Dubious, suspect, ridiculous, and an uphill climb — those were just some of the words the Honorable Judge Stephen Petrillo used Friday in response to arguments made by attorney Derrick Freijomil of Riker Danzig representing the Township of Montclair in the case brought by Padmaja Rao, the township’s chief financial officer.
The bombshell complaint, filed by Rao more than seven months ago, alleged the township retaliated against her after she blew the whistle on alleged financial improprieties including Montclair Fire Department submitting fraudulent time records and Montclair town council members receiving full-time health benefits.
Representing Rao was Nancy Erika Smith and Roosevelt Nesmith. At the defense table, Freijomil was joined by Philip George of Eric M. Bernstein & Associates, acting as attorney for Montclair’s former town manager Timothy Stafford. Rao was seated in the gallery, behind her attorneys, watching the proceedings as were several Montclair residents who made the trip to Newark’s historic courthouse.
The first matter Judge Petrillo dispensed with during more than three hours of oral arguments was the request made by Freijomil to seal a transcript of the oral arguments and essentially close the court room to the public.
“Given that there are documents in the public realm, and have been since last year, I find the 11th hour request to be sort of dubious,” Petrillo said. “I explained to you in our conference call with Ms. Smith, why it was extremely unlikely that it would be granted and it’s not going to be granted.”
Judge Questions Who Is Directing Montclair’s Legal Strategy
Petrillo referred again to the attempt to seal the proceedings as he and Freijomil went through the complaint paragraph by paragraph with Freijomil arguing for the removal of references to documents he asserted were confidential, privileged or protected by attorney/client privilege.
“In a whistleblower context, isn’t everything a whistleblower is going to say in their lawsuit, likely to be potentially unlawful information they came upon in the course of their duties?” Petrillo asked. “How does anybody plead a whistleblower cause of action without blowing the whistle on things that were unlawful and which they learned about in the doing of their jobs?”
“If you’re going to put personnel matters out in public, you have to give the right notice,” Freijomil said.
“Never mind letting personnel records get out,” Petrillo said. “How about letting town council members get health benefits they weren’t entitled to? How about letting firefighters retire when they didn’t have enough pension credits? How about that? I’d be more worried about that. Or at least as worried about that. That’s the very essence of the claim. So what I’m struggling with understanding, as everybody worries about how many grains of rice are at the bottom of the bowl, no one is worried about the big picture.”
Petrillo repeatedly asked for clarity from Freijomil, regarding who he was getting his direction from, and referring to comments made by two Montclair councilors in media reports stating they were not involved in the township’s legal strategy.
Petrillo asked if the council had to act collectively as a body to make decisions about litigation strategy, litigation settlement, and whether to go to trial.
“How do you determine, when representing that body, who it is that you can take direction from and give information to, and who you may not? If Councilman X calls you up and says, ‘hey, tell me what’s going on with the case’ how does that work?
“Judge, I don’t want to delve into any of our communications,” Freijomil replied.
“I didn’t ask you who you were talking to. I’m asking you conceptually,” said Petrillo. “I’m not asking for anybody’s names. I’m asking how you know what to do if you’re not able to tell me who it is that gives orders and makes decisions?”
“There’s direction from the legal department and it also can come from a potential administrator, the manager, but the ultimate right or privilege belongs to the town,” said Freijomil.
“I asked you about this the other day,” said Petrillo. “Media reports had a number of the people on the council saying they had absolutely no idea this was going on. There is reason to believe the argument you are advancing here today was not hatched by the decision makers, but was hatched by someone on the outside.”
“I run my ideas by the persons who are authorized to give direction on this,” said Freijomil. “I don’t want to get into any substance, but I am in a tripartite relationship, which I’m sure your Honor is familiar.”
“I want you to understand that where I’m coming from, it all becomes somewhat suspect,” said Petrillo. “The town has known about this case since the day it was served. Your client has known what was in this complaint since then. Your client has known about the arguments you’ve made in these motions. And then suddenly, two days before oral argument, you submit the letter [asking to seal the proceedings] that you do, taking this grave position. I don’t see how there’s any scenario where today you would get the type of relief you’re asking for as broadly as you are.”
In her oral argument, Rao’s attorney Nancy Erika Smith said the defendant had waived their right to privilege by not acting to protect this information immediately after the complaint was filed.
“You can waive a privilege by leaving confidential documents out, whether you leave it in your waiting room or you hand it out to people who aren’t entitled to it. If you don’t protect the privilege, it is waived,” said Smith.
“Did that happen here?” asked Petrillo.
“Yes, it happened because they didn’t act within minutes. They didn’t act within hours. They didn’t act within days. They didn’t act within weeks. This information was in the public sphere three months before they moved. Then, when they moved, they sat on those rights,” said Smith.
The Morgan Report
Oral arguments also focused on the report prepared by Montclair’s affirmative action officer Bruce Morgan and a subsequent email sent by Morgan to Rao.
Per the complaint, Morgan completed his report and provided it to the Montclair law department on August 29, 2022. Morgan found that Stafford had created a hostile work environment for Rao. He stated in his report that he “believe[d] the evidence provided shows that Mr. Stafford’s actions toward Ms. Rao have substantially affected the work environment of a reasonable person. Accordingly, I find that a hostile work environment was created by Mr Stafford toward Ms. Rao.”
