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Connecticut Resources Recovery Authority Ordered to Pay $35 Million

Date: July 2, 2007

Source: News Room

In a class-action suit brought by 70 municipalities against defendant Connecticut Resources Recovery Authority, a court ordered a constructive trust and restitution of $35.8 million to the municipalities, which proved breach of contract and unjust enrichment. CRRA, which serves as the State of Connecticut's agent to dispose of municipal solid waste for 118 of 169 municipalities, admitted that it did not credit about $25 million in operating surpluses to future budgets, in breach of contract.

In 2001, CRRA agreed to sell electricity it generated to Enron, which immediately sold the electricity to Connecticut Light & Power at the same rate. CRRA conceded that Enron had no material performance risks. Enron Power Marketing agreed to receive $220 million in buy-down proceeds from CL&P and to pay $2.3 million per month for 11.5 years to CRRA. Enron received $220 million and paid $19 million to CRRA, before Enron filed for bankruptcy in 2001.

The court found CRRA lacked statutory authority to consent to the Enron transaction, which constituted an illegal, unsecured loan transaction. CRRA sold its bankruptcy claim in return for $111 million, charged higher rates, borrowed money from the state, used surpluses and recouped approximately $40 million from legal advisers.

The plaintiff municipalities contended CRRA breached its fiduciary duty, because it consented to the Enron transaction, wasted assets and inflated expenses. The court found there was no fiduciary relationship. The plaintiffs did not prove CRRA violated the covenant of good faith and fair dealing.

Although obligated by contract to follow the law, CRRA violated state law, C.G.S. §22a-265(14), and federal arbitrage law, which bars certain loans with interest rates higher than bond rates. Allegations in an Oct. 20, 2006, amended complaint related back to a Dec. 28, 2003, complaint and were not barred by a six-year statute of limitations.

Governmental immunity did not bar breach of contract and unjust enrichment counts. The plaintiffs proved breach of contract and unjust enrichment. The plaintiffs requested a constructive trust in the amount of $104 million. The court ordered a constructive trust and restitution of $35.8 million to the municipalities. Interest and attorneys' fees were denied. The court denied CRRA's motion to substitute assets.

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