Time Warner Entertainment Co. v. Whiteman

• Decision Date: 03 February 2004
• Docket Number: No. 49S02-0402-CV-47.,49S02-0402-CV-47.
• Parties: TIME WARNER ENTERTAINMENT COMPANY, L.P., Appellant (Defendant below), v. Kelly J. WHITEMAN and Jean Wilson, Appellees (Plaintiffs below).
• Court: Indiana Supreme Court

802 N.E.2d 886

TIME WARNER ENTERTAINMENT COMPANY, L.P., Appellant (Defendant below), v. Kelly J. WHITEMAN and Jean Wilson, Appellees (Plaintiffs below).

No. 49S02-0402-CV-47.

Supreme Court of Indiana.

February 3, 2004.

Rehearing Denied March 22, 2004.

Scott D. Himsel, Brent D. Taylor, Jennifer K. Bowman, David K. Herzog, Baker & Daniels, Indianapolis, IN, Attorneys for Appellant.

Karl L. Mulvaney, Nana Quay-Smith, Candace L. Sage, Bingham McHale, LLP, Irwin B. Levin, Richard E. Shevitz, Scott D. Gilchrist, Cohen & Malad, P.C., Indianapolis, IN, Attorneys for Appellees.

ON PETITION TO TRANSFER FROM THE INDIANA COURT OF APPEALS, NO. 49A02-9910-CV-719.

SULLIVAN, Justice.

Two customers of a cable television company who paid the "late fees" imposed on their bills sued to get back a portion of the money they had paid, arguing that the fee imposed exceeded the cable company's cost of collection. The Court of Appeals held that they were not entitled to recover because they had made the payments voluntarily. We hold that the "voluntary payments doctrine" is not applicable here.

Background

Jean Wilson and Kelly Whiteman were both subscribers to the cable television service of Time Warner Entertainment, L.P. Each signed a contract with Time Warner that required her to pay for her cable service by the due date listed on her monthly bill, and permitted Time Warner to charge a late fee if she failed to do so. We will refer to Wilson and Whiteman collectively in this opinion as the "Customers" although the contracts each of them signed with Time Warner were materially different from one another.

Wilson signed her contract on August 29, 1992. It read in pertinent part:

TERMS AND CONDITIONS FOR SERVICE AND EQUIPMENT RENTAL AGREEMENT

1. Monthly service charges will be billed in advance and are payable by Date Due printed on statement. If payment is not received by Date Due, a handling charge called "Late Fee" will be applied to delinquent accounts.

(R. 360.)

Whiteman signed her contract on January 6, 1996. It read in pertinent part:

TERMS AND CONDITIONS FOR SERVICE AND EQUIPMENT RENTAL AGREEMENT

1. Customer agrees to pay for cable television services provided to customer including charges for installation, equipment, tier service (including basic tier), services provided on a per channel or per program basis, or any other service provided by American Cablevision of Indianapolis¹ (the "Company") and all applicable local, state or federal fees and taxes. Monthly service charges will be billed in advance (except for per program charge) and are payable by date due printed on statement for that billing period. If payment is not received by Due Date an administrative charge called "Late Charge" of $4.40 will be applied to customer's account.

(R. 363.)

The material difference between these two contracts is, of course, that Wilson's contract did not set forth an explicit amount for the "Late Charge"; Whiteman's did.² Despite this difference, neither side in this litigation contends that the difference matters.³

Time Warner did in fact impose upon both Customers a "late fee" of $4.40 (before January, 1998) and $4.65 (after January, 1998) when payment had not been received by the "Date Due." In fact, Time Warner says that such a fee was imposed on more than 20,000 of its 84,000 Indianapolis subscribers each month.

The Customers originally filed separate lawsuits against Time Warner. In broad terms, they sought to recover the late fees paid to Time Warner in excess of Time Warner's actual damages caused by late payment. Customers also sought declaratory and injunctive relief to prevent Time Warner from charging excessive late fees in the future.

For its part, Time Warner maintained that the late fee covered only a portion of the costs it incurred as a result of subscribers' late payments. These costs include those of its "in-house collection department" (consisting of customer service representatives who speak with delinquent subscribers and lobby personnel who accept payments from late subscribers who are late); field collectors who visit subscribers at their homes; and contract collection agencies that pursue unpaid balances.

On Time Warner's motion, the two lawsuits were consolidated for purpose of discovery and pretrial proceedings. Time Warner subsequently filed a Motion to Dismiss and for Summary Judgment on the basis that Indiana's "voluntary payment doctrine" prohibits recovery of funds voluntarily paid under the payor's mistaken belief as to the legal obligation of the payment. Time Warner also contended that none of the customers' claims for money damages states a cognizable claim under Indiana law because the late payment provisions of the contracts constituted valid and enforceable liquidated damage clauses.

