Court: Suffolk OTB bankruptcy move illegal

Suffolk Regional Off-Track Betting Corp.'s attempt to seek bankruptcy has been ruled improper, putting its ability to survive in legal limbo.

A federal judge has ruled that Suffolk OTB improperly went about filing for Chapter 9 bankruptcy earlier this year and that, for now, the betting entity is not eligible for protection.

Carla E. Craig, chief judge of the U.S. Bankruptcy Court for the Eastern District of New York, said in a decision Friday that Suffolk OTB inappropriately sought authority from the county legislature. Instead, it should have done so with the State Legislature and Gov. Andrew M. Cuomo.

Late Monday, Craig issued a 14-day stay to allow OTB to appeal her ruling.

The county legislature's resolution sanctioning bankruptcy "exceeded Suffolk County's authority and is therefore unconstitutional and void," Craig wrote in her 37-page decision released late Friday. "Accordingly, Suffolk OTB has not complied with [bankruptcy laws] and is therefore ineligible to be a debtor under Chapter 9."

Suffolk filed for bankruptcy in March. Churchill Downs, the Kentucky horse racing track and one of the OTB's largest creditors, filed suit to block the action. According to Craig's decision, the OTB's bankruptcy plan calls for all creditors to be paid in full. But if the bankruptcy filing is dismissed, "Suffolk OTB may be required to cease operations."

Craig added that her decision "does not preclude Suffolk OTB from addressing its problems in other ways, either by restructuring its debt outside Chapter 9 or by filing another Chapter 9 bankruptcy petition after receiving proper authorization."

"Obviously, Suffolk OTB disagrees strongly with the Judge's findings," Suffolk OTB spokeswoman Debbie Pfeiffer said in an email to county legislators.

"Suffolk OTB is reviewing any and all options available to the corporation. First and foremost, we will vigorously pursue state authorization of SOTB's Chapter 9 petition, as well as all other legal and legislative avenues open to us," Pfeiffer said.

A spokeswoman for Churchill Downs declined to comment. She also would not say how much money Churchill Downs says it's owed by Suffolk OTB.

Suffolk OTB president Jeff Casale said the judge's decision will have no immediate impact on operations and that customers' money is safe.

With Rick Brand