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DOCKET NO. A-6052-10T4


















April 5, 2013


Argued October 10, 2012 - Decided


Before Judges Lihotz and Ostrer.


On appeal from the Superior Court of New Jersey, Law Division, Atlantic County, Docket No. L-3980-08.


Arthur J. Murray argued the cause for appellant (Jacobs & Barbone, P.A., attorneys; Edwin J. Jacobs, Jr., of counsel; Mr. Murray, on the brief).


Michael E. Riley argued the cause for respondent (Law Offices of Riley & Riley, attorneys; Tracy L. Riley, on the brief).


Defendant and cross-claimant John Schultz appeals from the trial court's orders denying his motion to compel co-defendant Atlantic City (the City) to indemnify him for his liability to plaintiff, Eugene Robinson. We affirm.

A former City councilman, Robinson filed a multi-count civil complaint against Schultz, the City, and others, alleging various intentional torts and civil rights violations. Robinson's civil claims arose out of a criminal conspiracy in 2006 to blackmail him to resign from office.

According to the indictment filed in the matter and the trial court's summary of the scheme, former City Councilman Craig Callaway and three others1 conspired to obtain a video of Robinson engaging in sex with a prostitute. Callaway "enlisted fellow Councilman John Schultz to have the video edited" to obscure the face of the prostitute, and make it more difficult to trace the video back to the conspirators.

Robinson was confronted with the video and told to resign from office to prevent its release. He refused, and the video was released. Robinson reported the blackmail attempt to law enforcement. That led to the indictment of Callaway, Schultz and the three others. Schultz was charged with two counts of third-degree criminal conspiracy, N.J.S.A. 2C:5-2, third-degree criminal coercion, N.J.S.A. 2C:13-5, and third-degree invasion of privacy, N.J.S.A. 2C:14-9c. Schultz entered pre-trial intervention. The four others were convicted.

Robinson's civil action alleged the blackmail scheme was in retaliation for his failure to support Callaway and Schultz on matters involving the council. He alleged Schultz and the City were liable for a conspiracy to commit blackmail, invasion of privacy, civil racketeering, N.J.S.A. 2C:41-2, violation of constitutional rights protected by the New Jersey Civil Rights Act, N.J.S.A. 10:6-2, intentional infliction of emotional distress, tortious interference with contract and prospective economic advantage, conspiracy to portray plaintiff in a false light, and tortious misappropriation of plaintiff's image.

In Schultz's February 2009 cross-claim against the City, he alleged he was entitled to indemnification and defense costs pursuant to N.J.S.A. 59:10-4 and the City's "corresponding municipal ordinances." By letter dated December 7, 2009, the City's assistant solicitor advised Schultz's attorney "the City of Atlantic City will not pay any civil defense costs incurred by Councilman Schultz" in the case.

In January 2010, Schultz filed a motion to compel the City to provide him with a defense and indemnification. In support, he filed a brief (which is not before us); the pleadings of plaintiff, Shultz and the City; a copy of the City's ordinance on indemnification; and the assistant solicitor's letter. Although Schultz requested oral argument, the court denied the motion on the papers by order entered February 19, 2010. The order stated, "Under the facts and circumstances complained of, neither the statute nor the ordinance contemplate the provision of a defense to any of the Defendants." The judge later recused himself, and the case was transferred to Judge Carol E. Higbee.

After a period of discovery, and extensive motion practice, Schultz ultimately obtained dismissal of all counts against him except Robinson's claim of violation of constitutional rights.

In a written decision filed June 10, 2011, Judge Higbee also granted the City summary judgment as to all counts in the complaint. Judge Higbee concluded the City was not vicariously liable for its employees' actions. Even if Schultz were acting under color of state law, he was not acting in the scope of employment, nor did his "actions occur[] because of a law, ordinance, custom, policy or practice" of the City. She noted that Schultz had claimed, in his defense, that he assisted Callaway in editing the video because he thought Callaway was working for the FBI. Although she primarily discussed Robinson's claims against the City, Judge Higbee also addressed Schultz's cross-claim:

Schultz's testimony about his unverified belief that Call[a]way might be working for the FBI is not sufficient to show he was acting in his capacity as a councilman. His cross-claim for indemnification and for costs of defense has already been dismissed, but regardless of whether that decision acts as collateral estoppel, this court finds as a matter of law that even if Schultz's deposition is true, it is not sufficient to support either plaintiff or Schultz's claim that the City has liability for his actions under the New Jersey Civil Rights statute or 42 U.S.C.[A.] 1983, or that he was acting within the scope of his employment. City of Atlantic City is dismissed from the case.


[Emphasis added].


Schultz's counsel then wrote to Judge Higbee asserting she mischaracterized the earlier order on defense and indemnification. He argued it pertained only to the provision of a defense.

