Antitrust Law Daily Wrap Up, RICO—7th Cir.: Proximate cause found to support RICO allegations in racetracks’ relationship to Illinois Governor regarding casino tax, (Aug 18, 2014)

By Edward L. Puzzo, J.D.

The U.S. Court of Appeals in Chicago has ruled that there was sufficient evidence for a reasonable jury to find proximate cause supporting Illinois casinos’ claims of a conspiracy in violation of RICO between racetracks and the Illinois Governor to impose a tax benefitting the racetracks at the expense of the casinos (Empress Casino Joliet Corp. v. Johnston, August 15, 2014, Wood, D.).

After Illinois legalized casino gambling in 1990, horseracing, the other form of legalized gambling in the state, experienced a substantial decline in revenue. In 2006, legislation was passed and signed into law by Governor Blagojevich that imposed a 3% tax on certain larger casinos, the revenues from which were put in a fund for the benefit of the state’s racetrack industry. That legislation had a two-year sunset provision. Again in 2008, similar legislation was passed and signed into law by the Governor.

Evidence was produced indicating that the Governor had received over $125,000 in campaign contributions from racetrack executives after signing the 2006 legislation into law and that he had been promised $100,000 by Jack Johnston, one such executive, in anticipation of his signing into law the 2008 legislation.

Blagojevich had signed the 2006 legislation into law immediately upon passage, but did not take immediate action after the legislature passed the 2008 legislation. Evidence indicated that Blagojevich’s representative discussed with racetrack executive Johnston his $100,000 campaign contribution pledge, but the contribution was not made. Blagojevich did not sign the 2008 legislation into law until after his arrest on bribery charges of having linked the $100,000 campaign contribution to his enactment of the 2008 legislation.

The casinos affected by the tax filed a federal lawsuit under the Racketeering Influenced and Corrupt Organizations Act (RICO), alleging that various members of the racetrack industry had engaged in a conspiracy to bribe the Governor to ensure the casino tax legislation was enacted in 2006 and 2008. The district court granted summary judgment to the defendant racetracks. That court found that that a reasonable jury could find that there had been a pattern of racketeering activity, and that an enterprise-in-fact had existed. However, the casinos could not show that the alleged bribes proximately caused injury to them, and therefore the defendant racetracks were granted summary judgment. The casinos appealed.

Proximate cause. RICO borrows the doctrine of proximate cause from antitrust law, the appellate court explained. It focuses on the directness of the relationship between the defendant’s alleged conduct and the harm, rather than the amount of damages attributable to the violation.

The appellate court analyzed the circumstances surrounding the 2006 and 2008 legislation separately.

2006 Act. The court noted that the casinos made no allegation that that the racetracks ever attempted to bribe legislators, nor that the Governor agreed to use his influence over the legislators to pass the 2006 legislation in exchange for a bribe. Every legislator deposed claimed that the Governor had made no attempt to induce his or her 2006 vote. Allegations that the Governor threatened to withhold funding to various legislators’ districts was unsubstantiated, the court continued, and if substantiated would tend to show permissible “logrolling,” or the exchange of political favors, rather than impermissible bribery. Evidence was similarly lacking that the racetracks had offered a bribe to the Governor’s representatives in exchange for his signature on the 2006 legislation. The fact that the racetracks made political campaign contributions, without more, did not support liability for acts of political corruption, the court continued.

Because the evidence the casinos presented in opposition to summary judgment with respect to the 2006 Act would not permit a trier of fact to rule in their favor, the district court properly granted summary judgment for the racetracks on these claims, the appellate court ruled.

2008 Act. The circumstances surrounding the passage of the 2008 Act differed from those surrounding the passage of the 2006 Act, the court stated. Here, the casinos alleged that the racetracks and the Governor agreed to a quid pro quo whereby the racetracks promised to give the Governor a $100,000 campaign contribution in exchange for his signature on the 2008 Act.

The record contains considerable evidence that, if credited, would support the quid pro quo allegation, the court stated. When the Governor reported to his representative that he would “like some separation between that and signing the bill,” a fact finder could conclude that he was referring to the racetrack executive’s pledge of $100,000. Additionally, the Governor’s representative reportedly met with the racetrack executive to deliver the message that the 2008 Act would not be signed into law until the $100,000 campaign contribution was made. From this and other evidence, the court stated, a reasonable juror could conclude that a quid pro quo existed.

Unlike the casinos’ allegation regarding the 2006 Act that the racetracks bribed the Governor to persuade the legislature to pass the bill, the casinos’ allegations surrounding the 2008 bill were that it became law as a direct result of an agreement to trade money for one person’s act—the Governor’s signature. Here, the court stated, unlike the 2006 Act allegations, a jury could reasonably find proximate cause—a direct relationship between the defendants’ alleged conduct and the resultant harm. Nothing in U.S. Supreme Court precedent regarding RICO and proximate cause, the court continued, would bar the casinos from pursuing their claim with respect to the 2008 Act, the court concluded.

If the casinos are correct, the racetracks agreed to pay the Governor $100,000 in exchange for his signature on the 2008 Act, and this agreement caused the plaintiff casinos to lose 3% of their annual revenue in the form of the tax imposed by the 2008 Act. This showed a direct relation between the injury asserted and the injurious conduct alleged, the court stated. Consequently, the court reversed and remanded the district court’s grant of summary judgment in favor of the defendant racetracks insofar as it related to the 2008 Act.

The case is Civil Action No. 13-2972.

Attorneys: Robert Andalman (A&G Law LLC) for Empress Casino Joliet Corp., Des Plaines Development Ltd. Partnership, Hollywood Casino - Aurora, Inc., and Elgin Riverboat Resort-Riverboat Casino. William J. McKenna, Jr. (Foley & Lardner LLP) for John Johnston, Balmoral Racing Club, Inc., and Maywood Park Trotting Association, Inc.

Companies: Empress Casino Joliet Corp.; Des Plaines Development Ltd. Partnership; Hollywood Casino - Aurora, Inc.; Elgin Riverboat Resort-Riverboat Casino; Balmoral Racing Club, Inc.; Maywood Park Trotting Association, Inc.

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