The City of Geneseo v. Utilities Plus

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________

No. 07-2011
___________

City of Geneseo, Illinois, *
*
Plaintiff – Appellant, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota.
Utilities Plus, *
*
Defendant – Appellee. *
___________

Submitted: March 10, 2008
Filed: July 2, 2008
___________

Before BYE, SMITH, and COLLOTON, Circuit Judges.
___________

BYE, Circuit Judge.

The City of Geneseo (City) appeals the district court's1 adverse grant of
summary judgment on its claims for breach of contract, unjust enrichment, promissory
estoppel, and fraud against Utilities Plus (UP). We affirm.

1
The Honorable Ann D. Montgomery, United States District Judge for the
District of Minnesota.
 I

The complex factual background of this case is set forth at length in the district
court's opinion. City of Geneseo v. Utils. Plus, No. 05-2689, 2007 WL 1027294 (D.
Minn. Apr. 3, 2007). Thus, we only briefly summarize those facts necessary for
resolution of the issues before our court.

A

UP is a municipal joint powers organization under Minn. Stat. § 471.59,
comprised of two municipal utility members: Central Minnesota Municipal Power
Agency (CMMPA), and Midwest Municipal Gas Agency (MMGA). CMMPA sells
wholesale power and related services, and MMGA sells natural gas, propane, fuel oil,
and related services, each to member municipal utilities in Minnesota. CMMPA and
MMGA entered into a Joint Powers Agreement, which established the entity UP with
a joint Board of Directors and governing bylaws. UP's bylaws incorporate the
provisions of Section 471.59, specify the number of officers and directors, and set
procedures for Board meetings and financial distributions. UP's bylaws also provide
for the election of a president, who "shall perform such duties as the Board of
Directors may require, [and] shall have such authority as the Board of Directors may
vest in him or her." The role and authority of UP's president is thus expressly
determined and limited by its Board of Directors.

Section 471.59 provides, in relevant part, "[t]wo or more governmental units,
by agreement entered into through action of their governing bodies, may jointly or
cooperatively exercise any power common to the contracting parties or any similar
powers." Minn. Stat. §471.59, subd. 1. In other words, the statute allows a
combination of governmental units to exercise any powers the individual units already
possess, all the while not creating any new powers.

-2-
 In this case, CMMPA and MMGA are each municipal corporations "deemed
to be performing an essential governmental function and exercising a part of the
sovereign powers of the State of Minnesota." Minn. Stat. §§ 453.54, subd. 1
(municipal power agencies), 453A.04, subd. 1 (municipal gas agencies). As
municipal agencies, the powers of each "shall be exercised by its board of directors,
unless otherwise provided by agency agreement or bylaws." Id. Both agencies may
only enter into contracts "on such terms and for such period of time as its board of
directors determines." Minn. Stat. §§ 453.54, subd. 15, 453A.04, subd. 15. Both
CMMPA and MMGA require the approval of their respective Board before either may
buy, sell, exchange or transmit energy. Minn. Stat. §§ 453.54, subd. 16, 453A.04,
subd. 16.

B

The parties stipulated they entered into a valid contract in 2002 for the
interchange, transmission, sale, and purchase of electric capacity and energy. The
agreement included two appendices, and provided for UP to sell energy to City on a
cost-plus basis.2 In late 2004, City decided to solicit bids for a fixed rate contract to
replace its cost-plus arrangement with UP. In early 2005, City published a request for
proposal for future energy rates and received three responses. One of the responses
was from Don Kom – the President of UP – who began negotiating with City to
provide energy at a fixed rate.3 The fixed rate energy supply agreement was labeled
Appendix 4 (A4) to the 2002 agreement and was drafted to become effective May 1,
2005. A4 contains blank signature blocks for the President of UP as well as for the

2
UP would schedule and purchase the energy and transmission needed to serve
City from multiple energy producers in the marketplace and bill City for it. The cost-
plus rate was determined by UP's market cost to purchase and deliver the energy, plus
an add-on for administration and overhead.
3
Under a fixed rate contract, the prices to City would be certain. UP would bear
the risk of any spike in energy prices.

