Arneault v. O'Toole

• Decision Date: 28 March 2012
• Docket Number: Case No. 1:11–cv–95–SJM.
• Citation: 864 F.Supp.2d 361
• Parties: Edson R. ARNEAULT, et al., Plaintiffs, v. Kevin T. O'TOOLE, et al., Defendants.
• Court: U.S. District Court — Western District of Pennsylvania

864 F.Supp.2d 361

Edson R. ARNEAULT, et al., Plaintiffs,

v.Kevin T. O'TOOLE, et al., Defendants.

Case No. 1:11–cv–95–SJM.

United States District Court, W.D. Pennsylvania.

March 28, 2012.

John F. Mizner, Joseph M. Kanfer, Mizner Law Firm, Erie, PA, for Plaintiffs.

Lee A. Rosengard, David E. Somers, Philadelphia, PA, Gregory A. Miller, John A. Goodman, Mariah L. Passarelli, Buchanan Ingersoll & Rooney PC, Peter S. Wolff, Robert R. Leight, William Pietragallo, II, Pietragallo, Bosick & Gordon, Pittsburgh, PA, John M. Donnelly, Levine, Staller, Sklar, Chan, Brown & Donnelly, P.A., Atlantic City, NJ, Henry F. Siedzikowski, Frederick P. Santarelli, Krista K. Beatty, Elliott Greenleaf & Siedzikowski, PC, Blue Bell, PA, James T. Marnen, Marnen Mioduszewski Bordonaro Wagner & Sinnott, LLC, Ronald A. Dinicola, Dinicola Law Offices, Erie, PA, for Defendants.

MEMORANDUM OPINION

McLAUGHLIN, SEAN J., District Judge.

This civil action arises out of events surrounding the creation and operation of a gaming facility located in Erie County and known as Presque Isle Downs. The Plaintiffs are Edson R. Arneault, an accountant and businessman experienced in the gaming industry, Gregory J. Rubino, a real estate agent and developer in Erie County, Pennsylvania, and Passport Realty, LLC (“Passport Realty”), a limited liability company organized under the laws of Pennsylvania whose day-to-day operations are handled by Rubino. Passport Realty is the successor in interest to Tecnica Development Corp. (“Tecnica”), a real estate development company formed by Rubino.

Named as Defendants are numerous individuals and/or corporate entities which can be delineated into the following groups. The first includes Kevin F. O'Toole, the Executive Director of the Pennsylvania Gaming Control Board (“PGCB”) and R. Douglas Sherman, the PGCB's Chief Counsel. Plaintiffs refer to these individuals collectively as the “PGCB Employee Defendants,” and this Court will as well.

The second group of Defendants consists of eight present and former members of the Pennsylvania Gaming Control Board of Commissioners (collectively, the “Board”)—namely, Gregory C. Fajt, Raymond S. Angeli, Jeffrey W. Coy, James B. Ginty, Kenneth T. McCabe, Gary A. Sojka, Kenneth I. Trujillo, and Sanford Rivers. At times, these individuals will be referred to as the “Commissioner Defendants.”

The third group of Defendants includes E. Barry Creany (Deputy Chief Enforcement Counsel for the PGCB), Philip J. Rendin (Regional Director of the PGCB's Western Regional Office), Thomas J. Brletic (a Supervisor in the Western Regional Office of PGCB's Bureau of Investigation and Enforcement (“BIE”)), Gary Tallent (an agent in the BIE's Western Regional Office), and David Smith (also an agent in the BIE's Western Regional Office). This group of individuals will be collectively referred to as the “BIE Defendants.”

The fourth group of Defendants includes MTR Gaming Group, Inc. (“MTR”), its wholly-owned subsidiary Presque Isle Downs, Inc. (“PIDI”), James v. Stanton (a director of MTR who has also served as a member of MTR's Audit, Succession, Compensation, Nominating and Gaming Compliance Committees), John Bittner (Chief Financial Officer of MTR), Narciso Rodriguez–Cayro (Secretary of MTR and also its Vice President of Regulatory Affairs and General Counsel), and Vincent Azzarello (at relevant times, the Human Resources Manager for MTR as well as a compliance officer and member of MTR's Gaming Compliance Committee). This group of Defendants will be collectively referred to as the “MTR Defendants.”

The other remaining Defendants are Robert Griffin (the past President and CEO of MTR from approximately September 26, 2008 until September 30, 2010), David Hughes (a former Chief Financial Officer and/or administrator of MTR), Leonard Ambrose (an attorney licensed to practice law in Pennsylvania), and, finally, Nicholas C. Scott and Scott's Bayfront Development,Inc. (collectively, the “Scott Defendants”).

Each of the foregoing groups of Defendants have filed motions to dismiss, in whole or in part, the Plaintiff's Amended Complaint (Doc. # 50), which is the operative pleading in this case. For the reasons set forth below, this Court will dismiss Plaintiffs' federal claims with prejudice and will dismiss the remaining state law claims without prejudice to be reasserted in state court.¹

I. BACKGROUND

This action was commenced on April 15, 2011 when the Plaintiffs filed their complaint in federal district court. The Amended Complaint (“AC”) is quite lengthy, consisting of some 147 pages and 469 paragraphs. Because we are writing primarily for the benefit of the parties, who are well-acquainted with the allegations in the Amended Complaint, we will not recite all of the averments in that pleading except as necessary to address the pending motions. Instead, we will summarize the gist of Plaintiff's allegations as well as their various claims.

