SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF SCHENECDATY

AQUEDUCT ENTERTAINMENT COMPANY, LLC (f/k/a Aqueduct Entertainment Group, LLC) and RICHARD MAYS, Petitioners/Plaintiffs, ~ against ~ NEW YORK STATE DIVISION OF LOTTERY; HON. DAVID PATERSON, as Governor; HON. MALCOLM SMITH, as Senate President; HON. JOHN SAMPSON, as Senate Democratic Majority Leader; and HON. SHELDON SILVER, as Assembly Speaker, Respondents/Defendants.

Index No. _____________

VERIFIED ARTICLE 78 PETITION AND COMPLAINT FOR A DECLARATORY JUDGMENT

Aqueduct Entertainment Company, LLC (AEC) and Richard Mays lodge this combined Petition and Complaint––requesting declaratory and injunctive relief––to end the mounting and irreparable injury they presently suffer as a result of the arbitrary, capricious, unauthorized, and discriminatory actions taken against them by the New York State Division of Lottery (Lottery), Governor David Paterson, Senate President Malcolm Smith, and Assembly Speaker Sheldon Silver. NATURE OF SPECIAL PROCEEDING AND ACTION 1. Under a procedure enacted by the New York State Legislature in 2007, the three

heads of New York State government, in January of this year, selected AEC from six competing bidders to develop and operate a video lottery terminals facility at Aqueduct Racetrack in Queens Borough. The contract award was unanimous and conditioned on AEC obtaining a video lottery gaming license.

2.

Nearly a year after the bidding process had commenced and AEC had been

selected, the Assembly Speaker changed the licensing rules. One change required all members of AEC––even if they were passive investors who maintained negligible interests in the company––to apply for a video lottery gaming license and submit highly detailed personal and financial information to Lottery, an agency known for leaking confidential information. He unilaterally imposed this condition and others solely on AEC, conjuring them out of thin air and supplanting applicable video lottery gaming regulations. Indeed, the Speaker’s nonnegotiable conditions were so far out of left field Lottery’s general counsel called them “arbitrary and capricious.” 3. Then, as if singling out AEC for unauthorized licensing requirements was not

enough, the Speaker asked the Inspector General to investigate how he (the Speaker) came to select AEC as the top bidder jointly with the Governor and Senate President. An investigation ensued that relied entirely on media speculation and innuendo. Numerous subpoenas were issued and news leaks were made to pressure the subpoena recipients. But absolutely no one associated with AEC has been accused of any wrongdoing since they did nothing improper. 4. Nonetheless, Lottery got the hint from the Speaker’s less-than-subtle efforts to

derail AEC’s selection, and it summarily found the company “ineligible” for a video lottery license. The agency claimed, which was true, that AEC had not submitted individual licensing applications for former passive investors who no longer were part of the company and who, but for the Speaker’s unauthorized condition, were not required by law to be licensed. That “failure,” Lottery claimed, created an appearance that AEC was “concealing” something because two unrelated investigations––one the Speaker instigated and one conducted by the U.S. Attorney––were ongoing. Of course, no concrete evidence was ever presented to Lottery by

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those agencies (or anyone else) of what AEC allegedly was hiding or from whom AEC was hiding it. In the end, Lottery never gave AEC an opportunity to address the media’s gossip before the agency rejected the company’s license application. 5. On the same day of Lottery’s decision, the Governor––in an unprecedented

procedure not provided for in the 2007 video lottery gaming legislation––unilaterally “withdrew” his support for AEC’s bid. Apparently, although it is by no means clear, since AEC’s selection was no longer unanimous, the Governor took the Aqueduct contract from AEC and rebid it on May 11, 2010. 6. Neither Lottery nor the Governor provided AEC adequate notice of important

deadlines in the licensing process, made decisions free of bias and conflict, or afforded AEC an opportunity to be heard on Lottery’s denial of its license application or the Governor’s singlehanded rescission of the Aqueduct contract. The irreparable injury AEC has suffered from Respondents’ unlawful actions will be magnified exponentially when a new top bidder is selected on August 3, 2010. Interestingly, the unauthorized licensing conditions the Speaker specially imposed on AEC have been abandoned in the new bid process. 7. Petitioners, therefore, sue Respondents for imposing ultra vires conditions on

AEC (Count I), failing to follow administrative procedures (Count II), due process violations (Count III), equal protection violations (Count IV), freedom of association violations (Count V), and breaches of good-faith and fair dealing (Count VI). In support of this combined Petition and Complaint, Petitioners state as follows:

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PARTIES 8. Aqueduct Entertainment Company, LLC, was formerly known as Aqueduct

Entertainment Group, LLC. It is a limited liability company formed, headquartered, and doing business in New York. AEC’s membership includes natural persons and business entities. 9. Former Arkansas Supreme Court Justice Richard Mays is a member of AEC and

Chairman of its Board of Directors. Although he is a resident of Arkansas, he regularly does business in New York. He sues in his official capacity as AEC’s Chairman and in his personal capacity as a member of AEC. 10. The Honorable David Patterson is Governor of the State of New York. He is

being sued in his official capacity. 11. The Honorable Malcolm Smith is a New York State Senator and serves as

President of the Senate. He is being sued in his official capacity. 12. The Honorable John Sampson is a New York State Senator and serves as

Democratic Majority Leader. He is being sued in his official capacity. 13. The Honorable Sheldon Silver is a New York State Assemblyman and serves as

Speaker of the Assembly. He is being sued in his official capacity. 14. The New York State Division of Lottery is part of the New York State

government. Among other things, Lottery oversees New York’s video lottery terminal facilities and is responsible for issuing video lottery gaming licenses.

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JURISDICTION AND VENUE 15. This Court has jurisdiction because it has original jurisdiction over special

proceedings, because all parties may be found here, and because the material events giving rise to this dispute occurred here. 16. This Court is the appropriate venue because Lottery is located here, because the

unlawful acts and omissions by Respondents that Petitioners challenge were committed here, and because other material events giving rise to this dispute occurred here.

ADMINISTRATIVE PREQUISITES 17. AEC was not required to exhaust administrative remedies before bringing this

special proceeding because (a) this challenge is based on unconstitutional and extra-jurisdictional actions by Respondents; (b) no further administrative process exists to challenge Respondents’ actions; and (c) Respondents are the agency and officers to whom further administrative process would have been taken, if one existed, and, therefore, would have been futile.

FACTUAL ALLEGATIONS

History of Video Lottery Gaming at Aqueduct Racetrack

18.

