Jake's 58 operator wants federal judge to toss Suffolk OTB lawsuit alleging misuse of funds

The owner-operator of Jake's 58 casino has asked a federal bankruptcy court judge to throw out Suffolk OTB's lawsuit accusing the company of misappropriating funds from the Islandia betting parlor.

In court papers filed Thursday, lawyers for Delaware North said the OTB lawsuit included "false claims" that the Buffalo-based sports and entertainment conglomerate had unjustly enriched itself by taking more money than it was entitled to from OTB bank accounts.

The OTB lawsuit, filed on Oct. 7 in U.S. Bankruptcy Court in Brooklyn, seeks damages of more than $5 million and requests a court declaration that Suffolk OTB may terminate Delaware North’s management of Jake’s 58.

The lawsuit accuses Delaware North of using the video lottery casino as a "piggy bank" and paying itself inflated amounts from OTB accounts at taxpayer expense. The lawsuit includes allegations that the company used OTB's marketing budget as a “slush fund” for unoccupied hotel rooms, caused OTB to incur state Gaming Commission fines through faulty supervision of the facility and misused OTB trademarks.

Bankruptcy Court Judge Carla E. Craig scheduled a hearing for Jan. 8 to discuss Delaware North's motion to dismiss the suit.

In a statement, Delaware North officials denied OTB's allegations and said the company had invested $100 million to launch the venue, including "millions of dollars in loans" to prop up cash-strapped OTB. Suffolk OTB filed for bankruptcy in 2011 and owes an estimated $15 million to its creditors.

"This case involves an attempt by Suffolk OTB to force the termination of a court-approved contract, notwithstanding that this contract has led to undisputed financial success for Suffolk OTB and its creditors,” Delaware North's motion said.

Delaware North is represented by David G. Hille of White & Case, an international law firm with offices in New York, Los Angeles, London and elsewhere.

“Suffolk OTB attempts to do so by contriving false claims and dressing up routine business disputes into something that they are not,”  Delaware North stated. "Not only is there no merit to these claims, but the majority of them fail as a matter of law. . . . Jake's 58 has been an undeniable success, delivering better than expected returns for both Suffolk OTB and its creditors."

In an email, Suffolk OTB spokesman Jon Schneider said, “Suffolk OTB brought this lawsuit because we have an obligation to protect Suffolk County taxpayer’s dollars and we look forward to addressing our strong case before the judge on Jan. 8.”

Jake's 58 opened in February 2017 after Suffolk OTB abandoned a failed attempt to open a video lottery casino in Medford. Since opening, Jake's 58 has been among the most successful video gaming facilities in the state, grossing more than $6 billion for OTB and Delaware North.

Delaware North and the Village of Islandia face a separate lawsuit in federal bankruptcy court filed by casino opponents who allege the village used illegal “spot zoning” to approve the facility in August 2016.

Delaware North and Suffolk OTB agreed to pay the village a total of $47 million over 20 years as part of a "taxpayer relief" agreement. The deal has helped the village cut taxes and provide additional services.

By Carl MacGowan

carl.macgowan@newsday.comCarlMacGowan

Carl MacGowan is a Long Island native who covers Brookhaven Town after having previously covered Smithtown, Suffolk County courts and numerous spot news and feature stories over his 20-plus year career at Newsday.