Mitchnick v. Childs, A Cautionary Tale of Actual Poker Justice

Have you been gambling with someone else’s money? In the square world, that’s a sign that you might have a problem. However, if you’re a professional poker player, it’s a sign of fiscal responsibility. Many pro poker players are in fact plying their trade with a financier’s money. This is the story of a dispute between a poker player and a poker financier that was contested in the square world, through a lawsuit that went the distance.

On May 14, 2014, after a six-day trial, a jury delivered a verdict in the legal matter of Mitchnick v. Childs, a New Jersey civil action bearing docket number HUD-L-4742-12.  My firm successfully represented the defendant in that trial, which resulted in a jury of six unanimously finding that our client committed no material breaches of the parties’ contract.  The case, as far as I know, was the first of its kind.  The contract at issue was an agreement governing a poker staking relationship.  The lawsuit pitted a poker staker (Plaintiff) against a poker player (Defendant) and involved the application of standard contractual concepts in a novel arena:  the world of professional gambling.  I feel this trial, now that is has been completed, is worthy of public discourse. This is an attempt to tell the story of this lawsuit from my perspective.

All the opinions expressed below are my own.  The facts presented below are either derived from documents submitted into evidence in the lawsuit, from information obtained via discovery in the lawsuit, from testimony given in the lawsuit, or from my personal experience in the lawsuit.  Although I am expressing my personally held opinions, links to most of the court filings are included, so that an interested reader can draw his/her own conclusions.

In the narrative below I describe certain conduct by the Plaintiff’s attorney that I feel was ultimately counterproductive.  These passages should not be construed as a denigration of his ability as a lawyer.  The lawsuit was quite contentious at all stages, but I appreciate that opposing counsel was just zealously representing his client. He is an excellent litigator, and I would recommend him without hesitation to anyone seeking a smart, hard-nosed, knowledgeable attorney.

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In October 2012, Lee Childs, a professional poker player, contacted me.  He told me that while he was on a bathroom break during a tournament at the Borgata, he had been served with a civil summons and complaint (linked below).

Summons and Complaint

Lee’s former backer was suing him for breach of contract in Hudson County (N.J.) Superior Court.  Lee explained the circumstances leading up to the lawsuit and shared with me a few relevant documents, including the written contracts governing the parties’ staking relationship and the “termination letter” the Plaintiff sent to him.

I found the lawsuit distasteful in that, in my opinion, it violated an unstated rule that gambling disputes be handled in house, within the gambling world.  Something about an investor requesting that someone gamble with her funds, then asking the gambler to refund her losses just did not sit well with me.  In terms of pure legal viability, I believed the suit to be ambitious at best. In short, the case sounded like a bunch of B.S.

Lee Childs was a defendant for whom I had an unusual amount of empathy, as we had traveled in the same circles for years.  When I learned about the suit, I was still getting acclimated to life as a full-time lawyer; hearing about Lee’s dispute re-connected me to the world of poker.  I decided that I would try to help him out.  As neither my partner/father nor I is admitted to practice law in New Jersey, I contacted a lawyer friend in Hackensack named Mel Solomon.  Mr. Solomon was intrigued and agreed to assist in the representation of  Mr. Childs.

A bit of background is required before I continue.

Lee Childs is a professional tournament poker player.  In my former life as a poker pro, Lee and I weren’t close friends, but I knew him to be a skilled regular and one of the nicest guys on the East Coast tournament circuit.  He’s probably most well-known in poker circles for making the final table of the 2007 World Series of Poker Main Event, a tournament that took place during the height of poker’s popularity on television.  He was infamously involved–on the losing end–in one of the hands that catapulted that year’s eventual champion into serious contention.  Lee’s WSOP Final Table run came only three months after he attended a World Poker Tour Boot Camp course.  In the months following the WSOP Final Table, the WPT Boot Camp organization sought to take advantage of its connection to Lee, so in 2008 they hired him as an instructor.

At the same time, the Plaintiff was the owner of a successful business and a frequent “student” of WPT Boot Camp.  The Plaintiff and Lee were both friendly with and thought highly of an instructor named Nick Brancato.  Mr. Brancato, seemingly regarded as a sensei of sorts in the WPT Boot Camp world, was Lee’s most trusted poker insider.  Mr. Brancato knew that Lee was looking for staking and introduced the Plaintiff and Lee in July 2008.  Talks ensued.  Funds were advanced and a small number of tournaments were played pursuant to an oral agreement.  Although poker-staking contracts are typically handshake affairs, the Plaintiff ultimately wanted to reduce the parties’ long-term arrangement to writing.  A short time later the Plaintiff did draft a written contract, from scratch, without use of a template and without the assistance of an attorney.  The contract was exchanged between the Plaintiff and Lee and modified a few times before both parties signed it in September 2008.

Mitchnick/Childs Contract

From a legal standpoint, the contract (linked above) was a clumsy document.   It was missing several key provisions, including a definitions section,  a choice of law clause, a statement regarding materiality, a notice to cure provision, a clause validating its attempt to employ liquidated damages and several other items that would have aided in its interpretation.

