Sylvan Twp. v. City of Chelsea

• Decision Date: 24 November 2015
• Docket Number: Docket No. 323663.
• Citation: 882 N.W.2d 545,313 Mich.App. 305
• Parties: SYLVAN TOWNSHIP v. CITY OF CHELSEA.
• Court: Court of Appeal of Michigan — District of US

313 Mich.App. 305
882 N.W.2d 545

SYLVAN TOWNSHIP
v.
CITY OF CHELSEA.

Docket No. 323663.

Court of Appeals of Michigan.

Submitted Nov. 4, 2015, at Lansing.
Decided Nov. 24, 2015, at 9:10 a.m.

882 N.W.2d 549

Warner Norcross & Judd LLP, Grand Rapids (by Gaëtan Gerville–Réache) for Sylvan Township.

Johnson, Rosati, Schultz & Joppich, PC, Farmington Hills (by Steven P. Joppich and Lisa A. Anderson ), for the city of Chelsea.

Before: GADOLA, P.J., and HOEKSTRA and M.J. KELLY, JJ.

PER CURIAM.

313 Mich.App. 310

In this dispute over the obligation to repay debt on municipal bonds, plaintiff, Sylvan Township (Sylvan), appeals by right the trial court's order granting the motion for summary disposition filed by defendant, city of Chelsea (Chelsea). On appeal, Sylvan argues that the trial court erred when it applied the doctrines of res judicata and equitable estoppel to bar its claim that Chelsea was obligated to pay a share of the municipal debt incurred by Sylvan before Chelsea incorporated as a home rule city. Because we agree that the trial court erred when it dismissed Sylvan's claim on the grounds that it was barred by res judicata and equitable estoppel, we reverse and remand.

I. BASIC FACTS

In September 2000, several qualified electors petitioned the State Boundary Commission (the Commission) to consider the incorporation of Chelsea as a home rule city. Chelsea was a village at the time. The petitioners' proposed boundaries for the city included all the territory of the village and some territory from Sylvan and Lima Townships. Beginning in March 2001, Sylvan opposed Chelsea's petition to incorporate before the Commission and in Ingham Circuit Court.

In accordance with certain development agreements, Sylvan decided to create a special assessment district for the construction of water and sewerage systems. It originally proposed the creation of a modest sewerage system that would serve only the developments covered by the agreements. The special assessment district was specifically created to pay for a wastewater treatment plant in the township. However, at some point, Sylvan abandoned its plan to construct its own wastewater treatment plant and instead entered into an agreement to connect with a neighboring

313 Mich.App. 311

township's system using an interceptor line. The new project was more expensive than originally proposed. Sylvan did not pursue a new or revised special assessment to pay for the altered project.

In July 2001, Sylvan entered into agreements with Washtenaw County for the issuance of $12.5 million in bonds to cover the construction of the water and sewerage systems for the township. In the agreements, the parties noted that Sylvan had created special assessments that would become due in December 2002 and be collected through December 2021. In the Official Statement on the proposed bonds issued in September 2001 and prepared by a financial advisor retained by Washtenaw County, it was stated that Sylvan intended to “defray” its payments to the county “through a combination of special assessments, connection fees and user charges.” The interest payments on the bonds were to be made in May and November of each year and were to commence in November 2001.

In October 2001, representatives from Chelsea, Sylvan, Lima Township, and a representative of the petitioners for incorporation entered into a joint settlement agreement. As part of the settlement, Chelsea agreed that it would annex less territory from Sylvan and Sylvan agreed

882 N.W.2d 550

to no longer oppose the incorporation of Chelsea as a home rule city.

In May 2002, after holding adjudicative hearings, the Commission recommended approval of the petition, which would allow a vote on whether Chelsea should be incorporated as a city through the adoption of a charter. The Director of the Department of Consumer and Industry Services adopted the Commission's recommendation and findings in June 2002. Chelsea held an election on the adoption of a charter for the proposed city in March 2004, and a majority of

313 Mich.App. 312

the voters voted for the charter. Accordingly, the village and the specified areas from the adjacent townships became the city of Chelsea at that time.

