Town of Pembroke v. Town of Allenstown

• Decision Date: 22 June 2018
• Docket Number: No. 2017–0066,2017–0066
• Parties: TOWN OF PEMBROKE v. TOWN OF ALLENSTOWN
• Court: New Hampshire Supreme Court

171 N.H. 65

189 A.3d 309

TOWN OF PEMBROKE

v.TOWN OF ALLENSTOWN

No. 2017–0066

Supreme Court of New Hampshire.

Argued: February 7, 2018

Opinion Issued: June 22, 2018

Preti Flaherty Beliveau & Pachios LLP, of Concord (Mark H. Puffer and Gregory L. Silverman on the brief, and Mr. Silverman orally), for the plaintiff.

Drescher & Dokmo, P.A., of Milford (William R. Drescher on the brief and orally), for the defendant.

Donahue, Tucker & Ciandella, PLLC, of Exeter (Sharon Cuddy Somers on the memorandum of law), for the Town of Allenstown Board of Selectmen.

HICKS, J.

This case presents two questions arising out of the operation of the Suncook Wastewater Treatment Facility (the "Facility") in Allenstown. First, under an intermunicipal agreement, must the defendant, Town of Allenstown, share any of the profits generated from septage haulers who discharge their waste at the Facility with the plaintiff, Town of Pembroke? And second, after Allenstown used a portion of those profits to increase the Facility's wastewater treatment capacity, must Allenstown allocate any of that increased capacity to Pembroke? Because we, as did the Superior Court (Nicolosi, J.), answer both questions "no," we affirm.

I

The following facts are drawn from the trial court's order in this case, or are otherwise found in the record. Prompted by the passage of the Federal Water Pollution Control Act Amendments of 1972, see Pub. L. No. 92–500, 86 Stat. 816 (1972), commonly known today as the Clean Water Act (CWA), Allenstown and Pembroke entered into an intermunicipal agreement to jointly finance, construct, and maintain a wastewater treatment facility—the Facility—on August 6, 1974. Due to landscape and location considerations, as well as federal regulations dictating that a single town must be identified as a facility's "owner," Allenstown was chosen as the Facility's home and delineated owner-operator. Through a combination of federal, state, and local funding, with the local portion accounting for approximately 5%—split 65/35 between Pembroke and Allenstown, respectively, based upon population projections—of the total construction cost, the Facility became operational in 1977. Governed by the 1974 agreement, the towns thereafter contributed to the Facility's operation and maintenance costs over the ensuing years based upon their proportionate use thereof.

In April 2002, the New Hampshire Department of Environmental Services notified Allenstown that the Facility had exceeded 80% of its "flow capacity" and was "within 100,000 gallons per day of [its] total capacity." When the Facility ultimately reached its capacity a little over three years later in August 2005, a moratorium was placed on permits for new sewer connections.

As a result, the towns began conferring and negotiating over ways to increase the Facility's capacity and how to fund such efforts. With regard to the latter consideration, Allenstown explored whether the Facility could accept septage from commercial haulers notwithstanding the moratorium. In time, Allenstown discovered that it could accept septage by only "dewatering" it, which impacted neither the Facility's capacity nor efficiency negatively, and trucking the resulting "solid sludge" off-site along with solid waste from the towns' collection systems. By allocating the associated expenses against revenues generated thereby, Allenstown ensured that neither town bore the costs of septage processing. More importantly, by charging septage haulers a "market rate that exceed[ed] the pure cost of processing the septage," Allenstown began generating what Pembroke alleges are "significant profits."

In support of a proposed $15 million upgrade of the Facility to double its capacity, the towns entered into a successor to the 1974 intermunicipal agreement on November 20, 2006. Section 3.06 of the 2006 agreement, which concerns, in relevant part, allocation of septage processing revenues, provides:

Revenue received from septage permits and fees by Allenstown shall be used to help offset the costs of septage processing and any excess revenues may be used to offset the costs of operation and maintenance of [the Facility] and/or the upgrade/expansion of [the Facility].

As to the anticipated upgrade of the Facility, Section 4.03 of the 2006 agreement reads, in pertinent part, as follows:

At the same time the Town of Allenstown approves and appropriates the bonding of the costs for construction of expansions or modifications to the wastewater facilities, that were designed for, or which will be utilized by the Town of Pembroke, Pembroke shall also raise and appropriate it's [sic ] proportionate share of the estimated Capital Costs of the facilities, less any previous payments made during the design phase. Payment of Pembroke's proportionate share of the bond repayment shall be made to Allenstown not less than thirty (30) days prior to the date that Allenstown's payment to the bondholder is due.

