Opinion Information Sheet

			

         IN THE SUPREME COURT OF THE STATE OF WASHINGTON

CITY OF TACOMA, a municipal                         )
corporation,                                        )
                                                    )
                             Appellant,             )                 No. 84824-6
                                                    )
       v.                                           )                   En Banc
                                                    )
CITY OF BONNEY LAKE, CITY OF                        )
FIRCREST, CITY OF UNIVERSITY                        )
PLACE, CITY OF FEDERAL WAY,                         )
PIERCE COUNTY, and KING COUNTY,                     )
                                                    )          Filed  January 26, 2012
                             Respondents.           )
                                                    )

       OWENS, J.  --  The city of Tacoma has franchise agreements with Pierce 

County and the cities of Fircrest, University Place, and Federal Way (Municipalities)

to provide them with water services.1 The central issue before us is whether the 

franchise agreements require Tacoma to not only provide and maintain fire hydrants, 

but to bear the costs as well.  As part of that issue, Tacoma also raises questions about 

the impact of the agreements' indemnification clauses on this case, as well as whether 

1 The city of Bonney Lake and King County settled with Tacoma and are no longer 
parties to this lawsuit.  Clerk's Papers at 95-96, 520-21. 

City of Tacoma v. City of Bonney Lake
No. 84824-6

Tacoma must defend Federal Way in this action.  We hold that the franchise 

agreements contractually require Tacoma to provide hydrants to the Municipalities and

that the indemnification provisions do not preclude this lawsuit or require Tacoma to 

defend Federal Way.

                                Facts and Procedural History

       Tacoma entered into franchise agreements with the Municipalities agreeing to 

provide them with a water system.  In consideration, Tacoma received access to the 

rights of way in the Municipalities' jurisdictions and it enjoyed the economies of scale 

that accompanied the larger ratepayer base.  The franchise agreements also allowed 

Tacoma to make long term planning decisions in those areas.  Since the inception of 

these agreements, Tacoma Public Utility (TPU), which is wholly controlled by 

Tacoma, paid for the hydrants in its and the Municipalities' jurisdictions by charging 

ratepayers a hydrant fee.2  Tacoma then changed its billing practice after we decided 

Lane v. City of Seattle, 164 Wn.2d 875, 194 P.3d 977 (2008).

       In Lane, we decided that Seattle Public Utility (SPU) could not charge its 

ratepayers a hydrant fee; payment for the hydrants would have to come from the city 

of Seattle's general fund if it wished to pay for them at all.  Id. at 891.  Further, we 

held that Lake Forest Park, which was receiving hydrant services from SPU, must pay 

for hydrants within its jurisdiction.  Id.

2 To avoid confusion, TPU and Tacoma will hereafter be referred to simply as Tacoma.

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City of Tacoma v. City of Bonney Lake
No. 84824-6

       Seeing the similarity between SPU's service to Lake Forest Park and Tacoma's

service to the Municipalities, Tacoma ceased charging ratepayers for hydrants and 

subsequently sent a bill to the Municipalities for those costs.  The Municipalities

refused to pay.  Tacoma then filed a declaratory judgment action to determine whether 

the Municipalities or Tacoma was responsible for the hydrant costs.

       Several months later, the parties filed cross motions for summary judgment.  

The trial judge granted the Municipalities' motion and denied Tacoma's.  Tacoma then 

filed a motion for reconsideration and the trial judge found that (1) the franchise 

agreements were "valid binding contracts," (2) the indemnification provisions 

precluded Tacoma from pursuing this action, and (3) Tacoma must defend Federal 

Way pursuant the indemnification provision unique to the agreement with Federal 

Way.  Clerk's Papers (CP) at 730-31.  Tacoma challenges each of these rulings and the 

trial judge's failure to enter findings as to all questions posed by Tacoma in the 

declaratory judgment action.  We granted direct review.

                                            Issues

       1.  Do the franchise agreements require Tacoma to provide and maintain 

hydrants for the Municipalities?

       2.  Do the indemnification and hold harmless provisions preclude this action?  

Additionally, must Tacoma defend Federal Way in this action?

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City of Tacoma v. City of Bonney Lake
No. 84824-6

       3.  Was the Uniform Declaratory Judgments Act, chapter 7.24 RCW, satisfied?

       4.  Is Tacoma entitled to attorney fees?

                                           Analysis

       We begin our analysis with the franchise agreements and whether they require 

Tacoma to provide and maintain hydrants.  Related to that question, but distinct, is 

whether the indemnification and hold harmless provisions preclude this lawsuit.  After 

addressing these questions, we decide what impact, if any, Lane has on this case.  

