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Belfiore v. City of Hoboken

Superior Court of New Jersey, Appellate Division

October 21, 2013

NICHOLAS BELFIORE, PHYLLIS CAPELLI, JOHN COLEGROVE, RAY FALCO, JUDE FITZGIBBONS, JOSEPH E. PELUSO, JR., LOUIS PICARDO, NANCY SCIANCALEPORE, LOUISE TAGLIERE, LAWRENCE F. THORPE, Plaintiffs-Appellants,
v.
CITY OF HOBOKEN, Defendant-Respondent, VINCENT ANDREULA, Plaintiff-Appellant,
v.
CITY OF HOBOKEN, MAYOR AND COUNCIL OF THE CITY OF HOBOKEN, Defendants-Respondents.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued October 7, 2013.

On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket Nos. L-5917-09 and L-2498-10.

Bruce D. Leder argued the cause for appellants (Cohen, Leder, Montalbano & Grossman, LLC, attorneys; Michael A. McLaughlin, on the brief).

Arnold R. Gerst argued the cause for respondents (Weiner, Lesniak, LLP, attorneys; Mr. Gerst, of counsel; Jeanne Ann McManus, on the brief).

Before Judges Parrillo and Harris.

PER CURIAM.

Plaintiffs —— now-retired City of Hoboken employees —— sued the city for breach of contract in two separate actions. After an adverse determination from a consolidated bench trial, they appeal from the December 20, 2011 judgment dismissing their complaints with prejudice. We reverse.

I.

A.

We glean the following facts from the three-day trial conducted in November 2011. On February 6, 2008, while reeling from economic setbacks, Hoboken's governing body approved Resolution 08-49, which created a Voluntary Severance Incentive Program (VSIP) for certain city employees. The express purpose of the VSIP was to address "budgetary constraints" that the city was facing while also avoiding a "forcible reduction in [the] labor force." The ostensible goal of the VSIP was to "ensure that government is operated at a level that taxpayers can afford" by monetarily incentivizing the retirement of highly paid municipal workers.

Under the VSIP, a city employee could resign from his or her current position, and in return would receive a severance payment described as the following:

[A] specified percentage of the employee's annual base salary . . . payable in five (5) equal annual payments starting on a date established by the [city's] Administration. The Administration shall base the bonus severance payment upon the employee's length of service, but in no event shall the payment be less than 10% nor exceed 100% of the employee's annual base salary.
[] This severance payment is to be considered a bonus, not salary, is not pensionable and shall not affect the amount of terminal leave nor any other payments to which an employee would ordinarily be entitled to receive upon separation of employment from the City of Hoboken.

Any employees participating in the VSIP had to complete the necessary paperwork and actually resign by December 31, 2008.

The city's administration subsequently contacted numerous employees, including plaintiffs, offering them the opportunity to participate in the VSIP. Plaintiffs, as well as more than two dozen other employees, accepted the offer.

Upon acceptance, the city's business administrator prepared a one-page form, titled a "Severance Package, " for each employee, which outlined the specific terms of that individual's VSIP. For example, the April 1, 2008 Severance Package signed by plaintiff Nicholas Belfiore stated, in pertinent part, the following:

95% of your 6/30/08 base salary $55, 677.60 will be paid on your date of separation in five (5) payments, yearly, with the first payment of $11, 135.52 commencing 1/1/09 and ending 1/1/2013.

The form was signed by the employee and by the business administrator as the city's agent.

The following table, gleaned from the record, summarizes the Severance Package for each plaintiff:

NAME

SEVERANCE PACKAGE DATE

RETIREMENTDATE

TOTAL SEVERANCE PAYMENT TO EACH PLAINTIFF[1]

Nicholas Belfiore

4/1/08

12/31/08

$55, 677.60

Phyllis Capelli

4/2/08

12/31/08

$62, 320.00

John Colgrove

4/3/08

12/31/08

$74, 309.00

Ray Falco

5/30/08

12/31/08

$79, 749.70[2]

Jude Fitzgibbons

7/9/08

12/31/08

$62, 543.00

Joseph E. Peluso

4/1/08

12/31/08

$108, 557.00

Louis Picardo

5/26/08

11/30/08

$118, 683.12

Nancy Sciancalepore

5/4/08

11/30/08

$72, 591.40

Louise Tagliere

6/13/08

10/31/08

$57, 134.40

Lawrence Thorpe

4/2/08

12/31/08

$60, 182.50

Vincent Andreula

8/1/08

10/31/08

$44, 286.72

Plaintiffs signed their Severance Packages on various dates between April and August 2008.[3] Under the VSIP, retirement dates were staggered between two phases. Phase one employees retired before October 2008; plaintiffs, who were all members of the phase two group, were scheduled to retire between October 2008 and December 31, 2008.