Sylvan's water and sewerage systems were operating on some level by November 2002. See NDC of Sylvan, Ltd. v. Sylvan Twp., unpublished opinion per curiam of the Court of Appeals, issued May 19, 2011 (Docket Nos. 301397 and 301410), 2011 WL 1901805. In 2003 and 2004, Sylvan began to have disputes with the developers with whom it had agreed to establish special assessment districts to cover in part the costs of the water and wastewater systems. Id. The developers sued Sylvan on various grounds in 2007 and, in April 2010, the trial court issued an opinion and order in which it determined that the special assessments for the sewerage system were invalid. Id. The trial court enjoined Sylvan from collecting the unlawful special assessments against the developers. On appeal, this Court affirmed the trial court's decision in relevant part. Id.

In 2010, Sylvan asked Washtenaw County to approve refunding bonds as a way of refinancing Sylvan's obligations to the county. The county agreed and issued the refunding bonds in March 2010. The statement concerning the refunding bonds showed that the county was refunding $9.4 million of the original bonds. Sylvan tried to get the electors to approve a property tax increase to cover the payments on the refunding bonds, but the measure failed. In May 2012, Sylvan defaulted on its payment of the refunded bonds.

In July 2012, Sylvan entered into a new agreement with Washtenaw County. In the new agreement, the parties acknowledged that the special assessments had been invalidated and that Sylvan had been unable to get its electors to approve a millage to cover the refunded bonds. The parties agreed that the county

313 Mich.App. 313

would continue to advance funds to cover Sylvan's obligations, but made that agreement contingent on Sylvan's electors' approval of a proposed millage increase. They further agreed that, if the millage passed, Sylvan would use any taxes collected from the new millage to repay the funds advanced by the county and service the debt on the refunded bonds.

In October 2012, Sylvan's lawyer sent a letter to Chelsea's City Manager concerning Sylvan's bond obligations. In the letter, Sylvan asserted that, because Chelsea “took” approximately 41% of Sylvan's assessed value when it incorporated as a city, under the Home Rule City Act, MCL 117.1 et seq., Chelsea assumed 41% of Sylvan's liability under the bonds. Sylvan invited Chelsea to engage in “further dialogue” on the matter to reach a “consensus as to the amount of [Chelsea's] contribution” to the shared obligation. Chelsea disagreed that it had assumed any liability under the bonds.

In March 2014, Sylvan sued Chelsea for declaratory relief. It alleged that, under MCL 117.14, Chelsea assumed a proportionate share of Sylvan's liabilities when it became a city, which included a share of Sylvan's liability for the repayment of the bond debt incurred to construct improvements for the treatment of wastewater.

882 N.W.2d 551

Sylvan asked the trial court to declare that Chelsea is liable for a proportionate share of Sylvan's liabilities under the bond contracts, must reimburse Sylvan for Chelsea's share of the debt already paid by Sylvan, and is obligated to pay its share of all future payments on the bonds as they come due. Sylvan amended its complaint in April 2014 to include Washtenaw County as a defendant.

In August 2014, Chelsea moved for summary disposition under MCR 2.116(C)(7) and (8). Chelsea argued,

313 Mich.App. 314

in relevant part, that Sylvan specifically waived any right to contribution that it might have had when it settled its dispute over Chelsea's petition to incorporate. Chelsea further maintained that Sylvan's claim was barred under the doctrine of res judicata because Sylvan raised the issue with the Commission and the Commission did not require Chelsea to assume any portion of Sylvan's liabilities as part of its decision. Chelsea also argued that Sylvan had to assert its right to a division of liabilities under MCL 117.14 at the time of the city's incorporation and failed to do so. For that reason, Chelsea asserted, Sylvan's complaint for declaratory relief was untimely. Chelsea similarly argued that Sylvan unduly delayed asserting its claim, which prejudiced Chelsea, and engaged in inequitable conduct that warranted barring the claim under the doctrines of laches and equitable estoppel.

The trial court held a hearing on the motion in August 2014. After the parties presented their arguments, the trial court granted Chelsea's motion. Citing the decision by the Commission arising from the dispute over incorporation, the court stated that Sylvan's claim was barred by the doctrine of res judicata....