N. Fayette County Municipal Auth. v. Municipal Auth. of Westmoreland County, & PA-American Water Co. ( 2020 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
North Fayette County :
Municipal Authority, :
:
Appellant :
: No. 1327 C.D. 2018
v. : Argued: May 8, 2019
:
Municipal Authority of :
Westmoreland County, and :
Pennsylvania-American Water :
Company :
BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge
HONORABLE RENÉE COHN JUBELIRER, Judge
HONORABLE ROBERT SIMPSON, Judge1
HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE ANNE E. COVEY, Judge
HONORABLE MICHAEL H. WOJCIK, Judge
HONORABLE ELLEN CEISLER, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION
BY JUDGE WOJCIK FILED: January 6, 2020
North Fayette County Municipal Authority (the Authority) appeals
from the September 7, 2018 order of the Court of Common Pleas of Fayette
County (trial court), sustaining the preliminary objections (POs) filed by the
Pennsylvania-American Water Company (PAWC) and the Municipal Authority of
1
This matter was assigned to this panel before September 1, 2019, when Judge Simpson
assumed the status of senior judge and was decided before Judge Simpson’s service on the Court
ended on December 31, 2019.
Westmoreland County (MAWC) and dismissing the Authority’s amended
complaint with prejudice. We affirm.
Facts and procedural history
The Authority was incorporated by the Borough of Dunbar (Borough)
in 1955 under the former Municipality Authorities Act of 1945.2 Fayette County
became a member municipality in 1975. The Authority’s articles of incorporation
reference an ordinance adopted by the Borough, which is not in the record. The
articles of incorporation state that the Authority “is formed . . . for the purpose of
exercising any and all of the powers conferred by [the former Municipality
Authorities Act].” Reproduced Record (R.R.) at 33.
The Authority “provides water service to Dawson Borough, Dunbar
Borough, Perryopolis Borough, Smithfield Borough, Vanderbilt Borough, Dunbar
Township, Franklin Township, Lower Tyrone Township, and Perry Township.”
Amended Complaint, R.R. at 4. The Authority also “provides service to portions
of the City of Uniontown, the City of Connellsville, Connellsville Township,
Georges Township, Menallen Township, Nicholson Township, North Union
Township, Redstone Township, South Union Township, Springhill Township and
Upper Tyrone Township.” Id. (emphasis in original). The Authority is one of 16
water purveyors within Fayette County. Id.
PAWC is a public utility that owns various water lines located within
Fayette County. Id. PAWC provides water service to portions of municipalities
throughout Fayette County, including the cities of Uniontown and Connellsville,
2
Act of May 2, 1945, P.L. 382, as amended, formerly 53 P.S. §§301-322, repealed by
Section 3 of the Act of June 19, 2001, P.L. 287, and continued in the current Municipality
Authorities Act, 53 Pa. C.S. §§5601 - 5623.
2
Connellsville Township, Bullskin Township, Dunbar Township, Menallen
Township, North Union Township, and South Union Township.
On May 2, 1985, the Authority and PAWC’s predecessor entered into
a bulk water supply agreement with a term of 30 years.3 R.R. at 131-46. At the
time, the Authority had been supplying PAWC with a portion of the water supply
needs of PAWC’s Uniontown District. Under the terms of the 1985 agreement, the
Authority was to provide PAWC, and PAWC was to take, an additional supply of
water on an as-needed basis. The terms of the agreement required at least
10 years’ notice prior to termination by either party. If cancellation notice was not
provided, the agreement was to renew automatically for additional 10-year periods.
By letter dated December 3, 2003, the Authority notified PAWC of
the Authority’s decision to terminate the agreement at its end date, May 2, 2015.
R.R. at 147. In a June 20, 2013 response, PAWC offered to renew the 1985
agreement under its existing terms, but no agreement was reached. R.R. at 148.
MAWC’s enabling legislation authorizes MAWC to supply water
anywhere outside its municipal borders, including Fayette County. On March 11,
2015, PAWC entered into a bulk water purchase agreement with MAWC (the
Westmoreland Agreement).4 R.R. at 151-60. To implement the new agreement,
PAWC constructed water facilities to accept water supplies from MAWC.
