Puget Sound Power & Light Co. v. Public Utility Dist. No. 1 , 123 F.2d 286 ( 1941 )

HANEY, Circuit Judge.

Reversal of a decree adjudicating that the taking by appellee of certain properties belonging to Puget Sound Power & Light Company is a “public necessity” and for a “public use”, and reversal of a judgment of $5,000,000 found by the jury to be just compensation for the taking, are sought by appellants.

Establishment of public utility districts to conserve the water and power resources of the State of Washington for the benefit of the people thereof, and to supply public utility service, including water and electricity for all uses is authorized by 11 Rem.Rev.Statutes of Wash. §§ 11605-11616. The districts are municipal corporations (§ 11606) and are created in accordance with the votes of the electors. §§ 11607-11609. § 11610 provides in part:

“All public utility districts organized under the provisions of this act shall have power: * * *

“(b) To * * * condemn and purchase * * * plants, plant facilities and systems for generating electric energy, by water power, steam or other methods * * * and to exefcise the right of eminent domain * * * and such right of eminent domain shall be exercised and instituted pursuant to resolution of the commission and conducted in the same manner and by the same procedure as is or may be provided by law for the exercise of the power of eminent domain by incorporated cities and towns of the State of Washington in the acquisition of like property and property rights. * * * ”

Appellee was created pursuant to the votes of electors in 1936. On April 17, 1939, the Commission of appellee adopted Resolution No. 24, wherein it was provided that the “public interest, welfare, convenience and necessity require the establishment by the District of a public utility * * *« The resolution also specified and adopted, for such purpose, the plan of acquiring “by purchase or condemnation” the properties in question. On the same day the Commission adopted Resolution No. 25, authorizing attorneys to institute and prosecute an action to acquire the desired properties by condemnation, and . also adopted Resolution No. 26 specifically describing the properties sought.

Appellant, Puget Sound Power & Light Company, hereafter called the company, is a Massachusetts corporation. The other appellant is the mortgagee of the properties in question. The company’s present unified or integrated system of generating, transmission and distribution facilities, is the result of nearly 50 years of development of the electric industry in Western Washington. During that period, the company has' become the successor in the operations of 148 predecessor corporations. The company’s entire system extends into and serves all or part of 19 counties in Central and Western Washington. It distributes electricity over approximately 4,-300 square miles of territory. It has 13 hydro-electric generating plants with a capacity of 202,000 kilowatts and 3 steam plants with a capacity of 104,500 kilowatts, the energy being transmitted -over 1,538 miles of transmission lines, and distributed over 8,900 miles of distribution lines to more than 190,000 customers.

The company operates in Whatcom County, the boundaries of which are also the boundaries of appellee district. The properties sought by appellee lie in What-com County with the exception of two transmission lines extending to substations in Skagit County, and include the entire electric distribution system of the company in the former county, and a small hydro-electric plant of 1750 kilowatts capacity. The properties sought to be taken by appellee serve about 9% of the .total customers of the company in all operations, or 17,600, but the only generating system to be taken has sufficient capacity to serve only about 10% of the 17,600 customers in Whatcom County.

The franchises of the company under which the Whatcom County properties are operated, are not exclusive franchises, and there is no legal obstacle to prevent appellee from operating in the same territory. There is ample room on the highways for appellee to construct another system, which could be built in about a year and a half at a cost not greater than the cost of acquiring the properties in question, according to some of the testimony herein.

On April 18, 1939, the present proceedings were instituted by appellee when it filed in a state court in Washington a petition wherein it was alleged that appellee by Resolution No. 24 had deemed it advisable to condemn the properties in question and that the “public interest, welfare, convenience and necessity require” that appellee acquire the properties in question “in order to conserve the water and power resources of the State of Washington, and in order that said works, plants and facilities may be owned, operated and controlled by” appellee “in the public interest and for the public benefit”. Appellee prayed that “the taking of the works, plants and facilities aforesaid, and the damaging, if any, of property incident thereto, be adjudged to be a public necessity and for a public use; that the just compensation to be paid to the” appellants “for such taking and damaging, if any, be determined in the manner provided by law; that upon payment into Court * * * of the amount so awarded, this Court enter a decree of appropriation adjudging and decreeing title to said works, plants and facilities vested in” appellee.