B.

In October 2008, on a separate fiscal front, the New Jersey Department of Community Affairs appointed Judy Tripodi[4] as the fiscal monitor for the city under the auspices of N.J.S.A. 52:27BB-55(6). This appointment was implemented because the city had not fully complied with the Local Budget Law, N.J.S.A. 40A:4-1 to -88, insofar as it had failed to adopt final budgets for fiscal years 2008 and 2009, [5] which substantially jeopardized the fiscal integrity of the municipality.

On October 23, 2008, Tripodi issued a memorandum addressed to city officials and to employees who were participating in the VSIP, which "suspended" the program due to Tripodi's concerns that it did not conform to regulations of the New Jersey Division of Pensions and Benefits (the Division). Tripodi wrote, "I will be contacting [the Division] shortly and will be seeking guidance as to whether it is still legally possible to move forward with the [p]rogram as it is currently structured."

The memorandum stated that it applied to "anyone who has already submitted an application to participate in [the VSIP] as well [as] anyone contemplating doing so." For reasons that are unstated, the suspension did not apply to those employees in the phase one group who (1) had already retired, (2) had already received one-fifth of their severance payment, and (3) were awaiting four more annual severance payments in the ensuing years.

In December 2008, Michael Czyzyk, a supervisor of external audits for the Division, informed Tripodi that the VSIP was "an early retirement incentive and [the Division] would be advising [Tripodi] shortly that it was going to be disallowed and the city would be assessed for any individuals who had been paid as a result of the program."[6] The city eventually paid an unfunded liability —— described as "the additional cost to the [pension] funds for these individuals leaving sooner than they actuarially would have" —— of $4, 252, 621 for employees who had already participated in the program. The record reflects that the city never formally challenged the characterization of the VSIP as an early retirement incentive, and it did not appeal the imposition of the unfunded liability.

The VSIP was consequently never reinstated, and in January 2009, Tripodi told the city not to budget funds to pay anyone —— the phase two plaintiffs —— who retired after October 2008 pursuant to a Severance Package. Hoboken's fiscal year 2009 budget, finally adopted in April or May 2009, did not include appropriations for VSIP severance payments to plaintiffs. Subsequent city budgets also did not appropriate funds for VSIP severance payments to plaintiffs. Although the specific details have not been included in the appellate record, the city did appropriate funds in its 2009 and later budgets to pay the annual severance payments for phase one retirees.

C.

At trial, several plaintiffs testified about the changed circumstances that resulted from their decisions to retire.[7]Louise Tagliere testified that, starting in June 2008, she made substantial changes in her life in order to prepare for retirement, including downsizing her dwelling and obtaining a loan to pay her credit card debt in full. Additionally, she repaid a pension loan, estimated to be approximately $7000, in order to be allowed to retire.

Nancy Sciancalepore testified that because she was retiring before her fifty-fifth birthday she spent approximately $6600 to acquire pension credits so that she could retire pursuant to the VSIP and still keep her insurance. Moreover, the amount she was to receive under the VSIP made up the difference between early retirement and regular retirement.

Vincent Andreula testified that he retired early because of the VSIP; otherwise, he would have worked two additional years to acquire early social security benefits. Andreula also stated that his salary and other benefits would have increased during that two-year period.

Ray Falco testified that he gave up a $95, 000 salary to participate in the VSIP. Upon retirement, because he was already receiving benefits through the New Jersey Police and Fireman's Retirement System, Falco, unlike the other plaintiffs, was not eligible to receive pension payments through the Public Employees Retirement System. Falco claimed that without the VSIP payments, he received no benefit whatsoever from leaving his Hoboken position, since he was not eligible for a civilian pension.

Regarding phase one VSIP participants, Joseph Peluso testified that he knew of five employees —— all formerly in Hoboken's police or fire services —— who retired under the VSIP and received, and continued to receive, VSIP severance payments. Tagliere also knew that other phase one employees had received multiple VSIP severance payments, including one woman who had retired thirty days before Tagliere and who by the trial date had received her fourth annual severance payment.

