L.A. AND THE HORACE MANN INSURANCE COMPANY v. BOARD OF EDUCATION OF THE CITY OF TRENTON, MERCER COUNTY

RECORD IMPOUNDED

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

L.A. AND THE HORACE MANN

INSURANCE COMPANY,

Petitioner-Respondent,

v.

BOARD OF EDUCATION OF THE

CITY OF TRENTON, MERCER COUNTY,

Respondent-Appellant.

_______________________________

September 24, 2013

Before Judges Lihotz and Guadagno.

On appeal from the Commissioner of the Department of Education,Docket No. 225-8/11.

Michael A. Pattanite, Jr., argued the cause for appellant (Lenox, Socey, Formidoni, Giordano, Cooley, Lang & Casey, LLC, attorneys; Mr. Pattanite, on the briefs).

Edward A. Cridge argued the cause for respondent (Mellk O'Neill, attorneys; Arnold M. Mellk, of counsel; Mr. Cridge, on the brief).

John J. Hoffman, Acting Attorney General, attorney for respondent Commissioner of Education (Beth N. Shore, Deputy Attorney General, on the statement in lieu of brief).

PER CURIAM

Appellant the Trenton Public School Board of Education (the Board) appeals a final agency decision, issued by the Commissioner of Education, granting summary decision to L.A. and requiring the Board to reimburse defense costs incurred in civil litigation involving respondent L.A., a former school employee. We reverse.

The facts are not in dispute. L.A. was employed by the Board as a security guard in an elementary school. As a result of his inappropriate sexual contact with students, L.A.'s employment was terminated. Thereafter, on August 16, 2007 he was indicted under Indictment No. 07-08-0897, for third-degree aggravated criminal sexual assault, N.J.S.A. 2C:14-3a, and second-degree endangering the welfare of a minor, student N.F., N.J.S.A. 2C:24-4. In a second indictment, No. 07-08-0898, L.A. was charged with two counts of second-degree sexual assault, N.J.S.A. 2C:14-2b, and one count of second-degree endangering the welfare of a minor, student K.O., N.J.S.A. 2C:24-4.

The Institutional Abuse Investigation Unit of the Department of Children and Families (DCF) investigated the allegations contained in the indictments, along with allegations of conduct involving two other student-victims. DCF issued its findings in a June 21, 2007 report. DCF concluded "[s]exual [a]buse/[s]exual [m]olestation was substantiated[,]" that is, "sexual/genital contact occurred" between L.A. and the children. DCF's role was to investigate and report, not to recommend action.

L.A. entered into one plea agreement addressing both indictments. Specifically, defendant pleaded guilty to one count of second-degree endangering the welfare of a child under Indictment 07-08-0897, and all remaining charges were dismissed.

K.O. initiated a civil complaint against L.A. alleging assault and the Board alleging negligent hiring. The parties settled this matter on May 16, 2011. The judgment separately awarded damages against the Board and L.A.

L.A. and the Horace Mann Insurance Agency (Horace Mann), the Board's liability carrier underwriter, filed a petition against the Board seeking reimbursement of defense costs and attorney's fees incurred in K.O.'s civil litigation. The parties filed cross-motions for summary decision, N.J.A.C. 1:1-12.5. The Administrative Law Judge (ALJ) granted L.A. and Horace Mann's motion and denied the Board's motion. The Commissioner adopted the ALJ's Initial Decision as his own and ordered the Board to reimburse L.A. for reasonable attorney's fees and costs incurred in defense of the civil action filed by K.O.

On appeal, the Board challenges the grant of L.A.'s motion for summary decision, arguing the ALJ erred as a matter of law in concluding L.A.'s conduct arose out of the performance of his duties and occurred in the course of performing these employment duties. Further, the Board maintains the criminal charges against L.A. were not resolved in his favor.

