City of Tucumcari v. Rad Water ( 2016 )

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1 IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
2 CITY OF TUCUMCARI,
3 Plaintiff-Appellee,
4 v. No. 34,569
5 RAD WATER USERS COOPERATIVE,
6 Defendant-Appellant.
7 APPEAL FROM THE DISTRICT COURT OF QUAY COUNTY
8 Gerald E. Baca, District Judge
9 Doerr & Knudson, P.A.
10 Randy J. Knudson
11 Portales, NM
12 for Appellee
13 Garrett Law Firm, P.A.
14 Michael T. Garrett
15 Clovis, NM
16 for Appellant
17 MEMORANDUM OPINION
18 FRENCH, Judge.
19 {1} The City of Tucumcari (Tucumcari) sold water to the RAD Water Users
1 Cooperative (RAD) pursuant to a water sale and purchase agreement (Contract). RAD
2 objected to a proposed rate increase in 2012 and refused to pay. Tucumcari filed suit
3 in district court requesting a declaratory judgment that its proposed rate increase was
4 justified under the Contract, alleging that RAD was in breach of the Contract, and
5 moving to set aside a 1987 decision of the district court (1987 Decision) that set forth
6 factors to compute water prices between Tucumcari and RAD. The district court found
7 that RAD breached the Contract, that Tucumcari’s prices for water for 2012-2014
8 were reasonable, and awarded Tucumcari prejudgment interest and postjudgment
9 interest at yearly rates of 15% and 8.75%, respectively. It also found that Tucumcari
10 could set reasonable future water rates without reference to the 1987 Decision rate
11 computation factors. On appeal, RAD argues that the district court committed error
12 when it: (1) found that the Contract was terminated; (2) failed to require Tucumcari
13 to use audited financial statements to compute water prices; (3) failed to enforce a
14 provision of the Contract requiring Tucumcari to operate its water delivery system in
15 an efficient manner; (4) allowed Tucumcari to calculate 2012 rates on the basis of
16 2010 data; (5) allowed Olga Morales to testify as an expert; (6) declined to apply to
17 RAD the 4% water price increase that Tucumcari levied on its residential and
18 consumer customers; and (7) awarded Tucumcari prejudgment and postjudgment
19 interest. We affirm.
2
1 BACKGROUND
2 {2} For decades, Tucumcari sold water to RAD, a water cooperative that serves
3 members in Quay County. The 1987 Decision set forth factors to calculate the price
4 of water sold by Tucumcari to RAD.1
1
4 The factors provided in the 1987 Decision are as follows:
5 1. The . . . RAD contract water rates shall be adjusted each year with
6 new rates going into effect on the anniversary date of the contract.
7 Rates shall be based on and figured as follows:
8 a. [Tucumcari] shall be allowed to include in its costs the costs of
9 administering the water department [of Tucumcari], warehousing
10 parts for the water department, producing water, distributing
11 water, and that portion of the laboratory costs which is directly
12 attributable to the water department. . . .
13 b. The costs shall not include capital improvements to the system.
14 c. In addition, the cost shall include a figure for depreciation, and the
15 interest expense for bonds directly benefitting the water
16 department.
17 ...
18 f. The basic cost amounts to be adjusted shall be these amounts
19 found in [Tucumcari’s] audited financial statements. [RAD], their
20 accountants, and lawyers shall be allowed to examine the
21 [Tucumcari] water department accounts and records upon
22 reasonable notice to [Tucumcari].
23 g. Once all adjustments have been made to expenses, ninety [percent]
24 (90%) of the costs of administration shall be deducted since that cost
25 is not properly charged to the contract water users.
3
1 {3} In 2010, Tucumcari and RAD entered the Contract. The Contract provided for
2 a fixed rate of $2.00 per one thousand gallons of water delivered from January 1, 2010
3 through June 30, 2011, and $2.19 per one thousand gallons delivered from July 1,
4 2011, through June 30, 2012. For the remainder of the ten-year term of the Contract,
5 the water rate was not fixed. Instead, pursuant to the Contract, the “cost of producing
6 water [was to] be calculated based on the costs for . . . :
7 Administration of water department (10%)
8 Producing water
9 Distributing water
10 Laboratory costs directly attributable to the water department
11 Warehousing parts for the water department
12 Depreciation attributable to water department only
13 Interest on bonds directly benefitting water department.”
14 The underlying cost amounts were to be those “found in [Tucumcari’s] audited
15 financial statements.”The Contract called for Tucumcari to “operate and maintain its
16 system in an efficient manner[,]” recompute the cost of producing water yearly within
17 sixty days of June 30, and give notice of rate changes sixty days before taking effect.
