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Concord Associates, L.P. v. Entertainment Properties Trust

United States District Court, S.D. New York

April 9, 2014

CONCORD ASSOCIATES, L.P., CONCORD RACEWAY CORPORATION, CONCORD KIAMESHA CASINO, LLC, CONCORD KIAMESHA CAPITAL CORP., CONCORD RESORT, LLC, CONCORD KIAMESHA, LLC, and CONCORD KIAMESHA HOTEL, LLC, Plaintiffs,
v.
ENTERTAINMENT PROPERTIES TRUST, EPT CONCORD, LLC, EPT CONCORD II, LLC, EMPIRE RESORTS, INC., MONTICELLO RACEWAY MANAGEMENT, INC., KIEN HUAT REALTY III LIMITED, GENTING NEW YORK LLC, and JOHN DOES 1 TO 5, Defendants.

James I. Serota, Scott A. Martin, Roy Taub, Greenberg Traurig LLP, New York, New York, Attorneys for Plaintiffs.

Moses Silverman, Joshua D. Kaye, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York, Attorneys for Defendants Empire Resorts Inc. and Monticello Raceway Management, Inc.

Y. David Scharf, Kristin T. Roy, Gayle E. Pollack, Morrison Cohen LLP, New York, New York, Attorneys for Defendants Entertainment Properties Trust, EPT Concord, LLC, and EPT Concord II, LLC.

Howard S. Zelbo, Matthew M. Bunda, Leah Brannon, Cleary Gottlieb Steen & Hamilton LLP, New York, New York and Washington, D.C. Attorneys for Defendants Kien Huat Realty III Limited and Genting New York LLC.

OPINION & ORDER

EDGARDO RAMOS, District Judge.

This litigation concerns an alleged conspiracy to monopolize and monopolization of the racing and casino gaming industry in the Catskills region of New York State. The Plaintiffs are entities who collectively are attempting to build a casino-resort complex which would offer a luxury hotel, name entertainment and championship golf in addition to harness racing and casino gaming. Plaintiffs assert three antitrust claims against the Defendants pursuant to Section 4 of the Clayton Act, 15 U.S.C. § 15: unlawful restraint of trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1; and monopolization and conspiracy to monopolize in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2. Plaintiffs also assert state law claims for tortious interference with contract and tortious interference with business relations.

Currently pending are two motions to dismiss the Amended Complaint, one filed by Defendants Empire Resorts Inc., Monticello Raceway Management, Inc., Entertainment Properties Trust, EPT Concord, LLC, and EPT Concord II, LLC, Doc. 41, and the other filed by Defendants Kien Huat Realty III Limited and Genting New York, LLC, Doc. 44, who also join in the first motion. For the reasons set forth below, both motions are GRANTED.

I. Background

A. The Parties

1. Plaintiffs

Plaintiffs Concord Associates, L.P. ("Concord Associates"), Concord Raceway Corporation ("Concord Raceway"), Concord Kiamesha Casino, LLC ("Concord Casino), Concord Kiamesha Capital Corporation ("Concord Capital"), Concord Resort, LLC ("Concord Resort"), Concord Kiamesha, LLC ("Concord Kiamesha") and Concord Kiamesha Hotel, LLC ("Concord Hotel") (collectively "Plaintiffs") are limited partnerships, corporations, and limited liability companies organized and existing under the laws of the State of New York and the State of Delaware, and authorized to do business in the State of New York. Am. Compl. ¶¶ 30-32, Doc. 26.

2. Entertainment Properties Defendants[1]

Defendant Entertainment Properties Trust ("EPT") is a Maryland real estate investment trust, and Defendants EPT Concord, LLC ("EPT Concord") and EPT Concord II, LLC ("EPT Concord II") are limited liability companies organized and existing under the laws of the State of Delaware and authorized to do business in the State of New York. Id. ¶¶ 33-34. Plaintiffs refer to EPT, EPT Concord and EPT Concord II as "Entertainment Properties."[2] Am. Compl. at 1.