The contract was also extremely burdensome for the player. It embodied the usual elements of long-term poker staking, as it (a) required the player to pay for his own travel expenses, (b) called for the use of “makeup” with a 50/50 split of profits, (c) contained a provision stating that if the backer walks, she forfeits makeup, and (d) contained a clause stating that says if the player quits, he must repay makeup.  However, the contract also requires, vaguely, that Lee “always play to the best of his ability” and not play “if he unable to bring his best game to the table,” and placed onto Lee the burden of performing several administrative tasks, including:

  • Provide the backer with his upcoming schedule of live tournaments six (6) months in advance
  • Inform the backer as soon as any deviations or changes to the live tournament schedule are known
  • Provide the backer with “appropriate tax documents” by January 31st of each year
  • Transfer his winnings into the parties’ joint checking account (created pursuant to this same contract), or deliver them to the backer in person, within ten (10) days of receipt

The agreement’s coup de grace was a clause stating that if Lee were to “breach the contract in any way,” he would have to pay the Plaintiff his entire makeup figure, regardless of the amount.  You can probably already predict where this story is going.

For the readers who are unfamiliar with the poker world, I should mention here that makeup is a form of accounting commonly used in poker staking, particularly tournament poker staking. Tournament poker staking is a high-risk activity; big payouts occur infrequently and heavy losses typically accrue in the interim. Makeup gives the staker a form of security; it is a promise by the player that recent losses will be “made up” before profit can be taken again. Makeup is the amount a player must clear before the next profit split can happen. For an excellent analysis of makeup, please read Eric Haber’s affidavit, which is linked in the summary judgement section below.

“Why did Lee Childs sign this contract?” is a reasonable question to ask.  He will certainly admit that doing so was a grave mistake.  He will also admit that in 2008 he was still new to the poker scene and was inexperienced in the realm of business dealings.  It has also been established that Nick Brancato told the parties that the contract was fair.  Lee’s real mistake, in my opinion, was being too trusting.

After signing the contract, Lee initially played only live poker tournaments, then later (pursuant to two amended but unsigned contracts) he played both live and online poker tournaments for the Plaintiff.   This went on for roughly four years.  During those four years, the Plaintiff never instructed Lee that he was in breach of contract, nor did she ever threaten termination of the contract.  During those four years, the Plaintiff reliably provided the necessary funds, and Lee continually and without interruption played live and online poker tournaments with those funds. During those four years, Lee performed the administrative tasks discussed in the contract, but not always in the specified time frames.

Moreover, during those same four years, Lee cleared makeup and the parties split profits on multiple occasions.  As a result of those profit splits, the Plaintiff profited over $17,000 (by my calculations, she claims less) during the course of the relationship.  The parties’ largest profit split was also their final profit split.  It occurred just after Thanksgiving in 2010 when Lee final tabled the Full Tilt Online Poker Series (“FTOPS”) Main Event for about $144,000.  This tournament score cleared makeup–a figure that was comprised of a combination of live and online results–and caused the parties to each pocket over $45,000 in profit.  Lee then sustained live and online losses in 2011, causing makeup to rise to well over $100,000.  He followed that up with an excellent summer in 2012.  Lee’s efforts during the 2012 WSOP reduced makeup from about $130,000 to about $40,000.

Termination Letter

Lee received the Plaintiff’s termination letter (linked above) on July 30, 2012.  In the letter, the Plaintiff announced her intention to end the backing arrangement and collect Lee’s final makeup figure of $40,319.  It also sets forth Lee’s specific transgressions, including “not providing schedules on time [and] not providing tax forms on time,” and “behavior that can be argued to compromise making an effort to always play to the best of your ability.” It is worth noting that none of Lee’s alleged wrongdoing involved stealing or misappropriating the Plaintiff’s money or acting in bad faith.  Indeed, he was never accused of acting in bad faith at any point during the relationship.  It is also worth noting that in the termination letter, the Plaintiff repeatedly characterized Lee’s makeup figure as a “debt.”  After receiving this letter, Lee communicated with the Plaintiff in an effort to arrive at a settlement.  To that end, he made an offer I believe was generous.  She, as they say in poker, “snap”-rejected this offer.

Back to the lawsuit.  It was immediately apparent that Lee had a number of defenses at his disposal, including:

  • Legality:  Was the contract even enforceable?  Many states have statutes declaring gambling contracts void per public policy.  One such state is Virginia, where Lee was domiciled at all relevant times.  Further, Lee played thousands of online tournaments for the Plaintiff, and online poker was illegal in all U.S. jurisdictions at all relevant times.
  • Materiality:  Were any of the alleged breaches material?  In lay terms, a Plaintiff can only recover for breaches of contract that matter.  Material breaches are defined as breaches that concern “essential obligations” in a contract.  Most of the Plaintiff’s allegations concerned administrative responsibilities.
  •  Mistake of Fact/Impossibility:  For those of you who went to law school, this was the central issue in the popular 1L Contracts case Sherwood v. Walker, a.k.a. the “replevin for a pregnant cow” case.  It was relevant in Mitchnick v. Childs because I knew from personal experience that poker tournament schedules are not released six months in advance.  How could such a term be enforced?
  • Waiver/Estoppel:  The Plaintiff never threatened to terminate and never told Lee he was in breach of the contract.  She reaped the benefits of the contract for several years.  On many occasions she allowed performance that did not strictly comply with terms in the contract.  In light of this behavior, should she be permitted to assert a breach?
  • Makeup as contractual damages:  To me, this was the most interesting facet of the case.  The contract stipulated that makeup would be recoverable in the event Lee breached.  The Plaintiff seemed to be asserting that makeup was a debt she was owed, or that a breach of contract converted makeup to debt.  That did not jibe at all with my understanding of makeup. Defining makeup properly and explaining why its recovery would not compensate the Plaintiff for her “damages” seemed critical to this case.

