Caesars Mass. Mgmt. Co. v. Crosby
| Decision Date | 13 February 2015 |
| Docket Number | No. 14–1681.,14–1681. |
| Parties | CAESARS MASSACHUSETTS MANAGEMENT COMPANY, LLC, Caesars Massachusetts Development Company, LLC, Caesars Massachusetts Investment Company, LLC, and Caesars Entertainment Corporation, Plaintiffs, Appellants, v. Stephen P. CROSBY and Karen Wells, Defendants, Appellees. |
| Court | U.S. Court of Appeals — First Circuit |
Joan A. Lukey, with whom C. Thomas Brown, Eugene L. Morgulis, Ropes & Gray LLP, Justin J. Wolosz, and Choate Hall & Stewart LLP, were on brief, for appellants.
John M. Stephan, Assistant Attorney General, with whom Martha Coakley, Attorney General of Massachusetts, Janna J. Hansen, Assistant Attorney General, and Julia Kobick, Assistant Attorney General, were on brief, for appellees.
Before LYNCH, Chief Judge, SOUTER,* Associate Justice, and SELYA, Circuit Judge.
The plaintiff-appellant Caesars Entertainment Corporation and three Massachusetts affiliates (collectively, Caesars) were subject to an investigatory report by the Massachusetts Gaming Commission finding them unsuitable as proposed operators of a casino for which Sterling Suffolk Racecourse, LLC (SSR) sought a license. This action brought by Caesars under 42 U.S.C. § 1983 includes counts with (a) official capacity claims charging denial of Fifth and Fourteenth Amendment procedural and substantive due process and equal protection of the laws by the Commission's chairman, Stephen Crosby, and Karen Wells, Director of the Commission's Investigations and Enforcement Bureau (IEB), and seeking withdrawal of the report and cessation of any further reliance on it by the Commission; (b) individual capacity claims against Crosby on the same grounds, seeking compensatory and punitive damages; and (c) a claim subject to supplemental jurisdiction for liability under Massachusetts law for tortious interference with a contract between Caesars and SSR. The district court dismissed the federal claims under Federal Rule of Civil Procedure 12(b)(6) as beyond the scope of federal affordable relief, and consequently exercised its discretion to dismiss the state law claim as standing alone. This appeal touches on a multiplicity of legal and factual issues including Eleventh Amendment state immunity, qualified immunity of individuals, control of IEB by Crosby as chairman of the Commission, and theories of protected property, among others. In our review de novo, however, we affirm the dismissal on two pivotal grounds: Caesars has alleged no cognizable protected property interest said to have been infringed in violation of Fifth and Fourteenth Amendment due process, and class-of-one Fourteenth Amendment equal protection does not extend to redress action taken under state law authorizing the exercise of highly discretionary judgment in response to an application to license activity carrying substantial risks of commercial and social harm.
Caesars' third amended complaint, together with documents incorporated by reference and matters of public record subject to judicial notice, see Giragosian v. Ryan, 547 F.3d 59, 65 (1st Cir.2008), disclose the following facts as of relevant times, to be taken as true under Rule 12(b)(6). Under the authority of the Massachusetts Expanded Gaming Act, 2011 Mass. Acts ch. 194 (), the Commonwealth of Massachusetts is in the throes of licensing casinos, one for each of three regions of the state. The statute assigns that responsibility to a Gaming Commission of five members, of which the defendant-appellee Stephen Crosby is chairman. The IEB is the Commission's investigatory arm for examining the suitability of applicants for a casino license and of persons and corporations affiliated with an applicant to exercise the license sought (spoken of as “qualifiers”). As noted, the applicant for one such license is SSR, a corporation doing business in Massachusetts and not a party to this action, and Caesars is a qualifier. SSR wishes to place a casino in Revere and East Boston.
