Greenfield v. City of Farmington Hills

• Decision Date: 12 January 2023
• Docket Number: 357579
• Parties: JOAN GREENFIELD, Plaintiff-Appellant, v. CITY OF FARMINGTON HILLS, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

JOAN GREENFIELD, Plaintiff-Appellant, v. CITY OF FARMINGTON HILLS, Defendant-Appellee.

No. 357579

Court of Appeals of Michigan

January 12, 2023

UNPUBLISHED

Oakland Circuit Court LC No. 2018-169707-CZ

Before: M. J. KELLY, P.J., and BOONSTRA and SWARTZLE, JJ.

PER CURIAM

Plaintiff appeals by right the trial court's order granting defendant's motion for summary disposition. Plaintiff also challenges the trial court's order denying plaintiff's motion for class certification. We affirm the former and do not reach the latter.

I. PERTINENT FACTS AND PROCEDURAL HISTORY

In November 2018, plaintiff filed a class action complaint against defendant, challenging the reasonableness of the rates defendant charged for water and sewer services. Defendant charges property owners in the city of Farmington Hills for water and sewer services based on their metered use of water. Plaintiff alleged that, from 2012 to 2018 defendant's water/sewer rates were set far in excess of the amount needed to pay for the actual cost of those services. Plaintiff noted that defendant's water and sewer rates included a component charge labeled "Reserves," and that defendant had accumulated a cash reserve from such billings of approximately $79 million as of July 1, 2018. Plaintiff alleged that the reserve rate charges had resulted in defendant accumulating funds far in excess of the amount necessary to be held in reserve for repair and maintenance of the water and sewer system. Plaintiff's complaint challenged the reserve rate charges in six counts: three counts alleging unjust enrichment and three counts alleging assumpsit. Of those six counts, one count of unjust enrichment and one count of assumpsit asserted that defendant's rates were arbitrary capricious, and unreasonable under the common law; two corresponding counts asserted that defendant had violated MCL 141.91; and two other corresponding counts asserted that defendant had violated its own ordinances.

Plaintiff filed a motion for class certification on March 6, 2019, asking the trial court to certify a plaintiff class comprised of every property owner who had paid or incurred defendant's water and sewer rates beginning in 2012. Plaintiff argued that the class was sufficiently numerous, that common questions of fact or law predominated, that plaintiff's claims were representative of the claims of the class members, and that plaintiff would fairly and adequately assert and protect the interests of the class. Plaintiff also argued that maintenance of the action as a class action would be superior to other methods of adjudication because of the large number of class members, the fact that the class sought equitable relief, and the fact that while the aggregated claims would justify litigation of a class action, the damages suffered by individual class members would not warrant the cost of separate litigation.

Defendant responded, arguing that plaintiff could not satisfy the requirements of MCR 3.501(A)(1) for a class action. Defendant argued that its cash reserves were required to keep the system in good repair and working order, as well as anticipated capital replacements during the next five years; defendant also asserted that the reserve funds were restricted funds that could only be used to pay for water or sewer services. Therefore, defendant argued, plaintiff could not demonstrate that any members of the putative class had suffered any damages. Moreover, defendant argued that plaintiff's claims were not typical of the class, that plaintiff could not adequately protect the interests of the class, and that her claims were contrary to the best of interests of the other ratepayers.

After a hearing on plaintiff's class certification motion, the trial court took the matter under advisement. The trial court then issued an order denying plaintiff's motion for class certification in December 2019, stating in relevant part:

Class certification must be denied because plaintiff has failed to satisfy the five factors required pursuant to MCR 3.50l(A)(1). Plaintiff has not shown that the proposed class members have suffered any actual injury. In addition, the court finds that under the facts presented, it is not probable that the amount which may be recovered by individual class members will be large enough in relation to the expense and effort of administrating the action to justify a class action.

