SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-5206-15T1

BOROUGH OF MADISON,

Plaintiff-Appellant,

v.

KEVIN MARHEFKA,

Defendant-Respondent.

_____________________________

November 28, 2017 – Decided June 21, 2018

Before Judges Carroll and Leone.

On appeal from Superior Court of New Jersey,

Law Division, Special Civil Part, Morris 

County, Docket No. DC-1525-16.

Michael A. Augello, Jr., argued the cause for 

appellant (Cleary Giacobbe Alfieri Jacobs,

LLC, attorneys; Matthew J. Giacobbe and 

Micahel A. Augello, Jr., of counsel and on the 

briefs).

Patrick B. Kiernan argued the cause for 

respondent (Kiernan & Strenk, attorneys; 

Patrick B. Kiernan and Charles A. Strenk, on 

the brief).

PER CURIAM

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

This opinion shall not "constitute precedent or be binding upon any court."

Although it is posted on the internet, this opinion is binding only on the 

parties in the case and its use in other cases is limited. R. 1:36-3.
2 A-5206-15T1

Plaintiff Borough of Madison (Borough) appeals the trial 

court's June 20, 2016 order granting summary judgment in favor of 

defendant Kevin Marhefka, a former Borough police officer. We 

affirm.

I.

The following facts are admitted in the parties' statements 

of material facts, or are set forth in the documents presented on 

the summary judgment proceedings.

The Borough had a collective bargaining agreement (CBA) with 

the Madison Policemen's Benevolent Association Local 92 (PBA),

commencing on January 1, 2014, and continuing through December 31,

2017. The CBA recognized the PBA "as the sole and exclusive 

representative for the purposes of collective negotiations 

concerning rates of pay, hours of employment and other conditions 

of employment for all full-time patrolmen in the Borough." The 

CBA specified the wages and benefits for such officers. The CBA 

did not provide either for any incentive if an officer remained 

on the police force, or for any penalties if an officer left the 

police force. The CBA was signed by the Borough's mayor, by 

Raymond M. Codey, the Borough Administrator, by PBA president Luis 

Goncalves, and by the PBA vice-president.

In December 2014, defendant applied for a position as a 

uniformed police officer in the Borough. Administrator Codey 
3 A-5206-15T1

signed a letter dated February 2, 2015 addressed to defendant. 

The February 2 letter stated: 

I am pleased to inform you that the Mayor and 

Council of the Borough of Madison will be 

approving your employment with the Borough of 

Madison's Police Department on February 9,

2015 at its scheduled meeting. You will be 

paid an (annual salary/hourly rate) of 

$40,804.00 and will be afforded all other 

benefits set forth in any applicable 

Collective Negotiations Agreement and 

Employee Handbook. 

In accordance with Borough of Madison's 

practices, you will serve a one (1) year 

probationary term, that can be extended an 

additional year at the discretion of Police 

Chief Darren Dachisen, during which time you 

can be terminated with or without cause, and 

such termination is not challengeable through 

the grievance process and/or otherwise 

appealable in any manner. If you decide to 

leave your position with the Borough of 

Madison Police Department to accept another 

law enforcement position outside of the 

Borough of Madison you will be assessed the 

following penalties in accordance with 

relevant years of service: (1) $5,000 for the 

first year; (2) $4,000 for the second year; 

(3) $3,000 for the third year; (4) $2,000 for 

the fourth year; and (5) $1,000 for the fifth 

year. No penalty will be assessed against you 

if you decide to leave your position at the 

conclusion of your fifth anniversary of 

employment with the Borough of Madison Police 

Department. Upon completing your fifth year 

of service you will receive a $5,000 retention 

stipend. The stipend will not be part of your 

base pay. 

Please counter-sign this letter in the space 

provided below if you accept these terms and 

return to me no later than February 6, 2015,
4 A-5206-15T1

and I will present the letter to the Governing 

Body for action at the scheduled meeting. 

Congratulations. We look forward to working 

with you. 

[(emphasis added)].

