Case Title: City of East Chicago v. East Chicago Second Century, Inc.

Citation: 

Docket Number: 49S02-0808-CV-436

State: indiana

Court: Indiana Supreme Court

Date: 2009-06-30T00:00:00Z

Document:
ATTORNEYS FOR APPELLANT 
ATTORNEYS FOR APPELLEE 
CITY OF EAST CHICAGO, INDIANA 
EAST CHICAGO SECOND CENTURY, INC.  
 
 
Bruce Kotzan 
James McNeely 
James Knauer 
Brady J. Rife 
William Bock, III 
Shelbyville, Indiana 
Steven Runyan 
Indianapolis, Indiana 
Margaret Smith 
 
Indianapolis, Indiana 
ATTORNEYS FOR APPELLEE 
 
RIH ACQUISITIONS IN, LLC 
Thomas Cappas 
 
Munster, Indiana 
Karl Mulvaney 
 
Duane Denton 
Michael Pannos 
Kelly Eskew 
Merrillville, Indiana 
Indianapolis, Indiana 
 
ATTORNEYS FOR APPELLEES 
ATTORNEY FOR APPELLEE 
TWIN CITY EDUCATION FOUNDATION, 
MICHAEL PANNOS 
INC. AND EAST CHICAGO COMMUNITY 
 
DEVELOPMENT FOUNDATION, INC. 
 
James Richmond 
 
Chicago, Illinois  
 
 
 
 
 
Peter Rusthoven 
 
 
 
 
 
 
 
 
Deborah Pollack-Milgate 
 
 
 
 
 
 
 
 
Paul Jefferson 
ATTORNEYS FOR AMICUS CURIAE 
 
 
 
John Boyd 
STATE OF INDIANA 
 
 
 
 
 
Robert Grand 
 
 
 
 
 
 
Mark Crandley 
Gregory F. Zoeller 
 
 
 
 
 
Indianapolis, Indiana 
Attorney General of Indiana 
 
 
 
 
 
 
 
 
ATTORNEYS FOR 
Thomas M. Fisher 
 
 
 
 
 
RESORTS EAST CHICAGO 
Solicitor General of Indiana 
 
 
 
 
 
 
 
Ronald Gifford 
Heather Hagan 
 
 
 
 
 
 
Scott Himsel 
Indianapolis, Indiana 
 
 
 
 
 
Indianapolis, Indiana 
 
 
 
 
 
 
 
 
ATTORNEYS FOR 
 
 
 
 
 
 
 
INDIANA GAMING COMMISSION 
 
 
 
 
 
 
 
 
Norman Funk 
 
 
 
 
 
 
 
Rori Goldman 
 
 
 
 
 
 
 
Indianapolis, Indiana 
 
 
In the 
Indiana Supreme Court 
_________________________________ 
No. 49S02-0808-CV-00436 
FILED
CLERK
of the supreme court,
court of appeals and
tax court
Jun 30 2009, 11:25 am
 
2 
 
CITY OF EAST CHICAGO, INDIANA,  
 
 
 
Appellant (Third Party Defendant /  
Intervening Defendant / Third Party 
Plaintiff / Counterclaim Plaintiff /  
Cross-claim Plaintiff below), 
v. 
EAST CHICAGO SECOND CENTURY, INC., 
Appellee 
(Plaintiff 
/ 
Counterclaim 
Defendant / Cross-claim Defendant 
below), 
 
RIH ACQUISITIONS IN, LLC D/B/A 
RESORTS EAST CHICAGO,  
Appellee (Defendant / Third Party 
Plaintiff / Counterclaim Plaintiff / 
Cross-claim Defendant below), 
 
TWIN CITY EDUCATION FOUNDATION, INC., and 
EAST CHICAGO COMMUNITY DEVELOPMENT  
FOUNDATION, INC.,  
Appellees (Intervening Plaintiffs / Third 
Party 
Defendants 
/ 
Cross-claim 
Defendants below),  
 
MICHAEL A. PANNOS, and  
THOMAS S. CAPPAS,  
Appellees 
(Third 
Party 
Defendants 
below).  
 
  
_________________________________ 
Appeal from the Marion Superior Court, No. 49D01-0504-PL-014394 
The Honorable Cale J. Bradford, Judge 
_________________________________ 
On Petition to Transfer from the Indiana Court of Appeals, No. 49A02-0608-CV-631 
_________________________________ 
June 30, 2009 
Shepard, Chief Justice. 
 
 
 
When riverboat gambling came to Indiana and to East Chicago, the applicant for the gaming 
license and the City of East Chicago negotiated certain arrangements to commit part of the resulting 
revenue toward economic and workforce development in the City.  Several private corporations were 
 
3 
created to facilitate those efforts.  When the Indiana Gaming Commission issued a license for East 
Chicago, it conditioned the license on those arrangements. 
 
