Hilo, LLC, et al., Plaintiffs, v Town of Milton et al., Defendants. (Action No. 2.)

Hilo, LLC, et al., Plaintiffs, v Heritage Springs Sewer Works, Inc., Defendant. (Action No. 3.)

Supreme Court, Saratoga County, July 26, 2022

Walsh & Walsh, LLP, Saratoga Springs (Joseph M. Walsh and Jesse P. Schwartz of counsel), for Heritage Springs Sewer Works, Inc., plaintiff in the first above-entitled action and defendant in the second and third above-entitled actions.

Whiteman Osterman & Hanna LLP, Albany (John J. Privitera of counsel), for Hilo, LLC and another, plaintiffs in the second and third above-entitled actions.

Whiteman Osterman & Hanna LLP, Albany (John J. Privitera of counsel), for Thomas Boghosian and another, defendants in the first above-entitled action and plaintiffs in the second and third above-entitled actions.

Brown, Craig and Hunt, Ballston Spa (James P. Craig of counsel), for Town of Milton and others, defendants in the second above-entitled action.

The parties to this litigation have a long and protracted history spanning over two decades. By way of background, in 1987 the Town of Milton (hereinafter the Town), Saratoga County, consented to the incorporation of Heritage Springs Sewer Works, Inc. (hereinafter HSSW) as a sewage-works corporation under Transportation Corporations Law § 116. While sewage services are ordinarily provided as a public utility by a public entity, during the Rockefeller administration—when areas of New York were growing rapidly—the Governor orchestrated a change to the Transportation Corporations Law whereby private developers were authorized to build their own sewer systems and operate them for a given period of time before turning them over to the public utilities. These private sewer{**76 Misc 3d at 655} companies generally exist until the developers recoup their initial investment and the public utilities catch up with the growing population. HSSW was initially authorized by the Saratoga County Sewer District No. 1 (hereinafter SCSD) to operate "for a minimum of 6 years" (minutes of May 27, 1987 meeting of SCSD at 1, attached as exhibit 2 to McNamara aff), but was subsequently granted several extensions with the SCSD ultimately passing a resolution in 2004 supporting the "continued operation of [HSSW] until such time as the Town . . . adopts a resolution recommending that [HSSW] dedicate its sewer system to Saratoga at which time they [will] become part of the public utility infrastructure" (Resolution No. SD 07-2004 of the Town of Milton at 1, attached as exhibit 3 to McNamara aff). The service area of HSSW has also expanded over the years.

In 1998, HSSW entered into an agreement with developers Thomas Boghosian and Bruce Boghosian whereby it would provide sanitary sewer service to the Old Mill Town Planned Development District—which the Boghosians were constructing on a parcel of land they owned in the Town—in exchange for the payment of $150,000. Three days prior to the date on which the Boghosians' final payment was due, there remained an unpaid balance of $97,875. After written demands for payment went unanswered, HSSW commenced action No. 1 against the Boghosians in 2006 seeking, inter alia, a declaratory judgment that their failure to pay the balance constituted a material breach of the agreement and, further, that HSSW was no longer obligated to provide sewer service to the Boghosians, their successors or assigns. HSSW also sought an award of reasonable counsel fees.

In their answer, the Boghosians interposed several affirmative defenses and counterclaims including, inter alia, that HSSW was not a validly authorized sewage-works corporation under the Transportation Corporations Law, that they were fraudulently induced into signing the agreement with HSSW and that HSSW was liable for trespass. The Boghosians thereafter commenced a third-party action against the Town seeking indemnification or contribution for any potential liability resulting from HSSW's complaint against them, and a declaratory judgment that the Town failed to discharge its statutory duties under the Transportation Corporations Law.

Meanwhile, HSSW moved for summary judgment granting the relief requested in the [*2]complaint and dismissing the Boghosians'{**76 Misc 3d at 656} counterclaims. By decision and order dated July 31, 2007, Supreme Court (Williams, J.) granted the motion in part finding that HSSW was entitled to a declaratory judgment that the agreement was terminated, and it was no longer obligated to provide the Boghosians with sewer service. Supreme Court further found that HSSW was entitled to the dismissal of the Boghosians' counterclaims with the exception of that alleging trespass. The Boghosians thereafter moved for clarification of this decision and order and for an order compelling HSSW and the Town to disclose, inter alia, all documents concerning the rates and charges agreed to between HSSW and the Town. HSSW cross-moved for summary judgment dismissing the Boghosians' trespass counterclaim and reiterating its request for counsel fees. The Town also moved for summary judgment dismissing the third-party complaint against it. By decision and order entered March 10, 2008, Supreme Court (Williams, J.) denied the Boghosians' motion for clarification, granted HSSW's cross motion for summary judgment dismissing the trespass counterclaim, granted HSSW's request for counsel fees, granted the Town's motion for summary judgment dismissing the Boghosians' third-party complaint against it, and declared the Boghosians' motion to compel discovery moot.

