Former Pinnacle CEO claims right to compete with casino company

By Steve Green

Friday, Nov. 19, 2010 | 2:05 a.m.

Former Pinnacle Entertainment Inc. CEO Dan Lee is disputing allegations he violated terms of his separation agreement with the Las Vegas-based casino company and says he has the right to compete with Pinnacle.

Pinnacle, which sued Lee last week in Clark County District Court, charges he violated nondisclosure and nonsolicitation of employee provisions in the agreement as Lee worked to develop his Mojito Pointe casino resort in Louisiana.

Mojito Pointe would be on the site of Pinnacle’s canceled Sugarcane Bay project adjacent to Pinnacle’s existing L’Auberge casino.

After the $350 million Sugarcane Bay was canceled in April, the port of Lake Charles selected Lee to develop Mojito Pointe — a selection contingent on Lee receiving the state’s 15th and final casino license.

Pinnacle, in its suit, is seeking an injunction prohibiting Lee and his company, Creative Casinos LLC, from competing with Pinnacle in any of its markets for one year.

“Lee’s use of confidential information has already caused extensive harm to Pinnacle,” Pinnacle attorneys charged in court papers this week.

Pinnacle’s attorneys said that after Pinnacle canceled Sugarcane Bay, Lee used knowledge gained at Pinnacle to advise the port in its negotiations with Pinnacle concerning matters regarding Pinnacle’s existing lease.

Pinnacle said this contributed to the port rejecting Pinnacle’s alternative development plans, the port challenging the continuing validity of Pinnacle’s lease “and the impairment of Pinnacle’s relationship with the port.”

But in court papers filed Thursday, Lee said the lawsuit is an attempt by Pinnacle to stifle competition and prevent Lee from developing Mojito Pointe. The Louisiana Gaming Control board will hear presentations from Lee and competing casino developers on Dec. 16 and is then expected to award the final gaming license to the successful applicant in the first half of 2011.

“The attempt to seek an injunction against me and impose a covenant not to compete is simply Pinnacle’s desperate attempt to suppress competition,” Lee wrote in an affidavit.

“It is apparent that someone within Pinnacle has a grudge against me. Pinnacle cancelled Sugarcane Bay and turned in the license. That put them in default on the lease. I then responded to the port and the state’s public processes to find new developers. Only when it became evident that mine was the most ambitious of the proposals did Pinnacle become excited and start making absurd demands on me and the port,” he wrote.

Attorneys for Lee noted in a court filing that besides suing Lee, Pinnacle has sued the port in Louisiana “so as to try and obstruct the port from pursing its agreement with Lee.”

Lee said there was a covenant not to compete in his Pinnacle employment agreement, but it contained an important provision: It only applied if he was fired for cause or if he voluntarily resigned.

When he was terminated without cause last year, the covenant to not compete was not applicable to him, Lee said.

In the affidavit, Lee said that in November 2009 a dispute developed between him and certain Pinnacle board members over a Missouri county commissioner’s allegations that he had made inappropriate threats. Lee said he denied the allegations and was exonerated by Missouri gaming regulators.

“However, a member of Pinnacle’s board, Richard Goeglein, had been pushing me to give up the ‘chairman title’ in the name of ‘good corporate governance’ and had an obvious interest in obtaining that title for himself. I had refused,” Lee said in his affidavit. “In my view, Goeglein seized upon the Missouri dispute as a pretext to convince other board members to remove me from the company. Unremarkably, after I separated from Pinnacle, Mr. Goeglein became its interim chairman and then was later named the non-interim chairman of the board.”

Lee charged that Pinnacle has been trying to bully him and recently terminated health benefits for he and his family.

Pinnacle complained that Lee has received millions of dollars of severance, yet still violated his separation agreement. But Lee said he received no special benefits under the separation agreement.

“The same is not true, however, for Pinnacle’s Board. It sought and received special benefits under the separation agreement. Specifically, while it did not bargain with me for a non-compete, the board did negotiate provisions to entrench themselves. Under the settlement agreement, I agreed that for a period of three years, I would not mount any contest for control of Pinnacle’s stock or take control of its board or encourage any third party, such as a private equity firm or competitor, from making a bid for Pinnacle,” Lee wrote. “Such a bid might have resulted in a higher share price for Pinnacle shareholders, but it might have left board members without positions or compensation.”

Lee specifically denied providing confidential information to the port of Lake Charles that would affect Pinnacle’s dealings with the port; and he specifically denied trying to recruit any Pinnacle employees.

“If Pinnacle’s position about what constitutes confidential information or trade secrets were accurate, I doubt there is any company or person in this industry, including Pinnacle itself, that is not in violation,” Lee wrote. “Pinnacle’s own website highlights the numerous high-level executives it has enticed away from other competitive casino operators, most notably Harrah’s Entertainment.

“One of the primary reasons to hire such seasoned executives is because over the years they have developed extensive knowledge, know-how, insight and experience, including about their former employer. If Pinnacle’s claims about trade secrets and confidential information were true, then no executive could ever move to a competitor, because they would be using their know-how, knowledge, insight and experience to compete.

“That is not what I or anyone else who signs a similar employment agreement agrees to, and Pinnacle knows it. If that were the case, there would never be a need for a covenant to compete,” Lee wrote.