The IEB's enquiry into Caesars' conduct of business in Nevada and elsewhere led to a public report recommending that the Commission find that Caesars had not carried its burden to demonstrate its suitability by clear and convincing evidence; a near-certain consequence of the report would be denial of SSR's application. The IEB gave four reasons: (1) through a subsidiary, Caesars entered into a licensing agreement with Gansevoort Hotel Group, LLC, which is partially owned by an individual with alleged ties to Russian organized crime; (2) Caesars hired Mitchell Garber, who had formerly served as the chief executive officer of two internet gambling companies that entered into non-prosecution agreements with the United States Attorney's Office for the Southern District of New York; (3) Caesars had a history with Terrance Watanabe, a former high roller, who sued Caesars for allegedly encouraging him to gamble while intoxicated; and (4) Caesars was highly leveraged, to the point that its monthly debt service exceeded its cash flow.1
A competing application was filed by Wynn Resorts, Limited, for a site in nearby Everett. One of the owners of the Everett real estate is Paul Lohnes, a long-time acquaintance of Crosby's, who in the past had invested in one of Crosby's business enterprises (allegedly at a loss) in which he had actively participated. When word circulated that a previously undisclosed co-owner of the Everett land had a felony record, Crosby told his fellow commissioners of his relationship with Lohnes and subsequently informed both the Governor, as required by law, and the Massachusetts Ethics Commission, which advised that, so long as Crosby used “objective criteria,” he was not disqualified to act on the competing applications by reason of his relationship with Lohnes. A short while after that, Crosby disclosed the relationship publicly and recused himself from further participation in considering the license for the region of the state in which SSR and Wynn wished to operate.
Caesars alleges not only that Crosby was biased, owing to the Lohnes connection and Crosby's obligation to recompense him for their past dealings, but that Crosby took, or required Wells and the IEB to take, specific actions intended to favor Wynn and Lohnes and to place SSR and Caesars at a disadvantage. The allegations say that Crosby urged Wynn to compete for the license and to remain an applicant at one point when Wynn was poised to withdraw in exasperation with the proceedings. Crosby allegedly caused Wells and the IEB to hold it against Caesars that the Gansevoort organization may have had illegal dealings with Russian criminal connections, whereas Wynn was not taxed with a suspect Macau gambling connection or Lohnes's shady associate. Wynn was allegedly favored in setting a local referendum date for its Everett application, whereas Caesars was denied adequate (and statutorily provided) preparation time for an adjudicatory hearing to contest the facts of the unfavorable recommendation proposed. The IEB report, together with informal advice that the SSR application would be doomed by Caesars' proposed participation, caused Caesars to accede to SSR's request that it withdraw from their contractual relationship in order to save any chance of success that SSR might have.
The district court addressed the procedural due process claim under the rule announced in Bd. of Regents of State Colls. v. Roth, 408 U.S. 564, 576–77, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972), that an action for deprivation of property by state action without due process of law must include a showing that state law protects an identified property right said to have been violated. The substantive due process claim for deprivation of property by the arbitrary exercise of government power, of course, requires a like demonstration of a property right infringed. See Centro Medico del Turabo, Inc. v. Feliciano de Melecio, 406 F.3d 1, 8 (1st Cir.2005). Caesars claimed property in an implied contract with the state, promising a license applicant fair play in reaching a decision, as well as property in its contract with SSR. The district court accepted both theories, but Caesars apparently placed principal reliance on the implied contract, which was the primary subject of the court's discussion in concluding that Caesars had adequately pleaded a violation of due process. It nonetheless dismissed the official capacity claims as barred by state immunity under the Eleventh Amendment, and dismissed the individual liability claims on the ground of qualified immunity, see Maldonado v. Fontanes, 568 F.3d 263, 268–69 (1st Cir.2009). The equal protection claims were dismissed for failure of adequate pleading that the competing entities were similarly situated, and the state cause of action was subject to discretionary dismissal for want of a federal claim supporting the exercise of supplemental jurisdiction.
The first step in seeking relief from a deprivation of property without due process in violation of the Fifth and Fourteenth Amendments is a legally plausible allegation of a “protected property interest” recognized under state law. See Centro Medico, 406 F.3d at 8 (citing Roth, 408 U.S. at 577, 92 S.Ct. 2701 ). Caesars has not made an allegation sufficient to complete that first step.
Two, and possibly three, claims of a protected property interest have been pressed or at least indicated before us.2 The district court devoted principal attention to a theory of protected property interest for which there was then some Massachusetts authority, to the effect that submitting a bid for a public contract creates an implied contract giving rise to a right of property protected against unfairness in considering the bid. See Paul Sardella Constr. Co. v. Braintree Hous. Auth., 3 Mass.App.Ct. 326, 329 N.E.2d 762, 767 (1975), aff'd, 371 Mass. 235, 356 N.E.2d 249 (1976). For the purpose of federal-question property analysis, this...
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