On certification to the Superior Court, Appellate Division, whose opinion is reported at 386 N.J. Super. 359 (2006).
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
In this appeal, the Court must determine, among other things, whether a settlement agreement between Atlantic City, its Mayor, and the Mayor's campaign treasurer, was so tainted with conflicts of interest that it was void as a matter of state law.
In 1999, Lorenzo Langford attempted to unseat the incumbent mayor of Atlantic City, James Whelan. William Marsh was Langford's campaign treasurer. Langford lost the election and three days later the positions that both he and Marsh held on the Atlantic City Board of Education were eliminated. In June 1999, after consulting with Charles Ercole, Esq., who referred them to another attorney specializing in employee discrimination lawsuits, Langford and Marsh filed a federal civil rights action under 42 U.S.C.A. § 1983 in the United States District Court for the District of New Jersey, naming as defendants Atlantic City, Mayor Whelan, and various members of the city council. The complaint alleged that the defendants eliminated the positions in retaliation for their constitutionally protected political activities. Later that year, United States District Court Judge Joseph E. Irenas dismissed the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). The United States Court of Appeals for the third Circuit, however, reversed and reinstated the case, which then proceeded through a lengthy pretrial discovery period.
In 2001, with his federal case still pending and while a member of the city council, Langford ran for mayor and emerged victorious. Charles Ercole, Esq., served as Langford's co-finance chair. After the election, the City and the attorneys for Langford and Marsh entered into settlement discussions in an effort to resolve the federal lawsuit before Langford assumed office. On January 2, 2002, with his federal suit scheduled for trial in early February, Langford assumed the position of Atlantic City mayor and appointed Benjamin Fitzgerald as Atlantic City's business administrator. Approximately two weeks later, Langford named Fitzgerald to serve as acting mayor in circumstances when Langford could not attend to his official duties. On January 16, at Langford's request, the council adopted a resolution allowing Langford to retain Ercole to provide legal services to the City. Ercole proceeded to advise the City concerning the federal lawsuit. In addition, by letter dated January 16, Ernest Coursey informed the city clerk that he would be resigning his position as councilman, effective January 31, 2002, to become Mayor Langford's confidential aide.
On January 30, when the city council went into executive session to discuss a settlement of the federal lawsuit, Coursey remained at his post as councilman. At that meeting, Ercole provided legal advice to the City and Fitzgerald, the business administrator, acted in place of the mayor. Ercole approved of a previous offer to settle the case for $1,000,000. Fitzgerald recommended that the offer be reduced to $850,000 and Coursey concurred. The $850,000 settlement proposal received the backing of a majority of the council. The council solicitor and a councilman expressed concern about conflicts in the settlement. The settlement was accepted by Langford and Marsh and, having been informed of the settlement, Judge Irenas signed an order dismissing the federal suit.
Prompted by a letter from Councilman Mancuso, the Inspector General (later designated Director of the Office of Government Integrity (OGI)), advised Ercole and Langford that the Attorney General had asked his office to investigate the allegations in Mancuso's letter and requested that the City refrain from disbursing the settlement monies until OGI had time to review the alleged violations of law. The next day the City's business administrator, Fitzgerald, authorized the release of the settlement monies to Langford's and Marsh's attorneys. The attorneys were then warned that their clients were proceeding at their own peril should the monies be disbursed and the settlement later invalidated.
On March 18, 2002, the Inspector General filed a Complaint in Lieu of Prerogative Writs in the Law Division seeking to rescind the settlement agreement due to impermissible conflicts of interest. On June 30, 2005, the trial court rendered a comprehensive written decision. The trial court first determined that the settlement violated the Faulkner Act, N.J.S.A. 40:69A -- 1 to -210, due to multiple conflicts of interest. However, the trial court further held that it did not have the power to vacate the settlement because in doing so it would be invading federal jurisdiction. The court entered summary judgment in favor of Langford and Marsh and declined OGI's invitation to rescind the settlement with restitution or order imposition of a constructive trust. OGI appealed.
The Appellate Division agreed with the trial court that the settlement violated the Faulkner Act. Unlike the trial court, the panel concluded that it was not powerless to invalidate the conflict-ridden settlement and to fashion equitable remedies, including a constructive trust, to suit the unique circumstances of the case. The panel remanded the matter to the trial court for a determination on the "ultimate disposition of the settlement proceeds."
The Supreme Court granted the petition for certification of Langford and Marsh.
HELD: Atlantic City's settlement with its own mayor was so infected with conflicts of interest that it is void as a matter of state law. Because the City's unlawful agreement with Lorenzo Langford and William Marsh is a nullity, the monies disbursed to both must be returned to the municipal coffers. Any further relief sought by Langford and Marsh, such as reinstating the civil rights suit, must be pursued in federal court.
