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2761227.1 UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW JERSEY ––––––––––––––––––––––––––––––––––––– x IN THE MATTER OF: NEWARK WATERSHED CONSERVATION AND DEVELOPMENT CORPORATION, Debtor. : : : : : : : : : : : Case No. 15-10019 (VFP) Hon. Vincent F. Papalia Chapter 11 ––––––––––––––––––––––––––––––––––––– x ––––––––––––––––––––––––––––––––––––– x NEWARK WATERSHED CONSERVATION AND DEVELOPMENT CORPORATION, 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-NGREENER; GREENER-N-CLEANER; CARLOS AROCHO; AROCHO LANDSCAPING; OSCAR N. JAMES SR.; THE JAMES GROUP; JAMES C. PORTER; JIM P ENTERPRISES, LLC; GIACOMO “JACK” DEROSA; ESSEX HOME IMPROVEMENTS; RETHA RENEE MCCOY; PRECISION TECHNOLOGY SOLUTIONS, INC.; KEVIN GLEATON; MINDSHARE MEDIA; SYNERGY GROUP; ELNARDO J. WEBSTER II; JODI LUCIANI; TRENK DIPASQUALE DELLA FERA SODONO PC; LAWRENCE BELCHER, CPA; WALTER FRYE, CPA; UNITY FINANCIAL STRATEGISTS, INC.; GARDEN STATE SECURITIES, INC.; DARNELL A. DEANS; RODNEY B. : : : : : : : : : : : : Adv. Pro. No. 15-02397 (VFP) Motion Date: October 23, 2018 Case 15-02397-VFP Doc 321-1 Filed 09/24/18 Entered 09/24/18 16:40:01 Desc Brief Page 1 of 41

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Page 1: UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW … · 2018-09-26 · DISTRICT OF NEW JERSEY ... CREATION OF AN MUA ... On January 2, 2015, NWCDC filed a Voluntary Petition with this

2761227.1

UNITED STATES BANKRUPTCY COURTDISTRICT OF NEW JERSEY

––––––––––––––––––––––––––––––––––––– x

IN THE MATTER OF:

NEWARK WATERSHED CONSERVATIONAND DEVELOPMENT CORPORATION,

Debtor.

:::::::::::

Case No. 15-10019 (VFP)

Hon. Vincent F. Papalia

Chapter 11

––––––––––––––––––––––––––––––––––––– x––––––––––––––––––––––––––––––––––––– xNEWARK WATERSHED CONSERVATIONAND DEVELOPMENT CORPORATION,

Plaintiff,

v.

LINDA WATKINS-BRASHEAR;DAWAYNE BRASHEAR; EDITINTERIORS; DONALD BERNARD SR.;DONALD BERNARD SR. CONSULTING;BERNARD AND ASSOCIATES; NEWBEGINNINGS ENVIRONMENTAL LLC;EDWARD MCRAE; CLEANER-NGREENER;GREENER-N-CLEANER;CARLOS AROCHO; AROCHOLANDSCAPING; OSCAR N. JAMES SR.;THE JAMES GROUP; JAMES C. PORTER;JIM P ENTERPRISES, LLC; GIACOMO“JACK” DEROSA; ESSEX HOMEIMPROVEMENTS; RETHA RENEEMCCOY; PRECISION TECHNOLOGYSOLUTIONS, INC.; KEVIN GLEATON;MINDSHARE MEDIA; SYNERGYGROUP; ELNARDO J. WEBSTER II; JODILUCIANI; TRENK DIPASQUALE DELLAFERA SODONO PC; LAWRENCEBELCHER, CPA; WALTER FRYE, CPA;UNITY FINANCIAL STRATEGISTS, INC.;GARDEN STATE SECURITIES, INC.;DARNELL A. DEANS; RODNEY B.

::::::::::::

Adv. Pro. No. 15-02397 (VFP)

Motion Date: October 23, 2018

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2761227.1

JOHNSON; WILLIAM T. MERRITT;OSCAR S. JAMES II (a/k/a OSCARJAMES, JR.); DONALD M. PAYNE, JR.;VAUGHN L. McKOY; MICHELLETHOMAS; DIANTHE DAWN BROOKS(a/k/a DIANTHE MARTINEZ-BROOKS);,DMART127, LLC; JANELL ROBINSON;PROTECTED AND SECURED SERVICES,LLC; XYZ CORPORATION 1-10(FICTITIOUS NAMES); JOHN DOE 1-10(FICTITIOUS NAMES)

Defendants.–––––––––––––––––––––––––––––––––––––– x

MEMORANDUM OF LAW IN SUPPORT OFATTORNEY-DEFENDANTS’ MOTION FOR

SUMMARY JUDGMENT

MCELROY, DEUTSCH, MULVANEY &CARPENTER, LLP1300 Mount Kemble AvenueP.O. Box 2075Morristown, NJ 07962-2075(973) 993-8100Attorneys for Defendants, Trenk, DiPasquale, DellaFera & Sodono, P.C.; Elnardo J. Webster, Esq.and Jodi M. Luciani, Esq.

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TABLE OF CONTENTS

Page

PRELIMINARY STATEMENT ............................................................................................. 1

STATEMENT OF UNDISPUTED MATERIAL FACTS ...................................................... 4

STANDARD OF REVIEW ................................................................................................... 19

LEGAL ARGUMENT........................................................................................................... 20

POINT I

THE COURT SHOULD GRANT SUMMARY JUDGMENT IN FAVOROF THE ATTORNEY DEFENDANTS BECAUSE NWCDC HAD ALEGALLY INSUFFICIENT NUMBER OF TRUSTEES WHEN IT FILEDTHE FIRST, SECOND AND THIRD AMENDED COMPLAINTS IN THISMATTER ............................................................................................................................... 20

POINT II

THE ATTORNEY DEFENDANTS ARE ENTITLED TO PARTIALSUMMARY JUDGMENT ON THE CLAIMS PERTAINING TO THECREATION OF AN MUA .................................................................................................... 26

POINT III

SUMMARY JUDGMENT SHOULD BE GRANTED ON NWCDC’SCLAIM RELATING TO THE ALLEGED FAILURE TO ENSURE THEBOARD OPERATED WITH THE PROPER NUMBER OF TRUSTEESBECAUSE IT CANNOT ESTABLISH PROXIMATE CAUSATION................................ 33

CONCLUSION...................................................................................................................... 35

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TABLE OF AUTHORITIES

Cases Page

2175 Lemoine Avenue v. Finco, Inc.,272 N.J. Super. 478 (App. Div. 1994) ................................................................................... 20

Bedford v. Riello,195 N.J. 210 (2008) ............................................................................................................... 14

Bosland v. Warnock Dodge, Inc.,197 N.J. 543 (2009) ............................................................................................................... 14

Burnett v. County of Bergen,198 N.J. 408 (2009) ............................................................................................................... 14

Celotex Corp. v. Catrett,477 U.S. 317 (1986)............................................................................................................... 12

Charles A. Manganero Consulting Eng'rs, Inc. v. Carneys Point Twp. Sewerage Auth.,344 N.J. Super. 343 (App. Div. 2001) ................................................................................... 22

Couri v. Gardner,173 N.J. 328 (2002) ............................................................................................................... 22

F.G. v. MacDonell,150 N.J. 550 (1997) ............................................................................................................... 21

Gautam v. DeLuca,215 N.J. Super. 388 (App. Div. 1987) ................................................................................... 20

Hoffman v. Asseenontv.Com, Inc.,404 N.J. Super. 426 (App. Div. 2009) ................................................................................... 27

In re Machne Menachem, Inc.,3:CV-10-0765, 2011 WL 742046(M.D. Pa. Feb. 24, 2011) ....................................................................................................... 15

In re Estate of Lash,169 N.J. 20 (2001) ................................................................................................................. 21

Johnson v. Schragger, Lavine, Nagy & Krasny,340 N.J. Super. 84 (App. Div. 2001) ..................................................................................... 20

Kulas v. Public Serv. Elec. and Gas Co.,41 N.J. 311 (1964) ................................................................................................................. 20

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Levinson v. D’Alfonso & Stein,320 N.J. Super. 312 (App. Div. 1999) ................................................................................... 21

Lovett v. Estate of Lovett,250 N.J. Super. 79 (Ch. Div. 1991) ....................................................................................... 20

