Handy v. City of Rutland

NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports.
Readers are requested to notify the Reporter of Decisions, Vermont Supreme
Court, 111 State Street, Montpelier, Vermont 05602 of any errors in order
that corrections may be made before this opinion goes to press.


                                No. 88-028


Paul L. Handy and                            Supreme Court
Catherine M. Handy

     v.                                      On Appeal from
                                             Rutland Superior Court
City of Rutland
Town of Rutland                              March Term, 1989



James L. Morse, J.

Allen D. Webster and Mary G. Kirkpatrick of Lisman & Lisman, Burlington, for
   plaintiffs-appellants

Henry C. Brislin, City Attorney, Rutland, for defendants-appellees



PRESENT:  Peck and Dooley, JJ., and Springer (Ret.) and Connarn (Ret.),
          D.JJ., and Katz, Sup. J., Specially Assigned


     PECK, J.   Plaintiffs, owners of a restaurant in the Town of Rutland,
appeal from a decision of the superior court declaring that defendant City
of Rutland has authority to impose and collect from them a one-time hookup
fee for connecting to the City's sewage disposal system.  We affirm.
     The parties have stipulated to the facts.  The City of Rutland owns and
operates a sewage disposal facility.  In 1973, the City entered into an
agreement with the Town of Rutland to take and treat up to 55,000 gallons of
town sewage per day from a town line which hooks into the city system.  User
rates were calculated on the amount of water used, and the City retained
final authority to approve all future connections to the town sewer line.
     In 1984, the City commenced work on expanding its treatment facilities,
and entered into a new agreement with the Town.  That agreement established
three user rates: (1) city users would be charged a "basic" rate related to
water usage and operating costs; (2) current town users would be charged
five times the basic rate; and (3) new town users would be charged five
times the basic rate plus an ad valorem fee equal to 20% of the property tax
levied by the Town on the property.  The agreement further provided that
during the interim period between the signing of the agreement and the
completion of the new treatment facility, the City was free to negotiate any
rate "it deem[ed] appropriate" with new town users.
     Plaintiffs began operating a restaurant in the Town of Rutland during
the interim period in March of 1986.  In June of 1985, plaintiffs' prede-
cessor in title had applied to the City's board of aldermen for approval to
hookup to the city sewer lines.  The board referred the matter to the inter-
municipal agreement committee (IAC), which stated that it would recommend
approval of a sewer contract for the restaurant after negotiation between
the restaurant and the city attorney and resubmission of that contract to
the IAC.  There was no discussion of a one-time hookup fee.
     In the fall of 1985, the city attorney called plaintiffs and advised
them that their hookup had been approved, but that it would not be cheap  --
possibly costing as much as five times the City rate plus an ad valorem
tax.  He further advised plaintiffs that there was nothing for them to do at
that point, and that he would contact them again to sign some papers.  At
the end of the conversation, the city attorney was under the impression that
plaintiffs would contact him to sign an agreement when the hookup occurred.
Plaintiffs' understanding was that the city attorney would contact them
regarding the final sewer use rate.  Sometime after that conversation and
before plaintiffs' restaurant opened for business in March of 1986, plain-
tiffs hooked up to the city sewer line.
     Two or three weeks after the restaurant opened, the new city attorney
told plaintiffs that their hookup was unauthorized.  He stated that the
board of aldermen would probably charge the new town rate, but that some
board members also wanted a one-time hookup fee.  After several negotiating
sessions and IAC meetings, the board of aldermen approved a hookup fee of
$10,170, which represented $1.00 for each gallon per day allowed by plain-
tiffs' Act 250 permit.
     Plaintiffs refused to pay the one-time hookup fee and filed suit in
superior court to stop the City from imposing it.  Plaintiffs claimed that
the fee was not authorized by state statute and that imposition of the fee
constituted an antitrust violation.  The City counterclaimed to force
plaintiffs to unhook and pay treble damages for the unauthorized hookup.
The superior court held that the hookup fee was legal, but that the City was
estopped from asserting that the hookup was without approval because the
former city attorney had apparent authority to inform plaintiffs of the
City's final approval.  On appeal, plaintiffs reassert the arguments made
before the trial court, and contend that the court erred by not considering
whether the representations of the former city attorney estopped the City
from charging the hookup fee.


