City of Harwood v. City of Reiles Acres

• Decision Date: 12 February 2015
• Docket Number: No. 20140089.,20140089.
• Citation: 859 N.W.2d 13
• Parties: The CITY OF HARWOOD, a political subdivision of the State of North Dakota, and Lake Shure Estates, Inc., a North Dakota nonprofit corporation, Plaintiffs and Appellees v. The CITY OF REILES ACRES, a political subdivision of the State of North Dakota, Dr. Ron Knutson, and all other persons unknown claiming any interest or estate in, or lien or encumbrance upon, the property described in the Complaint, Defendants The City of Reiles Acres, a political subdivision of the State of North Dakota, Appellant.
• Court: North Dakota Supreme Court

859 N.W.2d 13

The CITY OF HARWOOD, a political subdivision of the State of North Dakota, and Lake Shure Estates, Inc., a North Dakota nonprofit corporation, Plaintiffs and Appellees

v.The CITY OF REILES ACRES, a political subdivision of the State of North Dakota, Dr. Ron Knutson, and all other persons unknown claiming any interest or estate in, or lien or encumbrance upon, the property described in the Complaint, Defendants

The City of Reiles Acres, a political subdivision of the State of North Dakota, Appellant.

No. 20140089.

Supreme Court of North Dakota.

Feb. 12, 2015.

Rehearing Denied March 24, 2015.

Andrew D. Cook (argued) and Robert G. Hoy (on brief), West Fargo, N.D., for plaintiffs and appellees.

Jonathan T. Garaas, Fargo, N.D., for defendant and appellant.

Opinion

SANDSTROM, Justice.

[¶ 1] The City of Reiles Acres appeals from a judgment entered after a bench trial declaring the contractual obligations of Reiles Acres and the City of Harwood under a 1985 contract for construction and operation of a waste water treatment facility known as the Harwood Lagoon were discharged by frustration of purpose and from an order confirming a partition by public sale of the land encompassing the Harwood Lagoon. Reiles Acres argues the district court lacked subject matter and personal jurisdiction to enter a declaratory judgment nullifying the parties' contractual obligations and to order a partition sale of the land. We conclude the court had jurisdiction to construe contracts in the declaratory judgment action and the court did not err in construing a 1985 contract between Harwood and Reiles Acres and determining the principal purpose of the contract was frustrated. We further conclude the court did not err in ordering partition by public sale of the land. We affirm the judgment and the order confirming the sale.

I

[¶ 2] In the early 1980s, Harwood and Reiles Acres entered a series of agreements to address common waste water treatment problems. In June 1985, they agreed in writing to construct and operate the Harwood Lagoon near the municipalities. Under that agreement, which stated it superseded their previous agreements, Harwood was responsible for 68 percent and Reiles Acres for 32 percent of the acquisition and construction costs of the Harwood Lagoon. Each municipality was responsible for maintenance and operational costs of their own collection system, including their own metered force main into the Harwood Lagoon, and Harwood was responsible for administering and managing the operation of the facility. Their agreement allocated 68 percent of the maintenance costs for the facility to Harwood and 32 percent of those costs to Reiles Acres and also allotted 68 percent of the facility's capacity to Harwood's customers and users and 32 percent of the facility's capacity to Reiles Acres' customers and users. The agreement ultimately resulted in Harwood owning an undivided 68 percent interest and Reiles Acres owning an undivided 32 percent interest in the Harwood Lagoon.

[¶ 3] In 1985, the Harwood Lagoon was constructed on land south of Harwood and north of Reiles Acres. A four-inch force main runs north from Reiles Acres along 45th Street to 52nd Avenue, where the line increases to a six-inch force main that runs east under Interstate 29 and then north to the Harwood Lagoon. The water treatment facility consists of a three-cell aerobic-stabilization-pond system with a primary cell and two secondary cells. The primary cell is used for settling of solids and the initial treatment of raw sewage, and after a certain number of days of treatment in the primary cell, the waste water is drained into one of the secondary cells for further aerobic treatment. The waste water generally remains in that secondary cell until it satisfies state water quality standards for discharge. According to David Bergsagel, an environmental engineer for the State Health Department, a pond system waste water treatment facility such as the Harwood Lagoon is required to provide 180 days of winter storage capacity in its cells because the facility does not discharge water during the winter.

