Preview
FILED: NEW YORK COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019
NYSCEF DOC. NO. 9 RECEIVED NYSCEF: 07/17/2019
EXHIBIT D
FILED: NEW NEW YORK COUNTY COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019
FILED: YORK CLERK 06/18 /2013|
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NYSCEF DOC. NO. 6 REC
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
WELLS FARGO BANK, N.A., AS TRUSTEE,
Index No. 6
Plaintiff,
-against-
CHUKCHANSI ECONOMIC DEVELOPMENT
AUTHORITY, THE BOARD OF THE CHUKCHANSI
ECONOMIC DEVELOPMENT AUTHORITY, THE
TRIBE OF PICAYUNE RANCHERIA OF THE
CHUKCHANSI INDIANS, THE TRIBAL COUNCIL OF
THE TRIBE OF PICAYUNE RANCHERIA OF THE
CHUKCHANSI INDIANS, THE PICAYUNE
RANCHERIA TRIBAL GAMING COMMISSION,
RABOBANK, N.A., GLOBAL CASH ACCESS, INC.,
NANCY AYALA, TRACEY BRECHBUEHL, KAREN
WYNN, CHARLES SARGOSA, REGGIE LEWIS,
CHANCE ALBERTA, CARL BUSHMAN, and BANK
OF AMERICA, N.A.,
Defendants.
MEMORANDUM OF LAW IN SUPPORT
OF WELLS FARGO BANK, N.A.'S APPLICATION
FOR A PRELIMINARY INJUNCTION
LATHAM & WATKINS LL
David S. Heller
Robert J. Malionek
Craig A. Batchelor
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TABLE OF CONTENTS
Page
I. Introduction..........................................................................................................................1
II. Statement of Facts................................................................................................................5
A. The Indenture And Related Agrccmcñts, And The Security Interests Of
The Trustee And The Holders..................................................................................5
B. Tribal Dispute ..........................................................................................................5
C. Breaches and Other Actions in Violation of the Indenture and Related
Agreements..............................................................................................................7
1. Failure to Deposit Gross Revenues and Revenues and Cash.......................7
2. Impact of Failure to Handle of Casino Finances in Compliance
with Contractual Agreements on Vendor Relationships..............................8
3. Opening of Bank of America Account ........................................................9
4. CEDA's Missed Interest Payment .............................................................10
D. CEDA's Failure to Provide Financial Statements .................................................10
E. The Lewis Tribal Court and Tribal Gaming Commission Proceedings ................11
III. Argument ...........................................................................................................................12
A. Gross Revenues Relief: Request that the Court Enjoin CEDA and the
Tribe from Withholding Cash in the Casino's Cage and Directing CEDA,
the Tribe and Bank of America to Transfer the Funds in the Bank of
America Account and Appropriate Future Cash and Gross Revenues to the
Rabobank Accounts...............................................................................................14
l. The Trustee is Likely to Succeed On the Merits........................................14
2. Irreparable Harm Exists Because, Absent the Injunctive Relief
Requested, A Later Final Judgment Will be Ineffectual............................16
B. Control Account Relief: Request that the Court Direct CEDA, the Tribe
and Rabobank to Utilize the Rabobank Accounts for Deposits and in
Order to Pay Critical Vendors, and Direct Global Cash Access to Deposit
in the Rabobank Accounts the Funds Payable to CEDA.......................................18
1. The Trustee is Likely to Succeed on the Merits ........................................18
2. Failure to Unfreeze the Rabobank Accounts and Failure of Global
Cash Access to Deposit Funds Into the Rabobank Accounts Will
Cause Irreparable Harm to The Trustee.....................................................19
C. Unfair Action Relief: Request that the Court Enjoin CEDA from
Instituting Proceedings against The Trustee in an Improper Forum......................20
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1. The Trustee is Likely to Succeed on the Merits ........................................20
2. The Trustee Will Be Irreparably Harmed If the Tribal Parties and
Individual Defendants Are Permitted to File Further Actions
Before Tribal Courts and Gaming Commissions Outside Those
Bargained For in the Agreements ..............................................................22
D. Financial Statement Relief: Request that the Court Direct CEDA to
Provide Reports Containing Financial Statements ................................................24
1. The Trustee Is Likely to Succeed on the Merits .......................................,24
2. The Trustee Will Be Irreparably Harmed by CEDA's Failure to
Provide Audited Financial Statements.......................................................24
E. The Equities Weigh Decidedly in The Trustee's Favor.........................................25
IV. CONCLUSION.....................................................
............................................................25
ii
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TABLE OF AUTHORITIES
Page
CASES
Alpha Capital Aktiengesellschaft v. Advanced Viral Research Corp.,
2003 WL 328302 (S.D.N.Y. Sept. 19, 2008)............................................................................
17
Amity Loans, Inc. v. Sterling Nat'l Bank & Trust Co.,
575 N.Y.S.2d 854 (1st Dep't 1991)...........................................................................................
16
Caesars Bahamas Investment Corporation v Baha Mar Joint Venture Holdings Ltd.,
2008 WL 4360436 (N.Y. Sup. Ct. Sept. 12, 2008) ...................................................................
22
Castle Creek Technology Partners, LLC v. Cellpoint, Inc.,
2002 WL 31958696 (S.D.N.Y. Dec. 9, 2002)...........................................................................
17
Gerald Modell, Inc. v. Morgenthau,
764 N.Y.S.2d 779 (N.Y. Sup. Ct. 2003)..............................................................................
13, 25
H. Fox & Co., Inc. v. Blumenfeld,
809 N.Y.S.2d 87 (2d Dep't 2005)..............................................................................................
15
Huff v. C.K. Sanitary Sys., Inc.,
246 A.D.2d 795, 667 N.Y.S.2d 766 (3d Dep't 1998)................................................................
13
Indosuez Int'l Fin., B.V. v. Nat'l Reserve Bank,
758 N.Y.S.2d 308 (1st Dep't 2003)...........................................................................................
22
Jacob H. Rottkamp & Son, Inc. v. Wulforst Farms, LLC,
17 Misc.3d 382 (N.Y. Sup. Ct. 2007)........................................................................................
