Indiana Utility Law and Indiana Municipal Law – Indiana Court of Appeals Affirms Ruling that Developer’s Overpayment of Sewer Tap-In Fee Based on City’s Miscalculation Was Not an Unrefundable Voluntary Overpayment

In November 2010, the Court of Appeals of Indiana rejected a claim that a developer voluntarily overpaid a sewer tap-in fee that was incorrectly calculated by the City of Jeffersonville.

In City of Jeffersonville v. Hallmark at Jeffersonville, the Court held that the voluntary payment doctrine did not preclude the developer from receiving a refund of approximately $105,000. In this case, Hallmark, the developer, was constructing three buildings which included a total of eighty units. In order to obtain the proper permits, Hallmark was required to pay a sewer tap-in fee under the City’s ordinance related to sewer services. Hallmark paid that fee, which was assessed by the city engineer to be $1,500 per unit, for a total of $120,000.

Eight months later, Hallmark discovered that the units had mistakenly been charged the fee for single-family dwellings and should have instead been assessed a $15,000 fee. On September 4, 2007, the Jeffersonville Board of Sewer Commissioners (“Sewer Board”) Sewer Board denied Hallmark’s request for a refund. On September 25, 2007, Hallmark filed a complaint against the City of Jeffersonville and the Sewer Board alleging that it overpaid sewer tap fees and requested a refund of $105,000.

In its analysis, the Court restated the voluntary payment rule as “money voluntarily paid in the face of a recognized uncertainty as to the existence or extent of the payor’s obligation to the recipient may not be recovered, on the ground of mistake, merely because the payment is subsequently revealed to have exceed the true amount of the underlying obligation.” The Court then applied the rule to the facts in City of Jeffersonville v. Hallmark at Jeffersonville and held that the voluntary payment rule was inapplicable for four reasons. First, the Court found that Hallmark had to pay the fee in order to receive service and the proper permits. Second, the Court noted that the City had a monopoly on allowing developers to connect to the wastewater sewage plant and therefore, Hallmark had no where else to go for similar services. Third, the Court found that the fee was not in dispute at the time the fee was paid by Hallmark. Lastly, the Court noted that overpayment of fees become the property of the municipality if unclaimed for seven years under Indiana Code §36-9-23-28.5, and therefore it would go against public policy to allow the city to take financial advantage of its own error by keeping the fee that was seven times what it was owed.

City of Jeffersonville v. Hallmark at Jeffersonville, L.P., 937 N.E.2d 402 (Ind. Ct. App. 2010)

Jeremy L. Fetty is a partner at Parr Richey whose practice focuses on corporate law, utility law, municipal law, and labor and employment law. The statements contained herein are for information purposes only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have questions regarding this article, please contact an attorney.