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City of Baxter v. City of Brainerd

Court of Appeals of Minnesota

July 15, 2019

City of Baxter, Respondent,
v.
City of Brainerd, et al., Appellants.

          Crow Wing County District Court File No. 18-CV-17-5263

          George C. Hoff, Jared D. Shepherd, Hoff Barry, P.A., Eden Prairie, Minnesota (for respondent)

          John M. Baker, Holley C. Horrell, Greene Espel PLLP, Minneapolis, Minnesota (for appellants)

          Considered and decided by Larkin, Presiding Judge; Bratvold, Judge; and Slieter, Judge.

         SYLLABUS

         A statutory city lacks authority pursuant to Minn. Stat. §§ 216B.36, 222.37, subd. 1, 301B.01, or 412.321, subd. 3 (2018), to impose a revenue-raising franchise fee on a municipally-owned utility that began providing retail electric service to an area before the city incorporated.

          OPINION

          SLIETER, JUDGE.

         The City of Brainerd and Brainerd Public Utilities Commission (BPUC) challenge the district court's determination that the City of Baxter may impose a revenue-raising franchise fee on a municipally-owned utility. Because Baxter does not have statutory authority to impose its franchise fee on BPUC, we reverse and remand.

         FACTS

         Baxter, a statutory city, [1] adopted an ordinance (ordinance 2016-023[2]) that imposed a revenue-raising franchise fee solely on BPUC to fund Baxter's pavement management and street- and traffic-lighting activities.[3] Baxter sought to enforce ordinance 2016-023 on Brainerd and BPUC by an action for: (1) a declaratory judgment pursuant to Minn. Stat. § 550.02 (2018), (2) an accounting, and (3) unjust enrichment. On cross-motions for summary judgment, the district court ruled that Baxter permissibly applied ordinance 2016-023 against BPUC in accordance with Baxter's statutory authority. The parties stipulated to entry of final judgment, and Brainerd and BPUC appealed. The issues before this court are purely legal questions, and the facts are undisputed.

         In 1892, Brainerd established a utility to provide light and power. Via Brainerd's 1908 city charter, it operated the utility as the Brainerd Water and Light Department (BWLD) with a three-member board. In 1935, the BWLD extended its utility service into an area that incorporated as Baxter four years later.

         On May 17, 1975, the Minnesota Public Service Commission, now known as the Minnesota Public Utilities Commission (MPUC), assigned BWLD to be one of the exclusive providers of retail electric services to customers in Crow Wing County.[4] This assignment order established an ongoing obligation that BWLD, and its successor BPUC, provide electricity in the northeastern portion of Baxter adjacent to Brainerd, both of which are in Crow Wing County.[5]

         In 1985, Brainerd amended its city charter to establish BPUC and provided BPUC the responsibilities of the BWLD. Brainerd authorized BPUC to control, operate and manage its electrical service within the city. BPUC has the power to institute, prosecute and defend, in the name of Brainerd as it deems appropriate.

         In 2013, Baxter commissioned a Pavement Management Plan study (PMP) about maintenance and funding of its city streets. The PMP determined Baxter needed to increase its maintenance budget for road infrastructure, and it identified utility-franchise fees as a possible funding source. Baxter requested that BPUC enter into a franchise agreement for BPUC's occupation and use of Baxter's right-of-way and BPUC's utility service to Baxter residents. BPUC never consented to a franchise agreement.

         Baxter notified BPUC of its intention to adopt a franchise-fee ordinance pursuant to Minn. Stat. §§ 216B.02, and .36 (2018). Baxter identified its intent to use the franchise-fee funds for pavement management and street- and traffic-lighting activities.

         After multiple city council meetings, Baxter adopted ordinance 2016-023, imposing its franchise fee on BPUC. The purpose section of ordinance 2016-023 provides:

The Baxter City Council has determined that it is in the best interest of the City to impose a franchise fee on those public utility companies that provide electric energy services within the City of Baxter to fund pavement management related and street and traffic lighting related activities.

         Baxter's ordinance 2016-023 identified Minn. Stat. § 301B.01 (2018), as its statutory authority to impose the franchise fee on BPUC. The franchise fee imposed on BPUC was determined by applying the following schedule per customer premise/per month for metered service within Baxter:

Class:

Monthly Fee:

Residential

$ 3.00

Commercial

$ 13.00

Demand

$ 52.00

Large Power

$ 138.00

         Ordinance 2016-023 does not identify that Baxter is requiring a franchise from appellants. In a letter dated June 9, 2016, Baxter provided ordinance 2016-023 to BPUC noting the ordinance became effective 60 days after receipt. On August 8, 2016, ordinance 2016-023 became effective.

         BPUC began to collect the franchise fee from their customers in accordance with ordinance 2016-023. BPUC made payment to Baxter, but Baxter determined the payments did not satisfy the amount owed.

         On December 14, 2017, Baxter filed a complaint in Crow Wing County District Court against Brainerd and BPUC seeking enforcement of the franchise fee. Brainerd and BPUC argued Baxter lacks statutory authority to enforce ordinance 2016-023. Baxter cited Minn. Stat. §§ 216B.36, 222.37, subd. 1, 301B.01, and The district court denied Brainerd and BPUC's motion for summary judgment, and it granted Baxter's motion for partial summary judgment, declaring that Baxter may impose a franchise fee pursuant to Minn. Stat. §§ 216B.36, 301B.01, or 412.321, subd. 3.[6] The parties stipulated to entry of final judgment. This appeal follows.

         ISSUE

         Did the district court err by concluding that the ...


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