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New Jersey Division v. New Jersey Racing Commission

Decided: November 19, 1991.

NEW JERSEY DIVISION, HORSEMEN'S BENEVOLENT PROTECTIVE ASSOCIATION AND MARTIN FALLON, PETITIONERS-RESPONDENTS,
v.
NEW JERSEY RACING COMMISSION, RESPONDENT. NEW JERSEY THOROUGHBRED HORSEMAN'S BENEVOLENT ASSOCIATION, INC., A NEW JERSEY NON-PROFIT CORPORATION; JAMES P. MURPHY; PATRICK L. BOTTAZZI; SUE DOLLINGER; JOHN FIERAMOSCA; EDWARD H. BARNEY; JOHN DESTEPHANO, ROBERT J. DURSO; MEL W. GROSS; AND LOUIS F. JOLIN, PLAINTIFFS-APPELLANTS, V. NEW JERSEY DIVISION, HORSEMEN'S BENEVOLENT AND PROTECTIVE ASSOCIATION, INC.; HORSEMEN'S BENEVOLENT AND PROTECTIVE ASSOCIATION, INC., A KENTUCKY CORPORATION; DEFENDANTS-RESPONDENTS, AND NEW JERSEY RACING COMMISSION, DEFENDANT



On appeal from New Jersey Racing Commission and Superior Court, Law Division, Mercer County.

Pressler, Shebell and D'Annunzio. The opinion of the court was delivered by Pressler, P.J.A.D.

Pressler

These consolidated appeals, which arise out of internecine conflict among the horsemen of this state respecting the control and management of funds statutorily allocated for horsemen's benevolence programs (Fund), raise important questions concerning the scope of the adjudicatory power of the New Jersey Racing Commission over the use of the Fund.

Although various other collateral issues are here implicated, the primary dispute before us derives from the claim of plaintiff, New Jersey Thoroughbred Horseman's Benevolent Association, Inc. (Corporation), that defendant, New Jersey Division, Horsemen's Benevolent & Protective Association, Inc. (Division), one of 26 unincorporated regional chapters of defendant, Horsemen's Benevolent & Protective Association, Inc. (National), mismanaged and misspent $100,000 of Fund money. A consent judgment entered into between the Racing Commission and the Division in a prior administrative proceeding purported to settle the claim for, among other terms, the Division's undertaking to reimburse $5,000 to the Fund. The first question is whether that consent judgment binds the Corporation and the plaintiff owners and trainers, beneficiaries of the Fund who seek its vindication, even though none of them was a party to it. The second question is whether the Racing Commission has exclusive jurisdiction to adjudicate what is essentially a common-law action based on asserted misappropriation and mismanagement of a trust res by its trustees and whether it has the capacity to afford a complete remedy to the beneficiaries for breach of trust. In the circumstances here, we answer both these questions in the negative.

Focusing of the issues requires a foray into the historical and legal background of the Fund as well as the events leading to this litigation. The controversy has its genesis in a series of legislative enactments, reviewed by the Supreme Court in Jordan v. Horsemen's Benev. & Protect. Ass'n, 90 N.J. 422, 448 A.2d 462 (1982), which, since 1975, has required a portion of the owners' purse money*fn1 to be distributed by the operators of running race meetings "for programs designed to aid the horsemen and the New Jersey Horsemen's Benevolent and

Protective Association."*fn2 See N.J.S.A. 5:5-66(b)(2), so providing as to all operators except the New Jersey Sports and Exposition Authority (Authority), and N.J.S.A. 5:10-7(f)(2), so providing as to the Authority. The present maximum percentages of the purse money so allocated, 2.9% for Authority meetings and 2.5% for all other meetings, currently generate an annual Fund contribution in excess of one million dollars.

