City of Alpena v. Township of Alpena ( 2020 )


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  •             If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
    revision until final publication in the Michigan Appeals Reports.
    STATE OF MICHIGAN
    COURT OF APPEALS
    CITY OF ALPENA,                                                      UNPUBLISHED
    March 17, 2020
    Plaintiff/Counterdefendant-
    Appellee/Cross-Appellant,
    v                                                                    No. 345817
    Alpena Circuit Court
    TOWNSHIP OF ALPENA,                                                  LC No. 14-006077-CK
    Defendant/Counterplaintiff-
    Appellant/Cross-Appellee
    and
    ALPENA TOWNSHIP CLERK and MARIE
    TWITE,
    Defendants.
    Before: O’BRIEN, P.J., and JANSEN and GLEICHER, JJ.
    PER CURIAM.
    The city and the township of Alpena have been battling since 2014 over the cost of water
    and sewer services. On March 1, 2018, it appeared the parties were prepared to settle. However,
    the city and township never reached an agreement regarding several outstanding essential terms.
    Despite that no settlement was actually reached, the trial court entered a final judgment purporting
    to enforce a settlement agreement. This was done in error.
    In cross-appeals, the parties raise several challenges to the entry of the judgment, the
    judgment provisions, and the trial court’s earlier ruling on a motion for summary disposition. We
    affirm the denial of summary disposition, vacate the court’s final judgment, and remand for further
    proceedings consistent with this opinion.
    -1-
    I. BACKGROUND
    The city of Alpena has provided wholesale water and sewer services to the township of
    Alpena since 1977. In 2014, the Alpena City Council voted to drastically increase the rates charged
    to the township. The city filed suit when the township refused to pay these new rates. On February
    28, 2018, the Alpena City Council and the Alpena Township Board of Trustees approved
    “agreement[s] to settle water/sewer lawsuit” as part of the ongoing litigation. The agreements
    were identical in many respects but diverged on certain points. The Township’s resolution
    provided:
    [B]ased upon the joint recommendation of the City’s rate expert and the
    Township’s rate expert, [the City Council and the Township Board] agree[] to settle
    the pending lawsuit based upon the following general terms[1]:
    1. The rates for the Township would be established based upon the utility
    basis of rate making.
    2. The rates would be subject to annual reconciliations of actual and audited
    financial results and volumes.
    3. The rates would be established using an 8% rate of return.
    4. Water treatment expenses will be allocated based upon current billed
    volumes, inclusive of/adjusted to account for water losses.
    5. Shared water distribution expenses will be allocated based upon volumes
    inclusive of water losses, with the shared system being defined as 61% of the City’s
    system with that percentage remaining fixed for a term of 10 years. After 10 years
    the parties will use a specific process to be determined as part of the settlement for
    allocating the percentage of the City’s system that is common.[2]
    6. Shared sewer collection expenses will be allocated based upon billed (for
    [operating and maintenance] expenses) or total volumes (for Capital expenses),
    excluding measured volumes through the Township’s State Street forced main,
    with the shared system being defined as 23% of the City’s system with that
    percentage remaining fixed for a term of 10 years. Subject to review as stated
    above.
    1
    The City Council resolution included the following additional language: “with the settlement of
    the current lawsuit to be effective upon the execution of a formal written agreement.”
    2
    The City Council approved a different version of this provision: “Shared water distribution
    expenses will be allocated based upon volumes inclusive of water losses, with the shared system
    being defined as 61% of the City’s distribution system and subject to the terms and conditions
    outlined by the City Attorney.”
    -2-
    7. Sewer treatment expenses will be allocated based upon billed volume
    (for [operating and maintenance] expenses and approximately 25% of Capital
    expenses) and total volumes (for approximately 75% Capital expenses), per
    information provided by William Stannard, Rate Expert for the City of Alpena and
    Andrew Burnham, Rate Expert for the Township of Alpena.[3]
    8. The escrow account will be distributed by applying the agreed settlement
    formula to the period beginning May 2014, any funds due and owing to the City of
    Alpena following this application will be paid and will include judgement interest
    pursuant to statute.[4]
    9. A formal written agreement will be prepared by counsel for the City and
    Township and presented to the Board, as well as the Township Board, for final
    approval consistent with above.[5]
    The next day, which was to be the second day of trial, the township’s attorney advised the
    court of the votes:
    [Township Attorney]. . . . Well the parties are pleased to announce to the
    court . . . that they have reached an agreement. Both the counsel [sic] and the
    Township Board have taken votes to approve the principles of the agreement that
    they discussed in their earlier settlement conference. The (inaudible) terms since
    there’s a matter of settlement and . . . they’re gonna be finalized. But the parties
    are satisfied that they are the terms that were set forth by the experts.
    The next step, pursuant to the agreement is that . . . counsel will get together
    and hash out the essential terms in writing so that their respective boards or counsel
    [sic] can review that in writing and approve those. We need a little bit more detailed
    framework in order to draft a formal agreement.
    So after the term sheet is worked out, which we expect to be finished by the
    weekend. But by Monday I hope. Then we will submit a written settlement
    agreement to each other for final approval. . . .
    * * *
    3
    The City Council passed a different version of this provision: “Sewer treatment expenses will be
    allocated based upon billed volume (for operating and maintenance expenses and capital expenses)
    and total volumes for capital expenses.”
    4
    This provision of the City Council resolution clarified that it applied to the escrow account “that
    currently exists.”
    5
    The city’s resolution included a tenth point: “The City Attorneys are authorized to sign a stay of
