SOUTH AMBOY PBA LOCAL 63 v. THE CITY OF SOUTH AMBOY
Annotate this CaseNOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1089-08T3
SOUTH AMBOY PBA LOCAL 63,
Plaintiff-Respondent,
v.
THE CITY OF SOUTH AMBOY,
Defendant-Appellant.
________________________________
Argued October 1, 2009 - Decided January 5, 2010
Before Judges Payne, C.L. Miniman, and
Waugh.
On appeal from the Superior Court of New
Jersey, Chancery Division, Middlesex County,
Docket No. C-72-08.
Kenneth W. Thomas argued the cause for
appellant (Lanza & Lanza, LLP, attorneys;
Mr. Thomas, on the brief).
Michael A. Bukosky argued the cause for
respondent (Loccke, Correia, Schlager, Lim-
sky & Bukosky, attorneys; Gregory G. Watts,
on the brief).
Sidney H. Lehmann argued the cause for
amicus curiae New Jersey State Policemen's
Benevolent Association (Zazzali, Fagella,
Nowak, Kleinbaum & Friedman, attorneys; Paul
L. Kleinbaum, of counsel, Mr. Kleinbaum and
Colin M. Lynch, on the brief).
PER CURIAM
Defendant City of South Amboy (the City) appeals from a
September 12, 2008, final order confirming an arbitration award
in favor of plaintiff South Amboy PBA Local 63 (Local 63) con-
cerning medical benefits for retired City police officers. The
New Jersey State Policemen's Benevolent Association (PBA) filed
an amicus curiae brief. We affirm.
I.
This case arises from actions undertaken by the City in
March 2002 and June 2003. On the earlier date, the City noti-
fied current and retired police officers that the existing $1
co-pay for prescriptions would be increased retroactively to
March 1, 2001, to $5 for generic drugs and $10 for brand-name
drugs. On the latter date, the City changed health insurance
providers from its self-insured South Amboy Group Benefits Plan
(SAGBP) to the State Health Benefits Plan (SHBP). Under the
SAGBP and the Collective Negotiation Agreement (CNA) between
Local 63 and the City, retirees received all medical coverage
without cost. Under the SHBP, retirees were required to use
Medicare as their primary insurance provider and incur Medicare
Part B premiums at their own expense. As a result of these
changes, the PBA filed a grievance.
The City and Local 63 were parties to a series of CNAs,
which were renegotiated every three years. The CNA that expired
A-1089-08T3
2
on June 30, 1999, provided that the City would "continue to pay
the cost of all medical coverage" provided by the CNA,1 for a
"retiree, retiree's/decedent's spouse and retiree's/decedent's
dependent children." The CNA also provided "that the City may
exercise its right to change insurance carriers so long as the
coverages enumerated in this agreement are maintained at their
equivalent levels."
The prescription drug plan provisions in the CNA covering
the period July 1, 1999, to June 30, 2002, were amended to
provide as follows:
D. 1. Prescription plan with a one ($1.00)
Dollar deductible at a local pharmacy.
Effective March 1, 2001 the public employer
shall have the right to modify the prescrip-
tion plan so as to provide for a $5.00 co-
payment for generic medication and a $10.00
co-payment for brand name medication.
No other relevant change was made at that time to the medical-
benefits provisions in the 1999-2002 CNA or in the CNA for the
period July 1, 2002, to June 30, 2005.
Local 63 opposed the March 2002 and June 2003 changes to
grievance2
medical benefits and filed a in accordance with
1
Those coverages were hospitalization equivalent to the former
Blue Cross 365, Blue Shield UCR, Rider J, major medical and
dental insurance coverage equivalent to the former Connecticut
General plan, and a local pharmacy prescription drug plan for
which there was a $1 co-pay.
2
The grievance is not in the record on appeal.
A-1089-08T3
3
procedures set forth in the CNA. The grievance was not resolved
by the two-step grievance procedure and the issue went to bind-
ing arbitration. The question posed by Local 63 was: "Did the
[C]ity violate the contract and derivative interest of retirees
when it changed health plans? If so, what shall be the remedy?"
The City, on the other hand, posed the question as whether it
violated the CNAs "when it changed health insurance carriers
from the [SAGBP] to the [SHBP] effective July 1, 2003? If so,
what shall be the remedy?" After opening arguments, the arbi-
trator found that "the question is actually a narrowly focused
one specifically dealing with two aspects of the health insur-
ance afforded to retirees: the prescription co-pay and the
payment of the premium for Medicare Part B."
