Saturday, August 9, 2014

Changing The Rules: Can’t Do It

Vermont North Properties v. Village of Derby Center, 2014 VT 73

By Elizabeth Kruska

Way back in the blissful days of the late 1980s, Vermont North Properties (VNP) bought a chunk of land in the Village of Derby Center (Village) with the hopes of one day developing eight apartment buildings on that site. The plan was for a total of 44 apartment units. VNP wasn’t going to build them all at once; rather they’d build them over time as demand for the units became known.

Since VNP is in the building business, they knew they had to get certain permits and permission to do various things relative to their buildings, including getting a water and sewer permit. They weren’t planning to build all the buildings at once, so they wrote a letter to the Village of Derby Center in 1987 asking that water and sewer allocations be reserved for them so that when they wanted to build apartment buildings in the future, that part would already be taken care of. The Village said "ok" and granted the allocation reservation.

This was before anything more formal than just this letter process was needed. The communication between VNP and the Village was somewhat unclear as to how long the allocations would be reserved and as to the quantity. VNP believed, based on the letter and the Village’s ok, that they had the right to the water and sewer allocations pretty much forever. They constructed 2 buildings in 1987 and hooked up to the Village water systems in 1988.

As Bob Dylan famously wrote, the times, they are a changin’. A new state statute was enacted in 1989 (well, wait; this isn’t clear if it was passed or enacted in 1989 based on the opinion). The new statute required that municipal wastewater capacities be allocated pursuant to municipal ordinances or bylaws. But (there’s always a but), this didn’t apply to allocations made before the change in the law.

By 1992, the Village made an ordinance to govern water and sewer allocation. It also adopted an ordinance that allowed the Village to charge reservation fees for building projects with applications for newly allocated but unused capacity. In other words, if someone applied for water and sewer allocations but wasn’t ready to hook up to the system yet, the Village could charge a fee for reserving the allocation. However, the Village trustees decided they wouldn’t charge a fee for projects that had already made their allocation reservations under the old regime. Makes sense.

In March of 1994, while the world was still abuzz with the Nancy Kerrigan-Tonya Harding scandal, VNP decided to build another building on its parcel, and sought permission from the Village to hook in to the water and sewer lines based on that old letter from 1987. The Village trustees agreed that VNP was “grandfathered” under the old way of doing things, and that they already had their allocations. The Village also sent VNP a letter saying they didn’t need another approval since they had their old approval, but that they’d be subject to applicable ordinances regarding inspection. Makes sense.

Seven years laternow in 2001VNP got another permit to build a third round of apartments. The building was built and hooked into the sewer and water on their old allocations.

Uh oh. The Village believed in 2004 that it had run out of wastewater capacity, and had to purchase additional capacity from the City of Newport. This caused the Village to take a look at its allocations and unused permits to see if any had expired. Remember, from many paragraphs up (and bravo, if you’re still reading this) that way back in 1987 there was no capacity or expiration on the VNP allocations. Yeah, you probably see where this is going.

VNP applied for another building and sewer permit for another building in 2005. It’s around this time the Village changed its tune on this slow-drip building project. It decided that, in fact, VNP’s earlier allocation was not “grandfathered” and started sending the company bills dating back to 1993 for reservations of the allowance. VNP, unsurprisingly, was not amused. The Village also adopted new wastewater fees. Without getting into the fee structure, there were fees for used and unused allocations. The point was to prevent large-scale developers from snapping up wastewater permits and then not using them for years.

VNP started paying the back bills “under protest” in 2007. VNP and the Village agreed that while this court case was going on that the Village would hold an appropriate amount of wastewater allocation so long as VNP paid a reservation fee.

So, how do we end up in front of the Vermont Supreme Court with all this anyway? The Village filed for a declaratory judgment to settle the dispute about whether there was a reservation and whether fees could be charged. The trial court found that the Village was allowed to charge fees, that the fees were reasonable, that the Village could revoke the reserved allocation for nonpayment of fees, and that the Village was not estopped from denying water and sewer connections to VNP. VNP, understandably was unhappy about this.

SCOV decides that, in fact, VNP had an enforceable reservation, but that the Village could charge fees for the reservation and to revoke the reservation for nonpayment. Although VNP alleged that the fees were unreasonable, there wasn’t any evidence to back that up, so SCOV affirmed that.

Estoppel means that someonea person or an entityis halted from doing something. It might mean they can’t go forward with something or they’re prevented from starting something new. In this case, VNP felt that the Village was equitably estopped from denying that VNP ever reserved water and sewer rights. SCOV concludes that the Village can’t essentially ask for a Writ of Takesies-Backsies and say that in fact the reservation didn’t exist when it was pretty clear that it did. Although the 1989 statute and subsequent 1992 ordinance required that there had to be a formal action before a legislative body to make the reservation, it’s clear that VNP made its request in 1987. There was no such statute or municipal ordinance back then. In fact, all they had to do was write a letter.

In 1994 at a public meeting, which appears to have comported with all the public meeting rules, the Village said that VNP had an allocation and was “grandfathered in” under the old way of doing things.

The Village knew full wellbased on its own records and meeting minutesthat VNP had an allocation. At the time of the 1994 meeting, the Village knew the statute and ordinance, consulted with its attorney, and concluded VNP had duly reserved the allocation years before. If there was any mistake of law, it was on the Village’s shoulders to catch it, not VNP.

When VNP applied for the permits in 1994 and 2005, it relied upon the Village’s representation that they were “grandfathered” under the old system. This is because in 1994 the Village sent a letter to VNP saying they didn’t need to make the reservation again. The original reservation, back in 1987, was vague. There was no time limitation on it, so VNP could very easily have believed it had an open-ended wastewater allocation and could complete the 8-building project over any period of time. Over the time VNP worked on the project, it invested a lot of money and created a lot of infrastructure to support the project. For the Village to suddenly change the rules after doing things in a different way for nearly 20 years is unfair. Furthermore, to try to charge VNP for 13 years’ worth of reservation fees, when that was never part of the deal, and when the Village even told VNP it was “grandfathered” is also unfair. Can’t do it.

VNP also tried to argue that the fees themselves were unreasonable. They lose on this point because there wasn’t any evidence in the record to suggest that the fees were unreasonable. The statute gives municipalities a lot of discretion in figuring out the best way to set rates, and SCOV gives the municipalities a lot of deference in review on issues like this. There are times when, “because I said so” is sufficient basis for a decision, like when a 4 year old is squirting ketchup on the cat and his mom tells him to stop. “Because we said so” isn’t enough to carry the day, though, when evidence is needed to prove the point. Without more, SCOV won’t disturb the trial court’s finding, since it made its findings based on what it had.

So, where does all this leave us? VNP has its allocation for its project, like everybody agreed during the Reagan Administration. The Village can charge fees, but not the retroactive fees.

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