Opinion
Civil No. 98-2058 ADM/AJB
March 22, 2002
Kyle E. Hart, Esq., and Richard G. Jensen, Esq., Fabyanske, Westra Hart, P.A., Minneapolis, MN, for and on behalf of Plaintiff.
Daniel Q. Poretti, Esq., and Stanley E. Siegel, Jr., Esq., Rider, Bennett, Egan Arundel, L.L.P., Minneapolis, MN, for and on behalf of Defendants.
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
On December 5, 2001, the Motion to Dismiss or for Summary Judgment [Doc. No. 54] of Defendants Harrah's Entertainment, Inc., Harrah's Operating Company, Inc., and Harrah's Southwest Michigan Casino Corporation (collectively "Harrah's"), and the Motion to Dismiss [Doc. No. 57] of Defendants Philip G. Satre ("Satre") and Colin V. Reed ("Reed"), were argued before the undersigned United States District Judge. The claims in this action arise from the unsuccessful development of a casino in Michigan.
II. BACKGROUND
A. Procedural Posture
Plaintiff Casino Resource Corporation ("CRC") originally served and filed its Complaint September 14, 1998. Harrah's subsequently filed a Motion to Dismiss. On May 24, 1999, the district court, Honorable David S. Doty, granted dismissal on the basis that CRC's claims were preempted by the Indian Gaming Regulatory Act ("IGRA"), 25 U.S.C. § 2701-2721. On March 13, 2001, the Eighth Circuit ruled that CRC's claims are not preempted by IGRA, and remanded the case to district court. See Casino Resource Corp. v. Harrah's Entertainment, Inc., 243 F.3d 435, 440-441 (8th Cir. 2001). The case was reassigned from Judge Doty's docket to the undersigned District Judge. Now, on remand, Harrah's again moves to dismiss and for summary judgment on the basis of its contractual relationship with CRC.
B. The Facts
In 1994, CRC obtained a right of first refusal to negotiate a gaming management contract with the Pokagon Band of Potawatomi Indians (the "Tribe"). CRC entered discussions with Harrah's Operating Company, Inc., a subsidiary of Harrah's Entertainment, Inc., and a new subsidiary was established, Harrah's Southwest Michigan Casino Corporation, to explore gaming opportunities with the Tribe.
For purposes of this Motion, Harrah's concedes that Harrah's Entertainment and Harrah's Operating Company can be treated as the alter ego of Harrah's Southwest. Def. Mem. in Supp. of Summ. J. at 4 n. 4. These defendants are collectively referred to as "Harrah's."
i. The Memorandum of Understanding
On January 10, 1995, CRC and Harrah's entered into a "Memorandum of Understanding"in which the parties agreed to jointly pursue gaming opportunities with the Tribe. Poretti Aff. Ex. A; Pilger Aff. Ex. C. The purpose of this Memorandum was to summarize discussions between CRC and Harrah's concerning their joint proposal for a casino to be developed by the Tribe, and to "set forth a manner to proceed." Memorandum of Understanding at 1. The Memorandum stated that Harrah's and CRC (referred to as "Partner" in the Memorandum) would jointly review and agree on the design of the casino, submit a joint proposal to the Tribe, and negotiate the contracts with the Tribe, but that Harrah's would "bear all of the financial risk of development." Id. ¶¶ 1, 3(A). It provided that Harrah's and CRC would execute a "consulting and finders fee agreement" pursuant to which Harrah's would compensate CRC "for its services in negotiating with the Tribe, locating the project, and on-going consulting services." Id. ¶ 3(B). The Memorandum provided the following:
The Memorandum included an attached schedule which set "CRC['s] Share" at 21.6% of Harrah's total management fee. Memorandum, Attachment A. Harrah's total management fee was designated in the Management Agreement (between the Tribe and Harrah's) as 26% of Net Revenues of the proposed casino. Pilger Aff. Ex. E (Management Agreement) § 6.1. The schedule also provided that "[CRC] will pay [Harrah's] its share . . . of such payments which are not recouped from the Tribe. . . ." Memorandum, Attachment A.
Neither [CRC] nor [Harrah's] is authorized or empowered to obligate the other or to incur any costs on behalf of the other. As between [CRC] and [Harrah's], each is an independent contractor and the employees or agents of one are not the employees or agents of the other.
Id. ¶ 5. Finally, the Memorandum stated that "[CRC] and [Harrah's] will proceed on the basis set forth in this letter until the earliest of (a) the execution of the Contracts [with the Tribe for development of the Casino] . . . or (c) December 31, 1995[,] on which date this memorandum of understanding shall terminate." Id. ¶ 6.
Thereafter, Harrah's negotiated several agreements with the Tribe, including a Development Agreement, a Management Agreement and an Interim Promissory Note (the "Agreements"). See Pilger Aff. Ex. J at 1 (third "whereas" clause). The Development Agreement between Harrah's and the Tribe includes a Non-Compete provision stating that "[d]uring the term of this Agreement and the Management Agreement, . . . the parties agree to refrain from commercial or Indian gaming development within a [125] mile radius from any casino facility developed pursuant to the agreement(s) between the parties. . . ." Hart Aff. Ex. A (Development Agreement) § 10.4; see also Pilger Aff. Ex. J at 1 (eighth "whereas" clause); Wesaw Aff. ¶ 4 (Pilger Aff. Ex. M).
ii. The Technical Assistance and Consulting Agreement
On June 10, 1996, CRC and Harrah's entered into a "Technical Assistance and Consulting Agreement" (the "TACA"). Poretti Aff. Ex. B; Pilger Aff. Ex. G. The TACA was intended to "formalize [CRC's] relationship with Harrah's regarding CRC's ongoing role in the development of" casino gaming and related facilities to be owned by the Tribe (the "Enterprise"). TACA ¶¶ 1.1, 1.5. The parties now dispute the nature of the relationship created by the TACA. CRC asserts that the ensuing relationship between CRC and Harrah's was a partnership. Pl. Mem. in Opp. to Summ. J. at 2. Harrah's contends that it was not a partnership, but essentially a fee-for-service consulting contract between a general contractor and subcontractor. Def. Mem. in Supp. of Summ. J. at 5.