The cause was removed to the court below for determination. Hearing on appellee’s application for a decree adjudging the taking to be a public use and necessity was held on July 25 and 26, 1939. The only showing made by appellee regarding “necessity” was the introduction of the resolutions referred to above. There was evidence introduced by the company to the effect that as part of the larger system the properties could be more economically operated, and render better service at cheaper rates. On July 31, 1939, the court below entered a decree that the taking of the properties was for public use and a public necessity. One question presented herein involves the validity of such decree.

Trial of the cause to determine the amount of just compensation to be paid to the company was thereafter had. Aside from the question above mentioned, all questions here involved the correctness of the trial court’s rulings during such trial. The facts regarding each question will be later stated. The jury returned a verdict of $5,000,000. Judgment was entered for that sum with interest.

Public Use and Necessity

The statute quoted above provides that public utility districts shall exercise the right of eminent domain in the same manner and by the same procedure as incorporated cities and towns do under the statutes. 10 Rem.Rev.St. of Wash. §§ 9215-9281 relate to eminent domain by cities. § 9276 provides in part: “Whenever an attempt is made to take private property, for a use alleged to be public under authority of this act, the question whether the contemplated use be really public shall be a judicial question and shall be determined as such by the court before inquiry is had into the question of compensation to be made”. § 9215 specifies certain things for which cities may condemn properties under ordinance. § 9217 provides in part: “Whenever any such ordinance shall be passed by the legislative authority of any such city for the making of any improvement authorized by this act or any other improvement that such city is authorized to make, the making of which will require that property be taken or damaged for public use * * * ” (italics supplied). The company contends that by use of the word “require”, the legislature intended that the taking must be a “necessity”.

In addition to the above statutes, 3 Rem. Rev.St. of Wash. §§ 891-936 also relate to eminent domain. § 925 requires proof of necessity for the taking, by any “corporation authorized by law to appropriate”. § 921. The company says these statutes are applicable, but that if not applicable, “necessity” is required to be shown by the statutes previously cited. Appellee contends that the question of “necessity” is not a judicial question but a political one, and that the only judicial question is whether appellee acted “arbitrarily, capriciously, or fraudulently”. The company counters by saying that appellee acted in such manner.

We think it is clear that the statutes providing for eminent domain with respect to “corporations” are not applicable here, because those relating to eminent domain for municipal corporations are specifically made applicable by the act authorizing establishment of public utility districts. With respect to such districts, it was said in State v. Superior Court for Grant County, Wash., 111 P.2d 577, 582: “The question of the necessity for the taking of relator’s property was for the determination of the district commissioners, and with that determination we can have no concern unless it be shown that the commissioners were guilty of fraud or acted arbitrarily and capriciously. * * * ” To the same effect is Carstens v. Public Utility District No. 1, Wash., 111 P.2d 583, 590.

The company argues that the action of appellee was arbitrary because it was unnecessary to take the properties since other competing lines could be built. The argument, however, ignores the fact that it could reasonably be concluded that it was necessary to take existing properties, thus avoiding competition, rather than to build new lines and be faced with competition. We think a reasonable man could take that view, and that therefore the decision of appellee’s commissioners is not arbitrary.

Just Compensation

During the trial it appeared that the company had a building in Bellingham used as an office building, which would be of little use to it if the properties were taken. The company sought to introduce evidence of MacFadden, a Vice President in general charge of all operations of the company, showing the amount of damage the company would sustain by reason of being left with its Bellingham office building, after the taking of the properties in question. Objection was made and sustained on. the ground that MacFadden was giving, not his opinion as owner, but the opinion of experts. Scudder testified concerning such severance damages. He testified as to the fair market value of the building before the taking, and as to the loss in the rental of the building based on its then present use, and the rental value of the property without the company as a prospective tenant, and capitalized the loss in rentals at 6%. His testimony was stricken by the court below. The company contends that these rulings were erroneous.

