The Porter Casino Resort, Inc. v. Georgia Gaming Investment, LLC

IN THE UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF TENNESSEE

WESTERN DIVISION

)

THE PORTER CASINO RESORT, )

INC., )

)

Plaintiff, )

)

v. ) No. 2:18-cv-02231-SHM-atc

)

GEORGIA GAMING INVESTMENT, )

LLC, and TENNESSEE HOLDING )

INVESTMENTS, LLC, )

)

Defendants, )

)

and )

)

GEORGIA GAMING INVESTMENT, )

LLC, and TENNESSEE HOLDING )

INVESTMENTS, LLC, )

)

Counter-Plaintiffs/Third )

Party Plaintiffs, )

)

v. )

)

THE PORTER CASINO RESORT, )

INC., )

)

Counter-Defendant, )

)

and )

)

M. COLE PORTER, Individually, )

and CHICAGO TITLE AND TRUST )

COMPANY, )

Third Party Defendants.

ORDER

This is a contract case. Before the Court is The Porter

Casino Resort, Inc.’s (“Porter Casino”) January 27, 2021 Motion

for Summary Judgment (“Porter Casino’s Motion”). (D.E. No. 104).

Defendants Georgia Gaming Investment, LLC (“Georgia Gaming”),

and Tennessee Holding Investments, LLC (“Tennessee Holding”),

(collectively “Defendants”) responded on February 24, 2021.

(D.E. No. 109.) Also before the Court is M. Cole Porter’s

(“Porter”) January 27, 2021 Motion for Summary Judgment

(“Porter’s Motion”). (D.E. No. 103.) Defendants responded on

February 24, 2021. (D.E. No. 111.) For the following reasons,

Porter’s Motion is GRANTED, and Porter Casino’s Motion is GRANTED

in part and DENIED in part.

I. Background and Procedural History

This case arises from Porter Casino’s attempt to purchase

the Majestic Star Casino. (See D.E. No. 109-7, 27.) Porter is

the founder, president, CEO, and sole shareholder of Porter

Casino. (D.E No. 103-8, ¶ 4.) Porter Casino was created “to

conduct business in furtherance of purchasing a casino resort.”

(Id. at ¶ 5.) Porter has sworn that his only involvement in the

Majestic Star Casino transaction was in his capacity as an

officer of Porter Casino. (Id. at ¶¶ 8-9.)

Initially, Porter was the sole shareholder in Porter Casino.

(D.E. No. 109-7, 8.) George Stadler became a shareholder, but

surrendered his shares. (Id. at 8.) Two other people were

offered shares, but the shares were never issued. (Id. at 9.)

On August 29, 2017, Porter Casino entered into a

subscription agreement with each Defendant. (See D.E. No. 104-

2; D.E. No. 104-4.) Under the subscription agreements, Porter

Casino would issue stock to Defendants in exchange for

Defendants’ investing in Porter Casino. (D.E. No. 104-2, ¶¶ 4-

5; D.E. No. 104-4, ¶¶ 3-4.) Defendants would then have

representation on Porter Casino’s board of directors. (D.E. No.

104-2, ¶ 5; D.E. No. 104-4, ¶ 5.)

The subscription agreements were “subject to the terms and

conditions of separate Letters of Intent” each Defendant signed

with Porter Casino. (D.E. No. 104-2, ¶ 4; D.E. No. 104-4, ¶ 4.)

Defendant Tennessee Holding’s letter was “made in conjunction

with and subject to the terms and conditions” of Defendant

Georgia Gaming’s letter. (D.E. No. 104-3, ¶ 1.) Defendant

Georgia Gaming’s letter did not contain that clause. (See D.E.

No. 104-5, ¶ 1.) Defendants were to invest $3,000,000 for pre-

acquisition costs and, if needed, an additional $1,000,000 for

temporary operating capital. (D.E. No. 104-3, ¶ 2; D.E. No.

104-5, ¶ 1.) The obligation to invest in Porter Casino expressed

in the letters of intent was conditioned on Porter Casino’s

completing its purchase of the Majestic Star Casino. (D.E. No.

104-3, ¶ 8; D.E. No. 104-5, ¶ 7.) The investment was also

conditioned on Porter Casino’s having a binding commitment for

purchase money from a lender acceptable to Defendants. (D.E.

No. 104-3, ¶ 9; D.E. No. 104-5, ¶ 8.) Each Defendant was

obligated to deposit $500,000 into an escrow account. (D.E. No.

104-3, ¶ 10; D.E. No. 104-5, ¶ 9.) Disbursement was to be

governed by an escrow agreement dated September 8, 2017. (D.E.

No. 104-3, ¶ 11; D.E. No. 104-5, ¶ 10.)

The escrow agreement was among Chicago Title, Porter Casino,

and the Majestic Star Casino. (D.E. No. 109-7, 27; D.E. No.

109-6.) Defendants are not referenced in it. (See D.E. No.

109-7; D.E. No. 109-6.) Porter Casino never signed a purchase

and sale agreement, but it signed a letter of intent with the

Majestic Star Casino. (Id. at 11.) The parties have not

submitted Porter Casino’s letter of intent to purchase the

Casino.

