Justices issue ruling in casino revenue case

The Indiana Supreme Court ruled today on an ongoing appeal about how casino revenue is funneled to a for-profit organization in East Chicago, an issue that has also been raised in an ongoing federal racketeering suit in northern Indiana.

In its decision today in City of East Chicago v. East Chicago Second Century, et al., No. 49S02-0808-CV-00436, the justices went into great detail about which of the city's claims should survive dismissal, but more significantly they determined that any existing arrangements involving casino money can be altered only through administrative channels such as the Indiana Gaming Commission, which may incorporate advice from city officials and others on what it might "deem best for the future of East Chicago's residents."

The case is one of many appeals stemming from the casino operating agreements and license put in place during the 1990s, under former Mayor Robert Pastrick. At the time, the casino entered into a local development agreement with East Chicago where some of the casino revenue would flow to the city for development projects. That arrangement continued through 2005, when Pastrick was ousted and a new mayor began scrutinizing the casino revenue arrangements.

In 2005, Second Century sought a declaratory judgment that Resorts East Chicago would be required to continue the payments as required by a license from the Indiana Gaming Commission. Part of that stipulates the casino contributes 3.75 percent of its adjusted gross receipts – 1 percent to the city of East Chicago, 1 percent to the non-profit Twin City Education Foundation, 1 percent to the non-profit East Chicago Community Foundation, and 0.75 percent to the for-profit East Chicago Second Century Inc. Through June 2006, the Second Century group received about $16 million from the casino operation, according to the Indiana Supreme Court ruling.

A separate federal civil racketeering suit also raises these casino revenue issues, as they are connected to the former Pastrick administration that has been dubbed a "corrupt enterprise." Second Century and the foundations have recently asked to intervene in that five-year-old suit in federal court, but this state appellate ruling is not connected to that case.

Ruling on multiple issues, the Indiana justices found that then-Marion Superior Cale Bradford didn't err in dismissing several counts relating to breach of fiduciary duty; however, he did err in dismissing other claims. Specifically, justices ruled that the judge had erred in dismissing these claims outright: inducement of breach of fiduciary duty/participating in breach; breach of fiduciary duty; accounting; and two claims involving a declaratory judgment/return of public funds.

In deciding those issues and each claim, justices determined also that the city's argument that any fraudulent concealment of money should toll the statute of limitations.

"As respects those counts or parts of counts which we have held above should not survive Second Century's motion to dismiss, it is very difficult to see why equity ought to estop Second Century and the Foundations from asserting the statutes of limitation," Chief Justice Randall T. Shepard wrote. "The counts centered on attacking the formation and confirmation of the original agreements seek to challenge action taken ten or fifteen years ago in full glare of the public arena. It simply asks too much to embrace the idea that these were 'fraudulently concealed' from the City or anyone else."

On other counts, the Supreme Court found that the city doesn't have the authority to unilaterally terminate or alter the terms of the license issued by the Indiana Gaming Commission. That falls to the state commission and lawmakers, though the city is able to make periodic changes through the commission's administrative process.

Justice Brent Dickson concurred with several of the counts, but dissented with respect to aspects of Part III involving constructive fraud/unjust enrichment claim and how it addresses the other issues of the overall suit.