July 5, 2007
JAMES MAZZER, PETITIONER-APPELLANT,
DEPARTMENT OF COMMUNITY AFFAIRS, OFFICE OF REGULATORY AFFAIRS, RESPONDENT-RESPONDENT.
On appeal from a Final Agency Decision of the Commissioner of the Department of Community Affairs.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 31, 2007
Before Judges Stern, Sabatino and Lyons.
Petitioner James Mazzer appeals a January 29, 2007 final decision of the Commissioner of the Department of Community Affairs ("DCA") revoking his respective licenses as a building sub-code official, building inspector, plumbing sub-code official, and plumbing inspector based upon various alleged regulatory violations. The Commissioner's decision centered upon her determination that petitioner had violated a conflict-of-interest regulation, N.J.A.C. 5:23-4.5(j)2, principally because of his then-wife's ownership of stock in a construction business doing work in the municipality where petitioner was employed as a building inspector. The Commissioner modified the ruling of an administrative law judge (ALJ), who had determined, after a hearing, that petitioner's conduct only warranted a sixty-day suspension of his licenses.
Because the administrative record is incomplete concerning petitioner's alleged violation of subsection (j)2, and because there are significant factual issues under that subsection that were not expressly the subject of testimony at the hearing or of specific findings by the ALJ, we vacate, without prejudice, the sanction imposed by the Commissioner and remand this matter for further proceedings.
The City of Garfield ("the City" or "Garfield") appointed Mazzer as its building inspector,*fn1 effective June 3, 2002. This appeal concerns whether Mazzer was ineligible to serve in that municipal post because of supposed conflicts-of-interest involving him and his family members, as well as other alleged improprieties. The following chronology is relevant to our consideration of the issues.
Petitioner has worked for most of his adult life as a plumber. In 1973 petitioner started working full time for his father, who was also a plumber, after obtaining a bachelor's degree in political science. Petitioner earned his plumbing license and a master plumber's license in or about 1977 after a five-year apprenticeship. He eventually was also licensed in construction, plumbing RCS (residential), ICS (industrial), and HHS (high-rise, high hazard).
Initially, the family business focused solely on plumbing but it expanded to heating and the general construction of bathrooms, kitchens, and residential additions. In 1980, petitioner and his father incorporated their business as Mazzer, Inc. Petitioner's father was the company president and held all of the shares.
Petitioner gradually took over the management of Mazzer, Inc., starting in 1977. His father fully retired in or about 1982. Petitioner then became the 100 percent stockholder in the company. Petitioner served as a corporate officer and ran all aspects of the business until 2002.
Mazzer, Inc. started performing work for the Garfield Housing Authority ("the Housing Authority") in the 1970's. That relationship continued for many years. At times in the 1990's, Mazzer, Inc. had full-year maintenance contracts with the Housing Authority, working in all nineteen of its buildings. The contracts were obtained through competitive bidding. To service those contracts, the company regularly stationed two employees at the Authority's office five full days per week.
Petitioner learned in mid-2001 that Dominic Nasuta was going to retire as Garfield's building inspector. Petitioner recalled being asked, possibly by a member of the City Council, if he would be interested in the building inspector position. Petitioner consequently submitted a formal application to the City in September or October 2001. To be eligible for the position, petitioner needed to obtain an HHS building inspector license. Petitioner was already in the process of obtaining one, as he already had passed the HHS examination and was awaiting certification from the State. Petitioner expected to earn $49,000 to $50,000 in the inspector title, which was commensurate with what he was earning at Mazzer, Inc. Petitioner was offered the City's building inspector position in December 2001. He accepted the offer. Initially, petitioner was told that he could expect to start at the beginning of January 2002. Since petitioner did not yet possess an HHS license, the City planned to find another inspector to cover for him temporarily on any high-rise buildings until he was certified.
When petitioner was offered the position with Garfield, he realized that he could not simultaneously own a business operating in the City and serve as the City's inspector. Consequently, petitioner decided to transfer the business to his two sons, James, Jr., and Jason, and to his wife, so that the company would not lose its substantial ongoing business with the Housing Authority. Petitioner retained an attorney, Burt Binder, Esq., and a certified public accountant (CPA), Gregory Fuchs, to prepare appropriate documents that would disassociate him from the company.
Based upon the professional advice of Binder and Fuchs, petitioner executed documents that assigned to each of his sons a thirty percent (30%) stock interest in the company and a forty percent (40%) interest to his wife. Petitioner explained that he assigned a larger share to his wife because he hoped she would mediate if their sons were to have disagreements.
Petitioner's son James was named company president, his son Jason was named vice-president and his wife*fn2 was named secretary.
Petitioner executed his resignation as president of Mazzer, Inc., effective January 2, 2002, having been told by City officials that he could plan on starting as building inspector on January 6, 2002. However, the incumbent inspector, Nasuta, did not retire on schedule. This caused petitioner's appointment to be placed on hold. In the meantime, while waiting for the inspector's position to open up, petitioner continued to perform work for Mazzer, Inc., the company that had provided his only source of income for the preceding twenty-nine years. Petitioner testified that during that waiting period:
Well, I resigned only on paper. I was still doing everything. I was still working, I was doing everything that was -- I was running the company.
Finally, in May 2002, Garfield officials informed petitioner that he could start his new job the first week of June. As noted, petitioner began serving as the City's building inspector on June 3, 2002. He served in that role until he was suspended on June 10, 2005 in connection with the allegations at issue in this case. During those three years of service, petitioner evidently performed his duties capably, as the record contains no findings of subpar performance.
