In re Petition of Waitsfield-Fayston Telephone Co., Inc. (2005-498)

2007 VT 55

[Filed 29-Jun-2007]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.


                                 2007 VT 55

                                No. 2005-498


  In re Petition of Waitsfield-Fayston           Supreme Court
  TelephoneCompany, Inc., d/b/a Waitsfield 
  Telecom, d/b/a Waitsfield Cable and            On Appeal from 
  d/b/a Champlain Valley Telecom, 
  to Establish a Rate for Rental of Space
  on Poles Owned by Green Mountain Power         
  Corporation                                    Public Service Board

                                                 September Term, 2006


  Michael H. Dworkin, Chair

  Harriet Ann King of King & King, Waitsfield, for Appellant Green Mountain
    Power Corporation

  Paul J. Phillips of Primmer Piper Eggleston & Cramer PC, St. Johnsbury, for
    Appellee Waitsfield-Fayston Telephone Company, Inc.

  John J. Cotter, Montpelier, for Appellee Department of Public Service.


  PRESENT:  Reiber, C.J., Dooley, Skoglund and Burgess, JJ., and 
            Crawford, Supr. J.,  Specially Assigned

        
       ¶  1.  DOOLEY, J.  Appellant Green Mountain Power Corporation (GMP)
  appeals a Public Service Board order requiring GMP to refund to appellee
  Waitsfield-Fayston Telephone Company, Inc. (WFTC) "make-ready" charges paid
  by WFTC over a period of years.  The charges, which were separate from
  annual rental charges, were for making ready poles owned by GMP to accept
  telephone lines in addition to the electric lines already on them.  GMP
  raises a host of arguments against the make-ready refund, including that it
  was time-barred and that GMP lacked sufficient notice that the make-ready
  charge issue was in the case before the Board.  We agree that no claim for
  the refund of make-ready charges was properly in the case and therefore
  reverse.
        
       ¶  2.  WFTC is a Vermont corporation that provides telephone and cable
  television services that are regulated by the Board.  GMP is an electric
  utility provider whose services are also regulated by the Board.  GMP owns
  electricity distribution poles to which WFTC sought to attach its telephone
  and cable television lines; thus, in 1983 the parties entered into a
  contract setting the annual rent WFTC would pay to share thousands of GMP
  poles. (FN1)  The contract, by its terms, summarized the parties' agreement
  as to charges for poles.  Apart from the contract price, GMP billed WFTC
  for make-ready charges for approximately twenty years.   
                
       ¶  3.  Years after the parties' contract, in 2001, the Board adopted
  revised Rule 3.7 governing pole attachment rates that a "pole-owning
  utility," such as GMP, may charge to an "attaching entity" such as WFTC. 
  Public Service Board Rule 3.702(B), (F).  In light of the lower rates
  generally provided for in the rule, WFTC terminated the contract with GMP
  in February 2003 and, in December 2003, petitioned the Board to set new
  rates pursuant to Rule 3.7.  At the time of WFTC's petition, GMP charged
  WFTC $35.19 per pole in annual rent for approximately 3900 poles, and
  $25.13 per pole for approximately 4300 poles. (FN2)  The $35.19 rate was
  the highest pole rental rate GMP charged to any "attaching entity" in the
  state.
    
       ¶  4.  WFTC's 2003 petition was not the first time the parties brought
  a rate dispute to the Board.  In 1997, CVT, which subsequently merged into
  WFTC, similarly challenged GMP's pole attachment charges in Board Docket
  No. 5960.  The parties to Docket No. 5960 entered into a stipulation for
  pole attachment rates for 1994 through 1997.  Ultimately, due to
  uncertainty while the Board developed its rule on pole attachments, the
  parties continued the effectiveness of the stipulation indefinitely pending
  adoption of the new rule.