The Supreme Court recognized in Jordan that while the terms of the statutory allocation are construable as authorizing payment not only to the Division but also for "other programs," it noted nevertheless that no other programs in fact "receive money under the statutory provisions, and no statute or regulation indicates how such programs might qualify for funding if established." 90 N.J. at 429, 448 A.2d 462. At the time Jordan was decided, the annual sum received by the Division was about $600,000, and about half its budget was used for benevolent purposes for owners, trainers and their employees, including a professionally administered pension plan, an uninsured medical cost reimbursement program, a race-track chaplaincy, and a variety of ad hoc assistance programs for members. Over a third of the Division's budget was used for overhead expenses, including entertainment and travel, and close to a fifth was sent by it to the National "to pay the region's share of national costs." Id. at 430, 448 A.2d 462. Also at the time Jordan was decided, there was no control by either statute or regulation over the disposition and management of the Fund by the Division. The only oversight was the requirement of N.J.S.A. 5:5-92 that the Division file with the State Treasurer and the Racing Commission an annual audit prepared by a certified

public accountant which would be "subject to the review" of both agencies.

In Jordan, the Supreme Court sustained the validity of the statutory scheme against the claim of violation of the state constitutional interdictions against proscribed special legislation and against appropriation of money for private associations. N.J. Const. art. IV, § 7, paras. 7 and 9; art. VII, § 3, para. 3. It did so by engrafting thereon the requirement that participation in the Fund's programs not be conditioned on membership in either the National or the Division and the further requirement that the statutory review of the Division's audit referred to by N.J.S.A. 5:5-92:

be sufficient to insure that the statutory allocation is used to finance benevolent programs and the administrative and overhead costs reasonably related to these programs. The statute may not be used to obtain funds to finance [Division] or [National] except insofar as those organizations fulfill the statutory purpose of caring for New Jersey horsemen on a non-discriminatory basis. [ Id. at 436, 448 A.2d 462]

The Court further assumed that the State Treasurer and the Racing Commission would "perform the statutory obligation" to "scrutinize the expenditures" of the Division and noted that "judicial intervention would be justified" if it appeared that the statutory allocation was being used to advance "private interests under the guise of general welfare." Id.

Three years later, in Horsemen's Benev. & Protect. Ass'n v. Atlantic City Racing, 98 N.J. 445, 487 A.2d 707 (1985), the Supreme Court, again sustaining the state constitutional validity of the statutory allocation scheme, once more noted "the possibility that the statute as applied might be used solely for [Division's] private purposes," reiterated its caution that the Treasurer and the Racing Commission should scrutinize the Division's expenditures, and "venture[d] to suggest" that the Racing Commission adopt regulations to govern those expenditures. Id. at 453, 487 A.2d 707.

During the next several years, tensions developed between the Division and the National. As explained by the Division's then attorney in a later informal hearing conducted by the

Racing Commission's Executive Director to which reference is hereafter made:

a great number of people . . . felt that the National HPBA was not advancing the best interest of New Jersey thoroughbred horsemen at least as a whole. . . . [I]t came to be known that the National HBPA was extracting from the New Jersey Division enforced contributions in the nature of both regular and special assessments which had gotten up towards $100,000 per year. . . . New Jersey being the third largest contributor to the National HBPA's regular and special financial needs, many New Jersey horsemen came to be critical of these expenditures and asked, in effect, what in the world was New Jersey getting as a result of making these substantial contributions.

It further appears that in 1987, in response to pressure from various divisions, the National amended its by-laws to permit its divisions to incorporate on their own. We gather from the record that at least one reason National took this step was to enable each division to insulate its locally generated resources from liability for debts of the National and other divisions. We also gather that the National's intention was to substitute for the unincorporated division structure some kind of corporate affiliation between it and those of its former divisions opting for the incorporation route.

In any event, the New Jersey horsemen's leadership, including Division officers, opted to incorporate and filed a certificate of incorporation in February 1988 creating plaintiff Corporation. It further appears that there was then substantial harmony within the leadership, and the plan accordingly made, with the approval of the Racing Commission and the Attorney General, was that the Corporation would begin its financial life on October 1, 1988 and from that date forward would be the recipient of the statutorily allocated funds and the administrator of the benevolence programs. To some extent, the National was a party to this plan, having, in implementation thereof, settled its outstanding claims for contributions from the Division, also with Racing Commission approval.

Although there was no impediment to the efficacy of the October 1, 1988 date as a matter of prospective operation, the complete turnover of function and control from the Division to the ...


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