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DOUMANI v. CASINO CONTROL COMMN. OF NEW JERSEY

August 6, 1985

ELEONORE DOUMANI, LAWRENCE DOUMANI, CINDY DOUMANI and FRED DOUMANI, JR., Plaintiffs,
v.
CASINO CONTROL COMMISSION OF NEW JERSEY, WALTER N. READ, CHAIRMAN, E. KENNETH BURDGE, VICE-CHAIRMAN, CARL ZEITZ, COMMISSIONER, JOEL JACOBSON, COMMISSIONER, and VALERIE ARMSTRONG, COMMISSIONER, Defendants, and IRWIN I. KIMMELMAN, ATTORNEY GENERAL OF THE STATE OF NEW JERSEY and the DIVISION OF GAMING ENFORCEMENT, Intervenor-Defendants



The opinion of the court was delivered by: BROTMAN

 Presently before the court is a motion for a preliminary injunction barring the New Jersey Casino Control Commission, its Chairman, Walter N. Read, its Vice-Chairman, E. Kenneth Burdge, and its Commissioners, Carl Zeitz, Joel Jacobson and Valerie Armstrong (hereafter "the Commission") from conducting hearings regarding the qualifications of plaintiffs Eleonore, Lawrence, and Cindy Doumani and Fred Doumani, Jr., to maintain ownership of stock in Golden Nugget, Inc. The Commission originally scheduled such hearings for June 6, 1985. On June 5, 1985, plaintiffs sought and received temporary restraints pending argument in this matter before the court. On June 24, 1985, the court granted an uncontested motion by the New Jersey Division of Gaming Enforcement ("the Division") to intervene as a party defendant, and then heard presentations by counsel for all parties. The restraints granted on June 5, 1985 have been extended until the issuance of the court's ruling on plaintiff's motion for preliminary injunctive relief.

 The complaint invokes the court's jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1343. Plaintiffs contend that the hearing planned by the Commission is unlawful. According to plaintiffs, the agency is unable to establish personal jurisdiction over them because they do not have the requisite "minimum contacts" with the State of New Jersey. The court is also asked to find that plaintiffs are entitled to injunctive relief under the Commerce Clause of Article I, Section 8, and the Supremacy Clause of Article VI, of the United States Constitution. The Commission's actions allegedly interfere with interstate trade in securities and trespass in an area preempted by a comprehensive federal regulatory scheme.

 Defendants maintain that the court lacks the power to grant the relief requested by plaintiffs, under the doctrine of abstention first enunciated in Younger v. Harris, 401 U.S. 37, 27 L. Ed. 2d 669, 91 S. Ct. 746 (1971). In the alternative, defendants assert that plaintiffs have failed to satisfy the criteria for issuance of a preliminary injunction.

 For the reasons set forth below, the court finds that the Younger doctrine is inapplicable to this case. In addition, the court has determined that plaintiffs have failed to carry their burden to show that preliminary injunctive relief is justified. Accordingly, plaintiffs' motion to enjoin the Commission's hearings regarding their independence from Edward Doumani is denied, and the temporary restraints previously in place are dissolved.

 Factual Background

 On November 21, 1980, the Commission issued Golden Nugget of Atlantic City Corp. ("GNAC") a temporary permit to operate a casino in Atlantic City, New Jersey. At that time, the Commission indicated it might require Edward M. Doumani to meet the qualification standards in the Casino Control Act, N.J.S.A. 5:12-1 et seq., ("the Act") because of his substantial holdings of stock in GNAC's publicly-traded parent corporation, Golden Nugget, Inc. ("GNI"). *fn1" Doumani held slightly less than 5% of GNI's stock, the minimum amount which triggers a statutory presumption that a party has an ability to control or elect a director of the parent company. N.J.S.A. 5:12-105(d). All individuals with such influence must qualify under the Act. N.J.S.A. 5:12-85(c),(d).

 On January 17, 1984, the Commission commenced qualification hearings concerning Edward Doumani. Prior to issuance of a Commission decision, GNAC submitted a stock disposition agreement calling for Edward and Fred Doumani to sell their stock: 50% to GNI and 50% to their wives. See Commission Brief in Opposition at 8-11. The various transactions were intended to bring Doumani family holdings of GNI stock below 5%. The attempt failed by a narrow margin; nevertheless, the Commission approved the deal on April 18, 1984. The Commission deferred decision on Edward Doumani's qualifications and other matters raised by the GNAC proposal, particularly the independence of the Doumani wives (Eleonore and Cindy) and children (Lawrence and Fred, Jr.). In June, 1984, the Commission attempted to notify all parties of its plans to hold hearings on these issues. The agency received no response from plaintiffs. On December 12, 1984, the Commission issued a decision in which it found Edward Doumani to be disqualified and also ruled that he is capable of controlling the GNI stock owned by other members of his family. Accordingly, the Commission ordered the Doumanis to divest themselves of their GNI stock and ordered GNI (1) not to pay dividends or interest to the plaintiffs, (2) not to authorize GNAC to grant plaintiffs other remuneration, such as for services rendered, and (3) not to allow plaintiffs to exercise their voting rights in GNI stock.

