Water, Water Everywhere

City of Newport v. Village of Derby Center, 2014 VT 108

By Elizabeth Kruska

Remember that opinion from a few months ago about the wastewater issue in the Village of Derby Center? Well, this seems to be its late-to-the party cousin, and might explain a little more about the water woes going on in the Northeast Kingdom. It’s a water-in, water-out problem.

In 1997, the Village of Derby Center (hereinafter: Village, because, why not) made a contract with the City of Newport (hereinafter: City, because, same reason) stating that Village would provide City with 10,000 gallons of water per day. All was super and swell until 2006, when Village adopted a new rate schedule pursuant to an ordinance that allowed Village to charge for not only water used, but also a “ready to serve” fee. Let’s not confuse that with the Little Caesar’s Pizza “hot and ready” cheap pizza deal, because water and pizza are two very different things.

Anyway, the point is that City, after nearly 20 years of paying for just water used, was not amused at Village’s 30% rate hike. City paid the increased fees under protest. There were some other issues that arose, like an inaccurate meter, and City hooked up some water users without notifying the Village. 

The parties tried to mediate, but that didn’t work, so they tried the case. They had a bench trial (probably a good plan, because this stuff is confusing and although water allocations are important, it’s not exactly high courtroom drama that keeps a jury’s attention). The trial judge ruled the following things: (1) the contract from 1997 didn’t allow Village to impose a “ready to serve” fee, and City was only required to pay for what it used; (2) Village had the power to raise the rates, but didn’t have the power to change the contract unilaterally; (3) although there’s a statute that allows municipalities to set water rates, the word “rate” doesn’t apply to “unused water allocation fees”; (4) Village didn’t show that its fee was reasonable. City wins and gets a judgment of about $18,000. Village had counterclaimed, and the court dismissed that but sent the parties back to mediation to figure out the right payment due to the malfunctioning-meter issue.

Village appeals, and SCOV remands.

SCOV gives us a nice refresher on contracts. If a contract is clear and unambiguous, the court construes the provision as a matter of law. If it is ambiguous, though, then the factfinder has to figure out what the parties intended when they entered into the contract. The trial court read the contract at issue, and found that the provisions in the contract meant that City only had to pay for what it used. And since City only paid for that from 1997 to 2006, to add a new fee would be a pretty significant change in practice.

SCOV says nope. The contract was actually pretty clear that it contemplated consideration of factors other than just water used by City. The contract mentioned operating costs, which was pretty broad. SCOV thinks it’s clear that City knew it would have to pay for more than just what it used. Based on the rate City was paying, if it actually only paid for water consumed, it would be getting a huge windfall in comparison to other ratepayers. Also, the court had taken some testimony from a person who was involved in the 1997 contract negotiation, who remembered that the fees could account for water usage and administrative and operating costs. Based on this, SCOV believes that City knew it would be paying for more than just the water it was using.

SCOV also finds that Village had broad discretion in setting its rates. City didn’t present any evidence to show that the rate was unreasonable, so Village wins on this one. (For those keeping score at home, this is the second time in 2014 this Village has won on this particular point. Hopefully there’s no hat trick in store, because I’m guessing Village has just about had it with litigating water issues.)

City also didn’t like the form of notice it got of the increase in rates. SCOV says it got at least 60 days’ notice of the increase, so that’s fine. Since water usage fluctuates, it would be impossible for Village to predict 60 days ahead of time what the actual bill will be, and SCOV recognizes that.

Then SCOV takes a look at Village’s counterclaims, which got dismissed.

First, Village claimed that City violated the contract by hooking up three usersa restaurant, a credit union, and a residencewithout first getting Village’s approval. Village contends that the contract from 1997 required that prior Village approval. The trial court had found against Village on this point because even though Village didn’t get notice, the three new users did get permits to hook up. Also, the trial court didn’t think there even was a claim to be made, because the contract didn’t give Village the ability to veto a new customer. SCOV agrees because the provision of the contract that would cover this issue actually applied to construction of a new distribution line, not connections of new users.

However, there was an ambiguity in the contract, that referred to amending the contract in the event changes to an industrial park. SCOV can’t figure out based on the record before it if the part about the industrial park meant just that part or other users, so sends this point back to the trial court for further fact-findin'.

Finally, there was an issue about underreported water use by City due to a malfunctioning meter. The funky meter would somehow interfere or interact with the bypass-shutoff valve, and would result in City getting bills for $0, even though City was using water every day. This started in 2006, and the parties tried off and on for several years to get the situation fixed.

As noted above, water usage is fluid and changes every day. Accordingly, Village couldn’t accurately figure out how much water City used but didn’t pay for between 2006 and 2012. The underpayment was anywhere between about $10,000 and $98,000. Initially, the trial court sent the parties for mediation on this point, because the original contract required that. However, that slowed things way down and created a procedural problem. So, SCOV sends this point back to the trial court to resolve, as well.