In February 2003, the City Manager of Garfield transmitted a written complaint about petitioner to the DCA, alleging various conflicts of interest and improper enforcement actions. The letter was referred to a DCA investigator, Joseph Bond. After reviewing the allegations, Investigator Bond concluded that the enforcement-related complaints could not be substantiated. However, Bond did find that the conflict-of-interest allegations had merit, particularly as to petitioner's apparent continued involvement with Mazzer, Inc., after his supposed resignation from the company in January 2002. Investigator Bond also perceived impropriety in the failure of Mazzer, Inc. to obtain permits for work it performed for the Housing Authority. Consequently, Bond concluded that petitioner had improperly continued his involvement in Mazzer, Inc. after assuming the post of municipal building inspector, in violation of N.J.A.C. 5:23-4.5(j)1 and 2. Bond also concluded that petitioner had misrepresented his status to the DCA. He recommended that petitioner be disciplined.
After Bond's recommended findings were reviewed by his supervisor at DCA, Gerald Grayce, and were also considered by a "peer review" group of five other plumbing sub-code officials, the DCA decided to pursue the revocation of petitioner's inspector's license, pursuant to N.J.A.C. 5:23-5.25(a). A letter of proposed revocation was transmitted to petitioner on April 28, 2005. Petitioner contested the proposed action, which resulted in the matter being referred to the Office of Administrative Law (OAL) for a hearing.
The OAL hearing examined what may be classified as four main allegations:
1. The alleged violation of N.J.A.C. 5:23-2.14 for failing to require permits for sub-code work performed on Housing Authority projects;
2. The alleged violation of N.J.A.C. 5:23-2.31 for failing to issue penalty notices on Housing Authority matters after petitioner learned that such work required permits;
3. The alleged violation of N.J.A.C. 5:23-4.5(j)1 because of petitioner's supposed failure to arrange to have an inspector from another municipality inspect Mazzer, Inc.'s work in the City of Garfield; and
4. The alleged violation of N.J.A.C. 5:23-4.5(j)2 because of petitioner's direct or indirect economic connection with Mazzer, Inc., as a business providing services within the City of Garfield or within adjacent municipalities. We now detail these allegations, and the associated proofs adduced before the administrative law judge (ALJ) at petitioner's hearing.*fn3
A. The Uncertain Need for Building Permits for Housing Authority Projects
Bond's investigation revealed that work performed by Mazzer, Inc. in 2002 and 2003 for the Housing Authority had been done without building permits. Bond also determined from the City's tax assessor that the property and buildings within the control of the Housing Authority were owned by the City of Garfield. Bond reasoned that because the properties were owned by the City, rather than by the United States, any construction or sub-code work on those properties required local permits. See N.J.A.C. 5:23-3.11 and -3.11A.*fn4 Bond further learned that on at least two occasions, not involving petitioner, permits had, in fact, been obtained by others for work performed on Authority projects.
Apart from Bond's testimony on this issue, the DCA also relied upon Bulletin No. 93-2, which it issued in October 1997.
That Bulletin points out that "[t]here has been some confusion about the appropriate authority to issue permits and conduct inspections of leased structures involving federal/state/municipal governmental entities and private parties." A chart in the Bulletin shows that if the owner of the structure is a municipality, the municipality should inspect it, and if the owner is the Federal Government, then federal authorities should perform any necessary inspections. Petitioner contended that he was not familiar with Bulletin No. 93-2, and, moreover, that he was under the misimpression that the Housing Authority's projects were federally owned and thus exempt from municipal inspection.
After gathering this information, Investigator Bond approached petitioner in June 2003, and advised him that local permits were needed on Housing Authority work. According to petitioner, that was the first time he had ever heard that the Authority's projects were subject to such municipal inspections.
Petitioner contended that no one from the Authority, nor anyone else affiliated with other contractors on those projects, ever mentioned the need for local building permits. Instead, petitioner claims that he had been told on various occasions by Authority executives that such permits were not necessary. According to petitioner, his predecessor Nasuta specifically had stated to him that local permits were unnecessary to perform work for the Authority. Nasuta allegedly told petitioner that such work was a regulatory "gray area," because Nasuta thought that the City owned the Authority's properties and the Federal Department of Housing and Urban Development ("HUD") owned the buildings.
Petitioner presented testimony on this issue from Anthony DeMarco. DeMarco had worked for twenty years at the Housing Authority, and served as the Authority's Executive Director for four years prior to his retirement in 2000. As Executive Director, DeMarco oversaw all of the construction in the Authority's nineteen buildings. DeMarco testified that during his tenure, he had been under the impression that the Authority's buildings, which were sponsored and subsidized through programs administered by HUD, were owned by the Federal Government. DeMarco noted that the Authority's projects were routinely examined by the United States Army Corps of Engineers. He recalled that HUD's inspectors usually came annually with a team of up to eight people, and that they would review paperwork, bidding procedures, and building specifications as well as interview project tenants.
According to DeMarco, the HUD officials never raised any concerns with him about a lack of municipal permits. He noted that if any work needed to be performed that would cost more than $17,500, a HUD inspector typically would come and inspect the work. If the project cost was under $17,500, then the work would be examined by DeMarco, who did not hold an inspector's license, and an architect.
DeMarco also testified that during his tenure as the Authority's Executive Director, there were two other City building inspectors who preceded petitioner, and neither of them had informed him that local permits were needed for the Authority's projects. He noted that the Authority's projects during that time included the reconstruction of the entire façade of a ten-story building, which was completed without municipal permits. DeMarco also noted that he was unaware of other contractors on Authority projects ever obtaining permits on the work that they were doing. When confronted with the DCA's proofs of two local building permits that had been issued for Authority projects in 1999, DeMarco testified that he did not recall those situations.