       ¶  5.  The 2003 WFTC petition asked the Board to set annual pole
  rental rates pursuant to Rule 3.7, and to order a refund of WFTC's
  overpayment since January 1, 2002 - the effective date of rates set by the
  new rule.  Public Service Board Rule 3.711.  As to the refund specifically,
  WFTC asked the Board to order a reimbursement of its "overpayment of pole
  rental charges" from January 1, 2002 to December 30, 2003.  The petition
  never mentioned make-ready charges and sought no relief with respect to
  them, apparently because the new rule specifically provided for make-ready
  charges and established the basis for calculating them.  See Public Service
  Board Rule 3.708(G).  
   
       ¶  6.  Following prefiled testimony and an evidentiary hearing, the
  hearing officer granted WFTC's request and recommended an annual rate of
  $16.00 per pole, but generally rejected WFTC's request for overpayments
  going back to 2002. (FN3)  He also found that because the parties' contract
  was "intended to include all the costs of pole attachments, including
  make-ready costs," GMP should return to WFTC all make-ready payments
  pre-dating January 1, 2002, and he gave WFTC an opportunity to make an
  additional filing showing that amount.
   
       ¶  7.  WFTC made the additional filing to capture the make-ready
  charge refund, but it could find records of these payments only going back
  to 1992.  It proposed a make-ready reimbursement figure of $386,984.10,
  which the hearing officer adopted.  The Board affirmed the hearing
  officer's recommendations and ordered the refund, including the refund of
  the make-ready costs. 

       ¶  8.  On appeal, GMP contests only the make-ready charge refund
  order, raising ten separate arguments against this part of the Board's
  order.  Because one of GMP's claims resolves this appeal, we address it
  alone. 

       ¶  9.  GMP's ninth and most troubling argument is that the Board did
  not provide GMP sufficient notice of the make-ready refund.  Here, GMP
  claims that the Board's order violated its constitutional right to
  procedural due process, as well as its right against governmental takings,
  and violated a provision of Vermont's Administrative Procedure Act, which
  requires parties to a contested case to be given the opportunity "to
  respond and present evidence and argument on all issues."  3 V.S.A. §
  809(c).  We look to the statutory argument first.  Ashwander v. Tennessee
  Valley Auth., 297 U.S. 288, 347 (1936) (Brandeis, J., concurring) ("[I]f a
  case can be decided on either of two grounds, one involving a
  constitutional question, the other a question of statutory construction or
  general law, the Court will decide only the latter.").  
   
       ¶  10.  In reviewing the adequacy of notice pursuant to 3 V.S.A. §
  809(c), "we must examine whether or not the parties were given an adequate
  opportunity to prepare and respond to the issues raised in the proceeding." 
  Petition of Twenty Four Vermont Utils., 159 Vt. 363, 369, 618 A.2d 1309,
  1312-13 (1992) (quotation and citation omitted).  In implementing the
  command of the statute, the Board has, at least in part, adopted the
  Vermont Rules of Civil Procedure subject to modification where statute or
  specific Board rules provide.  Petition of Twenty-Four Vermont Utils., 159
  Vt. 339, 356, 618 A.2d 1295, 1305 (1992); Vermont Public Service Board
  Rules 2.103, 2.105.


       ¶  11.  Our analysis begins, as this case did, with WFTC's petition. 
  The term "make-ready" does not appear.  WFTC's petition asked the Board to:
  (1) set a rental rate pursuant to revised Rule 3.7, and (2) "require GMP to
  Refund Overpayments of Pole Rental Charges Made by WFTC."  Specifically,
  WFTC sought overpayment refunds from pole rental charges paid during the
  period from January 1, 2002 to December 31, 2003.  

       ¶  12.  Vermont Rule of Civil Procedure 8(a) requires that a complaint
  contain a statement of each claim.  A pleading is sufficient under the rule
  if it gives " 'fair notice of the claim and the grounds upon which it
  rests.' "  Limoge v. People's Trust Co., 168 Vt. 265, 274, 719 A.2d 888,
  893 (1998) (quoting Molleur v. Leriche, 142 Vt. 620, 622, 458 A.2d 1139,
  1140 (1983)).  Failure to plead a claim means that the claim is not in the
  case, and the court may not grant relief on it unless the claim
  subsequently comes before the court.  See Molleur, 142 Vt. at 622, 458 A.2d
  at 1140.  

