Po River Water & Sewer Co. v. Indian Acres Club of Thornburg, Inc.

PRESENT: All the Justices

PO RIVER WATER AND
SEWER COMPANY

v. Record No. 970050 OPINION BY JUSTICE BARBARA MILANO KEENAN
January 9, 1998
INDIAN ACRES CLUB OF
THORNBURG, INC., ET AL.

FROM THE CIRCUIT COURT OF SPOTSYLVANIA COUNTY
J. Peyton Farmer, Judge

In this appeal, we consider whether a property owners'

association must pay a utility for services provided to common

area facilities owned by the association.
Indian Acres Club of Thornburg, Inc. (the Association) is

the property owners' association for Indian Acres of Thornburg, a

private recreational campground in Spotsylvania County. The

campground consists of 6,245 individual lots located on 802

acres.

The campground includes certain facilities for the benefit

of the individual lot owners, including roads, swimming pools,

tennis courts, lakes, parks, a club house, a recreation center, a

golf course, a car wash, showers, toilets, and lavatories. The

Association owns all the campground's common area facilities.

Each of the individual lot owners is a member of the

Association.

Po River Water and Sewer Company (Po River) is a Virginia

public service corporation certified by the State Corporation

Commission (the Commission) to provide water and sewer services

to the individual lot owners and to the campground's common area

facilities. From 1971 through October 1987, Po River sent one
bill for water and sewer services to the Association, or to its

predecessor, Indian Acres International. Beginning in November

1987, Po River billed the individual lot owners directly for the

cost of providing water and sewer services to the entire

campground, including the common areas. However, Po River

experienced difficulties in collecting payment for these services

from the individual lot owners.

In conjunction with Po River's 1992 application for a rate

increase, the State Corporation Commission entered an order in

January 1994, requiring Po River to record the amount of water

consumed by the Association's common area facilities. The

Commission further ordered Po River to submit in its next rate

case a rate structure that incorporated the Association as a

separate customer class and reflected the Association's water

usage.
Po River filed its next rate case in 1995. Based on meter

readings, the proposed tariffs and regulations requested a rate

of $85,750 per quarter to be charged to the Association, rather

than to the individual lot owners, for services provided to the

common area facilities. In its required notice to the individual

lot owners and to the Association, Po River stated that the rate

for the individual lot owners would decrease in proportion to the

rate paid by the Association, in order to prevent Po River from

being paid twice for the same service. The State Corporation

Commission approved the rate requested by Po River on an interim

basis, subject to a refund, and permanent rates are currently

under consideration by the Commission.
 Although Po River sent several bills to the Association

seeking payment for service to the common areas at the interim

rate, the Association refused to pay any of these bills. Po

River then informed the Association that it would terminate water

and sewer services to the common area facilities unless the

Association paid the quarterly bill of $85,750 and signed a

contract for the continuation of utility service to the

Association's facilities.
In response, the Association filed a petition for injunctive

relief and declaratory judgment asking the trial court to enjoin

Po River from terminating services to the common areas and to

hold, among other things, that there is no contract for the

provision of services between the Association and Po River, that

the Association is not a customer of Po River, and that the

Association is not responsible for Po River's customer billing. 1

Po River filed a cross-bill requesting that the trial court

rule, under the theory of quantum meruit, that Po River is

entitled to $85,750 for three months of water and sewer services

provided to the Association's common area facilities. Po River

also requested the trial court to issue a declaratory judgment

stating that the Association must pay Po River for its services

at the rate of $85,750 per quarter, subject to refund and

modification as may be ordered by the State Corporation

Commission.
1
Thirty-seven individual lot owners joined the Association
as plaintiffs. However, all the plaintiffs except the
Association and Audrey V. Conti later obtained a nonsuit of their
claims against Po River.
 After a bench trial, the court ruled that the Association

was entitled to the "full relief requested." The court held that

the individual lot owners are customers of Po River and "are

obligated to pay for all water and sewerage services provided by

Po River." The trial court enjoined Po River from terminating

service to the common area facilities on the basis that the

Association is a "non-paying customer" of the utility. Po River

appeals from this decision.
Po River first argues that the trial court lacked

jurisdiction to enjoin it from terminating services to the

Association, and to rule that the individual lot owners are

obligated to pay for the water and sewer services provided to the

common area facilities. Po River asserts that the State

Corporation Commission has sole jurisdiction over these matters.

Po River also argues that the trial court erred in denying the

relief requested in its cross-bill.

In response, the Association contends that Po River failed

to raise its jurisdictional argument in the trial court and,

thus, is prevented from raising this objection on appeal. The

Association also argues that the trial court properly exercised

its jurisdiction to determine whether an individual or an entity

is a customer of a public utility for the purposes of bill

collection, because this determination involves private rights

and contracts between a public utility and individuals. Lastly,

the Association denies that Po River is entitled to quantum
meruit relief.

We first address the principles of law that apply to the
jurisdictional issue raised by Po River. A challenge to a

court's subject matter jurisdiction may be raised at any time,

even for the first time on appeal. Wackwitz v. Roy, 244 Va. 60,

63, 418 S.E.2d 861, 863 (1992); Morrison v. Bestler, 239 Va. 166,

170, 387 S.E.2d 753, 756 (1990).

The Commission has a constitutional and statutory duty to

fix just and reasonable public utility rates. Va. Const. art.

XI, § 2; Code § 12.1-12; Anheuser-Busch Co. v. Virginia Natural
Gas, 244 Va. 44, 46, 418 S.E.2d 857, 858 (1992). In setting

rates for a public utility, the Commission must first determine

the public utility's revenue requirement, and then decide where,

how, and from what source or sources the revenue awarded is to be

obtained. Id. at 47, 418 S.E.2d at 859; Secretary of Defense v.

