City of Missoula v. Mountain Water Co. , 384 Mont. 193 ( 2016 )

08/02/2016
DA 15-0375
Case Number: DA 15-0375
IN THE SUPREME COURT OF THE STATE OF MONTANA
2016 MT 183
THE CITY OF MISSOULA, a
Montana municipal corporation,
Plaintiff and Appellee,
v.
MOUNTAIN WATER COMPANY, a
Montana corporation, and CARLYLE
INFRASTRUCTURE PARTNERS,
LP, a Delaware limited partnership,
Defendants and Appellants.
__________________________________
THE EMPLOYEES OF MOUNTAIN
WATER COMPANY, (Shanna M.
Adams, Heather M. Best, Dennis M.
Bowman, Kathryn F. Datsopoulos,
Wayne K. Davis, Valarie M. Dowell,
Jerry E. Ellis, Greg A. Gullickson,
Bradley E. Hafar, Michelle Halley,
Douglas R. Harrison, Jack E. Heinz,
Josiah M. Hodge, Clay T. Jensen,
Kevin M. Johnson, Carla E. Jones,
Micky A. Kammerer, John A. Kappes,
Susan M. Lowery, Lee Macholz,
Brenda K. Maes, Jason R. Martin,
Logan M. McInnis, Ross D. Miller,
Beate G. Newman, Maureen L.
Nichols, Michael L. Ogle, Travis Rice,
Eric M. Richards, Gerald L. Schindler,
Douglas J. Stephens, Sara S. Streeter,
Joseph C. Thul, Denise T. Tribble,
Patricia J. Wankier, Michael R.
Wildey, Angela J. Yonce, and Craig M.
Yonce),
Intervenors and Appellants.
APPEAL FROM: District Court of the Fourth Judicial District,
In and For the County of Missoula, Cause No. DV-14-352
Honorable Karen Townsend, Presiding Judge
COUNSEL OF RECORD:
For Appellants:
Bradley Luck, (argued), Kathleen L. DeSoto, William T. Wagner, Stephen
R. Brown, Garlington, Lohn & Robinson, PLLP, Missoula, Montana
Joe Conner, Adam Sanders, D. Eric Setterlund, Baker, Donelson,
Bearman, Caldwell & Berkowitz, P.C., Chattanooga, Tennessee
(Attorneys for Defendant/Appellant Mountain Water Company)
Gary M. Zadick (argued), Ugrin, Alexander, Zadick & Higgins, P.C.,
Great Falls, Montana
(Attorney for Intervenors/Appellants The Employees of Mountain Water
Company)
William W. Mercer, Michael P. Manning, Adrian A. Miller, Holland &
Hart, LLP, Billings, Montana
(Attorneys for Defendant/Appellant Carlyle Infrastructure Partners, LP)
For Appellee:
Scott M. Stearns, Natasha Prinzing Jones, Boone Karlberg P.C., Missoula,
Montana
Harry H. Schneider, Jr. (argued), Perkins Coie LLP, Seattle, Washington
William K. VanCanagan, Phil L. McCreedy, Datsopoulos, MacDonald &
Lind, P.C., Missoula, Montana
For Amicus Curiae:
Mark D. Parker, Parker, Heitz & Cosgrove, PLLC, Billings, Montana
(Attorney for United Property Owners of Montana, Inc.)
Argued: April 22, 2016
Submitted: May 4, 2016
Decided: August 2, 2016
Filed:
__________________________________________
Clerk
2
Justice Patricia Cotter delivered the Opinion of the Court.
¶1 Mountain Water Company (Mountain Water) owns the water system that provides
potable water to the residents of Missoula. The City of Missoula (the City) filed a
complaint in the Fourth Judicial District Court, Missoula County, to condemn the water
system. Montana’s eminent domain statutes required the City to prove that public
ownership of the water system is “more necessary” than private ownership. After a
bench trial regarding the necessity of condemnation, the District Court issued findings of
fact, conclusions of law, and a preliminary order of condemnation. Mountain Water, its
employees, and its corporate owner, Carlyle Infrastructure Partners, LP (Carlyle), appeal
from the preliminary order of condemnation. We affirm.
ISSUES
¶2 We restate the issues on appeal as follows:
¶3 Issue One: Did the District Court deny Defendants procedural due process by
denying their motions for a continuance?
¶4 Issue Two: Did the District Court abuse its discretion by declining to admit
evidence of valuation during the necessity phase of the proceedings?
¶5 Issue Three: Did the District Court err by refusing to dismiss Carlyle as a party to
this case?
¶6 Issue Four: Did the District Court err in concluding that collateral estoppel does
not bar the City from initiating this condemnation action?
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¶7 Issue Five: Did the District Court err in concluding that a municipality may
condemn a water system even if the owner of the water system does not have a franchise
agreement or a contract to provide the municipality with water?
¶8 Issue Six: Did the District Court err in concluding that the effect of condemnation
on the Mountain Water Employees is a factor to be considered in determining whether
the acquisition is “more necessary,” but is not a dispositive factor?
¶9 Issue Seven: Were the District Court’s findings regarding the effects of
condemnation on the Mountain Water Employees clearly erroneous?
¶10 Issue Eight: Did the District Court err in finding that public ownership of the water
system is more necessary than private ownership?
FACTUAL AND PROCEDURAL BACKGROUND
¶11 The City of Missoula is a municipal corporation. Its residents obtain potable water
through a water system fed by an underground aquifer. Missoula is the only one of
Montana’s 129 municipalities that does not own its own water system; its water system is
owned and operated by Mountain Water. Mountain Water is a corporation owned by
Park Water Company, whose only equities are Mountain Water and two other water
utilities in California. Park Water Company is the sole equity of Western Water
Holdings. Western Water Holdings is a holding company; its controlling member is
Carlyle, a global investment partnership. Carlyle acquired Mountain Water by acquiring
Western Water Holdings’ stock in 2011.
¶12 The City desired to own the water system that serves its residents because City
officials believe a community’s water system is a public asset best owned and operated
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by the public. In January 2014, the City offered to purchase Mountain Water from
Carlyle for $50 million. Carlyle rejected the offer. The City then filed an amended
complaint in the Fourth Judicial District Court, Missoula County, on May 5, 2014, in
which it sought to condemn the water system, pursuant to Montana’s law of eminent
domain. The City intends to put the water system to the same use to which it is currently
put by Mountain Water and Carlyle (collectively, the Defendants): providing potable
water to Missoula residents. Cognizant of the statutory requirement to proceed with all
aspects of a condemnation proceeding “as expeditiously as possible,” § 70-30-206(5),
MCA, the District Court set a three-week bench trial for March 18, 2015. The parties
proceeded with discovery.
¶13 On May 28, 2014, thirty-eight employees of Mountain Water (Employees) moved
to intervene in the action, asserting that the condemnation of Mountain Water would
affect their rights, benefits, and interests in employment. The City did not object to the
intervention, so long as the Employees’ participation was limited to addressing their
employment interests and how those interests affect the analysis of whether public
ownership of the water system is more necessary than private ownership. The District
Court granted the Employees’ motion to intervene and allowed them to participate in the
action “based upon the twelve specific interests asserted in their motion to intervene.”
The District Court reserved the right to confine the Employees’ participation in the
litigation should they stray from those interests. The Employees participated in the
litigation from this point forward.
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¶14 Five months after the City commenced its condemnation action, Liberty Utilities
Company (Liberty) entered into a merger agreement with Carlyle to purchase Mountain
Water. Liberty then sought to intervene in the condemnation action, arguing that because
it is under contract to purchase Mountain Water, it has a contractual interest in the
property sufficient to justify intervention. The District Court denied Liberty’s motion to
intervene, finding that present, vested ownership is necessary for intervention under Rule
24(a) of the Montana Rules of Civil Procedure, and that Liberty’s interests would be
adequately pursued by Carlyle. Liberty filed a petition for a writ of supervisory control
with this Court, seeking a stay of the proceedings and a right to intervene as a defendant.
We denied Liberty’s petition on February 5, 2015. See Liberty Utils. Co. v. Mont. Fourth
Judicial Dist. Court, 2015 Mont. LEXIS 284, 378 Mont. 539, 348 P.3d 671. Discovery
and trial preparation continued.
¶15 Three weeks before trial, the City produced thousands of documents that were, for
the first time, in usable electronic formats. Mountain Water filed a motion for a
continuance of the trial to allow the Defendants more time to review the documents and
prepare for trial. The District Court denied the motion. Mountain Water then filed a
petition for a writ of supervisory control with this Court on March 5, 2015, seeking to
compel the District Court to grant the continuance. We denied the petition, but we noted
that “we are troubled by what appears to be the City’s obstruction of discovery to gain a
tactical advantage.” We denied the petition because Mountain Water “[did] not ma[ke] a
compelling case that it cannot be ready for trial,” and we concluded that “the extent, if
any, to which [Mountain Water] ultimately is prejudiced by the delay [in document
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production] is a matter that may be raised on appeal.” See Mountain Water Co. v. Mont.
