MGPI of Indiana, LLC v. South Dearborn Regional Sewer District

FILED
Jan 09 2020, 7:47 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE
Mark J. Crandley Gregory A. Neibarger
Lester Parvin Price Margaret M. Christensen
Barnes & Thornburg LLP Bingham Greenebaum Doll LLP
Indianapolis, Indiana Indianapolis, Indiana
David T. McGimpsey
Bingham Greenebaum Doll LLP
Jasper, Indiana
IN THE
COURT OF APPEALS OF INDIANA
MGPI of Indiana, LLC, January 9, 2020
Appellant-Plaintiff, Court of Appeals Case No.
19A-PL-393
v. Appeal from the
Dearborn Circuit Court
South Dearborn Regional Sewer The Honorable
District, James D. Humphrey, Judge
Appellee-Defendant. Trial Court Cause No.
15C01-1805-PL-44
Kirsch, Judge.
[1] MGPI of Indiana, LLC (“MGPI”) challenged a rate setting ordinance (“the
Ordinance”) adopted by the South Dearborn Regional Sewer District (“the
District”) and upheld by the District Authority of Dearborn County (“The
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District Authority”). The Dearborn Circuit Court issued an order upholding
the District Authority’s ruling.
[2] On appeal, MGPI raises four issues, which we restate as:
I. Whether approval of the Ordinance by the Indiana
Department of Environmental Management (“IDEM”)
was required;
II. Whether the District failed to consider MGPI’s interests
when it enacted the Ordinance;
III. Whether the Ordinance violated MGPI’s vested interest;
and
IV. Whether the Ordinance is arbitrary and capricious.
[3] We affirm.1
Facts and Procedural History
The South Dearborn Regional Sewer District is Created
[4] In 1971, the Board of Trustees of the District filed a plan of operation with the
Dearborn Circuit Court for a proposed regional sewer district. Following a
hearing, the court issued an order (“the 1972 order”) and found “that the
proposed District is necessary, and that it and the plan of operation of the
1
Oral argument was heard on this case on December 3, 2019 in the Indiana Court of Appeals courtroom in
Indianapolis, Indiana. We commend counsel on the quality of their written and oral advocacy.
Court of Appeals of Indiana | Opinion 19A-PL-393 | January 9, 2020 Page 2 of 41
District is conducive to the public health, safety, convenience and welfare,
and that the plan for the operation of the District is economical, feasible,
fair and reasonable.” Appellant’s App. Vol. II at 33. The court also found
that “the only users of the sewage system of said District having an
intermittent flow of at least one million (1,000,000) gallons per day are the
Joseph E. Seagram & Sons, Inc. plant [(“Seagram”)] and the Schenley
Distillers, Inc. plant [(“Schenley”)].” Id. The court accepted the proposed plan
and created the District as a political subdivision for the area within the
boundaries of the City of Lawrenceburg (“Lawrenceburg”), the Town of
Greendale (“Greendale”), and the City of Aurora (“Aurora”). Both Seagram
and Schenley had an intermittent daily sewage flow of at least one million
gallons, and each was designated as a member of the District. The District was
to be governed by a board of trustees consisting of, among others, 1) the mayors
of Aurora, Greendale, and Lawrenceburg, and 2) a representative from
Seagram and a representative from Schenley. The court stated that each trustee
“shall hold office so long as he meets the criteria or until the qualification of his
successor.” Id.
The 1972 Contract Creates Vested Interest for Seagram
[5] In May of 1972, Seagram, Schenley, and the other members of the District
signed a contract that described how the District would operate (“the 1972
Contract”). The 1972 Contract required Seagram to pay “an amount equal to
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22.8% of the fixed operations and maintenance costs plus such proportional
amount of the variable operational costs as the metered influent from Seagram
bears to the total influent, and also such charges as may be assigned for the
maintenance of Industrial Interceptors Nos. l and 2.” Id. at 73. The 1972
Contract also gave Seagram a vested interest in the District’s design capacity:
“Seagram . . . shall have a vested interest in the respective allocation of design capacity
as set forth in Item 9.2 of this agreement of which it may not be divested of said
interest without its consent.” Id. at 78 (emphasis added). Item 9.2 of the 1972
Contract set Seagram’s design capacity at 22.8%. Id. at 72.
Subsequent Sales of the Distillery
[6] Pernod Ricard USA (“Pernod”) bought Seagram’s interest in the distillery, and
in October of 2002, Pernod entered a contract with the other members of the
District (“the 2002 Contract”). The 2002 Contract continued the right to a
vested interest, stating that Pernod “shall have a vested interest in the respective
allocation of design capacity as set forth in section 2.2 of this contract and may
not be divested of said interest without its consent.” Id. at 99. Section 2.2 of
the 2002 Contract stated that Pernod’s portion of the vested interest was 28%.
Id. The 2002 Contract also gave Pernod the right to assign its rights to a
purchaser of the distillery: “If Pernod sells its Lawrenceburg plant, Pernod may
assign its interest in this contract to the purchaser in which event the purchaser
shall be substituted for Pernod as a party to this contract and Pernod shall be
released and discharged from its obligations hereunder.” Id. at 110. After it
bought the distillery, Pernod signed a new contract with the District in which
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Pernod disclaimed its vested ownership interest in the distillery and became a
retail customer of the District’s sewer services. Appellant’s App. Vol. III at 68.
[7] In June of 2007, Pernod sold the distillery to Lawrenceburg Distillers Indiana,
LLC (“LDI”) by special warranty deed. The sale to LDI was subject to the
2002 Contract. Exhibit C listed “Recorded Exceptions – Dearborn County.”
Id. at 126. The final exception referred to the 2002 Contract: “Contract
between the City of Lawrenceburg, the City of Aurora, the City of Greendale,
[Pernod], and [the District], recorded December 22, 2002 in Official Record
Book 56, Page 1392 of the Dearborn County, Indiana.” Id. at 127.
LDI Sells Distillery to MGPI
[8] On December 21, 2011, LDI sold the distillery to MGPI by special warranty
deed. Appellant’s App. Vol. II at 147. The deed made the transaction subject to
the 2002 Contract. Id. at 157.
[9] Bill Neyer (“Neyer”), the plant manager for the District’s sewer facility,
testified:
During the change of ownership between the predecessor of LDI
to MGPI, there were several changes. Instead of being an owner
which had a shared interest in all capital projects, they became a
retail customer. They also gave up their seat on the board, as
well, as part of that change. So, they no longer had a voting
interest, they no longer had capital responsibility and they paid
up on all the outstanding debt that they had. So, that was a
pretty significant change to the way operations occurred.
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Appellant’s App. Vol. III at 68.
[10] Neyer also testified that, at some point after MGPI bought the distillery, it gave
up all ownership interest in the distillery:
So initially the District had, as has been stated, five members.
When Schenley ceased to operate, they ceded their ownership to
the District. There was no compensation provided to them for
that ownership. It became jointly owned by the remaining four
members. There was a disbursement of that membership of
percentages, and then later the distillery, MGPI, not at that time,
it was very early when they took ownership, they did not want to
own a wastewater plant or have part ownership and liability for
it, so they fulfilled all their obligations to the facility for any debt
that they were a party to and ceded their ownership, which was
then uniformly split between the remaining three members.
