New Hartford v. Ct. Resources Recovery Auth.

• Decision Date: 19 May 2009
• Docket Number: No. 17946.,No. 18109.,17946.,18109.
• Citation: 970 A.2d 592,291 Conn. 433
• Court: Connecticut Supreme Court
• Parties: TOWN OF NEW HARTFORD et al. v. CONNECTICUT RESOURCES RECOVERY AUTHORITY et al.

970 A.2d 592

291 Conn. 433

TOWN OF NEW HARTFORD et al. v. CONNECTICUT RESOURCES RECOVERY AUTHORITY et al.

No. 17946.

No. 18109.

Supreme Court of Connecticut.

Argued October 16, 2008.

Decided May 19, 2009.

Louis R. Pepe, with whom were Richard F. Wareing, Richard H. Goldstein, Daniel J. Klau, Joseph J. Chambers and, on the brief, David W. Case and James G. Green, Jr., Hartford, for the appellant (named defendant).

David S. Golub, with whom were Jonathan M. Levine, Stamford, Joseph V. Meaney, Jr., Hartford, and, on the brief, Marilyn J. Ramos and Craig N. Yankwitt, Stamford, for the appellees (plaintiffs).

ROGERS, C.J., and DiPENTIMA, McLACHLAN, GRUENDEL and ROBINSON, Js.^*

ROGERS, C.J.

The named defendant, Connecticut Resources Recovery Authority,¹ in two separate appeals,² challenges the judgment of the trial court awarding a constructive trust in favor of the plaintiffs³ after finding that the defendant had been unjustly enriched by its retention of certain lawsuit settlement proceeds,⁴ and certain postjudgment orders. In the first appeal, SC 17946, the defendant claims that the trial court improperly: (1) rendered judgment for the plaintiffs on a theory of unjust enrichment in light of the existence of express contracts between the parties and the defendant's willingness to rebate a portion of the settlement proceeds; (2) imposed a constructive trust because the plaintiffs' unjust enrichment theory was not cognizable as a matter of law and their interest in an identifiable res was lacking; and (3) certified the plaintiffs as a class because the numerosity criterion of Practice Book § 9-7⁵ was unsatisfied.⁶ In the second appeal, SC 18109, the defendant challenges certain postjudgment orders of the trial court. It argues that the court improperly ordered it to adjust its budget and to reduce fees to the plaintiffs for the pending fiscal year because the court's order: (1) was issued in response to an improperly amended complaint alleging a new cause of action that required an additional hearing; and (2) was based on a clearly erroneous factual finding. We affirm the judgment of the trial court.

The following facts, as found by the trial court, and procedural history are relevant to the appeals. The defendant is a quasi-public entity established by statute in 1973 to implement Connecticut's solid waste management plan and to assist Connecticut municipalities in managing, recycling and disposing of their solid waste. See General Statutes § 22a-261 et seq. The defendant operates four separate, geographically based solid waste disposal "projects," each financially independent of the others and servicing a distinct group of municipalities. The plaintiffs are the municipalities serviced by the Mid-Connecticut Project (project), which generally covers the center and northwest portions of the state.

When the project was formed in the early 1980s, a processing facility was constructed on certain property in the South Meadows section of the city of Hartford. The construction was financed through the issuance of $309 million of tax-exempt bonds.⁷ Pursuant to the bond agreements, it was necessary for the defendant to enter into long-term contracts with the plaintiffs to ensure an adequate supply of waste and, by extension, project revenue. Accordingly, each plaintiff, in or around 1985, entered into a contract with the defendant that will not terminate until 2012, when the project as it currently exists is scheduled to conclude.

Pursuant to the parties' contracts, the plaintiffs agreed to process all of their solid waste at the defendant's facility and pledged their full faith and credit to ensure payment of the amounts that they owed to the defendant under the contracts. The amounts owed are based on the project's "net cost of operation," which is computed by deducting the project's revenues from its operating expenses, including the principal and interest due on the facility construction bonds, for each fiscal year⁸ of the parties' contractual relationships. Specifically, each plaintiff pays a "tip fee" for each ton of waste it delivers to the defendant. The plaintiffs provide 45 percent of the project's waste and, hence, tip fee revenue, while the remaining 55 percent is provided by private waste haulers who are not parties to this action.⁹ The tip fee is determined by dividing the project's net cost of operation by the total cumulative tonnage of waste processed at the facility. Because the net cost of operation must be computed prior to the commencement of a given fiscal year, it necessarily is determined on the basis of estimated figures. To the extent the estimates are too high, resulting in surplus revenues at the end of the fiscal year, those revenues must be applied to offset the net cost of operation in the budget for a subsequent year.¹⁰

