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Borough of Haledon v. Borough of North Haledon

March 17, 2003


On appeal from Superior Court of New Jersey, Chancery Division, Passaic County, Docket Number C-89-01.

Before Judges Petrella, Braithwaite and Lintner.

The opinion of the court was delivered by: Petrella, P.J.A.D.


Argued February 10, 2003

Plaintiff Borough of Haledon appeals from summary judgment orders entered in favor of the Boroughs of North Haledon and Hawthorne, and certain developers, the intervenors K. Hovnanian North Central Acquisitions, LLC (Hovnanian), and Summit Point Developers, LLC (Summit), requesting enforcement of claimed exclusive water supply rights with North Haledon for three development projects and alleging breach of contract and estoppel remedies. The lawsuit sought to prevent Hawthorne from supplying water to three planned residential developments in North Haledon pursuant to an Interlocal Services Agreement for Water Supply entered into among Hawthorne and North Haledon, and three developers.

While the summary judgment motion was pending, on September 13, 2001, plaintiff Haledon and Hovnanian executed a settlement agreement that resolved the dispute concerning the water supply to the three new residential developments in North Haledon. Haledon appealed from the January 15, 2002 final judgment. Thereafter, the Board of Public Utilities (BPU) successfully moved to intervene in the pending appeal. The BPU asserts that the franchise issue and any ancillary franchise issues should be remanded to it for determination.

Summit is developing a fifty-six unit townhouse community in North Haledon. Hovnanian is developing an adjoining parcel with 287 condominium units and fourteen single-family homes. *fn1 Anjo Realty, LLC (Anjo) plans to build twenty-five single- family homes on a nearby third site. Purportedly, those developments satisfy North Haledon's affordable housing obligation as established by the New Jersey Council on Affordable Housing (COAH), and presumably without undue burden on the limited resources in the overdeveloped northern area of the State.

North Haledon is not equipped to supply potable water to its residents. Haledon currently supplies water to approximately 1,180 housing units in North Haledon, less than one-half of the town's 2,675 housing units. There are eight housing units in North Haledon already connected to the Hawthorne water system. The remaining North Haledon housing units receive water from private wells. Haledon has never supplied water to the new developments in North Haledon, and previously the new developments had no potable water supply or connection.

Pursuant to a resolution adopted by North Haledon in 1907, Haledon has provided water services for parts of North Haledon where its lines run. The 1907 resolution provided for the laying of pipes in specified areas of North Haledon. As a result of this agreement Haledon became subject to the jurisdiction of reviewing agencies such as the BPU and the New Jersey Department of Environmental Protection (DEP).

Hovnanian claims that of those housing units in North Haledon that obtain water service from Haledon, *fn2 none receives adequate water that satisfies the BPU's regulations and that the quality of Haledon's water has fallen short of acceptable standards. The BPU and the DEP ordered Haledon to install a chloramination treatment system to correct the presence of trihalomethanes (a carcinogen), install additional water storage tanks, and rehabilitate or replace many components of its water distribution system.

Ten years after the 1907 agreement, the then Department of Conservation and Development *fn3 approved Haledon's request to extend its water mains further into North Haledon and to build a reservoir and filter plant. On July 6, 1917, North Haledon adopted a resolution supporting Haledon's application to the Board of Conservation and Development based upon public necessity. In addition, the document provided that "all rights and privileges conveyed by this approval are given to the Boro of Haledon alone..." except that if North Haledon should choose to maintain its own plant, then it had the right to provide a distribution system of its own and purchase the existing system from Haledon.

In the Spring of 2001, representatives of North Haledon and Hawthorne negotiated an agreement for Hawthorne's supply of water to the new residential developments. On May 29, 2001, the Borough Council of Hawthorne voted to approve an Interlocal Service Agreement with North Haledon. The following month, the Borough Council of North Haledon voted to approve the Interlocal Services Agreement for Hawthorne to supply water to approximately 382 homes in the three planned developments. The agreement set forth the parameters under which Hawthorne and North Haledon would construct certain improvements to and expand the existing Hawthorne water system into North Haledon to serve Hovnanian's development, other existing homes adjacent to the new mains within a limited area of North Haledon and to improve service in nearby areas of Hawthorne.

