Landmark Development, Inc. v. City of Roy

Sanders, J.

(dissenting) — The majority construes a statu*577tory mandate that costs be “equitably] share[d]”5 to mean municipalities are entitled to collect twice for the construction of the same water system: once from a federal grant, and once again from the property owners. Compounding its error the majority then ignores trial court factual findings that Roy arbitrarily discriminated against Landmark visá-vis a similarly situated developer, New Concept. Landmark is entitled to relief on both grounds and the trial court should be affirmed.

A. Equitable sharing of costs must account for federal grant

Cities “are authorized to charge property owners seeking to connect to [their] water or sewerage system . . . such reasonable connection charge ... in order that such property owners shall bear their equitable share of the cost of such system.” RCW 35.92.025. Roy based its connection charge to Landmark on a capital improvement cost of $447,592 divided by the estimated number of residential units that could be served. Def.’s Ex. 33, at app. E The formula makes sense but for the fact the federal government had already paid the lion’s share of this cost (84.4 percent), through a nonrefundable grant. Nevertheless, Roy did not credit the federal grant against the total cost of the system (Clerk’s Papers (CP) at 340 (Finding 30)), *578preferring instead to reap a windfall at the expense of the property owners by nearly doubling its cost recovery.

Imposing the entire undivided cost of the system on the shoulders of the property owners without first crediting the share paid by federal grant moneys was neither “reasonable” nor “equitable” under the statute because the city was no longer simply recovering the cost of the system but raising money for other purposes. See Margola Assocs. v. City of Seattle, 121 Wn.2d 625, 638, 854 P.2d 23 (1993) (when revenues generated greatly exceed the proper regulatory costs, they are fiscal rather than regulatory); King County Fire Protection Dist. v. Housing Auth., 123 Wn.2d 819, 833, 872 P.2d 516 (1994) (charges that primarily raise money are taxes). Not only did the scheme violate the statute on its face but in effect allowed the city to impose a special tax on a subclass of real property, on a basis other than value, contrary to constitutional guarantees mandating uniformity and ad valorem taxation. Const, art. VII, § 1 (amend. 81).

This statute authorizes only those connection fees which equitably share water system capital costs. RCW 35.92.025. We should give this statutory language its plain, ordinary meaning as defined by a dictionary. State v. Bolar, 129 Wn.2d 361, 366, 917 P.2d 125 (1996). “Share” means “to divide and distribute in portions.” Webster’s Third New International Dictionary 2087 (1981). Therefore sharing costs first requires a calculation of the total cost and then a division of that cost amongst those who pay it.

The majority’s fallacy is that it ignores the federal government has already paid an 84.4 percent share of the water system cost, leaving only 15.6 percent of the total cost to be equitably divided among the property owners. The majority’s result means all shares combined may exceed 184 percent of the total. This is not division; it is multiplication. It is mischief.

The first principle of statutory construction is if a statute is plain and unambiguous its meaning must be derived from the language of the statute itself. Harmon v. Depart-*579merit of Soc. & Health Servs., 134 Wn.2d 523, 530, 951 P.2d 770 (1998). As we held in Boe v. City of Seattle, 66 Wn.2d 152, 401 P.2d 648 (1965), the mandate of this statute is indeed unambiguous. In Boe the City of Seattle charged a user connection fee not calculated on the actual municipal cost to construct the system but rather on “ ‘present construction costs which have increased 161% since the time that the trunk sewer was constructed . . . .’ ” Id. at 156 (quoting the adopted trial court memorandum decision of Walterskirchen, J. (Sept. 23, 1963)).

We concluded this approach which would have allowed the city to recover more than the actual cost of the system clearly exceeded the city’s statutory authority. We therefore rejected Seattle’s argument that its fee was “reasonable” because “ ‘[t]his . . . overlooks the fundamental basis on which the fee is to be calculated, which is not that of the benefit received but merely an equitable sharing of the cost of the system.’ ” Id.6 The “cost of the system” is the cost to construct it. The “cost” is not greater because the benefits are greater. Nor is the cost greater because a source additional to property owners has been located to bear all or a portion of that cost.

The majority states the equitable sharing mandated by statute is of the “cost of the system . . . [not] the system’s funding sources.” Majority at 569. True enough, but sharing the cost must divide that cost into shares, not increase it to encompass all additional sources of revenue. If payments, from whatever source, exceed the total cost, the cost is no longer shared, it is exceeded. As we held in Boe, an “equitable share of the cost of such system” is a proportional division of the cost of the system between those who pay for it. Here not only the users but also the federal government pays. By fixating on “cost” the majority begs the question of how that cost is to be “shared.”

