Eight years after filing for Chapter 9 bankruptcy, New York’s Suffolk County Off-Track Betting Corp. is suing the operator of a video lottery terminal parlor that opened to aid the cash-strapped agency's debt restructuring.
Suffolk OTB filed a lawsuit on Oct. 7 in U.S. Bankruptcy Court against Delaware North, claiming that the company has cost the agency millions by misusing proceeds for the Jake’s 58 Hotel and Casino in Islandia and its 1,000 video lottery terminals. The Long Island VLT parlor opened in 2017 with the goal of creating a new revenue stream as part of Suffolk OTB's $100 million bankruptcy debt-adjustment plan
“Suffolk OTB is seeking relief from the courts because we have an obligation to protect taxpayer dollars and stop Delaware North’s abuse and self-dealing,” Suffolk OTB president and CEO Phil Nolan said in a statement. “As the complaint outlines, Delaware North has been enriching itself by millions of dollars at the expense of Suffolk County taxpayers.”
The lawsuit seeks damages of more than $5 million in addition to punitive damages, attorneys’ fees and other fees. Suffolk OTB is also seeking a declaration that it may terminate Delaware North’s management of Jake’s 58 for cause.
Delaware North is accused in the suit of paying itself an inflated amount from Suffolk OTB’s bank accounts and failing to reimburse the agency for a one-year period where it unilaterally increased the share of sewer costs by nearly 400%. The suit also claims that Delaware North used its marketing budget as a “slush fund” to pay itself millions for hotel rooms it could not fill with paying guests. Faulty supervision of Jakes 58 caused Suffolk OTB to incur fines from the New York State Gaming Commission and put the agency’s casino license at risk, according to the complaint.
“We have asked the Court to stop Delaware North from abusing its position of trust to enrich itself at the expense of a public-benefit corporation,” the lead attorney for Suffolk OTB, Bryce Friedman of Simpson Thacher & Bartlett LLP, said in statement. “We expect the Court will force Delaware North to live up to its contract with Suffolk OTB and to open its books so we can demonstrate the full extent of Delaware North’s abuse of its position as manager of Jake’s 58.”
Delaware North had agreed under Suffolk OTB’s bankruptcy plan to provide a $65 million loan to purchase, develop and open a VLT gaming facility in Medford, New York. As collateral for its loan, Delaware North held a mortgage on the proposed VLT site in Medford, which Suffolk OTB scrapped because of community opposition before
Glen White, a spokesman for Delaware North, denied Suffolk OTB’s allegations and said the company plans to “vigorously defend ourselves in court.” He also noted in his statement that Delaware North has invested tens of millions of its own dollars into Jake’s 58 that has helped the net higher-than expected revenues.
“Having landed in bankruptcy after years of ineffective operations, Suffolk OTB, with approval of the U.S. Bankruptcy Court, turned to home-state, industry-leading Delaware North to develop and manage its video gaming operations,” White said. “Employing its deep experience in the gaming and hospitality sectors, Delaware North has developed Jake’s 58 as a professionally-run business that makes millions of dollars for the state and community.”
When Suffolk OTB originally filed under Chapter 9 on March 18, 2011, it listed its largest creditors as the New York Racing Association Inc., the New York State and Local Retirement System, and Yonkers Raceway. The agency closed half of its traditional betting parlors in favor of internet wagering and off-site gaming machines as part of state legislation allowing it to file for Chapter 9.
