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City of Newport v. Village of Derby Ctr.

Supreme Court of Vermont

September 12, 2014

City of Newport
Village of Derby Center

Page 413

Editorial Note:

This Opinion is subject to motion for reargument or formal revision before publication. See V.R.A.P. 40

On Appeal fro Superior Court, Orleans Unit, Civil Division. Howard E. Van Benthuysen, J.

Philip H. White of Wilson & White, PC, Newport, for Plaintiff-Appellee.

Christopher J. Smart of Cheney Saudek & Grayck PC, Montpelier, for Defendant-Appellant.

Present: Reiber, C.J., Dooley, Skoglund, Robinson and Crawford, JJ.[1]


Page 414


[¶1] This dispute arose out of a 1997 water contract requiring the Village of Derby Center[2] to supply 10,000 gallons per day (gpd) of water to the City of Newport. The City claims that the contract did not authorize the Village to adopt a new rate schedule in 2006 that included a ready-to-serve fee on top of actual water usage charges. The Village counterclaims, alleging that the City connected customers who were not authorized under the contract, and that the City's water use was chronically underreported due to equipment malfunction. After a trial, the Orleans superior court ruled for the City on its contract claim, holding that the ready-to-serve fee was not authorized by either contract or statute. As to the Village's counterclaims, the court found that there was insufficient evidence to support the unauthorized-connection claim, and referred the water-usage-reconstruction claim to mediation.[3] The Village appeals on all counts. We reverse and remand for further proceedings.

[¶2] The following facts were found by the trial court and appear to be undisputed by the parties. Other pertinent facts will be set forth in the ensuing discussion. In July 1997, the parties entered into an interlocal agreement for water. The agreement was designed to mutually benefit the Village and the City -- the Village would get to sell some of its unused water capacity, and the City would be able to supply its growing industrial-park area with water at

Page 415

discounted rates. Under the contract, the City constructed and maintained at its own expense a 400-foot water main, which extended westward toward the City-Village property line and ended at a vault containing a master meter that would measure the water flow into the City. The contract allocated a minimum capacity of 10,000 gallons per day (gpd) to the City, and provided that the " rate charged to the City shall be ninety percent (90%) of [the Village's] rate schedule throughout the term of this agreement. ... [The Village] reserves the right to set [the] rate schedule." The Village would have authority to set the rate schedule, but would be required to provide at least sixty days' notice of any rate increase. The agreement contained a mediation clause, and has not been amended or abrogated since it was signed.

[¶3] Pursuant to a June 2006 ordinance, the Village changed its rate schedule by adding a " ready-to-serve" fee for unused capacity, including a 30% surcharge for large users. After this change, the Village charged the City for the unused capacity out of its 10,000-gpd allocation, including a large-user surcharge. The Village notified the City in February 2006 of " rate increases," although its letter did not refer specifically to ready-to-serve or unused-allocation fees. The City paid these fees under protest from 2006 going forward.

[¶4] Beyond the contract dispute itself, several other issues arose after the agreement was executed. First, for some period of time after 2006, the master meter did not accurately measure the City's water usage, although the parties dispute the exact amount owed. Second, the City connected several users outside the industrial-park area, allegedly without notice to the Village. The Village claimed that these connections contravened the agreement.

[¶5] The parties failed to resolve their claims via mediation. After a bench trial, the court ruled that the agreement's plain terms did not authorize the Village's imposition of an unused allocation or ready-to-serve fee. Rather, the City was obligated to pay only for the water actually used. Had the Village wanted to charge the City for water not used, it would have to negotiate with the City to amend or abrogate the 1997 contract. In addition to imposing fees not authorized by the contract, the court found that the Village had breached the implied covenant of good faith and fair dealing by " abus[ing its] power to specify terms," because though the Village had the power to raise rates, it did not have the power to " modify the agreement unilaterally." The court further concluded that 24 V.S.A. § 3311, which regulates municipal corporations' setting of water rates, did not authorize the Village to charge an unused allocation fee, because the term " rate" in the statute only contemplated an unused-water fee based on actual water usage. Finally, the court concluded that the Village had not demonstrated that its unused-allocation fee was reasonable, and rejected its arguments that the fees comported with the contract's requirement that the agreement serve the best economic interests of both the City and the Village. The court granted judgment against the Village in the amount of $18,437.24, dismissed the Village's counterclaim as to the unauthorized connections, and referred the Village's counterclaim that it was entitled to additional payments due to erroneous meter readings back to mediation.

I. City Claim

[¶6] We begin with the City's claim that the Village's ready-to-serve fee instituted in 2006 was not authorized under the 1997 water contract or by statute under 24 V.S.A. § 3311. As an initial matter, we must clarify our standard of review of the trial court's findings. " It is hornbook law that construction of contract

Page 416

terms is a matter of law and not a factual determination." Ianelli v. Standish, 156 Vt. 386, 389, 592 A.2d 901, 903 (1991) (quotation omitted). So long as a contract provision is " clear and unambiguous," then the court construes the provision as a matter of law. Id. (quotation marks omitted). If the court determines a contract term to be ambiguous, however, then the trier of fact determines the meaning intended by the parties. Id.; Ferrill v. N. Am. Hunting Retriever Ass'n, 173 Vt. 587, 590, 795 A.2d 1208, 1211 (2002) (mem.). The court made a series of findings that it characterized as " findings of fact" established by a " preponderance of the evidence" or by " clear and convincing evidence." These findings, however, constituted a mixture of factual findings and legal conclusions based on the court's interpretation of the contract's terms. Therefore, we review the trial court's factual findings for clear ...

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