Havre de Grace v. K. Hovnanian Homes

THE MAYOR AND CITY COUNCIL OF HAVRE DE GRACE, ET AL. V. K. HOVNANIAN HOMES OF MARYLAND, LLC, ET AL., No. 796, Sept. Term 2018 HEADNOTES: MUNICIPAL CORPORATIONS>PUBLIC CONTRACTS>EXECUTIVE POWER The power to enter into contracts with a municipal corporation, like the City of Havre de Grace, is an executive power. The City of Havre de Grace’s charter requires that a contract regarding water and sewer systems and regarding roads be entered into by the Mayor, or a subordinate executive branch official, on behalf of the City of Havre de Grace. Circuit Court for Harford County Case No. 12-C-12-3214 OC REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 796 September Term, 2018 ______________________________________ THE MAYOR AND CITY COUNCIL OF HAVRE DE GRACE, ET AL. v. K. HOVNANIAN HOMES OF MARYLAND, LLC, ET AL. ______________________________________ Friedman, Shaw Geter, Zarnoch, Robert A.

(Senior Judge, Specially Assigned), JJ. ______________________________________ Opinion by Friedman, J. ______________________________________ Filed: May 1, 2020 Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. Suzanne Johnson 2020-05-01 14:47-04:00 Suzanne C. Johnson, Clerk K. Hovnanian Homes of Maryland, LLC (“K. Hovnanian”) proposed to enter into a recoupment agreement with the City of Havre de Grace by which K. Hovnanian would build the infrastructure necessary to the development of its parcel and to the development of two adjoining parcels. Under the proposed recoupment agreement, the City would reimburse K. Hovnanian for the infrastructure improvements attributable to the adjoining parcels when the lots within those adjoining parcels were sold to the eventual homeowners. The infrastructure that K. Hovnanian proposed to build fell into two categories: (1) water and sewer lines; and (2) roads.

The City’s legislative branch—the City Council—approved the recoupment agreement, but the City’s executive branch—led by the Mayor—did not. The City claims that the recoupment agreement was not properly entered into and is, therefore, not a binding agreement. K. Hovnanian, however, seeks to have us enforce the recoupment agreement, despite the Mayor’s refusal to approve it. Thus, the essential questions are how the City enters into contracts to provide these two categories of infrastructure improvements and whether, in this instance, it did.

FACTS1 K. Hovnanian and the City of Havre de Grace’s relationship began in 2005 and revolves around 134 acres of farmland that was subdivided into three parcels—Parcels 1, 2, and 3. Of the three, only Parcel 1 had direct access to public roads. As a result, a Public 1 These facts are condensed from our previous unreported opinion in this case: K. Hovnanian Homes of Maryland, LLC, et al. v. The Mayor & City Council of Havre de Grace, et al., No. 1214, Sept. Term 2015, 2017 WL 5054229 (Md. Ct. Spec. App. Nov. 3, 2017).

Works Agreement was entered into, which contemplated infrastructure improvements by K. Hovnanian on Parcel 1. Because the improvements would ultimately provide roadway access and utility connections for future homeowners of Parcels 2 and 3, the City and K. Hovnanian began negotiations to allow K. Hovnanian to recoup a portion of the infrastructure costs from owners of lots in Parcels 2 and 3. K. Hovnanian sent a proposed recoupment agreement to the City in September 2010 stating that the “Phase 1 infrastructure” completed by K. Hovnanian, including the “installation of access and emergency roads, water and sewer lines, and storm water management ponds,” would benefit Parcels 2 and 3. K. Hovnanian agreed to construct and dedicate public access roads to Parcels 2 and 3 and permit connections to the water and sewer utilities and the use of the storm water management facilities in Parcel 1, upon “acknowledg[ment]” from the City that it would be “inequitable to impose all such costs on [K. Hovnanian].” The agreement further conditioned that the City would “impose and collect the recoupment fee … from the owner(s) of Parcels 2 and 3 at the same time a building permit application for new construction … is submitted” and that “[n]o property … [would] be allowed to utilize the Phase 1 Infrastructure unless the applicable recoupment fee … is first paid to the city.” On October 4, 2010, the proposed recoupment agreement was presented to the City Council, which approved it by a unanimous vote.

