Golden Rule Estates Owners Association, Appellant, vs. City of Crosslake, Respondent.

Golden Rule Estates Owners Association, Appellant, vs. City of Crosslake, Respondent. A04-1752, Court of Appeals Unpublished, June 28, 2005.

This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480 A. 08, subd. 3 (2004).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A04-1752

 

 

Golden Rule Estates Owners Association,

Appellant,

 

vs.

 

City of Crosslake,

Respondent.

 

 

Filed June 28, 2005

Affirmed

Huspeni, Judge*

 

 

Crow Wing County District Court

File No. C1-01-2726

 

 

William B. Butler, Biersdorf & Associates, P.A., 4100 Multifoods Tower, 33 South Sixth Street, Minneapolis, MN 55402 (for appellant)

 

Paul J. Sandelin, Kirk D. Adams, Sandelin Law Office, 30849 First Street, P.O. Box 298, Pequot Lakes, MN 56472 (for respondent)

 

 

 

            Considered and decided by Randall, Presiding Judge; Toussaint, Chief Judge; and Huspeni, Judge.

U N P U B L I S H E D   O P I N I O N

HUSPENI, Judge

 

            Appellant challenges the district court's award of summary judgment to respondent, arguing that respondent's city ordinance violates the equal protection provisions of the United States and Minnesota Constitutions and imposes sanitary sewer charges on appellant's members in a manner that is not "just and equitable" under Minn. Stat. § 444.075 (2002).[1]  Because the record supports the district court's determination that the ordinance does not violate constitutional guarantees of equal protection and imposes charges in a manner that is "just and equitable," we affirm.

FACTS

            In 1996, respondent City of Crosslake began to study the need for a municipal sanitary sewer within Crosslake.  In 1999, pursuant to a Wastewater Treatment System (WTS) plan, respondent inspected private onsite septic systems within Crosslake and found that about 60% of the private onsite septic systems, including that of appellant's members, did not conform to State of Minnesota standards.  In 2001, respondent adopted an ordinance creating a sanitary sewer district. 

            In 2002, respondent adopted an ordinance adding connection and user fee charges for the WTS, a system that will serve 108 residences and 66 businesses.  The ordinance authorized a connection charge of $5,500 for each commercial user and $3,000 for each residential user.  The ordinance also established a user charge of $30 per month to be paid for each connection to the WTS.  Section 11.56, subdivision 1, of the ordinance states that "[b]illable wastewater volume . . . shall be estimated at a maximum of 8,000 gallons per month" for which the residential user would be charged a monthly user fee of $30.  But under the ordinance, commercial users pay monthly user charges based on a schedule of metered usage per unit.  A meter is installed on each commercial property, and one user charge is imposed for each 8,000 gallons of flow contributed per month on those properties.[2]

            Appellant is a cooperative association of 50 members who collectively own 12 contiguous parcels of land on Cross Lake.  Each parcel has a separate legal description and taxpayer identification number.  Forty-nine mobile homes and one cabin are located on the properties; all homes are individually owned by appellant members and are classified as residential premises.  The residences are generally used seasonally.

            At the summary-judgment hearing, appellant argued that, historically, its members' contribution to wastewater flow has represented 1.47% of the total flow in the system.  Appellant also provided evidence that appellant members will pay for 12.5% of the total connection charges and 12% of the total usage charges when the WTS becomes operational.  Appellant also stressed that respondent will provide only one sewer connection stub to one of the 12 contiguous parcels to connect all 12 parcels to the WTS, and, therefore, argued that only one connection charge of $3,000 should be imposed, rather than the $150,000 respondent calculated for 50 units.  Appellant urged that for respondent's charges to be "just and equitable," respondent should meter residential premises as well as commercial premises so that all users are charged connection and user fees based on the actual amount of flow contributed.

            At the summary-judgment hearing, respondent presented deposition evidence of its city engineer indicating that metering residential units was not feasible or practical because of the cost of purchasing, installing, and reading meters, and that respondent designed the WTS, and charged appellant members, based on potential usage or contribution to the WTS.  Respondent presented deposition testimony that indicated that the WTS system necessarily was designed so that it had the capacity to handle the potential volume that each residential property might add to the system if and when those properties were occupied on a year-round basis. 

