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Sands Corp. v. Ace Gaming

May 24, 2010


The opinion of the court was delivered by: Irenas, Senior District Judge


This is a diversity breach of contract suit.*fn1 The contract at issue is the "SANDS" trademark "License Agreement" between Las Vegas Sands, Inc.*fn2 and Greate Bay Hotel and Casino, Inc. ("Greate Bay")*fn3, predecessor in interest to Defendant ACE Gaming, LLC ("ACE"). Defendant Atlantic Coast Entertainment Holdings, Inc. ("Atlantic"), is the parent holding company of ACE.

Each party has moved for summary judgment. For the reasons stated herein: (1) Las Vegas Sands' motion for summary judgment against ACE will be granted; ACE's cross-motion will be denied; and (2) Las Vegas Sands' motion for summary judgment against Atlantic will be denied; Atlantic's cross-motion will be granted. Specifically, the Court holds that the License Agreement's termination fee is not an unenforceable penalty under Nevada law; ACE breached the License Agreement by failing to include the Madison House revenues in its royalty fee calculation; Las Vegas Sands did not breach the License Agreement, either by terminating the License Agreement, or taking steps toward opening a Sands casino in Bethlehem, Pennsylvania; and Atlantic may not be held liable for ACE's breach under either an alter ego or agency theory.


In the License Agreement, executed on July 14, 2004, Las Vegas Sands granted Greate Bay, and subsequently ACE*fn4, a license to use the "SANDS" trademark at the Atlantic City Sands Hotel and Casino. (License Agreement, Amend. Compl. Ex. A) In exchange, ACE agreed to make royalty payments. (Id.) The term of the agreement extended to May 19, 2086. (Id.) The agreement's exclusive area extended to Atlantic City's city limits. (Id.) The specific terms relevant to the present disputes will be discussed at length infra.

The parties' disputes began around the time when Defendant Atlantic and Pinnacle Entertainment, Inc. ("Pinnacle") announced, on September 5, 2006, that they had "signed a definitive agreement under which Pinnacle agreed to purchase the entities that own The Sands [(including ACE)]... in Atlantic City, [New Jersey]." (Crutchlow Cert. Ex. 36) Pinnacle's press release announcing the deal made clear Pinnacle's intentions for the Sands Hotel and Casino:

Pinnacle plans to build an entirely new casino and hotel on the site, which would be among the largest and most spectacular resorts in the region.

As part of the [sale] agreement, Pinnacle required that the sellers proceed to close the existing [Sands] hotel-casino.... The closure will facilitate the construction of a new, much larger facility as quickly as possible. (Id.) It is undisputed that the Atlantic City Sands Hotel and Casino permanently terminated operations on November 11, 2006. The ACE-Pinnacle transaction closed on November 17, 2006. The Atlantic City Sands was subsequently demolished.

Around the time of the Pinnacle announcement, Las Vegas Sands invoked its right under the License Agreement to audit ACE's books, records, and accounts with respect to the computation of royalties. (Crutchlow Cert. Ex. 37) PriceWaterhouseCoopers LLC conducted the audit, and concluded that ACE had underpaid royalties for the period of January 2001*fn5 through June 2006 because it had excluded the rooms contained in the Madison House-- a historic building attached to the Sands, and also operated by ACE-- in the royalty calculations.*fn6

(Crutchlow Cert. Ex. 35)

On November 14, 2006-- three days after the Sands shutdown, and three days before the ACE-Pinnacle closing-- Las Vegas Sands sent ACE a formal termination letter:

Pursuant to ¶ 11 of the License Agreement regarding termination, please be advised that [Las Vegas Sands] hereby terminates the License Agreement... for (a) failure by the Licensee, ACE, to pay licensing fees due under the agreement going back several years based on the licensee's unlawful exclusion of the Madison House rooms for the calculation of the monthly royalties under ¶ 4; (b) based on the licensee, ACE's announced termination of all operations at the location effective November 11, 2006 and the announced demolition of the hotel and casino......

As you are well aware, [ACE] owes not only royalty payments in default under ¶ 4, but also the termination fees due under ¶ 11c of the Agreement... (Crutchlow Cert. Ex. 37)

This suit followed. The Amended Complaint asserts seven counts: (1) declaratory judgment that the License Agreement is terminated; (2) anticipatory breach of the License Agreement; (3) breach of contract by failing to pay termination fees; (4) breach of contract by underpaying royalties-- by excluding the Madison House from the royalty calculations; (5) breach of contract by underpaying royalties-- by undervaluing "comped" rooms when making the royalty calculations*fn7; (6) recovery of books and records inspection fees due under the contract*fn8; and (7) unjust enrichment. Las Vegas Sands seeks recovery on all claims against both ACE and Atlantic: against ACE as a party to the License Agreement; and against Atlantic (ACE's parent holding company) on corporate veil piercing and agency theories.

