Power Plant Entm't Casino Resort Ind., LLC v. Mangano

• Citation: 484 B.R. 290
• Decision Date: 26 September 2012
• Docket Number: No. 11–00336–NVA.,11–00336–NVA.
• Parties: POWER PLANT ENTERTAINMENT CASINO RESORT INDIANA, LLC, et al., Plaintiffs, v. Ross J. MANGANO, et al., Defendants.
• Court: U.S. Bankruptcy Court — District of Maryland

484 B.R. 290

POWER PLANT ENTERTAINMENT CASINO RESORT INDIANA, LLC, et al., Plaintiffs,

v.Ross J. MANGANO, et al., Defendants.

No. 11–00336–NVA.

United States Bankruptcy Court,

D. Maryland,

Baltimore Division.

Sept. 26, 2012.

Kenneth Oestreicher, Kevin G. Hroblak Whiteford, Taylor et al., Baltimore, MD, Robert J. Weltchek, Weltchek Mallahan and Weltchek, Lutherville, MD, for Plaintiffs.

Andrea William Trento, Steven F. Barley, Hogan Lovells US LLP, Baltimore, MD, for Defendants.

MEMORANDUM OPINION IN SUPPORT OF ORDER GRANTING MOTION [dkt. 5] FOR ABSTENTION AND FOR REMAND

NANCY V. ALQUIST, Bankruptcy Judge.

This Memorandum addresses whether this Court should return to Maryland state court, a case which was removed to federal court under 28 U.S.C. § 1452. The Court concludes that it should.

This case originated as a civil action demanding $600 million in damages filed in the Maryland Circuit Court for Baltimore City (Case No. 24C 11–001014). The action was removed to the United States Bankruptcy Court for the District of Maryland by four of the ten state court defendants. The four removing defendants consist of three trusts, the J. Oliver Cunningham Trust, the Anne C. McLure Trust, and the Jane C. Warriner Trust (the “Trust Defendants”) and Ross Mangano (together with the Trust Defendants, the “Removing Defendants”).

The Removing Defendants own over 95% of a company known as Indiana Downs, LLC (“Indiana Downs”) which controls a pari-mutuel racetrack, casino and two betting facilities in Indiana. Mr. Mangano acts as CEO of Indiana Downs, and oversees the three Trust Defendants as Trustee. Two months after the commencement of the state court action, Indiana Downs filed a voluntary Chapter 11 case in the United States Bankruptcy Court for the District of Delaware (Case No. 11–11046 BLS).

The plaintiffs in this action are the Cordish Company and two members of its “Power Plant Entertainment” group—PPE Indiana and PPE Maryland (the “Plaintiffs”). PPE Indiana and PPE Maryland are effectively controlled and owned by the Cordish Company. On September 10, 2007, PPE Indiana entered into a Development, Financing and Management Agreement (“Management Agreement”) with Indiana Downs. Under the Management Afreement, PPE Indiana would manage the Indiana Live Casino (“Indiana Live”), a facility in Shelbyville, Indiana owned by Indiana Downs. As compensation under the Management Agreement, PPE Indiana was to receive a management fee equaling 4.5% of the gross revenue of Indiana Live, plus a potential annual incentive fee tied to the operating profits of the facility.¹ According to the Plaintiffs, a management fee was earned but never paid to PPE Indiana. Additionally, the brands “Live,” “Makers Mark,” and “NASCAR Restaurants,” which are all trademark properties of the Cordish Company, were permitted to be used by Indiana Downs under the terms of the Management Agreement. The Plaintiffs claim that PPE Indiana provided two forms of service to Indiana Downs under the Management Agreement, for which PPE Indiana did not receive the management fee to which it was entitled: 1) it supplied and managed employees and oversaw strategic marketing functions; and 2) it pursued use of trademark properties owned by its affiliate(s) including the Cordish Company.

The Plaintiffs claim that the Removing Defendants and Indiana Downs entered into a “Support Agreement” stating that the management fees payable by Indiana Downs to PPE Indiana, would be substantially financed by Removing Defendants. The Plaintiffs claim that this arrangement was memorialized in a letter dated October 30, 2007 between the Removing Defendants and Indiana Downs, and that the management fees payable by Indiana Downs under the Management Agreement, were to be funded according to a formula set out in the Support Agreement. It appears that the bulk of the management fees payable to PPE Indiana under the Management Agreement were supposed to have been funded by the Removing Defendants. The Plaintiffs allege that the Removing Defendants either never made their required payments to Indiana Downs, or directed Indiana Downs not to pay the management fees to PPE Indiana. In any event, the Plaintiffs allege that these monies were due to them but not paid by PPE Indiana, and that the failure to pay was caused one way or another by the Removing Defendants.

