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Village of Orland Hills v. Citizens Utilities Company of Illinois

March 15, 2004

[5] THE VILLAGE OF ORLAND HILLS, PLAINTIFF-APPELLEE,
v.
CITIZENS UTILITIES COMPANY OF ILLINOIS AND THE VILLAGE OF TINLEY PARK, DEFENDANTS-APPELLANTS.



[6] Appeal from the Circuit Court of Cook County. No. 99 CH 15762 Honorable Aaron Jaffe, Judge Presiding.

[7] The opinion of the court was delivered by: Justice Gordon

[8]  Plaintiff, the Village of Orland Hills (Orland Hills), brought this action seeking a declaratory judgment that defendant Citizens Utilities Company of Illinois (Citizens) *fn1 was obligated to provide water service to an undeveloped parcel of land recently annexed into Orland Hills and that Citizens' water supply contract with defendant, the Village of Tinley Park (Tinley Park), did not preclude such service. The parties filed cross-motions for summary judgment. The circuit court granted plaintiff's motion for summary judgment and denied defendants' joint motions for summary judgment. This appeal followed. For the reasons that follow, we reverse the judgment of the circuit court.

[9]  BACKGROUND

[10]   The underlying facts of this case are not in dispute. In 1962, Orland Hills, then known as the Village of Westhaven, enacted Ordinance 62-0-018 which granted to the predecessor of Citizens, the Fernway Utility Co., "the franchise, right and privilege of supplying the Village of Weshaven and all the inhabitants of said Village within the present and future corporate limits of said Village with water." The franchise expired by its terms on December 31, 1991. It is undisputed that since the expiration of the ordinance, Citizens and Orland Hills have continued to act consistently with its terms. In particular, Citizens has continued to provide water service to the residents of Orland Hills.

[11]   From 1962 to 1982, Citizens serviced the residents of Orland Hills with well water. In February of 1982, however, Citizens entered into a water supply contract (hereinafter, Tinley Park/Citizens Water Supply Contract, or Water Supply Contract) with adjacent municipalities which had access to Lake Michigan water, namely, the Village of Tinley Park, the City of Oak Forest and the Village of Oak Lawn (Oak Lawn), in order to provide Lake Michigan water, rather than well water, to residents of Orland Hills. As was stated before the circuit judge, "Lake Michigan water is infinitely preferable to well water." Pursuant to the terms of that contract, Citizens agreed to purchase Lake Michigan water from Oak Lawn and Tinley Park agreed to allow Citizens to receive Lake Michigan water through its water distribution system. The Water Supply Contract also contained several restrictions. First, Citizens could not extend its water service within Tinley Park, nor could Citizens use the Lake Michigan water purchased under the Water Supply Contract to service any customers within a restricted area referred to as the "Tinley Park planning area as shown on the map attached hereto." Second, the Water Supply Contract prohibited Citizens from connecting its water distribution system, except for emergency purposes, to any wells, so long as its water distribution system was connected to Tinley Park's water works distribution system.

[12]   Citizens is an Illinois public utility regulated by the Illinois Commerce Commission (the Commission). The Commission expressly approved the Water Supply Contract after conducting hearings. In 1985, upon a regulatory directive by the Commission, the term of the Water Supply Contract was extended through September 30, 2006.

[13]   Attached to the Water Supply Contract and setting forth the restricted area in which Citizens may not provide water service was a map of the "Tinley Park planning area" as it existed in 1982. It encompassed an area of southwest Cook County located south of 171st Street and bounded on the east by 86th Avenue, on the west by Route 45, and on the south by Interstate 80. The "epicenter" of this lawsuit is the so-called "A&M Parcel" *fn2 located within the restricted area described in the Water Supply Contract. The A&M Parcel consists of 11 ½ acres of unimproved real estate, located at approximately 171st Street and 94th Avenue.

[14]   In November of 1999, Orland Hills entered into a land annexation agreement with the original owner and the original developer of the A&M Parcel, binding these parties and their successors in interest. *fn3 Under the annexation agreement, Orland Hills was responsible for extending all water service to the parcel. The annexation agreement also provided: "[a]fter closing developer may petition to disconnect [from Orland Hills] on or before December 30, 2000 and [Orland Hills] will grant such petition."

[15]   When Orland Hills requested Citizens extend the water service to the A&M Parcel, both Citizens and Tinley Park objected to the request, asserting that Citizens was prohibited from supplying the water to the parcel by the restrictions in the Water Supply Contract. In November of 1999, Orland Hills filed a complaint for declaratory judgment, *fn4 seeking a declaration that Citizens was obligated to provide water service to the parcel. Shortly thereafter, the original owner of the A&M Parcel sold 9 of the 11 ½ acres to the original developer, contemporaneously with the now owner/developer and Orland Hills amending the annexation agreement with respect to the right to disconnect the property from Orland Hills.

[16]   In April of 2000, several more land conveyances took place, resulting in First Bank and Trust Company of Illinois (First Bank) holding nine acres of the A&M Parcel as a trustee under a trust agreement, and Glenbrook Development of NML, L.L.C. (Glenbrook) becoming a successor developer of this portion of the parcel. In May of 2000, First Bank and Glenbrook petitioned Orland Hills to disconnect their portion of the A&M Parcel, citing the annexation agreement and stating that they were exercising their right to disconnect before the December 30, 2000, deadline. Orland Hills denied this petition. In December of 2000, First Bank and Glenbrook filed a lawsuit in the circuit court of Cook County, asking the court to order Orland Hills to grant their petition to disconnect from Orland Hills, so that their portion of the A&M Parcel could be annexed into Tinley Park, where it could be supplied by Tinley Park with Lake Michigan water. *fn5 The circuit court dismissed the disconnection suit, finding that First Bank's and Glenbrook's right to disconnect, per the amended annexation agreement, was dependent on the outcome of the instant case. It could be exercised if Citizens was found not obligated to supply water to the A&M Parcel. This court affirmed the judgment of the circuit court in the disconnection suit. *fn6

[17]   Meanwhile, Orland Hills moved for summary judgment in this water supply suit, seeking a declaration that Citizens was obligated to provide water service to the A&M Parcel and that the Tinley Park/Citizens Water Supply Contract did not relieve Citizens of this obligation. Citizens and Tinley Park filed a joint motion for summary judgment, contending that Citizens was precluded by the terms of the Water Supply Contract from providing Lake Michigan water to the A&M Parcel, and that it was similarly precluded from providing well water to the parcel using the same distribution system as it does to service its customers with Lake Michigan water.

