Brookside Memorials, Inc. v. Barre City

Brookside Memorials v. Barre City  (96-429); 167 Vt. 558; 702 A.2d 47

[Opinion Filed 13-Jun-1997]

[Motion for Reargument Denied 14-Jul-1997]


                          ENTRY ORDER

                 SUPREME COURT DOCKET NO. 96-429

                         APRIL TERM, 1997


Brookside Memorials, Inc.       }     APPEALED FROM:
                                }
                                }
     v.                         }     Washington Superior Court
                                }
Barre City                      }
                                }     DOCKET NO. 209-4-95Wncv


               In the above-entitled cause, the Clerk will enter:

       Plaintiff Brookside Memorials, Inc., a granite manufacturer seeking a
  refund for sewer bill overpayments it made to defendant Barre City over a
  six-year period, appeals the superior court's order granting the City
  summary judgment.  We hold that under the facts and circumstances of this
  case, plaintiff is entitled to the requested refund; accordingly, we
  reverse the court's order and grant summary judgment to plaintiff.

       Plaintiff is a Barre City business engaged in the manufacture and
  distribution of granite memorials and other granite products.  The building
  in which plaintiff is located was operated as a granite shed for
  approximately seventy-five years, when, in 1977, it was sold to an
  insulation company.  Plaintiff took possession of the site in 1982, and
  since then has operated it as a granite manufacturing business.

       Barre City bills residents and businesses quarterly for water use and
  sewage disposal. Water bills are based on metered use.  For most residents
  and businesses, sewer bills are calculated as a percentage of the metered
  water use; however, for those manufacturing businesses that do not return
  all of the water that they use back into the sewer system, sewer bills are
  based on the number of workers employed at the site rather than on the
  amount of water used.  Granite manufacturers such as plaintiff are charged
  a flat rate based on the number of employees because the large volume of
  water that they use in the manufacturing process is discharged into sludge
  pits or lagoons rather than the city sewer system.

       Nevertheless, from 1982 to 1994, the City billed plaintiff for sewer
  disposal at the metered rate, which often exceeded $3500 per year, rather
  than the flat rate, which would have been only about $100 per year.  Thus,
  during the twelve-year period, plaintiff paid over $40,000 more than it was
  obligated to pay for sewage disposal.

       In 1994, plaintiff's owners learned that their business should have
  been billed at the flat rate.  They brought the matter to the attention of
  the City, which agreed to apply the lower rate in the future.  The City
  also offered to give plaintiff a refund for overpayments made during the
  most recent year, but refused plaintiff's demand that the City refund all
  overpayments made during the previous six years, the general limitations
  period for civil actions.  See 12 V.S.A. § 511.  Plaintiff then sued the
  City under theories of breach of contract and unjust enrichment.

       The superior court granted the City summary judgment, ruling that
  plaintiff bore the responsibility but failed to ascertain whether its sewer
  bills were reflective of and consistent with

 

  the use of its premises.  According to the court, regardless of whether the
  City knew that plaintiff was operating as a granite shed, plaintiff was not
  entitled to a refund because it had paid the sewer bills voluntarily
  without protest and could have discovered the problem through reasonable
  diligence, including examining the bills.

       On appeal, plaintiff contends that the law and facts of the case
  require the City to refund the overpayments.  The City concedes that
  plaintiff was entitled to pay the flat rate, and does not contend that the
  metered rate was reasonable or equitable as applied to plaintiff.  See
  Handy v. City of Rutland, 156 Vt. 397, 404, 598 A.2d 114, 118 (1990)
  ("Vermont law . . . requires that [sewer] rates be fair, equitable and
  reasonable.").  Rather, the City argues that plaintiff was in the best
  position to discover that it was being billed under the wrong rate, and
  thus bore the responsibility for informing the City of the mistake.

       Under a quasi-contract theory of unjust enrichment, the law implies a
  promise to pay when a party receives a benefit and retention of the benefit
  would be inequitable.  In re Estate of Elliott, 149 Vt. 248, 252, 542 A.2d 282, 285 (1988).  This theory may be applied in an action seeking a refund
  from a municipality: "If money is paid to a municipality which, in justice
  and in good conscience it ought to return, it is generally liable for
  repayment on an implied contract."  17 E. McQuillin, The Law of Municipal
  Corporations § 49.62, at 425 (3d ed. 1993).  Generally, voluntary payments
  made to a municipality, including payments made to obtain water or sewer
  services, are not recoverable.  Id.  This voluntary payment rule is based
  on public policy concerns that governmental bodies must be able to rely on
  the presumptive validity of their laws in planning their budgets. 
  Nevertheless, "in the absence of fraud, imposition, undue influence and the
  like, money paid to a municipality with a full knowledge of the facts, but
  under a mistake of law, cannot be recovered."  Id.