Id. at 58. Neyer then testified that, after MGPI surrendered its ownership
interest in the District, it signed a contract with the District in 2011, which
expired at some point in 2013. Id. at 58-59.
[11] On September 18, 2017, the District’s attorney sent a letter to Ken Carrier of
MGPI, stating that MGPI had surrendered its ownership interest in the District:
“Just as MGPI at one time decided it no longer wanted to be a co-owner of [the
District], so the [District] Board has decided that they would no longer have
any “customers” other than [Lawrenceburg, Greendale, and Aurora].” Id. at
147 (emphasis added). The District agreed to extend the current sewage rates
until a cost of service study of the District was completed. Id. at 147-48.
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Cost of Service Study
[12] The District hired Crowe Horwath LLP (“Crowe”) to conduct a cost of service
study (“the Cost of Service Study”); Crowe began the study in February of 2016
and completed it in October of 2017. Id. at 155.
The purpose of this [Cost of Service Study] is to estimate the
[District’s] cash flow and financial capacity to meet its on-going
revenue requirements for operation and maintenance expenses
and to make capital improvements to the [District’s] system. In
addition, this [Cost of Service Study] also identifies the costs
associated with serving various customers of the [District].
Id. at 167. During the study, Crowe participated in several meetings with the
District’s Board of Directors, and representatives of MGPI attended many of
those meetings. Id. at 155.
[13] After Crowe completed the Cost of Service Study, the attorney for the District
wrote the aforementioned September 18, 2017 letter to MGPI, stating that the
District could no longer afford to negotiate directly with MGPI to establish
MGPI’s sewer rates and that MGPI would now be a customer of Lawrenceburg
and have to negotiate its rights with Lawrenceburg, which would, in turn,
negotiate its rates with the District:
At the time the March letter was sent, the [District] Board did
believe we would be entering into a new agreement with MGPI;
however, as information from the Cost of Service (COS) study
being conducted by Crowe Horwath LLP (Crowe) started to
become available to the [District] Board, it became evident that
keeping MGPI as a customer was not economically feasible to
[the District]. As such, discussions at our monthly meetings
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ultimately shifted to having MGPI become a customer of either
the City of Greendale or the City of Lawrenceburg.
Representatives from MGPI were present at all of these meetings
and were well aware that the [District] Board was looking to
move in a different direction. Just as MGPI at one time decided
it no longer wanted to be a co-owner of [the District], the
[District] Board has decided that they would no longer have any
customers other than the three (3) cities.
....
Extending your current rates until the [Cost of Service Study] is
completed was a courtesy that [the District] extended to MGPI
because of the long relationship that we shared. However, as
there is no agreement in place, we are under no obligation to
continue servicing MGPI as a customer and can turn MGPI over
to Lawrenceburg at any time. We have chosen not to do that
because, the [District] Board believes, the completion of the [Cost
of Service Study] must occur before any drastic changes are
made.
[The District] is happy to continue to service MGPI until such
time, but MGPI will ultimately become a customer of the City of
Lawrenceburg as the [District] Board has no desire to continue
servicing MGPI as a customer of [the District] once the [Cost of
Service Study] has been completed.
The [District] Board came to this conclusion after many months
of discussions. I cannot stress enough that representatives from
MGPI were present at all of these meetings and the ultimate
decision of the [District] Board should not be a surprise.
Id. at 147-48.
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The District Board Enacts the Ordinance
[14] Based on the information gained from the Cost of Service Study, on February
13, 2018, the District Board enacted an Ordinance that set new sewage rates for
Lawrenceburg, Greendale, and Aurora. It did not set rates for MGPI or
recognize MGPI as a direct customer of the District.
[15] The Ordinance provided:
WHEREAS, pursuant to Indiana Code § 13-26-5-2(7), the [South
Dearborn Regional Sewer District] may “[f]ix, alter, charge, and
collect reasonable rates and other charges in the area served by
the [D]istrict’s facilities to every person whose premises are,
whether directly or indirectly, supplied with water or provided
with sewage or solid waste services by the facilities . . .”;
WHEREAS, Indiana Code § 13-26-11-8 requires that the boards
of regional water sewage, and solid waste districts establish, by
ordinance, “just and equitable rates or charges for the use of and
the service provided by a works”;
WHEREAS, the current amounts paid by the Cities of Aurora,
Greendale, and Lawrenceburg were established by a Sewer User
Agreement dated August 8, 2007 and which was effective as of
July 1, 2007;
WHEREAS, the South Dearborn Regional Sewer District
believes it to be in the best interests of the South Dearborn
Regional Sewer District and the Cities of Aurora, Greendale, and
Lawrenceburg to establish nondiscriminatory, just, and equitable
sewage treatment rates rather than continuing to use the billing
structure established by the Sewer User Agreement;
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WHEREAS, in an effort to establish nondiscriminatory, just, and
equitable sewage treatment rates, the South Dearborn Regional
Sewer District engaged the services of Crowe Horwath LLP on
February 9, 2016 to perform a Rate Review and a Cost of Service
Study which would allow the South Dearborn Regional Sewer
District to establish sewage treatment rates;
WHEREAS, the Crowe Horwath LLP Rate Review and Cost of
Service Study was completed on October 27, 2017 and it
recommends that the sewage treatment rates for South Dearborn
Regional Sewer District customers be established as follows:
....
1. Pursuant to the authority granted by Indiana Code § 13-25-5-
2(7) and the procedure outlined in Indiana Code § 13-26-11 et
seq., the South Dearborn Regional Sewer District may establish
sewage treatment rates that are nondiscriminatory, just, and
equitable.
2. The recommendations of the Crowe Horwath LLP Rate
Review and Cost of Service Study are hereby approved and
accepted. Pursuant to said Cost of Service Study, the sewage
treatment rates shall be established as follows:
....
5. The South Dearborn Regional Sewer District finds that the
requirements for the adoption of initial rates as found in Indiana
Code § 13-20-11 et seq., most notably the notice requirement
found in Indiana Code § 13-26-11-12 and the Public Hearing
requirement found in Indiana Code § 13-26-11-11, were adhered
to prior to the adoption of this Ordinance.
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6. Additionally, the South Dearborn Regional Sewer District
finds that the factors outlined in Indiana Code § 13-26-11-2(a)
have been considered before the passage of this Ordinance and
that the rates established by this Ordinance are
nondiscriminatory, just, and equitable pursuant to Indiana Code
§ 13-26-1l-9.
7. The sewage treatment rates as established by this Ordinance
shall not take effect until the 1st day of January 2019, unless an
earlier date is agreed to by the Cities of Aurora, Greendale, and
Lawrenceburg by amendment to this Ordinance.
Id. at 18-23. The District did not seek approval of the Ordinance from IDEM.
MGPI Appeals Ordinance to the District Authority
[16] On March 13, 2018, MGPI appealed the Ordinance to the District Authority.
