Greate Bay Hotel & Casino, Inc. v. City of Atlantic City

• Decision Date: 05 April 1993
• Citation: 624 A.2d 102,264 N.J.Super. 213
• Court: New Jersey Superior Court
• Parties: GREATE BAY HOTEL & CASINO, INC. t/a Sands Hotel & Casino, Plaintiff, v. The CITY OF ATLANTIC CITY and Intervenors Square Brighton Corp., Inc., Boardwalk Regency Corporation (Caesar's) and Cynwyd Investments, Defendants.

Page 213

264 N.J.Super. 213

624 A.2d 102

GREATE BAY HOTEL & CASINO, INC. t/a Sands Hotel & Casino, Plaintiff, v. The CITY OF ATLANTIC CITY and Intervenors Square Brighton Corp., Inc., Boardwalk Regency Corporation (Caesar's) and Cynwyd Investments, Defendants.

Superior Court of New Jersey, Law Division Atlantic County.

Decided April 5, 1993.

Stephen R. Nehmad, Atlantic City, for plaintiff (Perskie & Nehmad, attorneys).

Edward N. Fitzpatrick, Newark, for defendant Square Brighton Corp., Inc. (Clapp & Eisenberg, attorneys, Agnes Rymer, on the brief).

Paul J. Gallagher, Atlantic City, for defendant City of Atlantic City.

Lloyd Levenson, Atlantic City, for defendant Boardwalk Regency Corp. (Caesar's) (Cooper Perskie April Niedelman Wagenheim & Levenson, attorneys).

John Rosenberger, Linwood, for defendant Cynwyd Inv. (Perillo & Rosenberger, attorneys).

OPINION

WILLIAMS, A.J.S.C.

This matter comes before the court on motions of Greate Bay Hotel & Casino, Inc. t/a Sands Hotel & Casino and Boardwalk Regency Corporation. Pursuant to R.P.C. 1.7, movants seek disqualification of the law firm of Clapp & Eisenberg, P.C. as counsel for Square Brighton Corporation, Inc. in this action.

This case was initiated by plaintiff Sands seeking, among other things, an order requiring the City of Atlantic City to take the necessary action to acquire the southerly 15 feet of Pop Lloyd Boulevard and keep it in the public domain for vehicular and pedestrian access. Based upon its leasehold interest in the property in question, an order was entered by this court permitting intervention by Square Brighton. At the time of the motion for intervention, Square Brighton was represented by the law firm of Gruccio, Pepper, Giovinazzi, DeSanto and Farnoly. Thereafter, Clapp & Eisenberg, P.C. was substituted as attorneys for Square Brighton.

Prior to the institution of this suit, and continuing to the present time, the firm of Clapp & Eisenberg has been retained as counsel by the trustees of five separate trusts which have been established cooperatively by various casinos in the City of Atlantic City. The trusts were established for the purposes of operation of a computerized link of progressive slot machines and management of the twenty year payout of the progressive jackpots related thereto. They are known as The Atlantic City Megabucks Trust, The Atlantic City Quartermania Trust, The Atlantic City Fabulous Fifties Trust, The Atlantic City Star Pokermania Trust, and The Atlantic City High Rollers Trust. Membership in the trusts varies from seven to eleven casinos respectively, with Boardwalk Regency involved in each trust and Sands involved in three. In addition to being settlors of said trusts, the casinos also serve as co-trustees. Each casino is represented in its capacity as trustee by a designated person appointed by that casino. The business of the trusts is carried on by the trustees through votes of the trustees' representatives at quarterly meetings, through the services of professionals retained by the trustees, through contracted services from IGT, Inc. and through employees of Showboat Hotel and Casino whose wages and related expenses are paid by the trusts.

Sands and Boardwalk Regency seek disqualification of Clapp & Eisenberg in this suit based upon R.P.C. 1.7 which provides:

(a) a lawyer shall not represent a client if the representation of that client will be directly adverse to another client unless: (1) the lawyer reasonably believes that representation will not adversely affect the relationship with the other client; and (2) each client consents after a full disclosure of the circumstances and consultation with the client, except that a public entity cannot consent to any such representation.

Movants assert that Clapp & Eisenberg represents them in their capacity as members and co-trustees of the various trusts and that by representing Square Brighton herein that firm is engaging in representation of a client directly adverse to their interests. They further assert that there has been no consultation with them by Clapp & Eisenberg concerning the representation of Square Brighton and no consent given by them to such representation. ¹

Clapp & Eisenberg acknowledges that it has not obtained consent from Sands and Boardwalk Regency to represent Square Brighton herein. It asserts, however, that there is no adverse client relationship involved because its representation with respect to the trusts is covered by R.P.C. 1.13 which provides:

(a) A lawyer employed or retained to represent an organization represents the organization as distinct from its directors, officers, employees, members, shareholders or other constituents.