D.

The trial judge issued a thoughtful thirteen-page opinion on December 7, 2011. After carefully canvassing the largely undisputed facts, the judge made note of the VSIP's two phases, mentioning that Tripodi "suspend[ed] the [VSIP] as to the Phase [Two] participants only, " and finding that "[i]t is undisputed that at time of trial, all persons retiring in Phase One continued to receive their incentive payments."

The judge discussed, without herself addressing the underlying validity of the VSIP, the position taken by the Division vis-à-vis the program:

Mr. Czyzyk testified state law limits the circumstances in which municipalities can offer retirement incentives. He stated inducements given to individuals to retire as of a date certain are viewed as incentive programs. Incentive programs are viewed as a threat to the retirement fund. Where authorized, the plan must be approved in advance by the Department of Community Affairs, which conducts an actuarial assessment of the specific individuals offered the incentive and assesses any unfunded liability to the pension fund to the municipality. The Division of Pensions has no ability to prevent a municipality from offering a plan, whether or not it is approved.
Mr. Czyzyk testified there are no fines or sanctions for failure to obtain prior approval. The City was assessed $4, 252, 621 for the unfunded liability to the pension system as a result of [the] VSIP. The testimony is uncontroverted that the assessment would have been the same had the City obtained prior approval. The assessment has since been paid by the City in full.

Additionally, the judge mentioned the existence of a Division legal opinion regarding the authority of the city to offer the VSIP to its employees, as well as Czyzyk's citation to "Fair Lawn Ed. Ass'n v. Fair Law Bd. of Ed., 79 N.J. 574 (1979) as authority to a finding that the Hoboken Retirement Plan was not authorized by State Law." We have not been provided with any copies of correspondence or legal opinions to support these supposed legal conclusions of the Division that the VSIP was, as Czyzyk testified, "illegal."

The trial judge finessed the question of whether the adoption of the VSIP was "illegal" in the sense opined by Czyzyk, by focusing on Hoboken's violation of the Local Budget Law. The judge found the following:

The bonuses, which were to be paid under the VSIP, do not constitute either capital expenditures or a purpose for which an "emergency appropriation" may be made, as defined. No legal authority exists, therefore, which would permit the City to appropriate monies in fiscal year 2008 to pay expenses of any program that became due and owing in subsequent fiscal years. Therefore, the Court determines VSIP to be ultra vires. Why the City continues to make appropriations for the Phase [One] employees, but not the Phase [Two] employees is a question not before the Court.

Although concluding that relief was not available to plaintiffs, the trial judge rebuked Hoboken for its failure to "turn square corners." After cataloging the "life changing decisions" made by plaintiffs "based upon the contract[s] they signed with the City, " the judge noted the following:

Thereafter the City claims it revoked the offer or the offer was void as ultra vires. The City never undertook to contact the plaintiffs individually to advise them of the change, it never offered to restore the status quo ante. Despite these failings vis-à-vis the Phase [Two] retirees, it continues to this day to pay the Phase [One] retirees their incentive bonuses under the same VSIP program. The City has demonstrated bold disregard for the consequences of its actions and treated two groups of employees differently under the identical VSIP. This type of action is bound to create an atmosphere of unfairness.

Nevertheless, because the VSIP was "ultra vires in the primary sense and void, " the judge did not invoke principles of equitable estoppel to provide a remedy for the perceived wrong. This appeal followed.

II.

Our scope of review in this appeal is well established:

We are bound to defer to the trial court's factual findings, as long as they are supported by adequate, substantial and credible evidence. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 483-84 (1974). In a case in which the trial judge also sat as the trier of fact, we are precluded from disturbing the trial judge's factual findings and legal conclusions, "'unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice[.]'" Seidman v. Clifton Sav. Bank, 205 N.J. 150, 169 (2011) (alteration in original) (quoting Ex rel Johnson, 194 N.J. 276, 284 (2008)).
We are also bound to defer to the trial judge's findings that are "substantially influenced by his opportunity to hear and see the witnesses and to have the 'feel' of the case, which a reviewing court cannot enjoy." State v. Locurto, 157 N.J. 463, 471 (1999) (quoting State v. Johnson, 42 N.J. 146, 161 (1964)). However, we do not owe any deference to the legal conclusions reached by the trial court, because our review of the law is de novo. Borough of Harvey Cedars v. Karan, [214] N.J. [384], [401] (2013) [] (citing Manalapan Realty v. Manalapan Twp. Comm., 140 N.J. 366, 378 (1995)).
[Adler v. SAVE, ____ N.J.Super. ____, ____ (App. Div. 2013) (slip op. at 28-29).]