After Investigator Bond raised the necessity of local permits on Authority projects with him, petitioner attempted to gather additional information. He contacted his predecessor Nasuta,*fn5 who allegedly reiterated to petitioner that he likewise had believed that the Authority's buildings were under HUD supervision and thus exempt from municipal permit requirements. According to petitioner, Nasuta stated that he had only issued very few, possibly only one, permit on an Authority project during his ten-year tenure. Petitioner also contends that he spoke with Edward Dabel, chairman of the Housing Authority's Board of Commissioners. After petitioner informed Dabel of Bond's position that permits were required, Dabel asked petitioner to request a letter from the DCA explaining its policy so that all of the Authority's contractors would know about it. Petitioner then requested that Bond furnish such a letter, but he did not provide one.
Petitioner also telephoned the DCA to obtain further clarification. On March 1, 2005, petitioner received a fax response from the DCA's Bureau of Housing Inspection which states in a handwritten note on its cover page: "My mistake[,] we do not inspect H[UD] properties."
Petitioner also consulted the Garfield tax assessor's office, which allegedly informed him that the City owned the land under the Authority's projects and that the federal government owned the actual buildings. He also claims to have been told that the Authority does not pay property taxes to the City and that HUD "runs the whole show."
The proofs on this issue also included testimony from Renee LaForge, the sole clerk/typist employed in the City's Building Department. Although she did not research any files before testifying, LaForge remembered at least two building permits being requested for work at the Housing Authority between 1999 and 2002. She recalled another "one or two" of such permit requests were submitted while petitioner was serving as the City's building inspector. According to LaForge, since the time of petitioner's suspension, there have been no further permit requests on Authority projects.
After considering these various proofs, the ALJ made several pertinent findings. First, the judge found that the Housing Authority's buildings were indeed owned by the City.*fn6
However, the ALJ was also persuaded that the "general understanding" among Housing Authority and construction officials in Garfield was that building permits on Authority buildings were not required because of the Federal Government's involvement in those projects through HUD. The ALJ specifically credited petitioner's testimony that he had attempted to verify this widespread assumption with both his predecessor and with the Authority's director, and that both individuals had been unaware of any need for local inspections on these sites. The ALJ also noted that the pertinent regulation, N.J.A.C. 5:23-2.14, places the onus to obtain a required permit upon a contractor, and not upon the local building inspector.
Given these various considerations, the ALJ concluded that petitioner "had a good faith belief that [local] permits were not required" for Housing Authority construction and renovations. Hence, the ALJ concluded that petitioner's mistaken understanding on the issue "cannot be used as a basis for revocation of his license."
B. Petitioner's Activities Respecting Mazzer, Inc. and His Transfer of Ownership to Family Members
The conflict-of-interest charges*fn7 against petitioner stem from his alleged continuing involvement in, and his nexus to, Mazzer, Inc. after he memorialized his resignation from the company on January 2, 2002. These matters include petitioner's transfer of stock in Mazzer, Inc. to his wife and to his sons; his April 18, 2002 representation to DCA licensing authorities that he continued to serve as the company's president and sole owner; his April 30, 2002 signature on a contract between Mazzer, Inc. and the Housing Authority; and the inclusion of petitioner's pre-signed signature on a blank plumbing sub-code form, which another contractor submitted to Elmwood Park in February 2003. We examine these allegations in turn.
At the outset, we note that the DCA did not allege that petitioner was gainfully employed by Mazzer, Inc. after he had assumed the duties of Garfield building inspector on June 3, 2002.*fn8 Nor is there any indication that petitioner was paid any salary, dividends or other funds by Mazzer, Inc. after his municipal appointment. Further, the agency did not contend that petitioner caused any building permits to be issued improperly to Mazzer, Inc.
The unrefuted proof on that latter point is petitioner's testimony that he did not get involved in any inspections of Mazzer, Inc.'s work after he assumed municipal office. He testified that in the estimated "six, seven, ten, maybe" occasions when Mazzer, Inc. needed permits in Garfield, a construction official from another municipality (Saddle Brook or Lodi) would perform the inspections and carry out the other obligations of the Building Department.
With respect to the transfer of his ownership interest in Mazzer, Inc., petitioner testified, as we previously noted, that he had recognized the need to divest his interests in the company before serving as the City's building inspector. To accomplish the divestiture, petitioner made use of the professional services of his accountant, CPA Fuchs, and his former attorney, Binder.
Fuchs testified in petitioner's defense at the OAL hearing.*fn9
Fuchs has been a CPA for twenty years. He had provided accounting services to the Mazzer family for about eight years. According to Fuchs, he became aware in 2001 of petitioner's intention to gift his stock interest in Mazzer, Inc. to family members and to cease his involvement in the company. Fuchs recalled petitioner telling him that "he was planning on taking a job where there would be a conflict and a problem" unless he relinquished his involvement in the company. Fuchs reviewed the documentation that transferred all of petitioner's stock and petitioner's January 2, 2002 resignation letter. Fuchs had no knowledge of petitioner receiving any benefit from Mazzer, Inc. after June 3, 2002.
Fuchs assisted petitioner with preparing and filing corporate and gift tax returns for 2002. The gift tax returns were filed because the value of petitioner's stock in Mazzer, Inc. exceeded $11,000.*fn10 An attachment to the gift tax return states that no dividends had been paid by Mazzer, Inc. in the past five years.
Fuchs related that attorney Binder prepared the associated corporate resolutions and stock certificates for Mazzer, Inc., as well as petitioner's letter resigning from his employment, office, and position as a member of the corporation's board of directors. Fuchs attested that the 2002 corporate income tax return was filed with an annual report showing the changes in Mazzer, Inc.'s registered agent and officers. According to Fuchs, the State Division of Taxation received the form and processed payment of the filing fees but neglected to forward the changes to the Secretary of State. Subsequently, Fuchs rectified the Division's oversight with an on-line correction of the annual report.*fn11
The 2002 corporate income tax return for Mazzer, Inc. reflects that petitioner was paid $15,000 by the corporation during calendar year 2002. That sum appears consistent with petitioner's assertion that he only worked for part of that year for the company, from January 2002 through his start as building inspector on June 3, 2002. Fuchs testified that it was his understanding, as the company's accountant, that petitioner was not employed by Mazzer, Inc. after May 2002.