23
Lama Holding Co. v. Smith Barney Inc.,
88 N.Y.2d 413 (N.Y. 2 I
1996).......................................................................................................
Maestro West Chelsea SPE LLC v. Pradera Realty Corp.,
38 Misc.3d 522 (N.Y. Sup. Ct. 2012).......................................................................................
15
Pando v. Fernandez,
124 A.D.2d 495 (Ist Dep't 1986)..............................................................................................
16
Prudential Secs. Credit Corp. v. Teevee Toons,
2003 WL 346440 (N.Y. Sup. Ct. Feb. 7, 2003)........................................................................
25
Reuters Ltd. V. United Press Internat'l, Inc.,
903 F.2d 904 (2d Cir. 1990)......................................................................................................
23
...
111
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Rex Med. L P. v. Angiotech Pharmaceuticals, Inc.,
754 F. Supp. 2d 616 (S.D.N.Y. Dec. 1, 2010)...........................................................................
23
The Picayune Rancheria of Chukchansi Indians v. Rabobank, et al.,
No. 1:13-cv-00609 (E.D. Ca. Jun. 4, 2013)...............................................................................
21
Zonghetti v. Jeromack,
150 A.D.2d 561 (2d Dep't 1989)...............................................................................................
16
STATUTES
N.Y. C.P.L.R. § 6301....................................................................................................................
13
N.Y. Gen. Oblig. § 5-1402............................................................................................................
20
N.Y. Jud. Law § 140-b..................................................................................................................
20
CONSTITUTIONAL PROVISIONS
N.Y. Const. art. VI, § 7.................................................................................................................
20
IV
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Fargo"
Plaintiff Wells Fargo Bank, N.A. ("Wells or the "Trustee"), acting in itscapacity
as Trustee and Collateral Agent under the Indenture and Security Agreement, respectively (as
defined below), submits this memorandum of law in support of itsapplication for a preliminary
injunction, pursuant to CPLR § 6301, for an Order to enjoin Chukchansi Economic Development
("CEDA"
Authority or the "Authority"), the Board of the Chukchansi Economic Developmcñt
Authority (the "Board"), the Tribe of the Picayune Rancheria of the Chukchansi Indians (the
"Tribe"), the Tribal Council of the Tribe of the Picayune Rancheria of the Chukchansi Indians
(the "Tribal Council") (CEDA, the Board, the Tribe, and the Tribal Council, collectively, the
"Tribal Parties") and the individuals Nancy Ayala, Tracey Brechbuehl, Karen Wynn, Charles
Sargosa, Reggie Lewis, Chance Alberta and Carl Bushman (Ayala, Brechbuehl, Wynn, Sargosa,
Lewis, Alberta, and Bushman, collectively, the "Individual Defendants") from taking further
actions in contravention of the Indenture, Security Agreement and related agreements (the
"Agreements"), and for an Order of direction with respect to Bank of America, N.A. ("Bank of
America"), Rabobañk, N.A. ("Rabobank") and Global Cash Access, Inc. ("Global Cash Access")
as third parties to this dispute in possession of funds subject to the Trustee's interests, given that
these actions are likely to cause continued irreparable harm to the interests of the Trustee and the
holders of the Secured Notes (defined below) (the "Holders").
L INTRODUCTION
The Trustee seeks a preliminary injunction related to numerous current and ongoing
breaches of the Indenture, the related Security Agreemeñt and other agreements at issue. The
breaches all relate to a dispute that has erupted within CEDA, which was established by the
Tribe to operate the Chukchansi Gold Resort & Casino in Coarsegold, CA (the "Casino"), and
which issued approximately $250 million in Secured Notes in May 2012 pursuant to the
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Casino.'
Indenture to refinance the debt of the The breaches occurred no later than February
2013, when at least two separate factions began battling for control of the Tribal Council, which
governs the Tribe, and control of CEDA. This Tribal governance dispute has caused chaos and
substantially disrupted the Casino's operations and finances, resulting in several serious breaches
of the Indenture and related agreements. This situation threatens to cause permanent damage to
the health of the Casino and, as a result, to the collateral underlying the Secured Notes (the
"Collateral"). The Trustee is not asking this Court to resolve the underlying Tribal dispute nor
does it seek to have any role in managing the operations of the Casino. Rather, the Trustee is
seeking the Court's intervention to enforce the terms of the Indenture and related agreemeiits,
prevent irreparable harm to the rights of the Holders and protect the value of the Collateral. The
Tribal Parties have agreed to this Court's exclusive jurisdiction to hear such disputes arising
under the Indenture, and the Trustee is left with no choice but to seek the Court's intervention.
Specifically, although the many breaches of the Agreements are detailed in the Trustee's
Complaint, including CEDA's failure to pay millions of dollars of interest required by the
Indenture, the breaches related to the request for a preliminary injunction are as follows:
(1) The Ayala Faction (as defined below), which controls the management of the Casino
and its revenues, recently transferred Casino funds-purportedly in the name of CEDA-into a
new bank account at Bank of America because of the Tribal governance dispute, in breach of the
Security Agreemeiit that requires CEDA to deposit cash only into accounts over which the
Trustee has control.
(2) Upon notice of the Tribal dispute, Bank of America froze the account. Bank of
As discussed below, the Trustee takes no position with respect to which faction should be
in control of the Tribe and CEDA. The Trustee is serving the Tribe and CEDA with this
Memorandum and allpapers in this action using the procedures provided in the Indenture, and is
serving both factions and their counsel with all papers in this action.
2
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America has indicated that itcannot allow either Faction (as defined below) to use the account
without further guidance from a court of competent jurisdiction. As a result, the Ayala Faction,
"cage"
again in CEDA's name, began maintaining the Casino's revenues in the Casino rather
than depositing those revenues with a bank, as required under the Indenture, thus putting
significant cash at risk and further violating the Indenture and the Security Agreemcñt.
(3) Because of the Tribal dispute, the accounts into which Casino revenues should be
deposited, at Rabobank, have also been frozen to CEDA. As with Bank of America, Rabobank
has indicated that itcannot allow either Faction to use the accounts in light of the dispute without
appropriate direction from a court of competent jurisdiction. As a result, at least one vendor,
Global Cash Access, which holds approximately $14 million in uncashed checks-comprising
the Collateral-has been unable to deposit those funds, and other critical vendors of the Casino
2
are not being paid, in violation of the Indenture.
