On appeal from a Final Decision of the Casino Control Commission, PRN Nos. 2140705 & 1570613.
The opinion of the court was delivered by: Cuff, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Cuff, Simonelli and King.
Adamar of New Jersey, Inc. (Adamar), the owner and operator of the Tropicana Casino and Resort Atlantic City (Tropicana AC),*fn1 appeals from a final order of the Casino Control Commission (Commission) denying its applications for renewal of Tropicana AC's casino and casino hotel alcoholic beverage licenses (collectively casino licenses) and for plenary qualification of Tropicana Casinos and Resorts, Inc. (TCR),*fn2 as the parent company of Tropicana AC. The effect of this order was to activate the Interim Casino Authorization (ICA) trust and to institute a conservatorship in order for the casino to remain in continuous operation, to ensure that all prerogatives attendant to the former casino licenses remained in place, and to ensure an orderly disposition of the property. In addition, the Commission imposed civil penalties of $750,000 against TCR and Tropicana AC (collectively Tropicana) on a complaint filed by the Division of Gaming Enforcement (DGE) due to Tropicana's failure to constitute and utilize an independent audit committee.
On appeal, Tropicana argues that the Commission order must be reversed because the Commission applied standards for maintenance of a first class facility, business ability, and the organization and operation of an independent audit committee that had not been adopted as regulations to guide a licensee in the operation of its business. Tropicana also argues that the Commission exceeded its authority and made findings of fact that were unsupported by the record. The Commission argues that the decision to deny relicensure is supported by ample credible evidence. Furthermore, the Commission asserts that it acted in its adjudicatory role and the existing licensing criteria governing the Commission decision is sufficient to inform prospective and existing licensees of the requirements for licensure. The Commission also contends that Tropicana knew or should have known that having obtained ICA did not bestow any guarantee of license renewal.
We commence our discussion with a review of the facts concerning the acquisition of the Tropicana AC facility, the grant of ICA, and the operation of Tropicana AC during the interim authorization period.
On November 12, 2003, the Commission renewed the casino licenses held by Tropicana AC for a four-year term ending on November 30, 2007. On May 19, 2006, Tropicana AC's original parent company Aztar Corporation (Aztar), a publicly traded entity,*fn3 agreed to a merger that would result in Aztar and Tropicana AC becoming subsidiaries of TCR, a private company wholly owned by William Yung, III.
Prior to TCR's acquisition of Aztar, Yung operated numerous hotel properties.*fn4 He is the largest holder of full service Marriott franchises in the United States. He also owned and operated casino properties, including a casino in Lake Tahoe and various riverboat gambling sites in the midwest and south. It was undisputed that Yung and his organization had no prior experience operating a casino resort of the scale of the Aztar Atlantic City and Las Vegas casino and hotel properties acquired in May 2006.
On June 6, 2006, TCR filed a petition with the Commission seeking ICA and plenary qualification*fn5 as a holding company for Tropicana AC pursuant to N.J.S.A. 5:12-95.12 to -95.16. Tropicana submitted additional petitions seeking declaratory rulings on certain provisions of N.J.S.A. 5:12-82d and specific debt transactions, and for the temporary licensure of Fred Buro as a key casino employee pursuant to N.J.S.A. 5:12-89e. Tropicana also sought permission from the Commission to permit Buro to assume the duties and exercise the powers of President and Chief Operating Officer (COO) of Tropicana AC without first having been found qualified pursuant to N.J.A.C. 19:43-2.6. Following a hearing on November 2, 2006, the Commission granted ICA to TCR and allowed Buro to assume his duties as COO. On January 3, 2007, TCR closed its purchase of Aztar.
On June 20, 2007, the Commission conditionally approved Tropicana's June 14, 2007 restated and amended petition concerning the composition of its independent audit committee. The Commission also granted the petitions for the approval of Jeffrey Silver, as the sole member of the independent audit committee, and Karin Brugler, as the Corporate Director of Internal Audit of Tropicana Entertainment, LLC (TEL)*fn6 and TCR.