       The City argues that the court properly applied the voluntary payment
  rule in this instance because plaintiff's failure to discover the existence
  of the flat rate to which it was entitled was a mistake of law that
  precludes recovery of the overpayments.  According to the City, plaintiff
  should have learned of the correct rate by discussing the matter with its
  peers in the granite industry or by inquiring at the Water and Sewer
  Department.  We conclude that the voluntary payment rule does not apply
  under the circumstances of this particular case because plaintiff made the
  payments without a full knowledge of the facts, and the City, not
  plaintiff, was in a better position to discover and correct the error.  See
  Getto v. City of Chicago, 426 N.E.2d 844, 849-50 (Ill. 1981) (voluntary
  payment rule does not apply unless it is shown that plaintiff had knowledge
  of facts upon which to frame protest).

       The overpayments in this case arose out of the parties' mutual mistake
  as to the correct sewer rate to apply to plaintiff.  The City's mistake was
  one of fact -- failing to recognize that plaintiff was a granite
  manufacturing business entitled to the flat rate.  Although plaintiff's
  "mistake" -- failing to become aware of the existence of the City's flat
  rate for businesses such as itself -- could be characterized as a mistake
  of law, it was not a typical mistake of law involving a failure to
  appreciate the effect or consequences of a recognized law.  Cf. Fishman,
  661 A.2d  at 849 (payment of taxes under commissioner's misinterpretation of
  statute was mistake of law); G. Heileman Brewing Co. v. City of La Crosse,
  312 N.W.2d 875, 880 (Wis. Ct. App. 1981) (plaintiff's failure to recognize
  difficult and innovative reason why it need not pay taxes was mistake of
  law).  Indeed, courts faced with fact patterns analogous to the instant
  case have treated the "mistake" as one of fact and declined to apply the
  voluntary payment rule. See, e.g., United States v. C.J. Tower & Sons of
  Buffalo, Inc., 499 F.2d 1277, 1282 (C.C.P.A. 1974) (importer of aircraft
  fuel cells seeking refund of ad valorem tax on ground that he was unaware
  that fuel cells were considered emergency defense purchases made mistake of
  fact

 

  rather than law and thus had no reason to protest imposition of tax); San
  Antonio Indep. Sch. Dist. v. National Bank of Commerce, 626 S.W.2d 794, 797
  (Tex. Ct. App. 1981) (voluntary payment rule did not apply where city erred
  in computing ad valorem tax and plaintiff erred in not recognizing that it
  was paying taxes on valuation different from figure it had submitted to
  taxing agency).

       The instant case is an equitable action, not an action based on a
  refund statute.  See American Tierra Corp. v. City of West Jordan, 840 P.2d 757, 760 (Utah 1992) (action to recover unlawful charges for city services
  is equitable in nature).  Equity affords relief against mutual mistakes as
  long as the mistake is not wholly one of law.  See MacGowan v. Gaines, 127
  Vt. 477, 481, 253 A.2d 121, 124 (1969); In re Estate of Watkins, 114 Vt.
  109, 137, 41 A.2d 180, 196 (1945).  In determining whether a quasi-contract
  should be implied under an equitable theory of unjust enrichment, the
  inquiry is whether, in light of the totality of the circumstances, equity
  and good conscience demand that the defendant return that which the
  plaintiff seeks to recover.  Legault v. Legault, 142 Vt. 525, 531, 459 A.2d 980, 984 (1983) (whether there has been unjust enrichment must be realistic
  determination based on broad view of human setting involved).

       Given the undisputed facts and circumstances of this case, equity
  demands a refund.  Cf. Knutson Hotel Corp. v. City of Moorhead, 84 N.W.2d 626, 629 (Minn. 1957) (where city charged hotel for disposal of sewage that
  never entered city system, city was required to make restitution because it
  took money that it had no right in equity or good conscience to retain).
  The city manager testified in his deposition that certain departments
  within the City must have been aware that plaintiff was operating as a
  granite manufacturing business, but that that information would not
  necessarily have been passed on to the Water and Sewer Department. Other
  evidence in the record indicates that even the Water and Sewer Department
  was aware that plaintiff was a granite manufacturing business.  In 1985,
  the name on the meter cards for the site was changed from L.D. Hutchins
  Insulation Co. to Brookside Memorials, Inc., and in 1990 the Department
  changed the name on the sewer bills from Fernand Lajeunesse, whom the
  director of the Department knew to be operating a granite shed, to
  Brookside Memorials, Inc. The director testified that he had been aware
  from the billing records that plaintiff was a granite shed, but stated in
  an affidavit that some granite sheds use a sandblasting technique in the
  manufacturing process and thus are not entitled to a flat sewer rate based
  on number of employees rather than metered water use.  These facts hardly
  demonstrate that the City had less of an opportunity than plaintiff to
  discover the billing error; to the contrary, they suggest that the City had
  constructive notice that plaintiff was a granite manufacturing business,
  and thus was in a better position than plaintiff's owners, who had no
  reason to suppose that they were entitled to a special sewer rate, to
  discover and correct the mistake in billing.  Further, the record does not
  support the trial court's conclusion that the bills themselves presented
  plaintiff with an opportunity to discover through reasonable diligence that
  the City was applying the wrong rate. The bills merely listed the water and
  sewer charges without indicating the type of rate applied or the
  availability of other rates.(FN1)

 

       Moreover, the City's own policy regarding refunds appears to recognize
  that plaintiff is entitled to a refund based on the type of mistake at
  issue here.  At oral argument, the City acknowledged that it offered a
  one-year refund to plaintiff not as an offer of settlement for a promise
  not to sue, but rather as an offer under its refund policy limited only by
  a one-year statute of limitations that the City believes to govern.

