Robert G. Sproul v. City of Wooster , 840 F.2d 1267 ( 1988 )

WELLFORD, Circuit Judge.

Plaintiff Sproul is a real estate developer who obtained an option on substantial acreage located primarily in Wayne Township, Ohio. Most of the acreage adjoins the defendant City of Wooster city limits, but two acres under option were actually in Wooster. Sproul acquired these options intending to construct a shopping center and residential development on the site. Before the project could come to fruition, however, it was necessary to secure water and sewer service from the City of- Wooster for the entire development. Approval was from Wooster for expansion of its water and sewer services to serve that part of the land outside the Wooster city limits.

In July of 1983, Sproul made an informal presentation to the Wooster City Council and the Planning Commission. After that presentation, he met privately with Mayor Margaret Demorest, Director of Administration Thomas Spitler, and City Council President Clyde Breneman. During the private meeting, Sproul contends that May- or Demorest agreed that it was the City’s policy to extend the services if a petition to annex the property were filed for approval. Filing of a petition for annexation, not its ultimate approval by the Wayne County Commission, was alleged to be the necessary step to secure the services. According to the official in charge of Wooster’s water and sewage system, this procedure had been followed in three previous cases.

On September 21, 1983, after filing the annexation petition and after the petition became irrevocable, Sproul requested and received estimates from the City detailing the cost of providing water and sewer service to the site. Pursuant to these estimates, Sproul paid a total of $10,000.75 to the City: $2,500 to cover anticipated water connections, $7,300.75 for an “availability charge” on sewer service, and another $200 to cover inspection of the tap-in lines. Extensions to the water and sewer lines necessary to service the mall were then constructed, costing Sproul an additional $20,-000. These lines were inspected and approved by the City.

On February 1, 1984, however, the Commissioners of Wayne County voted 2-1 to deny the petition for annexation. The new mayor of Wooster, who had replaced De-morest, former Council President Clyde Breneman, informed Sproul that City services could not be extended to the proposed development unless annexation was reconsidered and approved by the Wayne County Commission, or the City Council specifically approved an extra-territorial expansion of the services in question. Mayor Breneman stated in his letter to Sproul that “[i]n the absence of Council approval the Administration is without authority to allow the extension of water and sewer beyond the corporate limits.” The City refunded the $2,500 paid for anticipated water connections, but did not refund the $7,300.75 paid for sewer connections since that money had already been paid over to the landowner who constructed the lines into which the mall was to tap.¹ After it became obvious to Sproul that he was not going to secure approval for the extension from the City Council, the present suit was filed.

PROCEDURAL BACKGROUND

Sproul now appeals from the summary judgment granted defendant on all counts. Count one of the complaint alleged a breach of contract under Ohio law based on the City’s repudiation of an agreement allegedly reached during the July 1983 meeting with Demorest, Spitler, and Breneman. Count two alleged a deprivation of due process and equal protection in violation of 42 U.S.C. § 1983. Count three alleged a conspiracy between City officials and the plaintiff’s commercial competitors, presumably the owners of commercial property located within the city limits, to deprive plaintiff of his right to equal protection in violation of 42 U.S.C. § 1985(3). The fourth count alleged that the City used its monopoly power over water and sewer service to benefit plaintiff’s competitors in violation of the Sherman Act.

The district court disposed of plaintiff's claims in three stages. In the first opinion, issued on June 5, 1985, the court dismissed the due process and equal protection claims brought under 42 U.S.C. §§ 1983, 1985(3). The procedural due process claim was dismissed because the plaintiff failed to show that state remedies were inadequate under Parratt v. Taylor, 451 U.S. 527, 101 S.Ct. 1908, 68 L.Ed.2d 420 (1981), and Campbell v. Shearer, 732 F.2d 531 (6th Cir.1984). The equal protection claims were dismissed because the plaintiff failed to show that the alleged deprivation was the result of any class-based antagonism. With regard to the § 1985(3) claim in particular, the court interpreted United Brotherhood of Carpenters and Joiners of America, Local 610, AFL-CIO v. Scott, 463 U.S. 825, 103 S.Ct. 3352, 77 L.Ed.2d 1049 (1983), to hold that the statute was not intended to protect the “class” of nonresident real estate developers from economic discrimination.