In 2009, Cordish formed PPE Maryland for the purpose of bidding on the rights to construct and manage a casino adjacent to the Arundel Mills Mall in Anne Arundel County, Maryland. In 2010, PPE Maryland was awarded the license to construct and manage the Maryland Live Casino. During the time PPE Maryland was attempting to obtain the license in Maryland, its Cordish affiliate company, PPE Indiana, was pursuing collection of its management fees from Indiana Downs through arbitration. The Plaintiffs allege that throughout this process, all of the defendants named in the state court action maliciously and intentionally interfered with Cordish and PPE Maryland's business relationship with Anne Arundel County and other business partners throughout the state of Maryland. Specifically, the Plaintiffs claim that the Removing Defendants tried to coerce Cordish to cause PPE Indiana to stop pursuing recovery of the management fees from Indiana Downs by threatening to generate adverse publicity about the Cordish affiliates that would adversely affect their licensing opportunity in Maryland. The Plaintiffs claim that Mr. Mangano went so far as to threaten that if Cordish did not back off, he would claim publicly that PPE Indiana's faulty management of Indiana Live was responsible for the Indiana casino's financial struggles. The Plaintiffs believe Mr. Mangano knew that going public with this allegation, whether truthful or not, would negatively impact Cordish and PPE Maryland's ability to maintain the rights to build and manage the Maryland Live facility.

The Plaintiffs further claim that Removing Defendants conspired with parties based in Maryland (the “Non-removing Defendants”), to strip PPE Maryland of the right to build and manage Maryland Live. They claim that Mr. Mangano made threats in a June 21, 2010 e-mail to Jonathan Cordish. Plaintiffs allege that Mr. Mangano, in his capacity as trustee to the Trust Defendants that make up the remaining Removing Defendants, acted on his threats by conspiring with the Non–Removing Defendants to acquire the necessary signatures to overrule the Anne Arundel County Board's vote to allow PPE Maryland to build the casino, and together they were able to have that issue placed on the November 2, 2010 state election ballot through a petition. The Plaintiffs argue that the signatures needed for that petition were acquired through the use of fraudulent, deceitful, and illegal techniques. They claim that negative commercials were made, and other forms of propaganda were used to discredit the Plaintiffs' ability to manage a casino. The Plaintiffs claim these tactics caused delays in the development of the project, until PPE Maryland finally won the vote on the referendum on November 2, 2010.

On February 15, 2011, the Plaintiffs filed their action in the Maryland Circuit Court for Baltimore City, seeking to recover damages related to the cost of defending their rights to build Maryland Live, and for defamation of character, among other claims. The Plaintiffs' suit contains six counts: 1) Tortious Interference by Trust Defendants and Mr. Mangano, 2) False Light Invasion of Privacy by Mr. Mangano and The Trust Defendants against PPE Indiana, 3) False Light Invasion of Privacy by Mr. Mangano and the Trust Defendants against PPE Maryland and Cordish, 4) Defamation by Mr. Mangano and the Trust Defendants, 5) Civil Conspiracy by All the Ten Defendants, and 6) False Light Invasion of Privacy by the Non–Removing Defendants against PPE Indiana. The Plaintiffs demand $600 million in relief.

On April 7, 2011, Indiana Downs, still under Mr. Mangano's leadership, filed its Chapter 11 case in the United States Bankruptcy Court for the District of Delaware. At the time of its filing, Indiana Downs listed $208,319,814.00 in assets, $545,774,048.00 in secured claims, and $310,195.44 in unsecured claims.

Twenty-two days later, on April 29, 2011, Mr. Mangano and the Trust Defendants removed the Plaintiffs' state court to this Court on the grounds that Indiana Downs, now a debtor in a bankruptcy case, may have to indemnify Mr. Mangano and the Trust Defendants if they are found liable in the state court action, and that this would impact the bankruptcy estate.

As CEO of Indiana Downs, Mr. Mangano is a party to an Operating Agreement (“Operating Agreement”) with Indiana Downs which includes an indemnification clause. (The Operating Agreement is appended to the Defendants' Response to the Plaintiffs' Motion to Remand.) Under Article IV of the Operating Agreement, Mr. Mangano is indemnified by Indiana Downs for actions he takes while acting as CEO for Indiana Downs, except for excluded actions such as criminal acts. The clause gives Indiana Downs the right to approve any attorney for the indemnified party and the terms of any proposed settlement.

The Removing Defendants believe that Mr. Mangano's actions—the actions about which they complain—are within the indemnification clause and that Indiana Downs would be responsible to provide coverage. Accordingly, the Removing Defendants believe that given the possibility of indemnification and the potential impact on the bankruptcy estate, the action is sufficiently “related to” the bankruptcy case that removal to United States Bankruptcy Court is proper under 28 U.S.C. § 1452(a). After the case was removed, the Plaintiffs filed their Motion for Abstention and for Remand (“Motion to Remand”).

Shortly before this Court heard the Motion to Remand, an additional event occurred. A settlement was reached through arbitration in the management fee dispute between Indiana Downs and PPE...