       ¶  13.  A claim may be added by amendment of the complaint.  V.R.C.P.
  15(a).  Pursuant to Rule 15(b), a claim may enter the case without formal
  amendment:

     (b) Amendments to Conform to the Evidence.  When issues not
    raised by the pleadings are tried by express or implied consent of
    the parties, they shall be treated in all respects as if they had
    been raised in the pleadings.  Such amendment of the pleadings as
    may be necessary to cause them to conform to the evidence and to
    raise these issues may be made upon motion of any party at any
    time, even after judgment; but failure so to amend does not affect
    the result of the trial of these issues.  If evidence is objected
    to at the trial on the ground that it is not within the issues
    made by the pleadings, the court may allow the pleadings to be
    amended and shall do so freely when the presentation of the merits
    of the action will be subserved thereby and the objecting party
    fails to satisfy the court that the admission of such evidence
    would prejudice the party in maintaining the party's action or
    defense upon the merits.  The court may grant a continuance to
    enable the objecting party to meet such evidence.

  V.R.C.P. 15(b).  The Board has specifically held that Rule 15(b) applies to
  its proceedings.  Petition of Dep't of Pub. Serv., No. 7195, Order re:
  Motion to Alter or Amend at 4 n.3 (Dec. 8, 2006).  Under the terms of the
  rule, we take the Board's decision in this case as a ruling that the issue
  of refunding make-ready charges entered the proceeding either with GMP's
  implied consent or over its objection because it was not prejudiced.  In
  that light, we examine more closely the proceedings after the filing of the
  petition.

       ¶  14.  The first reference to make-ready charges occurred during the
  cross-examination of one of GMP's witnesses, through whom WFTC's counsel
  sought to admit two letters dealing with make-ready charges.  Counsel for
  GMP objected to the admission of the letters, stating: "[a]s I understand
  [WFTC's] petition in this proceeding it is not related to make-ready
  charges.  It simply requests the Board to set the rate for the annual
  rental charge for attachments to GMP's poles."  Counsel for GMP continued:
  "[i]f there is another issue relating to make-ready, finding out about it
  at the technical hearing doesn't seem to be conducive to an efficient
  resolution of this dispute."  Counsel for WFTC responded that "the only
  issue relative to make-ready does not concern the amount of the charges or
  the rates that are charged, but simply concerns the terms and conditions
  under which [GMP] provides pole attachment services to [WFTC] . . . and I'm
  simply trying to establish that [GMP] in fact does charge make-ready
  charges to [WFTC]."  (Emphasis added.)  Later, counsel for WFTC stated
  that, with respect to the make-ready letters, he was "not trying to prove
  that the rates [were] exorbitant or [that] they [were] deficient in any []
  way," rather, he was "just trying to show there [were] rates."  (Emphasis
  added.) 
   
       ¶  15.  This exchange led to a broader discussion of the issue of
  make-ready charges - specifically, whether those charges were included
  within the terms of the original contract.  Counsel for GMP persisted in
  questioning the relevance of the make-ready charge letters due "to the fact
  that [WFTC's] petition . . . never mention[ed] make-ready charges.  It
  merely ask[ed] this Board . . . to establish a pole rental."  At this point
  counsel for WFTC explained to the officer that "the [contract] rates that
  are being charged, which are at issue here, were intended to cover all pole
  costs."  Counsel for GMP urged that "there [had] been no testimony on the
  part of [WFTC] or GMP on make-ready charges."  

       ¶  16.  Ultimately, the hearing officer overruled GMP's objection to
  the letters.  Later in the hearing, counsel for GMP recalled WFTC's witness
  "to respond to [the officer's] questions with respect to the charges for
  make-ready."  This cross-examination, and the follow-up by counsel for
  WFTC, produced the evidence on which the hearing officer ordered a refund
  of all make-ready charges paid to GMP by WFTC.  The evidence, and the
  arguments of the parties, however, did not change the rationale under which
  WFTC introduced the subject of make-ready charges.  WFTC made no claim for
  reimbursement of make-ready charges.
   
