Opinion
SUCV2016-03481-BLS1
05-14-2018
FBT EVERETT REALTY, LLC v. MASSACHUSETTS GAMING COMMISSION
MEMORANDUM OF DECISION AND ORDER ON DEFENDANT’S MOTION TO DISMISS FBT EVERETT REALTY, LLC’S AMENDED COMPLAINT PURSUANT TO MASS. R. CIV. P. 12(b)(1) AND 12(b)(6)
Mitchell H. Kaplan, Justice of the Superior Court
The plaintiff, FBT Everett Realty, LLC (FBT), owned a parcel of land in Everett, Massachusetts (the Everett Parcel). It entered into an Option Agreement dated December 19, 2012 (Option Agreement) with Wynn MA, LLC (Wynn), an affiliate of Wynn Resorts, for the purchase of the Everett Parcel. The Option Agreement recited that Wynn "desires to develop a hotel gaming resort on the Everett Parcel." If Wynn exercised its option, its obligation to close the transaction was still subject to its having obtained a license to operate a casino on the property from the defendant, Massachusetts Gaming Commission (the Commission). In this action, FBT contends that it suffered monetary damages of at least $40 million as a result of wrongful actions by the Commission. FBT claims that the Commission exerted unlawful pressure on Wynn by telling Wynn that it could be awarded a license only if it renegotiated the Option Agreement to reduce that purchase price from $75 million to $35 million, thereby preventing FBT from receiving any so-called "casino-related premium" from the sale.
FBT’s Amended Complaint (Complaint) is pled in four counts: tortious interference with contract (Count I); a per se taking in violation of the Fifth and Fourteenth Amendments to the U.S. Constitution, art. 10 of the Massachusetts Declaration of Rights, and G.L. c. 79, § 10 (Count II); a regulatory taking in violation of the Fifth and Fourteenth Amendments to the U.S. Constitution, art. 10 of the Massachusetts Declaration of Rights, and G.L. c. 79, § 10 (Count III); and impairment of contract right in violation of the Contract Clause, Article I, § 10, Clause 1 of the U.S. Constitution (Count IV). In a previous decision, the court dismissed the tortious interference with contract claim because it was barred by the Massachusetts Tort Claims Act. See FBT Everett Realty, LLC v. Massachusetts Gaming Comm’n, 34 Mass.L.Rptr. 340 (Mass. Super. Ct. June 8, 2017) (Kaplan, J.). In a subsequent decision, the court held that the taking claims were timely filed within the applicable three-year statute of limitations. See FBT Everett Realty, LLC v. Massachusetts Gaming Comm’n, 2017 WL 7053907 (Mass. Super. Ct. Nov. 7, 2017) (Leibensperger, J.).
The case is now before the court on the Commission’s motion to dismiss Counts II, III, and IV of the Complaint pursuant to Mass.R.Civ.P. 12(b)(6) for failure to state a claim on which relief may be granted. On March 23, 2018, the court convened a hearing on the motion. In consideration of the parties’ memoranda of law and oral arguments, for the reasons that follow, the Commission’s motion to dismiss is ALLOWED in part and DENIED in part.
BACKGROUND
The following facts are drawn from the allegations in the Complaint (assumed to be true for the purposes of this motion), the Gaming Act, the regulations promulgated pursuant thereto, the Option Agreement, and certain public records submitted by the Commission with its motion.
The Gaming Act and its Regulations
In November, 2011, the Legislature enacted the Gaming Act, which is codified at G.L. c. 23K. The Gaming Act permits casino gambling in the Commonwealth and establishes a system for regulating it. The Act establishes the Commission as the agency to implement casino gambling pursuant to the Act’s terms and regulate it. G.L. c. 23K, §§ 3(a) and 5. Among other things, the Act empowers the Commission to award a license to operate a casino with gaming tables and slot machines (the Category 1 Licenses) in each of three regions of the Commonwealth (Regions A, B, and C). Id. at § 19.
The Gaming Act and the regulations promulgated by the Commission to implement it establish a two-phase application process for Category 1 Licenses. Id. at § 12; 205 Code Mass. Regs. § 110.01. The first phase is known as the "Request for Application Phase 1" (RFA-1). 205 Code Mass. Regs. § 110.01(1). In this phase, an applicant submits a Phase I application to the Commission in which the applicant is required to make a number of disclosures about itself and its personnel that pertain to an applicant’s "suitability." Id. at § 111.00 et seq. The Investigations and Enforcement Bureau (IEB), a law enforcement agency established within the Commission, then conducts an investigation of the applicant and submits a written report to the Commission containing findings and recommendations concerning the suitability of the applicant for a gaming license. G.L. c. 23K, § 12(a); 205 Code Mass. Regs. § 115.03. After the IEB submits its report, the Commission holds either a public hearing or an adjudicatory proceeding, and then issues a written determination of "negative" or "positive" suitability. 205 Code Mass. Regs. § 115.04-05. Only applicants that have received a "positive suitability determination" may proceed to the second phase of the application process, known as the "Request for Applications Phase 2" (RFA-2). Id. at § 110.01(2). In RFA-2, the applicant submits an application that focuses on the site, design, operation and other attributes of the gaming establishment, including the mitigation of adverse impacts. In this second phase of the application process, the Commission considers the merits of the proposal.
