CITY OF UNION CITY v. CITY OF UNION CITY PBA LOCALS 8 and 8A

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4186-12T3

CITY OF UNION CITY,

Plaintiff-Respondent,

v.

CITY OF UNION CITY PBA LOCALS

8 and 8A,

Defendant-Appellant.

_________________________________

June 17, 2014

Argued April 28, 2014 Decided

Before Judges Ashrafi, St. John, and Manahan.

On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No.

L-5962-12.

Matthew D. Areman argued the cause for appellant (Markowitz and Richman, attorneys; Mr. Areman, on the brief).

Kenneth B. Goodman argued the cause for respondent (O'Toole Fernandez Weiner Van Lieu, attorneys; Mr. Goodman and Juan C. Fernandez, on the brief).

PER CURIAM

Local 8A of the Policemen's Benevolent Association (PBA), which represents superior officers of the Union City Police Department, appeals from an order of the Law Division that vacated an arbitration award pertaining to prescription drug benefits.1 We affirm.

I.

PBA Local 8A filed a grievance against Union City alleging a breach of its collective bargaining agreement effective from January 1, 2008 to December 31, 2012.2 Article XIX of the agreement addresses health care benefits, and includes the following provision in Section A.3.b addressing prescription drug benefits: "The Prescription Drug Program shall require a ten ($10.00) dollar co-payment charge for each brand name prescription and five ($5.00) dollar co payment charge for generic prescriptions."

At the time the City and the PBA entered into the negotiated agreement, the City's prescription drug program was provided by Medco Health Solutions Inc. The collective bargaining agreement permitted the City to change the insurance carrier, provided there was no reduction of benefits to the officers. Specifically, Article XIX, Section A.4 stated:

The Employer, upon thirty (30) days written notice and mutual agreement of the Association, which agreement shall not be unreasonably withheld, may elect to change insurance carriers for the programs referenced herein, provided substantially equal benefits are provided thereby.

[(emphasis added).]

In December 2009, the City changed the prescription drug program to one provided by Benecard Solutions, Inc. This change was expected to result in a significant cost saving to the City. There is no contention that the change affected the PBA members' co-payments for prescription drugs. But soon after the change, PBA members claimed they encountered obstacles filling their prescriptions for certain drugs namely, growth stimulating agents, androgens, anabolic steroids, and other tightly regulated drugs that require a prior authorization procedure to prevent abuse. The PBA viewed this change as a reduction in prescription drug benefits in violation of Article XIX, Section A.4 of the negotiated agreement.

After exhausting grievance resolution procedures, the PBA filed for arbitration in accordance with the terms of the collective bargaining agreement. At the arbitration hearing on November 14, 2011, the parties presented testimony and documentary evidence detailing the prescription drug benefits and reimbursement procedures under both the Medco and the Benecard plans. The arbitrator then permitted the parties to submit further evidence by means of affidavits and exhibits. By a written opinion issued on September 27, 2012, the arbitrator found that the City had violated the terms of its collective bargaining agreement by diminishing the prescription drug benefits available to the officers. The arbitrator reasoned that Benecard's use of prior authorization procedures, "though couched in terms of 'insuring patient safety' and 'preventing patient misuse' served to restrict or bar access to drugs that were previously available under [Medco]." As a remedy, the arbitrator ordered the City to establish a fund from which it would reimburse PBA members who had paid out-of-pocket, or would pay in the future, for the prescriptions that were previously reimbursed under the Medco plan.

On November 2, 2012, the City filed a notice of appeal with this court. It subsequently withdrew the notice of appeal and instead filed a complaint on December 24, 2012, in the Law Division to vacate the award.

On April 5, 2013, Judge I. Lourdes Santiago heard oral argument and then stated her decision from the bench that the arbitrator's award would be vacated. The judge had made a side-by-side comparison of the prescription benefits under Medco and Benecard, and found them to be essentially the same. She found that any difficulty PBA members had in filling prescriptions for certain drugs under the Benecard plan was due to enforcement of existing authorization procedures and protocols for highly regulated drugs. Those authorization procedures and protocols were contained in both the Medco and the Benecard plans, but Medco enforced them with less frequency and thoroughness than did Benecard. The judge reasoned that: "[A]ny failure by Medco to enforce contractually mandated prior authorization requirements in the past should [not] and cannot translate into a diminishment of benefits under the Benecard contract."