The trial court initially granted Time Warner's Motion to Dismiss and Motion for Summary Judgment, concluding that the Customers' claims for money damages were barred by the voluntary payment doctrine and that Time Warner's late fee was a valid liquidated damage assessment. But following a hearing on the Customers' motion to correct error, the trial court vacated its earlier ruling and permitted the action to proceed on the merits.

The Court of Appeals affirmed in part and reversed in part. Time Warner Entertainment Co. v. Whiteman, 741 N.E.2d 1265, 1275 (Ind.Ct.App.2001). It concluded that genuine issues of material fact existed with respect to the cost basis for Time Warner's late payment charges, and affirmed the trial court's decision to reinstate the Customers' claims for injunctive and declaratory relief.⁴ However, the Court also determined that the Customers' claims for money damages were barred by the voluntary payment doctrine as a matter of law, and concluded that the trial court abused its discretion by granting the Customers' motion to correct error as to this claim.

Discussion

I

Time Warner argues, and the Court of Appeals held, that the Customers are not entitled to the repayment of any of the late fees paid because they paid those amounts voluntarily. This argument invokes Indiana's "voluntary payment doctrine" which has analogs in many other states.

Hornbook law sets forth three propositions in this regard:

As a general rule, money voluntarily paid with a full knowledge of all the facts, and without any fraud or imposition on the payor, cannot be recovered back, although it was not legally due.

Generally a voluntary payment made under a mistake or in ignorance of law, but with a full knowledge of all the facts, and not induced by any fraud or improper conduct on the part of the payee, cannot be recovered back.

In general money paid under a mistake of fact, and which the payor was under no legal obligation to make, may be recovered back, notwithstanding a failure to employ the means of knowledge which would disclose a mistake.

23 I.L.E., Payment §§ 41, 42-43 (1970). See also C.J.S. §§ 113-114 (1987). Our court resolved a number of 19th century disputes using these principles. Three are representative.

In Bond v. Coats, 16 Ind. 202 (Ind.1861), Coats sued Bond. Coats had rented a mule from Bond to work on a ferry-boat. While Coats had the mule, it died through no fault of Coats. Coats nevertheless paid Bond for the mule, thinking he was legally obligated to do so. When Coats discovered that he was not legally obligated to pay for the mule, he sued to get his money back. We held Coats unable to recover the amount paid. "He had full knowledge of [the facts]; but alleges he was mistaken as to his rights, in a matter in which he had constituted himself a judge in his own cause, and decided against himself. We are of opinion that the weight of authority is that he can not be now heard to reverse his own judgment." Id. at 203.

In Downs v. Donnelly, 5 Ind. 496 (1854), Donnelly sued Downs. Donnelly had paid Downs the amount of a debt owed to Downs by the estate of a man named Ross. Ross was Donnelly's wife's deceased former husband and Downs had threatened to sue Donnelly for the amount of the debt. Thinking he was legally obligated to pay the debt and not wanting to be sued, Donnelly paid Downs. When Donnelly discovered that he was not legally obligated to pay the estate's debt, he sued to get his money back. We held Donnelly unable to recover the amount paid. "His right of recovery is exclusively based upon an alleged mistake. If that was a mistake of law, it is fully settled that proof of such misapprehension will not enable the party to recover back money voluntarily paid under a claim of right. The construction of law is open to both parties and each is presumed to know it." Id. at 505.

In Lafayette & I.R. Co. v. Pattison, 41 Ind. 312 (Ind.1872), Pattison sued a railway. Pattison had paid shippers freight charges on cattle shipped from Chicago to Indianapolis. He then sued the shippers to recover alleged overcharges. We held that Pattison was entitled to pursue recovery because his payments were not voluntary. "[W]here one person was in possession of the goods or property of another, and refused to deliver the same up to that other, unless the latter paid him a sum of money which he had no right to receive, and the latter, in order to obtain possession of his property, paid that sum, the money so paid was a payment by compulsion, and may have been recovered back." Id. at 327, 328. See also Chicago, St. L. & P.R. Co. v. Wolcott, 141 Ind. 267, 39 N.E. 451 (1895) (also holding alleged railway overcharges could be recovered).

To these interesting older cases, we add the one discussed by the Court of Appeals, City of Evansville v. Walker, 162 Ind.App. 121, 318 N.E.2d 388, 389 (1974). The plaintiffs had paid fines to the city for parking violations committed on federal property. When the plaintiffs discovered that the city had no legal authority to impose fines for parking violations on federal property, they sued to get their money back. The court held the plaintiffs unable to...