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The amount at issue (approximately $40k) was very small for a civil cause of action, so Mr. Solomon and I thought maybe the Plaintiff was just blowing smoke.  Opposing counsel’s firm billed itself as a debt collection outfit; I thought perhaps the lawsuit was merely an attempt to secure a default judgment against Lee.  Attorneys are expensive; many litigants quickly discover that lawsuits are not worth the trouble, especially when their attorney’s fees might ultimately exceed the amount they could recover in the suit.  Accordingly, Mr. Solomon and I concluded that the Plaintiff might fold her hand if we simply mounted an early defense.  On November 30, 2012, we filed an answer in which the above-mentioned defenses were asserted.  On December 7, 2012, we also served Interrogatories on the Plaintiff, signaling the start of discovery.

Mitchnick-Childs Answer

Shortly thereafter, the Plaintiff served her own Interrogatories, along with another discovery document called a Request for Admissions.

In early February 2013, we received the Plaintiff’s voluminous response to our Interrogatories.  Her submission included roughly 600 pages of discovery, encompassing almost every email the parties ever exchanged, a transcript of the parties’ text messages over the prior year, bank records and freshly-created charts detailing every poker-related financial transaction the parties ever had.  It was an impressive undertaking; the work compared favorably with the kind I’d seen exchanged by big law firms in complex commercial litigation.  It gave me a glimpse into why the Plaintiff had experienced success in the business world.  It also left me with the sense that I’d probably not want this person as my poker backer.  Most of all, it indicated, without a shadow of a doubt, that the Plaintiff would not be folding soon.  I told Lee that he should now consider this lawsuit a permanent fixture in his life.

It became obvious during discovery that the Plaintiff was often dissatisfied in the backing relationship, mostly about the spreadsheets the parties used to track Lee’s results.  We also learned why the Plaintiff felt Lee had allegedly failed to play poker to the best of his ability during the relationship.  Specifically, she claimed that Lee was observed drinking beer at the table, was observed drinking late the night before scheduled tournaments, had sometimes arrived late for tournaments, and supposedly had played poker when he was in a bad state of mind.

These were perplexing allegations.  I was a veteran of several years on the poker tour, and I knew hundreds of touring pros, including Lee.  We all spent entire summers in Las Vegas together attacking the WSOP.  I had been to the nightlife venues in Vegas on countless occasions and had never seen Lee in those places.  I had a beer or two with him a couple of times, but (thanks to social media and his active role in the Fellowship of Christian Poker Players) knew him to be a family man and a devout Christian, a man who walked the walk when it came to his faith.  I also knew that he ran a poker training program in which he taught proper mindset and guidelines on how to behave away from the table.  He is NOT a big partier, in contrast to many professional gamblers.  As far as I could tell, he took his job quite seriously.  The Plaintiff’s discovery production did nothing to change my view of the lawsuit:  it was B.S.

At this point, the Plaintiff also named Nick Brancato as her expert witness.  This, for obvious reasons, did not please Lee.

I decided we should also seek help from an expert witness, Eric “Sheets” Haber.  Sheets is perhaps the foremost backer in the business, and possibly the first backer to treat staking as a large scale business.  He was familiar to me from my days as a subscriber to his poker training site, and I knew from watching his narrated videos that had a law degree, a background in finance and a sharp intellect.  I contacted him in late February 2013.  Mitchnick v. Childs piqued his interest.  He agreed with my stance regarding the lawsuit and agreed to be put on retainer.  Although Sheets was ultimately barred from testifying at trial (more on that below), his assistance throughout the lawsuit was invaluable, particularly on the topic of makeup and how it should be treated from a legal standpoint.

In early April, Mr. Solomon and I served our answers to the Plaintiff’s Interrogatories and answers to Plaintiff’s Request for Admissions.

By this time, it was becoming obvious that a settlement was not imminent.  The parties’ legal expenses were adding up and neither side was blinking.  Mr. Solomon has a busy immigration practice and was not particularly interested in a protracted battle.  I needed to take over control of the lawsuit.  I drafted applications for pro hac vice admission for my father, whose assistance would only be necessary if the case actually went to trial, and myself.  Hudson County Judge Francis Schultz granted these applications on May 24, 2013.

Depositions took place at Mr. Solomon’s office on July 31, 2013, a sweltering summer day.  Lee was deposed by opposing counsel first.  I then deposed the Plaintiff.  The depositions gave me a bit of insight into the Plaintiff”s thought processes but did nothing to alter my view that the lawsuit was B.S.

At the conclusion of depositions, opposing counsel, Mr. Solomon and I adjourned to Mr. Solomon’s office to discuss settlement.  To my surprise, opposing counsel announced that he had extracted sufficient information from Lee to win a motion for summary judgment.  I couldn’t tell if this was actual confidence or bargaining bluster, but the bottom line was that the parties’ settlement figures were miles apart.  Our talks were over; the case wasn’t settling.  A $40,000 poker lawsuit was officially hurtling towards trial.

