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MTR Gaming Group, Inc. v. Arneault

United States District Court, W.D. Pennsylvania

January 9, 2015




This civil action arises from a long-standing dispute between Plaintiff MTR Gaming Group, Inc. ("MTR") and Defendant Edson R. Arneault ("Arneault"), the company's former CEO, major shareholder, and consultant, which has engendered a series of lawsuits in both federal and state court. In this case, MTR alleges that Arneault tortiously interfered with a particular contractual relationship, and Arneault counters with allegations that MTR has defamed him and abused the legal process in connection with this lawsuit. As the parties are diverse and the matter in controversy exceeds $75, 000 exclusive of interests and costs, the court has jurisdiction pursuant to 28 U.S.C. §1332.

Presently pending before the court is MTR's motion for judgment on the pleadings relative to the counterclaims asserted by Arneault. For the reasons that follow, the motion will be denied.

I. Procedural and Factual 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. (Compl. ¶ 1, ECF No. 1; Answer ¶1, ECF No. 24.) Defendant Edson R. Arneault is a resident of Florida and a shareholder of MTR. (Compl. ¶2; Answer ¶2.) Between 1995 and 2008, Arneault served as CEO of MTR and Chairman of its Board of Directors; he was also a significant shareholder of the company. (Compl. ¶ 7; Answer ¶ 7.)

At some point in 2008, Arneault advised MTR's Board that he did not intend to continue as CEO upon the expiration of his employment contract at the end of that year. (Compl. ¶ 9; Answer ¶ 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"). (Compl. at ¶ 10; Answer ¶ 10.) 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. (Compl. Ex. 1 ¶8, ECF No. 1-2.) At some point, Arneault and MTR also entered into a deferred compensation agreement (the "Deferred Compensation Agreement"). ( See Compl. Ex. 2 at p. 1, ECF No. 1-3.)

A. The West Virginia Lawsuit

Disputes later arose between MTR and Arneault concerning the terms of the Deferred Compensation Agreement. This resulted in Arneault filing a lawsuit against MTR in the Circuit Court of Hancock County, West Virginia (the "West Virginia Lawsuit"). (Complaint Ex. 2 at p. 1, ECF No. 1-3.) 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." ( Id. ) 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. ( Id. at ¶ 2.2.) The Settlement Agreement also reduced the geographic scope of the non-compete provision set forth in the Consulting Agreement but otherwise kept that provision in effect until April 30, 2011. ( Id. at ¶ 2.3.)

B. The Federal Civil Rights Lawsuit

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 (W.D. Pa.) (hereinafter, the "Civil Rights Lawsuit"). The named defendants included MTR and several of its current and former executives and directors (collectively, the "MTR defendants"), as well as MTR's subsidiary PIDI and numerous public officials associated with the Pennsylvania Gaming Commission. Arneault's co-plaintiff in the Civil Rights Lawsuit 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 Compl. ¶¶ 2, 49-55, EFC No. 50. In the Civil Rights Lawsuit, Arneault and Rubino asserted federal claims against the MTR defendants for alleged conspiracy to violate their civil rights and state law claims against the MTR defendants for unjust enrichment and promissory estoppel. ( See id. at ¶¶ 417-50.)

Arneault's promissory estoppel claim against the MTR defendants was voluntarily dismissed on January 25, 2010. See Arneault v. O'Toole, Civil Action No. 1:11-cv-95 (W.D. Pa) (Order Granting Mot. Partial Voluntary Dismissal Pursuant to Rule 41(a)(1), Jan. 25, 2010, ECF No. 83). His federal claims were dismissed with prejudice by the District Court in a Memorandum Opinion and Order entered on March 28, 2012. See id. (Order Granting, in Part, Def.s' Mot. to Dismiss Mar. 28, 2012, ECF No. 84). In that same ruling, the District Court dismissed the unjust enrichment claim without prejudice to Arneault's right to pursue that claim in state court. See id. The District Court's order dismissing these claims was subsequently affirmed by the Third Circuit Court of Appeals on February 7, 2013. Arneault v. O'Toole, No. 12-1972 (3d Cir. Feb. 7, 2013) (Opinion Affirming Order Granting Mot. Dismiss) (filed at Arneault v. O'Toole, Civil Action No. 1:11-cv-95 (W.D. Pa.), ECF No. 101-1).

C. The Present Lawsuit

MTR commenced this civil action on September 16, 2011 based on Arneault's prosecution of the Civil Rights Lawsuit and his involvement with an entity known as American Harness Tracks, LLC ("AHT"). The case was originally assigned to United States District Judge Sean J. McLaughlin.