Porter Casino was unable to satisfy the contractual

requirements for committed debt and committed equity. (Id.)

Thomas F. Fricke (“Fricke”), general counsel of Porter Casino,

testified that Defendants caused both potential sources of

financing to withdraw. (Id.) Fricke testified that Defendants

corresponded with the seller of the Majestic Star Casino and the

escrow agent, which caused the seller and the lender to end their

negotiations with Porter Casino. (Id. at 22-23.)

On November 30, 2017, Defendants entered into termination

agreements with Porter Casino. (D.E. No. 109-4; D.E. No. 109-

5.) The termination agreements required Porter Casino to refund

$1,500,000 to Defendants. (D.E. No. 109-4, ¶ 2; D.E. No. 109-

5, ¶ 2.) The termination agreements, except for the escrow

conditions in paragraph 3, were not binding until the $1,500,000

was refunded. (D.E. No. 109-4, ¶ 2; D.E. No. 109-5, ¶ 2.) The

escrow conditions prohibited Porter Casino from continuing to

negotiate for the purchase of the Majestic Star Casino without

refunding the agreed $1,500,000 to Defendants or receiving their

approval. (D.E. No. 109-4, ¶ 3; D.E. No. 109-5, ¶ 3.) Porter

Casino was required to update Defendants regularly on the funding

of the refund. (D.E. No. 109-4, ¶ 3; D.E. No. 109-5, ¶ 3.)

Porter has sworn that the escrow deposit paid to Porter Casino

has been exhausted because the funds were used to pay Porter

Casino’s corporate debt obligations. (D.E. No. 103-8, ¶ 10.)

On February 27, 2018, Plaintiff Porter Casino filed its

Complaint in the Chancery Court of Tennessee for the Thirtieth

Judicial District at Memphis. (See D.E. No. 1, 1.) On April 6,

2018, Defendants removed to this Court. (Id.) On January 22,

2019, Porter Casino filed its Amended Complaint. Porter Casino

brings five claims. (D.E. No. 50, ¶¶ 18-43.) The first is a

claim for breach of contract because Defendants failed to perform

their obligations under the subscription agreements.1 (Id. at

¶¶ 18-20.) The second is a claim for breach of implied covenant

of good faith and fair dealing because Defendants prevented

Porter Casino from purchasing the Majestic Star Casino. (Id. at

¶¶ 21-25.) The third is a claim for tortious interference with

a business relationship because Defendants interfered with the

Majestic Star Casino purchase. (Id. at ¶¶ 26-32.) The fourth

is a claim for tortious interference with a business relationship

because Defendants interfered with the financing of the Majestic

Star Casino purchase. (Id. at ¶¶ 33-39.) The fifth is a claim

for a declaration that Defendants have breached the subscription

agreements, Porter Casino has not breached the subscription

agreements, Porter Casino is entitled to damages, and Porter

Casino may retain all funds Defendants paid. (Id. at ¶¶ 40-43.)

On April 13, 2018, Defendants filed a motion to dismiss for

lack of jurisdiction. (D.E. No. 7.) Porter Casino responded on

May 10, 2018. (D.E. No. 9.) On September 21, 2018, the Court

denied the motion. (D.E. No. 20.)

On November 26, 2018, Defendants filed their Counterclaims

and Third Party Claims. (D.E. No. 40.) Defendants bring five

Counterclaims against Porter Casino. (Id. at 21-31 ¶¶ 30-58.)

The first is for breach of contract for Porter Casino’s breach

1 The subscription agreements are also known as the “investment

agreements.” (See D.E. No. 40, 21 ¶¶ 32.)

of the subscription agreements. (Id. at 21-22 ¶¶ 30-33.) The

second is for breach of contract for Porter Casino’s breach of

the termination agreements. (Id. at 22-23 ¶¶ 34-37.) The third

is for fraud because Porter Casino made misrepresentations that

Defendants relied on to enter into the subscription agreements.

(Id. at 23-26 ¶¶ 38-43.) The fourth is for conversion, trover,

and misappropriation because Porter Casino took possession of

the escrow deposit. (Id. at 26-28 ¶¶ 44-50.) The fifth is for

interpleader. (Id. at 28-31 ¶¶ 51-58.)

Defendants bring five Third Party Claims against Porter and

Chicago Title and Trust Company (“Chicago Title”). (Id. at 32-

43 ¶¶ 5-38.) The first is for interpleader against Porter. (Id.

at 32-34 ¶¶ 5-9.) The second is for Section 10(b) securities

violations against Porter and Porter Casino because Porter Casino

and Porter made deceptive and manipulative statements in a

securities transaction.2 (Id. at 34-35, ¶¶ 10-16.) The third

is for fraud against Porter based on statements he made to

Defendants in his individual capacity. (Id. at 36-37, ¶¶ 17-

23.) The fourth is for conversion, trover, and misappropriation

against Porter because the escrow deposit was diverted. (Id. at

39-40, ¶¶ 24-29.) The fifth is for breach of contract against

2 Defendants purport to bring their Section 10(b) securities

fraud claim against Porter Casino as a Third Party Claim. (See

D.E. No. 40, 35 ¶ 11.)

