Coeur D'Alene Garbage Service v. City of Coeur D'Alene , 114 Idaho 588 ( 1988 )

JOHNSON, Justice.

This is an inverse condemnation case. The primary issue presented is whether the actions of the City of Coeur d’Alene (the City) constituted takings of property of Coeur d’Alene Garbage Service (Garbage Service) requiring just compensation pursuant to art. 1, § 14 of the Idaho Constitution and the fifth amendment of the United States Constitution. We affirm the decision of the trial court that there were takings and the award of just compensation by the trial court, together with prejudgment interest from the dates of taking.

I.

THE FACTS

For several years prior to 1982 Garbage Service provided garbage collection service to suburban areas outside the corporate limits of the City. In 1981 the City contracted with Lake City Disposal, Inc. (Disposal) to provide garbage service for every structure in the City that was occupied. By ordinance the City prohibited collection of garbage within the limits of the City except by Disposal, and made it a crime for anyone else to attempt to provide garbage service within the City. The contract between the City and Disposal was for a fixed five-year term with a two-year option to renew. The contract also required Disposal to extend its garbage collection service to any area annexed by the City within ninety days after annexation.

Garbage Service was licensed as a hauler or collector of garbage by Panhandle Health District No. 1. This license required compliance with all state regulations for the sanitary procedures of hauling and handling garbage, but did not provide Garbage Service with a franchise to serve a particular territory. Garbage Service enjoyed a de facto monopoly in the areas it served outside the limits of the City.

In 1982 the City began the process of annexing some areas in which Garbage Service was operating. Before the annexation was completed Garbage Service obtained written contracts with its customers in the areas proposed for annexation. These contracts were for a period of three months with automatic renewal for additional periods of three months unless can-celled by either party by giving notice ten days prior to the expiration of each three-month term.

Following the completion of the annexation Disposal began providing garbage collection service within the annexed areas that had previously been served by Garbage Service. Garbage Service filed suit for injunctions against the City and Disposal, to obtain just compensation for the taking of property, and for damages for interference with contracts. While the suit was pending, in 1983 the City annexed other areas in which Garbage Service operated. Garbage Service sought a preliminary injunction to prevent the City and Disposal from servicing Garbage Service’s customers in the areas annexed in 1983. The trial court denied the preliminary injunction. Garbage Service then filed a supplemental complaint seeking the same relief as sought in the complaint with regard to the areas encompassed in the 1983 annexation. The trial court granted partial summary judgment to Garbage Service, determining that there had been takings of Garbage Service’s property by the elimination of its right to serve its customers in the areas annexed. Following a trial the trial court awarded Garbage Service $262,574 as just compensation, together with interest from the dates of taking.

The City has appealed the trial court’s ruling that there were takings. The City has also raised as issues whether the trial court improperly received evidence concerning damages that was not based on fair market value, whether the trial court awarded an improper amount of just compensation, and whether prejudment interest was properly awarded.

II.

THE ACTIONS OF THE CITY CONSTITUTED TAKINGS REQUIRING JUST COMPENSATION

Both the Idaho Constitution and the United States Constitution provide that if private property is taken for public use, there must be just compensation. Id. Const., art. 1, § 14, U.S. Const., Amend. 5. We conclude that the protection of the just compensation clause of our state constitution provides a sufficient basis for our decision in this case. We refrain from premising our opinion on the just compensation clause of the fifth amendment.

Garbage Service does not question the authority of the City to annex the areas within which Garbage Service operated its business. Garbage Service contends that it was the effect of the exclusive service contract between the City and Disposal that brought about the takings of the property of Garbage Service entitling it to just compensation. Garbage Service acknowledges that if it had been permitted to continue to serve its customers in the annexed areas, there would have been no takings. We agree.

The essence of our holding here is that the City went too far by excluding Garbage Service from continuing to service its customers in the annexed areas. Garbage Service’s license from Panhandle Health District No. 1 granted it lawful authority to provide garbage collection service in the areas annexed prior to annexation. The trial court found that Garbage Service was not endangering or threatening any public health or welfare in the annexed areas. If the City had merely regulated the operation of Garbage Service in the annexed areas by requiring it to comply with reasonable standards established by the City, there would have been no taking. Instead, the City chose to take from Garbage Service any opportunity to continue to service its customers in the annexed areas. It was this exclusion that entitles Garbage Service to just compensation.

