MTR GAMING GROUP, INC. v. ARNEAULT
Filing
23
MEMORANDUM OPINION AND ORDER: AND NOW, to wit, this 27th Day of September, 2012, for the reasons set forth in the accompanying Memorandum Opinion, IT IS ORDERED that the Motion to Dismiss 11 filed by Defendant Edson R. Arneault shall be, and here by is, GRANTED in part and DENIED in part, as follows: 1. Said motion is GRANTED as to Counts 1, 2, 4, and 5 of the Complaint and, accordingly, those counts shall be, and hereby are, DISMISSED without prejudice; 2. Said motion is GRANTED as to Count 6 of the Complaint and, accordingly, that count shall be, and hereby is, DISMISSED with prejudice; and 3. Said motion is DENIED as to Count 3 of the Complaint. IT IS SO ORDERED. Signed by Judge Sean J. McLaughlin on 09/27/2012. (kas)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
MTR GAMING GROUP, INC.,
Plaintiff,
v.
EDSON R. ARNEAULT,
Defendant.
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Case No. 1:11-cv-208-SJM
MEMORANDUM OPINION
McLAUGHLIN, SEAN J., District J.,
In this civil action, Plaintiff MTR Gaming Group,Inc. (―MTR‖) has sued its former
CEO, shareholder, and consultant -- Defendant Edson R. Arneault -- for alleged breach
of contract, tortious interference with a contract, and violations of Pennsylvania‘s Trade
Secrets Act. As the parties here are of diverse citizenship, this Court‘s jurisdiction is
premised upon 28 U.S.C. §1332.
Presently pending in this matter is Arneault‘s motion to dismiss the complaint
pursuant to Rule 12(b)(3) and/or Rule 12(b)(6) of the Federal Rules of Civil Procedure.
For the reasons that follow Arneault‘s motion will be granted in part and denied in part.
I.
STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 12(b)(3), a defendant may seek to dismiss
a case on the basis of improper venue. This rule is designed ―to protect the defendant
against the risk that a plaintiff will select an unfair or inconvenient place of trial.‖
Cottman Transmission Sys., Inc. v. Martino, 36 F.3d 291, 294 (3d Cir.1994) (quoting
Page 1 of 37
LeRoy v. Great W. United Corp., 443 U.S. 173, 183–184 (1979)). When deciding a
motion to dismiss under Fed. R. Civ. P. 12(b)(3), a court must accept as true the
allegations in the complaint, unless contradicted by the defendant's affidavits. Baker v.
Berman, Civil Action No. 09–1061, 2009 WL 3400941 at *2 (W.D. Pa. Oct. 21, 2009)
(citing Campanini v. Studsvik, Inc., CA No. 08–5910, 2009 WL 926975 (E.D. Pa. Apr. 6,
2009)). While the court may consider facts outside the complaint to determine the
proper venue, all reasonable inferences must be drawn in the plaintiff's favor. Id. (citing
Fellner v. Philadelphia Toboggan Coasters, Inc., CA No. 05–2052, 2005 WL 2660351
(E.D. Pa.Oct.18, 2005)).
Rule 12(b)(6) allows for the dismissal of a cause of action which, as a legal
matter, fails to state a claim upon which relief can be granted. In ruling upon a motion
to dismiss pursuant to this rule, ―all well-pleaded allegations of the complaint must be
taken as true and interpreted in the light most favorable to the plaintiffs, and all
inferences must be drawn in favor of them.‖ In re Avandia Marketing, Sales Practices
and Products Liability Litigation, --- F.3d ----, 2012 WL 2433508 at *3 (3d Cir. June 28,
2012) (citing McTernan v. City of York, 577 F.3d 521, 526 (3d Cir.2009)). In
adjudicating a Rule 12(b)(6) motion, we consider not only the complaint but also any
exhibits attached to the complaint, matters of public record, and undisputedly authentic
documents if the complainant's claims are based upon these documents. Mayer v.
Belichick, 605 F.3d 223, 230 (3d Cir.2010). If, after accepting all well-pleaded
allegations of the complaint as true, the plaintiff‘s claim(s) still lack facial plausibility,
then dismissal of the claim(s) is appropriate. Treasurer of New Jersey v. U.S. Dept. of
Treasury, 684 F.3d 382, ---- (3d Cir. 2012) (citing Warren Gen. Hosp. v. Amgen Inc.,
Page 2 of 37
643 F.3d 77, 84 (3d Cir. 2011); Fed. R. Civ. P. 12(b)(6)). See also Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555–56 (2007).
With the foregoing standards in mind, we discuss below the relevant background
facts, as gleaned from the complaint and other appropriate Rule 12(b)(6) materials.
II.
BACKGROUND
MTR is a Delaware corporation engaged in the gaming business with a satellite
office in Wexford, Pennsylvania. Among the gaming businesses which MTR owns and
operates is Presque Isle Downs & Casino (―PIDI‖), a racetrack and casino located in
Erie, Pennsylvania. (Complaint [1] at ¶ 1.)
Defendant Edson R. Arneault, currently a Florida resident, was the former CEO
and a significant shareholder of MTR from 1995 to 2008. (Complaint at ¶ 2, 7.) As
such, Arneault acquired knowledge of and access to MTR‘s confidential, proprietary
trade secrets. (Id. at ¶ 8.)
On or about April 21, 2008, Arneault advised MTR‘s Board that he did not intend
to continue as CEO after his then current employment contract expired at the end of
that year. (Complaint ¶ 9.) Upon stepping down as CEO, Arneault became a
consultant to MTR pursuant to a consulting agreement dated October 15, 2008
(hereinafter referred to as the ―Consulting Agreement‖). (Id. at ¶ 10 and Ex. 1.)
Paragraph 8 of the Consulting Agreement contained a non-compete clause which
placed certain restrictions on Arneault‘s participation in the gaming business for a period
of thirty months, or until April 30, 2011. (Id. at ¶ 11.) These restrictions applied within a
one-hundred fifty (150) mile radius of ―any current office, site and/or facility owned or
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leased by MTR…‖ (Id.) At some point, Arneault and MTR also entered into a deferred
compensation agreement (the ―Deferred Compensation Agreement‖). (Complaint Ex. 2
[1-3] at p. 1.)1
Disputes later arose between MTR and Arneault concerning the terms of the
Deferred Compensation Agreement, resulting in Arneault filing a lawsuit against MTR in
the Circuit Court of Hancock County, West Virginia (referred to herein as the ―West
Virginia Lawsuit‖). (Complaint Ex. 2 [1-3] at p. 1.) In February 2010, the parties entered
into a settlement agreement and release of claims (hereinafter, referred to as the
―Settlement Agreement‖), through which MTR and Arneault purported to ―finally and
completely … resolve, compromise and settle and any all claims related to the West
Virginia Lawsuit, the [Deferred Compensation Agreement] and, with the exceptions
contained in this [Settlement] Agreement, all claims under the Consulting Agreement.‖
(Complaint [1] at ¶ 12 and Ex. 2 [1-3] at p. 1.)
Under the terms of the Settlement Agreement, Arneault was paid $1.6 million in
full satisfaction of the claims and rights he had against MTR. (Complaint at ¶ 13; Ex. 2
at ¶ 2.2.) Relevantly, under the terms of the Settlement Agreement, the non-compete
clause contained in Paragraph 8 of the Consulting Agreement would remain in effect
until April 30, 2011, but ―the geographic limitations [would] be reduced to 100 miles.‖
(Complaint at ¶ 14; Ex. 2 at ¶ 2.3.)
Since at least September 10, 2010, Arneault has been a shareholder and
principal with an entity known as American Harness Tracks, LLC (―AHT‖). (Complaint
1
All pagination refers to the internal pagination appearing at the bottom of the referenced document, as
opposed to the Court‘s official CM/ECF page numbering located at the top of the page.
Page 4 of 37
¶15.) Public documents establish that AHT was formed on or about September 10,
2010 for the purpose of owning and operating a racetrack and casino in Lawrence
County, Pennsylvania – a distance within one hundred miles of MTR‘s racetrack and
casino businesses, including PIDI. (Id. at ¶ 16, 19.) AHT‘s business model includes,
among other things, a Category 1 slot machine facility and related gaming activities –
activities that MTR claims directly compete with its own gaming businesses. (Id. at ¶
20.) MTR alleges that, in establishing its gaming business in Lawrence County, AHT
has been using strategies, models, designs and plans developed by MTR, of which
Arneault had acquired knowledge through his prior relationship with MTR and to which
he had complete access while employed by MTR. (Id. at ¶ 18.)
On April 15, 2011, Arneault filed in this Court a civil case captioned Arneault, et
al. v. O’Toole, et al., Civil Action No. 1:11-cv-95-SJM (W.D. Pa.) (hereinafter, the ―Civil
Rights Action‖), naming as Defendants MTR, several current and former executives and
directors of MTR, MTR‘s subsidiary PIDI, and numerous public officials associated with
the Pennsylvania Gaming Commission. (Complaint ¶ 5.) Arneault‘s co-Plaintiff in the
Civil Rights Action was Gregory Rubino, a commercial real estate agent and developer
who is also President of Passport realty, LLC and Passport Development, LLC, located
in Erie County. (See generally Arneault, v. O’Toole, supra, Amended Complaint [50] at
¶¶ 2, 49-55.) In the Civil Rights Action, Arneault and Rubino asserted causes of action
against the MTR Defendants for alleged conspiracy to violate the Plaintiffs‘ civil rights as
well as for unjust enrichment and promissory estoppel. (See id. at ¶¶ 417-50.)
