Court Opinion

ID: 9851896
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:21:05.139078+00
Date Added: 2024-06-11T09:22:18.762294
License: Public Domain

HUDSON, Judge
(concurring in part, dissenting in part).
I concur with the majority opinion’s conclusion that the Fiber Project is a “utility or other public convenience” under Minn. Stat. § 475.52, subd. 1 (2008). I also agree that Minn.Stat. § 475.52, subd. 1, prohibits the use of any bond money to pay current expenses.1 But I disagree that the $1.25 million in bond proceeds set aside in the operating reserve fund were properly *917characterized as permissible start-up costs. Accordingly, I respectfully dissent from the majority opinion’s conclusion that the district court did not err by granting respondent’s motion to dismiss. I also respectfully dissent from the conclusion that the district court did not abuse its discretion by refusing to allow appellant to file the first amended complaint.

Dismissal of appellant’s claim

Appellant’s claim was improperly dismissed for two reasons. First, the dismissal of appellant’s claim on a rule 12 motion was premature. In determining whether a complaint fails to state a claim upon which relief can be granted, the court considers only the facts alleged in the complaint, accepting those facts as true, and construes all reasonable inferences in favor of the non-moving party. See Hebert v. City of Fifty Lakes, 744 N.W.2d 226, 229 (Minn.2008) (quotation omitted). Accepting the facts as alleged by appellant in its complaint leads only to the conclusion that respondent’s costs were current expenses and therefore prohibited under the statute. Moreover, the district court’s findings to the contrary contradict the well pleaded allegations of the complaint and constitute reversible error. See In re Milk Indirect Purchaser Antitrust Litig., 588 N.W.2d 772, 775 (Minn.App.1999) (reversing a rule 12 dismissal where the complaint set forth a legally sufficient claim).
At a minimum, the parties’ dispute over the proper characterization of start-up costs and current expenses demonstrates that there is a material factual dispute regarding the definition of these disposi-tive terms. And that dispute cannot be resolved absent further discovery and possibly expert testimony regarding the generally accepted definitions of these terms, particularly in the revenue bond context.
Second, a careful review of the record reveals that many of respondent’s start-up costs, if not all of them, can be accurately characterized as current expenses. The indenture defines operating and maintenance expenses to include “any other current expenses or obligations required to be paid by the City.” (Emphasis added.) The majority opinion acknowledges this language but effectively dismisses it, noting that the indenture also indicates that these costs would only be paid for a three-year start-up period and are “nonrecurring.” But the three-year start-up period has no statutory basis and appears to have been arbitrarily selected by respondent.
More importantly, additional statements in the indenture further suggest that the identified expenses are more ongoing in nature. For example, the indenture provides that the Fiber Project will launch with seven employees, including “two inside technicians to take care of electronics, two outside technicians to maintain the fiber network, two customer service representatives to take orders and communicate with the public, and one market/salesperson .... The employees ... will be employees of the City and will receive city benefits.” While the salaries of these employees might charitably be characterized as start-up costs, without additional information about the terms and duration of their employment, these salaries and benefits sound suspiciously like typical payroll and benefit obligations of any municipality.
In other words, these salaries appear to be current expenses of the municipality and are no different than the salaries and benefits municipalities pay to their firefighters and police officers — payments which are to be made out of general revenue funds. See Op. Att’y Gen. 471K (May 12, 1961) (stating that salary payments are current expenses and not one of the enumerated purposes for which bonds may be issued). By contrast, appellant persuasively argues that true start-up costs only *918include items such as necessary professional planning studies, legal and financial advice, and printing and publication costs. See Minn.Stat. § 475.65 (2008).
The majority opinion also relies on Otter Tail Power Co. v. Vill. of Wheaton, 235 Minn. 123, 49 N.W.2d 804, 810 (1951), for the proposition that respondent is “permitted to use funds allocated to the Operating Reserve Fund as an implied power to be used in carrying out an expressly authorized power.” But Otter Tail is of little help because, there, most of the contested expenses were costs clearly related to making the power plant operational, such as fuel costs. 49 N.W.2d at 810. The contested costs here are not so easily delineated or categorized, as evidenced by the divergent views posited by the parties. Moreover, Otter Tail does not address Minn.Stat. § 475.52 or its prohibition on current expenses.
The majority opinion aptly observes that the costs in question — $1.25 million — are a relatively small percentage (approximately 4.9%) of the total cost of the project. But the broader principle is a significant one, and that is that statutory cities have “no inherent powers and possess only such powers as are expressly conferred by statute or implied as necessary in aid of those powers which have been expressly conferred.” State v. Kuhlman, 729 N.W.2d 577, 580 (Minn.2007) (quotation omitted). Minn.Stat. § 475.52 makes clear that revenue bonds are appropriate for significant capital improvements, including the costs to realize those improvements. But nothing in the statute authorizes revenue bonds to be used to pay the current expenses of a statutory city. Any encroachment that effectively expands that statutory authority sets a dangerous precedent.
Because further discovery was necessary in order to discern the proper characterization of respondent’s costs, the dismissal of appellant’s claim was premature.2 Moreover, the record indicates' — contrary to the district court’s determination — that many of the disputed costs can be characterized as current expenses that cannot be paid through the issuance of bonds. Thus, whether the operating reserve fund is being used to fund start-up costs or pay current expenses is a disputed question of fact that, at this stage in the proceedings, is not ripe for resolution. The district court, therefore, erred by dismissing appellant’s claim.

Appellant’s motion to amend

In the first amended complaint, appellant sought to add additional facts — gleaned from the newly acquired indenture — to support its allegations in the original complaint that respondent intended to use the bond proceeds to pay current expenses. The majority opinion concludes that the evidence presented in the first complaint was sufficient to establish that the operating reserve fund was being used solely to pay start-up costs; thus, the amended complaint would have served no purpose. I disagree.
Contrary to the majority opinion’s determination, the evidence presented in the first complaint did not conclusively show that the operating reserve fund was being used solely to pay start-up costs. Instead, the record suggests the opposite: many of the disputed costs appear to be current expenses that cannot be paid through any type of bond. The facts appellant discovered from the newly acquired indenture *919went directly to determining whether respondent was using the bond proceeds to pay permissible start-up costs, or whether the bond proceeds were being used for prohibited current expenses. As a result, the amended complaint would have provided additional evidence and clarification on the precise issue in dispute.
Minn. R. Civ. P. 15.01 provides that amendments should be liberally granted. On this record, I would conclude that the district court abused its discretion in denying appellant’s motion to file the first amended complaint.
Because I would conclude that it was error to dismiss appellant’s claim and an abuse of discretion to deny appellant’s motion to file the first amended complaint, I would reverse the district court and remand for further proceedings.

. Although I concur with the majority opinion's interpretation of Minn.Stat. § 471.52, subd. 1, respondent's interpretation of the statute is not without some appeal. I note, however, that even if respondent’s interpretation is correct — -that the current — expense limitation in the second sentence of subdivision 1 does not apply to the first sentence in subdivision 1-there is no express authority in the first sentence allowing respondent to pay current expenses from bond proceeds.

. Ideally, the district court would have afforded the parties the opportunity to submit any expert testimony or other evidence they deemed helpful to the district court's determination of whether all or a portion of the operating reserve fund is being used to fund current expenses.