During arbitration, Local 63 contended that retirees have
vested rights in continued health coverage, which are frozen and
vested for life upon retirement. It further argued that the
City was required to continue to pay the cost of all medical
coverage for retirees and that requiring retirees to pay the
Medicare Part B premiums was contrary to law and the express
language of the CNA.
The City argued that retirees are not entitled to $1 pre-
scription co-payments for life, because health benefits are not
vested for life unless expressly stated in the CNA. The City
A-1089-08T3
4
further contended that it was in compliance with the CNA when it
changed healthcare providers because it provided retirees with
the same options it provided current employees.
After considering both arguments, the arbitrator made the
following award on December 3, 2007:
The grievance is sustained as follows:
1) Officers who retired during the
tenure of a collective bargaining agreement
prior to July 1, 1999 are entitled to con-
tinue to pay the $1 prescription co-pay.
Upon an officer furnishing receipts, the
city shall reimburse him (or her) for
payment of any overage.
2) Officers who retired during the ten-
ure of contracts starting with July 1, 1999,
during which the city had the right to
increase the prescription co-pay, must pay
the increased amounts effective as of the
date of change.
3) The city is responsible for payment
of the Medicare Part B premium for all offi-
cers who retired prior to the current MOA.
The city shall reimburse them for the premi-
ums paid retroactively to the date they com-
menced payment and prospectively so long as
the premiums are incurred.
On March 25, 2008, one hundred thirteen days after the
arbitral award, Local 63 filed a complaint with the Superior
Court requesting confirmation of the award, attorneys' fees and
costs, interest, conversion of the award to a judgment, and
enforcement of the judgment. On August 1, 2008, Local 63 filed
a motion for summary judgment, which was heard and granted on
A-1089-08T3
5 September 12, 2008, over the City's opposition. The City
appealed on October 27, 2008, and then moved for a stay before
the trial court, which was denied on December 19, 2008. The
City then filed a motion for a stay with us, which we denied on
February 4, 2009.
In this appeal, the City contends it may raise affirmative
defenses to the award because Local 63 did not institute a sum-
mary action to confirm the award under N.J.S.A. 2A:24-7 within
three months; the award violates a public policy to preserve the
fiscal integrity of the City; and the award improperly added
terms to the CNA to which the City did not agree.
Local 63 responds that the award was reasonably debatable;
it did not violate any public policy; and the City is bound by
the award because it failed to seek modification or vacation
within three months of the award.
The PBA urges that medical benefits are earned compensation
and constitute a vested property interest; that retirees' medi-
cal benefits are presumed vested absent contractual language to
the contrary; and that confirmation of the award conformed to
long-established standards for review of arbitral awards.
II.
The scope of our review of the judgment confirming an arbi-
tral award is plenary because confirmation of such an award
A-1089-08T3
6
presents a question of law. See generally, Manalapan Realty,
L.P. v. Twp. Comm. of Manalapan,
140 N.J. 366, 378 (1995) ("A
trial court's interpretation of the law and the legal conse-
quences that flow from established facts are not entitled to any
special deference").
New Jersey has a strong preference for confirming arbitral
awards. Middletown Twp. PBA Local 124 v. Twp. of Middletown,
193 N.J. 1, 10 (2007) (Middletown II) (citing N.J. Tpk. Auth. v.
Local 196,
190 N.J. 283, 292 (2007)). Under N.J.S.A. 2A:24-8, a
court may vacate an arbitration award only on a few narrow
grounds, including "[w]here the award was procured by corrup-
tion, fraud or undue means" or "[w]here the arbitrators exceeded
or so imperfectly executed their powers that a mutual, final and
definite award upon the subject matter submitted was not made."
N.J.S.A. 2A:24-8.
The review of an arbitration award resulting from a public-
sector dispute is somewhat broader. Habick v. Liberty Mut. Fire
Ins. Co.,
320 N.J. Super. 244, 252 (App. Div.) ("The standard of
review of the public sector arbitrator's decision . . . is
broader than it would be for private, voluntary arbitration
under Tretina."), certif. denied,
161 N.J. 149 (1999). We must
uphold an arbitrator's decision so long as it is "reasonably
Middletown II, supra,
193 N.J. at 11 (citations
debatable."
