F.3d 1187 (10th Cir. 2012)............................21

New York v. United Parcel Serv., Inc.,

942 F.3d 554 (2d Cir. 2019) ...................................1

Newell Recycling Co. v. EPA,

231 F.3d 204 (5th Cir. 2000)................................10

People ex rel. Lockyer v. R.J.

Reynolds Tobacco Co.,

124 P.3d 408 (Cal. 2005) ........................................9

v

TABLE OF AUTHORITIES

(continued)

Page(s)

Saccameno v. U.S. Bank Nat’l Ass’n,

943 F.3d 1071 (7th Cir. 2019)..............................21

SEC v. Brookstreet Sec. Corp.,

664 F. App’x 654 (9th Cir. 2016) .....................9, 10

St. Louis, I. M. & S. R. Co. v. Williams,

251 U.S. 63 (1919) ................................................20

State Farm Mut. Auto.

Ins. Co. v. Campbell,

538 U.S. 408 (2003) .............................. 1, 20, 21, 22

Timbs v. Indiana,

139 S. Ct. 682 (2019)..............................................8

United States v. Aleff,

772 F.3d 508 (8th Cir. 2014)..................................9

United States v. Bajakajian,

524 U.S. 321 (1998) ......................................8, 9, 14

Vt. Agency of Nat. Res. v. United

States ex rel. Stevens,

529 U.S. 765 (2000) ..............................................20

Wilson v. Comm’r of Revenue,

656 N.W.2d 547 (Minn. 2003)................................9

Statutes

Acts of 1798, Vol. I, Digest Stat.

Laws of Ky., Title 87 § 3 ........................................4

Ky. Rev. Stat. § 372.020 ..............................................4

Ky. Rev. Stat. § 372.040 ..............................................4

vi

TABLE OF AUTHORITIES

(continued)

Page(s)

Other Authorities

Alton Hardin, Understanding Win

Rates In Poker (Apr. 30, 2021) ......................18, 19

Jill Wieber Lens, Procedural Due

Process and Predictable Punitive

Damage Awards,

2012 B.Y.U. L. Rev. 1 (2012) ...............................22

Kevin Thurman, PokerStars Supernova

Elite Kevin “WizardOfAhhs”

Thurman Playing 24 Cash Tables,

YouTube (Nov. 22, 2011) .......................................2

Laura J. Hines & N. William Hines,

Constitutional Constraints on

Punitive Damages: Clarity,

Consistency, and the Outlier

Dilemma,

66 Hastings L.J. 1257 (2015).........................21, 22

Poker Standard Deviation,

The Poker Bank ...................................................19

PokerStars rakeback in 2011,

First Time Poker Player ......................................17

Steven D. Levitt et al., Is Texas Hold

‘Em a Game of Chance? A Legal and

Economic Analysis,

101 Geo. L.J. 581 (2013) ......................................13

1

INTEREST OF AMICUS CURIAE*

Washington Legal Foundation is a nonprofit,

public-interest law firm and policy center with

supporters nationwide, including many in Kentucky.

WLF promotes free enterprise, individual rights,

limited government, and the rule of law. It often

appears as amicus in cases raising due-process and

excessive-fines issues. See, e.g., State Farm Mut.

Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003); New

York v. United Parcel Serv., Inc., 942 F.3d 554 (2d Cir.

2019).

INTRODUCTION

Three years ago, people could place a legal

wager on the Super Bowl only in Nevada. Today it’s

legal to bet on the Super Bowl in thirty-two States

and the District of Columbia. If you turn on any

televised sporting event, betting odds scroll across the

bottom of the screen and the announcers openly

discuss whether a last-minute field goal covers the

point spread or takes the game over the over/under;

we are in a sports-betting boom.

Although not as swift, poker underwent a

similar boom. Twenty years ago, 613 people risked

$10,000 to play in the World Series of Poker’s main

event. By 2019, that number grew to 8,569—a 1298%

increase. Turn on ESPN or Bally Sports late at night,

and you are likely to see a poker broadcast.

* No party’s counsel authored any part of this brief. No

person or entity, other than WLF and its counsel, paid for the

brief’s preparation or submission. After timely notice, all parties

consented to WLF’s filing this brief.

2

This poker boom coincided with the rise of the

internet. In the early 2000s, people began exploring

more ways to play poker. As with sports betting, only

a few States had casinos offering poker. But people

still wanted to play. With the benefit of broadband

internet

and

sophisticated

random-numbergenerating technology, many companies began

offering online poker games.

