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Island Lake Water Co. v. La Salle Dev. Corp.

OPINION FILED MAY 5, 1986.

ISLAND LAKE WATER COMPANY, INC., PLAINTIFF-APPELLANT,

v.

LA SALLE DEVELOPMENT CORPORATION ET AL., DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of McHenry County; the Hon. Henry L. Cowlin, Judge, presiding.

JUSTICE SCHNAKE DELIVERED THE OPINION OF THE COURT:

Plaintiff, Island Lake Water Company, Inc. (the water company), is a public utility which has served the village of Island Lake (the village) for many years. In December 1980 the village adopted an ordinance annexing certain territory known as the Fox River Shores area and approving an annexation agreement between the village, La Salle Development Corporation (La Salle), and the Central National Bank, as trustee. The agreement called for the residential development of the annexed area by La Salle. The agreement provided that La Salle "shall furnish and the Village shall agree to purchase a potable water system [for the Fox River Shores area] * * *. Such potable water system shall consist of well, pump unit, pumping house, storage, treatment, [and] piping up to 75 feet of the well head." The agreement also required La Salle to construct water mains and to sell them to the village when they became operational. La Salle entered into a joint venture with E A N Corporation (E A N) to fulfill its responsibilities under the agreement. The joint venture was named the Fox River Shores Joint Venture. The joint venture subsequently entered into a contract with the Blackmore Sewer Construction Company, Inc. (Blackmore), for the installation of the water mains, and another contract with the Henry Boyson Company (Boyson) for the drilling of a test well. The joint venture also requested Boyson to submit a bid for construction of the water system.

In February 1984 the water company filed a complaint seeking to enjoin the construction of the water system and mains, and the trial court issued a temporary restraining order prohibiting the construction. That order remained in effect until April 1984 when a hearing was held to determine whether a preliminary injunction should issue. Following that hearing, the court issued a preliminary injunction prohibiting the construction of the water system, but permitting the installation of the water mains.

The water company was subsequently allowed to file an amended complaint adding additional parties defendant. In response, the developers filed a motion to dismiss under section 2-619(a)(9) of the Code of Civil Procedure. (Ill. Rev. Stat. 1985, ch. 110, par. 2-619(a)(9).) The village joined in the motion, and it was heard in September 1984. Following the hearing, the trial court dismissed the complaint and dissolved the preliminary injunction. The water company has appealed to this court.

According to the complaint, the water company had been issued a certificate of convenience and necessity by the Illinois Commerce Commission to construct, operate, and maintain a public waterworks in a territory including the Fox River Shores area. The complaint further alleged that the developers had not applied for such certificate. The complaint sought to enjoin the construction of the water system and mains under what was then section 55 of the Public Utilities Act (Ill. Rev. Stat. 1983, ch. 111 2/3, par. 56). Our General Assembly has subsequently repealed that act and enacted a new Public Utilities Act (Ill. Rev. Stat. 1985, ch. 111 2/3, par. 1-101 et seq.). The provision upon which the water company relied has been included without any change material to this case in section 8-406(b) of the new act. It provides, in relevant part:

"No public utility shall begin the construction of any new plant, equipment, property or facility which is not in substitution of any existing plant, equipment, property or facility or any extension or alteration thereof or in addition thereto * * * unless and until it shall have obtained from the Commission a certificate that public convenience and necessity require such construction." Ill. Rev. Stat. 1985, ch. 111 2/3, par. 8-406(b).

Defendants advanced two theories in the trial court. First they argued that the lawsuit was essentially one for quo warrantor and that the water company did not have standing to bring such action. On the merits defendants argued that they were not subject to section 55 of the Act because the water system and mains were going to be owned and operated by the village. They cited the portion of section 10.3 of the Act which exempted from the definition of "public utility" those "public utilities that are owned and operated by any * * * municipal corporation of this State." (Ill. Rev. Stat. 1983, ch. 111 2/3, par. 10.3.) That exemption has been carried over verbatim into the new act. (Ill. Rev. Stat. 1985, ch. 111 2/3, par. 3-105.) It has been held that there is nothing to prevent a municipally owned utility from competing directly in the same area of operation with a privately owned utility. People ex rel. Buffalo Utility Co. v. Village of Buffalo Grove (1967), 85 Ill. App.2d 382, 299 N.E.2d 401.

