Skillz challenges Papaya Gaming's Chapter 15 bankruptcy bid in Delaware over $719m judgment

Skillz, which now operates as Firy Inc, has filed an objection in the US Bankruptcy Court for the District of Delaware to Papaya Gaming's attempt to obtain Chapter 15 protection. The filing is the latest step in a dispute over Papaya's use of computer-controlled opponents in mobile games.

Skillz argues that Papaya's business and financial interests are closely tied to the United States and that the Israeli operator should not be allowed to use Chapter 15, a procedure meant for companies with insolvency issues spanning more than one country. It also questions the choice of Delaware, saying Papaya's primary business activities are located elsewhere. Skillz has applied to the court to decline recognition of the Israeli proceedings. According to Skillz, the case is not a broad restructuring involving many creditors but mainly an effort to delay enforcement of the judgment owed to a former competitor.

The judgment stems from a case in New York. In April, a federal jury found that Papaya had engaged in deceptive conduct by offering computer-generated opponents in games advertised to users as player-versus-player contests. In July, US District Judge Denise Cote ordered Papaya to pay about $719 million, including disgorgement, and also awarded about $10.1 million in legal fees and costs. Papaya denies the allegations, maintains that its games are based on skill, and is appealing.

Papaya has sought to stay collection of the judgment while the appeal proceeds. In August, Delaware bankruptcy Judge Mary F. Walrath issued a temporary injunction barring collection efforts while the court decides whether to formally recognize the Chapter 15 case. The judge denied Skillz's requests that Papaya post financial security or face limits on moving money out of the United States, but granted the temporary protection.

Papaya has also struggled to settle on a repayment plan. In August, the Tel Aviv District Court rejected its proposal to pay the judgment over six and a half years from ongoing operations. Skillz says Papaya has not yet produced a replacement plan showing how the $719 million would be paid.

The bankruptcy dispute is therefore closely linked to the outcome of Papaya's appeal. Until the Delaware court rules on recognition, Papaya can continue operating its gaming business under temporary US protection.