2014 VT 108


City of Newport v. Village of
Derby Center (2013-310)
 
2014 VT 108
 
[Filed 12-Sep-2014]
 
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 by email at: JUD.Reporter@state.vt.us or by
mail at: 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.
 

2014 VT 108

 

No. 2013-310

 

City of Newport


Supreme Court


 


 


 


On Appeal from


     v.


Superior Court, Orleans Unit,


 


Civil Division


 


 


Village of Derby Center


March Term, 2014


 


 


 


 


Howard
  E. Van Benthuysen, J.


 

Philip H. White of Wilson & White, PC, Newport, for
Plaintiff-Appellee.
 
Christopher J. Smart of Cheney Saudek & Grayck PC,
Montpelier, for Defendant-Appellant.
 
 
PRESENT:  Reiber, C.J., Dooley, Skoglund, Robinson and
Crawford, JJ.[1]
 
 
¶ 1.            
REIBER, C.J.   This dispute arose out of a 1997 water
contract requiring the Village of Derby Center[2] to supply 10,000 gallons per day (gpd) of
water to the City of Newport.  The City claims that the contract did not
authorize the Village to adopt a new rate schedule in 2006 that included a
ready-to-serve fee on top of actual water usage charges.  The Village
counterclaims, alleging that the City connected customers who were not
authorized under the contract, and that the City’s water use was chronically
underreported due to equipment malfunction.  After a trial, the Orleans
superior court ruled for the City on its contract claim, holding that the
ready-to-serve fee was not authorized by either contract or statute.  As
to the Village’s counterclaims, the court found that there was insufficient
evidence to support the unauthorized-connection claim, and referred the
water-usage-reconstruction claim to mediation.[3]  The Village appeals on all
counts.  We reverse and remand for further proceedings. 
¶ 2.            
The following facts were found by the trial court and appear to be
undisputed by the parties.  Other pertinent facts will be set forth in the
ensuing discussion.  In July 1997, the parties entered into an interlocal
agreement for water.  The agreement was designed to mutually benefit the
Village and the City—the Village would get to sell some of its unused water
capacity, and the City would be able to supply its growing industrial-park area
with water at discounted rates.  Under the contract, the City constructed
and maintained at its own expense a 400-foot water main, which extended
westward toward the City–Village property line and ended at a vault containing
a master meter that would measure the water flow into the City.  The
contract allocated a minimum capacity of 10,000 gallons per day (gpd) to the
City, and provided that the “rate charged to the City shall be ninety percent
(90%) of [the Village’s] rate schedule throughout the term of this
agreement. . . .  [The Village] reserves the right to set
[the] rate schedule.”  The Village would have authority to set the rate
schedule, but would be required to provide at least sixty days’ notice of any
rate increase.  The agreement contained a mediation clause, and has not
been amended or abrogated since it was signed.
¶ 3.            
Pursuant to a June 2006 ordinance, the Village changed its rate schedule
by adding a “ready-to-serve” fee for unused capacity, including a 30% surcharge
for large users. After this change, the Village charged the City for the unused
capacity out of its 10,000-gpd allocation, including a large-user
surcharge.  The Village notified the City in February 2006 of “rate
increases,” although its letter did not refer specifically to ready-to-serve or
unused-allocation fees.  The City paid these fees under protest from 2006
going forward.
¶ 4.            
Beyond the contract dispute itself, several other issues arose after the
agreement was executed.  First, for some period of time after 2006, the
master meter did not accurately measure the City’s water usage, although the
parties dispute the exact amount owed.  Second, the City connected several
users outside the industrial-park area, allegedly without notice to the
Village.  The Village claimed that these connections contravened the
agreement.
¶ 5.            
The parties failed to resolve their claims via mediation.  After a
bench trial, the court ruled that the agreement’s plain terms did not authorize
the Village’s imposition of an unused allocation or ready-to-serve fee. 
Rather, the City was obligated to pay only for the water actually used. 
Had the Village wanted to charge the City for water not used, it would have to
negotiate with the City to amend or abrogate the 1997 contract.  In
addition to imposing fees not authorized by the contract, the court found that
the Village had breached the implied covenant of good faith and fair dealing by
“abus[ing its] power to specify terms,” because though the Village had the
power to raise rates, it did not have the power to “modify the agreement
unilaterally.”  The court further concluded that 24 V.S.A. § 3311,
which regulates municipal corporations’ setting of water rates, did not
authorize the Village to charge an unused allocation fee, because the term
“rate” in the statute only contemplated an unused-water fee based on actual
water usage.  Finally, the court concluded that the Village had not
demonstrated that its unused-allocation fee was reasonable, and rejected its
arguments that the fees comported with the contract’s requirement that the
agreement serve the best economic interests of both the City and the Village.
 The court granted judgment against the Village in the amount of
$18,437.24, dismissed the Village’s counterclaim as to the unauthorized
connections, and referred the Village’s counterclaim that it was entitled to
additional payments due to erroneous meter readings back to
mediation.                 
I.       
City
Claim
¶ 6.            
We begin with the City’s claim that the Village’s ready-to-serve fee
instituted in 2006 was not authorized under the 1997 water contract or by statute
under 24 V.S.A. § 3311.  As an initial matter, we must clarify our
standard of review of the trial court’s findings.  “It is hornbook law that construction of contract terms is a matter of
law and not a factual determination.”  Ianelli v. Standish, 156 Vt.
386, 389, 592 A.2d 901, 903 (1991) (quotation omitted).  So long as a
contract provision is “clear and unambiguous,” then the court construes the
provision as a matter of law.  Id. (quotation marks omitted). 
If the court determines a contract term to be ambiguous, however, then the
trier of fact determines the meaning intended by the parties.  Id.;
Ferrill v. N. Am. Hunting Retriever Ass’n, Inc., 173 Vt. 587, 590, 795
A.2d 1208, 1211 (2002).  The court made a series of findings that
it characterized as “findings of fact” established by a “preponderance of the
evidence” or by “clear and convincing evidence.”  These findings, however,
constituted a mixture of factual findings and legal conclusions based on the
court’s interpretation of the contract’s terms.  Therefore,
we review the trial court’s factual findings for clear error and its
legal conclusions, including its construction of unambiguous contract terms, de
novo.  Bonanno v. Verizon Bus. Network Sys, 2014 VT 24, ¶ 13,
___ Vt. ___, 93 A.3d 146.
¶ 7.            
Article I of the contract provides the following relevant definitions:
(E).  Facility
shall mean the entire water system of Company . . . .
 
