In re MAGNA ENTERTAINMENT CORP. . Redrock Administrative Services LLC.
| Decision Date | 20 September 2010 |
| Docket Number | Adversary No. 09-51155 (MFW).,Bankruptcy No. 09-10720 (MFW). |
| Citation | 438 B.R. 380 |
| Parties | In re MAGNA ENTERTAINMENT CORP., et al., Debtors. Redrock Administrative Services LLC, Racing and Gaming Services, Ltd., Amwest Entertainment, LLC, Bettor Racing, Inc. d/b/a Royal River Racing, and The Elite Turf Club, N.V., Plaintiffs, v. Magna Entertainment Corp., Pacific Racing Association, Inc., MEC Land Holdings (California), Inc., Gulfstream Park Racing Assoc., Inc., Los Angeles Turf Club, Inc., and The Santa Anita Companies, Inc., Defendants. |
| Court | U.S. Bankruptcy Court — District of Delaware |
438 B.R. 380
In re MAGNA ENTERTAINMENT CORP., et al., Debtors.
Redrock Administrative Services LLC, Racing and Gaming Services, Ltd., Amwest Entertainment, LLC, Bettor Racing, Inc. d/b/a Royal River Racing, and The Elite Turf Club, N.V., Plaintiffs,
v.
Magna Entertainment Corp., Pacific Racing Association, Inc., MEC Land Holdings (California), Inc., Gulfstream Park Racing Assoc., Inc., Los Angeles Turf Club, Inc., and The Santa Anita Companies, Inc., Defendants.
Bankruptcy No. 09-10720 (MFW).
Adversary No. 09-51155 (MFW).
United States Bankruptcy Court,D. Delaware.
Sept. 20, 2010.
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Dennis A. Meloro, Sandra G.M. Selzer, Victoria Watson Counihan, Greenberg Traurig, LLP, Wilmington, DE, for Plaintiffs.
Drew G. Sloan, Richards Layton & Finger, P.A., Wilmington, DE, for Defendant.
Mark M. Billion, Pachulski Stang Ziehl & Jones LLP, Wilmington, DE, for Creditor Committee.
Before the Court is the Defendants' Motion for an Order Dismissing the Second Amended and Restated Complaint (the “Complaint”) filed by Redrock Administrative Services LLC, Racing and Gaming Services, LTD., Amwest Entertainment, LLC, Bettor Racing, Inc., d/b/a Royal River Racing, and the Elite Turf Club, N.V. (collectively the “Simulcast Sites”). For the reasons stated below, the Court will grant the Motion in part and deny it in part.
I. BACKGROUND
Magna Entertainment Corp., Pacific Racing Association, Inc., MEC Land Holdings (California), Gulfstream Park Racing Association, Inc., Laurel Racing Assoc., Inc., Los Angeles Turf Club, Inc., and the Santa Anita Companies, Inc., (collectively, the “Debtors”) filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code on March 5, 2009 (the “Petition Date”).
As of the Petition Date, the Debtors owned and operated various horse racetracks throughout North America. The racetracks at issue in this proceeding are Santa Anita Park, Golden Gate Fields, Gulfstream Park, the Meadows, and Laurel Park (collectively, the “Host Tracks”).
Pari-mutuel wagering is an authorized form of gambling under federal and state law. In pari-mutuel wagering, the bettors do not bet against the track; rather, they bet against each other. The Simulcast Sites accept pari-mutuel wagers from their customers on races run at the Host Tracks, which are telecast simultaneously to the Simulcast Sites. As a result, the Simulcast Sites' customers are able to
place wagers on races run at the Host Tracks without having to appear there in person. The Debtors pay winning bettors who bet at the Host Tracks; the Simulcast Sites pay winning bettors who bet at their respective off-track locations.
The Debtors facilitate pari-mutuel wagering at the Host Tracks and at off-track betting facilities including the Simulcast Sites until the start of the race, at which time a pari-mutuel pool is created. Multiple pari-mutuel pools are created for each race. Each wager type (e.g., a “Win” or “Exacta” wager) has its own pari-mutuel pool. Unlike fixed-odds wagering, the final payout in pari-mutuel wagering is not determined until the pool is closed. At the conclusion of each race, final odds and prices are posted for each pool based on the total net volume wagered divided by the number of winning selections and rounded down to the nearest statutory break point. Then a “money room settlement” is generated for each pool, which documents the total wagers accepted (the “Handle”), the takeout fees, and the amount due to the winning bettors.
For each pari-mutuel pool, the Host Track is authorized to deduct a takeout fee for its services in accepting and administering the wagers placed at the Host Tracks and for hosting the horse race. The Simulcast Sites conduct a similar but separate procedure at their locations and are also entitled to deduct a takeout fee for their services.
