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Middletown sues former solicitor, former financial consultant over advice given for Suez lease

By Dan Miller

danmiller@pressandjournal.com

717-944-4628
Posted 6/6/18

Middletown is suing its former solicitor and former financial consulting firm, both of which provided advice regarding the borough’s decision in 2014 to lease its water and sewer systems to …

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Middletown sues former solicitor, former financial consultant over advice given for Suez lease

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Middletown is suing its former solicitor and former financial consulting firm, both of which provided advice regarding the borough’s decision in 2014 to lease its water and sewer systems to Suez for 50 years.

A lawsuit was filed in in Dauphin County Court on Monday against McNees Wallace & Nurick, the law firm that served as borough solicitor from January 2012 until April 2018, when council replaced the firm with Eckert Seamans; and Susquehanna Group Advisors Inc., a firm that provided financial consulting services to the borough for several years until 2016, when council decided to bring all of these services in-house.

Council President Damon Suglia did not immediately return a call seeking comment.

According to court documents filed by the borough, the council and the former borough water authority relied upon professional advice provided by McNees and Susquehanna Group regarding whether to enter into the lease with the joint venture. Council and the former authority both voted to approve entering into the lease in September 2014.

On May 1, council voted to hire Gibson & Perkins, a Media-based law firm, to “investigate potential claims” against “borough professionals and/or individuals who provided advice and representation or direction during the drafting and negotiation of the lease,” according to council’s motion to hire the firm.

According to online county court documents, the borough is being represented in the lawsuit filed against McNees and Susquehanna Group Advisors by Paul Fellman, an attorney with Gibson & Perkins.

McNees Wallace & Nurick received an estimated $400,000 to $600,000 in fees for its role in the lease transaction, according to a statement made during the September 2014 meeting by former borough Solicitor Adam Santucci of McNees.

Susquehanna Group Advisors received 1 percent — $430,000 — of the $43 million payment that the borough received from the joint venture in return for council and the authority agreeing to the lease.

Besides the borough itself, the lawsuit is being brought by three members of the borough council: Jenny Miller, who was elected in November 2017, and Angela Lloyd and Michael Woodworth.

Lloyd was appointed to council in April to replace Diana McGlone, who resigned in March. Woodworth was appointed in May to replace Ben Kapenstein, who resigned on May 1.

The lawsuit follows council’s decision in April to file a lawsuit against Middletown Water Joint Venture LLC, which includes Suez, to try and stop an 11.5 percent surcharge that Suez has added to water and sewer bills to recoup revenue lost to the joint venture due to a water sales shortfall that occurred in the first three years of the lease, from Jan. 1 2015 through Dec. 31, 2017, according to Suez.

The borough and Suez are awaiting a decision in federal court from Judge Christopher C. Conner on the borough’s request for an injunction to block Suez from imposing the surcharge.

The borough through the federal lawsuit is also seeking changes in the lease regarding how a water sales shortfall is calculated.

The borough contends that the provision as written creates a financial “windfall” for the joint venture, at the expense of rising water and sewer rates being imposed upon Middletown residents and businesses over the term of the 50-year lease.