*580Moreover the statute not only mandates the cost be “shared,” but equitably so. In the absence of a statutory definition of equitable, we again repair to the dictionary. Bolar, 129 Wn.2d at 366. Equitable is that which is “(j]ust; conformable to the principles of justice and right.” Black’s Law Dictionary 537 (6th ed. 1990). Something is equitable when it is “characterized by evenness.” Webster’s Third New International Dictionary 769 (1981). See also Central Wash. Refrigeration, Inc. v. Barbee, 133 Wn.2d 509, 517 n.12, 946 P.2d 760 (1997) (equitable action of indemnity is based on “ ‘one party paying more than its fair share.’ ”) (quoting City of Willmar v. Short-Elliott-Hendrickson, Inc., 512 N.W.2d 872, 874, 49 A.L.R.5th 801 (Minn. 1994)).

The fee which the majority affirms is not “equitable.” It allows the City of Roy to reap a double recovery windfall of almost $380,000 by allowing the city to charge the user again for a system which was nearly paid in full by federal grant. This is inequitable because it imposes a disproportionate burden on a subclass of property beyond the net cost of the special benefit to that property. Funds raised in excess of capital cost recovery are in the nature of general revenue. They are not compensatory. Taxes levied on a subclass of real property contrary to the constitutional requirement that all real estate is a single class which must be taxed uniformly by value can hardly be “equitable.” Const, art. VII, § 1 (amend. 81).

Other jurisdictions are in accord that failure to offset federal grants against capital costs which may be recovered by regulatory fees is error. The Supreme Court of Utah observed that among the most important factors to be considered by a municipality when determining the equitable share of a capital cost is “the manner of financing existing capital facilities (such as user charges, special assessments, bonded indebtedness, general taxes, or federal grants)” Banberry Dev. Corp. v. South Jordan City, 631 P.2d 899, 904 (Utah 1981) (emphasis added). See also Meglino v. Township Comm. of Eagleswood Township, 103 N.J. 144, 510 A.2d 1134, 1143 (1986) (legislative history of a *581statute governing utility authorities that required the deduction of federal grant money provides the “overriding principles” applicable to municipalities).

A plain reading of the statute supports the legal conclusion of the trial judge that this $920 fee violated the statute because “Roy should have subtracted the money it received from federal grants from the cost of its water system” to make the connection charge reasonable, CP at 342 (Conclusions of Law ¶ 2). The connection fee, if calculated as required by statute, must be based on an equitable division of the total cost between all sources of payment.

Incredibly the majority asserts without citation, the “overall statutory purpose undergirding the Legislature’s authorization of this type of fee” is not cost recovery. Majority at 572. To assume it is cost recovery, the majority continues, would allow the argument that future users could hook up to the “ ‘paid off ” utility system for free. Id. However by postulating this hypothetical the majority not only ignores the plain meaning of the statutory text but assumes a scenario only possible if the fee were improperly calculated in the first place. A proper connection fee requires a connection fee calculated to recover the water system’s capital cost after the planned maximum number of users has connected.7 But for its failure to credit the federal grant, that is the method by which Roy calculated this fee. The majority’s example envisions an excessive, unreasonable, and inequitable fee because it would recover the entire capital cost from the first users to connect.

Contrary to the majority’s assertion, support for the proposition the Legislature intended connection charges to serve as a cost recovery mechanism is also found in language mandating the removal of federal grant money in *582other legislation pertaining to water and sewer districts, language which the majority misreads to support its conclusion that no deduction is required here. Majority at 570-71 (citing Laws of 1989, ch. 389, §§ 1, 2, and 9). The final bill report for that legislation noted the purpose of those connection charges is to “ensure that new customers pay a proportionate share of the capital costs of facilities to match the sum already paid by the existing customers .... The charges are usually used to retire debt incurred to finance construction.” “Synopsis as Enacted—Background,” Final B. Rep. SSB 6013, at 1 (Wash. 1989). The act pertaining to water and sewer districts required crediting of federal grant moneys against the total cost of capital improvements because connection charges are intended only to “ensure that new customers pay a proportionate share of the capital costs of facilities to match the sum already paid by the existing customers.” Final B. Rep., supra. Thus, the legislature there indicated its overall purpose that an “equitable sharing” of such costs for any water system requires the removal of these moneys before the equitable share of the property owners is calculated.

