Sypolt v. The Ill. Gaming Bd.

KEVIN SYPOLT, et al., Plaintiffs, v. THE ILLINOIS GAMING BOARD, et al., Defendants.

No. 19-cv-05991

United States District Court, N.D. Illinois, Eastern Division

January 19, 2022

MEMORANDUM OPINION AND ORDER

Andrea R. Wood United States District Judge

Plaintiff Kevin Sypolt is the principal of multiple corporate entities that own establishments featuring video gaming devices for gambling. After one of the companies managed by Sypolt sued the Illinois Gaming Board (“IGB” or “Board”), the state agency tasked with regulating video gaming, the IGB allegedly launched a campaign of retaliation against Sypolt and two of his businesses Plaintiff Phase IV-D, Inc. (“Phase IV-D”) and Trudy's Café, LLC (“Trudy's Café”). In particular, Plaintiffs claim that the IGB unreasonably delayed its consideration of license applications submitted by Phase IV-D and Trudy's Café, costing them video gaming revenue and ultimately forcing the closure of two of Plaintiffs' establishments. After the initial complaint was dismissed, Plaintiffs filed an amended complaint asserting two claims under 42 U.S.C § 1983 alleging that IGB agents Thomas Hobgood, Fidel Aguilar, Mark Ostrowski, and Marcus Fruchter (together “Defendants”) conspired to deprive Plaintiffs of their constitutional rights. Defendants now move to dismiss the amended complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). (Dkt. No. 48.) For the following reasons, Defendants' motion is granted in part and denied in part.

BACKGROUND

For the purposes of the present motion to dismiss, the Court accepts all well-pleaded facts in the amended complaint as true and views those facts in the light most favorable to Plaintiffs as the non-moving parties. Killingsworth v. HSBC Bank Nev., N.A., 507 F.3d 614, 618 (7th Cir. 2007). The amended complaint alleges as follows.

The IGB is a state agency composed of five members who are responsible for implementing and enforcing the Illinois Video Gaming Act, 230 ILCS 40/1 et seq. 230 ILCS 10/5(b) 40/78. Board members are tasked with, among other things reviewing applications for gaming licenses and making approval determinations, as well as renewing and revoking current licenses when appropriate. See 230 ILCS 10/5(b)(1). The Administrator is a non-Board member who performs any and all duties assigned to him by the Board, id. at 10/5(a)(9), and the Board may employ other personnel as necessary to carry out its functions, id. at 10/5(a)(8).

Sypolt is the sole member of Trudy's Café and a majority shareholder of Phase IV-D. (Am. Compl. ¶ 5.) Sypolt, through various corporate entities such as Trudy's Café and Phase IV-D, operates bars and restaurants in various Illinois locations. (Id. ¶¶ 32, 42, 45, 65-67.) In 2014, one of the companies Sypolt managed, Windy City Promotions, LLC, installed electronic product promotion kiosks^[1] in one of its establishments. (Id. ¶ 20.) However, there was an existing IGB advisory opinion stating that electronic promotion kiosks were illegal. (Id. ¶ 21.) Based on that advisory legal opinion, the IGB seized Windy City Promotions's kiosks. (Id.) In response, Windy City Promotions filed a lawsuit against the IGB challenging its authority to seize the electronic product promotion kiosks pursuant to that advisory opinion. (Id. ¶ 22.) Ultimately, Windy City Promotions received a ruling in its favor from the Illinois Appellate Court. (Id. ¶¶ 23-24); see also Windy City Promotions, LLC v. Ill. Gaming Bd., 87 N.E.3d 915 (Ill.App.Ct. 2017).

According to Sypolt, many Board members and IGB staff were angry at him for successfully challenging the IGB's authority in the Windy City Promotions lawsuit. (Am. Compl. ¶¶ 25, 34.) Consequently, the IGB sought to retaliate against Sypolt by treating him unfavorably in subsequent dealings. (Id. ¶¶ 1, 25.) The first alleged instance of retaliation against Sypolt came indirectly, in connection with four video gaming establishment license applications submitted by Mexican Woman Gaming LLC (“MWG”), a company controlled by Sypolt's wife, Renee Fanjon. (Id. ¶ 26.) After delaying a vote on MWG's applications for over a year, the IGB ultimately denied the applications on May 28, 2015-fifteen days after the trial court issued a ruling favorable to Windy City Promotions in its lawsuit against the IGB. (Id. ¶ 27.) The IGB's then-Administrator, Defendant Ostrowski, sent a letter to Fanjon explaining that the Board denied MWG's applications because Fanjon was married to and had business associations with Sypolt, thereby giving the IGB just cause to deny MWG a video gaming establishment license. (Id. ¶¶ 27-28.) Specifically, Ostrowski's letter asserted that Fanjon's association with Sypolt presented a problem because Sypolt's company operated electronic product promotion kiosks that the IGB deemed illegal. (Id. ¶ 28.) While Ostrowski acknowledged the recent trial court ruling in favor of Windy City Promotions, he noted that the trial court ruled on procedural grounds and did not actually address the legality of the kiosks. (Id.)