The last paragraph of the agreement was then modified to read: The City Council of Havre de Grace has approved this Recoupment Agreement, and authorized the Mayor to sign the 2 Agreement, by affirmative vote at the meeting of the City Council on October 4, 2010. Despite the City Council’s unanimous approval, the Mayor declined to sign the recoupment agreement. Following the City Council’s approval, residential lots were developed on Parcel 3 and building permits were issued but the City did not collect the recoupment fees. PROCEDURAL HISTORY K. Hovnanian filed a complaint against the City in the Circuit Court for Harford County to compel the execution and recordation of the recoupment agreement.

K. Hovnanian’s theory of the case was that the parties had sufficiently executed the recoupment agreement and were bound by it. The circuit court disagreed and granted summary judgment to the City under the theory that the recoupment agreement was to have been approved through the City’s legislative process—via ordinance or resolution—and that process was incomplete without the Mayor’s approval. We vacated, noting that the circuit court’s findings were inconsistent with the Charter provisions.2 On remand, the parties once again filed cross-motions for summary judgment. This time the circuit court declared that the recoupment agreement was a binding and enforceable contract solely upon the City Council’s approval.

The City appealed. 2 This Court, in reviewing only the grounds relied upon by the circuit court in granting summary judgment, held that neither of the Charter sections relied upon by the circuit court (§§ 19, 34) expressly required the Mayor’s signature. 3 BACKGROUND I. HAVRE DE GRACE CHARTER GENERALLY3 Havre de Grace, having been incorporated in 1785, is one of the oldest cities in Maryland.4 MARYLAND MUNICIPAL LEAGUE, MARYLAND’S 157: THE INCORPORATED CITIES AND TOWNS 166 (Linda M. Burrell, ed. 2000). The Havre de Grace City Charter creates a Mayor and City Council form of government, Charter, § 2, with all elected officials serving two-year terms. Charter, §§ 17; 22(A). The Mayor is the chief executive officer and supervises the City, its employees, and its property.

Charter, § 18. The Mayor is responsible for seeing that the laws of the City are faithfully executed. Charter, § 18(B). The Charter also identifies seven municipal agency heads, each of whom are appointed by the Mayor and who serve subject to the Mayor’s approval: the Director of Administration, Charter, §§ 46-48; the City Attorney, Charter, § 49; the Chief of Police, Charter, §§ 50-52; the Director of Public Works, Charter, §§ 62-63; the Director of Planning, Charter, §§ 79- 80; the Director of Finance, Charter, §§ 81-82; and the Director of Economic Development, Charter, §§ 83-84. 3 The City of Havre de Grace Charter can be found at https://ecode360.com/9065514 [https://perma.cc/8UA2-KBW5]. 4 Havre de Grace’s charter predates the adoption of Article XI-E of the Maryland Constitution but is now governed by it.

Under Article XI-E, municipalities are “recognized equally under state law” and are granted the power to legislate on matters of local concern and their government. MARYLAND’S 157: THE INCORPORATED CITIES AND TOWNS 3, 6-7 (Linda M. Burrell, ed. 2000); see Art. XI-E, § 1 (stating that “the General Assembly shall act in relation to the incorporation, organization, government, or affairs of any such municipal corporation only by general laws which shall in their terms and in their effect apply alike to all municipal corporations”). 4 The City’s legislative branch is its City Council, which is made up of six members. Charter, § 21. The City Council may legislate on a broad variety of topics regarding municipal government.

Charter, § 33 (“The City Council shall have power to pass all ordinances and resolutions, not contrary to the laws and Constitution of the United States and the State of Maryland, as [it] may deem necessary for good government and benefit of the City.”); § 34. Ordinances passed by the City Council can be approved or vetoed by the Mayor and a mayoral veto may be overridden. Charter, § 19 (setting up procedure for passing ordinances and resolutions, procedure for veto, and procedure for veto override). The Havre de Grace City Charter is typical of a strong mayor system and emphasizes the separation of legislative and executive powers.

