Fairway Manor, Inc. v. Board of Com'rs of Summit County, 87-952

• Decision Date: 13 April 1988
• Docket Number: No. 87-952,87-952
• Citation: 521 N.E.2d 818,36 Ohio St.3d 85
• Parties: FAIRWAY MANOR, INC. v. BOARD OF COMMISSIONERS OF SUMMIT COUNTY; City of Akron, Appellant; County of Summit, Appellee.
• Court: Ohio Supreme Court

Page 85

36 Ohio St.3d 85

521 N.E.2d 818

FAIRWAY MANOR, INC. v. BOARD OF COMMISSIONERS OF SUMMIT COUNTY; City of Akron, Appellant; County of Summit, Appellee.

No. 87-952.

Supreme Court of Ohio.

April 13, 1988.

Syllabus by the Court

1. Municipally owned public utilities have no duty to sell their products, including water, to extraterritorial purchasers absent a contractual obligation.

2. Where rates for water from a municipally owned public utility are set forth in a contract, such rates will not be struck down as discriminatory even where no factor exists which could justify the rate discrimination.

Plaintiff, Fairway Manor, Inc., filed a complaint on April 10, 1981 against appellant, the city of Akron, and the Board of Commissioners of Summit County. The complaint sought an order requiring the governmental parties to supply water to plaintiff's condominium project.

Appellant subsequently filed a third-party complaint ¹ against appellee, Summit County, and others, stemming from a 1979 contract under which appellant had agreed to supply water to appellee at a fixed rate. Appellant alleged that appellee breached the contract by refusing to make payment in accordance with the terms of the agreement. Appellant prayed for damages and rescission of the contract.

Appellee answered and counterclaimed, admitting that payment had been withheld, but alleging, inter alia, that the contract was entered into under duress and that it contained unreasonable and discriminatory water rates. Appellee's allegation was based on the fact that the city of Tallmadge, which also purchases its water in bulk from appellant, paid the Akron rate plus ten percent, while appellee paid the Akron rate plus as much as one hundred five percent. ²

Fairway Manor obtained the relief it sought by court order issued April 14, 1983. The case proceeded to trial on appellant's third-party complaint and appellee's counterclaim. The trial court found that the rates charged by appellant to appellee for water were not unreasonable, and that the contract was not entered into under duress. The court further found that neither party had sustained its burden of proof on the respective claims. Appellant had not proven that appellee had breached the contract, and appellee had failed to show illegal discrimination in the water rates charged by appellant. In concluding that no such discrimination had been established, the court reasoned that the markedly higher rate charged to appellee was justified by the value of the contract to appellee, in that appellee had no alternative water source and the contract provided a stable supply for an extended number of years. The court refused to rescind the contract, and no damages were awarded to either party. In effect, the parties were left in the same position in which they were found, except that appellee was ordered to release to appellant the quarterly payment, with its accrued interest, which appellee had, to protest the water rates, placed in escrow.

Upon appeal, the court of appeals reversed and remanded, holding that the trial court erred in considering the inability of appellee to obtain water elsewhere as a factor in its analysis of whether the rate charged by appellant was discriminatory. The appellate court remanded the cause for a determination of whether the difference between the rate charged to Tallmadge and the rate charged to appellee is unjustly discriminatory. The trial court, in making this determination, was instructed not to consider appellee's lack of an alternative water source. ³

On remand, no further evidentiary hearing was held. The parties submitted their arguments to the court based on the evidence previously adduced. In again concluding that the rate in question was not discriminatory, the court found that the difference in rates was justified by the difference in status between appellee and the city of Tallmadge. By virtue of its superior status as a party with a definitive written contract, appellee enjoyed the benefits of stability which Tallmadge, having no long-term contract with appellant, did not possess. These benefits included a long-term fixed rate schedule and the ability to plan water operations for years in advance. Thus, the rates, though different, were not discriminatory.

Appellee appealed to the court of appeals, which again reversed the judgment of the trial court. The appellate court held that the benefits received by appellee as a result of the water contract cannot alone justify a discrimination in rates. The court emphasized the lack of any evidence in the record tending to show that appellant encounters "additional expense or difficulty attributable to the benefits that it provides to * * * [appellee]."

The cause is now before this court pursuant to the allowance of a motion to certify the record.