The Boghosians thereafter appealed both the July 2007 and March 2008 decision and orders. The Third Department then issued its determination relative to these consolidated appeals on April 2, 2009, finding that the Town was required under Transportation Corporations Law § 121 to determine whether the connection fees charged by HSSW in its agreement with the Boghosians were reasonable (61 AD3d 1038, 1041-1042 [2009]). To the extent that the Town failed to do so, the Third Department reversed that portion of the July 2007 decision and order which granted HSSW's motion for summary judgment (id. at 1043). The Third Department further reversed those portions of the March 2008 decision and order which denied the Boghosians' motion to compel discovery and awarded counsel fees, with the remainder of that decision being affirmed.

In 2008, the Town engaged Garry Robinson, P.E. to prepare a comprehensive report of HSSW's infrastructure and operations, which report was completed in December 2010. The Town Board reviewed this report and ultimately adopted its findings by Resolution No. 5-2011 on January 3, 2011. As relevant here, Resolution No. 5-2011 states as follows:{**76 Misc 3d at 657}

"WHEREAS, although there have been allegations that the rates charged by [HSSW], have on several occasions not been applied fairly, there is insufficient and inconclusive evidence in the record and Report to substantiate those allegations other than the one incident where the fee was waived for the local Fire Company; and

"WHEREAS, among the documents and information considered by the Town Board, were the following, which is not a complete list of items provided and reviewed as part of the record, but are documents, facts and information of significance and compelling value:

"- the letter/report of Kenneth B. Claflin, CPA, . . . supporting the opinions, conclusions, and data provided in the Report of Garry Robinson, P. E.

"- the letters/report of Salvatore S. Iavarone, CPA, and that of Edward Romanzo, CPA, . . . supporting the argument that it is acceptable for common principals of 2 or more entities to routinely move funds from one to another, and invest in one entity with funds from themselves or from other entities in which they are principals, and further explaining depreciation and other accounting issues of [HSSW].

"- the Affidavit of Don Lang, and his subsequent deposition testimony, in which he swears [*3]under oath that he and his father were paid approximately 1 million dollars (approximately $700,000.00 in 1987, and another $300,000.00 in 1991) by [HSSW], or its principals, for the initial construction of the system; along with the estimates prepared by Galusha & Sons, and by the Town Engineer, Garry Robinson, P. E.

"- the receipts and invoices presented, which show that an additional $114,819.00 was spent by [HSSW], or its principals, to do a new improved Route 50 crossing in 2004.

"- the Affidavits, sworn testimony and deposition transcripts of Jim Mitchell and Gordon Nicholson, along with the Affidavit of Wilbur Trieble.

"- the letters, testimony, and deposition transcripts of Tom Boghosian and Bruce Boghosian.

"- the letter of James DiPasquale, P. E. Executive Director, from the [SCSD], regarding his review{**76 Misc 3d at 658} and comments on the Report.

"- the comparisons provided in the Report of Garry Robinson, P. E., and that of Ken Claflin, CPA, showing various yearly fees charged by other private companies, and/or other municipalities for like or similar services.

"- the information provided in the letter/report of Ken Claflin, showing what other regulated utilities get, or are allowed to get, by way of reasonable return and/or profit, and concluding in part that [HSSW's] rates could have been significantly higher (27.3% higher) over the years, and still have been considered reasonable.

"- various letters received from both John Privitera, Esq. attorney for Tom Boghosian and Bruce Boghosian, and from Joseph Walsh, Esq., attorney for [HSSW]; and the prior Supreme Court Appellate Court decision in these related matters.

"- the fact that despite the 2� years this matter has been going on, and the thousands of documents presented, there is a complete lack of any hard evidence whatsoever that someone or some entity other than [HSSW], or its principals, paid for the original construction of the system.

"- the fact that despite the 2� years this matter has been going on, and the thousands of documents presented, there is a complete lack of any evidence by way of experts in the fields of engineering and accounting challenging or refuting the calculations and conclusions contained within the Report of Garry Robinson, and/or refuting the reasonableness of any and all the rates charged throughout the twenty-three (23) year history of [HSSW].

"- the fact that sworn testimony of the various parties completely failed to produce any evidence that the rates charged by [HSSW], past and present, were unreasonable.

"- the fact that the Appellate Court decision did not link 'reasonableness' to any particular form, methodology, or method of calculation, and does not specifically require that it be linked to recoupment of capital investment.

"- the Affidavit of Raymond Beaudoin, professional engineer, and former Executive Director of the [SCSD], regarding the reasonableness of hook-up{**76 Misc 3d at 659} fees, the formation of private sewer corporations to encourage growth in the County, and [HSSW's] right to recoup their investment plus earn a compensatory return.