Chicago Title and Porter Casino for breach of the escrow

agreement.3 (Id. at 41-43, ¶¶ 30-38.)

On February 22, 2019, Chicago Title filed a motion to

dismiss for failure to state a claim. (D.E. No. 53.) On April

23, 2019, Defendants responded. (D.E. No. 65.) On May 2, 2019,

Chicago Title replied. (D.E. No. 67.) The Court granted Chicago

Title’s motion and dismissed it from the case. (D.E. No. 68.)

II. Jurisdiction and Choice of Law

The Court has diversity jurisdiction under 28 U.S.C. § 1332.

A federal district court has original jurisdiction of all civil

actions between citizens of different states “where the matter

in controversy exceeds the sum or value of $75,000, exclusive of

interest and costs.” 28 U.S.C. § 1332(a)(1).

Plaintiff is a Tennessee corporation with its principal

place of business in Tennessee. (D.E. No. 50, 1 ¶ 1) Defendant

Georgia Gaming is a Georgia limited liability company. (D.E.

No. 19.) Its two members reside in Georgia. (Id.) See V & M

Star, LP v. Centimark Corp., 596 F.3d 354, 356 (6th Cir. 2010)

(“[L]imited liability companies ‘have the citizenship of each

partner or member.’” (quoting Delay v. Rosenthal Collins Grp.,

3 Defendants purport to bring their breach of escrow claim

against Porter Casino as a Third Party Claim. (See D.E. No.

40, 41-43, ¶30-38.)

LLC, 585 F.3d 1003, 1005 (6th Cir. 2009))). Defendant Tennessee

Holding is a Georgia limited liability company. (D.E. No. 18.)

Its sole member resides in Georgia. (Id.) See V & M Star, LP,

596 F.3d at 356. There is complete diversity. 28 U.S.C. §

1332(a)(1) (diversity exists when the parties are citizens of

different states).

Plaintiff seeks “not less than $1,500,000, plus such

interest as allowed by law, attorneys fees and damages as allowed

by law.” (D.E. No. 50, 9 ¶ 2.) The amount in controversy is

satisfied. Cf. 28 U.S.C. § 1332(a)(1). The Court has diversity

jurisdiction.

The subscription agreements Defendants signed include a

choice of law provision that designates Tennessee law. (D.E.

No. 104-2, ¶ 6; D.E. No. 104-4, ¶ 6.)

III. Standard of Review

Under Federal Rule of Civil Procedure 56(a), a court must

grant a party’s motion for summary judgment “if the movant shows

that there is no genuine dispute as to any material fact and the

movant is entitled to judgment as a matter of law.” Fed. R.

Civ. P. 56(a). The moving party must show that the nonmoving

party, having had sufficient opportunity for discovery, lacks

evidence to support an essential element of its case. See Fed.

R. Civ. P. 56(c)(1); Peeples v. City of Detroit, 891 F.3d 622,

630 (6th Cir. 2018).

When confronted with a properly supported motion for summary

judgment, the nonmoving party must set forth specific facts

showing that there is a genuine dispute for trial. See Fed. R.

Civ. P. 56(c). “A ‘genuine’ dispute exists when the plaintiff

presents ‘significant probative evidence’ ‘on which a reasonable

jury could return a verdict for her.’” EEOC v. Ford Motor Co.,

782 F.3d 753, 760 (6th Cir. 2015) (en banc) (quoting Chappell v.

City of Cleveland, 585 F.3d 901, 913 (6th Cir. 2009)). The

nonmoving party must do more than simply “show that there is

some metaphysical doubt as to the material facts.” Lossia v.

Flagstar Bancorp, Inc., 895 F.3d 423, 428 (6th Cir. 2018)

(quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475

U.S. 574, 586 (1986)).

Although summary judgment must be used carefully, it “is an

integral part of the Federal Rules as a whole, which are designed

to secure the just, speedy, and inexpensive determination of

every action[,] rather than a disfavored procedural shortcut.”

FDIC v. Jeff Miller Stables, 573 F.3d 289, 294 (6th Cir. 2009)

(quotation marks and citations omitted).

IV. Analysis

A. Standing

Porter and Porter Casino argue that Defendants lack standing

to bring their Counterclaims and Third Party Claims because

Defendants have not obtained a certificate of authority from

Tennessee.

Under Tennessee law, “[a] foreign LLC transacting business

in this state without a certificate of authority may not maintain

a proceeding in any court in this state until it obtains a

certificate of authority.” Tenn. Code Ann. § 48-246-601(a). The

proceedings may be stayed until the foreign LLC obtains a

certificate. Tenn. Code Ann. § 48-246-601(c); Saintsbury

Holdings, LLC v. RMC, LLC, No. 1:06-CV-00014, 2006 WL 1900317 at

*4 (M.D. Tenn. July 11, 2006) (“Plaintiff's lack of a certificate

of authority, if required, does not require dismissal, but can

justify a stay of the proceedings”). However, “the failure of

a foreign LLC to obtain a certificate of authority does not

impair” “[t]he foreign LLC from defending any action, suit, or

proceeding in any court of the state of Tennessee.” Tenn. Code

Ann. § 48-246-601(f)(3).

