Municipalities Liable for Frivolous Litigation Under New Jersey Frivolous Litigation Statute

Introduction

Borough of Englewood Cliffs v. Thomas J. Trautner (Supreme Court of New Jersey, decided May 7, 2025) resolves whether a New Jersey municipality can be sanctioned under the State’s Frivolous Litigation Statute (FLS), N.J.S.A. 2A:15-59.1, when it initiates and prosecutes a bad-faith complaint. After losing litigation over affordable‐housing obligations and censuring its own mayor and lawyers for that loss, the Borough filed a separate suit against its former attorneys and a builder. The trial court dismissed the pleadings as frivolous, awarded the defendants $216,484.45 in fees and costs under the FLS, and the Appellate Division affirmed. The Borough challenged that holding, arguing (1) it is not a “person” or “party” under the FLS because it is a “public entity,” and (2) sovereign‐immunity principles bar sanctions against a municipality. The Supreme Court granted certification and unanimously concluded that municipalities are both “persons” and “parties” subject to the FLS and enjoy no statutory or common‐law immunity from its sanctions.

Summary of the Judgment

Justice Fasciale, writing for a unanimous Court, affirmed the Appellate Division’s sanction award as modified. The Court held that:

Under N.J.S.A. 2A:15-59.1(a)(1)–(b), any “party” who prevails against “any other party” may recover fees and costs if the “nonprevailing person” or “nonprevailing party” brought frivolous claims. The terms “person” and “party” are used interchangeably in the FLS, and N.J.S.A. 1:1-2 defines “person” to include municipal corporations (boroughs, towns, etc.). Hence a borough is a nonprevailing party and a person subject to FLS sanctions.
The 1995 amendments added a standalone subsection (a)(2) to let nonparty “public entities” recoup defense costs when they must defend their employees. Those amendments do not confer immunity on municipalities that file frivolous suits.
Sovereign‐immunity principles do not shield municipalities from FLS liability. Although states enjoy Eleventh-Amendment immunity in federal court, municipalities do not. Under New Jersey law, judicially created immunity protects municipalities only for core governmental‐function decisions, not for prosecuting bad-faith lawsuits.

Analysis

1. Precedents Cited

Jinks v. Richland County (538 U.S. 456 (2003)) – Held that municipalities lack Eleventh-Amendment immunity in federal court, distinguishing them from states.
Willis v. Department of Conservation & Economic Development (55 N.J. 534 (1970)) – Recognized judicially created municipal immunity for governmental‐function torts, later supplanted by the Tort Claims Act for negligence actions.
Toll Bros., Inc. v. Township of West Windsor (190 N.J. 61 (2007)) – Described the dual punitive and compensatory purposes of the FLS.
In re K.L.F. (275 N.J. Super. 507 (Ch. Div. 1993)) – Earlier held that state agencies and subdivisions are subject to the FLS.
D.Y.F.S. v. P.M. (301 N.J. Super. 80 (Ch. Div. 1997)) – Held that the Division of Youth and Family Services, an executive agency, is exempt from the FLS under N.J.S.A. 2A:15-60 (cost bar for suits brought in the name of the State).

2. Legal Reasoning

a. Plain‐Text Interpretation
The Court began with the text of N.J.S.A. 2A:15-59.1(a)(1)–(b). Subsection (a)(1) entitles a prevailing “party” to costs and fees when a judge finds that a complaint of a “nonprevailing person” was frivolous. Subsection (b) sets forth the bad‐faith or baseless standards, referring to the “nonprevailing party.” Reading these sections together, the Court held that “person” and “party” are interchangeable within the FLS’s remedial scheme. Further, N.J.S.A. 1:1-2 defines “person” to include corporations, and “municipal corporation” to include boroughs. Therefore the Borough is both a “party” and a “person” under section (a)(1).

b. 1995 Amendments Do Not Create Immunity
The Legislature added subsection (a)(2) to allow nonparty public entities to recover fees when required to defend employees, and amended subsection (c) to let “party or public entity” apply for relief. Sponsor statements confirm these changes target nonparty entities, not immunize litigating municipalities.

c. Sovereign Immunity vs. Municipal Immunity
Eleventh‐Amendment immunity protects sovereign states in federal court but does not extend to municipalities. New Jersey’s own sovereign‐immunity doctrine likewise does not reach municipalities’ private lawsuits; common‐law municipal immunity covers only discretionary governmental acts (e.g., road design, zoning decisions) and does not protect misconduct in litigation. The Borough’s bad-faith claims fall outside any immunity.

3. Impact

Deterrence of Frivolous Municipal Suits: Municipalities now know they can be sanctioned under the FLS when they pursue groundless litigation in bad faith.
Clarification of “Party/Person” Scope: All nonprevailing “persons” and “parties,” including municipal corporations, may be held liable for frivolous litigation costs as part of the FLS’s deterrent and compensatory aims.
Limits on Immunity Doctrines: The decision confirms that New Jersey will not extend sovereign or municipal immunity to shield governmental units from sanctions for malicious or harassing lawsuits.
Guidance for Litigators and Municipal Counsel: Municipal attorneys must counsel clients that the FLS applies equally to boroughs and townships, and that strategic misuse of the courts may trigger fee shifting.

Complex Concepts Simplified

Frivolous Litigation Statute (FLS): A New Jersey law that punishes parties who file baseless or bad-faith lawsuits by shifting all reasonable attorney fees and costs to them if the court finds the claim frivolous.
Nonprevailing Party/Person: The litigant whose claims or defenses fail and who is found to have acted in bad faith or without any reasonable legal basis.
Sovereign Immunity: A doctrine that ordinarily protects a sovereign state from being sued without its consent; under the U.S. Constitution’s Eleventh Amendment, states—but not municipalities—are immune in federal court.
Municipal Immunity: A limited common‐law protection shielding municipalities from tort liability for discretionary governmental acts (e.g., policymaking), but not from sanctions for initiating bad-faith litigation.

Conclusion

Borough of Englewood Cliffs v. Trautner establishes a clear precedent: New Jersey municipalities and municipal corporations have no special exemption from the State’s Frivolous Litigation Statute. When a borough or township files or maintains a complaint in bad faith—to harass, delay, or maliciously injure—courts may impose all reasonable litigation costs and attorney fees upon that municipality. This decision reinforces the FLS’s twin goals of deterring frivolous litigation and compensating victims, while reaffirming that neither statutory text nor immunity doctrines place municipal litigants beyond its reach. Going forward, municipal counsel must weigh these sanctions risks carefully before advancing claims lacking any reasonable legal basis.