Following execution of the 2006 agreement, Allenstown placed profits generated from septage processing—"excess septage revenues"—into a fund separate and distinct from the one used to hold revenues received from residents of the two towns. Warrant articles proposing the appropriation of a $15 million bond for the Facility's upgrade failed at Allenstown's 2007 and 2008 town meetings. Pembroke did not propose a similar article during either year, opting instead, according to the testimony of one town official, to wait until Allenstown voters approved and appropriated a bond before seeking the same from its voters.

Allenstown thereafter changed gears and explored a smaller-scale, less expensive upgrade of the Facility—the "BioMag Project"—to increase its total capacity by 1,200 connections. After discussing this option with Pembroke, the towns reached a proposal to equally finance the BioMag Project's $1.55 million cost and share in the increased capacity. This proposal too, however, also failed among Allenstown voters and was not presented at Pembroke's 2009 town meeting.

Following this latest failure, Allenstown expressed to Pembroke that "the only way Allenstown voters will pass a warrant article [to increase the Facility's capacity] is if they don't have to pay for it." Mins. of Allenstown Sewer Comm'n's Spec. Mtg. of 04/08/2009 (available in Appendix to Brief of Town of Pembroke at 109). Consequently, Allenstown officials proposed that Allenstown finance its share of the BioMag Project's cost through a grant from the American Recovery and Reinvestment Act of 2009 (ARRA), see Pub. L. No. 111–5, 123 Stat. 115 (2009). Rejecting this proposal, Pembroke did not suggest an alternative funding scheme and, instead, expressed to Allenstown—as found by the trial court—that "it did not want any part of the BioMag Project."

On June 13, 2009, Allenstown held a special town meeting and proposed to its voters that the town finance the BioMag Project's entire cost with half of the funding coming from an ARRA grant and the other half from excess septage revenues. This warrant article passed, and it appears Allenstown has made exclusive use of the increased capacity since the BioMag Project's installation. In addition to using the funds to finance a portion of the project, Allenstown also started using excess septage revenues in 2012 to pay for repairs to its town collection system and to subsidize its residents' rates. Pembroke protested Allenstown's use of the funds for these purposes to no avail.

The dispute led Pembroke to institute this action for a declaration, in substance, that excess septage revenues are the property of both towns under the 2006 agreement and that it is entitled to a share of the increased capacity created by the BioMag Project. Pembroke also requested damages for the excess septage revenues Allenstown had expended to that point. Allenstown objected and responded, in part, that Pembroke breached the 2006 agreement when it "refus[ed] to participate" in the BioMag project.

At the conclusion of a four-day bench trial, the trial court found that Pembroke breached the 2006 agreement. With regard to excess septage revenues, the trial court concluded that, under both the plain text of Section 3.06 of the 2006 agreement and evidence presented at trial, Allenstown is entitled to expend such funds "however it sees fit." In making this finding, the trial court rejected Pembroke's position that interpreting Section 3.06 in this manner conflicts with CWA regulations governing Allenstown's operation of the Facility. As to the increased capacity, the trial court found, "[b]y refusing to participate in the funding for the BioMag [P]roject," Pembroke breached, in pertinent part, Section 4.03 of the 2006 agreement. Because Allenstown thereafter "fully funded" the BioMag Project, the trial court concluded that Pembroke is not entitled to any portion of the resulting increased capacity.

Pembroke maintains in this appeal that the trial court erred in several respects in reaching these conclusions. We disagree.

II

We begin first by addressing the towns' dispute over excess septage revenues under the 2006 agreement. Because interpretation of a contract is ultimately a question of law for us to decide, we review the trial court's interpretation of that agreement de novo.

Birch Broad. v. Capitol Broad. Corp., 161 N.H. 192, 196, 13 A.3d 224 (2010). "When interpreting a written agreement, we give the language used by the parties its reasonable meaning, considering the circumstances and the context in which the agreement was negotiated, and reading the document as a whole." Id. "We give an agreement the meaning intended by the parties when they wrote it." Id.

Consistent with the applicable general rule of contract construction, see 17A Am. Jur. 2d Contracts § 359 (2016) ; 11 Richard A. Lord, Williston on Contracts § 30:10, at 144 (4th ed. 2012), the towns' 2006 agreement establishes that the word "shall" is "mandatory" in effect, while the word "may" is "permissive" in effect....