Jan. 31, 2008 --A major local bond trustee has sued the struggling Tropicana Casino & Resort for $960 million and blamed its chief executive officer for losing the casino's gaming license.

Wilmington Trust Corp. accused William J. Yung III, chief executive of Columbia-Sussex Corp., which had owned the resort, of "recklessly and intentionally" allowing the casino to lose its license Dec. 12 after laying off about 900 Tropicana employees.

The layoffs, the suit contends, led to a downward spiral of customer service at the Atlantic City casino and, subsequently, caused relicensing problems for Columbia-Sussex in other states where it owns casinos, including Indiana and Louisiana.

"Tropicana Entertainment's indiscriminate and reckless cost-cutting and layoffs quickly earned the once-preeminent hotel a reputation as an unclean, even unsanitary, place to visit and, predictably, drove potential customers away even as the Tropicana Atlantic City, along with other Atlantic City casinos, faced new competition from gambling options in nearby states and [from] a partial smoking ban," said the complaint, filed Monday in Delaware.

Wilmingon Trust, as the trustee for certain bondholders, said "the impact of Yung's disastrous misconduct" was evident in the casino's fourth quarter, ended Dec. 31, in which revenue was down 19.6 percent compared with the same quarter in 2006.

"We believe the lawsuit is totally without merit, and we intend to vigorously contest it," Hud Englehart, spokesman for Columbia-Sussex, said yesterday in a statement.

Paul M. O'Gara, who represented Columbia-Sussex in its hearing before the New Jersey Casino Control Commission, described the lawsuit as the first sign of "jockeying by debt holders."

"The subordinated debtors are trying to press for some advantage here, that they have certain rights if the property is disposed of," O'Gara said. "The company is pretty confident with its position."

In Atlantic City, the Tropicana has been on the block since the gaming commission stripped Columbia-Sussex of its operating license in December and appointed former New Jersey Supreme Court Justice Gary Stein as a trustee and conservator of the casino.

It was only the second time in the 29-year history of gambling in Atlantic City that the commission had moved to strip a casino of its license. The Atlantis Hotel & Casino was shut down in 1989 after the commission concluded it was financially unstable.

Besides having its license revoked, Columbia-Sussex was fined $750,000 -- the largest amount ever imposed by the commission -- for its failure to form an in-house audit committee as required by the New Jersey Casino Control Act.

Stein has been trying to find a suitable buyer for the troubled Boardwalk casino. Two weeks ago, the Tropicana began a $1 million marketing campaign in Philadelphia, New York and New Jersey to help restore its image.

Earlier this month, the five-member New Jersey gaming commission approved two members of Wall Street investment firm Bear Stearns Cos. Inc. to serve as financial advisers to Stein in evaluating bids for the casino. Three former gaming executives also were brought on board as consultants.

Two formal, written bids for the casino have been offered so far. The first came Jan. 9 from Colony Capital Acquisitions L.L.C., of Los Angeles, for $850 million. A second bid was submitted less than a week later, on Jan. 15, by New York developer Joseph Palladino, offering $950 million.

Contact staff writer Suzette Parmley at 215-854-2594 or [email protected].

Inquirer staff writer Sam Wood contributed to this article.

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