VILLAGE OF NEWBERRY V MCMILLAN TWP
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STATE OF MICHIGAN
COURT OF APPEALS
VILLAGE OF NEWBERRY,
UNPUBLISHED
December 28, 2004
Plaintiff-Appellant,
No. 252052
Luce Circuit Court
LC No. 99-002860-CZ
v
MCMILLAN TOWNSHIP and PENTLAND
TOWNSHIP,
Defendants-Appellees.
Before: Murphy, P.J., and Sawyer and Markey, JJ.
MARKEY, J. (dissenting).
Although I have no quarrel with the majority’s presentation of the facts and law
pertaining to this case, I do, however, disagree with its conclusion on the relevant issues.
Consequently, I would affirm the trial court’s ruling.
Specifically, the majority first holds that “to the degree the trial court ruled that all
operation and maintenance costs are variable, thus affecting future allocations, the court erred
because the contract delineated between fixed and variable costs.” Again, although I agree with
the majority’s presentation of the facts and its quotation of the pertinent portions of the contract,
particularly paragraph 15, I conclude that the trial court correctly determined that the costs
involved with operation and maintenance are variable. The pump station expense was a
replacement for the existing system and for which the contract in paragraph 15 provided when it
required that the village adopt an annual budget which includes an amount for “repair and
replacement reserve.”
As defendants indicate, variable costs are “costs which change directly with the amount
of the business activities conducted. These costs include material and labor expenses related to
the production of a product or business activity.” quoting Dictionary of Business Terms;
Barrons Business Guide, 3rd Ed, (2000). Because the process for establishing a budget as set
forth in paragraph 15 of the contract specifically provides that the operation and maintenance
costs must include improvements and additions to the common facilities, I, too, conclude that the
pump station project at issue constituted a variable cost.
Moreover, again, contrary to the majority’s conclusion, reading the contract in this manor
does not “render the reference to fixed costs meaningless.” There certainly are fixed costs.
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Fixed costs are the costs which do not change or fluctuate with business activity. Examples of
fixed costs include salaries for employees, interest expense, rent, depreciation, and insurance
expenses. Although the cost of the pump project at issue here is finite, and as such could be
considered “fixed” in that sense, the necessity for it is a direct result of the “business activity” of
operating a waste treatment facility. It is both fair and consistent with the contractual language
that each of the municipalities participating and sharing the waste treatment facilities also pay its
pro rata share for the new pump project based on how much it uses.
Furthermore, other fixed costs here would include the administrative costs of the project
and the expenses incurred in retiring the debt, all of which would be allocated on an asset capital
basis. Other variable costs would include the operation and maintenance of this facility, which
per the contract, must be allocated on the basis of how much each local unit actually uses the
facility. This interpretation and reading of the contract is supported by the plain language of the
contract and the previous history of the parties’ understanding.
So, in conclusion, I would hold that the pump station project at issue here constituted a
variable expense because it entailed operation and maintenance expenses as set forth and
contemplated in paragraph 15 of the contract; consequently, I would affirm the trial court.
Jane E. Markey
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