My resolve was strengthened by the depositions and the so-called settlement negotiations.  I was fully aligned with Lee’s side of this dispute and emotionally invested to an extent that was frankly unhealthy.  I told Lee that hope of a settlement was now lost, and that things were about to get pretty expensive for him. His reply was memorable:  “I’d far rather give the money to you than her.”

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At this point in the case I was pot committed.  Discovery was over and cross-motions for summary judgment were on the immediate horizon.  It was my task to convince a judge to toss the case before trial.

We received the Plaintiff’s motion for summary judgment in late September 2013.  There was nothing surprising in the paperwork; the Plaintiff’s theory of the case was essentially:  “A contract is a contract.  Lee Childs signed one.”

[note:  summary judgment filings are basically trials on paper, if you’re going to read any of the stuff I’m attaching, the stuff on this page is probably best!]

Plaintiff’s Statement of Facts

Plaintiff’s Summary Judgment Brief

I dug my heels in and set about researching New Jersey law.  I then began to draft the sort of opposition and cross-motion for summary judgment that my old white shoe law firm would have produced.  If my experience at a midtown law firm fifteen years ago taught me anything, it was how to prepare heavy-handed, overwrought legal memoranda.  One was forthcoming.

I had Eric Haber convert his previously prepared expert report to an affidavit.  It would serve the purpose of explaining the backdrop of the dispute to the judge.  I also wanted a tournament director to sign an affidavit stating that tournament schedules were not produced six months in advance.  I wrote to the imminently qualified Matt Savage, who quickly agreed to help out.  For the record, I wasn’t calling in favors with either Haber or Savage, they were neutral parties who were interested in helping Lee.

The defense’s finished product was as follows:

Defendant Statement of Facts

Defendant Summary Judgment Brief

Defendant Summary Judgment Affidavit

Defendant Affidavit of Eric Haber

Defendant Affidavit of Matthew Savage

The Plaintiff opposed my cross-motion as follows:

Plaintiff Certification in Opposition

Plaintiff Opposition/Reply Brief

I replied:

Defendant Reply Brief

As these summary judgment filings were being exchanged, the parties received notice by mail that Mitchnick v. Childs had been selected for mandatory non-binding arbitration.  This is a procedure used in New Jersey civil actions to cut lawsuits off before lots of time and energy is wasted in a full-blown trial.  The arbitration hearing is itself a mini-trial:  both parties submit short written statements and then present their cases.  The hearing lasts maybe an hour.  The arbitrator hears the evidence and makes a ruling on the spot.  The losing party is not bound by the arbitrator’s decision and may reject the ruling and demand an actual trial.

I consulted with Mr. Solomon and we agreed that Mitchnick v. Childs was not a good case for non-binding arbitration for two reasons:  (1) the subject matter of the suit was too unusual for an arbitrator to make an informed decision; and (2) neither party would comply with the ruling, particularly because cross-motions for summary judgment motions were pending.

I called opposing counsel and suggested that we skip the arbitration, but he expressed confidence in his case and insisted on moving forward.  I now knew that the Plaintiff and her lawyer were not bluffing.  They believed the case was a legit, non-B.S. cause of action.

The arbitration took place on November 14, 2013.  Opposing counsel opened by presenting the lawsuit in the same way he would throughout the litigation, as a rather simple breach of contract situation.  I countered by saying that the situation was a lot messier than the Plaintiff would have the arbitrator believe and that there were numerous problems with the contract.  I then began discussing the issue of legality.  The scene devolved into a screaming match of sorts.  The arbitrator cut things short by saying, roughly: “online poker?  I’m not qualified to make a ruling about that.  I’m ‘no-causing’ this.”  Our other defenses were never discussed.  Lee won the arbitration, but only because the arbitrator chose not to deal with a gambling contract potentially concerning illegal activity.  The Plaintiff officially rejected the arbitrator’s ruling a few days later.

On November 22, 2013, Judge Schultz heard oral arguments on the cross-motions for summary judgment.  He was well-versed in the facts of the dispute, and for two-plus hours, asked pointed questions to opposing counsel and me about the lawsuit.

Judge Schultz seemed skeptical of my theories that Virginia (rather than New Jersey) law should control, and that the parties’ contract had been modified to include online poker.  However, although it was effectively argued, he also seemed skeptical of the Plaintiff’s theory that Lee’s alleged breaches were material.

Opposing counsel and I spent a significant amount of time arguing about whether Lee’s final makeup figure included makeup generated from his online play, an issue crucial to our defense of illegality.  I established that the parties’ final profit split took place in November 2010, that Lee played online poker for the Plaintiff continuously until April 2011, and that there was a single makeup figure during that time period.  It was thus clear that live and online results had been commingled, and that the requested damages of about $40k included makeup created from online results.  Opposing counsel conveyed to the court that the live makeup could be extricated from the online makeup by examining the parties’ spreadsheets.

Judge Schultz issued a written decision on December 4, 2013.  He found that:

  • New Jersey, not Virginia law controlled;
  • the September 2008 contract was enforceable as written; but
  • it would be the Plaintiff’s burden at trial to prove that her damages came from legal casino gambling only (rather than online gambling).

