Taxpayers footing $100 million bill for public worker lawsuits each year

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(Published on NJ.com on April 30, 2017.)

The legal settlements and jury awards have come rapid-fire, month after month, year after year: $400,000 to the public works employee who claimed a hostile work environment; $2.1 million to the fire inspector whom a jury found had been harassed; $200,000 to the former police dispatcher who said she was improperly fired; $3.65 million to the NJ Transit workers who said they faced racial discrimination.

New Jersey, a state where property taxes and the cost of living rank among the highest in the nation, is increasingly hemorrhaging taxpayer cash as more and more public workers file lawsuits against the government agencies that employ them.

By one conservative estimate, the costs associated with such suits, including the legal fees to fight them, now top $100 million annually, a threefold increase over the past 15 years.

The payouts have strained budgets across the state, in some cases forcing municipalities to borrow, and have diverted cash that towns and agencies might have used to improve services or provide property tax relief.

Scores of municipalities have passed resolutions urging the Legislature to take some form of action, principally a cap on the staggering legal fees that result from the suits. But New Jersey’s legislators, many of whom are practicing lawyers, have declined to take up the cause. A handful of bills has been introduced. None has passed.

The result, according to attorneys and government officials desperate to stem the losses, is a litigate-first culture in which even minor slights are elevated to the courts, in some cases by employees who smell a payday and in others by plaintiff lawyers who stand to reap hundreds of thousands of dollars, if not millions, in fees.

“We’ve created a system akin to Frankenstein’s monster where we’re motivating anyone with any kind of squabble to litigate to the hilt in hopes of winning money,” said David Grubb, executive director of the Municipal Excess Liability Joint Insurance Fund (known colloquially as the MEL), an independent government agency that coordinates pool insurance coverage for numerous municipalities, along with authorities and some school boards.

David Grubb
David Grubb

“The reason, frankly, is attorneys looking for fees. In the legal profession, it’s called winning the lottery,” Grubb said. “This is all at taxpayer expense, and unless we do something about it, it’s going to get more and more expensive.”

Few people have a wider knowledge of the government’s exposure to lawsuits than Grubb, who served as a deputy insurance commissioner in the 1980s. In 1990, he was named executive director of the MEL, created to lower insurance costs for its members.

It is essentially a giant self-insurance pool that works with 19 regional joint insurance funds and covers about half of New Jersey’s municipal workforce.

Over the years, Grubb said, he has watched as plaintiff-friendly judges, expansive court rulings and well-intentioned laws broadening employee protections have combined to make New Jersey a singularly attractive place to file suit.

“Other states don’t have this problem to the same extent,” Grubb said. “It is much easier to prevail in New Jersey in these actions that it is anywhere else.”

No single agency tracks the number of public-employee lawsuits or the costs associated with them. The most reliable snapshot comes from the MEL, where Grubb had his staff chart losses from claims dating to 2002.

That year, the MEL paid out $5.3 million in claims related to public-worker suits. By 2009, the losses had rocketed to $15.5 million. The claims then dipped before climbing back to $15 million in 2016, Grubb said.

But that figure is only a fraction of the cost across New Jersey.

For every dollar spent by the MEL, Grubb said, municipalities that work with the agency typically pay out a dollar of their own for back and future wages not covered by insurance.

That brings the cost to an estimated $30 million annually.

Because the MEL insures just 50 percent of municipal workers — it does not, for example, insure the state, large cities, counties and most school boards — Grubb said it a reasonable assumption that public-worker lawsuits are costing taxpayers as much as $120 million every year.

William Kearns Jr. is acutely aware of the financial burdens placed on towns and cities by such suits.

A veteran municipal attorney in Burlington County and general counsel for the New Jersey League of Municipalities, Kearns said the number of public-employee suits has “mushroomed immensely” in recent years, with deep consequences for taxpayers.

Towns are viewed as low-hanging fruit, an easy payday, he said, because of a misconception that government has “an unlimited deep pocket.”

“But these are taxpayers,” Kearns said. “They don’t have unlimited deep pockets. And people say the insurance company pays it. Well, baloney. Whether it’s an insurance company or towns joined together, it’s still coming out of taxpayer dollars. You’re paying the premiums.”

Who’s filing suit?

The plaintiffs represent a cross-section of the public workforce. They are employed by the state, by municipalities and by authorities. Police officers are among the most litigious, accounting for more than half of the lawsuits brought against government entities by their own workers, Grubb said.

Some employees claimed they were improperly passed over for promotion. Others accused superiors of racial or sexual discrimination. Plaintiffs have complained of verbal abuse, arbitrary transfers and punishment for exposing wrongdoing.

The largest settlements and awards reflect egregious or systemic bad behavior by government employees toward subordinates.

The state’s $3.65 million settlement with seven African-American NJ Transit employees last June came after the workers accused a former supervisor of regularly using racial epithets and of once placing a makeshift noose around an employee’s neck.

They said they also had been paid less than white co-workers. In addition to the settlement, the state paid an outside law firm more than $1.5 million.

The settlement came four years after the state paid paid an even bigger amount — $5.8 million — to a group of African-American NJ Transit police officers who faced similar discrimination.

But for every clear-cut case of race or gender discrimination, municipal officials say, there are additional suits sparked by accidental rules breaches, internal rivalries or boorish behavior.

In Washington Township, Gloucester County, a lawsuit filed in December began with a sneeze.

A township police lieutenant, Patrick Gurcsik, sneezed into his hand, and, apparently thinking it would be a good practical joke, wiped his other hand on the back of an officer seated in front of him.

According to an NJ Advance Media account of the incident, the gag-gone-wrong nearly sparked a physical confrontation and led to a five-day unpaid suspension and a year of probation for Gurcsik. A hearing officer termed the incident “abhorrent behavior by a superior officer to an inferior officer.”

Gurcsik, who was appointed police chief earlier this year, in turn, filed suit against his department, seeking his five days of lost wages and attorney fees. The case is pending.

The high cost of legal fees

The primary vehicles for the onslaught of litigation are the New Jersey Law Against Discrimination and the Conscientious Employee Protection Act, the state’s whistleblower law. Both are considered among the broadest and strongest in the country in terms of protecting workers from harassing or retaliatory behavior, legal experts say.

Under the laws, if plaintiffs win any part of their case before a jury, the losing party — in this case, government — must pay the winner’s legal fees, a process known as fee-shifting. The practice is meant to give lawyers an incentive to take on important civil rights cases for clients who might not have the wherewithal to pay a big retainer.

But often, the fees claimed by attorneys have no proportionality to the awards won by those who file suit.

Consider the case involving a Randolph police officer, Melissa Bailey, who claimed in a lawsuit she was subjected to harassment, retaliation and gender discrimination by her chief after she questioned the scoring process on a sergeant’s exam.

In December, a jury awarded her $50,000 for emotional distress and $37,403 for wages she lost during a leave of absence.

One month later, Richard J. Murray, one of the lawyers who argued Bailey’s case, gave Randolph his bill: $2.2 million, plus tens of thousands of dollars more in court costs. A second attorney working on the officer’s behalf asked for $379,000, court records show.

Taken together, the fees the lawyers submitted to a judge for approval are nearly 30 times what Bailey was awarded in court, a ratio some call outlandish.

Michael Patrick Carroll
Assemblyman Michael Patrick Carroll

“If you’ve got a case where someone spent more than $2 million for $87,000 in damages, that case should never have been brought,” said Assemblyman Michael Patrick Carroll (R-Morris), who last year sponsored a bill to bar punitive damages against public entities and public employees. “Sometimes cases are so small they’re not worth pursuing.”

Citing the hardship on Randolph and its taxpayers, Carroll said, “you’re looking at a big part of the entire annual budget being asked for by one attorney in one case.”

“Right now we have provisions to protect the employee,” he said. “Where is the provision to protect the taxpayer?”

Carroll added he believes attorney fees brought under the Law Against Discrimination should follow the tradition of non-civil rights cases, in which lawyers typically take home one third of the total award.

Whether Bailey’s lawyer is granted all that he requested remains to be seen. Randolph’s lawyers are fighting the fee application, and judges routinely reduce fee requests.

But even when fees are reduced, they frequently remain far higher than the awards won in court.

A jury awarded Nicholas DiNizo, a Scotch Plains public works employee, $1,500 after a trial in which he claimed he was harassed and denied a promotion for raising concerns about the town’s public works director.

DiNizo’s lawyer asked for more than $315,000 in legal fees. In July 2010, a judge reduced the lawyer’s fee to $141,905, or 94 times the jury award, court records show.

Finding even that figure excessive, Scotch Plains appealed the award to the U.S. Court of Appeals for the Third Circuit. There, a panel of judges ruled against the town in 2011. Under the Law Against Discrimination, the judges wrote, attorneys are entitled to “reasonable” fees, even if those fees far outstrip what a jury awarded to a plaintiff.

“‘Reasonable’ does not mean ‘proportionate,'” the panel ruled. “That DiNizo obtained a modest award of damages does not mean that the attorney’s fee award must be commensurately modest.”

A similar scenario played out in Deal, the seaside Monmouth County borough, after a police officer, Michael Rapolla, claimed in a whistleblower lawsuit he was improperly passed over for promotion to sergeant.

Once a jury ruled that Deal had violated the Conscientious Employee Protection Act, the borough and Rapolla’s lawyer, Robert Renaud, agreed Deal would pay the officer $50,000 in damages and $21,000 in back pay, court records show.

Fearing the legal bill could top $700,000, the borough’s attorney, along with the MEL, reached a settlement in 2009 to pay Renaud $450,000 in legal fees, or nearly six times what his client received, the agreement shows.

For years, town officials and the League of Municipalities have been lobbying the Legislature for help, proposing hard caps on legal fees and more flexible solutions that would award fees on a sliding scale.

Under a plan put forward by Eric Harrison — a lawyer whose Edison-based firm, Methfessel & Werbel, frequently works with the MEL to defend against public-worker suits — attorney fees would be capped at $150,000 if a jury awarded a plaintiff no more than $50,000. For a jury award up to $200,000, attorney fees would be capped at half a million.

“A graduated scale would give attorneys a disincentive to over-litigate a case out of self-interest,” Harrison said. “That’s something I’ve been floating for years, but I haven’t spent much time on it lately because I don’t give it a snowball’s chance in hell. There are so many lawyers in the Legislature and so many people connected to trial lawyers, I don’t see it getting anywhere.”

A defense of fee-shifting

Neil Mullin has a full-throated response to those who object to high legal fees in public-worker suits: blame the government.

Mullin’s Montclair firm, Smith Mullin, has won some of the largest civil rights verdicts and settlements in New Jersey in recent decades, and he has pocketed millions of dollars in legal fees.

He contends it is not plaintiff lawyers like him who prolong cases, driving up litigation costs, but stubborn government lawyers who don’t move to settle cases even when it’s clear they will lose in court.

“If they defend the case in-house, the deputy attorney generals act as if the taxpayers have no stake in this,” Mullin said. “They just litigate and litigate and take the case to trial, and then they turn around and say, ‘There should be a cap.'”

Corporate defendants accused in civil rights cases, Mullin said, are far more conscious about the costs of litigation and are quicker to bind a bleeding wound.

In other cases, state and local governments farm out defense work to big, politically connected law firms, which are “very expensive and cost the taxpayers a fortune,” he said.

Mullin offered another argument for the status quo, saying that civil rights cases can drag on for years, and if he doesn’t win, he doesn’t get paid.

“Sometimes I get significant fees,” he said, “but it’s often after I’ve risked the farm. I pay for the expert witnesses. I pay for the lawyers on my staff without seeing a dime for years. I’m happy to do it because I believe in fighting for civil rights, and I know I’ll get compensated. If they take that away, people won’t get lawyers and rights won’t get vindicated.”

Settlement as self-defense

To Mullin’s claim that government lawyers don’t settle quickly enough, Grubb, the MEL’s executive director, said defense attorneys for public entities are now moving more aggressively to shut down cases, even when they believe they are in the right, to avoid the possibility of enormous legal claims by prevailing lawyers.

“It’s the threat hanging over your head,” Grubb said. “As a net result, you’ve got to be pretty firm that you’ve got a really solid defense before you risk going before a jury. To quote a famous song, ‘You’ve got to know when to hold ’em and when to fold ’em.'”

Beyond reaching quicker settlements, Grubb said his agency trains more than 1,500 public officials annually on ways to avoid lawsuits. It includes seminars on ethics, discrimination and employment practices.

The MEL also has created a model employee-practice manual that municipalities and agencies can adopt without having to reinvent the wheel, saving millions of dollars in development costs.

In the end, though, Grubb and others maintain the pace and cost of public worker lawsuits will not ease unless the Legislature places limits on the pot of legal fees available in civil rights cases.

Marcus Rayner, president of the New Jersey Civil Justice Institute, a business trade association that has advocated for a graduated scale on legal fees, said he understands the need to incentivize lawyers to take cases, but he contends the pendulum has swung too far.

“A little too much of something leads to problems, and that’s what we’re seeing,” Rayner said. “It’s well-meaning, but it’s run amok.”


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