The TACA summarized the parties' prior relationship by stating that CRC and Harrah's had "cooperated" with respect to the proposal for the Enterprise, and that both "paid the pre-development costs" and "submitted a joint proposal" to the Tribe. TACA ¶¶ 1.1-1.2. The TACA also stated:
CRC has been instrumental in the efforts to submit and present the response to [the Tribe's Request for Proposals ("RFP")], has expended considerable effort toward the pre-development activities related to the response to the RFP, and wishes to formalize its relationship with Harrah's regarding CRC's ongoing role in the development of the proposed Enterprise.
Both CRC and Harrah's claim to have incurred costs of several million dollars in capital, property, time and skill in pursuing the Enterprise. Pilger Aff. ¶¶ 9, 10.
TACA ¶ 1.5. The TACA anticipated that Harrah's would become obligated to provide "all the financing needed for the development, design, construction, furnishing, and start-up of the Enterprise," pursuant to agreements between Harrah's and the Tribe, and that "CRC is not obligated to fund any obligation of Harrah's to the [Tribe]." TACA ¶¶ 1.4, 2.1. However, the TACA required CRC to "pay Harrah's its share" of "Submission Costs, Contract Approval Costs, and other [advance cash] payments which are not recouped from the [Tribe]." Id. ¶ 2.2.
Harrah's claims the unambiguous language of the TACA precludes a finding of a partnership or joint venture. Harrah's relies on several provisions. First, Harrah's claims that the TACA is a fee-for-service consulting agreement, as evidenced by the following clauses:
CRC has provided and will continue, during the term of the Casino Agreements [between Harrah's and the Tribe] . . . to provide . . . upon written request from Harrah's, technical services related to the development of the proposed Enterprise in the form of advice and consultation. . . ."
CRC's services included, but were not limited to: (a) site selection, acquisition and planning, (b) permitting and licensing, (c) governmental affairs, local, state and federal, (d) feasibility, design, and construction, (e) design and construction budgeting, (f) capital and operating budgeting, and (g) marketing planning and analysis. TACA ¶ 3.1. The TACA did, however, allow that "[a]ny failure on the part of CRC to provide the technical services set forth in Section 3.1a-g shall not be deemed a default or breach of this Agreement. . . ." Id. ¶ 3.2. CRC argues that this undermines Harrah's claim that the contract is merely a fee-for-service relationship.
TACA ¶ 3.1.
CRC agrees that it shall provide such services directly to Harrah's and shall have no right to affect the management decisions made by Harrah's in its negotiations for, or the performance of, the Casino Agreements. Further, CRC shall not interfere in any way . . . with the operation of the Enterprise unless requested by Harrah's. CRC shall not be deemed to violate this Section . . . in the event that it shall respond in good faith to an inquiry from the [Tribe] which was not initiated by CRC, provided that CRC shall notify Harrah's of such inquiry and its response thereto within two business days.
TACA ¶ 3.1.1
CRC acknowledges that it is not a beneficiary of any of the Casino Agreements. Further, any right of CRC to receive its compensation pursuant to Section 5.1(b), 5.1(c), or 5.3 is specifically conditioned on Management Fees being paid to Harrah's. If for any reason the Enterprise is not developed, . . . then CRC shall have no claim against Harrah's for damages, whether in contract or in tort.
TACA ¶ 2.3
Second, Harrah's relies on two portions of the TACA which define the relationship with CRC in terms other than partnership or joint venture:
The relationship of CRC to Harrah's created under this Agreement shall be as a general contractor. Neither CRC nor Harrah's shall be construed as joint venturers or partners of each other by reason of this Agreement and neither shall have the power to bind or obligate the other.
TACA ¶ 2.4.
This Agreement shall not be construed to create a partnership or other association or joint venture between the parties; the relationship created by this Agreement is purely contractual and the parties agree that no joint liability to third parties is created hereby. Except as provided in Section 9.11 [allowing for indemnification], each party shall continue to be individually liable to third parties for that party's acts or omissions. . . .
TACA ¶ 9.24. Harrah's argues the TACA makes clear that "[t]he provisions of this Agreement have been negotiated, it shall be presumed to have been mutually drafted," and therefore the intentions of the parties are reflected in the TACA terms and must be upheld. Id. ¶ 9.21.
Finally, Harrah's relies on the compensation provisions of the TACA to demonstrate that a partnership was not formed:
The compensation to CRC under this Agreement shall be as follows:
a. $250,000 upon execution of this Agreement by the parties; and
b. If the Casino Agreements are approved . . . and one or more casinos are actually built and opened, then . . . CRC shall . . . be paid a fee (the "Fee"), which shall be based on a percentage of the money actually paid to Harrah's and received by Harrah's as its Management Fee . . .; and
c. If all the conditions set forth at (b) above have occurred, then Harrah's shall pay CRC $10,000 per month . . . during the term of the Management Agreement. . . .
TACA ¶ 5.1. The fee schedule attached to the TACA as Exhibit A is identical to the schedule attached to the Memorandum of Understanding, and provides that CRC's fee is 21.6% of Harrah's Management Fee, which is 26% of Net Revenues. See Pilger Aff. Ex. E (Management Agreement) § 6.1. The only difference is that in the TACA the amount is labeled as "CRC Fee" instead of "CRC Share," as it was in the Memorandum of Understanding. TACA Ex. A.
