TOWNSHIP OF SELMA V CITY OF CADILLAC
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STATE OF MICHIGAN
COURT OF APPEALS
CHARTER TOWNSHIP OF HARING,
UNPUBLISHED
October 12, 2010
Plaintiff-Appellant,
v
No. 292122
Wexford Circuit Court
LC No. 08-020967-CK
CITY OF CADILLAC,
Defendant-Appellee.
TOWNSHIP OF SELMA,
Plaintiff-Appellant,
and
TOWNSHIP OF CLAM LAKE,
Plaintiff,
v
No. 292164
Wexford Circuit Court
LC No. 08-021381-CK
CITY OF CADILLAC,
Defendant-Appellee.
Before: BORRELLO, P.J., JANSEN and BANDSTRA, JJ.
PER CURIAM.
In docket number 292122, plaintiff Haring Township appeals by leave granted the May 4,
2009 order granting partial summary disposition in favor of defendant City of Cadillac. In
docket number 292164, plaintiff Selma Township appeals as of right the May 4, 2009 order
granting summary disposition in favor of defendant City of Cadillac. We affirm.
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I. FACTS AND PROCEEDINGS BELOW
This consolidated case arises from a dispute about the scope and meaning of contracts
between plaintiffs and defendant for the provision of wastewater treatment services to plaintiff
townships. By their express terms, these contracts expire on May 12, 2017. After defendant
informed plaintiffs that it did not intend to renew the contracts, plaintiffs filed the instant actions
asserting that defendant is obligated to continue providing wastewater treatment and disposal
services to them for the “design life” of the treatment system, which plaintiffs assert to be at least
75 years. Plaintiffs do not dispute that the contracts specify an expiration date of May 12, 2017,
but they argue that this date applies only to the particular terms and conditions set forth in the
contracts and not to defendant’s obligation to provide wastewater treatment services. Defendant
moved for summary disposition, asserting that the contracts expire on May 12, 2017, as clearly
and explicitly stated therein, and that it has no duty to provide wastewater treatment services to
plaintiffs beyond that date. The trial court agreed, and granted defendant’s motion.
A. BACKGROUND
In 1975, having become concerned about water quality in Lake Cadillac and Lake
Mitchell, plaintiffs, defendant, the Townships of Clam Lake and Cherry Grove, and Wexford
County (the County), prepared a “Facilities Plan,” as part of an application for grant funding
under the Federal Water Pollution Prevention and Control Act of 1972, 33 USC 1251 et seq.,
(more commonly referred to as the “Clean Water Act” or “CWA”) for the expansion and
improvement of defendant’s wastewater treatment facilities to service the region. Required as
part of the grant application process, the Facilities Plan sought “to define the wastewater
collection needs in the City of Cadillac for the next twenty year period” and to project the needs
of the townships for wastewater treatment “through the year 1995.” It originally envisioned
eleven wastewater treatment service districts, primarily within the surrounding townships,
creating a wastewater “treatment loop” around Lakes Mitchell and Cadillac, to protect the lakes
from environmental impact arising from the presence and use of septic systems to manage waste.
However, the Facilities Plan was amended by the parties to reflect that local political processes
resulted in only certain services districts being approved by local governments for subsequent
design and construction. The remaining service districts, including plaintiff Haring Township,
were not included in the initial implementation of the treatment system.
The portion of the Facilities Plan authored by the County utilized the following
depreciation schedule, “assuming zero salvage value at the end of the period,” when analyzing
the cost effectiveness of various approaches to wastewater treatment for the affected areas:
Land
Does not Depreciate
Structures (concrete, piping, earthwork, etc.)
40 years
Process Equipment (lift stations, aeration equip., etc.)
20 Years
Auxiliary Equipment (electrical, lab equipment,
auxiliary power, etc.)
15 years
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In this context, the County represented that no component of the treatment works, other than the
land upon which it sits, had a service life longer than 40 years. Observing that the future
projections would entirely consume the then-existing capacity of the treatment plant in 20 years,
defendant, in its portion of the Facilities Plan, set treatment plant expansion for 1990.
