Newark Watershed Conservation v. Watkins-Brashear (In re Newark Watershed Conservation & Dev. Corp.)
| Decision Date | 21 June 2016 |
| Docket Number | Adv. Pro. No. 15–2397 (VFP),Case No. 15–10019 (VFP) |
| Citation | 560 B.R. 129 |
| Parties | In re: Newark Watershed Conservation and Development Corporation, Debtor. Newark Watershed Conservation and Development Corporation, Debtor–Plaintiff, v. Linda Watkins-Brashear; Dawayne Brashear; Edit Interiors ; Donald Bernard Sr.; Donald Bernard Sr. Consulting; Bernard and Associates; New Beginnings Environmental LLC; Edward McRae; Cleaner-N-Greener; Greener-N-Cleaner; Carlos Arocho; Arocho Landscaping; Oscar N. James Sr.; The James Group; James C. Porter; Jim P. Enterprises, LLC; Lawrence Belcher, CPA; Walter Frye, CPA; Unity Financial Strategists, Inc.; Garden State Securities, Inc.; Darnell A. Deans; Cory A. Booker; Rodney B. Johnson; William T. Merritt; Oscar S. James II (a/k/a Oscar James, Jr.); Donald M. Payne, Jr.; Vaughn L. McKoy; Michelle Thomas; XYZ Corporation 1–10 (Fictitious Names); John Doe 1–10 (Fictitious Names), Defendants. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
Wasserman, Jurista & Stolz, PC, Daniel Stolz, Esq., Donald W. Clarke, Esq., 110 Allen Road, Ste. 304, Basking Ridge, NJ 07920, Counsel for Debtor
Perkins Coie LLP, Marc Elias, Esq. (pro hac vice), Gary F. Eisenberg, Esq., 30 Rockefeller Plaza-25th Fl., New York, NY 10112, Counsel for Defendant Cory A. Booker
Scarpone & Vargo, LLC, James A. Scarpone, Esq., Bruce D. Vargo, Esq., 50 Park Place, Ste. 1003, Newark, NJ 07102, Special Counsel for Plaintiff
Sills Cummis & Gross, Jaimee Lynn Katz Sussner, Esq., One Riverfront Plaza, Newark, NJ 07102, Counsel for Defendant Vaughn L. McKoy
This matter is before the Court on the separate (though related) motions of Defendants Cory Booker (“Booker”) and Vaughn L. McKoy (“McKoy”) to dismiss the claims against them in the adversary complaint filed against them by Debtor Newark Watershed Conservation and Development Corporation (“NWCDC” or “Debtor”). The formal count against Booker and McKoy is Count Seven for “Negligence / Breach of Fiduciary Duties” (Dkt. No. 1, at 37, 42, ¶¶ 168–76). The Debtor filed an objection and cross-motion to amend the Complaint (with a proposed Amended Complaint). Booker and McKoy filed replies. For the reasons stated below, the Court will grant the motion to dismiss as to Booker based on public employee immunity and deny the motion to dismiss as to McKoy based on charitable immunity and N.J.S.A. § 15A:6–14. The Debtor's cross-motion to amend is granted.
The Court has jurisdiction over this matter under 28 U.S.C. § 1334(b) and the Standing Orders of Reference entered by the United States District Court on July 10, 1984 and amended on October 17, 2013. Venue is proper in this Court under 28 U.S.C. § 1408. Whether the Complaint (which includes a jury demand) is a core proceeding under 28 U.S.C. § 157(b)(2) is an issue under consideration by the District Court, as Booker filed a motion under 28 U.S.C. § 157(d) to withdraw the reference on December 1, 2015 with the District Court under Dkt. No. 15–cv–08393 (KSH). McKoy joined in that motion, which remains pending.
FED. R. BANKR. P. 5011(c). No party has applied to this Court to stay these motions in the face of the pending motion to withdraw the reference. To the contrary, at oral argument, Booker's counsel acknowledged that the filing of this motion is a deemed consent to this Court's jurisdiction to decide the motion. Counsel for the Debtor concurred and no objection was interposed by McKoy.
Accordingly, the Court will proceed to decide the motion and issue the following findings of fact and conclusions of law pursuant to FED. R. BANKR. P. 7052. To the extent that any of the findings of fact might constitute conclusions of law, they are adopted as such. Conversely, to the extent that any conclusions of law constitute findings of fact, they are adopted as such.
As alleged in the Complaint, the Debtor was created in 1973 under a Newark Municipal Council ordinance to manage Newark's “fresh water properties” in Morris, Passaic and Sussex Counties (Dkt. No. 1, ¶ 3). Debtor is incorporated as a nonprofit corporation under N.J.S.A. § 15A:1–1 et seq. (“New Jersey Nonprofit Corporation Act”) (Id. ¶ 4). Debtor's duties were expanded in 1998 to managing Newark's Pequannock water treatment facility and in 2009 to managing Newark's water storage reservoirs (Id. ¶ 3). The Debtor operated pursuant to service contracts with Newark. Id. According to the Complaint, the NWCDC “operated nearly entirely via funding by the taxpayers of the City [of Newark] and, from 2008 to 2011, was paid more than $40.5 million by Newark under two contracts in effect during that period. Id. at ¶ 61. Debtor is subject to a Charter and Bylaws last amended in 1994 (Dkt. No. 1, ¶ 5; Dkt. No. 25–2, Elias Decl., Exs. A and B).
Under the 1994 Amended Certificate of Incorporation the Debtor was governed by a Board of Trustees consisting of seven (7) to eleven (11) individuals:
The Mayor, ex-officio, two members of the Newark Municipal Council selected by that body, and up to eight others but not less than four appointed by the Mayor with the advice of the Board of Trustees and the advice and consent of the Newark Municipal Council. Each Trustee will serve the term of office of the Mayor and council appointing him and until the appointment and qualification of a successor.
(emphasis supplied). Defendant Booker served as Mayor of Newark from July 1, 2006 through October 30, 2013 and was therefore an ex officio member of Debtor's Board during that period (Dkt. No. 1, ¶ 37; Dkt. No. 25–5). Defendant McKoy served on the Board from 2007 to 2011 “without compensation or any other economic benefit from any source” (Dkt. No. 39–3, McKoy Decl., ¶ 2).
According to the Complaint, a citizens' group commissioned an investigative report, issued in January 2011,1 of the Debtor's conduct of its affairs that has become known as the “Hog Wild Report.” (Dkt. No. 1, ¶¶ 68–69, Ex. A, and at 7, 11). In January 2011, the New Jersey Comptroller began an investigation of the NWCDC and issued preliminary findings in early 2013 (Dkt. No. 1, ¶¶ 71–73 and Ex. B at 4). At an emergency meeting of March 25, 2013, the Board voted to dissolve the Debtor (Dkt. No. 1, ¶ 73). On application by the City of Newark, the Superior Court of New Jersey entered an Order appointing four (4) provisional trustees (Dkt. No. 1, ¶ 73).
The New Jersey Comptroller issued his report on February 19, 2014 (Dkt. No. 1, ¶ 74 and Ex. B) (the “2014 Report”). The 2014 Report largely affirmed and expanded upon the assertions made in the Hog Wild Report. The 2014 Report found significant improprieties by the Debtor's Executive Director and others. More specifically, the 2014 Report found that “from 2008 to 2011, the NWCDC recklessly and improperly spent millions of dollars of public funds with little or no oversight by the Board of Trustees or the City .” See 2014 Report at 1 (emphasis supplied). The 2014 Report also indicates that the Booker administration proposed creating a Municipal Utilities Authority (“MUA”) to replace or to supplement the work of the Debtor (Dkt. No. 1, Ex. B, at 22–23). Debtor alleges that this proposal, and the money expended to explore its feasibility (approximately $1 million), exceeded the Debtor's authority and results in Booker, McKoy and others becoming liable to the Debtor. (Dkt. No. 1, Compl.¶¶ 115–35).
The nonoperating Debtor filed a voluntary Chapter 11 petition on January 2, 2015. The Debtor filed this seven-count adversary Complaint on November 6, 2015 against twenty-eight (28) defendants, individuals and entities. The Complaint includes many of the same allegations as the 2014 Report, which is incorporated into the Complaint, as is the Hog Wild Report.
In the Complaint, the Debtor classified the Defendants into four categories: (1) officers, employees and contractors who received financial benefit from the mismanagement of Debtor; (2) professionals whose negligence promoted the bad conduct of management and the pursuit of the unauthorized MUA; (3) trustees who profited from the mismanagement of Debtor or who failed to fulfill their fiduciary duty; and (4) trustees who were negligent and/or breached their fiduciary duties to Debtor without any allegation that they received any benefits from the Debtor (Dkt. No. 1, ¶ 1). Booker and McKoy fall into the fourth category and are the subject of one count, Count 7, of the Complaint (along with five (5) other Board members) for negligence and breach of fiduciary duty.
Count 7 alleges in pertinent part:
(Dkt. No. 1, Compl.¶¶ 169, 172–73). Count 7 seeks compensatory and punitive damages in unstated amount, fees, costs...
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