ARTHUR G. MONTO, JR v. BOARD OF TRUSTEES POLICE AND FIREMEN'S RETIREMENT SYSTEM

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

ARTHUR G. MONTO, JR. and

WILLIAM F. KARASIK, JR.,

Petitioners-Appellants,

v.

BOARD OF TRUSTEES,

POLICE AND FIREMEN'S RETIREMENT

SYSTEM,

Respondent-Respondent.

May 21, 2014

Argued May 6, 2014 - Decided

Before Judges Alvarez, Carroll and Higbee.

On appeal from the Board of Trustees of the Police and Firemen's Retirement System, PFRS No. 3-10-43233 and No. 3-10-43412.

Louis M. Barbone argued the cause for appellants (Jacobs & Barbone, attorneys; Mr. Barbone, on the brief).

Danielle P. Schimmel, Deputy Attorney General, argued the cause for respondent (John J. Hoffman, Acting Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Ms. Schimmel, on the brief).

PER CURIAM

Appellants Arthur G. Monto, Jr. and William F. Karasik, Jr., former Sparta police officers, jointly appeal from separate final agency decisions of the Board of Trustees of the Police and Firemen's Retirement System (the "Board" or "PFRS") denying them additional service credit in the PFRS from October 1, 2004 through June 18, 2010. We reverse.

I.

The underlying facts are undisputed. Karasik and Monto became members of the Sparta Township Police Department (STPD) and enrolled in the PFRS in 1991 and 1993, respectively. On March 10, 2003, they filed a complaint under the New Jersey Conscientious Employee Protection Act, N.J.S.A. 34:19-1 to -14 (CEPA), against the STPD and certain individual Sparta Police and Township supervisors, claiming that after reporting what they believed to be ongoing inappropriate sexual activity between a police detective and a police records clerk, they became the targets of "a pattern and practice of harassment and retaliation . . ., proximately causing them significant and substantial changes in the terms and conditions of their employment."

After filing their CEPA complaint, Monto and Karasik were the focus of several investigations and disciplinary actions. Both were eventually terminated on or about October 4, 20041 for refusing to provide, in violation of a direct order, information in connection with an investigation into allegations made by them that their lives were in danger from fellow officers.

Following trial on the CEPA claims, the jury found in favor of Monto and Karasik on liability and, by verdict on May 28, 2010, awarded "each plaintiff the gross sum of $700,000 in compensatory damages for emotional distress."2 The trial judge reassembled the jury on June 3, 2010, to begin the punitive damages phase of the trial, at which point the parties "amicably resolved all issues and disputes between them" and placed the terms of their settlement on the record. A final judgment memorializing the settlement of the CEPA litigation was entered by Judge Edward V. Gannon on June 18, 2010.

The final judgment notes that the parties were "primarily motivated to resolve all existing issues and disputes between them without further appeal and other litigation." Judgment was entered against the Township of Sparta "in the gross amount of $1,900,000.00 inclusive of all costs, interest and counsel fees." In return, Monto and Karasik were "ORDERED and ADJUDGED" to "waive any further entitlement to compensatory damages, punitive damages, attorneys' fees and costs, back wages and future wages, and any other monetary relief against the Township of Sparta, as well as the individually named defendants."

The final judgment further provided "that all previous declarations, findings and final notices of disciplinary actions which terminated [Monto's and Karasik's] appointment as municipal police officers in the Township of Sparta in [sic] or about October 4, 2004 be and hereby are vacated and are henceforth considered a nullity."

Monto and Karasik were ordered to be reinstated to their prior positions i.e., Monto to the position of patrol officer and Karasik to the position of corporal for a period of one day to be agreed upon by the parties. Paragraph six of the final judgment provides:

IT IS FURTHER ORDERED and ADJUDGED that plaintiffs' reinstatement to their respective positions in the Sparta Police Department shall require the Township to restore their term of credible (sic) service from October 4, 2004 through and including the date of their reinstatement. The Township shall hereafter certify on the official employment record of the plaintiffs that each has continuous honorable service as police officers from their respective dates of hire to their date of reinstatement. The Township shall further calculate and certify the respective annual salaries of each plaintiff for each calendar year of reinstatement by applying those contractual requirements such as seniority and longevity status as required in confirming same to the Pension Board. The Township is not required to restore plaintiffs to active duty and plaintiffs have waived any entitlement to any and all accrued benefits over the time period of restoration, such as sick pay, vacation pay, or any other benefit, other than that set forth herein.

