In re the Majestic Star Casino Llc
| Decision Date | 13 September 2011 |
| Docket Number | No. 09–14136(KG).,09–14136(KG). |
| Citation | 457 B.R. 327 |
| Parties | In re THE MAJESTIC STAR CASINO, LLC, et al., Debtors. |
| Court | U.S. Bankruptcy Court — District of Delaware |
OPINION TEXT STARTS HERE
William E. Arnault, Kirkland & Ellis LLP, Chicago, IL, Timothy P. Cairns, Laura Davis Jones, James E. O'Neill, Pachulski Stang Ziehl & Jones LLP, Wilmington, DE, Lauren Casazza, David S. Meyer, Joseph Serino, Jr., Kirkland & Ellis LLP, New York, NY, Michael Kornacki, Fox Rothschild LLP, Philadelphia, PA, Thomas B. Shepherd, III, Watkins Ludlam Winter & Stennis, P.A., Jackson, MS, for The Majestic Star Casino, LLC, et al.
FINDINGS OF FACT AND CONCLUSIONS OF LAW 1
The task for the Court is to determine for ad valorem purposes the value of two riverboat casinos located in Lake County, Indiana. The Court conducted a three day evidentiary hearing in May, 2011, at which seven witnesses testified and numerous exhibits were introduced.
On November 23, 2009, each of the Debtors filed a voluntary petition for relief under Chapter 11 of title 11 of the United States Code. On March 10, 2011, the Court held a confirmation hearing at which it entered an order confirming the Debtors' Second Amended Joint Plan of Reorganization.
The Tax Assessor for Lake County (the “County”) filed the Motion of Lake County, Indiana for Allowance of Claims and Determination of Real Property Assessment and Tax Liability Pursuant to Section 502, 505(a) and 105(a) of the Bankruptcy Code [Docket No. 719], asking the Court to determine the real property tax liability of the Debtors on ten parcels of real property located in Lake County, Indiana. The Vessels constitute two of these parcels. The parties subsequently agreed to limit this proceeding to a determination of the assessed value of the Vessels for Indiana real property tax purposes as of the March 1, 2007, and March 1, 2010 assessment dates. (Am. and Restated First Stip. ¶ 2.) The parties have stipulated that these values will be used to determine the assessed values of the Vessels as of the other assessment dates in dispute, based on an agreed-upon formula. ( Id. ¶ 3.) The other assessment dates in dispute are March 1, 2006, March 1, 2008, March 1, 2009, and March 1, 2011.
On May 11–13, 2011, the Court held a bench trial to determine the assessed values of the Vessels as of the relevant assessment dates. On June 13, 2011, the parties presented their closing arguments.
At issue in this proceeding is the assessed value of two riverboat gaming vessels—the MSC I and the MSC II—that are owned and operated by two of the Debtors, The Majestic Star Casino, LLC and The Majestic Star Casino II, Inc., respectively. (Hearing Stip. ¶ 7–8.) The Vessels are moored in Lake Michigan at Buffington Harbor, which adjoins the City of Gary, Indiana, in Calumet Township, Lake County. ( Id.; 5/11/11 Trial Tr. 45:18–20 (Bennett).)
The MSC I was constructed in 1997. (Hearing Stip. ¶ 11; 5/11/11 Trial Tr. 44:14–15 (Bennett).) The MSC I has approximately 43,000 square feet of gaming space and a capacity of 3,500 passengers and crew. (5/11/11 Trial Tr. 44:15–17 (Bennett).) The Debtors acquired the MSC II, together with substantially all of the other real property, tangible personal property, and intangible property of Trump Indiana, Inc., (now known as The Majestic Star II, Inc.) in 2005 as part of the purchase of all of the issued and outstanding stock of Trump Indiana, Inc. ( Id. at 46:6–16 (Bennett).) The MSC II was built in 1996 and has approximately 40,000 square feet of gaming space and a capacity of nearly 3,000 passengers and crew. ( Id. at 44:20–24 (Bennett).)
For the March 1, 2002 through March 1, 2005 assessment dates, the Vessels were assessed at a combined value of approximately $39 million. (Hearing Stip. ¶ 19.) For the March 1, 2006 assessment date, the Calumet Township Assessor (the “Assessor”) increased the combined assessed value of the Vessels to approximately $110 million. ( Id. ¶ 20.) For the March 1, 2007, and March 1, 2010 assessment dates, the Vessels were assessed in the aggregate amounts of approximately $109 million and $100 million, respectively. (
The Debtors timely filed appeals contesting the assessed values of the Vessels for the March 1, 2006 through March 1, 2009 assessment dates. ( Id. ¶ 25.) While these appeals have been pending, the Debtors have timely paid property taxes on the Vessels for such assessment dates based on the Vessels' assessed values as of the March 1, 2005 assessment date, as Indiana law permits. Ind.Code § 6–1.1–15–10(a)(2). ( Id. ¶ 26.)
As of the date of trial, the net effective property tax rate applicable to the Vessels for the March 1, 2010 assessment date had not yet been determined by the Lake County Treasurer, and payment of property taxes arising from the March 1, 2010 assessment date had not yet become due. ( Id. ¶ 31.)
