612 Associates, L.L.C. v. North Bergen Municipal Utilities Authority, A-13 September Term 2011; Supreme Court; opinion by Hoens, J.; decided March 7, 2013. On certification to the Appellate Division, 404 N.J. Super. 531 (App. Div. 2009). [Sat below: Judges Cuff, Fisher and Baxter in the Appellate Division.] DDS No. 37-1-xxxx [35 pp.]

The court determines which of two independent entities was entitled to collect a sewage connection fee where both entities played a role in the handling of the property’s sewage.

Plaintiff 612 Associates was constructing a condominium complex in Union City near the border of North Bergen Township. Plaintiff completed an application with the North Bergen Municipal Utilities Authority (North Bergen MUA). However, the complex was required to be connected to Union City sewer lines that were owned by North Hudson Regional Sewerage Authority (North Hudson SA). Therefore, the sewage would flow through the North Hudson SA pipeline for approximately 300 feet until reaching the North Bergen MUA sewer lines, which would transport the sewage to the North Bergen MUA treatment plant.

A dispute arose as to which authority was entitled to collect the statutorily authorized connection fee. Plaintiff filed a complaint against both entities and requested permission to deposit the connection fee in an escrow account. The parties entered into a consent order, and plaintiff deposited $157,129 into an escrow account, leaving the two authorities to litigate their entitlement to the fee.

The trial court found North Hudson SA was entitled to the fee because the property was directly connected to its lines. The Appellate Division reversed the decision and held that both entities were entitled to charge connection fees. Because of the consent order, the appellate panel concluded that no further fee could be imposed on plaintiff and remanded to the trial court to apportion the escrowed sum.

The Supreme Court granted North Hudson SA’s petition for certification, granted leave to supplement the record with new information, and remanded to the Appellate Division. The panel remanded to the trial court for an evidentiary hearing, following which the court concluded the information did not resolve the issue and created a formula to divide the fee whereby North Hudson SA was entitled to 27.1 percent of the escrowed amount and North Bergen MUA was entitled to 72.9 percent.

The Appellate Division declined to reconsider its earlier decision that an equitable apportionment was required, and left undisturbed the methodology used by the trial court to divide the fee.

The Supreme Court granted North Hudson SA’s second petition for certification.

Held: Each sewerage authority that serves a property for the purpose of handling and treating sewage, whether through a direct or indirect connection, may charge a nonduplicative connection fee that reflects the use of its system and contributes toward its system’s cost.

Sewerage authorities and municipal utilities authorities are governed by the Sewerage Authorities Law, N.J.S.A. 40:14A-1 to -45, and the Municipal and County Utilities Authorities Law, N.J.S.A. 40:14B-1 to -78, respectively. Part of the overall statutory scheme grants permission to these authorities to charge users fees in connection with the sewerage services that they provide. One of the charges, the connection fee, is intended to assist the authorities to defray the capital costs involved in building the sewage collection and treatment systems themselves.

Reviewing the history of the statutory provisions, including court opinions that influenced amendments and sponsor and committee statements, the court discerns a legislative intent that connection fees be calculated to effect a fair and reasonable contribution toward the costs of the system by all users. Each authority that serves a property, directly or indirectly, is permitted to charge a connection fee that represents a fair payment toward the cost of the system. A fair payment must be one that reflects the use of each system and is not duplicative.

The capital costs must be divided between costs of a collection system and costs of the treatment facility and its associated trunk lines. Each connection fee must be tied to the cost of that part of the system that the particular connector uses. A property that merely has sewage transported for a distance through the piping system of one authority will be assessed based on the costs of that entity’s collection system, but it will not be charged for the costs of that entity’s system that it does not use. By the same token, the same property may be charged a connection fee by the authority that actually treats the sewage. The fee must reflect a portion of that entity’s capital costs for its piping system and its treatment facility, consistent with the property’s use. Finally, an authority that operates only a collection system and the authority that operates the treatment facility each will be permitted to assess their connection fee to defray capital costs.

Here, the court finds that both North Bergen MUA and North Hudson SA were entitled to collect a connection fee tailored to the statutory criteria that govern the cost of the connection and the fair payment toward the costs of the system. The court also finds that by obtaining permission to pay the connection fee into an escrow account, 612 Associates essentially created an interpleader action in which the two authorities could dispute which of them was entitled to the fee, thereby relieving it of any further obligation. As such, a connection fee that might or might not represent the full fee under the court’s reading of the statutes became the entire fee, requiring that the Law Division divide that sum.

The judgment of the Appellate Division is affirmed, as modified.

Chief Justice Rabner, Justices LaVecchia and Patterson, and Judge Rodriguez, temporarily assigned, join in Justice Hoens‘ opinion. Justice Albin and Judge Cuff, temporarily assigned, did not participate.

For appellant — Alan L. Zegas (Zegas and Leanza & Agrapidis; Zegas, Judson L. Hand and Frank Covello on the briefs). For respondent — William J. Conway (Johnson & Conway). For amici curiae: Bergen County Utilities Authority — E. Neal Zimmermann (Waters, McPherson, McNeill; Laurence R. Maddock on the brief); Warren Township Sewerage Authority — Debra J. Surgan (Post, Polak, Goodsell, MacNeill & Strauchler; Robert A. Goodsell of counsel); New Jersey Builders Association — Paul H. Schneider (Giordano, Halleran & Ciesla).