"WHEREAS, the reasonableness of the rates charged is the subject of litigation among [HSSW] and [the Boghosians], and which litigation has unfortunately been aired publicly and fought at least in part, at Town Board meetings, causing much animosity and discord among the parties and requiring considerable time and expense; and [*4]

"WHEREAS, both [HSSW] and the Boghosian's [sic] both conduct business and have developments in the Town, which are of great value to our residents, and both perform significant service to the Town, and are valuable assets to our community as a whole; and

"WHEREAS, worthy of note is that out of approximately 1,100 customers of [HSSW], not one other customer has come forward during this entire ordeal to complain about or question the rates charges by [HSSW], other than the one entity, that has been in bitter and heated litigation with [HSSW] over a contract dispute for many years; and

"WHEREAS, the Board, having reviewed the evidence presented, and considered the Report of the Town Engineer, Garry Robinson, P. E., and all of its attachments, and after hearing his presentation, and upon his expert testimony and opinion, and upon the information and opinions provided by Ken Claflin, . . . Certified Public Accountant, and Edward Romanzo . . . Certified Public Accountant, and after reviewing and considering the evidence and documents provided in opposition, hereby adopts the following Resolutions:

"NOW, THEREFORE, BE IT RESOLVED, the Town Board of the Town of Milton hereby accepts the Report of Garry Robinson, P. E. dated December 2010, and the conclusions contained therein, a copy of which is attached hereto and made part thereof [sic] as if fully set forth herein; and it is further . . .

"RESOLVED, based on the information provided the Board, it is determined that [HSSW], or its principals, expended at a minimum the sum of{**76 Misc 3d at 660} $1,114,819.00 dollars of their own funds on the initial construction of the sewer system, which sum shall for all intents and purposes be considered by the Board as the original cost figure of the system, unless modified by subsequent Resolution of this Board in the event new and compelling evidence is presented or discovered that would bring that amount into question; and it is further

"RESOLVED, as there has been no credible tangible evidence presented to refute the conclusions and opinions contained within the Report of Garry Robinson, P. E., the Town Board hereby finds such Report and its conclusions to be accurate, persuasive, compelling, and supported by the evidence presented and adopts them to the extent they are not inconsistent with the Resolution herein or any other Resolution of the Board; and it is further

"RESOLVED, that the yearly annual rate charged by [HSSW] to its customers, in the amount of $187.26 (plus $150.00 charged by the County), is fair and reasonable, both on a comparison analysis, as well as based upon a recoupment of investment analysis, and said rate shall be published as the Board approved rate, until such time as a different rate is approved by Board Resolution; and it is further

"RESOLVED, that the territory expansion fees charged by [HSSW] to potential customers who request to be added to [its] district/territory, in the amount of $2,000.00 per ERU (equivalent residential unit, as defined in the Report), is fair and reasonable based upon both a comparative analysis and a recoupment of investment analysis, and said rate shall be published as the Board approved rate for the territory expansion fee, until such time as a different rate is approved by Board Resolution; and it is further

"RESOLVED, that [HSSW] be directed to submit an annual year end report, each and every year, due no later than May 15th of the following year providing updates as to the amount of territory expansion fees collected, together with a summary of the rate of [*5]return and amounts still remaining outstanding on the recoupment of its investment; and it is further{**76 Misc 3d at 661}

"RESOLVED, that [HSSW], also submit an annual report due by May 15th of each year, outlining any changes that have occurred in the [c]ompany, including new hook-ups and services provided, any modifications or repairs to the pumps, pump stations, infrastructure, or other equipment of the company, any emergency situations or conditions that occurred during the year, a summary of income and expenses, and any other pertinent information which may be requested by the Board" (Resolution No. 5-2011 of the Town of Milton at 3-6, attached as exhibit 8 to McNamara aff).

In April 2011, the Boghosians—together with Hilo, LLC and Milton Center Plaza, LLC, both owned and operated by them—commenced action No. 2 for a declaratory judgment that Resolution No. 5-2011 was void, unlawful, arbitrary and capricious, and could not be implemented. The Boghosians alleged that Resolution No. 5-2011 was enacted in contravention of overwhelming evidence—apparently received by them during discovery in action No. 1—that HSSW expended no money to build the sewer system at issue. The Boghosians further alleged as follows:

"According to county standards, an apartment is assigned 1 ERU (i.e., 300 gallons per day). However, . . . HSSW assigns only 0.5 ERU per apartment. Upon information and belief, HSSW deviated from county standards for determining ERUs in order to benefit Winner's Circle, a 586-apartment development project" (complaint ¶ 64, attached as exhibit 9 to McNamara aff).

According to the Boghosians, HSSW gave the Winner's Circle development—formerly known as Kaydeross Village Apartments (KVA) and/or the Samascott project—preferential treatment because one of its principals had an ownership interest in the property, an allegation which has been sharply disputed by HSSW.

Action Nos. 1 and 2 were subsequently consolidated and the Town moved for summary judgment seeking to dismiss the complaint in action No. 2. Before opposition papers were filed, however, the parties reached a global settlement resolving both actions. A stipulation of settlement was signed and so-ordered by Supreme Court (Nolan, J.) on February 21, 2012. This stipulation of settlement provides, in pertinent part:

"[HSSW] agrees that as a result of the withdrawal{**76 Misc 3d at 662} of [a]ction No. 1 on the merits, based on this Stipulation, its claim for [a]ttorney's fees is withdrawn, with prejudice, on the merits and all parties agree that they shall be responsible for their respective attorney's fees, and further make no claim or demand on any other party for attorney's fees. . . .

