MEMPHIS LIGHT, GAS & WATER DIV. v. CRAFT(1978)

No. 76-39

Argued: November 2, 1977Decided: May 1, 1978

Because of two separate sets of gas and electric meters in their newly purchased house, respondents, for about a year after moving in, received separate monthly bills for each set of meters from a municipal utility. During this period respondents’ utility service was terminated five times for nonpayment of bills. Despite respondent wife’s good-faith efforts to determine the cause of the “double billing,” she was unable to obtain a satisfactory explanation or any suggestion for further recourse from the utility’s employees. Each bill contained a “final notice” stating that payment was overdue and that service would be discontinued if payment was not made by a certain date but did not apprise respondents of the availability of a procedure for discussing their dispute with designated personnel who were authorized to review disputed bills and to correct any errors. Respondents brought a class action in Federal District Court under 42 U.S.C. 1983, seeking declaratory and injunctive relief and damages against the utility and several of its officers and employees for terminations of utility service allegedly without due process of law. After refusing to certify the action as a class action, the District Court determined that respondents’ claim of entitlement to continued [436 U.S. 1, 2] utility service did not implicate a “property” interest protected by the Fourteenth Amendment, and that, in any event, the utility’s termination procedures comported with due process. While affirming the District Court’s refusal to certify a class action, the Court of Appeals held that the procedures accorded to respondents did not comport with due process. Held:

1. Although respondents as the only remaining plaintiffs apparently no longer desire a hearing to resolve a continuing dispute over their bills, the double-billing problem having been clarified during this litigation, and do not aver that there is a present threat of termination of service, their claim for actual and punitive damages arising from the terminations of service saves their cause from the bar of mootness. Pp. 7-9.

2. Under applicable Tennessee decisional law, which draws a line between utility bills that are the subject of a bona fide dispute and those that are not, a utility may not terminate service “at will” but only “for cause,” and hence respondents assert a “legitimate claim of entitlement” within the protection of the Due Process Clause of the Fourteenth Amendment. Pp. 9-12.

3. Petitioners deprived respondents of an interest in property without due process of law. Pp. 12-22.

(a) Notice in a case of this kind does not comport with constitutional requirements when it does not advise the customer of the availability of an administrative procedure for protesting a threatened termination of utility services as unjustified, and since no such notice was given respondents, despite “good faith efforts” on their part, they were not accorded due notice. Pp. 13-15.

(b) Due process requires, at a minimum, the provision of an opportunity for presenting to designated personnel empowered to rectify error a customer’s complaint that he is being overcharged or charged for services not rendered, and here such a procedure was not made available to respondents. The customer’s interest in not having services terminated is self-evident, the risk of erroneous deprivation of services is not insubstantial, and the utility’s interests are not incompatible with affording the notice and procedure described above. Mathews v. Eldridge, 424 U.S. 319 . Pp. 16-19.

[436 U.S. 1, 3]

particularly unsuited to resolve factual disputes typically involving sums too small to justify engaging counsel or bringing a lawsuit. Pp. 19-22.

534 F.2d 684, affirmed.

POWELL, J., delivered the opinion of the Court, in which BRENNAN, STEWART, WHITE, MARSHALL, and BLACKMUN, JJ., joined. STEVENS, J., filed a dissenting opinion, in which BURGER, C. J., and REHNQUIST, J., joined, post, p. 22.

Frierson M. Graves, Jr., argued the cause and filed a brief for petitioners.

Thomas M. Daniel argued the cause for respondents. With him on the brief were Elliot Taubman and Bruce Mayor. *

[ Footnote * ] David Sive filed a brief for the National Council of the Churches of Christ as amicus curiae.

MR. JUSTICE POWELL delivered the opinion of the Court.

This is an action brought under 42 U.S.C. 1983 by homeowners in Memphis, Tenn., seeking declaratory and injunctive relief and damages against a municipal utility and several of its officers and employees for termination of utility service allegedly without due process of law. The District Court determined that respondents’ claim of entitlement to continued utility service did not implicate a “property” interest protected by the Fourteenth Amendment, and that, in any event, the utility’s termination procedures comported with due process. The Court of Appeals reversed in part. We granted certiorari to consider this constitutional question of importance in the operation of municipal utilities throughout the Nation.

