Village Rosemont IL v. Aaron Jaffe ( 2007 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 05-4558
VILLAGE OF ROSEMONT,
Plaintiff-Appellant,
v.
AARON JAFFEE, et al.,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 05 C 5012—Amy J. St. Eve, Judge.
____________
ARGUED FEBRUARY 7, 2006—DECIDED APRIL 3, 2007
____________
No. 06-1984
EMERALD CASINO, INC.,
Plaintiff-Appellant,
v.
ILLINOIS GAMING BOARD, et al.,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 05 C 6625—James F. Holderman, Chief Judge.
____________
ARGUED JULY 12, 2006—DECIDED APRIL 3, 2007
____________
2 Nos. 05-4558 & 06-1984
Before BAUER, RIPPLE, and WOOD, Circuit Judges.
WOOD, Circuit Judge. Approximately 15 years ago, the
Illinois Gaming Board (IGB, or Board) issued a state
riverboat gambling license to Emerald Casino, Inc. Al-
though Emerald operated for a time in East Dubuque,
Illinois, it closed that facility in 1997; two years later, it
attempted to relocate its operations to Rosemont, Illinois,
a suburb of Chicago near O’Hare International Airport.
Hoping to reap economic advantage from the proposed
casino, the Village of Rosemont decided to help Emerald
along by constructing a large parking facility. To make a
long story short, the relocation never got off the ground.
Instead, Emerald became embroiled in administrative
proceedings before the IGB, in which it risked losing
its gambling license altogether, and some time there-
after, it filed for bankruptcy under Chapter 11 of the
Bankruptcy Code.
The first of the two appeals before us now, No. 05-4558,
deals with an adversary proceeding Rosemont brought
before the bankruptcy court. In that case, Rosemont
claimed that it had a right to require the defendants (all
members of the IGB) to cooperate in Emerald’s efforts
to transfer its principal asset, the gaming license, to a new
holder. The bankruptcy court dismissed this action for
failure to state a claim, and the district court affirmed.
The second appeal, No. 06-1984, brings before us Emer-
ald’s objection to a different decision of the bankruptcy
court. Emerald wanted the bankruptcy court to enjoin the
IGB from revoking its gaming license and to require the
IGB to drop the disciplinary proceedings that were pend-
ing against Emerald. Here too, the bankruptcy court
dismissed the suit for failure to state a claim and the
district court affirmed. We have consolidated the ap-
peals for decision because of the close factual relation
between them.
Nos. 05-4558 & 06-1984 3
Since we heard oral arguments in these decisions, the
Illinois appellate court has handed down a decision
pertinent to these cases. See Emerald Casino, Inc. v.
Illinois Gaming Bd., 851 N.E.2d 843 (Ill. App. Ct. 2006)
(Emerald II). In that opinion, the appellate court held that
the state trial court had failed properly to enforce the
appellate court’s 2004 mandate stemming from Emerald
Casino, Inc. v. Illinois Gaming Bd., 803 N.E.2d 914 (Ill.
App. Ct. 2003) (Emerald I). In Emerald I, the court had
held that the IGB was required to grant Emerald’s 1999
application for renewal and relocation of its license, sub-
ject to whatever revocation proceedings the IGB chose
to conduct. We conclude that these developments do not
materially change the nature of the questions presently
before us, which relate to the bankruptcy court’s power to
require a state agency to refrain from exercising its
regulatory power over a license holder. In both instances,
the district court properly dismissed these actions, and we
therefore affirm the two judgments before us. Emerald
and Rosemont of course remain free to continue to pursue
whatever state remedies may be available to them.
I
We pick up the story here with Emerald’s effort to move
its license from East Dubuque to Rosemont. In April 1997,
Emerald—which was then still operating in East
Dubuque—applied for a license renewal, but it stated that
it wanted to move from the Mississippi to Rosemont. The
IGB turned down its application. Emerald filed an admin-
istrative appeal, but while the appeal was pending, it
ceased operations. Later, the administrative law judge
(ALJ) affirmed the Board’s decision, but before Emerald’s
administrative appeal went back to the Board, the Illinois
General Assembly passed an amendment to the Illinois
Riverboat Gambling Act (IRGA), to be effective June 25,
4 Nos. 05-4558 & 06-1984
1999. See 230 ILCS 10/11.2(a) (2004). The new section
permitted “[a] licensee that was not conducting riverboat
gambling on January 1, 1998” to “apply to the Board for
renewal and approval of relocation to a new home dock
location . . . and the Board shall grant the application and
approval upon receipt by the licensee of approval from the
new municipality.” Id. (emphasis added). As the Illinois
appellate court noted in Emerald I, this section described
Emerald and only Emerald.
