Local Government Law

• Publication year: 2015

Local Government Law

Ken E. Jarrard

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Local Government Law

by Ken E. Jarrard^*

I. Contracts

A. Multiyear Agreements and Proprietary Functions

Georgia law provides, "One council may not, by an ordinance, bind itself or its successors so as to prevent free legislation in matters of municipal government."¹ "In addition to ordinances, the prohibition applies to contracts entered into by municipalities."² "To the extent that a governmental contract impinges on a municipality's ability to legislate freely, the contract is ultra vires and void."³ This statute contains an exception providing that the terms and conditions otherwise required for a county or city to enter into a multiyear agreement do not apply with respect to "contracts arising out of their proprietary functions."⁴ Little guidance historically has existed regarding what constitutes a county's or municipality's "proprietary" function within the confines of section 36-60-13 of the Official Code of Georgia Annotated (O.C.G.A.).⁵

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The survey period from June 1, 2014 to May 31, 2015⁶ witnessed a degree of illumination on this critical issue. In Unified Government of Athens-Clarke County v. Stiles Apartments, Inc.,⁷ the Georgia Supreme Court considered whether a multiyear contract providing that a parking lot would be jointly constructed on private and public property for use by the private party was ultra vires because it bound future councils.⁸ The court framed the pertinent issues as follows:

(1) Is the contract governmental in nature and hence subject to the prohibition, or proprietary and hence not subject to the prohibition? (2) If governmental in nature, is the contract subject to an exception? (3) If not, is the contract subject to ratification and has it been ratified? (4) If not, is the municipality estopped from relying on the statutory prohibition?⁹

The court was persuaded that the underlying rationale for the parking lot "was to relieve traffic congestion on a public street via the construction and maintenance of a sidewalk and parking area."¹⁰ The court, relying on authority from 1968,¹¹ held that the "construction and maintenance of a street in a safe condition for travel are corporate/proprietary functions not subject to the prohibition against binding successor councils."¹² Consequently, the supreme court held that the multiyear agreement was not subject to the prohibition against binding successor councils and was not, therefore, ultra vires.¹³

B. Plain Language of a Contract

Within that same vein, Jackson County v. Upper Oconee Basin Water Authority¹⁴ serves as a strong admonition to review agreements carefully to ensure that the obligations of the parties are clearly identified, particularly within the realm of a long-term agreement where conditions can change.¹⁵ This warning is especially true within the

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context of intergovernmental agreements, which can last up to fifty years.¹⁶ In Upper Oconee Basin Water Authority, the County entered into a contract with the Water Authority allowing the County to withdraw a maximum quantity of water equal to the "EPD approved Established Yield."¹⁷ The relevant contract defined Established Yield of the Georgia Department of Natural Resources Environmental Protection Division (EPD) to mean "the maximum rate of withdrawal which can be sustained during critical dry periods as established by a mathematical simulation of the reservoir operation as it would have occurred during the worst historic drought for which applicable streamflow records are available."¹⁸ Also, the agreement did not name the party responsible for conducting the simulation or provide for when the simulation should be conducted. The County claimed a right to force a recalculation of the Established Yield with new drought data that was not available at the time of the original agreement.¹⁹

The court disagreed, determining such a right did not exist under the plain language of the contract and that once the EPD approved the initial Established Yield, there was no obligation to recalculate that amount.²⁰ The court concluded "the Agreement does not include a provision requiring the Authority to conduct multiple simulations based upon changing data," and, therefore, "the Authority could not be in breach of an obligation to recalculate the Established Yield when such an obligation does not exist under the plain language of the Agreement."²¹

C. Termination or No-Damage Clauses for Delays

The Georgia Court of Appeals in Effingham County v. Roach²² confirmed that a practitioner must precisely articulate what delays and causes for delays are intended to be enforceable and operational when drafting termination or no-damages clauses because no relief will be afforded to delays or their causes when not set forth with specificity.²³ In Roach, the County entered into an agreement to bring water and sewer services to a developer's property. The County never provided

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water or sewer service to the development and, instead, engaged in protracted discussions with the City of Rincon about which governmental entity would provide the service. The developer sued the County for breach of contract.²⁴

