MADDEN & MADDEN P.A. v. JOEL SCHARFF

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

MADDEN & MADDEN, P.A.,

Plaintiff,

v.

JOEL SCHARFF,

Defendant/Third-Party

Plaintiff-Appellant/

Cross-Respondent,

v.

WINSLOW TOWNSHIP,

Third-Party

Defendant-Respondent/

Cross-Appellant.

August 29, 2016

Argued March 2, 2016 Decided

 
Before Judges Alvarez, Ostrer, and Manahan.

On appeal from the Superior Court of New Jersey, Law Division, Camden County, Docket No. L-1616-13.

Joel G. Scharff, appellant/cross-respondent, argued the cause pro se.

Eric J. Riso argued the cause for respondent/cross-appellant (Platt & Riso, P.C., attorneys; Mr. Riso, on the briefs).

PER CURIAM

Defendant and third-party plaintiff Joel Scharff appeals from a March 28, 2014 grant of partial summary judgment to third-party defendant Winslow Township. The Township cross-appeals the same order. We now reverse in part, affirm in part, and remand.

We glean the following circumstances from the record on the cross-motions for summary judgment. On December 15, 2006, Scharff and the Township entered into a one-year written contract for him to provide legal services in "matters involving the negotiation of labor agreements with Township employees." Paragraph five of the contract stated

The Attorney for Labor Negotiations agrees to maintain professional liability insurance as required by Township ordinance and attaches evidence thereof, as further supplemented by copies of the Attorney's business registration certificate, and Certificate of Good Standing as Attorney authorized to practice law in the State of New Jersey. It is understood that the Attorney shall save the Township harmless from any and all claims that may be filed either in equity or law arising from the performance of this contract for work performed by the Attorney, his agents, servants and employees.

That month, while the Township's attorney was on vacation, a Township employee was investigated for theft. The mayor requested Scharff prepare civil service charges, advise her regarding the situation, and represent the Township's interests in the matter. At some unspecified time thereafter, police and the county prosecutor declined to file charges. Scharff therefore recommended the employee be reinstated with full back pay. The terms of this representation were never reduced to writing.

The employee and her mother, also a Township employee, sued Scharff in December 2008 and two other municipal employees, alleging civil rights violations and other causes of action stemming from the proceedings Scharff initiated. When the suit was filed, the written agreement for Scharff's services as a labor contract negotiator had expired.

On March 10, 2009, the Township adopted a resolution as follows

RESOLUTION PROVIDING FOR THE DEFENSE AND INDEMNIFICATION OF TESS PINO, MARK PINO AND JOEL SCHARF[F], ESQUIRE PURSUANT TO CHAPTER 22 OF THE CODE OF THE TOWNSHIP OF WINSLOW

. . . .

WHEREAS, pursuant to Section 22-1 of the Code of the Township of Winslow, the Township is required to provide officers, employees or officials with the necessary defense or, at its option, the means for the defense whenever any officer, employee or official of the Township is made a defendant in any action or legal proceeding arising out of or incidental to the performance of his/her duties, and is further required to hold the officer, employee or official harmless from any payment, settlement or judgment resulting from the proceeding, except in situations where the officer, employee or official has been specifically found, by the trier of fact in proceedings, civil or criminal, to have acted with actual fraud, actual malice or willful misconduct; and

WHEREAS, the Legal Proceeding filed against Tess Pino, Mark Pino and Joel Scharf[f], Esquire arises out each of the aforesaid individual's performance of his/her duties;

NOW, THEREFORE, BE IT RESOLVED by the Mayor and Township Committee of the Township of Winslow . . . that the Township shall defend and hold Tess Pino, Mark Pino and Joel Scharf[f], Esquire harmless in connection with the Legal Proceeding pursuant to and consistent with the Section 22-1 of the Township Code; and

BE IT FURTHER RESOLVED that Township's defense and indemnification as aforesaid may be provided through any and all sources of insurance which may be available to cover the claims asserted in the Legal Proceeding.

Section 22-1 of the Municipal Code, adopted on January 11, 1987, authorized the Township to provide legal representation of its "officers, employees and officials." The section reads

ARTICLE I Township Officers, Employees and Officials Generally

22-1. Defense and indemnification of officers, employees and officials.