MTR commenced the instant lawsuit on September 16, 2011 based on Arneault‘s
prosecution of the Civil Rights Action and his involvement with AHT. MTR‘s complaint
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includes the following six causes of action: a claim for breach of contract premised
upon Arneault‘s alleged violation of the non-compete clause in the Consulting
Agreement as amended by the Settlement Agreement (Count 1); a claim for breach of
contract premised upon Arneault‘s alleged violation of the covenant not to sue
contained in the Settlement Agreement (Count 2); a claim for tortious interference with a
contractual relationship premised upon Arneault‘s alleged involvement in soliciting
Rubino to join in the Civil Rights Action (Count 3); a claim for breach of contract
premised upon Arneault‘s alleged violation of the non-disclosure and confidentiality
clauses of the Settlement Agreement (Count 4); a claim for breach of contract premised
upon Arneault‘s alleged violation of the non-disparagement clause contained in the
Settlement Agreement (Count 5); and a claim for the alleged violation of Pennsylvania‘s
Trade Secrets Act premised upon Arneault‘s activities while associated with AHT (Count
6).
Presently pending before me is Arneault‘s motion to dismiss the complaint
pursuant to Rules 12(b)(3) and/or 12(b)(6) of the Federal Rules of Civil Procedure. In
support of this motion, Arneault has argued that this Court is not the proper venue for
purposes of litigating Counts 1, 2, 4 and 5 of the complaint and that, in any event, all of
MTR‘s claims are barred by virtue of a release provision contained in the Settlement
Agreement. Arneault has also challenged the sufficiency of MTR‘s allegations as it
pertains to various individual counts. The matter has been fully briefed and argued and
is ripe for disposition.
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III.
DISCUSSION
A. Arneault‘s Motion to Dismiss Counts 1, 2, 4 and 5 Based on Improper Venue
Arneault claims that the forum selection clause in the Settlement Agreement requires
dismissal of Counts 1, 2, 4 and 5 because the proper venue for these counts is in the
state court of Hancock County, West Virginia. Paragraph 4.4 of the Settlement
Agreement provides, in relevant part, that ―[a]ny dispute arising from this agreement
shall be interpreted pursuant to the laws of West Virginia and venue shall exclusively
vest with the Circuit Court of Hancock County, West Virginia.‖ (Complaint Ex. 2 [1-3] at
¶ 4.4.) Arneault contends that Counts 1, 2, 4 and 5 arise out of the Settlement
Agreement and are therefore controlled by the Agreement‘s forum selection clause.
MTR agrees that Counts 2, 4 and 5 arise out of the Settlement Agreement but it
maintains that the forum selection clause is not controlling here.
In federal cases premised on diversity jurisdiction, the effect to be given a
contractual forum selection clause is determined by federal law rather than by state law
because ―[q]uestions of venue and the enforcement of forum selection clauses are
essentially procedural, rather than substantive, in nature.‖ Jumara v. State Farm Ins.
Co., 55 F.3d 873, 877 (3d Cir. 1995) (quoting Jones v. Weibrecht, 901 F.2d 17, 19 (2d
Cir.1991)). Under federal law, forum selection clauses are entitled to ―great weight‖ and
are presumptively valid. Wall Street Aubrey Golf, LLC v. Aubrey, 189 Fed. Appx. 82, 85
(3d Cir. 2006) (citing cases). Of ―paramount‖ importance is ―the intent of the parties.‖
Id. (citation omitted).
Our Circuit Court of Appeals has instructed that we should ―determine contractual
waiver of federal jurisdiction using the same benchmarks of construction as we employ
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in resolving all preliminary contractual questions.‖ Cowatch v. Sym-Tech Inc., 253 Fed.
Appx. 231, 232 (3d Cir. 2007) (citing Foster v. Chesapeake Ins. Co., 933 F.2d 1207,
1217 n. 15 (3d Cir. 2007)). More specifically, ―[w]e ascertain the intent of the parties to
a written agreement from the writing itself, and where the words contained in the
agreement are clear and unambiguous, we enforce them.‖ Id. (citing Martin v.
Monumental Ins. Co., 240 F.3d 223, 232-33 (3d Cir.2001)). Further, ―[w]e will consider
extrinsic evidence only where the language of the agreement itself is ambiguous.‖ Id.
(citing Mellon Bank, N.A. v. Aetna Bus. Credit, Inc., 619 F.2d 1001, 1010 n. 9 (3d
Cir.1980)).
Here, the plain language of the forum selection clause contemplates that, as to
claims arising from the Settlement Agreement, ―venue shall exclusively vest with the
Circuit Court of Hancock County, West Virginia.‖ MTR does not contend that this
phrase is ambiguous in its meaning.2 Instead, MTR contends that the forum selection
clause should not be given effect, either because Arneault improperly invoked Federal
Rule 12(b)(3) rather than Rule 12(b)(6) or because the clause has been waived by
virtue of Arneault‘s commencement of the Civil Rights Action in this Court.
We may dispose of MTR‘s first objection rather summarily. MTR accurately
notes that, when a forum selection clause specifies only a non-federal forum as the
appropriate venue, transfer of the claim under 28 U.S.C. §§ 1404 or 1406 is
unavailable, dismissal is the only appropriate remedy, and Rule 12(b)(6) provides a
2
Because the phrase is clear and unambiguous, our interpretation of the clause and our analysis of its
effect as to Counts 1, 2, 4 and 5 would not differ whether we apply federal principles of contract
interpretation or West Virginia law.
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proper mechanism for effectuating such a dismissal. See Wall Street Aubrey Golf, LLC,
v. Aubrey, 189 Fed. Appx. 82, 84 n. 1 (3d Cir. 2006); Salovaara v. Jackson Nat’l Life
Ins. Co., 246 F.3d 289, 298-99 (3d Cir. 2001). However, as the Court observed in
Salovaara, there has been ―much disagreement over whether dismissal (where
appropriate) should be made pursuant to Fed. R. Civ. P. 12(b)(1), 12(b)(3), or 12(b)(6).‖
246 F.3d at 298 n. 6 (citing cases). See also 5B Charles A. Wright & Arthur R. Miller,
Federal Practice & Procedure § 1352 at 318-19 (3d ed. 2004) (―The courts of appeal are
split as to whether dismissal of [an] action is proper pursuant to Rule 12(b)(3) or Rule
12(b)(6) when it is based on [a] forum selection clause rather than on noncompliance
with a federal venue statute; most of the decided cases use the former rule as the basis,
however.‖). I find that denial of Arneault‘s motion based solely on his invocation of Rule
12(b)(3) rather than Rule 12(b)(6) would unduly elevate form over substance. Instead, I
will construe his motion as essentially seeking dismissal of Counts 1, 2, 4 and 5
pursuant to either subsection of Rule 12(b) based on the language of the forum
selection clause.
This brings me to MTR‘s more substantive objection, which is its claim that
Arneault has waived his contractual right to enforce the forum selection clause by virtue
of having filed the Civil Rights Action in this Court. MTR posits that a forum selection
clause will be disregarded where enforcement would be ―unreasonable‖ under the
circumstances. Such unreasonableness, according to MTR, includes situations ―where
a party has waived its right to enforce the clause by its conduct or action.‖ (MTR
Gaming Group‘s Br. in Opp. To Arneault‘s Mot. to Dismiss the Complaint [13] at p. 13.)
MTR believes that the claims asserted against it by Arneault in the Civil Rights Action
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arose out of the Settlement Agreement such that they should have been filed in the
Circuit Court of Hancock County, West Virginia. Because Arneault asserted those
claims in federal district court in Erie, Pennsylvania, MTR reasons, Arneault has waived
any contractual right to litigate in Hancock County the pending breach of contract claims
arising out of the Settlement Agreement. I find this argument unconvincing.
The Supreme Court has held that forum selection clauses are ―prima facie valid
and should be enforced unless enforcement is shown by the resisting party to be
‗unreasonable‘ under the circumstances.‖ Bremen v. Zapata Off-Shore Co., 407 U.S. 1,
10 (1973). See also Foster v. Chesapeake Ins. Co., Ltd., 933 F.2d 1207, 1219 (3d Cir.
1991). ―A forum selection clause is ‗unreasonable‘ where the defendant can make a
‗strong showing‘ … either that the forum thus selected is ‗so gravely difficult and
inconvenient that he will for all practical purposes be deprived of his day in court, …or
that the clause was procured through ‗fraud or overreaching.‘‖ Foster, 933 F.2d at 1219
(quoting Bremen, supra, at 15, 18) (internal citations omitted). See also MoneyGram
Payment Systems, Inc. v. Consorcio Oriental, S.A., 65 Fed. Appx. 844, 846 (3d Cir. May
21, 2003) (―a forum selection clause is presumptively valid and will be enforced by the
forum unless the party objecting to its enforcement establishes (1) that it is the result of
fraud or overreaching; (2) that enforcement would violate strong public policy of the
forum; or (3) that enforcement would in the particular circumstances of the case result in
jurisdiction so seriously inconvenient as to be unreasonable.‖)(quoting Coastal Steel
Corp. v. Tilghman Wheelabrator, Ltd., 709 F.2d 190, 202 (3d Cir. 1983)). None of the
aforementioned circumstances is alleged to exist here.