18 {4} In June 2012, Tucumcari sent notice to RAD of a rate increase to $2.81 per one
19 thousand gallons. RAD did not pay the increased rate. Tucumcari filed suit, seeking:
20 (1) a declaratory judgment that the rate increase was allowable under the Contract and
21 calculated in accordance with the terms of the Contract; (2) damages for breach of the
4
1 Contract; and (3) to set aside the 1987 Decision that set forth water pricing factors.
2 After trial, the district court found that RAD was delinquent in its payments to
3 Tucumcari and had breached the Contract. It ordered RAD to pay Tucumcari the rates
4 billed for 2012-2014,2 and prejudgment and postjudgment interest at the rates of 15%
5 and 8.75%, respectively. The district court, relying on the stipulation of the parties
6 that the dispute in this case was controlled by the Contract and not the 1987 Decision,
7 found that Tucumcari could set future “reasonable” rates without reference to the
8 factors set forth in the 1987 Decision. This appeal timely followed.
9 STANDARD OF REVIEW
10 {5} “We review the findings of fact of the district court under a deferential,
11 substantial evidence standard and review the application of the law to the facts de
12 novo.” KidsKare, P.C. v. Mann, 2015-NMCA-064, ¶ 9, 350 P.3d 1228. “Substantial
13 evidence is such relevant evidence that a reasonable mind would find adequate to
14 support a conclusion.” Ponder v. State Farm Mut. Auto. Ins. Co., 2000-NMSC- 033,
15 ¶ 7, 129 N.M. 698, 12 P.3d 960 (internal quotation marks and citation omitted). A
16 substantial evidence review does not allow us to re-weigh the evidence; instead, we
2
17 By the time of the trial, Tucumcari had issued unpaid rate increases to RAD
18 for 2013 and 2014 in addition to the original unpaid 2012 rate increase.
5
1 determine whether the findings are supported by evidence that a reasonable mind
2 could accept as adequate to support a conclusion. In re Rescue EcoVersity Petition,
3 2013-NMSC-039, ¶ 19, 308 P.3d 125. We view the evidence favorably to the findings
4 of the district court. State ex rel. King v. B & B Inv. Grp., Inc., 2014-NMSC-024, ¶ 12,
5 329 P.3d 658. We review the district court’s conclusions of law de novo. Mem’l Med.
6 Ctr., Inc. v. Tatsch Constr., Inc., 2000-NMSC-030, ¶ 20, 129 N.M. 677, 12 P.3d 431.
7 DISCUSSION
8 A. Substantial Evidence Supported the District Court’s Finding That RAD
9 Materially Breached the Contract
10 {6} RAD contends that Tucumcari should not be excused from further performance
11 under the Contract and, therefore, the Contract controls how future water rates are
12 calculated. RAD argues the Contract remains in full effect because Tucumcari did not
13 request that the district court terminate the Contract and also seems to argue that there
14 was no material breach under the Contract that would excuse Tucumcari from further
15 performance.
16 {7} RAD’s argument that the Contract remains in full effect because Tucumcari did
17 not sufficiently plead for it to be terminated fails because substantial evidence
18 supports the opposite conclusion. Tucumcari pleaded that it was entitled to “all
19 consequences” resulting from RAD’s breach of the Contract and “such other relief”
20 in addition to actual damages that the district court deemed just and proper. Moreover,
6
1 Tucumcari pleaded the district court to allow it to establish “new rate structures” for
2 2013 and after. Contrary to RAD’s argument, substantial evidence supports the district
3 court’s understanding that the continuing effect of the Contract was at issue between
4 the parties and, therefore, the issue was properly before the district court. Cf. Credit
5 Inst. v. Veterinary Nutrition Corp., 2003-NMCA-010, ¶ 19, 133 N.M. 248, 62 P.3d
6 339 (“Generally, the trial court may not grant judgment for relief which is neither
7 requested by the pleadings nor within the theory on which the case was tried.”
8 (internal quotation marks and citation omitted)).