                                    I.
     Plaintiffs first argue that the trial court's conclusion that the City
has the statutory authority under 24 V.S.A. { 3615 to charge a one-time
hookup fee for sewer service was erroneous.  We disagree.
      Both parties concede "that, absent a home rule constitutional
provision, a municipality has only those powers and functions specifically
authorized by the legislature, and such additional functions as may be
incident, subordinate or necessary to the exercise thereof." Hinesburg Sand
& Gravel v. Town of Hinesburg, 135 Vt. 484, 485-86, 380 A.2d 64, 66 (1977)
(town's processing and sale of eight times the gravel it needed for road
repair was not incidental or subordinate to its statutory duty to maintain
roads).  Under 24 V.S.A. { 3611(a), a city may contract for sewage disposal
with any corporation or individual.  The city, through its board of sewage
disposal commissioners, (FN1) may establish charges to be paid "in such manner
as the commissioners may prescribe."  { 3615.  The charges may be based on
the metered consumption of water, the number and kind of plumbing fixtures
involved, the number of persons served, the appraised value of the
premises, or "a combination of any of said bases or any other equitable
basis."  Id. (FN2) Further, "[t]he commissioners may change the rates of such
charges from time to time as may be reasonably required."  Id.
     Plaintiffs rely heavily on Kirchner v. Giebink, 150 Vt. 172, 180-84,
552 A.2d 372, 377-79 (1988) for support of their argument that { 3615 does
not give the City authority to impose a one-time sewage hookup fee.  In
Kirchner, residents of the Town of Stowe alleged that an agreement between
the Town and a developer relating to the expansion of the town sewage
facility violated state law because it levied a special assessment without a
town vote.  Pursuant to provisions of the agreement, a $100 fee was charged
to all residences connecting to the sewer improvements.  The specific issue
was whether the $100 fee constituted a special assessment requiring a town
vote, see 24 V.S.A. { 3254, or a sewer disposal charge authorized by { 3615.
This Court held that "the one-time connection charges contained in the
agreement are closer to special assessments than to rates or rents" because
"rents are continuous charges imposed on the basis of use" rather than one-
time assessments collected only from those who specially benefit from the
construction of the sewer.  150 Vt. at 182, 552 A.2d  at 378.  The Court
recognized that some decisions from other states had upheld a municipality's
power to impose sewer connection fees, but noted that "the courts in those
cases did not face limiting statutory language like that in { 3615."  Id. at
182-83, 552 A.2d  at 379 (emphasis in original).
     Kirchner does not oblige us to conclude that the hookup fee in this
case is not authorized.  We first point out that in the present case the
City imposed the hookup fee only when new interim users wanted to connect to
the sewer system, not against all existing residences in the "improved"
service area, as was the case in Kirchner.  See Haymes v. Holzemer, 3 Ohio
App. 3d 377, 381, 445 N.E.2d 681, 685 (1981) (assessment is levied against
all property in service area, while fee is imposed only on new users).
Further, while Kirchner implies that { 3615 does not authorize the
imposition of connection fees, such a conclusion was not necessary to
resolve the issue in that case -- whether certain connection fees were
special assessments rather than sewage disposal charges -- and indeed the
court made no such conclusion.  Here, the hookup fees cannot be city
assessments because plaintiffs are nonresidents; therefore, the conflict
between the two statutory sections that existed in Kirchner is not present,
and the considerations addressed in that case are inapposite.  Although {
3615 does limit the bases upon which a municipality may fix sewer rates, we
conclude that the type of hookup fee imposed by the City of Rutland was
within the scope of fees authorized by { 3615, which allows municipal sewer
commissioners to establish charges to be paid "in such manner as the
commissioners may prescribe."
     Plaintiffs cite to the disparate treatment of other interim users as
evidence that the imposition of their $10,170 hookup fee was inequitable
and discriminatory.  Specifically, plaintiffs point out that two pre-
existing users, Howard Johnson's and Holiday Inn, applied during the interim
period for additional allotments, and that the City approved the allotments
but charged the new business rate (five times the basic rate plus an ad
valorem charge) without a hookup fee.  Although we agree that the City may
not impose inequitable or discriminatory sewer rates, plaintiffs have not