Judge Santiago acknowledged the highly deferential standard of review of an arbitration award, but she concluded that the arbitrator's decision was not "reasonably debatable" because the arbitrator essentially re-wrote the terms of the negotiated collective bargaining agreement. The judge stated that the arbitrator incorrectly found that Benecard had denied coverage for prescriptions previously covered under Medco, and that this error was apparent on the face of the arbitration record. Pursuant to N.J.S.A. 2A:24-8(a), Judge Santiago vacated the arbitrator's award as obtained by "undue means."

Furthermore, the judge considered public policy reasons against enforcing the arbitration award. She noted recent public revelations about abuse of performance enhancing drugs by some New Jersey police officers and firefighters. She stated that allowing the PBA members unfettered access to the medications they had become accustomed to receiving under the Medco plan would undermine the clear public policy of preventing medication misuse, especially in the public sector funded by taxpayers. Thus, the judge also vacated the arbitrator's award on the ground that it violated public policy.

II.

On appeal, Local 8A first argues that the City failed to file a timely challenge to the arbitrator's award. Before an arbitration hearing was conducted, the attorney for the PBA signed a "Grievance Arbitration Agreement," which required that any court action to vacate the award would have to be filed "no later than 45 days after receipt" of the written award. The City's Law Division complaint challenging the award was filed eighty-eight days after the award was issued.

The timeliness of the City's court action, however, was not raised as an issue in the Law Division. "[O]ur appellate courts will decline to consider questions or issues not properly presented to the trial court when an opportunity for such presentation is available unless the questions so raised on appeal go to the jurisdiction of the trial court or concern matters of great public interest." Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973) (internal quotation marks omitted); accord Oyola v. Liu, 431 N.J. Super. 493, 501 02 (App. Div.), certif. denied, 216 N.J. 86 (2013). The issue of timely filing does not go to the jurisdiction of the trial court. In addition, while taxpayer funding of prescription drug abuse is of significant public interest, whether the City's challenge was timely filed is not such a matter of high public interest. Consequently, we need not address the timeliness of the City's action in the Law Division.

In any event, there is no evidence in our record that any representative of the City signed the Grievance Arbitration Agreement. The City's Law Division complaint was timely filed within ninety days of the arbitrator's award. See N.J.S.A. 2A:24-7. Because a jointly signed arbitration agreement reducing the time to forty-five days has not been produced, we reject the PBA's contention that the City was required to file its action in that lesser time. Finally, we also need not determine whether the City's mistaken filing of a notice of appeal within forty-five days in this court preserved its right to challenge the arbitration award in the Law Division.

III.

On the merits of the appeal, the PBA contends that Judge Santiago did not apply the highly restrictive statutory and decisional standards of review to the arbitrator's award. It argues the judge exceeded her authority by substituting her view of the dispute for that of the arbitrator.

The Law Division's judgment enforcing or vacating an arbitration award is a matter of law, and so, an appellate court reviews it de novo. Manger v. Manger, 417 N.J. Super. 370, 376 (App. Div. 2010); Del Piano v. Merrill Lynch, Pierce, Fenner & Smith Inc., 372 N.J. Super. 503, 507 (App. Div. 2004), certif. granted, 183 N.J. 218, appeal dismissed, 195 N.J. 512 (2005). We need not defer to Judge Santiago's findings and conclusions.