Plaintiff moved for reconsideration, which the trial court denied. Plaintiff applied for leave to appeal in this Court, which this Court denied.^[1]

Plaintiff's case continued as an individual action, and the parties conducted extensive discovery.^[2] In March 2021, defendant moved for summary disposition under MCR 2.116(C)(8) and (10). Defendant argued that its rates were set as part of its Capital Improvements Plan (CIP) and that "substantial parts of the water and sanitary sewer system have reached or are nearing the end of their useful life" and would soon require extensive replacement and repairs. Defendant argued that, according to the city and county officials and professional engineers, its capital reserves were not only necessary, but were in fact insufficient to meet the next five years of capital investment required to maintain the water and sewer system. Further, defendant argued that its water and sewer rates were a fee and not a disguised tax. Defendant supported its motion with several affidavits. These included an affidavit from Carrie Ricker Cox, the Chief Engineer for the Oakland County Water Resources Commissioner's Office (OCWRC). In her affidavit, Cox averred that, as of April 2019, the replacement cost of defendant's water and sewer system's "horizontal" assets (e.g., water mains and sanitary gravity mains) exceeded $1.225 billion, and the replacement cost of "vertical" assets (e.g., storage tanks) exceeded $61 million. Cox also averred that

[a]s of April 22, 2019, the estimated capital expenditure for horizontal assets, alone, required to maintain the desired level of service for the City's water and sewer systems over the five year time period of 2019-2023 is more than $38 Million, over the ten year time period of 2019-2028 is more than $65 Million, and over the twenty year time period of 2018-2037 is more than $134 Million.

Defendant's motion was also accompanied by an affidavit from Karen Mondora, the Director of defendant's Public Services Department. Mondora's affidavit provided an explanation of how defendant's water and sewer system operated and how its assets were managed, including federal grant funds. Mondora averred in her affidavit that the defendant had recognized that substantial repair and replacement of the water and sewer system would be needed in the next five-to-ten years and had adjusted its rates accordingly; she further noted that the reserve funds were earmarked and restricted for this purpose only. Mondora opined that, based on her experience "the practice of gathering reserves a little bit at a time to pay for a substantial amount of looming required capital improvements to the system that the City knows are on the not-too-distant horizon smooths the rates into more predictable bills and is therefore more desirable" to the users of the system, as compared to "foisting much larger fees on water bills whenever an emergency repair or major system capital improvement needs arise." Mondora further noted that defendant and the OCWRC were in the process of implementing necessary capital improvements to the system and opined that "[a]lthough we prefer and it is our plan to pay cash using the reserve fund for most of those projects, it is likely the City will also need to incur some bonded indebtedness." Steven Barr, defendant's Finance Director and Treasurer, similarly stated in an affidavit that "the City of Farmington Hills reserves as of June 30, 2018 were insufficient to cover the cost of known capital improvement requirements, along with required maintenance needs and necessary reserves to fund daily operational needs."

Defendant also accompanied its motion with a summary of its Wastewater Asset Management Plan, which includes the CIP, as well as numerous communications with the Michigan Department of Environmental Quality (MDEQ) concerning corrective action plans for defendant and Oakland County in order to comply with several administrative consent orders, and copies of those orders. Defendant also attached extensive documentation related to its water and sewer funds, city real property taxes, city ordinances related to the water and sewer system and associated charges, and Oakland County water and sewer regulations. Defendant also provided the report of its retained water and sewer financing expert, Eric P Rothstein, which contains Rothstein's opinions, as well as the data upon which he based those opinions, that (1) defendant's water and sewer rates were and are reasonable, (2) defendant's rates are in line with similar rates charged for similar water and wastewater systems in other communities in Michigan and nationwide, (3) defendant's use of a reserve system to finance the renewal and replacement of its water and sewer system lines was preferable to the use of debt financing, (4) defendant's "reserve practices are reasonable and appropriate" and the reserve levels were not excessive, and (5) plaintiff's allegations merely represented a personal opinion regarding the appropriate amount of reserve funds defendant should possess.

Plaintiff responded, arguing that the rates charged by defendant were unreasonable as a matter of law, or in the alternative that the determination of reasonableness was generally a question of fact to be left to the jury. Plaintiff also argued that her expert contradicted the opinions of defendant's experts, resulting in, at best,...