Video lottery terminals are lotteries permitted under the New York State

Constitution. The Court of Appeals has described the gaming machines in this way: The video lottery is played using video lottery terminals, which are each connected to a central system through the use of “site controller”––computers that connect several VLTs both to each other and to the central system. In the most common form of video lottery gaming, participants at individual VLTs play against each other by purchasing electronic instant tickets from a finite pool. In order to play, individuals place cash or other currency into the VLT to purchase 5
 

an electronic instant ticket. The player then determines the “game identifier” and the price of the electronic ticket to be purchased. The VLT receives the next ticket from the site controller and displays the predetermined outcome––win or loss. If the player wins, the VLT will print an ‘electronically coded instrument’ which can be used to play additional video lottery games or can be redeemed for value. Dalton v. Pataki, 5 N.Y.3d 243, 265 (2005). 19. Video lottery terminals are in use at eight locations in New York. The sites are

run by licensed operators and include Batvia Downs Casino in Batvia, Empire City Casino at Yonkers Raceway in Yonkers, Fairgrounds Gaming & Raceway in Hamburg, Finger Lakes Gaming & Racetrack in Farmington, Monticello Casino & Racetrack in Monticello, Saratoga Gaming & Raceway in Saratoga Springs, Tioga Downs Casino in Nichols, and Vernon Downs Casino & Hotel in Vernon. 20. In 1955, the New York Racing Association (NYRA) was awarded the exclusive

franchise right to conduct racing and pari-mutuel betting at Aqueduct Racetrack. That right included authorization to conduct video lottery gaming. In 2003, NYRA reached an agreement with MGM-Mirage to install video lottery terminals at Aqueduct. But delays, including those caused by NYRA’s indictment, led to MGM-Mirage abandoning the project. 21. In 2008, after a settlement was reached with a bankrupt NYRA, the State issued a

solicitation to develop and operate video lottery gaming at Aqueduct. A company called Delaware North was selected as the winning bidder by the Governor, Senate President, and Assembly Speaker under a new procedure that had been enacted by the State Legislature in February of 2007. See Tax Law § 1612-e. But the video lottery terminals facility was not built because Delaware North failed to raise the $370 million it had pledged by the payment deadline. 22. So, on April 16, 2009, the State issued another solicitation to develop and operate

a video lottery terminal facility at Aqueduct Racetrack. See Exhibit 1. 6
 

23.

The solicitation envisioned the installation of 4,525 video lottery terminals at

Aqueduct, which would require 243,132 square feet of renovation and expansion. The solicitation also explained the State would enter into a thirty-year development agreement and facility ground lease with the winning bidder. On information and belief, the State anticipated earning no less $1 million a day through a profit-share once the Aqueduct video lottery terminals were operational. 24. The solicitation provided, however, that, before the winning bidder was to be

selected, all bidders had to be reviewed by Lottery to determine their licenseability: Through [Lottery], the State intends to conduct a “pre-qualification review of all potential Vendors…. The purpose of such review will be to determine whether each potential Vendor, including any associated entities and principal and key individuals, meets the Lottery’s standards for a video lottery license…. The review will concentrate on the skills, experience and financial resources each entity proposes to employ at the Aqueduct [video lottery terminal] facility, as well as the reputation of each entity and individual for honesty and integrity. See Exhibit 1, at 3 (emphasis added). Lottery’s “standards” are codified in the Video Lottery Gaming regulations. See NYCRR Sections 2836–1 to 2836–24. On information and belief, Lottery used those standards to vet the six bidders. 25. Pursuant to Tax Law § 1612-e, the solicitation further provided that the winning

bidder would be selected by a triumvirate of the Governor, the Senate Majority Leader, and the Assembly Speaker: The Vendor selected will be chosen by the unanimous agreement of the Governor, Senate Majority Leader and Speaker of the Assembly, and will enter into the MOU [memorandum of understanding] promptly thereafter. See Exhibit 1, at 3. While the solicitation refers to the Senate Majority Leader, the statute refers to the Temporary President of the Senate. The two, ordinarily, are one in the same; however, a recent disaggregation of power in the Senate’s Democratic leadership split the positions. On

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information and belief, Senate President Malcolm Smith selected AEC as the winning bidder in consultation with Democratic Majority Leader John Sampson, satisfying the statute and the solicitation. 26. According to the solicitation, an MOU that was attached to the solicitation, see

Exhibit 2, obligated the winning bidder to pay $1 million to the State upon selection and, after executing the MOU, to pay the full bid amount called a Licensing Fee: Located on the Governor’s webpage (www.ny.gov/governor/) is a memorandum of understanding (MOU) relating to the development and operation of a [video lottery terminal] gaming facility at Aqueduct Racetrack. This MOU is structured to be a binding obligation of the potential Vendor for payment of an upfront Licensing Fee with the State within 10 business days of execution of the MOU, without conditions precedent. No minimum bid has been established. Upon selection of the Vendor by the Governor and Legislative leaders, $1 million shall be payable to the State toward the State Expenses Fund, as such is defined in the MOU. As detailed in the MOU, the structure of the transaction will be as follows: upon the parties entering into the MOU, the Vendor shall pay to the State the nonrefundable License Fee. The parties then will enter into a development agreement and a ground lease for the site of the [video license terminal] facility. See Exhibit 1, at 2. 27. Six companies, including AEC, competed for the Aqueduct video lottery contract.

AEC Wins Bid, but Licensing Rules Change

28.

On January 29, 2010, Governor Patterson announced that “he and Legislative

Leaders [had] selected [AEC] to operate the video lottery terminals at Aqueduct Racetrack.” See Exhibit 3. The selection of AEC by the three heads of the New York State government was unanimous. 29. The Governor, shortly after announcing AEC’s selection, issued a press release

fully explaining that AEC’s well-rounded, community oriented bid was the best overall bid: 8
 

The final selection was based on a broad range of criteria including speed of payment, pay out over time, marketing/branding appeal, union support, construction capacity, win per slot, gaming expertise, community support, MWBE program, expansion plan, SEQRA footprint and lack of conditions on meeting the above criteria. [AEC] was at or near the top in most of these categories. AEG’s strengths included: a proposal that provided the fastest construction of a new permanent gaming facility with more VLTs at opening than other bidders; experienced development, gaming and construction executives; a high and attainable “win per day” estimate of $350; broad local support; full compliance with [Lottery’s] prequalification license review, a statutorily required project labor agreement and the State’s MWBE goals. See Exhibit 4. 30. Community leaders hailed the selection of AEC as good for the Queens

community. In expressing her agreement with the top politicians’ unanimous choice, Assemblywoman Audrey Pheffer said in a press release that AEC “is an organization that has long ties to the Queens community and has a unique and vast knowledge of the needs of our neighborhoods. The future of Aqueduct Racetrack is vital to our community.” Her sentiments were echoed by several community leaders. 31. Then, four days after AEC was selected, on February 3, 2010, the Speaker of the

Assembly wrote the Governor to unilaterally impose four conditions on AEC’s selection and licensing eligibility. See Exhibit 5. He said that AEC needed to meet those conditions in order to continue to receive his support. 32. The Speaker’s conditions were not enacted by New York’s legislative bodies, not

founded in any preexisting law or regulation, not derived from past agency precedent, and not based on any term of the Aqueduct solicitation or MOU. He just made them up. And he commanded that AEC––and AEC alone––be held to a different standard from the five other

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bidders who had participated in the Aqueduct bidding process and from the eight video lottery terminal operators who had previously been licensed by the State. 33. The Speaker’s conditions exceeded his limited authority under Tax Law § 1612-e.