In their appellate briefs, both sides ignore whether Hoboken was, under the circumstances of this case, permitted to adopt an "incentive program for retirement or termination of employment." N.J.S.A. 43:8C-2; see also Fair Lawn Educ. Ass'n v. Fair Lawn Bd. of Educ., 79 N.J. 574, 576-77 (1979) (local school board did not have the authority to make payments to employees that are unrelated to services rendered for the sole purpose of inducing early retirement). Rather, they concentrate all of their attention upon the interplay of the VSIP with the Local Budget Law, and argue over arcane interstices relating to ultra vires acts in the primary or secondary sense. Accordingly, we deem waived any contention that, as Czyzyk opined, the VSIP was illegal or unauthorized.[8] See Telebright Corp., Inc. v. Dir., N.J. Div. of Taxation, 424 N.J.Super. 384, 393 (App. Div. 2012) (issue not briefed is deemed waived).

At its core, this case is about a local government's anticipatory repudiation of a contractual promise to some, but not all, of its workers. At the time Resolution 08-49 was adopted, well into the 2007 fiscal year, the city still had not adopted a budget. Nevertheless, in an effort to address some of the root causes that animated the budget impasse, the city made life-changing promises to numerous employees. During the months that followed —— while plaintiffs were signing and receiving copies of their Severance Packages, and planning for their post-Hoboken lives —— the city's fiscal machinery still remained idle. Yet, early adopters of the VSIP —— the phase one group —— were able to retire and reap the entire benefit of their bargains. To deny plaintiffs the same agreed-upon severance payments, as recognized by the trial judge, is fundamentally unfair. However, we part company with the judge because we conceive that the doctrine of equitable estoppel must be deployed to redress the stunning inequity in this case, notwithstanding the supposed strictures of the Local Budget Law.[9]

Because a symbiotic relationship existed between Hoboken's budget and the VSIP, we do not view the implementation of phase two of the VSIP as beyond the authority of the city, and certainly not ultra vires in the primary sense, regardless of the city's then-lack of a budget. Every phase one retiree elected to participate in the VSIP under the identical budgetary environment as the phase two retirees. Indeed, phase one retirees received their first severance payment without the benefit of a validly adopted budget, and they continued to harvest four more payments, while phase two retirees stood on the sidelines scratching their heads in disbelief.

We emphasize that the record is devoid of evidence of fraud, favoritism, or bad faith. The VSIP was not created to intentionally foist more workers into an already beleaguered pension system at the expense of statewide taxpayers. Rather, Hoboken's elected officials were simply ill advised about the VSIP's potential —— here realized —— to trigger an unfunded liability to ensure that the city shouldered the proper responsibility for its actions. All of the workers who relied upon Hoboken's fiscal maneuver cannot be faulted for closing their careers, and far from reaping a windfall, all they sought is what they bargained for, nothing more and nothing less.

"Settled precedent is that in the absence of fraud, accident, or mistake, a court of equity cannot change or abrogate the terms of a contract." Dunkin' Donuts of Am., Inc. v. Middletown Donut Corp., 100 N.J. 166, 183 (1985). We generally will not relieve a party —— public or otherwise —— of the consequences of a contract just because it may be "oppressive, improvident, or unprofitable, or because it produces hardship." Id . at 184. At its core, when Hoboken realized that the VSIP would likely trigger an unfunded liability, thereby eroding the program's expected savings, it exercised self-help by disavowing its implied promise to budget for the severance payments. If nothing else, this breached the city's implied covenant of good faith and fair dealing. See Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 224 (2005) ("Every party to a contract . . . is bound by a duty of good faith and fair dealing in both the performance and enforcement of the contract.").

