Opinion ID: 722476
Heading Depth: 1
Heading Rank: 2

Heading: The County's Failure to Properly Defend Its Ratemaking

Text: 19 for Ambulance Service 20 In 1981, Monterey County adopted-and has since periodically updated-its Emergency Medical Service (EMS) ordinance. Under the County's EMS ordinance, all ambulance service providers must be licensed by the County. In addition, since 1988, no provider can operate within the County without a County contract. The EMS ordinance requires that the County Board of Supervisors set the maximum prices, known as the Uniform Maximum Emergency Service Rates (Uniform Rates), that may be charged by ambulance companies to the patients they transport. 21 Over the years, A-1 signed a series of contracts with the County whereby A-1 would provide Ambulance service to patients within the Greater Salinas area. In each of these contracts, A-1 explicitly or implicitly agreed to follow the Uniform Rates in exchange for the right to provide ambulance service. Throughout the relevant time period, A-1 was the only ambulance provider in the Greater Salinas Area, and starting in 1989, A-1's contract provided that it would be the area's exclusive provider. 22 The Uniform Rates were based, in part, on a survey of average ambulance rates throughout California. Neither the survey, nor any of the other procedural steps the County used to set the Uniform Rates considered the ambulance service providers' interest in making a profit. 23 Starting at least by April of 1988, A-1 began telling the County that the Uniform Rates were inadequate to cover A-1's costs. Although the County did make occasional adjustments in the Uniform Rates, the increases were not enough to cover A-1's expenses. A-1 continued to provide ambulance service in its operating area, but had to borrow money to cover its operating costs. 24 A-1 brought this lawsuit against Monterey County claiming, among other things, that the County violated the Constitution and 42 U.S.C. § 1983 by setting the Uniform Rates too low. Following a bench trial, the district court agreed with A-1 and held that the County breached its constitutional obligations by not setting the Uniform Rates at a level which allowed A-1 to make a profit. 25 The district court reached this conclusion by relying on a line of cases which hold that in order for government ratemaking to be constitutionally acceptable, the rate must reflect a just and reasonable balance between the consumer interest in nonexploitative rates and the investor interest in maintaining a fair return on investment. See e.g. Duquesne Light Co. v. Barasch, 488 U.S. 299, 307, 109 S.Ct. 609, 615, 102 L.Ed.2d 646 (1989) ([T]he Constitution protects utilities from being limited to a charge for their property serving the public which is so 'unjust' as to be confiscatory.). 26 Monterey County argues on appeal that district court's decision was incorrect because A-1 signed contracts with the County to provide service at the Uniform Rates, and that these contracts trump any constitutional ratemaking requirements (the contract argument). The County cites a number of cases for the proposition that when a public service company, such as A-1, enters into a binding contract to provide services at a specified rate, then the contract prevails and the constitutional issues disappear. See Georgia Ry. & Power Co. v. Decatur, 262 U.S. 432, 43 S.Ct. 613, 67 L.Ed. 1065 (1923) (discussed infra ); St. Cloud Public Service Co. v. City of St. Cloud, 265 U.S. 352, 355-56, 44 S.Ct. 492, 493, 68 L.Ed. 1050 (1924) ([W]here a public service corporation and the municipality have power to contract as to rates, and exert that power by fixing the rates to govern during a particular time, the enforcement of such rates is controlled by the obligation resulting from the contract, and the question of whether they are confiscatory is immaterial.); Honolulu Rapid Transit Co. v. Dolim, 459 F.2d 551 (9th Cir.) (discussed infra ), cert denied, 409 U.S. 875, 93 S.Ct. 124, 34 L.Ed.2d 128 (1972). 27 For example, in Georgia Ry. & Power Co. the Supreme Court was presented with an agreement between a company and a town which limited the fare that the company could charge for streetcar service. The Court stated that because the contract was valid, we are not concerned with the question whether the stipulated rates are confiscatory. 262 U.S. at 438-39, 43 S.Ct. at 616. 28 Our decision in Honolulu Rapid Transit Co. favors the County's contract argument. In Honolulu, the legislature of Hawaii granted a fifty-year monopoly to Honolulu Rapid Transit Co. (HRT). The franchise agreement provided that the City of Honolulu could purchase HRT's property at the end of the franchise period for a price that would not account for the value of HRT's good will or other intangible assets. Forty-nine years later, Honolulu began to make preparations to purchase HRT's assets at the contract price. HRT brought suit to declare the franchise agreement unconstitutional because it provides for the taking of HRT's property without payment of just compensation. 