Highfield Water Co. v. Public Service Com'n

• Citation: 488 F. Supp. 1176
• Decision Date: 20 May 1980
• Docket Number: Civ. No. Y-79-1827.
• Parties: HIGHFIELD WATER COMPANY et al. v. PUBLIC SERVICE COMMISSION et al.
• Court: U.S. District Court — District of Maryland

488 F. Supp. 1176

HIGHFIELD WATER COMPANY et al. v. PUBLIC SERVICE COMMISSION et al.

Civ. No. Y-79-1827.

United States District Court, D. Maryland.

April 9, 1980.

As Amended May 20, 1980.

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COPYRIGHT MATERIAL OMITTED

Mahlon W. Hessey, Richard N. Foltz, III, and Daniel M. Twomey, Baltimore, Md., for plaintiffs.

John B. Gontrum, and James A. Pine, Baltimore, Md., for Public Service Commission of Maryland.

Roger D. Redden and David M. Funk, Baltimore, Md., for Public Service Commission defendants.

Randall M. Lutz and Marc K. Cohen, Baltimore, Md., for State Health defendants.

Thomas A. Deming and Benjamin M. Bialek, Annapolis, Md., for Maryland Environmental Service, Department of Natural Resources, and James B. Coulter.

Patrick A. O'Doherty and Gilbert A. Hoffman, Baltimore, Md., for Washington County Commission defendants.

Kenneth J. Mackley, Hagerstown, Md., for Washington County Sanitary District.

JOSEPH H. YOUNG, District Judge.

The plaintiffs in this action have filed a detailed 85-page complaint arising out of the state takeover of their water system on October 1, 1978. They allege civil rights and antitrust violations, as well as unconstitutional taking without compensation and several pendant state claims and seek relief from thirty-one defendants. The case is now before the Court on five motions to dismiss, and two motions for a more definite statement. For reasons stated below, the motions to dismiss will be granted in part and denied in part. The motions for a more definite statement will be denied.

I. FACTS ALLEGED IN THE COMPLAINT

Following is a somewhat condensed version of the lengthy allegations:

A. Parties

There are two plaintiffs in this action: The Highfield Water Company (HWC), a Maryland Corporation with executive offices in New Jersey, and William Seltzer, its sole shareholder and president.

Six Maryland state and local agencies have been named as defendants: the Public Service Commission (PSC), the Department of Health and Mental Hygiene (Health), the Washington County Sanitary District (WCSD), the Washington County Commission (WCC), the Maryland Environmental Service (MES), and the Department of Natural Resources (DNR). Additionally, the plaintiffs have sued 24 persons connected with these agencies both individually and in their official capacities,¹ as well as the state of Maryland.

B. Jurisdiction

The plaintiffs assert federal question jurisdiction under 28 U.S.C. § 1331, with claims under the 5th and 14th Amendments, civil rights statutes (42 U.S.C. §§ 1983, 1985, and 1986), the Sherman Act, and the Clayton Act. Pendant jurisdiction is asserted on state claims.

C. Highfield Water System

The company was incorporated for the purpose of supplying water to Highfield, Maryland, a sparsely populated area in Western Maryland. Expansion of the system is limited to the south and southeast by Fort Ritchie, a federal military complex, to the north by the Pennsylvania state line, and to the east by the Frederick County line (a few customers across are served in Frederick County). The area to the east is largely undeveloped mountain and farm land.

D. An Overview of the Complaint

The defendants, according to the complaint, wanted to operate a water system in HWC's exclusive, legislatively franchised area. According to the plaintiffs, Maryland Ann.Code Art. 43, § 651, prohibits duplication of existing service, so the defendants had to acquire HWC's system. Federal funding was available for 80% of the cost of new water systems, or for improvements to existing systems, but no aid was available for state purchase of an existing system. For this reason, the plaintiffs allege, the defendants did not want to pay just compensation for taking over the HWC system. The defendants allegedly conspired to force the plaintiffs to abandon the system through abuse of civil proceedings, restraint of trade, unreasonably low rates, and an "avalanche of red tape." When plaintiffs refused to abandon the system, defendants obtained a state order acquiring control of the system from the plaintiffs.

E. History of the Company

In 1905, the Blue Ridge Water Co. of Washington County was incorporated in Maryland and the Blue Ridge Water Supply Co. (BRWS) was incorporated in Pennsylvania. The name of the Maryland corporation was changed to HWC in 1967, and will be referred to by that name throughout this opinion, regardless of time period.