Wynn’s Agreement with FBT
According to a deed on file at in the Middlesex South District Registry of Deeds, FBT purchased the Everett Parcel on October 15, 2009 for $8 million. It was the site of a former Monsanto Chemical plant and contaminated by past operations. After the Gaming Act passed, Wynn decided to apply for a license to build the Region A resort casino on the Everett Parcel. To that end, in December, 2012, FBT and Wynn entered into the Option Agreement (attached to the Complaint as Exhibit A) pursuant to which Wynn agreed to pay FBT $100,000 per month for the right to purchase the Everett Parcel for $75 million, in the event Wynn was awarded a Category 1 license for Region A. At the time the Option Agreement was executed, FBT’s members were Paul Lohnes, Anthony Gattineri, and Dustin DeNunzio.
In January, 2013, Wynn filed its RFA-1 application, and the IEB began its suitability investigation. During the investigation, the IEB learned of a series of phone calls between Charles Lightbody and Darin Bufalino, then an inmate in state prison, that were recorded by state and federal law enforcement personnel who were monitoring Bufalino’s conversations. The IEB believed that Lightbody was a person who should not be involved in gaming because this would discredit the licensing process. According to the IEB, during these recorded conversations, Lightbody made statements suggesting that he retained some manner of ownership interest in FBT and would therefore benefit from the sale of the Everett Parcel. The recordings prompted the IEB to initiate an investigation into the transaction between Wynn and FBT. The Wynn application only referenced FBT as the owner of the Everett Parcel on which it held an option to purchase, not as a party that would have any ongoing role in the proposed casino. Before these jail house conversations surfaced, no one associated with FBT had been the focus of the application or, apparently, IEB’s investigation of it.
As part of the investigation, the IEB interviewed Lightbody, Lohnes, Gattineri, and DeNunzio. The IEB also sought to interview Gary DeCicco, another former member of FBT, but he refused to speak with the IEB. During the interviews, Lohnes, Gattineri, and DeNunzio each maintained that Lightbody no longer had any ownership interest in FBT. The IEB, however, did not believe them. It concluded, mistakenly, that Lohnes, Gattineri, and DeNunzio were attempting to conceal Lightbody’s ownership interest in FBT.
The IEB told Wynn about its conclusions and warned that the perceived untruthfulness of the FBT members regarding Lightbody’s relationship to FBT created a significant risk that the IEB would find Wynn unsuitable to receive a casino license. As a means of solving this potential problem, the IEB recommended that Wynn force FBT to accept a dramatically reduced price for the Everett Parcel, one that would remove any so-called "casino-related premium" from the purchase price.
FBT alleges that: "The IEB did not actually want to recommend to the Gaming Commission’s commissioners that Wynn Resorts be found unsuitable. Rather, the IEB’s intention was to use the threat of an unsuitable finding to induce Wynn Resorts to demand and FBT to accept a dramatic price reduction for the Everett Parcel." Complaint at para. 37. Moreover, in internal IEB documents, Karen Wells (IEB’s Director) referred to the potential $40 million price reduction of the Everett Parcel as a "fine." Complaint at para. 38 & Exhibit C to Complaint.
In response to the IEB’s recommendation, Wynn obtained an appraisal of the Everett Parcel that assumed the land was free of environmental contamination, but could not be used for a casino resort. The appraisal valued the parcel at $35 million. Wynn then informed FBT that the purchase price must be reduced to $35 million because otherwise, the Commission would not grant Wynn a license. Wynn also told FBT that if FBT did not agree to the price reduction, it would sue FBT for having impeded its ability to obtain a casino license.
FBT acquiesced and executed a Ninth Amendment to Option Agreement dated November 26, 2013 (attached to the Complaint as Exhibit D) which, among other things, reduced the purchase price to $35 million. In the amendment, Lohnes, DeNunzio, and Gattineri represented that they were the sole owners of FBT and would be the only beneficiaries of the proceeds from the sale of the Everett Parcel.
On January 2, 2015, FBT and Wynn closed on the sale of the Everett Parcel for $34 million in accordance with the Ninth Amendment to the Option Agreement. The closing of the sale is not alleged in the Complaint, but the deed recorded in the Middlesex Country Registry is attached to the Commission’s memorandum as Exhibit C. See Reliance Ins. Co. v. Boston, 71 Mass.App.Ct. 550, 555 (2008) (noting that "while the allegations of the complaint generally control in evaluating a motion under rule 12(b)(6), ‘matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint, also may be taken into account’ ") (citations omitted). In addition, the Commission has attached a copy of the recorded deed into FBT which states that FBT purchased the Everett Parcel for $8 million in October, 2009.