What happened on the 1999 remand to the Board may
have surprised the drafters of § 11.2(a). In light of the
new law, the Board declared the ALJ’s order moot and
allowed Emerald to file a new application for renewal
and relocation. On July 7, 1999, the Board of Trustees of
Rosemont approved Emerald’s request for relocation, as
the statute required. Some time thereafter, Rosemont
constructed a parking garage that was designed to serve
the hoped-for casino. To both Emerald’s and Rosemont’s
dismay, however, the IGB announced on January 30, 2001,
that it intended to deny Emerald’s application. On March
6, 2001, it released its formal notice of denial and more:
it issued a five-count disciplinary complaint seeking to
revoke Emerald’s license. Emerald sued in the Circuit
Court of Cook County, seeking a declaration that § 11.2(a)
required the IGB to approve its application; it also sought
a writ of mandamus commanding the IGB to approve the
application. Emerald stressed the fact that the statute
imposed only two requirements on an applicant: first, that
it submit a proper application, and second, that the
affected municipality approve the plan. At that point, the
law used the mandatory word “shall” to describe the
Board’s duties. The Cook County court ruled in favor of the
Board, and Emerald appealed. In Emerald I, the state
appellate court reversed and remanded. It concluded that
“the legislature meant ‘shall’ to be mandatory, not direc-
tory, when it enacted section 11.2(a).” Emerald I, 803
Nos. 05-4558 & 06-1984 5
N.E.2d at 925. It remanded the case to the circuit court
with instructions to enter summary judgment in favor of
Emerald and Rosemont.
In the meantime, the Board had been going ahead with
its disciplinary proceeding. It began a trial in that pro-
ceeding in May 2002. About a month later, on June 13,
2002, Rosemont and four other creditors filed an involun-
tary bankruptcy petition against Emerald. They took this
step because Rosemont believed that Emerald had tried, or
was trying, to settle the disciplinary proceeding in a
manner that was detrimental to its creditors, and because
Emerald was refusing to reimburse Rosemont for the cost
of constructing the garage. The bankruptcy court granted
the petition, and later Emerald converted the case to a
voluntary Chapter 11 proceeding.
At this point the Board suspended the disciplinary
proceeding, while Emerald sought its approval for a
proposed sale of the license. Emerald also tried to put
together a reorganization plan that would be acceptable
to both the Board and its creditors. In May 2003, Emerald
filed a plan with the bankruptcy court that was unani-
mously supported by the members of the Board. The
Attorney General of Illinois, however, withheld her con-
sent to the plan. The Board, taking the view that it had
no authority to settle the case without the Attorney Gen-
eral’s consent, concluded that it had no choice but to
recommence the disciplinary proceeding. It did so on June
3, 2003. This prompted Emerald to file an adversary
proceeding in the bankruptcy court seeking declaratory
and injunctive relief against the IGB; it argued that the
automatic stay provision of the Bankruptcy Code, 11
U.S.C. § 362, would be violated if the administrative
proceedings went forward.
The Attorney General then stated that she would not
approve any plan of reorganization that resulted in a
return of investment for the Emerald shareholders who
6 Nos. 05-4558 & 06-1984
had been accused of wrongdoing in the administrative
case. The Illinois legislature then re-entered the picture,
passing another amendment to the IRGA on May 3. The
new section 7.1 of the Act did several things: it recognized
the legislature’s intent to increase the amount of revenue
available to the state; it allowed the Board to reissue a
license that had been revoked or not renewed; and it
provided that if a casino operator’s license was revoked or
expired without a renewal, the proceeds from any re-
issued license would go to the state. After conducting a
hearing on Emerald’s request for relief under § 362, the
bankruptcy court denied the motion, finding that the
Board’s actions fell within the exception to the automatic
stay for a governmental entity’s enforcement of its “police
and regulatory power.” See § 362(b)(4). The court rejected
Emerald’s argument that the possibility that the state
might benefit financially from the revocation and
reissuance of the license meant that it was indirectly
engaged in debt collection activity. The district court
affirmed on December 24, 2003. See In re Emerald
Casino, Inc., No. 03-5457, 2003 WL 23147946 (N.D. Ill.
Dec. 24, 2003).
At that point Emerald was working both within and
outside the bankruptcy proceeding to settle the case.