    proceedings order regarding the current lawsuit while the written settlement agreement is being
    drafted and then ultimately to be reviewed and executed by the City and the Township.”
    -3-
    [City Attorney]. You’re [sic] Honor that’s a correct statement by [the
    township’s attorney]. The City concurs with what he just placed on the record and
    we will prepare the necessary documents as soon as practical.
    But the parties did not “hash out” the essential terms and their “agreement” to settle never
    matured into an actual written settlement agreement. On May 31, 2018, the court ordered the
    parties to appear for a status conference on July 27. Thereafter, the township filed a “summary of
    post settlement activities and request to enforce the settlement agreement,” as well as a proposed
    judgment. At the July 27 status conference, the city’s attorney challenged any request for the court
    to enter a final judgment:
    One of the problems with the court entering any final judgment or order is
    the language that both parties agreed to at the time of the trial, which was that
    there’d be a final written agreement that would reflect what the parties thought they
    agreed to. And that those would be presented to both the City Council and the
    Township Board for final approval consistent with the above.
    And that has not taken place. We have not gotten that far in the process
    unfortunately. And whether it be the Township[’]s fault or the City’s fault or
    nobody’s fault the agreement that was placed on the record contemplated that. And
    so I’m not sure how the court could enter a final judgment that requires the parties
    to be bound by that particular language when that has not occurred yet.
    The court acknowledged on the record that the parties had simply made “an agreement to
    agree later either in writing or otherwise” and that this preliminary agreement was “non-
    enforceable” as a final agreement. The court continued:
    But my recommendation to the City is simply this. You’ve been presented
    with a, a final judgment. I recommend that you present your own . . . proposed
    final judgment within [21] days from today. And what I’ll do is I’ll compare the
    two and see . . . which one most closely purports with the statement made on the
    record. . . . [O]f which there were several important and critical agreements,
    elements that might conclude this litigation. Do that within [21] days and I’ll
    compare the two and issue my ruling.
    The city eventually filed its own proposed judgment and the parties lodged objections to
    each other’s proposals. One of the main points of contention was whether the terms of the
    judgment should apply only to the rates accumulated thus far, or would revise the contract into the
    future. “Based on a review of the respective bodies’ meeting minutes, an audio recording of the
    City’s meeting minutes, a transcript of the March 1, 2018 court proceeding, and the parties’
    respective arguments,” the circuit court outlined the “principle terms of the settlement that are
    binding upon both parties.” These provisions mostly mirrored the resolutions passed by the city
    council and township board. The court added the following elements, however:
    e. Shared water distribution expenses will be allocated based upon volumes
    inclusive of water losses, with the shared system being defined as 61% of the City’s
    system.
    -4-
    f. The percentage of 61% shall remain fixed until the City first provides the
    Township a complete hydraulic water model of the City’s system. Within 6 months
    after the City provides the Township the City’s water model, the Township will
    either agree with the output of that model as conclusive of the Township’s use of
    the City’s system or provide notice of a dispute of the City’s water model output.
    The City’s engineer and the Township’s hydraulic modeler will meet, either orally
    or in person, to establish a third-party independent engineer who will then review
    the conclusions of both parties. If the third-party independent engineer agrees with
    neither parties’ output, then the third-party independent engineer shall establish
    what he or she believes is the accurate model output, which shall become the
    Township’s percentage of use of the City’s system. If the parties hire a third-party
    independent engineer, the costs of the third-party independent engineer will be split
    equally between the parties. If the Township does nothing during that 6-month
    period, the City’s water model output will be the Township’s use of the City’s
    system. The percentage will remain fixed, except that it is subject to the same
    review process every 5 years thereafter.
    * * *
    i. [The parties’ rate experts] will meet as soon as possible to prepare a written rate
    methodology that will be incorporated into a formal written agreement to be
    executed by the parties.
    Despite that provision (f) referenced five-year review periods, the court subsequently found that
    the judgment’s terms were limited to a specific timeframe—May 1, 2014 through June 30, 2018.
    The court then ordered the township to pay the city designated amounts for water and sewer
    services for different periods between May 1, 2014 and June 30, 2017. The court noted that the
    parties had yet to agree on the sums owed in the 2018 fiscal year.
    II. JUDGMENT BASED ON SETTLEMENT AGREEMENT
    The parties filed cross appeals challenging various provisions of the court’s judgment. The
    judgment cannot stand, however, as the court attempted to enforce a “settlement agreement” that
    was never placed on the record.
    “An agreement to settle a pending lawsuit is a contract and is to be governed by the legal
    principles applicable to the construction and interpretation of contracts.” Kloian v Domino’s Pizza,
    LLC, 
    273 Mich. App. 449
    , 452; 773 NW2d 766 (2006) (quotation marks and citation omitted). For
    a settlement agreement to be formed, just as with any contract, there must be an offer and
    acceptance as well as “mutual assent or a meeting of the minds on all the essential terms.” 
    Id. at 452-453.
    “A meeting of the minds is judged by an objective standard, looking to the express words
    of the parties and their visible acts, not their subjective states of mind.” 
    Id. at 454
    (quotation marks
    and citations omitted). “Mere discussions and negotiation, including unaccepted offers, cannot be
    a substitute for the formal requirements of a contract.” Kamalnath v Mercy Memorial Hosp Corp,
    