In 2017, Sypolt's company, Phase IV-D, applied for a video gaming establishment license for its bar and restaurant, Trudy's Café Cash Island. (Id. ¶ 32.) Defendant Hobgood was the IGB investigator assigned to review Phase IV-D's application. (Id. ¶ 13.) During their first meeting on January 31, 2017, Hobgood informed Sypolt about the ill will that the Windy City Promotions lawsuit had engendered at the IGB and that Ostrowski was particularly upset because the Illinois Appellate Court's decision made him look like “a paper tiger”-i.e., undermined his asserted power over licensing decisions. (Id. ¶ 34.) In addition, Hobgood told Sypolt that the IGB had (presumably compromising) photographs of Sypolt and warned him that “when you poke a bear with a stick, it may bite back.” (Id. ¶ 35.) When the two met again in March 2017, Hobgood asked Sypolt to fulfill certain requests entirely unrelated to Phase IV-D's application. (Id. ¶ 36.) Specifically, Hobgood asked Sypolt to investigate whether there was any relationship between Ostrowski and the daughter of a prominent organized crime figure and instructed Sypolt to find incriminating information about an individual who was convicted in a case involving public corruption. (Id.)

The Board denied Phase IV-D's video gaming establishment license application on June 2, 2017, citing Phase IV-D's failure to disclose the prior denials of MWG's applications in one section of its application, even though a different section of that application contained such a disclosure. (Id. ¶ 37.) Phase IV-D appealed the denial of its application and the Administrative Law Judge (“ALJ”) who heard the appeal recommended that the IGB grant Phase IV-D a video gaming establishment license, likening the omission of MWG's prior denials in one section to a typographical error. (Id. ¶¶ 38-40.) In accordance with the ALJ's recommendation, the IGB approved Phase IV-D's application. (Id. ¶ 41.)

A different entity controlled by Sypolt, Trudy's Café, applied for two video gaming establishment licenses in 2018. First, on September 26, 2018, Trudy's Café applied for a license for its establishment in Midlothian, Illinois. (Id. ¶ 43.) Shortly thereafter, on November 29, 2018, Trudy's Café submitted an application for its establishment in Sauk Village, Illinois. (Id. ¶ 45.) Once again, Hobgood was assigned to review the applications that Sypolt submitted through Trudy's Café. When the two first discussed the applications in January 2019, Hobgood told Sypolt that another IGB investigator, Defendant Aguilar, was looking to build a case to deny Trudy's Café's applications and also revoke Phase IV-D's license by linking those companies with Windy City Promotions and the MWG. (Id. ¶ 46.) Further, Hobgood warned Sypolt that he would not submit Trudy's Café's applications for another eight months and that the Board would not vote on the applications in 2019. (Id.) About a month later, Hobgood and Aguilar both interviewed Sypolt in connection with Trudy's Café's applications. (Id. ¶ 47.) Most of Aguilar's questions focused on the Windy City Promotions litigation, which had no relevance to Trudy's Café's pending applications. (Id.)

When Hobgood and Sypolt met on March 4, 2019, Hobgood advised Sypolt that Aguilar was working to ensure the denial of both of Trudy's Café's applications in retaliation for the Windy City Promotions lawsuit. (Id. ¶ 48.) Hobgood explained that the Board's members had “long memories” and a practice of delaying votes on applications submitted by applicants who were disliked by IGB staff, with the hope that the delay would drive the disfavored applicants out of business. (Id.) Also during the meeting, Hobgood admitted to Sypolt that while the MWG's four applications were initially recommended for approval, Ostrowski successfully lobbied the Board to vote to deny the applications due to Fanjon's association with Sypolt. (Id. ¶ 31.)

About three months later, Hobgood informed Sypolt that he would recommend that the Board deny Trudy's Café's two applications and also revoke Phase IV-D's license in retaliation for the Windy City Promotions lawsuit. (Id. ¶ 49.) By that time, Ostrowski had left his IGB Administrator position but Hobgood explained that the IGB “higher ups” remained upset that the lawsuit had undermined Ostrowski. (Id.) In August 2019, Sypolt reported to Ostrowski's successor as IGB Administrator, Defendant Fruchter, that Hobgood had made improper and irrelevant requests during the March 2017 meeting concerning Phase IV-D's application. (Id. ¶ 50.) Fruchter responded only by asking why Sypolt had not reported Hobgood's improper requests earlier. (Id.)

Over the several months that Trudy's Café's two applications...