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BEFORE THE HONORABLE TRIBUNAL ESTABLISHED PURSUANT TO THE
CHAPTER ELEVEN OF THE NORTH AMERICA TRADE AGREEMENT (NAFTA)

B-MEX AND
OTHERS
(CLAIMANTS)

V.

THE UNITED MEXICAN STATES
(RESPONDENT)

ICSID CASE No. ARB(AF)/16/3

REJOINDER

Counsel for the United Mexican States:
Orlando Pérez Gárate

ASSISTED BY:

23 may 2022

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GLOSSARY

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I. INTRODUCTION

1. The case presented by the Claimants is one of the typical cases where investors seek to force the use of investment arbitration provided in the North American Free Trade Agreement (NAFTA), to resolve a complex dispute between private parties that emanates from a risky investment made by the Claimants with Mexican investors. Claimants cannot disagree with the tense relationship they had with E-Mex and the series of lawsuits related to the permits to operate casinos and gambling games. The State was oblivious to the investment decisions adopted by the Claimants and their litigation strategy before national courts. As the Tribunal will be able to observe, the litigation before national courts gave rise to the Respondent acting, under the applicable legal framework, and complying with decisions issued by national courts, where the Claimants participated and presented their arguments. Neither can the Claimants expect the authority to fail to comply with its mandate and illegally allow the operation of casinos that do not have a permit under the applicable legal framework. Finally, this dispute is not politically motivated as the Claimants allege. On the contrary, those arguments or defense strategies reflect the fragility and lack of merit of your claim.

2. In response, the Claimants submitted a 709-page Reply, that is, 266 pages more than their Memorial on the Merits. This does not surprise the Respondent and is part of the litigation strategy that they have decided to deploy for this arbitration. It should also be remembered that the Claimants had 12 months from the presentation of the Respondent's Counter-Memorial on the Merits to the presentation of their Reply. During this time, the Claimants had plenty of opportunity to stretch themselves unnecessarily and desperately try to gather evidence that might give some support to their arguments. Unfortunately, as will be seen in this Rejoinder, the Claimants have failed in their objective.

3. This Rejoinder contains the factual, legal and quantum response to the claims filed against the Mexican State. As can be seen, throughout this Rejoinder, the Respondent has avoided unnecessary repetition and provides a timely response to the Claimants' arguments, providing the necessary evidence to show that the case presented by the Claimants lacks merit and should be dismissed outright. its entirety.

4. The Claimants reiterate that they started their operations under the Monterrey Resolution, however, once again they overlook that according to the RLFJS, it was necessary to have a permit

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to be able to operate casinos. Knowing this, they decided to establish their operations under the Monterrey Resolution which, as explained in the Counter-Memorial, is not a permit to operate casinos, but rather a resolution stating that the operation of certain machines does not fall within the scope of application of the LFJS. Claimants either did not operate casinos before 2008 or did so illegally. In any case, they were aware that they required a permit to operate a casino and did nothing to get it until 2008 when they decided to become E-Mex operators.

5. Claimants' factual narrative is replete with conspiracy, political intrigue, and corruption. However, this narrative is not consistent with reality. What is certain is that the Respondent's entities acted in compliance with the Mexican legal framework.

6. Since their Memorial, the Claimants have maintained that Mexico declared its permit non-subsistent for political reasons. They alleged that the permit that protected their operations was granted by the PAN administration that ended on November 30, 2012, and that, upon the arrival of the PRI administration on December 1, 2012, an attack began against E- Games to remove their permission.

7. The Respondent has demonstrated since the Counter-Memorial, and reinforces it in this Rejoinder, that the alleged political motivations did not exist and are more than a plot designed by the Claimants to justify bad decisions such as the selection of their business partners, the conduct of their business and the strategy followed in the trials that were brought before Mexican courts. The Respondent has argued, through evidence and witness statements (e.g., Ms. Marcela González Salas) that the political motivations referred to by the Claimants never existed. A conspiracy, such as the one Claimants describe, would have required the coordinated intervention of many individuals and government entities. In this Rejoinder, in addition to a Second Witness Statement of Ms. González Salas, which reinforces and reiterates that there were no such political motivations, the Witness Statement of Mr. Carlos Véjar Borrego has been included, who declares that when the Claimants made the knowledge of Mexico its claim to present a dispute through a letter sent by the firm White & Case (which in 2013 represented the Claimants), the Respondent did nothing more than try to resolve the dispute without the need to resort to arbitration. Had there been political motivations against Claimants, Mr. Véjar's meetings with Claimants' representatives in 2013 would not have taken place, and Respondent would not have tried to bring Claimants closer to SEGOB to avoid having this arbitration.

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8. The Claimants have also argued that public servants of the Federal Judiciary of Mexico, including members of the Supreme Court of Justice of the Nation, were also involved in the alleged political campaign against the Claimants. The Claimants have not presented evidence to support these assertions and base their arguments on the testimony of Mr. Julio Gutiérrez who is the legal representative of the Claimants in this proceeding and partner of the Juegos Companies. His testimony is limited to stating that saw the then Legal Counselor of the Federal Executive, Mr. Humberto Castillejos Cervantes, leave the office of Minister Alberto Pérez Dayán. That's how flimsy Claimants' evidence is. The Respondent submits with this pleading a Second Witness Statement from Mr. José Raúl Landgrave, who affirms that the Legal Department of the Federal Executive never requested information about the lawsuits that E-Games was conducting, although he was the one who handled the case as a lawyer. of the SEGOB.

9. The Claimants refuse to acknowledge that the amparo proceeding 1668/2011 that led to the declaration of non-subsistence of the E-Games permit was the result of a conflict between private parties, that is, a conflict between E-Games and E -Mex. SEGOB did not promote this protection, much less did it seek to benefit or harm any permit holder by declaring invalid or revoking the E-Games permit. SEGOB simply limited himself to comply with a judicial sentence that it was not in a position to breach. It is probable that, if E-Mex had not promoted Judgment 1668/2011, E-Games would have its permission today. It was the Claimants themselves who decided to do business with Mr. Rojas Cardona and E-Mex with full knowledge of his questionable background and the problems and risks generated by his enormous debt with Bluecrest.

10. As the Respondent explained in its Counter-Memorial, SEGOB initially left only the Official Letter 2009 BIS unsubstantiated, but E-Mex complained that SEGOB did not properly comply with the ruling. The Sixteenth Court agreed with E-Mex and ordered SEGOB to leave all the acts derived from Official Letter 2009 BIS unsubstantiated. It was then that SEGOB declared the entire series of official documents unsubstantiated, including the official document of August 2012 that granted E-Games its permit (Oficio de Permisionario) and the one of November of that same year that confirmed its status as a permit holder and assigned a new number to the permit (BIS Permit Holder Official Letter). There was no conspiracy or political motivations behind the non-subsistence of the permit and E-Games participated as a party in the internal procedures and trials substantiated in national courts. E-Games always had the opportunity to defend himself and

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present evidence in his favor. If the Claimants were wrong or presented a poor defense that caused their arguments to fail, this is not attributable to the Respondent.

11. The Claimants allege irregularities in the amparo proceeding and the different legal remedies. However, after reviewing and analyzing the files of the national trials, the Respondent's independent expert has concluded that the different bodies of the Federal Judicial Power did not commit irregularities and that the judicial procedures were substantiated under the Amparo Law and applicable regulations. The Claimants refuse to accept and acknowledge that they lost these lawsuits and intend to use this procedure to litigate again issues that have already been decided by the Mexican courts under the applicable regulations. This Arbitral Tribunal is urged to disregard these arguments of the Claimants and not turn the NAFTA arbitration into a court of appeal to the decisions of Mexican national courts.

12. On the other hand, the Claimants have included the two casino projects in Cabo and Cancun, as well as an online casino (the Expansion Projects) as covered investments under NAFTA. The Respondent maintains that the Tribunal does not have jurisdiction to consider claims related to alleged violations of NAFTA Articles 1102, 1105, or 1110 concerning activities that do not fall under the definition of “investment” established in Article 1139, such as the Projects of Expansion. In other words, it is a prerequisite for filing a claim under these articles that the investor demonstrates that it has a covered investment under the definition of NAFTA Article 1139 in these projects. The Claimants have not shown that the casino projects in Cabo, Cancun, and the online casino constitute an “investment” as that term is defined in Article 1139. The investments they identify in connection with these Expansion Projects, in any case, would not justify a claim for the expropriation of these casinos or damages equivalent to fair market value if they were going concerned. It is reiterated that these casinos not only never materialized, but had not even begun to be built. The analysis that the Tribunal has to make is not whether the Claimants were exploring the possibility of opening casinos in Cabo, Cancun, and the online casino (they were), but whether those plans materialized in a covered investment. From this analysis, the Tribunal will realize that the Expansion Projects cannot be considered as such an investment covered by NAFTA.

13. As regards the claim related to the existing Casinos, the Respondent maintains that there was no expropriation of the Claimants' investment, since the non-subsistence of the E-Games permit was the result of compliance with a court order issued in an amparo lawsuit initiated by E-

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Mex. SEGOB had no alternative but to comply with the order of the Sixteenth Court that resolved Amparo 1668/2011. It should not go unnoticed that SEGOB's compliance with this ruling has been ratified by national courts, and it is not up to this Court to challenge those decisions or impose its criteria in the absence of a denial of justice.

14. Under NAFTA, the fair and equitable treatment (FET) standard is a sub-element of the MST under customary international law. The FET standard cannot be interpreted as a stand-alone FET standard or a standard with a lower threshold than that established by the MST under customary international law. For the Claimants to establish an MST violation under NAFTA Article 1105(1), they must be able to show that a denial of justice has occurred. However, the Claimants have not been able to show that there was. His evidence, which consists primarily of innuendo, is markedly insufficient to meet the high threshold for demonstrating a denial of justice. To date, the Claimants remain unable to prove this alleged violation.

15. Concerning the alleged violation of NAFTA Articles 1102 and 1103, the Claimants have also not offered conclusive evidence. They have not been able to demonstrate that the Respondent accorded less favorable treatment to its investments than the treatment accorded to national investments or investors of other trading partners of Mexico, in similar circumstances. The Claimants have not provided evidence of competitors who are in “like circumstances” in accordance with the multidimensional examination referred to in investment arbitration precedents. The Claimants have attempted to argue that the Mexican company Producciones Móviles continues to operate its Permit, however, as has been shown, this company continues to operate its Permit because the litigation in amparo 1668/2011 was limited to the E-Games BIS Permit and their related trades, that is, it was never decided in that trial about the permission of Producciones Móviles. Neither SEGOB nor the Claimants could have requested the waiver of this Permit because they have no legal interest under Mexican law. The one who could have made this request before the Mexican courts was E-Mex, and it did not.

16. The Respondent's position regarding the claim for damages can be summarized in the following points:

• The Claimants seek damages of USD $317.3 million (before interest) based on the fair market value of five existing casinos and three more that were never built and therefore never entered into operation. Because the Claimants do not own the

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• Casinos, such a claim can only be brought under section 1117 and must be paid directly to the Mexican Companies according to section 1135(2)(a). As shareholders of the Mexican Companies, the Claimants can only claim the loss of the value of their shares under article 1116.
• The damage claim related to the so-called Expansion Projects, amounting to USD $154.9 million (before interest) and representing close to 50% of the damages, must be dismissed because there is evidence that: (i) the projects failed due to reasons not attributable to the Respondent and therefore, there is no causality, and; (ii) the damage estimate is highly speculative and does not comply with the principle of reasonable certainty because they were projects in the planning stage (not even pre-operational) that cannot be evaluated using an income methodology such as the DCF. About this last point, the Claimants' previous experience with other casinos does not apply to the Expansion Projects because the Los Cabos, Cancun, and online markets are completely different, as the Claimants themselves acknowledged at the time.
• The existing Casino-related damage estimate is grossly exaggerated and some of the information is unreliable. The main problems are: (i) the projection of future income and, in particular, the growth rate used by the Claimants' expert (BRG); (ii) a deficient calculation of the shares that the Claimants were obliged to pay to SEGOB; (iii) the calculation of operating expenses, and; (iv) the use of the financial statements of E-Games that include the results of the Huixquilucan casino (which is not part of this claim) and presents important differences in items such as the rental of machines and depreciation. Other differences do not affect the result so significantly, but they must be taken into account.
• By all of the foregoing, the Respondent's expert has carried out an alternative valuation of the Claimants' Casinos and has concluded that the damages should be, at most, USD $11.86 million plus pre-award interest.
• The Claimant considers that, in case of granting a favorable award to the Claimants, the Tribunal must reduce the damages by at least 50% due to the contributory fault of the Claimants. In particular, the Respondent maintains that the Claimants, and in particular those who ran the business, negligently and deliberately decided to

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• associate with Mr. Rojas despite having obtained a report from an investigative company reporting all kinds of irregularities and “red flags”, and recommended not doing business with him. They also negligently and deliberately partnered with Mr. Rojas knowing that E-Mex's permit was in serious jeopardy because of E-Mex's debt to Bluecrest. Finally, the Respondent maintains that the cancellation of the permit was the direct consequence of a lawsuit between E-Games and E-Mex that arose due to a breach by E-Games of the agreements it had with E-Mex, as the award demonstrates. in CAM arbitration.
• In relation to the previous point (i.e., contributory fault), Mr. Taylor has also presented evidence of all kinds of irregularities in the administration of the Casinos, ranging from the theft of cash from the vault, the theft and destruction of records accountants, non-compliance with tax obligations and payment of bribes, among others. The Respondent maintains that these irregularities break the causal link between the measures claimed and the damage because they would have eventually given rise to investigations by the Mexican authorities and the cancellation or non-renewal of its permit.
• Finally, regarding the applicable interest rate, the Respondent maintains that it must apply the US Prime Rate which, contrary to what the Claimants and their expert affirm, is not a risk-free rate, but rather a reasonable commercial rate for an award. denominated in US dollars, as provided in section 1110(4).

17. Next, the facts will be presented, immediately afterward the legal argument is presented and it concludes with the presentation of the Respondent's position on the damages.

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II. FACTS

A. Establishment and start of operations

18. In their Reply, the Claimants argue that the start of their operations under the Monterrey Resolution was legal, successful, and approved by SEGOB. However, they have not been able to resolve a series of contradictions that affect the credibility of Mr. Burr and Ms. Burr and reveal the illegality of the Claimants' operations.

1. Legal framework

19. First, it is noted that the Claimants do not dispute anything said about the legal framework that existed when they decided to start their operations in Mexico in 2005. In particular, they do not dispute that: on September 17, 2004, the Federal Executive issued the Regulation of the Federal Law of Games and Raffles (RLFJS or Regulation) that, among other things, requires processing and obtaining a permit to be able to legally operate a casino in Mexico (article 20); that article 31 of the Regulation prohibits the transfer, assignment, alienation or commercialization of permits and; that article 30, which establishes the figure of an operator, requires that there be some type of joint venture, provision of services or an agreement of some other nature so that a permit holder can exploit his permit in conjunction with an operator.

20. Nor do Claimants dispute that the Regulation remained in force during the constitutional controversy presented by the House of Representatives in November 2004 and that was finally resolved by the Supreme Court of Justice of the Nation (SCJN) in January 2007. Therefore, it is an undisputed fact that when Mr. Burr and his partners decided to invest in casinos in Mexico in 2004 or 2005 they knew that a permit was needed to operate them. That, without permission under the applicable legislation, their operations would be illegal. However, there is no evidence that they even tried to get one back then. This notwithstanding that “Mr. Burr's vision from the inception of the Claimants' investments in Mexico was always to obtain an independent permit in order to grow their business within Mexico”¹.

21. What the evidence demonstrates is that, instead of obtaining the permission required by the Regulation, the Claimants sought to turn the LFJS and its Regulation around by joint venture with

¹ Reply, ¶ 36. ↩

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Mr. Lee Young to operate their casinos under the called the Monterrey Resolution. Contradictorily, the Claimants also allege that they “relied on the guarantees provided by the newly enacted 2004 Gaming Regulation in making their investment in Mexico”.²

22. The Respondent maintains that any prudent and serious foreign investor would have tried to obtain the permission required by the laws of the host country before making his investment and committing his capital and that of his partners.

2. First contacts

23. In his third witness statement, Mr. Burr stated that he met Mr. Young in August 2004. Mr. Burr described Mr. Young as “an American citizen who was operating a profitable video entertainment facility” in the city of Monterrey, through a company called JEV Monterrey. According to Mr. Burr, this company had obtained an “authorization” from SEGOB to operate its entertainment centers (the Monterrey Resolution).³

24. Mr. Burr then stated that after he met with Mr. Young in August 2004 he made several exploratory and due diligence visits to various gaming facilities around Mexico. He claims to have met with key players – whom he does not identify – and, through those meetings, “quickly realized that what Mr. Young had told [him] was true—gaming operators were making substantial profits in Mexico and it was legal to operate such businesses there.”⁴ He also claimed to have carried out extensive due diligence and obtained opinions from two Mexican law firms to ensure that his planned operations in Mexico were legal.⁵

25. In the Counter-Memorial, the Claimants were made to see that what Mr. Burr stated could not be true because the Monterrey Resolution was not issued until March 5, 2005, and, therefore, it was not possible that would have discussed it with Mr. Young in August 2004, let alone analyzed it as part of his due diligence. Faced with this contradiction, the Claimants now change their position and state that Mr. Burr's exploratory trips began in late 2004 and that Mr. Young began

² Id., ¶ 19. ↩

³ Counter-Memorial on the Merits, ¶ 62. ↩

⁴ CWS-50, Third Witness Statement of Mr. Burr 3, ¶¶ 3 and 4. ↩

⁵ Reply, ¶ 22; Exhibit CWS-59, Fourth Witness Statement of Mr. Gordon Burr, ¶ 5. ↩

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operating his “machines in 2004, with the understanding that JEV Monterrey did not need a permit."⁶

26. Regardless of the fact that the Claimants do not speak for Mr. Young and have not presented him as a witness in these proceedings, the Respondent notes that there is a contradiction in this new approach. If what Mr. Young communicated to Mr. Burr in August or late 2004 was that a permit was not required to operate the type of establishments he operated at the time, Mr. Burr surely should have confirmed it with his legal advisers and, if successful, would surely have sought to open their establishments without a permit. That obviously was not what happened.

27. The Claimants reiterate a little later that “Mexico ignores the important fact, however, that according to SEGOB, Mr. Young and JEV Monterrey did not need a permit from SEGOB to operate the type of machines owned or run by JEV Monterrey.”⁷ But this would only force one to ask: if the machines operated by JEV Monterrey (and by extension those operated by the Claimants) did not require a permit from SEGOB, why would it have been necessary to start operations under the Monterrey Resolution? What law or regulation establishes the requirement to have a SEGOB resolution to operate "skill and skill machines" that do not fall within the scope of application of the LFJS or its Regulations? Even if the requirement (quod non) existed, why did not the Claimants process their own Monterrey Resolution instead of associating with JEV Monterrey and committing to pay it 15% of the fiscal profit of each establishment they opened? This makes no sense.

28. The Claimants surprisingly also allege that “while Mr. Young's operations in Mexico initially inspired Mr. Burr to assemble a group of investors to invest in Mexico, the legality of Mr. Young's operations in 2004 or 2005 are not relevant in this case. ."⁸ In doing so, the Claimants seem to forget that from 2005 to 2008 the 5 casinos they opened in Mexico operated under the Monterrey Resolution, in a joint venture with JEV Monterey, owned by Mr. Young. Therefore, the legality of Mr. Young's operations and, by extension, those of the Claimants in the period 2005-2008, is decidedly relevant to this case.

⁶ Reply, ¶ 16 ↩

⁷ Id., ¶ 31. ↩

⁸ Reply, ¶ 20. ↩

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3. The Monterrey Resolution

29. The Respondent explained in its Counter-Memorial that the Monterrey Resolution was not a permit or authorization – as Mr. Burr falsely described it⁹ – but rather an official letter issued by SEGOB stating that the machines operated by JEV Monterrey were not in the scope of application of the LFJS because: (i) the result depended on the skill of the player and, therefore, they could not be considered games of chance prohibited by the LFJS, and; (ii) were not gambling games.¹⁰

30. The origin of this official letter is a letter dated September 8, 2004, in which JEV Monterrey alleged that its commercial activity consisted of the "use, exploitation, import, distribution, sale, lease, installation, transmission or assignment of skill machines and skill [...] [which] do not involve chance or gambling in any form”.¹¹ This being the case, it is clear that the Claimants could not operate "casinos" or machines involving chance or betting under the Monterrey Resolution.

31. This is where we find another inconsistency in the Claimants' statement of facts because, to justify their decision in 2008 to operate under the E-Mex permit instead of proceeding to purchase Festive Events, the Claimants allege that the E-Mex permit E-Mex was more attractive, among other things, because it allowed the operation of Class III machines, like the ones they had.¹²

32. However, it should be noted that Mexico does not have a classification for gaming machines, and the permits do not specify the “class” of machines that a casino can operate. Although the Claimants do not specify what they mean by “Class II” or “Class III” machines, the

⁹ Claimants angrily complain that "Mexico asserts that Mr. Burr suggests that the Monterrey Resolution was a permit." They also state that Mr. Burr “has never said, nor even hinted, that the Monterrey Resolution was a permit [...]". Mexico never asserted that Mr. Burr suggested that the Monterrey Resolution was a permit. What he claimed is that Mr. Burr had described it as an "authorization". CWS-50, ¶ 3 where it states: Mr. Young had obtained an authorization to operate these types of facilities throughout Mexico pursuant to a validly-issued Resolution issued by the Mexican Secretary of the Interior [...]” ↩

¹⁰ Counter-Memorial on the Merits, ¶ 68. ↩

¹¹ Exhibit C-94, Monterrey Resolution, p. 1. ↩

¹² Reply, ¶ 40. In this regard, Ms. Burr testifies: “When we were operating under Monterrey's Resolution, we equipped our existing five Casinos with certain Class III machines that were specifically approved as gaming machines of skill under Monterrey's Resolution." CWS-60, ¶ 18. Mr. Burr, for his part, also testifies that “Monterrey's Resolution allowed us to operate certain machines that Mexico had classified as Class III machines which, in the industry, are deemed superior to Class II machines.” CWS-59, ¶ 13 ↩

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reference appears to be to the classification of games under the US Indian Gaming Regulatory Act¹³. Class III includes all kinds of games that fall neither in Class I nor in Class II and refers to games that are traditionally played in casinos, such as slot machines, blackjack, craps, roulette, as well as gambling games and their electronic facsimiles and any game of chance.¹⁴ In this regard, Mr. Pérez Lizaur points out that:

• In Mexico, there is no official classification of machines and the distinction between Class II and Class III machines is a classification that exists and is used in the United States.¹⁵
• Class II machines are known as “Bingo” machines and Class III is “Reel” machines; both are considered “gambling gambling” machines.¹⁶
• The permits issued by SEGOB do not specify the type of machines authorized to operate; the permit holders make a query to the SEGOB with the description of the machines and, later, the SEGOB issues the corresponding authorization.¹⁷

33. If the hypothesis is correct, it is clear that the Claimants could not have operated Class III (or Class II) machines under the Monterrey Resolution because they are games of chance with a bet and, as explained a moment ago, the Monterrey Resolution was obtained under the representation of JEV Monterrey that the machines it operated were of "skill and dexterity" in which neither chance nor betting intervened.

34. JEV Monterrey's representation that the machines it operated (and by extension those of the Claimants) operated neither gambling nor gambling is also contrary to Mr. Burr's testimony. As explained in the Counter-Memorial, Mr. Burr stated that he could “set the payback rate [i.e., payback rate ] at a high level" so that “customers to win and enjoy their time in the Casinos”¹⁸. It

¹³ Exhibit R-126, Indian Gaming Regulatory Act, p. 2 ↩

¹⁴ See Exhibit R-126, Indian Gaming Regulatory Act. ↩

¹⁵ RWS- 8, Witness Statement of Mr. Alfonso Pérez Lizaur, p. 4. ↩

¹⁶ Id. ↩

¹⁷ Id. ↩

¹⁸ CWS-50, Third Witness Statement of Mr. Gordon Burr, ¶ 27. ↩

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is evident that the ability to adjust the payback rate of a machine is incompatible with the idea that the outcome of the game depends on the skill of the player.

35. The Claimants allege that SEGOB inspected the machines and found that their operation adhered to the description provided by JEV Monterrey at the time. However, considering that "Mexico unfortunately is a country where corruption is endemic in the culture, increases yearly and remains rampant "¹⁹, it would not be difficult to think that JEV Monterrey, and later the Naucalpan casino, managed to pass the inspection by corrupting the inspectors. of the SEGOB. After all, there is evidence on the record indicating that the Claimants paid bribes and/or knew about the payment of bribes, in Mr. Burr's words:

RANDALL TAYLOR: How good are bribes down there?
GORDON BURR: How good are they?
RANDALL TAYLOR: Well, I'm just saying –
GORDON BURR: They're [UNINTEL].
RANDALL TAYLOR: – They pissed backwards on you a couple of times, didn't they?
GORDON BURR: The bribes are good. They're only good for a certain amount of time.
RANDALL TAYLOR: What a country.²⁰

36. The only other alternative would be to conclude that the SEBOG inspectors made a mistake in approving the machines operated by the Claimants because, as just explained, Class III machines and those in which “the payback rate” can be adjusted are games of chance and gambling.

37. The Claimants justify the decision to start operations under the Monterrey Resolution by arguing that it was the most solid, prudent, and conservative decision in the circumstances since the Regulation had been challenged and there was no certainty about its future. It is a somewhat peculiar argument for at least two reasons. In the first place, because, as explained above, the application of the Regulation was not suspended while the constitutional controversy was resolved. In other words, it was still a legal requirement to have a permit to operate a casino in Mexico. Second, because the LFJS prohibits games of chance and betting in all its forms, as explained in

¹⁹ Reply, ¶ 1. ↩

²⁰ Transcribed by Respondent from Exhibit CRT-04, p. 26 (p. 100 of the transcript contained in the annex). ↩

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the Statement of Defense, so that, if the Regulation had been declared unconstitutional, the Claimants would never have been able to operate a casino. in Mexico.

38. Finally, it is necessary to clarify that contrary to what the Claimants point out, Mexico does not intend to present the Claimants' initial operations as illegal because the Monterrey Resolution was not issued until March 2005.²¹The legality of the Monterrey Resolution per se. Mexico questions the legality of the Claimants' initial operations because the description of the machines that they have offered does not conform to the provisions of the Monterrey Resolution, that is, they are not machines in which neither chance nor the bets. In short, Class III machines cannot be considered "Video Games” as indicated in section “C” of the joint venture agreement cited by the Claimants in paragraph 31 of the Reply.

B. The decisión to operate under the E-Mex Permit

39. In the Counter-Memorial, the Respondent referred to the fact that the Claimants decided to withdraw from the transaction with Festive Events, lose their deposit of one million dollars and operate their casinos under the license of E-Mex. This despite knowing that E-Mex was owned by a person who, by his own admission, had a questionable background and had driven his original partner, Mr. Young, out of business.²²

40. To justify their decision, the Claimants repeat the same arguments in the Memorial. According to the Claimants, the E-Mex permit was more attractive because it covered a greater number of casinos, had no restrictions regarding the location of the establishments, and allowed the operation of Class III machines like the ones they had. ²³They also reiterate that, with the proposed transaction by Advent and Bluecrest, the Claimants would have been able to use E-Mex's license to operate casinos without any involvement by Mr. Rojas Cardona.²⁴ Additionally, they argue for the first time that an additional drawback of the Eventos Festivos transaction was that

²¹ Reply, ¶ 31. ↩

²² Counter-Memorial on the Merits, ¶ 82. ↩

²³ Reply, ¶¶ 39-40. ↩

²⁴ Id., ¶ 44. ↩

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they needed to raise external capital to acquire the company.²⁵ Again, these arguments are not supported by the facts.

41. The Claimants have never explained the basis for saying that the E-Mex permit admitted Class III machines while the Eventos Festivos permit did not. The permits do not refer to this classification or describe what type of machines could be used.²⁶ Nor have they explained the alleged restriction on the geographic location of the casinos of the Eventos Festivos permit. In fact, the available evidence shows that, during the negotiations with said company, the change of location of 5 of the establishments was requested to accommodate the Claimants' casinos, and Eventos Festivos was able to achieve it without any problem.²⁷ The issue of the number of casinos that could be operated under one permit or another is another that lacks substance because the Claimants have not presented further details of the intended operation between E-Mex, Bluecrest, and Advent and, in accordance with the agreement reached with E-Mex, Bluecrest, and Advent, E-Mex, only the 5 existing casinos could operate plus another two that had not yet been defined.²⁸

42. It should also be noted that the Claimants contradict themselves and change their narrative depending on the forum in which they find themselves. In particular, the change of position of the Claimants with respect to what they indicated in the Notice of Arbitration, the Jurisdiction phase, and what they stated before the tribunal in the arbitration between E-Mex and B-Mex Group in the Mexican Arbitration Center (CAM).

43. In the following sections, the Respondent will refer to the contemporaneous evidence on the record, and to the different versions of the facts that the Claimants have offered in relation to the decision to operate under the E-Mex permit.

²⁵ Id., ¶ 40. ↩

²⁶ RWS-8, Witness Statement of Mr. Alfonso Pérez Lizaur, p. 4. ↩

²⁷ Counter-Memorial on the Merits, ¶ 80. ↩

²⁸ This was also noted in the Counter-Memorial on the Merits, ¶ 83. ↩

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1. The Claimants were unable to obtain the resources for the acquisition and therefore the transaction with Eventos Festivos did not materialize

44. The Tribunal will recall that the Claimants entered into a share purchase agreement (SPA) with Eventos Festivos and paid a non-refundable deposit of one million dollars.²⁹ The SPA was signed on February 21, 2008, and the closing date was scheduled for no later than April 2, 2008.³⁰ The final purchase price was set at $28.5 million dollars.³¹

45. According to the SPA, the Claimants had the right to extend the payment date of the remaining balance for periods of fifteen days by paying USD $300,000.00 for each extension.³² These payments were non-refundable and could not be credited against the purchase price or any other payment obligation.³³

46. The evidence presented with the Reply shows that they exercised their right of extension on 3 occasions: on April 2, 2008, on April 17, 2008, and on May 2, 2008.³⁴ On May 20, 2008, Eventos Festivos notified the Claimants that the last extension had expired on May 19 and granted a period of 10 days to pay the final purchase price equivalent to 27.5 million dollars.³⁵ On June 5, 2008, Eventos Festivos notified the Claimants that the 10-day period had elapsed without the final payment having been made, thus an event of default had been updated. Festive Events terminated the SPA and kept the payments made by the Claimants for a total of US$1,900,000 – i.e., the initial deposit of one million dollars plus US$900,000 corresponding to the three requested extensions.³⁶

47. Documents filed with the Reply show that the Claimants retained Crowell, Weedon & Co. (Crowell) to advise them on the financing of the Eventos Festivos acquisition.³⁷ Exhibit C-383, an engagement letter dated February 20, 2008, from Crowell's director to Mr. Burr shows that

²⁹ Memorial, ¶ 78; Counter-Memorial on the Merits, ¶ 79. Exhibit C-250, Stock Purchase Agreement (SPA) with Holiday Events. ↩

³⁰ Exhibit C-250, Stock Purchase Agreement (SPA) with Holiday Events, pgs. 18 and 24. ↩

³¹ Id., p. 4. ↩

³² Id. ↩

³³ Id. ↩

³⁴ Exhibit C-380, Communication of Holiday Events regarding the breach dated June 5, 2008, p. 1. ↩

³⁵ Exhibit C-379, Communication of Holiday Events dated May 20, 2008, pgs. 1-2. ↩

³⁶ Exhibit C-380, Communication of Holiday Events regarding the breach dated June 5, 2008, p. 2. ↩

³⁷ Reply, ¶ 44 and Exhibit C-383, “Engagement Letter” with Crowell Weedon, p. 1. ↩

[Page 17]

BlueCrest and Tangent Capital were also involved in the Eventos Festivos transaction.³⁸ However, the Claimant's narrative suggests that BlueCrest was only involved in the potential transaction with E-Mex.

48. It is now clear to the Respondent that the explanation behind the abandonment of the Eventos Festivos opportunity is that Mr. Burr and his partners failed to raise the necessary capital to close the transaction. Later it will be seen that the first formal documents on the possible transaction with BlueCrest, Advent, and E-Mex are after the termination of the SPA with Eventos Festivos. In sum, the Claimants did not “prefer” the deal with E-Mex; they were forced to accept it because they had no other alternative to keep their Casinos in operation. However, instead of waiting for the transaction between Bluecrest, Advent, and E-Mex to materialize, they unwisely decided to tie their operations to those of Mr. Rojas, knowing the risks that this implied.³⁹ That decision was the Claimants' own, and the results of their business decisions cannot now be attributed to Respondent.

2. The reason behind the decision to operate under gaming and sweepstakes permit and deviate from the Monterrey Resolution

49. Claimants' explanation of the decision to stop operating under the Monterrey Resolution and instead operate under E-Mex's license is riddled with contradictions. In the Counter-Memorial, the Respondent mentioned that, according to the Claimants, obtaining a permit would have allowed them to continue operating their five existing Casinos plus the casinos in Cabo and Cancún, but that the Claimants had not explained why this would not have been possible under the "Monterrey Resolution" or what were the advantages of becoming a permit holder versus continuing to operate as they had been doing.⁴⁰

50. The Claimants have offered various explanations for changing the way their casinos had been operating since 2005. The evolution of the Claimants' position ranges from Mr. Burr's alleged "vision" of becoming a permit holder from the start to the final resolution of the SCJN on the constitutionality of the Regulation at the beginning of 2007:

³⁸ Exhibit C-383, “Engagement Letter” with Crowell Weedon, p. 1. ↩

³⁹ See Counter-Memorial on the Merits, ¶ 107. ↩

⁴⁰ Counter-Memorial on the Merits, ¶ 78. ↩

[Page 18]

As of 2008, once the Mexican Supreme Court upheld the constitutionality of the new gaming legislation from 2004, it became clear that companies would need to purchase their own permit under the new gaming law to remain in business. We decided to look for a new validly issued gaming permit that we could acquire and through which we could operate.⁴¹

51. In contrast to these reasons, in the counter-memorial in the arbitration CAM 58/2010 between E-Mex and E-Games dated May 9, 2011, which was signed by Mr. Julio Gutiérrez, the Claimants stated that "it was not logical to think” that the business model in which E-Games decided to invest should change in such a short time – i.e. in less than two years – when the A&P contracts had a minimum term of 10 years:

15.- It is not logical to think that Grupo B-Mex would enter into various A&P Contracts to operate the Entertainment Centers (for a minimum term of 10 years as established in the second clause of the A&P Contracts), and then, without further ado, change the way they operate in a period of less than two years, especially considering that simply the construction and installation of the Entertainment Centers, in some cases, took from six to eight months.⁴²

90.- The business model in which Egames decided to invest did not have to change in such a short time (less than two years)⁴³

[Emphasis added]

52. As can be seen, this differs materially from the explanations Claimants have offered in these proceedings.

3. The Claimants assumed the risk of doing business with E-Mex and Mr. Rojas Cardona knowing the risks that this implied

53. In the Counter-Memorial, the Respondent underlined that the Claimants ignored all the red flags regarding Mr. Rojas Cardona. Both Ms. Burr, Mr. Burr, and their attorney Julio Gutierrez testified that they had reservations about the possibility of doing business with Mr. Rojas Cardona because they knew that: Mr. Rojas Cardona had a criminal record, he had expelled Mr. Young

⁴¹ CWS-1, Primera declaración testimonial del Sr. Gordon Burr ¶ 21. ↩

⁴² Exhibit R-035, Counter-Memorial in Arbitration 58/2010 between E-Mex and E-Games, dated May 9, 2011, p. 18. ↩

⁴³ Exhibit R-035, Counter-Memorial in Arbitration 58/2010 between E-Mex and E-Games, dated May 9, 2011, p. 59. ↩

[Page 19]

from the Monterrey casinos, E-Mex had a huge debt with Bluecrest and, therefore, there was a risk that E-Mex would be declared bankrupt (as it was) and lose its license.⁴⁴

54. In their Reply, the Claimants explain that in late 2007 Mr. and Mrs. Burr decided that they should conduct due diligence on Mr. Rojas Cardona and that, because they had heard some rumors about Mr. Rojas Cardona, they hired the company Prescience to investigate his background.⁴⁵ The Claimants note that “[w]hile Prescience's initial recommendation was that the Claimants separate from Mr. Rojas Cardona in a businesslike manner, Prescience did not advise against the transaction with BlueCrest and Advent”⁴⁶. They also point out that “the Claimants only sought to work with E-Mex through the proposed transaction with BlueCrest and Advent and understood that E-Mex would have been acquired by the private equity companies and that neither Mr. Rojas Cardona nor any of the other shareholders in E-Mex would have had any ownership in the new company".⁴⁷ The Claimants again defend the decision to withdraw from the acquisition of Eventos Festivos and continue doing business with Messrs. Rojas Cardona and E-Mex, alleging that they could rely on the Petolof case to separate their operations from E-Mex if the agreement proposed by Advent and BlueCrest will not materialize.⁴⁸

55. In the following sections, the Respondent will first address the contemporary evidence on Mr. Rojas Cardona; subsequently, it will expose the different versions of the Claimants on the reasons why they decided to sign the Settlement Agreement in April 2008 with E-Mex and, finally; will explain why the Petolof case could not have influenced the Claimants' decision to opt-out of the Eventos Festivos acquisition.

a. Evidence on the background of Mr. Rojas Cardona

56. In the Prescience memorandum, dated November 29, 2007, it is mentioned that Mr. Rojas Cardona was involved in various criminal proceedings; that he was charged with possession and intent to distribute marijuana; that he was charged with forgery and theft, and that he fled the

⁴⁴ Counter-Memorial on the Merits, ¶¶ 94-100. ↩

⁴⁵ Reply, ¶ 53. ↩

⁴⁶ Id. ↩

⁴⁷ Id. ↩

⁴⁸ Id., ¶ 54. ↩

[Page 20]

jurisdiction while appealing his conviction.⁴⁹ The memorandum also mentions that he studied at the University of Iowa (from which he did not graduate) and that as president of the student assembly he was accused of embezzlement of student funds for luxurious personal expenses and that in 1992 he initiated proceedings under the Chapter of Insolvency and Bankruptcy in the United States.⁵⁰ In short, the evidence on the record demonstrates that in late 2007 and early 2008, the Claimants were fully aware that doing business with Mr. Rojas Cardona involved a high risk.

57. Exhibit C-389 consists of an email dated May 2008 from Mr. Bob Rice of Tangent Capital to Erin Burr and Gordon Burr showing that Mr. Burr and his daughter had serious concerns that Mr. Rojas Cardona will change his mind, and the deal will not materialize as planned: “[t]he curten structure has been adopted to meet everyone's primary concern, most particularly yours: that Rojas Will change his mind”⁵¹. Another document included in this exhibit illustrates the risk Claimants assumed by continuing their association with Mr. Rojas Cardona. The document mentions that, according to DEA, FBI, and ICE sources, the Claimants should not do business with Mr. Rojas Cardona:

• Pepe is Watchlisted by U.S. authorities... however, there are no active warrants for him...
• Subject is described as a “person of interest" to authorities...
• Pepe is known in an “adverse context” to DEA, FBI and ICE authorities...
• U.S. law enforcement is “monitoring” subject's activities in Monterrey, Mexico". According to contacts, they and the local authorities are “aware" of his current activities in Monterrey.
• According to contacts, authorities believe that Pepe is involved in the financing of drug smuggling, primarily marijuana, between Mexico and the U.S.
• If Pepe were to enter the United States, he would be flagged through the El Paso Information Center (as the central repository)... DEA, FBI and ICE databases would be alerted and personnel notified. These agencies would then take action “short of being stopped/detained”... this means that Subject would be placed under surveillance and monitored...

⁴⁹ Exhibit C-389, mail of Mr. M. Baker to Mr. Gordon Burr enclosing the Prescience Report, dated July 11, 2008, p. 3. ↩

⁵⁰ Id., p. 4. ↩

⁵¹ Exhibit C-385, mail of Mr. M. Baker to Mr. Gordon Burr enclosing the Prescience Report, dated July 11, 2008, p. 1. ↩

[Page 21]

• All contacts were unanimous in stating the opinion that “you should not do business with this individual.⁵²

[Emphasis added]

58. The Claimants also had reservations about their previous dealings with Mr. Rojas Cardona. In the counter-memorial in the CAM arbitration, B-Mex Group refers to the bad faith with which the officials of JEV Monterrey (E-Mex Group) behaved during the negotiations of the joint ventures in 2006:

It should be added that during the negotiation of the A&P Contracts, JEV Monterrey officials refrained from informing Grupo B-Mex that the company E-Mex had obtained the Permit on May 25, 2005, shortly before the conclusion of the first A&P Contract, nor that there was an opportunity to expand the business not only for the provision of services with certain skill and dexterity machines but also for the inclusion of games and raffles. The foregoing denotes the bad faith with which E-Mex officials have been conducting themselves, who did not reveal this business opportunity to the B-Mex Group Companies until the change of control in JEVMonterrey took place.⁵³

[Emphasis added]

59. Despite the fact that Mr. Rojas Cardona had apparently concealed from B-Mex Group that he had had a permit from SEGOB since 2005, in April 2008 the Claimants signed a Settlement Agreement with E-Mex, through which they continued their commercial operations indefinitely at the hands of Mr. Rojas Cardona. This agreement was signed exclusively by the Grupo Rojas and Grupo E-Games. BlueCrest and Advent were totally oblivious to this new business relationship between E-Mex and E-Games. Claimants' assertions that they “later also provided guidance on the proposed transaction with BlueCrest and Advent”⁵⁴. If that were true, logic and prudence indicated that they should have waited for the operation to be finalized before continuing their association with Mr. Rojas.

60. In this context, the testimony of Mr. Julio Gutiérrez, attorney for the Claimants, stands out, who points out that it was not foreseeable that Mr. Rojas Cardona would not agree to sign the

⁵² Exhibit C-389, mail of Mr. M. Baker to Mr. Gordon Burr enclosing the Prescience Report, dated July 11, 2008, p. 2. ↩

⁵³ Exhibit R-035, Counter-Memorial in Arbitration 58/2010 between E-Mex and E-Games, dated May 9, 2011, p. 16. ↩

⁵⁴ Reply, ¶ 44. ↩

[Page 22]

transaction with Advent and that said the irrational decision by Mr. Rojas Cardona was the which caused the Claimants to remain commercially tied with E-Mex:

It was certainly not foreseeable that Mr. Juan José Rojas Cardona ("Mr. Rojas Cardona") would not agree to sign the transaction with Advent, and that he would prefer to put E-Mex's permit at risk by being declared in bankruptcy due to the debts he owed to BlueCrest. Mr. Rojas Cardona's irrational decision not to accept the transaction with Advent caused the Claimants to be locked into an uncomfortable business relationship with E-Mex.⁵⁵

[Emphasis added]

61. The aforementioned Exhibit C-389, which contains Mr. Rice's email to Messrs. Burr, directly contradicts what Mr. Gutiérrez said. Mr. Burr strongly anticipated that Mr. Rojas might not agree to the Advent transaction.

b. The circumstances surrounding the signing of the
Transaction Agreement between E-Games and E-Mex in
April 2008

62. Claimants' position on the circumstances in which E-Games entered into the Settlement Agreement with E-Mex has also evolved throughout this proceeding. In the Memorial, the Claimants stated that “[a]s a condition of the proposed transaction with BlueCrest and Advent, Claimants completed the process to function as an operator under EMex’s”⁵⁶.” However, in the Counter-Memorial at the Jurisdiction phase, the Claimants stated that they “were persuaded by the private equity companies to move their Casino operations under the E-Mex permit”.⁵⁷

63. For its part, in the Reply⁵⁸ and the fifth witness statement of Mr. Julio Gutiérrez, it is stated that they decided to renounce the acquisition of the Holiday Events permit at the request of BlueCrest and Advent:

In addition, and importantly, at the time the Claimants made the decision to waive the possibility of acquiring the Eventos Festivos permit and staying with Advent and BlueCrest and the E-Mex permit, they did so at the request of these investment funds, and it was thought that the agreement and project with Advent and BlueCrest was going to materialize. This would result in the latter being the owners of the E-Mex permit and

⁵⁵ CWS-62, Fifth Witness Statement of Mr. Gutierrez, ¶ 18. ↩

⁵⁶ Memorial, ¶ 85. ↩

⁵⁷ Counter-Memorial on Objections to Jurisdiction, ¶ 46. ↩

⁵⁸ Reply, ¶ 45. ↩

[Page 23]

Mr. Rojas Cardona would no longer play a role in the business as his interest would be acquired by Advent and BlueCrest.⁵⁹

[Emphasis added]

64. There is no contemporaneous document on the record (i.e., April 2008) showing that Advent and BlueCrest requested or convinced Claimants to transition to the E-Mex permit. There is also no evidence that Advent and/or BlueCrest conditioned the alleged transaction for the acquisition of the E-Mex permit on the Claimants operating under the E-Mex permit.

65. What is in the file are documents prepared by the Claimants themselves that contradict their position in this proceeding. For example, in the counter-memorial in the CAM arbitration, B-Mex Group stated before that arbitral tribunal that, in 2008, it was E-Mex that proposed to B-Mex Group the installation and operation of machines that required a permit from the SEGOB and that will operate under the permission of E-Mex.

Response to Fact 3.- It is true that in 2008 E-Mex proposed to the Companies of the B-Mex Group the installation and operation of machines that do require permission from SEGOB and it is also true that E-Mex offered Grupo B-Mex that the Entertainment Centers were operated under the Permit in exchange for economic consideration, however, such events happened promptly after JEVMonterrey had corporate problems that caused a change of control in said company, which forced my client to accept a sudden change in operations.⁶⁰

12.- From the date of execution of the A&P Contracts (2006), the Entertainment Centers with skill and dexterity machines were built, installed, and operated by the BMex Group companies, under the technical advice, installation of machines, guidance, and administration of JEV Monterrey, until at the end of March 2008 we were informed by the representatives of JEV Monterrey that they were having a corporate problem, that it was probable that they would lose control of JEV Monterrey [...], but that they proposed to do a change of the Entertainment Centers to be operated under the protection of the Permit of a company of the same group [...] (EMex), otherwise, that is, if the change is not made, they would be forced to terminate commercial relations sustained between both groups, since they could not continue controlling the company JEV Monterrey, and therefore could not continue assisting Grupo B-Mex in the administration of the associations in which it participation and in the operation of the type of machines covered by the SEGOB Resolution [Monterrey Resolution]⁶¹

[Emphasis added]

⁵⁹ CWS-62, Fifth Witness Statement of Mr. Julio Gutiérrez, ¶ 26 ↩

⁶⁰ Exhibit R-035, Counter Memorial in Arbitration 58/2010 between E-Mex and E-Games, dated May 9, 2011, p. 16. ↩

⁶¹ Id., pp. 16-17. ↩

[Page 24]

66. Claimants have never offered this explanation in these proceedings. They have never referred to a "corporate problem" with JEV Monterrey, nor have they identified this as one of the causes that caused the termination of the joint ventures with said company. It should be noted that the Claimants argued before the CAM arbitration tribunal that, on April 1, 2008, they entered into the Transaction Agreement with E-Mex, among other reasons, because they did not have the time or the knowledge to contract with a permit holder that had permission to operate in the same places as the installed entertainment centers:⁶²

16. Response to Fact 4.- It is true that on April 1, 2008, the Transaction agreement was entered into [...] since, due to the imminent change of control of JEV Monterrey, B-Mex Group could only opt for the following options:

i) accept the conditions imposed by E-Mex officials to continue operating its recently installed Entertainment Centers;

ii) get to know the new controllers of JEV Monterrey to see if they could continue performing the management functions of the Entertainment Centers, with the risk of losing the operations and the investments made,

iii) continue operating under a permit or resolution similar to that of JEV Monterrey, for which there was no experience in the operation, nor the time to obtain such administrative resolutions, with the risk of losing operations and the investments made; either

iv) contract with another permit holder, for which neither the time nor the knowledge of any permit holder who had permission to operate in the same places as the installed Entertainment Centers was available (last two options with the risk of having to litigate the return of the payment of rights made for each of the A&P Contracts);

Evidently, the only reasonable option was chosen (to accept from the beginning the conditions imposed by E-Mex officials in the Transaction Agreement, preparatory agreement) to continue operating the Entertainment Centers, at least while both the obligations of the parties were negotiated as definitive compensation.

[Emphasis added]

67. It is evident that nothing was said there about the possible transaction with Bluecrest and Advent, nor about the possible transaction with Eventos Festivos. On the contrary, it was argued that the transaction with E-Mex was the “only reasonable option” while the obligations of the parties and the final considerations were negotiated.

⁶² Id., pp. 19-20. ↩

[Page 25]

4. The Petolof Resolution could not have served as the basis for E-Games' decision to transfer its operations to the E-Mex Permit

68. In their Memorial, the Claimants noted that they would not have agreed to move their operations under the permission of E-Mex, had it not been for the Petolof precedent that allowed them to completely disassociate themselves from E-Mex.⁶³ In the Counter-Memorial, the Respondent questioned whether the Petolof case could have served as a basis for the decision to become an operator of E-Mex, since in April 2008, when the Claimants made that decision, there was no such precedent.⁶⁴ Indeed, the SEGOB resolution in favor of Petolof was issued on October 28, 2008, that is, at least six months after the Claimants decided to transfer their operations to the E-Mex permit under the figure of "operator”.⁶⁵

69. In their Reply, the Claimants again defend the decision to continue doing business with Messrs. Rojas Cardona and E-Mex, alleging that they could rely on the Petolof case to separate their operations from E-Mex if the agreement proposed by Advent and BlueCrest will not materialize:

When the Claimants initially moved their operations under the E-Mex permit, they discussed the various scenarios, including the possibility (although it seemed unlikely at the time) that the proposed transaction with BlueCrest and Advent could fall through. In that unlikely scenario at the time, the Claimants understood that the Petolof precedent was favorable and that it provided them with an avenue to separate from E-Mex and Mr. Rojas Cardona should he remain as the owner of E-Mex permit.⁶⁶

70. Based on the testimonies of Ms. Erin Burr, Mr. Gordon Burr, and Mr. Julio Gutiérrez, the Claimants seek to explain this notable discrepancy as follows:

While Mexico notes that the Petolof Resolution was not issued until October 28, 2008, after the Claimants had already moved under the E-Mex permit, Mr. Gutiérrez had been closely following the Petolof case, which had been ongoing in the Mexican courts for a number of years. Although the administrative resolution that recognized Petolof's acquired rights was not issued until October 28, 2008 (the “October 28, 2008 Resolution” or the “Petolof Resolution”), this Resolution was issued in compliance with an amparo proceeding that was decided in 2005 due to the revocation of the permit from Espectáculos Deportivos del Norte SA de C.V. (“EDN”). Mr. Gutiérrez understood and explained the relevance of this precedent to the Claimants, and also explained that E-

⁶³ Memorial, ¶¶ 84-85. Exhibit CWS-50, Third Witness Statement of Mr. Burr, ¶¶ 42-49. ↩

⁶⁴ Counter-Memorial on the Merits, ¶¶ 103-106, 141, 437-442. ↩

⁶⁵ Id., ¶ 106. ↩

⁶⁶ Reply, ¶ 54. ↩

[Page 26]

Games should benefit from the precedent, and the court's likely ruling in favor of Petolof.⁶⁷

In response to Mexico's timing argument on this issue, as Mr. Gutiérrez explains, although the Petolof Resolution was not issued until October 28, 2008, the lifting of the closure seals of the establishments that Petolof operated under the EDN permit and the orders of compliance that Petolof obtained occurred in December 2007, which was before E-Games decided to move under E-Mex's permit. Mr. Gutiérrez was closely following the development of the Petolof case and reported to the Claimants regarding these relevant case updates.⁶⁸

[Emphasis added]

71. Therefore, it is appropriate to describe the judicial proceeding that culminated in the issuance of the Petolof Resolution, to verify that the publicly available information on this case, for a person such as Mr. Julio Gutiérrez, who was not involved in that proceeding, would have been insufficient and irrelevant to the Claimants' decision to operate under the E-Mex Permit.

a. Amparo trial number 176/2005-3 and amparo under
review 53/2006

72. Claimants and Respondent agree that the Petolof Resolution originates from amparo suit number 176/2005-3, filed by Petolof before the Eighth District Court of Tamaulipas.⁶⁹The Tribunal will recall that the amparo proceeding is a means of constitutional defense that is always followed at the request of the aggrieved party against laws or acts of authority that it considers to be in violation of their individual guarantees.

73. In this particular case, Petolof and the permit company Espectáculos y Deportes del Norte, SA de CV (EDN) had signed a joint venture agreement⁷⁰ (i.e., joint venture ) to exploit the permit that SEGOB had granted to EDN.⁷¹ On May 28, 2004, SEGOB revoked EDN's permit as a result

⁶⁷ Id. ↩

⁶⁸ Id., ¶ 55. ↩

⁶⁹ Memorial, ¶ 119. Reply, ¶¶ 54 and 380. Counter-Memorial on the merits, ¶¶ 440 and 445. ↩

⁷⁰ The full name of the contract is: "Contract for the Provision of Services, of Participation Association for the exploitation of the federal permit dated July 14, 1978, granted by the SEGOB, and its subsequent modifications, with the effect of dation of payment up to a total of 49% and forty-nine percent of the shares and all assets and rights acquired by the company Espectaculos y Deportes del Norte SA de CV, and loan of personal property". ↩

⁷¹ Exhibit R-109, Judgment issued in the amparo proceeding number 176/2005-3, pgs. 10 and 11. ↩

[Page 27]

of an administrative proceeding initiated against it on March 20, 2002, by issuing summons number DGG/211-1182/2002⁷².

74. In a letter dated April 5, 2005, Petolof's legal representative filed an amparo suit against SEGOB, arguing that SEGOB had violated, to his detriment, the guarantee of a hearing contemplated in article 14 of the CPEUM, because was not called to the administrative procedure that culminated in the revocation of the permit granted to EDN.⁷³ It also argued that SEGOB had violated its guarantee of a hearing due to the closing processes of the establishments where it operated.⁷⁴ The judgment issued on November 7, 2005 granted the protection to Petolof for the following purposes:

[I]t is appropriate to grant the Amparo and Protection of the Federal Justice requested, so that those responsible render null and void everything that has been done in the administrative proceeding formed and initiated on the occasion of official letter-subpoena number DGG/211-1182/2002, of March 20, 2002, against the injured third party, Espectaculos y Deportes del Norte, a variable capital corporation, including the definitive resolution and the aforementioned procedure is initiated again, respecting the guarantee of a hearing for the benefit of the complainant, that is, that she be heard and defeated in said administrative procedure.⁷⁵

[Emphasis added]

75. When resolving the amparo trial, the District Judge considered that Petolof had legitimacy to appeal the administrative procedure that ended with the revocation of EDN's permit because it had signed a joint venture to exploit the permit that SEGOB had granted to EDN⁷⁶. In addition, among the rights and obligations that EDN and Petolof assumed under the contract, the use, exploitation, and exploitation of EDN's permit stand out, in association with Petolof under Clause three, subsection A.⁷⁷

76. The amparo was confirmed by the First Collegiate Court of the Nineteenth Circuit, through a ruling dated August 29, 2006 issued in the amparo under review number 53/2006. In turn, the

⁷² Id., p. 2. ↩

⁷³ Id. ↩

⁷⁴ Id. ↩

⁷⁵ Id., p. 20. ↩

⁷⁶ Id., pp. 10 and 11. ↩

⁷⁷ Exhibit R-089, Contract between EDN and Petolof dated November 23, 1999. ↩

[Page 28]

order that had consented to compliance with the amparo sentence was issued by the District Judge on January 19, 2007 ⁷⁸.

