STATE OF NEW YORK

SUPREME COURT : COUNTY OF CHAUTAUQUA

_____________________________________________

WELCH FOODS, INC.,

Plaintiff,

-vs-

Index #G-05625

VILLAGE OF WESTFIELD,

Defendant.

_____________________________________________

PHILLIPS, LYTLE, HITCHCOCK,

BLAINE & HUBER (Alan M.

Wishnoff, Esq. of Counsel)

for Plaintiff

DAVID J. CALVERLEY, ESQ.

Attorney for Defendant

Village of Westfield

THOMAS E. WEBB, ESQ.

Attorney for Defendant

Growers Co-Operative

Grape Juice Company

KAVINOKY & COOK, LLP

(Lawrence C. Brown, Esq.

of Counsel) for Defendant

Mogen David Wine Corporation

DECISION and ORDER

GERACE, J.

Plaintiff ("Welch") seeks a partial summary judgment and

Declaration of Rights that could ultimately result in a

refund of over $1.2 million in sewer rate overcharges.

Defendant Village ("Westfield") asks for dismissal of the

complaint on the grounds it had the authority to set rates

irrespective of the formula in its sewer agreement with

Welch.

The simple and central question here is whether

the Village was obligated by law and contract to calculate

Welch's sewer user charges for operation and maintenance

costs on the formula set forth in the Sewer Agreement

between the parties, using actual monitored wastewater

data, or whether it could disregard the contract and

unilaterally set a formula containing fixed costs.

The Sewer Agreement was entered into pursuant to the

Federal Water Pollution Control Act ("FWPCA") which

requires that user charges be based on each industrial

user's proportionate contribution of wastewater to the

sewer system.

Paragraph Eight of the agreement calls for a user

charge formula based on actual wastewater contribution to

the sewer system.

Instead of following that formula, the Village

continuously based Welch's user charges on Welch's design

capacity figures.

When the sewer system was initially operational, the

parties had no equipment to accurately measure actual usage

because Welch's monitoring equipment did not function

properly.

Lacking actual wastewater data, the Village and Welch

agreed to calculate Welch's user charges based on the

design capacity assigned to Welch until such time as the

monitoring equipment was operative. Welch did not agree

that the design capacity figures could be used forever,

neither did the EPA.

In 1984, Welch installed functional wastewater

monitoring equipment the Village certified as an "approved

monitoring system". The monitoring revealed Welch was being

charged for more wastewater than it was sending through the

system.

The monitoring of Welch's wastewater for the past 12

years demonstrates it generated considerably less than the

design capacity figures, and, that the Village was over

charging Welch for its sewer use.

In 1986, over Welch's objection, Westfield amended the

sewer ordinance changing the user charges to contain a

fixed cost and a variable cost, rather than a cost based on

proportionate use. The fixed cost was based on design

capacity for each industrial user, not actual use.

Ever since the sewer system was operational, the

Village imposed sewer charges based on design capacities

that bear no relation to use and charged Welch as if it

used its total assigned design capacity each day of the

year, which it did not.

The Court finds this violates the contract entered

into between the parties, and is contrary to federal law

and regulations, and state statutes, all of which require

charges based on actual proportionate use.

The sludge user charges also violated the contract and

state and federal laws and regulations because those

charges were not based on actual proportionate use.

Westfield argues that the original contract is

unenforceable because it could not bargain away its

legislative power or discretion to set sewer rates. The

Villages cites VILLAGE OF CANASTOTA V QUEENSBORO FARM, 44

AD2d 276, which held that sewer rents can only be imposed

by local law or ordinance and may not be established by

contract. But see MATTER OF TOWN OF HIGHLANDS v WEYANT, 38

AD2d 256, app. dsmd. 30 NY2d 948, which held that a Village

ordinance purporting to abrogate a contract between a

municipality and an outlying sewer was void; that the

contract was enforceable. The Court quoted 40 NY Jur.,

Municipal Corporations Section 810 which stated:

"[C]ourts should not be astute to enable a municipal

corporation to disavow its just commitments or

obligations, or to conduct itself respecting them

in a manner violative of fair dealing, which they

would not sanction were natural persons the parties

involved." (See 27 NY Jur 2d Section 1209 which cites

Highlands v Weyant, supra); Lowe v. City of New York

240 AD 484, Affd, 265 NY 583.

The Canastota case can be distinguished. That case

did not involve a sewer agreement entered into pursuant to

the Federal Water Pollution Control Act ("FWPCA") which

required user charges to be based on each industrial user's

proportionate contribution of wastewater to the sewer

system.

