Town of Pembroke v. Town of Allenstown

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THE SUPREME COURT OF NEW HAMPSHIRE
___________________________
Merrimack
No. 2017-0066
TOWN OF PEMBROKE
v.
TOWN OF ALLENSTOWN
Argued: February 7, 2018
Opinion Issued: June 22, 2018
Preti Flaherty Beliveau & Pachios LLP, of Concord (Mark H. Puffer and
Gregory L. Silverman on the brief, and Mr. Silverman orally), for the plaintiff.
Drescher & Dokmo, P.A., of Milford (William R. Drescher on the brief and
orally), for the defendant.
Donahue, Tucker & Ciandella, PLLC, of Exeter (Sharon Cuddy Somers on
the memorandum of law), for the Town of Allenstown Board of Selectmen.
HICKS, J. This case presents two questions arising out of the operation
of the Suncook Wastewater Treatment Facility (the “Facility”) in Allenstown.
First, under an intermunicipal agreement, must the defendant, Town of
Allenstown, share any of the profits generated from septage haulers who
discharge their waste at the Facility with the plaintiff, Town of Pembroke? And
second, after Allenstown used a portion of those profits to increase the
Facility’s wastewater treatment capacity, must Allenstown allocate any of that
increased capacity to Pembroke? Because we, as did the Superior Court
(Nicolosi, J.), answer both questions “no,” we affirm.
I
The following facts are drawn from the trial court’s order in this case, or
are otherwise found in the record. Prompted by the passage of the Federal
Water Pollution Control Act Amendments of 1972, see Pub. L. No. 92-500, 86
Stat. 816 (1972), commonly known today as the Clean Water Act (CWA),
Allenstown and Pembroke entered into an intermunicipal agreement to jointly
finance, construct, and maintain a wastewater treatment facility — the Facility
— on August 6, 1974. Due to landscape and location considerations, as well
as federal regulations dictating that a single town must be identified as a
facility’s “owner,” Allenstown was chosen as the Facility’s home and delineated
owner-operator. Through a combination of federal, state, and local funding,
with the local portion accounting for approximately 5% — split 65/35 between
Pembroke and Allenstown, respectively, based upon population projections —
of the total construction cost, the Facility became operational in 1977.
Governed by the 1974 agreement, the towns thereafter contributed to the
Facility’s operation and maintenance costs over the ensuing years based upon
their proportionate use thereof.
In April 2002, the New Hampshire Department of Environmental Services
notified Allenstown that the Facility had exceeded 80% of its “flow capacity”
and was “within 100,000 gallons per day of [its] total capacity.” When the
Facility ultimately reached its capacity a little over three years later in August
2005, a moratorium was placed on permits for new sewer connections.
As a result, the towns began conferring and negotiating over ways to
increase the Facility’s capacity and how to fund such efforts. With regard to
the latter consideration, Allenstown explored whether the Facility could accept
septage from commercial haulers notwithstanding the moratorium. In time,
Allenstown discovered that it could accept septage by only “dewatering” it,
which impacted neither the Facility’s capacity nor efficiency negatively, and
trucking the resulting “solid sludge” off-site along with solid waste from the
towns’ collection systems. By allocating the associated expenses against
revenues generated thereby, Allenstown ensured that neither town bore the
costs of septage processing. More importantly, by charging septage haulers a
“market rate that exceed[ed] the pure cost of processing the septage,”
Allenstown began generating what Pembroke alleges are “significant profits.”
In support of a proposed $15 million upgrade of the Facility to double its
capacity, the towns entered into a successor to the 1974 intermunicipal
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agreement on November 20, 2006. Section 3.06 of the 2006 agreement, which
concerns, in relevant part, allocation of septage processing revenues, provides:
Revenue received from septage permits and fees by Allenstown
shall be used to help offset the costs of septage processing and any
excess revenues may be used to offset the costs of operation and
maintenance of [the Facility] and/or the upgrade/expansion of [the
Facility].
