Public Service Commission v. Highfield Water Co.

Decision Date26 February 1982
Docket NumberNo. 8,8
Citation441 A.2d 1031,293 Md. 1
CourtMaryland Court of Appeals

Susan K. Gauvey, Asst. Atty. Gen., Baltimore (Stephen H. Sachs, Atty. Gen. and Marc K. Cohen, Asst. Atty. Gen., Baltimore, on the brief) (Roger D. Redden and David M. Funk, Baltimore, on the brief for Public Service Commission), for appellants.

Richard N. Foltz, III, Baltimore (Daniel M. Twomey, Baltimore, on the brief), for appellees.



The United States District Court for the District of Maryland (District Court), pursuant to the Maryland Uniform Certification of Questions of Law Act, Maryland Code (1974, 1980 Repl.Vol.) §§ 12-601 to 12-609 of the Courts and Judicial Proceedings Article, requests that this Court answer the following question of law:

"If a local governmental entity in Maryland takes possession of privately-owned property devoted to the public service, does there arise an implied contractual obligation to pay the fair market value of that property which is separate and distinct from any right to fair compensation that may also arise under the Maryland or United States Constitution?"

For purposes of this proceeding, all of the parties have adopted the statement of facts contained in the District Court's opinion in Highfield Water Co. v. Public Service Commission, 488 F.Supp. 1176, 1180-85 (D.Md.1980). The underlying facts as set forth there are as follows.

On 28 September 1979, in the District Court, the plaintiffs, Highfield Water Company (HWC) and William Seltzer, its president and sole shareholder, filed suit against the defendants, various State and local agencies including, insofar as here relevant, the Public Service Commission (PSC), the Department of Health and Mental Hygiene (Health), the Washington County Sanitary District (WCSD), and against various persons connected with these agencies in both their official and individual capacities. The complaint alleged, among other things, that HWC, a Maryland Corporation, was incorporated in 1905 for the purpose of supplying water to Highfield, Maryland, a sparsely populated area in the western part of the State. In 1966, Seltzer purchased the company. According to the complaint, HWC faced numerous problems at that time. First, because Seltzer's predecessor had not charged the company for his personal services, office space, and supplies, the rates for water were unreasonably low. Second, portions of the system needed replacing. Third, the demand for water was almost equal to the supply so that any increase in demand would necessitate expansion of the existing facilities.

As a result, HWC filed for a rate increase in 1968. The PSC granted only what HWC terms a "token" increase. Initially it was sufficient to meet operating expenses, but allowed no improvements. Thereafter, it was not sufficient to meet operating expenses and HWC was operated at a loss.

In 1978, despite consistent efforts to correct the deficiencies in the system, HWC was experiencing substantial difficulty in supplying enough water to meet the then current demand and was still operating at a financial loss. On 8 September 1978, PSC revoked HWC's franchise "consistent with the public convenience and necessity to have public ownership." The revocation was effective 1 October 1978.

On 15 September 1978, Health ordered WCSD to operate HWC's system and to proceed to acquire ownership. On 29 September, WCSD filed suit in the Circuit Court for Washington County (Circuit Court) against HWC. The Bill of Complaint alleged the PSC terminated HWC's franchise due to years of inadequate and unsatisfactory service and deteriorated facilities, and that HWC constituted a serious menace to the health, safety, and comfort of the public. On that same day, WCSD obtained an ex parte injunctive order preventing HWC from interfering with operation of the system by WCSD.

On 5 October 1978, WCSD sought an extension of the injunction. The HWC alleged that before the seizure, Health and WCSD had indicated an intent to acquire HWC by purchase or condemnation under the mistaken assumption that 80% federal funding would be available for the purchase. Allegedly, these agencies subsequently discovered that this was incorrect and that funding was available only for new construction or improvements. Health and WCSD allegedly determined that with federal funding they could build a new plant within two years, with billing rates equal to or less than those of HWC. They allegedly planned to abandon the HWC system upon completion of the new plant. On 21 November 1978, WCSD asked for another extension on the ground that it needed time to decide whether it was going to build a system of its own. Although the Circuit Court extended the injunction until 31 January 1979, it expressed concern about a seizure without compensation, and advised WCSD that it would have to compensate HWC even if WCSD built its own system.