3. Empire Defendants

Defendants Empire Resorts, Inc. and Monticello Raceway Management, Inc. ("Monticello") are corporations organized and existing under the laws of the State of Delaware, and with a principal place of business in Monticello, New York. Monticello is a wholly-owned subsidiary of Empire Resorts, Inc. Id. ¶ 35. Plaintiffs refer to Empire Resorts, Inc. as "Empire, " and also refer to Empire and Monticello collectively as "Empire." Am. Compl. at 1-2.[3]

4. Genting Defendants

Defendant Genting New York, LLC ("Genting NY")[4] is a limited liability company organized and existing under the laws of the State of Delaware, and authorized to do business in the State of New York. Genting NY owns and operates Resorts World Casino, a racing and casino gaming facility located in Jamaica, New York. Id. ¶¶ 16, 40, 89-90.

Non-defendant Genting Berhad, located in Malaysia, is one of the largest gaming companies in the world and is the parent and holding company for subsidiaries and affiliates operating under the name "Genting Group." Id. ¶¶ 17, 38. Genting Berhad owns 49.3% of subsidiary non-defendant Genting Malaysia Berhad, located in Malaysia. Id. ¶ 39. Defendant Genting NY is a wholly-owned subsidiary of Genting Malaysia Berhad. Id. ¶ 40.

Non-defendant Kien Huat Realty Sdn Bhd, located in Malaysia, is an affiliate of Defendant Kien Huat Realty III, Limited ("Kien Huat Realty") and it owns 39.6% of and "exercises operating control" over non-defendant Genting Berhad and its subsidiaries. Id. ¶¶ 18, 37.

Defendant Kien Huat Realty is an Isle of Man corporation headquartered in Malaysia. Its principal business is to act as a holding company for investments held under a trust for the benefit of Lim Kok Thay, a citizen of Malaysia, and certain other members of his family. Id. ¶ 36. Lim Kok Thay is the Chairman and Chief Executive of non-defendants Genting Berhad and Genting Malaysia Berhad. Id. ¶ 41.

Kien Huat Realty, along with Fook Yew Au, an individual who is also known as Colin Au ("Colin Au"), an executive of a number of Kien Huat Realty affiliates, acquired a majority interest in Empire in November 2009. Id. ¶¶ 14, 18, 36, 88. According to Plaintiffs, Kien Huat Realty "exercises operating control over both Empire and Genting [NY], through its ownership interests and the executive control exercised by Colin Au over both companies." Id. ¶ 36.

Defendants John Does 1-5 are the jural entities, whose identities are presently unknown, that serve as corporate agents and holding companies through which Lim Kok Thay (or trusts for his benefit) controls Empire and Genting NY. Id. ¶ 41.

Plaintiffs refer to Kien Huat Realty and the John Doe entities 1-5 as "Kien Huat."[5] Together, Kien Huat and Genting NY are referred to as the "Genting Defendants." Am. Compl. at 2.

B. Gaming in New York State

The New York State Department of Racing and Wagering ("NYS Racing") has authorized a total of eight licenses to operate harness race tracks in New York. Seven of the licenses have been issued to the seven harness tracks currently operating in New York State. Id. ¶ 44. The eighth, and final, license has been "earmarked" for issuance to Plaintiff Concord Raceway to establish and operate a harness race track at the site of the former Concord Resort Hotel, which is located in the Catskills Mountains of New York, in the Town of Thompson, Sullivan County. See id. ¶¶ 44, 48, 56.

The Concord Resort Hotel was once a world-famous vacation destination for visitors to the Catskills Mountains until its bankruptcy and closing in 1998. Id. ¶¶ 48, 51. The area currently at issue is referred to by Plaintiffs as the "Concord Site." The Concord Site is made up of two adjoining parcels. The first, consisting of approximately 1, 500 acres, houses two golf courses, residential properties and vacant land, and is referred to as the "Resort Property." The other, consisting of approximately 140 acres, is the site of the former Concord Resort Hotel and is referred to as the "Casino Property." Id. ¶ 56.

In 2001, New York enacted legislation authorizing the issuance of licenses to operate video lottery terminals ("VLTs") at licensed harness race tracks and thoroughbred race tracks in the State. VLTs are gaming machines, similar in appearance to casino slot machines. In 2009, New York State Lottery authorized the tracks to add electronic table games ("ETGs"). Id. ¶ 42. ETGs simulate table games, like roulette, blackjack and craps. Enterprises that offer both racing and casino gaming are called "racinos." Id. ¶ 8. Since 2004, all seven of New York's harness race tracks, and two of its thoroughbred tracks, have opened racinos offering VLTs and ETG gaming. Id. ¶ 43.