It is not entirely clear to this court why the sale closed for $34 million and not $35 million. The Complaint, however, repeatedly refers to a sale price of $35 million.
Counts II, III, and IV of the Complaint
In Count II of the Complaint, FBT asserts a claim against the Commission for a per se taking, and alleges that:
8. FBT and Wynn Resorts executed a binding contract in which Wynn Resorts agreed to pay FBT $75 million to purchase the Everett Parcel in order to construct a casino thereon.
9. This contract to sell the Everett Parcel for its highest and best use, i.e., a casino site, was a property interest that belonged to FBT.
10. The Gaming Commission destroyed this property interest by insisting that the contract be modified to exclude $40 million in value-more than half its value based on the highest and best use.
11. The Gaming Commission maintains that destruction of FBT’s property was for a public purpose-preserving the integrity of the gaming industry in Massachusetts.
12. The Gaming Commission concedes that it does not have eminent domain power. See Memorandum in Support of Defendant’s Motion to Dismiss at 12-13.
13. Accordingly, the Gaming Commission’s destruction of FBT’s contract right is a wrongful taking for which FBT is entitled to compensation.
In Count III, FBT asserts a claim for a regulatory taking, and claims that:
15. Alternatively, the Gaming Commission’s forced reduction of the contract price by $40 million constituted a regulatory taking under Penn Cent. Transp. Co. v. New York City, 438 U.S. 104 (1978), for which compensation is due.
16. The $40 million forced reduction in the contract price was severe, representing the entire value of FBT’s contract right to sell the parcel at fair market value for its highest and best use and more than half of the original contract’s value.
17. In fact, the Gaming Commission made clear that its actions were intended to deprive FBT of the "casino premium" element of the contract value. This taking of the contract right imposed a disproportionate burden on FBT in alleged furtherance of the Gaming Commission’s stated purpose of preserving the integrity of the licensing process and, instead, was punitive in nature.
18. As a result of this unauthorized and impermissible destruction of personal property, FBT is entitled to fair and adequate compensation.
In Count IV of the Complaint, FBT claims an impairment of its contract rights in violation of the Contract Clause of the U.S. Constitution. FBT asserts that:
20. In requiring the contract price for the sale of the Everett Parcel to be reformed to and capped at the "non-casino premium" price of $35 million, and prohibiting FBT from enforcing its contractual right to sell the land for the $75 million fair market value to which Wynn Resorts had agreed, the Gaming Commission violated the Contract Clause of the United State Constitution, which provides that "No State shall ... pass any ... Law impairing the Obligations of Contracts." U.S. Const. art. 1, § 10, cl. 1.
21. In forcing FBT to sell the Everett Parcel to Wynn Resorts for $40 million less than the fair market price that Wynn Resorts had contractually agreed to pay for the land, the Gaming Commission was exercising legislative authority delegated to it under the Gaming Act.
DISCUSSION
When evaluating the legal sufficiency of a complaint pursuant to Mass. R. Civ. P. 12(b)(6), the court accepts as true all factual allegations in the complaint and all reasonable inferences that may be drawn in the plaintiff’s favor. Berish v. Bornstein, 437 Mass. 252, 267 (2002). However, to survive a motion to dismiss, a complaint must set forth the basis of the plaintiff’s entitlement to relief with "more than labels and conclusions." Iannacchino v. Ford Motor Co., 451 Mass. 623, 635-636 (2008), quoting Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1964-1965 (2007). While factual allegations need not be detailed, they "must be enough to raise a right to relief above the speculative level ...." Id., quoting Bell Atlantic Corp., 127 S.Ct. at 1964-1965. At the pleading stage, a complaint must set forth "factual ‘allegations plausibly suggesting (not merely consistent with)’ an entitlement to relief ...." Id., quoting Bell Atlantic Corp., 127 S.Ct. at 1966.
Per Se Taking Claim (Count II)
The Commission moves to dismiss FBT’s per se taking claim alleged in Count II on the ground that it fails to state a claim upon which relief can be granted. The Commission argues that FBT has not alleged in its Complaint that the Commission’s actions caused FBT to suffer a permanent physical invasion of the Everett Parcel or that the Commission’s actions completely deprived FBT of all economically beneficial use of the Everett Parcel. FBT responds that the Commission erroneously treated FBT’s per se claim as one addressed to real estate when FBT contends that the Commission’s actions took FBT’s intangible contract right, namely its right to sell the Everett Parcel for "its highest and best use," i.e., a casino location.