The Authority filed a complaint on June 13, 2016, and an amended
complaint on August 22, 2016, alleging that the agreement between MAWC and
3
The parties have been operating under extensions to that agreement while this matter is
pending.
4
The Westmoreland Agreement has been approved by the Pennsylvania Public Utility
Commission under Section 507 of the Public Utility Code, 66 Pa. C.S. §507.
3
PAWC violates Section 5607(b)(2) of the Municipality Authorities Act (Act), 53
Pa. C.S. §5607(b)(2). In relevant part, Section 5607(b)(2) states:
The purpose and intent of this chapter being to benefit
the people of the Commonwealth by, among other things,
increasing their commerce, health, safety and prosperity
and not to unnecessarily burden or interfere with existing
business by the establishment of competitive enterprises,
none of the powers granted by this chapter shall be
exercised in the construction, financing, improvement,
maintenance, extension or operation of any project or
projects or providing financing for insurance reserves
which in whole or in part shall duplicate or compete with
existing enterprises serving substantially the same
purposes.
53 Pa. C.S. §5607(b)(2). In the amended complaint, the Authority alleged that
Section 5607(b) of the Act precludes municipal authorities from competing with
each other. The Authority further alleged that the construction of water facilities
by PAWC and MAWC competes with and duplicates the Authority’s existing
infrastructure through which the Authority “can and does supply water to PAWC
for resale or redistribution to PAWC’s Uniontown District,” and thus serves
substantially the same purpose as the Authority’s existing enterprise, operation,
supply, or service. R.R. at 8.
Count I of the amended complaint, lodged only against MAWC,
requests the trial court to enjoin MAWC from implementing the Westmoreland
Agreement, asserting in part that allowing PAWC to purchase bulk water from
MAWC would violate Section 5607(b)(2) of the Act and would cause the
Authority irreparable harm. Count II of the amended complaint alleges civil
conspiracy against both PAWC and MAWC. Count III seeks a declaratory
judgment that the Westmoreland Agreement violates the non-competition or non-
4
duplication of service provisions of the Act and is therefore void and
unenforceable.
PAWC filed POs requesting dismissal of the amended complaint for
failure to state a claim against PAWC, either for a violation of the non-competition
provision of the Act or for civil conspiracy. R.R. at 161-79. Specifically, PAWC
asserted that the Act does not apply to public utilities; the Act does not prohibit
competition between municipal authorities; and, even if the Act does apply to
competing municipal authorities, MAWC has a right to provide water services to
PAWC in Fayette County without violating the Act.5
MAWC filed POs similarly asserting that the amended complaint
should be dismissed for failure to state a claim because no violation of the Act had
occurred. MAWC asserted that PAWC and MAWC have contracted for water
supply for the Uniontown District and surrounding areas for the past 25 years.6
MAWC further asserted that the purpose of Section 5607(b)(2) is to prohibit
competition between municipal authorities and private enterprises.7
Relying on Dominion Products and Services, Inc. v. Pittsburgh Water
and Sewer Authority, 44 A.3d 697, 704 (Pa. Cmwlth. 2011), and Beaver Falls
Municipal Authority v. Municipal Authority of the Borough of Conway, 689 A.2d
5PAWC also alleged that Count II fails to allege an underlying tort as required to state a
claim for civil conspiracy.
6
The Authority disputes that contention and alleges that, prior to March 11, 2015,
MAWC did not supply water to PAWC for resale or distribution to the Uniontown District.
Authority’s brief at 10; Amended Complaint, R.R. at 6. Whether MAWC previously served any
part of PAWC’s Uniontown District is not material to our disposition.
7
The POs also averred that: the civil conspiracy claims should be dismissed for legal
insufficiency because there is no proof of malice; and venue is improper because the principal
places of business for both PAWC and MAWC are outside Fayette County.
5
379, 381 (Pa. Cmwlth. 1997) (Beaver Falls), the trial court observed that the
purpose of Section 5607(b)(2) is to prohibit competition between authorities and
private business due to the competitive advantage an authority has over a private
enterprise. The trial court noted that the plain language of the statute applies to
“existing business.” 53 Pa. C.S. §5607(b)(2). Ultimately, the trial court concluded
that the Act does not preclude municipal authorities from competing with other
municipal authorities. “The duplication of services by more than one authority is
not ‘competition’ prohibited by the [Act].”8 Trial court op. at 6.
