NJ Water Agency Settles Claims Against Ex-Board Members

By Bill Wichert

Law360, Newark (March 23, 2017, 3:13 PM EDT) — A judge on Wednesday approved a roughly $1.1 million settlement between a defunct Newark, New Jersey, water agency and an insurer over the coverage of mismanagement claims against former agency board members, including U.S. Rep. Donald M. Payne Jr., D-N.J., and U.S. Sen. Cory Booker, D-N.J., whose dismissal victory over the claims was being challenged.

U.S. Bankruptcy Judge Vincent F. Papalia signed an order authorizing the deal between the Newark Watershed Conservation and Development Corp. and RSUI Indemnity Co. in connection with litigation accusing the former board members and others of financial mismanagement that led to the agency’s dissolution and federal criminal charges against former agency officials and contractors.

Under the settlement agreement, RSUI is expected to pay $1,162,500 to the corporation and the agency is slated to dismiss its claims against Payne and former board members Vaughn L. McKoy, Oscar S. James II, Rodney B. Johnson, William T. Merritt and Michelle L. Thomas, according to court documents.

Last year, the judge granted Booker’s motion to dismiss the claims against him. As part of the settlement, the agency has agreed to dismiss its pending appeal of that decision, court documents state.

The agreement also prohibits any parties from asserting related claims against the former board members or RSUI in the future, court documents state. The former board members were among the various defendants sued by the agency in November 2015 over the mismanagement leading to the agency’s dissolution in 2013 and the federal criminal proceedings. The corporation filed for Chapter 11 protection in January 2015.

The latest version of the lawsuit alleges that the agency’s board of trustees failed to appropriately monitor Linda Watkins Brashear, then the executive director of the agency, and prevent her unlawful conduct. At the times in question, Booker, as the mayor of Newark, served as the board chairman and Payne was a Newark City Council member.

“The board failed to supervise and monitor Watkins-Brashear, who used the NWCDC and its assets for her personal gain and for the personal gain of her friends and colleagues through numerous transactions that violated applicable New Jersey law and her fiduciary duties as an officer and employee of the NWCDC,” the lawsuit states.

Brashear pled guilty in December 2015 to pocketing nearly $1 million in kickbacks from contractors seeking work with the organization and an employee who received extra salary payments. She is awaiting sentencing.

Before the lawsuit was filed, six former board members demanded defense and indemnification under a directors and officers liability policy that RSUI had sold to the agency, but the insurer advised them that the company would not cover claims asserted against them in the impending complaint, court documents state.

In May 2016, the agency filed a separate complaint against RSUI and the seven former board members, seeking a declaratory judgment that the claims against the former board members in the underlying lawsuit were covered under the RSUI policy. The dispute ultimately ended up in mediation before the settlement was reached.

The agreement resolves the claims in the coverage litigation as well as the claims against the former board members in the underlying action, court documents state. The maximum coverage available under the RSUI policy was $1.5 million, court documents state. In its application in support of the settlement, the agency noted the potential for not recovering any money under the policy.

“The results of the litigation against RSUI and the former board members involved many complicated issues and the outcome of the litigation was uncertain,” the agency said. “Indeed, RSUI had asserted that no coverage whatsoever was available. Therefore, if the court were not to approve the within settlement, the NWCDC would be exposed to the risk of no recovery under the RSUI policy.”

James A. Scarpone, an attorney representing the agency, told Law360 on Thursday that “it’s always advantageous to settle earlier rather than later after you’ve spent a lot of time, effort and money,” adding that in the bankruptcy setting, creditors “don’t want to wait forever.” Counsel for RSUI could not immediately be reached for comment on Thursday.

The agency is represented by James A. Scarpone, Bruce D. Vargo and John B. Nance of Scarpone & Vargo LLC, and Daniel Stolz of Wasserman Jurista & Stolz PC. RSUI is represented by Aileen Droughton and Copernicus T. Gaza of Traub Lieberman Straus & Shrewsberry LLP.

The cases are Newark Watershed Conservation and Development Corp. v. Linda Watkins- Brashear et al., case number 2:15-ap-02397, and Newark Watershed Conservation and Development Corp. v. RSUI Indemnity Company et al., case number 2:16-ap-01365, both in U.S. Bankruptcy Court for the District of New Jersey.

—Additional reporting by Martin Bricketto. Editing by Stephen Berg.