Am. Heritage Apartments, Inc. v. Hamilton Cnty. Water & Wastewater Treatment Auth.

• Court: Tennessee Court of Appeals
• Writing for the Court: THOMAS R. FRIERSON, II, JUDGE
• Decision Date: 30 January 2015
• Docket Number: No. E2014-00302-COA-R3-CV,E2014-00302-COA-R3-CV
• Citation: Am. Heritage Apartments, Inc. v. Hamilton Cnty. Water & Wastewater Treatment Auth., No. E2014-00302-COA-R3-CV (Tenn. App. Jan 30, 2015)
• Parties: AMERICAN HERITAGE APARTMENTS, INC. v. THE HAMILTON COUNTY WATER AND WASTEWATER TREATMENT AUTHORITY, HAMILTON COUNTY, TENNESSEE

AMERICAN HERITAGE APARTMENTS, INC. v. THE HAMILTON COUNTY WATER AND WASTEWATER TREATMENT AUTHORITY,HAMILTON COUNTY, TENNESSEE

No. E2014-00302-COA-R3-CV

COURT OF APPEALS OF TENNESSEE AT KNOXVILLE

October 30, 2014 Session

JANUARY 30, 2015

Appeal from the Circuit Court for Hamilton County

No. 11C1207

Jacqueline S. Bolton, Judge

The plaintiff, American Heritage Apartments, Inc. ("American Heritage"), commenced this lawsuit to protest a monthly flat charge in the amount of $8.00 per unit imposed by the defendant, The Hamilton County Water and Wastewater Authority ("the County WWTA"), on all of its sewer customers. The charge was instituted to fund a program designed to repair and refurbish private service laterals, defined as pieces of pipe that connect private property to the sewer lines. American Heritage sought declaratory judgment that the County WWTA, inter alia, had exceeded its authority by imposing an unjust and discriminatory charge. The County WWTA filed a motion to dismiss the complaint, which the trial court initially denied. Upon the County WWTA's amended motion to dismiss and motion for summary judgment, American Heritage's motion for partial summary judgment, and supplemental briefs submitted by both parties, the trial court granted summary judgment in favor of the County WWTA. The court found that because the Utility District Law of 1937, Tennessee Code Annotated §§ 7-82-101 to -804, provided an administrative procedure for contesting utility charges, no private right of action was available. The court further ruled that in the alternative, if a private right of action were allowed by this Court on appeal, American Heritage's complaint could be certified as a class action lawsuit. American Heritage has appealed. Having determined that the trial court erred by applying the Utility District Law of 1937 to a non-utility district water and wastewater treatment authority, we reverse the grant of summary judgment. We affirm the trial court's ruling regarding the class action certification.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed in Part, Reversed in Part; Case Remanded

THOMAS R. FRIERSON, II, J., delivered the opinion of the Court, in which CHARLES D. SUSANO, C.J., and D. MICHAEL SWINEY, J., joined.

Jimmy F. Rodgers, Chattanooga, Tennessee; J. Gerard Stranch, IV, Nashville, Tennessee; and Michael G. Stewart, Nashville, Tennessee, for the appellant, American Heritage Apartments, Inc.

J. Christopher Clem, Chattanooga, Tennessee, for the appellee, The Hamilton County Water and Wastewater Treatment Authority, Hamilton County, Tennessee.

OPINION

I. Factual and Procedural Background

The County WWTA was created by the Hamilton County Commission on May 19, 1993, through passage of a resolution pursuant to the Tennessee Water and Wastewater Treatment Authority Act ("WWTA Act"). See Tenn. Code Ann. §§ 68-221-601 to -618 (2013). The County WWTA is responsible for the public sewer system throughout the unincorporated areas of Hamilton County, as well as the surrounding incorporated municipalities of East Ridge, Lakesite, Lookout Mountain, Red Bank, Ridgeside, Signal Mountain, and Soddy Daisy.

The flat charge at issue was instituted as part of a Private Service Lateral Program ("PSLP") to provide funds for repair and refurbishment of private service laterals, defined by the County WWTA as the pieces of pipe that connect private property to WWTA-owned sewer lines. It is undisputed that the repairs are necessary to correct a problem of overflowing storm water entering or infiltrating the sewer system, which causes overflow of sewage into residential areas and the release of ineffectively treated sewage into the Tennessee River. The County WWTA instituted the PSLP in response to an order issued on March 20, 2008, by the Tennessee Department of Environment and Conservation ("TDEC") because the County WWTA's high influx of rain water violated the requirements of TDEC and the Environmental Protection Agency ("EPA"). TDEC ordered the County WWTA to initiate a corrective action plan before it would be allowed to connect any additional units on Signal Mountain to the sewer system. The County WWTA began its PSLP with Signal Mountain units, and the program included plans to extend repair to all private service laterals in the County WWTA's service area.¹

American Heritage is a nonprofit corporation operating a 168-unit apartment complex catering to low-income tenants in East Ridge, Tennessee. On August 19, 2011, American Heritage received a letter from the County WWTA, notifying American Heritage of the PSLP flat charge implementation. The letter included the following description of the County WWTA's method for applying the charge to American Heritage as a multi-unit building:

The policy will use the number of apartment/rental units within a multi-unit building as a basis for the overall fee charged. Beginning next month, a fee of $8 per unit, based on 90 percent occupancy within your building, will be assessed on your bill. Our records indicate that you have 168 units.

