Johnson v. AGS CJ Corporation

Background

Roy Johnson and James Breslo brought a single breach-of-contract claim against AGS CJ Corporation, formerly known as Amaya Americas Corporation. The plaintiffs had sold all of the stock of Diamond Game Enterprises to Amaya under a June 10, 2013 Stock Purchase Agreement for $25 million. A later amendment required Amaya to hold back $7 million until four specified conditions concerning Diamond Game’s Texas gaming business were satisfied or waived in Amaya’s sole discretion.

Diamond Game had leased sweepstakes terminals to the Ysleta del Sur Pueblo Tribe under a 2008 lease. After the State of Texas pursued contempt proceedings concerning the Tribe’s gaming operations, Diamond Game leased the equipment to Blue Stone, an entity created and owned by Johnson, which then leased it to the Tribe. The parties later amended the stock-purchase agreement to address the Texas-related risk and the $7 million holdback.

The amendment defined a “Texas Clearance Event” to include a final court disposition that permitted continued operation of the Texas equipment, with or without commercially reasonable modifications. The amendment also required satisfaction of three other conditions, including termination of the Texas lease, Diamond Game’s right to possess the equipment, and assignment of the related tribal lease agreement to Diamond Game.

The Texas proceedings

On May 27, 2016, the Texas federal court held the Tribe in contempt for violating an injunction through its sweepstakes operations. It ordered the Tribe to terminate those operations within 60 days. The Texas court also ended a pre-approval process for proposed gaming activities and stated that it was not deciding whether the Tribe’s proposed bingo activities were lawful.

The Tribe had already terminated its agreement with Blue Stone, and the equipment had been removed from the Tribe’s facilities before the May 2016 order. The parties later discussed redeploying some two-monitor terminals for possible bingo use, but no new lease resulted. In a later proceeding, the Texas federal court found the Tribe’s bingo operations unlawful and permanently enjoined them. The Fifth Circuit affirmed that decision on April 2, 2020.

Parties’ motions and the court’s analysis

Both sides moved for summary judgment. The plaintiffs argued that the May 2016 Texas order was a Texas Clearance Event because it ended the pre-approval requirement and allowed the Tribe to modify its gaming terminals. AGS argued that the order did not affirmatively permit continued operation, because it found the sweepstakes operations unlawful and expressly declined to decide whether bingo was permissible.

The court interpreted “permits” according to the contract’s plain meaning and held that the term meant more than merely “does not prohibit.” The court concluded that the May 2016 order did not permit continued operation of the Texas equipment: it prohibited the existing sweepstakes operations and did not approve bingo or any other use. The court also relied on the parties’ understanding that a Texas Clearance Event required a definitive resolution of the legality of the equipment’s continued operation.

Because no Texas Clearance Event occurred, the court held that AGS did not breach the amended agreement by refusing to pay the $7 million holdback. The court did not decide whether continued operation of the equipment would otherwise have been possible or whether the assignment of the tribal lease agreement was valid. It reasoned that even if the assignment were valid, all four contractual conditions were required, and the absence of a Texas Clearance Event was independently sufficient to defeat the plaintiffs’ claim.

Disposition

The court granted AGS’s motion for summary judgment and denied the plaintiffs’ motion for summary judgment. It directed the Clerk of Court to terminate the pending motions and enter judgment in favor of AGS.