NIBCO Inc. v. City of Lebanon

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 17a0130n.06
CASE NO. 16-3395
FILED
UNITED STATES COURT OF APPEALS Feb 27, 2017
FOR THE SIXTH CIRCUIT DEBORAH S. HUNT, Clerk
NIBCO INC., )
)
Plaintiff-Appellant, )
)
v. ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
CITY of LEBANON, ) COURT FOR THE SOUTHERN
) DISTRICT OF OHIO
Defendant-Appellee. )
)
Before: SILER, BATCHELDER, and GRIFFIN, Circuit Judges.
ALICE M. BATCHELDER, Circuit Judge. Due to its employee’s clerical error, a
municipality mistakenly undercharged a customer for electricity over a period of 65 months and,
upon realizing its mistake, demanded that the customer pay the full $1.27 million undercharge.
The parties’ relationship was governed not by an individualized contract, but by a municipal
ordinance, which had no provision authorizing the municipality to recoup undercharges arising
from its own clerical error. The district court declared the ordinance ambiguous, held that the
customer’s interpretation would lead to an “absurd result,” and ordered the full payment.
Because we find that the ordinance is not ambiguous under Ohio law and that the customer is
correct that the municipality has no authority to recoup this undercharge, we REVERSE.
I.
As part of its municipal governance, the City of Lebanon, Ohio, provides electrical
service to its community. When establishing a new account, a City employee inputs into the
billing software certain customer information, such as the billing address, metering information,
No. 16-3395, Nibco v. Lebanon
and a “meter multiplier.” This meter multiplier is based on the size of the electric service needed
for a particular facility and directly affects the customer’s monthly billing, but, according to the
City, it is not something that most customers have ever been exposed to or understand.
Nibco is a manufacturing company headquartered in Indiana. Near the end of 2008, it
moved a facility to a new address in Lebanon and submitted to the City an “Application for
Utility Services,” in which it agreed to “be responsible for payment of all bills lawfully due with
respect to the above requested services [e.g., electricity] until notification to discontinue service.”
Importantly, Nibco (out of its corporate office in Indiana) paid every bill on time and in full.
When the City set up service for this new facility, it installed a new utility meter and
established a new utility account. The meter functioned properly but a City employee had
entered an incorrect meter multiplier into the billing software for the new Nibco account,
inputting a value of 40 when it should have been 400. Because of this error, the City
undercharged Nibco for its electricity from January 2009 until June 2014, for a total amount of
$1,269,993. Neither party noticed the error until June 2014, whereupon the City re-set the
multiplier to 400 for future billings and Nibco continued to pay all charges as billed.
The City then sent a letter to Nibco, stating its intent to recoup the undercharges by
adding an additional $19,538.35 to each monthly bill for the next 65 months, but explaining that,
“[s]ince the clerical error was the City’s responsibility, and NIBCO did not notice the error, no
interest or penalties shall be imposed on NIBCO.” The City sent the first such bill, including the
additional “undercharge recoupment amount” of $19,538.35, on December 30, 2014.
On January 29, 2015, Nibco sued, seeking a declaration that it had no obligation to pay
the undercharged amount. Eventually, both parties moved for summary judgment.
