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Lakewood Township Municipal Utilities Authority v. South Lakewood Water Co.

Decided: July 17, 1974.

LAKEWOOD TOWNSHIP MUNICIPAL UTILITIES AUTHORITY, A MUNICIPAL BODY, PLAINTIFF-RESPONDENT,
v.
SOUTH LAKEWOOD WATER COMPANY, A NEW JERSEY CORPORATION, DEFENDANT-APPELLANT. SOUTH LAKEWOOD WATER COMPANY, A NEW JERSEY CORPORATION, PLAINTIFF-APPELLANT, V. LAKEWOOD TOWNSHIP MUNICIPAL UTILITIES AUTHORITY, A MUNICIPAL BODY IN THE COUNTY OF OCEAN, DEFENDANT-RESPONDENT. SOUTH LAKEWOOD WATER COMPANY, A NEW JERSEY CORPORATION, PLAINTIFF-APPELLANT, V. LAKEWOOD TOWNSHIP MUNICIPAL UTILITIES AUTHORITY, A MUNICIPAL BODY, AND THE TOWNSHIP OF LAKEWOOD, IN THE COUNTY OF OCEAN, STATE OF NEW JERSEY, A MUNICIPAL BODY, DEFENDANTS-RESPONDENTS



Collester, Lynch and Michels. The opinion of the court was delivered by Lynch, J.A.D.

Lynch

[129 NJSuper Page 464] In these consolidated cases South Lakewood Water Company (water company), appeals from various orders entered in the Law Division, arising out of the exercise by the Lakewood Township Municipal Utilities Authority (Authority) of an option granted to the Township of Lakewood (township)*fn1 under a 1962 township ordinance

to purchase the physical assets of the water company. Separate suits were instituted respectively by the Authority (Docket No. L-2085-73PW -- hereafter "case 2085"), and by the water company (Docket No. L-1829-73PW -- hereafter "case 1829"). Said suits were consolidated and appear here as Docket No. A-1231-72. A third suit (Docket No. L-11181-73PW -- hereafter "case 11181") was instituted by the water company against both the Authority and the township. It is here as Docket No. A-1386-73. All appeals have been consolidated.

In case 2085 the Authority filed a complaint against the water company alleging that, having been organized by the township pursuant to N.J.S.A. 40:14B-1 et seq., it lawfully exercised an option to purchase the water company's assets as referred to in the 1962 ordinance; that the water company rejected its offer of $1,690,000; that the Authority had appointed Howard T. Rosen (Rosen) as its "arbitrator"*fn2 pursuant to the ordinance; that the water company had appointed John Fellows as its "arbitrator," and prayed that (a) a third arbitrator be designated and (b) for a declaration that the ordinance, properly construed, established the valuation procedure to be that of "arbitration," as distinguished from "appraisement." The water company's motion to dismiss the complaint in case 2085 was denied by the trial judge.

In case 1829, the water company filed a complaint against the Authority, asserting that, while the Authority had purported to exercise the option, it was the township which had the option and not the Authority. The complaint further asserted that the appointment of Rosen by the Authority was invalid. The water company sought a judgment declaring that the exercise of the option by the Authority was invalid.

By way of a second count in case 1829, the water company alleged that, assuming that the Authority did have the right to appoint an "appraiser," the obligation was to appoint a "qualified" appraiser, and Rosen was not qualified. The water company thereupon sought a declaration that the Authority be directed to appoint a qualified appraiser. The Authority's motion to dismiss the complaint in 1829 was granted by the trial judge.

In case 11181, the water company filed a complaint against both the Authority and the township wherein it alleged that since, by order of October 15, 1973, the trial judge had ruled that (a) the Authority had the right to exercise the option, and (b) the right to select Rosen as an "arbitrator," it followed that the water company had an obligation to two independent bodies, namely, both the Authority and the township. Since that was so, the water company sought a declaration that: (a) both the Authority and the township would be bound by the decision of a board of "appraisers"; (b) on transfer to the Authority of its assets, the water company would be entitled to be paid by both the Authority and the township; (c) participation by the water company in the arbitration proceedings would satisfy the company's "arbitration" obligations, and (d) both the Authority and the township would be bound by the decision of the board of arbitrators and would be bound to pay the award of the "majority" of the board of appraisers.

