Westwood Lake, Inc. v. Dade County

• Decision Date: 05 April 1972
• Docket Number: No. 41116,41116
• Citation: 264 So.2d 7
• Parties: WESTWOOD LAKE, INC., a Florida corporation, Petitioner, v. DADE COUNTY, a political subdivision of the State of Florida, Metropolitan Dade County Water and Sewer Board, a governmental agency of Dade County, Florida, et al., Respondents.
• Court: Florida Supreme Court

Page 7

264 So.2d 7

WESTWOOD LAKE, INC., a Florida corporation, Petitioner, v. DADE COUNTY, a political subdivision of the State of Florida, Metropolitan Dade County Water and Sewer Board, a governmental agency of Dade County, Florida, et al., Respondents.

No. 41116.

Supreme Court of Florida.

April 5, 1972.

Patton, Kanner, Nadeau, Segal & Stobs, Miami, for petitioner.

Stuart Simon, Dade County Atty., and John G. Fletcher, Asst. County Atty., for respondents.

DEKLE, Judge.

Petitioner, Westwood Lake, Inc. (hereafter referred to as 'Westwood' or 'utility'), is a private utility company doing business in Dade County. In 1964, the respondents, Dade County and the Metropolitan Dade County Water & Sewer Board and the Board's individual members (hereafter 'Board'), summoned Westwood to appear to determine Westwood's rates. The Board excluded from the rate base 'customer contributions.' ('Customer contributions' are so called because of equipment or lines already installed, as in a subdivision, and the initial cost of which is included in the price of customers' property and so is considered as having been paid and the cost 'recovered'.)

Westwood brought petition for certiorari in the Circuit Court of the Eleventh Judicial Circuit which was denied. An appeal to the Third District Court of Appeal followed. In its opinion reported at 203 So.2d 363, the Third District affirmed in part and reversed in part. It upheld the exclusion by the Board of 'customer contributions,' but held that the rate had not been properly determined on other grounds.

That decision recognized the proposition that the distribution system of the utility having been paid for by the homeowners it served (when they purchased their premises) was in effect 'contributed' to the utility and is therefore to be excluded from the rate base. The cause was remanded to the circuit court for further proceedings but instead the present declaratory decree was filed in a new action, contesting the constitutionality of the Dade County Water and Sewer Regulatory Ordinance, specifically § 32--65(c), Metropolitan Dade County Code, ¹ As it applied to Westwood. The method provided in the ordinance is usually described as the 'prudent investment' theory (or 'original cost' basis) of fixing rates.

The Circuit Court granted the Board's motion for a judgment on the pleadings, declaring the ordinance constitutional as a matter of law. In its affirmance the district court's opinion at 246 So.2d 156, 158, here under review, cites the authorities upholding such ordinance provisions and the proposition that contributions in aid of construction may be excluded from the rate base. ² This would seem to end the matter but there can of course be an unconstitutional Application of the ordinance as to a utility If it deprives that utility of a fair rate and thereby deprives the utility of its property without due process of law. There must be a fair application. It is this point (in its application) that the ordinance is now before us under the utility's contention that in its application it may be unconstitutional as to it and desires for this to be determined by the circuit court upon hearing.

The gravamen of the complaint for declaratory decree was Not whether the principle of 'customer contributions' under the 'investment' method of determining rates required by the ordinance was unconstitutional Vel non or Per se. The utility apparently recognizes the constitutionality of the provision itself, as it must, for the authorities stoutly support it. ³

Westwood's contention here is that the Dade Ordinance is being unconstitutionally Applied to it, ⁴ so that the resulting rate base is confiscatory and deprives the utility of a constitutionally guaranteed fair return on its investment. It states that the investment theory as it is being applied to Westwood becomes confiscatory. City of Miami v. Florida Public Service Comm., 208 So.2d 249 (Fla.1968).

Southern Gulf, supra, 180 So.2d at 483, recognizes the proposition here contended by Westwood that the Ordinance in its APPLICATION 'must be considered' in arriving at the rate base, although it concluded that the findings in that case were valid. The considerations noted there which might affect the 'end result,' i.e., the rate base reached, included the amounts of the contributions claimed, the times when such contributions were received and costs expended in their collection, etc. There are, of course, others but the point to be recognized is that the arbitrary application of a prudent investment theory (without regard to the final rate result as to its adequacy) may in a given case deprive a utility of a fair rate and might be confiscatory, depending upon the factual showing. This showing has never been considered in the present case by the trial court and no declaratory decree thereon has been reached. It must be remanded for such purpose.

