Sweet Home Water and Sewer Ass'n v. Lexington Estates, Ltd., 89-CA-1361

• Decision Date: 04 February 1993
• Docket Number: No. 89-CA-1361,89-CA-1361
• Citation: 613 So.2d 864
• Parties: SWEET HOME WATER AND SEWER ASSOCIATION v. LEXINGTON ESTATES, LTD., a Limited Partnership.
• Court: Mississippi Supreme Court

Page 864

613 So.2d 864

SWEET HOME WATER AND SEWER ASSOCIATION v. LEXINGTON ESTATES, LTD., a Limited Partnership.

No. 89-CA-1361.

Supreme Court of Mississippi.

Feb. 4, 1993.

Jannie M. Lewis, Lexington, for appellant.

J.R. Gilfoy, Lexington, for appellee.

Michael C. Moore, Atty. Gen., Frank Spencer, Asst. Atty. Gen., Wm. Bruce McKinley, Jackson, for amicus curiae.

Before DAN M. LEE and PRATHER, P.JJ., and PITTMAN, J.

PRATHER, Presiding Justice, for the Court:

I. INTRODUCTION

This case addresses the issue of how utilities, not subject to the regulation by the Public Service Commission, may classify users and base charges upon the level of usage. This utilities case arose on the appeal of the defendant water district, Sweet Home Water & Sewer Association, from the November 25, 1989 judgment of the Holmes County Circuit Court partially in favor of plaintiff Lexington Estates, Ltd. The utility timely filed a notice of appeal and raises the following issues:

A. Whether Sweet Home Water and Sewer District could legally charge Lexington Estates, Ltd. an impact fee for the use of the water system?

B. Whether Lexington Estates, Ltd. entered into a binding agreement with Sweet Home Water and Sewer District at the time the water district informed Lexington Estates about the impact fee and at the time Lexington Estates began to use the water district's services?

C. Whether Lexington Estates, Ltd. is legally liable for any injuries or damages that it may have caused to the water district by the partnership's failure to have the water district inspect the partnership's connection into the water district?

II. FACTS

The Sweet Home Water and Sewer District (the District) is a public utility created under Miss.Code Ann. Sec. 77-3-3(d)(iv) and with such powers delegated to it by the Legislature. Lepre v. D'Iberville Water and Sewer District, 376 So.2d 191, 194 (Miss.1979). It is required to serve all residences and businesses within its franchise area, provided it has the capacity. The water system operates according to the rules and regulations set by its commission, of which Arnett Lewis is chairperson. The system has no by-laws. For a customer connected to both water and sewer services, the system charges a $185 connection fee, a $35 charge for a meter deposit, a $25 water inspection fee, and a $25 sewer inspection fee.

Glen Miller, an experienced builder and owner of Glen Miller Construction Co., built a 24-unit apartment complex--known as "Lexington Estates"--to serve residents who are handicapped or who earn less than $17,500 per year. Prior to loan approval, the Farmers' Home Administration (FmHA) required Miller to perform a study to ensure that the water district system would support the building project. Miller contracted with an engineering firm, which performed a study for $6,500.

According to Arnett Lewis, chairperson of the utility, the idea to charge an impact fee arose when Anne King, water district manager, told the board that it could charge an impact fee for a large housing project. The water system had never before charged an impact fee and has not since charged one. Sweet Home admitted that it singled out Lexington Estates to charge a negative impact fee; however, the association never performed a study to determine if Lexington Estates would indeed negatively impact the water system. Arnett Lewis described the only study he could recall:

[A]n impact study ... was generated by ... CDBG, Community Development Block Graph [sic], proposal that we had applied for ... which basically stated that the water system was serving under capacity.

Miller's loan application included as a cost item an "impact fee on the cost approach which is attached to the appraisal for $8,750." The $8,750 item resulted from the Sweet Home's calculation of $350 per meter charged by the water district. In determining the amount to lend Miller, however, the FmHA did not take the cost of the impact fee into account; instead, the FmHA used a market-value appraisal method, and based Miller's loan on the amount his project would bring in the market-place.

Miller obtained a loan from the FmHA on April 21, 1988. Winfred McAdams, the FmHA district manager, assigned John Shell to be the FmHA loan officer monitoring the project. The FmHA did not suggest that an impact fee be charged.