77. After the confirmation of the amparo ruling, the publicly available electronic file only reports the following acts, without offering details:⁷⁹

• On June 1, 2007, the District Judge admitted for processing a brief presented by Petolof, filing an appeal for excess or defect in compliance with the amparo ruling ⁸⁰.
• As part of compliance with the amparo ruling, on December 13, 2007, the SEGOB ordered the lifting of the closure and seal status of seven establishments ⁸¹.
• On February 27, 2008, the District Judge proceeded to study whether SEGOB had fully complied with the amparo sentence. The District Judge concluded that the SEGOB had not complied with the sentence because it did not leave the original procedure unsubstantiated nor did it grant Petolof the guarantee of a hearing when starting a new procedure in replacement ⁸².
• As a consequence of the foregoing, on March 7, 2008, the SEGOB ordered that the administrative procedure that gave rise to the cancellation of EDN's permit be rendered null and void and a new administrative procedure be initiated, respecting Petolof's guarantee of a hearing ⁸³.
• On July 18, 2008, the District Judge admitted an official letter from the SEGOB in which he stated that he had complied with the amparo sentence and ordered Petolof

⁷⁸ Exhibit R-121, Council of the Federal Judiciary. Consultation of judgments of jurisdictional bodies (Consultation of judgments (cjf.gob.mx) ). Amparo in review number 53/2006. ↩

⁷⁹ What is narrated in this paragraph is the information publicly available to a person outside the trial in the electronic portals managed by the Federal Judiciary Council. ↩

⁸⁰ Exhibit R-125, Council of the Federal Judiciary. Consultation of judgments of jurisdictional bodies (Consultation of judgments (cjf.gob.mx) ). Amparo trial number 176/2005-3. ↩

⁸¹ Exhibit C-253. Current permit UG-010/2008 (Resolution Petolof), resulting in 2. ↩

⁸² Exhibit R-124, Council of the Federal Judiciary. Consultation of judgments of jurisdictional bodies (Consultation of judgments (cjf.gob.mx) ). Amparo trial number 176/2005-3. ↩

⁸³ Exhibit C-253. Current permit UG-010/2008 (Resolution Petolof), resulting in 2. ↩

[Page 29]

• to be seen so that he could state whether he agreed with the compliance given by the SEGOB. 84.

  Finally, on January 26, 2009, the District Judge declared that the procedure for executing the amparo judgment had expired and ordered the definitive filing of the amparo proceeding number 176/2005-3 ⁸⁵.

b. The Petolof Resolution could not have been the basis for the decision to continue doing business with Messrs. Rojas Cardona

78. As can be seen from the previous section, in the amparo trial number 176/2005-3 and the amparo under review 53/2006, the judicial authorities did not rule on the figure of "rights created or acquired" in favor of Petolof, nor about its alleged “independent operator” status of the EDN permit.

79. In the ruling issued in the amparo trial 176/2005-3, the District Judge limited himself to resolve that Petolof had the right to respect the guarantee of a hearing, contemplated in article 14 of the CPEUM:

[E]ven though it is true that the complaining company is not a permit holder before the Ministry of the Interior, nor is it the holder of a right against it, and it does not have, nor did it have, nor does it have, a permit issued by it in matters of gaming and raffles, it is also true that, despite this, the acts claimed to affect the legal sphere of rights of said company and the responsible authorities should, consequently, grant it the guarantee of a hearing, taking into account that it (the legal sphere of rights) and the respect for this (the guarantee of a hearing) derives from the rights that the aforementioned contract generated for the repeatedly complaining company over the permit in question.⁸⁶

[Emphasis added]

80. In any case, in April 2008, the only legal certainty that the Claimants could have derived from the judicial proceeding initiated by Petolof is that SEGOB could not revoke a permit exploited by a permit holder in association (i.e., “joint-venture”) with a third party, without

⁸⁴ Exhibit R-123, Council of the Federal Judiciary. Consultation of judgments of jurisdictional bodies ( Consultation of judgments (cjf.gob.mx)). Amparo trial number 176/2005-3. ↩
⁸⁵ Exhibit R-122, Council of the Federal Judiciary. Consultation of judgments of jurisdictional bodies ( Consultation of judgments (cjf.gob.mx)). Amparo trial number 176/2005-3. ↩
⁸⁶ Exhibit R-109, Judgment issued in the amparo proceeding number 176/2005-3, pgs. 13 and 14. ↩

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respecting the third party's right to be heard. This situation is not comparable to that of E-Mex because E-Mex did not exploit its license through a joint-venture agreement with E-Games. As explained before, E-Games was not a partner of E-Mex, but its operator under article 30 of the Regulations.

81. The Claimants themselves acknowledge the foregoing in their Reply in the section entitled: “SEGOB independently recognized Petolof's acquired rights, and not because of a court order” ⁸⁷:

381. As Mr. González explains, the Mexican court granted Petolof's request, meaning that the Mexican court ruled only that Petolof's due process rights had been violated and, as a result, SEGOB had to include Petolof in the ongoing administrative proceedings. At no point did the Mexican court rule that SEGOB had to issue a permit based on the principle of acquired rights. In fact, Mr. González goes on to explain that SEGOB's recognition of Petolof's acquired rights was based on SEGOB's own criteria and independent analysis of Petolof's acquired rights over EDN’s permit. And based on this independent analysis, SEGOB granted Petolof independent operator status over seven of EDN's properties in Mexico.

382. In light of the above, Mr. González concludes that SEGOB's granting of the October 28, 2008 Resolution in favor Petolof was not the result of a Mexican court order, but rather based on SEGOB's discretionary analysis within the administrative proceedings, and for which the Mexican court had ordered SEGOB to provide Petolof with due process rights therein. ⁸⁸

[Emphasis added]

82. This demonstrates that the Claimants could not have relied on the amparo suit filed by Petolof at the time of deciding to move to the E-Mex permit, since the Petolof Resolution was based “on SEGOB's discretionary analysis within the proceedings administrative” and the result of the said analysis was not disclosed until October 28, 2008. During the processing of the amparo trial number 176/2005-3 and the amparo under review 53/2006, no jurisdictional authority determined that the SEGOB was to issue a permit to Petolof based on the doctrine of acquired rights.

C. The dispute between E-Mex and E-Games

83. Contrary to what the Claimants allege, this case is not about arbitrary actions by SEGOB or the national courts. It has to do with a legal dispute between E-Mex and E-Games over the

⁸⁷ Reply, ¶¶ 380-382. ↩
⁸⁸ Id., ¶¶ 381-382. ↩

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permit that E-Mex originally had and was operated by E-Games with respect to five establishments.

84. As explained in detail in the Memorial and Counter-Memorial, E-Mex owed Bluecrest/Advent approximately USD $75 million. The Claimants were fully aware of the risk involved in this debt. In particular, they were aware that, if Bluecrest demanded payment of the debt, E-Mex would surely not be able to cover it and would be declared bankrupt, which would update one of the grounds for revocation of its permit. ⁸⁹This risk eventually materialized.

85. The actions that E-Games subsequently took to preserve the operation of its casinos sparked a legal dispute between E-Mex and E-Games that led to the CAM arbitration and amparo 1668/2012, among other procedures. And it was precisely compliance with the ruling in amparo 1668/2012 that led to the cancellation of the E-Games permit.

86. It is reiterated that the Mexican State had nothing to do with the decision of E-Games to associate with Mr. Rojas Cardona or E-Mex; it also had nothing to do with the loan that Bluecrest granted to E-Mex for $75 million dollars; nor was it involved in the alleged transaction between Bluecrest/Advent and E-Mex that allegedly gave Claimants control of the E-Mex permit; even less with the bankruptcy that E-Mex faced when the alleged transaction failed and Bluecrest demanded repayment of the debt.

87. SEGOB limited itself to issuing an official letter confirming E-Games' status as operator of E-Mex (Official 2009-Bis); issuing a permit to E-Games in August 2012, after E-Mex was declared bankrupt, and; assigning its nomenclature to the permit in November 2012, when E-Games requested that the General Director of Games and Raffles endorse the official letter through which the permit was issued to E-Games in August 2008.

88. Subsequently, when the Sixteenth Court resolved amparo 1668/2012, the SEGOB left unsubstantiated, by instruction of the Judge, Official Letter 2009-Bis and, after finding that SEGOB's compliance was deficient, SEGOB proceeded to leave all the official letters unsubstantiated and resolutions derived from said Official Letter 2009-Bis, also by instructions of the Sixteenth Court. The entire sequence of trades and domestic procedures will be explained in detail in the following sections.

⁸⁹ Counter-Memorial on the Merits, ¶¶ 97-98, 128-129. ↩

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D. E-Games requested SEGOB to confirm its status as operator of the E-Mex Permit in the context of the dispute with E-Mex

89. On December 28, 2009, E-Mex notified E-Games of its intention to terminate the operating contract between both companies due to its disagreement with the payment of royalties and the payment of participations before SEGOB.⁹⁰ That same day, E-Games filed a document with SEGOB requesting that the official documents through which its status as operator under the permission of E-Mex be not revoked.⁹¹

90. On July 21, 2010, through official letter number DGAJS/SCEV/0321/2010, SEGOB confirmed the nature of the operator of E-Games and asked it to present the documents that demonstrate compliance with the provisions of the RLFJS and other applicable regulations:

Based on the provisions of articles 8, 14 and 16 of the Political Constitution of the United Mexican States; 27, section XXII of the Organic Law of the Federal Public Administration; 1, 3, 4 and 7 of the Federal Law on Games and Raffles; 1, 2, 3 and 5 of the Regulations of the Federal Law on Games and Raffles, as well as the provisions of the official letters DGAJS/SCEV/00619/2008, DGAJS/SCEV/0059/2009, DGAJS/SCEV/00194/2009, DGAJS /SCEV/00260/2009 and DGAJS/SCEV/00260/2009-BIS, dated December 9, 2008, February 13, 2009, May 8, 2009, and last of May 27, 2009, respectively; I inform you that the legal entity that you represent, under the character of operator of the permit DGAJS/SCEVF/P-06/2005, dated May 25, 2005, granted in favor of the permit holder Entertainment de México, SA de CV, has with authorization from this Federal Agency to operate 7 seven Remote Betting Center establishments with Number Draw Rooms, under the terms stipulated in each of the aforementioned official documents.

In the same way and to provide for the SECOND and FOURTH points, you are required to, as soon as possible, submit to this authority the documentation that proves compliance with the regulations on the matter.⁹²

[Emphasis added]

91. Three months later, on October 26, 2010, E-Games complied with SEGOB's requirement and once again requested confirmation from the DGJS regarding the legal operation and exploitation of E-Mex's permit. In addition, it asked SEGOB to “agree that regardless of the consequences and effects that the insolvency proceeding against [E-Mex, E-Games] could have, it

⁹⁰ CWS-52, Fourth Witness Statement of Mr. Gutierrez, ¶ 28. ↩
⁹¹ Exhibit C-012, Official Letter No. DGAJS/SCEV/0321/2010 of July 21, 2010, pgs. 1-2. ↩
⁹² Id. ↩

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could] operate the establishments in terms of Official Letters DGAJS/SCEV/0260/2009 and DGAJS/SCEV/0260/2009-BIS". ⁹³

92. On December 8, 2010, through official letter No. DGAJS/SCEV/0550/2010, SEGOB informed E-Games that it had fulfilled the obligations outlined in the Regulations and once again confirmed its operator status.⁹⁴ It is important to note that SEGOB at no time recognized the character of "independent operator of E-Mex" as argued by the Claimants ⁹⁵. The character of "independent operator" is not provided for by the LFJS or the RLFJS. In this regard, the Respondent's expert, Mr. Alfredo Lazcano, stated in his first expert report⁹⁶ and reiterates in his second report that: the figures of "Permit holder and Operator are the only figures that as subjects of rights and obligations are regulated in the Games Regulations.” ⁹⁷.

93. Additionally, official letter number DGAJS/SCEV/0550/2010 of December 8, 2010, also stated that, under the Regulation itself, E-Games had the right to request a permit to continue operating its establishments if the permit of E-Mex was revoked when it declared bankruptcy:

[You] are hereby informed that your principal has an expedited right to request and process the corresponding permit to carry out the activities that it currently operates in the seven aforementioned establishments, to the extent that the hypothesis of revocation of the DGAJS/SCEVF/P permit -06/2006 dated May 25, 2005 granted to the permit holder Entertainment de México, SA de CV occurs or could potentially occur as established in article 34 section IV of the Regulations of the Federal Law of Games and Raffles.

Given the case, this is not a pre-authorization and this authority will resolve what is appropriate according to law.⁹⁸

[Emphasis added]

⁹³ Exhibit C-013, Official Letter DGAJS/SCEV/0550/2010 of December 8, 2010, p. 2. ↩
⁹⁴ Id., pp. 1-2: "[...this authority considers that its represented Exciting Games, S. de RL de CV, has the recognized character as operator of the company Entertainment de México, SA de CV, with respect to 7 seven of the establishments related to the permission DGAJS/SCEVF/P-06/2005...]" ↩
⁹⁵ Reply, ¶ 70. ↩
⁹⁶ RER-2, First Expert Report of Mr. Alfredo Lazcano Sámano, ¶¶ 43-47. ↩
⁹⁷ RER-5, Second Expert Report of Mr. Alfredo Lazcano Sámano, ¶ 48. ↩
⁹⁸ Exhibit C-013, Official Letter DGAJS/SCEV/0550/2010 of December 8, 2010. ↩

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94. As indicated in the Counter-Memorial ⁹⁹, contrary to Claimants' arguments, the aforementioned memorandum was in no way a “formal” invitation for E-Games to become a permit holder. It was an affirmation made by SEGOB within the scope of its attributions and with respect to the rights established in the RLFJS, ¹⁰⁰which anyone has to initiate the process of an application for a permit to operate a casino. Said request, if any, would be subject to the assessment and analysis carried out by the authority at the time and the official letter cannot be considered as a "pre-authorization" or "invitation" to request an "independent permit", as can be seen from the text. of official letter number DGAJS/SCEV/0550/2010.

Ε. The link between the various trades issued by SEGOB and the E-Games Permit

95. In the Reply, the Claimants insist on the lack of procedural correlation between the various official letters issued by SEGOB during the years in which E-Games operated under the permission of E-Mex and the issuance of the permit obtained through the official letter dated November 16, 2012.¹⁰¹ In particular, they point out that “the permit granted to E-Games through the Notice of November 16, 2012, the E-Games Independent Permit, was completely autonomous and independent"¹⁰² since “E-Games Games had complied with all the procedural steps and legal requirements to obtain a stand-alone permit, and the E-Games Stand-alone Permit had its own permit number and was separate and distinct from the E-Mex permit.”¹⁰³ In addition, they point out that “the Official Letter of November 16, 2012 is not based on the Official Letter of May 27, 2009 [Oficio 2009-BIS], and does not even mention it” (Original emphasis).¹⁰⁴

96. The Respondent considers that the Claimants' position should be rejected. The link between Official Letter 2009-BIS, the Official Letter dated August 15, 2012, and the Official Letter dated November 16, 2012 can be observed from the Claimants' requests to SEGOB and the official letters issued as a result of those requests. requests:

⁹⁹ Counter-Memorial on the Merits, ¶ 156. ↩
¹⁰⁰ Exhibit R-032, articles 20 and 21 of the RLFJS. ↩
¹⁰¹ Reply, ¶ 76, citing the Statement of Claim, Section IV. O. ↩
¹⁰² Id., ¶ 76. ↩
¹⁰³ Id. ↩
¹⁰⁴ Id., ¶ 92. ↩

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97. The Claimants accuse the Respondent of arguing the existence of a link between the Official Letter 2009-Bis and the Official Letter of November 16, 2012 “because doing so is convenient for its legal arguments in this case and provides it with the ability to try to justify the tortured judicial rulings and administrative actions.”¹⁰⁵ However, as mentioned in paragraphs,

¹⁰⁵ Id., ¶ 91. ↩

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supra, it is the Claimants who contradict themselves and change their narrative depending on the forum in which they find themselves. In this proceeding, they insist that “the SEGOB Resolution of August 15, 2012 did not grant E-Games its own independent permit"¹⁰⁶ and that “E-Games insisted on its request and obtained its own independent permit through the Resolution of the SEGOB of November 16, 2012” ¹⁰⁷.

98. In stark contrast to the position they take before this Tribunal, in the TFJFA in Mexico, the Claimants argued that they acquired permit holder status with the Official Letter of August 15, 2012, and that the official letter of November 22, 2012 confirmed the content of the Official Letter of August 15 and granted an alphanumeric code:

7.- On August 15, 2012, the General Directorate for Games and Raffles issued the letter DGAJS/SCEV70827, through which it decided to change the status of my client: from operator to permit holder.

8.- On November twenty-second (sic) of two thousand and twelve, the today called General Directorate of Games and Raffles issued an official letter through which it confirmed the determination immersed in the content of the official letter referred to in the immediately preceding point, determining to give to the permit that my client would operate, the alphanumeric code DGAJS/SCEVF/P-06/2005/BIS.¹⁰⁸

[Emphasis added]

99. It should be mentioned that the RLFJS does not establish different permits categories. Particularly, it does not establish “independent” permits. This term has been created by Claimants in their strategy of defense in this arbitration. All permits are within the same category and they had to be independent, they are in this manner because the exercise of the permit's rights does not depend on the will of third parties. Claimants' attempt to differentiate August 2012 E-Games permit from the one of November is part of their strategy to try to separate them. As it has been shown by the document previously cited, E-Games has recognized its status as permit holder on Ausgust 2018, and it also recognized that on November 22 the determination of the official communication from August was “confirmed".

¹⁰⁶ Memorial, ¶ 139. ↩
¹⁰⁷ Id. ↩
¹⁰⁸ Exhibit R-050, Annulment claim - E-Games brief dated February 18, 2013 Exp. 1080-13-11-03-1., pp. 23. ↩

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100. In the following section the link between the different official communications issued by SEGOB will be explained (in particular, the 2009-BIS Oficio) and the official communication from 16 November 2012.

1. E-Games request for permit

101. On February 22, 2011, in accordance with the applicable legislation and SEGOB's official communications issued to E-Games since 2008, E-Games requested SEGOB a permit to operate its casinos in the same conditions that it had under E-Mex Permit. As it can be read, E-Games cited as basis for acquiring its permit the official communication DGAJS/SCEV/0260/2009-BIS, for May 27, 2009:

That by means of this instrument and pursuant to articles... ; as well as official communications number DGAJS/SCEV/00619/2008, dated December 9, 2008; number DGAJS/SCEV/0059/2009, dated February 13, 2009; number DGAJS/SCEV/0194/2009, dated May 8, 2009; number DGAJS/SCEV/0260/2009, dated May 27, 2009; number DGAJS/SCEV/0260/2009-BIS, dated May 27, 2009; number DGAJS/SCEV/0321/2010, dated July 21, 2010, and number DGAJ/SCEV/550/2010, dated December 10, 2010, each and every one of them issued by this General Deputy Directorate of Gambling and Lottery of the Ministry of the Interior (SEGOB), before you with all due respect I hereby appear to request in accordance with the aforementioned legal principles, the PERMIT described herein.¹⁰⁹

[Emphasis added]

102. Respondent indicated in the Counter-Memorial that on May 12, 2011, SEGOB required E-Games to present additional documents and information, and SEGOB also informed that it had identified 28 deficiencies to E-Games request for permit. ¹¹⁰ Respondent also indicated in the Counter-Memorial that, on November 18, 2011, SEGOB issued official notice DGAJS/SCEV/546/2011 in which it determined that E-Games complied with the requirements to continue operating its casinos under E-Mex Permit; however, SEGOB also determined to suspend E-Games request for permit until E-Mex was declared bankrupt:

Regarding the request of the petitioner to continue operating the establishments that it currently has authorized under the capacity of operator of the permit DGAJS/SCEVF/P-06/2005 issued in favor of the company Entretenimiento de México S.A. de C.V., it should be noted that since the permit holder has not set up the declaration of bankruptcy, and therefore the ground for revocation provided for Article 151, Section V is not updated; this Authority is not able to issue a final decision regarding the process of changing the status from operator to permit holder that concerns us. The above in view

¹⁰⁹ Exhibit C-014, E-Games written submission of February 22, 2011. ↩
¹¹⁰ Counter Memorial on the Merits, ¶ 158. ↩

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of the fact that such establishments are part of the Remote Betting Centers and Number Sweepstakes Rooms for which the aforementioned permit holder has a permit, so it is not appropriate for this Deputy Directorate General to decide at this time on the reasons given, since the number of establishments would be increased, which is contrary to the policy of not encouraging the increase in the number of authorized establishments at present. Therefore, the change of status requested should result in equal or lesser number of those existing to date within the universe of said permit, and this can only happen until the update of the revocation of permit DGAJS/SCEVF/P-06/2005 issued in favor of the company Entretenimiento de México S.A. de C.V.¹¹¹

[Emphasis added]

103. Respondent asserts that Claimants always knew that the official communications issued by SEGOB only recognized E-Games capacity as operator under E-Mex Permit. There was not an authority's declaration in the sense that E-Games was an “independent operator", that is so, because the RLFJS does not establish such figure.¹¹² E-Games' permit request was conditioned under E-Mex declaration of insolvency; what is more, the terms and conditions of E-Games permit that would be given would be the same as E-Mex Permit, because the basis for E-Games' permit issuance would be the various official communications issued by SEGOB and the DGAJS/SCEVF/P-06/2005 permit itself.

104. Claimants arguments in the sense that their permit was independent and autonomous ¹¹³ are incorrect, and, in fact, their position is contrary to past E-Games requests, also to the content of SEGOB's replies to such requests. As explained by Mr. Lazcano in his second report:

E-Games feared that when E-Mex was declared insolvent, its Permit would be revoked and, therefore, the same would occur with any authorization to operate Establishments under said Permit. Consequently, E-Games requests SEGOB, based on the theory of acquired rights, to recognize the status of Permit Holder with respect to the seven Establishments that it had authorized at that time. If the condition for requesting and granting a new Permit depended on E-Mex's declaration of insolvency, by definition, it is not possible to speak of an independent Permit.¹¹⁴

¹¹¹ Exhibit C-352, Official notice DGAJS/SCEV/546/2011, p. 4. ↩
¹¹² RER-2, See First Expert Report from Mr. Alfredo Lazcano Sámano, ¶54. ↩
¹¹³ Reply, ¶ 76. ↩
¹¹⁴ RER-5, Segundo informe pericial del Sr. Alfredo Lazcano Sámano, ¶ 66. ↩

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2. The link between 2009-BIS Oficio and the permit issued on August 2012

105. Once E-Mex was declared under insolvency proceedings, SEGOB issued a permit to E-Games through the Oficio DGJS/SCEV/0827/2012, dated August 15, 2012 (Permitholder oficio). In the officio SEGOB expressly resolved:

• To recognize E-Games' entitlement to the acquired rights related to the use and exercise of the DGAJS/SCEVF/P-06/2005, E-Mex Permit, under the terms of the various official notices in favor of E-Games, including the 2009-BIS Oficio.

• That E-Games' acquired rights were naturally limited to the terms and conditions of permit DGAJS/SCEVF/P-06/2005.

• The legal change of condition of E-Games to be entitled of the rights of exploitation and operation of the permit DGAJS/SCEVF/P-06/2005Reconocer a E-Games la titularidad de los derechos adquiridos, sobre el uso y explotación del permiso DGAJS/SCEVF/P-06/2005 de E-Mex en términos de los diversos oficios emitidos a favor de E-Games, incluido el oficio 2009-BIS.¹¹⁵

106. In the Reply Claimants allege that the links between the various official notices issued by SEGOB in favor of E-Games are irrelevant for getting their independent permit.¹¹⁶ Nonetheless, in their Memorial, Claimants themselves recognize that 2009-BIS Oficio and the Permitholder Oficio were related. Paragraph 166 of their Memorial explains that the Permitholder Oficio specially cites the 2009-BIS Oficio and “that was a motivating factor for the issuance of the August resolution [i.e., the Permitholder Oficio] ":

In the light of the above, Mr. González concludes that the rights E-Games acquired to become and independent operator served as a justification or cause die E-Games's change of status to a holder of the right to use and operate E-Mex's permit, as recognized in the August 15, 2012.¹¹⁷

107. Mr. Lazcano confirms that the 2009-BIS Oficio is one the administrative acts that generate E-Games recognition of entitlement to the rights of use and exploitation of E-Mex Permit:

Official Letter DGAJS/SCEV/0260/2009-BIS, which, in my opinion, does nothing more than corroborate the status of E-Games Operator, is one of the administrative acts

¹¹⁵ Anexo C-254, Oficio DGJS/SCEV/0827/2012 del 15 de agosto de 2012, pp. 6-7. ↩
¹¹⁶ Reply, ¶ 66. ↩
¹¹⁷ Memorial, ¶ 166. ↩

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that form part of the basis that determines the scope of the recognition of the ownership of the rights on the use and exploitation of the E-Mex Permit.¹¹⁸

108. Thus, there is no doubt about the link between the 2009-BIS Oficio and the Permitholder officio.

3. The link between the Permitholder Oficio from august 2012 and the November 16 Oficio of the same year (Permit-BIS Oficio)

109. Respondent reiterates that a clear and direct link exists between the Permitholder Oficio, from August 2012, and the November 16 oficio of the same year (Permit-BIS Oficio), which is confirmed with E-Games written submission that originated the second official communication.

110. On November 7, 2012, E-Games submitted a written communication requiring SEGOB to amend the permitholder oficio that SEGOB issued in August of the same year, because the deputy director had signed it and E-Games sought to ensure that the competent public servant issued the permit. In that sense, E-Games alleged that it needed further legal certainty; hence, E-Games required that the Permitholder Oficio had to be signed by the General Director of the DGJS:

[A]long these lines, my principal hereby fully submits to the general contents of the [Permitholder Oficio]. However, and concerning the proper grounds of competency of the Deputy Director of Permit Authorizations, I hereby request that You, for the sole purpose of providing legal certainty to referenced action, and pursuant to Article 6 of the Federal Law of Administrative Procedure currently in effect, adopt the contents of the [Permitholder] Oficio, and pursuant to the referenced law, cure it and have the Directorate of Games and Sweepstakes follow suit with regard to the proper grounds of the issuing official's competency, in the understanding that the remaining content of the foregoing Oficio would prevail.¹¹⁹

[Emphasis added]

111. E-Games did not ask for a new permit, in fact, E-Games required the General Director of the DGJS "adopt the contents of the [Permitholder] Oficio, cure it and make it as its own”. Besides, E-Games required that the rest of the Permitholder Oficio prevailed.

112. SEGOB replied to such request on November 16, 2012, via a new official notice in which SEGOB confirmed the content and terms of the Permitholder Oficio, that is, SEGOB expressly referred that the Permitholder Oficio had the required elements and it was a valid administrative

¹¹⁸ RER-5, Segundo informe pericial del Sr. Alfredo Lazcano Sámano, ¶ 69. ↩
¹¹⁹ Exhibit R-047, E-Games petition dated November 7, 2012. ↩

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act and “there [was not] any deficiencies to cure” because the deputy director had the authority to sign it. Nonetheless, SEGOB confirmed the following:

I allow myself to inform you that content of the [Permitholder Oficio] satisfies the formal and substantive requirements of a valid government act...; accordingly, there is no deficiency that requires curing. However, and to provide legal certainty to your principal, "Exciting Games, S. de R.L. de C.V.," this Directorate of Games and Sweepstakes again and directly acknowledges the legal effects of the [Permitholder Oficio] as issued for all applicable legal purposes, pursuant to the authority granted to the Directorate of Games and Sweepstakes set forth in Article 2(B)(XII) in relation to Article 15 Ter of the Internal Regulations of the Secretariat of the Interior, and article 2, third paragraph of the [RLFJS], the validity of the content of the [Permitholder Oficio] remains, with the terms that it was issued, for the necessary legal effects.¹²⁰

113. Mr. Lazcano also confirms that E-Games acquired it permitholder status in August 2012 with the issuance of the Permitholder Oficio:

[O]fficial Letter DGAJS/SCEV/0827/2012 did generate changes in the status of E-Games since it recognized it as the owner "of the rights acquired over the use and exploitation of permit Number DGAJS/SCEVF/P-06/ 2005, dated May 25, 2005, and its modifications, in favor of Exciting Games, S. de R.L. de C.V. (...) specifically referring to (7) seven Remote Betting Centers and (7) Number Drawing Rooms" 49. For all practical purposes, E-Games acquired the legal status of Permit Holder in relation to seven Establishments.¹²¹

114. Only differences of format, not of substantive content, exist between the August and November 2012 official communications, the change of legal status of operator to permit holder occurred on August 15, 2012 with the Permitholder Oficio which was later confirmed by SEGOB when it issued the Permit-BIS Oficio on November 16, 2012.

115. Claimants argue in their Reply that E-Games request from November 7, 2012 was made for a permit under the terms of articles 20, 21 and 22 of the RLFJS, because the Permitholder Oficio did not mention the requirements from the RLFJS to obtain a permit; in contrast the Permit-BIS Oficio from November, that confirmed August 15, 2012 oficio, clearly states those articles. ¹²²

116. This argument is clearly designed by Claimants for this arbitration, as previously mentioned, E-Games recognized before national courts that Permit-BIS Oficio was a confirmation

¹²⁰ Exhibit C-16, DGJS/SCEV/1426/2012 Oficio, dated November 16, 2012, p. 1. ↩
¹²¹ RER-5, Segundo informe pericial del Sr. Alfredo Lazcano Sámano, ¶ 60. ↩
¹²² Réplica, ¶¶ 97 y 99. ↩

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of the Permitholder Oficio.¹²³ For example, in the administrative claims that E-Games presented in December 2012 and February 2013. In the first one, E-Games requested to open another casino in Veracurz, and in the second one, E-Games considered illegal that it slot machines were not able to accept coins and bills.¹²⁴ Albeit that in a clear manner, E-Games based its allegations from E-Mex Permit, because with that permit it had acquired rights (to open another casino and to allow its slot machines to receive coins and bills), now, Claimants pretend to deny E-Games' recognition.¹²⁵

117. Claimants allege that E-Games distinguished between E-Mex and E-Games permit by simply using the word “distinct". This is incorrect: “the distinct" is a synonym of “the other", which is very common in the legal briefs and official communication in Mexico. This does not imply all the legal effects that Claimants allege in this arbitration. ¹²⁶ The use of this word does not eliminate the facts that E-Games itself explained in its complaints.

118. Claimants even allege that E-Games' recognition does not transcend legally; the aforementioned because Mr. González Matus says that what E-Games stated in its complaints allegedly does not affect his conclusions: E-Games permit was no related to E-Mex permit.¹²⁷ However, this assertion does not respond to Respondent point. E-Games knew that its permits originated from E-Mex Permit. Beyond the conclusions that Claimants' expert states, which Respondent rejects entirely, Claimants cannot deny that E-Games itself exercised its rights before national courts using E-Mex Permit. Even, taking Claimants' argument to the extreme and considering that E-Games legal representative did not know the legal consequences of his actions complaints, ¹²⁸ it is clear that the rights that E-Games considered violated by SEGOV were based

¹²³ Exhibit R-050, Action for Annulment - E-Games Brief 18 Feb 2013 Exp. 1080-13-11-03-1, pp. 2-3. ↩
¹²⁴ Counter-Memorial on the Merits, ¶¶ 188-189; See Exhibit R-049, Action for Annulment - E-Games Brief 14 Dec 2012 Exp. 9606-12-11-02-3, pp. 2-3; Also see Exhibit R-050, Action for Annulment - E-Games Brief 18 Feb 2013 Exp. 1080-13-11-03-1, pp. 2-3, 10-11. ↩
¹²⁵ Réplica, ¶¶ 102-104. ↩
¹²⁶ Id., ¶ 105. ↩
¹²⁷ Reply, ¶ 105. CER-6, Second Expert Report from Mr. Ezequiel González Matus, ¶¶ 150-151. ↩
¹²⁸ Besides, Respondent emphasizes that the person that presented the administrative claims in the annulment proceedings, 9606-12-11-02-3 and 1080-13-11-03-1, was the same that acted repetitively before SEGOB. The same legal representative requested the issuance of the Permitholder-BIS Oficio. Exhibit R-047, E-Games petition dated November 7, 2012, p. 3 (“for the sole purpose of providing legal certainty ... ↩

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on the E-Mex Permit—as well as its modifications. Why E-Games made references to E-Mex? The answer is simple, E-Games did it because the rights of the permit holder were E-Mex's, and -Games wanted to benefit from them.

4. Namimg E-Games permit

119. Claimants argue in their Reply that the Permit-BIS Oficio of November 2012 complied with all the elements and requirements established under the LFJS and the RLFJS for the expedition of a permit; besides it also had its own number and it was distinct to E-Mex permit. In the same way, they state that the similar numbering between E-Mex and E-Games permit does not indicate in any manner that E-Games permit depended on E-Mex permit. They also say that in their expert opinion, Mr. Ezequiel Gonzalez, it is common that permits use a similar naming with suffixes as BIS, TER, QUATER; they also cite as an example the RLFJS itself (article 3.- 1. BIS Gambling concept); thus, they considered that the permit number given by SEGOB to E-Games confirms its independent and autonomous nature. ¹²⁹

120. Claimants' sayings are pointless efforts to separate two official communications that are clearly related. Albeit the numbering of the both official communications, it is clear that the alleged "independent permit”, from November 2012, was issued in the same terms and conditions of the August 2012, and in the same terms under E-Mex; thus, it should be concluded that it was an extension of the same permit. This is logical, besides the principle used to issue E-Games permit was under acquired rights and E-Games, as E-Mex's operator, could not have “acquired” other rights than those originally provided to E-Mex. The Permit-BIS Oficio does not give space for interpretation:

[a] permit to be granted the same rights and obligations under identical conditions in which it had been operating along with modifications made thereto, i.e., authorizing it to continue performing their activity in the same terms, conditions, legal scope and materials of permit number DGAJS/SCEVFIP-06/2005 and the modifications it holds. ¹³⁰

[Emphasis added]

adopt the contents of the DGAJS/SCEV/0827/2012 Oficio, dated August 15, 2012, ... and make it as own of the Directorate of Games and Sweepstakes).
¹²⁹ Reply, ¶ 76-83. ↩
¹³⁰ Exhibit C-16, DGJS/SCEV/1426/2012 Oficio, dated November 16, 2012, p. 6. ↩

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121. Mexico's expert, Mr. Alfredo Lazcano, explains it this way in his second expert report:

[it] was precisely E-Games who requested that it be granted the status of Permit Holder “under the same conditions as the Permit of which it is currently the Operator, which is identified by Number DGAJS/SCEVF/ P-06/2005.¹³¹

122. E-Games did not ask SEGOB for an “independent permit" to operate its casinos. E-Games requested to operate its establishments under the same terms and conditions that the E-Mex Permit, that is the permit under which E-Games operated its establishments.¹³²

¹³¹ RER-5, Scond Expert Report from Mr. Alfredo Lazcano Sámano, ¶ 71. ↩
¹³² Exhibit C-16, DGJS/SCEV/1426/2012, dated on November 15, 2012 “in the same terms of the Permit number DGAJS/SCEVF/P-6/2005. ↩

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2009-BIS Oficio (May 27, 2009)

E-Games is recognized as autonomous operator of permit DGAJS/SCEV/P-06/2005, and it is entitled to exploit it.

February 22, 2011

E-Games request a permit based on Oficio 2009-BIS, among other official communications.

DGAJS/SCEV/0827/2012 Oficio (August 15, 2012)

Based on Oficio 2009-BIS, SEGOB determines and recognizes per acquired rights, the use and exploitation of permit DGAJS/SCEV/P-06/2005.

November 7, 2012

E-Games requests to the DGJS that the Director General makes its own DGAJS/SCEV/0827/2012 Oficio.

DGJS/SCEV/1426/2012 Oficio (November 16, 2012)

General Director General of the DGJS issues a new oficio, confirming the scope and terms of DGAJS/SCEV/0827/2012 Oficio, and provides a number for E-Games permit.

123. In conclusion, Claimants admit the link between 2009-BIS Oficio and the Permitholder oficio, and Respondent sustains that the link between the Permitholder Oficio and the Permit-BIS Oficio is evident from E-Games request and SEGOB's response. Per transitivity, if 2009-BIS Oficio is linked to the Permitholder Oficio and at the Permitholder Oficio is linked to the Permit-BIS Oficio, it is logical to conclude the 2009-BIS Oficio and the Permit-BIS Oficio are liked.

124. In consequence, it was reasonable to conclude that, when the Sixteenth Court ordered SEGOB to declare null and void (“insubsistente”) the effects of 2009-BIS Oficio, it included the Permit-BIS Oficio. The cancellation of E-Games permit was not part of any authority's ill will

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against E-Games. It was a reasonable interpretation of SEGOB and the Court's instructions which was confirmed by Mexican tribunals.

5. E-Games permit's validity and renewal

125. Claimants insist that E-Games permit was valid until, at least, 2037, that is, a 25-year period of validity, counting from the date that it was issued; also that it could have been renewed for 15-year periods in accordance with the law.¹³³ These allegations are entirely erroneous; as it has been shown E-Games' permit was a continuation of E-Mex permit; thus, it was issued in the same terms and conditions of E-Mex permit which also includes the validity date. ¹³⁴

126. Under such understanding, E-Mex permit did not establish a 25-year validation period, instead it specified that is expiration date:

TERMS
A) VALIDITY
From the 25^th May 2005 to the 24^th May 2030.
The validity of this permit starts in the same date of its issuance.¹³⁵

127. Hence, E-Games would have had a valid permit until May 24, 2030, but it would have not been valid until 2037, as Claimants incorrectly state. It is also important to clarify that the provision from the LFPA to which Claimant refer is not applicable, Claimants say in their Reply that such provision establishes “administrative acts have validity and there are enforceable from the date of entry into force in which they are issued”.¹³⁶ It is not applicable, because the Permit-BIS Oficio clearly establishes that E-Games permit was given in the same terms and conditions that E-Mex permit; thus it is concluded that the validity of E-Games permit was the same as E-Mex's. In

¹³³ Reply, ¶¶ 84-85. ↩
¹³⁴ Exhibit C-16, p. 5: "Stressing that the acquired rights are naturally limited to the terms and conditions of the DGAJS/SCEVF/P-06/2005 permit, dated on May 25, 2005, and its amendments, which constitute as the origin and limit of their rights and obligations”. Exhibit C-254, DGJS/SCEV/0827/2012 Oficio, p. 6: “Stressing that the rights recognized are naturally limited to the same terms ad conditions of the DGAJS/SCEVF/P-06/2005 permit, dated on May 25, 2005, and its amendments, which constitute as the origin and limit of their rights and obligations in favor of Exciting Games, S. de R.L. de C.V.. Permit and modification that are annexed in certified copy of the present document, for all the legal effects and its legal scope, in respect of the recognized rights of the requesting party. ↩
¹³⁵ Exhibit C-235, DGAJS/SCEVF/P-06/2005 Oficio, p. 1. ↩
¹³⁶ Reply, ¶ 84. ↩

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another sense, Claimants do not mention that the second paragraph of article 9 of the LFPA to which they refer establishes that when an administrative act gives a particular benefit to a private person (E-Games), it is compliance will be enforceable from the permit date indicated to start its validity. ¹³⁷

128. As Mr. Alfredo Lazcano indicates in its second report, the fundamental difference consists in that E-games permit was not a permit issued in accordance with article 32 of the RLFJ, i.e., it was a permit in which it was recognized the change of legal status from operator to permit holder in the same terms and conditions that E-Games operated it's casinos, that is to say the conditions stablish in permit DGAJS/SCEVF/P-06/2005:

However, given that, once again, the E-Games Permit was not granted as a result of a Permit application, but of the express request of E-Games to be recognized as a Permit Holder, SEGOB stated in Official Letter DGJS/SCEV/ 1426/2012 that E-Games could "continue to exploit its activity under the same terms, conditions, legal and material scope that is invested in Permit number DGAJS/SCEVF/P-06/2005 and the modifications it holds".¹³⁸ At no time did SEGOB issue a Permit that expressly contained the terms and conditions established in Article 32 of the Gaming Regulations¹³⁹ because these already existed in the E-Mex Permit, since the E-Games Permit was a continuation of the E-Mex Permit. ¹⁴⁰

129. In the same sense, the renewals of the permits to which claimants refer cannot be considered as “unlimited duration”,¹⁴¹ as article 33 of the RLF JS itself stablishes, permits might be extended for subsequent periods of 15 years. .¹⁴² The used of verb “might be” in the article

¹³⁷ Exhibit R-0064, LFPA: “Article 9.- The administrative act shall be valid and effective from the moment that the legal effects of a notification, made legally, start. The aforementioned shall not apply in the case in which a benefit is given to a private person, in such cases the private person shall require compliance to the issuing authority from the moment it was issued or in the date that was indicated to start the validity; the same shall apply for acts of inspection, investigation or oversight, in accordance with this law or other applicable provisions which are enforceable from the date that the Federal Public Administration effectuates them". ↩
¹³⁸ Exhibit C-16, Fifth paragraph of the Third Resolution of DJGS/SCEV/1426/2012, dated 15 November, 2012. ↩
¹³⁹ See Differences between Permit DGAJS/SCEVF/P-06/2005 and DGJS/SCEV/1426/2012, Exhibits C-235 and C-16. ↩
¹⁴⁰ RER-5, Second Expert Report from Mr. Alfredo Lazcano Sámano, ¶ 79. ↩
¹⁴¹ Reply, ¶ 86. ↩
¹⁴² Exhibit R-032, Article 33 of the RLFJS, "The permits indicated in section I may be extended for subsequent periods of up to 15 years, provided that permit holders are up to date in the fulfillment of all their obligations”. [Emphasis added] ↩

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previously cited shows a possibility of the authority to act instead of a binding obligation. Thus, it cannot be ascertained that E-Games permit will have automatic and subsequent renewals of 15 years' periods because the rule determines that SEGOB is the authority that will determine if the permit's validity could be renewed or not, based on the permit holder's compliance with his obligations. Besides, the reference of 15 years is the maximum period for renewal established in the RLFJS, that is, SEGOB can decide to renew the permit only for two years and also act inside the applicable legal framework.

130. Claimants also say that in SEGOB's website and Mrs. Marcela Gonzales Salas first witness statement, specifically annex called “General Diagnosis of Casinos”, it was recognized that E-Games permit was valid until 2037. ¹⁴³ About this Mrs. Gonzalez Salas, second witness statement, expresses:

As I stated in my First Statement, the document entitled “General Diagnosis of Casinos" is a working document that the General Directorate under my charge used to organize in an executive manner the information that was in the files of the Gambling Permits, and in no way it can be considered as an interpretive assessment of the legality or validity of the permits.¹⁴⁴

131. From the evidence presented by the Respondent and Mrs. Marcela Gonzalez Salas witness statements, it has been shown that the validity, duration, and renewal of E-Games permit cannot be concluded from Claimants' subjective interpretation, made from documents website documents nor public servants' supporting visual aids. The validity and legality of E-Games permit it is stablished per se in the content of office number DJGS/SCEV/1426/201 itself, dated November 16, 2012, which takes as fundamental basis the conditions and terms from E-Mex permit.

F. The nullity and voidness of Permit-BIS Oficio was correctly analyzed in the amparo proceedings in which E-Games participated

132. Claimants allege that the Permit-BIS Oficio was “revoked” due to two reasons: i) the amparo 1668/2011 had many irregularities, and ii) these irregularities came from Mexican Federal Executive Branch. ¹⁴⁵ None of Claimants' allegations are correct. The Amparo 1668/ 2011 was done under the applicable legal provisions and jurisprudential criteria. As it will be shown further, the facts of the case precisely support the federal judicial decisions. In the same vein, there is not

¹⁴³ Reply, ¶¶ 87 y 88. ↩
¹⁴⁴ RWS-4, Second Witness Statement from Mrs. Marcela González Salas y Petriciolli, ¶ 17. ↩
¹⁴⁵ Reply, ¶ 152. ↩

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an objective indication that could maintain the alleged Mexican Federal Executive Branch interferences in the Amparo 1668/2011.

1. The Sixteenth Court and Seventh Collegiate Court admitted in a correct manner the E-Mex amendment in Amparo proceeding 1668/2011 against 2009-BIS Oficio

133. Claimants accept that the Permit-BIS Oficio was declared null and void (“insubsistente") because E-Mex presented his third amendment to its amparo clompaint in Amparo 1668/2011: "Had the amendment been rejected, ... there would [not] have been ... any questions about any resolution involving the E-Games Independent Permit". ¹⁴⁶ Although Claimants pretend to re-litigate the Sixteenth Court and the Seventh Collegiate Court reasoning, there was no instance that could identify a procedural error. ¹⁴⁷ Claimants may not agree with the Mexican courts' decisions, but there was not a found an error in fact or in law.

134. Claimants reiterate that at least in three occasions, Mexican Courts could have discovered that E-Mex had knowledge about 2009-BIS Oficio before its amendment complaint. Therefore, Mexican courts should have rejected its amendment because it was out of time. First, in March 27, 2012, when E-Mex was notified of Amparo 356/2012; second, in April 9, 2012, when E-Mex presented itself in Amparo 356/2012; and third, in April 12, 2012, when E-Mex informed in Amparo 1668/2012 that it was a third interested party in Amparo 356/2012.¹⁴⁸ Nonetheless, all these suppositions are incorrect and they need to be clarified.

135. On April 18, 2012, the Third Court sent the copies of 356/2012 file which included E-Games amparo complaint (without annexes) from February 2012 to Third Court's decision from April 18, 2012.¹⁴⁹ Although, allegedly E-Games complaint had 2009-BIS Oficio, after a week (on April 26, 2012) E-Games informed to the Third Court that it requested SEGOV to show 2009-BIS Oficio in the Amparo proceeding 2356/2012.¹⁵⁰ Until May 10, 2012, the DGJS presented the 2009-

¹⁴⁶ Reply, ¶ 155. ↩
¹⁴⁷ Memorial on the Merits, ¶¶ 14, 216, 700, 776, 779. ↩
¹⁴⁸ Reply, ¶ 155. ↩
¹⁴⁹ See Exhibit R-117, Certified copies sent by the Third Court (Amparo 356/2012) to the Sixteenth Court (Amparo 1668/2011). ↩
¹⁵⁰ See Exhibit R-114, E-Games written submission to request the Third Court that SEGOB shows the 2009-BIS Oficio. ↩

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BIS Oficio. ¹⁵¹ The same day, the Third Court ordered that E-Games and E-Mex had to be notified, ¹⁵² precisely as E-Mex stated in its amendment complaint in the amparo proceedings 1668/2011.¹⁵³ Lastly, until May 24, 2012, the Third Court received E-Mex comments against the May 27, 2099 Oficio. ¹⁵⁴

136. Albeit, Claimants and their expert, Mr. Omar Guerrero, had the complete files of Amparo proceedings 1668/2011 and 356/2012, ¹⁵⁵ they misinterpreted the Sixteenth Court and the Seventh Collegiate Court's conclusions to add E-Mex amendment complaint. Both files demonstrate E-Mex allegations when it amended its complaint: E-Mex acquired knowledge about 2009-BIS Oficio until May 2012. Notwithstanding this, Claimants base their theories in E-Mex's participation (as third interested party) in Amparo proceedings 356/2012, since March 2012, and that E-Games had already submitted the 2009-BIS Oficio; Claimants entirely neglect that E-Games itself requested the presentation of 2009-BIS Oficio in the Amparo proceedings 356/2012. In fact, E-Games requested this document because it would show its legal interest as an amparo complainant.

As stated before, and to provide a better understanding, and to prove in the present Amparo proceedings the capacity of my principal as Operator, I request respectfully, in this act, to be issued, under our own cost, a certified copy of the official notices numbers DGAJS/SCEV/0550/2012, dated December 8, 2010 and DGAJS/SCEV/0260/2009-BIS, dated May 27, 2009.¹⁵⁶

137. Thus, the Sixteenth Court as well as the Seventh Collegiate Court concluded that there was not a cause for inadmissibility for E-Mex's amendment complaint in Amparo proceedings 1668/2011: there was certainty that E-Mex was notified of 2009-BIS Oficio until May 2012.

¹⁵¹ See Exhibit R-116, DGJS presents the 2009-BIS Oficio. ↩
¹⁵² See Exhibit R-118, Third Court decision to notify personally, dated May 10, 2012. ↩
¹⁵³ See Exhibit C-269, E-Mex amendment complaint, dated June 5, 2012, in Amparo proceedings 1668/2012, p. 1 ↩
¹⁵⁴ Exhibit R-115, E-Mex presents its views on the 27 May, 2009 Oficio, in Amparo proceedings 356/2012. ↩
¹⁵⁵ CER-2, Expert Report from Mr. Omar Guerrero, ¶9. ↩
¹⁵⁶ See Exhibit R-114, E-Games written submission to request the Third Court that SEGOB shows the 2009-BIS Oficio. ↩

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138. Despite the aforementioned, according to Claimants both national courts used the wrong legal standard to evaluate the cause for inadmissibility due to untimeliness.¹⁵⁷ First, when SEGOB presented the cause for inadmissibility via motion for complaint ("Queja”) 68/2012, ¹⁵⁸ which was decided by the Seventh Collegiate Court, it resolved: “There is not a manifest nor notorious cause of inadmissibility in respect of the presentation of the amendment complaint in this case, because there is no proof that ascertain indisputably the moment in which the complainant had knowledge of the said official notice, to be able to determine the period of time of the amendment complaint presentation. "¹⁵⁹ Second, when the Sixteenth Court decided that the Amparo 1668/2011, it studied the inadmissibility causes against E-Mex Amparo, among them those presented by E-Games.¹⁶⁰ In Amparo proceedings 1668/2011, the Sixteenth Court also resolved E-Games' allegation of untimeliness: “there is no evidence to say that [E-Mex] had received also the copies of [2009-BIS Oficio], annexes that are separate from the file”. ¹⁶¹

139. Claimants positions is that the untimeliness should not have been based on criteria based on manifest, undoubtedly and notorious evidence, which can be seen from the amendment complaint, but, instead that the Sixteenth Court and the Seventh Collegiate Court should have search for E-Mex true knowledge in the documents of file 356/2012, as supposedly the Mexican jurisprudence requires. ¹⁶²

140. In this sense, Claimants cite Mr. Omar Guerrero to support their position: “Mexican judicial criteria have determined that the date of knowledge of the act claimed by the complainant should be established on the basis of the evidence in the record, and only when they files do not provide for a date of knowledge of the act claimed, the date of the amparo complaint would be taken for certain”.¹⁶³ However, the criterion that Claimants cite establishes:

¹⁵⁷ Reply, ¶¶ 169-181. ↩
¹⁵⁸ In contrast, E-Games never filed a complaint against the admission of the extension of the E-Mex lawsuit in Amparo 1668/2012 and wait until the sentence to invoke any grounds for impropriety. ↩
¹⁵⁹ Exhibit C-271, Motion complaint (“Queja”) 68/2012, p. 16. ↩
¹⁶⁰ Counter-Memorial on the Merits, ¶ 243. ↩
¹⁶¹ See Exhibit C-18, Amparo E-Games written submission to request the Third Court that SEGOB shows the 2009-BIS Oficio. ↩
¹⁶² Reply, ¶ 160. ↩
¹⁶³ CER-2, Second Expert Report from Mr. Omar Guerrero, ¶ 23. ↩

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when it is deduced from the reports (“informes justificados”) that responsible authorities render that the complainant requested copies of the judicial proceedings that generated the claimed act, it should be understood that complainant acquired knowledge of the claimed act at the moment that the complainant received those copies; thus it will suffice to declare the inadmissibility cause established in the cited legal provision.¹⁶⁴

141. That is, though the criterion refers to request for copies “in the judicial proceedings that generated the claimed act”; these copies are not provided by an Amparo judge, but, the responsible authority. This criterion does not apply to E-Mex case. For this criterion to be applicable, it would mean that E-Mex should have requested SEGOB (responsible authority) the copies of the claimed act, i.e., 2009-BIS Oficio, but it did not happen. Here, what happen was, E-Games who initiated Amparo proceedings 356/2012 i) requested 2009-BIS Oficio, on April 18, 2012; ii) SEGOB presented the official notice until May 10, 2012, and iii) E-Mex acquired knowledge until May 15, 2012.¹⁶⁵ Even if Claimants emphasize that E-Mex requested copies of the Amparo proceedings 356/2012 and it received them in April 2012;¹⁶⁶ it does not change the fact that it is not proven that E-Mex did knew the 2009-BIS Oficio since April. ¹⁶⁷

142. In the same vein, Claimants assert that the Sixteenth Court could also corroborate E-Mex knowledge because on July 10^th, 2012, the Sixteenth Court certified receiving 601 pages and two evidence bundles from Amparo proceedings 356/2012.¹⁶⁸ Also, Claimants allege that Respondent ignores this evidence. From the Counter-Memorial, Respondent established that Claimants' assertions were not precise because the copies that Claimants referred were the ones from April, not July 2012,¹⁶⁹ which do not contain the 2009-BIS Oficio.¹⁷⁰ Furthermore, it is important to clarify that the certification from July 10^th, 2012, does not change the fact that evidence from

¹⁶⁴ Exhibit R-132, Criterion VI.2°. C. J/194, 15; Collegiate Courts; Volume XII, December 200, p. 1148, Federal Judicial Journal and its Gazette. ↩
¹⁶⁵ See Exhibit R-114, E-Games written submission to request the Third Court that SEGOB shows the 2009-BIS Oficio; Exhibit R-116, DGJS presents the 2009-BIS Oficio; Exhibit R-118, Third Court decision to notify personally, dated May 10, 2012. ↩
¹⁶⁶ Reply, ¶ 173. ↩
¹⁶⁷ Id. ↩
¹⁶⁸ Id., ¶ 159. ↩
¹⁶⁹ Counter-Memorial on the Merits, ¶ 233. ↩
¹⁷⁰ See Exhibit R-117, Certified copies sent by the Third Court (Amparo 356/2012) to the Sixteenth Court (Amparo 1668/2011). ↩

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Amparo proceeding 1668/2011 and Amparo proceeding 356/2012 demonstrates that E-Mex knew 2009-BIS Oficio until May 2012, as it alleged in its amendment complaint.