Machne Menachem, Inc. v. Spritzer,456 Fed. Appx. 163 (3d Cir. 2012)........................................................................................ 15

McKelvey v. Pierce,173 N.J. 26 (2002) ................................................................................................................. 20

Oneida Motor Freight, Inc. v. United Jersey Bank,848 F.2d 414 (3d Cir.),cert. denied, 488 U.S. 967 (1988) ......................................................................................... 18

Pizzullo v. N.J. Mfrs. Ins. Co.,196 N.J. 251 (2008) ............................................................................................................... 14

Podobnik v. United States Postal Serv.,409 F.3d 584 (3d Cir. 2005)................................................................................................... 12

Reynolds v. Gonzalez,172 N.J. 266 (2002) ............................................................................................................... 20

Ryan Operations G.P. v. Santiam-Midwest Lumber Co.,81 F.3d 355 (3d Cir. 1996) ................................................................................................... 18

Scarano v. Cent. R.R. Co. of N.J.,203 F.2d 510 (3d Cir. 1953) .................................................................................................. 18

Shields v. Zuccarini,254 F.3d 476 (3d Cir. 2001)................................................................................................... 12

Sommers v. McKinney,287 N.J. Super. 1 (App. Div. 1996) ....................................................................................... 20

St. Peter’s Univ. Hosp. v. Lacy,185 N.J. 1 (2005) ................................................................................................................... 14

St. Pius X House of Retreats v. Diocese of Camden,88 N.J. 571 (1982) ................................................................................................................. 20

State v. Buckley,216 N.J. 249 (2013) ............................................................................................................... 13

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State v. Shelley,205 N.J. 320 (2011) ............................................................................................................... 13

Stoeckel v. Twp. of Knowlton,

387 N.J. Super. 1 (App. Div.) certif. denied, 188 N.J. 489 (2006) ........................................ 21

Taylor v. DeLosso,

319 N.J. Super. 174 (App. Div. l999) .................................................................................... 21

Ziegelheim v. Apollo,

128 N.J. 250 (1992) ............................................................................................................... 20

Rules and Statutes

Fed. R. Bank. P. 7056 ............................................................................................................ 12

Fed. R. Civ. P. 56................................................................................................................... 12

Fed. R. Civ. P. 56(a) .............................................................................................................. 12

N.J.S.A. 15A:6-2............................................................................................................. passim

N.J.S.A. 15A:6-14.................................................................................................................... 5

N.J.S.A. 15A:12-12.......................................................................................................... 13, 14

N.J.S.A. 15A:12-12I ....................................................................................................... passim

N.J.S.A. 2A:53A-26(c) .......................................................................................................... 21

N.Y. Not-for-Profit Corp. Law § 702 (McKinney 2017) ...................................................... 15

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PRELIMINARY STATEMENT

Defendants Elnardo J. Webster II, Esq. (“Webster”), Jodi M. Luciani, Esq. (“Luciani”),

and the law firm of Trenk, DiPasquale, Della Fera, Sodono, P.C. (the “Trenk Firm”)(collectively,

the “Attorney-Defendants”), submit this brief in support of their motion for summary judgment

seeking dismissal of plaintiff/debtor Newark Watershed Conservation and Development

Corporation’s (“Plaintiff” or “NWCDC”) First, Second and Third Amended Complaints.

The Attorney-Defendants served as general legal counsel to Plaintiff from March 2007

until March 2012, when Webster and Luciani left the Trenk Firm and continued their

representation at another firm. The NWCDC’s Board of Trustees voted to dissolve the entity in

March 2013 after authorities discovered that several employees and others had misappropriated

funds belonging to the corporation. On January 2, 2015, NWCDC filed a Voluntary Petition

with this Court. NWCDC subsequently filed this adversary proceeding on November 6, 2015,

Attorney-Defendants were not named as parties. NWCDC filed the First Amended Complaint

on June 24, 2016, adding claims for breach of fiduciary duty and professional negligence against

the Attorney-Defendants.1 The claims against the Attorney-Defendants asserted in the First,

Second and Third Amended Complaints should be dismissed because the NWCDC’s Board of

Trustees lacked the requisite authority to bring such claims. The NWCDC is a non-profit

corporation organized under Title 15 of the New Jersey Statutes, which requires nonprofit

corporations such as the NWCDC to have no less than three Trustees on its Board.

When NWCDC filed its initial Complaint, the Board consisted of three Trustees.

However, as of June 24, 2016, when the NWCDC filed its First Amended Complaint asserting,

for the first time, breach of fiduciary duty and professional negligence claims against the

Attorney-Defendants, one of the three members of the Board of Trustees of the NWCDC had

1 NWCDC subsequently filed a Second and Third Amended Complaint repeating these claims.

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resigned, leaving the NWCDC with merely two Trustees on its Board in violation of both New

Jersey law and an Order of the Superior Court of New Jersey entered in December 2014

mandating that the Board would consist of three Trustees. Thus, the action by the two remaining

Trustees directing claims against the Attorney-Defendants was invalid as a matter of law.

Because NWCDC was required to have at least three Trustees, it lacked the authority assert

claims against the Attorney-Defendants. Therefore, the Court should dismiss NWCDC’s

Complaints as to Attorney-Defendants.

Alternatively, should the Court decide that summary judgment as to the entire action

against the Attorney-Defendants is unwarranted at this time, the Court should nevertheless grant

partial summary judgment in favor of the Attorney-Defendants in respect to: (1) NWCDC’s

claims concerning the City of Newark’s efforts to establish a Municipal Utilities Authority

(hereinafter, “MUA”); and (2) NWCDC’s claim that the Attorney-Defendants caused the

NWCDC to suffer damages as a result of “allowing” the NWCDC Board to operate without a

quorum and to ensure that the Board had the proper number of Trustees.

In terms of its claims relating to the MUA, Plaintiff cannot establish that the Attorney-

Defendants breached any duty with regard to NWCDC’s efforts to pursue establishment of an

MUA. The undisputed facts show that the City of Newark requested that the NWCDC explore

the formation of an MUA and that the City was the driving force behind these efforts. The

undisputed facts also show that nothing in the NWCDC’s corporate documents or any contracts

precluded the NWCDC from exploring the creation of an MUA in accordance with the City’s

request. The Attorney-Defendants reasonably and promptly followed their client’s directives and

advised their client with regard to the process for forming an MUA. For these reasons, Plaintiff

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cannot establish a breach by the Attorney-Defendants of any professional obligation relating to

the attempts to form an MUA.

Plaintiff’s claims relating to the alleged failure to ensure the proper number of Trustees

on the Board of the NWCDC also fail because there is no proximate causation. Plaintiff must

present proof that NWCDC’s Board voting would have had different outcomes had the Board

been comprised of a more members. It must also prove that the malfeasance committed by co-

defendants either would not have occurred or would have been discovered earlier. There is no

genuine issue of material fact on this issue because Plaintiff cannot present evidence that either

scenario would have materialized. It does not exist. This claim is pure speculation asserted with

the benefit of hindsight. For those reasons, Plaintiff’s claim for damages stemming from the

NWCDC Board operating without a full membership also fails as a matter of law.

For these reasons, as well those delineated below, the Court should dismiss this adversary

proceeding as to Attorney-Defendants or, alternatively, grant Attorney-Defendants partial

summary judgment.

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STATEMENT OF UNDISPUTED MATERIAL FACTS PURSUANT TO FED. R. CIV. P.56(c)

A. The Creation of the NWCDC and Composition of Its Board of Trustees

1. NWCDC, is a non-profit corporation which was created to manage and plan for

the conservation of the City of Newark’s fresh water resources, operated at all times relevant

herein pursuant to services contracts with the City. See Compl. ¶ 3 (ECF No. 1).

2. NWCDC’s operations were, in large part, funded by those services contracts with

the City of Newark. See, e.g., id. at ¶ 55 (noting that “NWCDC was formed and funded by the

City”), ¶ 61 (stating “NWCDC operated nearly entirely via funding by the taxpayers of the

City”), ¶ 113 (describing NWCDC “as a not-for-profit entity funded by the City”).

3. The composition of the NWCDC board was dictated by its Certificate of

Incorporation and By-laws to include: the mayor of Newark, as an ex officio member; two

members of the Newark Municipal Council (to be selected by the municipal council

itself); and up to eight others. See Compl. ¶ 4; see also Amended Certificate of Incorporation

attached to Declaration of William F. O‘Connor Jr. (hereinafter, “O’Connor Dec.”), as Exhibit A,

¶ 8; NWCDC’s Bylaws attached to O’Connor Dec. as Exhibit B, Art. IV § 1.

4. In all, the Certificate of Incorporation provided that (a) the Board was to include

seven to 11 trustees, and (b) not less than four were to be appointed by the mayor, with the

advice of the Board and the Municipal Council, and requiring the consent of the Newark

Municipal Council. Compl. ¶ 6; O’Connor Dec., Exhibit A, ¶ 8.

5. The NWCDC’s Board of Trustees “serve[d] as the policy-making body of

[NWCDC],” O’Connor Dec., Exhibit B, Art. IV § 2, and the By-Laws “expressly require[d] the

NWCDC Secretary and Treasurer to oversee the Executive Director’s actions on behalf of

the whole NWCDC Board,” Compl. ¶ 50; O’Connor Dec., Exhibit B.

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6. The scope of NWCDC’s activities was described in its Articles of Incorporation

as follows:

The Corporation shall have the power, either directly or indirectly,either alone or in conjunction or cooperation with others, to do anyand all lawful acts and things and to engage in any and all lawfulactivities which may be necessary, useful, suitable, desirable, orproper for the furtherance, accomplishment, fostering or attainmentof any or all of the purposes for which the Corporation isorganized, and to aid or assist other organizations whose activitiesare such as to further, accomplish, foster or attain any of suchpurposes.

[O’Connor Dec., Exhibit A, Art. IV (emphasis added).]

7. The services contracts between the City of Newark and NWCDC described the

limitations on NWCDC’s activities as follows:

The Corporation shall engage in only those activities permitted byits Certificate of Incorporation[.]

[Services Contracts dated 2006 and 2008 attached to O’Connor Dec. as Exhibit C,¶ 19.]

8. Defendant, Linda Watkins-Brashear, was NWCDC’s Executive Director from

April 2007 until March 25, 2013. See Compl., ¶ 16.

9. During the relevant time period, the NWCDC also employed or contractually

engaged several professional advisors, including a general counsel, an independent financial

auditor, a CPA, an investment firm, a brokerage/financial planning firm, and a securities broker,

several of whom are also named defendants in this action. See Compl., ¶¶ 32-36.

B. NWCDC’s Retention of the Trenk DiPasquale Firm in 2007

10. NWCDC retained Trenk DiPasquale to serve as its “general legal counsel” on

March 5, 2007. See Retainer Agreement attached to O’Connor Dec. as Exhibit D.

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11. At the time of Trenk DiPasquale’s retention, the NWCDC Board was composed

of seven members, three of whom were on the Newark City Council: 1) Mayor Booker; 2) South

Ward Councilman Oscar James, II; 3) Councilman at Large Vice Chairman Vaughn L. McKoy,

Esq. See Minutes from April 19, 2007, Board of Trustees Meeting attached to O’Connor Dec. as

Exhibit E.

C. The Efforts by the City of Newark and NWCDC to Establish a Municipal UtilitiesAuthority (“MUA”)

12. For decades, the City of Newark’s water infrastructure has been crumbling and in

need of repairs and improvements which would cost hundreds of millions of dollars. See

Transcript of Deposition of Julien X. Neals, Esq., attached to O’Connor Dec. as Exhibit F,

T27:21 – 28:12; see also Transcript of Deposition of Vaughn L. McKoy, Esq.. attached to

O’Connor Dec. as Exhibit G, at T121:16-121:18.

13. At least as back as the 1980s when Sharpe James was the Mayor of Newark2,

numerous proposals for the establishment of an MUA, have been circulated and pursued by the

City of Newark in an effort to address and finance repairs for these infrastructure problems, as

well as relieve the City of Newark’s elected officials of the need to maintain temporary contracts

related to the management of its water and sewer systems. See O’Connor Dec., Exhibit F, at

T47:24 – 48:7.

14. Former Vice-Chairman of the Board, Vaughn McKoy, Esq. testified that in 2007,

the Booker Administration asked the NWCDC to explore the formation of an MUA:

Q: What I’m interested in is where it says here that“Mr. Webster discussed the administration’srecommendation to create an MUA,” who wasMayor Booker’s administration recommending tocreate an MUA? Was it both the city and theWatershed?

2 Sharpe James served as the Mayor of the City of Newark from 1986 to 2006.

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A: Well, the administration asked the Watershed toexplore the formation of an MUA, and based uponthe results of that analysis, if it were positive arecommendation would be made to the governingbody, the council, to accept or reject or do whateverit wanted. But I think the administration wanted theWatershed to do the analysis and if it turned out tobe a positive analysis, make a recommendation tothe municipal council.

Q: At a later point that analysis turned out to bepositive, correct?

A: That’s my understanding, yes, and therecommendation was made.

Q: And the Booker administration made therecommendation to the council to form the MUA, isthat correct?

A: I believe that is correct.

[O’Connor Dec., G, at T56:4-57:2.]

15. In furtherance of the Booker Administration’s goal of establishing an MUA, on

July 16, 2007, the Business Administrator for the City of Newark, Michelle Thomas, raised the

notion of creating an MUA with the Board of Trustees of the NWCDC. See Minutes from July

16, 2007, Board of Trustees Meeting attached to O’Connor Dec. as Exhibit H; see also O’Connor

Dec., Exhibit G, at T18:12-19:19.

16. In or about September 2007, Mayor Booker, who strongly supported the creation

of an MUA, recommended to the NWCDC that it form a subcommittee to ascertain what steps

should be taken to establish an MUA. At that time, Trustees Vaughn McKoy, Rodney Johnson,

and William Merritt agreed to serve on the MUA subcommittee. See Minutes from September 17,

2007, Board of Trustees Meeting attached to O’Connor Dec. as Exhibit I; see also O’Connor

Dec., Exhibit G at T21:20-22:3.

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17. At its November 19, 2007, meeting, the NWCDC Board of Trustees voted to

retain Attorney-Defendants to serve as legal counsel in connection with the exploration of

forming an MUA. See Minutes from November 19, 2007, Board of Trustees Meeting attached

to O’Connor Dec. as Exhibit J.

18. Vaughn McKoy, Esq., testified at his deposition that the Trenk Firm was selected

due to Webster’s significant experience representing other municipal utilities authorities. See

O’Connor Dec., Exhibit G, at T36:8-37:8.

19. Councilmen James and Payne (both representatives of the City of Newark) voted

to approve the retention of the Trenk Firm to advise the NWCDC in connection with establishing

an MUA. See O’Connor Dec., Id. at T35:9-35:15.

20. Mr. McKoy testified that no City representative on the NWCDC Board ever

expressed the belief that the NWCDC was not authorized to pursue the establishment of an MUA:

Q: Did anyone ever express anyconcerns to you within the board of trusteesthat pursuing the establishment of an MUA by theWatershed was not a lawful activity within the meaning ofthe articles of incorporation?

A. No.

Q. Did you have any such concern?

A. No.

Q. To your knowledge did anybodyfrom the city ever express any such concern toyou or any of the board of -- any of thetrustees on the board while you were serving onthe board?

A. No.

Q. Did the mayor or either of thetwo councilmen who were trustees on the board

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during your time on the board ever express anysuch concerns to you?

A: No.

[Id. at T42:5-42:23.]

21. In furtherance of the City of Newark’s attempted creation of an MUA, on July 2,

2008, the City of Newark retained Keith Balla, CPA, PSA, CFF, of M & K Rosenfarb, LLC, to

conduct an investigation and generate a report with respect to the potential benefits of the City

establishing an MUA. See Report of Keith Balla, CPA, PSA, CFF, dated November 30, 2008,

attached to O’Connor Dec. as Exhibit K.

22. In his report dated November 30, 2008, Mr. Balla determined that an MUA could

provide a number of significant benefits to the City. Id. at p. 5-9.

23. The City of Newark’s former Corporation Counsel, Julien X. Neals, Esq., testified

at his deposition that the City’s Legal Department performed a thorough legal review and

determined that NWCDC was authorized to pursue the formation of an MUA:

Q: Did you ever voice any concerns to the Watershed oranybody about the Watershed’s ability to pursue the[establishment] of an MUA?

A: I don’t recall that ever coming up. And I know from a legalstandpoint, as we went through the process in terms of whowould be the requesting authority in those series of issues,there was a pretty thorough legal review done in terms ofwhomever would have been the sponsoring agency. So Idon’t think there was ever any dispute or issue with regardto that.

[O’Connor Dec., Exhibit F, at T39:5-39:15.]

24. Neals also testified that there was “synergy” between the City of Newark and the

NWCDC in terms of preparations to establish an MUA and that he worked closely with the

Attorney-Defendants to move the MUA process forward. Id. at T32:11-14; 58:9-58:13.

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25. On January 21, 2009, the Newark Municipal Council approved Resolution 7R12-

B, which was sponsored by the Department of Water and Sewer Utilities, not the NWCDC,

which authorized a City representative to “prepare and submit an application to the Local

Finance Board in order to proceed with the formation of an MUA.” See Resolution 7R12-B

attached to O’Connor Dec. as Exhibit L.

26. Resolution 7R12-B states:

The City believes that: it is in the public interest to accomplishsuch a formation of a municipal utilities authority; said municipalutilities authority is for the health, wealth, convenience orbetterment of the inhabitants of the City; the amounts to beexpended for said formation of a municipal utilities authority arenot unreasonable or exorbitant; and the formation of a municipalutilities authority is an efficient and feasible means of providingservices for the needs of the inhabitants of the City and will notcreate an undue financial burden to be placed upon the City.

[Ibid.]

27. Resolution 7R12-B also authorized a number of persons/entities, including the

Mayor and/or his designees, Gluck Walrath LLP, NW Financial LLC, and others, to prepare and

submit the MUA application to the Local Finance Board. Ibid.

28. Representatives of the City of Newark worked closely with its own legal

representatives and outside consultants to prepare detailed “talking points” in regard to the City’s

application to the Local Finance Board to establish an MUA. See E-mail from Linda Landolfi

dated February 12, 2009, attached to O’Connor Dec. as Exhibit M.

29. Although the City’s application to the Local Finance Board was withdrawn in

mid-2009 at the request of Mayor Booker due to rising public opposition to the formation of an

MUA, both the City and the NWCDC continued with their efforts to establish an MUA.

O’Connor Dec., Exhibit F, at T54:12-55:6.

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30. By May 2010, the process to form an MUA had been revived and was ongoing.

Id. at T57:3-57:6.

31. On June 17, 2010, the Newark Municipal Council passed Resolution No. 7R5-A,

which permitted another application to the Local Finance Board for the creation of an MUA.

See Resolution No. 7R5-A dated June 17, 2010, attached to O’Connor Dec. as Exhibit N.

32. On June 22, 2010, Webster submitted an application to the Local Finance Board

seeking approval to create an MUA to operate the City of Newark’s water and sewer utilities

system. See Letter from Webster dated June 22, 2010, attached to O’Connor Dec. as Exhibit O.

33. The Local Finance Board approved the City’s application to create an MUA.

O’Connor Dec., Exhibit F, at T79:24-80:4.

34. Upon approval by the Local Finance Board, the Newark Municipal Council

considered an ordinance that would formally establish an MUA to operate the City’s water and

sewer utilities systems. Id. at T88:16-88:25.

35. The City Council never voted on the ordinance to establish an MUA; instead, the

vote was “tabled” after Councilman Payne indicated that he would vote “no” due to public

opposition. Id. at T93:24-94:25.

36. Webster and Luciani left the Trenk DiPasquale law firm in March 2012 and

joined the Genova Burns law firm, which then took over as counsel for the NWCDC. Id. at

T96:5-96:9.

37. Later in 2012, the State of New Jersey proposed pursuing the MUA because of

the need for additional revenues. Id. at T95:8-95:25.

38. The 2012 attempt to establish an MUA was undertaken solely by the City of

Newark and the Attorney-Defendants were not involved in in that effort. Id. at T 96:1-3.

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39. On or about July 18, 2012, Gluck Walrath, LLP, on behalf of the City of Newark,

submitted a third application to the Local Finance Board for approval to create an MUA. In that

application Gluck Walrath stated, “whereas the NWCDC was involved in the in the effort to

create the MUA in 2010, this year’s effort is being undertaken entirely by the City and by City

staff and professionals.” See Correspondence dated July 18, 2012, attached to O’Connor Dec. as

Exhibit S, at p. 8.

40. On August 1, 2012, the Newark City Council again approved a Resolution

authorizing an application to the Local Finance Board for approval to create a Municipal Utilities

Authority. See Resolution 7R5-C dated August 1, 2012, attached to O’Connor Dec. as Exhibit T.

41. This follow-up attempt to create an MUA eventually failed due to public

opposition. O’Connor Dec., Exhibit F, at T103:13-103:21.

D. The State Court Litigation Between the NWCDC and Newark, the Appointment ofProvisional Trustees for the NWCDC, and the Dissolution of the NWCDC

42. On September 6, 2012, the City filed a lawsuit in the Superior Court of New

Jersey seeking to prohibit the adoption of an ordinance that would dissolve the NWCDC (the

“State Court Litigation”). See Stipulation of Settlement and Dismissal dated December 16, 2014,

attached to O’Connor Dec. as Exhibit U, at p. 2.

43. The NWCDC intervened in the State Court Litigation and filed its own Verified

Complaint against, inter alia, the City Council. Ibid.

44. On February 14, 2013, the Office of the New Jersey State Comptroller, which had

been investigating the NWCDC’s activities, issued its report. See Compl., ¶¶ 72-73.

45. NWCDC’s Board held a meeting on March 25, 2013, at which it voted to dissolve

NWCDC. Id. at ¶ 13.

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46. Shortly thereafter, the City moved in the State Court Litigation to have

Provisional Trustees appointed for NWCDC. See Order dated June 5, 2013, attached to

O’Connor Dec. as Exhibit V.

47. On June 5, 2013, the Honorable Dennis F. Carey III, P.J.Cv., by consent of the

parties, appointed the following persons as Provisional Trustees of NWCDC:

a. The Honorable James R. Zazzali, the former Chief Justice of the New JerseySupreme Court, who was at that time Of Counsel with the law firm of GibbonsP.C.

b. The Honorable James H. Coleman, Jr., a former Associate Justice of the SupremeCourt of New Jersey, who was at that time Of Counsel with the law firm of Porzio,Bromberg & Newman, P.C.

c. Professor Clement Alexander Price, Ph.D., who was a Board of GovernorsDistinguished Service Professor of History at Rutgers University – NewarkCampus as well as the Director of the Rutgers Institute on Ethnicity, Culture, andthe Modern Experience.

d. The Honorable Dorothea O’C. Wefing, a former Temporary Associate Justice ofthe Supreme Court of New Jersey and at that time the Acting Presiding Judge forAdministration of the New Jersey Superior Court, Appellate Division.

[Id. at ¶ 4.]

48. By Judge Carey’s order, each Provisional Trustee had all the powers and duties of

a trustee of the Board, including but not limited to, those powers and duties set forth in N.J.S.A.

15A:6-14 and N.J.S.A. 15A:12-12(c). Id. at ¶ 5.

49. The order further directed that “[i]f a provisional trustee resigns or ceases to serve

for any reasons, a replacement will be selected by the Court” in its “sole discretion” from among

candidates whom any party might nominate. Id. at ¶ 7.

E. The State Court Litigation Settlement Results in the Appointment of a Post-Bankruptcy Petition Board of Trustees for the NWCDC and the NWCDC files forBankruptcy

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50. On December 16, 2014, the Superior Court entered a Stipulation of Settlement

and Dismissal that resolved the State Court Litigation. O’Connor Dec., Exhibit U.

51. The Stipulation of Settlement provided, inter alia, that the Mayor and the

Provisional Trustees would agree on the appointment of a new Provisional Trustee for the

NWCDC Board to fill the seat left vacant by the recent passing of Provisional Trustee Dr.

Clement A. Price. Id. at ¶ 3.

52. The Stipulation mandated that the three Provisional Trustees (Wefing, Stier, and

Zazzali) would serve as the sole members of the NWCDC Board once it entered bankruptcy:

The Mayor, his trustee appointees, and the New ProvisionalTrustee shall serve on the newly constituted Board until such timeas the NWCDC enters bankruptcy at which time they shall resignand the Provisional Trustees shall become the sole members of thePost-Petition Board of Trustees. Prior to the resignation of the newTrustees, the newly constituted Board shall pass a resolutionamending the governing documents of the NWCDC as necessaryto permit the Provisional Trustees to act as the sole members of thePost Petition Board of Trustees.

[Id. at ¶ 9 (emphasis added).]

53. The Stipulation further mandated that only the Post-Petition Board of Trustees

could decide who to pursue in any anticipated litigation and what claims would be brought:

The Post Petition Board of Trustees shall be solely responsible fordeciding who to pursue the anticipated litigation against and forcontrolling such litigation, including, but not limited to, decidingwhat claims will be brought, against who claims will be brought,the professionals, including counsel and experts, to be employedwith regard to any affirmative claims and, subject to approval ofthe Bankruptcy Court, the terms of settlement or resolution of suchclaims[.]

[Id. at ¶ 11(v)(emphasis added).]

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54. On January 3, 2015, NWCDC filed a Voluntary Petition for relief under Chapter

11 of the Bankruptcy Code in this Court. See Voluntary Petition in the matter In Re Newark

Conservation and Development Corporation, Case No. 15-10019, ECF No. 1.

F. The Debtor NWCDC Commences an Adversary Proceeding and the Post-PetitionBoard Operates Without Requisite Authority With Only Two Trustees in Violationof the State Court Litigation Settlement and New Jersey Law

55. On November 6, 2015, while the Post-Petition Board of Trustees for the NWCDC

still had three Trustees, NWCDC commenced this adversary proceeding. In its complaint,

NWCDC conceded that of the four court-appointed Provisional Trustees, only three were

currently serving. See Compl. ¶ 73.

56. NWCDC named over twenty-seven (27) individuals and entities as defendants in

its initial Complaint, which it categorized into “three groups”:

(1) “certain officers and employees of the NWCDC whomisappropriated funds, awarded no-bid contracts tofriends and relatives and . . . ran the NWCDC fortheir personal financial benefit,” including Watkins-Brashear and “the various contractors who benefittedfrom the unlawful contracts”; (2) “professionals,including accountants, whose negligence and lack ofdiligence failed to prevent or . . . curtail the waste,misappropriation and unlawful conduct of management”;and (3) “the Board of Trustees of the NWCDC . . . someof whom personally profited from the wrongful conductand others who simply ignored or failed to exercise theirfiduciary duties.”

[Id. at ¶ 1.]

57. More specifically, the initial Complaint asserts claims for breach of fiduciary

duty Watkins-Brashear (Count I), aiding and abetting breach of fiduciary duty against

several individuals who received no-bid contracts and no-bid loans (Count II),

misappropriation of assets and conversion against those individuals who received no-bid

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contracts and no-bid loans (Count III), and negligence/breach of fiduciary duties against

the NWCDC’s former auditor an accountant and bookkeeper engaged by NWCDC (,

various financial professionals engaged by NWCDC (, and NWCDC’s former Board of

Trustees (Counts IV- VII). Id. at ¶¶ 137-176.

58. The Attorney-Defendants were not named in the initial Complaint. Ibid.

59. Provisional Trustee Zazzali resigned from the Post-Petition Board of Trustees in

early 2016 due to health and personal reasons. In Re Newark Conservation and Development

Corporation, Case No. 15-10019, ECF No. 161-1, at ¶ 7 (Certification of D. Wefing and E. Stier

dated June 13, 2016).

60. As of June 13, 2016, the Post-Petition Board of the Debtor NWCDC had only two

Trustees as Justice Zazzali had not been replaced since his resignation months earlier. Id. at ¶¶ 1,

7.

G. The Amended Complaints Naming the Attorney-Defendants for the First Time inthe Adversary Proceeding

61. On June 24, 2016, NWCDC filed a First Amended Complaint, adding claims of

breach of fiduciary duty and professional negligence against the Attorney-Defendants3. First

Amended Compl. ¶¶ 95-104, ¶¶ 171-178, ECF No. 108.

62. In its First Amended Complaint, the NWCDC wrongfully claimed that of the four

Provisional Trustees appointed in the State Court Litigation, three were currently serving. Id. at ¶

85.

63. NWCDC alleged, among other things, that the Attorney-Defendants allowed

NWCDC to take actions without the necessary quorum and that the Attorney-Defendants

improperly pursued the establishment of an MUA. Id. at ¶¶ 103-104

3 NWCDC neither sought nor was granted leave of Court to amend its Complaint to name the Attorney-Defendantsas parties to the action. See ECF Nos. 47, 100.

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64. According to the NWCDC, as of September 23, 2016, there were only two

remaining Provisional Trustees on its Board of Trustees: Judge Wefing and Mr. Stier. ECF No.

41-1, ¶6.

65. NWCDC filed a Second Amended Complaint against the Attorney-Defendants,

among others, on December 7, 2016. Second Amended Compl., ECF No. 159.

66. In its Second Amended Complaint, NWCDC wrongfully claimed that of the four

Provisional Trustees appointed in the State Court Litigation, three were currently serving. Id. at ¶

90.

67. NWCDC, through its counsel, has taken the position that “in the context of an

involuntary dissolution, the appointment of a third Provisional Trustee to replace Justice Zazzali

is not required.” See Correspondence dated April 6, 2017, attached to O’Connor Dec. as Exhibit

W.

68. NWCDC filed a Third Amended Complaint against Attorney-Defendants, among

others, on April 23, 2018, in which it yet again wrongfully claimed that of the four Provisional

Trustees appointed in the State Court Litigation, three were currently serving. Third Amended

Compl., ECF No. 280, at ¶ 96.

69. NWCDC has operated since January 2016 with only two Trustees on its Board.

In Re Newark Conservation and Development Corporation, Case No. 15-10019, ECF No. 161-1,

at ¶ 7 (Certification of D. Wefing and E. Stier dated June 13, 2016).

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STANDARD OF REVIEW

Fed. R. Bankr. P. 7056 generally holds that Fed. R. Civ. P. 56 applies to adversarial

proceedings in Bankruptcy Court. Rule 56 provides that “[t]he court shall grant summary

judgment if . . . there is no genuine dispute as to any material fact and the movant is entitled to

judgment as a matter of law.” Fed. R. Civ. P. 56(a). Furthermore “[a] party asserting that a fact

cannot be . . . genuinely disputed must support the assertion by . . . citing to particular parts of

materials in the record, including depositions, documents, electronically stored information,

affidavits or declarations, stipulations . . . , admissions, interrogatory answers, or other

materials . . . or . . . showing that the materials cited do not establish the absence or presence of a

genuine dispute . . . .” Fed. R. Civ. P. 56(c).

On a motion for summary (or partial summary) judgment, the moving party bears the

initial burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v.

Catrett, 477 U.S. 317, 323 (1986). The burden then shifts to the non-moving party who must

identify specific facts, supported by the record, showing a genuine issue for trial. Shields v.

Zuccarini, 254 F.3d 476, 481 (3d Cir. 2001). The non-moving party “must present more than

just ‘bare assertions, conclusory allegations or suspicions’ to show the existence of a genuine

issue.” Podobnik v. United States Postal Serv., 409 F.3d 584, 594 (3d Cir. 2005) (quoting

Celotex, 477 U.S. at 325).

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LEGAL ARGUMENT

POINT I

THE COURT SHOULD GRANT SUMMARY JUDGMENT IN FAVOR OFTHE ATTORNEY DEFENDANTS BECAUSE NWCDC HAD A LEGALLYINSUFFICIENT NUMBER OF TRUSTEES WHEN IT FILED THE FIRST,SECOND AND THIRD AMENDED COMPLAINTS IN THIS MATTER

It is undisputed that NWCDC had only two (2) Provisional Trustees on its Board of

Trustees when it filed the First, Second and Third Amended Complaints directing claims of

breach of fiduciary duty and negligence against the Attorney-Defendants. As discussed below,

the action by the two remaining Provisional Trustees to direct claims against the Attorney-

Defendants was invalid as it contravened both State law as well as the clear and unambiguous

terms of the Order resolving the State Court Litigation. Because the NWCDC was required by

law to have at least three (3) Trustees on its Board, the Court should dismiss the NWCDC’s

amended complaints against the Attorney-Defendants.

New Jersey nonprofit corporations are governed by Title 15A of the New Jersey Statutes.

N.J.S.A. 15A:6-2, which sets forth the required number of trustees for a nonprofit corporation,

states in relevant part that “[t]he number of trustees of a corporation shall be not less than three.”

N.J.S.A. 15A:6-2. The text of the law is clear by its terms: a non-profit corporation must have at

least three Trustees. Elsewhere, regarding involuntary dissolutions and other remedies, Title 15A

states in relevant part that:

One or more provisional trustees may be appointed if it appears tothe court that the appointment may be in the best interests of thecorporation and its members, notwithstanding any provisions in thecorporation's bylaws, certificate of incorporation, or anyresolutions adopted by the board or members.

[N.J.S.A. 15A:12-12(c).]

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Notably, both of these provisions were enacted by the New Jersey Legislature at the same

time as part of the same law. L.1983, c. 127. Also notable is the fact that there are currently no

reported decisions interpreting these two statutory provisions separately or together. Despite the

absence of prior decisional law to guide this Court’s interpretation, recourse can be made to the

principles of statutory interpretation.

“‘When interpreting statutory language, the goal is to divine and effectuate the

Legislature's intent.’ ” State v. Buckley, 216 N.J. 249, 263 (2013) (quoting State v. Shelley, 205

N.J. 320, 323 (2011)); see also N.J.S.A. 1:1–1 (“In the construction of the laws and statutes of

this state, . . . words and phrases shall . . . , unless inconsistent with the manifest intent of the

legislature or unless another or different meaning is expressly indicated, be given their generally

accepted meaning . . . .”). Therefore, a court should “look first to the plain language of the statute,

seeking further guidance only to the extent that the Legislature's intent cannot be derived from

the words that it has chosen.” Bosland v. Warnock Dodge Inc., 197 N.J. 543, 553 (2009)

(quoting Pizzullo v. N.J. Mfrs. Ins. Co., 196 N.J. 251, 264 (2008)). “[S]tatutes must be read in

their entirety; each part or section should be construed in connection with every other part or

section to provide a harmonious whole.” Burnett v. County of Bergen, 198 N.J. 408, 421 (2009)

(quoting Bedford v. Riello, 195 N.J. 210, 224 (2008) (citation omitted)). “Statutes that deal with

the same matter or subject should be read in pari materia and construed together as a unitary and

harmonious whole.” St. Peter's Univ. Hosp. v. Lacy, 185 N.J. 1, 14-15 (2005) (internal quotation

marks and citations omitted).

The terms of N.J.S.A. 15A:6-2 and N.J.S.A. 15A:12-12 are straightforward and must be

read together, not in isolation, as NWCDC’s position necessarily entails. Both provisions were

enacted in the same public law. L.1983, c. 127. Thus, an in pari materia reading of the

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provisions leads to the conclusion that the Legislature intended that a Court be able to appoint

“one or more” provisional trustees, N.J.S.A. 15A:12-12(c), to ensure that the number of trustees

would not fall below the statutory minimum of three during an involuntary dissolution. N.J.S.A.

15A:12-12(c). Indeed, it would make little sense for the Legislature to establish a minimum

number of trustees for non-profit corporations and subsequently negate its own command in an

ensuing section.

Moreover, by itself, N.J.S.A. 15A:12-12(c) exempts a court from certain strictures such

as the corporation’s “by-laws, certificate of incorporation, or any resolutions.” These exemptions

are eiusdem generis, that is, they only deal with internal corporate rules that set the number of

trustees; there is no exemption from N.J.S.A. 15A:6-2. Clearly, the Legislature contemplated that

there may be rules that set the number of a corporation’s trustees and contemplated the need for a

court to disregard those rules in an involuntary dissolution. And while the Legislature listed a

class of exemptions that only concern internal corporate rules that may limit the number of

trustee, it did not exempt a court from the statutory requirement of having at least three trustees.

Therefore, by the terms of the N.J.S.A. 15A:6-2, the NWCDC improperly took action against the

Attorney-Defendants when it did not have the required number of provisional Trustees on its

Board of Trustees.

Furthermore, it is not overly formalistic to apply a statutory provision such as N.J.S.A.

15A:6-2 to invalidate the actions taken by the non-profit entity. For example, like New Jersey’s

statute, N.Y. Not-for-Profit Corp. Law § 702 (McKinney 2017), also requires that “[t]he number

of directors constituting the entire board shall be not less than three.” Furthermore, this statute

was applied in the bankruptcy context in In re Machne Menachem, Inc., 3:CV-10-0765, 2011

WL 742046 (M.D. Pa. Feb. 24, 2011), aff'd sub nom., Machne Menachem, Inc. v. Spritzer, 456

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Fed. Appx. 163 (3d Cir. 2012), where the Third Circuit affirmed the invalidation of prior actions

taken by a non-profit corporation’s board of directors without the requisite number of members.

In Machne, the controversy centered on whether certain monetary advances from the

director of the debtor non-profit corporation were loans or mere donations. The District Court

found that the advances could not, as a matter of law, have been debts. Id. at *4. It reasoned that,

because the advances had been given during a period when the corporation had fewer than three

directors as required, the requirement of § 715 “that there must be some level of authorization by

the board, pre-transaction or post-transaction, tacit or otherwise” could not have been met

because they were below the statutory minimum. Ibid.

Here, like in Machne, NWCDC did not have a sufficient number of Provisional Trustees

on its Board, making its move to add the Attorney-Defendants as parties to this matter invalid

under State law. Not only did New Jersey law require a minimum of three Trustees, the Board

was also required by Order of the Superior Court to have three Provisional Trustees on its Post-

Petition Board. See Order dated June 5, 2013, attached to O’Connor Dec. as Exhibit V. That was

to ensure compliance with the requirements of N.J.S.A. 15A:6-2. Specifically, the Order in the

State Court Litigation mandated that:

The Mayor, his trustee appointees, and the New ProvisionalTrustee shall serve on the newly constituted Board until such timeas the NWCDC enters bankruptcy, at which time they shall resignand the Provisional Trustees [Wefing, Stier and Zazzali] shallbecome the sole members of the Post-Petition Board of Trustees.Prior to the resignation of the new Trustees, the newly constitutedBoard shall pass a resolution amending the governing documentsof the NWCDC as necessary to permit the Provisional Trustees toact as the sole members of the Post Petition Board of Trustees.

[O’Connor Dec., Exhibit V, at ¶ 9 (brackets and emphasis added).]

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The Superior Court’s Order also required that those three Provisional Trustees alone

would decide what claims to bring and against whom:

The Post Petition Board of Trustees shall be solely responsible fordeciding who to pursue the anticipated litigation against and forcontrolling such litigation, including, but not limited to, decidingwhat claims will be brought, against who claims will be brought,the professionals, including counsel and experts, to be employedwith regard to any affirmative claims and, subject to approval ofthe Bankruptcy Court, the terms of settlement or resolution of suchclaims[.]

[Id. at ¶ 11(v)(emphasis added).]

As of January 2016, when the number of Provisional Trustees dropped from three to two,

there had been no claims asserted against the Attorney-Defendants and no efforts to seek leave to

assert those claims. NWCDC did not seek the appointment of a third Provisional Trustee to

bring it into compliance with State law and the parties’ 2014 settlement. Instead, the Board

operated in an unauthorized manner with only two Provisional Trustees. That was the state of

affairs in June 2016 when NWCDC first filed an action against the Attorney-Defendants. This

action was not undertaken by the requisite number of Trustees as required by law. Instead, the

Debtor NWCDC acted outside of its powers in filing this action.

While NWCDC has taken the position that in the context of an involuntary dissolution

there is no requirement for a third Provisional Trustee, that assertion is flat out wrong. Neither

New Jersey law nor the 2014 Order resolving the State Court Litigation carves out an exception

for involuntary dissolutions. In fact, State law expressly mandates that dissolution of a nonprofit

corporation does not change the entity’s obligations regarding Trustees. See N.J.S.A. 15A:12-15.

Moreover, the Board voted to dissolve in March 2013—nearly two years before the Stipulation

of Settlement and Dismissal was entered. That Order clearly required three Provisional Trustees

at a time when the Board had already dissolved the entity. The language of the Order is

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completely inconsistent with a desire by the parties and the Court to permit the Post-Petition

Board to operate with only two Trustees.

Therefore, because the NWCDC did not have requisite number of Trustees, application of

N.J.S.A. 15A:6-2 to invalidate the amended complaints bringing claims against the Attorney-

Defendants is warranted and those claims should be dismissed.

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POINT II

THE ATTORNEY DEFENDANTS ARE ENTITLED TO PARTIALSUMMARY JUDGMENT ON THE CLAIMS PERTAINING TO THECREATION OF AN MUA

If the Court declines to dismiss Plaintiff’s amended complaints in their entirety, the Court

should, at a minimum, grant Attorney-Defendants partial summary judgment as to Plaintiff’s

claims for damages arising from the pursuit of a Municipal Utilities Authority because the

Attorney-Defendants breached no duty with respect to their services relating to MUA activities. .

In Plaintiff’s Third-Amended Complaint, ¶ 115, the NWCDC asserts:

Both Webster and Luciani also failed to properly counsel theBoard that pursuant to the NWCDC’s governing documents,including its contracts with the City, the NWCDC was notauthorized to pursue or aid in the conversion of the NWCDC to, aMunicipal Utilities Authority (“MUA”) favored by Webster’slong-time friend, Mayor Booker. Instead, purporting to act onbehalf of the NWCDC and billing the NWCDC for their efforts,Webster and Luciani actively pursued a plan to transform theNWCDC into an MUA. That misguided and improper pursuitcaused the NWCDC to incur millions of dollars of fees toprofessionals and consultants in activities not within theNWCDC’s mandate and contractual limitations.

[ECF No. 280 at ¶ 115.]

However, Plaintiff’s conclusory allegation that the MUA was improperly pursued at the

direction of Attorney-Defendants is not supported by any evidence. As explained in more detail

below, the pursuit of the MUA was driven by the City of Newark itself. The NWCDC Board of

Trustees passed a resolution retaining Attorney-Defendants to perform legal work in pursuit of

the MUA. See November 19, 2007 NWCDC Board of Trustee Meeting Minutes, attached to

O’Connor Dec. as Exhibit J. The City of Newark passed not one but two resolutions approving

the application for an MUA to approve the Local Finance Board. See January 21, 2009,

Resolution of the City of Newark, attached to O’Connor Dec. as Exhibit L; August 1, 2012,

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Resolution of the City of Newark, attached to O’Connor Dec. as Exhibit T. While an MUA was

ultimately never established, there is no evidence or allegation that Attorney-Defendants

performed any legal work related to the MUA in a negligent or otherwise deficient manner.

Accordingly, Plaintiff is unable to establish the requisite elements of a claim for legal

malpractice or breach of fiduciary duty as to any and all costs and fee associated with the pursuit

of an MUA.

The elements of a cause of action for legal malpractice are: (1) the existence of an

attorney-client relationship creating a duty of care; (2) the breach of such duty; (3) proximate

causation between the attorney’s breach and the client’s resulting injury; and (4) actual damages

suffered by the client. Sommers v. McKinney, 287 N.J. Super. 1,10 (App. Div. 1996). If any of

the aforementioned elements are lacking, the claim is not actionable. See Lovett v. Estate of

Lovett, 250 N.J. Super. 79, 93 (Ch. Div. 1991).

An attorney owes his clients a duty to represent them with the same degree of reasonable

knowledge, skill and diligence as possessed and exercised by lawyers of ordinary ability and

skill. Ziegelheim v. Apollo, 128 N.J. 250, 260 (1992). The question of what "constitutes a

reasonable degree of care is not to be considered in a vacuum, but with reference to the type of

service the attorney undertakes to perform." Id. at 261 (citing St. Pius X House of Retreats v.

Diocese of Camden, 88 N.J. 571, 588 (1982)). When a lawyer is retained, he or she owes the

client a duty to pursue the client’s interests diligently and promptly.. See Matter of Yetman, 113

N.J. 556, 562 (1989); see also RPC 1.3 (“A lawyer shall act with reasonable diligence and

promptness in representing a client”).

With respect to the NWCDC’s cause of action for breach of fiduciary duty, the elements

and requirements to pursue a cause of breach of fiduciary duty against a professional are

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essentially identical to a claim for professional negligence. A breach of fiduciary duty, like

professional negligence, is a theory in tort. See In re Estate of Lash, 169 N.J. 20, 27 (2001). A

"fiduciary is liable for harm resulting from a breach of the duties imposed by the existence of

such a relationship." McKelvey v. Pierce, 173 N.J. 26, 57 (2002) (quoting F.G. v. MacDonell,

150 N.J. 550, 563-64 (1997)) (citing Restatement (Second) of Torts) 874 (1979)). "The

fiduciary's obligations to the dependent party include a duty of loyalty and a duty to exercise

reasonable skill and care." Ibid. (quoting F.G., supra, 150 N.J. at 563-64) (citing Restatement

(Second) of Trusts 170, 174 (1959)). In light of the foregoing, despite the NWCDC labelling

breach of fiduciary duty as a separate cause of action, both claims sound in legal malpractice and

should be treated as such.

Plaintiff’s claim for damages arising from the pursuit of a Municipal Utilities Authority is

baseless because the Attorney-Defendants breached no duty owed their client. They were

directed to explore the establishment of an MUA by the NWCDC and that is what they did.

They followed the directives of their client, which worked closely with the City in this endeavor,

in order to ensure the goal of establishing an MUA became a reality. No cause of action for

breach of any duty may lie against them under these circumstances.

As a threshold matter, the NWCDC's Articles of Incorporation and By-Laws are

extremely broad and, among other things, empower the corporation "to engage in any and all

lawful activities which may be necessary, useful, suitable, desirable, or proper for the furtherance,

accomplishment fostering or attainment of any or all of the purposes for which the Corporation is

organized." O’Connor Dec., Exhibit A (emphasis added). Among these purposes is "promot[ing]

the common good and general welfare of the City of Newark and its inhabitants and businesses

through civic betterment, educational opportunities and social improvements relating to the

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planning, conservation, development and management of the City's watershed properties. Ibid.

Thus, pursuing an MUA was completely within the authority of the NWCDC. There can also be

no question that if an MUA was established, it would have taken over management of the

watershed properties and other services provided by the NWCDC. Accordingly, NWCDC

involvement was critical in attempting to establish an MUA.

Both Julien Neals and Vaughn McKoy testified in their depositions that there was never a

question or concern whether NWCDC was empowered to explore the formation of an MUA.

O’Connor Dec., Exhibit F, 38:24-39:15; Exhibit G, 39:17-25. More specifically, Neals stated

that the City’s Legal Department performed a “thorough legal review” and determined that

NWCDC was authorized to pursue the formation of an MUA:

Q: Did you ever voice any concerns to the Watershed oranybody about the Watershed’s ability to pursue the[establishment] of an MUA?

A: I don’t recall that ever coming up. And I know from a legalstandpoint, as we went through the process in terms of whowould be the requesting authority in those series of issues,there was a pretty thorough legal review done in terms ofwhomever would have been the sponsoring agency. So Idon’t think there was ever any dispute or issue with regardto that.

[O’Connor Dec., Exhibit F, at T39:5-39:15.]

McKoy acknowledged that the City itself had three representatives on the NWCDC

Board (Mayor Booker and Councilmen Payne and James), so that if the City felt that the

NWCDC should not have expended funds in pursuit of an MUA, its representatives could have

voted against the various resolutions authorizing the NWCDC to engage in MUA-related

activities. O’Connor Dec., Exhibit G, 35:9-15. Instead, none of those councilmen objected to

any single MUA-related resolution. Id. at T57:11-22.

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Furthermore, discovery has revealed that the administration of the City of Newark, the

Board of Trustees of the NWCDC, and the Newark City Council all requested and/or authorized

the NWCDC and Attorney-Defendants to undertake legal work in preparation to establish an

MUA. Indeed, shortly after Attorney-Defendants were retained as counsel for the NWCDC, the

City enlisted the assistance of the NWCDC to complete the preliminary work necessary before

an MUA could be established. The City’s own Corporation Counsel testified in this case that

there was “synergy” between the City of Newark and the NWCDC in terms of preparations to

establish an MUA. O’Connor Dec., Exhibit F, at 32:11-14. In addition, McKoy testified that it

was the City of Newark’s administration who asked the NWCDC to explore the formation of an

MUA. O’Connor Dec., Exhibit G, at 56:4-19. To that end, the City’s Corporation Counsel

worked closely with the Attorney-Defendants to move the MUA process forward. O’Connor

Dec., Exhibit F, 58:9-13.

Many professionals working on the MUA creation were retained and paid by the City of

Newark, including Keith Balla who generated a report recommending the establishment of an

MUA. See Report of Keith Balla, CPA, PSA, CFF, dated November 30, 2008, attached to

O’Connor Dec. as Exhibit K, p. 5-9. While various municipal agencies and entities, some of

whom were retained by the City of Newark itself, were working on establishing an MUA, the

City Council was kept fully apprised of and approved these efforts at all times. Two City

Councilmen were full members of the NWCDC Board meetings and NWCDC Board minutes

reflect innumerable meetings and discussions by NWCDC Trustees, officers, and attorneys with

non-trustee members of the City Council. These minutes confirm that the City Council was not

“kept in the dark” and, on the contrary, was supportive of the NWCDC's activities. It cannot be

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overlooked that Newark the City Council expressly stated in two formal resolutions that it

believed formation of an MUA:

was "in the public interest";

was "for the health, wealth, convenience or betterment of the inhabitants of the

City";

would not cost an "unreasonable or exorbitant" amount of money;

would be "an efficient and feasible means of providing services for the inhabitants

of the City"; and

would not "create an undue financial burden to be placed upon the City."

[O’Connor Dec., Exhibits L, T.]

Significantly, the City of Newark and its Corporation Counsel drafted the City Council

Resolutions approving the applications to the Local Finance Board for permission to form an

MUA. O’Connor Dec., Exhibit F, 37:2-37:9.

It is clear in light of the foregoing facts that not only did the NWCDC and its agents have

the authority to work on establishing an MUA pursuant to the NWCDC’s Articles of

Incorporation and By-Laws, but the City of Newark itself was the entity who initiated the MUA

discussion and was the driving force behind its attempted creation. The Attorney-Defendants

were retained to and advised the NWCDC with regard to this process. In so doing they fully

complied with their obligations. NWCDC simply cannot provide a breach of duty by the

Attorney-Defendants.

Further, there is no evidence to suggest that the NWCDC Board would have abided by a

suggestion from Attorney-Defendants not to pursue an MUA. Accordingly, Plaintiff is absolutely

incapable of establishing proximate cause between any action/inaction of Attorney-Defendants

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and the expenditures made by the NWCDC in furtherance of the establishment of an MUA as

"[c]ompetent opposition requires 'competent evidential material' beyond mere 'speculation' and

'fanciful arguments.'" Hoffman v. Asseenontv.Com, Inc., 404 N.J. Super. 415, 426 (App. Div.

2009) (quoting Merchs. Express Money Order Co. v. Sun Nat'l Bank, 374 N.J. Super. 556, 563

(App. Div.), certif. granted, 183 N.J. 592 (2005), appeal dismissed, (Jan. 3, 2006)).

For these reasons, summary judgment is warranted as to Plaintiff’s claims relating to the

City’s effort to establish a Municipal Utilities Authority.

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POINT III

SUMMARY JUDGMENT SHOULD BE GRANTED ON NWCDC’SCLAIM RELATING TO THE ALLEGED FAILURE TO ENSURE THEBOARD OPERATED WITH THE PROPER NUMBER OF TRUSTEESBECAUSE IT CANNOT ESTABLISH PROXIMATE CAUSATION

The Court should grant partial summary judgment in favor of the Attorney-Defendants on

any claims stemming from (i) the NWCDC’s Board conducting votes on resolutions at a time

when it allegedly lacked the appropriate quorum mandated by the NWCDC’s Articles of

Incorporation; or (ii) failing to provide counsel on the need to fill the Board’s vacancies.

In Plaintiff’s Third-Amended Complaint, ¶ 114, the NWCDC states:

Other examples of the substandard performance by Webster and Luciani involvethe numerous occurrences of official Board votes on resolutions in the presence ofeither Webster or Luciani or both even though the Board lacked the necessaryquorum, their failure to provide proper counsel on the need to fill the Boardvacancies, and their failure to prepare board minutes for the non-public Executivesessions of the board meetings.

[ECF No. 280 at ¶ 114.]

NWCDC cannot establish a proximate causal connection between any Board votes where

the Board lacked the necessary number of trustees and any losses due to the malfeasance of co-

defendants. The general rule in New Jersey is that "an attorney is only responsible for a client’s

loss if that loss is proximately caused by the attorney’s legal malpractice." 2175 Lemoine

Avenue v. Finco, Inc., 272 N.J. Super. 478, 487 (App. Div. 1994); see also Gautam v. DeLuca,

215 N.J. Super. 388, 397 (App. Div. 1987). In considering this element, an "actor’s negligent

conduct is not a substantial factor in bringing about harm to another if it would have been

sustained even if the actor had not been negligent." Kulas v. Public Serv. Elec. and Gas Co., 41

N.J. 311, 317 (1964); see also Johnson v. Schragger, Lavine, Nagy & Krasny, 340 N.J. Super. 84

(App. Div. 2001). In Reynolds v. Gonzalez, 172 N.J. 266, 280 (2002), the Court further

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explained that "[t]he law of negligence recognizes that there may be two or more concurrent and

directly cooperative and efficient proximate causes of injury," but "these acts need not, of

themselves, be capable of producing the injury; it is enough if they are a substantial factor in

bringing it about." Ibid.

It cannot be disputed that the Attorney-Defendants could not force appointments to the

NWCDC Board and NWCDC operations had to continue in order for City residents to continue

to receive water. Indeed, on November 7, 2011, then-mayor, Cory Booker, had nominated three

persons to fill the open NWCDC Trustee positions to the Newark Municipal Council: Lino

Santiago; Kim Thompson; and Zinnerford Smith. However, these nominations were indefinitely

tabled by the Newark City Council, thereby forcing the NWCDC Board to continue operations

with less than the mandated number of Trustees. See City of Newark, Legislative Research

Center, Newark City Council vote to confirm Lino Santiago’s appointment to the NWCDC

Board of Trustees, attached to O’Connor Dec. as Exhibit P; City of Newark, Legislative

Research Center, Newark City Council vote to confirm Kim Thompson-Gaddy’s appointment to

the NWCDC Board of Trustees, attached to O’Connor Dec. as Exhibit Q; City of Newark,

Legislative Research Center, Newark City Council vote to confirm Zinnerford Smith’s

appointment to the NWCDC Board of Trustees, attached to O’Connor Dec. as Exhibit R.

Irrespective of this fact, NWCDC’s allegations are purely speculative with regard to proximate

causation. In order to succeed on this legal theory Plaintiff would have to present evidence to

show that NWCDC’s Board voting would have had different outcomes had the Board been

comprised of a full eleven (11) members. There is absolutely no evidentiary support for that

conclusion, nor could there be such evidence. Arguing that anything would have been difference

is to engage in sheer guesswork. Furthermore, Plaintiff has not articulated any specific damages

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which resulted from the NWCDC Board operation with less than eleven (11) members. For

those reasons, Plaintiff’s claim for damages stemming from the NWCDC Board operating

without eleven (11) members fails as a matter of law.

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CONCLUSION

For the foregoing reasons, the Attorney-Defendants respectfully submitted that the Court

dismiss NWCDC’s First, Second and Third Amended Complaints with prejudice. Alternatively,

the Court should grant partial summary judgment to the Attorney-Defendants on any and all

claims stemming from (i) any and all expenditures associated with the attempted creation of a

Municipal Utilities Authority; and (ii) the NWCDC Board conducting votes on resolutions at a

time when the Board allegedly lacked the appropriate quorum and/or Trustees mandated by

NWCDC’s Articles of Incorporation.

MCELROY, DEUTSCH, MULVANEY & CARPENTER, LLPAttorneys for Defendants Trenk, DiPasquale, DellaFera & Sodono, P.C.; Elnardo J. Webster, Esq.and Jodi M. Luciani, Esq.

/s/ William F. O’Connor____________________________________

WILLIAM F. O’CONNOR, JR.

Dated: September 24, 2018

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