The City has disputed whether Garbage Service’s business in the annexed area constituted property that is subject to the just compensation clause of art. 1, § 14. This Court has stated that private property “of all classifications” may be taken for public use under the just compensation clause. Hughes v. State, 80 Idaho 286, 293, 328 P.2d 397, 400 (1958). It is also established that the “right to conduct a business is property.” Robison v. H. & R.E. Local #782, 35 Idaho 418, 429, 207 P. 132, 134 (1922). See also, O’Connor v. City of Moscow, 69 Idaho 37, 42-43, 202 P.2d 401, 404 (1949); and Winther v. Village of Weippe, 91 Idaho 798, 803, 430 P.2d 689, 694 (1967). Garbage Service had a property interest in the business it conducted in the areas annexed by the City. The City chose to take this property in order to allow Disposal to provide exclusive garbage service to the annexed areas.

We recognize that there are competing interests at issue here. The City has an interest in insuring that the garbage collection service that is provided to its residents is uniform and accomplishes the purpose of maintaining the health of those who reside in and frequent the City. The police power of the City to accomplish these objectives is broad, but not unlimited. When the exercise of the police power by the City comes in conflict with the interest of an owner in preserving a property interest, there must be a balancing of these interests. There is no showing here that the actions of the City in excluding Garbage Service from the annexed areas furthers the preservation of health in those areas. In the absence of such a showing, the balance tips in favor of the protection of Garbage Service’s property interest. Cf Parker v. Provo City Corp., 543 P.2d 769 (Utah 1975) (Ordinance prohibiting private waste material collector from removing or disposing of garbage in the city declared void where there was no showing that the material collected or the method of hauling it was detrimental to the public health).

This Court has previously said in cases involving the conflict between the exercise of a city's police powers and the protection of private property that a harmful effect upon a property owner alone is insufficient to justify an action for damages. Johnston v. Boise City, 87 Idaho 44, 52, 390 P.2d 291, 295 (1964). In Johnston the Court focused on there being “a reasonable relationship to the public health, safety, moral or general welfare” in order to validate the exercise of the police power. Id. The Court stated:

If the exercise of the authority under such an enactment is reasonable and not arbitrary, any injury occasioned thereby must be considered a servitude inherent under our system of government, and damages from such injury must be considered as damnum absque injuria. [Citations omitted.] In the instances where the exercise of the authority transgresses the bounds of reasonableness, or is arbitrary in result, to the point where there is an actual taking of private property for public use, (Idaho Const., Art. 1, § 14) or to the point where there is a deprivation of property without due process of law (Idaho Const., Art. 1, § 13), an action would lie for damages by way of inverse condemnation or of injunctive relief.

Id.

The Court then adopted the following formulation of the Kansas Supreme Court in Smith v. State Highway Commission, 185 Kan. 445, 346 P.2d 259, 268 (1959):

Determination of whether damages are compensable under eminent domain or noncompensable under the police power depends on the relative importance of the interests affected. The court must weigh the relative interests of the public and that of the individual, so as to arrive at a just balance in order that government will not be unduly restricted in the proper exercise of its functions for the public good, while at the same time giving due effect to the policy of the eminent domain clause of insuring the individual against an unreasonable loss occasioned by the exercise of governmental power. (Emphasis in original.)

Here we conclude that Garbage Service suffered an unreasonable loss occasioned by the exercise of governmental power by the City in excluding Garbage Service from continuing its business in the annexed areas.

In a similar case this Court has held that once a supplier of service lawfully enters into an area to provide that service, annexation of the area by a city does not “in the absence of condemnation” authorize an ouster of the supplier from that area. Unity Light & Power Co. v. City of Burley, 92 Idaho 499, 502, 445 P.2d 720, 723 (1968). Implicit in the decision in Unity was an acknowledgment that the supplier of the service in the annexed area had a property interest in servicing its customers there. In Unity the trial court awarded the supplier $500 damages for taking by Burley of property rights, and enjoined Burley from interfering with the supplier’s existing customers. Id. at 504, 445 P.2d at 725. This Court affirmed. The Court stated that “[ajmong the considerations which led to the conclusion that [the supplier] could not be ousted from the territory annexed by Burley insofar as service to its members at the time of annexation is concerned, is that the legislature as early as 1903 recognized that delivery of electricity throughout the state was essential.” Id. at 502-03, 445 P.2d at 723-24. We note a similar recognition of the importance of solid waste disposal declared by the legislature in I.C. § 31-4401.

