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INTHE COURT OF APPEALS OF THE STATE OF WASHINGTON No. 72345-6-1 DIVISION ONE SATWANT SINGH, DHALIWAL REAL ESTATE, LLC, dba Victorian Meadows, Appellants,

COVINGTON WATER DISTRICT, a Washington MunicipalAgency, Respondent. PUBLISHED OPINION
FILED: September28, 2015



### Leach, J. — Satwant Singh and Dhaliwal Real Estate LLC (collectively 

### Singh) appeal the trial court's summary dismissal of their lawsuit against the Covington Water District (District). Singh and the Districtexecuted two system extension agreements to supply water to Singh's residential real estate 

### development. Singhchallenges provisionsinthe agreements making connection 

### charge deposits nonrefundable. Because the District has the statutoryauthority to contractfornonrefundable deposits, those deposits do notamountto an illegal tax, and the depositrequirements do not violate publicpolicy, we affirm. FACTS 

### Singh wanted to develop into 30 residential lots property he owned, 

### located within the city of Covington and the Covington Water District serviceNO. 72345-6-1 / 2



### area. To obtain a building permit, Singh had to provide the city with a water 

### availabilitycertificate. Singh contactedthe District to geta certificate. As the first step to get water service, the District requires a developer to submit a "Water Availability Certificate Application Form." The application 

### provides the District with basic information about the proposed development so the District can determine if it has the ability to serve the development. Ifthe 

### District can provide water service, itissues a certificate indicating the availability ofwater service and identifyingany conditions and/or required improvements for water service. The District calls this certificate a "Water Availability Letter" (WAL).Before the District will issue a WAL, the applicant must pay a 

### nonrefundablefee of$100foreach "equivalentresidential unit." The District calls this fee an "incremental connection charge" and applies it to final connection 

### charges. AWALexpires after oneyearbutcan be renewed up to four times. 

### On May 30, 2005, Singh applied for aWALand paid $3,000 for the 30 lots 

### he planned to develop. He later decided to develop 31 lots. As a result of renewing and extending the WAL several times, bySeptember2007, Singh had paid a total of$9,700 inincremental connection charges. After the District issues a WAL and a developer indicates he is ready to 

### begin work, the Districtand the developer sign a "System Extension Agreement"
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(SEA). This binding contract includes a requirement that the developer construct, within one year, any new water facilities needed for the new development. After completion and approval, the developer transfers the facilities and further obligations, likemaintenance, to the District. On January 11, 2008, Singh applied for and signed a SEAprepared bythe District. He paid $15,500 in incremental connection charges, or $500 for each of the 31 lots. When the real estate market collapsed in 2008, Singh stopped work
on the project. He did not renew the SEA before itexpired. On April 20, 2009, Singh signed another SEA that included the same provisions as the earlier 

### agreement and paid another $15,500 to the District. Near the expiration of the 2009 SEA, Singh requested an extension, paying an additional $1,000 per lot, or $31,000, in incremental connection charges. Finally, in May 2011, Singh requested anotherextension and paid $3,100 inincremental connection charges. This reflected a reduced fee of $100 per lot charged by the District to assist developers hurtby the pooreconomy. In October 2011, Singh told the District that he would abandon the 

### development and asked the District to return the $74,800.00 he paid as incremental connection charges. But because the applications and agreements 

### Singh signed each made all incremental connection charges nonrefundable, the District denied Singh's request. It did refund him $2,516.25, the balance
-3-NO. 72345-6-1 / 4 

### remaining in a separate developer receiver account used to pay the administration costs for processing his application and designs. Singh never connected to the District's water system. 

### The District deposits collected incremental connection charges into a 

### maintenance accountheld by King County for the District's benefit. At times, the county transfers funds into a separate construction account to pay for District

### approved capital improvement projects. Generally, the District pays for capital improvement projects withfunds from twosources, water charges paid by current customers and connection fees charged to developers. The District recovers most of its investment in capital improvement projects through connection 

### charges so developers pay for their pro rata share ofexisting and future capital
facilities. 

### Before Singh informed the District about his proposed project, the District 

### acquiredrightsto waterfrom the Howard Hanson Dam and began to receive itin 2006. Italso started the SEWax Road/180th Avenue SE Improvement Project, a 

### jointventurewith the city ofCovington to improve water service to properties in the area. The Districtcompletedthe project inFebruary2010. 