Our cross-motion for summary judgment was denied in its entirety.  Still, the decision regarding illegality helped our cause; we never contested the viability of live casino gambling as the subject matter of a New Jersey contract.  The case was quickly moving toward trial.  This still did not shake my conviction that the lawsuit was pure, unadulterated B.S.

Summary Judgment Decision

Summary Judgment Order

I was concerned that Judge Schultz’s decision might prevent Lee from arguing at trial that online poker (an illegal activity) impacted some of his contractual obligations.  I therefore filed a motion for reconsideration on January 24, 2014.

Notice of Motion for Reconsideration

Defendants Certfication in Support

The Plaintiff opposed this motion on February 19, 2014, and I replied on February 24, 2014.

Plaintiff Opposition

Defendant Reply

We again appeared before Judge Schultz on February 28, 2014.  He clarified his earlier ruling by stating that the Defendant could indeed argue illegality at trial, and that Plaintiff bore the burden of proving that her case only pertained to legal casino gambling rather than illegal online gambling.  He reiterated that if the makeup was comprised of commingled funds, then only the brick and mortar funds were recoverable as damages.   Judge Schultz signed the below order a couple of weeks later:

Reconsideration Order

There was nothing left to do but prepare for trial.  A poker staking trial!

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The parties received notice of a March 10, 2014 trial date.  This was inconvenient for me as I had two continuing trials calendared for that week.  I wrote opposing counsel requesting an adjournment on consent, but my request was denied.  Eventually, my request for an adjournment was granted by the Court over opposing counsel’s objection.  The new trial date was May 6, 2014.

I encouraged Lee to enlist my father (at additional cost) to assist with the trial, and Lee agreed.  Up to this point, Mitchnick v. Childs had been on my father’s radar, but he was blissfully ignorant of the legal theories and specific facts of the case.  Getting my father up to speed on everything was itself a challenge.  Having represented clients in hundreds of trials, most of which involved stakes much higher than this one, my father’s preferred plan here was simply to illustrate to the trier of fact, on cross-examination, that the Plaintiff was full of it.  I liked that plan but also insisted that my father understand all of our affirmative defenses and take note of which documents supported each of them.  He humored me.

Our trial strategy involved a few main points. We had two affirmative defenses that I figured would be easy to establish, namely mutual mistake of fact (with respect to the six-month scheduling obligation) and waiver (with respect to the provision of tax forms, as I believed the Plaintiff had expressly waived that obligation more than once). We had some work to do on the other issues:

Define makeup: Explaining makeup to a jury (or judge, in a bench trial) was a challenge. It was crucial that the trier of fact to understand that makeup accrued even though the Plaintiff collected profit on several occasions. We needed to establish that makeup, as an accounting method, was meant to ensure that Lee remained bound by the contract, unable to walk away at his convenience. We needed to further establish that the recovery of makeup as contractual damages was built into the contract to prevent a breach, not to compensate in the event of one. Sheets would testify on this topic and do most of the heavy lifting.

Materiality: It was apparent from the deposition testimony that the Plaintiff had suffered no compensable harm from Lee’s alleged failure to perform some of the administrative tasks listed in the contract. To meet her burden of proof on materiality, the Plaintiff needed to show that she had been deprived of some benefit because Lee hadn’t given her tax forms, given her schedules, or transferred winnings in the manner specified by the contract. We intended to strongly focus on this point.

Plaintiff’s Motive: While the Plaintiff claimed she was aggrieved by Lee’s alleged failings, it could certainly be inferred that the Plaintiff had some other objective, as her dissatisfaction tended to correlate with Lee’s downswings. It was also established that she decided to terminate the agreement in February of 2012, but waited until just after the potentially lucrative 2012 WSOP to pull the trigger. I suspected that the Plaintiff wanted out of the relationship, but was using the contract to extract an exit payment to boot. We intended to connect some dots for the jury on this issue.

Makeup Included Online Results: After Judge Schultz ruled that Plaintiff bore the burden at trial to extricate live makeup from online makeup, I examined the parties’ spreadsheets to calculate Lee’s “live only” makeup following the final profit split in November 2010. This research uncovered a dirty little secret: Lee lost only about $15,000 playing live tournaments during the relevant time period. This meant that the true amount at issue in the lawsuit, (presuming makeup was a valid form of contractual damages at all), was only about $15,000. We intended to call attention to this if the Plaintiff testified that “live only” makeup was a higher figure.

On the morning of Tuesday, May 6, 2014, Mitchnick v. Childs was assigned to Hudson County Judge Martha Royster. Judge Royster asked opposing counsel whether he wanted a jury trial or a bench trial–we had already waived a jury.  He preferred a jury trial, so the first step in the case was jury selection.  This took the better part of a day and a half.

After jury selection, Judge Royster conducted a hearing to determine whether Sheets could be qualified as an expert witness. Opposing counsel made a compelling argument; he pointed out that much of Sheets’ expert report was comprised of unsubstantiated opinions, and that Sheets had not engaged in the type of scholastic and scientific activity that could qualify him as an expert on poker staking.