shown discrimination here.  Unlike plaintiffs, Howard Johnson's and Holiday
Inn were pre-existing users who had already contributed to the sewer system
and who were seeking merely to increase their sewage capacities.  It was
not inequitable or discriminatory for the City to charge these dissimilarly
situated applicants different rates. (FN3) Cf. South Shell Investment v. Town of
Wrightsville Beach, 703 F. Supp. 1192, 1204 (E.D.N.C. 1988) (no equal pro-
tection violation where city charged residents fees not imposed on dissimi-
larly situated nonresidents), aff'd, 900 F.2d 255 (4th Cir. 1990).
     Although the trial court stated that { 3615 does not require that the
City's sewer charges be reasonable and that the City is under no obligation
to offer reasonable rates to those beyond its territorial boundaries, both
parties appear to presume that reasonableness is a proper criterion for
review of extraterritorial rates.  A number of courts have considered this
question.  Some of these courts have held that the reasonableness of extra-
territorial sewer or water rates is not subject to judicial review.  See
Payson Sanitary District of Gila County v. Zimmerman, 119 Ariz. 498, 501,
581 P.2d 1148, 1151 (1978) (because sanitary district is under no obligation
to furnish service beyond its boundaries, relationship to nonresident sub-
scribers is governed by contract, and reasonableness of charges for non-
resident access is not subject to judicial review); Davisworth v. City of
Lexington, 311 Ky. 606, 611-12, 224 S.W.2d 649, 652 (1949) (same); Bleick v.
City of Papillion, 219 Neb. 574, 576, 365 N.W.2d 405, 406 (1985) (city's
furnishing of sewer service to nonresidents is contractual and permissive;
therefore, statutory provisions requiring city to furnish service subject to
reasonable rules apply only to residents); Atlantic Constr. Co. v. City of
Raleigh, 230 N.C. 365, 369, 53 S.E.2d 165, 168 (1949) (city is free to
establish by contract such sewer rates as it deems reasonable and proper);
Fairway Manor v. Board of Comm'rs of Summit County, 36 Ohio St. 3d 85, 88,
521 N.E.2d 818, 821-22 (where extraterritorial water rate is set by
contract, the parties, not the courts, determine the proper rate to be
charged), cert. denied, 488 U.S. 1005 (1988).
     Many other courts, however, have held that though the yardstick for
measuring the reasonableness of a city's extraterritorial rates may be
different from that used to measure the reasonableness of resident rates,
the reasonableness of any rate imposed by the city is open to judicial
review.  E. McQuillan, Municipal Corporations { 35.37i at 632-33 (3d ed.
rev. 1986); see Delony v. Rucker, 227 Ark. 869, 872-73, 302 S.W.2d 287, 289-
90 (1957) (municipality's charges to nonresidents must be fair and
reasonable); Hansen v. City of San Buenaventura, 42 Cal. 3d 1172, 1180, 729 P.2d 186, 190, 233 Cal. Rptr. 22, 26 (1986) (city that acquires water system
of another community must provide reasonable rates to its nonresident
customers), appeal dismissed, 484 U.S. 804 (1987); Bobrowicz v. City of
Chicago, 168 Ill. App. 3d 227, 233-34, 522 N.E.2d 663, 668 (once municipal
utility undertakes to provide services to nonresident via contract, utility
has duty to charge reasonable nondiscriminatory rates), appeal denied, 122 Ill. 2d 570, 530 N.E.2d 239 (1988).
     The terms of contracts in which municipalities set sewer rates for
nonresident customers are enforceable only if the rates are in compliance
with applicable law.  See E. McQuillan, supra, { 31.30a at 221 (3d ed. rev.
1983).  Vermont law, which does not distinguish between resident and
nonresident customers, requires that rates be fair, equitable and
reasonable.  See { 3615 (rates may be determined on any "equitable" basis;
commissioners may change rates as "reasonably required"); Kirchner, 150 Vt.
at 181, 552 A.2d  at 378 (charges must be "fair").  Thus, the reasonableness
of a city's extraterritorial sewer rates is an appropriate issue for
judicial review.
     The reasonableness of extraterritorial rates, of course, is not linked
solely to the cost of the hookup.  In addition to recovering operating costs
and capital costs associated with past, present or anticipated improvements
of the facilities required to furnish the services, (FN4) a city may make a
reasonable profit from extraterritorial rates.  E. McQuillan, supra, {
35.37i at 632; see Hansen, 42 Cal. 3d  at 1182, 729 P.2d  at 192, 233 Cal. Rptr.  at 27-28 (city may recover reasonable rate of return from fees imposed
on nonresident customers).  Further, because the rates established by a
lawful rate-fixing body are presumed reasonable, the persons challenging the
rates bear the burden of showing that they are unreasonable.  Hansen, 42 Cal. 3d  at 1180, 729 P.2d  at 190, 233 Cal. Rptr.  at 26; see South Shell
