United States Court of Appeals For the First Circuit

No. 20-1512

STERLING SUFFOLK RACECOURSE, LLC,

Plaintiff, Appellant,

v.

WYNN RESORTS, LTD.; WYNN MA, LLC; STEPHEN WYNN; KIMMARIE SINATRA; MATTHEW MADDOX; FBT EVERETT REALTY, LLC,

Defendants, Appellees,

PAUL LOHNES,

Defendant.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Patti B. Saris, District Judge]

Before

Lynch, Thompson, and Barron, Circuit Judges.

Steven Storch, with whom Edward Dolido, Storch Byrne LLP, David A. Russcol, Inga S. Bernstein, and Zalkind Duncan & Bernstein LLP were on brief, for appellant. Peter A. Biagetti, with whom Samuel M. Starr, Mintz, Levin, Cohn, Ferris, Glovsky, and Popeo, P.C., Mark Holscher, and Kirkland & Ellis LPP were on brief, for appellees Wynn Resorts Ltd., Wynn MA, LLC, and Matthew Maddox. Aaron M. Katz, with whom Joshua S. Levy, Ropes & Gray LLP, Christopher Weld, Christian Kiely, and Todd & Weld LLP were on brief, for appellee FBT Everett Realty, LLC. James N. Kramer, with whom Douglas H. Meal, Christine E. Hanley, and Orrick, Herrington & Sutcliffe LLP were on brief, for appellee Kimmarie Sinatra. Joshua C. Sharp, with whom Brian T. Kelly and Nixon Peabody LLP were on brief, for appellee Stephen Wynn.

March 3, 2021

- 2 - LYNCH, Circuit Judge. In 2014, the Massachusetts Gaming

Commission (the "Commission") granted a gaming license pursuant to

state law to Wynn MA, LLC, a wholly owned subsidiary of Wynn

Resorts, Ltd. (collectively "Wynn"). That license said Wynn would

construct a casino in Everett, Massachusetts. Mohegan Sun

Massachusetts ("Mohegan") was the disappointed alternative

applicant. Mohegan had proposed a casino facility in East Boston.

Sterling Suffolk Racecourse, LLC ("Sterling"), which owned that

East Boston site, was also disappointed by the Commission's

licensing decision.

On September 17, 2018, Sterling brought this action

under the civil portion of the Racketeer Influenced and Corrupt

Organizations Act ("RICO"),

(c), against: (1) Wynn

MA, LLC, (2) Wynn Resorts, Ltd., (3) Stephen Wynn, the founder and

former CEO of Wynn Resorts, (4) Kimmarie Sinatra, the former

General Counsel and Executive Vice President of Wynn Resorts, (5)

Matthew Maddox, the former Wynn Resorts President and CFO and its

current CEO, and current President and Treasurer of Wynn, MA, and

(6) FBT Everett Realty, LLC, the owner of the Everett site for the

Wynn casino. Sterling alleged these parties conspired to deprive

- 3 - Mohegan of a gaming license, costing Sterling the opportunity to

lease its East Boston property to Mohegan.1

The district court granted defendants' motion to

dismiss. Sterling Suffolk Racecourse, LLC v. Wynn Resorts, Ltd.,

, 196 (D. Mass. 2019). We conclude that the

case was properly dismissed, but for different reasons. Sterling

has not and cannot meet the causation of injury requirements set

forth at

(c).

I.

The district court's memorandum opinion and order

comprehensively describes Sterling's allegations and the

Massachusetts gaming licensing process.2 Sterling Suffolk

Racecourse, LLC, 419 F. Supp. 3d at 180-89. Briefly, in 2011

Massachusetts created a competitive application process for

exclusive licenses to operate casinos in Massachusetts. An Act

1 Sterling also originally sued Paul Lohnes, who owned the largest stake in FBT Everett Realty, but it did not renew those claims in its amended complaint. 2 This court has also described the Massachusetts Gaming Act in two prior cases. In 2015, we affirmed the district court's dismissal of Caesars Entertainment, Inc.'s Fifth and Fourteenth Amendment challenges to the Massachusetts Gaming Commission's denial of its licensing application, which proposed building a casino at the same East Boston Sterling-owned site identified in the Mohegan application. Caesars Mass. Mgmt. Co., LLC v. Crosby,

(1st Cir. 2015) (Souter, J.). In KG Urban Enterprises, LLC v. Patrick,

(1st Cir. 2012), we affirmed the denial of a preliminary injunction seeking a declaration that the Massachusetts Gaming Act is unconstitutional under the Equal Protection Clause.

- 4 - Establishing Expanded Gaming in the Commonwealth, 2011 Mass. Acts

ch. 194 (largely codified at Mass. Gen. Laws ch. 23K). It gave

the Commission the authority to grant a single exclusive gaming

license for each of three regions in Massachusetts. Mass. Gen.

Laws ch. 23K §§ 2, 19. Under the Massachusetts law, applicants

must first show they meet the statutory and regulatory

qualifications to operate a casino. See id. § 19;

.01, 115.00. Then, in a second step, they must demonstrate

that their project better serves the interests of the local area

and the Commonwealth of Massachusetts compared to the proposals of

any other qualified applicants. See Mass. Gen. Laws ch. 23K § 15.