Within the proceeding, it pursued a plan that contem-
plated the sale of its business to another entity, contingent
on dismissal of the disciplinary proceeding. Outside the
proceeding, it was negotiating with the IGB and the
Attorney General over the conditions that it would have
to obtain to gain consent to such a transfer and dis-
missal. The latter negotiations culminated in a side letter
dated December 15, 2003 (“the First Side Letter”). This
letter was not made a part of the bankruptcy plan, but the
plan was conditioned on the successful implementation of
the letter. The First Side Letter included several commit-
ments and said that “[t]he AG and the IGB may revoke
Nos. 05-4558 & 06-1984 7
their commitments under [specified paragraphs relating
to both the bids and the stay of the disciplinary proceed-
ings] if any of the [specified] events has occurred. . . .” At
that point, Emerald would be entitled to 60 days’ notice
before the disciplinary proceedings could continue. The
letter also expressly reaffirmed the state’s sovereign
immunity.
After the First Side Letter was signed, the bidding
procedure it had outlined took place. In March 2004 the
Board selected Isle of Capri, a publicly-traded company
that operates 15 gaming facilities, as the winning bidder,
subject to the final suitability review. Isle of Capri was
willing to pay $518 million for the license.
This did not meet with the Attorney General’s approval.
In a letter to the Board dated March 25, 2004, the At-
torney General raised numerous questions about the
bidding process, the choice of Isle of Capri, and the selec-
tion of Rosemont as the site for the license. In addition,
she noted that one of the conditions specified in the
First Side Letter had failed: the Illinois appellate court
in Emerald I had done something other than staying,
dismissing, or affirming the circuit court’s decision.
(Shortly thereafter, a second condition failed: the bank-
ruptcy court did not enter an order confirming the plan by
April 1, 2004.) The Attorney General’s letter emphasized
the lack of a “fair playing field” among the participants
in the bidding process; she criticized the decision to favor
Rosemont just because it had engaged in the “unautho-
rized conduct” of building the parking garage and it was
pressing a multi-million dollar claim in the bankruptcy
case; she asked why the IGB staff recommendations
were ignored; and she questioned the choice of Isle of
Capri, which, she pointed out, had been disciplined
frequently and fined by both state and federal regulators.
Her letter concluded with a request to the Board to
address publicly each of the concerns she had raised and
8 Nos. 05-4558 & 06-1984
to consult with her staff. She warned that “[i]f you refuse
to honor my requests, I reserve my option to resume the
revocation hearing.”
Dissatisfied with both the Board’s and Emerald’s
responses, the Attorney General announced in May 2004
that she was ready to re-open the disciplinary proceeding.
At the same time, the process for evaluating the reorgani-
zation plan was moving ahead. The members of the IGB
still supported the proposed plan, under which Emerald’s
license was to be transferred to Isle of Capri. At the May
17, 2004, confirmation hearing before the bankruptcy
judge, a majority of the Board’s members testified in
favor of the plan. The Attorney General filed an objection
to the plan, complaining that as structured it would
prevent the IGB from completing its disciplinary pro-
ceeding. Emerald and the Creditors disclaimed any
intention to restrict the Attorney General’s actions, telling
the court that the plan did not “at this time seek to enjoin
the IGB or the Attorney General.” Emerald urged the
judge to confirm the plan even if it were not “guaranteed
to succeed.” As the following comments reveal, the bank-
ruptcy judge recognized the frailty of the reed on which all
this stood, even if some of the parties did not:
The Court: Is there anything that would prevent the
resumption of the revocation proceeding and the
revocation of the license here, despite confirmation of
the plan that’s presently before the Court, other than
a majority vote of the Illinois Gaming Board?
[Counsel for Emerald]: No.
The Court: So that if the membership of the gaming
board changed, or if members of the gaming board
changed their mind, there would still be a potential
for revocation?
[Counsel for Emerald]: Well, Your Honor, there’s all
sorts of things that could happen.
Nos. 05-4558 & 06-1984 9
On that understanding, the court confirmed the plan on
May 17, 2004. (It later confirmed an amended plan on July
22, 2004, but the changes do not affect our analysis here.)
It reserved the right to vacate the confirmation order if all
conditions to its effectiveness were not satisfied or waived
within 155 days after confirmation or any approved
extension. The court made clear that the plan did not
bind the Attorney General, who was not a party before it.
After confirmation, the conflict between the IGB and the
Attorney General took a new turn. On June 11, 2004, the
Attorney General filed an action against the Board and its
members seeking to enjoin them from conducting a
suitability review of Isle of Capri. Soon thereafter, the IGB
adopted a resolution authorizing the execution of a Second
Side Letter, which it issued on August 2, 2004. That letter
purported to waive the failure of the conditions in the
First Side Letter, insofar as the IGB was concerned. The
letter was careful to note, however, that it spoke only
for the Board (and implicitly not for the Attorney General).
