Published Thursday, Dec. 12, 2013 | 12:32 p.m.
Updated Thursday, Dec. 12, 2013 | 2:22 p.m.
BOSTON — The state's top gambling regulator failed to disclose a potential conflict of interest in a timely manner and treated Caesars Entertainment unfairly during a background check, the company said in a lawsuit against him.
Las Vegas-based Caesars had been a partner of the Suffolk Downs horse track in a resort casino bid, but it withdrew in October after concerns were raised during the background check by Massachusetts Gaming Commission staff.
The lawsuit, filed Wednesday by Caesars' Massachusetts affiliate in U.S. District Court in Boston, challenges the "constitutionality, objectivity and fairness" of Caesars' treatment by the commission's chair, Stephen Crosby. It alleges that Crosby's intent was to block the impartial consideration of Suffolk Downs' casino application.
His actions were "so flagrant and offensive as to shock the conscience and compel judicial intervention," the lawsuit states.
The complaint seeks unspecified damages and was filed against Crosby both in his official capacity as chairman of the five-member panel and as an individual. The company also asked the court to permanently block release of the full background investigation.
The commission, in a statement Thursday, said the suit was without merit and that Crosby played no role in the background check conducted by commission investigators, or their report. Crosby himself did not comment.
Caesars alleges that Crosby failed to disclose publicly, in a timely manner, his friendship and past business relationship with Paul Lohnes, a part owner of land in Everett on which Wynn Resorts hopes to develop a casino. The Wynn proposal could have competed directly with Suffolk Downs for the sole eastern Massachusetts resort casino license available under the state's 2011 gambling law.
Crosby, who served in the National Guard with Lohnes and had a business venture with him from 1983 to 1990, has said he disclosed the relationship to Gov. Deval Patrick and in two filings with the state Ethics Commission. He did not publicly disclose the relationship until last week, when he announced he would recuse himself from a hearing the commission has scheduled for Friday on the Everett land deal.
The lawsuit claims that commission staff was prepared to issue an "incorrect and unprecedented recommendation" that Caesars was not suitable to participate in gambling in Massachusetts.
A commission report, among other things, said it was concerned about Caesars' now-ended licensing agreement for a Las Vegas hotel with a subsidiary of New York-based Gansevoort Hotel Group. The report said a Gansevoort investor has been under scrutiny, though not charged, over alleged ties to Russian organized crime.
Caesars, according to the lawsuit, rebutted the findings but informed commission investigators it would be willing to restructure or even terminate its licensing deal with Gansevoort. Caesars, which said it had invested $100 million into the casino proposal, later agreed to a request from Suffolk Downs to withdraw from the project.
Negative publicity from the separation was seen as a possible factor in the rejection of the casino by East Boston voters on Nov. 5.
Suffolk Downs subsequently reached a partnership agreement with Mohegan Sun, which is pursuing a revised casino proposal that would be entirely in Revere, where voters had approved a casino.
In the lawsuit, Caesars said it was held to a different standard than other casino bidders, including MGM Resorts, which received a favorable suitability recommendation from commission staff this week despite concerns previously raised by New Jersey regulators about an investor in MGM's casino in Macau.