PAUL J. KENNEDY v. LOCAL FINANCE BOARD

 

(NOTE: The status of this decision is Published.)

                        NOT FOR PUBLICATION WITHOUT THE
                      APPROVAL OF THE APPELLATE DIVISION
     This opinion shall not "constitute precedent or be binding upon any court."
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        parties in the case and its use in other cases is limited. R. 1:36-3.




                                       SUPERIOR COURT OF NEW JERSEY
                                       APPELLATE DIVISION
                                       DOCKET NO. A-1699-16T
4

PAUL.J. KENNEDY,

        Petitioner-Appellant,

v.

LOCAL FINANCE BOARD,

     Respondent-Respondent.
___________________________________

              Submitted January 22, 2018 – Decided March 12, 2018

              Before Judges Sabatino, Ostrer and Whipple.

              On appeal from the Local Finance Board,
              Department of Community Affairs, Docket No.
              LFB 14-018.

              Kelaher, Van Dyke & Moriarty, attorneys for
              appellant (Peter J. Van Dyke, on the briefs).

              Gurbir S. Grewal, Attorney General, attorney
              for respondent (Melissa H. Raksa, Assistant
              Attorney General, of counsel; Melanie R.
              Walter, Deputy Attorney General, on the
              brief).

PER CURIAM

        Paul J. Kennedy appeals from the Local Finance Board's final

decision that he violated 
N.J.S.A. 40A:9-22.5(c), (d), (e), and

(g) of the Local Government Ethics Law.              The Board imposed a $500
fine.1   The Board's finding arises out of Kennedy holding various

paid positions in the Ocean Gate Borough government, in addition

to his position as mayor.     We affirm the finding of violations,

but vacate the imposition of a penalty, and remand.

     After the Board's initial finding, and Kennedy's demand for

a hearing before the Office of Administrative Law (OAL), the

parties eventually filed cross-motions for summary decision.           In

a written opinion that the Board adopted in its entirety, the

Administrative Law Judge (ALJ) denied Kennedy's motion and granted

the Board's.

     We presume the reader's familiarity with the facts that the

ALJ reviewed at length.     It suffices to note here that Kennedy,

while serving as the Borough's unpaid mayor, performed many duties

that would normally be assigned to a municipal administrator,

personnel director, insurance administrator, and ADA coordinator,

whose positions were all vacant.       Kennedy suggested to the Borough

Council that it formally appoint him to those positions and pay

him a salary without pension or other benefits.            The Council

agreed, first appointing him Acting Administrator and two years



1
  Kennedy does not appeal the Board's finding that he violated

N.J.S.A.   40A:9-22.6(a)(1)  by  filing   incomplete   financial
disclosure statements and fining him $100.      
N.J.S.A. 40A:9-
22.10(b). Therefore, we do not address that finding.


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later, adding the other positions in an "acting" capacity. 2                      By

then, the administrator's salary had risen from $15,000 to $30,000.

The other positions added another $20,000 in salary.

     On appeal, Kennedy renews arguments he presented to the Board

that: (1) his actions did not violate the Ethics Law; (2) he

reasonably    relied    on   the    advice    of   counsel;   and   (3)    if   his

counsel's affidavit is deemed insufficient, the matter should be

remanded for a plenary hearing.

     We begin with our standard of review.              The test for granting

a motion for an administrative agency's summary decision under

N.J.A.C.     1:1-12.5(b)     is    "substantially    the   same"    as    the   one

governing a motion to a trial court for summary judgment under

Rule 4:46-2.     Contini v. Bd. of Educ. of Newark, 
286 N.J. Super.
 106, 121 (App. Div. 1995).            However, our review of an agency's

summary decision differs from our de novo review of a court's

grant of summary judgment.             See Henry v. N.J. Dep't of Human

Servs., 
204 N.J. 320, 330 (2010).              While we review de novo an

agency's determination that there are no genuine issues of material

fact,   we    "strive      to     'give   substantial      deference      to    the

interpretation [the] agency gives to a statute that the agency is



2
 The Council also made the mayor's position salaried, with a range
of $1 to $5000. The record does not include a Council resolution
approving a particular salary level for Kennedy's service as mayor.

