Because gambling is legal in Nevada, many national retail chains contract with slot route operators to install and run gaming machines in their Nevada stores. For nearly 40 years, the firm’s client, one of the oldest national retail chains in the country (“the Retailer”), had contracted with a major Nevada slot route operator (“the Operator”) to run gaming machines in its Nevada stores. In return for keeping all the win revenues, the Operator paid the Retailer a fixed monthly licensing fee.
In 2007, as the economy started to tumble and after Nevada voters approved a broad public smoking ban covering retail facilities, the Operator suffered a significant decrease in revenues from the Retailer’s gaming machines and sought to renegotiate the licensing fee. When the negotiations broke down, the Operator unilaterally stopped paying the fees but continued to operate the machines in the Retailer’s stores for several months. The Retailer then retained the Willenken team to pursue a breach of contract action for the unpaid, seven-figure licensing fee.
Working on a hybrid-contingency arrangement, the Willenken team, led by Paul Loh, immediately recognized that this was not the optimal case to take to trial because of the gaming industry’s predominant influence upon the local Las Vegas jury pool and the particularly harsh impact that the recession had upon the city’s economy. Therefore, Paul devised a two-step summary adjudication strategy aimed at gutting the Operator’s case before it reached trial. Specifically, Paul filed a motion for summary adjudication on the Retailer’s affirmative breach of contract claim, arguing that the Operator had breached the contract by continuing to operate gaming devices in the Retailer’s stores without paying licensing fees.
Then, on the eve of the mandatory settlement conference, Paul filed a second summary adjudication motion, this one focused on the Operator’s counterclaim alleging that the Retailer had breached its purported contractual obligation to renegotiate in good faith the licensing fee when the gaming revenues decreased substantially. The key argument in this second summary adjudication motion was that, under controlling Nevada law, a breach of the obligation to negotiate in good faith begets only reliance damages, an amount which was negligible in this case. As such, even in the best-case scenario, the Operator would have a negligible sum to recover or offset against the Retailer.
With these two dispositive motions on file, the Operator’s approach to the mandatory settlement conference was decidedly conciliatory, standing in sharp contrast to their highly aggressive stance in an earlier mediation. Shortly after the settlement conference, the Operator agreed to pay a settlement that was near the full amount of the Retailer’s demand.