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High court rules in favor of AG in casino case

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The Indiana Supreme Court has ruled in favor of the state's attorney general in a suit for constructive trust and unjust enrichment against a for-profit corporation receiving contributions from a casino, finding the trial court erred in dismissing the claims.

Showboat Marina Partnership received a riverboat casino license in East Chicago in 1997. Under the agreement with the city, Showboat agreed to contribute annually 3.75 percent of its adjusted gross receipts with portions of that percentage going to East Chicago, a non-profit education foundation, another non-profit community foundation, and to East Chicago Second Century Inc., a for-profit corporation. Between 1997 and June 2006, Second Century received nearly $16 million from the operation of the casino.

Starting in 1999, the casino went through several ownership changes, which the Indiana Gaming Commission approved. Second Century sought a declaratory judgment in 2005 that the newest owner would be required to make payments to the fund. The attorney general intervened, filing a counterclaim and cross-claim seeking imposition of a constructive trust for public benefit and an accounting of the money paid to Second Century. The trial court dismissed the AG's claims and the Indiana Court of Appeals affirmed.

In Wednesday's ruling in Gregory F. Zoeller, Indiana Attorney General v. East Chicago Second Century, Inc., et al., No. 49S02-0808-CV-437, the justices found the attorney general does have the authority to bring the case against Second Century. Whether Second Century qualifies as a public charitable trust is a respectable question, wrote Chief Justice Randall T. Shepard, but it isn't grounds for dismissal of the claims because Indiana Code Section 30-4-5-12, the trust code, covers multiple entities other than public charitable trusts.

"Given the broad common law and statutory authority conferred upon the Attorney General to protect the public interest in charitable and benevolent instrumentalities, we conclude that it was error to dismiss the Attorney General's counterclaim on grounds that Second Century is a for-profit corporation," he wrote.

A claim for unjust enrichment is available and actionable, the high court ruled, because Showboat entered into a local development agreement with East Chicago, but not one to which the AG or the state were parties. As such, the transaction doesn't bar the AG's claim for unjust enrichment, an equitable remedy. In addition, the agreement was a mode of implementing the casino's obligation to contribute to local economic development and the terms were intended to control the rights and duties of East Chicago and the casino licensee, wrote the chief justice. They weren't intended to control the rights of any non-parties.

Second Century argued the claim for imposition of a constructive trust is defective because the attorney general didn't make any allegations of fraud. While Indiana courts have said on occasion fraud is a prerequisite, the meaning of this isn't confined to fraud as one might define it for purposes of criminal law. Rather the remedy is available when there is standard fraud or breach of duty arising out of a confidential or fiduciary relationship, wrote the chief justice. In addition, the AG's allegations against Second Century state a claim for a constructive trust. The case is remanded for further proceedings on the merits.

In a statement released by the attorney general's office, Zoeller said the decision underscores the fundamental concept that a charitable trust is supposed to be used to benefit the general public, not enrich private individuals.

"The bottom line is that being a for-profit trust does not mean you are beyond the reach of the Office of the Attorney General or unaccountable," Zoeller said.

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