On September 1, 1987, Sweet Home's engineering consultant wrote Miller, saying: "[I]n my opinion, the association will have no problem providing waterworks services for this complex after the new elevated tank project is complete". The next day, the engineering consultant again wrote Miller:

The manager of Sweet Home Water and Sewer District asked me to advise you that the district will charge you the cost of the tie-in and meter installation for your complex plus an impact fee of $350 per unit for each unit in the apartment complex.

If you have any questions regarding this matter or need any additional information, please call Ms. King.

During an April 6, 1988, association meeting, Anne King, the water district manager, told Miller to contact Luke Tate, maintenance operator for the water system, regarding hookup. Miller relied on Tate's ability to represent Sweet Home, since "that is usually the way it is in any town, ... the man over the water and sewer pretty well handles everything."

The minutes of the April 6 meeting state, "The meter cost is $185 per unit, also required along with an impact fee of $350 per unit." The minutes also state that the system possessed the capacity to serve Lexington Estates.

Miller denied that he discussed an impact fee during the April 6 meeting. He explained, "I thought it was the fee for the connect--$350 is what the system had been charging everybody else to connect." Miller had never encountered a request for an impact fee in any of his other building projects. Miller assumed the charge would include the cost of his meters. Miller did not ask for clarification and did not challenge either the impact or connection fees. However, Ted Batson, present at the meeting as attorney for Sweet Home, stated, "I can't assure you [Miller] heard the discussion."

John Shell, the FmHA loan officer who worked directly with Miller, recalled having discussed the impact fee with Miller. He stated that the subject of the fee arose in "several meetings."

Tate of Sweet Home advised Miller that a district water line serving the country club ran across the Lexington Estates site. Miller, knowing that Sweet Home was experiencing negative cash flow and fearing that the approval process might be time-consuming, decided to move the existing lines himself. In August of 1988, he hired Tate independently to move the existing lines at Miller's expense of $2,000.

Miller began construction on his apartment complex in September 1988. He spent $40,000 putting in a water and sewer system for his apartment complex. Sweet Home did not authorize Tate to perform contract work aside from his regular duties, and did not authorize him to connect the project with the district's water main. Miller perceived Tate as having the authority to represent the water district. Sweet Home did not instruct Miller to contact the water district directly and did not discuss the Miller project with Tate. Miller never contacted the district's business office on his own.

Tate assisted in turning on the water at the apartment site, assisting one J.L. Smith in connecting the project to the district's water system. Miller assumed that J.L. Smith would notify Sweet Home of the meter installation. Miller stated that Smith bore the contractual responsibility as a water and sewer contractor to communicate with the water system. Miller knew that Smith was in contact with Tate, who knew of the meter installation. Tate was present when the meters were set and turned on. After Miller connected to the water district lines, several residents moved into the apartment unit of Lexington Estates. Miller admitted at trial that he bore final responsibility for opening up accounts once service to the project began. Tate also "was on the job just about every day," and Miller "assumed that he [Tate] was handling whatever he was supposed to [have] been doing."

On October 14, 1988, the water system terminated Tate's employment. No one from Sweet Home initially notified Miller that Tate did not represent Sweet Home. At the end of November, the system's administrative assistant wrote Miller: "It is unfortunate for your company and the Water and Sewer District that Mr. Tate operated out of the scope of District Policies. All transactions and related business must be channel [sic] through the district office."

Although Miller did not open an account with Sweet Home, the system did bill him for water use because Miller had connected a hose to a district fire hydrant. The association informed him that it could not meter hydrant usage, and Miller paid a flat fee for the use of the water.

The FmHA and Mississippi State Board of Health inspected the water and sewer installation on the site. The health department also inspected the project and sent Sweet Home a copy of the inspection results. At that time, Miller had already covered the sewage piping.

On February 17, 1989, the district wrote Miller and threatened litigation, stating:

After discussion with Attorney Ted Batson and FmHA representative Johnny Shell, it was decided that you made a lawful contract with the Sweet Home Board of Commissioners concerning an Impact Fee of $8,400 (24 units @ $350.00). This fee should have been paid back in October according to information received and documentation on file in our office. We are hoping we want [sic] have to get into litigation in securing these funds.... At this point, it has been decided that no water or sewer services shall be granted until this matter has been resolved.

....

We will not allow the customers of Sweet Home Water and Sewer District to again bear the cost of trickery and...