Opinion
00-CV-591 (WGB).
January 31, 2001
Robert C. Shea, Esq., Stacie A. Brustman, Esq., SHEA NOVY, Toms River, N.J. Attorneys for Plaintiffs.
John P. Lacey, Esq., CONNELL FOLEY LLP, Roseland, N.J. Attorneys for Defendant Labor Management Concepts, Inc.
Michael L. Demody, First Assistant County Counsel, OFFICE OF THE HUDSON COUNTY COUNSEL, Jersey City, N.J. Attorneys for Defendants Board of Chosen Freeholders for the County of Hudson, Neil Carroll, Vincent Ascolese, Neptalia Cruz, Nidia Davila-Colon, William O'Dea, Albert Cifelli, Silverio Vega, Maurice Fitzgibbons, and Edward J. Florio.
O P I N I O N
Defendants Labor Management Concepts, Inc. ("LMC") and Defendants Board of Chosen Freeholders for the County of Hudson, ("Board"), Neil Carroll, Vincent Ascolese, Neptalia Cruz, Nidia Davila-Colon, William O'Dea, Albert Cifelli, Silverio Vega, Maurice Fitzgibbons, and Edward J. Florio (collectively "Defendants"), move to dismiss for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6). Defendants' motion to dismiss is granted.
LMC also seeks sanctions against Plaintiffs pursuant to Fed.R.Civ.P. 11. Rule 11 requires that a motion for sanctions be made separately from other motions or requests. Because LMC has not made a separate application for sanctions, that request is denied without prejudice.
Because Plaintiffs' Complaint alleges, among other things, a violation of the Racketeer Influence and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1964, the Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1331.
I. BACKGROUND A. State Court Proceedings
Plaintiff Eileen Gilgallon ("Eileen") is the President and owner of CFS Services, Inc. ("CFS"), a licensed private detective agency. She is married to Plaintiff Ronald Gilgallon ("Ronald").
In 1995 and in 1996, several companies, including CFS and LMC, submitted bids to Hudson County ("the County") to provide security services at many of Hudson County's public buildings, including the County Prosecutor's Office and Meadowview Hospital. LMC contends that due to the sensitive nature of the work and the contents of those buildings, the winning bidder needed to have moral integrity. CFS was the lowest bidder; however, CFS was disqualified by the County based on its suspected ties to Ronald, who had been convicted of insurance fraud. Thereafter, LMC was deemed the lowest responsible bidder in both 1995 and 1996.
CFS denied that it had any connection to Ronald and sued the County and LMC in state court, CFS Services, Inc. v. Board of Chosen Freeholders and Labor Management Concepts, Inc., Hud. Law, Docket No. 4726-95, seeking to obtain the bids. The County filed a cross-claim against LMC to recover the cost of unauthorized telephone charges that were incurred at a location where LMC provided security services.
On December 22, 1997, at a regular meeting of the Hudson County Board of Chosen Freeholders, the Board passed a Resolution authorizing Hudson County's Counsel to accept $30,000 from LMC to settle "any and all cross-claims" between the Hudson County Board of Chosen Freeholders and LMC, "including the cost of the unauthorized telephone calls." (Board Resolution attached to LMC's Mot. to Dismiss the Complaint ("LMC's Mot.") as Ex. F. (emphasis added)).
Pursuant to the Board's Resolution, on December 26, 1997, the County and LMC entered into a Settlement Agreement and Release ("Settlement Agreement") that resolved all claims between them. Settlement Agreement attached to LMC's Mot. as Ex. A.) The parties also executed a Stipulation of Dismissal With Prejudice. (Ex. A. attached to LMC's Mot.)
As for the suit between CFS and LMC, the Law Division judge ordered that the County conduct a hearing to determine whether CFS was a responsible bidder and therefore eligible to bid on the 1995 and 1996 contracts. After ten days of testimony, the hearing officer issued his findings and his recommendation to the Board; the hearing officer found that CFS was not a responsible bidder for either the 1995 or 1996 contract because of Ronald's continued involvement with CFS. Subsequently, the Board adopted the hearing officer's findings and retroactively awarded both the 1995 and 1996 contracts to LMC.
After reviewing the transcripts of the responsibility hearing, the Law Division upheld the County's decision. Further, the court denied CFS's motion to amend its complaint to allow Plaintiff or a taxpayer of Hudson County to sue LMC to recover on behalf of the County money allegedly owed as a result of unauthorized telephone charges and alleged supervisory personnel overpayments. (See CFS Services, Inc. v. The Board of Chosen Freeholders of the County of Hudson and Labor Management Concepts, Inc., A-2646-97T5 (App.Div. May 20, 1999) at 6, attached to LMC's Mot. as Ex. B.)
