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United Water Resources Inc. v. North Jersey Dist. Water Supply Com'n

November 26, 1996


On appeal from Superior Court, Law Division, Hudson County.

Before Judges Long, Rodriguez and Cuff. The opinion of this court was delivered by Long, P.j.a.d.

The opinion of the court was delivered by: Long

The opinion of this court was delivered by


The issue in this case is whether the North Jersey District Water Supply Commission (North Jersey) has the authority to operate, maintain and manage Bayonne's municipal water system and issue revenue bonds for that purpose. We have concluded that it does not.


Bayonne owns, and for many years has operated a retail water system for the use of its residents. This 65 mile long distribution system serves roughly 11,000 customers and has a capacity of 10 million gallons per day. The water for the system is supplied by North Jersey under a Water Supply Agreement dated January 25, 1982, which authorized North Jersey to develop and operate a water supply transmission facility (Wanaque South) at the expense of Bayonne and six other municipalities.

In 1995, Bayonne made a request for proposals (RFP) to obtain long-term services from a private firm to operate, maintain and manage all or part of its water system pursuant to the New Jersey Water Supply Public-Private Contracting Act which authorizes local government units to contract with private firms for the provision of water supply services. N.J.S.A. 58:26-19 to -27. On November 20, 1995, in response to the RFP, plaintiff, United Water Resources, Inc. (United Water), submitted a proposal to Bayonne to operate and maintain its water system. On the same date, North Jersey submitted its own proposal to operate and maintain Bayonne's water system based on the Interlocal Services Act, N.J.S.A. 40:8A-1 to -11. United Water's proposal was rejected. On March 20, 1996, the City Council of Bayonne introduced an ordinance authorizing its mayor to enter into a contract with North Jersey. This contract (the Bayonne Agreement) was executed on April 9, 1996.

Pursuant to the Bayonne Agreement, North Jersey promised, among other things, to operate and maintain Bayonne's water system; to prepare and collect all bills and invoices for the customers of the system; to calculate, bill and collect the charges incurred by users of Bayonne's sewer system and to collect all rents, fees or other charges for direct or indirect connection to the Bayonne water system. In return, North Jersey is to pay Bayonne $25 million in three equal annual installments, to be used for undesignated purposes; another $6 million for water system improvements and/or repairs; and up to $2 million to pay the existing water capital debt of Bayonne. Additionally, North Jersey is to perform all of Bayonne's obligations under the preexisting Water Supply Agreement of 1982.

The term of the Bayonne Agreement is twenty years, with two optional ten year extensions. North Jersey plans to finance the Bayonne Agreement through the sale of $30 million in Wanaque East Water Services Division Revenue Bonds, Series 1986. In turn, North Jersey is authorized to retain up to $700,000 in Bayonne water receivables.

In furtherance of the Bayonne Agreement, North Jersey also entered into a subcontracting arrangement with the East Orange Board of Water Commissioners (East Orange) whereby East Orange, which has experience in the field, will provide certain billing and collection services for Bayonne.

On May 31, 1996, plaintiffs, United Water and Hugh A. Roarty, a Bayonne resident, filed a verified complaint in lieu of prerogative writs against North Jersey and Bayonne alleging their lack of authority to enter into the Bayonne Agreement. North Jersey moved to dismiss the complaint on June 18, 1996. Despite the pendency of the litigation, North Jersey began performing pursuant to the Bayonne Agreement by making initial payments to Bayonne. In light of this, plaintiffs applied to the trial Judge for temporary restraints, which were denied. Subsequently, on July 8, 1996, plaintiffs filed a cross-motion for partial summary judgment on the issue of whether the Bayonne Agreement is authorized by law.

The trial Judge considered both motions together. By Order dated July 19, 1996, he granted North Jersey's motion and denied plaintiffs' cross-motion. In so doing, he held that neither North Jersey's 19l6 enabling legislation, N.J.S.A. 58:5-l to -30, nor the Water Facilities Transmission Act of 1962, N.J.S.A. 58:5-31 to -58, provides authority for North Jersey to enter into the Bayonne Agreement. He concluded, however, that the Bayonne Agreement is authorized by the Interlocal Services Act. N.J.S.A. 40:8A-l to -11.

He also held that North Jersey has the inherent authority to issue bonds for the purposes specified in the Bayonne Agreement. Plaintiffs appeal. We reverse.


Several enactments provide the backdrop for our opinion. In 19l6, the Legislature created two water supply districts: North Jersey, consisting of the twelve northern counties of Sussex, Warren, Hunterdon, Passaic, Morris, Monmouth, Somerset, Bergen, Essex, Union and Middlesex; South Jersey covering the remaining counties. N.J.S.A. 58:5-1. The districts were created to provide a water supply to contracting municipalities.

Under its enabling legislation, North Jersey is "a body corporate with power to sue and be sued, and with the right to acquire, hold, use, lease and dispose of all such property as may be necessary for the uses and purposes for which [North Jersey] was created, and with all other necessary powers incident to corporate bodies." N.J.S.A. 58:5-7. Any municipality desiring a new or additional water supply is authorized to petition North Jersey for a preliminary estimate of the cost to the municipality of such a supply, with the cost of the estimate to be borne by the municipality. N.J.S.A. 58:5-9. Other municipalities may join in the petition, and pay their pro rata share of the preliminary costs. N.J.S.A. 58:5-11. Thereafter, North Jersey is required to formulate plans for obtaining a new or additional water supply for the petitioning municipalities and to estimate the cost thereof, along with the pro rata share which each of the participating municipalities would be called upon to pay. North Jersey is also required to supply a form of contract providing for the raising and payment of the funds necessary to meet the cost of acquisition and operation of the water supply. N.J.S.A. 58:5-12. Each municipality has the opportunity to accept the contract or to withdraw from further participation. N.J.S.A. 58:5-13. Upon acceptance of the final form of contract, each participating municipality is required to introduce the proper ordinances or resolutions necessary to appropriate the monies required to carry out the contract.

The power of North Jersey to carry out its obligations is set forth in N.J.S.A. 58:5-16. This grant is broad, including the right, at the expense of the contracting municipalities, to "acquire by purchase or condemnation any part or all of the water plant, water rights, easements, distribution system or other property of any existing private corporation or of any other water company." N.J.S.A. 58:5-16. North Jersey may also acquire by purchase or condemnation "lands, easements, rights of way, water rights and all other property and rights needful for the construction of any reservoir or the obtaining of any water supply, or the laying of any pipes or mains, or the doing of any work, necessary for the acquisition, construction or operation of such water supply." Ibid. In addition, North Jersey is granted the following:

All other powers necessary or proper to provide all of the contracting municipalities in the water supply district with a sufficient water supply, including the right to contract with any municipality, corporation, person or other district water supply commission for the purchase, sale or exchange of any water, lands or other property, but the commission or any municipality shall not enter into any new contracts for the sale or delivery of water to any corporation, firm or ...

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