(F).  Operating
costs shall mean the totality of the costs of operation, maintenance and
administration of Company’s Facility, and shall include but not be limited to
the costs of labor, operator training programs, costs of equipment, materials,
power, fuel, chemicals, . . . and costs of maintenance.
 
(G).  Project
costs shall mean the total of all costs, including all construction, legal,
debt service . . . and all other costs normally associated
with the construction, reconstruction, modification or improvement of a water
system facility . . . .
 
(H).  Rate
schedule shall mean the list of charges to be levied, which charges shall
be designed to cover all operating costs, project costs, reserve funds and
contingency funds . . . .
 
¶ 8.            
The provisions pertinent to the rates are found in Article III:
The rate charged to
the City shall be ninety per cent (90%) of Company’s rate
schedule . . . . Company reserves right to set rate
schedule and hereby agrees to notify City at least sixty (60) days prior to the
effective date of any rate increase.
 
¶ 9.            
The trial court construed these provisions to mean that the agreement
required the City to pay only for the water it actually used.  The court
came to this conclusion by interpreting the term “operating costs” as “not
includ[ing] any unused capacity, or unused reserved capacity, or ‘ready to
serve’ or ‘provisional allocation’ fees, that is, fees to users designed to
defray [the Village’s] ‘costs’ to maintain the ability to provide water to the
City and other users up to their reserved or guaranteed capacities.”  The
court further concluded that the rate schedule in the contract did not list
such fees “as a part of the rate structure.”  The court also found that,
as a factual matter, the Village charged flat fees based on actual water usage
until 2006, so the implementation of a ready-to-serve fee was a departure from
past practice.[4]       
  