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In support of its argument that a party‘s conduct can constitute grounds for
disregarding a forum selection clause, MTR cites American Int’l Group Europe S.A.
(Italy) v. Franco Vago Int’l, Inc., 756 F. Supp. 2d 369 (S.D.N.Y. 2010); Building
Construction Enterprises, Inc. v. Garry Meadows Construction Co., Inc., No. 3:06-CV-92
GTE, 2007 WL 1041003 (E.D. Ark. April 4, 2007); Unity Creations, Inc. v. Trafcon
Industries, Inc., 137 F. Supp. 2d 108 (E.D.N.Y. 2001); In Rationis Enterprises, Inc. of
Panama, No. 97 CV 9052 (RO), 1999WL6364 (S.D.N.Y. 1999), and Building Services
Inst. (“BSI”) v. Kirk Williams Servs. Co., 2008 WL 747657 (Oh. 2008). None of these
cases represent controlling law within this judicial district.3
However, even if these cases articulate a principle that would be recognized in
this circuit, I find that the waiver rule would be inapplicable given the facts presented
here. As MTR acknowledges, ―[w]aiver is a voluntary relinquishment of a known right,
and can occur when a party intentionally acts in a manner inconsistent with claiming
that right.‖ (MTR‘s Br. in Opp. to Arneault‘s Mot. to Dismiss [13] at 14) (citing cases). In
the rulings cited by MTR, the basis for inferring a voluntary relinquishment of the
contractual venue ―right‖ was clear because the plaintiff was suing directly upon a
contract containing a forum selection clause but the suit was brought in a venue not
3
MTR also relies on Vangura Kitchen Tops, Inc. v. C & C North America, Inc., No. 08cv1011, 2008 WL
4540186 (W.D. Pa. Oct. 7, 2008). Although that decision was issued by a sister court within the Western
District of Pennsylvania, it does not discuss or apply the waiver principle at issue here. In Vangura, the
district court rejected application of a forum selection clause laying venue in the federal district court in
Minnesota based on its analysis under 28 U.S.C. §1404(a) – a provision which does not pertain here
because transfer of the present case to a nonfederal forum under § 1404 is not an option. Ultimately, the
court in Vangura concluded that the forum selection clause should not be given dispositive effect because
Pennsylvania was ―by far, the most appropriate venue in which to proceed,‖ while Minnesota ―ha[d] little
or nothing to do with th[e] case, other than being a passive repository of federal court venue‖ by virtue of
the subject forum selection clause. 2008 WL 4540186 at *1 and 11. The same could not be said of the
West Virginia circuit court as it pertains to this case. Thus, I do not view Vangura as supportive of MTR‘s
waiver argument.
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contemplated by the clause. When a party chooses to file suit upon a contract in an
unauthorized venue in direct contravention to the contract‘s forum selection clause, it is
not surprising that courts would infer the party‘s abandonment of its rights under the
forum selection provision. See, e.g., Unity Creations, Inc., 137 F. Supp. 2d at 111 (―In
New York, when a party disregards a forum selection clause and sues on a contract in
an unauthorized forum, it waives the forum selection clause on the claims it pursues.‖);
Building Construction Enterprises, Inc., 2007 WL 1041003 at *4 (plaintiff waived its right
to have action adjudicated in forum designated by forum selection clause where it
elected to file suit for breach of the subject contract in another forum); Building Services
Institute, 2008 WL 747657 at *2 (same).4
In this case, however, the connection between Arneault‘s claims in the Civil
Rights Action and the Settlement Agreement are much more attenuated. The operative
pleading in the Civil Rights Action – the amended complaint5 -- chiefly asserted claims
under 42 U.S.C. §1983 against various officials employed by the Pennsylvania Gaming
Commission for alleged violations of the plaintiffs‘ federal constitutional rights. See
Arneault v. O’Toole, 1:11-cv-95-SJM (W.D. Pa.) Amended Complaint [50]. We
4
American Int’l Group Europe S.A. (Italy) v. Franco Vago Int’l, Inc. 756 F. Supp. 2d 369 (S.D.N.Y. 2010)
involved extenuating circumstances not present here – namely, the defendant‘s failure to assert the forum
selection clause during the first eleven months of litigation and its attempt to assert the forum selection
clause against a shipper and its subrogee who were not bound by the bill of lading containing the clause.
Similarly distinguishable is In re Rationis Enterprises, Inc. of Panama, No. 97 CV 9052(RO), 1999 WL 6364
(S.D.N.Y. Jan. 7, 1999), wherein the court declined to enforce a forum selection clause largely because of the
complexity and scope of the litigation. See id. at *3 (―Unjustifiably giving effect to all of the various forum
clauses in a cargo situation of this complexity and global magnitude would fragment this case beyond
recognition.‖) Thus, I do not view these decisions as providing meaningful support for the doctrine of
waiver in the case at bar.
5
By Memorandum Opinion and Order entered on March 28, 2012 [84], I dismissed Arneault‘s federal
claims in their entirety pursuant to Federal Rule of Civil Procedure 12(b)(6) for reasons having nothing to
do with the merits of this action. Arneault‘s state law claims were dismissed without prejudice to be
asserted in state court. See Arneault v. O’Toole, --- F.Supp.2d ----, 2012 WL 1038814 (W.D. Pa. March
28, 2012).
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previously summarized the basis of Arneault‘s complaints against the government
officials thus:
Arneault's primary complaint against the Government Defendants, however, concerns
various actions taken by the [Pennsylvania Gaming Commission Board] and the [Bureau of
Investigation and Enforcement] Defendants in connection with Arneault's attempt to renew his
gaming license. As of April 2008, Arneault was still serving as CEO of MTR and Chairman of
its Board of Directors. Accordingly, on April 21, 2008, he filed an application to renew his
Category 1 Gaming License as an officer, director and principal shareholder of MTR— a
license which had originally been approved by the PGCB on June 10, 2007. (AC ¶¶ 171–73.)
As of October 31, 2008, however, Arneault had voluntarily retired as an officer,
director or employee of MTR. He continued to serve as a consultant to MTR from November
1, 2008 until February 17, 2010 (AC ¶¶ 174–75), but by March of 2010, Arneault was no
longer serving as a consultant to MTR and his stock ownership in the Company had fallen to
less than 5 percent of MTR's total outstanding shares. ( Id. at ¶ 175.)
Nevertheless, the PGCB continued to treat Arneault as a ―principal‖ of PIDI with
respect to licensing matters. After PIDI had filed an application to renew its gaming license on
December 29, 2008, the PGCB continued to require that Arneault also maintain his license as
a ―principal‖ of PIDI. (AC ¶¶ 173, 176, 288.)
Meanwhile, after Arneault had filed his application for license renewal in April of 2008,
the Western Regional Office of the BIE (―BIE–West‖) prepared a Report of Investigation
(―ROI‖) dated May 21, 2008 in which, Plaintiffs claim, BIE–West ―intentionally and improperly
found falsehoods to contest the suitability of Mr. Arneault to be renewed for licensure and to
recommend the denial of Mr. Arneault's Principal license renewal.‖ (AC ¶ 178.)
One of these alleged falsehoods involved the accusation that Arneault had provided
false and misleading information to the BIE concerning Charlie Sack, a Las Vegas gaming
executive who had had prior legitimate business dealings with both MTR and Tecnica. (AC ¶¶
182–84, 186.) Plaintiffs claim that, after their business relationships with Sack ended, Sack
began an ―unrelenting campaign with the PGCB to get even‖ with Plaintiffs. (AC ¶ 185.) This
resulted in Sack providing Brletic false information that MTR and PIDI had used Tecnica as a
conduit to funnel illegal payments to Sack. (Id.) According to Plaintiffs, the BIE—and
particularly Brletic—had information indicating that Sack lacked credibility and should not be
relied upon as a witness, and Brletic also had received unverified information that Sack might
have ties to organized crime. (AC ¶¶ 187–89.) Nevertheless, Plaintiffs claim, Sack and Brletic
had an understanding whereby ―Sack would tell the story about Arneault and Rubino that the
PGCB wanted to hear, and Defendant Brletic would reciprocate by placing Sack in a highprofile executive position with another PGCB licensee ...‖ (AC ¶ 190.)
Also contributing to these false allegations, Plaintiffs allege, was information
unlawfully obtained and provided to the BIE agents by Defendant Ambrose. According to
Plaintiffs, Ambrose came into possession of certain proprietary information that had been
misappropriated from Tecnica and Rubino via a former employee. This included records from
Tecnica and Rubino that accounted for legitimate payments to Sack as well as various legal
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and contractual payments from MTR and PIDI to Tecnica for real estate development and
management services rendered. (AC ¶¶ 192–93; see also id. at ¶¶ 94–117.)