Ultimately, defendant received approximately $5.3 million in grant funds for expanding
and improving its existing treatment facility in accordance with the Facilities Plan. In 1977,
defendant and the Wexford County Board of Public Works (on behalf of the then-participating
townships of Selma, Clam Lake and Cherry Grove) entered into a contract for the collection and
treatment of wastewater from those townships (the 1977 Contract). This contract provided that
the County would construct and operate sanitary sewer collection systems in the townships (the
“County System”), which the County would connect to defendant’s system (the “City System”)
for transportation to defendant’s wastewater treatment plant of all wastewater emanating from
the County System for treatment and disposal. The 1977 Contract afforded the County with
certain “capacity rights”; to wit, the right to send up to 360,000 gallons of wastewater daily to
the City System for treatment and disposal. In exchange for reservation of this capacity, the
County (on behalf of the then-participating townships) paid defendant $566,728, an amount
constituting 18 percent of the local cost share of construction (including 18 percent of the local
cost share of the 1962 construction of defendant’s treatment plant) and corresponding to 18
percent, or 360,000 gallons daily, of the facility’s then-existing treatment capacity of 2.0 million
gallons daily (MGD).
The 1977 contract provided further that:
1. The City, to the best of its ability, agrees to sell, and the County agrees
to purchase, sewage treatment and disposal service for the County System . . .
2. It is agreed that those portions of the City System within the City
Limits shall remain the sole and exclusive responsibility of the City, for all
operations, maintenance, expansions, additions, improvements and administration
including review and revision of the charge for treatment.
3. It is agreed that those portions of the County System outside of the City
Limits shall remain the sole and exclusive responsibility of the County for all
operations, maintenance, expansion, additions, improvements and administration,
unless otherwise provide in this Agreement. The County shall have the sole
responsibility for expansion of the County System so long as the quantity of
wastewater emanating from such County System, as expanded, does not exceed
the capacity of the City System available to the County as authorized herein and
set forth on Table 1. The County shall be responsible for all costs for distribution,
maintenance and collection of charges for the County System.
Finally, the contract specified that it:
shall become effective upon execution by the duly authorized representatives of
the parties hereto and approval and confirmation by the Commission of the City
of Cadillac, the Board of Public Works of the County of Wexford and the
Wexford County Board of Commissioners, and shall remain in effect for a period
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of forty (40) years from the date hereof, and at the end of said forty (40) year
period, this agreement may be renewed for successive ten (10) year terms, by
mutual agreement. [Emphasis added.]
The effective date of the agreement being May 13, 1977, it is undisputed that the terms of the
contract expire on May 12, 2017.
By 1980, plaintiff Haring Township determined that it, too, wished to obtain wastewater
treatment services via the County and City Systems. Accordingly, on April 8, 1980, the County,
acting on behalf of Haring Township, entered into an agreement with defendant for the provision
of additional wastewater treatment services to the County to accommodate Haring Township (the
1980 Contract). The 1980 Contract provided that the County would construct and operate a
sanitary sewer system in Haring Township, which it would connect to the City System for the
transportation of all wastewater emanating from the Haring Township System to defendant’s
wastewater treatment plant for treatment and disposal.
Like the 1977 Contract, the 1980 Contract provides that the City agreed to sell and the
County agreed to purchase “sewage treatment and disposal service,” for Haring Township, “up
to a maximum capacity of 100,000 gallons per day average daily flow,” and the County agreed,
“subject to the terms and conditions of an agreement between it and Haring Township,” to pay
buy-in costs of $69,283, an amount constituting five percent of the local cost share of
construction (including 5 percent of the 70 percent local share of costs a of the 1962 construction
of defendant’s wastewater treatment plant, as well as of later improvements to the treatment
technology) and corresponding to a treatment capacity of 100,000 gallons per day average daily
flow, or five percent of the then existing treatment capacity of 2.0 MGD. The 1980 contract
provided further that the
. . . operation, maintenance, expansion, improvements and additions, and
administration (including the review and revision of rates and charges charged to
users within the City) of the City System shall be and remain the sole and
exclusive responsibility of the City. The County shall have no obligation, liability
or responsibility for the City System.