The district court began with the agreed-upon premise that, because this is a municipally
owned public utility, it is exempt from Ohio statutes governing public utilities and from
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regulation by the Public Utilities Commission of Ohio (PUCO), and instead, the terms of service
are governed solely by municipal ordinance. Nibco Inc. v. City of Lebanon, No. 1:15-cv-062,
2016 WL 1110315, *3 (S.D. Ohio, Mar. 22, 2016) (citing Xenia v. Ohio, 746 N.E.2d 666, 670
(Ohio 2000)). The parties also agree that the applicable ordinance—Chapter 910 of the City
Code—did not address the question of whether the City could collect undercharges incurred for
services provided but not billed due to the City’s own clerical error. Id. The ordinance was
“silent” on this issue.1
Nibco argued that the City had no basis for compelling this payment because Chapter 910
“did not provide a means by which the City [] could recoup undercharges caused by its own
billing error.” Id. The City answered “that the fact that Chapter 910 was silent on the issue of
recoupment of undercharges” meant only that “no express language in Chapter 910 prohibited
the City [] from collecting undercharges,” id. at *4 (emphasis altered), and “that interpreting
Chapter 910 to preclude it from collecting undercharges from customers for services actually
consumed, but incorrectly billed due to a clerical error, would be an absurd result,” id. Put
another way, the issue is whether the City-as-public-utility has only the limited power that it (as
a political government) has expressly given to itself via its ordinance (Nibco’s view), or instead
has unlimited inherent power but for that which it has expressly withheld it from itself via
ordinance (City’s view).2
Rather than address this question head on, the court declared that Chapter 910 was
ambiguous, asserting that “ambiguity can exist in a statute with clear language if it appears that
1
The City is emphatic about this silence, arguing that “[a] plain reading of the City of Lebanon’s Code of
Ordinances reveals that ‘back-billing’ or adjustments for inadvertent billing mistakes or clerical errors are simply
not addressed. Aside from situations of meter malfunctions or meter tampering addressed in Section 910.04 where
estimates of electric consumption are necessary, the Code of Ordinances is silent to any procedure or protocol for
addressing and correcting billing mistakes or clerical errors.” Ape. Br. at 10 (emphasis in original).
2
The City’s post-lawsuit enactment of a new provision, giving itself this power, indicates that even the
City—at least in some measure—believes an ordinance is necessary to give it such power, rather than merely
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the legislature did not consider a particular problem which a court is called upon to resolve.” Id.
(quoting Appleton v. First Nat. Bank of Ohio, 62 F.3d 791, 801 (6th Cir. 1995)). Note that the
“legislature” here is the City itself, which promulgates its own ordinances. Nonetheless, the
district court concluded that “courts can look beyond the language of a statute or ordinance when
the text is ambiguous or when unambiguous language leads to an absurd result.” Id.From this, the district court held that because Chapter 910 “did not address recoupment
of undercharges caused by a billing error,” it could “look beyond the literal language of Chapter
910[,] given this particular ambiguity in the text, and conclude that the intent of the service
contract is for the customer to pay all proper charges for electric services consumed.” Id.(citation omitted). The court also added that “interpret[ing] Chapter 910 to prohibit the
collection of undercharges … would lead to an absurd result,” id.; that while “PUCO regulations
do not govern the municipal utility services … they provide persuasive authority on industry
practice [and] … authorize Ohio public utilities to collect undercharges caused by ‘billing
problems,’” id. at *5; and that if the City “does not collect the undercharges from NIBCO, then
its other customers effectively will have paid a discriminatorily higher rate,” which violates “the
only restraint imposed by law upon a municipality’s proprietary undertaking of providing
electrical energy,” id. (editorial marks omitted).
II.
We review a summary judgment de novo. Bible Believers v. Wayne Cty., 805 F.3d 228,
242 (6th Cir. 2015) (en banc). The “interpretation of a local ordinance is also subject to de novo
review.” O’Neill v. Louisville/Jefferson Cty. Metro Gov’t, 662 F.3d 723, 728 (6th Cir. 2011).
Nibco argues that the district court erred by permitting the City to recoup undercharges
arising from its own clerical error, even though the ordinance provides no authority or provision
limiting some undefined inherent power. See Nibco, 2016 WL 1110315 at *3 n.1 (quoting new § 910.05(D)(2):
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for that recoupment. Chapter 910 authorizes the City to recoup undercharges in only two
particular circumstances: meter malfunctions and theft of service by the customer.
§ 910.04 COMPUTING THE READING.
Whenever the meter for any utility product or service of the city’s is read,
it shall be the duty of the Service Department to compare the reading so obtained
with the next previous reading and to compute the proper charge to be billed to
the consumer.
Whenever a meter reading is not available and whenever any meter has for
any reason ceased to register, or fails to register accurately within 3%, the Service
Department shall estimate the amount of product used or service rendered, and
such estimate shall be the basis for computing the bill for such period and the
basis on which either a bill adjustment action or a refund action shall be
determined. Any such bill adjustment action or refund shall be limited to the
preceding 12-month period.
If the meter readings are not indicative of the consumer’s actual product or
service usage due to unauthorized taking of service, the Director of Service shall
estimate both the amount of product used or service rendered and the time period
during which the unauthorized taking occurred and compute an appropriate bill
adjustment for such entire period.
