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Borough legal fees near $1 million; $500,000 in Suez suit; mayor says costs are part of need for tax hike

By Dan Miller

danmiller@pressandjournal.com

717-944-4628
Posted 11/28/18

The borough of Middletown is on track to spend $1 million on lawyers in 2018.

The borough paid $863,062.42 to seven law firms from April 17 through Nov. 7, according to expenses approved by …

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Borough legal fees near $1 million; $500,000 in Suez suit; mayor says costs are part of need for tax hike

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The borough of Middletown is on track to spend $1 million on lawyers in 2018.

The borough paid $863,062.42 to seven law firms from April 17 through Nov. 7, according to expenses approved by council and obtained by the Press & Journal through Right-to-Know requests.

The borough budgeted $374,000 for legal expenses for 2018. While the $863,000 far exceeds what is budgeted, money for legal expenses directly tied to lawsuits over the borough’s water and sewer lease with Suez is coming from a separate water and sewer fund account, borough Finance Director Kevin Zartman told the Press & Journal.

That means no budgeted funds were needed to cover most of the $863,000, as the combined $500,531.21 paid to two firms is tied to litigation over the water and sewer lease, Zartman said.

That leaves $362,531.21 for the more than six months from April 17 through Nov. 7 that is not tied to the water and sewer lease.

The $863,000 exceeds the $608,000 in legal costs for all of 2016 that the Press & Journal detailed in a March 2017 article.

That amount of legal fees was considered excessive at the time by then-Council President Ben Kapenstein.

Middletown Mayor James H. Curry III has cited borough legal expenses to support his push for increasing the borough property tax in 2019.

The tax is to go up by 2 mills, under the proposed 2019 budget that has been approved by the council.

“We have eight or nine lawsuits pending against the borough,” Curry said during the Nov. 8 council budget meeting. “You can watch the spending, but the more we get sued … you can’t control that.”

Suez suit costs the most

Curry did not itemize the eight or nine lawsuits. But according to online Dauphin County and federal court records, the borough is involved in 10 active lawsuits.

That does not include court filings from as far back as 2010 that are still pending but have been inactive for some time.

The borough initiated four of the 10 lawsuits, including the April action that the borough filed against Middletown Water Joint Venture LLC. The joint venture includes Suez, the private company running Middletown’s water and sewer systems under a 50-year lease of the systems to the joint venture that council approved in 2014.

The borough filed the lawsuit to try to stop the joint venture from adding an 11.5 percent surcharge to the bills of water and sewer customers, to recoup lost revenue from what Suez says is a water usage shortfall in the first three years of the lease.

The lawsuit also seeks to amend language in the lease contract regarding a water usage shortfall. The borough contends that the contract as written guarantees a financial windfall for the joint venture at the expense of exorbitant water and sewer bills for borough residents and businesses.

The surcharge remains, as the lawsuit is pending in U.S. Middle District federal court.

Borough council in March hired the Philadelphia-based law firm Dilworth Paxson LLP as “special counsel” to represent the borough in the federal lawsuit against the joint venture and Suez.

The borough is paying Dilworth Paxson $400 an hour, according to an engagement letter that the Press & Journal acquired through a Right-to-Know request.

Of the $863,062.42 spent on legal fees from mid-April through early November, $449,897.13 has gone to Dilworth Paxson to represent the borough in the joint venture/Suez lawsuit.

The borough has also spent another $50,634.08 to date on another law firm, Gibson & Perkins of Media, that council hired on May 1 to “investigate potential claims” against other parties that provided advice to council before council approved the water and sewer lease.

Hiring Gibson & Perkins — a firm charging the borough $300 to $350 an hour — led to another borough-initiated lawsuit, the one that the borough filed in June against its former solicitor, McNees Wallace & Nurick, and former financial advisers, Susquehanna Group Advisors.

The borough alleges in the lawsuit that McNees and Susquehanna provided bad advice that council relied on in approving the lease.

McNees and Susquehanna Group both dispute those claims, in responses filed on behalf of the two defendants by their respective lawyers.

Courogen and Bunky’s suits

The borough in August sued its former communications director, Chris Courogen, in Dauphin County Court, alleging Courogen violated terms of a 2016 separation agreement in which the borough paid him over $19,000 in severance.

Courogen is disputing the claim, and the case is pending.

The complaint focuses on an email that the borough says Courogen sent from his personal email account, in support of legislation introduced in the Pennsylvania House of Representatives to place new restrictions on Middletown and other boroughs in the state that provide electricity to their residents and businesses.

One part of Courogen’s email says that “small boroughs providing electricity is nothing more than a hidden tax in most municipalities” and “when the council I worked for was swept out in the elections, the first thing the new council folks did was raise electric rates, despite getting a new wholesale contract that reduced what they are charged.”

The borough complaint says that Courogen’s “criticism of the borough and its officials by classifying the borough’s provision and sale of electricity to the borough’s residents as merely a hidden tax … reflects adversely on the borough, as well as the borough’s officials, officers, attorneys, and managers.”

Courogen’s “criticism has caused the borough to incur or suffer damages,” the lawsuit adds.

The complaint alleges breach of contract, and seeks an unspecified award of damages, plus interest, costs, attorneys’ fees and “all other amounts provided for under the parties’ contract, the law, and as the court otherwise deems appropriate.”

Also still listed as pending in county court is a municipal lien that the borough filed in 2017 seeking to collect $5,067.48 in delinquent utility bills from Al Dolatoski and Joyce Sipe, former owners of the property at 10-16 S. Union St. known as Bunky’s.

