The County of Dauphin v. City of Harrisburg

• Decision Date: 10 June 2011
• Citation: 24 A.3d 1083
• Parties: The COUNTY OF DAUPHIN and Joseph and Jacalyn Lahr, Appellantsv.CITY OF HARRISBURG, Mayor Linda D. Thompson, Paul P. Wambach, Treasurer, Daniel C. Miller, Controller, Gloria Martin Roberts, President, City Council, Kelly Summerford, Susan Brown Wilson, Brad Koplinski, Wanda D. Williams, Patty Kim, and Eugenia Smith, City Council Members.
• Court: Pennsylvania Commonwealth Court

24 A.3d 1083

The COUNTY OF DAUPHIN and Joseph and Jacalyn Lahr, Appellants

v.CITY OF HARRISBURG, Mayor Linda D. Thompson, Paul P. Wambach, Treasurer, Daniel C. Miller, Controller, Gloria Martin Roberts, President, City Council, Kelly Summerford, Susan Brown Wilson, Brad Koplinski, Wanda D. Williams, Patty Kim, and Eugenia Smith, City Council Members.

Commonwealth Court of Pennsylvania.

Argued March 8, 2011.Decided June 10, 2011.

Daniel L. Sullivan, Camp Hill, and Charles B. Zwally, Harrisburg, for appellants.Thomas B. Schmidt, III, Harrisburg, for appellees.BEFORE: LEADBETTER, President Judge, and BUTLER, Judge (P) and FRIEDMAN, Senior Judge.OPINION BY President Judge LEADBETTER.

The County of Dauphin (County) and taxpayers of the City of Harrisburg (City), Joseph and Jacalyn Lahr, (collectively, County), appeal from an order of the Court of Common Pleas of Dauphin County that sustained preliminary objections of the City, the City's Mayor, Treasurer and Controller, and the City Council members (collectively, the City or City defendants) to the County's first amended complaint and dismissed the County's action without prejudice. The County argues that the specific performance and mandamus relief sought against the City defendants are permitted under Sections 8104 and 8261 of the Local Government Unit Debt Act (Debt Act), 53 Pa.C.S. §§ 8104 and 8261, and the City's guaranty to pay the principal and interest on the notes issued by the Harrisburg Authority (Authority). The City defendants argue that the relief sought by the County and the Lahrs are moot and barred by lis pendens and that the Lahrs lacked standing to seek mandamus relief. The trial court's order is affirmed in part and reversed in part.

I.

The County commenced the instant action against the City defendants on November 9, 2009 seeking specific performance and mandamus relief. The County's allegations and the documents attached to the parties' pleadings reveal the following relevant facts.

In 1993, the Authority acquired from the City the Harrisburg Materials, Energy, Recycling and Recovery Facilities (facility) located at 1690 South Cameron Street in the City. After the Authority's acquisition, the City continued to manage and operate the facility. In 2003, the Authority issued bonds to finance the retrofitting of the facility. The bonds were secured by a trust indenture, which named Commerce Bank, now TD Bank, as a trustee. The City, Authority and the trustee entered into an agreement, in which the City agreed to guarantee the Authority's payment of the principal and interest on the bonds in a first guaranty position (2003 City guaranty). In a separate agreement with the Authority and the trustee, the County agreed to guarantee the Authority's payment in a second guaranty position (2003 County guaranty). The Authority, the City and the County then entered into a reimbursement agreement.

Due to cost overruns and delays, the 2003 retrofit project was not completed as scheduled. In December 2006, the Authority terminated the City's service as the facility's operator and hired a new company to complete the retrofit project. To finance the completion of the project, the Authority issued the following notes: Guaranteed Resource Recovery Facility Limited Obligation Notes, Series C of 2007 with an initial stated value of $20,961,574.40, and Guaranteed Federally Taxable Resource Recovery Facility Limited Obligation Notes, Series D of 2007 with an initial stated value of $9,033,234.45 (2007 notes). The notes were secured by a trust indenture, which designated Commerce Bank, now TD Bank, as a trustee (2007 trust indenture). The notes were scheduled to mature on December 15, 2010, with the maturity values of $23,920,000 and $10,765,000, respectively.

In a guaranty agreement entered into with the Authority and the 2007 trustee, the City agreed to “unconditionally and irrevocably” guarantee the full and prompt payment on the 2007 notes in a first guaranty position “for the benefit of the registered owners” (2007 City guaranty). Section 3.01 of the 2007 City Guaranty; Reproduced Record (R.R.) at 115. In a separate guaranty agreement, the County assumed a second guaranty position (2007 County guaranty). The Authority, the City and the County entered into a reimbursement agreement setting forth their respective rights and responsibilities under the 2007 trust indenture and the 2007 City and County Guaranties.