The trial court explained that if the Authority were to prevail, the
result would bind PAWC to continue doing business with the Authority ad
infinitum, to the exclusion of any other provider. The court stated that such a result
would be contrary to public policy, and contrary to the Authority’s actions in
giving notice that it would not renew the Agreement.
The trial court concluded that the amended complaint failed to allege
facts demonstrating that the Westmoreland Agreement violated the Act. Because
Counts II (conspiracy) and III (declaratory judgment) of the amended complaint
were predicated on that assertion, the trial court concluded that they also failed to
state a claim upon which relief could be granted. Accordingly, the trial court
sustained the POs and dismissed the amended complaint with prejudice.
8
Citing Beaver Falls, the trial court added that the statute prohibits the establishment of
duplicative projects, but not duplication of services. In Beaver Falls, we noted that the common
pleas court had interpreted the Act as prohibiting the creation of municipal authorities to compete
with existing enterprises. 689 A.2d at 382 n.4. We agreed with the appellant authority that the
Act “prohibits the establishment of duplicative or competitive projects, rather than municipal
authorities.” Id. (emphasis in original). However, the trial court misinterpreted the relevant
language in Beaver Falls in applying it to this case.
6
Discussion9
Relying on Lower Bucks County Joint Municipal Authority v. Bristol
Township Water Authority, 586 A.2d 512 (Pa. Cmwlth. 1991) (Lower Bucks
County), Bristol Township Water Authority v. Lower Bucks County Joint
Municipal Authority, 567 A.2d 1110 (Pa. Cmwlth. 1989) (Bristol Township), and
Northampton, Bucks County, Municipal Authority v. Bucks County Water and
Sewer Authority, 508 A.2d 605 (Pa. Cmwlth. 1986) (Northampton), the Authority
contends that the trial court erred in holding that the Act does not prohibit
competition between two municipal authorities.
In Northampton, the Northampton, Bucks County, Municipal
Authority (Northampton) filed a complaint against Bucks County Water and Sewer
Authority (Bucks) seeking to invalidate a water supply contract between Bucks and
the Newtown Artesian Water Company (Newtown Artesian). The chancellor
denied the requested relief. On appeal, this Court affirmed. The applicability of
the non-competition clause of the Act was not raised. Rather, we rejected the
argument that construction of water main extensions necessary to implement the
proposed agreement would violate the Act’s non-competition clause based on the
facts of the case, explaining:
9
Our review of a trial court’s order sustaining preliminary objections and dismissing a
complaint is limited to determining whether the trial court abused its discretion or committed an
error of law. Petty v. Hospital Service Association of Northeastern Pennsylvania, 967 A.2d 439,
443 n.7 (Pa. Cmwlth. 2009). In reviewing preliminary objections, we consider as true “all well
pleaded relevant and material facts.” Id. However, “the court need not accept as true
conclusions of law, unwarranted inferences from facts, argumentative allegations, or expressions
of opinion.” Penn Title Insurance Company v. Deshler, 661 A.2d 481, 483 (Pa. Cmwlth. 1995).
“A demurrer will not be sustained unless the face of the complaint shows that the law will not
permit recovery, and any doubts should be resolved against sustaining the demurrer.” Id.Reviewing preliminary objections involves a question of law to which our standard of review is
de novo and our scope of review is plenary. Petty, 967 A.2d at 443 n.7.
7
Appellants fail to recognize that the plain wording of the
statute is such that it prohibits projects which “shall
duplicate . . . existing enterprises serving substantially the
same purposes.” This clause of the statute is phrased in
the present tense, it is not worded in such a manner that
what Northampton could possibly do is in any way
relevant. It is undisputed that Northampton is not
currently providing through its facilities any kind of
service that serves substantially the same purpose that the
planned water main extensions would.