I already knew that Sheets’ testimony would likely be limited to a discussion of makeup; his opinions regarding materiality would likely be inadmissible. I argued that poker staking was not a field where scientific study was possible, and pointed out that makeup was an esoteric term for which a proper explanation would be particularly probative.

Sheets took the witness stand and answered my questions regarding his background with an eloquent discourse on the mathematical underpinnings of poker staking. Judge Royster then asked him a series of questions that he again answered honestly, intelligently and in great detail. Judge Royster then delivered her ruling: Sheets could not testify.

While Sheets was qualified in his primary field of portfolio management (which involved many of the same concepts as poker staking), he was not qualified in the field of poker staking due to the fact that he had never authored scholarly articles or conducted published scientific studies on staking. The judge further ruled that because makeup was not a concept peculiar to poker staking (Sheets admitted that he was aware of its use in other contexts), he could not testify even for the purpose of defining it. Without Sheets, we would have to explain makeup to the jury through Lee’s direct examination. This certainly weakened our case, but I remained confident that the jury would never have to consider makeup because we would prevail on the issue of materiality.

Opening statements took place on May 7, 2014. The Plaintiff’s attorney gave a calm, measured opening that depicted the case as a simple breach of contract scenario. My father’s opening statement focused on the inconsequential nature of the alleged breaches. He also suggested that the Plaintiff, by seeking damages on top of the profit she collected, wasn’t playing by the rules of poker backing and that she likely had an ulterior motive in pursuing the lawsuit.

And with that, we embarked upon what would end up being a very contentious trial. This trial was fiercely litigated. Opposing counsel is an effective and tough litigator, my father is an old war horse who will not be pushed around, and I was prepared for all contingencies. There were numerous bench conferences where procedural and other issues were argued out of earshot of the jury, and the trial had to be halted entirely at one point because of how combative things got. The trial ended up spanning six business days.

Plaintiff first called to the stand her friend Derwin Jackson. Mr. Jackson testified about a hotly contested matter: the events of the night of July 5, 2012.

Both parties, and Mr. Jackson, agreed that the following events occurred that evening:

  • Lee made the final table of a Venetian Deep Stacks event;
  • The Plaintiff and Mr. Jackson sweated this final table from the rail;
  • An ICM-based chop was discussed during five-handed play–this chop would have awarded Lee roughly $61,000, a figure that would have nearly cleared makeup;
  • Lee was in favor of accepting the proposed deal;
  • The Plaintiff, reasoning that Lee was the best player remaining, was against the proposed deal;
  • Lee rejected the chop offer;
  • Lee drank two beers at this final table;
  • Lee busted 4th for about $39,000;
  • The remaining players chopped the prize pool immediately after Lee busted.

The Plaintiff cited Lee’s consumption of two beers at this final table as proof that he “failed to play to the best of his ability,” in breach of the contract. She also claimed that she had merely suggested he reject the proposed chop. Lee, on the other hand, claimed that the Plaintiff demanded the unrealistic sum of $90,000 in any chop and insisted that he play the tournament to completion.

We were prepared for this testimony , and Mr. Jackson merely confirmed that he observed Lee drink two beers, that Lee had borrowed his iPhone to use an ICM calculator app, that the parties disagreed on the proposed chop, and that Lee indeed busted fourth.

Next, the Plaintiff took the stand. Before I go on, I want to emphasize that my opinions of the Plaintiff’s demeanor and actions as a witness at this trial are limited to exactly that. I make no comment on, have no knowledge of and do not have an opinion of, the Plaintiff outside the context of this lawsuit.

The Plaintiff testified that Lee’s alleged administrative breaches caused her great inconvenience. She also testified that she saw Lee drinking and playing blackjack with his father at the Rio at 2:00 a.m. on the night before a WSOP event, and that this, in her opinion, constituted a failure to “play to the best of his ability.”

My father cross-examined the Plaintiff, and frankly, he buried her. She could not convey how Lee’s alleged breaches had deprived her of anything significant. She was a difficult witness who came across as evasive, unlikeable and self-important. In my view, she destroyed her own credibility.

To describe how she was damaged by Lee’s delay in providing her “appropriate tax forms,” the Plaintiff testified that that she filed her tax returns in early April, instead of January, and that because of this delay, a large tax refund did not arrive before the WSOP in one particular year. She also claimed she needed tax forms for some purpose other than preparing tax returns.

To describe how she was damaged by receiving Lee’s upcoming schedules weeks instead of months before tournaments, the Plaintiff testified that her former job often took her on business to Africa, where, she claimed, she had limited access to the internet. Note that she was able to transfer the necessary funds to Lee several days before all the tournaments, so it is not clear how these trips to Africa were even relevant.

When my father asked why she would advise a seemingly drunk person to play out a high stakes poker tournament instead of chopping it for $60,000, the Plaintiff claimed that Lee only drank the two beers after the chop discussions took place. Mr. Jackson had already testified otherwise.

When my father asked why, upon allegedly observing Lee drunk at 2:00 a.m., did she not even suggest that he take the next day off, the Plaintiff, who brought a lawsuit to enforce a poker backing contract, replied that it “wasn’t her place” to advise Lee not to play a tournament.

