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NEMTIN v. ZARIN

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY


September 7, 1983

MARTHA NEMTIN, Plaintiff,
v.
DAVID R. ZARIN, Defendant

The opinion of the court was delivered by: BIUNNO

BIUNNO, Senior District Judge.

 This suit is nominally one to recover on certain promissory notes, security agreements, checks issued by a borrower to a lender to repay loans (some of those checks having been presented for payment and dishonored, and others of which have not been presented), and related instruments.

 The complaint was filed in this court, alleging jurisdiction under 28 USC § 1332(a), with plaintiff a citizen of Canada and defendant a citizen of New Jersey. The amount in controversy is said to exceed $10,000., and there is no doubt that it does.

 Defendant has moved for partial summary judgment on all counts, asserting grounds for non-liability (thus making the judgment sought "partial"), and plaintiff has filed a cross-motion.

 The amended complaint is in eleven counts, each based upon a note or other instrument in a series between the parties, though not chronologically arranged. The last count, dealing with what appears to be the earliest note was added when the complaint was amended because, as the court understands it, defendant had been paying interest on that note when suit was filed and it was not then regarded as being in default. Interest payments stopped after suit was filed, and the complaint was amended (actually supplemented) to assert the added item.

 The major focus of the issue presented by the motion arises out of the nature and application of the law of New Jersey to the transactions and instruments giving rise to the suit. Put very briefly, defendant was evidently engaged over a period of time in rather steady and increasingly heavy gambling at legalized casinos in Atlantic City, and accepted loans in various forms from the plaintiff in part to maintain his credit standing at the casinos so he could continue gambling, and in part to use her own credit at the casinos to get chips for gambling.

 Needless to say, the usual operation of the law of large numbers coupled with payoff odds lower than the mathematical probabilities, eventually led to losses in millions of dollars and an inability to repay the plaintiff.

 It is indicated that a Superior Court suit was begun by the major casino involved against both the parties to this suit. Defendant here seems to have negotiated some kind of settlement arrangement based on an installment arrangement secured by such collateral he could provide. The settlement was to have disposed of the casino's claim against plaintiff as well, it is indicated that plaintiff here did not approve the proposal, possibly seeking better terms, and that suit continues against her there.

 The question whether her claims asserted here should have been advanced as mandatory cross-claims in the Superior Court suit brought by the casino, under the principle of New Jersey's "single controversy" rule has not been raised or considered at this stage, and it is merely noted at this time.

 In order to grasp the legal aspect of the issue now before the court, it is necessary to have a clear understanding of the historical and legal development of New Jersey law in respect to gambling. Because the jurisdictional basis is diversity of citizenship, this court sits as though it were the Superior Court of New Jersey as to law other than procedure, under Erie R. Co. v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938).

 The Constitutional History.

 New Jersey's first Constitution was adopted at Burlington on July 2, 1776, the same day that the Congress of the original colonies, assembled at Philadelphia, adopted a resolution declaring that the colonies were free and independent States. It remained in effect until September 2, 1844 when a new constitution replaced it after being agreed upon by delegates of the people in convention in Trenton and ratified by the people at an election held August 13, 1844. See N.J. Const., 1844 Art. VIII, sec. 4 for effective date.

 Under the 1776 Constitution the authority to introduce and pass bills was placed in a legislative council (one member from each county, plus the Governor, who presided) and a general assembly (three members from each county, subject to adjustment by a majority of the representatives of both bodies on the principles of more equal representation). There were no significant limitations on the legislative power. The main exception was that the legislative council was not to prepare or alter any money bill. See, N.J. Const. 1776, Art. I, III, V and VI.

 The laws published not long before by Mr. Allinson were to remain in full force (except as incompatible with the constitution) until altered by the legislature. N.J. Const. 1776, Art. XXI.

 The common law of England, and so much of its statutes as had been practiced, was continued in force (except those parts repugnant to rights and privileges in the Constitution) until altered by future law of the legislature. N.J. Const. 1776, Art. XXII.

 There is nothing in that first Constitution about gambling, or about laws on gambling.

