United States: Quicksands And Cutting Edges of the Law: Do Municipal Utility Customers Possess Due Process And Vested Rights To Continued Sewerage Service?

Introduction 

Sometimes, I read a court's opinion and put it aside because it is thought provoking beyond its facts and outcome.  The case of United States Cold Storage, Inc. v. Town of Warsaw, __ N.C. App. ___, 784 S.E. 2d 575 (April 5, 2016) falls into this category. 

Background

United States Cold Storage is interesting from several angles, but this post explores only one - the possibility that governmental utility customers possess due process and common law vested rights to continued utility service.   

The facts were simple.  United States Cold Storage (USCS) owned a facility located outside the corporate limits of the Town of Warsaw (Town).  Through a contract with a county government, USCS secured Town sewer service and a promise that the Town would not annex the facility for seven (7) years. 

The Town provided sewer service for seven (7) years.  Thereafter, the Town requested USCS to annex its facility into the Town's corporate limits voluntarily.  By annexing the facility into the Town, USCS received other Town services and became obligated to pay property taxes to the Town.  In its communication to USCS, the Town stated that if USCS did not voluntarily annex the facility, the Town intended to stop providing sewer service to the facility.

USCS filed a declaratory judgment action requesting the trial court to declare that the Town could not terminate sewer service because USCS had refused to annex the facility into the Town's limits.  After hearing the case, the trial court declared that the Town had no obligation to continue to provide sewer service to the USCS facility.  USCS appealed to the North Carolina Court of Appeals.

The majority opinion, written by Judge Dillon, and the dissent, written by Judge Hunter, illustrate two very different understandings of public enterprises – business operations conducted by local governments.   The difference is important.

The Two Understandings

The Majority's Reasoning

The majority opinion relies upon the particular statutes empowering a municipality to own and operate water and sewer systems serving customers within and outside their corporate limits and case law decided under these statutes.  The majority concludes that the case of Fulghum v. Selma 238 NC 100 (1953) is a "factually similar case from the middle of the last century." p. 3.  Based upon the majority's understanding of these statutes and Fulghum, the majority holds that the Town:

1. "[H]as the legal right to discontinue sewerage service to the USCS facility, provided that the Town is not unfairly discriminating between USCS and other non-residents similarly situated who currently receive sewerage service."  Id. (emphasis by the Court); and

2. "[H]as the legal right to condition continued service to USCS's facility on the voluntary annexation of the facility into the Town's corporate limits...provided that the Town is not unfairly discriminating between USCS and other non-residents similarly situated who currently receive sewerage service."  Id.

The majority rejects USCS's contention that Dale v. Morganton, 270 N.C. 567 (1960), another case decided in the last century, applies to USCS.   In Dale, the North Carolina Supreme Court held that the Town could not halt utility service to an inhabitant of the Town because of a controversy "which is not related to the service sought."  Dale at 572.   The majority observes that the customer in Dale is an inhabitant of Morganton – a municipal taxpayer; whereas, USCS is not an inhabitant and apparently does not want to become a municipal taxpayer.  Therefore, like the customer in Fulghum, USCS possesses a right to uninterrupted service only when a town has "obligated itself by contract to provide services." p. 4 (emphasis by the Court). 

The majority's reasoning understands that public enterprises are unusual statutory creatures - businesses conducted by local governments.  As such, the statutes enabling these activities and interpretations of these statutes control.

The Dissent's Reasoning

Judge Hunter disagrees with the majority's interpretation of Fulghum and Dale.  Specifically, Judge Hunter concludes that Fulghum and Dale stand for the rule that the Town can establish different user rates for inhabitants and USCS, a customer located outside its corporate limits, but the Town cannot stop providing sewer service to USCS for reasons not related to the service sought.  Specifically:

[T]he Town of Warsaw did not have a duty to extend sewer services to USCS.  However, the Town of Warsaw elected to extend a public utility to an area outside the city.  As a result of that decision, the town cannot unreasonably discriminate or discontinue services for a reason unrelated to the provision of the utility itself. p. 6.

If Judge Hunter had ended his analysis at this point, the difference between the judges' understandings of public enterprises would have been contained within the statutes and case law specifically applicable to public enterprises.   But, Judge Hunter provided an additional analysis – the cutting edge theory that the Town had deprived USCS of substantive due process and its common law vested rights.

Judge Hunter's understanding is that once the Town extended services to USCS, USCS acquired "a protected property right in the continued provision of sanitary sewer service and that the Town of Warsaw arbitrarily or capriciously deprived [USCS] of that property right."  p. 7.

Under Judge Hunter's analysis, there is no difference between a municipality issuing a permit as a land use regulator and a municipality providing utility service as a business operator.  Accordingly:

...[T]the government is wielding its power to achieve its objective, violating the very purpose of due process protections. The government is forcing USCS to submit to "voluntary" annexation or lose access to vital utilities. Such arbitrary and capricious government action is in violation of constitutionally protected due process rights.  Id.

Comments 

  1. The dissent's understanding that customers of public enterprises possess due process and common law vested rights is thought provoking.  It lacks a basis in public enterprise statutes or case law decided under these statutes, but extends, by logic, the theory that due process applies to all types of governmental actions.

2. Judge Hunter's extension of due process protections to customers of a governmentally owned and operated utility system follows the continuing expansion of common law vested rights by North Carolina appellate courts.  Judge Hunter's phrase of a right "in continued provision of sanitary sewer service" is similar to Justice Newby's phrase of a right "to continue with an approved use of his land." See, Town of Midland  v. Wayne, ___ N.C. ___, 773 S.E.2d. 301 (2015). 

3. The legal implications of due process and vested rights applying to public enterprise customers are significant.  Here are a few questions which arise: 

i. Does the common law vested right arise out of the federal constitution so that a citizen living in Virginia who receives sewer services from a North Carolina municipality possesses the same vested right? Or does it arise out of the common law of North Carolina and a citizen living in Virginia would not possess it?

ii.  Can a municipality, which has a right to form a contract with utility customers not located in the municipality, require the customers to waive due process and vested rights as a condition of receipt of services or coerce these future customers into annexing through hard negotiations? Or is this type of contractual negotiation "a government abuse of power"? p. 7. 

iii. If customers possess due process and vested rights to receive continued service, are these customers/citizens protected from the General Assembly "wielding its power" by transferring ownership and control of a municipal water system to a service district without their consent?  See, City of Asheville, 777 S.E. 2d 92 (2015)(holding that transfer of existing water system serving customers to sewer service district did not violate Law of the Land Clause or exceed authority to take property).

iv. Assume a town grows rapidly and cannot serve all of the people living in the town.  Does the town deny service to new inhabitants and continue to service customers who are not inhabitants because they have due process and common law vested rights?

4. Public enterprises do not fit neatly into a political theory of smaller government - government should not engage in business activities.  But, long ago, the people of this State learned that local governments must fill the gap unfilled by the free market in order to have sufficient water/sewer services.   Today, most North Carolina citizens receive water and/or sewer service from local governments.

Both the majority and the dissent recognize that "hard cases are the quicksands of the law." p. 4; 5.  Hard cases encourage innovative analysis because judges feel the hardship in the case and seek to achieve justice.  At least one appellate judge would extend substantive due process protection and common law vested rights to customers located outside the municipality providing services.  But is that fair to those customers who are the inhabitants (and paying municipal taxes)?  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions