Public Service Commission v. Highfield Water Co.

Davidson, J., delivered the opinion of the Court. The United States District Court for the District of Maryland (District Court), pursuant to the Maryland Uniform Certification of Questions of Law Act, Maryland Code (1974, 1980 Repl. Vol.) §§ 12-601 to 12-609 of the ³ Courts and Judicial Proceedings Article, requests that this Court answer the following question of law: "If a local governmental entity in Maryland takes possession of privately-owned property devoted to the public service, does there arise an implied contractual obligation to pay the fair market value of that property which is separate and distinct from any right to fair compensation that may also arise under the Maryland or United States Constitution?” For purposes of this proceeding, all of the parties have adopted the statement of facts contained in the District Court’s opinion in Highfield Water Co. v. Public Service Commission, 488 F.Supp. 1176, 1180-85 (D.Md. 1980). The underlying facts as set forth there are as follows.

On 28 September 1979, in the District Court, the plaintiffs, Highfield Water Company (HWC) and William Seltzer, its president and sole shareholder, filed suit against the defendants, various State and local agencies including, insofar as here relevant, the Public Service Commission (PSC), the Department of Health and Mental Hygiene (Health), the Washington County Sanitary District (WCSD), and against various persons connected with these agencies in both their official and individual capacities. The complaint alleged, among other things, that HWC, a Maryland Corporation, was incorporated in 1905 for the purpose of supplying water to Highfield, Maryland, a sparsely populated area in the western part of the State. In 1966, Seltzer purchased the company. According to the complaint, HWC faced numerous problems at that time.

First, because Seltzer’s predecessor had not charged the company for his personal services, office space, and supplies, the rates for water were unreasonably low. Second, portions of the system needed replacing. Third, the demand for water was almost equal to the supply so that any increase in demand would necessitate expansion of the existing facilities. As a result, HWC filed for a rate increase in 1968.

The PSC granted only what HWC terms a "token” increase. Ini ⁴ tially, it was sufficient to meet operating expenses, but allowed no improvements. Thereafter, it was not sufficient to meet operating expenses and HWC was operated at a loss. In 1978, despite consistent efforts to correct the deficiencies in the system, HWC was experiencing substantial difficulty in supplying enough water to meet the then current demand and was still operating at a financial loss.

On 8 September 1978, PSC revoked HWC’s franchise "consistent with the public convenience and necessity to have public ownership.” The revocation was effective 1 October 1978. On 15 September 1978, Health ordered WCSD to operate HWC’s system and to proceed to acquire ownership. On 29 September, WCSD filed suit in the Circuit Court for Washington County (Circuit Court) against HWC. The Bill of Complaint alleged that the PSC terminated HWC’s franchise due to years of inadequate and unsatisfactory service and deteriorated facilities, and that HWC constituted a serious menace to the health, safety, and comfort of the public.

On that same day, WCSD obtained an ex parte injunctive order preventing HWC from interfering with operation of the system by WCSD. On 5 October 1978, WCSD sought an extension of the injunction. The HWC alleged that before the seizure, Health and WCSD had indicated an intent to acquire HWC by purchase or condemnation under the mistaken assumption that 80% federal funding would be available for the purchase. Allegedly, these agencies subsequently discovered that this was incorrect and that funding was available only for new construction or improvements.

Health and WCSD allegedly determined that with federal funding they could build a new plant within two years, with billing rates equal to or less than those of HWC. They allegedly planned to abandon the HWC system upon completion of the new plant. On 21 November 1978, WCSD asked for another extension on the ground that it needed time to decide whether it was going to build a system of its own. Although the Circuit Court extended the injunction until 31 January 1979, it expressed ⁵ concern about a seizure without compensation, and advised WCSD that it would have to compensate HWC even if WCSD built its own system.

