Court Opinion

ID: 9697340
Source: CourtListenerOpinion
Date Created: 2023-08-25 19:14:35.210185+00
Date Added: 2024-06-11T18:20:31.841224
License: Public Domain

GARIBALDI, J.,
dissenting.
Today, the majority holds that the Board of Public Utilities (BPU or Board) has the authority to revoke the franchise of Valley Road Sewerage Company (Valley or Company); to divest Valley’s sole shareholder and his wife of any interest in their Company; to bar them from owning or managing any public utility in New Jersey; and to seek the appointment of a receiver to sell their Company. It is undisputed that there is no explicit statutory authorization for such acts. Therefore, the issue is whether the BPU exceeded the authority granted in its enabling legislation. I find that it did.
I.
N.J.S.A. 48:2-23 provides that every New Jersey public utility is required to:
*242furnish safe, adequate and propel service, including furnishing and performance of service in a manner that tends to conserve and preserve the quality of the environment and prevent the pollution of the waters, land- and air of this State, ... and to maintain its property and equipment in such condition as to enable it to do so
That same obligation is set forth in N.J.S.A 48:3-3, which prohibits any utility from “providing] or maintaining] any service that is unsafe, improper or inadequate.”
I recognize “that the grant of authority to an administrative agency is to be liberally construed in order to enable the agency to accomplish its statutory responsibilities and that the courts should readily imply such incidental powers as are necessary to effectuate fully the legislative intent.” Department of Labor v. Titan Constr. Co., 102 N.J. 1, 11, 504 A.2d 7 (1985) (quoting New Jersey Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 562, 384 A.2d 795 (1978)). I also recognize that the Legislature has endowed the BPU with broad power to regulate public utilities and that the BPU has considerable discretion in exercising those powers. In re Elizabethtown Water Co., 107 N.J. 440, 449, 527 A.2d 354 (1987); see In re New Jersey Power & Light Co., 9 N.J. 498, 508, 89 A.2d 26 (1952). Nonetheless, we have repeatedly held, “[a]n administrative agency may not under the guise of interpretation extend a statute to include persons not intended, nor may it give the statute any greater effect than its language allows.” Kingsley v. Hawthorne Fabrics, Inc., 41 N.J. 521, 528, 197 A.2d 673 (1964).
Administrative agencies do not possess unbridled power to adopt rules and regulations they deem necessary to effectuate legislation. Therefore, the issue is not whether the BPU believes because of corporate mismanagement that it is good policy to revoke the franchise of a utility, but whether, in enacting the Department of Public Utilities Act of 1948, N.J.S.A. 48:2-1 to -91 (the Act), the Legislature intended and authorized such a drastic remedy. Revoking a franchise, divesting a person from ownership of his or her property, barring a person from ever owning and operating a public utility, and compelling the forced sale of someone’s property, are extreme remedies. An examination of *243statutory language and prior decisions establishes that the Legislature never intended to give the BPU such power under its enabling legislation. Such a sweeping change of an agency’s authority must be made by the Legislature, not by an administrative agency. To hold otherwise circumvents the legislative intent.
II.
Valley is a small, privately owned sewerage company servicing residential subdivisions in Hillsborough Township in Somerset County and Tewksbury Township in Hunterdon County. Valley operates three treatment plants: the River Road and Fieldhedge Drive plants in Hillsborough, which serve 405 and 142 customers, respectively, and the Tewksbury plant, which serves 76 customers. Valley also operates three pump stations and maintains approximately fourteen miles of collecting lines, most of which are under the streets. At the time the rate petition was filed in 1989, Valley had 537 customers; that number has since grown to 619.
Valley was founded in 1962 by Richard Schindelar who, until his death from leukemia in 1996, was Valley Road’s Chairman of the Board of Directors, President, and sole shareholder. His wife, Marjorie, served as a director and as Valley Road’s corporate secretary. Mr. Schindelar devoted a substantial part of his adult life and career to Valley and invested the bulk of his life savings in Valley. In April of 1995, as a result of Sehindelar’s failing health, Valley turned over operation of its treatment plants and pump stations to U.S. Water, Inc., a company specializing in the operation of sewerage treatment facilities on a contract basis. U.S. Water continues to operate the facilities at this time. In May of 1995, a receiver was appointed who assumed supervisory responsibility for Valley’s operations.
Since its inception, Valley has had only two rate increases, one in 1979 and one in 1984. On August 21, 1992, Valley filed a petition for interim rate relief and a permanent increase in its rates. Unable to reach a settlement with the BPU, the petition was sent to the Office of Administrative Law as a contested case. *244At a public hearing on the rate increase, only eighteen of the 300 Valley customers who attended opposed the rate increase. An attorney who represented the Township of Hillsborough and the Rutgers Environmental Law Clinic also objected.
The Administrative Law Judge (ALJ) denied Valley’s request for rate relief. Instead, the ALJ adopted the BPU’s recommendation and, although expressly noting that Valley, which has not had a rate increase since 1984, was “obviously in need of funds,” denied any rate increase, stating “it would be imprudent for me to attempt to determine a revenue requirement at this time.” The ALJ also recommended that the Board direct Valley to show cause pursuant to N.J.S.A. 48:2-23 why it “should not be ordered to furnish safe, adequate and proper service as a public utility of the State of New Jersey.”
The BPU expanded the ALJ decision by ordering “the initiation of hearings [the “revocation hearing”] into whether the operating authority of Valley ... should be revoked for failure to render safe, adequate and proper service.” After the hearings, on November 4, 1994, the BPU ordered the revocation of Valley’s franchise and the permanent divestiture and debarment of the Schindelars “from owning, operating, managing, controlling, or having any interest in a New Jersey public utility.” Additionally, the order sought the appointment of a receiver to undertake the day-to-day operations of Valley and to sell the Company.
At the BPU’s request, the Chancery Division appointed a receiver on May 16, 1995. The court, however, treated the BPU’s request as an enforcement proceeding pursuant to Rule 4:67-6 and thereby refused to rule on whether the BPU had the authority to revoke Valley’s franchise and request a receiver to sell the property. Further, in appointing the receiver, the Chancery Division observed that the receiver would have to request a rate increase to continue Valley’s operation. The Appellate Division affirmed the orders of the BPU and the Chancery Division. 295 N.J.Super. 278, 284, 685 A.2d 11 (1996). We granted Valley’s petition for certification. 151 N.J. 71, 697 A.2d 544 (1997).
*245III.
Before turning to a discussion of the law, it is important to understand precisely what the BPU claims was wrong with Mr. Schindelar’s management of Valley. The BPU order found that the Valley management was culpable of managerial neglect or dereliction based upon essentially four alleged circumstances: inflow and infiltration of ground water in Valley’s system, penalty assessments by the Department of Environmental Protection (DEP), unpaid tax liabilities, and Valley’s failure to seek a rate increase for eight years. Upon close scrutiny, however, it is evident that many of those problems have been,resolved.
On September 20, 1994, Valley entered into an Agreement to Execute a Closing Agreement with the New Jersey Treasury Department, Division of Taxation, concerning the payment of its gross receipts and franchise tax, excise taxes, and administrative expenses. Article 7 of that Agreement states that although the Agreement will become effective immediately, the executed Closing Agreement will not be provided until the taxpayer provides satisfactory evidence acceptable to the Division that “it has reached full and complete settlement with the BPU.” Similarly, Valley entered into an Agreement to Execute a Closing Agreement with the Township of Tewksbury, dated October 13, 1994, concerning settlement of its gross receipts and franchise taxes and real estate taxes due Tewksbury. That Agreement also provides that the Closing Agreement would be contingent until Valley Road reached “a full and complete settlement” with the BPU.
The DEP also entered into Administrative Consent Orders (ACOs), drafted by the DEP, for Valley’s Fieldhedge Drive and River Road plants. The ACOs provide for waiver of the bulk of the assessments, substantial reductions in the remaining assessments, and interim (five year) modifications to Valley’s discharge permits that will prevent Valley from exceeding the permit parameters, thus making future penalty assessments unlikely. The ACOs also have not been finalized because of the BPU’s failure to resolve this matter. The BPU cites Valley’s environmental prob*246lems as a major reason for the sale of Valley, and asserts that those problems are more properly -within the purview of the DEP. However, the DEP was never a party to this action and no member of the DEP ever testified before the ALJ, the BPU, or the Chancery Division.