Defendant signed the letter underneath the words 

"Acknowledged and Accepted." Identical letters dated February 2,

2015, were sent to four other officer candidates, and were signed 

"Acknowledged and Accepted" by them. All five letters were also 

signed by Codey. The Borough's Police Chief Darren P. Dachisen,

Sr. and the Borough Attorney were copied on all five letters.1

Also, on February 2, 2015, Chief Dachisen sent an email to 

all Police Department personnel stating:

With the reduction of our starting salary and 

the added steps, I have voiced my concern to 

the governing body about retention of newly 

appointed officers. We have discussed this 

on many occasions and have come up with a plan 

that I think is a good solution at the present 

time. The five new officers will be presented 

with a five year contract prior to the 

appointment. If they sign it, they are 

agreeing to pay the [Borough] $5,000.00 if 

they leave the first year, $4,000.00 the 

second year, $3,000 the third year and so on. 

In the fifth year the [Borough] will write a 

check to the officers and give them a 

$5,000.00 stipend which will not be a part of 

the base salary. This will give the new 

officers a nice bonus in the fifth year and 

get them through the first several step 

 

1 Three more such letters were sent to other officers in January 

and March 2016, and were signed "Acknowledged and Accepted" by 

them. 
5 A-5206-15T1

increases. The reason I am telling everyone 

this is to replace fiction with facts. I have 

been in contact with both union presidents 

(PBA/SOA) who are also on board. 

On or about February 4, 2015, PBA president Goncalves and 

Sean Plumstead, President of the Madison Superior Officers 

Association (SOA), signed and sent a document addressed to 

Administrator Codey.2 The February 4 document stated: 

The Madison PBA/SOA supports the payment of 

$5,000.00 as a retention stipend. This 

payment will be provided to each officer being 

considered for appointment on February 9,

2015. We understand that the payment will be 

directly to them upon reaching their 5th year 

employment anniversary. We also understand 

that this will not be a part of their base 

pay. 

This is a contract is [sic] between the 

Borough of Madison and the five new officers 

hired February 9th, 2015. It is understood 

that the acceptance of this payment will have 

no effect on future negotiations and will not 

be held against the collective bargaining unit 

as an award to the PBA/SOA. 

We respectfully request your acknowledgment 

that this $5,000 payment to each new officer 

hired on February 9th, 2015 will have no 

[e]ffect on the PBA/SOA for future 

negotiations. 

Codey signed his name on the document under this statement. 

On February 9, 2015, the Borough passed a resolution, signed 

by the mayor, appointing defendant to the position of police 

 

2 The document is dated "February 4, 2014," but the parties agree 

it should be dated February 4, 2015. 
6 A-5206-15T1

officer. The resolution stated that defendant would "be 

compensated in accordance with the [PBA] Collective Bargaining 

Agreement." The resolution made no mention of the February 2 

letter or February 4 agreement.

Defendant became a member of the PBA. He served as an officer 

for the Borough without incident. However, he was offered a 

position as a police officer by the Township of Boonton where he 

resides. He accepted the Boonton position and voluntarily resigned 

his position on December 11, 2015. At his December 14, 2015 exit 

interview, Codey referenced the February 2, 2015 contract. 

On December 19, 2015, defendant sent Chief Dachisen a Notice 

of Resignation effective December 30, 2015. In a letter dated 

January 20, 2016, Dachisen quoted the February 2 letter and 

informed defendant that according to "the terms and conditions of 

your employment with" the Borough, "you are contractually obliged 

to reimburse the Borough . . . $5,000.00 for resigning and 

accepting another law enforcement position outside of the Borough 

during the first year of your probationary appointment."

On February 16, 2016, the Borough filed a complaint against 

defendant seeking to recover the $5,000. After defendant filed 

an answer, he filed a motion for summary judgment. Plaintiff 

cross-moved for summary judgment. On June 20, 2016, the trial 

court heard oral argument on the motions, granted summary judgment 
7 A-5206-15T1

in favor of defendant, and dismissed plaintiff's complaint with 

prejudice. Plaintiff appeals. 

