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Municipalities do not need specific statutory authority to pay counsel fees for employees beset by litigation, says the New Jersey Supreme Court. The town leaders may invoke a higher, “moral authority.” The justices overturned an Appellate Division ruling that the town of Kearny acted ultra vires by paying counsel fees for a resigned clerical worker’s defense of a taxpayers’ suit over his severance pay. The appeals court had said that the suit did not fall within N.J.S.A. 40A:9-134.1, which requires indemnification if the suit directly relates to a clerk’s lawful performance of official duties. But the fact that Kearny is not required to pay for the defense does not mean it is precluded from doing so, the justices said Nov. 20 in McCurrie v. Town of Kearny, A-72-01. The New Jersey Supreme Court cited a long line of cases supporting the common-law doctrine that “although there may not be a statutory compulsion to do so, municipalities nevertheless have a moral obligation, and hence the discretionary authority, to pay expenses incurred in good faith by municipal employees acting in their official status, including the defense of legal actions challenging acts undertaken or performed by them in that status.” Justice Jaynee LaVecchia, writing for the unanimous court, added, “All that is necessary to justify the municipality’s exercise of discretion to pay its employee’s legal expenses is a showing that the employee was acting in good faith in the course of official duties in a matter in which the municipality had an interest.” Determining those two conditions, she wrote, requires a fact-sensitive inquiry and in this case, the court had no trouble concluding they were met. Robert Czech, who was Kearny’s municipal clerk and administrator, was appointed for a statutory three-year term as clerk but served as administrator at the town’s pleasure. A change in the political makeup of the town council during his statutory term led Czech to believe he would be better off resigning early in return for a $32,000 severance package. The outgoing council approved the plan by resolution, but it was challenged by a group of taxpayers, who sued Czech and the town. The municipality then undertook to pay $10,000 in legal fees that Czech would incur in his defense of the suit. “The taxpayer lawsuit was not challenging an individualized action taken by Czech,” LaVecchia wrote. “Czech’s involvement was simply the necessary consequence of the Town’s exercise of judgment as to the manner in which best to serve the public interest in the smooth and efficient functioning of the clerk and administrator offices. So viewed, it is clear that Czech’s joinder as a party defendant bore a nexus to his official position sufficient to impose a moral obligation on the Town that it had the discretionary authority to fulfill.” More fundamentally, the town had determined that indemnifying Czech would benefit its own defense to the suit, and its judgment in that regard was entitled to judicial deference, LaVecchia added. John Petrella, who defends local government employees in suits arising from their official duties, says the ruling will provide a greater measure of assurance to municipal officials who are inclined to provide counsel to employees who are not so entitled by statute. “In the future, an administrator who asks to be indemnified and have an attorney provided will be able to say the [New Jersey] Supreme Court says you have a moral obligation,” says Petrella, a partner at Livingston, N.J.’s Genova, Burns & Vernoia. He says the ruling is significant because in the past, the state high court has sided with taxpayers in such disputes, although many cases involve municipal employees charged with specific wrongdoing. Petrella thinks the New Jersey Supreme Court was sympathetic to Czech’s plight since paying counsel fees himself would have wiped out a large part of his severance. Czech, now the Middletown Township administrator, said last week he had not read the opinion because he was attending a League of Municipalities convention in Atlantic City. Czech had represented himself pro se at the New Jersey Supreme Court because his and the town’s interests were no longer in unison. Kearny’s new municipal council — after lying low during the Appellate Division phase of the case — took the position at the court that the counsel-fee resolution by the previous council was invalid. For this, LaVecchia had some stern language. “We think it clear that its about-face is a blatant violation of the principle of judicial estoppel,” she wrote. The lawyer representing Kearny at the New Jersey Supreme Court, Gregory Castano Jr., a partner at Castano Quigley in West Caldwell, N.J., declines to comment, saying the “ruling speaks for itself.” LaVecchia said the court took on the “meritorious issue” despite the town’s improper litigation posture because the public interest was involved. Adds Petrella, “Over the last several decades, the [New Jersey] Supreme Court has been diluting the strength of the judicial estoppel doctrine, so to hear them use it here and use it so strongly was very interesting.”

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