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Collecting A Debt: Phil Ivey Vs. Borgata

by Scott J. Burnham |  Published: Nov 04, 2020

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Phil Ivey at the WSOPAs just about everyone in the poker world knows, Phil Ivey won some $10 million playing baccarat at the Borgata in 2016. However, a federal court in New Jersey determined that Ivey’s use of “edge-sorting” was a breach of his contract with the casino and therefore the Borgata was entitled to get its money back.

But how does it get its money back? When a court finds that one party owes money to another party, it issues a ruling to that effect but does not normally order the party to pay up. Why? Because if you disobey a court order you can be jailed for contempt. So if you refused to comply with a court order to pay money, you could be imprisoned, which would revive the debtors’ prisons that have been long discredited.

Instead of ordering the loser to pay the winner the money, the court instead gives the winner a piece of paper called a judgment that says that the judgment debtor owes the money to the judgment creditor. By itself, that paper doesn’t really do much. If you loan me money and I don’t pay it back, it is pretty clear that I owe you money. So, what difference does it make if a court agrees and issues a judgment?

The difference is that, once you have a judgment, you can use the machinery of the state to try to recover the money. On behalf of the judgment creditor, the sheriff can seize the debtor’s assets, garnish their wages, etc.

But even with those powers, it is not that easy to recover on a judgment. The Borgata tried for years to find and seize Ivey’s assets to satisfy its judgment before eventually agreeing to an undisclosed settlement in July.

One such asset was his winnings at the 2019 World Series of Poker of $124,410 that he got for finishing eighth in the $50,000 buy-in Poker Players Championship. That money was turned over by the Rio in order to help satisfy the Borgata’s judgment. But then an interesting twist came up.

Two poker players came forward and said, “Hold on. That money does not all belong to Ivey. We staked him the $50,000 entry fee in return for a 50 percent share of any profits, so according to our contract, $87,205 of that money is not Ivey’s but ours and we want it back.”

Are they entitled to get it back from the Borgata? I have seen a lot of news stories about their claim, but nothing about the resolution, so I am going to take a stab at predicting the result.

The long and short of it is, if the seizure was legal, the players who backed him probably don’t have a good claim. Once Ivey won the money in the tournament, the backers had a contractual right to recover $87,205 from him, but they did not have the right to recover the particular funds that the Rio designated as his winnings. If multiple creditors are seeking money from a debtor, the basic rule is that the first in time to get the money gets to keep it. If, for example, Ivey had put the money in a bank account and paid the players before the Borgata seized the bank account, they would get to keep it.

Are there exceptions to this rule? Of course. This is law, so there are always exceptions. One exception is that if a debtor grants a security interest in the debtor’s property, and the secured party takes the proper steps to let the world know of its interest (a process called, for some reason, perfection), then the secured party comes out ahead of other creditors, including judgment creditors.

For example, assume a dealer sold a car to Ivey on credit, took a security interest in the car, and properly perfected. Then if the Borgata had the sheriff seize the car to satisfy its judgment, the sheriff would say, “Sorry. The car dealer comes in ahead of you because you merely have a judgment while it has a perfected security interest.” The other nice thing about having a security interest, as you know from watching repo reality shows on TV, is that you can seize the assets in which you have an interest in without first going to court.

The other main exception to the first-in-time rule is bankruptcy. We often think of bankruptcy as being for the benefit of the debtor who declares bankruptcy, but it is also for the benefit of the debtor’s creditors. Instead of the first creditor to seize an asset coming out ahead, in bankruptcy they are all treated equally. And if a creditor got paid in the 90 days before the bankruptcy, it is likely that the payment will be clawed back so that all the debtor’s creditors can get a share of those funds.

Well, not all. There are exceptions to equal treatment in bankruptcy as well. Although judgment creditors get no advantage in the bankruptcy process, one group that does have an advantage is the creditors with a security interest. A properly perfected security interest generally remains effective in bankruptcy. That is, bankruptcy will discharge debts, often for pennies on the dollar, but security interests are protected. A secured party is entitled to the value of the property in which it has a security interest, up to the amount of the debt.

The moral of the story is that it can be hard to recover a debt. If you are a creditor and want to get to the head of the line when it comes to recovering from your debtor, get a security interest in the debtor’s property. If Ivey’s backers had gotten and perfected a security interest in Ivey’s share of the Rio winnings, they would have come ahead of the Borgata. ♠

Scott J. Burnham is Professor Emeritus at Gonzaga University School of Law in Spokane, Washington. He can be reached at profburnham@yahoo.com.