AEC and its membership had no notice prior to winning the bid that they would be subject to his nonnegotiable conditions. The four conditions changed the licensing rules midway through the process and caused some of AEC’s members to rethink their participation.

All Members Required to Submit to Probity

34.

The Speaker’s third condition required that “all investors, at any level, partners,

directors, managers, contract holders, consultants, principals and other selected employees must obtain a license from” Lottery. See Exhibit 5. This requirement, which was never subject to any rulemaking process and had never been applied to any bidder in the state, contravened and supplanted video lottery gaming regulations. 35. The regulations applicable to limited liability companies like AEC only require

its “principal” members to obtain a license. Under NYCRR Section 2836-1.2(ci)(5), a “[p]rincipal of a video lottery gaming agent means[,] if a limited liability company, each of its members.” But only managing members of a limited liability company are required under NYCRR Section 2836-4.2(b)(3) to apply for a license as a “principal”: Each person who is a principal of a video lottery gaming agent or the operator of a video lottery gaming facility on behalf of such an agent is required to be licensed by the division. A video lottery gaming agent principal application and disclosure form shall be filed with the division.... [W]here the video lottery gaming agent principal is other than a natural person, each person(s) exercising control as principals over the video lottery gaming agent principal applicant.

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In other words, only the members “exercising control” over the entities that are members of AEC are required to have a license. The Speaker, however, required every member of AEC to have a license, regardless of whether they exercised control over the company. 36. A day after receiving the Speaker’s letter laying out his conditions, the Governor

issued a press release explaining exactly why AEC was selected as the winning bidder: [AEC] was selected to operate video lottery terminals at Aqueduct racetrack in a unanimous decision reached through the equal votes of the leader of the Senate, the Speaker of the Assembly, and myself. Each leader had equal statutory authority, equal responsibility and is equally accountable in this selection. [AEC] has both the financial viability and ability to pay the required upfront licensing fee. [AEC] complied with every request made during the review process and addressed satisfactorily all matters related to licensability. [AEC’s] compensation to the State, both in the short term and the long term put it near the top or at the top compared to other bidders. Further, [AEC’s] gaming operator, Navegante, has a verifiable record for establishing successful gaming operations. [AEC’s] plan fits well within the very diverse and middle class community that exists around Aqueduct and its approach to operations will attract local community members to the site in the largest numbers and create local jobs for people in the surrounding area. [AEC’s] commitment to diversity and inclusion was also an important consideration in choosing it to operate at Aqueduct. All information about the bidders and their bids was presented to all involved parties as we weighed this selection. After a lengthy evaluation process, I can only assume that the other leaders made their decision, as I did, because [AEC] offered the bid that received both unanimous support and is good for New York. See Exhibit 6. The Governor did not address the conditions the Speaker made just for AEC. 37. But William Murray, Lottery’s Deputy General Counsel, did. He openly stated in

a meeting with AEC that the Speaker’s conditions were “arbitrary and capricious” and would slow down the licensing process. He assured AEC that Lottery did not intend to strictly enforce the Speaker’s licensing conditions. 38. In light of the Deputy General Counsel’s statement and the knowledge that the

Speaker’s conditions were targeted at specific members of AEC and not the company as a whole,

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it decided to take the path of least resistance and comply. It informed its members, on February 9, 2010, that the licensing rules had unexpectedly changed and that each of them––no matter whether they were passive investors who were not key operations personnel and who only maintained negligible percentages of the company––had to submit to probity and apply for an individual video lottery gaming license. AEC gave them copies of the license application. 39. The application is forty-five pages long. See Exhibit 7. Ostensibly, it focuses on

the applicant, but it actually requires personal information about the applicant and the applicant's spouse (and former spouses), children (and step-children), in-laws (and former in-laws), siblings, and the siblings’ spouses. The applicant must provide a current picture, a fingerprint card, and tax returns for the last five years (for the applicant and spouse, if separate filers). In addition, the license application seeks detailed information for the last ten years about the applicant’s residences, work history, corporate governance positions, and participation in any civil or criminal proceedings. Finally, the application requests highly detailed financial information about the applicant’s, spouse’s, and dependent children’s current business ownership interests, securities and real estate holdings, cash on hand, retirement benefits, mortgages and other indebtedness, and life insurance policies. 40. Some members of AEC balked at turning over such extensive and sensitive

materials to Lottery because the agency is notorious for leaking confidential information. So, they––two of whom were public figures locally and nationally––made very personal judgments about whether the potential financial gain from their negligible percentages in AEC was worth losing control over their private family and financial information. Several decided, quite reasonably, that it was not worth it and withdrew from the company over the ensuing weeks.

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The Speaker Initiates an Investigation

41.

Then, the Speaker did a curious thing. Two weeks after voting to select AEC as

the top bidder, he, in a letter dated February 11, 2010, asked the New York State Inspector General to investigate how he, the Governor, and the Senate President came to unanimously choose AEC over five other bidders: I am respectfully requesting that the Office of the State Inspector General ... [c]onduct a review of the process and procedures used by [Lottery] and other relevant state agencies involved in the evaluation of bids and in the making of recommendations for the selection of such operator, and determine which bidders were recommended pursuant to such process. See Exhibit 8. 42. His request was odd for a several reasons. First, Lottery had made no

recommendations for the selection of one bidder over another, which the Speaker knew before requesting the probe. Second, the only bidders evaluated by Lottery and the three politicians were the six that had bid, which the Speaker also already knew. Third, Lottery’s evaluations of the bids were not binding on the selection triumvirate, which the Speaker absolutely knew. Fourth and finally, as New York State Senator Joseph Addabbo observed, the process the Speaker wanted investigated mirrored the process in 2008 when the Speaker, himself, helped pick Delaware North as the winning bidder for the Aqueduct contract: The process used in that selection was the same used this year. There was controversy then, as there is now, about the use of that previous process…. Rumors of “the political fix” ran rampant in the local area. Yet no call for a special investigation or media attack was evident then when the selection took place a couple years ago. See Exhibit 9. These observations show the Speaker had no good or legitimate reason to request an investigation by the Inspector General.

