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Allegations that the New Jersey Casino Reinvestment Development Authority has illegally given casinos tens of millions of dollars in tax credits in return for their contributions for public projects have been unearthed in a most unlikely venue: a suit by a lawyer against his former firm. Theodore Geiser first made the allegations in 1997 and 1998, when he was CRDA’s outside counsel. At that time, Geiser says, he told his partners at Roseland, N.J.’s Connell, Foley & Geiser that he believed the agency’s tax-credit policy had been violating the law for years. He says he also told CRDA and state officials of his views, although current and former officials deny it. Edward Deutsch, the managing partner with Morristown, N.J.’s McElroy, Deutsch & Mulvaney, made similar charges in the spring of 1998. He drafted a class-action complaint on behalf of the state’s elderly and disabled, for whom taxes on casino revenues are to benefit. Deutsch sent his complaint to Peter Verniero, then the New Jersey state attorney general, and subsequently met with Verniero and Jeffrey Miller, the head of litigation for the attorney general’s Division of Law. Later, at Verniero’s request, McElroy and an associate who worked on the draft met with other outside counsel for CRDA at Connell Foley to discuss the disputed tax-credit policy. Deutsch never got a plaintiff and never filed his suit, although he maintains that a suit remains possible. He says he believes CRDA had been functioning illegally at the expense of the elderly and disabled. He says CRDA also acted at the expense of taxpayers because funds from the general treasury have been used to make up the shortfall in the Casino Revenue Fund for CRDA projects. “It’s still a viable cause of action,” says Deutsch. “Up to now, nobody has ever given me a credible and valid explanation, or a coherent reason, as to how they could do what they were doing.” In August 1999, the New Jersey Supreme Court rejected a challenge brought by casino mogul Donald Trump and groups of elderly people over CRDA’s funding of projects not directly benefiting the elderly or disabled. Trump was fighting CRDA’s plan to spend $55 million to help pay for a tunnel in Atlantic City that would make it easier for gamblers to drive across town to casinos at the city’s marina district that compete with Trump’s casinos on the Boardwalk. But while the high court ruled, 5 to 2, that CRDA was not restricted to projects benefiting the elderly, it did not address the tax-credit policy attacked in 1998 by Geiser and Deutsch. LAW PARTNER AS WHISTLE-BLOWER Geiser, who left the firm in late December 1999, is now in litigation with his old partners. He alleges that he was pushed out in part in retaliation for blowing the whistle on a client, CRDA. His allegations against his old client are in his suit, Geiser v. Connell Foley, MON-L-2277-00, filed last May. His attorney, Linda Kenney of Red Bank, N.J., included Deutsch’s draft complaint as an exhibit to bolster Geiser’s whistle-blower claim. Geiser’s suit followed a second, unrelated dispute in late 1999 with his partners. He left abruptly at the end of that year, and the split with his firm of 40 years was bitter. The firm immediately dropped his name, becoming Connell Foley. In his suit against Connell Foley and its executive committee, Geiser charges that he was constructively discharged in violation of the New Jersey Law Against Discrimination and retaliated against, in violation of the Conscientious Employee Protection Act. CRDA Executive Director James Kennedy, Connell Foley lawyers who still represent CRDA, and other lawyers familiar with the casino laws under Title 5 scoff at the charges of illegality. They say the agency’s tax-credit policy has been used since shortly after CRDA was created by the Legislature in 1984 and is allowed under all the applicable amendments to the Casino Control Act. “We absolutely believe that CRDA has the right and duty to do what it has been doing since 1984,” says Connell Foley managing partner John Murray, CRDA’s general counsel. Yet, shortly after Geiser and Deutsch challenged CRDA’s tax-credit policies in the spring of 1998, the agency quietly dropped the disputed practice. Kennedy acknowledges that the policy was changed, but says it was a business decision, not in response to questions raised by Geiser or Deutsch. Says Kennedy, “We had discussions about it [in mid-1998], and we did change our policy. It was aggravating, and we took the path of least resistance. We were comfortable with it… . It went back to 1984, through three governors, four or five attorneys general, and three [CRDA] general counsels. Ted Geiser himself signed off on it.” He adds that CRDA is still offering incentives for casino donations to public projects, but not through the tax-credit policy. Connell Foley’s Murray adds, “Our partners met with Ed Deutsch when this was raised, and we discussed it. Deutsch did not file his suit, so perhaps we convinced him he was wrong.” Casinos must pay an 8 percent tax on their gross revenues under the original 1976 Casino Control Act. But under amendments adopted in 1984, which created CRDA, casinos also must make additional contributions of 2.5 percent. The 1984 statutes give casinos the option of buying CRDA bonds or directly investing in redevelopment projects approved by the agency, in Atlantic City and across the state. But Geiser and Deutsch focus on a third option under the law, N.J.S.A. 5:12-144.1(a)(2). That provision says casinos can deposit money into the Casino Revenue Fund as partial payment of their 2.5 percent obligation, known as the investment alternative tax. Tax credits are allowed under the first two options: buying CRDA bonds or investing in redevelopment projects. Deutsch says the credit is based on a 2:1 ratio; when a casino invests 1.25 percent of its gross in bonds or a redevelopment project, it receives a 2.5 percent tax credit to offset its 2.5 percent alternative tax obligation. However, if a casino elects option three and makes a donation to the Casino Revenue Fund for an eligible project, as opposed to directly redeveloping it, the tax credit is supposed to be dollar-for-dollar, according to Geiser and