Having plans fall through doesn’t usually cost you $50 million.
However, that’s exactly what happened when Foxwoods Development Corporation (FDC) took a one-third share of the development group, Philadelphia Entertainment & Development partners, who paid a $50 million licensing fee for one of two casino licenses made available by the Pennsylvania Gaming Control Board (PGCB) in 2006.
The casino never materialized and now FDC and its partners are fighting to get their $50 million back, a fight that took a positive step in their favor earlier this month when a federal judge sent the group’s case back to the bankruptcy court that initially ruled the licensing fee couldn’t be refunded.
How Foxwoods ended up where they are
FDC is owned by the Mashantucket Pequot tribe, the group whose Foxwoods Casino in Connecticut is the second-largest in the United States.
They, along with other investors, paid for a casino license in 2007. Over the next four years, they, along with their partners, bounced between casino locations and owners.
The original plan was to build the casino in South Philadelphia. However, local pushback forced them to pivot to downtown Philly.
They redoubled their efforts by bringing in famed developer Steve Wynn, who wanted to move the casino back to South Philly. Wynn couldn’t get the job done. He later exited the project.
The development group hired Harrah’s Entertainment to do what Wynn couldn’t. Unfortunately, Harrah’s missed a crucial permit deadline and, like their predecessor, withdrew from the project.
The development group continued to miss deadlines and, eventually, their license was revoked in 2010.
Bankruptcy court, district judge rule against Foxwoods
FDC and their partners were determined to get their licensing fee back, so they filed for bankruptcy on April 1, 2014, in the hopes that the bankruptcy court would return the fee.
At that time, Philly Live reported, the development group owed more than $85 million to lenders and law firms.
The bankruptcy court did not concede the $50 million refund, leaving the development group in deep debt.
Foxwoods and their partners continued to push their case through the legal system. U.S. District Court Judge Joseph E. Leeson, Jr., upheld the bankruptcy court’s decision.
Appeals court reverses decision
The Foxwoods saga took another turn earlier this year when the U.S. Court of Appeals for the Third Circuit reversed Leeson’s decision.
The court gave Lesson the option of keeping the case for himself, Philly Live reported, or sending it back to bankruptcy court. Leeson chose to send the case back.
The issue is “fraudulent transfer”
When the case goes before the bankruptcy court, there will be another review of the principle of fraudulent transfer.
This principle has two aspects to it: actual fraud and constructive fraud. Based on an analysis from Irvine, CA, law firm Cadden & Fuller, constructive fraud boils down to one of two circumstances: the debtor (Foxwoods) pays for something that doesn’t have equal value to what they paid, or the debtor isn’t able to pay their debts because of the payment.
Foxwoods’ argument would seem to be that of constructive fraud. Either they believe the casino license wasn’t worth the $50 million they paid or that the payment is what made them unable to pay their outstanding debt.