The TACA provides that "Harrah's obligation to pay the fee . . . shall end upon the termination of the Management Agreement for whatever reason." Id. ¶ 5.5. Harrah's asserts that "[in] the event . . . the Casino Agreements terminate or are cancelled in any other manner, then CRC shall be paid its Fee based on Exhibit A concurrently with Harrah's receipt of any payment from the [Tribe] in satisfaction of its Management Fee under the Casino Agreements." Id. ¶ 5.8.
Harrah's contends that because it has not been paid a "Management Fee" under the terms of the Casino Agreements, it does not owe CRC any money. CRC counters that because Harrah's caused the Casino Agreements to be terminated, it is liable to CRC for damages. CRC asserts that the other compensation terms are evidence of a partnership relationship. Under the TACA, "Harrah's shall provide CRC monthly reports on the operation of the Enterprise," "CRC shall have the right . . . to audit . . . the records of Harrah's related to the Enterprise," and "CRC and Harrah's agree to provide to the other complete copies of any contracts or agreements with any Person(s) or entity(ies) related in any way with the Enterprise. . . ." TACA ¶¶ 5.6, 5.7, 6.6.
iii. The Termination
In December, 1997, Harrah's signed an agreement to acquire Showboat, Inc. ("Showboat"), a casino company with an ownership interest in a riverboat casino that operates within the Development Agreement's Non-Compete radius restriction. Pilger Aff. Ex. J (Termination Agreement) at 1 (eighth "whereas" clause). Harrah's did not consult CRC regarding the decision to acquire Showboat, Inc., and, despite its objections, CRC was not included in the Showboat acquisition negotiations. Pilger Aff. Ex. K.
The Showboat casino was also specifically identified as a competitor in a "Response to a Request for Proposals by [the Tribe]" submitted by Harrah's and CRC on January 10, 1995. See Pilger Aff. Ex. D (Response) § 4; Wesaw Aff. ¶ 6.
The Tribe regarded Harrah's agreement with Showboat as a material breach of the Non-Compete provision of the Development Agreement. Wesaw Aff. ¶ 7. Facing the prospect of having its casino Agreements terminated for cause by the Tribe, Harrah's requested that it be allowed to negotiate a mutual termination of the Agreements with the Tribe. Id. ¶¶ 8, 9. Pursuant to a September 12, 1998, Agreement ("Termination Agreement"), Harrah's and the Tribe mutually terminated all their prior Agreements. Pilger Aff. Ex. J (Termination Agreement) at 2 (first "whereas" clause). The Bureau of Indian Affairs approved the Termination Agreement in October, 1998. Casino, 243 F.3d at 437; Def. Mem. in Supp. of Summ. J. at 7. No casino has been built as a result of the proposed Enterprise.
iv. The Claims
CRC asserts a breach of contract in the partnership and joint venture relationship with Harrah's. Amended Second Amended Complaint ("Am. Compl.") [Doc. No. 52], Counts I and II. CRC also claims Harrah's owed and breached fiduciary duties. Id., Count III. CRC asserts an accounting claim and a breach of statute claim. Id., Counts V and VII. CRC seeks to impose liability against Harrah's Entertainment for the alleged wrongful acts of Harrah's Southwest on a theory of piercing the corporate veil. Id., Count VIII. CRC also alleges breach of contract and tortious interference with the Memorandum of Understanding. Id., Count IX. CRC's Second Amended Complaint also adds a claim of aiding and abetting against Satre and Reed, senior executives of Harrah's Entertainment, Inc. Id., Count X. Counts IV and VI, stating quasi-contract claims, have been dismissed.
III. DISCUSSION
Harrah's claims are predominantly made under the summary judgment rubric. The similar standard for a motion to dismiss is discussed infra Part III(C).
Federal Rule of Civil Procedure 56(c) provides that summary judgment shall issue "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). On a motion for summary judgment, the Court views the evidence in the light most favorable to the nonmoving party. Ludwig v. Anderson, 54 F.3d 465, 470 (8th Cir. 1995).
The nonmoving party may not "rest on mere allegations or denials, but must demonstrate on the record the existence of specific facts which create a genuine issue for trial." Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995). Further, "the mere existence of some alleged factual dispute between the parties is not sufficient by itself to deny summary judgment. . . . Instead, `the dispute must be outcome determinative under prevailing law.'" Get Away Club, Inc. v. Coleman, 969 F.2d 664, 666 (8th Cir. 1992) (citation omitted).
B. Harrah's Motion
Harrah's advances four main arguments in support of its Motion to Dismiss. First, Harrah's asserts that there is simply no partnership or joint venture under the terms of the TACA, and therefore there is no breach of the fiduciary duties owed to a partner or joint venturer. Thus, Harrah's argues Counts I, II, III, V and VII should be dismissed. Second, Harrah's asserts that even if the relationship is found to be a partnership or joint venture, TACA ¶ 2.3 waives any claim for damages. Third, Harrah's alleges that any such claim for damages is too speculative as a matter of law. Fourth, Harrah's argues that CRC's claim for tortious interference, Count IX, fails to state a claim on its face. Each of these arguments will be addressed in turn.