We do not quarrel with the principle that "[e]quitable estoppel is 'rarely invoked against a governmental entity.'" Middletown Twp. Policemen's Benevolent Ass'n Local No. 124 v. Twp. of Middletown, 162 N.J. 361, 367 (2000) (quoting Wood v. Borough of Wildwood Crest, 319 N.J.Super. 650, 656 (App. Div. 1999)). However, we will not hesitate to deploy it in an appropriate case, as here, in order to prevent "manifest wrong and injustice." Vogt v. Belmar, 14 N.J. 195, 205 (1954). Additionally, it is an apt means of ensuring that government and its actors "turn square corners" and act fairly and "with compunction and integrity." W.V. Pangborne & Co. v. N.J. Dep't of Transp., 116 N.J. 543, 561-62 (1989) (quoting F.M.C. Stores Co. v. Borough of Morris Plains, 100 N.J. 418, 427 (1985)); see also Francois v. Bd. of Trustees, 415 N.J.Super. 335 (App. Div. 2010) (recognizing the square corners doctrine in a pension context).

Even when we view Hoboken's conduct through the lens of the Local Budget Law, particularly N.J.S.A. 40A:4-57, we cannot reconcile depriving plaintiffs of an equitable remedy while remaining willfully blind to the municipality's continued avoidance of the same fiscal control statutes regarding phase one retirees. In so doing, we are not condoning a two-wrongs-make-a-right approach to local fiscal affairs. Given the trial court's powerful language condemning the actions of the city, and in light of that court's conclusion that plaintiffs "[a]ll made life changing decisions based upon the contract they signed with the [c]ity, " we are confident that to not provide plaintiffs with the same rights as phase one retirees would result in "a gross breach of trust to permit the [city] now to renege on its position." Chasin v. Montclair State Univ., 159 N.J. 418, 445 (1999); see also Williams Scotsman, Inc. v. Garfield Bd. of Educ., 379 N.J.Super. 51, 61-62 (App. Div. 2005), certif. denied, 186 N.J. 241 (2006) (declining to void a public contract even though it did not conform to the terms of the statute governing the bidding process in signing it); Scardigli v. Borough of Haddonfield Zoning Bd. of Adjustment, 300 N.J.Super. 314, 319-20 (App. Div. 1997) (holding that even though a board attorney lacked the statutory power to offer an interpretation of a zoning ordinance to a private citizen, other evidence, including the fact that the city waited two years to set aside land conveyances and it had been past practice to treat two lots as separate, meant that the conveyance should be upheld).

We do not view Bauer v. City of Newark, 7 N.J. 426 (1951), and its progeny, as bulwarks against the application of estoppel in this case. Here, unlike in Bauer, the municipality has inexplicably favored one group of municipal employees (the phase one group) to the detriment and dismay of similarly situated employees (the phase two group). We view Tripodi's October 23, 2008 VSIP suspension, which pre-dated plaintiffs' actual separation from government service, as an insufficient watershed to differentiate between phase one and phase two VSIP participants.

If Hoboken had, for instance, suspended all future severance payments to phase one employees after Tripodi's memorandum, or sought —— through clawback litigation or other means —— the return of severance payments from phase one retirees, plaintiffs' equitable argument would be considerably weaker. On the other hand, with some plaintiffs' actual retirement dates looming only a few days after Tripodi's memorandum, we fully subscribe to the trial judge's characterization of the city's conduct then as being a "bold disregard for the consequences of its actions and treated two groups of employees differently under the identical VSIP."

One of the hallmarks of our State's public policy jurisprudence has expressly insisted that units of government observe certain standards and norms that are beyond reproach. See CBS Outdoor, Inc. v. Borough of Lebanon Planning Bd./Bd. of Adjustment, 414 N.J.Super. 563, 585 (App. Div. 2010) (citing F.M.C. Stores Co., supra, 100 N.J. at 426 (prohibiting a municipality from taking litigational advantage of another party under the "turn square corners" doctrine); Gruber v. Mayor & Twp. Comm., 73 N.J.Super. 120, 127 (App. Div.), aff'd, 39 N.J. 1 (1962) (applying an equitable remedy against government in the interest of holding the municipality to a standard of "rectangular rectitude").

We believe that the unique circumstances of this case —— forged by Hoboken's disparate treatment of its retiring workforce —— inexorably militate in favor of the application of an estoppel-like remedy that will restore equality to all participants in Hoboken's VSIP. We realize that this result will not be without adverse fiscal consequences to the city.[10]However, we do not measure estoppel by how well the governmental action actually worked.

Reversed and remanded for the entry of judgment in favor of plaintiffs.[11]


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