Sterling Suffolk Racecourse v. Wynn Resorts, Ltd.

United States Court of Appeals
For the First Circuit
No. 20-1512
STERLING SUFFOLK RACECOURSE, LLC,
Plaintiff, Appellant,
v.
WYNN RESORTS, LTD.; WYNN MA, LLC; STEPHEN WYNN; KIMMARIE
SINATRA; MATTHEW MADDOX; FBT EVERETT REALTY, LLC,
Defendants, Appellees,
PAUL LOHNES,
Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Patti B. Saris, District Judge]
Before
Lynch, Thompson, and Barron,
Circuit Judges.
Steven Storch, with whom Edward Dolido, Storch Byrne LLP,
David A. Russcol, Inga S. Bernstein, and Zalkind Duncan & Bernstein
LLP were on brief, for appellant.
Peter A. Biagetti, with whom Samuel M. Starr, Mintz, Levin,
Cohn, Ferris, Glovsky, and Popeo, P.C., Mark Holscher, and Kirkland
& Ellis LPP were on brief, for appellees Wynn Resorts Ltd.,
Wynn MA, LLC, and Matthew Maddox.
Aaron M. Katz, with whom Joshua S. Levy, Ropes & Gray LLP,
Christopher Weld, Christian Kiely, and Todd & Weld LLP were on
brief, for appellee FBT Everett Realty, LLC.
James N. Kramer, with whom Douglas H. Meal, Christine E.
Hanley, and Orrick, Herrington & Sutcliffe LLP were on brief, for
appellee Kimmarie Sinatra.
Joshua C. Sharp, with whom Brian T. Kelly and Nixon Peabody
LLP were on brief, for appellee Stephen Wynn.
March 3, 2021
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LYNCH, Circuit Judge. In 2014, the Massachusetts Gaming
Commission (the "Commission") granted a gaming license pursuant to
state law to Wynn MA, LLC, a wholly owned subsidiary of Wynn
Resorts, Ltd. (collectively "Wynn"). That license said Wynn would
construct a casino in Everett, Massachusetts. Mohegan Sun
Massachusetts ("Mohegan") was the disappointed alternative
applicant. Mohegan had proposed a casino facility in East Boston.
Sterling Suffolk Racecourse, LLC ("Sterling"), which owned that
East Boston site, was also disappointed by the Commission's
licensing decision.
On September 17, 2018, Sterling brought this action
under the civil portion of the Racketeer Influenced and Corrupt
Organizations Act ("RICO"), 18 U.S.C. § 1964(c), against: (1) Wynn
MA, LLC, (2) Wynn Resorts, Ltd., (3) Stephen Wynn, the founder and
former CEO of Wynn Resorts, (4) Kimmarie Sinatra, the former
General Counsel and Executive Vice President of Wynn Resorts, (5)
Matthew Maddox, the former Wynn Resorts President and CFO and its
current CEO, and current President and Treasurer of Wynn, MA, and
(6) FBT Everett Realty, LLC, the owner of the Everett site for the
Wynn casino. Sterling alleged these parties conspired to deprive
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Mohegan of a gaming license, costing Sterling the opportunity to
lease its East Boston property to Mohegan.1
The district court granted defendants' motion to
dismiss. Sterling Suffolk Racecourse, LLC v. Wynn Resorts, Ltd.,
419 F. Supp. 3d 176, 196 (D. Mass. 2019). We conclude that the
case was properly dismissed, but for different reasons. Sterling
has not and cannot meet the causation of injury requirements set
forth at 18 U.S.C. § 1964(c).
I.
The district court's memorandum opinion and order
comprehensively describes Sterling's allegations and the
Massachusetts gaming licensing process.2 Sterling Suffolk
Racecourse, LLC, 419 F. Supp. 3d at 180-89. Briefly, in 2011
Massachusetts created a competitive application process for
exclusive licenses to operate casinos in Massachusetts. An Act
1 Sterling also originally sued Paul Lohnes, who owned the
largest stake in FBT Everett Realty, but it did not renew those
claims in its amended complaint.