(4) The Lewis Faction, also in the name of CEDA, brought suit in a purported Tribal
Court not only to challenge the Ayala Faction regarding the rightful control and authority of the
Tribal Council, the Tribe and CEDA, but also-in direct violation of the Indenture and related
agreements-against the Trustee for taking actions expressly permitted as Indenture Trustee, and
instituted related proceedings before a purported Tribal Gaming Commission; and
(5) The Tribe itself,through the actions of both Factions, has, inter alia, restricted
CEDA's right and ability to conduct Casino business and has done so in a manner that is
materially adverse to the economic interests of the Holders.
2
The Trustee will give notice of this lawsuit to Bank of America and Global Cash Access
and the requested relief and will determine if they oppose the requested relief. Rabobank has
indicated that itwill accept the funds from Bank of America and Global Cash Access. Rabobank
isjoined as a party only to the extent necessary to enable those funds to be deposited in the
Rabobank Accounts.
3
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The Trustee is an innocent bystander in the underlying dispute and takes no position with
respect to which Faction rightfully should be in control of the Tribe and the Tribal Council. But
regardless of which Faction ultimately prevails in the underlying tribal dispute, the Trustee is
entitled to injunctive relief intended to prevent further damage to the Casino's operations and
thereby protect the investment made by the Holders.
The Trustee requests that the Court grant the following injunctive relief: First, CEDA
and the Tribe should be enjoined from withholding cash in the Casino cage or in an account not
subject to an Account Control Agreement3, and they and Bank of America should be directed to
transfer the funds held at Bank of America, and all appropriate cash and future revenues, under
the Indenture, to the Rabobank Accounts (as defined below) ("Gross Revenues Relief"). Second,
CEDA, the Tribe and Rabobank should be directed to utilize the Rabobank Accounts for deposits
and to make payments to the Casino's critical vendors, as agreed among those parties, in
compliance with the Indenture and related agreements, and Global Cash Access should be
directed to deposit its funds in the Rabobank Accounts where they belong ("Control Account
Relief").45
Third, the Tribal Parties and the Individual Defendants should be enjoined from filing
3
Capitalized terms not otherwise defined in this Complaint shall have the meaning
ascribed to them in the Indenture, Security Agreement, and related documents. See Ex. A,
"Ex._"
Indenture & Ex. E, Security Agreement. All references to are to the exhibits attached to
the Affidavit of Michael Slade, submitted concurrently herewith.
Specifically, while the Trustee has an uncontested security interest in both the Collateral
in the Bank of America account and that held by Global Cash Access, the Trustee's right of
possession in the funds and checks is up to an amount sufficient to satisfy the amounts owed by
CEDA under the Indenture.
5
Relatedly, the Trustee requests that the Court declare that (a) the Trustee has a security
interest in and right to possession of the funds in the Bank of America account and the uncashed
checks held by Global Cash Access, (b) the Trustee has a right to possession of the funds in the
Bank of America account and the uncashed checks held by Global Cash Access, up to an amount
sufficient to satisfy the amounts owed by CEDA to the Trustee and (c) the funds held by Bank of
America and Global Cash Access must be deposited into the Rabobank Accounts.
4
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further actions in venues prohibited by the Agreements ("Unfair Action Relief"). Fourth, CEDA
should be directed to provide reports to the Trustee containing the Casino's audited financial
statements ("Financial Statement Relief").
The Trustee firmly believes that, with the Court's assistance, there can be a return to the
status quo ante on an expedited basis before further irreparable harm is done.
II. STATEMENT OF FACTS
A. The Indenture And Related Agrccmcñ‡s, And The Security Interests Of The
Trustee And The Holders
On May 30, 2012, CEDA issued $250,406,000 9¾% Secured Notes due 2020 (the
"Secured Notes") pursuant to that certain Indenture, dated as of May 30, 2012, as amended or
modified from time to time (the "Indenture"). As part of the issuance of the Secured Notes,
CEDA, the other grantors and the Trustee also entered into a Security Agreement (the "Security
Agreement"). The financing to which the Secured Notes relate was used by CEDA to refinance
obligations incurred by itto construct the Casino and make capital improvements. As part of the
refinancing, CEDA pledged the revenues earned by the Casino as Collateral, among other things,
and covenanted to deposit such revenues into certain specified bank accounts at Rabobank, at
other Qualified Banks, or with the Collateral Agent. As part of the transaction, CEDA,
Rabobank and the Trustee entered into an agreement giving the Trustee control over accounts
(the "Rabobank Accounts") at Rabobank (the "Control Agreement").
B. Tribal Dispute
The Tribe elects and appoints a Tribal Council, which serves as the governing body for
the Tribe. The elected Tribal Council also sits as the Board of Directors for CEDA. Thus, the
make-up of the Tribal Council and the Board of Directors for CEDA is identical.
CEDA is in charge of operating the Casino. At the time of the signing of the Indenture in
5
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May 2012, CEDA's Chairman was Reggie Lewis and its Vice Chairwoman was Nancy Ayala.
In December 2012, Ayala was elected Chairwoman of the Tribal Council.
In or around February 2013, a dispute erupted within the Tribe and CEDA regarding who
should be in charge of those bodies. This dispute has fractured control of the Casino. Ayala,
acting under her purported authority as Tribal Council Chairwoman, took actions to replace
certain members of the Tribal Council, including Lewis.
Since that time, at least two separate factions have claimed to be the true leaders of the
Faction" Faction"
Tribe, the Tribal Council and CEDA: the "Ayala and the "Lewis (collectively,
Faction"
the "Factions"). The "Ayala consists of Nancy Ayala, Tracey Brechbuehl, Karen
Wynn, and Charles Sargosa. These individuals assert that Nancy Ayala is the Tribal Council
Chairwoman, and that, as such, she has proper authority to control CEDA and the Casino. The
Faction"
"Lewis consists of Reggie Lewis, Chance Alberta, and Carl Bushman. These
individuals assert that Reggie Lewis is the Tribal Council Chairman, and that, as such, he has
proper authority to control CEDA and the Casino. Each Faction claims to have itsown Tribal
Council, Tribal Court and Tribal Gaming Commission.