1. The settlement agreement between the City and Langford and Marsh was infected by intolerable conflicts of interest and therefore violated state law. Under the Faulkner Act, a mayor cannot prosecute a lawsuit for money damages against the municipality he leads and at the same time defend it against that litigation. Nor could he negotiate for the municipality the terms of a settlement agreement from which he would financially benefit. Public confidence requires that municipal officials avoid conflicting interests that convey the perception that a personal rather than the public interest might affect decision-making on matters of concern. In light of the conflict-of-interest doctrines embodied in the common law, statutory law, and municipal code, the Court concludes that the executive branch officials who negotiated and approved the settlement agreement with the mayor and Marsh were afflicted by disqualifying conflicts. Thus, the settlement agreement, which was tainted by blatant conflicts of interest at its inception, violated public policy and state law. (Pp. 15-23)
2. Generally, a settlement agreement is governed by principles of contract law. Rescission or enforcement of that agreement typically will depend on state law. Federal jurisdiction terminates when the initial federal action is dismissed following settlement. Enforcement of a federal settlement agreement requires an independent basis for jurisdiction. That can occur, for example, when a federal court has specifically retained jurisdiction by incorporating the terms of a settlement agreement in a dismissal order. When a federal district court has not retained jurisdiction after entering an order dismissing a lawsuit, a state court has the power not only to enforce a settlement agreement, but also to invalidate an agreement that is contrary to public policy. (Pp. 23-28)
3. The Court does not find an express intent in Judge Irena's Order of Dismissal to retain jurisdiction over the settlement agreement. By its terms, the order limits ancillary jurisdiction to the parties in the original suit seeking enforcement of the settlement. The Court does not find that the federal district court intended to retain jurisdiction over a non-party to the original suit seeking to void the settlement agreement on public policy grounds. The Superior Court had jurisdiction to decide the validity of the settlement agreement under state law. Because federal jurisdiction was not retained, the matter is properly before this Court. (Pp. 28-32)
4. The Court is not persuaded by Langford's and Marsh's argument that equity demands that they should keep their settlement monies. A basic equitable maxim is that "he who seeks equity must do equity." Langford and Marsh were warned that if they directed disbursement of the escrowed monies, they did so at their peril. The only appropriate remedy to vindicate the public trust is the immediate restoration of the funds to the City. The only remedy that remains for Langford and Marsh is to reopen their § 1983 case in federal court. (Pp. 32-36)
The judgment of the Appellate Division is AFFIRMED as MODIFIED. The settlement agreement is invalidated, and Langford and Marsh are directed to make restitution of the settlement proceeds to the City of Atlantic City. Langford and Marsh now must seek relief from the dismissal order, if any is available, in federal court. The matter is remanded to the trial court for proceedings consistent with this opinion.
CHIEF JUSTICE ZAZZALI and JUSTICES LONG, LaVECCHIA, WALLACE, RIVERA-SOTO, and HOENS join in JUSTICE ALBIN's opinion.
The opinion of the court was delivered by: Justice Albin
At the time Lorenzo Langford became mayor of Atlantic City in 2002, he and a political ally, William Marsh, had a pending federal civil rights lawsuit against the City. Shortly after he assumed his post as mayor, Langford's municipal appointees negotiated a settlement of the federal suit with Langford's and Marsh's private attorneys in the amount of $850,000. With the case settled, a federal judge entered an order of dismissal.
The State's Office of Governmental Integrity (OGI) then sought to have the settlement rescinded in the Law Division because of various violations of the State's conflict of interest laws. The trial court acknowledged that the settlement violated state law, but declined to void it as a matter of comity to our federal courts. The Appellate Division disagreed with that approach, determining that the conflicts vitiated the settlement. Applying principles of equity, the appellate panel then ordered that Langford and Marsh be allowed to seek relief first in federal court and, if that failed, to return to state court for a hearing to decide the reasonableness of the settlement.
The primary purpose of conflict of interest laws is to ensure that public officials provide disinterested service to their communities and refrain from self-dealing. A secondary purpose is to promote confidence in the integrity of governmental operations. The conflict-ridden actions of Mayor Langford's political appointees, entering into a financial settlement to benefit their boss at the expense of the City, can hardly be viewed as disinterested or inspiring confidence in government. We now hold the City's settlement with its own mayor was so infected with conflicts of interest that it is void as a matter of state law. Because the City's unlawful settlement agreement with Langford and Marsh is a nullity, the monies disbursed to both must be returned to the municipal coffers. Any further relief sought by Langford and Marsh, such as reinstating the civil rights suit, must be pursued in federal court.
This case has its genesis in the 1998 Atlantic City mayoral election when Langford attempted to unseat the incumbent, James Whelan. William Marsh was Langford's campaign treasurer. Three days after Langford lost the election, the positions that both he and Marsh held on the Atlantic City Board of Education were eliminated. Believing that they were victims of political retaliation, Langford and Marsh met with Charles Ercole, Esq., to discuss their case. Because Ercole's law firm did not represent employees in discrimination lawsuits, he referred Langford and Marsh to attorneys who specialized in that area of law. Langford eventually retained Sidney Gold, one of the attorneys recommended by Ercole. Marsh retained separate counsel.
In June 1999, Langford and Marsh filed a federal civil rights action under 42 U.S.C.A. § 1983 in the United States District Court for the District of New Jersey, naming as defendants Atlantic City, Mayor Whelan, and various members of the city council. The complaint alleged that the defendants eliminated Marsh's position as a neighborhood facilities coordinator and Langford's position as a neighborhood facilities liaison in retaliation for their constitutionally protected political activities.*fn1 Later that year, United States District Court Judge Joseph E. Irenas dismissed the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). The United States Court of Appeals for the Third Circuit, however, reversed and reinstated the case, which then proceeded through a lengthy pre-trial discovery period.
In 2001, with his federal case still pending and while a member of the city council, Langford ran for mayor again, and this time emerged victorious in the November election. During the campaign, Ercole served as Langford's co-finance chair, hosted fund-raising events for Langford, and, in his capacity as a lawyer, agreed to accept service of a complaint filed against Langford by his mayoral opponent.*fn2
After the election, the City and the attorneys for Langford and Marsh entered into settlement discussions in an effort to resolve the federal lawsuit before Langford assumed office on January 2, 2002. During an executive session of the city council on December 12, 2001, the city solicitor, Mary Siracusa, advised the council that Judge Irenas indicated that the case should settle for a nominal amount and if it did not settle during the transition period, he was not certain how he would proceed. Judge Irenas did not "feel comfortable" with a situation in which the city solicitor would recommend a settlement to the mayor about his own case. Judge Irenas also had suggested that he might place the case "on hold" for four years or appoint independent counsel to represent the City's interests. As a result of her discussions ...