The question in this case is whether a municipality may recover damages directly from a property owner for unpaid water rents when the municipality has not contracted to provide water to the property owner.
The Herkimer County Industrial Development Authority (IDA) leased a facility to a corporation that later declared bankruptcy. At that point, the corporation had failed to pay two years of water bills to the Village of Herkimer. The Village sought to collect the unpaid funds from the IDA by asserting a tax lien. The IDA sought a declaratory judgment that the IDA’s tax-exempt status made the tax lien unlawful, and the Village counterclaimed for monetary damages in the amount of the unpaid water bills. In 2015, the Fourth Department agreed with the IDA that the tax lien was unlawful, but allowed the Village’s counterclaim to proceed.
The case reached the Fourth Department again in 2019, after Supreme Court granted the Village partial summary judgment, concluding that the IDA was liable for the unpaid water bills. A divided court affirmed that judgment, rejecting the IDA’s argument that it could not be liable for the water bills merely because it lacked a water contract with the Village. The majority relied on case law holding that a property owner consents to its tenant’s use of a municipality’s water supply when that owner installs water pipes in a building, or knows that water pipes are installed and fails to shut them off. According to the court, that was the situation in this case.
Two judges dissented. In their view, under the common law, which had not been abrogated through regulation or statute, a plaintiff could not “recover a personal judgment for a debt against a party with whom it was not in privity, i.e., a party with whom it did not contract.” And here, the dissenters pointed out, the Village lacked a contract with the IDA.
The Fourth Department granted leave to appeal to the Court of Appeals.
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