As to the anticipated upgrade of the Facility, Section 4.03 of the 2006
agreement reads, in pertinent part, as follows:
At the same time the Town of Allenstown approves and
appropriates the bonding of the costs for construction of
expansions or modifications to the wastewater facilities, that were
designed for, or which will be utilized by the Town of Pembroke,
Pembroke shall also raise and appropriate it’s [sic] proportionate
share of the estimated Capital Costs of the facilities, less any
previous payments made during the design phase. Payment of
Pembroke’s proportionate share of the bond repayment shall be
made to Allenstown not less than thirty (30) days prior to the date
that Allenstown’s payment to the bondholder is due.
Following execution of the 2006 agreement, Allenstown placed profits
generated from septage processing — “excess septage revenues” — into a fund
separate and distinct from the one used to hold revenues received from
residents of the two towns. Warrant articles proposing the appropriation of a
$15 million bond for the Facility’s upgrade failed at Allenstown’s 2007 and
2008 town meetings. Pembroke did not propose a similar article during either
year, opting instead, according to the testimony of one town official, to wait
until Allenstown voters approved and appropriated a bond before seeking the
same from its voters.
Allenstown thereafter changed gears and explored a smaller-scale, less
expensive upgrade of the Facility — the “BioMag Project” — to increase its total
capacity by 1,200 connections. After discussing this option with Pembroke, the
towns reached a proposal to equally finance the BioMag Project’s $1.55 million
cost and share in the increased capacity. This proposal too, however, also
failed among Allenstown voters and was not presented at Pembroke’s 2009
town meeting.
Following this latest failure, Allenstown expressed to Pembroke that “the
only way Allenstown voters will pass a warrant article [to increase the Facility’s
capacity] is if they don’t have to pay for it.” Mins. of Allenstown Sewer
Comm’n’s Spec. Mtg. of 04/08/2009 (available in Appendix to Brief of Town of
Pembroke at 109). Consequently, Allenstown officials proposed that
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Allenstown finance its share of the BioMag Project’s cost through a grant from
the American Recovery and Reinvestment Act of 2009 (ARRA), see Pub. L. No.
111-5, 123 Stat. 115 (2009). Rejecting this proposal, Pembroke did not suggest
an alternative funding scheme and, instead, expressed to Allenstown — as
found by the trial court — that “it did not want any part of the BioMag Project.”
On June 13, 2009, Allenstown held a special town meeting and proposed
to its voters that the town finance the BioMag Project’s entire cost with half of
the funding coming from an ARRA grant and the other half from excess septage
revenues. This warrant article passed, and it appears Allenstown has made
exclusive use of the increased capacity since the BioMag Project’s installation.
In addition to using the funds to finance a portion of the project, Allenstown
also started using excess septage revenues in 2012 to pay for repairs to its
town collection system and to subsidize its residents’ rates. Pembroke
protested Allenstown’s use of the funds for these purposes to no avail.
The dispute led Pembroke to institute this action for a declaration, in
substance, that excess septage revenues are the property of both towns under
the 2006 agreement and that it is entitled to a share of the increased capacity
created by the BioMag Project. Pembroke also requested damages for the
excess septage revenues Allenstown had expended to that point. Allenstown
objected and responded, in part, that Pembroke breached the 2006 agreement
when it “refus[ed] to participate” in the BioMag project.
At the conclusion of a four-day bench trial, the trial court found that
Pembroke breached the 2006 agreement. With regard to excess septage
revenues, the trial court concluded that, under both the plain text of Section
3.06 of the 2006 agreement and evidence presented at trial, Allenstown is
entitled to expend such funds “however it sees fit.” In making this finding, the
trial court rejected Pembroke’s position that interpreting Section 3.06 in this
manner conflicts with CWA regulations governing Allenstown’s operation of the
Facility. As to the increased capacity, the trial court found, “[b]y refusing to
participate in the funding for the BioMag [P]roject,” Pembroke breached, in
pertinent part, Section 4.03 of the 2006 agreement. Because Allenstown
thereafter “fully funded” the BioMag Project, the trial court concluded that
Pembroke is not entitled to any portion of the resulting increased capacity.
Pembroke maintains in this appeal that the trial court erred in several
respects in reaching these conclusions. We disagree.