Id. at 7-10. In its petition, MGPI alleged the following:
9. The rates and charges established by the Ordinance are not just
and equitable in at least the following respects:
a. The rate applied in the Ordinance to treat biochemical oxygen
demand (BOD), including total suspended solids, results in over
charging by approximately $600,000 above the revenue
requirement established by the rate study and allocated through
the cost of service on which the Ordinance claims to be based;
b. The Ordinance unfairly allocates the costs for phosphorus
removal to [MGPI];
c. The methodology upon which the Ordinance is written
arbitrarily departs from the traditional method that uses a base
concentration of BOD and a base concentration of total
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suspended solids representative of domestic sewage, above which
a surcharge is applied;
d. The Ordinance provides for pH testing which does not follow
[Environmental Protection Agency (“EPA”)] protocols; and
e. The Ordinance will result in an increase to [MGPI’s] user fees
substantially higher than the 16.06% reduction for the City of
Aurora, the 32.66% increase for the City of Greendale, and the
24.4% increase for the City of Lawrenceburg.
10. The Ordinance inappropriately eliminates [MGPI] as a
customer of the [District], eliminates [MGPI’s] use of previously
vested capacity, and constitutes an unlawful taking of [MGPI’s]
property without due process.
11. The District Authority should find that the rates and charges
as set forth in the Ordinance are not just and equitable.
12. The District Authority should declare that [the District]
should continue to serve [MGPI] directly as a ratepayer.
13. The District Authority should declare the Ordinance null and
void as it relates to [MGPI], and, if appropriate, recommend that
[the District]’s representatives and [MGPI]’s representatives meet
to resolve allocations and service issues.
Id. at 8-10.
[17] At the April 4, 2018 hearing before the District Authority, John Skomp
(“Skomp”), the District’s expert, confirmed that the Cost of Service Study -- and
therefore the Ordinance -- did not consider MGPI. Id. at 44. He confirmed that
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the rates under the Ordinance “are not going to be applied to MGPI. They
weren’t intended to.” Id. Because of the Ordinance, Skomp stated that the
District now has only “three wholesale customers. That’s all they have is just
the three customers,” the three municipalities. Id. at 41. He admitted that the
Cost of Service Study did not consider service to MGPI: “If we were to have
assumed that MGPI was gonna be a customer of the District, we would have
done the [C]ost of [S]ervice [S]tudy differently because we would have had then
one retail customer and three wholesale customers.” Id. at 45.
[18] Skomp also testified that it was not possible, based on the rate study, to
determine what MGPI would be paying for services as a customer of
Lawrenceburg:
The rate study was not developed in such a way that these rates
could be applied to them. So, when they take the rates from the
study and say this is what our bill would be, that’s inaccurate. . . .
You cannot take this rate study, or even the results of Mr.
Roper’s letter, and say that based upon this or that, this is what
MGPI will be paying. They will be paying rates based upon the
rates that are passed by the City of Lawrenceburg. We’re
currently working with the City of Lawrenceburg to develop
rates, charges, and doing a rate study there. It’s not complete. I
don’t even have preliminary results at this point in time, but
that’s who will be billing MGPI for their service. So, as you look
this not only goes to the concerns of the petition, but also Mr.
Roper’s letter here. They try to take the rates from this study or
the rates that Mr. Roper analyzed and say this is what MGPI’s
bill will be, and that’s just not correct.
Id. at 44-45.
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[19] At that same hearing, MGPI presented the sworn statement of Ralph Roper
(“Roper”). Id. at 223. Roper identified alleged deficiencies in the Ordinance,
including that it would: 1) result in overcollection of revenue by the District by
about a half million dollars because the Ordinance took a rate from one
category of discharge and applied it to a different category without any analysis
for the switch; 2) charge for the removal of phosphorus when MGPI’s
discharges do not add phosphorus to the District’s system; 3) apply a short-cut
protocol for testing the pH of wastewater instead of a required procedure
promulgated by the EPA; and 4) charge MGPI for nearly forty percent of the
District’s revenue even though MGPI discharges only about twenty-nine
percent of the total wastewater in the system. Id. at 223, 225-26, 230.
[20] After considering argument and evidence from both sides, the District
Authority upheld the Ordinance, finding that the Ordinance was enacted
pursuant to the proper procedure and that the rates were just and equitable
(“the District Authority Order”). Id. at 81-82. In pertinent part, the District
Authority stated:
No issues were raised by [MGPI] in regards to the procedure
followed by [the District] and all evidence presented indicates
that the [District] did follow the proper procedure for the
adoption of the Ordinance; therefore, the District Authority
makes the determination, pursuant to Indiana Code § 13-26-11-
13(f)(1) that the [District] did follow the procedure required by
Indiana Code § 13-26-11 et seq. when it adopted Ordinance 2018-
01; and
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As noted in Indiana Code § 13-26-11-9(b), “. . . initial rates and
charges established after notice and hearing under this article are
prima facie just and equitable.” [MGPI] had the burden of
showing that the rates and charges were not just and equitable
but failed to do so. Therefore, the District Authority makes the
determination, pursuant to Indiana Code § 13-26-11-13(f)(2) that
the sewer rates and charges established by the [District]
Ordinance 2018-01 are just and equitable rates and charges,
according to the standards set forth in Indiana Code § 13-26-11-9.
Based upon the foregoing, the District Authority, that being the
Dearborn County Board of Commissioners, does hereby
SUSTAIN THE ORDINANCE ESTABLISHING THE RATES
AND CHARGES as written pursuant to Indiana Code § 13-26-
11-l3(g)(1).
Id.
[21] On May 16, 2018, MGPI appealed the District Authority Order to the
Dearborn Circuit Court, alleging, in part, that the Ordinance: 1) would result
in excessive revenue for the District; 2) unfairly allocated cost of phosphorous
removal to MGPI; 3) failed to follow protocols issued by the EPA for
measuring pH levels; and 4) would increase MGPI’s user fees. Appellant’s App.
Vol. II at 25-26. Thus, MGPI requested both preliminary and permanent
injunctions and, in the alternative, filed a complaint (“alternative complaint”)
for 1) taking a vested capacity, 2) breach of contract, 3) breach of fiduciary duty,
and 4) unjust enrichment. Id. at 26-31. On October 31, 2018, the District filed
a motion for summary judgment but only on allegations in the alternative
complaint. Id. at 6.
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[22] On December 6, 2018, the trial court conducted a hearing on MGPI’s appeal
from the District Authority, and on December 27, 2018, it denied MGPI’s
appeal and upheld the Ordinance. Id. at 11-13. The trial court ruled, in part:
3. MGPI failed to meet its burden of proof to establish that the
District’s passing of the Ordinance, and the subsequent
affirmation by the District Authority, were arbitrary, capricious,
an abuse of discretion, unsupported by the evidence, or in excess
of statutory authority.
4. While not required to do so and irrespective of any deference
to the District Authority, the Court concludes based on its
independent evaluation of the evidence that the Ordinance, and
the subsequent affirmation by the District Authority, were not
arbitrary, capricious, an abuse of discretion, unsupported by the
evidence, or in excess of statutory authority.
....
6. The District presented substantial evidence that the Ordinance
complied with the requirements of Indiana Code § 13-26-11-9(a).
7. Irrespective of any deference to the District Authority, the
board of trustees of the District, in adopting the Ordinance
establishing sewer rates and charges, followed the procedure
required by I.C. § 13-26-11-1 et seq.
