CLAREMONT ASSOCIATES CORP STONE HILL RECREATION CORPORATION GREAT AMERICAN RECREATION INC CRYSTAL SPRINGS DEVELOPMENT McAFEE MANUFACTURING CORPORATION REALTY ASSOCIATES NEWMAN ASSOCIATES PHYLLIS LEHMAN STEVEN PHILLIPS ECO TEC SERVICES INC ASSOCIATES KSM FARMS INC GLENWOOD MANAGEMENT SAINT FRANCIS SALES ROMAN CATHOLIC CHURCH v. UNITED WATER MID ATLANTIC UTILITIES INCORPORATED SUSSEX COUNTY MUNICIPAL UTILITIES AUTHORITY UNITED WATER GREAT GORGE INC (2011)

In this declaratory judgment matter, we address whether the New Jersey Board of Public Utilities (BPU) has primary jurisdiction over plaintiffs' claims to private ownership rights in the capacity of a public utility sewer system.   Plaintiffs appeal from the July 22, 2009 Law Division order dismissing their amended complaint without prejudice and referring the matter to the BPU. We affirm.

In the 1980s, plaintiff Great American Recreation, Inc. (Great American) was a developer in Vernon Township.   Pursuant to an agreement entered into in December 1983 between Great American's wholly-owned subsidiary, Vernon Valley Sewer Company, Inc. (VVSC), and defendant Sussex County Municipal Utilities Authority (SCMUA), VVSC constructed, owned and operated a sanitary sewerage interceptor system, which included three pumping stations, an approximately 4.5-mile trunk sewer line and other appurtenances (collectively, the sewer system).   The sewer system serviced various developments in Vernon.   The agreement required SCMUA “to accept from VVS[C] an annual average of up to 380,000 gallons per day [ (gpd) ] of sewage into the Upper Wallkill [Valley Regional Wastewater] System for treatment at the SCMUA sewerage treatment plant located [in Hardyston Township].”   The agreement also permitted VVSC “to assign sewerage allocation in excess of its own required annual average of 300,000 [gpd] to other entities.”

Sometime thereafter, Great American's chairman of the board, Eugene Mulvihill, was convicted of insurance fraud.   As a result, in 1987, the BPU issued a decision requiring Great American's subsidiary to wind up its business affairs and thereby have Great American divest itself of its interest in the sewer system.   Thereafter, in 1988, VVSC entered into an Assets Purchase Agreement to sell its assets to Mid-Atlantic Utilities Corporation, now known as defendant United Water Mid-Atlantic Utilities, Incorporated, its successor in interest (collectively United Water).   The agreement contains the following reservation of capacity clause:

In consideration of a reduction of the price to be paid by [United Water] to [VVSC] for the assets of the [VVSC], said reductions being in an amount exceeding one million dollars ․ [United Water] hereby grants to Great American ․ the sole and exclusive right to use, assign or designate any or all of the remaining capacity in the trunk sewer line owned by [VVSC] in excess of the current allocation of 380,000 gpd (annual average) and further grants to Great American in the event of and to the extent that [United Water] does not require the full amount of 380,000 gpd (annual average) of the capacity of the trunk sewer line to serve the [developments, village, park, ski area, and condominiums], the sole and exclusive right to designate and assign the unrequired portion of the 180,000 gpd allocation․

In the event that there is an unrequired portion of the 380,000 gpd (annual average) as established by the [Department of Environmental Protection] and in the event that Great American ․ has not designated or assigned that unrequired portion to an approved development within three years from the receipt of any executed copy thereof, [VVSC] shall make a refund to [United Water]․

The proposed sale required the BPU's approval.   See N.J.S.A. 48:3-7a.   In connection with its review of the transaction, the BPU served written interrogatories on United Water, asking it to explain the reservation of capacity clause.   United Water responded that it was purchasing VVSC's assets for less than book value, and that Great American sought to restrict United Water's use of the unused capacity until Great American determined it did not need that capacity for its own developments.   In a September 25, 1989 decision and order, the BPU approved the sale;  however, it did not mention or approve the reservation of capacity to Great American.

Plaintiffs claim that thereafter, through a series of transactions, they acquired ownership rights to the unused and excess capacity in the sewer system.   Plaintiffs conceded that the BPU did not approve any of these transactions.

