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Inc. v. Northfield Park Associates, LLC

United States District Court, N.D. Ohio, Eastern Division

December 13, 2017




         Before the Court is the emergency motion of Northfield Park Associates, LLC (“NPA”) for relief from the extended agreed order of August 8, 2016. (Doc. No. 142 [“Mot.”].)[1] Plaintiff Ohio Harness Horsemen's Association, Inc. (“OHHA”) filed its opposition (Doc. No. 145 [“Opp'n”]), with Exhibits B, C, and H filed under seal (Doc. Nos. 146, 147, and 148, respectively). NPA filed its reply. (Doc. No. 149 [“Reply”].) Upon the parties' joint request, the Court permitted supplemental briefs. (Doc. No. 227 [“Pl. Suppl. 1”]; Doc. No. 228 [“Def. Suppl. 1”].) On December 5 and 6, 2017, the Court conducted a hearing, accepting testimony and argument. (See Doc. Nos. 235 & 236 (Transcript [“Tr.1” and “Tr.2”].) Additional supplemental briefs were permitted post-hearing. (Doc. No. 237 [“Pl. Suppl. 2”]; Doc. No. 238 [“Def. Suppl. 2”].) For the reasons and in the manner discussed herein, the emergency motion is granted.


         The parties to this lawsuit have had a very successful business relationship for decades. NPA operates Northfield Park Racetrack in Northfield, Ohio, as well as an adjacent “racino” with video lottery terminals (“VLTs”). OHHA represents the majority of owners, trainers, drivers, and grooms of Standardbred horses in Ohio, many of whom stable their horses and reside at the racetrack's backstretch, and many of whom also participate in harness horse racing events at the racetrack. Pursuant to the terms of an agreement between the parties, and under requirements of federal and state law, NPA deposits certain monies, including a percentage of its lottery agent commission for the VLTs, into a dedicated purse account, administered by NPA, for the purpose of paying purses for races at the track. In addition to accepting wagers on live harness racing, NPA exports the simulcast signal of live racing at NPA to other racetracks and off-track betting locations around the country, soliciting and accepting wagers on the NPA races. Under federal law, such wagering is permitted only with the consent of, among others, the applicable “horsemen's group, ” in this case, OHHA.

         On July 12, 2016, OHHA filed this lawsuit against NPA. OHHA alleged various claims against NPA, all grounded in rights established by federal and state law, as well as by the Agreement between the parties entered into on November 19, 2014 and effective from December 16, 2013 until December 15, 2023. (See Interstate Horseracing Act of 1978, 15 U.S.C. § 3001, et seq. (“IHA”); Ohio Rev. Code Chapter 3769; Doc. No. 1-3 [“Agreement”].)

         OHHA generally alleged[3] that, because it was demanding that NPA cease misusing and mismanaging the purse account, cease engaging in export simulcast wagering without OHHA's statutorily-required consent, and cease refusing to disclose necessary wagering documents and information, NPA was threatening to shut down its simulcast signal on July 27, 2016 (because it only had consent through July 26, 2016), reducing purses to OHHA for all races starting August 1, 2016, and converting the track to a ship-in only facility (which means that the horsemen and horses could no longer live and work at NPA). OHHA alleged that these actions would be improper under the Agreement, as well as retaliatory, and that significant damage to OHHA and its members would result. The original complaint set forth seven counts, asserting various violations of the IHA (count I [lack of consent], count II [retaliation], and count III [declaration of right to full disclosure]); breaches of fiduciary duty and trust (count IV [retaliation] and count V [waste, disloyalty, and lack of full disclosure]); and breaches of contract (count VI [relating to the January-July 2016 Consent Agreement] and count VII [relating to the November 2014 Agreement]).[4]

         On July 21, 2016, OHHA filed a combined application for temporary restraining order and motion for preliminary injunction, seeking injunctive relief in connection with counts II and IV, both of which were claims of retaliation. OHHA's motion characterized NPA's intended actions as “threats of creating a death spiral that will leave both [NPA] and OHHA greatly diminished.” (Doc. No. 12 at 536.) OHHA argued that its members would suffer irreparable (albeit avoidable) harm without injunctive relief, and that “the status quo should always be preserved to prevent fiduciary breaches.” (Id.) OHHA proposed an injunctive order that would have, inter alia, prohibited NPA from shutting down its export simulcast wagering signal, from failing to pay into the purse account OHHA's share of the host fees for the sale of the simulcast signal, from reducing purses offered for races, and from closing down NPA's barns and barn area by converting the premises into a ship-in only facility.

         On July 22, 2016, NPA filed a motion for preliminary injunction and for temporary restraining order to be issued on or before July 26, 2016. NPA also argued that it would suffer irreparable harm by being forced to shut down its operation of interstate off-track wagering due to OHHA's improper withholding of consent, which NPA characterized as a breach of both the parties' Agreement and their historic practice. NPA argued OHHA's denial of consent was aimed at forcing renegotiation of the Agreement to provide more lucrative terms for OHHA, despite the fact that the Agreement prohibits renegotiation until the final year of its term (i.e., 2023). NPA also sought to “maintain[] the long-standing status quo that has existed between the Parties since 1996.” (Doc. No. 13 at 655.)

