Vt. N. Props. v. Vill. of Derby Ctr.

• Decision Date: 18 July 2014
• Docket Number: No. 12–457.,12–457.
• Citation: 2014 VT 73,102 A.3d 1084
• Court: Vermont Supreme Court
• Parties: VERMONT NORTH PROPERTIES v. THE VILLAGE OF DERBY CENTER.

102 A.3d 1084

2014 VT 73

VERMONT NORTH PROPERTIES

v.THE VILLAGE OF DERBY CENTER.

No. 12–457.

Supreme Court of Vermont.

July 18, 2014.

Philip H. White of Wilson & White, P.C., Newport, for Plaintiff–Appellant.

Christopher J. Smart of Cheney Saudek & Grayck PC, Montpelier, for Defendant–Appellee.

Present: REIBER, C.J., DOOLEY, SKOGLUND, ROBINSON and CRAWFORD, JJ.

Opinion

ROBINSON, J.

¶ 1. Developer Vermont North Properties (VNP) appeals from the trial court's decision in favor of the Village of Derby Center in this declaratory judgment action. This dispute concerns VNP's rights, if any, to water and sewer allocations from the systems managed by the Village in connection with a VNP construction project. The trial court determined that: the Village could charge fees for reserved water and sewer allocations; the Village's fees were reasonable; the Village could revoke VNP's reserved allocations for nonpayment of fees; and the Village was not estopped from denying water and sewer connections to VNP on account of nonpayment. For the reasons set forth below, we conclude that VNP has enforceable reserved water and sewer

allocations, but the Village may charge equitable fees for these reservations and may revoke the reservations for nonpayment. We further conclude that VNP has failed to meet its burden of demonstrating the unreasonableness of the Village's reservation fees, and on that basis we affirm the trial court's decision.

I.

¶ 2. VNP filed this declaratory judgment action in June 2007. It asserted in its complaint, among other things, that it had obtained a vested right to certain allocations of reserved water and sewer capacity from the Village in 1987, that the Village had no authority to charge it a fee for these reservations, and that the sewer and water rates the Village sought to charge for the reservations were irrational, inequitable, and unlawful. The Village adopted new ordinances in 2008, and VNP filed an amended complaint with additional allegations relating to these ordinances and to other events that post-dated its original complaint. VNP asserted that the Village had improperly issued it a new permit in 2008 for provisional allocations of water and wastewater, and that the permit inappropriately provided that VNP's provisional allocations would expire on February 28, 2009 unless VNP either completed construction or applied to extend the deadline for good cause. VNP argued that, to the extent that the Village was threatening to rescind VNP's reserved water and sewer capacity, it was doing so in derogation of VNP's vested, grandfathered rights to such capacity.

¶ 3. Following a bench trial, the court adopted the parties' stipulated facts and made additional findings. Its decision thus reflects the following. In 1987, VNP purchased land in the Village. The sellers of the property had previously obtained a state permit to build “44 housing units in 8 buildings with a store/laundry facility” on the site. VNP planned to build eight buildings on the property, each containing six residential units. The buildings were to be constructed over time, based on market demand.

¶ 4. In March 1987, VNP applied for amended state permits to allow water and wastewater connections. Shortly thereafter, in connection with that state-permitting process, the Village clerk sent a letter to the state indicating that “water and sewer are available at the property.” The clerk did not specify any specific quantity of water or wastewater capacity available for this project. She did not state how long water and sewer services would be

reserved. VNP understood this letter to be a commitment on the part of the Village to provide water and sewer necessary for the project. In July 1987, based, in part, on the letter from the Village clerk, the state issued a permit to VNP to construct two buildings, each with six units. VNP's first building was built and connected to the Village system in 1988.

¶ 5. The process for obtaining water and wastewater reservations and allocations from the Village was informal at the time; the Village did not have an ordinance relating to “reservations” or “allocations” of water or wastewater capacity, and Village trustees did not formally vote to approve a reservation of water and sewer capacity for VNP prior to the Village clerk sending the 1987 letter. The Village did not charge any fees for reservation of water or wastewater capacity during this period.

