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CP St. Louis Casino, LLC v. Casino Queen

March 11, 2009

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 Motion for Summary Judgment (Doc. 40). Plaintiffs have responded and Defendant has replied. For the following reasons, the Court GRANTS the Motion.

BACKGROUND

I. 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 for an aggregate purchase price of $200 million. 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 prior to the closing.

A provision of the Agreement required that Casino Queen certify that, to its knowledge, except as disclosed in a concurrently executed Company Disclosure Letter, 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, except as disclosed in the Company Disclosure Letter, 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. In another provision of the Agreement, Casino Queen represented to St. Louis Casino that, except as disclosed in the Company Disclosure Letter, to its knowledge "there are no facts which, if known to the regulators under the Gaming Laws will or would be reasonably likely to result in the revocation, limitation or suspension of any material license, finding of suitability, registration, permit or approval related to the Company or the Property under the Gaming Laws." 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 via the Company Disclosure Letter, that Gerard Kenny, a minority shareholder 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 (IGB) because it was undertaken without prior IGB approval as required by law. The IGB could potentially have taken action against Casino Queen as well as against Kenny for the unapproved stock pledge. Furthermore, Casino Queen did not disclose that Gerard Kenny was being investigated by the Board for alleged ties to organized crime in the development of another, unrelated, casino. Casino Queen voluntarily contacted the IGB on or about October 2, 2005, in response to an article appearing in the Chicago Tribune that alleged that Gerard Kenny was associating with known members of organized crime. Casino Queen told the IGB that Kenny was a minority shareholder who was not a key person with the casino and who held no active policy or management role in the casino. In response to an IGB request, Casino Queen provided the IGB with Kenny's contact information. The IGB did not formally notify Casino Queen that it was investigating either Kenny's stock pledge or his alleged mob ties, nor did it inform Casino Queen as to the status of its investigations. On January 8, 2007, Casino Queen was notified that the IGB had concluded investigations into Kenny and would release its conclusions at an open meeting the next day. On January 9, 2007, the IGB ordered Gerard Kenny to economically dissociate himself from Casino Queen.

In the meantime, and completely unrelated to the Kenny investigations, St. Louis Casino found its application to obtain a gaming licence from the Board delayed. An outside date of December 31, 2006 was set for closing on the acquisition. However, St. Louis Casino believed it would not receive 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 agreed to place in excess of five million dollars (the early disbursement proceeds) in an escrow account to be held there until the later of the closing date under the Agreement or the termination of the Agreement. In the event that the entities consummated the deal, the early disbursement proceeds would be applied toward the purchase price. In the event the deal could not be consummated "due to a breach by [Casino Queen] of its representations, warrantees, covenants, or obligations and [St. Louis Casino's] election to terminate pursuant to Section 9.1(c) of the Merger Agreement," Casino Queen agreed to return the early disbursement proceeds to St. Louis Casino within two business days. If neither of those events occurred, the funds would be released to Casino Queen.

St. Louis Casino did not attempt to terminate the Agreement, and the deal did not close. Instead, on or about February 26, 2007, 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 early disbursement proceeds, despite St. Louis Casino's demand that it return the money.

II. Procedural Posture

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). St. Louis Casino voluntarily dismissed Count III.

Casino Queen contends that it is entitled to summary judgment on Count I because (1) Casino Queen made all disclosures required under the Agreement and therefore, was not in breach of it, (2) St. Louis Casino did not fulfill its obligations under the contract, and (3) St. Louis Casino suffered no damages as a result of any breach by Casino Queen.

Casino Queen argues that it is entitled to summary judgment on Count II because (1) it did not fraudulently conceal any material fact from St. Louis Casino, (2) it had no duty to disclose any information not specifically addressed in the Agreement, (3) St. Louis Casino was not justified in relying on Casino Queen's silence as to the doings of Gerard Kenny, and (4) St. Louis Casino did not suffer any damages as a result of Casino Queen's non-disclosures.

Casino Queen contends it is entitled to summary judgment on Count IV because (1) St. Louis Casino was not justified in relying on Casino Queen's silence as to the doings of Gerard Kenny and ...


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