Whenever an officer, employee or official of the Township of Winslow is made a defendant in any action or legal proceeding arising out of or incidental to the performance of his duties, the Township Committee of the Township of Winslow shall provide the officer, employee or official with the necessary defense or, at its option, the means for the defense of such action or proceeding and shall hold said officer, employee or official harmless from any payment, settlement or judgment resulting from the proceeding, except in the following situations

A. Where the action has been brought by the township itself against said officer, employee or official; or

B. Where the officer, employee or official has been specifically found, by the trier of fact in proceedings, civil or criminal, to have acted with actual fraud, actual malice or willfull misconduct.

22-2. When effective; applicability.

This chapter shall take effect immediately upon adoption and shall apply to all legal proceedings instituted after January 1, 1987, regardless of when the subject matter of the legal proceeding arose.

22-3. Interpretation

[Added 7-22-87 by Ord. No. 0-23-87]

Nothing in this chapter shall be interpreted to impair, invalidate or diminish any rights, privileges or immunities which any officer, employee or official of the Township of Winslow shall enjoy as a result of any other law, regulation, ordinance, State statute or State or federal constitutional provision.

A few days after the adoption of the indemnification resolution, on March 17, 2009, the Township solicitor wrote to Scharff as follows

Please be advised that I am the Solicitor for Winslow Township. In that regard, I am enclosing herewith a copy of the Complaint that has been filed on behalf of [the employees] against the Township, Tess Pino, Captain Mark Pino and yourself. We have spoken with Mr. William Bruce of Scibal Associates, and have been advised that the [Municipal Excess Liability Joint Insurer Fund] will not be affording coverage to you for the allegations asserted in Mr. Van Syoc's Complaint. As such, it is recommended that you forward this Complaint to any and all appropriate carriers you may have and/or that you take any and all other appropriate steps as may be necessary to protect your interests.

Accordingly, Scharff retained plaintiffs Madden & Madden to represent him in the suit filed by the Township employees.

On January 26, 2010, the Township adopted this resolution

RESOLUTION RESCINDING RESOLUTION R-2009-112 WHICH PROVIDED FOR THE DEFENSE AND INDEMNIFICATION OF, INTER ALIA, JOEL SCHARFF, ESQUIRE IN CONNECTION W[I]TH PENDING LITIGATION

WHEREAS, Joel Scharff, Esquire ("Scharff") was appointed as Attorney for Labor Contract Negotiations for the Township of Winslow ("Township") by way of Resolution adopted on October 10, 2006; and

WHEREAS, in accordance therewith Scharff and the Township entered into a Professional Service Contract on December 15, 2006, wherein Scharff agreed to, inter alia, maintain professional liability insurance and save the Township harmless from "any and all claims that may be filed either in equity or law arising from the performance of this contract for work performed" thereunder; and

WHEREAS, on or about December 18, 2008 a certain lawsuit was filed . . . on behalf [of] [the employees] against, inter alia, the Township and Scharff ("Legal Proceeding") for conduct arising out of and/or involving the aforesaid professional appointment; and

WHEREAS, pursuant to Resolution R-2009-12, adopted on March 10, 2009, the Township agreed to defend and indemnify Scharff in connection with the Legal Proceeding in accordance with the provisions of Section 22-1 of the Township Code; and

WHEREAS, it has since been discovered that Scharff did not maintain the necessary insurance as required in his Professional Service Contract with the Township, and, therefore is in breach of a material term thereof.

NOW, THEREFORE, BE IT RESOLVED by the Mayor and Township Committee of the Township of Winslow, County of Camden and State of New Jersey that Resolution R-2009-112 is hereby rescinded, void and of no further effect such that the Township shall have no obligation to defend or indemnify Scharff in connection with the Legal Proceeding.

In its defense of the employees' suit, the Township invoked the attorney-client privilege to refuse certain discovery demands. Scharff "joined in [the Township's] opposition to [the employees'] motion to deem the attorney-client privilege waived as between [Scharff] and the Township."

Madden & Madden's complaint for unpaid legal fees against Scharff was signed in April 2013. Scharff filed his answer and third-party complaint in July 2013.

The Law Division judge granted summary judgment to Madden & Madden against Scharff, awarding $39,858.15. That award is not appealed. The judge also partially granted Scharff's cross-motion against the Township, holding that it was responsible for Scharff's fees incurred between March 10, 2009, and June 26, 2010, or $3242.25 of the greater sum. But because he believed the Township had "the authority" to rescind the promise of indemnification embodied in the earlier resolution, the judge did not find the Township owed fees beyond the rescission date.

The judge denied the Township's cross-motion that Scharff's third-party complaint be dismissed based on the entire controversy doctrine. He opined that because the claims were different, the factual allegations in this dispute were unrelated to the employees' civil rights case, the relief sought in the proceedings was different, and the witnesses were different, the entire controversy doctrine did not apply. Additionally, as he put it, "it's a question of fairness." His analysis, which did not touch upon the Municipal Code, was grounded solely on the Township's authority to revoke its earlier decision authorizing payment.

