Johnson v. AGS CJ Corporation

Background

Roy Johnson and James Breslo, who owned and operated Diamond Game Enterprises, sued AGS CJ Corporation for breach of contract. In 2013, Amaya Americas Corporation agreed to purchase Diamond Game Enterprises for $25 million. The parties amended their agreement to hold back $7 million because of legal risks involving equipment that was leased for gaming operations connected to the Ysleta del Sur Pueblo Tribe.

The amended agreement described conditions that had to be met before the holdback would be paid. Among other things, a qualifying Texas legal-clearance event had to occur; the relevant equipment lease had to end; Diamond Game Enterprises had to have the right to possess the equipment; and the related Tribal Agreement had to be assigned to Diamond Game Enterprises, with any required tribal consent.

The Tribe later ended the equipment lease with Blue Stone, a company created and owned by Johnson. In 2017, Johnson assigned Blue Stone’s interest in the Tribal Agreement to Diamond Game Enterprises. The agreement had already been terminated by that time. Plaintiffs also relied on a 2022 Supreme Court decision and subsequent developments that allowed the Tribe to operate electronic bingo gaming.

Plaintiffs’ claims and Defendant’s motion

Plaintiffs alleged that the contractual conditions had been satisfied and that AGS breached both the agreement and the implied duty of good faith and fair dealing by refusing to pay the $7 million holdback. AGS moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not allege enough facts to state a legally plausible claim.

Court’s analysis

The court held that Plaintiffs had not plausibly alleged that the contractual conditions requiring payment were fulfilled.

First, the court rejected Plaintiffs’ argument that the Supreme Court’s 2022 decision was a qualifying “regulatory event.” The contract separately listed judicial events, including dismissal or a final court disposition of the specified Texas litigation, and then referred to other legislative or regulatory events. The court concluded that the contract’s specific listing of judicial events excluded treating the Supreme Court decision as a separate regulatory event. It also reasoned that Plaintiffs’ interpretation would make the contract’s distinctions among judicial, legislative, and regulatory events unnecessary.

Second, the court rejected Plaintiffs’ argument that Blue Stone’s 2017 transfer satisfied the assignment condition. The court stated that the Tribal Agreement had been terminated more than a year before the attempted transfer. It concluded that termination ended the parties’ remaining contractual rights, leaving no assignable interest—apart from potential rights related to a breach—to transfer to Diamond Game Enterprises. The court therefore found that Plaintiffs had not alleged facts showing that the Tribal Agreement had been duly assigned.

Disposition

Judge Andrew L. Carter, Jr. granted Defendant’s motion to dismiss without prejudice. The Clerk was directed to terminate the motion. The court stated that Plaintiffs’ motion for leave to amend had to be filed by April 8, 2024.