Online poker was a smashing success. Some

people began making a living by playing twenty-four

poker games simultaneously. See Kevin Thurman,

PokerStars Supernova Elite Kevin “WizardOfAhhs”

Thurman Playing 24 Cash Tables, YouTube (Nov. 22,

2011), https://bit.ly/3ziiukW. Others just replaced

watching a sitcom at night with playing poker. The

amount that Americans deposited with online poker

sites totaled in the upper nine figures or low ten

figures. In short, online poker became not an

insignificant part of the American economy.

But everything changed on “Black Friday,”

April 15, 2011. That day, the United States

Department of Justice seized assets of the three

largest

poker

sites

in

America—including

PokerStars—which combined controlled over 95% of

the market. According to the DOJ, the companies

were violating the Unlawful Internet Gambling

Enforcement Act by offering online poker.

After DOJ’s seizures, the Commonwealth of

Kentucky saw dollar signs. It remembered that a

Kentucky statute allows any person to recover illegal

gambling losses for a fifty-four-month period. Because

the Commonwealth had never brought such a suit, it

did not want to risk the enormous resources necessary

3

to sue PokerStars. So it found some contingency-fee

lawyers willing to sue on its behalf.

Using a law enacted in the 1700s, the

Commonwealth’s suit sought treble damages for all

losses suffered by Kentuckians during the fifty-fourmonth lookback period. Yet recouping total losses for

Kentuckians was not enough for the Commonwealth’s

contingency-fee lawyers. Rather, they wanted to

recover treble the amount that Kentuckians

temporarily gave to other players; even if they

received ten times that amount only seconds later.

The resulting $870 million judgment for the

Commonwealth dwarfed PokerStars’s Kentuckybased revenue. In fact, it was well over fifty times that

amount. It also exceeded all Kentuckians’ total losses

on PokerStars by a factor of thirty.

The

Commonwealth’s

disproportionate

judgment violates two provisions of the United States

Constitution. First, it is so excessive that it violates

the Eighth Amendment’s Excessive Fines Clause as

incorporated against the States by the Fourteenth

Amendment. It also violates the Due Process Clause

of the Fourteenth Amendment because it bears no

relation to the actual harm caused by PokerStars’s

conduct. Yet the Supreme Court of Kentucky

dismissed those violations in two paragraphs filled

with legal errors. These legal errors split from other

state courts of last resort and federal courts of

appeals. As the issues raised in this case are also of

exceptional importance, this Court should grant

review and clarify how lower courts must apply the

Due Process and Excessive Fines Clauses when

reviewing grossly disproportionate civil penalties.

4

STATEMENT

Over 240 years ago, Kentucky passed its Loss

Recovery Act. See Acts of 1798, Vol. I, Digest Stat.

Laws of Ky., Title 87 § 3. Under the statute, gamblers

who lose more than $5 at one time or in a twenty-fourhour period, or their creditors, can sue winners to

recover the losses. Ky. Rev. Stat. § 372.020. For the

first six months after the loss, gamblers and their

creditors are the only ones who may sue. See id.

§ 372.040. But if they fail to sue within six months,

the right to sue opens to any person for the rest of the

five-year limitations period—and that third party

may recover treble the amount lost. See id.

Before Black Friday, PokerStars, believing it

was legal, operated in Kentucky. Citizens across the

Commonwealth played in cash games and

tournaments on the site. The Commonwealth then

sued to recover for losses suffered by all Kentuckians

during the lookback period. But rather than seeking

net losses or the amount of PokerStars’s revenue

traceable to Kentucky, it sought damages for every

hand that any Kentuckian lost or tournament in

which any Kentuckian lost money.

The circuit court adopted the Commonwealth’s

proposed $290 million damages figure while also

holding that the Commonwealth could recover funds

only if a Kentuckian lost during a calendar day. Pet.

App. 152a-156a. Realizing that the order was

internally contradictory, the circuit court later

abandoned its holding and stuck with the $290

million damages figure. Id. at 128a-129a. It then

trebled this figure for a final judgment of $870

million. Id. at 129a-136a.

5

The massive award was disproportionate to

any potential harm. During the lookback period,

Kentuckians lost only $26 million—less than 3% of

the final judgment. Even counting money

Kentuckians lost on calendar days—without

accounting for wins on calendar days—that total was

only $68 million—less than 8% of the final judgment.