"Article 10 of the Massachusetts Declaration of Rights and the Fifth and Fourteenth Amendments to the United States Constitution prohibit the taking of private property for public use without just or reasonable compensation." Fitchburg Gas & Elec. Light Co. v. Department of Pub. Utils., 467 Mass. 768, 775 (2014) (Fitchburg Gas). The United States Supreme Court has stated on a number of occasions that valid contracts are property and cannot be taken without just compensation. See, e.g., Lynch v. United States, 292 U.S. 571, 579 (1934) ("The Fifth Amendment commands that property be not taken without making just compensation. Valid contracts are property ....") and United States Trust Co. of N.Y. v. New Jersey, 431 U.S. 1, 19 n.16 (1977) ("Contract rights are a form of property and as such may be taken for a public purpose provided that just compensation is paid.")
Even recast as a per se taking of a contract right, FBT’s claim founders for several reasons. First, the Option Agreement is a contract, but not one that gave FBT the right to sell the Everett Parcel to Wynn for $75 million such that Commission’s actions could be said to have taken that contract for public use, making the government liable to FBT for its value. See Omnia Commercial Co. v. U.S. 261 U.S. 502, 510 (1923). Rather, it was a contract pursuant to which Wynn paid valuable consideration to FBT for the option to purchase the land. See Morgan v. Forbes, 236 Mass. 480, 483 (1920) (An option to purchase real estate is a unilateral contract by which the owner of the property agrees with the holder of the option that [it] ... has the right to buy the property according to the terms and conditions of the contract.") Nothing that the Commission did took for the public FBT’s contractual right to sell its property for $75 million, rather it interfered with an advantageous relationship that FBT had with Wynn that FBT hoped would mature into a purchase and sale agreement for the Everett Parcel when Wynn exercised its option to purchase the land. To the extent that the Commission may have acted to impair FBT’s ability to sell the Everett Parcel for the highest possible price by limiting the uses to which the land could be put, at best that gives rise to a regulatory taking. As the SJC explained in Fitchburg Gas, "[g]overnment regulatory actions may be deemed per se taking if a regulation causes a permanent physical invasion, see Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 426-428 (1982), or if the regulation deprives a property owner of any viable economic use of the property. See Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015-1016 (1992)." 467 Mass. at 776. Neither of these conditions is alleged to exist in this case.
Additionally, as the Federal Court of Claims pointed out in A & D Auto Sales, Inc. v. United States, 748 F.3d 1142, 1151 (Fed. Cir. 2014) (A & D Auto), the Supreme Court has principally applied the per se or categorical test to takings involving real property, and some Circuit Courts have applied it to tangible personal property, but no court has yet applied the per se or categorical test "to takings of intangible property such as contract rights." Thus, even if FBT had a contractual right to sell its property for $75 million, instead of only a option permitting Wynn to purchase for that price, consummating the sale for only $35 million would not establish a per se taking,
Regulatory Taking Claim (Count III)
The Commission similarly moves to dismiss FBT’s regulatory taking claim asserted in Count III, arguing that it also fails to state a claim upon which relief can be granted. Identifying when a regulation or governmental action "has gone ‘too far’ is a fact sensitive inquiry." Giovanella v. Conservation Comm’n of Ashland, 447 Mass. at 725. The court’s regulatory taking analysis consists of "ad hoc, factual inquiries" employing" ‘several interrelated’ and well-established factors." Fitchburg Gas & Elec. Light Co. v. Department of Pub. Utils., 467 Mass. at 783 (Fitchburg Gas). In order to determine whether there has been a compensable regulatory taking, this court must look to: "(1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with distinct investment-backed expectations; and (3) the character of the governmental action." Id. at 783-784 (citations and internal quotation marks omitted). See Penn Cent. Transp. Co. v. New York City, 438 U.S. 104, 123-128 (1978) (Penn Central). The court considers "each of these factors in relation to the property as a whole." Fitchburg Gas, 467 Mass. at 784. "These three factors have served as the principle guidelines for regulatory takings claims ... [and] are designed to measure the ‘severity of the burden that government imposes upon private property rights.’" Giovanella v. Conservation Comm’n of Ashland, 447 Mass. at 725 (citation omitted).
