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National Jockey Club v. Ganassi

September 14, 2010

NATIONAL JOCKEY CLUB, PLAINTIFF,
v.
FLOYD "CHIP" GANASSI AND CHIP GANASSI GROUP, LLC, DEFENDANTS.



The opinion of the court was delivered by: Blanche M. Manning United States District Judge

MEMORANDUM AND ORDER

This case flows from the transformation of Sportsman's Park, a horse racing venue in Cicero, Illinois, owned by plaintiff National Jockey Club ("NJC"), into the Chicago Motor Speedway ("CMS"), an ultimately unsuccessful facility for horse and auto racing. To effect this transformation, NJC and defendant Chip Ganassi Group, LLC ("Ganassi Group") formed CMS, an Illinois limited liability company. Construction was financed through a construction loan and capital contributions by NJC and Ganassi Group. In addition, defendant Floyd "Chip" Ganassi, who is involved in professional motor racing as both a driver and operator of motor racing teams in the United States, personally guaranteed CMS's obligations under the lease up to $22.5 million, although that amount was subsequently reduced to $10.5 million.

The court found that certain issues were equitable and thus had to be decided by the court. It then held a jury trial, and the jury awarded damages to NJC on its breach of contract claim against Mr. Ganassi based on the guaranty and to Ganassi Group based on its breach of contract counterclaim based on a contract between NJC and Ganassi Group regarding operation of CMS. Three post-trial motions are before the court: (1) NJC's renewed motion for judgment as a matter of law as to defendants' counterclaims or, in the alternative, for a new trial; (2) Mr. Ganassi's renewed motion for a new trial; and (3) Mr. Ganassi's motion for judgment as a matter of law. In addition, Mr. Ganassi's claim for recission or, alternatively, a set-off are before the court as these issues were reserved for a bench trial. For the following reasons, the parties' post trial motions are denied and the court finds that Mr. Ganassi is not entitled to rescission or a set-off.

I. Background

The court begins with a brief summary of the facts presented at trial, the jury's verdict, and the equitable issues remaining for the court's determination.

A. The Parties

In 1928, Al Capone opened Sportman's Park in Cicero, Illinois, as a dog racing venue. By the time of the events at issue in this lawsuit, NJC (an Illinois corporation with its principal place of business in Illinois) owned and operated Sportsman's Park and featured pari-mutuel horseracing there.*fn1 Defendant/counterplaintiff Floyd "Chip" Ganassi is a former racecar driver who currently operates professional motor racing teams and is a citizen of Pennsylvania. Ganassi Group LLC ("Ganassi Group") is a limited liability company whose members consist of Mr. Ganassi and Chip Ganassi Racing Teams, Inc. ("Teams"), a Michigan corporation with its principal place of business in Michigan.

B. Chicago Motor Speedway

1. The Operating Agreement

In 1997, representatives of NJC met with Mr. Ganassi and his representatives to discuss the idea of converting Sportsman's Park into a facility for both horse and auto racing. Mr. Ganassi decided to form Ganassi Group, and then NJC and Ganassi Group agreed to form a limited liability company known as Chicago Motor Speedway, LLC ("CMS"). On March 10, 1999, NJC and Ganassi Group thus executed the "Chicago Motor Speedway Limited Liability Company Operating Agreement" (the "Operating Agreement"). CMS was a manager-managed Illinois limited liability company. Under the Operating Agreement, Ganassi Group and NJC served as members of CMS, and four managers were appointed to act as managers of CMS.

2. The Lease and Personal Guaranty

On July 8, 1998, NJC, in its capacity as landlord of the Sportsman's Park facility, entered into a lease under which CMS was the tenant and leased the real property and racing facilities at Sportsman's Park for the purpose of conducting motor sports events (the "Lease"). Mr. Ganassi's personal guaranty was part of the Lease and provided, in pertinent part, that:

For value received, and as consideration and inducement for National Jockey Club to enter into the above and foregoing Lease with the Chicago Motor Speedway, LLC of which this personal guaranty is a part, the undersigned, Mr. Chip Ganassi of Pittsburgh, Pennsylvania, does hereby personally guaranty repayment of fifty percent (50%) of funds borrowed to make Landlord Improvements as set forth in Section 8(a) of the above and foregoing lease but limited to a maximum personal guaranty of $22,500,000.00; provided however, that National Jockey Club and Chicago Motor Speedway L.L.C. agree to use their best reasonable efforts to remove and vacate the requirement of the personal guaranty of Chip Ganassi as soon as acceptable to the lender(s) of the aforesaid primary financing for Landlord Improvements for which Chip Ganassi provides his personal guaranty.

