Matter of Schermerhorn Residential Holdings, L.P. v Washington County Sewer District II
Attorneys and Parties
Brief Summary
This case concerns municipal sewer connection charges and whether an out-of-district, per-unit sewer connection fee imposed on a 252-unit apartment development was a lawful regulatory fee or an unlawful revenue-raising tax/impact fee.
Supreme Court held that the per-unit out-of-district connection fee in Local Law No. 2024-01 was invalid, finding it preempted by County Law article 5-A [county sewer district statutory framework], an illegal tax, and an impermissible impact fee, and directed respondents to accept petitioners' application for a flat $2,500 fee.
The Appellate Division reversed the order and judgment invalidating Local Law No. 2024-01 and overturning the sewer district's refusal to accept only a flat $2,500 payment.
The appellate court held that the record did not establish as a matter of law that the charge was unlawful. It found evidence that inflow and infiltration mitigation may be a required condition of new sewer connections under the State Pollution Discharge Elimination System (SPDES) permit, which could make the charge a permissible regulatory fee rather than a tax. But because the record did not conclusively show whether the $2,500 per-unit fee reasonably approximated the actual cost of accommodating new connections, a factual hearing was required.
Background
Washington County Sewer District II (WCSDII) operates a wastewater collection system serving several municipalities. In 1989, Washington County enacted Local Law No. 1989-04 establishing annual sewer charges. In 2013, the County amended that law to add new connection fees, including a $1,000 in-district fee and a $2,500 out-of-district fee, and WCSDII applied those charges on a per-unit basis. Petitioners' predecessors had arranged for sewer service to property later placed within Kingsbury Sewer District No. 2 (KSD2). In 2021, the Town of Kingsbury and Washington County entered an intermunicipal sewer operations agreement. Petitioners later developed a 252-unit apartment complex in KSD2 that would connect through KSD2 infrastructure into WCSDII. After petitioners challenged the per-unit charge and tendered only $2,500 with their permit application, WCSDII imposed a moratorium and returned the application. The County then enacted Local Law No. 2024-01, which expressly clarified that out-of-district connection fees were charged per unit and stated that the fee would be used for inflow and infiltration mitigation. Petitioners then brought this combined CPLR article 78 proceeding and declaratory judgment action challenging the fee under County Law § 266 (1) [authorizing county sewer district financing through equitable user charges, ad valorem levies, and special benefit assessments], and claiming it was an illegal tax and impermissible impact fee.
Lower Court Decision
Supreme Court rejected respondents' defenses, including failure to join necessary parties under CPLR 1001 (a) [required joinder of parties who might be inequitably affected], held the challenged portion of Local Law No. 2024-01 invalid, ruled that the fee was preempted by County Law article 5-A, an illegal tax, and an impermissible impact fee, and ordered respondents to accept petitioners' connection application for a flat $2,500 fee.
Appellate Division Reversal
The Appellate Division reversed and remitted. It first held that the Town of Kingsbury and/or KSD2 were not necessary parties to the main issue of whether WCSDII lawfully imposed the per-unit fee, although KSD2 would have been needed to grant complete mandamus relief compelling connection. On the merits, the court said the case was not controlled by prior contracts and was not a true field-preemption dispute. Instead, the question was whether the charge was a valid municipal fee or an unauthorized tax. The court accepted that, because of WCSDII's SPDES permit obligations and combined sewer overflow limits, inflow and infiltration mitigation could be treated as a condition precedent to approving a new sewer connection. That meant the fee could potentially qualify as a regulatory fee if it bore a reasonable relationship to the cost of accommodating the connection. However, the proof did not establish how the $2,500 per-unit amount had originally been calculated or whether it reasonably approximated actual mitigation costs. Because respondents' showing was not so deficient as to justify judgment for petitioners as a matter of law, the court ordered a hearing on that factual issue. It also stated that if the fee is ultimately found invalid, the remedy would be annulment of the fee, not a court-set replacement charge.
Legal Significance
The decision clarifies that a sewer connection charge imposed by a municipality is not automatically invalid merely because it generates substantial revenue or is imposed on out-of-district users. A charge may be upheld as a regulatory fee if it is reasonably related to the actual cost or burden created by the proposed connection, including mitigation required by environmental permit obligations. But where the record does not show how the fee amount was derived or tied to cost, a factual hearing is necessary rather than summary invalidation.
A municipal sewer connection fee tied to environmental capacity and mitigation obligations may be lawful, but the municipality must be able to show a reasonable cost relationship; without that proof, the issue goes to a hearing, not automatic annulment or judicial substitution of a lower fee.