***
. . . [and] the responsibility for operation, maintenance, expansion, additions,
improvements, and administration (including review and revision of rates and
charges to users outside the City and within the Haring Township System) shall
be the sole and exclusive responsibility of the County. The City shall have no
obligation, liability, or responsibility for the Haring Township System. The
County, subject to the terms and conditions of an agreement between it and
Haring Township, shall have the ability to expand the Haring Township System
within the [designated geographic] area . . ., so long as the quantity of wastewater
emanating from the Haring Township System, as expanded, does not exceed the
[contracted-for] capacity [of 100,000 gallons per day average daily flow]. The
County, subject to the terms and conditions of an agreement between it and
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Haring Township, shall be responsible for all costs of distribution, maintenance
and collection of charges for the Haring Township System.
The 1980 contract also specified that it:
shall become effective only upon its execution by the authorized
representatives of the parties hereto after its approval and authorization for
execution by the Commission of the City of Cadillac, the Board of the
Department of Public Works and the Wexford County Board of
Commissioners and the simultaneous execution of an agreement between
the County and Haring Township after approval and authorization of
execution of said agreement by the respective parties to that agreement.
Once effective, the agreement shall remain in effect until May 12 of the
year 2017. At that time, the agreement may be renewed if the parties
agree for successive ten (10) year terms. Either party may terminate this
agreement at the end of the initial or subsequent terms upon a two (2) year
written notice to the other party. [Emphasis added.]
Defendant has undertaken several improvement projects to the treatment system, at a cost
of nearly $6 million, during the 1990s, including projects to increase biological treatment
measures, increase hydraulic capacity, and increase treatment and collection capacity, without
financial contribution from the plaintiffs. In November 2006, defendant provided written notice
to plaintiffs that it did not intend to renew the contracts upon their expiration in May 2017.
Thereafter, plaintiff Haring Township filed its three-count complaint, alleging that defendant has
a legal obligation to continue providing wastewater treatment and disposal service to the
township after the “ostensible” expiration of the 1980 contract on May 12, 2017.1 Shortly
thereafter, Selma and Clam Lake Townships filed a one-count complaint also alleging that
defendant has a legal obligation to continue providing wastewater treatment and disposal service
beyond May 12, 2017.
Defendant filed motions for summary disposition, pursuant to MCR 2.116(C)(8) and
(10), asserting that the 1977 and 1980 Contracts clearly provide it with the authority to
discontinue wastewater treatments services to plaintiffs as of May 12, 2017. Plaintiffs responded
by seeking summary disposition, pursuant to MCR 2.116(I)(2), asserting, consistent with their
complaints, that defendant has an obligation to continue to provide services after May 12, 2017.
Plaintiffs asserted that under the terms of the 1977 and 1980 Contracts, plaintiffs acquired
1
Haring Township’s complaint sets forth three counts; only Count III is at issue here. The
remaining counts address plaintiffs’ complaint that defendant is wrongfully refusing to provide
Haring Township with additional capacity absent “equity in taxation” in violation of paragraph 6
of the 1980 Contract, and that defendant is wrongfully refusing to provide services to potential
customers within Haring Township but partially outside the boundaries of service district 7, in
violation of paragraph 1 of the 1980 Contract.
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contractual ownership of, and title to, a portion of the capacity of defendant’s sewer system, that
defendant is required to provide services to the townships through at least the expiration of the
“design life” of the grant-funded sewage collection system pursuant to requirements imposed on
defendant by the CWA’s grant-funding program and associated federal regulations, and that
defendant has held itself out as a public utility in the townships.
The trial court granted defendant’s motions for summary disposition by written opinion
and order, concluding that the language of the contracts was “clear and explicit” and provided a
specific termination date of May 12, 2017, that permissive language allowing extensions of the
contracts did not create a right in any of the contracting parties to an automatic extension, and
that it was required to enforce the contracts as written. In reaching this result, the trial court
concluded that plaintiffs did not purchase an ownership interest in the sewer system, but rather
purchased a certain capacity of service in terms of millions of gallons per day for a fixed term
expiring on May 12, 2017. The trial court also rejected plaintiffs’ argument that the contracts
contain a latent ambiguity as a result of any obligation imposed by the CWA. Finally, the trial
court concluded that defendant had not become a public utility within plaintiff townships.