I

Memphis Light, Gas and Water Division (MLG&W) 1 is a division of the city of Memphis which provides utility service. [436 U.S. 1, 4] It is directed by a Board of Commissioners appointed by the City Council, and is subject to the ultimate control of the municipal government. As a municipal utility, MLG&W enjoys a statutory exemption from regulation by the state public service commission. Tenn. Code Ann. 6-1306, 6-1317 (1971).

Willie S. and Mary Craft, respondents here, 2 reside at 1019 Alaska Street in Memphis. When the Crafts moved into their residence in October 1972, they noticed that there were two separate gas and electric meters and only one water meter serving the premises. The residence had been used previously as a duplex. The Crafts assumed, on the basis of information from the seller, that the second set of meters was inoperative.

In 1973, the Crafts began receiving two bills: their regular bill, and a second bill with an account number in the name of Willie C. Craft, as opposed to Willie S. Craft. Separate monthly bills were received for each set of meters, with a city service fee 3 appearing on each bill. In October 1973, after learning from a MLG&W meter reader that both sets of meters were running in their home, the Crafts hired a private plumber and electrical contractor to combine the meters into one gas and one electric meter. Because the contractor did not consolidate the meters properly, a condition of which the Crafts were not aware, they continued to receive two bills until January [436 U.S. 1, 5] 1974. During this period, the Crafts’ utility service was terminated five times for nonpayment.

On several occasions, Mrs. Craft missed work and went to the MLG&W offices in order to resolve the “double billing” problem. As found by the District Court, Mrs. Craft sought in good faith to determine the cause of the “double billing,” but was unable to obtain a satisfactory explanation or any suggestion for further recourse from MLG&W employees. The court noted:

“On one occasion when Mrs. Craft was attempting to avert a utilities termination, after final notice, she called the defendant’s offices and explained that she had paid a bill, but was given no satisfaction. The procedure for an opportunity to talk with management was not adequately explained to Mrs. Craft, although she repeatedly tried to get some explanation for the problems of two bills and possible duplicate charges.” Pet. for Cert. 38-39.

In February 1974, the Crafts and other MLG&W customers filed this action in the District Court for the Western District of Tennessee. After trial, the District Court refused to certify the plaintiffs’ class and rendered judgment for the defendants. Although the court apparently was of the view that plaintiffs had no property interest in continued utility service while a disputed bill remained unpaid, it nevertheless addressed the procedural due process issue. It acknowledged that respondents had not been given adequate notice of a procedure for discussing the disputed bills with management, but concluded that “[n]one of the individual plaintiffs [was] deprived of [a] due process opportunity to be heard, nor did the circumstances indicate any substantial deprivation except in the possible instance of Mr. and Mrs. Craft.” Id., at 45. 4 The court [436 U.S. 1, 6] expressed “hope,” “whether on the principles of [pendent] jurisdiction, or on the basis of a very limited possible denial of due process to Mr. and Mrs. Craft,” that credit in the amount of $35 be issued to reimburse the Crafts for “duplicate and unnecessary charges made and expenses [436 U.S. 1, 7] incurred by [them] with respect to terminations which should have been unnecessary had effectual relief been afforded them as requested.” The court also recommended “that MLG&W in the future send a certified or registered mail notice of termination at least four days prior to termination,” and that such notice “provide more specific information about customer service locations and personnel available to work out extended payment plans or adjustments of accounts in genuine hardships or appropriate situations.” Id., at 46-47. 5

On appeal, the Court of Appeals for the Sixth Circuit affirmed the District Court’s refusal to certify a class action, but held that the procedures accorded to the Crafts did not comport with due process. 534 F.2d 684 (1976).

