KINCAID v CITY OF FLINT
Docket No. 318906
Michigan Court of Appeals
June 11, 2015
311 MICH APP 76
Submitted January 7, 2015, at Detroit. Decided June 11, 2015, at 9:10 a.m.
Plaintiffs, taxpayers and residents of defendant city of Flint, brought an action in Genesee Circuit Court against defendant after defendant increased the costs paid by users of its water and sewer services. The court, Richard B. Yuille, J., granted defendant‘s motion for summary disposition, holding that defendant‘s emergency manager was authorized to implement water and sewer rate increases on the basis of the authority given him by statute, which included the authority to ratify the provisions of earlier rate increases that had been implemented in violation of defendant‘s governing ordinances. The court further held that defendant‘s deposit of revenue from water and sewer services into a single pooled cash account did not constitute an illegal commingling of funds. The court also denied plaintiffs’ motion to amend their complaint. Plaintiffs appealed.
The Court of Appeals held:
1. The trial court improperly granted summary disposition to defendant because defendant‘s 2011 rate increases for water and sewer services violated Flint Ordinances §§ 46-52.1 and 46-57.1 since defendant‘s former finance director failed to publish and notice the information concerning the rate increases at least 30 days before the increases became effective. This violation was not cured by a later order issued by defendant‘s emergency manager that purported to ratify the 2011 water and sewer rate increases.
2. The trial court improperly concluded that defendant‘s emergency manager possessed the authority to ratify previous rate increases for water and sewer services when those previous rate increases were not made in compliance with defendant‘s governing ordinances. No statutory provision gives an emergency manager the authority to ratify the unauthorized acts of another public official.
3. The trial court correctly granted summary disposition to defendant on plaintiffs’ claim that defendant improperly commingled revenue from its water and sewer services with other funds in a single pooled cash account. Defendant produced evidence that it appropriately maintained a single pooled cash account of revenue from different sources and that the water and sewer shares were accounted for in that pooled cash account. Plaintiffs failed to present any evidence showing that there was a genuine issue of material fact for trial.
4. The trial court improperly denied plaintiffs’ motion to amend their complaint because the court failed to specify an acceptable reason for doing so. A trial court is required to specify its reasons for denying a plaintiff‘s motion to amend its complaint, unless an amendment to the complaint would be futile.
Reversed and remanded.
Christopher J. McGrath, PLLC (by Christopher J. McGrath), and Valdemar L. Washington, PLLC (by Valdemar L. Washington), for plaintiffs.
Peter M. Bade, Flint City Attorney, and Anthony Chubb and David Roth, Assistant Flint City Attorneys, for defendant.
Before: DONOFRIO, P.J., and BORRELLO and STEPHENS, JJ.
STEPHENS, J.
I. BACKGROUND
On August 15, 2011, defendant‘s finance director, Michael Townsend, sent to the city council and mayor a notice of a proposed 35% water and sewer rate increase to be effective September 6, 2011. The increase was proposed to meet a projected fiscal year deficit in the sewer fund of $14,789,666 as well as a water fund deficit of $8,078,917.1 The city council adopted the proposal and the mayor signed it.
Shortly thereafter, defendant was declared to be in a state of financial emergency.2 On November 28, 2011, Governor Rick Snyder appointed Michael Brown as defendant‘s emergency manager (EM).3 On May 30, 2012, after he was informed by newly appointed finance director Gerald Ambrose of the financial disarray of defendant‘s water and sewer funds, EM Brown created Emergency Order No. 31. Order No. 31 ratified and confirmed the water and sewer rates implemented under former finance director Townsend on September 16, 2011, and additionally raised water and sewer rates, 12.5% and 45%, respectively, effective July 1, 2012.
After the emergency order by EM Brown, plaintiffs in this suit filed a complaint seeking this Court‘s original jurisdiction pursuant to
After the case before this Court was dismissed, plaintiff filed the instant action. The essence of this case is a claim that the rate increases in September 2011 were made contrary to defendant‘s Ordinances §§ 46-52.1 and 46-57.1, and a claim that defendant had illegally pooled the monies collected for the water and sewer funds and used them to pay general obligations not related to sewer or water expenses. Plaintiffs requested that the trial court certify a class action suit against defendant by all sewer and water customers of defendant, declare that the rate increases were
In lieu of filing an answer, defendant moved the trial court to grant it summary disposition pursuant to MCR 2.116(C)(6), (7), and (8). However, before defendant‘s motion for summary disposition was heard, plaintiffs moved the trial court for leave to amend their complaint to allege a violation of
Defendant responded to plaintiffs’ motion to amend their complaint by arguing that it should be denied as futile. On February 15, 2013, the trial court heard the two outstanding motions. On June 21, 2013, the trial court entered an opinion and order granting summary disposition in favor of defendant. On July 12, 2013, plaintiffs moved the trial court to reconsider its decision after which the court entered an order permitting defendant to respond to plaintiffs’ motion for reconsideration. The court denied the motion on October 14, 2013. Plaintiffs now appeal the order granting defendant summary disposition.
