PENPAC, INC. v. PASSAIC COUNTY UTILITIES AUTHORITY

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3861-06T33861-06T3

PENPAC, INC.,

Plaintiff-Respondent,

v.

PASSAIC COUNTY UTILITIES

AUTHORITY,

Defendant-Appellant.

_______________________________________

 

Argued April 29, 2008 - Decided

Before Judges Fuentes, Grall and Chambers.

On appeal from Superior Court of New

Jersey, Law Division, Passaic County,

L-2040-05.

Ted Del Guercio, III argued the cause for

appellant (McManimon & Scotland, attorneys;

Mr. Del Guercio, on the brief).

Robert J. Beacham argued the cause for

respondent (Nee, Beacham & Gantner, attorneys; Mr. Beacham, on the brief).

PER CURIAM

Defendant, the Passaic County Utilities Authority (PCUA), appeals from a final order of the Law Division that requires the PCUA to transfer funds in specified bank accounts and assign future payments due on a mortgage to plaintiff PENPAC, Inc. The order implements a writ of mandamus that requires the PCUA to satisfy a judgment obtained by PENPAC. We affirm substantially for the reasons stated by Judge Humphreys in his written opinion of March 2, 2007.

The PCUA was established in 1987, pursuant to the Municipal and County Utilities Authorities Law, N.J.S.A. 40:14B-1 to -78 (MCUA). The PCUA was to administer Passaic County's solid waste management plan, which was adopted pursuant to a comprehensive statutory and regulatory scheme. In re Passaic County Utils. Auth., 164 N.J. 270, 274-75 (2000). PENPAC provided solid waste transfer station operations and transportation services to PCUA. At first, PENPAC's compensation was fixed by contract; subsequently, PENPAC was compensated at interim rates fixed by the Commissioner of the Department of Environmental Protection (DEP) and subject to adjustment. See Penpac, Inc. v. Passaic County Utils. Auth., 367 N.J. Super. 487, 493 (App. Div.) (discussing the Commissioner's authority and determinations and the facts relevant to the debt), certif. denied, 180 N.J. 457 (2004).

The debt PCUA owes PENPAC is for services rendered by PENPAC. The amount due PENPAC is not in dispute. It was fixed by the Commissioner of the DEP, and affirmed by this court, which remanded for a determination of interest and consideration of additional payments that might be due. Penpac, supra, 367 N.J. Super. at 511-12. Subsequent to the Commissioner's decision on remand, PENPAC commenced an action in the Law Division and on August 15, 2006, obtained a judgment in the amount of $3,495,105, which included debt in the amount affirmed by this court and interest fixed by the Commissioner.

PCUA did not pay the judgment, and PENPAC sought further relief from the court. On October 6, 2006, Judge Humphreys granted PENPAC'S motion for a writ of mandamus compelling the PCUA to satisfy the judgment. He scheduled a plenary hearing on implementation to address PCUA's claim of inability to pay the $3,495,105 judgment. According to the PCUA, it had some sixty-five million dollars in bonded debt, and all of its assets were pledged to repay the bonds and unavailable to pay the debt. Based on the evidence presented at the hearing, Judge Humphreys identified accounts and mortgage payments due to PCUA that were not so pledged and ordered PCUA to transfer funds in those accounts and assign payments due on the mortgage to PENPAC.

Judge Humphreys stayed the transfer and assignment pending this appeal but enjoined the PCUA from using the funds. This court denied PCUA's motion to modify that stay. The parties advise that the Supreme Court had not acted on PCUA's subsequent motion for relief from this court's order when briefs were filed on appeal.

The following facts are based on the evidence adduced during the plenary hearing on implementation. The PCUA presented two witnesses, a commissioner and an auditor for the PCUA.

The PCUA no longer provides any services and has no operating income, employees or offices. The PCUA exists only "to regenerate bond[s] or revenue to pay off past debt." The PCUA's only revenue stream is $323,352 per year it receives as payment on a mortgage. The PCUA uses the mortgage payments to pay fees for auditors, bond counsel, general counsel and a financial advisor. It estimated the cost for 2006 and 2007 at $224,745. The PCUA's bills are paid by the Passaic County finance department, and the PCUA has never reimbursed the County. The auditor has "no reason to believe" the County would pay PCUA's operating expenses that exceed the amount budgeted.

The PCUA did not include the PENPAC judgment in its budget for 2006 or 2007, and the commissioners have never discussed how to pay that judgment. PCUA has never requested assistance with payment of its debt to PENPAC from the County or any State agency or board.

The County has guaranteed PCUA's outstanding bond obligations. The PCUA's debt on bonds issued in 1991 was fully paid by November 2006. According to the commissioner, all of PCUA'S bond debt will be paid by 2033 or 2034, unless new debt is generated. In the opinion of the auditor, but for the County's guarantee, the bonds would be deemed to have the value of junk bonds.

