Kewadin Casinos Gaming Authority has been ordered to pay $88.9 million to two separate investor groups over failed plans to build two retails casinos in Michigan.
KCGA made plans to build new casinos in New Boston and Lansing over a decade ago. However, the plans fell apart leading to lawsuits from JLLJ Development LLC and Lansing Future Development II LLC.
After years of court battles, Ingham County Circuit Court Judge Joyce Draganchuk made the ruling this past Tuesday.
What led to Kewadin Casino trial?
KCGA is the casino operator of the Sault Ste. Marie Tribe of Chippewa Indians. They run Kewadin Casinos, retail casinos located in Sault Ste. Marie, St. Ignace, Manistique, Christmas and Hessel.
In 2011, Kewadin was looking to expand to building retail casinos in New Boston (near Detroit Metropolitan Airport) and Lansing.
The two investor groups gave the tribe $9 million at the time to begin building the casinos.
While the tribe had acquired land to build the casinos, it was unable to place the land in trust with the U.S. Department of Interior, which denied the requests. To build an off-reservation casino, the Department of Interior must approve, thus the casinos could not be built.
The tribe then chose to sue the Department of Interior.
The U.S. District Court for the District of Columbia originally ruled in favor of the tribe. However, that ruling was reversed by the District of Columbia Court of Appeals.
Without either casino being built, both investment groups sought a return on the investment. The return never came from the KCGA, which led to the lawsuit.
Kewadin ruled to have lost sovereign immunity
With the KGCA unable to provide a satisfactory response to the investors’ requests, it led to the bench trial against the tribe.
The tribe filed a motion to dismiss the complaint. It challenged the court’s jurisdiction over a sovereign tribe.
It was determined by the circuit court that the tribe had waived its sovereign immunity when it entered into a contract agreement with the two investment groups.
The court ultimately entered an order of default against the Sault Ste. Marie Tribe of Chippewa Indians. It determined that the tribe was responsible for damages from a breach of contract and fraudulent misrepresentation.
Why does Kewadin have to pay $88.9 million?
In the lawsuit, the investment groups alleged that KCGA misrepresented their legal entitlement to the land. That misrepresentation is what led to the $9 million loan being placed.
Kewadin argued the contract agreement limited damages to operating profits and equipment. Without the casinos being built and functional, they couldn’t be liable for any amount exceeding the original amount.
However, judge Draganchuk found that the investor groups were entitled to damages for breach of contract and the misrepresentation.
CPA Robert Levine provided a calculated amount of lost profits the groups incurred due to potential shared revenue anticipated coming from the casinos being built.
Levin calculated that the two investment groups were entitled to $88.9 million based on those factors, along with interest.
Roughly $60 million of the total was for the unbuilt casino in New Boston, and $28.8 million for the unbuilt casino Lansing.
While the two investment groups have to be happy with the judge’s decision this week, the tribe is likely to appeal it.