 
On the issues joined by the City and these corporations in the present appeal (one of several 
appeals), we hold certain of the City‟s claims should survive a motion to dismiss and others should 
not.  We also hold the existing arrangements are subject to alteration, through the appropriate 
administrative channels, as the Indiana Gaming Commission on advice of the City and others may 
deem best for the future of East Chicago‟s residents.  
 
 
I. 
Facts and Procedural History 
 
In 1993, Showboat Marina Partnership initiated the process of applying for a riverboat casino 
license for operations to be located in the City of East Chicago pursuant to Indiana‟s Riverboat 
Gambling Act.  See Ind. Code § 4-33-1-1 et seq. (2008).  Showboat entered into a local development 
agreement with East Chicago based on the recommendations of Mayor Robert Pastrick‟s Gaming 
Task Force.  The agreement was memorialized in two letters the Mayor sent to Showboat, dated 
April 8, 1994, and April 18, 1995.  The East Chicago Common Council ratified and endorsed both 
letters on September 11, 1995.   
 
Under the arrangement, Showboat agreed to “contribute annually to and for the benefit of 
economic development, education and community development in the city” an amount of total 
contribution equal to 3.75% of its adjusted gross receipts (as defined by Ind. Code § 4-33-2-2) in the 
event Showboat received a license from the Indiana Gaming Commission and began operating a 
casino in East Chicago.  Of that total contribution, 1% would be allocated directly to the City; 1% to 
the Twin City Education Foundation, a non-profit corporation; 1% to the East Chicago Community 
Foundation, another non-profit; and 0.75% to East Chicago Second Century, Inc., a for-profit 
corporation.  The agreement also provided that Second Century would undertake development 
activities at sites within East Chicago, that all projects pursued by Second Century would conform to 
the City‟s development and master plans, and that all Second Century projects would require 
approval from the City.   
 
 
4 
The Commission issued a gaming license to Showboat on January 8, 1996, based in part on 
these representations, and the Commission incorporated the terms of the local agreement as 
conditions to Showboat‟s license.  The gaming operation commenced in April 1997.  This proved 
profitable for all concerned.  In the intervening years through June 2006, for example, Second 
Century received about $16 million from the casino operation.   
 
The casino underwent several ownership changes after the license was granted.  In February 
1999, the Commission approved transfer of the gaming license to Harrah‟s Entertainment, Inc., 
which continued to make the payments as required to maintain the license.  In 2004, RIH 
Acquisitions IN, LLC, doing business as Resorts East Chicago (“Resorts”), filed an application with 
the Commission seeking to acquire the license from Harrah‟s.  The Commission approved that 
transfer on April 21, 2005.  The Commission subsequently asked the Attorney General to investigate 
the performance of Second Century.   
 
 
II. 
History of Two Lawsuits 
 
A few days before the Commission‟s 2005 hearing on transferring the license, Second 
Century filed an action in the Marion Superior Court, requesting a declaration that Resorts would be 
required to continue making payments to Second Century.   
 
A few months later, Attorney General Steve Carter (now succeeded in office by Gregory F. 
Zoeller) sought to intervene, and the trial court granted the request on April 27, 2006.  The Attorney 
General filed a counterclaim and a crossclaim, seeking imposition of a constructive trust for public 
benefit and an accounting for the money paid to Second Century and its principals (collectively 
“Second Century”).  Second Century moved to dismiss the Attorney General‟s claims, and the trial 
court did so.  The Attorney General appealed, and the Court of Appeals affirmed.  Carter v. City of 
East Chicago, 881 N.E.2d 1114 (Ind. Ct. App. 2008).  We granted transfer and recently reinstated 
the claims at issue.  Zoeller v. East Chicago Second Century, Inc., 904 N.E.2d 213 (Ind. 2009).   
 
 
5 
The present appeal is a continuation of the original matter filed by Second Century, seeking 
declaration that Second Century was a third-party beneficiary of the letter agreements entitled to 
continue receiving funds from the riverboat operation.  Resorts filed an answer, counterclaim, and 
third-party complaint against the two foundations and the City on April 18, 2005, requesting that the 
trial court declare which entity or entities should continue to receive the gambling revenues 
designated under the license for economic development in East Chicago.  The Foundations filed 
their answer and intervening complaint on May 11, 2005, and the City filed its answer, third-party 
complaint, counterclaims, and crossclaims on June 27, 2005.   
 
Late in 2005, Second Century and the Foundations moved to dismiss the City‟s claims, and 
the City moved for partial summary judgment.  The Attorney General filed an amicus brief 
supporting the City‟s position that the letter agreement violated public policy.   
 