When Westfield accepted the federally funded grant

award, it became bound by federal requirements and the

terms and conditions of the award, including the

requirement to charge users on a proportionate use basis.

That was not the case in Canastota.

Also, the contract in Canastota set a specific sewer

rent irrespective of proportionate use. Nowhere in any of

the provisions of its ordinance did Canastota set forth any

specific rates based on usage, nor any formulae or

standards for determining same.

Westfield had no right to unilaterally change the

terms of its contract with Welch without the approval of

the EPA and Welch. See PIONEER TRANSPORTATION CORP. v

KALADJIAN, 105 AD2d 698 which held that in absence of a

clear expression in the contract:

"[A] court may not construe an agreement so that it

is modified by a subsequent statutory enactment which

changes the rights and obligations of the parties."

The Westfield sewer ordinance imposed a penalty on

industries that used more than their allocated design

capacity whether or not other industries used the

facilities, and whether or not the plant was operating at

capacity. This surcharge for exceeding design capacity is

not provided for in the agreements with the industries.

Welch's motion for partial summary judgment declaring

the rights and obligations of the parties is granted in

part, denied in part and modified in part as follows:

1. The Village water pollution control plant was

built with Federal and State funding provided pursuant to

the Federal and State Grant Agreements entered into on June

17, 1974 and March 31, 1975.

2. The Federal and State Grant Agreements and the

Federal Water Pollution Control Act, 33 U.S.C. 1251, et

seq. ("FWPCA"), require the Village to adopt a user charge

system based on actual use of wastewater treatment services

so that each user pays its proportionate share of operation

and maintenance costs based on the user's proportionate

contribution to the total wastewater loading from all

users.

3. On or about November 18, 1975, Welch and the

Village entered into a Sewer Agreement pursuant to the

Federal and State Grant Agreements and the FWPCA.

4. Paragraph 8 of the Sewer Agreement contains a user

charge formula in accordance with the FWPCA and Federal and

State Grant Agreements basing Welch's operation and

maintenance ("O&M") cost user charges on its actual

monitored wastewater contribution of BOD5 and phosphorus to

the total wastewater loading at the water pollution control

plant ("WPCP").

5. Pursuant to the Sewer Agreement, the FWPCA and the

Federal and State Grant Agreements, Welch is entitled to

have its O&M user charges calculated pursuant to the

formula in paragraph 8 of the Sewer Agreement based on its

actual monitored use of the WPCP.

6. Welch's O&M user charges are governed by the

formula in paragraph 8 of the Sewer Agreement. The Village

cannot unilaterally modify those O&M user charges in its

Sewer Ordinance, unless such modification is consistent

with the FWPCA and the Federal and State Grant Agreements

and regulations, and consistent with its actual monitored

proportionate waste water calculations. The Sewer

Agreement entered into pursuant to the FWPCA preempts any

[inconsistent] user charge provisions in the Sewer

Ordinance that are inconsistent with the foregoing.

7. The Village's Sewer Ordinance contains a user

charge formula different from that in the Sewer Agreement.

In 1986, the Village amended its Sewer Ordinance to include

an operation and maintenance cost user charge with a "fixed

cost" component.

8. The "fixed cost" is based on original maximum

design capacities established in 1975. It is not related

to Welch's actual use of the Village sewer system.

9. The "fixed cost" component of the operation and

maintenance cost user charge in the Amended Ordinance

conflicts with and violates the requirement of the FWPCA,

the Sewer Agreement, and the Federal and State Grant

Agreements, that the Village's user charge system be based

on actual proportionate use of wastewater treatment

services, and therefore may not be imposed on Welch.

10. The Village has never computed Welch's O&M user

charges pursuant to the formula set forth in paragraph 8 of

the Sewer Agreement based on Welch's actual monitored use.