In spite of petitioner's divestiture arrangements, the DCA contended that a presumption of financial gain applied to petitioner because his wife and one of his two sons, Jason, continued to reside with him after he assumed his public office. As DCA's Supervisor of Investigators Grayce explained, an indirect conflict of interest would particularly arise out of the wife's ownership interest in the company, because if "[s]he owns stock, that's value" to petitioner's household. Grayce noted that the agency views "a family member who [is] . . . an officer in a corporation as providing indirect financial gain to a [construction] code official if they are generat[ing] fees in the town that the code official is or was working in."
Investigator Bond similarly testified that there was no evidence that petitioner received money from Mazzer, Inc. while he was serving as the City's inspector, but that an assumption of benefit to petitioner should be applied because of his wife and son living with him. Bond noted that the agency assumes that "a husband and wife . . . share the assets . . . [and] whatever bills or whatever liabilities" may exist. Bond acknowledged, however, that he lacked personal knowledge of who was paying for food or other household bills at petitioner's residence.
Petitioner insisted that he received no benefit from Mazzer, Inc. after being appointed building inspector. He asserted that his son Jason, who resided with him, was not contributing any funds towards the household. Petitioner also asserted that his wife was not receiving any salary or other distributions from the business.
Jason Mazzer briefly testified on these subjects. He acknowledged that he became vice president of Mazzer, Inc. in January 2002. He stated that his father worked for the company as a laborer from January through May 2002 and was paid by check like other company employees. He asserted that his father was not paid any money from the business after his municipal appointment began in June 2002.
Consistent with petitioner's account, the 2002 corporate tax return for Mazzer, Inc. lists James Mazzer, Jr., and Jason Mazzer each as thirty percent owners of stock in the corporation, with their mother owning a forty percent share. The tax return identifies the two sons and the wife as the sole corporate officers. It reflects $45,800 in compensation paid that year to James Mazzer, Jr., $39,000 paid to Jason Mazzer, and no compensation to their mother.
Apart from these proofs, the ALJ also considered evidence of petitioner's representations in April 2002 to the DCA in connection with his pending application for HHS certification. According to petitioner, a licensing official at DCA requested him to submit "an informal letter of [his] work experience" so that his HHS certification could be completed. On April 18, 2002, petitioner transmitted such a letter to the DCA. In that letter, petitioner included within his credentials a statement that "I also serve as the president of [Mazzer, Inc.] with 100% of stock ownership." Petitioner explained to the ALJ that at the time he wrote the letter in April 2002, he was still admittedly running the business and awaiting the Garfield inspector's position to be vacated. Petitioner also suggested that the cited statement of his ownership was not material to his HHS certification because one does not need to own or operate a plumbing business to obtain that license. On the other hand, the DCA contended that the April 18, 2002 letter undermined petitioner's credibility in the present matter and suggests that his supposed January 2002 divestiture of Mazzer, Inc. was a sham.
At the hearing, the DCA also pointed to a contract between Mazzer, Inc. and the Housing Authority, which contained petitioner's signature dated April 30, 2002.*fn12 The contract was for the corporation to perform services for the Authority for the 2002-03 period. That contract went into effect on June 17, 2002, after petitioner had already assumed his duties as the City's building inspector.
Petitioner testified that the contract was the result of a public bidding process that had taken about three months, and that the contract had been awarded to Mazzer, Inc. before petitioner began serving in his municipal post. He explained that he had been authorized to sign the contract by one of his sons, as either the president or vice-president of the company,*fn13 who allegedly had asked petitioner to go down to the Housing Authority offices and pick up the contract. Petitioner asserted that he had not been aware in advance of going down to the office that he would have to sign the contract in addition to picking it up. In essence, petitioner contended that his signature on the contract was a reasonable part of the transition of the business during the interval when he was awaiting the start of his employment with the City. Again, the DCA regarded this incident as a further illustration of petitioner's lingering ties to the corporation.
The DCA also presented evidence that petitioner's signature appeared on a permit application dated February 10, 2003 submitted to the Borough of Elmwood Park involving Mazzer, Inc. and a remodeling firm known as Hudson Bay ("Hudson Bay"). Mazzer, Inc. routinely served as a plumbing subcontractor to Hudson Bay on various projects over the course of two decades. According to petitioner, he had supplied Hudson Bay with several pre-signed permit applications out of "laziness" and allowed Hudson Bay to submit those applications to municipal code officials.
This practice was confirmed by testimony from Michael Guttuso, the owner of Hudson Bay and a related entity known as "Baths Plus." Guttuso stated that his company had frequently subcontracted kitchen and bathroom renovation work to Mazzer, Inc., for what Guttuso described as "frequent small jobs." Guttuso explained that petitioner "would give [him] a handful of blank plumbing sub-code forms, pre-signed by [petitioner], so that for purposes of expedition, [Guttuso] could go ahead, fill them out and apply for permits for specific jobs as they were needed." The February 2003 permit was one of those pre-signed forms. The testimony suggests that petitioner pre-signed that particular form before assuming his duties as Garfield's building inspector. Guttuso testified that he ceased dealing with petitioner after petitioner became an inspector, although his businesses continued to work with Mazzer, Inc. thereafter.
The ALJ reached several determinations as to these various conflict-of-interest allegations pertaining to petitioner's continued employment with Mazzer, Inc. during the interval between January 2002 and June 2002. The ALJ made the following findings, which provide a context for assessing the propriety of petitioner's continued nexus to the company:
From the testimony it is clear that there was a period of time between the time that [petitioner] was first approached to become the Construction Official and the time that he actually took office. This amounted to about six months from January 1 [to] June 1, 2002. During that time [petitioner], on paper, had divested himself from his interest in Mazzer, Inc., . . . However, he was in a state of limbo, since he had not been appointed to his new position. It seems entirely logical that [petitioner] would have remained involved in the business. He had no other visible means of support during this time and he had worked in the family business his entire life. His sons were now taking over the business and he was working along side them. It is under these conditions that the actions that he took in this time period have to be analyzed. [Emphasis added.]
More specifically, as to petitioner's April 18, 2002 representation to the DCA's licensure staff about his position as Mazzer, Inc.'s president, and as to his signature later that month on the company's contract with the Housing Authority, the ALJ found that in April 2002 he was continuing to perform services for the company as he had done for decades before. From the testimony it is clear that the business was a typical "mom and pop type" operation. While the [DCA] is technically correct that [petitioner] misrepresented his position in two documents, one must look further. There was no attempt to defraud or deceive, when he signed these documents. [Petitioner's] position vis-à-vis the [licensing] Bureau of Code Services would not have changed if he had represented that he was the former president of Mazzer, Inc., rather than the current president.
As far as the Housing Authority was concerned, they had dealt with [petitioner] for many years. There was no indication in any of the testimony presented, that the Authority or its Director was in anyway deceived because [petitioner] signed as president of Mazzer, Inc. [Petitioner's] son testified that the company continued to do business with the Housing Authority after his father left. [Emphasis added.]
With respect to petitioner's pre-signing of building permit applications, the ALJ specifically found Guttuso's explanation of the circumstances to be credible. The ALJ determined that Guttuso kept a number of these signed [permit] applications in his draw[er]. Without [petitioner's] knowledge or consent, [Guttuso] used one of these previously signed applications, after [petitioner] became the Construction Code Official in Garfield, when he applied for permits for a remodeling job in Elmwood Park.
The ALJ acknowledged that "the practice of signing blank applications is to be frowned upon, but it was not done during the course of [petitioner's] employment with Garfield."
Although the ALJ appreciated the surrounding context of these actions, the judge did not exonerate petitioner completely. Specifically, the judge concluded that petitioner had violated DCA's regulations in three respects: (1) by signing a document addressed to the DCA in April 2002 as president of Mazzer, Inc. when he was not supposed to be holding that title; (2) by signing a contract in April 2002 with the Housing Authority after his supposed divestiture, and (3) by signing permit applications in blank. However, the ALJ concluded that these three violations were "minor in nature."
The ALJ specifically rejected the DCA's contention that petitioner had violated N.J.A.C. 5:23-4.5(j)1 after transferring his ownership interest in Mazzer, Inc. to his wife and sons, and surrendering his employment and both corporate officer and director positions. The ALJ observed that there was "no testimony elicited that [petitioner] ever conducted an inspection of work done by Mazzer, Inc. once he became building inspector." The judge also noted the absence of proof that petitioner "received any financial benefit from Mazzer, Inc. once he became a Code Official or that [his son] James Mazzer, Jr. received any benefit from his father's position as Construction Code Official."
Likewise, the ALJ perceived no impropriety in petitioner's then-wife possessing a stock interest in the company while she continued to reside with him. The judge emphasized that Mrs. Mazzer was not paid a salary from the business. The judge also did not accept the DCA's argument that petitioner must have derived an indirect financial gain through his wife, or that their cohabitation, at a minimum, created an offensive "appearance of impropriety." On this point, the ALJ commented that "[s]omeone's speculation of an appearance of impropriety should not be used to disturb a family's living arrangement."
Further, the ALJ found no wrongdoing in petitioner's continued interim work for Mazzer, Inc. from January 2002 until he was able to assume the duties of City building inspector in June 2002. The judge reasoned that [u]nder the [DCA's] theory, if it took the [C]ity one year to negotiate the buy out of the prior Construction Code Official, then [petitioner] would be unable to work for Mazzer, Inc. and would be bound by the regulations relating to Construction Code Official[s], even though he had never received a pay check from the City. This does not seem reasonable or what the regulations envisioned. Therefore, I CONCLUDE that [petitioner] did not violate the conflict of interest regulations during the period from January-June 2002.
Based upon these numerous findings, the ALJ determined that the agency's requested sanction of license revocation, i.e., to revoke all of petitioner's inspection licenses, was too severe. Instead, the ALJ recommended that a suspension of sixty (60) days was more appropriate.*fn14 Because petitioner had already been suspended by the DCA since June 10, 2005, the ALJ made the sixty-day suspension, which the ALJ stressed was "the maximum allowable under the regulations," retroactive to that date.
The DCA Commissioner adopted a harsher view of petitioner's conduct. In her January 29, 2007 final decision, the Commissioner substituted the sixty-day suspension recommended by the ALJ with the sanction of the revocation of "all of [petitioner's] licenses."*fn15 The Commissioner disagreed with the ALJ's determination that the three violations the judge had identified were "minor in nature," and instead reflected, in the Commissioner's words, petitioner's "indifference to the facts." The Commissioner thus ruled that those particular violations warranted a harsher sanction.
The Commissioner also disagreed with the ALJ's assessment that petitioner's failure to require municipal permits on Housing Authority projects was benign in nature. As a construction code official responsible for enforcing the laws, petitioner "should have been aware that permits were required." The Commissioner found no significance in the long-standing erroneous assumption in Garfield that the Authority was exempt from local permitting, asserting instead that "it was [petitioner's] duty to end that noncompliance, not to aid in its continuation." The Commissioner reasoned that if petitioner had questions on that jurisdictional subject, "he should have asked the [DCA], not a [predecessor] housing inspector who had gone along with prior noncompliance, and not the director or secretary of the [local] housing authority."
More importantly, the Commissioner determined that the "fundamental issue in this case is whether [petitioner] violated N.J.A.C. 5:23-4.5(j)2 --, which prohibits any code official from engaging in, or being otherwise connected directly or indirectly for purposes of economic gain, with any business or employment furnishing labor, materials, products or services for . . . any building or structure within the municipality in which he is so employed by an enforcing agency or in any adjacent municipality." The Commissioner stated that it was of "paramount significance" that petitioner had signed a contract on behalf of Mazzer, Inc. after January 2, 2002. The Commissioner considered that event as "evidence of a[n] ongoing direct or indirect economic interest [in Mazzer, Inc.] that continued despite his purported divestiture through transfer of his interest to family members with whom he resided."
On this central theme of conflict-of-interest, the Commissioner observed:
While it may well be the case that [petitioner] avoided violation of N.J.A.C. 5:23-4(j)1 by having the work done by Mazzer, Inc. in Garfield inspected by an inspector from another municipality, that fact is not relevant to his violation of N.J.A.C. 5:23-4(j)2 by having an economic interest in a company doing construction work in Garfield. The revocation of his licenses is predicated upon his violation of 4(j)2, not 4(j)1.
While there is certainly nothing improper about [petitioner] living with his wife or his son, or with anyone else for that matter, the maintenance of a common household is a mutually beneficial economic arrangement, one that makes an activity that would be prohibited to [petitioner] himself, while he is serving as a code official, also be within the scope of that prohibition if engaged in by a business owned or controlled by another member of his household. Having Mazzer, Inc. perform work in a municipality where [petitioner] was employed, or in an adjacent municipality, was an impropriety, not just an appearance of impropriety--through any appearance of impropriety on the part of a code official would be a serious matter--because the success of Mazzer, Inc. was of economic benefit to [petitioner], just as it would be if he were the only individual involved and were engaged in a construction-related business in a municipality in which he was employed as a code official or an adjacent municipality.
Based upon this analysis under N.J.A.C. 5:23-4.5(j)2, the Commissioner rejected the conclusion of the Administrative Law Judge that the Department improperly interpreted its rules when it found there to be a conflict of interest resulting from [petitioner] deriving continuing economic benefit from Mazz[e]r, Inc. after transferring his stock to his wife and son, with whom he shared a common household. The Administrative Law Judge found that this was not a violation of N.J.A.C. 5:23-4.5(j)1.
It was, however, a violation of N.J.A.C. 5:23-4.5(j)2 in that the company did work in the municipality where [petitioner] was employed and in an adjacent municipality.
The issue is impropriety--not merely an appearance of impropriety. Regardless of whether Mrs. Mazz[e]r received any salary from Mazz[e]r, Inc., she was entitled, as a [forty percent] shareholder, to [forty percent] of any profits distributed to shareholders, which would clearly be of economic benefit to [petitioner]. [Emphasis added.]
For these reasons, the Commissioner increased the sanction imposed upon petitioner from a sixty-day suspension to full licensure revocation. Although the Commissioner found that so-called "minor" violations identified by the ALJ warranted punishment, she declared that those violations were "not the main issue of the case." Instead, the main issue "is the violation of [N.J.A.C.] 5:23-4.5(j)2 resulting from a company in which [petitioner] continued to have an economic interest doing construction work in the municipality in which he was employed . . . ." In sum, "[i]t is because of this violation that revocation . . . is the appropriate sanction."
Petitioner sought an emergent stay of the Commissioner's ruling, pending this appeal. We denied the stay, but accelerated the appeal so that it would be heard before the present court term ended.
The conflict-of-interest provisions that are at the heart of this appeal, N.J.A.C. 5:23-4.5(j)1 and 2, read as follows:
1. No person employed by an enforcing agency as construction or sub-code official or as an inspector shall carry out any inspection or enforcement procedure with respect to any property or business in which he or she, or any close relative or household member, or his or her superior within the enforcing agency or any close relative or household member of such superior, . . . has an economic interest. For purposes of this paragraph, "close relative" shall mean and include a spouse, sibling, ancestor or descendant, or the spouse of any of them.
i. Where an inspection or enforcement procedure is necessary or required in any such property or business, and there is no other person employed by the enforcing agency who is qualified, pursuant to this chapter, to perform the inspection or enforcement procedure and who is not a subordinate of the person with the direct or indirect economic interest in such property or business, the official or inspector shall arrange for the inspection or enforcement to be carried out either by another local enforcing agency or by the [DCA]. . . . .
2. No person employed by an enforcing agency as a construction or sub-code official, assistant to the construction or sub-code official, trainee, inspector or plan reviewer, shall engage in, or otherwise be connected directly or indirectly for purposes of economic gain, with any business or employment furnishing labor, materials, products or services for the construction, alteration, or demolition of buildings or structures within any municipality in which he is so employed by an enforcing agency, and in any municipality adjacent to any municipality in which he is thus employed. [N.J.A.C. 5:23-4.5(j)1 and 2 (emphasis added).]
The history of this two-part regulation indicates that subsection (j)1 was added to what became subsection (j)2 in 1992. See 24 N.J.R. 2423 (July 6, 1992). The published materials provide little insight on the specific meaning or objectives of the regulations. Nor are there any published judicial opinions construing N.J.A.C. 5:23-4.5(j)1 or (j)2.
We observe that the breadth of subsection (j)2 appears significantly greater than equivalent conflict-of-interest laws or regulations pertaining to the households of State officials in the executive branch, legislators, other local officials, judges, and attorneys. For example, State officials may not accept from any person, whether directly or indirectly and whether by himself or through his spouse or any member of his family . . . any gift, favor, service, employment or office of employment or any other thing of value which [the official] knows or has reason to believe is offered to him with intent to influence him in the performance of his public duties and responsibilities. [N.J.S.A. 52:13D-14 (emphasis added).]