These motions were still pending on June 8, 2006, when the Commission announced that the 
Attorney General had completed an investigation into the financial operations of Second Century 
with the assistance of Special Deputy Attorney General Patrick Baude.  This inquiry concluded that 
much of the $16 million forwarded to Second Century could not be accounted for and could be 
traced to Second Century‟s principals.  Based on financial irregularities found in that investigation, 
the Commission issued Resolution 2006-58, disapproving continued payments by Resorts to Second 
Century.  Second Century then sought judicial review of the Commission‟s resolution in the Marion 
Superior Court under the Administrative Orders and Procedures Act, Ind. Code §§ 4-21.5-5.1-1 to -
7-9.  This review proceeding was assigned to Judge Moberly in Marion Superior Court 12.  On July 
20, 2006, the Foundations moved to consolidate the agency review with the civil lawsuit pending 
before Judge Bradford in Marion Superior Court I.  The proceedings were consolidated on July 26, 
2006.1    
 
Judge Bradford dismissed all but one of the City‟s counterclaims, crossclaims, and third-
party claims under the statutes of limitation.  The trial court found the City‟s breach of contract 
claim actionable, however, because it “serve[d] to put Second Century on notice regarding 
                                                 
1 The City contests the legitimacy of this consolidation.  We summarily affirm the Court of Appeals disposition of the 
issue.  Ind. Appellate Rule 58(A)(2).   
 
6 
compliance with its obligations to East Chicago under both the confirmation agreement and the letter 
agreements.”  (App. at 61.)  It denied the City‟s motion for summary judgment. 
  
The City appealed, and the Court of Appeals affirmed in part and reversed in part.  City of 
East Chicago v. East Chicago Second Century, Inc., 878 N.E.2d 358 (Ind. Ct. App. 2008).  We 
granted transfer, 878 N.E.2d 358 (Ind. 2008) (Table).   
 
We will first turn to whether the trial court erred in dismissing the City‟s claims under the 
statutes of limitation.  Then, we will consider whether the letter agreements are terminable at will.  
Finally, we determine whether the Foundations and Second Century are third-party beneficiaries 
under the agreements and the license who are entitled to receive ongoing payments from the 
riverboat operations. 
 
 
III. 
Dismissal on Statutes of Limitation Grounds 
 
The City contends the trial court erred in dismissing seven of its eight counts on the sole 
basis of the statutes of limitation.  It complains that the court improperly resolved numerous factual 
inferences against the City, contrary to established standards governing motions to dismiss.  (City‟s 
Br. at 28.) 
 
A motion to dismiss for failure to state a claim tests the legal sufficiency of the claim, not the 
facts supporting it.  Charter One Mortgage Corp. v. Condra, 865 N.E.2d 602 (Ind. 2007).  Thus, our 
review of a trial court‟s grant or denial of a motion based on Trial Rule 12(B)(6) is de novo.  Id.  
When reviewing a motion to dismiss, we view the pleadings in the light most favorable to the 
nonmoving party, with every reasonable inference construed in the nonmovant‟s favor.  City of New 
Haven v. Reichhart, 748 N.E.2d 374 (Ind. 2001).  Inasmuch as motions to dismiss are not favored by 
the law, they are properly granted only “when the allegations present no possible set of facts upon 
which the complainant can recover.”  Mart v. Hess, 703 N.E.2d 190, 193 (Ind. Ct. App. 1998).  Put 
another way, a dismissal under Rule 12(B)(6) will not be affirmed “unless it is apparent that the facts 
 
7 
alleged in the challenged pleading are incapable of supporting relief under any set of circumstances.”  
Couch v. Hamilton County, 609 N.E.2d 39, 41 (Ind. Ct. App. 1993).   
 
Unsurprisingly, at this early stage of the proceedings, the claims, counterclaims, crossclaims, 
and the scores of factual allegations associated with them represent a considerable variety of claimed 
grounds for relief.  As is frequently the case at this juncture, the facts that might support relief are 
not well developed.  The trial court‟s stay of discovery makes the factual allegations less fulsome 
than they might otherwise be.  That being said, the only way to evaluate the City‟s contention of 
error is to examine each dismissed claim individually.   
 
Count I.  The heart of the City‟s allegations in Count I, styled as “Breach of Fiduciary 
Duty,” is:   
 
78.     Pannos, Cappas and possibly others, conspired with Pastrick and aided, 
abetted and encouraged his breach of fiduciary duty to the City and to the public by 
causing funds from the East Chicago riverboat that would otherwise have been paid 
directly to the City to be paid to Second Century, TCEF and/or ECCF. 
 
(App. at 386.) 
 
Second Century and the Foundations claim that the trial court properly dismissed this count 
on statute of limitation grounds because the actions on which the claim of breach centers occurred 
well over two years before the City filed its counterclaims on June 27, 2005.  (Second Century‟s Br. 
at 21-23; Foundations‟ Br. at 33.) 
 
A party asserting the statute of limitation as an affirmative defense bears the burden of 
establishing that the action was commenced beyond that statutory period.  Nichols v. Amax Coal 
Co., 490 N.E.2d 754 (Ind. 1986).  Once the asserting party makes a prima facie case, the burden 
shifts to the non-asserting party who is then obliged to present such facts that will prevent the 
running of the statute.  Arnold v. Dirrim, 398 N.E.2d 426 (Ind. Ct. App. 1979).   
 
Our Court of Appeals has determined that a breach of fiduciary duty is a tort claim for injury 
to personal property and therefore the applicable statute of limitation is two years.  Del Vecchio v. 
 