### OnSeptember20,2013,Singhfiled thislawsuitto recover the $74,800 he 

### paid in incremental connection charges. On July 29, 2014, thetrialcourt granted

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### the District's summary judgment motion, dismissing Singh's lawsuit. Singh appeals. STANDARD OF REVIEW 

### We review a trialcourt's order on summaryjudgmentde novo, performing 

### the same inquiry as the trial court, viewing all facts and drawing allinferences in favor of the nonmoving party.1 CR 56(c) requires summaryjudgmentwhen the 

### pleadings, affidavits, depositions, and admissions on file demonstrate that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter oflaw. We review issues of statutory interpretation de 

### novo, withthe goal ofgivingeffect to the legislature'sintent.2 ANALYSIS 

### Singh asserts six overlapping, and at times confusing, reasons why the District cannot collect a nonrefundable fee from him. He claims that the District 

### lacks the statutory authority to do this and thatitmade an arbitrary decision when 

### itadopted its fee policy. He also contends this fee policyreflects an abuse of the District's monopoly power and an unlawful tax. He claims the fee policy violates publicpolicyand provides an unlawfulwindfallto the District. We disagree.

1Lvbbertv. Grant County, 141 Wn.2d 29, 34, 1 P.3d 1124 (2000). 2Burns v. City ofSeattle, 161 Wn.2d 129, 140, 164 P.3d 475 (2007). -5-NO. 72345-6-1 / 6
StatutoryAuthority First, Singh argues that the District's statutory authority does not include 

### the powerto charge nonrefundable incremental connection charges. The District claims thattwo statutes provide it with this authority. RCW 57.08.005 provides a water-sewer district with certain described powers. These include charging property owners seeking to connect to the district's systems, as a condition to granting the right to so connect, in addition to the cost ofthe connection, such reasonable connection charge as the board of commissioners shall determine to be proper in order that those property owners shall bear their equitable share ofthe cost ofthe 

### system.[3] RCW 57.22.010 authorizes the District to contract with a property owner for the construction, at the owner's sole expense, of approved extensions when needed to further property development. The contract must contain the 

### conditions required by the district's policies and standard.4 A district may impose conditions on connection of an extension to the district water system, including 

### "[pjayment of all required connection charges to the district," "[f]ull compliance withthe owner's obligations under such contract and withthe district's rules and 

### regulations," and "[pjrovision of sufficient security to the district to ensure 

### completion of the extension and other performance under the contract."5 3RCW57.08.005(11). 4 RCW 57.22.010. 5RCW 57.22.010(4)-(6). -6-NO. 72345-6-1 / 7

The District asserts that its rules require nonrefundable incremental 

### connection charges to secure a developer's performance of its contract to build
an extension to the water system. Singh offers two responses. First, he contends that the District does not need security after a developer abandons a 

### project before beginning construction because nothing needs to be completed. Second, he asserts that the District's use of these fees to fund capital 

### improvementprojects shows thatthe Districtdoes not collectthem as securityfor the cost of completed extension projects. Essentially, Singh contends that the 

### Districtmust refund any part ofincremental connection charges collected before connection that the District does not spend to complete a defaulting developer's
extension. 

### Singh cites no authority for his position. Singh admitted in his deposition thatthe District's charges actually provided him with an incentiveto completethe extension. The Districtnotes that making the charges nonrefundable allows it to
use the funds when collected to pay for future water facilities needed to 

### accommodate growth. If the District collected a refundable fee, it could not 

### spend ituntil the risk of refundended. This would force the Districtto increase rates for existing customers to pay forexpansion because itcannot waituntil a developerhas completed an extension to begin its own improvements. It needsNO. 72345-6-1 / 8 to plan, permit, and construct its facilities in an orderly way in anticipation of future growth. The District also notes that as an alternative to a nonrefundable charge, it could require a performance bond as a condition of an SEA. This would impose
an additional expense on the developer. Additionally, a surety providing this bond might require the developer's personal guarantee. The District suggests this would be morefinancially onerous fordevelopers than its policy. We agree. The District's fee structure reflects the type of public policy decision the 

