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Seton Co. v. City of Newark

Decided: June 20, 1984.


On appeal from the Superior Court, Law Division, Essex County.

Ard, Morton I. Greenberg and Trautwein. The opinion of the court was delivered by Morton I. Greenberg, J.A.D.


This appeal arises from a judgment entered in an action brought by plaintiff Seton Company in 1981 challenging an ordinance adopted that year by defendant City of Newark fixing sewer user charges. Plaintiff asserted in the trial court that the ordinance by establishing arbitrary, unreasonable and discriminatory rates violated New Jersey law and the equal protection and due process clauses of the United States Constitution. Plaintiff further asserted that the ordinance took its property without just compensation. Following a nonjury trial, the judge in an oral opinion found the ordinance to be unlawful under state law. Thus he did not reach plaintiff's constitutional arguments. Newark has appealed the judgment entered on the opinion.

Plaintiff again urges that the ordinance is unlawful on both state and federal bases. Newark asserts that the ordinance does not violate state law. It further asserts that plaintiff's failure to cross-appeal from the judgment precludes this court from considering its constitutional arguments and in any event the ordinance is not unconstitutional.

The facts as developed at the trial are not in substantial dispute. Indeed many were stipulated. Plaintiff operates a leather tannery, a water-intensive business, in Newark and is

thus a large-scale user of the Newark sewerage system. The business has been in Newark since 1906 and as of the time of the trial had 431 employees in that city. In 1981 Newark contemplated adopting an ordinance increasing sewerage rates. In connection with this program a report prepared for Newark suggested an ordinance providing that users of municipal sewerage facilities be charged $10.50 for each 1,000 cubic feet of water supplied. The assumption underlying this charge was obviously that sewerage requiring treatment would be produced in direct proportion to water consumed and charges should be imposed proportionate to usage. Plaintiff objected to various officials in Newark that the rate would be unfair and unduly burdensome on large-scale users of water. Nevertheless on April 15, 1981 Newark adopted an ordinance essentially establishing this rate. The ordinance included no differential in charges based on the quality of sewerage produced nor was there any graduation or reduction in rate predicated on volume. The ordinance, however, provided for alternative methods of billing at a user's option. Thus a user could pay $10.50 per 1,000 cubic feet of measured sewerage discharged, or, subject to the approval of Newark's director of engineering, pay an appropriate charge based upon engineering studies supported by substantial evidence. Plaintiff has not elected to pay on either alternative basis and thus has been charged at the basic $10.50 per 1,000 cubic feet rate.

Newark's intention in adopting the $10.50 rate was to recover at least a portion of the costs incidental to operating its sewerage system, the principal one being the charge to it by the Passaic Valley Sewerage Commission for treating sewerage from Newark. Three types of sewerage requiring treatment by Passaic Valley are generated in Newark: discharges by users of the system, infiltration and inflow. Infiltration and inflow enter the system from sources other than discharges from users and are thus regarded as extraneous flows. While the percentage of fluids resulting from infiltration and inflow was not precisely established at trial, it may have been as high

as 50% of the flow from Newark. Other costs to Newark include operating and maintenance costs, debt service, a reserve to cover sewer user accounts in arrearage and costs for buildings owned by Newark receiving but not paying for sewerage service.

Plaintiff, though seemingly recognizing the legitimacy of Newark's expenses and its revenue needs, objected to its billing scheme. Plaintiff conceived that Newark was penalizing high-volume users by compelling them to bear a disproportionate share of the costs incident to providing sewerage service. Consequently on May 29, 1981 it filed a complaint alleging that the ordinance caused a taking of its property without just compensation and was unreasonable, inequitable, arbitrary and not uniform. Plaintiff asserted that the ordinance formula resulted in an overcharge to it for its benefits derived from the sewerage system. Plaintiff asked the court to invalidate the ordinance, grant injunctive relief against its enforcement and award damages from the alleged overcharge. Newark filed an answer denying the ordinance was invalid and it counterclaimed for unpaid sewerage charges.

At the ensuing trial plaintiff attempted to show the disproportionate and inequitable effect of the ordinance. It contended that the rates should have been based on the cost to Newark of supplying the sewerage services to the users. Plaintiff would limit such costs to direct costs of service to the users and exclude indirect expenses arising from the operation of the sewerage system but not attributable to a particular user.

As a principal witness plaintiff called William G. Stannard, an expert in municipal waste water service and utility design rates. Stannard testified that the cost of services principle is used in setting utility rates for gas, electricity, water and sewerage. He said that three steps are involved in determining an equitable rate: (1) a determination of the ...

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