 New Jersey's second Constitution of 1844, like the 1776 charter, also provided that the common law and statute law then in force and not repugnant to the Constitution, were to remain in force until altered or repealed by the legislature. N.J. Const. 1844, Art. X, par. 1.

 It did contain a provision on lotteries. That provision simply read, (Art. IV, sec. VII, par. 2):

 

"No lottery shall be authorized by this State; and no ticket in any lottery not authorized by a law of this state shall be bought or sold within the State".

 By amendment approved September 28, 1897 and proclaimed October 26, 1897, this same provision was altered to read:

 

"No lottery shall be authorized by the legislature or otherwise in this State, and no ticket in any lottery shall be bought or sold within this State, nor shall pool-selling, book-making or gambling of any kind be authorized or allowed within this State, nor shall any gambling device, practice or game of chance now prohibited by law be legalized, or the remedy, penalty or punishment now provided therefor be in any way diminished."

 The provision remained unchanged until amended, at the special election of June 20, 1939, proclamation of July 11, 1939, to legalize horse race meetings and pari-mutuel betting thereon, subject to restrictions in the amendment. This change was integrated with what was there, and which was strengthened in some respects while modified to accommodate the legalized activity. The text as amended read:

 

2. Horse race meeting; pari mutuel betting; lotteries, roulette or games of chance; pool-selling, book-making or gambling

 

It shall be lawful to hold, carry on, and operate in this State race meetings whereat the trotting, running or steeplechase racing of horses only may be conducted between the hours of sunrise and sunset on week days only and in duly legalized race tracks, at which the pari-mutuel system of betting shall be permitted. No lottery, roulette, or game of chance of any form shall be authorized by the Legislature in this State, and no ticket in any lottery shall be bought or sold within this State, or offered for sale; nor shall pool-selling, book-making, or gambling of any kind be authorized or allowed within this State, except pari-mutuel betting on the results of the racing of horses only, from which the State shall derive a reasonable revenue for the support of government; nor shall any gambling device, practice, or game of chance, or pari-mutuel betting thereon now prohibited by law, except as herein stated and otherwise provided, be legalized, or the remedy, penalty, or punishment now provided therefor be in any way diminished.

 The present Constitution, adopted in 1947, replaced the last quoted provision, which combined the 1844 text, the 1897 amendment to strengthen it, and the 1939 amendment to relax it for pari-mutuel betting on horse races, with a much simpler text:

 2. Gambling

 

2. No gambling of any kind shall be authorized by the Legislature unless the specific kind, restrictions and control thereof have been heretofore submitted to, and authorized by a majority of the votes cast by the people at a special election or shall hereafter be submitted to, and authorized by a majority of the votes cast thereon by, the legally qualified voters of the State voting at a general election.

 This language did two things. First, the reference to gambling "heretofore" submitted to and approved by the people at a "special election" draws in the legalization of pari-mutuel betting at legally authorized race tracks accomplished in 1939 since that is the only instance of legalization by referendum at a special election. Second, and for the future, it enabled the people by referendum (but only at a general election) to permit the Legislature to authorize other kinds of gambling so long as the specific kind, and the restrictions and control thereof are approved by the referendum.

 However, since amendments to the Constitution may be made under Art. IX, it remains possible to legalize one or another kind of gambling by amending the Constitution (also by referendum at a general election) as well.

 The history since 1947 displays that both modes have been used, with the direct amendment to the Constitution being used in 1953 (for charity bingo and raffles), in 1972 (for a State lottery), and in 1976 and 1981 (for casino gambling in Atlantic City and for an amendment thereto). See N.J. Const., 1947, Art. IV, sec. VII, par. 2, as amended.

 The referendum method (without amending the Constitution) was used in 1959 (for amusement games at particular kinds of location), and in 1961 (to extend amusement games to agricultural fairs and exhibitions). See, N.J.P.L. 1959, c.109; N.J.P.L. 1961, c. 103; N.J.S.A. 5:8-100 et seq.; N.J.S.A. 5:8-121, et seq.

