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Penpac Inc. v. County of Passaic

Superior Court of New Jersey, Appellate Division

December 27, 2013

PENPAC, INC., Plaintiff-Appellant,
COUNTY OF PASSAIC, Defendant-Respondent.


Submitted December 3, 2013.

On appeal from Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-2635-11.

Nee, Beacham & Gantner, attorneys for appellant (Robert J. Beacham, on the brief).

Lum, Drasco & Positan, L.L.C., attorneys for respondent (Wayne J. Positan, of counsel and on the brief; Noah J. Gold, on the brief).

Before Judges Fisher and Koblitz.


This appeal concerns the liability of Passaic County for one particular debt of the Passaic County Utilities Authority (PCUA or the Authority). Plaintiff Penpac, Inc., a waste management company, holds a judgment against the PCUA for services rendered. Penpac appeals from an October 25, 2012 order granting summary judgment to Passaic County and dismissing Penpac's complaint seeking that the County pay the PCUA's debt of between one and two million dollars.[1] Passaic County agreed to financially assist the Authority in a number of agreements, but refused to pay the PCUA's debt owed to Penpac.

Penpac makes five arguments in opposition to the grant of summary judgment to the County. First, Penpac argues that defendant Passaic County has de facto dissolved the PCUA, and because the Municipal and County Utilities Authority Law (MCUA), N.J.S.A. 40:14B-1 to -69, requires that an authority's debts be paid upon dissolution, the County is now liable for all of the PCUA's debts. Second, Penpac argues that the County has assumed all of the PCUA's liabilities by operating the authority as a shell corporation. Third, Penpac maintains that the County has waived any statutory protection from the debts. Fourth, Penpac posits the County has de facto merged with the PCUA. Finally, Penpac argues that the PCUA's corporate veil should be pierced. The motion judge rejected these arguments and we affirm.

In 1987, the County created the PCUA pursuant to the MCUA, which empowers counties to create entities to provide waste removal services. From 1987 through 1992, Penpac contracted to perform trash and waste transfer services for the PCUA. In October 1992, after the contractual relationship between Penpac and the Authority expired, the PCUA filed an administrative action seeking that Penpac be required to continue rendering waste services. The New Jersey Department of Environmental Protection (DEP) determined that the service relationship between the parties should continue and in 1999 the rate of payment for these services was established by an Administrative Law Judge. Penpac was awarded approximately $8 million in under-recovery from the interim rates previously established by the DEP.

That $8 million dollar award was reduced to $3, 238, 792[2] on July 5, 2000 as a result of the Third Circuit decision that ruled unconstitutional New Jersey's waste flow rules and regulations, Atlantic Coast Demolition & Recycling v. Bd. of Chosen Freeholders of Atlantic Cnty., 112 F.3d 652 (3d Cir. 1997) cert. denied, 552 U.S. 966, 118 S.Ct. 412, 139 L.Ed.2d 316 (1997).

After Penpac successfully obtained a judgment for the first award, it sought mandamus relief, seeking an order requiring the Authority to satisfy the judgment out of monetary assets it held in various bank accounts.

Judge Burrell Ives Humphreys granted mandamus relief, requiring the PCUA to turn over $701, 230.41 from one account and $1, 702, 220.84 from other accounts in addition to all future income from a mortgage.[3] Judgment was then entered on the Remand Award. The PCUA did not fully satisfy the total judgment of $4, 831, 685. Seeking further relief, Penpac filed for mandamus a second time in 2009. In 2010, the PCUA was ordered to formally seek assistance from the County and the New Jersey Local Finance Board (LFB) to help satisfy the outstanding balance owed to Penpac, which the PCUA did to no avail.

Although the County has not paid this debt, it has provided financial support to the PCUA to pay some of the PCUA's other obligations. One agreement allowed the PCUA to pay for its landfill facilities and administrative expenses. Another established a plan for the PCUA to make full payment of two unrelated settlements. To pay for these obligations, the PCUA, with the County's assistance, issued $18 million worth of Solid Waste Systems Revenue Bonds.

In 2003, the PCUA went through a debt restructuring to avoid any adverse effect its outstanding obligations could have on the County's credit rating and short-term debt burden. A 2004 agreement was also executed in which the County provided financial assistance to the PCUA to make debt service payments due from March 2004 through September 2008.