II
We begin first by addressing the towns’ dispute over excess septage
revenues under the 2006 agreement. Because interpretation of a contract is
ultimately a question of law for us to decide, we review the trial court’s
interpretation of that agreement de novo. Birch Broad. v. Capitol Broad. Corp.,
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161 N.H. 192, 196 (2010). “When interpreting a written agreement, we give the
language used by the parties its reasonable meaning, considering the
circumstances and the context in which the agreement was negotiated, and
reading the document as a whole.” Id. “We give an agreement the meaning
intended by the parties when they wrote it.” Id.
Consistent with the applicable general rule of contract construction, see
17A Am. Jur. 2d Contracts § 359 (2016); 11 Richard A. Lord, Williston on
Contracts § 30:10, at 144 (4th ed. 2012), the towns’ 2006 agreement
establishes that the word “shall” is “mandatory” in effect, while the word “may”
is “permissive” in effect. Section 3.06 of the agreement provides that
Allenstown “shall” use septage revenues to offset the costs of septage
processing, while it “may” use any excess to offset the costs of the Facility’s
operation and maintenance or upgrade or expansion. Accordingly, by its
terms, Section 3.06 makes Allenstown’s allocation of septage revenues
mandatory in the first instance, but permissive in the second. That is,
although obligated to first offset the cost of septage processing with the
revenues, the decision whether to allocate the excess to other Facility-related
costs, or seemingly anywhere else, lies within Allenstown’s sole discretion — or,
as the trial court put it, Allenstown may use the excess “however it sees fit.”
Pembroke, however, offers an alternative reading of Section 3.06, in
which other provisions of the 2006 agreement operate to require Allenstown to
use excess septage revenues to benefit both towns. Noting correctly that it has
long been our practice to focus upon the intent of the parties, as manifested in
the language of the entire agreement, when defining parties’ respective rights
under the terms of a contract, Glick v. Chocorua Forestlands Ltd. P’ship, 157
N.H. 240, 247 (2008), Pembroke draws our attention to several provisions
throughout the agreement embodying what it entitles the “principles of
proportionality.” Pembroke maintains that these provisions stand upon “the
basic principle . . . that users of a wastewater treatment facility pay
proportionately for the facilities that they use,” which principle, it argues, is
violated if Section 3.06 is interpreted as above. It therefore concludes that
Section 3.06 must be read as requiring Allenstown to use excess septage
revenues to proportionately reduce both towns’ wastewater treatment-related
costs, and not only its own.
But the “proportionality” provisions Pembroke relies upon require only
that both Allenstown and Pembroke pay for their proportionate share of the
Facility’s total operating costs. And nowhere does Pembroke argue that
Allenstown is not ultimately fulfilling this obligation. Neither the text of the
cited provisions, nor, more importantly, Section 3.06, can be read to obligate
Allenstown to allocate any excess septage revenues to Pembroke’s Facility-
related costs.
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Nor can Section 3.06 be read, as Pembroke also argues, to circumscribe
Allenstown’s authority over allocation of excess septage revenues to the two
options identified: offsetting the costs of the Facility’s “operation and
maintenance” and/or its “upgrade/expansion.” While Section 3.06 may indeed
identify two options, neither that provision, nor any other provision in the
agreement, limits Allenstown’s discretion to those choices. Ironically,
Pembroke’s reading, and not that of Allenstown or the trial court as it
contends, would in fact require us to add to or modify Section 3.06’s text to
reach the claimed intent of the parties — e.g., “any excess revenues may [only]
be used to . . . .” Yet, it is our duty and function to interpret and enforce the
agreement the towns reached, not to add to the agreement or take from it. See
Technical Aid Corp. v. Allen, 134 N.H. 1, 21 (1991).
Faced with this outcome under Section 3.06’s plain text, Pembroke urges
us next to look beyond the provision’s language to the evidence it presented at
trial, such as: (1) the history of the towns’ obligations towards the Facility; (2)
testimony of Pembroke officials involved in the 2006 agreement negotiations,
including what they understood the meaning of the word “may” in Section 3.06
to entail; and (3) the towns’ conduct following execution of the 2006 agreement.
According to Pembroke, this evidence reveals it was never the towns’ intent to
allow Allenstown to spend excess septage revenues “however it sees fit.”
