Court Opinion

ID: 4431122
Source: CourtListenerOpinion
Date Created: 2019-08-20 19:52:31.159675+00
Date Added: 2024-06-11T09:24:49.285889
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE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.

                                       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
     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

                                  2                            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,

                                3                         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.
                                4                        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.
                                5                         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

                                         6                               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).

                                            7                                 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

                                         8                             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

                                           9                                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.

                                     10                             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

                                  11                            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.
                               12                          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 non-

performance."    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

                                       13                                   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.

                                         14                                  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.

                                       15                                  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

                                 16                                 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

                                      17                                 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.

                                  18                                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.

                               19                          A-5206-15T1