Plaintiffs aver that, based upon various misrepresentations made by Sack, Ambrose,
and others, and without any independent verification or consultation with Plaintiffs, BIE
adopted the view that the payments from MTR to Tecnica were a sham intended to cover up a
continuing illicit relationship between MTR and Sack and that Arneault had given perjured
statements concerning these payments. (AC ¶ 194.) Plaintiffs insist there was no legitimate
reason for the Government Defendants to question MTR's and Tecnica's respective
relationships with Sack because: (i) Sack's relationship with those companies had expired
prior to the enactment of the Pennsylvania Race Horse Development Act; (ii) Sack's
relationship with MTR and Tecnica were legal and commercially reasonable in all respects;
and (iii) Sack's relationships with MTR and Tecnica had previously been reviewed and
approved by the Nevada Gaming Commission. (AC ¶ 195.)
Nonetheless, based upon the information contained in BIE–West's ROI, the PGCB's
Office of Enforcement Counsel issued a notice of recommendation that Arneault's license
renewal application be denied (the ―Recommendation of Denial‖). (AC ¶ 179.) This
Recommendation of Denial, dated January 22, 2010, declared that ―the BIE background
investigation revealed inaccuracies or inconsistencies between the statements [Arneault]
made to investigators and the Board which called into question [his] character, honesty and
integrity.‖ (AC ¶ 180.) The Recommendation of Denial indicated twelve ―areas of concern‖
relative to Arneault's suitability for licensure. ( Id.)
Arneault subsequently requested a hearing on the Recommendation of Denial, and a
hearing date was set for May 20, 2010. (AC ¶¶ 196, 213.) …
***
Eventually, hearings on Arneault's appeal of the Recommendation of Denial were held
on May 20, 21, 24, 25, and 26 of 2010. (AC ¶ 235.) According to the Amended Complaint,
Arneault demonstrated in the course of those hearings that certain BIE–West agents had
intentionally failed to conduct a fair and impartial investigation of his suitability for licensure
and, in fact, had conducted a biased and unfair investigation resulting in the unsupportable
recommendation that Arneault be stripped of his gaming license. ( Id. at ¶ 236.) Plaintiffs aver
that, during the course of the hearings, Chief Enforcement Counsel Pitre and ―certain other
Government defendants‖ concluded that BIE–West had intentionally and improperly targeted
Arneault, principally through the Recommendation of Denial and reports authored by Brletic.
(Id. at ¶ 237.) Pitre thus sought to bring the licensing hearing to an immediate conclusion that
would avoid publication of the BIE agents' wrongful conduct by initiating a settlement
conference with Arneault's counsel and Defendants O'Toole and Sherman. (AC ¶ 238.)
***
Meanwhile, Plaintiffs contend, news of the January 22, 2010 Recommendation of
Denial has been widely reported by various media outlets and distributed over the internet,
causing damage to Arneault's reputation as well as lost business opportunities in the gaming
industry. (AC ¶¶ 248–51.)
Page 14 of 37
See Arneault v. O’Toole, --- F. Supp. 2d ---, 2012 WL 1038814 at *8-10 (W.D. Pa. Mar.
28, 2012.)
Insofar as the MTR Defendants were concerned, we summarized the factual
underpinnings of Arneault‘s claims as follows:
… On or about February 1, 2010, Arneault's attorney in the licensing matter contacted
Defendant Rodriguez-Cayro and requested that MTR provide him certain information related
to the matters at issue in Arneault's appeal of the Recommendation of Denial. (AC ¶ 197.)
Thereafter, Plaintiffs allege, and for a period of several months leading right up to the
May 2010 licensing hearing, Defendant Rodriguez–Cayro delayed and stonewalled Arneault in
his attempts to obtain documents and depositions of MTR employees that were relevant to his
licensing hearing. (AC ¶¶ 198–221.) To the extent Rodriguez–Cayro did provide
documentation to Arneault's counsel, he made clear that copies would also be shared with the
opposing counsel at the OEC. (AC ¶ 204.) Plaintiffs claim that Arneault ultimately had to
obtain the vast majority of relevant documentation from Rubino and his companies at great
effort and expense to Arneault. ( Id. at ¶¶ 222–27, 230–34.) They further assert that most, if
not all, of the documents provided by Tecnica and Rubino were in the care, custody, and
control of MTR/PIDI and Defendants Griffin, Hughes, Bittner, Azzarello, Rodriguez–Cayro, and
MTR's legal counsel, but these documents were intentionally withheld from Arneault. ( Id. at ¶
228.)
Arneault v. O‘Toole, supra, at *10. As for the motives of the MTR Defendants in
allegedly conspiring with the Defendant gaming officials, we summarized Arneault‘s
theory this way:
… In broad brush, Plaintiffs aver that Arneault had a falling out with MTR as a result of several
developments. One factor, they allege, was the effort of Defendants Hughes (MTR's Chief
Financial Officer) and Defendant Azzarello (MTR's Human Resource Director) to purge MTR
employees that were perceived as being loyal to Arneault following his departure from the
company. (AC ¶¶ 254–55.) Another factor, Plaintiffs claim, was the cumulative effect of
Defendant Ambrose's campaign against Arneault and Rubino, which stemmed from collateral
matters and which resulted in a ―tectonic shift‖ in the way certain MTR Board members,
attorneys, and PGCB staff members viewed Arneault. ( Id. at ¶ 256.) Plaintiffs claim that this
shift in attitude on the part of MTR is demonstrated by the way the company failed to honor
the terms of its deferred compensation agreement with Arneault. ( Id. at ¶¶ 257–61.)
Plaintiffs also posit another motive for MTR's alleged conspiratorial activities: after
rumors began to circulate sometime in 2009 that Arneault might be plotting a return to an
active role in the company, Defendants Griffin, Hughes, Azzarello, and Rodriguez–Cayro
became particularly motivated to prevent Arneault's return because they knew Arneault would
not tolerate their practice of submitting incomplete and misleading financial disclosures to the
Page 15 of 37
investing public and regulators. ( Id. at ¶¶ 263–68.) According to Plaintiffs, MTR has played
―fast and loose‖ with its reporting obligations by failing to disclose that: (i) PIDI's gaming
license renewal application has been pending for some 26 months and (ii) the license renewal
application has been objected to by Rubino relative to the continued pendency of SOC 58 as a
condition of PIDI's gaming license. ( Id. at ¶¶ 264–68, 269.) In Plaintiffs' view, MTR's postArneault financial disclosures ―cannot be properly stated unless there is a financial disclosure
relating to the genuine risk that PIDI's gaming license may not be renewed‖ ( id. at ¶ 266
(footnote omitted)), yet the PGCB has tacitly condoned MTR's practices by failing to require
the company to make these material disclosures. (Id. at ¶ 269.)
Plaintiffs aver that various officers, attorneys, agents and employees of MTR and PIDI
knew that they were in custody of documentation that would undermine the false claims made
by Charles Sack and demonstrate the legitimacy of the monthly $13,000 fees MTR was to pay
Tecnica under the consulting agreement entered into by those companies. (AC ¶¶ 275–83.)
Nevertheless, Plaintiffs contend, these Defendants failed to produce these documents or
otherwise support Arneault against the PGCB and BIE Defendants because they wanted to
curry favor with and intentionally help the Government Defendants and at the same time
prevent Arneault from returning to MTR and ―clean[ing] house.‖ (AC ¶ 284.)
Arneault v. O‘Toole, supra, at *11-12.
Based on the foregoing allegations, Arneault asserted two separate causes of
action against the MTR Defendants. First, in Count 7 of the Amended Complaint,
Arneault and Rubino asserted a joint claim against the MTR Defendants pursuant to 42
U.S.C. § 1983 under the theory that the MTR Defendants had conspired with the
gaming official Defendants to violate the First Amendment and Fourteenth Amendment
due process rights of Arneault and Rubino. Insofar as Arneault was concerned, the
basis of the claim was the MTR Defendants‘ alleged failure to make requested
discovery available to Arneault during the run-up to Arneault‘s May 2010 hearings
relative to the appeal of the BIE‘s Recommendation of Denial on his gaming license.
Because this particular claim sounded in federal tort law, it cannot be said to
have arisen out of the Settlement Agreement. Moreover there is no doubt that venue
was properly laid in this Court, since MTR and PIDI were both subject to personal
jurisdiction here and since many of the acts giving rise to the plaintiffs‘ claims were
Page 16 of 37
alleged to have occurred within this district. Furthermore, the U.S. District Court of the
Western District of Pennsylvania has a stronger interest than the state courts of West
Virginia would have had in vindicating the alleged violations of federal civil rights
occurring within this district. Thus, there is no basis for concluding that Arneault‘s
federal civil rights claim against MTR should have been brought in Hancock County,
West Virginia.