A nonregistered defendant may bring counterclaims. The

Tennessee Court of Appeals has considered whether a defendant’s

lack of a certificate of authority requires the dismissal of the

defendant’s counterclaim. Battery All., Inc. v. Allegiant Power,

LLC, No. W201502389COAR3CV, 2017 WL 401349 at *6 (Tenn. Ct. App.

Jan. 30, 2017). The court concluded that the defendant could

bring a counterclaim without a certificate of authority because

it “was merely asserting the counterclaim as a defense to the

action filed against it in the Tennessee court.” Id. The court

relied on a Arcata Graphics, a case addressing a statute on

foreign corporations, which the Battery All. court held was

“substantially similar” to the statute governing foreign LLC’s.

Id. at n. 2, n. 3. In Arcata Graphics, the court held that “[the

defendant] had been sued in Tennessee courts and was merely

asserting as a defense a counterclaim, which arose out of the

same transaction.” Arcata Graphics Co. v. Heidelberg Harris,

Inc., 874 S.W.2d 15, 22 (Tenn. Ct. App. 1993).

Defendants bring Third Party Claims against Porter and

Counterclaims against Porter Casino. Porter Casino’s Claims and

Defendants’ Counterclaims are part of the same transaction, the

purchase of the Majestic Star Casino. Defendants’ Counterclaims

against Porter Casino, the Plaintiff in this case, are permitted

because the Counterclaims arise out of the same transaction as

Plaintiff’s Claims. Defendants’ Third Party Claims against

Porter are defenses to Porter Casino’s underlying claims because

Porter Casino’s Claims and the Third Party Claims are based on

the same transaction and explain why the full investment was

never funded. Defendants have standing to bring their

Counterclaims and Third Party Claims against Porter and Porter

Casino.4

4 Defendants have pending applications for certificates of

authority. (See D.E. No. 109-1, ¶¶ 3-4.)

B. Piercing the Corporate Veil

Porter argues that Defendants’ Third Party Claims against

him must be dismissed. He argues that he has no personal

liability for the debts or actions of Porter Casino because

Defendants fail to show that the corporate veil should be

pierced.

Under Tennessee law, “a corporation and its shareholders

are distinct entities.” Cambio Health Sols., LLC v. Reardon,

213 S.W.3d 785, 790 (Tenn. 2006). The separate legal status of

a corporation generally protects its shareholders from liability

for the corporation’s debts and financial obligations. Id.;

Tenn. Code Ann. § 48-16-203(b) (“The shareholder of a corporation

is not personally liable for the acts or debts of the corporation

except that the shareholder may become personally liable by

reason of the shareholder’s own acts or conduct”). A plaintiff

may persuade “a court to disregard the separate corporate entity,

also known as ‘piercing the corporate veil.’” Cambio, 213

S.W.33d at 790; Tenn. Code Ann. § 48-16-203(b). “The doctrine

of piercing the corporate veil applies equally to cases in which

a party seeks to pierce the veil of a limited liability company.”

Edmunds v. Delta Partners, L.L.C., 403 S.W.3d 812, 828-829 (Tenn.

Ct. App. 2012) (citing In re Steffner, 479 B.R. 746, 755 (Bkrtcy.

E.D. Tenn. 2012)).

Defendants bring their Third Party Claims against Porter in

his individual capacity. (D.E. No. 40 ¶ 8; ¶ 11; ¶ 18; ¶ 25.)

Piercing the corporate veil is used to hold a shareholder liable

for the acts or debts of the corporation. See Cambio, 213

S.W.33d at 790; Tenn. Code Ann. § 48-16-203(b). Porter is not

entitled to dismissal of Defendants’ Third Party Claims under

the doctrine of piercing the corporate veil because Defendants’

Third Party Claims are based on Porter’s own actions.

C. Breach of Subscription Agreements

Porter Casino argues that it is entitled to summary judgment

on Defendants’ Counterclaim for breach of the subscription

agreements because Porter Casino’s breach was anticipatory.

Under Tennessee law, a breach of contract claim requires

proof of “the existence of a valid and enforceable contract, a

deficiency in the performance amounting to a breach, and damages

caused by the breach.” Fed. Ins. Co. v. Winters, 354 S.W.3d

287, 291 (Tenn. 2011). Interpretations of unambiguous contract

terms are issues of law and may be decided on summary judgment.

Bourland, Heflin, Alvarez, Minor & Matthews, PLC v. Heaton, 393

S.W.3d 671, 674 (Tenn. Ct. App. 2012). “Whether a party has

fulfilled its obligations under a contract or is in breach of

the contract is a question of fact.” Forrest Const. Co., LLC v.

Laughlin, 337 S.W.3d 211, 225 (Tenn. Ct. App. 2009).

Porter Casino is not entitled to summary judgment based on

its argument that any breach it committed was anticipatory. Each

subscription agreement was subject to the terms and conditions

of a letter of intent signed by one of the Defendants. (D.E.