8 
Conseco, Inc., 788 N.E.2d 446, 451 (Ind. Ct. App. 2003); Ind. Code. § 34-11-2-4 (2008) (statute of 
limitation for injury to personal property).  We have previously declared that a cause of action for a 
personal injury claim accrues and the statute of limitation begins to run when the plaintiff knew, or 
in the exercise of ordinary diligence could have discovered, that an injury had been sustained as a 
result of the tortious act of another.  Malachowski v. Bank One, Indianapolis, 590 N.E.2d 559 (Ind. 
1992).   
 
Second Century contends that the language set forth in Count I undeniably refers to the 
activities undertaken during the administration of Mayor Pastrick when the April 8, 1994, agreement 
between Showboat and the City was first memorialized.  Second Century further argues that the City 
certainly knew or should have known about the injury at that time, more than eleven years before the 
action containing Count I was filed.  (Second Century‟s Br. at 23.)  The City does not clearly and 
cognizably refute this contention in its brief or reply brief and therefore fails to bear its burden to 
prevent the running of the statute.  It was not error to dismiss Count I on these grounds. 
 
Count II is labeled “Inducement of Breach of Fiduciary Duty/Participating in Breach.”  It is 
similar to Count I and states: 
 
84.     Pannos, Cappas, Second Century, TCEF and ECCF have obtained 
benefits from the breaches of duties made in connection with the control of certain 
adjusted gross receipts from the East Chicago riverboat and other opportunities 
wrongfully obtained and disbursed and/or accumulated in violation of fiduciary duties 
owed to [the City] and its citizens and are therefore directly liable . . . .  
 
(App. at 387.) 
 
 
To the extent that Count II refers to the activities that transpired when the City and Showboat 
originally entered into the local development agreements, Second Century contends this claim 
accrued at that time, more than a decade before the City filed suit.  (Second Century‟s Br. at 23.)  To 
the extent that Count II refers to the activities that allegedly occurred during 1999, when the City and 
other parties entered into a Confirmation Agreement when the license transferred to Harrah‟s, 
Second Century argues that the City‟s claims accrued more than six years before they were filed.  
(Id.)  Second Century further alleges that because the City was a party to the 1999 Confirmation 
 
9 
Agreement, it knew or should have known about the injury at the time it was executed, and therefore 
the latest the City could have asserted its breach of fiduciary claim was February 26, 1999.  (Second 
Century‟s Br. at 23-24.)   
 
 
The claim in Count II as pleaded appears fairly to cover breaches that might have occurred 
late in the 1990s as well as breaches that might have occurred in more recent years.  Thus, while part 
of this claim might be barred, subject to further development of facts, it was error to dismiss Count II 
in its entirety.   
 
Count III of the complaint alleges “Constructive Fraud/Unjust Enrichment.”  Second 
Century and the Foundations argue that the City‟s fraud claim is independently barred by a six-year 
limitation period of Ind. Code § 34-11-2-7 (2008).  (Second Century‟s Br. at 24; Foundations‟ Br. at 
32-33.)  Second Century specifically contends that the allegations of Count III refer to the time when 
the 1994 agreements were executed and that the City‟s claim accrued at that time, over eleven years 
before it was filed.  (Second Century‟s Br. at 24.)   
 
The City responds that a court may find constructive fraud upon a finding that any of the 
alleged agreements at issue are void due to their “tendency . . . to violate public or private 
confidence, or to injure public interests,” quoting Budd v. Board of Comm‟rs of St. Joseph County, 
216 Ind. 35, 22 N.E.2d 973 (1939), to support its contention.  (City‟s Reply and Cross-Appellee‟s 
Br. at 37-38.) 
 
In Budd, the parties disputed whether there was an unlawful exercise of discretion vested in 
the county commissioners when they awarded a public contract to a competitive bidder.  Id. at 37-
39, 22 N.E.2d at 975.  Assessing the constructive fraud claim, we declared:  “While fraud is never 
presumed, if the facts alleged show fraud, either actual or constructive, no positive averments of it 
are necessary.”  Id. at 39, 22 N.E.2d at 976.  Here, the legally substantive paragraph within Count III 
states, “As set forth above, Pannos, Cappas, Second Century, TCEF and ECCF have received funds 
from the East Chicago riverboat under circumstances that would make the retention of the benefit 
unjust.”  (App. at 388.)  This paragraph and the recitation of facts incorporated in Count III do not 
tend to show either actual or constructive fraud.  
 
10 
 
Moreover, none of the agreements at issue seem to rescue the City from the six-year statute 
of limitation.  Second Century seems justified in saying that the gravamen of Count III relates to the 
formation of the riverboat arrangements during the 1990s.  The latest was the Confirmation 
Agreement of February 1999, more than six years before Count III was filed.  The trial court 
properly dismissed Count III. 
 
Count IV, labeled “Breach of Fiduciary Duty,” states:  “The public funds, or some of them, 
paid to Second Century, TCEF, ECCF, Pannos and/or Cappas as described above have not been used 
for public purposes and/or have been spent without adequate financial controls, oversight and 
accountability to ensure that the funds were used for a public purpose.” (App. at 389.)   
 
