Borough can’t reclaim water utility

By Ron Leir

Observer Correspondent


After spending nearly two and a half years in court and at least $100,000 in legal fees, North Arlington has lost its bid to cancel the sale of the borough’s water utility to the Passaic Valley Water Commission.

Now, at the court’s direction, both sides will meet to negotiate other legal issues arising from the 2004 sale, including unpaid permit fees the borough says it’s owed by the utility, and an ancillary access agreement that clarifies the utility’s responsibilities to the borough.

Mayor Peter Massa said: “We’ll continue to mediate toward a settlement on handling street openings, use of cops on an overtime basis, maintenance of hydrants, and getting proper permits.”

Those talks have been delegated to Borough Attorney Doug Bern, after that the mayor and Borough Council voted last month to sever former Borough Attorney Randy Pearce from the litigation.

As Massa put it, “We approved a resolution to have [Pearce’s] role terminated so the balance of the case could be handled by Bern.”

The May 9 resolution was approved on party lines: the four-member Democratic majority carried it by a 4-2 margin.

Massa said that the borough has already provided Pearce’s law firm with “about $100,000” in compensation for work on the case.

In December 2010 – nearly six years after it sold the water utility to the PVWC for about $4 million – the borough sued the PVWC for alleged breach of contract related to the sale price, lack of an ancillary services agreement and failure to properly maintain the system.

But in her May 2 ruling, Superior Court Judge Margaret Mary McVeigh, sitting in Passaic County, dismissed the borough’s complaint, concluding that, despite North Arlington’s allegation that there were misrepresentations about the purchase price, she could find “no evidence of fraud by the PVWC.”

While the borough argued that it got a bum deal from its negotiations with the PVWC, the court said it wasn’t obliged to “create a better agreement for the parties that they negotiated for themselves.” And it could always have walked away, the court said.

As for North Arlington’s argument that it ended up getting stuck with a deal made by then-sitting government without public bidding, the court noted that the borough “has not come forward with any facts to demonstrate … that 1) there were other parties interested in purchasing [its] water system; or 2) North Arlington missed a better opportunity to sell the water system by relying on the facts at the time of closing.”

“Additionally,” the court went on to say, “… North Arlington has failed to establish … why it took nearly six years after the contract was executed for North Arlington to challenge PVWC ….” While the borough argued that its residents have suffered since the sale by having to pay water rates higher than other municipalities, the court noted that, “At no time since the closing has North Arlington ever filed an application [to reduce the rates] before the PVWC ….”

After the sale, the court noted, PVWC employees were in the borough “changing meters, conducting road maintenance, and re-lining water lines” even in the absence of an ancillary services agreement. “While violations of municipal ordinances were noted [for allegedly failing to get permits for the work], no action [by North Arlington] was taken in 2005, 2006, 2007, or 2008.”

Straightening out that shortcoming is what the borough now hopes to achieve through negotiations with the utility instead of spending more money to appeal the court ruling, Massa said.

“The borough has not completely ruled out an appeal, but at this time we feel it is more financially prudent to pursue a negotiated settlement with the PVWC that will, hopefully, yield better service for our community,” Massa said.

The negotiations will touch on fees that the borough says the utility should have been paying it for road opening permits that could reach an estimated “low six figures,” according to Bern. Those permits are required whenever a the utility digs up a street to repair water lines.

The talks will also deal with what the borough characterized as “close out costs” from the last quarter of 2004. The borough says it’s owed money the PVWC collected from property owners in the closing months of 2004 while the PVWC contends the borough owes it money for water used by the borough water utility.

Both sides are due to meet in mid-July with former Superior Court Judge Daniel Mecca, who will serve as a court-appointed arbitrator to try to settle their differences.

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