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Blagojevich Won’t Have to Face Casinos’ RICO Claim

CHICAGO (CN) - Former Illinois Gov. Rod Blagojevich has immunity from a lawsuit filed by Illinois' four largest casinos that claims he violated anti-racketeering law, the 7th Circuit ruled.

The casinos claim Blagojevich and John Johnston, who owns two horse-racing tracks, engineered a pay-to-play scheme in which Johnston bribed Blagojevich to pass two horse-racing laws in 2006 and 2008. The laws require the state's four highest-earning riverboat casinos to pay 3 percent of their adjusted gross revenue into a trust fund designed to help the state's struggling racetracks with purse and operating expenses.

Two components make up the casinos' complicated lawsuit. One part is the RICO count against Blagojevich, Johnston and the Friends of Blagojevich political committee. The other part consists of a constructive-trust claim against the state's five racetracks, which are beneficiaries of the conspiracy.

Blagojevich argued that he had legislative immunity from the RICO claim, because he was acting as governor at the time. The racetracks argued that the casino's payment was a tax and therefore the Tax Injunction Act prohibits a court from imposing a constructive trust on the $100 million the casinos have paid.

A District Court said Blagojevich did not have immunity but found that the tax act protected the racetracks from the constructive trust claim. But a divided three-judge panel of the 7th Circuit reversed both decisions Wednesday.

"The former governor is entitled to legislative immunity," Judge Diane S. Sykes wrote in the majority opinion. "The Supreme Court has made clear that state and local officials are absolutely immune from federal suits filed against them in their personal capacities for actions taken in connection with legitimate legislative activity. This immunity applies notwithstanding allegations of misconduct and regardless of whether the office held is legislative or executive - as long as the activity in question is functionally legislative. Under this established federal doctrine, Blagojevich is immune from civil suit for his role in inducing the Illinois legislature to adopt the Horse Racing Acts of 2006 and 2008 and for signing those acts into law. The RICO claim survives, however; Friends of Blagojevich, Johnston, and the two racetracks he owns remain as defendants on that claim."

In reversing the District Court's ruling on the Tax Injunction Act, Sykes found that "tax" is not an appropriate term for the fee that the casinos paid.

"It raises no revenue for the operation of state government and supports no governmental agency, program, or service," Sykes wrote. "It simply takes profits from a few private firms for direct transfer to certain favored, apparently less-profitable competitors. The money is held in a segregated account, may not be used to pay any state expense, and is disbursed within a few days to the beneficiary racetracks. Assessed as a condition of state licensure, the surcharge is more like a regulatory penalty or fee than a tax, and therefore the Tax Injunction Act does not apply."

Judge Richard Posner authored a dissenting opinion, contending that the state Supreme Court should rule on Blagojevich's immunity claim.

"Legislative immunity is absolute, and the present suit accuses the governor of having signed the racetrack legislation because he had been bribed to do so," Posner wrote. "One can imagine the Supreme Court of Illinois, given its skepticism about granting a governor legislative immunity, holding that a governor has only a qualified immunity for his legislative acts - an immunity that would not shield him from being sued for accepting bribes to sign laws. The court might think it odd that were Blagojevich convicted for criminal acts that included the racetrack bribe he could not be sued civilly for the same acts."

Since the Illinois Supreme Court gives less weight to the legislative interest in immunity from civil cases than the federal rule does, "one doubts therefore that the Illinois court would grant a governor absolute legislative immunity," Posner wrote.

As such, Blagojevich merits no greater immunity in the name of federal common law, the judge concluded.

Posner also disagreed with his colleagues' conclusion about the Tax Injunction Act. He noted that gambling taxes are not unusual and that is what the best term to describe the casinos' payments.

"The fact that the revenue from a particular tax is earmarked for a particular purpose is hardly unusual; think of the social security tax," Posner wrote. "Horse racing, the beneficiary of the casino tax, is a major activity in Illinois and one with considerable economic significance for the state. It employs more than 30,000 people and generates more than $700 million in annual betting and some $16 million in state and local government revenues."

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