The Duty to Serve: May Water and Sanitation Districts Deny Service to

Applicants?Presented by Richard Lyons and Blair Dickhoner

Sources of a Service Provider’s Legal Obligations

• Common Law.• Regulatory Requirements.• Contractual Obligations.• Statutory Duties.

Common Law Duty to Serve

“It is well settled that parties who carry on a business which is public in its nature, or which is impressed with a public interest, must serve all who apply on equal terms and at reasonable rates.”

City of Danville v. Danville Water Co., 53 N.E. 118, 122 (Ill. 1899)

Sources of a Service Provider’s Legal Obligations

Common Law Duty to:Serve.Provide safe and adequate service.NOT discriminate.Charge just and reasonable prices.Good faith and fair dealing.

Sources of a Service Provider’s Legal Obligations

Regulatory Obligation–Public Utility Commissions

Many states regulate providers and mandate a duty to serve all.

Public has enforceable right to demand service from a public utility.

Colorado: water/sanitation district are NOT “public utilities” subject to PUC regulation, Schlarb v. North Suburban Sanitation District.

Sources of a Service Provider’s Legal Obligations

Service Obligations Arising from Contracts

A contractual obligation to serve at a long term fixed rate is enforceable against a district , and is not a “surrender of legislative power.” National Food Stores v. No. Washington Street Water & Sanitation District.

District can be sued for breach of contract to serve. Alameda Water & Sanitation District v. Ridgewood Mobile Homes Park, Inc.

Sources of a Service Provider’s Legal Obligations

Statutory ServicesTitle 32 defines scope of obligation and exemptions to that duty.

Common Law Duty to Serve Replaced by Title 32 in Colorado

§32-1-101, et seq., C.R.S. defines the scope of obligations and exemptions to the common law duties for water and sanitation districts.

Title 32 Legislative Declaration“…special districts… will

serve a public use and will promote the health, safety, property, security, and general welfare of the inhabitants OF SUCH DISTRICTS and of the people of the state.”

Obligations of Title 32 Water and Sanitation Districts

Service PlanObligations: Types of service, service area, conditions, and manner of service.Service Area: Not always identical to district boundaries.Enforcement of Service Plan: Plains Metropolitan District v. Ken Caryl Ranch Metropolitan District.

Obligations of Title 32 Water and Sanitation Districts

Title 32 Implied Duty to Serve - Definitions of Water District and Sanitation District

Water district: Uses phrase “for public and private purposes.”

Sanitation district: No mention of “public.”

Neither uses “shall” or “will” in definition.

Obligations of Title 32 Water and Sanitation Districts

Title 32 Modifies Common Law Duty to Serve

Does NOT mandate service!

DOES provide exemptions from duty to serve.

Obligations of Title 32 Water and Sanitation Districts

§32-1-1006(I)(b)(I), C.R.S.Board may decline service to ≥ 10 acre tracts upon affirmative finding that it is

infeasible impractical undesirable

to extend lines to such areas.

Eligibility for ServiceService Plan

May establish which areas are eligible for service or require inclusions.

§ 32-1-401, C.R.S.District may require inclusion in accordance with statutory procedures.

Outside of Boundaries or Service AreaNo duty to serve outside of the boundaries or service area.Schlarb v. North Suburban Sanitation District

Eligibility for ServiceReasonable Conditions

A district may establish reasonable conditions that must be met to receive service but those conditions must be related to the district’s statutory powers.The district’s powers are those expressly conferred by legislation or reasonably inferred from the Special District Act. Romer v. Fountain Sanitation.The district cannot use denial of service as a planning, zoning or other land use tool because districts lack these land use powers.

Eligibility for Service

“Feasible, practical, desirable” to serve (ad hoc decision)?

OR

Master utility planthat is kept current(recommended).

Eligibility of Service

§32-1-1001(1)(j)(I), C.R.S. – Rate SettingDistricts can establish “fees, rates, tolls, penalties or charges for services.”Rate setting is considered a legislative function. Krupp v. Breckenridge Sanitation District.Section 32-1-1001(2)(a), C.R.S. recently passed as HB 13-1186 requires that districts provide notice before fixing or increasing rates or fees but preserves rate setting as a legislative function.

Eligibility of Service

§32-1-1006(1)(b), C.R.S., authorizes division of district into areas based on services provided AND to charge differing rates based on those services.

Eligibility of ServiceFinancing Capital Costs

District can either finance plant, facilities and infrastructure expenditures through the issuance of bonds (§32-1-1101, C.R.S.) ORDistrict can require the landowner to pay for infrastructure and enter into a reimbursement agreement with that landowner (§32-1-1006(3), C.R.S.)

Reasonable Rules and RegulationsDistrict can establish reasonable rules or regulations that establish specifications and conditions of service (§32-1-1001(1)(m), C.R.S.)

Can Service be Denied?YES, if the applicant cannot or will not meet the district’s reasonable and legal conditions which may include the following:

Reasonable and Legal Conditions:

Construction of needed facilitiesInstallation of needed line extensionExpansion of existing facility or line capacityPayment of all feesInclusion (if required) or service by an executed contract is extraterritorialAdherence to all rules/regs/specs, Utility PlanOther utility related reasons

Can Service be Denied?

NO, if applicant meets all established reasonable utility related conditions or contingencies.

Expectations vs. Vested RightsVested Right or Expectation Interest

A vested right arises from a transaction or property ownership that is perfected to a degree that is not dependent on statute or common law. Miller v. Branon, citing Ficarra v. Department of Regulatory Agencies.Absent a contract for taps or service, an “expectation” is not an enforceable right.Vested rights may still be subject to reasonable exercise or regulatory “police” powers for the public good. Lakewood Pawnbrokers, Inc. v. City of Lakewood.

Expectations vs. Vested RightsRegulatory TakingA regulatory taking only occurs if the district’s regulations or decision causes one of the following:

The action fails to advance a legitimate district interest. Trailer Haven MHP, LLC v. City of Aurora;Even if reasonable reg, denies owner ALL economically viable use of the property. Animas Valley Sand and Gravel, Inc. v. Bd. of County Comm., or “Fact specific taking” of property (e.g., adverse impact on legitimate “rights”).

Expectations vs. Vested RightsHypothetical

A tract of land is historically zoned low density residential and as a result, the district’s infrastructure/master plan extends smaller lines to the area.

Twenty years later, the land is up-zoned to high density but the district cannot serve this increased density.

Is this an expectation interest or a vested right?

QUESTIONSrlyons@lgkhlaw.com

bdickhoner@lgkhlaw.com