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CP St. Louis Casino, LLC v. Casino Queen

October 23, 2007

CP ST. LOUIS CASINO, LLC AND CP ST. LOUIS CASINO ACQUISITION, LLC, PLAINTIFFS,
v.
CASINO QUEEN, INC., DEFENDANT.



The opinion of the court was delivered by: J. Phil Gilbert District Judge

MEMORANDUM AND ORDER

This matter comes before the Court on Defendant Casino Queen, Inc.'s Partial Motion to Dismiss (Doc. 12) to which Plaintiffs CP St. Louis Casino, LLC and CP St. Louis Casino Acquisition, LLC have responded (Doc. 16), and Casino Queen, Inc. Has replied (Doc. 17). For the following reasons the Court GRANTS IN PART and DENIES IN PART Defendant's Motion.

BACKGROUND

For purposes of this motion, accepting all of Plaintiffs's allegations as true and drawing all reasonable inferences it its favor, the Court finds the following facts.

In late 2005, Plaintiffs, CP St. Louis Casino, LLC and CP St. Louis Casino Acquisition, LLC,*fn1 began negotiations with Defendant, Casino Queen, to obtain ownership and control of the Casino Queen. In April 2006, the parties entered into a Merger Agreement (the Agreement) which established the terms and conditions of the transfer. Any such transfer would require the consent of certain governmental agencies, and St. Louis Casino would have to obtain a gaming licence.

A provision of the Agreement required that Casino Queen certify that no event had occurred which might place its gaming permits and licences in peril. Another provision of the Agreement required Casino Queen to certify that it was not conducting its business in violation of gaming laws and regulations and that, to its knowledge, "its directors, officers, key employees and persons performing management functions similar to officers and partners" were complying with gaming laws and regulations. Further, Casino Queen promised to promptly notify St. Louis Casino should any of its representations later be rendered untrue. Both parties also agreed to promptly notify the other in the event that either reasonably believed that governmental approval or licencing would be denied or materially delayed.

As per a clause in the Agreement regarding the transferability of stock, Casino Queen notified St. Louis Casino that Gerard Kenny, a stockholder and/or director of Casino Queen, had pledged his shares to certain other stockholders and/or directors. Casino Queen disclosed that "the validity of the pledge is an issue currently in litigation." What Casino Queen did not disclose, however, was that the stock pledge was being investigated by the Illinois Gaming Board (the Board). Furthermore, Casino Queen did not disclose that Gerard Kenny was also being investigated by the Board for alleged ties to organized crime. In January 2007, the Board ordered Gerard Kenny to economically dissociate himself from Casino Queen. In the meantime, St. Louis Casino found their application to obtain a gaming licence from the Board delayed, perhaps because of the investigations into Gerard Kenny's activities.

An outside date of December 31, 2006 was set for closing on the acquisition. However, St. Louis Casino would not have received the necessary governmental approval and licencing to consummate the deal by that date. Therefore, as per a clause in the Agreement, the parties agreed to extend the date for closing to February 28, 2007. In exchange for Casino Queen's agreement to push back the closing date, St. Louis Casino deposited a security deposit of slightly over five million dollars into an escrow account. On or about February 26, St. Louis Casino, still waiting to obtain a gaming licence, asked for a further extension of the closing date. Casino Queen refused, and terminated the Agreement. Casino Queen kept the five million dollars in the escrow account, despite St. Louis Casino's demand that it return the money.

St. Louis Casino brought this action alleging breach of contract (Count I), fraud (Count II), violation of the Illinois Consumer Fraud and Deceptive Practices Act (Consumer Fraud Act) (Count III), violation of section 10(b) of the Securities and Exchange Act (SEA) and implementing rule 10b-5 (Count IV), and unjust enrichment (Count V). Casino Queen moved to dismiss Counts II, III, IV.

ANALYSIS

When reviewing a Rule 12(b)(6) motion to dismiss, the Court accepts all allegations as true and draws all reasonable inferences in favor of the plaintiff. Brown v. Budz, 398 F.3d 904, 908 (7th Cir. 2005); Holman v. Indiana, 211 F.3d 399, 402 (7th Cir. 2000). The Court should not grant a motion to dismiss unless it appears beyond doubt that the plaintiff cannot prove his claim under any set of facts consistent with the complaint. Brown, 398 F.3d at 908-09; Holman, 211 F.3d at 405. "[I]f it is possible to hypothesize a set of facts, consistent with the complaint, that would entitle the plaintiff to relief, dismissal under Rule 12(b)(6) is inappropriate." Brown, 398 F.3d at 909 (internal quotations omitted); see Kolupa v. Roselle Park Dist., 438 F.3d 713, 715 (7th Cir. 2006).

I. Count II - Fraud

Generally, courts will not grant a motion to dismiss merely because the complaint is vague or lacking in detail so long as it pleads "the bare minimum facts necessary to put the defendant on notice of the claim so that he can file an answer." Higgs v. Carver, 286 F.3d 437, 439 (7th Cir. 2002); see Kolupa, 438 F.3d at 714-15; Brown, 398 F.3d at 908. There is an exception to this general rule, however, regarding allegations of fraud. "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally." Fed. R. Civ. Pro. 9(b). The "circumstances constituting fraud" must include the "who, what, when, where and how: the first paragraph of any newspaper story." DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990).

St. Louis Casino has stated the circumstances of the alleged fraud with sufficient particularity. The complaint alleges that, during the period of time covered by the Agreement, Casino Queen falsely certified that it had no knowledge of any events or actions by its directors which might put its gaming licence and permits in peril, and that it had no reason to believe that governmental approval of the transaction might be materially delayed. St. Louis Casino alleges that the Board's investigations into Gerard Kenny were known to Casino Queen and that Casino Queen knew that the investigations could reasonably be expected to delay the ability of St. Louis Casino to obtain the necessary licenses and governmental approval of the transaction. St. Louis Casino alleges that by making such false certifications, Casino Queen induced them to believe that the transaction could proceed ...


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