The BPU also dismissed Valley’s proposed plan to change management as “too little, too late and too costly.” The plan basically included new professional management and implementation of the settlement agreements with the DEP and taxing authorities. Those agreements would have reduced Valley’s DEP assessments and outstanding tax liabilities and, by spreading payment over an extended period in the future, would have a significant effect on Valley’s- financial condition. Indeed, the receiver appointed by the Chancery Division is in no better position to address and settle those matters than the new management proposed by Valley would have been.
Because the Board has determined that Mr. Sehindelar was not a good manager of Valley, Schindelar’s wife and children stand to lose the Company through a forced sale that may result in a devastating loss of much of his hard work and investment. The BPU reached its conclusion despite the fact that the BPU did not find, and there is no suggestion, that Mr. Sehindelar ever did anything illegal or unethical; that Valley’s ratepayers ever received anything less than uninterrupted, reliable service; and notwithstanding the substantial efforts that Valley has made to comply with the BPU’s November 4 order.
I now turn to an examination of statutory language and prior cases to answer the fundamental question: under what circumstances may the BPU, an administrative agency, take the Sehindelars’ property by revoking Valley’s franchise and sell their Company against their wishes in a forced sale.
IV.
I begin with a brief observation about franchises. A franchise is a privilege of a public nature conferred by the government on an *247individual or corporation. South Lakewood Water Co. v. Township of Brick (In re South Lakewood Water Co.), 61 N.J. 230, 238, 294 A.2d 13 (1972); see also 36 Am.Jur.2d Franchise § 4 (1968). Franchise rights, although for the public benefit, are private property rights subject to the protection of the law. Public Service Gas Co. v. Board of Pub. Util. Com’rs, 87 N.J.L. 581, 593, 92 A. 606 (E. & A.1914). If a franchise is taken for public use, the owner is entitled to just compensation. Id. at 595 (citations omitted).
Although a franchisee is entitled to just compensation for a taking, no such compensation is required if the franchise is forfeited for a breach of conditions, or if the granting authority revokes or repeals the franchise under a reserved express power to do so. 36 Am.Jur.2d, supra, at § 5. “Forfeitures are not favored.” Id. at § 54. Courts “will always lean against a forfeiture,” unless the “legislature has prescribed certain conditions upon which a corporation shall forfeit its franchises.” Ibid.
I now consider the statutory language. It is undisputed that there is no explicit statutory language authorizing the revocation of a franchise or the permanent barring of a stockholder or an officer of a utility from ever owning or managing a utility. In A.A. Mastrangelo, Inc. v. Commissioner of DEP, this Court acknowledged that the absence of an express statutory authorization in the enabling legislation will not necessarily preclude administrative agency action. 90 N.J. 666, 684, 449 A.2d 516 (1982).
Equally important, however, is a court’s responsibility to restrain agency action “[w]here there exists reasonable doubt as to whether such power is vested in the administrative body.” In re Jamesburg High School Closing, 83 N.J. 540, 549, 416 A.2d 896 (1980). Where such doubt exists, and where the enabling legislation cannot fairly be said to authorize the agency action in question, the power is denied. Id. See also Burlington County Evergreen Park Mental Hospital v. Cooper, 56 N.J. 579, 598, 267 A.2d 533 (1970); Swede v. City of Clifton, 22 N.J. 303, 312, 125 A.2d 865 (1956).

[Ibid.]

The Legislature’s authorization to revoke the franchises of small water companies, and the absence of such a provision with respect to small sewerage companies, indicates that the Legislature did *248not intend to grant the BPU general authority to revoke a franchise of sewerage companies for corporate mismanagement. N.J.S.Á 58:11-59, referred to as the “Small Water Company Takeover Act”, provides in pertinent part:
Whenever any small water company is found, after notice and public hearing, to have failed to comply, within a specified time, with any order of the Department of Environmental Protection concerning the availability of watei-, the potability of water and the provision of water at adequate volume and pressure, ... the department and the Board of Public Utilities shall, after notice to capable proximate public or private water companies, municipal utilities authorities, ... municipalities or any other suitable governmental entities wherein the small water company provides service, conduct a joint public hearing to determine: the actions that may be taken and the expenditures that may be required, including acquisition costs, to make all improvements necessary to assure the availability of water, the potability of water and the provision thereof at adequate volume and pressure, including, but not necessarily limited to, the acquisition of the small water company by the most suitable public or private entity, (emphasis added).
