Gecker v. Estate of Flynn (In re Emerald Casino, Inc.)
867 F.3d 743
7th Cir.2017Background
- Emerald Casino held an Illinois riverboat gaming license; after losing competitiveness it sought relocation and lobbied successfully for a 1999 statute (§11.2) enabling renewal and relocation.
- Emerald negotiated a Rosemont relocation, entered multiple undisclosed construction and site agreements, and executed numerous ownership-stock transfers without prior Illinois Gaming Board (IGB) approval as required by IGB rules.
- The IGB investigated Emerald, found numerous nondisclosure and related rule violations, and ultimately revoked Emerald’s license; Illinois courts affirmed revocation (rejecting only the Board’s organized-crime finding).
- Bankruptcy followed; the trustee sued former officers, directors, and shareholders for breach of the Amended Shareholders’ Agreement (which required compliance with IGB rules) and for breach of fiduciary duty; a bench trial ensued.
- The district court found most defendants violated IGB nondisclosure rules and that four defendants’ conduct (Kevin Flynn, McMahon, Larson, McQuaid) caused the revocation; it held Pedersen not to have caused revocation, dismissed the fiduciary-duty claim as time-barred, valued the lost license at $272 million, and apportioned damages severally among defendants.
- The Seventh Circuit affirmed most rulings but reversed on the allocation of liability, holding the district court erred by not applying the concurrent‑breach doctrine and requiring joint and several liability for the remaining defendants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Flynn, McMahon, Larson, McQuaid caused the IGB to revoke the license | Trustee: each defendant’s IGB-rule violations were material/substantial factors in revocation | Defs: individual breaches did not, alone, cause revocation; causation not established | Court: affirmed — substantial‑factor test met; each was a proximate cause (fact review: clear error) |
| Whether Pedersen’s share transfers caused revocation | Trustee: Pedersen’s failure to get preapproval was among violations listed by IGB and caused revocation | Pedersen: Board historically tolerated after‑the‑fact transfers; evidence showed resolution/approval of his transfers | Court: affirmed district court — no clear error in finding Pedersen did not cause revocation |
| Whether breach‑of‑fiduciary‑duty claim was timely; tolling by adverse‑domination | Trustee: claim tolled while wrongdoers controlled Emerald (adverse‑domination) until trustee appointment | Defs: creditors/committee had knowledge, ability, motivation to sue; tolling not warranted | Court: affirmed dismissal — claim barred; adverse‑domination not shown to toll limitations period |
| Proper measure/date of damages valuation | Trustee: $272M market bid accepted; valuation stands | Defs: damages measured at date of breach (2001) so court should have adjusted 2008 bid for inflation | Court: affirmed valuation — defendants waived timing adjustment and $272M was supported by contemporaneous evidence |
| Whether defendants should be severally or jointly & severally liable | Trustee: concurrent breaches made segregation impracticable; joint and several liability appropriate | Defs: obligations were individual; court lacked apportionment showing to impose joint liability | Court: reversed district court on allocation — apply concurrent‑breach doctrine; defendants jointly and severally liable (remand to reallocate) |
Key Cases Cited
- Wis. Mut. Ins. Co. v. United States, 441 F.3d 502 (7th Cir. 2006) (bench‑trial factual findings reviewed for clear error)
- Turcios v. DeBruler Co., 32 N.E.3d 1117 (Ill. 2015) (Illinois law on causation: but‑for and substantial‑factor tests)
- Young v. Bryco Arms, 821 N.E.2d 1078 (Ill. 2004) (proximate causation framework: cause in fact and legal cause)
- Lease Resolution Corp. v. Larney, 719 N.E.2d 165 (Ill. App. Ct. 1999) (adverse‑domination doctrine tolling statute of limitations)
- InsureOne Indep. Ins. Agency, LLC v. Hallberg, 976 N.E.2d 1014 (Ill. App. Ct. 2012) (concurrent‑breach doctrine supporting joint and several liability)
- West v. Am. Tel. & Tel. Co., 311 U.S. 223 (U.S. 1940) (federal courts must follow state supreme court law when predicting state law)