C. Plaintiffs' Efforts to Redevelop the Concord Site

In 1999, Plaintiff Concord Associates, headed by Louis R. Capelli ("Capelli"), a real estate developer, bought the Concord Site from the bankruptcy estate. Id. ¶ 52. Since purchasing the property, Capelli has invested more than $100 million toward development of the New Concord Casino Resort ("New Concord Casino Resort"), which is projected to be a high end tourism resort, offering a luxury hotel, name entertainment, championship golf and legal gaming. Id. ¶¶ 1, 55, 130. Under New York law, Plaintiffs must operate a race track in order to offer casino gaming. Id. ¶ 8; see Transcript of Oral Argument on May 8, 2013 ("Tr.") 12:7-19.

In furtherance of their development efforts, Plaintiffs have: (a) conducted an "exhaustive" environmental review, id. ¶ 58; (b) obtained necessary approvals and permits for redevelopment of the Concord Site, including approvals from the Town of Thompson Town Board and the Town's Planning Board, id. ¶¶ 58-61; and (c) obtained preliminary approval from N.Y.S. Racing and from the Division of Lottery in the form of comfort letters for the eighth and final racino license to operate a harness race track. Id. ¶ 64. In addition, Plaintiffs have "performed substantial work at the project site... including... demolition, pre-construction work, substantial environmental remediation work, and foundation work." Id. ¶ 62.

D. Transfer of the Resort Property to EPT Concord II & Related Agreements

On June 18, 2010, as part of a settlement intended to resolve several lawsuits between Defendant EPT and Plaintiff Concord Associates, and other Capelli affiliates, Plaintiffs transferred the 1, 500 acre Resort Property to Defendant EPT Concord II. Id. ¶¶ 52, 66. Pursuant to the terms of the settlement, Plaintiff Concord Associates retained the 140 acre Casino Property. Id. ¶ 67. However, the agreement to transfer the Resort Property was subject to certain rights in that land that the parties agreed would be reserved for Plaintiffs' exclusive use and exploitation, specifically to enable Plaintiffs to proceed with and complete development of the New Concord Casino Resort. Id. ¶ 68.

1. Casino Development Agreement & the Racino Tract

On June 18, 2010, Plaintiffs Concord Associates, Concord Resort and Concord Kiamesha entered into a Casino Development Agreement ("CDA") with Defendant EPT Concord II. Id. ¶ 69. In the CDA, EPT Concord II agreed to provide Plaintiffs with, inter alia, certain easements, leases and other rights regarding the use and development of a hotel, a racing and gaming facility and other improvements on the Resort Property. Id. ¶ 70.

The agreement specifically reserved for Plaintiffs a right to lease the "Racino Tract, " which is a portion of the Resort Property immediately adjacent to the Casino Property, upon which Concord Kiamesha planned to build and operate a 5/8th mile oval harness racetrack and parimutuel wagering complex. Id. ¶ 71. In accordance with the CDA, EPT Concord II was obligated to deliver a ground lease for the Racino Tract, for an annual rent of $1.00, within the first two years of the terms of the CDA, specifically conditioned upon Plaintiffs successfully raising up to $275 million for such purposes. Id. ¶ 72. The CDA further provided that, even if the financing condition was not satisfied within two years, EPT Concord II was still obligated to deliver the ground lease by June 19, 2012, for an annual rent of $200, 000. Id. ¶ 73.

2. Restrictive Covenant

EPT Concord II also executed and delivered a restrictive covenant to Plaintiffs, whereby EPT Concord II would agree that neither it nor its successors or assigns would own or operate any competing casino, racino, racing or gaming facility or any other facility offering games of chance on the Resort Property. Id. ¶ 75. The restrictive covenant was recorded against the Resort Property on July 15, 2010. Id. ¶ 76.