On October 30, 2009, the trustee notified the City of the deficiency amount of $34,684,998.67 (the 2007 notes' maturity values of $34,685,000 minus $1.33 in the debt service accounts). Upon receipt of the trustee's notice, the City was required to include the deficiency amount in its 2010 fiscal year budget and transfer to the trustee (1) an amount sufficient to permit the trustee to pay the stated values of the notes at maturity by August 15, 2010 and (2) an amount of any deficiency for the succeeding fiscal year by December 15, 2010. Section 3.13(a) of the 2007 City Guaranty; R.R. at 119.

In November 2009, the County commenced the instant action. In a first amended complaint filed in March 2010, the Lahrs were added as plaintiffs, and the City officials' names in the caption were also amended. In Count I, the County sought specific performance to compel the City to include the deficiency amount of $34,684,998.67 on the 2007 notes in the 2010 budget and appropriate and pay that amount. In Count II, the County and the Lahrs alternatively sought mandamus relief against all of the City defendants demanding the same relief sought in Count I. In Count III, the County and the Lahrs sought mandamus relief against the City's Treasurer ordering him to pay the deficiency amount from the first tax monies or other available revenues. The County and the Lahrs also sought attorney's fees and litigation costs against the City defendants.¹

The County alleged that the City's obligations under the 2007 City Guaranty were specifically enforceable pursuant to Section 8104 of the Debt Act, which governs a municipality's issuance of bonds, notes and guaranties. Section 8104 provides in relevant part:

(a) General rule.—The local government unit ² shall, in the ordinance authorizing the issue of bonds or notes or a guaranty or in such bonds or notes, or in the trust indenture securing the same, or in the instrument of guaranty, covenant with the holders ... of the bonds or notes or guaranteed bonds or notes ... that the local government unit shall do the following.

(1) Include the amount of the debt service, or the amounts payable in respect of its guaranty ... for each fiscal year in which the sums are payable in its budget for that year.

(2) Appropriate those amounts from its general or specially pledged revenues ... for the payment of the debt service or guaranty.³

(3) Duly and punctually pay or cause to be paid from its sinking fund [[⁴ or any other of its revenues or funds the principal of and interest on every bond or note or, ... the amount payable in respect of the guaranty, at the dates and places and in the manner stated in the bonds and in the coupons thereto appertaining or in the guaranty, according to the true intent and meaning thereof.

(b) Obligation of government unit.—For budgeting, appropriation and payment in respect of its general obligation ⁵ bonds or notes, its guaranteed revenue bonds or notes or its guaranty of the bonds or notes of an authority or other local government unit, the local government unit shall pledge its full faith, credit and taxing power unless a guaranty is limited to specified revenues of the guarantor.... The covenant shall be specifically enforceable. This section does not give any local government unit any taxing power not granted by another provision of law. [Emphasis added.]

An action in mandamus is also available under Section 8261 of the Debt Act, 53 Pa.C.S. § 8261, which provides:

If the local government unit ... fails or refuses to make adequate provision in its budget for any fiscal year for the sums payable ... or fails to appropriate or pay the moneys necessary in that year for the payment of the amount ... of the maturing principal of and the interest on the bonds or notes or ... any sinking fund obligation ..., then at the suit of the holder of any bond, note ... or guaranty ... or of any taxpayer of the local government unit, the court of common pleas shall, after a hearing ... and upon a finding of such failure or neglect, by order of mandamus require the treasurer of the local government unit to pay into the sinking fund for each series of bonds or notes then outstanding, or for each guaranty ... the first tax moneys or other available revenues or moneys thereafter received in the fiscal year by the treasurer.... [Emphasis added.]

The holders of general obligation bonds or notes may also file an action against the local government unit in the court of common pleas to recover the unpaid principal and interest on the bonds and notes. Section 8262 of the Debt Act, 53 Pa.C.S. § 8262.⁶

The City defendants filed preliminary objections to the first amended complaint in the nature of a demurrer. They argued that the specific performance claim was not ripe and that the County had an adequate remedy at law. They further argued that the County failed to identify any ministerial duty of the City to support the request for mandamus relief and that mandamus was not available because the County's claim was based solely on the contract. Finally, they argued that the Lahrs lacked standing to seek mandamus relief.

By order dated August 6, 2010, a senior judge assigned to the case sustained the preliminary objections and dismissed the County's action without prejudice.⁷ He concluded that the County had an adequate remedy at law in an action filed to seek damages for a breach of contract and that the County failed to allege any ministerial duty of the City to support the request for mandamus relief. He further...