143. Evidently, the judicial criterion alleged by Claimants does not apply to E-Mex case, but also the documents from the file contradict Claimants' claim. Now, the fact that the Sixteenth Court as well as the Seventh Collegiate Court had based their decisions under terms like manifest and notorious come from Amparo Law provisions and the Supreme Court's jurisprudential criterion. ¹⁷¹

144. Indeed, Amparo Law stablishes that when a district court judges receive an Amparo complaint or its amendment, they can: i) admit it, ii) warn the complainant, or iii) reject it as there are "manifest” and “unquestionably” inadmissible.¹⁷²¹⁷³ This case revolved around on whether the Sixteenth Court should admit the amendment complaint or reject it because there was a “manifest” an "notorious” cause for inadmissibility.

145. The Supreme Court has established that “manifest” is something that can be patently, notoriously or clearly ascertained and “notorious” or undoubtedly is the certitude and plain conviction of an idea or fact, that is to say, that it cannot be doubted because it is clear, certain and evident. Hence, the necessary standard to reject a complaint is: ¹⁷⁴

• that the inadmissibility is derived from the initial submission or its amendment, and its annexes, i.e.; it cannot be rejected if the inadmissibility comes from reports, pleadings or evidence, and

• that the inadmissibility cannot be contradicted by parties' allegations.

146. In fact, Claimants do not contradict the requirements established by the Supreme Court, but they try to justify why the cause for inadmissibility comply with these requirements. ¹⁷⁵

147. Further, the Supreme Court has expressed the risks to reject a complaint, or its amendment, when the inadmissibility cause is not “manifest” nor “notorious”: “therefore, if these requirements

¹⁷¹ It is important to mention that Mexican jurisprudence have binding degrees. Jurisprudence originated in collegiate courts will be binding for district courts of their circuit. The Supreme Court's jurisprudence is binding for all judicial organs. ↩
¹⁷² RER-1, First Expert Report from Dr. Javier Mijangos, ¶51. ↩
¹⁷³ See RER-4, Second Expert Report from Dr. Javier Mijangos, ¶¶ 35, 38. ↩
¹⁷⁴ See RER-4, Second Expert Report from Dr. Javier Mijangos, ¶¶ 41 y 42. ↩
¹⁷⁵ Reply, ¶¶ 158-160. ↩

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do not arise, that is, if there is no clear and unquestionable cause of inadmissibility or if there is any doubt as to its operation, the claim should not be dismissed, since otherwise the complainant would be deprived of its right to file an amparo proceeding against an act that causes him/her harm and, therefore, the application for amparo should be admitted for processing in order to duly study the issue raised”.¹⁷⁶

148. Dr. Javier Mijangos upholds that if the complaint-or its amendment- is dismissed or rejected without satisfying such standard it would derived in an effect of unconstitutionality, because it would deprive complainants from their fundamental right of access to justice. ¹⁷⁷ To conclude the contrary, as Mr. Omar Guerrero does, is contrary to the Supreme Court jurisprudence and it would contrive the constitutional State itself, “which aggravates the error in which the expert incurs". ¹⁷⁸

149. Thus, to determine that there is a manifest and notorious cause that generates the dismissal of E-Mex's amendment, a presumption is not sufficient, what it is required is to have an absolute and complete certitude about its inadmissibility; even if a small doubt exists, the amendment should be admit it; otherwise E-Mex would be left in state of defenselessness and its right to access to justice would be violated.

150. As it can be concluded from the aforementioned, the Sixteenth Court and the Seventh Collegiate Court's determinations were correct. Dr. Mijangos concludes that “both rulings are correct, both that of the Sixteenth Judge and the other in the amparo under review, since, in the case at hand, no jurisdictional authority could have been fully certain that E-Mex knew of the official communication in question on a different date, as argued by the expert hired by investors". ¹⁷⁹ He also emphasizes that "the expert could even be right in the sense that the official communication was known by E-Mex on a date different from the one he stated, however, theorizing about such possibility is futile". ¹⁸⁰

¹⁷⁶ RER-1, First Expert Report from Dr. Javier Mijangos, ¶ 54, fn 8. ↩
¹⁷⁷ RER-4, Second Expert Report from Dr. Javier Mijangos, ¶¶ 42, 48. ↩
¹⁷⁸ Id., ¶ 66. ↩
¹⁷⁹ Id., ¶ 73. ↩
¹⁸⁰ Id., ¶ 73. ↩

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151. In consequence, contrary to what Claimants sustain, the Sixteenth Court could not dismiss E-Mex's amendment when it was submitted,¹⁸¹ because there was not a “manifest” and “notorious” cause of dismissal, neither was it doable later, because the key moment that shows when E-Mex acquired knowledge was May 2012.

152. Besides what has been said in previous paragraphs, Claimants reiterate alleged irregularities as the following:¹⁸²

• One, the Seventh Collegiate Court should not reject the evidence presented by SEGOB under complaint motion (“Queja”) 68/2012.

• Two, the Seventh Collegiate Court should ex officio revised the adminissibility of the amendment in the Review 107/2013.

• Three, the Sixteenth Court and the Seventh Collegiate Court should have not admit the 2009-BIS Oficio because its effects finished with the Permit-BIS Oficio. ¹⁸³

153. Once again, Claimants may disagree with the national courts decisions, however, it is evident that none of these irregularities existed, E-Mex amendment was not manifest nor notoriously untimely, and the amparo files themselves demonstrate the key moment when it was possible to verify that E-Mex knew about the 2009-BIS Oficio. Trying to change the criterion, for revisions of files beyond the applicable standard would mean that the Sixteenth Court and the Seventh Collegiate Court should have ignored the biding criteria of the Supreme Court, and, indeed, act in a grave irregular manner. ¹⁸⁴

154. Respondent reiterates that presenting before the Arbitral Tribunal matters that were resolved in judicial proceedings is simply a way to litigate once again decisions of the Federal Judicial Power, ¹⁸⁵ which is not the purpose of this Arbitration.

155. Lastly, Claimants reiterate that the Sixteenth Court did not serve notice of SEGOB's compliance communication in July 19, 2013, for the January 31, 2013 sentence, to E-Games which affected E-Games' due process rights, including its right of defense.¹⁸⁶ Claimants' allegations

¹⁸¹ Reply, ¶ 156. ↩
¹⁸² Reply, ¶¶ 162-169. ↩
¹⁸³ Reply, ¶¶ 170-182. ↩
¹⁸⁴ RER-4, Second Expert Report from Dr. Javier Mijangos, ¶ 72. ↩
¹⁸⁵ Counter-Memorial on the Merits, ¶ 216. ↩
¹⁸⁶ Reply, ¶¶ 182-183. ↩

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cannot be sustained. Claimants confirm that they did know about the First Compliance, ¹⁸⁷ and they had full right of defense. E-Games challenge SEGOB's compliance via a contentious administrative proceeding in August 23, 2013.¹⁸⁸

2. SEGOB complied, in accordance with the law, the Amparo proceeding 1668/2011 sentence

156. Claimants contend that the SEGOB and the Seventh Collegiate Court improperly revoked the Permitholder-BIS Oficio at the compliance stage of the Amparo 1668/2011. In particular, they claim that: i) there was excess in the compliance because the judgment only ordered, originally, the revocation of the 2009-BIS Oficio; ii) the Permitholder-BIS Oficio was revoked without entitling them to an independent judicial proceeding; iii) the Seventh Collegiate Court improperly determined that the Permitholder-BIS Oficio was a consequence of the 2009-BIS Oficio, and iv) the SEGOB revoked the 2009-BIS Oficio based on political motivations.¹⁸⁹

157. Claimants write a story of alleged corruption and political influence of different administrative and judicial authorities to change the reasons for the dismissal of Permitholder-BIS Oficio. ¹⁹⁰ However, they omit objective evidence to support their claims which are mere speculations and unsubstantiated statements. Likewise, Claimants do not exhibit any complaint or legal proceeding to combat the alleged acts of corruption and political influence they allegedly suffered.

158. In reality, the story is much simpler. The Permitholder BIS Oficio had to be declared null and void due to its link with the 2009-BIS Oficio, declared illegal and unconstitutional by the judicial authorities because it took as basis an assumption not provided for in the LFJS and the RLFJS, and recognized a figure that does not exist in the applicable law. ¹⁹¹

159. In the First Compliance, SEGOB only declared null and void the 2009-BIS Oficio. However, E-Mex also requested that the acts derived from the 2009-BIS Oficio declared

¹⁸⁷ SEGOB notified the First Compliance on July 24, 2013, the Sixteenth Court did not have an obligation to notify E-Games and the Sixteenth Court did not violate E-Games right of defense. ↩
¹⁸⁸ See Exhibit R-060, E-Games' annulment complaint, from August 23, 2013. ↩
¹⁸⁹ Reply, ¶¶ 150-152. ↩
¹⁹⁰ Id., ¶¶ 187, 191. ↩
¹⁹¹ Exhibit C-18. ↩

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unconstitutional be rendered without effects. ¹⁹² To allow the continuance of the effects of an act declared unconstitutional, in addition to being illogical, would, in the first place, undermine the effectiveness of the amparo proceeding as a means of constitutional control, ¹⁹³ and in second place, E-Mex, who suffered the impairment of its rights as a permit holder, would have to continue suffering the unconstitutional effects. The Claimants simply ignore that, in effect, they were obtaining benefits to which they were not legally entitled.

160. SEGOB, in its Second Compliance, ¹⁹⁴ declared the Permitholder Oficio and the Permitholder-BIS Oficio null and void, since they were issued based on the declared unconstitutional official notice.

161. There is no doubt that the Permitholder Oficio and the Permitholder-BIS Oficio are closely linked and are a consequence of the 2009-BIS Oficio. The decision of the Seventh Collegiate Court in the Non-Compliance Complain only confirmed the clear link that E-Games created through its applications and actions before the SEGOB. Each of the SEGOB's¹⁹⁵ compliance actions were made in accordance with the law and there is no indication that its actions were taken to improperly affect E-Games.

162. As Dr. Mijangos concludes, the decisions of the Federal Judicial Branch related to the dismissal of the 2009-BIS Oficio and the Permitholder-BIS Oficio are legally and jurisprudentially supported and “none of the analyzed determinations fall under the assumption of mistake or legal error". ¹⁹⁶

163. Finally, although E-Games had the opportunity to prevent the SEGOB from declaring the Permitholder-BIS Oficio null and void, it withdrew its appeal. In September 2013, it filed the Motion for Complaint ("Queja") 167/2013, but on November 23, 2013 E-Games it withdrew it.¹⁹⁷

¹⁹² Exhibit C-21. ↩
¹⁹³ RER-4, Second Expert Report from Dr. Javier Mijangos, ¶¶ 101-02. RER-1, First Expert Report from Dr. Javier Mijangos, ¶¶ 131-136. ↩
¹⁹⁴ Exhibit C-289, SEGOB Resolution of August 28, 2013. ↩
¹⁹⁵ Exhibit C-290, Agreement of the Seventh Collegiate Court in Administrative Matters of the First Circuit of February 19, 2014. ↩
¹⁹⁶ RER-4, Second Expert Report from Dr. Javier Mijangos, ¶ 144. ↩
¹⁹⁷ Exhibit C-297-SPA. Sentence of Appeal of Nonconformity 5/2014 (“From which it is evident that the appellant consented to the ruling by which the judge ordered that the authorities should leave without ↩

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3. The Second Compliance by SEGOB was duly analyzed in national courts and no illegalities were found

164. The procedural sequence in which the Permitholder-BIS Oficio was involved, begins with the amendment of E-Mex's claim in the Amparo proceedings 1668/2011 and ends with the judgment of the Appeal of Nonconformity. The following are the most relevant facts.

• On June 5, 2012, E-Mex challenged the constitutionality of the 2009-BIS Oficio, and all its effects and consequences, by means amending its Complaint. ¹⁹⁸

• On January 31, 2013, the Sixteenth Court issued the judgment of the Amparo 1668/2011 in which it ruled that the 2009-BIS Oficio was illegal and unconstitutional, and therefore ordered SEGOB to declare it null and void. ¹⁹⁹

From the precepts cited by the responsible authority in [Oficio 2009-BIS], there is no evidence of the figure of the direct operator of a permit, nor that by complying with the obligations set forth in Article 29 of the [RLFJS] rights are acquired for the exploitation of a permit without the intervention of the permit holder.
[...]

The violation to the detriment of [E-Mex] of its the guarantee of legality is evident, since the authority recognized the legal acquisition of the exploitation of a permit, without legal basis, limiting itself to stating that it is due to acquired rights, for complying with the operator obligations established by the LFJS and its regulations, without indicating precisely the legal precept applicable to the case and without applying the reasons given and the applicable rules, which reflects an improper substantiation and motivation of the official order complained of.

• On February 19, 2013, E-Games filed motion for Review 107/2013 against the Amparo 1668/2011 judgment.²⁰⁰

• On July 10, 2013, the Seventh Collegiate Court resolved the Motion for Review 107/2013, upheld the judgment of the Amparo 1668/2011 and the unconstitutionality of the 2009-BIS Oficio. ²⁰¹

• On July 19, 2013, SEGOB declared null and void the 2009-BIS Oficio, and denied E-Games' request that originated the 2009-BIS Oficio (First Compliance).²⁰²

effects all the acts that had their origin in the federal gaming and sweepstakes permit..."), p.24; R-113, Motion for Complaint 167/2013 filed by E-Games (“... appellant withdraws from the for motion for complaint filed against the order of August twenty-six, two thousand thirteen”), p. 4.
¹⁹⁸ Exhibit C-269, Third amended Amparo complaint filed on June 5, 2012, p. 4. ↩
¹⁹⁹ Exhibit C-18, Sentence of the Sixteenth Administrative Court in Mexico City, dated January 30, 2013, ¶¶ 200-202. ↩
²⁰⁰ Exhibit C-283, E-Games motion of Review of February 19, 2013. ↩
²⁰¹ Exhibit R-100. Claimants cite this document as Exhibit C-20. ↩
²⁰² Exhibit C-272, SEGOB resolution of July 19, 2013. ↩

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• On August 23, 2013, E-Mex disagreed with the First Compliance and requested the Sixteenth Court to declare that the judgment had not been complied with because, in order to restore its constitutional rights, it should eliminate not only the 2009-BIS Oficio, “but also any subsequent resolution that has been taken in the same sense either as a consequence or simply using the same criteria”.²⁰³ E-Mex even specifically pointed out the Permitholder Oficio and Permitholder-BIS Oficio.²⁰⁴

• On August 26, 2013, the Sixteenth Court determined that SEGOB had not complied with the sentence, because it was bound to leave without effects any other act or acts that have been issued as a consequence of the 2009-BIS Oficio, in the understanding that it must be accredited in its records that there are different official notes that have as basis the mentioned permit and, if so, proceed to declare it null and void”.²⁰⁵ It is necessary to point out that it was the Sixteenth Court (and not the Seventh Collegiate Court) who established this form of compliance.

• On August 28, 2013, SEGOB declared null and void the Permitholder Oficio and the Permitholder-BIS Oficio (Second Compliance). SEGOB resolved that, from the content of both official notes, it was clear that they were linked to the 2009-BIS Oficio and to the merits of the decision of the Sixteenth Court.

• On September 9, 2013, E-Games filed a motion of complaint against the rule of August 26, 2013 from the Sixteenth Court.²⁰⁶

• On October 14, 2013, the Sixteenth Court ruled that SEGOB exceeded its authority in complying with the sentence of the Amparo 1668/2011; therefore, it filed before the Seventh Collegiate Court the Non- Compliance Claim 82/2013, to determine whether the SEGOB had exceeded or had incurred in defect in the compliance.²⁰⁷

• On February 19, 2014, the Seventh Collegiate Court resolved the Non-Compliance Complaint 82/2013, and concluded that SEGOB did not exceed the compliance.²⁰⁸

²⁰³ Exhibit C-21, pp. 12-13. ↩
²⁰⁴ E-Mex's request mentions that “it is not enough that [SEGOB] has left without effects only the DGAJS/SCEV/260/09-BIS oficio, but also that my client has be reinstated in the full enjoyment of its violated individual guarantees, in view of the existence of several resolutions issued by the responsible party with that precedent, with special mention of the oficio DGAJS/SCEV/827 dated August 15, 2012, in which it again recognizes acquired rights to [E-Games] over the permit of my client, as well as the [Permitholder-BIS Oficio ], in which they perfect the previously mentioned to grant [E-Games] the ownership of a permit under identical conditions to ours”. C-21, p. 13 ↩
²⁰⁵ Exhibit C-23, Sixteenth Administrative Court ruling, dated August 26, 2013, p. 012. ↩
²⁰⁶ See Exhibit R-113, Sentence of the Motion of Complaint 167/2013. On November 23, 2013, E-Games withdrew it. ↩
²⁰⁷ Exhibit C-24, pp. 63-64. ↩
²⁰⁸ Exhibit C-290, Ruling of the Seventh Collegiate Court in Administrative Matters of the First Circuit of February 19, 2014. ↩

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• On March 10, 2014, the Sixteenth Court considered as complied the judgement of the Amparo 1668/2011.²⁰⁹

• On March 31, 2014, E-Games filed an appeal of nonconformity in which it challenged i) the ruling of the Seventh Collegiate Court that resolved the Non- Compliance Complaint, and ii) the resolution issued on March 10, 2014 by the Sixteenth Court in which it considered the Amparo 1668/2011 sentence to have been complied with.²¹⁰

• On September 13, 2014, the Supreme Court admitted the appeal regarding the March 10, 2014 resolution of the Sixteenth Court, however, since it was not a relevant or exceptional case, it referred it to the Seventh Collegiate Court. ²¹¹

• On January 29, 2015, the Seventh Collegiate Court resolved the Motion for Reconsideration. ²¹²

165. As it can be seen, the procedural sequence was long and complex. Both E-Mex and E-Games filed several motions and exhausted all available remedies before the national courts. The determinations of the national courts were the result of this litigation between two private parties. It should be clarified that, during all these moments, E-Games was aware of the reasoning of the national courts and was never limited in filing the appeals it considered convenient to defend its position.

a. The Seventh Collegiate Court confirms that SEGOB did not exceed its authority in complying with the Amparo 1668/2011 sentence when it declared null and void the Permitholder-BIS Oficio

166. Claimants state that the declaration of null and void of the Permitholder-BIS Oficio was improper because: i) there was an excess in the compliance;²¹³ ii) it did not have an independent

²⁰⁹ Exhibit C-291, Ruling of the Sixteen Judge in Administrative Matters in the First Circuit of March 10, 2014. ↩
²¹⁰ Exhibit C- 296, Appeal of Nonconformity filed by E-Games on March 31, 2014. ↩
²¹¹ Exhibit C-26, Appeal of Nonconformity 496/2014 (.... it is noted that, given the number of appeals of non-conformity filed and turned to this Supreme Court, which are sufficient to define the respective criteria, it is convenient to delegate to the Collegiate Circuit Courts the competence to hear the appeals of non-conformity filed in terms of the provisions of sections I and II of article 201 of the Amparo Law, without prejudice that, in exceptional cases, they may request this Supreme Court of Justice of the Nation to resume its competence), pp. 43-44, 49-50. [Emphasis added]. ↩
²¹² Exhibit C-297, Sentence of Appeal of Nonconformity 5/2014 related to 9/2014, dated January 29, 2015. ↩
²¹³ Reply, ¶¶ 185-199. ↩

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judicial procedure;²¹⁴ iii) the Seventh Collegiate Court improperly determined that the Permitholder-BIS Oficio was a consequence of the 2009-BIS Oficio; ²¹⁵ iv) SEGOB's reason for doing so was politically motivated;²¹⁶ and v) the Sixteenth Court had two options “more efficient than initiating the Non-Compliance Claim".²¹⁷

167. The Sixteenth Court considered that the Second Compliance had been excessive because the Permitholder Oficio and the Permitholder-BIS Oficio were not a consequence of the 2009-BIS Oficio, and requested the Seventh Collegiate Court to decide this issue in a non-compliance complaint. The Seventh Collegiate Court ruled that the Permitholder Oficio and the Permitholder-BIS Oficio were indeed a consequence of the 2009-BIS Oficio and that, therefore, the Second Compliance of the SEGOB had not been excessive.

168. It should be pointed out that the difference in the criteria of the Sixteenth Court and the Seventh Collegiate Court did not address the issue of whether the acts derived from the 2009-BIS Oficio should be declared null and void, on their own merits, but rather whether they had been issued as a consequence of 2009-BIS Oficio. As in any legal system, the prevailing criterion was that of the hierarchically superior organ, i.e., the Seventh Collegiate Court.

169. Dr. Javier Mijangos explains that some administrative acts, by their nature, produce effects not only at the moment of their issuance, but also at different moments over time. Therefore, the purpose of the amparo trial is to fight not only the administrative act, but also its effects, otherwise it would lose its practical and legal usefulness. In addition, he emphasizes that the amparo trial not only allows access to justice, but also constitutes a means of constitutional control that safeguards the principle of constitutional supremacy. Evidently, in its function of constitutional control, it cannot allow the effects of acts declared unconstitutional to subsist. It is precisely in this function where the doctrine of the fruits of vitiated acts makes sense, according to which, if the original act is unconstitutional, the derived acts shall end too.²¹⁸

²¹⁴ Id., ¶¶ 200-207. ↩
²¹⁵ Id., ¶¶ 208-209. ↩
²¹⁶ Id., ¶¶ 210-226. ↩
²¹⁷ Id., ¶¶ 227-229. ↩
²¹⁸ RER-4, Second Expert Report from Dr. Javier Mijangos, ¶ 102; RER-1, First Expert Report from Dr. Javier Mijangos, ¶¶ 142, 144, 148. ↩

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170. Therefore, the nullity and voidness of the 2009-BIS Oficio was not sufficient to comply with the sentence in the Amparo 1668/2012, when that oficio was an administrative act with effects that extended beyond itself. The elimination of its effects, including Permitholder Oficio and the Permitholder-BIS Oficio was not only correct, but necessary.

171. Now, regarding the alleged violation of the principle of relativity of the judgment, Dr. Mijangos points out that such principle derives from the principle res inter alios acta and implies that the effects of the amparo judgments are limited to the plaintiff and do not make a general declaration, therefore, it cannot be considered that extending the protection of the amparo to the effects of the challenged act violates this principle.²¹⁹

172. In relation to the alleged violation of due process,²²⁰ it is clarified that in the Amparo 1668/2011 the litis was duly established by E-Mex: the 2009-BIS Oficio and its effects. Therefore, it was right that the nullity and voidness of the 2009-BIS Oficio also covered the related offices, in order to neutralize the effects of an act declared unconstitutional.²²¹

173. Claimants developed a history of alleged corruption of various administrative and judicial authorities, including the President's Counsel and from a Justice of the Supreme Court, to allege that the Government of Mexico allegedly conspired in a coordinated fashion to eliminate the Permitholder-BIS Oficio.²²² This is false and part of their legal strategy in this arbitration.

• One, the decisions of the different courts that heard the procedural sequel show no coordination whatsoever. Indeed, the Claimants themselves support or reject the jurisdictional decisions as they see fit.²²³

• Two, Mr. José Raúl Landgrave has been categorical, i) only matters of high importance, such as a constitutional controversy, would be of the competence and interest to the Office of the Legal Counsel to the Presidency; and ii) the Second Compliance was judicially examined, and no irregularity was found.²²⁴

²¹⁹ RER-4, Second Expert Report from Dr. Javier Mijangos, ¶ 102. ↩
²²⁰ Reply, Section II.L.4. (b), ¶¶ 200-207. ↩
²²¹ RER-4, Second Expert Report from Dr. Javier Mijangos, ¶ 107; RER-1, First Expert Report from Dr. Javier Mijangos, ¶¶ 112-113. ↩
²²² Reply, ¶¶ 210-226. ↩
²²³ Claimants first attack the Sixteenth Court's admission of E-Mex's amendment complaint, but then defend the Sixteenth Court's decision on the grounds that the SEGOB exceeded its authority in the Second Compliance. See Reply, ¶¶155, 188 ↩
²²⁴ RWS-5, Second Witness Statement of Mr. José Raúl Landgrave Fuentes, ¶ 26. ↩

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174. Finally, Claimants point out that the Sixteenth Court had two options “more efficient than initiating the Non-Compliance Claim,”²²⁵ however, neither option was appropriate. The sentence was clear, the Sixteenth Court determined that the 2009-Oficio BIS and its effects should be revoked. ²²⁶

b. The Appeal of Nonconformity (“Recurso de Inconformidad”) was decided properly by the Supreme Court and the Seventh Collegiate Court

175. Claimants assert that the Supreme Court declined to study the Appeal of Nonconformity because of alleged procedural causes and sent it back to the Seventh Collegiate Court. Hence, the Seventh Collegiate Court would revise its decision in the Non-Compliance Complaint 82/2013, which hindered E-Games' opportunity to challenge the sentence. ²²⁷ However, this is not correct.

176. On March 31, 2014, E-Games challenged via Appeal of Nonconformity: i) the sentence of the Non-Compliance Complaint, and ii) the ruling dated March 10, 2014, from the Sixteenth Court related to the sentence of the Non-Compliance Complaint. E-Games expressly requested that if the Supreme Court considered adequate, the Supreme Court resume its competence and resolve accordingly, considering the exceptional nature of the matter. ²²⁸ E-Games knew the threshold it required to comply for the Supreme Court to decide directly its appeal of nonconformity. This is not an alleged procedural cause. The importance, relevance, exceptionality is a requirement of procedural admissibility.

177. On September 13, 2014, the Supreme Court resolved that: i) the appeal of nonconformity was not admissible in the case of the non-compliance complaint;²²⁹ ii) the appeal of nonconformity was admissible in relation to the ruling dated March 10, 2014, and iii) it determined that the

²²⁵ Reply, ¶¶ 227-229. ↩
²²⁶ Using the alleged options proposed by Claimants, they pretend to make it appear that the sentence was ambiguous, however, that did not happen. Dr. Javier Mijangos explains that Claimants' options were inapplicable. RER-4, Second Expert Report of Dr. Javier Mijangos, ¶¶ 112-114; RER-1, First Expert Report of Dr. Javier Mijangos, ¶¶ 186-188. ↩
²²⁷ Reply, ¶¶ 230-245. ↩
²²⁸ Exhibit C-269, Appeal of Nonconformity (“Recurso de Inconformidad”), dated March 31, 2014, p. 88. ↩
²²⁹ "The ruling that has been cited [the sentence of the non-compliance complaint] is not under the instances of article 201 of current Amparo Law, for the procedural admissibility of appeal of nonconformity". Exhibit C-26, p. 36. ↩

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Seventh Collegiate Court was competent to decide the appeal of nonconformity because the sentence compliance did not have a special nor a relevant characteristics.²³⁰

178. Evidently, the Appeal of Nonconformity developed under the usual standards, and E-Games knew them.²³¹ There was not the alleged influence of the former Federal Administration that supposedly caused the Appeal of Nonconformity to return to the Seventh Collegiate Court; instead, E-Games i) tried to re-litigate the Non-Compliance Complaint, and ii) failed to show that the challenge against the ruling dated March 10, 2014, was exceptional, special or relevant for the Supreme Court to attract the case.

179. About the Seventh Collegiate Court resolving the Appeal of Nonconformity, it did not imply that E-Games was left defenseless or that the challenges established under the Amparo Law have a structural problems against due process and are contrary to the American Convention of Human Rights. ²³²

180. The Inter-American Court of Human Rights has stablished a standard for an effective remedy, i) the remedy should be able to identify possible violations of rights, and at the same time to remedy the violation of rights; and ii) the general conditions in the country that make it impossible [or allow] to achieve the goals of the remedy. ²³³

181. When the Seventh Collegiate Court resolved the Non-Compliance Complaint, the court exercised the control and revision of SEGOB's Second Compliance. ²³⁴ During the course of these phases the litigious parties, including E-Games, had the opportunity to present their submissions and defend their rights. ²³⁵ In this sense, Amparo Law effectively allow to identify, and if so, remedy possible violation of rights because of the Second Compliance.

²³⁰ In this sense, the Supreme Court indicated that E-Games arguments “are not effective for the pretended objective, in principle because there is no evidence of what are the special or relevant characteristics of the matter, in itself, that would lead for the National Supreme Court of Justice to resume is originating competence...". Exhibit C-26, p. 43. ↩
²³¹ RER-1, First Expert Report from Dr. Javier Mijangos, ¶¶ 295-296. ↩
²³² Reply, ¶ 238. ↩
²³³ RER-4, Second Expert Report from Dr. Javier Mijangos, ¶¶ 120-122. ↩
²³⁴ RER-1, First Expert Report from Dr. Javier Mijangos, ¶¶ 232-233. ↩
²³⁵ RER-1, First Expert Report from Dr. Javier Mijangos, ¶ 233. ↩

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182. Later, when the Seventh Collegiate Court resolved the Appeal of Nonconformity, the matter of study, as decided by the Supreme Court, would only attend the March 10, 2014 ruling of the Sixteenth Court. At first, as Dr. Javier Mijangos points out “it is true what [Claimants] says in the sense that it makes no sense for the Collegiate Court to rule twice on the same thing, however, what we disagree with is the fact that this implies leaving the [E-Games] in a state of defenselessness, or worse, that the amparo remedy system has a structural deficiency. To consider it otherwise presupposes a very formalistic formation, contrary in fact to the whole logic of contemporary constitutionalism. That is to say, although it could be thought that it makes no sense for the Collegiate Court to rule twice on the same issue, the reality is that from the material point of view it does comply with the standard referred to by the Inter-American system of which Mexico is a part". ²³⁶

183. Besides that, the March 10, 2014, ruling was revised thoroughly on its merits by the Seventh Collegiate Court. ²³⁷ The sentence of the Appeal of Nonconformity analyzed E-Games' arguments and concluded:²³⁸

• Albeit, Permit-BIS Oficio stated that it is an independent permit, it was issued based on the acquired rights of E-Games.

  Even insisting that the permit states that it is an autonomous permit, it cannot be disregarded that it was issued based on the acquired rights of the permit that was used by [E-Games] to act as an operator, that is E-Mex permit, dated twenty-fifth May two thousand and five, and its modifications; that much is so, that even the authority did not provide a new permit number, instead, it issued the same with a Bis suffix [...].

  The aforementioned allows to conclude that the permit of the appellant is not autonomous nor independent of the permit issued to complainant [E-Mex].²³⁹

• E-Games consented the ruling from August 26, 2013 by which the Sixteenth Court ordered to nullify and void (“dejar insubsisntentes”) the 2009-BIS Oficio' effects.

• It was incorrect that E-Games pretended to examine SEGOB's decision to declare null and void the official notices that derive from 2009-BIS Oficio, because that was how SEGOB had to comply with Amparo 1668/2011 sentence.

²³⁶ RER-4, Second Expert Report from Dr. Javier Mijangos, ¶ 122. ↩
²³⁷ RER-4, Second Expert Report from Dr. Javier Mijangos, ¶ 123. ↩
²³⁸ Exhibit C-297, Sentence of the Appeal of Nonconformity, dated January 29, 2015, pp. 90-91, 103-104, 106, 112, 113. ↩
²³⁹ Exhibit C-297, Sentence of the Appeal of Nonconformity, dated January 29, 2015, pp. 91. ↩

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• All the official notices that were declared null and void were based on the character of independent operator, by acquired rights, that is, the merits studied in the Amparo 1668/2011.

• The Permit Oficio and the Permit-BIS Oficio were strictly related.

• It was inadequate that E-Games pretended to defend the Permit-BIS Oficio using an appeal of nonconformity, because the remedy's matter of study was to analyze if SEGOB's acts reinstated the full enjoyment of E-Mex's rights.

184. Claimants attack the Amparo proceeding as if the system did not allow them to defend themselves. However, the procedural sequence explained in previous paragraphs is clear. E-Games presented its position against the Second Compliance, not once, but twice: in the Non-Compliance Complaint and the Appeal of Nonconformity. That E-Games was unsuccessful and that Claimants disagree with the sentence, does not imply, in any manner, that Respondent violated their rights of due process.

c. The Amparo 1151/2012' rulings were not binding for the Amparo 1668/2011

185. On December 18, 2012, E-Mex submitted its Amparo complaint against the lack of notifications from SEGOB when it issued permits in favor of E-Games and Producciones Moviles (Amparo 1151/2012).²⁴⁰ Later, E-Mex submitted an amendment to dispute, among others, the Permit-BIS Oficio, and it was admitted by Second District Court.²⁴¹ E-Games challenged the amendment by a motion for complaint, because it considered that the amendment was untimely presented. On October 17, 2013, the First Collegiate Court that the amendment was inadmissible.²⁴²

186. Claimants assert that rulings in the Amparo 1151/2012 and E-Mex actions in those proceedings, prevented the revocation of the Permit-BIS Oficio in the phase of enforcement in the Amparo proceedings 1668/2011. In particular, Claimants affirm the following:²⁴³

• Based on the rulings from Amparo proceeding 1151/2012, E-Mex tacitly consented the Permit-BIS Oficio; thus a consented act could not be revoked, nor challenged in other Amparo proceeding.

²⁴⁰ Exhibit C-273. ↩
²⁴¹ Exhibit C-293. ↩
²⁴² Reply, CPP 246-260. ↩
²⁴³ Reply, ¶¶ 246-260. ↩

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• The Seventh Collegiate Court was bound to take into account Amparo proceedings 1151/2012, not because it was a precedent or jurisprudence, but because Amparo proceedings 1151/2012 were res judicata and the same matter was being discussed.

• The Sixteenth Court and the Seventh Collegiate Court should ex offcio analyze Amparo proceedings 1151/2012.

• E-Mex presented contradictory positions in the Amparo proceeding 1151/2012 and Amparo proceeding 1668/2011, in consequence, under the principle of own acts, the Sixteenth Court and the Seventh Collegiate Court could not revoke the Permit-BIS Oficio.

187. However, what was resolved under Amparo proceedings 1151/2012 does not have the legal effects alleged by Claimants. Claimants intend that this Tribunal changes into an appeal or review court for the rulings of national tribunals, where Claimants themselves acted and presented their submissions, and the result was unfavorable. The aforementioned is not the function of an investment Arbitral Tribunal under NAFTA.

188. First, Claimants assert that by disputing the Permit-BIS Oficio in Amparo proceeding 1151/2012, E-Mex implicitly recognized that such official notice could not be revoked during the enforcement stage in Amparo 1668/2011. Hence, based on the doctrine of own acts, the Permit-BIS Oficio could not be revoked in Amparo 1668/2011. To equate, the supposedly tacit knowledge from E-Mex to the doctrine of own acts is not applicable for qualifying the admissibility of an Amparo proceeding.

189. Dr. Javier Mijangos explains that the theory of own acts is employed in private law to study the principle of good faith. There is no basis for applying it in an admissibility cause for an Amparo proceeding. ²⁴⁴ In this sense, Dr. Mijangos considers that "it is not possible for a judge to evaluate and determine a priori the intention with which the claimant filed a specific amparo proceeding, so that it would not be possible for him to set the parameter of evaluation of which future actions would be excluded as prohibited”; thus, such theory is not applicable for the subject-matter of an Amparo, and it is equally non-applicable to prohibit challenging certain acts. ²⁴⁵ Furthermore it should also be said that the ruling of inadmissibility was determined in the Amparo proceedings

²⁴⁴ RER-4, Second Expert Report from Dr. Javier Mijangos, ¶¶ 138-141. RER-1, First Expert Report from Dr. Javier Mijangos, ¶¶ 262- 265. ↩
²⁴⁵ RER-4, Second Expert Report from Dr. Javier Mijangos, ¶ 133. ↩

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1151/2012, on October 17, 2013. Two months before, the Second Compliance was ordered on August 26, 2013, to even talk about an “owns acts theory”, as alleged by Claimants.

190. Second, the untimeliness of the Permit-BIS Oficio from the Amparo Proceeding 1151/2012 should not be extrapolated to the Amparo proceeding 1668/2011. The resolution of the First Collegiate Court is limited to that specific case. It cannot be considered a “decision that binds any court of the Mexican State to consider that E-Mex tacitly consented to such official communication in any trial, procedural means and moment".²⁴⁶ Judicial organs cannot be bound to search which proceedings, which acts and which allegations have been put for by claimants to decide if proceedings continue or not. It is absurd that Claimants pretend that Mexican judicial organs, ex officio, perform these investigations.

191. Third, SEGOB was a party in the Amparo proceedings 1668/2011, SEGOB was not the adjudicator. Following its role as the responsible authority in the enforcement phase, SEGOB limited itself to comply with the adjudicator's order. SEGOB could not analyze which would have been the effect of Amparo proceeding 1151/2012 on Amparo 1668/2011, as this is not the role of the parties in the Amparo proceedings.²⁴⁷

G. Closure of E-Games' Casinos

192. Claimants in their Reply assert that SEGOB illegally close their casinos on April 24, 2014, using excessive police force and other illegal and irregular tactics; despite the fact that E-Games had presented the appeal of nonconformity and there were appeal procedures pending to resolve. ²⁴⁸ Nonetheless, and as it will be shown, SEGOB exercise its attributions and faculties in matter of games and raffles, in accordance with the LFJS and the RFLJS. Furthermore, Respondent sustains that Claimants had at all times access to legal remedies to dispute the actions of Respondent and defend their interests.

²⁴⁶ RER-1, First Expert Report from Dr. Javier Mijangos, ¶ 265. ↩
²⁴⁷ RER-1, First Expert Report from Dr. Javier Mijangos, ¶ 270. ↩
²⁴⁸ Reply, ¶ 246. ↩

[Page 69]

1. Inspection orders

a. The use of police force

193. Claimants assert that Respondent interprets in an erroneous manner article 10 of the LFJS,²⁴⁹ following Mr. Gonzalez's opinion, the Mexican courts have established criteria to determine the case that justifies the use of police force, and, specifically, state that authorities like SEGOB have to determine if the use of police force is reasonable and proportional to the case at hand.²⁵⁰

194. Contrary to Claimants' argument, and as it will be explained in the following sections, the inspection orders issued on April 23, 2014 by SEGOB were duly legally based and applied to the facts in accordance to the applicable law. The evidence of these facts show that SEGOB's acts were in accordance with the law and it objective was to control and oversight the norms of games and raffles in Mexico, as it is established under article 3 of the LFJS: “The Federal Executive, through the Department of the Interior, is responsible for the regulation, authorization, control, and oversight of all gaming when they involve betting of any kind, as well as all sweepstakes, except for the National Lottery, which shall be governed by its own law ". [Added emphasis]

195. In this sense, federal and local authorities shall cooperate with SEGOB to comply with its activities of control and oversight of establishments under its competence.²⁵¹ In consequence, the use of police force by SEGOB is not extraordinary nor against the LFJS, as asserted by Claimants citing the inspection visits of April 14, 2014. As it was explained by Respondent in the Counter-Memorial, the objective of the inspection order was to verify if activities regulated by the LFJS were happening in the establishments operated by E-Games, ²⁵² specifically, if those establishments were violating article 8 of the LFJS: “Any open or closed facility where prohibited games or gambling or sweepstakes take place without legal authorization shall be closed by the Secretariat of the Interior, without prejudice to any applicable penalties that may be levied. [Emphasis added]

²⁴⁹ Id., ¶ 269. ↩

²⁵⁰ CER-6, Second Expert Report from Mr. Ezequiel Gonzalez Matus, ¶¶ 208-212. ↩

²⁵¹ Exhibit R-30, Article 10, LFJS. ↩

²⁵² Counter-Memorial on the Merits, ¶ 315. ↩

[Page 70]

196. Mr. Marcos Garcia states that “the accompaniment of the public force (as indicated in article 10 of the LFJS),with the sole purpose of safeguarding the integrity of the commissioned inspectors."²⁵³ Thus, SEGOB exercising its legal attributions used the public force with the sole purpose to safeguard the public servants' integrity, without affecting Claimants.

197. In fact, this Tribunal should not disregard that there was general interest in media; at that time, the General Director of Games and Raffles, Ms. Marcela Gonzalez Salas, gave public comments replicated in several media notes. E-Mex, E-Games and Producciones Moviles permits were mentioned. In those moments, as mentioned earlier, the sector of games and raffles had a complicated time in the country, and the importance and relevance of the media interest had to be treated accordingly. Consequently, it was fully justified in SEGOB's faculties and attributions requiring the help of the police force. SEGOB's objective in requesting the police force helped protect the public servants' integrity and fulfil the inspection.

198. Mr. Alfredo Lazcano points out that the Claimants could be confusing the assistance of the public force with the deployment of the police force, since according to article 3, section VIII of the Agreement issuing the General Guidelines for the Regulation of the Use of Public Force by the Police Institutions of the Decentralized Bodies of the Secretariat of Public Security, legitimate use of force is understood as: “...the application of methods, techniques and tactics based on different levels of force, in the exercise of functions, under applicable legislation, the United Nations Basic Principles on the Use of Force and firearms as well as well as by the Code of Conduct for Law Enforcement Officials and these Guidelines.”²⁵⁴

199. Indeed, from what was transcribed in the immediately paragraph above, it can be seen that the use of force is precisely about applying force to another,²⁵⁵ a situation that never occurred during the verification visits of April 24, 2014, since the Claimants only indicated that there was a "presence of the police force”²⁵⁶ if it was excessive or not, it is a matter that could well be mere subjective assessments. However, it is clarified that the presence of the authority, in itself, does

²⁵³ RWS-3, First Witness Statement of Mr. Marcos García Hernández, ¶ 8. ↩

²⁵⁴ RER-5, Second expert report of Mr. Alfredo Lazcano Sámano, ¶ 143. ↩

²⁵⁵ Id., ¶ 144. ↩

²⁵⁶ Reply, ¶¶ 268 y 268. ↩

[Page 71]

not constitute a "use of force", as it is simply the first form of contact that the agents have with the general public.

200. Similarly, Mr. Alfredo Lazcano specified in his second expert report:

In this regard, given that the public force was not used, it was not necessary to use "any reasoning of SEGOB that justifies, nor is the legal basis indicated, for having used the public force in the closure of the Casinos (Establishments)”140. SEGOB invoking Article 10 of the Gaming Law²⁵⁷ in each and every one of the Verification Orders, based its decision to summon the presence of the police force, which did not use, in any of the inspections, of the public force.²⁵⁸

201. On the other hand, the Claimants also point out that, at the time of the verification visits of April 24, 2014, SEGOB incurred in a series of irregularities such as: i) an aggressive incursion into casinos of military-type;²⁵⁹ ii) the intention to close the casinos and not carry out a routine inspection²⁶⁰ and iii) they were openly hostile and aggressive towards the employees.²⁶¹ However, the Claimants have not produced reliable evidence of these alleged irregularities incurred by SEGOB at the time of the inspection visits on April 24, 2014

202. The Respondent maintains from its Counter-Memorial²⁶² that the inspection visits to the E-Games casinos were carried out in accordance with the LFJS and the RLFJS and due process rights were always respected. The allegations referred to by the Claimants constitute subjective assessments of the events that occurred, since they have not provided evidence to support such arguments. In fact, the means of challenge that the Claimants asserted at the time denied E-Games' requests, because they were inadmissible, as will be explained in detail later.

203. The Claimants states that the analysis performed by Mr. Marcos García did not have justification whatsoever with the recorded evidence in the arbitration procedure, particularly

²⁵⁷ This article states that "all federal authorities, local authorities and the public force will cooperate with [SEGOB] to enforce the determinations that it issues under this [Gaming Law]. ↩

²⁵⁸ RER-5, Second expert report of Mr. Alfredo Lazcano Sámano, ¶ 145. ↩

²⁵⁹ Reply, ¶ 271. ↩

²⁶⁰ Id., ¶ 272. ↩

²⁶¹ Id., ¶ 273. ↩

²⁶² Counter-Memorial on the Merits, ¶ 314. ↩

[Page 72]

because Mr. García was not present during inspections of E-Games casinos, for which this testimony was inaccurate and, therefore, the tribunal should dismiss it.²⁶³

204. Although it is true that Mr. Marcos García was not present during the inspection visits that took place on April 24, 2014, it is also true that Mr. Marcos García statement cannot be deemed inaccurate because it was made on the basis of the exercise of the functions that he performed as Deputy General Director of Regulation and Verification of the General Directorate of Games and Raffles in SEGOB during 2013-2015, that is, as head of the DGJS area in charge of carrying out the verifications to establishments.²⁶⁴

205. Mr. García points out that: “the logistics of the inspection visits carried out by SEGOB in the exercise of its powers were coordinated from the Deputy General Directorate in my charge, for which I am fully aware of the manner in which these visits were organized and planned, as well as the way in which they were developed and ended. By virtue of the foregoing, given my first-hand knowledge of the matter on which my statements deal, no probative value should be subtracted from them."²⁶⁵ Likewise, Mr. Marcos García points out that:

[F]irst, as I stated in my First Witness Statement, the verification visits to E-Games establishments were planned and organized in the same way as any other verification visit carried out by the Deputy Direction General of Regulation and Verification under my care based on the legal framework in force at that time. In that sense, the establishments subject to the verification visits were not given any special treatment either for or against. Second, in my capacity as the hierarchical superior of the persons who acted as inspectors in the referred verification visits, I never received complaints from the representatives of other establishments that were the subject of previous verification visits in which they were commissioned, regarding the way they conducted themselves, so I do not conceive that they had the hostile attitudes that the Claimants represented by QE express, and rather I consider that these are subjective appraisals.²⁶⁶

206. Therefore, Mr. Marcos García statement should not be dismissed as requested by the Claimants.

207. The Claimants further argue that there is documentary evidence confirming that SEGOB visited the E-Games casinos for the only purpose of closing them, even going so far as to state that SEGOB officials had express instructions to “proceed to the corresponding close down.” These

²⁶³ Reply, ¶ 274. Citing Second Witness Statement of Mr. Héctor Ruiz, CWS-67, ¶¶ 14-16. ↩

²⁶⁴ Exhibit C-402, Verification Orders of SEGOB of April 23, 2014. ↩

²⁶⁵ RWS-6, Second Witness Statement of Mr. Marcos García Hernández, ¶10. ↩

²⁶⁶ Id., ¶ 8. ↩

[Page 73]

alleged instructions specifically consisted of: (i) using police force to prevent a person or document from entering the establishments; (ii) ask the manager to identify himself and appoint two witnesses; and (iii) the manager could only provide SEGOB with physical documents in its possession at the time of the inspection, and could not request any document by email or postal mail.²⁶⁷

208. In this regard, Mr. Marcos García points out that “[he] do[es] not know the origin of the document to which the Claimants represented by QE refer, having it in front of me, I do not find any element that proves that it was prepared by any person assigned to the Deputy Direction General of Regulation and Verification under my care, since from its content there are no seals or autograph signatures, but rather I consider that it was a document prepared in support of memory, I am referring to the document identified as Exhibit C-403."²⁶⁸

209. Claimants' arguments that the internal document identified as Exhibit C-403 gave express instructions to SEGOB officials to close down the E-Games establishments are inaccurate. Regardless of what was stated by Mr. García, regarding the fact that he does not know the source of the document, what is stated there does not contravene the provisions of the LFJS or the LFPA and, in any event, the breach for which the E-Games casinos were closed down was for not having a valid and current permit to operate.

210. Mr. Alfredo Lazcano points out that “the infraction committed by E-Games was to operate the Establishments without having a valid and current Permit, and the sanction decreed by SEGOB was the closure of the Establishments”²⁶⁹ which evidence once again, that the SEGOB officials did not have any instruction in this regard, but rather they were exercising their functions of verification and control over the E-Games establishments, which were not complying with the provisions of the LFJS and the RLFJS.

211. Therefore, it must be specified that requesting the assistance of the police force in the inspection visits of April 24, 2014 was fully justified and the inspection orders of April 23 of that

²⁶⁷ Reply, ¶¶ 275 and 276. ↩

²⁶⁸ RWS-6, Second Witness Statement of Mr. Marcos García Hernández, ¶ 17. ↩

²⁶⁹ Exhibit RER-5, Second expert report of Mr. Alfredo Lazcano Sámano, ¶ 171. ↩

[Page 74]

same year complied with all the formalities and requirements for the use of such force, for which the Claimants' statements translate into unfounded arguments lacking in evidence.

b. Verification visit formalities

212. The Respondent considers necessary to explain how the inspection visits to the E-Games Casinos were carried out, because contrary to what the Claimants argue, their due process rights were always respected. The Respondent wishes to point out to the Tribunal that B-Mex position is not reasonable from a legal point of view, and that the Claimants had at all times access to the means of defense that they considered pertinent – they even used them.

213. On April 23, 2014, the DGJS issued verification orders for the E-Games establishments, which must be executed the following day. The orders did not refer to the name of any particular company at the top, so it could be thought that they were not addressed to any establishment, however, they indicated in the body of the document (second paragraph) the full address in where the commissioned inspectors had to appear in order to conduct the corresponding inspections.

214. In this context, it is important to point out that the objective of inspection orders was to verify whether activities regulated by the LFJS were performed in those establishments, because since August 28, 2013, the Permitholder number DGJS/SCEV/1426/2012 had been declared invalid in compliance with the J.A. 1668/2011, and on March 10, 2014, the Sixteenth Court confirmed that SEGOB had correctly complied with said resolution, which indicated that by the date the inspection visits were conducted, the E-Games establishments were operating without a valid permit.

215. In their Reply, the Claimants mention the fact that, so as to close down an establishment, it is necessary for the inspection order to comply with the requirements established in article 63 of the LFPA and 145 of the RLFJS, which require that clearly identify the name of the company to which the establishments belong. However, the Claimants argue that the inspection orders of April 23, 2014 were addressed to E-Mex and not to E-Games, and that despite the fact that the managers of the E-Games establishments made observations in this regard, SEGOB officials refused to listen to them and proceeded to close down the casinos.²⁷⁰

²⁷⁰ Reply, ¶¶ 284-285. ↩

[Page 75]

216. The fact that a particular name did not appear at the top of the inspection orders does not mean that they could not be executed or that they were not addressed to the E-Games establishments, since given the location where the establishments were located and by the reference made to the Permit holder number DGJS/SCEV/1426/2012, it was clear that the inspection orders were addressed to the E-Games casinos, in addition to being duly founded and reasoned in the applicable legislation.

217. Mr. Alfredo Lazcano points out:

The first deficiency pointed out by the QEU&S Claimants is that the Verification Orders did not state the name of the person who was to be verified, in accordance with Article 145 of the Gaming Regulations143. However, the same Article 145144 refers to the LFPA, which establishes in its Article 63 that "the verifiers, to carry out visits, must be provided with a written order with an autograph signature issued by the competent authority, in which the place or area to be verified must be specified, the purpose of the visit, the scope it must have and the legal provisions that support it”. The Verification Orders were issued based on the provisions of the LFPA and meet all the requirements set forth in the aforementioned Article 63 for this purpose, which, although it differs from the content of Article 145 of the Gaming Regulations in terms of the name of the person to whom the verification is performed refers to, due to the principle of normative hierarchy, what is indicated by the LFPA must be followed before the Gaming Regulations. Therefore, I consider that the Verification Orders "fully complied with Mexican law.²⁷¹

218. Although the names of E-Mex and E-Games were recorded in the verification act of April 24, corresponding to the San Jerónimo Casino, this does not mean that SEGOB had the intention of inspecting the E-Mex casinos,²⁷² but rather it was obviously an error by the inspectors at the time of establishing the corresponding data to the outcome of the verification visit of that establishment. Proof of this is that in the other verification acts corresponding to the E-Games casinos, the name of E-Mex was not recorded.²⁷³

2. Verification Acts

219. On April 24, 2014, the SEGOB executed the inspection orders for the E-Games casinos and in each of the inspection visits, the SEGOB drew up a record of the facts in which all the actions carried out at that time were recorded.

²⁷¹ Exhibit RER-5, Second expert report of Mr. Alfredo Lazcano Sámano, ¶ 147. ↩

²⁷² Counter-Memorial on the Merits, ¶ 322. ↩

²⁷³ Exhibits C-300, C-301, C-302, C-303, C-304, Verification Acts of Mexico City, Cuernavaca, Puebla, Naucalpan and Villahermosa casinos. ↩

[Page 76]

220. The Claimants hold that, despite the requirements established in the LFPA, the "inspection certificates" addressed to E-Games, which are actually verification acts, contained serious deficiencies that SEGOB overlooked: (i) the inspector had to provide proper credentials, (ii) the inspector had to provide to the person in charge of the establishment with a copy of the inspection order, (iii) the inspector had to provide the verification act in the presence of two witnesses, in addition to a list of information with the date and time the inspection ended. Likewise, they argue that the acts did not indicate: (i) the date and time the inspection ended; (ii) whether the inspection order was presented to the person in charge of the establishment; (iii) the name of the person in charge of the establishment, as well as the names of two witnesses.²⁷⁴

221. The Respondent categorically denies that the verification acts drawn up on the occasion of the inspection visits that took place on April 24, 2014 on the E-Games establishments, do not meet all the requirements established in the LFPA, specifically those provided in Articles 66 and 67 of the LFPA that are supplementary to the LFJS and that textually establish:

Article 66.- A detail report will be drawn up for any verification visit, in the presence of two witnesses proposed by the person with whom the diligence has been understood or by the person who practices it if the former has refused to propose them.
A copy of all report will be left to the person with whom the diligence was conducted, even if it had refused to sign, which will not affect the validity of the diligence or the document in question, as long as the verifier records such circumstance in the report itself.
Article 67.- The reports will record:
I. Name, denomination or trade name of the person visited;
II. Hour, day, month and year in which the diligence begins and ends;
III. Street, number, population or neighborhood, telephone or other form of communication available, municipality or delegation, postal code and federal entity in which the place where the visit is made is located;
IV. Number and date of the commission letter that motivated it;
V. Name and position of the person with whom the diligence was understood;
VI. Name and address of the persons who acted as witnesses;
VII. Data relating to the verification visit;
VII. Declaration of the person visited, if it wish to make it; and

²⁷⁴ Reply, ¶¶ 286-287. ↩

[Page 77]

IX. Name and signature of those who participated in the diligence, including those who carried it out. If the person visited or his legal representative refuses to sign, this will not affect the validity of the record, and the verifier must establish the relative reason.
[Emphasis added]

222. Following is a description of compliance with the requirements of each verification act under the LFPA:

[Page 78]

223. From the table above, it can be seen that, contrary to what the Claimants argue, all the verification acts meet the requirements established in the LFPA, with the exception of the data regarding the time which the verification procedure of the casinos of Cuernavaca, San Jerónimo and Tabasco ended. However, in Mr. Alfredo Lazcano's opinion the formal deficiencies alleged by the Claimants would only affect the validity of the Acts and, where appropriate, they should have been pointed out by E-Games so that SEGOB had been able to remedy such deficiencies.²⁷⁵ However, it is reiterated that none of these possible deficiencies affected the effectiveness of the legal effects of such acts.²⁷⁶

²⁷⁵ Exhibit RER-5, Second expert report of Mr. Alfredo Lazcano Sámano, ¶ 155. ↩

²⁷⁶ See Exhibit R-064, LFPA, Article 7, “[The omission or irregularity in the elements and requirements indicated in Sections XII to XVI of article 3 of this [LFPA], will produce the annulment of the administrative act. ↩
The act declared voidable will be considered valid; it will enjoy presumption of legitimacy and enforceability; and it will be remedied by the administrative bodies through full compliance with the requirements of the legal system for the full validity and effectiveness of the act. Both public servants and individuals will have the obligation to comply with it.]"

