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Churchill Downs Inc. v. NLR Entertainment, LLC

United States District Court, D. New Jersey

March 6, 2017

NLR ENTERTAINMENT, LLC AND NICHOLAS L. RIBIS, Defendants/Third-Party Plaintiffs,
WILLIAM CARSTANJEN, Third-Party Defendant.


          KEVIN MCNULTY United States District Judge.

         In 2013, the plaintiff, Churchill Downs, Inc. ("CDI"), and the defendants, NLR Entertainment, LLC ("NLR") and its principal, Nicholas L. Ribis, entered into an agreement. CDI was to provide online gambling services to the Showboat Atlantic City Hotel and Casino ("Showboat"), once NLR had purchased that casino. NLR never purchased the Showboat, CDI never supplied services, and each now accuses the other of breaching their agreement (among other things). CDI says that NLR breached when it failed to acquire Showboat-the whole foundation of the agreement. And Ribis, who knew that a deal for Showboat had not been or could not be reached, allegedly strung CDI along for months about the state of negotiations with Showboat's owner, Caesars Entertainment ("Caesars"). NLR and Ribis see things quite differently. The Showboat deal collapsed, they say, only because CDI refused to place $7.5 million in escrow, money that NLR needed in order to pay the $5 million deposit required under its purchase agreement with Caesars. Even worse, complains Ribis, William Carstanjen, CDI's president and chief operating officer, defamed Ribis by calling him a "fraud" in statements to Caesars and others in the industry.

         On October 5, 2015, I denied both Carstanjen's motion to dismiss the counterclaims of NLR and Ribis, and CDI's motion for judgment on the pleadings. (ECF No. 44 "Opinion") Writing "at some length to orient the parties' anticipated motions for summary judgment, " I warned NLR and Ribis that their allegations "were factually quite thin" and that "far more will be required at the summary judgment stage." Now before the Court are those summary judgment motions: CDI moves for summary judgment on its breach of contract claim and against the counterclaims of NLR and Ribis for breach of contract, breach of the implied covenant of good faith and fair dealing, and defamation. Ribis and NLR move for summary judgment against CDI's fraud claim.

         For the reasons expressed below, I will grant each of the summary judgment motions. There is no genuine issue of material fact that NLR breached the parties' agreement when it failed to acquire Showboat, and NLR has failed to factually substantiate any of its counterclaims, including defamation. But I will also grant NLR's motion for summary judgment on CDI's fraud claim, because CDI has failed to show that it was damaged by Ribis's conduct.

         I. BACKGROUND

         I write for the parties and so assume familiarity with my prior Opinion. I highlight here the facts pertinent to resolution of the parties' cross motions.

         A. Term Sheet and License Agreement[1]

         On August 3, 2013, CDI and Ribis (on behalf of NLR) signed a binding term sheet ("Term Sheet"). It outlined an agreement under which CDI would "host, manage, operate, and support" an online gaming and gambling system "in connection with NLR's ownership of Showboat." According to the Term Sheet, NLR was obligated to enter into a definitive agreement to purchase Showboat by October 15, 2013, and to close on the purchase by January 31, 2014. By "definitive agreement, " the parties meant an asset purchase agreement ("APA") or a purchase/sale agreement ("PSA"). For its part, CDI made an initial payment of $2.5 million to NLR, which was earmarked to be credited towards a $10 million rights fee. The remaining $7.5 million would be deposited "into an escrow account within one business day of the date NLR enters into a definitive agreement to purchase [] Showboat." If, however, NLR failed to acquire Showboat by January 31, 2014, then it would be required to "repay the $2.5 million dollars." (PSF ¶¶ 1-8, 14; DRSF ¶¶ 1-8, 14; PI. Ex. D §§ 1.2, 1.3)

         A month after signing the Term Sheet, on September 4, 2013, the parties entered into a comprehensive License and Operating Agreement (the "License Agreement"). For the purposes of this dispute, the parties' responsibilities under the License Agreement were virtually identical to those laid out in the Term Sheet. NLR was still obligated to "execute a definitive agreement to acquire Showboat by October 15, 2013." If NLR failed to do so, it would have to return CDI's initial $2.5 million payment "as liquidated damages." CDI, for its part, was obligated to deposit the balance of the rights fee-i.e., $7.5 million-into an escrow account "[o]n the first Business Day following the date NLR enters into a definitive agreement to acquire Showboat." Having entered into such an agreement, NLR would then be required to "consummate the transactions contemplated thereby [i.e., to acquire Showboat] by January 31, 201[4]." (PSF ¶¶ 8-16; DRSF ¶¶ 8-16; PI. Ex. E §§ 3.i, 10.d.ii, 10.e.i)