Our review of administrative agency decisions is limited. Karins v. City of Atl. City, 152 N.J. 532, 540 (1998). However, we are not "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). Our review centers on:

(1) whether the agency's action violates express or implied legislative policies, that is, did the agency follow the law; (2) whether the record contains substantial evidence to support the findings on which the agency based its action; and (3) whether in applying the legislative policies to the facts, the agency clearly erred in reaching a conclusion that could not reasonably have been made on a showing of the relevant factors.

[In re Herrmann, 192 N.J. 19, 28 (2007) (quoting Mazza v. Bd. of Trs., 143 N.J. 22, 25 (1995) (citing Campbell v. Dep't of Civil Serv., 39 N.J. 556, 562 (1963)).]

At issue is whether L.A. met the requirements of N.J.S.A. 18A:16-6, triggering the Board's obligation to provide indemnification of L.A.'s defense costs. The statute provides, in pertinent part:

Whenever any civil . . . proceeding has been . . . brought against any person holding . . . employment under the jurisdiction of any board of education . . . for any act or omission arising out of and in the course of the performance of the duties of such . . . employment . . . the board shall defray all costs of defending such action, including reasonable counsel fees and expenses, together with costs of appeal, if any, and shall save harmless and protect such person from any financial loss resulting therefrom[.]

[N.J.S.A. 18A:16-6.]

Understanding taxpayers are being called upon to pay the legal defense costs of the public employee named as a defendant in a civil suit, the statute obligates a board of education to defray all costs incurred by its employee only when the employee can prove by a preponderance of the evidence that the cause of action: "(1) arose out of and in the course of the performance of the duties of that person, and (2) resulted in a final disposition in favor of such person." Bd. of Educ. of Florham Park v. Utica Mut. Ins. Co., 172 N.J. 300, 306 (2002).

In considering whether L.A.'s conduct, arose "out of and in the course of the performance of [his] duties" as an elementary school security guard, we note the Commissioner did not consider the conduct led to a criminal conviction of endangering the welfare of children, but was persuaded by the fact that the events occurred while L.A. was working on school property and the civil litigation filed by K.O. was settled without L.A.'s admission of wrongdoing. The Commissioner reasoned, a school employee against whom alleged claims have never been substantiated is entitled to indemnification for cost in defending a civil suit. He determined that because the civil suit was settled without an admission or adjudication of the alleged facts there was no proof that L.A. engaged in any untoward conduct. This reasoning ignores the DCF investigative findings, the criminal conviction resulting from the conduct, and the likely testimony from the victims presented at a hearing.

The Commissioner and both parties rely on the Supreme Court's holding in Bower v. Bd. of Educ. of E. Orange, 149 N.J. 416 (1997), to support their respective positions. In that matter, public school teacher Paul Bower was indicted on charges alleging the sexual abuse of his students in the bathroom adjacent to the kindergarten classroom during school hours. Id. at 419, 421. The charges were dismissed and he sought indemnification from the East Orange Board of Education for his legal criminal defense costs. Id. at 419. Bower's claim for indemnification was based on N.J.S.A. 18A:16-6.1, which the court found refers back to N.J.S.A. 18A:16-6. Id. at 423 (citation omitted). The Court held "indemnification is mandatory," under N.J.S.A. 18A:16-6, "if the charges are dismissed or result in a favorable final disposition and if the 'act or omission' on which the criminal charges are predicated arises out of and in the course of the performance of the duties of employment." Id. at 419.

L.A. addresses the criminal matters but echoes the Commissioner's conclusion stating the dismissal of criminal charges against him relating to K.O.'s alleged assault mandated indemnification. On the other hand, the Board maintains L.A.'s guilty plea addresses both indictments and the negotiated terms to enter a plea to a single charge were not the equivalent of the dismissal discussed in Bower. Further, the Board relies on DCF's investigation substantiating all charges of "[s]exual [a]buse/[m]olestation" against both children. Id. at 422-23.