And PokerStars revenue traceable to Kentucky was

$18 million—only 2% of the final judgment.

The Kentucky Court of Appeals reversed the

circuit court’s judgment on state-law grounds.

Relying on the LRA’s statutory history, the appellate

court held that the Commonwealth was not a “person”

who could sue after the six-month exclusivity period.

Pet. App. 52a-65a. Seeing its windfall at risk, the

Commonwealth appealed to the Supreme Court of

Kentucky.

In a sharply divided opinion, the Kentucky

Supreme Court held that the Commonwealth was a

“person” who could sue under the LRA. Pet. App. 7a23a. Most of the opinion focused on that issue. But

because PokerStars also argued that the $870 million

judgment violated the Due Process and Excessive

Fines Clauses of the United States Constitution, the

court addressed those issues. Yet that analysis was

cursory and legally incorrect. See id. at 28a-29a.

In a single paragraph, the court rejected the

Due Process argument. Pet. App. 29a. Relying on

events that happened after litigation began, the court

held that PokerStars knew that its conduct was

illegal and could lead to the large damages award. Id.

It thus held that the Commonwealth provided

sufficient notice of the penalty. Id.

6

A separate paragraph rejected PokerStars’s

excessive fines argument. Pet. App. 28a-29a. In the

Kentucky Supreme Court’s view, as long as some

mathematical relationship exists between the harm

and the resulting civil penalty, there is no Excessive

Fines Clause violation. Id. at 29a. In other words, a

State may calculate a penalty by multiplying the

harm by one million without violating the Excessive

Fines Clause. Because the Supreme Court of

Kentucky denied a timely rehearing petition, id. at

174a-175a, PokerStars now seeks certiorari.

SUMMARY OF ARGUMENT

I.A. State courts of last resort and federal

courts of appeals are split on when the Eighth

Amendment’s Excessive Fines Clause bars a civil

penalty. Most courts have agreed on a set of factors

that this Court uses in similar Eighth Amendment

contexts. Yet the Fifth Circuit and Kentucky Supreme

Court allow any civil penalty that is authorized by

statute and has a mathematical relationship to the

compensatory-damages award. This Court should

resolve this deepening split now.

B. Central to any Excessive Fines Clause

analysis is whether a fine is grossly disproportionate

to the harm. The Kentucky Supreme Court, however,

ducked this inquiry and focused on the purely

mathematical relationship between the $870 million

judgment and the alleged harm. A closer examination

of poker in general, and PokerStars’s business, shows

the flaws in this analysis. Poker is a game of skill;

some people make a career out of playing it. Yet under

the Kentucky Supreme Court’s decision, even players

who netted tens of thousands of dollars in poker

7

winnings during the lookback period were “losers”

when calculating compensatory damages. To then

treble that already inflated amount is a textbook

Excessive Fines Clause violation.

II. This Court should also grant review to

resolve a split among lower courts on how to apply

this Court’s due-process precedents. The Court has

said in dicta that when there is a substantial award

of compensatory damages, the Due Process Clause

may limit a punitive damages award to the amount of

the compensatory award. Many courts have properly

heeded this guidance. But the Supreme Court of

Kentucky declined to do so here.

Capping the ratio of punitive damages to

substantial compensatory damages at 1:1 ensures

that parties know their risk of exposure. Rather than

having to guess at potential punitive damages,

companies would know that, when a damages award

is substantial, they may be forced to pay only the

same amount in punitive damages. This ensures

compliance with the Due Process Clause.

ARGUMENT

The $870 million judgment here shocks the

conscience. Petitioners persuasively explain why

review is needed to resolve a split among state courts

of last resort and federal courts of appeals on how to

apply State Farm. Pet. 20-24. This split alone

warrants the Court’s immediate attention. But there

are also related reasons to grant review.

8

I.

REVIEW IS NEEDED TO CLARIFY THAT

PROPORTIONALITY IS CENTRAL TO THE

EXCESSIVE FINES CLAUSE ANALYSIS.

A.

The Kentucky Supreme Court

Deepened A Split On The Excessive

Fines Clause.

Two years ago, this Court held that the

Fourteenth Amendment incorporates the Eighth

Amendment’s Excessive Fines Clause against the

States. Timbs v. Indiana, 139 S. Ct. 682, 687-90

(2019). So today more courts then ever must decide

whether punitive civil penalties violate the Excessive

Fines Clause. Most state and federal courts have

coalesced around a reasonable test to determine

whether a civil penalty violates the Excessive Fines

Clause. But the Supreme Court of Kentucky bucked

that trend.