2 This court has also described the Massachusetts Gaming
Act in two prior cases. In 2015, we affirmed the district court's
dismissal of Caesars Entertainment, Inc.'s Fifth and Fourteenth
Amendment challenges to the Massachusetts Gaming Commission's
denial of its licensing application, which proposed building a
casino at the same East Boston Sterling-owned site identified in
the Mohegan application. Caesars Mass. Mgmt. Co., LLC v. Crosby,
778 F.3d 327, 330 (1st Cir. 2015) (Souter, J.). In KG Urban
Enterprises, LLC v. Patrick, 693 F.3d 1, 25, 27 (1st Cir. 2012),
we affirmed the denial of a preliminary injunction seeking a
declaration that the Massachusetts Gaming Act is unconstitutional
under the Equal Protection Clause.
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Establishing Expanded Gaming in the Commonwealth, 2011 Mass. Acts
ch. 194 (largely codified at Mass. Gen. Laws ch. 23K). It gave
the Commission the authority to grant a single exclusive gaming
license for each of three regions in Massachusetts. Mass. Gen.
Laws ch. 23K §§ 2, 19. Under the Massachusetts law, applicants
must first show they meet the statutory and regulatory
qualifications to operate a casino. See id. § 19; 205 C.M.R.
110.01, 115.00. Then, in a second step, they must demonstrate
that their project better serves the interests of the local area
and the Commonwealth of Massachusetts compared to the proposals of
any other qualified applicants. See Mass. Gen. Laws ch. 23K § 15.
If none of the applications in a given region adequately
demonstrate their benefit to the local area and the Commonwealth,
state law directs the Commission not to approve any application.
Id. § 19(a).
In 2013 Mohegan and Wynn both applied for an exclusive
license to construct a casino in Eastern Massachusetts. Wynn
reached a tentative agreement with FBT Everett Realty, LLC to use
its Everett property for Wynn's proposed casino. Mohegan entered
into an agreement that it would in the future lease Sterling's
East Boston location if Mohegan won the exclusive license and other
conditions were met.
The Commission found that Wynn MA, LLC and Wynn Resorts
were qualified to operate a casino. It also found that the eleven
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individuals responsible for managing the project, including
defendants Stephen Wynn, Kimmarie Sinatra, and Matthew Maddox,
were qualified and had demonstrated good moral character. The
Commission made the same finding for Mohegan and the individuals
listed on its application. In a 35-page report, the Commission
then concluded Wynn's proposal better served the interests of the
local area and the Commonwealth. On or about November 7, 2014, it
granted Wynn a license and denied Mohegan's application.
Later, the Commission revoked Stephen Wynn's good
character determination, and imposed a 35 million dollar fine
against Wynn Resorts when sexual misconduct allegations against
Stephen Wynn came to light. None of the other individuals listed
on Wynn's application were affected, and the Wynn project continued
without Stephen Wynn's involvement.
Sterling subsequently brought this RICO action to
recover the rents and other revenues it alleged it would have
earned from a future lease from Mohegan had Mohegan been granted
the license. Sterling alleges that to meet the strict regulatory
requirements that Massachusetts places on casino operators,
defendants concealed the sexual misconduct allegations against
Wynn, failed to disclose the criminal records of project
participants, provided false or misleading information about the
true ownership of the project location, and paid kickbacks to local
officials. Sterling claims that if defendants had acted lawfully
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during the application process, the Wynn application would have
been denied and the Mohegan application likely would have been
approved. Assuming nothing triggered the provisions that excused
performance in Mohegan's agreement to lease Sterling's East Boston
site if Mohegan received the gaming license, Sterling states it
would then have earned at least $3.465 billion in rental revenue
over a period of 99 years.
The district court granted defendants' motion to dismiss
on the grounds that Sterling had failed to allege a continuous
pattern of racketeering behavior by any of the defendants.
Sterling Suffolk Racecourse, 419 F. Supp. 3d at 194-95. Sterling
brought this timely appeal.3
II.