-3-
Mayor of Geneseo. On March 29, 2005, Geneseo's City Council approved A4 and its
companion capacity agreement A3, and authorized the Mayor to sign both documents
on behalf of the city. No one from UP ever signed the documents.

In late April and early May 2005, City began to inquire why it had not received
a signed copy of A4. On May 24, 2005, the City Administrator emailed Kom, "I
didn't find an original copy of our energy agreement in the file. Has that cleared your
Board and been executed yet?" Kom responded he was still working with the Board
of Directors and lawyers, who had concerns about the agreement. He added, "I'm not
at a point where I'm giving up yet! I'm looking at options."4

Energy prices spiked, and market rates soon exceeded the fixed rates set forth
in A4. UP continued to operate under the original 2002 agreement and charged City
according to the usual cost-plus pricing. When City objected, claiming the price terms
of A4 governed, UP maintained A4 is not a valid contract because its Board of
Directors never authorized the agreement.

City brought this suit to recover damages resulting from UP's refusal to sell it
energy in accordance with A4's price terms. City alleged A4 was executed by Kom
on behalf of UP and, thus, is binding. City asserted claims for breach of contract,
unjust enrichment, promissory estoppel, conversion, coercion and fraud. The district
court held Kom lacked actual and apparent authority to enter into the fixed rate energy
agreement and found City's reliance on such authority was unreasonable as a matter
of law. The court granted summary judgment to UP on all claims. City appeals the
decision with respect to the breach of contract, unjust enrichment, promissory estoppel
and fraud claims.

4
At his deposition, Kom testified he had not discussed A3 or A4 with UP's legal
counsel and never presented A4 to UP's Board of Directors for approval.

-4-
 II

We review the district court's grant of summary judgment de novo, applying the
same standard the district court applied. Floyd v. State of Mo. Dep't of Soc. Serv.,
Div. of Family Servs., 188 F.3d 932, 936 (8th Cir. 1999). Such is proper if the
evidence, viewed in the light most favorable to the nonmoving party, demonstrates
no genuine issue of material fact exists and the moving party is entitled to judgment
as a matter of law. Id.; Fed. R. Civ. P. 56(c).

III

"To prevail on a breach-of-contract claim, a plaintiff must show that a contract
has been formed." Cargill Inc. v. Jorgenson Farms, 719 N.W.2d 226, 232 (Minn. Ct.
App. 2006) (stating summary judgment is appropriate if a rational trier of fact could
not find the existence of a contract). For the following reasons, we conclude A4 is not
a binding contract and City's breach of contract claim fails as a matter of law.

A

Don Kom did not have the actual authority to bind UP because he was not
authorized by the Board of Directors to execute A4.

As is true of CMMPA and MMGA individually, we conclude UP must have the
approval of its Board of Directors to enter into a contract, unless – as the rule with
respect to its member utilities states – an agency agreement or bylaw provides
otherwise. Under Minnesota law, an organization formed under a joint powers
agreement can not exercise any power its members can not exercise individually. The
Minnesota Supreme Court has explained, under Section 471.59, a joint powers
organization "can exercise any power common to the contracting parties.
Accordingly, the parameters of the group's [] powers are determined with reference

-5-
to the powers possessed by the individual participants . . . ." Joint Indep. Sch. Dist.
No. 287 v. City of Brooklyn Park, 256 N.W.2d 512, 515 (Minn. 1977); see also
Kaufman v. Swift County, 30 N.W.2d 34, 36-37 (Minn. 1947) (finding Section 471.59
grants governing bodies of merged municipalities the joint exercise of any power
common to both). Similarly, the Office of the Attorney General for the State of
Minnesota wrote, in an advisory opinion, a joint powers organization does not have
the power to delegate authority that one member entity would not have the authority
to delegate individually. Op. Att'y Gen. 1007 (July 8, 1977), 1977 WL 36271 at *3
(citing Op. Att'y Gen. 1007 (Nov. 21, 1975)).