                                          3                                A-1699-16T4
charged with enforcing.'"      In re Application of Virtua-West Jersey

Hosp. Voorhees for a Certificate of Need, 
194 N.J. 413, 423 (2008)

(citing Saint Peter's Univ. Hosp. v. Lacy, 
185 N.J. 2, 15 (2005)).

We generally will affirm an agency's final quasi-judicial decision

unless it is "arbitrary, capricious, or unreasonable."        Russo v.

Bd. of Trustees, Police and Firemen's Ret. Sys., 
206 N.J. 14, 27

(2011).     Nonetheless, we are "in no way bound by the agency's

interpretation of a statute or its determination of a strictly

legal issue."       Mayflower Sec. Co. v. Bureau of Sec., 
64 N.J. 85,

93 (1973).

     Applying this standard of review, we affirm the Board's

specific conclusion that Kennedy violated multiple provisions of

the Ethics Law substantially for the reasons stated in the ALJ's

decision.    Using his position as mayor, Kennedy was the moving

force in his own hiring.       The method he used also deprived others

of an equal chance to apply for the positions. As the ALJ observed,

Kennedy     never     even   considered   seeking   other   candidates.

Consequently, he "use[d] . . . his official position to secure

unwarranted . . . advantages for himself. . . ."       
N.J.S.A. 40A:9-

22.5(c); he used the non-public information about the hiring

process he obtained as mayor "for the purpose of securing financial

gain for himself," 
N.J.S.A. 40A:9-22.5(g); and he "act[ed] in his

official capacity . . . where he . . . ha[d] an interest, [or]

                                     4                          A-1699-16T4
. . . direct . . . financial or personal involvement that might

reasonably be expected to impair his objectivity or independence

of judgment . . . ."        
N.J.S.A. 40A:9-22.5(d).      Additionally, as a

multi-office-holder, Kennedy created the risk that his use of the

mayoral veto of Council actions under 
N.J.S.A. 40A:60-5(d) could

be affected by the Council's power to fire him from the various

other offices he held. Thus, he had "undertake[n] . . . employment

. . .     which    might   reasonably   be    expected   to   prejudice       his

independence of judgment in the exercise of his official duties."


N.J.S.A. 40A:9-22(e).

         Our decision in Gayder v. Spiotta, 
206 N.J. Super. 556 (App.

Div. 1985), upon which Kennedy relies, does not compel a different

result.      In Gayder, we held that a village president, equivalent

to   a    mayor,   could   vote   for   his   appointment     as   the    police

administrator.      Disqualification because of personal interest was

not required because the statute authorized filling the position

from the village board of trustees, on which the village president

served.      By contrast, Kennedy's actions were not contemplated by

statute.       He used his office to propose his hiring, thereby

violating a principle the Gayder panel reaffirmed: "[A] public

official may not exercise his office to confer a personal benefit

upon himself," including securing "another office or position."

Id. at 562.

                                        5                                A-1699-16T4
       Nor   does   it   matter    that   Kennedy      did   not   vote   for   his

employment.     Kennedy highlights that fact to distinguish himself

from the council member in Grimes v. Miller, 
113 N.J.L. 553 (Sup.

Ct. 1934), who wrongfully withheld a vote, leaving a tie in place

that secured his appointment to an office.              Kennedy still used his

power to place himself in office.             That was the fundamental wrong

that Grimes identified.           Id. at 557-58.        In sum, we discern no

basis to disturb the Board's conclusion that Kennedy's actions

violated the Ethics Law.

       We turn next to Kennedy's advice-of-counsel defense.                       We

recognized the defense in dictum in In re Zisa, 
385 N.J. Super.
 188, 198-99 (App. Div. 2006).                 Although we held that Zisa's

activities did not violate the Ethics Law, we held that even if

they did, the Board erred in rejecting Zisa's advice-of-counsel

defense.     To establish the defense: (1) an officer must receive

the advice before taking the questioned action; (2) the officer

must    make    "full      disclosure     of    all     pertinent     facts     and

circumstances";      (3)   the    advisor     must    "possess[]    authority     or

responsibility with regard to ethical issues"; and (4) the officer

must "comply with the advice received, including any restrictions




                                          6                                A-1699-16T4
it might contain."      Ibid.3     We noted that the Executive Commission

on Ethical Standards applied a similar test in In re Howard, 
93 N.J.A.R 2d (Vol. 5A) 1 (Executive Comm'n on Ethical Standards

1993), aff'd as modified, 
94 N.J.A.R 2d (Vol. 5A) 1 (App. Div.