    194 Mich. App. 543
    , 549; 487 NW2d 499 (1992). And where the parties have not “met upon all
    -5-
    the essential particulars,” the court may not create the missing essentials. Czeizler v Radke, 
    309 Mich. 349
    , 358; 15 NW2d 665 (1944) (quotation marks and citation omitted).6
    “However, this Court will not enforce a settlement agreement” even if it “fulfills the
    requirements of contract principles if that agreement does not also satisfy the requirements of the
    court rule.” Mich Mut Ins Co v Indiana Ins Co, 
    247 Mich. App. 480
    , 484-485; 637 NW2d 232
    (2001). Specifically, MCR 2.507(G) provides that a settlement agreement “is not binding unless
    it was made in open court, or unless evidence of the agreement is in writing, subscribed by the
    party against whom the agreement is offered or by that party’s attorney.” “ ‘Subscribe’ means to
    append, as one’s signature, at the bottom of a document or the like; sign.” 
    Kloian, 273 Mich. App. at 459
    (quotation marks and citation omitted).
    Here, the parties did not enter a settlement on the record and they did not have a meeting
    of the minds on the essential terms of the agreement. On March 1, 2018, the township’s attorney
    stated in open court that the parties had “reached an agreement.” Counsel noted that the city
    council and township board had voted “to approve the principles of the agreement.” However,
    counsel then asserted that the parties had yet to reach an agreement on “the essential terms” of the
    settlement—“The next step . . . is that . . . counsel will get together and hash out the essential terms
    in writing. . . .” Without a meeting of the minds on the essential terms, there cannot be a settlement.
    Without stating those essential terms in open court or having both parties subscribe to a writing
    with the essential terms, the court cannot enforce a “settlement.”
    The city council and township board votes also support that the parties did not reach a
    meeting of the minds over the settlement’s essential terms. The city council and township board
    approved only “general terms” and even those were not identical. There was critical variance
    within those general terms; the township approved entering an agreement where the allocation
    percentage for water distribution expenses would be fixed for a 10-year period, while the city did
    not. The township also approved the general terms on the caveat that the city’s and township’s
    rate experts would provide certain information, while the city did not. The length of the contract
    and the availability of information were hotly contested issues in this case and were essential terms
    for contract formation.
    Accordingly, the circuit court improperly entered a judgment based on the parties’
    “settlement agreement.” As the court should not have entered the judgment, we need not consider
    the parties’ various challenges to the provisions of that judgment. Instead, we vacate the judgment
    in its entirety and remand for further proceedings. If the parties have yet to agree on the essential
    terms of their contract, both past and present, a full trial may be required.
    III. SUMMARY DISPOSITION
    The city further challenges the circuit court’s earlier denial of its motion for partial
    summary disposition in its favor of Count I of its complaint. That count sought a declaratory
    judgment that the parties’ 1977 agreement “had expired and has terminated under its own terms
    6
    If the missing terms are not “essential,” however, “the law supplies the missing details by
    construction.” Nichols v Seaks, 
    296 Mich. 154
    , 159; 
    295 N.W. 596
    (1941).
    -6-
    given the fact that Defendant Township of Alpena has a viable alternative water and sewer system
    that can be feasibly developed or may feasibly purchase water and sewer services from the City of
    Alpena.” The city sought summary disposition only regarding the township’s “proportionate
    share” of the sewer services. In support of its motion, the city contended that it was required to