459 F.2d at 552. 29 As A-1 does here, HRT argued that although the government had the right to refuse to grant the franchise, it could not exact a waiver of HRT's constitutional right to just compensation as a price of the grant. Id. This court rejected HRT's argument saying: 30 HRT disregards the fact that there was here no taking by the City. This was not a unilateral exercise by the City of its power of eminent domain. The right of the City to acquire HRT's property at a certain price was not based upon its power to take, but upon an agreement between the parties. Thus there was no event to which HRT's asserted constitutional rights attached. The transaction passed out of the range of the Fifth Amendment and was a situation where Parties, supposedly with due regard to their own interests, bargain between themselves as to compensation. 31 Id. at 553 (quoting Albrecht v. United States, 329 U.S. 599, 603-04, 67 S.Ct. 606, 609, 91 L.Ed. 532 (1947)). Furthermore, the court held that the fact that HRT's alternatives to accepting the franchise agreement were unattractive did not render the agreement a coerced one. Honolulu Rapid Transit, 459 F.2d at 553. See also Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1007, 104 S.Ct. 2862, 2875, 81 L.Ed.2d 815 (1984) (rejecting the argument that a company was forced into accepting an unconstitutional condition where the company was aware of the conditions and the conditions were rationally related to a legitimate government interest). 32 A-1 argues, however, that the County waived the contract argument by failing to raise it at trial. This argument has merit. Generally, in order for an argument to be considered on appeal, the argument must have been raised sufficiently for the trial court to rule on it. In re E.R. Fegert, Inc., 887 F.2d 955, 957 (9th Cir.1989). The County points to a variety of instances in the record where it claims it raised the issue before the trial court. 4 However, nowhere in the record can we find an instance where the County argues, as it does quite ably in its appellate brief, that [a] binding contract to limit rates eliminates any constitutional issues as to those rates. Nor did the County ever cite in the district court to the line of cases supporting its argument which it relies on here. Given the County's failure to make the highly persuasive contract argument, it is not surprising that the district court did not address the issue at all in its decision. 33 We have previously held that an issue not raised below might still be heard on appeal if the issue is purely one of law and either does not depend on the factual record developed below, or the pertinent record has been fully developed. Bolker v. C.I.R., 760 F.2d 1039, 1042 (9th Cir.1985). However, review of such unraised issues is discretionary, not automatic. Id. Here, it is not clear that the contract argument is purely one of law: A-1 argues that if the County had made its contract argument clearer to the district court, A-1 would have raised all sorts of factual issues-primarily dealing with the validity of the contract-that would have changed the way the record was developed. After examining the record and the arguments, we cannot rule out the possibility that A-1 might be right and that the merits of the contract argument cannot be resolved without further hearings before the district court. Therefore, we lack the power to consider the contract argument in this appeal. 34 Moreover, even if we had the discretion to consider the contract argument, we would decline to do so here because the County is responsible for failing to raise both adequately and timely this argument in the district court. Accordingly, even though we believe that the district court employed the wrong methodology to resolve the issue, we affirm because the County is responsible for any errors committed by the district court and because it is now inappropriate for us to either approve or disapprove of a decision rendered on a manifestly inapplicable theory. To do so would require us to continue the mistake made in the district court. 5 35 We recognize the effect of this holding on the County's position, but our system requires a defendant either to raise an obvious defense or to forgo its manifest benefits. The County's failure to identify the applicable law to the district court renders it impossible for us to put Humpty Dumpty back together again. 36