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Lottery Finds AEC Ineligible for a License

43.

On top of the Speaker’s baseless probe and unlawful criteria, Peter Kiernan,

Counsel to the Governor, told AEC on March 5, 2010, that all its members’ license applications had to be submitted within four days on March 9th. Failure to meet the sudden deadline, he said, would cost AEC the Aqueduct contract: Lottery still has not received a significant number of completed license applications from [AEC’S] investors…. As Lottery has informed AEG, March 1, 2010 was the latest date that applications could be received in order for the appropriate background checks to occur prior to March 31, 2010. As a result, all completed license applications must be received no later than 12:00 p.m. Tuesday, March 9, 2010. If Lottery does not receive such information by said deadline, the Executive will withdraw support for AEG being approved as the developer and operator of an Aqueduct VLT facility. See Exhibit 10. Actually, Mr. Kiernan’s concerns were unfounded. 44. In point of fact, at the time of his letter, all members of AEC who were “required

to be licensed as part of the application” had already submitted applications. See NYCRR Section 2836-4.3. The only outstanding applications were from former members, who, but-for the Speaker’s third condition, would not have been required by law to apply for a license, even if they had still been part of the company. 45. These former members had been passive investors who never had any control

over AEC. They were not key operating personnel or managing members of AEC’s principals. And, before they had withdrawn, they collectively never owned more than three percent of the company. When they were members of AEC, the regulations would not have required them to submit to probity. More importantly, after they had withdrawn their interests in AEC, they became former AEC members whose personal and financial information no longer was relevant or material to determining AEC’s eligibility for a video lottery license. 14
 

46.

AEC gave Lottery notice of the nonmaterial changes in its membership on March

8, 2010, which were triggered by the Speaker’s requirement of probity from all investors. See Exhibit 11. An amendment to a license application is permissible under NYCRR Section 28363.11 and may occur at any time with notice to Lottery: It shall be the continuing duty of each applicant or licensee to promptly file with the division a written amendment to the application explaining any new or changed facts or circumstances whenever any material or significant new or changed facts or circumstances occur with respect to any matter set forth in the application or other papers relating thereto. Any applicant or licensee may be permitted by the division to file any other amendment to his or her application at any time prior to final action thereon by the division. The failure of an applicant or licensee to comply with this Part shall be grounds for rejection of the application or for suspension or revocation of a license. AEC’s notification to Lottery complied with the regulation. 47. When the March 9th deadline arrived, AEC had already submitted the individual

licensing applications of its members who remained. Of course, it did not (and could not) submit license applications for its former members––individuals who no longer wanted to be involved in the Aqueduct contract because of confidentiality concerns. 48. On March 11, 2010, despite AEC’s timely submission of the remaining individual

license applications, Lottery’s Deputy Director, the official who had assured AEC the Speaker’s “arbitrary and capricious” criteria would not be strictly enforced, informed AEC it was ineligible for a video lottery license because it had not submitted its former members’ license applications: [Lottery] has determined that [AEC] is not eligible for a video lottery license.... The determination is based on [AEC’s] failure to comply with the March 9, 2010 deadline for submitting video lottery license applications in time for the Lottery to complete background reviews by March 31, 2010. The Lottery rejects [AEC’s] claim that certain individuals and entities (including, but not limited to, Floyd Flake and Empowerment Development Corporation) should have been excused from the application requirement because they were withdrawing from, or were being dropped by, [AEC]. Such belated removals could not be accepted during the ongoing federal and State investigations into 15
 

[AEC’s] selection, since they would have created the appearance that [AEC] was being allowed to conceal relevant material information. See Exhibit 12. 49. AEC pointed out the absurdity of Lottery’s ineligibility determination in a letter

written the same day as the announcement of the license denial. Lottery, in making its decision, had disregarded the appropriateness of AEC’s license application amendments. The agency had unlawfully required applications from former members who had withdrawn and who had never been required by law to submit applications. The mere existence of investigations by other agencies with their own subpoena power could not justify an outright denial of AEC’s license by Lottery. Finally, Lottery had assumed without any evidence or information from AEC that the former members’ license applications were, in fact, relevant and material to the investigations by other agencies. In the end, Lottery disregarded all of AEC’s valid complaints. 50. The Governor, relying entirely on Lottery’s finding that AEC was unlicenseable

and making no independent review of the correctness of that finding, immediately issued a press release withdrawing his support for AEC’s selection: The Division of the Lottery has concluded that it cannot issue a gaming license to [AEC]. Therefore, the State has officially withdrawn its support for [AEC] to develop and operate a video lottery terminal [ ] facility at Aqueduct Race Track. See Exhibit 13. 51. The Governor’s knee-jerk response was irregular, at best. It is unclear what

authority he relied on to nullify a unanimous selection of AEC by three duly elected officials simply taking back his individual vote with no consultation with or unanimity of the Senate President or Assembly Speaker. The statute under which the Governor derived his power to participate in the selection process does not provide for reneging on his vote once it is cast. See Tax Law § 1612-e (“The video lottery gaming operator selected to operate a video lottery 16
 

terminal facility at Aqueduct will be subject to a memorandum of understanding between the governor, temporary president of the senate and the speaker of the assembly.”). 52. On information and belief, neither the Senate President nor the Assembly Speaker

has “withdrawn” support for AEC like the Governor.

New Aqueduct Bid Issued Without Unauthorized Conditions

53.

