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Stone v. Township of Old Bridge

Decided: March 2, 1987.


On appeal from the Superior Court of New Jersey, Chancery Division, Middlesex County.

Furman, Dreier and Shebell. The opinion of the court was delivered by Dreier, J.A.D. Shebell, J.A.D., dissenting.


Plaintiff appeals from a dismissal by the Chancery Division of his suit for a declaratory judgment, restraints and specific performance. Plaintiff served as the Executive Director of a municipal water utility known as the Old Bridge Municipal Utilities Authority (Water Authority) now in dissolution, under a five-year contract dated September 9, 1982. In November 1985, with 22 months remaining on the contract, the Township of Old Bridge enacted Ordinance 40-85 dissolving the Water Authority and a companion Sewerage Authority in order to create a new entity with the same name as the former Water Authority, i.e., the Old Bridge Municipal Utilities Authority (Utilities Authority). The functions of both of the prior municipal authorities were continued under the aegis of the new Utilities Authority. A new executive director was appointed, one Edward McLane. We are not informed by the record whether or not he was the former head of the Sewerage Authority.

On November 11, 1985 plaintiff was notified that his employment was terminated, but that he would be retained temporarily pending a review of his employment contract by special counsel retained by the newly-formed Utilities Authority. In an opinion delivered to the Authority January 15, 1986 special counsel determined that plaintiff's position had been validly terminated notwithstanding his employment agreement. Plaintiff was thereupon terminated January 18, 1986, without severance

pay or other benefits. He was offered a position as a door-to-door bill collector at a salary substantially less than the $44,950 he earned at the time of his termination. In addition, he had accrued significant leave time and sick days.

The trial judge determined that the contract was validly terminated and granted defendant's motion to dismiss the complaint for failure to state a claim upon which relief could be granted. Specifically, he found:

Nothing in the legislation, nor in the ordinance dissolving the former Old Bridge Municipal Utilities Authority and creating a new one, indicates an intent to require a newly created authority to assume employment contracts entered into by a prior public authority which has been dissolved; moreover, such an intent should not be readily read into this legislation.

The court further rejected plaintiff's arguments that there was an effective novation, i.e., that by enacting the ordinance the Municipality expressly assumed all of the contractual obligations of the old Water Authority, and that the employment agreement would be specifically enforceable against the new entity. The trial judge also found no merit in plaintiff's Contract Clause objection to the abolition of the Water Authority and further denied plaintiff counsel fees for the prosecution of the action.

The Legislature in N.J.S.A. 40A:5A-20 requires that the Local Finance Board approve the dissolution of any municipal authority, which approval must be given if the ordinance

makes adequate provision in accordance with a security agreement or otherwise for the payment of all creditors or obligees of the authority*fn1 and that adequate

provision is made for the assumption of those services provided by the authority which are necessary for the health, safety and welfare of the recipients of those services.

Within the context of this statute, the words "all creditors or obligees of the authority" can only be fairly read as encompassing those with monetary claims. Plaintiff's reliance on this section is misplaced. Although his employment contract is not rendered unenforceable by its not being included within the Local Authorities Fiscal Control Law, N.J.S.A. 40A:5A-1 et seq.,*fn2 his claim is not such to make him a "creditor or obligee." If the law permits the termination of plaintiff's employment upon the dissolution of the Water Authority, or after assumption by the Utilities Authority, he would no longer be a creditor; if not, his claim would be viable.

Plaintiff's agreement with the Water Authority was specifically authorized by N.J.S.A. 40:14B-18 which at the time of the contract authorized a municipal authority to appoint and employ an executive director for periods not to exceed five years, and enter into contracts for such services, all "without regard to the provisions of Title 11 of the Revised Statutes."*fn3

The Legislature did not give Civil Service protection to these discretionary employees, but relegated them to their contractual rights.

Plaintiff's contract with the Water Authority provided that:

[T]he Authority agrees that during the term of the within contract, it will not eliminate the position of Executive Director nor will it create an equivalent position which would usurp the rights and authority of the Employee herein and/or substantially change the ...

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