Dismissing each of these claims, Harrah's argues, would render CRC's "piercing the corporate veil" claim, Count VIII, meaningless. Harrah's further argues that CRC's claims against Satre and Reed for aiding and abetting, Count X, are only viable if CRC succeeds in its underlying claims against Harrah's.
i. Partnership/Joint Venture
The first question is what is the legal relationship of the parties. Harrah's asserts the Eighth Circuit suggested the appropriate resolution of this question in its decision by noting that "despite CRC's creative characterization, [the dispute] is essentially a dispute between a . . . general contractor and a . . . sub-contractor," and that "CRC's claims can likely be resolved by looking to the four corners of the pertinent documents." Casino, 243 F.3d at 439-440. The Eighth Circuit noted that "[o]f particular interest is the [TACA], which clearly suggests that the relationship between CRC and Harrah's is that of general and sub-contractors, and not a partnership." Id. at 440 n. 8. Harrah's refers to these remarks as a "conclusion" and a "finding" by the Eighth Circuit. Def. Reply Mem. in Supp. of Summ. J. at 1. However, the Casino Court also stated explicitly that it "[did] not reach the merits of CRC's claims or Harrah's proposed alternative bases for affirming dismissal." Id. Because the "record [was] not developed" beyond the issue of preemption reached on appeal, the case was remanded. Id. at 440. Dicta of the Casino opinion remanding the case is not dispositive of the issues pertaining to this Motion.
CRC alleges the existence of a partnership or joint venture with Harrah's. "Although, in a strict sense, not a copartnership, a joint venture generally is governed by rules and principles applicable to partnership relationships." Austin P. Keller Constr. Co. v. Commercial Union Ins. Co., 379 N.W.2d 533, 535 (Minn. 1986). Under Michigan law, the elements of a partnership generally include a "voluntary Summ. J. at 12 n. 13, 16 n. 22; Pl. Mem. in Opp. to Summ. J. at 5. CRC's claims, both under the association of two or more people with legal capacity in order to carry on, via co-ownership, a business for profit." Lipsig v. Ramlawi, 760 So.2d 170, 177 (Fla.Dist.Ct.App. 2000) (applying Michigan law) (citing Miller v. City Bank and Trust Co., N.A., 266 N.W.2d 687, 690 (Mich.Ct.App. 1978)); see also Mich. Comp. Laws § 449.6(1) (2001) ("A partnership is an association of 2 or more persons . . . to carry on as co-owners of a business for profit"). Co-ownership of the business is usually evidenced by joint control and the sharing of profits and losses. Id. The sharing of control or profit and loss sharing need not be equal, however. See Bernstein, Bernstein, Wile Gordon v. Ross, 177 N.W.2d 193, 195 (Mich.Ct.App. 1970) ("When a partnership exists, the partners may by agreement provide for the disposition of their interest in the partnership."); Summers v. Hoffman, 69 N.W.2d 198, 202 (Mich. 1955) ("[T]he liability of a joint adventurer for a proportional part of the losses . . . may be affected by the terms of the contract."). Moreover, "loss" does not necessarily mean actual monetary loss, but could be a party's expenditure of time, skill or supervision. Summers, 69 N.W.2d at 201-202.
The Parties agree that the TACA and the rights of the parties shall both be governed by and interpreted in accordance with the laws of the state of Michigan. TACA ¶ 9.1; Def. Mem. in Supp. of TACA and the Memorandum of Understanding, are governed by Michigan law.
"The determination of whether a partnership exists is a question of fact [and the] burden of proof to show a partnership is on the one alleging the partnership." Miller, 266 N.W.2d at 689; see also Lipsig, 760 So.2d at 177 (holding that whether the parties intend a partnership is a question of fact). There is no general rule which will afford an automatic solution of the question of the existence of a partnership relation. Bernstein, 177 N.W.2d at 195. In Michigan, "the most important factor in determining whether a partnership exists is the intention of the parties. . . ." Lipsig, 760 So.2d at 177; see also Bernstein, 177 N.W.2d at 195 (explaining that the intention of the parties is "of prime importance"); Miller, 266 N.W.2d at 690 ("[T]he factor of the intent of the parties, gauged by the legal effect of their agreement, bulks large.").
But see Berger v. Mead, 338 N.W.2d 919, 922 (Mich.Ct.App. 1983) ("Whether or not a joint venture exists is a legal question for the trial court to decide.").
Likewise, in determining whether a joint venture exists, "[t]he key consideration is that the parties intended a joint venture." Berger, 338 N.W.2d at 922; see also Goodwin v. S.A. Healy Co., 174 N.W.2d 755, 760 (Mich. 1970) (explaining that a joint venture "arises only when [the parties] intend to associate themselves as such"); Denny v. Garavaglia, 52 N.W.2d 521, 524 (Mich. 1952); Hathaway v. Porter Royalty Pool, 295 N.W. 571, 576 (Mich. 1941), amended by, 299 N.W. 451.
However, "it is not necessary that the partners should call themselves such. If they engage in a joint business enterprise, each putting in capital or labor or both, with an agreement to share profits as such, there will be a partnership whatever they may call themselves." Runo v. Pothschild, 189 N.W. 183, 184 (Mich. 1922); accord McCormick v. McCormick, 70 N.W.2d 706, 708 (Mich. 1955) (holding that it is "not essential" that parties call themselves "partners"). Therefore, an intent to carry on as co-owners of a business for profit is sufficient to create a partnership regardless of the parties' subjective intention to be "partners." See Uniform Partnership Act 1994 (RUPA) § 202(a).
Under Michigan law, the existence of a partnership may be proved by showing a contribution to the partnership of any nature, whether capital, consisting of money, merchandise, credit, skill or labor. Lipsig, 760 So.2d at 177 (citing Michigan Employment Sec. Comm'n v. Crane, 54 N.W.2d 616, 619 (Mich. 1952)). Profit sharing is prima facie evidence of the existence of a partnership. Mich. Comp. Laws § 449.7(4) (2001); see also Mich. Comp. Laws § 449.18(a) (2001) ("Each partner shall be repaid his or her contributions . . . and share equally in the profits and surplus remaining after all liabilities are satisfied. . . . [E]ach partner shall contribute towards the losses . . . sustained by the partnership according to his or her share in the profits."). However, the sharing of gross returns does not of itself establish a partnership. Mich. Comp. Laws § 449.7(3). Each case depends on its own facts and attendant circumstances. Winshall v. Winshall, 19 N.W.2d 129, 131 (Mich. 1945). "[I]t is not a controlling circumstance" whether or not the relationship is a partnership or joint venture "in a strictly technical sense." Id. (finding a partnership despite both parties' testimony they were not in a partnership); see also Berger, 338 N.W.2d at 923. Other indicia include the parties' use of the term "partner," and evidence that a party had a right of management or contributed monies. Lipsig, 760 So.2d at 177 (internal citations omitted). A joint venture is determined by similar factors.
