|Legal Opinion: |
Text of Document: MEMORANDUM
Your question is, does a municipality have to return money paid by an outside water user who was also billed for sewer service when no sewer service was provided or available?
Under the facts you related to me, the City provides water service to a certain outside industry. However, for several years the city has also been charging the industry a sewer charge although the industry is not connected to the city sewer system and there is no available sewer. Although the water charge and the sewer charge are set out separately on the utility bill sent to the industry, neither the city nor the industry noticed the erroneous sewer billing. The City itself recently discovered the error and reported it to the industry.
The question could go either way in the Tennessee courts. There is no Tennessee statutory or case law that specifically addresses your question. Tennessee Code Annotated, title 18, chapter 3, part 3 contains a statute of limitations for utility underbilling and overbilling; however, with respect to water and sewer services it provides that:
Notwithstanding any other provision of law to the contrary, if gallonage for water or sewer service or both is inaccurately recorded or registered due to equipment failure [emphasis is mine] and results in the customer being undercharged or overcharged, and the customer is unaware of the error, defect or failure, no utility district, municipality, or water or sewer system or company shall be authorized to collect or assess a charge for the unpaid gallonage or to reimburse the customer for overpayment of such usage, prior to thirty-six (36) months from the date the error is discovered or billed; provided, that if a date certain can be established for such error, which is less than thirty-six (36) months, no utility district, municipality, or water or sewer system or company shall be authorized to collect or assess a charge for such usage, or to reimburse the customer for overpayment of such usage, beyond such date. [Tennessee Code Annotated, § 28-3-302.]
Because the overbilling in the City's case wasn't due to an equipment failure, we still have to resort to guesswork about how the Tennessee Courts would resolve your question.
That resolution could be made against the city under Memphis Light, Gas & Water v. Auburndale School, 705 S.W.2d 652 (1986) and Clarksville Department of Electricity v. Mathews Nissan, Inc., 15 TAM 52-6 (Tn. Ct. App., MS). In the former the City of Memphis was allowed to recover a $32,300 utility underbilling for the period July, 1976-January, 1981, and, in the latter, the City of Clarksville was allowed to recover $17,200 underbilling for an unknown period, arising from their own mistakes. The Court based its decision on two closely related grounds:
- Tennessee and federal statutes prohibit public utilities from creating preferences in rate or discriminating among users of like utility services.
- "The policy that all consumers of publicly provided utilities must pay for what they receive at the same rate charged others for a like service is paramount to any equitable considerations advanced by the customer."
If the city could prevail against a customer in an underbilling case on the rate discrimination ground, it's a short step for the courts to permit a customer to prevail against a city in an overbilling case on the same grounds--sort of a, "What's good for the goose is good for the gander" theory. That would be a simple way for the courts to resolve such cases.
But Auburndale School and Mathews Nissan can't presently be read that way in light of the law in other jurisdictions where questions similar to your have arisen. The heavy weight of authority is that an overbilled utility customer is entitled to a refund if the amount claimed to be overbilled was paid under duress. [See 34 ALR 185, and B & B Amusement Enterprises, Inc. v. City of Boston, 8 N.E.2d 799 (1937), Oliver v. Iowa Power & Light Company, 183 N.E.2d 687 (1971) and the cases cited below.] It's clear from those cases that if the city says, "If you don't pay, I'll shut off your water (or electricity or whatever)" there is duress. However, the courts are split on the question of whether an overbilled utility customer is entitled to a refund if the amount claimed to be overbilled was voluntarily paid. That split is further complicated by the fact that the courts aren't in agreement on what constitutes duress where there is no overt threat on the part of the city to cut off the customer's water (or electricity or whatever).
I've separated the split into what, for purposes of convenience, I call the "Texas Rule" and the "Missouri Rule" from what appear to me to be the principal cases in that area.
The Texas Rule
Texas Power & Light Co. v. Doering Hotel Co., 147 S.W.2d 897 (1941) is important because the Court of Civil Appeals of Texas weighed the effect of a rate nondiscrimination statute in allowing the plaintiff's to recover overbilled electrical services in the amount of $14, 500 for the period 1928-1938. On that point it said:
Decisions are legion involving rate charges made by public service corporations of consumers of electric current. It is a universal rule that a public utility cannot discriminate in its rates or charges between consumers similarly situated. [Case and statutory citations omitted.] In view of the statute and of this universal rule, a written contract with a consumer requiring him to pay a higher rate or charge than the corporation collects from others similarly situated is of no avail to the corporation, if in fact and in law such contractual rate or charge is discriminatory.
The rate discrimination in Texas Power & Light occurred in both the highly technical metering system used to supply the plaintiff with power and in the contract between the plaintiff and TP&L. It also involved fraud on the part of the TP&L. Neither kind of "rate discrimination" is found in the City's case. However, if Auburndale School and Mathews Nissan works in favor of customers in overbilling cases as well as in favor of cities in underbilling cases, it probably doesn't matter whether the overbilling was the product of accident or design.
The Court also rejected TP&L's claim that the plaintiff wasn't entitled to recovery of excess charges for a part of the overbilling period because during that period the plaintiff knew the charges were discriminatory and continued to voluntarily pay them. After dryly observing that TP&L's claim on that ground was an admission of rate discrimination, it concluded that TP&L had misled the plaintiff by repeatedly telling him that he was receiving the best rate available to him. Again, no claim of being misled by the City can be made by the industry in question, but the industry still has its claim that the overbilling represents rate discrimination, whether by accident or design.