Notably, that statute contains no per se prohibition on a spouse or a resident family member's ownership of stock in an enterprise regulated by the agency for whom the State official works. Id. By contrast, N.J.A.C. 5:23-4.5(j)2, as interpreted by the DCA, bans any economic value received or possessed by the construction code official's spouse or resident children in a company doing business in the municipality, regardless of whether the benefits were provided with an intent to influence the code official or whether the code official abstains from involvement in any building permits needed by that company.
By way of further comparison, the statutory conflict-of-interest constraints on a State legislator's stock ownership are restricted to stock that the legislator owns or controls personally, and do not speak to stock owned or controlled by the legislator's spouse or immediate family. See N.J.S.A. 52:13D-19a. Moreover, although judges surely must avoid conflicts and the appearance of impropriety, a judge does not have to forfeit his or her position because of a spouse or household member's financial interests, but simply must remedy the situation through disqualifying himself or herself on matters in which those financial interests are implicated. See Code of Judicial Conduct, Pressler, Current New Jersey Court Rules, Appendix I to Part I, Comment C on Canon 3 at 422 (2007). Cf. In re Gaulkin, 69 N.J. 185 (1976) (allowing the spouses of judges to run for political office, with certain restrictions on the co-mingling of judicial and political activities). Attorneys married to one another, as a further comparison, are not categorically precluded from working for different organizations that may have adverse clients or conflicting interests, so long as the attorneys are not "materially limited" in their representation by their "personal interests" and appropriate screening measures are in place to safeguard confidentiality. See R.P.C. 1.7 (a)(2) (personal interests) and R.P.C. 1.10(c)(2) (screening mechanisms).
The published case law and statutory provisions from other contexts involving municipal officials and their family members generally instructs that such officials should refrain from voting or otherwise acting in their official capacities on particular matters affecting their relatives, but do not typically mandate a forfeiture of office. See N.J.S.A. 40:55D-69 (Municipal Land Use Law); N.J.S.A. 40A:9-22.5(d) (Local Government Ethics Law); see also Borough of West Long Branch v. Zoning Bd. of Adj., ___ N.J. Super. ___ (App. Div. June 14, 2007) (slip op. at 3-5) (applying these statutory provisions to Board of Adjustment members whose family members had previously attended Monmouth University and who were considering variances sought by the University); Shapiro v. Mertz, 368 N.J. Super. 46, 56 (App. Div. 2004) (finding that it is improper for a wife sitting on a township council to vote to appoint her husband to the local planning board); Barrett v. Union Township Committee, 230 N.J. Super. 195, 201-205 (App. Div. 1989) (finding it inappropriate for a councilman to vote on a matter pertaining to a property that housed the nursing home where his mother was living, and citing other cases where planning board members were similarly disqualified).
Indeed, in the instant case, the DCA's supervisor, Grayce, suggested in his testimony that the proper method for a construction code official to ameliorate his nexus to a family member connected to a business needing a local building permit would be to "disassociate" from the project, by arranging to have another inspector substitute for him on the matter. Such substitution is specifically contemplated under N.J.A.C. 5:23-4.5(j)1i, which sets forth a procedure for having inspections in such conflict situations arranged "by another local enforcing agency or by the Department [DCA]." Ibid.
We are not so presumptuous as to second-guess the agency's policy judgments as to the optimal breadth of N.J.A.C. 5:23-4.5(j)2. We simply highlight the significant differences between that regulation and codified provisions governing other public officials and their families, in order to supply a wider context to the findings and determinations on review in this appeal. The DCA is certainly free to continue to leave its present regulation intact, subject, of course, to constitutional considerations and general precepts against arbitrary and capricious government action.
It is noteworthy in the present case that while the ALJ found no violation of subsection (j)1 of N.J.A.C. 5:23-4.5 by petitioner, the ALJ made no specific finding as to whether petitioner did or did not transgress subsection (j)2. It is perhaps implicit in the ALJ's decision that the judge discerned no subsection (j)2 violation here, but the judge's reasoning on that point is not obvious.
By contrast, the Commissioner unequivocally determined, from her own review of the record, that petitioner had violated N.J.A.C. 5:23-4.5(j)2. In fact, that determination is the centerpiece of the Commissioner's decision. The disparity between the Commissioner's finding and what, in essence, is the ALJ's non-finding respecting N.J.A.C. 5:23-4.5(j)2 affects our standard of review. As we have noted, when an agency head strays from the factual findings of an ALJ, we need not accord the agency head the level of deference we ordinarily recognize in reviewing final administrative decisions. See H.K. v. State, 184 N.J. 367, 384 (2005); Clowes v. Terminix Int'l, Inc., 109 N.J. 575, 587-88 (1988). The problem here is that the ALJ made no explicit finding, either way, concerning petitioner's adherence to N.J.A.C. 5:23-4.5(j)2.
The problem is compounded by two other factors. First, the notice of violation that the DCA served upon petitioner included no accusation that his wife and sons' ownership of shares in Mazzer, Inc. disqualified petitioner from continuing to serve as Garfield's building inspector while Mazzer, Inc. continued to perform work in the municipality. To be sure, this litigation may well have been avoided if petitioner or his professional advisers had sought the guidance of DCA staff at the time petitioner attempted his divestiture in the company in January 2002. In any event, it appears that petitioner was caught off guard by the agency's stance concerning subsection (j)2. He was not issued a warning letter or told how he could prospectively correct his perceived familial conflicts.*fn16 The chronology is procedurally troubling in this respect.
Second, we believe that the litigants making the administrative record before the ALJ, as well as the Commissioner, overlooked a significant qualifying phrase in subsection (j)2 that could reasonably bear upon petitioner's circumstances. The regulation only proscribes a code official's direct or indirect connection to a firm doing business in the municipality, or in a neighboring town, where the official's connection is "for purposes of economic gain." N.J.A.C. 5:23-4.5(j)2. That phrase is undefined. We read it as logically alluding to the state of mind of the regulated official rather than, as the respondent's counsel argued to us, the state of mind of the licensee or his own family members. A contrary interpretation would make a licensee responsible for the unspoken intentions of his or her family members, a responsibility that seems far beyond reason when the licensee's ongoing ability to work in his trade is at stake.
