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Township water lawsuit fully reversed on appeal

By Lisa Brody

A three judge panel of the Michigan Court of Appeals on Thursday, January 9, reversed an Oakland County Circuit Court judgment of more than $9 million in the case of Jamila Youmans v Charter Township of Bloomfield, and remanded entry of a judgment of no cause of action in favor of the township, as well as affirming the lower court's ruling against Youmans' Headlee Amendment and Revenue Bond Act claims.

A class action lawsuit against Bloomfield Township had been filed in April 2016 by the law firm Hanley Kickham, which has been largely successful suing municipalities for excessive water and sewer fees, asserting there is an effort on the part of the municipalities to raise revenue in violation of the Headlee amendment. Bloomfield Township residents who had paid the township for water and sewer services since March 31, 2010, had been included in the Oakland County Circuit County suit challenging Bloomfield Township's imposition of water and sewer charges as a tax in excess of rates imposed by Southeast Oakland County Water Authority (SOCWA), which resells water to Bloomfield Township from the city of Detroit, and Oakland County Water Resources Commission, which provides sewer services for the township.

The case was tried before Oakland County Circuit Court Judge Dan O'Brien for the full month of February 2018. There were seven issues under contention in the lawsuit. A previous portion of the class action lawsuit had been awarded to the plaintiffs, in the amount of $3.8 million, in September 2018, and appealed by Bloomfield Township. 

In addition, O'Brien awarded $5.4 million in damages in two parts of a class action suit against Bloomfield Township, determining the township should not have been integrating water loss costs into operations, as well as deciding that the township had overcharged sewer customers. 

O'Brien also awarded the plaintiffs almost $2.2 million over the township's methodology of sewer and water collection, determining they had overestimated sewer flow and therefore were collecting all the revenue needed from their water and sewer customers, and additional revenue from sewer customers was excess.

Bloomfield Township included the subsequent judgements in their appeal, which the appeals court cited in their opinion, noting, “We agree with the Township that the trial court erred by failing to apply the presumption that the disputed rates were reasonable and abused its discretion by granting plaintiff permanent injunctive relief despite her failure to demonstrate that doing so was necessary to prevent irreparable harm.”

They noted that the Michigan legislature’s intention for courts to refrain from strictly scrutinizing municipal utility rate-making is reflected in several statutory provisions. “Courts of law are ill-equipped to deal with the complex, technical processes required to evaluate the various cost factors and various methods of weighing those factors required in rate-making… The trial court erred by nevertheless ordering defendants to refund more than $9 million to plaintiff and the plaintiff class. Given that plaintiff failed to demonstrate that the Township would be excessively (and thus unjustly) enriched by the retention of such funds, the trial court should not have ordered the refund that it did.

In their ruling, Michigan Appeals Court Judges Cynthia Stevens, Christopher Murray and Deborah Servitto wrote, “We also conclude that the trial court abused its discretion by granting plaintiff a permanent injunction requiring the Township to document its ratemaking efforts in a specified fashion. Injunctive relief is an extraordinary remedy that issues only when justice requires, there is no adequate remedy at law, and there exists a real and imminent danger of irreparable injury… Similarly, in this case, it is undisputed that the contested rates are assessed to fund the operational and capital expenses of the Township’s water and sewer system, which serves the primary function of providing water and sewer services to the Township’s ratepayers. Moreover, to the extent that those rates result in surpluses during some fiscal years, (former Engineering and Environmental Director Wayne) Domine indicated that the Township’s 20-year capital improvement program was, at least in part, necessitated by the entry of an 'abatement order' against the Township, which arose out of litigation with the DEQ and regarded the level of water 'infiltration' in the Township’s sewer system. Categorically, such obligations arising out of administrative-agency regulations serve a regulatory purpose. On the strength of the entire record, we hold that the Township’s act of raising a prudent level of both revenue and capital and operational reserves through the disputed rates – including revenue to fund its OPEB obligations, the costs of providing fire protection services to the community, expenses related to the county storm-drain system, and necessary capital improvements – primarily serves valid regulatory purposes.

“Nor are we persuaded by plaintiff’s contention that, because some who are not ratepayers may benefit from the water and sewer system, the disputed rates must be an improper tax.”

Further, the judges stated, “On balance, plaintiff has failed to carry her burden of demonstrating that the disputed rates are impermissible taxes, rather than user fees, for purposes of Headlee § 31…

“Affirmed in part, reversed in part, and remanded to the trial court for entry of a judgment of no cause of action in the Township’s favor.”


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