The Court in Bower, supra, stated the standard to be met, that is "proof by a preponderance of the evidence that the act on which the charges are predicated arose out of and in the course of performance of the duties of employment." Id. at 434. The charges against Bower arose regarding his assistance of students who used the lavatory. Because all charges were dismissed before trial, the Court found there was no other evidence to refute that the allegations arose from the conduct of his employment.

Unlike Bower, in this matter there exists sufficient evidence proving L.A. sexually assaulted K.O. The DCF investigation substantiated the sexual abuse by L.A. against K.O. Certainly, locking the child in the teacher's lounge where he touched her chest, thigh, shoulders, and arms defies any finding the conduct resulted from his employment responsibilities, "arising out of and in the course of the performance of the duties of . . . employment." N.J.S.A. 18A:16-6. See also Bower, supra, 149 N.J. at 431.

Although we recognize the DCF investigation was not dispositive or adjudicatory, it reflects the Board could prove the allegations of abuse by L.A. against K.O.1 If the ALJ had doubts, summary disposition should have been denied in favor of a full hearing. See Frank v. Ivy Club, 120 N.J. 73, 98 (1990) ("An agency must grant a plenary hearing only if material disputed adjudicative facts exist." (citations omitted)).

We also agree indemnification was not warranted because L.A.'s guilty plea resolved the charges in both indictments and was not a final disposition of the criminal charges favorable to L.A. On the contrary, L.A.'s guilty plea encompassed both indictments for which he was convicted of a single charge resulting in his status as a Megan's Law offender.

The plea record reflects the Criminal Part judge initially misstated the agreement, regarded an "indictment," and immediately corrected himself noting the agreement applied to "the indictments." When asked, L.A. affirmatively agreed this was correct. Further, the judge when entering his findings stated, "I'm satisfied, as I was saying, that [L.A.] today has entered a free, voluntary, counseled plea agreement with the [S]tate to resolve two indictments, 07-08-0897 and 07-08-0898." Such intention is further reflected by the plea agreement form, which identifies the charges in both indictments when describing the nature of offenses covered by the terms of the negotiated agreement.

These facts can be distinguished from those in Bower, wherein the State dismissed the charges without trial or adjudication. In this matter, the State had proofs demonstrating much more than L.A.'s presence in the school building while performing his tasks. Such proofs include statements from the children, school surveillance videos, and statements from adults to whom the children reported the events shortly after they occurred. The State's proofs were unrebutted and L.A. never denied the illicit conduct.

Following our review, we conclude the Commissioner's decision was error and must be reversed. The Board presented unrefuted evidence L.A.'s conduct was not in the course of his duties of employment and the final determination of criminal charges were not disposed of favorable to L.A. Under these facts, L.A. has failed to prove an entitlement to reimbursement of his legal defense fees and costs.

We acknowledge the decisions in Utica Mutual Insurance and Bower involve indemnification of an employee's costs to defend criminal charges. Nevertheless, these holdings demonstrate the statutory provisions of N.J.S.A. 18A:16-6 and -6.1 must be "read collectively," Utica Mut. Ins. supra, 172 N.J. at 306 and are "complimentary." Bower supra, 149 N.J. at 423. In matters such as this one, where the conduct giving rise to alleged civil liability is also the basis for criminal charges, the factual basis for and ultimate disposition of those criminal charges is highly probative when determining whether the employee's conduct arose out of and in the course of the performance of his or her duties. Here, the record does not support a sufficient nexus between L.A.'s official duties as a security guard and his conduct with the students to trigger the protection of N.J.S.A. 18A:16-6.

1 N.J.A.C. 1:1-15.5 permits the use of hearsay evidence in administrative proceedings, subject to the discretionary determinations of the ALJ. The evidence "admitted shall be accorded whatever weight the judge deems appropriate taking into account the nature, character and scope of the evidence, the circumstances of its creation and production, and, generally, its reliability." Ibid.