8. Irrespective of any deference to the District Authority, the
sewer rates and charges established by the board of trustees of the
District by the Ordinance are just and equitable rates and
charges, according to the standards set forth in I.C. § 13-26-11-9.
Id. at 11-12.
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[23] On January 9, 2019, MGPI asked the trial court to enter final judgment on its
ruling, pursuant to Trial Rule 54(B), and to stay all proceedings. Id. at 8. On
February 11, 2019, the trial court granted the request, determining “that there is
no just reason for delay and directs entry of judgment in [the District’s] favor on
Count I of [MGPI’s] complaint.” Id. at 14. The trial court also granted
MGPI’s motion for stay, although the trial court did not stay the pending
hearing on the District’s motion for summary judgment: “Other than the
pending summary judgment hearing, the Court hereby ORDERS that all other
proceedings before this Court shall be stayed pending remand of the matter
from the appellate courts.” Id. On March 27, 2019, the trial court conducted a
hearing on the District’s motion for summary judgment and asked the parties to
file proposed orders by April 10, 2019. Id. at 10. This court acquired
jurisdiction over this matter on April 4, 2019. See Ind. Appellate Rule 8. We
will provide additional facts as necessary.
Discussion and Decision
[24] A district authority reviews an ordinance as follows:
(g) After the district authority hears the evidence produced and
makes the determinations set forth in subsection (f), the district
authority, by a majority vote, shall:
(1) sustain the ordinance establishing the rates and charges;
(2) sustain the petition; or
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(3) make any other ruling appropriate in the matter, subject to the
standards set forth in section 9 of this chapter.
Ind. Code § 13-26-11-13(g). A district authority’s ruling may be appealed to the
circuit, superior, or probate court, and that court shall determine one or both of
the following: 1) whether the district’s board of trustees followed the proper
procedures in adopting the ordinance; and 2) whether the sewer rates and
charges are equitable. Ind. Code § 13-26-11-13(h).
[25] Just and equitable rates are those that: 1) produce sufficient revenue to pay all
expenses incident to the operation of the works; 2) produce sufficient revenue to
provide the sinking fund for the liquidation of bonds or other evidence of
indebtedness; 3) produce sufficient revenue to provide adequate money to be
used as working capital, as well as money for making improvements; and 4)
“give due consideration to the interests of the ratepayers.” Ind. Code § 13-26-11-9(a)
(emphasis added). “Rates and charges too low to meet the financial
requirements described in subsection (a) are unlawful. The initial rates and
charges established after notice and hearing under this article are prima facie just
and equitable.” Ind. Code § 13-26-11-9(b) (emphasis added).
The standard for judicial review of the District’s action is
whether it was arbitrary, capricious, or contrary to law. . . .
Under this narrow standard of review, we will not intervene in a
local legislative process, [if it is] supported by some rational basis.
We will find a municipal entity’s action arbitrary or capricious
only if it is patently unreasonable. In short, judicial review of
whether a governmental agency has abused its rulemaking
authority is highly deferential. We are not permitted to substitute
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our judgment for the municipality’s discretionary authority.
Rather, we may only determine whether the municipality is
acting within its statutory authority.
Yankee Park Homeowners Ass’n, Inc. v. LaGrange Cty. Sewer Dist., 891 N.E.2d 128,
130-31 (Ind. Ct. App. 2008) (internal quotations and citations omitted), trans.
denied.
I. Was IDEM’S Approval of the Ordinance Required?
[26] MGPI argues that the Ordinance is void as a matter of law because the
Ordinance changed the “purpose” of the District’s plan, and, therefore,
approval of the Ordinance by IDEM was required. Indiana Code section 13-26-
1-2 describes the process of seeking permission from IDEM to change a district
plan and IDEM’s authority regarding such requests:
(a) At any time after the creation of a district, the district, after
motion by the district’s board, may file a petition with the
department requesting the approval of the department permitting
the district to:
(1) increase or add to the district’s purposes or modify the district plan
approved by the department;
(2) abandon or surrender all or part of a purpose or plan
approved by the department; or
(3) subject to IC 13-26-4-1, increase the number of persons
serving on the board of trustees.
(b) The department may:
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(1) approve;
(2) modify and approve; or
(3) reject;
a request received under this section.
Ind. Code § 13-26-1-2 (emphasis added). See Fox v. Green, 856 N.E.2d 86, 88
n.1 (Ind. Ct. App. 2006) (“IC 13-26-1-2 contemplates approval by IDEM for
any modifications to its plan and IC 13-26-5-2, which sets forth the powers of a
regional wastewater district, does not appear to grant a district the power to
unilaterally make changes to its plan without IDEM approval.”); see also Clay
Twp. of Hamilton Cty. ex rel. Hagan v. Clay Twp. Reg’l Waste Dist., 838 N.E.2d
1054, 1066-67 (Ind. Ct. App. 2005) (final authority for appointment of
additional trustees to regional waste district board rests with IDEM).
[27] As to what constitutes a district’s “purpose,” Indiana Code section 13-26-1-1
provides:
Any area may be established as a regional water, sewage, or solid
waste district under this article for one (1) or more of the
following purposes:
(1) To provide a water supply for domestic, industrial, and public
use to users inside and outside the district.
(2) To provide for the collection, treatment, and disposal of
sewage inside and outside the district.
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(3) To provide for the collection, treatment, and disposal of solid
waste and refuse inside and outside the district.
Id.2
[28] MGPI argues that the Ordinance changed the purpose of the plan because it
eliminated MGPI as a direct user and that this violates one of the purposes of
the 1972 Order -- to give direct sewer services to users whose daily intermittent
flow exceeded one million gallons per day, which at the time described MPGI’s
predecessor in interest, Seagram. In support, MGPI points to the following
language in the 1972 Order:
IT IS FURTHER FOUND that the only users of the sewage
system of said district having an intermittent flow of at least one
million (1,000,000) gallons per day are the Joseph E. Seagram & Sons,
Inc., plant and the Schenley Distilleries, Inc., plant.
....
2. That the Board of Trustees shall be composed of . . . a member
designated by each user of the sewage treatment facilities of said district
which said user(s) has an intermittent flow of at least one million
(1,000,000) gallons per day or more into the sewage system.
2
Although enacted in 1996, this statute applies to any district established by “an order of the court before
February 17, 1972.” Ind. Code § 13-26-3-1. The District was established by court order on January 26, 1972.
Appellant’s App. Vol. III at 86.
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3. That each of said Trustees shall hold office so long as he meets
the criteria or the qualification of his successor.
Appellant’s App. Vol. II at 33 (emphasis added). MGPI thus argues that because
the Ordinance eliminated MGPI as a direct user of the District, the Ordinance
changed the purpose of the plan because the Ordinance no longer guarantees
direct service to a user with an intermittent daily flow of at least one million
gallons.