Before turning to this three factor analysis, it is necessary to decide what the property right is that has allegedly been taken by the Commission and whether the Commission’s actions can properly be classified as conduct that could constitute a regulatory taking. For the reasons previously explained, FBT did not have a contract based right to sell the Everett Parcel to Wynn for $75 million, therefore there can be no regulatory taking of that contract right. While, in its brief, FBT repeatedly characterizes the property right it contends was impaired as its contractual right to sell the Everett Parcel for its highest and best use. The right to sell a parcel of land for economic gain does not implicate a contract right, but rather a right inherent in the ownership of real property, i.e., the right to transfer ownership on advantageous terms. Under many circumstances, the government can place limitations on the use of property, and thereby affect its market value without effectuating a taking. See, e.g., Penn Central, 438 U.S. at 125 ("this Court has upheld land-use regulations that destroyed or adversely affected recognized real property interests ... Zoning laws are, of course, the classic example") and Bowles v. Willingham, 321 U.S. 503, 518 (1944) ("A member of the class which is regulated may suffer economic losses not shared by others. His property may lose utility and depreciate in value as a consequence of regulation. But that has never been a barrier to exercise of the police power."). Whether in this case the Commission action should be treated like a permissible zoning restriction that impacts sale price or a different manner of government action is best addressed as part of the Penn Central three part test.
Can the actions of the Commission alleged in the Complaint constitute government conduct that took FBT’s property? In A & D Auto, the Federal Circuit Court explained: "where the government’s action was direct and intended ... the government may be liable if ... the government’s influence over [a] third party [whose conduct caused economic loss to the plaintiff] was coercive rather than merely persuasive." 748 F.3d at 1154. FBT alleges that the Commission told Wynn that it must reduce the purchase price to be paid to FBT to eliminate the casino-related premium or the Commission would not find Wynn to be a suitable applicant. Wynn, in turn, told FBT that it would sue it, for placing it in a position where it might lose the opportunity for a gaming license, if it did not accept the price reduction. This adequately alleges coercive conduct that may form the predicate for a taking claim.
The Federal Circuit’s explanation of when coercive action can constitute a taking seems particularly useful in considering the allegations in the Complaint.
While the complaints here allege that the government coerced GM and Chrysler into terminating the franchise agreements, they do not allege that the government either by statute, regulation, or direct order required the terminations. Rather, the complaints allege that the government required the terminations as a condition of financial assistance, and that that action was coercive because the automakers could not survive without the financing. The line between coercion (which may create takings liability) and persuasion (which does not create takings liability) is highly fact-specific and hardly simple to determine.A & D Auto Sales, 748 F.3d at 1154. Similarly, in this case it appears that there was nothing in the Gaming Act, or the regulations promulgated pursuant to it, that required the Commission to force Wynn to eliminate the so-called casino-related premium that the Commission believed to be a component of purchase price set out in the Option Agreement. Rather, the Commission singled out FBT to make a statement about the application process, a statement that may have been unwarranted, if the allegations of the Complaint are true.
Having determined that the Complaint alleges a putative taking of a right inherent in the ownership of real property and that the conduct alleged is of a kind that could constitute a taking, the court will consider whether the other allegations in the Complaint are sufficient to state a claim for a regulatory taking employing the three factor test adopted in Penn Central and employed in Fitchburg Gas.
Economic Impact
In order to determine the economic impact of the Commission’s actions on the Everett Parcel, the court must consider the value of the Everett Parcel "before and after the alleged taking." Blair v. Department of Conservation & Recreation, 457 Mass. at 645. "To constitute a compensable regulatory taking, the economic impact on the property owner must be severe." Fitchburg Gas & Elec. Light Co. v. Department of Pub. Utils., 467 Mass. at 784. "[M]ere diminution in value of property ... is insufficient to demonstrate a taking." Concrete Pipe & Prods. of Cal., Inc. v. Construction Laborers Pension Trust for S. Cal., 508 U.S. 602, 645 (1993). See also Moskow v. Commissioner of Envtl. Mgt., 384 Mass. 530, 533 (1981), quoting Lovequist v. Conservation Comm’n of Dennis, 379 Mass. 7, 19 (1979) (recognizing that "governmental decisions may deprive an owner of a beneficial property use-even the most beneficial such use-without rendering the regulation an unconstitutional taking") and Flynn v. Cambridge, 383 Mass. 152, 160 (1981) (noting that no taking occurred where "owner was still able to obtain a reasonable return on its investment").
In this case, the value of the Everett Parcel before the alleged regulatory taking was $75 million, as established by the Option Agreement allegedly negotiated at arm’s length between FBT and Wynn, and after, it was $35 million-a decrease of approximately fifty-three percent. The court acknowledges that, in some cases, regulatory action that seemingly eliminates more than 50% of the value of real property may not be sufficient to satisfy the economic impact test. The Commission cites the following cases in support of that position: Leonard v. Town of Brimfield, 423 Mass. 152, 156 (1996), where no regulatory taking was found when the plaintiff retained the right to build on six of sixteen acres of land that she owned; and Moskow v. Commisssioner Dpt. Of Envt’l Mgmt., 384 Mass. 530 (1981), where a regulation that prevented the plaintiff from building on 55% of his land did not support a taking claim. Of course, the percentage of the land that cannot be developed is not always equivalent to the percentage loss of fair market value of the entire parcel.
