November 9, 2007
Dear Madam:
You have the following question: Does the Utility District Cut-Off Policy meet legal
muster?
The answer is that it fails to meet legal muster with respect to the requirement that the
termination notice inform the customer that he has a right to a hearing before the termination, if
he wants one, in the case of disputed bills, but it appears to meet legal muster with respect to the
requirement that a process be in place for holding hearings on such disputed bills.
The U.S. Supreme Court case of Memphis Light, Gas and Water Division v. Craft, 436
U.S. 1 (1978) requires two things in connection with the termination of utility service for nonpayment of utility bills:
- The notice of termination must include notice that the customer has the right to a
hearing, if he wants one, before the termination;
- The utility must have in place a process for providing a termination notice.
The legal basis for the Craft Court’s decision was that under Tennessee law, utility
customers have a property right in utility service. In fact, the Court declared that “In defining a
public utility’s privilege to terminate for the nonpayment of proper charges, Tennessee decisional
law draws a line between utility bills that are the subject of bona fide dispute and those that are
not.” [At 1560]
In the unreported case of Hargis v. City of Cookeville, 92 Fed. Appx. 190, 2004 WL
237655 (C.A.6(Tenn.)), the U.S. Sixth Circuit Court of Appeals also found that the city’s cut-off
policy was defective because it did not notify the customer that he had the right to object to the
termination of service, but also declared that Craft applied to cases applied of disputed water
bills, and only when the cut-off had caused the customer damage. In that case there was no
actual cut-off of utility service. Unreported cases do not have the precedential weight of reported
cases; however, it is probably a good assumption that the U.S. Sixth Circuit Court of Appeals
would have held the same thing if Hargis had been reported.
As indicated above, the Utility District Cut-Off Policy appears to meet the second
requirement; it provides a process for holding cut-off hearings. [See POLICY, Para 3.] But the
copy of the utility bill which you sent to me, and which apparently operates as a cut-off notice,
November 9, 2007
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does not contain a notice that the customer has a right to a cut-off hearing in the case of disputed
water bills.
I am surprised that I have been unable so far to find any law or cases on the question of
whether in a case where there is a contract between two utility providers under which one
collects the utility bill for the other utility, the liability that might arise from a utility policy that
does not meet legal muster shifts from the utility contracting to have its utility bills collected to
the utility that collects the utility bills. It may be that such contracts are not common. I will keep
up the research on that question.
Sincerely,
Sidney D. Hemsley
Senior Law Consultant
SDH/