On 5 January 1979, WCSD asked for another extension to 30 April 1979 which was denied. On 13 January, Health ordered HWC to appoint the Maryland Environmental Service (MES) or WCSD to operate the system until WCSD replaced the "present inadequate system with a new safe and adequate public water system." The HWC asserted that WCSD had equitable title in the system since 1 October 1978, and thus HWC could not comply with the Health order. About ten days after its order, Health filed suit against HWC for failure to comply. The Circuit Court issued an injunction allowing WCSD to continue running the system under the same conditions imposed by the previous injunction. The WCSD is now said to be operating the system under court order, not as the agent of HWC.

The complaint filed in the District Court contained 12 counts. Count I, Breach of Implied Contract, stated, in pertinent part:

"58. On October 1, 1978, Defendant-WASHINGTON COUNTY SANITARY DISTRICT, under color of state law, seized possession of Plaintiffs' property and ejected Plaintiffs from the premises by obtaining an Ex Parte Injunction Order and subsequent series of Interlocutory Injunctive Orders enjoining Plaintiffs from interfering with Defendant-WASHINGTON COUNTY SANITARY DISTRICT'S takeover of the subject water system and further adding Plaintiffs to assist in the take-over of the property.

"59. Defendant-WASHINGTON COUNTY SANITARY DISTRICT, in their Bill of Complaint ejecting Plaintiffs from their property, seizing possession thereof, and enjoining Plaintiffs from interfering with Defendant's operation of the subject water system, stated that they were acting pursuant to Defendant-HEALTH DEPARTMENT's September 15, 1978 Order that directed Defendant-WCSD to acquire ownership of the property.

"60. The United States, the State of Maryland, a Maryland municipal corporation, or a local government may only lawfully acquire ownership of private property by gift, purchase, or condemnation.

"61. Plaintiffs have not transferred ownership of their property to Defendants by gift.

"62. Defendants have not acquired ownership of Plaintiffs' property by condemnation.

"63. If Defendant-STATE OF MARYLAND or any of the Defendants herein, acting as agents for Defendant-STATE OF MARYLAND or on behalf of themselves, were acting lawfully, then they must have intended to purchase Plaintiffs' Highfield water system for its fair market value when they seized possession of it.

"64. Therefore, at the moment of seizure, an implied purchase contract was created, and under the doctrine of equitable conversion, equitable title to Plaintiffs' property passed to Defendants, and Defendants became obligated to compensate Plaintiffs for the fair market value of the water system.

"65. At the time of the seizure, Plaintiffs' water system had a fair market value of One Million Dollars ($1,000,000.00).

"66. Defendants have not compensated Plaintiffs for the taking of the Highfield water system.

"67. Defendant-STATE OF MARYLAND and its agents, named herein as defendants, who were acting in a lawful manner, on behalf of Defendant-STATE OF MARYLAND or on behalf of themselves, breached their implied contract to purchase the Highfield water system.

"WHEREFORE, this suit is brought and Plaintiffs claim compensatory damages in the amount of One Million Dollars ($1,000,000.00)." (Underlining in original).

Count V, Deprivation of Civil Rights (42 U.S.C. § 1983), alleged that, under color of State law, the defendants deprived plaintiffs of their civil rights secured by the United States Constitution through misuse of administrative powers and judicial proceedings that resulted in an unlawful seizure of the plaintiffs' property without just compensation. This count sought a declaratory judgment as well as compensatory and punitive damages. Count VIII, Violation of the Fifth and Fourteenth Amendments of the United States Constitution and Maryland Declaration of Rights, Article 24 (formerly 23), alleged that the misuse of administrative powers and judicial proceedings which resulted in an unlawful seizure of plaintiffs' property was tortious and in violation of the Fifth and Fourteenth Amendments and of the Maryland Declaration of Rights. This count also sought a declaratory judgment as well as compensatory and punitive damages.

The defendants filed motions to dismiss. 1 The claims set forth in Count I and Count V were not dismissed. That portion of Count VIII seeking damages directly under the United States Constitution was dismissed. That portion of Count VIII seeking damages and a declaratory judgment under the Maryland Declaration of Rights, and a declaratory judgment under the United States Constitution was not dismissed.

In the motions to dismiss, the defendants asked the District Court to abstain from deciding the issues presented in the complaint. With respect to this request, the District Court ...

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