MTR makes much of the fact that Arneault appended the Settlement Agreement
to the Amended Complaint and referenced it in his allegations, even to the point of
quoting a provision ostensibly imposing upon MTR a duty to ―permit Arneault access to
non-privileged, non-confidential documents and information that he may reasonably
require in defense of any claim asserted by State Bodies, Law Enforcement Agencies
and Administrative Agencies, and/or required for any state gaming licensure.‖
(Amended Complaint ¶ 262.) At most, this allegation served only to show that MTR
potentially had a duty under state law to produce the requested documents but, even
so, such an averment was not material to Arneault‘s §1983 conspiracy claim,6 and
therefore it did not create any dispute that could be said to ―arise from‖ the Settlement
Agreement. This is particularly true given Arneault‘s assertion that the MTR
6
To successfully assert a claim of civil conspiracy under § 1983, the plaintiff must establish ―a
combination of two or more persons acting in concert to commit an unlawful act, or to commit a lawful act
by unlawful means, the principal element of which is an agreement between the parties to inflict a wrong
against or injury upon another, and an overt act that results in damage.‖ Jones v. Dalton, --- F. Supp. 2d
---, 2012 WL 1134895 at *9 (D.N.J. April 3, 2012) (quoting Adams v. Teamsters, 214 Fed. Appx. 167, 172
(3d Cir.2007)). Here, the ―overt act‖ committed by the MTR Defendants was presumably the withholding
of requested discovery; however, there is no requirement for §1983 purposes that the ―overt act‖ be an
illegal one. Rather, the unlawfulness arises from the conspirators‘ agreement to violate the federal rights
of the plaintiff. Therefore, even if the MTR Defendants had no actual obligation pursuant to the
Settlement Agreement to produce the requested discovery, Arneault could still assert that their alleged
stonewalling was an overt act that furthered their agreement with the Defendant gaming officials to
deprive Arneault of his federal civil rights.
Page 17 of 37
Defendants‘ duty to produce the requested discovery arose from alternative sources
separate and apart from the Settlement Agreement – namely, (i) Arneault‘s status as a
licensee of the Pennsylvania Gaming Commission Board whose renewal application
was being processed on behalf of PIDI‘s own Category 1 license and/or (ii) the
corporate officers‘ fiduciary obligations to MTR‘s shareholders. (See Arneault v.
O‘Toole, Amended Complaint ¶ 421.)
Arneault‘s second cause of action against the MTR Defendants in the Civil Rights
Action involved claims under Pennsylvania law for unjust enrichment and promissory
estoppel as set forth at Count 8 of the Amended Complaint.7 Once again, the
underpinnings of these claims concerned Arneault‘s efforts, allegedly at great personal
expense, to pursue the renewal of his own gaming license, which in turn involved
protracted proceedings to contest the BIE‘s Recommendation of Denial. The theory is
that Arneault undertook these efforts for the purpose of assisting PIDI maintain its own
Category 1 gaming license, inasmuch as the renewal of Arneault‘s gaming license was
deemed a prerequisite to the renewal of PIDI‘s license. According to the Amended
Complaint, Arneault‘s considerable efforts resulted in him incurring some $2,000,000
worth of legal and professional fees – all at his own personal expense. Arneault did not
allege, as part of his Count 8 claims, that the MTR Defendants possessed (or breached)
a contractual duty to assist him in the pursuit of his license renewal and/or reimburse
him for the costs incurred along the way. Rather, Arneault averred that he
incurred these expenses in reliance upon Defendant MTR‘s custom,
practice and prior precedence of reimbursing him and/or paying directly for
7
The claim for promissory estoppel was withdrawn prior to the Court‘s adjudication of the Defendants‘
Rule 12(b)(6) motions.
Page 18 of 37
all legal and professional expenses and fees incurred as a result of, or
required by, any licensing authority or any regulatory body. This custom,
practice and precedence set by Defendant MTR was applied to Mr.
Arneault every time he was required to be licenses or to have his license
renewed as a result of his relationship with Defendant MTR. Mr.
Arneault‘s reliance was reasonable under the circumstances and the
result of that reliance has been to his detriment.
(Amended Complaint ¶ 435.)
As Arneault points out, under Pennsylvania law the doctrine of unjust enrichment
is a quasi-contractual doctrine which has no application if a written agreement or
express contract exists between the parties. See Ruby v. Abington Memorial Hospital, -- A.3d ---, 2012 WL 1940570 at *7 (Pa. Super. May 30, 2012). Similarly, claims for
promissory estoppel cannot proceed where an express contract is present. See
Carlson v. Arnot-Ogden Memorial Hosp., 918 F.2d 411, 416 (3d Cir. 1990); Synesiou v.
DesignToMarket, Inc., No. 01-5358, 2002 WL 501494 at *4 (E.D. Pa. April 3, 2002).
Thus, as a matter of Pennsylvania law, Arneault could not have been suing upon the
Settlement Agreement in asserting his Pennsylvania common law claims for unjust
enrichment and promissory estoppel in Count 8. An examination of the Amended
Complaint confirms that he was not.
The only other notable reference to the Settlement Agreement in the Amended
Complaint concerns Arneault‘s anticipation that the MTR Defendants might argue that
some or all of Arneault‘s claims in the Civil Rights Action would be barred by virtue of
the release provision in the Settlement Agreement. Specifically, in a footnote to the
Count 8 claims, it is acknowledged that Paragraph 3.1 of the Settlement Agreement
contains a release of claims by Arneault against MTR. However, it is further alleged by
Arneault that the release only covers claims that would have arisen ―through and
Page 19 of 37
including the Effective Date of this Agreement,‖ meaning February 27, 2010. (See
Amended Complaint [50] at ¶ 439, n. 40.) Thus, it was clearly Arneault‘s position that
his unjust enrichment and promissory estoppel claims were not barred by the release
provision in the Settlement Agreement, and he prophylactically averred as much.
I do not view this allegation as sufficient to support a finding that Arneault
voluntarily waived his right to enforce the forum selection clause contained in the
Settlement Agreement in the present civil action. Clearly, it was Arneault‘s position that
none of his claims in the Civil Rights Action depended upon contractual rights embodied
in the Settlement Agreement. On the contrary, Arneault has argued – and we agree –
that the Settlement Agreement could only have had relevance in the Civil Rights Action
as a potential (but likely non-meritorious) defense to the extent that the MTR
Defendants might have argued that some or all of Arneault‘s claims in the Civil Rights
Action were barred by the Settlement Agreement‘s release provision. Such a tangential
connection between Arneault‘s federal lawsuit and the Settlement Agreement cannot
support a finding of voluntary waiver.
This conclusion is further compelled by virtue of the Settlement Agreement‘s
―Amendments‖ provision, which expressly limited the circumstances under which any of
the contractual terms could be changed or waived. Specifically, Paragraph 4.1 states
that: ―[n]either this Agreement nor any term set forth herein may be changed, waived,
discharged, or terminated except by a writing signed by the Parties.‖ (See Complaint
Ex. 2 [1-3] at p. 8, ¶ 4.1 (emphasis supplied).) There is no allegation by MTR that
Arneault has manifested an intent to abandon his rights under the forum selection
clause through a written, signed acknowledgment as contemplated by Paragraph 4.1 of
Page 20 of 37
the Agreement. Furthermore, none of the cases relied upon by MTR for the ―waiver-byconduct‖ principle addressed the effect of a waiver limitation clause such as the one at
issue here.
Finally, I take judicial notice of a ruling entered on January 25, 2012 by the
Honorable Arthur J. Recht of the Circuit Court of Hancock County, West Virginia, in
which Judge Recht determined that MTR was in contempt of that court by virtue of
having commenced this pending action in violation of the Settlement Agreement‘s forum
selection clause.8 See Arneault v. MTR Gaming Group, Inc., Case No. 09-C-175 (Cir.
Ct. Hancock Cty.) (Tr. of 1/25/12 Hrg., attached as Def.‘s Addendum to Mot. to Dismiss
[17-1] ). In the course of reaching his ruling, Judge Recht found that a ―substantial
portion‖ of MTR‘s complaint in the pending matter arises out of the Settlement
Agreement. In the contempt proceeding, as here, MTR argued that Arneault was
essentially estopped from arguing any violation of the Settlement Agreement‘s forum
selection clause by virtue of having commenced the Civil Rights Action in this Court.
Judge Recht rejected this argument, finding that ―the suit filed by Mr. Arneault in the
Western District of Pennsylvania does not grow out of the Settlement Agreement‖ and,
moreover, ―it‘s the only place where that suit could have been filed.‖ (Tr. at p. 4.) As
part of his contempt ruling, Judge Recht went on to impose a fine on MTR, to run every
day until the Settlement Agreement-related claims are not withdrawn.
Arneault has argued that Judge Recht‘s ruling conclusively establishes that no
waiver of the forum selection clause has occurred by virtue of Arneault‘s
8
Upon settlement of the West Virginia Lawsuit, the Circuit Court of Hancock County apparently
incorporated the Settlement Agreement into the Court‘s order of dismissal such that it retained jurisdiction
over enforcement of the Settlement Agreement.
Page 21 of 37
commencement of the Civil Rights Action in this Court. Although there is some dispute
between the parties as to whether Judge Recht‘s ruling should be given preclusive
effect, I find the argument to be academic because, having undertaken my own
separate analysis, I find myself in agreement with Judge Recht on the two central points
at issue here: (i) several of MTR‘s claims against Arneault arise out of the Settlement
Agreement and are therefore subject to the Agreement‘s forum selection clause, and (ii)
Arneault has not waived his contractual right to enforce the forum selection clause by
virtue of having previously prosecuted the Civil Rights Action.