During 2013 and at present, the Ayala Faction has been in control of the Casino's
operations, but, in violation of the Security Agreement and the Indenture, the Ayala Faction did
not deposit Gross Revenues (described below) and Revenues and Cash (described below) in the
Casino.6
Rabobank Accounts, but instead began maintaining cash in the This failure to handle
these monies in accordance with the requirements of the Agreements has caused substantial
disruption to the management of the Casino's finañces, and has put the Collateral at risk.
Pursuant to Sections 4.4.4(b) and 4.9 of the Security Agreement, CEDA is required to
deposit the Casino's Revenues and Cash into a deposit account over which the Trustee has been
granted express control by CEDA. This includes the Rabobank Accounts.
6
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C. Breaches and Other Actions in Violation of the Indenture and Related
Agreements
1. Failure to Deposit Gross Revenues and Revenues and Cash
Pursuant to Section 4.25 of the Indenture, at least once per week, CEDA is required to
cause all Gross Revenues, other than Operating Cash and Gross Revenues that constitute
Excluded Assets, to be deposited in Deposit Accounts at a Qualified Bank (e.g., Rabobank).
Ex. A. Gross Revenues are defined under Section 1.1 of the Indenture to include all revenues
from the Casino, less certain items including Operating Cash. Operating Cash is defined under
Section 1.1 of the Indenture as certain cash necessary for the operation of the Casino, not to
exceed an aggregate of $10 million.
Additionally, pursuant to Section 4.9 of the Security Agreement, CEDA must deposit all
Revenues and Cash in excess of Operating Cash into, and maintain in,an account over which the
Trustee has control. Revenues and Cash is defined under Section 1.1 of the Security Agreement
to include all profits, income and revenues derived from the Casino.
Since approximately the last week of February 2013, presumably because of the disputes
that have arisen, CEDA has stopped depositing the Gross Revenues and Revenues and Cash into
the specified Rabobank Accounts. See Slade Aff. ¶5. Substantial cash balances, upon
information and belief consisting of millions of dollars in excess of necessary Operating Cash,
instead are being held in the Casino cage and in locations and bank accounts other than
designated Deposit Accounts at Rabobank. See Affidavit of Ronald Evans, submitted herewith
("Evans Aff.") ¶ 9. The failure to deposit Gross Revenues and Revenues and Cash into the
designated Deposit Accounts at Rabobank constitutes a breach of the Indenture and Security
Agreement. Moreover, holding such substantial sums of cash outside of any established bank
account not subject to a control agreement presents significant risks to the financial stability of
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the Casino as well as to the Holders. CEDA's actions also violate the relevant Tribal Gaming
Ordinance in multiple respects, thus constituting further violations of the Indenture. See,e.g.,
Ex. B., Tribal Gaming Ordinance, Sections 6.1, 8.3.
2. Impact of Failure to Handle of Casino Finances in Compliance with
Contractual Agreements on Vendor Relationships
The dispute between the Factions also has led to debilitating disruption with the Casino's
vendors. For example, Global Cash Access, one of the Casino's key vendors which reconciles
the total ATM cash dispensed from the Casino and must reimburse the Casino for these
reconciled amounts, has been unable to make payments due to the Casino. Ex. C, Letter dated
May 14, 2013 from Global Cash Access to Mr. R. Rosette and Mr. F. Petti. Historically, Global
Cash Access regularly deposited these reimbursed amounts directly into the Casino's Rabobank
Accounts. In connection with the recent tribal governance dispute, CEDA instructed Global
Cash Access to make payments into an unauthorized account at Bank of America but, as
described below, that account has been frozen. Id. Global Cash Access thus was forced to send
checks directly to the Casino, but those checks have not been cashed. Id. As of June 17, 2013,
Global Cash Access held approximately $14 million in uncashed checks payable to the Casino.
Slade Aff ¶18. These funds are Collateral and constitute Revenues and Cash under the Security
Agreement.
In late April, the Lewis Faction, claiming to be the true leaders of the Tribe, began
desist"
sending "cease and letters to various vendors, demanding that they stop providing
services to the Casino. See, e.g., Ex. D, Letter dated April 22, 2013 from Mr. R. Rosette to Bally
Gaming. The letters claim that, by continuing to provide services to and receive payment from
the Casino, the vendors are committing crimes by allegedly supporting the Ayala Faction. By
sending these letters, the Lewis Faction is endangering the financial well-being of the Casino,
8
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and the negative impact such letters may have on the Casino's operations is large and irreparable.
3. Opening of Bank of America Account
On March 19, 2013, the Ayala Faction, claiming to be in control of CEDA, opened an
account at Bank of America, and on March 20, began depositing Gross Revenues and Revenues
and Cash from the Casino into that account. Evans Aff. ¶ 8. However, CEDA did not enter into
an Account Control Agreement with the Trustee for the Bank of America account, in violation of
the Indenture and the Security Agreement. On April 2, 2013, as a result of the Tribal dispute and
through no fault of Bank of America, Bank of America froze this account, which holds
approximately $2.6 million. Id.