There is no dispute about the identity of assets that PCUA presently holds. In December 2005, the PCUA had $2,829,854 on deposit in various accounts and monthly payments due in the total amount of $323,352 per year on a mortgage that will be satisfied in 2009. The question is whether Judge Humphreys erred by ordering PCUA to transfer funds held in select accounts, which we describe below, and assign the remaining payments due on the mortgage.

The PCUA has accounts in Bank of America (formerly Fleet Bank), which its auditor described as "unrestricted accounts." These accounts contain about $1.7 million dollars. According to the auditor, the funds are available for any obligation.

PCUA's auditor described a second group of accounts held by the Bank of New York as "dormant." Each account in this group was opened and pledged when bonds were issued. All of the bonds associated with these accounts are paid, and these interest bearing accounts hold the excess funds. The auditor acknowledged that these funds are not necessary for their original pledged purpose, but he claimed that PCUA ought to have moved the funds into a restricted account to meet the bond debt service.

The mortgage is a note receivable paid at the rate of $26,946 per month or $323,352 per year. The full amount will be paid in 2009. As previously noted, the money is used for payment of PCUA's operating expenses and professional services, not debt service. The PCUA does not have a plan for payment of those expenses after 2009. PCUA's auditor initially testified that this money is not pledged to PCUA's bondholders but later indicated that he was not certain about whether the mortgage payments were pledged.

PCUA declined to respond to Judge Humphreys' request for a proposal from PCUA for payment of its debt to PENPAC over a period of time or from a source other than its holdings. Judge Humphreys aptly summarized PCUA's position as an assertion that the PCUA did not have the money and was not going to pay.

Judge Humphreys rejected PCUA's claim that the relief PENPAC sought was barred by N.J.S.A. 40:14B-59. The statute provides that the property of a "municipal authority" is "exempt from levy and sale by virtue of an execution and no execution or other judicial process shall issue against the same . . . ." Ibid.; see N.J.S.A. 40:14B-3(5) (defining the term "municipal authority" to include county utility authorities organized pursuant to N.J.S.A. 40:14B-4, -5 or -6); Passaic County, supra, 164 N.J. at 282 (noting that the PCUA was organized pursuant to N.J.S.A. 40:14B-6). Relying upon Jersey Cent. Power & Light Co. v. Kingsley Arms, Inc., 271 N.J. Super. 68 (Law Div. 1993), Judge Humphreys concluded that N.J.S.A. 40:14B-59 did not preclude issuance of a writ of mandamus directing the PCUA to pay a judgment to which PENPAC had a right. See id. at 72 n.1, 78-84 (construing a statute with a nearly identical exemption against execution and levy to permit enforcement of a debt by an action in lieu of a writ of mandamus); see also First Nat. Bank of Chicago v. Bridgeton Mun. Port Authority, 338 N.J. Super. 324, 329 (App. Div.) (noting that statutes that prohibit levy and execution permit enforcement of loans by writ of mandamus), certif. denied, 168 N.J. 295 (2001); Grosso v. Paterson, 59 N.J. Super. 412, 414-16, (Law Div.) (recognizing the obligation of a public entity to provide a means for payment of its debts), aff'd, 33 N.J. 477 (1960).

PCUA's claim that its bond and note resolutions amounted to a pledge of "all of its assets" was also rejected. Judge Humphreys concluded that neither evidence of the manner in which PCUA acquired and handled the funds nor the language of the resolutions supported that claim.

PCUA raises the following issues on appeal:

I. THE MANDAMUS RELIEF, AS IMPLEMENTED, IS

TANTAMOUNT TO A DIRECT LEVY AND EXECUTION ON THE ASSETS OF THE AUTHORITY IN VIOLATION OF THE MUA LAW, PURSUANT TO N.J.S.A. 40:14B-59.

II. THE AUTHORITY'S ASSETS, REGARDLESS OF

SEMANTICS OR CLASSIFICATION, ARE VALIDLY PLEDGED PROPERTY TO SECURE ITS BONDS AND RELATED DEBT SERVICE OBLIGATIONS; THIS SHOULD HAVE BEEN CONSIDERED BY THE TRIAL COURT IN IMPLEMENTING MANDAMUS RELIEF.

III. THE AUTHORITY IS AN INDEPENDENT COUNTY

UTILITIES AUTHORITY RESPONSIBLE FOR ITS OWN DEBTS AND EXPENSES UNLESS VOLUNTARILY ASSUMED BY ANOTHER ENTITY; THIS FACTOR SHOULD HAVE BEEN CONSIDERED IN EQUITABLY IMPLEMENTING MANDAMUS RELIEF SO AS NOT TO HARM THE AUTHORITY'S ABILITY TO PAY ITS OWN EXPENSES.