¶ 10.        
“When construing a deed or other written instrument, the ‘master rule’
is that the intent of the parties governs.”  Main St. Landing, LLC v.
Lake St. Ass’n, 2006 VT 13, ¶ 7, 179 Vt. 583, 892 A.2d 931
(mem.).  In determining the intent of the parties, we begin with the plain
language of the contract’s provisions, which we interpret using the same
standard as the trial court.  Ianelli, 156 Vt. at 389, 592 A.2d at 903; see also Madowitz v.
Woods at Killington Owners’ Ass’n, 2010 VT 37, ¶ 12, 188 Vt. 197, 6
A.3d 1117 (explaining that court presumes parties’ intent “is reflected in the
contract’s language when that language is clear” (quotation omitted)).  By
their plain terms, all of the relevant terms in the agreement here expressly
contemplate consideration of factors beyond actual water usage in setting
rates.  The “rate schedule” provision permits the Village to base its charges
on its operating costs, project costs, reserve funds, and contingency funds.
 Further, the term “rate schedule” itself is defined as “the list of
charges to be levied,” which, contrary to the trial court’s interpretation,
contemplates that more than one type of charge may be levied and implies that
other charges besides the water usage rates may be imposed.  Even more
significantly, the definition of “operating costs”—which, under the contract,
may be considered in setting the rate schedule—refers to the “totality of the
costs of operation, maintenance and administration of the Company’s
Facility.”  According to the provision, these costs may include a host of
factors, such as labor, training and equipment, fuel, and upkeep.  These
articulated factors go beyond actual water usage, and the contract further
makes clear with the words “shall include but not be limited to” that the list
was not intended to be exhaustive.  
¶ 11.        
Beyond the fact that these terms authorize
charges beyond actual water usage, the contract specifically authorizes charges
for the purposes of facility maintenance—which is precisely the purpose of the
ready-to-serve fee—in the “rate schedule” and “operating costs” provisions.
 The trial court found, and the parties do not dispute, that the purpose
of ready-to-serve fees for unused water allocation is “to maintain the ability
to provide water to the City and other users up to their reserved or guaranteed
capacities.”  Although the agreement does not literally use the terms “unused
capacity,” “ready to serve,” or “provisional allocation,” its language could
not be more clear in authorizing the Village to take into account the cost of
maintaining its facility in setting its rate structure.  
¶ 12.        
By contrast, a reading that limits the basis
for the rate schedule to the amount of actual water usage would contravene the
plain language of the agreement.  The terms “rate schedule” and “operating
costs” expressly contemplate that the Village can set rates based on other factors
besides actual usage, and, as stated above, the list of factors contributing to
both operating and project costs is inclusive.  Moreover, the trial
court’s conclusion that the contract does not authorize the ready-to-serve fee
to be charged to the City would conflict with the provision requiring that the
City be charged 90% of the Village’s rate schedule, which indisputably includes
the ready-to-serve fee pursuant to the 2006 ordinance.  Thus, excluding
the City from these charges would ensure that the City would no longer merely
be given a discount on the rates charged to other users, but that it would
instead be charged based on an entirely different, and more advantageous, rate
structure.  In short, the plain language of the agreement authorizes the
use of a ready-to-serve fee to support the Village’s maintenance of its
facilities.  The court erred in concluding otherwise. 
¶ 13.        
Nor do the circumstances surrounding the
drafting of the agreement support a finding of ambiguity.  Although we may
consider the “circumstances surrounding the making of the agreement” in
determining whether language is ambiguous, such ambiguity will be found only
“where a writing in and of itself supports a different interpretation from that
which appears when it is read in light of the surrounding circumstances, and
both interpretations are reasonable.”  Isbrandtsen v. North Branch
Corp., 150 Vt. 575, 579, 556 A.2d 81, 85 (1988).  Here, the court
found, based on the testimony of a Village trustee who participated in drafting
the 1997 agreement, that the parties did not specifically discuss an unused
allocation fee at the time the agreement was drafted, although it did establish
a minimum charge to cover administrative and construction costs.  This
lack of specific discussion as to the exact ready-to-serve fee—particularly
where a different minimum fee not based on actual water usage was
discussed—simply does not give rise to an alternative, reasonable
interpretation that this type of fee was affirmatively barred by the contract. 
See Madowitz, 2010 VT 37, ¶ 12 (“[V]aguely implied conditions [may
not be inserted into an agreement], particularly when those conditions are
inconsistent with the express language of the agreement.” (quotation
omitted)).  Rather, an interpretation that barred the charges at issue
here would “vary the terms of an unambiguous writing.”  Kipp v. Estate
of Chips, 169 Vt. 102, 107, 732 A.2d 127, 130 (1999).  For these
reasons, we conclude that there is no ambiguity in the contract’s terms.
¶ 14.        
Because we conclude that the parties’ intent,
as expressed in the agreement’s terms, is unambiguous, we need not reach the
parties’ arguments regarding extrinsic evidence of the parties’ intent.  Kipp,
169 Vt. at 107, 732 A.2d at 131 (“[T]he court must accept the plain meaning of
the language and not look to construction aids if the language is not
ambiguous.”); see also Downtown Barre Dev. v. C & S Wholesale Grocers,
Inc., 2004 VT 47, ¶ 8, 177 Vt. 70, 857 A.2d 263 (“Where the terms of a
[contract] are plain and unambiguous, they will be given effect and enforced in
accordance with their language.” (quotation omitted)).  
¶ 15.        
For similar reasons, we conclude that the
trial court erred in holding that the ready-to-serve fee was not authorized by
the statute that regulates municipal water rates, 24 V.S.A. § 3311. 
Our review of questions of statutory construction “is nondeferential and
plenary.”  Elkins v. Microsoft Corp., 174 Vt. 328, 330, 817 A.2d 9, 12 (2002).  
¶ 16.        
24 V.S.A. § 3311 provides:
Such municipal corporation may establish rates by meter
service or annual rents to be charged and paid at such times, and in such
manner as such municipal corporation shall determine . . . .
 From time to time, it may alter, modify, increase, or diminish such rates
and extend them to any description of property or use as such municipal
corporation may deem proper.
 