            In awarding summary judgment to respondent, the district court noted that a municipal authority operates within its legislative capacity when it sets rates, and that the "careful balancing of public policies and private needs is not a matter for the courts unless statutory authority has been exceeded or discretion abused."  The court ultimately concluded that respondent "balanced both cost and noncost factors and made choices among its various alternatives.  The resulting sewer charges are not arbitrary, unjust, unreasonable or discriminatory, or in excess of the City's statutory authority."  This appeal resulted.

D E C I S I O N

            While the parties appear to agree as to the facts in this proceeding, appellant argues that the district court misapplied the law when it granted summary judgment to respondent.  "On appeal from summary judgment, we ask two questions:  (1) whether there are any genuine issues of material fact and (2) whether the lower courts erred in their application of the law."  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). 

A motion for summary judgment shall be granted when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that either party is entitled to a judgment as a matter of law.  On appeal, the reviewing court must view the evidence in the light most favorable to the party against whom judgment was granted.

 

Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993) (citation omitted).

I.

            "Equal protection requires that persons similarly situated be treated similarly.  For non-suspect classifications, legislation that distinguishes between similarly situated persons must be rationally related to a legitimate public purpose in order to withstand equal protection review."  Lidberg v. Steffen, 514 N.W.2d 779, 784 (Minn. 1994) (citations omitted). 

            Appellant's equal protection argument rests upon an assertion that residential and commercial property owners are similarly situated because they will all receive the same benefit: a connection to the WTS.[3]  Appellant claims that respondent, by placing meters only on commercial properties while having the ability to place meters on residential properties also but not doing so, has unreasonably classified the two types of premises.  Appellant stresses the fact that the sewer line, stub, and connection are identical on commercial and residential properties.

            Although aspects of appellant's argument may, at first glance, appear persuasive, our review of the record convinces us that respondent's classification is reasonable because residential and commercial users are not similarly situated.  Respondent's city engineer demonstrated that respondent decided not to meter residential premises because of the cost involved in affixing meters to residential premises and reading those meters periodically, processes that would of necessity also involve not only each residential owner's permission, but also possibly the acquiescence of each residential owner to a special assessment or to increased project costs passed back to all users.  Additionally, the city engineer testified that in some cases, residential premises shared single wells or sub-standard wells, and added costs would be incurred in modifying plumbing so that each premises could be accurately metered and brought within code requirements.  And if meters were placed on residences that are not heated during the wintera situation frequently encountered because of the seasonal nature of many of the residencesthe meters would freeze.  For these reasons, respondent decided that installing meters in residences would not be practical or economical.

            Although the record does not indicate that respondent conducted a formal study of the costs and benefits of installing residential meters or assessing the plumbing problems that are actually found within residences, the city engineer based his decision on 22 years of experience consulting with other cities that constructed sewers.  He estimated that of the 66 commercial premises connected to the WTS, the city would encounter problems requiring plumbing modifications for two to five of those premises, but that the number of residential premises requiring plumbing modifications or other work to install and monitor meters would be much greater because of the number of lakeshore properties and the instances where homeowners installed plumbing themselves.  Therefore, the residential and commercial users are not similarly situated and respondent did not violate appellant's equal protection rights by classifying these two types of property separately.

            And even if residential and commercial users were similarly situated, respondent could permissibly distinguish between the two types of users if the distinction was rationally related to a legitimate governmental objective: in this case, provision of economical public water treatment services.  See Lidberg, 514 N.W.2d at 784.  Appellant contends that by charging separate connection and user fees and by failing to meter residential flow contribution, respondent has charged appellant members in a manner that is grossly disproportionate to their actual share of the overall operation and use costs of the system. Although this argument is not without superficial appeal, upon closer examination it must be rejected.  We note initially that during some seasons, appellant members will contribute amounts of flow to the system similar to the amounts contributed by year-round residents.  Metered charges during such months arguably could exceed the $30 per month paid at present on a year-round basis.  Actual "savings" to appellant under a metered system may be more apparent than real. 