IV. MANDAMUS RELIEF, AS IMPLEMENTED,

EFFECTIVELY DEPRIVES THE AUTHORITY OF SOME $2.4 MILLION, MONIES WHICH COULD HAVE BEEN ROLLED OVER AND APPLIED TO DEFEASE BOND DEBT SERVICE TO REDUCE FUTURE BOND ISSUES AS PART OF THE AUTHORITY'S LONG TERM DEBT PLAN; THAT DEPRIVATION DE FACTO COMPELS THE AUTHORITY TO BOND TO MATCH THOSE AMOUNTS, IN VIOLATION OF THE SEPARATION OF POWERS.

We reject these arguments substantially for the reasons stated by Judge Humphreys. We add only the following observations on the arguments presented to us.

N.J.S.A. 40:14B-59 denies a judgment holder the right to relief by execution and levy but not by writ of mandamus. See First Nat. Bank, supra, 338 N.J. Super. at 328-29 (noting that statues such as N.J.S.A. 40:14B-59 further the common law principle that protects government from seizure of land and personal property used to provide services and do not deprive a judgment creditor of relief by way of writ of mandamus); County of Camden v. Jersey Port Corp., 312 N.J. Super. 387, 389, 399-400 (App. Div.) (concluding that the holder of a judgment against a port corporation could not levy against the equipment needed to keep the port operational), certif. denied, 157 N.J. 542 (1998).

The PCUA, having offered no plan to satisfy or diminish the debt it owed PENPAC, is in a poor position to argue that the order implementing the mandamus was inequitable. PCUA simply claimed that it could not pay. The court was required to and did consider "the equities, the efficacy or futility of the judgment and [ ] whether the mandatory judgment will conduce to substantial justice or, on the contrary, tend toward injustice, hardship, or oppression." Evans v. Villani, 19 N.J. Super. 86, 93 (App. Div. 1952). There was no evidence that the implementing order would have any impact on public services or the bondholders.

PCUA did not establish that the funds that it is compelled to transfer were pledged to bondholders. There was no evidence that PCUA treated the assets at issue as if they were pledged; the evidence supports an inference to the contrary. PCUA's argument based on language in the bonding documents is limited to Section 401 of a Project Note Resolution. Section 401, however, applies only to specific accounts identified in Section 402 of the document and held by a trustee. PCUA does not explain how or why the accounts at issue here are among the accounts identified in Section 402, and none of the funds were held or controlled by a trustee.

Finally, PCUA's objection based upon a violation of separation of powers is wholly lacking in merit. The court required the PCUA to make transfers and an assignment in satisfaction of the judgment the PCUA continued to assert it could and would ignore. The court tapped unpledged funds and did not compel PCUA to take any action to replenish those funds. Accordingly, PCUA's reliance on Warren County Cmty. Coll. v. Warren County Bd. of Chosen Freeholders, 350 N.J. Super. 489 (App. Div. 2002), mod. and aff'd 176 N.J. 432 (2003), is misplaced. In that case, this court reversed an order compelling the board of freeholders to either tax or issue bonds to fund a project. Id. at 494. This court reasoned that the trial judge had exercised discretion committed to the board and intruded upon its legislative authority. Id. at 507-08. Judge Humphreys' order includes no provision that could be construed as having an impact of that sort. The limitations imposed by the separation of powers doctrine that are inherent in every mandamus action, were not exceeded here. See Ironbound Health Rights Advisory Comm'n v. Diamond Shamrock Chem. Co., 216 N.J. Super. 166, 175 (App. Div. 1987) (citing Gilbert v. Gladden, 87 N.J. 275, 281 (1981)).

Affirmed. The stay in place is continued for twenty days from the date of this decision to permit the PCUA to file a petition for certification. If the petition is filed within twenty days, the stay shall be continued until such time as the Supreme Court disposes of the case or enters an order dissolving the stay.

 

The statutes authorizing the system are the Solid Waste Management Act, N.J.S.A. 13:1E-1 to -178, and the Solid Waste Utility Control Act, N.J.S.A. 48:13A-1 to -13, which were adopted in 1970.

PCUA's financial problems arose in the aftermath of a federal court decision invalidating this State's solid waste regulatory scheme. See Passaic County, supra, 164 N.J. at 275 (discussing the federal case). The dismantling of the State's system resulted in a "drastic reduction" in the revenue of PCUA and other authorities established for the same purpose. Ibid. As a consequence, the PCUA and like authorities were left at risk of default on the bonded debt incurred to plan and construct solid waste facilities. Id. at 275-76. PCUA implemented a plan for surcharges to compensate for the lost revenues, but that plan was invalidated by the Supreme Court. Id. at 306-07.

PCUA and PENPAC agree that several accounts with the Bank of New York are pledged to PCUA's bondholders. The order at issue does not require PCUA to transfer those accounts.

(continued)

(continued)

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A-3861-06T3

May 23, 2008