No. 12828 IN

### THE SUPREME COURT OF THE STATE OF MONTANA 1975

LOCKWOODWATER USERS ASSOCIATION, Plaintiff and Respondent,



### GERALD W. ANDERSON, d/b/a MAGIC CITY VILLAGE, Defendant and Appellant.
Appeal from: DistrictCourt of theThirteenthJudicialDistrict, HonorableA. B. Martin, Judge presiding. Counsel of Record: For Appellant: Towe, Neely & Ball, Billings, Montana Thomas E. Towe argued, Billings, Montana ForRespondent: Moulton, Bellingham, Longo & Mather, Billings, Montana Ward Swanser argued, Billings, Montana

Submitted: September 29, 1975 Decided:

## NOV1.71975

/ ;t.,/'a. Filed:L4()'v ;. 1 ,.- uMr. Justice John Conway Harrisondelivered the Opinion of the Court. This is an appeal from a summary judgment and a permanent injunction issued by the district court,Yellowstone County, restraining defendant Gerald W. Anderson, d/b/a Magic CityVillage, from hooking up anymobile homes to the facilitiesowned by the plaintiff association,whether it be to take care of attrition or otherwise, until such time as he can do so and not violate the terms of the agreementand specifically the 60unit limitation provided for in the agreement or until the parties enter into a
new agreementwhich supercedes the existing agreement. In 1955 residentsof the Lockwood area, adjacent to Billings, Montana, banded together in a voluntary nonprofit corporation organized for the purpose of supplying water to itsmembers. When it was created therewere approximately 150homes servicing some 650people in an area of some 2,200acres known as the Lockwood Community. In the 20 years of its existence the population of the area has increased to some 2,630people who live in 774 homes. Some 590 aremembers of the Association while some 137 additional homes receivewater from the Association through their mobile home courts that are treated as one unit for membership purposes. At the time of organization the Association obtained a loan from Farmers Home Administration (FHA)to put in a water service line. The loan has not been fully repaid. The FHA took
amortgage on the Association's property obligating it to conduct its business in accordance with the by-laws and certain rules of the FHA. Serious questionswould arise from themortgage provisions, if the Association were to be classifieda "publicutility". To finance the Association membershipswere sold for $50. TheAssociation adopted articles of incorporation and by-laws in the form suggested by the FHA and it is a nonprofit corporationorganized for the purpose of supplying water to members only. Its by-laws provide: (1)That the Board of Directors shall have power to make, publish and enforce rules and regulations concerning the distribution, use and application of the water under its contract; (2) That the Board of Directorsmay take legal proceedings to prosecute, defend, compromise all lawsuits, to make all contracts in the name of the corporationnecessary and proper for the conduct of the affairs and the carrying on of the business of the corporation; (3) Thatno membership shall be issued
or connectionsmade at any time when the capacityof the system
or the available supply of water is exhausted by the needs and demands of existingmembers and connections; 

### (4)That themanner of delivering,measuring and regulating the supply of water to members shall be prescribed by the corporation,and shall at all timesbe under its control, and the Board of Directorsor the manager, with the consent of said Board,may make such rules and regulationsregarding the distribution and delivery of the water
as in its judgment may appear necessary or expedient for the best interests of the corporationand itsmembers; (5)That the membership certificatesof any member delinquent in the payment of assessments thereon shall be subject to sale; (6)That the corporationmay, through its Board of Directors, after ten days notice by mail of suchdelinquency, terminate the supply of water to any user who isdelinquent in the payment of any water charges, assessments or rentals. Through the years as the membership increased the Association has adopted rules and regulations which requirenewmembers to pay the expense of bringing water from the main to their property lines and then on to their dwellings. This was done through the Board of Directors elected by the membership and who serve without pay. Throughout its existence the Association has assumedit was not a public utility and at no time during thisperiod has the Public ServiceCommission ever attempted to regulate the Association. In 1972,defendant Gerald W. Anderson, d/b/a Magic City Village, requested water for a trailer court. The first request
was for a 300 unit court. Hewas advised by theAssociation's Board of Directors that he would be required to build a loop from the school to his property line, if he intended to develop the 300 units. He chose to cut down his request for water to 60 units and he was allowed, for the 60 unit development, to take off from a nearbymain. The 1972 agreement contains this statement: 

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## * * * it isunderstood by and between the parties that no more than sixty (60) mobile home sites shall be served by such facilities." This 60mobile home limitationwas put in on the advice of the Association' s engineer. Servicewas provided to the defendant's developmentand by October 2, 1972,he was in violation of the agreement and he
was requested by the Board to attend ameeting to discuss the matter. He refused to attend. On January 15, 1974,defendant
was advised by letter that if he did not reduce the number of units to 60 his servicewould be terminated. Through his attorney, defendantanswered the January 15 letter on January 28: "Inreturn for your granting an extension of time on the shutoff date,my clientwill take the necessary steps to reduce the number of homes served back down to sixty (60) 