            Further, there is no guarantee that appellant members will remain seasonal residents.  The WTS must be built with sufficient capacity to handle the flow generated during peak times; building it to handle flow during times of minimal usage would result in unquestionably unacceptable consequences.  Charges assessed against appellant members reflect this required capacity.  If respondent acceded to the demands of appellant, the cost of maintaining a system adequate to service all userscommercial, seasonal residential, and year-round residentialwould be disproportionately placed upon non-seasonal users.  For these reasons, we believe that respondent's distinction between commercial and residential users is rationally related to the provision of economical wastewater treatment services, if, in fact, it is necessary to reach that conclusion.  Therefore, the district court did not err in granting summary judgment on this ground.

II.

            "A city may recoup improvement costs through a use, availability or connection charge, a special assessment, or taxation. . . . A city may not, however, impose a connection charge in an attempt to recoup portions of assessments that have been judicially disallowed . . . ."  Johnson v. City of Eagan, 584 N.W.2d 770, 772 (Minn. 1998) (footnotes omitted).  Minnesota law authorizes municipalities to construct sewer systems, among other waterworks systems.  See Minn. Stat. § 444.075, subd. 1a (2002).  Minnesota law also authorizes municipalities to pay for construction of the waterworks facilities by imposing "just and equitable" charges for the use, availability, and connection to the facilities.  Id., subd. 3 (2002). 

            Appellant argues that in awarding summary judgment to respondent the district court relied on inapplicable caselaw that interpreted statutes governing public utility commission rate increases.  Although the district court relied, in part, on caselaw involving rate setting, it also relied on caselaw that interprets Minn. Stat. § 444.075 (2002)the statute clearly applicable in this casethat sets forth permissible methods of calculating connection charges.  See Crown Cork & Seal Co. v. City of Lakeville, 313 N.W.2d 196, 201 (Minn. 1981). 

            Here, the district court concluded that based on the language used by the legislature in Minn. Stat. § 444.075 and on the holding in Crown Cork & Seal, local governments have maximum flexibility in financing municipal sewer and water services.  We agree that Minn. Stat. § 444.075 allows local governments flexibility in financing as long as the charges are "just and equitable."  Although the parties agree that respondent is a statutory city and therefore has authority to adopt sewer ordinances under Minn. Stat. § 444.075, appellant argues that respondent has charged for sewers in a manner that is not "just or equitable."  

            Minn. Stat. § 444.075 provides that cities may charge for sewers in the following manner:

[S]ewer charges may be fixed on the basis of water consumed, or by reference to a reasonable classification of the types of premises to which service is furnished, or by reference to the quantity, pollution qualities and difficulty of disposal of sewage and storm water produced, or on any other equitable basis including, but without limitation, any combination of those referred to above.

 

Minn. Stat. § 444.075, subd. 3.  This court has construed Minn. Stat. § 444.075, subd. 3, to include a non-exhaustive list of ways that municipalities can charge sewer services users in an equitable manner.  See JAS Apartments, Inc. v. City of Minneapolis, 668 N.W.2d 912, 915 (Minn. App. 2003).

            Respondent created a fee schedule based on residential use and commercial use.  Because under Minn. Stat. § 444.075, municipalities can make a reasonable classification based on the types of premises, appellants must show that respondent's classification of residential and commercial properties was unreasonable.  See Minn. Stat. § 444.075, subd. 3.

            We conclude that appellant cannot meet its burden of showing an unreasonable classification of residential and commercial properties.  As already noted,  respondent's classification is rationally related to a legitimate governmental objective, and  that classification is reasonable under the statute.  Specifically, the costs attendant to metering all the properties are not outweighed by the benefit, if any, to appellant members in reduced charges based on metering.  Nor would a charge based on metering necessarily reflect the costs incurred to make the WTS available to appellant members, because metering would not reflect the potential of the members' flow contribution.