 There are obvious differences between the two modes of legalization, and some of these appear by inspection of the language used. A number of amendments directly legalize a particular kind of gambling, with one or more constitutionally required criteria or conditions. This was true of the 1939 amendment to the 1844 Constitution (" It shall be lawful to hold * * * race meetings whereat the * * * racing of horses only may be conducted * * * in duly legalized race tracks, at which the pari-mutuel system of betting shall be permitted * * * from which the State shall derive a reasonable revenue for the support of government.") (emphasis added)

 It was true of the amendment for charity bingo, in 1953 (" It shall be lawful for bona fide [organizations] to conduct * * * games of chance of * * * bingo or lotto * * * when the entire net proceeds * * * are to be devoted to [specified] uses * * *")

 It was not true of the amendment of 1953 (approved at the same time as the bingo amendment) for raffles, or the 1972 amendment for a State lottery operation, or of the 1976 amendment for casino gambling in Atlantic City. In these 3 instances, the language of the amendment does not itself make lawful the particular kind of gambling. Instead, each says that "it shall be lawful for the Legislature to authorize " by law, one of the other kinds of gambling. (emphasis added)

 To those not familiar with the complex of local forces within the State, these differences may seem odd. Why amend the Constitution by referendum merely to authorize the Legislature to legalize a particular kind of gambling, with its restrictions and control, when the same end can be reached by statute approved by referendum?

 The answer is that in a particular situation, it may be desirable to specify major restrictions and controls in the Constitution itself to minimize the risk of opposition by voters who lack confidence that the Legislature will refrain from lowering the bars. Or, it may be thought desirable to provide a Constitutional guarantee to bar a particular kind of gambling in a given municipality unless approved by its own voters on referendum. This protection can avoid loss of the proposition by opponents who do not care if other localities are willing to accept the activity, but do not want it at home. Another reason may be that the proponents wish to have a form of gambling with essentially no restrictions and control (as for the State lottery). Still another may be to require the application of proceeds to specific purposes and ends by Constitutional mandate, to either gain support or weaken opposition. These and other like reasons are rather evident from a reading of the text of each amendment.

 In sum, so far as the N.J. Constitution is concerned, the only lawful forms of gambling are:

 

. . . pari-mutuel betting at horse race meetings at legalized race tracks, preserved as from the 1939 amendment.

 

. . . bingo and raffles by qualified organizations under the 1953 amendments (and a later change to include senior citizen organizations).

 

. . . amusement games in seashore communities and other resorts, by the 1959 referendum (and extended to agricultural fairs and exhibitions in 1961).

 

. . . the State lottery, by the 1969 amendment.

 

. . . casino gambling in Atlantic City, by the 1972 amendment (and changes made in 1976 and 1981).

 No other kind of gambling has been authorized by the Legislature.

 The Statutory History

 The entire statutory history need not be catalogued here, as there are items involving details whose treatment would obscure the major line of development.

 The New Jersey courts recognize that under the common law of England and of the colony or province of New Jersey, wagering and gambling contracts were upheld.

 The Act for suppressing of lotteries of 1797, revised in 1846, denounced lotteries as common and public nuisances, and set out both criminal and civil consequences.

 It has been observed that lotteries were used as a means of raising funds for the then "College of New Jersey", (now Princeton University). Church trustees were authorized to conduct lotteries to build edifices, and Newark Academy seems to have been financed in this way. See, Dombrowski v. State, 111 N.J.L. 546, 168 A. 722 (Sup. 1933).

 In the period before the 1844 Constitution, with its prohibition against the authorization of "lotteries", the Legislature was obviously free to prohibit lotteries, or other forms of gambling as well, as a general matter, and yet authorize particular lotteries when it chose to.

 The 1844 Constitution forbade the operation of "lotteries", as well as the purchase or sale of any "ticket" in a lottery, but the amendment of 1897 went much further, adding prohibitions against gambling of any kind, or the legalization of any gambling device, practice or game of chance, or the diminution of any remedy, penalty or punishment then provided by law.

 There were several streams of statutes dealing with the subject as a whole, and with periodic statutory revisions or complications they were sometimes cut apart and reorganized.

