Situated v. City Of Flagstaff

• Decision Date: 02 September 2010
• Docket Number: No. 1 CA-CV 08-0533.,1 CA-CV 08-0533.
• Citation: 225 Ariz. 338,238 P.3d 149
• Parties: FRED NACKARD LAND COMPANY; LNN Enterprises, Inc.; Richard Henderson; West Village Estates, Inc., and all others similarly situated, Plaintiffs/Appellants, v. CITY OF FLAGSTAFF, a municipal corporation, Defendant/Appellee.
• Court: Arizona Court of Appeals

225 Ariz. 338

238 P.3d 149

FRED NACKARD LAND COMPANY; LNN Enterprises, Inc.; Richard Henderson; West Village Estates, Inc., and all others similarly situated, Plaintiffs/Appellants v CITY OF FLAGSTAFF, a municipal corporation, Defendant/Appellee.

No. 1 CA-CV 08-0533.

Court of Appeals of Arizona,Division 1, Department D.

Sept. 2, 2010.

Aspey, Watkins & Diesel, P.L.L.C. By Harold L. Watkins, Donald H. Bayles, Jr., Carson T.H. Emmons, Flagstaff, Attorneys for Plaintiffs/Appellants.

Graif Barrett & Matura, P.C. By Erin E. Byrnes, Phoenix, Co-Counsel for Defendant/Appellee.

Jones, Skelton & Hochuli, P.L.C. By Gordon Lewis, Phoenix, Co-Counsel for Defendant/Appellee.

OPINION

SWANN, Judge.

¶ 1 The issue in this case is whether the ordinances that establish a charge-and-credit system to fund the City of Flagstaff's stormwater management utility are constitutional. Applying the rational basis test to Plaintiffs' state law equal protection challenge, we hold that the ordinances are facially valid. We conclude, however, that Plaintiffs have presented sufficient evidence to preclude summary judgment on their claim that the ordinances have been applied in an unconstitutionally discriminatory manner. We further hold that the right to equal charges guaranteed by Ariz. Const. Art. 15, § 12 does not apply, explicitly or implicitly, to fees charged by municipal corporations. Finally, because Arizona law contains no analogue to 42 U.S.C. § 1983, Plaintiffs have not established on this record that they are entitled to recover damages on their state constitutional challenge to the application of the ordinances.

FACTS AND PROCEDURAL HISTORY

¶ 2 In 2001, the City enacted ordinances adopting floodplain management regulations and a stormwater management design manual. The design manual required the installation of stormwater detention structures for new subdivisions, commercial and industrial developments, re-developments of non-conforming sites, and other developments over a quarter-acre in size. Another ordinance established a City-owned and -operated stormwater management utility, which was to construct and manage stormwater drainage systems. The utility, according to the ordinance, would be funded by service and system development fees, which could be offset by credits to property owners who took measures to reduce the burden on the utility. In March 2003, the City enacted Ordinance 2003-02, which established a charge schedule.

¶ 3 In October 2003, Plaintiffs submitted a notice of claim to the City as putative members of a class pursuant to A.R.S. § 12-821.01. Plaintiffs asserted that, pursuant to the design manual, they had installed detention structures on their properties, but their fees had not been reduced by credits. At that time, though Ordinance 2003-02 provided that credits were available for detention structures, a credit manual had not yet been adopted. Plaintiffs also alleged that while they had been subject to charges, no charges had been imposed on owners of undeveloped property. They claimed that the City had violated their equal protection and due process rights under both the United States and Arizona Constitutions, and had also violated Ariz. Const. Art. 15, § 12. Plaintiffs further claimed that the charges constituted an unlawful tax, and offered to settle their claim for $100,000,000.

¶ 4 Plaintiffs filed their complaint in superior court in June 2004. The parties stipulated to class certification, and the court certified a class comprised of “all owners of real property in the City of Flagstaff who were required (or whose predecessor's [sic] in interest were required) by the City of Flagstaff to construct stormwater detention systems and are now being charged a stormwater runoff fee.”

¶ 5 In January 2007, Plaintiffs filed an amended complaint, adding allegations that Ordinances 2004-22 and 2006-17 violated the equal protection guarantee of the Arizona Constitution. ¹ Ordinance 2004-22 had adopted a retroactively effective interim credit manual for the utility, and Ordinance 2006-17 had revised the manual in response to a fee increase implemented by another ordinance. Plaintiffs sought a declaration that Ordinances 2003-02, 2004-22, and 2006-17 were unconstitutional. They also demandedcompensatory damages based solely on claimed violations of the Arizona Constitution. ²

¶ 6 Both parties moved for summary judgment. After oral argument, the court granted the City's motion and denied Plaintiffs' motion. The court concluded that Plaintiffs' notice of claim was deficient under A.R.S. § 12-821.01, and that the challenged ordinances were constitutional. The court explained that because neither a suspect class nor a fundamental right was involved, the rational basis test governed and the ordinances passed that low level of scrutiny.

