Applying the Arbitrary-or-Capricious Standard to Governing Bodies
Ex parte East Central Baldwin County Water, Sewer and Fire Protection Authority v. Town of Summerdale (“Summerdale III”): The appropriate standard of review for reviewing the decisions and review process of a legislatively-created governing body is the arbitrary-or-capricious standard, and not “fraud, corruption, or unfair dealings” standard.
In 2016 the Baldwin County Circuit Court granted partial summary judgment that was later affirmed by the Alabama Court of Civil Appeals declaring that two amendments to the certificate of incorporation of East Central Baldwin County Water, Sewer and Fire Protection Authority (“ECBC”) that had been approved by the Baldwin County Commission (one in 2002 and one in 2008) were void. ECBC petitioned the Supreme Court of Alabama for a writ of certiorari, which it granted.
In October 2009, the Town of Summerdale (“Summerdale”) sued ECBC and the Baldwin County Commission seeking a declaratory judgment that the 2002 and 2008 amendments to ECBS’s certificate of incorporation were void. The 2002 amendment expanded ECBC’s geographic service area. The 2008 amendment authorized ECBC to include sewer services in certain parts of its service area.
Summerdale alleges that the amendments were void because the county commission approved them based on incorrect facts set forth in the applications for the amendments. According to Summerdale, the 2002 amendment sated that there were no other public water systems to adequately serve the expanded geographic service area. And the 2008 amendment stated there was no other public sewer system able to adequately provide sewer service to the proposed sewer service area.
In 2012, the trial court entered partial summary judgment, which it certified as a Rule 54(b) final order, declaring the 2002 amendment to be void. In 2013, the Alabama Court of Civil Appeals set aside the Rule 54(b) certification and dismissed the appeal because the partial summary judgment did not address the validity of the 2008 amendment. Thereafter, the trial court entered a revised order stating its partial summary judgment likewise applied to the 2008 amendment. ECBC appeal, and the Court of Civil appeals, finding that the plaintiffs lacked standing to challenge the amendments, instructed the trial court to set aside the void judgment and dismiss the claims pertaining to the 2002 and 2008 amendments.
The plaintiffs petitioned the Alabama Supreme Court, which granted a writ of certiorari and reversed the appellate decision and remanded the case for further proceedings. On appeal the Court of Civil Appeals affirmed the partial summary judgment by concluding that the county commission did not have authority to approve the applications containing incorrect statements of fact, which resulted in the subsequent 2002 and 2008 amendments. In short, the Court of Civil Appeals’ findings supported the Plaintiffs’ allegations that ECBC’s applications misstated the adequacy (1) of the public water system available in the expanded service area (2002), and of the public sewer system in the proposed sewer service area (2008).
Analysis by the Alabama Supreme Court
Appropriate Standard for Review of the County Commission’s Decisions
In Summerdale III, ECBC argued to the court of civil appeals that the county commission’s decisions are presumed valid unless they are arbitrary or capricious, or were the result of fraud, corruption, or unfair dealings. But there are different standards of review available depending on whether the commission’s actions are discretionary or mandatory. When the actions are mandatory, there is not limited jurisdiction for review. Summerdale has argued that because the facts in ECBC’s application were false, the county commission lacked the discretion to approve the application, and the applicable statute was mandatory.
The Court of Civil Appeals held that the county commission’s actions in approving the 2002 and 2008 amendments were not based on acts of discretion, but rather because the applications contained untrue facts, the county commission had no choice but to deny the applications. Therefore, the trial court’s standard of review as to the county commission’s actions is not contingent on a showing that they were a result of fraud, corruption, or unfair dealings, nor is the court limited to only county commission decisions that are shown to be arbitrary or capricious.
However, ECBC further argued to the Alabama Supreme Court that because it is organized under Alabama Code (1975) § 11-88-1 et seq. as a “water, sewer and fire protection authority,” if that entire controlling statute is given effect, the county commission’s decision to approve or deny an application for an amendment to a certificate of incorporation is entirely discretionary. Alabama Code (1975) § 11-88-5 provides that any amendment to an authority’s [ECBC] certificate of incorporation, including changes to the geographic service area or type of services provided, must be approved by the applicable county governing body [county commission]. Such an application must include particular information, including as statement that there is no public water and/or sewer systems adequate to serve any new territory. The governing body [county commission] is charged with finding whether the facts alleged in the application are true, and if so, “it shall adopt” a resolution declaring the statements in the application have been found to be true. If it finds the statements in the application are not true, “it shall deny” the application.