[(Emphasis added).]

Under paragraph eight of the final judgment, Monto and Karasik were to file retirement notices with the Township and "file for retirement pensions with the Board of Pensions following their reinstatement date." The Township was to "fully cooperate" in connection with "any and all requirements with regard to reporting and certifying credible (sic) service, dates of service and salary," but under the final judgment was to "bear no further liability with regard to costs, payments or indemnity with respect to the retirement of the plaintiffs in any other way." Monto and Karasik agreed to "bear personal responsibility for any additional employee contribution that may be required by the Pension Board."

Both Monto and Karasik were apparently reinstated for one day in accordance with the terms of the final judgment.3 They applied for pension benefits in July 2010.

In its final administrative determinations, rendered on March 13, 2012, the PFRS Board ruled that pension credit would not be given Monto and Karasik for any period after October 1, 2004. The Board reasoned that they were each "on a leave of absence and by the terms of the settlement agreement [they were] only to be reinstated to permit filing for retirement." It determined: "This cannot be construed in any other way than to be a forced retirement. As such, any payment to entice that action is clearly in anticipation of his retirement." The Board interpreted the final judgment as not including any award of back pay for the period of October 2004 through June 2010. "On the contrary, the award stipulated that [Karasik and Monto] would waive back wages and future wages."

This appeal followed.

II.

Our scope of review of an administrative agency's final determination is limited. In re Carter, 191 N.J.474, 482 (2007). We accord a "strong presumption of reasonableness" to the agency's exercise of its statutorily delegated responsibilities. City of Newark v. Natural Res. Council, 82 N.J.530, 539, cert. denied, 449 U.S. 983, 101 S. Ct. 400, 66 L. Ed. 2d 245 (1980). The burden of showing the agency's action was arbitrary, unreasonable, or capricious rests upon the appellant. SeeBarone v. Dep't of Human Servs., Div. of Med. Assistance & Health Servs., 210 N.J. Super. 276, 285 (App. Div. 1986), aff'd, 107 N.J.355 (1987).

The reviewing court "should not disturb an administrative agency's determinations or findings unless there is a clear showing that (1) the agency did not follow the law; (2) the decision was arbitrary, capricious, or unreasonable; or (3) the decision was not supported by substantial evidence." In re Application of Virtua-West Jersey Hosp. Voorhees for a Certificate of Need, 194 N.J. 413, 422 (2008); see also Circus Liquors, Inc. v. Governing Body of Middletown Twp., 199 N.J. 1, 9-10 (2009).

Nevertheless, an appellate court is "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). If our review of the record leads us to conclude that the agency's finding is clearly erroneous, the decision is not entitled to judicial deference and must be set aside. L.M. v. Div. of Med. Assistance & Health Servs., 140 N.J. 480, 490 (1995). We may not simply rubber-stamp an agency's decision. In re Taylor, 158 N.J. 644, 657 (1999).

We are mindful that courts must construe pension statutes "so as to preserve the fiscal integrity of the pension funds." DiMaria v. Bd. of Trs., Pub. Emps.' Ret. Sys., 225 N.J. Super. 341, 354 (App. Div.), certif. denied, 113 N.J. 638 (1988). However, we are also mindful that "pension statutes 'should be liberally construed and administered in favor of the persons intended to be benefited.'" Francois v. Bd. of Trs., Pub. Emps.' Ret. Sys., 415 N.J. Super. 335, 349 (2010) (quoting Klumb v. Bd. of Educ. of the Manalapan-Englishtown Reg'l High Sch. Dist., 199 N.J. 14, 34 (2009)).

A.

N.J.A.C. 17:1-2.18, titled "Service and salary credit: award of back pay," governs awards of back pay and applicable service credit. It provides, in pertinent part:

(a) A member who appeals the suspension or termination of the member's employment and who, by award or settlement, becomes entitled to full pay for all or a portion of that employment for the period of such suspension or termination shall receive service credit for the period covered by the award or settlement provided a full normal pension and, if applicable, the contributory group life insurance contribution is received from the member or is deducted from the value of the award. The member must receive full back pay, including normal salary increases before mitigation and the contributions will be computed on the base salaries that the employee would have earned for the reinstated suspended or terminated period. In the event that the amount of back payment, after mitigation, is insufficient to deduct the value of the normal pension contributions and, if applicable, the contributory group life insurance due, such contribution shall be paid by the member to the respective retirement system by certified check or money order.