[Page 79]

224. Similarly, it should be noted that in the act of Cuernavaca casino only include the signatures of the people who participated in the procedure, but their names are not recorded, however, in the annexes that are part of said document and that the Claimants omit²⁷⁷ can be seen the copies of the official identifications of the people who participated and signed in the last page of the act of such casino. The above demonstrates that the SEGOB's commissioned inspectors verified that they were indeed the persons with whom the diligence was being understood in order to comply with what was ordered in the LFPA and that there were records proving such situation.

225. Finally, it should be noted that the SEGOB's commissioned inspectors delivered a copy of the verification acts to the E-Games' representatives. Proof of this is that the names and signatures of the E-Games' representatives appear in the acts, at the top of the first pages.²⁷⁸ This situation simply demonstrates the bad faith with which the Claimants conduct themselves with respect to acts in which their legal representatives intervened and signed in accordance.

226. Based on the foregoing, it is clear that the inspection orders issued on April 23, 2014 were duly founded and reasoned in order to carry out the corresponding inspection visits, as well as the obligation to carry out the proceeding in accordance with applicable Mexican regulations. Such obligations were fully complied with, as evidenced by the closure acts in which all the events that occurred during the inspection and provisional closure procedures of April 24, 2014 were recorded. It should be noted that the Claimants did not assert none of these situations now argue.

3. Means of appeal pending resolution before the closure of the E-Games casinos

227. The Claimants argue in their Reply that SEGOB could not close down the E-Games casinos, because: i) on March 31, 2014, E-Games filed a Motion for Reconsideration against the judgment issued on the Non-Compliance Complaint, which was sub judice;²⁷⁹ and ii) E-Games was granted a precautionary measure issued on September 2, 2013,²⁸⁰ against the first attempt at compliance.²⁸¹ As demonstrated below, Claimants' assertions are incorrect.

²⁷⁷ Exhibit R-106, Verification Act of Cuernavaca with Annexes. ↩

²⁷⁸ Memorial on the Merits, ¶ 324, citing Exhibits C-300, C-301, C.302, C-303, C-304, Verification Acts of Ciudad de México, Cuernavaca, Puebla, Naucalpan y Villahermosa Casinos. ↩

²⁷⁹ Exhibit C-296, Appeal of Inconformity dated March, 31, 2014. ↩

²⁸⁰ Exhibit C-299, Caution measure dated september 2, 2013. ↩

²⁸¹ Reply, ¶¶ 290-299. ↩

[Page 80]

228. The precautionary measure of September 2, 2013, was revoked by the authority itself through a judgment of September 22, 2014, precisely because it was determined that the non-subsistence of the E-Games permit had been in effect since March 10, 2014. In turn, Motion for Reconsideration did not suspend the effects of the revocation of the E-Games permit. Consequently, the SEGOB was not prevented from exercising its verification and control powers over the E-Games casinos, nor from closing them in the event that they did not have a valid permit under the LFJS and the RLFJS. In the section infra, each of these means of appeal filed by the Claimants will be explained in more detail.

4. Precautionary Measure (September 2, 2013) Second Regional Chamber Hidalgo -Mexico of the Federal Tax and Administrative Court Case File 4635/13-11-02-3

229. Contrary to what the Claimants point out, the Respondent clearly did not dismiss the judicial order of September 2, 2013, nor did it take actions that breach such order, since as it has been explained from the Counter-Memorial,²⁸² SEGOB had not an express prohibition whatsoever from performing its powers of control and surveillance in accordance with the provisions of the LFJS and the RLFJS.

230. On August 23, 2013, E-Games filed a JCA lawsuit before TFJFA against the first compliance that SEGOB gave to the judgment of J.A. 1668/2011.²⁸³ Such judgment ordered the SEGOB to declare the 2009-BIS Oficio voided, due to it was not duly founded in the RLFJS:

Consequently, as the proposed argument is founded, the Justice of the Union Protects to Entretenimiento de México, a variable capital corporation, against oficio DGAJS/0260/2009-BIS, dated May twenty-seven, two thousand nine, to the effect that it leaves it unsubstantiated and issues another in which, following the guidelines of this judgment, in a well-founded and motivated manner resolves what is appropriate in relation to the request of May eighteen, two thousand and nine.²⁸⁴

231. For what was ordered to the SEGOB in the J.A. 1668/2011, E-Games requested in its JCA lawsuit the precautionary measure because it considered that with the declaration of voiding of the 2009-BIS Oficio would also affect the Permitholder's validity granted in 2012:

[I] deem that it is appropriate to grant the requested precautionary measure, by virtue of the fact that, first of all, I am requesting that things be kept in the state in which they are

²⁸² Counter-Memorial on the Merits, ¶ 331. ↩

²⁸³ Exhibit C-261, First fulfillment dated july, 19, 2013. ↩

²⁸⁴ Exhibit C-018, Judgment from J.A. 1668/2011, p. 202. ↩

[Page 81]

found and that they not have the effects and consequences of the disputed oficio, and that is, if it is not granted, irreparable damage would be caused to my client, which could consist of the subsistence of the compliance agreement as ordered by the [Sixteenth Court] in the guarantee trial 1668/2011, described in the oficio DGJS/DGA/DPA/0820/2013 [First compliance] that is in dispute could cause obstruction in the regulated and economic activity that was recognized to my client through the oficio DGJS/SCEV/1426/2012 [Permitholder-BIS Oficio]; namely, the defendant authority or others with legal powers, could eventually estimate that my client does not legally operate the rooms it operates, since it lawfully exercises its regulated and commercial activity in the present, under the already invoked oficio DGJS/1426/ 2012.²⁸⁵
[Emphasis Added]

232. On September 2, 2013, the Second Regional Chamber Hidalgo-Mexico (Second Regional Chamber), from TFJFA admitted the E-Games lawsuit, and granted the provisional precautionary measure requested, which consisted of “keeping things in the state they are in, until the corresponding interlocutory judgment is issued."²⁸⁶ However, such measure was revoked on October 4, 2013, replacing it with another in accordance with the following terms:

The temporary precautionary measure to prevent the ruling on compliance with the order rendered by the [Sixteenth Court] in amparo 1668/2011 set forth in oficio DGJS/DGA/DPA/0820/2013 to take legal effect [is denied] ... in addition, the temporary precautionary measure is granted exclusively to prevent the authorities from taking any action aiming to impede or prevent the commercial operation of the gaming facilities referred to in [Permitholder-BIS Oficio] [is granted].
[Emphasis Added]

233. On March 10, 2014, the Second Regional Chamber of the TFJFA determined that with the issuance of the agreement dated August 28, 2013 (second compliance of SEGOB with respect to the J.A. 1668/2011 judgment), it had fully given compliance with what was ordered by the Sixteenth Court.²⁸⁷ It is important to note that with this second compliance, SEGOB voided both the 2009-BIS Oficio and the Permitholder-BIS Oficio issued in 2012, so it was evident that E-Games at that time was no longer operating its establishments under any valid permit, since all the oficios issued by the SEGOB and derived from 2009-BIS Oficio, had already been declared voided on that date.

²⁸⁵ Exhibit R-060, Action for Annulment of E-Games of August 23, 2013, pp. 13-14. ↩

²⁸⁶ Exhibit C-299, Precautionary Measure of September 2, 2013. ↩

²⁸⁷ Exhibit C-291, Ruling from March 10, 2014. ↩

[Page 82]

234. The Claimants do not dispute the fact that compliance with the Amparo judgment was correct, rather until after SEGOB conducted the verification visits on April 24, 2014, in which it determined that the establishments operated by E- Games did not have a valid permit to operate. In other words, it was not until after the provisional closures of April 24, 2014 were carried out, when E-Games filed a motion of complaint on May 9, 2014, with the Second Regional Chamber for considering, among others, that SEGOB had breached the precautionary measure of October 4, 2013:

[t]he Respondent authority by closing the establishments of my principal breached the precautionary measure issued in its favor...since the government defendant in this proceeding is prevented from enforcing the judgment issued Amparo 1668/2011...until the motion for reconsideration filed by my principal against the judgment dated February 19, 2014, rendered in the non-compliance complaint 82/2013, as well as against the ruling dated March 10, 2014.²⁸⁸

235. In response to the foregoing, on May 14, 2014, SEGOB requested the modification of the precautionary measure of October 4, 2013 to the Second Regional Chamber, informing that in compliance with the amparo judgment number 1668/2011, SEGOB had annulled the 2009-BIS Oficio and its consequences, such as the Permitholder-BIS Oficio issued in 2012, so the precautionary measure should be voided in all its terms, since at that time supervening events had occurred, as it was the agreement of March 10, 2012, by virtue of which the reviewing body of the J.A. 1668/2011 declared that the compliance resolutions issued by SEGOB duly complied with the protective ruling.²⁸⁹

236. Through a report dated June 10, 2013, SEGOB informed the Second Regional Chamber that its powers to verify the operation of the E-Games casinos were not limited, and therefore, its actions were performed in compliance with its attribution of verification, control and surveillance provided for in the LFJS and its Regulations.²⁹⁰ Situation that had no relation to the precautionary measure requested by E-Games, because in the first place, that measure depended only on the Permitholder-BIS 2012 being in force, which was what allowed E-Games to continue operating

²⁸⁸ Exhibit R-062, SEGOB's report to the Second Regional Chamber dated June 10, 2014, pp. 2-3. ↩

²⁸⁹ Exhibit R-063, Oficio UGAJ/DGC/433/2014 from SEGOB, dated May 14, 2014. ↩

²⁹⁰ Exhibit R-061, SEGOB's report to the Second Regional Chamber of June 10, 2014, p. 3 (“the verification performed by the [DGJS] does not originate from any court ruling but from the verification, oversight, supervisory, and sanctioning authority set forth by the [LFJS – Articles 3 and 4] and its Regulations"). ↩

[Page 83]

its casinos, and secondly, the measure itself textually stated that its purpose was not: “to prevent the execution of the order issued by the [Sixteenth Court] in the Amparo proceedings 1668/2011 and much less to annul the ruling rendered by the foregoing federal court.^,,291

237. The Claimants should not minimize the implication of incurring an administrative responsibility for any public official in the exercise of its functions. The concerns of the DGJS for monitoring the due compliance of the LFJS and its Regulations under the situation that the E-Games permit had been revoked since 2013, were not minor, they were more than justified and even supported by the Courts, since on September 22, 2014, the Second Regional Chamber determined that the motion of complaint that E-Games had filed for considering that the provisional closures of its casinos had violated the precautionary measure, was left without matter.²⁹²

238. The evidence of these facts demonstrates that neither the inspection visits nor the closures of the E-Games casinos carried out on April 24, 2014, breached the precautionary measure as the Claimants erroneously argue. E-Games did not even appear in the trial of the motion of complaint to defend its interests regarding the request made by SEGOB on May 14, 2014 to revoke said precautionary measure.²⁹³ It is not correct that the Claimants attempt to litigate before this Arbitration Tribunal, interests that they did not defend at the appropriate procedural moment.

239. The Claimants' arguments in the sense of the motion of complaint and the precautionary measure no longer made sense because the closures of the establishments were already a fact accomplished, and therefore, E-Games focused solely on the reopening of its casinos, are unfounded.

²⁹¹ Exhibit R-061, Revocation of the Precautionary Measure dated September 22, 2014, p. 6. ↩

²⁹² Exhibit R-065, Ruling dismissing the E-Games motion of complaint of September 22, 2014, “II.- The judgment dated October 4, 20132 [sic] is modified and the definitive precautionary measure for the execution of the act is DENIED, for the reasons and grounds specified in the last recital of this ruling...” (emphasis added) and if in that measure, by ruling dated May 21, 2014 (folio 543 of the records of the suspension folder) the complaint filed on May 9, 2014, by the plaintiff, was considered filed against the judgment dated May 4 October 2013 (folios 110 to 121 of the records of the suspension folder) by which the precautionary measure was granted, this Court agrees as follows: THE MOTION FOR COMPLAINT AGAINST THE DEFINITIVE SUSPENSION JUDGMENT IS LEFT WITHOUT SUBJECT MATTER, filed by the plaintiff, since on this same date the judgment dated October 4, 2013 was revoked.- ↩

²⁹³ Exhibit R-063, Oficio UGAJ/DGC/433/2014 from SEGOB, dated May 14, 2014. ↩

[Page 84]

5. Petition of reconsideration (Motion for Reconsideration Exp. 5/2014)

240. The Claimants incur in another inaccuracy to suggest the existence of an irregularity that never happened, because as has been indicated from the Counter-Memorial,²⁹⁴ it was not until May 6, 2014 that the Supreme Court admitted the motion for reconsideration filed by E-Games on March 31, 2014. Accordingly, it is evident that on the date on which the inspection visits and provisional closures of the Claimants' casinos were carried out (April 24, 2014), the motion for reconsideration had not yet been admitted by the Supreme Court. In addition to the above, it is clarified that said motion did not prevent SEGOB from exercising its surveillance and control powers to conduct inspection visits to E-Games casinos and, where appropriate, close them down in accordance with the applicable regulations. Mr. Mijangos points out:

[T]he appeal of non-conformity -in accordance with its legal regulation and the criteria that the Federal Judicial Branch has issued on it-, when presented for resolution, does not generate the suspension of the acts that the authority may carry out on the occasion of the amparo ruling in question, which would imply, in this case, that the filing of the appeal of non-conformity did not prevent the Directorate-General of Games and Raffles from exercising its powers in the matter since the permit granted to Exciting Games had disappeared -in legal terms due to the aforementioned judgments.²⁹⁵

241. In any case, on the date on which the inspection visits and provisional closures of April 24, 2014 were carried out, E-Games was not operating its establishments with a valid permit and SEGOB was not prevented from undertaking any action against the operation of E-Games casinos without a valid permit.

6. Administrative proceedings against closures

242. In their Reply, the Claimants insist on the argument that the Respondent did not grant them basic procedural rights during the administrative procedures that SEGOB began after it conducted the inspection visits on April 24, 2014. Among the alleged improper measures that Mexico adopted, they point out: i) the violations of the prescription provisions and the procedural rights of E-Games in the review procedures themselves; ii) the improper denial of E-Games' motion for review without considering E-Games' key arguments; and iii) the illegitimate refusal to provide Claimants with access to the closing administrative review files. In this regard, the Claimants

²⁹⁴ Counter-Memorial on the Merits, ¶ 328. ↩

²⁹⁵ RER-1, First expert report of Mr. Javier Mijangos, ¶ 241. ↩

[Page 85]

emphasize that the legal figure of due process in Mexico, which must be understood as “a procedural guarantee present in all types of proceedings, not only in criminal proceedings, but also in civil, administrative or any other type of proceedings", and in the case at hand, the Respondent used its constitutional and administrative legal framework to unlawfully discriminate against the Claimants and undermine their rights of due process constitutionally guaranteed in the administrative closure proceedings against their establishments.²⁹⁶

243. In this regard, Mr. Alfredo Lazcano points out that SEGOB did not breach the procedural rights of E-Games at any stage of the procedure, since “Article 68 of the LFPA establishes that it is those visited, that is, E-Games, who may make observations and offer evidence regarding the diligence established in a verification act within the following five days. Ergo, it was not SEGOB that did not meet the deadline, but E-Games that did not exercise its right" ²⁹⁷. It is clear that the party that had the procedural burden to assert its rights was E-Games, which decided not to exercise them and instead use this arbitration as a motion for review on the actions of the jurisdictional authorities in Mexico.

7. E-Games filed an Appeal for Review against the provisional closures that was dismissed in accordance with the applicable regulations and decided not to challenge said determination

244. In its Reply, E-Games argued that it filed a Motion for Review against the inspection orders and verification acts of SEGOB that ordered the provisional closure of its casinos. In such appeal, in essence, it stated that the closure did not follow the procedure provided for in accordance with Mexican administrative law, because the Motion for Reconsideration 406/2012 and the judicial order of file 4635/13-II-02-3 were found pending resolution, so in the absence of a final determination on the status of the Independent E-Games permit, the permit was still valid on April 24, 2014.²⁹⁸

²⁹⁶ Reply, ¶¶ 304 - 307. ↩

²⁹⁷ RER-5, Second expert report of Mr. Alfredo Lazcano Sámano, ¶ 159. ↩

²⁹⁸ Reply, ¶ 320. Citing the Exhibit CWS-52, Fourth Witness Statement of Mr. Julio Gutiérrez, ¶¶ 85-86. ↩

[Page 86]

245. The Claimants further argue that SEGOB dismissed the Motion for Review, in clear contravention of Article 92 of the LFPA, which establishes that the authority resolving a Motion for Review to review and analyze each of every claim asserted by the petitioner.²⁹⁹

246. Contrary to what the Claimants point out, the Motion for Review filed by E-Games was resolved by SEGOB on June 5, 2014. In its resolution, SEGOB determined that the Motion was inadmissible because the LFPA expressly establishes that the Administrative Review only proceeds against “administrative acts and resolutions that put an end to an administrative proceeding, an instance or resolve a file”.³⁰⁰

247. It is clear that the inspection orders and the provisional closures that were established in the verification acts of April 24, 2014, could not be challenged based on this Motion, since "they are procedural acts [...] that only serve to illustrate and provide all the necessary data for a final decision to be made, then these do not put an end to the administrative procedure.”³⁰¹ Due to the foregoing, the Motion for Review filed by E-Games on May 30, 2014, was dismissed. However, in this dismissal it was pointed out that E-Games had the opportunity to defend itself and submit the evidence it considered necessary during the sanctioning procedure, since the resolutions that, in its case, fell to such procedure, could be challenged through of the Motion for Review in question.³⁰²

248. SEGOB stated the motives, foundations and reasons by which it decided that the Motion for Review filed against the inspection orders and the verification acts was inadmissible and therefore, had to be dismissed. In this regard, E-Games had legal resources to challenge the inadmissibility of the resolution, but it decided not to exercise them. The fact that E-Games had decided not to challenge the determination of SEGOB in which it its Motion for Review was dismissed against the inspection orders and the verification acts of April 24, 2014, is solely

²⁹⁹ Reply, ¶ 324. ↩

³⁰⁰ Exhibit R-064, Article 83 of LFPA. ↩

³⁰¹ Exhibit C-360, Ruling dismissing from SEGOB dated June 5, 2014. ↩

³⁰² Id., p. 13 "Then, the closure operates in a provisional and transitory manner, on one hand, its purpose is to prevent the continuation of the development of prohibited activities without the respective authorization and, on the other hand, because its imposition prevails until the establishment of the sanctioned administrative procedure, where the present offender may provide the evidence that he considers conducive and expose what is appropriate to his right and, in which it will be definitively resolved on the update or not of the respective infraction." ↩

[Page 87]

attributable to its legal representatives, who by failing to do so, validated what was resolved by SEGOB in such agreement.

8. Mexico did not breach the rights of the Claimants in the administrative sanction procedures

249. The Respondent considers necessary to specify that the closing administrative review procedures referred to by the Claimants in their Reply are actually the sanctioning procedures provided for in Article 17 of the LFJS.³⁰³ Although the LFPA is applied in a supplementary manner to the LFJS, the truth is that what is established by the LFJS must be addressed primarily. Such law states that the verification visits constitute administrative acts through which the authority, through its inspectors, exercises control and surveillance acts with respect to the establishments that must be subject precisely to the provisions of the LFJS and the RLFJS. In this regard, the authority may collect all the means of proof that it deems necessary to initiate the sanctioning procedure and conclude it through a final resolution, with the only limitation that the evidence provided to the procedure is not prohibited in LFJS. Next, the chronology of the events and actions that occurred in the sanctioning procedures of the E-Games casinos will be explained in detail.

250. Once the Inspection Visits of April 24, 2014, in which SEGOB's monitoring and surveillance powers provided for in both the LFJS and RLFJS were exercised, on July 7, 2014, SEGOB issued a ruling with which began the sanctioning procedure against E-Games. As of the notification of this ruling (July 17, 2014) is when the SEGOB formally began the sanctioning procedure provided for in the LFJS. In the same way, it is highlighted that E-Games was granted the right to a hearing established in articles 14 and 16 of the Constitution to submit its defense, as well as the evidence it considered pertinent to disprove the allege breaches:

Likewise, under the provisions of articles 15, 38 and 72 of the Federal Law of Administrative Procedure, in accordance with article 3 of the Federal Law of Games

³⁰³ El Artículo 17 de la LFJS establece que "[t]he infractions of this Law that do not constitute crimes, its regulations or the provisions issued by the Ministry of the Interior, will be sanctioned by the same Ministry, with a fine of one hundred to ten thousand pesos or arrest for up to fifteen days, the permit may be revoked and the establishment closed if the infractions are serious or frequent. When the infraction is committed by the players, referees, bookmakers or by any other person who performs functions in the show, game, establishment or draw in question; It may also be sanctioned with suspension for up to one year or permanent disqualification from performing the respective activity or function." ↩

[Page 88]

and Raffles and 2 third paragraph of the Regulation of the Law itself, you are granted the period of fifteen business days counted from the day following the day on which the notification of this ruling takes effect, so that it may state what its right corresponds and offer the evidence it deems pertinent, being aware that otherwise your right to do so will be deemed precluded, in terms of what is established by article 288 of the Federal Code of Civil Procedures of supplementary application to the matter, by express provision of article 2 of the Federal Law of Administrative Procedure.³⁰⁴
[Emphasis Added]

251. On July 8, 2014, E-Games filed before SEGOB a written request in accordance with article 60 of the LFPA in which it requested that the administrative closure procedures be declared expired in the following terms:

To date, my principal has not received any notification that has resolved the administrative proceeding initiated against Exciting Games S. de R.L. of C.V. and in the same way, my principal has not been notified of any internal ruling issued by the General Directorate of Games and Raffles, by means of which the aforementioned administrative proceeding has been settled, since the term established in article 60 of the Federal Law of Administrative Procedure has elapsed. The foregoing under the following:
DECLARATIONS
That by virtue of having elapsed in excess of the term for that Authority to issue [sic] resolution in the Verification Visit Administrative Proceeding, initiated to my client through the Orders [sic] of visit with numbers of Oficios DGAJS/700/2014 ( Kash Naucalpan), DGAJS/684/2014 (Kash Tabasco), DGAJS/692/2014 (Kash DF); DGAJS/704/2014 (Kash Cuernavaca); DGAJS/688/2014 (Kash Puebla); DGAJS/696/2014 (Kash Interlomas, also known as Master Tournament), all dated April 24, 2014; I request that this Authority proceed to make the Declaration referred to in article 60, third paragraph of the Federal Law of Administrative Procedure and to order the lifting of the closures decreed in such proceedings, leaving without effect everything that has been done in the administrative proceedings of verification visit of aforementioned.³⁰⁵

252. In this regard, and as explained in the Counter-Memorial,³⁰⁶ E-Games incorrectly based its prescription request on Article 60, third paragraph of the LFPA, which states that the proceedings initiated ex officio will be considered expired upon request of an interested party or ex officio, within 30 days counted from the expiration of the term to issue a resolution. However, SEGOB

³⁰⁴ Exhibit R-066, Ruling to Commence the Disciplinary Proceeding AJP/0068/14-VII, regarding the Naucalpan casino on July 7, 2014. ↩

³⁰⁵ Exhibit R-067, E-Games Petition, dated Tuesday, July 8, 2014. ↩

³⁰⁶ Counter-Memorial on the Merits, ¶ 348. ↩

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assessed E-Games' request and concluded that article 60 of the LFPA was not applicable to the specific case, because SEGOB's actions within the sanctioning administrative procedures were within the time limits and terms provided for in both the LFJS and the LFPA to substantiate and resolve the procedure at issue.³⁰⁷

253. In response to the ruling to initiate the sanctioning procedure (July 7, 2014), notified on July 17, 2014, E-Games presented on August 7 of the same year, its defense brief and the evidence it considered pertinent to disprove the non-compliances that were imputed to it. In such brief, E-Games specifically mentioned that: i) the sanctioning procedure had expired; ii) the Motion for Reconsideration of case file 406/2014 was pending resolution; and iii) E-Games did not operate slot machines.³⁰⁸

254. As stated in paragraph 236 supra, SEGOB resolved though ruling dated October 9, 2014 that, from the exercise of its powers of inspection and surveillance, it had the obligation to initiate the sanctioning procedure regarding the imputable breaches to E-Games since April 24, 2014, but due to the relevance of the expiration argument asserted through the written request of July 8, 2014, SEGOB resolved, at that time, the following:

[A]fter commencing the administrative proceeding with service of process of the ruling dated the seventh of July of the year two thousand fourteen, conducted on the following seventeenth, it is undeniable that this agency is monitoring the procedural stages comprising this particular administrative proceeding, as it has been safeguarding the principles established in Articles 14 and 16 of the Federal Constitution, since this Authority is still gathering the necessary items to properly put together this case file for purposes of learning the legal truth and decide on the facts raised; therefore it may be affirmed that it is acting within the term set forth by Article 60 of the [LFPA] to substantiate and rule on.³⁰⁹
[Emphasis added]

255. Finally, on February 26, 2015, and after analyzing and assessing all the records that made up the administrative closure files, the SEGOB issued the final resolutions of the sanctioning procedures regarding the casinos of Naucalpan, San Jerónimo, Cuernavaca, Puebla and Villahermosa, it assessed all the evidence provided by E-Games and each of the defenses presented throughout said procedures, and it concluded that the E-Games casinos "did not have a valid permit

³⁰⁷ Exhibit, R-069, SEGOB Ruling dated October 9, 2014. ↩

³⁰⁸ Exhibit, R- 068, E-Games Motion file from August 7, 2014. ↩

³⁰⁹ Exhibit, R-069, SEGOB Ruling October 9, 2014, p. 7. ↩

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to play games with bets and games of random and it had in operation and functioning devices called by the [LFJS] as slot machines.”³¹⁰ As a result of these resolutions, the SEGOB declared the definitive closure of E-Games casinos:

[O]n the date the inspection was conducted by the Directorate of Games and Sweepstakes on the establishment subject to this determination of the company 'Exciting Games S. de R.L. de C.V.', this company was already aware that the [E-Games permit] had expired and no judicial or administrative ruling had been issued as of that date that would limit or prevent this Administrative Agency from exercising its duties and powers that have been legally conferred upon this [DGJS]. In other words, the [DGJS] is responsible for addressing, processing and dispatching matters related to the supervision and surveillance of compliance with the [LFJS] and its Regulations, and therefore if, while exercising these powers, it discovers any conduct or omission that may constitute an alleged violation of the LFJS or its Regulations, it is required to commence the respective administrative proceeding and, where appropriate, penalize them ...
[...]
In view of the foregoing resolution, turn attentive official letter to the Directorate of Inspection and Surveillance of the General Directorate of Games and Raffles of the Ministry of the Interior, so that it appoints personnel to its worthy position in order to close down. definitively -d establishment located at Avenida Jardines de San Mateo, number eight, Neighborhood Santa Cruz Acatlán, Naucalpan, State of Mexico, called "KASH".³¹¹

256. Based on the foregoing, the SEGOB safeguarded at all times the principles of legality and due process established in both the CPEUM and the LFPA, since it obtained all the necessary elements for the proper integration of the administrative files initiated due to the irregularities detected in the E-Games establishments on April 24, 2014, and with the purpose of knowing the legal truth about the facts raised in the administrative procedures at issue.

257. Likewise, and with regard to the argument that E-Games did not have slot machines in its establishments, and therefore, it was an invention to justify the illegal closures and another tactic to ensure the disappearance of E-Games,³¹² it is important to point out that article 12 of the LFJS establishes that “slot machines in any of its forms are prohibited.” In this regard, and from the verification visits conducted to the Claimants' establishments on April 24, 2014, it can be seen that it was attested that within the verified properties, several types of machines for gaming with betting and raffles were found, from which prior review by the inspectors commissioned for this purpose,

³¹⁰ Exhibit C-361, Closure Administrative Proceedings - Naucalpan Casino, p. 317. ↩

³¹¹ Exhibit C-361, Closure Administrative Proceedings - Naucalpan Casino, p. 321. ↩

³¹² Reply, ¶ 318. ↩

[Page 91]

it was determined that they did not comply with the provisions of the LFJS. The above is so, because the concept of "slot machines" encompasses all the devices through which the user makes a bet by inserting money, a token, an electronic device or any other payment object. Therefore, it is clear that the machines that were operating in the Claimants' establishments contravened the provisions of the LFJS, since although they were not machines that received money in cash, they were machines in which the users made use of them through electronic means and, specially, for the plain fact that they were in establishments that did not have a valid permit to operate:

[I]n compliance with the inspection of oversight powers conferred upon this [DGJS], it conducted an inspection on [April 24, 2014], which confirmed that 184 machines were found on the premises, which, upon inspection, were devices in which a user wages a bet by inserting money, a token, electronic device or any other method of payment for purposes of obtaining a prize not previously determinable.³¹³
[Emphasis Added]

258. In Mr. Alfredo Lazcano's opinion, the use of slot machines is irrelevant to the particular case due to the following:

In this sense, the QEU&S Claimants, on the one hand, deny having operated slot machines in their Establishments, while affirming that SEGOB justified the closure of the Establishments precisely because of the operation of slot machines163. In my opinion, both positions are inconsequential. SEGOB closed the Establishments because gambling activities with bets and drawings were carried out in them without a valid Permit to do so, since the E-Games Permit had been declared non-existent. How these games were offered to the public doesn't really matter. Whether through permitted devices or not, what was illegal was the capture of bets and not the means through which they were captured.
In conclusion, even if E-Games had not operated slot machines, but “the types of machines that SEGOB had authorized in the E-Games Independent Permit and only those machines”, SEGOB was obliged to close the Establishments because the Permit was no longer valid.³¹⁴

259. In their Reply, the Claimants once again decontextualize the evidence submitted in the closing proceedings, improperly pointing out that SEGOB did not issue the oficios regarding the first and second phases of the proceeding within the time limits set forth in the LFPA.³¹⁵ They even argue that the Respondent intentionally delayed the issuance of the resolutions of July 7 and 18, 2014, with the sole intention of waiting for the Supreme Court to rule on the Motion for

³¹³ Exhibit C-361, Closure Administrative Proceedings - Naucalpan Casino, p. 316. ↩

³¹⁴ RER-5, Second expert report of Mr. Alfredo Lazcano Sámano, ¶¶ 167 and 168. ↩

³¹⁵ Reply, ¶¶ 310 and 314. ↩

[Page 92]

Reconsideration 406/2012 because it wanted to ensure another way for preserving the definitive closure of E-Games casinos.³¹⁶

260. The Respondent holds that the Claimants' statements are for the sole purpose of confusing to the Tribunal, since in accordance with Mexican law, the phases of the procedure that they refer to are not provided for in such law.³¹⁷ In this regard, Mr. Alfredo Lazcano points out the following:

[t]he Sanctioning Procedure actually began with the commission of the sanctioned conduct, that is, with the operation of the Establishments from the moment the E-Games Permit was declared non-subsistent and it ended when SEGOB declared the definitive closure of the Establishments, for which there was a term of five years according to Article 79 of the LFPA, which establishes that “the power of the authority to impose administrative sanctions prescribes in five years. The terms of the prescription shall be continuous and shall be counted from the day the administrative offense or infraction was committed if it was consummated or, from the time it ceased if it were continuous”.
Due to the foregoing, I consider that the argument of expiration of the Sanctioning Procedure is false, as well as that the right to a hearing of E-Games was violated by SEGOB, since it did present "its defense brief and the evidence it considered pertinent.³¹⁸

261. In short, the Claimants have not been able to sustain that the Respondent violated basic procedural rights to their detriment during the substantiation of the administrative closure proceedings, since the legal means were always available to challenge the actions or omissions from SEGOB that it considered they caused him a grievance.

9. The Motion for Review filed by E-Games against the final closures was inadmissible and it decided to withdraw its challenge

262. Against the final resolutions of February 26, 2015, E-Games filed a Motion for Review³¹⁹ in which it repeated the expiration arguments provided for in article 60 of the LFPA that it asserted in the administrative sanction proceedings, it also argued that the Motion for Reconsideration before the Supreme Court case file 5/2014 was pending resolution, whereby it considered that SEGOB was prevented from carrying out the verification visits of April 24, 2014 and, therefore, the closure of their establishments.

³¹⁶ Id., ¶ 316. ↩

³¹⁷ See Exhibit R-030, article 17 of the LFJS. ↩

³¹⁸ RER-5, Second expert report of Mr. Alfredo Lazcano Sámano, ¶¶ 163 and 164. ↩

³¹⁹ Exhibit R-071, Motion for Review of E-Games dated March 26, 2015. ↩

[Page 93]

263. On August 17, 2015, the SEGOB Undersecretary of the Interior resolved the Motion filed by E-Games and determined that the DGJS actions in conducting the inspection visits of April 24, 2014, as well as in sanctioning proceedings, were in accordance with law devoid of irregularities.³²⁰ Likewise, at the end of the resolution, it was indicated that if E-Games considered it pertinent, because it did not agree with SEGOB's determination regarding the Motion for Review, it was able to challenge the resolution through the JCA, this with the purpose of asserting their rights:

RESOLVE
FIRST.- Based on the provisions of article 91, section II of the Federal Law of Administrative Proceeding, the resolutions issued in Administrative Proceeding AJP/0063/14-VII, AJP/0064/14-VII, AJP/0065/14 are CONFIRMED -VII, AJP/0066/14-VII, AJP/0067/14-VII and AJP/0068/14-VII, issued by María Marcela González Salas y Petriciolli, then General Director of Games and Raffles, on February 26 and March 3, 2014, in terms of the reasoning set forth in this judgment.---
[...]
FOURTH.- Let the appellant know that he has 45 forty-five days counted from the day following the notification of this provision, to file the Nullity Trial in the terms of the provisions of number 13 of the Federal Law of Administrative Contentious Procedure and 83 of the Federal Law of Administrative Procedure----
[...]³²¹

264. On October 26, 2015, E-Games challenged the resolution of the Motion for Review through JCA and heard this trial in the First Northeast Chamber of the State of Mexico of the Federal Administrative Court (formerly TFJFA).³²² However, the Claimants decided to withdraw from this lawsuit to initiate this arbitration, so the Federal Administrative Court decided to dismiss it.³²³

³²⁰ Exhibit R-072, SEGOB Resolution SG/200/098/015 from August 17, 2015. ↩

³²¹ Id. ↩

³²² Exhibit R-104, Ruling dated Octuber 28, 2015. Case file. 5888/15-11-01-2. ↩

³²³ Exhibit R-105, Ruling dated June 22, 2016. Case file. 5888/15-11-01-2. “It is reported with the personal appearance made in the premises of this Chamber on the day in which the action is taken, in which C. Julio Carlos Gutiérrez Morales, in legal representation of the moral person cited in the item, in the presence of the Secretary of Agreements ratifies the withdrawal of the plaintiff regarding this annulment trial, in order to suit their interests. Therefore, based on the provisions of articles 9, section I of the Federal Law of Contentious-Administrative Procedure and 38, section V of the Organic Law of the Federal Court of Fiscal and Administrative Justice, THE PRESENT TRIAL IS DISMISSED, due to the withdrawal plaintiff's statement of the entirety of this nullity trial” ↩

[Page 94]

265. Mr. Julio Gutiérrez states that "[a]gainst the final closure orders. This was decided by the Assistant Secretary of Interior by means of a decision dated August 17, 2015, whereby the final resolutions issued in the Administrative Proceedings of Closure were upheld. E-Games brought a nullity lawsuit against such resolution, under number 5888/15-11-01-2, which was first heard by the First North-East Courtroom in Mexico State for the Federal Court of Administrative Justice. However, in the face of the Claimants' decision to submit the matter to investment arbitration proceedings under Chapter XI of the North American Free Trade Agreement, E-Games abandoned the nullity lawsuit.”³²⁴ [Emphasis added].

266. Mr. Julio Gutiérrez statement expressly acknowledges that the Claimants themselves made the decision to withdraw from the JCA and even indicates that it was for initiating this arbitration.

10. The Claimants have had access at all times to the case files of the administrative closure proceedings

267. The Claimants in their Reply argue again that despite having asked SEGOB on numerous occasions for copies of the administrative files of the closing proceedings, the SEGOB has denied them access to such case files. In fact, they argue that the Respondent steadfastly refused to submit the case files to the Claimants, which is what the Tribunal ordered it to do in these proceedings.³²⁵

268. The Respondent reiterates that as of July 17, 2014, the SEGOB notified to E-Games of the beginning of sanctioning procedures and ordered that the files were made available to it so that it could consult them at all times.³²⁶ Through Oficio DGJS/DGAAD/DJ/1875/2017 dated November 30, 2017,³²⁷ the SEGOB made available to Mr. Julio Gutiérrez the requested records of the administrative proceedings AJP/0063/14-VII, AJP/0064 /14-VII, AJP/0065/14-VII, AJP/0066/14-VII, AJP/0067/14-VII and AJP/0068/14-VII. However, E-Games did not go to the DGJS facilities to collect them. For this reason, the SEGOB made available the certified copies before the First Administrative District Court in Mexico City.³²⁸

³²⁴ CWS-52, Fourth Witness Statement of Mr. Julio Gutiérrez Morales, ¶ 91. ↩

³²⁵ Reply, ¶ 326. ↩

³²⁶ Exhibit R-066, Ruling to Commence the Disciplinary Proceeding AJP/0068/14-VII, regarding the Naucalpan casino. ↩

³²⁷ Exhibit R-107, Oficio DGJS/DGAAD/DJ/1875/2017 of November 30, 2017. ↩

³²⁸ Exhibit R-098, Oficio DGJS/DGAAD/129/2017 del 21 of December, 2017, p. 4. ↩

[Page 95]

269. Mr. Gutiérrez points out that it is not true that the Claimants had not collected them. In fact, it mentions that, between February 2018 and February 2020, Mr. Gutiérrez and other members of his law firm visited the SEGOB offices to obtain copies of the case files on several times. During these visits, neither Mr. Gutiérrez nor the other members of his office were authorized to get a copy of the registry book or take photographs of the book despite having paid the full amount required.³²⁹

270. The Respondent asks the Tribunal to carefully consider the statements from Mr. Julio Gutiérrez, in the sense that he “supposedly” went between February 2018 and February 2020 to collect the records of the administrative files that they requested from SEGOB, since that it is highly questionable that to date no document has been submitted that could prove his statement and that these efforts to get a copy of the case files in question were made just after the Oficio DGJS/DGAAD/DJ/1875/2017 dated November 30, 2017³³⁰ was issued, and that even such copies is made available to them in the Court before which they themselves filed the amparo for SEGOB to provide them with such copies.

271. Based on the foregoing, the Respondent respectfully requests the Tribunal to dismiss the Claimants' argument regarding the fact that the Respondent steadfastly refused to provide the administrative records. Claimants' suggestion that Respondent deliberately concealed documents must be proved by more than mere insinuations and subjective assessments.

H. Seals Removal

272. In their Reply, the Claimants reiterate their argument that the Respondent arbitrarily and improperly removed the closure seals on their casinos, with the exception of the casino located in Puebla, and it improperly handed over legal possession of the premises to persons who were not E-Games, for which they state that they suffered important denials of due process and could not protect the assets located within the establishments.³³¹ This argument is flawed for the following reasons.

273. To determine the scope of the concept of "seals removal", Mr. Lazcano points out:

³²⁹ Reply, ¶ 328. Citing CWS-52, Fifth Witness Statement of Mr. Julio Gutiérrez Morales, ¶¶ 140-142. ↩

³³⁰ Exhibit R-107, Oficio DGJS/DGAAD/DJ/1875/2017 of November 30, 2017. ↩

³³¹ Reply, ¶¶ 330 and 331. ↩

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occurs when the authority that decreed the closure as a sanction for the commission of an infraction removes - or authorizes the removal of - the seals of the places where they were affixed. This regularly occurs after a request to remove the seals made by any person who proves to have a legal interest in the closure seals being removed – which is not necessarily configured by the person who committed the infraction from which the closure derived -. The request to remove the seals can be made directly to the administrative authority that ordered the closure or it can be requested through a judicial procedure.³³²

274. The owners of the properties where the Claimants' casinos were located, requested the seals removal through the lawsuits they filed against the Gaming Companies for breach of the lease contracts. The actions that SEGOB carried out to seals removal were performed in compliance with court orders, so it is clear that removal was completely valid and legal under Mexican law and, furthermore, incidentally, it was duly justified.

275. Likewise, it is important to specify that, with the close down of E-Games establishments, what the SEGOB permanently prevented was the holding of games with bets and raffles, and not the use of the properties in which the establishments were located, which, in addition, contrary to what the Claimants indicate,³³³ were not owned by E-Games, this is why, as the judgments of the leasing lawsuits were issued, the SEGOB, in compliance with such judgments, removed the seals to give legal possession to the owners of the properties.

276. As explained from the Counter-Memorial, E-Games and Gaming Companies, in some lawsuits, had or should have had knowledge of the lawsuits that gave rise to the seals removal in the establishments where their casinos operated, since they were a defendant in such jurisdictional proceedings.³³⁴ Therefore, the Claimants' accusations that they suffered significant due process denials are meaningless, since as the defendant in the lawsuits brought by the owners of the properties where their casinos were located, it is unlikely that they did not had knowledge of the

³³² RER-5, Second expert report of Mr. Alfredo Lazcano Sámano, ¶ 170. ↩

³³³ Reply, ¶ 356 (“SEGOB's politically motivated and intentional lifting of the seals thus illegally deprived Claimants of their due process and property rights”); ¶ 719 (“While SEGOB claimed that it was returning the buildings to their owners, that action further destroyed Claimants' investments, because SEGOB failed to notify E-Games as required by law because E-Games was an interested party with a property interest in the facilities. "); ¶ 893 (“During this time, E-Games retained property rights to those locations and to the costly material inside of them (which were investments of Claimants”) ↩

³³⁴ Counter-Memorial on the Merits, ¶ 368. ↩

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legal actions derived from such proceedings. In this regard, it is clear that the Claimants intend to blame the Respondent for their own carelessness in omitting or properly defending their interests.

1. Naucalpan Casino

277. The Claimants argue that the removal of the closure seals and the return of the premises where the Naucalpan Casino operated were subsequent to a fire that consumed the establishment in May 2017.³³⁵ In addition, they state that Mr. Alfredo Moreno Quijano never acted on behalf of E-Games to effect the removal of the machines that were in that location, but rather he acted for personal benefit in order to derail the Claimants' efforts under this arbitration.³³⁶

278. The Respondent considers necessary to stress two important aspects that happened in this establishment: i) there is a ruling dated December 5, 2016, through which the Fifth Civil Court of the First Instance of the Tlalnepantla Judicial District, ordered permanently to SEGOB to remove the closure seals and place the property in the material and legal possession of the plaintiff in the lawsuit, that is, Messrs. Jovita Guadalupe Rodríguez Deciga, María de los Ángeles Rodríguez Deciga, Silvia Araceli Rodríguez Huerta and Jose Juan Rodriguez Huerta;³³⁷ ii) within the judicial records that the Claimants themselves mention in their Reply,³³⁸ it is observed that the plaintiff in the lawsuit was Mrs. Jovita Guadalupe Rodríguez Deciga, et. al. and within the ruling dated November 18, 2015 on which they base their statement to argue that no authority ordered the removal of the seals, express reference is made to the fact that "a final judgment has been issued and it has been ordered to place in legal possession and material of such property to the plaintiff, a circumstance that in its case would imply the breaking of the seal [sic] of closure",³³⁹ which, contrary to what the Claimants point out, it reinforces the position of the Respondent in the sense that it was by court order that SEGOB lifted the closure seals on such establishment and not on its own initiative.

³³⁵ Reply, ¶ 341. ↩

³³⁶ Id., ¶ 343. ↩

³³⁷ Exhibit R-073, Oficio DGJS/DGAAD/106/2017 of September 5, 2017, p. 3. “[Consequently, turn the documents over to the Executor assigned to this Court and the property subject to this trial is constituted and put in material and legal possession of the plaintiff, all of the above, to stop violating the property right of the plaintiff about the property]” ↩

³³⁸ Reply, ¶ 333. ↩

³³⁹ Exhibit C-408, Ruling dated November 18, 2015, p. 1. ↩

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279. The Claimants insist that SEGOB, after the seals removal, did not notify to the Claimants that the seals had already been removed, “despite the valuable assets housed in the premises, including Claimants' gaming machines."³⁴⁰ This Claimants' statement contradicts what they themselves argue regarding they were aware that it was Mr. Alfredo Moreno Quijano who removed the machines from the Naucalpan Casino without their consent.³⁴¹ It is more than obvious that if the Claimants were aware that Mr. Alfredo Moreno Quijano or one of the “bad actors in Mexico”³⁴² had illegally removed the machines, they were also aware that such persons had broken the closure seals, since that it was materially impossible to remove the elements (machines and any other property) that were inside the casino facilities, without first violating them.

280. Similarly, the Claimants cannot argue that, when SEGOB carried out the seals removal, "valuable assets” were inside the facilities, when they were fully aware that the machines had already been previously removed by completely unrelated persons. to SEGOB (i.e. Mr. Alfredo Moreno Quijano). The Claimants once again distort the facts and try to transfer their responsibility for the mismanagement and handling of their investment, since today they intend to hold the Respondent was responsible for what happened at the Naucalpan Casino, stating that “SEGOB permitted third parties to break the closure seals, enter the Casino and improperly remove Claimants' machines."³⁴³ However, it should be noted that the theft of the Claimants' assets constituted a criminal act³⁴⁴ that the Claimants acknowledge was carried out by persons acting "against the interests of the Claimants and for their own personal benefit" (i.e. Mr. Alfredo Moreno Quijano),³⁴⁵ so the Claimants cannot argue that it was SEGOB's responsibility, let alone that it was SEGOB who allowed such criminal act, besides of the fact that the Claimants do not provide any evidence to prove their statement.

281. Likewise, it is important to highlight that, at the time of the verification visit to the Naucalpan Casino, resulting from which the closure seals were placed on such establishment, it

³⁴⁰ Reply, ¶ 341. ↩

³⁴¹ Id., ¶ 343. ↩

³⁴² CWS-60, Fourth Witness Statement Mrs. Erin Burr, ¶ 136. ↩

³⁴³ Reply, ¶ 344. ↩

³⁴⁴ Exhibit R-099, Article 187 of Criminal Federal Code, “[Whoever breaks the seals placed by order of the public authority will be applied thirty to one hundred and eighty days of work in favor of the community.]" ↩

³⁴⁵ Reply, ¶ 343. ↩

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was left as the depositary of the assets that were interior of the same, to Mr. Patricio Gerardo Chávez Nuño, who held himself out as an administrative employee of the casino, reiterating his sworn, so this person who was left responsible for safeguarding the machinery and assets that were inside the property:

In this act and swearing the charge, C. Patricio Gerardo Chávez Nuño is left as the depositary of the real estate as well as the personal property, values, artifacts and documents that are inside it, reiterating his sworn the position, and stating that the establishment is operating twenty-four hours³⁴⁶

282. Based on the foregoing, it is unquestionable that the Claimants, having had full knowledge of (i) who carried out the theft of their assets, and, (ii) who acted as depositary, could have filed criminal complaints against such persons, however, they chose not to do so and now claim that the Respondent is responsible for the decision in the omission not to initiate the corresponding complaints, so once again the Claimants misrepresent the facts that occurred. Likewise, once again the negligence of the Claimants to perform an adequate defense of their interests before Mexican courts is evident.

2. Mexico City Casino (San Jerónimo)

283. The Claimants insist that the lifting of seals carried out in the establishment located in San Jerónimo was carried out ex officio by SEGOB,³⁴⁷ taking into consideration that “The court only ordered the termination of the lease agreement and the subsequent delivery of the premises to the owners but did not order the lifting of the seals."³⁴⁸ The Claimants ignore the fact that when the Forty-first Civil Court in Mexico City ordered, by resolution of April 27, 2017, that the property in question should be vacated and that possession should be delivered to the owners,³⁴⁹ the lifting of the seals was a direct consequence of the correct compliance with said resolution, since it was materially impossible for the defendant to vacate the property and hand over possession of it to the plaintiff, without having access to the interior of the facilities; Likewise, this resolution caused that

³⁴⁶ Exhibit C-303, Verification Act from April 24, 2014, Naucalpan Casino, p. 8. ↩

³⁴⁷ Reply ¶ 347 ↩

³⁴⁸ Id., ↩

³⁴⁹ Anexo R-077, Judgment of the Forty-first Civil Judge in Mexico City, April 27, 2017, p. 11, "Consequently, the defendant morality JUEGOS DE VIDEO Y ENTERTENIMIENTO DEL D.F., S. DE R.L. DE C.V. vacating and handing over the real estate object of the contract" ↩

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"the legal cause for which the closure seals were imposed would cease to exist,"³⁵⁰ giving rise to SEGOB, at the request of the company Del Bosque Corporación, S.A. de C.V., plaintiff in the trial of rescission of the lease, will carry out the lifting of the closing seals on said property.

284. During the procedure by which the seals were removed at the San Jerónimo Casino, carried out on July 6, 2017, the E-Games representative, Mr. Zavala González, left the place despite the fact that the commissioned inspectors asked him to wait until the end of it;³⁵¹ although the Claimants argue in their Reply that “Mr. Chow requested that Mr. Zavala González appear on behalf of E-Games in this proceeding, but as the Tribunal is aware, Mr. Chow was never acting in the best interests or on behalf of the Claimants",³⁵² this saying is completely unrelated to the SEGOB's actions since it was not its authority to determine whether or not such person in the proceeding acted “for the benefit” of the Claimants, when he acted as representative of the Claimants; the only evidence of this specific action is that the Claimants were aware of the seals removal, or else there was negligence of them with respect to following up on the matters that pertain to their interests.

3. Cuernavaca Casino

285. In their Reply, the Claimants state that in the Cuernavaca Casino the “court did not order SEGOB to lift the seals”³⁵³ Contrary to what the Claimants point out, the resolution of the Third Civil and Commercial Court of the First Judicial District of the State of Morelos, on February 17, 2017, ordered the defendant the physical, real, material and legal return of the property"³⁵⁴ which, as in the Mexico City Casino, required that the seals be removed by the competent authority, this being a necessary requirement to comply with the aforementioned resolution. For this reason, the

³⁵⁰ Exhibit R-076, Ruling from SEGOB dated July 3, 2017. ↩

³⁵¹ Counter-Memorial on the Merits, ¶ 380; Citing Exhibit R-078, Detail Report of July 6, 2017, pp. 4 and 5. ↩

³⁵² Reply, ¶ 354; “despite the fact that the Claimants refer to the procedure in which Mr. Zavala González participated in the lifting of the seals of the Villahermosa Casino, it seems that the correct was to refer to that of the Mexico City Casino, since it is in the only procedure in which said representative of E-Games is located." ↩

³⁵³ Reply, ¶ 348. ↩

³⁵⁴ Exhibit C-409, Judgment from February 17, 2017 issued by the Third Civil and Commercial Court of the First Judicial District, p. 65. “The defendant is sentenced to the physical, real, material and legal return of the property located at Vicente Guerrero Avenue number 1, Neighborhood Lomas de la Selva of this City, Cuernavaca Morelos” ↩

[Page 101]

SEGOB, "in order to materialize the decision adopted by the judicial authority",³⁵⁵ ordered that the seals removal procedure was carried out, which was performed on December 21, 2017, handing over possession of the property to Inmobiliaria Esmeralda, S.A. of CV.³⁵⁶

286. Once again, it can be seen that SEGOB's actions were carried out based on what was ordered by a judicial authority, without it being “sua sponte, under its own discretion”³⁵⁷ as the Claimants misrepresent.

4. Villahermosa Casino

287. In the Villahermosa Casino, the situation was alike, since a special mortgage judgment was filed for non-payment of rent.³⁵⁸ However, as stated in the Counter-Memorial, the Claimants' own reluctance to participate in such lawsuit was what caused them to have no further information on the legal status of the property.³⁵⁹ The Claimants, then, cannot continue to argue that they were not aware of the legal actions that took place in the establishments that operated their casinos.³⁶⁰ Well, as it was said earlier, they always had at their disposal the pertinent actions in which the lifting of the seals was recorded, as well as the material return of the property where their casinos operated.

288. In the detail record of removal of seals from case file 370/2015, it can be seen that on March 19, 2021, the SEGOB carried out the seals removal derived from the administrative proceeding that was performed with the case file AJD/001/21-III.³⁶¹ It should be noted that the Claimants were notified of such seals removal, through oficio DGJS/DIV/0444/2021 dated March

³⁵⁵ Exhibit R-079, Oficio from SEGOB of December 11, 2017. ↩

³⁵⁶ See Exhibit R-080, Detail Report dated December 21, 2017. ↩

³⁵⁷ Reply, ¶ 351. ↩

³⁵⁸ See Exhibit R-081, Written request of Tabasco S.A. de C.V. addressed to SEGOB of June 14, 2016, p. 3. ↩

³⁵⁹ Counter-Memorial on the Merits, ¶ 386. ↩

³⁶⁰ Reply, ¶ 351 ↩

³⁶¹ Exhibit R-120, Case file 370/2015, Detail Report of seals removal from March 19, 2021, pp. 1-11 “I. Through oficio DGJS/DJ/289/2021, dated March 10 (ten) 2021 (two thousand and twenty-one), signed by Lic. Rocío Méndez, Mancilla, Legal Director, requested the Inspection and Surveillance Directorate to withdraw the definitive closure stamps of the property located on Periférico Avenue without number, Neighborhood Carrizal, Villahermosa Tabasco, due to the ruling dated March 08 (eight), 2021 (two thousand and twenty-one) issued by the General Director of Games and Raffles, dictated in records of administrative case file AJD/001/21-III.” ↩

[Page 102]

17, 2021, however, they did not appear for such proceeding.³⁶² Likewise, they failed to refer to this situation in their Reply, which clearly evidences the advantageous manner in which they act, since they were always fully aware that the seals removal was carried out after this arbitration began, however, they have referred at all times to the fact that such act was carried out by SEGOB in an improper manner,³⁶³ and as a fact prior to their claims.

289. Similarly, the fact that SEGOB carried out the seals removal of the Villahermosa Casino long after the Second Civil Court of First Instance of the State of Tabasco issued its resolution dated July 2, 2019, in which the Eviction trial promoted by Promotora de Tabasco, S.A. de C.V. was resolved.,³⁶⁴ it denotes that SEGOB did not act arbitrarily and mutually, but once the corresponding jurisdictional procedures were carried out which culminated in the seals removal of this establishment in 2021.