On July 12, 1976, petitioners sought a writ of certiorari in this Court to determine (i) whether the termination policies of a municipal utility constitute “state action” under the Fourteenth Amendment; (ii) if so, whether a municipal utility’s termination of service for nonpayment deprives a customer of “property” within the meaning of the Due Process Clause; and (iii) assuming “state action” and a “property” interest, whether MLG&W’s procedures afforded due process of law in this case. 6 On February 22, 1977, we granted certiorari. 429 U.S. 1090 . We now affirm.

II

There is, at the outset, a question of mootness. Although the parties have not addressed this question in their briefs, “they may not by stipulation invoke the judicial power of the United States in litigation which does not present an actual [436 U.S. 1, 8] `case or controversy,’ Richardson v. Ramirez, 418 U.S. 24 (1974) . . . .” Sosna v. Iowa, 419 U.S. 393, 398 (1975).

As the case comes to us, the only remaining plaintiffs are respondents Willie S. and Mary Craft. Since the Court of Appeals affirmed the District Court’s refusal to certify a class, the existence of a continuing “case or controversy” depends entirely on the claims of respondents. Cf. Sosna v. Iowa, supra, at 399, 402. It appears that respondents no longer desire a hearing to resolve a continuing dispute over their bills, as the double-meter problem has been clarified during this litigation. 7 Nor do respondents aver that there is a present threat of termination of service. “An injunction can issue only after the plaintiff has established that the conduct sought to be enjoined is illegal and that the defendant, if not enjoined, will engage in such conduct.” United Transportation Union v. Michigan Bar, 401 U.S. 576, 584 (1971). Respondents insist, however, that the case is not moot because they seek damages and declaratory relief, and because the dispute that occasioned this suit is “capable of repetition, yet evading review.” Tr. of Oral Arg. 45-46.

We need not decide whether this case falls within the special rule developed in Southern Pacific Terminal Co. v. ICC, 219 U.S. 498 (1911); see Moore v. Ogilvie, 394 U.S. 814, 816 (1969); Roe v. Wade, 410 U.S. 113, 125 (1973), to permit consideration of questions which, by their very nature, are not likely to survive the course of a normal litigation. Respondents’ claim for actual and punitive damages arising from MLG&W’s terminations of service saves this cause from the bar of mootness. Cf. Powell v. McCormack, 395 U.S. 486, 496 -500 (1969). Although we express no opinion as to the [436 U.S. 1, 9] validity of respondents’ claim for damages, 8 that claim is not so insubstantial or so clearly foreclosed by prior decisions that this case may not proceed.

III

The Fourteenth Amendment places procedural constraints on the actions of government that work a deprivation of interests enjoying the stature of “property” within the meaning of the Due Process Clause. Although the underlying substantive interest is created by “an independent source such as state law,” federal constitutional law determines whether that interest rises to the level of a “legitimate claim of entitlement” protected by the Due Process Clause. Board of Regents v. Roth, 408 U.S. 564, 577 (1972); Perry v. Sindermann, 408 U.S. 593, 602 (1972).

The outcome of that inquiry is clear in this case. In defining a public utility’s privilege to terminate for nonpayment of proper charges, Tennessee decisional law draws a line between utility bills that are the subject of a bona fide dispute and those that are not.

[436 U.S. 1, 10]

The Trigg court also rejected the utility’s argument that plaintiffs had agreed to be bound by the utility’s rules and regulations, which required payment whether or not a bill is received. “A public utility should not be able to coerce a customer to pay a disputed claim.” Ibid. 10 [436 U.S. 1, 11]