Defendant MTR, formerly known as Mountaineer Park, is a corporation organized under the laws of Delaware and located in West Virginia. (AC ¶ 25, 39, 41.) From 1995 through October 31, 2008, Arneault served as CEO of MTR, during which time the company's revenues grew from $24.9 million to $407 million and expanded its operations in six states. (AC ¶ 42.) PIDI is a Pennsylvania corporation physically located in Summit Township, Erie County, Pennsylvania. ( Id. at ¶ 26.) PIDI is a wholly-owned subsidiary of MTR. ( Id.)

The allegations in this case arise out of efforts by MTR and PIDI to develop a racetrack and casino in Erie, Pennsylvania, known as the Presque Isle Downs. In early 2001 MTR (through Arneault) and Tecnica (through Rubino) met to discuss the prospects of horse racing and gaming in the Erie market. At that time, Tecnica was a company that provided real estate development and consulting services. (AC ¶ 56.)

As a result of these discussions, MTR and Tecnica entered into a consulting agreement, pursuant to which Tecnica was responsible for all development activity including the acquisition of land, development, zoning and environmental permits, and the coordination of all other professionals involved in the development of a racetrack (and, ultimately, a casino) in Erie County. (AC ¶ 57.) In May of 2002, the consulting agreement was amended to include the acquisition of other potential sites and to add PIDI as a party. ( Id. at ¶ 58.) This agreement provided compensation to Tecnica in the amount of an initial $50,000 fee, an additional $250,000 fee when property for the racetrack was acquired, and a $10,000 per month retainer while work was ongoing. In addition, once the race track opened, Tecnica was to earn a fee equal to 3% of the racetrack's earnings. ( Id. at 59.)

On December 28, 2005, MTR and PIDI applied to the PGCB for a Category 1 Gaming License. (AC ¶ 62.) Thereafter, Tecnica and Rubino were notified by representatives of MTR and PIDI that both Tecnica and Rubino would need to file applications for licensure with the PGCB because of the fact that Tecnica had a financial interest in PIDI's gaming profits. ( Id. at ¶ 66.)

On March 7, 2006, Rubino's counsel wrote to Lisa McClain of the PGCB, statinghis view that neither Rubino nor Tecnica were required to register with the PGCB or submit any filing under the Gaming Control Act and applicable regulations. This letter also asked that PGCB confirm its agreement with the position outlined by Rubino's counsel. (AC ¶ 67.)

By letter dated March 21, 2006, Susan Hensel, the Director of the PGCB's Bureau of Licensing, refused to “provide such confirmation” and reiterated the PGCB's position that both Rubino and his wife, along with Tecnica, needed to either file Key Employee Qualifier forms, terminate Tecnica's consulting agreement with MTR and PIDI, or seek a waiver or declaratory judgment that they were not required to be licensed. (AC ¶ 68.) In this letter, Hensel materially miscalculated Rubino's potential proceeds from the consulting agreement and further indicated that PIDI's license application would be delayed in the event Rubino (or his wife) were to seek a waiver or petition the PGCB for a declaratory determination that their own licensure was not required. Hensel concluded her letter with a request that Rubino direct his future communications through the attorneys for PIDI. ( Id.)

Despite their view that neither the Gaming Act nor the applicable administrative regulations required them to do so, Tecnica and Rubino filed Key Employee Qualifier Waiver forms on June 1, 2006, allegedly under “duress” and with the intent of expediting PIDI's licensure. (AC ¶ 70.) Despite this, the PGCB informed counsel for MTR/PIDI, via letter dated July 7, 2006, that Rubino and his wife were required to submit Key Employee Qualifier forms and Multi–Jurisdictional Applications and that Tecnica would have to submit a Conditional/ Category 1 Application as an affiliate of PIDI. ( Id. at ¶ 71.) Further, these documents were required to be submitted no later than July 14, 2006 in order to “ensure continued processing” of PIDI's license application—a task that Plaintiffs allege was “onerous, practically impossible to complete in seven days, and without precedent for a [realtor] in Mr. Rubino's situation.” ( Id.) Rubino and Tecnica filed the requested forms in late July or early August 2006, despite their belief that no legal or logical basis existed for the imposition of this requirement. ( Id. at ¶¶ 73–74.)

Approximately two months later, Arneault contacted Rubino to inform him that PGCB was forcing MTR/PIDI to terminate its consulting agreement with Tecnica. (AC ¶ 75.) Under what Rubino claims was “extreme duress,” ( id. at ¶ 79), he agreed to terminate the consulting agreement because he understood that a refusal to do so would result in further delays in the approval of PIDI's slot machine license and this, in turn, would cause PIDI to lose tens of millions of dollars and potentially affect the employment of some...