SUPREME COURT : COUNTY OF CHAUTAUQUA
WELCH FOODS, INC.,
VILLAGE OF WESTFIELD,
PHILLIPS, LYTLE, HITCHCOCK,
BLAINE & HUBER (Alan M.
Wishnoff, Esq. of Counsel)
DAVID J. CALVERLEY, ESQ.
Attorney for Defendant
Village of Westfield
THOMAS E. WEBB, ESQ.
Attorney for Defendant
Grape Juice Company
KAVINOKY & COOK, LLP
(Lawrence C. Brown, Esq.
of Counsel) for Defendant
Mogen David Wine Corporation
DECISION and ORDER
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
THIS IS THE DECISION AND ORDER OF THIS COURT.
Dated: October , 1995
Mayville, New York
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.