No. 104-2, ¶ 4; D.E. No. 104-4, ¶ 5.) Under the terms of the

letters of intent, Defendants’ capital investment was

“conditioned upon the completion of all the terms and conditions

described in the Casino LOI, including but not limited to a Sale

Commitment, completion of all due diligence, and the execution

of a definitive Purchase and Sale Agreement, all as more

particularly described in the Casino LOI.” (D.E. No. 104-3, ¶

8; D.E. No. 104-5, ¶ 7.) The letters of intent were conditioned

on Porter Casino’s having a binding commitment from a lender

acceptable to Defendants to fund the purchase of the Majestic

Star Casino. (D.E. No. 104-3, ¶ 9; D.E. No. 104-5, ¶ 8.)

Defendants expressed concern to Porter Casino about its ability

to purchase the Casino and did not fully invest in Porter Casino.

(See D.E. No. 109-7, 8.) Porter Casino alleges that Defendants

caused the purchase of the Majestic Star Casino to fail. (D.E.

No. 50, ¶¶ 14-17; D.E. No. 109-7.)

Defendants’ Counterclaim cannot be decided based on

unambiguous contract terms. The Counterclaim turns, in part, on

whether the parties fulfilled their contractual obligations.

That is a question of fact. Summary judgement is not

appropriate.

The moving party has the burden of showing that there is no

genuine dispute of material fact. Pittman v. Experian Info.

Sols., Inc., 901 F.3d 619, 627 (6th Cir. 2018). Porter Casino

has not met its burden.

Porter Casino’s Motion is DENIED on the breach of the

subscription agreements Counterclaim.

D. Breach of Termination Agreements and Breach of Escrow

Agreement

Porter Casino argues that Defendants have failed to state

a claim for breach of the termination agreements and breach of

the escrow agreement because Defendants did not attach the

termination agreements and escrow agreement to their

Counterclaim.

In Northampton Restaurant, the Sixth Circuit affirmed the

trial court’s dismissal of a claim for breach of contract where

the plaintiff did not attach the contract to the complaint or

“include the language of any specific contractual provisions.”

Northampton Rest. Grp., Inc. v. FirstMerit Bank, N.A., 492 F.

App’x 518, 521-522 (6th Cir. 2012). The court decided that the

plaintiff had failed to state a claim because the plaintiff could

not allege sufficient facts to support its breach of contract

claim without the contract or without including the language of

the contract in the complaint. Id. The plaintiff had lost the

contract and was not permitted to engage in discovery to obtain

it. Id. Courts may consider a contract when it is attached to

a brief in deciding a motion to dismiss. See Miles-McClellan

Constr. Co., Inc. v. Kenny/Obayashi, No. 2:16-CV-577, 2017 WL

3209524 (S.D. Ohio Mar. 29, 2017).

This case has moved beyond the dismissal stage. Discovery

has been taken. Defendants have disclosed the termination

agreements and the escrow agreement. (See D.E. No. 109-4; D.E.

No. 109-5, D.E. No. 111-4; D.E. No. 111-5; D.E. No. 109-6.) A

party may rely on materials in the record, including documents,

in responding to a summary judgment motion. See Fed.R.Civ.P.

56(c)(1). Disclosing the termination agreements and the escrow

agreement satisfies the requirement that the contract or contract

language be provided by the party bringing a breach of contract

claim.

Porter Casino’s Motion is DENIED on the breach of the

termination agreement Counterclaim and the breach of the escrow

agreement Third Party Claim.

E. Fraud

Porter Casino and Porter argue that Defendants have not

pled fraud with the specificity required by Federal Rule of Civil

Procedure 9(b).

Claims of fraud are governed by Rule 9(b)’s heightened

pleading standard and must be pled with particularity. Under

Rule 9(b), “[i]n alleging fraud or mistake, a party must state

with particularity the circumstances constituting fraud or

mistake. Malice, intent, knowledge, and other conditions of a

person’s mind may be alleged generally.” Fed.R.Civ.P. 9(b). To

satisfy Rule 9(b), a plaintiff is required “(1) to specify the

allegedly fraudulent statements; (2) to identify the speaker;

(3) to plead when and where the statements were made; and (4) to

explain what made the statements fraudulent.” Republic Bank &

Tr. Co. v. Bear Stearns & Co., 683 F.3d 239, 247 (6th Cir. 2012).

Courts may consider Rule 9(b) when deciding summary judgment

motions. See Turner v. Speyer, No. 3:08 CV 1304, 2009 WL 2579420

at *6 (N.D. Ohio Aug. 18, 2009) (granting summary judgment on a

fraud counterclaim based on Rule 9(b)); In re Darvocet, No. 2:11-

MD-2226-DCR, 2015 WL 2451208 at *7-8 (E.D. Ky. May 21, 2015).

To prove fraud under Tennessee law, a plaintiff must prove

“(1) an intentional misrepresentation of a material fact, (2)

knowledge of the representation’s falsity, and (3) an injury

caused by reasonable reliance on the representation; and (4) the

requirement that the misrepresentation involve a past or existing

fact.” Smith v. BAC Home Loans Servicing, LP, 552 F. App’x 473,

478-479 (6th Cir. 2014) (quoting Dobbs v. Guenther, 846 S.W.2d

270, 274 (Tenn. Ct.App. 1992)).

