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MTR Gaming Group, Inc. v. Arneault

United States District Court, W.D. Pennsylvania

September 27, 2012

Edson R. ARNEAULT, Defendant.

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Christopher J. Sinnott, Marnen Mioduszewski Bordonaro Wagner & Sinnott, LLC, Erie, PA, Frederick P. Santarelli, Henry F. Siedzikowski, Krista K. Beatty, Elliott Greenleaf & Siedzikowski, PC, Blue Bell, PA, for Plaintiff.

John F. Mizner, Joseph M. Kanfer, Mizner Law Firm, Erie, PA, for Defendant.


SEAN J. McLAUGHLIN, District Judge.

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.


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 Leroy v. Great W. United Corp., 443 U.S. 173, 183-184, 99 S.Ct. 2710, 61 L.Ed.2d 464 (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, 685 F.3d 353, 357 (3d Cir.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

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of the claim(s) is appropriate. Treasurer of New Jersey v. U.S. Dept. of Treasury, 684 F.3d 382, 395 (3d Cir.2012) (citing Warren Gen. Hosp. v. Amgen Inc., 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, 127 S.Ct. 1955, 167 L.Ed.2d 929 (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.


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 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

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with an entity known as American Harness Tracks, LLC (" AHT" ). (Complaint ¶ 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 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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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.1990)). 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 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.1991)). 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

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remedy, and Rule 12(b)(6) provides a 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 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, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972). 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, 92 S.Ct. 1907) (internal citations omitted). See also MoneyGram Payment Systems, Inc. v. Consorcio Oriental, S.A., 65 Fed.Appx. 844, 846 (3d Cir.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. Gary 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), 1999 WL 6364 (S.D.N.Y. Jan. 7, 1999), and Building Services Inst. (" BSI" ) v. Kirk Williams Servs. Co., 2008 WL 747657 (Oh.App. Mar. 20, 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 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]

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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 complaint [5]— 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 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 ...

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