Finally, we address Tacoma's claim that the trial court failed to satisfy the Uniform 

Declaratory Judgments Act when it granted summary judgment.

       I.  The Franchise Agreements Contractually Require Tacoma To Provide 
           Hydrant Services

       Whether the franchise agreements require Tacoma to provide hydrants is a 

question of contractual interpretation. As part of this analysis, we must decide

whether Tacoma was acting in a governmental or proprietary manner when it entered 

the franchise agreements.  This determines the proper level of deference we must 

accord its actions in contracting with the Municipalities.  Then we must determine if 

the franchise agreements require Tacoma to provide and maintain the hydrants.  

Finally, we address if requiring Tacoma to bear the costs of the hydrants violates RCW 

43.09.210, the local government accounting statute.

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City of Tacoma v. City of Bonney Lake
No. 84824-6

           a. Operating a Public Utility and Entering Franchise Agreements Are 
              Proprietary Functions

       A city's decision to operate a utility is a proprietary decision, as is its right to 

contract for any lawful condition.  Burns v. City of Seattle, 161 Wn.2d 129, 143-45, 

154-55, 164 P.3d 475 (2007).  In contrast, a city's decision to grant a franchise is 

governmental.  Id. at 154.  Applying those rules here, Tacoma's decision to operate 

TPU and enter the franchise agreements with the Municipalities was proprietary; the 

Municipalities' decision to grant the franchises was governmental.

       As Tacoma was acting in a proprietary capacity, we examine the franchise 

agreements like any other contract for two main reasons.  First, when a city takes 

proprietary action, its business powers are viewed almost the same as a private 

individual's.  City of Tacoma v. Taxpayers of Tacoma, 108 Wn.2d 679, 694, 743 P.2d 

793 (1987).  In simpler terms, we employ the same tools of contractual interpretation 

that we would for contracts involving private parties.  Second, franchise agreements 

are treated like contracts because they are simply contracts between a municipality and 

another party.  See Burns, 161 Wn.2d at 142-44.  The franchise agreement grants a 

valuable property right to the grantee to use the public streets.  Id. at 143-44.  

Accordingly, we must next determine if the franchise agreements contractually require 

Tacoma to provide and maintain hydrants and to bear the costs.

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City of Tacoma v. City of Bonney Lake
No. 84824-6

           b. Tacoma Is Required To Provide Hydrants under the Franchise 
              Agreements

       When interpreting a contract, we give ordinary meaning to the words in the 

contract and try to give effect to the parties' mutual intent.  Corbray v. Stevenson, 98 

Wn.2d 410, 415, 656 P.2d 473 (1982).  Additionally, we may look to the course of 

dealings in defining a contract's terms.  Puget Sound Fin., LLC v. Unisearch, Inc., 146 

Wn.2d 428, 434, 47 P.3d 940 (2002).  Course of dealings is "'a sequence of previous 

conduct between the parties to an agreement which . . . establish[es] a common basis 

of understanding for interpreting their [agreement].'" Id. at 436 (quoting Restatement 

(Second) of Contracts § 223(1) (1981)).  The course of dealings evidence here is the 

most helpful in determining if the franchise agreements require Tacoma to provide and 

maintain hydrants.

       Course of dealings evidence is the most helpful because the franchise 

agreements do not expressly provide for hydrants but instead provide more generally 

for a "water system."3  See, e.g., CP at 191 (Fircrest) ("construct, operate, maintain, 

replace, and use all necessary equipment and facilities for a water system"); cf. CP at

225 (Federal Way) (concerning "water pipes, and mains and appurtenances and 

3 The franchise agreement with Federal Way does mention hydrants in a later section, but 
it does not aid in answering this question.  See CP at 328 ("[i]f it is necessary to shut 
down or diminish the water pressure so that fire hydrants may be affected, the Franchisee 
shall notify the appropriate fire district by telephone").

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City of Tacoma v. City of Bonney Lake
No. 84824-6

accessories for the transmission and distribution of water").  Tacoma asserts that 

hydrants cannot be included because they are not explicitly mentioned.  However, 

Tacoma's position ignores the course of dealings between the parties along with the

most likely meaning of the term "water system."

       The course of dealings between Tacoma and the Municipalities proves that 

Tacoma agreed to provide and maintain hydrants under the franchise agreements.  

Before Lane, Tacoma included hydrant service as part of its general duties and 

recouped the cost via its rates.  This course of dealings continued for years.  In fact, it 

was not until after Lane that Tacoma began charging the Municipalities for hydrants 

and claiming that hydrants were never a part of the franchise agreements.