Second Century argues that the City‟s cause of action for Count IV accrued when the City 
knew or should have known of the alleged deficiencies in the April 8, 1994 agreement.  (Second 
Century‟s Br. at 25.)  As with Count II, we conclude that this count embraced early activities that 
might be time-barred and later activities that likely are not.  The trial court erred in dismissing Count 
IV in its entirety.   
 
 
Count V is called “Accounting.”  It asserts that Second Century and the Foundations both 
owe a fiduciary duty to the City and/or its citizens of proper use and accounting for all funds 
received from the riverboat operation and that the corporations failed to account for the funds by 
producing a report or any kind of accounting reflecting income and expenses.   
 
The Foundations assert that this claim is subject to the two-year limitation under Ind. Code § 
34-11-2-4 in accordance with standard rules of discovery and accrual.  (Foundations‟ Br. at 33.)  The 
Foundations further argue that the City makes no precise allegation of what constituted the alleged 
breach and mismanagement or when precisely this unexplained conduct occurred other than the 
City‟s reference to a grand jury having subpoenaed the Foundations‟ records in April 2003.  They 
say this grand jury activity put the City on notice more than two years before the City brought the 
claim in June 2005.  (Foundations‟ Br. at 33.)   
 
 
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Second Century contends only that Count V is based upon the alleged existence and breach 
of a fiduciary duty owed by Second Century to the City, and as such, the Count is barred by the two-
year statute of limitation.  (Second Century‟s Br. at 25.)   
 
The City replies that the fact that Foundation records were subpoenaed in April 2003 does 
not mean that the City knew about the subpoena.  (City‟s Reply and Cross-Appellee Br. at 43.)  It 
argues that grand jury proceedings are supposed to be secret.  (Id.) 
 
We determined long ago that “proceedings before a Grand Jury are secret.”  Dinning v. State, 
256 Ind. 399, 269 N.E.2d 371 (1971).  Hence, it is not apparent that the City had any notice, knew or 
should have known any details amounting to mismanagement of any funds at the time the records 
were subpoenaed.  Whether there was in fact any actual knowledge and what that knowledge might 
have been is subject to further development of facts.  It was error to dismiss Count V on these 
grounds. 
 
Count VI, "Declaratory Judgment/Return of Public Funds," was asserted against Harrah's 
Resorts and the Foundations concerning the proper designee to be paid 2% of the adjusted gross 
receipts from the riverboat operation.  The essence of this claim is that the City retained an inherent 
right to change the designee under the letter agreements, and upon transfer of the license to a 
licensee other than Showboat, the City was authorized to revise, renegotiate, or modify any aspect of 
the letter agreements.  (App. at 392.)  The City further alleges that it attempted to change the 
designee through the 2005 Economic Development Program.  (Id.)  It contends that any other 
agreement purporting to bind or restrict whom the City may select is void against public policy.  
(App. at 392-93.)   
 
The Foundations argue that this claim involves matters that existed from the very execution 
of the letter agreements of 1994 and 1995 and that the trial court properly dismissed it under the 
discovery rule because it was during this period when the claim accrued.  (Foundations‟ Br. at 32.)   
 
The City‟s apparent counter is that "[i]n a case involving failure to return funds held in trust, 
the cause of action does not accrue until demand is made for return of the funds or the trustee claims 
 
12 
an interest in the trust property."  (City's Br. at 38-39.)  The City cites Emerick v. Chesrown, 90 Ind. 
47, 49 (1883) (bringing a suit for return of the funds is a sufficient demand) to support its contention.  
(Id.)  The City contends that its demand for return of funds from the Foundations and Second 
Century did not occur until after Mayor Pabey took office on December 29, 2004.  (City's Br. at 39.) 
 
We perceive two very different claims against the Foundations combined in Count VI.  One 
appears aimed at ending the flow of cash to them.  The other seeks return of such cash as may not 
have been spent in accordance with the various agreements and the terms of the Gaming 
Commission license. 
 
As we indicate below, the particular arrangements for advancing economic development in 
East Chicago made a part of the licensing conditions by the Gaming Commission may not be 
terminable at the City‟s will, but they are not immutable.  As for the request to recoup funds that 
may have been improperly spent, the City‟s allegations suffice to cover ongoing activities.  While 
some of these might turn out to be beyond the statute of limitation, we conclude that the trial court 
erred by dismissing this claim outright.   
 
Count VII, “Declaratory Judgment/Return of Public Funds,” makes allegations against 
Harrah‟s, Resorts, and Second Century as follows: 
 
119.     Any provision purporting to require payment of funds from the East 
Chicago riverboat directly to Second Century is void to the extent it was approved as 
a result of a breach of fiduciary duty. 
 
. . . .  
 
121.     The city‟s failure to exercise the right to control and operate Second 
Century resulted from a breach of fiduciary duty. 
 
(App. at 395.)   
 