Furthermore, the text of the authorizing statute itself states a joint powers
organization, in exercising its shared powers, must comply with the law or rules
governing each member of the joint powers organization. Minn. Stat. § 471.59. For
example, subdivision three, which governs disbursement of funds, allows a joint
powers organization to provide for disbursements from public funds as long as "the
method of disbursement shall agree as far as practicable with the method provided by
law for the disbursement of funds by the parties to the agreement." Id., subd. 3.
Subdivision eleven, which governs the issuance of bonds or obligations, requires
"[t]he obligations or other forms of indebtedness must be issued in the same manner
and subject to the same conditions and limitations that would apply if the obligations
were issued or indebtedness incurred by one of the governmental units that established
the joint board." Id., subd. 11.

City argues the district court erred when it concluded all UP contracts needed
to be approved by its Board of Directors. City concedes joint powers entities are
recognized as hybrid entities, which can exercise any power similar to the power of
its members. Id., subd. 1.; Reimer v. City of Crookston, 421 F.3d 673, 680 (8th Cir.
2005). However, City disputes the conclusion UP is subject to the same limitations
as its member entities. There is no legal support for City's awkward argument. City
erroneously relies on uncertainty in Minnesota courts regarding the precise legal form

-6-
of a joint powers organization in the context of liability cases. See, e.g., Matter of
Greater Morrison Sanitary Landfill, SW-15, 425 N.W.2d 92, 96-97 (Minn. Ct. App.
1989) (finding governmental entities comprising a joint powers organization could be
held individually liable for the actions of the organization, but avoiding the issue of
whether to characterize the relationship between a joint powers organization and its
members as principal-agent or a partnership). See also Reimer, 421 F.3d at 679-81
(recognizing uncertainty in Minnesota law, but holding a joint powers organization
is to be treated like any other joint enterprise for purposes of imputing liability under
Minnesota law and statutory liability caps should be the respective liability caps of
each member entity rather than a single cap for the joint powers organization as an
umbrella).

The two cases on which City relies do not aid its argument. First, they address
the characterization of a joint powers organization for purposes of determining
liability and are therefore inapposite. Second, to the extent they inform the relevant
issue at all, they support our conclusion a joint powers organization shares the same
rights and obligations as its member entities. In Reimer, we rejected the defendants'
theory the Joint Recreation Board (a joint powers organization) limited the liability
of its members by applying the statutory liability cap of $300,000 to the collective
group. Instead, we found each member of the joint powers organization retained its
separate liability as limited by the statutory cap, allowing plaintiffs to recover the
statutory maximum from each. Id. at 679-80. In other words, the creation of a joint
powers organization does not destroy the individual obligations of the member
entities.

Based on the plain language of § 471.59 and relevant Minnesota case law, we
conclude Minnesota law requires UP to obtain the approval of its Board of Directors
before it may enter into a contract because neither CMMPA nor MMGA may enter
into a contract without Board approval. City next argues there is a disputed issue of
material fact as to whether the Board authorized Kom to enter into contracts on its

-7-
behalf, and as to whether the Board itself approved A4. The record contains no
credible evidence to support either claim. No clause in the Joint Powers Agreement,
UP's bylaws, or resolution of UP's Board of Directors provides Kom with the
authority to bind UP. No record evidence shows UP's Board actually approved A4.
In fact, the record reflects the opposite. On May 25, 2005, almost a month after A4
would have gone into effect, Kom reported to City the Board had not yet approved it.

Kom did not have actual authority to bind UP because the Board of Directors
did not authorize him to do so. As there is no genuine dispute over whether UP's
Board of Directors approved the A4 contract with City, it is not an enforceable
contract.

B

Don Kom did not have apparent authority to bind UP because the apparent
authority doctrine does not apply to UP.