¶ 17.        
In a companion case pertaining to a water surcharge assessed by the
Village against a land developer, we interpreted § 3311 as follows:
The
statute affords a water utility broad discretion to rely on meter service or,
alternatively, annual rents in setting its rates, and authorizes the utility to
extend its rates “to any description of property or use as such municipal corporation
may deem proper.”  [24 V.S.A. § 3311.]  In short, the statute affords
municipal waterworks broad authority to determine what kinds of uses they will
charge (such as, for example, reserved allocations) . . .
[W]ater rates are entitled to a presumption of reasonableness, and we will
defer to the municipal corporation as long as the rates are nondiscriminatory,
and are not arbitrary and capricious.  
 
Vt.
N. Prop., Inc. v. Vill. of Derby Ctr.,
2014 VT 73, ¶ 50, ___ Vt. ___, ___ A.3d ___.  The City here
has not presented any evidence that the water rates were unreasonable, instead
relying on the legal argument that the unused allocation fee is not authorized
because it is not part of the definition of “rate.”  We rejected a similar
argument in Vermont North Properties, reasoning that “[t]he statute does
not require the Village to base its fees on actual use or the associated
marginal costs.  The Village has a finite water supply, and it has deemed
it proper to charge fees for water reservations to discourage speculators and
to discourage individuals from holding on to such reservations unnecessarily
and unreasonably.”  Id. ¶ 51.  Contrary to the City’s
assertions, the statute affords the Village “broad discretion” in setting its
rates, and permits the City to account for the operating costs generated by
unused capacity in the rate schedule.  The trial court’s conclusion that
the statute did not permit these fees as a matter of law was erroneous.
¶ 18.        
Finally, we address the City’s claim that the Village did not give
proper notice of the rate increase incurred through its imposition of a
ready-to-serve fee.  Article III of the contract between the City and the
Village states that the Village “reserves [the] right to set [the] rate
schedule and hereby agrees to notify City at least sixty (60) days prior to the
effective date of any rate increase.”  In a letter dated February 22,
2006, the Village clerk notified the City that, “[i]n reference to the
‘Interlocal Agreement for Water,’ dated July 9, 1997, Article III, the Village
is hereby giving notice to the City of Newport of rate increases.”  The
higher rate was then charged beginning June 23, 2006.
¶ 19.        
The City argues that the Village’s letter provided only generic notice
of a rate increase, and needed to give specific notice of the ready-to-serve
fee or of the actual rates to be charged.  The trial court found that the
City was notified of “rate increases,” but not the imposition of any “fee,” although
the court did not appear to come to a legal conclusion as to whether the notice
was sufficient.  We conclude that the notice here was adequate.  As
stated above, under both the agreement and the relevant statute, the
ready-to-serve fee is part of the rate schedule that the Village can reasonably
charge.  The contract gives the Village the “right to set [the] rate
schedule” and expressly allows for rate increases after the first year. 
Neither the contract nor the applicable statute requires specific notice of the
new rates to be charged.  See 24 V.S.A. § 3311 (providing that
“[f]rom time to time, [the municipal corporation] may alter, modify, increase,
or diminish such rates and extend them to any
description of property or use as such municipal corporation may deem proper”).
 The Village’s letter specifically referenced the agreement and clearly
stated that water rates would be increased.  The City does not dispute
that it received this notice and took no further steps to inquire about the new
rates before they were imposed.  The passage of the 2006 ordinance
imposing the ready-to-serve fee provided additional constructive notice of the
rate changes.  
¶ 20.        
The City argues that because the rates change on a quarterly basis, the
Village by definition cannot, and has not, given notice of what the rate will
be sixty days into the future.  This argument is unavailing.  Not
only does Article III authorize precisely the billing practice of which the
City complains, stating that the Village “shall bill City on a quarterly basis
at the same time as other . . . users,” but there is an obvious
difference between the methodology for setting rates and the amounts actually
owed, which may fluctuate from quarter to quarter based on variations in usage,
among other factors.  The City is entitled to notice of changes in the
rates themselves; it is not entitled to sixty days advance notice of the exact
amount of the bill each quarter.  For these reasons, the notice as
required by contract was sufficient.         