That the legislature expressly required water and sewer districts to remove federal grant money before calculating the fee to property owners in a law passed 30 years after the legislature first mandated that cities charge an equitable connection fee to share system costs, Laws of 1959, ch. 90, § 8, does not mean that federal grants need not be credited against the cost of systems constructed by municipalities under the earlier legislation. Rather it is indicative of the overarching, commonsense, legislative intent that connection charges enable cities to recoup costs in an equitable manner. See 2B Norman J. Singer, Statutes and Statutory Construction 238, at § 53.05 (5th ed. 1992) (chief value of analogous statutes is to show “general course of legislative policy”).

Instead of reading this later language properly, the majority uses it to justify the city’s windfall by misapplying the expressio unius est exclusio alteráis (specific inclusion *583excludes by implication) doctrine of statutory construction between statutes rather than within a single statute.8 See Majority at 571. Without precedential support the majority misapplies the expressio unius doctrine by reasoning the inclusion of a mandatory deduction of federal grant money in one statute covering water and sewer districts excludes the possibility of such a deduction under a totally separate statute covering cities such as Roy. Majority at 571. That is to say, inclusion in one chapter of the RCW excludes the same by inference in a totally different chapter. This is error. See, e.g., Bour v. Johnson, 122 Wn.2d 829, 836, 864 P.2d 380 (1993) (applying doctrine to list of exceptions explicitly set out in RCW 6.27.350(1)); Dominick v. Christensen, 87 Wn.2d 25, 26, 548 P.3d 541 (1976) (lawful presence on property limited to specific list set out in RCW 16.08.050); Washington Natural Gas Co. v. PUD No. 1, 77 Wn.2d 94, 98, 459 P.2d 633 (1969) (applying doctrine to limit entities subject to consumer protection act to those explicitly set out in RCW 19.86.010); State v. Thompson, 38 Wn.2d 774, 779, 232 P.2d 87 (1951) (the term “break” to be limited to the specific definitions listed in Rem. Rev. Stat. § 2303). Expressio unius has no application between statutes and has no application here. This novel and misguided approach was not argued by the parties, nor was it the basis of the Court of Appeals’ opinion.

In the final analysis the trial court was correct that the unambiguous language of the equitable sharing statute requires Roy to deduct federal grant money prior to computing its connection charge. The alternative is a windfall to the city, general revenue-radsing in the name of a compensatory fee, and a farcical determination that an aggregation of “equitable shares” of a system’s cost may nearly double the revenue generated.

*584B. Roy’s disparate treatment of Landmark is arbitrary and capricious

Appellate review of a trial court’s findings of fact and conclusions of law is

limited to determining whether a trial court’s findings are supported by substantial evidence, and if so, whether those findings support the conclusion of law. Substantial evidence is evidence sufficient to persuade a fair-minded person of the truth of the declared premise.

American Nursery Prods., Inc. v. Indian Wells Orchards, 115 Wn.2d 217, 222, 797 P.2d 477 (1990) (citations omitted).

The trial court found, without substantial dispute, both the Landmark and New Concept developments were similar in their use of water, CP at 338 (Finding 17), and the cost to the city to provide water to the two developments and maintain and operate the water system for the benefit of each of the two developments was identical. CP at 339 (Findings 23, 25, and 26).9 Without material factual dispute the trial court also found New Concept was allowed to prepay its water connection charge at the existing rate of $350 while Landmark was not allowed to do so, but instead was forced to wait to pay a higher connection charge of $920 under a subsequently enacted ordinance. CP at 337-39 (Findings 13, 14, 21, and 22).

Consistent with these factual findings the trial judge also found10 Roy arbitrarily treated Landmark differently from *585the way it treated New Concept notwithstanding both were in the same class of users, CP at 341 (Conclusions of Law ¶ 1), i.e., residential users of the same system who sought to prepay. The trial court found such arbitrary treatment damaged Landmark: $34,310 in carrying costs; $21,000 because of Roy’s delay of its project; and $28,500 in additional connection charges. CP at 336-41 (Findings 5, 22, 37, and 39).

These factual findings are at the heart of Landmark’s case. They must be considered verities for the purpose of this appeal if supported by substantial evidence. See, e.g., State v. Broadaway, 133 Wn.2d 118, 130, 942 P.2d 363 (1997). The majority, however, does not contend they are without evidentiary basis, as obviously they are supported by the record.