The New Jersey Appellate Division affirmed the lower court and agreed that there was sufficient credible evidence in the record to support the finding that CFS was not a responsible bidder. The appellate court also affirmed the validity of the Settlement Agreement and held that the trial court did not err in denying leave to amend the complaint "to assert taxpayer claims through Eileen Gilgallon against LMC for excessive managerial and telephone costs under other contracts with the County of Hudson."
(Id. at 9.)
B. Federal Court Proceeding
On February 4, 2000, Plaintiffs filed an eight count complaint before this Court alleging that LMC intentionally violated its contract with the County by: (1) using the County telephones without authorization; (2) failing to provide staff required under the contract and improperly submitting requests for payment when the required staff were not on site; and (3) being paid ultra vires without an appropriately executed contract for services rendered beginning in July 1995 to date.
Defendants move to dismiss the Complaint contending that because the County settled all claims that it had against LMC, Plaintiffs are precluded from raising anew those issues that were the subject of the Settlement Agreement. Additionally, Defendants maintain that Plaintiffs do not have legal standing to bring a taxpayer suit on behalf of the County. Finally, Defendants seek dismissal of this suit on the grounds that certain of the criminal statutes cited by Plaintiffs in their Complaint do not provide for a cause of action for a civil remedy and that the RICO allegation has not been pled with the requisite particularly.
II. DISCUSSION A. Standard for Motion to Dismiss
Federal Rule of Civil Procedure 12(b)(6) allows a party to move for a dismissal based upon the pleader's "failure to state a claim upon which relief can be granted." Since the long-established federal policy of civil litigation is to decide cases on the proofs, district courts generally disfavor Rule 12(b)(6) motions. Melo-Sonics Corp. v. Cropp, 342 F.2d 856 (3d Cir. 1965); Panek v. Bogucz, 718 F. Supp. 1228, 1229 (D.N.J. 1989).
In deciding a motion to dismiss for failure to state a claim, all allegations in the pleadings must be accepted as true and the plaintiff must be given the benefit of every favorable inference that can be drawn from those allegations. See Conley v. Gibson, 355 U.S. 41, 48 (1957);Wisniewski v. Johns-Manville Corp., 812 F.2d 81, 83 n. 1 (3d Cir. 1987);Markowitz, 906 F.2d at 103. "All the rules require is a short and plain statement of the claim that gives the defendant fair notice of the plaintiff's claim and the grounds upon which it rests." Conley, 355 U.S. at 47.
Rule 12(b)(6) does not countenance "dismissals based on a judge's disbelief of a complaint's factual allegations." Neitzke v. Williams, 490 U.S. 319, 326-27 (1989). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheur v. Rhodes, 416 U.S. 232, 236 (1974).
Accepting the facts in the pleadings as true and giving them all reasonable inferences, a court must dismiss under Rule 12(b)(6) "[i]f as a matter of law `it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.'" Neitzke, 490 U.S. at 326-27.
B. Settlement Agreement
Defendants argue that because Hudson County settled all its claims that it had brought or could have brought against LMC for $30,000.00, Plaintiffs cannot seek to step into the County's shoes and undo the very Settlement Agreement and Release and Stipulation of Dismissal With Prejudice that the County itself entered into.
In response, Plaintiffs suggest that the Stipulation of Dismissal was fraudulent because the three existing Stipulations exhibit different filing dates. Defendants contend, however, that the original Stipulation of Dismissal was filed on December 26, 1997, as indicated on one of the copies of the Stipulation. Ex. O attached to Pl.'s Brief in Opp'n to Defs.' Notice of Mot. to Dismiss ("Pl.'s Opp'n Br."). Another copy has December 26, 1999 stamped on it. Ex. M attached to Pl.'s Opp'n Br. It appears that the last numeral "9" may mistakenly have been manually altered, possibly when the document was copied. The final copy of the Stipulation does not evidence a legible date stamp. Ex. N attached to Pl.'s Opp'n Br. Plaintiffs' theory of fraud on this basis is meritless.
Next, Plaintiffs claim that the Settlement Agreement covers more than the scope of the discussion by the Board at its December 22, 1997 meeting. In other words, Plaintiffs believe that the Board had not been presented with and was unaware of facts pertaining to the allegations of bill padding and ultra vires payments, and therefore, the Board had only agreed to settle the then existing cross-claim, that is, the limited issue of LMC's unauthorized use of County telephones.