       ¶  17.  Following the hearing, WFTC submitted a brief and proposal for
  decision.  The proposal for decision proposed findings with respect to
  make-ready charges, but reiterated WFTC's claims for relief, without adding
  any relief with respect to make-ready charges. (FN4)  To the extent WFTC
  proposed that the make-ready findings were relevant to the decision, it was
  that they supported WFTC's entitlement to a partial refund of pole rental
  charges retroactive to January 1, 2002, the effective date of the new Board
  rules.  WFTC did not seek any refund of make-ready charges, even those
  incurred from January 1, 2002 - its proposed retroactivity date - to the
  date of the order.  In a reply to WFTC's proposal, GMP argued that the fact
  that it imposed make-ready charges did not support making a new rental rate
  retroactive.

       ¶  18.  As set out above in the summary of proceedings, the hearing
  officer proposed a decision that included an order to refund make-ready
  charges.  He stated:

    I also accept WFTC's argument that the contract with GMP was
    intended to include all the costs of pole attachments, including
    make-ready costs, and I conclude that GMP ought to be required to
    return these payments.  It is unfortunate that WFTC did not
    include any information about the exact amount of the payments it
    made under protest, other than to describe them as "hundreds of
    thousands of dollars."  However, this information should be
    available to both companies, and the Board can require this
    calculation after the issuance of the final order.

  GMP objected to the proposed order, making, in summary form, much of the
  argument it makes here. (FN5)  The hearing officer responded in part that
  "resolution of the make-ready issue is closely tied to the pole attachment
  rate issue, and its resolution is a reasonable, ancillary, extension of the
  rate issue."   The Board initially accepted the hearing officer's proposed
  decision without mentioning most of GMP's objections. (FN6)  In response to
  GMP's motion for reconsideration, the Board rejected GMP's request to allow
  it to submit evidence on the make-ready charge issue.  In response to GMP's
  procedural argument, the Board explained:

    An argument that GMP has emphasized is that the issue of makeready
    charges only arose at [the] hearing, and that it had no
    opportunity to present evidence for its own side.  However, GMP
    made no request for a continuance nor for an opportunity to
    present evidence on this issue, either at hearing or subsequently. 
    GMP cannot now complain about a lack of opportunity to be heard.

       ¶  19.  Returning to Rule 15(b), we cannot conclude that the issue of
  make-ready charges entered the case by the first alternative method - GMP's
  implied consent.  In order to find consent for an unpleaded issue, "it must
  appear that the [injured] party understood that evidence was introduced to
  prove the unpleaded issue."  Vineyard Brands, Inc. v. Oak Knoll Cellar, 155
  Vt. 473, 485, 587 A.2d 77, 83-84 (1990) (quotation and citation omitted). 
  Applying the identical federal rule, Wright and Miller speak to this issue
  in exactly the context that was before the hearing officer:

    Furthermore, when the evidence that is claimed to show that an
    issue was tried by consent is relevant to an issue already in the
    case, as well as to the one that is the subject matter of the
    amendment, and there was no indication at trial that the party who
    introduced the evidence was seeking to raise a new issue, the
    pleadings will not be deemed amended under the first portion of
    Rule 15(b).  The reasoning behind this view is sound since if
    evidence is introduced to support basic issues that already have
    been pleaded, the opposing party may not be conscious of its
    relevance to issues not raised by the pleadings unless that fact
    is made clear.
     
