RSS Feed for this Blog

Friday, April 24, 2015

Casinos Losers Looking For a Do-Over

Here is the letter sent to Gaming Commission Chairman Mark Gearan, respectfully requesting that the state re-open the casino bidding process.  It was composed by an attorney writing "on behalf of several clients" who participated, unsuccessfully (obviously), in the NYS casino selection process last year.

It reads a lot more like a formal legal petition to a court of law than a friendly missive, complete with sections and subsections, footnotes, legal citations, and repeated mentions of ominous phrases like "arbitrary and capricious."

So, one can surely surmise where this is likely headed after the Gaming Commission either issues a polite declination or ignores it altogether.  After all, this attorney is not one who spends her time saying "pretty please," and I do not think she was engaged simply to write a letter.  Michelle Merola is a partner at Hodgson Russ LLP, a prominent name in gaming law.  And, on their website, she is described as a government-disputes lawyer with extensive experience litigating civil and criminal matters in a variety of federal jurisdictions as well as New York State. 
A significant portion of her practice is dedicated to defending corporations and individuals in government investigations, audits, and administrative proceedings related to tax, environmental, fraud, and health care matters. She also regularly challenges agency determinations in New York State courts through Article 78 proceedings.
We've discussed Article 78, in detail, in the distant past; and it is the means by which the Finger Lakes racetrack/racino is challenging the license recommendation to the Lago facility in Tyre, a lawsuit in which Hodgson Russ and Ms. Merola are also involved.

In addition to being an accomplished litigator, Ms. Merola is also apparently more than just a bit of a masochist. 
For the reasons set forth below, the Commission should decline to issue any licenses based on the current recommendations and direct the Location Board to start the entire process anew...
Oh, man.  Can you imagine going through this again, from scratch?  Another round of cheesy presentations of bucolic ponds, designer gardens, and happy families golfing and eating and drinking and laughing and frolicking through the grass or snow and doing everything and anything other than the only reason why they are being lured there in the first place?  Six more months of Kevin Law and Stu Rabinowitz?  I think I'd rather be strapped to a chair a la Alex in A Clockwork Orange and be forced to watch the video of Happy for as long as it took Senate Republicans to allow a vote on Loretta Lynch.  (Well, maybe not quite, but....)  Besides, by the time a second round would be over, the casino bubble may already be shattered to smithereens and we may be on to the next big thing, like......oh I dunno, maybe reading books, or going to the movies. Or the track.

Well, this would seem like a desperate shot in the dark, except that I'd imagine that Ms. Merola has better things to do than to sign up with a lost cause.  The letter delves into the language of the enabling legislation, and attempts to show how the process evolved in a way that violated the "very specific statutory requirements set therein."  It refers to the weighting percentages that the legislation quite specifically directed the Location Board to utilize - 70% for "economic activity and business development factors," 20% to "local impact and siting factors," and 10% to "workforce and enhancement factors" - about which Ms. Merola makes two main points:  1) The board, in fact, strayed from that "required scoring;" and 2) the board added a new criteria after the applications were in.

With regard to the first point, she uses the board's own words against it....words taken from the Final Report issued by the Location Board. 
The Board considered these summaries, its experts’ observations, additional facts and observations the Board obtained through its public hearings and dialogues with its experts and subsequent analyses prepared by such experts at the direction of the Board, in making determinations and reaching conclusions about the Applicants’ ability to advance the objectives of economic activity and business development, local impact and siting and workforce enhancement. The Board did not create numerical scores with regard to the criteria, but reached its conclusions based on a qualitative judgment after careful consideration of all these factors in determining which Applicants would best achieve the objectives of the Act, giving a qualitative weight to categories of factors as the legislature directed in PML section 1320.
"Here," Ms. Merola writes, "[the board] acknowledged that it chose to rely exclusively on a qualitative evaluation, rather than employing the quantitative weighing required by the Act, or scoring the applications in a manner consistent with general procurement practice."

The second point involves "additional criteria" that the board added after the proposals were due.  Specifically, Ms. Merola objects to the added notion that the proposals should address which "would best provide economic assistance to disadvantaged areas of the State." 
For example, the Location Board considered which proposals would best provide economic assistance to disadvantaged areas of the State.
  Oh, the Horror! 
This factor, crucial to a decision about what location to select for an applicant's proposal, was not disclosed prior to the submission of applications and hundreds of thousands of dollars.  And, not only did the Location Board utilize a previously unarticulated factor in its evaluation, but it apparently elevated that factor above all others.  In fact, all of the successful applications share the distinction of being sited in the most disadvantaged areas of the State.
OK, well, here I must diverge from my usual role as neutral and dispassioned observer.  Let's, for a moment, forget the formal letter of the law, and talk about common sense (for whatever that may be worth).  I think everybody, all along, realized that one of, if not the most important, goal of Governor Cuomo in limiting the first round of casinos to upstate New York was indeed to provide assistance to areas of the state that are struggling financially.  In fact, the very first line of the RFA reads as follows: 
Dear Applicant: New York Governor Cuomo has made reviving Upstate New York's long-stagnant economy a priority of his administration.
Get the point?  It's true, we must acknowledge, that the legislature did not do a good job of articulating this in the language of the enabling law.  Indeed, the section describing the 70% weight to economic activity does not specify anything about helping distressed areas.  But it was surely no secret. That's what the governor spoke about when he went to the Catskills the day after the referendum was approved (a speech which was cited critically by critics when attention turned to Orange County).  And it was surely well known to the bidders when they made their oral presentations to the board, as evidenced by all of the segments in their slick videos which were devoted to tear-jerking tales of economic distress and chronic unemployment.  The notion that, had the criteria been stated clearly in the RFA, that the bidders may have chosen different sites is hogwash.  The only thing that would have perhaps - mabye - been different is that the Orange County bidders may not have bothered; but I rather doubt that.  The "hundreds of thousands of dollars" in bidding costs was just pocket change to them, and well worth taking a shot, even a long one, at the riches that a casino location within an hour of NYC would have brought.  And again, they all knew what the implied, if not properly stated, purpose of this exercise was.

So, personally, I would stick to the first point; they're not going to find much sympathy with this one.  In fact, the idea of a company like Genting whining because "the successful applications share the distinction of being sited in the most disadvantaged areas of the State" is rather distasteful, to say the very least.  Based on the crocodile tears for the poor that we saw at the presentations, one might think that the losers would magnanimously be toasting the board for doing the proper thing.

The letter makes some final points; it points to the inconsistency between the board's refusal to recommend a location in Orange County due to the threat of cannibalization, but selecting Lago despite the huge threat of such to neighboring facilities such as the Finger Lakes (based largely on a report commissioned by the Finger Lakes) and Vernon Downs (both exacerbated by the fact that the tax rates on the existing racinos are significantly higher than those for the casinos to which they would lose customers).  It simply and succinctly points out that the winning bidders' projections of revenues to the state lagged behind those of many of the losers; thus ignoring the legislation's directive to maximize revenue to the state.  And finally, it notes the conflict of interest inherent in its outside consultant who had previously worked for five of the applicants, including all three winners.

Again, I wouldn't expect anything to come out of this letter; but we might very well expect it to proceed to the legal arena once the Commission turns its collective noses up at the thought of a do-over.  Perhaps I'll follow up in my next post, which you can probably expect sometime around Thanksgiving.

(Just kidding.)


Until that time....Let's Go Rangers!!