Fourth Judicial Dist. Court, 2015 Mont. LEXIS 647, __ Mont. __, __ P.3d __.
¶16 A three-week bench trial commenced on March 18, 2015. On June 15, 2015,
Judge Townsend issued a 68-page Findings of Fact, Conclusions of Law, and Preliminary
Order of Condemnation. On June 23, 2015, Mountain Water, Carlyle, and the Employees
appealed the Findings of Fact, Conclusions of Law, and Preliminary Order of
Condemnation and all orders and rulings that led up to and resulted in that Order.
¶17 By statute, condemnation proceedings occur in two phases, a necessity phase and a
valuation phase. The necessity phase was concluded with the District Court’s
Preliminary Order of Condemnation. The results of that phase are before us on appeal.
The valuation phase occurs after entry of a preliminary order of condemnation,
§ 70-30-207(1), MCA, and begins with filing of the condemnee’s claim of just
compensation. If the condemnor fails to accept the claim, the District Court appoints
three condemnation commissioners to determine the value of the property being
condemned. In this case, Mountain Water, Carlyle, and the Employees filed their claims
of just compensation on July 15, 2015. The City rejected the claims on July 24, 2015.
As a result, the District Court appointed three condemnation commissioners. On
November 17, 2015, the condemnation commissioners determined the fair market value
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of the water system was $88.6 million. The parties did not appeal this valuation.1
Additional facts will be discussed as necessary in the following analysis.
STANDARDS OF REVIEW
¶18 A district court has broad discretion to determine the admissibility of evidence at
trial, so we review a district court’s evidentiary rulings for abuse of that discretion.
Seltzer v. Morton, 2007 MT 62, ¶ 65, 336 Mont. 225, 154 P.3d 561. We also review for
abuse of discretion a district court’s rulings regarding discovery and control of pretrial
and trial proceedings. Pallister v. Blue Cross & Blue Shield of Mont., Inc., 2012 MT 198,
¶ 9, 366 Mont. 175, 285 P.3d 562; Stevenson v. Felco Indus., 2009 MT 299, ¶ 32, 352
Mont. 303, 216 P.3d 763. A district court’s ruling on a motion for a continuance is one
such discretionary ruling. In re Matter of R.F., 2001 MT 199, ¶ 21, 306 Mont. 270, 32
P.3d 1257. In order to establish an abuse of discretion, “the appellant must demonstrate
that the district court acted arbitrarily without conscientious judgment or exceeded the
bounds of reason.” Seltzer, ¶ 65 (internal quotations omitted). If the appellant
demonstrates that the district court abused its discretion, “[w]e must then determine
whether the demonstrated abuse of discretion constitutes a reversible error. . . . [N]o
1
The records pertaining to the valuation phase of this proceeding are not before this Court on appeal.
The City requested that pursuant to Rules 201 and 202 of the Montana Rules of Evidence we take judicial
notice of the facts and law regarding valuation that became part of the District Court record after it was
sent to this Court for purposes of this appeal on December 24, 2015. Defendants objected on relevance
grounds and argued that “[j]udicial notice cannot be utilized to present facts for the first time on appeal.”
We have not ruled on the City’s motion to take judicial notice, but we note our authority under M. R.
Evid. 202(b)(6) to take judicial notice of “[r]ecords of any court of this state.” The District Court records
in this case reveal the valuation reached by the condemnation commissioners. Further, the subject of the
valuation was addressed by the Court and counsel for the Defendants at oral argument. Although the
District Court records regarding the valuation are not part of the record before us on appeal, the valuation
determination is relevant to various portions of our Opinion and we therefore take judicial notice of the
valuation figure reached by the commissioners.
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reversible error occurs unless a substantial right of the appellant is [a]ffected, nor does
reversible error occur unless the evidence in question was of such character as to have
affected the outcome of the trial.” Seltzer, ¶ 65 (internal citations omitted).
¶19 We review de novo a district court’s rulings on motions to dismiss and motions for
summary judgment. Hein v. Sott, 2015 MT 196, ¶ 7, 380 Mont. 85, 353 P.3d 494.
¶20 We review a district court’s findings of fact to determine if they are clearly
erroneous. In re Marriage of Olson, 2008 MT 232, ¶ 20, 344 Mont. 385, 194 P.3d 619.
“A finding is clearly erroneous if it is not supported by substantial evidence, the district
court misapprehended the effect of the evidence, or our review of the record convinces us
the district court made a mistake.” In re Marriage of Olson, ¶ 20. We review a district
court’s conclusions of law de novo to determine if they are correct. In re Marriage of
Olson, ¶ 20. Mixed questions of law and fact, “including the district court’s application
of controlling legal principles to its factual findings,” are reviewed de novo. BNSF Ry.
Co. v. Cringle, 2012 MT 143, ¶ 16, 365 Mont. 304, 281 P.3d 203.
¶21 It is well established that in a condemnation action, the question of whether public
or private ownership of the property is “more necessary” is a fact-specific, judicial
determination. Missoula v. Mountain Water Co., 228 Mont. 404, 410-11, 743 P.2d 590,
594 (1987); Helena v. Rogan, 26 Mont. 452, 476, 68 P. 798, 802 (1902); Butte, Anaconda
& Pac. Ry. v. Montana Union Ry., 16 Mont. 504, 538, 41 P. 232, 243 (1895). Section
70-30-111, MCA, includes the “more necessary” finding as one of the “Facts necessary
to be found before condemnation,” and we have emphasized before that “[i]n an action to
condemn private property for a public use, the question of necessity is one of fact, to be
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determined as other questions of fact, in view of all the evidence in the case.” State ex
rel. Livingston v. District Court, 90 Mont. 191, 196, 300 P. 916, 918 (1931). Thus, we
will not disturb a district court’s finding that a public use is “more necessary” than a
private use unless the finding is not supported by substantial credible evidence, the trial
court has misapprehended the effect of the evidence, or a review of the record “leaves
this Court with the definite and firm conviction that a mistake has been committed.”
Montana Power Co. v. Burlington N. R.R., 272 Mont. 224, 227, 231-32, 900 P.2d 888,
890, 893 (1995) (“Applying the above-described standard of review, we hold that the
District Court’s conclusion, that an easement for the electric power transmission line is
necessary, is supported by substantial credible evidence. We further hold that the District
Court did not misapprehend the effect of the evidence and that our review of the record
does not suggest to this Court that a mistake has been committed.”).
DISCUSSION
¶22 Issue One: Did the District Court deny Defendants procedural due process by
denying their motions for a continuance?
¶23 Before trial, Mountain Water twice moved the District Court for a continuance,
arguing that the City’s alleged discovery abuses had left it inadequately prepared for trial.
The District Court acknowledged that “the timelines in this case are undoubtedly
demanding and difficult,” but denied the motions for a continuance, noting that the trial
date was set for ten months following the date of service of the amended complaint,
which is four months longer than is contemplated by § 70-30-202, MCA, and that the
parties consented in the scheduling order to the March trial date. The denial of its
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motions for a continuance was the impetus for Mountain Water’s petition to this Court
for a writ of supervisory control. As explained above, although “we [were] troubled by
what appear[ed] to be the City’s obstruction of discovery to gain a tactical advantage,”
we denied the petition because Mountain Water “[did] not ma[ke] a compelling case that
it cannot be ready for trial.” Carlyle then moved on the eve of trial to exclude certain
untimely disclosed expert testimony and, in the alternative, for a continuance. The
District Court orally denied that motion on the second day of trial. The Defendants argue
on appeal that the denial of their motions for a continuance deprived them of due process.
In this connection, they argue that the City delayed production of thousands of pages of
documents in useable format until three weeks prior to trial.
¶24 Article II, § 17 of the Montana Constitution provides that “[n]o person shall be
deprived of life, liberty, or property without due process of law.” The Fourteenth
Amendment to the U.S. Constitution provides a similar guarantee. Due process has both
substantive and procedural components. Montanans v. State, 2006 MT 277, ¶ 29, 334
Mont. 237, 146 P.3d 759. Here, the Defendants have alleged a procedural due process
violation.