508 A.2d at 615 (emphasis in original).
We relied on our decision in Northampton in Bristol Township. In
that case, the Lower Bucks County Joint Municipal Authority (Lower Bucks) filed
a complaint seeking to enjoin Bristol Township Water Authority (BTWA) from
interfering with or duplicating water service in three areas already serviced by
Lower Bucks. After a hearing, the common pleas court enjoined BTWA from
extending its water service into the disputed areas. On appeal to this Court,
BTWA asserted, inter alia, that the chancellor erred in determining that the non-
competition clause in the Act applied to Lower Bucks and BTWA, both municipal
authorities. We rejected that argument, noting that in Northampton this Court
applied the non-competition provision to two municipal authorities. Bristol
Township, 567 A.2d at 1113.
In Lower Bucks County, we referenced those prior decisions and
stated:
The next issue decided by our Court in Bristol Township
was whether [the Act’s] non[-]competition clause applies
as between two public entities. We rejected the notion
that the term “competing enterprises” applies only to for-
profit businesses and held that municipal authorities are
within the meaning of that term. In doing so we relied
upon [Northampton], wherein we applied [Section
4A(b)(2) of the Municipality Authorities Act of 1945,
8
formerly 53 P.S. §306A(b)(2),10] to two municipal
authorities.
586 A.2d at 515 (emphasis added). In light of this Court’s precedent, the trial
court erred in holding that the Act does not apply to municipal authorities. Lower
Bucks County; Bristol Township; Northampton.
However, we conclude that our holding in Beaver Falls compels us to
reject the Authority’s remaining assertion, that the amended complaint states a
claim against MAWC for a violation of Section 5607(b)(2) of the Act arising from
MAWC’s agreement to furnish water to PAWC for service within the Uniontown
District.
In Beaver Falls, the Beaver Falls Municipal Authority (Beaver Falls
Authority) entered into a contract to supply bulk water to the Municipal Authority
of the Borough of Conway (Conway Authority). After the expiration of the
parties’ 10-year contract in 1989, they continued to do business on a year-to-year
basis. In 1993, Conway Authority entered into an agreement with Ambridge
Authority for the purchase of water. In order to implement the agreement, an
interconnection between Conway Authority and Ambridge Authority would have
to be constructed, requiring capital expenditures by both parties. Conway
Authority then gave Beaver Falls Authority notice of its intent to terminate the
contract between them.
Beaver Falls Authority filed a complaint seeking to enjoin the two
authorities from implementing their agreement, asserting that the Act precluded
Ambridge Authority from competing with it to supply water to Conway Authority.
Conway Authority and Ambridge Authority responded that the non-competition
10
The language of former Section 4A(b)(2) is virtually identical to Section 5607(b) of the
Act.
9
clause did not apply because Conway Borough was not within the service area of
Beaver Falls Authority as described in its enabling legislation. Relying on Lower
Bucks County, the court of common pleas agreed,11 and this Court affirmed on
appeal. We explained:
Beaver Falls, Conway Authority and Ambridge Authority
are each municipal authorities organized pursuant to the
[Municipality Authorities Act of 1945]. Section 2(d) of
the [Municipality Authorities Act of 1945, formerly 53
P.S. §302(d)], defines a municipal authority as “the body
or board authorized by law to enact ordinances or adopt
resolutions for the particular municipality.” (Emphasis
added.) The power and authority of a municipal
authority is limited to that granted it by its enabling
legislation. In Re Acquisition of Water System in White
Oak Borough, [93 A.2d 437, 438 (Pa. 1953)]; Fisher v.
Southeastern Pennsylvania Transportation Authority,
[431 A.2d 394, 397 (Pa. Cmwlth. 1981)].
Where a municipal authority provides service to an area
identified by its enabling legislation as the territory
which the authority was created to serve, the authority’s
right to provide that service is entitled to protection from
competition under [former] Section 4A(b)(2) of the
[Municipality Authorities Act of 1945]. [Lower Bucks
County]. In Bristol Township,[12] the right to furnish
11
In Lower Bucks County, we held that where water is supplied by an authority in
compliance with its enabling legislation, that right to furnish would be protected by the
Municipality Authorities Act of 1945. The common pleas court found that Beaver Falls
Authority’s service area was defined by its enabling legislation as the City of Beaver Falls, and
the court reasoned that the legislature did not intend an authority to expand its service area
merely by entering into a contract with another authority or municipality. The common pleas
court concluded that the only rights Beaver Falls Authority had ever acquired to provide water to
Conway Authority were derived from the contract between those parties and that those
contractual rights were not entitled to protection under the Municipality Authorities Act of 1945.
