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County of Essex v. First Union National Bank

December 22, 2004


On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-11162-96.

Before Judges Coburn, S. L. Reisner and Graves.

The opinion of the court was delivered by: Coburn, J.A.D.


Argued November 9, 2004

In the late 1980's the Essex County Treasurer accepted bribes from a vice-president of First Fidelity Bank, which was part of First Fidelity Securities Group. The bribes were paid in return for the Treasurer's assistance in having EsseX County's governing body name the bank as underwriter on three bond offerings totaling over $178 million. The first offering occurred in 1987 for $25 million and the other two occurred in 1989 for $49 million and $104 million. The County paid the bank over $2.9 million in underwriting fees, and the bank paid the Treasurer over $137,000 in bribes.

On October 4, 1996, Essex County sued in the Law Division, alleging breach of contract and fiduciary duty, and violation of the Uniform Securities Law, N.J.S.A. 49:3-47 to -76 ("USL") and the state RICO statute, N.J.S.A. 2C:41-1 to -6.2. Conceding that it had suffered no losses from the first two transactions, the County only sought damages at trial under those causes of action with respect to the last bond offering. But the County also alleged unjust enrichment. And under that theory it sought disgorgement of the bribes and the underwriting fees on all three transactions.

The County obtained a partial summary judgment against First Fidelity's successor in interest, defendant First Union National Bank, for the amount of the bribes, which with interest totaled $213,945.55. First Union appealed. We affirmed in an unreported opinion, County of Essex v. First Union Nat'l Bank, No. A-4842-98T2 (App. Div. July 13, 2000), and the Supreme Court denied certification. 165 N.J. 605 (2000). First Union paid that judgment.

During the ensuing trial on the remaining claims, the County proved that the bank took underwriting fees of $375,000 for the $25 million offering in 1987; $968,176 for the $49 million offering in 1989; and $1,539,842.23 for the $104 million offering later in 1989. There was no evidence that other companies participated in the first two transactions or that the bank received anything less than the full amount of those fees. But there was uncontradicted evidence that the bank shared the underwriting fees on the last offering, retaining only 52.34 percent for itself and transferring the rest to other underwriters who were not involved in the bribery.

Over the County's objection, the judge limited the County's unjust enrichment claim to the third bond offering on the theory that the County, rather than the bank, had the burden of proving the actual fees retained by the bank, and had done so only with respect to the last offering.

The jury awarded the County $600,000 for unjust enrichment. On the USL claim the jury found that there were misrepresentations; but it did not reach the issue of damages because it also found that the County knew the truth as to the matters which were the subject of the misrepresentations. On the breach of contract claim, the jury found a breach by the bank but also found that the County suffered no loss. On the breach of fiduciary duty claim, the jury found there was neither a breach nor a loss. On the RICO claim, the jury found that all elements had been proven except for loss. After adding interest on the $600,000 verdict from June 30, 1989, the judge entered judgment in favor of the County on the unjust enrichment claim in the amount of $1,130,663.04, and later denied the County's request for a new trial and other relief. On appeal, the County's main argument is that the judge erred in denying it the opportunity to obtain disgorgement of all the underwriting fees, totaling $2.9 million. The County asks us to direct entry of judgment, or at least remand for trial with that amount as the upper limit for the unjust enrichment recovery. Alternatively, the County argues that the judge erred in placing on it the burden of proving the amount of the fees, if any, transferred by the bank to other underwriters, and consequently asks for a new disgorgement trial on the first two bond offerings, during which it could seek, respectively, the fees of $375,000 and $968,176.

The County makes these additional arguments. The judge erred by: (1) denying it a directed verdict on the breach of fiduciary duty claim; (2) charging the jury that the County could not recover on the USL claim if it knew of the bribe agreement; (3) failing to include in the RICO charge a statement that if the jury found no damages had been proved at trial it, nonetheless, could return a verdict for the County based on the summary judgment for the bribe payments; and (4) failing to mold the verdict against the former County Treasurer by trebling the summary judgment damages against him and adding an award of counsel fees. We have carefully considered these additional arguments based on the record and the briefs, and we are satisfied that they are without sufficient merit to warrant full discussion in a written opinion. R. 2:11-3(e)(1)(E). But a few comments are in order.

Without objection, the judge advised the jury that the damages sought on the third bonding under each cause of action, other than unjust enrichment, were the same; namely, any losses the County suffered as a result of that transaction. Underpinning that claim was the premise that, properly advised, the County would not have committed to the bond offering at all. The County's expert testified that the bond offering created a loss of almost $8 million, and the bank's expert put the maximum loss at about $1.8 million. Since the jury found there was no loss, it was obviously satisfied that the County would have gone through with the transaction no matter what. And the record clearly shows why: the County did not want to raise taxes and the bond offering was the only way to avoid that result. Since there were no damages, the first three alleged, additional points of error are of no moment. The last additional point of error was offered without any citation of supporting authority, and therefore is undeserving of further comment. See R. 2:6-2 and McGarry v. St. Anthony of Padua Roman Catholic Church, 307 N.J. Super. 525, 531 (App. Div. 1998).

The bank argues that (1) the County was not entitled to pursue a cause of action for unjust enrichment because it had also sued for breach of contract; (2) it abandoned its unjust enrichment claims on the first two transactions; and (3) the judge properly limited the claim on the third transaction to the fees actually received. On its cross-appeal, the bank argues that the judge erred in awarding interest from the time of the bond transaction instead of from the filing date of the complaint.

In light of the nature of the issues to be addressed, a more detailed statement of facts is unnecessary. But we note that the treasurer and the vice-president were both convicted in federal court of various crimes arising from the bribery scheme. The ...

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