* With respect to MacFadden’s testimony, we think the ruling of the trial court was correct. MacFadden testified that he had two experts determine the figure for him and that he had “wholly” adopted the expert’s figure. The basis of the rule in Washington permitting an owner to testify as to the value of his property, is that the owner is assumed to be familiar enough with the property to know its worth. Weber v. West Seattle Land & Improvement Company, 188 Wash. 512, 63 P.2d 418, 420. Here there is no basis for making the assumption, for MacFadden made it clear that he was not expressing his individual opinion, but'that of experts.

With respect to Scudder’s testimon}', the court ruled as follows: “The 'Court considers that if it would be proper at all to prove depreciation in the market value of this particular item of the remaining property in connection with determining severance damage that with respect to the testimony in this particular instance it hasn’t been done in accordance with the requirement of the rule. There isn’t any question but that the measure of damage in respect to severance damage is the difference between the market value of that property not taken and before it was taken and the market value of the same property after the part that was taken became taken. Now, this witness, after apparently qualifying himself as an expert witness on real estate values in this City, in my opinion disqualified himself disestablished his qualification with respect to the depreciation in the market value of this one building, this office building. That is enough in my opinion to make it necessary for the Court to sustain this motion to strike all the testimony of this witness, Mr. Scudder, on the subject of severance damage.”

By this ruling, the court below meant that Scudder’s testimony did not comply with the approved method of proof of damages authorized by the law of Washington in condemnation proceedings. The measure of damages in a case such as this is the fair market value of the property taken together with the amount of depreciation, if any, in the value of the property not taken. Seattle & M. R. Co. v. Roeder, 30 Wash. 244, 70 P. 498, 502, 94 Am.St.Rep. 864; Sultan W. & P. Co. v. Weyerhauser T. Co., 31 Wash. 558, 561, 72 P. 114; City of Seattle v. Lake Union Brick Co., 166 Wash. 278, 6 P.2d 591; 10 Rem.Rev.Stat. of Wash. § 9229. Such depreciation is the difference between the fair market value of the part not taken, prior to the taking, and the fair market value of such part, after the taking. Idaho & Western R. Co. v. Coey, 73 Wash. 291, 293, 131 P. 810. See, also, Peterson v. Arland, 79 Wash. 679, 692, 141 P. 63.

While Scudder testified as to the fair market value of the building before the taking, he did not testify as to the fair market value of the building after the taking. He did testify as to the loss of rental value but such loss is not the fair “market” value. Whether the rental value “loss” could be used in’ computing the fair “market” value is a matter requiring the speculation and conjecture of the jury, because it does not directly prove or tend to prove the value required.

With respect to such evidence, the following quotation from Town of Kirkland v. Cochrane, 87 Wash. 528, 151 P. 1082, 1083, is pertinent: “The range of inquiry to be permitted, touching the value of property taken or damaged by eminent domain proceedings, is often a very difficult one, but manifestly there must be some limit to it; otherwise, there would result in most cases unlimited excursions into the field of mere speculation. Hence, when such question arises, there is involved to a considerable extent the discretion of the trial court. * * * ”

We think, upon the record and the doctrine of Kirkland v. Cochrane, supra, the trial court did not abuse its discretion in striking Scudder’s testimony.

The Commission of the appellee adopted a resolution agreeing to purchase electricity from the company for a period of five years. Appellee sought to introduce it after it had closed its case in chief. The court below permitted the case to be reopened and the evidence admitted. It was designed to show that the company would not have so much loss from the taking away of its customers. The company contends that the trial court’s action was erroneous.

Evidence of this nature -is admissible. Puget Sound Power & Light Co. v. City of Puyallup, 9 Cir., 51 F.2d 688, 696. Compare State ex rel. Peabody v. Superior Court, 77 Wash. 593, 138 P. 277. However, the danger lies in the possibility, urged by the company here, that the offer is not made in good faith. If the offer was actually made in good faith, it is to be considered in determining the severance damages. In considering whether or not the offer was made in good faith, there were, among others, certain circumstances to be considered: the offer was made after these proceedings were commenced; what sources of power supply are available to appellee other than the company; and the cost, and the length of time required for construction, of facilities for supply of power.

However, it is apparent that all these matters bear on the effect or weight of the evidence, a matter of which the jury was the exclusive judge. While it might have been proper for the trial court to give a cautionary instruction, the company requested none, and it cannot now urge error in that respect.