As previously noted, both Defendants, ACE and Atlantic, have moved for summary judgment. Las Vegas Sands has cross-moved against both Defendants for summary judgment on Counts 3 (termination fees), 4 (royalty calculation--- Madison House), 6 (inspection fees) and 7 (unjust enrichment).


"[S]ummary judgment is proper '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.'" Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quoting Fed. R. Civ. P. 56(c)). In deciding a motion for summary judgment, the Court must construe the facts and inferences in a light most favorable to the non-moving party. Pollock v. Am. Tel. & Tel. Long Lines, 794 F.2d 860, 864 (3d Cir. 1986). The role of the Court is not "to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).

The summary judgment standard is not affected when the parties file cross-motions for summary judgment. See Appelmans v. City of Phila., 826 F.2d 214, 216 (3d Cir. 1987). Such motions "'are no more than a claim by each side that it alone is entitled to summary judgment, and the making of such inherently contradictory claims does not constitute an agreement that if one is rejected the other is necessarily justified or that the losing party waives judicial consideration and determination whether genuine issues of material fact exist.'" Transportes Ferreos de Venez. II CA v. NKK Corp., 239 F.3d 555, 560 (3d Cir. 2001) (quoting Rains v. Cascade Indus., Inc., 402 F.2d 241, 245 (3d Cir. 1968)). If after review of cross-motions for summary judgment the record reveals no genuine issues of material fact, then judgment will be entered in favor of the deserving party in light of the law and undisputed facts. Iberia Foods Corp. v. Romeo, 150 F.3d 298, 302 (3d Cir. 1998).


The Court first addresses ACE's motion for summary judgment and Las Vegas Sands' corresponding cross-motion, and then turns to Atlantic's motion and Las Vegas Sands' corresponding cross-motion.

A. Las Vegas Sands - ACE Motions


With regard to Las Vegas Sands' claim for termination fees (Count 3), ACE argues that the termination fee clause is an unenforceable liquidated damages clause (i.e., penalty) under Nevada law;*fn9 and even if the clause is enforceable, ACE's failure to pay termination fees is excused as a matter of law by Las Vegas Sands' breaches of the License Agreement.

a. Is the termination fee clause enforceable?

Las Vegas Sands seeks to recover termination fees pursuant to paragraph 11(c) of the agreement, which states:

11. Termination

(a) Notwithstanding any other provision of this Agreement, each party shall have the right to terminate this Agreement on seven (7) days prior written notice to the other in the event such other party shall cause, commit or suffer to exist with respect to it any of the following:

(i)... a material breach of this Agreement, which is not cured within twenty (20) days after the breaching party receives written notice thereof, specifying the failure in reasonable detail;...

(b) Additionally,... Licensor shall have the right to terminate this Agreement on seven (7) days prior written notice to Licensee in the event that Licensee shall cause, commit or suffer to exist with respect to the Licensee any of the following:...

(ii) if Licensee suspends normal business operations at any Location for a continuous period of sixty (60) days or more......

(c) If this Agreement is terminated by Licensor in accordance with the provisions of this Section 11 at any time prior to the fourteenth (14th) anniversary of the Start Date,... Licensee shall remain liable... for all Fees*fn10 and other charges Licensee would have been required to pay to Licensor under this Agreement to and including the fourteenth (14th) anniversary of the Start Date, plus a termination fee ("Involuntary Termination Fee") equal to (i) the Fee for the three (3) immediately prior full calendar years preceding the year of termination divided by

(ii) 3....

(d) Notwithstanding anything contained in this Agreement to the contrary, if this Agreement is terminated by Licensor in accordance with the provisions of Section 11 above, either Licensee or Licensor may elect, by written notice to the other... that Licensee, in lieu of making the payments set forth in Section 11(c) above over the balance of the Term, shall pay Licensor an amount equal to (i) all Fees and other accrued liabilities under this Agreement, plus (ii) all Fees and other charges that Licensee would have been required to pay to Licensor under this Agreement from the date of termination to an including the fourteenth (14th) anniversary of the Start Date..., plus (iii) the Involuntary Termination Fee, with the amounts described in Sections 11(d)(ii) and (ii) [sic] being discounted to present value at an annual interest factor of four percent (4%).

(Amend Compl. Ex. A) (emphasis added)

Las Vegas Sands asserts that the fee it seeks is not liquidated damages at all because, even absent a breach of the License Agreement, ACE is obligated to pay at least the fees due through the "14th anniversary of the Start Date" plus a one year termination fee. A careful reading of the License ...

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