[¶ 4] In July 1985, Lake Shure Properties, a North Dakota general partnership acting as the owner-developer of the North 81–20 subdivision and Willow Tree subdivision, purchased from Reiles Acres the right to use 50 percent of Reiles Acres' volumetric capacity in the lagoon, which constituted 16 percent of the total capacity of the lagoon. The agreement between Lake Shure Properties and Reiles Acres permitted each party to buy, sell, or otherwise deal with their respective share of the facility's volume. Under that agreement, Lake Shure Properties paid Reiles Acres a share of construction costs, “adjusted so as to require [Lake Shure Properties] to pay 9.73% actual costs of [Reiles Acres' collection system] and 16% of the actual total local share” for waste water treatment in the Harwood Lagoon. In March 1993, Lake Shure Properties transferred 56.5 percent of its interest in the volumetric capacity in the Harwood Lagoon to Lake Shure Estates, Inc., a North Dakota nonprofit corporation consisting of homeowners residing in the Lake Shure Estates' subdivision near Harwood and Reiles Acres. Lake Shure Estates is located west of 45th Street, and its four-inch force main goes east from 57th Street to the intersection of 45th Street and 52nd Avenue, where it connects to the six-inch force main running to the Harwood Lagoon. The transfer resulted in Lake Shure Estates obtaining 9.04 percent of the total waste water treatment capacity of the Harwood Lagoon.

[¶ 5] According to Bernie Stasch, Harwood's state certified operator for the lagoon, the facility was designed to provide waste water treatment services for approximately 500 people, and the population growth of Harwood and Reiles Acres made it difficult for the municipalities to continue to provide the required 180 days of winter storage capacity for the facility. In 1998, Reiles Acres contracted with Fargo for treatment of Reiles Acres' waste water, and since that time, it has not used the Harwood Lagoon for waste water treatment services. In 2009, Harwood contracted with Fargo for waste water treatment services, and in 2010, Lake Shure Estates contracted with Fargo for waste water treatment services. Neither Harwood nor Lake Shure Estates has used the Harwood Lagoon for municipal waste water treatment services since they contracted with Fargo for those services.

[¶ 6] In 2011, Harwood and Lake Shure Estates sued Reiles Acres, Dr. Ron Knutson, and all other persons unknown claiming any interest in the Harwood Lagoon, seeking a declaration of the parties' interests and obligations under their contracts and a partition of the Harwood Lagoon property. The complaint alleged that Harwood owned 68 percent and Reiles Acres owned 32 percent of the Harwood Lagoon and that Lake Shure Estates, the successor in interest to Lake Shure Properties, and Dr. Ron Knutson had a right to use part of the capacity of the water treatment facility. The complaint alleged the Harwood Lagoon had exceeded its expected useful life and needed significant repairs, maintenance, and upgrades and the costs to make those upgrades and repairs exceeded the value of the lagoon. The complaint sought a declaration that the 1985 contract between Harwood and Reiles Acres superseded all prior agreements between Harwood and Reiles Acres and that the contract between Lake Shure Properties and Reiles Acres created an easement by estoppel in the Harwood Lagoon in favor of Lake Shure Properties' successors in interest, Lake Shure Estates and Knutson. The complaint sought a declaration that all contracts between the parties relating to and arising out of the Harwood Lagoon and the obligations created by those agreements be discharged because of frustration of the underlying purpose of the agreements. The complaint also sought partition by public sale of the Harwood Lagoon property and distribution of the proceeds of the sale among the parties according to their respective interests, or alternatively, partition of the property according to the parties' respective rights.

[¶ 7] After a bench trial, the district court held the 1985 agreement between Harwood and Reiles Acres superseded their prior agreements and the principal purpose of their 1985 agreement was to construct and maintain one waste water treatment facility for use by both municipalities' customers and users. The court found the 1985 agreement's principal purpose was substantially frustrated after both Reiles Acres and Harwood contracted with Fargo for their waste water treatment needs. The court explained the Harwood Lagoon was no longer providing waste water treatment services for Harwood and Reiles Acres, which was a basic assumption for the 1985 agreement. The court found Harwood's contractual responsibilities to pay maintenance costs were impractical, which was caused by both Reiles Acres and Harwood contracting with Fargo for their waste water treatment needs and no longer using the Harwood Lagoon. The court found neither Harwood nor Reiles Acres was at fault for contracting with Fargo for their waste water treatment needs and no longer using the Harwood Lagoon, because both entities had increased population that placed great strains on the Harwood Lagoon. The court declared that the obligations of Harwood and Reiles Acres under the 1985 agreement were discharged and that Harwood owned 68 percent and Reiles Acres owned 32 percent of the Harwood Lagoon. The court also held Reiles Acres, Lake Shure Estates, and Knutson each had an undivided ownership interest in and right to use the six-inch force main running from the intersection of 45th Street and 52nd Avenue to the Harwood Lagoon. The court ordered partition by public sale of the Harwood Lagoon land. The court subsequently confirmed the sale of the Harwood Lagoon land to Fargo for $250,000. After deductions for costs, the court ordered distribution of...