City argues because Minnesota law does not expressly provide a joint powers
organization cannot be bound by an agent's apparent authority, UP is liable under the
doctrine of apparent authority. We are not persuaded. UP is comprised of two
municipal agencies and, under Minnesota law, apparent authority doctrines do not
apply to municipal agencies. Jewell Belting Co. v. Village of Bertha, 97 N.W. 424,
425 (Minn. 1903) ("All persons contracting with municipal corporations are
conclusively presumed to know the extent of the authority possessed by the officers
with whom they are dealing."). As explained in Part III.A., supra, under Section
471.59, a joint powers organization can exercise any power common to the
contracting parties. Joint Indep. School Dist. No. 287, 256 N.W.2d at 515 (Minn.
1977); Kaufman, 30 N.W.2d at 36-37 (Minn. 1947); Op. Att'y Gen. 1007 (July 8,
1977), 1977 WL 36271 at *3 (stating a joint powers organization does not have the
joint power to delegate authority that one member entity would not have the authority

-8-
to delegate individually). Thus, for the same reason the doctrine of apparent authority
can not apply to one of the municipal agencies comprising UP, it can not apply to UP
either. As a matter of law, City could not have reasonably relied on any
representations of Kom as to his authority to bind UP. See Plymouth Foam Prods.,
Inc. v. City of Becker, 944 F. Supp. 781, 785 (D. Minn. 1996) (applying Minnesota
law and holding no contract was ever formed between plaintiff and the city because
the city's community development director had no authority to bind the city and
plaintiff could not rely on his apparent authority); Morris v. Perpich, 421 N.W.2d 333,
336 (Minn. Ct. App. 1988) (explaining, although plaintiffs may have believed county
administrator had the requisite authority to enter into the agreement on behalf of the
county, apparent authority is insufficient).

We are also unpersuaded by City's argument UP may be bound under the
doctrine of apparent authority because, by selling energy, it was acting in a proprietary
rather than governmental capacity. First, the distinction between proprietary and
governmental activities is not relevant in this context. Minnesota law expressly limits
the authority of any agent to contractually bind a city, county, or – in this case – a
municipal agency without council or board approval, regardless of any such
proprietary-governmental distinction. See Minn. Stat. §§ 412.201 (cities), 373.02
(counties), 453.54 (municipal power agencies), 453A.04 (municipal gas agencies).
Second, by carrying out their purpose to assist Minnesota cities in securing "an
adequate, economical, and reliable supply of energy," Id. § 453.51, CMMPA and
MMGA are each, by statute, "deemed to be performing an essential governmental
function and exercising a part of the sovereign powers of the State of Minnesota." Id.
§§ 453.54, subd. 1 (municipal power agencies), 453 A.04, subd. 1 (municipal gas
agencies).

Thus, as a matter of law, City may not rely on Kom's apparent authority.
Because Kom did not have the authority – actual or apparent – to bind UP, A4 is not

-9-
an enforceable contract. Summary judgment in favor of UP was therefore appropriate
on the breach of contract claim.

C

The doctrine of equitable estoppel does not apply.

City next argues even if A4 is not an enforceable contract, UP is nonetheless
liable under the doctrine of equitable estoppel. Equitable estoppel applies to prevent
a party from denying the truth of representations of fact previously made where the
following requirements are met:

(1) There must be a misrepresentation of a material fact;
(2) The party to be estopped must be shown to have known that the
representation was false;
(3) The party to be estopped must have intended that the representation
be acted upon;
(4) The party asserting the estoppel must not have had knowledge of the
true facts; and
(5) The party asserting the estoppel must have relied upon the
misrepresentation to his detriment.

Transamerica Ins. Group v. Paul, 267 N.W.2d 180, 183 (Minn. 1978). As the district
court pointed out, the record does not contain any evidence Kom told anyone at City
he could contract without the approval of UP's Board of Directors. There is also no
evidence Kom stated UP's Board had approved A4. The record shows the Mayor of
Geneseo signed A4 on behalf of City, but no one representing UP ever did. Although
A4 contains a May 1 start date, City sent an email to Kom on May 24, inquiring
whether UP's board had approved and executed the contract yet. Kom replied it had
not. The district court correctly concluded the record could not support a finding of
equitable estoppel on these facts. See Plymouth Foam Prods., Inc., 944 F. Supp. at
785-86 (holding the City could not be equitably estopped from asserting there was no

-10-
contract because plaintiff was on notice officials had no authority to contract on behalf
of city without approval and there was no evidence any city official advised plaintiff
to the contrary).

