Court Opinion

ID: 9697627
Source: CourtListenerOpinion
Date Created: 2023-08-25 19:23:22.305417+00
Date Added: 2024-06-11T18:20:33.785015
License: Public Domain

DISSENTING OPINION BY
Judge COHN JUBELIRER.
Respectfully, I dissent because I believe that: 1) Boyle v. Mun. Auth. of Westmoreland County, 796 A.2d 389 (Pa.Cmwlth.2002), petition for allowance of appeal denied, 571 Pa. 709, 812 A.2d 1231 (2002), must be overruled; 2) the Authority is acting in a governmental, not proprietary capacity; and 3) the contract at issue here is not subject to a statutory exception.
First, I agree with the majority to the extent it discredits the broad statement in Boyle that municipal authorities engage in proprietary functions only. However, I disagree with the majority that the statement is dicta. Rather, because that statement formed the only expressed rationale for the Court’s holding, Boyle should be overruled.
As authority for its broad statement, Boyle cites Southeastern Pennsylvania Transp. Auth. v. Union Switch & Signal, Inc., 161 Pa.Cmwlth. 400, 637 A.2d 662, 664-65 (1994), petition for allowance of appeal denied, 538 Pa. 662, 648 A.2d 792 (1994). In Union Switch, the only issue before the Court was whether SEPTA is considered to be the “Commonwealth” for purposes of determining jurisdiction when contract claims are filed against it with the Board of Claims. In that context, we engaged in a general discussion about the difficulty of determining the status of an authority. Within that context we stated in dicta:
Unlike municipal corporations that have “governmental” and “proprietary” functions, authorities engage only in the latter. Authorities are “public corporations, being corporate agencies engaged in the administration of civil government.” Lighton v. Abington Township, 336 Pa. 345, 353, 9 A.2d 609, 613 (1939). Generally, authorities are established for the purpose of financing and managing various revenue producing projects of a public nature or other activities that are not considered to be part of core governmental activities; they are a governmental business venture, a form of quasi-privatization.
Id. (footnote omitted.) The issue in Union Switch did not involve whether SEPTA was acting in a governmental or proprietary capacity, and the opinion did not address that issue. However, in Boyle, unlike in Union Switch, the issue was whether or not the authority was functioning in a proprietary or governmental capacity when it operated and managed a water supply and wastewater system as a municipal water authority. The Court, thus, based its holding in Boyle on the dicta in Union Switch. I agree with the majority that, under our case law, operation of a sewer system is considered proprietary. Thus, I believe that our opinion in Boyle reached the correct result. Our rationale, however, constituted an inaccurate extension of the law. While I applaud the majority for discrediting that rationale, because, in my opinion, the effect of doing so is to sub silentio overrule Boyle, I believe that we should overrule the case explicitly to provide clear guid-*732anee to the bar and to prevent inadvertent reliance upon it in future decisions.1,2
Second, I disagree with the majority that the Authority is acting in a proprietary capacity. As the majority correctly notes, a governmental function is one performed for public purposes exclusively in its public, political or municipal character. Falls Tp. v. Scally, 115 Pa.Cmwlth. 56, 539 A.2d 912, 914 (1988). A proprietary function is one that traditionally or principally has been performed by private enterprise. State St. Bank & Trust Co. v. Treasury Dep’t, 712 A.2d 811, 814 (Pa.Cmwlth.1998). The distinction between governmental and proprietary functions is an important one because ‘.‘[wjith respect to those agreements involving municipal or legislative bodies that encompass governmental functions ... governing bodies cannot bind their successors.” Lobolito, Inc. v. N. Pocono School Dist. 562 Pa. 380, 384-85, 755 A.2d 1287, 1289 (2000)(Lobilito II). In Mitchell v. Chester Housing Auth., 389 Pa. 314, 324-25, 132 A.2d 873, 878 (1957), the Supreme Court explained the public policy behind this rule of law:
The obvious purpose of the rule is to permit a newly appointed governmental body to function freely on behalf of the public and in response to the governmental power or body politic by which it was appointed or elected, unhampered by the policies of the predecessors who have since been replaced by the appointing or electing power. To permit the outgoing body to ‘hamstring’ its successors by imposing upon them a poliey-*733implementing [sic] and to some extent, policymaking machinery, which is not attuned to the new body or its policies, would be to most effectively circumvent the rule.
In determining whether an activity is governmental or proprietary, the Court must consider (1) whether the activity is one that government is not statutorily required to perform; (2) whether the activity also may be carried on by private enterprise; and (3) whether the activity is used as a means of raising revenue. County of Butler v. Local 585, Serv. Employees Int'l. Union, AFL-CIO, 158 Pa.Cmwlth. 519, 631 A.2d 1389, 1392-93 (1993). If the answer to any of these questions is “yes,” the activity is proprietary.
The Authority provides what it describes as “conduit financing,” which is distinct from ordinary borrowing. It explains that the School Pool’s funds were raised by the sale of bonds secured by the Trust Indenture,3 and bondholders have no recourse against the Authority. Further, unlike a private bank, the ultimate borrowers are the school districts, the ultimate lenders are the bondholders, and the Authority does not earn a profit. Rather, interest paid by borrowers is remitted to the indenture holder.
In Lobolito, Inc. v. N. Pocono School Dist., 722 A.2d 249 (Pa.Cmwlth.1998)(Lobilito I), affirmed in part and reversed in part, Lobolito II, the owner and developer of a tract of land, Lobilito, Inc., entered into a contract with the old school board to construct and operate a sewage treatment plant for a planned new elementary school. Soon thereafter, a majority of the old school board was voted out of office. When the new board took office, it voted not to build the elementary school or utilize the proposed sewage plant. Lobilito, Inc. sued for breach of the agreement and the new board defended on the theory that it was acting in its governmental capacity and, therefore, could cancel the agreement. The trial court agreed, as did this Court, when we stated that the contractual provisions, in so far as they pertained to sewage facilities, were ancillary to the use of the new building. Lobolito I. Lobolito I was affirmed in part and reversed and remanded in part by Lobolito II, in which the Supreme Court reasoned that:
Given that the authority to build schools rests with local boards and that decisions concerning the creation and operation of schools is a basic governmental function, we find that the successor school board was not obligated to honor the agreement entered into by the predecessor school board and Lobilito. To require such a contract to be enforced would be to inappropriately compel the successor board to either follow the governmental policies of its predecessor or be faced with substantial liability, including the possibility of consequential damages, for merely seeking to implement its own policies.
Lobolito II, 562 Pa. at 388-89, 755 A.2d at 1291 (footnote omitted). In reaching this conclusion, the Supreme Court noted that the “driving force behind the [contract]” or the “crux” of the agreement was the construction of a new school and that the services aspect of the agreement would be “devoid of meaning without the school board’s predicate promise to build the school.” Id. at 387, 755 A.2d at 1291. Similarly here, the “crux” of both the School Pool and the PASI Agreements is *734premised on the implementation of new capital improvements for the public school system. Indeed, without such capital improvement projects, there would be no need for the financing duties performed via the Agreements. Therefore, those Agreements are ancillary to the capital improvement projects and, consequently, entail governmental, not proprietary functions.
Third, I disagree with the majority’s view that the contracts here are specifically excepted by the legislature on the basis that they permit the Authority to make and acquire long-term commitments when necessary for the public good. Section 6607(d)(12) of the Act, 53 Pa.C.S. § 5607(d)(12), upon which the majority relies, empowers any authority chartered under the Act to issue bonds with a maturity up to forty years and “to make agreements with the purchasers or holders of the bonds or with others in connection with any bonds, whether issued or to be issued, as the authority shall deem advisable; and in general to provide for the security for the bonds and the rights of the bondholders.” (Emphasis added.) I disagree that this provision compels a decision in PASI’s favor because nothing in this statutory provision provides that a 'program administration agreement, such as that involved here, must be coextensive with the maturity period of the bonds. The fact that it may, as the majority observes, does not, in my view, render it a specific statutory exemption.
For all of these reasons, I would affirm the order of the trial court.
Judge PELLEGRINI joins in this dissenting opinion.