Plaintiffs' contention is without merit. According to the express terms of the Settlement Agreement, the Board intended to, and did in fact, release the then existing claims as well as claims that could have been brought against LMC. The Settlement Agreement expressly states that the County had conducted an extensive investigation of CFS's allegations against LMC:
(b) [t]hat [LMC] had not been fully authorized by Freeholder Resolution to perform security guard services during the period July 1995 though the present and was thus not entitled to payment during that period;
(c) [t]hat [LMC] had applied for, and obtained, payments for more security guard service hours than had actually been worked.
Settlement Agreement, at ¶ 2. Other than evidence that telephone calls had been made from Meadowview Hospital and charged to the County, the County found no evidence of any wrongdoing by LMC. Id. at ¶ 3.
Moreover, the Settlement Agreement reflects the parties' desire to "settle this matter once and for all." (Id. at ¶ 5.) It states that LMC agrees to pay, and Hudson County agrees to accept, $30,000.00 "in full and final settlement of all claims and counterclaims that Hudson County has filed, or could have filed against Labor Management Concepts, Inc. based on conduct that occurred prior to the date of this Settlement Agreement." (Id. (emphasis added)). More specifically, the Agreement provides that the County agrees to release LMC "from any and all other claims that the County might have against Labor Management Concepts, Inc. arising out of security guard services provided by Labor Management concepts, Inc. during the period January 1, 1994 though the present." (Id. at ¶ 7 (emphasis added)).
The Settlement Agreement was determined to be valid by the New Jersey Appellate Division. In affirming the decision of the lower court not to permit Plaintiffs to amend their complaint, the appeals court noted:
A taxpayer action against a local government is appropriate when there are claims of fraud or corruption, illegal bidding procedures or other instances of illegalities and ultra vires acts, including ultra vires expenditures. Loigman v. Township Comm. of Middletown, 297 N.J. Super. 287, 295-96 (App.Div. 1997). In this instance the County did pursue claims against LMC similar to those sought to be asserted by Eileen Gilgallon as taxpayer and entered into a settlement providing for payment of LMC in the amount of $30,000. A local government acting lawfully and in good faith may compromise, adjust and settle claims against it in the same manner as a natural person, and the resulting settlement will have conclusive effect on other parties. Edelstein v. City of Asbury Park, 51 N.J. Super. 368, 389-90 (App.Div. 1958). We concur with the conclusion of [the Law Division judge] that plaintiff did not show that the County acted illegally or beyond its authority in agreeing to settle matters with LMC and that there was no substantial reason presented to undermine the presumption of the validity of the settlement.CFS Services, Inc., A-2646-97T5, at 9.
Further, as evidenced by the discussion that occurred at the December 22, 1997 Board meeting, the County clearly had knowledge of, and had considered not only the allegation of unauthorized telephone calls, but also these other claims against LMC that Plaintiffs now raise. At the meeting, Eileen and her son Shawn, advised the Board of their suspicions that LMC had stolen over $250,000.00 from the County. See Board Meeting Notes, attached to LMC's Mot. as Ex. E. They also spoke to the Board of LMC's "illegal billing," and "criminal theft, collusion, conspiracy."Id. Consequently, Eileen and her son questioned why, in the face of such wrongdoing, the Board would consider settling the County's claims against LMC for only $30,000. (Id.) Despite such accusations of LMC, the Board passed the Resolution authorizing settlement of "any and all cross-claims" between the Hudson County Board of Chosen Freeholders and LMC, "including the cost of the unauthorized telephone calls." Board Resolution attached to LMC's Mot. as Ex. F. (emphasis added).
Accepting the facts in the pleadings as true and giving them all reasonable inferences, because the County settled and released all claims it had brought or could have brought against LMC, Plaintiffs are precluded from pursuing those claims as taxpayers on behalf of the County. Accordingly, the Court need not address Defendants' alternate grounds for dismissal.
III. CONCLUSION
For the reasons noted above, Defendants' motion to dismiss is granted. Plaintiffs' Complaint is dismissed.
O R D E R
This matter having come before the Court on Defendants' motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6); and
The Court having considered the submissions of the parties; and
The Court having decided this matter without oral argument pursuant to Fed.R.Civ.P. 78; and
For the reasons set forth in the Court's Opinion issued this day; and
For good cause shown;
IT IS on this ___ day of ___, 2001, hereby ORDERED that Defendants' motion to dismiss is GRANTED; and
IT IS FURTHER ORDERED that all counts of the Complaint are DISMISSED; and
It is FURTHER ORDERED that the Clerk of the Court shall close this case.