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In re Emerald Casino

December 7, 2005

IN RE: EMERALD CASINO, INC., DEBTOR.
THE VILLAGE OF ROSEMONT, AN ILLINOIS MUNICIPAL CORPORATION, PLAINTIFF-APPELLANT,
v.
AARON JAFFE, ET AL., DEFENDANTS-APPELLEES.



The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge

MEMORANDUM OPINION AND ORDER

Plaintiff-Appellant, the Village of Rosemont ("Rosemont") appeals the bankruptcy court's decision to grant Defendants-Appellees' motion to dismiss Rosemont's complaint seeking specific performance and injunctive relief (the "Complaint"). Rosemont has also moved for an injunction pending appeal. The Court has appellate jurisdiction over this matter pursuant to 28 U.S.C. § 158 and Rule 8001 of the Federal Rules of Bankruptcy Procedure. For the following reasons, the Court affirms the bankruptcy court's decision and denies Rosemont's motion for an injunction pending appeal.

BANKRUPTCY PROCEEDINGS

I. Factual Background*fn1

In 1992, the Illinois Gaming Board (the "Board") issued Debtor Emerald Casino, Inc. ("Emerald") an Illinois riverboat gambling license (the "License"). In 1993, Emerald began operating a casino in East Dubuque, Illinois. Rosemont alleges that in April 1997, Emerald wanted to relocate its casino to Rosemont, and on September 24, 1999, Emerald submitted an application to the Board for the relocation. Rosemont subsequently constructed a parking garage for the casino. Rosemont claims that it is the rightful home dock site for the License, and that it is Emerald's largest unsecured creditor.

On March 6, 2001, the Board initiated disciplinary proceedings against Emerald to revoke the License (the "Disciplinary Proceedings"). Rosemont alleges in its Complaint that Emerald attempted to settle the Disciplinary Proceedings in a manner Rosemont viewed as detrimental to its rights and the rights of other creditors, and Emerald refused to reimburse Rosemont for the money it had expended in building the parking garage and preparing for the casino. On June 13, 2002, Rosemont and four other creditors filed an involuntary bankruptcy petition against Emerald. The bankruptcy court granted the petition in September 2002. Emerald subsequently converted the involuntary bankruptcy into a voluntary bankruptcy under Chapter 11 of the Bankruptcy Code.

On December 15, 2003, Emerald entered into a letter agreement with the Illinois Attorney General ("IAG") and the Board. The December 15, 2003 agreement provided for a bidding process to sell the License, followed by a suitability review by the Board of the successful bidder (the "Suitability Review"). Additionally, the agreement provided that the IAG and the Board would stay the Disciplinary Proceedings if Emerald met certain conditions set forth in the agreement. On May 11, 2004, the IAG advised Emerald that one of the conditions under the agreement had failed and that it elected to resume the Disciplinary Proceedings. Following the IAG's decision, Emerald revised its proposed plan of reorganization to reflect the absence of the IAG's support.

On May 17-18, 2004, the bankruptcy court held confirmation hearings on the proposed reorganization plan. During the confirmation hearings, three of the four then-current Board members testified that the Board supported the purposed reorganization plan, the plan satisfied the Board's regulatory concerns and the Board was prepared to take the steps necessary to implement the reorganization plan. Additionally, Emerald's counsel stated during the hearings that "the plan does not rely on an injunction against any state entity, not the [IAG] or the [Board]." (R. 25-9; Defs.-Appellees App., May, 17, 2004 Tr. 137:18-20.) When the bankruptcy court asked whether anything would prevent resumption of the Disciplinary Proceedings, other than a majority vote of the gaming board, counsel for Emerald responded "no." (Id. at 142: 3-9.) Furthermore, in a supplemental brief on the feasibility of the proposed plan, Emerald and the Official Committee of Unsecured Creditors did not argue that the proposed plan required the Board to complete the Suitability Review. Instead, they stated that the plan would be feasible because the Board did not oppose it.

