Supreme Court Allows Water Customers to Pursue Lawsuit without Administrative Proceedings First

The Tennessee Supreme Court has held that customers of a sewer service provider in Hamilton County may file a lawsuit to challenge their rates without first going through administrative proceedings. 

The Hamilton County Water and Wastewater Treatment Authority (Hamilton County Authority) provides sewer services to customers in areas surrounding Chattanooga. In 2008, the Hamilton County Authority was found to be in violation of environmental laws because their sewer systems could not process the high influx of storm and rain water. To address the problem, the Hamilton County Authority developed a program to inspect and repair the sewer pipes for all 26,000 of its customers. To pay for the program, the Hamilton County Authority notified its customers that they would be assessed an $8 per month charge for 20 years. 

The plaintiff, American Heritage Apartments, Inc., operates an apartment complex that receives sewer services from the Hamilton County Authority. American Heritage objected to the $8 monthly fee and filed a lawsuit against the Hamilton County Authority asking the court to declare the $8 monthly charge unlawful. American Heritage also asked the court to certify the case as a class action, a procedure that lets a party pursue a lawsuit on behalf of not only the individual plaintiff, but also on behalf of other persons in similar circumstances.

The trial court dismissed the lawsuit. It held that American Heritage could not file a lawsuit to challenge its sewer service rates unless it first went through administrative proceedings under the law governing utility districts, the Utility District Law of 1937. In the alternative, the trial court held that, if its dismissal of the lawsuit were reversed on appeal, the lawsuit could go forward as a class action.

The Court of Appeals reversed the trial court’s dismissal. The intermediate appellate court held that the law governing utility districts did not apply to the Hamilton County Authority because it was a water and wastewater treatment authority, not a utility district, and customers of water and wastewater treatment authorities did not have to go through the administrative procedures for utility districts before filing suit. The Court of Appeals affirmed the trial court’s ruling allowing American Heritage’s lawsuit to proceed as a class action. 

The Supreme Court reviewed the case and held that, under the Utility District Law, a water and wastewater treatment authority, such as the Hamilton County Authority, is considered to be a “utility district” for some purposes but not for other purposes. The Supreme Court agreed with the Court of Appeals that a water and wastewater treatment authority is not considered to be a “utility district” for the purpose of a rate challenge, so customers do not have to go through the administrative procedures for utility districts before filing a lawsuit to dispute their rates.

The Supreme Court affirmed the Court of Appeals’ decision to reinstate American Heritage’s lawsuit against the Hamilton County Authority. However, the Court sent the case back to the trial court to review its ruling regarding class certification because the trial court had not made enough findings.

Read the unanimous opinion in American Heritage Apartments, Inc. v. The Hamilton County Water and Wastewater Treatment Authority, authored by Justice Holly Kirby.