JOSEPH J. NEWMAN v. EDWARD DEFAZIO

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-2127-12T3

JOSEPH J. NEWMAN, CHAPTER

7 TRUSTEE FOR JOSEPH RUIS,1

Plaintiff,

v.

EDWARD DEFAZIO, HUDSON

COUNTY PROSECUTORS OFFICE,

Defendant-Appellant.

____________________________________

November 18, 2013

Submitted November 7, 2013 Decided

Before Judges Fasciale and Haas.

On appeal from the Department of Law and Public Safety, Office of the Attorney General, Docket No. 10-44941.

Donato J. Battista, Hudson County Counsel, attorney for appellant (Michael L. Dermody, First Assistant County Counsel, on the briefs).

John J. Hoffman, Acting Attorney General, attorney for respondent State of New Jersey (Lisa A.Puglisi, AssistantAttorney General, of counsel; Brian P. Wilson, Deputy Attorney General, on the brief).

PER CURIAM

Appellant Hudson County (the County) appeals from the November 28, 2012 final agency decision of the Department of Law and Public Safety, Office of the Attorney General (Department), declining to provide the County with a defense or indemnification in connection with a bankruptcy proceeding involving an individual who had been prosecuted by the County Prosecutor's Office (HCPO) over eighteen months earlier. Because the record supports the Department's determination that the HCPO's participation in the bankruptcy matter did not trigger the State's obligation to defend or indemnify the County, we affirm.

We discern the following facts from the record before us. On June 30, 2009, the HCPO arrested and charged Joseph Ruis with first-degree money laundering, N.J.S.A. 2C:21-25; third-degree promoting prostitution, N.J.S.A. 2C:34-1b(2); third-degree conspiracy to promote prostitution and distribute cocaine, N.J.S.A. 2C:5-2, N.J.S.A. 2C:34-1b(2), N.J.S.A. 2C:35-5a(1), and N.J.S.A. 2C:35-5b(1); and first-degree leading a narcotics trafficking network, N.J.S.A. 2C:35-3.2

Following Ruis' arrest, a number of items, including approximately $300,000 in cash and bank accounts, cars, computers, and other personal property, were seized by the HCPO. On September 24, 2009, the HCPO filed a separate civil complaint for forfeiture of this property pursuant to N.J.S.A. 2C:64-1 to -9. The complaint also sought an order requiring Ruis to forfeit his title to real property, including a condominium he allegedly used when he committed the alleged offenses.

On April 6, 2010, Ruis was indicted on the charges discussed above. On June 11, 2010, he entered into a plea agreement and pled guilty to an amended charge of second-degree money laundering.3

On June 22, 2010, Ruis and the HCPO entered into a consent judgment of forfeiture under which Ruis agreed to forfeit over $300,000 and the other items of personal property previously seized to the HCPO. He also agreed to transfer title to the real property to the County. On June 23, 2010, a second consent order was entered under which Ruis agreed to forfeit an additional $10,000.27 to the HCPO.

On November 9, 2010, the trial court sentenced Ruis to five years in prison. On that same date, Ruis filed a voluntary petition for bankruptcy under Chapter 7 of the bankruptcy code in the United States Bankruptcy Court, District of New Jersey. See 11 U.S.C.A. 301.

On May 25, 2012, the Chapter 7 Trustee filed a "verified adversary complaint for recovery of property of the estate" and the Hudson County Prosecutor was named as the defendant. The complaint alleged that, in his bankruptcy petition, Ruis asserted the HCPO owed him $300,000 on a "book account for . . . goods sold and/or services rendered to" the HCPO. The complaint sought to require the HCPO to "satisfy the amount owed under the Account." The complaint raised no allegations of misconduct, tortious or otherwise, on the HCPO's part and did not mention the criminal proceedings or the separate civil forfeiture litigation.

