It sounds like you want a conditional grouping, but here's the rub...if you have a grouping, everything gets grouped...somehow.
If you have a 'N' in the field, then it will group all of them together. Groupings cannot be turned off, they can be modified, but not eliminated. So it depends on where you want the records to display on the report that you don't want grouped into group 1.
I don't know if you can do this in CR9, but I would give it a try. Write a formula of how you want the records grouped, say:
if {table.group1field}="N" then
""
else
{table.group1field}
and then change group 1 to use the formula.
HTH