Deutsch, who cite N.J.S.A. 5:12-175, -176 and -177. But, they add, since at least 1988, CRDA has been giving the casinos a tax credit of up to $1.50 for every dollar donated. Wrote Deutsch in his draft complaint: “CRDA’s donation tax credit policy is without any legal authority, is wholly outside the scope of the power vested in CRDA by the Legislature, and is utterly incompatible with the fiduciary responsibility of the state to collect tax revenues from the casino industry to subsidize essential services for the needy elderly and disabled.” His draft, though, was written before the Supreme Court ruled in 1999 that CRDA projects are not limited to the elderly and disabled. Deutsch estimated that the loss to the Casino Revenue Fund is many millions. CRDA’s Kennedy agrees that that was the practice. “We negotiated many deals over the years,” says Kennedy, adding, “For every $1 million, they’d get $250,000, maybe up to $500,000″ in additional credit. Kennedy’s predecessor, Nicholas Amato, also confirms that the longstanding practice was that when casinos elect to donate cash or property to the fund, “They can get up to $1.50 for every $1.” Michael Cole, a former general counsel to CRDA who was first assistant attorney general when the CRDA legislation was adopted, says Deutsch and Geiser are wrong on the law. Cole, who in 1986 became chief counsel to New Jersey Gov. Thomas Kean, says the statutes give CRDA wide discretion on tax credits or any form of incentive. He says the agency is charged with approving moneymaking projects for casino investment and with finding public projects that may not return a profit to the casinos. These include urban hospitals, youth centers and supermarkets. “CRDA is allowed to offer incentives to the licensees to make those donations to such public projects, to make up for the fact that the law says casinos are entitled to get back both their principal and a reasonable return on their redevelopment investments,” says Cole, managing partner of Teaneck, N.J.’s DeCotiis, FitzPatrick, Gluck, Hayden & Cole. Under the changed policy, Kennedy says, a casino that invests in a project is entitled to the interest income that accrues over the life of the project. “Now, instead of getting that interest over time, we discount it and give it out to them in a lump sum,” Kennedy says. He also says the net result is the same, but it eliminates haggling over legal issues. “Why even have that conversation” when CRDA can avoid it by changing its tax-credit scheme, Kennedy says. But in his complaint, Deutsch says that any return of interest income to the casinos, particularly the one-third that casinos have traditionally received back from their investments through CRDA, is also illegal, having no statutory authority behind it. BATTLE WITHIN FIRM Geiser’s complaint and Connell Foley’s answer, filed in August by Michael Griffinger of Newark, N.J.’s Gibbons, Del Deo, Dolan, Griffinger & Vecchione, flesh out the eruption within the firm triggered by Geiser’s attack on CRDA. The papers from both sides show that Geiser’s actions caused a firestorm in May 1998, including calls to Geiser at his home while, he says, he was recuperating from a car accident. Within a few days there were memos back and forth, internal partner meetings, a hand-delivered letter, a hand-written response faxed in by Geiser, and a lunch between Geiser and three other partners near Geiser’s home. Geiser claims he was pressured to drop his position on CRDA, and was told to destroy all his documents on the subject — all of which is denied by the partners through Griffinger’s answer. Geiser says two partners accused him of actually writing the Deutsch draft sent to Verniero. Geiser says the firm was so worried it would lose CRDA’s $1.3 million in annual billings that partner Mark Fleder called Geiser’s fianc�e, Katherine Marra, and tried to coerce her into getting Geiser to drop his stance. Geiser’s exhibits in his employment case include a series of notes purportedly taken by Marra during her phone call with Fleder, in which she wrote about the partners’ belief in a link between Geiser and the Deutsch draft. The notes also touch on purported calls from the governor’s office about the CRDA controversy. Again, Griffinger says in his papers that none of Geiser’s claims has merit and that no one pressured Geiser or Marra. Griffinger says the partners deny accusing Geiser of authoring Deutsch’s draft complaint. For his part, Deutsch says the draft complaint is his. He says he became interested in the topic because he had been in unrelated litigation with another lawyer who had sued the CRDA and because of his friendship with Geiser. He says he did not file the complaint because he was subsequently conflicted out because the firm had a casino client. Like other partners older than 70, Geiser had withdrawn as an equity partner under the firm’s new partnership agreement. He was receiving $300,000 in compensation for 1998. After the unrelated dispute in late 1999 over the handling of a case, Geiser was offered an agreement for 2000, at $200,000. Geiser, now 75, claims that the lower compensation was also retaliation. He bolted from the firm at year’s end. The firm disputes that Geiser is an “employee” under the laws he cites. Griffinger says in court papers that Geiser’s effort to “transform his professional dispute with his former colleagues into a far-reaching discrimination and whistle-blower lawsuit [is] … wrong — even frivolous — as a matter of both law and fact.” Meanwhile, discovery is moving forward. Last Tuesday, Gibbons Del Deo associate Donald Beshada was in McElroy Deutsch’s office seeking the firm’s documents on Deutsch’s 1998 draft complaint. On Thursday, Griffinger deposed Geiser, and this week plaintiffs’ lawyer Kenney and her partner, Nancy Martin, are set to depose Connell Foley partners Kevin Coakley, Fleder and Richard Catenacci. And Kenney has made it clear that she intends to push the CRDA controversy in the litigation, telling Monmouth County Assignment Judge Lawrence Lawson in October that she may call as witnesses state officials, including CRDA staffers and Gov. Christine Todd Whitman’s former chief of staff, Judy Shaw.

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