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Lewandowski v. Brookwood Musconetcong River Property Owners'' Association

Decided: June 4, 1962.

SIGMUND LEWANDOWSKI, LUCILLE ACHTZEHN, WILLIAM VAIL AND JOSEPH KASSAKIAN, PETITIONERS-RESPONDENTS,
v.
BROOKWOOD MUSCONETCONG RIVER PROPERTY OWNERS' ASSOCIATION, A CORPORATION NOT FOR PECUNIARY PROFIT ORGANIZED UNDER TITLE 15 OF THE LAWS OF NEW JERSEY, AND MAURICE C. GENNERT, RESPONDENTS-APPELLANTS



For affirmance -- Chief Justice Weintraub, and Justices Jacobs, Francis, Proctor, Hall, Schettino and Haneman. For reversal -- None. The opinion of the court was delivered by Proctor, J.

Proctor

[37 NJ Page 435] The Brookwood Musconetcong River Property Owners' Association (Association) and Maurice C.

Gennert appeal from an order of the Board of Public Utility Commissioners (Board), in which the Board found that the Association operates the water system which serves Brookwood Musconetcong River Estates and that the Association is a public utility within the meaning of N.J.S.A. 48:2-13 and therefore subject to the jurisdiction of the Board.

The petitioners, Sigmund Lewandowski, Lucille Achtzehn, William Vail and Joseph Kassakian, residents of Brookwood Musconetcong River Estates who depend upon the water system for their water supply, had petitioned the Board to take jurisdiction and exercise its regulatory power over the operators of the water system. They named as respondents Brookwood Musconetcong River Corporation, Bernard J. Cunnane, John W. Caspersen, Olaus Caspersen, Herbert P. Cutler, Willis H. Sherred, John R. Knox, Brookwood Musconetcong River Property Owners' Association and Maurice C. Gennert. The respondents' motion to dismiss for lack of jurisdiction was denied by the Board. They then moved in the Appellate Division for leave to appeal. Without granting the motion, that tribunal remanded the cause to the Board "to make findings of fact and conclusions of law on the issue of jurisdiction." On the remand, the Board found it had jurisdiction and ordered the Association and its Trustees to comply with the Board's rules and regulations, but dismissed the petition as to all other named respondents. Since Maurice C. Gennert was the only respondent who was also a Trustee, he and the Association remained as the sole respondents. They again moved in the Appellate Division for leave to prosecute an interlocutory appeal on the issue of jurisdiction, which motion was granted. The petitioners have not cross-appealed as to the dismissal of the other respondents. While the appeal was pending in the Appellate Division, we certified the cause.

In 1953 Brookwood Musconetcong River Corporation (Developer) acquired a tract of land in Sussex County, the greater part of which was situated in the Borough of Stanhope,

the remainder in Byram Township. A subdivision map dated July 27, 1953, filed in the County Clerk's office, delineated paper streets and indicated the tract contained about 1,000 lots. The Developer's object was to sell the lots to individuals who would erect single-family dwellings thereon. Its promotional efforts were directed to the general public and its advertisements included the fact that "water mains" were provided.

As part of its selling plan the Developer, on October 7, 1953, organized a nonprofit association under R.S. 15:1-1 et seq. According to its certificate of incorporation, the Association was formed "to insure the present and future character and welfare of the development * * * and such other lands adjoining that may be acquired from time to time and added to the development by [Developer], and to promote the welfare, social, intellectual and recreational interests of its members; * * * to provide for utility services * * *" The certificate further provided that "The business of the corporation shall be conducted by the Trustees who shall be known as the Board of Governors * * *" and names to the initial Board five Trustees who were closely associated with the Developer: John Caspersen, President and Director of the Developer, Olaus W. Caspersen, a Director of the Developer, Herbert P. Cutler, sales agent for the Developer, and Willis H. Sherred and John R. Knox, attorneys for the Developer. The bylaws of the Association provided for three classes of membership: Original active, active and honorary. The original active membership was the Developer or its transferee as developer; the active membership consisted of the owners of lots purchased from the Developer and who were approved by the Board of Governors; honorary membership was reserved for persons of outstanding accomplishments regardless of residence. The bylaws gave the "original active membership" the power to elect a majority of the Board of Governors so long as that class of membership continued to exist. Since the Developer or its transferee constituted the