¶25 Although “the phrase ‘due process’ cannot be precisely defined[, . . .] the phrase
expresses the requirements of fundamental fairness.” In re A.R., 2004 MT 22, ¶ 11, 319
Mont. 340, 83 P.3d 1287 (internal quotations omitted). “[T]he requirements for
procedural due process are (1) notice, and (2) opportunity for a hearing appropriate to the
nature of the case.” Montanans, ¶ 30. These requirements are “flexible and are adapted
by the courts to meet the procedural protections demanded by the specific situation,”
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taking into account “the factual circumstances of the case, the nature of the interests at
stake and the risk of making an erroneous decision.” Montanans, ¶ 30 (internal
quotations and citations omitted). Procedural due process “includes, among other things,
the ability to discover information relevant to the case against [the Defendants] along
with the identity of the witnesses who are expected to testify and the substance of the
expected testimony.” Wilson v. Dep’t of Pub. Serv. Regulation, 260 Mont. 167, 172, 858
P.2d 368, 371 (1993).
¶26 The Defendants are not arguing that they lacked notice of or an opportunity to be
heard at the condemnation trial. Rather, Defendants argue that the City’s discovery
abuses left them inadequately prepared for trial and the District Court’s refusal to grant a
continuance “prejudicially impaired the [D]efendants’ ability to prepare and present their
case.”
¶27 Although the timelines imposed in this case were undoubtedly difficult,
Defendants have presented no evidence that would allow this Court to conclude they
were deprived of procedural due process. Defendants were allowed to conduct discovery,
they knew the identity of the witnesses expected to testify, and they knew the substance
of the expected testimony. Wilson, 260 Mont. at 172, 858 P.2d at 371. The tight timeline
under which all parties were forced to prepare for trial is a result of the District Court’s
discretionary case management rulings, so to the extent the Defendants object to the tight
timeline and its alleged prejudicial effects, we review those rulings for abuse of
discretion. See e.g. State v. Toulouse, 2005 MT 166, ¶ 16, 327 Mont. 467, 115 P.3d 197
(“Toulouse argues that the District Court violated his due process rights when it denied
12
his motion for a continuance . . . . A district court . . . may grant the continuance, in its
discretion, if the interests of justice so require. We do not overturn a district court’s
ruling on a motion for a continuance absent a showing of prejudice to the moving party.”)
(internal citations omitted).
¶28 The Defendants must persuade this Court that the District Court abused its
discretion in denying their motions for a continuance, and that they suffered actual
prejudice as a result. Fair Play Missoula, Inc. v. City of Missoula, 2002 MT 179, ¶ 34,
311 Mont. 22, 52 P.3d 926. Defendants have not persuaded this Court on either point.
Defendants did not prove or even contend that the District Court “acted arbitrarily
without conscientious judgment,” nor have they proven that in making its rulings, the
District Court “exceeded the bounds of reason.” Seltzer, ¶ 65 (internal quotations
omitted). In response to the Defendants’ contentions, the City points to the District
Court’s thorough orders denying the motions for a continuance, and notes that the District
Court “did not blindly adhere to arbitrary deadlines,” but rather “considered these matters
carefully.” Upon review of the District Court’s orders, we agree. Thus, we are not
persuaded that the District Court abused its discretion in denying the Defendants’
motions for a continuance.
¶29 Defendants have demonstrated inconvenience and frustration, but not actual
prejudice. Defendants cannot point to a single piece of evidence that they were unable to
discover, unable to present, or to which they were unable to respond at trial. The PDF
documents, e-mails, and expert reports that are the subject of the Defendants’ accusations
that the City abused the discovery process were ultimately produced in useable form in
13
compliance with the rulings of the Special Master. The fact that production was delayed
and occurred shortly before trial is not, by itself, sufficient to demonstrate prejudice. As
we said in the Order denying Mountain Water’s petition for a writ of supervisory control,
“the [Defendants’] frustrations with the City’s document production are understandable,”
but the Defendants “ha[ve] not made a compelling case that [they were not] ready for
trial.” This pretrial observation was borne out by the fact that Defendants presented a full
and well-prepared defense at trial.
¶30 Justice Rice’s Dissent makes much of the allegations that the City abused the
discovery process, and concludes that prejudice to the Defendants amounting to a due
process violation was the result. But the hardship arising from the tight trial preparation
timeline was not uniquely suffered by Defendants. In fact, both parties won and lost
discovery disputes before the Special Master, both parties supplemented expert
disclosures or produced new documents after the respective deadlines, and both parties
had to respond at trial to new information, witnesses, or opinions. Justice Rice’s Dissent
characterizes the late production of the City’s 5-year capital expenditure plan and a
supplement to an expert report providing a new administrative cost analysis as inherently
prejudicial to the Defendants. But at trial Mountain Water was able to thoroughly and
meaningfully cross-examine the City’s experts regarding these documents, and we are
therefore unable to conclude that the late production was inherently prejudicial. The
Defendants have now had ample time to review all of the documents produced in
discovery, and still they are unable to identify any specific instance of prejudice.
Defendants have not persuaded this Court that the District Court’s discretionary case
14
management rulings prejudiced them so much that the trial was fundamentally unfair.
Such a showing is required in order to succeed on a procedural due process claim. In re
A.R., ¶ 11. As a result, we conclude that the District Court did not abuse its discretion in
denying the Defendants’ motions for a continuance, and because no prejudice resulted
from the denials, the District Court did not deny the Defendants procedural due process.
¶31 Issue Two: Did the District Court abuse its discretion by declining to admit
evidence of valuation during the necessity phase of the proceedings?
¶32 In their briefs on appeal, Defendants requested a remand and retrial of the
necessity phase, in significant part because during the necessity phase they were
disallowed from introducing evidence of the value of the water system. They argue that
the City’s claims about the financial benefits of public ownership are essential to the
District Court’s determination that public ownership is “more necessary” than private
ownership, and that by excluding Defendants’ competing evidence about the actual value
of the water system (and thus the related cost to taxpayers of acquisition, rate increases,
and capital investments), the District Court made the “more necessary” finding without
considering relevant, even determinative, evidence.
¶33 On November 17, 2015, after this appeal was filed, the condemnation
commissioners determined the fair market value of the water system to be $88.6 million.
As we noted above, Defendants did not appeal that valuation. In light of the valuation
determination, this Court inquired of defense counsel at oral argument why we should
remand for a new trial and introduction of valuation evidence. Counsel responded that
they are no longer seeking a new trial; they now seek dismissal of the case. We therefore
15
must determine whether the District Court’s refusal to admit Defendants’ valuation
evidence during the necessity trial compels dismissal of the case for lack of sufficient
valuation evidence to support the “more necessary” finding. We conclude that this result
is not warranted, and that the District Court did not abuse its discretion by declining to
admit all of the proposed valuation evidence.
¶34 In order to be admissible at trial, evidence must be relevant, M. R. Evid. 402,
meaning it must have a “tendency to make the existence of any fact that is of
consequence to the determination of the action more probable or less probable than it
would be without the evidence,” M. R. Evid. 401. By statute, condemnation proceedings
occur in two phases, a necessity phase and a valuation phase. Sections 70-30-206, -207,
MCA. This bifurcation of condemnation proceedings dictates what evidence is “of
consequence” to which proceeding. The District Court understood the sequential nature
of condemnation proceedings when it declined to admit valuation evidence during the
necessity phase, noting that “[w]hile there is a nexus between acquisition price and rates,
the Court at the public necessity hearing is limited by statute to a consideration of
whether the condemnor has established public necessity.” The District Court concluded
that “if the Court were to undertake determining the fair market value of the Water
System’s total assets it would be invading the province of the commissioners and jury as
set forth in the condemnation statutes.”
¶35 We agree with the Defendants that to the extent the value of the water system
bears upon its acquisition cost, the rates to be charged to consumers, and the cost of
capital investments, some valuation evidence is relevant in a necessity proceeding.
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However, we also agree with the District Court that “[t]he scope of testimony proposed to
be introduced by Mountain Water indicated its intention to import valuation questions
into the necessity phase to a much greater extent than necessary for the Court to carry out
its role of determining public necessity.” It was within the District Court’s discretion to
make evidentiary rulings to strike the balance between admitting evidence relevant to the
necessity phase and limiting extensive valuation evidence more appropriately addressed
in the valuation phase. Given that the District Court did allow limited testimony about
valuation and that the legislature clearly intended for valuation to be determined by
unbiased fact-finders after the necessity determination is made by the District Court, the
District Court did not abuse its discretion in limiting the admission of the valuation
evidence offered by the Defendants.
¶36 In any event, the District Court did in fact allow some valuation testimony and
exhibits during the necessity trial. Specifically, the District Court allowed the City’s
evidence that its condemnation plan assumed the acquisition price of the water system
was $77 million. The District Court then allowed Defendants’ testimony from Frank
Perdue, a municipal investment advisor, about the effects on the ratepayers of having the
water system condemned and owned by the City. Perdue testified that if the City used
$75 million in bond proceeds to acquire the water system, there would not be a rate
increase, but if the City used $100 million in bond proceeds, the rate payers will see an
increase of almost 12 percent. Further, a bond issuance of $125 million would result in a
24 percent rate increase, and a $140 million bond issuance would result in a rate increase
17
of 30 percent. Simply put, the Defendants were allowed to put on evidence that as the
cost of acquiring the water system increases, so too does the cost to rate payers.