Summerdale argued consistent with the opinion of the Court of Civil Appeals that because of the false statements in the applications, the county commission had no discretion to approve or deny the application. It’s approval was void. The Supreme Court of Alabama found this to be a misreading of the statute in three respects:
- The argument misreads the statute as declaring the county commission review the application shall deny the application if certain facts are untrue. Rather, the statute provides that, “[i]f the said governing body finds and determines that the statements in the said application are not true, it shall deny the application.”
- The argument fails to address the essential nature of the review process provided for by the statute. In reviewing the plain language of the statute, the Alabama Supreme Court found review process itself, including the county commission’s task to make findings and determinations, is inherently discretionary, not mandatory. The only apparently mandatory duty implicit in the statute is that the county commission act consistent with its own findings, which this commission did.
- The argument does not adequately consider who was tasked with determining the veracity of the statements contained in the applications. The approach that Summerdale advocated would ultimately shift that responsibility to a circuit judge. The statute appears clear that the legislature intended a governing body (i.e., county commission) to be the entity to make that decision and has situation that governing body to be in the best position to make such decisions.
Whether the County Commission’s Approval of the Application is Subject to Judicial Review
As identified above, ECBC contends that the county commission’s decisions are presumed valid and not subject to judicial review unless they are arbitrary or capricious, or were the result of fraud, corruption, or unfair dealings. Without explaining the applicability to this situation of the cases it cited, Summerdale argued that counties are creatures of the legislature, having only the authority conferred upon them by the legislature, and governing bodies created within the county must act only within the strict and narrow confines of their authority.
Disregarding the parties’ contentions, the Supreme Court of Alabama found the arbitrary-or-capricious standard to be the appropriate standard for the matters at issue, and specifically disavowed the applicability of the “fraud, corruption, or unfair dealings” standard when reviewing a county commission’s approval process.
Applying the Arbitrary-or-Capricious Standard
Summerdale contends the county commission should have denied ECBC’s applications because they contained incorrect statements about adequate water and sewer systems. In applying the arbitrary-or-capricious standard, the Alabama Supreme Court was unable to determine the adequacy of nearby municipal systems, merely because they were capable of serving the proposed service areas. Adequacy of service must be contemplated from the perspective of the residents and businesses, and must be based on actual service, not a theoretical capacity to provide service.
- The Alabama Supreme Court found that the Court of Civil Appeals applied the wrong standard of review, and its decision was therefore due to be reversed.
- The trial court erroneously granted summary judgment in favor of Summerdale because it did not give appropriate weight to the county commission’s findings as to adequate existing services, and there appeared to be genuine issues of material fact.
 Ex parte East Central Baldwin County Water, Sewer and Fire Protection Authority v. Town of Summerdale [Ms. 1151145 June 30, 2017], ___ So.3d ___ (Ala. 2017) (Summerdale III).
 [Ms. 2120103 Oct. 23, 2013].
 [Ms. 2130708 Feb. 27, 2015] (Summerdale I).
 [Ms. 1140793 May 13, 2016] (Summerdale II).
 See Bentley v. County Comm’n for Russell Cty., 84 S0.2c 490, 493 (Ala. 1955); ECO Preservation Servs., LLC v. Jefferson Cty. Comm’n, 933 So.2d 1067, 1071 (Ala. 2006).
 Jefferson County v. Weinrib, 36 So.3d 508, 511 (Ala. 2009).
 See Ala. Code (1975) § 11-88-5(c)(2).
 Ala. Code (1975) § 11-88-5(d).
 See Chism v. Jefferson County, 954 So.2d 1058, 1073 (Ala. 2006); Dillard v. Baldwin County Comm’n, 833 So. 2d 11, 16 (Ala. 2002).
 See ECO Preservation Servs., LLC, 933 So.2d at 1071.
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