Week Ending 5/30/14: Kaye v. Rosefielde

Alan Schorr’s Employment Case of The Week ending May 30, 2014

Kaye v. Rosefielde, 432 N.J. Super. 421, Certif. Granted, May 23, 2014

Just last week I wrote about Judge Fuentes and his panel and their continuing challenges with getting it right in employment cases in general and CEPA cases specifically. And now there is a fourth employment law case in which the Supreme Court has granted certification, Kaye v. Rosefielde. The Appellate Division clearly struggled with this case, as evidenced by the fact that the case was argued at the Appellate Division on November 2, 2011 and was not decided until August 16, 2013. When finally published, the opinion was 105 pages. The panel had to review 65 volumes of transcripts and ten volumes of appendices that totaled over 3,300 pages of documents. Unfortunately, after all that, they still may have gotten it wrong, and now the Supreme Court will review.

Kaye had hired Rosefielde to be the COO and eventually general counsel for Kaye’s time share businesses. In 2005, Kaye filed a complaint alleging that Rosefielde breached his fiduciary responsibility to plaintiffs and was an unfaithful servant, committed civil fraud, illegally practiced law in New Jersey, and committed legal malpractice through a series of unethical machinations and fraudulent transactions. Plaintiffs alleged that Rosefielde committed these civil wrongs to conceal his unethical, illegal schemes and to improperly enrich himself at plaintiffs' expense. Rosefielde filed a responsive pleading denying all wrongdoing and a counterclaim alleging that he was terminated from his employment as COO in violation of an oral contract and in retaliation for objecting to what he reasonably believed were criminal and unethical activities engaged in or directed by Kaye to defraud the Federal Trade Commission and bribe Atlantic City officials. Rosefielde also grounded his counterclaim on the protections afforded to whistleblowers in the Conscientious Employee Protection Act (CEPA). Rosefielde demanded a jury trial in his responsive pleading to Kaye's complaint and reiterated the demand for a jury trial in his counterclaim, which raised independent affirmative claims for relief. Kaye also demanded a jury trial in his answer to Rosefielde's counterclaim.

The case was seriously complicated by the fact that Judge Perskie of Atlantic County presided over the case even though he had a relationship with one of the witnesses. Judge Perskie was later censured by the Supreme Court for his misbehavior in this case. In re Perskie, 207 N.J. 275 (2011). Judge Nugent (now on the Appellate Division) took over the case and ruled that, even though CEPA provides for the right to a jury trial, Rosefielde was not entitled to a jury on his CEPA counterclaim due to ancillary jurisdiction. At the bench trial, Judge Nugent decided the case primarily in plaintiffs' favor. Although Judge Nugent denied plaintiffs' application to compel Rosefielde to disgorge his salary, Judge Nugent rescinded Rosefielde's interests in three Kaye entities, awarded plaintiff compensatory damages, punitive damages, and counsel fees, and dismissed Rosefielde's CEPA counterclaim. All issues went up on appeal.

The Appellate Division disposed of the CEPA jury issue in one paragraph, holding that Judge Nugent properly exercised his jurisdiction in denying a jury on the CEPA counterclaim. This troubles me, because it opens the door for retaliating employers to take preemptive action to bring a dubious breach of loyalty claim and therefore prevent a deserving CEPA employee from the benefit of a jury trial. It is unclear whether that issue will be reviewed by the Supreme Court. The grant of Certification defines the issue as, “Did the Appellate Division err by affirming the trial court’s holding that economic damages are a necessary prerequisite for disgorgement of the employee’s salary?”

The disgorgement issue was dealt with summarily by the Appellate Division, so after a 105 page opinion, the Supreme Court seems like it may only be reviewing one paragraph. Essentially, Kaye argued that Rosefielde should have to disgorge his salary earned as general counsel since it was found that Rosefielde had, in fact, breached his fiduciary duty. Judge Nugent had stripped Rosefielde of all ownership interests in the entities and awarded $4,000, plus over $800,000 in attorney’s fees plus punitive damages. The Appellate Division remanded for attorney’s fees and vacated punitive damages, but the Appellate Division, without explanation, found that Judge Nugent had correctly ruled that Kaye was not entitled to disgorgement. The Supreme Court will, at least resolve that issue.

It looks like 2014 will be a big year for employment cases at the Supreme Court, every one of them involving Judge Fuentes. Hopefully the opinions will bring clarity to what has suddenly become a murky area of the law.

Plaintiff/Appellant’s Counsel: Steven J. Fram, Archer & Greiner, and Marshall, Dennehey, Warner, Coleman & Goggin, attorneys; John L. Slimm, John C. Connell, and Benjamin D. Morgan.

Defendant/Appellee’s Counsel: Edwin J. Jacobs, Jr., Louis M. Barbone, and Stephen F. Funk, Jacobs & Barbone.

Trial Judges: Steven P. Perskie, J.S.C.; William E. Nugent, J.S.C.

Appellate Judges: Fuentes, Graves, and Harris.

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