Finally, and in my opinion most egregiously, when my father asked the Plaintiff whether Lee’s final makeup number included online results, the Plaintiff went into denial mode. She testified that Lee’s live and online makeup amounts were separate figures, and that she was suing for $40,000 in live makeup only. This directly contradicted several documents, her own deposition testimony, and a written decision by Judge Schultz, who had found that the funds were commingled and that it was the Plaintiff’s burden to prove they could be separated. The contradictory evidence was presented to the Plaintiff, but she continued to deny that her requested damages included online proceeds. My father pestered her on this topic for an excruciating hour or so. During this testimony, I observed one juror roll his eyes, while another seemed to have a look of (what I perceived as) contempt on his face.

Nick Brancato, after watching Plaintiff’s testimony, was up next. Mr. Brancato testified that he was involved in the creation of the contract and that Lee did not complain about the contract before entering into it. He admitted on cross-examination that he and the Plaintiff had financial ties. His testimony was of little significance.

When “Nicky Numbers” stepped down from the stand, the Plaintiff rested her case, and we took a lunch break. The dismantling of the Plaintiff’s case on cross-examination was so thorough that my father and I actually considered not presenting a defense.

After lunch, it was our turn. First, Kelly Armentrout testified that Lee hired her to help him deal with the Plaintiff and her demands. She testified that she became Lee’s liaison to the Plaintiff and that she sent the Plaintiff daily emails so that the Plaintiff could update the parties’ spreadsheet. She explained that the Plaintiff complained frequently and was difficult to please.

Lee took the stand next. On direct, he was long-winded but generally likeable and forthright about the parties’ relationship. He testified that he was surprised when he was terminated “for cause” and then sued. He testified that the Plaintiff’s allegation that he did not play to the best of his ability was absurd, as he and the Plaintiff were in business together and he was trying to feed his family. He explained his understanding of makeup to the jury, and testified that it was not at all connected to the administrative breaches at issue. He also testified that he played thousands of online poker tournaments for the Plaintiff and that the parties used a single makeup figure for both live and online poker. I opted not to elicit testimony from Lee that true live-only makeup was only about $15,000. The Plaintiff had failed to meet her burden of showing extricable live and online figures; I did not want to encourage the jury to “compromise” and award her the reduced figure.

Lee stood up to cross-examination well. Opposing counsel tried to characterize Lee as someone who drank at the table regularly, but Lee explained that it happened rarely. Opposing counsel stressed that Lee had not met every administrative obligation in the contract, but Lee testified that the fine points of the contract were never discussed after it was executed, and that, in his opinion, the Plaintiff was now using it to freeroll in the backing relationship. Lee also conveyed that the Plaintiff made the ultimate determination regarding the decision to play out the Venetian tournament.

Finally, we called Lee’s wife, Jenny Childs to the stand. Jenny, like Kelly Armentrout, testified that Lee needed her help to placate the Plaintiff, thereby allowing Lee to focus on poker. She explained that the main source of contention between the parties was the results-tracking spreadsheets. Jenny also corroborated Lee’s testimony that the parties used a single makeup figure for both live and online poker.

Both sides delivered their closing statements on the morning of Tuesday, May13th. In his closing, my father reminded the jury of the Plaintiff’s failure to establish compensable harm, and therefore materiality. He also noted that the Plaintiff had profited from the partnership, and asked the jury to recall her evasive and incredible testimony, suggesting she was being disingenuous.

Opposing counsel’s closing argument was much more emotional than his opening statement. We took exception to parts of his argument, leading to a contentious bench conference in the middle of the proceedings. He finished by asking the jury to award the Plaintiff the $40,000 to which she was “entitled.”

Opposing counsel requested that the jury use a verdict form that asked only (i) did Lee materially breach the contract, and (ii) if so, what amount of damages should be awarded to the Plaintiff? I hoped to preserve certain discreet issues for appeal and asked Judge Royster to draft a more detailed form, which she ultimately did. The case was given to the jury for deliberations at around 2:30 p.m. on May 13th. We were feeling confident.

Around 4:15 p.m., the jury announced that it would not be able to reach a verdict that afternoon and asked for more time to deliberate. Lee, opposing counsel and I returned the next day. The Plaintiff did not. The jury continued deliberating through lunch. My confidence was fading with each passing hour, I had assumed that the jurors would quickly agree that the Plaintiff failed to prove materiality, and accordingly issue a quick verdict. As time went by, I started to believe that six hours of deliberation could only mean that the jury was trying to calculate damages. Shortly after lunch, we received word that the jury had a verdict.

The jury announced a verdict as follows:

  • Lee breached ALL six “player responsibilities” in the contract (6-0 vote on some, 5-1 vote on others);\
  • NONE of those breaches were material (6-0 vote);
  • Affirmative defense of impossibility applied to Lee’s obligation to provide live schedules six months in advance (6-0 vote);
  • Affirmative defense of waiver applied to Lee’s obligations to “always play to the best of your ability” and to “not play if you cannot bring your best game to the table for any reason,” (i.e., the jury found the Plaintiff’s “no-chop” advice and failure to request that Lee not play compelling) (6-0 vote);
  • ZERO damages were awarded (6-0 vote).

In short, the jury found that Mitchnick v. Childs was B.S.

The jurors, who likely took over six hours to deliberate not because they faced a tough decision but because of the complexity of the lawsuit, were thanked for their service and dismissed. Lee’s father–who had watched the trial from beginning to end–enjoyed a celebratory embrace with his son. I was both relieved and proud.