On the other hand, the scope of judicial review from the arbitration award itself is very narrow. Fawzy v. Fawzy, 199 N.J. 456, 470 (2009). "Otherwise, the purpose of the arbitration contract, which is to provide an effective, expedient, and fair resolution of disputes, would be severely undermined." Ibid.; accord Minkowitz v. Israeli, 433 N.J. Super. 111, 136 (App. Div. 2013). With respect to public sector labor disputes, the standard of review strongly leans toward confirmation of an arbitration award, because arbitration is intended to be a "fast and inexpensive way to achieve final resolution of such disputes and not merely a way-station on route to the courthouse." Borough of E. Rutherford v. E. Rutherford PBA Local 275, 213 N.J. 190, 201 (2013) (quoting Policemen's Benevolent Ass'n, Local No. 11 v. City of Trenton, 205 N.J. 422, 429 (2011)).

N.J.S.A. 2A:24-8 states the limited grounds on which a court may vacate an arbitration award:

The court shall vacate the award in any of the following cases:

a. Where the award was procured by corruption, fraud or undue means;

b. Where there was either evident partiality or corruption in the arbitrators, or any thereof;

c. Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause being shown therefor, or in refusing to hear evidence, pertinent and material to the controversy, or of any other misbehaviors prejudicial to the rights of any party;

d. Where the arbitrators exceeded or so imperfectly executed their powers that a mutual, final and definite award upon the subject matter submitted was not made.

The only provisions of the statute that arguably apply to this case are the reference to "undue means" in subsection a and the reference to the arbitrator "exceed[ing]" his "powers" in subsection d. Our Supreme Court has interpreted "undue means" to include an arbitrator's obvious mistake of fact or law, and it has interpreted the arbitrator's exceeding his powers to include "disregarding the terms of the parties' agreement." Borough of E. Rutherford, supra, 213 N.J. at 203 (quoting Office of Emp. Rels. v. Commc'ns Workers of Am., 154 N.J. 98, 111-12 (1998)).

On the other hand, "'undue means' . . . does not include situations . . . where the arbitrator bases his decision on one party's version of the facts, finding that version to be credible." Local No. 153, Office & Prof'l Emps. Int'l Union v. Trust Co. of N.J., 105 N.J. 442, 450 n.1 (1987). The clearly mistaken fact that amounts to procuring an arbitration award by undue means must be apparent in the award itself, or by a statement made by the arbitrator. See PBA Local 160 v. Twp. of N. Brunswick, 272 N.J. Super. 467, 474 (App. Div.), cert. denied, 138 N.J. 262 (1994). Although a few unpublished opinions have added a requirement that the mistake of fact "be so gross as to suggest fraud or corruption," no binding authority has included that further condition.

In this case, the arbitrator's mistake that justified the trial court's intervention was disregarding the terms of the parties' collective bargaining agreement and misapplying the law of contracts to provide an entitlement to the officers that was not included in that agreement.

Generally, a reviewing court defers to an arbitrator's interpretation of a contract. Borough of E. Rutherford, supra, 213 N.J. at 201-02. If the arbitrator's interpretation is "reasonably debatable . . . a court reviewing [a public-sector] arbitration award may not substitute its own judgment for that of the arbitrator, regardless of the court's view of the correctness of the arbitrator's position." Ibid. (alteration in original) (quoting Middletown Twp. PBA Local 124 v. Twp. of Middletown, 193 N.J. 1, 11 (2007)). The court does not exercise its own judgment on the issue because "[i]t is the arbitrator's construction which was bargained for, and so . . . the courts have no business overruling him because their interpretation of the contract is different from his." Id. at 202 (quoting Weiss v. Carpenter, Bennett & Morrissey, 143 N.J. 420, 433 (1996)).

But the issue in this case is not a matter of construing the meaning of the collective bargaining agreement. The issue is whether the officers were entitled to maintain "benefits" that were not specifically provided by their collective bargaining agreement.

If the word "benefits" means the ease and convenience with which the officers were able to fill prescriptions for the regulated drugs before December 2009, we have no disagreement with the arbitrator's factual finding that:

When Benecard was substituted, the level of benefits declined because the access to certain prescription drugs was denied or restricted based upon the Insurance Carrier's protocol designed to 'insure patient safety' or 'to prevent misuse' of drugs. In reality, these measures . . . served to restrict or to bar access to drugs that were previously available or otherwise would have been available under the prior health insurance policies of Medco. The preconditions also cause a delay in being able to access those drugs.