II.

A trial court must grant a summary judgment motion if "the

pleadings, depositions, answers to interrogatories and admissions

on file, together with affidavits, if any, show that there is no

genuine issue as to any material fact challenged and that the

moving party is entitled to a judgment or order as a matter of

law." R. 4:46-2(c). "An issue of fact is genuine only if,

considering the burden of persuasion at trial, the evidence

submitted by the parties on the motion, together with all

legitimate inferences therefrom favoring the non-moving party,

would require submission of the issue to the trier of fact." Ibid.

The court must "consider whether the competent evidential 

materials presented, when viewed in the light most favorable to 

the non-moving party, are sufficient to permit a rational 

factfinder to resolve the alleged disputed issue in favor of the 

non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 

N.J. 520, 540 (1995). "[T]he court must accept as true all the 

evidence which supports the position of the party defending against 

the motion and must accord [that party] the benefit of all 

legitimate inferences which can be deduced therefrom[.]" Id. at 

535 (citation omitted).
8 A-5206-15T1

On appeal we employ the same summary judgment standard.

Townsend v. Pierre, 221 N.J. 36, 59 (2015). We must hew to our

"de novo" standard of review. Ibid.

III.

The February 2 letter states that defendant will be assessed 

the following penalties "in accordance with relevant years of 

service" in which he leaves the Borough's employ before completing 

his fifth year of service. The trial court found this provision 

is an unenforceable penalty provision. On appeal, the Borough

argues that the provision was a liquidated damages clause and not 

a penalty. 

Historically, New Jersey courts have distinguished between 

liquidated damages and penalty clauses. Wasserman's, Inc. v. Twp. 

of Middleton, 137 N.J. 238, 248 (1994). On the one hand,

"[l]iquidated damages is the sum a party to a contract agrees to 

pay if he breaks some promise, and which, having been arrived at 

by a good faith effort to estimate in advance the actual damages 

that will probably ensue from the breach, is legally recoverable 

as agreed damages if the breach occurs," and are enforceable. 

Ibid. (quoting Westmount Country Club v. Kameny, 82 N.J. Super. 

200, 205 (1964)). On the other hand, "[a] penalty is the sum a 

party agrees to pay in the event of a breach, but which is fixed,

not as a pre-estimate of probable actual damages, but as a 
9 A-5206-15T1

punishment, the threat of which is designed to prevent the breach,"

and is unenforceable. Id. at 248-49 (quoting Westmount, 82 N.J. 

Super. at 205).

"As the law has evolved, . . . 'reasonableness' emerges as 

the standard for deciding the validity of stipulated damages 

clauses." Id. at 249. "Consistent with the principle of 

reasonableness, New Jersey courts have viewed enforceability of 

stipulated damages clauses as depending on whether the set amount 

'is a reasonable forecast of just compensation for the harm that 

is caused by the breach' and whether that harm 'is incapable or 

very difficult of accurate estimate.'" Id. at 250 (quoting 

Westmount, 82 N.J. Super. at 206). However, this two-prong 

Westmount test "is best viewed not as an independent test, but 

rather as an element of assessing the reasonableness of a 

liquidated damages clause." Ibid. (citation omitted). "[T]he 

more uncertain the damages caused by a breach, the more latitude 

courts gave the parties on their estimate of damages." Metlife 

Capital Fin. Corp. v. Wash. Ave. Assocs., 159 N.J. 484, 494 (1999).

The February 2 letter explicitly stated it is imposing 

"penalties" in the event defendant left his position in the first 

five years. However, "the parties' characterization of stipulated 

damages as 'liquidated damages' or as a 'penalty' should not be 

dispositive." Wasserman's, 137 N.J. at 251. "New Jersey courts 
10 A-5206-15T1

have relied on the 'circumstances of the case and not on the words 

used by the parties' in determining the enforceability of 

stipulated damages clauses." Ibid. (citation omitted).