With respect to the issue of standing, plaintiff contended that the lawsuit was not one for quo warrantor and that it had standing to bring the action pursuant to section 55 of the Act. On the merits plaintiff argued that the exemption for municipally owned and operated public utilities was not applicable because, as stated in its complaint, "the Defendant VILLAGE has never taken any steps to create, build, or fund a municipal water system."

As noted above, the annexation agreement provided that La Salle "shall furnish and the Village shall agree to purchase a potable water system * * *." The agreement also provided:

"The Developer * * * and the village shall develop by mutual consent a viable program to finance said potable water plant facilities in the form of revenue bonds, lease purchases, tap-on fees and such other forms of public or private interest as may be agreed to. It is expressly understood that purchase, operation, maintenance and depreciation shall be paid for directly from the use of the potable water plant facilities in the form of adequate rates, connection charges and other fees. * * * It is further understood that the Village shall at all times own, operate and maintain the potable water plant and distribution system [mains] subject to the foregoing."

The agreement also required La Salle to construct water mains and to sell them to the village when they became operational.

At the preliminary injunction hearing, the evidence disclosed that the village was not a home rule unit. In addition to annexing the Fox River Shores area and entering into the annexation agreement, the village had taken the following steps toward owning and operating the water system and mains. It had passed a resolution stating that it "will authorize revenue bonds" for the project. The resolution included no financial details regarding the contemplated bond issue. The village also enacted an ordinance declaring "its firm intent to own, operate and maintain" the waterworks "when it is installed and completed."

Following presentation of the evidence, the trial court ruled that the water company had standing to bring the action. On the merits the court found that the village had done nothing to establish a municipal water utility under the provisions of divisions 117, 125, 127, 129, 130, and 131 of article 11 of the Illinois Municipal Code. (Ill. Rev. Stat. 1985, ch. 24, par. 1-1-1 et seq.) The court concluded that until such action was undertaken, the water project at issue would not be exempt from section 55 of the Public Utilities Act. Accordingly, the court issued the preliminary injunction described above.

In the motion to dismiss which the developers subsequently filed, they reiterated their contention that the water company did not have standing. The developers also alleged that, after the preliminary injunction was issued, the village had enacted several ordinances relating to the waterworks. Certified copies of the ordinances were attached to the motion. One was ordinance 595, which provided for the issuance of $400,000 in revenue bonds. Ordinance 595 was purportedly enacted under division 130 of article 11. Section 11-130-3 of that division provides that "[a]ny municipality may purchase or construct waterworks * * * as provided in this Division 130." (Ill. Rev. Stat. 1985, ch. 24, par. 11-130-1.) Section 11-130-1 provides that, in order to purchase or construct waterworks under division 130, the village shall enact an ordinance providing for the issuance of revenue bonds. The ordinance is required, inter alia, to set forth certain financial details regarding the bonds and the method by which they will be paid. (Ill. Rev. Stat. 1985, ch. 24, par. 11-130-3.) Section 11-130-4 provides for publication or posting of the ordinance, along with the statement "that the municipality contemplates the issuance of the bonds described in the ordinance, and that any person interested may appear before the corporate authorities upon a certain date * * * and present protests." That section also provides that "[a]t this hearing all objections and suggestions shall be heard, and the corporate authorities shall take such action as they shall deem proper in the premises." (Ill. Rev. Stat. 1985, ch. 24, par. 11-130-4.) The motion also alleged that a public hearing on ordinance 595 was conducted and that after that hearing the village adopted ordinances authorizing the execution of a revenue bond purchase agreement with the developer (596), establishing rules and regulations governing water service (598), and establishing connection fees, availability charges, and service charges for the water system ...


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