The remaining questions arise from instructions given, or requested but refused.

In determining market value of property, it is proper, if not necessary, to give consideration to the present cost of reproducing such property. The company introduced evidence to show the cost of reproduction, if reproduced by a general contractor, and included in such amount the cost of the contractor’s bond and an amount for his profit. The first challenged instruction was to the effect that such items should be included “only where the general contractor if employed would effect corresponding savings to the owner on material and labor costs”. The company contends that the items were properly a part of the cost of doing the work by the contractor.

Whether or not such an instruction would be valid in other cases, it is unnecessary here to decide. The instruction was based on the testimony of the company’s witness Veatch, who testified on cross-examination as follows:

“Q. In a case of this kind would the only excuse for introducing a general contractor be that the result of having him would be to at least make a sufficient saving in overhead costs or unit costs to justify his introduction into the picture? A. Yes, sir, and I would like to qualify—

“Q. He would have to pay his way, otherwise he wouldn’t belong in there? A. I think I can answer that ‘yes’ and I should like to qualify it to this extent, that the plan used in making the appraisal has been one which in my opinion would give to the owner the most reasonable cost so far as the reproduction of the property at this time would be, and that is the reason.”

The trial court, no doubt, attempted tc follow the quoted evidence, and we think no reversible error can be predicated on its action. Compare: National Bank of Commerce v. United States, 9 Cir., 224 F. 679, 683; Southern Pac. Co. v. Schwartz, 9 Cir., 89 F.2d 192, 194.

While it might be argued that the court below did not follow the above quoted testimony in its instruction because such instruction mentions savings in labor and material costs, but not in general overhead costs and similar charges, the jury was directed to consider such items in the preceding instruction. Furthermore no objection on that ground was made by the company. Federal Rules of Civil Procedure, Rule 51, 28 U.S.C.A. following section 723c.

There was considerable testimony of witnesses to the effect that in their consideration of the market value of the properties, they gave consideration to the fact that the company’s rates were subject to regulation by the Washington Department of Public Service. Early in its instructions, the trial court told the jury that the company’s rates and charges were subject to such regulation. Later, the court gave the following instruction: “The market value of property is neither to be enhanced nor diminished by any remote possibility that some favorable or unfavorable event or action may perhaps take place in the future. Accordingly, you should not take into consideration any future event or condition, the occurrence of which is not fairly shown by the evidence to be reasonably probable. Future events which might affect market value if they did occur, and the occurrence of which are within the realm of possibility, are not to be considered in determining present market value unless you believe that the evidence fairly establishes that ft is now reasonably probable that they will occur at such not too distant time in the future. But you are entitled to consider such future events which, under the evidence, are reasonably probable in the not too distant future.”

Subsequently, the court, in summing up, told the jury that in reaching its conclusicfn as to the fair cash market value, it “should try to look at the problems with the joint eyes of a willing buyer who is not compelled to buy and a willing seller who is not compelled to sell” and that in other words the jury “should consider what conclusions such a buyer and such a seller would come to”. Thereafter, the court asked a series of ten questions to illustrate such statement. Among them were the following: “What consideration would they give to the present and prospective earnings of the properties involved in this proceeding? What consideration would they give to the fact that the properties are what are known as a regulated utility and to the fact that the rates and earnings are subject to State regulation ? What .would be their conclusions as to the amount of future earnings that with reasonable probability will be allowed by the State Department of Public Service ? ”

The company contends that the jury were thus permitted to speculate as to the future action of the state regulatory body with respect to rates. The company requested the court to instruct the jury to the effect that the jury “shall assume” that the company’s earnings were under reasonable rates. It contends that such instruction would have eliminated the entire matter of rate regulation “which is obviously beyond the scope of the issues”, and that the compensation to be paid it “is neither to be enhanced nor diminished by any remote possibility that some favorable or unfavorable action may take place in the future”.

We think the.company’s argument is unsound. The trial court’s previous instruction eliminated any possible “speculation” by the jury.