Nonetheless, the amounts assessed in the February 2 letter 

fail the two-prong Westmount test as well as the "'overall single 

test'" of whether the "'clause is reasonable under the totality 

of the circumstances.'" Metlife, 159 N.J. at 495 (citation 

omitted).

First, the amounts assessed in the February 2 letter were not 

"'a reasonable forecast of the provable injury resulting from 

breach.'" Wasserman's, 137 N.J. at 249 (citation omitted). The 

Borough principally contended an officer's resignation during the 

first five years deprives the Borough of "the experience and 

knowledge that the resigning officer earned while working for the 

Borough" and compels the Borough to "hire a brand new,

inexperienced officer." The Borough's argument suggested the cost

of losing the resigning officer would increase with the increase 

in the officer's years of experience. However, the amounts 

assessed in the February 2 letter decrease with the increase in 

the officer's years of experience at the time of resignation: 

$5000 in the first year; $4000 in the second year; $3000 in the 

third year; $2000 in the fourth year; and $1000 in the fifth year. 
11 A-5206-15T1

This strongly indicated the amounts assessed are penalties for 

early resignation rather than forecasts of the harm to the Borough. 

Second, as the trial court found, the harm to the Borough was 

not "'incapable or very difficult of accurate estimate.'" 

Wasserman's, 137 N.J. at 250 (quoting Westmount, 82 N.J. Super. 

at 206). The Borough contended it paid other officers overtime 

to cover defendant's duties, but the costs of overtime should not 

be very difficult to estimate. The CBA specifies the rate of 

overtime at "one and one-half time [an officer's] regular straight 

time hourly rate of pay," which is also specified in the CBA. 

Similarly, the cost of hiring a new officer does not appear very 

difficult to estimate. 

The Borough also argues that an officer's resignation results 

in fewer officers on the police force to perform police duties and 

maintain the security of the Borough. That harm might be difficult 

to estimate, but it was not a likely or a realized harm, as the 

Borough admittedly used other officers on overtime to perform 

defendant's duties until it hired a new officer. 

In any event, "the two-pronged Westmount test" required both 

that the amount was a reasonable forecast of the harm "'and'" that 

the harm is very difficult to estimate. Metlife, 159 N.J. at 494 

(citation omitted). The Borough made no attempt to show the 

assessments, which declined from $5000 to $1000 as the officer 
12 A-5206-15T1

gains experience, were a forecast of the cost of overtime to cover 

for him, the cost of a new hire to replace him, or the harm to the 

security of the Borough.3 

Third, the $5000 the Borough attempted to assess against 

defendant was not "'reasonable under the totality of the 

circumstances.'" Id. at 495 (citation omitted). As the trial 

court noted, the February 2 letter's "provision would require this 

Officer to disgorge an amount of $5,000, dropping his first year 

salary to $36,000, a significant penalty to him." "[A] contractual 

term fixing an unreasonably large liquidated damage amount is a 

penalty, which is unenforceable on grounds of public policy." 

Rosen v. Smith Barney, Inc., 195 N.J. 423, 427 (2008).

"[T]he modern trend is towards assessing reasonableness 

either at the time of contract formation or at the time of the 

breach." Wasserman's, 137 N.J. at 251. As set forth above, there 

was no evidence that $5000 was a reasonable forecast of harm at 

the time of the February 2 letter. Moreover, the Borough presented 

no evidence of the actual harm it suffered when defendant resigned.

 

3 On appeal, the Borough concedes it "is not seeking the 

reimbursement of training costs" through the assessments in the 

February 2 letter. As the trial court noted, the Borough demanded 

$4151.94 reimbursement from Boonton for the "costs incurred by the 

former employer in the examination, hiring, and training of"

defendant under N.J.S.A. 40A:14-178(a), and invoiced Boonton for 

the cost of his bulletproof vest. We are told Boonton paid the 

Borough. 
13 A-5206-15T1

The Borough argues the trial court should have heard testimony 

from Administrator Codey and Chief Dachisen about the costs 

incurred by the Borough. However, their certifications gave no 

indication they could testify to the costs incurred. Rather, they 

both certified "it is difficult to ascertain the exact monetary 

loss" and "it is difficult to accurately estimate the monetary 

harm." Appellate courts "leave to the sound discretion of the 

trial court the extent to which additional proof is necessary on 

the reasonableness of the clause." Id. at 258. We see no abuse 

of that discretion. The trial court reasoned: "The Borough clearly 

has the ability to quantify its damages. It could have presented 

evidence of overtime or other costs that it incurred that require 

the Borough to seek repayment from this Officer. It has presented 

nothing."