         That said, the License Agreement did add a few wrinkles. The License Agreement placed restrictions on the use of escrowed funds: if and when NLR entered into a definitive agreement and CDI deposited $7.5 million into escrow, NLR would only be "permitted to use $1, 000, 000 of [the $7.5 million in] escrowed funds as a deposit" for the purchase of Showboat. CDI was now obligated to use best efforts to launch the online gaming system by April 2, 2014; if it failed to do so, it would incur $10, 000 per day in liquidated damages. All future amendments to the License Agreement, the parties provided, must be in writing and signed by authorized representatives. (PSF ¶ 16; DRSF ¶ 16; DSSF ¶ 3; PRSSF ¶ 3; PI. Ex., §§ 3.h, 10.d-e, 19.h)

         Those changes aside, the License Agreement and the Term Sheet shared a central purpose: to effectuate "CDI and NLR['s] desire for CDI to be the exclusive vendor to Showboat of internet gaming and online gambling services after the consummation of NLR's acquisition of Showboat." (PI. Ex. E p.1)

         B. Early Performance and Proposed Amendment

         On the same day that CDI entered into the License Agreement, it entered into a binding term sheet with iTeamGaming LLC, a software and software development support services company. Pursuant to that term sheet, CDI agreed to pay iTeamGaming over $10 million to assist in the development of Showboat's gaming system. CDI also hired 20-30 new engineers and leased additional office space in Louisville, Kentucky. On October 2, 2013, CDI and iTeamGaming executed a definitive Software and Development License Agreement (PSF ¶¶ 46-48; DRSF ¶¶ 46-48; PI. Ex. Y; Def. Supp. Ex. A)

         NLR and Ribis, meanwhile, encountered early obstacles in their negotiations with Caesars to purchase Showboat. NLR specifically objected to Caesars' attempt to retain electronic Showboat customer data, which it could have used to steer Showboat customers to Caesars' three other Atlantic City casinos. So important was this customer data, testified Ribis, that NLR "would have been out of business day two" if it had purchased Showboat on those terms. More generally, Ribis found Caesars to be "a difficult company to deal with . . . because [of] . . . their potential bankruptcy coming and their financial problems, and [because Ribis's counterpart at Caesars, Eric Hession] wasn't really a decisionmaker." (PSF ¶¶ 24-25; DRSF ¶¶ 24-25; PL Ex. A 145:2-3, 198:25-199:14)

         In deposition testimony, Ribis acknowledged that the customer data issue was not resolved "until later in November or early December [2013]."[2] On September 17, 2013, however, Ribis told Carstanjen that he "expect[ed] the final PSA today" and that NLR and Caesars would "sign[] probably tomorrow." About three weeks later, on October 9, 2013, Ribis told Carstanjen that he had "talked to C[aesars] we [a]r[e] complete." But Showboat did not actually enter a definitive agreement to buy Showboat at that (or any other) time. (PL Ex. A 145:6-13; PSF ¶ 23; DRSF ¶ 23; PL Exs. J, K)

         October 15, 2013, was the deadline under the License Agreement for NLR to enter into a definitive agreement to purchase Showboat. That deadline came and went. "[I]t's now clear, " Carstanjen wrote to Ribis on October 23, 2013, "that the closing may be delayed beyond your original expectations because of the technology and systems transitions issues." Since "having [CDI's] money sit in escrow for months when we present no credit risk is just an unwise allocation of capital, " Carstanjen proposed (1) moving the April 2, 2014 launch date to May 16, 2014, and (2) paying NLR $6.5 million "on the first Business Day following the date NLR consummates the acquisition of Showboat." CDI would still "pay $lmm to NLR upon signing" an agreement to purchase Showboat. In other words, the $7.5 million escrow arrangement would be scrapped. Indeed, nothing would be paid into escrow; instead, NLR would receive $ 1 million after it signed a purchase agreement with Caesars, and an additional $6.5 million after it consummated the purchase of Showboat. On October 28, 2013, Ribis responded: "Bill ~ based on our previous discussions I agree to the modification as noted herein - Nick." (PL Ex. F)

         At some point, Nicholas Ribis, Jr., a project manager for the Showboat deal, became "disappointed" and "concerned" with the progress of Showboat's online gaming and gambling system following a visit to the California office of Churchill Downs Interactive, a subsidiary of CDI.[3] Ribis Jr. concluded that CDI would not be able to "launch" the online gaming and gambling system by May 2014. (DSSF ¶¶ 33-35; PRSSF ¶¶ 33-35)

         C. Showboat Negotiations Continue

         On November 14, 2013, counsel for NLR and Caesars exchanged a draft PSA for Showboat. Under the terms of that agreement, NLR was required to post a $5 million deposit. Ribis sent the draft to Carstanjen the following day. (DSSF ¶¶ 11-13; PRSSF ¶¶ 11-13; Def. Oppo. Ex. C § 3.2)