II. ANALYSIS OF THE ISSUES RAISED ON APPEAL
On appeal, plaintiffs assert that the 1977 and 1980 Contracts are both patently and
latently ambiguous and that defendant has an extracontractual legal duty to continue providing
wastewater treatment service to the townships beyond the expiration of the Contracts. Plaintiffs
agree that “the particular terms and conditions upon which the City has been providing sewerage
treatment and disposal services, as reflected in the 1977 and 1980 Contracts, unambiguously
expire after May 12, 2017, such that the City does not thereafter have to provide [such services]
to the Townships on those particular terms and conditions.” However, plaintiffs argue that,
nonetheless, defendant “has a legal obligation to continue providing sewage treatment and
disposal services to the Townships after May 12, 2017,” on “payment terms that comply with
applicable state and federal law.” Therefore, plaintiffs assert, the trial court erred by granting
defendant’s motions for summary disposition.
This Court reviews de novo a trial court’s decision to grant summary disposition.
Maiden v Rozwood, 461 Mich 109, 118; 597 NW2d 817 (1999). This appeal also involves
questions of statutory and contract interpretation. “[B]oth the interpretation of a statue and a
contract are questions of law this Court reviews de novo.” Burkhardt v Bailey, 260 Mich App
636, 646; 680 NW2d 453 (2004). When interpreting a contract, this Court is to discern the
parties’ intent by reading the contract as a whole. Roberts v Titan Ins Co (On Reconsideration),
282 Mich App 339, 357-358; 764 NW2d 304 (2009) (“When presented with a contractual
dispute, a court must read the contract as a whole with a view to ascertaining the intention of the
parties, determining what the parties’ agreement is, and enforcing it.”). If a contract is
unambiguous, then it must be enforced by its plain terms. Daimler Chrysler Corp v Wesco
Distribution, Inc, 281 Mich App 240; 760 NW2d 828 (2008); Rowe v Montgomery Ward & Co,
Inc, 437 Mich 627; 473 NW2d 169 (2000). Terms are ambiguous only if they cannot possibly be
read together in harmony. Cole v Ladbroke Racing Mich, Inc, 241 Mich App 1; 614 NW2d 169
(2000). Furthermore, a court will not create ambiguity where none previously existed. Smith v
Physicians Health Plan, Inc, 444 Mich 743, 759; 514 NW2d 150 (1994).
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Plaintiffs first argue that they contracted not only for on-going sewage treatment and
disposal services from defendant, but that they also purchased – and thus own – capacity in the
City System in the amounts designated in the respective contracts. They reference their required
up-front “buy-in” payments to defendant, corresponding “on a one-for-one basis with the actual
costs-of-construction for the capacity that was granted to the Townships,” and assert that
considering these payments “it is absurd to suggest that the Townships were paying only for
‘service’ for a fixed term, instead of purchasing ‘capacity’.” Plaintiffs further assert that they
will continue to own capacity in the City System after May 12, 2017, and that this ownership
interest renders the expiration dates specified in the contracts “patently ambiguous.” We
disagree.
Both the 1977 and 1980 Contracts contain an explicit expiration date; they are fixed-term
contracts that expire on May 12, 2017. Indeed, plaintiffs acknowledge as much. Therefore, the
trial court’s conclusion that the contracts expire on that date was indisputably correct. Contrary
to plaintiffs’ arguments, we agree with the trial court that defendant’s obligation to provide
services under the contracts ends on May 12, 2017. The contracts do not provide for any
automatic extension, or right to an extension; rather they provide only that the parties may by
mutual agreement, extend the contracts. We find no patent or latent ambiguity in the plain
expiration date set forth in the contracts.
Further, the up-front payments required by the contracts do not counsel a different result.
