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In re Application of Playboy-Elsinore Associates for A Casino License

Decided: August 6, 1985.

IN THE MATTER OF THE APPLICATION OF PLAYBOY-ELSINORE ASSOCIATES FOR A CASINO LICENSE


On appeal from the New Jersey Casino Control Commission.

Pressler, Brody and Cohen. The opinion of the court was delivered by Cohen, J.A.D.

Cohen

Elsinore Shore Associates (ESA) is a New Jersey partnership.*fn1 It owns and operates a casino hotel in Atlantic City, known as Elsinore Atlantis, which opened in 1981 under the authority of a temporary casino permit issued by the Casino Control Commission. N.J.S.A. 5:12-95.1 et seq. (repealed). In April 1982, the Commission issued it an annual casino license, N.J.S.A. 5:12-87, and renewed it in April 1983, N.J.S.A. 5:12-88. In March 1984, the Commission heard ESA's application for renewal and granted it, effective April 14, 1984.

Like its predecessors, the resolution granting the application contained a number of conditions. One of them, # 135, read as follows:

That the Licensee continue its support for and make a meaningful contribution by November 14, 1984 to the construction training program administered by Atlantic Community College designed to improve minority and female participation in the Atlantic County construction workforce.

Another of the conditions, # 142, read as follows:

That to ensure the independence of the Licensee's internal audit and surveillance departments pursuant to N.J.A.C. 19:45-1.11(c), both the Director of Internal Audit and the Director of Surveillance shall report directly to Elsinore Corporation's Board of Director's Audit Committee and that appropriate documentation defining the authority and responsibility of these two departments be provided to the Commission.

On appeal to this court, ESA challenges both of these conditions on the grounds that they are unauthorized by statute or regulation and are arbitrary and unlawful. We agree that Condition # 135 is improper and order it set aside. We disagree

with ESA, however, on Condition # 142, and confirm its validity.

Condition # 142 arose out of ESA's unusual business organization. When formed in 1979, ESA was a partnership of Playboy of Atlantic City, also a partnership, and Elsub Corporation, a subsidiary of Elsinore Corporation, which is publicly owned. In 1984, Elsub bought most of the interest of ESA owned by Playboy of Atlantic City, as a result of which Elsub now owns 91.5% of ESA. ESA, as a partnership, has no board of directors, but only a two-person executive committee, consisting of the president and vice president of Elsub and Elsinore.*fn2

Part of the Commission's statutory responsibilities is to see to it that a system of internal controls is established by each casino. N.J.S.A. 5:12-99. The Commission adopted N.J.A.C. 19:45-1.11 to create standards for those controls. The various operations of a casino are to be divided into at least seven departments: surveillance, internal audit, casino, slot, credit, security and casino accounting. The regulation provides that the surveillance and internal audit departments should

The idea is to establish lines of reporting that will guarantee independence of the various departments from one another, independence for the more sensitive functions from operating management and clear responsibility at the highest ...


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