Texas Power & Light also had something to say about what constitutes duress that might be pertinent to the City:
It may be doubted whether the issue of duress is here involved. The payments made appear either to have been made under a mistake of fact rather than under a mistake of law; or to have been induced under the representations of appellant's officers and agents amounting in law to a fraud upon the consumer. But if duress be involved, it would appear that Doering paid under implied, if not express, duress. Generally one paying money where the payee would be compelled to resort to the courts to collect cannot defend on the ground of duress in such payment. [Citation omitted.] But where the payee has the power to enforce such payment, or on failure to pay, to work great financial loss, business disadvantage, or irreparable injury to the payor, duress occurs, even though it be not actually attempted to be exercised. [Emphasis is mine.] Appellant had the power, under its contract with Doering, to cut off his service for nonpayment of its demand, and thus paralyze his business. Nonpayment by him necessarily invoked that potential hazard. In such case, the Supreme Court [of Texas] has held [citation omitted] that in the face of such existing power, payments so made are under implied duress even though the payor did not make them under protest. [Citations omitted.] And this rule has been held to be applicable to public utility corporation in illegal exactions against their consumers.
The Supreme Court of Michigan reached a similar result in Theatre Control Corporation v. City of Detroit, 121 N.W.2d 828 (1963). There the City of Detroit claimed the plaintiffs were not entitled to recovery of water charges the Court had found unreasonable and arbitrary because the charges were voluntarily paid. But the failure to pay the charges might have resulted in the discontinuance of water service, said the Court. Furthermore, continued the Court, payment of the charges under protest wasn't a condition precedent to recovery. The Court rejected the city's reference to the requirement under Michigan statute that taxes be paid under protest as a condition precedent to their recovery because "we are not dealing with a tax, or a special assessment levied on the basis of benefits received, but with a charge made for the furnishing of utility services."
The City can raise the voluntariness of the industry's payments of the sewer bill, but the industry has an argument under the "Texas Rule" that such payment were made under duress because the city could have cut off its water for nonpayment of the sewer bill. I don't know if the Tennessee courts would stretch a definition of duress that far. Such a definition seems far-fetched in a case where the customer had no idea it was being overbilled, the overbilling was evident on the face of the utility bill, the city discovered the overbilling and brought it to the attention of the industry, and promptly stopped the overbilling upon its discovery.
The Missouri Rule
In National Enameling & Stamping Co v. City of St. Louis, 40 S.W.2d 593 (1931) the plaintiff, a manufacturer, claimed to have been billed for water at the general meter rate from June, 1917 to December, 1920 when he should have been billed at the manufacturer's rate. The plaintiff produced only one witness at the trial, his master mechanic. The master mechanic testified that he knew nothing about how the city's water rates were calculated, that he didn't know the city had a cut-off policy for nonpayment of bills, and that he never contacted any city officials about the water bills until he was told to do so by the plaintiff sometime in 1921.
The Missouri Supreme Court denied the plaintiff recovery of the overbilled amount. If the plaintiff had paid the overbilling under compulsion "from the necessity of the situation and in order to be permitted to continue its business, it would have been involuntary, and plaintiff would be entitled to recover the excess sued for," said the Court. However, continued the Court:
it is well established that payments to which the payee was not entitled, but which were made by the payor under a mistake of law or in ignorance of the law, are not considered as made under duress and are not recoverable. [Citations omitted.] The rule is thus stated in C.J. p. 755, § 312. "except where it is otherwise provided by statute it is held by the great preponderance of adjudged cases, that where one under a mistake or law, or in ignorance or law, but with full knowledge of all the facts, and in the absence of fraud, or improper conduct upon the part of the payee, voluntarily and without compulsion pays money on a demand not legally enforceable against him, he cannot recover it back."
Under the facts here, the payment was voluntary, concluded the Court. In response to the plaintiff's argument that the bill contained a cut-off notice for nonpayment of bill, the Court said:
To render a payment recoverable as having been made under duress, there must have been something more than the mere existence of a potential power in the payee to compel payment. The existence or exercise or the threatened exercise of such power must have operated on the mind of the payor to induce payment. "Duress" connotes the condition of the mind of the wronged person at the time of the act sought to be avoided.
The plaintiff didn't meet that test because it "knew the facts." The city's bills showed the quantity of water consumed the sum charged, and the general meter rate and the manufacturer's rate. Mathematical computation on the part of the manufacturer would have shown the rate charged was the general meter rate. Moreover, the manufacturer didn't contend that it paid under mistake as to the facts. Finally, there was no contention on the part of the manufacturer that the city was guilty of any fraud, improper conduct, or concealment.
In Garber v. City of New York, 8 N.Y.S.2d 110 (1938), the City Court of New York, Bronx County quickly disposed of the plaintiff's suit to recover an alleged water overbilling by the City of New York by declaring that, "The complaint herein is fatally defective, inasmuch as it is not shown that the payment was involuntary."
The City has a good argument that under the "Missouri Rule" the industry's payment of the sewer bill was voluntary and is not recoverable. In fact, the facts in the City's case are almost on all fours with the facts in National Enameling & Stamping Co. The industry "knew the facts;" that is, the overbilling was spread on the face of the utility bill. If the Tennessee courts adopt that line of reasoning the city should be home free.
I can't predict which way the Tennessee courts would go. "Duress" for payment of the overbilling in the City's case seems difficult to find under the most liberal definition of the term. However, I can still see the Tennessee courts being bothered by the inequity of a city being able to recover an erroneous underbilling, but a customer not being able to recover an erroneous overbilling, where in both cases the overbilling arose from the city's error.
However, the uncertainty of the law in this area does give the the city some chips to play in a negotiated settlement if the city and the industry will both settle for less than a whole loaf rather than risk loosing the whole loaf in court.