[29] In response, the District argues that it was unnecessary to obtain IDEM’s
permission to enact the Ordinance because the Ordinance did not change or
modify the plan or the purpose of the plan. The District argues that the
Ordinance did not change the purpose of the plan because the purpose of the
plan, as explained in the 1972 Order, was to provide sewage and wastewater
services, nothing more, and under the Ordinance, the District is still providing
services for sewage and wastewater treatment. The District relies on Indiana
Code section 13-26-1-1, which defines the purpose of a regional sewage district,
in part, as “[t]o provide for the collection, treatment, and disposal of sewage
inside and outside the district.” Id.[30] We agree with the District. The Ordinance did not change the District’s plan
because under the Ordinance, the District still provides sewage and wastewater
treatment services. See Appellant’s App. Vol. III at 18-23. MGPI does not dispute
this. The Ordinance does not repudiate any of the terms of the 1972 Order as to
the delivery of sewage and wastewater treatment. See Appellant’s App. Vol. II at
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33. Therefore, the District was not required under Indiana Code section 13-26-
1-2 to obtain permission from IDEM to enact the Ordinance.
II. Did the District Fail to Consider MGPI’s Interests?
[31] MGPI argues that the District failed to consider MGPI’s interests as a rate
payer when it adopted the Ordinance and, thus, did not set just and equitable
rates. See Ind. Code § 13-26-11-9(b); Ind. Code § 13-26-11-13(f).
[32] Just and equitable rates are rates that:
(1) produce sufficient revenue to pay all expenses incident to the
operation of the works, including maintenance cost, operating
charges, upkeep, repairs, and interest charges on bonds or other
obligations;
(2) produce sufficient revenue to provide the sinking fund for the
liquidation of bonds or other evidence of indebtedness and
reserves against default in the payment of interest and principal
of bonds;
(3) produce sufficient revenue to provide adequate money to be
used as working capital, as well as money for making
improvements, additions, extensions, and replacements; and
(4) give due consideration to the interests of the ratepayers.
(b) Rates and charges too low to meet the financial requirements
described in subsection (a) are unlawful. The initial rates and
charges established after notice and hearing under this article are
prima facie just and equitable.
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(c) Nothing in this section shall prohibit a district authority from
examining the methodology or process by which rates and
charges were derived.
Ind. Code § 13-26-11-9 (emphasis added).
Regional districts “have broad discretion to enact ordinances establishing its
rates and charges.” Taylor v. Fall Creek Reg’l Waste Dist., 700 N.E.2d 1179, 1184
(Ind. Ct. App. 1998), trans. denied. “Rates for sewage works may be determined
by a combination [of the foregoing six factors] or other factors that the board
determines is necessary to establish nondiscriminatory, just, and equitable rates
or charges.” Ind. Code § 13-26-11-2(a)(7).
[33] MGPI argues that the District did not consider MGPI’s interests because the
Ordinance does not mention MGPI or establish the rates that MGPI would
incur now that it would need to negotiate its rates with Lawrenceburg.
Appellant’s App. Vol. III at 18-23. In support, MGPI refers to the testimony of
Skomp, the District’s expert witness, at the April 10, 2018 hearing before the
District Authority. Skomp testified that the rates in the Ordinance would not
apply to MGPI because the Ordinance was not intended to apply to MGPI:
These rates are not going to be applied to MGPI. They weren’t
intended to. The rate study was not developed in such a way that these
rates could be applied to them. So, when they take the rates from the
study and say this is what our bill would be, that’s inaccurate.
The District came through, and as part of this study, and as part
of their process of doing other things, there was a decision made
that MGPI would become a customer of the City of
Lawrenceburg. You cannot take this rate study, or even the
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results of [Roper’s] letter, and say that based upon this or that,
this is what MGPI will be paying.
Id. at 44 (emphasis added).
[34] In response, the District appears to claim that because MGPI’s contract with
the District had expired in 2013 -- see Appellant’s App. Vol. III at 58-59 -- MGPI
was no longer a customer of the District, and the District was not required to
consider MGPI’s interests in establishing the Ordinance. See Appellee’s Br. at 14.
However, the District claims that it did consider MGPI’s interests, even if it was
not required to do so. The District cites Skomp’s testimony that MGPI’s
representatives attended and were heard at meetings before the Ordinance was
enacted: “MGPI was at most of those meetings that I attended, and meeting
with them, and so the customers did hear what was going on, and due
consideration was given to the things they were saying and what they needed.”
Appellant’s App. Vol. III at 38, 155, 158.
[35] The District also quotes the following language from Skomp’s Supplement to
show that the District considered MGPI’s interests:
During this time, Crowe had numerous meetings with the Board
(which consisted of owner-ratepayers) and elected officials or
representatives of the ratepayers. At many of those meetings,
policy discussions were conducted regarding how various
changes in the rate structures would affect the customers’
monthly bills. Those discussions included how MGPI could be billed
on a going-forward basis and the impact that would have on the monthly
bills of whichever city may accept MGPI as a retail customer.
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As discussions were on-going, changes were made and rates and
charges were adjusted to give due consideration to the comments
of the customers regarding how the proposals affected their
various interests.
Id. at 158 (emphasis added).
[36] The District claims the Cost of Service Study took MGPI’s interests into
account in other ways: listing MGPI’s accounts receivable to the District;
noting the District’s liability in the form of the payable amount of MGPI’s
depreciation fund; MGPI’s operating income; the necessary adjustment to
operating income to allow conversion of MGPI to a retail customer of
Lawrenceburg, and the adjustment to Lawrenceburg’s flow total once MGPI
became a customer of Lawrenceburg. Id. at 169, 170, 175, 178, 179, 184.3
[37] We reject MGPI’s claim that the District did not take MGPI’s interests into
account when enacting the Ordinance. The foregoing evidence proves
otherwise. Of particular note are the following: (1) MGPI’s presence at many
meetings where the proposed Ordinance was discussed; (2) that “due
consideration was given to the things [the customers] were saying”; and (3) that
“discussions included how MGPI could be billed on a going-forward basis.” Id.
at 155, 158. Finally, the Skomp Supplement establishes, by implication, that
3
The District argues that MGPI has waived its argument that the Ordinance did not consider MGPI’s
interests because the District claims MGPI did not raise this argument during the April 10, 2018 hearing
before the District Authority. See Appellant’s App. Vol. III at 24-80. We reject this argument based on the
following parts of the record that establish that MGPI did, in fact, raise this issue: Appellant’s App. Vol. II at
169-74; Appellant’s App. Vol. III at 84-85.
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the District did consider the possibility that the Ordinance would raise MGPI’s
rates. This is apparent from the statement in Skomp’s Supplement that the
District considered how the new method of billing MGPI would “impact . . .
the monthly bills of which every city may accept MGPI as a retail customer.”
Id. at 158. A reasonable inference from this statement is that the District
weighed the possibility that the Ordinance could increase the rates of both
MGPI and the city that accepted MGPI as a retail customer and, nonetheless,
chose to enact the Ordinance. Accordingly, we reject MGPI’s claim that the
District failed to consider MGPI’s interests when it enacted the Ordinance.
III. Did the Ordinance Violate MGPI’s Vested Interest?
[38] MGPI argues that the Ordinance took away its vested interest in the District.
MGPI contends that the vested interest in the District ran with the land, i.e., the
distillery, and that with the successive sales of the distillery, that vested interest
passed to successive purchasers and thus now vests in MGPI. It argues:
The vested capacity naturally ran with the land, as no entity other
than the owner of the distillery could exercise those rights.