Second Century argues that Count VII was properly dismissed because the breaches of 
fiduciary duty occurred in 1994 under the local development agreement and in 1999 under the 
Confirmation Agreement, such that any claim for alleged breach accrued over six years before it was 
 
13 
filed.  (Second Century‟s Br. at 25-26.)  Because Count VII relates to the return of funds held in trust 
and not merely for a breach of fiduciary duty, Second Century did not make a prima facie case for a 
statute of limitation defense on this count.  
 
The Foundations contend that the City “could not unilaterally delay running of limitations on 
its „trust‟ claims by not making a formal „demand‟ for funds distributed to and claimed by the 
Foundations from the outset.”  (Foundations‟ Br. at 34.) 
 
Under Indiana law, a six-year limitation period applies to claims of a constructive trust.  
Shafer v. Lambie, 667 N.E.2d 226 (Ind. Ct. App. 1996).  We determined long ago in a case 
involving failure to return funds held in trust, the cause of action does not accrue until demand is 
made for return of the funds or the trustee claims an interest in the trust property.  Emerick, 90 Ind. 
at 49.   
 
The City‟s assertion that a demand occurred only after Mayor Pabey took office on 
December 29, 2004, is a sufficient answer for purposes of a motion to dismiss.  Accordingly, it was 
error to dismiss Count VII on these grounds.   
 
Count VIII asserts a claim for “Reformation of Contract,” arising from alleged breaches of 
fiduciary duty when the Economic Development Agreement, 1998 “Side Agreement” among some 
of the parties, and the 1999 Confirmation Agreement were entered into.  (App. at 396.)  Second 
Century argues this claim is barred by the two-year statute of limitation for breach of fiduciary duty.  
(Second Century‟s Br. at 26.)  The City does not refute this in its brief.  Moreover, it appears that 
Count VIII is substantially similar to the City‟s claim for constructive fraud in Count III.  It was not 
error to dismiss this claim. 
 
Before leaving behind the several counts which we have concluded were properly dismissed 
on statutes of limitation grounds, we consider the City‟s argument that fraudulent concealment 
should toll the statutes of limitation, a point it makes about most or all counts.   
 
 
14 
The doctrine of fraudulent concealment is available to estop a defendant from asserting the 
statute of limitation “when he has, either by deception or by a violation of duty, concealed from the 
plaintiff material facts thereby preventing the plaintiff from discovering a potential cause of action.”  
Fager, 610 N.E.2d 246, 251 (Ind. 1993).  This doctrine does not establish a new date for the running 
of the statute, but rather works an equitable exception.  Id.  “Instead of a full statutory limitation 
period within which to act, a plaintiff must exercise due diligence in commencing her action after the 
equitable grounds cease to operate as a valid basis for causing delay.”  Id.   
 
As respects those counts or parts of counts which we have held above should not survive 
Second Century‟s motion to dismiss, it is very difficult to see why equity ought to estop Second 
Century and the Foundations from asserting the statutes of limitation.  The counts centered on 
attacking the formation and confirmation of the original agreements seek to challenge action taken 
ten or fifteen years ago in full glare of the public arena.  It simply asks too much to embrace the idea 
that these were “fraudulently concealed” from the City or anyone else.2 
 
 
IV. 
Cross-Appeal on Count IX 
 
The trial court determined that Count IX, labeled “Breach of Contract,” is a claim subject to a 
ten-year limitation under Ind. Code § 34-11-2-11 (2008) and held that dismissing this claim against 
Second Century would be inappropriate.   
 
On cross-appeal, Second Century argues the trial court erred on Count IX because the 
activities constituting the alleged breach are not prohibited, required, or otherwise addressed in the 
Economic Development Agreement or a subsequent Confirmation Agreement.  (Second Century‟s 
Br. at 34.)   
 
                                                 
2 For many of the same reasons, we think the properly dismissed counts are not rescued by the City‟s arguments about 
the equitable doctrine of adverse domination, waiver, and the doctrine of nullum tempus occurit regi.  (See Appellant‟s 
Br. at 29-31, 34-36, 39-41.) 
 
15 
Count IX asserts that Pannos, Cappas, and Second Century “breached the Confirmation 
Agreement by failing to open its books and records to the City in order to permit the City to exercise 
the agreed upon oversight . . . .”  (App. at 397.)   
 
Section 2 of the Confirmation Agreement of 1999 states that Showboat “and/or any related 
company (“Gaming Licensee”) agrees that the Gaming Licensee shall retain the obligations to fund 
Second Century on behalf of the City and as required by the Permanent License issued by the 
Indiana Gaming Commission, which funding is set at 0.75% . . . .”  (App. at 1511.)  Section 3 
explains that the parties agree that “the City has the sole responsibility for assuring that Second 
Century will perform the duties described in the development agreement between the City and 
Showboat Marina Partnership.  All projects to be constructed by Second Century are subject to the 
prior approval of the City and must conform to the City‟s comprehensive plan.”  (Id.)  
 
