Sanitary Dist. of Hammond v. Town of Griffith
| Decision Date | 13 July 2015 |
| Docket Number | No. 45A03–1404–PL–125.,45A03–1404–PL–125. |
| Citation | 39 N.E.3d 400 |
| Parties | SANITARY DISTRICT OF the CITY OF HAMMOND, Indiana and the City of Hammond, Indiana, Appellants–Defendants, v. TOWN OF GRIFFITH, Indiana ; Town of Highland, Indiana, et al. and City of Whiting, Indiana, et al., Appellees–Plaintiffs, and City of Whiting, Indiana, et al., Cross–Appellant–Plaintiff, v. City of Hammond, Indiana, Cross–Appellee–Defendant. |
| Court | Indiana Appellate Court |
A. Scott Chinn, Jane Dall Wilson, Timothy J. Moriarty, Faegre Baker & Daniels LLP, Indianapolis, IN, Joseph P. Allegretti, Sanitary District of the City of Hammond, Munster, IN, Attorneys for Appellant Sanitary District of the City of Hammond, Indiana.
Kristina C. Kantar, City of Hammond Law Department, Hammond, IN, Kevin C. Smith, Smith Sersic, Munster, IN, Attorneys for Cross–Appellee City of Hammond, Indiana.
Nicholas K. Kile, Bart A. Karwath, Barnes & Thornburg LLP, Indianapolis, IN, Attorneys for Appellee Town of Griffith, Indiana, et al.
Brian W. Welch, Margaret M. Christensen, Bingham Greenebaum Doll LLP, Indianapolis, IN, Robert F. Tweedle, Law Offices of Robert F. Tweedle, Highland, IN, Rhett L. Tauber, Jared R. Tauber, Tauber Law Offices, Schererville, IN, Attorneys for Appellee Town of Highland, Indiana, et al.
Michael A. Wukmer, Thomas K. Downs, Mark R. Alson, Audrey K. Hagedorn, Ice Miller LLP, Indianapolis, IN, William T. Enslen, Enslen, Enslen & Matthews, Hammond, IN, Attorneys for Appellee/Cross–Appellants City of Whiting, Indiana, et al.
[1] This case focuses on whether the Sanitary District of the City of Hammond, Indiana (“the District”) had the authority to cancel three long-term wastewater services contracts between it and the Town of Griffith, Indiana, the Town of Highland, Indiana, and the City of Whiting, Indiana (collectively “the Customer Communities”). Claiming that the contracts had become financially untenable and that the Customer Communities would not agree to reform the contracts, the District made a formal finding under Indiana Code section 5–22–17–5 that funds were not appropriated or otherwise available to support the continuation of performance of the contracts and passed a resolution cancelling the contracts. The Customer Communities sued the District and filed motions for summary judgment and judgment on the pleadings. The trial court granted the motions and held that the District exceeded its statutory authority when it passed the resolution, that the resolution purporting to cancel the contracts had no effect, and that the contracts were to remain in full force. The trial court ordered the parties to arbitrate all disputes arising under the contracts. The District appeals, raising the following restated issues for our review:
[2] We affirm.2
[3] The District is a municipal corporation and statutorily-created special taxing district, which is comprised of the City of Hammond (“Hammond”) and the Town of Munster. The District operates a publicly-owned treatment works facility for the collection and treatment of sanitary sewage wastewater. In 1994, the District entered into individual wastewater collection and treatment agreements with the Town of Griffith (“Griffith”) and the Town of Highland (“Highland”) and, in 1995, with the City of Whiting (“Whiting”) (we will refer to the agreements collectively as “the Treatment Agreements”). Under the Treatment Agreements, the District accepted and treated wastewater from each of the Customer Communities. The current terms of each contract expire on December 31, 2018, with an option for the Customer Communities to extend the Treatment Agreements for an additional twenty-five years, through 2043.