The district court granted summary judgment to the City on the Sherman Act antitrust claims in its second opinion issued July 19,1985. In dismissing this claim, the court relied on the state action exemption enunciated in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), as interpreted to cover municipalities in Town of Hallie v. City of Eau Claire, 471 U.S. 34, 105 S.Ct. 1713, 85 L.Ed.2d 24 (1985). The district court looked to Ohio law and found that the state authorized the City to engage in anticompetitive conduct in operating its water and sewer system. The court then held under Town of Hallie that this was sufficient to exempt the City from antitrust liability.

On July 8, 1986, the district court finally granted summary judgment to the City on the state law contract claims. The principal issue raised by that claim was whether Mayor Demorest had the authority to enter into a contract for the extension of services beyond the city limits. The district court found that the Mayor did not have the authority to make such a contract, since control over extraterritorial expansion of City services rests in the City Council under Ohio law. Therefore, the plaintiff could not bind the City to the alleged contract even if it was shown to exist.

In the present appeal, plaintiff assigns error as to each of the judgments granted to the City on each separate claim. Plaintiff, however, no longer presses the equal protection aspect of his claims under 42 U.S.C. §§ 1983, 1985(3).

THE ANTITRUST CLAIM

The principle that anticompetitive state action is exempt from the Sherman Act was first established by the Supreme Court in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). The state action exemption is implied under the Sherman Act. It is based on the absence of legislative history indicating that Congress intended the statute to regulate the governmental activities of the states. As observed by the Court in Parker, “We find nothing in the language of the Sherman Act or in its history which suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislature.” 317 U.S. at 350-51, 63 S.Ct. 313-14. Under the Parker rule, therefore, the Sherman Act does not reach restraints on trade imposed as an “act of government.” Id. at 352, 63 S.Ct. at 314.

The Supreme Court recently clarified the application of the state action doctrine to municipalities in a case which, interestingly, also involved the extra-territorial expansion of sewage service. In Town of Hallie v. City of Eau Claire, 471 U.S. 34, 105 S.Ct. 1713, 85 L.Ed.2d 24 (1985), the Court reaffirmed that municipalities are entitled to the exemption where they “demonstrate that their anticompetitive activities were authorized by the State ‘pursuant to state policy to displace competition with regulation or monopoly public service.’ ” Id. at 38-39, 105 S.Ct. at 1716-17 (quoting City of Lafayette, La. v. Louisiana Power & Light Co., 435 U.S. 389, 413, 98 S.Ct. 1123, 1137, 55 L.Ed.2d 364 (1978) (Brennan, J., concurring)). To determine whether the City acts pursuant to a state policy, it is necessary to examine the statutory scheme under which it acts. Explicit legislative authorization for anticompetitive acts is not necessary: it is sufficient that the state bestows “broad regulatory authority” from which anticompetitive effects would logically result. Town of Hallie, 471 U.S. at 41-43, 105 S.Ct. at 1717-19.

We find similarity between the statutes considered in Town of Hallie and those involved in the present case. The Ohio statutes confer the same type of “broad regulatory authority” that was considered anticompetitive in Town of Hallie. Under Ohio law, a municipality has very wide discretion over city services. A city may choose to serve only its inhabitants, or can provide extraterritorial service subject to any constitutionally permissible restriction. See State ex rel. Indian Hill Acres, Inc. v. Kellogg, 149 Ohio St. 461, 79 N.E.2d 319 (1948). A city also has the power to exclude competing suppliers from serving its inhabitants. See Village of Lucas v. Lucas Local School District, 2 Ohio St.3d 13, 442 N.E.2d 449 (1982). Like the statutes at issue in Town of Hattie, these broad grants of authority from the State of Ohio to the City of Wooster are foreseeably anticom-petitive. As a result, the City enjoys a derivative state action exemption, and the district court correctly granted summary judgment to the City of Wooster on the Sherman Act claims in the present litigation.

THE SECTION 1983 CLAIM

The essence of Sproul’s procedural due process claim on appeal is that we should overrule our decisions in Campbell v. Shearer, 732 F.2d 531 (6th Cir.1984), and Vicory v. Walton, 721 F.2d 1062 (6th Cir.1983), cert. denied, 469 U.S. 834, 105 S.Ct. 125, 83 L.Ed.2d 67 (1984). These cases were based on the Supreme Court’s decision in Parratt v. Taylor, 451 U.S. 527, 101 S.Ct. 1908, 68 L.Ed.2d 420 (1981). In Vicory, we held that the plaintiff has the burden of pleading and proving that state damage remedies are inadequate to redress the alleged wrong before he can resort to a damages action for a deprivation of procedural due process under 42 U.S.C. § 1983. 721 F.2d at 1065-66. The existence of an action in the state courts for forcible entry and detainer made it impossible for the plaintiff to carry this burden in Vicory. Likewise, the existence of a tax appeals procedure under Michigan law foreclosed the procedural due process action sought for an allegedly wrongful tax seizure in Campbell, 732 F.2d at 533-34.

