Highland Sewer and Water Auth. v. FHMA

• Decision Date: 10 April 2002
• Citation: 797 A.2d 385
• Parties: HIGHLAND SEWER AND WATER AUTHORITY, Appellant v. FOREST HILLS MUNICIPAL AUTHORITY.
• Court: Pennsylvania Supreme Court

797 A.2d 385

HIGHLAND SEWER AND WATER AUTHORITY, Appellant v. FOREST HILLS MUNICIPAL AUTHORITY.

Commonwealth Court of Pennsylvania.

Argued February 12, 2002.

April 10, 2002.

Richard R. Wilson, Altoona, for appellant.

Patricia A. Monahan, Pittsburgh, for appellee.

Before: FRIEDMAN, Judge, LEADBETTER, Judge, and FLAHERTY, Senior Judge.

Opinion by Senior Judge FLAHERTY.

Highland Sewer and Water Authority (Highland) appeals from an order of the Court of Common Pleas of Cambria County (trial court) which sustained the preliminary objections filed by Forest Hills Municipal Authority (FHMA) in the nature of a demurrer and dismissed Highland's complaint. The trial court also denied Highland's request for reconsideration. We affirm in part and reverse in part.

Highland is a municipal authority which provides water and sanitary sewer services to over 9,000 customers in 19 municipalities including Richland Township. FHMA is a municipal authority, which provides sanitary sewer services to approximately 3,000 customers in 8 municipalities adjacent to the Highland sewer service area.

Beginning in 1992, FHMA and Highland were interested in the construction and implementation of a sewer project to foster economic growth and development. FHMA obtained a contract with the U.S. Army Corps of Engineers to construct a sewage treatment plant known as South Fork Plant. According to the complaint filed by Highland, Highland agreed to direct its future and existing sewage flows, which were then treated at a different sewage plant, to the new South Fork Plant. As originally proposed by Highland, the estimated project cost for "phase I" was $12 million.

In 1994, FHMA proposed an expanded system to serve new areas beyond Richland Township and the Highland service area. This expansion increased the cost of the sewage project to $38 million. On June 13, 1995, Highland issued a formal proposal to FHMA wherein it stated that its customers should only be assessed the costs directly attributable to servicing its area. The proposal contained a detailed formula and calculation of Highland's share of the project costs based on an "as built" formula. (Exhibit 27, R.R. 128.) On August 3, 1995 FHMA acknowledged receipt of the formal proposal. (Exhibit 28, R.R. 136.) Later in August, both Highland and FHMA appointed members to a committee to conduct discussions and negotiations regarding the cost and construction of the proposed facilities. (Exhibits 29 and 30, R.R. 138, 139.) Another meeting occurred between Highland and FHMA on September 11, 1996 whereby "[b]oth parties agreed to permit their respective Manager to continue negotiations geared toward finalizing the aforementioned financial computation for those facilities to be acquired by Highland...." (Exhibit 31, R.R. 140.) The parties thereafter continued to meet and discuss the sewer project.

On January 20, 1998 the parties entered into a memorandum of understanding. The memorandum stated that the parties had agreed upon completion of a regional sewer project and that Highland would acquire those facilities constructed within Richland Township. Moreover, acquisition by Highland would be by means of a lease/purchase agreement "to be negotiated between the parties". It further provided that the lease/purchase agreement would "fully detail the relationship between the parties and shall set forth the formula or calculations by which the respective debt and respective payments of Highland and Forest Hills are to be determined." (Exhibit 38, R.R. 160.)

On May 14, 1998 at a joint FHMA/Highland subcommittee meeting, FHMA director (Sivic) reported that he and Highland manager (Englehart) had met about the proposed lease/purchase agreement and agreed in principle on the methods for cost sharing. (Exhibit 39, R.R. 161.) On May 22, 1998, the first draft of the lease purchase agreement containing the as built formula was prepared by Englehart and sent to Sivic for comments. (Exhibit 40, R.R. 164.) Sivic made changes to the agreement on July 21, 1998 and July 29, 1998, but the as built cost allocation method contained therein did not change.