II.     Village
Counterclaims
 
¶ 21.        
Next, we address the Village’s counterclaims.  The Village claims
that the trial court erred by (1) dismissing as not credible the Village’s
claim that the City connected three customers outside of the industrial-park
area without notice in contravention of the contract; and (2) referring to
mediation the Village’s counterclaim on underreported water use by the City.
 We take these claims in turn.
¶ 22.        
As to the first claim, the Village contends that the agreement
authorized connections only within the industrial-park area of the City, and
that the City breached the agreement by connecting three users outside of this
industrial area—a credit union, a restaurant, and a private residence—without
providing the requisite notice.  These new connections were along the City
main between the Village and the industrial park, and did not require an
extension of the line beyond the industrial park.  The only mentions of
the Village’s claim in the trial court’s opinion are the following. 
First, the trial court examined the following language in Article II of the
agreement: “Village shall approve all plans and specifications prior to
construction.  Village shall be notified prior to connection to allow
Company representative to be present during connection.”  The court
concluded that, given the surrounding context, this language referred to
installation of certain pieces of equipment and not to connection of users
outside of the park.  Second, the court found that, although the City did
not notify the Village of these three connections in advance, each of the users
obtained permits, which were filed with the Village clerk.  Finally, the
court concluded that there was no credible evidence to support the Village’s
claim because the agreement did not give the Village veto power over these
connections regardless of notice, and, in any event, the filing of the permits
in the Village’s land records provided actual and constructive notice of these
connections.  The court further reasoned that language in the agreement
limiting its application to Phase I of the City industrial park was intended to
ensure only that the agreement be revisited if the City begins Phase II of the
park, not to preclude the connections here.  
¶ 23.        
In reviewing these claims, we begin with the plain language of the
agreement, using the same standard as the trial court.  Ianelli, 156 Vt. at
389, 592 A.2d at 903.  Here, there are two potentially pertinent
provisions of the agreement—one in Article II, entitled “Water System,” and one
in Article IV, entitled “Intent of the Agreement.”  The relevant passage
of Article II states the following:
In the event valves and monitoring stations deemed
necessary are not installed or not properly maintained by either municipality,
the other municipality may perform such construction or maintenance as is found
necessary . . . .  Village shall approve all plans and
specifications prior to construction.  Village shall be notified prior to
connection to allow Company representative to be present during connection.
 