The Borough presented certifications from Administrator Codey 

and Chief Dachisen that "[t]he purpose of the [February 2 letter] 

was to encourage officers to remain on the Borough's police force"

and "minimiz[e] the number of officers who leave." However, "[t]he 

purpose of a stipulated damages clause is not to compel the 

promisor to perform, but to compensate the promisee for nonperformance." Wasserman's, 137 N.J. at 254.

"The decision whether a stipulated damages clause is 

enforceable is a question of law for the court," which we review 
14 A-5206-15T1

de novo. Id. at 257. We agree the trial court correctly concluded 

that the amount assessed by the February 2 letter was a penalty 

and unenforceable. 

The Borough argues defendant had the burden of showing 

unreasonableness. "[L]iquidated damages provisions in a 

commercial contract between sophisticated parties are 

presumptively reasonable and the party challenging the clause 

bears the burden of proving its unreasonableness," because 

"'[s]ophisticated parties acting under the advice of counsel 

. . . . can be better situated than courts to provide a fair and 

efficient remedy.'" Metlife, 159 N.J. at 496, 504 (quoting 

Wasserman's, 137 N.J. at 253). However, this was not a commercial 

contract, and nothing indicates defendant was a sophisticated 

party or acting with advice of counsel. Cf. D.H.M. Indus., Inc. 

v. Cent. Port Warehouses, Inc., 127 N.J. Super. 499, 503 (App. 

Div. 1973) (stressing "that this is a large commercial lease 

entered into by knowledgeable businessmen after arms length 

negotiations from positions of bargaining equality"). In any 

event, "[n]otwithstanding the presumptive reasonableness of 

stipulated damage clauses, [courts] are sensitive to the 

possibility that, as their history discloses, such clauses may be 

unconscionable and unjust." Wasserman's, 137 N.J. at 253. 

Defendant showed the $5000 was an unreasonable penalty.
15 A-5206-15T1

The Borough argues the February 2 letter was an enforceable 

contract with defendant, and that the trial court disregarded 

genuine issues of material fact. The Borough cites the 

certifications of Administrator Codey and Chief Dachisen that 

during defendant's interview, he said he would not leave the 

Borough police force if a position opened up in Boonton, that the 

Borough relied on his answer, that he was advised of the terms in 

the February 2 letter, and that he voluntarily signed the letter. 

However, those disputed facts are immaterial. An 

unreasonable penalty provision is unenforceable even if the 

parties voluntarily enter into it, or one party relies upon it. 

"Parties to a contract may not fix a penalty for its breach. The 

settled rule in this State is that such a contract is unlawful." 

Id. at 249 (quoting Westmount, 82 N.J. Super. at 205). "The law's 

sole purpose in departing from its usual rule of enforcing 

agreements, when it declines to enforce agreements for penalties, 

is to avoid extortion and injustice which a free power to stipulate 

damages would invite[.]" Westmount, 82 N.J. Super. at 206. Here, 

the Borough admittedly conditioned its offer of employment on 

defendant's execution of the February 2 letter, including a $5000 

penalty, which is unenforceable regardless of the validity of the 

rest of the letter's terms.
16 A-5206-15T1

"Cross motions for summary judgment do not preclude the 

existence of issues of fact." Horizon Blue Cross Blue Shield of 

N.J. v. State, 425 N.J. Super. 1, 31 (App. Div. 2012) (citing 

O'Keeffe v. Snyder, 83 N.J. 478, 487 (1980)). "But when there is 

no material issue of fact and one party is entitled to a judgment 

as a matter of law, summary judgment is mandated." Morton, Inc. 

v. Gen. Accident Ins. Co. of Am., 266 N.J. Super. 300, 323 (App. 