On June 26, 2007, TCR filed a petition with the Commission seeking an extension of its ICA approval through January 2, 2008, which the Commission approved. On August 2, 2007, Tropicana filed a petition for a five-year renewal of its casino licenses. On September 26, 2007, Tropicana filed a petition to disband the TEL audit committee and to reconstitute it as the audit committee of its subsidiary, Ramada NJ Holdings Corp. (Ramada NJ), because Tropicana felt an audit committee at that level would be "more effective" because Ramada NJ only has New Jersey subsidiaries.
When TCR appeared before the Commission in support of its ICA application, Yung testified that he contemplated a measured reduction in employment levels at Tropicana AC and believed it could be accomplished by attrition. By the end of January 2007, 161 employees had been laid off, and thirty-five persons had been fired. By the end of August 2007, 1059 employees had been terminated, while only 381 employees had been hired. By the end of October 2007, Tropicana AC was operating with only 80% of its former workforce. Cleanliness issues surfaced in March 2007, and some of those issues were still present in June 2007. The record suggests that the condition of the resort negatively affected Tropicana AC's convention trade. The Commission was troubled by the extent of the reduction in employees because the scope and manner of the workforce reductions varied markedly from Yung's initial representations.
Although the scope of the workforce reduction concerned the Commission, terminations in certain mandatory departments triggered concerns about the ability of Tropicana AC to comply with the regulatory scheme extant in New Jersey. Initially, Tropicana AC proposed to reduce the number of locksmiths and slot technicians. Yung saw no need for locksmiths despite the attendant need for these positions to maintain the regulatorily mandated security measures.
In the first eight months of operation, Tropicana AC terminated ninety-one employees in its security department and hired fifty-eight employees for a net loss of thirty-three employees. Most of the terminations occurred in the first three months of operation and the loss of employees left one shift with inadequate security for trolley drops and bill changer pick-ups. To compensate, Tropicana AC impermissibly removed personnel from some mandatory posts to perform the pick-ups and drops. As a result, some mandatory posts were unattended. Moreover, despite a recommendation to increase staff, further reductions in security staff occurred.
In August 2007, the Commission met with Yung, Donna More and Kevin Preston to discuss further layoffs. More was TCR general counsel, and Preston was Senior Vice President for Casino Operations. TCR enumerated another 320 "potential layoffs" at Tropicana AC, including seventy security positions. It explained that the number of terminations was fashioned on an analysis of the security force at another casino TCR deemed comparable. The Commission instructed Tropicana AC that all aspects of the layoff proposal, including the security reductions, required further study and should not be implemented pending further review by the Commission. Four days later, Michael Lyons, who advocated an increase in security personnel, was terminated as Director of Security at Tropicana AC. The record also reveals that Yung was reluctant to discuss proposed personnel decisions with the Commission.
Moreover, a Commission inspector discovered that the Tropicana AC security supervisor assigned to the casino was also impermissibly overseeing hotel security. Finally, in September 2007 Tropicana failed to replace three security officers who were assigned to mandatory roving security posts but who were reassigned to cover bill changer and trolley escorts. This violation resembled similar regulatory lapses that had occurred in April 2007.*fn7
In addition to massive staff layoffs, there was significant turnover of senior management at Tropicana. When TCR assumed the operation of Tropicana AC, Howard Reinhardt was TCR's Senior Vice President of Casino Operations. He was replaced by Preston, who was responsible for all of TCR's gaming operations, marketing and security. At TCR, Richard Fitzpatrick held the position of Senior Vice President, Chief Financial Officer, and Treasurer until July 2007. John Jacob replaced Fitzpatrick but resigned three months later. Theodore Mitchel replaced Jacob as TCR's Senior Vice President, Chief Financial Officer, and Treasurer.
Buro, who was permitted by the Commission to assume his duties as President and COO of Tropicana AC without having obtained key employee licensure, was terminated in August 2007. Mark Giannantonio was promoted from Executive Vice President of Operations to President and COO at Tropicana AC to replace Buro. Lyons commenced employment at Tropicana AC as Director of Security in January 2007. Buro hired him; Lyons was terminated soon after Buro was terminated.
In addition to the turnover in senior management ranks, the Commission expressed concern with the substitution of employees with extensive Atlantic City casino experience with personnel with less casino experience or experience in smaller casino markets. Reinhardt had worked at Tropicana AC for ten years.
