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HOTEL EMP. LOC. 54 v. ELSINORE SHORE ASSOC.

August 20, 1991

HOTEL EMPLOYEES RESTAURANT EMPLOYERS INTERNATIONAL UNION LOCAL 54, PLAINTIFFS,
v.
ELSINORE SHORE ASSOCIATES D/B/A ATLANTIS HOTEL AND CASINO, ET AL., DEFENDANTS. DANIEL L. FINKLER, ET AL., ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS, V. ELSINORE SHORE ASSOCIATES D/B/A ATLANTIS HOTEL AND CASINO, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Gerry, Chief Judge:

These consolidated actions arise out of the May 22, 1989 closing of the Atlantis Casino Hotel in Atlantic City, New Jersey. Presently before the court is defendants' motion for summary judgment. The issue presented by this motion, one of first impression, is whether an employer may be subject to liability under the Worker Adjustment and Retraining Notification Act (WARN), 29 U.S.C. § 2101 et seq. (West Supp. 1991), for failing to provide employees with the sixty days advance notice of closing required under that act, where the closing was ordered by a state regulatory agency. For the reasons set forth below, we hold that under the facts of this case, defendants did not "order a plant closing" within the meaning of 29 U.S.C. § 2102. Accordingly, defendants' motion will be granted.

I. BACKGROUND

Although this court has previously set forth some of the relevant facts of this case in considering defendants' respective motions to dismiss, see Finkler v. Elsinore Shore Associates, 725 F. Supp. 828 (D.N.J. 1989); Hotel Employees Restaurant Employees International Union Local 54 v. Elsinore Shore Associates, 724 F. Supp. 333 (D.N.J. 1989), we will set forth below the pertinent facts for the purposes of this motion.

Defendants Elsinore Shore Corporation (Elsinore), a Nevada corporation, and other related entities*fn1 are the partners of Elsinore Shore Associates (ESA), a New Jersey partnership that owned and operated the Atlantis Hotel Casino (the Atlantis) in Atlantic City, New Jersey. As of May 17, 1989, defendants employed approximately 1,800 employees at the Atlantis. The plaintiffs are former employees of the Atlantis and their representative union.

Casino gambling in New Jersey is authorized and heavily regulated under the provisions of the Casino Control Act (the Act), N.J.Stat.Ann. § 5:12-1 et seq. (West 1988). General responsibility for implementing the Act is vested in the Casino Control Commission (the Commission). Id. § 5:12-63. Among other powers and responsibilities, the Commission adjudicates all applications for license and registration under the Act, as well as petitions for suspension, revocation or renewal. The Division of Gaming Enforcement (DGE) of the New Jersey Department of Law and Public Safety serves as an investigatory and enforcement body for all proceedings before the Commission, and prosecutes all proceedings for violations of the Act. Id. § 5:12-76.

Licenses are issued for a one year period, may be renewed for a period of one year for the first two renewal periods, and generally are renewed for a period of two years thereafter. Id. § 5:12-88. Where a casino license is revoked or suspended, the Commission may appoint a conservator to take possession and control of the licensee's property in order to preserve the assets and to attempt to continue to operate the casino on a sound and businesslike basis. Id. § 5:12-130.2. Once appointed, the conservator is vested with the title of all the property of the former licensee relating to the casino and hotel, subject to any valid liens, claims and encumbrances. Id. § 5:12-130.2(a). The conservator is afforded broad powers, subject to modification by the Commission. Id. § 5:12-130.2(b)(1)-(7), (d).

Plaintiffs depict a detailed account of financial difficulty experienced by defendants since 1985 which ultimately led to the casino's demise in 1989. In 1984, the name of the casino was changed from Playboy Hotel & Casino to Atlantis Casino Hotel. That year the Atlantis realized an operating profit of $14.2 million. Trouble began in 1985, however, allegedly due to increased competition and low name recognition. In 1985 defendants' gross revenues decreased by 9.2% and the Atlantis experienced a net operating loss of $8.2 million. Consequently, in November, 1985 a creditor filed an involuntary petition under Chapter 11 of the Bankruptcy Code against Elsub.*fn2 Shortly thereafter, EAC filed a voluntary petition for reorganization of ESA under Chapter 11.

The Commission renewed ESA's license for a one-year period in April, 1986. However, possibly as a result of the Chapter 11 proceedings, the Commission imposed numerous requirements on defendants. For example, ESA was required to maintain a cash balance of at least $3 million for casino operations, and ESA was required to submit monthly balance sheets, statements of income, statements of cash flow, and changes in components of working capital. Additionally, ESA was required to prepare daily operating reports and cash reports for the Commission and the DGE. The Commission also required ESA and Elsinore to immediately notify the Commission and the DGE of any change in the conditions of or use of any credit lines, and to maintain necessary accounts to satisfy payroll and related employee benefits.