¶37 This evidence was sufficient to satisfy the Defendants’ request to admit some
valuation evidence to counter the City’s contentions that the water system could be
acquired for $77 million, and that at such a price, public ownership is “more necessary”
than private ownership. Further, it was sufficient to inform the District Court of the
consequences to the public should the value of the water system prove to be
incrementally higher than the value proposed by the city.
¶38 As noted above, the Defendants now seek not remand for failure to admit
valuation evidence, but dismissal of the entire case. In light of our conclusion that the
District Court did not abuse its discretion in limiting the admission of the valuation
evidence offered by the Defendants, and in light of the valuation subsequently placed on
the water system by the commissioners, we conclude that dismissal of the case premised
upon the District Court’s limitation of the valuation evidence would be unwarranted.
¶39 Issue Three: Did the District Court err by refusing to dismiss Carlyle as a party to
this case?
¶40 Carlyle moved in the District Court to be dismissed as a party to this case on the
grounds that it is not the record owner of the physical assets the City was seeking to
condemn. Mountain Water was the record owner of the assets being condemned, so
according to Carlyle, it was not a proper party in the eminent domain action. The City
responded that Carlyle is a proper party because Carlyle is the ultimate owner of
Mountain Water and the water system, and at all times Carlyle represented itself as the
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entity that would make any decision about selling Mountain Water and its assets to the
City. The District Court relied on the language of § 70-30-203(1)(b), MCA, and
Carlyle’s actions and representations throughout this case to deny Carlyle’s motion.
Carlyle then moved for summary judgment on the same grounds. The District Court
again denied Carlyle’s motion, noting that “Carlyle has not provided support for its
interpretation of § 70-30-203(1)(b) MCA that a condemnation action can only be taken
against a record owner.” On appeal, Carlyle argues the District Court erred by refusing
to dismiss it as a party to this case. We are not persuaded by Carlyle’s assertions.
¶41 Section 70-30-203, MCA, governs the contents of a complaint in a condemnation
action. The statute provides, in relevant part, “(1) The complaint for condemnation must
contain: . . . (b) the names of all owners, purchasers under contracts for deed, mortgagees,
and lienholders of record and any other claimants of record of the property sought to be
taken, if known, or a statement that they are unknown, who are the defendants.” Section
70-30-203(1)(b), MCA. The plain language of the statute reveals an intent to include as
defendants all parties with an interest in the property being condemned, not just “record
owners,” as Carlyle insists. Since Carlyle offers no supporting authority for its
interpretation of the statute and we have no controlling case law on point, our analysis of
the plain language of the statute could end the inquiry here.
¶42 However, the facts in this case lead us to conclude that Carlyle is a proper party to
this action even though it does not hold title to the assets being condemned because it is
the ultimate corporate owner of the assets and at all times relevant to this case it exercised
control over the assets. The evidence established that the boards of Western Water
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Holdings, Park Water, and Mountain Water are all controlled by Carlyle. Robert Dove,
Carlyle’s managing director, acted at all times on behalf of Mountain Water in addressing
the City’s efforts to acquire the water system. Indeed, leading up to the potential sale of
the water system, the City negotiated exclusively with Carlyle. The City’s offers to
purchase the water system, including the “operating assets” of Mountain Water, were
directed to Carlyle. Mr. Dove, on behalf of Carlyle, declined the City’s offers. In his
letters to the City, Mr. Dove praised Carlyle’s operation of the water system, commenting
that “Carlyle Infrastructure, along with the fine employees of Mountain Water, have more
than fulfilled our responsibilities to provide quality water service to [the City].” The
record is replete with evidence that Carlyle exercised control over the potential sale of the
water system, and took credit for the role it played in providing the City with water.
Carlyle cannot have it both ways; it cannot control Mountain Water, its assets, and the
potential sale of its assets while claiming that it is not a proper party to this suit because
title to the assets is not in its name. We therefore conclude that the District Court did not
err by refusing to dismiss Carlyle as a party.
¶43 Issue Four: Did the District Court err in concluding that collateral estoppel does
not bar the City from initiating this condemnation action?
¶44 Mountain Water moved for partial summary judgment on the grounds that the
City’s unsuccessful attempt to condemn the water system in the 1980s collaterally estops
the City’s current condemnation action. According to Mountain Water, both the question
of necessity and the parties to the action are the same now as they were in the 1980s, and
the City is therefore attempting to re-litigate issues that were determined in a prior suit.
20
The City responded that much has changed in 30 years, and the issues being litigated now
are not identical to the issues that were litigated in Missoula v. Mountain Water Co.
(Mountain Water I), 228 Mont. 404, 743 P.2d 590 (1987) and Missoula v. Mountain
Water Co. (Mountain Water II), 236 Mont. 442, 771 P.2d 103 (1989).
¶45 The District Court compared the pleadings, evidence, and circumstances in the
prior condemnation action with those in this action and concluded that “[w]hile there may
be some instances in which issue preclusion would apply despite a 30 year difference
between the first and second action, this case is not one of them.” The District Court’s
review of the two records indicated that the decisions in the 1980s “considered facts and
circumstances as they existed between 1979 through 1987 in order to determine public
interest and whether the taking was more necessary than the use of the Water System at
the time,” while the City’s 2014 complaint is “based on allegations regarding facts and
circumstances that occurred after the 1980s case was concluded and focused primarily on
a time frame from 2000 forward.” The District Court denied Mountain Water’s motion
for partial summary judgment because “[t]he issues in eminent domain are fact specific
and requir[e] findings be made on a case by case basis and with reference to the current
public interest and necessity.” We agree with the District Court.
¶46 Collateral estoppel, or issue preclusion, “bars a party from reopening an issue that
was litigated and determined in a prior suit.” McDaniel v. State, 2009 MT 159, ¶ 28, 350
Mont. 422, 208 P.3d 817. To determine whether relitigation of an issue is barred, we
apply a four-part test. McDaniel, ¶ 28. In this case, only the first element is at issue:
“Was the issue decided in the prior adjudication identical to the issue raised in the action
21
in question?” McDaniel, ¶ 28. Regarding the first element, we have said before that
“[i]ssue preclusion requires more than similarity, however, it requires that the issues be
identical.” Planned Parenthood v. State, 2015 MT 31, ¶ 23, 378 Mont. 151, 342 P.3d
684. We quoted with approval the U.S. Supreme Court’s holding that “[issue preclusion]
must be confined to situations where the matter raised in the second suit is identical in all
respects with that decided in the first proceeding.” Planned Parenthood, ¶ 23 (quoting
Comm’r v. Sunnen, 333 U.S. 591, 599-600, 68 S. Ct. 715, 720 (1948)).
¶47 Both the current action and the prior action were brought under Title 70, Chapter
30 of the Montana Code, and both actions required a finding that “the public use for
which the property is proposed to be used is a more necessary public use.” Section
70-30-111(1)(c), MCA. Thus, the question that was litigated in the 1980s appears to be
identical to the question being litigated now. However, the question of which use is more
necessary is a question of fact that can only be answered by reference to many
circumstances that change over time. Whether public or private use is more necessary
depends upon factors like the owner’s profit motives, public opinion, efficiency and
quality of services, and administrative costs, none of which are static. For this reason,
many courts have historically applied a general rule with regard to claim preclusion2 in
condemnation actions:
A prior unsuccessful attempt to acquire property for a public purpose
should not bar the commencement of a subsequent action to acquire the
2
The courts that have addressed this issue have done so in the context of claim preclusion, or res
judicata. While the question before us is one of issue preclusion, not claim preclusion, the doctrines are
related in that they both “embody a judicial policy that favors a definite end to litigation,” Baltrusch v.
Baltrusch, 2006 MT 51, ¶ 15, 331 Mont. 281, 130 P.3d 1267, and therefore we find the claim preclusion
analysis done by other courts in condemnation actions to be applicable and persuasive here.
22
same land providing the court is satisfied that the subsequent action was
brought in good faith and that there has been a change of circumstances
such that the action is not merely an attempt to relitigate identical issues
based upon identical factors for consideration.