A joint venture has been defined as an "association of two or more persons to carry out a single business enterprise for profit." Hathaway, 295 N.W. at 576. This differs from a partnership in that it relates only to a single transaction. Id. In a joint venture, profits and losses are to be shared, though the liability of each party may be affected by the contract terms. Denny, 52 N.W.2d at 524. There must be a contribution by the parties to a common undertaking to constitute a joint venture, and a community of interest as well as some control over the subject matter or property right of contract. Id.; Hathaway, 295 N.W. at 576. There must also be a contribution of skills or property by the parties, and typically an agreement indicating an intention to undertake a joint venture. Berger, 338 N.W.2d at 922; see also Kowal v. Sang Corporation, 28 N.W.2d 113, 117 (Mich. 1947) ("It is well-settled law that as between parties, a contract is essential to create the relation of joint adventure."). Determination of a joint venture "depends largely on the terms of the particular agreement in controversy; upon the construction which the parties have given it; upon the nature of the undertaking, as well as upon other facts." Hathaway, 295 N.W. at 576; accord Goodwin, 174 N.W.2d at 759.
In this case, the initial relationship of the parties, as outlined in the initial Memorandum of Understanding, walked perilously close to the line of partnership by referring to CRC as "Partner," and describing "joint" involvement by both parties in pursuing the Enterprise. Memorandum ¶¶ 1, 3(A). However, designating CRC's relationship as an "independent contractor" cuts the other way. Id. ¶ 5. The legal significance of the Memorandum is undercut by its termination on its own terms on December 31, 1995, or at the latest on June 10, 1996, when the TACA was signed. Id. ¶ 6.
The more legally significant contract is the TACA itself. There is no dispute that the language of the TACA purports to describe and label the relationship of CRC to Harrah's as a general contractor with no more than a contractual relationship. TACA ¶¶ 2.4, 9.24. The TACA also specifies that CRC is to perform "technical services" with "no right to affect the management decisions," and acknowledges CRC is not a beneficiary of the casino agreements between Harrah's and the Tribe. Id. ¶¶ 3.1, 3.1.1, 2.3. The TACA also "specifically conditioned" any payments to CRC on Harrah's receipt of management fees resulting from a casino "actually built and opened." Id. ¶¶ 2.3, 5.1. The TACA specifies CRC's payments as a "fee" that would not be paid if the Management Agreement between Harrah's and the Tribe was terminated "for whatever reason." Id. ¶¶ 5.1, 5.5. These provisions can be construed to show Harrah's had no subjective intent to be "partners" with CRC. The pivotal question, however, is whether or not there was an intent to carry on as co-owners of a business for profit. If CRC and Harrah's engaged in a joint business enterprise, where each contributed capital, skill or labor, with an agreement to share profits, a partnership may result. See Runo, 189 N.W. at 184; Lipsig, 760 So.2d at 177. Profit sharing is prima facie evidence of a partnership. Mich. Comp. Laws § 449.7(4). While the label of CRC's payments of "fee" in the TACA was changed from "share," in the Memorandum of Understanding, the payment schedule used to determine CRC's payments remained the same. The TACA states that CRC was to receive as payment 21.6% of Harrah's Management Fee of 26% of the proposed casino's net revenues. CRC's payment was a direct proportion of the profits generated by the proposed casino. This is profit sharing. That the profits were not to be shared equally is irrelevant. See Bernstein, 177 N.W.2d at 195.
CRC also was to share losses. See TACA ¶ 2.2. While CRC was not obligated to fund Harrah's financial obligations to the Tribe under TACA ¶¶ 1.4, 2.1, it is insignificant that the loss sharing was unequal between the parties, and that CRC's losses were not wholly monetary. See Bernstein, 177 N.W.2d at 195; Summers, 69 N.W.2d at 202; Denny, 52 N.W.2d at 524 (explaining that liability of parties can be affected by contract terms). Here, if the Enterprise failed and the proposed casino was never built, "[P]laintiff's expenditure of time would have been for naught as would defendants' monetary investment." Summers, 69 N.W.2d at 201-202. Thus, "[i]t cannot be said that [P]laintiff did not share any risk of loss." Id. at 202.
CRC also contributed capital, skill and labor to the Enterprise. The TACA itself recited that CRC had paid pre-development costs, and expended "considerable effort" toward the Enterprise. TACA ¶¶ 1.1-1.2, 1.5. Harrah's does not dispute that CRC contributed a valuable right of first refusal, as well as several million dollars of capital, property, time and skill to pursuing the Enterprise. See Pilger Aff. ¶¶ 9, 10. The TACA provided for CRC to receive monthly reports on the operation of the Enterprise, the right to audit Harrah's records, and a mutual right to access any contracts or agreements "related in any way with the Enterprise." TACA ¶¶ 5.6, 5.7, 6.6. CRC asserts that:
[It] would not have agreed to give Harrah's even the arguable right to make any management decisions which could preclude CRC from recovering [its] investment or the profits [it] expected to receive from the [Enterprise] but for Harrah's repeated representations and promises that (a) it was as eager as CRC to see the [Enterprise] succeed; (b) it would do nothing to compromise that goal; (c) it would do everything within its power to see that the [Enterprise] did succeed; and (d) it would look out for CRC's best interest because [CRC and Harrah's] interests were identical.