During the pendency of this case in the trial court, 2011 PA 4 was repealed after it was rejected by a majority of the electorate.6 One month later, on December 26, 2012, the Legislature approved the local finan-
cial stability and choice act, 2012 PA 436,7 effective March 28, 2013.8 Many of the provisions of 2012 PA 436 mirror those of 2011 PA 4.
II. STANDARDS OF REVIEW
The trial court ordered summary disposition under MCR 2.116(C)(8) and the parties base their arguments before this Court on that subsection, but our review of the record shows that the trial court went beyond the pleadings in making its decision as did both parties in making their arguments. Plaintiffs’ response to defendant‘s motion for summary disposition relied
“This Court reviews decisions on motions for summary disposition de novo to determine if the moving party was entitled to judgment as a matter of law.” Alcona Co v Wolverine Environmental Prod, Inc, 233 Mich App 238, 245; 590 NW2d 586 (1998). A motion for summary disposition under MCR 2.116(C)(10) “tests the factual sufficiency of the complaint. . . .” Joseph v Auto Club Ins Ass‘n, 491 Mich 200, 206; 815 NW2d 412 (2012). “In evaluating a motion for summary disposition brought under this subsection, a trial court considers affidavits, pleadings, depositions, admissions, and other evidence submitted by the parties, MCR 2.116(G)(5), in the light most favorable to the party opposing the motion.” Maiden v Rozwood, 461 Mich 109, 120; 597 NW2d 817 (1999). Summary disposition is proper when there is no “genuine issue regarding any material fact. . . .” Id. A party opposing a motion made under MCR 2.116(C)(10) “has the burden of showing that a genuine issue of disputed fact exists.” Major v Auto Club Ins Ass‘n, 185 Mich App 437, 440; 462 NW2d 771 (1990). “The opposing party may not rest upon mere allegations or denial in the pleadings, but must, by affidavit or other documentary evidence, set forth specific facts showing that there is a genuine issue for trial.” Id.
This Court also reviews issues of statutory interpretation de novo. Allen v Bloomfield Hills Sch Dist, 281 Mich App 49, 52; 760 NW2d 811 (2008).
When interpreting a statute, we follow the established rules of statutory construction, the foremost of which is to discern and give effect to the intent of the Legislature. The first step when interpreting a statute is to examine its plain language, which provides the most reliable evidence of [legislative] intent. If the language of a statute is clear and unambiguous, the statute must be enforced as written and no further judicial construction is permitted. When an ambiguity does indeed exist, we may go beyond the statutory text to ascertain legislative intent. Effect should be given to every phrase, clause, and word in the statute and, whenever possible, no word should be treated as surplusage or rendered nugatory. [People v Carrier, 309 Mich App 92, 104; 867 NW2d 463 (2015) (citations and quotation marks omitted; alteration in original).]
III. CLAIMS OF ERROR
Plaintiffs’ claims of error are three: (1) water and sewer rate increases that occurred under former fi-nance director Townsend in September 2011 were not authorized by defendant‘s ordinances, (2) EM Brown did not have the authority to ratify Townsend‘s unauthorized increases and then further increase water and sewer rates in violation of the same ordinances, and (3) defendant wrongly deposited funds from water and sewer revenue into a single pooled cash account.
A. ORDINANCE VIOLATIONS
Plaintiffs claim that defendant violated Flint Ordinances §§ 46-52.1 and 46-57.1.