       According to the City, even if we determine that plaintiff is entitled
  to a refund, the amount of the refund is limited by 32 V.S.A. § 5292(a):

     A taxpayer shall not contest the validity of any tax assessed
     against his person, personal property or real estate nor the validity
     of the action of the listers or selectmen in assessing such tax nor
     the validity of any grand list unless the taxpayer filed his
     objections to the validity thereof, in the office of the town clerk
     wherein the tax is assessed, within a period of two months from
     November 15 of each year in which the tax is assessed.

  The City reasons as follows: Subsections (a) and (b) of 24 V.S.A. § 3612
  provide that unpaid sewage disposal charges shall be a lien upon real
  estate in the same manner as taxes under 32 V.S.A. § 5061, and that the
  municipality may enforce such a lien in the same manner as in the
  collection of taxes under subchapter 9 of chapter 133 of Title 32, which
  includes § 5292(a).

       We find no merit to this argument.  Subchapter 9 of chapter 133 of
  Title 32 is entitled "Delinquent Taxes."  Article 4 within that subchapter
  concerns the statutory procedure by which municipalities may collect
  delinquent taxes.  Article 6 of subchapter 9, entitled "Taxpayers'
  Defenses," includes § 5292(a).  The references to Title 32 in 24 V.S.A. §
  3612 are intended to create a lien on real estate for delinquent sewer
  charges and to provide municipalities with a statutory cause of action to
  enforce such a lien.  Here, the City is not seeking to enforce a lien based
  on unpaid sewer bills.  Nor is plaintiff seeking to contest the validity of
  a tax assessed against its personal property.  The limitations period in §
  5292(a) does not apply to the instant action.

       Finally, the City briefly contends that even if it is liable for
  plaintiff's overpayments, it is liable only to the extent that it still
  held the wrongfully collected funds at the time plaintiff initiated the
  present action.  In support of its argument, the City cites two Vermont
  cases, Meacham v. Town of Newport, 70 Vt. 264, 40 A. 729 (1898) and
  Champlain Realty Co. v. Town of Brattleboro, 97 Vt. 28, 121 A. 580 (1923). 
  In Meacham, the Court determined that property taxes were illegally
  assessed and collected against the plaintiff.  The plaintiff was awarded a
  refund for the $117 that had been assessed by the town, but not for the $36
  that had been assessed by the town school district because the defendant
  town had already paid the $36 to the treasurer of the school district and
  could not compel the district to return the sum. Meacham, 70 Vt. at 269, 40 A.  at 730.  In Champlain Realty, the plaintiff was entitled to a refund of
  taxes paid on pulp wood after the United States Supreme Court ruled that
  the imposition of such taxes violated the Commerce Clause of the United
  States Constitution.  The defendant town argued that its liability did not
  extend to that portion of the taxes that the town was required to turn over
  to the state and county.  This Court held that the town was liable for the
  full amount because at the time the plaintiff commenced its suit the town
  had not yet

 

  distributed to the state and county their portion of the taxes.  Champlain
  Realty, 97 Vt. at 32, 121 A.  at 582.

       Assuming that the relevant legal holdings in these two cases are still
  good law, they do not govern this case.  Here, the overpayments for sewage
  disposal went directly to the City's Water and Sewer Department, and not to
  any other nonparty governmental entities from which they could not be
  recovered.

       Reversed; plaintiff's motion for summary judgment is granted, and the
  case is remanded for computation of damages.  Plaintiff's motion to strike
  is denied as moot.




                              BY THE COURT:



                              _______________________________________
                              Jeffrey L. Amestoy, Chief Justice

                              _______________________________________
                              Ernest W. Gibson III, Associate Justice

                              _______________________________________
                              John A. Dooley, Associate Justice

                              _______________________________________
                              James L. Morse, Associate Justice

                              _______________________________________
                              Denise R. Johnson, Associate Justice


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                                  Footnotes



FN1.  The trial court relied on Marshall Durbin & Co. v. Jasper Utils.
  Bd., 437 So. 2d 1014 (Ala. 1983) to support its conclusion that plaintiff
  bore the responsibility for ascertaining whether the sewer rate imposed by
  the City was consistent with the use of its premises.  The court in
  Marshall Durbin opined that "a utility customer should be required to give
  the rate making body notice that the rates are being paid under protest
  before a refund can be ordered in an action contesting those rates."  Id.
  at 1026 (emphasis added).  Here, plaintiff is not challenging the City's
  rate structure.  Rather, this case involves a mutual mistake that caused
  the City to bill plaintiff at an incorrect rate.  Plaintiff had no reason
  to protest because it assumed that the City was applying the correct rate. 
  The Marshall Durbin case is not on point.