In 1993, Indiana enacted the Riverboat Gambling Act, which allowed for gambling activities on licensed riverboat vessels in Indiana. Ind.Code § 4–33–1–1 et seq. The Indiana Gaming Commission, the body charged with the licensing and regulation of riverboat gaming, subsequently issued eleven riverboat gaming licenses, the maximum number allowed under Indiana law. Ind.Code § 4–33–6–1. Because the number of licenses that are available is capped, Indiana is what is known as a limited license jurisdiction. (5/11/11 Trial Tr. 45:6–8 (Bennett).) These licenses are not restricted for use on a particular vessel. ( Id. at 46:23–25 (Bennett).) The licenses owned by the Debtors allow them to operate their casinos anywhere in Gary, Indiana, as long as they are on Lake Michigan. ( Id. at 47:7–21 (Bennett).)
In addition to the casinos owned and operated by the Debtors, there are three other casinos that are located in Northern Indiana. (Debtors' Trial Ex. 19 at 25.) These casinos are the Horseshoe, Ameristar, and Blue Chip casinos. ( Id. at 27.) Like the casinos operated by the Debtors, these casinos are located on Lake Michigan. ( Id. at 25.)
Initially, all Indiana riverboats were subject to mandatory cruising requirements which required them to conduct two-hour “gaming excursions.” (Hearing Stip. ¶ 6; 5/11/11 Trial Tr. 47:14–21 (Bennett).) In 2002, Indiana eliminated the cruising requirements to allow for dockside gambling. (Hearing Stip. ¶ 6; 5/11/11 Trial Tr. 48:1–9 (Bennett).) In response to these changes, Indiana gaming operators have moved away from yacht-style vessels and have begun constructing “building-on-a-barge” style casinos. (5/11/11 Trial Tr. 48:10–49:1 (Bennett).) Building-on-a-barge style casinos are essentially floating casino buildings that have the look and feel of a Las Vegas-style casino. ( Id.)
These building-on-a-barge style casinos differ from the yacht-style vessels that the Debtors own and operate. ( Id.) Rather than replicating gaming operations within a small amount of compartmentalized gaming space on multiple levels—which the Debtors must do on the Vessels—a building-on-a-barge style casino can place all of its gaming operations throughout large, open Las Vegas-style gaming floors. ( Id. at 50:3–9 (Bennett).) This change in layout and design allows the building-on-a-barge style casinos to be much more efficient and attractive than the Vessels. ( Id. at 50:1–9 (Bennett).)
In 2006, the Blue Chip Casino (the “Blue Chip”) replaced its excursion riverboat with the first building-on-a-barge style casino in Indiana. ( Id. at 49:18–50:22 (Bennett).) The Blue Chip is a massive building-on-a-barge style casino with over 160,000 square feet. ( Id. at 50:13–15 (Bennett).) The Blue Chip is currently using 65,000 square feet for gaming ( Id. at 50:15–16 (Bennett)), but has the capacity to expand to 150,000 square feet of gaming space. ( Id. 50:17–18 (Bennett), 254:22–24 (Herman); Debtors' Trial Ex. 30.)
In 2008, the Horseshoe casino replaced its excursion riverboat with a building-on-a-barge style casino. (5/11/11 Trial Tr. 49:11–19, 50:1 (Bennett).) Importantly, the Horseshoe sold its excursion vessel for approximately $3 million in 2010. ( Id. at 52:15–17 (Bennett).) This vessel was the same class vessel as the MSC II. ( Id. at 52:20–22 (Bennett).)
The opening of the barge style Blue Chip and the Horseshoe has resulted in a decline in the Debtors' revenues. ( Id. at 49:22–50:9 (Bennett), 208:12–17 (Herman).)
In addition to the eleven licenses granted by the Indiana Gaming Commission, in 2007, Indiana issued two gaming licenses to racetracks to allow them to operate slot machines. (5/13/11 Trial Tr. 86:13–17 (Owen).) Two racetracks—referred to as “racinos”—purchased these gaming licenses for $250 million each. ( Id. at 86:21–24 (Owen).)
During the 2006 and 2007 time period, the homeowners in Lake County were complaining that their property taxes were too high. (Karras Dep. Desig. 15:5–21.) Elected officials in the County wanted to reduce homeowner property taxes. ( Id. at 21:3–8.)
The County made it known that it was planning on increasing the assessed values of the casino riverboats. ( See, e.g., id. at 28:2–29:8, 48:19–49:11 (“But anyhow, it's pretty evident here that we were on a goal to see that their taxes did go up, would go up, and we felt they should go up.”).) The township assessors “never came up with any concrete evidence” to support their beliefs that that the casino riverboats were underassessed. ( Id. at 53:3–11.)
By increasing the assessed values of the casino riverboats, the County hoped to be able to lower the tax rate for its homeowners. ( Id. at 43:3–13.)
I. Indiana Real Property Tax LawA. Indiana Law for Determining the Value of Riverboat Vessels.
Under Indiana law, a “riverboat” is defined, in relevant part, as “[a] self-propelled excursion boat” on which gambling is authorized. Ind.Code §...
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