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State v. East Shores Inc.

Decided: October 25, 1977.

STATE OF NEW JERSEY AND BOARD OF PUBLIC UTILITY COMMISSIONERS, PLAINTIFFS,
v.
EAST SHORES, INC., DEFENDANT



Polow, J.s.c.

Polow

The fundamental question which must be resolved by this court is one of first impression in this State and concerns, simply, whether the court possesses authority to compel the Township of Jefferson to take over and operate a local water utility, presently in custodial receivership, unless the municipality can otherwise arrange to supply its residents who are customers of the said water company with an adequate, potable water supply.

During the 1940s defendant East Shores, Inc. began to develop and sell lots along Lake Hopatcong. Deeds to lots sold contained a covenant requiring East Shores to provide water "for drinking and household use" for a $50 monthly charge. However, during the 1960s East Shores' water system deteriorated seriously, and on July 27, 1970 the Board of Public Utility Commissioners (PUC) issued an order requiring boiling of all drinking water supplied by East Shores. On November 14, 1971 the PUC declared East Shores a public utility and ordered it to upgrade its water distribution system so as to be capable of distributing an adequate supply of potable water.

East Shores failure to comply with the PUC order precipitated this action which initially resulted in an order seeking to compel compliance with PUC requirements and ultimately, on July 12, 1972, led to the appointment of John H. Dorsey as receiver to operate the company and "to complete the required construction as ordered by the PUC * * * until the court is satisfied the public is receiving potable

water and being provided with safe, adequate and proper service * * *." The receiver appointed at that time is still, more than five years later, operating the water company. However, despite his best efforts at collection of customers' obligations and more efficient operation, the receiver experienced financial difficulties from the outset. He has had substantial collection problems and was forced to institute numerous county district court complaints to enforce payment by unhappy water customers. With the funds he collected and some loans, he was able to maintain the system and upgrade the quality somewhat by chlorination. However, he lacked sufficient funds to retain an engineering consultant to commence the study demanded by the PUC. Hence, by order of this court the receiver was permitted to sell certain lands of East Shores in October 1974, State v. East Shores, Inc. , 131 N.J. Super. 300 (Ch. Div. 1974), and an engineering study was procured with the proceeds realized from the sale.

Cost estimates for necessary improvements to the system have increased over the years. The pretrial order of March 1, 1976 asserts that necessary improvements would cost $600,000 to $850,000 but that proceeds at that time were inadequate to maintain even day-to-day operations. Although a rate increase has since been approved by the PUC, operating proceeds still fall short of day-to-day needs.

A state engineering report as well as a study obtained by the municipality itself suggest the possibility of interconnecting East Shores' system with other nearby water systems. Jefferson Township presently owns and operates two small water systems, neither of which is adjacent to East Shores. Efforts by the township to take any steps toward municipal operation of East Shores have been discouraged by the fact that on two occasions the issue has been the subject of referendum, and on each occasion the voters have responded negatively. Hence, the township has done nothing and has, in fact, refused to consider any financial commitment necessary to obtain federal assistance for a feasibility

study and discouraged efforts by the Morris County Municipal Utilities Authority to consider its own involvement. The attitude of the municipal governing body, in a nutshell, is one of sympathy for the residents of East Shores, but since the voters refused to approve municipal takeover of the water system, their official position is that the problem is one which the East Shores residents themselves must solve. Recent attempts by different parties to this suit to obtain municipal cooperation or even consideration of the problem have been summarily rejected by the governing body.

Originally, most of the residences in the East Shores development were of a seasonal nature, occupied only during the summer months. Houses were built on narrow lots containing individual septic systems and, according to the local health authorities, are not appropriate for drilling of wells to supply individual water needs. Through the years many of the properties have been built for or converted to year round residences, involving the usual municipal approvals including building permits, board of health approvals, certificates of occupancy and the like. During the course of this litigation, all construction within the East Shores community and any expansion of water use have been enjoined. However, the damage had been done during the previous decade. Lack of foresight and little concern for the consequences have taken their toll.

This court has already found that the system suffers from inadequate treatment facilities, inadequate pumping facilities, inadequate storage facilities and an inadequate distribution system. This is the result of age, undersized capacity, lack of planning, as well as poor maintenance and upkeep. East Shores has not participated in these proceedings through counsel in recent years although an individual claiming to be a principal has appeared from time to time at court hearings. During the past year the court has appointed counsel to represent the customers of the ...


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