 For example, section 1 of the Act to prevent gaming, passed February 8, 1797, made it an indictable offense to play for money, goods, chattels or other valuable thing at any of the games there listed. Virtually unchanged, that section became R.S. 2:135-1 of the 1937 Revised Statutes, and N.J.S. 2A:112-1 of the Title 2A Revision of 1951. In the final report of the N.J. Criminal Law Revision Commission (1971), it appeared virtually unchanged as Draft 2C:37-1(a), with the Commissioners' Note thereto that the gambling laws should remain unaltered by the Commission, and should be the subject of individual study and revision, citing recommendations to that effect submitted January 20, 1970 by Hon. Frederick B. Lacey, then U.S. Attorney for this District.

 As eventually enacted by N.J.P.L. 1978, c. 95 and amended thereafter, the criminal statutes on gambling were revised and rewritten, see N.J.S. 2C:37-1 through 9, including a section that nothing in chapter 37 was to be construed to prohibit any activity authorized by the "Casino Control Act", N.J.S. A. 5:12-1, et seq., or to supercede any provision of that Act. Nothing else in Title 2C deals with other forms of authorized gambling such as pari-mutuel horse racing, bingo, raffles, amusement games or the State lotteries.

 However, section 2 of the same 1797 Act, which rendered "utterly void and of no effect" all promises, agreements, notes, bills, bonds, contracts, judgments, mortgages or other securities or conveyances made by any person, "the whole or any part of the consideration" of which is money, etc., won, laid or bet at illegal games, "or for reimbursing or repaying any money knowingly lent and advanced" for that kind of purpose, has remained virtually unaltered and is now in force as N.J.S.A. 2A:40-3.

 Thus, the collection of laws at first written in combination have divided over the many years into one group having to do with crimes, and the other with the civil aspects of illegality.

 As originally enacted, the second section of the Act to prevent gaming of 1797 stood on its own (though read in pari materia with the Act as a whole), without cross-reference to any other section.

 By the time of the Revision of 1877, as referred to in Flagg v. Baldwin, 38 N.J. Eq. 219 (E & A 1884), the first section of the Act to prevent gaming made unlawful (but not criminal) all wagers on any contingent event, and the third section was the continuation of what had been the second section of the 1797 Act, namely making utterly void all promises and instruments made where any part of the consideration was for money bet in violation of the first section, or to repay money knowingly advanced to help or facilitate that violation. This pattern has continued unchanged since then. The first section, declaring gambling unlawful (without addressing criminal aspects) became N.J. Comp. Stat. 1910, p. 2623, § 1, then N.J.R.S. 2:57-1 (1937), and finally N.J.S. 2A:40-1, the present statute.

 Similarly, the third section became N.J. Comp. Stat. 1910, p. 2624, § 3, then N.J.R.S. 2:57-3 (1937), and finally N.J.S. 2A:40-3, the present statute.

 To the extent that what is now N.J.S. 2A:40-1 makes gambling of any kind unlawful, it is superseded by the 1939 Constitutional Amendment, which is paramount law that itself declares that "it shall be lawful" to conduct horse race meetings "in duly legalized race tracks, at which the pari-mutuel system of betting shall be permitted."

 The same is true of charity bingo and raffles, under the 1953 amendments to the Constitution. While the bingo amendment provides that it "shall be lawful" to conduct and play bingo under the specified conditions, and the raffles amendment merely authorized legalization by the Legislature of the conduct of raffles under the specified conditions, the enabling statutes for both types of gambling declare that "it shall be lawful" to carry on the activity contemplated. See N.J.S.A. 5:8-25 for bingo, and N.J.S.A. 5:8-51 for raffles.

 This pattern was continued in the Amusement Games Licensing Law, approved on referendum without amending the Constitution, also using the term "it shall be lawful" in connection with the issuance of licenses, operation of the games by licensees and participation by players, N.J.R.S. 5:8-101. This statute, possibly because it was grounded on referendum approval rather than constitutional amendment, also expressly exempted the activities it legalized from the criminal statutes otherwise applicable, N.J.S. 5:8-110. It also made explicit that what it legalized did not extend to bingo or raffles (with one small exception), N.J.S. 5:8-112, and also made explicit that it did not authorize otherwise illegal gambling (largely using the language of the criminal statutes) or betting on horses, on or off-track, N.J.S. 5:8-113.