Revenues at ESA decreased by 19.4% for the twelve months ending December 31, 1986. The Commission renewed ESA's license, again for a one-year period, in April, 1987, and imposed substantially the same conditions as were imposed the previous year. On July 24, 1987, EFC, ENJ, EAC and Elsub all filed voluntary petitions under Chapter 11 to facilitate the reorganization of ESA.

Casino revenue decreased substantially again in 1987. On March 25, 1988, ESA's accountants, Laventhol and Horwath, issued its statement of ESA's operations for calendar years 1985 through 1987, and noted that as of December 31, 1987, current liabilities exceeded current assets by $270,623,000. It stated that ESA was in default on substantially all of its debt and concluded that "these factors, among others, indicate that the partnership may be unable to continue in existence." See, Exhibit 11 of Plaintiffs' Appendix to its Memorandum in Opposition, at 1673 [hereinafter "P.Ex."]. In spite of these difficulties, on September 30, 1988, the debtors were discharged from bankruptcy under an approved plan of reorganization.

The casino's financial condition continued to deteriorate in 1988. Although revenues increased, ESA reported a net loss of $26,672,111. In April, 1988, the Commission renewed ESA's license, but only for one year although it was eligible for a two-year license. The Commission continued the conditions imposed the previous year, in addition to imposing new requirements. For example, the Commission ordered that the license hearing would automatically be reopened should ESA's cash position fall below $6 million for five working days. Additionally, it required Elsinore to make additional funding available to ESA if working capital fell below $7 million. Beginning January 17, 1989, the DGE began monitoring ESA's cash position on a daily basis. On several occasions, ESA's accounts fell below the required levels.

ESA filed an application for its 1989 license renewal on December 15, 1988. On March 13, 1989, the Commission's Division of Financial Evaluation and Control issued a report which concluded that ESA had not demonstrated adequate financial stability. The Commission conducted various hearings between March 27, 1989 and May 16, 1989 to determine whether to renew ESA's casino license and to determine whether a conservator should be appointed. At the April 3, 1989 hearing, counsel for the Atlantis testified that ESA intended to sell the casino, preferably within sixty days. See, P.Ex. 25, at 390-91. ESA therefore opposed the appointment of a conservator since, in their view, this would make it difficult to sell the casino as a going concern. Alternatively, counsel testified, if no buyer could be found within the sixty day period, the company intended to dispose of the casino by auction in order to satisfy creditors. Id., at 301. Jeanne Hood, the President and Chief Executive Officer of Elsinore, testified that a sale was imminent, and noted that it was well known that Elsinore did not have the resources to make the Atlantis "a very profitable, viable property." P.Ex. 26, at 610-11.

On April 7, 1989 the Commission voted not to renew ESA's license and appointed Joseph M. Nolan as conservator. The Commission thereafter conducted hearings to determine what powers, duties and responsibilities were appropriate for the conservator. Chairman Read stated that the conservator need not undertake many of the activities authorized under the Act, and that the conservator "should, in the spirit of limiting the problems of transition, exercise restraints." P.Ex. 30, at 990. The Commission's Order, dated April 19, 1989, provides that "the regular and normal operations of the casino hotel shall be conducted by ESA under the general guidance and oversight, but without specific review or approval of the conservator, pending the sale of the casino hotel. . . ." D.Ex. B, at 2. The conservator was authorized to assess and monitor ESA's financial situation and to report to the Commission if ESA could no longer remain financially viable. ESA was required to make all books and records available to the conservator, and was prohibited from taking any significant actions, including sale of the property, without first notifying the conservator. The conservator, in turn, was authorized to sell the property subject to prior approval of the Commission. Id., at 3. As this court previously observed,

  [i]t appears that the Commission implemented a
  system of checks and balances, pending the sale
  of the Atlantis, in order to assure that
  defendants met minimum regulatory standards,
  without unduly disrupting day to day operations.
  The checks and balances served to curb any major
  action on the part of the defendants and the
  Conservator, but the daily operation was handled
  by defendants.

Finkler v. Elsinore Shore Associates, 725 F. Supp. at 832.

The defendants had been negotiating for the sale of the Atlantis with Donald Trump shortly before the Commission's Order was issued. On April 15, 1989 Atlantis and Trump issued a joint press release announcing that Elsinore and Trump had entered into a purchase agreement. The release stated that, according to Jeanne Hood, the casino operation at the Atlantis would be closed in the near future. P.Ex. 17, at 491. In fact, section 7.05 of the Purchase and Sale Agreement dated April 14, 1989, provides that "Seller intends, and is presently taking steps, to close the casino located in the Hotel and discontinue all gambling and gaming activities in the Hotel on or before the expiration of [the] due diligence period granted to Purchaser. . . ." P.Ex. 1, at 25.*fn3 In a memo to employees outlining the implications of the sale to ...


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