(Footnote continued on next page…)
10
water which was afforded protection under the
[Municipality Authorities Act of 1945] was a right
specifically acquired by Lower Bucks Authority under
the provisions of its enabling legislation. Thus, the
concept of “service area” is relevant to our analysis, even
though those words are not included in [former] Section
4A(b)(2) of the [Municipality Authorities Act of 1945].
As stated previously, Beaver Falls’ enabling legislation
authorizes it specifically to service the City of Beaver
Falls and does not specifically authorize it to service
Conway Authority or Conway Borough. In this case, the
sole source of Beaver Falls’ authority to sell water to
Conway Authority is [former] Section 4B(p) of the
[Municipality Authorities Act of 1945, formerly 53 P.S.
§304(B)(p)], which empowers Beaver Falls to acquire
those rights and duties as it may desire by way of
contract. As observed by the [court of common pleas], if
Beaver Falls is entitled to protection from competition
merely by acquiring a contractual right to supply water to
Conway Authority, then any authority would be able to
expand its service area merely by entering into such a
contract with other municipalities or authorities. We do
not believe that the legislature intended such a result.
Rather, where the authority to sell water to entities
outside a municipal authority’s service area stems from
[former] Section 4B(p) of the [Municipality Authorities
Act of 1945], the terms for the sale of water are to be
fixed by contract, and the rights and duties of the parties
are limited to those set forth in the contract.
Beaver Falls, 689 A.2d at 382-83 (emphasis in original).
The Authority asserts that Beaver Falls is distinguishable from this
matter because the Authority’s amended complaint alleges that its service to
(continued…)
12
Bristol Township Water Authority v. Lower Bucks County Joint Municipal Authority,
567 A.2d 1110 (Pa. Cmwlth. 1989).
11
PAWC for redistribution within the Uniontown District is “not inconsistent with”
the authority granted by its enabling legislation. R.R. at 5 (emphasis added);
Authority’s brief at 16. However, in Beaver Falls, this Court held that protection
from competition under the non-competition provisions of the Municipality
Authorities Act of 1945 was afforded to the service area specifically identified by
an authority’s enabling legislation. The Authority does not claim that the
ordinance adopted by the Borough authorizing the creation of the Authority
specifically includes the Uniontown District in the Authority’s service area.
Because the Authority is entitled to protection from competition only within its
service area pursuant to its enabling legislation, this matter is governed by the
parties’ agreement, and the Authority cannot rely on the non-competition
provisions of the Act. Beaver Falls, 689 A.2d at 382-83.
Conclusion
Pursuant to our decisions in Bristol Township and Lower Bucks
County, the non-competition provision in Section 5607(b) applies to municipal
authorities, and the trial court erred in concluding otherwise. Nevertheless,
because the Act’s protection extends only to the service area identified by an
authority’s enabling legislation, the trial court correctly concluded that the
amended complaint failed to allege facts demonstrating that the Authority is
entitled to protection from competition under the Act. Beaver Falls. Furthermore,
where the Authority notified PAWC that it intended not to renew the contract and
the parties were unable to reach a subsequent agreement, there was no “existing
enterprise serving substantially the same purposes,” and the Act would not bar the
Westmoreland Agreement per our analysis in Northampton.
12
The underlying facts are not disputed, and the Authority does not
suggest there are additional facts to support its claim. Consequently, the trial court
did not err in dismissing the amended complaint with prejudice.
Accordingly, we affirm.
MICHAEL H. WOJCIK, Judge
Judge Fizzano Cannon did not participate in the decision of this case.
13
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
North Fayette County :
Municipal Authority, :
:
Appellant :
: No. 1327 C.D. 2018
v. :
:
Municipal Authority of :
Westmoreland County, and :
Pennsylvania American Water :
Company :
ORDER
AND NOW, this 6th day of January, 2020, the order of the Court of
Common Pleas of Fayette County, dated September 7, 2018, is AFFIRMED.
__________________________________
MICHAEL H. WOJCIK, Judge