Two other case relied upon by the Commission looked at the percentage loss of fair market value of the property as issue, but the reduction in market value in each case was substantially less than 50%: Giovanella v. Conservation Comm’n of Ashland, 447 Mass. at 734 (a twenty-nine percent decrease in value of property was not significant enough to rise to level of a taking) and Ciampitti v. United States, 22 Cl.Ct. 310, 320 & n.5 (1991) (a twenty-six percent decrease in value, from $19 million to $14 million, insufficient).
This court finds the discussion of the use of percentages to determine when economic loss is "severe" set out in Cienega Gardens v. United States, 331 F.3d 1319, 1345 (Fed. Cir. 2003) to be helpful: "It is perfectly true that no percentage diminution in value necessarily results in a compensable regulatory taking, but that is not the same as saying that below a certain percentage diminution, a taking can never be compensable, or even that an assessment of the economic impact below that percentage can never favor a conclusion that compensation is merited." (emphasis in original).
The court finds that the facts alleged in the Complaint are adequate to state a plausible claim the Commission’s actions had a sufficiently severe economic impact on the Everett Parcel that the government action could rise to the level necessary to establish a regulatory taking. Moreover, the three Penn Central factors are "interrelated" and each must examined in light of the others-a point discussed at greater length in the "Government Action" section of this analysis.
Stated differently, at this stage of the proceedings, the court cannot conclude, as a matter of law, that the Commission’s actions did not have a severe economic impact on the Everett Parcel.
Investment-Backed Expectations
Next, this court must consider the reasonable and legitimate investment-backed expectations of FBT in acquiring and holding the Everett Parcel. See Fitchburg Gas, 467 Mass. at 783-784 (explaining that court should look at the extent to which regulation has interfered with distinct investment-backed expectations) and Leonard v. Brimfield, 423 Mass. 152, 154-155 (1996) (evaluating plaintiff’s investment-backed expectations and information available to her at "time she purchased the property"). The Commission argues that FBT could not have had a reasonable, investment-backed expectation that it would be permitted to sell or use the Everett Parcel for a resort casino, a use that the Commission contends far exceeded the value of the property for other potential uses, because casino gambling was illegal throughout Massachusetts when FBT purchased the property in October, 2009. In addition, the Commission asserts that "[w]here pervasive regulation and the Option Agreement itself foreclose any expectation of an unfettered sale of the Property for a casino use, FBT has no ‘reasonable investment-backed expectation’ of such sale as a matter of law." Commission’s Memorandum at 13-14. See Carney v. Attorney Gen., 451 Mass. 803, 817 (2008) ("Although mere ‘participat[ion] in a heavily regulated industry’ does not bar a plaintiff from ever prevailing on a takings claim, ... it does greatly reduce the reasonableness of expectations and reliance on regulatory provisions. ") (citation omitted). See also Mitchell Arms, Inc. v. United States, 7 F.3d 212, 216 (Fed. Cir. 1993), cert. denied, 511 U.S. 1106 (1994), quoting Mitchell Arms, Inc. v. United States, 26 Cl.Ct. 1, 5 (1992) (rejecting claim for compensation on revocation of license to import certain assault rifles because "a taking claim against the United States cannot arise in an area voluntarily entered into and one which, from the start, is subject to pervasive Government control").
The Commission also points out that the Option Agreement specifically states that: "If such Gaming Regulatory Agency disapproves this Agreement or any Person that would qualify as a transferee, in whole or in part, Purchaser may immediately (regardless as to any other provision of this Agreement requiring a certain amount of notice) terminate this Agreement upon notice to Seller at no cost to Purchaser." Option Agreement at § 13.13.3. In consequence, FBT was always fully aware that the Commission could review the Option Agreement to insure that it did not run afoul of some criteria that the Commission would apply in determining Wynn’s suitability for a gaming license or ultimately awarding the Region A license to Wynn. Finally, the Commission points to the price that FBT paid for the Everett Parcel in 2009 (as stated in the deed in to FBT) and the price at which it sold to Wynn, and asserts that FBT has received a return on investment of 400% and therefore the Complaint fails to allege facts that could support a finding that FBT satisfied this part of the Penn Central test.
The court notes, however, that the case is before it on a motion to dismiss, and, therefore, all inferences that flow from the facts alleged in the Complaint must be drawn in favor of the plaintiff. The Complaint does not allege the price that FBT paid for the Everett Parcel; it is the defendant that has put this information before the court in the form of the deed in to FBT. The court cannot know if the purchase price recorded in the deed reflects all the costs of acquisition. There is also nothing before the court that reflects on the carrying costs of the Everett Parcel. Further, the Option Agreement requires FBT to undertake environmental remediation during the option period. Option Agreement at § 5.7. The amount that FBT may have spent on clean-up activity in anticipation of the sale of the land to Wynn is presently unknown. Finally, the Complaint alleges that Wynn’s appraiser valued the casino-related premium at $40 million. However, that figure may be subject to challenge. There are no allegations in the Complaint that any other applicant for the Region A, Category 1 gaming license was interested in acquiring the Everett Parcel for a casino. It is not clear why Wynn would have to offer more than twice the value of the land for any other possible use in an arm’s length negotiation with FBT to acquire the right to purchase the Everett Parcel when it was not bidding against any other potential casino operator.
