Title: Gregory Zoeller v. East Chicago Second Century

State: indiana

Issuer: Indiana Supreme Court

Document:

ATTORNEYS FOR APPELLANT 
 
GREGORY F. ZOELLER 
Attorney General of Indiana 
 
THOMAS M. FISHER 
Solicitor General of Indiana 
 
JEFFREY R. COX 
HEATHER L. HAGAN 
Deputy Attorneys General 
Indianapolis, Indiana 
 
PATRICK L. BAUDE 
Special Deputy Attorney General 
Indianapolis, Indiana 
 
ATTORNEYS FOR INDIANA GAMING 
COMMISSION 
 
NORMAN T. FUNK 
RORI L. GOLDMAN 
Indianapolis, Indiana 
ATTORNEYS FOR APPELLEES EAST CHICAGO 
SECOND CENTURY, INC., MICHAEL A. 
PANNOS AND THOMAS S. CAPPAS 
 
J. LEE MCNEELY 
BRADY J. RIFE 
Shelbyville, Indiana 
 
MAGGIE SMITH 
Indianapolis, Indiana 
 
ATTORNEYS FOR APPELLEE CITY OF EAST 
CHICAGO, INDIANA 
 
BRUCE A. KOTZAN 
JAMES A. KNAUER 
WILLIAM BOCK, III 
STEVEN E. RUNYAN 
Indianapolis, Indiana 
 
ATTORNEYS FOR TWIN CITY EDUCATIONAL 
FOUNDATION, INC., AND EAST CHICAGO 
COMMUNITY FOUNDATION, INC. 
 
PETER J. RUSTHOVEN 
DEBORAH POLLACK-MILGATE 
PAUL L. JEFFERSON 
Indianapolis, Indiana 
 
ATTORNEYS FOR RIH ACQUISTIONS IN, LLC 
D/B/A RESORTS EAST CHICAGO 
 
RONALD D. GIFFORD 
SCOTT D. HIMSEL 
Indianapolis, Indiana 
 
In the 
Indiana Supreme Court 
_________________________________ 
No. 49S02-0808-CV-00437 
GREGORY F. ZOELLER,  
Indiana Attorney General, 
 
 
 
 
Appellant (Plaintiff below), 
v. 
EAST CHICAGO SECOND CENTURY, INC.,  
MICHAEL A. PANNOS, AND  
THOMAS S. CAPPAS,  
 
 
 
 
Appellees (Defendants below). 
_________________________________ 
FILED
CLERK
of the supreme court,
court of appeals and
tax court
Apr 13 2009, 2:09 pm
 
2 
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. 49A02-0708-CV-722 
_________________________________ 
April 13, 2009 
Shepard, Chief Justice. 
 
 
The City of East Chicago and Showboat Marina Partnership agreed that part of the 
proceeds from riverboat gambling would flow back for community benefit through various 
entities.  The Attorney General has now brought claims for constructive trust and unjust 
enrichment as to property in the hands of one of those entities, East Chicago Second Century, 
Inc., and its principals.  We reverse the trial court’s dismissal of these claims. 
 
Facts & Procedural History 
 
 
In 1993, Showboat Marina Partnership initiated the process of applying for a riverboat 
casino license 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 agreement, 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.  Showboat proposed that of the total contribution 1% be 
allocated directly to East Chicago; 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 
 
3 
East Chicago Second Century, Inc., a for-profit corporation.  The agreement also included 
promises 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.   
 
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 agreement as 
conditions to Showboat’s receipt and maintenance of the license.  The gaming operation 
commenced in April 1997.  Between this commencement and June 2006, Second Century 
received about $16 million from the casino operation.   
 
The casino went through 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.  
RIH Acquisitions IN, LLC, doing business as Resorts East Chicago (“Resorts”) filed an 
application with the Commission in 2004, 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 agreement; the Attorney General found that much of the $16 
million could not be accounted for and could be traced to Second Century’s principals.   
 
On April 15, 2005, Second Century sought a declaratory judgment that Resorts would be 
required to continue the payments to Second Century.  In November 2005, Attorney General 
Steve Carter (now succeeded in office by Gregory F. Zoeller) sought to intervene in the lawsuit, 
and the trial court granted the request on April 27, 2006.  The Attorney General filed a 
counterclaim and crossclaim, seeking imposition of a constructive trust for public benefit and an 
accounting over 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), vacated.  We granted transfer. 
 
