Louisiana-Pacific Corp. v. Humboldt Bay Mun. Water Dist.

• Decision Date: 02 November 1982
• Docket Number: LOUISIANA-PACIFIC
• Citation: 137 Cal.App.3d 152,186 Cal.Rptr. 833
• Court: California Court of Appeals Court of Appeals
• Parties: CORPORATION, a Delaware Corporation, Plaintiff and Appellant, v. HUMBOLDT BAY MUNICIPAL WATER DISTRICT, et al., Defendants and Respondents. CROWN SIMPSON CORPORATION, a Corporation, Plaintiff and Appellant, v. HUMBOLDT BAY MUNICIPAL WATER DISTRICT, et al., Defendants and Respondents. Civ. 46245.

Page 833

186 Cal.Rptr. 833

137 Cal.App.3d 152

LOUISIANA-PACIFIC CORPORATION, a Delaware Corporation, Plaintiff and Appellant, v. HUMBOLDT BAY MUNICIPAL WATER DISTRICT, et al., Defendants and Respondents.

CROWN SIMPSON CORPORATION, a Corporation, Plaintiff and Appellant, v. HUMBOLDT BAY MUNICIPAL WATER DISTRICT, et al., Defendants and Respondents.

Civ. 46245.

Court of Appeal, First District, Division 2, California.

Nov. 2, 1982.

Hearing Denied December 29, 1982.

Paul R. Haerle, James B. DeGolia, Mary Jo Sherlin, Thelen, Marrin, Johnson & Bridges, San Francisco, for plaintiff and appellant Louisiana-Pacific Corp.

Pillsbury, Madison & Sutro, Walter R. Allan, Donald J. Putterman-Crigger, San Francisco, Janssen, Malloy & Marchi, Clayton R. Jenssen, Eureka, for plaintiff and appellant Crown Simpson Corp.

Richard B. McDonough, Carroll, Burdick & McDonough, San Francisco, for defendant and respondent Humboldt Bay Mun. Water Dist.

MILLER, Associate Justice.

In this action we consider whether a municipal water district can unilaterally abrogate selected provisions of its contracts by declaring, 18 years after the first contract was executed, that its statutory power to enter into contracts does not include the power to contract with respect to rates.

The action was submitted to the trial court upon stipulated facts which may be summarized as follows: The Humboldt Bay Municipal Water District (hereinafter "District") was formed in November 1956 pursuant to the Municipal Water District Act of 1911, Water Code section 71000, et seq. One of the express intents and purposes of the formation was to induce Louisiana-Pacific Corporation and Crown-Simpson Corporation (hereinafter "appellants") to locate their pulp mills within the District's boundaries. At the time of the 1956 election, the voters of Humboldt County understood that the assurance of a water supply to appellants was a means of inducing appellants to locate their mills in Humboldt County.

In accordance with the express purpose of inducing appellants to locate within its territory, District entered into separate agreements (hereinafter "First Agreement") with appellants on September 8, 1959. The First Agreement obligated District to sell and appellants to purchase a minimum quantity of water, subject to availability, at a price set in the agreement. A sliding scale was set for water sold in excess of the minimum quantities. The prices were subject to adjustment to reflect any differences between estimated and actual costs of construction of District's facilities and, in fact, the stated prices were increased by 20 percent. In addition, 15 percent of appellants' payments was subject to further annual adjustments based on changes in the index of wholesale prices. By its terms, the First Agreement was to expire on December 31, 1999.

On February 23, 1966 appellants and District entered into agreements for supplemental water volumes (hereinafter "Second Agreement"). That agreement provided for a sale of additional water, reducible at District's discretion to supply other customers. The Second Agreement contemplated that District would construct additional facilities and it related payments for the additional water to be provided to District's actual or estimated costs for the additional facilities. In order to accomplish this, the agreement established a "Contract Price," to be calculated each year, which was to be the sum of four "Price Factors." ¹

On January 28, 1975, appellants and District entered into another agreement (hereinafter "Third Agreement") after it became apparent that existing facilities were incapable of providing the amount of water desired. The Third Agreement provided for modifications in the facilities together with an adjustment of the prices for water. ²

For nearly 18 years all the parties operated under and relied on each of these agreements; nobody challenged the validity of any of the agreements in whole or in part.

However, on April 14, 1977, the Board of Directors of District passed a resolution directing the general manager to prepare an ordinance embodying a new rate schedule applicable to all District's customers. The resolution was based on the opinion of the Board of Directors that existing contract provisions that established the price of water to customers constituted an invalid limitation on the power of the Board to set rates. On this basis, the Board declared that it did not consider itself bound by the rate provisions of any of its municipal or industrial contracts.