In 2011, Penpac filed a verified complaint asking that the County be ordered to dissolve the PCUA and that judgment be entered against the County for the amounts owed. Summary judgment was granted in favor of the County. We now affirm the grant of summary judgment in favor of the County.

Summary judgment is appropriate where there are no genuine issues of material fact. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 532 (1995). Viewing the facts in a light most favorable to the nonmoving party, a court must determine whether the materials presented "are sufficient to permit a rational fact finder to resolve the alleged disputed issue in favor of the nonmoving party." Carmichael v. Bryan, 310 N.J.Super. 34, 47 (App. Div. 1998) (internal quotation marks and citation omitted).

An appellate court uses the same standard when reviewing an appeal from summary judgment. Henry v. New Jersey Dep't of Human Servs., 204 N.J. 320, 330 (2010). We have divided Penpac's appellate arguments into five sections.


Penpac argues that the County has de facto dissolved the PCUA. Dissolution of a municipal or county authority, however, is possible only after two elements have been established. First, "either the members of such authority have not been appointed or the municipal authority . . . consents to such dissolution." N.J.S.A. 40:14B-13. Second, the authority must not have any "debts or obligations outstanding." Id.

There is no such thing as de facto dissolution under the MCUA. Unless the statutory basis "for dissolution of an indebted authority is satisfied, the authority cannot be dissolved." Howell Twp. v. Manasquan River Reg'l Sewerage Auth., 215 N.J.Super. 173, 181 (App. Div. 1987).

The plaintiff in Howell asked the Chancery Court to dissolve a sewerage authority, [4] arguing that it had become a "superfluous administrative agency" and that the Ocean County Utilities Authority should assume the sewerage authority's debt to plaintiff. Id. at 177 (internal quotation marks omitted).

We affirmed the Chancery Court's denial of dissolution in an opinion stating that the Legislature "intended that local authorities . . . may be dissolved only under carefully circumscribed instances" to assure bondholders their investments would be safe and assure the general public that services would "not be disturbed and that comparable services would remain available after dissolution." Id. at 180-81. We further stated that the "Superior Court has no inherent power to intrude on this legislative scheme[.]" Id. at 181.

The statutory criteria for dissolution here, although emanating from a different statute, are identical to those in Howell and the legislative intent is just as clear: dissolution of an authority is impossible "if it has any outstanding debts or obligations." Browning-Ferris Indus. v. City of Passaic, 116 N.J. 83, 94 (1989). We reject Penpac's de facto dissolution argument because the PCUA cannot be dissolved so long as Penpac remains unpaid.


Penpac maintains that the County operates the PCUA as a shell corporation that is in reality a part of county government. Penpac claims that the County has therefore voluntarily assumed liability for all of the PCUA's debts. Penpac's argument ignores the legislative mandate that an authority created under the MCUA is an autonomous and wholly separate entity from State or local government, and accordingly, the County cannot be held liable for any debts of the PCUA it does not choose to assume.

Importantly, the Legislature provided that the MCUA should "be construed liberally to effectuate the legislative intent, " describing an authority as "independent" in exercising its powers under the statute. N.J.S.A. 40:14B-68. Our Supreme Court concluded that "the concerns of the municipality over contingent liabilities arising from an authority's operations were not intended by the legislature to be met by the antecedent ability of a municipality to share in the statutory power of an authority to enter into contracts for services." Browning-Ferris, supra, 116 N.J. at 94. Instead, the Local Authorities Fiscal Control Law, N.J.S.A. 40A:5A-1 to -27, "provides a range of other mechanisms" to address an authority's obligations. Id.

Two provisions of the MCUA are on point. First, N.J.S.A. 40:14B-33 (Section 33) provides that nothing in the MCUA "shall be construed to authorize any municipal authority[5] to incur any indebtedness on behalf of or in any way to obligate the State, or any county or municipality." This provision "makes it clear" that a municipal or county authority cannot unilaterally "impose any debt upon or in any other way obligate" State or local government. Graziano v. Mayor & Twp. Comm. of Montville Twp., 162 N.J.Super. 552, 560 (App. Div.), certif. denied, 79 N.J. 462 (1978).

