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Marina District Development Co., LLC v. Ivey

United States District Court, D. New Jersey

March 26, 2018

MARINA DISTRICT DEVELOPMENT CO., LLC doing business as BORGATA HOTEL CASINO & SPA, Plaintiff,
v.
PHILLIP D. IVEY, JR., GEMACO INC., and CHENG YIN SUN, Defendants.

          JEREMY M. KLAUSNER JEREMY KLAUSNER LAW, P.C., On behalf of Plaintiff

          JEFFREY W. MAZZOLA LAW OFFICES OF WILLIAM E. STAEHLE, On behalf of Defendant Gemaco, Inc.

          EDWIN JOSEPH JACOBS, JR. MICHAEL F. MYERS LOUIS M. BARBONE JACOBS & BARBONE, On behalf of Defendants Phillip D. Ivey and Cheng Yin Sun

          OPINION

          NOEL L. HILLMAN, U.S.D.J.

         Defendants Phillip D. Ivey and Cheng Yin Sun played Baccarat at the Borgata Hotel Casino & Spa in Atlantic City, on four occasions in 2012. They won $9, 626, 000. In order to do so, they used a scheme called “edge-sorting, ” where Sun, after learning the face value of certain strategically important cards, would have the dealer turn those cards so that they could be distinguished from other cards in the deck by minute asymmetries on the repeating pattern on the backs of the cards as they were dealt. Ivey and Sun would then be able to see the leading edge of the first card in the shoe before it was dealt, giving them “first card knowledge, ” and Ivey would bet accordingly.

         To make the edge-sorting scheme work, Ivey required certain accommodations from Borgata: (1) a private area or “pit” in which to play; (2) a casino dealer who spoke Mandarin Chinese and would follow Sun's directions to turn the cards 180 degrees; (3) a guest (defendant Sun) to sit with him at the table while he played; (4) one 8-deck shoe of purple Gemaco playing cards to be used for the entirety of each session of play; and (5) an automatic card shuffling device to be used to shuffle the cards after each shoe was dealt, which retained the orientation of each card that Sun requested to be turned. Borgata agreed to all of Ivey's requests.

         On October 21, 2016, the Court determined that Ivey and Sun breached their contract with Borgata to abide by the terms of New Jersey's Casino Control Act, N.J.S.A. 5:12-1, et seq. (“CCA”). The Court found that Ivey and Sun breached their contract with Borgata to play Baccarat in compliance with the CCA by violating N.J.S.A. 5:12-115(a)(2) and (b) when they knowingly engaged in a scheme to create a set of marked cards and then used those marked cards to place bets based on the markings.[1] (Docket No. 107.)

         On December 15, 2016, the Court determined that the remedy for Ivey and Sun's breach of their contract with Borgata was to restore the parties to the status quo ante - i.e., both Borgata and Ivey and Sun would be returned to their pre-contract positions, entitling Borgata to the return of all of Ivey and Sun's winnings, including the sum Ivey won at Craps following his Baccarat play. (Docket No. 117.) Judgment was entered in Borgata's favor on its claims against Ivey and Sun in the amount of $10, 130, 000. (Docket No. 119.)

         Ivey and Sun sought to appeal this Court's decision, but Borgata still had pending claims against Defendant Gemaco, Inc., which manufactured the cards Ivey and Sun specifically requested to be used in their edge-sorting scheme. The Court denied Ivey and Sun's motion for entry of judgment under Federal Civil Procedure Rule 54(b), which requires that, in order to avoid piecemeal appeals, a court may only order the entry of final judgment when fewer than all claims have been resolved upon a finding that there is “no just reason for delay.” The Court found that that resolving all of Plaintiff's claims arising out of the edge-sorting technique used by Ivey and Sun with Gemaco playing cards, which serves as the basis for all of Plaintiff's claims against Ivey, Sun and Gemaco, would prevent duplicative review by the court of appeals. (Docket No. 122.)

         The Court therefore directed Borgata to prosecute its claims against Gemaco by either refiling its motion for summary judgment, which, along with Gemaco's cross-motion for summary judgment, had been previously denied without prejudice when the Court issued its decision as to Borgata's claims against Ivey and Sun so that the parties had the benefit of that decision, or seek other relief that would resolve the claims between Borgata and Gemaco. (Id.)

         Borgata and Gemaco have renewed their motions for summary judgment, which are currently pending for resolution.[2] Borgata claims that in October 2011, it and Gemaco entered into a contract for (1) “high quality” gaming cards that were suitable for Baccarat and compliant with the CCA and New Jersey Division of Gaming Enforcement (“DGE”) regulations, which require that “[a]ll cards used to game at Baccarat shall be of backs of the same color and design, ” N.J.A.C. 13:69F-3.6, and (2) “first grade quality” gaming cards that were subject to individual and intensive inspection, free of any and all defects, and suitable for use in Borgata's gaming operations. Borgata claims that on the four days Ivey and Sun played Baccarat at Borgata - April 11, May 3, July 26, and October 7, 2012 - Gemaco breached the agreement with Borgata by delivering defective and asymmetrical cards that were unsuitable for Baccarat and noncompliant with the requirements set forth by the CCA.

         In addition to its breach of contract claim (Count XIII), Borgata claims that the defective and asymmetrical cards breached Gemaco's express and implied warranties (Counts XIV, XV), and constituted negligence (Count XVI). Borgata has also asserted claims for respondeat superior for a Jane Doe employee whose duty it was to inspect the cards (Count XVII), as well as a claim for declaratory judgment for contribution and indemnification (Count XVIII). Borgata seeks damages in the amount of $9, 626, 000, representing the amount of Borgata's loss resulting from Gemaco's breaches.[3] (See Borgata's amended complaint, Docket No. 5 at 38-46.)