The applicable excerpts set forth Hawthorne and North Haledon's agreement for the water supply to the new residential developments as well as Hovnanian's obligation to indemnify the municipalities against Haledon's potential claim and the right to control the defense against that claim state:


A. Upon the completion of the System Improvements and approval thereof by Hawthorne prior to the issuance of the first Certificate of Occupancy, Hawthorne agrees to provide public potable water supply service to all users within North Haledon, as set forth in Section 6 below. B. For the purposes of this Agreement North Haledon grants to Hawthorne the right and privilege to construct or have constructed on its behalf by the Developers herein, the System Improvements in the public roads and ways of North Haledon and the right, privilege, and obligation to maintain, repair and reconstruct the same. In addition, North Haledon grants to Hawthorne the right and privilege to service customers in North Haledon, including those in the Proposed Residential Communities and the residential units along the route of the water mains to be constructed as part of the System Improvements and other additional customers as specifically approved by North Haledon. 5. RATES AND SERVICE BY HAWTHORNE A. Hawthorne agrees to provide water supply service within North Haledon identical to the service that it provides within Hawthorne. Except as otherwise provided herein, all rates, rules, regulations, conditions and terms of service which apply in Hawthorne shall also apply within North Haledon.

16. INDEMNIFICATION A(iii) In the specific event of a claim by the Borough of Haledon concerning the rights of North Haledon and/or Hawthorne to enter into this Agreement or fulfill its obligations under this Agreement, for which North Haledon and/or Hawthorne seek indemnification as set forth in Subsection A(i) above ... Hovnanian shall be lead counsel and direct the defense of any such claims...

Haledon objected to the Interlocal Services Agreement and asserted that it had expended monies to build and upgrade the water system infrastructure in order to meet its contractual obligation to supply water to North Haledon housing units and pending projects were under construction in North Haledon to improve service. Hovnanian maintains that these improvements have been dedicated to the area of town where Haledon already provides service, and are for the sole benefit of existing customers, not the new developments contemplated by the developers. Hovnanian, Hawthorne and North Haledon proposed to construct (and have apparently already constructed) a new water main from Hawthorne's Fairview Avenue water tank, along Manchester Avenue, through the Summit Pointe site into the Hovnanian Property.

Under the Interlocal Services Agreement, Hovnanian was authorized to act as lead counsel and to direct the defense, adjudicate or settle the matter, so long as the settlement in no way affected the other defendants' rights or obligations. Accordingly, Hovnanian and Haledon entered into a settlement agreement on September 13, 2001, resolving the issues between them. The settlement provided that Haledon would withdraw all objections to the Interlocal Services Agreement as it pertained to the three residential communities at issue in the litigation, and would not contest any aspect of the project, thereby enabling Hovnanian and the other two developers to proceed with the construction. In consideration, Hovnanian agreed to pay $500,000 to Haledon if various conditions set forth in the agreement were satisfied, including prompt judicial approval. Both North Haledon and Hawthorne objected to the settlement, claiming that Hovnanian did not have the right to settle because they would be adversely affected.

After argument on the motions, the judge concluded that the settlement amount offered by Hovnanian was an attempt to circumvent proper adjudication of the issues between the municipalities and was "arbitrary, capricious, and subversive of law." The judge set aside the settlement agreement and ordered the return of any monies paid to Haledon by Hovnanian.

In ruling on the summary judgment motions, the judge also held that there was no language in any of the resolutions that established an exclusive franchise agreement between Haledon and North Haledon. The judge said that all Haledon demonstrated in support of the exclusivity claim was the fact that it maintained an ongoing relationship with North Haledon to supply water to a limited area of the Borough. The judge granted North Haledon's motion to amend its counterclaim to add a thirteenth count and granted summary judgment on the issue of exclusivity. The judge dismissed the complaint and the counterclaims in their entirety. The judge also ruled that the Interlocal Services Agreement was valid, and that construction on the new developments could immediately commence, with the water to be supplied by Hawthorne.

Thus, among other things, the final judgment permanently restrained Haledon from interfering with North Haledon's right to enter into a water supply agreement with persons or entities other than Haledon in areas not already served by Haledon; ruled that Haledon does not have an exclusive franchise or right to furnish water to North Haledon; and validated the Interlocal Services Agreement dated May 29, 2001, by and among North Haledon, Hawthorne, Hovnanian, Summit, and Anjo.


The BPU requests that we remand the franchise issue and any ancillary franchise issues to it. Relying on N.J.S.A. 48:2-13(a) and N.J.S.A. 40A:31-23(d), the BPU argues that it has primary jurisdiction to determine whether Haledon has an exclusive or any franchise right to furnish water service to North Haledon. Haledon supports the BPU's position and contends for the first time on appeal that the trial court should have deferred the franchise issue to the BPU's primary jurisdiction. However, Haledon maintains that the settlement agreement is a separate legal issue properly before this court. North Haledon, Hovnanian, Hawthorne, and Summit, take the position that the matter should not be remanded to the BPU because it does not have jurisdiction over the agreement between Haledon and North Haledon.

The BPU is responsible for supervising and regulating public utilities in the State and has the power to set "just and reasonable standards, classifications, regulations, practices, measurements or service to be furnished, imposed, observed, and followed" by a public utility. N.J.S.A. 48:2-13; N.J.S.A. 48:2-25(a). The determination of whether an administrative agency has jurisdiction over a particular matter "is one of statutory ...

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