       Moreover, the term "water system," as understood by a public utility, likely 

includes hydrants.  The statutory definition of "'[w]ater system'" for public utilities

includes fixtures and appliances.  RCW 80.04.010.  A hydrant is most likely a fixture 

or appliance that is used to supply water. It is undisputed that the Municipalities must 

have hydrants in their jurisdictions and that water must flow to those hydrants to make 

them useful.  Therefore, any discussion of a "water system" by a public utility most 

likely includes hydrants by default.

       Given that a public utility, like Tacoma, likely understood a "water system" to 

include hydrants, and the persuasive course of dealings evidence, we conclude that the 

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No. 84824-6

parties intended hydrants to be a part of the franchise agreements.  Any other 

conclusion would ignore the years of prior conduct.  Therefore, the franchise 

agreements require Tacoma to provide and maintain hydrants and to bear the costs.

           c. RCW 43.09.210?the State Accountancy Statute

       Next, we must determine if requiring Tacoma to provide and maintain hydrants 

violates RCW 43.09.210, the local government accounting statute.  RCW 43.09.210 

requires a government entity to pay for any services it receives from another 

government entity at their "true and full value."  Cf. State v. Grays Harbor County, 98 

Wn.2d 606, 610, 656 P.2d 1084 (1983) (holding RCW 43.09.210 applies to state and 

local government activities).  The phrase "true and full value" is "applied flexibly and 

practically."  5 Op. Att'y Gen. 3 (1997).

       We applied RCW 43.09.210 in Lane and required Lake Forest Park to pay for 

hydrant services provided by SPU.  164 Wn.2d at 889.  SPU provided the services 

pursuant to an ordinance passed by Lake Forest Park, not pursuant to a franchise 

agreement.  See id.  A franchise agreement changes the analysis because it is a 

"valuable property right" "allow[ing] particular individuals to profit from the use of 

the city streets in a manner not generally available to the public."  Burns, 161 Wn.2d at 

143-44.

       That being so, the Municipalities traded franchise rights to Tacoma in return for 

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City of Tacoma v. City of Bonney Lake
No. 84824-6

a water system.  In light of the flexible definition of "true and full value," this is

enough to satisfy RCW 43.09.210.  The franchise agreements give Tacoma the ability 

to plan for the long term and the right to use the public ways.   In return, the 

Municipalities receive the benefit of a water system for their citizens.  Tacoma may 

dispute the value of the franchise agreements, but giving precise values to the benefit 

each party received under the franchise agreements is impracticable.

       Combining the security granted by the franchise agreements with the flexible 

definition of "true and full value," we find that RCW 43.09.210 is satisfied.  Had 

Tacoma wished to exclude hydrants from the franchise agreements, it could have done 

so when it negotiated the agreements.  It cannot now ask this court to amend the 

contract because it is unhappy with the bargain it struck.

           II. The Indemnification Provisions Do Not Apply

       Having determined the scope of the franchise agreements to include hydrants, 

we now determine whether the indemnification provisions cover the cost of hydrants 

and whether Tacoma had a duty to defend Federal Way.

       The trial court found that the indemnification and hold harmless provisions 

preclude this suit and require Tacoma to bear all hydrant costs.  The Municipalities 

contend that the broad language of the provisions supports this ruling.  For example, 

the franchise agreement with University Place states, "[Tacoma] hereby releases, 

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City of Tacoma v. City of Bonney Lake
No. 84824-6

covenants not to bring suit and agrees to indemnify, defend and hold harmless the City 

. . . from any and all claims, costs, judgments, awards or liability to any person." CP 

at 358.

       While this language is undeniably broad, it does not prevent Tacoma, a party to 

the contract, from suing the Municipalities, another party to the contract.  Concluding 

otherwise would produce the absurd result of precluding a party to a contract from 

disputing its obligations under that contract.  Cf. Eurick v. Pemco Ins. Co., 108 Wn.2d 

338, 341, 738 P.2d 251 (1987) (contract interpretation should not produce an absurd 

result).  This gives rise to a broad policy concern that the amicus raises: under the 

Municipalities' interpretation, an indemnified party could completely avoid its 

contractual obligations by claiming any enforcement action to compel performance is 
a "claim" arising under the contract.4 Thus, the trial court erred.

       Despite this error, Tacoma is still responsible for the hydrant costs.  As we held 

in the first section of our opinion, we find that Tacoma is contractually required to 

bear the cost of the hydrants even absent the indemnification provisions.  

Consequently, we can reverse the trial court's ruling as to the indemnification 

provisions while affirming its result.

4 Moreover, the Municipalities are wrong in claiming that the "release" and "covenant not 
to sue" language from two of the franchise agreements precludes this action.  These 
provisions only preclude claims based on the "acts or omissions of [Tacoma]."  CP at 
358, 375.  The Municipalities have failed to demonstrate how the hydrant costs, or the 
applicability of Lane, are an act or omission contemplated by these provisions.