Absent ambiguity, however, the towns’ intent must be determined from
the plain meaning of the language used in the 2006 agreement. See Birch
Broad., 161 N.H. at 196. Pembroke does not explicitly argue that Section 3.06
is ambiguous, nor would we be inclined to find as much in light of the defects
in Pembroke’s proffered readings of the provision. Behrens v. S.P. Constr. Co.,
153 N.H. 498, 503 (2006) (“A clause of an agreement is ambiguous when the
contracting parties reasonably differ as to its meaning.” (emphasis added)). It
may be true that Pembroke desired excess septage revenues to benefit both
towns, and that it entered into the agreement with that belief. It is axiomatic,
though, that “[p]arties generally are bound by the terms of an agreement freely
and openly entered into, and courts cannot make better agreements than the
parties themselves have entered into or rewrite contracts merely because they
might operate harshly or inequitably.” Mills v. Nashua Fed. Sav’s and Loan
Assoc., 121 N.H. 722, 726 (1981); see 11 Williston on Contracts, supra § 31:5,
at 479-80 (“[A] court cannot change the words of a written contract so as to
make it express the claimed real intention of one or the other of the parties, or
remake a contract to implement an alleged but unexpressed intention, if doing
so would contradict the clearly expressed language of the contract.” (footnotes
omitted)). Because the plain text of Section 3.06 confers on Allenstown
unfettered discretion over allocation of excess septage revenues, we decline to
consider whether the evidence of intent presented at trial paints a different
picture.
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In a final effort to avoid the outcome compelled by the language of the
2006 agreement, Pembroke appeals to one of the many CWA regulations
governing Allenstown’s operation of the Facility, 40 C.F.R § 35.2140 (2017).
This regulation requires Allenstown, as the Facility’s owner and operator, to
implement and administer a “user charge system” — generally speaking, a
system under which each “user” of a wastewater treatment facility is charged
for their proportionate contribution to that facility’s total operating and
maintenance costs, including replacement. 40 C.F.R § 35.2140; see 40 C.F.R.
§ 35.2005(b)(52) (2017).
Observing that Allenstown agreed to comply with this, and several other,
CWA regulations in the 2006 agreement, Pembroke points out that 40 C.F.R.
§ 35.2140’s user charge system requirements “take precedence over any terms
or conditions of agreements or contracts which are inconsistent” therewith.
40 C.F.R. § 35.2140(h) (2017). Such an inconsistency would result under one
of those requirements, 40 C.F.R. § 35.2140(f) (2017), Pembroke argues, if we
interpret Section 3.06 as we do above. 40 C.F.R. § 35.2140(f) directs that:
After completion of building a [publicly owned treatment works],
revenue from the [publicly owned treatment works] (e.g., sale of a
treatment-related by-product; lease of the land; or sale of crops
grown on the land purchased under the grant agreement) shall be
used to offset the costs of operation and maintenance. The grantee
shall proportionately reduce all user charges.
See 40 C.F.R. § 35.2005(b)(8), (32) (2017). Arguing that excess septage
revenues are “revenue from the [publicly owned treatment works]” (i.e.,
“revenue from” the Facility), Pembroke insists once more that either Section
3.06 must be read to require Allenstown to use the revenues to proportionately
reduce both towns’ user charges, or it is inconsistent with the CWA and, thus,
40 C.F.R. § 35.2140(f) nevertheless controls. This argument, too, however, is
unavailing.
The maxim ejusdem generis provides that, when specific words in a
statute or regulation follow general ones, the general words are construed to
embrace only objects similar in nature to those enumerated by the specific
words. See Dolbeare v. City of Laconia, 168 N.H. 52, 55 (2015) (applying
maxim in statutory interpretation); Christopher v. SmithKline Beecham Corp.,
567 U.S. 142, 163-64 (2012) (applying maxim in regulatory interpretation).
The examples listed after the phrase “revenue from the [publicly owned
treatment works]” indicate to us that it is only those revenues generated by a
wastewater utility from non-wastewater treatment related ventures — e.g., a
wastewater utility leasing an unused field located on its property to a local
school — that must be used to proportionately reduce all user charges.