(b) If a member waives an award of back pay, then the member cannot receive service or salary credit for the period of the award.

(c) If the award or settlement is structured in such a way as to provide the member with a substantial increase of creditable salary at or near the end of the member's service, or a substantial increase in retirement benefits, or provides service credit that entitles a member to file for retirement benefits to which they would not otherwise have qualified, the award or settlement shall be reviewed by the Division. If the Division determines that the pension benefit was part of the negotiations for the award or settlement, or if the award or settlement includes extra compensation as defined by the various retirement systems, the Division shall determine the compensation and/or service credit to be used to calculate the retirement allowance, and the member shall have the pension contributions for the salaries based on the award refunded without interest.

[N.J.A.C. 17:1-2.18]

A key basis on which the PFRS Board denied service credit to Monto and Karasik for any period following their October 2004 terminations was its interpretation of the final judgment as providing that they each "waived" any entitlement to back pay for that period. The PFRS Board pointed to paragraph three of the final judgment, which provides:

IT IS FURTHER ORDERED and ADJUDGED that plaintiffs waive any further entitlement to compensatory damages, punitive damages, attorney's fee and costs, back wages and future wages, and any other monetary relief against the Township of Sparta, as well as against the individually named defendants, namely Frederick Geffken, Jeffrey Nafis, and Henry Underhill, except as set forth below;

We conclude that the Board's conclusion rests upon a strained reading of the final judgment, and fails to afford adequate recognition to the circumstances surrounding its entry.

Following the compensatory damages phase of their CEPA trial, a jury awarded Monto and Karasik $1.4 million. Before commencing the punitive damages phase, the parties agreed to settle all claims for $1.9 million. In context, paragraph three did not serve to waive any claim to back wages, it simply waived any further claims for back and future wages beyond those subsumed within the $1.9 million payment.

It is well-settled that "[t]he Legislature enacted CEPA to 'protect and encourage employees to report illegal or unethical workplace activities and to discourage public and private sector employers from engaging in such conduct.'" Dzwonar v. McDevitt, 177 N.J. 451, 461 (2003) (quoting Abbamont v. Piscataway Bd. of Educ., 138 N.J. 405, 431 (1994)). "CEPA must be considered 'remedial' legislation and therefore should be construed liberally to effectuate its important social goal." Abbamont, supra, 138 N.J. at 431. In approving the judgment terms, Judge Gannon, who presided over the trial, recognized that "one of the remedies" of CEPA is to "restore the parties, the plaintiffs, to the position that they would have been insofar as is practical to do so. And I'm prepared to sign an order that gives effect to this, that does that, and, you know, mechanically, you can figure out how to do the paperwork." The judge further clarified that the intention of the settling parties was that Monto's and Karasik's "termination will be deemed to be a nullity, and that they will be . . . restored to the same position as if they had worked through the present time, the date of the judgment and trial, plus one day for the reinstatement."

By effectively nullifying the terminations and restoring them "to the same position as if they had worked through the present time," the unequivocal effect of the final judgment was to entitle both Monto and Karasik to back pay from the date of their termination to the date of their reinstatement. Consequently, had they never been terminated, each would have been contractually entitled to salary and increases in the years they worked, along with the concomitant creditable service credit.

Moreover, on the issue of whether Monto and Karasik were actually paid back wages, the final judgment provides that nullifying the termination and reinstating each officer for one day "shall require the Township to restore their term of credible [sic] service from October 4, 2004 through and including the date of their reinstatement." Paragraph six of the final judgment further provides, in pertinent part:

[t]he Township shall hereafter certify on the official employment record of the plaintiffs that each has continuous honorable service as police officers from their respective dates of hire to their date of reinstatement. The Township shall further calculate and certify the respective annual salaries of each plaintiff for each calendar year of reinstatement by applying those contractual requirements such as seniority and longevity status as required in confirming same to the Pension Board.