A civil penalty “violates the Excessive Fines

Clause if it is grossly disproportional to the gravity of

a defendant’s offense.” United States v. Bajakajian,

524 U.S. 321, 334 (1998). Yet the Kentucky Supreme

Court held that so long as the civil penalty has a

direct mathematical relationship to the alleged harm,

it is not an excessive fine. Pet. App. 29a. This holding

would be laughable if it were not such a miscarriage

of justice.

Under this rule, a State could impose a civil

penalty of one million times the alleged harm without

violating the Excessive Fines Clause. In other words,

a tobacco company could be fined over $10 million if it

sold one pack of cigarettes not listed on a state

directory under the Master Settlement Agreement.

9

Sell a carton of delisted cigarettes, and a $100 million

civil penalty would not violate the Excessive Fines

Clause. The absurdity of this rule is self-evident. And

it conflicts with the decisions of other state courts of

last resort and federal courts of appeals.

The Supreme Court of California is a good

example of the majority rule. When deciding whether

a civil penalty violates the Excessive Fines Clause, it

considers the harshness of the penalty compared to

those imposed in other States and given the

defendant’s ability to pay. People ex rel. Lockyer v.

R.J. Reynolds Tobacco Co., 124 P.3d 408, 421 (Cal.

2005) (citing Bajakajian, 524 U.S. at 337-38). The

court also looks to the harm caused and its

“relationship * * * [to] the penalty” and “the

defendant’s culpability.” Id.

The Minnesota Supreme Court considers

almost identical factors when deciding whether a civil

penalty complies with the Excessive Fines Clause. See

Wilson v. Comm’r of Revenue, 656 N.W.2d 547, 555

(Minn. 2003) (citation omitted). So too for the

Supreme Court of Appeals of West Virginia. See

Ashland Specialty Co. Inc. v. Steager, 818 S.E.2d 827,

836 (W. Va. 2018) (citation omitted).

These state-court decisions track federal courts

of appeals’ decisions. When examining whether a civil

penalty is excessive, the Eighth Circuit considers “the

sanctions in other cases for comparable misconduct,”

the “relationship between the penalty and the harm,”

and “the reprehensibility of the defendant’s conduct.”

United States v. Aleff, 772 F.3d 508, 512 (8th Cir.

2014) (citation omitted). The Ninth Circuit considers

similar factors. See SEC v. Brookstreet Sec. Corp., 664

10

F. App’x 654, 656 (9th Cir. 2016) (per curiam) (citation

omitted).

The only other appellate court to adopt a view

like the Kentucky Supreme Court’s is the Fifth

Circuit. It has held that “[n]o matter how excessive (in

lay terms) an administrative fine may appear, if the

fine does not exceed the limits prescribed by the

statute authorizing it, the fine does not violate the

Eighth Amendment.” Newell Recycling Co. v. EPA,

231 F.3d 204, 210 (5th Cir. 2000). This is close to the

Kentucky Supreme Court’s analysis here. The two

courts give legislatures unfettered discretion to set

civil penalties. Under the Kentucky Supreme Court’s

view, a civil penalty is constitutional if it is connected

to the actual harm by some mathematical formula.

The Fifth Circuit also blesses such penalties.

It is impossible to reconcile the Kentucky

Supreme Court’s and Fifth Circuit’s decisions with

the consensus view. Rather than examine the

relevant factors, the Kentucky Supreme Court and

Fifth Circuit use bright-line rules that permit any

civil penalty if it is mathematically linked to the

alleged harm. This deepening of the split between

state courts of last resort and federal courts of appeals

deserves the Court’s attention. And because the split

has not disappeared over the past two decades, there

is no reason to wait for more percolation in the lower

courts.

11

B.

The Kentucky Supreme Court

Ignored The Actual Harm When

Examining Whether The Judgment

Was An Excessive Fine.

This Court has explained that when

considering whether a penalty is grossly

disproportionate, courts must consider “the harm to

the victim caused by the defendant’s actions.” Cooper

Indus., Inc. v. Leatherman Tool Grp., Inc., 532 U.S.

424, 435 (2001) (citation omitted). Yet the Kentucky

Supreme Court glossed over the actual harm that

PokerStars caused the victims. This led to the

erroneous Excessive Fines Clause analysis.

