N.J. appeals court upholds Tropicana license revocation

By Liz Benston

Thursday, July 10, 2008 | 2 a.m.

Casino regulators across the country are breathing a sigh of relief after an appeals court in New Jersey affirmed a December decision by the New Jersey Casino Control Commission not to renew the gaming license for the operator of the Tropicana in Atlantic City.

The controversial decision to pull the Tropicana’s license was unique in that it is the only time an operator with a temporary license pending an extensive background investigation was later found unsuitable to run a casino. It was only the second time New Jersey regulators have revoked a casino license and one of only a handful of similar decisions nationwide.

The decision, which establishes a legal precedent in New Jersey, should further strengthen regulators’ broad discretion to deny license applications as they see fit, a top Nevada official said.

“I was very pleased to see that the court upheld the administrative decision of a licensing matter, which will only help regulatory agencies in other states by showing that the court didn’t second-guess the regulators in New Jersey,” said Mark Clayton, one of three members of Nevada’s Gaming Control Board. “The court went out of its way to say the regulatory process got it right and they were 100 percent behind them.”

In its appeal, Tropicana Entertainment argued that regulators had exceeded their authority, reached conclusions unsupported by evidence and second-guessed layoffs the company didn’t know would ultimately threaten their license. They also said regulators had been swayed by unions that were at war with the property.

The appeals court said Tropicana mischaracterized the commission’s decision, which was based on a litany of concrete abuses including the lack of an independent audit committee to review the property’s compliance with state regulations, the lack of an adequate security force as required by law and the failure to update regulators on layoffs. The court said the failure to operate a “first-class” casino — a vague, difficult to prove standard written into New Jersey law — was not a deciding factor.

Some gaming observers expressed surprise that the 44-page ruling went beyond a simple affirmation or reiteration of facts.

Rather, judges further explained why the Tropicana deserved to lose its license in New Jersey and came down especially hard on the company’s former general counsel, Donna More, a prominent gaming lawyer and a former casino regulator in Illinois, saying she failed in her role as a regulatory standard-bearer.

“With her background, a succession of inadvertent regulatory missteps should not have been the norm,” the decision read.

Clayton said the Gaming Control Board and staff are reviewing the original decision and the appellate court ruling but wouldn’t say what action the board might take as a result.

An industry expert who would talk only on background said the statements made about More by the appeals court are “greatly troubling” and may trigger a review of her suitability in Nevada for employment in the gaming industry.

“She claimed to be an expert in regulatory matters and the issues that came up in New Jersey were regulatory in nature, so she really dropped the ball,” the person said. “At some point, as a lawyer, if your client isn’t listening to you, you (have an ethical responsibility) to resign. And if she chooses not to resign, then she suffers the professional consequences of that.”

More, who could not be reached for comment, has since resigned from her position but is working as a consultant for the company.

Hud Englehart, a spokesman for Tropicana Entertainment, said the company had relied on the advice of a prominent law firm during the period in question and “regrettably took outside counsel’s advice” on the timing and makeup of the audit committee.

The company is far along in addressing the concerns raised by New Jersey regulators, Tropicana Entertainment President Scott Butera said.

“The commission’s problems really weren’t with the (property) but with the board and management, which we are addressing,” Butera said.