[4] Under the Treatment Agreements, the District was required to (1) “establish a user charge system which assures that each recipient of waste treatment services will pay its proportionate share of the costs of operations and maintenance,” such payment is proportionate to the user's contribution to the total wastewater system, (2) “review its user charges annually and revise them periodically to reflect actual treatment works operation and maintenance cost,” and (3) “generate sufficient revenue to offset the cost of all treatment works operation and maintenance.” Appellant's App. at 46–47, 109–10,449–50. The Treatment Agreements further provided that the Customer Communities “shall pay [their] fair share of the annual operation and maintenance costs, including replacement costs and payment-in-lieu of taxes, and capital costs not financed by debt, in proportion to [their] use of the facilities.” Id. at 56, 119, 459. The Treatment Agreements also contained provisions regarding procedures and methodologies by which the charges to the Customer Communities for operation and maintenance costs and capital costs would be modified, relating to and governing water flow, and addressing emergency water flow situations, where wastewater would be held in holding basins owned by the Customer Communities to reduce the flow into the District's system. Id. at 56–69, 119–33, 459–72. The Treatment Agreements additionally provided that any disagreements under the agreements must be submitted to binding arbitration. Id. at 69–71, 133–35, 472–74.
[5] In a letter dated July 25, 2013, the District, through its legal counsel, sent notice to the Customer Communities “of the need to renegotiate the material terms and conditions” of the Treatment Agreements. Id. at 80, 143, 481. The letter provided that if the District and the Customer Communities could not “successfully negotiate new terms that address certain changed circumstances and current realities the [District's] system is facing and provide sufficient revenue for system operation and improvements, then [the District] must avail itself of all contractual and legal remedies regarding the existing [Treatment Agreements].” Id. at 80, 143, 481. The letter further asserted that the Customer Communities (1) had exceeded their contract capacities for water flow, which was negatively impacting the District's system, (2) were not contributing to the costs of certain capital projects, (3) had rates that were lower than the rates charged to Hammond's own residents, and (4) were being subsidized by the District. Id. at 80–81, 143–44, 481–82. The District stated that a rate increase was required from the Customer Communities “under a new contractual agreement” and notified of its intent “to enforce the flow limitation by mechanically restricting the [Customer Communities'] flow into [the District.]” Id. at 81, 144, 482. The District further stated it would no longer execute any sanitary sewer certifications to permit new sewer connections in the Customer Communities. Id. at 81, 144, 482.
[6] The Customer Communities wrote response letters to the District and disputed several of the District's allegations. In addition to disagreeing with the District's assertions, the Customer Communities reminded the District of their right to arbitration under the Treatment Agreements. On August 27, 2013, the District's Board of Sanitary Commissioners (“the Board”) met and reviewed the Treatment Agreements. The Board considered the following issues: (1) the contract methodology for determining the rates paid by the Customer Communities had become outdated, resulting in the District's residents paying a higher share of the costs; (2) capital improvements that the District was required to make under the Clean Water Act and the cost of these improvements; (3) the Customer Communities were exceeding wet weather flow limits contained in the Treatment Agreements, which negatively affected the District's system; (4) such excessive flows had hindered the District's completion and implementation of a mandated Long Term Control Plan; and (5) the District was operating at a net operating loss. Id. at 153–56. The Board made a determination that, “funds are not appropriated or otherwise available to support continuation of performance of the [Treatment Agreements].” Id. at 157. The Board then passed Resolution 38–2013 and found that the Treatment Agreements were thereby cancelled. Id.
[7] On August 28, 2013, the District sent letters to the Customer Communities informing them of its decision to cancel the Treatment Agreements. In the letter, the District provided “immediate assurance that [the District] will continue to perform the services contemplated by the [Treatment Agreements], including treating [the Customer Communities'] wastewater for a reasonable amount of time (to be negotiated between the parties), to allow [the Customer Communities] to make other arrangements for treatment of [the Customer Communities'] flow.” Id. at 85, 151, 492. The letter further informed the Customer Communities that, “[a]t no time during this Transition Period will [the District] take action to restrict flow (except as consistent with the former agreement), nor will it take any action against the interest of public health.” Id. at 85, 151, 492.
[8] Shortly after receiving the District's letter, notifying them that the Treatment Agreements had been canceled, the Customer Communities each filed a complaint against the District, asserting that the District's purported cancellation of the Treatment Agreements was not authorized and seeking an order requiring the District to proceed to arbitration. Whiting and Highland both filed a complaint against Hammond in addition to the District. Both the District and Hammond filed motions to dismiss; Hammond sought dismissal on the basis that it was not a party to any of the Treatment Agreements, and...
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