Pilger Aff. ¶ 15. While Harrah's may not have desired the legal label of "partnership" to apply, ample evidence establishes that such a relationship actually existed. The relationship between CRC and Harrah's constitutes a partnership or joint venture.
Once a partnership or joint venture is established, the relationship of the partners or joint adventurers is fiduciary in character. Van State v. Ransford, 77 N.W.2d 346, 351-352. "A fiduciary relationship exists when there is a reposing of faith, confidence and trust and the placing of reliance by one upon the judgment and advice of another." Smith v. Saginaw Sav. Loan Ass'n, 288 N.W.2d 613, 618 (Mich.Ct.App. 1979). Between two fiduciaries, the manager has a "heavier weight of duty." Van State, 77 N.W.2d at 351. Here, Harrah's expressly retained all management control regarding the Casino Agreements. TACA ¶ 3.1.1.
It is unimportant whether the enterprise is named a partnership or joint venture, as the fiduciary duties are parallel. Van State, 77 N.W.2d at 351.
The nature of the fiduciary duty was classicly stated by Justice Cardozo in Meinhard v. Salmon, 164 N.E. 545 (N.Y. 1928), as "the duty of the finest loyalty." Van State, 77 N.W.2d at 351 (quoting Meinhard, 164 N.E. at 546). Justice Cardozo explained that:
Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. . . . Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the `disintegrating erosion' of particular exceptions. Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd.
Van State, 77 N.W.2d at 351 (quoting Meinhard, 146 N.E. at 546) (internal citation omitted). The Supreme Court of Michigan is "likewise committed." Id. Harrah's Motion based on the absence of a partnership relationship or a fiduciary duty is denied.
ii. Waiver under TACA ¶ 2.3
Harrah's argues any damage claim by CRC was waived by the TACA provision broadly stating "[i]f for any reason the Enterprise is not developed, . . . then CRC shall have no claim against Harrah's for damages, whether in contract or in tort." TACA ¶ 2.3. Michigan courts have found indemnity provisions or contract clauses using similar words such as "however caused" seeking to exempt defendants from liability for gross negligence or intentional acts of misconduct violate public policy and are invalid. See Klann v. Hess Cartage Co., 214 N.W.2d 63, ¶¶ (Mich.Ct.App. 1974). Willful wrongdoing cannot be indemnified or waived by such a provision. Id. Harrah's actions in causing its Agreements with the Tribe to be terminated by entering into the Showboat agreement, without consideration of its fiduciary duty owed to CRC, may be found to be intentional. Thus, any harm to CRC as a result may not have been waived by TACA ¶ 2.3.
Harrah's also submits that "[its] obligation to pay [CRC's] fee . . . shall end upon the termination of the Management Agreement for whatever reason." TACA ¶ 5.5. Harrah's claims that actual receipt of a Management Fee from the Tribe is a condition precedent to its obligation to pay CRC. TACA ¶¶ 2.3, 5.8. However, it was Harrah's own actions which caused the termination of its Agreements with the Tribe.
Where a contract is performable on the occurrence of a future event, there is an implied agreement that the promisor will place no obstacle in the way of the happening of such event, particularly where it is dependent in whole or in part on his own act; and where he prevents the fulfillment of a condition precedent or its performance by the adverse party, he cannot rely on such condition to defeat his liability. . . . Hence, the performance of a condition precedent is discharged or excused, and the conditional promise made an absolute one, where the promisor himself . . . waives the performance.
Mehling v. Evening News Ass'n, 132 N.W.2d 25, 26 (Mich. 1965); see also Moore Bros. Co. v. Brown Root, Inc., 207 F.3d 717, 725 (4th Cir. 2000) ("The prevention doctrine is a generally recognized principle of contract law according to which if a promisor prevents or hinders fulfillment of a condition to his performance, the condition may be waived or excused.") (citing Restatement (Second) of Contracts § 245 (1981)). "The prevention doctrine does not require proof that the condition would have occurred `but for' the wrongful conduct of the promisor; instead it only requires that the conduct have `contributed materially' to the non-occurrence of the condition." Moore, 207 F.3d at 725 (citing Restatement § 245). Here, Harrah's contributed materially to its failure to receive Management Fees by terminating its Agreements with the Tribe, thereby nullifying all Enterprise efforts toward the construction of the proposed casino. Issues of fact remain as to whether or not CRC's claims are waived by TACA ¶ 2.3.
iii. Damages
Harrah's argues that CRC's damage claims are too speculative as a matter of law, citing the case of Casino Resorts, Inc. v. Monarch Casinos, Inc., No. C3-97-843, 1997 WL 793134 (Minn.Ct.App. Dec. 30, 1997), involving the same proposed casino Enterprise, as a binding precedent. Def. Reply Mem. at 9. The Minnesota Court of Appeals found in Casino Resorts that the damage claims of Casino Resorts were too speculative on the basis that: (1) state approvals had not been obtained, (2) federal approvals had not been obtained, and (3) "Casino Resorts has failed to establish that it has sustained any loss, much less a loss that could be reasonably measured." Id. at *3 (emphasis added). Subsequent to the Casino Resorts decision, the Michigan legislature approved a gaming compact on December 3, 1998. Pilger Aff. Ex. L. Moreover, unlike Casino Resorts, CRC has alleged specific investment losses, as well as potential lost profits up to $55 million. Pilger Aff. ¶¶ 9, 10; Pl. Mem. in Opp. to Summ. J. at 31. The facts of the Casino Resorts case are distinguishable, and its holding is not binding on this case. Damages cannot be founded upon mere speculation and conjectural evidence. Wolverine Upholstery Co. v. Ammerman, 135 N.W.2d 572, 575 (Mich.Ct.App. 1965). However, "[i]t is the uncertainty as to the fact of legal damages that is fatal to recovery, . . . not uncertainty as to the amount." Id. at 576 (emphasis in original); Home Ins. Co. v. Commercial and Indus. Sec. Servs., Inc., 225 N.W.2d 716, 719 (Mich.Ct.App. 1975).