On appeal, Scharff raises these points for our consideration

THE COURT ERRED WHEN IT PERMITTED WINSLOW TO TERMINATE LEGAL DEFENSE AND INDEMNIFICATION TO APPELLANT/CROSS-RESPONDENT SCHARFF UNDER TOWNSHIP COMMITTEE RESOLUTION R-2010-065, ADOPTED JANUARY 26, 2010.

1. Winslow's Township Committee did not have the legal authority to modify the requirements of the Township's defense and indemnification ordinance and its January 26, 2010 Resolution Rescinding defense and indemnification was invalid.

2. Winslow's Resolution terminating its legal defense and indemnification obligation to Scharff violated Winslow's covenant of good faith and fair dealing.

3. The Township is estopped from asserting procedural claims intended to foreclose review of its wrongful conduct.

4. Scharff's reliance extended beyond January 26, 2010.

5. The Township did not "turn square corners" and may not benefit by procedural rules designed to protect government when it acts in good faith.

On appeal, the Township contends

I. THE TRIAL COURT ERRED BY FAILING TO DISMISS THE THIRD-PARTY COMPLAINT PURSUANT TO THE ENTIRE CONTROVERSY DOCTRINE.

II. THE TRIAL COURT ERRED WHEN IT FOUND THAT THE TOWNSHIP WAS RESPONSIBLE TO REIMBURSE THIRD-PARTY PLAINTIFF FOR THE PERIOD OF TIME BETWEEN MARCH 10, 2 009 AND JANUARY 26, 2010.

A. Standard of Review.

B. The Third-Party Complaint Was Untimely Filed.

C. Third-Party Plaintiff's Claims Are Barred by the Tort Claims Act.

1. Tort Claim Notice.

2. Two Year Statute of Limitations.

III. THIRD-PARTY PLAINTIFF'S CONTRACTUAL AND EQUITABLE CLAIMS ARE WITHOUT MERIT.

A. Breach of Contract.

B. Breach of Implied Covenant of Good Faith and Fair Dealing.

C. Estoppel and Reliance.

I.

A.

We do not address the Township's argument that the claims here are barred by the Tort Claims Act (TCA), N.J.S.A. 59:1-1 to 12-3, for two reasons. First, that point was not raised at oral argument before the Law Division judge. N.J. Div. of Youth & Family Servs. v. M.C. III, 201 N.J. 328, 339 (2010) ("[I]ssues not raised below will ordinarily not be considered on appeal unless they are jurisdictional in nature and substantially implicate the public interest."). Secondly, even if we were to consider the issue, it lacks sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). This is a contract dispute, which falls outside the TCA's purview. See Prudential Prop. & Cas. Ins. Co. v. Monmouth Cty. Mun. Joint Ins. Fund, 141 N.J. 235, 239 (1995) (citing N.J.S.A. 59:1-4).

B.

That cross-motions for summary judgment are made does not preclude the existence of factual issues that must be resolved by a factfinder. O'Keeffe v. Snyder, 83 N.J. 478, 487 (1980); Great Atl. & Pac. Tea Co. v. Checchio, 335 N.J. Super. 495, 502 (App. Div. 2000).

A party may assert, simultaneously, that the facts are undisputed according to his or her theory of the case, while contending that genuine issues of fact remain if the court adopts the opponent's theory. O'Keeffe, supra, 83 N.J. at 487; Horizon Blue Cross Blue Shield of N.J. v. State, 425 N.J. Super. 1, 31-32 (App. Div.), certif. denied and appeal dismissed, 211 N.J. 608 (2012). It is generally acknowledged that the losing party has a limited ability "to argue that an issue raises questions of fact, because the act of filing the cross-motion represents to the court the ripeness of the party's right to prevail as a matter of law." Spring Creek v. Shinnihon USA, 399 N.J. Super. 158, 177 (App. Div.), certif. denied, 196 N.J. 85 (2008).

In deciding cross-motions for summary judgment, however, a judge may not accept one of two conflicting versions of material facts and render a decision on that basis. O'Keeffe, supra, 83 N.J. at 487. Summary judgment is granted on cross-motions because "one of the moving parties is entitled to judgment as a matter of law." Ibid.