Defendants’ allegations against Porter Casino satisfy Rule

9(b). Defendants allege that Porter Casino made material

representations that it “knew, or should have known, were false

and/or materially inaccurate and misleading.” (D.E. No. 40, ¶

40.) Defendants allege that Porter Casino misrepresented:

(i) that [Porter Casino] had binding financial

commitments and funding sources sufficient to complete the

acquisition of the Casino; (ii) that [Porter Casino] would

issue stock in and to Georgia Gaming and Tennessee Holding

in exchange for invested funds; (iii) that [Porter Casino]

would elect representatives of Georgia Gaming and Tennessee

Holding to the Board of Directors of PCR in exchange for

invested funds; (iv) that [Porter Casino] would be re-

capitalized and re-structured after investment of funds by

Georgia Gaming and Tennessee Holding; and (v) that [Porter

Casino] would refund Georgia Gaming and Tennessee Holding

the sum of $ 1,500,000.00, from either new investment

proceeds received by [Porter Casino] or a refund of the

Escrow Deposit, if Georgia Gaming and Tennessee Holding

would execute the Termination Agreement.

(D.E. No. 40, ¶ 40.)

Defendants allege that they relied on variations of Porter

Casino’s misrepresentations to enter into the subscription and

termination agreements. (Id. at ¶ 41.) Defendants allege that

Porter Casino assured Defendants that it had the funding and

financing commitments necessary to purchase the Majestic Star

Casino. (Id. at ¶ 11.) Defendants allege that Porter made false

and inaccurate statements in his individual capacity about

funding and the ability of Porter Casino to purchase the Casino.

(Id. at ¶¶ 19-20.) The allegations that Porter Casino and Porter

told Defendants that Porter Casino had financing when it did not

are sufficient to satisfy Rule 9(b).

Porter Casino also argues that summary judgment is

appropriate because there is no genuine dispute of material fact

about Defendants’ reliance on Porter Casino’s representations.

Porter Casino argues that the subscription agreements warned

Defendants that the investment was speculative and “involved a

high degree of risk of loss.” (D.E. No. 104-2; D.E. No. 104-4.)

Porter Casino also argues that, because the letters of intent

allowed Defendants to review Porter Casino’s records, any

misrepresentations would not have been material. (See D.E. No.

104-3; D.E. No. 104-5.)

Under Tennessee law, the party asserting fraud must, “when

confronted by a motion for summary judgment, [] produce some

competent and material evidence legally sufficient to support

his claim or defense.” Fowler v. Happy Goodman Fam., 575 S.W.2d

496, 499 (Tenn. 1978). Under federal law, when the moving party

demonstrates the basis for its motion, “[t]he nonmoving party

‘must set forth specific facts showing that there is a genuine

issue for trial.’” Pittman, 901 F.3d at 628 (quoting Anderson

v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (internal

citations and quotation marks omitted)). Defendants cite no

evidence in response that shows Porter Casino made

misrepresentations that Defendants reasonably relied on.

Defendants cite their Counterclaims and Third Party Claims to

show the misrepresentations were fraudulent. (See D.E. No. 109,

9-14.) They cite exhibit 7 to Fricke’s deposition as evidence

that Porter Casino intended to defraud them because Porter Casino

spent the $1,500,000 on “payments to individuals and entities

other than [Defendants]”. (Id. at 12.) The mere fact that

Porter Casino later may have spent the contested money

inappropriately does not satisfy Defendants’ burden to show

intent. No affidavits, depositions, emails, or other documents

are cited to show that Defendants relied on any

misrepresentations by Porter Casino.

Porter argues that he is entitled to summary judgment

because Defendants provide no evidence that Porter acted in his

individual capacity and because Defendants cannot show

reasonable reliance. (D.E. No. 103-9, 12-16.) Defendants cite

no evidence other than the evidence cited in response to Porter

Casino. Defendants provide no evidence to support their

allegations that they relied on any misrepresentations by Porter

or that Porter made representations in his individual capacity.

Defendants argue that “[t]he multitude of facts pled by

[Defendants] also give rise to a strong inference that Porter

knowingly misrepresented such facts”. (D.E. No. 111, 11.) An

inference based on the pleadings is insufficient to survive

summary judgment.

Porter Casino’s Motion is GRANTED. Defendants’ fraud

Counterclaim is DISMISSED. Porter’s Motion is GRANTED.

Defendants’ fraud Third Party Claim is DISMISSED.

F. Section 10(b) Securities Violations

Section 10(b) of the Securities Exchange Act of 1934 governs

securities fraud. 15 U.S.C. § 78j. The relevant portion of

Section 10(b) reads as follows:

It shall be unlawful for any person, directly or

indirectly, by the use of any means or instrumentality of

interstate commerce or of the mails, or of any facility of

any national securities exchange—

****

(b) To use or employ, in connection with the purchase

or sale of any security registered on a national securities

exchange or any security not so registered, or any

securities-based swap agreement[,] any manipulative or

deceptive device or contrivance in contravention of such

rules and regulations as the Commission may prescribe as

necessary or appropriate in the public interest or for the

protection of investors.

