The actions of the Massachusetts Gaming Commission almost a decade ago could be put under a new microscope after the Supreme Judicial Court ruled Monday that a lower court should look more closely at the "highly unusual character of the commission's actions" related to the award of a casino license to Wynn Resorts and the casino company's purchase of land in Everett.
FBT Everett Realty agreed in 2012 to sell the land on which Encore Boston Harbor now sits to Wynn Resorts for $75 million if the casino company secured a state casino license. Wynn got the lucrative Boston-area casino license, but the Everett property ultimately sold for $35 million. FBT alleges that the Gaming Commission, concerned about the possibility that someone with ties to organized crime stood to benefit from FBT's sale, improperly coerced Wynn Resorts into reducing the purchase price of FBT's Everett land by threatening to otherwise disadvantage Wynn's license application.
Justice Scott Kafker wrote in an opinion released Monday that a lower court judge made an error by dismissing all of FBT's lawsuit last summer (the SJC affirmed the lower court's decision to dismiss a claim that the commission had interfered with a contract) and sent the case back to the Superior Court for a fresh round of fact-finding.
"Whether the commission directed such a compelled transfer of property, or merely accepted it as a cure to its concerns about undisclosed criminal ownership interests at FBT, cannot be decided without further discovery," he wrote.
For years, the Gaming Commission has been hounded by various legal issues around the Everett land, the Boston-area licensing process and Wynn Resorts. The commission's inaugural chairman, Stephen Crosby, was at the center of accusations of bias in the process that resulted in Wynn Resorts securing the Boston-area casino license and he resigned in 2018 amid more cries of bias as the commission prepared to release its investigation into Wynn Resorts' handling of sexual misconduct allegations against Steve Wynn. The commission said Monday it is reviewing the latest SJC opinion.
"We are pleased that the SJC affirmed the dismissal of the intentional interference with a contract claim and will address the remaining claim through appropriate legal proceedings," Gaming Commission spokesman Tom Mills said Monday.
FBT Everett Realty bought the land in question for approximately $8 million in 2009, before casino gaming was legal in Massachusetts. The group explored using the site for big-box retail but things changed in late 2011 when casino gaming was legalized.
FBT Everett Realty and Wynn Resorts entered into an agreement in late 2012 giving the casino company the option to buy the Everett parcel for $75 million if it secured the region's gaming license.
While the Gaming Commission's Investigations and Enforcement Bureau was looking into Wynn Resorts and the option agreement on the Everett land, its investigators developed concerns that a convicted felon with apparent ties to organized crime, Charles Lightbody, had a hidden ownership stake in FBT Everett Realty and that a windfall going to someone connected to organized crime would undermine public confidence in the state's casino licensing process. (Lightbody and two other FBT principals were indicted in 2014 on federal charges related to alleged efforts to hide Lightbody's financial interest in the Everett land and all three were acquitted).
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Karen Wells, the director of the IEB and now executive director of the Gaming Commission, informed Wynn executives of the concerns and told them that "their position regarding [FBT] receiving a financial windfall as a result of the gaming facility was something the IEB would report on regarding [Wynn's] suitability," Kafker's opinion quotes Wells as saying during a commission meeting.
Having been told that the $75 million purchase from FBT would be a factor in the commission's decision on whether Wynn Resorts would be suitable to hold a Massachusetts casino license, the company had the land appraised for its highest and best non-casino use and in November 2013 agreed with FBT Everett Realty to reduce the land sale price to $35 million to match what the appraiser said it would be worth for "large box retail." Wynn got the license and the land deal was finalized for $35 million in late 2013.
"Although the relevant facts are disputed, the record -- when viewed in the light most favorable to FBT -- indicates that the commission intended to deprive FBT of any casino-use premium on the sale of the Everett parcel and that it coerced Wynn into renegotiating the price for the parcel, reducing it from $75 million to $35 million, by threatening to find Wynn unsuitable for a license," Kafker wrote.
FBT sued the Gaming Commission to recover the lost $40 million "casino-use premium." While the SJC ruled Monday that a lower court was correct to dismiss claims of tortious interference with a contract, it said the Superior Court should look more closely at whether the Gaming Commission's actions constitute a "regulatory taking," essentially whether the commission's actions and regulations restrict the owner's rights to such a degree that it becomes the functional equivalent of a physical seizure of property.
"Only when the disputed facts surrounding the commission's actions are fully developed and resolved will it be possible to properly decide FBT's regulatory taking claim," Kafker wrote.
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There are three prongs that are to be considered in a regulatory taking claim, Kafker said: whether the action interferes with reasonable investment-backed expectations, what the economic impact of the regulation is, and the character of the government action. Kafker said he agreed with the lower court judge that FBT did not have a "reasonable investment-backed expectation" to be able to sell the parcel for the $75 million it could have commanded for a casino because casino gaming was illegal when the initial FBT investment was made.
But he said the Superior Court judge should not have granted summary judgment without considering the other two prongs. Kafker said the "economic impact of the commission's actions here was substantial" and the justice repeatedly pointed out that the character of the Gaming Commission's regulatory action was "highly unusual."
"When confronted with the possibility that someone with a criminal background had an undisclosed ownership interest in the parcel of land that a gaming license applicant intended to purchase to develop a casino, the commission did not continue to investigate until it could confidently determine whether there was in fact some undisclosed criminal ownership," Kafker wrote. He added, "Regardless, instead of completing or concluding its investigation of the ownership interests in FBT, the commission made favorable consideration of the application subject to lowering the amount of money the owners of FBT would receive for the property, thereby giving one private party, Wynn, a multimillion-dollar windfall at the expense of another private party, FBT."
The conclusion, Kafker wrote, is "that while FBT did not have a reasonable investment-backed expectation in reaping a casino-use premium when selling the Everett parcel, the commission's actions had a substantial, $40 million economic impact on FBT. The highly unusual character of the commission's actions, effectively compelling the transfer of $40 million from one private party to another in order to secure a government license, weighs in favor of finding a taking."
The SJC (with Justice Serge Georges having recused himself) ordered the reversal of the previous summary judgment order and remanded FBT's regulatory taking claim to the Superior Court "to allow the completion of discovery and further proceedings consistent with this opinion."
While it is unclear how the case may ultimately be resolved, the SJC justices and a lawyer representing the Gaming Commission discussed during the case's oral arguments in February the possibility that the case leads to a $40 million judgment against the commission. If that were to happen, the Gaming Commission's attorney and the attorney for FBT both said, it would most likely be up to Encore, MGM Springfield and Plainridge Park Casino to pay it.
"If the commission were subject to a judgment in this case, it would take the position that that could be assessed as a cost and expense to all of the licensees to be shared equally," Melissa Allison, an attorney from Anderson Kreiger representing the Gaming Commission as a special assistant attorney general, said during oral arguments. "The licensees, certainly the licensees other than Wynn, might object to that. We would argue that they wouldn't have standing to under the Gaming Act. But that's certainly the position the commission would take."
But Allison also warned that the state's 2011 expanded gaming law also "explicitly provides that such amounts can be appropriated" if they cannot be assessed against the licensees as an operational cost of the commission. That would mean, Allison said, "at the end of the day, the taxpayers could hold the bag."