Our review of the trial court's order is plenary. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). We apply the same standard as did the trial court to the same motion record. State v. Perini Corp., 221 N.J. 412, 425 (2015). In deciding summary judgment motions, judges are not to decide the dispute on the merits when a rational jury could have disagreed as to the outcome. See Rowe v. Mazel Thirty, LLC, 209 N.J. 35, 50 (2012).

In this case, some essential facts are not in dispute, and it is the legal conclusions to be drawn from those facts which are contested. But before arriving at the undisputed facts, certain preliminary factual questions went unanswered. For example, it is not clear if Scharff's employment regarding the civil service proceedings fell within the terms of his written contract. On its face, the written agreement is limited to labor contract negotiations for one year and did not include the services he performed at the mayor's request.

The question of whether the separate representation was controlled by the written terms of the labor negotiations contract is consequential. If the written agreement does not control, Scharff may not have been obligated to maintain malpractice insurance covering those services, nor required to hold the municipality harmless from any claims arising from the representation. And his failure to do so is the Township's jurisdiction for denying him legal fees, characterized in the 2010 resolution as a material breach of his agreement with the Township, relieving the Township of any "obligation to defend or indemnify Scharff[.]" If the failure to maintain insurance was the rationale for rescission of the earlier resolution indemnifying him, and the Township was mistaken, a material issue of fact exists.

The mayor verbally requested that Scharff become involved on an emergent basis in the Township solicitor's absence. But we know nothing about the actual terms of that representation. We do not even know if the mayor had the individual authority to bind the municipality and contract with Scharff.

Furthermore, whether Scharff was an "independent contractor" as the Township now urges, is also a material and disputed fact. If Scharff was an independent contractor, the Township may be correct in arguing that he falls in the category of persons not included in the indemnification section of the Municipal Code. But since we know nothing about the terms of his employment, we cannot ascertain if he was an "officer, employee or official." Thus summary judgment was premature. See Lyons v. Twp. of Wayne, 185 N.J. 426, 437 (2005) (noting that a case is not suited for summary adjudication when the record is inadequate to conclude no genuine issue of material fact exists).

C.

The doctrine of equitable estoppel

provides that "the effect of the voluntary conduct of a party whereby he is absolutely precluded, both at law and in equity, from asserting rights which might have otherwise existed . . . as against another person, who has in good faith relied upon such conduct, and has been led thereby to change his position for the worse."

[Segal v. Lynch, 211 N.J. 230, 254 (2012) (quoting Carlsen v. Masters, Mates & Pilots Pension Plan Tr., 80 N.J. 334, 339 (1979)).]

The triggering conduct need not amount to a definitive promise. Ibid. Equitable estoppel may be invoked when conduct that is express or implied reasonably misleads another into reliance upon that conduct to the person's detriment, such that the interest of justice and common fairness preclude its repudiation. Winters v. N. Hudson Reg'l Fire & Rescue, 212 N.J. 67, 86 (2012); Knorr v. Smeal, 178 N.J. 169, 178 (2003).

The doctrine of equitable estoppel is rarely invoked against a governmental entity. McDade v. Siazon, 208 N.J. 463, 480 (2011). Only in the most compelling circumstances will it be applied to prevent a manifest injustice. Cty. of Morris v. Fauver, 153 N.J. 80, 104 (1998). The court must examine whether the nature of the governmental action at issue is ultra vires and, if it is, whether the act was ultra vires in the primary sense or ultra vires in the secondary sense. Middletown Twp. Policemen's Benevolent Ass'n Local No. 124 v. Twp. of Middletown, 162 N.J. 361, 368 (2000). Acts that are utterly beyond the jurisdiction of a municipality's power are ultra vires in the primary sense and therefore void. Ibid. But those acts that are within the basic power of a municipality, although that power was exercised in an irregular manner, are ultra vires only in a secondary sense and do not preclude either ratification or the application of the doctrine of estoppel. Ibid.

The determination is fact-sensitive. In re Johnson, 215 N.J. 366, 386 (2013). The outcome, however, must not prejudice essential government functions. Twp. of Middletown, supra, 162 N.J. at 367. Equitable estoppel may be invoked "where the interests of justice, morality and common fairness clearly dictate that course." Ibid.

We agree with the judge that the municipality had the authority to subsequently void the earlier resolution. But if the mayor retained Scharff's services based on an oral understanding not approved by the entire governing body, not clear from this record, it may have been ultra vires in the secondary sense. Thus the Township may have been equitably estopped from voiding the March resolution indemnifying Scharff. This cannot be resolved by summary judgment on this record.

