Docket: Appellate Case No. 2014-002488; Opinion No. 5413
Court: Court of Appeals of South Carolina; June 15, 2016; South Carolina; State Appellate Court
Appellant West Anderson Water District (the District) challenges a circuit court ruling regarding a contract with Respondent City of Anderson, South Carolina (the City) that permitted the City to supply water to a site within the District. The District contends that the governing board members who executed the contract lacked the authority to bind future boards and that the court's interpretation undermined the District’s primary function of providing water and sewer services. The court affirmed the ruling.
Prior to February 2002, Duke Energy Corporation owned a water system in Anderson County. On February 20, 2002, Duke sold its retail water system to the City and its wholesale component to members of the Anderson County Joint Municipal Water System (the Joint System), which includes the District and several municipalities. A Water Sale and Purchase Agreement was established on March 21, 2002, allowing the City to provide water service to a Michelin North America, Inc. facility, designated within the City’s service area on an attached territorial map.
In 2012, the District was informed that Michelin was constructing a second facility and that the City would provide water service to it, prompting the District to seek a declaratory judgment to prevent this. The City counterclaimed for a declaration of its entitlement to serve the second facility. Following a bench trial, the circuit court ruled that the Water Sale and Purchase Agreement permitted the City to serve the second facility and that the District's legislation allowed it to bind future boards to this agreement. The court concluded that the District's agreement did not significantly impair its core function. The District’s motion to amend the order was denied, leading to this appeal.
1. The circuit court's findings are being challenged on three grounds: whether it erred in determining that the Water Sale and Purchase Agreement permits the City to supply water to the entire Michelin site; whether the District’s board can bind future boards to this agreement; and whether the District’s delegation of authority to the City compromises its primary function.
2. In reviewing declaratory judgments, the standard is based on the underlying issue; actions to construe contracts are treated as actions at law, subject to an “any evidence” standard. In cases without a jury, appellate review focuses solely on correcting legal errors.
3. The District argues against the circuit court's interpretation of the Water Sale and Purchase Agreement, claiming it only allows service to customers existing at the time of execution, excluding Michelin's second facility as it was not present when the agreement was signed. However, the court emphasizes the necessity of discerning the parties' intentions through the contract's language, asserting that clear and unambiguous contract terms are a legal matter for the court to resolve. Ambiguities in contract language are also determined as a question of law, defined as terms that can be reasonably interpreted in multiple ways.
The court determined that the Water Sale and Purchase Agreement contained ambiguous language, particularly due to conflicting provisions in the prefatory clause and section 6.02. The prefatory clause specifies that the City of Anderson is to provide water services to two industries—BASF and Owens-Corning—located within the Starr-Iva Water and Sewer District and Michelin within the West Anderson Water District, with consent limited to those named customers. In contrast, section 6.02 outlines a Territorial Map to delineate the service areas for planning and financing purposes, suggesting broader intentions. This ambiguity allows for multiple interpretations regarding the extent of service consent, either limited to Michelin or inclusive of any customer on the Michelin site during the contract's duration.
The circuit court correctly admitted extrinsic evidence to ascertain the parties' intent, supporting the conclusion that the City was authorized to provide water service to the entire Michelin site. Testimony from Steven Wilson, the District’s general manager, confirmed the intent behind the color-coded territorial map, indicating the City’s service area and the District’s service area. William McCoy, Co-Project Manager for the Anderson County Water Association, corroborated that the map accurately reflected the service areas intended by the parties at the time of the agreement.
The City’s service area encompasses a significant portion of land, including the Michelin property. Although the fifth draft of the Water Sale and Purchase Agreement initially omitted reference to an attached territorial map, subsequent drafts reinstated this reference at the City’s request. The circuit court found that the agreement permits the City to supply water to the entire Michelin site, a conclusion that is affirmed.
The District contends that the circuit court incorrectly determined that its board could bind future boards to this agreement. However, legal precedent establishes that long-term governmental contracts can bind successor boards if they involve the municipality’s business or proprietary powers and are deemed fair, reasonable, and advantageous at the time of execution. Conversely, contracts concerning legislative or governmental functions do not bind successors unless explicitly authorized by statute.
Further, the court reiterated that the provision of water services is classified as a governmental function. An exception exists allowing such contracts to bind successors if enabling legislation permits the local governing body to enter into agreements extending beyond its term. This perspective aligns with established South Carolina law regarding the powers and limitations of municipal corporations.
The District's enabling legislation is established under Act No. 78 of 2001, codified at sections 33-36-1310 to -1370 of the South Carolina Code (2006). Section 1 of the Act highlights the diminishing federal funding for utility services since the enactment of Act 1030 of 1964, which was intended to leverage such funding for rural utilities. It asserts that not-for-profit corporations formed under Act 1030 should be allowed to elect to become public bodies politic and corporate to enhance funding opportunities, participate in joint municipal water systems, and reduce borrowing costs for infrastructure.
Section 2 of Act No. 78 added relevant sections to the South Carolina Code, notably stating that nonprofit corporations providing water services may elect to become public service districts for the purpose of joining a joint municipal water system. The circuit court ruled that Act No. 78 grants the District the authority to enter into a Water Sale and Purchase Agreement, allowing public service districts to contract for various durations and execute necessary documents to conduct their business.
Furthermore, the circuit court noted the amendment of the Joint Municipal Water Systems Act, which allows newly converted public service districts to join joint water systems. This Act emphasizes the critical importance of water availability for South Carolina's welfare and development, asserting that the joint action of municipalities in water management is essential for the state's overall public interest.
Section 6-25-128 of the Joint Municipal Water Systems Act allows contracts for the sale of capacity and output from a project to last up to fifty years and to be renewable for an additional fifty years, without the need for state or local approvals. The District’s enabling legislation, specifically section 33-36-1360(A)(9) of Act No. 78 of 2001, permits public service districts to enter into contracts of varying durations. This provision supports the participation of nonprofit corporations transitioning to public service districts in joint municipal water systems.
The circuit court determined that both legislative frameworks must be considered together to assess whether the District can enter into contracts that extend beyond the terms of its board members. It concluded that if the joint water system can enter into such contracts under section 6-25-128, then the District must also possess that authority.
The District argued against the circuit court's finding that a delegation of power to the City to serve a specific site did not significantly undermine its primary functions. The court referenced a precedent involving the Beaufort-Jasper County Water and Sewer Authority, where similar contracts contained clauses that restricted the Authority's ability to sell water without the City or Town's consent, thereby limiting its discretion and constituting an unlawful delegation of governmental power. The ruling emphasized that for long-term contracts, proponents must demonstrate clear legislative authorization and ensure that any delegation of authority does not excessively relinquish power.
Footnote 4 of the Beaufort opinion clarifies that a substantial compromise of a special purpose district's central function through a contract may lead to an invalid or unlawful delegation of power. In the current case, the circuit court distinguished it from Beaufort by determining that the District's consent for the City to provide water to the Michelin site was 'circumscribed,' as the site is a small part of the District’s service area. Thus, the circuit court concluded it was a 'minor delegation of governmental authority' that did not impair the District’s discretion or ability to function. The City further argued that unlike Beaufort, where the Authority improperly delegated decision-making power, the District maintained its discretion by consenting to the City’s service for a limited duration. The District referenced G. Curtis Martin Investment Trust v. Clay, which invalidated a provision allowing a private individual to control sewer connections, emphasizing that a public entity cannot delegate its essential responsibilities for private interests. However, the present case is distinct as the District did not delegate authority to a private party but rather allowed the City to provide services temporarily. Consequently, the circuit court's decision affirming the absence of substantial compromise to the District’s discretion is upheld. The order is affirmed, with concurrence from HUFF and KONDUROS, JJ.
Anderson Regional Joint Water System was renamed in 2007 to the 'Joint Authority Water and Sewer Systems Act,' with relevant provisions amended that same year. Although the Water Sale and Purchase Agreement was also amended, the parties have not identified any amendments relevant to the current case. The circuit court referenced the original agreement, but this summary discusses the 'Restated and Amended' version, noting no material differences in the provisions. A territorial map indicates the City’s area is coded pinkish-orange, while Hammond Water District is coded pure orange. According to Section 33-36-1360(A), a newly converted district possesses all rights and powers of a public body, including the authority to enter into contracts and execute necessary documents. Furthermore, S.C. Code Ann. 6-25-20(h) defines 'Member of a joint system' as municipalities that have agreed to form a joint municipal water system for water-related services or financing. Nonprofit corporations may be nonvoting members, but those designated as public service districts are voting members.