The statutory provisions dealing with sewerage companies, N.J.S.A. 48:13-1 to -14, do not provide for the takeover and sale of those companies for failure to provide adequate service. Likewise, the BPU’s regulations specifically permit the Board to order the sale of the small water company, but do not provide for such an action with respect to sewerage companies. See N.J.AC. 14:9-6.1 to -6.13. Moreover, the regulations provide procedural protections to the small water company by limiting application of that remedy to situations “concerning actual or imminent public health problems,” N.J.A.C. 14:9-6.6, and requiring that other “appropriate and available enforcement options” be pursued prior to implementation of the takeover and sale procedures, N.J.AC. 14:9-6.7(a). Those regulations were enacted to implement N.J.S.A. 58:11-59. The lack of similar regulations regarding sewerage utilities can only be interpreted to indicate that the BPU has not construed its general enabling legislation as conferring such authority. That conclusion is further supported by the statement at oral argument of the Counsel for the BPU that the BPU has never authorized the revocation of a sewerage company franchise for mismanagement.
Moreover, N.J.S.A 58:11-60 provides that
*249[e]ompensation for the acquisition of a small water company shall be determined:
a. By agreement between the parties, subject to the approval of the [BPU], in consultation with the [DEP], and after a joint public hearing by the board and the department; or
b. Through use of the power of eminent domain.
In enacting the Small Water Company Takeover Act, the Legislature has shown its concern that drastic actions, such as' revocation and forced sale of a franchise, should be undertaken only when there are “actual or imminent public health problems” and, in those situations, the owners should be accorded fair and just compensation for their property. None of those considerations are reflected in the pending takeover and sale of Valley. There are no allegations of actual or imminent public health problems nor is there any provision for the owners to receive fair and just compensation for their property. Accordingly, in view of the specific provisions of N.J.S.A. 58:11-60, it is inconceivable that the Legislature intended the revocation and forced sale of a small sewer company like Valley under the BPU’s general enabling language.
V.
An examination of prior law also supports my conclusion that the BPU has no authority to revoke Valley’s franchise for poor management, to permanently divest and bar the Schindelars from the public utility business, and to compel the forced sale of Valley. Although the BPU relies on Township of Deptford v. Woodbury Terrace Sewerage Corp., 54 N.J. 418, 255 A.2d 737 (1969), for the proposition that the Board has the power to revoke a utility’s franchise, that case is distinguishable. In Deptford, supra, the Court was asked to determine whether the Board had the authority to modify a previous order approving the franchise of a public utility. Id. at 420, 255 A.2d 737 (emphasis added). In upholding the BPU’s power to modify its order approving the franchise, the Court simply cited N.J.S.A 48:2-40, which states that the Board “ ‘at any time may order a rehearing and extend, revoke or modify *250an order made by it.’ ” Id. at 425, 255 A.2d 737. The Deptford Court did not provide any other analysis.
Indeed, Deptford is not generally cited for the proposition that the Board has the power to revoke a franchise, but for the simple proposition that the BPU was granted “the widest range of regulatory power over public utilities.” See, e.g., A.A. Mastrangelo, Inc., supra, 90 N.J. at 685, 449 A.2d 516; South Lakewood Water Co., supra, 61 N.J. at 247, 294 A.2d 13; In re Scioscia, 216 N.J.Super. 644, 653, 524 A.2d 855 (App.Div.), certif. denied, 107 N.J. 652, 527 A.2d 471 (1987). Deptford did not specifically address whether the Board, based solely on its enabling legislation, had the authority to revoke a franchise and bar an individual from participating in any utility in the State.