5. Puebla Casino

290. In the case of the Casino located in Puebla, the owner of the property demanded the termination of the leasing contract before the Fourth Specialized Civil Judge in the City of Puebla,³⁶⁵ derived from which, on August 16, 2016, such Judge ordered the vacating and material return of the property.³⁶⁶

291. It is important to mention that Scotiabank Inverlat, S.A. also filed an amparo proceeding whose resolution ordered to the SEGOB to “comply with the protective ruling",³⁶⁷ therefore, in compliance with such court order, on July 13, 2017, the SEGOB removed the closure seals, returning the property to the plaintiff in the trial.³⁶⁸ This once again demonstrates that SEGOB's actions were based on court orders, without acting in a discretionary manner as the Claimants

³⁶² Id., p.5. ↩

³⁶³ Reply, ¶ 351. ↩

³⁶⁴ See, Exhibit C-412, Judgment from July 2, 2019, issued by the Second Court of First Instance of the State of Tabasco. ↩

³⁶⁵ Exhibit R-073, Oficio DGJS/DGAAAD/106/2017 of September 5, 2017, pp. 2 and 3. ↩

³⁶⁶ Exhibit R-083, Judgment from del Fourth Specialized Civil Judge from the Judiciary District of Puebla from August 16, 2016, p. 14 ↩

³⁶⁷ Exhibit C-414, Oficio DGJS/DGARV/3546/2017 of July 5, 2017. ↩

³⁶⁸ Counter-Memorial on the Merits, ¶ 389. ↩

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intend, since the evidence presented demonstrates that the actions of the Government of Mexico were at all times in accordance with the law and in accordance with applicable legislation.

292. The Respondent respectfully notes that, it cannot go unnoticed by the Tribunal that the Claimants acknowledge that “an administrative judge later ordered the lifting of the seals as a result of an amparo proceeding",³⁶⁹ which discredits their own statement regarding that SEGOB " did not simply lift the seals in compliance with a judicial order",³⁷⁰ further demonstrating that it was aware of what was happening in the several trials in which the return of the properties to their respective owners was ordered.

6. SEGOB had no obligation to notify the Claimants regarding the the seals removal

293. Regardless of what was stated in the previous paragraphs, Mr. Lazcano explains that, since the Claimants did not have a property right over the real estate where their casinos operated, the SEGOB did not have the obligation to notify regarding the lifting of the seals of closure, because in the strict sense, E-Games had no legal interest in having the properties returned to it, since they were returned to their legitimate owners through the respective civil lawsuits that were filed.³⁷¹

294. In any case, what the Claimants may be confusing is the state of closure of their establishments, which was caused by not having a valid and current permit, a situation that never changed and therefore, the SEGOB could not order the seals removal by mutual own, but only in compliance with a court order or at the request of whoever had the legitimate interest to request it, even the fact that the legal status in which the authorization was found at that time would have been a possibility E-Games would have changed, however, it did not happen. Therefore, the Claimants' argument that the SEGOB should have notified Mr. Gutiérrez, since it knew that he was an attorney for E-Games,³⁷² lacks support and validity, since if they were so interested in the assets located within the properties should have been aware of the lawsuits by virtue of which the properties were returned to their legitimate owners.

³⁶⁹ Reply, ¶ 350. ↩

³⁷⁰ Id., ¶ 333. ↩

³⁷¹ RER-2, First expert report of Mr. Alfredo Lazcano Sámano, ¶¶ 187-190. ↩

³⁷² Reply, ¶ 353. ↩

[Page 104]

295. Similarly, the Claimants argue that, as a result of the SEGOB closing their casinos, they were deprived of an address in Mexico for notification purposes in the several lawsuits in which they did not appear.³⁷³ However, it should be noted that Mexican law provides for other means of subpoena to trial a person who does not have a fixed address or of whom there is no knowledge,³⁷⁴ so the Claimants' argument lacks effectiveness to demonstrate that there was no carelessness in the defense of their interests, both in the removal of seals and in the restitution of possession of the premises to their legitimate owners, proof of this is the way in which the jurisdictional authorities tried to notify the Gaming Companies and even so the trials went in absentia:

XIII.- And since the defendant was subpoenaed by means of edicts, it is logical to notify him of this resolution by that means of communication, edicts that must be published twice every three days in the newspaper "El País", in accordance with article 639 of the Code of Civil Procedures for the Federal District.³⁷⁵

296. As can be seen, the SEGOB acted in strict compliance with court orders that determined the material and legal return of the properties to their respective owners was appropriate; therefore, there was no discretion from SEGOB when carrying out the seals removal, as the Claimants intend to make believe throughout their Memorial of Claim and Reply. Therefore, the Claimants cannot argue damage to due process, nor to their property rights, since they were not the legitimate owners of the establishments where their casinos operated, and under that understanding, the SEGOB had no obligation to notify them regarding any matter related to the seals removal, or the material return of the property, in addition to the fact that, as previously stated, the Claimants had, or should have had, knowledge regarding what happened in the trials through which it was ordered return the properties to their respective owners for having the contractual lease relationship.

³⁷³ Id., ¶ 353. ↩

³⁷⁴ See, for example, Exhibit R-102, Civil Procedures Code of the Mexico City, Article 122 “The notification by edicts proceeds: I. In the case of uncertain persons; II. In the case of people whose address is unknown, prior report from an institution that has an official registry of people; in this case, the trial must be followed with the requirements and formalities referred to in the Ninth Title of this Code. In the cases of the two preceding sections, the edicts will be published three times, three days apart, in the judicial bulletin and in the local newspaper indicated by the judge, with two working days between each publication, making it known that who is summoned must present, within a term [sic] that will not be less than fifteen days nor will it exceed sixty days” [emphasis added] ↩

³⁷⁵ Exhibit C-410, Judgment of April 27, 2017, issued by the Forty-First Civil Court in Mexico City, p. 11. ↩

[Page 105]

I. E-Games permit applications

1. Deficiencies in the applications for new permits

297. In addressing the new permits applications and seeking to dismiss Respondent's allegations, the Claimants consider that the Respondent's arguments are unsuccessful because: i) SEGOB could issued new permits with the purpose to modify the legal situation of E-Games, allowing to operate it again, it would have accredited the requirement of having the legal possession of the establishments where they will operate; ii) given the deficiencies in the applications, the Respondent elude the procedure established in article 17-A of LFPA, and iii) such elution prevented them from appeling the rejection of SEGOB to their new applications.376 The Respondent rejects this assertions and, in addition to what is argue in the Counter Memorial, deepens and clarifies the facts that the Claimants distort.

298. To clarify the point wheter SEGOB could have issued new permits to modify the legal situation of E-Games, it´s neccesary to point out in the first place that the condition refers to the fact that the establishments in wich they have requested for new permits were closed. How it was explained in the Counter Memorial³⁷⁷, from the analysis that SEGOB carried out on the applications of E-Games, it concluded, that they could not operate their casinos because they were closed for operating without a valid permit.

299. The Claimants insist that SEGOB's decision was that in order to obtain a permit, it was necessary that the casinos were open and operating. In other words, The Claimants asume without any legal and logical support that it was the same to have closed establishments as have a closure on those establishements for not operate with a valid permit, they argue: “Mexico's reasoning regarding E-Games' supposed impediment to open the Casinos under new permits because their Casino locations were closed down as of April 24, 2014 has no basis under Mexican law and defies common sense" ³⁷⁸ This is imprecise and incorrect e impreciso as it is going to be explained below.

300. First, this fact is supported by the RLFJS which establishes that, in order to obtain a permit to hold games with bets and raffles, it is required, among others, to accompany the information

³⁷⁶ Reply, ¶¶ 357-362. ↩

³⁷⁷ See Counter Memorial on the Merits, ¶¶ 392-394. ↩

³⁷⁸ Reply, ¶ 358. ↩

[Page 106]

and documentation that proves the legal possession of the establishments were it is intended to operate.³⁷⁹ Second, Claimant´s establishments were not only closed, which was irrelevant, but had been closed by an authority. Third, given that the Claimant's establishments for which the had applied for new permits were closed, there was a legal impediment to operate in those establishments.³⁸⁰ As explain by Mr. Lazcano “a closure is not an isolated administrative act, but (...) it is a sanction and therefore forms part of what is known in theory as sanctioning administrative law.”³⁸¹ Fourth, this sanction was imposed due to the ilegal action of E-Games when operating its establishments without a valid and current permit.³⁸²

301. Now, the Claimants state that the casinos of E-Games could operate if SEGOB have granted them the new permits that they requested³⁸³, since they assume that: i) the only requirement that they didn't accomplish was the legal accreditation of the possession of the establishments, and ii) SEGOB had the faculty to change in a single act the legal situation by granting new permits. This is false.

302. The Claimants ignore that the applications and the documentation they submitted to obtain the new permits, did not accomplish with the totality of the requirements provided in the RLFJS as SEGOB determined on August 15, 2014, since: i) they could not operate the casinos because they were closed for operating withouth a valid permit and, therefore, there was a legal impediment to operate in said property,³⁸⁴ ii) they din't explain the source of the investment;³⁸⁵ iii) they did not comply with the requirement to present documentation proving that the applicant has the favorable opinión of the corresponding federal entity or delegation authority for the installation of the

³⁷⁹ Exhibit R-033, RLFJS. Article 22, “For the purposes of the pemits provided in section I of article 20, in addittion to the requiremnts indicated in the previous article, the applicant must accompany to the request the following information and documentation: [...] VIII.- Indicate the legal modality according to which the requesting Company has or intends to obtain the legitimate possession or ownerships of the property in which the establishment is installed." ↩

³⁸⁰ See Counter Memorial on the Merits, ¶ 394. ↩

³⁸¹ RER-5, Second expert report of Mr. Lazcano, ¶ 162, adressing RER-2, First expert report of Mr. Lazcano, ¶ 176. ↩

³⁸² Id. ↩

³⁸³ Reply, ¶¶ 358-359. ↩

³⁸⁴ Counter Memorial on the Merits, ¶ 394. ↩

³⁸⁵ Id., ¶ 395. ↩

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establishment whose permit is requested,³⁸⁶ y iv) it was necessary to verify the authenticity of the favourable opinions presented for the casinos located in Cuernavaca an San Jerónimo, since SEGOB did not have the certainty about the veracity of the signatures from the public servants that issued the documents and also did not have the seals of the authority.³⁸⁷

303. In fact, the Claimants din't present the documentation or objective evidence to refute SEGOB's determination, but they only focus on establishing that the reason for the denial of their requests was that E-Games could not use the establishments where their casinos³⁸⁸ operated because they were closed, which clearly was not the case.

304. About the alleged faculty of SEGOB to change the legal situation [closure] of E-Games by granting new permits, the Respondent clarifies that this was not possible under the Mexican law. As explain by Mr. Lazcano, the closure is a sanction that, its revocation should have been through a resolution in the corresponding sanctioning procedure:

Indeed, the closure of the Establishments was constituted as a sanction for the illegal action of E-Games to operate said Establishments without a valid and current Permit, which is why the Sanctioning Procedure mentioned in paragraph 157 of this document was initiated. [...]. The revocation of the closures, if any, should have been given as a resolution of said Sanctioning Procedure...³⁸⁹

305. Therefore, it was not possible for SEGOB to granted the new permits requested by E-Games to revoke the closures of the casinos, because this have to be ordered in the resolution of the corresponding sanctioning procedure.³⁹⁰ However, the Respondent emphasizes that, even if E-Games had accredited the requirement of having legal possession of the establishments, its requests would have been rejected, since it did not achieve with all the requirements demanded by the RLFJS.

306. On the other hand, the Claimants erroneously state that the Respondent “completely circumvented the procedure established in article 17-A of the Law of Federal Administrative

³⁸⁶ See, Id., ¶ 396. ↩

³⁸⁷ See, Id., ¶ 399. ↩

³⁸⁸ See, Reply, ¶ 362. ↩

³⁸⁹ RER-5, Second expert report of Mr. Lazcano, ¶ 182. ↩

³⁹⁰ See Id., ¶¶ 183 y 184. ↩

[Page 108]

Procedures (sic)"³⁹¹ and seek to extend the effects of this provision to situations not foreseen in the LFPA

307. Claimants point out, with the support of their expert Mr. González, that “Article 17-A required SEGOB not only to inform E-Games of any alleged deficiencies in its new permit applications (in this case, those regarding the investment plan and the certificates of good standing), but also to follow certain parameters set forth by Mexican courts for affording E-Games an opportunity to cure the deficiencies”.³⁹² These allegations are incorrect.

308. AAs explain by Mr. Lazcano, article 17-A of the LFPA is applicable “exclusively to the writings presented by the applicants, but not to the documents that are attached to them.”³⁹³, therefore, the obligation that SEGOB had in any case, was that if they detected any lack or non-compliance in the application, which indeed not occur, they should request E-Games to correct the non-compliance, it means, that this requirement only applies to the written request and not for the documentation that is attached to the said request.

Official Letter referred to in Article 17-A of the LFPA, and about which the authority is obliged to prevent missing data or non-compliance with requirements, was, in fact, Official Letter requesting the Permit that E-Games submitted by each of the Establishments. However, SEGOB's assessment on which the refusal to grant Permits was based refers to the documents that accompanied the application and not merely to the application (or writing).³⁹⁴

309. In this sense, the Respondent clearly did not fail to comply with the provisions of article 17-A of the LFPA, since SEGOB did not detect any deficiency or lack of information in the E-Games application documents (for example, the address, nationality or full name), for which it was not necessary to notify him so that he could correct any deficiency in the said applications. As Mr. Lazcano concludes, it is wrong to argue that article 17-A of the LFPA was not addressed because SEGOB was obliged to notify E-Games about the requirements that it had allegedly not met, since the non-compliance with the requirements that regulates article 17-A of the LFPA refers to the form requirements of the permit application and not to the substantive requirements for the

³⁹¹ Reply., ¶ 363. ↩

³⁹² Id., ¶ 364. ↩

³⁹³ RER-5, Second expert report of Mr. Lazcano, ¶ 186. ↩

³⁹⁴ Id., ¶ 188. ↩

[Page 109]

granting of this.³⁹⁵ It should be noted that the rejection of the E-Games applications was due to non-compliance with the substantive requirements established by the RLFJS, not formally.

310. Lastly, the Claimants, alleged failure of SEGOB to carry out the procedure provided for in article 17-A of the LFPA, and in its attempt to hold the Respondent responsible for its acts and omissions, affirm that this omission prevented them from appealing SEGOB's rejection of their new applications, which is false, because the said procedure was not applicable, the truth is that neither the appeal for review nor the annulment trial³⁹⁶ require that the procedure provided for in article 17-A of the LFPA be exhausted, as a condition for accessing to these legal remedies. Likewise, SEGOB informed E-Games in all its response letters about the right it had to challenge SEGOB's resolution.³⁹⁷

2. Megasport permit application is different from the E-Games

311. Once again, the Claimants try to make the Tribunal believe that SEGOB had a discriminatory treatment in the granting of new permits to E-Games with respect to what happened with Megasport, they pointing out that the Respondent fails in its attempt to distinguish the situation of E-Games Games and Megasport. In their opinion, the fact that Megasport closed its establishments before SEGOB closed them, does not make sense and is not justified under Mexican law, and they consider that this fact is irrelevant and that it only confirms the discriminatory behavior of the Respondent.³⁹⁸

312. The Claimants do not mention or address a fundamental aspect that differentiates the situation between E-Games and Megasport, the E-Games casinos had been closed by SEGOB, while “SEGOB closed one of the Megasport establishments, “ Casino 777 Fortuna" ³⁹⁹ and, consequently, “Megasport informed to SEGOB [...] the closure of 40 establishments located throughout the country.”⁴⁰⁰

³⁹⁵ Id. ↩

³⁹⁶ Legal remedies that were available to challenge SEGOB´s decision under the Mexican law. ↩

³⁹⁷ RER-5, Second expert report of Mr. Alfredo Lazcano Sámano, ¶ 189. ↩

³⁹⁸ Reply, ¶¶ 366-367. ↩

³⁹⁹ Counter Memorial on the Merits, ¶ 405 ↩

⁴⁰⁰ Id. ↩

[Page 110]

313. For the Claimants, the same treatment should be given to different legal situations [closure and closed], however, both situations have different legal effects, in particular, the closure constitutes "a legal impediment to operate in said properties [of E- Games]"⁴⁰¹ for being a sanction under Mexican law.

314. The Respondent reiterates that what was relevant and differentiating between the factual situations of E-Games and Megasport was the legal situation in which their casinos were at the time of requesting for new permits to operate, not the fact that their facilities were open or closed. In this sense, it is false that there was an artificial, irrelevant and unfounded distinction, as well as a discriminatory conduct of the Respondent as indicated by the Claimants.⁴⁰² It cannot be concluded logically or legally that the closure of an establishment ordered and carried out by an authority (i.e. SEGOB) due to non-compliance with the requirements to operate, is the same as a voluntary closure of an establishment that did not have an order from an authority as a precedent.

315. The Claimants do not refute that, unlike what Megasport did, “decided to continue operating the six casinos illegally without a valid permit, despite the fact that the Sixteenth Court had confirmed the revocation of the Permit Holder-BIS Oficio since 10 March 2014,”⁴⁰³, while Megasport, in addition to challenging the resolution that canceled its permit to operate, "avoided the closure of its casinos by shutting them down as soon as their permit to operate was revoked.”⁴⁰⁴

J. The Respondent did not interfere with Claimant's efforts to sell their assets from the casinos

316. The Counter-Memorial explained that "[t]he Respondent cannot be responsible for the fact that the Claimants were not successful in their negotiations to sell their Casinos or transfer their businesses and that “it seems that the causes were due to a lack of Claimants' own agreements, misunderstandings, and 'irregular' operations."⁴⁰⁵

317. In their Reply, the Claimants again accuse the Respondent of interfering with the Claimants' efforts to sell their casino assets and that “in an attempt to evade responsibility for its

⁴⁰¹ Counter Memorial on the Merits, ¶ 394. ↩

⁴⁰² Reply, ¶ 367. ↩

⁴⁰³ Counter Memorial on the Merits, ¶ 407. ↩

⁴⁰⁴ Id. ↩

⁴⁰⁵ Id., ¶ 418. ↩

[Page 111]

actions [the Respondent] inaccurately blames to the Claimants for their inability to sell the Casinos."⁴⁰⁶ Furthermore, the Claimants point out that "SEGOB expressly rejected and hindered all of the Claimants' efforts” and that multiple General Directors of the DGJS “went to explicitly state that they would not allow the Casinos to reopen as long as US shareholders remained involved."⁴⁰⁷

318. In relation to Televisa's business, the Claimants point out that “when the representatives of Televisa communicated to SEGOB (and specifically to Ms. Salas) their interest in the Claimants' Casinos, SEGOB did not would approve the proposed transaction"⁴⁰⁸ and that: "(i) Mexico improperly and intentionally interfered with the Claimants' efforts to reopen the Casinos or sell the Casino assets after the closure of the Casinos and (ii) denied the Claimants the opportunity to mitigate their damages."⁴⁰⁹

319. The foregoing is false, since, as has been demonstrated by the statement made by Ms. González Salas⁴¹⁰, SEGOB never intended to block or interfere with the sale of Claimants' casinos. In fact, Ms. González Salas reiterates that she met with “with Messrs. José Antonio García (PlayCity) and Juan Cortina Gallardo, who intended to acquire the E-Games centers to operate them, however, I reiterate that I limited myself to pointing out that they had to find out the situation of those casinos, since they were not in a legal condition to be reopened"⁴¹¹, which does not imply in any way an interference or improper intention on the part of SEGOB for the reopening of the Claimants' casinos or for the sale of their assets.

320. Furthermore, the documents obtained in the document production phase of this proceeding show that the Claimants voluntarily walked away from the transaction with Televisa and instead opted for this arbitration. For example, in Mr. John Conley's email to Mr. Gordon Burr dated October 2015, Mr. Conley states that if arbitration were filed under NAFTA, the agreement with Televisa would be dead:

⁴⁰⁶ Reply, ¶ 368. ↩

⁴⁰⁷ Id., ¶ 370. ↩

⁴⁰⁸ Id., ¶ 373. ↩

⁴⁰⁹ Id., ¶ 376. ↩

⁴¹⁰ RWS-1, First witness statement of Ms. Marcela González Salas, ¶¶ 22, 23 y 24. ↩

⁴¹¹ RWS-4, Second witness statement of Ms. Marcela González Salas, ¶ 29. ↩

[Page 112]

Gordon, before we start voting on NAFTA I would like to call an investor meeting to explain where we are with Televisa. I asked Erin to give me the e-mail address she uses to send general correspondence to the all the investors but have never received it. I had surgery on my hand today so I have been kind of out of it. I'm sure you have spoken to Julio and he has a couple of things to do before you can file. Can't we wait to file your suit until we get the Televisa deal done? If not I want to hear it from the investors, because if you file a formal NAFTA suit now Televisa deal is dead.⁴¹²

[Emphasis added]

321. Likewise, in the email sent by Mr. Gordon Burr to Mr. Alfonso Rendón, also in October 2015, Mr. Gordon Burr highlights the expected benefits of this arbitration, instead of the sale to Televisa:

If we win NAFTA the Mexican investors will collect 10 times what they will in a Televisa sale your family will collect millions and will not even be able to vote on the filing so how could they be held responsible for the suit. I fail to see how this would be a problem for you.⁴¹³

[Emphasis added]

322. As can be seen, the Claimants voluntarily withdrew from the negotiation with Televisa, because it was in their interests to continue with the arbitration under NAFTA, than to continue trying to sell their casinos or assets. Therefore, the manipulation and distortion of the facts that the Claimants continuously carry out is evident.

323. In addittion, the Claimants pointed out that “[M]r. Burr has confirmed that Mr. García not only ominously told him before April 2014 that the Mexican government would shutter Claimants' Casinos, but also that Mr. García and Mr. Cortina told him during post-2014 negotiations that Ms. Salas would not permit the Casinos to reopen.' .”⁴¹⁴ The Respondent wishes to note that the Claimants repeatedly in their Memorial as well as in their Reply, have made the same argument, relying exclusively on Mr. Burr's Witness Statement; however, they have not shown any document to support their claims. Neither present the witness statement of Mrs. José Antonio García and/or Juan Cortina Gallardo, while the Respondent has presented two witness statements by Ms.

⁴¹² Exhibit R-112, Email of Mr. John Conley to Mr. Gordon Burr, Subject: NAFTA (October 12, 2015), p. 5. ↩

⁴¹³ Exhibit R-112, E-mail of Mr. Gordon Burr to Mr. Alfonso Rendón, Subjetc: Kash Sale (October, 19, 2015), p. 7. ↩

⁴¹⁴ Reply, ¶ 371. ↩

[Page 113]

González Salas, who was at the meetings, once again, the Claimants' distortion of the facts is evident.

324. Likewise, the Claimants argue that Mr. Luis Felipe Cangas, who was General Director of Games and Raffles of SEGOB, after the departure of Ms. González Salas in March 2015, said “that the casinos would not reopen until the American shareholders of the Games Companies were no longer directly involved in the Games Companies,”⁴¹⁵ which is false and just one more sample of the distortion of the facts that the Claimants have maintained throughout this arbitration, in their attempt to build a narrative that fits in their objectives, but the following needs to be highlighted.

325. First, by the date on which Mr. Luis Felipe Cangas assumed the position of General Director of Games and Raffles at SEGOB, the resolution of Amparo 1668/2011 was considered fulfilled, and also was declared that the E-Games Permit was null and void, as well as the resolution of the Appeal for Dissent, on January 29, 2015, in which it was indicated that SEGOB had complied with the sentence without incurring in excess or defect, due to what, by then, was irrelevant the fact that foreign investors were there or not, because nothing would change the status of their permit, which had already been declared non-subsistent. Second, Ms. González Salas has reiterated that she never requested that foreign investors not be present at E-Games to reopen their casinos.

326. Similarly, the Claimants try again to hold the Respondent responsible for its failed negotiations with Mrs. Benjamín Chow and Luc Pelchat, which, as indicated in the Counter-Memorial, apparently could not materialize due to misunderstandings with the Plaintiffs, the lack of agreement and "irregular" operations.⁴¹⁶ However, the Claimants insist on this point, stating that "the transaction failed mainly because SEGOB did not give approval to Mrs. Chow and Pelchat for the Casinos to reopen.' .”⁴¹⁷ This is false. The explanation is simpler, as has been pointed out and regardless of the Claimants' attempt mentioned above, the truth is that the casinos could not reopen if they did not have a valid and current permit. The Claimants have not provided any document that supports that they had such permission so that, in accordance with Mexican law, they could reopen their casinos.

⁴¹⁵ Id., ¶ 374. ↩

⁴¹⁶ Counter Memorial on the Merits, ¶¶ 415 - 418. ↩

⁴¹⁷ Reply, ¶ 374, citing Exhibit CWS-50, Third witness statement of Mr. Gordon Burr, ¶ 114. ↩

[Page 114]

327. Furthermore, the Claimants point out that, after the closure of their casinos, they approached to potential partners and high-profile buyers, including CODERE; however, the Claimants do not present any document or witness statement from CODERE that could confirm the alleged operation that they would have with that permit holder and they only present the statements of Mr. Gordon Burr⁴¹⁸ and Ms. Erin Burr.⁴¹⁹

328. Furthermore, the Claimants indicate that the Tribunal should make an adverse inference based on the fact that Mexico did not produce documents related to Mexico's alleged interference with the Claimants' efforts to sell the casinos; however, the Tribunal must reject this request, since, as explained above, Mexico did not interfere in the Claimants' efforts to sell their casinos or assets, that is why Mexico does not have the requested information since the facts narrated by the claims do not exist.

Κ. México did not initiate baseless and punitive investigations against the Claimants

329. The Claimants argue in their Reply that the Respondent's tax and criminal investigations were not substantially justified in their Counter-Memorial and reiterate that they were “unfounded, harassing, repressive and politically motivated”⁴²⁰. This is false. As noted throughout the Counter Memorial⁴²¹, the performance of the SAT when initiating its powers of verification [tax investigations] and throughout the corresponding procedure, was carried out within the current legal framework. Regarding criminal measures, SEGOB acted based on its powers and obligations in accordance with current legislation. However, the Respondent will elaborate on these points below.

1. The alleged tax measures taken in retaliation

330. Claimants point out that: i) Mexico used tax audits to continue its politically motivated campaign against Claimants and in retaliation for filing this arbitration; ii) as a result of this campaign, the SAT issued an unfounded resolution that imposed a tax credit on it; iii) even though

⁴¹⁸ CWS-50, Third witness statement of Mr. Gordon Burr, ¶¶ 109-115. ↩

⁴¹⁹ CWS-51, Third witness statement of Ms. Erin Burr, ¶¶ 117-122. ↩

⁴²⁰ Reply, ¶ 400. ↩

⁴²¹ See Counter Memorial on the Merits, Section II, Subsection S. ↩

[Page 115]

they used the same methodology previously approved by the SAT in 2012 for the 2011 period, it determined that they had failed to comply with their tax obligations, which demonstrates both the illegality of the determination and the political burden against them, and iv) the political burden of the matter caused that the legal remedies they initiated were unsuccessful.⁴²²

331. Contrary to what the Claimants point out, the explanation and reality of the facts is very simple. The Claimants failed to comply with their tax obligations, for which they were reviewed based on the established legal procedures, in which they had the opportunity to present their arguments and evidence, however, they could not justify or refute the omissions that were detected and, therefore, a tax credit was determined for the omission of the payment of various contributions. The Claimants had access to all legal remedies to challenge said tax credit, obtaining a partial victory. Therefore, there was no retaliation or illegality against the Claimants in the tax investigations.

332. As indicated by the Respondent, the tax authorities of the Mexican Government at no time retaliated against the Claimants, on the contrary, using their powers under Mexican law and respecting established legal procedures, they determined and demonstrated before jurisdictional authorities that E-Games had not complied with its tax obligations.

333. The Claimants try to build an argument of “harassment” based on the fact that they obtained an adverse determination from the SAT, stating that “it was due to political reasons and in retaliation for the fact that the Claimants had presented this arbitration.”⁴²³. However, they fail to note, among other things, that the tax investigation began on September 21, 2012, well before Claimants filed the NOI on May 23, 2014,⁴²⁴ in accordance with what was stated in the determination of the SAT of February 28, 2014:

This Strategic Control Administration "6" [...] of the Tax Administration Service [...] proceeds to determine the Tax Credit [...] for the fiscal year from January 1, 2009 to December 31, 2009, derived from the visit home inspection carried out under order number IDD9500016/12, contained in official letter number 500-05-2012-50794 of September 19, 2012, issued by the undersigned, same official letter that prior summons dated September 20, 2012, was duly delivered on the 21st of the same month and year, to C. Efraín Cabos Bonilla, in his capacity as third party of the taxpayer Exciting Games,

⁴²² See Reply, ¶¶ 401-403 y 850-857. ↩

⁴²³ Reply, ¶ 857. ↩

⁴²⁴ Notice of Intent dated May, 23, 2014. ↩

[Page 116]

'S. of R.L. de C.V., who for proof of receipt stamped in his own handwriting on the original that was delivered to him and in a part of the aforementioned official letter the following legend: "Prior identification of the visitors and reading of this official document, I received original.⁴²⁵

[Emphasis added].

334. Likewise, the Claimants try to construct the idea that the tax investigation of the SAT and the determination of the tax credit issued on February 28, 2014 for the amount of $170,475,625.02 with respect to various taxes, as well as for the distribution of profits for $5,601,964.87.512, was used "to continue its [SAT] campaign with political motivations against the Claimants" ⁴²⁶ and asserts that the Respondent has not justified the alleged unfounded and harassing fiscal investigation against it; However, this is not correct.

335. As indicated in the Counter-Memorial “[t]he resolution issued by the SAT, on February 28, 2014, derived from the verification powers that said authority has in tax matters,”⁴²⁷ this resolution is duly founded and motivated. In addition, as the SAT pointed out, the verifications they carry out, are carried out on technical bases, not political motivations, in order to select taxpayers who, according to these bases, are found to be failing to comply with their tax obligations:

The selection of taxpayers for the programming of tax reviews is generated based on the receipt of inputs (inputs) by different Administrative Units of the SAT, various dependencies of the Public Administration and other sources of collection; The purpose of said selection is to verify the correct compliance with the tax obligations of taxpayers, for which examination procedures are carried out on technical bases, which aim to select taxpayers for tax review purposes, in which behaviors that presume that they are not correctly complying with their tax obligations.⁴²⁸

[Emphasis added]

336. The foregoing shows how the SAT carries out the detection and selection of taxpayers to initiate its verification powers on objective bases, contrary to what the Claimants intend to argue based on a fictitious history of illegality and political persecution, on which they have not provided objective evidence to support it, only speculations and conjectures that are not verified with evidence. In addition, the Respondent notes that documents in this arbitration demonstrate the

⁴²⁵ Exhibit R-087, Official letter from SAT dated February 28, 2014. ↩

⁴²⁶ Reply, ¶ 401. ↩

⁴²⁷ Counter Memorial on the Merits, ¶ 430. ↩

⁴²⁸ Exhibit R-088, Official letter from SAT dated October, 13, 2020. ↩

[Page 117]

Claimants' own acknowledgment of their breach of tax obligations in Mexico, as Mr. John Conley admits:

JOHN CONLEY:[...] SEGOB didn't want me. When I was negotiating with Televisa, they told me SEGOB thought we were still associated with Rojas and that there were major tax issues, which there are and tax issues aren't like Gordon says there are, we didn't pay our fucking taxes, didn't pay them. He said we didn't have to, but now [UNINTEL]. We didn't pay period. They are due every month. We didn't pay.⁴²⁹

[Emphasis added]

JOHN CONLEY: The reason I [UNTNTEL] it even came up at all is we didn't pay our individual income taxes on the different juegos on the five companies, for 2013. And 1 asked Arturo, "What the fuck? We don't pay our taxes?" I mean, they can shut us down for that Why not Arturo?⁴³⁰

337. This shows the falsity of the Claimants' accusations about the SAT acted out of political motivation and retaliation against them. The truth is that the Claimants did not comply with the tax legislation applicable under Mexican law, even though, according to their statement, they “asked for advice from the SAT regarding the reporting obligations of E-Games of the casino operations"⁴³¹, it is even highlighted that the Claimants openly confirm not having paid their taxes for the 2013 fiscal year, so that, with said behavior and the technical analysis carried out by the SAT on the fulfillment of their fiscal obligations, it was foreseeable that they would be reviewed by the authority and sanctioned for their non-compliance in accordance with the provisions of current legislation, as finally occurred.

338. Finally, another aspect that the Claimants argue is the alleged political charge of the matter, which, in their opinion, made the legal remedies they pursued useless.⁴³² This is false and, like the previous allegations, the Claimants do not present objective evidence to support their statement. The Claimants try to justify in this way what they could not prove in the corresponding legal procedures, that is, the fulfillment of their fiscal obligations.

⁴²⁹ Exhibit CRT-07, p. 5; Exhibit R-110, Meeting Starbucks John Conley. ↩

⁴³⁰ Exhibit CRT-08, p. 7. ↩

⁴³¹ Reply, ¶ 402. ↩

⁴³² See Id., ¶¶ 403 у 850. ↩

[Page 118]

339. As noted in the Counter Memorial⁴³³, the Claimants had at their disposal all the means of defense and legal remedies⁴³⁴ to challenge the resolution of the SAT, which means that they had the opportunity to present arguments, allegations and evidence before judicial authorities, as they actually did, obtaining a partial victory, since the amount on the distribution of profits was revoked,⁴³⁵ reducing the total amount to be paid. Evidently, this partial victory would not have occurred if there had been a political campaign against the Claimants as they erroneously point out.

340. The Claimants fail in their attempt to build an argument to justify that the unfavorable result they obtained was due to political motivations, for the sole reason that their arguments did not prevail before the jurisdictional authorities. It has been pointed out and demonstrated that the SAT's resolution was duly founded and motivated in accordance with Mexican legislation, which was confirmed by various jurisdictional authorities.

2. The alleged criminal measures taken un retaliation

341. The Claimants assert that: i) the criminal investigations against E-Games and its representatives were in retaliation for the filing of this arbitration, and ii) such investigations were discretionary, based on an illegal closure.⁴³⁶ This is completely false as noted in the Counter Memorial⁴³⁷ and is going to be explain below.

342. The Claimants resort again to the alleged history of harassment and political persecution they suffered without presenting objective evidence to verify their statement. However, they fail in their attempt, because again the justification and reality of the facts is simpler than the fictional story they build. SEGOB detected the probable commission of a crime by finding them operating their casinos without a valid and current permit, for which it had to inform the competent authorities so that they could initiate the corresponding investigations in accordance with the Mexican legislation.

⁴³³ Counter Memorial on the Merits, ¶¶ 428 y 430. ↩

⁴³⁴ Appeal for Review, Nullity Trial and Amparo Trial. ↩

⁴³⁵ CWS-52, Fourth witness statement of Mr. Julio Gutiérrez, ¶ 107 y Exhibit R-101, Judgment of the Superior Chamber of the Federal Court of Fiscal and Administrative Justice dated March, 8, 2016, p. 936. ↩

⁴³⁶ Reply, ¶ 407 у 408. ↩

⁴³⁷ See Counter Memorial on the Merits, Section II.S.2. ↩

[Page 119]

343. As it was mentioned in the Counter Memorial⁴³⁸, Mexican legislation establishes that is a crime to operate casinos without a valid and current permit issued by SEGOB:

Prison shall be imposed from 3 months to three years and a fine of 500 to 10,000 pesos, and dismissal from employment, if applicable: [...] II.- To the owners, organizers, managers or administrators of establishments open or closed in which prohibited games and bets are carried out, without authorization from the Ministry of the Interior, as well as those who participate in the company in any way.⁴³⁹

[Emphasis added]

344. For purposes of the foregoing, it is important to point out that the Sixteenth Court issued a resolution on March 10, 2014, in which it confirmed that SEGOB had complied with Amparo 1668/2011, and as part of that compliance, the SEGOB had declared the E-Games permit invalid. Therefore, since at least March 10, 2014, Claimants have been operating their casinos without a valid permit from SEGOB.⁴⁴⁰

345. The SEGOB detected during the verification of the casinos, in the excercise of its powers of verification and control,⁴⁴¹ that E-Games were open and operating without a valid and current permit, for which it proceeded to close them. Consequently, as Ms. González Salas points out, SEGOB had to file a complaint with the competent authorities for the probable commission of the crime of illegal betting, as it actually did:

If a casino does not have a permit to operate, it must be closed and as i stated in my first witness statement, in the paraghaph 22, SEGOB must file the corresponding complaint for the crime of illegal gambling.⁴⁴²

[Emphasis added]

346. According to second paragraph of article 222 of the CNPP⁴⁴³, SEGOB, having knowledge of facts constituting a probable crime, had no other option but to file the corresponding complaint,

⁴³⁸ Counter Memorial on the Merits, ¶ 432. ↩

⁴³⁹ Exhibit R-030, LFJS, Article 12, fraction II. ↩

⁴⁴⁰ Counter Memorial on the Merits, ¶ 408. ↩

⁴⁴¹ See RER-5, Second expert report of Mr. Alfredo Lazcano Sámano, ¶ 134. ↩

⁴⁴² RWS-4, Second witness statement of Ms. Marcela González Salas, ¶ 32, See RWS-1, First witness statement of Ms. Marcela González Salas, ¶ 22. ↩

⁴⁴³ Exhibit R-039, CNPP, Article 222, second paragraph: "Whoever in the exercise of public functions becomes aware of the probable existence of a fact that the law indicates as a crime, is obliged to report it immediately to the Public Ministry, providing all the information he has, making the accused available to him, if they have been detained in flagrancia. Whoever has the legal duty to report and does not do so, will be subject to the corresponding sanctions. [Énfasis añadido] ↩

[Page 120]

since, under Mexican law, the authorities have the obligation to do so. This is explained by Mr. Lazcano:

[W]hen an act that constitutes the commission of a probable crime is updated, the SEGOB not only has the right, but also the obligation in the exercise of its functions, to present a criminal complaint before the ministerial authorities in order to initiate a investigation against the alleged perpetrators, which finds its support in the second paragraph of article 222 of the National Code of Criminal Procedures.⁴⁴⁴

[Emphasis added]

347. Therefore, the Claimants fail in their attempt to justify that the criminal investigations initiated against them in retaliation for the presentation of this arbitration, since this was clearly not the case. Said investigations occurred as a result of the Claimants operating without a valid and current permit, as Mr. Lazcano concludes “it was done in compliance with a legal obligation and not with political motivation and with the aim of intimidating, harassing and punishing the Claimants [...] for initiating this Arbitration”⁴⁴⁵. SEGOB was required by law to file a complaint in accordance with the second paragraph of article 222 of the CNPP, so that the ministerial authorities (PGR today FGR) began with the corresponding criminal investigations, there was no margin of discretion for SEGOB as indicated by the claimants.

348. It is important to point out that, in accordance with the Mexican legal system, criminal investigations are intended for the PGR (today FGR) to gather evidence to clarify the facts that could constitute crimes and, where appropriate, evidence to support the investigation. exercise of criminal action, the accusation against an accused and the reparation of the damage caused. Contrary to what the Claimants suppose, the criminal investigations are carried out in accordance with the principles established in the CNPP and in the CPEUM, including the principles of legality, presumption of innocence, due process, among others. In this sense, the fact that criminal investigations were initiated by the PGR (today the FGR), does not mean that, automatically, the exercise of criminal action is determined in all cases, which would imply that the investigation to a criminal judge, since, as has been said, in the criminal investigation stage the PGR (today the FGR) only gathers indicia and evidence to determine whether the facts it investigated constitute a crime, therefore, once again the Claimants misrepresent the facts, considering that “[t]he criminal investigations of retaliation by the representatives of E-Games have caused substantial damages

⁴⁴⁴ RER-5, Second expert report of Mr. Alfredo Lazcano Sámano, ¶ 140. ↩

⁴⁴⁵ Id., ¶ 141. ↩

[Page 121]

to the Claimants, have interfered with the ability of the Claimants to continue operating and benefiting from their investment in Mexico and have kept E-Games representatives living in fear of unjustified criminal sanction.”⁴⁴⁶

349. Likewise, the Claimants consider that the criminal investigations were based on an illegal closure. This is false, as the Respondent has stated, SEGOB has the power to take care of the compliance with the LFJS, so it issued verification orders that led to the inspection of the Claimants' establishments, finding that they were carrying out gambling activities with gambling and sweepstakes without a valid and current permit; consequently, following the provisions of the LFJS, they proceeded to close it.⁴⁴⁷

L. Producciones Móviles and E-Games were in different cicumstances

350. The Claimants continue to argue that Producciones Móviles currently has a valid permit, while E-Games had its permit revoked. In the Memorial, ⁴⁴⁸ the Claimants stated that Mexico's actions not only demonstrated the application of different rules in similar circumstances, but also a total rejection of the principle of legal certainty in administrative law, since SEGOB had to assume similar positions regarding the permission of both companies.⁴⁴⁹ In the opinion of Mr. Ezequiel González: “SEGOB is obliged to apply the law under the rulings of the Mexican courts and, in fact, even to adopt administrative guidelines compatible with those rulings. Otherwise, SEGOB would end up making inconsistent and arbitrary decisions on the same issues. This is precisely what happened here, when SEGOB left the independent permit of E-Games unsubstantiated, but kept the one of Producciones Móviles.”⁴⁵⁰

351. It is important to mention that, although there are similarities between E-Games and Producciones Móviles because both companies were operators of E-Mex, the permit that was granted to Producciones Móviles was never the result of the official letter 2009-BIS, which was the document with the acquired rights of E-Games over the E-Mex permit, and in addition, was

⁴⁴⁶ Reply, ¶ 411. ↩

⁴⁴⁷ See RER-5, Second expert report of Mr. Alfredo Lazcano Samano, ¶¶ 134 y 135. ↩

⁴⁴⁸ Memorial on the Merits, ¶ 155. ↩

⁴⁴⁹ Reply, ¶ 394. ↩

⁴⁵⁰ Reply, ¶ 396. Citing the Second expert report of Mr. Ezequiel González Matus, CER-6, ¶ 123. ↩

[Page 122]

the official letter from which the subsequent acts of SEGOB emanated and culminated in the granting of the official letter of Permit Holder-BIS.

352. The Official Letter of Permit Holder-BIS was declared null and void in strict compliance with the judgment of Amparo 1668/2011, which ordered to leave null and void all the letters that were a consequence of the Official Letter 2009-BIS.

Consequently, as the proposed argument is founded, the Justice of the Union Protects Entertainment of Mexico, a variable capital corporation, against the official letter DGAJS/0260/2009-BIS, dated May,27, 2009, for the effect of leaving it unsubstantiated and issuing another in which, following the guidelines of this sentence, in a well-founded and motivated manner, resolve what is appropriate in relation to the request of May,18, 2009.⁴⁵¹

353. The Respondent reiterates that SEGOB did not declare the non-subsistence of the E-Games permit of its own free will, but rather, in strict compliance with a court order, and nowhere in the judgment of J.A. 1668/2011, the Judge ruled on the permit of Producciones Móviles, so SEGOB could not act against said company.

354. Whether or not the permits of E-Games and Producciones Móviles had a certain similarity is irrelevant to the case in question, since there was never a court ruling ordering the non-subsistence or revocation of the Producciones Móviles permit. By leaving E-Games' permission unsubstantiated, SEGOB only acted within the legal framework of its attributions and powers in matters of games and raffles, that is, it never had the objective of allowing Producciones Móviles to continue operating its casinos and that E-Games did not. If the SEGOB had declared insubstantial or revoked the permission of Producciones Móviles by mutual agreement, it would have acted improperly affecting the rights of Producciones Móviles in violation of its guarantee of due process, since it was never even part of the J.A. 1668/2011.

355. Mr. Lazcano point out:

The similarity that existed between E-Games and Producciones Móviles ended at the moment in which the Federal Justice ruled that the rights of E-Mex had been violated by the administrative acts granted in favor of E-Games, considering them in violation of their individual guarantees, not so the administrative acts granted in favor of Producciones Móviles (Producciones Móviles, for example, never requested to be an "Independent Operator"), therefore, it ordered that they be declared invalid by SEGOB.⁴⁵²

⁴⁵¹ Exhibit C-018, Judgment J.A. 1668/2011, C-018, p. 202. ↩

⁴⁵² RER-5, Second expert report of Mr. Alfredo Lazcano Samano, ¶ 111. ↩

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356. In summary, Producciones Móviles' permit could in no way be legally declared invalid or revoked based on the judgment issued as a result of the amparo lawsuit that E-Mex filed against E-Games, since Producciones Móviles did not was part of the J.A. 1668/2011 and, in terms of the provisions of Mexican law,⁴⁵³ this situation culminated in the due compliance that SEGOB gave by declaring unsubstantiated only the letter 2009-BIS and its consequent derivations, so that beyond establishing whether there were circumstances between E-Games and Producciones Móviles, it is important for this Tribunal to take into consideration that SEGOB's actions were not arbitrary or in bad faith, but rather, as has already been stated, were in strict compliance with Amparo Ruling 1668 /2011.

357. On the other hand, during the document production phase, the Claimants requested documents related to Mexico's decision to allow the Producciones Móviles Casinos to remain open, for which they consider that the Tribunal must make adverse inferences due to the lack of production of such documents.⁴⁵⁴ The Respondent does not have documents related to said request⁴⁵⁵ because, as discussed in the Counter-Memorial and in the preceding paragraphs, there is no documentation that complies with the Claimants' request, since SEGOB only complied with what was ordered in the judgment. of amparo 1668/2011, which nowhere ordered SEGOB to declare the Producciones Móviles permit invalid, for which it was not necessary to carry out an analysis such as the one that the Claimants claim exists in the files of SEGOB and in the SE.

M. Petolof y E-Games were in different circumstances

358. In its Counter-Memorial, the Respondent argued that Petolof's case did not apply to E-Games and that similar circumstances did not exist for the following reasons:

• The legal regime to which Petolof and E-Games were subject was different, since Petolof was only subject to the LFJS, while said law and its Regulations were applicable to E-Games.⁴⁵⁶

⁴⁵³ Exhibit R-054, Ley de Amparo, articles 71, fraction I, 192 y 214. ↩

⁴⁵⁴ Reply, ¶ 398. ↩

⁴⁵⁵ Id. ↩

⁴⁵⁶ Counter Memorial on the Merits, ¶¶ 442, 444-448. ↩

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• The scope of the operating contract between E-Mex and E-Games, and the contract between Petolof and EDN were substantially different.⁴⁵⁷
• The issuance of the Petolof Resolution was a consequence of the protection granted to Petolof and, subsequently, the DGJS/DGAAD/DCRCA/P-01/2016 permit was issued by SEGOB in compliance with a TFJFA ruling.⁴⁵⁸
• The non-subsistence of the E-Games permit was not an act that SEGOB had decided on its own, but was a consequence of compliance with the ruling issued in the amparo proceeding 1668/2011 promoted by E-Mex, which ordered to stop all the acts derived from the Official Letter 2009-BIS.⁴⁵⁹

359. The arguments offered by the Claimants in their Reply to address these considerations will be examined below.

1. The legal regime to which Petolof and E-Games were subject was different

360. Supported by the expert report given by Mr. Ezequiel González Matus, the Claimants argue in their Reply that the main similarity between the Petolof case and the E-Games case is the concept of acquired rights that emanate from the contractual agreement between a permit holder and a third party.⁴⁶⁰ The Claimants intend to minimize the existence of a different regulatory framework with the argument that “it is irrelevant whether or not that right was generated during the validity of the Gaming Regulations, because acquired rights are a legal concept that does not depend on the validity of the Regulations of games.⁴⁶¹

361. As stated in its Counter-Memorial, the Respondent considers that the difference between the legal regime to which Petolof and E-Games were subject is relevant.⁴⁶² When issuing the Petolof Resolution, SEGOB only took into account the LFJS, since it could not apply the Regulation to Petolof without incurring in a retroactive application of said RLFJS. On the other

⁴⁵⁷ Id., ¶¶ 442, 444, 449-453. ↩

⁴⁵⁸ Id., ¶¶ 426-427, 454-456. ↩

⁴⁵⁹ Id., ¶¶ 424 y 427. ↩

⁴⁶⁰ Reply, ¶ 56. ↩

⁴⁶¹ Id., ¶¶ 58, 383-386. ↩

⁴⁶² Counter Memorial on the Merits, ¶¶ 445-448. ↩

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hand, E-Games was subject to both the LFJS and its Regulations, a situation that was reflected in the official letters issued by SEGOB.

362. Similarly, as Mr. Lazcano explains, this distinction is important because "Petolof did not have the legal status of Operator because its relationship with EDN was perfected until 1999 (that is, before the entry into force of the Gaming Regulations in 2004) when the figure of Operator had not yet been incorporated into the Mexican legal framework, while E-Games was indeed an Operator."⁴⁶³

363. Petolof was a partner of EDN, as it exploited its permit under a joint-venture agreement with EDN. E-Games was not a partner of E-Mex, but an"operator" in accordance with article 30 of the RLFJS.

364. The foregoing was reflected in the Petolof Resolution itself, in which SEGOB stated that the rights acquired by Pelotof were limited and did not extend to the ownership of a permit nor did they include all the rights that had been initially granted to EDN. In other words, even when SEGOB recognized certain rights acquired through the Petolof Resolution, these were limited and at no time was Petolof recognized as an “independent operator” of the EDN permit.⁴⁶⁴

2. Petolof and E-Games contracts had different scopes

365. The Claimants again invoke the doctrine of acquired rights to minimize the contractual differences that existed between Petolof and E-Games. They maintain that “the concept of acquired rights is not conditioned to a certain type of legal relationship. In other words, it did not matter whether the contractual relationship was an operating agreement (in the case of E-Games) or a joint venture agreement (in the case of Petolof).”⁴⁶⁵

366. Said argument does not address the merits of the Respondent's argument.⁴⁶⁶ The contract between Petolof and EDN granted Petolof the status of "associate" of EDN and with it, rights of

⁴⁶³ RER-2, First expert report of Mr. Alfredo Lazcano Samano, ¶ 93. ↩

⁴⁶⁴ Exhibit C-253, Current Permit UG-010/2008 (Petolof Resolution), p. 16. When analyzing the scope of the figure of "acquired rights", the SEGOB determined the following: "... due to the foregoing, the figure of acquired rights on the permit was updated insofar as it refers solely and exclusively to "foreign books" and in favor of the appearing PETOLOF SA de CV, not the ownership of the permit in question" (Emphasis added). ↩

⁴⁶⁵ Reply, ¶¶ 58, 387-388. ↩

⁴⁶⁶ Counter Memorial on the Merits, ¶¶ 449-453. ↩

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use and exploitation of different movable and immovable property (including permit 000003 granted to EDN), share rights of joint and separate administration, among others. The contract between E-Games and E-Mex was limited to the simple joint exploitation of the E-Mex Permit between said company, as permit holder, and E-Games, as operator.

367. The difference is substantive, since through the contract with EDN, Petolof acquired rights over the EDN permit, which E-Games did not have, nor could it have agreed to with respect to the E-Mex Permit, by virtue of the content of the articles 30 and 31 of the RLFJS. Said articles prohibit the execution of agreements when the operator assumes the corporate or administrative control of the permit holder company; as well as the transfer, assignment, alienation or commercialization of a permit.

368. In this understanding, the criteria used by SEGOB in relation to Petolof took into account the nature of the contract with EDN and the circumstances that put at risk a number of rights acquired by Petolof up to that time (for example, shareholders, property, possessory, among others) which were part of his assets as a moral person. This consideration was not decisive in the case of E-Games, given that the nature of its contract with E-Mex did not grant it the same rights over the E-Mex Permit.

369. The foregoing is clearly evidenced by the language used by SEGOB in the Petolof Resolution:

In that same way, we have that the authority chose to recognize acquired or created rights due to the reflection that emerges from the reasoning and considerations expressed in the preceding paragraphs, thus, this authority reasons and limits said rights, in attention to the fact that that the aforementioned right acquired and recognized here by this authority, cannot include all the rights of the permit granted to Espectáculos y Deportes del Norte S.A. de C.V., in favor of PETOLOF, S.A de C.V., since the aforementioned contract does not provide for this⁴⁶⁷

[Emphasis added].

⁴⁶⁷ Exhibit C-253, Current Permit UG-010/2008 (Petolof Resolution), p. 16. ↩

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3. SEGOB issued the Petolof Resolution and granted the permit in compliance with a judicial orders

370. In their Reply, the claimants supported by the expert report of Mr. Ezequiel González Matus, argue that “[t]he Mexican court at no time ruled that SEGOB should issue a permit based on the principle of acquired rights.”⁴⁶⁸ For his part, Mr. González Matus points out:

Mexico alleges that SEGOB granted the permit to PETOLOF in compliance with a court order and not on a discretionary basis.103 This is not correct. The judgement rendered by the Eighth District Judge in Tamaulipas State in Amparo 176/2005-3 only ordered SEGOB to reinstate the administrative procedure to PETOLOF on the grounds that its hearing guarantee had been violated. The judgment of that amparo trial in no way ordered SEGOB to issue a permit based on the criterion of acquired rights. It was assumed at the discretion of SEGOB itself as a substantial argument for granting the permit to PETOLOF.⁴⁶⁹

[Emphasis added]

371. It is clear that Mr. González Matus confuses the content of the Petolof Resolution dated October 28, 2008 in the administrative procedure UG-010/2008, derived from the amparo ruling,⁴⁷⁰ with the issuance of the permit DGJS/DGAAD/DCRCA/P-01/2016 on May 27, 2016, in compliance with a judgment of the TFJFA.