"The undersigned parties agree that the terms of Town of Milton Resolution 5-2011, passed on January 5, 2011, are not changed or altered by this Stipulation, except as set forth in the attached new Resolution. The parties all agree to the terms of the new Resolution, which is attached hereto as Exhibit A, and made a part hereof.

"The Boghosians and their [r]elated [e]ntities agree to withdraw their challenges to the Samascott (KVA project) re-zoning issue, with prejudice and on the merits, and to cease any further challenges of the ECUs [equivalent connection units] and contract provisions and conditions between [HSSW] and the KVA project. The KVA apartment project comprising 400-700 apartments on all 128+ acres is to proceed with no further objections, questions, or complaints, made by the Boghosians or their [r]elated [e]ntities, directly or indirectly. . . . [*6]

"[HSSW] and the Boghosians agree to refrain from any disparaging comments regarding each other. . . .

"The undersigned parties agree that they shall not challenge Resolution 5-2011, or the new Resolution, in any [d]eclaratory [j]udgment [a]ction, [a]rticle 78 proceeding, or otherwise. . . .

"Except for the specific promises made herein, each undersigned party hereto fully, completely and unconditionally releases the other for any and all other claims made or raised in the above captioned [a]ctions, and agree to sign and file all documents necessary to properly end the pending [a]ctions. The parties further agree that an Order incorporating this Stipulation shall be entered in the above [a]ctions to formally conclude the [a]ctions, and that application may be made to the Court for enforcement of such Orders on notice to the parties, if the need arises, and in the event of future legal action related to or arising from this Stipulation, the prevailing party or parties shall be entitled to an award of reasonable attorney's fees from the non-{**76 Misc 3d at 663}prevailing party or parties. . . .

"This Stipulation shall not take effect unless and until the new Resolution . . . is adopted by the Town Board of the Town of Milton" (stipulation of settlement ¶¶ 7-21, attached as exhibit 1 to McNamara aff).

This new resolution—namely, Resolution No. 4-2012—was thereafter adopted by the Town Board on February 15, 2012. It amended Resolution No. 5-2011 to the extent that HSSW was now required to comply with certain terms and conditions, but it did not disturb the findings set forth in Resolution No. 5-2011. In this regard, Resolution No. 4-2012 provides as follows:

"[T]he current Town Board has no intention of amending this Resolution in the future with respect to fundamental terms herein that provide for global settlement of the above referenced cases and for open access to sanitary sewer service in Town as provided for herein, and in the Stipulation of Settlement, however, the Town Board recognizes that such things as Sewer Company rates, changes in engineering standards and practices, requirements for all hookups, or expansion in the Approved Territory may require some amendments in the future, and any such amendment as enumerated above, shall in the exclusive determination of the Town of Milton Town Board, preserve the integrity of the Stipulation of Settlement and go through the process of an agreement between the Town Board and the Sewer Company, public notice, and a public hearing" (Resolution No. 4-2012 of the Town of Milton at 4, attached to stipulation of settlement).

Pursuant to Transportation Corporations Law § 121, "[r]ates shall be reviewable at intervals of not more than five years or at any time by petition of the corporation or motion by the local governing body on written notice after a period of ninety days." To that end, on December 18, 2019, the Town Board set

"a public hearing rate hearing to be held on March 24, 2020, at 7:00 o'clock in the evening, at Town Hall, which is more than ninety (90) days from the date hereof as is required by law, at which time the public is invited to attend and provide comments for or against the rates and fees currently charged by [HSSW], within the Town, and as to the physical{**76 Misc 3d at 664} condition of the system and its' [sic] infrastructure" (Town Board minutes from Dec. 18, 2019 meeting at 4, attached as exhibit B to Privitera affirmation). [*7]

Hearings were subsequently held on July 22, 2020, and August 12, 2020, respectively.^[FN1] Thomas Boghosian made the following statements at the July 22 hearing:

"The situation in its simplest form, [HSSW], the entity has zero investment in infrastructure in the Town of Milton.

"This Board made a very very bad decision and an erroneous decision based on Robinson and Claflin's haphazard report.

"Yet you guys turn around and certify erroneously that they did have a million one in the ground and that they are entitled to a 7 percent annuity for the rest of their lives. . . . And according to the audit of [HSSW's] financial records, it has no investment and that investment is what you base your connection rate on which is said repeatedly by Robinson and Claflin that they need to get their investment back. They need to get paid back their million dollars that they put in the ground. [HSSW] has no investment in that sewer system and thus no investment to recover."^[FN2]

Bruce Boghosian also spoke at the July 22 hearing, stating in pertinent part:

"It is our belief that the Town did make a mistake in the record by establishing a rate based upon an alleged investment of $1,114,000 at the 2012 rate hearing which was the last rate hearing eight years ago. This is a new rate hearing, and the Town needs to start at zero and establish the investment to base the new rate on.