Preston, his replacement, had casino management experience but at smaller casino operations.
Buro had served as Chief Marketing Officer for Columbia Sussex since March 2003. He commenced his employment in the gaming industry in 1989 at Trump Hotel and Casino Resorts where he held various positions, including marketing consultant, Director of Marketing, Senior Vice President of Marketing, Executive Vice President of Marketing, General Manager, and finally President and COO. He served in the latter position for just over a year. Between June 2000, when he left Trump Hotel and Casino Resorts, until March 2003, when he joined Columbia Sussex, Buro was employed as the General Manager of Penn National Gaming Inc.'s largest property, Charles Town Races and Slots in West Virginia. By contrast, prior to succeeding Buro, Giannantonio was the Executive Vice President of Operations overseeing the hotel, food and beverage, and non-casino departments at Tropicana AC. He started in the casino resort industry in Atlantic City as a room service waiter and rose through the ranks. Prior to his current position, he never had any responsibility for the casino operations of a casino resort.
Lyons was a former State Trooper who had worked in Atlantic City for DGE and the casino intelligence section of the New Jersey State Police. Following his retirement from the State Police, he joined Trump Marina for seven years, where he started as an investigator and eventually served as Director of Security. He also spent a year at the Taj Mahal Casino as the Director of Corporate Training, Security in Training. Glenn Koehler, the TCR Director of Security, Risk Management and Surveillance, held the position since January 2007, but reported doing the same type of work at various properties other than Tropicana AC since September 2003. Koehler was not licensed in New Jersey.
Jacob, who resigned after three months as Senior Vice President and Chief Financial Officer at TCR, had no prior gaming, hotel or leisure and entertainment management experience. His replacement, Mitchel, had been employed as a senior financial executive at Columbia Sussex for eighteen years. His involvement in licensure matters was limited to gathering information required for license applications.
Brian Doyle, the TCR Director of Compliance, held that position since November 2006. His previous casino experience included employment at the Grand Victoria Casino and Resort in Indiana and on various riverboats in Iowa. More opined that Doyle impressed her and was very knowledgeable about required recordkeeping and reporting of various financial transactions.
More had extensive casino regulatory experience as a regulator and counsel to licensed casino operations. Tropicana AC was her first exposure to casino regulation and operation in Atlantic City. She was one of two in-house attorneys. As general counsel for TCR, More was responsible for legal oversight, including regulatory matters, for thirteen TCR properties in four jurisdictions. In Atlantic City, one attorney was employed at Tropicana AC and was solely responsible for that property. One of the attorneys employed at the Las Vegas property had been terminated and not replaced, and a third attorney was about to be hired in the TCR home office in Kentucky.
Tropicana AC was required to have an independent audit committee in place on its first day of operation. However, Tropicana did not submit an acceptable independent audit committee proposal until June 14, 2007. The Commission promptly approved the proposed independent audit committee on June 20, 2007. The Commission found that the reason for the delay "has proven elusive." At the first meeting of the independent audit committee, no representative from the surveillance department attended the meeting. Moreover, minutes of a subsequent independent audit committee meeting in November 2007 revealed the presence of several senior management officials but no representative from the surveillance department were in attendance despite the requirement that the surveillance department report to the independent audit committee.
Tropicana AC had also entered into a casino services management agreement with TCR and a service agreement with Columbia Sussex. The casino services management agreement allowed TCR to supervise casino operations, including employment matters, staffing, marketing and advertising programs, casino layout, casino operations and procedures, gaming equipment and supply purchases, regulatory oversight as it relates to casino operations and internal audit procedure and operations, and financial matters. The service agreement with Columbia Sussex concerned hotel related services. Despite assurances that the agreements would not be implemented until approved, the Commission discovered that Columbia Sussex had charged fees to Tropicana AC for services rendered under such agreements.
Following submission of the applications for renewal and plenary qualification, DGE filed four reports with the Commission in response to Tropicana's petitions. On October 11, 2007, DGE filed a complaint against Tropicana alleging it had failed to implement a properly constituted and functioning independent audit committee and that it had failed to implement requisite ...