         Gemaco's arguments for of summary judgment in its favor

         Gemaco argues that it is entitled to summary judgment on all of Borgata's claims. Its first, overarching argument for judgment in its favor is that Borgata has received full recovery for its losses through the judgment entered in its favor on its claims against Ivey and Sun, and Borgata is not entitled to a duplicate recovery from Gemaco. In addition to that argument, Gemaco contends that the Uniform Commercial Code (U.C.C.), which is a comprehensive system for determining the rights and duties between buyers and sellers of goods, [4] governs the relationship between it and Borgata, and Borgata's common law breach of contract, negligence, respondeat superior, and declaratory judgment for contribution and indemnification claims are barred.

         For Borgata's breach of warranty claims that fall under the U.C.C., Gemaco argues that Borgata's damages for its allegedly defective cards - to the extent that the cards are deemed to have breached Gemaco's agreement to provide Borgata with “high” and “first grade” quality cards - are limited by the economic loss rule. That is, if it is determined that Gemaco breached any warranties for the cards it provided to Borgata on the four occasions in 2012, Borgata's damages are limited to contract-type damages.

         “[E]conomic loss encompasses actions for the recovery of damages for costs of repair, replacement of defective goods, inadequate value, and consequential loss of profits, ” as well as “the diminution in value of the product because it is inferior in quality and does not work for the general purposes for which it was manufactured and sold.” Alloway v. General Marine Industries, L.P., 695 A.2d 264, 267 (N.J. 1997) (citation omitted). In New Jersey, the U.C.C. provides “the exclusive remedy for claims of purely economic loss due to a defective product.” Rapid Models & Prototypes, Inc. v. Innovated Solutions, 71 F.Supp.3d 492, 507 (D.N.J. 2014) (citing Goldson v. Carver Boat Corp., 707 A.2d 193 ( N.J.Super.Ct.App.Div. 1998) (“[W]here the harm suffered is to the product itself, unaccompanied by personal injury or property damage . . . principles of contract, rather than of tort law, [are] better suited to resolve the purchaser's claim.” (citations and quotations omitted)). A tort remedy is available, however, for damages that arise from a contractual relationship when the breaching party owes a duty imposed by law independent of the contract. Saltiel v. GSI Consultants, Inc., 788 A.2d 268, 280 (N.J. 2002).

         Gemaco argues that it did not owe Borgata any duty separate from their contract, and therefore Borgata's only remedy for the allegedly defective cards comes from their contract.[5] It points out that the parties' contract provides for a limited warranty where Gemaco warranted that the cards would be fit for their intended purpose and free from defects of workmanship. Gemaco further points out that the contract provides that its liability is limited to the replacement of the defective cards, or the refund of the purchase price for the cards, and only if Borgata notified Gemaco in writing within 90 days of its receipt of the cards. The limited warranty provision also provides that there are no other warranties, express or implied, and in no event was Gemaco liable for the loss of profits, indirect, incidental, special, consequential or other similar damages, including but not limited to business interruption, loss or revenue, gaming losses, fines, penalties, loss of use and injury or damage to persons or property arising out of any breach or obligations under their contract.[6] (See Docket No. 5 at 56.)

         Gemaco argues that in addition to the fact that Borgata's damages for the allegedly defective cards are limited to the economic loss set forth in their contract - i.e., replacement of the cards or refund of the purchase price - Borgata is not even entitled to that remedy because it failed to comply with the 90- day notice requirement under the contract. Moreover, Gemaco contends that there is no evidence that its cards used during Ivey and Sun's four visits in 2012 were defective or violated the CCA.[7] Based on all of its arguments, it is Gemaco's position that it is entitled to summary judgment in its favor on all of Borgata's claims against it.

         Borgata's arguments for summary judgment in its favor

         Unsurprisingly, Borgata views the situation very differently from Gemaco. Borgata argues that as a card manufacturer Gemaco has an independent duty, separate from any contract with the casinos, imposed upon it under the CCA to ensure that the backs of the cards are uniform, symmetrical, and cannot be used to determine the face value of the cards. See N.J.A.C. 13.69E-1.17(d), 13.69F-3.6, 13.69E-1.17(a), (d), 13.69E-1.18A. Borgata contends that Gemaco's failure to inspect and identify the flawed, marked cards breached an independent duty giving rise to a negligence claim. This breach of its independent duty, Borgata argues, takes its claims against Gemaco out of the economic loss rule limitation and the confines of remedies available under the U.C.C.

         Relatedly, Borgata argues that the cards failed for their essential purpose, were the but-for cause of Borgata's losses, and Gemaco's awareness of the inherent asymmetry of its cards and its failure to apprise Borgata of the defect makes any damages limitations unconscionable, particularly considering that the playing cards cost only $0.84 per deck, thus making its economic loss under the terms of the parties' contract significantly disproportionate to the actual losses incurred by Borgata. Borgata further argues that the parties' contract contained two warranty provisions, including one relating to regulatory compliance, which Gemaco breached.

         Overall, Borgata argues that Gemaco's liability for the $10, 130, 000 in losses under the parties' contract and Gemaco's violation of its independent duties[8] has been established by the May 19, 2017 letter the DGE sent to Borgata regarding Gemaco's cards. In that ...


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