It is difficult to see how the City could adequately determine whether Second Century was 
using the funds entrusted to it under the letter agreement without viewing Second Century‟s financial 
records.  The trial court did not err on this count.  
 
 
V. 
City’s Motion for Summary Judgment 
 
The City moved for summary judgment on its request that the agreements be reformed, 
declared unenforceable, terminable, and void against public policy.  It sought a court order 
redirecting the proceeds from the Foundations and Second Century to the City instead.  (App. at 
585.)  The trial court denied the City‟s motion, holding that there had been no mutual mistake that 
might support reformation, that the agreements implied a contract to run as long as there was a 
license, that the agreements made Foundations and Second Century third-party beneficiaries, and 
that creating a permanent flow of economic development funds without stringent public oversight 
was not a violation of public policy. 
 
 
A. Duration of the Agreement 
 
16 
 
The City argues the trial court erred by holding that the contract represented by the letter 
agreements reflected “an implied durational term lasting as long as the river boat license.”  (City‟s 
Br. at 10-11, quoting App. at 58.)  Even if that is true, says the City, the original license began in 
1997 and expired after five years.  (City‟s Br. at 10.)  Second Century, by contrast, submits that the 
trial court correctly concluded that the economic development agreement reflects an implied term 
that is coterminous with the duration of the existence of a license to operate a boat at East Chicago 
and is therefore not terminable at will.  (Second Century‟s Br. at 10.)   
 
It is ordinary law that a contract containing no specific termination date is terminable at will 
and that where the parties fix no time for the performance or discharge of obligations created by the 
contract they are assumed to have had in mind a reasonable time.  House of Crane Inc. v. H. 
Fendrich, Inc., 146 Ind. App. 478, 256 N.E.2d 578 (1970).  
 
The original license was issued to Showboat effective April 15, 1997.  The initial term of the 
license thus would have expired on April 15, 2002.  See Ind. Code § 4-33-6-10(d) (2008) (five-year 
term for riverboat licenses).  Before that date arrived, Showboat desired to transfer the license to 
Harrah‟s, and the City and various other parties entered into a series of subsequent agreements in 
1998 and 1999, which effectively allowed the City to reaffirm the original agreements.  (App. at 
340-41.)  The Commission approved the transfer to Harrah‟s on February 26, 1999.  (App. at 341.)   
 
In the course of the 2004-05 transactions, transferring the license from Harrah‟s to Resorts, 
the parties plainly intended to honor the same commitments contained in the letter agreements.  
(App. at 342.)  After a hearing on April 21, 2005 (a few months after Mayor Pabey took office), the 
Gaming Commission unanimously approved the transfer.  (App. at 343.) 
 
The Commission‟s role in these events is a central one.  Indiana‟s Riverboat Gambling Act 
provides:  “A license to operate an excursion gaming boat:  (1) is a revocable privilege granted by 
the state; and (2) is not a property right.”  Ind. Code § 4-33-6-17 (2008).  The Commission may 
renew an existing license.  Ind. Code § 4-33-4-1(a)(14) (2008).  The Code also provides that any sale 
or transfer of a license is subject to the approval by the Gaming Commission, requires that a 
 
17 
proposed acquirer must meet the same criteria applicable to any initial applicant, and directs the 
Commission to adopt rules reflecting the standards applicable to transfers.  Ind. Code § 4-33-6.5-12 
(2008).   
 
Moreover, the Commission has the authority to revoke or cancel the licenses and their 
attendant conditions.  See Ind. Code § 4-33-4-1(a)(11) (2008).  We agree with Second Century that 
even if the City could terminate the agreements at will, the City alone could not redirect gaming 
revenue presently flowing to the private entities by means of the ordinance it adopted in 2005, or by 
other means, for that matter.  (See Second Century‟s Br. at 11.)  The City does not have the authority 
unilaterally to terminate or alter the terms and conditions of a license issued by the Gaming 
Commission.  Such alterations lie within the duties and powers that the Riverboat Gambling Act 
confers upon the Gaming Commission, which has historically acted by taking into serious account 
the views and arrangements of the cities in which gaming operations are conducted. 
 
While the Foundations and Second Century are correct that the agreements imbedded in the 
license do not appear terminable at will, the City is correct that they are subject to periodic alteration 
(through the administrative processes of the Gaming Commission).  As the City‟s motion for 
summary judgment sought a court order to turn over to the City all funds that Second Century and 
the Foundations had received and would receive from the riverboat operations, the trial court was 
warranted in denying the motion.  
 
 
B. Third Party Beneficiaries  
 
The City contends that it was entitled to summary judgment on the claim by Second Century 
and the Foundations that they are third-party beneficiaries of the agreements and the license who 
possess enforceable rights to continue receiving riverboat revenue indefinitely.  (See City‟s Br. at 
13.)   
 