Petrillo read directly from the complaint.
“On September 28, 2022, the Assistant Township Attorney wrote to Mr. Morgan that Montclair rejected his finding that Stafford had created a hostile work environment for Rao. Neither the Assistant Township Attorney nor any other member of the Montclair law department, administration or council had contacted Rao concerning her complaint to Mr. Morgan.”
“There’s obviously nothing in that sentence, right?” Petrillo asked Freijomil.
“It is the entirety of it, Judge, with regard to her providing her legal opinion,” said Freijomil.
“Don’t you think that’s a little ridiculous?” asked Petrillo. “She, the plaintiff received an email from Morgan. It was directed to her, copied to the deputy manager of the town and the assistant attorney, reporting to the plaintiff that the law department had rejected his finding that Stafford had created a hostile work environment. So she received a communication, she’s characterizing the substance of it.”
“Maybe she’s making it up, maybe she’s right on point. It’s certainly not privileged though, right?” Petrillo asked.
“Whether or not she should have received it, does not negate the fact it would remain privileged,” argued Freijomil.
“But it was addressed to her,” said Petrillo.
“I understand, but should he have sent it to her?” said Freijomil.
Petrillo called this argument by Freijomil the most “out of bounds so far.”
The DeVito Memo
Of all the whistleblower issues raised in the complaint, the one that came up again and again was the issue of Montclair councilors receiving full time health benefits, and specifically their participation, beginning in 2017, in the New Jersey State Health Benefits Program.
At the center of these discussions was a memo sent by assistant township attorney Gina DeVito and whether it was considered privileged.
Per the complaint, on August 16, 2022, DeVito sent a memo to all council members stating that council members were not eligible to take township-paid health benefits. Attorney DeVito’s memo referenced a press release from the New Jersey Attorney General’s Office that announced charges against Wildwood, New Jersey elected officials for enrolling in the SHBP when they were not “full time employees” as defined by state law. The memo again stated that the 2010 law required elected officials to be full-time employees “whose hours of work are fixed at 35 or more per week.”
During her oral argument, Smith detailed how Rao ultimately blew the whistle on an alleged “illegal scheme.”
“In 2017, the town attorney and staff participated in an illegal scheme to give council members medical benefits they were not entitled to. And from the beginning, the town attorney was a participant in that illegal scheme, creating fake time records or suggesting that there be fake time records,” said Smith, referring to former township attorney Ira Karasick. “There is not a town council member, according to one of them who put it in writing, that this is their primary employment and that they work more than 35 hours a week.”
Petrillo asked if the Montclair councilors receive a salary.
“They get a modest stipend. I think it’s $10,000. These people want us to believe that some of them work full-time, 35 hours a week for $10,000 a year,” said Smith.
Smith stated an auditor raised concerns about the health care issue in April of 2021.
“Again, the town attorney and Mr. Stafford conspired and colluded with council members receiving illegal benefits, contrary to the clear law of the state of New Jersey, in exchange for continued employment. And the town has the audacity to come in here and question the loyalty of the person who put her job on the line to protect the town — not the corrupt politicians — but to protect the town. They repeatedly challenged her loyalty in protecting corrupt politicians who stole from the town,” Smith said of the treatment of Rao.
“I said it again today, that if some of these things are true, the least of the concerns should be civil action by an employee, but potential criminal liability for those who may have participated in these, if they actually happened,” said Petrillo. “Your argument is, at the heart of the whistleblower claim, the disclosure of what they’re trying to say is privileged information, which, even if it fell into the technical definition of privileged information, is nevertheless fair game because the disclosure of that information reveals potential criminal conduct, which by definition is not subject to that privilege.”
Petrillo then further explored the DeVito memo, asking if Smith thought it was a close call in terms of being privileged information.
Smith said she believed it fell under the crime fraud exception.
“This is August of 2022,” Smith said of the memo. “Ms. Rao has complained about this since 2017 when it was brought to her attention by an outside auditor. She complained about it again in 2021. In July, the auditor met with Rao, Stafford and [acting township attorney Paul] Burr. And again, the auditor said his concerns. Stafford and the town attorney did not promise any corrective action. She raised it again on July 28. The committee members were there, the finance committee members, the council members who were on that committee. And again, the finance committee members didn’t address the issue. On August 16th, I think the jury could conclude that this memo is completely subject to the crime fraud exception because, they participated now since 2017. They created time sheets that are not filled out. They created certifications. This is CYA, if I’ve ever seen it.”
Smith went on to say the people of Montclair for years have probably unknowingly paid their town council full private insurance benefits even though they were only making $10,000 a year.
“A whole lot of people deserve to pay back the people of Montclair a whole lot of money for a lot of years, way before 2017. But after 2017, when they moved into the state system, what they were doing became illegal,” said Smith.
Petrillo asked for the DeVito memo, but when it could not be produced by either side, he requested that it be submitted to the court for review.
