THE ESTATE OF WILLIAM J. HAMILTON, JR. VS. BOARD OF TRUSTEES (PUBLIC EMPLOYEES' RETIREMENT SYSTEM)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2053-19

THE ESTATE OF WILLIAM J.
HAMILTON, JR.,

Petitioner-Appellant,

v.

BOARD OF TRUSTEES,
PUBLIC EMPLOYEES'
RETIREMENT SYSTEM,

Respondent-Respondent.
__________________________

Argued May 10, 2021 – Decided June 14, 2021

Before Judges Sabatino and Gooden Brown.

On appeal from the Board of Trustees of the Public
Employees' Retirement System, Department of the
Treasury, PERS No. x-xxxx764.

Jay Holub argued the cause for appellant (Borrus,
Goldin, Foley, Vignuolo, Hyman & Stahl, PC,
attorneys; Jay Holub, on the briefs).

Jeffrey D. Padgett, Deputy Attorney General, argued
the cause for respondent (Gurbir S. Grewal, Attorney
General, attorney; Melissa H. Raksa, Assistant
 Attorney General, of counsel; Jeffrey D. Padgett, on the
brief).

PER CURIAM

The Estate of William J. Hamilton, Jr. appeals from the December 13,

2019 final agency decision of the Board of Trustees (Board) of the Public

Employees' Retirement System (PERS). The Board adopted the Administrative

Law Judge's (ALJ) initial decision concluding that Hamilton was an employee

of the City of New Brunswick from 1986 through his purported retirement and

separation from employment effective August 1, 2007, continued working for

New Brunswick without observing the requisite thirty-day break in service prior

to returning to employment required under N.J.A.C. 17:2-6.2, and earned more

than $15,000 annually during his continued employment with New Brunswick

contrary to N.J.S.A. 43:15A-57.2(b).1 Because the Board concluded that

Hamilton did not effectuate a bona fide retirement, it demanded the

reimbursement of all retirement benefits received by Hamilton as well as the

payment of the appropriate pension contributions for the period after August 1,

2007, resulting from his continued employment with New Brunswick,

1
Hamilton died on October 10, 2019, after the initial decision was rendered by
the ALJ but prior to the Board issuing its final decision. However, the ensuing
notice of appeal used the same caption as the underlying matter. We
subsequently granted the motion to amend the caption to substitute the Estate.
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amounting to $500,463.27.2 We are persuaded that in the compelling

circumstances of this case, the Board's action constitutes an arbitrary and

capricious agency decision. We therefore reverse.

I.

We glean these facts from the record. Hamilton was appointed the

municipal attorney for the City of New Brunswick (City) by ordinance in 1986,

and was reappointed annually through August 1, 2007, when he retired. 3 In his

capacity as municipal attorney, Hamilton reported directly to the Mayor, served

as the Director of the Law Department where he was the point person for any

legal matter pertaining to the City, and supervised two assistant city attorneys.

Hamilton maintained a private law practice while serving as municipal attorney

2
At our request, we received a post-argument submission from the Board
clarifying the exact repayment amount sought. Without explanation, the
submission also "rescinded" a May 3, 2021 letter from a Supervising Pension
Benefits Specialist in the Division of Pensions and Benefits which, according to
the Board, "erroneously stated that [the Board was] not seeking recoupment
from Hamilton's estate." The May 3, 2021 letter, which was attached to the post-
argument submission, stated that the agency's Director had made the decision to
not seek recoupment from the estate. Evidently, the Board disagreed.
3
Hamilton had been in public service since he was elected to the New Jersey
Assembly in 1971 and served three terms, after which he was elected to the New
Jersey Senate for one term. In 1981, he ran for Governor but lost in the primary.
Hamilton also held other municipal attorney positions for different
municipalities since 1976.
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and performed City work at a designated area in city hall shared with law

department staff as well as in his private law office located a half block from

city hall.

Hamilton's position as municipal attorney was part-time and his

employment arrangement with the City had two components of compensation,

salary and billable hours. Hamilton received a salary for the first five hours

worked on a specific task and billed the City at an hourly rate pursuant to a

professional service agreement (PSA) for any work performed over five hours.