372. The Respondent indicated in its Counter-Memorial that “a simple reading of the Petolof permit allows us to observe that SEGOB granted said permit in compliance with a ruling of the TFJFA".⁴⁷¹ Furthermore, the Respondent transcribed the following excerpt from permit DGJS/DGAAD/DCRCA/P-01/2016 issued by SEGOB on May 27, 2016:

That in compliance with the resolution of August 20, 2015, issued in the records of the Federal Contentious-Administrative Trial 786/15-17-12-3, filed in the Tenth Metropolitan Regional Chamber of the Federal Court of Tax and Administrative Justice, This administrative authority grants this permit in substitution of the different 000003 of July 14, 1978 and its subsequent modifications, in favor of the legal entity: "Petolof, S.A. of C.V.⁴⁷²

373. It should be noted that the Claimants do not share Mr. González Matus's apparent confusion between the Petolof Resolution of October 2008 and the Petolof permit of May 2016. The

⁴⁶⁸ Reply¶ 381. ↩

⁴⁶⁹ CER-6, Second expert report of Mr. Ezequiel González Matus, ¶ 116. ↩

⁴⁷⁰ Exhibit C-253, Current Permit UG-010/2008 (Petolof Resolution). ↩

⁴⁷¹ Counter Memorial on the Merits, ¶ 455. ↩

⁴⁷² Exhibit C-328, Permit DGJS/DGAAD/DCRCA/P-01/2016 of Petolof, p. 1. ↩

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Claimants state in their Reply that “it is not clear in the Petolof permit whether the Mexican court ordered SEGOB to issue a new permit or, as it did earlier during the EDN administrative process, SEGOB simply provided Petolof with due process rights."⁴⁷³ With the foregoing, it is clear that the Claimants do distinguish between the amparo proceeding processed before the District Court, which gave rise to the Petolof Resolution in 2008, and the contentious-administrative proceeding processed before the TFJFA, which gave rise to the issuance of the permission from Petolof in 2016.

a. Contentious administrative trial 786/15-17-12-3 before the TFJFA

374. As indicated in the Respondent's Counter-Memorial, contentious-administrative proceeding 786/15-17-12-3, had as background a request by Petolof to substitute the permit originally granted to EDN, for a new permit.⁴⁷⁴

375. On January 8, 2015, Petolof filed a brief before the TFJFA demanding the resolution by fictitious refusal of his request.⁴⁷⁵ As explained in the judgment issued by the TFJFA, the fictitious refusal is a legal figure provided for in article 17 of the LFPA that implies considering an application as denied once three months have elapsed from its presentation. Petolof argued that SEGOB had violated the content of article 17 of the LFPA by failing to agree to what was stated in its request of August 29, 2014.⁴⁷⁶

376. The ruling issued on August 20, 2015 agreed with Petolof and ordered SEGOB to issue him a new permit in the following terms:

Then, once the foregoing has been verified, what is appropriate according to law is to declare the nullity of the contested resolution, so that the Directorate of Games and Raffles of the Ministry of the Interior, issues a new permit in substitution of the permit *** ***, dated July 14, 1978, in accordance with the provisions of the Regulations of the Federal Law on Games and Raffles, published in the Official Gazette of the Federation on September 17, 2004, respecting the term and terms of the permit granted originally, as well as each and every one of its subsequent modifications and taking into

⁴⁷³ Reply, ¶ 391. ↩

⁴⁷⁴ Counter Memorial on the Merits, ¶ 456. ↩

⁴⁷⁵ Exhibit R-108, Judgment 786/15-17-12-3, p. 2, result 1°. ↩

⁴⁷⁶ Id., p. 4, second considering. ↩

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account what was determined in the letter of October 28, 2008, issued in procedure UG-010/2008.⁴⁷⁷

377. The foregoing confirms that SEGOB did issue Petolof's permit pursuant to a court order. Specifically, the resolution of August 20, 2015 issued by the Twelfth Metropolitan Regional Chamber of the TFJFA in the contentious-administrative trial 786/15-17-12-3.

4. SEGOB could not declare the non-subsistence of the Petolof permit

378. In their Reply, the Claimants argue that the fact that SEGOB “allowed Petolof, who obtained the status of independent operator on the basis of 'acquired rights,' to continue operating the casinos” and that it “[n]o revoked the permission of Producciones Móviles, which obtained its gaming license under the same circumstances as E-Games”, is evidence that said authority "acted in an inconsistent and discriminatory manner, allowing two Mexican gaming companies to continue operating, even though both were in circumstances very similar to E-Games.”⁴⁷⁸ However, it is clear that the situation of Petolof and E-Games were completely different.

379. The non-subsistence of the E-Games permit was not an act that SEGOB had decided on its own, but was done to comply with the sentence issued in the amparo proceeding 1668/2011 promoted by E-Mex, which ordered to render all trades derived from the operator null and void (i.e., Trade 2009-BIS).⁴⁷⁹ It is reasonable to assume that if E-Mex had not filed the amparo proceeding 1668/2011 that culminated in the non-subsistence of the Official Letter 2009-BIS, as well as all the acts derived from it, said permit would continue to be in force.

380. In the Petolof case, EDN never challenged the granting of the permit and, by not challenging it, it tacitly consented. SEGOB had no reason to declare invalid or revoke Petolof's permit. In contrast, E-Mex did challenge the Official Letter 2009-BIS with the result that we all know.

381. Finally, it is illustrative of the way in which SEGOB has never considered that the Petolof case constituted a precedent that could have been applicable to the Claimants' case, that Oficio 2009-BIS does not refer to it. Likewise, the Official Letter 2009-BIS does not indicate that the

⁴⁷⁷ Id., p. 19, fourth considering. ↩

⁴⁷⁸ Reply, ¶ 704. ↩

⁴⁷⁹ Counter Memorial on the Merits, ¶ 421. ↩

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Petolof case was taken as a reference by the Claimants themselves to request recognition of their operator status.

Ν. Political campaign and bribery allegations

1. The alleged political intervention of the Mexican Government

382. The Claimants throughout this procedure have argued that as a result of the change of administration that began the six-year term of President Enrique Peña Nieto, on December 1, 2012, the Mexican government devised an entire political campaign that had the purpose of “ensuring [the] disappearance [of the Claimants] and eliminate them from the gaming sector",⁴⁸⁰ to benefit its business competitors, specifically Grupo Caliente, arguing throughout its Reply Brief that it was due to this and the friendship of the incoming government with the Hank family, that the Official Letter of Permit Holder-BIS was revoked, and that this also influenced the actions of the authorities in the different administrative procedures and how they were resolved. However, the Claimants have not presented concise evidence to substantiate these allegations, therefore these accusations are unfounded and, therefore, the Respondent rejects them in full for the reasons explained below.

383. Assuming that the Claimants' arguments were true, in the way that the Respondent intended to affect the Claimants' interests, as part of a "political campaign", the participation of various government agents would have been necessary to carry out such action. In this regard, the Respondent has the testimony of four former public officials, whose participation would have been key to achieving what the Claimants argued; however, all of them claim that they never received instructions of any kind from anyone to affect E-Games.

384. First, Ms. González Salas, to whom the Claimants attribute that she made statements to the press motivated by political issues and that her actions in her capacity as General Director of Games and Raffles of SEGOB were guided by political motivations,⁴⁸¹ however, Ms. González Salas assures that the only motivation she had for making the press statements in January 2013 was the interest that existed at that time on the part of various media, who had recently issued notes

⁴⁸⁰ Reply, ¶ 3. ↩

⁴⁸¹ Reply, ¶¶ 5, 88, 118, 676, 731. ↩

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regarding the permits granted by the outgoing administration,⁴⁸² making it clear that she did not receive instructions from any person to make the statements to the press, but that they "were due to the impact and media relevance that the issue took."⁴⁸³

385. Similarly, the Claimants argue that the actions carried out by Ms. González Salas were intended to benefit Grupo Caliente and the Hank family, who were supporters of the President Enrique Peña Nieto and close to the PRI.⁴⁸⁴ In this regard, Ms. González Salas reiterates that “[t]here were no political motivations against or in favor of E-Games, nor for or against any other permit holder,"⁴⁸⁵ and that "all permit holders had routine inspections, both desk and on the spot, so there was no political motivation as Claimants have said.”⁴⁸⁶

386. Second, Mr. Marcos García, who, at the time, was serving as Deputy General Director of Regulation and Verification of the DGJS, explains that the verification visits made to the establishments operated by the Claimants were planned and organized in the same way than any other verification visit that was carried out in the General Directorate under his charge, basing them on the same legal framework in force at the time and without special treatment being given at any time, nor in favor of the Claimants, much less in their against;⁴⁸⁷ In the same way, Mr. Marcos García assures that, although the order to carry out the verification visit to any establishment came from the DGJS as a requirement of formality in the procedure, he never received any instructions to go against any permit holder,⁴⁸⁸ it is in other words, it did not act according to any political motivation and much less acted with the purpose of affecting the interests of the Claimants.

387. Third, Mr. José Raúl Landgrave, who had the capacity of General Director of Constitutional Procedures of SEGOB, responds to Claimants' statements that SEGOB “took advantage of the decision of the amparo judge to advance with their political agenda and put the

⁴⁸² See, RWS-4, Second witness statement of Ms. María Marcela González Salas, ¶ 8. ↩

⁴⁸³ Id. ¶ 10. ↩

⁴⁸⁴ Reply, ¶ 128. ↩

⁴⁸⁵ RWS-4, Second witness statement of Ms. María Marcela González Salas, ¶ 14, citing her first witness statement RWS-1, ¶¶ 17 y 19 a 21. ↩

⁴⁸⁶ RWS-4, Second witness statement of Ms. María Marcela González Salas, ¶ 14. ↩

⁴⁸⁷ RWS-6, Second witness statement of Mr. Marcos Eulogio García Hernández, ¶ 8. ↩

⁴⁸⁸ Id., ¶ 18. ↩

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claimants out of business in large part to favor the Hank family";⁴⁸⁹ To this end, Mr. Landgrave asserts that the General Directorate in charge of him “is of a primarily technical nature[,] [i]n other words, it is a position that requires decisions to be made based on factors other than political issues, which seek to have a specific result: to obtain favorable resolutions in the constitutional procedures",⁴⁹⁰ also assuring that “there were never any political motivations against or in favor of E-Games, or any other permit holder.”⁴⁹¹

388. Fourth, Mr. Carlos Véjar, who held the position of General Director of the International Trade Legal Consultancy of the SE, explains in his Witness Statement how the two meetings held with the Claimants were before they submitted their NOI. It should be remembered that the Claimants directly involve said official in the actions that, according to what they allude to, demonstrate the alleged political motivations against them.⁴⁹² In this regard, Mr. Véjar places special emphasis on the fact that neither in his personal capacity, nor within the scope of his powers as a public official of the SE, he made value judgments regarding the Claimants' situation,⁴⁹³ and that all his participation in the meetings with the Claimants were based on the powers he had as a public official,⁴⁹⁴ so there was no political motivation against the Claimants.

389. As can be seen, four of the former public officials who were directly involved in the situation raised by the Claimants agree that there was no political motivation or instruction aimed at treating E-Games in a special way, much less affecting your interests.

390. On the other hand, the Claimants note that “the Supreme Court of Mexico dismissed E-Games' motion to disagree on procedural grounds one week after President Peña Nieto's lead attorney, Mr. Castillejos, met with the Judge Alberto Pérez Dayán, despite the fact that the Court had been analyzing the merits of the matter for four months."⁴⁹⁵ Ensuring, furthermore, that there was an alleged "direct pressure from the President's personal lawyer",⁴⁹⁶ who influenced both the

⁴⁸⁹ Reply, ¶ 220. ↩

⁴⁹⁰ RWS-2, First witness statement of Mr. José Raúl Landgrave Fuentes, ¶ 6. ↩

⁴⁹¹ RWS-5, Second witness statement of Mr. José Raúl Landgrave Fuentes, ¶ 24. ↩

⁴⁹² Reply, ¶ 118; Memorial on the Merits, ¶ 209. ↩

⁴⁹³ See, RWS-7, Witness statement of Mr. Carlos Véjar Borrego, ¶ 14. ↩

⁴⁹⁴ Id., ¶¶ 7 y 9. ↩

⁴⁹⁵ Reply, ¶ 873 ↩

⁴⁹⁶ Id., ¶ 150. ↩

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closure procedures and the outcome of the appeal filed by the Claimants against i) the judgment of the Seventh Court Collegiate that resolved the Incident of Non-Execution, and ii) the agreement issued on March 10, 2014 by the Sixteenth Court in which the sentence of Amparo 1668/2011 was deemed fulfilled.⁴⁹⁷ This is also false. The Respondent will address this below.

391. In the first place, it must be taken into account that the Federal Executive's Legal Advisor is not the "personal lawyer of the President", as the Claimants point out, but rather is the head of the Federal Public Administration agency which has as function.

review and validate the decrees, agreements and other legal instruments that are submitted to the consideration of the President of the Republic, as well as the draft bills that the Head of the Executive presents to the Congress of the Union, taking care that these, in their content and way, they are attached to the Constitution and the Laws that emanate from it.⁴⁹⁸

392. Similarly, said governing body has the following attribution:

[r]epresent the President of the Republic when he so agrees, in actions of unconstitutionality and constitutional controversies provided for in article 105 of the Constitution, as well as in all those trials in which the Head of the Federal Executive intervenes in any capacity.⁴⁹⁹

393. As can be seen, the only scenarios in which the Legal Counsel can represent the President are provided for in article 105 of the CPEUM, as well as in trials, but only in which the Head of the Executive is a party. It goes without saying that President Enrique Peña Nieto was not a party to any of the appeals filed by the Claimants and that they did not promote any controversy that falls under the provisions of Article 105 of the CPEUM.⁵⁰⁰

⁴⁹⁷ Id., ¶ 873. ↩

⁴⁹⁸ Exhibit R-119, Functions of the Legal Department of the Federal Executive (https://www.gob.mx/cjef/que-hacemos) ↩

⁴⁹⁹ Id. ↩

⁵⁰⁰ Exhibit R-091, CPEUM, Article 105 (“5. The Supreme Court of Justice of the Nation will know, in the terms indicated by the regulatory law, of the following matters: I. Of the constitutional controversies that, on the constitutionality of the general norms, acts or omissions, with the exception of those that are refer to electoral matters, [. . .]. II. Of the actions of unconstitutionality whose purpose is to raise the possible contradiction between a general rule and this Constitution. [...]. III. Ex officio or at the well-founded request of the corresponding Collegiate Court of Appeal or the Federal Executive, through the Counselor or Legal Adviser of the Government, as well as the Attorney General of the Republic in matters in which the Public Ministry intervenes, it may know of appeals against judgments of the District Courts issued in those processes in which the Federation is a party and that due to their interest and importance so warrant.") ↩

[Page 134]

394. In the second place, the Respondent denies that the Peña Nieto administration, through Mr. Castillejos, has illegally lobbied the Supreme Court and, therefore, the Respondent denies that there was an alleged influence on the part of the CJEF to directly affect to the Claimants. Mr. Landgrave stated that he never received “instructions from the Legal Adviser [sic] or any member of his team, or a request for information from that area regarding amparo 1668/2011.”⁵⁰¹ He also denies having received instructions from someone within the CJEF on how to conduct or act in court with respect to Amparo 1668/2011, including the Appeal for Dissent.

395. Likewise, the officials who had direct contact with the Claimants' situation would have been aware of the alleged interest on the part of the CJEF, due to the hierarchical level in which they worked; however, and as can be seen above, none received any instruction or knowledge of the alleged political motivations alleged by the Claimants. The Claimants have not shown evidence where their investment was of importance to the PRI administration at that time or that it was relevant.

396. It is necessary to note that, as stated in the Counter-Memorial,⁵⁰² the Claimants also argued the existence of "political motives” during the PAN administration, prior to the administration of President Enrique Peña Nieto;⁵⁰³ the Respondent considers it is important that the Tribunal questions whether it is credible that both PAN and PRI, under different administrations have joined forces with political motives with the purpose of harming the Claimants, or these latter are once again making baseless accusations in order to support their case in this arbitration. As it is established in this Rejoinder Memorial, the situation is the second one. It is not credible that two different administrations have agreed to declare null and void the Permitholder-BIS Oficio in order to harm the Claimants. Mrs. Marcela González Salas⁵⁰⁴, Mr. José Raúl Landgrave⁵⁰⁵ and Mr. Marcos García Hernández⁵⁰⁶ assert that they act in accordance to their attributions and in

⁵⁰¹ RWS-2, First witness statement of Mr. Juan Raúl Landgrave Fuentes, ¶ 32. ↩

⁵⁰² See, Counter Memorial on the Merits, ¶ 201. ↩

⁵⁰³ Memorial, ¶ 197. ↩

⁵⁰⁴ Exhibit RWS-1 First Witness Statement of Marcela Salas ¶ 6; RWS-4 Second Witness Statement of Mrs. Salas ¶¶ 5 y 10. ↩

⁵⁰⁵ Exhibit RWS- 2 First Witness Statement of Mr. Landgrave ¶¶ 24 y 32; RWS-5 Second Witness Statement of Mr. Landgrave ¶¶ 5 y 20. ↩

⁵⁰⁶ Exhibit RWS-3 First Witness Statement of Marcos García Hernández ¶ 10; RWS-6 Second Witness Statement of Mr. Marcos García ¶¶ 5 y 18. ↩

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compliance with the Mexican laws, they never had political motivations. There is no evidence either that indicates the PAN administration delayed, under political or unlawful motives, the granting of any permit to E-Games.

397. It is therefore unconceivable that both administrations had political motives to harm the Claimants. It is clear that the Claimants misrepresent the facts. The documents produced during the document production round in this arbitration demonstrate that the Claimants had the intention to submit their claim to arbitration even before the PRI administration commenced. Mr. Burr wrote:

The first illegal actions took place in August 2011 [...]. We have begun to prepare a notice that will be delivered to the Pieria Nieto administration, which took office on December 1, that we intend to submit a claim to arbitration for actions taken by the former government that have adversely affected our investments.⁵⁰⁷

2. There were not political motives hindering the closure of the venues operated by the Claimants

398. Mr. Julio Gutierrez argues that Mexico did not explain the reason why it did not close the venues operated by the Claimants immediately after it declared the Permitholder-BIS Oficio null and void, but until April 24, 2014,⁵⁰⁸ and that this demonstrates that the SEGOB's actions were motivated by political reasons. The Claimants' witness seems to be trying to translate the obligation of not to operate a venue without a valid permit to the SEGOB, however, the LFJS is clear regarding the subject who is obligated in such sense:

No house, or open or closed place, in which games with bets or raffles, of any kind, may be established or operated without permission from the Ministry of the Interior.⁵⁰⁹

399. The people in charge of the functioning of a venue where activities involving gambling or sweepstakes are developed, are the operators and/or the permitholders themselves, not the SEGOB or any other Governmental office. Then, as a direct consequence of declaring the Permitholder-BIS Oficio null and void, it is clear that the Claimants were indeed subject to the obligation of not to keep operating the venues since they did not have a valid permit issued by the SEGOB.

⁵⁰⁷ See Exhibit R-156, Email from R.S. Brock, of November 13, 2015, p. 4. ↩

⁵⁰⁸ CWS-62 Fifth Witness Statement of Julio Gutiérrez, ¶ 110. ↩

⁵⁰⁹ Exhibit R-030, LFJS, Article 4. ↩

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However, the Claimants decided to ignore the declaration of void permit and to continue operating as usual.⁵¹⁰

400. That said, the SEGOB, based on its attributions of supervising and surveillance, ordered to carry out inspections to the Claimants' venues on April 24, 2014. The fact that the SEGOB decided not to carry out an inspection “immediately after" declaring the Permitholder-BIS Oficio null and void, does not indicate the existence of any political reason, since, the LFJS does not state a term for the SEGOB to exercise said attributions. Additionally, the Claimants were subject to comply with the LFJS and should have stopped their operations, immediately after the Permitholder-BIS Oficio was declared null and void, since they no longer had a valid permit. The Claimants cannot then impute the closure of the venues they were operating to the alleged existence of political motives.

3. The seal removal was a consequence of judiciary orders, not of "political motives"

401. The Claimants argue that “SEGOB's Arbitrary Lifting of the Seals represented further intentional and politically motivated interference with the Claimants' Casinos in an attempt to destroy their investments”.⁵¹¹ Once again the Claimants are wrong and intent to mislead the Tribunal making it believe that actions carried out by the SEGOB in strict compliance to law, were actually actions carried out in order to harm the Claimants' interests due to alleged political motives.

402. As explained in previous sections, the owners of the properties where the venues operated by the Claimants were located, initiated their respective trials in order to recuperate the legal possession of said properties. The Claimants had or should have had knowledge of each of the legal actions carried out within said trials, since they were actually respondents therein, therefore they cannot argue they did not have knowledge about it, nor can they argue due process violations.

403. Although each trial was developed in a different manner, the result was basically the same, a resolution whereby the termination of the lease agreement and the return of the properties to the

⁵¹⁰ See, e.g. Exhibit C-303, p. 8, where the person who attended the inspection in the Naucalpan Casino Mr. Patricio Gerardo Chávez Nuño, stated “reiterating his protest against the position, and stating that the establishment is operating twenty-four hours a day". [Emphasis added]. ↩

⁵¹¹ Reply, ¶ 339. ↩

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legal owners was ordered.⁵¹² Based on this and strictly complying with the judicial orders, the SEGOB lift the seals. As it is observed, there was not any kind of political motives or interest from SEGOB in harming the Claimants when it carried out such proceedings.

0. Mexico's arguments regarding the SEGOB's discretionary powers related to gaming and sweepstakes, are not misleading nor do they mistakenly describe the Mexican administrative legal framework

404. The Claimants argue that “Mexico far exceeded the bounds of its discretion",⁵¹³ based on facts that allegedly demonstrate so, in order to conclude that the actions carried out by the Respondent were unlawful. However, the Claimants mistakenly interpret the scope of the governmental public officers' discretionary powers and fail to mention that there are regulated powers and discretionary powers, which is a basic aspect of the Mexican Law related to the application of these latter.⁵¹⁴

405. Mr. Lazcano explains the difference between the regulated and discretionary powers, “[T]he former refers to those acts in which the authority does nothing other than apply the normative assumption as it is given by the legislator, [...]. On the other hand, in discretionary powers there is “a certain freedom to choose between one course of action and another, to do one thing or another, or to do it one way or another".⁵¹⁵ Although the regulated powers apply the provisions established within a norm, that is, the SEGOB applies the provisions of the LFJS and its Regulations, in practice, as Mr. Lazcano points out, “not all regulated faculties are exempt from discretion, or that the levels of discretion vary depending on the specific circumstances of each case”.⁵¹⁶ This has been recognized by the Mexican courts:

The division of regulated and discretionary powers is not categorical or pure, but there are strong discretionary powers that confer great freedom to make decisions or create provisions, compared to other weak ones, where that freedom is delimited by certain

⁵¹² See, Exhibits R-073, DGJS/DGAAD/106/2017 Oficio of September 5, 2017, Judgment of the Forty-first Civil Judge in Mexico City, April 27, 2017, R-077; Judgment of February 17, 2017 issued by the Third Civil and Commercial Court of the First Judicial District, C-409; Judgment of the Fourth Specialized Court for Civil Matters of the Judicial District of Puebla of August 16, 2016, R-083; File 370/2015, R-120 Circumstantiated Certificate of removal of seals of March 19, 2021, pp. 1223-1233. ↩

⁵¹³ Reply, ¶ 150. ↩

⁵¹⁴ RER-5, Second Expert Report of Alfredo Lazcano Sámano, ¶ 86. ↩

⁵¹⁵ Id. ↩

⁵¹⁶ Id., ¶ 87. ↩

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principles or standards, legal concepts undetermined or predetermined assumptions. On the other hand, the regulated faculties can be regulated at different levels, where the norm indicates in detail and specifically what must be done or not done and, in other cases, the use of some indeterminate legal concept or vagueness in the provisions allows and obliges authority to make the best decision. In all cases, there must be a motivation, which must be linked to the achievement of a public interest, carried out in an objective, technical and reasoned manner, excluding any possibility of arbitrariness; hence, the discretionary powers must be framed and constrained to satisfy certain purposes and in accordance with elementary referents.⁵¹⁷

406. An act that is contrary to the interests of the Claimants cannot be considered, for that simple reason, as an arbitrary act derived from the use of SEGOB's discretionary powers. The Claimants refer to some “examples” of what they consider to qualify as arbitrary measures by SEGOB.⁵¹⁸ The Respondent will address each one of these “examples” next.

407. In the first one, the Claimants refer to Mrs. González Salas' interview of January 2013,⁵¹⁹ arguing that it was “politically-motivated”, generating thus “the onslaught of measures that would follow and lead to the total destruction of Claimants' investments.”⁵²⁰ Here, Mrs. González Salas explains that the statements to the media “were motivated solely by the interest that the press had, derived from several notes issued prior to that date by the media, about the permits granted to open casinos during the last hours of the outgoing administration”⁵²¹, in other words, that said statements only "due to the impact and media relevance of the subject matter"⁵²², therefore there Mrs. González Salas' actions were not “politically-motivated" far less exceded der powers.

408. In the second example, the Claimants argue that declaring Permitholder-BIS Oficio void and null, is another of the “arbitrary actions taken against Claimants in excess of its legal discretion"⁵²³. However, as it was explained in section F, the declaration of void permit was carried

⁵¹⁷ See REGULATED AND DISCRETIONARY POWERS. ITS DIFFERENT SHADES. Digital registration: 2008770; Instance: Collegiate Circuit Courts; Tenth Epoch; Subject: Administrative; Thesis: I.10.A.E.30 A (10a.); Source: Gazette of the Judicial Seminar of the Federation. Book 16, March 2015, Volume III, PAGE 2365; Type: Isolated; Exhibit RER-5, Second Expert Report of Mr. Lazcano, ¶ 87. ↩

⁵¹⁸ See Reply, ¶ 150. ↩

⁵¹⁹ Exhibit C-17. The resolution that awarded two permits to the casinos at the end of Calderón's six-year term is illegal. ↩

⁵²⁰ Reply, ¶ 150. ↩

⁵²¹ RWS-4, Second Witness Statement of Marcela González Salas, ¶ 8. ↩

⁵²² Id., ¶ 10. ↩

⁵²³ Reply, ¶ 150. ↩

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out in compliance of a judicial order made by the Sixteenth Court, whereby it ordered that all the actions derived from 2009-BIS Oficio be left without effects.⁵²⁴ This, besides demonstrating that SEGOB did not have any intention to harm E-Games' interests,⁵²⁵ demonstrates that, actually, there was not any exercise of discretionary powers by SEGOB in such declaration of void permit, but in any case, the exercise of regulated powers.

409. Likewise, the Claimants argue that before and after the cancellation of the Permitholder-BIS Oficio their right to due process was denied,⁵²⁶ which is false. E-Games actively participated in the Amparo 1668/2011, where it had the opportunity to defend itself by presenting its arguments;⁵²⁷ and, once the determinations were issued by the Sixteenth Court and the Seventh Collegiate Court, E-Games had the opportunity to challenge them before the appropriate instances.⁵²⁸ There was no violation of due process and, therefore, no excessive use of the discretionary powers of the judicial authorities as the Claimants falsely point out.

410. In the third example, the Claimants insist that “Mexico's decision to cancel [E-Games] permit and close their Casinos” was for illegitimate and illegal reasons.⁵²⁹ However, neither of these actions was illegitimate, illegal or emanated from an excess in the exercise of SEGOB's discretionary powers. In the case of the first one [cancellation of the E-Games permit], it was the result of compliance with an order of the Sixteenth Court –as has already been explained. In the case of the second one [closure of the Casinos], it was the result of the SEGOB's power of

⁵²⁴ See Exhibit C-23, Sixteenth Court in Administrative Matter's resolution of August 26, 2013, p.012. On August 26, 2013, the Sixteenth Court concluded: “On the other hand, the judgment cannot be considered as fulfilled with respect to the order DGAJS/SCEV/260/2009-BIS dated May twenty-seven of two thousand nine, rendered ineffective, in which the harmed third party [E-Games], variable capital corporation, is acknowledged as the independent operator of the federal permit related to gaming and lottery number DGAJS/SCEVF/P-06/2005, since the responsible authority must not forget that by ruling said permit as unsubstantiated, it is also obligated to render ineffective all other act or acts that have been issued as its consequence, on the understanding that that it should evaluate if in its records appear various orders based on said permit, and that being the case, proceed to declare their lack of substantiation." [Emphasis added] ↩

⁵²⁵ See Counter Memorial on the Merits, ¶ 261. There is just need to bear in mind that the Sixteenth Court's resolution, results from the Amparo 1668/2011, which was motivated in E-Mex and E-Games' legal actions, which SEGOB did not initiate. ↩

⁵²⁶ Reply, ¶ 150. ↩

⁵²⁷ See Counter Memorial on the Merits, Section II.L. ↩

⁵²⁸ See Id., ¶ 279. ↩

⁵²⁹ Reply, ¶ 150. ↩

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inspection, control, surveillance and sanction, whose basis is found in the LFJS and its Regulations.⁵³⁰ The casinos' closure was a consequence of the fact that, even knowing that the permit had been declared null and void, the Claimants continued to operate their casinos, breaching the provisions of the LFJS Article 4. Therefore, it is false that the aforementioned actions have been carried out for illegitimate and illegal reasons.

411. As a fourth example, the Claimants note that they were not provided “any due process in advance"⁵³¹when E-Games' venues were closed and that said proceeding was carried out “in an aggressive” and “with no transparency” manner.⁵³² SEGOB's actions were always motivated and founded in the appropriate legal framework, then, there was not an exercise of SEGOB's discretionary powers, much less in an excessive manner.

412. In the fifth example, the Claimants argue that another example of the “arbitrary action" was the closure carried out by the Respondent when there was a “judicial injunction prohibiting the closures and shutting down the facilities before Claimants had a full and fair opportunity to be heard on the closure orders”.⁵³³ This is incorrect. As explained in the Counter Memorial, “SEGOB was not barred from exercising its inspection powers or from closing the Casinos in the event they had no active permit",⁵³⁴ since the Motion for Reconsideration filed by E-Games on March 31, 2014, did not suspend any effects on declaring the Permitholder-BIS Oficio null and void, nor the precautionary measure of September 2, 2013 impeded SEGOB to exercise its inspection, controlling and surveillance powers.

⁵³⁰ Exhibit R-030, LFJS, “ARTICULO 3o.- It corresponds to the Federal Executive, through the Ministry of the Interior, the regulation, authorization, control and surveillance of the games when they mediate bets of any kind; as well as the draws, with the exception of the National Lottery, which will be governed by its own law. ARTICLE 4.- No house, or open or closed place, in which games with bets or raffles of any kind, without permission from the Ministry of the Interior, may be established or operated. This will set in each case the requirements and conditions that must be met. ARTICLE 8.- All open or closed premises in which prohibited games or games with bets and raffles are carried out, which do not have legal authorization, will be closed by the Ministry of the Interior, without prejudice to the application of the sanctions that according to the case correspond. [Emphasis added]. ↩

⁵³¹ Reply, ¶ 150. ↩

⁵³² See Id. ↩

⁵³³ Id. ↩

⁵³⁴ Counter Memorial on the Merits, ¶ 326. ↩

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413. In the sixth one, the Claimants note that there was an alleged “direct pressure from the President's personal attorney"⁵³⁵ and that this allegedly caused the Respondent's "illegal and arbitrary handling of the Closure Administrative Review Proceedings”⁵³⁶. First, the Federal Executive Legal Counsel is not the President's personal attorney, said public officer can only represent the Head of the Federal Executive in trials where this latter is a party, as well as in proceedings under the CPEUM article 105; neither of these was the Claimants' case. Second, there was not any irregularity by the Respondent's part in the proceedings which caused the closure of E-Games' venues. Third, the Respondent denies the existence of an alleged influence from Mr. Humberto Castillejos, who was the Federal Executive Legal Counsel at that moment, over the SCJN, which is confirmed by what Mr. Landgrave noted, who stated that he never received “instruction from the Presidential Legal Counsel or from a member of that team, or a request of information of that area in relation to the 1668/2011”⁵³⁷ therefore it is implausible that, assuming that there was any interest by the Legal Counsel, which is not the case, Mr. Landgrave would have not realized about it, since “the legal areas of the Minitries usually have communication with the Presidential Legal Counsel when there is a matter that is followed up or in which it is participating".⁵³⁸ Therefore, the Claimants' assertions are false and unfounded.

414. In the seventh example, the Claimants argue that there was an “application of different standards to different permit holders, specifically Petolof and Producciones Móviles”⁵³⁹. As demonstrated in the Counter Memorial⁵⁴⁰, there are important differences between the Petolof and Producciones Móviles permitholders, for instance, with respect to their permits' origins “the Producciones Moviles permit was not a consequence of the 2009- BIS Oficio”⁵⁴¹, while the "Petolof permit was granted in compliance with a judicial order" ⁵⁴², thus they were not in like circumstances to E-Games' ones. Due to the existence of the differences elaborately explained in

⁵³⁵ Reply, ¶ 150. ↩

⁵³⁶ Id. ↩

⁵³⁷ RWS-2, First Witness Statement of Juan Raúl Landgrave Fuentes, ¶ 32. ↩

⁵³⁸ Id. ↩

⁵³⁹ Reply, ¶ 150. ↩

⁵⁴⁰ See Counter Memorial on the Merits, Section II.R. ↩

⁵⁴¹ Id., ¶ 421. ↩

⁵⁴² Id., ¶ 820. ↩

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Sections L and M, it is irrational that the results in each case were different; however, this does not mean that the Respondent has acted in an illegal or arbitrary manner, since SEGOB's actions depended of the particular circumstances in each case.

415. In the eight example, the Claimants assert that Mexico breached their “legitimate expectations to operate its Casinos as an independent permit holder under the permit granted to it through the November 16, 2012 Resolution."⁵⁴³ The Claimants are wrong. The Respondent explains in its Counter Memorial that, since the Claimants requested their permit “many years after they made their investment",⁵⁴⁴ it is clear that said investment “was not based on a commitment from Mexico to grant a permit, to not cancel a permit, or not close the Casinos",⁵⁴⁵ therefore, in any way the Respondent breached the Claimants' legitimate expectations.

416. In the ninth example, the Claimants argue that by declaring the Permitholder-BIS Oficio null and void "SEGOB arbitrarily exceed[ed] its compliance"⁵⁴⁶, since this was carried out "within 24 hours of having received notice of the judge's decision and, without any legitimate reasoning"⁵⁴⁷. This is not correct. Mr. Landgrave states in his First Witness Statement that the new Amparo Law established a harder mechanism to penalize the non-compliance of resolutions, which included the possibility to impose a criminal sanction,⁵⁴⁸ and that this situation caused that, in the exercise of his attributions as General Director of Constitutional Proceedings at that moment, he recommended the DGJS to be prepared in the case that the Sixteenth Court ordered to overrule the Oficio of May 27, 2009, elaborately reviewing the file and considering the possible scenarios.⁵⁴⁹ This is the reason why SEGOB had already traced the different actions that arose from said Oficio so it could timely and duly comply with the Sixteenth Courtʻs resolution. What SEGOB did was just to timely and duly comply with an order from the Sixteenth Court which was something to

⁵⁴³ Reply, ¶ 150. ↩

⁵⁴⁴ Counter Memorial on the Merits, ¶ 583. ↩

⁵⁴⁵ Id. ↩

⁵⁴⁶ Reply, ¶ 150. ↩

⁵⁴⁷ Id. ↩

⁵⁴⁸ See RWS-2, First Witness Statement of José Raúl Landgrave Fuentes, ¶ 15. ↩

⁵⁴⁹ See Id., ¶ 22. ↩

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expect for since it is a governmental authority and it has said obligation; if it did not comply with the resolution, the consequence would have been SEGOB's public officers to be sanctioned.⁵⁵⁰

417. Finally, the Claimants, in relation to the Respondent's discretionary powers, intend to demonstrate an alleged “misuse and an abuse of power"⁵⁵¹, arguing that Producciones Móviles lingers in the gaming and sweepstakes industry, while E-Games' permit was declared null and void. The Claimants' position in this respect is erroneous. As explained in the Counter Memorial⁵⁵², “the Producciones Moviles permit was not a consequence of the 2009- BIS Oficio"⁵⁵³ and more important yet, “there was no ruling ordering the annulment of the Producciones Moviles permit.."⁵⁵⁴ Therefore, it would be incoherent and totally illegal that without the existence of legal justification to cancel or to order the annulment of Producciones Móviles' permit, SEGOB decided to cancel it just because it is in like circumstances that the Claimants.

P. Marketing of Licencies

418. In its Counter Memorial, the Respondent emphasized the content of the RLFJS article 31 of, which states that the permits cannot be transferred and, additionally, that they cannot be subject to any lien, cession, alienation or commercialization.⁵⁵⁵ As it was also stated in the Counter Memorial, the RLFJS article 3, section XVII, defines a permit as an “administrative act taken by SEGOB, which allows an individual or legal entity to engage in sweepstakes or gambling during a specific timeframe and limiting its scope to the terms and conditions determined by SEGOB, pursuant to the LFJS, its Regulations, and other applicable provisions”⁵⁵⁶. Such definition, as well as the prohibitions established in the aforementioned article 31, refer to a permit as an indivisible unity, not as an administrative action subject to be segmented in many parts or that it grants rights and obligations independent to the activities therein authorized⁵⁵⁷.

⁵⁵⁰ See Counter Memorial on the Merits, ¶ 262. ↩

⁵⁵¹ Reply, ¶ 150. ↩

⁵⁵² See Counter Memorial on the Merits, Section II.R. ↩

⁵⁵³ Id., ¶ 421. ↩

⁵⁵⁴ Id. ↩

⁵⁵⁵ Counter Memorial on the Merits, ¶ 49. ↩

⁵⁵⁶ Counter Memorial on the Merits, ¶ 39. ↩

⁵⁵⁷ In this case, seven venues of remote betting centers and seven number drawing rooms. ↩

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419. Additionally, it should be noted that neither the LFJS nor the RLFJS refer to the term "license". Said figure is not regulated in the applicable legislation and is not mentioned in the E-Mex Permit or in the E-Games Permit. This is relevant, since said legal framework and the aforementioned permits constitute the origin and limits of the rights and obligations in favor of the Claimants related to their permit.

420. Notwithstanding that, the Claimants argue in their Reply that “[w]ith the remaining two licenses under the E-Games Independent Permit, Claimants planned to develop casino and hotel ventures in Cabo and Cancun, as they considered that those resort communities in Mexico would have the maximum potential to realize the full value of the E-Games Independent Permit”⁵⁵⁸.

421. Next, the Respondent will address the evidence submitted by the Claimants which demonstrates that they had the intention to commercialize the rights of the permit through the "license" figure. Subsequently, it will be explained that the Huixquilucan casino: a) was operating under the E-Games permit; b) it was property of third parties different from the Claimants; and c) it was not operating under the “operator” figure that is indeed provided for in the RLFJS.

1. Evidence submitted by the Claimants regarding the commercialization of the permit through the misleading figure of "licenses"

422. The evidence submitted by the Claimants demonstrate their misleading understanding of “licenses emerging from E-Games Independent Permit” as independent authorizations of the rights enshrined in the E-Games Permit and that the Claimants are allowed to provide it to third parties to exploit it with commercial purposes. For instance, the language in the Right of First Refusal Agreement between Colorado Cancún, LLC and B-Mex II, LLC, dated April 27, 2011, states as follows:

B-Mex possesses a [sic] the right to issue a license under the Current Permit and, upon granting of the Application, will possess the right to issue a license under the New Permit to authorize the establishment and operation of a gaming facility in Mexico. For the purpose of this Agreement, a license issued by B-Mex under either the Current Permit or the New Permit shall be referred to as the “License." Currently, B-Mex

⁵⁵⁸ Reply, ¶ 540. ↩

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possesses two Licenses, one of which is subject to negotiations for a purchase by Discovery Land Company or Affiliate.⁵⁵⁹

[Énfasis añadido]

423. The Claimants argue that “in June 2011, E-Games' Board directed and authorized Mr. Burr to "take all actions reasonable and necessary to establish the Cancun Company that will purchase a license under the Current Permit or New Permit to capitalize, construct and operate a casino in Cancun'",⁵⁶⁰ and that "[s]pecifically, with respect to the Cancun project, Colorado Cancun, LLC invested US$ 250,000 towards an option to purchase a gaming license from B-Mex II under our permit"⁵⁶¹.

424. Despite the clear and recurring meaning that the Claimants assign to the “licenses” term, their expert, Mr. González tries to justify the legality of the Claimants' practice asserting that “[i]n conclusion, the term “purchase a license,” as described by the Claimants in their Memorial on the Merits, is to be understood as the acquisition of shares or units of a permit holder company, and that this does not imply violating the prohibition of transferring a permit"⁵⁶².

425. Since the only "permit holder compan[ies]" in this case are E-Mex, with respect to the permit number DGAJS/SCEVF/P-06/2005, and E-Games, with respect to the permit number DGAJS/SCEVF/P-06/2005-BIS, the conclusion previously referred to of the Claimants' expert would imply that when commercializing “licenses emerging from E-Games Independent Permit” the Claimants were actually selling E-Games' and E-Mex's shares or equity interests. However, there is no evidence in this proceeding that suggests this had actually occurred, such as partner's assembly minutes whereby it was agreed the admission of new partners as the result of "purchas[ing] a license", as well as the modifications to the E-Games partner's special book.

426. The RLFJS article 29, section VII, obliges the permitholders to inform SEGOB about the purchase of shares or equity interests or the modification of the percentage of participation of the partners or shareholders. The Claimants did not notify SEGOB regarding the fulfilment of this obligation.

⁵⁵⁹ Exhibit C-88, Right of First Refusal Agreement between Colorado Cancún, LLC and B-Mex II, LLC, ¶ 3. ↩

⁵⁶⁰ Memorial, ¶ 62. ↩

⁵⁶¹ Id., ¶ 65. ↩

⁵⁶² CER-6, Second Expert Report of Ezequiel González Matus, ¶ 59. ↩

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427. Contrary to what their expert argues, the most recent statement of Mr. Burr demonstrates that the Claimants clearly conceived the permits and the “licenses” that allegedly resulted from them, as distinct instruments:

From a purely economic perspective, becoming a permitholder would allow us to reduce the ongoing royalty fees that we were having to pay to operate our existing locations, generate additional income from license fees and royalties we charged at the new locations, and effectively keep all the revenue we generated in house, as opposed to sharing it with an outside party.⁵⁶³

428. If it were true that “the term “purchase a license,” [...] is to be understood as the acquisition of shares or units of a permit holder Company” as the Claimants' expert asserts, it would not explain why Mr. Burr refers to the prior citation to “license fees” instead of referring to the purchase and sale of E-Games' social shares. It is not explained either why does he consider it an additional source of “income”, nor which mechanism would be used to avoid the obligation to share such income with third parties unrelated to the company.

429. Such misleading conceptualization of “licenses” is also reflected in the minute of resolutions adopted by the board of managers of B-Mex II, LLC, Messrs. Burr, Conley and Rudden (who are also Claimants in this proceeding):

In addition, through the grant of the independent Permit, Exciting Games obtained the right to issue up to seven licenses (the "Licenses"), each of which entitles the holder to conduct all gaming activities permitted by the Permit at its location. Upon the sale of a License, Exciting Games will receive proceeds from such sale which otherwise would be distributable to the owners of Exciting Games who are affiliates of the Company and the Subsidiary.⁵⁶⁴
[...]
RESOLVED, that it is in the best interests of the Company for the Company to enter into such agreements (the “Transfer Agreements”) with Exciting Games S.D.R.L. de C.V. ("Exciting Games") to cause Exciting Games to take such actions and enter into such agreements as will provide for the transfer by Exciting Games to the Company's Mexican subsidiary(ies) and the subsidiaries of the other two Colorado LLC affiliates of the right to all proceeds received by Exciting Games from the sale or other disposition of any licenses issued by it for the purpose of granting rights to conduct gaming and related activities pursuant to the terms of a certain permit (the "Permit"), number DGAJS/SCEVF/P-06/2005-BIS, the use of which is granted to Exciting Games by

⁵⁶³ CWS-59, Fourth Witness Statement of Gordon Burr, ¶ 8. ↩

⁵⁶⁴ Exhibit C-494, Consent Resolutions of the Board of Managers of B-Mex II, LLC, ¶ 2. ↩

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Secretaria de Gobernacion (“SEGOB”), an agency of the Mexican federal government; and further ⁵⁶⁵

430. In conclusion, the Claimants' documentary evidence and statements support the Claimants' illegal sale, transference or commercialization of permits, which is expressly prohibited in the RLFJS article 31.

2. Huixquilucan Casino

431. In the Counter Memorial it was mentioned that, besides the five Casinos owned by Compañías de Juegos, a sixth casino operated under E-Games permit in Huixquilucan, Mexico State, under the commercial name of “Master Tournament”. This sixth casino was also closed on April 24, 2014, same date when the closure of the Claimants' Casinos took place. The Claimants stated that the operation of the Huixquilucan Casino would have impeded the Claimants to open two additional casinos since their permit only allowed the operation of seven dual-functioning casinos.

432. In their Reply, the Claimants state that in 2013 and 2014 “also operated a temporary location in Huixquilucan and were working on another temporary location in Veracruz. [...] Claimants' plan was always to close the Temporary Locations and deploy the remaining licenses under the E-Games' Independent Permit—which had no geographic restrictions whatsoever—to the Cabo and Cancun Projects once they came into fruition".⁵⁶⁶ As the Claimants say, "at the time there was a proposed bill in the Mexican legislature that would have canceled licenses for locations that were not being used".⁵⁶⁷ Besides Mr. and Mrs. Burr's witness statement⁵⁶⁸, the Claimants have not submitted any evidence about the temporary nature of said locations or the alleged proposed bill that forced them to temporarily open such locations to maintain their rights according to the permit.

433. The Claimants' arguments are incoherent with the facts. Everything seems to indicate that Master Tournament were property of third parties totally unrelated to the Claimants. These third

⁵⁶⁵ Exhibit C-494, Consent Resolutions of the Board of Managers of B-Mex II, LLC, ¶ 6, first resolution. ↩

⁵⁶⁶ Reply, ¶ 540 ↩

⁵⁶⁷ Id., ¶ 451. ↩

⁵⁶⁸ CWS-60, Fourth Witness Statement of Mrs. Burr, ¶ 45; CWS-50, Third Witness Statement of Mr. Burr, ¶ 87. ↩

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parties owning the Huixquilucan casino entered into some kind of agreement (possibly illegal) to operate the casino under the E-Games permit. Some documents submitted with this Rejoinder demonstrate that:

• The lease agreement of the Huixquilucan venue was concluded between Master Tournament S.A. de C.V. (tenant) and Interlomas, S.A. de C.V. (landlord) on August 28, 2011.⁵⁶⁹
• Neither of the Claimants appears at the constitutive act as shareholder of Master Tournament.⁵⁷⁰
• Master Tournament, S.A. de C.V. does not have foreign capital.⁵⁷¹
• Master Tournament entered into sub-leasing agreements with E-Games, as demonstrated in Exhibit C-31.⁵⁷²
• E-Games did not inform SEGOB that the Huixquilucan casino was property of unrelated third parties.⁵⁷³

434. Everything seems to indicate that the Claimants in some kind of way commercialized the "license" to operate the Huixquilucan casino and that they were planning to do the same in the Veracruz casino. In the Counter Memorial paragraphs 53 to 57, it was explained that the only figure distinct to the “permitholder” established in the RLFJS is the “operator” one and there is no evidence that Master Tournament, S.A. de C.V. was operator of the E-Games permit. As explained in the Counter Memorial, to be able to operate a permit through a third “operator” it is necessary that: (a) the permitholder and the operator enter into an agreement; and (b) request and obtain the

⁵⁶⁹ Exhibit R-127, Master Tournament's Lease Agreement – Interlomas, p. 1. ↩

⁵⁷⁰ Exhibit R-142, Master Tournament's Constitutive Act, S.A. de C.V. p. 1. Three Partners: Savuti, S.A. de C.V. represented by Mr. Carlos Eduardo Cornejo; Nashi Jean Estrada Hochstrasser; and Christian de León Ángeles, with 33% each one. ↩

⁵⁷¹ Exhibit R-141, No. SAJIE.315.20.561 Oficio dated October 29, 2020, from the General Directorate of Legal Affairs of the National Commission on Foreign Investments to the General Director Orlando Pérez Gárate. ↩

⁵⁷² Exhibit C-031, No. DGJS/2742/2012 Oficio dated August 15, 2014, from the General Directorate of Games and Raffles to E-Games proxy, p. 17. ↩

⁵⁷³ Exhibit R-128, DGJS/SCEV/1373/2012, November 5, 2012. ↩

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corresponding authorization from SEGOB. Neither of these conditions were fulfilled with respect to Master Tournament, S.A. de C.V.

The problematic Black Cube “evidence”

1. Black Cube in context

435. B.C. Strategy UK Ltd. is a firm operating under the name “Black Cube”, and describes itself as a "select group of veterans from the Israeli elite intelligence units that specializes in tailored solutions to complex business and litigation challenges."⁵⁷⁴ The truth is that Clack Cube has become famous due to its methods for obtaining information regarding negative aspects of the private life of its clients” “objectives” or “targets”. The methods used by Black Cube frequently involve the use of fake identities, building websites of alleged business, the disclosure of videos and LinkedIn profiles. With false pretense, Black Cube entices its targets to meet with its operatives, who record the meeting with hidden cameras and/or microphones.⁵⁷⁵

2. Circumvention of attorney ethical obligations

436. An experienced litigation lawyer would immediately recognize the ethical implications of gathering evidence using the methods that Black Cube's unidentified operatives employed to obtain their two de facto witness statements tendered in evidence in this case:

1. both interview subjects were enticed by a false pretense – that they would be meeting with wealthy Arabs interested in investing in the Mexican gaming industry – in at least one case flying the subject to New York – apparently with the stated or implied prospect of becoming a paid consultant to the supposed investors;
2. neither of the interview subjects was informed that the supposed investors were actually gathering evidence for use in this proceeding, let alone that their conversations were being clandestinely recorded for the purposes of creating a transcript for use in this case if useful remarks were made.

⁵⁷⁴ See Black Cube’s website https://www.blackcube.com/ ↩
⁵⁷⁵ Exhibit R-092, Quartz, Read Israeli spy firm Black Cube's secret pitch to clients, March 11, 2019. Available in: https://qz.com/1540811/israeli-spy-firm-black-cubes-secret-pitch-to-clients/. ↩

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437. If legal counsel had engaged directly in this deception, he or she would be subject to censure, including possible disbarment.⁵⁷⁶ Surely it does not relieve counsel of his or her duty of candor to potential witnesses by outsourcing the dirty work to others tasked with using false pretenses to persuade potential witnesses to provide secretly recorded testimony without their knowledge or consent.

438. The purpose of counsel's duty of candor to witnesses includes protecting the witness from any real or imagined retribution, and even the discomfort of unwillingly becoming ‘involved' in a proceeding. The identities of the Black Cube operatives who conducted the interviews have been concealed and their voices disguised so as to protect them from retribution. Did counsel consider whether Mr. Avila Mayo or Mr. Rosenburg would have concerns upon learning that they have been named in publicly accessible pleadings describing their discussions with Black Cube operatives? Did counsel consider that they could suffer censure from their employers, or impairment of their future career prospects, or even public opprobrium? Meanwhile, the unidentified operatives carry on in anonymity, maintaining their cover stories and techniques for other unsuspecting targets.

3. Failure to abide by the arbitration rules and requirements of natural justice

439. International arbitration is based on consensus as to both the scope of the agreement to arbitrate and the procedural rules to be applied. There is an expectation that the parties will engage in fair dealing and act in good faith. This is particularly so where one of the parties is a sovereign state, as in the case of investor-state dispute settlement.

440. The presentation of witness testimony in investment treaty disputes normally consists of written statements given voluntarily by deponents who understand that they can be called to appear before the tribunal for cross-examination by the opposing party and by the tribunal itself. Everybody is fully apprised of the purpose of their interviews and the use that will be made of their witness statements.

⁵⁷⁶ Exhibit RL-154, The International Bar Association’s Guidelines on Party Representation, Article 18 states that “Before seeking any information from a potential Witness or Expert, a Party Representative should identify himself or herself, as well as the Party he or she represents, and the reason for which the information is sought” [emphasis added]. ↩

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441. When a witness has given a statement and later declines to appear for cross-examination, the usual practice is to remove that witness's testimony from the record. To do otherwise would deprive the opposing party of the opportunity to challenge the evidence tendered against it, a fundamental requirement of natural justice. Black Cube's evidence is presented in a black box, allowing the Respondent absolutely no opportunity to challenge the unnamed operatives responsible for gathering the evidence, let alone the persons that have apparently said the things contained in the quasi transcripts that have been referred to or cited over 150 times in the Claimants' Reply as proof of alleged political favoritism and corruption.

442. On this basis alone the Black Cube evidence should be rejected.

4. The Black Cube evidence is wholly unreliable

443. It is self-evident that the Black Cube witness statements are tainted by the financial self-interest of both the interrogators (and their handlers) and the subjects of their investigation. According to the public available information, Black Cube and its operatives are motivated by the expectation of earning a substantial success if they obtain the “evidence” that the client is looking for. In some cases, the client will provide a “wish list” of data that Black Cube shall try to obtain.⁵⁷⁷ And the subjects of the investigation were at least implicitly motivated by the hope of earning consulting fees – or perhaps future employment – with the apparently well-healed Arab investors seeking entry into the Mexican gaming market. Why else would they participate at all?

444. The Black Cube operatives' financial motivation is reflected in the manner that they pose questions that appear in the transcripts: they persistently encourage the subject to say and/or confirm the existence of corruption or political patronage. The Tribunal will be familiar with the rules applicable to the admissibility of statements by the accused in criminal proceedings. Such statements must be untainted by expectation of favor or fear of prejudice. At least in those situations the maker of the statement is aware that he or she is talking to the police. Here the subjects think they are talking to a future client or employer who will be impressed if convinced

⁵⁷⁷ See Exhibit RL-151, The Catalyst Capital Group Inc. v. West Face Capital Inc., 2021 ONSC 125 (CanLII); and Exhibit RL-152 The Catalyst Capital Group Inc. v. West Face Capital Inc., 2021 ONSC 7957 (CanLII). Exhibit R-129, Black Cube's Standard Letter of engagement, the client's “wish list” and the resulting “success fee” to which they refer in such situations. ↩

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that he has unique insight into the regulatory landscape of the gaming industry in Mexico. Such statements are clearly tainted by expectation of favor.

445. Of equal importance on the question of reliability of the Black Cube evidence is the complete lack of rigor in testing the veracity of the responses given by the subjects to the leading questions posed by the operatives. While there is no question that hearsay evidence is admissible in investor-state proceedings, subject to the weight to be accorded to it the Tribunal, what we are dealing with here amounts at a minimum to double hearsay (reported by unnamed operatives) and more likely amounts to triple or even quadruple hearsay if one considers particular responses to particular questions. In many instances, to improve reliability it would have been necessary for the operative to ask:

1. Does the subject know this alleged fact from first-hand knowledge or did he develop this alleged knowledge from what he was told by others and/or surmised on his own?
2. Was the subject personally present for meetings at which particular decisions were taken or discussed?
3. If he is relying in whole or in part by what he learned from others did they have first-hand knowledge of the particular facts or circumstances under discussion?
4. Does the subject have any animus towards any of the persons he has mentioned?

and so on.

446. The Respondent submits that, leaving aside the question of ethics, no court or tribunal could consider evidence of this nature – completely wanting of testing of its veracity – to be reliable proof of any fact, let alone facts that are central to the proffering party's claim.

5. The Black Cube evidence should be rejected as a matter of international public policy

447. Black Cube's “sole director” repeatedly insists that Black Cube operatives adhere to the highest standards of their craft and only conduct their operations where it is legal to secretly record conversations with one party's consent. Whether or not this breaches the law regarding secret recording does not answer the important question, whether it is ethical and appropriate to gather evidence in that manner and/or using false pretenses for use in investor-state proceedings. If asked, the answer from the NAFTA Parties would be a resounding “no”.