### legislature gave water districts the power to make when itprovided them broad discretion to establish and collect connection charges. Singh makes no 

### challengetothe amountofthe connectionfees charged bythe District orthetime for payment. Absent an express legislative limitation, we conclude that the authority to charge connection fees and require performance security includes 

### the authority to make fees nonrefundable. The District's use of the fees to pay 

### for capital improvements comports withthe legislature's approval of an equitable sharing ofthose costs. Arbitrary, Capricious, or Unreasonable 

### Singh next claims the Districtacted arbitrarilywhen it required payment of nonrefundable fees. He contends thatthe District's policy fails to appreciate that


### a developermay run out ofmoneyto completethe project.
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When a municipal corporation's action or contractfalls within the purpose 

### and object of the enabling statute and where no limitations to the action apply, a court defers to the discretion of the municipal corporation unless the action or 

### contractwas arbitrary or capricious orunreasonable.6 "Arbitrary and capricious refers to willful and unreasoning action, taken without regard to or consideration of the facts and circumstances surrounding the action. Where there is room for two 

### opinions, an action taken after due consideration is not arbitrary and capricious even though a reviewing court may believe it to be erroneous."171 As we have decided, the District has the authority to require payment of nonrefundable incremental connection fees. Singh offers no persuasive 

### argumentwhy the District'sexercise of that authority was unreasonable. Monopoly 

### Singh next argues that the District exercised unlawful monopoly power. He claims that the Districtused this powerto include nonnegotiable terms inthe 

### SEA, includingthe nonrefundable incremental connection charges. 

### But the legislature adopted the Public Water System Coordination Act of 1977, chapter70.116 RCW. To maximize the efficient and effectivedevelopment

6 Mun. of Metro. Seattle v. Div. 587. Amalgamated Transit Union, 118 Wn.2d 639, 645-46, 826 P.2d 167 (1992). 7 Pub. Util. Dist. No. 2 of Pac. County v. Comcast ofWash. IV, Inc., 184 

### Wn. App. 24, 45, 336P.3d 65 (2014) (internal quotation marksomitted) (quoting Lane v. Port ofSeattle, 178 Wn. App. 110, 126, 316 P.3d 1070 (2013), review denied, 180 Wn.2d 1004 (2014)), reviewdenied, 183 Wn.2d 1015 (2015). -9-NO. 72345-6-1/10

of the state's public water supply, the legislature directed the Department of 

### Health to coordinate the planning of public water systems.8 As required by the act, public water purveyors engage in coordinated planning efforts to establish 

### future service areas for each purveyor and a coordinated water system plan.9 

### The secretary of the Department of Health reviews and approves the plan.10 Unless the existing water purveyor cannot provide water service, a new public 

### watersystempurveyor may notoperatewithinthe boundaryarea.11 Because the District operates its water supply system under the act's provisions with Department of Health approval, the District did not engage in unlawful monopoly activity.
Fee or Tax Singh next argues that the District properly charged him an incremental connection charge, but the charge became an unconstitutional tax when Singh defaulted without ever connecting to the water system and the District did not refund Singh the money. While a municipal government may charge regulatory fees, it must have 

### specific legislativeorconstitutionalauthoritytotax.12 In Covellv. CityofSeattle13
8 RCW 70.116.010. 9 See RCW 70.116.050. 10 RCW 70.116.050(7). 11 RCW70.116.040; RCW70.116.060(3)(b). 12 Wash. Const, art. VII, § 1; Covell v. City of Seattle, 127 Wn.2d 874, 878-79, 905 P.2d 324 (1995). -10-NO. 72345-6-1/11

the courtestablished a three-parttestto decide if a charge is a tax or a fee. This court will find a charge is a permissible regulatory fee only where (1) the primary purpose is to regulate the activity the local government assessed ratherthan to raise money for public benefits, (2) the local government allocated the collected money exclusively to the authorized regulatory purpose, and (3) a direct relationship exists between the fee charged and the service received by those who paythe fee or between the fee charged and the burden produced bythefee 