On May 11, 2010, Lottery issued a new solicitation for the development and

operation of a video lottery terminals facility at the Aqueduct Racetrack. See Exhibit 14. 54. The bidding closed on June 29, 2010, with only three bidders. Two of those

bidders, SL Green and Penn National, lost to AEC during the prior solicitation. 55. Interestingly, the new solicitation does not include the condition the Speaker

imposed on AEC that each member of the bidder apply for a license. The new solicitation exempts passive investors––individuals who own one percent or less of a limited liability company––from the licensing application process. Section 1.3 of the new solicitation describes who must submit a licensing application: Since potential bidder consortiums may be comprised of different types of investors and investment vehicles, applications are required according to the following guidelines: Any individual with a direct personal investment in the consortium; For a publicly traded company, every individual or entity with beneficial ownership of more than 5% of the company’s common, preferred or convertible stock, and every officer and member of the Board of Directors; For a privately held company, any entity or individual with beneficial ownership of more than 1% of the company; [and] For a private equity or similar investment firm, every principal, key manager, officer, partner, general partner, limited partner and/or member of the boards of the firm itself. Also, within the firm’s specific fund making the investment in the 17
 

overall bidder consortium, any individual or entity with an investment that comprises more than 1% of the invested capital of that fund. See Exhibit 14. Undoubtedly, the State scrapped the Speakers’ third condition because it was unworkable. As one aide to the Governor observed, “We’re going to have to have something in that goes to the spirit of what the speaker wants, but it’s got to be one that’s actually practical and feasible.” “New Rules for Aqueduct Racino,” N.Y. Daily News (Mar. 15, 2010). On information and belief, the Speaker did not object to the new conditions that replaced the ones he imposed solely on AEC. 56. Under the rules of the new solicitation, the former members of AEC who

withdrew would have been exempt now (as they were then) from submitting licensing applications since none of them maintained more than a one percent membership interest in AEC. 57. In fact, under the new solicitation rules, AEC’s former members would have been

“immaterial” to the company’s membership composition, which would have allowed them to withdraw from the company without notice to or permission from Lottery. Section 1.21 of the new solicitation permits changes to the composition and ownership of the bidder without notice to Lottery if such changes constitute less than five percent of the equitable ownership interests or if the changes involve an individual who is not a principal or serving in a key role: If a Vendor makes any material change in the composition of the members of the team identified in the Vendor’s Proposal or in the ownership of any entity included in the Vendor’s Proposal prior to approval of the MOU or after a license is awarded, the Lottery’s Licensing unit must be notified in writing at the time the change occurs or is identified pursuant to 21 NYCRR 2836-16. For the purposes of this requirement, “a material change” is any change of an individual in a principal or key role, as defined in 21 NYCRR 2836-1.2, or any change of more than 5% of the equitable ownership interest of an entity. See Exhibit 14. 18
 

58.

This new rule recognizes that changes––both material and immaterial––are

inevitable during such a review process and have occurred in the licensing processes for each of the other video lottery facilities in New York.

CLAIMS FOR RELIEF COUNT I (Illegal Imposition of Ultra Vires Licensing Rules) 59. 60. AEC incorporates paragraphs 1 through 58 into this Count. Article III of the State Constitution grants the Senate and the Assembly legislative

power, while Article IV grants the Governor executive power. The New York Court of Appeals has held that these separate grants of power imply that these branches of government necessarily exercise power only within their given spheres of authority. The Legislature is limited to promulgating law and policy for the State; the Executive is limited to implementing and enforcing that law and policy. 61. Article III of the State Constitution vests no legislative power in a single member

of the Senate or the Assembly. Nor does it vest legislative power in any executive agency. In this particular instance, Lottery’s powers are limited to those enumerated in the regulations for video lottery gaming. 62. The licensing conditions unilaterally and singly imposed by the Speaker on AEC

exceeded his power and authority as a New York State legislator. The Legislature did not authorize the Speaker’s conditions and has not authorized, approved, or consented to them at any time before, during, or after the Aqueduct bidding process commenced. Consequently, the conditions were ultra vires, without lawful authority, and in violation of properly enacted law and regulations. 19
 

63.

Lottery’s enforcement of the conditions unilaterally and singly imposed by the

Speaker on AEC exceeded the agency’s power and authority under the video lottery gaming regulations and other applicable law. The Legislature did not authorize Lottery to enforce the Speaker’s conditions and has not authorized, approved, or consented to Lottery enforcing the conditions at any time before, during, or after the Aqueduct bidding process commenced. Consequently enforcement of the Speaker’s conditions were ultra vires, without lawful authority, and in violation of properly enacted law and regulations. 64. Lottery exceeded its authority when it denied AEC’s license application for a

reason other than the ones enumerated in NYCRR Section 2836-3.14. That regulation lists permissible reasons Lottery can deny a license application. They include an applicant’s criminal history, financial instability, involvement in fraud or deceit that affects public confidence in Lottery, or a refusal to cooperate in the licensing process. Absent from that list is the reason Lottery denied AEC application: the possible appearance that AEC was hiding something from other investigating agencies through the withdrawal of inconsequential members from the company. On information and belief, Lottery has never denied a video lottery gaming license for that reason. It has not done so in the past and cannot do so now because the enabling legislation, from which Lottery derives its power, does not authorize it. 65. Tax Law § 1612-e vests no power in a single member of the video lottery operator

selection triumvirate of the Governor, Senate President, and Assembly Speaker. The selection had to be unanimous, and AEC’s was. The statute provides no mechanism for any single member of the triumvirate to later invalidate a unanimous selection by unilaterally “withdrawing support.”

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66.

The ultra vires actions of the Speaker, Lottery, and the Governor had no rational

basis and were arbitrary, capricious, and an abuse of discretion. They substantially and irreparably injured Petitioners by requiring them to comply with illegal rules that, ultimately, were used by Lottery to deny AEC a video lottery gaming license.

COUNT II (Failure to Follow Agency Procedure) 67. 68. AEC incorporates paragraphs 1 through 66 into this Count. Throughout AEC’s license application process, Lottery deviated from its own

procedures in materially significant ways that violated agency policies, practices, and regulations. 69. Lottery’s first deviation from established procedure was enforcing the Speaker’s

requirement that each of AEC’s members submit to probity. Under NYCRR Section 2836– 4.2(b)(3), for limited liability companies like AEC, Lottery was only authorized to require managing members of AEC’s principals to submit to probity. On information and belief, Lottery’s actions were an unwarranted break from its policies, practices, and procedures in reviewing the license applications of the other eight video lottery operators in New York. 70. The second procedural deviation was Lottery’s refusal to permit AEC to make

nonmaterial amendments to its license application that reflected the withdrawal from the company of passive investors. Under NYCRR Section 2836-3.11, the amendments were permissible at any time with due notice; had no effect on AEC’s management, financing, or operations capabilities; and would have facilitated Lottery’s completion of the application process by the March 31, 2010 deadline, which the Counsel to the Governor was concerned with missing.

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71.