The 'end result' doctrine above referred to was first adopted in Florida in Jacksonville Gas Corp. v. Florida Railroad & Public Utilities Comm., 50 So.2d 887 (Fla.1951), in the incisive opinion of our late distinguished Mr. Justice Thomas who said:

'It was the commission's view that it should be 'free to follow such method . . . as (it) may choose so long as the End results are rates which are just and reasonable.' . . . At first we were disposed to criticize such reasoning because we thought one could not evaluate a conclusion without examining the course followed in reaching it; in other words, the product of .07X could not be judged properly without isolating and defining 'X.' But upon further study we became convinced that the 'end result' is to be weighed in terms of justness and reasonableness, having consideration for all circumstances that in the sphere of finances affect and influence investments of this sort. This so-called 'end result' is made fluctuant by the variant in percentage and the flexibility of justness and reasonableness.'

We reaffirmed the 'end result' concept in General Telephone Co. of Fla. v. Carter, 115 So.2d 554 (Fla.1959), and thereafter in City of Miami v. Florida Public Service Comm., Supra, in which we quoted the Supreme Court of the United States in saying:

'. . . Under the statutory standard of 'just and reasonable' it is the result reached not the method employed which is controlling. . . .'

Federal Power Comm. v. Hope Natural Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1944).

There appear factual issues raised by the pleadings in the application of the ordinance which constitute conflict with the prior decision of this Court in Flaherty v. Metal Products Corp., 83 So.2d 9 (Fla.1955), as well as decisions of district courts of appeal; Kendall Flying School, Inc. v. Robertson, 225 So.2d 344 (4th DCA Fla.1969); and Davis v. Davis, 123 So.2d 377 (1st DCA Fla.1960), on the same points of law. We have jurisdiction under Fla.Const. art. V, § 4, F.S.A.

Dade County suggests that Carol City Utilities Inc. v. Dade County, 143 So.2d 828 (3d DCA Fla.1962), cert. dischg'd, 152 So.2d 462 (Fla.1963), prohibits a declaratory judgment action in the case Sub judice. That decision applies where there is an outstanding rate order before a court for review. In the instant case, there is no such rate order. It is correct that the Board entered a rate order applicable to Westwood, but that order was quashed by the circuit court upon directions of the Third District Court of Appeal in proceedings prior to this action for a declaratory judgment. Therefore, the Carol City Utilities case does not prevent a declaratory judgment in this cause.

It is contended by the utility that the only portion of plant assets and equipment being recognized by the Board as a basis for its rate is $1-million of a plant whose 'fair value' is $5-million ($2.6 million representing actual original cost). It is urged by the county that the remaining.$1.6 million (of $2.6 million) is really represented by 'contributions' to the utility in the subdivision's construction and tax write-offs and has been thereby 'recovered' and cannot be included in the tax base. (See Westwood v. Metro Dade, 203 So.2d 363 at 367 (3d DCA Fla.1967))

The lower court's only constitutional determination here was that the 'prudent investment' ordinance was not unconstitutional Per se or Vel non. In the initial district court opinion the court expressly refrained from passing upon any constitutional question (203 So.2d 363 at 368).

The utility is justified in its contention that there should be a declaration of its position and rights prior to the Board proceeding to hear detailed testimony. The great expense and time involved, if it were first necessary to go before the Board and then to take an appeal, are thus saved. It is apparently recognized by all parties that the Board's position is clearly that only the investment theory will be applied and in the manner previously used without regard for its effect upon the ultimate rate; that it intends in the future as it has in the past to base its rates solely upon a literal application of the 'investment' theory and in no wise to allow any credit applying to so-called 'contributions' or costs related to them or other consideration, no matter what the result. It is this arbitrary application which can constitute an unconstitutional application, dependent upon what the resultant rate turns out to be.

It is claimed by the utility that the Board's reasoning is a fallacy in this...