1. A brief description of poker and how

PokerStars operated reveals the Kentucky Supreme

Court’s errors. Most poker games played on

PokerStars during the lookback period were no-limit

Texas hold ’em. This brief thus focuses on this type of

poker. But the other poker variants prevalent during

the lookback period, like pot-limit Omaha and

Badugi, differ only in the games’ rules.

In Texas hold ’em, between two and nine

players are each dealt two “hole” cards face down. One

player is designated the dealer. The player to the

dealer’s left must post a small blind, for example $1.

The next person must then post a big blind, which is

double the small blind. Play then begins with the

player to the big blind’s left having the option to “fold”

(give up and not put any money in the pot), “call” (put

$2 in the pot), or “raise” (put $4 or more in the pot).

Each player in turn has the same options until

everyone remaining in the hand has placed the same

amount in the pot or placed all their money in the pot.

12

Three cards are then dealt face up in the center

of the table. This is called the “flop.” Play then begins

with the first active player to the dealer’s left. That

person may “check” (stay in the hand for free) or bet

any amount $2 or greater. Once a player bets, others

may call or raise until all players have checked or all

remaining players have placed the same amount in

the pot or placed all their money in the pot.

Next comes the “turn”: one card is placed face

up in the center of the table. The same round of

betting as on the flop starts. And then comes the

“river”: One card is placed face up in the center of the

table. Again, the same round of betting as on the flop

and turn occurs. (If only one player remains in the pot

at any time, he wins the pot.)

At this point, all remaining players turn over

their two hole cards. The person with the best fivecard poker hand combining the five face-up cards and

the two hole cards wins the pot. If more than one

person has the same five-card poker hand, those

players split the pot evenly. The dealer “button” then

rotates to the next player and a new hand begins.

For a poker game with six people, a good player

plays about one pot per three hands. But she doesn’t

win all of those hands. On average, she may win one

pot per six hands. That seemingly bad ratio does not

mean, however, that the good player is losing money.

For example, she may win lots of hands with large

pots and lose lots of hands with small pots. If this

happens, she will come out ahead in the end.

Lots of mistakes may lead a player to lose in

the end. A player who plays every hand will almost

13

certainly see his bank account dwindle. The same

goes for a player who plays only one out of every

twenty hands. It’s almost impossible to win playing

like that.

But it is impossible to tell by looking at just one

hand whether a player is a net winner or loser. The

only reliable way to tell is by looking at the player’s

long-term statistics. See Steven D. Levitt et al., Is

Texas Hold ’Em a Game of Chance? A Legal and

Economic Analysis, 101 Geo. L.J. 581, 597 (2013).

PokerStars produced these long-term statistics for

every Kentuckian who played during the lookback

period. By examining the statistics, it is easy to

determine who won and who lost during that period.

2. The statistics show that the Kentuckians

who lost money during the lookback period lost $26

million—less than 3% of the final judgment. Yet the

Kentucky Supreme Court thought it appropriate to

total all lost hands for Kentuckians, even if some

players made money while playing on PokerStars.

Two examples show how this inflated the judgment.

Kentuckian “kamodadragon” played on

PokerStars. During the lookback period, he or she

earned $92,523.02—winning $888,187.22 from other

players and losing $795,664.20 to other players. Cf.

Commonwealth’s Post Hearing Rebuttal and

Supplemental Memorandum in Response to

PokerStars’ Motion to Alter Amend or Vacate at Ex.

C, Commonwealth ex rel. Tilley v. Pocket Kings, Ltd.,

No. 10-CI-505 (Ky. Cir. Ct. Feb. 4, 2016) (data used in

calculations). Was he or she “harmed” by PokerStars?

Of course not. But under the Kentucky Supreme

Court’s convoluted reasoning, the Commonwealth

14

could recover

kamodadragon.

for

PokerStars’s

“harm”

to

Even those perhaps harmed by PokerStars’s

conduct were not hurt to the extent found by the

Kentucky Supreme Court. Kentuckian “Brycpa” lost

$1,926.01—winning $907,444.53 from other players

and losing $909,370.54 to other players. Cf.

Commonwealth’s Rebuttal, supra (data used in

calculations). The Commonwealth’s calculations

allow it to recover up to 1000 times Brycpa’s losses.

This ratio is grossly disproportionate under any

reasonable test.

