In re: EMERALD CASINO, INC.
- Summarized by Kurt Carlson , Carlson Dash LLC
- 5 years 7 months ago
- Case Type:
- Business
- Case Status:
- Affirmed in part and Reversed in part
- Citation:
- 16-075, 16-1132, 16-1133, 16-1143, 16-1148, 16-1160, 16-1161, 16-4464, 16-1165, 16-1235 (7th Circuit, Aug 11,2017) Not Published
- Tag(s):
-
- Ruling:
- Where officers and directors of a casino caused the casino’s gaming licensed to be revoked, they may be held jointly and severally liable for breach of the company’s shareholder agreement, despite the fact that each executed separate agreements that provided for individual responsibilities, pursuant to the concurrent-breach doctrine.
- Procedural context:
- We could spend pages on procedural context. Suffice to say that the Illinois Gaming Board (the “Board”) revoked Emerald Casino, Inc.’s (“Emerald”) gaming license. In an attempt to recover the value of the license, the bankruptcy trustee sued the defendants—former Emerald officers, directors, and shareholders—for breach of contract and breach of fiduciary duty. The district court ruled that the trustee’s breach of fiduciary duty claim was barred by the Illinois’s 5-year statute of limitations. The statute of limitations was not tolled, in this case, by the adverse-domination doctrine because the Unsecured Creditors Committee (“UCC”) could have pursued these claims within the proscribed period however, the court reasoned, as a matter of strategy the UCC elected not to do so. As for the breach of contract claim, the trustee alleged that certain officers and directors violated Emerald’s Shareholder Agreement, which requires compliance with the Board rules. The trial court ruled that the conduct of Kevin Flynn, John McMahon, Kevin Larson, and Joseph McQuaid (the “defendants”) violated the Shareholder Agreement and caused the Board to revoke the casino’s license when they violated various rules set forth by the Board. The defendants appealed. The Seventh Circuit reversed and remanded the trial court’s decision to hold the defendants only severally liable instead of jointly and severally liable, but otherwise affirmed.
- Facts:
- Emerald was located in Dubuque, Illinois, and began struggling after 1993 when a new Dubuque, Iowa casino was opened. Iowa’s lenient gaming laws made it difficult for Emerald to compete. Emerald applied to the Board for permission to relocate, but the Board denied the relocation, claiming it lacked statutory authority to allow a licensee to relocate. By 1996, Emerald was no longer operating and instead it was devoting it’s time to lobbying the Illinois legislature to pass an act that would allow it to relocate. In the meantime, Emerald had to renew its gaming license. The board voted unanimously to deny the renewal. Emerald appealed to an Illinois administrative law judge, who also recommended denying the renewal. Before the Board could officially adopt the administrative ruling, the Illinois legislature passed a statute allowing for relocation.
In anticipation of political victory, Emerald entered into agreements with the city of Rosemont after the defendants attended numerous meetings with the mayor of Rosemont. Emerald also entered into at least 9 contracts with construction and architectural firms. Emerald did not disclose the agreements with the city of Rosemont or the construction/architect contracts to the Board, despite being mandated to do so by various gaming rules. In addition, Emerald changed its ownership structure and failed to obtain prior approval from the Board, even though they were required to do so by the rules.
The Board became aware of these transactions in 1999, when Emerald applied for another license renewal. The Board conducted a 15-month investigation, and ultimately revoked Emerald’s license. When its license was revoked, Emerald’s creditors forced it into bankruptcy. The bankruptcy was converted from a chapter 7 to a chapter 11, and the converted back to a chapter 7 when restructuring became infeasible.
After an in-depth causation analysis, the Seventh Circuit affirmed the lower court’s ruling as to the breach of contract claim. In affirming the lower court’s ruling as to the Statute of Limitations bar on the trustee’s breach of fiduciary duty claim, the Seventh Circuit ruled that the statute of limitations began to run in 2001, when the Board first voted to revoke Emerald’s license. However, due to the adverse-domination doctrine, that period was tolled. The trial court and Seventh Circuit determined that the presumptions of the adverse-domination doctrine could be rebutted once the UCC had the knowledge and motivation to bring the action within the proscribed period of time. Because the chapter 7 trustee did not file suit until 2008, the 5-year statute of limitations barred the breach of fiduciary duty claim.
The Court similarly affirmed the lower court’s ruling as to damages, after defendants raised an argument that damages should be adjusted for inflation, but failed to raise and properly preserve the argument at the trial court level. Thus, the argument was waived. Finally, the Court reversed and remanded with respect to several liability, applying the “concurrent breach” doctrine and holding that, where two defendants act concurrently and it is not reasonably possible to segregate damages, their liability is “joint and several.”
- Judge(s):
- Kanne, Sykes, Hamilton
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