Opinion
CIV. NO. 99-2660, c/w 00-0353 SECTION "K"(1).
April 5, 2000
Before the court are two motions, one filed by each plaintiff. The first is Metro Riverboat Associates' Motion to Modify or Set Aside the Order of the Magistrate, rendered February 16, 2000. The second is Norbert Simmons' Motion to Convert the Defendants' pending Motions to Dismiss into Motions for Summary Judgment. The court heard oral argument on both motions on March 15, 2000. For the reasons explained below, the court finds that both motions should be denied.
I. Facts and Background
Plaintiffs Norbert Simmons ("Simmons") and Metro Riverboat Associates, Inc. ("Metro") alleged certain wrongdoing by defendants pursuant to the Racketeer Influenced and Corrupt Organizations Act (RICO). Made defendants to this action are Arthur Goldberg ("Goldberg"), Wallace Barr ("Barr"), Hilton Hotels Corporation ("Hilton"), Bally's Louisiana, Inc. ("BLI"), Bally Casino Holdings ("BCH"), Bally Intermediate Casino Holdings ("BICH"), and Bally Midwest Casino Holdings ("BMCH") (Bally entities will be collectively referred to as "Bally"),
Simmons is the sole owner and president of Metro. Metro owns a 50.1% interest in Belle of Orleans, L.L.C. ("Belle"), which owns a license to conduct gaming on Lake Ponchatrain. BLI is the other member of Belle, and Simmons is the president of Belle.
Plaintiffs allege that defendants participated in an enterprise by which they conspired to collect and did collect illegal debt through extortionate means. In 1993, Metro possessed preliminary approval for a riverboat casino license as well as an approved riverboat casino berth. Plaintiffs maintain that these assets were essential for defendants to control the riverboat gaming industry in Louisiana and that Goldberg (Chairman of the Board of BMI) actively pursued Metro and Simmons to enter a collaborative project developing riverboat gaming. Subsequently, BLI and Metro formed Belle and entered an Operating Agreement, with Metro owning a controlling interest in the L.L.C. The Management Agreement was subsequently assigned to BICH.
In 1994, Belle was granted a license and has been operating in Orleans Parish as Bally's Casino Lakeshore Resort since 1995. Plaintiffs allege that, in violation of the Operating Agreement and state gaming law, BICH surreptitiously assigned the Management Agreement to BLI and concealed the assignment from Belle, Metro, and Simmons.
Subsequently, BLI and other Bally entities were merged into Hilton on December 18, 1996. In 1998, Hilton announced that it would be forming Park Place Entertainment Corporation ("Park Place") and that its 49.9% interest in Belle would be transferred to Park Place. Since this proposed transfer, plaintiffs allege that they were consistently denied access to information about Hilton, Park Place, and Bally by the Louisiana Gaming Control Board ("LGCB") and by the defendants. The LGCB approved the transfer of BLI's interest in Belle to Park Place, and plaintiffs allege that LGCB was influenced to approve the transfer at secret meetings and deliberations. The transfer was allegedly accomplished in violation of Louisiana law, despite plaintiffs attempt to enjoin the illegal action in state court. Finally, a State District Judge ruled that the LGCB did not have authority to approve the transfer, and the LGCB has taken a suspensive appeal.
As a result of the transfer and other illicit activities allegedly conducted by defendants, Belle has experienced difficulty obtaining renewal of its license. Furthermore, in 1999, the LGCB ordered that the Belle's proceeds be escrowed until Belle's members settled their differences. BLI sought to enjoin the escrow and was successful in obtaining a preliminary injunction on August 19, 1999. The preliminary injunction was then made permanent at the request of the LGCB.
Plaintiffs allege that defendants conspired with members of the LGCB to obstruct the enforcement of state gaming laws and prevent Metro from participating in the proceedings. In addition, plaintiff alleges that defendants are trying to extort an unenforceable debt from him. The purportedly unenforceable debt is money which Simmons borrowed from BLI prior to the formation of Belle. Simmons used the money to become the sole shareholder in Metro, and Metro served as guarantor of Simmons' loan. Currently, a suit is pending in Chicago, brought by BICH for enforcement of the guaranty against Metro.
