The opinion of the court was delivered by: John F. Grady, United States District Judge
Before the court are defendants' motions to dismiss the third amended complaint. For the reasons explained below, the motions are granted.
Plaintiffs,*fn1 a group of investors in Emerald Casino, Inc. ("Emerald"), bring this action against directors and officers of Emerald and other persons alleged to have conspired with those directors and officers to participate in a fraudulent scheme in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). The complaint alleges the following facts, which are taken as true for purposes of the instant motions.
Early IGB Proceedings and the Issuance of Emerald's Casino License
Emerald, which is not a party to this action, is a closely-held, non-publicly-traded Illinois corporation which, since 2002, has been in Chapter 11 reorganization proceedings in this district. It was formed for the purpose of operating a riverboat casino in Illinois. At the times relevant to the complaint, defendant Donald F. Flynn was Emerald's majority shareholder and a director and officer. His son, Kevin F. Flynn, was Emerald's chairman and chief executive officer. Defendants Peer Pedersen, John P. McMahon, Joseph P. McQuaid, Kevin D. Larson, and Walter P. Hanley served in various director and/or officer roles. We will refer to the Flynns and the above-listed defendants collectively as the "director-officer defendants" where appropriate.
The Emerald story is a saga that began in the early 1990s. In 1990, the Illinois General Assembly enacted the Riverboat Gambling Act, which governs the licensing and operation of riverboat casinos in Illinois. The issuance of licenses for up to ten riverboat casinos was authorized. To administer and enforce the Riverboat Gambling Act, the General Assembly created the Illinois Gaming Board (the "IGB"). In July 1992, the IGB issued one of the ten licenses to a joint venture in which Emerald's previous incarnation owned a 50 percent stake.*fn2 The license was for gaming operations in Jo Daviess County, Illinois, and was valid for a period of three years, subject to renewal on an annual basis thereafter. Renewals were approved in 1995 and 1996.
Business operations in Jo Daviess County faltered and in 1995, Emerald began efforts to relocate its operations to a more favorable site in Rosemont, Illinois. In April 1997, Emerald applied for a third renewal of its license, but in June 1997, the IGB denied the application, and Emerald ceased gaming operations the following month. Emerald sought administrative review of the IGB's ruling, and in May 1999, the administrative law judge assigned to the matter recommended that the IGB take final action to revoke Emerald's license.
Amendment of the Riverboat Gambling Act
In the meantime, however, Emerald, with the assistance of Rosemont's mayor, Donald E. Stephens, had succeeded in lobbying the Illinois General Assembly to introduce a bill that would amend the Riverboat Gambling Act to allow a "licensee that was not conducting riverboat gambling on January 1, 1998," a description that only Emerald fit, to "apply to the [IGB] for renewal and approval of relocation to a new . . . location." (Complaint ¶ 52 (citing 230 ILCS 10/11.2 (a)).) The bill also provided that the IGB "shall grant the application and approval" to relocate to a willing municipality or county to which Emerald wished to relocate. In May 1999, the Illinois legislature passed the bill, and the amendment became effective on June 25, 1999. After the measure was enacted, the IGB voted to moot all pending proceedings seeking the denial of Emerald's license-renewal application.
During the years of 1998 and 1999, individuals who were interested in Emerald and its profit-making possibilities were jockeying for position as potential investors. In late 1998, even before the legislation authorizing Emerald's relocation was introduced, "billionaire oil tycoon and entertainment mogul Marvin Davis" approached Emerald seeking to invest. (Complaint ¶ 53.) The Davis Companies reached an agreement with defendant Kevin Flynn to pay $12.5 million for a 37.5 percent interest in Emerald's operations. At the insistence of Kevin Flynn and the other director-officer defendants, the agreement specified that it was to be kept confidential. This was a violation of IGB regulations, which require disclosure of transfers of ownership interests as well as agreements with or involving "Key Persons" or relatives of Key Persons. The IGB did not become aware of the agreement with the Davis Companies until nearly a year after it was entered into, and then only because the Davis Companies filed suit to enforce the agreement. The complaint alleges that in December 1998, a similar "secret deal" was reached with representatives of Richard Duchossois, a local racetrack owner, whereby the Duchossois interests were promised an opportunity to purchase 20 percent of Emerald's shares. At the same time these agreements were being reached, the director-officer defendants also agreed to reserve a 5 percent ownership interest in Emerald for "local investors." In a sworn statement to the IGB in September 2000, Rosemont Mayor Stephens testified that the 5 percent "was for [him]." (Id. ¶ 60.)
After the amendment to the Riverboat Gambling Act took effect in June 1999, more investment activity took place. The amendment, in addition to permitting Emerald to relocate its casino to Rosemont, also imposed a requirement that Emerald "attain a level of at least 20% minority and female ownership." (Complaint ¶ 82 (quoting 230 ILCS 10/11.2 (b)).) To satisfy that requirement, in late summer 1999, Emerald executed "subscription agreements" for ownership interests in Emerald with each of the plaintiffs in this case (who are listed supra n.1), who qualify as statutory "minority person" and/or "female" investors. The director-officer defendants raised more than $32 million in capital through their subscription sales to minority and female investors.
Around the same time, between September 1, 1999 and September 17, 1999, defendant Donald Flynn executed agreements to transfer almost 5 percent of Emerald's shares to twelve outside investors. Plaintiffs imply that this 5 percent represented the 5 percent previously reserved for Mayor Stephens because nine of the twelve investors (five of whom are defendants in this action) "had ties" to Mayor Stephens. (Complaint ¶ 61.) It is alleged that when the IGB sent a letter to Emerald's general counsel on October 19, 1999, asking Emerald to provide, among other things, a comprehensive statement of changes to its capitalization, Emerald responded "evasively" and failed to identify any of the twelve investors who had bought shares from Donald Flynn. (Id. ¶ 62.) Among the twelve investors were defendants Vito Salamone, Joseph Salamone, Rocco Suspenzi, Jeffrey Suspenzi, and the Suspenzi Family Corporation.
The sale to the Salamones was initially in the name of Vito Salamone; Emerald later revised its shareholder list to record Joseph Salamone as the investor. Plaintiffs allege that Vito Salamone "has been identified by the FBI as being close with members and associates of organized crime." (Id. ¶ 64.) Pursuant to a memorandum agreement executed in September 1999 and withheld from the IGB and plaintiffs but obtained by the FBI, the shares transferred to the ...