The contracts, by their plain terms, provide plaintiffs with the right to utilize a certain capacity –
that is, with “capacity rights” – for a fixed term to expire as specified in the contracts. The
contracts are thus akin to leases – here, for a certain capacity of wastewater treatment capacity
for a fixed term, in exchange for an upfront payment correlating to the cost of construction of the
treatment system, together with monthly payments for the amount of wastewater actually
treated.2 There is no indication that plaintiffs were purchasing any ownership interest in
defendant’s facilities. The contracts explicitly provide that all responsibility for the operation,
maintenance, expansion, improvements and administration of the City System rest exclusively
with defendant and that the County was to have no obligation, liability or responsibility for that
System,3 while at the same time the County was to bear all responsibility for the County System,
2
The contracts resemble a vehicle lease, in which a certain lump sum payment is due at signing,
and additional monthly payments are made for the duration of the lease. In that situation, there is
no basis for asserting that a lessee has purchased an ongoing ownership interest in the vehicle,
merely because a percentage of its worth was paid at the start of the contract. Yet, that is
essentially what plaintiffs are asserting here.
3
The 1977 Contract specifically provides that, “[i]t is agreed that those portions of the City
System within the City Limits shall remain the sole and exclusive responsibility of the City, for
all operations, maintenance, expansions, additions, improvements and administration including
review and revision of the charge for treatment” (emphasis added). Likewise, the 1980 Contract
states that “[i]t is agreed by the parties that the operation, maintenance, expansion, improvements
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including the Haring Township System, with the City bearing no obligation, liability or
responsibility for that System.4
Plaintiffs next argue that defendant has an ongoing obligation to provide wastewater
treatment and disposal services beyond the expiration date of the contracts as a result of extrinsic
requirements imposed on defendant by the CWA. Plaintiffs rely on 40 CFR §35.935-1(b), which
sets forth the responsibilities borne by a grant recipient:
By its acceptance of the grant, the grantee agrees to complete the
treatment works in accordance with the facilities plan, plans and specifications,
and related grant documents approved by the Regional Administrator, and to
maintain and operate the treatment works to meet the enforceable requirements of
the Act for the design life for the treatment works. The Regional Administrator is
authorized to seek specific enforcement or recovery of funds from the grantee, or
to take other appropriate action . . . if he determines that the grantee has failed to
make good faith efforts to meet its obligations under the grant.
Plaintiffs argue that, pursuant to this regulation, defendant is obligated to provide wastewater
treatment service to them for the “design life” of the treatment facility, regardless of the term of
the contract, and further, that the “design life” of the instant treatment system is 75 years to
perpetuity, as averred by plaintiffs’ engineering expert. Plaintiffs cite Ziegler v Witherspoon,
331 Mich 337, 352; 49 NW2d 318 (1951) to establish that parties reach agreements with
awareness of the statutory law in effect at the time of the agreement and therefore, that statutory
law become part of the agreement, and Universal Underwriters Ins Co v Kneeland, 464 Mich
491, 496-498; 628 NW2d 491 (2001) and Stillman v Goldfarb, 172 Mich App 231, 239-241; 431
NW2d 247 (1988), to establish that courts are compelled to construe contracts in accordance
with applicable statutory law whenever it is possible to do so. Thus, plaintiffs assert that “the
obligations of the CWA clearly ‘enter into and become a part’ of the Contracts” and therefore,
and additions, and administration (including the review and revision of the rates and charges
charged to users within the City) of the City System shall be and remain the sole and exclusive
responsibility of the City. The County shall have no obligation liability or responsibility for the
City System” (emphasis added).
4
The 1977 Contract provides that, “[i]t is agreed that those portions of the County System
outside of the City Limits shall remain the sole and exclusive responsibility of the County, for all
operations, maintenance, expansions, additions, improvements and administration, unless
otherwise provided in this agreement.” Similarly, the 1980 Contract provides that “[i]t is agreed
that the responsibility for operation, maintenance, expansion, additions, improvements, and
administration (including review and revision of rates and charges to users outside the City and
within the Haring Township System) shall be the sole and exclusive responsibility of the County.
The City shall have no obligation, liability or responsibility for the Haring Township System.”
