A Martinsville Circuit Court judge has ruled in favor of the City of Martinsville in its long-running contract dispute with the Henry County Public Service Authority (PSA), awarding the city more than $7.4 million in damages and declaring the PSA liable for additional future costs.
The ruling, issued June 6 by Judge G. Carter Greer, states that the city is entitled to $7,403,434 in compensatory damages — representing 47 percent of the cost to rehabilitate the Smith River Interceptor (SRI), a major sewer line. The court also found that the PSA will be responsible for its share of the cost to rehabilitate the Jones Creek Interceptor (JCI), based on the volume of its sewage that flows through that line. Work on the JCI has not yet been completed.
In addition to awarding damages, the court terminated the sewer service contract between the city and the PSA. However, it deferred ruling on whether the city is also entitled to prejudgment interest — additional compensation for the time that has passed since the costs were incurred — until a hearing scheduled for July 22.
The ruling marks a significant victory for the city, which argued that the PSA had breached the contract by refusing to pay its proportional share of capital improvement costs for the two interceptors, which carry wastewater from the PSA to Martinsville’s treatment plant.
In a second amended complaint, the city sought damages and a court declaration that the contract should be terminated. The PSA denied liability, arguing that the city had breached the agreement first and that it should not be held responsible for capital improvement expenses.
At the center of the dispute was language in the decades-old contract requiring both parties to share in the cost of future capital improvements to shared facilities. The court found that:
“The City has proven by a preponderance of the evidence that the PSA has breached the contract.”
In his findings, Greer wrote that the PSA failed to prove that the contract had been altered through the parties past conduct or “course of dealing,” and that even though Martinsville did not provide the PSA with construction plans for the sewer upgrades, the PSA continued to use the facilities and is still obligated to pay its share.
“Reduced to its simplest terms, the contract obligated the PSA to share the cost of renovating the interceptors, and the PSA reneged,” the ruling states. “The Defendant’s failure to uphold its side of the bargain has cost the City millions of dollars, a terrible strain on a municipality that is struggling financially. For fifty years, the City faithfully has performed its duty under the contract by conveying the Defendant’s sewage through the SRI and JCI. The PSA has no legal right now to refuse to perform its duty.”
The ruling followed a three-day bench trial in January, during which both sides presented expert testimony. The court praised the parties’ post-trial briefs as “excellent.”
The PSA has not yet announced whether it will appeal the decision.
Public Information Officer Brandon Martin said, “We’ve just received news on the outcome of the litigation between the PSA and the City of Martinsville. At this point, there are a number of outstanding issues that we will need to discuss with our attorneys and Board members before deciding a path forward.”
Despite the outcome, Henry County Administrator Dale Wagoner, who also is General Manager of the PSA, said the agency had made “good-faith efforts to reach a settlement at every stage of this case, believing that a fair compromise would help preserve the working relationship we truly value with the city.”
“While our proposals may not have met the city’s expectations on this particular issue, we believed then—and still believe now—that the long-term benefits of collaboration far outweigh any one dispute,” he said.
Wagoner emphasized the PSA’s commitment to the community: “From the outset, our actions have been guided by a long-term view of what’s best for the community. That perspective remains unchanged as we take the next steps — steps that will be impactful on local governments, business and industry, and the citizens we all serve.”
He also hopes that the case will have a broader positive effect.
“The impact of this case extends beyond the courtroom, and we hope this outcome can serve as a catalyst for stronger cooperation among local governments and public agencies in our region.”