15 U.S.C. § 78j(b).

Securities fraud must be pled with specificity under Rule

9(b). In re Comshare Inc. Sec. Litig., 183 F.3d 542, 548 (6th

Cir. 1999). The “underlying rationale” of cases involving

pleading under 9(b) “is applicable to the summary judgment

setting as well.” Nolfi v. Ohio Kentucky Oil Corp., 562 F.Supp.

2d 904, 910 (N.D. Ohio 2008). “[A] plaintiff must allege, in

connection with the purchase or sale of securities, the

misstatement or omission of a material fact, made with scienter,

upon which the plaintiff justifiably relied and which proximately

caused the plaintiff’s injury. Comshare, 183 F.3d at 548. The

claim must meet the “more exacting pleading requirement imposed

by the Private Securities Litigation Reform Act of 1995

(“PSLRA”), 15 U.S.C. § 78u-4.” In re Yum! Brands, Inc. Sec.

Litig., 73 F. Supp. 3d 846, 858 (W.D. Ky. 2014), aff’d sub nom.

Bondali v. YumA Brands, Inc., 620 F. App’x 483 (6th Cir. 2015).

Under the PSLRA the plaintiff in a securities fraud case must

(1) ... specify each statement alleged to have been

misleading, the reason or reasons why the statement is

misleading, and, if an allegation regarding the statement

or omission is made on information and belief, the

complaint shall state with particularity all facts on

which that belief is formed [and]

(2) ... state with particularity facts giving rise to

a strong inference that the defendant acted with the

required state of mind.

Frank v. Dana Corp., 547 F.3d 564, 570 (6th Cir. 2008) (quoting

15 U.S.C. § 78u-4(b)(1),(2)). All the pled facts, taken

together, must “give rise to a strong inference of scienter” and

the court must consider “plausible opposing inferences.” Id. at

570-571 (citing Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551

U.S. 308, 321-322 (2007)). The movant must show that there is

a strong inference of scienter at the summary judgment stage.

See Brown v. Earthboard Sports USA, Inc., 481 F.3d 901, 916-917

(6th Cir. 2007).

Porter Casino argues that Section 10(b) does not apply

because the transaction at issue was a transfer of a security

rather than a sale and that the securities were not listed on a

stock exchange. Neither of those arguments is well taken.

Porter Casino has provided no support for its argument that an

investment of money in exchange for a transfer of securities is

not a purchase or sale. The term “sale” and “sell” “shall

include every contract of sale or disposition of a security or

interest in a security, for value.” 15 U.S.C. § 77b(a)(3).

Porter Casino and Defendants formed contracts to exchange

securities for value.

Porter Casino cites Morrison v. Nat'l Australia Bank Ltd.,

561 U.S. 247, 273 (2010), for the proposition that being listed

on an exchange is a precondition to the application of Section

10(b). The court in Morrison, however, held only that Section

10(b) does not apply extraterritorially because Section 10(b)

applies “only in connection with the purchase or sale of a

security listed on an American stock exchange, and the purchase

or sale of any other security in the United States.” Morrison,

561 U.S. at 273. Section 10(b) applies to the transaction at

issue in this case.

Defendants have failed to demonstrate a “strong inference

of scienter.” The nonmoving party must “adduce[] sufficient

evidence to withstand summary judgment.” Brown, 481 F.3d at 918-

919. Defendants allege that “[t]he actions, misrepresentations, and

manipulative and deceptive acts and statements of PCR and Porter

were accomplished with scienter.” (D.E. No. 40, 35 ¶ 15.)

Defendants also incorporate paragraphs 1-58 of the Counterclaim.

(Id. at 35 ¶ 13.) Defendants offer no evidence to support their

conclusory allegations or that give rise to a strong inference

of scienter. At the summary judgment stage, a party may not

rest on its pleadings, but must present probative evidence to

support its case.

Defendants’ Section 10(b) Third Party Claim against Porter

fails for the same reason. Defendants offer no probative

evidence to support their allegations or that give rise to a

strong inference of scienter.

Porter Casino’s Motion is GRANTED on the Section 10(b)

Counterclaim. Defendants’ Counterclaim is DISMISSED. Porter’s

Motion is GRANTED on the Section 10(b) Third Party Claim.

Defendants’ Third Party Claim is DISMISSED.

G. Conversion, Trover, and Misappropriation

Porter Casino’s argument for summary judgment on

Defendants’ conversion, trover, and misappropriation

Counterclaims is that Defendants did not attach the termination

agreements to the Counterclaims. For the reasons discussed in

Section D, that argument is not well-taken. Defendants have

provided the termination agreements.

Porter’s argument for summary judgment on Defendants’

conversion, trover, and misappropriation Third Party Claims is

that the subscription agreements preclude a finding of

conversion, trover, and misappropriation. Defendants argue that

a novation occurred because the termination agreements

superseded the subscription agreements.

Under Tennessee law, a “[n]ovation is the substitution of

a new obligation for an existing one or the substitution of a

third party for the existing obligor.” TWB Architects, Inc. v.

Braxton, LLC, 578 S.W.3d 879, 890 (Tenn. 2019). To establish a

novation, a party must show “(1) a previously valid obligation,

(2) the agreement of all parties to a new contract, (3) the

extinguishment of the old contract, and (4) a valid new

contract.” Id. at 891 (quoting 21 Steven W. Feldman, Tennessee

Practice Series Contract Law and Practice, § 3:42 (May 2019

Update) (internal quotations removed)).

“Conversion is the appropriation of tangible property to a

party's own use in exclusion or defiance of the owner’s rights.”

PNC Multifamily Cap. Institutional Fund XXVI Ltd. P’ship v. Bluff

City Cmty. Dev. Corp., 387 S.W.3d 525, 553 (Tenn. Ct. App. 2012).

To prove conversion, the plaintiff must show “(1) the

appropriation of another’s property to one’s own use and benefit,

(2) by the intentional exercise of dominion over it, (3) in

defiance of the true owner’s rights.” Id. “Trover lies for the

conversion of determinate sums . . . where there is an obligation

to keep the money intact or to deliver it.” Id. at 554.

Conversion may be described as misappropriation. See Id.

The Court need not reach the effect of the subscription and

termination agreements to decide this Third Party Claim against

Porter. When invoking the corporate veil, Porter argues that

nothing in Defendants’ Third Party Complaint shows he acted in

his individual capacity. Defendants have not offered any

evidence that Porter, in his individual capacity, might be liable

for conversion or trover. The only evidence cited is that Porter

was CEO and shareholder of Porter Casino and that the escrow

deposit was exhausted. (See D.E. No. 103-8, ¶¶ 4, 10.) In

response to a summary judgment motion, the nonmoving party “must

set forth specific facts showing that there is a genuine issue

for trial.” Pittman, 901 F.3d at 628 (quoting Anderson, 477

U.S. at 250 (internal citations removed)). Defendants have not

met their burden.

Porter Casino’s Motion is DENIED on Defendants’ conversion,

trover, and misappropriation Counterclaims. Porter’s Motion is

GRANTED. Defendants’ conversion, trover, and misappropriation

Third Party Claims against Porter are DISMISSED.

H. Interpleader

Porter Casino argues that it is entitled to summary judgment

on Defendants’ interpleader Counterclaim because Defendants did

not attach the termination agreements to their Counterclaims,

the subscription agreements permitted Porter Casino to use the

funds for its own benefit, and interpleader must be brought in

a judicial district in which one of the claimants resides.

Porter argues that he is entitled to summary judgment on

Defendants’ interpleader Third Party Claim because the money at

issue was disbursed to Porter Casino and interpleader must be

brought in the judicial district in which one of the claimants

resides.

Interpleader is an equitable proceeding. United States v.

High Tech. Prod., Inc., 497 F.3d 637, 641 (6th Cir. 2007).

Typically, a disinterested stakeholder deposits the disputed

property with the court. 28 U.S.C. § 1335; High Tech, 497 F.3d

at 642 n. 2. Federal law provides for statutory and rule

interpleader. Id. at 641 n. 1. The general principles of

applicability are the same for both. See id. Defendants have

pled both. (See D.E. No. 40, 28 ¶ 52.) The “primary test”

for whether interpleader is appropriate “is whether the

stakeholder legitimately fears multiple vexation directed

against a single fund [or property].” Id. at 642, quoting 7

Charles Alan Wright, Arthur R. Miller, & Mary Kay Kane, Federal

Practice and Procedure, § 1704 (3d ed. 2001).

Defendants’ interpleader Counterclaim must be dismissed for

reasons other than those Porter and Porter Casino argue. There

is no disinterested stakeholder of disputed property. The escrow

account was deposited with Chicago Title, which has been

dismissed. (D.E. No. 68.) The money at issue has not been

deposited with the Court. (See D.E. No. 103-8, ¶ 10.) There is

no single fund. Porter Casino represents that it has exhausted

the funds. (Id.) Defendants are not at risk of multiple claims

because Defendants and Porter Casino are the only claimants.

(See D.E. No. 50.) There is no basis for an interpleader

Counterclaim against Porter Casino.

Defendants’ interpleader Third Party Claim against Porter

must be dismissed because, inter alia, he makes no claim against

any fund. For the reasons discussed as to Porter Casino, there

is no basis for an interpleader Third Party Claim against Porter.

Porter Casino’s Motion is GRANTED. Defendants’

interpleader Counterclaim is DISMISSED. Porter’s Motion is

GRANTED. Defendants’ interpleader Third Party Claim is

DISMISSED.

V. Conclusion

Porter Casino’s Motion is GRANTED in part and DENIED in

part. Defendants’ Counterclaims for fraud, Section 10(b) fraud,

and interpleader against Porter Casino are DISMISSED.

Porter’s Motion is GRANTED. Defendants’ Third Party Claims

against Porter are DISMISSED.

SO ORDERED this 25th day of June, 2021.

/ s/ Samuel H. Mays, Jr.

SAMUEL H. MAYS, JR.

UNITED STATES DISTRICT JUDGE