Investment, 703 F. Supp.  at 1203 (party challenging city rates has burden to
come forward with evidence showing that fees are unreasonable).
     In support of their contention that the hookup fee was unreasonable,
plaintiffs argue that a memorandum from the city engineer and the planning
coordinator, which stated that "[f]actors were chosen which would result in
[plaintiffs] being charged a fee of roughly $10,000," shows that the hookup
fee was based solely on "ability to pay" and, therefore, was arbitrary and
unauthorized.  We cannot agree.  The hookup fee was based on the maximum
amount of effluent that may be discharged under plaintiffs' Act 250 permit,
certainly an "equitable" basis as required by { 3615. (FN5) The question is
whether the per gallon charge was reasonable.  Although plaintiffs have
shown that city officials wanted to charge plaintiffs approximately $10,000
for hooking up to the city sewer system, they have not met their burden of
proving that the $10,000 figure was unreasonable or arrived at in an
arbitrary manner.  They have presented no cost analyses or other evidence
showing that such a fee was inappropriate.  See South Shell Investment, 703 F. Supp.  at 1203, 1206-07 (municipalities have great latitude in projecting
anticipated costs for long-term capital improvements; the absence of a city
cost analysis does not equate to an irrational decision).
     In sum, plaintiffs have failed to show that the hookup fee is not
authorized by law, discriminatory or unreasonable.
                                    II.
     Plaintiffs also contend that the court erred by failing to address
their estoppel argument, namely, that their fall, 1985 phone conversation
with the former city attorney estopped the City from imposing any charges
above those discussed during the conversation.  We disagree.  Plaintiffs
raised the estoppel issue in their memorandum of law below only indirectly
while addressing another argument, and then again in summary fashion in
their reply memorandum.  In total, in their memoranda below, plaintiffs
devoted three sentences and one cite toward their estoppel argument.  The
one cite, In re McDonald's Corp., 146 Vt. 380, 384, 505 A.2d 1202, 1204
(1985), holds that the person who invokes the estoppel doctrine has the
burden of establishing each of its four elements.  Plaintiffs did not
address any of the specific elements in their memoranda or brief, either
here or below.
     The court held that the City was estopped from claiming treble damages
for plaintiffs' unauthorized hookup, ruling that the former city attorney
had told plaintiffs that the hookup had been approved.  This ruling, how-
ever, does not imply that the tentative rates mentioned during the phone
call estopped the City from later imposing a hookup fee.  Further, given
plaintiffs' indirect and inadequate briefing of the estoppel issue, the
trial court did not err by not specifically addressing whether the rates
mentioned over the phone estopped the City from imposing additional charges.
See Tallarico v. Brett, 137 Vt. 52, 61, 400 A.2d 959, 964-65 (1979) (this
Court is not required to consider a claimed error not adequately briefed or
supported by argument); Laird Properties v. Mad River Corp., 131 Vt. 268,
282-83, 305 A.2d 562, 570-71 (1973) (where defendant made no request for
findings on laches or equitable estoppel, and issues were not adequately
presented so as to give court opportunity to consider them, they would not
be considered on appeal).
     Affirmed.

                              FOR THE COURT:



                              ____________________________________________
                              Associate Justice







FN1.    The mayor and board of aldermen of a city constitute a board of
sewage disposal commissioners.  24 V.S.A. { 3614.

FN2.    The Legislature amended { 3615 in 1989.  Among other changes, the
bases of the sewage disposal charges were expanded and reworded.

FN3.    Plaintiffs also argue that the court erred by not addressing their
antitrust argument.  Assuming arguendo that the antitrust statutes cited by
plaintiffs are applicable here, the trial court explicitly ruled that
plaintiffs had failed to show that the City discriminated against them, a
necessary element to their antitrust claim.  See 15 U.S.C. { 13(a).  As
noted above, we agree with the court's ruling.

FN4.    Plaintiffs contend that { 3615 requires only industrial users to pay
a share of the construction costs for sewage facilities.  We disagree.
Section 3615 requires industrial users to pay for construction costs
"allocatable to the treatment of industrial wastes."

FN5.    The City chose not to adopt other bases for rates allowed by { 3615
that are more closely related to ability to pay -- appraised value or square
footage of the premises.