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that defendant has a continuing obligation to provide wastewater treatment services beyond May
12, 2017, as part of those contracts.5
As plaintiffs acknowledge, however, 40 CFR § 35.935-1(b), is not applicable here
because it was not in effect in 1975, when the Facilities Plan was prepared and submitted, or in
1976 and 1977 when the grants were actually awarded to defendant; 40 CFR §35.935 did not go
into effect until October 1, 1978. Therefore, as plaintiffs acknowledge before this court, “these
grants were subject to the 1974 EPA regulations.” The 1974 regulations speak in terms of the
“service life” various parts of the treatments works, which the regulations define as the “period
of time during which a component of a waste treatment management system will be capable of
performing a function.” Title 40, Appendix A, Section (d)(4); 39 FR 5269. The regulations
further provide that
The service life of treatment works for a cost-effectiveness analysis shall be as
follows:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Permanent
Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30-50 years
(includes plant buildings, concrete
process tankage, basins, etc.;
sewage collection and conveyance
pipelines; lift station structures;
tunnels; outfalls).
Process Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-30 years
(includes
major
process
equipment such as clarifier
mechanisms, vacuum filters, etc.:
steel process tankage and
5
Plaintiffs note that they are not asserting “direct claims against the City under the CWA,” but
rather, are “relying upon the CWA and its implementing regulations for the purpose of
demonstrating that the ostensible May 12, 2017 expiration date of the Contracts could not, at the
time of the Contract formation, have been understood by the parties to represent a date at which
the City could wholly abandon its obligation to provide sewage treatment and disposal services
to the Service Districts within the Townships.” In fact, while the CWA regulation upon which
plaintiffs seek to rely authorizes the Regional Administrator to take action if he determines that
the grantee is not compliant with the requirements and regulations governing use of the grant and
the resulting treatment works, it does not confer standing on private parties to seek such
enforcement. 40 CFR 35.935-1(b).
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chemical
storage
facilities;
electrical generating facilities on
standby service only).
Auxiliary Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-15 years
(includes instruments and control
facilities; sewage pumps and
electric
motors;
mechanical
equipment such as compressors,
aeration systems, centrifuges,
chlorinators,
etc,;
electrical
generating facilities on regular
service).
Other service life periods will be acceptable when sufficient justification can be
provided. [Title 40, Appendix A, Section (f)(7); 39 FR 5270]
Accordingly, as previously noted, the cost-effective analysis set forth in 1975 Facilities Plan,
submitted by the parties as part of their application for grant funding under the CWA, identifies
the service life of the components of the treatment works as follows:
Land
Does not Depreciate
Structures (concrete, piping, earthwork, etc.)
40 years
Process Equipment (lift stations, aeration equip., etc.)
20 Years
Auxiliary Equipment (electrical, lab equipment,
auxiliary power, etc.)
15 years
Plaintiffs assert that 40 CFR §§ 35.935-1(b), although not directly applicable here,
merely reflects a preexisting requirement culled from a combination of then-existing EPA
regulations and grant documents and thus, that the obligation to provide service for the “design
life” of the treatment works was part of the parties’ agreement, regardless of the effective date of
that provision. More specifically, plaintiffs note that the 1974 regulations required that
defendant use the awarded grant funds to complete the construction of an “operable treatment
works” and “a complete waste treatment system . . . of which the project is a part,” 40 CFR §§
35.935-1, 35.905-3, and further, that grant agreements signed by defendant require that the
treatment works be “completed as a cost-effective, integral component of the overall program to
provide a complete waste treatment system,” and that the grantee “agrees that the funds awarded
will be used solely for the purposes of the project as approved,” here, to “service the City of
Cadillac and portions of the townships” with wastewater treatment services. Plaintiffs assert that
the 1974 regulations and grant agreements, considered together, require that defendant use the
grant monies solely for the purposes of providing wastewater collection, transport treatment and
disposal services to the designated township service districts, and that if defendant ceases using
the treatment works to collect, transport, treat and dispose of plaintiffs’ wastewater, it will have
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ceased using the grant monies “solely for the purposes of the project approved” in violation of
the 1974 regulations. From this, plaintiffs assert that defendant has a continuing extracontractual
duty to operate the treatment works for the benefit of plaintiff townships for the “design life” of
the treatment works, which plaintiffs assert is at least 75 years. We disagree.