The relationship between the Simulcast Sites and the Debtors is governed by written contract, pursuant to which the Debtors and the Simulcast Sites reconcile their separate money room settlements either on a monthly basis or at the end of each meet held at the Host Track. At the time of reconciliation, the Debtors may owe money to the Simulcast Sites if the Simulcast Sites' customers win more than the Simulcast Sites are obligated to pay the Debtors. Conversely, the Simulcast Sites may owe money to the Debtors when their customers win less than the Simulcast Sites are obligated to pay the Debtors. In addition, the Simulcast Sites pay the Debtors a percentage of the total amount wagered at their locations, a fee for the simulcast service, and a fee for administering the pari-mutuel pools. After deducting their fees, the Debtors pay the Simulcast Sites the amounts owed for the winning tickets purchased through the Simulcast Sites.
The Simulcast Sites commenced the instant adversary proceeding, in which they seek to recover $7,307,298.75 allegedly owed to them on account of money room settlements that were not paid on races conducted pre-petition (the “Pari-mutuel Funds”). In the Complaint, the Simulcast Sites allege that they are entitled to the balance of the Pari-mutuel Funds after the Debtors have deducted their commissions and fees. The Simulcast Sites contend that the funds are due to the Simulcast Sites for their commissions and fees and for sums that they paid to their customers for winning wagers made on races run at the Debtors' Host Tracks, including amounts paid to the IRS on the winning bettors' behalf as required by law.
The Simulcast Sites assert eleven causes of action in the Complaint, including: (i) a declaration that the Pari-mutuel Funds are not property of the Debtors' bankruptcy estate, (ii) an order requiring the Debtors to distribute the Pari-mutuel Funds to them, (iii) a declaration that the Pari-mutuel Funds are being held in constructive trust by the Debtors for the Simulcast Sites, (iv) a declaration that the Pari-mutuel Funds are being held by the Debtors as a bailment for the Simulcast Sites, and (v) a declaration that the Debtors have wrongfully converted the Pari-mutuel Funds.
The Debtors filed a motion to dismiss the Complaint on November 2, 2009. The Simulcast Sites opposed the motion. This matter has been fully briefed and is ripe for decision.
II. JURISDICTION
The Court has jurisdiction over this core proceeding pursuant to 28 U.S.C. §§ 1334 & 157(b)(2)(A), (B), (K) & (O).
III. DISCUSSION
The Debtors move to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim. See Fed. R. Bankr.P. 7012.
A. Rule 12(b)(6) Standard
To survive a motion to dismiss, a complaint must contain more than “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements....” Ashcroft v. Iqbal, --- U.S. ----, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). Rather, “a complaint must contain sufficient factual matter, accepted as true ‘to state a claim to relief that is plausible on its face.’ ” Id. ( quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Determining whether a complaint is facially plausible is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 1950.
The Third Circuit instructs courts to “conduct a two-part analysis. First, the factual and legal elements of a claim should be separated. The [reviewing court] must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions.” Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir.2009). The reviewing court “must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a plausible claim for relief.” Id. at 211. In other words, a complaint must show that the plaintiff is entitled to relief based on its facts. Id.
B. Debtors' Motion to Dismiss
The Simulcast Sites assert initially that the Pari-mutuel Funds are not property of the Debtors' bankruptcy estate. The Bankruptcy Code defines property of the estate broadly to include “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). Section 541(d) further provides, however, that “[p]roperty in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest ... becomes property of the estate ... only to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold.” 11 U.S.C. § 541(d). It is well-settled that “debtors ‘do not own an equitable interest in property ... [they] hold[ ] in trust for another,’ and that therefore funds held in trust are not ‘property of the estate.’ ” City of Farrell v. Sharon Steel Corp., 41 F.3d 92, 95 (3d Cir.1994) ( quoting Begier v. I.R.S., 496 U.S. 53, 59, 110 S.Ct. 2258, 110 L.Ed.2d 46 (1990)). See also In re Columbia Gas Sys. Inc., 997 F.2d 1039, 1059 (3d Cir.1993) (stating that “the classic definition of a trust [is that] the beneficiary has an equitable interest in the trust property while legal title is vested in the trustee.”). Therefore, the bankruptcy estate retains legal title over a trust, “but the beneficiaries of the trust
... may reclaim their equitable interests in the trust fund so created through bankruptcy court proceedings.” Universal Bonding Ins. Co. v. Gittens & Sprinkle Enters., Inc., 960 F.2d 366, 372 (3d Cir.1992).
Funds that a debtor holds in trust are not property of the debtor's...
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