11. Prior to amending the Sewer Ordinance in 1986, the

Village based Welch's O&M user charges solely on Welch's

maximum design capacities established in 1975.

12. After the Amended Ordinance went into effect in

1986, the Village imposed O&M user charges on Welch

pursuant to the formula in the Amended Ordinance including

"fixed cost" user charges based on original maximum design

capacities as established in 1975.

13. The Village's failure to compute Welch's O&M user

charges pursuant to the formula in paragraph 8 of the Sewer

Agreement based upon Welch's actual monitored use has

resulted in O&M overcharges.

14. The Village is legally obligated to refund to Welch

any operating and maintenance ("O&M") overcharges, plus

interest from the dates of the overcharges.

15. The Village is required to compute all of Welch's

future O&M user charges pursuant to the formula set forth

in paragraph 8 of the Sewer Agreement based upon Welch's

actual monitored use.

16. No wastewater monitoring data is one hundred

percent exact because of the nature of the testing. The

amount of the overcharges must be determined by agreement,

hearing or trial.

17. The Amended Ordinance also contains a "user

charge" for recovery of the capital cost of a sludge

dewatering facility.

18. The user charge for recovery of the capital cost

of the sludge dewatering facility is governed by the

requirement of New York General Municipal Law Article 14-F,

the Sewer Rent Law.

19. General Municipal Law Article 14-F requires that

such water charges for recovery of capital costs of a sewer

system be related to actual use.

20. The user charge for recovery of capital costs of

the sludge dewatering facility in the Amended Ordinance is

based on original maximum design capacities established in

1975. Welch's cost allocation for this user charge is not

related to its actual use of the system or production of

sludge.

21. The user charge for recovery of the capital cost

of the sludge dewatering facility in the Amended Ordinance

conflicts with and violates General Municipal Law Article

14-F, and therefore may not be imposed on Welch.

22. The imposition of sludge user charges under the

Amended Ordinance has resulted in overcharges to Welch.

23. The Village is required to refund to Welch the

amount of the sludge overcharges determined after hearing

or trial.

24. The Village is required to adopt a system of

sludge user charges consistent with General Municipal Law

Article 14-F's requirement that such user charges be

related to actual use.

25. The Village establishment of an Extraordinary

Maintenance Fund is authorized and consistent with the law,

regulations and the sewer agreement, provided it is

recognized and treated as an O&M cost and allocated

accordingly.

26. The Village use of Industrial Cost Recovery

payments to set up an Extraordinary Maintenance Fund and to

reduce the cost of the Sludge Dewatering Facility was

within its unilateral authority.

27. The Village's billing method of charging based on

the budget without adjusting to actual as set forth in the

1986 ordinance is not consistent with the agreement

notwithstanding the practice of applying the difference

between actual and budget to the following year. The

Village has the authority to amend the ordinance to reflect

actual practice.

28. The Village's adoption of a surcharge for

exceeding design capacity is not provided for in the sewer

agreement, and is unauthorized. The Village may adopt a

surcharge based on history of use and total capacity, or

other methodology consistent with the law, regulations, and

generally accepted practice that bears a reasonable

relation to the amount by which the capacity is exceeded

and includes all industrial users.

29. The charging of reasonable legal costs to the

sewer budget is authorized, but, those legal fees

determined after a hearing or trial to have been

unreasonable, or, attributable to this lawsuit may be

recoverable by the sewer fund from the general budget.

30. The sewer agreement does not grant to Welch

ownership rights for reserve capacity; Welch only has the

right to use the capacity.

31. The sewer agreement, and applicable law and

regulations, does not prevent the Village from adopting

amendments to its sewer ordinance that would allow the

Village to allocate Welch's reserve capacity to other

industries, provided Welch would be credited with

equivalent, proportional payments; provided Welch would be

relieved of any obligation to pay if new users are unable

to pay; that excess loads for surcharge purposes would be

based on Welch's original design load.

32. Mogen David and Growers Cooperative are

responsible for sewer and sludge charges based on their

proportionate contribution to the total wastewater loading

for all users. They are entitled to credit for any

surcharges based on exceeding design capacity. They are

obligated to pay to the Village the difference between what

they should have paid, and, what they did pay.