Oakes Mun. Airport Auth. v. Wiese, 265 N.W.2d 697, 701 (N.D. 1978) (citing City of
Chicago v. Walker, 96 N.E. 536 (Ill. 1911); Laguna Drainage Dist. v. Charles Martin
Co., 89 P. 993 (Cal. 1907); Perkiomen v. Sumneytown Turnpike Road, 25 Pa.Super. 462
(1904); Warlick v. Lowman, 16 S.E. 336 (N.C. 1892); Terry v. Town of Waterbury, 35
Conn.Rep. 526 (1869); Whitcher v. Town of Landaff, 48 N.H.Rep. 153 (1868); Petition of
Howard, 8 Foster’s Reports 157 (N.H.Super.Ct. of Judicature 1854)); see also City of
Chicago v. Midland Smelting Co., 896 N.E.2d 364 (Ill. App. Ct. 1st Dist. 2008);
Charlotte v. Rousso, 346 S.E.2d 693, 694 (N.C. Ct. App. 1986) (“A judgment, even
though in an action between the same parties, operates as an estoppel only as to the facts
in existence when the judgment was rendered; it does not bar a re-litigation of the same
issue when new facts occur that alter the legal rights of the parties in regard to the
issue.”).
¶48 In support of this unique treatment of preclusion questions in condemnation
proceedings, the North Dakota Supreme Court reasoned:
Although the doctrine of [claim preclusion] applies to condemnation
actions, the doctrine is not readily applicable to those cases in which a
condemning authority seeks to bring a second condemnation action to
acquire a part of the same land for which the courts in a prior condemnation
action against the same party determined that the condemning authority had
failed to prove a public use or public necessity. Those cases possess a
unique character to which the doctrine is not readily applied—in that, as
time passes from the entry of the judgment in a condemnation action,
changes may occur which would add new and important factors to be
considered in a determination of whether a proposed taking in a subsequent
23
action is for a public purpose and whether the particular land sought is
necessary for that public purpose. The change in circumstances may present
an entirely new case for determination even though the same issues
involving public use and public necessity had been determined in a prior
condemnation action between the same parties involving the same land.
Oakes Mun. Airport Auth., 265 N.W.2d at 700. The District Court found this reasoning
persuasive, and so do we. Thus, although the precise question of which use is more
necessary is the same question that was litigated in the 1980s, we will determine if the
current action is collaterally estopped by the first action by assessing whether “there has
been a change of circumstances such that the action is not merely an attempt to relitigate
identical issues based upon identical factors for consideration.” Oakes Mun. Airport
Auth., 265 N.W.2d at 701.
¶49 We are satisfied that there has indeed been a change of circumstances sufficient to
warrant a new analysis of whether public ownership of the water system is more
necessary than private ownership. For example, in Mountain Water I, we said that
evidence regarding profit motives and out-of-state ownership was “pertinent to the
determination of whether the public interest requires the taking.” Mountain Water I, 228
Mont. at 413, 743 P.2d at 596. During the first condemnation action, Mountain Water
was owned by Sam Wheeler. The court at the time considered the profit motive of the
family-held business and determined this factor did not weigh in the City’s favor because
Mountain Water’s profits were in large part reinvested into the system for improvements.
In the present action, the District Court found that the profit motive of the new owner,
Carlyle, a billion-dollar investment firm whose stated primary goal is to maximize profits
for investors, did weigh in the City’s favor. When compared to the City’s unchanged
24
motivations of public health, safety, and access to water, the corporate owner’s profit
motive has changed dramatically since the 1980s.
¶50 The home office expense is another example of the change in circumstances. In
Mountain Water I, the City claimed that it could eliminate the home office expense
entirely, thereby saving rate payers $350,000 per year. The District Court rejected this
purported savings because the home office in California “supports the Missoula operation
by providing planning, finances, consultation, engineering and management for which the
city would have to find a substitute.” Mountain Water I, 228 Mont. at 419, 743 P.2d at
599. In the 1980s, that factor did not weigh in the City’s favor. Now, the City pays Park
Water Company between $2.2 million and $2.5 million per year for home office
expenses. In addition to valuable management services, however, much of the money
goes to costs that would not be incurred if the City owned the water system. For
instance, $1.3 million of that money goes to salaries for California staff, $48,000 to
“travel and entertainment,” and $103,000 to a Board of Directors fee. The City’s Central
Services Director testified at trial that the administrative expenses paid by Mountain
Water exceed every other Montana water system by $2 million, and that Mountain
Water’s administrative cost per customer is the highest in the state. The City’s expert
testified that under City ownership, the administrative expenses incurred by the rate
payers will be significantly reduced. This change in circumstances is another indication
that the facts relevant to a “more necessary” finding are not the same now as they were
during the prior condemnation action.
25
¶51 The District Court analyzed seven factors that have changed between the 1980s
and the present, including the owner’s profit motive, water rates, home office expenses,
Public Service Commission regulation, public opinion, efficiency gains under City
ownership, and the City’s tax exempt status. We agree with the District Court that the
City’s previous unsuccessful attempt to acquire the water system does not bar its current
attempt because we are satisfied that “there has been a change of circumstances such that
the action is not merely an attempt to relitigate identical issues based upon identical
factors for consideration.” Oakes Mun. Airport Auth., 265 N.W.2d at 701. The District
Court did not err in refusing to grant Mountain Water partial summary judgment on the
grounds of collateral estoppel.
¶52 Issue Five: Did the District Court err in concluding that a municipality may
condemn a water system even if the owner of the water system does not have a franchise
agreement or a contract to provide the municipality with water?
¶53 Carlyle moved for summary judgment on the grounds that §§ 7-13-4403
and -4404, MCA, require the existence of a franchise agreement or contract between a
water system owner and a municipality before the municipality may exercise its right of
eminent domain over the water system. Carlyle contended it was entitled to judgment as
a matter of law because no such franchise agreement or contract existed between the City
and Carlyle, so the City was statutorily barred from initiating this condemnation action.
The City responded that Carlyle misinterpreted the relevant statutes, and our holding in
Mountain Water I illustrates the proper interpretation. The District Court denied
Carlyle’s motion, finding that
26
[Carlyle’s] proposed interpretation fails to adhere to a plain reading of the
language used by the Legislature. Giving effect to all the words used in the
enactment, it is plain that the Legislature intended to define the process to
be used whenever a contract or franchise exists rather than to impose a
prohibition on the power of a municipality to secure a water supply system
by eminent domain to only those instances where there is a contract or
franchise.
We agree with the District Court.
¶54 In our interpretation of the governing statutes, we are guided by several well-
settled rules of statutory construction. First, the role of a judge “is simply to ascertain
and declare what is in terms or in substance contained [in the statute], not to insert what
has been omitted or to omit what has been inserted. Where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will give effect to all.”
Section 1-2-101, MCA. Second, “[o]ur function as an appellate court is to ascertain and
carry out the Legislature’s intent by looking at the plain meaning of the words in the
statute.” In re Marriage of Rudolf, 2007 MT 178, ¶ 41, 338 Mont. 226, 164 P.3d 907.
Third, “[s]tatutes are not to be read in isolation, but as a whole.” In re Adoption of
K.P.M., 2009 MT 31, ¶ 14, 349 Mont. 170, 201 P.3d 833.
¶55 As a preliminary matter, § 70-30-102, MCA, entitles a municipality to condemn a
water system for public use: “Subject to the provisions of this chapter, the right of
eminent domain may be exercised for the following public uses: . . . (6) water and water
supply systems as provided in Title 7, chapter 13, part 44.” Thus, we begin our analysis
in Title 7, chapter 13, part 44.
¶56 The statutes at issue here are §§ 7-13-4403 and -4404, MCA. The first statute
provides:
27
Acquisition of private water supply system. (1) It is provided that
whenever a franchise has been granted to or a contract made with any
person or persons, corporation, or corporations and such person or persons,
corporation, or corporations, in pursuance thereof or otherwise, have
established or maintained a system of water supply or have valuable water
rights or a supply of water desired by the city or town for supplying the city
or town with water, the city or town granting such franchise or entering in
such contract or desiring such water supply shall, by the passage of an
ordinance, give notice to such person or persons, corporation, or
corporations that it desires to purchase the plant and franchise and water
supply of such person or persons, corporation, or corporations. (2) The city
or town shall have the right to so purchase the plant or water supply upon
such terms as the parties agree.
Section 7-13-4403, MCA. The relevant portion of the second statute provides:
Use of eminent domain powers to acquire water supply system. (1) If
agreement is not reached pursuant to 7-13-4403, then the city or town shall
proceed to acquire the plant or water supply under Title 70, chapter 30. . . .
Section 7-13-4404(1), MCA.
¶57 According to Carlyle, the statutes dictate the following analysis. First, Title 7,
chapter 13, part 44 permits a municipality to use eminent domain to take a water system
only if an agreement is not reached under § 7-13-4403(2), MCA. Section 7-13-4404(1),
MCA. Second, § 7-13-4403, MCA, applies only if the municipality and the owner of the
water system have a franchise agreement or contract under which the owner supplies the
municipality with water. Section 7-13-4403(1), MCA. Accordingly, if a municipality
does not have a franchise agreement or contract with the water system’s owner, it may
not use eminent domain to take the water system. In other words, Carlyle argues that
§ 7-13-4404, MCA, does not permit a municipality to utilize the general condemnation
procedures in Title 70, chapter 30 if § 7-13-4403(1), MCA, does not apply. Therefore,
28
since it is undisputed in this case that Carlyle and the City do not have a franchise
agreement or contract, the City is statutorily barred from condemning the water system.