"[T]here is no evidence of this investment by [HSSW], rather it is a number based upon a fabricated estimation agreed to by the Town. This{**76 Misc 3d at 665} so-called investment is the basis of the connection rate of $2,000 the Town approved with absolutely no evidence of cost. Not a single receipt for any piece of pipe, nothing. That just doesn't seem possible.

"The second point regarding fairness of the rate deals with the KVA apartments now known as Winner's Circle. This development, and we all know where it is, contains approximately 700 units maybe more or less, I am using an even number. According to [SCSD] regulations, one apartment equals one unit or one ERU. According to [HSSW's] contract with KVA, it states that KVA will pay $1,500 per ERU and, you're right, we are not going to mess with that contract, it says $1,500 per ERU. But, to date, there is no evidence this has been paid. Its simple math folks, seven hundred times fifteen hundred is $1,050,000. There is no record of that in any of the voluminous reports Mr. Walsh referred to earlier. The Board needs to address this issue and demand this amount be paid according to the Town's resolution and correct this inequity. The bottom line once again is that it appears that the public is subsidizing private development through payment of sewer fees. In this particular case, the owner of KVA apartments and the owner of the sewer system appear to be the same individual. And according to the [*8]annual reports of [HSSW], the amount has not been collected.

"Lastly, and this hasn't been brought up, but [HSSW], and I guess they're going to regurgitate Mr. Claflin's report that they have $1,114,000 of investment. That's what they represented to the Town. Is that correct that everyone understands that? $1,114,000—that's what they say their asset is worth. However, and that was, that was per, I think . . . the 2011 resolution, if I'm correct. The 2010 tax return which you have a copy of, states total assets, total assets of the company—$1,250. My question, I guess it's going to be my second question is, are they misrepresenting the facts to you or are they misrepresenting the facts to the IRS? You can't say we have a million dollars in assets and then on your tax return you have $1,250. Because if they're . . . misrepresenting to these guys, there are serious penalties and potential jail{**76 Misc 3d at 666} time. I don't know what the problem is if they misrepresent to you, but it needs to be looked into—it needs to be taken care of."^[FN3]

The Boghosians retained both a certified public accountant and counsel, both of whom also spoke at the July 22 hearing and provided various written submissions to the Town Board, reiterating the arguments made by the Boghosians themselves. The Boghosians then submitted a list of questions to the Town Board prior to the August 12 hearing, which list included the following:

"Does the Board understand that the only basis for a connection rate is what HSSW . . . has invested in infrastructure and that whatever shareholders have spent in private real estate deals has no bearing on investment and rates of HSSW . . . ?

"Does the Board know how much if anything the apartments at Winner's Circle has paid for sewer connections and what evidence do you have to support any reported payments? . . .

"The letter submitted by HSSW . . . dated July 21 2020 once again states that the sewer infrastructure was paid for by shareholders of HSSW and not HSSW . . . . It is abundantly clear that HSSW . . . has no investment in sewer infrastructure. How long is the Board going to subject rate users to an unfair/illegal rate?

"Does it cause any concern to any Board member that in 2010 the Town Board via resolution certified that HSSW . . . had invested over one million dollars in infrastructure when that tax return of HSSW . . . of that same year lists only $1,258? Furthermore, no tax return of HSSW . . . ever showed any investment of a million dollars" (Aug. 12, 2020 questions at 1, attached as exhibit 15 to McNamara aff).

The Boghosians themselves also had a telephone conversation with two members of the Town Board—John Frolish and Frank Blaisdell—on December 9, 2020. This conversation was apparently recorded by the Town Board members—unbeknownst to the Boghosians—and subsequently obtained by HSSW in a FOIL (Freedom of Information Law) request. During this conversation the following discussions took place:{**76 Misc 3d at 667}

"Tom B: That was a question. Yes. What . . . are you guys going to do? They've gotten [*9]a five hundred percent return on the million dollar investment and still tell you that they haven't gotten paid back.

"Frolish: Correct. Well, we're going to finish taking some information here. And then we're going to make a decision[.] I don't know if the rest of the Board's ready to make a decision, but I think it's time to make a decision.

"Tom B: So are we going to have a rate hearing?

"Frolish: I would assume that our rate hearing is still open and that we should get back to it. And that I think is going to be my—my topic for discussion tonight at the meeting.

"Tom B: A real rate hearing involves obtaining the financial information.

"Frolish: Correct.

"Tom B: [M]aking it available to the public and swearing-in witnesses under penalty of perjury and those witnesses need to be the owners and not their representative, Mr. McNamara . . . .

"Tom B: Did you guys see the latest response [from] December 7th?

"Frolish: From? . . .

"Bruce B: [HSSW].

"Frolish: I read [it].

