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Middle Atlantic Utilities Co. v. S. M. W. Development Corp.

decided: April 2, 1968.

MIDDLE ATLANTIC UTILITIES CO., PLAINTIFF-APPELLANT,
v.
S. M. W. DEVELOPMENT CORP., DEFENDANT-APPELLEE



Medina, Moore and Anderson, Circuit Judges.

Author: Moore

MOORE, Circuit Judge:

Plaintiff Middle Atlantic Utilities Co., a Delaware corporation, is the assignee of the claim of Rock Hill Sewerage Disposal Corporation (hereinafter Rock Hill), a New York corporation. Defendant is the S.M.W. Development Corp. (hereinafter S.M.W.), a New York corporation. Jurisdiction is based on the diversity of citizenship. 28 U.S.C. ยง 1332 (1964).

I.

On October 19, 1960, Rock Hill applied to the Town of Thompson, Sullivan County, New York, for permission to form a private sewerage corporation for the sewer district known as the Lake Louise Marie Development. On October 22, 1960, the Town Board consented to the formation of the private corporation; it also granted Rock Hill permission to charge $60.00 for each "building plot." Both assents, however, had to be consistent with Chapter 1067 of the 1960 Laws of New York.

About one year later, on March 23, 1961, Rock Hill and S.M.W., the owner of unimproved land within the sewer district, entered into an agreement. Although subject to various interpretations, the agreement included provisions relating to the exclusive use of the sewerage facilities, the net operating losses of Rock Hill, the management of Rock Hill's plant and services, the waiver of the $60.00 per "building plot" service charge, and the further development of the sewer facilities.

On May 28, 1964, plaintiff filed a complaint in the district court. It alleged the Town Board had resolved that Rock Hill could charge $60.00 for each "building plot"; that S.M.W. owned a number of plots in the sewer district; that to date S.M.W. had made no payments; and that S.M.W. owed plaintiff the arrears. In a second and third cause of action, similar claims were made against Sullivan County Land & Development Corporation and J. Ballay & Co., Inc. On August 31, 1964, plaintiff amended the complaint to delete the cause of action against Sullivan County Land & Development Corporation.

Both S.M.W. and plaintiff moved for summary judgment. The issue before the court was whether the annual rate of $60.00 applied to all unimproved plots within the district or only to those plots connected to the sewer system. And if the former, was the resolution valid under the New York enabling statute? Since an understanding of state policy in regard to water pollution might have been required to decide the case, the federal judge was reluctant to examine the "peculiarly local" issue. Nevertheless, he resolved to hear the matter "because the parties offer[ed] the Court no choice." On April 6, 1965, Judge Bonsal denied all motions. There were genuine issues as to material facts. Fed.R.Civ.P. 56(c). Most importantly, what did the Town Board mean by "building plot"? And, what was the effect of the 1961 agreement between Rock Hill and S.M.W.? Middle Atlantic Utilities Co. v. S.M.W. Development Corp., 240 F. Supp. 272 (S.D.N.Y.1965).

The Town Board responded by clarifying its 1960 intentions in a June 15, 1965 resolution. It resolved that it had intended the $60.00 to be charged and payable only with respect to building plots connected to the sewerage facilities and making use of them. Rock Hill then sought a declaratory judgment in the New York courts that this new ordinance was unconstitutional; the resolution, it claimed, deprived it of property without due process of law. However, on December 30, 1966, the New York court held that Rock Hill had no cause of action. The 1960 resolution would have been illegal and void if it were within its intent to charge owners not using the services; therefore, the 1965 resolution could not have deprived Rock Hill of something which it never had legally acquired under the 1960 resolution. Rock Hill Sewerage Disposal Corporation v. Town of Thompson, 27 A.D.2d 626, 627, 276 N.Y.S.2d 188, 190 (1966).

Meanwhile, in the federal court, in March 1966 plaintiff filed a notice of readiness for trial. However, in June 1967 before the trial, plaintiff moved to amend its complaint to allege that S.M.W. was liable to plaintiff for the $60.00 per lot for the sewerage charge -- a repetition of the 1964 complaint [First cause of action]; that S.M.W., under the 1961 agreement, was relieved of paying the $60.00 charge only if it paid annually Rock Hill's net operating losses for the five-year period from August 31, 1961 to August 31, 1966 [Second cause of action]; that S.M.W. breached its agreement and failed to develop its tract and deliberately failed to install any sewer trunk lines, laterals and pumping stations [Third cause of action]; that S.M.W. fraudulently misrepresented its intentions in entering the 1961 agreement in order to induce Rock Hill to loan Lake Louise Marie Corp. $100,000 [Fourth cause of action]; that S.M.W. was obligated as principal to repay the loan of $100,000 made to its agent Lake Louise Marie Corp. [Fifth cause of action]; and that J. Ballay & Co. was liable to plaintiff for the $60.00 per lot for the sewerage charges [Sixth cause of action].

On August 22, 1967, Judge Tyler granted S.M.W.'s and J. Ballay & Co.'s motions for summary judgment. Plaintiff's 1967 motion to amend the complaint was denied. The judge reasoned that since plaintiff did not contend that S.M.W.'s property was connected to the sewer system, "the decision by the New York appellate court is binding upon this court and effectively demolishes the existing claim asserted by plaintiff against the moving defendants in the case." Judge Tyler denied the motion to amend because (1) the action was three years old and had been on the trial calendar for over a year; (2) it seemed likely that it was an afterthought engendered by the surmise of counsel that the motions for summary judgment would be granted; (3) the new claims did not appear to be directly related to the original complaint; (4) the new claims either were or might be timebarred; and (5) this was not an action which, as a practical matter, belonged in the federal courts. Middle Atlantic Utilities Co. v. S.M.W. Development Corp. and J. Ballay & Co., Inc., 64 Civ. 1654 (S.D.N.Y., filed August 2, 1967).

II.

The federal courts must apply the most recent interpretation of state law in diversity cases. Vandenbark v. Owens-Illinois Glass Co., 311 U.S. 538, 61 S. Ct. 347, 85 L. Ed. 327 (1941). The Town Board resolution of 1965 determined the meaning of "building plot"; the Rock Hill case supported the validity of the resolution. A service charge could be rendered only against connected and serviced plots. Summary judgment was proper.

Plaintiff's contention that Judge Bonsal's denial of the motion for summary judgment is the law of the case is without merit. The situation had changed since his original ruling; the facts, which Judge Bonsal had sought, had been supplied. Judge Tyler could not ignore these ...


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