We also harbor uncertainty about the intended meaning of the term "purposes" within N.J.A.C. 5:23-4.5(j)2. By analogy, the cognate term "purposely" is statutorily defined in the Criminal Code as follows:
(1) Purposely. A person acts purposely with respect to the nature of his conduct or a result thereof if it is his conscious object to engage in conduct of that nature or to cause such a result. A person acts purposely with respect to attendant circumstances if he is aware of the existence of such circumstances or he believes or hopes that they exist. "With purpose," "designed," "with design" or equivalent terms have the same meaning. [N.J.S.A. 2C:2-2b (emphasis added).]
It is not self-evident whether the DCA, in promulgating subsection (j)2, wished to imbue an equivalent definition of "purpose." Even if it did, the record before us is murky and incomplete as to whether it was the "conscious object" of petitioner to derive personal economic gain when he transferred his interests in Mazzer, Inc. to his sons and then-wife.
The limited testimony that was adduced from petitioner on his attempted divestiture suggests on its face that he lacked such a gain-oriented purpose. However, the attorneys at the hearing did not probe into this issue, by asking petitioner, for example, what his long-range objectives were when and if his wife's forty percent share in the business were sold to a third party. Did petitioner expect that his wife would reap financial rewards from such a third-party sale, and would share them with him in a joint bank account? Or did he expect that her profit on a sale would be segregated from other marital assets? Alternatively, did petitioner not envision such a third-party purchase would occur, but rather expect that his wife would ultimately transfer her shares back to one or both of their sons, with or without substantial consideration? And did or did not petitioner expect his wife to receive periodic dividends from the company, even though none had been paid in the preceding five years? If so, would those dividends have been shared by his wife in co-mingled accounts with petitioner?
These open questions, and perhaps others of that stripe, make it infeasible for us to resolve the state-of-mind issues surrounding petitioner's compliance or non-compliance with N.J.A.C. 5:23-4.5(j)2 on the present record. The application of that regulation, which the Commissioner characterized as the key to this case, requires fuller testimony and additional fact-finding in the OAL. We do not reach that assessment lightly, as we appreciate the time and expense that would be involved in such a remand. But we nevertheless determine that the record should be reopened to address these important issues. See In re Kallen, 92 N.J. 14 (1983).
Additionally, the intended interplay between subsection (j)1 and subsection (j)2 of N.J.A.C. 5:23-4.5 is unclear. If, as the Commissioner concluded, Mrs. Mazzer's equity interest in Mazzer, Inc. while it was performing work in the City categorically disqualified petitioner from serving as the City's building inspector under subsection (j)2, the terms of subsection (j)1 authorizing inspections of such work by a different enforcing agency are seemingly rendered superfluous. See State v. Malik, 365 N.J. Super. 267, 278 (App. Div. 2003), certif. denied, 180 N.J. 354 (2004) (codes should be construed in a manner that imbues meaning to all of their provisions). Under subsection (j)1, Mrs. Mazzer and petitioner's sons plainly qualified as "close relatives" with "an economic interest" in Mazzer, Inc. Although we appreciate the Commissioner's position on the intended breadth of subsection (j)2, we are puzzled why the agency continued to leave the alternative inspection procedure in subsection (j)1 intact if the equity interests of petitioner's family members in Mazzer, Inc. required the forfeiture of his municipal post. Moreover, Grayce's testimony about the ameliorating purpose of alternative inspections by out-of-town or State inspectors also does not readily harmonize the two pertinent regulatory subsections. The Commissioner will have an opportunity to address, more fully, this seeming paradox on remand as well.
With respect to the petitioner's other regulatory violations, we tend to agree more with the ALJ's assessment that they were relatively minor in nature than with the Commissioner's stronger perceptions of their severity. We have no difficulty in affirming the ALJ's determination that those other violations merited at least a sixty-day suspension. On the other hand, we tend to agree with the Commissioner that petitioner's ignorance of the permitting requirements for HUD properties operated by the Housing Authority warrants some form of rebuke, so that code officials in the future will take greater care to determine the scope of their office's inspection responsibilities rather than merely relying on local customs and understandings.
We do not, however, decide at this time whether the ultimate penalty of revocation for those offenses is warranted here, with or without solid proof of a violation of N.J.A.C. 5:23-4.5(j)2. We discern that the perceived subsection (j)2 violation permeated the Commissioner's decision, and are not confident that the powerful sanction of revocation would be proportionately justified in this case if petitioner were not found, upon remand, to have also violated subsection (j)2. We also believe that it is most appropriate to afford the Commissioner another opportunity to consider the question of sanctions after the administrative record is amplified on what we perceive to be the critical open issues under N.J.A.C. 5:23-4.5(j)2.
Accordingly, we remand this matter to the OAL for further proceedings addressing the issues under N.J.A.C. 5:23-4.5(j)2 that we have explored in this opinion. At such proceedings, the parties may present to the ALJ whatever additional testimony and exhibits that may be relevant to whether petitioner remained connected, "for purposes of economic gain," to Mazzer, Inc. during his tenure as Garfield building inspector. Following such proceedings, the ALJ shall make express findings concerning N.J.A.C. 5:23-4.5(j)2 and submit those supplemental findings to the Commissioner. Thereafter, the Commissioner shall reconsider this matter and the associated transcripts in light of those supplemental proofs and findings, and in light of the discussion set forth in this opinion. Should petitioner disagree with the Commissioner's reconsidered determination and any associated sanctions, he may file a new notice of appeal. In the meantime, the Commissioner's January 29, 2007 initial decision is vacated, without prejudice. We do not retain jurisdiction.*fn17
Vacated and remanded.