However, the "benefits" the officers were entitled to receive were those specifically provided in the collective bargaining agreement and in the written Medco plan that was in effect at the inception of the agreement. The arbitrator incorrectly interpreted the collective bargaining agreement when he stated:

Here, the City Insurance Carrier's engrafting pre-conditions to coverage . . . does not meet the true spirit and intent of its contractual obligations as expressed in the language of the [collective bargaining agreement] to provide '. . . substantially equal benefits' . . . .

[(emphasis added).]

In the arbitrator's decision, Benecard's purported "engrafting" of pre-conditions caused the disparity in "benefits."

As the arbitrator acknowledged, however, both the Medco and Benecard plans included prior authorization procedures and protocols for the prescriptions in dispute. Both allowed a pharmacist to refuse non-compliant prescriptions. The difference between the officers' experiences under the two plans was that Benecard enforced the prior authorization procedures and protocols while Medco did not do so consistently.3

The mistake of fact made by the arbitrator was not related to whether PBA members were actually being delayed or denied reimbursement of certain prescriptions. The evidence was clear that they were. Rather, the mistake was the arbitrator's assumption that the PBA members were entitled under their collective bargaining agreement to speedy and convenient access to tightly regulated medications because they had found it easier to obtain those medications under the Medco plan. The collective bargaining agreement did not give them that entitlement. Both carriers' insurance plans allowed denial of coverage for failing to comply with prior authorization procedures. Provisions similar to the Benecard plan were present in the Medco plan, even though Medco failed earlier to enforce them.

In fact, after the City replaced Medco, that carrier, too, instituted a protocol effective March 2011 that placed several new restrictions on reimbursement for anabolic steroids and related drugs. The PBA would have had no claim of a breach of the collective bargaining agreement had Medco remained the City's prescription plan and tightened its authorization procedures and protocols for approval on those drugs.

Of course, the City could not create unreasonable obstacles or act in bad faith to make it more difficult for the officers to obtain prescriptions. But there is no evidence that the City or Benecard did anything that was not within the authority of the prescription benefit plans or that was done with improper motives.

The arbitrator's failure to recognize that both the Medco and Benecard plans contained provisions for prior authorization procedures and protocols shows a clear mistake of fact that resulted in a mistaken application of contract law. It was the arbitrator who "engrafted" into the collective bargaining agreement an entitlement for the benefit of the PBA members when he assumed that the City had a contractual obligation to continue lax enforcement of the prior authorization procedures. Nothing in the agreement stated that either Medco or any substitute insurance carrier would not actively enforce authorization procedures and protocols for the disputed drugs. As Judge Santiago stated in her decision: "To the extent that Medco languished and failed to perform its gatekeeping function in the past[,] this does not change the quality of terms between the Benecard and Medco insurance agreements."

The PBA argues that the arbitrator's interpretation of the City's contractual obligation was "reasonably debatable." It criticizes the trial court's side-by-side comparison of the Medco and Benecard contracts as usurping the role of the arbitrator.

Judge Santiago's side-by-side comparison was not performed to re-evaluate whether there was, in fact, a change in the ability of the officers to obtain their prescription drugs. Rather, the purpose of the comparison was to determine whether the arbitrator's conclusion that there was a change in "benefits" was reasonably debatable. The comparison determined that the same prescriptions that were subject to prior authorization procedures and protocols under the Medco plan were subject to those procedures and protocols under the Benecard plan.

Medco's earlier failure to enforce the procedures and protocols was, in effect, giving the PBA a benefit that it had not bargained for and the City had not provided in the collective bargaining agreement. See In re Arbitration Between Grover & Universal Underwriters Ins. Co., 80 N.J. 221, 230-31 (1979) ("the arbitrator . . . may not rewrite the contract terms for the parties."). In essence, the arbitrator rewrote the terms of the collective bargaining agreement by giving the PBA an added prescription drug benefit, rather than maintaining the benefits that were actually provided in the agreement.