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City of Tacoma v. City of Bonney Lake
No. 84824-6

       Similarly, we reverse the trial court's ruling that Tacoma must defend Federal 

Way in this action.  Granted, Tacoma did agree to "indemnify and hold harmless and 

defend [Federal Way] from any and all claims, demands, losses, actions and liabilities 

(including costs and all attorney fees) to or by any and all persons."  CP at 333.  But 

this interpretation produces an absurd result like the Municipalities' proposed 

interpretation of the indemnification provisions did: Tacoma would be forced to bear 

all costs for litigation when any dispute over contractual performance between parties

arises. That result simply cannot be obtained from reading the provision as it currently 

exists.  

       III.Lane Does Not Apply

       Tacoma next asks us to issue a blanket ruling that any charge for hydrants 

results in a tax, but the issue cannot be decided at this time.  Determining whether a 

charge is a tax or a fee is a nuanced analysis that depends on how the charge is levied.  

See Covell v. City of Seattle, 127 Wn.2d 874, 879, 905 P.2d 324 (1995).  For example, 

in Lane, while we held that hydrant charges to ratepayers resulted in a tax, we also 

held that SPU's charge to Lake Forest Park for hydrants was a fee and not a tax.  164 

Wn.2d at 884, 890.  This dichotomy illustrates that whether a charge for hydrants is a 

tax or a fee depends on how it is levied.

       Currently, Tacoma is not charging any ratepayers for hydrants, and it does not 

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No. 84824-6

have a specific charging scheme in place.  Tacoma has broad discretion in setting its 

rates, see RCW 35.92.200, which means the charge can take many forms.  

Accordingly, we cannot determine whether an undefined charge is either a tax or a fee

under Covell. Any ruling otherwise would be purely hypothetical.  For that reason we 

do not, at this time, address whether Tacoma can charge ratepayers for hydrants.

       IV.The Uniform Declaratory Judgments Act

       Tacoma also contends the trial court erred in granting summary judgment 

without addressing all the issues before it.  Tacoma relies on Greyhound Corp. v. 

Division 1384 of Amalgamated Ass'n of Street, Electric Railway & Motor Coach 

Employees of America, 44 Wn.2d 808, 271 P.2d 689 (1954), to claim that the trial 

court should have determined who is responsible for the ongoing costs and 

maintenance of the hydrants.

       Greyhound does not support Tacoma's position.  Instead, Greyhound merely 

prevents a court from dismissing a complaint with prejudice without declaring the 

rights of the parties first.  Id. at 822-23.  Here, the trial judge followed that 

requirement.  He dismissed Tacoma's case not on a technicality, but on the merits by 

making several findings of fact that were dispositive on the issues presented.  Thus, 

the trial court's decision to not address every issue was proper.

       V. Attorney Fees

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No. 84824-6

       Neither Federal Way nor Tacoma is entitled to any attorney fees related to the 

duty to defend claim.  Above, we stated that Tacoma does not have a duty to defend

Federal Way; therefore, we must reverse any attorney fees related to that claim that 

were awarded to Federal Way.  Tacoma now seeks attorney fees under that very same 

duty to defend provision despite its previous arguments that the provision does not 

apply here.  Accordingly, Tacoma's incongruous request for attorney fees must be 

denied because the duty to defend provision is inapplicable.

                                          Conclusion

       We hold that the franchise agreements contractually require Tacoma to provide

and maintain the hydrants in the Municipalities' jurisdictions and to bear the cost.  

While we are affirming the trial court on most issues, we do so on other grounds 

because the indemnification provisions do not preclude this action.  We further hold 

that Tacoma does not have a duty to defend Federal Way, and we reverse any attorney

fees previously awarded to Federal Way based on this claim.   Additionally, the trial 

judge satisfied the Uniform Declaratory Judgments Act by deciding the case on the 

merits.  Finally, Tacoma is not entitled to attorney fees because Tacoma cannot point 

to any provision in the franchise agreement authorizing such an award.  In sum, we 

affirm the result the trial court reached, except with regard to the duty to defend, 

which we reverse.

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City of Tacoma v. City of Bonney Lake
No. 84824-6

AUTHOR:
        Justice Susan Owens

WE CONCUR:
        Chief Justice Barbara A. Madsen                  Justice James M. Johnson

        Justice Charles W. Johnson                       Justice Debra L. Stephens

        Justice Tom Chambers                             Justice Charles K. Wiggins

                                                         Gerry L. Alexander, Justice Pro Tem.

        Justice Mary E. Fairhurst

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