The two companies originally serviced a summer resort area, with only a few Maryland customers. The companies operated together as an interstate system until 1957, when, after several years of strong growth, the PSC ordered HWC to become an independent, Maryland operation.

After HWC separated from BRWS, however, it became necessary to re-establish connections so that BRWS could use the HWC reservoir for storage. Many improvements had been made during the growth period. 25% of the 6" water distribution lines had been installed in 1942. The remaining 3-6" lines were installed between 1954 and 1957. Despite these facts, the defendants have published a description of the HWC as "an antiquated, turn-of-the-century, plumbing nightmare that is held together by chewing gum and bailing wire, and will, in the immediate future, deteriorate into a worthless pile of pipe." The defendants are alleged to have admitted they have not actually inspected the system and are not aware of its actual condition.

HWC was operated originally by Charles S. Gardner, Sr., and then Charles S. Gardner, Jr., who died in 1964. The death of the second Gardner left the company in chaos. Robert Kline, a retired Army Colonel, ran the company gratuitously until a permanent operator could be found. In 1966, plaintiff Seltzer purchased the company.

F. Problems Faced by Seltzer

According to the complaint, Seltzer faced three problems upon taking over. First, the customers had become accustomed to Gardner's quasi-gratuitous services (he had provided his services, office space, and supplies free), and were not prepared to pay a fair charge. Second, portions of the system using 2" pipe dating back to 1920 needed replacing. Third, the increased demand was almost equal to the supply.

As a result, Seltzer filed for a rate increase in 1968. The PSC granted only what the plaintiffs term a "token" increase. At first, it was enough to meet operating expenses, but allowed no improvements, and soon, it was not enough to meet operating expenses, requiring Seltzer to operate the company at a loss for 8 years.

In 1974, Seltzer was forced to sell the BRWS, which he had also owned. The loss of economies of joint ownership increased HWC expenses further. Seltzer claims that he has received no tax benefits from the losses, and has in fact contributed additional funds to HWC.

Seltzer did not file for another rate increase, because he believed, based on the 1968 experience, that the cost of seeking the increase would outweigh any additional revenue.

The water supply problem is said to be largely the result of consumption of water at Fort Ritchie. HWC and Ritchie both draw their water from the same "aquifer." The aquifer is capable of producing 300,000 to 310,000 gallons a day. Ritchie, through various wells, draws 260,000 gallons a day. HWC needs 60,000, but is limited to 50,000 because of the heavy draw by Ritchie. Apparently there are no other sources of water in the HWC franchise area.

The deficiency was made up by purchasing water from BRWS, when it had an excess supply. HWC hoped to negotiate a purchase or lease of one of the Ritchie wells to increase its own supply. After a bad drought in 1977 caused interruptions in HWC service, Ritchie agreed to sell water to HWC in emergency situations.

The plaintiffs argue that supply deficiencies were caused solely by heavy water use by Ritchie, a problem beyond plaintiffs' control, but within the control of the defendants. The plaintiffs state that Maryland is a "riparian" state, and that HWC is the riparian owner of surface and ground water within its legislatively franchised area. As such, it is entitled to use of the water. They argue further that Natural Resources, § 8-801 of the Maryland Code, protects this right by requiring permits for all users of water, even the federal government. By refusing to enforce this law against the federal government, the defendants allegedly have created the water supply problem faced by HWC causing a serious threat to the public and facilitating state takeover of HWC.

HWC suffered immediate damage from the deficiency when the low water pressure brought about freezing damage to the pipes. It is also alleged that negligent failure to the WCC to replace ground cover around pipes after construction work led to additional freezing damage.

G. Plaintiffs' Attempts to Make Improvements

In 1976, HWC commissioned an engineering and consulting study of the system by John J. Mooney Associates. The resulting Mooney report outlined phased improvements in four areas — the distribution system, the supply system, the storage system, and the metering system. Large-scale changes were recommended in most areas.

According to plaintiffs, the trade practice in making utility improvements is to work in stages, or phases. At each stage, a rate increase is sought to correspond to that phase of improvements. Once the rate increase is granted, the utility is in a position to seek financing for the improvement, based on the increased revenue. Working in stages is said to make projects affordable which otherwise would not be, reduce the risks to the lender, give utilities a proper return on investment, and "cushion" the increases customers will be paying for improved service.

HWC sought a rate increase June 29, 1977, to be effective July 31, 1977, and retained Albert Weisskopf, an accountant specializing in utilities, to assist in the request. Weisskopf contacted George Riley, of the PSC staff, about the proceeding.

According to ...