IV

City's promissory estoppel claim fails because, as a matter of law, it was
unreasonable for City to rely on a promise from Kom, when it is conclusively
presumed to know the limited extent of his authority.

The doctrine of promissory estoppel implies a contract in law where none exists
in fact. Martens v. Minn. Mining & Mfg. Co., 616 N.W.2d 732, 746 (Minn. 2000).
It requires proof of: (1) a clear and definite promise; (2) the promisor intended to
induce reliance and such reliance occurred; and (3) the promise must be enforced to
prevent injustice. Olson v. Synergistic Techs. Bus. Sys., Inc., 628 N.W.2d 142, 152
(Minn. 2001). The injustice factor is a question of law the court must decide. Faimon
v. Winona State Univ., 540 N.W.2d 879, 883 (Minn. Ct. App. 1995). The
reasonableness of a promisee's reliance is one consideration when determining
injustice. Id. "Whether a party's reliance is reasonable is ordinarily a fact question for
the jury unless the record reflects a complete failure of proof." Hoyt Props., Inc. v.
Prod. Res. Group, L.L.C., 736 N.W.2d 313, 321 (Minn. 2007). Here, as discussed in
Part III.B., supra, as a matter of law, City could not have reasonably relied on any
promise made by Kom because he had no authority to bind UP. See Nicollet
Restoration, Inc. v. City of St. Paul, 533 N.W.2d 845, 848 (Minn. 1995) (holding
plaintiff could not reasonably rely on promises made during negotiations with the
mayor and other government official because neither had authority to bind the city).
Therefore, the district court did not err when it granted summary judgment to UP on
the promissory estoppel claim.

-11-
 V

City cannot prevail on its fraud claim for the same reason. It was unreasonable,
as a matter of law, for City to rely on any representation by Kom of his authority to
bind UP.

City argues UP engaged in fraud when Kom misrepresented UP's intention to
offer a fixed price contract at the levels specified in A4 and, in reliance, City allowed
proposals from other energy providers to expire. To prevail on its fraud claim, City
must establish:

(1) there was a false representation by a party of a past or existing
material fact susceptible of knowledge;
(2) made with knowledge of the falsity of the representation or made as
of the party's own knowledge without knowing whether it was true or
false;
(3) with the intention to induce another to act in reliance thereon;
(4) that the representation caused the other party to act in reliance
thereon; and
(5) that the party suffer[ed] pecuniary damage as a result of the reliance.

Hoyt Props., 736 N.W.2d at 318. City must set forth evidence demonstrating both
actual and reasonable reliance. Id. at 320. "Whether a party's reliance is reasonable
is ordinarily a fact question for the jury unless the record reflects a complete failure
of proof." Id. at 321. Here, as a matter of law, City could not have reasonably relied
on Kom's representations because he lacked authority to bind UP. Therefore, the
district court properly granted summary judgment to UP on the fraud claim.

VI

City cannot prevail on its unjust enrichment claim because it cannot prove it is
entitled to the rates specified in A4.

-12-
 City's claim for unjust enrichment depends on UP unjustly receiving a benefit,
which properly belonged to City. "To establish a claim for unjust enrichment, the
claimant must show that another party knowingly received something of value to
which he was not entitled and that the circumstances are such that it would be unjust
for that person to retain the benefit." Mon-Ray, Inc. v. Granite Re, Inc., 677 N.W.2d
434, 440 (Minn. Ct. App. 2004). City alleges UP unjustly received the benefit of cost-
plus payments after May 1, 2005, rather than the lower fixed rates specified in A4.
For the reasons outlined in this opinion, City cannot prove it is entitled to those rates.
Therefore, the district court did not err when it granted summary judgment to UP on
the unjust enrichment claim.

VII

For the foregoing reasons, as well as those stated by the district court, we
conclude summary judgment was proper on each of City's claims. Accordingly, we
affirm.
______________________________

-13-