Plaintiffs allege that in April 2008, SCMUA entered into an agreement with United Water to purchase certain force mains that comprise the sewer system.¹  In August 2008, plaintiffs Claremont Associates Corp. 2 (Claremont 2) and Stone Hill Recreation Corporation (Stone Hill) filed a complaint for declaratory judgment, alleging that the proposed sale violated their ownership rights in the capacity of the sewer system.   They sought a declaration that Claremont 2 “owned” a certain percentage of the remaining, unallocated capacity of the sewer system and Stone Hill owned 50,000 gpd of the 380,000 gpd allocated capacity.

An amended complaint, filed in February 2009, added additional plaintiffs and sought a declaration that some of them “are the owners of [a percentage of] the remaining unallocated capacity of the [s]ewer [s]ystem ․ [and some] are the owners of [certain amounts of] the 380,000 [gpd] sewerage allocation of the [s]ewer [s]ystem ․ “ (emphasis added)

United Water filed a motion to dismiss the amended complaint contending the BPU has primary jurisdiction by statute over plaintiffs' claims.   The trial judge granted the motion, concluding that N.J.S.A. 48:2-13(a) “explicitly encompasses the parties in the present action.   The sewer system at issue is for public use, and the main dispute is recognizing who owns, operates, or controls the unallocated capacity of the sewer system.”   The judge also concluded as follows:

Pursuant to N.J.S.A. 48:3-7, the BPU is charged with approving any transfer or transaction that affects the “property, franchise, privileges or rights” of the public entity.   Any transfer or transaction not approved is null and void.  Id. The BPU has express control of the property rights of the public entity, and therefore the BPU should be charged with rectifying any disputes caused because of the transaction.   The BPU is the correct venue to determine the rights reserved to the Plaintiffs under the 1988 Assets Purchase Agreement.   The BPU is the correct venue to determine control over the unallocated capacity of the sewer system.   To remove this authority from the BPU and give it to the Court would be contrary to the intent of N.J.S.A. 48:2-13(a).   It would be as if the Court was “stepping on the toes” of the BPU, and against public policy.   Therefore, the Plaintiffs' Amended Complaint is dismissed without prejudice.

This appeal followed.

On appeal, plaintiffs argue that they do not claim to own any portion of a public utility or its property;  rather, they claim to own the right to use the unused and excess capacity in the sewer system, which is a contractual right derived from the reservation of capacity granted to Great American in the 1988 Assets Purchase Agreement.²  Accordingly, plaintiffs conclude that the dispute over those rights is purely a question of law falling squarely within the court's jurisdiction under the Uniform Declaratory Judgments Act, N.J.S.A. 2A:16-50 to -62.

Plaintiffs also argue that N.J.S.A. 48:2-13 and N.J.S.A. 48:3-7(a) do not apply because plaintiffs are not public utilities, and the statutes do not extend to private transfers of capacity rights.³  Lastly, plaintiffs argue that the four factors set forth in Muise v. GPU, Inc., 332 N.J.Super. 140, 160 (App.Div.2000), militate against the BPU's primary jurisdiction over this controversy.   We disagree with plaintiffs' arguments.

A trial court may defer its “original jurisdiction” to an administrative agency when necessary for “ ‘the resolution of threshold issues, usually of a factual nature, which are placed within the special competence of the administrative body.’ ”  Unalachtigo Band of the Nanticoke-Lenni Lenape Nation v. State, 375 N.J.Super. 330, 345 (App.Div.) (quoting Golden Hill Paugussett Tribe of Indians v. Weicker, 39 F.3d 51, 58-59 (2d Cir.1994)), certif. denied, 184 N.J. 210 (2005);  see also Muise, supra, 332 N.J.Super. at 158.   This principle, known as the doctrine of primary jurisdiction, recognizes that both the administrative agency and the courts have subject-matter jurisdiction, but for policy reasons, the agency should exercise its jurisdiction first.  Borough of Haledon v. Borough of N. Haledon, 358 N.J.Super. 289, 301-02 (App.Div.2003).

The purposes of the primary jurisdiction doctrine are (1) “to allow an agency to apply its expertise to questions which require interpretation of its regulations[;]” and (2) “to preserve uniformity in the interpretation and application of an agency's regulations.”  Muise, supra, 332 N.J.Super. at 159-60;  accord Campione v. Adamar of N.J., Inc., 155 N.J. 245, 264 (1998).  “The general test for when a court should defer to an agency's primary jurisdiction is ․ if ‘to deny the agency's power to resolve the issues in question’ would be inconsistent with the ‘statutory scheme’ which vested the agency ‘with the authority to regulate [the] ․ activity’ it oversees.”   Muise, supra, 332 N.J.Super. at 160 (alteration in original) (quoting United States ex rel. Haskins v. Omega Inst., Inc., 11 F.Supp.2d 555, 561 (D.N.J.1998)).   Thus, a trial court should refer an issue to an administrative agency if the matter involves application of the agency's expertise.  Id. at 159.