         The Court promptly conducted several telephone conferences, followed by a hearing on July 26, 2016. Ultimately, the parties advised the Court that they had reached an agreement and submitted a proposed agreed order for the Court's approval. On July 26, 2017, the Court granted in part both motions for injunctive relief, and adopted the parties' proposed agreed order. On August 8, 2016, upon the parties' joint proposal, the Court entered an extended agreed order that modified the original agreed order only with respect to its effective dates, making it effective “from Wednesday, July 27, 2016, at 12:01 a.m. through and including a trial on the merits of this action[.]” (Doc. No. 21, Extended Agreed Order [“EAO”] at 1076.) The gravamen of the EAO is expressed in four numbered paragraphs:

1. Northfield shall continue engaging in interstate off-track wagering, including the transmission of its simulcast signal to off-track betting facilities out-of-state, in the same manner as Northfield was doing prior to July 27, 2016;
2. Northfield shall continue to make payments to the “Northfield Park Purse Account” (as that term is defined in the parties' 2014 Agreement), from host fees generated through interstate off-track wagering in the same manner as it was doing prior to July 27, 2016;
3. Northfield shall refrain from altering, relocating, or eliminating any barns, stalls, dormitory rooms, or other backstretch amenities at the racetrack in Northfield, Ohio for the duration of this Order, except that Northfield may make alterations or other necessary changes to barns, stalls, dormitory rooms, and/or backstretch amenities at the racetrack in Northfield, Ohio for normal repairs and/or emergencies; and 4. Northfield shall continue to set purses for racing at a minimum average nightly outlay of $92, 000.00, averaged on a two-week basis, beginning on August 14, 2016, with purses for individual classes of overnight races no less than the Northfield condition sheet shows for each class during the week of July 17-23, 2016. Northfield shall be required to use its best efforts to meet this minimum average nightly outlay for the duration of this Order, and shall not be held in breach of this Agreed Order for failing to meet the minimum average nightly outlay due to unforeseeable circumstances, including but not limited to: (a) race cancellations; (b) inability to fill fifteen (15) races per night; (c) inadequate number of participating horsemen for races; and/or (d) any other normal fluctuation in the manner in which races are structured.

(EAO at 1077.) Under the agreed order, NPA also posted a $50, 000 bond.

         More than a year later, [5] on September 21, 2017, NPA filed the instant emergency motion for relief, asserting that, after it received a September 15, 2017 report of OHHA's expert, it discovered that OHHA's expert was offering opinions as to damages for periods of time after the date of the agreed order, i.e., after July 26, 2016. NPA argues that, in proposing the agreed order jointly with OHHA, it had the good faith understanding that the agreed order would “maintain the status quo during the life of this litigation, ” (Mot. at 4113), cutting off the accumulation of any alleged damages, including any damages under the IHA. But, to the contrary, OHHA's expert's report, in Tables 12 and 13, calculates damages for NPA's simulcasting after July 26, 2016 to allegedly “unapproved” sites, even though NPA had been simulcasting to those sites “prior to July 27, 2016[.]” (EAO at 1077 ¶ 1.) According to NPA, had the agreed order not been intended to preserve the status quo (in effect, granting OHHA's consent to all the sites to which NPA had been simulcasting prior to the order's effective date), NPA would have ceased all interstate off-track wagering, as it had considered doing prior to this lawsuit, so as to cut off any risk of additional damages should OHHA prevail on its underlying claims.[6] Without citing any legal authority justifying its request, NPA sought amendment of the EAO to permit it to:

(1) Cease all interstate off-track wagering with all Simulcast Sites identified on Tables 12 and 13 (with associated damages) in Cummings' Expert Report No. 2;
(2) Cease making payments to the Northfield Park Purse Account from host fees generated through interstate off-track wagering for those same Simulcast Sites identified on Tables 12 and 13;
(3) Make reasonable operational changes, including without limitation, altering the backstretch and related amenities, to offset the seven figure loss in simulcast revenue; and
(4) Monitor the minimum average nightly outlay of $92, 000 to determine whether the loss in simulcast revenue will impact this minimum outlay.

(Mot. at 4108, footnotes omitted.)

         OHHA opposed the motion, also without citing any legal authority. It urged the Court to enforce “[t]he plain language of the Agreed Orders, and common sense[.]” (Opp'n at 4174.) In its reply, NPA again argued that the EAO, under a preliminary injunction analysis, should have been intended to preserve the status quo, which, in NPA's view, means that damages would stop accumulating. (Reply at 4290-91.)

         On November 15, 2017, the Court conducted a telephone conference with counsel to discuss the emergency motion. Following that conference, in minutes of the proceedings, the Court noted: “[C]ounsel agree that defendant is entitled under the terms of their contract to three of the four forms of relief that it seeks, as listed on page 9 of the motion (Page ID# 4121). Only the third is in dispute.” (Minutes, 11/15/17.)[7] Counsel was encouraged to work together in good faith to resolve that final issue, and the entire motion, without further intervention by the Court. A hearing was set for December 5, 2017, in the event the parties could not resolve their differences.

         On November 30, 2017, the parties filed a joint status report indicating their inability to resolve their differences, the need to proceed with the hearing, and a request to file supplemental briefs. These supplemental briefs finally supplied some legal arguments and case law in support of the parties' respective positions. OHHA argued that the emergency motion “seeks to modify an injunction, an interlocutory order, and an agreement between the parties, and it must be evaluated under the proper legal standard.” (Pl. Suppl. at 19676 (citing M-Audits, LLC v. HealthSmart Benefit Solutions, Inc., No. 1:15-cv-1433, 2017 WL 1199033, at *4 (N.D. Ohio Mar. 31, 2017); Gooch v. Life Investors Ins. Co. of Am., 672 F.3d 402, 414 (6th Cir. 2012); Toledo Area AFL-CIO Council v. Pizza, 907 F.Supp. 263, 265 (N.D. Ohio 1995)).) NPA argued that, the only reason it is before the Court on its emergency motion, ...

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