Westfall’s bankruptcy

The slow wheels of justice

By FRITZ MAYER

WESTFALL TOWNSHIP, PA — On April 10, officials in Westfall Township, PA filed for bankruptcy protection, saying the township is unable to pay even a portion of a $20 million judgment against it. It’s the culmination of a battle going back to the late 1980s between township officials and developer David Katz.

The township filed under Chapter Nine, a provision of the bankruptcy code that specifically applies to municipalities, and allows it to continue to function during court proceedings. It seems likely that the township will be required to pay at least part of the award at some point.

The conflict started in the 1980s, when New Jersey- based Katz bought 748 acres of land on a bluff north of Milford overlooking the Delaware River. Katz planned to build a development of 1,500 homes on the land. But according to newspaper accounts at the time, in 1990 the township rezoned the land, which was a popular spot with hunters and anglers, and restricted its use to hunting and fishing. Other zoning changes were also made that blocked development of the parcel.

In 1994, Katz and his wife, a co-owner of the property, filed a lawsuit in federal court charging that their civil rights were violated with the zoning changes, and that town officials were guilty of racketeering. In 1999, a federal jury agreed with Katz and awarded him a $10 million judgment.

Rather than collect the judgment, in 2001 Katz reached an equitable settlement agreement (ESA) with Westfall whereby the township agreed to provide water and sewer services to the Katz development in return for Katz dropping any other claims of damages.

By December 2003, township officials had not made good on their promise, and Katz went back to court and received a court order in August 2005 compelling the township to act to deliver the water and sewer services within 18 months.

Finally, on December 27, 2006, Katz received a water-service agreement between the township and the Matamoras Authority, which would provide the services. However, the agreement papers called for Katz to sign it and indemnify the Matamoras Authority “from any and all actions, claims, and demands arising from or by virtue of this agreement….” A previous court order stipulated that Katz would be a third-party beneficiary of the agreement, and in the view of Katz and his attorney, he was not obligated to offer indemnification to anyone.

The township disagreed, and the water services did not move ahead.

Katz went back to court in December 2007 to try to get the courts again to force the township to take action. In district court, however, the judge magistrate sided with the township. But Katz appealed in June 2008. Ultimately, the U.S. Third Circuit Court of Appeals ruled that as third-party beneficiaries, the Katzs were not required to indemnify the Matamoras Authority. That was in September 2008 and penalties and awards, which were built into the 2001 ESA, soared to about $20 million with interest payments included.

The case is now working its way through bankruptcy, which in a township of about 2,430 people with an annual budget of about $1 million, was necessary for officials to be able to continue to provide services.

Katz told reporters that the township had no other courts to turn to, and eventually they will have to pay.

Lester Buchanan, vice chairman of the Westfall supervisors, said services are still being delivered as usual, and the town is negotiating with Katz, which is mandated under provisions of Chapter Nine.

Buchanon said that the only real difference so far in township business is that some businesses are asking for cash rather than accepting credit as before.

A meeting is scheduled for April 29 to discuss the issue with residents.