Shortly after this letter was released, two members of the
IGB resigned.
Matters shifted again when the IGB was reconstituted in
March 2005 with two new members. Shortly after their
appointment, the Board at long last resumed the dis-
ciplinary proceedings. It appointed former U.S. Circuit
Judge Abner Mikva to preside over those proceedings, and
it refused to conduct any suitability review of Isle of
Capri. These developments prompted Rosemont to file the
complaint now before us in the bankruptcy court; it named
all five members of the Board and the Board’s interim
administrator as defendants. The first part of the com-
plaint sought specific performance of the IGB’s commit-
ments under the reorganization plan, including the
completion of the suitability review and the termination of
the disciplinary proceedings. The second part sought an
10 Nos. 05-4558 & 06-1984
injunction against any conduct that interfered with the
plan.
Emerald also filed a complaint in the bankruptcy court
seeking specific performance of the same provisions of the
plan that Rosemont had identified. It also asked for an
injunction that would prevent the Board from revoking
its license and transferring the license to any party other
than Isle of Capri. As we have already noted, the bank-
ruptcy court rejected both Rosemont’s and Emerald’s
claims, and two different judges on the district court
affirmed those decisions.
II
With all this activity, it should surprise no one that
developments in this case have continued apace while it
has been pending before this court. Prior to oral argument
in the Rosemont litigation (No. 05-4558), on November 15,
2005, ALJ Mikva issued a 38-page opinion in which he
recommended that the IGB “make permanent its order of
revocation and that any efforts by Emerald to engage in
gambling in Illinois at any location be denied.” This
recommendation was based upon findings of fact that
Emerald and its principals had dissembled about the
plans to move to Rosemont, that the renewal application
Emerald had filed on September 28, 1999, was neither
accurate nor complete, and that both Emerald and its
principals had not been honest in other respects. Emerald
had also permitted ineligible parties to invest in its casino.
The IGB accepted this recommendation and formally
revoked the license on December 20, 2005. On December
21, 2005, after rejecting several motions that would have
prevented the Board from acting at all, this court enjoined
the IGB from selling or reissuing the license pending
further court order. In this way, we hoped, we would
minimize federal interference in ongoing state proceed-
Nos. 05-4558 & 06-1984 11
ings, and at the same time preserve the status quo as it
related to the federal appeals.
On June 13, 2006, the Illinois appellate court handed
down Emerald II. The precise question before the court
was whether the trial court had enforced the mandate from
Emerald I. The appellate court recalled that its holding in
Emerald I had been that § 11.2(a) of the IRGA imposed a
nondiscretionary duty on the Board to “resurrect” Emer-
ald’s license. The trial court, however, interpreted the
mandate to mean that Emerald had a right to have a four-
year license granted effective September 24, 1999, in an
order dated June 9, 2005; and that is what the Board did
on June 29, 2005. Naturally, this accomplished nothing
from Emerald’s point of view, since the newly resurrected
license expired by its own terms on September 24, 2003,
nearly two years before the Board’s order, and three
months before the Illinois appellate court issued Emerald
I. The court found this response to its earlier order unac-
ceptable, stating that it “reject[ed] the notion that this
court is in the business of making empty and useless
gestures.” 851 N.E.2d at 846. The court also noted that the
Board’s action was inconsistent with its position in the
bankruptcy proceeding, where the Board was taking part
in the process that would auction off Emerald’s license
interests. Id. at 847.
The appellate court took pains to make clear that its
holding addressed only the reissuance of the license and
the enforcement of the court’s own mandate:
We stress that our only intent is to address the ques-
tion of whether our mandate has been enforced.
Nothing else. Whether Emerald and Rosemont possess
sufficient moral fiber to conduct and host a gambling
business is not now our concern. We said before and
we say again: “Nothing in section 11.2(a) prevents
the Board from moving to revoke Emerald’s license.”
12 Nos. 05-4558 & 06-1984
[Emerald I, 803 N.E.2d at 926.] The supreme court
said it, too: “The Act’s license revocation provision
still applies to Emerald with full force (230 ILCS
10/5(c)(15) (West 2000), and revocation proceedings
have, in fact, been initiated against it.” Crusius [v.
Illinois Gaming Bd.], 837 N.E.2d [88, 98-99 (Ill. 2005)].
