TOWN OF ROCKY MOUNT v. WENCO
OF DANVILLE, INC.
September 18, 1998
Record No. 972401
TOWN OF ROCKY MOUNT
WENCO OF DANVILLE,
INC., ET AL.
OPINION BY JUSTICE BARBARA MILANO KEENAN
FROM THE CIRCUIT COURT OF FRANKLIN COUNTY
B.A. Davis, III, Judge
Present: All the Justices
In this appeal, we decide whether a town that contracted to
provide sewer service to a property located outside the town must
also provide such service to another property outside the town.
Wal-Mart Stores, Inc. (Wal-Mart) owns a large commercial real
estate development in Franklin County along Route 40 East about
one-quarter mile outside the Town of Rocky Mount (Town). In May
1995, the Town executed an agreement (Agreement) with Wal-Mart in
which the Town agreed to provide sewer service to a
store to be built by Wal-Mart on its property. The sewer line
servicing the Wal-Mart store is part of the Town’s new Powder
Mill Sewer Project.
The Agreement provided that the Town "has interest in
providing sewage service to the Franklin Heights area of Franklin
County and the State Route 40 East corridor
. . . . Accordingly, the Town desires to begin
construction of the sewage system to service the aforesaid
properties." Wal-Mart agreed to contribute $250,000 to the
Town for the construction of the sewer system.
The Town exercised its power of eminent domain to acquire the
easements needed to extend the Powder Mill Sewer Project outside
the Town to the Wal-Mart store site. The extension of the Powder
Mill project was completed in accordance with the terms of the
Agreement, and the Town currently operates the Powder Mill
project as part of its public sewer system. With the exception of
Wal-Mart, all customers served by the Powder Mill project are
located inside the Town.
In January 1996, the respondents, Wenco of Danville, Inc.,
Charles R. Sechrist, and Wenco Properties, L.L.C. (collectively,
Wenco), contracted with Wal-Mart to purchase a 1.2 acre
unimproved portion of Wal-Mart’s development tract (the
Property). Wenco intends to build and operate a "fast
food" restaurant on the Property.
The contract between Wenco and Wal-Mart is contingent on Wal-Mart
delivering to Wenco a utility plan that, among other things,
provides the Property with sewer service adequate for the
operation of a restaurant. Since the Town owns and operates the
only sewer system available to the Property, Wenco requested
permission to connect to the Town’s system. The Town responded
that it would provide sewer service to the Property if Wenco paid
the Town a $125,000 connection fee.
In a transcript of a meeting of the Rocky Mount Town Council,
which is part of the record in this case, Vice-Mayor Posey W.
Dillon explained the circumstances surrounding the Town’s
decision to provide sewer service to the Wal-Mart store site. He
stated that the Town was involved in negotiations with Franklin
County in an attempt to reach an agreement for the Town to
provide sewer service to the Route 40 East corridor, as well as
to certain other areas of the County. Dillon related that the
Town "sized" the Powder Mill Sewer Station to ensure
that it would be capable of supplying sewer services to the
County in the event that the Town and the County reached an
Dillon also explained that the Powder Mill Sewer Project was
built to accommodate the Town’s anticipated needs based on the
fact that the Town’s Pell Avenue sewage "pump station"
was nearing its capacity. Dillon stated that the Town intends to
connect the Pell Avenue sewer line to the Powder Mill line to
alleviate this situation. He also stated that since the Town had
incurred great expense in constructing the Powder Mill Sewer
Project, the Town could not extend sewer service to Wenco without
receiving a monetary benefit in return.
Wenco refused to pay the connection fee set by the Town on the
ground that the fee was much higher than the fees charged to
other users both inside and outside the Town.
 Wenco filed in the trial court
an amended verified bill of complaint requesting, among other
things, that the trial court issue an injunction requiring the
Town to connect the Property to the Town’s sewer system on the
same terms and conditions available to users "similarly
After hearing evidence, the trial court ruled that although the
Town had no obligation to provide sewer services beyond its
corporate limits, the Town cannot "pick and choose who is or
who is not entitled to make a connection" once the Town has
extended sewer lines to out-of-town users. The court concluded
that the Town made a commitment in the Agreement to serve other
properties along the Route 40 East corridor.