Hamilton received a W-2 tax form for his salary and Internal Revenue Service

(IRS) form 1099s for any additional work billed. 4 Hamilton received health

benefits from the City but no vacation or sick time.

In 2007, Hamilton notified the Mayor and City Council that he intended

to retire, effective July 31, 2007. Hamilton told the Mayor he would take his

pension and come back and continue to work for the City at a significantly

reduced salary. Under this arrangement, Hamilton would receive a salary of

under $15,000 and bill the City at an hourly rate for work performed in excess

4
"[A] professional may provide some services to a governmental entity which
are compensated by 'salary, for services as an employee' within the intent of
N.J.S.A. 43:15A-6(r) and other services compensated on a fee basis for which
the professional is deemed to be an 'independent contractor.'" Mastro v. Bd. of
Trs., Pub. Employees' Ret. Sys., 266 N.J. Super. 445, 453 (App. Div. 1993).
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4
of the salaried hours. In June 2007, Hamilton notified the Division of Pensions

and Benefits (Division) of his retirement plan and outlined his hybrid position.

Douglas Petix, the City's Director of Finance and Chief Financial Officer (CFO),

submitted to the Division a Certificate of Service and Final Salary for Hamilton

dated July 31, 2007.5 Hamilton's retirement was approved by the Board on

October 17, 2007, and he began receiving pension payments shortly thereafter.

After his retirement in August 2007, by agreement, Hamilton's annual

salary was reduced from $82,298 to approximately $14,992. Although he

continued to bill the City for hourly work performed pursuant to a PSA,

Hamilton's 1099 income was also less than each year prior to his retirement.

Presumably in response to Hamilton's June 2007 notification to the

Division of his post-retirement employment, Hamilton received a letter dated

March 3, 2008, from Michael R. Czyzyk, a Division Supervisor of External

Audit, stating that the Division had "investigated [Hamilton's] post-retirement

employment with the City . . . in the position of City Attorney," and determined

that it was "not in violation of N.J.S.A. 43:15A-57.2." The letter specified that

Hamilton was "in compliance with the laws that govern [PERS]."

5
Hamilton's 1099 earnings were not included in the certification and were
explicitly excluded from pension compensation calculations for his entire
career.
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 The letter explained that:

The Division's determination is based upon a decision
handed down [o]n October 16, 2002 by New Jersey
Attorney General David Samson. The finding in
pertinent part stated: "As long as the appointee
knowingly and voluntarily waives his right to receive
the minimum salary, such action is permissible.
Moreover . . . the policy underlying N.J.SA. 43:15A-
57.2 is not violated by the appointee's decision to take
a lower salary. This statute is designed to permit public
employment by retirees provided they do not earn more
than $15,000 per year." As such, a PERS retiree is
permitted to accept a salary of $15,000 or less while
continuing to receive a PERS pension allowance and
remain within the provisions of N.J.S.A 43:15A-57.2.

The Division also considered the relevance of two new
laws, namely, Chapter 92, P.L. 2007 and Chapter 103,
P.L. 2007 that have an effective date of July 1, 2007.
The new laws set forth the criteria for enrollment in the
Defined Contribution Retirement Program (DCRP). A
professional who provides services under a [PSA] with
a local unit is not eligible for PERS or DCRP.

On February 8, 2016, almost nine years after formally approving

Hamilton's retirement, the Board notified Hamilton that it was denying "all

PERS pension credit" for his service to the City "from April 1, 1986 through

July 31, 2007." The Board noted that "[t]he review of Hamilton's membership

began as a result of the enactment of Chapter 92, P.L. 2007." The Board

concluded that Hamilton was "not eligible for PERS" as he was found "to

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be . . . an independent contractor under N.J.S.A. 43:15A-7(b), and not . . . an

employee, as required for PERS membership."