Pursuant to Sections 4.4.4(b) and 4.9 of the Security Agreement, the Trustee has a legal
right of possession to the funds in this Bank of America account. These sections explicitly
require that the Casino's Revenues and Cash must be deposited into an account over which the
Trustee has control through an Account Control Agreement. Moreover, the Trustee has a
security interest in all of CEDA's Revenues and Cash, including the funds held at Bank of
America. Section 4.9 of the Security Agreement makes clear that CEDA is obligated to deposit
the Casino's Revenues and Cash into a Deposit Account. Ex. E. This S
Preview
FILED: NEW YORK COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019 NYSCEF DOC. NO. 9 RECEIVED NYSCEF: 07/17/2019 EXHIBIT D FILED: NEW NEW YORK COUNTY COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019 FILED: YORK CLERK 06/18 /2013| NYSCEF DOC. NO. 9 RECEIVED NYSCEF: 07/17/2019 NYSCEF DOC. NO. 6 REC SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK WELLS FARGO BANK, N.A., AS TRUSTEE, Index No. 6 Plaintiff, -against- CHUKCHANSI ECONOMIC DEVELOPMENT AUTHORITY, THE BOARD OF THE CHUKCHANSI ECONOMIC DEVELOPMENT AUTHORITY, THE TRIBE OF PICAYUNE RANCHERIA OF THE CHUKCHANSI INDIANS, THE TRIBAL COUNCIL OF THE TRIBE OF PICAYUNE RANCHERIA OF THE CHUKCHANSI INDIANS, THE PICAYUNE RANCHERIA TRIBAL GAMING COMMISSION, RABOBANK, N.A., GLOBAL CASH ACCESS, INC., NANCY AYALA, TRACEY BRECHBUEHL, KAREN WYNN, CHARLES SARGOSA, REGGIE LEWIS, CHANCE ALBERTA, CARL BUSHMAN, and BANK OF AMERICA, N.A., Defendants. MEMORANDUM OF LAW IN SUPPORT OF WELLS FARGO BANK, N.A.'S APPLICATION FOR A PRELIMINARY INJUNCTION LATHAM & WATKINS LL David S. Heller Robert J. Malionek Craig A. Batchelor FILED: NEW YORK COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019 NYSCEF DOC. NO. 9 RECEIVED NYSCEF: 07/17/2019 TABLE OF CONTENTS Page I. Introduction..........................................................................................................................1 II. Statement of Facts................................................................................................................5 A. The Indenture And Related Agrccmcñts, And The Security Interests Of The Trustee And The Holders..................................................................................5 B. Tribal Dispute ..........................................................................................................5 C. Breaches and Other Actions in Violation of the Indenture and Related Agreements..............................................................................................................7 1. Failure to Deposit Gross Revenues and Revenues and Cash.......................7 2. Impact of Failure to Handle of Casino Finances in Compliance with Contractual Agreements on Vendor Relationships..............................8 3. Opening of Bank of America Account ........................................................9 4. CEDA's Missed Interest Payment .............................................................10 D. CEDA's Failure to Provide Financial Statements .................................................10 E. The Lewis Tribal Court and Tribal Gaming Commission Proceedings ................11 III. Argument ...........................................................................................................................12 A. Gross Revenues Relief: Request that the Court Enjoin CEDA and the Tribe from Withholding Cash in the Casino's Cage and Directing CEDA, the Tribe and Bank of America to Transfer the Funds in the Bank of America Account and Appropriate Future Cash and Gross Revenues to the Rabobank Accounts...............................................................................................14 l. The Trustee is Likely to Succeed On the Merits........................................14 2. Irreparable Harm Exists Because, Absent the Injunctive Relief Requested, A Later Final Judgment Will be Ineffectual............................16 B. Control Account Relief: Request that the Court Direct CEDA, the Tribe and Rabobank to Utilize the Rabobank Accounts for Deposits and in Order to Pay Critical Vendors, and Direct Global Cash Access to Deposit in the Rabobank Accounts the Funds Payable to CEDA.......................................18 1. The Trustee is Likely to Succeed on the Merits ........................................18 2. Failure to Unfreeze the Rabobank Accounts and Failure of Global Cash Access to Deposit Funds Into the Rabobank Accounts Will Cause Irreparable Harm to The Trustee.....................................................19 C. Unfair Action Relief: Request that the Court Enjoin CEDA from Instituting Proceedings against The Trustee in an Improper Forum......................20 i FILED: NEW YORK COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019 NYSCEF DOC. NO. 9 RECEIVED NYSCEF: 07/17/2019 1. The Trustee is Likely to Succeed on the Merits ........................................20 2. The Trustee Will Be Irreparably Harmed If the Tribal Parties and Individual Defendants Are Permitted to File Further Actions Before Tribal Courts and Gaming Commissions Outside Those Bargained For in the Agreements ..............................................................22 D. Financial Statement Relief: Request that the Court Direct CEDA to Provide Reports Containing Financial Statements ................................................24 1. The Trustee Is Likely to Succeed on the Merits .......................................,24 2. The Trustee Will Be Irreparably Harmed by CEDA's Failure to Provide Audited Financial Statements.......................................................24 E. The Equities Weigh Decidedly in The Trustee's Favor.........................................25 IV. CONCLUSION..................................................... ............................................................25 ii FILED: NEW YORK COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019 NYSCEF DOC. NO. 9 RECEIVED NYSCEF: 07/17/2019 TABLE OF AUTHORITIES Page CASES Alpha Capital Aktiengesellschaft v. Advanced Viral Research Corp., 2003 WL 328302 (S.D.N.Y. Sept. 19, 2008)............................................................................ 17 Amity Loans, Inc. v. Sterling Nat'l Bank & Trust Co., 575 N.Y.S.2d 854 (1st Dep't 1991)........................................................................................... 16 Caesars Bahamas Investment Corporation v Baha Mar Joint Venture Holdings Ltd., 2008 WL 4360436 (N.Y. Sup. Ct. Sept. 12, 2008) ................................................................... 22 Castle Creek Technology Partners, LLC v. Cellpoint, Inc., 2002 WL 31958696 (S.D.N.Y. Dec. 9, 2002)........................................................................... 17 Gerald Modell, Inc. v. Morgenthau, 764 N.Y.S.2d 779 (N.Y. Sup. Ct. 2003).............................................................................. 13, 25 H. Fox & Co., Inc. v. Blumenfeld, 809 N.Y.S.2d 87 (2d Dep't 2005).............................................................................................. 15 Huff v. C.K. Sanitary Sys., Inc., 246 A.D.2d 795, 667 N.Y.S.2d 766 (3d Dep't 1998)................................................................ 