         A week later, on November 21, 2013, Ribis asked Carstanjen if CDI would consider "stepping up" and providing equity funding for Showboat in exchange for a mortgage and warrants on the property. Carstanjen demurred. CDI, Carstanjen testified, had no interest in providing any equity to NLR to help it fund the purchase of Showboat beyond the $ 1 million it had agreed to pay NLR upon the signing of a PSA with Caesars.[4] (PSF ¶¶ 21-22; DRSF ¶¶ 21-22; PI. Ex. H)

         Ribis and Caesars seemed to inch closer to a deal in early-to-mid December. On December 7, 2013, Ribis told Carstanjen that Caesars and NLR were "finishing contract this weekend - signing late Monday, announcement Tuesday." On Tuesday, December 10th, Ribis reported to Carstanjen that "[w]e [a]r[e] done with PSA - lawyers finishing tonight" and that the agreement would be signed "[t]omorrow." (PSF ¶ 12; DRSF ¶ 12; PI. Exs. L, M)

         On Thursday, December 12, 2013, Ribis emailed Carstanjen that he was "ready to sign the Asset Purchase Agreement (APA) with Caesars." But there was a catch, and a big one: NLR needed to post a $5 million deposit within "1 day after execution of APA." CDI, Ribis proposed, should "wire $7.5m into the Escrow Account at Bancorp as per Agreement with NLR upon signing of APA." "NLR has arranged with Bancorp, " Ribis continued, "for it [i.e., Bancorp] to advance $5m into the APA Escrow" after it received "CD[I]'s $7.5m." Ribis would then repay Bancorp with CDI's escrowed funds once the Showboat deal closed.[5] Carstanjen rejected the proposal. Noting that he was "having a lot of issues on my end, " he reasoned that "[i]f the bank [i.e., Bancorp] can't use our money until closing, then why do we need to put into escrow for them now. ... I don't think there is a good answer to that question of why we are floating them capital that we get back if the deal doesn't close." CDI, Carstanjen added, had "investment grade credit and we are saying we will be there with the money at closing." Fair enough, Ribis replied: "Bill - in thinking about it [yo]u make a good point - we can figure this out." (PSF ¶ 23; DRSF ¶ 23; PI. Ex. N)

         In mid-to-late December, CDI steeled itself for the possibility that NLR would not acquire Showboat by the January 31, 2014 deadline. On December 16, 2013, Ribis told Carstanjen that NLR would sign an agreement with Caesars that day. That did not happen. Three days later, Carstanjen forwarded Ribis a letter from CDI's general counsel, Alan Tse. "While we were willing to show some flexibility and patience with respect to the October 15th [PSA signing deadline] date, " Tse wrote, "CDI has no intention of waiving the January 31, 2014 [Showboat purchase deadline] date at this time." "If NLR fails to meet such requirement, " he warned, CDI would be "entitled to remedies, including but not limited to liquidated damages in an amount equal to $2.5 million." Furthermore, CDI would "not tender any further amounts to NLR until NLR complies with the [License] Agreement and closes on the acquisition of Showboat." (PSF ¶¶ 23, 30; DRSF ¶¶ 23, 30; PI. Exs. O, R)

         Two days later, on December 21, 2013, Ribis was still seeking funding for the Showboat deal based on the prospect of future payments under the amended License Agreement. He told a potential private equity investor that "CD[I] has agreed to pay 10m to me - 2.5 has already been advanced and 7.5m will be paid on consummation of transaction to purchase Showboat." (PSF ¶ 31; DRSF¶ 31, PI. Ex. S)

         In the meantime, the customer data issue continued to plague negotiations with Caesars. The frustration is palpable in a December 19, 2013 email written by an NLR technology consultant to NLR's outside counsel and copied to Ribis: "Given the fact that we have been on this merry-go-round for over 4 months, and Caesars has continually refused to provide this data, someone needs to ask them if they are really serious about selling this property or if they just want to waste everyone[']s time and money." What Caesars was offering, she counseled, "is NOT what we requested or what NLR will need to successfully transition the properly." Caesars, however, viewed negotiations as closed. The next day, December 20, 2013, Hession told Ribis that he believed Caesars had been "quite fair in terms of the amount and type of IT data" and that "[m]any of the issues you continue to add to the schedules have been discussed for months and are items we are not able to provide." Attaching a markup of "Showbo at Database Subset (Exhibit M to PSA) (Seller Comments, 12.20.13), " Hession advised Ribis that NLR should consider it Caesars' final offer. (PI. Ex. JJ, II)