. I also agree with the Authority's contention that the per se rule in Boyle, that municipal authorities engage only in proprietary functions, is contrary to precedent of the Pennsylvania Supreme Court and to statutory authority that states that authorities do perform governmental functions. In Mitchell v. Chester Housing Auth., 389 Pa. 314, 132 A.2d 873 (1957), the Pennsylvania Supreme Court held that a municipal housing authority organized pursuant to the Housing Authorities Law, Act of May 28, 1937, P.L. 955, as amended, 35 P.S. §§ 1541-1565, was performing a governmental function insofar as it exercised police powers of the Commonwealth in connection with a large part of its operation. There, the Supreme Court held that a five-year employment contract given to the secretary/executive director by an outgoing board majority was intended to bind successor boards; that it was the crucial administrative position that embodied the authority's governmental function and required an intimate relationship with the board; and, that successor boards should not be hamstrung by the imposition of a policy-implementing and, to some extent, policymaking machinery not attuned to the new body's policies. Thus, it concluded that the employment contract was not enforceable. The per se rule in Boyle is, thus, contrary to the holding in Mitchell.
In addition to its inconsistency with Mitchell, the language in Boyle is also contradicted by statutory authority. Section 15 of the Municipality Authorities Act of 1945, Act of May 2, 1945, P.L. 382, as amended, formerly 53 P.S. § 318, which, although repealed by the Act of June 19, 2001, P.L. 287, was in effect when the Authority was created, and which is virtually identical to Section 5620 of the current Municipal Authorities Act (Act), 53 Pa. C.S. § 5620, stated;
The effectuation of the authorized purposes of authorities created under this chapter shall be for the benefit of the people of this Commonwealth, for the increase of their commerce and prosperity and for the improvement of their health and living conditions. Since authorities will be petforming essential government functions in effectuating these purposes, authorities shall not be required to pay taxes or assessments upon property acquired or used by them for such purposes....
(Emphasis added.) Because I conclude that the per se rule in Boyle is not consistent with Supreme Court precedent and statutory authority, I would overrule it for this reason as well.

. I also note that municipal authorities have been given certain privileges because of their governmental functions. Importantly, municipal authorities are "local agencies” for purposes of asserting governmental immunity under Section 8542 of the Judicial Code, 42 Pa.C.S. § 8541. Rhoads v. Lancaster Parking Auth., 103 Pa.Cmwlth. 303, 520 A.2d 122 (1987), petition for allowance of appeal denied, 515 Pa. 611, 529 A.2d 1084 (1987). It would be contradictory for governmental immunity to be granted to a municipal authority if it could only act in a proprietary capacity.

. The Trust Indenture defines the "Program Administrator” as PASI or its successor or any other person appointed by the Authority from time to time.