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IN THE 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 Municipal Agency,

Respondent.

PUBLISHED OPINION

FILED: September 28, 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 District executed two system

extension agreements to supply water to Singh's residential real estate

development. Singh challenges provisions in the agreements making connection

charge deposits nonrefundable. Because the District has the statutory authority

to contract for nonrefundable deposits, those deposits do not amount to an illegal

tax, and the deposit requirements do not violate public policy, 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 service
NO. 72345-6-1 / 2

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

availability certificate. Singh contacted the District to get a 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. If the

District can provide water service, it issues a certificate indicating the availability

of water service and identifying any 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

nonrefundable fee of $100 for each "equivalent residential unit." The District calls

this fee an "incremental connection charge" and applies it to final connection

charges. AWAL expires after one year but can be renewed up to four times.

On May 30, 2005, Singh applied for a WAL and 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, by September 2007, Singh had

paid a total of $9,700 in incremental connection charges.

After the District issues a WAL and a developer indicates he is ready to

begin work, the District and the developer sign a "System Extension Agreement"

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NO. 72345-6-1 / 3

(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, like maintenance, to the District.

On January 11, 2008, Singh applied for and signed a SEA prepared by the

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 it expired. 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 another extension and paid $3,100 in incremental connection charges.

This reflected a reduced fee of $100 per lot charged by the District to assist

developers hurt by the poor economy.

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

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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 account held by King County for the District's benefit. At times, the

county transfers funds into a separate construction account to pay for Districtapproved capital improvement projects. Generally, the District pays for capital

improvement projects with funds from two sources, 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 of existing and future capital

facilities.

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

acquired rights to water from the Howard Hanson Dam and began to receive it in

2006. It also started the SE Wax Road/180th Avenue SE Improvement Project, a

joint venture with the city of Covington to improve water service to properties in

the area. The District completed the project in February 2010.

On September 20, 2013, Singh filed this lawsuit to recover the $74,800 he

paid in incremental connection charges. On July 29, 2014, the trial court granted

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NO. 72345-6-1 / 5

the District's summary judgment motion, dismissing Singh's lawsuit. Singh

appeals.

STANDARD OF REVIEW

We review a trial court's order on summary judgment de novo, performing

the same inquiry as the trial court, viewing all facts and drawing all inferences in

favor of the nonmoving party.1 CR 56(c) requires summary judgment when 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 of law. We review issues of statutory interpretation de

novo, with the goal of giving effect 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 that it made an arbitrary decision when

it adopted its fee policy. He also contends this fee policy reflects an abuse of the

District's monopoly power and an unlawful tax. He claims the fee policy violates

public policy and provides an unlawful windfall to the District. We disagree.

1 Lvbbert v. Grant County, 141 Wn.2d 29, 34, 1 P.3d 1124 (2000).

2 Burns v. City of Seattle, 161 Wn.2d 129, 140, 164 P.3d 475 (2007).

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NO. 72345-6-1 / 6

Statutory Authority

First, Singh argues that the District's statutory authority does not include

the power to charge nonrefundable incremental connection charges. The District

claims that two 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

of the 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 of the cost of the

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

with the owner's obligations under such contract and with the 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

3 RCW 57.08.005(11).

4 RCW 57.22.010.

5 RCW 57.22.010(4)-(6).

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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

improvement projects shows that the District does not collect them as security for

the cost of completed extension projects. Essentially, Singh contends that the

District must refund any part of incremental 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

that the District's charges actually provided him with an incentive to complete the

extension. The District notes 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 it until the risk of refund ended. This would force the District to increase

rates for existing customers to pay for expansion because it cannot wait until a

developer has completed an extension to begin its own improvements. It needs
NO. 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 more financially onerous for developers 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 it provided them broad

discretion to establish and collect connection charges. Singh makes no

challenge to the amount of the connection fees charged by the District or the time

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 with the legislature's approval of an equitable

sharing of those costs.

Arbitrary, Capricious, or Unreasonable

Singh next claims the District acted arbitrarily when it required payment of

nonrefundable fees. He contends that the District's policy fails to appreciate that

a developer may run out of money to complete the project.

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NO. 72345-6-1 / 9

When a municipal corporation's action or contract falls 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

contract was arbitrary or capricious or unreasonable.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

argument why the District's exercise of that authority was unreasonable.

Monopoly

Singh next argues that the District exercised unlawful monopoly power.

He claims that the District used this power to include nonnegotiable terms in the

SEA, including the nonrefundable incremental connection charges.

But the legislature adopted the Public Water System Coordination Act of

1977, chapter 70.116 RCW. To maximize the efficient and effective development

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 of Wash. IV, Inc., 184

Wn. App. 24, 45, 336 P.3d 65 (2014) (internal quotation marks omitted) (quoting

Lane v. Port of Seattle, 178 Wn. App. 110, 126, 316 P.3d 1070 (2013), review

denied, 180 Wn.2d 1004 (2014)), review denied, 183 Wn.2d 1015 (2015).

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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

water system purveyor may not operate within the boundary area.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 legislative or constitutional authority to tax.12 In Covell v. City of Seattle13

8 RCW 70.116.010.

9 See RCW 70.116.050.

10 RCW 70.116.050(7).

11 RCW 70.116.040; RCW 70.116.060(3)(b).

12 Wash. Const, art. VII, § 1; Covell v. City of Seattle, 127 Wn.2d 874,

878-79, 905 P.2d 324 (1995).

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NO. 72345-6-1/11

the court established a three-part test to 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 rather than 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 pay the fee or between the fee charged and the burden produced by the fee

payer.14

Applying the first prong of this test, the District charges 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 of the cost of the 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 in the District's service

area. Applying the 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

13 127 Wn.2d 874, 879, 905 P.2d 324 (1995).

14 Covell, 127 Wn.2d at 879.

15 RCW 57.08.005(11).

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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 argument fails.

Public Policy

Singh contends that the District's fee policy violates public policy because

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 "'tendency to evil,'" is against the public good, or is injurious to the 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 LK Operating, 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).

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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 people within the District's boundaries.

Consideration

Singh argues that the District provided no consideration for the $74,800

Singh paid in incremental connection charges. "'A traditional bilateral contract is

formed by the exchange of reciprocal promises. The promise of each 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 build the extension and pay connection charges,

as stated in the contract. Because the parties exchanged reciprocal promises,

adequate consideration existed for the 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)).

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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 argument fails.

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

properly granted the District summary judgment. We affirm.

luvJ,

WE CONCUR:

VL,v-fQ &. ev &rt,T.

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