Additionally, the Board noted that even if Hamilton was "determined to

be an employee . . . from 1986 through 2007, [his] retirement in 2007 would be

non-bona-fide." The Board explained that "in order to have a valid retirement[,

one] must have at least a [thirty-]day break in service from [one's] retirement

date or Board approval, whichever [was] later." However, by November 16,

2007, when "the [thirty]-day minimum break in service would have expired"

based on the October 17, 2007 Board approval of Hamilton's retirement,

Hamilton's "billing statements" revealed that he "had returned to work at New

Brunswick" during "the period August 1 . . . through November 16, 2007" and

earned "more than $30,000."

The Board expounded that if Hamilton's service as the City's municipal

attorney was deemed "pensionable employment" and if his retirement was "then

determined to be invalid due to [his] failure to effect the required break in

service," then Hamilton "would be required to return all pension payments that

were paid." In addition, Hamilton "would have to make PERS contributions on

all income attributable to pensionable employment with [the City] up to the

present."

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 Hamilton requested an administrative hearing, and the matter was

transferred to the Office of Administrative Law as a contested case. See

N.J.S.A. 52:14B-9 to -10. A two-day hearing was conducted on February 8 and

May 4, 2017, during which the ALJ heard testimony from Hamilton and CFO

Petix, as well as Kristin Conover, a representative from the Division's Pension

Fraud and Abuse Unit.6

Conover testified about the Division's review of Hamilton's PERS

membership while serving as the City's municipal attorney and emphasized that

there were no allegations that Hamilton had committed pension fraud or abuse.

Petix testified about his role as the PERS certifying officer for the City and his

submission to the Division of the IRS twenty-factor checklist questionnaire.7

According to Petix, he completed the questionnaire at the Division's request with

Hamilton's assistance to determine whether Hamilton was, in fact, a City

6
Transcripts of the hearing were neither provided in the record nor identified
in the statement of items comprising the record on appeal. See R. 2:5-4(b). We
recount the witnesses' testimony from the ALJ's factual findings.
7
See Francois v. Bd. of Trs., 415 N.J. Super. 335, 350-51 (App. Div. 2010)
(approving pension board's use of twenty-factor test "which was originally set
forth by the [IRS] in Rev. Rul. 87-41, 1987-1 C.B. 296, 298-99, to determine
whether a . . . person was an employee whose service and salary was creditable
in PERS").
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employee eligible for PERS membership from 1986 until his retirement on

August 1, 2007.

During his testimony, Hamilton acknowledged knowing that he had to

have a break in service of thirty days. In fact, he sent a memorandum to the City

Council dated July 31, 2007, notifying it that he would not be at the August 2007

meeting that he would ordinarily attend because he had to have a break in service

for thirty days. However, Hamilton admitted that he did not adhere to the thirty-

day separation requirement. He admitted working on a matter for the City when

called upon to do so and billing accordingly. He stated candidly "[he] made a

mistake."

On September 10, 2019, the ALJ issued his initial decision in which he

found that the facts were essentially undisputed. After analyzing the twenty-

factor IRS questionnaire, the ALJ rejected the Board's contention that Hamilton

was ineligible for PERS membership for the duration of his career. Instead, the

ALJ determined that Hamilton "was an employee of the City" and "eligible to

be a member of PERS" from the time of his initial appointment in 1986.

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 However, the ALJ noted that under N.J.A.C. 17:2-6.2, "Hamilton was

required to separate from work for a thirty[-]day period" after his retirement.8

The ALJ explained:

It is undisputed that Hamilton continued to work for the
City . . . during the thirty[-]day period he was to
separate himself from employment. Hamilton candidly
admitted the same during his testimony. Invoices he
submitted show he billed the City during this period. It
is not important if one calculates the thirty[-]day period
from August 1, 2007 (the date he retired) or October 17,
2007 (the date the Board approved the retirement), as
bills submitted encompass this time frame.

Further, applying N.J.S.A. 43:15A-57.2(b), which allows a retiree to

become re-employed in a PERS-covered position while receiving a retirement

allowance as long as "the aggregate compensation does not exceed $15,000 per

year," the ALJ stated:

While it is true [Hamilton's] salary was never more than
$15,000 after he retired, it is not disputed that he earned
substantially more by submitted invoices for additional
services. Hamilton's reliance on the letter dated March
3, 2008 from . . . Czyzyk . . . is unfounded. The letter
does not address his additional income from the City.
Nor does it address the fact that he failed to make a
separation of service for the required thirty days.