The various allegations and contentions made in these three suits generated the issues which were decided by the trial court and here can be reduced on this appeal to: (1) whether the Authority had the right to exercise the option to purchase the company's assets; (2) whether the 1962 ordinance, properly construed, provided that the valuation process shall be by "arbitration" proceedings or "appraisement," and whether the appointment of Rosen was valid, and (3) whether both the township and the Authority would be bound to pay for the company's assets and, if so, whether a declaration to that effect should be made at this time.

Said issues were disposed of by the trial court by orders dated October 15, 1973, December 5, 1973 and January 16, 1974 (in cases 2085 and 1829), and February 8, 1974 (in case 11181).

In its appeal the water company contends that the trial court erred in (1) holding that the Authority had the right to exercise the option; (2) designating the valuation proceedings as "arbitration" rather than "appraisement," and in holding that the appointment of Rosen was valid, and (3) refusing "at this time," as the trial court said, to determine whether both the township and the Authority would be liable to the water company for payment of its assets.

I.

The right of the Authority to exercise the option.

On November 27, 1962 Lakewood passed an ordinance granting the water company a franchise to supply water for the township. Section 8 of the ordinance provided:

The Township of Lakewood shall have an unlimited continuing option to purchase all of the assets of the South Lakewood Water Company or its successors and assigns. It is understood that this option is irrevocable. The option to purchase shall include all of the assets of the South Lakewood Water Company, including land, plants (whether softening, aeration, aeration treatment or otherwise), wells, pumping stations, collecting reservoirs, basins, plant equipment, pumping equipment, general equipment, transmission mains and accessories, service pipes, meters, fire hydrants, and any other tangible assets together with any and all franchises, water diversion rights and any other rights which may be the property of the South Lakewood Water Company. The option shall not include any equipment or assets required solely for the operation of a water company outside of the Township of Lakewood. The purchase price shall be the value of the physical assets of the corporation. No allowance of any kind shall be made for the goodwill or friendship of the said corporation or for any intangible asset or assets of the corporation in [ sic ] the event that the parties cannot agree on the purchase price in accordance with the above formula then and in the [ sic ] event the purchase price, pursuant to the above mentioned formular [ sic ] shall be determined by a board of three disinterested, competent appraisers, one to be appointed by the Township of Lakewood, one to be appointed by the South Lakewood Water Company or its successors

or assigns, and the third to be appointed by two arbitrators so appointed. The decisions of a majority of the Board of Appraisers shall be binding upon the parties. The selection of the Board of Appraisers shall be made within ten days after written notice shall be served upon the South Lakewood Water Company that the Township Committee of the Township of Lakewood desires to exercise said option.

The option to purchase the assets of the South Lakewood Water Company shall be binding upon the South Lakewood Water Company, the successors and assigns. It is further understood and agreed that in the event that the South Lakewood Company should desire to sell its water company the Township of Lakewood shall have the first option to purchase same upon the same terms and conditions as the South Lakewood Water Company is willing to sell to a third party. In the event that the Township of Lakewood does not exercise said option, it is understood and agreed that the continuing option to purchase as herein provided shall still remain in full force and effect and shall be binding upon all of the successors of the South Lakewood Water Company. [Emphasis supplied]

On appeal the water company argues that it is totally unreasonable to rule, as the trial court did, that the Authority had the right to exercise the option and at the same time refuse to determine "at this time" that the township would still be liable for the purchase price of the company's assets. It is contended that the company should be entitled to rely on the credit of the township rather than that of the Authority alone, and that the ...


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