This
language appears in a section of the agreement that discusses the construction
and maintenance of a water main connecting the City’s water system to the
Village’s water supply.  The language pointed to by the City pertains to
the installation of valves and monitoring stations on the water main to measure
the amount of water being used.  Read together, the paragraph appears to
refer to the construction and maintenance of the extension of the water main
itself.  Construing the paragraph as a whole, we conclude that the
language does not by its own terms apply to connection of new users, but rather
to the initial construction of the distribution line and maintenance of water
flow.  See Kipp, 169 Vt. at 105, 732 A.2d at 129  (explaining
that court “read[s] the entire written instrument as a whole, giving effect to
every part so as to understand the words in the context of the full [contract]”
and “construe[s] the various clauses of the document, wherever possible, so
that the [contract] has a consistent, or harmonious, meaning” (quotation
omitted)); In re Stacey, 138 Vt. 68, 72, 411 A.2d 1359, 1361 (1980)
(noting that “contract provisions must be viewed in their entirety and read
together”).  Thus, we agree with the trial court that this provision does
not support the Village’s claim that the contract requires notification of
entirely new connections to the existing distribution line.
¶ 24.        
The other relevant passage, in Article IV,
titled “Intent of Agreement,” states that “the initial impetus for this
Agreement is to provide water for Phase I of the development of an industrial
district in the City . . . with the future phases to
include the Town of Derby.  Prior to the development of future phases,
this Agreement shall be amended or abrogated.”  The Village argues that
this language limits the connections allowed by the City solely to the
industrial-park area.  Further, Article II of the agreement
specifically allows connection of Village users without mentioning connection
of City users outside of the industrial-park area, which could give rise to an
inference that the parties did not intend to authorize these City
connections.  On the other hand, the most
natural reading of the intent provision is that it explains the general
purpose—or, as stated in the provision, “the initial impetus”—of the agreement
rather than imposing limiting language.  Further, the reference to “future
phases” of development likely means that the agreement must be modified in the
event of a future extension of the line, whether into the Town of Derby or into
an expansion of the industrial park, rather than referring to the connection of
particular customers by the City.    
¶ 25.        
Whether a contract provision is ambiguous is a
question of law.  Isbrandtsen, 150 Vt. at 577, 556 A.2d at
83.  Ambiguity may be found in a contract provision if “reasonable people
could differ as to its interpretation.”  Id.  Here, the text
of the agreement is subject to several equally plausible interpretations—it
could be interpreted as merely stating the parties’ intent to supply the
industrial park with water, and to revisit the agreement upon future
development, or it could be interpreted as literally limiting the supply of
water to the industrial-park area.  Thus, the provision is ambiguous on
its face.
¶ 26.        
This finding of ambiguity is supported by the
nature and circumstances surrounding the formation of the agreement, as
reflected in the trial court’s factual findings.  See Breslauer v.
Fayston Sch. Dist., 163 Vt. 416, 425, 659 A.2d 1129, 1135 (1995) (explaining
that courts may consider “the circumstances surrounding the making of the
agreement as well as the object, nature and subject matter of the writing” in
determining existence of ambiguity (quotation omitted)).  The trial court
found that the construction of the water main “in a generally westerly
direction towards the City” benefitted both the Village, which would get to
sell more water, and the City, which would be able to provide water service to
a nascent industrial park.  The court’s conclusion was supported by its
findings that the agreement allocates 10,000 gpd to the City with a 10% rate
discount, and that the City is treated as one user no matter how many connections
the City allows.  Moreover, the court found that the City never used more
than 25% of its allotment, and that the Village had 500,000 gdp of excess
capacity at the time the contract was executed.  These findings were
credibly supported by the record.  Smith v.
Wright, 2013 VT 68, ¶ 22, 194 Vt.
326, 79 A.3d 876 (noting
that court “will uphold factual findings on appeal if
any credible evidence in the record
supports them, leaving credibility determinations to the trier of fact”
(quotation omitted)).  Clearly, the impetus for the agreement was to
supply the City’s nascent industrial park.  However, the Village also had
excess water supply that it was presumably hoping to sell, and the City had
ample opportunity to connect new users, considering that its actual water usage
did not come close to its allotment.  Therefore, it would likely have been
economically beneficial to both the City and the Village to connect users
located within the City but outside of the industrial park.  On the other
hand, as the trial court also found, the City receives a favorable discount
that the Village might not want to extend to ordinary users—a fact that favors
the Village’s interpretation that the water supply was meant to extend only to
the industrial-park area.
¶ 27.        
Although this Court construes the terms of the contract as a matter of
law, Bonanno, 2014 VT 24, ¶ 13, “the
proper interpretation [of an ambiguous writing] becomes a question of fact, to
be determined on all relevant evidence.”  Kipp,
169 Vt. at 107, 732 A.2d at 131.  Because we cannot resolve the ambiguity
solely based on the findings below, we remand the Village’s claim for further
factual findings by the trial court as to the parties’ intent on this issue. 
¶ 28.        
Finally, we address the Village’s counterclaim
that the City’s water use was underreported.  The trial court found that
after the agreement was signed, problems began with the master meter and the
associated bypass-shut-off valve in the vault, resulting in occasional zero
bills for the City despite its continued daily water use.  There was
testimony that the master meter did not accurately measure the City’s water use
for two or more years after 2006.  The City manager called the Village
many times to try to resolve the issue, including as recently as 2010. 
Eventually, the master meter was replaced, but the malfunctions apparently
continued.  In 2012, a joint test of the master meter was conducted, which
showed that the automatic valve associated with the vault was allowing water to
slip by unmeasured.  The Village clerk testified that, as a result of
these measurement discrepancies, the City owed the Village between $10,299.73
and $98,282.96.  
¶ 29.        
From these findings, the court concluded that
the evidence of actual water usage “was difficult to pin down,” as each side
provided different accountings of usage and the witnesses’ recollections of
when the master meter was or was not working were vague.  The court
indicated that it was clear, based on the billing periods showing a reading of
zero usage by the City, that there were some erroneous readings, but it
referred the Village’s claims to mediation without further resolution.
¶ 30.        
  The parties’ agreement contained a
clause in Article V requiring submission of any disputes—initially to a
committee comprised of two Village trustees and two members of the City Council
or their designees, and, if not resolved satisfactorily, to the secretary of
the Agency of Natural Resources for mediation.  The parties participated
in mediation on the City’s contract claim before the City brought the instant
suit, during which the City informed the Village, apparently for the first
time, that the master meter readings had been too low to be reliable. 
Thus, after the City brought suit, the Village filed a motion to allow its
counterclaim as to the underreported usage, which the court granted on October
3, 2011.[5] 
¶ 31.        
We have noted that, although alternative
dispute resolution is generally strongly favored, its ultimate purpose is “to
provide speedy, cost-effective resolution of disputes.”  LaFrance Architect v. Point Five Dev. S. Burlington, LLC, 2013 VT 115, ¶ 23, ___ Vt. ___, 91 A.3d 364. 
Here, the Village was unable to submit its claim during pretrial mediation
because the Village became aware of the water usage issue only during
litigation.  The trial court’s decision to refer the Village’s
counterclaim to mediation in its order—after it had already granted the
Village’s motion to allow the counterclaim at trial—served only to create
greater delay and expense to the parties, thus undermining the purpose of the
alternative dispute resolution clause.  Even if the trial court would
ordinarily have discretion over whether to send a counterclaim to mediation,
under these circumstances the trial court could not properly rescind its
decision, relied on by the parties, to allow the counterclaim after the trial
had already taken place.  Therefore, we remand the Village’s counterclaim for
resolution by the trial court.
             