Chesapeake and Potomac Tel. Co., 217 Va. 149, 152, 225 S.E.2d

414, 417 (1976); Apartment House Council v. PEPCO, 215 Va. 291,

294, 208 S.E.2d 764, 766 (1974); City of Norfolk v. Chesapeake

and Potomac Tel. Co., 192 Va. 292, 320, 64 S.E.2d 772, 789

(1951). Thus, in order to allocate a public utility's revenue

requirement, the Commission is charged with establishing

appropriate customer classes based on usage characteristics of

individuals and entities utilizing the utility's services. See

Anheuser-Busch Co., 244 Va. at 46-47, 418 S.E.2d at 858-59;

Secretary of Defense, 217 Va. at 152-53, 225 S.E.2d at 416-17;

Commonwealth v. Shenandoah River Light and Power Corp., 135 Va.

47, 60, 115 S.E. 695, 699 (1923). In this manner, the Commission

sets a particular rate for each identified customer class. See

Anheuser-Busch Co., 244 Va. at 46-47, 418 S.E.2d at 858-59;
Secretary of Defense, 217 Va. at 152, 225 S.E.2d at 417;

Chesapeake and Potomac Tel. Co., 192 Va. at 320, 64 S.E.2d at

789.

These rate-making duties are encompassed within the

Commission's general duty to supervise, regulate, and control

public utilities in "all matters relating to the performance of

their public duties and their charges therefor." Code § 56-36.

Since the Commission has sole jurisdiction to define a utility's

customer classes for the purposes of setting the rate at which

the defined classes must pay for services received, the trial

court did not have jurisdiction to determine who was a "customer"

of Po River. Thus, the trial court erred in addressing the issue

whether the individual lot owners and the Association are

"customers" of Po River.
This conclusion, however, does not end our inquiry because

the trial court has jurisdiction to adjudicate and determine

private rights and contracts between public utilities and the

individual recipients of their services. Appalachian Power Co.

v. Walker, 214 Va. 524, 533-34, 201 S.E.2d 758, 766 (1974); City

of Lynchburg v. Commonwealth, 164 Va. 57, 63-64, 178 S.E. 769,

771 (1935); Norfolk & W. Ry. Co. v. Commonwealth, 143 Va. 106,

113-14, 129 S.E. 324, 326 (1925). Thus, the trial court has

jurisdiction to determine which individuals or entities have

received a public utility's services. Once the trial court makes

this determination, the court may then compute the recipient's

liability for payment at the rate set by the Commission for the

customer class pertaining to that recipient. Within this
context, the trial court may also consider whether someone other

than the recipient is obligated by contract to pay for the

utility services provided to the recipient. See id.

Applying these principles, we conclude that the trial court

erred in holding that the individual lot owners are obligated to

pay Po River directly for water and sewer services provided to

the Association's common area facilities. The evidence is

uncontroverted that the Association is the owner of the common

areas and facilities, and that Po River provided water and sewer

services to these facilities. Thus, the Association, not the

individual lot owners, received these services from Po River.

Further, the record contains no evidence that the individual lot

owners were required by contract to pay for the utility services

received by the Association. The documents on which the

Association relies are unambiguous and do not establish such a
2
duty binding the individual lot owners.
Although neither the individual lot owners nor the

Association were required by contract to pay for the utility

services received by the Association, we agree with Po River that

the trial court erred in failing to grant Po River relief in

accordance with its cross-bill, which requested equitable and

declaratory relief under the theory of quantum meruit. To avoid

unjust enrichment, equity will effect a "contract implied in

2
These documents include the restrictive covenants
applicable to the individual lots, Po River's application to the
Commission in 1971 requesting certificates of public convenience,
Po River's 1971 rates, rules and regulations, and the lease
agreement between Po River and Indian Acres Land Company.
law," requiring one who accepts and receives the services of

another to make reasonable compensation for those services. See

Marine Dev. Corp. v. Rodak, 225 Va. 137, 142-44, 300 S.E.2d 763,

765-66 (1983); Ricks v. Sumler, 179 Va. 571, 577, 19 S.E.2d 889,

891 (1942); Hendrickson v. Meredith, 161 Va. 193, 200, 170 S.E.

602, 605 (1933). The liability to pay for the services is based

on an implication of law that arises from the facts and

circumstances presented, independent of agreement or presumed

intention. Marine Dev. Corp., 225 Va. at 142, 300 S.E.2d at 766;

Hendrickson, 161 Va. at 200-01, 170 S.E. at 605. The promise to

pay is implied from the consideration received. Id.

Here, the record is clear that the Association, as the owner

of the common area facilities, accepted and received water and

sewer services from Po River. A promise to pay is implied from

the acceptance and receipt of those services. Thus, we hold that

the Association is required to pay Po River for those utility

services.

As stated above, the interim rate in effect for the

Association's water and sewer usage is $85,750 per quarter. The

quarterly period for which Po River requests monetary relief on a
quantum meruit basis is December 1, 1995 through February 29,

1996. Thus, the Association is required to pay $85,750 to Po

River for the water and sewer services provided to the

Association's common area facilities for that period. We also

hold that Po River is entitled to a judgment declaring that the

Association is required to pay Po River for the water and sewer

services provided to the Association's common area facilities at
the rate of $85,750 per quarter, subject to any future refunds

and future modifications that may be ordered by the Commission.

For these reasons, we will reverse the trial court's decree

and enter final judgment in favor of Po River on the

Association's petition for injunctive and declaratory relief and

on Po River's cross-bill.

Reversed and final judgment.