Clapp & Eisenberg asserts that each trust is an independent entity, separate and distinct from its members and that it represents each trust as an entity and not its members. On this basis it claims that no representation adverse to any client exists in this case.

The New Jersey Rules of Professional Conduct are based upon The American Bar Association Model Rules of Professional Conduct. See Report of the New Jersey Supreme Court Committee on the Model Rules of Professional Conduct (112 N.J.L.J. supplement). The commentary to R. 1.13 of the ABA Model Rules indicates that an organizational client, as that term is used in the rule, must have a status as a legal entity. It provides:

An organizational client is a legal entity, but it cannot act except through its officers, directors, employees, shareholders and other constituents.

The entity need not be a corporation, however. The commentary makes it clear that the rule is equally applicable to unincorporated associations. In that regard it expressly provides:

The duties defined in this Comment apply equally to unincorporated associations. "Other constituents" as used in this Comment means the positions equivalent to officers, directors, employees and shareholders held by persons acting for organizational clients that are not corporations.

At common law, unincorporated associations were not regarded as legal entities. Such associations had no status distinct from the persons composing them. 6 Am.Jur.2d, Associations and Clubs § 1. However, that view has been modified over time by case law and legislative action. Today, unincorporated associations have been accorded legal status for a number of purposes, perhaps the most significant of which is the power to sue and be sued. Our Legislature has explicitly dealt with the legal status of unincorporated organizations with respect to such powers. N.J.S.A. 2A:64-1 provides Any unincorporated organization or association, consisting of 7 or more persons and having a recognized name, may sue or be sued in any court of this state by such name in any civil action affecting its common property, rights and liabilities, with the same force and effect as regards such common property, rights and liabilities as if the action were prosecuted by or against all the members thereof. Such an action shall not abate by reason of the death, resignation, removal or legal incapacity of any officer of the organization or association or by reason of any change in its membership.

While the court has found no New Jersey case explicitly dealing with trusts such as those involved herein, a legal status for suit purposes has been recognized in New Jersey for the following types of unincorporated organizations: labor unions, Donnelly v. United Fruit Co., 40 N.J. 61, 190 A.2d 825 (1963), International Allied Printing Trades Ass'n. v. Master Printers Union of New Jersey, 34 F.Supp. 178 (D.N.J.1940); joint stock associations, Saunders v. Adams Exp. Co., 71 N.J.L. 270, 57 A. 899, aff'd, 71 N.J.L. 520, 58 A. 1101 (1904), Edgeworth v. Wood, 58 N.J.L. 463, 33 A. 940 (1896); tenants associations, Crescent Park Tenants Ass'n. v. Realty Equities Corp. of New York, 58 N.J. 98, 275 A.2d 433 (1971); hospital medical staffs, Corleto v. Shore Memorial Hospital, 138 N.J.Super. 302, 350 A.2d 534 (Law Div.1975); associations of travel agents, Travel Agents Malpractice Action Corps. v. Regal Cultural Soc., Inc., 118 N.J.Super. 184, 287 A.2d 4 (App.Div.1972); and masonic lodge associations, Buteas v. Raritan Lodge No. 61, 248 N.J.Super. 351, 591 A.2d 623 (App.Div.1991). The statute permitting such suits is remedial legislation and is to be given as liberal an interpretation as possible consistent with its language. Donnelly v. United Fruit Co., supra, 40 N.J. at 72, 190 A.2d 825; Corleto v. Shore Memorial Hospital, supra, 138 N.J.Super. at 312, 350 A.2d 534.

Counsel for the Sands asserts that the trusts involved here are business trusts organized for the purpose of conducting the business of administering the operation of the Atlantic City Quartermania Progressive slot machine system. A business trust has been defined as an unincorporated business organization created by an instrument by which property is to be held and managed by trustees for the benefit and profit of persons holding transferable certificates evidencing beneficial interests in the trust estate. 13 Am.Jur.2d Business Trusts § 1, Hecht v. Malley, 265 U.S. 144, 44 S.Ct. 462, 68 L.Ed. 949 (1924). The concept, also known as a Massachusetts Trust, originated as an alternative to the corporate form of organization for the purpose of conducting a business. Goldwater v. Oltman, 210 Cal. 408, 292 P. 624 (1930). A business trust is not a trust in the ordinary sense of holding and conserving property but rather is a device for the conduct of a business. Morrissey v. Commissioner of Internal Revenue, 296 U.S. 344, 56 S.Ct. 289, 80 L.Ed. 263 (1935). For this reason, business trusts are excluded from the scope of the Restatement of the Law of Trusts. Restatement (Second) of Trusts § 1 (1959). The commentary to section one provides:

A statement of the rules of law relating to the employment of a trust as a device for carrying on business is not within the scope of the Restatement of this...