¶ 7 Plaintiffs filed a 52-page motion for new trial, arguing for the first time that the City had applied its charge schedule in an unconstitutional manner. The court denied the motion, and dismissed the action with prejudice as to the named Plaintiffs, but without prejudice as to the class. Plaintiffs timely appeal the court's rulings. We have jurisdiction over this appeal pursuant to Ariz. Const. Art. 6, § 9, and A.R.S. § 12-2101(A) and (F)(1) (2003).

DISCUSSION

¶ 8 We review challenges to the constitutionality of legislation de novo. E.g., Bertleson v. Sacks Tierney, P.A., 204 Ariz. 124, 126, ¶ 6, 60 P.3d 703, 705 (App.2002). We presume constitutionality, and “will not declare a statute unconstitutional unless we are ‘satisfied beyond a reasonable doubt’ that it conflicts with the federal or state constitutions.” Id. (quoting Chevron Chem. Co. v. Superior Court, 131 Ariz. 431, 438, 641 P.2d 1275, 1282 (1982)). We will, whenever possible, construe a statute or ordinance so as to find it constitutional. E.g., Jilly v. Rayes, 221 Ariz. 40, 42, ¶ 4, 209 P.3d 176, 178 (App.2009).

¶ 9 Plaintiffs' arguments on appeal are based solely on equal protection. ³ First, they argue that under the utility's charge-and-credit system, properties that similarly burden the utility are required to pay different net amounts. Second, they argue that the City failed to bill all properties that are required to be billed. For its part, the City contends that Plaintiffs' notice of claim was defective because it failed to set forth a sum certain for which the claims could be settled.

I. PLAINTIFFS' CLAIMS FOR DECLARATORY RELIEF WERE NOT SUBJECT TO THE NOTICE OF CLAIM REQUIREMENT, AND THE CITY WAIVED ITS OBJECTIONS CONCERNING PLAINTIFFS' CLAIMS FOR DAMAGES.

¶ 10 The City contends that Plaintiffs' notice of claim was defective because it failed to state a sum certain for which the putative class representatives would settle, stated an indefinite alternative settlement formula, and failed to state adequate facts to support the claim. We reject these arguments.

¶ 11 First, in Martineau v. Maricopa County, 207 Ariz. 332, 86 P.3d 912 (App.2004), we held that the notice of claim statute does not apply to claims for declaratory relief. 207 Ariz. at 337, ¶ 24, 86 P.3d at 917. See also Home Builders Ass'n of Cent. Ariz. v. Kard, 219 Ariz. 374, 381, ¶ 31, 199 P.3d 629, 636 (App.2008); State v. Mabery Ranch Co., 216 Ariz. 233, 245, ¶ 52, 165 P.3d 211, 223 (App.2007). Martineau recognized that the language and policies of the notice of claim statute are inconsistent with claims for declaratory relief. 207 Ariz. at 335-36, ¶¶ 19-21, 86 P.3d at 915-16. The notice of claim statute is designed to allow public entities to investigate and assess liability, to permit the possibility of pre-litigation settlement, and to assist public entities in financial planning and budgeting. Id. at ¶ 19. Martineau noted that a “claim for declaratory relief does not seek damages and would not result in anymonetary award against [a public entity] even if successful ... and therefore would have no direct effect on [the entity's] financial planning or budgeting.” Id. at 336, ¶ 20, 86 P.3d at 916.

¶ 12 The City contends that declaratory relief for Plaintiffs would have a “direct effect” on the City's financial planning and budgeting because, were the challenged ordinances declared unconstitutional, the City would have to reassess its planning and budgeting in stormwater management and other areas. But Martineau clearly held that a “direct effect” implicated by § 12-821.01 is one caused by a monetary award, not declaratory relief. Declaratory relief may naturally require public entities to reassess their future financial planning in some cases, but that consequence of declaratory relief is not the functional equivalent of a judgment requiring payment of a monetary award for past damages. We therefore hold that Plaintiffs' claims for declaratory relief were not subject to the notice of claim requirement.

¶ 13 Plaintiffs do not dispute that their claims for damages were subject to the notice of claim requirement, but argue that the City waived any objections to its compliance by failing to raise the issue until it had actively litigated the case for years. We agree. When a government entity substantially litigates the merits of a case without seeking dismissal for a defective notice of claim, it waives that affirmative defense even though it may not intend to do so. See City of Phoenix v. Fields, 219 Ariz. 568, 574, ¶ 29, 201 P.3d 529, 535 (2009) (“Even when a party preserves an affirmative defense in an answer or a Rule 12(b) motion, however, it may waive that defense by its subsequent conduct in the litigation.... This rule applies to the notice of claim statute defense.” (citation omitted)); County of La Paz v. Yakima Compost Co., 224 Ariz. 590, 597, ¶ 8, 233 P.3d 1169, 1176 (App.2010). Here, there is no genuine dispute that the City permitted an amendment of the complaint, participated in trial management conferences and actively pursued discovery and disclosure for more than three years before seeking a ruling...