    charge the township its “proportionate share” as a recipient of the sewer services under the terms
    of a federal grant it secured to construct the system.
    The township directly addressed this argument. However, the township first asserted that
    the court would not be required to reach this issue if the court agreed with its position that under
    the common-law utility basis of ratemaking, the city was required to charge a “reasonable rate”
    and had not.
    The court denied the city’s motion. In doing so, the court made the following statement
    that is challenged by the city on cross-appeal:
    Regardless of the label attached to the Township, i.e., as a “wholesale” or
    “retail” customer, the central issue remains the same: whether the rates are
    reasonable. In addressing this, the Township has not identified any specific
    unreasonable charge. Rather, it contends the rates – as a whole – are unreasonable
    per se.
    The challenged statement was only a small part of the court’s analysis of this issue, however. The
    trial court further noted that “[h]istorically, courts have accorded great deference to authorized-
    rate making authorities when reviewing the validity of municipal water rates” and acknowledged
    that such “rates are ‘presumptively reasonable’ because ‘courts of law are ill-equipped to deal with
    the complex, technical processes required to evaluate the various cost factors and various methods
    of weighing those factors required in rate-making.’ ”7 Ultimately, the court ruled that it could not
    “conclude that the rates are unreasonable at this juncture. For it has been widely held that the
    determination of ‘reasonableness’ is considered to be a question of fact.”
    However one characterizes the city’s challenge, it stands true that there remained questions
    of fact in the summer of 2016, precluding summary disposition at that time.
    A motion under MCR 2.116(C)(10) “tests the factual support of a plaintiff’s
    claim.” Walsh v Taylor, 
    263 Mich. App. 618
    , 621; 689 NW2d 506 (2004).
    “Summary disposition is appropriate under MCR 2.116(C)(10) if there is no
    genuine issue regarding any material fact and the moving party is entitled to
    judgment as a matter of law.” West v Gen Motors Corp, 
    469 Mich. 177
    , 183; 665
    NW2d 468 (2003). “In reviewing a motion under MCR 2.116(C)(10), this Court
    considers the pleadings, admissions, affidavits, and other relevant documentary
    evidence of record in the light most favorable to the nonmoving party to determine
    whether any genuine issue of material fact exists to warrant a trial.” Walsh, 263
    7
    Although a city’s utility rates are presumptively reasonable, “the presumption of reasonableness
    may be overcome by a proper showing of evidence.” Trahey v Inkster, 
    311 Mich. App. 582
    , 594;
    876 NW2d 582 (2015).
    -7-
    Mich App at 621. “A genuine issue of material fact exists when the record, giving
    the benefit of reasonable doubt to the opposing party, leaves open an issue upon
    which reasonable minds might differ.” 
    West, 469 Mich. at 183
    . [Zaher v Miotke,
    
    300 Mich. App. 132
    , 139-140; 832 NW2d 266 (2013).]
    Voluminous evidence would be required to determine the appropriateness of the water and
    sewer rates charged in this case. But as late as the summer of 2018, two years after the court
    denied summary disposition, the city was still withholding information necessary to make those
    calculations. Accordingly, it would have been premature to grant summary disposition in either
    party’s favor in the summer of 2016.
    We affirm the denial of summary disposition, but vacate the September 19, 2018 final
    judgment and remand for further proceedings consistent with this opinion. We do not retain
    jurisdiction.
    /s/ Colleen A. O’Brien
    /s/ Kathleen Jansen
    /s/ Elizabeth L. Gleicher
    -8-
    

Document Info

Docket Number: 345817

Filed Date: 3/17/2020

Precedential Status: Non-Precedential

Modified Date: 3/18/2020