Judge Santiago also invoked public policy as a ground for vacating the award. In the public sector, an arbitration award may be vacated if it violates public policy. In re Arbitration Between FOP Lodge # 97 & Gloucester Cnty. Sheriff's Office, 364 N.J. Super. 294, 300 (App. Div. 2003). "When reviewing an arbitrator's interpretation of a public-sector contract, in addition to determining whether the contract interpretation is reasonably debatable, the court must also ascertain whether the award violates law or public policy." Office of Emp. Rels., supra, 154 N.J. at 112 (citing Commc'ns Workers of Am. v. Monmouth Cnty. Bd. of Social Servs., 96 N.J. 442, 448, 453, (1984)); PBA Local 160, supra, 272 N.J. Super. at 473.

New Jersey recognizes a public policy of preventing misuse of prescribed medications. See N.J.A.C. 13:35-7.1A; 13:39-7.13; 13:39-7.20. Our administrative code grants pharmacists the right to refuse prescriptions in their professional judgment, N.J.A.C. 13:39-7.13, and it requires pharmacists to review a patient's profile for potential misuse before dispensing prescription drugs, N.J.A.C. 13:35-7.1A; 13:39-7.20.

The policy against misuse of the disputed drugs was also established at the arbitration by a July 2011 report by the State Attorney General, which was prompted by earlier news articles. The articles and the Attorney General's report revealed steroid abuse among some New Jersey police officers and firefighters, and the use of public funds to pay for the drugs. The City maintains that the trial court correctly relied on those sources when it concluded the arbitration award conflicts with public policy.

The court's intervention on grounds of public policy, however, must be related to the arbitrator's award, and "not the conduct or contractual provision prompting the arbitration." N.J. Tpk. Auth. v. Local 196, I.F.P.T.E., 190 N.J. 283, 296 (2007). "Courts must not allow the invocation of a convenient talisman 'public policy' unless circumstances demand it." Id. at 299. Thus, the Supreme Court has stated that the "public policy sufficient to vacate an award must be embodied in legislative enactments, administrative regulations, or legal precedents." Id. at 295. It cannot merely be "amorphous considerations" of public welfare. Ibid.

We have concluded that the trial court properly vacated the award because it was procured by undue means and exceeded the arbitrator's authority. Consequently, we need not decide whether the Law Division was also authorized to vacate the arbitration award on the ground of public policy as expressed in the administrative code with respect to the duties of pharmacists and in the Attorney General's report with respect to steroid misuse by some police officers.

The news articles and the Attorney General's report are relevant for another reason. They prompted the tightening of authorization procedures and protocols for the disputed drugs. As we have stated, in 2011, Medco itself began implementing stricter rules in approving reimbursement for anabolic steroids and similar drugs. Also, during the term of the collective bargaining agreement, the City could have prompted Medco to enforce the authorization procedures and protocols if no change had been made in the insurance carrier for the prescription plan. Therefore, there was no diminution of the benefits that the collective bargaining agreement provided to the officers when Benecard, with its stricter enforcement, was substituted as the carrier.

In conclusion, the arbitrator made a mistake of fact and law apparent on the face of the collective bargaining agreement he was charged with enforcing, and he exceeded his powers by providing an entitlement to the members of the PBA that they did not have under the agreement. He erroneously ordered the City to reimburse the officers because they were required to comply with authorization procedures and protocols in filling the disputed prescriptions when those procedures and protocols were always part of the prescription benefit plan the City had provided. The Law Division correctly vacated the award on the ground that it was procured by undue means, and we add that the award also exceeded the arbitrator's powers.

Affirmed.

1 PBA Local 8, which represents Union City patrol officers, was also a defendant in the Law Division action but has not appealed.

2 By its terms, the agreement remains in full force and effect until replaced by a new one. We have not been informed whether a new agreement has been negotiated and executed to take effect after 2012.

3 We are aware that the Medco plan required prior authorization once per year while the Benecard plan every six months, but that difference alone is not sufficient to prove a substantial diminishment of coverage for the disputed prescriptions.