851 N.E.2d at 848. Indeed, as the appellate court acknowl-
edged, the state supreme court in Crusius could not have
been any clearer:
We further note that section 11.2(a) does not under-
mine the Riverboat Gambling Act’s goal of strict
regulation simply because it requires the Board to
grant Emerald’s application for renewal and relocation.
As mentioned, the Act contained no provisions regard-
ing relocation prior to the enactment of section 11.2(a).
Therefore, the amendment of the Act to allow for
relocation did not diminish the regulatory authority of
the Board in any way. As for license renewal, it is only
one facet of the Board’s regulatory authority. If any
riverboat gambling licensee, including Emerald, fails
to comply with the Act’s requirements, the Board has
the authority to investigate and take appropriate
disciplinary action. 230 ILCS 10/5(c)(5) (West 2000).
The Act’s license revocation provision still applies to
Emerald with full force (230 ILCS 10/5(c)(15) (West
2000)), and revocation proceedings have, in fact, been
initiated against it. Thus, regardless of Emerald’s
eligibility for license renewal and relocation under
section 11.2(a), if Emerald has failed to comply with
the requirements of the Act, it could lose its riverboat
gambling license in accordance with the Act’s provi-
sions, as is the case with any other licensee.
837 N.E.2d at 98-99. Emerald II concluded with the
following order: “[W]e direct that immediately on receipt of
our mandate the trial court shall order the Board to issue
Nos. 05-4558 & 06-1984 13
Emerald’s license for renewal and relocation within 30
days of the receipt of the trial court’s order. The license
shall be effective as of the date of issuance and shall
remain in effect for four years, subject to revocation
proceedings.” 851 N.E.2d at 848 (emphasis added).
As we noted above, the Board had already completed the
disciplinary proceeding and issued a order revoking
Emerald’s license on December 20, 2005. Although it
does not quite say so in so many words, Emerald is now
arguing that Emerald II implicitly set aside that order of
revocation, since the decision came some six months
after the order. The state takes the position that the
qualification in the court’s order excepting “revocation
proceedings” can mean only that Emerald II left the
revocation order untouched. In any event, the state points
out in a supplemental letter filed January 25, 2007, that
proceedings challenging the revocation order are pend-
ing before the Illinois appellate court.
III
We return, at last, to the somewhat narrow issues before
this court, all of which have to do with the question
whether the bankruptcy court should have acted to com-
pel the IGB and its members to carry through with the
terms of the reorganization plan that the bankruptcy court
confirmed in its order of May 17, 2004. That plan, recall,
which at one time had the support of a majority of the
Board (but later lost this support) and which did not have
the support of the Attorney General, contemplated the
auction of Emerald’s license and its transfer to the winning
bidder, and it contemplated that the casino facility would
remain in the Village of Rosemont. We are satisfied that it
would still be possible to grant this relief, if we thought
that it was appropriate. Emerald II took care of the
renewal of Emerald’s license, and our order staying any
14 Nos. 05-4558 & 06-1984
future transfer or reissuance of the license preserved the
possibility that the IGB could rescind its order of revoca-
tion and perform as Emerald and Rosemont would like. We
therefore proceed to the merits of the appeals.
A. Rosemont’s Appeal (No. 05-4558)
Rosemont’s appeal gives great prominence to the First
Side Letter, which was signed in December 2003. It argues
that the letter became an enforceable part of the bank-
ruptcy plan, because it was attached as an exhibit to the
plan and was referred to in § 5.10 of the plan. The district
court apparently agreed with this position, as it said
several times that the “December 15, 2003 letter agree-
ment [was] incorporated in the Plan by reference.” This
assumption favors Rosemont, and so we proceed on that
basis. In the end, it does not help Rosemont, because the
act of incorporating the First Side Letter does not
change the content of that letter, and it is the content that
should be Rosemont’s concern.
Nothing in the December 2003 letter required the
Attorney General to do anything, including to abandon the
disciplinary proceedings. Instead, the Attorney General
explicitly reserved the right to reactivate those proceed-
ings, if certain conditions were not met, and it is undis-
puted that those conditions indeed failed. Rosemont is
thus forced to supplement its argument based on that
letter with two additional pieces of data: first, the fact that
a majority of the Board members testified in favor of the
First Side Letter before the bankruptcy court, and second,
the fact that the Board later issued the Second Side Letter
(before it later decided to withdraw its support from both
letters). We see two problems with this position: first is
the idea that some individual members of the Board can
somehow estop the full Board from acting in an ongoing
proceeding; second is the undisputed fact that the Attorney
Nos. 05-4558 & 06-1984 15
General was not a party to the Second Side Letter, and she
had the power to pursue the disciplinary proceeding be-
fore the Board. The Board recognized this, both in the
Second Side Letter and elsewhere throughout these
complex proceedings.
