Divided COA voids casino tax-sharing agreement

A city and county’s agreement to share tax revenue from a southeastern Indiana riverboat casino is void, an Indiana Court of Appeals majority ruled, but a dissenting judge held that the agreement should continue.

The City of Lawrenceburg, which serves as the home dock for a local riverboat casino, created a revenue-sharing program allowing it to share some of its gaming tax revenue with surrounding counties. Franklin County entered into an agreement with Lawrenceburg in 2006 to get its share of the distributed tax revenue and continued to receive $500,000 annually from the city until 2013.

At that point, Lawrenceburg decided to stop making payments to Franklin County because of increased competition from nearby Ohio casinos and because of a projected 30 percent loss in its gaming tax revenue for the following year. It claimed Franklin County had done nothing to earn the annual payments and did not provide any services or goods, nor incur any nontrivial expenses in connection with the parties’ agreement.

Franklin County sued Lawrenceburg for breach of contract and was ultimately granted summary judgment in Decatur Superior Court, which then ordered Lawrenceburg to pay Franklin County approximately $3.1 million in damages, including prejudgment interest.

An Indiana Court of Appeals panel split Wednesday in The City of Lawrenceburg, Indiana, the Mayor of the City of Lawrenceburg in his official capacity, et al. v. Franklin County, Indiana, et al., 19A-PL-263. The majority concluded reversal was warranted, finding Lawrenceburg did not waive its defenses and that its agreement with Franklin County was void by statute. On the first point, the majority noted Franklin County offered no evidence showing prejudice from the timing of Lawrenceburg’s arguments.

“Nor could it, given that the argument that the Agreement was void by statute is a purely legal argument that did not necessitate a fully developed factual record to address,” Judge John Baker wrote for the majority, joined by Judge Edward Najam. “… Given that Franklin cannot show that it was deprived of, or otherwise seriously hindered in the pursuit of, some legal right, we find that the timing of Lawrenceburg’s void by statute argument did not bar its introduction into the proceedings.”

On its second point, the majority found the agreement was void because Lawrenceburg had no money appropriated at the time of the agreement’s execution.

“Shortly thereafter, Lawrenceburg appropriated $500,000 for the first year’s payment, but that action cannot save a contract that was void ab initio,” Baker wrote. “Because the Agreement was void from the outset, any payments made by Lawrenceburg to Franklin thereafter were gratuitous, and Franklin has no legal right to demand their continuation or to receive damages for their cessation.”

The majority therefore ordered the judgment of the trial court be reversed and remanded with instructions to enter final judgment in favor of Lawrenceburg.

Judge Margret Robb concurred in a separate opinion with the majority’s finding that Lawrenceburg did not waive its argument that the agreement was void by statute. However, she disagreed in a partial dissent that the parties’ agreement in the context at hand was void.

“Here, the Agreement was for Lawrenceburg to share its wagering tax revenues with Franklin County in the amount of $500,000 for as long as Lawrenceburg received at least that much in wagering tax revenue,” Robb wrote. “The legislature clearly contemplated such an agreement in enacting Indiana Code section 4-33-13-6(b). Applying section 36-4-8-12(b) to void the Agreement is illogical and contrary to legislative intent. I would affirm the trial court’s grant of summary judgment to Franklin County.”