As the Court explained in Bajakajian, a

“grossly disproportion[ate]” civil penalty violates the

Excessive Fines Clause. 524 U.S. at 334. Considering

how poker is played, the civil penalty here is grossly

disproportionate to the resulting harm: It is more

than thirty-three times the amount that Kentuckians

lost on PokerStars. The Supreme Court of Kentucky’s

refusal to properly apply Bajakajian cries out for

review.

3. This focus solely on Kentuckians’ losses is

most generous to the Commonwealth and the

Kentucky Supreme Court. A less generous focus is the

amount that PokerStars received from operating in

Kentucky during the lookback period. As noted above,

PokerStars’s Kentucky revenue during the lookback

period was about $18 million—2% of the final

judgment.

Each hand, one player wins money and one or

more players lose money. But how does PokerStars

profit off these interactions? It collects a “rake”—a

15

fee—from most pots. The rake for games with

between three and nine players was tied to the pot

size.

PokerStars used an incremental rake

structure. For every $1 in the pot, PokerStars took

$0.05. So if the pot was between $10 and $10.99,

PokerStars took $0.50. There was a cap on the rake

that PokerStars took depending on the game’s size.

For lower stakes games, the cap was $2. For middle

stakes, like $1/$2 Texas hold ’em, the cap was $3, and

for high stakes the cap was $5.

This rake was much lower than most brickand-mortar poker rooms. They usually charge 10% up

to $6 or $7—seven times the rake that PokerStars

offered during the lookback period. The brick-andmortar poker rooms also show how the Court should

view the rake collected by PokerStars.

For higher-limit games at local casinos, the

rake is not collected on a per-hand basis. Rather, each

player must pay a fee every thirty minutes to play in

the game. For example, each player must pay $7 to

play for thirty minutes. This is called a “time rake.”

The casino does not take any money from pots. This

time-rake structure shows that the fee collected by a

casino or PokerStars is a service charge for playing

poker. For casinos it covers the cost of rent, electricity,

salaries, and other expenses. For PokerStars, the

rake pays for software, staff, servers, and other costs.

In other words, the rake is a service fee like those

charged by other industries.

The way that PokerStars made money from

tournaments during the lookback period also shows

16

that a rake is a service fee. The best-known

tournament PokerStars held was called the Sunday

Million. The entry fee for the tournament was $215.

Of that, $200 went to the prize pool and $15 was the

rake. The rake as a percentage of the entry fee varied

depending on the cost to play and the number of

players in the tournament. But it generally hovered

between five and ten percent.

Whether a player was eliminated in the first

hand of the tournament or won the six-figure first

prize, she paid the same rake to play in the

tournament. Again, this is like paying a service fee in

any other industry. So PokerStars is not engaged in

gambling. It generally could not lose money by

offering poker games. But neither did it stand to

collect a windfall.

This differentiates poker from other games

covered by the LRA. A casino, for example, can lose

money if a player goes on a hot streak playing

baccarat or blackjack. In these games, the casino just

trusts that, over time, it will come out ahead. Another

differentiating factor is that if you are playing

roulette against the house, it is impossible to win over

a large enough sample size. But with poker, people

can win over a large sample size. Some Kentuckians

were among this group of winners on PokerStars.

This analysis doesn’t even consider “rakeback.”

During the lookback period, PokerStars players could

participate in a rewards program. Based on how much

they played, players were refunded a portion of the

rake that they paid while playing on PokerStars. This

was the rakeback.

17

During the lookback period, the highest

rewards level was called Supernova Elite. Players

who reached the minimum threshold for that level

received 74.6% of their rake back. See PokerStars

rakeback in 2011, First Time Poker Player,

https://bit.ly/3Djpssg (last visited Sept. 10, 2021).

This means a Supernova Elite player who paid

$10,000 in rake during a year would receive $7,460

back from PokerStars. Of course, this rakeback was

not part of the Kentucky courts’ damages calculation.

The $18 million rake calculation also used the

“dealt” method rather than the “contributed” method.

In an eight-player game, a hand may see only two

players’ money in the pot—$20 each. If PokerStars

collected a $2 rake from the hand, under the dealt

method PokerStars views all eight players as having

paid $0.25 in rake. But under the contributed method,

PokerStars views the two players who put money into

the pot as having paid $1 in rake and the other six as

having paid $0 in rake.

The Kentucky Supreme Court should have

considered these important nuances when deciding

whether the civil penalty here was grossly

disproportionate. But it chose instead to focus solely

on the mathematical relationship between the vastly

inflated harm and the final judgment.

