Kewadin Casinos Gaming Authority to Pay Heavy Fine Over Failed Casino Plans

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10/01/2023/
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Highlights

  • In 2011, Kewadin Casinos Gaming Authority made plans with two investment groups to build retail casinos in Michigan.
  • The plans fell through as the owners of KCGA could not get the approval of the relevant authorities.
  • Both investors sued for breach of contract and misrepresentation, leading to a court’s order of almost $89 million in damages.

After a protracted lawsuit, a judge in Michigan’s Ingham County Circuit Court has ordered that Kewadin Casinos Gaming Authority (KCGA) is liable to pay the sum of $88.88 million. This judgment amount comes as part of a ruling that decided on KCGA’s failure to build retail casinos in Michigan after receiving money from investor groups.

The suit was jointly instituted by JLLJ Development LLC and Lansing Future Development II LLC. Both investor groups had earlier entered into agreements with the authority to build casino complexes in Lansing and New Boston.

Where It All Started: 2011 Agreement to Build Casinos

After over a decade of dispute, KCGA lost what can best be described as one of the most groundbreaking lawsuits on casino investment in Michigan. The origins of the case dates back to 2011 when Sault Ste. Marie Tribe of Chippewa Indians sought to expand its operations into newer locations.

Prior to this period, Sault Ste. Marie was Michigan’s largest tribal operator of casino gaming houses. It is in charge of the KCGA and retail Kewadin casino locations in Sault Ste. Marie, Hessel, Manistique, St. Ignace and Christmas. They also offer sports betting services through WynnBET Sportsbook.

As part of plans to establish retail centers in New Boston and Lansing, it drew investments from notable groups who initially paid $8.8 million for the buildings. However, KCGA and the tribe could not get approval from the US Department of Interior to establish off-reservation casino sites on the lands it purchased. This led the Sault Ste tribe to drag the DOI to court in the District of Columbia courts.

Despite a favorable ruling at the District Court that allowed the tribe to proceed with the buildings, a Court of Appeal reversed the decision.

However, emerging court documents revealed that the KCGA failed to submit necessary documentation to the US Bureau of Indian Affairs to permit the purchased lands to be taken into trust.

According to the circuit county judge, the BIA noted that the application submitted by the tribe did not adduce evidence to warrant the land committed to trust. However, the Bureau left the application open to enable the tribe to submit additional documents that the land acquisition would enhance tribal lands.

Since the tribe could not build the retail casinos and investors could not see a potential for returns on their spending, they decided to sue.

Court Ruled on Breach of Contract, Misrepresentation and Sovereign Immunity

Responding to the initial lawsuit by the investors, the tribe counterclaimed that circuit courts did not have jurisdiction over it. According to the Sault Ste. Marie gaming authorities, it had sovereign immunity from state courts as an Indian tribe. But the court overruled its arguments stating that it waived that immunity by entering into a contract with the investors.

The investors were represented by Dennis Ibold, an Ohio lawyer who appeared on behalf of JLLJ Development LLC and Jerry Campbell, former chief executive of HomeBancorp Inc. appearing on behalf of Lansing Future Development II LLC. According to Ibold, the project drew investors from Florida, Ohio and Michigan.

As the case progressed, the investors claimed that the tribe misrepresented what they were entitled to in the land. It was on the strength of the representation that they advanced $8.8 million for the retail casinos. They also alleged breach of contract.

Finally, on Tuesday, January 3, Judge Joyce Draganchuk of the Ingham County Circuit Court gave an order to the tribe to pay investors $88.88 million. The court awarded the sum as damages for breach of contract and fraudulent misrepresentation.

Robert Levine, a Certified Public Accountant reached the amount by calculating lost profits the investors incurred. $11.4 million of the sum accounts for the principal and interest of the previous loan advanced at the start of the agreement. On the other hand, over $75 million accounted for the sums lost due to the casinos never opening.

Expectations for KCGA Owners and Investors After Court Order

Throughout the lengthy court battle, the KCGA has appealed multiple decisions from the district court in District of Columbia and Michigan county courts. So, it is expected that there would be an appeal following this judgment, especially since this development will take a huge toll on Kewadin’s retail and online casinos.

On the flip side, the two investment groups are satisfied with the decision. Speaking to reporters, Dennis Ibold said, “We’re pleased with the ruling… We’ve been working with the tribe for many, many years to try to resolve this.”

As at the time of writing, there has been no comment by representatives of the KCGA or the Sault Tribe. All that’s left is for Judge Draganchuk to make an order on litigation costs and attorney fees.

Jessica is a news contributor to Gamble Online Michigan. She holds a Bachelor's degree in Economics but has over three years of experience working in the hospitality and gambling industry. Despite her core finance and investment banking background, she has been a casino feature writer for N1 Interactive Limited and multiple gambling affiliate sites. Her work has been featured on the bet365 blog, casino.zone and Max Force Racing. She spends her time between Michigan and California, staying up-to-date on the latest industry developments