entire "original active membership" this arrangement gave them control of the Board of Governors until such time as they no longer had an interest in the development. The bylaws, like the certificate, permitted an enlargement of the scope of the Association to provide for the character and welfare of other lands subsequently acquired by the Developer. The bylaws included among the purposes of the Association: "To * * * acquire, regulate and control * * * water * * * facilities * * *"; and "To provide for utility services."

On the same day (October 7, 1953), the Developer entered into a contract with the Association in which the parties agreed that: The Developer would construct and install a water supply system; the Developer would supply water either by obtaining it from the Borough of Stanhope or by drilling independent wells; the Association authorized the transfer of the water system to the Borough of Stanhope to assure a supply of water; the Association would pay the total cost of construction, installation and maintenance of the water supply system; the individual lot owners would pay for water consumed at the rates established by their supplier, i.e., the Borough of Stanhope or the Association; the Developer could cease construction of the system if, in its sole judgment, the plan became financially hazardous; and if the Developer ceased construction the Association would reimburse it for all expenses incurred.

On September 27, 1954 the Developer entered into a contract with the Borough of Stanhope whereby the Developer agreed to construct its mains in accordance with municipal specifications and to lay pipes of a certain size in named streets in order to hook into the borough's water system. Stanhope agreed to furnish water at "customary rates" to that part of the development which was located within the borough. The Developer further agreed to turn over the system to Stanhope within three years.

On October 14, 1954 the Developer, as settlor, executed a deed of trust which was never recorded, but which was

"accepted and approved" by the Association through its President, Herbert P. Cutler. The Developer named Sherred, Cutler and Knox as Trustees of the water system, gave them the power to designate successors in the event of their retirement, and conveyed to them title to the system as it existed along with "any and all additions thereto which may be hereafter constructed," excepting therefrom the portion of the system described in the agreement between the Developer and the Borough of Stanhope. In the event that portion was not conveyed, title to the entire system would pass to the Trustees. The trust instrument further provided that: The Developer is to construct a water system "in accordance with its sole judgment"; the Developer's statement of its expenses shall be "conclusive evidence" of the sum due it; all maintenance expenses shall be paid from the Association's funds; the water charges made by the Trustees shall be sufficient to keep the trust on a sound financial basis and provide funds to "fully reimburse Settlor for its costs with interest by January 1, 1970"; the trust shall continue until the Developer has been fully paid; after payment the Trustees shall convey the system to the Association; and if the trust fails the system shall be sold by the Trustees at public sale and the funds realized shall be used to reimburse the Developer and any surplus paid to the Association.

The Developer proceeded to install 24,000 feet of water mains in streets throughout the development. It also constructed a well with appropriate equipment. Those members of the Association whose lots were located within the Borough of Stanhope were supplied water from that borough's system, while the lot owners situated within Byram Township were supplied from the Developer-constructed well.

In furtherance of a proposed annexation by Byram Township of that part of the development located within Stanhope, the Developer and Stanhope entered into an agreement on September 30, 1957, cancelling the contract of September 27, 1954. When Byram Township annexed the Stanhope

lots, the Trustees of the water system and the Association entered into a contract with the township on November 29, 1957, in which the parties agreed that the township would "not now or at any time in the future" be charged "any fee, rent or franchise for the uses and maintenance of said water system and particularly the fire hydrants located within said development." They further agreed the "Trustees shall make no application to the Public Utilities Commission of the State of New Jersey to have Byram charged for the use of fire hydrants or any part of the water system and in the event said water system is deemed to be a public utility no application or charge shall be made to Byram for hydrants or any part of said water system."

On September 29, 1959 the Developer conveyed most of the unsold lots in the tract to Maurice C. Gennert, who then began to advertise and sell them. On July 26, 1960, the original Trustees of the water System, Sherred, Cutler and Knox, resigned and designated as their ...


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