Since plaintiff has provided no persuasive reason for us to revisit the rationale of these decisions, we conclude that these cases control the present litigation. As a result, plaintiffs § 1983 claim must fail because he did not “plead and prove” that Ohio does not provide an adequate state remedy. This is so particularly because the first count of Sproul's complaint is based on what he contends is a remedy under Ohio contract law. Since we have consistently refused § 1983 relief based on the existence of similar adequate state remedies, the district court did not err by granting summary judgment for the City of Wooster on plaintiffs claims under 42 U.S.C. § 1983.

THE CONTRACT CLAIM

The most troublesome aspect of this case is plaintiffs claim under Ohio law for breach of an agreement to provide the necessary water and sewer services. The district court concluded that there was no enforceable agreement, because the City officials with whom Sproul dealt were unauthorized to bind the City in this regard. Ohio municipalities are specifically empowered by Article XVIII § 4 of the Ohio Constitution to operate public utilities, including provision of water and sewer facilities. Article XVIII § 6 of that Constitution gives an Ohio municipality additional power to provide these utilities beyond the city limits. As an initial matter, therefore, it is clear that defendant City had authority to enter into the alleged contract with Sproul. See State ex rel. Indian Hitt Acres v. Kellogg, 149 Ohio St. 461, 79 N.E.2d 319 (1948).

Judge Thomas set out succinctly the substance of plaintiffs claim in this regard in footnote 6 of his memorandum and order filed July 8, 1986:

Plaintiff cites city ordinances 921.03 and 923.10 in support of his claim that council ‘vested exclusive control over the water works and sewer system of the City in the Director of Administration.’ These ordinances provide:

921.03 WATER WORKS, MAINS, CONTROL.

Council affirms that the water mains and the water works of the City are under the exclusive control of the Director of Administration, as provided for in Ohio R.C. 743.03, and that Council has the general powers of such water works as provided for in Ohio R.C. 743.01. (Ord. 1958-36. Passed 9-15-58.)

923.10 AUTHORITY OF DIRECTOR OF ADMINISTRATION.

(b) Council affirms that the sanitary sewers and the sanitary sewer system of the City are under the exclusive control of the Director as provided for in Ohio R.C. 729.50, and Council has the general powers over such sanitary sewer system as provided for in Ohio R.C. 727.01. (Ord. 1971-50. Passed 7-10-71.)

Plaintiff contended that the Director of Administration of the City of Wooster, as well as its then Mayor, had committed to him in their official capacities that the City would furnish him utility services if he petitioned for annexation of the property in question (situated almost entirely outside the City limits) and if he paid the requisite fees. Plaintiff contended, moreover, that he had an agreement for these services binding upon the City since he had carried out his part of the bargain. At first blush there is merit in this contention; one party to a proposed agreement who performs the conditions he is called upon to perform expects the other party to carry out its bargain as well. Basic considerations of equity and contract logic would seem to tip the scales towards plaintiff in such a situation.

The experienced Ohio trial judge in this case, however, observed that Ohio law requires that “[t]hose who would deal with the agents of a municipality must assume the risk that all necessary steps have been taken requisite to a legal contract,” citing Schumacher Stone Co. v. Columbus Grove, 73 Ohio App. 557, 563, 57 N.E.2d 251 (1944). See also McCloud & Geigle v. City of Columbus, 54 Ohio St. 439, 44 N.E. 95 (1896), and Kimbrell v. Seven Mile, 13 Ohio App.3d 443, 469 N.E.2d 954 (1984). Ohio law requires plaintiffs then to “investigate the subject and ascertain at their peril ... steps leading up to a contract ... with public agencies whose powers are defined by law.” McCloud, 54 Ohio St. at 452-53, 44 N.E. 95. While this may not appeal to one in the position of Sproul, who seeks to rely on the actions of the Wooster Mayor and Director of Administration, Ohio law does put him at risk to ascertain the power and authority of the proper official or official body to seek to bind the City.

