Empress Casino Joliet Corp.. v. Blagojevich

Decision Date02 March 2011
Docket NumberNos. 09–3975,10–1019.,s. 09–3975
Citation638 F.3d 519
PartiesEMPRESS CASINO JOLIET CORPORATION, an Illinois corporation, et al., Plaintiffs–Appellants (No. 09–3975), Plaintiffs–Appellees (No. 10–1019),v.Rod R. BLAGOJEVICH, Defendant–Appellant (No. 10–1019),andBalmoral Racing Club, Inc., Maywood Park Trotting Association, Inc., Arlington Park Racecourse, LLC, Fairmount Park, Inc., and Hawthorne Race Course, Inc., Defendants–Appellees (No. 09–3975).
CourtU.S. Court of Appeals — Seventh Circuit

OPINION TEXT STARTS HERE

Robert M. Andalman (argued), Attorney, Loeb & Loeb, Chicago, IL, for PlaintiffsAppellants and PlaintiffsAppellees.William J. McKenna, Jr. (argued), Attorney, Foley & Lardner, LLP, Gary S. Feinerman (argued), Constantine L. Trela, Jr., Attorney, Sidley Austin LLP, Edward M. White, Attorney, Carey, Filter, White & Boland, Chicago, IL, for DefendantsAppellees.Rafey S. Balabanian, William C. Gray (argued), Attorney, Edelson McGuire LLC, Chicago, IL, for DefendantAppellant.Before BAUER, POSNER, and SYKES, Circuit Judges.SYKES, Circuit Judge.

This civil racketeering suit has some factual overlap with the federal prosecution of former Illinois Governor Rod Blagojevich, now awaiting retrial on various criminal counts that were tried last summer but resulted in a hung jury. Four riverboat casinos claim they are victims of a pay-to-play scheme engineered by Blagojevich and John Johnston, the owner of two Illinois horse-racing tracks.1 The casinos allege that Blagojevich “sold” and Johnston “bought” the enactment of two Illinois gaming laws requiring them to pay 3% of their adjusted gross revenue into a “Horse Racing Equity Trust Fund” as a condition of their gaming licenses. The proceeds of this fund go not to the State of Illinois or to any state program or service but instead are paid directly to a small group of competing gambling enterprises: five Illinois horse-racing tracks, including the two owned by Johnston.2 The details of this scheme are largely derived from the federal criminal complaint that led to Blagojevich's removal from office in January 2009 and an indictment later returned against him. While this case has been pending, the casinos have continued to pay into the fund (more than $100 million and counting), but the money is frozen on release and held in escrow under the terms of a temporary restraining order put in place by the district court.

The casinos' complaint has two counts: (1) a RICO-conspiracy claim against Blagojevich, his campaign committee “Friends of Blagojevich,” Johnston, and the two racetracks he owns; and (2) a constructive-trust claim against all five racetracks as beneficiaries of the ill-gotten gains of the conspiracy. 3 The defendants moved to dismiss on multiple grounds, and the casinos sought a preliminary injunction to maintain the escrow. Each side prevailed in part. The district court left the RICO claim standing and also rejected Blagojevich's claim of legislative immunity. But the court accepted the racetracks' argument that the casino surcharge is a tax and therefore the Tax Injunction Act, 28 U.S.C. § 1341, blocked the court's jurisdiction to impose a constructive trust. The court then dismissed the constructive-trust claim, denied the motion for a preliminary injunction, and dissolved the TRO. Blagojevich sought immediate review of the immunity issue; the casinos appealed the denial of a preliminary injunction, which also brought up the jurisdictional dismissal of their constructive-trust claim. We reinstated the TRO pending resolution of the appeals.

We now reverse. The former governor is entitled to legislative immunity. The Supreme Court has made clear that state and local officials are absolutely immune from federal suits filed against them in their personal capacities for actions taken in connection with legitimate legislative activity. This immunity applies notwithstanding allegations of misconduct and regardless of whether the office held is legislative or executive—as long as the activity in question is functionally legislative. Under this established federal doctrine, Blagojevich is immune from civil suit for his role in inducing the Illinois legislature to adopt the Horse Racing Acts of 2006 and 2008 and for signing those Acts into law. The RICO claim survives, however; Friends of Blagojevich, Johnston, and the two racetracks he owns remain as defendants on that claim.