Montclair Seeks To “Wall Off” Rao at Work
The defendant’s motion for a protective order sought to prevent Rao from engaging in any discussions, decisions or activities in the township that relate to her allegations in the litigation and from obtaining or disclosing any privileged, confidential, or otherwise protected information and documents.
“You let the woman do her job,” said Petrillo in response to Freijomil. “If she’s a crook, the case will fail and she’ll get fired. If she’s a hero, she’ll ultimately be compensated for the damages she suffered. I don’t know whether she’s one or the other, but what I’m trying to figure out is — how do we craft a solution that accomplishes what you are entitled to, separating her from encountering privileged communications, privileged information, things about the internal workings and thoughts of the town as to her case, but still let her do her job?”
Smith stated that since Rao has been employed by the township, she has participated in meetings regarding health insurance, including the meeting when they switched to the state health insurance plan in 2017.
“She participates as the CFO in what health benefits go to town employees. She certifies the available funds for all outside contractors,” said Smith. “She’s not allowed to be involved in the fire department at all, even though she’s the qualified pension person and there’s been stealing time in the fire department? She’s the CFO!”
“The state health benefits and implementation of that, they are not at issue anymore, so there’s no reason for her to have any involvement or snooping around with that,” said Freijomil, who questioned why Rao had been involved in other areas of township business and suggested she be walled off to even prevent the appearance of a conflict of interest.
“This is sort of a conundrum, especially when someone has expansive authority,” said Petrillo.
“The town, which Ms. Rao has accused of being corrupt, stealing money from the taxpayers and creating a hostile work environment for women and illegally covering that up and not complying with any of the remedial actions they’re supposed to take, now wants to stop all financial management and controls,” said Smith. “They want to stop Ms. Rao from being able to see further financial crimes because Riker Danzig is defending not the town, not the people, but the wrong doers in this courtroom today. So they want to stop somebody who’s shown to be ethical, who they call unethical, and who’s being loyal, who they call disloyal, from continuing to be ethical and loyal.”
Smith then said everything Rao does is dictated by statute and was provided in court documents.
“I want to make it part of the record that there is no reply countering anything that Ms. Rao talks about when she describes what her job statutorily requires to protect the people of Montclair,” said Smith. “And one of those things is the requirement that there’s a budget. Even the law department has a budget and there are laws about what has to go out for bidding. So they want to take away a big part of her job that protects the town and complies with the law. They’re actually asking you to let them not comply with the law about what her job is.”
“I guess I’m having a hard time wrapping my head around what this is all about,” said Petrillo of the defense’s motion. “It seems designed to marginalize her [Rao], not for the sake of marginalization, but for the sake of shielding her from seeing those things which as part of the discharge of her duties, she has uncovered as problematic. And it seems designed not to avoid giving her an advantage, but to avoid having her continue to do what she’s been doing all along, which is minding the store, at least according to her.”
“Judge, the decisions and the ethical obligations do not rely upon whether or not she’s a good actor or a bad actor,” said Freijomil. “They remove her from that situation. That’s the idea behind it.”
“You’ve said a lot,” said Petrillo to Freijomil. “You’ve been very comprehensive. I disagree with almost everything you’ve said, but it resonates with me because it’s well said.”
“Do I think there needs to be some wall off as to that very broad category of litigation materials directly bearing on her case or maybe even on the companion case that Judge Tarantino has, that’s the subject of the consolidation motion? Maybe, but the day-to-day, the work day things that she does in her job, I don’t see how you, through me, can do that at this point.”
“I’ll say this. If something is whipped out at some point, which is clearly out of bounds and which clearly demonstrates the plaintiff has taken advantage of her position to use and access materials not available to the general public in a way that is outside the litigation process, a sanction would likely be appropriate because we’ve warned everyone. But I don’t want to prejudge her intentions,” said Petrillo.
Petrillo then took a brief recess and returned to address the court.
“I would like you to think about what lies ahead. We’ve been here now for three hours, and the defendant hasn’t even filed an answer to the complaint yet, and the case is already seven months old. So whatever that means for all of you in the coming years, it means, but it’s clearly going to be a very significant undertaking.”
Petrillo then stated he had a 58-page written opinion memo he would be modifying and reading into the record on Friday, June 2.
“The motion to dismiss by both Stafford and Montclair is denied without prejudice because the court grants the motion to amend.”
“The court is satisfied that the amendments will cause no unfair prejudice to the defendant Timothy Stafford or Township of Montclair. Indeed, having a more robust pleading will ensure that the entirety of the claim is laid out so the defendants are in the best position to bring whatever motions for relief they may as regards this amended complaint.”
“And regarding the categorical arguments into the items in the complaint, I want to be sure I understand, which is one of the reasons why I’m not ruling today, because I need to modify the opinion.”
Petrillo said he would give a ruling regarding the “walling off” of Rao from tasks set forth in the order, and a ruling on confidentiality and the attorney-client items and how they should be treated. He requested receiving the DeVito memo early next week so it can be part of the ruling on Friday. Petrillo also said any ruling on the motion to consolidate Rao’s case with the case of Juliet Lee, currently with Judge Mayra Tarantino, would happen after Friday’s court date.