The future of the Suffolk Regional Off-Track Betting Corp. in eastern Long Island is in question after a federal judge dismissed its Chapter 9 bankruptcy petition.

Chief Judge Carla Craig of the U.S. Bankruptcy Court for the Eastern District of New York in Brooklyn ruled last Friday that New York State, not the Suffolk County Legislature, was the appropriate party to authorize the bankruptcy filing.

“The fundamental importance, in our federal system, of proper deference to state sovereignty, outweighs Suffolk OTB’s arguments concerning the benefits which may flow to creditors and others from this Chapter 9 case,” Craig ruled. “Whether or not, under some circumstances, a court may have discretion to enter an order for relief in a Chapter 9 case notwithstanding failure to meet all of the requirements of [the Bankruptcy Code], it would be inappropriate to do so in this case.”

She added that Hauppauge-based Suffolk OTB could restructure its debt outside Chapter 9, or by filing another Chapter 9 bankruptcy petition after receiving proper authorization.

The OTB filed under Chapter 9 on March 18, two days after the county Legislature authorized the filing. It listed its largest creditors as New York Racing Association Inc. with $1.7 million, the New York State and Local Retirement System with $1 million, and Yonkers Raceway with $909,148.

Suffolk OTB has requested a stay of the dismissal order while its counsel, McKenna Long & Aldridge LLP, prepares an appeal. Churchill Downs Inc., a major creditor that has opposed the bankruptcy filing, is expected to file a motion by Dec. 14.

Craig ruled that Churchill Downs has standing as party to a contract. The OTB accepts wagers on races held at Churchill-owned tracks including its flagship, Kentucky Derby site Churchill Downs raceway, and displays simulcast broadcasts of these races at its locations.

Suffolk OTB had argued that the OTB had a contract with Churchill Downs affiliate TrackNet Media Group LLC, not Churchill Downs itself.

In a statement posted on its website, Suffolk OTB said its facilities will remain open. It said that since filing under Chapter 9, it has cut costs and enhanced its revenue through the Qwik Bets terminals system and Internet wagering.

Craig’s ruling marks the second Chapter 9 nullification in the federal bankruptcy courts in two weeks.

On Nov. 23, Judge Mary France of the U.S. Bankruptcy Court for the Middle District of Pennsylvania invalidated a similar filing by the Harrisburg City Council, saying it violated Pennsylvania law and also lacked Mayor Linda Thompson’s consent.

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