Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Daniel Gill
June 24 — Former Newark mayor and current U.S. Sen. Cory Booker (D-N.J.) was dismissed as a defendant in a lawsuit brought by the bankrupt Newark Watershed Conservation and Development Corp. against him and 27 others ( Newark Watershed Conservation & Dev. Corp. v. Watkins-Brashear (In re Newark Watershed Conservation & Dev. Corp.), 2016 BL 198627, Bankr. D.N.J., No. 15-2397 (VFP), 6/21/16 ).
A similar motion to dismiss brought by another defendant, Vaughn L. McKoy, was denied
Judge Vincent F. Papalia of the U.S. Bankruptcy Court for the District of New Jersey issued an order on June 21 dismissing the claims against Booker in the adversary proceeding filed by the Chapter 11 bankruptcy debtor, the Newark Watershed Conservation and Development Corporation (NWCDC). The lawsuit claimed negligence and breach of fiduciary duty that the debtor alleged led to the corruption and scandalous downfall of the NWCDC, pursuant to a state law which grants civil tort immunity to public employees exercising judgment or discretion vested in him or her by the public position.
In the same order, the court denied the motion of defendant McKoy, who had claimed immunity under a New Jersey law designed to protect trustees of non-profit corporations who serve without compensation. The court found that McKoy was not entitled to the protections under that statute as a matter of law through a summary motion to dismiss, but that more facts would first have to be established before the defense could be considered.
The court's order also authorized the debtor plaintiff to amend its complaint.
According to the complaint filed in the bankruptcy case, the NWCDC was a public non-profit company created to manage certain fresh water properties in New Jersey, eventually including the management of Newark's water storage reserves. In 2011, an investigative report commissioned by a group of citizens, which became known as the Hog Wild Report, uncovered an alarming pattern of misconduct among leadership of the NWCDC. The Hog Wild report was followed by an investigation by the New Jersey Comptroller, and in 2013 the NWCDC's board voted to dissolve the company, according to the complaint.
In 2014, the Comptroller issued his own report affirming the findings of the Hog Wild report, the court said. The report alleged that the NWCDC improperly spent millions of dollars without oversight by its board or by Newark.
In January 2015, the NWCDC (already non-operating, having been dissolved by the board) filed for Chapter 11 bankruptcy protection and later that year filed the complaint against 28 board members and city officials, among others. Booker, who served on the board in his capacity as Mayor of Newark at the time, and McKoy were among these defendants (27 BBLR 1546, 11/19/15). The debtor claimed that Booker and McKoy knew or should have known about the misappropriation or waste of funds by the officers directing the company.
Some criminal corruption charges followed, and a former manager, as well as the former executive director, pleaded guilty to accepting kickbacks for awarding work to certain contractors (28 BBLR 10, 1/7/16).
Booker argued that New Jersey Statutes, section 59:3–2(a) and (b) (part of the Tort Claims Act) provided him an affirmative defense sufficient to require the dismissal of the claims against him. Those sections provide as follows: “a. A public employee is not liable for an injury resulting from the exercise of judgment or discretion vested in him; b. A public employee is not liable for legislative or judicial action or inaction, or administrative action or inaction of a legislative or judicial nature.”
The only argument the debtor made against applying the New Jersey Statute was that it was meant to protect the public employee from a private suit for damages, not “from a claim made by a public entity,” the court said.
The court rejected the debtor's argument and held that Booker was immune from liability under the statute, saying that its ruling “ is consistent with the plain language of the Tort Claims Act and its purposes.” The court dismissed Booker from the claims asserted against him.
Booker's co-defendant McKoy didn't fare as well on his motion to dismiss, although the court's ruling doesn't deprive McKoy from claiming statutory immunity — McKoy could still pursue those defenses in the lawsuit.
McKoy served on NWCDC's board “without compensation or any other economic benefit” from 2007 to 2011, according to documents filed by McKoy in the case. McKoy argued in his motion to dismiss that he was therefore entitled to immunity under the “safe harbor” provisions of the New Jersey statutes concerning non-profit corporations (NJS 15A:2-8(d)). Generally speaking, those sections give immunity to unpaid trustees on boards of non-profits when they are acting in good faith.
The court found that at “this preliminary stage” (i.e., considering the motion to dismiss), it was unable to make a determination of whether McKoy acted in good faith and with the proper “degree of care” in performing his duties for NWCDC.
The court also rejected McKoy's argument that he was entitled to “charitable immunity.” That doctrine extended only to companies that were established “exclusively for religious, charitable or educational purposes,” the court said. “On this record,” the court said, “the Court cannot find that the NWCDC was organized ‘exclusively' for religious, charitable or educational purposes. Instead, it was organized to provide water to the City of Newark...”
The debtor-plaintiff was represented by Daniel Stolz, Wasserman, Jurista & Stolz, PC, Basking Ridge, N.J. Sen. Booker was represented by Marc Elias, Perkins Coie LLP, New York. And McKoy was represented by Jaimee Lynn Katz Sussner, Sills Cummis &Gross, Newark, N.J.
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