13 Indosuez Int'l Fin., B.V. v. Nat'l Reserve Bank, 758 N.Y.S.2d 308 (1st Dep't 2003)........................................................................................... 22 Jacob H. Rottkamp & Son, Inc. v. Wulforst Farms, LLC, 17 Misc.3d 382 (N.Y. Sup. Ct. 2007)........................................................................................ 23 Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413 (N.Y. 2 I 1996)....................................................................................................... Maestro West Chelsea SPE LLC v. Pradera Realty Corp., 38 Misc.3d 522 (N.Y. Sup. Ct. 2012)....................................................................................... 15 Pando v. Fernandez, 124 A.D.2d 495 (Ist Dep't 1986).............................................................................................. 16 Prudential Secs. Credit Corp. v. Teevee Toons, 2003 WL 346440 (N.Y. Sup. Ct. Feb. 7, 2003)........................................................................ 25 Reuters Ltd. V. United Press Internat'l, Inc., 903 F.2d 904 (2d Cir. 1990)...................................................................................................... 23 ... 111 FILED: NEW YORK COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019 NYSCEF DOC. NO. 9 RECEIVED NYSCEF: 07/17/2019 Rex Med. L P. v. Angiotech Pharmaceuticals, Inc., 754 F. Supp. 2d 616 (S.D.N.Y. Dec. 1, 2010)........................................................................... 23 The Picayune Rancheria of Chukchansi Indians v. Rabobank, et al., No. 1:13-cv-00609 (E.D. Ca. Jun. 4, 2013)............................................................................... 21 Zonghetti v. Jeromack, 150 A.D.2d 561 (2d Dep't 1989)............................................................................................... 16 STATUTES N.Y. C.P.L.R. § 6301.................................................................................................................... 13 N.Y. Gen. Oblig. § 5-1402............................................................................................................ 20 N.Y. Jud. Law § 140-b.................................................................................................................. 20 CONSTITUTIONAL PROVISIONS N.Y. Const. art. VI, § 7................................................................................................................. 20 IV FILED: NEW YORK COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019 NYSCEF DOC. NO. 9 RECEIVED NYSCEF: 07/17/2019 Fargo" Plaintiff Wells Fargo Bank, N.A. ("Wells or the "Trustee"), acting in itscapacity as Trustee and Collateral Agent under the Indenture and Security Agreement, respectively (as defined below), submits this memorandum of law in support of itsapplication for a preliminary injunction, pursuant to CPLR § 6301, for an Order to enjoin Chukchansi Economic Development ("CEDA" Authority or the "Authority"), the Board of the Chukchansi Economic Developmcñt Authority (the "Board"), the Tribe of the Picayune Rancheria of the Chukchansi Indians (the "Tribe"), the Tribal Council of the Tribe of the Picayune Rancheria of the Chukchansi Indians (the "Tribal Council") (CEDA, the Board, the Tribe, and the Tribal Council, collectively, the "Tribal Parties") and the individuals Nancy Ayala, Tracey Brechbuehl, Karen Wynn, Charles Sargosa, Reggie Lewis, Chance Alberta and Carl Bushman (Ayala, Brechbuehl, Wynn, Sargosa, Lewis, Alberta, and Bushman, collectively, the "Individual Defendants") from taking further actions in contravention of the Indenture, Security Agreement and related agreements (the "Agreements"), and for an Order of direction with respect to Bank of America, N.A. ("Bank of America"), Rabobañk, N.A. ("Rabobank") and Global Cash Access, Inc. ("Global Cash Access") as third parties to this dispute in possession of funds subject to the Trustee's interests, given that these actions are likely to cause continued irreparable harm to the interests of the Trustee and the holders of the Secured Notes (defined below) (the "Holders"). L INTRODUCTION The Trustee seeks a preliminary injunction related to numerous current and ongoing breaches of the Indenture, the related Security Agreemeñt and other agreements at issue. The breaches all relate to a dispute that has erupted within CEDA, which was established by the Tribe to operate the Chukchansi Gold Resort & Casino in Coarsegold, CA (the "Casino"), and which issued approximately $250 million in Secured Notes in May 2012 pursuant to the FILED: NEW YORK COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019 NYSCEF DOC. NO. 9 RECEIVED NYSCEF: 07/17/2019 Casino.' Indenture to refinance the debt of the The breaches occurred no later than February 2013, when at least two separate factions began battling for control of the Tribal Council, which governs the Tribe, and control of CEDA. This Tribal governance dispute has caused chaos and substantially disrupted the Casino's operations and finances, resulting in several serious breaches of the Indenture and related agreements. This situation threatens to cause permanent damage to the health of the Casino and, as a result, to the collateral underlying the Secured Notes (the "Collateral"). The Trustee is not asking this Court to resolve the underlying Tribal dispute nor does it seek to have any role in managing the operations of the Casino. Rather, the Trustee is seeking the Court's intervention to enforce the terms of the Indenture and related agreemeiits, prevent irreparable harm to the rights of the Holders and protect the value of the Collateral. The Tribal Parties have agreed to this Court's exclusive jurisdiction to hear such disputes arising under the Indenture, and the Trustee is left with no choice but to seek the Court's intervention. Specifically, although the many breaches of the Agreements are detailed in the Trustee's Complaint, including CEDA's failure to pay millions of dollars of interest required by the Indenture, the breaches related to the request for a preliminary injunction are as follows: (1) The Ayala Faction (as defined below), which controls the management of the Casino and its revenues, recently transferred Casino funds-purportedly in the name of CEDA-into a new bank account at Bank of America because of the Tribal governance dispute, in breach of the Security Agreemeiit that requires CEDA to deposit cash only into accounts over which the Trustee has control. (2) Upon notice of the Tribal dispute, Bank of America froze the account. Bank of As discussed below, the Trustee takes no position with respect to which faction should be in control of the Tribe and CEDA. The Trustee is serving the Tribe and CEDA with this Memorandum and allpapers in this action using the procedures provided in the Indenture, and is serving both factions and their counsel with all papers in this action. 