Landmark tendered timely payment under the controlling City of Roy’s Ordinance 351 which required a fee of $350 per connection. But Roy refused that tender absent any ordinance provision which would prohibit such prepayment, require a prior invoice, or in any other way restrict Landmark’s right to prepay. Pl.’s Ex. 2 (City of Roy, Ordinance 351). Therefore on its face the city’s refusal of Landmark’s tender was without legal authority and consequently arbitrary. See Mission Springs, Inc. v. City of Spokane, 134 Wn.2d 947, 961-62, 954 P.2d 250 (1998) (an arbitrary act is an act in excess of lawful authority).11

Even were we to assume Ordinance 351 did grant the *586city legal authority to treat Landmark differently from New Concept, such authorization for disparate treatment in itself is not immune from review to determine if the city improperly denied Landmark equal protection of the laws. Equal protection under both the federal and state constitutions requires persons similarly situated with respect to the law receive like treatment. Harmon v. McNutt, 91 Wn.2d 126, 130, 587 P.2d 537 (1978). Distinctions in the application of the law without sufficient reason therefore violate equal protection. Id. at 131. To be sufficient the distinction between classes or members of a class must serve a legitimate governmental objective. Zobel v. Williams, 457 U.S. 55, 63, 102 S. Ct. 2309, 2314, 72 L. Ed. 2d 672 (1982); State v. Coria, 120 Wn.2d 156, 169, 839 P.2d 890 (1992).

Roy drew a distinction between two developers, allowing one to prepay its connection fee while refusing the second developer’s tender of payment under the same governing ordinance. The city then passed a new ordinance raising the second developer’s connection charge by 262.5 percent. But by what sufficient and legitimate reason did the city make this distinction where there is no difference in the cost incurred by the city to provide water and both developments benefited equally from the same water system capital improvements that are touted to justify the increased connection charge?

The simple reason Roy refused Landmark’s tender and required it to pay more than two and half times what New Concept prepaid can be found in the minutes of the Roy City Council meeting of October 11, 1993. After the City Attorney advised the Council that it had to accept Landmark’s tender, vociferous council opposition arose in the form of complaints about the city’s being “out $28,000” and “giving away the farm to these other people. We could use the money.” Fl.’s Ex. 1, at C-8, C-16. The basis in the record for this disparate treatment, as found by the trial court, is simply the city’s desire to raise more money from developers who had the misfortune to attempt prepayment *587at the same time Roy was anticipating raising the fee. Such a motive is understandable, but not legitimate. See Zobel, 457 U.S. at 63 (statute which rewarded citizens for past contributions to state does not serve legitimate state purpose); Hooper v. Bernalillo County Assessor, 472 U.S. 612, 623, 105 S. Ct. 2862, 2868, 86 L. Ed. 2d 487 (1985) (state may not favor established residents over new residents based on view that it may “take care of ‘its own’ ”).

The only distinction urged by the city to justify the disparate treatment is the difference between the stage of completion of these parallel developments. But the trial judge concluded the fact that New Concept was further along in the development process did not justify different treatment. CP at 341 (Conclusion 1). As this conclusion is amply supported by the court’s factual findings that the difference was without a distinction material to the connection charge to be assessed, it must be sustained. See American Nursery Prods., Inc., 115 Wn.2d at 222.

However the majority, without even disputing any of the factual findings, relies on this immaterial difference. Majority at 574. It never explains why the stage of construction is relevant to foreclosing the prepayment option. Perhaps the majority’s conclusion follows its offhand assertion that the city had a “practice of billing at the time of hook-up.” Majority at 574. But even if that were true, and the record shows otherwise,12 such a practice cannot serve as its own self-validation. Moreover the record also shows Landmark’s lag behind New Concept’s construction was caused, at least in part, by the disparate treatment of the *588two developers by the city during the development process. Verbatim Report of Proceedings (June 21, 1995), Court’s Ruling at 3.13

If one developer further along in the process may prepay a charge, supposedly based on the system’s cost, while another otherwise identical developer may not, we must ask why not? The answer is simple: the city wants all the money it can get, but it did not think about raising the fees until Landmark came along.

Here there is substantial evidence to support the trial judge’s factual findings that the two developers were similarly situated yet arbitrarily and capriciously treated differently. These findings support the trial judge’s legal conclusion that this disparate treatment was without authority of law and arbitrary. The trial court should be affirmed.

Dolliver, J. Pro Tern., concurs with Sanders, J.

Quoting RCW 35.92.025, which provides:

Cities and towns are authorized to charge property owners seeking to connect to the water or sewerage system of the city or town as a condition to granting the right to so connect, in addition to the cost of such connection, such reasonable connection charge as the legislative body of the city or town shall determine proper in order that such properly owners shall bear their equitable share of the cost of such system. The equitable share may include interest charges applied from the date of construction of the water or sewer system until the connection, or for a period not to exceed ten years, at a rate commensurate with the rate of interest applicable to the city or town at the time of construction or major rehabilitation of the water or sewer system, or at the time of installation of the water or sewer lines to which the property owner is seeking to connect but not to exceed ten percent per year: PROVIDED, That the aggregate amount of interest shall not exceed the equitable share of the cost of the system allocated to such property owners. Connection charges collected shall be considered revenue of such system.