There is no dispute that the grant monies received by defendant were, in fact, used
“solely for the purposes of the project as approved” – to construct the treatment works described
in the approved Facilities Plan. There is no assertion that defendant misappropriated grant funds
for any other purpose. There is nothing in the regulations explicitly imposing a perpetual duty to
operate the treatment works in a particular manner or for a particular period of time. The 1974
regulations required that the Facilities Plan include a “cost-effectiveness analysis” defining the
service life of the treatment works’ various component parts, 40 CFR 35.917(b); 39 FR 5269,
and the 1975 Facilities Plan did so, indicating that no component’s service life exceeded 40
years, consistent with the applicable regulation.
Additionally, plaintiffs’ argument completely disregards the import of the term “service
life” and the definition of “service life” provided in the 1974 regulations. Plaintiffs continue to
refer to “design life” – the term used in the 1978 regulations. Plaintiffs correctly point out that
the 1974 regulations define “service life” in the context, and for purposes, of cost effective
analysis. However, plaintiffs can point to nothing in the 1974 regulations specifically obligating
defendant to operate the treatment works for the “design life” of the system, or indeed, for any
particular period of time. Rather, as pieced together by plaintiffs, the regulations require that
defendant complete and operate the project as approved – that is as set forth by the Facilities
Plan, which included the parties’ representation of the service life of the system’s components.
In this regard, we find the definition of “service life,” set forth in the 1974 regulations to be
persuasive in considering whether the CWA and its implementing regulations impose any duty
on defendant to operate the treatment works beyond the expiration date of the contracts. We
conclude that the regulations impose no such duty.
Defendant completed construction of the treatment works in accordance with the
Facilities Plan and has maintained and operated the treatment works as contemplated; plaintiffs
do not assert otherwise. At issue is simply whether on May 12, 2017, defendant will have done
so for the proper amount of time, or whether defendant is obligated to continue to provide such
services beyond that date. Considering the 1974 regulations, and the representations set forth in
the approved Facilities Plan, we conclude that it will have done so, and there being no ambiguity
in the expiration date set forth in the 1977 and 1980 Contracts, the contracts, and all
accompanying duties expire on that date.6
6
Both parties note that MCL 123.742(1) provides that:
[a] county operating under this act and any 1 or more municipalities in
including the county itself may enter in a contract or contracts for the acquisition,
improvement, enlargement, or extension of a water supply, a sewage disposal, or
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Finally, plaintiffs argue that defendant has held itself out as a public utility in plaintiff
townships, and consequently, that defendant remains obligated to continue providing sewer
service to the townships beyond the expiration of the contract. In support of this assertion,
plaintiffs note the definition of a public utility set forth in Schurtz v City of Grand Rapids, 208
Mich 510, 524; 175 NW 421 (1919):
[P]ublic utility means every corporation . . . that may own, control or manage,
except for private use, any equipment, plant or generating machinery in the
operation of a public business or utility. Utility means the sate or quality of being
useful. Was the plant useful to the public? If so, it was a public utility. .
Plaintiffs observe that defendant is the only source of sewage treatment in the townships.
Plaintiffs assert that “[i]t cannot be doubted that the City Sewage System is a ‘public utility’ for
purposes of Michigan law,” and that defendant has held itself out as a public utility within
certain areas of the townships by entering into the 1977 and 1980 Contracts. However, Michigan
law provides municipalities with the discretion to provide services to extraterritorial units such as
the Townships. See, MCL 123.742(1); Nelson v County of Wayne, 289 Mich 284; 286 NW 617
(1930).7 Additionally, the Michigan Constitution, as well as Michigan statutory law provide for
a refuse system, or the making of lake improvements or erosion control systems
and for the payment of the costs by the contracting municipalities, with interest,
over a period not exceeding 40 years.
