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Court of Appeals Rules for City in RSA Water Rate Suit

After Lower Court Rulings for Owners, Court of Appeals Reverses

In Prometheus Realty v. NYC Water Board, RSA challenged the 2016 rate-setting by the City Water Board which gave a bill credit of $183 to 664,000 1-3 family homeowners, which was paid for through the water rates charged to apartment building owners. The credit itself was the consequence of Mayor Bill de Blasio’s decision, which RSA had urged for many years, not to request the $122 million annual rental payment paid by the Water Board to the City for the 2017 Fiscal Year (FY). However, instead of using the rent forbearance to reduce all rates across the board, the credit was targeted to the homeowners solely, regardless of need.

RSA took on the Mayor and the Water Board, all the members of which are appointed by the Mayor, in the lawsuit. RSA defeated the City in the first round of the case in State Supreme Court and, then again, in a 4-1 ruling by the Appellate Division, First Department. However, in a ruling authored by Judge Eugene Fahey, the Court of Appeals, in a 5-2 vote, reversed the Appellate Division and ruled in the City’s favor, upholding the Water Board’s credit for the homeowners.

The Court adopted an extremely deferential position with regard to the Water Board’s actions, stating that a utility, such as the Water Board, has “unfettered discretion to fix [rates] as it will so long as invidious illicit discriminations are not practiced and differentials are not utterly arbitrary and unsupported by economic or public policy goals, as it reasonably conceives them.” From that starting point, the Court went on to conclude that the Water Board’s “actions fell short of being utterly arbitrary and unsupported by rational goals.”

The lengthy dissent by Judge Jenny Rivera, joined by Chief Judge Janet DiFiore, was critical of the process by which the Water Board acted in lockstep with the Mayor’s announcement regarding the rent forbearance, rather than undertaking its own, independent review and analysis. The dissent stated that while the Water Board does have broad authority, “there is no evidence before us that the Board acted rationally in approving the credits and rate increase.” Rather, “the Board failed to adhere to its statutory requirements and did not engage in an independent assessment of the potential impact of the rent-forbearance on the Board’s legislatively-mandated economic and public policy goals.” According to the dissent, the Water Board’s after-the-fact justifications for its actions “are not supported by the record.”

After the Court’s decision, the Mayor held a press conference at which he indicated that the homeowners would receive the credit with the water bill that they would receive in March. However, the Mayor did not make any reference to when apartment building owners would see the corresponding increase in their water rates. As we went to press, the Water Board was expected to hold a public hearing on January 26th to discuss the decision by the Court of Appeals. We will keep you apprised on the outcome of this hearing.

RSA was represented in this matter by Michael Berengarten, Esq., from Herrick Feinstein

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