Ordinance 46-52.1 reads as follows:
(a) Every year the Director of Finance shall calculate and transmit on or
before April 15, to the Mayor and City Council the new water rate schedules with a complete itemization of water system costs for all classes of customers as given in § 46-52, for the purpose of calculating all bills for the forthcoming 12 months beginning July 1 of that year. The new water rate schedules shall be published at least 30 days prior to the date of implementation. (b) Water rates shall be reviewed annually and the water rate percentage index (WRI) as applied to the water rate schedules shall be limited to an adjustment of 8% in any year unless:
(1) Such adjustment is necessary to provide for all costs of operation, maintenance, replacement and debt service of the water supply system; or
(2) Such adjustment is necessary to comply with applicable provisions of the city‘s water supply revenue bond resolutions or ordinances.
Ordinance 46-57.1 reads:
Every year the Director of Finance shall calculate and transmit on or before April 15, to the Mayor and City Council the new sewage rate schedules with a complete itemization of sewage system costs for all classes of customers as given in § 46-57, for the purpose of calculat-ing all bills for the forthcoming 12 months beginning July 1 of that year. The new sewage rate schedules shall be published at least 30 days prior to the date of implementation.
Plaintiffs argue that the rate increases of September 2011 and those imposed by EM Brown failed to meet the notice and effective date requirements of the ordinances and exceeded the percentage of increase allowed under the ordinances. We agree in part.
The 35% water rate increase in September 2011 violated Ordinance 46-52.1 because it was not published and noticed at least 30 days before its implementation, and because it went into effect almost immediately after it was noticed, instead of being implemented over twelve months beginning on July 1 of the next fiscal year. The sewer rate increases were invalid for the same reasons under Ordinance 46-57.1. The sewer rates were not published and noticed 30 days before their implementation and were implemented soon after the former finance director‘s recommendation instead of on July 1 of the next fiscal year.
Plaintiffs’ argument that the increases also violated Ordinance 46-52.1 by increasing the water rates above 8% is not supported by the language of the ordinance. Ordinance 46-52.1 envisions that water rate increases be limited to an adjustment of 8%, but allows for uncapped increases in the event the “adjustment is necessary to provide for all costs of operation, maintenance, replacement and debt service of the water supply system; or . . . to comply with applicable provisions of the city‘s water supply revenue bond resolutions or ordinances.” On August 15, 2011, former finance director Townsend sent a letter to defendant‘s mayor and defendant‘s city council providing justification for the amount of the increase. In that letter, Townsend stated that the water fund operated at a $3.21 million loss for fiscal year 2011 and that defendant was not meeting its state bond requirements “to maintain operating revenues greater than 125% of the amount of debt service on the bonds.” Townsend explained that the rate increases would help cover the rate increases defendant paid to Detroit as well as provide revenue to pay the Drinking Water Revolving Fund bonds. This Court has no basis on which to find those statements invalid. While the notice, publication, and implementation of the water
Plaintiffs challenge EM Brown‘s rate increases under Order No. 31 on the same basis as they challenged the September 2011 increases noticed by former finance director Townsend. However, EM Brown‘s water and sewer rate increases of 12.5% and 45%, respectively, did not violate defendant‘s Ordinances 46-52.1 and 46-57.1. On May 30, 2012, EM Brown published notice of the increases and their effective date of July 1, 2012. The order complied with the notice, publication, and implementation provisions of Ordinance 46-52.1 and Ordinance 46-57.1. Plaintiffs again argue that any increase in water rates over 8% is not authorized under Ordinance 46-52.1, but as discussed above, the language of the ordinance does not support that argument. The language of Order No. 31 established both of the exceptions in Ordinance 46-52.1 that allow for an increase in water rates greater than 8%. The order explained that defendant was required under
B. RATIFICATION AUTHORITY OF THE EMERGENCY MANAGER
EM Brown not only increased water and sewer rates with the implementation of Order No. 31, but he also “expressly ratified and confirmed” the September 16, 2011 rate increases. Whether EM Brown was granted the authority to ratify the unauthorized acts of another public official is an issue of first impression. We conclude that the Legislature did not delegate the power to ratify to an emergency manager.
The EM is a creature of the Legislature with only the power and authority granted by statute. EM Brown derived his authority from the former emergency manager law, 2011 PA 4.10 That authority was not as broad as defendant argues. We do not agree with defendant that 2012 PA 436, the successor statute to 2011 PA 4, authorized all the actions of the EM taken
(a) A determination by the state treasurer or superintendent of public instruction pursuant to a preliminary review of the existence of probable financial stress or a serious financial problem in a local government.
(b) The appointment of a review team.
(c) The findings and conclusion contained in a review team report submitted to the governor.
(d) A determination by the governor of a financial emergency in a local government.
(e) A confirmation by the governor of a financial emergency in a local government.
Actions taken under 2011 PA 4 by the State Treasurer, the appointed review team, and the Governor remained effective and were not required to be reapproved under 2012 PA 436.
We also reject defendant‘s argument that an act of the EM is an act of the governor and that the EM derives power to ratify from the Governor. Former
The EM‘s responsibilities and authority under 2011 PA 4 are listed in former statutory provisions
Absent the power of ratification, defendant urges this Court to look elsewhere for the EM‘s authority to approve the unauthorized 2011 water and sewer rate increases. Defendant argues that the additional powers granted to an emergency manager in former
sewer rates notwithstanding the ordinances. Under that section,
An emergency manager may take 1 or more of the following additional actions with respect to a local government which is in receivership, notwithstanding any charter provision to the contrary:
(a) Analyze factors and circumstances contributing to the financial emergency of the local government and initiate steps to correct the condition.
We are not persuaded by this argument.
to the contrary, and the increases complied with the notice, publication, and implementation guidelines of Ordinances 46-52.1 and 46-57.1.
In light of our analysis, we conclude that former finance director Townsend violated defendant‘s Ordinances 46-52.1 and 46-57.1, by increasing water and sewer rates without first providing notice and publication to its residents 30 days before the increases took effect, and by not waiting to implement those rates until July 1 of the next fiscal year. We also conclude that EM Brown‘s Order No. 31 did not rectify the violations.
The trial court‘s grant of summary disposition to defendant was premised on its understanding of the EM‘s authority as broad, substantial, and complete. Our decision today only highlights that authority for a closer look at the statutory boundaries of the EM‘s power. Because we disagree with the trial court‘s conclusion that the EM had the authority to ratify a previously unauthorized rate increase, we reverse its order granting defendant summary disposition.
C. COMMINGLING OF FUNDS
Next, this Court must consider whether the trial court properly summarily disposed of plaintiffs’ claims regarding the commingling of funds. Plaintiffs assert that defendant placed water and sewer fees from customers into a pooled cash account with other funds, that defendant used the water and sewer funds to pay its general obligations in violation of the Revenue Bond Act, and that this practice led to a deficit in the water and sewer funds which precipitated the rate increases by former finance director Townsend and EM Brown. Plaintiffs’ arguments rely entirely on the trial court‘s grant of defendant‘s motion for summary disposition under MCR 2.116(C)(8). Indeed, plaintiffs maintain that the trial court should not have considered the affidavit of Pamela Hill, a certified public accountant and the audit manager of defendant‘s financial statements, nor should the trial court have held against plaintiffs their failure to provide any evidence to the contrary, because MCR 2.116(C)(8) requires the trial court to disregard evidence outside of the pleadings. MCR 2.116(G)(5). However, as has been discussed, defendant‘s motion was granted pursuant to MCR 2.116(C)(10).
Plaintiffs argue that defendant illegally commingled funds. We find no merit to this claim. The party opposing a motion made under MCR 2.116(C)(10) “has the burden of showing that a genuine issue of disputed fact exists.” Major, 185 Mich App at 440. “The opposing party may not rest upon mere allegations or denial in the pleadings, but must, by affidavit or other documentary evidence, set forth specific facts showing that there is a genuine issue for trial.” Id. See also MCR 2.116(G)(4). The record reveals that defendant provided evidence, in the form of the affidavit from Hill, whose practice included auditing municipalities, that defendant‘s accounting system was entirely legal and was used by several other municipalities. Plaintiffs assert that Hill‘s affidavit only evidences the practice of commingling without establishing the legality of the practice. While the trial court only mentioned the Hill affidavit in its order granting summary dismissal, it also had before it plaintiffs’ exhibits in support of their response to defendant‘s motion for summary disposition, which included an affidavit from city treasurer Douglas Bingaman. Bingaman‘s affidavit stated that the water and sewer funds were deposited in a single pooled cash account, but that funds which state law required to be maintained separately were excluded. The affidavit further indicated
In response, plaintiffs provided no evidence that defendant‘s accounting system was illegal. This Court‘s decision in Major quite plainly requires plaintiffs to provide some evidence that there was a disputed issue of fact. See Major, 185 Mich App at 440. This, plaintiffs did not do. As such, the trial court correctly determined that there was no genuine issue of mate-rial fact for trial and properly granted summary disposition on this issue. Id.
IV. MOTION TO AMEND
Plaintiffs lastly argue that the trial court erred by denying their request to amend their complaint. We agree.