Pure questions of law are not within the special expertise of the agency, making a grant of primary jurisdiction to the agency in such an instance inappropriate.   See also Bay Point Yacht Harbour v. Jersey Cent. Power & Light Co., 251 N.J.Super. 453, 456 n.1 (App.Div.1991).  Farmingdale Realty Co. v. Borough of Farmingdale, 55 N.J. 103, 112 (1969) (finding the exhaustion doctrine (which is related to the primary jurisdiction doctrine) to be inapplicable in cases of only legal questions not within the agency's expertise).   Moreover, “primary jurisdiction cannot be invoked when the claim is outside the agency's jurisdiction, or when the remedy for such a claim is outside the agency's power.”  Muise, supra, 332 N.J.Super. at 160.

The following four factors must be weighed when determining the application of the primary jurisdiction doctrine:

“1) whether the matter at issue is within the conventional experience of judges;  2) whether the matter is peculiarly within the agency's discretion, or requires agency expertise;  3) whether inconsistent rulings might pose the danger of disrupting the statutory scheme;  and 4) whether prior application has been made to the agency.”

[Ibid. (quoting Boldt v. Correspondence Mgmt., Inc., 320 N.J.Super. 74, 85 (App.Div.1999)).]

The decision to invoke the doctrine of primary jurisdiction rests within the sound discretion of the court.   Alliance for Disabled in Action, Inc. v. Cont'l Props., 371 N.J.Super. 398, 408 (App.Div.2004), aff'd o.b., 185 N.J. 331 (2005).   Applying these standards, we conclude that the trial judge properly invoked the doctrine of primary jurisdiction.

The Legislature has granted the BPU broad regulatory jurisdiction and control over “all public utilities ․ and their property, property rights, equipment, facilities and franchises so far as may be necessary․  “ N.J.S.A. 48:2-13 (emphasis added).   The BPU's power, therefore, extends to

every individual, copartnership, association, corporation or joint stock company, their lessees, trustees or receivers appointed by any court whatsoever, their successors, heirs or assigns, that now or hereafter may own, operate, manage or control within this State any ․ sewer, solid waste collection, solid waste disposal ․ plant or equipment for public use, under privileges granted or hereafter to be granted by this State or by any political subdivision thereof.

[Ibid. (emphasis added).]

“This sweeping grant of power is ‘intended to delegate the widest range of regulatory power over utilities to the [BPU].’ Furthermore, the BPU's authority over utilities ․ extends beyond powers expressly granted by statute to include incidental powers that the agency needs to fulfill its statutory mandate.”  Bd. of Pub. Utils. v. Valley Rd. Sewage Co., 154 N.J. 224, 235 (1998) (alteration in original) (quoting Twp. of Deptford v. Woodbury Terrace Sewerage Corp., 54 N.J. 418, 424 (1969)).   Also, the BPU “may ․ require any public utility to furnish safe, adequate and proper service․  “ N.J.S.A. 48:2-23.

Moreover, “[n]o public utility shall, without the approval of the [BPU] ․ dispose of or encumber its property, franchises, privileges or rights, or any part thereof․  “ N.J.S.A. 48:3-7(a).   Every “disposition [or] encumbrance ․ made [without the BPU's approval] shall be void.”  Ibid. Accordingly, no public utility's property or control over a public utility's capacity to provide services may be relinquished to or acquired by a private party without the BPU's approval.  N.J.S.A. 48:2-51.1.

The sewer system in this case is for public use.   Great American is a corporation and a public utility that owned, managed or controlled property rights in a public sewer system.   See N.J.S.A. 48:2-13.   Plaintiffs are claiming an ownership interest in Great American's property rights to the unused and excess capacity in a public sewer system.   Thus, a determination of those rights is within the BPU's statutory authority, see ibid., and its special expertise is necessary to determine the impact of those alleged rights on the provision of safe, adequate and proper sewer service.   Accordingly, the BPU has primary jurisdiction over this controversy, see ibid., and the authority to make a declaratory ruling on plaintiffs' claims, see N.J.S.A. 52:14B-8 (“[A]n agency upon the request of any interested person may in its discretion make a declaratory ruling with respect to the applicability to any person, property or state of facts of any statute or rule enforced or administered by that agency.”);   see also United Sav. Bank v. State, 360 N.J.Super. 520, 524 (App.Div.) (“[I]ssuance of a declaratory ruling by an agency is discretionary.”), certif. denied, 177 N.J. 574 (2003).⁴