On May 19, 2004, the bankruptcy court confirmed the Fifth Amended Joint Plan of Reorganization (the "Plan") with the understanding that the Plan would not bind the IAG or the Board. On June 11, 2004, the IAG filed a quo warrantor action against the Board and its members. That action sought, among other things, to permanently enjoin the Board from conducting the Suitability Review. On July 22, 2004, following modifications to the Plan, the bankruptcy court confirmed the Plan as modified on that date. On July 28, 2004, the Board adopted a resolution stating that it waived rights or defaults under the December 15, 2003 letter agreement.

On August 2, 2004, after the bankruptcy court confirmed the Plan, the Board sent a second letter agreement to Emerald. The IAG was not a party to that agreement. In the agreement, the Board agreed to conduct the Suitability Review, and suspend and ultimately dismiss the Disciplinary Proceedings. After the Board entered into this agreement, two of its four members resigned. New members were appointed on March 21, 2005. Rosemont alleges that shortly after their appointment, the Board resumed the Disciplinary Proceedings and placed the Suitability Review on hold.

II. Procedural Background

On June 20, 2005, Rosemont filed the Complaint in the bankruptcy court. The Complaint consists of two counts: (1) Count I seeks specific performance of the Board's alleged commitments under the Plan, including completion of the Suitability Review in accordance with the Illinois Riverboat Gambling Act, 230 ILCS 10/1, et seq., and termination of the Disciplinary Proceedings; and (2) Count II seeks an injunction against the Disciplinary Proceedings and other conduct that allegedly violates the Plan. Rosemont has brought this suit against Aaron Jaffe, Chairman of the Board, Jeanette Tamayo, interim Administrator of the Board, and Board members Charles Gardner, Eugene Winkler, Gary Peterlin, and William Dugan.

On August 16, 2005, the bankruptcy court granted Jaffe's, Garner's, Winkler's and Tamayo's ("Defendants") motion to dismiss the Complaint pursuant to Rule 7012 of the Federal Rules of Bankruptcy Procedure and Rule 12 of the Federal Rules of Civil Procedure.*fn2 The bankruptcy court set forth its reasons for dismissing the Complaint orally on the record.*fn3 The bankruptcy court found that the Plan did not require the Board to undertake the Suitability Review or to stay or dismiss the Disciplinary Proceedings. The bankruptcy court further found that Section 1142 of the Bankruptcy Code does not impose substantive obligations on third parties not contained in reorganization plans. Based on these findings, the bankruptcy court held that Rosemont could not use Section 1142 to enjoin the Disciplinary Proceedings or force the Board to resume the Suitability Review. As further support for its holding, the bankruptcy court explained that "the plan was premised on the fact that the gaming board was not obligated to undertake particular action by the plan." (R. 25-2; Defs.-Appellees App., Aug. 16, 2005 Tr. at 31:19-21.)

Regarding Rosemont's statutory due process claim, the bankruptcy court stated that Rosemont did not identify any particular procedural rights under the Bankruptcy Code that were violated. The only procedural right that the bankruptcy court found would be applicable was the automatic stay set forth in 11 U.S.C. §362(a). The bankruptcy court, however, previously held (and was affirmed on appeal) that the exception to the automatic stay that allows a state agency to enforce its police and regulatory powers applies and allows the Board to resume the Disciplinary Proceedings.*fn4 For these reasons, the bankruptcy court dismissed the Complaint. Rosemont now appeals that dismissal.

CURRENT APPEALS

Rosemont presents the following issues for appeal:

(1) Whether the bankruptcy court erred in dismissing Rosemont's claim for specific performance of the Plan pursuant to 11 U.S.C. §§ 1141, 1142(b) and 105(a);

(2) Whether the bankruptcy court erred in dismissing Rosemont's motion for a preliminary injunction pursuant to 11 U.S.C. §§ 1142(b) and 105(a);

(3) Whether the bankruptcy court erred in finding that Rosemont stated no claim for a deprivation ...


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