“This Court reviews grants and denials of motions for leave to amend pleadings for an abuse of discretion.” Hakari v Ski Brule Inc, 230 Mich App 352, 355; 584 NW2d 345 (1998). “There are circumstances where a trial court must decide a matter and there will be no single correct outcome; rather, there may be more than one reasonable and principled outcome. The trial court abuses its discretion when its decision falls outside this range of principled outcomes.” Pontiac Fire Fighters Union Local 376 v Pontiac, 482 Mich 1, 8; 753 NW2d 595 (2008).
“A party may amend a pleading once as a matter of course within 14 days after being served with a responsive pleading by an adverse party. . . .” MCR 2.118(A)(1). “Except as provided in subrule (A)(1), a party may amend a pleading only by leave of the court or by written consent of the adverse party. Leave shall be freely given when justice so requires.” MCR 2.118(A)(2). “Because a court should freely grant leave to amend a complaint when justice so requires, a motion to amend should ordinarily be denied only for particularized reasons.” Wormsbacher v Phillip R Seaver Title Co, Inc, 284 Mich App 1, 8; 772 NW2d 827 (2009). Those reasons include undue delay, bad faith or dilatory motive, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice, or futility. Miller v Chapman Contracting, 477 Mich 102, 105; 730 NW2d 462 (2007). Further, MCR 2.116(I)(5) states that when the trial court summarily disposes of a case under subrules (C)(8), (9), or (10), the trial court “shall give the parties an opportunity to amend their pleadings as provided by MCR 2.118, unless the evidence then before the court shows that amendment would not be justified.”
The trial court‘s reason for denying plaintiffs’ motion to amend their complaint was that “[t]he proposed amended complaint is in conflict with this decision.” The fact that an amended complaint would present issues at odds with the trial court‘s decision does not appear to be an accepted
Reversed and remanded for proceedings consistent with this opinion. We do not retain jurisdiction.
DONOFRIO, P.J., and BORRELLO, J., concurred with STEPHENS, J.
Notes
Upon the confirmation of a finding of a financial emergency, the governor shall declare the local government in receivership and shall appoint an emergency manager to act for and in the place and stead of the governing body and the office of chief administrative officer of the local government.
(2) The price charged by the city to its customers shall be at a rate which is based on the actual cost of service as determined under the utility basis of rate-making. This subsection shall not remove any minimum or maximum limits imposed contractually between the city and its wholesale customers during the remaining life of the contract. This subsection shall not apply to a water system that is not a contractual customer of another water department and that serves less than 1% of the population of the state. This subsection shall take effect with the first change in wholesale or retail rate by the city or its contractual customers following the effective date of this subsection. Any city that has not adjusted rates in conformity with this subsection by April 1, 1982 shall include in the next ensuing rate period an adjustment to increase or decrease rates to wholesale or retail customers, so that each class of customer pays rates which will yield the same estimated amount of revenue as if the rate adjustment had been retroactive to April 1, 1982. A city that is subject to section 5e of Act No. 279 of the Public Acts of 1909, being section 117.5e of the Michigan Compiled Laws, shall begin proceedings to determine rate changes pursuant to section 5e(b) of Act No. 279 of the Public Acts of 1909, being section 117.5e of the Michigan Compiled Laws.
(3) The retail rate charged to the inhabitants of a city, village, township, or authority which is a contractual customer as provided by subsection (2) shall not exceed the actual cost of providing the service.
(1) Rates for services furnished by a public improvement shall be fixed before the issuance of the bonds. The rates shall be sufficient to provide for all the following:
(a) The payment of the expenses of administration and operation and the expenses for the maintenance of the public improvement as may be necessary to preserve the public improvement in good repair and working order.
(b) The payment of the interest on and the principal of bonds payable from the public improvements when the bonds become due and payable.
(c) The creation of any reserve for the bonds as required in the ordinance.
(d) Other expenditures and funds for the public improvement as the ordinance may require.
(2) The rates shall be fixed and revised by the governing body of the borrower so as to produce the amount described in subsection (1). The borrower shall covenant and agree in the ordinance authorizing the issuance of the bonds and on the face of each bond to maintain at all times the rates for services furnished by the public improvement sufficient to provide for the amount described in subsection (1). Rates pledged for the payment of bonds that are fixed and established pursuant to a contract or lease shall not be subject to revision or change, except in the manner provided in the lease or contract.