City Code § 910.04 (R.1-1) (paragraph breaks added). Nibco reads this to mean that the City, by
its own unilateral ordinance, has established three tiers of recovery for differing errors:
(1) Full recovery for theft of service (customer at fault);
(2) Limited 12-month recovery for meter malfunction (neither party at fault); and
(3) No recovery for anything else (City at fault).
Under this structure, Nibco argues, the City did not empower itself to recover for its own
mistakes that are unknown to the customer. Instead, it placed the burden on itself to prepare
accurate utility bills, §§ 903-905 (R.1-1), and suffer the consequences for failing to do so.3
“undercharges may be billed and the customer shall pay the charges for the entire period of inaccurate billing”).
3
See also Apt. Br. at 24 (“Allowing the City to recover for its own errors thus leaves ‘little incentive to
establish reasonable procedures to guarantee that its meters are properly calibrated or that its bills are computed
accurately.’ Brown v. Walton Elec. Membership Corp., 531 S.E.2d 712, 713 (Ga. 2000).”).
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Nibco argues that the “absurdity” would be to allow the City unlimited recovery for mistakes of
its own fault when the ordinance specifically limits recovery to 12 months for no fault.4
The City, however, like the district court, sees this unwritten “third tier” differently, as
instead meaning full, unlimited recovery for everything other than meter malfunction, including
underbilling attributable to the City. The first of the City’s three supporting arguments is
somewhat circular: the ordinance is ambiguous based on these conflicting views (i.e., no
recovery vs. full recovery) and therefore necessitates judicial re-writing (or just writing in the
first instance, as it happens).
The City quotes Appleton v. First National Bank of Ohio, 62 F.3d at 801, for two legal
propositions: (1) “Reliance on the literal language of the statute is not justified [] if it leads to an
interpretation which is inconsistent with the legislative intent or to an absurd result”; and
(2) “[E]ven when the language of a statute is clear, ambiguity may exist if it appears that the
legislature did not consider a particular problem which a court is called upon to resolve”
(quotation marks and citations omitted).5 And, based on this, the City insists, repeatedly, that it
certainly did not intend that its Code of Ordinances would prohibit it from collecting payment for
service actually consumed by a customer but underbilled due to clerical error.6
In response to this argument, Nibco reminds us that Ohio law (not Sixth Circuit law)
governs this case and points us to Dunbar v. Ohio, 992 N.E.2d 1111 (Ohio 2013), which says:
4
This 12-month limit also undermines the City’s discrimination argument, inasmuch as it sets up the same
“discriminatory” scheme (i.e., other customers paying more than the nonpaying customer) for any undercharges that
would be unrecoverable because they were more than 12 months old. This is simply not a discrimination case.
5
The question in Appleton was whether the word “cash” in the statute meant only currency and coins or
also meant personal check as a form of “cash” though the statute did not explicitly include checks. Id. at 801.
6
In its brief (p. 15), the City also asserts that “a ‘court should not follow the literal language where it could
not have been the legislature’s intent.’ In re App. of Wells, 2015-Ohio-2606, ¶ 26 (Ohio Ct. App., 2015),” but the
City actually cites a dissent (O’Toole, J., dissenting). Moreover, that dissent relies on two cases: F.B.I. v.
Abramson, 456 U.S. 615 (1982), in which the Court actually insists that it is not ignoring the literal language but
rather interpreting it more appropriately, see id. at 625 n.7; and Ohio v. S.R., 589 N.E.2d 1319, 1323 (Ohio 1992),
which actually contradicts the City’s proposition, and states that “[i]n construing a statute, it is the duty of the court
to give effect to the words used in a statute, not to insert words not used.”
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[A]mbiguity in a statute exists only if its language is susceptible of more than one
reasonable interpretation. Thus, inquiry into legislative intent, legislative history,
public policy, the consequences of an interpretation, or any other factors
identified in [O.]R.C. 1.49 is inappropriate absent an initial finding that the
language of the statute is, itself, capable of bearing more than one meaning.
Id. at 1116 (emphasis in original; citations omitted). Ultimately, the Dunbar court concluded
that even though the statute in question was silent on the particular problem before it, that silence
did not render the statute ambiguous. Id. (“Although [O.]R.C. 2743.48 does not specifically
address a vacated guilty plea, we do not agree that this makes the statute ambiguous.”).