"Tom B: Okay. I'll just point out a couple things. . . . December 7th their response is 50 some pages long and on the first page they claim that we're all about saving $800,000 of connection fees on our project on Rowland Street. As my elected representatives, I'll ask you in your town, why would a developer have to pay $800,000 for the privilege of hooking to a sewer system? . . . And then the second part of it is they admit in there, in their 50 some pages that they charged Winner's Circle half an ERU which is in violation of their contract that they generated amongst themselves that Jim Mitchell's son signed on behalf of the owners. Travis Mitchell signed a contract for the Winner's Circle. Gordon Nicholson signed a contract for the sewer company and it violates County standards because Saratoga County standards are very clear. And they talk about an apartment with six units is six connection charges.{**76 Misc 3d at 668} They go on to further say no user will be rated at less than one ERU. So when they self-deal and factor apartments as half an ERU, they are in violation of [SCSD] standards that they must abide by. . . .

"Bruce B: In . . . that narrative they supplied they also state that they have a contract with [HSSW] for $750 per ERU, which is factually incorrect. I think we brought the contract to one of the meetings and Tom has . . . .

"Tom B: It's in the binders.

"Bruce B: Yeah, it's in your binders. You can see it that we gave it to you. The contract is for $1,500 per ERU and so that's why, again coming back to this whole thing of getting them there to be responsive to questions and answering questions honestly. That kind of misrepresentation does nothing for the residents of the Town, absolutely nothing, and is not necessarily the best thing for the Board to make their decisions on so that again, that's why we come back to the fact that you need to have a real rate hearing. I'm just going to add one other thing to that. There was an Attorney General opinion in 1977, this very same case came up with the Attorney General, and you can look it up if you want, it said that in no event should it's rates, meaning sewer company's be unreasonable nor should it grant any of its customers an unreasonable preference. So when you're granting the apartment complex, half the rate, or less than half the rate of anyone else that's definitely [*10]an unreasonable preference and that's not allowable by law. So there's . . . a lot of questions that need to be answered in regards to that. But I think that Tom's point is, you know, they print that in 57 pages and they just say it as if it's fact and there's all kinds of evidence to show that it is not the fact.

"Frolish: Yup. Quick question . . . . Was some of that talked about in the 2011 agreement?

"Bruce B: Yes, John, you're absolutely right. In the 2011 agreement, the town said uh—and we agreed that we would not interfere with their contract in terms of their $1,500 charge. We get that, we agreed to that. However, we agreed to a $1,500 charge. We didn't say it's $750.{**76 Misc 3d at 669}

"Frolish: Correct.

"Bruce B: We . . . because they already had their contract in place as part of the settlement and you know, it's all negotiation, so we said okay if that's important, then you guys keep that $1,500 rate because it was in place but now they're saying it's $750, which is patently false. We never agreed to a $750 rate John.

"Frolish: Okay.

"Blaisdell: That's great. . . .

"Tom B: And also so you have a little background on that John, we argued that it was offensive, in and of its nature that some would pay $1,500 and some would pay $2,000 but we felt in interest of resolving litigation, allow that contract to stand at $1,500 while others went forward at $2,000.

"Bruce B: Right.

"Tom B: Now, let me add a little background to that $1,500 contract. That $1,500 contract per ERU came about because, um, during an ethics investigation, Jim Mitchell testified that they didn't need a contract for sewer because that Winner's Circle was their project. It's ours, we're the sewer company, we don't have to do a contract and we have that testimony and we have that record and at that point they said well, you know, we don't have to and Paul Laskey, who was the ethics Chair at that point said well, you see it doesn't look that good. You know—that everybody has a contract but you guys and Mr. Mitchell said well, then we'll put together a contract and that's the contract that Gordon Nicholson signed and Jim Mitchell's son Travis Mitchell signed.

"Frolish: OK" (tr of Dec. 9, 2020 telephone discussion at 1-5, attached as exhibit 18 to McNamara aff).^[FN4]

In March 2021, HSSW filed a motion in action Nos. 1 and 2 seeking an order finding the Boghosians in civil contempt for violating the stipulation of settlement (see Judiciary Law § 753) and, further, enjoining them from any further violations of the stipulation of settlement. HSSW also seeks money damages, including all counsel fees incurred to date in action Nos. 1 and{**76 Misc 3d at 670} 2. In April 2021, the Boghosians filed a cross motion in action Nos. 1 and 2 seeking to dismiss HSSW's motion on the basis that it constitutes an impermissible strategic lawsuit against public participation (hereinafter SLAPP) (see Civil Rights Law § 70-a). The Boghosians also [*11]seek an award of counsel fees. The Boghosians—again together with Hilo and Milton Center Plaza—simultaneously commenced action No. 3 against HSSW, which action is also premised upon New York's anti-SLAPP law and seeks compensatory and punitive damages, as well as costs and counsel fees. In May 2021, HSSW filed a pre-answer motion seeking to consolidate action No. 3 with action Nos. 1 and 2, as well as to dismiss action No. 3 as a result of, inter alia, the Boghosians' failure to state a cause of action (see CPLR 3211 [a] [7]).