There are only two reported cases that have upheld the BPU’s power to revoke a franchise and bar an individual from participating in a specific utility’s business. See In re Inter County Refuse Serv., Inc., 222 N.J.Super. 258, 536 A.2d 775 (App.Div.), certif. granted, 111 N.J. 618, 546 A.2d 535 (1988), certif. dismissed, 114 N.J. 485, 555 A.2d 609 (1989); In re Scioscia, supra, 216 N.J.Super. 644, 524 A.2d 855. In Scioscia, supra, the appellant had been convicted of participating in a complex conspiracy to rig bids on garbage collection contracts, in violation of N.J.S.A. 56:9-3. Id. at 648-49, 524 A.2d 855. As a result of appellant’s conviction, the BPU revoked appellant’s certificate of public convenience and necessity, and prohibited appellant from participating in the solid waste disposal business. The BPU based its decision on the ALJ’s conclusion that appellant’s actions, which had resulted in his criminal conviction, also constituted violations of both the Solid Waste Utility Control Act of 1970, N.J.S.A. 48:13A-1 to -13, which prohibits monopolization in the solid waste collection and disposal business, and the Board’s implementing regulation, N.J.AC. 14:3-10.12. In re Scioscia, supra, 216 N.J.Super. at 649-50, 524 A.2d 855.
Relying on the Solid Waste Utility Control Act, which “extended the general regulatory authority of the BPU over public utilities to *251waste collectors, ... and specifically conferred rule making authority upon the BPU with respect to the ‘public utility aspects of the solid waste collection industry,’ ” the Scioscia court upheld the BPU’s actions. Id. at 653, 524 A.2d 855. The court also found that the BPU had authority to bar appellant from participating in the waste disposal business. The court based its decision on the “numerous sections [of the Solid Waste Utility Control Act] which confer pervasive power and responsibility upon the BPU to regulate individuals involved in the solid waste business and to determine qualifications for participation in the business.” Id. at 655, 524 A.2d 855 (citing N.J.S.A 48:13A-6 (prohibiting any person from participating in solid waste collection business until found qualified by BPU); N.J.S.A. 48:13A-9a (allowing Board to revoke or suspend certificate of public convenience and necessity); and N.J.S.A 48:13A-12a (holding officers, agents, directors, principals, managers, or employees of solid waste collector individually accountable for certain violations)).
The Appellate Division also upheld the BPU’s authority to revoke a utility’s franchise in In re Inter County Refuse Service, Inc., supra, 222 N.J.Super. 258, 536 A.2d 775, a case factually similar to In re Scioscia. Like Scioscia, supra, Inter County involved a criminal conviction for conspiracy to restrain trade in the solid waste business. The two cases are also related in that the appellant in Inter County was Scioscia’s co-conspirator. After the appellant was criminally convicted, the BPU issued an order to show cause why Inter County’s certificate of public convenience and necessity should not be revoked and why Inter County’s president should not be barred from participating in any solid waste business in New Jersey. 222 N.J.Super. at 262, 536 A.2d 775. At the hearing before the ALJ, Inter County presented evidence that its president was no longer serving in that capacity because he had sold all of his interest in the utility to a business associate and his wife. Ibid. The stock transfer had been conducted without prior approval of the Board. Inter County argued that the ex-president’s criminal activity was no longer imputable to the utility and that its certificate should not be revoked. The *252ALJ recommended that Inter County’s certificate be revoked and that the company’s president be barred from participating in the solid waste industry. Id. at 263, 536 A.2d 775. The BPU adopted the ALJ’s recommendations. Ibid. On appeal, the Appellate Division found that the stock transfer was not valid because the parties did not obtain Board approval for the transfer. Id. at 268, 536 A.2d 775. Because the president’s criminal conviction was still imputable to the company, the court upheld the revocation of Inter County’s certificate of public convenience and necessity. Additionally, the court upheld the order barring Inter County’s president from the solid waste business. Id. at 271, 536 A.2d 775.
Both Scioscia and Inter County are easily distinguishable from the present case because in those cases the BPU’s actions were based on specific provisions of the Solid Waste Utility Control Act, and not in reliance on the BPU’s general enabling legislation. The Solid Waste Utility Control Act has several provisions that specifically address the BPU’s power to determine the qualifications of persons seeking permission to participate in the solid waste business, N.J.S.A 48:13A-6; to revoke or suspend a solid waste utility’s certificate of public convenience and necessity, N.J.S.A. 48:13A-9a; and to hold officers, agents, directors, principals, managers, or employees of a solid waste collector individually accountable for certain violations, N.J.S.A. 48:13A-12a.