The court held that "once the Town extends its sewer line
beyond its corporate limits, it must, provided there is no
[utility-related] reason to deny access, set the connection fees
for individuals and businesses at a uniform rate." Finding
that the Town had no "utility-related" reason for
denying sewer service to Wenco, the court ordered the Town to
connect the Property to the Town’s sewer line on payment of a
"uniform and reasonable connection fee."
On appeal, the Town argues that it has no legal duty to furnish
sewer service to properties located outside its boundaries. The
Town asserts that the extension of its sewer system to any
property beyond its corporate limits is solely a matter of
contract that is subject to the judgment of the Town Council.
In response, Wenco asserts that when a local government provides
sewer service to individuals and businesses located outside its
corporate limits, the government is "holding out" or
"representing" that this service is available to all
members of the public, absent a "utility-related"
reason for denying service. Wenco argues that since the Town did
not deny Wenco service based on a "utility-related"
reason, the Town must provide Wenco sewer service at a uniform
and reasonable rate.
In resolving this issue, we first consider the nature of the
function that Wenco seeks to have the Town perform. When a
municipal corporation provides utility services outside its
territorial limits, it is performing a proprietary, not a
governmental, function. See Corporation of Mount
Jackson v. Nelson, 151 Va. 396, 404, 145 S.E. 355, 357
(1928); 11 Eugene McQuillin, The Law of Municipal Corporations
? 31.10 (3d ed. 1991). In the performance of a purely
proprietary function, a municipality may consider factors of
corporate benefit and pecuniary profit. See Bialk v.
City of Hampton, 242 Va. 56, 59, 405 S.E.2d 619, 621 (1991); Fenon
v. City of Norfolk, 203 Va. 551, 556, 125 S.E.2d 808, 812
(1962); Hoggard v. City of Richmond, 172 Va. 145, 150, 200
S.E. 610, 612 (1939). A municipality generally has no duty,
except that which is undertaken by contract, to furnish sewer
service to users outside its territorial limits. See Light
v. City of Danville, 168 Va. 181, 204-05, 190 S.E. 276, 285
(1937); Board of Supervisors v. City of Richmond, 162 Va.
14, 25-26, 173 S.E. 356, 360 (1934); Mount Jackson, 151
Va. at 404, 145 S.E. at 357; 11 McQuillin, supra,
Wenco’s argument is based on an exception to this rule recognized
in some jurisdictions, which commonly is referred to as the
"holding out" exception. Under this exception, a
municipal corporation that "holds itself out" as
providing sewer services to a given area will be treated as a
public utility for purposes of servicing that area. Such a
municipal corporation may deny service to properties within that
"service area" only for "utility-related"
reasons, including lack of capacity. See e.g., Delmarva
Enterprises, Inc. v. Mayor & Council of Dover, 282 A.2d
601, 602-03 (Del. 1971); Yakima County Fire Protection Dist.
No. 12 v. City of Yakima, 858 P.2d 245, 251 (Wash. 1993); Milwaukee
v. Public Serv. Comm’n, 66 N.W.2d 716, 718 (Wis. 1954).
Under the facts presented here, we need not consider whether the
"holding out" exception should be adopted in Virginia.
That exception applies only upon proof of either an agreement by
the municipal corporation to provide utility service to a general
"service area," or the actual provision of service to a
number of properties in a given area manifesting the
municipality’s consent to provide service to that area as a
public utility. See id.; 11 McQuillin, supra,
? 31.16 (1991 and 1997 Supp.).