Turning first to HSSW's motion in action Nos. 1 and 2,

" '[t]o sustain a finding of civil contempt for a violation of a court order, a [party] must show by clear and convincing evidence that there was a lawful court order in effect that clearly expressed an unequivocal mandate, that the person who allegedly violated the order had actual knowledge of its terms, and that his or her actions or failure to act defeated, impaired, impeded or prejudiced a right of the moving party' " (Matter of Tiffany W. v James X., 196 AD3d 787, 794 [2021], quoting Matter of Wesko v Hollenbeck, 149 AD3d 1175, 1175-1176 [2017] [internal quotation marks and citations omitted]).

Here, HSSW contends that the so-ordered stipulation of settlement constitutes a lawful court order clearly expressing an unequivocal mandate, that the Boghosians had actual knowledge of the terms of the stipulation of settlement and, finally, that the Boghosians' statements during the rate hearings violated these terms and resulted in prejudice to HSSW. According to HSSW, the Boghosians' statements in violation of the stipulation of settlement fall into three categories: (1) false statements that HSSW did not charge connection fees for the Winner's Circle/KVA development or charged connection fees at improper or arbitrary rates; (2) statements that are disparaging to HSSW; and (3) false statements that HSSW has zero infrastructure investment in the sewer system.

The Boghosians do not dispute that the so-ordered stipulation of settlement constitutes a lawful court order nor that{**76 Misc 3d at 671} they had actual knowledge of its terms. They do, however, contend that the terms of the so-ordered stipulation of settlement are ambiguous and, as such, do not express an unequivocal mandate. They further contend that HSSW has failed to demonstrate any prejudice as a result of their statements during the rate hearings, which remain ongoing at this juncture. Finally, the Boghosians contend that—in any event—all statements made by them in the context of the rate hearings are protected free speech under the anti-SLAPP law.

At the outset, the court finds that the stipulation of settlement expressed an unequivocal mandate. In this regard, the stipulation clearly states that (1) "[t]he Boghosians . . . agree to . . . cease any further challenges of the ECUs and contract provisions and conditions between [HSSW] and the KVA project[, with t]he KVA apartment project . . . to proceed with no further objections, questions, or complaints, made by the Boghosians or their [r]elated [e]ntities, directly or indirectly" (stipulation of settlement ¶ 10); (2) "[HSSW] and the Boghosians agree to refrain from any disparaging comments regarding each other" (stipulation of settlement ¶ 11); and (3) the "parties agree that they shall not challenge Resolution 5-2011, or the new Resolution, in any [d]eclaratory [j]udgment [a]ction, [a]rticle 78 proceeding, or otherwise."

This language notwithstanding, the Boghosians challenged the ECUs and contract provisions and conditions between HSSW and the KVA project multiple times during the rate hearings, suggesting—just as they did in action No. 2—that the KVA project was offered preferential treatment because of its connection to one of HSSW's principals. The Boghosians then discussed the topic in even more detail during their December 2020 telephone conversation with Town Board members Frolish and Blaisdell, at that point characterizing HSSW's [*12]involvement with the KVA project as self-dealing which culminated in an ethics investigation. These statements—along with many others made by the Boghosians—can also be described as disparaging. Indeed, Bruce Boghosian's intimation during the July 2020 hearing that HSSW had lied to the IRS on its tax return is nothing if not disparaging.^[FN5] Finally, the Boghosians repeatedly challenged the findings in{**76 Misc 3d at 672} Resolution No. 5-2011, suggesting in no uncertain terms that the Town Board made a huge mistake when it found that HSSW had invested $1,114,819 in the sewer system—as this amount had been invested by the principals of HSSW and not the company itself. Perhaps that is true—but it is not relevant. The argument was made and rejected in 2011, and the Boghosians agreed not to challenge that finding.

The court further finds that HSSW has been prejudiced as a result of the Boghosians' conduct, as it has been effectively denied the benefit of the agreement reached in the stipulation of settlement and forced to rehash issues that have been resolved.

Insofar as the Boghosians contend that their statements are protected free speech under the anti-SLAPP law, the court is unpersuaded. Civil Rights Law § 70-a provides as follows:

"1. A defendant in an action involving public petition and participation . . . may maintain an action, claim, cross claim or counterclaim to recover damages, including costs and attorney's fees, from any person who commenced or continued such action; provided that:

"(a) costs and attorney's fees shall be recovered upon a demonstration . . . that the action involving public petition and participation was commenced or continued without a substantial basis in fact and law and could not be supported by a substantial argument for the extension, modification or reversal of existing law;

"(b) other compensatory damages may only be recovered upon an additional demonstration that the action involving public petition and participation was commenced or continued for the purpose of harassing, intimidating, punishing or otherwise maliciously inhibiting the free exercise of speech, petition or association rights; and

"(c) punitive damages may only be recovered upon an additional demonstration that the action involving public petition and participation was commenced or continued for the sole purpose of harassing, intimidating, punishing or otherwise maliciously inhibiting the free exercise of speech,{**76 Misc 3d at 673} petition or association rights.