Rosemont also argues that the bankruptcy court had the
power to enforce the plan (which it believes incorporated
a firm obligation on the part of the Board to permit the
sale of Emerald’s license to Isle of Capri) under § 1142(b)
of the Bankruptcy Code, 11 U.S.C. § 1142(b). That section,
however, says only that “[t]he court may direct the debtor
and any other necessary party to execute or deliver or to
join in the execution or delivery of any instrument required
to effect a transfer of property dealt with by a confirmed
plan, and to perform any other act, including the satisfac-
tion of any lien, that is necessary for the consummation of
the plan.” We agree with the Fifth Circuit that this
language does not confer any substantive rights on a party
apart from whatever the plan provides. See In re Brass
Corp., 301 F.3d 296, 306 (5th Cir. 2002). Instead, it
“empowers the bankruptcy court to enforce the unper-
formed terms of a confirmed plan.” Id. This also means
that § 1142(b) is of no help to Rosemont insofar as it is
looking for a source of power for the bankruptcy court to
enforce the Second Side Letter, which was issued after the
plan was confirmed. For that reason alone, we think it
indisputable that the Second Side Letter could not have
been part of the plan.
Taking another approach, Rosemont urges us to find
that the bankruptcy court independently had the au-
thority under 11 U.S.C. § 105(a) to compel specific perfor-
mance of the Board’s alleged commitments. That statute
is, more or less, a “necessary and proper” provision of the
Bankruptcy Code; it provides that “[t]he court may issue
any order, process, or judgment that is necessary or
appropriate to carry out the provisions of this title.”
16 Nos. 05-4558 & 06-1984
11 U.S.C. § 105(a). As Rosemont sees it, the only asset of
any value in Emerald’s estate is the gambling license.
When the entire res of an estate is threatened by unlawful
action (here, the disciplinary proceeding in its view), the
bankruptcy court has the duty to step in and do whatever
is needed to protect the estate for the creditors. Once
again, however, Rosemont is mistaken if it thinks that
§ 105(a) is an independent source of rights. As the First
Circuit put it:
Section 105(a) empowers the bankruptcy court to
exercise its equitable powers—where “necessary” or
“appropriate”—to facilitate the implementation of
other Bankruptcy Code provisions. Although expan-
sively phrased, section 105(a) affords bankruptcy
courts considerably less discretion than first meets
the eye, and in no sense constitutes a roving commis-
sion to do equity. Instead, the equitable discretion
conferred upon the bankruptcy court by section 105(a)
is limited and cannot be used in a manner incon-
sistent with the commands of the Bankruptcy Code.
In re Ludlow Hosp. Soc., Inc., 124 F.3d 22, 27 (1st Cir.
1997) (citations and internal quotations omitted).
Although Rosemont may be disappointed that it built
an expensive parking garage (which, for reasons we do
not fully understand but we accept at this stage of the
case, it insists cannot be devoted profitably to other uses)
in the hopes that a casino would open soon within the
Village, it should have paid closer attention to the limita-
tions inherent in the confirmed plan. The bankruptcy
judge’s warning could not have been any plainer: he
alerted the parties to the fact that the membership of the
Board might change, and that the license might be re-
voked, and they all said that they were willing to go
forward with this plan anyway. Even if one accepts every
factual allegation in Rosemont’s complaint, as we of course
Nos. 05-4558 & 06-1984 17
must do when a case has been dismissed under FED. R.
CIV. P. 12(b)(6) and FED. R. BANKR. R. 7012, there is no
legal theory that would allow the bankruptcy court to
force the IGB and the Attorney General of Illinois to
discontinue the disciplinary proceeding against Emerald.
Rosemont also raised three other issues before this court:
first, that the district court erred by rejecting its claim for
injunctive relief; second, that the district court erred in its
conclusion that Rosemont had not stated a claim against
the Board members for violating its “right to statutory
due process”; and third, that the district court wrongly
concluded that it lacked in rem jurisdiction over the
license. We see no merit in these points, as we now
explain.
Common to several of Rosemont’s arguments is its
position that the IGB waived the state’s sovereign immu-
nity, and so the court was empowered to grant injunc-
tive relief against the Board as an entity rather than
against any individual members. See Ex parte Young, 209
U.S. 123 (1908). The bankruptcy court found that the
Board had not invoked the jurisdiction of the federal court:
it had neither filed any request for relief nor had it
expressly waived sovereign immunity. To the contrary, at
all times the Board and the Attorney General made clear
their intention to assert sovereign immunity as a defense,
should that become necessary. Both the First and the
Second Side Letters conclude with statements to this
effect, and the plan noted that “[n]othing in this plan and
no distribution or transaction that occurs pursuant to
this plan shall be deemed a waiver by the IGB or by the
state of Illinois . . . of their sovereign immunity.”