Second, N.J.S.A. 40:14B-49 (Section 49) authorizes a county to "agree to pay a municipal utilities authority any sums agreed upon in lieu of service charges that would otherwise be imposed upon others in the municipality" and that those agreements may be made for a "specified or unlimited time." Graziano, supra, 162 N.J.Super. at 558 (emphasis added). We interpreted this provision to authorize the government "to take on obligations to the [authority] that are limited only by the good sense and fiduciary responsibility of the township's officers." Id. at 564.

Read together, Sections 33 and 49 provide that while an authority cannot unilaterally impose an obligation upon local government, local government may, at its discretion, agree to provide financial assistance to an authority to satisfy some of its debts. See id. at 561-62. In Graziano, pursuant to Section 49, we upheld a contract in which a municipality agreed to financially assist an authority for its operating costs and debt service payments, rejecting a challenge that the contract violated Section 33 because it transferred an authority's debt to local government. Id. at 564. Graziano did not hold that local government's assumption of some of an authority's debts made the government liable for all of the authority's debts. Section 33 prevents the PCUA's liabilities from passing to Passaic County unless the County agrees to assume them pursuant to Section 49. Graziano, supra, 162 N.J.Super. at 561-62.


Penpac posits that the County has waived its statutory protection from Penpac's judgment against the PCUA by agreeing to assume all of the Authority's other debts. "Waiver is the voluntary and intentional relinquishment of a known right." Knorr v. Smeal, 178 N.J. 169, 177 (2003). For waiver to be effective, the waiving party must know of its legal rights and intentionally relinquish them. Id. "The intent to waive need not be stated expressly, provided the circumstances clearly show that the party knew of the right and then abandoned it, " however, the act of waiver must be clear, unequivocal, and decisive. Id.

Nothing in this record indicates that the County clearly, unequivocally, or decisively assumed the PCUA's debt to Penpac. None of the various agreements entered into by the County support Penpac's claim that the County assumed all of the PCUA's debts, thereby waiving its rights under N.J.S.A. 40:14B-33.

By assumption of other debts, Passaic County has not waived the statutory protection afforded the County to avoid paying debts of the PCUA.


Penpac argues that by assuming some of the PCUA's debts and other expenses, the County has de facto merged with the authority and is therefore liable for Penpac's judgment.

Penpac relies on language in Judge Humphrey's 2007 mandamus decision finding the PCUA liable to Penpac where the judge stated that "[f]or all practical purposes the county controls and 'operates' the [PCUA] as part of county government." Penpac also relies on Woodrick v. Jack J. Burke Real Estate, 306 N.J.Super. 61 (App. Div. 1997), certif. granted sub nom., Woodrick v. Fox & Lazo, Inc., 153 N.J. 214, app. dis., 157 N.J. 537 (1998) to argue that the County has de facto merged with the PCUA and, as a successor "corporation, " is liable for all of the authority's obligations.

In light of Judge Humphrey's description of the relationship between the PCUA and Passaic County, Penpac maintains that the holding in Woodrick makes the County liable for all of the PCUA's debts. In the context of asset transfers between two private corporations, where one company sells or otherwise transfers all of its assets to another company, in certain circumstances, which Penpac argues exist here, the transferee is liable for the transferor's debts. Woodrick, supra, 306 N.J.Super. at 73.

The issue before us, however, does not arise from a private asset transfer deal. The statutory framework we rely on controls public entities and places broad financial discretion in the hands of State and local government, including whether to assume a particular debt belonging to the authority.


Penpac's final argument is that the doctrine of piercing the corporate veil should apply here. This argument is without sufficient merit to warrant discussion in a written decision. R. 2:11-3(e)(1)(E).

We note that Penpac's arguments are not without force on an equitable basis Justice O'Hern dissenting in Browning-Ferris reasoned that while the majority envisioned the municipal authority in that case to be possessed of broad and independent powers "nothing could be further from reality" Browning-Ferris supra 116 N.J. at 96 Justice O'Hern characterized the authority as existing "in word only: a paper creation designed to avoid the municipal spending cap It has no employees it has no revenues it has no offices outside of City Hall The municipality does all of its work and pays all of its bills" Id.

We of course must follow the decision of the majority of our Supreme Court no matter how persuasive a dissenter might be


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