¶ 6. In 1989, a new state statute required that municipal wastewater capacity be allocated pursuant to ordinances or bylaws. See 24 V.S.A. § 3625. Until such ordinances or bylaws were adopted, municipalities' authority to allocate capacity was limited in amount and scope. Id. § 3625(b)(1)-(3). These provisions did not apply, however, “to capacity that is committed or allocated before July 1, 1989.” Id. § 3625(e).

¶ 7. In 1992, in response to the new state statute, the Village adopted its first wastewater allocation ordinance. Not long thereafter, the Village sought legal advice from its attorney on whether it could charge a fee for reserving wastewater capacity prior to connection. The Village attorney opined that the Village could impose reservation fees but that any new ordinance should not be applied retroactively.

¶ 8. In August 1993, the Village and the Town of Derby adopted a joint wastewater allocation ordinance, which replaced the Village's 1992 ordinance; they also adopted a joint water ordinance.¹ Thereafter, the Village began charging water and wastewater reservation fees for newly allocated but unused water and sewer capacity prior to connection. It has charged these fees ever since. Sewer reservation fees were apparently imposed following trustee approval of a project at a rate of 25% of the established sewer rates. The fees were charged until a water meter was installed, at

which time a “connection fee” apparently was imposed.² In early 1994, consistent with his earlier advice, the Village attorney advised the Village trustees that they could not “charge connection fees to projects that received approval before the connection fees were in place.”

¶ 9. In March 1994, VNP applied to the Village to connect the water and sewer for the second of the two buildings for which it had received state approval in 1987. Although no formal vote of approval had ever been taken by the Village trustees, the trustees decided at an April 1994 meeting that: “Water application 94–3 from VT North and VT North's Sewer Application 94–3 are ... grandfathered in. The condominium project was allocated its water and sewer prior to the new ordinances. No action was necessary.”

¶ 10. Shortly after the meeting, the Village sent VNP a form letter regarding VNP's water and sewer applications 94–3. The letter thanked VNP for submitting information about its project, but stated that because the water and sewer allocations to VNP predated the effective date of the water allocation/sewer allocation ordinances, another approval was not necessary. The letter also provided that because “the water/sewer approval(s) predate(s) the initiation of connection fees, the project is not subject to connection fees. Connection(s), however, will have to be inspected prior to being covered and you will be subject to the applicable ordinances.”

¶ 11. VNP constructed and connected its second building to the Village system in late 1994. Seven years later, upon application by VNP, the state issued an amended permit in June 2001 allowing VNP to construct the third building in its project. VNP subsequently constructed its third building, which was also connected to the Village's systems. The Village's records regarding allocations

of sewer services from 1994–2001 state that VNP had 10,800 gallons of “committed reserves.”

¶ 12. Around 2004, the Village believed that it had run out of wastewater capacity. It learned that the state determined available wastewater capacity by adding the Village's actual discharges to the Village's reservations for prospective capacity as shown on a list maintained by the state. At the time, the combination of actual discharges and reservations appearing on the state's list approached the Village's capacity. The Village initiated a wastewater moratorium, began negotiating with the City of Newport to procure additional capacity, and began reviewing the state's reservation list to identify reservations that had not actually been approved by the Village, or that had expired.

¶ 13. In 2005, VNP secured a state permit and connection approval from the Village for an additional 1800 gallons per day (gpd) of water and sewer capacity in connection with construction of a fourth building. The Village sewerage capacity permit included an expiration date forty months after the date of issuance if construction did not begin on the units for which the allocation was reserved within that time frame. The fourth building was constructed and connected in October 2005.³

¶ 14. The Village determined around 2005 that it had not actually allocated water and sewer capacity to VNP as previously indicated, and that VNP's water and sewer allocations were not “grandfathered.” Accordingly, pursuant to its 1993 ordinance, in 2006 the Village began billing VNP for its reservations. VNP objected to the bills and initially refused to pay them, and the Village indicated that unused water and sewer allocations would be revoked.

¶ 15. Also in 2006, under the authority of the 1993 ordinance, the Village trustees adopted new water and wastewater fees. The new methodology charged those who reserved water and wastewater capacity at 100% of the rate for actual usage, it being noted that, under state and federal law, 100% of those reservations were assessed against the Village's capacity, as though the reservations reflected actual usage. The methodology also included a 30%

surcharge on those deemed to be large users and those reserving large allocations, such as VNP.⁴ The Village's 2006 fee structure for allocated but as yet...