Foundations of East Chicago, Inc. v. City of East Chicago

905 N.E.2d 30, 2009 Ind. App. LEXIS 736, 2009 WL 1154104

• Court: Indiana Court of Appeals
• Decided: April 28, 2009
• Docket: 49A02-0711-CV-987
• Status: Published

Opinions

OPINION

BAKER, Chief Judge.

The issues at the heart of this appeal have been winding their way through Indiana courts for years. In fact, our Supreme Court has granted transfer in another related case. In this appeal, the issue as presented by the appellant is the constitutionality of a statute. Inasmuch as we find that the constitutionality of the statute has no effect on the ultimate relief sought, however, we decline to answer the question.

Appellant-plaintiff Foundations of East Chicago, Inc. (Foundations), appeals the trial court's order entering final judgment in favor of appellee-defendant City of East Chicago (East Chicago). Foundations challenged legislation that permitted East Chicago to exercise its authority to select the recipients-including itself-of economic development funding provided by a riverboat casino. Finding that East Chicago has always had the authority to enact an ordinance to that effect-regardless of the legislature's enaction of the statute at issue-we affirm the trial court's order dismissing the complaint.

FACTS¹

In City of East Chicago v. East Chicago Second Century, Inc., 878 NE2d 358, 865-68 (Ind.Ct.App.2007), ("Hast Chicago I1"), trams.granted, we summarized the facts underlying the various legal disputes among these parties:

In 1994 and 1995, East Chicago and the Showboat Marina Partnership entered into two agreements providing for Showboat's distribution of some of its gaming revenue if it were awarded the license to operate the East Chicago riverboat casino. To secure a riverboat license, an applicant must show a commitment to local economic development, Ind.Code § 4-33-6-7(b),[ ²] so East Chicago negotiated with Showboat, the original licensee, that if East Chicago supported the Showboat application, Showboat would fund economic development with 3.75% of its future adjusted gross receipts. The agreement was dated April 8, 1994 and supplemented with a second agreement dated April 18, 1995. The agreements (hereinafter "the letter agreements") were subject to ratification by the East Chicago Common Council. The Council passed an ordinance in September 1995 endorsing the Showboat commitments.

Pursuant to the agreement Showboat would pay 1% to each of the Foundations, 1% to East Chicago, and .75% to Second Century. The Foundations are both not-for-profit entities.[³] Second Century is a for-profit corporation Showboat formed. Showboat was awarded the license in April 1997, and the Indiana Gaming Commission incorporated the terms of the letter agreements as conditions for Showboat's receipt of the license. Showboat made the payments accordingly. In 1999 the license was transferred to Harrah's, with Gaming Commission approval, and Har-rabh's continued to make the payments called for in the letter agreements.

In the fall of 2004, RIH Acquisitions, doing business as Resorts East Chicago ("Resorts"), applied to the Gaming Commission for transfer of the Harrah's license to Resorts. Resorts indicated it was willing to continue making the payments. The Gaming Commission granted the license transfer without addressing the letter agreements.

In 2004, our Supreme Court ordered a special mayoral election in East Chicago because of election fraud on the part of Mayor Robert Pastrick's supporters. George Pabey was elected mayor. In January 2005 the new city administration took office and the Common Council passed an ordinance that purported to redirect to East Chicago all the money that was being paid to Second Century and the Foundations pursuant to the letter agreements.

In April 2005, Second Century brought an action against Resorts, seeking a declaration that it was a third-party beneficiary of the agreement Resorts had with East Chicago, so if the license were transferred Second Century would continue to be paid .75% of the riverboat's adjusted gross revenues.

Resorts answered and brought a third-party complaint against the Foundations and East Chicago asking the court to declare to whom it has to pay the money for East Chicago economic development. In response East Chicago asked that the letter agreements be found void and unenforceable, and contended it should receive the entire 3.75%. The Foundations answered and asked the court to declare the letter agreements valid and to declare them entitled to their 1% each. The Foundations and Second Century moved to dismiss the East Chicago claims and East Chicago moved for summary judgment. The court granted a stay of discovery pending resolution of the motion to dismiss.