In Unity, this Court held that the City of Burley had the power to condemn the supplier’s property within the annexed area. Id. at 503, 445 P.2d at 724. Here, the City had the right of eminent domain under I.C. § 50-1030(c) for the purpose of preserving the public health as provided for in I.C. § 50-304. Although the City did not exercise its right of condemnation in this case, it did take Garbage Service’s property by excluding Garbage Service from servicing its existing customers in the annexed areas.

The decision of this Court in Renninger v. State, 70 Idaho 170, 213 P.2d 911 (1950), disposes of the City’s contention that it is immune from liability to Garbage Service by virtue of I.C. § 6-904(4). The City characterizes this suit as one for tortious conduct of the City. In Renninger this Court held that art. 1, § 14 of the Idaho Constitution waives the immunity of the state in an inverse condemnation case. Id. at 178, 213 P.2d at 916. This ease is correctly characterized as one for inverse condemnation and not as one for tortious interference with contract. The City cannot avoid liability by attempting to recast what it has done.

III.

THERE IS EVIDENCE TO SUPPORT THE JUST COMPENSATION DETERMINATION OF THE TRIAL COURT

The City has challenged the trial court’s determination of the amount of just compensation awarded to Garbage Service on the grounds that the trial court took into account evidence not based on the fair market value of the property taken and evidence premised on some elements of noncompensable damages. The essence of the City’s position is that the trial court did not correctly determine the fair market value of the garbage collection routes of Garbage Service that were taken because the trial court used the earnings of Garbage Service in the annexed areas to determine the amount to be awarded. In its Findings and Conclusions, the trial court premised its award of just compensation on the “present market value” of the portion Garbage Service’s business that was taken by the City.

Two members of this Court sitting with a district judge, acting as the Court of Appeals, have recently stated that the standard by which an appellate court should review an award of just compensation by a trial court is whether there is evidence to support the value determination of the trial court. The amount awarded may be set aside only if it is not supported by any evidence. Eagle Sewer Dist. v. Hormaechea, 109 Idaho 418, 420, 707 P.2d 1057, 1059 (Idaho Ct.App.1985).

In reaching its decision on just compensation in this case the trial court pointed out that the expert witnesses, who testified concerning the value of the garbage routes owned by Garbage Service at the time of the taking, placed the value within a range from $39,552 to $800,000. The trial court concluded that Garbage Service should be awarded $262,574 as just compensation for the property taken by the City. In arriving at this value the trial court chose to use the “discounted future earnings method.” This method was described in Pratt, Valuing Small Businesses and Professional Practices (1985), a treatise accepted as authoritative and reliable by one of the expert witnesses for the City. The City contends that the discounted future earnings method of valuation should not have been used, but that if it were used, the court should not have used a ten-year projection of future earnings with a ten percent discount rate. The City contends that this resulted in an excessive calculation of damages.

Even though one of the expert witnesses for the City testified that a different number of years and a different discount rate should have been used, there is evidence in the record to support the use of both the ten-year period of projecting revenue and the ten-percent discount rate employed by the trial court. Although there was much conflicting evidence about the value of what was taken from Garbage Service, under the standard set forth in Eagle Sewer Dist., we uphold the valuation of the trial court.

IV.

ALLOWANCE OF INTEREST FROM THE DATE OF TAKING

The trial court granted Garbage Service interest on the damages awarded from the dates of the takings. This was proper, since art. 1, § 14 of the Idaho Constitution provides that private property shall not be taken “until a just compensation, to be ascertained in the manner prescribed by law, shall be paid therefor.” This Court has adopted a rule that in a condemnation case interest should be awarded from the time the condemning party takes possession or becomes entitled to possession of the property. Independent School Dist. of Boise City v. C.B. Lauch Const. Co., 78 Idaho 485, 493, 305 P.2d 1077, 1082 (1957). In an inverse condemnation case a party whose property has been taken should be entitled to interest on the value of the property from the date of the taking. Otherwise, the party from whom the property was taken would have been deprived of both the property taken and the use of the just compensation during the period from the taking until the amount of the just compensation for the property taken is determined. This would violate the intent of art. 1, § 14 of our constitution.

V.

CONCLUSION

The partial summary judgment and judgment of the trial court are affirmed.

Costs to respondent.

No attorney fees on appeal.

BAKES, BISTLINE and HUNTLEY, JJ., concur.