COA rules in favor of town on breach of contract claim

The Indiana Court of Appeals reversed partial summary judgment to a city that collected a lower monthly bill rate than what was required for wastewater treatment from a town for 15 years and then sued to recover more than $500,000 it believed was owed to it. The city never informed the town the sewage treatment rate increased or that it was embroiled in a lawsuit over the matter.

The City of Lake Station and the Town of New Chicago entered into an intermunicipal agreement for the construction of an interceptor sewer system. Their wastewater was sent for treatment at the Gary Sanitary District. Lake Station billed New Chicago at the monthly rate set by GSD. Several years after this agreement was entered, the GSD tripled its rate. Lake Station protested, didn’t pay the increase, and never told New Chicago about the increase. New Chicago continued to pay the original rate until Lake Station filed a lawsuit to collect more than $500,000 following a judgment entered against Lake Station. The GSD sued Lake Station and won a judgment of more than $5.3 million against the city. Again, Lake Station didn’t inform New Chicago of the lawsuit.

The trial court granted partial summary judgment for Lake Station as to New Chicago’s liability and denied New Chicago’s motion for summary judgment. The trial court cited the Clean Water Act, which the two parties were subject to, as a reason for ruling in favor of Lake Station.

There is no private right of action under the CWA, ruled the Court of Appeals on interlocutory appeal in Town of New Chicago v. City of Lake Station, et al., No. 45A03-1001-PL-22. Lake Station cannot enforce the CWA because only the Environmental Protection Agency administrator can do so. As such, the trial court erred in granting summary judgment in favor of Lake Station based solely on the CWA, wrote Judge Nancy Vaidik.  

In examining Lake Station’s claim for breach of contract, the judges held laches isn’t available to New Chicago as a defense for the breach of contract claim, and it examined New Chicago’s equitable estoppel defense. They found New Chicago met the three elements of equitable estoppel. The town lacked the knowledge or the means of knowledge regarding the rate increase and litigation because there’s no issue of material fact that Lake Station didn’t notify New Chicago of the rate increase, that it refused to pay the increased rate, and that it continued to pay the old rate for more than 15 years.

New Chicago showed its reliance upon the conduct of Lake Station, the second element of equitable estoppel. It also showed the third element – that Lake Station’s conduct caused New Chicago to prejudicially change its position. If New Chicago was aware of the rate increases earlier, it could have taken measures to protect itself and its sewage customers, wrote Judge Vaidik.

It’s also true that in general, government entities aren’t subject to estoppel, but in certain situations application is appropriate, as was the case in Equicor Dev., Inc. v. Westfield-Washington Twp. Plan Commission, 758 N.E.2d 34, 39 (Ind. 2001).  

“Lake Station had a duty to bill New Chicago at the GSD rate (and not at a rate which it thought it should pay). Because Lake Station remained silent from 1989 to 2005, New Chicago reasonably believed that it was paying its proportionate share of the treatment charges at the proper GSD rate and the interceptor costs,” she wrote. “Like the Plan Commission in Equicor, Lake Station had ample opportunity (fifteen years in fact) to notify New Chicago of the increased rate. Yet Lake Station remained silent. Application of estoppel against Lake Station, a government entity, is appropriate in this case. Lake Station is thus estopped from collecting New Chicago’s proportionate share of the treatment charges and interceptor costs from 1990 to 2004.”

The judges reversed and remanded for summary judgment to be entered in favor of New Chicago on its equitable estoppel defense.