33. Because the Village created the problem, the

Village must reimburse Welch the reasonable amount of legal

fees and expenses it incurred in this litigation.

34. Because some part of the O&M costs exist

regardless of the volume of affluent and solids, the

Village is to determine the amount of such "fixed costs",

i.e., costs even if there was no usage, i.e., standby

costs, and allocate the same on the basis of the average of

usage for three years past, but, charge those costs on the

basis of actual use.

35. Welch is entitled to be credited dollar for dollar

toward its capital cost of Sludge Dewatering facility for

its ICR payments, subject to paragraph 25 above.

THE RICO CLAIM

Westfield's motion to dismiss is denied except that

the Court grants dismissal of the claim under 42 USC 1961

RICO.

There is no doubt that for over 10 years the Village

has stiff armed Welch's efforts to have the village comply

with its contract.

There is no doubt the village has resorted to various

excuses and devises to avoid computing Welch's user charges

based on actual monitored use.

There is no doubt the Village's continued violation of

the FWPCA user charge requirements and breach its sewer

agreement with Welch results in little gain for the Village

but does result in lower costs being paid by other

industries. The main beneficiary of Welch's overcharges are

the other industries, Mogen David and Grower's Cooperative.

There is little rhyme, reason, or rationale why the

Village would risk EPA sanctions and a possible termination

or annulment and repayment of its federal grants by the

patently improper way it charged Welch.

One excuse offered by the Village leaders is that they

feared Welch would reduce or close down its operations and

leave the village and other industries with the sole

responsibility for paying the full O&M costs of an

oversized plant built to accommodate Welch.

In its 1986 answer, the Village alleged:

1. After considerable negotiation during the 1960's

and 1970's, the parties entered into an agreement

in November 18, 1975, which provided for

utilization by Welch of the sewer system and

alleged assurance by Welch it would use the

facility for 30 years.

2. That based on those assurances, and a need

expressed by Welch, the Village constructed a

facility large enough to accommodate Welch's needs

and incurred certain fixed operating and

maintenance costs greater than it would have

incurred if it had built a smaller facility.

3. That Welch could reduce its usage level of the

waste water facility to zero without liability for

a proportionate share of the fixed and variable

operation and maintenance expenses of the facility.

4. That if Welch ceased to use the facility and ceased

to pay its share of the fixed and variable expenses

associated with the facility on the same

proportionate basis as the original design

allocations, the residential users would suffer

financial damage.

That was a contingency the Village should have

negotiated for and provided for in the Sewer Contract with

the approval of the EPA, and not by unilateral, improper

legislation that breached its agreement with Welch,

violated federal and state laws and regulations, and

exposed the Village to severe sanctions by the EPA that

include a possible repayment of the federal dollars it

received for the plant.

The Court takes judicial notice of the ongoing inquiry

and findings by the EPA based on the inappropriate sewer

charges imposed on Welch by the 1986 Sewer Ordinance

amendments.

The Village Board and Sewer Board acted improperly,

violated the regulations, the statutes, the sewer

agreement, but, their conduct does not rise to the

"racketeering activity" within the meaning of 18 USC

Section 1961(1). They acted unwisely, unfairly,

wrongfully, but, they are not racketeers.

The RICO causes of action are dismissed. Accordingly,

the Court grants the motion of defendant Westfield to

dismiss the "FIFTEENTH", "SIXTEENTH", "SEVENTEENTH",

"EIGHTEENTH" and "NINETEENTH" causes of action described in

the amended complaint.

All stays regarding discovery are rescinded. Counsel

for Welch is directed to submit a proposed scheduling and

discovery order to the Court and the other counsel within

20 days; within 20 days after receipt of Welch's proposal,

other counsel are to present their proposals to the Court

and Welch.

THIS IS THE DECISION AND ORDER OF THIS COURT.

Dated: October , 1995

Mayville, New York

____________________________

JOSEPH GERACE

Supreme Court Justice

To all Counsel:

Please take notice that a DECISION and ORDER of

which the within is a copy, is duly granted in the above

entitled action on the day of , 1995, and

duly entered in the office of the Clerk of the County of

Chautauqua on the same date.