8
See also N.J.A.C. 17:2-2.3(a)(7) (considering PERS members to be "retired
member[s]" if they have "not received compensation from employment covered
by the PERS for at least [thirty] consecutive calendar days").
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 Thus, the ALJ concluded that

Hamilton did not effectuate a bona fide retirement on
August 1, 2007, as he continued to work for the
City . . . as the municipal attorney during the period
between the date of his purported retirement of August
1, 2007 through November 16, 2007, the date the
thirty[-]day separation would have ended after the
Board's approval of his retirement; and, Hamilton
should have remained in PERS after 2007 rather than
receive a pension[] for doing the same work he did
before his purported retirement.

Accordingly, the ALJ ordered that Hamilton "should reimburse PERS for the

retirement benefits he received and . . . make appropriate pension contributions

for the period after August 1, 2007[,] through his continued employment with

[the City.]"

Hamilton filed exceptions to the initial decision, invoking equitable

estoppel. After reviewing Hamilton's exceptions, the Board abandoned its

attempt to disqualify Hamilton from PERS membership for his career, "adopted

the ALJ's [i]nitial [d]ecision" invalidating Hamilton's retirement, and sought

"reimburse[ment] for all retirement benefits . . . received beginning August 1,

2007 through his separation from employment in 2019."9

9
Hamilton left employment in May 2019, five months prior to his death.
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 In this ensuing appeal, Hamilton raises the following points for our

consideration:

POINT I:

A DE NOVO STANDARD OF REVIEW IS APPLIED
BY THE APPELLATE DIVISION TO AN AGENCY'S
DECISION WHICH WILL BE REVERSED WHEN
ITS DECISION IS ARBITRARY, CAPRICIOUS, OR
UNREASONABLE OR VIOLATES EXPRESSED OR
IMPLIED LEGISLATIVE POLICIES.

POINT II:

THE AUTOMATIC APPROVAL BY PERS OF THE
OAL'S INITIAL DECISION THAT FAILED TO
CONSIDER THE EQUITABLE ESTOPPEL
ARGUMENT PRESENTED BY [HAMILTON] IN HIS
POST HEARING BRIEF AND EXCEPTIONS TO
THE INITIAL DECISION WAS ARBITR[A]RY,
CAPRICIOUS AND UNREASONABLE AND
VIOLATED THE EXPRESSED AND IMPLIED
LEGISLATIVE POLICIES SET FORTH IN THE
AGENCY'S ENABLING LEGISLATION.

POINT III:

[HAMILTON'S] POST-RETIREMENT WORK
SHOULD NOT DISQUALIFY HIM FROM PERS.

POINT IV:

THE DETERMINATION BY PERS TO INCLUDE
[HAMILTON'S] POST-RETIREMENT 1099
INCOME IN HIS SALARY TO DISQUALIFY HIM
FROM RECEIVING HIS PENSION WAS
ARBITRARY, CAPRICIOUS AND

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 UNREASONABLE AND VIOLATED THE
EXPRESSED AND IMPLIED LEGISLATIVE
POLICIES SET FORTH IN THE AGENCY'S
ENABLING LEGISLATION.

POINT V:

PERS FAILED TO CONSIDER HAMILTON'S
EXCEPTION THAT EQUITABLE
CONSIDERATION SHOULD BE GIVEN IN
DETERMINING A FAIR RE-ENROLLMENT DATE
IF IT WERE NECESSARY.

II.

We begin our analysis by acknowledging the longstanding and well-

accepted principles of judicial review of administrative agency actions. "The

scope of that review is limited." In re Herrmann, 192 N.J. 19, 27 (2007). As

the Court observed in Herrmann, "[a]n administrative agency's final quasi-

judicial decision will be sustained unless there is a clear showing that it is

arbitrary, capricious, or unreasonable, or that it lacks fair support in the record."