On 5 January 1979, WCSD asked for another extension to 30 April 1979 which was denied. On 13 January, Health ordered HWC to appoint the Maryland Environmental Service (MES) or WCSD to operate the system until WCSD replaced the "present inadequate system with a new safe and adequate public water system.” The HWC asserted that WCSD had equitable title in the system since 1 October 1978, and thus HWC could not comply with the Health order. About ten days after its order, Health filed suit against HWC for failure to comply. The Circuit Court issued an injunction allowing WCSD to continue running the system under the same conditions imposed by the previous injunction.

The WCSD is now said to be operating the system under court order, not as the agent of HWC. The complaint filed in the District Court contained 12 counts. Count I, Breach of Implied Contract, stated, in pertinent part: "58. On October 1, 1978, Defendant — WASHINGTON COUNTY SANITARY DISTRICT, under color of state law, seized possession of Plaintiffs’ property and ejected Plaintiffs from the premises by obtaining an Ex Parte Injunction Order and subsequent series of Interlocutory Injunctive Orders enjoining Plaintiffs from interfering with Defendant — WASHINGTON COUNTY SANITARY DISTRICT’S takeover of the subject water system and further adding Plaintiffs to assist in the take-over of the property.

"59. Defendant — WASHINGTON COUNTY SANITARY DISTRICT, in their Bill of Complaint ejecting Plaintiffs from their property, seizing possession thereof, and enjoining Plaintiffs from interfering with Defendant’s operation of the subject water system, stated that they were acting pursuant to Defendant — HEALTH DEPARTMENT’S ⁶ September 15, 1978 Order that directed Defendant — WCSD to acquire ownership of the property. "60. The United States, the State of Maryland, a Maryland municipal corporation, or a local government may only lawfully acquire ownership of private property by gift, purchase, or condemnation.

"61. Plaintiffs have not transferred ownership of their property to Defendants by gift. "62. Defendants have not acquired ownership of Plaintiffs’ property by condemnation.

"63. If Defendant — STATE OF MARYLAND or any of the Defendants herein, acting as agents for Defendant — STATE OF MARYLAND or on behalf of themselves, were acting lawfully, then they must have intended to purchase Plaintiffs’ Highfield water system for its fair market value when they seized possession of it. "64. Therefore, at the moment of seizure, an implied purchase contract was created, and under the doctrine of equitable conversion, equitable title to Plaintiffs’ property passed to Defendants, and Defendants became obligated to compensate Plaintiffs for the fair market value of the water system.

"65. At the time of the seizure, Plaintiffs’ water system had a fair market value of One Million Dollars ($1,000,000.00). "66. Defendants have not compensated Plaintiffs for the taking of the Highfield water system.

"67. Defendant — STATE OF MARYLAND and its agents, named herein as defendants, who were acting in a lawful manner, on behalf of Defendant — STATE OF MARYLAND or on behalf of themselves, breached their implied contract to purchase the Highfield water system. "WHEREFORE, this suit is brought and Plaintiffs claim compensatory damages in the amount of ⁷ One Million Dollars ($1,000,000.00).” (Underlining in original). Count V, Deprivation of Civil Rights ( 42 U.S.C. § 1983 ), alleged that, under color of State law, the defendants deprived plaintiffs of their civil rights secured by the United States Constitution through misuse of administrative powers and judicial proceedings that resulted in an unlawful seizure of the plaintiffs’ property without just compensation.

This count sought a declaratory judgment as well as compensatory and punitive damages. Count VIII, Violation of the Fifth and Fourteenth Amendments of the United States Constitution and Maryland Declaration of Rights, Article 24 (formerly 23), alleged that the misuse of administrative powers and judicial proceedings which resulted in an unlawful seizure of plaintiffs’ property was tortious and in violation of the Fifth and Fourteenth Amendments and of the Maryland Declaration of Rights. This count also sought a declaratory judgment as well as compensatory and punitive damages. The defendants filed motions to dismiss. 1 The claims set forth in Count I and Count V were not dismissed.

