In Time Warner, a television cable company assessed late fees against its customers when their payments were not received by the due date. Time Warner’s customers filed lawsuits in order to recover the late fees paid in excess of the company’s actual damages caused by the late payments. 802 N.E.2d at 887-889. The Indiana Supreme Court held in Time Warner that the voluntary payment doctrine did not apply to Time Warner’s customers and discussed three main factors to consider when deciding whether to apply the voluntary payment doctrine. Id. at 891. First, that court observed that Time Warner’s customers had to pay the late fees in order to continue to receive cable service. Id. Next, the Time Warner court approved of the comments in the Restatement (Third) of Restitution and Unjust Enrichment which “limits application of the voluntary payment doctrine to situations where a party has voluntary paid a disputed amount.” Id. (emphasis added). The Time Warner court also stated that “customers in a government created monopoly deserve special protection because they have no where else to go for cable services.” Id. at 892. Finally, the Time Warner court reformulated Indiana’s definition of the voluntary payment doctrine by citing the comments of Restatement (Third) of Restitution and Unjust Enrichment § 6 cmt. e (Tentative Draft No. 1, 2001) as follows:
[a] more appropriate statement of the voluntary-payment rule, therefore, is that 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 exceeded the true amount of the underlying obligation.
This Court held that the voluntary payment doctrine does not apply to Hallmark, just as it did not apply to the customers in Time Warner. First, Hallmark, like the customers in Time Warner, could not have completed its building project until it paid the tap-in fee. Hallmark was “put in the position of having to make a payment in order to receive service.” Next, the City had a monopoly with regard to connections to its sewage plants, like Time Warner and its cable services. Finally, there is no evidence that the amount of the fee was in dispute at the time the City invoiced Hallmark or at the time Hallmark paid the fee. The Court also noted that the City should not be able to take financial advantage of its own calculation error.
The City also argued that the voluntary payment doctrine should apply because the City is a governmental entity. In Time Warner, the court mentioned that one of the reasons for the voluntary payment doctrine was that it allows entities that receive payment for services to rely upon the funds for unfettered use in future activities. 802 N.E.2d at 892. In choosing not to apply the voluntary payment doctrine to the Time Warner cable company, the Time Warner court drew a distinction between a private company and a governmental entity. Id. The Time Warner court stated that the same rationale underlying the voluntary payment doctrine does not apply to private businesses because the “unfettered use of the overpaid funds in a government context is made on behalf of the citizens of its jurisdiction.” Id. The City argued that the Time Warner court created an exception for governmental entities, like itself. However, this Court did not agree. The Court explained that under the facts of the case, the City did not present evidence that use of the sewer connection fees was unfettered for the benefit of the citizens of the city. Instead, the sewer fees were collected based on the “cost of constructing a local or lateral sewer sufficient to serve the property.” See Ind. Code § 36-9-23-29(a); see also Ind. Code § 36-9-23-29(d). The Court concluded its opinion by stating that “under the circumstances of this case, and in light of the Indiana Code sections above governing sewer fees, we cannot say that the policy justifications referred to in Time Warner, and perhaps demonstrated to some extent by . . . other cases cited by the City, favor application of the voluntary payment rule, even though the City is a governmental entity.”
City of Jeffersonville v. Hallmark at Jeffersonville, L.P., 937 N.E.2d 402 (Ind. Ct. App. 2010).
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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.