This court "review[s] the grant of a motion to dismiss
de novo." Abdisamad v. City of Lewiston, 960 F.3d 56, 59 (1st
Cir. 2020) (quoting Starr Surplus Lines Ins. Co. v. Mountaire Farms
Inc., 920 F.3d 111, 114 (1st Cir. 2019)). "We are not bound by
the district court's reasoning but, rather, may affirm an order of
dismissal on any ground evident from the record." MacDonald v.
3 Defendants moved to dismiss Sterling's appeal as
untimely. Sterling filed this appeal 178 days after the district
court's memorandum and order. The district court did not enter a
separate judgment, so pursuant to Federal Rule of Appellate
Procedure 4(a)(7)(A)(ii) the final judgment was entered 150-days
after the memorandum and order. Sterling's appeal, filed 28 days
later, was thus timely. Fed. R. App. P. 4(a)(1)(A).
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Town of Eastham, 745 F.3d 8, 11 (1st Cir. 2014) (citing Haley v.
City of Bos., 657 F.3d 39, 46 (1st Cir. 2011)).
Because Sterling has failed to make a threshold showing
that it suffered any direct injury entitling it to RICO relief, we
affirm the dismissal of the complaint.
RICO allows a private civil claim by "[a]ny person
injured in his business or property by reason of a violation of
[the criminal RICO provisions]." 18 U.S.C. § 1964(c). Three
Supreme Court cases interpret "by reason of" to require that a
plaintiff in a civil RICO action show that the defendant's actions
were "not only . . . a 'but for' cause of [plaintiff's] injury,
but . . . the proximate cause as well." Holmes v. Sec. Inv. Prot.
Corp., 503 U.S. 258, 268 (1992); see Hemi Group, LLC v. City of
N.Y., 559 U.S. 1, 9 (2010) (citing Holmes, 503 U.S. at 268, 271,
274); Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 461 (2006).
The "central question" in evaluating proximate causation in the
RICO context "is whether the alleged violation led directly to the
plaintiff's injuries." Anza, 547 U.S. at 461.
The Supreme Court's most recent decision in this area,
Hemi, states, "[a] link [between the RICO predicate acts and
plaintiff's injuries] that is 'too remote,' 'purely contingent,'
or 'indirec[t]' is insufficient" to show proximate cause. 559
U.S. at 9 (quoting Holmes, 503 U.S. at 271, 274). This requirement
reflects "[t]he general tendency of the law, in regard to damages
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at least, . . . not to go beyond the first step." Id. at 10
(quoting Holmes, 503 U.S. at 271-72). Relatedly, the Hemi court
found it highly "relevant to the RICO 'direct relationship'
requirement . . . whether better situated plaintiffs would have an
incentive to sue." Id. at 11-12 (citing Holmes, 503 U.S. at 269-
70).
This court has identified in these Supreme Court cases
"three functional factors with which to assess whether proximate
cause exists under RICO." In re Neurontin Mktg. & Sales Pracs.
Litig., 712 F.3d 21, 35-36 (1st Cir. 2013) (citing Holmes, 503
U.S. at 269-70). These are (1) "concerns about proof" because
"the less direct an injury is, the more difficult it becomes to
ascertain the amount of a plaintiff's damages attributable to the
violation, as distinct from other, independent, factors," id. at
36 (quoting Holmes, 503 U.S. at 269); (2) "concerns about
administrability and the avoidance of multiple recoveries," id.;
and (3) "the societal interest in deterring illegal conduct and
whether that interest would be served in a particular case," id.As to this third factor, "directly injured victims can generally
be counted on to vindicate the law . . . without any of the problems
attendant upon suits by plaintiffs injured more remotely." Id.(quoting Holmes, 503 U.S. at 269-70).
Applying the Hemi analysis, it is clear that Sterling
has not sufficiently alleged a direct, non-contingent injury. See
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559 U.S. at 9, 12. At minimum, Mohegan, which is not involved in
this suit, is a "better situated plaintiff[]" with "an incentive
to sue." Id. at 11-12 (citing Holmes, 503 U.S. at 269-70). Mohegan
was Wynn's direct competitor for the gaming license. Sterling's
theory is that Wynn's wrongful conduct cost Mohegan the gaming
license, which in turn cost Sterling the benefit of a potential
lease with Mohegan. Any injury Mohegan suffered is necessarily
several steps closer to Wynn's allegedly wrongful conduct. By
attempting to recover directly from Wynn, Sterling's theory of
causation both "go[es] beyond the first step" of the injuries from
the alleged RICO scheme and is "purely contingent." Id. at 9, 10.