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## *." In answer to this request the Association notified defendant's attorney that it was willing to try to work the problem out, "However,we will not grant an extension past the end of February." As a result of these letters BlaineAnderson, son of defendant,on February 7,attended a meeting of the Board of the Association and stated that his fatherwould complete the waterloop originallyrequested by theAssociation to get additional units. He asked the Board to allownormal attrition to reduce the number of trailers in the courtback to 60. The Board agreed to this requestbut again defendantdid not live up to agreements made with the Board. By March 11 there were 70 trailers on the development. Defendantwas notified he had 10 days to reduce to 60. He not only did not comply but rather, in the next 30days,he told allmobile home dealers of a planned expansion and ran advertisements for additional trailer spaces. On March 22, 1974, theAssociation filed a suit to enforce the terms of the agreementand to enjoin defendant from placing additional trailers on the court in violation of the agreement. Coincidently, defendant changed attorneys. At the time of the show cause hearing the Association's officers testified and introduced exhibits to show the violation of the agreementand that itwas not a public utility. The only testimony of defendant went to the need for a restraining order and a bond. No testimonywas offered as to the substance of the complaintor that the Association was a public utility. The trial court found that defendanthad violated the contract; that defendant's assertion therewas a mutual mistake
or fraud in drawing up the agreement was groundless; and, that defendantwas estopped from asserting this defense on the grounds he accepted the benefits of the contract and that this evidences
an understanding consistent with the agreement. On appeal, defendant sets forth a number of issues,however we find the only real question to be resolved iswhether or not plaintiff's operations come under the Public Service Comrnission. It is clearly apparent from the testimony of the witnesses and the exhibits introduced that to get water from the Association
onemust be a member. Onlymembers, as such, are allowed to usethe system and they use it on a nonprofit cost sharing basis,
as required by the FHA. By joining the Association, members agree to be bound by its rules and regulations. Without holding that plaintiff is a form of utility, we will assume that it is and then decide if the service rendered is for the public for which compensation is received. Section 70-105,R.C.M. 1947,provides: "Everypublic utility is required to furnish reasonably adequate service and facilities. 

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## * *" Defendant argues that under cases of this Court (Cityof Polson v. Public Service Commission, 155Mont. 464, 473 P.2d 508; Hames v. City of Polson, 123 Mont. 469, 215 P.2d 950;State ex rel. Billings v. Billings Gas Co., 55 Mont. 102, 173 

### P. 799) the Association is a public utility, cannotdeny service to anyone in its area, and being a public utility the agreement is unenforceable as contrary to public policy and the clear mandate of the law. Under the facts here, we do not agree. The general law is found in 73 C.J.S. Public Utilities 5 2, P. 992 and 

### B 7b,

"Thetest is, therefore, whether or not such person holds himself out, expressly or impliedly, as engaged in the business of supplying his product or service to the public, as a class,or to any limited portion of it, as contradistinguished from holding himself out as serving or ready to serve only particular individuals.

## * * * It has been stated that the true criterion by which to determine whether a plant or system is a public utility is whether or not the public may enjoy it of right or by permission only. 

## * * 

## *" "Accordingly, a utility must act toward all members of the public impartially,and treat all alike, and it cannot arbitrarily select the persons forwhom itwill perform its service or furnish its commodity, or refuse to one a favor or privilege which it has extended to another, since the term

'publicutility' precludes the idea of service which isprivate in its nature and is not to be obtained by the public. 

## * * *" While Montana has not had occasion to define the term "publicutility",a number of jurisdictions have established aworkable definition by case law. 64Am Jur 2d, Public Utilities, §5,p. 553,notes: 

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## * * 

## * In the absence of statute, the most important test used in determining whether such an organization or group is in fact a public utility in this respect is the factor of serving or willingness to serve the entire public within the area inwhich the facilities of the organization are located. If it confines its service to its own stockholders or to members of its own group, and does not serve or hold itself out aswilling to serve the public, it is not ordinarily considered a public utility. 

## * * *" See: Cherry Lake v. Kearce, 157 Fla. 484, 26 So.2d 434; Garkane Power Co. v. Public ServiceCom., 98 Utah 466, 100 P.2d 571, 132ALR 1490; Statev. Nelson, 65Utah 457, 238 P. 237, 239, 42ALR 349. InNelson, cited with approval in Garkane Power Co., the Utah court held: "Noonemay successfully contend that it is competent for the Legislature to regulate and control in such respect a mere private business or to declare a private'businessto be public service or a public utility. In other words, the state may not,by mere legislative fiat or edict,by regulating orders of a commission, convert mere private contractsor a mere private business into a public utility or make its owner a common carrier.

[Citingcases] So, if the business or concern is not public service,where the public has not a legal right to the use of it,where the business or operation is not open to an indefinitepublic, it isnot subject to the jurisdiction or regulation of the commission." See also: 73 C.J.S. Public Utilities S2,p. 991;So. Cal. Edison Co. v. Railroad Comission, 194 Cal. 757, 230 P. 661;Choctaw Electric Co-operative v. Redman,Okla. 1954, 293 P.2d 564; San Miguel PowerAss'n v. Public Service Corn., 4 Utah 2d 252, 292 P.2d

In the instant case, the trial judge issued a memorandum and order,noting: "Atthe hearing on the restraining order plaintiff presented evidence covering the purpose, formation and operation of its business. Testimonywas alsotaken as to negotiations leading up to the contract, the pertinent provisions of the contract,and defendants alleged violations thereof. The Court entered its findingsof fact and conclusionsof law by which it denied the defendant's claim that the Court had no jurisdiction, and thereafter entered judgment granting plaintiff the permanent injunction it sought." After careful examination and consideration of the trial court's findings of fact, conclusions of law and judgment,we find them to be correct. Here, service is rendered only to members who share the costs of operation. The service is contractual. Having so found, it is unnecessary for us to consider defendant's jurisdictional question. The trial court found a breach of contract and properly granted summary judgment. The judgment is affirmed 

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We concur: 

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## ................................ Chief Justice 

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sitting in place of Mr. J Frank I. Haswell.