Through a number of transactions, the distillery and all rights
associated with it passed from Pernod to LDI and finally to
MGPI. Each transfer passed the entire distillery, the real
property, and all of its associated rights to the next owner. That
included the right to the vested capacity.
Appellant’s Br. at 21 (emphasis added). MGPI reiterated this point in its reply
brief:
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Reading the deeds to pass the vested capacity comports with the
context in which those transactions occurred. The vested
capacity serves a core function for the distillery by providing
ready access to wastewater service that the owner needs to brew
spirits. That contractual right is only useful to the current owner
of the distillery. To ensure the distillery can continue to operate, the
vested capacity naturally passed from owner to owner under the deeds. .
. . Each transfer therefore passed the entire distillery, the real
property, and all of its associated rights. That included the right
to the vested capacity. And the 2002 Contract was recorded with the
county recorder, which would be unnecessary unless it was intended to
run with the land and be binding.
Appellant’s Reply Br. at 21-22 (emphasis added).
[39] MGPI also argues that the vested interest in the District passed to it via the
successive deeds and contracts that eventually resulted in MGPI’s purchase of
the distillery. MGPI highlights the following language in the 1972 Contract:
“Seagram . . . shall have a vested interest in the respective allocation of design
capacity . . . of which it may not be divested of said interest without its
consent.” Appellant’s App. Vol. II at 78. MGPI claims it stands in the shoes of
Seagram and bears the same rights that Seagram did, and contends this vested
capacity was part of the exchange that led to the creation of the District. MGPI
also argues that its predecessors became part of the District by paying for part of
the infrastructure the District needed to operate. Appellant’s App. Vol. III at 102-
03.
[40] MGPI observes that the deeds by which the distillery was transferred included
explicit statements that made the deeds subject to the 1972 Contract and the
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2002 Contract. In the latter contract, Pernod and the District agreed that
Pernod would hold a vested interest in the District. Appellant’s App. Vol. II at
99. MGPI notes that the deeds for each sale of the distillery state that the
distillery is conveyed subject to the “[c]ontract between the City of
Lawrenceburg, the City of Aurora, the City of Greendale, [Pernod] and [the
District].” Id. at 127, 157.
[41] The District responds that MGPI has no vested interest in the District and that
it never had such an interest. First, the District argues that the relevant
exception in the deed did not sufficiently manifest an intent to assign the vested
interest. The District is referring to Exception 20 to the deed by which Pernod
conveyed the distillery to LDI, which stated: “Contract between the City of
Lawrenceburg, the City of Aurora, the City of Greendale, [Pernod], and [the
District], recorded December 22, 2002 in Official Record Book 56, Page 1392 of
the Dearborn County, Indiana.” Id. at 127. Similarly, the District argues that
the deeds did not incorporate the exception by reference. The District contends
that it was necessary for MGPI to produce a formal assignment of rights to
establish such an intent.
[42] “In determining whether an assignment has been made, the question is one of
intent. A written agreement assigning a subject matter must manifest the
assignor’s intent to transfer the subject matter clearly and unconditionally to the
assignee.” E & L Rental Equip., Inc. v. Gifford, 744 N.E.2d 1007, 1011 (Ind. Ct.
App. 2001). The District argues that the only reasonable interpretation of
Exception 20 is that it refers to exceptions to the warranty of title granted in the
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LDI deed itself (the deed by which LDI acquired the distillery from Pernod). In
support, it relies on the following authority: American Energy Corp. v. Datkuljak,
882 N.E.2d 463, 477 (Ohio Ct. App. 2007) (“An exception is the retention of an
existing right or interest, by and for the grantor, in real property being granted
to another.”); Ashcroft v. Eastern Railroad Co., 126 Mass. 196, 198 (Mass. 1879)
(“The operation of an exception in a deed is to retain in the grantor some
portion of his former estate, which by the exception is taken out of or excluded
from the grant . . . .”); Exception, Black’s Law Dictionary (10th ed. 2014) (“The
retention of an existing right or interest, by and for the grantor, in real property
being granted to another.”).
[43] The District also argues that Pernod gave away its vested right, so the exception
to the deed that MGPI claims passed along the vested right had no effect. In
support, the District relies on the testimony of Neyer, the plant manager of the
District’s sewage treatment facility:
During the change of ownership between the predecessor of LDI
to MGPI, there were several changes. Instead of being an owner
which had a shared interest in all capital projects, they became a
retail customer. They also gave up their seat on the board, as
well, as part of that change. So, they no longer had a voting
interest, they no longer had capital responsibility and they paid
up on all the outstanding debt that they had.
Appellant’s App. Vol. III at 68.
[44] The District additionally argues that through various user agreements, MGPI
surrendered all ownership interests, again relying on Neyer’s testimony:
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MGPI . . . very early [after] they took ownership, they did not
want to own a wastewater plant or have part ownership and
liability for it, so they fulfilled all their obligations to the facility
for any debt that they were a party to and ceded their ownership,
which was then uniformly split between the remaining three
members.
Id. at 58. Neyer then testified that after MGPI surrendered its ownership
interest, it signed a contract with the District in 2011 that expired at some point
in 2013. Id. at 58-59. The District also highlights the September 18, 2017 letter
from the District’s attorney to Ken Carrier of MGPI, in which the District’s
attorney alleged that MGPI had surrendered its ownership interest in the
District: “Just as MGPI at one time decided it no longer wanted to be a co-owner of [the
District], so the [District] Board has decided that they would no longer have any
‘customers’ other than [Lawrenceburg, Greendale, and Aurora].” Id. at 147(emphasis added).
[45] We reject MGPI’s argument that the vested interest ran with the land. In
Columbia Club, Inc. v. American Fletcher Realty Corp., 720 N.E.2d 411, 418 (Ind.
Ct. App. 1999), trans. denied, this court stated that even if the parties intend for
an interest to run with the land, that interest will not run with the land if it does
not concern some interest or estate in the land itself.
Analysis of a covenant to determine whether it runs with the land
typically involves two inquiries: (1) whether the covenant is one
which, under any circumstances, may run with the land; and (2)
whether it was the intention of the parties as expressed in the
agreement that it should run with the land. Conduitt [v. Ross], 26
N.E. 198 [(Ind. 1885)]. The Indiana Supreme Court has held
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that “[a] covenant may contain apt words to make it a continuing
covenant, yet if its nature or the subject matter of it is such that it does
not concern some interest or estate in land, either existing or created by it,
it cannot run with the land.” Id. at 199.
Id. at 418 (emphasis added). A covenant running with the land is a covenant
“intimately and inherently involved with the land, and therefore binding
subsequent and successor grantees indefinitely, which cannot be separated from
the land and transferred without it. The chief examples are these: 1) covenants
for the building and use of walls; 2) covenants for the building and use of party-
walls; 3) covenants for leaving open of ways or parks; 4) covenants restricting
buildings to a particular line; and 5) covenants restricting the kinds of buildings
in a specified locale.” Covenant Running with The Land, Black’s Law Dictionary
(10th ed. 2014).