 On February 8, 1985, counsel for the plaintiffs applied for rehearing of the Commission's decision pursuant to N.J.S.A. 5:12-107(d). Plaintiffs asserted that the December 12, 1984 decision violated their due process rights. In particular, plaintiffs claimed that they did not receive proper notice of the proceedings leading up to the Commission's decision. At a public hearing on the petition for rehearing, held February 13, 1985, plaintiffs' counsel reiterated this claim and also indicated their clients' readiness to present evidence which might lead the Commission to reverse its finding that plaintiffs are not independent of Edward Doumani. Based on this presentation, the Commission decided to schedule a hearing, limited to the issue of notice, for February 27, 1985. Subsequently, at a prehearing conference held February 22, 1985, in response to questions from Commission staff, plaintiffs' counsel also asserted that the Commission lacks personal jurisdiction over their clients.

 The Commission went ahead with hearings limited to the issue of notice. During the proceedings, plaintiffs' counsel continued to claim the right to challenge the Commission's jurisdiction over their clients. On May 1, 1985, the Commission ruled that plaintiffs had not received proper notice of proceedings related to their ownership of GNI stock. The agency scheduled a new hearing on the issue for June 6, 1985. On June 5, 1985, the court issued a temporary restraining order staying such proceedings. Plaintiffs now ask the court to issue an order preliminarily enjoining the same.

 Discussion

 1. Abstention

 Prior to any analysis of plaintiff's request for injunctive relief, the court must address defendants' contention that it is obliged to refrain from further review of this matter in accordance with the doctrine of abstention. The court is urged to find that Younger v. Harris, 401 U.S. 37, 27 L. Ed. 2d 669, 91 S. Ct. 746 (1971), and its progeny dictate such a result.

 The court has previously noted that in Younger,

 Hotel and Restaurant Employees & Bartenders Local Union No. 54 v. Read, 597 F. Supp. 1431, 1438 (D.N.J. 1984). The reasoning in Younger has been applied so as to bar various efforts to enjoin state civil proceedings, including administrative enforcement proceedings. Williams v. Red Bank Board of Education, 662 F.2d 1008, 1014-17 (3rd Cir. 1981). In this Circuit however, application of Younger has been strictly limited, in civil cases, to request for injunctive relief from certain enforcement actions initiated by the state. Williams v. Red Bank Board of Education, supra, 662 F.2d at 1019-20; Johnson v. Kelly, 583 F.2d 1242, 1247, 1249 (3rd Cir. 1978); Bally Manufacturing Corp. v. Casino Control Commission, 534 F. Supp. 1213, 1218-20 (D.N.J. 1982); Santiago v. City of Philadelphia, 435 F. Supp. 136, 145 (E.D.Pa. 1977).

 On three previous occasions, this court has refused to invoke Younger when faced with a request to do so by the present defendants in response to federal civil actions for injunctive relief by parties subject to administrative enforcement proceedings based on the licensing provisions of the Casino Control Act. Hotel and Restaurant Employees and Bartenders Local Union No. 54 v. Read, supra, 597 F. Supp at 1438-40; Hotel and Restaurant Employees and Bartenders Union Local No. 54 v. Danzinger, 536 F. Supp. 317, 325 (D.N.J. 1982), reversed on other grounds, 709 F.2d 815 (3rd Cir. 1983), reversed and remanded for further proceedings, 468 U.S. 491, 104 S. Ct. 3179, 82 L. Ed. 2d 373 (1984); Bally Manufacturing Corp. v. Casino Control Commission, supra, 534 F. Supp. at 1218-20. In each instance, the court found that the state agency proceedings in question were not state-initiated. The court reasoned that such proceedings consisted of, or arose from, a private party's application for a license to operate within the casino industry in Atlantic City. The hearings challenged by the plaintiffs had a similar origin, as they derive from investigations begun by defendant DGE in connection with the application of GNAC to run a casino in Atlantic City.

 The Doumanis are slightly different from the plaintiffs in the three other cases referred to above, in that none of them actually initiated proceedings before the New Jersey Casino Control Commission. Accordingly, defendants stress the fact that they initiated disqualification proceedings against these plaintiffs.

 The court finds this distinction to be without substance. In the first place, the Commission's disqualification proceedings are directly related to ongoing consideration of GNOC's compliance with the Casino Control Act and the provisions of its casino operating license. Furthermore, any decision by the Commission to require action by the plaintiffs, such as divestiture, would be effective against GNOC. Unless GNOC attempts to secure divestiture by the Doumanis, if such action ...


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