A-1089-08T3
7
omitted); N.J. Tpk. Auth., supra,
190 N.J. at 301; Office of
Employee Relations v. Commc'n Workers of Am.,
154 N.J. 98, 112
(1998). This means that a court "may not substitute its own
judgment for that of the arbitrator." N.J. Transit Bus Opera-
tions v. Amalgamated Transit Union,
187 N.J. 546, 554 (2006).
This is so "regardless of the court's view of the correctness of
the arbitrator's interpretation." Ibid.
A summary action to confirm, vacate, or modify an arbitral
award under the Arbitration Act, N.J.S.A. 2A:24-1 to -11, must
be filed within three months after the award is delivered to the
party filing the action. N.J.S.A. 2A:24-7. Where a party
timely seeks to confirm an award, the opposing party may seek to
vacate or modify it beyond the three-month period. Harris v.
Sec. Ins. Group,
140 N.J. Super. 10, 12-13 (App. Div. 1976).
Where a party has lost the right to institute a summary
action under N.J.S.A. 2A:24-7, as here, that party may nonethe-
less file a plenary common-law action for confirmation, Heffner
v. Jacobson,
100 N.J. 550, 555 (1985), unless the parties
required the Arbitration Act to be the exclusive remedy, Police-
man's Benevolent Ass'n v. Borough of Mount Haledon,
158 N.J.
392, 399-400 (1999). Otherwise, the party opposing a common-law
action for confirmation, as here, may only avoid confirmation if
it can demonstrate that the award is "'contrary to existing law
A-1089-08T3
8
or public policy.'" N.J. Tpk. Auth., supra,
190 N.J. at 294
(quoting Bd. of Educ. of Alpha v. Alpha Educ. Ass'n, 188 N.J.
190 N.J. 34, 42 (2006) (citations
595, 603, reprinted at
omitted)). This is because "'[p]arties are presumed to have
contracted with reference to existing law,' and such 'principles
are especially pertinent where . . . the agreement was entered
into pursuant to a specific authorizing statute.'" Middletown
II, supra,
193 N.J. at 12 (quoting Red Bank Bd. of Educ. v.
Warrington,
138 N.J. Super. 564, 568-69 (App. Div. 1976)).
A public policy is only sufficient to vacate an award if it
is "embodied in legislative enactments, administrative regula-
tions, or legal precedents, rather than based upon amorphous
considerations of the common weal." N.J. Tpk. Auth., supra,
190 N.J. at 295. The public policy exception is construed very nar-
rowly and should be found in only rare circumstances. Tretina
Printing, Inc. v. Fitzpatrick & Assocs. Inc.,
135 N.J. 349, 364
(1994).
III.
The City argues that the award violates public policy
because it imposes an undue financial hardship on the City's
taxpayers and threatens the integrity of the City's pension
fund. Defendant relies heavily on one of our unpublished
decisions, but such a decision does not constitute "existing
A-1089-08T3
9
law" within the intendment of N.J. Tpk. Auth., supra,
190 N.J.
at 294. See R. 1:36-3 ("No unpublished opinion shall constitute
precedent or be binding upon any court [and] [n]o unpublished
opinion shall be cited by any court."). Furthermore, there is
no factual support in the record for the City's claims of
financial hardship or a threat to the integrity of its pension
fund. The expenses incurred through enforcement of the award
would only be equivalent to those expenses that the City
incurred prior to the changes in the medical-expense benefits.
The City has not demonstrated how maintaining equivalent
payments would unduly burden it or its taxpayers. We see no
merit in this contention.
The City also contends that the award requires it to vio-
late N.J.S.A. 40A:10-23, necessitating vacation of the award
under Middletown Twp. Policemen's Benevolent Association, Local
No. 124 v. Twp. of Middletown,
162 N.J. 361, 370-71 (2000)
(Middletown I). The Middletown I Court decided a dispute
between a retired police officer and the Township respecting the
Township's obligation to continue to pay the entire cost of
health coverage for all retired employees, as their CNA
required. Middletown I, supra,
162 N.J. at 365. The Township
contended that it was not permitted to do so by virtue of
A-1089-08T3
10 N.J.S.A. 40A:10-23. Ibid. The version of the statute in effect
when the police officer retired provided as follows:
Retired employees shall be required to
pay for the entire cost of coverage for
themselves and their dependents at rates
which are deemed to be adequate to cover the
benefits, [as affected by Medicare] . . . .
The employer may, in its discretion,
assume the entire cost of such coverage and
pay all of the premiums for employees who
have retired on a disability pension or
after 25 years['] or more service with the
employer, or have retired and reached the
age of 62 or older with at least 15 years of
service with the employer, including the
premiums on their dependents, if any, under
uniform conditions as the governing body of
the local unit shall prescribe.