Lottery claimed that AEC’s members’ withdrawal was too late, indicating that the

agency had set a time limit for when amendments to the license application could be made. Lottery, however, never informed AEC of the amendment filing deadline. 72. On information and belief, when individual investors pose an obstacle to the

licensure of the entity that will operate the video lottery terminals facility, Lottery’s preferred policy and practice is to allow those individuals to withdraw from the entity. Consistent with that policy and practice, on at least two occasions during AEC’s licensing-application process, Lottery permitted or ordered withdrawals of AEC members. For example, Lottery’s Deputy Director confirmed the forced withdrawal of three AEC investors and indicated that the company was otherwise licenseable because of their withdrawal: Lottery concludes that AEG, Clairvest, and any other person or entity acting by or on behalf of AEG or Clairvest (i) do not intend to make any payment directly or indirectly to Karl O’Farrell, Andrew Goodell, or Aqueduct Community Enterprise, (ii) will, in any legal proceeding by or on behalf of such persons seeking payments by or on behalf of AEG or Clairvest, raise a defense based on material misrepresentations made to AEG and Clairvest, and (iii) will not make any payment directly or indirectly to such persons pursuant to a settlement agreement unless approved by the Lottery. …. Assuming that it is correct, the only remaining requirements are that (i) the video lottery license application submitted by Greenstar be completed by the submission of individual license applications by Messrs. Roman, Kornfeld, LoCurto, Tully, and Segal, and (ii) the Lottery’s review of the pending application submitted by Mr. Levine and the expected applications by Messrs. Roman, Kornfeld, LoCurto, Tully, and Segal does not uncover disqualifying information. If those requirements are satisfied, the Lottery will conclude that AEG has a suitable background to be granted a license for the operation of a video lottery facility at Aqueduct racetrack. See Exhibit 15 (emphasis added).

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73.

In addition, on information and belief, during the licensing of the eight other

video lottery operators in New York, Lottery permitted and ordered withdrawals similar to that of AEC’s former members. 74. Even the Speaker expected that his conditions, which were not known or required

at the beginning of the selection process, would affect the makeup of AEC’s investors and cause some to withdraw or become ineligible to participate. Silver’s fourth condition explicitly provided that Lottery must review changes to AEC’s membership and, then, let the Governor, Senate President, and Assembly Speaker approve the changes: [T]hroughout the final approval process, all changes in the proposal including but not limited to partners, consultants, investors at any level, management, development or principal employees, and contracts must be reviewed by [Lottery] and approved by the three leaders prior to the conclusion of the approval process. See Exhibit 5. No rational basis existed for Lottery’s denial of AEC’s nonmaterial license application amendments. It was an illegal departure from established policy, practice, and procedure. 75. Lottery’s third failure to follow procedure was requiring probity from the former

members, who essentially had become disinterested third parties when they withdrew. AEC’s former members no longer held any stake in the company, having no financial or influential interest in it. Lottery’s licensing authority encompasses only “owners” of a video lottery gaming facility and “principals” of a video lottery gaming agent. See NYCRR Section 2836-4.2. Former members of a company are not “owners” or “principals” since they are not stakeholders in the video lottery gaming facility or agent. Consequently, they do not come within Lottery’s regulatory purview and could not be required to submit licensing applications in support of AEC’s application. Cf. NYCRR Section 2836-4.3 (“No video lottery gaming agent license shall be issued ... unless the applicant, and each person required to be licensed as part of the 23
 

application, provides all information, documentation and assurances required to establish its qualifications pursuant to these regulations.”). Denying AEC’s license application because of disinterested third parties refused to submit to an intrusive licensing review was a profound departure from settled agency policy, practice, and procedure. 76. Lottery’s final deviation from procedure was refusing to allow AEC an

opportunity to cure the alleged “failure” to submit license applications for its former members. Under Section 2836-3.15(c), AEC was entitled to submit curative evidence to Lottery before it determined finally, as it did, that AEC was forever ineligible for a video lottery gaming license: [A]ny person whose application has been denied ... may reapply upon submission of sufficient evidence demonstrating that the factual circumstances upon which the denial was based have been cured to the satisfaction of the division. This procedure was not followed and AEC could not show it could not by law or contract compel or coerce its former members into submitting to probity or show that the former members’ information was no longer relevant or material to AEC’s license eligibility. 77. AEC attempted, through its attorneys, to challenge Lottery’s decision in a letter to

Lottery and the Governor on the day Lottery found AEC unlicenseable. But the agency and the executive did not act on that letter. 78. Each of Lottery’s deviations from, and failure to follow, its normal procedures

was without rational basis, was arbitrary and capricious, and was an abuse of discretion. 79. Lottery’s acts and omissions irreparably harmed AEC by causing the denial of its

application for a video lottery gaming license and, ultimately, costing it the Aqueduct contract.

COUNT III (Due Process Violation) 80. AEC incorporates paragraphs 1 through 79 into this Count.

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81.

In processing AEC’s video lottery license, Lottery abandoned several licensing

policies, practices, and procedures without adequate notice; imposed on AEC unreasonable deadlines without adequate notice to submit each of its members’ video lottery gaming license applications and to make any amendments to the license applications; relied on––to AEC’s detriment––unsubstantiated media gossip without affording AEC an opportunity to address it; and denied AEC an opportunity to cure alleged deficiencies in its license application. These acts and omissions violated AEC’s right to due process under the State Constitution. 82. Midway through the licensing process and, therefore, without adequate notice,

Lottery supplanted its regular policies, practices, and procedures with ad hoc and unauthorized policies, practices, and procedures: (i) Lottery required each of AEC’s members to submit licensing applications, rather than just its managing members; (ii) Lottery insisted that nonmembers who had no interest in AEC submit to probity in support of AEC’s license application; (iii) Lottery set a new, unspecified time limit for amending license applications, when its rules permit such amendments “at any time” with notice; and (iv) the agency denied AEC’s license for a reason not previously listed in the regulations as a permissible reason for rejecting an application. None of these agency actions were subject to a rulemaking procedure with a period of time to comment. Consequently, AEC was not given adequate notice of Lottery’s rule changes. 83. Additionally, Lottery enforced a four-day deadline imposed by Counsel to the

Governor on AEC to submit license applications for all of its members and certain former members. Given the length of the application, the number of people involved, and the breadth of the information requested in the application, four days to comply was unreasonable and

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insufficient notice that AEC would be penalized with denial of its license application if it failed to comply. 84. Lottery, ultimately, found AEC ineligible for a video lottery gaming license based

on news reports of federal and state probes that Lottery mischaracterized as looking “into [AEC’s] selection.” Actually, the U.S. Attorney’s investigation did not concern AEC’s selection at all. On information and belief, the investigation concerned the acquisition of certain real estate by public officials who were not members of AEC, except for one. 85. The Inspector General’s probe, which was instigated at the insistence of the