The Attorney General filed an amicus brief supporting East Chicago. The Attorney General determined there were financial irregularities in the internal operations of Second Century. It determined the letter agreements "may violate the integrity of the riverboat gambling industry," (App. at 2192), as they direct the economic benefit money to a private, for-profit corporation that has "resistled] any public oversight," (id.), and the principals of Second Century and the previous East Chicago administration may have made material omissions and/or misrepresentations to the Indiana Gaming Commission in obtaining and maintaining the agreement made. It also determined the letter agreements may be "inconsistent with the stated purpose of the Act to assist economic development" as East Chicago may not have received economic development from Second Century "commensurate" with the amount of money See-ond Century received under the letter agreements. (Id.) The Attorney General suggested the letter agreements may be void as against public policy.

After the Attorney General's findings, and about a year after Second Century brought its declaratory judgment action, the Gaming Commission issued a resolution disapproving continued payments by Resorts to Second Century. Many of the irregularities alleged in the Gaming Commission's resolution mirror the issues raised in the civil contract action. In addition, East Chicago argues in the civil action, as the Attorney General suggested in the Commission proceeding, the letter agreements are void as against public policy. Due to these similarities, the Foundations moved to consolidate the contract action with the appeal of the Gaming Commission's administrative decision.

After consolidating the actions, the trial court denied East Chicago's motion for summary judgment and found the letter agreements created an enforceable contract.

(Original footnotes omitted.) We affirmed in all respects pertinent to the case before us and our Supreme Court has since granted transfer.⁴

In 2007 the general assembly amended Indiana Code section 4-83-6-7 ⁵ to provide as follows:

(e) This subsection applies to an owner's license issued for the City of East Chicago. If a controlling interest in the owner's license is transferred, the fiscal body of the City of East Chicago may adopt an ordinance voiding any term of the development agreement (as defined by IC 36-1-8-9.5) between:

(1) the city; and

(2) the person transferring the controlling interest in the owner's license; that is in effect as of the date the controlling interest is transferred. The ordinance may provide for any payments made under the redevelopment agreement, including those held in escrow, to be redirected to the City of East Chicago for use as directed by ordinance of the city fiscal body. A requirement to redirect a payment is valid to the same extent as if the requirement had been part of the original agreement. If the ordinance provides for the voiding and renegotiation of any part of a redevelopment agreement, the mayor of the City of East Chicago may negotiate with the person acquiring a controlling interest in the owner's license to replace any terms voided by the ordinance. Terms negotiated under this subsection must be ratified in an ordinance adopted by the city legislative body.

Shortly thereafter, East Chicago passed an ordinance pursuant to the authority granted by Section 302 to redirect to itself all of the money that the casino had been paying to Foundations and its predecessors.

On May 3, 2007, Foundations filed a complaint challenging the validity of Seetion 302 under multiple provisions of the Indiana and United States Constitutions. The State eventually intervened to defend the statute's validity. Following a bench trial that took place on October 18, 2007, the trial court issued an order entering final judgment in favor of East Chicago, denying Foundations's requested relief of a permanent injunction. Among other things, the trial court's lengthy and comprehensive order provides as follows:

31. A history of corruption among governmental officials within East Chicago and the general Lake County area and particularly corruption in the [Mayor] Pastrick Administration which developed the scheme for funneling cash to [the recipients of the casino's economic development funds, including the predecessors of the Foundations] is well

documented through various legal proceedings and investigations which were published in the press.

[[Image here]]

The public corruption scandals in the Pastrick Administration touched a number of officials prominent in the formation and direction of the Foundations.

#046 #

... On December 29, 2004, George Pabey took office as the newly elected mayor of East Chicago.

... [There is substantial evidence that large sums of money transferred from the riverboat Licensee to the Foundations have not been put to use to benefit the citizens of East Chicago but have instead simply been permitted to pile up in the [Foundation's] bank accounts.

# ohock

.... East Chicago public officials have no representation on the board of the [Foundations] which contends in this matter that it is entitled to over half of the City negotiated economic development funding from the riverboat licensee.

