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Gerard D. Ward, Benjamin Brooks, Henry Drew, and Gerald G. Sorrentino v. Port Authority Police Benevolent Association

June 8, 2012

GERARD D. WARD, BENJAMIN BROOKS, HENRY DREW, AND GERALD G. SORRENTINO, ON BEHALF OF THEMSELVES AND THOSE SIMILARLY SITUATED, PLAINTIFFS-APPELLANTS,
v.
PORT AUTHORITY POLICE BENEVOLENT ASSOCIATION, INC., PORT AUTHORITY DETECTIVES ENDOWMENT ASSOCIATION, PORT AUTHORITY SERGEANTS BENEVOLENT ASSOCIATION, PORT AUTHORITY LIEUTENANTS BENEVOLENT ASSOCIATION AND GASPAR DANESE, DEFENDANTS-RESPONDENTS.



On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-5311-04.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued January 24, 2012

Before Judges Payne, Reisner and Simonelli.

This appeal raises the issue of whether retired members of four unions representing employees of the Port Authority of New York and New Jersey were entitled to proceeds flowing from the demutualization of the Prudential Insurance Company of America. Agreeing with the trial court that they were not, we affirm. However, for reasons that we will set forth in the body of this opinion, we reverse in part the court's orders sanctioning plaintiffs and their attorneys for frivolous litigation and remand that issue for further consideration in light of this opinion.

I.

On January 15, 1951, Prudential issued a group life insurance policy, G-10493, to the Port Authority for the benefit of its employees. Each of the Port Authority's unions*fn1 negotiated a life insurance benefit for its employees, the terms of which were contained in a memorandum of agreement (MOA) between the union and the Port Authority. In accordance with the agreements, active employees were not required to contribute to payment of premiums on the policy. Upon retirement, life insurance coverage for non-disabled former employees could be continued, but only upon payment of premiums by the retired employee. Coverage for disabled retired employees was continued through premium payments by the Port Authority.

In May 2001, Prudential announced, pursuant to the statutory right conferred by N.J.S.A. 17:17C-1 to -14, that it would convert its structure from a mutual to a stock insurance company. As a result, the owner of policy G-10493, the Port Authority, became entitled to receive "demutualization proceeds" in the form of Prudential stock with a cash value of approximately $13.3 million.

On June 28, 2001, Port Authority officials met to decide what to do with the proceeds and, following discussion of various proposals, determined to voluntarily pay them to active Port Authority employees, which at the time numbered approximately 4,100 union members and 2,600 non-union members. Because the Port Authority was prohibited by law from conferring a direct benefit on union members, it determined to distribute those members' proceeds as a lump sum to their unions, leaving to the unions a determination whether the proceeds would then be allocated per capita or by longevity. The Port Authority calculated how much each union would receive based on the number of employees in the union and their longevity of employment. In order to receive the funds, the unions had to agree to the Port Authority's calculations. Additionally, the Port Authority provided a list to each union of the active employees who were entitled to the payout. The list included approximately twenty members of the PBA who had retired after December 31, 2001 but before the proceeds were received from Prudential. Distributions to non-represented employees were made directly by the Port Authority and were based on longevity of service.

Gerard Ward, a former Port Authority police officer and a member of the PBA, retired in 1994 on a disability pension. As a result, his group life insurance coverage was maintained through premium payments by the Port Authority. Because Ward was also insured as the owner of other Prudential life insurance policies, he was aware of Prudential's demutualization. After he became aware that the PBA had distributed approximately $2,000 of the demutualization proceeds to each active union member, he sought inclusion among those receiving the pay-outs. Upon denial, he solicited Gerald Sorrentino, a former member of the LBA, Henry Drew, a former member of the SBA, Ben Brooks, a former member of the DEA, and others to join him in litigation asserting the right of retired Port Authority employees to a portion of the Prudential payment.

On November 30, 2004, plaintiffs filed a class-action complaint, and on November 23, 2005, plaintiffs filed an amended complaint against the four unions and PBA president Gaspar Danese, asserting claims of conversion, breach of fiduciary duty, breach of the covenant of good faith and fair dealing, and bad faith with respect to the exclusion of retired employees from the receipt of demutualization proceeds. From the commencement of the litigation and throughout its course, defendants served plaintiffs with multiple demand letters, pursuant to Rule 1:4-8, claiming that the litigation was frivolous and without factual and legal support, and they demanded its withdrawal. Plaintiffs declined to do so.

On February 24, 2005, the PBA and Danese filed a motion to dismiss the complaint. They were joined by the other three unions on February 25, 2005. However, defendants' motion was denied on March 24, 2005. Class certification was granted on June 12, 2006.

On July 6, 2007, defendants again moved for summary judgment, and on July 22, 2008, their motion was granted by the court, which dismissed with prejudice plaintiffs' direct claims, together with all cross claims, counter claims and third-party claims.

In a comprehensive written opinion, the court addressed each of the parties' arguments, commencing with plaintiffs' argument that a right to share in the proceeds of Prudential's eventual 2001 demutualization arose at the time of the execution by the unions of ...


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