American Heritage subsequently received monthly bills from WWTA in which the total PSLP charges exceeded $1,000.00.

On October 3, 2011, American Heritage filed a complaint seeking declaratory judgment that the implementation of a flat, per-unit PSLP charge (1) exceeded the authority granted the County WWTA pursuant to Tennessee Code Annotated § 7-35-401, (2) was unjust and inequitable, (3) breached the County WWTA's contracts with American Heritage and other users, and (4) violated article II, § 21 of the Tennessee Constitution by creating a monopoly. American Heritage also averred that its claims were appropriate for a class action lawsuit. The County WWTA filed a motion to dismiss the complaint on November 29, 2011, arguing, inter alia, that American Heritage, pursuant to the WWTA Act and Hamilton County WWTA bylaws, should have sought administrative remedies before resorting to filing its complaint. The County WWTA also asserted that American Heritage did not allege sufficient facts to support the requirements of a class action under Tennessee Rules of Civil Procedure 23.01 and 23.02 and that it failed to join the State of Tennessee as an indispensable party to the action.

The trial court, Judge L. Marie Williams presiding, denied the County WWTA's first motion to dismiss in an order entered January 31, 2012. The County WWTA filed an answer to the complaint on February 6, 2012. On December 11, 2012, American Heritage filed a motion for class certification, seeking certification of a class comprised of the following:

All WWTA customers who are being or have been charged the [PSLP] Charge. Excluded from the Class are the WWTA itself, any person, firm, trust, corporation or entity related to or affiliated with the Defendant, any person employed by the Hamilton County Circuit Court and/or any owner of property that has been inspected or repaired pursuant to the PSLP.

The County WWTA subsequently filed its motion for summary judgment on February 1, 2013.

In an order entered February 12, 2013, the trial court ruled that pursuant to Tennessee Rule of Civil Procedure 23, it would hear American Heritage's motion for class certification before hearing the County WWTA's motion for summary judgment. Following a scheduling conference conducted on February 25, 2013, Judge Williams entered, sua sponte, an order of recusal "[u]pon review of the file, and for reasons explained to counsel for both parties . . . ." The case was subsequently assigned to Judge Jacqueline S. Bolton.

On April 19, 2013, the County WWTA filed a motion to amend its answer to assert new affirmative defenses, including the defense that because the County WWTA was a utility district, Tennessee Code Annotated § 7-82-402, regarding administrative procedures provided for protesting water rates within a utility district, applied. The trial court granted the County WWTA permission to amend its answer.

The County WWTA filed a second motion to dismiss the action on May 2, 2013, renewing its arguments that American Heritage had failed to pursue an administrative remedy and failed to join indispensable parties. Following argument from counsel, the trial court denied this second motion to dismiss in an order entered September 9, 2013. American Heritage subsequently filed a motion for partial summary judgment on September 13, 2013, seeking a ruling that the PSLP charge was inequitable.

On October 18, 2013, the trial court entered an Order noting the dispositive motions before it and directing the parties to analyze our Supreme Court's decision in Brown v. Tenn. Title Loans, Inc., 328 S.W.3d 850 (Tenn. 2010), in light of its potential application to this action. Each party filed a supplemental brief regarding Brown. Upon consideration of the parties' briefs, the trial court subsequently entered an order granting the County WWTA summary judgment on January 17, 2014.² The court found that "the case at hand is directly comparable to Brown" and that "under the statutory scheme in T.C.A. § 7-82-402, the procedure for contesting the utility charges is presented with no express right for the plaintiff to recover charges by private action." The court further ruled that in the alternative, if a private right of action were allowed by this Court, American Heritage's complaint could be brought as a class action lawsuit. American Heritage timely appealed the grant of summary judgment to the County WWTA.

II. Issues Presented

American Heritage presents two issues on appeal, which we restate as follows:

1. Whether the trial court erred by applying the Utility District Law of 1937, Tennessee Code Annotated §§ 7-82-101 through -804, to the County WWTA, thereby awarding summary judgment to the County WWTA.

2. Whether the trial court erred by interpreting Tennessee Code Annotated § 7-82-402 as an exclusive remedy, thereby excluding a ratepayer's ultra vires challenge to allegedly discriminatory water and...