While it may be very difficult for FBT to carry its burden of proof with respect to this element of the three part Penn Central test, the court cannot say at the motion to dismiss stage of this litigation that no facts may be developed that would enable FBT to do so; especially, when this element is considered in light of the interrelated Government Action factor.
Character of Governmental Action
Finally, this court must consider the character of the Commission’s action, more specifically, whether the Commission’s conduct alleged in the Complaint serves a legitimate public purpose. See Fitchburg Gas, 467 Mass. at 785. See also Penn Central, 438 U.S. at 127. In evaluating this factor, the court may consider, among other things, "whether the character of the government action is like a physical invasion," whether "a regulation unfairly singles out the owner," and also "whether the government regulation is limited to mitigating harms or nuisances." Giovanella v. Conservation Comm’n of Ashland, 447 Mass. at 735.
Regulations that mitigate harm or prevent nuisances do not typically result in a taking that requires compensation. Giovanella v. Conservation Comm’n of Ashland, 447 Mass. at 735.
The Commission argues that the Gaming Act grants it exceptionally broad authority to ensure public confidence in the integrity of gaming and it took the actions alleged in the Complaint for a legitimate public purpose: to ensure public confidence in the integrity of gaming application process. See G.L. c. 23K, § 1(1) ("ensuring public confidence in the integrity of the gaming licensing process and in the strict oversight of all gaming establishments through a rigorous regulatory scheme is the paramount policy objective of this chapter") and § 12(b) ("If the bureau [IEB] determines during its investigation that an applicant has failed to: (i) establish the applicant’s integrity or the integrity of any affiliate, close associate, financial source or any person required to be qualified by the commission; (ii) demonstrate responsible business practices in any jurisdiction; or (iii) overcome any other reason, as determined by the commission, as to why it would be injurious to the interests of the commonwealth in awarding the applicant a gaming license, the bureau shall cease any further review and recommend that the commission deny the application.").
However, there is nothing in the Complaint that suggests that: (i) Wynn was ever planning to engage with FBT in the business of gaming; (ii) FBT was an affiliate or associate of Wynn or a financial resource for it; or (iii) Wynn knew anything about the provenance of FBT, who may have previously owned an interest in it, or who would receive an undisclosed benefit from the purchase of the Everett Parcel. Wynn just proposed to purchase land that FBT owned. But even more fundamentally, FBT affirmatively alleges in its Complaint that IEB was wrong when it concluded that FBT’s principals lied during interviews or falsified paperwork regarding Lightbody’s ownership of interests in FBT. Complaint at paras. 29-33. For purposes of the pending motion, that allegation must be assumed to be true.
In consequence, even though the Gaming Act provides the IEB and the Commission with broad powers to investigate an applicant to ensure "public confidence in the integrity of the gaming licensing process," it is not clear how the Commission’s actions alleged in the Complaint, which had the effect of causing a 53% reduction in the price that Wynn had agreed to pay for the Everett Parcel, would have served a legitimate public purpose, if none of the principals of FBT misrepresented anything during the application process. It appears, therefore, that the Complaint has alleged facts plausibly suggesting that the Commission unfairly singled out FBT and its members for economic disadvantage for reasons that would not appear to advance the interest of ensuring public confidence in the gaming license application process. See Giovanella v. Conservation Comm’n of Ashland, 447 Mass. at 735 (recognizing that in evaluating character of governmental action, court may look to whether regulation unfairly singles out the owner). Cf. Eastern Enters. v. Apfel, 524 U.S. 498, 537 (1998) ("Finally, the nature of the governmental action in this case is quite unusual. That Congress sought a legislative remedy for what it perceived to be a grave problem in the funding of retired coal miners’ health benefits is understandable; complex problems of that sort typically call for a legislative solution. When, however, that solution singles out certain employers to bear a burden that is substantial in amount, based on the employers’ conduct far in the past, and unrelated to any commitment that the employers made or to any injury they caused, the governmental action implicates fundamental principles of fairness underlying the Takings Clause.").