On October 24, 2012, and again on November 20, 2012, the County submitted written requests for defense and indemnification to the Department pursuant to Wright v. State, 169 N.J. 422 (2001). The Department declined these requests by letter dated November 28, 2012, citing the absence of any allegations of tortious conduct against the HCPO in the Trustee's complaint. The Department concluded that the Trustee's "allegations do not fall within the very narrow scope of direct criminal enforcement activities contemplated in Wright" and that the Attorney General was "not obligated by Wright to defend or assert claims in a bankruptcy proceeding on behalf of a County prosecutor." This appeal followed.

On appeal, the County contends that because the HCPO prosecuted Ruis and pursued a civil forfeiture action against him, the Attorney General was obligated to defend and indemnify it in the subsequent bankruptcy proceeding. We disagree.

Our review of the Department's determination is limited. Its determination should be affirmed unless "'it is arbitrary, capricious or unreasonable or it is not supported by substantial credible evidence in the record as a whole.'" In re Taylor, 158 N.J. 644, 657 (1999) (quoting Henry v. Rahway State Prison, 81 N.J. 571, 581 (1980)). A final determination by the Department declining to provide a defense and indemnification "is entitled to the usual deference accorded to [an administrative agency] decision." Prado v. State, 186 N.J. 413, 427 (2006).

Under the Tort Claims Act, the Attorney General is only required to provide a defense and indemnification to covered employees in civil actions seeking damages for tortious conduct and in civil actions brought pursuant to 42 U.S.C.A. 1983. See Chasin v. Montclair State Univ., 159 N.J. 418, 428 (1999) ("The history of the [Tort Claims Act] demonstrates that it was intended to apply only to civil actions seeking damages for tortious conduct."); In re Petition for Review of Op. 552 of the Advisory Comm. on Prof'l Ethics, 102 N.J. 194, 200 (1986) (The Attorney General's "statutory defense and indemnification obligations" under the Tort Claims Act extend "to the defense of actions brought pursuant to 42 U.S.C. 1983."). In any other action or proceeding, representation is at the Attorney General's discretion if "he [or she] concludes that such representation is in the best interest of the State." N.J.S.A. 59:10A-3; Chasin, supra, 159 N.J. at 426.

In Wright, the Supreme Court considered the issue of whether the State could be held vicariously liable for the tortious conduct of county prosecutors and their employees. Supra, 169 N.J. at 444. In resolving this issue, the Court found it unnecessary to decide "whether the county prosecutors and their subordinates [are] 'State employees' within the meaning of the defense and indemnification provisions, N.J.S.A. 59:10-1 and N.J.S.A. 59:10A-1[,]" respectively, of the Tort Claims Act. Id. at 454. Instead, the Court focused on "whether the function that the county prosecutors and their subordinates were performing during [the time that] the alleged wrongdoing [occurred was] a function that traditionally has been understood to be a State function and subject to State supervision in its execution." Ibid.

Answering that question in the affirmative, the Court extended the application of N.J.S.A. 59:10A-1, which specifies when the Attorney General is required to defend an action filed against a State employee.4 Id. at 454-56. The Court held that the State was required to provide defense and indemnification to county prosecutor's office employees engaged in law enforcement activities as part of a State task force, but reached that result solely because of the unique "hybrid" statutory relationship between the Attorney General and county prosecutors' offices. Ibid. The court reasoned:

The position of county prosecutor was created for the purpose of prosecuting "[t]he criminal business of the State," N.J.S.A. 2A:158-4, and "the Attorney General [is the] chief law enforcement officer," who "maintain[s] a general supervision" and control over all of the county prosecutors. N.J.S.A. 52:17B-98; N.J.S.A. 52:17B-103.

. . . .

We are persuaded that when county prosecutors and their subordinates are involved in the investigation and enforcement of the State's criminal laws, they perform a function that has traditionally been the responsibility of the State and for which the Attorney General is ultimately answerable. In our view, the State should be obligated to pay the county prosecutors and their subordinates' defense costs and to indemnify them if their alleged misconduct involved the State function of investigation and enforcement of the criminal laws.