Reversed and remanded for
further proceedings consistent with this opinion.
 
 

 


 


FOR THE COURT:


 


 


 


 


 


 


 


 


 


 


 


Chief
  Justice

 





[1] 
Justice Crawford was present for conference on the briefs, but did not
participate in this decision.
 


[2] 
The water supplier is the Derby Center Water Company, which is operated
pursuant to a 1992 interlocal agreement between the Village of Derby Center and
the Town of Derby, but is effectively run by the Village and its designees. 


[3]
 The trial court stated that if “there is any merit to the Village’s claim
of entitlement to additional payments for underreported quarterly meter
statements, that dispute is hereby referred back to mediation, as required
under the Agreement.”  In its mandate, however, the court dismissed this
counterclaim as “not supported by credible evidence.”  The court conceded,
at least in part, the merits of the Village’s counterclaim when it noted the
City was sometimes billed for zero usage based on “clearly erroneous” master
meter readings.  Therefore, despite this inconsistency we assume that the
court intended to refer the counterclaim to mediation. 
      


[4] 
The court’s finding that the Village’s past practice was only to charge for
actual water usage does not appear to be supported by the record.  The
rate schedule prior to 2006 included a “minimum fee” charged regardless of
actual water usage, including if a property was unoccupied or vacant—a fact recognized
by the trial court elsewhere in its opinion.  Because we rely on the plain
language of the contract, however, we need not resort to past practice of the
parties in discerning their intent.  See In
re Rosenberg, 2010 VT 76, ¶ 14, 188
Vt. 598, 11 A.3d 651 (mem.) (“Although we have
recognized that in some instances an implied contractual provision may arise
through established past practices, a construction considering such extrinsic evidence may not
proceed without first finding ambiguity in the contract.”
(quotation omitted)).      
 


[5] 
In November 2011, the court ordered, and the parties
agreed to, a second pre-trial mediation session, which was apparently delayed
for a number of reasons and did not ultimately take place before trial.