4. The Kentucky Supreme Court’s opinion

shows the disconnect between the actual harm and

the $870 million judgment. The Court held that when

“Bugsy213” won $7,160.51 on PokerStars, the

Commonwealth’s ability to recover under the LRA

turned on who it sued. It would be unable to recover

if it sued those whom Bugsy213 played because the

18

player’s net losses determine the potential LRA

recovery. See Pet. App. 30a. But the Commonwealth

could recover because it sued PokerStars, which

merely collected a rake.

As Bugsy213 lost $100,893.46 to other players

on PokerStars—while also winning $108,053.97 from

other players—the Kentucky Supreme Court held

that the Commonwealth could collect up to treble the

former amount. See Pet. App. 30a. In other words, the

Commonwealth’s recovery can go from $0 to over

$300,000 because it sued the game’s host.

Bugsy213 netted a few thousand dollars from

playing on PokerStars. Yet the Commonwealth could

recover hundreds of thousands of dollars more

because of who it sued. This disparate recovery makes

no sense. There is no proportionality between the

actual harm—$0—and the potential liability. Despite

the same facts, the defendant determined the

potential recovery. This lack of a proportionate

relationship between the actual harm and the civil

penalty is what the Excessive Fines Clause bars.

The lack of proportionality is even worse when

viewing the entire lookback period. Even the best

poker players in the world have good days and bad

days. Some days you win; some days you lose. But

under the Kentucky Supreme Court’s decision, each

hand determines whether you are a winning or a

losing poker player. Again, this bears no semblance to

reality.

An amazing poker player wins about five big

blinds per 100 hands. See Alton Hardin,

Understanding Win Rates In Poker (Apr. 30, 2021),

19

https://bit.ly/3gg4AYR. So an amazing poker player in

a $1/$2 game will win $10 per 100 hands. But this

does not mean that he will win $10 over the next 100

hands. That $10 figure is just the expected value of

his win. If he played an infinite number of 100 hand

sessions, he would average a $10 win per session.

The standard deviation measures the variance

between this expected win and the actual win. For

poker players, an average standard deviation is about

forty-two big blinds. See Poker Standard Deviation,

The Poker Bank, https://bit.ly/37XZVq5 (last visited

Sept. 10, 2021). This average standard deviation

means that an awesome poker player will lose money

in about 40% of his 100-hand groupings.

But if this same poker player played 100,000

hands—well within the normal range for a

professional poker player during the lookback

period—there is only a 0.0083% chance that the

player would lose money. There is over a 99.99%

chance that the player would have a bigger bankroll

at the end of the 100,000 hands than he had at the

beginning. Yet none of this mattered to the Kentucky

Supreme Court.

A fine tied to the phantom “harm” of a player’s

growing bankroll is both arbitrary and grossly

dipropionate. At most, a player who won $92,523.02

during the lookback period should be considered a

“zero” when calculating the civil penalty. Yet the

Kentucky Supreme Court allowed that player to be a

“loser.” Such sleight of hand to avoid the Excessive

Fines Clause warrants this Court’s review.

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II.

REVIEW IS NEEDED TO CLARIFY DUEPROCESS LIMITS ON PUNITIVE DAMAGES.

A. The “Due Process Clause places outer limits

on the size of a civil damages award made pursuant

to a statutory scheme.” Browning-Ferris Indus. of Vt.,

Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 276 (1989)

(citing St. Louis, I. M. & S. R. Co. v. Williams, 251

U.S. 63, 66-67 (1919)). So although not called one, the

$580 million award on top of the $290 million in

compensatory damages is treated like a punitive

damages award. See Vt. Agency of Nat. Res. v. United

States ex rel. Stevens, 529 U.S. 765, 784 (2000).

Many courts continue to ignore due-process

limits on punitive damage awards, which were

already “well established” two decades ago. State

Farm, 538 U.S. at 416. Ignoring due-process

principles deprives defendants of their right to “fair

notice * * * of the severity of the penalty that a State

may impose.” BMW of N. Am., Inc. v. Gore, 517 U.S.

559, 574 (1996) (citations omitted). This leads to an

“arbitrary deprivation of property” by punitive

damages bearing no relation to the plaintiffs’ injury.

Honda Motor Co. v. Oberg, 512 U.S. 415, 432 (1994).

The decision here is particularly dangerous because it

does not compensate the injured for the alleged harm.

Rather, it just pads the plaintiffs’ bar’s pocketbooks

and the Commonwealth’s coffers.