In addition to the foregoing, Chip Ganassi, National Jockey Club, and the Chicago Motor Speedway L.L.C. agree to use their best efforts to remove and vacate the requirement for any required mortgage of the Premises by National Jockey Club as soon as acceptable to the lender(s) of the aforesaid primary financing for Landlord Improvements for which National Jockey Club may be required to provide a mortgage on the Premises.

The agreement to use best efforts to remove and vacate the Personal Guaranty of Chip Ganassi and the required mortgage of National Jockey Club are separate, distinct, and independent obligations and considerations of the parties to this Lease Agreement, and the accomplishment of one is not contingent on the accomplishment of the other.

NJC's Ex. 28.

3. Financing Chicago Motor Speedway

NJC and Mr. Ganassi understood that converting Sportsman's Park into a horse/motor sports venue was a very expensive proposition. They anticipated that NJC, the owner of the Sportsman's Park facility, would need to mortgage the Sportsman's Park property and improvements as security for financing and that Mr. Ganassi would need to personally guarantee the loans necessary to secure the funds needed to transform the property. They also contemplated that Teams would pledge its 720,000 shares of Championship Auto Racing Teams, Inc. ("CART") as additional security.

On November 18, 1998, NJC executed a Construction Loan Agreement ("CLA") with Harris Bank, N.A., and a syndicate of other banks (the "Bank Group") to partially finance construction of CMS. As security for the loan, NJC granted the Bank Group a mortgage and security interest in the Sportsman's Park property and improvements, including the new facilities to be built with the loan proceeds. In addition, Teams pledged 720,000 shares of CART stock by executing a Pledge Agreement. The next day, the Lease and Mr. Ganassi's personal guaranty were assigned to the Bank Group.

4. The Eighth Amendment

Beginning in 2000, Teams sought to obtain the Bank Group's consent to release the Bank Group's security interest in the CART stock. On July 11, 2001, NJC, each of the banks in the Bank Group, and Mr. Ganassi (individually and on behalf of Teams) executed a document entitled "Eighth Amendment, Waiver and Consent to Construction Loan Agreement" (the "Eighth Amendment"). The Eighth Amendment provided in relevant part that:

Racing Teams has heretofore executed and delivered to the Agent its Pledge and Security Agreement (the "Pledge Agreement") dated as of November 19, 1998 and the Guarantor has executed a personal guaranty of the Lease and each hereby consents to the Eighth Amendment, Waiver and Consent to the Construction Loan Agreement as set forth above. The Guarantor confirms that his guaranty of the Lease and all of its obligations thereunder remain in full force and effect to the extent of $10,500,000. Each of the undersigned further agrees that the consent of the undersigned to any further amendments to the Agreement shall not be required as a result of this consent having been obtained.

NJC Ex. 102.

Pursuant to the Eighth Amendment, the Bank Group released their security interest in the CART stock in exchange for a payment of $12,000,000 on the outstanding loan balance. In addition, as part of this transaction, Mr. Ganassi's $22,500,000 guaranty was reduced to $10,500,00. See id.

5. The Demise of CMS

Unfortunately for all involved, the CMS project was not a success. Thus, in February of 2002, NJC and Ganassi Group agreed to cease operations at the facility and CMS defaulted on the CLA. Harris Bank, acting for the Bank Group, declared the loan in default. From February of 2002 until August of 2002, Patricia Bidwell (the newly named Chairman of the Board at NJC) worked with the Bank Group to renegotiate the CLA. These efforts were not fruitful, and NJC was eventually forced to sell the Sportsman's Park facility and improvements to the Town of Cicero to pay down the CLA.

On October 16, 2002, NJC sent CMS and Mr. Ganassi a letter stating that NJC considered CMS to be in default under the Lease and thus was terminating the Lease. Both NJC and Mr. Ganassi each blamed the other for failing to meet CMS's financial obligations. In 2006, while this case was pending, the Bank Group sold the note associated with NJC's loan to DII Northwest, which called it. Since NJC could not cover the amounts it owed, it filed for protection under Chapter 11 of the United States Bankruptcy Code. In the bankruptcy case, the parties reached a settlement regarding the distribution and allocation of any proceeds recovered by NJC in this case.

C. The Trial

At trial, NJC litigated its single claim against Mr. Ganassi, contending that he failed to meet his obligations under the guaranty after CMS went into default. The jury returned a verdict in favor of NJC and against Mr. Ganassi in the amount of $8,850,000.00.