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448. Investor-state dispute settlement is a relatively new form of litigation. It uniquely allows private parties a direct right of action to claim damages against states that have hosted their investments and have allegedly failed to abide by substantive treaty obligations affecting such investments.

449. State Parties under investment treaties are obliged to act in good faith and there is an equal expectation that nationals of the counterparties who invoke the dispute settlement provisions under such treaties will do likewise.

450. Query whether, if a Respondent State were to use its national security agency to engage in the kind of tactics that Black Cube has employed here in order infiltrate a claimant's business and/or to comprise a person related to the claimant to obtain damaging evidence, would the arbitral tribunal admit evidence produced by the state intelligence agency's operatives?

451. Query whether, if it becomes an acceptable practice for claimants under investment treaties to engage investigators produce in evidence the ways and means Black Cube operatives have employed, the requirement for party equality will require the admission of evidence similarly generated by respondents?

452. The Respondent respectfully submits that the acceptance of evidence gathered by intelligence agents using false pretenses, secretly recording of conversations thought to be private, and/or engaging in other clandestine operations would bring the investor-state arbitration system into disrepute and as such would offend international public policy.

453. The Respondent accordingly requests the Tribunal to order as follows:

• that the Black Cube witness statements be stricken from the record;
• that the public versions of the pleadings be redacted to exclude the names of Mr Avila Mayo or Mr. Rosenburg, anything identifying either of them, and all references to anything they are reported to have said to the Black Cube operatives;
• that the Tribunal make a statement disapproving of the kind of evidence adduced by the Claimants through Black Cube and the tactics engaged by its operatives.

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6. The Black Cube evidence should be rejected and deleted from this arbitration

454. The Tribunal must not admit the recordings presented by the Claimants since they were obtained through deception and in an unlawful manner.

455. The alleged evidence gathered by Black Cube and that the Claimants have used in this proceeding must be dismissed, since it is evidence obtained by illicit means that cannot be used in this arbitration.

456. In diverse investment arbitration it has been established that there are limitations to the admissibility of this kind of evidence. The Methanex v. Estados Unidos tribunal rejected to admit the evidence obtained by a private investigation firm hired by the claimant through intrusive and violating of domestic legislation actions.⁵⁷⁸ Citing Professor Reisman, the United States government successfully argued as follows:

[I]nternational courts have questioned the admissibility of evidence where that evidence “was secured in a manner that the court deemed harmful to public order and that it did not wish to encourage.” As recognized by Professor Reisman, “[r]etroactive validation of illegal seizures of evidence . . . could [result in] frustration of the fundamental purposes of international adjudication." Thus, illegally obtained evidence should be deemed inadmissible.⁵⁷⁹

457. The claimant in said case acted under the advisory opinion of a law firm, and as a result, the tribunal concluded that the evidence submitted by the claimant breached the general principle of good faith and it represented an offense to “the basic principles of justice and fairness required of all parties in every international arbitration.”⁵⁸⁰

458. Obtaining evidence in an illegal manner falls into "the unclean hands" doctrine, which is an expression of the roman doctrines nullus commodum capere (potest) de sua injuria propria (i.e., no one shall take advantage of the alien error) and ex injuria jus non oritur (i.e., the illicit

⁵⁷⁸ Exhibit CL-27, Methanex Corporation v. United States of America, UNCITRAL, Final Award (August 3, 2015) Part II, Ch. I, ¶ 58. ↩
⁵⁷⁹ Exhibit RL-103, Methanex Corporation v. United States of America, UNCITRAL, Motion of Respondent United States of America to Exclude Certain of Methanex’s Evidence (May 18, 2004) pp. 3-4. ↩
⁵⁸⁰ Exhibit CL-27, Methanex Corporation v. United States of America, UNCITRAL, Final Award (August 3, 2015) Part II, Ch. I, ¶ 59. ↩

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actions might never create law).⁵⁸¹ The customary law has also recognized the “unclean hands” doctrine, through its principles, and it has condemned not only the illegal methods used to obtain the evidence, but also“[a]ny willful conduct that is iniquitous, unfair, dishonest, fraudulent, unconscionable, or performed in bad faith."⁵⁸²

459. Based on what was concluded in Methanex, these principles found their expression in the general requirement of good faith, which is known, both in the domestic law and in international law.⁵⁸³

460. Likewise, the EDF (Services) v. Rumania tribunal rejected a recording obtained in an uncovered manner, regarding a conversation between one of Rumania's witnesses and the claimant's representative.⁵⁸⁴ After considering the IBA Rules on the Taking of Evidence – and particularly Article 9 (2)(g), that refers to “considerations of procedural economy, proportionality, fairness or equality of the Parties that the Arbitral Tribunal determines to be compelling" – the tribunal concluded that the recordings were “contrary to the principles of good faith and fair dealing required in the international arbitration".⁵⁸⁵

461. Other resolutions demonstrate that this kind of information may be rejected even if it was legally obtained. For instance, in Libananco Holdings Co. v. República de Turquía, the Turkish State intercepted approximately 1,000 privileged or confidential emails through state surveillance methods and, therefore, the tribunal determined they should be rejected.⁵⁸⁶ As explained by the tribunal, the surveillance was not unlawful, it was indeed a legitimate exercise of the State's sovereign right to counteract the crime.⁵⁸⁷

⁵⁸¹ Exhibit RL-104, Grégoire Betrou & Sergey Alekhin, The Admissibility of Unlawfully Obtained Evidence in International Arbitration: Does the End Justify the Means? Paris J. of Int’l Arb. 2018-4, p. 53. ↩
⁵⁸² Id., p. 54. ↩
⁵⁸³ Id., pp. 53, 55 (“[T]he Methanex tribunal appears to have considered acts of trespass by the claimant party to obtain evidence as unlawful under US law, but also characterized the same acts as contrary to the general duty of good faith stemming from international law.”). ↩
⁵⁸⁴ Exhibit RL-105, EDF (Services) v. Romania, ICSID Case No. ARB/05/13, Procedural Order No. 3 (August 29, 2008), ¶ 38. ↩
⁵⁸⁵ Id. ↩
⁵⁸⁶ Exhibit RL-106, Libananco Holdings Co. Limited v. Republic of Turkey, ICSID Case No. ARB/06/8, Decision on Preliminary Issues (June 23, 2008) ¶ 19. ↩
⁵⁸⁷ Id. ¶ 78. ↩

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462. Likewise, previous resolutions show that both the State and the investor, are subject to the same rules. Indeed, recently the OOO Manolium-Processing v. Bielorrusia tribunal, citing the IBA Rules and Methanex, concluded that there is a duty of all parties to do not obtain evidence by improper methods:⁵⁸⁸

Parties in an investment arbitration have a duty to not obtain evidence through improper means. This is derived from the obligations to arbitrate fairly and in good faith, and the principle of equality of arms implicit in all international arbitrations between a State and a foreign investor [...] Whilst the capacity for a foreign investor to obtain evidence from a State party through improper means is significantly reduced, the duty not to engage in improper activities applies equally to a foreign investor.⁵⁸⁹

463. Additionally, in some particular arbitration proceedings which are easily to distinguish the recordings have been admitted as evidence. For instance, in Ahongalu Fusimalohi v. FIFA, a journalist from the Sunday Times, acting in an uncovered manner, obtained a recording which registers alleged corruption actions.⁵⁹⁰ Which makes that case distinct is that the recording was obtained by someone unrelated to the dispute, which meant that the party introducing the recording as evidence in the arbitration had the hands clean.

464. Likewise, some tribunals have admitted records obtained from massive leakages of classified, confidential and privileged information under the argument that such information became public.⁵⁹¹

465. In a similar manner, a resolution of a Canadian court in January 2021, regarding an operation designed by Black Cube to slander a Canadian judge and to obtain confidential information from the counterpart's employees, demonstrates that the jurisdictional authorities are not accepting the Black Cube methods:

⁵⁸⁸ Exhibit RL-107, OOO Manolium-Processing v. Belarus, PCA Case No. 2018-06, Decision on Claimant’s Interim Measures Request, (December 7, 2018), ¶ 154. ↩
⁵⁸⁹ Id., ¶¶ 159-60. ↩
⁵⁹⁰ Exhibit RL-108, Ahongalu Fusimalohi v. FIFA, CAS 2011/A/2425, Award (March 8, 2012), ¶¶ 21-34. ↩
⁵⁹¹ This situation has also been criticized. See Exhibit RL-156, Ricardo Calvillo Ortiz, Admissibility of Hacked Emails as Evidence in Arbitration, NYU Law, Transnational Notes ([T]his boundary should be carefully policed, due to the fact that this evidence was unlawfully obtained at some point. [...] What would happen if one of the parties hacks the other parties' emails and then asks a third entity which is not part of the dispute to publish this information in order to gain publicity for the purpose of using it in an arbitration procedure (based on the argument public availability destroys the privileged or confidential status of information?)). ↩

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[364] [I]t must be recognized that confessions generated through Mr. Big investigations [i.e., Agentes encubiertos haciéndose pasar por miembros de una organización criminal] are presumptively inadmissible. Though the Mr. Big technique is not illegal in Canada (as it is in many other jurisdictions including the United States) its use makes courts very uneasy. Confessions that arise in the context of lies, deception and inducements have to be looked at very carefully in terms of their reliability. Moreover, every Mr. Big investigation is subjected to close scrutiny for abusive conduct by state actors.
[365] . . . The court must be wary of protecting abusive conduct, even when not the actions of state agents, lest the administration of justice be brought into disrupte.
[366] . . . The court must distance itself from such conduct in order to maintain its integrity and repute. . . .
[367] Black Cube agents lied to former Justice Newbould. They took him to dinner, bought him drinks, pretended like they wanted to retain him as an arbitrator and then did their best to dupe him into making utterances that might embarrass him. They did so not because there was any credible evidence that he was biased against Jews or Catalyst or anyone else. They did so because they were being paid a very large amount of money to do so by someone who was very unhappy with a decision that he had rendered in his capacity as a Superior Court Justice.
[368] Black Cube agents also deceived a number of employees of West Face, both active and former. They pretended to offer lucrative and interesting employment opportunities. They acted like they thought the targets were unique, accomplished and special. . . .
[369] Black Cube's efforts were designed to, by hook or by crook, obtain confidential information about West Face. . . .
[370] The conduct of Black Cube agents was an affront to justice. It is the type of conduct that the court must distance itself from.⁵⁹²

466. The fact that Black Cube is based on an alleged legal counselling did not influence the Canadian court. Indeed, a Black Cube's former client has sued it accusing it of negligence and breach of contract, arguing inter alia: “Black Cube assured the Plaintiffs that . . . they had access to the best legal advice available to ensure that their investigative activities would be conducted in a lawful manner, that Black Cube would ensure that the results of its investigative activities would be in accordance with all local laws, and, if successful would result in evidence that would be admissible in court in Ontario."⁵⁹³

467. Additionally, in November 2016, a Black Cube's employee pleaded guilty and was condemned by a Rumanian court to be suspended during two years and eight months due to the

⁵⁹² Exhibit RL-151, The Catalyst Capital Group Inc. v. West Face Capital Inc., 2021 ONSC 125, No. CV-17-587463-00CL, Ruling on Privilege Motions, Jan. 11, 2021. ↩
⁵⁹³ Exhibit RL-152, The Catalyst Capital Group Inc and Callidus Capital Corp. v. B.C. Strategy Ltd. d/b/a/ Black Cube, No. CV-21-00655838-0000, Statement of Claim, Mar. 1, 2021, ¶ 10. ↩

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methods used in the investigation – as in this case – aiming to "uncovering evidence of possible corruption."⁵⁹⁴ Black Cube and Mr. Yanus himself more recently signed a "plea deal" with Rumanian authorities admitting criminal violations of the Rumanian law.⁵⁹⁵

7. Black Cube's recordings and witness statement lack evidentiary value due to the existence of an economic interest

468. The Respondent sought to obtain the contract in the document production round, however it could not obtain said document, nevertheless, according to Black Cube's public available agreements of the Catalyst⁵⁹⁶ and Alicia Grace⁵⁹⁷cases, it seems that the contingency fee is a Black Cube's standard component, therefore the Respondent presumes it is the same case in this arbitration.

469. The IBA Guidelines on Party Representation in International Arbitration allows an attorney to cover the following concepts “(a) expenses reasonably incurred by a Witness or Expert in preparing to testify or testifying at a hearing; (b) reasonable compensation for the loss of time incurred by a Witness in testifying and preparing to testify; and (c) reasonable fees for the professional services of a Party-appointed Expert.”⁵⁹⁸ The IBA Guidelines, however, does not allow to agree on contingency fees or success fees.

470. Other rules are even more explicit. Jeffrey Waincymer explains as follows:

All would agree that any opinion [experts] present should certainly be honest, objective and independent, even though the relationship itself cannot be described as wholly independent. The opinion of an expert should not be distorted for the benefit of the party appointing. The Chartered Institute of Arbitrators Protocol states that '(a)n expert's opinion shall be impartial, objective, unbiased and uninfluenced by the pressures of the dispute resolution process or by any party' [...] The CIArb Protocol makes clear that receiving a fee does not in and of itself impact upon independence. Nevertheless, most

⁵⁹⁴ Exhibit R-131, AFP, Israeli Convicted for Targeting Romania’s Anti-Corruption Chief, Nov. 16, 2016, https://www.timesofisrael.com/israeli-convicted-for-targeting-romanias-anti-corruption-chief. ↩
⁵⁹⁵ Exhibit R-130. AFP, 3 Israelis from Black Cube intel firm given suspended sentence in Romania, March 21, 2022. ↩
⁵⁹⁶ Id. ↩
⁵⁹⁷ Exhibit R-140, Oro Negro hired an Israeli company to spy on Pemex officials. Available in: https://aristeguinoticias.com/0210/mexico/espionaje-conspiracion-chantaje-y-amenazas-el-caso-oro-negro-contra-pemex/ ↩
⁵⁹⁸ Exhibit RL-154, IBA, IBA Guidelines on Party Representation in International Arbitration, May 25, 2013, Guideline 25. ↩

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would see a contingency fee based on success in the proceedings as being an unacceptable interference with independence.⁵⁹⁹

471. Other authors have stated as follows:

The fee arrangement is often another area of concern. It is my view that an expert should never be engaged on a lump sum basis and absolutely never on a contingency arrangement. A lump sum fee potentially restricts an expert's ability to assist the Court or tribunal fully because, subconsciously or otherwise, an expert is in danger of curtailing work in line with a lump sum fee, while a contingency fee is clearly inconsistent with the duty of independence. Most, if not all, professional guidelines and protocols state that an expert should be paid at hourly rates on the basis of the time reasonably spent.⁶⁰⁰

472. Even some diverse legislation applicable to companies that provide private investigation services prohibit the contingency fees. For instance, Section 84(1) of the New York General Business Law establishes the following:

It is unlawful for the holder of a [private detective] license to furnish or perform any services . . . on a contingent or percentage basis or to make or enter into any agreement for furnishing services of any kind or character, by the terms or conditions of which agreement the compensation to be paid for such services to the holder of a license is partially or wholly contingent or based upon a percentage of the amount of money or property recovered or dependent in any way upon the result achieved.⁶⁰¹

473. As explained in an professional ethical opinion issued by the New York Bar, “[i]t would [...] be unethical for the inquiring attorney to participate in an agreement to compensate the investigator on a contingent fee basis [...] if the investigator is viewed as the attorney's agent, or [...], if the investigator is viewed as the client's agent.”⁶⁰²

474. Additionally, an agreement that establishes a contingency fee is improper, since the compensation is conditioned to the outcome of the case.⁶⁰³ For instance, the Rule Model 3.4(3) of the American Bar Association, establishes that it is improper to pay an expert witness a contingent

⁵⁹⁹ Exhibit RL-158, Jeffrey Waincymer, Procedure and Evidence in International Arbitration (Kluwer 2012), pp. 942-43. ↩
⁶⁰⁰ Exhibit RL-159, John Molloy, The Far Reaching Consequences of Expert Evidence, 17 Asian Dispute Review 150, 152 (2015). ↩
⁶⁰¹ Exhibit RL-160, New York General Business Law. ↩
⁶⁰² Exhibit RL-157, Committee Report, Formal Opinion 1993-2: Contingent fees; will contests; compensation of private investigators, Dec. 15, 1993, https://www.nycbar.org/member-and-career-services/committees/reports-listing/reports/detail/formal-opinion-1993-2-contingent-fees-will-contests-compensation-of-private-investigators. ↩
⁶⁰³ Id. ↩

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fee. Other example to be considered are the California Rules of Professional Conduct which establish that "[a] member shall not [...] (B) Directly or indirectly pay, offer to pay, or acquiesce in the payment of compensation to a witness contingent upon the content of the witness's testimony or the outcome of the case.”⁶⁰⁴

475. Even when the provisions previously described apply to judiciary proceedings in the U.S. and not the arbitration proceeding, all these provisions allow to illustrate the generalized disapproval of the “fee” that seek to compensate a witness based in a percentage of the amount recovered by the party that hired him. This fees undermine the witness' credibility, besides to be prohibited in practice. Therefore, even if the recordings obtained by Black Cube which were used by the Claimants in this arbitration were to be considered admissible and were not deleted from the file in this case, the Respondent considers that this Tribunal should not grant it any evidentiary value.

476. As explained in the Canadian court in its resolution with respect to a similar incentive structure, Black Cube conducted an investigation “because they were being paid a very large amount of money to do so by someone“.⁶⁰⁵ Additionally, the Canadian court concluded as follows:

[379] I am also somewhat concerned about what inferences the specifics of Black Cube's retainer give rise to. Their base fee was $1.5 million U.S. A bonus structure – the particulars of which I will not elaborate on – provided for maximum fees up to $11 million U.S. Catalyst was the party ultimately paying Black Cube's fees. Even for Catalyst, $11 million is a big number. A natural inference is that the payor of such a significant sum will want to know what it is they are paying for. How else will they know if the fees are reasonable? The alternative is that they do not want to know. Actual knowledge and willful blindness are close cousins.⁶⁰⁶

477. The Tribunal should also conclude that the unlawful financial agreement whereby Black Cube was hired undermines the credibility of the recordings, so as it does the distorting of voices and the hiding of identities of the involved people.

⁶⁰⁴ Exhibit RL-162. California’s Rules of Professional Conduct, Rule 5-310(b). The Rules of Professional Conduct of Washington, D.C. also state provisions in the same sense: “(a) In representing a client, a lawyer shall not use means that have no substantial purpose other than to embarrass, delay, or burden a third person, or knowingly use methods of obtaining evidence that violate the legal rights of such a person.” Rules of Professional Conduct D.C., Rule 4.4(a). ↩
⁶⁰⁵ RL-151, The Catalyst Capital Group Inc. v. West Face Capital Inc., 2021 ONSC 125, No. CV-17-587463-00CL, Ruling on Privilege Motions, Jan. 11, 2021, ¶ 367. ↩
⁶⁰⁶ Id., ¶ 379. ↩

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R. About Mr. Omar Guerrero's credibility and objectivity

478. The IBA Rules on the Taking of Evidence reflect the international practice in Investor-State proceedings. Indeed, this Tribunal has used as support the IBA Rules to substantiate its decision on several occasions, for instance, in the Procedural Order No. 1, No. 9 and No. 13.

479. In accordance to article 5.2, sections (a) and (c), of the IBA Rules, an expert report must contain, “(a) [...] a statement regarding his or her present and past relationship (if any) with any of the Parties, their legal advisors and the Arbitral Tribunal [...]” and “(c) a statement of his or her independence from the Parties, their legal advisors and the Arbitral Tribunal [...]”.⁶⁰⁷ The Second Expert Report of Mr. Luis Omar Guerrero Rodríguez, Claimants' expert in this arbitration did not comply with the internationally accepted practice of disclosing interest conflicts, as reflected in the IBA Rules article 5.2.

480. Mr. Guerrero Rodríguez, is not only the Claimtants' expert in this arbitration, but is also the Claimants' representative in the Espíritu Santo Holdings, LP y Llbre Holding, LLC v. Estados Unidos Mexicanos (ICSID Case No. ARB/20/13) arbitration, registered on May 11, 2020. Mr. Guerrero Rodríguez, in his Second Expert Report did not disclose this fact to the Arbitral Tribunal nor to the Respondent. It is not known whether or not the Claimants were aware that Mr. Guerrero Rodríguez is engaged in the other arbitration proceeding.⁶⁰⁸

481. The Respondent considers that the lack of transparency regarding this interest conflict undermines the credibility and objectivity of the Claimants' witness and, therefore, the evidentiary value of his Expert Report.

S. The Tribunal must dismiss the requests of adverse inferences based in an alleged lack of submission of documents by the Respondent

482. The Respondent notes that the Tribunal instructed in the Procedural Resolution 10 that, “[w]here a requesting party has challenged a representation by the requested party that it has

⁶⁰⁷ CL-261. Article 5.2 (a) and (c) of the IBA Rules. Nigel Blackaby and Constantine Partasides QC, Redfern and Hunter on International Arbitration, OUP (6th ed), ¶ 6.141 (“Article 5(2) of the IBA Rules provides a useful summary of the expected content of a party-appointed expert report”). ↩
⁶⁰⁸ Claimants' Representatives: Hogan Lovells US, Miami, FL, U.S.A. and Freshfields Bruckhaus Deringer, New York, NY, U.S.A. https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/20/13 ↩

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conducted a reasonable and proportionate search for documents responsive to a request, that will be a matter for submissions (including as to whether adverse inferences should be drawn against the requested party) in prehearing pleadings and at the hearing”;⁶⁰⁹ however the Claimants have made, requests for adverse inferences to this Tribunal all over their Reply, therefore, the Respondent has necessity to reply, ad cautelam, the Claimants' inferences, and reserves its right to modify or elaborate on said reply during the pre-hearing and the hearing, in accordance to Procedural Resolution 10.

483. The Claimants requested in more than 30 occasions that the Tribunal imposes negative inferences against the Respondent, even attaching the Appendix A repeating the requests and negative inference that they consider it should be imposed. All of these requests must be rejected. Each one of them are made under alleged facts such as political motives, corruption or even that the Respondent purposely hid the information.⁶¹⁰ Each one of these accusations are extremely serious and cannot be taken lightly.

484. First, the Claimants seek to revert the burden of proof against the Respondent. This cannot be allowed. The burden of proof is based on the principle “onus probando incumbit actori”, therefore, the Claimants must prove their own accusations. Not only that, when the Claimants made, just like that, accusations of an entire orchestration of the Mexican State, they must demonstrate it with clear, convincing, persuasive and sufficient evidence, which excludes all reasonable doubt. Otherwise, as the Claimants do, the mere inexistence of documents that, according to the Claimants, would support their accusations they would be released of the burden of proof, which would be against the due process and the equality of arms between the parties in the arbitration.

485. Second, most of the reasons that the Claimants expose to “do not believe" that the Respondent does not have the documents emerge from a tergiversation of the actions of several offices: SEGOB, SE and even SAT. According to the Claimants, the Mexican authorities should have the analysis of all of its actions.⁶¹¹ However, this position totally disregards that the Mexican

⁶⁰⁹ Procedural Resolution No. 10, ¶ 8. ↩
⁶¹⁰ Reply, ¶¶ 74-75, 106-113, 139-144, 261-265, 375-376, 392-393, 398-399, 401-405. ↩
⁶¹¹ Id., ¶¶ 12, 61, 264, 376, 393. ↩

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authorities based their actions in the i) principle of legality (they can only act according to their attributions) and ii) the actions that have effect over the rights and obligations of individuals must be substantiated and motivated, i.e., they must contain both the legal provisions that they are basing their decisions in, and the facts, motives or reasons that make applicable those legal provisions.⁶¹² The documents and analysis that the Claimants repeatedly requested are precisely the oficios and resolution of the authorities, in many cases some of them are even the outcome of an entire administrative proceeding.

486. The Claimants distort the actions of the offices in the requests number 9, 10, 11, 12, 13 and 14. In each one of these requests the Claimants requested all the documents related, draft or whereby it is reflected an analysis that would demonstrate the existence of a legal bond between the Permitholder Oficio and the Permitholder-BIS Oficio (i.e. the negative inference they are seeking to), because according to the Claimants the Permitholder-BIS Oficio is independent to any other background. Besides, they added to their requests that these documents were not limited to the fact that they were drafted by SEGOB, but also SE and SEGOB jointly.⁶¹³

487. With respect to these requests the Respondent answered that there were no more documents that those already in the file. According to the Claimants this is false. However, reading each one of their requests, it is evident that the Claimants are mistaken.

488. The request 9: documents about the relationship between E-Mex and E-Games. There are already in the file the exhibits related to i) the operation agreement between E-Mex and E-Games (C-06), ii) oficios that authorize E-Games to be E-Mex's operator (C-08 and C-09), iii) the 2009-BIS Oficio (C-11), iv) the Permitholder Oficio (C-254), and v) the Permitholder-BIS Oficio (C-16). These oficios are related to each other, not only because the cite ones and others, depending on the situation; but because their content is such that it results from the own submissions of E-Mex and E-Games.

⁶¹² Exhibit R-091, Political Constitution of the United Mexican States, Article 16, first paragraph, (“No one can be disturbed in his person, family, home, papers or possessions, except by virtue of a written order from the competent authority, which establishes and motivates the legal cause of the procedure. In the trials and procedures followed in the form of a trial in which orality is established as a rule, it will suffice to record them in any medium that gives certainty of their content and compliance with the provisions of this paragraph”). ↩
⁶¹³ See Reply, Appendix A, pp. 7-11. ↩

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489. Thus, E-Games presented its submission of “acquisition of rights” based on the E-Mex Permit and on the operator authorization of E-Mex (DGAJS/SCEV/0059/2009).⁶¹⁴ Subsequently, E-Games requested to be permitholder asserting it was able to exploit seven casinos of the E-Mex Permit and cited, as support, every authorization that SEGOB had issued, inter alia the 2009-BIS Oficio.⁶¹⁵ Finally, when E-Games requested that the General Director of Games and Raffles signed the new Permitholder Oficio or referred to it in order to avoid any kind of nullity, it did so just referring to its former request and to the Permitholder Oficio itself.⁶¹⁶ Consequently, in response to E-Mex and E-Games' submissions, SEGOB issued the oficios. The reasons and analysis are stated within the oficios themselves, since the Mexican legislation establishes it must be done in such manner. There is no reason for the SE to have been obliged to prepare any analysis of the particular submissions on games and raffles, since it is not the competent authority.

490. The requests 10, 11, 12: documents analyzed in the Permitholder Oficio, Permitholder-BIS Oficio and the 2009-BIS Oficio. Again, the Claimants disregard that the analysis of each of those documents can be read in their own content. And, more important, the analysis and its legal connection can be read, precisely, in SEGOB's compliance oficio. Such document lists and describes the oficios:⁶¹⁷

• The DGAJS/SCEV/0232/2011 oficio, dated May 11, 2011, whereby SEGOB required E-Games to submit the documents regarding its permit request.
• The DGAJS/SCEV/546/2011 oficio, dated November 18, 2011, whereby SEGOB reserved its decision regarding E-Games' legal situation, as permitholder, until E-Mex's bankruptcy proceedings were resolved.
• The Permitholder Oficio which determined the ownership of the acquired rights on the E-Mex Permit use and exploitation.

⁶¹⁴ Exhibit R-045, E-Games submission of May 18, 2009, p.1.; C-252, DGAJS/SCEV/0059/2009 Oficio, of February 13, 2009; Counter Memorial on the Merits, ¶ 127. ↩
⁶¹⁵ Exhibit C-14, E-Games request of permit, of February 22, 2011, p.16; Counter Memorial on the Merits, ¶ 157. ↩
⁶¹⁶ See Exhibit R-047, E-Games' submission of November 7, 2012 (“...of the [Official Permit Holder] it is observed that said official intends to support his competence... said official omitted... to duly substantiate his competence... I request of you... correct it and make it your own”), pp. 2-3. ↩
⁶¹⁷ Exhibit C-289, Oficio of resolution compliance, of August 28, 2013, pp. 13-15. ↩

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• The DGAJS/SCEV/1373/2012 oficio, dated November 5, 2012, whereby SEGOB authorized the opening of one venue.
• The DGAJS/SCEV/1374/2012 oficio, dated November 5, 2012, whereby SEGOB authorized the E-Mex Permit exploitation, in accordance to the Permitholder Oficio.
• The Permitholder-BIS Oficio, whereby the independent permit was determined.
• The DGAJS/SCEV/PT-06/2012 oficio, dated November 23, 2012, whereby SEGOB authorized the installation of slot machines.

491. Thus, since each one of the documents referred to the authorization, requirements and acknowledgement of E-Games as permitholder from the acquired rights SEGOB concluded:⁶¹⁸

Documents each and every one that are concatenated with the [2009-BIS Oficio] which was left unsubstantiated ..., since they have their exegesis in the unnamed legal notion of acquired rights that was ignored by the judicial authority ..., since they a direct or indirect, mediated or immediate consequence of the rights acquired and ignored by the judicial authority.
Thus, since [2009-BIS Oficio], which created rights and therefore generate obligations to the company [E-Games] does not survive in the legal and factual world, the acts that were born in the light of the same cannot survive ..., such as in the resolutions DGAJS/SCEV/0232/2011; DGAJS/SCEV/546/2011, requested various documentation, so that in the resolutions [Permitholder Oficio]; DGJS/SCEV/1373/2012; DGJS/SCEV/1374/2012; [Permitholder-BIS Oficio] and DGJS/SCEV/PT-06/2012, materialize the legal notion of acquired rights that legally does not exist.

492. The aforementioned demonstrates that the Respondent never failed to provide any document and that the documents the Claimants search for, are already in the arbitration file. The request for negative inferences the Claimants are making, is actually they wishing the facts would be different. According to the Claimants there should exist in some way the documents that demonstrate the lack of legal bond between the E-Mex Permit and the Permitholder-BIS Oficio; however, the documents demonstrating a clear legal bond between both permits indeed exist.

493. The Respondent insists that this characterization results from E-Games' requests, which could only be submitted since it was E-Mex's operator. The Claimants are clearly in contradiction, in one hand, they say that being operator was not relevant since they had allegedly acquired their

⁶¹⁸ Exhibit C-289, Oficio of resolution compliance, of August 28, 2013, pp. 15.-17. ↩

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own rights over E-Mex Permit; however, E-Games used its position as operator to request the alleged permit independent from E-Mex.

494. Similarly, requests 13 and 14, refer to the analysis on the Permitholder-BIS Oficio duration and its alleged renewals. Again, the Claimants search for documents that are in exact contradiction with what the oficio and applicable laws state. Additionally, the Respondent did not find any documents about it, the documents that are already in the file are clear with respect to this. As explained in the section validity and renewal, supra, both the Permitholder-BIS Oficio and the Permitholder Oficio concluded “recognized rights are naturally limited ... to [E-Mex Permit]" and “that the [E-Mex Permit]... and any amendments thereto or extensions, which are constituted as the origin and limit of rights and obligations for [E-Games]".⁶¹⁹

495. In the same sense, the Claimants allege that requests 1, 2 and 3 create the inference against the Respondent that the figure of "independent operator" was sufficient legal basis for their permit, and therefore it was illegal will declare the Resolution of Permit Holder-BIS insubstantial. This, because the Respondent did not identify documents with the analysis or opinions of SEGOB or of SEGOB and the SE regarding Resolution 2009-BIS and the figure of “independent operator”.⁶²⁰ Again, the Respondent reaffirms that there are no documents that meet the Claimants' criteria. In addition to this, it is necessary to emphasize that the conclusion sought by the Claimants is a misrepresentation of how the figure of independent operator was declared illegal.

496. The Resolution 2009-BIS established that “In this order of ideas, it is vitally important to highlight, for the purposes of the criteria that are now set, that this authority has recognized through different administrative acts the quality and the rights acquired by the company [E-Games]... to operate on their own. and acquired rights to the aforementioned permit in (7) seven establishments [...]."⁶²¹ Therefore, i) it is clear that the criterion that benefited E-Games originated from its request, ii) the analysis is precisely in the official letter and iii) there is no other document in the SEGOB and much less in the SE on this figure—is not the competent authority. The SEGOB did not eliminate the criterion that it set in 2009 motu proprio, as has already been seen in the

⁶¹⁹ Exhibits C-16. Permitholder-BIS Oficio, of November 16, 2012, p. 5; C-254. Permitholder Oficio, of August 15, 2012, p. 6. ↩
⁶²⁰ See Appendix A of the Reply, pp. 2-4. ↩
⁶²¹ Exhibit C-11, SEGOB Resolution No. DGAJS/SCEV/0260/2009-BIS (May 27, 2009), p. 5. ↩

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arbitration.⁶²² Inclusively, SEGOB had to declare the Resolution of Permit Holder-BIS insubstantial through judicial proceedings.⁶²³

497. Notwithstanding the foregoing, the only reason that the Claimants allege to sustain their request for negative inferences is that SEGOB complied with Amparo 1668/2011 in 24 hours, which happened because SEGOB was obliged to comply promptly.⁶²⁴ Respondent finds no logic in Claimant's conclusion. The Claimants do not even attempt to explain why SEGOB's Second Compliance letters were not effects of the BIS-2009 Letter. And worse, just because the Amparo 1668/2011 was adverse to them, they ignore the importance of the amparo trial: a means of defense of the Mexican system that seeks to restore the fundamental rights of the complainants.⁶²⁵ Why should the restitution of these rights be slow?

498. In the same order of ideas, the Claimants requested, through requests 4 and 5, the opinion or analysis on the concept of acquired rights, and the comparison between Petolof and E-Games, and the resolutions of October 28, 2008 and from May 27, 2009; that the SEGOB or the SE have carried out. According to the Claimants, the inference that the Tribunal must establish against the Respondent is that Mexico applied different standards in similar cases, which demonstrates discriminatory treatment against E-Games. The Respondent insists that these opinions and analyzes stem from the SEGOB resolution of October 28, 2008 (Petolof) and from E-Games Resolution 2009-BIS.⁶²⁶

499. The Respondent did not find documents with the criteria requested by the Claimants. There are no grounds for concluding that SEGOB, much less the SE, should have issued any comparative analysis or even had to build any type of criteria on the theory of acquired rights between Petolof and E-Games. Again, the SEGOB acted in each one, attending to the requests and facts of each case. In fact, the differences between each one are clear. As seen above, in the section "Petolof and E-Games were not in similar circumstances", the origin of the resolution of October 28, 2008

⁶²² See C-272, SEGOB First Resolution (July 19, 2013), pp. 1-2. ↩
⁶²³ Counter-Memorial on the Merits, ¶¶ 281-282. ↩
⁶²⁴ Counter-Memorial on the Merits, ¶¶ 285-286. Second Witness Statement of Mr. José Raúl Landgrave Fuentes, RWS-5, ¶ 21. ↩
⁶²⁵ RER-1, First Expert Report of Mr. Javier Mijangos, ¶¶ 88-89. RER-4, Second Expert Report of Mr. Javier Mijangos, ¶74. ↩
⁶²⁶ Exhibit C-351, SEGOB Resolution, September 20, 2008; C-11, SEGOB Resolution 2009-BIS. ↩

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of the SEGOB has evident differences with E-Games, among them: i) the applicable legal framework, ii) the contractual terms between Petolof and EDN, iii) Petolof filed the lawsuit of amparo 176/2005 to challenge the revocation of EDN's permit, and iv) Petolof filed a contentious-administrative lawsuit in 2016 to obtain its permit. E-Games, on the other hand, obtained the Resolution 2009-BIS from SEGOB, then the Resolution of Permit Holder and the Resolution of Permit Holder-BIS, and SEGOB declared them invalid in compliance with Amparo 1668/2012, filed by E-Mex. E-Games and Petolof do not have similar circumstances, much less the acts of SEGOB imply discrimination.

500. Regarding Request 61, which refers to the tax credit that the SAT determined for the 2009 fiscal year of E-Games, the Claimants request that the Tribunal determine that the failure to present related documents demonstrates that it was a measure of retaliation and harassment.⁶²⁷ However, as the Respondent established in the objection against this request, Exhibit R-88, in this arbitration, established the reasons for the tax credit.⁶²⁸ In addition, as in this arbitration, Exhibit R-87, which has 262 sheets of legal reasons, also indicates that it originates from a verification home visit and was attended by E-Games personnel, therefore that evidently E-Games knew that the tax credit originated from inspection acts of the competent authority.⁶²⁹ The Claimants have no basis to draw negative inferences against Respondent.

501. Third, in a generic and unsupported way, the Claimants resort to their allegations of political motivations on three aspects: i) their accusations against Ms. González Salas, and ii) their accusations against the procedural sequel to Amparo 1668/2011 and iii) the alleged improper reasons for the closures of the E-Games Casinos. Thus, the Claimants request that the Tribunal determine: i) “that the attacks on the E-Games permit were due to political motivations and the revocation was politically motivated, improper, illegal and without justification",⁶³⁰ and that ii) "Mexico deliberately initiated the casino closures in an illegal and orchestrated manner."⁶³¹

⁶²⁷ Reply, ¶¶ 404-406. ↩
⁶²⁸ Procedural Order 10, Annex I, p. 196. ↩
⁶²⁹ Exhibit R-087, SAT Resolution number 104-02-00-00-00-2020-418, October 13, 2020, pp. 1-2. ↩
⁶³⁰ See Appendix A of the Reply, pp. 13, 14, 15, 16. ↩
⁶³¹ See Appendix A of the Reply, pp. 17, 18, 28. ↩

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502. The Respondent has denied the story of political motivations that the Claimants have presented in their two memorials on the merits.⁶³² Also, as seen in the above sections i) The non-subsistence of the Resolution of Permit Holder-BIS was correctly analyzed in the amparo proceedings in which E-Games participated, ii) Mexico did not initiate unfounded and punitive investigations against the Claimants, and iii ) There was no political campaign against E-Games or the Claimants, the Claimants' story does not stand up.

503. The SEGOB, the Sixteenth Court, the Seventh Collegiate Court acted within the framework of their powers and in accordance with the law. The root and beginning of the fate of E-Games began with its commercial partner, an individual: E-Mex, not the Mexican State. E-Mex, as permit holder, was the one who sought to end its relationship with E-Games,⁶³³ E-Mex was the one who challenged the benefits of the Resolution 2009-BIS, the Resolution of Permit Holder and the Resolution of Permit Holder-BIS. Despite the fact that the Claimants' business with E-Mex showed serious red flags, the Claimants continued with them.⁶³⁴ The Claimants ignore any type of mea culpa in their relationship with E-Mex and base their story on an alleged political interest of the Federal Public Administration, both PAN and PRI governments. Not only that, they also accuse the judiciary of colluding with them. It is evident that the evidence in the arbitration supports the actions of the authorities, in compliance with their powers, and therefore, in the absence of arbitrariness and discrimination, the Claimants resort to the fabricated argument of "political persecution."

504. Reading each document request reinforces Claimants' fabrications. Requests 16, 17, 21, 22 and 56, refer to i) the analysis and opinions of the federal administration of former President Enrique Peña Nieto to Resolution 2009-BIS and the Resolution of Permit Holder-BIS; ii) the

⁶³² See Counter-Memorial on the Merits, sections J, K, M, N and O. ↩
⁶³³ Exhibit R-115, Letter from E-Mex of May 2012, (“It is clear that with the official letter, the then Deputy General Director of Games and Raffles intended to grant undue advantages, outside the law, to [E-Games] to the detriment of the rights that my client has as a federal permit holder in matters of games and raffles, which is in violation of guarantees."), p.1 ↩
⁶³⁴ Counter-Memorial on the Merits, ¶¶ 96-107; Exhibit R-114, Letter from E-Games dated April 26, 2012 ("As regards the various DGAJS/019/2012 and DGAJS/020/2012, both dated March 1, 2012, this complaining party estimates, as well as the [SEGOB], that the contractual relationship that unites my represented with [E-Mex], still persists because there is no determination by the competent authority, which guarantees the contrary.”), p. 1. ↩

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instructions that Ms. González Salas received regarding E-Games, E-Mex, Producciones Móviles; iii) the statements of Ms. González Salas, regarding the special care with the authorizations to the Rojas Cardona family and their statements of January 2013 in La Jornada; and iv) Mexico's analysis of the general review of casinos in 2011.

505. It is reaffirmed that the Respondent did not find documents that met the Claimants' criteria, and it is reiterated that the authorities' analysis or "opinion" can be found in their Resolutions.⁶³⁵ The perfect example is the Second Compliance of the SEGOB (Resolution DGJS/DGAJ/DPA/10201/2013) in which the analysis of the Resolution-2009 and the Resolution Permisionario-BIS is read.⁶³⁶ It is also reaffirmed that Ms. González Salas confirms that she did not receive instructions about E-Games, E-Mex or Producciones Móviles, also as General Director of Games and Raffles she exercised her powers of review and organization of the games and raffles sector.⁶³⁷ The Claimants decontextualize the words of Ms. González Salas: at that time the operation of the casinos was of public interest, the media also followed E-Mex and mentioned E-Games and Producciones Móviles. At the beginning of 2013, it was one of the first topics she came across and the media were already branding them as illegal or irregular.⁶³⁸ This interest was fully founded and the Claimants also know that in August, 2011, 52 people died in the Casino Royale fire.⁶³⁹

506. This led to the revision of the permits by the SEGOB, two months later the SEGOB presented the “Report on the general situation of gaming and raffle permit holders, and the Casino Royale case, Monterrey, N.L.”, in which you can read that 73 inspections were carried out and resulted in three closures and imposition of fines.⁶⁴⁰ The Respondent indicated that it did not identify documents other than those it had already submitted and the Claimants know that this is correct. In Amparo 356/2011, E-Games, precisely filed the amparo claim against:

⁶³⁵ Procedural Order 10, p. 53. ↩
⁶³⁶ See Exhibit C-289, SEGOB Second Resolution (Aug. 28, 2013). ↩
⁶³⁷ RWS-4, Second Witness Statement of Mrs. Marcela González Salas y Petriciolli, ¶¶ 8-14. ↩
⁶³⁸ RWS-4, Second Witness Statement of Mrs. Marcela González Salas y Petriciolli, ¶ 10. ↩
⁶³⁹ Counter-Memorial on the Merits, ¶¶ 193-194. ↩
⁶⁴⁰ See Exhibit R-053, Informe sobre la situación general de permisionarios de juegos y sorteos, y el caso Casino Royale, Monterrey, N.L., p. 8. ↩

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... They are demanded the issuance and execution of the: "Program of Administrative Proceedings and Normalization of Files"...
The failure to require my client, directly or indirectly, to present the documentation tending to prove the legal and proper operation of seven remote betting centers and number drawing rooms, in accordance with the "Program of Administrative Procedures and Normalization of files".⁶⁴¹

507. In response, since March 12, 2012, replied, “I inform you that the program in question is not reflected in any document since it only comes from the exercise of the powers granted by the [LFJS] and its Regulations to the Deputy General Directorate of Games and Raffles”.⁶⁴²

508. Also, it is worth remembering that the Claimants allege to confirm their story from Exhibit C-261 –internal memorandum of the SE– and, now, according to the Claimants with the content of Exhibit C-401, which are notes from the internal memory of Ms. Rayo of February 2013⁶⁴³. In this regard, it should be remembered that, as has been seen in the procedural sequel to Amparo 1668/2012, it had already been in process for more than a year and the sentence against the 2009 Resolution had been issued in January 2013.⁶⁴⁴ So, in effect, everything was in court.⁶⁴⁵ Again, the Claimants unfoundedly exaggerate notes that in no way change the decisions of the Sixteenth Court and the Seventh Collegiate Court and that do not contain any type of political connotation. The production of documents, especially of request 23, shows the good faith of the Respondent, just as it happened in the jurisdiction stage, the Respondent's representatives have exhaustively explained and searched the Claimants' requests. Also, they are emphatic that it was not thanks to Claimants' own investigations that they became aware of the metadata in Exhibit C-401. On May 11, 2021, the Respondent's representative sent said annex again because the Claimants accused Mr. Aristeo Lopez of having created it in February 2021, which was not correct.⁶⁴⁶

509. Related to this type of requests, the Claimants also refer that the Respondent did not present any document "on the most important aspects of the cancellation of the independent permission of

⁶⁴¹ Exhibit C-277, E-Games' Request for amparo in the Amparo 356/2012 proceeding (Feb. 10, 2012) p. 2. ↩
⁶⁴² Exhibit R-154, SEGOB Resolution of March 16, 2012, in the Amparo proceeding 356/2012, p. 2. ↩
⁶⁴³ Reply, ¶¶ 118, 135-137. ↩
⁶⁴⁴ See Exhibit R-133, Flowchart. ↩
⁶⁴⁵ Exhibit C-401, Notes. ↩
⁶⁴⁶ Exhibit R-149, Official letter of response to the Claimants regarding Exhibit C-401, dated May 11, 2021. ↩

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E-Games”, since they are documents or analysis of the supposed independent permission of E-Games and the instructions that Ms. Salas should have received.⁶⁴⁷ The Respondent conducted a search in good faith and put its best efforts into the search, but failed to find the Claimants' requirements, and so informed the Claimants in April 2021.⁶⁴⁸

510. It is important to point out that the Claimants also request this type of inference with respect to request 53, for which they requested documents that reflect the analysis of SEGOB, or of the SE, regarding the meeting between Ms. González Salas, Mr. and Mrs. Burr⁶⁴⁹ However, contrary to what the Claimants allege, there is no basis to think that SEGOB or any other government entity should have kept files in this regard.

511. The Claimants argued that the Respondent should have all the information required by the Claimants in accordance with their internal regulations. The Claimants cited the right to public information and underlined that there could be no excuse in the protection of information because the LFJS must archive "several types of information from permit holders" and, according to the Federal Archives Law (LFA), these must be kept for at least 30 years.⁶⁵⁰ In this regard, it should be specified that the allegations are imprecise and the Claimants' requests do not fit the assumptions of the LFJS, nor that of the LFA.

• The SEGOB, as presented by the Parties in this arbitration, has safeguarded, for example, the permits and their modifications, the sanctions it imposes, the identity of the permit holders and operators, the name and photograph of the SEGOB inspectors, statistical data, financial statements, and sanctioning procedures, as provided by the LFJS, which the Claimants cite.
• The 30-year preservation of archives must first be determined for permanent preservation based on their historical value. There are no grounds to consider that the alleged analyses, opinions, “instructions” on the Resolution of Permit Holder-BIS alleged by the Claimants;

⁶⁴⁷ Reply, ¶ 832. ↩
⁶⁴⁸ Exhibit R-145. Official letter with the information on the delivery of documents dated April 19, 2021, p.1. In this regard, the letters received by the SEGOB on the exhaustive search they carried out are also attached. R-150, Official letters of response to the search for SEGOB documents ↩
⁶⁴⁹ See Appendix A of the Reply, p. 30. ↩
⁶⁵⁰ Procedural Order 10, Annex I, pp. 8-9. ↩

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one, they exist – as has been explained – and two, they could be considered to have historical value.⁶⁵¹

512. Therefore, there is no basis to think that the alleged analyses, opinions, “instructions” on the Resolution of Permit Holder-BIS have been generated in the way in which the Claimants allege and, much less, that they could be qualified as relevant or of historical value so that the SEGOB – neither the SE– should even have them, much less protect them.

513. Similarly, Claimants' requests 28, 29, 30, 32, 33, 34, 35, 36, 37, 38, and 39, in which they requested documents regarding alleged interference by the Mexico's executive in the procedural aftermath of the Amparo 1668, they have no support.⁶⁵² In addition, the Claimants without further ground claim that the Court reject all the annexes that themselves and the Respondent have presented regarding the procedural sequel to Amparo 1668/2011 and conclude that if there was interference from the Mexico´s executive, E-Games did not have the due process and therefore E-Games lost the permit.⁶⁵³ Clearly, the adverse inferences Claimants request are out of proportion to the facts of the case that even they present. In addition, the Respondent highlights that, of all these requests, the Tribunal only partially granted requests 28, 37, 38 and requested that the Respondent indicate that it carried out a reasonable search in this regard, which the Respondent did.⁶⁵⁴ SEGOB, the Legal Counsel of the Federal Executive, and the Sixteenth Court carried out exhaustive searches in good faith and did not find documents such as those requested by the Claimants.⁶⁵⁵

⁶⁵¹ R-146, Federal Archives Law (“Article 27.- The information classified as confidential based on the Federal Law of Transparency and Access to Public Government Information, regarding which its permanent conservation has been determined due to its historical value, will retain such character for a period of 30 years from the date of creation of the document that contains it, or 70 years in the case of personal data that affect the most intimate sphere of its owner or whose improper use may give rise to discrimination or entail a serious risk for it. These documents will be identified as confidential historical”). ↩
⁶⁵² See Appendix A of the Reply, pp. 19-20, 21-26. Reply, ¶¶ 261-262. ↩
⁶⁵³ Reply, ¶ 265. ↩
⁶⁵⁴ See Exhibit R-145, Official letter with the document delivery information of April 19, 2021. ↩
⁶⁵⁵ Exhibit R-53 Official letter of the Deputy Ministry of Constitutional Control and Litigation. Exhibit R-150, Official documents in response to the search for SEGOB documents. Exhibit R-148, Official letter of response from the SEGOB Legal Affairs Unit. Exhibit R-152 Official letter of response from the Sixteenth Court. ↩

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514. In fact, contrary to what the Claimants allege, one of the Magistrates of the Seventh Collegiate Court, Mr. José Luis Caballero Rodríguez, feared for his job because the E-Games case "had a powerful political charge",⁶⁵⁶ is false The Plenary of the Federal Judiciary Council determined that due to adjustments to the attention of matters and in attention to the judicial career, Mr. José Luis Caballero Rodríguez should return to the Seventh Collegiate Court. And Mr. Naranjo also due to vacancies is that he was provisionally in charge of the Seventh Collegiate Court.⁶⁵⁷

515. In relation to requests 24, 25, 41, 42 and 57 for which the Claimants requested documents on i) the notification of suspension of the E-Games permit on the SEGOB website, in February 2013, ii) the SEGOB's determination that the Casinos were operating without a valid permit, and iii) documents related to the presence of the Federal Police at the April 24, 2014 inspection; the Claimants request that it be concluded without further ado that the Respondent arbitrarily closed its casinos.⁶⁵⁸ As can be seen from the disparity in the subject matter of each of these requests, it is not possible to reach the Claimants' conclusion.

• First, the updating of the SEGOB website, was duly explained by Ms. González Salas in her first witness statement: the update, (not the suspension as the Claimants say), was done for the purpose of managing and maintaining the information day. In fact, E-Games claimed the failure to update the SEGOB website through an amparo lawsuit.⁶⁵⁹
• Second, the Respondent exhibited the documents of request 41 and none were cited by the Claimants.⁶⁶⁰ For example, the resolution DGJS/DGAJ/DPA/0855/2014, is a resolution from May 2014, which relates the reasons for the closure of the Casino in Puebla:

As stated in article 8 of the [LFJS], the foregoing derived from the resolution of Amparo Trial 1668/2011... and taking into consideration that, from the date of notification of said resolution, on August twenty-eight, two thousand and thirteen , said moral person, does not have the legal authorization to operate the establishment.

⁶⁵⁶ Reply, ¶ 767. ↩
⁶⁵⁷ See Exhibit R-147, Official letter of December 9, 2014, of the Judicial Career Commission of the Federal Judiciary Council. See also Exhibit R-143, Agreement of December 3, 2014 of the Plenary Session of the Council of the Judiciary. ↩
⁶⁵⁸ Reply, ¶¶ 300-303. ↩
⁶⁵⁹ RWS-1, Witness statement of Mrs. Marcela González Salas, ¶ 10. Counter-Memorial on the Merits, ¶¶ 206-207. ↩
⁶⁶⁰ See Exhibit R-145, Official Letter with the document delivery information of April 19, 2021, p. 1. ↩

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In addition, it is indicated that according to the report submitted by the Director of Inspection and Surveillance of the [DGJS], said establishment as of April 21 of the current year, was operating open to the public.
...
Derived from the Verification Act, because the establishment called "KASH" did not present the documentation required for the operation of the establishment, consisting of the permit duly issued by the [SEGOB]... the immediate suspension of activities was ordered, for so the establishment was declared closed [...].
That even though the permit holder has extensive knowledge of the present matter... he repeatedly continued with the operation of the establishment [...].⁶⁶¹

• Third, the Respondent confirms that it found no documents regarding the request for escort from the federal police during the April inspections. The Respondent has clarified above that the presence of the federal police is duly based on the powers of SEGOB and was necessary to safeguard the integrity of the officials. In addition to the fact that at no time was force used as the Claimants try to imply.

516. Lastly, the Respondent clarifies that it did not submit documents of request 57 because the Tribunal's decision so established. The Claimants requested i) any document with the analysis of the insurance of machines or suspension of activities of the Mexico City Casino in 2013, and ii) as well as communications between the SAT, the Secretariat of Civil Protection of Mexico City between 2011 and 2013. The Respondent objected. The information they requested is in the control of the Claimants, since they are aware of the SAT order CCE8300179/11 and the Claimants had already confirmed that they obtained a court order for the opening of the Mexico City Casino in 2013. The Court granted the request “save for the case files of the proceeding in which Claimants overturned the seizures of their gaming machines and the temporary closure of E-Game's Mexico City casino". Therefore, the Respondent did not have to show anything in this regard.⁶⁶²

517. Fifth, the Claimants request that the negative inference be established that the Respondent provided more favorable treatment to Producciones Móviles than to E-Games.663 Because the Respondent did not submit any documents regarding its request 44, for which it requested

⁶⁶¹ Exhibit R-151, Official Letter dated May 7, 2014, from the department head of the SEGOB Administrative Procedures Department, pp. 7-9. ↩
⁶⁶² Procedural Order 10, p. 179. ↩
⁶⁶³ Reply, Appendix A, p. 29. Replica, ¶ 399. ↩

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documents prepared regarding the “decision to keep the Producciones Móviles casinos open”. The Tribunal must reject this request entirely—as well as all the ones proposed by the Claimants.

518. The Respondent replied that no documents requested by the Claimants could be identified. As has been explained, the analyzes and opinions of the authorities are found in the administrative acts/official documents. Although the Claimants focus on request 44, the Claimants, too, in their request 20 requested the documents showing the administrative proceedings that SEGOB initiated against Producciones Móviles. Respondent complied with this request .664 Thus, as the Respondent has explained, the status of the Producciones Móviles casinos depends on its own circumstances and conduct. The Respondent produced the documents at the start and end of the administrative proceedings as requested by the Tribunal.

519. The Claimants again completely failed to refer to at least one of the documents exhibited by the Respondent. However, in them it can be read that the SEGOB initiated the procedures as follows:⁶⁶⁵

...the company “[Producciones Móviles]” has the same activities that were authorized to the company [E-Mex]...
However, it is also required to submit a report of the income generated
It should be noted that [Producciones Móviles] has refrained from complying with the conditions ... of the [E-Mex Permit]
[...]
From what was transcribed above, the commission of behaviors presumably constituting infractions can be seen [...].
[...]
THIRD. - Start the administrative procedure against the company [Producciones Móviles]...