9 {8} RAD’s argument that further performance under the Contract by Tucumcari
10 was excused improperly by the district court also fails. At issue is whether RAD’s
11 refusal to pay for water at the increased rate requested by Tucumcari constituted a
12 material breach of the Contract. “A material breach of a contract excuses the
13 non-breaching party from further performance under the contract.” KidsKare, 2015-
14 NMCA-064, ¶ 20. Whether a breach is material is a question of fact. Famiglietta v.
15 Ivie-Miller Enters., Inc., 1998-NMCA-155, ¶ 16, 126 N.M. 69, 966 P.2d 777. Our
16 Court has described a material breach as the “failure to do something that is so
17 fundamental to the contract that the failure to perform that obligation defeats an
18 essential purpose of the contract” and as a breach that “touches the fundamental
19 purpose of the contract and defeats the object of the parties in entering into the
7
1 contract.” Id. ¶ 17 (internal quotation marks and citation omitted).
2 {9} The Contract provided that Tucumcari would recompute the cost of RAD’s
3 water each year and set out the basic formula for computing that cost. RAD was
4 responsible for monthly payments. The Contract did not contain a provision for
5 dispute resolution. By the time the district court issued its decision in this case,
6 Tucumcari had issued annual rate increases for 2012, 2013, and 2014. Under the
7 Contract, RAD bore the responsibility to pay for the water it received from
8 Tucumcari. The major, perhaps sole, benefit of the Contract for Tucumcari was
9 payment for the water it supplied. RAD’s breach constituted a failure that touched the
10 fundamental purpose of the Contract and, put another way, defeated the object of the
11 Contract. Therefore, substantial evidence supported the finding that Tucumcari was
12 excused from further performance under the Contract because of RAD’s material
13 breach of the contract. See id. ¶ 17 (stating that a breach is material when it “touches
14 the fundamental purpose of the contract and defeats the object of the parties in
15 entering into the contract.” (internal quotation marks and citation omitted)).
16 B. Tucumcari’s Billed Rates Were Reasonable
17 {10} RAD makes three separate arguments for reversal that, in essence, seem to
18 challenge the district court’s conclusion that RAD was responsible to pay the rate
19 increases billed by Tucumcari for 2012, 2013, and 2014. RAD contends that, contrary
8
1 to the Contract, Tucumcari: (1) did not use independently audited figures to compute
2 RAD’s water rate for 2012; (2) did not operate its water system in an efficient manner,
3 as required under the Contract; and (3) used 2010 data to calculate 2012 water rates
4 instead of 2011 data. We globally address these arguments, all of which are somewhat
5 underdeveloped and/or unclear. To the extent that RAD’s arguments are
6 underdeveloped or unclear, we cannot review them. See Elane Photography, LLC v.
7 Willock, 2013-NMSC-040, ¶ 70, 309 P.3d 53 (“[Appellate courts] will not review
8 unclear arguments, or guess at what a party’s arguments might be.” (alteration,
9 internal quotation marks, and citation omitted)), cert. denied, ___ U.S.___, 134 S. Ct.
10 1787, (2014). We review the argument that we can discern: RAD seems to argue for
11 reversal because Tucumcari’s inadequate performance under the Contract excused
12 RAD’s failure to pay the increased rates or, put another way, because Tucumcari was
13 not entitled to the increased rates that it billed RAD under the Contract. We observe
14 that although RAD’s arguments imply that, in RAD’s opinion, Tucumcari failed to
15 meet its obligations under the Contract, RAD did not countersue for any breach by
16 Tucumcari.
17 {11} The rates charged to RAD by Tucumcari were supported by the evidence
18 adduced at trial. The director of finance for the City of Tucumcari, Dennis Dysart,
19 testified in detail that when he calculated RAD’s cost of water, he did so in accordance
9
1 with the factors and terms in the Contract. Moreover, he testified that the cost amounts
2 used were from the City’s audited financial statements, and that he used audited
3 numbers. He also testified that the use of the earlier figures (complained of on appeal
4 by RAD) worked in RAD’s favor because the later figures resulted in a significantly
5 higher cost to RAD.
6 {12} The expert witnesses for both Tucumcari and RAD provided testimony in
7 support of Tucumcari’s billed rates. RAD’s expert witness, Carl Brown, testified that
8 even adjusting for inefficiencies caused by arguably excessive water loss in the water
9 system, the rate charged by Tucumcari was justified. He further testified that he
10 calculated rates under the Contract that were higher than those billed by Tucumcari
11 and that, in a letter to RAD, he recommended that RAD accept the rate calculations
12 offered by Tucumcari. Tucumcari’s expert witness, Olga Morales, testified that
13 Tucumcari’s billed rates for 2012-2014 were reasonable in relation to water rates
14 throughout New Mexico. Upon review of the evidence, we decline to reverse the
15 district court’s conclusion of law that RAD is responsible to pay for the water it used
16 in 2012-2014 at the reasonable rates billed by Tucumcari on the basis of RAD’s
17 contentions that Tucumcari did not use independently audited figures to compute
18 RAD’s water rate for 2012, did not operate its water system efficiently, and used 2010
19 data to calculate 2012 water rates.