         D. NLR Fails to Acquire Showboat

         NLR came closer to a deal with Caesars in the final week of December 2013. By December 22nd, Ribis testified, he had figured out how to fund the Showboat purchase and could "close it without [CDI]." Four days later, on December 26th, NLR's counsel sent Caesars' counsel executed signature pages of a PSA for Showboat. Caesars' counsel then sent NLR its client's signature pages "to be held in escrow pending our express release upon confirmation from the escrow agent that they have received the $5 million deposit, " which needed to be received by 5pm. Before the deadline, Hession told Ribis that Caesars would be "willing to allow our signature pages to remain in escrow through tomorrow at 5pm Eastern time." That deadline, though, came and went without the posting of the $5 million deposit. (PSF ¶ 29; DRSF ¶ 29; PI. Ex. A 240:16-18, Def. Ex. G)

         NLR and Caesars tried again on January 2, 2014, but the $5 million deposit was not received by January 3, 2014. Hession then told Ribis that Caesars had "decided to terminate the sale process of the Showboat" to NLR. That evening, Hession told Carstanjen the news that Caesars would not be selling Showboat to NLR. (Pi. Exs. U, V)

         NLR did not execute a definitive agreement with Caesars. Nor, of course, did it acquire Showboat by the contractual deadline, January 31, 2014. That, in Ribis's telling, was because CDI "stepped in with Caesars and . . . poisoned the well so that Caesars wouldn't close with me." At some point, Ribis says, Carstanjen told Hession and an attorney from Villa Enterprises, a potential investor in the Showboat, that Ribis was a "fraud." (PSF ¶ 37; DRSF ¶ 37; PI. Ex. A 240:1-9, 283:7-8)

         Ribis spent between $4 and $5 million in connection with the failed attempt to purchase Showboat. CDI invested over $10 million to acquire software and support services from iTeamGaming in order to develop Showboat's gaming system. (DSSF ¶ 36; PRSSF ¶ 36; PSF ¶ 48; DRSF ¶ 48)


         A. Summary Judgment Standard

         Federal Rule of Civil Procedure 56(a) provides that summary judgment should be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Kreschollek v. S. Stevedoring Co., 223 F.3d 202, 204 (3d Cir. 2000). In deciding a motion for summary judgment, a court must construe all facts and inferences in the light most favorable to the nonmoving party. See Boyle v. County of Allegheny Pennsylvania, 139 F.3d 386, 393 (3d Cir. 1998) (citing Peters v. Delaware River Port Auth. of Pa. & N.J., 16 F.3d 1346, 1349 (3d Cir. 1994)). The moving party bears the burden of establishing that no genuine issue of material fact remains. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). "[W]ith respect to an issue on which the nonmoving party bears the burden of proof ... the burden on the moving party may be discharged by 'showing'-that is, pointing out to the district court-that there is an absence of evidence to support the nonmoving party's case." Celotex, 477 U.S. at 325.

         Once the moving party has met that threshold burden, the non-moving party "must do more than simply show that there is some metaphysical doubt as to material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The opposing party must present actual evidence that creates a genuine issue as to a material fact for trial. Anderson, 477 U.S. at 248; see also Fed. R. Civ. P. 56(c) (setting forth types of evidence on which nonmoving party must rely to support its assertion that genuine issues of material fact exist). "[U]nsupported allegations ... and pleadings are insufficient to repel summary judgment." Schoch v. First Fid. Bancorporation, 912 F.2d 654, 657 (3d Cir. 1990); see also Gleason v. Norwest Mortg., Inc., 243 F.3d 130, 138 (3d Cir. 2001) ("A nonmoving party has created a genuine issue of material fact if it has provided sufficient evidence to allow a jury to find in its favor at trial."). If the nonmoving party has failed "to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial ... there can be 'no genuine issue of material fact/ since a complete failure of proof concerning an essential element of the non moving parly's case necessarily renders all other facts immaterial.'' Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 (3d Cir. 1992) (quoting Celotex, 477 U.S. at 322-23).

         When the parties file cross-motions for summary judgment, the governing standard "does not change." Clevenger v. First Option Health Plan of N.J., 208 F.Supp.2d 463, 468-69 (D.N.J. 2002) (citing Weissman v. U.S.P.S., 19 F.Supp.2d 254 (D.N.J. 1998)). The court must consider the motions independently, in accordance with the principles outlined above. Goldwell of N.J., Inc. v. KPSS, Inc., 622 F.Supp.2d 168, 184 (D.N.J. 2009); Williams v. Philadelphia Housing Auth., 834 F.Supp. 794, 797 (E.D. Pa. 1993), affd, 27 F.3d 560 (3d Cir. 1994). That one of the cross-motions is denied does not imply that the other must be granted. For each motion, "the court construes facts and draws inferences in favor of the party against whom the motion under consideration is made" but does not "weigh the evidence or make credibility determinations" because "these tasks are left for the fact-finder." Pichler v. UNITE, 542 F.3d 380, 386 (3d Cir. 2008) (internal quotation and citations omitted).

         B. ...

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