If none of the applications in a given region adequately

demonstrate their benefit to the local area and the Commonwealth,

state law directs the Commission not to approve any application.

Id. § 19(a).

In 2013 Mohegan and Wynn both applied for an exclusive

license to construct a casino in Eastern Massachusetts. Wynn

reached a tentative agreement with FBT Everett Realty, LLC to use

its Everett property for Wynn's proposed casino. Mohegan entered

into an agreement that it would in the future lease Sterling's

East Boston location if Mohegan won the exclusive license and other

conditions were met.

The Commission found that Wynn MA, LLC and Wynn Resorts

were qualified to operate a casino. It also found that the eleven

- 5 - individuals responsible for managing the project, including

defendants Stephen Wynn, Kimmarie Sinatra, and Matthew Maddox,

were qualified and had demonstrated good moral character. The

Commission made the same finding for Mohegan and the individuals

listed on its application. In a 35-page report, the Commission

then concluded Wynn's proposal better served the interests of the

local area and the Commonwealth. On or about November 7, 2014, it

granted Wynn a license and denied Mohegan's application.

Later, the Commission revoked Stephen Wynn's good

character determination, and imposed a 35 million dollar fine

against Wynn Resorts when sexual misconduct allegations against

Stephen Wynn came to light. None of the other individuals listed

on Wynn's application were affected, and the Wynn project continued

without Stephen Wynn's involvement.

Sterling subsequently brought this RICO action to

recover the rents and other revenues it alleged it would have

earned from a future lease from Mohegan had Mohegan been granted

the license. Sterling alleges that to meet the strict regulatory

requirements that Massachusetts places on casino operators,

defendants concealed the sexual misconduct allegations against

Wynn, failed to disclose the criminal records of project

participants, provided false or misleading information about the

true ownership of the project location, and paid kickbacks to local

officials. Sterling claims that if defendants had acted lawfully

- 6 - during the application process, the Wynn application would have

been denied and the Mohegan application likely would have been

approved. Assuming nothing triggered the provisions that excused

performance in Mohegan's agreement to lease Sterling's East Boston

site if Mohegan received the gaming license, Sterling states it

would then have earned at least $3.465 billion in rental revenue

over a period of 99 years.

The district court granted defendants' motion to dismiss

on the grounds that Sterling had failed to allege a continuous

pattern of racketeering behavior by any of the defendants.

Sterling Suffolk Racecourse, 419 F. Supp. 3d at 194-95. Sterling

brought this timely appeal.3

II.

This court "review[s] the grant of a motion to dismiss

de novo." Abdisamad v. City of Lewiston,

(1st

Cir. 2020) (quoting Starr Surplus Lines Ins. Co. v. Mountaire Farms

Inc.,

(1st Cir. 2019)). "We are not bound by

the district court's reasoning but, rather, may affirm an order of

dismissal on any ground evident from the record." MacDonald v.

3 Defendants moved to dismiss Sterling's appeal as untimely. Sterling filed this appeal 178 days after the district court's memorandum and order. The district court did not enter a separate judgment, so pursuant to Federal Rule of Appellate Procedure 4(a)(7)(A)(ii) the final judgment was entered 150-days after the memorandum and order. Sterling's appeal, filed 28 days later, was thus timely. Fed. R. App. P. 4(a)(1)(A).

- 7 - Town of Eastham,

(1st Cir. 2014) (citing Haley v.

City of Bos.,

(1st Cir. 2011)).

Because Sterling has failed to make a threshold showing

that it suffered any direct injury entitling it to RICO relief, we

affirm the dismissal of the complaint.

RICO allows a private civil claim by "[a]ny person

injured in his business or property by reason of a violation of

[the criminal RICO provisions]."

(c). Three

Supreme Court cases interpret "by reason of" to require that a

plaintiff in a civil RICO action show that the defendant's actions

were "not only . . . a 'but for' cause of [plaintiff's] injury,

but . . . the proximate cause as well." Holmes v. Sec. Inv. Prot.

Corp.,

(1992); see Hemi Group, LLC v. City of

N.Y.,

(2010) (citing Holmes,

); Anza v. Ideal Steel Supply Corp.,

(2006).

The "central question" in evaluating proximate causation in the

RICO context "is whether the alleged violation led directly to the

plaintiff's injuries." Anza,

.

The Supreme Court's most recent decision in this area,

Hemi, states, "[a] link [between the RICO predicate acts and

plaintiff's injuries] that is 'too remote,' 'purely contingent,'

or 'indirec[t]' is insufficient" to show proximate cause.

(quoting Holmes,

). This requirement

reflects "[t]he general tendency of the law, in regard to damages

- 8 - at least, . . . not to go beyond the first step."

at 10

(quoting Holmes,

). Relatedly, the Hemi court

found it highly "relevant to the RICO 'direct relationship'

requirement . . . whether better situated plaintiffs would have an

incentive to sue."

at 11-12 (citing Holmes,

-

70).

This court has identified in these Supreme Court cases

"three functional factors with which to assess whether proximate

cause exists under RICO." In re Neurontin Mktg. & Sales Pracs.