  6A C.Wright, A.Miller & M.Kane, Federal Practice and Procedure § 1493, at
  32-34 (2d ed. 1990).  Here, there was no indication at trial that WFTC was
  seeking to raise a new issue because its counsel explicitly and
  specifically said that he was not raising the unpleaded issue of the
  illegality of GMP's action in collecting make-ready charges.  Even when the
  more detailed evidence about make-ready charges entered the case, WFTC did
  not suggest that it supported a new claim for a refund.  Further, in its
  written filing after the hearing, WFTC proposed findings on make-ready
  charges but only in support of its preexisting claim for a retroactive
  partial refund of pole rental charges going back only to January 1, 2002. 
  The pole rental charges to be refunded did not include make-ready charges. 
  See Wilk Paving, Inc. v. Southworth-Milton, Inc., 162 Vt. 552, 558, 649
  A.2d 778, 783 (1994) (where defendant failed to raise affirmative defense
  in pleadings, trial briefs, and requests for findings and proposed
  conclusions of law, trial court properly denied a post-judgment motion
  under V.R.C.P. 15(b) to allow defendant to amend its answer to raise the
  defense).

       ¶  20.  By its reference to GMP's failure to seek a continuance,
  the Board apparently concluded that the legality of the make-ready charges
  was in the case under the third sentence of Rule 15(b) and not because GMP
  had impliedly consented to litigating the issue.  Although the third
  sentence allows the Board to consider an issue over the objection of the
  opposing party in certain circumstances, it requires the pleadings to be
  amended.  See V.R.C.P. 15(b).  Thus, we have held in similar circumstances
  under Rule 15(b) that "the party seeking to admit the evidence must move
  for an amendment of the pleadings."  Withington v. Derrick, 153 Vt. 598,
  605, 572 A.2d 912, 915 (1990).  The point of the amendment is to make clear
  to the opposing party that the new claim is in the case and must be
  defended against.  Thus, the need for the amendment is present "even where
  there is evidence in the record, introduced as relevant to some other
  issue, which could support the amendment."  Desrochers v. Perrault, 148 Vt.
  491, 494, 535 A.2d 334, 336 (1987).

       ¶  21.  In this case, WFTC never moved to amend its petition, and
  disavowed that the issue of the legality of make-ready charges was in the
  case.  In these circumstances, there was no obligation on GMP to move for a
  continuance.  The third sentence of the rule does not authorize
  consideration of the legality of make-ready charges in this case.
   
       ¶  22.  We recognize that Board orders generally enjoy a strong
  presumption of validity, especially where the Board has employed its
  "particular expertise" in reaching its conclusion.  In re Proposed Sale of
  Vermont Yankee Nuclear Power Station, 2003 VT 53, ¶ 5, 175 Vt. 368, 829
  A.2d 1284.  The issue before us, however, is one of procedure that does not
  involve the Board's special expertise.  When such issues arise in the trial
  courts, we review them for abuse of discretion.  Wilk Paving, 162 Vt. at
  558, 649 A.2d at 783.  We believe that this standard of review is
  appropriate for Board procedural orders of this type.

       ¶  23.  Even accounting for the discretion of the Board, we conclude
  that its consideration of the legality of the make-ready charges under
  these circumstances was improper.  WFTC did not raise the make-ready charge
  issue, despite numerous opportunities to do so.  Indeed, it clearly stated
  that it was not claiming that the make-ready charges were illegal and it
  was not seeking a refund on that basis.  Thus, the hearing officer raised
  the make-ready charge refund issue sua sponte, with no warning to GMP and
  no opportunity for GMP to respond to it.    
   