In sum, for all of the reasons previously discussed, I am not persuaded by MTR‘s
central premise that Arneault‘s claims in the Civil Rights Action ―arose from‖ the
Settlement Agreement. Consequently, I do not consider Arneault‘s decision to
commence the Civil Rights Action in this Court as being so inherently contradictory to
the intent of Paragraph 4.4‘s forum selection clause as to manifest a clear intent on the
part of Arneault to relinquish his rights under that provision.
Under the law of this circuit, as noted above, MTR must make a ―strong showing‖
as to why the forum selection clause should not be given effect. Given the nature of
Arneault‘s claims in the Civil Rights Action, the specific language concerning waiver in
the Settlement Agreement, and the ruling of the West Virginia Circuit Court for Hancock
County, I do not find that MTR has made this requisite showing. Accordingly,
Paragraph 4.4 of the Settlement Agreement will be given effect.
Having concluded that the forum selection provision of Paragraph 4.4 remains
valid and enforceable, I must address one remaining point of contention. The provision,
by its terms, applies as to ―[a]ny dispute arising from [the Settlement Agreement].‖
Page 22 of 37
Arneault contends that this language implicates Counts 1, 2, 4 and 5 of the complaint.
MTR agrees that at least Counts 2, 4, and 5 are governed by the Settlement Agreement
and thereby subject to the forum selection provision. Although Judge Recht felt that
Counts 2, 4 and 5 clearly arise out of the Settlement Agreement, he indicated that he
less sure about Count 1; however, Judge Recht never expressly ruled upon that point
because, for purposes of his contempt ruling, he had no need to do so.
Upon consideration of this issue, I find that Count 1 of the complaint also arises
out of the Settlement Agreement and is therefore subject to the forum selection clause.
The pertinent provision of the Settlement Agreement is Paragraph 2.3, which reads:
2.3
Obligations Under the Consulting Agreement. Arneault
and MTR continue to have various obligations to one another under the
Consulting Agreement. On the Effective Date of this Agreement, each
and every one of those obligations shall be waived and released by the
Parties with the exception of the non-compete provision in Paragraph 8 of
the Consulting Agreement (the ―Non-compete‖) and the non-solicitation
provision in Paragraph 9 of the Consulting Agreement (the ―Nonsolicitation‖) a copy of which is attached and incorporated. The Noncompete shall remain in full force and effect but the geographic limitations
will be reduced to 100 miles and the time limitation shall continue to be in
effect until April 30, 2011.
(Complaint Ex. 2 [1-3] at ¶ 2.3.) MTR has alleged that, by virtue of this language,
Paragraph 8 of the Consulting Agreement remains in effect (as modified) and moreover,
through his involvement with AHT, Arneault has breached this contractual obligation.
(Complaint ¶¶ 10-21 and Ex. 1 [1-2] and 2 [1-3].)
Given the fact that the Settlement Agreement: (a) expressly modifies a term of
the Consulting Agreement Non-complete Clause, (b) includes the Consulting
Agreement as an attachment, and (c) incorporates the Consulting Agreement by
Page 23 of 37
reference, I conclude that the operative contractual non-compete rights at issue arise at
least partially, if not entirely, out of the Settlement Agreement. See 11 Richard A. Lord,
WILLISTON ON CONTRACTS § 30:25 (4th ed.) (―When a writing refers to another document,
that other document, or the portion to which reference is made, becomes constructively
a part of the writing, and in that respect the two form a single instrument. [ ] The
incorporated matter is to be interpreted as part of the writing. [ ]‖) (internal footnotes
omitted) (citing authority). Accordingly, since MTR‘s claim for alleged breach of the
Non-compete provision ―arises‖ out of the Settlement Agreement, it is subject to the
forum selection clause found in Paragraph 4.4.
For the reasons stated herein, Counts 1, 2, 4, and 5 of the complaint will be
dismissed so that they can be reasserted by MTR, if it chooses, in the Circuit Court of
Hancock County, West Virginia.
B. Arneault‘s Motion to Dismiss Based Upon Paragraphs 3.1 and 3.2 of the
Settlement Agreement
As an alternative basis for dismissal, Arneault has argued that all of the counts in
the complaint are barred by virtue of two release provisions contained in the Settlement
Agreement and Release. Since Counts 1, 2, 4, and 5 will be dismissed on the basis of
the forum selection clause, I need not address them presently. Instead, I will consider
this alternative basis for dismissal only as it relates to the claims remaining at Counts 3
and 6.9
9
To the extent the parties dispute the meaning, intent, or scope of the release provisions in the
Settlement Agreement, this would appear to present a ―dispute arising from‖ the Settlement Agreement
and subject to the forum selection provision. However, Arneault has expressly sought to enforce the
forum selection clause only with respect to Counts 1, 2, 4 and 5. He has not asserted the defense of
improper forum insofar as Counts 3 and 6 are concerned. We will therefore assume that Arneault‘s
Page 24 of 37
The two release provisions in the Settlement Agreement state as follows:
3.1 Release by Arneault. In consideration of the Payments, Arneault
releases, acquits and forever discharges, and covenants not to sue,
the MTR Defendants and each of their past and present employees,
directors, officers, agents, consultants, accountants, attorneys,
insurers, representatives, stockholders, owners, parents, subsidiaries,
affiliates, predecessors, successors and assigns (collectively referred
to as the ―Released Parties‖) from any and all claims, losses, liabilities,
damages, penalties, fines, judgments, taxes, costs, fees, expenses
(including without limitation attorneys‘ fees) of any kind, known or
unknown, which Arneault now has or may have against the
Released Parties through and including the Effective Date of this
Agreement. Such released claims include, but are not limited to, any
and all claims of breach of express or implied contract, promissory
estoppel and all other equitable claims, wrongful discharge and all
other common law claims, employment discrimination under Title VII of
the Civil Rights Act of 1964, as amended, the Americans with
Disabilities Act of 1990, the Equal Pay Act of 1963, the Older Workers
Benefit Protection Act of 1990, the Civil Rights Act of 1866, the Family
and Medical Leave Act of 1993, the Civil Rights Act of 1991, the
Employee Retirement Income Security Act of 1974, and all other
federal, state, local, or municipal laws, rules or regulations, including
all claims arising out of, based upon or related to Arneault‘s
employment and consulting relationship with MTR and the termination
of that employment and consulting relationship, and all claims for
punitive or compensatory damages, costs or attorneys‘ fees. The
released claims specifically include all such rights under the West
Virginia Human Rights Act and the Age Discrimination in Employment
Act, as amended, 29 U.S.C. 621 et seq. (―ADEA‖).
3.2 Release by MTR Defendants. Except as set forth in Section 2.3 of
the Agreement, the MTR Defendants shall release and forever
discharge Arneault from any and all claims, losses, liabilities,
damages, penalties, fines, judgments, taxes, costs, fees, expenses
(including without limitation attorneys‘ fees) and obligations, actual or
alleged or known or unknown, including those which relate to the
Lawsuit, the Employment Agreement, the DCA and, with the
willingness to have this Court adjudicate the meaning and scope of the Release Provisions relative to
Counts 3 and 6 of the complaint -- unlike his conduct in filing the Civil Rights Action – constitutes an
intentional, if limited, waiver of the forum selection clause. No waiver will be inferred insofar as Counts 1,
2, 4 and 5 are concerned because Arneault‘s primary argument as to those counts is improper venue; his
substantive challenges to Counts 1, 2, 4 and 5, including his argument premised upon the release
language, have been presented merely as secondary, alternative bases for dismissal.
Page 25 of 37
exceptions contained in this Agreement, all claims under the
Consulting Agreement.
(Complaint Ex. 2 [1-3] at ¶¶ 3.1 and 3.2 (emphasis added).)
Comparing these two provisions, Arneault observes that the release set forth in
¶3.1 contains a temporal limitation (i.e. referring to claims which ―Arneault now has or
may have against the Released Parties through and including the Effective Date of this
Agreement‖), whereas the release set forth in ¶ 3.2 does not. Arneault reasons that this
discrepancy should be construed as a purposeful reflection of the parties‘ intent to
release Arneault from claims existing on the effective date of the agreement as well as
from related claims that might arise in the future. Applying this logic, Arneault
concludes that all of the claims in MTR‘s complaint are facially barred and must be
dismissed.
MTR counters that such a construction is unreasonable in that it would bar any
claim for breach of the Settlement Agreement itself, rendering the Agreement (or at
least several of its provisions) meaningless. In addition, citing Pennsylvania cases,
MTR contends that, as a legal matter, a release can only apply to claims that existed as
of the time of its creation.
Notably, the Settlement Agreement expressly provides that ―[a]ny disputes
arising from this agreement shall be interpreted pursuant to the laws of West Virginia.‖
(Complaint Ex. 2 [1-3] at ¶ 4.4.) Accordingly, any analysis premised upon interpretation
of the Settlement Agreement must begin with an analysis of the relevant choice-of-law
principles.