Litig.,

(1st Cir. 2013) (citing Holmes,

). These are (1) "concerns about proof" because

"the less direct an injury is, the more difficult it becomes to

ascertain the amount of a plaintiff's damages attributable to the

violation, as distinct from other, independent, factors,"

at

36 (quoting Holmes,

); (2) "concerns about

administrability and the avoidance of multiple recoveries," id.;

and (3) "the societal interest in deterring illegal conduct and

whether that interest would be served in a particular case,"

As to this third factor, "directly injured victims can generally

be counted on to vindicate the law . . . without any of the problems

attendant upon suits by plaintiffs injured more remotely."

(quoting Holmes,

).

Applying the Hemi analysis, it is clear that Sterling

has not sufficiently alleged a direct, non-contingent injury. See

- 9 -

. At minimum, Mohegan, which is not involved in

this suit, is a "better situated plaintiff[]" with "an incentive

to sue."

at 11-12 (citing Holmes,

). Mohegan

was Wynn's direct competitor for the gaming license. Sterling's

theory is that Wynn's wrongful conduct cost Mohegan the gaming

license, which in turn cost Sterling the benefit of a potential

lease with Mohegan. Any injury Mohegan suffered is necessarily

several steps closer to Wynn's allegedly wrongful conduct. By

attempting to recover directly from Wynn, Sterling's theory of

causation both "go[es] beyond the first step" of the injuries from

the alleged RICO scheme and is "purely contingent." Id. at 9, 10.

Sterling's claim "go[es] beyond the first step" of

injuries from the conspiracy because it is entirely derivative of

Mohegan's injury. Sterling is in the same position as any third-

party business which hoped for a major contract from the Mohegan

casino project, and lost that potential for business revenues when

Mohegan lost the application bid.4 This injury is at least as

4 Sterling argues that it is unique from other third-party businesses because it was closely connected to Mohegan's application and "the driving force" behind the Mohegan project. These arguments are meritless. The Commission's review of the Sterling site was the same as its review of other key vendors and employees. See Mass. Gen. Laws ch. 23K § 16. And nothing in the RICO Act or subsequent case law carves out an exception to the stringent proximate causation requirements for businesses that are highly motivated or financially reliant on doing business with the direct victim of the RICO conspiracy.

- 10 - remote from the alleged RICO conduct as the claims rejected in

Holmes, Anza, and Hemi. See Holmes,

(holding

that a Securities Investor Protection Corporation (SIPC) could not

recover under RICO for stock-manipulation scheme that bankrupted

broker-dealers, triggering a statutory requirement that SIPC meet

the broker-dealers' obligations to their customers); Anza,

(holding that a business could not recover against

its competitor for a scheme to defraud the New York State tax

authority that allowed the defendant to undercut the plaintiff's

prices); Hemi,

(holding that the City of New

York could not recover for online cigarette retailers' failure to

provide accurate tax information to the State of New York,

hindering New York City's efforts to collect taxes from cigarette

customers).

Moreover, any causal link between Wynn's conduct and

Sterling's lost rental income is "purely contingent." Holmes,

. Sterling's agreement with Mohegan imposed conditions

that may have excused performance regardless of whether Mohegan

obtained a license from the Commission. Mohegan was released from

any obligation to perform in the event of a "Material Adverse

Change" affecting the lease, including if construction took longer

than two years for any reason outside of its control, or if local

authorities other than the Commission refused to approve the

project.

- 11 - These problems with Sterling's theory of causation cause

it to fail under each of the three functional factors laid out in

In re Neurontin.

. Its claim raises difficult

issues of proof as to whether the conditions in Sterling's

agreement with Mohegan would have been satisfied in full. It also

presents a substantial risk of double recovery, because Mohegan

has more direct, less contingent potential claims. There were

surely others who also expected a substantial financial benefit

from the Mohegan project. And, as described, Mohegan, not

Sterling, is the "directly injured" party who can be "counted on

to vindicate the law . . . without any of the problems attendant

upon suits by plaintiffs injured more remotely."

(quoting

Holmes,

).

None of the Supreme Court or circuit case law that

Sterling cites support its argument that persons who do business

with an entity harmed by a RICO conspiracy may recover against the

conspirators. Rather, each simply states that in some

circumstances fraudulent statements to one party may directly and

exclusively financially injure another party. In Bridge v. Phoenix

Bond & Indem. Co.,

(2008), the Supreme

Court held that plaintiffs plausibly alleged that false statements

to the county treasurer regarding lien auctions injured the

counterbidders, not the treasurer. In In re Neurontin,

, and In re Celexa & Lexapro Marketing & Sales Practices

- 12 - Litigation,

(1st Cir. 2019), this court held there

was sufficient evidence that false marketing to doctors harmed the

insurance companies who paid for the ineffective prescriptions,

not the doctors who issued those prescriptions. These cases do

not support Sterling's claim of injury.

In these circumstances, Sterling cannot show a "direct

injury" from Wynn's actions, and so its RICO claims fail as a

matter of law.

III.

The judgment of the district court is affirmed.

- 13 -