Seventh Circuit revives casinos' lawsuit against racetracks; and memories of Blagojevich corruption

A group of Illinois riverboat casino operators will be able to proceed with a federal racketeering suit that accuses horse race track owners of bribing former Gov. Rod Blagojevich to sign a 2008 law to benefit their industry.

In overturning one part of the federal court's decision to toss the suit, the Seventh Circuit Court of Appeals on Friday determined the casino operators should be allowed to present evidence to back their claims the race track owners promised to contribute to Blagojevich in exchange for his approval of legislation to renew a 2006 law requiring 3 percent of the casinos’ revenues to be used to prop up Illinois’ ailing horse racing industry.

The ruling reverses a key element of U.S. District Judge Matthew F. Kennelly's decision to grant summary judgment to defendants Balmoral Park in Crete, Maywood Park in Melrose Park and horse racing executive John Johnston, who is part-owner in both tracks.

Kennelly essentially dismissed the suit brought by four Chicago area casinos, including the owners of the Empress Casino in Joliet, Elgin’s Grand Victoria Casino, Aurora’s Hollywood Casino and Harrah’s Joliet Chicago Hotel and Casino.

The panel, however, affirmed the other part of Kennelly's ruling, which granted summary judgment to the defendants over a challenge to the law that was renewed by the 2008 act, something the judges acknowledge could have an impact on their legal fight as it moves forward on remand.

Seventh Circuit Chief Judge Diane P. Wood wrote the panel's recent opinion, with judges Ann Claire Williams and David F. Hamilton concurring.

Wood opened her 22-page ruling by saying, "Deals are the stuff of legislating. Although logrolling may appear unseemly some of the time, it is not, by itself, illegal. Bribes are."

"This case requires us once again to decide whether some shenanigans in the Illinois General Assembly and governor’s office crossed the line from the merely unseemly to the unlawful," Wood wrote. "It involves a subject we have visited in the past: two industries that compete for gambling dollars."

The Seventh Circuit judges did not indicate whether they believed the casinos would prevail should their case go to trial, but said the casinos had, at a minimum, demonstrated the possibility Blagojevich had been bribed with campaign contributions to sign a 2008 law allowing the state to take money from the casinos for the race track industry.

"If the Casinos are correct, the Racetracks agreed to pay Gov. Blagojevich $100,000 in exchange for his signature on the ’08 Act,” Wood wrote. “The direct and immediate consequence of that illegal agreement was to deprive the casinos of 3 percent of their annual revenue."

Because "[t]here is ‘a direct relation between the injury asserted and the injurious conduct alleged,'" the federal appeals panel reversed Kennelly's decision to grant summary judgment to the defendants over the challenge to the 2008 law and remanded the matter for further proceedings.

The case first arose in 2009, after Blagojevich signed a law extending the collection of a surcharge imposed on the four Illinois casinos to fund the so-called Horse Racing Equity Trust Fund.

The surcharge and fund had been created in 2006 under a state law, also signed by Blagojevich, amending the Illinois Horseracing Act, ostensibly to help the track operators whose businesses had been severely damaged in the wake of the legalization of casino gambling in Illinois in 1990.

Under the law, the 3 percent surcharge assessed on the gross revenues of all Illinois casinos grossing more than $200 million annually would be used to both boost purses and fund capital improvements at the tracks.

The passage of both the 2006 and 2008 laws were surrounded by political controversy, with opponents arguing the laws’ passage had been greased by fishy political horse trading.

The 2006 bill failed to garner much support until it was amended to only affect casinos with revenues of more than $200 million. Even after that change, as well as "intense" lobbying efforts from all sides, the opinion notes, the measure only passed the House by a vote of 70‐32 and Senate with a 40‐16 vote.

Blagojevich, who in 2009 was thrown out of the governor's office and then sent to prison on corruption charges, signed the bill into law the day after the measure made it out of the General Assembly.

"Johnston and other racing executives thanked the governor for his support of the bill in a personal letter," Wood notes in the opinion. "Using various subsidiaries, they then contributed $125,000 to his campaign fund."

While the bill to extend the 2006 law was stalled in the legislature in early 2008, Blagojevich called Johnston to solicit campaign contributions, Wood wrote, adding that Johnston then pledged to give him $100,000.

Johnston, however, didn't send his donation right away, which led Blagojevich's chief of staff, Alonzo Monk --who was one of the prosecutions' key witnesses in the trials against his former boss and was sentenced to two years of prison himself -- to call him over the next few months and ask him to follow through on his pledge.

The General Assembly in November 2008 passed the bill to renew the 2006 law. By early December, Blagojevich hadn't signed the measure into law and Johnston hadn't given him the campaign donation he pledged.