If Rosemont is arguing that the Board, by asserting its
regulatory authority over the license, somehow waived its
sovereign immunity in the bankruptcy court, we must
reject that position. This is not a case like Central Virginia
18 Nos. 05-4558 & 06-1984
Comm. College v. Katz, 546 U.S. 356 (2006), in which a
state agency was defending an action by a trustee to
recover a preferential transfer of funds. There the ques-
tion was simple: who gets the money, the bankruptcy
estate or the state agency? The Board here had no claim
against Emerald; it was not Emerald’s creditor. Rosemont
takes issue with the latter proposition because, under the
IRGA, if the license is revoked and if the state later re-
issues it to another party, the state will be paid for the
new license (and, of course, those funds will not be avail-
able to pay the prior licensee’s creditors). That possible
chain of events, however, is not enough to make the state
or the Board one of Emerald’s creditors. Nor do we accept
the argument that we should treat Emerald’s license as
a res with respect to which the bankruptcy court had the
authority to displace the state’s police power. If the
question were merely who was entitled to a license that
was not subject to revocation, we would have a different
case. But whatever property right the license conferred has
always been subject to, or conditioned on, the regulatory
powers of the state. Nothing in the bankruptcy laws
permits the court to enjoin the Board, a state regulatory
agency, from exercising the police powers of the state to
regulate the gambling industry.
We have considered the other arguments Rosemont has
pressed and find them equally unpersuasive. There is no
need for a preliminary injunction at this point, given the
developments in the case we have already outlined. Thus,
to the extent that preliminary injunctive relief was
requested, it is denied as moot. We affirm the judgment of
the district court in Rosemont’s appeal.
B. Emerald’s Appeal (No. 06-1984)
Emerald presents two issues in its appeal: (1) whether
the district court erred when, as Emerald puts it, it failed
Nos. 05-4558 & 06-1984 19
to enjoin the IGB defendants from “expropriating” the
only valuable asset in Emerald’s estate, and (2) whether
the court was wrong to conclude that, under Emerald’s
chapter 11 plan, it lacked authority to require the IGB
defendants to comply with the terms of “agreements they
voluntarily entered into in connection with the Plan.”
Much of what we have said thus far points the way to the
resolution of these arguments too—in particular our
finding that nothing in the plan compelled the Attorney
General or a newly reconstituted Board to refrain from
pursuing the disciplinary proceedings against Emerald. We
add here only what is necessary to explain why we are
affirming the district court’s judgment in Emerald’s
appeal.
We have already noted that the Supreme Court’s deci-
sion in Katz recognized that the state’s sovereign immunity
does not extend to the adjudication of preferences
in a bankruptcy proceeding. Like Rosemont, however,
Emerald is not arguing that the IGB or the state of Illinois
wants to adjudicate a claim to funds that might or might
not be part of its estate. The IGB instead has consistently
argued that it is entitled to exercise the state’s regulatory
authority over the license. We see nothing in either Katz or
Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440(2004) (noting that bankruptcy proceedings are in rem),
that undermines the state’s sovereign immunity for this
kind of claim. Even if we are wrong, however, it is not
necessary to decide that issue today. Nothing in the plan
promises that the state will cede its regulatory authority
in this way, and it is easy to understand why. Hypotheti-
cally, a group of rogues and thieves could seize control of
a gambling license, and the state would have every reason
to investigate and, if need be, to revoke the license.
On a more fundamental level, it is well established that
one Congress, or one legislature, cannot bind a future
Congress or legislature with respect to police power
20 Nos. 05-4558 & 06-1984
legislation. See Reichelderfer v. Quinn, 287 U.S. 315, 318
(1932) (“[T]he will of a particular Congress . . . does not
impose itself upon those to follow in succeeding years.”). It
is for each elected legislature to express the will of the
people as it sees fit. The only exception to this rule ap-
plies when the legislature intends to confer a vested right
on the recipient, as it might with respect to a land patent,
for example, or if it intends to create a binding contract.