Page 26 of 37
As a federal district court exercising diversity-of-citizenship jurisdiction, we apply
the conflict-of-law rules of the forum state. See Klaxon Co. v. Stentor Elec. Mfg. Co.,
313 U.S. 487, 496 (1941); Bayer Chemicals Corp. v. Albermarle Corp., 171 Fed. Appx.
392, 398 (3d Cir. 2006). Our Circuit Court of Appeals has observed that ―Pennsylvania
courts generally honor the intent of the contracting parties and enforce choice of law
provisions in contracts executed by them.‖ Kruzits v. Okuma Machine Tool, Inc., 40
F.3d 52, 55 (3d Cir.1994) (citing Smith v. Commonwealth Nat. Bank, 557 A.2d 775, 777
(Pa. Super. 1989)). See also Gay v. CreditInform, 511 F.3d 369, 389 (3d Cir. 2007). In
particular, Pennsylvania courts have adopted section 187 of the Restatement (Second)
Conflict of Laws, which provides that choice-of-law provisions will be enforced:
unless either (a) the chosen state has no substantial relationship to the
parties or the transaction and there is no other reasonable basis for the
parties' choice, or (b) application of the law of the chosen state would be
contrary to a fundamental policy of a state which has a materially greater
interest than the chosen state in the determination of the particular
issue....
See Kruzits, 40 F.3d at 55.
Here, neither party seriously disputes that the Settlement Agreement‘s choice-oflaw provision should apply for purposes of construing the intent and meaning of the
Settlement Agreement provisions.10 I likewise find that the choice-of-law provision
contained in Paragraph 4.4 of the Settlement Agreement should be given effect. It is
clear that West Virginia has a substantial relationship to the subject matter of the
Settlement Agreement and at least one of the parties to it. Specifically, the Settlement
Agreement was executed in large measure in order to resolve various state law claims
10
As we previously discussed in some detail, supra, the parties‘ only dispute along these lines is whether
the Settlement Agreement‘s forum selection clause should be enforced relative to Counts 1, 2, 4 and 5.
Page 27 of 37
which Arneault had asserted against MTR and others in West Virginia state court. (See
Complaint Ex. 2 [1-3] at ―Recitals.‖) One of the named defendants in the West Virginia
litigation was Mountaineer Park, Inc., a West Virginia corporation, and the agreement
was at least partially executed in West Virginia. Arneault expressly acknowledged in
the Settlement Agreement that he had consulted with West Virginia counsel prior to
signing the Agreement. (Id. at ¶ 3.4.) Moreover, the Settlement Agreement
incorporated certain provisions of the Consulting Agreement and purported to resolve
any potential claims thereunder; the Consulting Agreement, like the Settlement
Agreement, also contained a choice-of-law provision invoking West Virginia law. (See
Complaint Ex. 1 [1-2] at ¶ 13(d).) Neither party to the pending litigation has asserted
that application of West Virginia law (insofar as it involves construing the release
provisions) would contravene a fundamental policy of another state with a materially
greater interest in the particular issue raised here. Accordingly, I will assume for
present purposes that West Virginia law governs the construction of the Settlement
Agreement‘s terms and conditions.
In general, West Virginia law favors the enforcement of release provisions when
they are part of a settlement agreement. See West v. Liberty Mutual Ins. Co., No. 932457, 1994 WL 399140 at *2 (4th Cir. Aug. 3, 1994) (―The law favors and encourages
the resolution of controversies by contract of compromise and settlement rather than by
litigation; and it is the policy of the law to uphold and enforce such contracts if they are
fairly made and are not in contravention of some law or public policy.‖) (quoting Acord v.
Chrysler Corp., 399 S.E. 2d 860 (W. Va. 1990) (Syllabus Point 1)).
Page 28 of 37
Nevertheless, under West Virginia law, a release ―ordinarily covers only such
matters as may fairly be said to have been within the contemplation of the parties at the
time of its execution.‖ Hagy v. Equitable Production Co., Civil Action No. 2:10-cv-1372,
2012 WL 1806167 at *2 (S.D.W.Va. May 17, 2012) (quoting Murphy v. N. Am. River
Runners, Inc., 186 W.Va. 310, 316–17, 412 S.E.2d 504 (1991) (internal quotations
omitted)). As is always the case with matters of contract interpretation, discerning the
intent of the parties is paramount and, where the document in question is unambiguous,
intent is to be gleaned from the document‘s language. See Bischoff v. Francesa, 56
S.E. 2d 865, 870 (W.Va. 1949) (―The polestar for the construction of a contract is the
intention of the contracting parties as expressed by them in the words they have used.‖)
(citation omitted). See also Bernstein v. Kapneck, 430 A.2d 602, 606 (Md. 1981)
(―[B]ecause releases are contracts, conventional rules of construction dictate that when
the scope of the agreement is stated in clear and unambiguous language, the words
utilized to express this breadth should be given their ordinary meaning…‖) (cited with
approval in West , supra, at *3, construing West Virginia law).
Applying the foregoing principles in light of the language of the Settlement
Agreement, I conclude that MTR‘s sixth cause of action for alleged violation of the
Pennsylvania Trade Secrets Act was within the scope of claims contemplated by the
parties at the time they executed the release provisions. Notably, the Settlement
Agreement makes clear that MTR was aware of and concerned about the possibility
that Arneault might engage in the unauthorized disclosure of its trade secrets at some
point in the future. Thus, Paragraph 2.5 of the Settlement Agreement expressly creates
a contractual obligation on the part of Arneault to:
Page 29 of 37
not divulge to any other person or entity any confidential or proprietary
information of MTR which is not generally known in the marketplace,
including, without limitation, processes, procedures, software and
technology, financial information, strategic planning, sales, advertising and
marketing plans and strategies, employee compensation plans, customer
lists and information, vendor contracts and other arrangements and
contracts of MTR, or any and all other trade secrets of MTR.
(Complaint Ex. 2 at ¶ 2.5 (emphasis added).) Similarly, ¶ 2.6 imposes an obligation
upon Arneault to return to MTR any items already in his possession that ―contain[ ]
confidential, proprietary or trade secret information of MTR.‖ (Id. at ¶ 2.6.)
Paragraph 3.7 expressly reserves to MTR the right to enforce this contractual obligation,
notwithstanding the release provision. (See id. at ¶ 3.7, stating, ―The releases set forth
above are not intended to discharge any rights, privileges, benefits, duties or obligations
imposed upon any of the Parties by reason of, or otherwise arising under, this
Agreement.‖)
In creating this contractual remedy, the parties mutually acknowledged MTR‘s
interest in preserving its confidential trade secrets from unauthorized divulgence on the
part of Arneault in the future. Further, the parties expressly empowered MTR to protect
against this contingency, but only insofar as MTR could enforce its contractual rights
under the Settlement Agreement. Importantly, the reservation-of-rights clause in the
Settlement Agreement applies only to ―rights, privileges, benefits, duties or obligations
imposed upon any of the Parties by reason of, or otherwise arising under, this
Agreement.” (Complaint Ex. 2 at ¶ 3.7 (emphasis added).) Because this reservation-ofrights provision expressly preserves only contractual remedies arising under the
Settlement Agreement and omits any mention of rights arising under statutory or
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common law tort principles, and in light of the otherwise broad language of the release
language, we may infer that the release provision was intended to cover the type of
tortious trade secret violations contained in Count 6. This inference is especially
warranted given the parties‘ express acknowledgement in the Settlement Agreement
that they were represented by counsel during the negotiations process and entered into
the Agreement with full awareness of its terms. See West, supra, at *2 (upholding
general release provision which was clear and unambiguous where, among other
things, the plaintiffs against whom the provision was being raised were represented by
counsel during the negotiation of the settlement and were apparently aware of and
consented to the release language). Accord Grant County Sav. & Loan Ass’n v. RTC,
968 F.2d 722, 724-25 (8th Cir. 1992) (cited in Grant, supra, for the proposition that ―court
of appeals will assume parties were fully aware of the terms and scope of their
agreement when they have negotiated the release with the assistance of counsel and
agreed to the language‖).
We reach a different conclusion, however, with respect to Count 3. MTR‘s third
cause of action asserts a claim for tortious interference with a contractual relationship
based upon Arneault‘s alleged involvement in soliciting and inducing Rubino to join as a
plaintiff in the Civil Rights Action. MTR claims that, in doing so, Arneault encouraged
Rubino to repudiate a former buy-out agreement which Rubino had entered into with
MTR and PIDI on behalf of Technica. The relevant allegations are as follows:
44. During his tenure as CEO of MTR, Arneault built a relationship with Rubino, which
included causing MTR to enter into a consulting agreement with Rubino‘s company, Tecnica,
under which Tecnica was to be paid substantial monthly payments plus a contingency of 3% of
the hoped-for profits over time from the PIDI racetrack/casino in Erie, Pennsylvania.
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45. In late September or early October, 2006, Arneault, as CEO for MTR, arranged for a
―buy-out‖ of Rubino/Tecnica‘s consulting agreement.