Sudler v. Environmental Disposal Corp., 219 N.J.Super.   52 (App.Div.), certif. denied, 109 N.J. 56 (1987), on which plaintiffs rely, supports this conclusion.  Sudler concerned the preference that a public sewer disposal plant operator gave to one developer over another regarding the operator's remaining capacity in the sewer system.  Id. at 55.   The parties petitioned the BPU to resolve the issue.  Id. at 56.   The BPU concluded the operator could reasonably deny developers access to its sewerage capacity.  Id. at 60.   We affirmed, noting that we give deference to the BPU's authority and expertise in deciding the reservation of capacity in a sewer system.  Id. at 61.   Likewise, the trial judge here properly exercised his discretion in referring this matter regarding plaintiff's claims of ownership rights in the capacity of a sewer system to the BPU.

We add one further comment.   The BPU's approval of the sale of the sewer system to United Water pursuant to the Assets Purchase Agreement did not specifically approve the reservation of capacity to Great American, nor did it absolve Great American of its obligation to obtain the BPU's approval of any subsequent disposition of its property rights, or any part thereof, to the capacity in the sewer system.  N.J.S.A. 48:3-7(a).

Affirmed.

FOOTNOTES

FN1. This agreement stemmed from SCMUA's planned expansion of the Upper Wallkill Valley Regional Wastewater System.   The expansion effected plaintiff's alleged capacity rights because it would reverse the direction of flow in the existing force main and increase the capacity of the treatment facility in Hardyston Township, thus enabling SCMUA to accept an additional 265,000 gpd of sewage generated by new developments..  FN1. This agreement stemmed from SCMUA's planned expansion of the Upper Wallkill Valley Regional Wastewater System.   The expansion effected plaintiff's alleged capacity rights because it would reverse the direction of flow in the existing force main and increase the capacity of the treatment facility in Hardyston Township, thus enabling SCMUA to accept an additional 265,000 gpd of sewage generated by new developments.

FN2. We decline to rely on the unpublished opinions plaintiffs cite to support their attempt to distinguish the ownership of a public utility and the ownership of capacity rights.   Those opinions do not constitute precedent or bind us.  Trinity Cemetery Ass'n v. Twp. of Wall, 170 N.J. 39, 48 (2001);  R. 1:36-3..  FN2. We decline to rely on the unpublished opinions plaintiffs cite to support their attempt to distinguish the ownership of a public utility and the ownership of capacity rights.   Those opinions do not constitute precedent or bind us.  Trinity Cemetery Ass'n v. Twp. of Wall, 170 N.J. 39, 48 (2001);  R. 1:36-3.

FN3. We reject plaintiffs' reliance on a May 18, 1998 Order for Confirmation of Assignment by Public Sale of Sewer Rights and Pipe Allocation of the United States Bankruptcy Court for the District of New Jersey in In re Herold Square Partners, Inc., Case No. 93-29315(WFT) to support this argument.   Although the Bankruptcy Court authorized the Chapter 7 Trustee's sale/assignment of the debtor's rights in the capacity of the sewer system, it did not discuss the validity of the debtor's ownership rights to that capacity..  FN3. We reject plaintiffs' reliance on a May 18, 1998 Order for Confirmation of Assignment by Public Sale of Sewer Rights and Pipe Allocation of the United States Bankruptcy Court for the District of New Jersey in In re Herold Square Partners, Inc., Case No. 93-29315(WFT) to support this argument.   Although the Bankruptcy Court authorized the Chapter 7 Trustee's sale/assignment of the debtor's rights in the capacity of the sewer system, it did not discuss the validity of the debtor's ownership rights to that capacity.

FN4. When considering primary jurisdiction, we recognize that the business of public utilities, particularly wastewater treatment facilities, is permeated with regulatory oversight.   In fact, the SCMUA's planned expansion of the Upper Wallkill Valley Regional Wastewater System, which triggered the dispute in this case, had to be approved by the Department of Environmental Protection..  FN4. When considering primary jurisdiction, we recognize that the business of public utilities, particularly wastewater treatment facilities, is permeated with regulatory oversight.   In fact, the SCMUA's planned expansion of the Upper Wallkill Valley Regional Wastewater System, which triggered the dispute in this case, had to be approved by the Department of Environmental Protection.

PER CURIAM