Jessica M. Karmasek Mar. 12, 2013, 7:27pm

TRENTON, N.J. (Legal Newsline) -- The New Jersey Supreme Court ruled last week that each sewage company that serves a property -- whether through a direct or indirect connection -- may charge a non-duplicative connection fee that reflects the use of its system and contributes to its cost.

In this case, the connection fee was paid into an escrow account by plaintiff 612 Associates.

The state's high court, in an opinion filed Thursday, affirmed an appeals court's ruling and a split of the fee by a trial court.

In 2007, 612 Associates was constructing a condominium complex on Union City property near the border of North Bergen Township. The complex needed to connect with a sewer system.

The topography of the site would cause sewage to naturally flow toward the North Bergen Treatment Plant, rather than the North Hudson Regional Sewage Plant, so 612 completed an application with the North Bergen Municipal Utilities Authority, or North Bergen MUA.

However, because the property was located in Union City, the complex was required to be connected to Union City sewer lines that were owned by North Hudson Regional Sewerage Authority, or North Hudson SA.

From the condominium complex, the sewage would flow through the North Hudson SA pipeline for about 300 feet until reaching the North Bergen MUA sewer lines, which would transport the sewage to the North Bergen MUA treatment plant.

About 95 percent of the lines through which the sewage would travel would be physically located in North Bergen and owned by the North Bergen MUA.

A dispute arose between North Bergen MUA and North Hudson SA as to which authority was entitled to collect the statutorily-authorized connection fee.

In claiming entitlement to the fee, North Hudson SA relied on the statute governing sewage authorities and North Bergen MUA relied on the statute governing municipal utilities authorities.

In an effort to resolve the dispute so that it could complete the complex, 612 filed a complaint against both entities and requested permission to deposit the connection fee into an escrow account.

The parties entered into a consent order, and 612 deposited $157,129 into an escrow account, leaving the two authorities to litigate their entitlement to the fee.

In 2008, after analyzing the statutes, a trial court agreed with North Hudson SA that it was entitled to the fee because the property was directly connected to its lines.

On appeal, North Bergen MUA argued that the trial court failed to consider the purpose of the fee, which was to permit the authorities to recoup the capital costs of building the collection and treatment systems.

In a published decision, the state's Appellate Division reversed the trial court's decision and held that both entities were entitled to charge connection fees.

Because the parties had entered into the consent order that allowed payment of the fee into escrow, however, the appellate panel concluded that no further fee could be imposed on the plaintiff.

The panel remanded the matter to the trial court to devise a method to apportion the escrowed sum between the entities.

The Supreme Court then granted North Hudson SA's petition for certification, granted leave to supplement the record with new information, and remanded the matter for the Appellate Division panel to consider the information.

The panel remanded to the trial court for an evidentiary hearing.

After a hearing, the trial court concluded that the information did not resolve the issue and it created a formula to divide up the fee.

Under the formula, North Hudson SA was entitled to 27.1 percent of the escrowed amount and North Bergen MUA was entitled to 72.9 percent.

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

The state's high court then granted North Hudson SA's second petition for certification.

Justice Helen Hoens, writing for a unanimous Court, said the justices were not persuaded that the Legislature did not intend that the connection fee could only be imposed by the entity that owned or operated the particular lines to which any user was directly connected.

"The essential purpose (of a connection fee) is to permit an authority that has developed the sewage collection and treatment system to recover capital costs and related debt service associated with developing that system. It is designed to create a mechanism to permit those costs to be fairly spread across those properties that connect with and use the system," she explained in the Court's 32-page opinion.

"It would simply not advance that legislative goal to permit a system that merely carries sewage through its sewer lines for a few hundred feet to impose a portion of the capital costs for its entire collection and treatment system on a direct connector while prohibiting the adjoining authority that actually treats the sewage at its treatment facility from recovering any part of its capital costs from that user."

Hoens said not only would such an interpretation of the statutes be "inconsistent" with the legislative intent, it also would lead to an "unfair imposition" of capital costs among users.

"The users that directly connect to a system that treats their sewage would effectively be subsidizing the users that benefit from the treatment facilities but that access them indirectly," she wrote. "At the same time, those users would be subsidizing the treatment facility developed and maintained by the system to which they directly connect but which they do not actually use.

"Neither result would comport with the legislative intent; neither would be in accord with the principles of fairness that we have previously held must be considered in construing these statutes."

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