In Casino Resorts, Plaintiff Casino Resorts, Inc., sued Monarch Casinos, Inc., for breach of contract for allegedly failing to adhere to a letter of intent whereby Casino Resorts expressed interest in acquiring gaming-related assets of Monarch, and after which Monarch agreed not to solicit negotiations with any third party. Casino Resorts, 1997 WL 793134, at *1. Monarch later acquired a right of first refusal from the Tribe regarding the same proposed casino project in the instant case. CRC and Monarch entered an agreement transferring Monarch's rights to CRC, and thus Casino Resorts also sued CRC for tortious interference with contractual relations. The conditions precedent to the execution of the letter of intent never occurred, however, and Casino Resorts' claims were dismissed. Id. at *2, 4. In Casino Resorts, CRC and Monarch argued that the damage claims of Casino Resorts were too speculative.
The approval of the compact was ruled invalid by a Michigan Circuit Court. Taxpayers of Michigan Against Casinos v. State of Michigan, No. 99-90195-CZ (Ingram County Circuit Court January 18, 2000) (Poretti Aff. Ex. C). This case is now on appeal to the Michigan Court of Appeals.
Michigan has held that where damages are the natural consequence of the wrongdoer's act and are such that he might reasonably have anticipated them, they are recoverable provided they are not remote, contingent or speculative.
Wolverine, 135 N.W.2d at 575. Mathematical precision is not required in the assessment of damages where, from the nature of the circumstances, precision is unattainable. Godwin v. Ace Iron Metal Co., 137 N.W.2d 151, 156 (Mich. 1965). This is particularly true "where it is defendant's own act . . . that has caused the imprecision." Id. Lost profits are an appropriate element of damages, and must be proven with a reasonable degree of certainty as opposed to being based on mere conjecture or speculation. Body Rustproofing, Inc. v. Michigan Bell Telephone Co., 385 N.W.2d 797, 800 (Mich.Ct.App. 1986). The law "does not require a higher degree of certainty than the nature of the case permits." Id.
Thus, notwithstanding any difficulty in accurately measuring damages with certainty, when damages can be reasonably inferred, the facts and circumstances tending to show damages should be submitted to the jury "to form such reasonable and probable estimate of the damages as in the exercise of good sense and sound judgment they shall think will produce adequate compensation." Meier v. Holt, 80 N.W.2d 207, 212 (Mich. 1956) (citing Gilbert v. Kennedy, 22 Mich. 117 (Mich. 1871)). Harrah's actions in terminating the Enterprise with CRC has led to the difficulty in ascertaining damages. CRC offers multiple possible damage models, including calculations based on the creation of a constructive trust, lost profits, a $600,000 payment under ¶ 5.1(c) of the TACA, the difference in value of CRC's interest before and after Harrah's termination of the Tribe Agreements, the recovery of expenses incurred in reliance damages (as alleged, for example, in Pilger Aff. ¶¶ 9, 10), an accounting and statutory damages, and nominal damages plus costs and fees. See Pl. Mem. in Opp. to Summ. J. at 22-34. CRC's damage calculations take into account situations presuming the existence of the proposed casino, as well as scenarios without this presumption. Harrah's argues no damage calculation is possible because no casino has been built, and any future casino would have to comply with governmental requirements, as well as be successful before profits could exist. While these factors may complicate damage calculation, the imprecision or difficulty of ascertaining the amount of damages under any of the proposed formulas is not a bar to recovery. Harrah's has not demonstrated uncertainty as to the fact of damages, as would be required for summary judgment.
iv. Tortious Interference
Harrah's argues that CRC's tortious interference with contract claim only references the Memorandum of Understanding, which expired on December 31, 1995. Memorandum ¶ 6. Since the only allegations of wrongdoing by Harrah's stem from its 1998 acquisition of the Showboat casino, Harrah's posits that CRC fails to state a viable claim of tortious interference. Harrah's further argues that if CRC is alleging interference with the TACA, CRC has not alleged that Harrah's acted intentionally, as required for a tortious interference claim. Def. Mem. in Supp. of Summ. J. at 23-24.
CRC's Amended Complaint, Count IX, is labeled "Breach of Memorandum of Understanding/Tortious Interference." CRC alleges "breach of the Memorandum of Understanding," and tortious interference "with the contractual relationships" between CRC and Harrah's. Am. Compl. ¶ 41. The breach claim refers only to the Memorandum, while the tortious interference claim refers to the contractual relationships of both the Memorandum and the TACA.
CRC's main allegation of Harrah's wrongdoing is the December, 1997, decision to purchase "an interest in a competing casino which caused the Tribe to refuse to do further business with the Harrah's/CRC partnership." Id. ¶ 17; Pilger Aff. Ex. J (Termination Agreement) at 1 (eighth "whereas" clause). CRC's other allegations are refusing to provide agreement copies, withholding information, failing to account for money, usurping a partnership opportunity, frustrating the purpose of the TACA, and failing to act in good faith, all of which took place in December, 1997, or thereafter. Id. The Memorandum of Understanding terminated by its own terms on December 31, 1995, or at the latest on June 10, 1996, when the TACA was signed. Id. ¶ 6. As such, no claim for breach of contract regarding the Memorandum of Understanding is viable. CRC's claim for breach of the Memorandum of Understanding in Count IX is dismissed.
