Town of Lead Hill v. Ozark Mountain Reg. Pub. Water Auth. of Ark.

• Decision Date: 08 October 2015
• Docket Number: No. CV–14–848,CV–14–848
• Citation: 472 S.W.3d 118
• Parties: Town of Lead Hill, Arkansas, et al., Appellants v. Ozark Mountain Regional Public Water Authority of the State of Arkansas, Appellee.
• Court: Arkansas Supreme Court

472 S.W.3d 118

Town of Lead Hill, Arkansas, et al., Appellants

v.Ozark Mountain Regional Public Water Authority of the State of Arkansas, Appellee.

No. CV–14–848

Supreme Court of Arkansas.

Opinion Delivered October 8, 2015

Taylor & Taylor Law Firm, P.A., Little Rock, by: Andrew M. Taylor and Tasha C. Taylor, for appellants.

Martin Law Firm, P.A., Jasper, by: Thomas A. Martin ; and Friday, Eldredge & Clark, LLP, Fayetteville, by: R. Christopher Lawson, for appellee.

KAREN R. BAKER, Associate Justice

This appeal stems from a Wholesale Water Purchase Contract ("contract") between appellants, Town of Lead Hill, Arkansas, et al. ("Lead Hill") and the appellee, Ozark Mountain Regional Public Water Authority ("Ozark"). On April 27, 2009, the parties entered into a contract with a forty-year term for Ozark to provide potable water to Lead Hill. Lead Hill agreed to purchase water with a "minimum monthly charge" based on an average daily usage of 56,038 gallons at the rate between $2.75 and $3.25 per thousand gallons at a minimum monthly charge between $4,687 and $5,540. Further, the contract provided that Lead Hill would pay the minimum monthly charge regardless of whether Lead Hill "actually purchased or takes water" from Ozark. Ozark constructed a water-treatment facility and connecting water lines and incurred bond indebtedness secured in part by the contract. The contract provided that water would be provided commencing in November 2012.

On November 12, 2012, Ozark began supplying potable water to Lead Hill, and Lead Hill paid for the water. On August 16, and September 16, 2013, Ozark sent Lead Hill monthly invoices. The invoices totaled $10,555.02, which included a late fee of $51.99. However, Lead Hill did not pay those invoices. On October 15, 2013, Lead Hill notified Ozark that the Lead Hill City Council had unanimously voted to terminate its contract with Ozark.

On October 25, 2013, Ozark filed suit against Lead Hill seeking a declaratory judgment and a writ of mandamus to enforce the contract. On November 27, 2013, Lead Hill filed an answer. On January 15, 2014, Ozark filed a motion for summary judgment and brief in support. Lead Hill responded and filed an amended response, and Ozark replied.

On March 13, 2014, the circuit court held a hearing and, at the request of the parties, entered a continuance in the matter and delayed ruling on the motion for summary judgment for sixty days while the parties attempted to resolve the matter and Lead Hill was to make payments into the registry of the circuit court. On May 22, 2014, the circuit court conducted a hearing on the summary-judgment motion. On June 11, 2014, the circuit court granted Ozark's motion for summary judgment and issued a writ of mandamus. On July 9, 2014, Lead Hill timely filed its notice of appeal and now presents four points on appeal: (1) the contract violates article 12, section 4, and amendment 78 of the Arkansas Constitution; (2) the contract violates federal law; (3) Ozark lacked the capacity to enter into the contract; and (4) the contract is unenforceable under several contract principles. Because this case presents an issue involving the interpretation of the Arkansas Constitution, we have jurisdiction pursuant to Ark. Sup.Ct. R. 1–2(a)(1) (2014).

Standard of Review

This case comes to us from an order granting summary judgment. A trial court may grant summary judgment only when it is apparent that no genuine issues of material fact exist requiring litigation and that the moving party is entitled to judgment as a matter of law. Crockett v. C.A.G. Invs., Inc., 2011 Ark. 208, 381 S.W.3d 793. Summary judgment is not proper, however, where evidence, although in no material dispute as to actuality, reveals aspects from which inconsistent hypothesis might reasonably be drawn and reasonable minds might differ. Thomas v. Sessions, 307 Ark. 203, 818 S.W.2d 940 (1991). In Flentje v. First Nat. Bank of Wynne, 340 Ark. 563, 569–70, 11 S.W.3d 531, 536 (2000) (internal citations omitted), we explained, "we only approve the granting of the motion when the state of the evidence as portrayed by the pleadings, affidavits, discovery responses, and admission on file is such that the nonmoving party is not entitled to a day in court, i.e., when there is not any genuine remaining issue of fact and the moving party is entitled to judgment as a matter of law. However, when there is no material dispute as to the facts, the court will determine whether reasonable minds could draw reasonable inconsistent hypotheses to render summary judgment inappropriate."

