In re Sunflower Racing, Inc.
| Decision Date | 21 October 1998 |
| Docket Number | Civ. A. No. 98-2263-EEI,Bankruptcy No. 96-21187-11. |
| Parties | In re SUNFLOWER RACING, INC., doing business as The Woodlands, Debtor. SUNFLOWER RACING, INC., doing business as The Woodlands, and Hollywood Park, Inc., Appellants, v. MID-CONTINENT RACING & GAMING CO. I; Mid-Continent Racing & Gaming Co. II; Mid-Continent Racing & Gaming Co. III; Bank Midwest, N.A.; and FCLT Loans, L.P., Appellees. |
| Court | U.S. District Court — District of Kansas |
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F. Stannard Lentz, John J. Cruciani, Lentz & Clark, P.A., Overland Park, KS, Jan M. Hamilton, Leon B. Graves, Hamilton, Peterson & Keeshan, Topeka, KS, for Sunflower Racing, Inc., Hollywood Park Inc.
Mark A. Shaiken, David L. Zeiler, Stinson, Mag & Fizzell, P.C., Thomas R. Franklin, Media/Professional Insurance, Inc., Thomas M. Franklin, Wehrman & Colantuono, L.L.C., Laurence M. Frazen, Bryan Cave L.L.P., Kansas City, MO, Dale L. Somers, Wright, Henson, Somers, Sebelius, Clark & Baker, L.L.P., Topeka, KS, for Mid-Continent Racing & Gaming Co. I, Mid-Continent Racing & Gaming II, Mid-Continent Racing & Gaming Co. III, Bank Midwest, N.A., FCLT Loans, L.P., Kansas Racing & Gaming Commission, Chapter 7 Trustee.
This matter is before the court on the appeal of Sunflower Racing, Inc. ("Sunflower") and Hollywood Park, Inc. ("HPI") of the bankruptcy court's denial of Sunflower's reorganization plan. The court heard oral argument on October 1, 1998. After careful consideration of the record on appeal, and the arguments and authorities presented by the parties in their briefs and at oral argument, the court is prepared to rule. For the reasons stated below, the court will affirm the bankruptcy court's April 8, 1998 judgment and order denying confirmation of Sunflower's reorganization plan.
The following is a summary of the factual background of this case which is largely taken from Bankruptcy Judge Flannagan's April 8, 1998 Memorandum Opinion.
The primary entities and individuals involved in Sunflower's proposed reorganization plan include:
Sunflower Racing, Inc. R.D. Hubbard and Richard J. Boushka formed Sunflower to own and operate The Woodlands, a dog and horse racing track. Mr. Hubbard owned 60 percent of Sunflower's stock and Mr. Boushka owned 40 percent. The Woodlands opened as a newly constructed racing facility in 1989 on 386 acres in western Wyandotte County, Kansas. The facility is approximately 15 miles from the center of Kansas City, Kansas, just across the river from metropolitan Kansas City, Missouri. The Woodlands apparently is the only racing complex in the United States featuring dual tracks — a dog racing track and grandstand adjacent to a horse racing track and grandstand. Bruce G. Rimbo is Sunflower's president and chief executive officer.
Hollywood Park, Inc. Hollywood Park is an Inglewood, California, corporation interested in various gambling enterprises in the United States. Hollywood Park's stock is publicly traded over the counter and reported among the Wall Street Journal's NASDAQ Small-Cap Issues. R.D. Hubbard is chairman of the board of directors of Hollywood Park. In March 1994, R.D. Hubbard and Richard J. Boushka exchanged all of their stock in Sunflower for stock in Hollywood Park. This exchange made Sunflower the wholly-owned subsidiary of Hollywood Park. However, Hollywood Park is not a debtor in this bankruptcy case.
TRAK East. TRAK East stands for The Racing Association of Kansas East, a Kansas not-for-profit corporation. It qualifies as a charitable organization under section 503(b) of the Internal Revenue Code. TRAK East was organized to hold a racing "organization license" under Kansas racing statutes. Kansas passed the Pari-Mutuel Racing Act in 1988. The Act created the Kansas Racing and Gaming Commission to administer licensing of dog and horse racing facilities. See Kan. Stat. Ann. § 74-8801 et seq. The Kansas Racing and Gaming Commission granted TRAK East an organization license for pari-mutuel betting in 1988. Sunflower contracted with TRAK East to manage and operate a racing facility on TRAK East's behalf. This qualified Sunflower for a "facility owner and manager license." Accordingly, later that year, the Commission granted Sunflower a license to build, own, and operate The Woodlands.
The Bank or Creditor Group. Sunflower financed construction of The Woodlands through a five-member Bank Group that participated in lending it approximately $40 million. The Bank Group took as collateral a mortgage and security agreement, a construction loan agreement, and other documents dated October 11, 1988. These documents granted the Bank Group members mortgages of equal rank.