The present record contains no evidence that the Town entered
into an agreement to provide sewer service to a general
"service area" that included the Property. The Town’s
recitation in the Wal-Mart Agreement of an "interest"
in providing sewer service to the Route 40 East corridor was not
a commitment by the Town to provide such service. Likewise, the
record does not show that the Town provided sewer service to any
other properties in the area of Franklin County near the Wal-Mart
store site, thereby manifesting an intent to serve that area as a
Although the Town provided sewer service to the Wal-Mart store
site on a trunk line designed to permit future development of a
service area along the Route 40 East corridor, this action was in
the nature of a planning decision and did not constitute consent
by the Town to provide service to that area. Therefore, we
conclude that Wenco has failed to establish that it qualifies for
consideration under a "holding out" exception.
Since we do not consider the merits of the "holding
out" exception in this case, we apply the general rule
stated above that a municipal corporation’s provision of sewer
service outside its boundaries is a proprietary function
regulated by contract. We hold that in conducting this
proprietary function, the Town was entitled to exercise its sound
judgment as it would in any other contractual business matter. See
Whitehead v. H&C Dev. Corp., 204 Va. 144, 150, 129
S.E.2d 691, 695-96 (1963); Light, 168 Va. at 204, 190 S.E.
at 285; Mount Jackson, 151 Va. at 408, 145 S.E. at 358.
Wenco contends, however, that the Town’s decision reflects an
abuse of its power of eminent domain. Wenco asserts that the
Town’s acquisition of easements outside its boundaries and its
construction of the sewer line extension to the Wal-Mart store
site require that the Town provide sewer service at a uniform
rate to the public in that general area. Otherwise, Wenco argues,
the Town illegally will have used its power of eminent domain to
acquire property for the private use of WalMart, rather than for
use by the public. We disagree with Wenco’s arguments.
To be public, a use must be one in which the terms and manner of
its enjoyment are within the control of the governing body. The
public interest must dominate any private gain. Phillips v.
Foster, 215 Va. 543, 547, 211 S.E.2d 93, 96 (1975); Rudee
Inlet Auth. v. Bastian, 206 Va. 906, 911, 147 S.E.2d 131, 135
(1966); Mumpower v. Housing Auth. of Bristol, 176 Va. 426,
448, 11 S.E.2d 732, 740 (1940).
A public utility owned by a municipality is held in trust for the
common benefit of all its citizens and is devoted to furnishing
the general public of the municipality with a fixed and
definite use in its property. Light, 168 Va. at 210-211,
190 S.E. at 288; see Warwick County v. City of Newport
News, 153 Va. 789, 805-06, 151 S.E. 417, 422 (1930). As Light
instructs, the Town is not obligated to furnish the public in
Franklin County the use of the Town’s property. Rather, the
Town’s present obligation extends only to assuring its own
citizens a fixed and definite use in property owned by the Town. See
Light, 168 Va. at 210-11, 190 S.E. at 288; Warwick
County, 153 Va. at 808, 151 S.E. at 423; Mount Jackson,
151 Va. at 400-01, 145 S.E. at 356. The Town has met this
obligation by retaining complete control over its sewer
facilities in Franklin County and by using those facilities as a
source of revenue for the Town.
Wenco next argues that the Town’s decision to charge Wenco a
$125,000 connection fee "amounts to an illegal tax
assessment by the Town." We find no merit in this argument.
The Town’s establishment of a sewer connection fee for the
proposed restaurant site is purely an exercise of a proprietary
function involving a property located outside the Town. See Whitehead,
204 Va. at 150, 129 S.E.2d at 695; Light, 168 Va. at 204,
190 S.E. at 285; Mount Jackson, 151 Va. at 407-08, 145
S.E. at 358.
For these reasons, we will reverse the trial court’s judgment and
enter final judgment in favor of the Town.
Reversed and final judgment.
 The parties agree that no
additional construction is required to connect the Property to
the Town’s water or sewer system. The parties also stipulate that
the Town’s wastewater treatment facility has sufficient capacity
to serve the Property.
record shows that the Town provides sewer service to about 56
properties in Franklin County. None of these properties, except
the Wal-Mart store site, is served by the extension of the Powder
Mill sewer line.
We also find no merit in the
remaining arguments advanced by Wenco.