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City of Allentown v. Lehigh County Authority

Superior Court of Pennsylvania

November 7, 2019

CITY OF ALLENTOWN, Appellant
v.
LEHIGH COUNTY AUTHORITY

          Appeal from the Order Entered September 25, 2018 In the Court of Common Pleas of Lehigh County Civil Division at No(s): 2018-C-1765

          BEFORE: SHOGAN, J., NICHOLS, J., and STRASSBURGER [*] , J.

          OPINION

          SHOGAN, J.

         Appellant, the City of Allentown ("the City"), appeals from the order entered in the Court of Common Pleas of Lehigh County on September 25, 2018, denying its motion for a preliminary injunction against Appellee, Lehigh County Authority ("LCA"). We affirm.

         The trial court summarized the factual history of this case as follows:

On May 1, 2013, the parties entered into the Allentown Water and Sewer Utility System Concession and Lease Agreement [("the Agreement")[1]. The Agreement contains specific obligations for ensuring that LCA maintains the water and sewer utility systems it was leasing for a fifty-year time period. The Agreement also contains express provisions limiting the extent to which water and sewer bills sent to City residents can be increased by LCA. Specifically, Article 7 of the Agreement generally governs the imposition of Service Charges on City residents, and the amount by which those service charges can be increased on an annual basis.
Section 7.1(d) of the Agreement provides for the "Initial Schedule of Rates" and substantially restricted LCA from revising that Schedule without the prior approval of the City prior to January 2016. Accompanying [the Agreement] was a set of schedules. Schedule Three details the various service charges imposed as of 2016 for water and sewer service based upon the size of the piping serving a particular address. By and large, any customer with a pipe size from 5/8" to one inch is a residential ratepayer, while those addresses with wider pipe sizes are almost uniformly commercial customers.
In addition, the Schedule listed the service charges, or rates, to be imposed on residential and commercial customers based on billing cycles. Residential customers were billed on a quarterly basis, while commercial customers were billed on a monthly cycle. This was the billing cycle pattern used by the City when it operated the water and sewer systems. Respondent LCA continued this billing cycle practice when it took over the operation of the systems even though the express terms of [the Agreement] do not compel the continuation of the quarterly billing cycle for residential customers.
After the commencement of [the Agreement] in 2013, LCA determined that approximately 750 residential and commercial customers were being billed on the incorrect billing cycle, i.e., some residential customers were billed monthly and some commercial customers were billed quarterly. However, LCA notified the City it intended to correct, or "true up," this anomaly. The City understood this correction occurred by 2016.
Beginning in 2016, the Agreement permitted LCA to increase rates on City customers subject to specific limitations. In particular, Section 7.1(e) restricted LCA to increasing rates only once per calendar year. That subsection also provides that for each calendar year beginning in 2016, LCA may increase the Service[] Charges billed for each class or type of Utility Service, but any increase in service charges may not exceed the Permitted Annual Rate Adjustment.
The "Permitted Annual Rate Adjustment" is based on the "Schedule of Service Charges" in effect for the prior year multiplied by the combined sums of the "Index Change" for the calendar year, and a fixed rate multiplier referred to as the "Margin Change." The "Index Change" generally corresponds to any increase in the Consumer Price Index for Urban Consumers -Northeast Region as compiled by the U.S. Department of Labor, Bureau of Labor Statistics. According to the terms of [the Agreement], the "Margin Change" from 2016 - 2032 is 2.5% per year. That rate falls to 2.0% per year from 2033 until the expiration of the lease agreement.
As of November 13, 2017, LCA published its proposed rates for water and sewer service for both residential and commercial customers effective January 1, 2018. The rates were quoted in both monthly and quarterly billing rates for both types of consumers. Until 2016, LCA had not published a schedule of new rates listing both monthly and quarterly billed amounts for each class of customers. For both 2017 and 2018, the published rates indicated what the billed amounts would be for both residential and commercial customers on both a monthly and a quarterly billing cycle. Despite these two types of rates being included in the schedules published in 2017 and 2018 for implementation the following year, LCA continued the past practice of billing Small Meter Customers on a quarterly basis, and Large Meter Customers on a monthly rate schedule.
[The City] does not dispute that the 2017 rate schedule fell within the permitted renewal rate adjustment, using the 2016 rates as the base figure. As was testified to at the hearing on the motion for the preliminary injunction, the Index Change for 2016 was 0.8% for that year, meaning the annual rate adjustment for 2017 was only 3.3% (0.8% Index Change 2.5% Margin Change). For calendar year 2018, the Index Change from 2017 was 1.5%. When added to the fixed multiplier of 2.5%, the permitted annual rate adjustment as published for 2018 was 4.0%.
However, on May 21, 2018, the LCA board unanimously approved a resolution to convert from a quarterly billing schedule to a monthly billing schedule for Small Meter Customers, effective August 1, 2018. Based on the resolution approved by the LCA Board, the amount paid annually by residential customers as of August 1, 2018 would jump from $150 up to $311, an increase of 107%. [The City] argues this level of rate adjustment is well beyond the permitted annual rate change under the terms of [the Agreement]. Additionally, [the City] asserts that such a midyear rate adjustment violates the terms of Article 7.1(e).

         Trial Court Opinion, 9/25/18, at 2-5 (internal citations omitted).

         The City filed a complaint on July 10, 2018, and a motion for preliminary injunction on July 16, 2018. LCA filed an answer to the complaint on August 2, 2018, and an answer to the motion for preliminary injunction on August 6, 2018. The trial court held an evidentiary hearing on the motion for preliminary injunction on September 4, 2018. On September 25, 2018, the trial court issued an order and opinion denying the motion for preliminary injunction. The City filed a notice of appeal on October 24, 2018. The City and the trial court complied with Pa.R.A.P. 1925.

         The City presents the following issues for our review on appeal:

1. Whether the [t]rial [c]ourt committed reversible error in concluding that the City of Allentown, which was a party to the contract, did not have standing to bring the lawsuit against Lehigh County Authority ("LCA") for breach of contract.
2. Whether the [t]rial [c]ourt committed reversible error in concluding that implementation of monthly billing would not immediately and irreparably harm the City and its residents.
3. Whether the [t]rial [c]ourt committed reversible error in concluding that the City did not provide evidence that a greater injury would be suffered by the City if injunctive relief was denied.
4. Whether the [t]rial [c]ourt committed reversible error in concluding that the City has not demonstrated that granting injunctive relief would serve the public interest.
5. Whether the [t]rial [c]ourt committed reversible error in concluding that any claim by the City would be premature until the ...

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