Militating in favor of our construction is a section of the “User Charge
Guidance Manual” cited by Pembroke in support of its view to the contrary,
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which provides that “[s]econdary revenue offsets are generated by a wastewater
utility from activities other than the provision of wastewater treatment
services.” Envtl. Prot. Agency, User Charge Guidance Manual For Publicly-
Owned Treatment Works (“Guidance Manual”) 10 (1984) (emphasis omitted
and emphasis added); see Christensen v. Harris County, 529 U.S. 576, 587
(2000) (observing that agency interpretations contained in, in relevant part,
“agency manuals” are “entitled to respect” only “to the extent that those
interpretations have the power to persuade”) (quotations omitted).
Septage revenues, by contrast, are revenues Allenstown generates from
the Facility’s very purpose and function. These revenues, therefore, are
identical to those Allenstown and Pembroke pay for their respective use of the
Facility. Id. at 25 (defining a “[u]ser” as “[a] recipient of wastewater treatment
services” and a “[u]ser charge” as “[a] charge levied on users of a treatment
works for the cost of operation and maintenance, including replacement”
(bolding omitted)). The only difference is, as Pembroke observes, “Allenstown
does not charge septage haulers only the amount necessary to account for [the
Facility’s] operation, maintenance, and replacement costs,” but rather makes a
substantial profit by “invoic[ing] septage haulers what the market will bear.”
Pembroke responds that, if the foregoing is true and “septage haulers are
users [of the Facility], just as Pembroke and Allenstown are users” as the trial
court found, then Allenstown should not be deriving a profit from the haulers,
but only payment for their proportionate contribution to the Facility’s operating
costs under the user charge system. On the surface, this argument has some
appeal. See id. at 9 (“[T]he goal of a publicly owned wastewater utility is to
recover its costs, not to make a profit.”). The narrow question before us,
however, is whether Pembroke is entitled to share in the excess septage
revenues under the 2006 agreement. Having determined that the agreement
entitles Allenstown to use those funds within its discretion, we answer that
question in the negative.
III
Turning to the second question presented in this appeal, our conclusion
above is largely dispositive. Operating under the supposition that it is entitled
to a share of the excess septage revenues, Pembroke argues that it is, therefore,
also entitled to share in the increased capacity created by the BioMag Project
given that the installation was partially funded by those revenues. This
argument necessarily fails given our decision above. Nor is Pembroke entitled
to the relief it seeks simply because Allenstown used an ARRA grant to fund
the project’s remaining construction costs. Other than another invocation of
the CWA’s “proportionality requirements,” Pembroke points us to no specific
regulation or statute either prohibiting Allenstown, as the Facility’s owner-
operator, from individually benefitting from such a grant or conferring on
Pembroke, as a “user,” the right it asserts.
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It also does not follow, as Pembroke argues, that it is entitled to share in
the increased capacity simply because, under the 2006 agreement, Allenstown
could have required it to “pay its proportionate share of any costs [of the
BioMag Project’s installation costs] not funded with Federal grants or with
profits from septage haulers.” As found by the trial court, in the face of
Pembroke’s position that “it did not want any part of the BioMag Project”
despite its contractual obligations, Allenstown “moved forward on its own” and
found the funds necessary to complete the project. See O’Malley v. Little, 170
N.H. 272, 275 (2017) (noting that, in reviewing a trial court’s decision rendered
after a trial on the merits, “we defer to [its] judgment on such issues as
resolving conflicts in the testimony, measuring the credibility of witnesses, and
determining the weight to be given evidence” (quotation omitted)); see also 23
Richard A. Lord, Williston on Contracts § 63:52, at 654 (4th ed. 2002)
(observing that, under the doctrine of anticipatory repudiation, “if the
nonrepudiating party wishes only to refrain from performing its part of the
contract . . . [it] ordinarily need do nothing except refrain from performing and
from receiving performance until it sues or is sued, at which time, the excuse
may be pleaded” (footnote omitted)). Allocation of the resulting increased
capacity, therefore, is Allenstown’s to determine.
Consequently, although Pembroke’s frustration is understandable given
its contributions to the Facility’s operation and maintenance costs over the
past four decades, we conclude, as did the trial court, that it is not entitled to a
share of the increased capacity under the arguments advanced. We therefore
affirm the trial court’s finding on this issue as well.
Affirmed.
LYNN, C.J., and BASSETT and HANTZ MARCONI, JJ., concurred.
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