E. Plaintiffs' Relationship with the Empire Defendants

In 1993, the Empire Defendants became the owners and operators of the Monticello Raceway, which is located in the Catskills Mountains approximately four miles from the location of the proposed New Concord Casino Resort. In 2004, the Monticello Raceway began offering casino gaming, and was renamed the "Monticello Casino and Raceway" ("Monticello Casino"). Since June 2004, Monticello Casino has been the only race track, casino, or racino in the Catskills region. Id. ¶¶ 11-12, 131, 133. The closest racino to Monticello Casino is more than 80 miles away in Pennsylvania, id. ¶ 131, and the closest harness track racino in New York State is almost 100 miles away in Yonkers. Id. ¶ 12. In its filing with the U.S. Securities & Exchange Commission, Monticello Casino stated that it "does not compete directly with other harness racing tracks in New York State for live racing patrons." Id. ¶ 131. According to Plaintiffs, Empire's position as the only operator of casino gaming in the Catskills region enables it to remain "the only game in town" for local consumers, including Catskill region tourists, horsemen and other suppliers of racing and gaming products and services. Id. ¶ 133.

On March 23, 2009, Empire entered into an agreement with Concord Associates to provide management services to Concord Raceway at Plaintiffs' proposed harness track. Id. ¶ 86. Until approximately the end of 2009, the Empire Defendants cooperated with Plaintiffs' efforts to develop a harness race track on the Racino Tract. Id. ¶¶ 13, 85.

Then, in November 2009, Defendant Kien Huat Realty and Colin Au acquired majority ownership of Empire. Id. ¶¶ 14, 88. Shortly thereafter, Capelli, who was then a director of Empire, introduced Au to the operators of Aqueduct Race Track ("Aqueduct"), a thoroughbred track in Jamaica, New York, with a view to Empire operating a racino there. Id. ¶¶ 16, 43, 89. After the meeting, Genting NY, which Kien Huat also controls and for which Au also "serves as de facto CEO, " acquired the rights to operate a racino at Aqueduct. Id. ¶ 90. In October 2011, Defendant Genting NY opened the Resorts World Casino at Aqueduct, approximately 100 miles from the site of the proposed New Concord Casino Resort. Resorts World Casino quickly became the most profitable casino, in slot machine revenue, in the United States, generating $57.5 million in May 2012 alone. Id. ¶ 16.

According to Plaintiffs, by the beginning of 2010, following Kien Huat Realty and Au's acquisition of majority control over Empire, and Genting NY's acquisition of the rights to operate the racino at Aqueduct, Empire's cooperation with Plaintiffs ceased. Id. ¶¶ 15, 94. Empire began "doing whatever it could to undermine the efforts of Plaintiffs (Empire's only viable competitor in the Catskills region and a prospective competitor to Resorts World Casino for gamblers from the New York City metropolitan area) to complete development of the New Concord Casino Resort...." Id. ¶ 94.

Plaintiffs allege that since acquiring the racino rights at Aqueduct, "Genting [NY] has lobbied against New York providing gaming licenses anywhere within driving distance of Resorts World Casino, arguing that as a matter of business necessity, it must be permitted to operate with a geographic gaming monopoly." Id. ¶ 91. For example, on June 21, 2011, the Thoroughbred Times cited Au's objection to New York State's 2010 plan to allow an Indian casino in Sullivan County, and 2011 proposal for an Indian casino on Long Island. Id. ¶ 92.

F. Plaintiffs' Relationship with Entertainment Properties Defendants after June 2010

In the months following the June 18, 2010 CDA, the Entertainment Properties Defendants[6] cooperated with and facilitated Plaintiffs' efforts to develop the New Concord Casino Resort while at the same time pursuing development of their own complimentary theme park, housing, retail properties and golf course on their Resort Property. Id. ¶ 95. However, Entertainment Properties' conduct toward Plaintiffs changed sometime in late 2010 or early 2011, "coinciding with agreements that [they] entered into with Defendant[s] Empire after Kien Huat Realty acquired control of Empire." Id. ¶ 96.

Beginning in 2011, Entertainment Properties entered into "agreements, combinations and conspiracies" with the Empire Defendants and the Genting Defendants (which are both controlled by Kien Huat and Colin Au) to stop cooperating with Plaintiffs and to obstruct and delay Plaintiffs' efforts to complete development of the New Concord Casino Resort." Id. ¶ 19. In accordance with those agreements, Entertainment Properties stopped cooperating with Plaintiffs, repudiated their obligation under the CDA and Restrictive Covenant and attempted to obstruct Plaintiffs' efforts to fulfill their obligations under these agreements. Id. ¶ 20. According to Plaintiffs, "Genting [NY]'s and Kien Huat's ...


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