In State Farm, the Court said that “[w]hen

compensatory damages are substantial,” a 1:1 ratio

between compensatory damages and punitive

damages may “reach the outermost limit of the due

process guarantee.” 538 U.S. at 425. Some courts have

disregarded this guidance as nonbinding “dicta.” E.g.,

21

Cote v. Philip Morris USA, Inc., 985 F.3d 840, 849

(11th Cir. 2021) (citation omitted). Other courts have

taken this Court at its word and imposed a 1:1 limit

on punitive damages when there is a substantial

compensatory award. E.g., Saccameno v. U.S. Bank

Nat’l Ass’n, 943 F.3d 1071, 1090 (7th Cir. 2019).

Although the exact line of what is substantial

is blurry, the judgment here meets any standard for a

substantial award. For example, the Tenth Circuit

has held that a $630,000 award is substantial. Jones

v. United Parcel Serv., Inc., 674 F.3d 1187, 1208 (10th

Cir. 2012). In the Sixth Circuit, $400,000 suffices.

Bach v. First Union Nat. Bank, 486 F.3d 150, 156 (6th

Cir. 2007). The judgment here is 460 times the size of

a substantial award in the Tenth Circuit and 725

times the size of a substantial award in the Sixth

Circuit. So it qualifies as substantial under any test.

B. Despite the Court’s prior reluctance to

specify “a bright-line ratio,” State Farm, 538 U.S. at

425, the Court should impose a firm 1:1 cap on the

ratio of punitive to compensatory damages when

compensatory damages are substantial. Such a cap

would ensure that punitive damages bear some

reasonable relationship to the harm and stay within

constitutional bounds.

Developments after State Farm show why the

Court should draw a bright-line ratio for punitive

damages to substantial compensatory damages.

Despite hopes that State Farm would ensure

defendants knew of their punitive-damage exposure,

it did not “reduce the inconsistency or

unpredictability of punitive damages awards.” Laura

J. Hines & N. William Hines, Constitutional

22

Constraints

on

Punitive

Damages:

Clarity,

Consistency, and the Outlier Dilemma, 66 Hastings

L.J. 1257, 1257 (2015).

To solve the problem in maritime suits, the

Court held that a 1:1 ratio was the maximum

permissible punitive damages award after a $500

million compensatory-damages

award.

Exxon

Shipping Co. v. Baker, 554 U.S. 471, 514-15 (2008)

(citing State Farm, 538 U.S. at 425). The Court should

also place a 1:1 cap on non-maritime punitive damage

awards. This is the only way that defendants will

have notice of potential liability—notice that is

required by the Due Process Clause.

Exxon’s concerns about predictability and

fairness apply equally in non-maritime cases. See Jill

Wieber Lens, Procedural Due Process and Predictable

Punitive Damage Awards, 2012 B.Y.U. L. Rev. 1, 25

(2012). “The real problem” is “the stark

unpredictability of punitive damage awards,” which

“leads to inconsistency because two cases involving

very similar facts can produce dramatically different

punitive awards.” Id. at 4, 7 (cleaned up). The

Kentucky Supreme Court’s decision highlights those

concerns. A third party suing after someone won

money in a poker game can recover six figures if he

sues someone who ran a poker game. But he cannot

recover if he sues the winners in the poker game.

In Exxon, the Court said that the solution was

a 1:1 ratio between punitive damages and substantial

compensatory damages. Exxon, 554 U.S. at 514-15.

This ratio was not based on unique aspects of

maritime law. Rather, it was based on the median

ratio of state-court awards. See id. at 512-13. This

23

shows that the 1:1 ratio that the Court adopted for

maritime cases in Exxon is also appropriate in other

civil cases.

This case presents a good vehicle for the Court

to address the issue. It is undisputed that the

judgment here is substantial. So the Court wouldn’t

have to decide that issue. And the blameworthiness of

PokerStars’s conduct is low. It operated under the

mistaken belief that its actions were legal. Thus, the

Court need not examine egregious factual findings.

The Court should therefore grant the Petition to also

clarify the constitutional limits on punitive damages.

CONCLUSION

This Court should grant the petition.

Respectfully submitted,

John M. Masslon II

Counsel of Record

Cory L. Andrews

WASHINGTON LEGAL FOUNDATION

2009 Massachusetts Ave. NW

Washington, DC 20036

(202) 588-0302

jmasslon@wlf.org

September 10, 2021