Big Six Towers, Inc. Wins Case Against NYC Water Board Over Incorrect Billing Practices

City agencies do make mistakes when it comes to charging for services like water and electricity. When boards are hit with erroneous — and shockingly high — bills, they don’t have to take it lying down. As a recent case, Big Six Towers, Inc. v. New York City Water Board, illustrates, you can fight back and win.

A Service Charge MIx-up

Big Six, a 988-unit Mitchell-Lama co-op in Woodside, Queens, has one connection, or service line, to the municipal water system that feeds water to a rooftop tank on one of its seven buildings. Big Six’s own network of pipes then supplies water to each of the buildings across the property. Historically, Big Six had been billed for water on three separate accounts, and in 2001 the billing was switched to one account.

In 2014, Big Six converted from metered billing to a discounted flat-rate billing program. In 2018, the Department of Environmental Protection (DEP) realized that a major billing error had occurred during the conversion. It had dropped 282 apartments 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 more than four years of retroactive water charges that were unbilled and unpaid for.

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 underbilled 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 and thus were not subject to the statute of limitations. The distinction was based on the water board’s Rate Schedule, which defined an “unbilled service” as 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 following the conversion to the discounted flat-rate program. The cooperative sought to reverse the disputed charges by commencing agency proceedings against the New York City Water Board (NYCWB) and the DEP. Both upheld the billing as proper, and Big Six took DEP and NYCWB to court.

Creative Bookkeeping 

Big Six appealed the NYCWB’s determination. The lower court and the appellate court agreed with the cooperative, deeming the agency’s determination to be arbitrary and capricious. In reviewing the NYCWB’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 NYCWB. The appellate court noted that, by virtue of billing the other 706 units for the same period, the NYCWB acknowledged 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.

What Boards Should Know

Just because an agency says it doesn’t make it true. Although an agency’s interpretation of its own regulations is generally to be accorded deference, the 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.

COUNSEL

For Big Six: Koffsky Schwalb

For NYC Water Board: NYC Law Department

Lauren E. Lewis is an associate at the law firm Norris McLaughlin. The statements and views in this article are her own and not necessarily those of the firm.