[Id. at 369 (quoting N.J.S.A. 40A:10-23
(1988)).]
The Court found that the "contract . . . did not comply
with the terms of N.J.S.A. 40A:10-23, because it permitted (in
fact, required) benefits to be paid to employees who had not
completed twenty-five years of 'service,' and therefore was
Id. at 370-71. However, relying on our decision
ultra vires."
in Wood v. Borough of Wildwood Crest,
319 N.J. Super. 650, 660-
61 (App. Div. 1999), the Court held "that the Township's
extension of benefits . . . is ultra vires in the secon-
dary sense because the Agreement was merely an 'irregular exer-
cise of a basic power' of the Township." Id. at 371. Because
an ultra vires act in the secondary sense is subject to equita-
A-1089-08T3
11
ble principles, the Court concluded that the Township was
estopped from denying benefits to the police officer, in part
because he had relied on the Township's representations that he
would continue to receive medical-expense benefits and retired
Id. at 372.
in reliance on those representations.
Indeed, reimbursement of health insurance premiums consti-
tutes compensation in New Jersey. The Supreme Court in Gauer v.
Essex County Div. of Welfare,
108 N.J. 140 (1987), addressed the
County's attempt to rescind retiree medical benefits based on
N.J.S.A. 40A:10-23. That statute at the time in issue was
identical to the statute considered in Middleton I.
The Court rejected the County's contention that the statute
barred such benefits:
We are persuaded that the reimbursement of
health insurance premiums to long-standing
employees was intended at least in part as
compensation for extended tenure. See May-
wood Educ. Ass'n, Inc. v. Maywood Bd. of
Educ.,
131 N.J. Super. 551, 557 (1974)
("Compensation paid to public employees
whatever the label, is not a gift so long as
it is included within the conditions of
employment either by statutory discretion or
contract negotiation"). Hence we are satis-
fied that, like pensions, these retirement
benefits were sufficiently compensatory to
afford the plaintiff some interest in their
preservation.
[Gauer, supra,
108 N.J. at 149-150.]
A-1089-08T3
12
The Court concluded that Essex County could not rescind the
retiree's medical benefits.
was subsequently applied in Weiner v. County of
Gauer
Essex,
262 N.J. Super. 270 (Law. Div. 1992). Weiner involved
the very same facts as Gauer except that plaintiffs had not
retired at the time Gauer was decided. As in Gauer, Essex
County sought to deny the plaintiffs retiree medical benefits.
Id. at 279. Judge Villanueva, then sitting in the Law Division,
found in favor of the plaintiffs. Id. at 294. He held that
"post-retirement medical benefits . . . are property rights of
employees employed at that time, which the County cannot
unilaterally terminate." Id. at 275. As such, the plaintiff's
interest in post-retirement medical benefits was subject to fed-
eral and state constitutional guarantees of due process of law.
Id. at 287.
We have also considered whether a township acted unlawfully
when it refused to adhere to a policy providing health insurance
coverage for employees who retired with at least twenty-five
years of service in Bonzella v. Monroe Twp.,
367 N.J. Super.
581, 583 (App. Div. 2004). There, the township required a hus-
band and wife, both of whom had been employed for twenty-five
years by the Township, to elect coverage with one spouse as the
insured and the other as a dependent rather than maintain cross-
A-1089-08T3
13
coverage. Id. at 586. The result was that the retirees were
deprived of the benefits of cross-coverage and incurred substan-
We applied the
tial additional healthcare expenses. Ibid.
Supreme Court's analysis in Gauer and concluded
that the health benefits provided by the
resolution are part of respondents' compen-
sation. The benefits are a separate enti-
tlement, personal to the employee, which the
Township cannot take away to save costs. At
the time the benefits were requested,
respondents had each put in their twenty-
five years of service to the Township and
were ready to retire. They earned what the
Township promised them and it is too late
for the Township, by resolution or other-
wise, to reduce the health benefits
available to these two employees.
[Id. at 590.]
More recently, the Supreme Court considered the effect of
the current version of N.J.S.A. 40A:10-23 adopted in 1995 on
medical-expense benefits in Middletown II, supra,
193 N.J. at 1,
which was an appeal from an order confirming an arbitration
N.J.S.A. 40A:10-23 currently provides:
award.
Retired employees shall be required to
pay for the entire cost of coverage for
themselves and their dependents at rates
which are deemed to be adequate to cover the
benefits, as affected by Medicare . . . .