With respect to the defendants' claims, by the time trial commenced, Ganassi Group's single counterclaim against NJC was for breach of § 6.1 of the CMS Operating Agreement, which provided that:

6.1 Authority: Liability to Third Parties; Member Independence. No Member has the authority or power to act for or on behalf of the Company to do any act that would be binding on the Company, or to incur any expenditures on behalf of the Company. No Member shall be liable for the debts, obligations or liabilities of the Company, including under a judgment decree or order of a court. Except as otherwise specifically provided herein, neither the Company nor any Member shall have any rights in or to any ventures pursued by any other member or the income or profits therefrom, whether taking place at Sportman's Park, Cicero, Illinois[,] or elsewhere.

NJC Ex. 29, § 6.1. The jury returned a verdict in favor of Ganassi Group and against NJC on this claim in the amount of $4,000,000.00.

Following the rendering of the verdicts, the court took Mr. Ganassi's recission claim and Mr. Ganassi's set-off affirmative defense under advisement and asked the parties to brief these issues with their post-trial motions.*fn2 NJC then renewed its motion for judgment as a matter of law as to defendants' multi-count counterclaim or, in the alternative, for a new trial. In turn, Mr. Ganassi renewed his motions for a new trial and for judgment as a matter of law. He also filed a memorandum in support of his counterclaim seeking rescission or, alternatively, an order authorizing set-off of the jury verdict in favor of Ganassi Group on its counterclaim against the jury verdict in favor of NJC and against him personally.

For the following reasons, the court finds that Mr. Ganassi is not entitled to rescind the guaranty or to receive a set-off. It also denies all of the remaining post-trial motions except NJC's motion for judgment as a matter of law as to Counts II and IX of Ganassi Group's counterclaims, which is granted.

II. NJC's Motion for Judgment as a Matter of Law as to Defendants' Counterclaims Or, Alternatively, for a New Trial

When considering a motion for judgment as a matter of law, the court must consider "whether the evidence presented, combined with all reasonable inferences permissibly drawn therefrom, is sufficient to support the verdict when viewed in the light most favorable to the party against whom the motion is directed." Wallace v. McGlothan, 606 F.3d 410, 418 (7th Cir. 2010).

At trial, the Ganassi Group proceeded with Counts II and IX of its counterclaims (breach of the duty of good faith and fair dealing based on the Lease and Operating Agreement and breach of the Lease and Operating Agreement, respectively). Alternatively, the Ganassi Group sought rescission of the Lease and Operating Agreement pursuant to Count X of its counterclaims. See Dkt. 335-1 (Ganassi Group's election of remedies, attached to NJC's renewed motion for judgment as a matter of law).

NJC's motion for judgment as a matter of law as to defendants' counterclaims or, alternatively, for a new trial seeks judgment as a matter of law as to Counts II and IX based on four theories: (1) Ganassi Group lacks standing to pursue claims because it cannot pursue claims on behalf of CMS; (2) Ganassi Group did not suffer damages as a result of the alleged breach of the Operating Agreement and cannot recover based on damages CMS suffered; (3) Ganassi Group is neither a party to the Lease nor a third-party beneficiary of the Lease and thus cannot pursue claims based on an alleged breach of the Lease; and (4) the Ganassi Group cannot seek to rescind the Lease and Operating Agreement because the parties cannot be returned to the status quo existing prior to the execution of these documents. Alternatively, NJC requests that if its motion for judgment as a matter of law is granted as to the rescission counterclaim (Count X), it is entitled to a new trial and in support, directs the court's attention to §§ (A) and (B) of its original motion for judgment as a matter of law, Dkt. 316.

A. Ganassi Group's Standing to Pursue Claims on Behalf of CMS and to Seek Damages Under the Operating Agreement

The court will address NJC's first arguments together. As noted above, NJC and Ganassi Group formed CMS and were parties to the Operating Agreement. According to NJC, the testimony at trial showed that CMS, not Ganassi Group, incurred injuries as a result of the demise of the CMS project because the injuries claimed by Ganassi Group flow from NJC's allegedly improper allocation of expenses and, specifically, NJC's charging of certain of its expenses to CMS instead of itself. NJC thus concludes that because CMS was the injured party, and Ganassi Group did not sue derivatively on behalf of CMS, Ganassi Group lacks standing to pursue claims that properly belong to CMS. Approaching this argument from a slightly different angle, NJC contends that the evidence shows that CMS -- not Ganassi Group -- suffered damages as a result of the alleged breach of the Operating Agreement. Hence, NJC concludes that Ganassi Group cannot recover damages.

In response, Ganassi Group points to the Illinois Limited Liability Company Act, which provides in pertinent part that:

Actions by Members

(a) A member may maintain an action against a limited liability company or another member for legal or equitable relief, with or without an accounting as to the ...


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