City ordinance § 910.04 has no ambiguous language and therefore is not ambiguous. See
id. Accordingly, under Ohio law, inquiry into legislative intent or public policy is inappropriate.
The City’s second argument is that an Ohio appellate court case, City of Akron v. Rogers
Industrial Products, No. 18227, 1997 WL 665719 (Ohio Ct. App., Oct. 8, 1997), specifically
allows municipal utilities to recover electric service undercharges. That case held that:
the contract [between them], construed as a whole, indicated that the parties’
intent was that [Rogers] would pay for all of the electricity it used, and that the
City would bill [Rogers] for that usage. [Rogers]’s failure to pay the amount by
which it had been underbilled by the City, despite the fact that the amount was not
billed in the usual monthly format, constituted a breach of the contract.
Id. at *2. The Rogers facts, while similar to the present facts, differ significantly in that there
was a negotiated contract between the parties on which the court relied. And while the Rogers
reasoning is in line with the City’s position, that opinion does not actually represent Ohio law.
Prior to May 2002, “[p]ursuant to [Ohio] S. Ct. R. Rep. Op. 2(G)(1), an unpublished
opinion of the [Ohio] court of appeals shall not be considered controlling authority in the judicial
district in which it was decided (or anywhere else for that matter).” Ohio v. Parker, 642 N.E.2d
66, 68 (Ohio Mun. Ct. 1994); Stapleton v. Holstein, 723 N.E.2d 164, 166 (Ohio Ct. App. 1998)
(“Unreported opinions of appellate courts are persuasive authority only, even within the issuing
court’s jurisdiction.”); cf Ohio S. Ct. R. Rep. Op 3.4 (“All opinions of the courts of appeals
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issued after May 1, 2002 may be cited as legal authority and weighted as deemed appropriate by
the courts without regard to whether the opinion was published or in what form it was
published.”).
Because Rogers is unpublished from 1997, it is not controlling law. Moreover, given that
Rogers analyzed its circumstances by interpreting “the contract, construed as a whole,” to find
within that contract an “intent … that [Rogers] would pay for all of the electricity it used,” and
therefore a breach of that contract, the Rogers opinion is of little persuasive value inasmuch as
we have no individualized or negotiated contract here, nor any action for “breach of contract.”
Instead, we have the City’s unilaterally enacted ordinance, which offers only silence on this issue
and gives rise to the equally plausible possibility that Nibco intended to pay for only the
electricity for which it was actually, timely billed—which it did pay, every bill.
Finally, the City cites two Ohio cases for the proposition that public utilities must recover
for mistaken underbillings because failure to do so would cause a discriminatory overbilling of
the other customers: Norman v. P.U.C.O., 406 N.E.2d 492 (Ohio 1980), and Cincinnati Gas
& Electric v. Joseph Chevrolet Co., 791 N.E.2d 1016 (Ohio Ct. App. 2003). In Norman,
406 N.E.2d at 494, the municipal utility (Cincinnati Gas & Electric, i.e., “CG&E”) had
“backbilled” several customers for periods of one to six years, in amounts from $65 to $1,741
each, and those customers (i.e., Norman plaintiffs) filed a complaint with the Public Utilities
Commission of Ohio (PUCO) and appealed to the Ohio Supreme Court, arguing that CG&E’s
regulations limited its backbilling to a two-month period. Id. at 495-96. Relying on Ohio
statutes, the court began:
In … CG&E’s [regulations] there is no specific provision regarding backbilling
made necessary because of metering problems discovered by means other than
random, periodic checks.…
….
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[But] [i]t is neither unlawful nor unreasonable for [PUCO] to interpret a utility’s
service regulations in light of the statutory scheme for regulating that utility.
....
[And] [t]hese two [statutory] sections [O.R.C. 4905.32 & .33] require the service
regulations, as approved by [PUCO], to be interpreted to allow backbilling.