Max Rothal, Director of Law, Akron, and Pamela A. Walker, Thompson, Hine & Flory, Leslie W. Jacobs and James B. Niehaus, Cleveland, for appellant.

Vorys, Sater, Seymour & Pease, Duke W. Thomas and Scott M. Doran, Columbus, for appellee.

DOUGLAS, Justice.

A municipally owned public utility is exempt from restriction or regulation by the General Assembly. Section 4, Article XVIII, Ohio Constitution; Swank v. Shiloh (1957), 166 Ohio St. 415, 2 O.O.2d 401, 143 N.E.2d 586, paragraph one of the syllabus. The degree of control which the courts will exert over such public utilities is strictly limited to protecting residents of the municipality from the imposition of rates which are unreasonable or which discriminate among such residents, taking into account their situation and classification. State, ex rel. Mt. Sinai Hosp., v. Hickey (1940), 137 Ohio St. 474, 477, 19 O.O. 159, 161, 30 N.E.2d 802, 804. ⁴ The question presented by the instant cause is: To what extent will a court review the rates charged by a municipally owned public utility to an extraterritorial purchaser when those rates are contained in a contract negotiated between the parties?

Appellee and the court of appeals both rely on Western Reserve Steel Co. v. Cuyahoga Heights (1928), 118 Ohio St. 544, 161 N.E. 920, for the proposition that a rule against discrimination applies to rates fixed by contract. In so construing Western Reserve, a major distinguishing feature is overlooked. In that case, the village of Cuyahoga Heights, which purchased its water from the city of Cleveland, unjustly discriminated against one of its own resident consumers. This court held that "[i]t is the duty of a municipality which undertakes to supply water to its public to do so without discrimination. * * * The municipality cannot absolve itself of such duty by a contract to which the person sought to be discriminated against and to whom it owes the duty is not a party." (Emphasis added.) Id. at paragraph one of the syllabus.

By contrast, the case before us does not involve the duty of a municipality to its own public. The dispute herein is between two separate and distinct governmental entities, a municipality and a county. No question is presented of a municipality's duty to its own residents. Therefore, Western Reserve is inapposite.

Courts must presume that the language of a contract between competent persons accurately reflects the intentions of the parties. Kelly v. Medical Life Ins. Co. (1987), 31 Ohio St.3d 130, 31 OBR 289, 509 N.E.2d 411, paragraph one of the syllabus. The purpose of this presumption is to protect a right considered basic in our society: the right to freely contract. A necessary means of preserving this right is the long-standing tradition of judicial reluctance to reform or rescind a contract absent a compelling reason to do so.

In support of its contention that the rate in question is discriminatory, appellee emphasizes two points: the difference between the rates charged to the city of Tallmadge and those charged to appellee, which are both wholesale bulk water purchasers, and the absence of any additional expense or difficulty encountered by appellant in supplying water to appellee as compared to Tallmadge. Thus, appellee contends, Tallmadge and appellee are similarly situated customers charged different rates for no logical or equitable reason. Therefore, the difference in rates constitutes impermissible discrimination. We cannot agree.

Where water rates are set forth in a contract, the fact that the rates contained therein are higher than those charged to similarly situated customers in the same class does not constitute a basis for judicial reformation of the contract. In such cases, it will be presumed that the higher rates were arrived at through the normal give and take of contractual negotiation. The lack of any cost differential to the seller does not affect the validity of the contractual rate. Even where no factor exists which would justify a difference in the rate charged, the court must leave the parties with their bargain.

If appellee is dissatisfied with the rates charged by appellant, appellee must be reminded that it entered the bargaining process freely and without duress. The trial court specifically found that appellee brought to the bargaining table persons who were qualified to exercise informed judgment in the negotiation of this particular contract.

Given these facts, this court will not interpose its judgment by rescinding or even reforming the contract. This position stems primarily not only from the belief that the parties should live with their bargain, but also from the realization that no other course of action is reasonably practicable. Our review of the possible alternative approaches to this case has compelled us to conclude that those approaches are completely unworkable, as will be seen from the following discussion.

Appellee's proposed solution, affirmance of the judgment of the court of appeals, is unacceptable. We cannot endorse the holding of the appellate court that discrimination in rates may not be based on the value of the service to...