Massachusetts Breach of Contract, Fraud, Summary Judgment, pari delecto and a Gaming Casino
The First Circuit sent two questions to the Massachusetts SJC to help determine the enforceability of a “handshake” agreement with $19 million on the line. The civil appeal involves a dispute arising out of the sale of a tract of land in Everett and Boston (the “Parcel”) for the construction of the Encore Boston Harbor. Before the resort and casino was built, the Parcel was owned by FBT, a limited liability company owned by Paul Lohnes, The DeNunzio Group, LLC (owned by Dustin DeNunzio, Manager of FBT) and Appellant Gattineri.
Appellee Wynn MA, LLC is a Nevada limited liability company — wholly owned by its sole member, Appellee Wynn Resorts, Limited — with a principal place of business in Nevada. Wynn Resorts, Limited is a publicly traded Nevada corporation also with a principal place of business in Nevada. Wynn MA, LLC owns the Encore Boston Harbor. In January 2013, Encore filed for a Region A Category 1 gaming license to operate a resort in Massachusetts with the Commission, as required by state law.
In Anthony Gattineri vs. Wynn MA, LLC and Wynn Resorts Ltd., the First Circuit Court of Appeals examined the enforceability of a promise by one party to make another party whole after a regulator, in this case the Massachusetts gaming commission, capped the price of the deal. U.S.C.A. 1st Cir., 22-1117, March 22, 2023.
Gattineri owned 46.69% of FBT Realty LLC which agreed to sell land to Wynn MA, LLC for $75 million. However the Massachusetts Gaming Commission flagged the transaction because one of the sellers (stakeholder in FBT Realty) had ties to organized crime and because environmental remediation of the property was required. Due to these factors, the Massachusetts Gaming commission capped the sale price at $35 million.
Gattineri sued in 2018, claiming that he was owed $19 million stemming from the 2014 sale of land in Everett Massachusetts, that later gave rise to the $2.6 billion hotel and casino development.
Gattineri conditioned his agreement to sell to Wynn if Wynn made up the difference between the original deal ($75 million), and the deal as modified by the Massachusetts Gaming Commission. To Gattineri, that meant 46.69% of the $40 million difference between the original price and the final sale price, or a little less than $19 million. Gattineri alleges this was a handshake agreement between himself and a Wynn executive.
In federal diversity cases, state law supplies the substantive rules of decision, and the parties agree that Massachusetts law controls. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); see also Cochran v. Quest Software, Inc., 328 F.3d 1, 6 (1st Cir. 2003) (“It is settled in this circuit that when the parties have reached a plausible agreement about what law governs, a federal court sitting in diversity jurisdiction is free to forgo independent inquiry and accept that agreement.”).
Summary judgment “is appropriate only if ‘there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.'” Id. (quoting Fed. R. Civ. P. 56(a)). A genuine dispute is one that “would permit a rational factfinder to resolve the issue in favor of either party,” and a material fact is one that has the “potential to affect the outcome of the suit under the applicable law.” Joseph v. Lincare, Inc., 989 F.3d 147, 157 (1st Cir. 2021) (first quoting Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990); and then quoting Cherkaoui v. City of Quincy, 877 F.3d 14, 23 (1st Cir. 2017)).
To put forth a viable breach of contract claim under Massachusetts law, Gattineri “must prove that a valid, binding contract existed, the defendant breached the terms of the contract, and [he] sustained damages as a result of the breach.” Brooks v. AIG SunAmerica Life Assurance Co., 480 F.3d 579, 586 (1st Cir. 2007). A valid contract exists where all the essential terms are “definite and certain so that the intention of the parties may be discovered, the nature and extent of their obligations ascertained, and their right
To prove a claim for common law fraud under Massachusetts law, a party must “show[] that (1) the defendant made a ‘false representation of a material fact with knowledge of its falsity for the purpose of inducing [the plaintiff] to act thereon’; (2) the plaintiff ‘relied upon the representation as true and acted upon it to his [or her] detriment’; and (3) such ‘reliance was reasonable under the circumstances.'” H1 Lincoln, Inc. v. S. Wash. St., LLC, 179 N.E.3d 545, 560 (Mass. 2022) (alterations in the original) (quoting Rodi v. S. New Eng. Sch. of L., 532 F.3d 11, 15 (1st Cir. 2008)). Further, “the reasonableness of a party’s reliance is ordinarily a question of fact for the jury.” Rodi, 532 F.3d at 15. However, it “can be a question of law where the undisputed facts permit only one conclusion” such that “no rational jury could [find] reasonable reliance.” Cumis Ins. Soc’y, Inc. v. BJ’s Wholesale Club, Inc., 918 N.E.2d 36, 50 (Mass. 2009).s determined.” Cygan v. Megathlin, 96 N.E.2d 702, 703 (Mass. 1951) (emphasis added).
The in pari delicto defense is limited to “those situations in which (i) the plaintiff, as compared to the defendant, bears at least substantially equal responsibility for the wrong he seeks to redress and (ii) preclusion of the suit would not interfere with the purposes of the underlying law or otherwise contravene the public interest.” Nisselson v. Lernout, 469 F.3d 143, 152 (1st Cir. 2006); see Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 310-11 (1985).
The First Circuit declined to resolve the question on appeal which was whether the district court erred in granting summary judgment to Wynn on all counts. Instead, the First Circuit certified a pair of questions to the Supreme Judicial Court:
- Is the San Diego Agreement unenforceable because it violates Section 21 of the Gaming Act?
- If not, is the San Diego Agreement unenforceable for reasons of public policy of ensuring public confidence in the integrity of the gaming licensing process and in the strict oversight of all gaming establishments through a rigorous regulatory scheme?
The answer to these questions will be informative in how the high court views contacting parties’ ability to “contract around” regulatory decisions that frustrate their business interests.