Pursuant to this resolution, Ordinance No. 10 was passed by the Board on July 14, 1977. The ordinance established a new rate structure which purported "... to supersede only those portions of preexisting contracts with the District's municipal and industrial customers which establish rates and charges for water."

In September 1977, each appellant filed a complaint for declaratory relief. The cases were consolidated and, on the basis of the parties' factual stipulation and briefs, the court concluded that:

1) District "was not empowered to enter into the long term contracts" in question and "could not surrender the duties and powers delegated to it by the California Legislature § 71616 of the Water Code."

2) District was not estopped from setting rates different from those established by the contracts.

3) District could not "surrender" rate-making power by any long term contract in general or the long term contracts relied upon by appellants.

4) Appellants were not entitled to recover any sums paid by them pursuant to rates assessed by District.

The trial court's conclusions appear to be based on the rationale that the specific code provision (Water Code, § 71616) mandates a municipal water district to fix rates and thus conflicts with the general code provision permitting a district to make contracts (Water Code, § 71592), at least with respect to rates. Therefore, according to rules of statutory construction, the specific controls over the general.

On appeal appellants' primary argument is that District is empowered by statute to enter binding contracts and there is no basis for inferring that contracts may not be the vehicle by which the District establishes rates. We agree with appellants' position and reverse the judgment accordingly.

"In the construction of a statute, ... it is a cardinal rule that all parts are to be construed with reference to each other, and when a conflict appears, the general provisions yield to those specific. This rule is invoked, however, only where there is an apparent lack of harmony between the provisions. Its effect is not to isolate parts and attempt to build up a conflict which in fact does not exist." (J. Breuner Co. v. Western Union Tel. Co. (1930) 108 Cal.App. 243, 253, 291 P. 445, emphasis supplied; see also, Code Civ.Proc., § 1858; In re Ricky H. (1981) 30 Cal.3d 176, 187, 178 Cal.Rptr. 324, 636 P.2d 13; In re Bandmann (1958) 51 Cal.2d 388, 393, 333 P.2d 339; Clements v. T.R. Bechtel Co. (1954) 43 Cal.2d 227, 232, 273 P.2d 5; 2A Sutherland, Statutory Construction (4th ed. 1973) § 46.05, pp. 56-57.) Similarly, statutes in pari materia, although in apparent conflict, should be construed to be in harmony with each other so far as reasonably possible. (Boyd v. Huntington (1932) 215 Cal. 473, 482, 11 P.2d 383; Ramos v. City of Santa Clara (1973) 35 Cal.App.3d 93, 97, 110 Cal.Rptr. 485; 2A Sutherland, Statutory Construction (4th ed. 1973) § 51.02, p. 290.) In Natural Resources Defense Council, Inc. v. Arcata Nat. Corp. (1976) 59 Cal.App.3d 959, 965, 131 Cal.Rptr. 172, this court reiterated the established rule: "Broadly speaking, a specific provision relating to a particular subject will govern in respect to that subject as against the general provision, although the latter, standing alone, would be broad enough to include the subject to which the more particular provisions relate. [Citation.] However, it is well settled that the statutes and codes blend into each other, and are to be regarded as constituting but a single statute. [Citation.] One should seek to consider the statutes not as antagonistic laws but as parts of the whole system which must be harmonized and effect given to every section. [Citations.] Accordingly, statutes which are in pari materia should be read together and harmonized if possible. Even when one statute merely deals generally with a particular subject while the other legislates specially upon the same subject with greater detail and particularity, the two should be reconciled and construed so as to uphold both of them if it is reasonably possible to do so. [Citations.]"

In the instant action, part 5 of the Water Code sections ³ pertaining to municipal water districts is entitled "Powers and Purposes." Chapter 1 of part 5 is entitled "Powers Generally." Appearing under chapter 1 is section 71590 which provides: "A district may exercise the powers which are expressly granted by this division or are necessarily implied." Also included under chapter 1 is section 71592 which states: "A district may make contracts, employ labor, and do all acts necessary for the full exercise of its powers." Based on these two sections appellants contend that District cannot only make contracts but may establish rates by way of contract.

On the other hand, chapter 2 of part 5 is entitled "Water." Article 1 under chapter 2 dealing with "Development and Sale" includes section 71616 which provides as follows:

"A district, so far as practicable, shall fix such rates for water in the district, and in each improvement district therein, as will result in revenues which will:

"(a) Pay the operating expenses of the district and the improvement district.

"(b) Provide for repairs and depreciation of works.

"(c) Provide a reasonable surplus for improvements, extensions, and enlargements.

"(d) Pay the interest on any bonded debt.

"(e) Provide a sinking or other fund for the payment of the principal of...