Thus, plainly under Michigan law, the 1977 and 1980 Contracts could not exceed 40 years in
duration. Defendant points to this as further evidence that the parties understood that
defendant’s obligation to provide services could not extend beyond the expiration date of the
contracts. Plaintiffs argue, however, that the existence of the statute, which prevented the parties
from contracting for a term exceeding 40 years regardless of any continuing duty on the part of
defendant to operate the treatment facility for plaintiffs’ benefit beyond that period of time,
demonstrates, again, a latent ambiguity with regard to the import and effect of that expiration
date on defendant’s duty to provide treatment services. In advancing this argument, plaintiffs
rely on the notion that they purchased, and continue to own, capacity in defendant’s system.
However, for the reasons previously discussed, plaintiffs do not own capacity in defendant’s
treatment system, and defendant has no ongoing, underlying legal duty to continue to provide
wastewater treatment services to plaintiffs beyond the plain and unambiguous date set forth in
the contracts.
7
The plaintiff in Nelson, challenged the denial of his request to tap into a water main constructed
under a contract entered into between the Detroit Board of Water Commissioners and Wayne
County to supply water from Detroit to the Wayne County Training School. This Court affirmed
that denial, explaining that
the courts as a rule are not disposed to interfere with the management of an
authorized business, conducted by the municipal authorities presumably in the
interest and for the benefit of the city and its inhabitants, unless dishonesty or
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and recognize defendant’s discretion in extending sewage removal services beyond its border.
Article VII, Section 24 of the 1963 Michigan Constitution provides that
Subject to this constitution, any city or village may acquire, own or
operate, within or without its corporate limits, public service facilities for
supplying water, light, heat, power, sewage disposal and transportation to the
municipality and the inhabitants thereof.
Services outside corporate limits
Any city or village may sell and deliver heat, power or light without its
corporate limits in an amount not exceeding 25 percent of that furnished by it
within the corporate limits, except as greater amounts may be permitted by law;
may sell and deliver water and provide sewage disposal services outside of its
corporate limits in such amount as may be determined by the legislative body of
the city or village; and may operate transportation lines outside the municipality
within such limits as may be prescribed by law. [Emphasis added.]
Likewise, MCL 123.742(1), provides that municipalities “may enter in a contract or contracts
for . . . sewage disposal . . . for the payment of the costs by the contracting municipalities, with
interest, over a period not exceeding 40 years” (emphasis added). And, MCL 123.232 provides
that “[a]ny two or more political subdivisions may contract for the joint ownership, use and/or
operation of sewers and/or sewer disposal facilities. . . . Any such contract shall be effective for
such terms as shall be prescribed therein not exceeding 50 years.” Each of these provisions
contains the term “may,” indicating permissive, discretionary activity. Thus, plainly, Michigan
law affords defendant with the ability to provide sewer treatment services beyond its borders,
subject to contracts of limited duration; however, there is nothing in Michigan law requiring that
defendant do so. Simply by exercising its discretion to provide wastewater treatment services to
plaintiffs for a fixed duration in accordance with applicable law, defendant did not become a
public utility obligated to continue to provide that service beyond the expiration of the contract.
In sum, the issue presented here is straightforward: do the 1977 and 1980 Contracts
expire on May 12, 2017, as plainly stated therein? We find no basis for concluding that the
contracts mean anything other than that which they plainly provide. Therefore, the trial court did
not err by concluding that defendant’s duty to provide wastewater treatment services to plaintiffs
fraud is manifest, or the vested power with its implied discretion has been clearly
exceeded or grossly abused.
***
[A city] may conduct [a utility] in the manner which promises the greatest benefit
to the city and its inhabitants in the judgment of the city council; and it is not
within the province of the court to interfere with the reasonable discretion of the
council in such matters. [Id. at 297-298 (citations omitted).]
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was governed by the 1977 and 1980 Contracts, which expire “as prescribed therein,” on May 12,
2017.8
We affirm. Defendant, being the prevailing party, may tax costs pursuant to MCR 7.219.
/s/ Stephen L. Borrello
/s/ Richard A. Bandstra
8
Having determined that defendant is not obligated to provide wastewater treatment services for
the “design life” of the treatment works, we need not address the issue whether plaintiffs
successfully established a genuine issue of material fact as to the length of the “design life” of
the system.
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