The Township duly complied with this Order and certified to the PFRS Board that Monto was due $552,078.58 in back pay and Karasik was due $557,152.08.4 After attorneys' fees were paid, each actually received a payment of $633,333.33, which exceeded the certified amount. Tellingly, the Township agreed on the record that it would contribute to the PFRS whatever employer share was required for the certified back wages amounts, and it thereafter made this contribution to the pension system.5

In summary then, the final judgment entered by the court on the heels of a favorable jury verdict, followed by a resolution of all claims raised in the CEPA litigation, (1) nullified Monto's and Karasik's terminations, (2) ordered their reinstatement, (3) restored their creditable service period, (4) ordered certifications by the township both as to "continuous honorable service" and as to "the respective annual salaries of each plaintiff for each calendar year of reinstatement," and (5) ordered the payment of amounts that were more than sufficient to cover the annual salaries certified. Contrary to the PFRS Board's conclusion, these provisions, in total, establish both entitlement to and actual payment of back wages in accordance with the terms of N.J.A.C. 17:1-2.18.

B.

The PFRS Board also denied Monto's and Karasik's application for service credit between October 2004 and June 2010 on the grounds that the payments to them for that period were not "creditable compensation but rather 'in anticipation of retirement,' an 'increment granted for retirement credit' or an 'adjustment in recognition of the member's forthcoming retirement.'" Again, we part company with the Board's statutory interpretation.

N.J.S.A. 43:16A-1(26)(a) provides:

"Compensation" shall mean the base salary, for services as a member as defined in this act, which is in accordance with established salary policies of the member's employer for all employees in the same position but shall not include individual salary adjustments which are granted primarily in anticipation of the member's retirement or additional remuneration for performing temporary duties beyond the regular workday.

Similarly, N.J.A.C. 17:4-4.1(a)(2) excludes "extra compensation" from creditable compensation, provides that "individual salary adjustments which are granted primarily in anticipation of a member's retirement" are "extra compensation," and notes that "[f]orms of compensation that have been identified as extra compensation include, but are not limited to" increments or adjustments "granted for retirement credit" and "in recognition of the member's forthcoming retirement." N.J.A.C. 17:4-4.1(a)(2)(ix)-(x).

The Board relies on In re Puglisi, 186 N.J. 529, 531 (2006), where Puglisi, a lieutenant with the New Brunswick Police Department, filed a civil rights lawsuit alleging political discrimination by various administrators and elected officials. Puglisi settled with the City of New Brunswick, as a result of which he was promoted to the rank of captain and immediately began a one-year terminal leave period at a captain's salary. Ibid. The Board determined that Puglisi's salary increase was not creditable in the PFRS as he was on terminal leave from the day he was promoted as captain to the date of his retirement, and that his promotion was in anticipation of retirement. Id. at 532. In affirming, the Court determined that Puglisi's promotion and consequent salary increase was an "individual salary adjustment" made "primarily in anticipation" of his retirement within the intent of N.J.S.A. 43:16A-1(26). Id. at 534.

In challenging the Board's determination, Monto and Karasik rely on In re Snellbaker, 414 N.J. Super. 26 (App. Div. 2010). There, Snellbaker was employed by the City of Atlantic City (the City) as a police officer for thirty-eight years and served as Chief of Police from 2000 to 2006. Id. at 29. Between 2002 and 2006, due to his "stormy" and "antagonistic" relationship with the sitting mayor, Snellbaker was paid a base salary of $109,981 but did not receive any increases. Ibid. In that same time period, his subordinate deputy chiefs received regular increases. Id. at 30. Consequently, Snellbaker added a claim for retroactive salary increases for 2002 through 2005 to his already-existing CEPA litigation against the City. Ibid.

After the mayor lost his bid for reelection, the new administration settled with Snellbaker. Ibid. The City agreed, in part, to pay Snellbaker retroactive salary increases in the same percentages that had been given to his subordinate deputy chiefs "if and only if SNELLBAKER ceases to be employed by CITY as of April 7, 2006" (the "if and only if" clause). Id. at 31-32.

When Snellbaker applied for retirement benefits, the PFRS Board refused to consider the retroactive salary increase paid him as part of the settlement as creditable compensation for pension purposes on the grounds that "the Agreement between the City and yourself was executed in exchange for your retirement and clearly in violation of the PFRS State Laws and Regulations." Id. at 32. The PFRS Board considered the "if and only if" clause to be "an unauthorized incentive to retire which is in direct violation of State law." Id. at 32-33 (emphasis omitted).