4 
 
 
I. 
 Does the Attorney General Have Authority to Bring this Case? 
 
 
Second Century moved to dismiss on grounds that its status as a for-profit corporation 
took it out from under the provisions in the trust code that describe the Attorney General’s 
supervisory role as respects charitable activity.  It argues on appeal that it was established under 
the agreement to benefit as a private for-profit corporation, and that “this non-charitable 
component eliminates the possibility that a public charitable trust was created,” citing the 
definition of such trusts, Ind. Code § 30-4-1-2(5).  (Appellant’s Br. at 5, 7.)  Second Century 
cites S. Ind. Gas and Elec. Co. v. City of Boonville, 252 Ind. 385, 248 N.E.2d 343 (1969), for the 
proposition that East Chicago was acting in a private or proprietary manner when it entered into 
the agreements and that this means they are not public contracts on which a charitable trust might 
be imposed.   
 
 
The Attorney General argues that the funds paid to Second Century were intended to 
benefit the public of East Chicago.  He asserts that the money was to be used for the economic 
development of East Chicago, advancing local real estate and the local workforce, and that the 
establishment of Second Century was to be the means to that end under the Riverboat Gambling 
Act.1 
 
 
The people’s interest in the rectitude of entities created in the name of public good, such 
as charities, has long led to regarding the Attorney General as an officer with authority to enforce 
those interests.  The notion was hornbook law even in the time of Blackstone, who wrote: 
The king, as parens patriae, has the general superintendence of all 
charities; which he exercises by the keeper of his conscience, the 
chancellor.  And therefore whenever it is necessary, the attorney 
                                                 
1 Casino gambling first came to Indiana in 1993 with the passage of the Riverboat Gambling Act.  See 
Ind. Code § 4-33-1-1 et seq.  Our General Assembly explicitly declared that one of the purposes behind 
allowing riverboat gambling was to foster economic development.  See Ind. Code § 4-33-1-2.  Thus, 
securing a riverboat license requires an applicant to obtain the endorsement of the city or community in 
which the riverboat would operate by providing assurances that economic development will occur in the 
endorsing city or community.  See Ind. Code §§ 4-33-6-7(b) and 4-33-4-1(a)(5).  The Indiana Gaming 
Commission may take the proposed economic development into consideration when granting riverboat 
licenses to competing applicants.  See Ind. Code § 4-33-6-7(a). 
 
5 
general, at the relation of some informant, (who is usually called 
the relator) files ex officio an information in the court of chancery 
to have the charity properly established. 
 
William Blackstone, 3 Commentaries 427, cited in 86 A.L.R.2d 1365 (1962). 
 
 
This was the common law view of our own state’s Attorney General:  “The law is well 
settled that inasmuch as the enforcement of  public charities are matters of public interest the 
attorney general appearing as a public officer is the proper party to maintain litigation involving 
questions of public charitable trusts.”  Boice v. Mallers, 121 Ind. App. 210, 96 N.E.2d 342, 344-
45 (1950). 
 
While the Attorney General is now considered a statutory officer possessing statutory 
powers, the legislature’s subsequent adoption of the trust code (enumerating the Attorney 
General’s role, Ind. Code § 30-4-5-12) did not abrogate the common law view of the Attorney 
General’s authority, “but rather codified it.”  In re Public Benevolent Trust of Crume, 829 
N.E.2d 1039, 1044 (Ind. Ct. App. 2005), trans. denied.  
 
 
In filing his counterclaim, the Attorney General cited his general duty to represent the 
State in any matter involving the rights or interests of the State, including those for which no 
other provision is made by law, Ind. Code § 4-6-1-6, and noted the public interest in effective 
operation of the Riverboat Gambling Act.  He also relied on the provisions of the trust code 
governing accounting by trustees, Ind.  Code § 30-4-5-12. 
 
 
And, as for whether courts should treat various entities as falling under the protections of 
the trust code skeptically as opposed to liberally, the General Assembly has given us a general 
direction: 
[N]o formal language is required to create a trust, but its terms 
must be sufficiently definite so that the trust property, the identity 
of the trustee, the nature of the trustee’s interest, the identity of the 
beneficiary, the nature of the beneficiary’s interest and the purpose 
to the trust may be ascertained with reasonable certainty. 
 
Ind. Code § 30-4-2-1(b) (2008).   
 