______________________________________________________

I am told that the day the verdict came down, the Plaintiff described it on social media as a “mixed” result because Lee was found to have committed six immaterial breaches. This is like calling an all-in on the river, losing your entire stack, and then claiming partial victory because you really just wanted to see your opponent’s hand.

The jury found only three breaches to which Lee had no valid affirmative defenses: (1) failure to provide tax forms by January 31st; (2) failure to transfer funds within ten days of receiving them; and (3) failure to announce changes in schedule as soon as they are known. Apparently a final determination, after an 18-month lawsuit, that these three immaterial breaches occurred provides some measure of satisfaction to the Plaintiff.

At the summary judgment phase of the lawsuit, I moved for a dismissal on the grounds of immateriality. The motion court judge denied this motion and found that materiality was for the trier of fact to determine. Had Lee won a summary judgment dismissal on the issue of materiality–a ruling carrying the same effect as the verdict returned by the jury–would the Plaintiff have claimed partial victory?

As mentioned above, opposing counsel wanted to submit a short verdict form to the jury asking simply whether or not Lee had committed material breaches. Had the judge permitted use of this form, and had the jury answered “no” to this question, would the Plaintiff have called this a “mixed” verdict?

The verdict is a clear victory–and vindication–for Lee Childs. He was adjudged to have done nothing that caused any harm to the Plaintiff. The ruling means that the Plaintiff had no legal right to terminate Lee for cause.  The Plaintiff seems to want publicity regarding a lawsuit she initiated and zealously pursued over immaterial contractual clauses. I am unsure why. As Mitchnick v. Childs unfolded, I consulted with many other attorneys, some of whom advised me to file a motion alleging that the suit was frivolous. Once the case survived summary judgment, I did realize that such a motion would not lie.

At the conclusion of the trial, Lee stated on Twitter that it was a “big win for poker players.” An associate of the Plaintiff challenged this comment, and I came to Lee’s defense (again). The verdict does protect players from future backers who may think that the freedom to contract is absolute. It is not; the law affords protections, including the requirements of materiality. Also, had the Plaintiff prevailed, it is conceivable that other backers would implement similarly burdensome written contracts in their staking relationships. The outcome of this case does protect players in that respect.

Nobody truly won here. This lawsuit was, in my opinion, not an ideal use of our justice system. A lot of time, energy and money was wasted by both parties bringing a bunch of poker mishigas into a courtroom. For what purpose?  This trial was surreal to me, and not necessarily in a good way.

Much of the money spent on this lawsuit went into my pocket, but I still realize how wasteful the whole affair was. Mitchnick v. Childs was litigated as fiercely as a million dollar suit between multi-national corporate entities. To what end? A relatively small amount of makeup was at issue. Was it about pride? Punishment? Proving a point? Exacting revenge? I don’t know.

The most interesting legal question raised by the lawsuit was never reached by the jury. It concerned the Plaintiff’s attempt to enforce payment of makeup as contractual damages. Sheets and I have had some interesting discussions on this topic. My view is that “makeup as contractual damages” is generally unenforceable, and that only a very carefully crafted staking agreement can validate such a provision. “Makeup as damages” is built into these agreements to induce performance by, or penalize, the player, not to compensate the backer. That prevents enforcement in most jurisdictions.

It may never matter. I think the most sensible thing is for poker players and their financiers to handle these sorts of disputes amongst themselves, rather than through our legal system, as they have for many years.

-David Zeitlin

13 thoughts on “Mitchnick v. Childs, A Cautionary Tale of Actual Poker Justice

  1. Pingback: Poker Lawsuit Victory! | davidzeitlin

  2. Very good read. IMO, the author was too kind to opposing counsel. From the beginning the plaintiff had no case. Her lawyer had to know this. Therefore I would have threatened to sue the plaintiff’s lawyer with malicious prosecution. After the victory I would have vigorously pursued a lawsuit against the plaintiff’s lawyer for bringing this BS action. David Zeitland did a great job but I think his Dad would have gone after the plaintiff’s lawyer for malicious prosecution old school style. I am pleased there are honest lawyers like David Zeitland. I admire him.

  3. ” and online poker was illegal in all U.S. jurisdictions at all relevant times.”

    Online poker most certainly was not, and is not, illegal in all U.S. jurisdictions at any point in human history. We find it hard to believe that a reputable firm would even say such a thing. Were you on the other side of the case, we’d bet heavily against you making such a malicious and patently incorrect statement.


    http://ProfessionalRakeback.com

  4. my thanks go to david, from one who has played poker since he was a teenager, and who retired after practicing litigation law in new york city for 35 years. this was a good read for those who don’t regularly compose 80-page briefs, and especially for those who never made it to law school.

    i commend your tactic:
    “I opted not to elicit testimony from Lee that true live-only makeup was only about $15,000. The Plaintiff had failed to meet her burden of showing extricable live and online figures; I did not want to encourage the jury to “compromise” and award her the reduced figure.”

  5. Pingback: Lee Childs Poker Staking Lawsuit Sets Precedent

  6. Pingback: Mitchnick Recaps her Poker Staking Lawsuit Against Childs

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