Nothing in the IRGA even hints at the idea that a gam-
bling license, once granted, is a vested right in the hands
of the operator. To the contrary, the statute expressly
states that the Board has the power “[t]o revoke or sus-
pend licenses, as the Board may see fit and in compliance
with applicable laws of the State regarding administra-
tive procedures. . . .” 230 ILCS 10/5(c)(11). Compare In re
Barnes, 276 F.3d 927, 928 (7th Cir. 2002) (indicating that
although a liquor license is “property” for some purposes it
can be revoked upon proof of misconduct). Thus, the
idea that a few members of the IGB, through their testi-
mony before the bankruptcy court, could tie the hands of
the Board as a whole after its membership changed with
respect to the question whether to pursue a disciplinary
proceeding is untenable.
Although Emerald argues that the bankruptcy court had
the power to enter the injunction it wanted, because
bankruptcy is an in rem proceeding, we agree with the
district court that the present case does not implicate
that power. Emerald wants the bankruptcy court to enjoin
a state regulatory agency, the IGB, from exercising its
powers under a state statute to regulate the gambling
industry. The Bankruptcy Code does not presume to
confer any such power on the district court or its bank-
ruptcy unit. To the contrary, § 362(b) of the Code has this
to say about the matter:
(b) The filing of a petition under section 301, 302, or
303 of this title, or of an application under section
Nos. 05-4558 & 06-1984 21
5(a)(3) of the Securities Investor Protection Act of
1970, does not operate as a stay—
* * *
(4) under paragraph (1), (2), (3), or (6) of subsection (a)
of this section, of the commencement or continuation
of an action or proceeding by a governmental unit . . .
to enforce such governmental unit’s or organization’s
police and regulatory power, including the enforce-
ment of a judgment other than a money judgment,
obtained in an action or proceeding by the govern-
mental unit to enforce such governmental unit’s or
organization’s police or regulatory power . . . .
11 U.S.C. § 362(b)(4). This language establishes that even
though Emerald’s license is for some purposes “property
of the estate,” see 11 U.S.C. § 541, the Code forbids the
bankruptcy court from interfering with the government’s
police and regulatory powers.
Emerald’s position is similar to that of one of the parties
in Nelson v. La Crosse County Dist. Atty. (State of Wiscon-
sin), 301 F.3d 820 (7th Cir. 2002). In Nelson, a married
couple filed for personal bankruptcy. After Mrs. Nelson
received an individual discharge, the state filed a separate
criminal charge against her for crimes connected with
her operation of a business. Id. at 823. In response, Mrs.
Nelson commenced an adversary proceeding in her in-
dividual bankruptcy case against the District Attorney’s
Office and the individual DA who was handling her
prosecution. She argued that they were violating 11 U.S.C.
§ 524, which forbids creditors from taking steps to col-
lect a discharged bankruptcy debt from the debtor by
initiating a criminal action in order to obtain a restitution
order. Id. at 824. Like Emerald, Mrs. Nelson asked for
injunctive relief. This court concluded that the suit was
barred for three reasons: there was no valid abrogation of
the state’s Eleventh Amendment immunity; the state had
22 Nos. 05-4558 & 06-1984
not waived its immunity; and the proceeding was not
within the bankruptcy court’s in rem jurisdiction. Although
the Supreme Court disagreed in Katz with our reason-
ing on the Eleventh Amendment point, both the outcome
and the other two reasons remain sound. Although the IGB
has not been conducting a criminal proceeding, we find the
analogy to Nelson apt, and we regard Nelson as further
support for the conclusion we reach here.
The last point we address is Emerald’s argument that
the IGB is bound by the commitments the former Board
made in the Second Side Letter of August 2, 2004. This
was the letter that the Board sent to Emerald in which it
agreed to conduct a suitability review of Isle of Capri and
to suspend, and ultimately to dismiss, the disciplinary
proceeding. As we have already explained, the Second
Side Letter was not the IGB’s last word on the subject:
later, in the spring of March 2005, the reconstituted Board
decided to resume the disciplinary proceedings. In addi-
tion, as we have noted several times, the Attorney Gen-
eral was not a party to the August letter and the Board
even then recognized that it had no power to bind her. The
August 2004 letter was, as the bankruptcy judge predicted,
at best an indication of the Board’s present intentions; it
did not set those intentions in stone so that they tied the
hand of future Boards.
IV
We take no position on the question whether Emerald’s
license should or should not have been revoked. We hold
here only that nothing in the confirmed plan of reorgani-
zation that the bankruptcy judge approved required the
IGB to refrain from pursuing its disciplinary proceeding,
and nothing in either bankruptcy law or more general
principles of law would support the kind of interference
with the state administrative proceedings that Emerald
Nos. 05-4558 & 06-1984 23
and Rosemont have requested. We therefore AFFIRM
both judgments of the district court.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—4-3-07