Bunky’s was acquired in early October by its new owners, KRP Limited.

Librandi suit

Otherwise, the list of 10 lawsuits includes six that have been filed against the borough.

Two of the six were filed in 2016.

In November 2016 Librandi Machine Shop sued the borough in Dauphin County Court over what Librandi contended was “excessive fees” the company was being forced to pay Middletown for electricity.

Librandi is located on Harrisburg International Airport in Lower Swatara Township, but has been buying electricity from the borough since the late 1990s.

Librandi wants to go back to buying electricity from Metropolitan-Edison, from whom Librandi had been purchasing power until the machine shop switched to Middletown for what was a better deal at the time, according to the lawsuit.

In November 2017 a county judge granted the borough’s motion that county court lacked jurisdiction to hear the case, and that the matter should be decided by the Pennsylvania Public Utility Commission.

In February, Librandi filed a petition with the PUC. The petition requests PUC order Middletown disconnect its electrical equipment from the Librandi property, so that Librandi can start buying electricity from Met-Ed.

The petition is pending before the PUC. Middletown continues to be represented in the case, through lawyers with current borough solicitor Eckert Seamans.

Substation suit

The list of lawsuits pending against the borough also includes an action that was launched in September 2016 by URI, a Maryland-based development firm.

URI was to build a new electric substation for the borough as part of the Woodland Hills development, under an arrangement proposed by a previous borough council.

The deal fell through. However, URI never followed through with filing a complaint in court.

On Nov. 16, county court purged the URI case from county court rolls, due to no activity occurring in the case for more than two years.

McNair House suit

The list of cases pending against the borough also includes the lawsuit filed by Virginia and Adam Germak in May against Middletown Industrial and Commercial Development Authority.

The Germaks filed the suit after they acquired the McNair House property at North Union and East Emaus streets from ICDA for $90,000 in November 2017.

The Germaks in the lawsuit accuse the authority of fraud and of making misrepresentations about the property before the sale. The lawsuit is pending in county court.

The Germaks allege the ICDA concealed from the Germaks that theirs was the highest of three bids that the ICDA received for the McNair House.

As a result, the Germaks increased their bid and “unnecessarily spent an additional $19,000” to acquire the property, according to the lawsuit.

The Germaks allege that the ICDA failed to disclose problems with the roof and water damage that the property had sustained.

Police lawsuits

Two other pending actions are lawsuits involving Middletown Police Department.

In 2017, Toren Pettigrew of Harrisburg filed a lawsuit in Dauphin County Court against Patrol Officer Wade Bloom and the borough.

Pettigrew seeks damages from an Oct. 20, 2016, collision in Steelton between his vehicle and a police cruiser that Bloom was driving, according to the lawsuit.

In the other case, Middletown resident Allen Brown filed a lawsuit in county court in September 2018, alleging his constitutional rights were violated when he was arrested during an incident in the borough in September 2016.

The lawsuit was filed against the Dauphin County Sheriff’s Office, but also includes the borough police department and the borough as defendants.

In October Brown’s lawsuit was transferred to U.S. Middle District federal court, where it is pending.

Press & Journal suit

On Oct. 23, the Press & Journal sued the borough in U.S. Middle District federal court.

The suit alleges that the borough violated the Press & Journal’s constitutional rights in the borough deciding to no longer place legal advertising in the newspaper.

No overall shortfall?

Zartman does not expect the borough to have an “overall shortfall” for legal fees in 2018, although he won’t know for certain until the end of the year.

If the borough does run short, he said money will be taken from cash reserves.

Council is actually looking to budget less money for legal expenses in 2019 — $355,000 compared to $374,000 — according to the spending plan proposed for next year.

The proposed 2019 budget cuts discretionary spending by 5 percent below 2018 budgeted levels.

The water and sewer fund that Zartman said the borough is tapping to cover most of the legal fees for the six months — the ones tied to the water and sewer lease — comes from water and sewer revenue that the borough had been getting before the lease with Suez and the joint venture began on Jan. 1, 2015.

Since then, all water and sewer revenue now goes to Suez and the joint venture. The joint venture is required to make payments to the borough throughout the 50-year lease, under terms of the contract between the borough and the joint venture.

The holdover water and sewer fund has a balance of about $1.2 million, Zartman told the Press & Journal on Nov. 21.

The borough has been earning no interest on the $1.2 million water and sewer fund. However, Zartman said he is in the process of transferring the money to an interest-bearing account at another financial institution.

Council President Angela Lloyd declined a request from the Press & Journal to provide comment.

Who is getting paid

The seven law firms and the amounts paid to each by the borough from April 17 through Nov. 7 are as follows:

1. $449,897.13 to Dilworth Paxson

2. $283,387.30 to Eckert Seamans (Council hired Eckert Seamans as new borough solicitor April 17. The firm replaced McNees Wallace & Nurick, which had been borough solicitor since January 2012).

3. $50,634.08 to Gibson & Perkins

4. $41,169.72 to McNees Wallace & Nurick

5. $33,806.19 to Caldwell Kearns (Caldwell Kearns represents the Middletown Zoning Hearing Board)

6. $3,187.50 to Cohen Law Group (to handle renewal of the Comcast and Verizon franchise agreements)

7. $980.50 to Rudolph Clarke (for legal services provided to the Middletown Civil Service Commission).