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Inland Real Estate Corp. v. Palatine

OPINION FILED JUNE 6, 1986.

INLAND REAL ESTATE CORPORATION ET AL., APPELLANTS AND CROSS-APPELLEES,

v.

THE VILLAGE OF PALATINE ET AL., APPELLEES AND CROSS-APPELLANTS.



Appeal from the Circuit Court of Cook County; the Hon. Albert Green, Judge, presiding.

JUSTICE PINCHAM DELIVERED THE OPINION OF THE COURT:

Rehearing denied August 15, 1986.

Defendant Ferndale Heights Utility Company (Ferndale) was a privately owned and operated utility company until the village of Palatine (Palatine) purchased it in 1981. Thereafter, plaintiffs, former customers of Ferndale, brought this class action to challenge the rates for water, sewer, tap-on and meter services set by Palatine after the purchase. The trial court found, inter alia, that the water rate of $6.23 per 1,000 gallons set by Palatine was unreasonable and discriminated against plaintiffs and set a water rate of $3.45 per 1,000 gallons.

In this appeal, plaintiffs contend that (1) the water rate set by the trial court was unreasonable, unjust, and excessive; (2) the trial court erroneously gave the water rate set by Palatine a presumption of validity; (3) the trial court's failure to set a combined water and sewer rate was inconsistent with its findings; (4) the trial court's failure to make specific findings or to set forth the formula it applied in setting the $3.45 rate did not satisfy the court's statutory obligation; (5) the trial court erroneously found that plaintiffs failed to establish that they were assignees of the developers' contracts with Ferndale; (6) Palatine was bound by all the developers' contracts with Ferndale; (7) Palatine assumed Ferndale's contractual obligations when Palatine purchased Ferndale; (8) the trial court erroneously found that plaintiffs failed to establish that Palatine's rates for meters, water tap-ons, and sewer connections were excessive; (9) the trial court should have set retroactive and prospective rates; (10) plaintiffs were entitled to interest.

In its cross-appeal, Palatine claims that (1) the allocation of 12.18% of the cost of the internal improvements to former Ferndale customers was too low; (2) the former Ferndale customers should be assessed the purchase price paid by Palatine for the utility company; (3) errors in computations resulted in a water rate which is too low; and (4) the motives of Palatine's trustees are irrelevant.

In a separate cross-appeal, Ferndale asserts that plaintiffs had no contractual right to any particular utility rate and that plaintiffs failed to prove that Ferndale breached its contractual obligations regarding the rates for water, sewer, meter and tap-on services.

During the six-month trial, 26 witnesses testified and over 3,500 pages of transcript were compiled. We shall summarize the evidence presented.

Ferndale was located in an unincorporated area adjacent to Palatine. It was owned and operated by Ray DeVito from 1958 until February 1981, when he sold it to Palatine for $4,282 million although it had a purported value of $10 million. Prior to the sale, Ferndale served 3,000 metered residential and commercial customers at a water rate of $1.57 per 1,000 gallons from a system of wells located in the unincorporated area. Palatine purchased Ferndale to control the development of the unincorporated area. After the sale, Palatine set a water rate of $1.98 per 1,000 gallons for nonresidents of Palatine, including former Ferndale customers. This was twice the rate of $0.99 per 1,000 gallons Palatine charged residents of the village.

In response to the water rate set by Palatine for nonresidents, plaintiffs filed an action for injunctive relief. The circuit court entered a temporary restraining order prohibiting Palatine from charging nonresidents a rate in excess of the Illinois Commerce Commission approved rate of $1.57 per 1,000 gallons and directed Palatine to file applications with the Commission for approval of its acquisition of Ferndale and its proposed water rates. Palatine filed an interlocutory appeal under Supreme Court Rule 308 (87 Ill.2d R. 308) which sought to reverse the trial court's order. We reversed and remanded that order and held that the Illinois Commerce Commission did not have jurisdiction over Palatine's acquisition of Ferndale or Palatine's water rates to former Ferndale customers. Inland Real Estate Corp. v. Village of Palatine (1982), 107 Ill. App.3d 279, 284, 437 N.E.2d 883.

Prior to its purchase of Ferndale, Palatine had embarked upon a plan to improve its water distribution system. After the purchase, Palatine joined the villages of Arlington Heights, Wheeling, and Buffalo Grove in the formation of the Northwest Water Commission to construct a pipeline and other facilities to provide water from Lake Michigan to the area.

Palatine retained the engineering firm of Stanley Consultants, Inc. of Iowa (Stanley Consultants) to design a system for water improvements, utilizing Lake Michigan, and a methodology to allocate costs for the improvements between the incorporated and unincorporated areas served by Palatine that would meet customer needs in the year 2010. In July 1981, Stanley Consultants presented a report to Palatine which concluded that cost allocations should be 59% for Palatine and 41% for nonresidents. Based on that report, on October 26, 1981, Palatine enacted an ordinance setting water rates for nonresidents at $6.23 per 1,000 gallons and for residents at $3.38 per 1,000 gallons.

Palatine submitted an advisory referendum to its electorate to determine whether they preferred to pay the costs of constructing the improved pipeline water distribution system through an increase in water rates or in real estate taxes. Palatine, consistent with the results of the referendum, reduced its resident water rate back to $0.99 per 1,000 gallons and imposed a corresponding increase in the real estate tax levy.

Palatine financed the water improvement system and its obligation to the Northwest Water Commission for its share of the pipeline costs through four separate bond issues that had ...


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