State law does not permit a public utility to terminate service “at will.” Cf. Bishop v. Wood, 426 U.S. 341, 345 -347 (1976). MLG&W and other public utilities in Tennessee are obligated to provide service “to all of the inhabitants of the city of its location alike, without discrimination, and without denial, except for good and sufficient cause,” Farmer v. Nashville, 127 Tenn. 509, 515, 156 S. W. 189, 190 (1913), and may not terminate service except “for nonpayment of a just service bill,” Trigg, 533 S. W. 2d, at 733. An aggrieved customer may be able to enjoin a wrongful threat to terminate, or to bring a subsequent action for damages or a refund. Ibid. The availability of such local-law remedies is evidence of the State’s recognition of a protected interest. Although the customer’s right to continued service is conditioned upon payment of the charges properly due, “[t]he Fourteenth Amendment’s protection of `property’ . . . has never been interpreted to safeguard only the rights of undisputed ownership.” Fuentes v. Shevin, 407 U.S. 67, 86 (1972). Because petitioners may terminate service only “for cause,” 11 respondents [436 U.S. 1, 12] assert a “legitimate claim of entitlement” within the protection of the Due Process Clause.

IV

In determining what process is “due” in this case, the extent of our inquiry is shaped by the ruling of the Court of Appeals. We need go no further in deciding this case than to ascertain whether the Court of Appeals properly read the Due Process Clause to require (i) notice informing the customer not only of the possibility of termination but also of a procedure for challenging a disputed bill, 534 F.2d, at 688, and (ii) “`[an] established [procedure] for resolution of disputes'” or some specified avenue of relief for customers who “dispute the existence of the liability,” id., at 689. 12 [436 U.S. 1, 13]

A

“An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” Mullane v. Central Hanover Trust Co., 339 U.S. 306, 314 (1950) (citations omitted). The issue here is whether due process requires that a municipal utility notify the customer of the availability of an avenue of redress within the organization should he wish to contest a particular charge.

The “final notice” contained in MLG&W’s bills simply stated that payment was overdue and that service would be discontinued if payment was not made by a certain date. As the Court of Appeals determined, “the MLG&W notice only warn[ed] the customer to pay or face termination.” 534 F.2d, at 688-689. MLG&W also enclosed a “flyer” with the “final notice.” One “flyer” was distributed to about 40% of the utility’s customers, who resided in areas serviced by “credit counseling stations.” It stated in part: “If you are having difficulty paying your utility bill, bring your bill to our neighborhood credit counselors for assistance. Your utility bills may be paid here also.” No mention was made of a procedure for the disposition of a disputed claim. A different “flyer” went to customers in the remaining areas. It stated: “If you are having difficulty paying your utility bill and would like to discuss a utility payment plan, or if there is any dispute concerning the amount due, bring your bill to the office at . . ., or phone . . . .” Id., at 688 n. 4.

The Court of Appeals noted that “there is no assurance that the Crafts were mailed the just mentioned flyer,” ibid., and implicitly affirmed the District Court’s finding that Mrs. Craft was never apprised of the availability of a [436 U.S. 1, 14] procedure for discussing her dispute “with management.” 13 The District Court’s description of Mrs. Craft’s repeated efforts to obtain information about what appeared to be unjustified double billing – “good faith efforts to pay for [the Crafts’] utilities as well as to straighten out the problem” – makes clear that she was not adequately notified of the procedures asserted to have been available at the time. 14

Petitioners’ notification procedure, while adequate to apprise the Crafts of the threat of termination of service, was not “reasonably calculated” to inform them of the availability of “an opportunity to present their objections” to their bills. Mullane v. Central Hanover Trust Co., supra, at 314. The purpose of notice under the Due Process Clause is to apprise the affected individual of, and permit adequate preparation for, an impending “hearing.” 15 Notice in a case of this kind [436 U.S. 1, 15] does not comport with constitutional requirements when it does not advise the customer of the availability of a procedure for protesting a proposed termination of utility service as unjustified. As no such notice was given respondents – despite “good faith efforts” on their part – they were deprived of the notice which was their due. 16 [436 U.S. 1, 16]

B

This Court consistently has held that “some kind of hearing is required at some time before a person is finally deprived of his property interests.” Wolff v. McDonnell, 418 U.S. 539, 557 -558 (1974). We agree with the Court of Appeals that due process requires the provision of an opportunity for the presentation to a designated employee of a customer’s complaint that he is being overcharged or charged for services not rendered. 17 Whether or not such a procedure may be available to other MLG&W customers, both courts below found that it was not made available to Mrs. Craft. 18 Petitioners have not made the requisite showing for overturning these “concurrent findings of fact by two courts below . . . .” Graver Tank & Mfg. Co. v. Linde Air Products Co., 336 U.S. 271, 275 (1949). 19 [436 U.S. 1, 17]

Our decision in Mathews v. Eldridge, 424 U.S. 319 (1976), provides a framework of analysis for determining the “specific dictates of due process” in this case.