Appellant's App. p. 30-32 (internal citation omitted). The trial court concluded that Foundations did not have standing as a third-party beneficiary to challenge the City's actions. Notwithstanding that conclusion, the trial court went on to consider Foundations's arguments surrounding the constitutionality of Section 802, ultimately holding the statute to be constitutional. Foundations now appeals.

DISCUSSION AND DECISION

The trial court entered findings of fact and conclusions of law. Therefore, we apply a two-tiered standard of review. Freese v. Burns, 771 N.E.2d 697, 700-01 (Ind.Ct.App.2002). First, we determine whether the evidence supports the findings, and then, we determine whether the findings support the conclusions. Id. We may reverse only if the evidence does not support the findings of the findings do not support the judgment. Id. During our review, we may not reweigh the evidence or reassess witness credibility, instead considering only the evidence favorable to the trial court's judgment. Id. We do not defer to the trial court on issues of law. Id.

Solely for the sake of argument, we will assume that Foundations has standing to pursue this litigation. We will also assume for argument's sake that Section 302 is unconstitutional on one of the bases offered on Foundations's laundry list of constitutional arguments.

Even if all of that is true, Foundations is not entitled to its requested relief. Notwithstanding East Chicago I, we can only conclude that the East Chicago Common Council has always retained the authority to modify the arrangement encapsulated in the letter agreements-regardless of Seetion 302.

As explained in Hast Chicago I,

... To secure a riverboat license, an applicant must show a commitment to local economic development, ... so East Chicago negotiated with Showboat, the original licensee, that if East Chicago supported the Showboat application, Showboat would fund economic development with 3.75% of its future adjusted gross receipts. The agreement was dated April 8, 1994 and supplemented with a second agreement dated April 18, 1995. The agreements (hereinafter "the letter agreements") were subject to ratification by the East Chicago Common Council. The Council passed an ordinance in September 1995 endorsing the Showboat commitments.

. .. Showboat was awarded the license in April 1997, and the Indiana Gaming Commission incorporated the terms of the letter agreements as conditions for Showboat's receipt of the license.

878 N.E.2d at 366 (citation and footnote omitted). The Hast Chicago I court ultimately found the letter agreements to be valid, binding, and enforceable.

We must disagree with that result because we believe that enforcing these agreements would be a patent violation of public policy. As Judge Bailey aptly expressed in his concurring opinion, "the practical effect of that decision [that the letter agreements were not of indefinite duration and therefore terminable at willl binds the parties and their successors indefinitely." Id. at 384. To enforce this policy would be akin to permitting a corrupt public official to enter into an agreement that would bind his or her constituents in perpetuity; it would also bind a community to its eurrent needs, notwithstanding the fact that it might need a park today and a hospital five years from now. To enforce such a policy would be profoundly unwise.

We hold, therefore, that the only way in which these letter agreements can be logically-and prudently-interpreted is to conclude that East Chicago has always retained the authority to change the recipient of the licengee's local economic development funds. In other words, the licensee is obligated to support the community at a certain level, but it is left to the East Chicago Common Council to determine the identity of the payee(s), and the Council has the authority to pass a new ordinance changing the identity of the payee(s) at any time. This is true regardless of the constitutionality of Section 302.

The judgment of the trial court is affirmed.

BROWN, J., concurs in result with opinion. MAY, J., dissents with opinion.

1 . We held oral argument in this matter on September 17, 2008, in Indianapolis.

2 . East Chicago relied on this statute in East Chicago I, but it was applicable only to the city of Gary.

3 . Those Foundations merged and formed the entity that is the appellant in the case before us.

4 . Our Supreme Court also granted transfer and has recently issued an opinion in another related case involving the same underlying facts. Zoeller v. East Chicago Second Century, Inc., 904 N.E.2d 213 (Ind., 2009). The legal issues in Zoeller are largely distinct from those at issue herein, but to the extent they are relevant they are analyzed in Judge Brown's concurring opinion.

5 . The amendment was Section 302 of the 2007 Budget Act. We will accordingly refer to the section at issue as "Section 302."