In Loveladies Harbor, Inc. v. U.S., 28 F.3d 1171 (Fed. Cir. 1994), the Federal Circuit reviewed the Supreme Court’s Penn Central decision and the import of the "character of government action" element of the takings analysis:
The first criterion required that a reviewing court consider the purpose and importance of the public interest reflected in the regulatory imposition. In effect, a court was to balance the liberty interest of the private property owner against the Government’s need to protect the public interest through imposition of the restraint. This included considering not only the avowed need of the Government-the interest of the public being protected, see e.g., Ruckelshaus v. Monsanto Co., 467 U.S. 986 1014, 104 S.Ct. 2862, 2878-79, 81 L.Ed.2d 815 (1984) (factors to be considered included whether the Government had a legitimate interest in forced public disclosure of the company data)-but also whether the method of attaining the sought-after goal was reasonably designed to attain it. See Nollan v. California Coastal Comm’n, 483 U.S. 825, 837, 107 S.Ct. 3141, 3148-49, 97 L.Ed.2d 677 (1987) (requiring a "nexus" between the Government’s alleged public purpose and the restriction which it places upon the landowner’s right to develop the land).
If the allegations of the Complaint are true, "the method of attaining the sought-after goal [maintaining the integrity of the licensing application process]" may well not have been "reasonably designed to attain it." Instead, it may have been government conduct that unfairly singled out FBT in order to make a statement about the broad reach of authority granted the Commission and, in particular, the IEB.
At this stage of the proceedings, FBT’s Complaint sets forth factual allegations plausibly suggesting an entitlement to relief on the regulatory taking claim alleged in Count III.
Impairment of Contract Right in Violation of Contract Clause (Count IV)
In Count IV, FBT asserts a claim of impairment of contract right in violation of the Contract Clause, Article I, § 10, Clause 1 of the U.S. Constitution. The Commission moves to dismiss Count IV, arguing, among other grounds, that the Complaint fails to allege that the Legislature enacted a law after Wynn and FBT entered into the Option Agreement in December, 2012 that impaired any of FBT’s rights under the Option Agreement. In response, FBT contends that the Contract Clause’s prohibition on the impairment of contracts by the state extends to acts that are legislative in nature, even if they are not undertaken by a state legislature. FBT’s Opposition at 22-25.
The Contract Clause provides that "[n]o State shall ... pass any ... Law impairing the Obligation of Contracts. ..." U.S. Constitution, art. I, § 10, cl. 1. To succeed on its claim for impairment of a contract right, FBT must "demonstrate that (1) a contractual relationship exists; (2) the relationship is impaired by a change in the law; and (3) the resulting impairment is substantial." Hingham Healthcare Ltd. Partnership v. Division of Health Care Fin. & Policy, 439 Mass. 643, 650 (2003). With respect to the second element of an impairment claim, the Contract Clause only "aims ‘at the legislative power of the State, and not at decisions of its courts, or the acts of administrative or executive boards or officers, or the doings of corporations or individuals.’" Municipal Light Co. of Ashburnham v. Commonwealth, 34 Mass.App.Ct. 162, 171, cert. denied, 510 U.S. 866 (1993), quoting New Orleans Waterworks Co. v. Louisiana Sugar Refining Co., 125 U.S. 18, 30 (1888).
In its Complaint, FBT does "not point to any act of the Legislature which impaired [its] contract." Municipal Light Co. of Ashburnham v. Commonwealth, 34 Mass.App.Ct. at 171. In Count IV, FBT asserts that the Commission "was exercising legislative authority delegated to it under the Gaming Act." That allegation is clearly insufficient. There was no change in the Gaming Act enacted by the Legislature after FBT entered into the Option Agreement with Wynn in December, 2012. This case involves allegations concerning the conduct of the IEB and the Commission taken under authority that the Commission contends it was granted under the Gaming Act, not anything done by the Legislature. Since FBT fails to assert a post-contract "change in the law," its claim that the government has unconstitutionally impaired its contractual rights fails as a matter of law. Count IV is dismissed.
The Complaint describes no acts by the Commission that are legislative in character or effect. See Ross v. Oregon, 227 U.S. 150, 163 (1913) ("Legislation ... looks to the future and changes existing conditions by making a new rule to be applied thereafter to all or some part of those subject to its power.") (citation omitted). See also Mabey Bridge & Shore, Inc. v. Schoch, 666 F.3d 862, 874 (3d Cir. 2012) (even a new interpretation of existing state law first applying it to a business in plaintiff’s position falls outside the scope of the Contract Clause) and Black’s Law Dictionary (10th ed. 2014) (defining "legislative" as "relating to or involving lawmaking or to the power to enact laws; concerned with making laws"). Rather, the Complaint alleges acts by the IEB and the Commission that were discretionary in nature and which they maintain were within their authority under the Gaming Act, as the Commission interpreted it.
ORDER
For the foregoing reasons, Defendant Massachusetts Gaming Commission’s Motion to Dismiss is ALLOWED as to Count II (per se taking) and Count IV (impairment of contract right in violation of the Contract Clause) and is DENIED as to Count III (regulatory taking).