Div. 1991). Here, "in light of the record that was before the 

trial court and the issues presented, we find no error in summary 

judgment disposition." Spring Creek Holding Co. v. Shinnihon 

U.S.A. Co., 399 N.J. Super. 158, 177 (App. Div. 2008). 

IV.

In addition to finding the assessments in the February 2 

letter were unenforceable as a penalty, the trial court also found 

the provision was "violative [of] a collective bargaining 

agreement between the Police Benevolent Association, Local 92 and 

the Borough of Madison." Specifically, the court ruled it was "an 

impermissible imposition of a term or condition of employment"

under N.J. Transit Auth. v. N.J. Transit PBA, 314 N.J. Super. 129 

(App. Div. 1998).

In N.J. Transit, "all new applicants for employment as police 

officers were required to sign an agreement . . . which obligated 

those applicants to agree to repay Transit for portions of the 
17 A-5206-15T1

Academy training costs at issue if those Officers left the employ 

of Transit at any time within two years of the completion of their 

Academy training." Id. at 133. We rejected N.J. Transit's 

assertion it could impose such a requirement without negotiating 

with the PBA, ruling that "the terms and conditions of employment 

may not be established unilaterally but only by negotiations," and 

that the "repayment agreement is literally a term or condition of 

employment" which must be negotiated. Id. at 135-36. We also 

held that "the [Employer-Employee Relations] Act's protections 

would be negated by allowing employment terms and conditions to 

be dictated unilaterally in pre-hire agreements simply because job 

applicants who have been offered employment are technically not 

yet 'employees.'" Id. at 139.

The Borough argues there was a genuine issue of material fact 

about whether the assessments in the February 2 letter was 

negotiated and agreed to by the PBA and the SOA. The Borough 

cites the certifications by Administrator Codey and Chief Dachisen 

that "the Borough negotiated with the [PBA] and the [SOA] an 

incentive based probationary period of employment contract," that 

"both the P.B.A. and the S.O.A. agreed to the contract for five 

(5) new officers" including defendant, and later three other 

officers, and that "[t]he Borough, the P.B.A., and the S.O.A. 

negotiated the terms of the incentive based contract," which 
18 A-5206-15T1

included both the assessments and the $5000 retention stipend. 

The Borough also cites Dachisen's email that the presidents of the 

PBA and SOA were "on board" with the contracts. The Borough claims 

it intended to call PBA President Goncalves to testify that the 

PBA agreed to all the terms of the contract.

Defendant contends the PBA and SOA did not negotiate the 

assessments, only the stipend. He notes the absence of any mention 

of the assessments in the February 4 agreement, which addressed 

the stipend, or the February 9 resolution, which stated defendant 

would be compensated pursuant to the CBA. Defendant argues the 

February 4 agreement was not an amendment to the CBA as it was not 

signed by the mayor, and that his compensation was governed by the 

CBA. Defendant certified that Goncalves told him "such an 

employment condition was unenforceable and was not provided for 

in the [CBA] and that I could sign the [February 2 letter] without 

concern of the enforceability of the alleged penalty."

We need not decide whether there was a genuine issue of fact 

about whether the February 2 letter was negotiated between the 

Borough and the PBA. We also need not decide the enforceability 

of any other provision in the February 2 letter and the February 

4 agreement. Nor need we rule on the credibility or good faith 

of Administrator Codey, Chief Dashisen, Goncalves, or defendant.
19 A-5206-15T1

Any need to decide those issues is removed by our ruling that 

the $5000 assessment for defendant's resignation in his first year 

is an unenforceable penalty. As the Borough's complaint sought 

only to collect that unenforceable $5000 penalty, the complaint 

was properly dismissed with prejudice regardless of whether the 

penalty was negotiated with the PBA. 

Affirmed.