1994).      In re Zisa, 
385 N.J. Super. at 199.        The advice-of-counsel

defense lies although an officer can, instead of seeking advice

of counsel, seek an advisory opinion from the Board itself.                 See

N.J.A.C. 5:35-1.5.

       We   found   nothing   in   the   record   to   support   the   Board's

conclusion that Zisa's reliance on counsel was unreasonable, apart

from those four factors.            Id. at 197-98.       In particular, we

rejected the Board's conclusion that it was unreasonable to rely

on an oral opinion of the municipal attorney, absent evidence that

written opinions were the usual practice.          Ibid.    We also rejected

the Board's conclusion that Zisa's experience and astuteness made

it unreasonable for him to follow the attorney's advice.               Id. at

198.




3
 Although not expressly stated, the attorney-advisor must also be
independent, and not saddled with a conflict of his or her own in
providing advice. Cf. Mortensen v. Comm'r, 
440 F.3d 375, 387 (6th
Cir. 2006) ("In order for reliance on professional tax advice to
be reasonable, however, the advice must generally be from a
competent and independent advisor unburdened with a conflict of
interest and not from promoters of the investment.").


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     However, the defense does not vitiate a finding of an Ethics

Law violation that does not hinge upon a public servant's state

of mind.     Cf. id. at 197 (stating the defense is not a "absolute

defense").    It is a defense to a penalty.       There is no element of

the substantive statutory violations to which good faith reliance

on counsel's advice would be relevant.4       By contrast, for example,

in the tort setting, reliance on counsel's advice "erases the

'absence of probable cause' element of the tort of malicious use

of process. . . ."       See LoBiondo v. Schwartz, 
199 N.J. 62, 106

(2009); see also id. at 95 (noting that prior cases held that

"reliance on the advice of counsel . . . will defeat the separate

element of malicious intent").          The defense approved in Zisa

pertains to whether a local office-holder should be subject to an

otherwise    mandatory   penalty   of   between   $100   and   $500    for    a

violation.    See 
N.J.S.A. 40A:9-22.10(b).




4
  The Executive Commission on Ethical Standards found that the
defense was relevant to establishing a knowing conflict under

N.J.S.A. 52:13D-23(e)(7).    "[A]n employee who received prior
approval for a particular action cannot be found to have acted in
a knowing fashion in violation of 
N.J.S.A. 42:13D-23(e)(7)
. . . ."   In re Howard, 
93 N.J.A.R 2d at 14.       However, the
Appellate Division panel held that the "knowing" state-of-mind
pertains to the act itself; but proof of subjective knowledge
"that the act will be perceived as a breach of trust" is not
required. The court noted the test is an objective one. In re
Howard, 
94 N.J.A.R 2d at 5.

                                    8                                 A-1699-16T4
     The ALJ, and the Board by adoption, found that Kennedy's

reliance on the advice of counsel was unreasonable.     In support

of Kennedy's motion for summary decision, the Borough Attorney

stated in an affidavit that Kennedy requested his advice before

he accepted the various municipal offices; Kennedy made him "aware

of the facts and the circumstances surrounding" his contemplated

acceptance; the attorney advised him there was no "legal rule or

principle that forbade his accepting those positions"; and Kennedy

thereafter accepted the positions.

