Arizona Court of Appeals Division One Holds That Article 15, Section 12 of the Arizona Constitution Does Not Apply to Municipal Corporations.

In 2001, the City of Flagstaff enacted ordinances requiring the installation of stormwater detention structures for certain developments.  A related ordinance established a city-owned and operated stormwater management utility, which was to construct stormwater drainage systems.  The ordinance allowed the utility to be funded by service and system development fees.  Those fees, however, could be offset by credits to property owners who took measures to reduce the burden on the utility.  In 2003, Plaintiffs submitted a notice of claim to the city, asserting that their development fees had not been reduced even though they had installed detention structures on their properties.  They also claimed that the City had violated their equal protection and due process rights.  Shortly thereafter, Plaintiffs filed their complaint in superior court.  The trial court eventually granted the City’s motion for summary judgment, concluding that the notice of claim was deficient and that the challenged ordinances were constitutional.  Plaintiffs appealed.

On appeal, the Arizona Court of Appeals affirmed the superior court’s rejection of Plaintiffs’ facial challenge but remanded for further proceedings concerning their “as applied” challenge.  The Court began by noting that the lower court had incorrectly found that Plaintiffs’ notice of claim was deficient under Arizona law.  The Court explained Plaintiffs’ claims for declaratory relief were not subject to the notice of claim requirement because Arizona’s notice of claim statute simply does not apply to claims for declaratory relief.  As for Plaintiffs’ claims for damages, the Court found that the City waived any objection to Plaintiffs’ compliance with the notice of claim requirement by participating in the litigation for more than three years before seeking a ruling on the issue. 

With respect to Plaintiff’s constitutional challenge, the Court explained that the rational basis test applied to Plaintiffs’ challenge because there is no fundamental right affected by the ordinances.  In doing so, the Court rejected Plaintiffs’ contention that the ordinance violated the fundamental right against rate discrimination by public service corporations guaranteed by Ariz. Const. Art. 15, § 12 – which provides that “all charges made for service rendered, or to be rendered, by public service corporations . . . shall be just and reasonable, and no discrimination in charges, service, or facilities shall be made between persons or places for rendering a like and contemporaneous service.”  According to the Court, section 12 does not apply to the challenged ordinances because municipal corporations are explicitly excluded from the definition of “public service corporations.”  The Court held that the challenged ordinances survived the rational basis review because Plaintiffs’ evidence concerning the fairness of the ordinances proved only that the policies of the ordinances are fairly debatable – not that they lacked a rational basis. 

Although the ordinances themselves were facially valid, the Court concluded that summary judgment was not appropriate because there was sufficient evidence supporting Plaintiffs’ “as applied” challenge.  The Court noted that, although the ordinance required that all properties pay the utility charges, the City had only billed those properties with water meters.  According to the Court, this evidence could support Plaintiffs’ contention that the ordinance was being intentionally applied in violation of the equal protection guarantee.

Because the Court held that one of Plaintiffs’ state constitutional claims may have merit, it concluded by noting that the Arizona courts have never created a damage remedy for violations of the state constitution and that nothing in its opinion should be interpreted as doing so here.

Judge Swann authored the opinion; Judges Gemmill and Johnsen concurred.