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A Philadelphia attorney has helped a water company win a $6.6 million arbitration award against two municipalities after its agreement with them was terminated. The award was handed down against the city of Scranton, Pa., and the Borough of Dunmore for unamortized funds that existed at the termination of an agreement to privately run a sewer system. AmericanAnglian Environmental Technologies, a subsidiary of South Jersey-based American Water Services Inc., gave the financially troubled city an $8 million concession fee up front in return for the contract, according to the company’s attorney, Jeff Lutsky of Stradley Ronon Stevens & Young. When the agreement expired after five years, the company wanted the unpaid portion of that sum. AmericanAnglian was helped by the fact that the contract was determined ambiguous regarding the dates outlined for termination and repayment. That ambiguity allowed for the inclusion of extrinsic evidence by arbitrator Donald E. Ziegler, a retired chief judge of the Western District of Pennsylvania, according to his decision. The case was AmericanAnglian Environmental Technologies v. The City of Scranton and the Borough of Dunmore. “[W]e find the evidence preponderates that the parties intended and agreed that the municipal parties would pay the unamortized portion of the concession fee in the sum of $6,628,207 at the end of the five year term of the contract,” Ziegler said. AmericanAnglian was invited to run Scranton’s sewer system when the city decided to privatize it to help alleviate financial trouble, according to Lutsky. He said the city was operating in a distressed status and accepted a concession fee at the beginning of the five-year professional services agreement for $8 million. The fee was split between Scranton and Dunmore, with 80 percent going to Scranton and 20 percent to Dunmore, Lutsky said. The agreement was set for five years with the option of extending it through 20 years in five-year increments. If the agreement lasted through the 20 years, Lutsky said the concession fee would have been paid back through the service fees paid to AmericanAnglian for running the facility. According to Lutsky, if the agreement were to be terminated or not renewed, Scranton and Dunmore would have had to pay back the unamortized portion of the concession fee. At the end of the first five-year term in 2004, the two sides mutually agreed not to renew the contract, according to the decision. AmericanAnglian then asked for the unamortized portion of its concession fee, and according to Lutsky, Scranton and Dunmore refused based on a different interpretation of the contract. The contract required that the two parties go directly to arbitration, and they mutually agreed upon Ziegler, Lutsky said. The municipalities argued that dates outlined in the agreement were inconsistent with the timeline for termination notification and repayment outlined in a separate addition to the agreement, according to the decision. AmericanAnglian agreed that there was a mistake in the agreement, which was not written by Stradley Ronon attorneys, but said it was the fault of both of the parties. “American Water next argues that Schedule J of the contract contains an obvious drafting error concerning the date and circumstances on which the termination fee is payable, and, after reviewing the provisions of the contract as a whole and the extrinsic evidence of record, the intent of the parties demonstrates that the parties intended to provide for payment of a termination fee,” Ziegler said. The municipalities argued that AmericanAnglian counsel found the error several months after the agreement was signed and failed to bring it to the attention of the municipalities, Ziegler said. “Respondents rely on the rule of law that, where an alleged mistake is unilateral and not mutual, and the fault is due to the negligence of the party who acted under the mistake and not the innocent party, there is no basis for relief,” Ziegler said, citing a 1969 state Superior Court case, McFadden v. American Oil Co. The municipalities also argued the contract was clear, and the plain language of the agreement showed AmericanAnglian did not meet the deadline for notice of termination of the contract, according to the decision. They argued that extrinsic evidence should not be included. Ziegler said the agreement was ambiguous and extrinsic evidence was needed. He found that the parties agreed to three different events that could occur during the initial five years — termination, expiration or renewal — according to the decision. AmericanAnglian was required to give notice 180 days prior to termination, but according to Ziegler, that timeline did not apply to the expiration of the agreement. “The evidence preponderates that Schedule J sets forth the dates by which termination must be exercised, but there is nothing in Schedule J that mentions expiration,” Ziegler said. He also relied on letters and court documents that contained discussions between the two parties agreeing that the termination fee be paid at the end of the five-year term if there was no renewal. Ziegler said that although the municipalities presented witnesses who testified that they never intended nor agreed to pay the termination fee, he found “their testimony bore the burden of bias and interest in the outcome.” “More importantly, the more persuasive evidence of record concerning what the parties intended can be found in their written rather than their spoken words,” Ziegler said. Lutsky said the ruling was the right one because the parties had clearly negotiated for a termination fee. “It was the only fair thing to do in light of the money we put up front,” Lutsky said, adding that the people of Scranton already benefited from the $8 million concession fee. He said an appeal is unlikely because the few allowances for appeal in an arbitration case do not exist in this instance. Associate Jeff Grossman joined Lutsky in representing AmericanAnglian. The municipalities’ counsel, George Reihner of Wright & Reihner in Scranton, was not available for comment. He was joined in his representation by Frank Tunis of the same firm.

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