     The ALJ did not directly ascertain Kennedy's compliance with

the four Zisa factors — a point we shall discuss.     Instead, the

ALJ found that the attorney's affidavit was too conclusory to

"allow an assessment of the reasonableness of his advice."       The

ALJ also faulted Kennedy for failing to identify ambiguity in the

Ethics Law that prompted him to seek legal advice.         The ALJ

concluded that the law so clearly prohibited his conduct that it

was unreasonable to rely on the Borough Attorney's advice to the

contrary.5


5
  The ALJ cited Cooper v. United States, 
834 F. Supp. 669, 670
(D.N.J. 1993), aff'd, 
9 F.3d 1539 (3d Cir. 1993), wherein the
district court held that a taxpayer did not establish "reasonable
cause" under 26 U.S.C. § 6651(a) to fail to file a timely tax
return. The court held that it was unreasonable for the taxpayer
to rely on "facially extraordinary" advice that a filing could be
postponed while the taxpayer was the subject of an ongoing criminal


                                9                           A-1699-16T4
     The ALJ and the Board misapplied the defense.           It does not

directly   depend   on   the   reasonableness   or   correctness   of   the

attorney's advice.       It depends instead on the reasonableness of

the office-holder's reliance.       Although it would be unreasonable

to rely upon wildly implausible advice, those instances should be

exceedingly rare.

     Rather, an officer should be able to reasonably rely on the

advice of an independent attorney responsible for providing it.

An officer should not be required to pinpoint ambiguities in the

law to justify seeking legal advice in the first place.            Rather,

it should usually suffice that the officer "'evidenced sensitivity

to the issue of a potential conflict . . . and sought legal

advice."   In re Zisa, 
385 N.J. Super. at 198 (citation omitted).

     In other contexts, courts have concluded that clients should

be free to rely in good faith on their attorney's advice.               See

United States v. Boyle, 
469 U.S. 241, 251 (1985) (noting, in the

tax context, "[w]hen an accountant or attorney advises a taxpayer

on a matter of tax law, such as whether a liability exists, it is

reasonable for the taxpayer to rely on that advice"); McKeown-

Brand v. Trump Castle Hotel & Casino, 
132 N.J. 546, 558 (1993)

(noting, in applying frivolous litigation statute, "a client who


investigation into prior returns, particularly since the taxpayer
did not request an extension. Id. at 672-73.

                                    10                             A-1699-16T4
relie[d] in good faith on the advice of counsel cannot be found

to have known that his or her claim or defense was baseless").

The local official who is not an expert in local government ethics

law should rarely be obliged to second-guess the responsible

attorney.    The United States Supreme Court observed, regarding

taxpayers' reliance on counsel's advice:

            Most taxpayers are not competent to discern
            error in the substantive advice of an
            accountant or attorney. To require the
            taxpayer to challenge the attorney, to seek a
            "second opinion," or to try to monitor counsel
            on the provisions of the Code himself would
            nullify the very purpose of seeking the advice
            of a presumed expert in the first place.

            [Boyle, 
469 U.S.  at 251.]

The same holds true for a local governmental official seeking

ethics advice.

     While the existing record does not support a finding that

Kennedy acted unreasonably in relying on the advice he received,

the Borough Attorney's affidavit provided insufficient detail to

enable the Board to assess fairly Kennedy's compliance with the

four elements of the advice-of-counsel defense articulated in

Zisa.   The attorney does not state when Kennedy sought his advice,

particularly whether he sought his advice before the Council

actually approved the resolutions appointing him to the several

paid positions.   The attorney also does not describe in any detail


                                 11                          A-1699-16T4
the facts and circumstances provided to him.    Evidently, the ALJ

did not explicitly analyze those factors once he concluded that

Kennedy's reliance was unreasonable.

     Therefore, it is appropriate to vacate the imposition of the

$500 penalty and remand the case to the Board to provide Kennedy

with an opportunity to supplement the record with additional

evidence in support of his defense that he reasonably relied on

counsel and satisfied the four elements in Zisa.    We leave it to

the Board to determine whether additional discovery is warranted,

and whether the matter should be referred again to the OAL for a

plenary hearing.    Although Kennedy moved for summary decision, he

did not waive the opportunity to supplement the record under the

circumstances.     See O'Keeffe v. Snyder, 
83 N.J. 478, 487 (1980)

(stating that a movant may assert that the facts are undisputed

according to its theory of the case, while contending genuine

issues of fact remain if the court adopts the opponent's theory).

     Affirmed in part.    Vacated and remanded in part.   We do not

retain jurisdiction.




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