520. After the procedure, the SEGOB determined the total and definitive closure of the “Sparks” establishment of Producciones Móviles.⁶⁶⁶ Currently SEGOB, as of April 18, 2022, shows that this establishment is closed. Also, the “Carnaval” establishment has been closed by SEGOB. On the

⁶⁶⁴ See Exhibit R-145, Official Letter with the document delivery information of April 19, 2021, p. 1. ↩
⁶⁶⁵ See Exhibit R-144, Initiation and resolution of procedure AJP/0088/2013, pp. 1-3. ↩
⁶⁶⁶ See Exhibit R-144, Initiation and resolution of procedure AJP/0088/2013, p. 44. ↩

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other hand, in other administrative procedures against Producciones Móviles, they did not produce these results, so around 15 establishments continue to operate.⁶⁶⁷

521. Finally, the Claimants requested that it be established that the Respondent interfered with their efforts to sell the casinos, because the Respondent did not identify documents that responded to requests 54 and 55.⁶⁶⁸ As explained in the section The Respondent did not interfere in the Claimants' efforts to sell their Casino assets, the Claimants voluntarily withdrew from their negotiations.

522. Each of the requests for negative inferences against the Respondent lacks factual basis and would be an unjust punishment. The Respondent has at all times conducted itself under the principle of good faith in the arbitration and has always made its best efforts to produce the documents requested by the Claimants. Therefore, the Respondent respectfully requests the Tribunal to disregard all the adverse inferences alleged by the Claimants. Claimants would be unduly relieved of their evidentiary burden, because its sole purpose is to function as a "gap filler" and a substitute for Claimants' evidentiary burden.⁶⁶⁹

⁶⁶⁷ See Exhibit R-155, Segob website as of April 18, 2022. ↩
⁶⁶⁸ Reply, Appendix A, pp. 31-32. ↩
⁶⁶⁹ Exhibit RL-164. O'Malley, Nathan D, Rules of Evidence in International Arbitration. An Annotated Guide (Rutledge 2012), p. 38 (“[...] the presumption in arbitration is that a party will establish its case based largely (if not entirely) on the documents within its own possession. Thus, a wide-ranging discovery process that allows a party to substantiate a case by "discovering” the primary evidence to support its arguments is not compatible with this threshold concept."). ↩

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III. LEGAL SUBMISSIONS

A. The Respondent´s objection to jurisdiction should be upheld

523. The Claimants argue in their Reply that Mexico's objection to jurisdiction regarding the Expansion Projects must fail for three reasons: (i) it is untimely because Mexico failed to raise it in the jurisdictional phase; (ii) the Expansion Projects are covered by other investments such as the Claimants' investment in local companies and their permit to carry out gaming activities, and; (iii) the Expansion Projects would qualify on their own as an investment under the NAFTA.⁶⁷⁰

524. As will be elaborated upon in the following subsections, none of these arguments pass muster and should be dismissed by this Tribunal, but before addressing those submissions the Respondent will make two preliminary remarks.

525. First, the Claimants did not identify in their Memorial what investments, if any, were allegedly expropriated in relation to the Cabo, Cancun and Online casino projects. The claim for damages, however, includes the alleged fair market value of those prospective casinos. The implication is that those casino projects are covered investments in their own right. They are not. Article 1139 of the NAFTA does not extend protection to projects or plans to make an investment. Thus, in order to submit a claim for the expropriation of a casino and request compensation equivalent to its fair market value, the Claimants needed to prove the existence of an investment capable of being construed as a casino. They have not.

526. Second, the Claimants are attempting to cloud the issue underlying the Respondent's objection. The issue is not whether the Claimants were exploring the possibility of opening casinos in Cabo, Cancun or online (they were), but whether those plans materialized into a covered investment. Therefore, Mexico will not address all the evidence submitted with the Reply to prove the existence of the Claimants' plans to establish the additional casinos. It will focus instead on the status of those projects as of 24 April 2014 (i.e. the Date of Expropriation) and whether an investment in a casino existed at that time.

⁶⁷⁰ Réplica, ¶ 531. ↩

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1. The objection is timely and could not have been raised during the jurisdictional phase

527. Mexico's objection to jurisdiction is timely and could not have been raised during the jurisdictional phase because it is based on the Claimants' case as submitted in their Memorial on the Merits. In particular, it is based on their attempt to present the Expansion Projects as covered investments in order to claim damages based on their alleged stream of future profits.

528. It is useful to begin the analysis by examining how the Claimants originally described their claims and investments, particularly in the RFA and the Amended NOI, as these were the last submissions made prior to the filing of Mexico's Memorial on Jurisdiction.

529. The Claimants initially alleged in the RFA that they had “formed B-Cabo, LLC to purse the opening of a gaming and hotel facility in Cabo San Lucas, Mexico, and Colorado Cancun, LLC to pursue the opening of a gaming and hotel facility in Cancun, Mexico”.⁶⁷¹ They also generally identified the following investments in connection with those two projects: “loans made to the Mexican Companies, including without limitation loans made for the development of the B-Cabo project that were not fully repaid”, “capital expended for purchase of the permits for the Casinos and the B-Cabo and Colorado Cancun projects”, and “non-capital resources expended to [...] develop new projects B-Cabo and Colorado Cancun".⁶⁷² There was no claim that the projects constituted protected investments or that Mexico expropriated what the Claimants now identify as the Expansion Projects.

530. In their Amended NOI, the Claimants indicated that "B-Cabo, LLC and Colorado Cancún, LLC, both owned and controlled by Mr. Gordon Burr and Ms. Erin Burr, where in the process of making substantial investments in two additional casinos and hospitality projects before the State's actions destroyed the U.S. investors' investments in Mexico.”⁶⁷³ They did not claim to have invested in those casinos but rather, that they were “in the process of doing so" when the Respondent “destroyed" their actual investments in Mexico. It is also worth noting that the Amended NOI says nothing about the online casino project.

⁶⁷¹ RFA, ¶ 8. ↩
⁶⁷² RFA, ¶ 110. ↩
⁶⁷³ Amended Notice of Intent, p. 4. Emphasis added. ↩

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531. In their Counter-Memorial on Jurisdiction –i.e., after the filing of Mexico's original objection to jurisdiction–, the Claimants asserted that B-Cabo, LLC and Colorado Cancún, LLC had standing to bring claims under NAFTA Article 1116 because they had made various investments including: “loans not fully repaid, option payments and related investments, capital expenditures for the purchase of permits and down payments on property in relation to the Cabo and Cancun projects.”⁶⁷⁴

532. Based on the foregoing, the Respondent anticipated that B-Cabo and Colorado Cancun would bring a claim under Article 1116 alleging the expropriation of those investments. What it did not, and could not have anticipated, is that the Claimants would treat the projects as covered investments and claim damages based on the alleged fair market value of the intended casinos. There is no question that this is what the Claimants are attempting to do because the claim for damages includes the purported fair market value of the Cabo, Cancun, and Online casinos for a combined total of USD $154.9 million,⁶⁷⁵ as opposed to the fair market value of the loans, option payments and the other investments they allegedly made.

533. Since this is an expropriation claim and compensation in this type of cases is typically based on the FMV value of the expropriated investment, the Respondent submits that another way to look at this is to ask what is being valued and then examine whether that constitutes an investment. In this case, the Claimants are seeking compensation based on the fair market value of eight casinos. Five of those casinos existed and three did not.

534. Each of the five existing casinos were owned by a domestic company specifically set up and capitalized to build and own the casino and its assets (i.e., the Juegos Companies). The Juegos Companies are “enterprises” within the meaning of Article 1139 and thus, protected investments. These are the investments that serve as the basis for the claim for damages concerning the existing casinos.

535. There is abundant evidence that the Claimants intended to follow a similar approach for the would-be casinos. They intended to raise capital in the United States through U.S. companies (e.g., Colorado Cancun and B-Cabo) and those funds would be used to capitalize a domestic entity

⁶⁷⁴ Claimants' Counter-Memorial on Jurisdiction, ¶ 270. ↩
⁶⁷⁵ Reply, ¶ 1127. ↩

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similar to the Juegos Companies that would build and own those casinos. The Consent to Action in Lieu of Organizational Meeting of the Members of Colorado Cancun, LLC filed as Exhibit C-492 to the Reply demonstrates that this was indeed the plan:

14. Establishment, Capitalization and Operation of Mexican Affiliate.
RESOLVED, that Managers are authorized and directed to take all actions, perform all due diligence, execute all documents, retain all agents and experts, including counsel and accountants in Mexico, and expend all funds and incur all obligations they deem reasonable and necessary to establish a company in Mexico, to be organized as a S de R.L de C.V., grant powers of attorney, including those in favor of attorneys, designate a surveillance committee, negotiate and execute agreements, including a machine lease agreement, with Exciting Games, S de R.L de C.V, and its affiliates, lease real property, obtain permits and other authorizations, hire employees, obtain equipment and otherwise establish an entertainment facility able to conduct video gaming, bingo and sports wagering in a site in Cancun, Quintana Roo, Mexico.⁶⁷⁶
[Emphasis added]

536. Identical language (mutatis mutandi) was used in an analogous document from B-Cabo that was obtained through document production.⁶⁷⁷

537. These companies that were supposed to own the casinos were never formed or funded. Thus, there was no “owner” of the future casinos, no assets for a casino and no agreements with E-Games to operate the future casinos under its Permit. There is nothing related to the Expansion Projects that can be construed as casinos and valued accordingly. What the Claimants had were plans or projects for future casinos, but “projects" are not investments within the meaning of Article 1139. The intention to make an investment is not an investment.

538. The Claimants have attempted to circumvent this obvious problem by claiming to have made investments in connection with those projects (e.g., the loan to Medano Beach Hotel). However, this does not enable a claim for the expropriation of a casino. At best, it could give rise to a claim for expropriation of that particular investment, and compensation consistent with the fair market value of that investment.

539. The disconnect between the investments that were initially identified in relation to the Expansion Projects and the claim for damages as presented in the Memorial and its implications –

⁶⁷⁶ Exhibit C-492, p. 5. ↩
⁶⁷⁷ Exhibit R-111, Consent to Action in Lieu of Organizational Meeting the Members of B-Cabo, LLC dated 11 January 2013, p. 5. See also, C-65, “Investment/Loan Agreement" and C-466, "Subscription Agreement". ↩

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i.e., that the Expansion Projects are the covered investments– is what prompted this jurisdictional objection and the reason why it could not have been submitted earlier. The Respondent raised its objection at the first opportunity it had, as required under Article 45(2) of the ICSID Arbitration Rules that govern these proceedings. The Respondent submits that tt is therefore timely and should be accepted by this Tribunal.

2. The definition of investment under the NAFTA

540. The Claimants do not dispute that the Tribunal's jurisdiction over an expropriation claim concerning casinos in Cabo, Cancun and Online depends on the existence of an investment. Neither do they dispute that Article 1139 NAFTA defines what constitutes an investment in a closed list, or that projects or plans to make an investment are not included in that list. Instead, they ask this Tribunal to expand the Treaty's coverage by adopting the reasoning of other international tribunals deciding disputes under different treaties with a different and broader definition of investment. This is unacceptable.

541. The Claimants claim, for example, that the reasoning in Lemire v Ukraine (a non-NAFTA case) is particularly instructive because “the tribunal in Lemire found that the claimant's ‘claim related to tenders for frequencies and broadcasting licences does not refer to, and cannot be considered as, a pre-investment activity,' because the claimant had already made an investment in acquiring the initial radio station, whose operations he sought to expand through applications for additional radio frequencies and broadcasting licenses.”⁶⁷⁸

542. What the Claimants leave out from their analysis is that Ukraine's failure to issue the broadcasting licenses to the claimant was found to be within the scope of the Ukraine-United States BIT because “the BIT expressly extended protection to ‘associated activities' which include 'access to ... licenses, permits and other approvals (see Articles I.1(e) and II.11(b) of the BIT)".⁶⁷⁹

⁶⁷⁸ Reply, ¶ 554. ↩
⁶⁷⁹ Exhibit CL-166, Joseph Charles Lemire v. Ukraine, “Decision on Jurisdiction and Liability", ICSID Case No. ARB/06/18 ¶ 91. See also, Article 1(e) of the Ukraine-United States BIT which defines "associated activities", and Article II.11(b), which further clarifies: “The Parties acknowledge and agree that 'associated activities' include without limitation, such activities as: [...] (b) access to registrations, licenses, permits and other approvals (which shall in any event be issued expeditiously)". ↩

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The NAFTA neither recognizes nor protects “associated activities” as investments. The reasoning in Lemire is simply not applicable to this NAFTA case in view of this significant difference.

543. The Claimants also cite PSEG v Turkey for its finding that “[a]n investment can take many forms before actually reaching the construction stage, including most notably the cost of negotiations and other preparatory work leading to the materialization of the Project, even in connection with pre-investment expenditures."⁶⁸⁰ However, the Claimants again make this assertion without examining the definition of investment in the underlying treaty, which is significantly broader than the one contained in the NAFTA –i.e., “Investment means every kind of investment in the territory of one Party owned or controlled, directly or indirectly, by nationals or companies of the other Party...,⁶⁸¹ The Claimants also ignore the fact that the passage cited was made in the context of the tribunal analysis on damages, not jurisdiction, and that, in the end, the tribunal rejected the claim for damages in relation to productive assets as well as the Claimants' FMV and lost profits valuations.⁶⁸²

544. The Claimants cite Deutsche Telekom v. India as an example of a case in which the tribunal found that it had jurisdiction even though the investment had not obtained the necessary governmental approvals.⁶⁸³ The respondent in that case objected to the tribunal's jurisdiction claiming that the investment had been established and the treaty in question did not protect "pre-establishment" activities⁶⁸⁴. However, the tribunal rejected the objection after concluding that Deutsche Telekom had shares in a local company that executed a valid and binding agreement with a state-owned enterprise for the lease of the electromagnetic spectrum and that the claimant had contributed substantial financial resources to obtain its shareholding in the local company.⁶⁸⁵ This situation is not analogous to the one we face in this case because the Claimants never

⁶⁸⁰ Reply, ¶ 544. ↩
⁶⁸¹ Exhibit CL-278, PSEG Global Inc. and Konya Ilgin Elektrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, ICSID Case No. ARB/02/5, Decision on Jurisdiction, 4 June 2004, ¶ 66. ↩
⁶⁸² Exhibit CL-277, PSEG Global Inc. and Konya Ilgin Elektrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, ICSID Case No. ARB/02/5, Award, 19 Jan. 2007, ¶¶ 308-309, 315, 337. ↩
⁶⁸³ Reply, ¶ 546. ↩
⁶⁸⁴ Exhibit CL-279, Deutsche Telekom AG v. The Republic of India, PCA Case No. 2014-10, “Interim Award", 13 December 2017, ¶¶ 158-159. ↩
⁶⁸⁵ Exhibit CL-279, Deutsche Telekom AG v. The Republic of India, PCA Case No. 2014-10, Interim Award, 13 December 2017, ¶¶ 178 and 181. ↩

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incorporated or funded the domestic companies that would own the Cabo, Cancun, or Online casinos. Consequently, no assets were purchased, and no agreements were made with E-Games. The Claimants have not even produced an agreement with their intended business partners for any of those ventures.

545. The Claimants also relies on Grand River v. The United States for the proposition that “the NAFTA tribunal in [that case] also agreed that ‘in assessing whether [the claimants] had an investment satisfying the requirements of NAFTA's Article 1139, the Tribunal should consider the totality of their activities and not weigh each element in isolation.”⁶⁸⁶ The Respondent agrees with this finding and submits that there is no “enterprise” or “interest in an enterprise...” or “real estate or other property...” or “interest arising from the commitment of capital..." that can, either individually or collectively, be construed as a casino in Cancún, or Cabo or online.

546. Finally, the Claimants take issue with Mexico's reliance on Generation Ukraine v. Ukraine. They argue that “contrary to Mexico's suggestion, the tribunal in Generation Ukraine actually found that it did have jurisdiction over the claimant's claim involving an uncompleted project to develop a primer office block in downtown Kiev”.⁶⁸⁷ The Claimants appear to have not realized the point.

547. The Respondent cited that case as an example of a claim where the damages sought did not bear any relationship with the investment as it existed at the time of the alleged expropriation. As indicated in the passage quoted in the Counter-Memorial, the tribunal in that case concluded that the claimant's legal interest in the Parkview Project had materialized through an Order on Land Allocation (which the tribunal found to be an investment under Article I(1)(a)(v)⁶⁸⁸); Lease Agreements (found to be investments under Article I(1)(a)⁶⁸⁹); a Foundation Agreement (an investment under Article I(1)(a)⁶⁹⁰), and; a Construction Permit (an investment under Article

⁶⁸⁶ Reply, ¶ 553. ↩
⁶⁸⁷ Id, ¶ 548. ↩
⁶⁸⁸ Exhibit CL-93, Generation Ukraine, Inc. v. Ukraine, ICSID Case No. ARB/00/9, "Award", September 16, 2003, ¶ 18.22. ↩
⁶⁸⁹ Exhibit CL-93, Generation Ukraine, Inc. v. Ukraine, ICSID Case No. ARB/00/9, "Award", September 16, 2003, ¶ 18.29. ↩
⁶⁹⁰ Exhibit CL-93, Generation Ukraine, Inc. v. Ukraine, ICSID Case No. ARB/00/9, "Award”, September 16, 2003, ¶ 18.29. ↩

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I(1)(a)(v)⁶⁹¹). In addition, the claimant had established a local investment vehicle for the project (Heneratsiya Ltd.), which both parties acknowledged constituted an investment under the U.S.-Ukrainian BIT.

548. Despite the fact that all of these investments were found to have been made in relation to the Parkview Project, the tribunal concluded that the Claimant did not have “a vested right to a commercial return on a completed office building” because the “materialization of the Claimant's legal interests translate not to a right to a commercial return, but simply to proceed with the construction of the Parkview Office building on land over which Heneratsiya had a 49-year leasehold interest.”⁶⁹²

3. The Expansion Projects are not covered by other investments

549. The Claimants argue that Mexico's jurisdictional objection is based on the erroneous premise that the Claimants have not provided any evidence of a protected investment in relation with the Expansion Projects.⁶⁹³ They go on to identify three investments that, in their view, “cover” these projects: E-Games Permit, E-Games and their shares in E-Games.⁶⁹⁴ The Respondent will address these investments next.

a. E-Games Permit

550. The first investment claimed to have been made in relation to the Expansion Projects is E-Games' Permit. The Claimants argue that that the Permit and its attendant rights are property rights of real value and fall within the ambit of “investments” under the NAFTA. In particular, they claim that such rights fall within Article 1139(h) –i.e., “interest arising from the commitment of capital or other resources in the territory of a Party to economic activity in such territory”– and Article 1139(g) -i.e., “real estate or other property, tangible or intangible, acquired in the expectation or used for the purpose of economic benefit or other business purposes.”⁶⁹⁵

⁶⁹¹ Exhibit CL-93, Generation Ukraine, Inc. v. Ukraine, ICSID Case No. ARB/00/9, “Award”, September 16, 2003, ¶ 18.46. ↩
⁶⁹² Exhibit CL-93, Generation Ukraine, Inc. v. Ukraine, ICSID Case No. ARB/00/9, "Award", September 16, 2003, ¶ 20.7. [Emphasis added] ↩
⁶⁹³ Reply, ¶ 538. ↩
⁶⁹⁴ Reply, ¶¶ 538-549. ↩
⁶⁹⁵ Reply, ¶ 539. ↩

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551. The Claimants are attempting to equate two very different things: the right to open additional casinos and the additional casinos themselves. They are also conflating the value of that right with the value of the would-be casinos in an attempt to boost their claim for damages. Indeed, the Claimants allege that in 2006 they “made an investment of USD 2.5 million to acquire the right to open two additional locations from JVE Monterrey”.⁶⁹⁶ However, this is not what they are requesting in terms of compensation for the alleged expropriation of that right. They are requesting USD $120 million based on the fair market value of the Cancun and Cabo casinos as if they were a reality.⁶⁹⁷ If E-Games' Permit is indeed an investment and this Tribunal finds that it was expropriated, the Claimants would be entitled to the fair market value of the Permit, but this is not what they are claiming.

552. The Respondent submits that, although a permit is required to legally operate a casino in Mexico, it cannot be the basis for an expropriation claim of casinos that had not even commenced construction on the Date of Expropriation. For such a claim to proceed, the Claimants needed to demonstrate the existence of an investment in a casino, such as the establishment and funding of the domestic entities they were planning to incorporate, the execution of leases for the facilities, the purchase of gaming equipment and other casino assets and executed agreements with their intended business partners. The Claimants have failed on this front.

553. A second problem with the Claimants' new argument is that the so-called “licenses” for the two additional casinos under E-Games' Permit were already assigned to the existing Huixquilucan casino and a casino project in the state of Veracruz.⁶⁹⁸ The Claimants allege that these two casinos were “temporary” and that the plan was to close them and deploy the remaining licenses to the Cabo and Cancun Casinos once they “came into fruition”.⁶⁹⁹ They further explain

⁶⁹⁶ Reply, ¶ 568. ↩
⁶⁹⁷ See BRG First Report, Table 1: “Summary of Damages for Claimants' Casinos...", p. 10. Further evidence of the difference between the value of a "license" and the value of a casino was tendered by the Claimants in support of its expropriation claim of the online casino. The table reproduced at ¶ 537 of the Counter-Memorial on Merits shows that E-Games apparently intended to illegally sell the "license" to operate the online casino to undisclosed investors in USD $1.5 million. In contrast, the Claimants are seeking USD $36 million as compensation for the alleged expropriation of an online casino that never existed. ↩
⁶⁹⁸ Counter-Memorial on the Merits, ¶ 904. ↩
⁶⁹⁹ Reply, ¶ 540. ↩

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that the reason for opening those temporary locations was that, at the time, there was a proposed bill in the Mexican legislature that would have canceled licenses for locations that were not being used. Thus, “by operating the Temporary Locations, Claimants wanted to show the Mexican government that they were utilizing as many of the prescribed locations under the E-Games Independent Permit as possible."⁷⁰⁰

554. Other than the testimony of Mr. and Mrs. Burr, the Claimants have offered no evidence whatsoever about the alleged temporary nature of the new locations or the bill in the Mexican legislature that allegedly forced them to temporarily open these locations to preserve their rights under the Permit. The burden to prove these facts rested with the Claimants, and they have failed to discharge their burden.

555. The Claimants' explanation is also inconsistent with the facts because the establishment of the Huixquilucan casino predates their so-called independent permit. Indeed, E-Games notified SEGOB about their intentions to commence operations at the Huixquilucan facility on 3 October 2012, however, the so-called “E-Games Independent Permit” was issued more than a month later, on 16 November 2012.⁷⁰¹ Therefore, it cannot be the case that the Claimants “wanted to show the Mexican government that they were utilizing as many of the prescribed locations under the E-Games Independent Permit as possible".⁷⁰²

556. It also strains credulity to suggest that, as late as 2014, when the Claimants requested a permit for the Veracruz facility,⁷⁰³ the Claimants were willing to go through the trouble and expense of setting up a new casino in Veracruz, only to shut it down shortly thereafter. A more logical explanation is that, the Cabo deal with Medano Beach Hotel and the Cancun deal with the Marcos family were dead by the time the Permit was revoked. As discussed below, the evidence shows that these projects failed on their own; not because of the alleged violations.

⁷⁰⁰ Id, ¶ 541. ↩
⁷⁰¹ Exhibit R-128, Oficio DGJS/SCEV/1373/2012 dated 5 November 2012, p. 1. ↩
⁷⁰² Reply ¶ 541. See also, R-127, Lease Agreement Between Mater Tournament S.A. de C.V. and Interlomas, S.A. de C.V. dated 26 August 2011. ↩
⁷⁰³ Exhibit C-33, p. 11. ↩

[Page 188]

557. Additional evidence filed with the Reply also suggests that E-Games intended to use one of the “licences” to open the online casino. The “Consent Resolutions of the Board of Managers of B-MexII, LLC” dated 25 July 2013 (Exhibit C-494) states:

Currently, Exciting Games is contemplating issuing or otherwise using a License for interne gaming and live poker in satellite facilities in Mexico (the "Internet Gaming Businesses"). Those proposed activities would not have been contemplated by the Company in its establishment of the Subsidiary(ies) and would not have been corporate opportunities and should be considered in a manner different from the other sale and disposition of Licenses.⁷⁰⁴

b. E-Games and E-Games shares

558. The Claimants further allege that “in addition to the E-Games Independent Permit, Claimants have held multiple other investments in relation to the Expansion Projects, including, but not limited to: (i) E-Games, [...] which undoubtedly qualifies as ‘enterprises' [sic] under NAFTA Article 1139(a); and (ii) shares in E-Games, which amply fall within the definition of 'investment' as 'an equity security of an enterprise' under Article 1139(b).”⁷⁰⁵

559. The Respondent does not dispute that E-Games qualifies as an investment under Article 1139(a). It also does not dispute that the Claimants' shares in E-Games qualify as investments under Article 1139(b). However, those investments were not investments in new casinos in Cabo, Cancun or Online. In fact, as per the Claimants' own submissions, E-Games did not own any casinos; the Juegos Companies did.⁷⁰⁶ E-Games simply operated them under the auspices of its permit and was remunerated for its services through various agreements (e.g., the Machine Lease Agreements and Management Agreement).⁷⁰⁷

560. As explained earlier, there is plenty of evidence that the Claimants intended to follow the same approach they used to set up the existing casinos. They intended to set up and capitalize a domestic entity that would acquire the casino assets, obtain a lease for the facilities, and then enter into a series of agreements with E-Games to operate the casino under its permit. This is confirmed

⁷⁰⁴ Exhibit C-494, p. 1 (bottom of the page). ↩
⁷⁰⁵ Reply, ¶ 543. ↩
⁷⁰⁶ Memorial on the Merits, ¶ 5. Gordon Burr First Witness Statement, ¶ 13 stating that "Each of the Casinos, and their assets, is owned by and through a Mexican corporate entity". ↩
⁷⁰⁷ Id, ¶ 87. Gordon Burr First Witness Statement, ¶ 24 stating “On November 1, 2008, [...] E-Games began its role as the legal operator of the Casinos." ↩

[Page 189]

in a “draft subscription agreement” filed with the Reply which explains that “Exciting Games will operate the Facility [i.e., the Cabo Casino], pursuant to the Permit and the Management Agreement and a machine lease agreement with the Mexican Subsidiary.”⁷⁰⁸

561. However, as of the expropriation date, the Mexican Subsidiaries had not been incorporated and consequently no agreements had been executed between the Mexican Subsidiaries and E-Games. This is not surprising given that the hotels that would host the future casinos had not even begun construction as of the expropriation date.

562. It is clear from the foregoing that E-Games did not own, nor did it intend to own any casinos. E-Games was set up and functioned as the operator of casinos owned by third parties (the Juegos Companies). Therefore, neither E-Games nor its shares can be viewed as an investment in a casino in Cabo or Cancun or online. Insofar as it concerns the Expansion Projects, the cancellation of the Permit at most deprived E-Games of the opportunity to operate the new casinos, and the profits it would have earned as the operator of those facilities. The Claimants, however, have not made that claim and have not quantified those damages.

4. The Expansion Projects are not investments in their own right
under Article 1139

563. Claimants also argue that “[t]o the extent that Mexico suggests that the Expansion Projects do not constitute, by themselves, ‘investments’ under the NAFTA, it is equally wrong. They clearly qualify under NAFTA Article 1139(g) as ‘real estate or other property, tangible or intangible, acquired in the expectation or used for the purpose of economic benefit or other business purposes’ and under NAFTA Article 1139(h) as ‘interests arising from the commitment of capital or other resources in the territory of a Party to economic activity in such territory.’”⁷⁰⁹

564. The Claimants further claim that “[t]his is particularly true because Claimants had not only made protected investments in the Expansion Projects in the forms of a gaming permit and local enterprises (as explained above), but also committed a substantial amount of capital and other resources in furtherance of the Expansion Projections".⁷¹⁰ Mexico will address these alleged investments in the following subsections.

⁷⁰⁸ Exhibit C-466, p. 17. ↩

⁷⁰⁹ Reply, ¶ 552. ↩

⁷¹⁰ Reply, ¶ 552. ↩

[Page 190]

a. The alleged USD 2.5 million investment to acquire the
right to open two additional locations

565. According to the Claimants, in 2006 B-Mex II “made an investment of USD 2.5 million to acquire the right to open two additional locations from JVE Monterrey”⁷¹¹ and “that interest alone, which transferred with B-Mex II when operation of the Casinos migrated to E-Mex's permit and then E-Games' own independent permit, qualifies as an investment under NAFTA Articles 1139(g) and (h)".⁷¹²

566. First, there is no discussion whatsoever in the Memorial about the acquisition of “licenses” from JVE Monterrey in 2006 for USD $2.5 million to establish two additional facilities in Cabo and Cancun, which explains why "[t]ellingly, Mexico says nothing about this USD 2.5 million investment”.⁷¹³ In fact, in their Memorial, the Claimants stated that “as a first step, Mr. and Ms. Burr formed and capitalized B-Cabo, LLC and Colorado Cancun, LLC to develop these projects."⁷¹⁴ The alleged USD $2.5 million investment was not identified as the "first step" despite predating the incorporation of B-Cabo and Colorado Cancun by at least five years.

567. Second, back in 2006, when the Claimants allege to have acquired the right to open two additional locations from JVE Monterrey, neither the Claimants nor JVE Monterrey had a gaming permit and thus, they were not authorized to operate casinos. The Tribunal will recall that, at the time, the Claimants operated under the Monterrey Resolution, which JVE Monterrey obtained by representing to Mexican authorities that the machines in its facilities (and, by extension, the machines in the Claimants' facilities) did not involve games of chance or gambling in any form.⁷¹⁵ Therefore, JVE Monterrey could not have sold, and the Claimants could not have acquired rights to operate, casinos in 2006.

568. Third, as explained in section III.3 above, the right to open additional facilities under a gaming permit cannot be equated with the existence of specific casinos or casino projects. Even if the Claimants did in fact pay USD $2.5 million for the right to open new casinos (quod non), that

⁷¹¹ Reply, ¶ 568. ↩

⁷¹² Reply, ¶ 568. ↩

⁷¹³ Reply ¶ 568. The only reference to this alleged investment is located in Mr. Burr's third witness statement. ↩

⁷¹⁴ Memorial on the Merits, ¶ 62. Emphasis added by the Respondent. ↩

⁷¹⁵ Memorial on the Merits, ¶¶ 32-33. Reply, ¶¶ 21-23. ↩

[Page 191]

right could not possibly justify their USD $120 million claim based on the future revenues of the planned casinos. At most, it would give rise to a claim with respect to that investment, and damages consistent with its value.

569. Finally, the Claimants once again appear to be resorting to pretexts and excuses in an attempt to lay blame at Mexico's feet for their inability to prove their case. They claim, as they did before, that all the relevant documents were destroyed in the Naucalpan fire.⁷¹⁶ They no longer blame the alleged ransacking of the offices of their corporate lawyer, but they do offer a novel explanation for their inability to adduce email communications: they can no longer access their corporate email account because “it became unfeasible for Claimants to continue paying for the email servers where all corporate emails were stored".⁷¹⁷ It simply defies credulity that no backups of these important business records were ever made and kept or transmitted to third parties, such as their intended business partners, accountants and lawyers, among others – or moreover, in anticipation of a NAFTA claim. Query whether the emails or lack thereof were unhelpful to the Claimants? Backup systems are inexpensive and a standard fundamental component of any legitimate business.

b. Colorado Cancún, LLC, y B-Cabo, LLC, are not
investments for the purposes of this claim

570. The Claimants also refer in their Reply to Colorado Cancun, LLC and B-Cabo, LLC and falsely claim that Mexico contended in its Counter-Memorial that there was no proof that these companies were incorporated or funded. México made no such argument in relation to B-Cabo or Colorado Cancun since those are U.S. companies and claimant parties in these proceedings, not investments in Mexico.

571. The passage from the Counter-Memorial cited in the Reply⁷¹⁸ discusses the "Cancun Company", that is, the Mexican subsidiary that the Claimants intended to establish in Mexico for the purpose of building, owning, and operating the Cancun Casino; just as they did in the case of

⁷¹⁶ Reply, ¶ 563. ↩

⁷¹⁷ Reply, ¶¶ 563-564, 569. ↩

⁷¹⁸ Counter-Memorial on the Merits, ¶ 519. ↩

[Page 192]

their five existing casinos.⁷¹⁹ Mexico explained in that passage that there was no evidence that the Cancun Company was incorporated or funded and maintains that position.⁷²⁰

572. The same applies to the “Casino Company” referenced in the Investment/Loan Agreement that the Claimants intended to establish as an investment vehicle for the Cabo Casino⁷²¹, and the potential "structure” for the Online Casino, which included, inter alia, the possibility of establishing a Mexican subsidiary jointly owned by Rational Group and Kash.⁷²²

c. The Cabo Project

573. In its Counter-Memorial, the Respondent explained that the Claimants had failed to identify a concrete investment in the Cabo Casino. Mexico then proceeded to discuss the little evidence submitted by the Claimants in support of this part of their claim. The Respondent referred to:

• The Medano Beach Brochure as evidence that the original project by Messrs. Ferdosi and Erikson was to build a luxury hotel in Cabo, not a “hotel/casino” as Mr. Burr falsely claimed;⁷²³
• The Letter of Intent submitted as BRG-033 as evidence that Mr. Burr's intention was to make two separate investments: one in a loan to fund the construction of the hotel, and a second investment to build a casino within the hotel;⁷²⁴
• The Investment/Loan Agreement (Exhibit C-65) as further evidence that the project comprised to separate investments: (i) a loan of up to USD $4 million for the acquisition of certain plots of land for the construction of the hotel, and (ii) the formation of a Casino Company in Mexico that would build and own the casino in the hotel;⁷²⁵
• A communication between Messrs. Burr and Ferdosi in May 2013 evidencing Mr. Burr's intention to lend USD $500,000 to purchase a company that owned the land in which the hotel was to be constructed,⁷²⁶ and;

⁷¹⁹ Exhibit C-492, p. 5. ↩

⁷²⁰ Counter-Memorial on the Merits, ¶ 519. ↩

⁷²¹ Exhibit R-111, Consent to Action in Lieu of Organizational Meeting the Members of B-Cabo, LLC dated 11 January 2013, p. 5. See also C-65, Investment/Loan Agreement pp. 1, 12. ↩

⁷²² Counter-Memorial, ¶ 541. ↩

⁷²³ Id, ¶¶ 497-498. ↩

⁷²⁴ Id,, ¶¶ 499-502 ↩

⁷²⁵ Id.,, ¶ 503-508 ↩

⁷²⁶ Id., ¶¶ 509-512 ↩

[Page 193]

• A draft investment agreement of October 2013 (BRG-032) as evidence that the project, as described therein, did not involve a casino.

574. Unfortunately, the Claimants' Reply includes mischaracterizations of Mexico's submissions and irrelevant discussions on whether the project involved the construction of a casino.⁷²⁷ Mexico will not encumber the Tribunal with responses to these submissions because, despite their efforts, the Claimants have been unable to refute: (i) that the Cabo Project comprised two different investments in a hotel and a casino respectively, and (ii) that the only investment made in connection with the project were two loans totaling USD $600,000 to Medano Beach Hotel for the acquisition of land for the construction of the hotel which, by the way, were almost fully repaid before the Date of Expropriation. (

1) The Loans

575. The Claimants have now clarified that they made two loans to Medano Beach Hotel. The first one was for USD $100,000 and was made on 25 January 2013, while the second was for USD $500,000 and was granted on 17 May of the same year (hereinafter the “Loans").

576. The Respondent had initially assumed that the Loans were made pursuant to the Investment/Loan Agreement filed as Exhibit C-65, which was executed on 5 April 2013. However, it has now become clear that Loans were made in advance of another agreement that was under negotiation and was never completed.

577. On 21 January 2014, B-Cabo filed a lawsuit before the District Court in Colorado against Messrs. Ferdosi, Brasel and Stanhope –i.e., the Claimants' partners for the Cabo Project–. The complaint, submitted as Exhibit CRT-24 to Mr. Taylor's Reply (the “Complaint”), explains the project and the first loan in the following terms:

9. Beginning 2012, Brasel approached Mr. Burr to propose that Mr. Burr assist him, Ferdosi and Stanhope in a project to construct a luxury hotel (the "Hotel") and related facilities in Cabo San Lucas, Mexico (the “Project").

[...]

⁷²⁷ For example: at ¶ 597 of the Reply, the Claimants accuses Mexico of “[ignoring] that the draft Investment Agreement on which it relies is not the only draft Investment Agreement, which is only logical as discussions were ongoing. Indeed, along with their Counter-Memorial on Jurisdictional Objections, Claimants have already submitted Exhibit C-65 [...]”. The Respondent devoted an entire section of the Counter-Memorial to the Investment/Loan Agreement filed as Exhibit C-65 (¶¶ 503-508) which, by the way, was signed by Mr. Burr on Behalf of B-Cabo and Mr. Ferdosi on behalf of Medano Beach Hotel. ↩

[Page 194]

12. The parties engaged in extensive negotiations over the terms of an agreement ("Investment Agreement") to govern the relationship of the parties and the terms on which B-Cabo would raise funds to invest in and lend funds to Medano Beach.

13. Negotiations for the Investment Agreement were extensive, and numerous drafts were exchanged with no final agreement being signed. As the proposed structure of the transaction continued to change, Defendants became concerned that, unless funds were provided, opportunities for construction, the use of construction permits and other matters required to undertake the Project may be lost or delayed to the detriment of Defendants and Medano Beach."

14. As such, Ferdosi and Brasel proposed that B-Cabo advance funds to Medano Beach in anticipation of execution of the Investment Agreement, so that the Project could proceed.

15. Mr. Burr, on behalf of B-Cabo, responded that B-Cabo would not lend any funds without repayment being guaranteed by Defendants, in the event that an Investment Agreement was not finalized and B-Cabo did not proceed with the Project.

16. Defendants expressly agreed that they would guarantee repayment of any advance made by B-Cabo in the event that an Investment Agreement was not finalized and B-Cabo did not proceed with the Project.

17. In reliance on Defendants' agreement and promise, on January 25, 2013, B-Cabo lent Medano Beach USD $100,000.⁷²⁸

[Emphasis added]

578. The Complaint explains the second loan for USD $500,000 as follows:

19. After the initial loan from B-Cabo, the patties continued to negotiate an Investment Agreement but could not reach agreement. During that time, on several occasions, one or more of the Defendants informed B-Cabo that additional funds were necessary to advance the Project.

20. B-Cabo responded that it was unwilling to advance more funds or invest in Medano Beach until the telms of the Project were finalized and an Investment Agreement executed.

21. Nonetheless, Defendants requested that B-Cabo advance $500,000 to Medano Beach because of an urgent need for capital for the Project. In particular, in order for the project to proceed, Medano Beach had to purchase all of the ownership interests in Inversiones Medano S, de. R.L. de C.V ("Inversiones"), a Mexican company that owned land on which the Hotel would be constructed. Without purchasing Inversiones, Medano Beach and Defendants could not proceed with the Project.

[...]

24. Pursuant to and in compliance with the Guarantee Agreement, B-Cabo lent Medano Beach $500,000 on May 17, 2013.⁷²⁹

⁷²⁸ Exhibit CRT-24, ¶¶ 19-21, 24. ↩

⁷²⁹ Exhibit CRT-24, ¶¶ 19-21, 24. ↩

[Page 195]

[Emphasis added]

579. The Complaint further explains that after several extensions of time and opportunities to finalize a contract, on 26 July 2013 B-Cabo advised the Cabo Partners that “the transaction was terminated". This, of course, predates the revocation of E-Games Permit in August 2013 and the closure of the existing Casinos in April of 2014. Mexico will address this point as a causation issue in the damages section further below.

580. After a couple of subsequent failed attempts to complete the intended agreement, on 3 October 2013, Mr. Burr terminated all negotiations and enforced B-Cabo's right under the Guarantee Agreement. The Complaint explains that the transaction was terminated because "Defendants [Messrs. Ferdosi, Brasel and Stanhope] responded with pretextual concerns that could have been asserted at any time during the months of previous negotiations".⁷³⁰ In contrast, in his email dated 3 October 2013, which was submitted as Exhibit C-467 to the Reply, Mr. Burr blames the "Respondent's recent actions and the threatened suspension of our permit”, but importantly, acknowledges that the project did not involve a casino at that stage:

Due to recent actions taken by the Mexican government and the threatened suspension of our permit, we regret we will be unable to move forward with your project at this time. Even though the Cabo project does not currently contemplate the construction of a casino, the unfounded and improper actions of the Mexican government and impact of certain influence on the government causes us to be far more tentative raising funds for any business in Mexico and creates a taint on our business that will make it difficult if not impossible to proceed.

[...]

In the event we are able to quickly prevail in combating the current and threatened allegations and actions, we would be interested in moving forward with the project. We certainly appreciate your efforts and wish you every success going forward. At this time, we ask that you return our money to us immediately.⁷³¹

[Emphasis added]

581. All of this, of course, is contrary to the Claimants' submissions that they had made significant progress towards an agreement with their Cabo Partners when Mexico closed the existing casinos in April 2014. It also refutes the idea that the USD $600,000 in loans constitute an investment in a casino.

⁷³⁰ Exhibit CRT-24, ¶ 33. See also ¶¶ 28-32 for more context. ↩

⁷³¹ Exhibit, C-467. ↩

[Page 196]

2) The subscription agreement (Exhibit C-466)

582. Mexico's Counter-Memorial addressed in detail the contents of the LOI (Exhibit BRG-033) and the Investment/Loan Agreement (Exhibit C-65) and how those documents identified two separate investments in a hotel and a casino, respectively. To avoid repeating those submissions here, the Respondent directs the Tribunal to paragraphs 499 to 502 and 503 to 508 of the Counter-Memorial.

583. Although the LOI and the Investment/Loan Agreement documents are compelling evidence of the dual nature of the Cabo Project, a “Subscription Agreement” filed as Exhibit C-466 to the Reply dispels any doubts that may remain around this issue. The document distinguishes two different projects which are described in detail under subheadings: “Hotel Project” and "Casino Project”.⁷³² The document also contains three separate sections discussing “Factors Applicable to Both Hotel and Casino Projects",⁷³³ "Factors Applicable to the Hotel Project"⁷³⁴ and "Factors Applicable to the Casino Project".⁷³⁵ And if this were not enough, item 4.2 warns that “the Hotel and Casino projects must be analyzed and considered separately” and “[f]or reasons set forth in the risk factors, it is possible that the Casino may not be built, and the sole investment will be in the Hotel project”.⁷³⁶ This is consistent with the excerpt from the Investment/Loan Agreement quoted in the Counter-Memorial indicating that “in the event that the Casino is not built for any reason, there will be no effect on the Investors Loan or the repayment [of the] terms thereof".⁷³⁷

584. The subscription agreement is also significant in that it outlines the steps that the parties to the project envisioned to establish the casino.

585. The "Offering” section explains that B-Cabo intended to raise up to USD $10 million in capital by offering “units of membership interest in the Company [i.e., B-Cabo]” and use the proceeds to: (i) make a Loan of up to USD $4 million to Medano Beach for the construction of the

⁷³² Exhibit C-466. The “Hotel Project" starts at p. 4 and the "Casino Project" section starts at p. 14. ↩

⁷³³ Id., p. 20 ↩

⁷³⁴ Id., p.25 ↩

⁷³⁵ Id., p.29 ↩

⁷³⁶ Exhibit C-466, p. 19 (item 4.2). ↩

⁷³⁷ Counter-Memorial on the Mertis, ¶ 504, citing to Exhibit C-65, p. 1. ↩

[Page 197]

hotel and; (ii) “capitalize a Mexican Subsidiary with funds it will use to construct and own the Casino in the Hotel".⁷³⁸ Construction of the casino was expected to commence “four to five months before the opening of the Hotel".⁷³⁹

586. The subscription agreement further explains that the casino would be operated by E-Games and that "using proceeds of this Offering, the Mexican subsidiary will purchase the license (the "License") for the operation of the Casino from B-Mex II, LLC, a Colorado limited liability company managed by the principals of the Company and Exciting Games, for $1.5 million USD".⁷⁴⁰

587. In addition, E-Games would operate the intended casino pursuant to the E-Games' Permit and two agreements to be executed between the Mexican Subsidiary and E-Games, namely: a management agreement and a machine lease agreement.⁷⁴¹

588. In sum, according to the subscription agreement, the successful establishment of a casino in Los Cabos depended on: (i) B-Cabo conducting a successful offering to raise up to USD $10 million to fund the construction of the hotel and the Mexican Subsidiary;⁷⁴² (ii) lending up to USD 4 million to Medano Beach Hotel for the construction of the hotel;⁷⁴³ (iii) incorporating the Mexican Subsidiary that would own the casino and its assets⁷⁴⁴ and; (iv) executing a machine lease agreement and a management agreement between the Mexican Subsidiary and E-Games once the former was established.⁷⁴⁵

589. As of the expropriation date, there is no evidence that B-Cabo raised the intended funds through the offering, no evidence that the hotel commenced construction and no evidence that the Mexican Subsidiary was formed or capitalized. Consequently, the Mexican Subsidiary never purchased a "licence” or gaming equipment or entered into agreements with E-Games to operate

⁷³⁸ Exhibit C-446, pp. 1, 14. ↩

⁷³⁹ Id.,, p. 15. ↩

⁷⁴⁰ Id.,, p. 15. ↩

⁷⁴¹ Id.,, p. 17. ↩

⁷⁴² Id.,, p. 1. ↩

⁷⁴³ Id.,, p. 1. ↩

⁷⁴⁴ Id.,, p. 14. ↩

⁷⁴⁵ Id.,, p. 17. ↩

[Page 198]

a casino. In fact, as indicated supra, the Claimants had not even executed an Investment Agreement with their Cabo Partners in order to make these plans a reality.

590. All that existed at the time were two loans for USD $600,000 made in connection with the hotel, of which USD $500,000 were repaid to B-Cabo before the Claimants' Casinos were legally shuttered by Mexico on 24 April 2014 (i.e., the alleged expropriation date) because they were open and operating without a permit.

d. The Cancún Project

591. The claim around the Cancun Project is in many ways more extreme than the one concerning the Cabo Project because the Claimants did not even submit evidence on their alleged negotiations with the Marcos Family. As noted in the Counter-Memorial, the entire claim rested on the unsupported witness statements of Mr. and Ms. Burr, a render of the casino and an excel file with purported financial projections.

592. In their Reply, the Claimants allude to an option to purchase a gaming licence from B-Mex II and provide additional evidence regarding their communications with the Marcos Family. Mexico will address this evidence below, but it will note at the outset that the issue is not whether the Claimants entered into negotiations with the Marcos Family, but whether they had an investment in a casino in Cancun and whether such an investment justifies a claim for USD $42 million in damages.

1) The option to purchase a gaming license from B-Mex-
II

593. The Claimants claim to have acquired an option to purchase a gaming licence from B-Mex II for USD $250,000 and appear to suggest that this instrument constitutes a covered investment.⁷⁴⁶

594. Mexico reiterates that Article 31 of the Gaming Regulations prohibits, inter alia, the sale, transfer and commercialization of a permit or the rights thereunder. Moreover, there is no such thing as a "gaming licence”; this is an imaginary construct developed by the Claimants to circumvent the law. The fact that a permit allows the holder to open a certain number of facilities does not imply that the permit can be broken up into “licenses” that can then be sold or otherwise

⁷⁴⁶ Reply, ¶ 569-570 ↩

[Page 199]

transferred or commercialized. This would make a mockery out of the restriction established in the Regulations and would render Article 31 meaningless.⁷⁴⁷

595. Hence, to the extent that E-Games sold or transferred rights under its permit to B-Mex II, that sale or transfer was illegal. Any attempt by B-Mex II to sell those alleged rights to Colorado Cancun or any third party would be equally illegal and therefore, would have zero value.

596. The Claimants, perhaps aware of this problem, attempt to draw a distinction by arguing that Mexico's contention about the illegal nature of the transfer is wrong because “E-Games Independent Permit... was never up for sale or transfer. Rather, the option was an option on the right to capitalize, construct and operate a new gaming facility under the same permit that Claimants had operated their casino business in Mexico...”⁷⁴⁸ The Claimants' effort are unavailing and must fail.

597. To the extent that the argument suggests that the transaction is not illegal because the option does not involve the permit itself but rather the possibility of acquiring rights conferred under the permit that were somehow transferred to B-Mex II, then Mexico will take the position that the right to acquire a right under the Permit is not an “investment of investors of another Party in the territory of the Party” and therefore, it would not be covered under Chapter Eleven of the NAFTA.⁷⁴⁹ Even if the right existed (quod non) and was legally owned by B-Mex II (quod non), an option on that right would be a U.S. asset (akin to a derivative) that was created by a U.S. company (B-Mex II) which was then sold to another U.S. Company (Colorado Cancun) in the United States.

598. Lastly, the Claimants argue that Mexico's allegation that there is no proof that the USD $250,000 purchase price was paid has now been debunked by evidence filed with the Reply.⁷⁵⁰ This only confirms that Mexico's original allegation was correct: there was no proof of any such

⁷⁴⁷ RER-5, Second Expert Report of Mr. Alfredo Lazcano Sámano, ¶¶ 90-93. ↩

⁷⁴⁸ Reply, ¶ 571. ↩

⁷⁴⁹ Article 1101 of the NAFTA states: "This Chapter applies to measures adopted or maintained by a Party relating to: [...] (b) investments of investors of another Party in the territory of the Party; [...]" ↩

⁷⁵⁰ Reply, ¶ 570 ↩

[Page 200]

purchase filed with the Memorial, and that the Claimants inappropriately decided to submit with their Reply evidence that could and should have been submitted with their Memorial.

2) The business plan and presentation

599. The Counter-Memorial explains that a business plan is not a protected investment under the NAFTA nor evidence of a protected investment.⁷⁵¹ Nothing in the Reply even attempts to dispute this point.

600. The Claimants also take issue with Mexico's contention that the so-called Business Plan was prepared in April 2011 and no progress appeared to have been made since.⁷⁵² They then point to a presentation dated 15 April 2013 (Exhibit C-335) which “details Claimants' plan to build a 'premier casino in Cancún targeting high-end tourists and wealthy local residents' along with information about the specific market and the management group, the proposed casino concept, financial projections, and analysis of competitors."⁷⁵³

601. It is unclear to the Respondent how a subsequent presentation can be interpreted as an indication of progress towards realizing the project of building a casino in Cancun. It is equally unclear how, either in isolation or in conjunction with the Business Plan, the presentation would constitute or demonstrate the existence of an investment. It simply does not.

3) Communications with the Marcos Family

602. The Claimants also take issue with Mexico's allegation that there was no evidence of communications with the Marcos Family. They claim that most of the discussions with the Marcos Family took place through face-to-face meetings but nevertheless, submitted a few emails evidencing their contacts with the Marcos family with their Reply.⁷⁵⁴ According to the Claimants, "[t]hese contemporaneous communications conclusively show that Mr. Burr's discussions with the Marcos family began as early as in 2011 and continued until Mexico shuttered the Casinos."⁷⁵⁵

⁷⁵¹ Counter-Memorial on Merits, ¶ 520 ↩

⁷⁵² Counter-Memorial on Merits, ¶ 518 ↩

⁷⁵³ Reply, ¶ 575. ↩

⁷⁵⁴ Reply, ¶ 576. ↩

⁷⁵⁵ Reply, ¶ 577. ↩

[Page 201]

603. The point, however, is not whether there is proof of negotiations between the Claimants and the Marcos family, but whether the Claimants made an investment in a casino in Cancun. Negotiations with potential business partners do not constitute an investment.

604. The Claimants go on to explain that their lack of progress prior to 2013 was due to their "[need] to prioritize obtaining the E-Games' Independent Permit over expanding their business into resort communities.”⁷⁵⁶ The Claimants are of course entitled to prioritize whatever they want, but that does not relieve them of the obligation to prove the existence of an actual investment to support a claim for the expropriation of that investment and damages in excess of USD $42 million. The Claimants, at best, have submitted evidence of unmaterialized plans to build a casino in Cancun, which do not constitute an investment.

e. The Online Casino Project

605. The same applies to the Online Casino Project. Although the plans to open the online casino seem to have been more advanced than the plans for the Cancun or Cabo casinos, they were still only that: plans. The Claimants have not provided any evidence of executed agreements with Bally or Pokerstars⁷⁵⁷, or evidence of the acquisition of the assets identified in Exhibit C-338 (e.g., the servers⁷⁵⁸), or evidence that the would-be partners in the online casino (E-Games and Rational Group) had decided on the “structure for the transaction" or that they had incorporated the corresponding companies.⁷⁵⁹ There is also no evidence that they had complied with Article 85 of the Regulations which requires any permit holder that wishes to offer online games to obtain SEGOB's authorization and file a request with supporting documentation describing the intended procedures to guarantee the integrity of the games and preclude their manipulation.⁷⁶⁰

606. The Claimants do not contest any of this, yet they claim that “all that remained for Claimants to do to have their online gaming site up and running was to set up and install servers

⁷⁵⁶ Reply, ¶ 578. ↩

⁷⁵⁷ Counter-Memorial on the Merits, ¶ 534. ↩

⁷⁵⁸ Counter-Memorial on the Merits, ¶ 538. ↩

⁷⁵⁹ Counter-Memorial on the Merits, ¶ 541. ↩

⁷⁶⁰ Counter-Memorial on the Merits, ¶ 531. ↩

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in Queretaro, after which Claimants would have used Bally's platform”.⁷⁶¹ They also insist that they were two months away from opening this online casino.⁷⁶² This is simply untenable.

607. The Claimants then resort to the same tactic of providing evidence (that could and should have been submitted earlier) of pre-investment activities such as: of biweekly meetings with Bally, the "Exciting Games Project Plan”, a “preliminary budget plan” for the servers, their alleged “extensive due diligence” (Exhibit C-338), follow up emails (C-559, C-560, C-561), a presentation to TelePlay in February 2014, and a witness statement by Mr. Miguel Romero Cano. However, none of this is evidence of an actual investment.

608. The Claimants also continue to take liberties with the characterization of their evidence. A good example is Mr. Moreno's claim that the “Exciting Games Project Plan” (Exhibit C-477), which identifies the various tasks that the parties needed to accomplish in order to roll out the project by mid-July 2014, “fails to reflect all material progress that the parties made afterwards".⁷⁶³ Indeed, the document identifies five different “Phases” and only shows progress with a few tasks from Phase 1. Phases 2 through 5, which include: “Design & Business Operations”, "Development”, “QA/Testitng & Training”, and “Go Live and Transition to Support" show zero progress: