Alan Schorr’s Case of The Week ending November 30, 2012

Phillips v. Marriott Ownership Resorts, Inc., 2012 WL 5834442 (unpublished) (NJ App. Div., November 19, 2012)

The Conscientious Employee Protection Act (CEPA) remains front and center in New Jersey’s Appellate Division. The very same panel I praised two weeks ago for its well-reasoned CEPA decision in Flecker v. Statue Cruises, LLC turned around five days later and affirmed a Trial Judge’s reversal of a jury’s punitive damages award in a CEPA case. In doing so, the panel established a much higher and previously not required standard for the award of punitive damages under CEPA.

Plaintiff Dorothy Phillips was a highly effective salesperson selling vacation timeshares for defendant Marriott Ownership Resorts, Inc. After a co-worker left the company, Phillips discovered that the departed salesperson was continuing to split sales commissions with another employee of Marriott. Phillips reasonably believed that the commission-splitting was unlawful, and it appears from the opinion that it is uncontested that the commission-splitting was, in fact, unlawful. The Plaintiff was terminated shortly after making repeated reports to management about the commission-splitting, allegedly because they preferred to maintain their relationship with a large customer whose commissions were being split. Phillips alleged, and proved at trial, that Marriott exaggerated her alleged violations of company policy in order to justify her termination and to preserve its relationship with the customer.

The jury awarded her $126,599 in compensatory damages (to which the court added $15,106 in pre-judgment interest), and $300,000 in punitive damages. The court awarded plaintiff over $600,000 in attorney’s fees. The court also imposed a $10,000 civil fine pursuant to N.J.S.A. 34:19–5. The Defendant filed a Motion JNOV on the punitive damages, which was granted by Judge William Nugent in Atlantic County (who is now himself in the Appellate Division). Judge Nugent ruled that the award was not “reasonable” and “justified in the circumstances” of the case pursuant to the Punitive Damages Act, N.J.S.A. 2A:15–5.14(a). The judge noted that there can be a violation of CEPA without the additional proofs required to support an award of punitive damages. In other words, the act of retaliating against an employee for blowing the whistle on illegal actions does not, in itself, justify the imposition of punitive damages.

The Appellate panel affirmed Judge Nugent’s grant of JNOV for essentially the same reasons given below. In doing so, the appellate created a standard which has never existed and is contrary to the standard articulated by CEPA itself. The Court stated that punitive damages are not recoverable under CEPA even where an employer deliberately retaliates against a whistleblower unless, in terminating the whistleblower, the employer also engages in outrageous conduct such as defaming or humiliating the plaintiff. That ruling is completely unsupported by law or common sense.

The standard for punitive damages under CEPA is expressly stated in N.J.S.A. 34:19-5:

In determining the amount of punitive damages, the court or jury shall consider not only the amount of compensatory damages awarded to the employee, but also the amount of all damages caused to shareholders, investors, clients, patients, customers, employees, former employees, retirees or pensioners of the employer, or to the public or any governmental entity, by the activities, policies or practices of the employer which the employee disclosed, threatened to disclose, provided testimony regarding, objected to, or refused to participate in.

In other words, if the employer’s unlawful actions that formed the basis of the whistleblower’s complaint are outrageous, then it can form the basis for punitive damages under CEPA. Here, the underlying offense was commission-splitting, an unlawful action that the Judge and Appellate Division apparently did not find egregious. But if that was the case, they should have said so. Following the logic of this decision, an employer who fires a whistleblower for disclosing an employer’s toxic dumping that kills people and animals cannot recover punitive damages so long as the employer is polite when they terminate the employment.

Furthermore, the Court’s reliance on the Punitive Damages Act was overplayed. The Legislature expressly exempted CEPA from the monetary limits of the PDA because it was the Legislature’s intent not to cap punitive damages under CEPA. See N.J.S.A. 2A:15:5.14(c). Since the PDA expressly exempts CEPA from cap limits and since the standard for punitive damages is expressly different under CEPA than for the PDA, it is this writer’s opinion that the Appellate Division may have gotten the case wrong, but created an unnecessary and harmful legal ruling. At least this is unpublished. Nevertheless, it is just more morass that employment practitioners in New Jersey will have to deal with as the Court continues its assault on CEPA.

Plaintiff’s counsel has stated his intention to appeal to Supreme Court, so hopefully that Court will correct this misstatement of the law.

Plaintiff’s counsel: Arthur J. Murray and Louis M. Barbone, Jacobs & Barbone, P.A.

Defendant’s counsel: Thomas E. Hastings, Smith, Stratton, Wise, Heher & Brennan, LLP

Trial Judge: William Nugent, J.S.C. (Now J.A.D.)

Appellate Judges: Axelrad, Sapp-Peterson and Ostrer