46. On or about October 23, 2006, MTR entered into a ―buy-out‖ agreement with
Rubino/Tecnica, by which they terminated the consulting agreement. In doing so, MTR paid
Rubino (through Tecnica) accelerated guaranteed lump sums totaling $4.2 million, in full
satisfaction of the obligations MTR and PIDI may have previously owed to Rubino/Tecnica.[ ]
47. In early 2011, Arneault solicited and induced Rubino to join him in pursuing the
federal lawsuit in the United States District Court for the Western District of Pennsylvania against
MTR, PIDI and certain Pennsylvania Gaming Control Board officials.
48. Arneault, through wrongful means including breach of his own obligations to MTR,
induced Rubino/Tecnica to breach the contract with MTR by bringing claims for compensation
that Rubino/Tecnica had expressly waived and compromised in the October 2006 ―buy-out‖
agreement with MTR.
49. Among other things, Arneault provided information and direct and active support
facilitating, encouraging, aiding and abetting Rubino/Tecnica to breach the contract and assert
such claims against MTR. This included Arneault joining Rubino/Tecnica in a lawsuit against
MTR, and Arneault providing Rubino/Tecnica and their counsel information and assistance for
bringing the federal court action, and Arneault‘s making the allegations set forth in the federal
court Complaint and Amended Complaint.
50. Rubino/Tecnica filed the related federal court action in order to obtain money from
MTR which Rubino/Tecnica claims would have been owed had Rubino/Tecnica not entered into
the 2006 ―buy-out‖ agreement.
51. Arneault‘s unlawful interference with the contractual agreement between
Rubino/Tecnica and MTR is actionable under Pennsylvania law, and was without privilege or
justification.
52. As a result of Arneault‘s unlawful interference, MTR has suffered and will continue to
suffer harm, including pecuniary loss of its contractual benefit with Rubino/Tecnica, as well as
fees and costs being incurred in responding to the related federal action.
53. Arneault‘s misconduct is willful, wanton and outrageous, warranting punitive
damages. …
(Complaint ¶¶ 44-53.)
As the foregoing allegations reveal, the buy-out agreement with which Arneault
allegedly interfered was entered into in October of 2006. The alleged interference did
not occur until January of 2011, however – more than four years later and some
fourteen months after Arneault and MTR signed their Settlement Agreement. The
timing of these events suggests that the tortious interference claim asserted in Count 3
was not the type of claim within the contemplation of the parties at the time they
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executed the Settlement Agreement. Therefore, the release provision of the Settlement
Agreement will not preclude that particular claim. For the reasons already discussed,
only MTR‘s claim for alleged violations of Pennsylvania‘s Trade Secrets Act is barred by
the release provision, and that claim will be dismissed accordingly.
C. Arneault‘s Rule 12(b)(6) Challenge to Count 3
Since our analysis to this point leaves only the claim at Count 3 remaining, we
must address Arneault‘s substantive challenge to that claim. Specifically, Arneault
moves to dismiss Count 3 pursuant to Rule 12(b)(6) on the grounds that MTR‘s
complaint fails to allege either the breach of any contract or the requisite tortious intent.
Under Pennsylvania law, the following elements are required in order to make
out a claim for intentional interference with an existing contractual relation:
(1) the existence of a contractual relation between the complainant and a
third party;
(2) purposeful action on the part of the defendant, specifically intended to
harm the existing relation;
(3) the absence of privilege or justification on the part of the defendant;
and
(4) the occasioning of actual legal damage as a result of the defendant's
conduct.
Ira G. Steffy & Son, Inc. v. Citizens Bank of Pennsylvania, 7 A.3d 278, 288-89 (Pa.
Super. 2010) (quoting Strickland v. Univ. of Scranton, 700 A.2d 979, 985 (Pa. Super.
1997) (internal footnote omitted)).
In determining whether a particular course of conduct gives rise to a claim for
intentional interference with contractual relations, Pennsylvania courts follow Section
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767 of the Restatement (Second) of Torts. Section 767 provides the following factors
for consideration: 1) the nature of the actor's conduct; 2) the actor's motive; 3) the
interests of the other with which the actor's conduct interferes; 4) the interests sought to
be advanced by the actor; 5) the proximity or remoteness of the actor's conduct to
interference, and 6) the relationship between the parties. Ira G. Steffy & Son, Inc.,
supra, at 288-89 (quoting Strickland, 700 A.2d at 985).
In consideration of the foregoing, and based on the allegations set forth in the
complaint as well as information gleaned from other appropriate Rule 12(b)(6)
materials,11 I find that MTR has pleaded a viable claim for tortious interference with a
contractual relationship. MTR has satisfied the first element by pointing to the October
2006 buy-out agreement as the relevant contractual relation with third party Tecnica.
Further, MTR has alleged purposeful (i.e, ―willful‖ misconduct on the part of Arneault
with the specific intention to harm that contractual relation.
Arneault contends that no ―breach of contract‖ has been alleged, but this Court
disagrees. A review of the buy-out agreement reveals that MTR and Tecnica expressly
agreed that the $4.2 million payment to Rubino (via Tecnica) would constitute an accord
and satisfaction of any right Rubino or Tecnica had to further compensation under
Tecnica‘s former consulting agreement with MTR and PIDI. To the extent MTR alleges
that Arneault was complicit in soliciting Rubino to assert an unjust enrichment and/or
promissory estoppel claim against MTR in the Civil Rights Action, MTR has satisfactorily
alleged conduct on the part of Arneault meant to upset the parties‘ settled expectations
11
Because the referenced ―buy-out agreement‖ between Tecnica and MTR is integral to Count 3, and
because this same agreement was appended as an exhibit to Arneault‘s complaint in the Civil Rights
Action, this Court will take judicial notice of the agreement, including its terms and conditions. See
Arneault v. O‘Toole, Case No. 1:11-cv-95-SJM, Amended Complaint Exhibit 1 [50].
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with regard to the $4.2 million payout to Tecnica. That is because the unjust enrichment
and promissory estoppel claims at issue in the Civil Rights Action sought to secure for
Rubino and Passport Realty (Tecnica‘s successor company) additional payments for
services rendered under Tecnica‘s former consulting agreement with MTR and PIDI in
direct contravention of the terms of the buy-out agreement. Were Rubino to be
successful on his unjust enrichment and/or promissory estoppel claims, the recovery
would disrupt MTR‘s expectations relative to the terms of the buy-out agreement.12
Turning to the remaining elements of a tortious interference claim, I note MTR‘s
allegation that Arneault acted without privilege or justification, which satisfies element
three. Finally, MTR has adequately alleged actual legal damage as a result of
Arneault‘s conduct, insofar as MTR has incurred counsel fees and/or other expenses in
defending the unjust enrichment and promissory estoppel claims.
Because MTR‘s claims are sufficient under federal notice pleading standards to
state a viable claim for tortious interference with a contractual relationship, Count 3 of
the complaint will not be dismissed.
IV.
CONCLUSION
For all of the foregoing reasons, Arneault‘s motion to dismiss the complaint
pursuant to Rules 12(b)(3) and/or 12(b)(6) of the Federal Rules of Civil Procedure will
be granted in part and denied in part. With respect to Counts 1, 2, 4 and 5 of the
complaint, the motion will be granted and those claims will be dismissed pursuant to
Rule 12(b)(6) rather than Rule 12(b)(3). However, the dismissal shall be without
12
Not surprisingly, in the Civil Rights Action, MTR brought a motion to dismiss the unjust enrichment and
promissory estoppel claims premised partly on the argument that the buy-out agreement constituted a
release and/or satisfaction of those claims.
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prejudice to MTR‘s right to reassert those claims in the Circuit Court of Hancock County,
West Virginia. Arneault‘s motion will further be granted as to Count 6 of the complaint,
and MTR‘s claim for alleged violations of Pennsylvania‘s Trade Secrets Act will be
dismissed with prejudice as barred by the release provision of the Settlement
Agreement.13 Finally, Arneault‘s motion will be denied insofar as it relates to Count 3,
as MTR has alleged a viable claim for the intentional interference with a contractual
relation. An appropriate order follows.
13
For present purposes we need not, and do not, express any opinion as to whether MTR could
successfully assert in the Circuit Court for Hancock County a claim for alleged breach of Arneault‘s
contractual duty not to divulge MTR‘s trade secrets.
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IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
MTR GAMING GROUP, INC.,
Plaintiff,
v.
EDSON R. ARNEAULT,
Defendant.
)
)
)
)
)
)
)
)
)
Case No. 1:11-cv-208-SJM
ORDER
AND NOW, to wit, this 27th Day of September, 2012, for the reasons set forth in
the accompanying Memorandum Opinion,
IT IS ORDERED that the Motion to Dismiss [11] filed by Defendant Edson R.
Arneault shall be, and hereby is, GRANTED in part and DENIED in part, as follows:
1. Said motion is GRANTED as to Counts 1, 2, 4, and 5 of the Complaint and,
accordingly, those counts shall be, and hereby are, DISMISSED without
prejudice;
2. Said motion is GRANTED as to Count 6 of the Complaint and, accordingly,
that count shall be, and hereby is, DISMISSED with prejudice; and
3. Said motion is DENIED as to Count 3 of the Complaint.
IT IS SO ORDERED.
s/
Sean J. McLaughlin
SEAN J. McLAUGHLIN
United States District Judge
Cm:
All counsel of record.
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