[436 U.S. 1, 18]

or substitute procedural requirement would entail.” Id., at 334-335.

Under the balancing approach outlined in Mathews, some administrative procedure for entertaining customer complaints prior to termination is required to afford reasonable assurance against erroneous or arbitrary withholding of essential services. The customer’s interest is self-evident. Utility service is a necessity of modern life; indeed, the discontinuance of water or heating for even short periods of time may threaten health and safety. And the risk of an erroneous deprivation, given the necessary reliance on computers, 20 is not insubstantial. 21

The utility’s interests are not incompatible with affording the notice and procedure described above. Quite apart from its duty as a public service company, a utility – in its own business interests – may be expected to make all reasonable efforts to minimize billing errors and the resulting customer dissatisfaction and possible injury. Cf. Goss v. Lopez, 419 U.S. 565, 583 (1975). Nor should “some kind of hearing” prove burdensome. The opportunity for a meeting with a responsible employee empowered to resolve the dispute could be afforded well in advance of the scheduled date of termination. 22 And petitioners would retain the option to terminate [436 U.S. 1, 19] service after affording this opportunity and concluding that the amount billed was justly due.

C

Petitioners contend that the available common-law remedies of a pretermination injunction, a post-termination suit for damages, and post-payment action for a refund are sufficient to cure any perceived inadequacy in MLG&W’s procedures. 23

Ordinarily, due process of law requires an opportunity for “some kind of hearing” prior to the deprivation of a significant property interest. See Boddie v. Connecticut, 401 U.S. 371, 379 (1971). On occasion, this Court has recognized that where the potential length or severity of the deprivation does not indicate a likelihood of serious loss and where the procedures underlying the decision to act are sufficiently reliable to minimize the risk of erroneous determination, government may act without providing additional “advance procedural safeguards,” Ingraham v. Wright, 430 U.S. 651, 680 (1977); see Mathews v. Eldridge, supra, at 339-349. 24 [436 U.S. 1, 20]

The factors that have justified exceptions to the requirement of some prior process are not present here. Although utility service may be restored ultimately, the cessation of essential services for any appreciable time works a uniquely final deprivation. Cf. Stanley v. Illinois, 405 U.S. 645, 647 -648 (1972). Moreover, the probability of error in utility cutoff decisions is not so insubstantial as to warrant dispensing with all process prior to termination. 25

The injunction remedy referred to by petitioners would not be an adequate substitute for a pretermination review of the disputed bill with a designated employee. Many of the Court’s decisions in this area have required additional procedures to further due process, notwithstanding the apparent availability of injunctive relief or recovery provisions. It was thought that such remedies were likely to be too bounded by procedural constraints and too susceptible of delay to provide an effective safeguard against an erroneous deprivation. 26 These considerations are applicable in the utility termination context. [436 U.S. 1, 21]

Equitable remedies are particularly unsuited to the resolution of factual disputes typically involving sums of money too small to justify engaging counsel or bringing a lawsuit. 27 An action in equity to halt an improper termination, because it is less likely to be pursued 28 and less likely to be effective, even if pursued, will not provide the same assurance of accurate decisionmaking as would an adequate administrative procedure. In these circumstances, an informal administrative [436 U.S. 1, 22] remedy, along the lines suggested above, constitutes the process that is “due.”

V

Because of the failure to provide notice reasonably calculated to apprise respondents of the availability of an administrative procedure to consider their complaint of erroneous billing, and the failure to afford them an opportunity to present their complaint to a designated employee empowered to review disputed bills and rectify error, petitioners deprived respondents of an interest in property without due process of law.

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