 The next enactment was the State Lottery Law, N.J.S. 5:9-1, authorized by the 1969 referendum. Unlike any of the earlier legalizing laws on gambling, it seems not to contain any "it shall be lawful" expression. At the most, it says that no other law providing any penalty or disability for the sale of "lottery tickets", or any act done in connection with a lottery, is to apply to the sale of tickets or shares performed pursuant to the act, N.J.S. 5:9-19.

 The final statute in the series is the Casino Control Act N.J.S.A. 5:12-1, et seq., to legalize casino gambling in Atlantic City under the authority of the constitutional amendment.

 As with the State Lottery Law, the Casino Control Act contains no expression that can be found that declares, as did the earlier series of Acts, that "it shall be lawful" to engage in the regulated activity. The only statement of this kind is found as N.J.S.A. 5:12-124, which reads in full:

 

"The provisions of N.J.S. 2A:40-1, 2A:112-1 and 2A:112-2, shall not apply to any person who, as a licensee operating pursuant to the provisions of this act, or as a player in any game authorized pursuant to this act, engages in gaming as authorized herein."

 Other provisions of a kind not found in the enabling legislation for pari-mutuel betting at race tracks, or for bingo, raffles, amusement games or the State lottery, deal with the allowance of credit by a licensed casino to a player under quite strict regulations, N.J.S.A. 5:12-101.

 Without repeating the full text here, the format of the section is to forbid extensions of credit (including the acceptance of checks or making of loans) from players except under the quite strict regulations and control spelled out in that section. The major constraints are:

 

. . . all checks must be dated, but not postdated

 

. . . the check must be payable to the casino licensee

 

. . . the check may only be presented to designated persons

 

. . . the check (if not earlier redeemed) must be deposited for collection through a bank within a specified time from its date (depending on its size)

 

. . . the checks may not be transferred to anyone other than (1) the drawer; (2) a bank for collection; or (3) a buyer of the casino license

 

. . . efforts to collect checks returned by a bank may be made only by a casino key employee or other casino employee or an attorney-at-law

 

. . . checks cashed in conformity with the requirements are valid instruments enforceable at law in the courts, but any check cashed, transferred, conveyed or given in violation of the Act "shall be invalid and unenforceable".

  The Factual Background

 The parties met in the Spring of 1978 and eventually spent considerable time together at the Resorts International Hotel, the first to open a casino in Atlantic City.

 Defendant undertook a course of steady gambling. There is not, of course, any record of the play-by-play results of his gambling. There is a partial record reflected in the ledger accounts at the casino, and these show the expected ups and downs, with the net result an increasing loss. Of the typical casino games, the bet on a single number in roulette gives the most precise example. The wheel has a total of 38 spaces, with 1 through 36 numbered, plus zero and double-zero. But a winning bet on a single number is paid at the rate of 35 to 1, as though there were only 36 spaces on the wheel, instead of 37 to 1, the actual odds with 38 spaces. This difference works out to a margin or edge "for the house" of about 5% in the example given.

 Hence, a roulette player always betting one chip on a single number can expect, over a very long series of bets, that he will come out with a net loss of one chip for every twenty bets.

 Plaintiff says that at an early stage of this activity, defendant asked her to issue her own checks to the casinos so that he could repurchase his "markers", see N.J.S.A. 5:12-101(c), and continue drawing credit to gamble without having his own checks to the casino presented to his own bank.

 In any event, without recording the massive detail so far accumulated on discovery, the main pattern disclosed shows that as he lost, defendant gambled more and eventually lost more. He was unable to finance his indulgence further, and the activity collapsed with large sums owed to casinos by both plaintiff and defendant. Plaintiff asserts having paid defendant's gambling debts to casinos over the period, aggregating the following: 1978 and 1979 $1,509,200. Jan. and Feb. 1980 1,930,000. March, 1980 3,132,000. April, 1980 4,150,000.

19830907

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