Judge Thomas interpreted the two Wooster ordinances relied upon by plaintiff (921.03 and 923.10) to “reserve the ‘general powers’ over the city water and sewer systems in the Council.” He did not construe these ordinances as giving “independent” or “exclusive” authority over the water mains, sewers and water works to the Director of Administration or the Mayor despite the “exclusive control” language of the ordinances.

The district court held that control over the policy of extension of utility services outside the bounds of a municipality “is in the legislative domain.” The City of Wooster had authority to enter into this kind of contract, the only question being who had the authority to bind the City to such an arrangement. State ex rel. Indian Hill Acres v. Kellogg, 149 Ohio St. 461, 79 N.E.2d 319 (1948). Ohio courts have indicated that this authority is placed in the city council. See Kellogg and City of Stow v. City of Cuyahoga Falls, 7 Ohio App.3d 108, 454 N.E.2d 561 (1982). We therefore conclude that there has been no express authority granted plaintiff by the City for utility connections in question and therefore no breach of contract by reason of the Mayor’s agreement to this effect.²

There was a public hearing before Wayne County Commissioners on plaintiff’s annexation motion covering the optioned property. Thereafter the Commissioners denied the annexation. There was no action taken by plaintiff in this regard within the next ten days after the denial. Mayor Breneman informed Sproul in writing that since the land in question would not be annexed, that extension of water and sewer services outside the City required Council approval. At the same time the City returned Sprout’s $2,500 payment, which he declined.

There is a dispute in this case which focuses upon plaintiffs contention that then Mayor Demorest indicated it was City policy to allow a developer such as himself to obtain the utilities in question if he petitioned for annexation and did not withdraw that petition. Plaintiff contends that he did not appeal from the Commission’s denial of the annexation petition because he did not think it necessary.

We agree with the district court that despite this claimed agreement, the parties were bound with regard to its enforcement by Ohio law. Kellogg and Stow indicate that extension of the type of utility service in dispute is a legislative decision. Therefore, it was necessary that the Council approve the action of the Mayor and/or Director Spitler in extending such services. Since “all legislative power [is] vested in the Council,” (Article II of Wooster’s charter), the Council, not the executive, had to authorize the extension of service. The duties of the Director of Administration under the City charter placed him under the supervision of the Mayor to operate all City departments, and this fell under executive authority, not legislative.

We must next consider whether the City Council itself authorized the Mayor or the Director of Administration to extend water and sewer services and facilities outside City boundaries. Wooster passed ordinances § 921.03 and § 923.10 previously cited in the district court’s decision dealing with water works and the sanitary sewer system.

Again, we agree with the district court that absent a specific Ohio statutory or constitutional basis to the contrary, or Ohio judicial precedent, these ordinances do not remove or abjure the “general powers” of the City Council over water and sewer extensions to the executive branch, and, specifically, the Director of Administration. The latter may exclusively maintain and operate and set City rates for these utilities once authorized and approved by the Council, and in that sense, the Director has “control” over water mains and sanitary sewers once installed by authority of the Council.

The Council, however, specifically established as a matter of policy that sewer rental rates for nonresident users would be established at 150 per cent of the resident water rates unless otherwise established by contract. Sec. 923.04(1)(1) of Wooster ordinances. The Council followed the procedure, moreover, of passing upon contracts for service and extensions of utility service outside the city limits. Had the Council deemed the ordinances in question to surrender its authority with respect to utility services to nonresidents outside city limits, it is not logical to believe it would continue to pass upon and decide these policy matters relating to service and rates to nonresidents.

Even if a broad delegation or abdication of its authority were deemed to have been attempted by the Council under the two ordinances cited (§§ 921.03 and 923.10), we would doubt that such an attempt to delegate away its policymaking responsibilities was effectual under Ohio law. Citing Ohio Rev.Code § 731.47. In City of Stow v. City of Cuyahoga Falls, 7 Ohio App.3d 109, 454 N.E.2d 561 (1982), the Ohio court, noting Kellogg, supra, held that any conflict concerning the authority of the Mayor versus the authority of the Council with regard to extension of utility service outside the municipal bounds was to be resolved in favor of the Council or legislative body, “which has sole authority to determine policy in this area.” 7 Ohio App.3d at 110, 454 N.E.2d 561.