On appeal, we view the evidence in the light most favorable to the party against whom the motion was filed, resolving all doubts and inferences against the moving party. Harrisburg Sch. Dist. No. 6 v. Neal, 2011 Ark. 233, 381 S.W.3d 811.

Points on Appeal

I. Article 12, Section 4, and Amendment 78 of the Arkansas Constitution

A. Article 12, Section 4

Turning to Lead Hill's first point on appeal, Lead Hill asserts that the circuit court erred in granting summary judgment regarding two provisions of the Arkansas Constitution, article 12, section 4, and amendment 78. Prior to reaching this issue, we note that when interpreting the constitution, "our task is to read the laws as they are written, and interpret them in accordance with established principles of constitutional construction.... Language of a constitutional provision that is plain and unambiguous must be given its obvious and common meaning." Smith v. Sidney Moncrief Pontiac, Buick, G MC Co., 353 Ark. 701, 720, 120 S.W.3d 525, 537 (2003) (internal citations omitted).

First, at issue is article 12, section 4, of the Arkansas Constitution, which provides in pertinent part,

The fiscal affairs of counties, cities and incorporated towns shall be conducted on a sound financial basis, and no county court or levying board or agent of any county shall make or authorize any contract or make any allowance for any purpose whatsoever in excess of the revenue from all sources for the fiscal year in which said contract or allowance is made[.]

In other words, a city cannot enter into a contract for an amount that exceeds its annual revenue for a fiscal year. Here, the circuit court held that article 12, section 4 was not a valid legal defense to enforcement of the contract.

Article C, section 19, of the contract provides as follows:

Funding of Purchaser:

The parties hereto agree that all Purchaser revenues associated with the funding of this Agreement shall be derived solely from revenues generated by the sale of the Purchaser's water to its customers and that except for a pledge of said revenues that Purchaser does not otherwise further guarantee the obligations hereunder with its full faith and credit.

On appeal, Lead Hill asserts that the contract violates article 12, section 4, and the contract is void and unenforceable because the contract exceeded Lead Hill's annual revenue. Lead Hill further contends that although the provision of the contract may purport to limit the payments only from income derived from the sale of water by Lead Hill to its waterworks customers, its customer base has been reduced by fifty percent and therefore its financial obligation under the contract also exceeds its annual revenue for one year because of its loss of customers. Therefore, Lead Hill argues that the terms of the contract are not enforceable under article 12, section 4.

Ozark responds that the contract language is clear—the funding for the contract is derived solely from the revenues generated by the sale of the water to its customers. Ozark further contends that Lead Hill's arguments regarding loss of its customers is hearsay and not part of the record. Relying on McGehee v. Williams, 191 Ark. 643, 87 S.W.2d 46 (1935), and Hink v. Board of Directors of Beaver Water District, 235 Ark. 107, 357 S.W.2d 271 (1962), Ozark contends that we have affirmed the authority of towns such as Lead Hill to purchase water pursuant to multiyear contracts, and the circuit court properly granted summary judgment in its favor.

In McGehee, we held that the town of Alma's twenty-year-purchase contract did not violate article 12, section 4, also known as amendment 10, because the payments due under the contract were revenues solely from Alma's sale of water to its customers and would not constitute a guarantee of Alma's full faith and credit:

Appellants also contend that this contract is in violation of Amendment No. 10 to the Constitution of 1874. This contention is grounded upon the theory that the water rentals due under the contract would be a charge against the general revenues of the city of Alma during the life of the contract. We do not so construe the contract. The rentals therein provided are to be paid from the revenue derived from the distribution of the water supply. When the contract is thus construed, it can in no event offend the amendment.

McGehee, 191 Ark. 643,649, 87 S.W.2d 46, 48 (1935).

Next, in Hink, we also interpreted article 12, section 4, and explained,

Amendment 10 requires the fiscal affairs of all cities to be conducted on a sound financial basis and prohibits any city from entering into any contract or incurring any obligation in excess of its revenues for the current fiscal year. By one of the contracts now in question, attached as Exhibit C to the complaint, the city would pledge only its net waterworks revenues to secure the performance of its contract with the Beaver Water District. This contract is valid, for it is well settled that Amendment 10 does not prohibit the creation of a debt exceeding current annual revenues if the debt is secured by and payable solely out of the income or assets of a special and separable activity such as a municipal waterworks. Williams v. Harris, 215 Ark. 928, 224 S.W.2d 9.

Hink, 235 Ark. at 110, 357 S.W.2d at 273.

In McGehee and Hink, we held that multiyear purchase contracts for water did not violate article 12, section 4 because the contracts did not...