On February 21, 2012, the Appellate Division of the Supreme Court of the State of New York, Second Department, affirmed the dismissal of two article 78 petitions brought by seven current and former Village officers (“Officers”) against a Village, its Board of Trustees (“Board”), the current Village Attorney and the Village’s claims administrator.
In or about 2008, an individual commenced a civil lawsuit against, among others, the Village and the Officers alleging Civil RICO (Racketeer Influenced and Corrupt Organization Act) violations, conspiracy claims, civil rights violations and fraud, and demanded $8,500,000 in damages, plus treble damages and attorney’s fees. At that time, the Board adopted a resolution which authorized the Village to defend and indemnify the Officers pursuant to N.Y. Public Officers Law §18. The Officers’ defense and indemnification was statutorily conditioned on, among other things, their cooperation in the defense of the action. A settlement was ultimately negotiated which would have resulted in a dismissal of plaintiff’s claims against the Village and the Officers without any monetary payout or any admission of wrongdoing by the Officers. In exchange, the Officers were asked to agree to a non-disparagement clause, which would have restricted them from criticizing the very settlement of which they were receiving the benefit. After many attempts by the Village to convince them to cooperate, the Officers refused to agree to the non-disparagement clause. The Board subsequently voted to withdraw the Officers’ defense and indemnification based on their failure to cooperate in settling the lawsuit.
In 2010, two separate groups of the Officers filed petitions pursuant to Article 78 of the CPLR against the Village, the Board, the current Village Attorney and the Village’s claims administrator. These petitions requested, in essence, that the New York State Supreme Court order the Village to reinstate their defense and indemnification. The Officers argued that they had cooperated as they were required to under N.Y. Public Officers Law §18 and that the non-disparagement clause violated their rights under the First Amendment. As such, they asserted that the withdrawal of their defense and indemnification was arbitrary and capricious. The Supreme Court disagreed and dismissed the petitions.
The Officers then appealed to the Appellate Division. On appeal, the Appellate Division affirmed the lower court’s decision and addressed several issues of first impression. First, the Appellate Division agreed with Jaspan Schlesinger LLP’s argument that the New York State insurance law standard for determining whether an insured has cooperated applies in cases concerning a public officer’s cooperation pursuant to N.Y. Public Officers Law §18. The Appellate Division also agreed with Jaspan Schlesinger LLP’s argument that the Officers’ failure to cooperate in the settlement constituted “willful and avowed obstruction” which justified the Board’s withdrawal of their defense and indemnification. Finally, the Appellate Division accepted Jaspan Schlesinger LLP’s argument that the non-disparagement clause did not constitute a prior restraint on the Officers’ right to free speech under the First Amendment.
Jaspan Schlesinger LLP Partner Stanley A. Camhi and Associates Jessica M. Baquet and Daniel E. Shapiro represented the Village, the Board, the current Village Attorney and the Village’s claims administrator in the article 78 proceeding before the Supreme Court and on appeal to the Appellate Division.