The third challenged instruction followed an instruction that in determining the present fair cash market value of the property, consideration was to be given “to the present and prospective future earnings” of such properties. The court then instructed: “You are not, however, to arrive at their fair cash market value solely by a capitalization of present earnings, at some assumed interest rate”. The trial court subsequently recalled the jury and struck the word “solely”. The company contends that the jury was prevented from capitalizing earnings. Appellee contends that since no capitalized earning value was testified to, the instruction was proper.

We believe the instruction was not erroneous. The court, early in its instructions had directed the jury to consider all elements shown by the evidence which a willing seller and a willing buyer probably would consider in reaching an agreement as to sale price. The particular reason for striking the word “solely” is not specifically made known by the record, but we believe the purpose of the instruction was to direct the jury not to arrive at the fair market value by capitalizing earnings at some “assumed” interest rate. The jury was, in effect, told that they were not to “assume” an interest rate for capitalization of earnings, and we think there is no valid objection to such an instruction. The same may be said for the instruction directing the jury not to capitalize losses at an “assumed” interest rate. The jury should not be permitted to “assume” an interest rate, but should determine a proper one under the evidence.

The fourth challenged instruction was to the effect that appellee was authorized to enter into contracts for the purchase of power, and that any contract entered into by appellee would be binding on it, subject only to the authority of the state regulatory body to revise the rate if it found the agreed rate to be unreasonable, or to terminate such contract after “hearing” if it found that “legal cause” existed for termination. The company requested instructions to the effect that the state regulatory body might terminate such contract in “its discretion”.

The basis of the company’s objection to this instruction is a statute (§ 10370) which provides in part that nothing in the act shall be construed to prevent an electrical company from continuing to furnish service under any contract “ * * * in force at the date this act takes effect at the rates fixed in such contract or contracts: Provided, That the department of public works shall have power, in its discretion, to direct by order that such contract or contracts shall be terminated by the company party thereto and thereupon such contract or contracts shall be terminated by such company as and when directed by such order”. The company contends that pursuant to this statute, the regulatory body might terminate the contract “in its discretion” without hearing, and without legal cause, and the instruction was therefore erroneous because it read to the contrary.

Assuming, without so deciding, that the quoted statute is applicable here, we think the term “discretion” as used therein means “legal” discretion, requiring a hearing (State v. Public Service Commission, 83 Wash. 130, 145 P. 215, 218) and preventing arbitrary action. The trial court merely stated the same thing in different form, and we believe no error occurred.

The. company further contends that the instruction was erroneous because such a contract would' not be binding on appellee, and relies on State v. Superior Court For Grant County, supra, 111 P.2d 581. While" it is true that the court there said that “the district could not be bound to accept the electric energy from relator for an indefinite period of time”, we think the statement was based on the fact that there the resolution of the district authorizing consummation of a contract, named as the prospective seller a particular company “and/or such other private and public corporations, agencies and persons as may have the same available for sale”. The court merely said, in effect, that even if the last quoted language had been eliminated, the proof of severance damages would not be easier because no definite contract had been entered into, and the “possibility that the public utility district might purchase its power from relator should simply be an element to be considered in determining what its damages should be”. We think the cited authority does not support the company’s contention.

Finally error is alleged in the refusal of the trial court to instruct the jury to the effect that appellee would not be bound by its (the jury’s) verdict. The company argues that the instruction was necessary because it had a bearing on the good faith of appellee in offering to buy power from the company, and in connection with appellee’s original estimate of the cost of acquiring the properties in question — such estimate being $3,250,000.

We think the trial court correctly refused the instruction. The sole issue for the jury’s determination was the amount of just compensation to be paid the company. Whether or not appellee would pay the amount fixed had no bearing on that issue. In fact it was wholly immaterial and of no concern to the jury.

With respect to’ objections to instructions, the following from State ex rel. Puget Sound & W. H. Ry. Co. v. Foster, 84 Wash. 75, 146 P. 154, 155, is pertinent: “* * * It might be possible to discover technical errors in these rulings of the court were we to notice some few expressions therein without reference to the instructions as a whole; but that the learned trial court plainly conveyed to the jury the thought that the ultimate measure of respondents’ damages must be the depreciation in the market value of the remaining portion of their form in addition . to the value of the portions taken seems so plain to us that whatever technical error there may have been in some few expressions of the court, standing alone, it was wholly without prejudice. * * *”

Affirmed.