Id. at 27-28. Thus, on appeal, our role is limited to the evaluation of three

factors:

(1) whether the agency's action violates express or
implied legislative policies, that is, did the agency
follow the law; (2) whether the record contains
substantial evidence to support the findings on which
the agency based its action; and (3) whether in applying
the legislative policies to the facts, the agency clearly

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 erred in reaching a conclusion that could not reasonably
have been made on a showing of the relevant factors.

[Id. at 28 (quoting Mazza v. Bd. of Trs., Police &
Firemen's Ret. Sys., 143 N.J. 22, 25 (1995)).]

When the agency's decision satisfies those criteria, we are obliged to afford

substantial deference to the agency's expertise and superior knowledge of a

particular field, even if we would have reached a different result from that

reached by the agency. Ibid.; In re Taylor, 158 N.J. 644, 657 (1999).

Against this backdrop, we acknowledge that appellate courts have

repeatedly recognized that as a matter of sound public policy, st atutes creating

pensions should be liberally construed in favor of those they are intended to

benefit. As long ago as 1969, our Supreme Court held that:

Pensions for public employees serve a public purpose.
A primary objective in establishing them is to induce
able persons to enter and remain in public employment,
and to render faithful and efficient service while so
employed. They are in the nature of compensation for
services previously rendered and act as an inducement
to continued and faithful service. Being remedial in
character, statutes creating pensions should be liberally
construed and administered in favor of the persons
intended to be benefited thereby.

[Geller v. Dep't of the Treasury, 53 N.J. 591, 597-98
(1969).]

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 The Court reiterated that principle in Klumb v. Board of Education, 199

N.J. 14, 34 (2009), as did we in Bumbaco v. Board of Trustees of Public

Employees' Retirement System, 325 N.J. Super. 90, 94 (App. Div. 1999),

Francois v. Board of Trustees, 415 N.J. Super. 335, 349 (App. Div. 2010), and

Bueno v. Board of Trustees, 422 N.J. Super. 227, 241-42 (App. Div. 2011).

"Thus, '[f]orfeiture of earned pension rights . . . constitutes a drastic penalty

which the New Jersey Supreme Court has become increasingly loath to permit .

. . unless that penalty has been clearly mandated by the Legislature.'" Bueno,

422 N.J. Super. at 242 (alteration in original) (quoting Fiola v. State, Dep't of

Treasury, Div. of Pensions, 193 N.J. Super. 340, 347-48 (App. Div. 1984)).

To that end, "[p]rinciples of equitable estoppel may . . . be applied to the

Board for its actions." Sellers v. Bd. of Trs. of the Police & Firemen's Ret. Sys.,

399 N.J. Super. 51, 59 (App. Div. 2008). "In numerous circumstances, the

courts have said that the government must 'turn square corners' in its dealings

with others, and 'comport itself with compunction and integrity.'" Sellers, 399

N.J. Super. at 59 (quoting F.M.C. Stores Co. v. Borough of Morris Plains, 100

N.J. 418, 426-27 (1985)). Indeed, "even with respect to public entities, equitable

considerations are relevant in evaluating the propriety of conduct taken after

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substantial reliance by those whose interests are affected by subsequent actions."

Ibid. (quoting Skulski v. Nolan, 68 N.J. 179, 198 (1975)).

Notably, our Supreme Court has held that considerations of equity and

fairness must temper the application of deadlines in the administration of the

pension fund. In Ruvoldt v. Nolan, 63 N.J. 171, 173-74 (1973), the Court

considered whether eight years after an assistant prosecutor retired on a

disability pension, the court-designated Receiver for the Hudson County

Employees Pension Commission was entitled to vacate and set aside the

disability pension granted by that body to the retiree, Harold J. Ruvoldt. Despite

evidence in the record suggesting that the Receiver's decision was correct and

that Ruvoldt was medically able to continue his work as an assistant prosecutor,

the Court declined to reach the merits of the controversy, instead concluding

that principles of equity and fairness rendered it "clearly unjust" to apply "a

substantive rule of disentitlement of pension against Ruvoldt" eight years after

the fact. Id. at 183.

The Court emphasized that the retiree's reliance on the pension board

decision, and the absence of "fraud or illegality" should play a role in

determining whether the refund of pension benefits should be required, and that

any review of pension eligibility "must be made with reasonable diligence."