. . . .

We acknowledge that the Legislature intended a sharp distinction between State employees and employees of other public entities that may be indemnified by such entities, but that distinction did not contemplate public employees, such as county prosecutors, who have a hybrid status. We are persuaded that the statutory language used in N.J.S.A. 59:1-3 did not take into account the unique role of county prosecutorial employees, paid by the county, but performing a State law enforcement function under State supervisory authority.

[Ibid. (alteration in original) (emphasis added).]

The county is liable, however, when county prosecutor employees "perform administrative tasks unrelated to their strictly prosecutorial functions[.]" Coleman v. Kaye, 87 F.3d 1491, 1499 (3d Cir. 1996) (predicting what our Supreme Court would hold if presented with same issue), cert. denied, 519 U.S. 1084, 117 S. Ct. 754, 136 L. Ed. 2d 691 (1997). Further, "the State's duty to indemnify and defend county prosecutors and their subordinates is limited to acts or omissions that do not involve actual fraud, actual malice or willful misconduct[.]" Wright, supra, 169 N.J. at 456.

Applying these principles to the issue at hand, there is substantial credible evidence in the record to support the Department's decision to deny the County's request for defense and indemnification. As the Department found, the bankruptcy Trustee raised no allegations of "misconduct" or other tortious conduct on the part of the HCPO either in its prosecution of Ruis or in the separate, civil forfeiture action. Indeed, neither of those proceedings is even mentioned in the bankruptcy complaint. Thus, the Tort Claims Act does not apply and the Department was not required to provide a defense and indemnification to the County. Chasin, supra, 159 N.J. at 428.

In addition, the Trustee's complaint does not implicate the HCPO's or the State's investigative or law enforcement activities as required by Wright. As the County suggests in its brief, the Trustee's contention that the HCPO owes Ruis $300,000 on a "book account" indicates the Trustee is arguing that the payment to the HCPO may have been a "voidable preference" paid too soon before Ruis filed his bankruptcy petition. See 11 U.S.C.A. 547(b). Thus, the Trustee is merely raising an objection to the transfer of these funds to the HCPO and he seeks to have the money returned to the estate where it will be available to satisfy the claims of all of the creditors, including the HCPO.

The HCPO filed and pursued its civil forfeiture action against Ruis using only its own resources, without any assistance or supervision from the State. Had Ruis filed his bankruptcy petition prior to the entry of the June 2010 consent orders in that action, it is clear the HCPO, and not the State, would have had to deal with this issue at that time, again using only its own resources. Under these circumstances, it is entirely appropriate to require the HCPO to continue and complete the collection process on its own. By resisting the return of the funds it now holds in the bankruptcy action, the HCPO is plainly performing an administrative function, related solely to its own interests and budget, rather than a "classic law enforcement and investigative function[]" that would bring this case within the ambit of Wright. Supra, 169 N.J. at 441-42 (quoting Coleman, supra, 87 F. 3d at 1505-06).

We therefore discern no basis for disturbing the Department's decision to deny the County's request for a defense and indemnification under the circumstances of this case. The civil bankruptcy action does not implicate the Tort Claims Act or touch upon the HCPO's prosecutorial or investigative functions. The County has failed to present any evidence to indicate that the Department's decision was arbitrary, capricious, or unreasonable.

1 Incorrectly captioned as Joseph Ruiz.

2 A corporation managed by Ruis, First Professional Referral Services Corporation (Referral Services), was also charged with money laundering, promoting prostitution, and conspiracy to promote prostitution.

3 Referral Services was also indicted and, pursuant to a plea agreement, the corporation pled guilty to first-degree money laundering on June 11, 2010. On November 9, 2010, the trial court ordered that the corporation be dissolved as required by the plea agreement.

4 The statute provides that "the Attorney General shall, upon a request of an employee or former employee of the State, provide for the defense of any action brought against such State employee or former State employee on account of any act or omission in the scope of his [or her] employment." N.J.S.A. 59:10A-1.