[46] Columbia Club held that a covenant would run with the land where: “(1) the
covenantor and covenantee intend it to run; (2) the covenant touches and concerns
the land; and (3) there is privity of estate between subsequent grantees of the
original covenantor and covenantee.” Columbia Club, 720 N.E.2d at 418(emphasis added) (citing Moseley v. Bishop, 470 N.E.2d 773, 776 (Ind. Ct. App.
1984)). Columbia Club then explained that a covenant touches and concerns the
land only if the covenant is logically connected to the property:
Unless a real covenant’s benefit “touches and concerns” some
estate in land, the benefit cannot run to the covenantee’s grantee.
Similarly, unless the burden “touches and concerns” some estate
in land, the burden cannot run. We have held that the “touch
and concern” requirement ensures that one purchasing land will
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be bound by his grantor’s contract only where the contract has
some logical connection to his use and enjoyment of the land.
Moseley, 470 N.E.2d at 777. Therefore, a successor to the
covenantor’s interest in property may be bound by the covenant
if it is logically connected to that property interest. Id.Conversely, a successor to the covenantee’s property interest may enforce
the covenant if it is logically connected to his property. Id. The “touch
and concern” requirement is the only essential requirement for
the running of covenants which focuses on an objective analysis
of the contents of the covenant itself, rather than the intentions
and relationships between the parties.
The clearest example of a covenant that “touches and concerns”
the land is one which calls for a party to do, or refrain from
doing, a physical act on the land. We have held that a covenant
to maintain a tile drain was logically connected to the land
because the drain was buried on the land. Id. Moreover, the
Indiana Supreme Court held that a covenant to pay for any
additions made to a party wall ran with the land because the
covenant was created in the instrument that created the right to
use the wall. Conduitt, 26 N.E. at 199.
Columbia Club, Inc., 720 N.E.2d at 420-21 (emphasis added).
[47] In Columbia Club, we found that an indemnification clause touched and
concerned the land and thus ran with the land. In that case, the downtown
Indianapolis Columbia Club and several real estate developers entered an
agreement related to the construction of the Bank One Tower on property next
to the Columbia Club’s property. In the agreement, Columbia Club granted
easements to the developers that were necessary for the developers to complete
construction, and the developers agreed to indemnify Columbia Club for any
damages to Columbia Club’s property from the construction. At some point,
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Columbia Club discovered damage to its property from the construction project
and sued the developers. The developers, however, had sold their interests to a
third party. In affirming the trial court’s grant of summary judgment to the
developers, we held that the developers were no longer responsible for damage
to the Columbia Club’s property because both the easement that Columbia
granted to the developers and the indemnification clause “touched and
concerned” the land and now belonged to the third party that had purchased
Bank One Tower. We explained:
We believe that the covenant to indemnify the Columbia Club
for damages arising from construction of the Bank One Tower
and accompanying parking garage is logically connected to both
the Columbia Club’s property upon which the social club is built
and the property upon which the Bank One Tower and
accompanying parking garage is built. Thus, we hold as a matter
of law that the “touch and concern” requirement is satisfied for
the covenant to run with the land.
Id. at 421.
[48] As noted in Columbia Club, both Moseley and Conduitt addressed the touch-and-
concern requirement. In Moseley, we held that the requirement was fulfilled
with a covenant to maintain a tile drain on farmland because the covenant was
logically connected both to property in which the drain was buried and to land
served by the drain. Moseley, 470 N.E.2d at 777. In Conduitt, our Supreme
Court held that a covenant to pay for any additions made to a party wall
touched and concerned the land because the covenant was created in the
instrument that created the right to use the wall. Conduitt, 26 N.E. at 199.
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[49] Here, we conclude that the vested interest in the District did not touch and
concern the land. It was not, in and of itself, logically connected to the land, nor
was it inherently involved with the land. The vested interest was an interest
created in a separate entity, the District and the District’s physical plant. The
1972 Contract makes this clear: Seagram “shall have a vested interest in the
respective allocation of design capacity as set forth in Item 9.2 of this agreement
of which it may not be divested of said interest without its consent.” Appellant’s
App. Vol. II at 78. While the vested interest undoubtedly served Seagram’s
commercial interests, this does not mean that the vested interest was logically
related to the land or an interest that inhered in the land itself. The vested
interest did not touch or concern the land.
[50] Columbia Club, Moseley, and Conduitt reinforce our conclusion. Columbia Club
observed that the clearest example of a covenant touching and concerning the
land is a covenant that calls a party to do, or refrain doing, a physical act on the
land. Columbia Club, 770 N.E.2d at 420-21. Moseley involved such a covenant
because it required maintaining a drainage tile on farmland was thus inherently
connected to the farmland. Moseley, 470 N.E.2d at 777. Likewise, Conduitt
involved such a covenant because it required payments for additions to a wall
where the covenant was created in the document that created the right to use
the wall. Conduitt, 26 N.E. at 199. The easement and indemnification clause in
Columbia Club were inherently connected to the Columbia Club’s property.
Columbia Club, 720 N.E.2d at 421. Here, however, the logical connection
between the vested interest in the District and the land is wholly lacking. The
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vested interest did not touch or concern the land and did not pass to MGPI as a
covenant that ran with the land.
[51] We also reject MGPI’s argument that it holds the vested interest in the District
because of the series of deeds and contracts that eventually resulted in MGPI’s
purchase of the distillery. Even if, at one point, MGPI held the vested interest
through these contracts and deeds, MGPI eventually disclaimed that interest.
Neyer, the plant manager for the District’s sewer facility, testified:
MGPI . . . did not want to own a wastewater plant or have part
ownership and liability for it, so they fulfilled all their obligations
to the facility for any debt that they were a party to and ceded
their ownership, which was then uniformly split between the
remaining three members.
Appellant’s App. Vol. III at 58. Neyer also testified that MGPI became a retail
customer of the District. Id. at 68. Further, the September 18, 2017 letter from
the District’s attorney to Ken Carrier of MGPI also stated that MGPI had
surrendered its ownership interest in the District: “Just as MGPI at one time
decided it no longer wanted to be a co-owner of [the District], so the [District] Board
has decided that they would no longer have any ‘customers’ other than
[Lawrenceburg, Greendale, and Aurora].” Id. at 147 (emphasis added).
[52] In its reply brief MPGPI argues, for the first time, that Neyer’s testimony was
not competent evidence: “Mr. Neyer is a stranger to these transactions and
does not even purport to address the language of the deeds. His lay
understanding cannot override the legal question to be determined by
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examining the language of the deeds themselves.” Appellant’s Reply Br. at 22.
Not only did MGPI fail to object to Neyer’s testimony, MGPI has failed here to
support its challenge to Neyer’s testimony with cogent argument. Therefore,
MGPI’s claim that Neyer’s testimony was not competent evidence is waived.
See Basic v. Amouri, 58 N.E.3d 980, 984-85 (Ind. Ct. App. 2016).
[53] Furthermore, Neyer’s testimony and the letter from the District’s attorney are
sufficiently competent to provide rational support for the decisions of the
District Authority and the trial court. See Yankee Park, 891 N.E.2d at 1030-31.