The Tax Injunction Act does not bar the court from imposing a constructive trust on the money disbursed from the Horse Racing Fund. The casino surcharge is not a tax. It raises no revenue for the operation of state government and supports no governmental agency, program, or service. It simply takes profits from a few private firms for direct transfer to certain favored, apparently less-profitable competitors. The money is held in a segregated account, may not be used to pay any state expense, and is disbursed within a few days to the beneficiary racetracks. Assessed as a condition of state licensure, the surcharge is more like a regulatory penalty or fee than a tax, and therefore the Tax Injunction Act does not apply. We also reject the racetracks' alternative arguments—preclusion, abstention, and failure to state a claim—offered in support of affirmance. The TRO remains in effect.

I. Background

On May 26, 2006, Governor Blagojevich signed a most unusual bill into law. The 2006 Horse Racing Act, Illinois Public Act 94–804, targeted the state's four highest-earning riverboat casinos and compelled them to pay 3% of their adjusted gross revenue into a segregated fund, the “Horse Racing Equity Trust Fund,” for a period of two years. 230 Ill. Comp. Stat.. 10/7(a). The money deposited into the Fund—a “non-appropriated trust fund held separate and apart from State moneys”—is disbursed directly to five Illinois horse-racing tracks, the defendants here, within ten days of deposit. Id. § 5/54.5(a), (b). The money held in the Fund may not be transferred to the State's general revenue fund or otherwise commingled with public funds and may not be allocated to any state agency or program or used to pay any state cost or expense. The racetracks must spend 60% of the money they receive from the Fund on the “purse”—a cash prize awarded to the owners of top-finishing horses—and the remaining 40% on operational expenses. Id. The racetracks are also required to provide the Illinois Racing Board with a detailed account of money received and spent from the Fund.

The Illinois General Assembly made several legislative findings in connection with the 2006 Racing Act. It noted that from 1992—the first year riverboat casinos began operating in Illinois—through 2005, on-track horse wagering in Illinois decreased by 46%. This decline would be reversed, the legislature found, if funds generated by the 2006 Racing Act were paid directly to the horse-racing tracks. Helping the horse-racing industry, in turn, would have important downstream benefits for Illinois farmers, breeders, and horse-racing fans. After the 2006 Act expired, the legislature enacted the 2008 Horse Racing Act, Illinois Public Act 95–1008, which effectively extended the 2006 Act for another three years, through December 2011.

The enactment of the 2006 Racing Act set in motion an extraordinary confluence of events, legal and political. The history is lengthy and complex but important to some of the issues raised on appeal, so we cannot skip over it. Four days after passage of the 2006 Act, the casinos filed suit in Will County Circuit Court challenging the Act's constitutionality. They named the Illinois Treasurer and the Illinois Racing Board as defendants and sued under the “Protest Monies Act,” 30 Ill. Comp. Stat.. 230/2a (formally the State Officers and Employees Money Disposition Act), which allows taxpayers to challenge state laws and pay the contested monies into a protest fund until the action is resolved. They claimed that the 2006 Racing Act violated several provisions of the Illinois Constitution, including its takings, due- process, uniformity, and public-purpose clauses, as well as the Takings Clause of the Fifth Amendment. The trial court entered summary judgment for the casinos, and the state defendants took a direct appeal to the Illinois Supreme Court. On June 5, 2008, the state supreme court reversed, upholding the 2006 Act against the casinos' state and federal constitutional challenges. 4 Empress Casino Joliet Corp. v. Giannoulias, 231 Ill.2d 62, 324 Ill.Dec. 491, 896 N.E.2d 277 (2008).

Six months later, on December 7, 2008, the United States Attorney for the Northern District of Illinois filed a criminal complaint against Blagojevich accusing the governor of engaging in a “political corruption crime spree.” In an affidavit filed with the complaint, an FBI agent recounted the contents of intercepted phone conversations in which Blagojevich discussed (as relevant here) soliciting payments as a quid pro quo for signing the 2006 Racing Act. The Illinois House of Representatives immediately convened a special investigative committee to investigate Blagojevich's alleged malfeasance and determine whether he should be impeached. The committee's final report recommended impeachment based in part on Blagojevich's arrangement with Johnston for political contributions in exchange for his signature on the 2006 Act. The Illinois House quickly voted to impeach Blagojevich, and the Senate removed him from office on January 30, 2009. On April 2, 2009, the U.S. Attorney filed a superseding indictment charging Blagojevich with 17 crimes, including wire fraud, attempted extortion, bribery conspiracy, and racketeering. A 24–count second superseding indictment was filed on February 4, 2010.

In the meantime, in January 2009 the casinos filed a petition for certiorari in the United States Supreme Court seeking review of the Illinois Supreme Court's decision rejecting their claim that the 2006 Racing Act violated the Takings...

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