Both Metro and Simmons filed complaints against Barr and Goldberg. Barr and Goldberg filed a motion for an extension of time within which to file responsive pleadings, pending resolution of the defendants' Motion to Dismiss pursuant to FRCP 12(b)(6) and 9(b). Judge Shushan granted the extension because resolution of the corporate defendants' 12(b)(6) motion may dispose of the entire action, and Barr and Goldberg would not be required to file motions concerning the lack of personal jurisdiction. The Magistrate also ordered that no merits discovery be conducted until her April 28, 2000 status conference.
II. Motion to Modify or Set Aside Order of the Magistrate
Metro contends that the Magistrate Judge was clearly erroneous when she ruled that Barr and Goldberg were relieved of the obligation of filing responsive pleadings in this litigation until the court resolves the corporate defendants' 12(b)(6) Motions to Dismiss, set for hearing on April 12, 2000. The Magistrate Judge granted the extension because Barr and Goldberg are expected to raise exceptions of lack of personal jurisdiction, which will be unnecessary if the court grants the 12(b)(6) motions.
Metro argues that the Court cannot fairly consider the Motions to Dismiss without considering the actions of Goldberg and Barr, who, plaintiffs claim are "the progenitors of all action complained of." (Plaintiffs' Post-Trial Memorandum). Metro also contends that the court cannot decide the "12(b)(6) challenge to the merits of the RICO claim as plead as to Barr and Goldberg without first having established jurisdiction over them."
The court will not disturb the Magistrate Judge's ruling unless it was clearly erroneous or contrary to law. 28 U.S.C. § 636. While the court may have ruled differently than the Magistrate did in this instance, it cannot say that the ruling was clearly erroneous or contrary to law. Plaintiffs contend that the Motion to Dismiss cannot be decided in the absence of Barr and Goldberg, whose actions gave rise to this litigation. The court disagrees. The presence of Barr and Goldberg is not necessary to test the sufficiency of the complaint.
Nor does the court find any merit in Metro's argument that personal jurisdiction must be established before the Motions to Dismiss are decided. The cases cited by plaintiff are inapposite to this question. The parties who are expected to raise the issue of personal jurisdiction will not be bound by the court's ruling on the Motions to Dismiss. Personal jurisdiction over the corporate defendants is already established and will not be the subject of a future motion to dismiss.
In short, the ruling of the Magistrate Judge is not contrary to law or clearly erroneous. Barr and Goldberg are not necessary to disposition of the 12(b)(6) motions. Furthermore, even if one of the parties were to convert the Motion to Dismiss into a Motion for Summary Judgment, summary judgment could not be granted as to defendants Barr and Goldberg, as they have not joined in the motion. Accordingly,
IT IS ORDERED that Metro's Motion to Modify or Set Aside the Order of the Magistrate is hereby DENIED.
III. Motion to Convert 12(b)(6) Motion into Motion for Summary Judgment
Simmons contends that defendants' 12(b)(6) motion is really a motion to dismiss for lack of subject matter jurisdiction, and that a court may convert a 12(b)(1) motion into a Motion for Summary Judgment when the jurisdictional issues are so intertwined with the merits. See Redmon by and through Redmon, 934 F.2d 1151 (10th Cir. 1991).
Plaintiff views defendants' Joint Motion to Dismiss as a Motion to Dismiss for lack of subject matter jurisdiction because of the following language contained in the motion:
As pointed out above, Simmons' demand for declaratory judgment that this note is unenforceable, and that Metro's guaranty is unenforceable (Complaint ¶ 34) is the primary demand which Simmons' attempts to prop up with RICO jurisdiction. If RICO-jurisdiction is absent, there is no jurisdictional basis alleged for the declaratory judgment . . ."
Plaintiff argues that such a jurisdictional challenge must be addressed before the merits. See Bell v. Hood, 327 U.S. 678 (1946) (holding that whether the complaint states a cause of action on which relief could be granted must be decided after the court has assumed jurisdiction over the controversy). Despite the language in defendants' 12(6) motion about lack of subject matter jurisdiction, subject matter jurisdiction is not the basis of defendant's motion. The plaintiffs' complaints allege RICO violations. RICO is part of the body of federal law. This court has subject matter jurisdiction to hear RICO claims. Defendants filed the 12(b)(6) motions to challenge the sufficiency of plaintiffs' complaints. In ruling on a Motion to Dismiss under Rule 12(b)(6), F.R.Civ.P., the court will accept plaintiffs allegations as true. Cinel v. Connick, 15 F.3d 1338, 1341 (5th Cir. 1994).
Simmons further argues that defendants' challenge to plaintiffs' RICO standing should be determined on summary judgment, rather than in the context of a 12(b)(6) motion. Counsel for BLI and BMC pointed out at oral argument that defendants have not challenged plaintiffs' actual standing, but the failure to properly plead standing under RICO.
The Fifth Circuit has long recognized that materials filed concurrently with the pleadings are sufficient to convert a motion to dismiss into one for summary judgment. General Guar. Ins. Co. v. Parkerson, 369 F.2d 821 (5th Cir. 1966). The court has complete discretion to determine whether or not to accept any material beyond the pleadings that is offered in conjunction with a Rule 12(b)(6) motion. Isquith on behalf of Isquith v. Middle South Utilities, Inc., 847 F.2d 186, 193 n. 3, (5th Cir. 1988) quoting 5 C. Wright A. Miller, Federal Practice and Procedure § 1366 (1969), cert. denied, 488 U.S. 926, 109 S.Ct. 310, 102 L.Ed.2d 329 (1988). This discretion is exercised on the basis of a determination of whether or not the proffered material, and the resulting conversion from the Rule 12(b)(6) to the Rule 56 procedure, is likely to facilitate the disposition of the action. Id. When the extra-pleading material is comprehensive and will enable a rational determination of a summary judgment motion, the court is likely to accept it; when it is scanty, incomplete, or inconclusive, the court probably will reject it. Id.
Once the court has decided to accept matters outside the pleadings, it must convert the motion to dismiss into one for summary judgment. Kaminsky v. Rosenblum, 737 F. Supp. 1309 (S.D.N.Y. 1990); see also, Carter v. Stanton, 405 U.S. 669, 92 S.Ct. 1232, 31 L.Ed.2d 569 (1972), on remand 350 F. Supp. 1337 (S.D.Ind. 1972), vacated on other grounds, 416 U.S. 918, 94 S.Ct. 1917, 40 L.Ed.2d 277 (1974). In fact, it is reversible error for the district court to consider outside matter without converting the motion to dismiss into a motion for summary judgment. Bonilla v. Oakland Scavenger Co., 697 F.2d 1297 (9th Cir. 1982) cert. denied 467 U.S. 1251, 104 S.Ct. 3533, 82 L.Ed.2d 838 (1984).
In short, any party to the motion may convert the Motion to Dismiss into a Motion for Summary Judgment. If the plaintiff wishes to convert the 12(b)(6) motions (which test only the sufficiency of the complaint) to a Motion for Summary Judgment, he may do so by attaching affidavits to his memoranda in opposition to the Motion to Dismiss. As of this date, neither side has attached any affidavits or other documents that would require converting the 12(b)(6) motions into Motions for Summary Judgment. Accordingly,
IT IS FURTHER ORDERED that plaintiffs Motion to Convert the 12(b)(6) motion into a Motion for Summary Judgment is hereby DENIED.
It is the court's understanding that the note signed by Simmons and guaranteed by Metro is the principal issue in the Chicago litigation. In addition, the court has learned that the defendant in Chicago filed a RICO counterclaim. Thus, there appears to be substantial overlap between this case and the one pending in Chicago. Specifically, the viability of the note, which is the principal issue in the Chicago litigation, is the lynchpin of many of the claims before this court. Accordingly,
IT IS FURTHER ORDERED that counsel for both sides be fully prepared to discuss the issue of the first to file rule and the litigation pending in Chicago at oral argument on the 12(b)(6) motions. The first to file issue must be decided before the court rules on either the 12(b)(6) motions or plaintiffs' Motion to Deem FRCP 12(b) Objection to Venue Waived as to the Bally entities.