Counsel to the City responded by writing to Judge Higbee, arguing she did not err and the prior order precluded indemnification as well as defense costs. The City's counsel also wrote to the prior judge, requesting he clarify his prior order. Both of the City's counsel's letters indicated they were copied to opposing counsel. However, the letter to the prior judge was not actually served, unbeknownst to the judges. The prior judge responded to all counsel by letter dated June 17, 2011, stating that as the right to a defense was broader than the right to indemnification, his order denying a defense implicitly denied indemnification. He did not issue a revised order.

At a conference on June 20, 2011, with counsel for Robinson and Schultz, but not the City, Judge Higbee confirmed her determination that while Schultz remained potentially liable for acting under color of state law, Robinson's claims and Schultz's cross-claim against the City were dismissed. The court rejected Schultz's counsel's assertion that if the jury found that Schultz acted under color of state law, then "there is certainly ground for application for indemnification." The court confirmed that the City was dismissed, the City would not participate to defend against Schultz's cross-claim, and Schultz would be unable to apply for indemnification later in the case. Counsel responded that he would be barred from seeking indemnification in a separate suit, based on the collateral estoppel effect of the determination in the instant case; consequently, he would have to appeal the court's order as to indemnification.

Sometime after the June 20 conference, Judge Higbee apparently learned that Schultz's attorney had never received a copy of the City's letter to the prior judge in which he sought a clarification. She entered an order on July 1, 2011, permitting counsel to move for reconsideration of the prior judge's order "on the issue of indemnification." However, Judge Higbee precluded any other application by Schultz for indemnification, consistent with her summary judgment decision and her remarks in the June 20 conference.

Schultz did not file a motion for reconsideration. He settled Robinson's remaining claim against him, which terminated the suit, as all other parties apparently had defaulted, settled, or had been dismissed.

This appeal followed. Although Schultz challenged the prior judge's February 19, 2010, order and Judge Higbee's July 1, 2011, order in his notice of appeal, his argument before us pertains only to the February 19, 2010, order and the prior judge's clarifying letter.

Schultz argues the prior judge should have heard oral argument; the judge failed to set forth with sufficient detail the reasons for his order; inasmuch as he recused himself, he should not have decided the motion before recusal, and should not have clarified his order after recusal; and the judge erred in deciding the indemnification issues "on a final basis" in the absence of a complete record. We disagree.

Although the trial court should have heard oral argument, Rule 1:6-2(d), and its statement of reasons should have been more extensive, Schultz presents no argument that he was entitled, as a matter of law, to indemnification from the City. A party may seek indemnification for settlement payments, provided the indemnitee demonstrates: "'(a) the indemnitee's claims are based on a valid, pre-existing indemnitor/indemnitee relationship; (b) the indemnitee faced potential liability for the claims underlying the settlement; and (c) the settlement amount was reasonable.'" Chem. Bank of N.J. Nat'l Ass'n v. Bailey, 296 N.J. Super. 515, 524-25 (App. Div.) (quoting Cent. Motor Parts Corp. v. E.I. duPont deNemours & Co., 251 N.J. Super. 34, 39 (Law Div. 1989), aff'd in part, rev'd in part on other grounds, 251 N.J. Super. 5 (App. Div. 1991)), certif. denied, 150 N.J. 28 (1997). Regardless of Schultz's procedural challenges to the February 19, 2010 order, Judge Higbee independently determined, after the completion of discovery, there was no legal basis for Schultz to obtain indemnification from the City. In other words, there was no enforceable indemnitor/indemnitee relationship.

Judge Higbee reasoned that, even after extending to Schultz all favorable inferences, based on his own testimony, he was not acting within the scope of his employment. Consequently, even if the February 19, 2010 order did not dispose of the issue, Judge Higbee determined Schultz could not prevail on his claim for indemnification.

We discern no basis to disturb the February 19, 2010 and July 1, 2011 orders. Schultz grounded his claim for indemnification in N.J.S.A. 59:10-4, and in the City ordinance. However, N.J.S.A. 59:10-4 merely permits, rather than requires, municipalities to indemnify employees. And, based on Judge Higbee's finding, the City ordinance offered no relief. The ordinance expressly confines indemnification to actions "arising out of or incidental to the performance of his or her duties." Moreover, indemnification must be denied if the City Council determines that "the act or omission was not within the scope of the person's employment or official duties," or "was because of actual fraud, willful misconduct or actual malice or intentional wrongdoing."

Judge Higbee found Schultz did not act within the scope of his employment. Moreover, Robinson's complaint alleges only intentional torts. Any judgment in favor of Robinson would not be subject to indemnification.

Schultz's remaining arguments do not merit discussion in a written opinion. R. 2:11-3(e)(1)(E).


1 The three others included Ronald Callaway, David K. Callaway, and Floyd Tally, but we shall use "Callaway" to refer to Craig Callaway.