2 FILED: NEW YORK COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019 NYSCEF DOC. NO. 9 RECEIVED NYSCEF: 07/17/2019 America has indicated that itcannot allow either Faction (as defined below) to use the account without further guidance from a court of competent jurisdiction. As a result, the Ayala Faction, "cage" again in CEDA's name, began maintaining the Casino's revenues in the Casino rather than depositing those revenues with a bank, as required under the Indenture, thus putting significant cash at risk and further violating the Indenture and the Security Agreemcñt. (3) Because of the Tribal dispute, the accounts into which Casino revenues should be deposited, at Rabobank, have also been frozen to CEDA. As with Bank of America, Rabobank has indicated that itcannot allow either Faction to use the accounts in light of the dispute without appropriate direction from a court of competent jurisdiction. As a result, at least one vendor, Global Cash Access, which holds approximately $14 million in uncashed checks-comprising the Collateral-has been unable to deposit those funds, and other critical vendors of the Casino 2 are not being paid, in violation of the Indenture. (4) The Lewis Faction, also in the name of CEDA, brought suit in a purported Tribal Court not only to challenge the Ayala Faction regarding the rightful control and authority of the Tribal Council, the Tribe and CEDA, but also-in direct violation of the Indenture and related agreements-against the Trustee for taking actions expressly permitted as Indenture Trustee, and instituted related proceedings before a purported Tribal Gaming Commission; and (5) The Tribe itself,through the actions of both Factions, has, inter alia, restricted CEDA's right and ability to conduct Casino business and has done so in a manner that is materially adverse to the economic interests of the Holders. 2 The Trustee will give notice of this lawsuit to Bank of America and Global Cash Access and the requested relief and will determine if they oppose the requested relief. Rabobank has indicated that itwill accept the funds from Bank of America and Global Cash Access. Rabobank isjoined as a party only to the extent necessary to enable those funds to be deposited in the Rabobank Accounts. 3 FILED: NEW YORK COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019 NYSCEF DOC. NO. 9 RECEIVED NYSCEF: 07/17/2019 The Trustee is an innocent bystander in the underlying dispute and takes no position with respect to which Faction rightfully should be in control of the Tribe and the Tribal Council. But regardless of which Faction ultimately prevails in the underlying tribal dispute, the Trustee is entitled to injunctive relief intended to prevent further damage to the Casino's operations and thereby protect the investment made by the Holders. The Trustee requests that the Court grant the following injunctive relief: First, CEDA and the Tribe should be enjoined from withholding cash in the Casino cage or in an account not subject to an Account Control Agreement3, and they and Bank of America should be directed to transfer the funds held at Bank of America, and all appropriate cash and future revenues, under the Indenture, to the Rabobank Accounts (as defined below) ("Gross Revenues Relief"). Second, CEDA, the Tribe and Rabobank should be directed to utilize the Rabobank Accounts for deposits and to make payments to the Casino's critical vendors, as agreed among those parties, in compliance with the Indenture and related agreements, and Global Cash Access should be directed to deposit its funds in the Rabobank Accounts where they belong ("Control Account Relief").45 Third, the Tribal Parties and the Individual Defendants should be enjoined from filing 3 Capitalized terms not otherwise defined in this Complaint shall have the meaning ascribed to them in the Indenture, Security Agreement, and related documents. See Ex. A, "Ex._" Indenture & Ex. E, Security Agreement. All references to are to the exhibits attached to the Affidavit of Michael Slade, submitted concurrently herewith. Specifically, while the Trustee has an uncontested security interest in both the Collateral in the Bank of America account and that held by Global Cash Access, the Trustee's right of possession in the funds and checks is up to an amount sufficient to satisfy the amounts owed by CEDA under the Indenture. 5 Relatedly, the Trustee requests that the Court declare that (a) the Trustee has a security interest in and right to possession of the funds in the Bank of America account and the uncashed checks held by Global Cash Access, (b) the Trustee has a right to possession of the funds in the Bank of America account and the uncashed checks held by Global Cash Access, up to an amount sufficient to satisfy the amounts owed by CEDA to the Trustee and (c) the funds held by Bank of America and Global Cash Access must be deposited into the Rabobank Accounts. 4 FILED: NEW YORK COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019 NYSCEF DOC. NO. 9 RECEIVED NYSCEF: 07/17/2019 further actions in venues prohibited by the Agreements ("Unfair Action Relief"). Fourth, CEDA should be directed to provide reports to the Trustee containing the Casino's audited financial statements ("Financial Statement Relief"). The Trustee firmly believes that, with the Court's assistance, there can be a return to the status quo ante on an expedited basis before further irreparable harm is done. II. STATEMENT OF FACTS A. The Indenture And Related Agrccmcñ‡s, And The Security Interests Of The Trustee And The Holders On May 30, 2012, CEDA issued $250,406,000 9¾% Secured Notes due 2020 (the "Secured Notes") pursuant to that certain Indenture, dated as of May 30, 2012, as amended or modified from time to time (the "Indenture"). As part of the issuance of the Secured Notes, CEDA, the other grantors and the Trustee also entered into a Security Agreement (the "Security Agreement"). The financing to which the Secured Notes relate was used by CEDA to refinance obligations incurred by itto construct the Casino and make capital improvements. As part of the refinancing, CEDA pledged the revenues earned by the Casino as Collateral, among other things, and covenanted to deposit such revenues into certain specified bank accounts at Rabobank, at other Qualified Banks, or with the Collateral Agent. As part of the transaction, CEDA, Rabobank and the Trustee entered into an agreement giving the Trustee control over accounts (the "Rabobank Accounts") at Rabobank (the "Control Agreement"). B. Tribal Dispute The Tribe elects and appoints a Tribal Council, which serves as the governing body for the Tribe. The elected Tribal Council also sits as the Board of Directors for CEDA. Thus, the make-up of the Tribal Council and the Board of Directors for CEDA is identical. CEDA is in charge of operating the Casino. At the time of the signing of the Indenture in 5 FILED: NEW YORK COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019 NYSCEF DOC. NO. 9 RECEIVED NYSCEF: 07/17/2019 May 2012, CEDA's Chairman was Reggie Lewis and its Vice Chairwoman was Nancy Ayala. In December 2012, Ayala was elected Chairwoman of the Tribal Council. In or around February 2013, a dispute erupted within the Tribe and CEDA regarding who should be in charge of those bodies. This dispute has fractured control of the Casino. Ayala, acting under her purported authority as Tribal Council Chairwoman, took actions to replace certain members of the Tribal Council, including Lewis. Since