Antitrust Law Daily Wrap Up, RICO—7th Cir.: Casinos stripped of treble damages in appeal of ‘pay-to-play’ conspiracy, (Aug 3, 2016)

By Mark Engstrom, J.D.

A jury award of $25.9 million to Illinois casinos should not have been trebled under RICO—even though the casinos were injured by a conspiracy to bribe an Illinois governor in a "pay-to-play" scheme involving tax benefits to the horseracing industry—because the trial evidence was legally insufficient to support a pattern of racketeering, the U.S. Court of Appeals in Chicago has ruled. A district court’s denial of the defendants’ renewed motion for judgment as a matter of law on the RICO claim was reversed, and the case was remanded for the entry of a modified judgment (Empress Casino Joliet Corp. v. Balmoral Racing Club, Inc., August 2, 2016, Hamilton, D.).

In 2008, racetrack operator John Johnston promised Illinois Governor Rod Blagojevich a $100,000 campaign contribution to secure the governor’s signature on a bill to tax Illinois casinos for the benefit of the state’s horseracing industry. When the governor’s illegal actions became public, the casinos sued Johnston’s racetracks for engaging in a RICO conspiracy. Thereafter, they added claims for unjust enrichment and a civil conspiracy.

A jury concluded that the racetrack defendants were liable on all three counts. The casinos were awarded $25.94 million in damages, trebled to $77.82 million under RICO. On appeal, the racetracks challenged the legal sufficiency of the evidence for a RICO conspiracy. According to the racetracks, the district court should not have denied their renewed motion for judgment as a matter of law on the RICO claim.

More specifically, the racetracks argued that a rational jury could not have concluded that: (1) the racetracks agreed to facilitate a RICO enterprise; (2) the racetracks consummated a quid pro quo agreement with the governor; (3) the racetracks agreed that someone would commit two RICO predicate acts; or (4) the bribery scheme formed a pattern of racketeering.

Facilitation. The racetracks failed to properly preserve their argument that the evidence was insufficient to support a finding that the racetracks had agreed to facilitate a racketeering enterprise. According to the court, the racetracks never argued—in their pre-trial or post-trial motions—that the evidence did not show that the racetracks had knowingly facilitated the activities of a RICO enterprise.

Quid pro quo. The court noted that a quid pro quo agreement to trade a campaign contribution for the governor’s signature was the foundation of the casinos’ claim for a RICO conspiracy. In the court’s view, the parties proffered sufficient evidence to permit a rational jury to find that a quid pro quo agreement was consummated. First, ample evidence showed that the governor and a lobbyist—the governor’s former chief of staff and campaign manager, AlonzoMonk—had indicated to Johnston that the governor would sign a 2008 tax bill in exchange for a campaign contribution. Second, a reasonable jury could have concluded that Johnston had agreed to that quid pro quo on behalf of the racetracks.

According to the court, the evidence was sufficient to allow the jury to find that the governor’s "quick signature" on the 2008 Act was conditioned on Johnston’s campaign contribution, that Monk had communicated the governor’s expectations to Johnston, and that Johnston had agreed to a quid pro quo arrangement.

Two predicate acts. The racetracks challenged the sufficiency of the evidence in support of their agreement that someone would commit at least two predicate acts of racketeering. In the court’s view, a rational jury could have found that Johnston had committed, or had agreed to the commission of, several predicate acts, including bribery, extortion, and honest services fraud.

Pattern of racketeering. The court noted that the commission of two predicate acts was a necessary, but not necessarily a sufficient, requirement for a pattern of racketeering. "Related" predicate acts and a sufficient "continuity" were also required. In this case, continuity was the element at issue, and continuity could be "closed" (a completed period of repeated conduct) or "open" (past conduct with a threat of repetition). According to the court, the bribery scheme did not exhibit "closed-ended" continuity, and the casinos had not relied on it.

With respect to "open-ended" continuity, the similarly court found that the record evidence did not show a threat of repetition. The case involved a single quid pro quo agreement to exchange a single campaign contribution for the governor’s signature on a single bill, the court explained. And once the governor signed the bill, the scheme was over.

A reasonable jury could not have found an open-ended scheme, the court explained, because a specific threat of repetition was not present. Once the bill was signed, the scheme reached its "natural end point." Although the tax payments that supported the racetracks "continued for a limited time," those payments did not support an open-ended continuity.

The casinos argued that the continuity requirement was satisfied because the racetracks could resume their bribes when the tax law expired in 2011. In fact, the district court had adopted that theory—based on the law’s sunset provision—when it denied the racetracks’ renewed motion for judgment as a matter of law. The district court noted that Johnston and other members of the horseracing industry had considered what would happen when the law expired, and further noted that testimony had indicated that the governor "regularly traded state action for campaign contributions."

Although the district court’s suspicions were "understandable," the appellate court concluded that they were "too close to speculative" to support a finding of continuity. A gubernatorial election would occur in 2010, the appellate court noted, and no one in 2008 could know who would become governor in 2011, or whether illegal tactics would be needed to secure the reenactment of the 2008 law in 2011. Further, the evidence regarding the racetracks’ consideration of the sunset provision did not reveal any plans to secure renewal through illegal means.

The court acknowledged that the evidence showed that the governor’s regular way of conducting business involved bribery. However, the governor was not the defendant in this case, and the relevant question was the scope of the quid pro quo agreement between Johnston and the governor. Significantly, Monk and Johnston had both testified that Johnston was unaware of the governor’s "other schemes," and the defendants’ liability on the RICO conspiracy claim could not be based on their "mere association" with a racketeering enterprise.

The relevant standard was whether the defendants’ had agreed that someone would commit two predicate acts, the court explained, and whether the defendants had agreed to either "maintain an interest in or control of an enterprise" or to "participate in the affairs of an enterprise through a pattern of racketeering activity." According to the court, there was no evidence to show that Johnston had agreed to participate in any corrupt scheme other than the bribery scheme that was used to secure the governor’s signature on the 2008 tax law. A one-time bribe to a corrupt public official was criminal and wrong, the court acknowledged, but it was insufficient, by itself, to prove a pattern of racketeering.

Ultimately, the casinos did not present sufficient evidence to allow a reasonable jury to find that the racetracks had agreed to conduct their regular business through quid pro quo bribes, or had agreed to regularly participate in the governor’s "larger corrupt scheme" through bribery. Similarly, the evidence did not allow a reasonable jury to conclude that a future threat of that type of activity was present. Instead, the evidence revealed a scheme with a natural ending point.

For those reasons, open-ended continuity was not present. The appellate court reversed the district court’s denial of the racetracks’ renewed motion for judgment as a matter of law on the casinos’ RICO claim.

The case is No. 15-2526.

Attorneys: Robert Andalman (A&G Law LLC) for Empress Casino Joliet Corp., Des Plaines Development Limited Partnership d/b/a Harrah's Casino Cruises Joliet, and Hollywood Casino Aurora, Inc. Jonathan W. Garlough (Foley & Lardner LLP) for Balmoral Racing Club, Inc., and Maywood Park Trotting Association, Inc.

Companies: Empress Casino Joliet Corp.; Des Plaines Development Limited Partnership, d/b/a Harrah's Casino Cruises Joliet; Hollywood Casino Aurora, Inc.; Balmoral Racing Club, Inc.; Maywood Park Trotting Association, Inc.

Cases: RICO IllinoisNews IndianaNews WisconsinNews