AIthough a presumption exists that an ordinance setting a connection fee is valid, “ ‘when evidence discloses that the basis on which the ordinance establishes the fee is not the proper basis authorized by the statute, the presumption no longer holds.’ ” Boe v. City of Seattle, 66 Wn.2d 152, 155, 401 P.2d 648 (1965) (quoting the adopted trial court memorandum decision of Walterskirchen, J. (Sept. 23, 1963)).

Even the majority admits that the connection charge must represent an equitable sharing of the system’s cost. Majority at 569. Thus, the majority’s fears as expressed on page 572 of its opinion are in no way assuaged by the interpretation it offers of the statute at page 569.

According to Black’s, this maxim means

[w]hen certain persons or things are specified in a law, contract, or will, an intention to exclude all others from its operation may be inferred. Under this maxim, if statute specifies one exception to a general rule or assumes to specify the effects of a certain provision, other exceptions or effects are excluded.

Black’s Law Dictionary 581 (6th ed. 1990) (emphasis added).

The only cost difference found was that the cost for replacement pipes for the overcharged Landmark might be lower than the costs for New Concept. CP at 340 (Finding 28).

While this finding of arbitrary behavior was part of the trial judge’s “Conclusions,” it is more properly characterized as a finding of fact. See Robinson v. City of Seattle, 119 Wn.2d 34, 63, 830 P.2d 318 (1992) (noting that it is for the finder of fact to determine if a City had acted arbitrarily and capriciously); Lutheran Day Care v. Snohomish County, 119 Wn.2d 91, 114-15, 829 P;.2d 746 (1992) (describing trial judge’s “prior finding” that action was arbitrary and capricious). See also Lynn v. Berg Mechanical, Inc., 649 So. 2d 139, 142-43 (La. Ct. App. 1995) (question of arbitrary and capricious behavior is essentially one of fact not to be disturbed absent manifest error). A finding incorrectly denominated a conclusion *585of law is reviewed as a finding. Valentine v. Department of Licensing, 77 Wn. App. 838, 846, 894 P.2d 1352 (1995). See also Steele v. Queen City Broad. Co., 54 Wn.2d 402, 408, 341 P.2d 499 (1959) (treating improperly denominated ‘‘conclusion” as a factual finding on review). Cf. State v. Reader’s Digest Ass’n, 81 Wn.2d 259, 266-67, 501 P.2d 290 (1972) (findings of fact that are actually conclusions of law treated as conclusion of law).

Roy’s attorney correctly advised the City that it could not refuse Landmark’s prepayment under the ordinance. Fl.’s Ex. 1, at C-6. The majority notes that “[although initially cautious at this meeting, Roy’s city attorney later conducted legal research and advised Roy to charge Landmark the new connection fee.” Majority at 567. However, the only additional research done by the City Attorney regarded Landmark’s vested rights. Def.’s Ex. 39; Verbatim Report of Froceedings (RE) at 189. There is no indication in the record that the City Attorney ever modified his opinion regarding Landmark’s right to prepay the connection charge under Ordinance 351.

The trial judge rejected Roy’s proposed finding that “[t]he past practice of the City was to impose the water connection charge at the time the water user was ready to connect.” CP at 283. “A refusal by the trial court to make a proposed finding must be considered a finding against the proposing party.” Simpson v. Kelso Sch. Dist. No. 403, 20 Wn. App. 545, 549, 581 P.2d 1065 (1978) (citation omitted). There is some support for the contention that it was Roy’s practice to bill at the time of hook-up in the trial testimony, see RP at 227; however, it is well established that a trial judge’s factual findings based on the court’s evaluation of the veracity of witness testimony will not be overturned unless such findings are clearly not supported by the weight of the evidence. Bradley v. Donovan-Pattison Realty Co., 84 Wash. 654, 658, 147 P. 421 (1915).

For example New Concept had installed its water system five months before it entered into a developer’s agreement with the City. CP at 339; Def.’s Ex. 38. Landmark, on the other hand, was told that it could not install its waterlines until its plans had been reviewed and approved by the City, and that such review could not even he started until after an executed Developer’s Agreement existed. Pl.’s Ex. 16. Unlike Landmark, New Concept was not required to comply with Roy’s pipe thickness standards. Verbatim Report of Proceedings (June 21, 1995), Court’s Ruling at 3. '