that time, at least two separate factions have claimed to be the true leaders of the Faction" Faction" Tribe, the Tribal Council and CEDA: the "Ayala and the "Lewis (collectively, Faction" the "Factions"). The "Ayala consists of Nancy Ayala, Tracey Brechbuehl, Karen Wynn, and Charles Sargosa. These individuals assert that Nancy Ayala is the Tribal Council Chairwoman, and that, as such, she has proper authority to control CEDA and the Casino. The Faction" "Lewis consists of Reggie Lewis, Chance Alberta, and Carl Bushman. These individuals assert that Reggie Lewis is the Tribal Council Chairman, and that, as such, he has proper authority to control CEDA and the Casino. Each Faction claims to have itsown Tribal Council, Tribal Court and Tribal Gaming Commission. During 2013 and at present, the Ayala Faction has been in control of the Casino's operations, but, in violation of the Security Agreement and the Indenture, the Ayala Faction did not deposit Gross Revenues (described below) and Revenues and Cash (described below) in the Casino.6 Rabobank Accounts, but instead began maintaining cash in the This failure to handle these monies in accordance with the requirements of the Agreements has caused substantial disruption to the management of the Casino's finañces, and has put the Collateral at risk. Pursuant to Sections 4.4.4(b) and 4.9 of the Security Agreement, CEDA is required to deposit the Casino's Revenues and Cash into a deposit account over which the Trustee has been granted express control by CEDA. This includes the Rabobank Accounts. 6 FILED: NEW YORK COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019 NYSCEF DOC. NO. 9 RECEIVED NYSCEF: 07/17/2019 C. Breaches and Other Actions in Violation of the Indenture and Related Agreements 1. Failure to Deposit Gross Revenues and Revenues and Cash Pursuant to Section 4.25 of the Indenture, at least once per week, CEDA is required to cause all Gross Revenues, other than Operating Cash and Gross Revenues that constitute Excluded Assets, to be deposited in Deposit Accounts at a Qualified Bank (e.g., Rabobank). Ex. A. Gross Revenues are defined under Section 1.1 of the Indenture to include all revenues from the Casino, less certain items including Operating Cash. Operating Cash is defined under Section 1.1 of the Indenture as certain cash necessary for the operation of the Casino, not to exceed an aggregate of $10 million. Additionally, pursuant to Section 4.9 of the Security Agreement, CEDA must deposit all Revenues and Cash in excess of Operating Cash into, and maintain in,an account over which the Trustee has control. Revenues and Cash is defined under Section 1.1 of the Security Agreement to include all profits, income and revenues derived from the Casino. Since approximately the last week of February 2013, presumably because of the disputes that have arisen, CEDA has stopped depositing the Gross Revenues and Revenues and Cash into the specified Rabobank Accounts. See Slade Aff. ¶5. Substantial cash balances, upon information and belief consisting of millions of dollars in excess of necessary Operating Cash, instead are being held in the Casino cage and in locations and bank accounts other than designated Deposit Accounts at Rabobank. See Affidavit of Ronald Evans, submitted herewith ("Evans Aff.") ¶ 9. The failure to deposit Gross Revenues and Revenues and Cash into the designated Deposit Accounts at Rabobank constitutes a breach of the Indenture and Security Agreement. Moreover, holding such substantial sums of cash outside of any established bank account not subject to a control agreement presents significant risks to the financial stability of 7 FILED: NEW YORK COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019 NYSCEF DOC. NO. 9 RECEIVED NYSCEF: 07/17/2019 the Casino as well as to the Holders. CEDA's actions also violate the relevant Tribal Gaming Ordinance in multiple respects, thus constituting further violations of the Indenture. See,e.g., Ex. B., Tribal Gaming Ordinance, Sections 6.1, 8.3. 2. Impact of Failure to Handle of Casino Finances in Compliance with Contractual Agreements on Vendor Relationships The dispute between the Factions also has led to debilitating disruption with the Casino's vendors. For example, Global Cash Access, one of the Casino's key vendors which reconciles the total ATM cash dispensed from the Casino and must reimburse the Casino for these reconciled amounts, has been unable to make payments due to the Casino. Ex. C, Letter dated May 14, 2013 from Global Cash Access to Mr. R. Rosette and Mr. F. Petti. Historically, Global Cash Access regularly deposited these reimbursed amounts directly into the Casino's Rabobank Accounts. In connection with the recent tribal governance dispute, CEDA instructed Global Cash Access to make payments into an unauthorized account at Bank of America but, as described below, that account has been frozen. Id. Global Cash Access thus was forced to send checks directly to the Casino, but those checks have not been cashed. Id. As of June 17, 2013, Global Cash Access held approximately $14 million in uncashed checks payable to the Casino. Slade Aff ¶18. These funds are Collateral and constitute Revenues and Cash under the Security Agreement. In late April, the Lewis Faction, claiming to be the true leaders of the Tribe, began desist" sending "cease and letters to various vendors, demanding that they stop providing services to the Casino. See, e.g., Ex. D, Letter dated April 22, 2013 from Mr. R. Rosette to Bally Gaming. The letters claim that, by continuing to provide services to and receive payment from the Casino, the vendors are committing crimes by allegedly supporting the Ayala Faction. By sending these letters, the Lewis Faction is endangering the financial well-being of the Casino, 8 FILED: NEW YORK COUNTY CLERK 07/17/2019 09:11 AM INDEX NO. 654079/2019 NYSCEF DOC. NO. 9 RECEIVED NYSCEF: 07/17/2019 and the negative impact such letters may have on the Casino's operations is large and irreparable. 3. Opening of Bank of America Account On March 19, 2013, the Ayala Faction, claiming to be in control of CEDA, opened an account at Bank of America, and on March 20, began depositing Gross Revenues and Revenues and Cash from the Casino into that account. Evans Aff. ¶ 8. However, CEDA did not enter into an Account Control Agreement with the Trustee for the Bank of America account, in violation of the Indenture and the Security Agreement. On April 2, 2013, as a result of the Tribal dispute and through no fault of Bank of America, Bank of America froze this account, which holds approximately $2.6 million. Id. Pursuant to Sections 4.4.4(b) and 4.9 of the Security Agreement, the Trustee has a legal right of possession to the funds in this Bank of America account. These sections explicitly require that the Casino's Revenues and Cash must be deposited into an account over which the Trustee has control through an Account Control Agreement. Moreover, the Trustee has a security interest in all of CEDA's Revenues and Cash, including the funds held at Bank of America. Section 4.9 of the Security Agreement makes clear that CEDA is obligated to deposit the Casino's Revenues and Cash into a Deposit Account. Ex. E. This S