The elements of tortious interference with contractual relations required by Michigan law are that (1) a contract existed, (2) it was breached, and (3) defendant instigated the breach without justification. Trepel v. Pontiac Osteopathic Hospital, 354 N.W.2d 341, 346 (Mich.Ct.App. 1984); C.C. Midwest, Inc. v. McDougall, No. 213386, 2001 WL 710184, at *3 (Mich.Ct.App. 2001). The leading Michigan case on tortious interference with a contract is Feldman v. Green, 360 N.W.2d 881 (Mich.Ct.App. 1984). Feldman established that:
[O]ne who alleges tortious interference with a contractual . . . relationship must allege the intentional doing of a per se wrongful act or the intentional doing of a lawful act with malice and unjustified in law for the purpose of invading plaintiff's contractual rights. . . .
Feldman, 360 N.W.2d at 886. For an act to be "wrongful per se," it must be an act that is "inherently wrongful or an act that can never be justified under any circumstances." C.C. Midwest, 2001 WL 710184, at *3. To show that an act was committed with malice and without justification in law, "plaintiff necessarily must demonstrate, with specificity, affirmative acts by the interferor [sic] which corroborate the unlawful purpose of the interference." Feldman, 360 N.W.2d at 886.
However, "per se illegal acts by an interferor [sic] are not a prerequisite to liability under the tort of interference with contractual . . . relations." Feldman, 360 N.W.2d at 886 (emphasis added).
For a tortious interference claim, interference with a contract must be improper in addition to being intentional, and Michigan "requires allegations of `improper' conduct" to sustain a claim of tortious interference. Trepel, 354 N.W.2d at 347. "Mere interference for the purpose of competition is not enough." Id. Improper means "illegal, unethical, or fraudulent." Id. at 346. "[I]f a defendant's actions were motivated by legitimate business reasons, then those actions would not constitute improper motive or interference." C.C. Midwest, 2001 WL 710184, at *3. "Where evidence of an unlawful purpose is absent, the policy of [Michigan] will not condemn a party in the proper exercise of a legal right." Feldman, 360 N.W.2d at 890.
CRC's Amended Complaint ¶ 14 recites Harrah's alleged tortious conduct as follows:
As set forth herein, Harrah's breached Memorandum of Understanding and the [TACA], breached the fiduciary duties it owed to CRC, tortiously interfered with CRC's contractual and prospective economic advantage and engaged in other wrongful conduct and has thereby caused CRC to incur damages. . . . (emphasis added).
These claims do not allege a "per se wrongful act," nor do they demonstrate with specificity an unlawful purpose attributable to Harrah's. Nowhere does CRC allege that Harrah's actions were "improper," or "illegal, unethical, or fraudulent." Therefore, CRC fails to satisfy the requirements for maintaining a claim of tortious interference with contract. CRC's claim for breach of tortious interference with the Memorandum of Understanding and the TACA in Count IX is dismissed.
C. Satre and Reed's Motion to Dismiss
Rule 12 of the Federal Rules of Civil Procedure provides that a party may move to dismiss claims for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). In considering a motion to dismiss, the pleadings are construed in the light most favorable to the non-moving party, and the facts alleged in the complaint must be taken as true. Hamm v. Groose, 15 F.3d 110, 112 (8th Cir. 1994); Ossman v. Diana Corp., 825 F. Supp. 870, 879-80 (D.Minn. 1993). Any ambiguities concerning the sufficiency of the claims must be resolved in favor of the non-moving party. Ossman, 825 F. Supp. at 880.
A complaint should be dismissed "only if it is clear that no relief can be granted under any set of facts that could be proved consistent with the allegations." Frey v. City of Herculaneum, 44 F.3d 667, 671 (8th Cir. 1995) (citations omitted); Hafley v. Lohman, 90 F.3d 264, 266 (8th Cir. 1996). "A motion to dismiss should be granted as a practical matter . . . only in the unusual case in which the plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief." Frey, 44 F.3d at 671.
Harrah's seeks to dismiss Count X, alleging aiding and abetting against Satre and Reed, Harrah's senior executives. Am. Compl., Count X. CRC charges Satre and Reed with aiding and abetting Harrah's alleged "breach of fiduciary duty." Id. ¶¶ 44, 46. Harrah's also asserts that CRC failed to plead that Satre and Reed acted outside the scope of their employment as required under Minnesota law. Def. Mem. in Supp. of Mot. to Dismiss at 6.
As discussed above in Part III(B)(i), CRC has alleged a valid tort claim against Harrah's for breach of fiduciary duty.
It is well established that corporate . . . officials are personally liable for all tortious . . . acts in which they participate, regardless of whether they are acting on their own behalf or on behalf of a corporation.
Joy Management Co. v. City of Detroit, 455 N.W.2d 55, 58 (Mich.Ct.App. 1990). CRC alleges that both Satre and Reed were aware of the fiduciary duty Harrah's owed CRC, and that both "actively and substantially directed, supported, assisted, aided, abetted[,] encouraged" and "ratified" Harrah's actions in breach of its fiduciary duty. Am. Compl. ¶¶ 45-47. These allegations satisfy the general pleading requirements for aiding and abetting. One is subject to liability for harm resulting to a third person from the tortious conduct of another if he "knows that the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct himself." Restatement (Second) of Torts § 876(b) (1977). Satre and Reed's Motion to Dismiss is denied.
IV. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS HEREBY ORDERED that:
1. Harrah's Motion for Summary Judgment [Doc. No. 54] on Counts I, II, III, V, VII, VIII and X is DENIED,
2. Harrah's Motion to Dismiss [Doc. No. 54] Count IX is GRANTED, and
2. Satre and Reed's Motion to Dismiss [Doc. No. 57] is DENIED.