The County based its primary contractual defense on the contract's termination or no-damage clause, which provided:

In no event shall the County be held liable to the Developer for consequential damages or economic losses arising from delayed performance; provided, however, that in the event the County fails to timely perform its obligations under this Agreement after written notice of default from the Developer, then Developer shall be entitled to complete the County's construction obligations hereunder . . . .²⁵

The developer neither gave the described notice nor attempted to complete the work.²⁶ Nonetheless, the Georgia Court of Appeals held that the relevant contractual provision did not relieve the County from liability.²⁷

Relying on Department of Transportation v. Arapaho Construction, Inc.,²⁸ the court held that "termination or no-damage clauses will not be applied to delays or their causes not contemplated by the parties."²⁹ Furthermore, "such provisions . . . must be clear and unambiguous, [and] specific in what they purport to cover."³⁰ Here, the developer "presented evidence suggesting that the delay in providing [water and sewer utilities] to [the property] was caused, at least in part, by the County's protracted discussions" with another city "about which governmental entity was going to provide [water and sewer utilities] to [the property]."³¹ Because the termination or no-damage clause did not "specify

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this type of delay," the court of appeals determined that there was "an issue of fact for the jury."³²

II. Insurance and Contracts

Ayers v. Ass'n of County Commissioners of Georgia-Interlocal Risk Management Agency³³ involved a Stephens County deputy sheriff, assigned to the Mountain Judicial Circuit Narcotics Criminal Investigation and Suppression Team (the NCIS Team), who shot and killed a man. The NCIS Team was established in Stephens, Habersham, and Rabun Counties under intergovernmental agreements. Georgia Interlocal Risk Management Agency (GIRMA) separately insured each of the three counties under identical insurance policies. In an effort to maximize the available insurance coverage, the plaintiff (the decedent's spouse) claimed that each of the three insurance policies provided separate coverage for the actions of the Stephens County deputy.³⁴

In response, GIRMA filed an action seeking a declaratory judgment that the insurance policy only applied to the Stephens County claims.³⁵ Applying the well-settled rule that ambiguities in insurance contracts will be construed in favor of the insured (in this case, the deputy sheriff, who would benefit from having more insurance coverage for the claim against him), the court of appeals concluded that, due to the joint creation and control of the NCIS Team by representatives of all counties, the Stephens County deputy was, for insurance purposes, an "officer" of all three counties and, thus, covered by all three GIRMA insurance policies.³⁶ While this case primarily involved construction of provisions of insurance contracts, it serves as a reminder of the potential risks that must be considered at the commencement of intergovernmental arrangements involving the joint or shared use of personnel.

III. Taxation

A. Sales Involving Government Entities

In CPF Investments, LLLP v. Fulton County Board of Assessors,³⁷ the Georgia Court of Appeals addressed whether a county board of assessors

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may treat sales involving governmental entities differently for valuation purposes than for private party sales.³⁸ The real property at issue originally sold for $420,000 in 2002. It was subsequently purchased in a 2010 foreclosure sale for $271,735, immediately conveyed to the Federal Home Loan Mortgage Corporation (Freddie Mac) for the same price, and finally sold to CPF Investments, LLLP (CPF) for $207,000 in 2011. Irrespective of the 2010 and 2011 sales prices, the County Board of Assessors (Board) appraised the property at $370,400 for the 2012 tax year.³⁹ CPF appealed the appraisal to the superior court pursuant to O.C.G.A. § 48-5-311,⁴⁰ asserting that O.C.G.A. § 48-5-2(3)⁴¹ required the property to be appraised at the 2011 sales price for 2012.⁴² The trial court disagreed, finding that the 2011 sale did not reflect the fair market value of the subject property or qualify as an arm's length, bona fide sale under O.C.G.A. § 48-5-2(3) because, as a government agency, Freddie Mac's purchase and sale was not self-interested.⁴³

In support of its position, CPF submitted an affidavit to the court, stating that CPF and Freddie Mac were unaffiliated and the 2011 sale was an arm's length transaction, entered into in good faith and without fraud or deceit.⁴⁴ The Board submitted its own affidavit, alleging that governmental entities acted in the public's...