"2. The right to bring an action under this section can be waived only if it is waived specifically.

"3. Nothing in this section shall affect or preclude the right of any party to any recovery otherwise authorized by common law, or by statute, law or rule."

Where, as here, a party has expressly agreed to refrain from making certain comments, this "constitutes a specific waiver" of the party's right to bring an anti-SLAPP action insofar as [*13]those comments are concerned—notwithstanding that the agreement does not specifically mention Civil Rights Law § 70-a (Waterways at Bay Pointe Homeowners Assn., Inc. v Waterways Dev. Corp., 132 AD3d 975, 980 [2015]; see Matter of Related Props., Inc. v Town Bd. of Town/Vil. of Harrison, 22 AD3d 587, 591 [2005]). In other words, because the Boghosians expressly agreed not to challenge Resolution No. 5-2011 and the ECUs and contract provisions between HSSW and the KVA project—and further agreed not to disparage HSSW—they cannot then violate this agreement with impunity simply because they are participating in a public hearing. Under the circumstances, the court finds that HSSW has shown by clear and convincing evidence that there was a lawful court order in effect that clearly expressed an unequivocal mandate, that the Boghosians had actual knowledge of its terms, and that their actions were prejudicial to HSSW. The court thus finds the Boghosians in civil contempt of the so-ordered stipulation of settlement.

Turning now to an appropriate penalty for this contempt, a penalty for a civil contempt "is designed not to punish but, rather, to compensate the injured private party or to coerce compliance with the court's mandate or both" (Matter of Department of Envtl. Protection of City of N.Y. v Department of Envtl. Conservation of State of N.Y., 70 NY2d 233, 239 [1987]; see State of New York v Unique Ideas, 44 NY2d 345, 349 [1978]). Here, the court finds that reimbursement to HSSW for its counsel fees in connection with the motion for contempt is an appropriate penalty (see Judiciary Law § 753 [A] [1]). The court must also note that—as the prevailing party on the motion—HSSW is entitled to an award of reasonable attorney's fees under the terms of the stipulation of settlement as well.

The court further finds that HSSW is entitled to an order enjoining the Boghosians from any further violations of the{**76 Misc 3d at 674} stipulation of settlement. The court declines to award HSSW those counsel fees incurred in action Nos. 1 and 2, noting that it withdrew its claim for counsel fees in these actions with prejudice in the stipulation of settlement.

Based upon the foregoing, HSSW's motion in action Nos. 1 and 2 is granted to the extent that the Boghosians are found in civil contempt for violating the terms of the stipulation of settlement and, further, enjoined from any further violations of the stipulation of settlement in the future. As and for a penalty for their civil contempt, the Boghosians shall reimburse HSSW for those counsel fees incurred in connection with the motion for contempt. Counsel for HSSW is hereby directed to submit an affidavit of services to the court—on notice to all parties—within 30 days of the date of this decision and order. HSSW's motion in action Nos. 1 and 2 is otherwise denied.

For the reasons set forth hereinabove, the Boghosians' cross motion in action Nos. 1 and 2 is denied in its entirety.

Insofar as HSSW's motion in action No. 3 is concerned, the Boghosians' consent to the consolidation of action No. 3 with action Nos. 1 and 2 and this relief is accordingly granted. To the extent that the Boghosians have waived their right to bring an anti-SLAPP action with respect to the statements under consideration herein (see Matter of Department of Envtl. Protection of City of N.Y. v Department of Envtl. Conservation of State of N.Y., 70 NY2d at 239; State of New York v Unique Ideas, 44 NY2d at 349), that aspect of the motion seeking dismissal of the complaint for failure to state a cause of action is also granted.

The court has considered the parties' remaining contentions and finds that they are either rendered academic by this decision or are otherwise without merit.

Therefore, it is hereby ordered that HSSW's motion in action Nos. 1 and 2 is granted to the extent that the Boghosians are found in civil contempt for violating the terms of the stipulation of settlement and, further, enjoined from any further violations of the stipulation of settlement in the future; and it is further ordered that, as and for a penalty for their civil contempt, the Boghosians shall reimburse HSSW for those counsel fees incurred in connection with its motion in action Nos. 1 and 2; and it is further ordered that counsel for HSSW shall submit an affidavit of services to the court—on notice to all parties—within 30 days of the date of this decision and order; and it is further ordered that the relief requested in{**76 Misc 3d at 675} HSSW's motion in action Nos. 1 and 2 is otherwise denied; and it is further ordered that the Boghosians' cross motion in action Nos. 1 and 2 is denied in its entirety; and it is further ordered that HSSW's motion in action No. 3 is granted to the extent that action No. 3 is consolidated with action Nos. 1 and 2, and the complaint in action No. 3 is dismissed for failure to state a cause of action; and it is further ordered that the relief requested in HSSW's motion in action No. 3 is otherwise denied.