State ex rel. Indian Hill Acres v. Kellogg, 149 Ohio St. 461, 79 N.E.2d 319 (1948), pointed to the power of the Cincinnati City Council alone to act in respect to matters pertaining to a continuation of water services to territories surrounding the city despite the contention that the city manager and superintendent of waterworks possessed that power. The court determined, after review of Ohio law, that this was a matter of legislative policy and that “the council has full power to act, restricted only by pertinent constitutional and statutory limitations.” 149 Ohio St. at 474, 79 N.E.2d 319.

We find the ordinances and charter provisions of Wooster do not confer express authority on the executive branch regarding power to extend water and sewer services outside the City. Any doubt in this regard should be construed against an unconditional grant of policymaking authority from the Council to the Mayor or Director of Administration.³ VMJ Co. v. City of Lorain, 105 Ohio App. 166, 169, 151 N.E.2d 667 (1957), would indicate a need for a municipality specifically to legislate for service beyond its boundaries. Nothing in the Wooster charter would indicate that the Mayor or the Director of Administration, acting under him, had authority to act with respect to extension of City utility services.

The charter is an authority superior to an ordinance in a charter city ... the charter limits, governs and controls the Council very much the same as the Constitution limits, governs and controls the General Assembly.

Bauman v. State ex rel. Underwood, 122 Ohio St. 269, 270, 171 N.E. 336 (1930).

The delegation of legislative authority has narrow limits in Ohio. Judge Potter Stewart (later Justice of the Supreme Court) quoted with approval in Weber v. Board of Health, 148 Ohio St. 389, 74 N.E.2d 331, 338 (1947), from an earlier Ohio Supreme Court decision, City of Cincinnati v. Cook, 107 Ohio St. 223, 224, 140 N.E. 655, 656 (1923):

This ordinance will not stand the test applied by 1 Dillon on Municipal Corporations (5th ed.) § 224, from which we quote the following: “The principle is a plain one that the public powers or trusts developed by law or charter upon a council or governing body, to be exercised by it when and in such manner as it shall judge best, cannot be delegated to others.”

The purported authority or discretion upon which Sproul relied of the Wooster Mayor and Director was undefined and not prescribed by definite standards. In such a circumstance:

It is well established by prior decisions of this court that such a delegation of power to any subordinate is unlawful unless as a part of such power standards are established by which such power is to be exercised. An uncontrolled discretion has invariably been held to be a delegation of legislative power.

Northern Boiler Co. v. David, 157 Ohio St. 564, 106 N.E.2d 620 (1952). See also City of Cleveland v. Piskura, 145 Ohio St. 144, 60 N.E.2d 919 (1945).

In sum, we conclude that the Ohio Constitution and law support the district court’s conclusion that the power to extend water and sewer services outside the Wooster boundaries is legislative and it vests in the Council, not in the City officials upon whose oral commitment Sproul unfortunately relied. We also conclude that this legislative power was not effectually delegated (even if it might lawfully be done) to the Mayor and Director to decide in their discretion whether or not to extend City water and sewer services to Sproul’s property outside the City. Sproul regrettably acted at his risk in relying upon the City officials instead of obtaining Wooster City Council approval. There was, in any event, no express authority granted by ordinance for the Mayor and Director to bind the City in this regard, and no authority to this effect is found in the Ohio Constitution or code, nor in the City charter. Nor is there any persuasive showing of any apparent authority vested in these officials to extend such utility services without Council approval. At the same time, we also affirm the district court’s direction that the City must effect a refund of the $2,500 fee paid by Sproul.

Accordingly, we AFFIRM the decision of the district court in all respects.

1 . Apparently, when a new development taps into existing sewer lines, the landowners who paid for the original extension receive a reimbursement. This spreads the cost of extending the lines among all those who are later benefit-ted and eliminates what would otherwise be an insuperable "free-rider" problem. The City acts as a middleman in this arrangement — collecting fees from those who subsequently tap into the line and passing them on to the previous users. In this instance, the City had paid over Sproul’s money to another landowner who constructed the lines into which Sprouts proposed mall development was to tap.

2 . On the question of apparent authority, we conclude that plaintiff cannot rely on this theory. The ordinances involved, properly construed, did not clothe the Mayor or the Director of Administration with authority to act without council approval, because the council retained "general powers” or policymaking rights under the extension in question to non-residents.

3 . The very title of the Director would seem to indicate that he served as an administrator not an agent for the Council with direction to act in policy matters.