01/25/2011 1:34PM

Judge dismisses New York City Off-Track Betting bankruptcy case


A U.S. Bankruptcy Court judge has approved a request by the New York City Off-Track Betting Corporation to have its bankruptcy case dismissed, a decision that will effectively shutter the company for good.

The approval of the motion by New York Bankruptcy Judge Martin Glenn of the Southern District of New York follows a hearing last week in which attorneys for the shuttered corporation argued that the company’s petition should be dismissed because all of its employees have been laid off, all of its directors have resigned, and all of its contracts have been voided. In addition, New York City OTB has declined to offer a new reorganization plan to the court following its decision to cease all operations on Dec. 8 after the state legislature failed to approve a bill that would have made its former reorganization plan viable.

“OTB has ceased operations and has concluded all efforts to seek confirmation of [a reorganization plan],” Glenn wrote in the Tuesday decision. “The debtor argues that because no other party may propose a plan of debt adjustment in OTB’s case, continuation of a chapter 9 case serves no purpose. The court agrees.”

New York City OTB was once the largest bet-taker in the U.S., and it annually turned over millions of dollars in profits and surcharge revenues to New York City, its owner. However, the city had become increasingly dissatisfied with OTB’s financial performance in the past five years, leading the state to take over the company in July, 2008. The state elected to put the company in chapter 9 bankruptcy in December 2009.

New York City OTB’s largest creditors were the New York Racing Association, Yonkers Raceway, and other state racetracks, which were owed millions of dollars in statutory payments on OTB’s betting handle. Those creditors had supported New York City OTB’s motion to dismiss the case.

In granting the motion, Glenn cast aside the objections of some of OTB’s creditors and the union representing the vast majority of OTB’s 1,300 former employees. Last week, lawyers for the union filed a motion asking the court to reject OTB’s request for dismissal and instead appoint a trustee that would “investigate and prosecute potential claims against New York tracks for hundreds of millions of dollars of reimbursed payments” made by OTB during its attempt to reorganize under the protection of the bankruptcy court. The union’s lawyers had argued that the payments to the tracks were illegal, but the judge said that the payments were distributed due to statutory requirements.

“The court finds that the appointment of a trustee . . . is an inappropriate mechanism to resuscitate an essentially ‘dead’ debtor,” Glenn wrote.

However, Glenn left open the possibility that the union could seek restitution in state court. The union’s attorneys had argued that the payments should have been set aside during the bankruptcy for the company’s unfunded pension and health-care obligations to its workers.