We noted that the Division of Pensions' decision "turned exclusively on its interpretation of a legal issue, i.e., whether the retroactive salary increases here were creditable for pension and death benefit purposes pursuant to N.J.S.A. 43:16A-1(26) and N.J.A.C. 17:4-4.1." Snellbaker, supra, 414 N.J. Super. at 38. Construing the statutory language, we concluded that the PFRS Board and the Division of Pensions erred in their restrictive interpretation of compensation under N.J.S.A. 43:16A-1(26)(a), and in its determination that the intent of the parties in agreeing to the retroactive salary increases was irrelevant in light of the "if and only if" clause. Id. at 39.

We found that the facts plainly established that (1) Snellbaker was entitled by statute to make a higher base salary than his subordinate deputy chiefs, (2) the City's failure to provide any salary increases to Snellbaker while it gave salary increases to the deputy chiefs caused Snellbaker's salary to fall below that of the deputy chiefs, (3) the retroactive increases given to Snellbaker were calculated on the very same percentages given to the deputy chiefs each year, and (4) the City agreed to pay the retroactive salary increases not as "extra compensation granted primarily in anticipation of the chief's retirement," but "strictly to correct a wrong, make whatever was done correct." Id. at 31-37 (internal quotation marks omitted). Under these circumstances, the retroactive salary increase payment "was not a windfall but was consistent with what Snellbaker would have received if the compensation had not been wrongfully withheld." Id. at 40. We concluded that:

[T]he Division employed an erroneous interpretation of the law in concluding that the retroactive salary increases were not creditable for retirement benefits. The mere fact that an increase coincides with retirement is not dispositive of the issue. It is necessary to evaluate all the factors relevant to the award of the increase and the employee's retirement to determine whether the salary adjustment was granted primarily in anticipation of retirement. When the facts found by the ALJ and adopted by the Division are given appropriate weight here, it is an ineluctable conclusion that the retroactive salary increases were not granted primarily for that purpose.

[Ibid.].

We distinguished the Court's holding in Puglisi, noting that "[a]lthough the salary increases in Puglisi and here were both awarded in the settlement of a lawsuit," in Puglisi the "promotion and salary increase constituted an individual salary adjustment," whereas the increase awarded Snellbaker "'was in accordance with established salary policies of the City of Atlantic City and the State of New Jersey for all employees in the same position." Snellbaker, supra, 414 N.J. Super. at 40-41 (internal quotation marks omitted).

Similar to Snellbaker, in the present case the calculation of retroactive salary that would have been earned by Monto and Karasik is not a "windfall," but rather what each "would have received if the compensation had not been wrongfully withheld." Id. at 40. As we have noted, (1) the final judgment effectively nullified their terminations, making them contractually entitled to salary for the relevant period between termination and reinstatement; and (2) the primary intent of the settlement and final judgment was to return them to the same position they would have been in, absent the conduct that led to their terminations and the CEPA litigation.

Further, here the retroactive salaries certified by the Township of Sparta were to be calculated "by applying those contractual requirements such as seniority and longevity status as required," and were, therefore, in accordance with established salary policies of the Township of Sparta for all police officers in the same position. As such, the salary amounts certified by the Township of Sparta as to Monto and Karasik were, as a matter of law, "compensation" under N.J.S.A. 43:16A-1(26)(a) and not "extra compensation" as they were not made "primarily in anticipation" of retirement under N.J.A.C. 17:4-4.1(a)(2).

Reversed and remanded to the Board for further proceedings consistent with this opinion. We do not retain jurisdiction.

1 Other documents in the record indicate a termination date of March 9, 2004 or June 1, 2004, but the October 2004 date appears to be the correct one.

2 The actual verdict sheet is not in the record, so there is no indication of whether the issue of reinstatement was presented to the jury, whether the damages awarded were specifically characterized as "for emotional distress" or not, or whether other damages had been sought but not awarded.

3 While the record does not indicate the date of appellants' reinstatement, none of the parties argue that this provision of the final judgment was not satisfied.

4 The actual communication between the Township of Sparta and the PFRS Board is not in the record. However, counsel for the Township of Sparta forwarded the chart with these figures to counsel for Monto and Karasik and represented that it was "a copy of the Wage Verification Chart that was provided to the Division of Pensions."

5 Counsel for the PFRS Board represented at oral argument that the Board rejected the tendered payment based on its determination that appellants were not entitled to the service credits for the period in question. Based on our decision, the Township will be required to re-submit the required pension contribution to the PFRS Board to comply with the judgment.