Gold Rush Files Countersuit in Illinois Case, Alleges Conspiracy by Gaming Cafés and Rival Vendor

Posted on: May 20, 2020, 11:35h. 

Last updated on: May 21, 2020, 10:32h.

Steve Bittenbender Read More
Expertise: Legislation, Sports Betting, Horse Racing.

Gold Rush Gaming, Inc., a gaming terminal operator embroiled in an Illinois civil lawsuit filed by the Stella’s and Shelby’s chain of gaming cafés in Illinois, has amended its counterclaims in the case. It now alleges gaming businessman Daniel Fischer paid just $2 million for 63 Chicago-area locations while a Gold Rush rival pitched in an amount more than 22 times that to the seller.

Gold Rush Stellas
Gold Rush games located in a Hoffman Village, Ill., Stella’s Place café in this undated photo. The owner of the Stella’s chain and Gold Rush are currently involved in a lawsuit over the right to terminate an agreement between the companies, with both sides filing claims. (Image: Gold Rush Gaming)

It’s all part of an elaborate scheme Gold Rush claims was concocted in late 2018 to get its machines out of the Stella’s and Shelby’s locations. Gold Rush uncovered the scheme after the judge in the case removed confidentiality restrictions from documents between Fischer’s Illinois Café and Service Company (ICSC), gaming terminal operator Midwest SRO, and Laredo Hospitality Ventures LLC, the previous owner of Stella’s and Shelby’s. ICSC owns the Dotty’s chain of gaming cafés in the midwestern state.

The transaction, Gold Rush said in its Tuesday filing, not only violates Illinois Gaming Board (IGB) anti-inducement rules, it also runs afoul of the Illinois Video Gaming Act. The agreement “essentially seeks to create a vertically integrated video gaming entity that owns, operates, and maintains video gaming terminals… and hosts video gaming terminals.”

Under Illinois law, the state taxes the machines’ net income at 30 percent, with 5 percent of that going to the municipality where the game is located. Scientific Games, which built and oversees a communications network allowing IGB to monitor the games, receives less than a one percent share of the proceeds. The remainder is split evenly between the host facility and the vendor.

The countersuit suit gives just one side of the case. Attempts to reach defendants Wednesday were unsuccessful.

‘Scheming’ Alleged for Years

Beginning in 2013, Gold Rush started securing agreements with Stella’s and Shelby’s establishments in Illinois to serve as its gaming vendor. By January 2018, Gold Rush landed arrangements with 44 venues.

Gold Rush’s lawsuit claims Gary Leff, a Laredo executive who later received a 10 percent stake in Midwest SRO, approached Gold Rush owner Rick Heidner in 2017 about changing the terms of the contract. The new provisions stipulated the units could terminate the contracts without cause with six months written notice, and the change of control provision was also amended.

In November 2018, Fischer paid $2 million to Laredo for the 63 Chicago area Stella’s and Shelby’s, with Midwest SRO paying Laredo more than $44.5 million. That same month, after Fischer gained control of the cafés, the 44 units sent Gold Rush a termination notice based on the new ownership.

In January 2019, the units filed suit, claiming Gold Rush defaulted by refusing to abide by the termination notice. That came after Gold Rush questioned the validity of the termination and whether proper notice was given.

In addition to each location, Laredo, ICSC, and Midwest SRO, the suit lists Fischer, Leff, Allyson Estey, and Charity Johns as third-party defendants. Estey, whose father founded Dotty’s, is the principal for Midwest SRO. Johns served as Laredo’s CEO before taking over the same position at ICSC.

Unbeknownst to Gold Rush, Laredo, the Establishments, and other co-conspirators were already scheming to wrongfully force Gold Rush out of the Establishments in order to impermissibly control both sides of the video gaming operations,” Gold Rush’s complaint states. “Had Gold Rush known about the scheme, it would not have agreed to the Addenda.”

Gold Rush, which according to its website has machines in more than 500 Illinois locations, seeks compensatory and punitive damages, interest, recoupment of attorneys’ fees and costs, and other awards the court may consider appropriate.

About Illinois Video Gaming

Illinois lawmakers passed the Video Gaming Act 11 years ago. The law allows retail establishments, such as bars and restaurants, as well as truck stops and fraternal organizations to have up to five terminals. The IGB monitors the games through the Scientific Games communications network.

Three years ago, Laredo and ICSC both took the IGB to court with an unsuccessful lawsuit that challenged the equal profit-sharing between cafés and vendors. The café owners claimed they should be able to negotiate their own contracts with vendors. That suit came after attempts to change the law in the state legislature failed.