03/21/2010 11:00PM

Judge rules for New York OTB


A New York Bankruptcy Court judge has overruled objections lodged by the New York Racing Association and its horsemen that challenged the legality of the Chapter 9 bankruptcy petition filed late last year by the state-owned New York City Off Track Betting Corporation.

In a ruling issued on Monday, Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York challenged the objections one-by-one and ultimately ruled that NYRA's arguments had no basis in law. As a result, NYCOTB will continue to enjoy the legal shelter of the court as it seeks to reorganize and lobby for changes to state laws that govern how its revenues are distributed to the racing industry.

"Protected for now by chapter 9 of the Bankruptcy Code, NYCOTB will either reorganize or liquidate under the watch of this court, depending on the actions of the New York State Legislature and NYCOTB's further negotiations with each of its important constituencies," Glenn wrote at the conclusion of his opinion.

NYRA is one of New York City OTB's largest unsecured creditors, owed approximately $15 million. The association challenged the bankruptcy filing on the grounds that New York Gov. David Paterson was not authorized to empower the OTB company to file for bankruptcy protection under section 9 of the code, a part of the federal statute reserved for municipalities that includes a laundry list of requirements. Among other objections, NYRA also contended that NYCOTB did not file for bankruptcy "in good faith," as required in bankruptcy proceedings.

Glenn ruled that Paterson was within his rights when signing an executive order authorizing the bankruptcy filing last year because of an implied consent of the state legislature. The opinion states that executive power in New York is broadly defined, and can sometimes step over the boundaries that traditionally separate the executive and legislative branches.

Glenn also wrote that New York City OTB had made the filing in good faith by satisfying a number of requirements that demonstrated that it had analyzed all of its options prior to the decision to file for bankruptcy. In addition, Glenn wrote that testimony provided during a hearing on Feb. 22 demonstrated that the company was in dire financial straits and needed the protection of the court in order to restructure its business.

"The chapter 9 petition was filed only when NYCOTB was faced with imminent financial collapse that would have required shutting its doors, laying off all of its employees, and ceasing payments to all of its constituencies that look to NYCOTB for financial support," Glenn wrote.