Assembly Speaker, concerns Lottery and the procedures it used to evaluate the six bids from which the Speaker, the Governor, and the Senate President selected AEC as the winner. It is based entirely on media speculation and innuendo. A memorandum of law filed by the Inspector General in opposition to a motion to quash cites to one newspaper article after another as “evidence” justifying the scope of its subpoena. See Exhibit 16. That filing, however, is barren of concrete evidence against AEC and its members because they did nothing wrong. 86. No member of AEC has been accused of any improper or criminal act or of

refusing to cooperate in the investigation. The Governor, for his part, rejected the media’s sensationalism as baseless and reminded everyone that his was but one of three required votes. 87. The information that Lottery claims AEC possibly was concealing by not

submitting applications for former members is not “material” or “relevant,” as Lottery speculated, to the investigations by other agencies. The video lottery gaming application is very specific. Materials that might have been produced by AEC’s former members in their applications would shed no light on the appropriateness of Lottery’s bid evaluation process (the state probe) or on the real estate acquisitions by individuals and entities that were never part of

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AEC, save one person (the federal probe). Moreover, both the Inspector General and the U.S. Attorney enjoy the power of subpoena. They do not require Lottery’s license applications to gather information they believe is relevant to their investigations. 88. Public opinion gathered through news reports provides no rational basis for

agency action. The New York Supreme Court pointed out in Matter of G.J. & S. Pizza, Inc. v. McLaughlin, 78 A.D.2d 653 (App. Div., 2nd Dept. 1980), what should have been obvious to Lottery before it denied AEC a license: Based so far as the record reveals, solely on the concerns expressed by residents and community leaders and without any factual data contravening petitioner’s presentation, the [liquor license] application has been rejected. Denial of a license on the speculation that it will be operated in violation of the law is impermissible. The likelihood of future violation can furnish a basis for denial only when there are facts in the record to which rationally support doing so.... It should also be pointed out that the Court of Appeals in Circus Disco [v. New York State Liquor Auth., 51 N.Y.2d 24,] was confronted with a decision-making process by the authority similar to the one in the instant matter. There, as here, public opinion strongly opposed the issuance of a license to a particular applicant. Letters of protest were received and considered by the authority. And the adverse public opinion in Circus Disco, as in the case at bar, was given weight and affected the authority’s final determination. This was condemned by the Court of Appeals, holding that “While it is not always inappropriate for the authority to receive the views of others, the authority cannot deny an application without a reason other than the recommendation or views thus expressed.” Id. (citations omitted). In this case, Lottery’s reliance on public opinion denied AEC a fair, regular, predictable, and transparent administrative process. Mere speculation that something inappropriate may have occurred is not a basis for agency action. 89. Lottery drew a final conclusion about AEC before the investigators did. That

determination violated Respondents’ due process rights. Basing an administrative decision on unsubstantiated news reports and guesses as to what other agencies’ investigations might uncover or might find relevant and material is improper. That determination, necessarily, was arbitrary, capricious, and an abuse of discretion. 27
 

90.

The agency made no independent findings of fact, only a final determination

using second-hand, unconfirmed information. Lottery held no hearings to determine the accuracy of the media innuendo and the extent to which AEC and any of its members might be involved in any alleged wrongdoing or might have information relevant and material to the ongoing investigations. After Lottery made its decision, it did not afford AEC an opportunity to show that its former members, as nonmanaging members, were not required to apply for video lottery license applications or show that AEC could not compel those individuals to submit to probity against their will and, thus, should not be held responsible for their very personal and reasonable decisions not to participate. 91. Finally, Lottery’s determination that AEC is forever ineligible for a license was

too harsh a punishment for the compliance failure the agency cited. There were less severe alternatives available to Lottery that it should have, but did not, consider. For example, as it had already done once, Lottery could have permanently barred the future involvement of the former members in AEC in any manner. See Exhibit 15. Then, at least, the punishment would be on the people who actually committed the alleged offense. 92. Lottery’s actions had no rational basis and were arbitrary, capricious, and an

abuse of discretion. Moreover, the State had no compelling public interest in meting out the maximum punishment to AEC. 93. Because Lottery denied AEC due process by failing to give it adequate notice of

rule changes and short deadlines, relying on public opinion as report in the news without giving AEC an opportunity to address the speculation, and not considering a less severe punishment than permanent ineligibility, Respondents have suffered substantial and irreparable injury,

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having lost the exclusive right to develop and operate the video lottery terminals facility at Aqueduct Racetrack. COUNT IV (Equal Protection Violations) 94. 95. AEC incorporates paragraphs 1 through 93 into this Count. Lottery denied AEC equal protection under New York law by treating AEC

differently from similarly situated bidders in the Aqueduct Racetrack bidding process and from previous video lottery gaming license applicants who were granted licenses. 96. Lottery refused to permit AEC to amend its licensing application to reflect the

withdrawal of some, but not all former members. On information and belief, Lottery has previously permitted other video lottery gaming license applicants to abandon members who frustrated licensure. 97. On information and belief, each of the eight video lottery gaming operators in

New York made changes to their membership structure during their license application processes. Lottery did not find any of the present operators ineligible for a license due to a change in their membership. 98. On information and belief, it is Lottery’s policy and practice to permit an

applicant to restructure its membership instead of denying the applicant a license. 99. On information and belief, some of the present video lottery gaming operators

were licensed because they changed their ownership structure per the instruction of Lottery by dropping certain people or entities from their membership. 100. Because Lottery has treated AEC differently from other bidders and other video

lottery gaming operators, it has unfairly subjected AEC to a more rigorous license application process. It enforced the Speaker’s conditions against AEC alone. It also refused to allow AEC’s 29
 

former members to withdraw, unlike members of other Aqueduct bidders and other video lottery gaming operators in New York. Lottery’s actions had no rational basis and were arbitrary, capricious, and an abuse of discretion. 101. The changes made to the new Aqueduct solicitation and reissued by the State on

May 11, 2010, dispense with the Speaker’s condition that all members submit to probity and allows immaterial membership amendments to occur without notice to Lottery. The rule changes in the new solicitation underscore the unequal treatment to which Respondents subjected AEC.    102. Because Lottery denied AEC equal protection under the law, AEC suffered

substantial and irreparable injury because it lost a valuable financial opportunity in developing and operating the video lottery terminals facility at the Aqueduct Racetrack.

COUNT V (Freedom of Association Violations) 103. 104. AEC incorporates paragraphs 1 through 102 into this Count. Lottery’s refusal to allow changes in AEC’s membership––changes that were

immaterial to its management and financial stability––violated AEC’s and its members’ right to freedom of association under the State Constitution. 105. AEC and its members have a right to govern and determine the company’s

membership and their relationship to each other. Implicit in the right to freely associate is the right not to associate. AEC members had the right to withdraw from the company for whatever reason and at any time in accordance with AEC’s operating agreement, the New York Limited Liability Company Act, and the State Constitution. And AEC could not compel their participation by law or contract.