See MARYLAND’S 157: THE INCORPORATED CITIES AND TOWNS 9 (describing the characteristics of a strong Mayor/Council form of government); see also H. George Frederickson et al., The Changing Structure of American Cities: A Study of the Diffusion of Innovation, 64 PUB. ADMIN. REV. 320, 326 (2004) (“Patterns of political separation of powers and checks and balances usually accompany the trend toward enhanced mayoral powers between the mayor and the council.”). Under this government structure, the Mayor is “separate from the council” and is the Chief Executive Officer of the administrative branch, while the City Council serves as the legislative body with “power to pass and create resolutions and ordinances.” MARYLAND’S 157: THE INCORPORATED CITIES AND TOWNS 9; Charter, § 34(A).

See also DON L. BOWEN & ROBERT S. FRIEDMAN, LOCAL GOVERNMENT IN MARYLAND 59-62 5 (1955) (“Characteristic of the mayor and council form is the separation of power and coordinate status of legislative and executive departments.”).5 II. CHARTER PROVISIONS RELATED TO WATER AND SEWER LINES The Havre de Grace City Charter contains several provisions specifically governing water and sewer lines. First, § 68 of the Charter gives the City general powers over the construction, operation, and maintenance of the sewer and water system: The City shall have the power to: A. Construct, operate[,] and maintain a water system and water plant. B. Construct, operate[,] and maintain a sanitary sewerage system and a sewage treatment plant.

C. Construct, operate[,] and maintain a stormwater drainage system and stormwater sewers. D. Construct, maintain, reconstruct, enlarge, alter, repair, improve, or dispose of all parts, installations, and structures of the above plants and systems. E. Have surveys, plans, specifications[,] and estimates made for any of the above plants and systems or parts thereof or the extension thereof. 5 There are a few ways in which the Havre de Grace City Charter involves the Mayor in the legislative process, including: setting city council agendas, presiding over city council meetings, and voting to break council ties, Charter § 18(A); approving (or vetoing) Ordinances, Charter, § 19, and preparing and introducing the annual budget, Charter, § 37. These important incursions by the executive on the legislative branch do not undermine the fundamental point that the Charter creates a separation of powers.

See generally Judy v. Schaefer, 331 Md. 239, 261-64 (1993) (holding that Governor’s involvement in State budget process does not violate State separation of powers). 6 F. Do all things it deems necessary for the efficient operation and maintenance of the above plants and systems. Charter, § 68. Section 69 of the Charter gives the City the power to “extend its water or sewerage systems beyond the City limits.”6 We think it is reasonably plain that when the Charter uses the phrase “sewerage systems” in § 69 it is including both the sanitary sewer system of § 68(B) and the stormwater sewer system of § 68(C). Moreover, the Charter authorizes the City Council to pass legislation regarding “sewers and sewer service” and “water service.” Charter, §§ 33; 34(A).

This legislative power, however, is “not to be construed as limiting the powers of the City to the subjects mentioned or requiring that the City pass or create resolutions or ordinances concerning” the subjects mentioned in § 34(A). Charter, § 34(B). Suffice it to say, the City has plenary powers with respect to its water and sewer systems. The critical section for our present purposes, however is § 70, which provides in full: The Mayor and City Council may enact Ordinances providing for the regulations and control of waters and sewers.

In addition, the Mayor and City Council may enter into contracts for the purpose of providing water and sewer services to new service areas. Such contracts may provide for advance payment of capital cost recovery charges, the construction of capital improvements to water and sewer facilities, and for crediting such advance payments and the value of such capital improvements to capital cost recovery charges which become payable in the future. 6 Pursuant to Resolution No. 244, passed by the City Council in 2004, the City annexed the K. Hovnanian property and enlarged the boundaries of the City to include the annexed property. 7 Charter, § 70. Our goal is to understand and effectuate the intention of the framers of this provision. Blackstone v. Sharma, 461 Md. 87, 113-14 (2018) (discussing statutory