That portion of Count VIII seeking damages directly under the United States Constitution was dismissed. That portion of Count VIII seeking damages and a declaratory judgment under the Maryland Declaration of Rights, and a declaratory judgment under the United States Constitution was not dismissed. In the motions to dismiss, the defendants asked the District Court to abstain from deciding the issues presented in the complaint. With respect to this request, the District Court said: ⁸ "Abstention can be based on a number of different theories. ...

Abstention under [Railroad Commission of Texas v. Pullman Co., 312 U.S. 496 , 61 S.Ct. 643 (1941)] is appropriate to avoid deciding a federal constitutional issue where the case may be disposed of by a decision on questions of state law. "The typical case in which Pullman abstention is appropriate involves an unclear state statute, interpretation of which could eliminate the need for the federal court to reach the constitutional issue. "The only unclear state law potentially dispositive of this case which the defendants have brought to the Court’s attention is the implied contract claim. The PSC argues that this claim could resolve the dispute, and that the legal issues are unclear, since the Maryland Court of Appeals apparently has not addressed an implied contract question since 1863.

Baltimore & Ohio R.R. Co. v. Clark, 19 Md. 509 (1863). It is not clear, however, that one must look to state law to resolve the implied contract claim. It has been held that a contract is implied when federal government actions result in a taking. '. . . if the authorized action in this instance does constitute a taking of their property for which there must be just compensation under the Fifth Amendment, the Government has impliedly promised to pay that compensation and has afforded a remedy for its recovery by a suit in the Court of Claims.’ Yearsley v. Ross Construction Co., 309 U.S. 18, 21 , 60 S.Ct. 413, 415 , 84 L.Ed. 554 (1940). A similar contract might be implied against a local government under federal law.

"Even if no federal implied contract action existed, the basis of any state action would still be ⁹ a determination of whether a taking requiring compensation had occurred. This question could be determined under the U.S. constitution, or the Maryland constitution. The sections of the Maryland constitution which deal with taking of property have been held equivalent to the corresponding federal provisions. 'That these constitutional provisions have the same meaning and effect in reference to an exaction of property, and that the decisions of the Supreme Court on the Fourteenth Amendment are practically direct authorities, was settled in Allied American Co. v. Comm’r., 219 Md. 607 , 150 A.2d 421 (1959).’ Bureau of Mines v. George’s Creek, 272 Md. 143, 156 , 321 A.2d 748, 755 (1974). Thus, resolving the implied contract question will hardly avoid a determination under the federal constitution.

"Accordingly, the Court concludes that Pullman abstention is [inappropriate in this case.” 2 Highfield Water Co., 488 F. Supp. at 1196, 1197 (emphasis added). On 7 May 1980, the PSC defendants, who were then still parties to the suit, asked the District Court to certify to this Court a question of law relating to Count I, Breach of Implied Contract. They asserted that the resolution of this question might be dispositive of the case and might, therefore, eliminate the necessity of the District Court reaching a constitutional question. In an order dated 1 August 1980, the District Court stated: "Cases on such implied contracts suggest to this Court that the contract is based on an underlying unconstitutional taking.

See, e.g., Yearsley v. Ross ¹⁰ Construction Co., 309 U.S. 18, 21 (1940); see also April 9 Opinion at 36-38. The Public Service Commission defendants argue, however, that an implied contract could exist independent of any unconstitutional taking. They point out that the Maryland Court of Appeals has apparently not addressed an implied contract question since 1863, Baltimore & Ohio R.R. Co. v. Clark, 19 Md. 509 (1863), and that there is no controlling precedent involving similar facts.” The District Court ordered that the following question of law be certified: "If a local governmental entity in Maryland takes possession of privately-owned property devoted to the public service, does there arise an implied contractual obligation to pay the fair market value of that property which is separate and distinct from any right to fair compensation that may also arise under the Maryland or United States Constitution?” The order did not indicate that we could reformulate the question certified. Under these circumstances, this Court is not authorized to go beyond the question certified in the order of the certifying court.