6 
 
 
Consistent with this legislative approach, this Court long ago embraced the broad 
proposition that a “charitable trust is a gift to a general public use.”  State ex rel. Emmert v. 
Union Trust Co. of Indianapolis, 227 Ind. 571, 86 N.E.2d 450, 452 (1949).  We adopted the 
definition that a “charitable trust is a gift for the benefit of persons, either by bringing their hearts 
and minds under the influence of education or religion, by relieving their bodies of disease, 
suffering or constraint, by assisting to establish them for life, by erecting or maintaining public 
buildings, or in other ways lessening the burdens or making better the condition of the general 
public, or some class of the general public, indefinite as to names and numbers.”  Id.  Charitable 
intent is also an element pertinent to establishing a public trust.  See id. at 453.  See also 
Crawfordsville Trust Co. v. Elston Bank & Trust Co., 216 Ind. 596, 25 N.E.2d 626, 633 (1940) 
(“gifts to charitable uses should be highly favored and construed by the most liberal judicial 
rules”); Bible Inst. Colportage Ass’n of Chicago v. St. Joseph Bank & Trust Co., 118 Ind. App. 
592, 75 N.E.2d 666, 670 (1947) (as for whether the language of an instrument creates a 
charitable trust, courts “will look through form to the substance.”). 
 
 
Whether Second Century qualifies as a public charitable trust is a respectable question, 
but it is not a grounds on which dismissal was warranted, because Ind. Code § 30-4-5-12 covers 
multiple entities other than public charitable trusts.  As pertinent here, it covers what the Code 
calls “a trust for a benevolent public purpose.”  The legislature has defined such entities both 
with particularity and with a broad brush.  Such trusts include “split-interest trusts (as defined in 
Section 4947 of the Internal Revenue Code)”, and perpetual care funds “established under I.C. § 
23-14-48-2” and other entities.  The General Assembly has also brought within the ambit of Ind. 
Code § 30-4-5-12 “any other form of split-interest charitable trust that has both charitable and 
noncharitable beneficiaries.”  Ind. Code § 30-4-1-2(18) (2008).  
 
 
Given the broad common law and statutory authority conferred upon the Attorney 
General to protect the public interest in charitable and benevolent instrumentalities, we conclude 
that it was error to dismiss the Attorney General’s counterclaim on grounds that Second Century 
is a for-profit corporation.  
 
 
7 
II. 
 Whether Unjust Enrichment is Available 
 
 
 
A claim for unjust enrichment “is a legal fiction invented by the common law courts in 
order to permit a recovery . . . where the circumstances are such that under the law of natural and 
immutable justice there should be a recovery . . . ”  Bayh v. Sonnenburg, 573 N.E.2d 398, 408 
(Ind. 1991) (citation omitted).  “A person who has been unjustly enriched at the expense of 
another is required to make restitution to the other.”  RESTATEMENT OF RESTITUTION § 1 (1937).  
To prevail on a claim of unjust enrichment, a claimant must establish that a measurable benefit 
has been conferred on the defendant under such circumstances that the defendant’s retention of 
the benefit without payment would be unjust.  Bayh, 573 N.E.2d at 408.   
 
The Attorney General argues that the State conferred a measurable benefit on Second 
Century by “mandating the payments in the first place as a condition precedent to the 
[Commission’s] authorization of the gaming license.”  (Appellant’s Br. at 19.)  But for the 
State’s authorization of riverboat gambling and its statutory directive that gambling revenues 
benefit local economic development, the Attorney General says, Second Century would neither 
be receiving any funding nor even be in existence.  Under these circumstances, to allow Second 
Century to retain the benefit of these funds without fulfilling its obligation to engage in the 
economic development would be unjust and contrary to our legislature’s directive. 
 
Second Century contends that any claim for unjust enrichment undermines the Attorney 
General’s request for imposition of a constructive trust, because such claim of benefit admits that 
Second Century is a non-charitable beneficiary.  (Appellee’s Br. at 9-10.)  This notion of unjust 
enrichment is misplaced.  The fact that a claimant has requested imposition of a constructive 
trust does not affect the right of the claimant to assert a claim for unjust enrichment and 
restitution where the contention is that one person has been unjustly enriched at the expense of 
another.   
 
It was error to dismiss the Attorney General’s complaint on these grounds. 
 
III. 
Whether the Unjust Enrichment Claim is Actionable 
 
8 
 
 
The Attorney General argues that the unjust enrichment claim is actionable “because 
there is no contract between [Second Century] and the Attorney General or the State that controls 
the rights of these parties . . .” (Appellant’s Br. at 21.)  Second Century has argued that the unjust 
enrichment claim is unavailable because the local development agreement specifically addressed 
the subject matter of the funds that Second Century should receive.  (Appellee’s Br. at 12.)   
 
 
There are three general types of contracts – express, implied-in-fact, and constructive 
contracts.  See e.g., Bayh, 573 N.E.2d at 427 n.11.  Express and implied-in-fact contracts are 
traditional contracts, while constructive contracts, “also referred to as quantum meruit, contract 
implied-in-law, [unjust enrichment], or quasi-contracts[,]” are not contracts at all.  Id. at 408.   
 