Sterling's claim "go[es] beyond the first step" of
injuries from the conspiracy because it is entirely derivative of
Mohegan's injury. Sterling is in the same position as any third-
party business which hoped for a major contract from the Mohegan
casino project, and lost that potential for business revenues when
Mohegan lost the application bid.4 This injury is at least as
4 Sterling argues that it is unique from other third-party
businesses because it was closely connected to Mohegan's
application and "the driving force" behind the Mohegan project.
These arguments are meritless. The Commission's review of the
Sterling site was the same as its review of other key vendors and
employees. See Mass. Gen. Laws ch. 23K § 16. And nothing in the
RICO Act or subsequent case law carves out an exception to the
stringent proximate causation requirements for businesses that are
highly motivated or financially reliant on doing business with the
direct victim of the RICO conspiracy.
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remote from the alleged RICO conduct as the claims rejected in
Holmes, Anza, and Hemi. See Holmes, 503 U.S. at 261-62 (holding
that a Securities Investor Protection Corporation (SIPC) could not
recover under RICO for stock-manipulation scheme that bankrupted
broker-dealers, triggering a statutory requirement that SIPC meet
the broker-dealers' obligations to their customers); Anza, 547
U.S. at 457-58 (holding that a business could not recover against
its competitor for a scheme to defraud the New York State tax
authority that allowed the defendant to undercut the plaintiff's
prices); Hemi, 559 U.S. at 6-8, 18 (holding that the City of New
York could not recover for online cigarette retailers' failure to
provide accurate tax information to the State of New York,
hindering New York City's efforts to collect taxes from cigarette
customers).
Moreover, any causal link between Wynn's conduct and
Sterling's lost rental income is "purely contingent." Holmes, 503
U.S. at 271. Sterling's agreement with Mohegan imposed conditions
that may have excused performance regardless of whether Mohegan
obtained a license from the Commission. Mohegan was released from
any obligation to perform in the event of a "Material Adverse
Change" affecting the lease, including if construction took longer
than two years for any reason outside of its control, or if local
authorities other than the Commission refused to approve the
project.
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These problems with Sterling's theory of causation cause
it to fail under each of the three functional factors laid out in
In re Neurontin. 712 F.3d at 36. Its claim raises difficult
issues of proof as to whether the conditions in Sterling's
agreement with Mohegan would have been satisfied in full. It also
presents a substantial risk of double recovery, because Mohegan
has more direct, less contingent potential claims. There were
surely others who also expected a substantial financial benefit
from the Mohegan project. And, as described, Mohegan, not
Sterling, is the "directly injured" party who can be "counted on
to vindicate the law . . . without any of the problems attendant
upon suits by plaintiffs injured more remotely." Id. (quoting
Holmes, 503 U.S. at 269-70).
None of the Supreme Court or circuit case law that
Sterling cites support its argument that persons who do business
with an entity harmed by a RICO conspiracy may recover against the
conspirators. Rather, each simply states that in some
circumstances fraudulent statements to one party may directly and
exclusively financially injure another party. In Bridge v. Phoenix
Bond & Indem. Co., 553 U.S. 639, 644-45, 649-50 (2008), the Supreme
Court held that plaintiffs plausibly alleged that false statements
to the county treasurer regarding lien auctions injured the
counterbidders, not the treasurer. In In re Neurontin, 712 F.3d
at 41-43, and In re Celexa & Lexapro Marketing & Sales Practices
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Litigation, 915 F.3d 1, 14 (1st Cir. 2019), this court held there
was sufficient evidence that false marketing to doctors harmed the
insurance companies who paid for the ineffective prescriptions,
not the doctors who issued those prescriptions. These cases do
not support Sterling's claim of injury.
In these circumstances, Sterling cannot show a "direct
injury" from Wynn's actions, and so its RICO claims fail as a
matter of law.
III.
The judgment of the district court is affirmed.
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