Also in 1985, the defendant entered a long-term energy purchase agreement with Connecticut Light and Power (power company), to expire in 2012, pursuant to which the power company would purchase, at above market rates, electricity generating steam produced by the burning of solid waste at the South Meadows facility. The revenues produced by the energy purchase agreement were a major offset to the expenses of the project, lowering substantially the net cost of operation and, accordingly, the tip fee paid by the plaintiffs.

By the mid-1990s, the project was operating very efficiently, leading to both decreasing tip fees and multimillion dollar operating surpluses. The defendant however, failed to credit those surpluses to the budget in subsequent years as required by the parties' contracts. At trial, the defendant admitted that from fiscal year 1997 through fiscal year 2004, it improperly failed to credit approximately $25,600,000 in project operating surpluses, making tip fees higher than they otherwise would have been.

By the late 1990s, the defendant's energy purchase agreement with the power company had become very lucrative due to a low market price for steam, producing over $20 million annually for the project in above market rate revenues. In 1998, the General Assembly enacted the Electric Restructuring Act, Public Acts 1998, No. 98-28 (P.A. 98-28), which, inter alia, required the power company to make good faith efforts to divest itself of above market contracts such as the energy purchase agreement with the defendant and provided subsidized loans for that purpose. Ultimately, the defendant accepted $280 million from the power company, referred to as a buy down, to release the power company from the energy purchase agreement. See P.A. 98-28, § 8(c)(1)(B).

The defendant wanted to find a use for the buy down proceeds that would offset the loss of the annual revenue that it had previously received pursuant to the energy purchase agreement. Because those proceeds represented an advance payment of what otherwise would have been future project revenues, the only proper use for them was in connection with the project. Moreover, the defendant's authority to enter into loan transactions and to make investments was restricted by its enabling legislation,¹¹ and federal arbitrage laws prevented it from lending the buy down proceeds at a rate greater than the tax-exempt yield on the project's bonds.

Despite the foregoing restrictions on the use of the buy down proceeds, the defendant, in March or April of 2001, used $220 million of those proceeds to make what it since has admitted was an illegal, ultra vires unsecured loan to Enron Power Marketing, Inc., a subsidiary of Enron Corporation (collectively Enron).¹² Contemporaneous with the loan transaction, two law firms, Murtha Cullina, LLP (Murtha), and Hawkins Delafield and Wood, LLP (Hawkins), advised the defendant that it was legal and not violative of the defendant's bonding agreements. As to the other $60 million of the buy down proceeds, the defendant used $10 million to purchase the South Meadows property and equipment from the power company and approximately $26.7 million for environmental remediation of the South Meadow property. The approximately $23 million remaining, along with the property and equipment purchased from the power company, was placed in a ventures account that was not associated with the project (nonproject ventures account). Representatives of the defendant testified at trial, and the trial court found, that the diversion of the purchased assets and remaining buy down proceeds into the nonproject ventures account was improper and that those items instead should have been placed in project accounts.¹³

When the defendant received and disbursed the buy down proceeds, the project's debt service on the remaining construction bonds was approximately $26 million annually. The defendant, at that time, could have used $202,724,437 of the buy down proceeds to defease all of the remaining bond obligations and to eliminate that annual expense for the life of the project.¹⁴

Pursuant to the terms of the illegal loan, Enron was to make fixed monthly payments to the defendant of $2,375 million per month for eleven and one-half years. Of each payment, $175,000 was to be diverted to the nonproject ventures account. Enron made eight of the required monthly payments, from April, 2001, through November, 2001, then ceased making any further payments to the defendant. In December, 2001, Enron filed for bankruptcy. The loss of payments from Enron caused the project to sustain an annual revenue loss of $28.5 million, bringing it to the brink of financial ruin.

Initially, the revenue shortfalls were covered by increased tip fees¹⁵ and use of project surpluses and overfunded reserves. Between fiscal year 2002 and fiscal year 2007, tip fees increased over 35 percent, from $51 per ton to $69 per ton, even though the project's annual expenses during this period were decreasing. The total additional tip fee charges over that time period amounted to $64.185 million. The plaintiffs' 45 percent share of that total,...