Do State agencies get to deny licenses – or the benefits and profits associated therewith – to companies where there is a risk of association with organized crime? Moreover, in denying the benefit to one company, does that agency get to transfer it to another?

The Commission’s question of suitability did not result in a denial of a license application. Wynn still received its gaming license.

On May 23, 2022, in FBT Everett Realty, LLC v. Massachusetts Gaming Commission, SJC-13196, the Supreme Judicial Court of Massachusetts decided that this question deserved to be explored more fully in the Superior Court.

In 2011, the Expanded Gaming Act made casino gaming legal in Massachusetts and created the Massachusetts Gaming Commission (the “Commission”). FBT Everett Realty, LLC (“FBT”) owned a large piece of land in Everett, Massachusetts that Wynn MA, LLC (“Wynn”) was interested in purchasing in order to construct and operate a casino. FBT agreed to sell the land to Wynn for $75 million, contingent upon Wynn receiving the necessary gaming license from the Commission. Upon receiving the application, the Commission investigated the suitability of Wynn and FBT to hold a gaming license, similar to the way that other jurisdictions have suitability and background check requirements for gambling or liquor license holders.

The Commission’s investigation raised some questions about one of the owners/former owners of FBT, his criminal history, and a potential connection to organized crime. FBT denies any connection to organized crime and told Commission investigators that the individual about whom they were concerned was a former, not current, owner.

One Commissioner and the Investigating Director expressed concerns about honesty in the application process and the risk of a windfall to organized crime, or even the perception thereof, during the Commission’s public hearing on the license.

The Commission then informed Wynn, directly, that they may not be awarded a gaming license if FBT was to benefit from the increased value of the property. Wynn, in response, had the Everett property reappraised to determine what it might be worth as a non-casino use. The appraisal was $35 million; a $40 million difference from the proposed sale price.

Wynn then reentered negotiations with FBT to discuss the sale price of the property. FBT agreed to sell to Wynn for $35 million on the assumption that the Commission would otherwise deny Wynn a gaming license and prevent the sale of the property altogether.

In September 2014, the Commission approved Wynn’s license application and in December, Wynn purchased the property for $35 million.

FBT filed suit against the Commission, alleging that their actions with respect to Wynn’s gaming license and the condition that FBT receive none of the increased property value associated with the approval of a gaming license amounted to a regulatory taking.¹ In analyzing the question of whether the Commission’s behavior constituted a regulatory taking, the SJC focused on the three primary factors first developed in the Penn Central case, and which have grown more detailed and robust over time with the development of subsequent case law.

The factors in determining a regulatory taking (where there is no physical invasion, and the property still has some economic value) are:

1) The economic impact of the alleged taking;

2) Whether the party (typically the property owner) had reasonable, investment-backed expectations with regard to value of the property; and

3) The character of the government action.

The SJC noted that this determination is a “fact-intensive inquiry” where no one factor is necessarily determinative² and that summary judgment is inappropriate where facts addressing the other prongs of the Penn Central test were not explored in the underlying record, such as what directives, if any, the Commission gave specifically to Wynn and which actions Wynn took of its own accord. These questions will be addressed on remand to the Superior Court.

In focusing on the first and third factors of Penn Central, the SJC highlighted two items for consideration. First, the substantial diminution in property value both monetarily and proportionally. Not only was the value decrease $40 million, but it was a loss of more than 50% of the total negotiated value. Second, the unusual nature of the government action in this circumstance. The Commission conducted its suitability investigation but, for reasons that are not made clear in the record, did not come to a final, confident conclusion about whether FBT in fact had a connection to organized crime. Additionally, the Commission’s question of suitability did not result in a denial of a license application. Wynn still received its gaming license. In the process, the $40 million in property value that FBT anticipated was effectively given to Wynn. The SJC found that “conditioning the grant of a governmental license on the renegotiation of a transaction between private parties in this way, so as to effectively transfer 40 million dollars from one to another, is extraordinary.”

A copy of FBT Everett Realty, LLC v. Massachusetts Gaming Commission, SJC-13196 can be found here.