Almost one year later on August 17, 1999, the chairman of Highland sent a letter to the chairman of FHMA reiterating that the parties had entered into a memorandum of understanding in January of 1998 with the desire to finalize a lease/purchase agreement between the parties which would fully outline their responsibilities. The letter stated that although the managers of FHMA and Highland had drafted a lease/purchase agreement "they haven't come to any final recommendation for approval by the respective Boards of FHMA & HSWA [Highland]." (Exhibit 47, R.R. 193.) The letter urged both sides to finalize the lease/purchase agreement so that new rate schedules could be prepared for customers. On February 10, 2000 members of Highland and FHMA met in an attempt to finalize the lease/purchase agreement. At the meeting, FHMA for the first time proposed to take the total project costs and average it over the entire customer base in the joint sewer project area. Highland objected to this pro rata calculation stating that it has always been their intention to pay only for facilities constructed in its area. Further proposals generated by FHMA again proposed that costs be calculated on a pro rata basis. On April 6, 2000 the Highland chairman formally rejected a proposal by FHMA to utilize a pro rata cost formula.

Based on FHMA's refusal to use Highland's "as built" cost allocation formula, and its insistence that Highland pay for sewer facilities and treatment on a pro rata cost allocation based on all users served by the South Fork plant, Highland then refused to further direct its sewage flow to the new plant. Additionally, because Richland Township amended its Act 537 sewage disposal plan, which calls for sewage flow to be directed to the new plant, no further construction or occupancy permits can be issued in Richland Township.

Highland filed a complaint against FHMA maintaining that since the inception of the proposed sewage facility, Highland advised FHMA that its participation was based on a cost allocation that assigned to Highland only the "as built" costs associated with new facilities to be constructed in Richland Township and the cost of sewage transmission and treatment attributable to those sewage flows originating in the Highland service area and Richland Township. Highland maintains that FHMA never objected to the "as built" formula. Highland has alleged breach of an express contract (Count I), a contract implied in fact (Count II), a contract implied at law (Count III) and in Count IV requested declaratory judgment.

FHMA filed preliminary objections in the nature of a demurrer to Counts I, II, and III. The trial court sustained FHMA's preliminary objections in an order dated April 10, 2001. At a hearing held April 16, 2001 on Highland's motion to compel responses to interrogatories and request for production of documents, the trial court advised Highland that it would not consider the motion to compel because its April 10, 2001 order had dismissed Highland's entire complaint. Counsel for Highland informed the trial court that preliminary objections had been only directed to Counts I through III. The court issued an amended order on April 16, 2001 dismissing "all counts" of the complaint. Thereafter on April 26, 2001, Highland filed a motion for reconsideration, which the trial court denied. This appeal followed.

In an appeal from an order sustaining preliminary objections in the nature of a demurrer, we are constrained to examine only those well-pleaded facts in the complaint, since a demurrer admits those facts and any inferences reasonably deducible therefrom, for such a determination. Dismissal of a complaint on preliminary objections should occur only in cases which are clear and free from doubt. Easton Area Joint Sewer Authority v. Bushkill-Lower Lehigh Joint Sewer Authority, 71 Pa.Cmwlth. 553, 455 A.2d 286 (1983).

Initially, we will address Count I wherein Highland alleged breach of an express contract. Specifically, Highland alleged that on September 11, 1996, FHMA delegated to its manager, (Sivic), and Highland delegated to its manager, (Englehart), responsibility to finalize the financial computations for cost allocation for the sewage facilities under a lease/purchase agreement. (Exhibit 31, R.R. 140.) Further, from January 1998 to August 1998, Sivic and Englehart exchanged draft agreements, which contained the cost allocation method proposed by Highland and FHMA never made any objections, or revisions.¹ In May, 1998, Sivic advised the Highland FHMA subcommittee that he and Englehart agreed in principle on the method of cost sharing and the subcommittee directed the managers to prepare a final draft agreement. Highland argues that Sivic, as the authorized agent to negotiate matters on behalf of FHMA, contractually bound FHMA to the cost allocation formula contained in the finalized lease/purchase agreement. By refusing to execute the finalized lease/purchase agreement, Highland alleges that FHMA breached its agreement with Highland.

FHMA maintains that even though both parties delegated power to their managers to negotiate a lease/purchase agreement, contrary to Highland's assertion, no authority was given to them to enter into contractual obligations, such authority remained with the Board. Specifically, Exhibit 31 to Highland's complaint references a September 11, 1996 meeting between FHMA and Highland, which meeting minutes state in relevant part:

Both parties agreed to permit their respective Manager to continue negotiations geared toward finalizing the aforementioned financial computation for those facilities to be acquired by Highland..... Any matter needing Board action will be taken back to the respective Boards.

(Emphasis added.) In addition, pursuant to Section 4 of the Municipal Authorities Act of 1945(Act)², 53 P.S. §...