Moreover, unlike the management in Scioscia and Inter County, whose exclusion from the solid waste industry was based on their own criminal conduct, Valley and its management have not committed any criminal conduct. In both those cases, the revocation was based on a statute and implementing regulation that specifically prohibited conduct in which the barred officers personally engaged. Because both cases were decided on the basis of the Solid Waste Utility Control Act, which conferred more extensive and more explicit powers to the BPU with respect to revocation and barring ownership than does the Board’s enabling legislation, Scioscia and Inter County are not dispositive of the issues in this case.
*253VI.
Assuming for purposes of argument that the BPU is authorized to bar ownership in a utility, the severe penalty of not only barring an individual from ever owning a utility but also divesting the individual of his current interest in a utility, are not appropriate remedies for “mismanagement” and certainly should not be imposed without rulemaking.
Counsel for the BPU advised us at oral argument that the agency has never used this power to revoke the franchise of a utility or to divest and bar its officers solely because of mismanagement. Not only is there no specific statutory authorization for such acts, but there are no BPU guidelines or regulations concerning such actions. Such drastic results should be preceded by regulations setting guidelines for their application.
This case is somewhat analogous to Department of Labor v. Titan Construction Co., 102 N.J. 1, 504 A.2d 7 (1985), which involved the debarment of corporate officers from public contracting work for corporate violations of the New Jersey Prevailing Wage Act. Unlike the Solid Waste Utility Control Act, the Prevailing Wage Act did not specifically indicate that corporate officers were subject to the prohibitions of that legislation and the remedies it provides. Thus, the court noted that “[t]he Act itself provides no standards establishing the grounds for debarring corporate officers.” 102 N.J. at 17, 504 A.2d 7. Moreover, the position of the Department of Labor in Titan, supra, was that a corporate officer could be debarred even though he was “entirely without knowledge of or culpability for the corporate violatipn.” Ibid. The Court concluded that any attempt to impose vicarious liability upon a nonculpable person presented substantial legal and policy issues that should be addressed through rulemaking before punitive action was taken. Ibid. Indeed, the Court held that “[fjundamental principles of due process mandate that standards must be established to define the conduct that will result in individual debarment.” Ibid. Likewise, before a forced sale and permanent divestiture and debarment is enforced, there should be *254guidelines and regulations setting forth the conditions under which such draconian measures are to be undertaken.
Moreover, there should be a rational connection between the misconduct and the remedy imposed. The misfeasance found in this case had to do with the management of Valley and not Schindelar’s character or ethical competency to own Valley. Although this purported misfeasance, which the BPU has labeled a failure to provide “safe, adequate and proper service,” might support the removal of Sehindelar from the management of Valley, there is no authority and no justification for removing Sehindelar and now his family as the owners of Valley. The only previous reported cases imposing such harsh sanctions have involved willful misconduct, ie., criminal actions that adversely reflected on the respondent’s ability to own a public utility, and not simply poor management ability.
There are less drastic measures available to the BPU than revocation and permanent debarment. Companies exist that specialize in providing the operation and management of sewerage treatment facilities owned by others. Valley has retained such a company, U.S. Water, Inc., to operate its facilities. Because Mr. Sehindelar is dead, there is no reason not to allow the adult members of his family to appoint new management to operate Valley and to give them an opportunity to sell Valley if they wish. The BPU has failed to show that much less drastic remedies would not work.
VII.
Even assuming Mr. Schindelar’s mismanagement, the severe remedies imposed by the BPU exceed the authority granted by its enabling legislation. When the Legislature intends to allow the BPU to revoke a franchise and sell a utility, it does so in unmistakable language. See N.J.S.A 58:11-59. It did not do so here and, therefore, the BPU has no authority to do it.
I would reverse the judgment of the Appellate Division.
*255HANDLER and STEIN, JJ., join in this opinion.
For affirmance — Chief Justice PORITZ, and Justices POLLOCK, O’HERN and COLEMAN — 4.
For reversal — Justices HANDLER, GARIBALDI and STEIN — 8.