On appeal from Superior Court of New Jersey, Law Division, Morris County.
J.h. Coleman, Stein and Conley. The opinion of the court was delivered by Coleman, J.h., P.J.A.D.
[263 NJSuper Page 90] This case involves an appeal by the Borough of Mendham (Mendham) from a summary judgment requiring it to reimburse five developers $213,000 found to be excessive water connection fees. There is also a cross-appeal. We now reverse the judgment requiring the refunds and remand for further proceedings. We affirm on the cross-appeal.
Mendham has its own water supply system, which it built about seventy-five years ago and has maintained since. Sometime shortly after January 1984, Mendham's engineer decided that the water supply system needed certain improvements to service expected increases in demand. He estimated the cost of the improvements at $750,000. At that time Mendham charged new users only a tapping fee, which essentially covered the actual cost of connecting the user to the system.
In late 1985, Pitney Farms Associates (Pitney Farms) and other residential developers in neighboring Mendham Township asked Mendham for permission to connect to its water supply. The developers did not want to pay for improvements in the system, so Mendham declined their request on the basis that the system lacked the capacity to serve them.
In March 1986, Pitney Farms wrote to Mendham that "to the extent legally possible, the applicant will assist the Borough with its needs for capital improvement." In early 1987, Pitney Farms, Dave Jackson Homes, Inc. (Dave Jackson) and Rural Comforts asked Mendham to reconsider its policy of denying connections to outside developments. They agreed to contribute towards the upgrading of the system in part because that would cost them less than the estimated $6,000 to $7,000 per unit that they otherwise would have had to spend to provide alternative water to the sites.
Those requests prompted Mendham to consider funding the improvements by reversing its long-standing policy of not supplying water outside its borders except for a limited number of customers. Mendham first considered having the developers actually make the improvements, but then it decided to fund them through a "high" connection fee, set "relatively high" so that the estimated 400 new connections which it anticipated would generate enough in connection fees to pay for the improvements and necessary bonding. Mendham set the fee at $3,000, and thought it was reasonable because it was less than
what developers would have spent on the individual wells or alternative water supply that Mendham Township would otherwise have required of them. Accordingly, on March 3, 1987, Mendham adopted Ordinance 6-87 which amended Section 100-3 of its code to impose a uniform connection fee of $3,000 on residents and nonresidents alike.
On November 2, 1987, Mendham entered into separate water supply contracts with Pitney Farms' predecessor M.G.S. Associates and with Dave Jackson. A similar contract was made with Commander Development Corp., predecessor to Rural Comforts. Mendham considered the $3,000 figure in Ordinance 6-87 when it set the connection fee for Pitney Farms and Dave Jackson. The contracts set the connection fee as "the same as those charged for connections in the Borough as provided by Section 100-3 of the Borough code." For each unit, Pitney Farms and Dave Jackson had to pay the connection fee before getting a building permit. In addition, Pitney Farms and Dave Jackson agreed to install water supply and distribution lines at their expense, and to convey the installations and related easements to Mendham for free. On July 26, 1988, Mendham entered into a water supply contract with Rural Comforts under those same terms. Neither Pitney Farms, Dave Jackson nor Rural Comforts ever protested the amount of the fee or indicated an intent to challenge it.
On July 12, 1989, Mendham wrote to Dave Jackson and Rural Comforts. It informed them that an unnamed developer's delay in satisfying Mendham Township's requirements for allowing construction of a water storage tank, and the threat to Mendham's timely collection of connection fees that was posed by a lawsuit filed by New Jersey Builders Association two weeks earlier seeking invalidation of the ordinance, could delay construction of the water-supply system improvements. Mendham declared that it could not expand ...