       ¶  24.  The cases arising under the identical federal rule, F.R.C.P.
  15(b), indicate two possible remedies for a violation.  In some cases, the
  decisions have held that an unpleaded issue that is improperly introduced
  into the case under Rule 15(b) cannot be considered.  E.g., Prieto v. Paul
  Revere Life Ins. Co., 354 F.3d 1005, 1013 (9th Cir. 2004) (reversing trial
  court's sua sponte determination of issue for defendant, contrary to
  F.R.C.P. 15(b), and remanding with directions to award judgment for
  plaintiff).  In others, the decisions have allowed the unpleaded claim, but
  have remanded the case to give the appealing party an opportunity to
  respond to it.  E.g., MBI Motor Co. v. Lotus/East, Inc., 506 F.2d 709, 713
  (6th Cir. 1974) (remanding to district court to reopen case and allow
  submission of evidence on issue determined by court in violation of
  F.R.C.P. 15(b)).  We conclude that the proper remedy in this case, under
  our precedents, is the former.  In Desrochers, the defendant sought to
  amend the answer to assert a counterclaim after the close of the evidence,
  asserting that the admitted evidence supported the counterclaim.  148 Vt.
  at 493, 535 A.2d at 336.  We noted that the plaintiff had objected to the
  evidence in support of the unpleaded counterclaim, and the issue was not
  tried by express or implied consent.  Id.  We held that the court was
  correct in denying the counterclaim: "[A] post-judgment amendment which
  brings in an entirely extrinsic theory, or changes the theory on which the
  case was actually tried, is not permissible."  Id. at 494, 535 A.2d at 336. 
  In essence, the hearing officer here did exactly what we prohibited in
  Desrochers - he amended the petition to bring in a theory and claim
  extrinsic to those in the petition as pleaded.  See also Withington, 153
  Vt. at 605, 572 A.2d at 915 (denying consideration on appeal of issue not
  covered by the pleadings, not tried by consent, and for which no motion to
  amend was filed).  Similarly, in Molleur, the court submitted to the jury
  an unpleaded claim for quantum meruit.  142 Vt. at 622, 458 A.2d at 1140. 
  We held that the theory had not entered the case by the express or implied
  consent of the opposing party under Rule 15(b) and thus "was not an issue
  in the trial of the case."  Id.  On this basis, we reversed a jury verdict
  based on quantum meruit and entered judgment for defendant.  Id. at 622-23,
  458 A.2d at 1140.  

       ¶  25.  Because the unpleaded claim for a refund of make-ready charges
  was not properly before the Board, we hold that the Board erred in
  considering the claim and ordering a refund of the make-ready charges.  We
  reverse the Board's make-ready refund order on that basis, and thus do not
  reach the alternative grounds for reversal raised by GMP.

       Reversed.   


                                       FOR THE COURT:



                                       _______________________________________
                                       Associate Justice


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                                  Footnotes


FN1.  There are actually two agreements.  During the 1990's WFTC purchased
  Champlain Valley Telecom (CVT) from Continental Telephone Company of
  Vermont, Inc. (Continental), and CVT thereafter merged into WFTC. 
  Continental had entered into an agreement with GMP that is virtually
  identical to the 1983 WFTC agreement.  Because the two agreements contain
  materially identical language, we refer to them jointly as "the contract." 
  We note, however, that CVT, before and after it merged with WFTC, sought
  relief from its contracts because it believed the rental rates were too
  high.  Except with respect to the poles to which CVT lines were attached,
  WFTC did not seek relief until much later.

FN2.  The difference reflects whether the poles are in the CVT service area
  or in the service area for the rest of WFTC.  The CVT rate was $25.13 per
  pole per year, set in stipulations to temporarily settle CVT's challenge to
  GMP's rates in a Board proceeding.  The rate for the rest of WFTC is $35.19
  per pole per year, set under the 1983 contract and its cost escalators.

FN3.  The hearing officer required a refund of part of the amount paid for
  the CVT area poles because CVT had terminated its 1983 agreement and acted
  under the settlement stipulations.  He denied any refund for the rest of
  WFTC's service area because WFTC did not terminate its contract with GMP
  until 2003.  Thus, WFTC received a refund of more than $15,500 out of the
  nearly $82,000 it sought.

FN4. The relief sought was to set an annual rental rate at $14.18 per pole,
  make the rate effective on January 1, 2002, order GMP to refund rent
  overpayments from January 1, 2002, and order GMP to amend its existing pole
  attachment tariffs to give non-discriminatory access to all attaching
  entities.

FN5.  GMP also made many of the same arguments in its response to WFTC's
  refund calculation filing.

FN6.  GMP submitted to the Board comments on the hearing officer's final
  proposed decision, urging the Board not to accept the proposed decision and
  raising briefly the objections it had raised to the hearing officer.