Id. at 496-97.7 However, “[b]ased on the finding that backbilling innocent parties beyond a one-
year period would be unjust and unreasonable, [PUCO] ordered a one-year limitation on
backbilling.” Id. at 497. Specifically, PUCO “viewed payment for unbilled service beyond a
year as being unfairly harsh to the customer who could not be expected to know, or who
justifiably did not know, of the undercharge.” Id. at 498. But the Ohio Supreme Court disagreed
that such extensive backbilling would be “unfairly harsh”; instead, it would improperly “spread[]
the cost of the unbilled service to all the utility’s customers, rather than to the customers who
actually used the service the utility provided.” Id. Consequently, the court held that, “[i]n the
absence of statutory authority, [PUCO] cannot limit a utility’s practice of backbilling to one
year,” id., and in so doing, also rejected the Norman appellants’ claim of a two-month limit.
In Joseph Chevrolet, 791 N.E.2d at 1017, the public utility (again CG&E) backbilled
Joseph Chevrolet for $79,549 of unbilled gas consumption over a 23-month period, arising from
CG&E’s own admitted mistakes. When CG&E sued to recover the underpayment and obtained
a jury verdict, Joseph Chevrolet appealed, and the appellate court affirmed based on Ohio statute:
Ohio’s public-utility statutes clearly set forth a public policy that public utilities
cannot discriminate among their customers. … [A] public utility cannot directly
or indirectly collect less from customers in like circumstances, for like or
substantially similar services. …
Allowing a customer to pay less because of a malfunctioning meter results in the
public utility’s service not being supplied ‘under a given rate structure’ because
7
The Norman dissent argued for the CG&E regulation that limited backbilling to two months even if that
regulation “may be ambiguous,” because “[w]e have held that where the meaning of a tariff is ambiguous, it is to be
construed in favor of the consumer [whereas] [t]oday’s decision construes the tariff in favor of the very entity that
drafted and caused any ambiguity, rather than the consumer who suffers from this construction.” Norman, 406
N.E.2d at 499 (Locher, J., dissenting) (citing Saalfield Publ’g Co. v. P.U.C.O., 77 N.E.2d 914 (Ohio 1948)). Thus,
the Norman court was aware of and implicitly rejected a construed-against-the-drafter argument.
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the customer with the malfunctioning meter is paying less than a customer with a
properly working meter for the same amount of gas.
Id. at 1022-23 (footnotes omitted) (citing O.R.C. 4509.32 and 4509.33). The court also cited and
relied on Norman, 406 N.E.2d at 497, and rejected Joseph Chevrolet’s defenses:
We sympathize with the situation of a business being ‘sandbagged’ by a large
unforeseen bill. But to allow Joseph [Chevrolet] to assert equitable estoppel or
laches would allow it to relieve itself of the obligation to pay for the gas it
consumed, thus permitting it to pay less for the same service than other customers
had paid during the same time. This would be in direct contravention of the public
policy embodied in the public-utility statutes. …
This is one of those situations where absolute equity must give way to the greater
overall good. In adopting a comprehensive scheme of public utility rate
regulation the Legislature has found it impossible to do absolute justice under all
circumstances. …
Joseph Chevrolet, 791 N.E.2d at 1024 (footnotes and quotation marks omitted; emphasis added).
The point of these two cases, the City argues, is that, based on public policy and the need
to avoid discriminatory overbilling of the other customers, the Ohio courts would uphold its right
to full recovery of mistaken underbillings. But Nibco responds that the obvious “fatal flaw” in
this argument is that both cases rest on PUCO statutes—i.e., “a comprehensive scheme of public
utility rate regulation,” id.—which do not apply in this case because municipal utilities, such as
the City, are specifically exempt from PUCO statutes, as both parties agreed and the district
court expressly acknowledged. Nibco, 2016 WL 1110315 at *3. Therefore, Norman and Joseph
Chevrolet do not control and, because the City ordinance has no provision corresponding to the
PUCO provisions underlying those two cases, they are not persuasive either.
In the end, because the City’s ordinance is “silent,” the City has no authority to justify its
backbilling here. As Nibco argues, “[t]he City’s puzzling request to ‘void’ its own legislative
‘silence’ (City Br. 32) is, at bottom, a thinly-veiled plea that the federal judiciary rewrite its Code
of Ordinances to provide a remedy that did not exist at the time of its errors.” Apt. Reply Br. at
12. That we cannot do.
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III.
For the foregoing reasons, we REVERSE the judgment of the district court and
REMAND for entry of judgment in favor of Nibco.
11