Evidentiary standards are relaxed in administrative proceedings. See Oriental
Health Spa v. City of Fort Wayne, 526 N.E.2d 1019, 1022 (Ind. Ct. App. 1988),
trans, denied; see also Guy v. Universal Atlas Cement Co., Div. of U. S. Steel Corp., 143
Ind. App. 318, 321, 240 N.E.2d 497, 498 (1968). Neyer’s testimony and the
letter to Ken Carrier meet this relaxed standard. Thus, the decisions of the
District Authority and the trial court to uphold the Ordinance on this ground
were not arbitrary and capricious or patently unreasonable but were supported
by a rational basis. See Yankee Park, 891 N.E.2d at 1030-31.
IV. Is the Ordinance Arbitrary and Capricious?
[54] MGPI contends that the Ordinance is arbitrary and capricious because it results
in rates that are not just and equitable. We “will not intervene in a local
legislative process [if it is] supported by some rational basis.” Borsuk v. Town of
St. John, 820 N.E.2d 118, 122 (Ind. 2005). We will find a municipal entity’s
action arbitrary or capricious only if it is “patently unreasonable.” South Gibson
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Sch. Bd. v. Sollman, 768 N.E.2d 437, 441 (Ind. 2002). In short, “[j]udicial review
of whether a governmental agency has abused its rulemaking authority is highly
deferential.” Ind. High Sch. Athletic Ass’n, Inc. v. Carlberg, 694 N.E.2d 222, 234
(Ind. 1997).
[55] MGPI relies on the testimony of its expert, Roper, to establish that the rates are
arbitrary and capricious. Roper addressed three factors that resulted in an
improper rate calculation. First, Roper maintained that the Ordinance would
result in overcollection of revenue because the Cost of Service Study abandoned
the biological oxygen demand (“BOD”) method for setting rates and replaced it
with loading rates based on pounds of “total loadings.” Appellant’s App. Vol. III
at 225-26. The Ordinance defines “total loadings” as “pounds . . . calculated
from BOD and TSS,” where TSS stands for “total suspended solids” or “the
total suspended matter that floats on the surface of, or is suspended in: water,
wastewater, or other liquid[.]” Id. at 21. Roper explained that the “total
loading” charges are not limited to BOD but are based on BOD and TSS
combined. Id. at 225. Roper claimed that although the District switched to this
total-loadings standard, it did not conduct a separate analysis to determine what
the total loadings rate should be because the Ordinance simply incorporated the
$0.30 per pound BOD charge into the new framework measuring total loadings.
Id. at 13-15, 18-21. Roper claimed this would result in an overcollection of
more than half a million dollars. Id. at 225-26.
[56] Second, Roper claimed that the Cost of Service Study improperly calculated a
rate based on the costs of removing phosphorus from wastewater. Id. at 226-27.
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MGPI contends phosphorous removal should not factor into its rates because
MGPI discharges no phosphorus into its wastewater. Id. at 227. Third, Roper
contended that the Cost of Service Study failed to apply guidelines promulgated
by the EPA, which again will result in overcharges. Id. at 228-30. Roper
referred to EPA guidelines for pH testing of wastewater discharges. Id. at 229-
30. This standard requires what is known as a “grab sample.” Id. However,
Roper explained, the Ordinance deviates from this guideline by using
“composite samples” collected over twenty-four hours. Id. Because pH
samples of wastewater are unstable over time, Roper explained it is important
that only fresh samples are tested. Id. at 230. Using composite samples reduces
the accuracy of the tests at the risk of the consumer. Id. Thus, Roper described
the method used by the District as a “short-cut protocol.” Id. at 233.
[57] Based on these alleged problems with the Cost of Service Study, Roper
calculated that MGPI’s rates would be higher under the Ordinance. He found
that while MGPI discharges only about twenty-nine percent of the total
wastewater load in the system, it would provide forty percent of the District’s
revenue. Id. at 230.
[58] In response, the District correctly observes that MGPI’s argument asks us to
reweigh the evidence instead of using the highly deferential standard of asking
whether the Ordinance was arbitrary and capricious. See Carlberg, 694 N.E.2d
at 234. The District highlights evidence that supported the rulings below. First,
the District’s expert, Skomp, testified that the Ordinance would produce
adequate, not excessive revenue. Id. at 36-37. Skomp explained that the
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estimated annual revenue from the rates is within $6,400 or 0.2% of the
estimated annual revenue requirement. Id. at 39-40. Second, Skomp clarified
why phosphorous removal is included in rate calculation for all users even
though MGPI discharges no phosphorous into its wastewater. He explained
that phosphorus removal costs were allocated this way because all flow, except
for stormwater-only flow, goes through the phosphorus removal process and the
phosphorous content of incoming flow is irrelevant. Id. at 159.
[59] Third, the District rejects MGPI’s argument that the Ordinance is arbitrary and
capricious because it allows the District to use alternatives to grab-sample
testing when necessary. The District argues that the Ordinance makes clear
that pH is to be tested by the grab-sample method: “the pH from any 24-hour
grab sample shall not be outside the range of 5.5-9.5.” Appellant’s App. Vol. II at
166. However, even if a grab sample is sometimes impractical to collect, which
the District contends is highly unlikely, allowing the use of a composite sample
should not invalidate the Ordinance. At most, the District argues that the
language allowing for composite sample testing should be stricken from the
Ordinance. Further, the District claims MGPI has not alleged or presented any
evidence that the District has ever tested pH via a composite sample. Thus, it
argues that MGPI’s argument here is hypothetical and not ripe for review. See
In re Paternity of M.G.S, 756 N.E.2d 990, 1004 (Ind. Ct. App. 2001), trans. denied.
[60] Finally, the District rejects MGPI’s argument that the Ordinance is arbitrary
and capricious because it will supposedly result in MGPI providing forty
percent of the District’s revenue while only discharging twenty-nine percent of
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the District’s total wastewater load. The District claims that MGPI’s argument
is specious because MGPI would not be subject to the Ordinance’s rates, but
since MGPI is now a direct customer of Lawrenceburg, MGPI’s rates will be
set by Lawrenceburg, not the Ordinance. Skomp’s Supplement stated: “the
rates and charges approved in the Ordinance . . . would not be applied to a bill
to MGPI and[,] therefore, cannot be used to determine how MGPI will be
impacted.” Appellant’s App. Vol. III at 162.
[61] The evidence provided a rational basis for the Ordinance. Accordingly, we
reject MGPI’s argument that the Ordinance is arbitrary and capricious.
VI. Conclusion
[62] There was a rational basis for the District Authority to uphold the Ordinance
and for the trial court to affirm the District Authority’s ruling. Thus, we decline
to intervene in this local, legislative matter. See Yankee Park, 891 N.E.2d at
1030-31. The District was not required to obtain permission from IDEM to
enact the Ordinance, the District considered MGPI’s interests in enacting the
Ordinance, and the Ordinance was not arbitrary and capricious. Finally, the
vested interest did not run with the land to MGPI and even if MGPI once held
the vested interest through the series of sales of the distillery that eventually
resulted in MGPI’s purchase of the distillery, MGPI eventually disclaimed that
vested interest. Accordingly, we affirm the trial court.
[63] Affirmed.
Baker, J., and Crone, J., concur.
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