10
1 C. Admission of the Expert Testimony of Olga Morales Was Not Reversible
2 Error
3 {13} RAD contends that the admission of Olga Morales as an expert witness for
4 Tucumcari was reversible error. However, RAD did not, in its brief in chief, make any
5 argument in support of this contention. Instead, without application to this case, RAD
6 reviewed cases that discuss expert admissibility requirements under the New Mexico
7 and Federal rules of evidence. We will not review undeveloped arguments and will
8 not guess at what a party’s arguments might be. See Elane Photography, 2013-
9 NMSC-040, ¶ 70 (stating that an appellate court will not “review unclear arguments,
10 or guess at what a party’s arguments might be” (alteration, quotation marks, and
11 citation omitted)). Accordingly, we decline to find reversible error on the basis of the
12 admission of Olga Morales as an expert witness.
13 D. Failure to Apply the Terms of the City of Tucumcari Ordinance Was Not
14 Error
15 {14} In 2011, the City of Tucumcari adopted an ordinance establishing water rates
16 for its residential and commercial customers. Defendant argues that the terms of that
17 ordinance should apply to RAD. However, as RAD concedes, the ordinance does not
18 apply to resale customers such as RAD. Based upon RAD’s concession, we decline
19 to find that the district court committed reversible error by not applying the terms of
20 the inapplicable ordinance to RAD.
11
1 E. Neither the Award of Prejudgment Interest Nor Postjudgment Interest
2 Was an Abuse of Discretion
3 {15} RAD contends that the district court’s awards of prejudgment interest at the rate
4 of 15% and postjudgment interest at the rate of 8.75% were abuses of discretion.
5 {16} RAD argues that the award of postjudgment interest was an abuse of discretion
6 because it was not awarded from the date of judgment—February 5, 2015—but from
7 August 25, 2012. We disagree with RAD’s premise in that we do not see evidence in
8 the record that postjudgment interest was awarded from a date prior to the district
9 court’s judgment.
10 {17} RAD contends that the district court’s award of prejudgment interest was
11 limited by statute to not more than 10% per year and that the district court abused its
12 discretion in awarding Tucumcari 15% per year. Citing NMSA 1978, Section 56-8-4
13 (2004), RAD argues that a prejudgment interest rate of 10% was the maximum
14 allowable without a finding that the judgment was based on tortious conduct, bad
15 faith, or unreasonable delay.3 Tucumcari argues that the award of prejudgment interest
16 in this case falls under NMSA 1978, Section 56-8-3 (1983), which allows interest at
17 a rate of up to 15% per year under certain circumstances.
3
18 We observe that RAD seems to misconstrue Section 56-8-4, at least in part.
19 However, because the correct interpretation of Section 56-8-4 is not important to the
20 outcome or reasoning of this opinion, we decline to address RAD’s interpretation any
21 further.
12
1 {18} We agree with Tucumcari. Section 56-8-3(A) provides for interest of not more
2 than 15% “on money due by contract[.]” It is established that in a contract case
3 Section 56-8-3 supports an award of prejudgment interest. See, e.g., Kueffer v.
4 Kueffer, 1990-NMSC-045, ¶ 8, 110 N.M. 10, 791 P.2d 461 (stating that Section
5 56-8-3 supports an award of prejudgment interest on a breach of contract claim).
6 When the amount due is either fixed or determined by the contract, prejudgment
7 interest should be awarded by right; when the amount is ascertainable, prejudgment
8 interest can be awarded as a matter of discretion. Kueffer, 1990-NMSC-045, ¶ 8. In
9 this case, the amount due was ascertainable and the district court was within its
10 discretion to award prejudgment interest at the rate of 15%. We affirm the district
11 court’s awards of both prejudgment interest and postjudgment interest.
12 CONCLUSION
13 {19} For the reasons stated, we affirm.
14 {20} IT IS SO ORDERED.
15 ___________________________________
16 STEPHEN G. FRENCH, Judge
17 WE CONCUR:
13
1 ____________________________
2 MICHAEL E. VIGIL, Chief Judge
3 ____________________________
4 TIMOTHY L. GARCIA, Judge
14