¶58 Carlyle’s interpretation is contrary to the plain language of the statutes and fails to
read the statutes as a whole. Section 7-13-4403, MCA, does not make a franchise or
contract a prerequisite to condemnation of a water system; section (1) merely sets out the
procedure a municipality must follow if there is in fact a franchise or contract in place,
and section (2) provides that the parties may also agree to the municipality’s purchase of
the water system. As the District Court noted, “[i]n order to adopt Carlyle’s
interpretation, the Court would have to interpret ‘whenever a franchise has been granted
[to] or contract [] made’ to mean ‘eminent domain is prohibited unless a franchise has
been granted or a contract has been made.’” Such a reading is contrary to the plain
meaning of the words used by the Legislature and requires the insertion of words not
used by the Legislature.
¶59 Furthermore, § 7-13-4404, MCA, provides that a municipality shall proceed with
condemnation under Title 70, chapter 30 “[i]f agreement is not reached pursuant to
7-13-4403.” The agreement to which this provision refers is an agreement between the
parties reached pursuant to § 7-13-4403(2), MCA. Section 7-13-4404, MCA, does not
also require the existence of a franchise or contract referred to in § 7-13-4403(1), MCA.
The word “if” in § 7-13-4404, MCA, provides a simple contingency: if the parties
reached an agreement under § 7-13-4403(2), MCA, the agreement controls, but if the
parties did not reach an agreement, the municipality may proceed with condemnation
29
under Title 70, chapter 30. Section 7-13-4403(1), MCA, is only relevant, then,
“whenever a franchise has been granted [] or a contract made.”
¶60 As the City notes, we followed this statutory procedure in Mountain Water I. At
that time, there was also no franchise or contract between the City and the water system’s
owner. Nonetheless, we held that
[u]nder Section 7-13-4403, MCA, the City properly exercised its right of
offering to purchase the water system. Where, as here, there is no
agreement to purchase, Section 7-13-4404, MCA, provides that the City
“shall proceed to acquire the plant or water supply under the laws relating
to the taking of private property for public use.”
Mountain Water I, 228 Mont. at 411, 743 P.2d at 595. We went on to analyze the facts
which must be found under Title 70, chapter 30 before private property may be taken for
public use. Carlyle has not provided any reason why we should proceed with the same
statutory analysis differently in this case.
¶61 Finally, our interpretation of the subject statutes is borne out by the provisions of
§ 7-13-4405, MCA, which provides that water rights and property necessary for the
provision of an adequate water supply for a municipality “may be acquired by purchase,
appropriation, location, condemnation pursuant to Title 70, chapter 30, or in any other
legal manner.” This statutory allowance of acquisition of property and rights by any
legal means available is patently inconsistent with the cramped interpretation that Carlyle
would have us apply to the subject statutes.
¶62 Carlyle’s proffered interpretation of §§ 7-13-4403 and -4404, MCA, is contrary to
the plain language of the statutes, requires the insertion of words not used by the
Legislature, and fails to consider the relevant statutes in conjunction with one another.
30
Accordingly, the District Court did not err in denying Carlyle’s motion for summary
judgment.
¶63 Issue Six: Did the District Court err in concluding that the effect of condemnation
on the Mountain Water Employees is a factor to be considered in determining whether
the acquisition is “more necessary,” but is not a dispositive factor?
¶64 The Employees contend that if they would suffer harm under City ownership, the
District Court must find, as a matter of law, that City ownership of the water system is
not more necessary than private ownership. The Employees are incorrect. The effect of
condemnation on the Employees is one factor to be considered in the “more necessary”
analysis, but, as the District Court noted, it is not a dispositive factor. Moreover, the
factor is a factual finding, not a legal conclusion that somehow compels rejection of the
City’s action as a matter of law.
¶65 In Mountain Water I, we held “that the effect on Mountain Water employees is
one factor to be considered in determining whether the acquisition is necessary, but that
factor alone is not dispositive.” 228 Mont. at 413, 743 P.2d at 595. And the question of
whether acquisition is necessary is itself a question of fact. Section 70-30-111, MCA.
There is simply no support for the Employees’ contention that the effect of condemnation
on them is a legal conclusion that should result in a determination that City ownership is
not more necessary than private ownership if the Employees suffer harm under City
ownership.
¶66 The District Court made nineteen factual findings specific to the effects of
condemnation on the Employees, so it certainly considered this factor as part of its “more
necessary” analysis. The District Court did not err in concluding that the effect of
31
condemnation on the Employees is just one of several non-dispositive factors that must
be considered in the “more necessary” analysis.
¶67 Issue Seven: Were the District Court’s findings regarding the effects of
condemnation on the Mountain Water Employees clearly erroneous?
¶68 The Employees argue that the City is not entitled to condemn the water system
unless the Employees are made whole, and that the District Court’s findings with respect
to the Employees were not supported by substantial credible evidence. The City responds
that there is no legal authority requiring the City to make the Employees whole, and that
substantial credible evidence did support the District Court’s findings. Furthermore, the
City contends that since the effect of condemnation on the Employees was merely one
factor to be considered in the “more necessary” analysis, it was the Employees’ burden to
show that the alleged negative effects of condemnation on them outweigh the other
factors favoring condemnation, but the Employees were silent on this point. The City is
correct.
¶69 The Employees contend that “public policy affords the Employees the same
protection as the physical assets” being condemned. According to the Employees,
because the law protects all employees from wrongful or constructive discharge,
§§ 39-2-901 et seq., MCA, the Employees must be made whole by the City if the City
successfully condemns the water system. There is simply no legal authority supporting
the Employees’ position. It is well settled that the “total compensation in an eminent
domain case is made up of two parts: the value of the condemned property and severance
damages,” K&R P’ship v. City of Whitefish, 2008 MT 228, ¶ 27, 344 Mont. 336, 189 P.3d
32
593, and that “[t]he only person entitled to recover damages for condemnation is the
owner of the land at the time of the taking,” Riddock v. Helena, 212 Mont. 390, 394, 687
P.2d 1386, 1388 (1984). The Employees do not own the water system, so they are not
entitled to be compensated or made whole by the City. However, as we said above, they
were entitled to present evidence during the necessity phase of the proceeding that the
negative effects of condemnation outweigh any factors favoring condemnation.
Mountain Water I, 228 Mont. at 413, 743 P.2d at 595. Although they do not explicitly
engage in this balancing analysis, the Employees do identify what they perceive to be the
negative effects of condemnation.
¶70 The Employees strenuously object to the City’s condemnation of the water system,
and maintain that “[t]he overwhelming evidence, and in fact undisputed evidence, was
that the City would not match the wages, benefits and terms of employment” the
Employees currently receive. Specifically, the Employees take issue with three of the
District Court’s factual findings: (1) that “[w]ith the exception of three executive level
positions, the current Mountain Water employees’ salaries are comparable to those in the
municipal environment”; (2) that “[e]mployment by the City confers advantages on
Employees in terms of job security”; and (3) that “[t]he City’s offer of employment is
reasonable and fair to Employees.” Since we review a District Court’s findings of fact
for clear error, we will not disturb a finding because one party disagrees with it, but rather
because “it is not supported by substantial evidence, the district court misapprehended the
effect of the evidence, or our review of the record convinces us the district court made a
mistake.” In re Marriage of Olson, ¶ 20.
33
¶71 The District Court’s first finding, that as employees of the City, the Employees
would receive “comparable salaries,” was based on substantial credible evidence. The
Mayor of Missoula, John Engen, testified at trial that “[w]e do not want to terminate
employees, nor do we want to reduce their salaries or benefits.” The Mayor testified that
he compared a list of City employees and their salaries to a list of Mountain Water
Employees and their salaries, and that he took that information into consideration when
determining what to offer the Mountain Water Employees. The Mayor was then asked,
“As you sit here today under oath, a representative of the City, are you prepared to assure
the Court that if you acquire the water system, the current employees that serve that water
system will be able to be employed by the City at their current levels of income?” The
Mayor responded affirmatively, and agreed that the guarantee extends for a minimum of
five years. With respect to the top two or three Employees, whose salaries are
significantly higher than equivalent employees of the City, the Mayor testified that he
was willing to offer those Employees their current salaries for a minimum of one year.
¶72 In response to the Mayor’s testimony, the Employees solicited testimony from
Michelle Halley, the Business Administration Manager for Mountain Water. Halley
testified that the Employees would suffer harm under City employment because the
offered minimum employment terms for top executives (1 year) were not equal to the
minimum terms offered to all other employees (5 years) although the former are valuable
employees, that the offered wages and benefits are set as of February 9, 2015, and that
employee pay increases after acquisition are not guaranteed, but are subject to City
approval.
