K. S. B. Technical Sales Corp. v. North Jersey Dist. Water Supply Commission of State of N. J.

• Decision Date: 30 June 1977
• Citation: 151 N.J.Super. 218,376 A.2d 960
• Parties: K.S.B. TECHNICAL SALES CORP. and Linda Fazio, Plaintiffs-Appellants and Cross-Respondents, v. NORTH JERSEY DISTRICT WATER SUPPLY COMMISSION OF the STATE OF NEW JERSEY, Defendant-Respondent and Cross-Appellant, and Briscoe/Courter/Conduit, a joint venture, Intervenor-Respondent, and Terminal Construction Corporation and State of New Jersey, Intervenors-Cross-Appellants.
• Court: New Jersey Superior Court — Appellate Division

Page 218

151 N.J.Super. 218

376 A.2d 960

K.S.B. TECHNICAL SALES CORP. and Linda Fazio Plaintiffs-Appellants and Cross-Respondents, v. NORTH JERSEY DISTRICT WATER SUPPLY COMMISSION OF the STATE OF NEW JERSEY, Defendant-Respondent and Cross-Appellant and Briscoe/Courter/Conduit, a joint venture, Intervenor-Respondent and Terminal Construction Corporation and State of New Jersey Intervenors-Cross-Appellants.

Superior Court of New Jersey, Appellate Division.

Argued June 1, 1977.

Decided June 30, 1977.

Julius B. Poppinga, Newark, for appellants and cross-respondents K.S.B. Technical Sales Corp. and Linda Fazio (McCarter & English, Newark, attorneys; John R. Drosdick, and Geoffrey McC. Johnson, Newark, on the brief).

Harold R. Teltser, East Orange, for respondent cross-appellant North Jersey Dist. Water Supply Com'n of State of N. J. (Teltser & Perle, East Orange, attorneys; Michael R. Perle, East Orange, on the brief).

Herbert R. Ezor, Newark, for cross-appellant Terminal Const. Corp. (Heller & Laiks, attorneys; Murray A. Laiks, Passaic, of counsel).

Michael S. Bokar, Deputy Atty. Gen., for cross-appellant State of N. J. (William F. Hyland, Atty. Gen., Stephen L. Skillman, Asst. Atty. Gen., of counsel).

No brief was submitted on behalf of Briscoe/Courter/Conduit, a joint venture.

Before Judges LORA, CRANE and MICHELS.

The opinion of the court was delivered by

MICHELS, J. A. D.

This appeal is taken from a judgment of the Chancery Division which, in part, declared that a New Jersey "Buy American" statute, to wit N.J.S.A. 52:33-2, as incorporated in the addendeum to the specifications relating to Contract W-76, Wanaque Filtration Plant, conflicts with the General Agreement on Tariffs and Trade (GATT) and the Supremacy Clause of The United States Constitution and is unconstitutional, ¹ but, nevertheless, held that the bids submitted in accordance with such specifications were binding, and ordered that they be received and opened by defendant North Jersey District Water Supply Commission (Commission). The factual and procedural background and the issues raised in the Chancery Division are recounted in the opinion of that court and need not be repeated in detail here. See 150 N.J.Super. 533, 376 A.2d 203.

Briefly, plaintiffs, K.S.B. Technical Sales Corp., a wholly-owned subsidiary of a West German manufacturer of pumps and pumping equipment, and Linda Fazio, also known as Sieglinde Fazio, a taxpayer and resident of the City of Clifton, instituted this action seeking a declaration that New Jersey's "Buy American" statutes, N.J.S.A. 40A:11-18, N.J.S.A. 52:32-1, and N.J.S.A. 52:33-2, are unconstitutional and against public policy, and an order striking the following "Special Requirement" from Addendum No. 1 to the Specifications for the Wanaque Filtration Plant (Contract W-76):

Use of American Manufactured Products:

Only manufactured products of the United States, wherever available, shall be used in the work in accordance with municipalities and counties Local Public Contracts Law N.J. 40A:11-18.

Plaintiffs also sought to enjoin the Commission from receiving and opening the bids submitted in accordance with this Special Requirement.

The trial judge held that the New Jersey "Buy American" statutes do not conflict with the Commerce Clause of the United States Constitution and therefore are not facially unconstitutional. However, the court held that N.J.S.A. 52:33-2 as incorporated in the addendum to the specifications, conflicts with the General Agreement on Tariffs and Trade (GATT) and the Supremacy Clause and is unconstitutional. Notwithstanding this declaration rendering the specifications for the work unlawful and void, the court, as a result of "balancing the equities" in the case, ordered the Commission to receive and open the bids submitted in accordance with the specification, and held that these bids were binding upon the Commission. Plaintiffs appealed, and the Commission and the intervening defendants Terminal Construction Corporation (Terminal) and the State of New Jersey (State) cross-appealed. We accelerated the appeal pursuant to R. 2:9-2.