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Ibid. (quoting Burlington Cnty. evergreen Park Mental Hosp. v. Cooper, 56 N.J.

579, 600 (1970)). The Court observed that even if the decision to approve the

pension had been clearly improper, "the question of overall fairness and justice

in the attendant circumstances cannot be overlooked" even in the face of

"diversion of public funds for statutorily unwarranted pensions." Id. at 184-85.

The Court held:

Eight years after the original administrative action the
course of events cannot be rerun. Had the pension been
denied Ruvoldt at the time as legally unwarranted, he
could have tried to obtain employment in non-trial legal
work from the county, and, if successful, achieved a
right to pension after seven additional years of service
. . . . Or he might possibly have been able to muster
medical proof that he was unfit to do full-time legal
work at all, whether trial or non-trial. We are not
assuming he would necessarily have been successful in
either of these endeavors. The point is that he lost the
chance when the pension was allowed. . . . It would be
essentially unjust to undo the pension grant so many
years later after such circumstances of reliance and
irremediable change of position as here manifested.

[Id. at 185.]

Here, having thoroughly reviewed the record presented, we are satisfied

that the agency's December 13, 2019 final decision is arbitrary and inequitable

and cannot be sustained. It is undisputed that Hamilton never sought to abuse

or manipulate the pension system. Indeed, he sought a determination by the

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Division regarding the validity of his hybrid post-retirement employment as

early as 2007 and was assured in 2008 by Czyzyk, a Division Supervisor of

External Audit, that Hamilton was "in compliance with the laws that govern

[PERS]." Czyzyk's determination was reached following an investigation of

Hamilton's post-retirement employment. Thus, we consider the ALJ's and, in

turn, the Board's rejection of Hamilton's reliance on Czyzyk's letter as a cramped

view of its import and contents. See Mastro, 266 N.J. Super. at 455 (holding

that the appellant's "justifiable reliance upon the advice of the Division of

Pensions in pursuing his retirement plans" constitutes "equitable considerations

which militate against" the Board's challenge notwithstanding the fact that the

appellant "retired from his public positions before receiving th[e] letter").

We are convinced that had Hamilton known the ramifications the Board

now seeks to impose upon him, he would have pursued an alternate course. See

Vliet v. Bd. of Trs., 156 N.J. Super. 83, 90 (App. Div. 1978) (holding that

although the retiree was not a temporary employee within the meaning of the

applicable pension law, and was consequently not entitled to the pension

payments he had received during a three-year period, requiring the retiree to

make a "total reimbursement would be inequitable" as it was "unlikely" that the

retiree "would have continued in part-time employment at $2000 a year if he

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had known that he would have to give up a pension of approximately $5300 a

year"); see also Mastro, 266 N.J. Super. at 455 (accepting the appellant's

testimony that "he could have been reappointed" by his former municipal

employers "on a non-salaried basis" if "the Board had told him [prior to his

retirement] that his performance of legal services for [the municipalities] would

result in the invalidation of his pension").

To be clear, we are neither validating the compensation terms that

Hamilton and the City agreed to in 2007 nor ignoring the strong public policies

and fiscal concerns that underlie the pension reform statutes. Instead, we rest

our decision on equitable grounds that are manifestly compelling in this case,

including the oft-stated principle that government "must turn square corners" in

its interactions with the public and the people directly affected by its decisions.

Sellers, 399 N.J. Super. at 59.

For decades, Hamilton served honorably in public service, and his honest

mistake in handling a few legal matters during the thirty-day interval should not

result in the catastrophic result that the Board demands of him. We also

conclude that the Board's nine-year delay in notifying Hamilton that, contrary

to the agency's previous determination, his retirement was not bona fide

exceeded the standards of reasonableness we expect of a public agency. Given

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the absence of bad faith on the part of Hamilton as well as Hamilton's legitimate

reliance on Czyzyk's assurance, the violation that occurred should not deprive a

career public servant and now his estate of his earned pension benefits. The

Board's decision to the contrary was arbitrary and capricious and the interests of

justice require it to be set aside in this exceptional situation.

Reversed.

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