On or about March 23, 1994, when R.D. Hubbard1 exchanged his Sunflower stock for Hollywood Park stock, Mr. Hubbard and Sunflower executed a subordination and amendment agreement in favor of the Bank Group. Pursuant to the subordination agreement, Hubbard agreed to subordinate his right to repayment by Sunflower to the Bank Group's right to repayment. Hubbard also assigned to the Bank Group his right to vote his subordinated claim in any Chapter 11 reorganization case Sunflower might file.
At the same time, Hollywood Park executed a pledge agreement in favor of the Bank Group which amended the original financing documents covering The Woodlands. Pursuant to the agreement, Hollywood Park pledged all of its right, title, and interest in its shares of Sunflower to the Bank Group as security for the repayment of funds advanced by the Bank Group to Sunflower.
On or about December 19, 1994, Hollywood Park and Sunflower executed a subordination agreement in favor of the Bank Group. Pursuant to the agreement, Hollywood Park agreed to subordinate its right to repayment by Sunflower to the Bank Group's right to repayment.
When Sunflower filed its bankruptcy petition, the Bank Group consisted of: (1) First Union National Bank of Florida, (2) Bank One Lexington, N.A., (3) Bank Midwest, N.A., (4) INTRUST Bank, N.A., and (5) FCLT Loans, L.P. Since the bankruptcy filing, First Union Bank of Florida, Bank One Lexington, N.A., and INTRUST Bank, N.A., have sold their claims to companies controlled by William M. Grace. These sales account for the mortgage holders now being called the "Creditor Group," rather than the Bank Group. The Creditor Group's combined claim is now valued at $29,811,873.32.
William M. Grace. William M. Grace is a gaming entrepreneur with an interest in a riverboat casino in St. Joseph, Missouri. He also has business ties to the Iowa Tribe of Kansas, which operates a casino on its reservation at White Cloud, Kansas, in the northeastern corner of Kansas. As mentioned, Mr. Grace purchased three claims from members of the Bank Group after Sunflower filed this case. To hold the purchased claims, he formed three Kansas corporations. Ultimately, those corporations were named Mid-Continent Racing and Gaming Company I, Mid-Continent Racing and Gaming Company II, and Mid-Continent Racing and Gaming Company III. Gaming I holds the claim of INTRUST Bank, N.A., Gaming II holds the claim of First Union National Bank of Florida, and Gaming III holds the claim of Bank One Kentucky, N.A., formerly Bank One Lexington, N .A. The Creditor Group, Class 1 in the plan, now consists of: (1) Bank Midwest, N.A., (2) FCLT Loans, L.P., (3) Gaming I, (4) Gaming II, and (5) Gaming III.
Wyandotte Tribe of Oklahoma. The Wyandotte Tribe of Oklahoma is a federally-recognized Indian tribe which occupies a 200-acre reservation in Wyandotte, Oklahoma, approximately 90 miles northeast of Tulsa. Chief Leaford Bearskin, the Tribe's leader, and his council have turned to the prospect of off-reservation Indian gaming as a possible source of revenue. Initially, the Tribe's off-reservation casino plans focused on land contiguous to the Tribe's sacred burial grounds located in the central business district of Kansas City, Kansas. The Secretary of Interior has held the cemetery in trust for the Tribe since the Wyandotte Treaty of January 1, 1855.2 As might be expected, the City of Kansas City, Kansas, opposes a gambling casino in its central business district. The City has encouraged the Tribe to abandon its downtown casino plans in favor of a casino at The Woodlands.
To protect its national sovereignty, the Wyandotte Tribe of Oklahoma often conducts its business through a tribal corporation organized under the laws of the United States.
Huron Gaming, L.P. Huron Gaming, L.P., a Delaware limited partnership, is mentioned in the plan as having a role in the financing, construction, and operation of a casino at The Woodlands, should Sunflower's plan come to fruition. H.P. Kansas, Inc., a Delaware corporation, and NORAM, North American Sports Management, Inc., a Florida corporation, are the general partners of Huron Gaming, L.P. Hollywood Park, Inc., a Delaware corporation, and NORAM are limited partners of Huron Gaming, L.P. NORAM has a consulting agreement with the Wyandotte Tribe of Oklahoma to assist the Tribe in obtaining, designing, and developing a casino at The Woodlands.
The Woodlands exceeded its earnings projections for its first 18 months of operation. Local competition for gambling revenue, however, intensified in the early 1990s. Casino-style gambling started to become widespread throughout the Midwest pursuant to the Indian Gaming Regulatory Act of 1988. In addition, in October 1992, the Kansas Lottery implemented Club Keno which increased the Lottery's revenues by more than $30 million and had an instant negative impact on the revenues of pari-mutuel racing at The Woodlands. Further, in 1994, the Kansas Supreme Court held that Kansas voters had cleared the way for state-operated Indian casinos when they approved the state-owned and operated lottery....
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