Plaintiffs contend on appeal that the trial judge erred in not holding the "Buy American" statutes unconstitutional on their face under the Commerce Clause of the United States Constitution. We disagree. We are convinced that the judge correctly determined that the three New Jersey "Buy American" statutes, to wit: N.J.S.A. 40A:11-18, N.J.S.A. 52:32-1 and N.J.S.A. 52:33-2, do not conflict with the Commerce Clause and therefore are not facially unconstitutional. Moreover, we are in accord with his determination that (1) the Commission is a public body, and that the work to be performed in constructing the Wanaque filtration plant is a public work within the meaning of N.J.S.A. 52:33-1, and therefore plant construction contracts are governed by the provisions of N.J.S.A. 52:33-2, and (2) in the context of this case the applicable "Buy American" statute incorporated in the addendum to the specifications requiring that "Only manufactured products of the United States, wherever available, shall be used in the work" conflicts with GATT and the Supremacy Clause of the United States Constitution and is therefore unconstitutional. Accordingly, we affirm those portions of the judgment of the Chancery Division essentially for the reasons expressed by Judge Ciolino in his written opinion. See 150 N.J.Super. at 533, 376 A.2d at 205. However, we deem it appropriate to add the following reasons for affirming the declaration of unconstitutionality of the applicable "Buy American" statute under the Supremacy Clause.

Part II, Art. III, par. 2 of the 1947 General Agreement on Tariffs and Trade provides that products imported into the territory of a signatory country from another "shall be accorded treatment no less favorable than that accorded to like products of national origin in respect to all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution, or use." An exception dealing with the use of imported materials by government agencies appears in par. 5 of the same Article. It provides:

The provisions of this Article shall not apply to the procurement by governmental agencies of products purchased for governmental purposes and not for resale or use in the production of goods for sale . . ..

Plaintiffs and Terminal contend that a conflict exists between these provisions and N.J.S.A. 52:33-2, and that consequently the New Jersey statute is invalidated by operation of the Supremacy Clause, U.S.Const. art. VI, cl. 2. The State, on the other hand, contends that (1) the provisions of GATT are inapplicable since the challenged pumps are not used in the "production" of "goods" for sale, and (2) if GATT applies, it does not preempt state regulatory power in this circumstance.

Applicability of GATT

It is clear that governmental units engaged in the purification and sale of water are considered to be in private business, operating in a proprietary and not a governmental capacity. ² As stated in Reid Development Corp. v. Parsippany-Troy Hills Tp., 10 N.J. 229, 89 A.2d 667 (1952):

* * * there is general agreement that the distribution of water by a municipality to its inhabitants for domestic and commercial uses is a private or proprietary function which in its exercise is subject to the rules applicable to private corporations. This is the rule in New Jersey. Lehigh Valley R. R. Co. v. Jersey City, 103 N.J.L. 574, 138 A. 467 (Sup.Ct.1927), affirmed 104 N.J.L. 437, 140 A. 920 (E. & A. 1928); Fay v. Trenton, 126 N.J.L. 52, 18 A.2d 66 (E. & A. 1941). See, also, Olesiewicz v. City of Camden, 100 N.J.L. 336, 126 A. 317 (E. & A. 1924). (at 233-234, 89 A.2d at 669)

See also Crownhill Homes, Inc. v. City of San Antonio, 433 S.W.2d 448, 480-484 (Tex.Civ.App.1968), err. ref. n.r.e. (Sharpe, J., dissenting, discussing New Jersey cases); Annotation, "Liability for Furnishing Impure Water," 54 A.L.R.3d 936, § 3 at 940-941. To be sure, the proprietary nature of an undertaking to provide water is not absolute. Water supply systems constitute public utilities subject now to a considerable measure of governmental regulation in the areas of rate-fixing, purity standards and the like. Moreover, because of the essential nature of water, a duty to provide it and provide it equitably has been imposed. However, the fact of governmental control over some aspects of operations does not lessen the eventual commercial impact of the enterprise. Thus, in Jersey City Mayor, etc. v. Harrison, 71 N.J.L. 69, 58 A. 100 (Sup.Ct.1904), aff'd 72 N.J.L. 185, 62 A. 765, 65 A. 507 (E. & A. 1905), where the enforceability of a contract for the sale of water was at issue, the court stated:

The alleged contract with Jersey City for a water-supply in the case sub judice is a contract for the sale of goods, wares and merchandise as fully as if the water was to be delivered in bottles * * *. (71 N.J.L. at 70, 58A. at 101)

Similarly, in Canavan v. Mechanicville, 229 N.Y. 473, 128 N.E. 882, 13 A.L.R. 1123 (1920), the New York Court of Appeals held that the furnishing of water was a sale of goods under the Uniform Sales Act, ³ stating:

The furnishing of water, through a system of waterworks, by a water corporation, either private or municipal, to private consumers, at a fixed compensation, is a sale of goods within the meaning of the statute. That the furnishing is without profit to the corporation is weightless. The corporation segregates the water supplied from its sources in reservoirs or pipes of its own and delivers it to those who demand and receive it at a fixed compensation or price. It is a sale of goods as fully as if the water were collected and delivered in bottles for a price. Mayor, etc., of Jersey City v. Town of Harrison (Sup.Ct.) 71 N.J.L. 69, 58 A. 100, affirmed (E. & A.) 72 N.J.L. 185, 62 A. 765, 65 A. 507; Oakes Mfg. Co. v. City...