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106.

Lottery infringed on AEC’s right to govern and determine its membership when it

determined that the former members, despite withdrawing, still had to submit to probity if AEC was to be licensed. There was no rational basis for such infringement, which was arbitrary, capricious, and an abuse of discretion. No compelling state interest was served in denying AEC and its former members’ the right to freely disassociate through withdrawal from the company. 107. Because Lottery infringed on AEC’s and its members’ freedom of association,

AEC lost a valuable financial opportunity to develop and operate the video lottery terminal facility at the Aqueduct Racetrack and has been harmed substantially and irreparably.

COUNT VI (Breach of Good Faith and Fair Dealing) 108. 109. Racetrack. 110. When AEC agreed to the selection, it entered into an agreement-in-principle with AEC incorporates paragraphs 1 through 107 into this Count. AEC was selected to develop and operate video lottery gaming at Aqueduct

the Governor, Senate President, Speaker of the Assembly, and the State as expressed in the bid solicitation and MOU (together, the “Bid Agreement”). 111. Implicit in the Bid Agreement was the parties’ agreement to deal fairly with each

other and discharge their contractual obligations in good faith. 112. The Bid Agreement expressly states that the bid-award and the video lottery

licensing processes would comply at all times––from bid submission to final execution of the MOU––with New York law and regulations. See Exhibit 1, at 3; Exhibit 2, at 2 & 26–27. 113. AEC fulfilled its obligations under the terms of the Bid Agreement.

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114.

But Respondents, through conscious and deliberate acts and omissions, have

repeatedly failed and refused to discharge their obligations. Respondents’ acts and omissions have frustrated the purpose of the Bid Agreement and disappointed Petitioners’ expectations under the Bid Agreement. 115. Throughout the bid award and licensing processes, Respondents have imposed

conditions and licensing criteria on AEC that improperly supplant existing law and regulations; deviated significantly from numerous policies, practices, and procedures of Lottery; failed to give Petitioners adequate notice of deadlines essential to the terms of, and obligations under, the Bid Agreement; and treated AEC differently from similarly situated Aqueduct bidders and video lottery license operators. This intentional and malicious conduct was not in good faith or fair dealing. 116. Additionally, Respondents instigated a pointless and harassing state investigation

in order to derail AEC’s selection and embarrass its members. The investigation was a dirty trick that allowed Respondents to “justify” denying AEC a video lottery gaming license and withdrawing support for its selection as the winning Aqueduct bidder. 117. Respondents’ breaches of good-faith and fair dealing have deprived Petitioners of

the benefits of the Bid Agreement, including becoming the developer and operator of the video lottery terminals facility at Aqueduct Racetrack. 118. Respondents’ material breaches of the Bid Agreement have caused AEC to suffer

irreparable injuries and significant economic losses.

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RELIEF REQUESTED WHEREFORE, Petitioners respectfully request this Court grant it declaratory and injunctive relief, based on the allegations made in this Petition, and issue an Order and Judgment: A. Finding that Lottery’s determination that AEC was ineligible for a video

lottery gaming license had no rational basis, was arbitrary and capricious, and was an abuse of discretion; B. Declaring that the Governor’s withdrawal of support for AEC based on

Lottery’s determination that AEC was permanently ineligible for a video lottery gaming license was unlawful, ultra vires, in excess of lawful authority, without effect, and void; C. Declaring that the conditions imposed by the Speaker of the Assembly on

AEC without the consent or approval of the State Legislature were unlawful, ultra vires, in excess of lawful authority, without effect, and void; D. Finding that the newly promulgated regulations by Lottery without a

rulemaking process that enforce the Speaker’s conditions; set a time limit for when an amendments to a video lottery gaming license application must be made; create an additional statutory reason for denying a license application; and abandon the right to cure application deficiencies were unlawful, ultra vires, in excess of lawful authority, without effect, and void; E. Finding that Lottery violated AEC’s right to due process by failing to give

AEC adequate notice of deadlines to submit its members’ video lottery gaming license applications and to amend its own license application; relying on public opinion found in unsubstantiated media reports; failing to give AEC an opportunity to be address that

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public opinion and to cure alleged license application deficiencies; and failing to consider an alternative, less severe punishment than permanent license ineligibility for alleged application deficiencies; F. Declaring and finding that Respondents violated AEC’s right to equal

protection by treating it differently from similarly situated bidders and from successful video lottery gaming license applicants; G. Finding that Lottery violated AEC’s and its members’ right to freedom of

association by disallowing the withdrawal of certain former members of the company; H. Declaring and finding that Respondents breached an implied agreement to

deal fairly and in good faith with each other by failing to conduct the bid process under applicable law and regulations and by instigating an investigation by the Inspector General without good or legitimate cause; I. Declaring and finding that Petitioners have been substantially and

irreparably injured by Respondents actions as alleged in the combined Petition and Complaint; J. Directing Respondents to immediately discontinue the new bidding

process for the development and operation of the Aqueduct Racetrack video lottery terminals facility, which began on May 11, 2010; K. Restoring AEC to the position of the winning bidder for the development

and operation of the Aqueduct Racetrack video lottery terminals facility; and L. Directing Lottery to immediately resume the video lottery license

application process for AEC with the membership it had on March 11, 2010, and that

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Lottery complete the process in compliance with applicable law and regulations and consistent with Lottery’s established policies, practices, and procedures; M. Awarding Petitioner the costs and disbursements of this special

proceeding and action, including reasonable attorneys’ fees; and N. Granting such further and other relief the Court deems just, proper, or

necessary to make Petitioners whole.

_______________________________________ Daryl Davis Latif Doman (pro hac vice application to be filed) DOMAN DAVIS LLP 245 Park Avenue, 39th Floor New York, NY 10167 Phone & Fax: (888) 479-3330 ddavis@domandavis.com

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STATE OF NEW YORK ss.: COUNTY OF NEW YORK

INDIVIDUAL VERIFICATION

Richard Mays, being duly sworn, deposes and says that he is a Petitioner in this action, and that he is the Chairman and authorized representative of Petitioner Aqueduct Entertainment Company LLC, and has read the foregoing Verified Petition and Complaint and knows the contents thereof and that the same is true to his own knowledge, except as to the matters therein stated to be alleged upon information and belief, and as to those matters he believes them to be true.

__________________________________ Richard Mays, individually, and on behalf of Aqueduct Entertainment Company LLC aka Aqueduct Entertainment Group LLC

Sworn to before me this _____ day of ___________, 20__.

_____________________________________ Notary Public

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