[18]   The circuit court granted Orland Hills' motion for summary judgment and denied Citizens' and Tinley Park's joint motions for summary judgment on the grounds that although the franchise agreement had expired, an implied-in-fact contract for water services existed between Orland Hills and Citizens, and that it would be against public policy for Citizens, a public utility that continued to operate in Orland Hills long after the expiration of its franchise, to now state that it no longer has the obligation to provide water service to all of the inhabitants of Orland Hills. Citizens and Tinley Park now appeal. It appears that the property, which is zoned commercial, remains undeveloped.

[19]   ANALYSIS

[20]   The standard of review on appeal from a grant of summary judgment is de novo. Harrison v. Hardin County Community Unit School District No. 1, 197 Ill. 2d 466, 470-71, 758 N.E.2d 848, 851 (2001). Summary judgment is appropriate where "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." 735 ILCS 5/ 2-1005(c) (West 2002); Chavda v. Wolak, 188 Ill. 2d 394, 403, 721 N.E.2d 1137, 1143 (1999). Defendants argue that the circuit court erred in granting Orland Hills' motion for summary judgment and denying defendants' joint motions for summary judgment. The essence of defendants' arguments is that the franchise ordinance had long expired, whereas the Water Supply Contract has not expired and it clearly prohibits Citizens from providing Lake Michigan water purchased under the contract to the A&M Parcel and that this contract should be enforced according to its terms. Defendants call this court's attention to the relevant provisions of the Water Supply Contract. Paragraph 6 of the Water Supply Contract provides:

[21]   "Citizens agrees that it will not extend its water service within Tinley Park. Citizens will not use water purchased under this Agreement within the Tinley Park planning area as shown on the map attached hereto." (Emphasis added.)

[22]   Paragraph 9 of the Water Supply Contract provides, in part:

[23]   "Citizens agrees that immediately upon the connection of its water works distribution system to the Tinley Park water system as provided for herein, it will physically disconnect its present well(s) from its water system and will not thereafter reconnect any well(s) during the term of this contract, or any extension thereof, unless its water distribution system is physically disconnected from the Tinley Park water system or is no longer receiving Lake Michigan water from Oak Lawn through Tinley Park's water system."

[24]  
Defendants contend that the language of the Water Supply Contract is unambiguous in that it prohibits Citizens from providing Lake Michigan water purchased under the contract to the A&M Parcel and, in addition, prohibits Citizens from servicing the parcel with well water while its distribution network is connected to Tinley Park's water system. Defendants argue that where the terms of a contract are clear and unambiguous, as they are here, the contract must be enforced as written. Resolution Trust Corp. v. Holtzman, 248 Ill. App. 3d 105, 112, 618 N.E.2d 418, 423 (1993).

[25]   Plaintiff, on the other hand, maintains that although the franchise agreement between it and Citizens had expired, because Citizens continued to provide service to customers within Orland Hills, Citizens is bound by the service obligations of a contract implied in fact between Orland Hills and Citizens to continue service on the same terms as the expired franchise. See Sprague v. Biggs, 390 Ill. 537, 552, 62 N.E.2d 420, 427 (1945); B-C Cable Co. v. City & Borough of Juneau, 613 P.2d 616, 619 n.5 (Alaska 1980) (if a franchise between a utility and a municipality expires but the utility continues to provide service, an implied contract arises under the same terms and conditions as the expired grant); City of Richmond v. Chesapeake & Potomac Telephone Co. of Virginia, 205 Va. 919, 924, 140 S.E.2d 683, 686 (1965) (when the franchise expired, the utility continued to operate under an implied contract cancelable upon reasonable notice under the same terms and conditions as the franchise ordinance); 12 McQuillin on Municipal Corporations §34.51 (3d rev. ed. 1995) (if a company continues to operate after its franchise has expired, it does so under an implied contract, cancelable upon reasonable notice, under the same terms and conditions as the franchise ordinance).

[26]   In Sprague our supreme court quoted with approval the following holding of Iowa City v. Iowa City Light & Power Co., 90 F.2d 679, 682 (8th Cir. 1937):

[27]   " 'It is well settled that a public service utility operating under a city franchise is not released from its duty to render service at the moment its franchise runs out. Where the city inhabitants have become dependent upon the service and no other arrangements have been made to supply it, the obligation to serve remains on the utility whose properties still occupy the streets and public places. *** The reciprocal duties which result from necessity when the term of the franchise expires are no less certain because the conditions are of indefinite duration.' " Sprague v. Biggs, 390 Ill. at 552, 62 N.E.2d at 427, quoting Iowa City, 90 F.2d at 682.

[28]   Thus, it is plaintiff's position that Citizens is contractually obligated to serve the A&M Parcel with water, and furthermore, plaintiff should not be bound by the onerous restrictions in the Tinley Park/Citizens Water Supply Contract, to which it is a stranger. Moreover, plaintiff contends that the existence of an implied contract between plaintiff and Citizens is not even disputed by Citizens, as Citizens admitted the following ...


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