Kewadin Ordered to Pay $88 Million to Developers

Kewadin Casinos Gaming Authority (KCGA) must pay $88 million in lost profits to JLLJ Development for casino projects that never happened, ordered Judge Joyce Draganchuk of the Circuit Court for Ingham County.

Her decision on Tuesday seems to set up an inevitable appeal.

Kewadin Ordered to Pay

After a judge dismissed a federal challenge to state court jurisdiction to hear a case involving Kewadin back in August, it set in motion an inevitable ruling by the Michigan State court system.

On Tuesday, Draganchuk issued just such an order.

While it initially appeared that the case against Kewadin centered on a $9 million payment that JLLJ Development paid to the KCGA, Draganchuk’s order gave the development company all of the damages it sought – $88 million.

What Is This Case About?

The case dates back to events from 2011. That’s when the KCGA, the casino operator of the Sault Ste. Marie Tribe of Chippewa Indians, was working with JLLJ Development to build new casinos.

JLLJ Development sued Kewadin over a dispute over the development of two casinos. They had one planned for New Boston and one for Lansing.

The developers entered into agreements with KCGA.

The tribe acquired acreage to build the casinos. However, Kewadin couldn’t have the land taken into trust by the US Department of the Interior. Without the land in trust, they couldn’t build the casinos.

So disputes over returning money, as well as lost profits, led to this case.

The trial

Investors wanted their money back. However, without a satisfactory response from the KCGA, a bench trial ensued. A default judgment was entered against the tribe. So damages were the only matter addressed, with the tribe engaging with the case on a limited basis.

Tuesday’s ruling notes that the tribe’s counsel objected to not being allowed to call witnesses. However, the only reason they couldn’t do so was that Kewadin failed to file a witness list.

The default

After the complaint was filed, the tribe filed a motion to dismiss. KCGA argued that the state court lacked jurisdiction over the sovereign tribe. During the hearing on the motion to dismiss, the court found that the contract had waived sovereign immunity, and non-recourse provisions in the contract did not preclude recovery by the plaintiffs. As a result, the court denied the motion to dismiss.

The tribe then filed a second motion to dismiss. KCGA specifically alleged a lack of jurisdiction and other grounds. However, the court also denied that second motion without a hearing.

An angry court

Tuesday’s decision articulates that the circuit court was quite unhappy with counsel for the tribe.

Draganchuk notes that Kewadin was ordered to pay $1,500 in attorneys fees after the plaintiffs were compelled to file a motion to comply with discovery. Kewadin was found in contempt of court and fined $7,500 for failing to comply with the discovery order.

The circuit court eventually entered an order of default against the tribe.

The consequences of the default

By defaulting, the court deemed Kewadin admitted the allegations in the complaint.

JLLJ Development alleged that Kewadin breached its obligations by:

  • Using funds without preparing a budget and seeking plaintiffs’ approval;
  • Failing to appoint a development committee;
  • Failing to secure a placement of the land in trust; and
  • Failing to provide the Interior Department with the necessary documentation to put the land in trust.

The developers also alleged that Kewadin misrepresented that there was a legal entitlement to place the land in trust. The representations reportedly resulted in the plaintiffs advancing $8.8 million to the defendants.

Kewadin contended that a non-recourse provision in the contract limited damages to operating profits and equipment. The tribe argued that they could, therefore, not be liable for any dollar amount exceeding those. (Without a casino, it’s tough to have operating profits.)

A reasonable interpretation

The court stated on Tuesday:

A reasonable interpretation that gives effect to all of these provisions would be that in the event of a default where there were not any revenues from any casinos because the casinos were not yet built, Plaintiffs may accelerate the amounts due and exercise all their available remedies to collect. No reasonable interpretation of the loan documents that took into account all the provisions could possibly conclude that Plaintiffs were giving nearly $9 million to Kewadin in the hope that they would build a casino, but in the event they did not, the loans would be fully forgiven.

Draganchuk concluded that she couldn’t read the non-recourse provision in isolation. She decided it must have been intended that the parties would have the whole gambit of remedies in the event of a default by either party.

Calculating damages

Draganchuk found that the developers were entitled to damages for breach of contract and fraudulent misrepresentation. The judge reviewed the calculation of Robert Levine, a CPA, to determine the amount of lost profits as a share of revenues that the developers were due.

Levine concluded that the plaintiffs would be entitled to $88,888,208 based on lost profits, money owed, and interest.

Kewadin Order to Pay: What to Make of This?

Draganchuk awarding the developers $88 million is staggering. However, before anyone starts cashing any checks, there will likely be an appeal.

The judge’s decision focused heavily on the tribe’s non-participation in the case and continued arguments that because of the tribe’s sovereign immunity, the court lacked jurisdiction.

While it appears Draganchuk took exception to Kewadin’s approach to the case, that will not preclude an appeal.

About the Author

John Holden

John Holden is a freelance writer at Michigan Sharp, focused on legal and regulatory issues in the gambling industry. He is a full-time academic but has been writing for a number of gaming publications since 2018. He is the author of more than 50 academic publications and hundreds of mainstream articles on the regulation of the gaming industry.