On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County.
Dreier and Baime. The opinion of the court was delivered by Dreier, J.A.D.
Defendant appeals from a decision of Judge Huot in the Chancery Division directing defendant Teaneck Board of Education (Board) to comply with a settlement agreement and pay plaintiff the full agreed amount of $38,350, without deduction for withholding taxes or social security payments. The court also ordered that defendant pay interest on this sum from December 31, 1985 until the date of payment.
The background of the parties' initial dispute is of little moment. It is sufficient to note that the Board served tenure charges on plaintiff in August 1985 alleging excessive absences. Plaintiff had contended that the absences were caused by a series of illnesses, accidents and operations during the course
of six school years. The Board, however, asserted that the absences demonstrated chronic absenteeism, incapacity to perform plaintiff's duties, and conduct unbecoming a teacher, all of which tended to disrupt the "educational process." The Board notified plaintiff that it would consider the charges at a public meeting after which it would determine whether to submit the matter to the Commissioner of Education for a hearing. Plaintiff's counsel then notified the Board that he would pursue counter-actions and counterclaims for
the torts of handicap discrimination, interference with prospective economic advantage, intentional infliction of emotional distress, malicious prosecution and/or abuse of process, and defamation of character and professional reputation.
Before any further action was taken, the parties entered into settlement discussions which culminated in a settlement agreement dated October 23, 1985, the purpose of which was stated to be "an amicable resolution of all anticipated litigation." The key portions of the agreement called for plaintiff's resignation as of December 31, 1985 with the continued employment of plaintiff until that date at his regular compensation. On December 31, 1985 plaintiff would receive the lump sum of $38,350 "as settlement in lieu of litigation," which sum would "not constitute salary or wages for pension credit or for any other purpose" and would be paid to plaintiff "in return for his relinquishment of all tenure and seniority rights . . . and [plaintiff's] right to litigate same." The agreement further provided for mutual releases.
Plaintiff was paid his salary through December 31, 1985, but was then tendered a check for $20,489.97, representing the agreed lump sum of $38,350 with deductions for federal and state income tax and social security. Plaintiff refused to accept the check and returned it. Defendant then tendered a second check for $34,836.87, representing the agreed-upon lump sum minus deductions for social security only. This check also was returned, plaintiff claiming that the social security deduction was also improper. Defendant unilaterally reported to the
Internal Revenue Service that plaintiff had been paid the full sum of $38,350 and that this sum constituted wages for income tax purposes.
Plaintiff filed this action in the Chancery Division seeking an order to direct defendant to comply with the settlement agreement and pay the full amount of the lump sum without deductions. By way of answer, defendant claimed that federal law required the deductions and that the court lacked subject matter jurisdiction. Additionally, at oral argument in the Chancery Division defendant raised the further bar of 26 U.S.C.A. § 3403, claiming that it provided immunity from suit for employers who deduct and pay taxes. Judge Huot found for plaintiff, awarding him both the full amount of the agreed settlement plus interest from the date payment was to have been made.
Defendant raises five points on this appeal: first, defendant properly withheld the taxes; second, the trial court lacked jurisdiction to render a tax decision, and if it had jurisdiction, it abused its discretion in issuing the order; third, § 3403 of the Internal Revenue Code prohibits this suit; fourth, the court abused its ...