1. MTR's Complaint

MTR's complaint initially asserted six causes of action. Count 1 alleged a claim for breach of contract premised upon the theory that Arneault's involvement with AHT constituted a violation of the aforementioned non-compete clause. Count 2 asserted a claim for breach of contract based on the theory that Arneault's prosecution of the Civil Rights Lawsuit constituted a violation of a covenant not to sue that was set forth in the Settlement Agreement. Count 3 asserted a claim for tortious interference with a contractual relationship based on Arneault's alleged involvement in soliciting Rubino to join as a plaintiff in the Civil Rights Lawsuit. Count 4 asserted a claim for breach of contract premised upon Arneault's alleged violation of non-disclosure and confidentiality clauses in the Settlement Agreement. Count 5 asserted a claim for breach of contract premised upon Arneault's alleged violation of a non-disparagement clause contained in the Settlement Agreement. Count 6 asserted a violation of Pennsylvania's Trade Secrets Act premised upon Arneault's alleged activities while associated with AHT. (Compl., ECF No. 1.)

2. Arneault's Motion to Dismiss the Complaint

In November 2011 Arneault filed a motion to dismiss the complaint in its entirety (ECF No. 11). This motion was aggressively briefed by both parties (ECF Nos. 12, 13, 17, 18, 19, 20, 21) and was argued at a motion hearing (ECF No. 22).

On September 27, 2012, Judge McLaughlin entered a memorandum opinion and order (ECF No. 23) dismissing all of the counts of the complaint with the exception of Count 3. Counts 1, 2, 4, and 5 were dismissed without prejudice to be litigated in the Circuit Court of Hancock County, West Virginia pursuant to a forum selection clause contained in the Settlement Agreement. Count 6 was dismissed with prejudice pursuant to a release provision contained in the Settlement Agreement. Judge McLaughlin denied Arneault's motion to dismiss with respect to Count 3. Consequently, the only claim currently pending against Arneault is MTR's claim for alleged tortious interference with a contractual relationship.

3. Arneault's Counterclaims

On September 28, 2012, Arneault filed his answer to MTR's remaining claim (ECF No. 24). At the same time, Arneault asserted counterclaims for abuse of legal process (Count I) and defamation (Count II) ( id. at ¶¶89-127).

Arneault's first counterclaim is premised on the theory that MTR has abused the legal process by virtue of its conduct in prosecuting this case. In brief, Arneault alleges that MTR's abuse of a legal process took three forms, i.e., : (i) the filing of "an obviously non-meritorious Complaint" in this case (Answer and Countercl. ¶122, ECF No. 24); (ii) the continued defense of certain claims in this litigation even after a West Virginia state court had ruled that those claims could not be litigated in this forum; and (iii) the manner in which process was served upon Arneault. ( See Answer and Countercl. ¶¶ 122-23.)

Arneault's second counterclaim alleges defamation in connection with a letter that MTR's counsel in this matter, Elliot Greenleaf, Esq., sent to the Ohio Lottery Commission (the "Commission") on September 6, 2012. The correspondence in question was sent in response to a letter that Arneault's attorney, John F. Mizner, Esq., had previously sent to the Commission on August 29, 2012.

Mr. Mizner's August 29, 2012 correspondence was designed to bring to the Commission's attention an incident that had occurred earlier that month at Scioto Downs, a gaming facility owned by MTR and licensed by the Commission. In relevant part, the correspondence stated as follows:

On August 9, 2012, Mr. Arneault was invited to lunch by a major fellow MTR shareholder at the dining area of Scioto Downs, which is adjacent to the area of the facility licensed for video lottery gaming. While Mr. Arneault was talking with the shareholder, Mr. Arneault was approached by management in the person of Scioto Downs attorney Thomas Diehl who demanded that Mr. Arneault leave Scioto Downs.
Mr. Arneault was confused by this request, as neither he nor his companion had been acting in a disruptive fashion, and he therefore asked why he was being required to leave Scioto Downs. The individual asking Mr. Arneault to leave advised him that he was being required to leave because Mr. Arneault was engaged in ongoing litigation with MTR, an Erie, Pennsylvania-based subsidiary of MTR, and several current and former MTR officials and employees. The litigation in question does not involve Scioto Downs or MTR's Ohio operations in any manner.
Needless to say, Mr. Arneault was quite embarrassed and disappointed that he was removed from Scioto Downs in front of a fellow MTR shareholder when he was doing nothing more than eating lunch with the shareholder and discussing business. More important for the purposes of this letter, however, are the ramifications of this incident for the Ohio Lottery.
Scioto Downs is currently the only video lottery licensee in Ohio. Therefore, unlike every other game offered by the Ohio Lottery, video lottery games may be played only at one place in Ohio: on the premises of Scioto Downs. The exclusion of Mr. Arneault from Scioto Downs, then, operates to exclude him from playing video lottery games in Ohio at all.
This flies in the face of the rules promulgated by the Ohio Lottery, which are clear that lottery games, including video lottery games, should be made as widely available as possible to the public. Ohio Admin. Code §3770-4-03 provides that lottery licensees are expected to make their facilities available to the public "twenty-four hours per day, seven days per week, " §3770:2-6-01(A), and Game Rule Number Sixty strongly suggests that video lottery games should be available to any person who qualifies ...

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