 
To support the argument that their status as third-party beneficiaries precludes any rescission 
of their rights by the principal parties without consent from the Foundations and Second Century, the 
 
18 
Foundations cite Standard Land Corp. v. Bogardus, 154 Ind. App. 283, 289 N.E.2d 803 (1972).  In 
Bogardus, the Appellate Court recited prevailing common law principles, notably for today‟s 
purpose, a declaration that “where a contract for the benefit of a third person has been accepted or 
acted upon, it cannot be rescinded by the parties without the consent of the third person.” Id. at 323, 
289 N.E.2d at 826 (citing Corpus Juris and Corpus Juris Secundum).  As with many of the 
authorities cited in the opinion, this principle has often been deployed in commercial creditor cases.  
Bogardus itself was a case brought by the purchasers of lots in reliance on a promise that the 
vendor/developer would create a golf course community. 
 
 
The earliest case law about third-party beneficiaries developed using the terminology of 
privity, and some of today‟s dialogue likewise proceeds along the lines of deciding what rights a 
third-party “who is not in privity” with those who made the contract may have to enforce the 
contract.  Our decision in OEC-Diasonics, cited by East Chicago, is a representative example relying 
in part on this traditional formulation.  OEC-Diasonics, Inc. v. Major, 674 N.E.2d 1312, 1314-15 
(Ind. 1996) (“only parties to a contract or those in privity with the parties have rights under the 
contract”).  Although this concept is still a useful starting point, it alone rarely suffices to resolve 
complex questions.  As long ago as the Restatement of Contracts, approved in 1932, the law began 
to recognize that in certain situations, such beneficiaries should be entitled to rely upon and enforce 
the promises other parties had made to each other.  See Restatement (First) of Contracts § 133.  
Subsequent debate has thus focused on which beneficiaries should be entitled to enforce contracts 
made by others and when in the course of contract activities the interests of a beneficiary become 
such that they should prevail over the ordinary ability of the promisor and promisee to alter or 
rescind their agreement, a question often styled as inquiring when the beneficiary‟s interest has 
“vested.”  E. Allan Farnsworth, Farnsworth on Contracts § 10.8 (2004). 
 
 
The First Restatement‟s division of third-party beneficiaries into categories (donee, creditor, 
and incidental) having received only lukewarm acceptance.  The Second Restatement, adopted in 
1979, abandoned this structure.  The present Restatement declares (1) that modification of an 
arrangement may be subject to a beneficiary‟s consent where it explicitly so provides, (2) that absent 
such a provision the promisor and promisee retain the power to discharge or modify their agreement 
without the beneficiary‟s consent, and, (3) that this power to discharge or modify “terminates” when 
 
19 
the beneficiary “materially changes his position in justifiable reliance on the promise.”  Restatement 
(Second) of Contracts § 311 (1979).  This third concept is the one argued by the Foundations (“after 
a beneficiary has accepted the contract or changes its position in reliance thereon.”  Foundations‟ Br. 
at 18), a theme from Bogardus and its precursor, Judge Ryan‟s opinion in Blackard v. Monarch‟s 
Mfrs. & Distrib., Inc., 131 Ind. App. 514, 169 N.E.2d 735 (1961). 
 
 
As Professor Eisenberg has pointed out in examining the implications of section 311, there is 
little reason why a beneficiary‟s reliance should do more than protect the beneficiary from the costs 
of his reliance.  While contract law most assuredly authorizes parties to contract for the value of their 
expectations, Eisenberg says, a third-party beneficiary did not bargain in the first place, and thus 
need only be provided with reliance damages to be made whole.  Melvin A. Eisenberg, Third-Party 
Beneficiaries, 92 Colum. L. Rev. 1358, 1419 (1992).  “If a recognized beneficiary has justifiably 
relied on a contract,” Eisenberg writes, “the importance of protecting that reliance outweighs the 
interests of the contracting parties, but only to the extent of the reliance.”  Id.  
 
 
That principle appears suitable to the case before us.  While the Foundations can be said to 
have justifiably relied on the revenue that has flowed as a result of the local development agreements 
and the license issued by the Gaming Commission, that reliance should not be a permanent bar to 
altering the methods employed to further economic development in East Chicago.  As indicated 
above, the arrangements contained in the license issued by the Commission may be revised through 
resort to the Commission‟s administrative processes. 
 
 
To the extent the City‟s motion sought a determination that the agreements and the license 
were susceptible of alteration, it was entitled to such a holding. 
 
 
VI. 
Conclusion 
 
As detailed above, the trial court is affirmed on some points and reversed on others.  We 
remand so that there can be further proceedings on the merits.   
 
 
20 
 
 
Sullivan, Boehm, and Rucker, JJ., concur. 
Dickson, J., concurring and dissenting with separate opinion.  
 
 
 
21 
Dickson, Justice, concurring and dissenting. 
 
 
I concur in Parts I, II, IV, and V.  With respect to Part III, I concur with its three introductory 
paragraphs, but I believe that, as to the ensuing discussions of the various Counts, the correct 
principles initially enunciated are not fully applied, and thus I concur in result as to the resolutions in 
Part III regarding Counts II, IV, V, VI, and VII, and dissent as to the resolutions regarding Counts I, 
III, and VIII.