In conversations recorded by federal authorities that were later used at Blagojevich's corruption trials, Monk and the governor talked strategy about how they could get Johnston to give the donation without saying it was linked to the measure's enactment.

Blagojevich was arrested on Dec. 9, 2008 on corruption charges stemming from several allegations, including that he signed the 2008 law for campaign money and more notably, that he tried to sell the appointment to Barack Obama's Senate seat, among others.

Following his arrest, Blagojevich signed the 2008 bill into law. Johnston was later revealed to be "Race Horse Executive 1" in investigative reports that found the ex-governor had traded legislative action for campaign contributions.

The casinos initially tried to challenge the constitutional validity of the surcharge under the 2006 and 2008 laws, but were unsuccessful.

They then altered their approach, filing a lawsuit against the racetracks and Blagojevich under federal Racketeering Influenced and Corrupt Organizations (RICO) Act.

Blagojevich, however, was later removed as a defendant based on legislative immunity in a 2011 Seventh Circuit ruling.

On remand from the panel's ruling, Kennelly granted summary judgment for the racetracks. He determined that while the casinos offered evidence that could support a jury finding the racetrack owners bribed Blagojevich to sign the laws, they couldn't prove the alleged bribes were the proximate cause of their injury.

In overturning Kennelly, the Seventh Circuit panel stressed "that the only RICO element we are deciding is the issue of proximate cause."

While the lower court found the casinos had failed to demonstrate a clear possible link between the rack tracks and Blagojevich in the 2008 legislation, the appeals panel disagreed.

The Seventh Circuit judges said evidence, including recorded phone conversations, indicate Blagojevich opted to delay signing the 2008 bill until he had secured a promise from the track operators for an additional $100,000 in campaign contributions and to create “separation” between the signing of the law and the possible campaign donations.

On behalf of the panel, Wood wrote that in 2008, the governor was all that stood between the race tracks and the surcharge money.

As such, Wood said the casinos may be able to demonstrate the promised campaign donations may have been the proximate cause of the signing of the law that they assert has harmed their businesses.

"We see nothing in RICO, as the Supreme Court has interpreted it, that would bar the Casinos from pursuing their claim with respect to the ’08 Act," the panel held. "There was no more directly injured party standing between the Casinos and the alleged wrongdoer, and thus no one else to whom they could look for relief; their injuries were not derivative."

Wood said the casinos' "injury is easily measured, and it is directly traceable to the race tracks’ alleged conduct (bribing the governor to sign the ’08 Act) and remediable by this court. They thus face no standing barrier to their lawsuit.”

The panel, however, did affirm the lower court's decision to grant summary judgment to the defendants on the casinos' claim over the 2006 law.

Because the circumstances surrounding the enactment of the 2006 and 2008 laws differed "significantly," Wood said she and her colleagues analyzed them separately.

While the panel determined "the casinos presented sufficient evidence on proximate cause to withstand summary judgment" on the allegations over the 2008 law, it found they failed to do so when it came to their contention the racetracks bribed Blagojevich to push the 2006 measure through the legislature.

"Even if a RICO suit could be based on such an allegation (a questionable proposition), the Casinos have not presented sufficient evidence to permit a trier of fact to find that Governor Blagojevich caused the legislature to pass the ’06 Act" Wood wrote.

She said the casinos did not offer any evidence showing that the racetracks bribed lawmakers or that "the governor agreed to exert improper influence over state legislators in order to win their support of the ’06 Act in exchange for a bribe."

"We recognize that our rejection of the Casinos’ claims based on the ’06 Act may have an impact on their ability to show that the defendants agreed to the commission of two predicate acts,... or that the defendants 'knowingly agreed to perform services of a kind [to] facilitate the activities of those … operating the enterprise in an illegal manner,'" the panel said.

Wood noted that in order for the casinos to sustain their conspiracy claim, they will ultimately have to show "that (1) the defendant[s] agreed to maintain an interest in or control of an enterprise or to participate in the affairs of an enterprise through a pattern of racketeering activity, and (2) the defendant[s] further agreed that someone would commit at least two predicate acts to accomplish these goals.”

"We are reluctant to delve into those issues without a proper adversary presentation," Wood wrote. "Instead, because the evaluation of the case as a whole may be affected by our decision on proximate cause, we confirm that the district court is free on remand to revisit its decisions on the other RICO elements should the parties choose to revisit them in light of this opinion."

The Seventh Circuit heard arguments in the appeal in March, when Robert Andalman of A&G Law in Chicago represented the casinos and William J. McKenna Jr. of Foley & Lardner in Chicago argued on behalf of the racetracks.

As of today, electronic records for the federal court did not list any hearings or deadlines in the remanded case.

Bethany Krajelis contributed to this report.