The employer may, in its discretion,
assume the entire cost of such coverage and
pay all of the premiums for employees a. who
have retired on a disability pension, or b.
who have retired after 25 years or more of
service credit in a State or locally admin-
A-1089-08T3
14
istered retirement system and a period of
service of up to 25 years with the employer
at the time of retirement, such period of
service to be determined by the employer and
set forth in an ordinance or resolution as
appropriate, or c. who have retired and
reached the age of 65 years or older with 25
years or more of service credit in a State
or locally administered retirement system
and a period of service of up to 25 years
with the employer at the time of retirement,
such period of service to be determined by
the employer and set forth in an ordinance
or resolution as appropriate, or d. who have
retired and reached the age of 62 years or
older with at least 15 years of service with
the employer, including the premiums on
their dependents, if any, under uniform con-
ditions as the governing body of the local
unit shall prescribe. . . .
In comparing the prior version with the 1995 version, the
Court commented that the amended statute on its face "empowers
the Township to award health benefits to an expanded class of
employees----officers who have accreted twenty-five years of ser-
vice and credits in one or more of the relevant governmental
employers including the Township." Middletown II, supra,
193 N.J. at 14.
The Township interpreted the statute as requiring the
enactment of an ordinance or resolution establishing the minimum
period of service with the Township and, absent such a resolu-
tion, the minimum period must be twenty-five years of Township
employment. Id. at 15. The Court rejected that interpretation.
Ibid. "The employer has absolute hegemony over the issue. How-
A-1089-08T3
15
ever, where the employer chooses not to establish such a floor,
the statute is essentially self-executing; any combination of
service and credit that totals twenty-five years will do." Id.
at 15-16. The need for an ordinance is tied only to the estab-
lishment of a minimum period of municipal employment. Id. at 16
(declaring language in Middletown I to the contrary as dictum).
The Court concluded that the arbitrator's award was not contrary
to law and affirmed. Ibid.
The City contends that, to the extent the award requires it
to provide medical-expenses benefits to retirees with less than
twenty-five years service, it violates N.J.S.A. 40A:10-23. We
disagree because the parties to the CNA are presumed to have
contracted with reference to existing law, including N.J.S.A.
40A:10-23. That statute permits a municipality to assume the
cost of retiree medical benefits for retirees "who have retired
and reached the age of 62 years or older with at least 15 years
of service with the employer." Furthermore, any violation of
the act would only be ultra vires in the secondary sense and may
be subject to equitable estoppel. Middletown I, supra,
162 N.J.
at 368, 371-72. There simply are no facts in the record before
us that would permit us to reach this hypothetical issue. We
find no violation of public policy mandating vacation of the
arbitral award in this case.
A-1089-08T3
16
IV.
The City contends that the arbitrator failed to properly
apply contract law to the interpretation of the CNA because its
terms were clear and unambiguous and reflected the common intent
of the parties. It argues that the judge erred in affirming the
award. Local 63 and PBA respond that the trial court correctly
confirmed the award at issue because the arbitrator's decision
was "reasonably debatable."3
However, the "reasonably debatable" standard of review has
only been applied where the appellant is challenging an arbitra-
tion award under the Arbitration Act. See, e.g., Kearny PBA
Local No. 21 v. Town of Kearny,
81 N.J. 208, 227-229 (1979)
(Pashman, J., concurring) (endorsing majority's application of
"reasonably debatable" standard in reviewing arbitration
challenges brought on statutory grounds). We have found no case
in which that standard has been applied in a common-law action
to confirm an arbitration award, as here, where the party
opposing confirmation is limited to affirmative defenses, such
as waiver, accord and satisfaction, estoppel, fraud, and laches.
Indeed, our Supreme Court has held that a party opposing a
common-law action for confirmation may only avoid confirmation
3
Middletown II, supra,
193 N.J. at 11 (citations omitted); N.J.
Tpk. Auth., supra,
190 N.J. at 301; Commc'n Workers of Am.,
supra,
154 N.J. at 112.
A-1089-08T3
17
if it can demonstrate that the award is "contrary to existing
law or public policy." N.J. Tpk. Auth., supra,
190 N.J. at 294.
The City's argument that the arbitrator violated common-law
principles of contract interpretation does not rise to the level
of a demonstration that the award was "contrary to law." Even
if it did, we find no such violation here as the arbitrator's
award was solidly based on language in the CNA.
Affirmed.
A-1089-08T3
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