Indiana’s Court of Appeals has declared, “The existence of express terms in a valid 
contract precludes the substitution of and the implication in law of terms regarding the subject 
matter covered by the express terms of the contract.”  Keystone Carbon Co. v. Black, 599 N.E.2d 
213, 216 (Ind. Ct. App. 1992) (citing Kincaid v. Lazar, 405 N.E.2d 615 (Ind. Ct. App. 1980)).  
“When the rights of parties are controlled by an express contract, recovery cannot be based on a 
theory implied in law.”  Id.   
 
There was an express contract in this transaction, but it was not one to which the 
Attorney General or the State were parties.  Showboat entered into the local development 
agreement with East Chicago.  That transaction is thus not a bar to the Attorney General’s claim 
for unjust enrichment, an equitable remedy.   
 
Moreover, the agreement is not like an ordinary commercial contract at all.  This 
agreement was a mode of implementing the casino’s obligation to contribute to local economic 
development.  Its terms were intended to control the rights and duties of East Chicago and the 
casino licensee in relation to each other; they were not intended to control the rights of any non-
parties.  The Attorney General’s claim for unjust enrichment is actionable.   
 
IV. 
Is Fraud a Necessary Prerequisite to Constructive Trust? 
 
9 
 
 
Second Century has argued that the claim for imposition of a constructive trust is 
defective because the Attorney General has not pleaded any allegations of fraud.  (Appellee’s Br. 
at 13.)   
 
The general notion of constructive trust is succinctly outlined in the Restatement 
(Second) of Trusts: 
 
[A] relationship with respect to property subjecting the person by 
whom the title to the property is held to an equitable duty to 
convey it to another on the ground that his acquisition or retention 
of the property is wrongful and that he would be unjustly enriched 
if he were permitted to retain the property.   
 
 
RESTATEMENT (SECOND) OF TRUSTS § 1 cmt. e (1959), cited in Hicks v. State, 635 N.E.2d 1151 
(Ind. Ct. App. 1994), trans. denied.   
 
 
Cases and propositions cited by Second Century are complementary to this formulation.  
“A constructive trust is imposed where a person holding title to property is subject to an 
equitable duty to convey it to another on the ground that he would be unjustly enriched if he 
were permitted to retain it.”  Kalwitz v. Estate of Kalwitz, 822 N.E.2d 274, 280 (Ind. Ct. App. 
2005), trans. denied.  This type of trust is more in nature of an equitable remedy rather than an 
independent cause of action.  Id. (citing Chosnek v. Rolley, 688 N.E.2d 202, 211 (Ind. Ct. App. 
1997)).  (Appellee’s Br. at 13.) 
 
 
While Indiana courts have certainly said on occasion that fraud is a prerequisite, see, e.g., 
Brown v. Brown, 235 Ind. 563, 135 N.E.2d 614, 617 (1956), the meaning of this declaration is 
not confined to fraud as one might define it for purposes of criminal law.  Rather, the remedy is 
available where there is standard fraud (i.e., misrepresentation, reliance, etc.) or a breach of duty 
arising out of a confidential or fiduciary relationship.  United Steelworkers of Am. v. N. Ind. 
Public Serv. Co., 436 N.E.2d 826, 831 (Ind. Ct. App. 1982).   
 
 
10 
This view of constructive trusts finds repetition beyond our own caselaw.  See, e.g., Hertz 
v. Klavan, 374 A.2d 871, 873 (D.C. 1977) (constructive trust is a flexible remedial device used 
to force restitution in order to prevent unjust enrichment); see also Lee v. Wong, 552 P.2d 635 
(Hawaii 1976); Dexter v. Dexter, 481 F.2d 711, 713-14 (10th Cir. 1973) (before a constructive 
trust may arise under Kansas law, there must be a showing of either fraud, unconscionable 
conduct, or questionable ethics resulting in unjust benefit to the wrongdoer); Village of Wheeling 
v. Stavros, 411 N.E.2d 1067, 1070 (Ill. App. Ct. 1980) (the assumption that a constructive trust 
may only be imposed where there is fraud or the breach of a fiduciary relationship is incorrect; a 
constructive trust is by no means restricted to those grounds).   
 
The Attorney General’s allegations against Second Century and its principals on this 
point are: 
Upon information and belief, the monies paid to Second Century 
under the Showboat Agreement have not led to public benefit 
commensurate with the monies paid out under said agreement, but 
instead have led mainly to the unjust enrichment of the directors 
and officers of Second Century.   
 
(Appellant’s App. at 137.)  This allegation states a claim for constructive trust.   
 
 
Conclusion 
 
 
We reverse the dismissal entered by the trial court and remand for further proceedings on 
the merits.   
 
Dickson, Sullivan, Boehm, and Rucker, JJ., concur.