### payer.14 Applying the first prong of this test, the Districtcharges the fees to secure developers to perform their contracts with the District to pay for capital 

### improvement projects that insure reliable, long-term water resources for all District customers. This equitably shares the burden ofthe cost ofthe District's 

### physical system between existing and new customers. Thus, the charge has the 

### primary purpose of securing the continued efficient and effective supply of adequate public water to existing and future customers inthe District's service
area. Applyingthe second prong, the charges support the District's authorized 

### regulatory purpose, funding only capital improvement projects to the District's 

### supply system. We apply the third prong. As statutorily required,15 a direct
13 127Wn.2d 874, 879, 905 P.2d 324 (1995). 14 Covell, 127 Wn.2d at 879. 15 RCW 57.08.005(11). -11-NO. 72345-6-1 /12 

### relationship exists between the amount of the charges and the benefits and burdens involved with new connection. Thus, a nonrefundable incremental connection charge, even when no connection occurs, constitutes a fee and not a tax. Singh's argumentfails. Public Policy 

### Singh contends thatthe District's fee policyviolates public policybecause it is nonnegotiable and allows the District to keep funds that it did not earn. A 

### court will not enforce terms of a contract where public policy outweighs the 

### interest in their enforcement.16 But, "'[i]n general, a contract which is not prohibited by statute, condemned by judicial decision, or contrary to the public 

### morals contravenes no principle of public policy.'"17 We look to see ifthe contract 

### has a "'tendencyto evil,'"is againstthe public good, or is injurious tothe public.18 The District has statutory authority to regulate the water supply service within its boundaries and to include terms in connection agreements to secure a 

### developer's completion of an extension project and other obligations.19 Singh

16 LKOperating, LLC v. Collection Grp., LLC, 181 Wn.2d 48, 85, 331 P.3d 1147(2014). 

### 17 LK Operating, 181 Wn.2d at 85 (internal quotation marks omitted) (quoting State Farm Gen. Ins. Co. v. Emerson, 102 Wn.2d 477, 481, 687 P.2d 1139(1984)). 18 Viking Properties, Inc. v. Holm, 155 Wn.2d 112, 126, 118 P.3d 322 (2005) (quoting Thayer v. Thompson, 36 Wn. App. 794, 796, 677 P.2d 787 (1984)). 

### 19 RCW 57.08.005(3); RCW 57.22.010(6). -12-NO. 72345-6-1/13
cites no authority, nor does the record show, that the District's policy tended toward evil, harmed the public good, or injured the public. Rather, the nonrefundable incremental connection charge, directly supported by public 

### policy, allows the District to maintain and fund adequate water supply projects, benefiting the peoplewithinthe District's boundaries. Consideration 

### Singh argues that the District provided no consideration for the $74,800 Singh paid inincremental connection charges. "'A traditional bilateral contractis formed by the exchange of reciprocal promises. The promise ofeach party is 

### consideration supporting the promise of the other.'"20 In the SEA, the District promised to provide water to Singh's property and maintain the completed extension. Singh promised to buildthe extension and pay connection charges,
as stated in the contract. Because the parties exchanged reciprocal promises, adequate consideration existed forthe SEA. Windfall 

### Finally, Singh contends that because a third party will develop the same 

### property after Singh's default, the District will receive a windfall because it will also collect nonrefundable incremental connection charges from that party.
20 Duncan v. Alaska USA Fed. Credit Union, Inc., 148 Wn. App. 52, 74, 

### 199 P.3d 991 (2008) (quoting Govier v. N. Sound Bank, 91 Wn. App. 493, 499, 957P.2d811 (1998)). -13-NO. 72345-6-1 /14


### Because the District had authority to impose nonrefundable charges and Singh's delay and breach caused his loss of $74,800 in nonrefunded charges, Singh's windfall argumentfails. CONCLUSION Because the District had statutory authority to charge nonrefundable 

### incremental connection fees, did not act unlawfully in adopting and applying its fee policy, and entered into an enforceable contract with Singh, the trial court properlygranted the Districtsummaryjudgment. We affirm. 

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WE CONCUR: 

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