            The latitude and discretion provided to municipalities by Minn. Stat. § 444.075 is broad.  Respondent's concerns about the practicality of installing meters on residential premises are well-founded.  Because the legislature deemed a reasonable classification of the premises to be an "equitable basis" under Minn. Stat. § 444.075, subd. 3, we conclude, as did the district court, that the charges respondent imposed were "just and equitable" within the meaning of the statute.

            Even if we were to assume for the sake of further analysis that respondent's classification of properties as commercial and residential and the differing treatment of them was not reasonable, it still would be appropriate to conclude that the charges respondent imposed were "just and equitable" because the statute also provides for alternative methods to fix charges that are considered to be "just and equitable."  See Minn. Stat. § 444.075, subd. 3. 

            Section 444.075, subdivision 3, provides not only that "sewer charges may be fixed . . . by reference to a reasonable classification of the types of premises," but also "by reference to the quantity, pollution qualities and difficulty of disposal of sewage and storm water produced, or on any other equitable basis including, but without limitation, any combination of those referred to above."  We believe that respondent's method of fixing charges could also be an "equitable basis" under section 444.075, subdivision 3, given the members' potential for flow contribution to the WTS.  As stated above, respondent was required to consider that potential when it designed and built the WTS, and respondent is entitled to recoup the costs incurred.  Appellant members, as the owners of the properties, are responsible for the costs of that consideration; year-round residential users should not, in all fairness, be forced to shoulder added costs to ensure that the WTS will remain functioning.    

            We conclude that respondent charged appellant members in a manner that is "just and equitable" under Minn. Stat. § 444.075, subd. 3, and the district court did not err in granting summary judgment.

III.

            Finally, appellant argues that sewer charges may only be imposed on premises "abutting" the sewer line.  The statute reads:  "Minimum charges for the availability of water or sewer service may be imposed for all premises abutting on streets or other places where municipal or county water mains or sewers are located, whether or not connected to them."  Minn. Stat. § 444.075, subd. 3.  Appellant argues that since only one of the 12 parcels actually abuts the line, respondent may only charge one connection fee unless respondent condemns easements across the rest of the properties.  We see no merit in this argument.

            We note initially that appellant reads the statutory provision regarding minimum charges as a proscriptive one.  We do not believe such a narrow reading is proper.  The word "may" in the provision is permissive, and the provision lacks a limiting term such as "only" to make it proscriptive.  Cf. Minn. Stat. § 645.44, subd. 15 (2004) ("‘May' is permissive.") with Minn. Stat. § 645.44, subd. 16 (2004) ("‘Shall' is mandatory."). 

            Further, when read in conjunction with the provision authorizing charges on the basis of services rendered, the provision challenged by appellant arguably could be read to permit cities to charge land owners for the availability of services even if an individual premises is not connected to the services.  To the extent that the challenged provision would appear to apply in cases where a municipality has already established service coverage but has not included areas abutting the service lines, that situation is not present in this case.  Here, respondent planned and constructed service to reach all of appellant members' parcels of land.  Respondent properly charged each appellant member for the connection to the WTS.

            Affirmed.

*  Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10. 

[1] Appellate courts generally apply the law as it exists at the time they rule on a case, unless a change in the law affects rights that were vested before the change.  See Interstate Power Co. v. Nobles County Bd. of Comm'rs, 617 N.W.2d 566, 575 (Minn. 2000).  We recognize that the 2004 version of Minn. Stat. § 444.075 contains substantial amendments.  But because the majority of these amendments do not take effect until January 1, 2006, this opinion cites to Minn. Stat. § 444.075 (2002).  See 2004 Minn. Laws ch. 141, § 5.

[2] For example, if a commercial customer contributed 40,000 gallons of flow per month, respondent would impose five user-charge units at $30 per unit for a total of $150 for that month.

[3] Appellant does not appear to argue that it is being treated differently from other residential users, but only that it is being treated differently from commercial users.  Therefore, although appellant cites Blue Inv. Co. v. City of Raytown, 478 S.W.2d 361 (Mo. 1972), to support its argument regarding disparate treatment between similarly situated entities, we note that even if caselaw from foreign jurisdictions was deemed persuasive, which we do not so find here, much of the rationale of Blue Inv. Co. involved disparate treatment between residential properties alone.