The Township argues that Scharff's unpaid legal fees are not the Township's responsibility because he should have maintained tail malpractice insurance that would have extended his coverage. This, however, is not a defense. The insurance Scharff purchased the year he acted as the labor contract negotiator may not have even included representation in a civil rights lawsuit by a Township employee that arose from services he provided outside the written contract.

"A covenant of good faith and fair dealing is implied in every contract in New Jersey." Wilson v. Amerada Hess Corp., 168 N.J. 236, 244 (2001). It mandates that "neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." Seidenberg v. Summit Bank, 348 N.J. Super. 243, 253 (App. Div. 2002) (quoting Sons of Thunder v. Borden, Inc., 148 N.J. 396, 420 (1997)). In this case, the mayor's retention of Scharff may have created a contract requiring the Township to deal fairly with the consequences to Scharff of his representation, taking into consideration his responsibilities as well. Scharff alleges he acted in good faith during the pendency of the suit against the Township and its employees. Although the complaint was ultimately dismissed against him on December 13, 2011, to that point, his cooperation was necessary.

II.

A.

The Township contends it is not liable for any portion of Scharff's legal fees, including fees incurred between the March 2009 and January 2010 resolutions. We consider that argument to be so lacking in merit as to not warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).

B.

The Township also contends that the third-party complaint is a challenge to the enactment of the 2010 resolution, and that therefore the suit is barred by the forty-five-day limitation period for actions in lieu of prerogative writs. We do not agree.

Clearly, a challenge to municipal action is generally undertaken as a complaint in lieu of prerogative writs. See Avalon Manor Improvement Ass'n, Inc. v. Twp. Of Middle, 370 N.J. Super, 73, 77 (App. Div.) (challenging a township resolution), certif. denied, 182 N.J. 143 (2004). However, contract claims "are not maintainable as actions in lieu of prerogative writs." Ballantyne House Assocs. v. City of Newark, 269 N.J. Super. 322, 331 (App. Div. 1993) (finding claim for breach of tax abatement agreement not maintainable). "[A]ctions in lieu of prerogative writs 'generally have to be commenced within [45] days after the accrual of the right to the review, hearing, or relief claimed.'" Borough of Princeton v. Bd. of Chosen Freeholders of Mercer, 169 N.J. 135, 149 (2001) (quoting Borough of Princeton v. Bd. of Chosen Freeholders of Mercer, 333 N.J. Super. 310, 315 (App. Div. 2000)); see Horsnall v. Washington Twp. Div. of Fire, 405 N.J. Super. 304, 312 (App. Div. 2009).

This challenge is a contract dispute. Therefore, the forty-five-day bar is inapplicable. Scharff's claims fall well within the six-year contract statute of limitation.

C.

The Township also contends that Scharff's claims should have been addressed in the civil rights action brought by the employee pursuant to the entire controversy doctrine. We agree with the Law Division judge that the doctrine does not apply as the two cases are entirely different.

The entire controversy doctrine requires litigants in a civil action to raise all issues arising from a single controversy that each party might have against another party, including counterclaims and cross-claims. See R. 4:30A. The doctrine "ensur[es] fairness to parties and achiev[es] economy of judicial resources." Kent Motor Cars, Inc. v. Reynolds & Reynolds, 207 N.J. 428, 443 (2011).

Ultimately, application of the entire controversy doctrine is one of "judicial fairness and will be invoked in that spirit." Crispin v. Volkswagenwerk, 96 N.J. 336, 343 (1984). "The doctrine was judicially created as a 'reflection . . . of the reunification of the state courts' in light of our constitution's recognition of 'the value in resolving related claims in one adjudication so that "all matters in controversy between parties may be completely determined."'" Archbrook Laguna, LLC v. Marsh, 414 N.J. Super. 97, 104 (App. Div. 2010) (citing to Mystic Isle Dev. Corp. v. Perskie & Nemad, 142 N.J. 310, 322 (1995)) (quoting N.J. Const. Art. 6, 3, 4).

To compel Scharff to litigate payment of his legal fees in the context of the civil rights case where there was no similarity of facts would have been unfair. See Crispin, supra, 96 N.J. at 343. The Township benefitted by Scharff's willingness to abide by the Township's strategy, including assertion of the attorney-client privilege. It does not achieve party fairness to bar Scharff from now pressing his claim for fees.

Moreover, the factual and legal issues regarding the precise outline of the relationship between Scharff and the municipality, and the consequences of that relationship, are far different from those pursued in the employees' civil rights action. Accordingly, we do not agree that the entire controversy doctrine applies.

Reversed in part, affirmed in part, and remanded.