First published: Jul 2023
Was It Unbilled or Under Billed
Just because they say it, doesn’t make it true. Although an agency’s interpretation of its own regulations is generally to be accorded deference, an agency is not freed from the obligation to read its regulations reasonably and rationally. When an agency makes an arbitrary and capricious determination which misapplies its own rules and regulations to its own conduct, the court can and will reverse such determinations.
BIG SIX TOWERS, INC v. NEW YORK CITY WATER BOARD
WHAT HAPPENED Big Six, a seven-building, 988-unit Mitchell-Lama co-op in Woodside, Queens has just one connection to the municipal water system (called a service line) that feeds water to a rooftop tank on one of the seven buildings. Big Six’s own network of pipes then supplies water to each of the seven buildings across the property. Historically Big Six had been billed for water on three separate accounts, and in 2001 the water billing was switched to one account.
In 2014 Big Six converted from metered billing to the discounted flat rate billing program (MCP). In 2018, some four years after the conversion, the Department of Environmental Protection (“DEP”) realized a major billing error had occurred. It had dropped 282 apartments during the conversion, and water was not being billed for these apartments.
Upon making this discovery, DEP issued a substantial back-bill to the complex, in the amount of $1,415,305.04, reflecting the 4.3 years of retroactive water charges which were unbilled and unpaid for by the other 282 units.
At the time the back-bill was issued, all three accounts (two of which were dormant) were paid in full. The DEP posted the back-bill as two separate charges, charging half of the total to each of the two dormant accounts. Inexplicably, none of the back-billed charges were posted to the main account, as had been the standard billing practice for all other water charges for over a decade.
Big Six disputed the back-billed charges, maintaining that the back bill was an “under billed service”, which, pursuant to the water board’s rules, was subject to a two-year statute of limitations. DEP maintained that the back-billed charges were an “unbilled service” rather than an “under billed service” and thus were not subject to the two-year statute of limitations. The distinction was based on the Water Board’s Rate Schedule, which defined an “unbilled service” to mean an instance where a service was provided to a property, but no billing transaction(s) for that service period were posted. The DEP qualified the back-bills for the 282 units as an “unbilled service” by virtue of the fact that the back-billed transactions were posted to the two dormant accounts, which had never been charged for the period following conversion to the MCP.
The cooperative sought to reverse the disputed charges by commencing agency proceedings against the Water Board and the DEP. The Water Board upheld its billing as proper and Big Six took DEP and the Water Board to court.
IN THE COURT Big Six appealed the Water Board’s determination by filing an Article 78 against DEP and the Water Board. The lower court and the appellate court agreed with the cooperative, deeming the agency’s determination to be arbitrary and capricious. In reviewing the water board’s determination, the lower court noted that the property’s other 706 units had been billed to the main account, and such billing had been posted to the records of DEP and the Water Board. The appellate court noted that, by virtue of billing the other 706 units for the same period, the water board acknowledged that that the property had been billed for at least some of the services provided, and therefore the DEP’s failure to bill for all of the services provided could not rationally meet the definition of an ”unbilled service”. The court found that, by resurrecting the two dormant accounts solely for back-billing purposes, DEP had administratively attempted “creative bookkeeping” solely to qualify the back-bill as an “unbilled service” to get around its statute of limitations.
COUNSEL For Big Six STEVEN WEG Koffsky Schwalb / For NYC Water Board and DEP CLAUDE SOLOMON, NYC Law Department/ Judge Janice A. Taylor