SAN FRANCISCO INN, HERETO REPRESENTED BY ITS AUTHORIZED REPRESENTATIVE, LEODINO M. CARANDANG, PETITIONER, VS. SAN PABLO CITY WATER DISTRICT, REPRESENTED BY ITS GENERAL MANAGER R…

San Francisco Inn versus San Pablo City Water District

The Case

This is a petition for review on certiorari brought by San Francisco Inn, a hotel business establishment in San Pablo City, against the San Pablo City Water District. San Francisco Inn challenges the decision of the Court of Appeals which upheld the water district's right to impose ground water production assessment fees on commercial and industrial deep well users, and to demand payment from the hotel with interest from 1998. The case matters because it fixes the exact statutory conditions that a water district must satisfy before it may levy a production assessment under Section 39 of Presidential Decree Number 198 — the Local Water Utilities Administration Law — namely, notice and hearing, and a finding by the board that the extraction is injuring or reducing the district's financial condition.

Procedural History

San Francisco Inn filed a petition for injunction before the Regional Trial Court of San Pablo City, Branch 32, seeking to stop the water district's investigating board from proceeding against it. The trial court denied the motion to dismiss and heard the case. In its decision of May 25, 2010, the trial court dismissed the petition, but held that the water district's board had no final resolution fixing the rate of production assessment and no conclusive finding that the hotel's extraction was injuring or reducing the district's financial condition, so that the district could not as yet legally impose the fees.

The water district appealed to the Court of Appeals. In its decision of September 14, 2011, the Court of Appeals modified the trial court, declaring valid the imposition of production charges on commercial and industrial deep well users, upholding the district's right to demand payment from San Francisco Inn, and ordering the hotel to pay interest from the imposition of the charges in 1998. The Court of Appeals denied the hotel's motion for reconsideration in a resolution of November 13, 2012. San Francisco Inn then filed this petition for review on certiorari under Rule 45 before the Supreme Court.

Facts

San Francisco Inn is a hotel in San Pablo City. In 1996 it constructed two deep well pumps for its business, each with a production capacity of four liters per second. The San Pablo City Water District is a local water utility organized in 1973, operating under the National Water Resources Board. In 1977 the district promulgated rules governing ground water pumping and spring development within its territory, approved by the National Water Resources Board in January 1978.

In January 1998 the district's general manager invited deep well users, including the hotel, to a meeting on the imposition of production assessment fees. The meeting was held in February 1998, but no concrete agreement was reached; the users agreed to submit position papers, and in March 1998 they opposed the fees as inequitable and unjustly discriminatory. In September 1998 the hotel applied for a water permit with the National Water Resources Board. In November 1998 the district's engineering manager issued a certification that the extraction of water had no adverse effect on the district's existing water supply and system, but without prejudice to future implementation of production assessment charges.

In 1999 the district sent the hotel a draft memorandum of agreement imposing a fee of 50 centavos per cubic meter, which the hotel refused to sign. In 2001 the district's board created an investigating panel, which recommended a cease and desist order and closure of the hotel's deep well for operating without a permit, and demanded payment of the equivalent value of consumption. The hotel sought to enjoin the investigation before the trial court. The district's board of directors never acted on the investigating panel's report and resolution, and never issued a resolution fixing the rate of production assessment.

Issues

• Whether or not the Court of Appeals erred in upholding the right of the San Pablo City Water District to impose production assessment in the absence of any finding or proof that the hotel's use of ground water was injuring or reducing the district's financial condition and impairing its ground water source, under Section 39 of Presidential Decree Number 198 and Section 11 of the district's rules.

Applicable Provisions

Section 39 of Presidential Decree Number 198, the Local Water Utilities Administration Law, provides:

Section 39. Production Assessment. - In the event the board of a district finds, after notice and hearing, that production of ground water by other entities within the district for commercial or industrial uses in (sic) injuring or reducing the district's financial condition, the board may adopt and levy a ground water production assessment to compensate for such loss. In connection therewith, the district may require necessary reports by the operator of any commercial or industrial well. Failure to pay said assessment shall constitute an invasion of the waters of the district and shall entitle this district to an injunction and damages pursuant to Section 32 of this

This provision is the source of the power to levy the assessment, and it conditions that power on a board finding, made after notice and hearing, that the extraction is injuring or reducing the district's financial condition.

Ruling

The Court ruled in favor of San Francisco Inn. It first held that the dispute is a judicial question properly addressed to the courts, so the trial court correctly exercised jurisdiction over the controversy between the hotel and the water district.

On the merits, the Court held that Section 39 of Presidential Decree Number 198 is unambiguous, and that it requires two conditions before a district may adopt and levy a ground water production assessment: prior due notice and hearing, and a finding by the board of directors that the production of ground water by the entity is injuring or reducing the district's financial condition. The Court found that the district's board had issued no resolution fixing the rate of production assessment and had made no conclusive finding that the hotel's extraction was injuring or reducing the district's financial condition. Even the investigating panel's report and resolution made no mention of any injurious effect on the district's financial condition. Absent such a board finding, the district could not legally impose the assessment. The Court thus reversed the Court of Appeals and reinstated the ruling of the trial court.

Doctrine

A water district may adopt and levy a ground water production assessment under Section 39 of Presidential Decree Number 198 only when two conditions concur: first, prior due notice and hearing; and second, a finding by the board of directors, after such notice and hearing, that the production of ground water by other entities within the district for commercial or industrial uses is injuring or reducing the district's financial condition. The power is conditional, not plenary. Without a board resolution fixing the rate and a board finding of injury to the district's financial condition, no valid assessment may be imposed. The dispute over a water district's right to impose such an assessment is a judicial question cognizable by the courts.

Disposition

The Supreme Court granted the petition, reversed the Court of Appeals, and reinstated the trial court's decision holding that the water district could not as yet legally impose production assessment fees on San Francisco Inn.

Remember This

Memorize the two-condition rule: notice and hearing, plus a board finding that the extraction is injuring or reducing the district's financial condition — no finding, no assessment. Examiners use this case to test the limits of a water district's power to levy production assessments and the requirement of a valid board resolution and finding under Section 39 of Presidential Decree Number 198.