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Matter of Alleged Violations of Law by Valley Road Sewerage Company

November 8, 1996

IN THE MATTER OF ALLEGED VIOLATIONS OF LAW BY VALLEY ROAD SEWERAGE COMPANY, RICHARD H. SCHINDELAR, INDIVIDUALLY, AND AS OFFICER, DIRECTOR AND SHAREHOLDER, AND MARJORIE Z. SCHINDELAR, INDIVIDUALLY AND AS OFFICER AND DIRECTOR. STATE OF NEW JERSEY, BOARD OF PUBLIC UTILITIES, PLAINTIFF-RESPONDENT,
v.
VALLEY ROAD SEWERAGE COMPANY, A NEW JERSEY PUBLIC UTILITY, RICHARD H. SCHINDELAR, INDIVIDUALLY AND AS OFFICER, DIRECTOR AND SHAREHOLDER, AND MARJORIE Z. SCHINDELAR, INDIVIDUALLY AND AS OFFICER AND DIRECTOR, DEFENDANTS-APPELLANTS.



A-5946-94T1 on appeal from the Board of Public Utilities; A-5944-94T1 on appeal from Superior Court of New Jersey, Chancery Division, Somerset County.

Approved for Publication November 8, 1996. As Amended November 19, 1996.

Before Judges Baime, P.g. Levy, and Braithwaite. The opinion of the court was delivered by Baime, J.A.D.

The opinion of the court was delivered by: Baime

The opinion of the court was delivered by

BAIME, J.A.D.

These consolidated appeals arise from a decision of the Board of Public Utilities (BPU) revoking the franchise and operating authority of Valley Road Sewerage Company (Valley) and barring Richard and Marjorie Schindelar from owning, operating or managing any New Jersey public utility, and from an order of the Chancery Division appointing a receiver with the authority to sell the utility. We hold that the BPU had the power to revoke Valley's franchise, to compel the Schindelars to divest themselves of any interest in the company, and to debar them from owning or managing any New Jersey public utility. We also conclude that the Chancery Division had the authority to appoint an equitable receiver to sell the utility and to operate the company pending the sale.

I.

On August 21, 1992, Valley applied to the BPU for a rate increase. The application was referred to the Office of Administrative Law as a contested case. Following extensive hearings, the administrative law Judge issued an initial decision in which he recommended denying Valley's application. Citing years of financial mismanagement and substantial environmental problems, the Judge concluded that the utility's manager and owner, Richard Schindelar, and its director, Marjorie Schindelar, could not be relied upon to apply the requested additional revenues to the difficulties besetting the company. The BPU adopted the Judge's factual findings, denied Valley's rate application, and ordered that proceedings be conducted to determine whether Valley's operating authority should be revoked. Following additional hearings, the BPU rendered its decision on November 4, 1994, reaffirming its prior findings of gross mismanagement and rejecting a "business plan" advanced by Valley and the Schindelars. The BPU directed that (1) Valley's franchise and operating authority be revoked, effective upon appointment of a receiver, (2) the Schindelars be barred from owning, operating or managing any New Jersey public utility, and (3) Valley and the Schindelars be prohibited from selling, assigning, leasing, or encumbering the utility's property without the BPU's prior written approval. The BPU also authorized the Attorney General to initiate appropriate legal proceedings for appointment of a receiver to operate the utility and to negotiate its sale to a qualified entity subject to the approval of the BPU and the court.

On December 2, 1994, the Chancery Division issued an order to show cause why a receiver should not be appointed to carry out the BPU's decision. Judge Diana issued an extensive letter opinion on April 18, 1995. The Judge denied the request of Valley and the Schindelars for a de novo hearing and accepted the factual findings made by the BPU. The Judge further determined that the Chancery Division had the authority to appoint an equitable receiver with the power to operate Valley's business and to negotiate the sale of the company to a qualified purchaser. In subsequent proceedings, the Judge rejected the Schindelars' argument that the receiver was required to obtain the "highest possible" sales price. The Judge concluded instead that the receiver's mandate was to operate Valley in such a way as to provide "safe, adequate and proper service" to its customers and to negotiate a commercially reasonable sale.

This appeal followed. In their challenge to the BPU's decision, appellants contend (1) the administrative agency's factual findings were erroneous, (2) the BPU was not empowered to compel the sale of Valley and the divestment of the Schindelars' interests, and (3) the decision reached by the agency was arbitrary and capricious. In their attack upon the Chancery Division's order, appellants claim (1) they were entitled to a de novo hearing, (2) the court lacked the authority to appoint a custodial receiver, (3) the court was duty-bound to consider less burdensome and intrusive remedies, and (4) the court mischaracterized the receiver's obligation. We reject these arguments.

II.

We first consider appellants' contentions respecting the BPU's decision. Initially, we discern ample factual support in the record for the BPU's findings relating to Valley's history of financial and environmental mismanagement. The salient facts are recounted at length in our earlier opinion affirming the BPU's denial of Valley's application for rate relief, In re Valley Road Sewerage, 285 N.J. Super. 202, 666 A.2d 992 (App. Div. 1995), and need not be repeated here. We merely reiterate our Conclusion that "the hearing transcripts fairly reek of chronic corporate mismanagement resulting in the company's abysmal failure to furnish adequate service to its customers." Id. at 208. We reject Valley's assertion that its activities did not cause severe environmental problems. We also find disingenuous the Schindelars' claim that the BPU should have ignored Valley's failure to pay long overdue gross receipts and franchise taxes merely because tax returns were filed with the State. Suffice it to say, the BPU's findings regarding these factual issues are "supported by substantial credible evidence present in the record as a whole" and cannot fairly be challenged. Henry v. Rahway State Prison, 81 N.J. 571, 579-80, 410 A.2d 686 (1980); Mayflower Sec. Co. v. Bureau of Sec., 64 N.J. 85, 92-93, 312 A.2d 497(1973); Close v. Kordulak Bros., 44 N.J. 589, 599, 210 A.2d 753 (1965).

Equally unpersuasive is appellants' contention that the BPU erred by rejecting its proffered reorganization plan. We see no need to discuss the plan in detail except to say it involved the Schindelars' promise to engage outside consultants and to resolve Valley's environmental and financial problems without the need to burden its customers. We merely note that there was no evidence the plan would ultimately improve the company's access to traditional sources of capital or otherwise solve its massive management problems. The BPU's rejection of the plan was not arbitrary and capricious. See New Jersey Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 562-63, 384 A.2d 795 (1978); see also A. A. Mastrangelo, Inc. v. Department of Envtl. Protection, 90 N.J. 666, 683-84, 449 A.2d 516(1982); In re Health Care Admin. Bd., 83 N.J. 67, 79, 415 A.2d 1147, cert. denied, 449 U.S. 944, 101 S. Ct. 342, 66 L. Ed. 2d 208 (1980).

We turn to appellants' claim that the BPU was not empowered to revoke Valley's franchise and require the Schindelars to divest themselves of ownership and management of the company. We conclude ...


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