Toll v. Moreno, 284 Md. 425, 437 , 397 A.2d 1009, 1015 (1979); Krashes v. White, 275 Md. 549, 557 , 341 A.2d 798, 802 (1975); §§ 12-601 to 12-609 of the Courts and Judicial Proceedings Article. Manifestly, based on the context of the District Court’s opinion, an implied contractual obligation to pay fair market value would be separate and distinct from constitutional requirements to pay fair compensation only if a resolution of the implied contract question would avoid a determination under the Maryland or United States Constitution. Such an implied contractual obligation would be separate and distinct from constitutional requirements to pay fair compensation only if there could be recovery on the implied contractual obligation without a determination of whether a taking requiring compensation had occurred. Thus, we are ¹¹ not being asked to determine whether in Maryland a contractual obligation is implied from the constitutional requirements to pay just compensation.

Moreover, we are not being asked to determine whether, under the facts of this case, a "taking” in the constitutional sense had occurred. Rather, in our view, our inquiry is limited to the question certified — whether there exists in Maryland an implied contractual obligation to pay fair market value that is independent of any constitutional requirements or, in other words, whether, under the facts of this case, a contract could be implied without a determination of whether a taking requiring compensation had occurred. In Maryland, contracts have been implied under varying circumstances in transactions between private parties. See, e.g., Potterton v. The Ryland Group, Inc., 289 Md. 371, 375 , 424 A.2d 761, 763-64 (1981), Oliver v. Gray, 1 H. & G. 204, 217 (1827) (money had and received — contract implied from acknowledgement of subsisting debt removed bar of statute of limitations); Merritt Bldg. & Supply Co. v. Shaulis, 252 Md. 133, 135-36 , 249 A.2d 177, 178-79 (1969), Watchman v. Crook, 5 G. & J. 239, 263-64 (1833) (work and labor — contract implied where work not completed in conformity with contract but nevertheless accepted); Plitt v. Greenberg, 242 Md. 359, 363-64 , 219 A.2d 237, 241 (1966) (money had and received — contract implied where money obtained by fraud); Cline v. Fountain Rock Lime & Brick Co., 210 Md. 78, 88 , 122 A.2d 449, 454 (1956), Anderson v. Critcher, 11 G. & J. 450, 455 (1841) (contract implied where lease void but premises occupied with consent of owner); Gressitt v. Anderson, 187 Md. 586, 589-90 , 51 A.2d 159, 160 (1947), DeYoung v. Buchanan, 10 G. & J. 149, 157 (1838) (use and occupancy — contract implied where tenant holds over after expiration of lease); Wyeth v. Walzl, 43 Md. 426, 432-33 (1876) (money paid — contract implied where money paid pursuant to authorization).

On occasion, contracts have been implied in transactions involving private parties and local governmental bodies. See, e.g., State ex rel. Employment Sec. Bd. v. Rucker, 211 Md. 153, 157-59 , 126 A.2d 846, 849-50 (1956) (money had and received — contract implied ¹² where money paid by state agency under mistake of law and fact); Gaver v. County Comm’rs of Frederick County; 175 Md. 639, 649-50 , 3 A.2d 463, 467-68 (1939) (work and labor — contract implied where municipal corporation requires and accepts services of employee); Mayor of Baltimore v. Kinlein, 118 Md. 336, 342-43 , 84 A. 483, 485-86 (1912) (work and labor — contract implied where work not performed in conformity with contract but nevertheless accepted by city). None of these cases presents the question whether, independent of constitutional requirements, a contract to purchase and pay for private property should be implied when a local governmental body obtains lawful possession of private property.

Accordingly, we write on a clean slate. In our view, it is not possible to imply a contract independent of constitutional requirements under the circumstances here. The HWC contends that when WCSD took possession of its water system