34
¶73 Although this evidence about what the Employees perceive to be the negative
effects of City ownership was in the record at trial, the contention that the City could not
match the Employees’ current wages was certainly not undisputed, as the Employees
contend. In light of all the evidence and the conflicting opinions presented at trial, we
cannot conclude that the District Court’s finding that the City could offer the Employees
comparable salaries was clearly erroneous.
¶74 The District Court’s second finding, that the Employees would have more job
security under City ownership, is also supported by substantial credible evidence. Mayor
Engen testified at trial that the City’s offer to employ the Employees at their current
salaries for five years is not a five year limit of employment, but rather a minimum
guarantee. Under Mountain Water’s current ownership, the Employees have no
employment guarantee. As long as Mountain Water is owned by a large, for-profit
enterprise like Carlyle or Liberty, the Employees will have no guarantee that their
employer and employment terms this year will be the same next year, since investors in
the water utility business tend to “buy and flip” such utilities. Robert Dove, Carlyle’s
Managing Director, testified at trial that Carlyle and investors like it try to buy water
utilities at a “good price, work to improve the return, and then at some point exit.”
Carlyle has done just that; it has entered into a merger agreement with Liberty to sell
Mountain Water. The City contends that the identity of the water system’s owner is an
important factor when assessing the job security of the water system’s employees.
¶75 The Employees do not share the City’s understanding of “job security.” The
Employees believe that the terms of employment offered by Liberty are superior to those
35
offered by the City. With respect to employment guarantees, Liberty offered an eighteen
month guarantee of employment in the Merger Agreement with Carlyle, but at trial it
offered the Employees a five year guarantee. However, as the District Court noted, there
is no guarantee that Liberty will own Mountain Water in eighteen months or in five years.
Although we are cognizant of the Employees’ objections to City ownership, we cannot
conclude that the District Court was clearly in error when it found, in light of competing
understandings of “job security,” that the Employees would have more job security under
City ownership.
¶76 The District Court’s overall finding that the City’s offer to the Employees is “fair
and reasonable” is also supported by substantial credible evidence, some of which is
listed above. The Employees devote much of their brief to listing the ways in which they
perceive the City’s offer to be unfair and unreasonable. But their dissatisfaction with
aspects of the City’s offer does not render the District Court’s finding mistaken or
unsupported. Harrison v. Liberty Northwest Ins. Corp., 2008 MT 102, ¶ 11, 342 Mont.
326, 181 P.3d 590 (“As for the scope of our review, we do not resolve conflicts in the
evidence, and we do not consider whether evidence supports findings that are different
from those made by the [court]; rather, we confine our review to determining whether
substantial credible evidence supports the findings actually made by the [court].”). It is
also important to bear in mind that the effect of condemnation on the Employees is
simply one factor that must be considered before the District Court determines whether
public ownership of the water system is more necessary than private ownership. The
District Court did extensively consider the effects of condemnation on the Employees,
36
but their dissatisfaction at the prospect of City ownership was not enough to dissuade the
District Court from finding that public ownership of the water system was more
necessary than private ownership. We are satisfied that the District Court’s findings
regarding the effects of condemnation on the Mountain Water Employees are supported
in the record and are not clearly erroneous.
¶77 On a final note, the Employees’ participation in this case was limited by the
District Court to twelve articulated employment interests. We therefore decline to
address the Employees’ general objections to the City’s condemnation of the water
system because those objections have more to do with the effect of condemnation on rate
payers than they have to do with employment interests, and because those objections are
best made by Carlyle and Mountain Water.
¶78 Issue Eight: Did the District Court err in finding that public ownership of the
water system is more necessary than private ownership?
¶79 The Defendants maintain that “the ‘more necessary’ test should be informed by
the Montana Constitution’s strong protections for private property owners,” and that
many of the findings upon which the District Court based its “more necessary”
determination were clearly erroneous. The Defendants ask this Court to dismiss the case
on the grounds that the District Court clearly erred in finding that the City’s ownership of
the water system is more necessary than the Defendants’ ownership. The City responds
that the District Court’s individual factual findings, as well as its overall finding that
public ownership is more necessary than private ownership, were based on substantial
credible evidence, so this Court should not reverse the District Court for committing clear
37
error. For the reasons set forth below we hold that the District Court’s factual finding
that public ownership of the water system is more necessary than private ownership was
not clearly erroneous.
A. The law of eminent domain
¶80 “Eminent domain is the right of the state to take private property for public use.”
Section 70-30-101, MCA. This power is “constitutionally grounded” and it “derives
from the power of sovereignty,” and “the power of the state for the perceived common
good of the public as a whole.” Montana Talc Co. v. Cyprus Mines Corp., 229 Mont.
491, 501, 748 P.2d 444, 450 (1987). However, the Montana Constitution also endows all
persons with the right to acquire, possess, and protect private property. Mont. Const. art
II, § 3. For this reason, the Montana Constitution limits the state’s power of eminent
domain such that “[p]rivate property shall not be taken or damaged for public use without
just compensation to the full extent of the loss having been first made to or paid into
court for the owner.” Mont. Const. art II, § 29. Furthermore, “[t]he due process rights of
the party whose property is taken for public use are protected by the statutes providing
the procedures for eminent domain.” Montana Talc, 229 Mont. at 501, 748 P.2d at 450.
Although our constitution and statutes provide certain protections to private property
owners, the Defendants provided no legal authority in support of their contention that the
private property right is elevated in the constitution above the right of eminent domain,
nor has this Court located any such authority. We observed as much in Mountain Water I
when we noted “the absence of a declared policy by the Legislature giving greater or
lesser weight to public ownership as compared to private ownership of a water system.”
38
Mountain Water I, 228 Mont. at 413, 743 P.2d at 596. Rather, the constitutional right of
eminent domain presumes the existence of private property and provides protections to
private property owners in the event of a taking.
¶81 In Butte, Anaconda & Pacific Railway, 16 Mont. at 536, 41 P. at 243, and again in
Montana Talc, 229 Mont. at 497, 748 P.2d at 448, we stated that “the state has an
inherent political right, pertaining to sovereignty and founded on what has been
expressed to be a ‘common necessity and interest,’ to appropriate the property of
individuals to great necessities of the whole community where suitable provision is
made for compensation.” We cautioned, however, that “vigorous compliance with
procedures required for eminent domain is commanded.” Montana Talc, 229 Mont. at
498, 748 P.2d at 448.
¶82 Among those protective statutory procedures is § 70-30-111, MCA, which outlines
the facts that must be found by a preponderance of the evidence before condemnation is
ordered. Specifically, a District Court must find the following facts before allowing
condemnation:
(a) the use to which the property is to be applied is a public use pursuant to
70-30-102; (b) the taking is necessary to the public use; (c) if already being
used for a public use, that the public use for which the property is proposed
to be used is a more necessary public use; (d) an effort to obtain the
property interest sought to be taken was made by submission of a final
written offer prior to initiating condemnation proceedings and the final
written offer was rejected.
Section 70-30-111(1), MCA. It is finding (c)—that the public use for which the water
system is proposed to be used by the City is a more necessary public use than the use to
which it is currently put by Mountain Water and Carlyle—that is disputed in this case.
39
As we said above, it is well established that in a condemnation action, the question of
whether public or private ownership of the property is “more necessary” is a fact-specific,
judicial determination. Section 70-30-111, MCA; Mountain Water I, 228 Mont. at
410-11, 743 P.2d at 594; State ex rel. Livingston, 90 Mont. at 196, 300 P. at 918; Helena,
26 Mont. at 476, 68 P. at 802; Butte, Anaconda & Pac. Ry., 16 Mont. at 538, 41 P. at 243.
As a result, we review this factual finding for clear error, and we will not disturb the
finding unless it is not supported by substantial credible evidence. Montana Power, 272
Mont. at 227, 231-32, 900 P.2d at 890, 893.
¶83 Before reviewing the District Court’s factual findings against the backdrop of the
foregoing discussion, we must briefly address Justice McKinnon’s Dissent. Justice
McKinnon maintains that we err in applying the “more necessary” requirement of
§ 70-30-111(1)(c), MCA, contending that this subsection does not apply when the
proposed appropriation does not contemplate a change in the usage of property already
dedicated to a public use. We disagree with her analysis for two reasons. First, the
theory upon which Justice McKinnon’s Dissent is premised was not raised by any of the
parties to this litigation. To the contrary, all parties agreed that it was appropriate to
conduct the “more necessary” analysis in this proceeding, consistent with our holding in
Mountain Water I that the court must resolve whether it is necessary for the City to have
its own water system, and whether the proposed use by the City is “more necessary” than
the present use. Mountain Water I, 228 Mont. at 412, 743 P.2d at 595. We reiterated in
Mountain Water II that this analysis must be conducted by the District Court. 236 Mont.
at 453, 771 P.2d at 110. As we have frequently stated, this Court generally declines to
40
resolve a case on a theory that was not raised by the parties. F.H. v. C.P.H. (In re
D.A.H.), 2005 MT 68, ¶ 7, 326 Mont. 296, 109 P.3d 247 (citing Armstrong v. State, 1999
MT 261, ¶ 4, 296 Mont. 361, 989 P.2d 364).
¶84 Second, we disagree with Justice McKinnon’s analysis on the merits because the
key cases cited in her Dissent simply do not stand for the proposition stated. In Montana
Power, we said that the “more necessary” determination “affects condemnation
proceedings only when we have two public uses that are not compatible uses.” 272
Mont. at 233, 900 P.2d at 894. In addressing “compatible uses,” we quoted with approval
Cocanougher v. Zeigler, 112 Mont. 76, 112 P.2d 1058 (1941), to the effect that two uses
could be made compatible where “[t]he latter use does not inhibit the prior use.” Montana
Power, 272 Mont. at 234, 900 P.2d at 894. We concluded that it was not necessary for
the District Court to make a “more necessary” determination in the Montana Power case
“because MPC’s use would not destroy nor materially injure BN’s prior use.” Montana
Power, 272 Mont. at 234, 900 P.2d at 895.3 Here, of course, because the City’s
acquisition of the water system would “inhibit” Mountain Water’s use of its property by
wholly depriving it of the use of the water system, the uses are not compatible, thus
requiring the “more necessary” analysis to be conducted. This conclusion is plainly borne
out by Montana Talc and Cocanougher, cases Justice McKinnon cites in paragraphs 1, 3,
6, and 7 of her Dissent:
3
In Montana Power, we also referenced this Court’s 1893 opinion in Butte, Anaconda & Pacific
Railway, in which this Court stated: “We cannot agree that the statute which authorizes lands to be
appropriated for a more necessary public use means a different public use in all cases. If the legislature
had intended that construction to be put upon the statute, instead of carefully restricting the right to a
more necessary public use, they could easily have said a different public use.” 16 Mont. at 546, 41 P. at
246-47.
41
The proposed use must be “more necessary” where the effect of granting
the succeeding public use condemnation will deprive the first owner of his
use altogether. If the first owner will be completely deprived of his public
use of appropriated property, such that his use will be defeated or seriously
interfered with by the proposed condemnor’s right if granted, the statute
requiring a “more necessary” public use comes into play.
Montana Talc, 229 Mont. at 504, 748 P.2d at 452 (citing Cocanougher, 112 Mont. at
83-84, 112 P.2d at 1061). We turn now to the District Court’s factual findings, which we
review for clear error.
¶85 Our case law establishes that the term “‘[n]ecessary,’ in the context of eminent
domain, does not mean absolute or indispensable, but reasonable, requisite and proper for
the accomplishment of the intended objective.” Park County v. Adams, 2004 MT 295,
¶ 17, 323 Mont. 370, 100 P.3d 640. Our case law further establishes that determining
whether one use is a more necessary public use than another involves consideration of a
wide range of factors, the relevance of which varies depending on the property and uses
in question. We have articulated only one firm “rule” regarding the “more necessary”
determination: the proposed public use need not be different than the use to which the
property is currently put. Butte, Anaconda & Pac. Ry., 16 Mont. at 546, 41 P. at 246-47.
Otherwise we have analyzed general factors such as “the public good to be
accommodated by the public uses so proposed,” Montana Talc, 229 Mont. at 504, 748
P.2d at 452, and factors specific to condemnation of a water system, including the
owner’s profit motive, the consequences of out-of-state ownership, the effect on public
savings, rates, and charges, the effect of having the home office in the municipality, the
public interest as expressed by city residents, the effect on the water system’s current
42
employees, and “the importance of the City obtaining ownership of the water rights
themselves, in order that the City may assure its inhabitants of long range access to
water,” Mountain Water I, 228 Mont. at 413-14, 743 P.2d at 595-96.
¶86 The District Court properly analyzed all of these factors before making its factual
finding that the City’s proposed use of the water system was more necessary than the use
to which the water system was put by the Defendants. With these constraints in mind, we
review the District Court’s findings for clear error.
B. The District Court’s factual findings
¶87 The District Court’s ultimate finding that the City carried its burden of proof by a
preponderance of the evidence in “establishing that its contemplated use of the Water
System as a municipally owned water system is more necessary than the current use as a
privately owned for-profit enterprise” was based upon 63 pages of factual findings.
Those factual findings and their supporting evidence are summarized below.
¶88 The District Court first considered public opinion, and concluded that the
Missoula public supports City ownership of the water system. The District Court heard
testimony from three elected officials from Missoula, including Mayor Engen, that there
was strong public support for City ownership. The District Court also heard testimony
about the favorable results of a public opinion poll commissioned by the City. On cross
examination, the Defendants elicited some flaws in the poll’s methodology, but the
District Court was persuaded by testimony from Harstad Strategic Research that the poll
was conducted according to industry standards. The District Court concluded that the use
of a poll, even if it was not methodologically perfect, was a reasonable method of
43
measuring public opinion, and that the poll’s results were credible evidence of public
support for City ownership of the water system. Our review of the record satisfies us that
the District Court’s finding that the Missoula public supports condemnation was based
upon substantial credible evidence.
¶89 Next, the District Court looked at evidence about the condition of the water system
and the implications of such a condition under public or private ownership. The City
introduced testimony that leakage is an important measure of the quality and condition of
a water system, and that the Mountain Water water system leaks at a rate of 50% or more,
a rate significantly higher than that of other water systems. Experts for the City also
testified that 20% of the water system mains and 75% of the service lines have exceeded
their useful life, but Mountain Water invested less than $1 million per year in replacing
water distribution mains from 2004 to 2014, and Mountain Water has replaced only half
of the service lines that its internal analysis determined was minimally necessary.
Mountain Water offered testimony that it makes over $4 million in annual capital
investments in the water system, and that one of the main sources of leakage is believed
to be customer service lines, which are owned and maintained by the customers and not
Mountain Water. Mountain Water’s experts also contended that leakage in the water
system is not actually wasteful because the water that leaks out of the system returns to
the aquifer. The District Court analyzed this competing evidence and determined that the
“leakage rate reflects poor utilization of a valuable resource, failure to conform
operations to industry standards, and [. . .] failed coordination with the City and other
stakeholders.” The District Court determined that no matter who owns the water system,
44
significant capital expenditures will be required, but that under municipal ownership,
long term maintenance planning and capital expenditures can occur under the
management of a stable, long term owner. We are satisfied that this conclusion was
based upon substantial credible evidence.
¶90 The District Court then considered evidence regarding the City’s ability to
effectively manage the water system if it were condemned. The City pointed to its
professional and efficient management of the wastewater system as evidence that it has
the requisite experience and expertise to manage a complex water utility that is critical to
public health and safety. Mountain Water alleged the City’s management of the
wastewater system was deficient in various ways. The District Court concluded that even
if it was not without difficulty, the City’s history of owning, operating, and setting rates
for the wastewater system supports its contention that it can effectively manage the water
system as well. The District Court determined that if both public and private owners are
competent to manage the water system, municipal ownership is preferable because it
would allow for increased coordination and “efficiencies in public health, safety, and
welfare functions performed by the City, including transportation, urban planning, and
fire safety.” Our review of the record demonstrates that the District Court’s conclusion
about the City’s ability to manage the water system was based upon substantial credible
evidence.
¶91 Next, the District Court looked at evidence from all parties about the financial
considerations relating to owning and operating the water system, including
administrative expenses, profit motive, rate setting, and the cost of acquisition and
45
needed capital improvements. Regarding administrative expenses, we said above that the
City pays Park Water Company between $2.2 million and $2.5 million per year for home
office expenses, much of which would not be incurred if the City owned the water
system. For instance, $1.3 million of that money goes to salaries for California staff,
$48,000 to “travel and entertainment,” and $103,000 to a Board of Directors fee. The
City’s Central Services Director testified at trial that the administrative expenses paid by
Mountain Water exceed every other Montana water system by $2 million, and that
Mountain Water’s administrative cost per customer is the highest in the state. The City’s
expert testified that under City ownership, the administrative expenses incurred by the
rate payers will be significantly reduced because the home office expenses would be
eliminated and the remaining necessary administrative functions would be combined with
those of other City departments that already have full administrative staffing in place.
Mountain Water contended that the administrative services performed by the home office
are valuable, but it offered no evidence that such services were unique or required special
expertise. The President of Liberty testified that under Liberty’s ownership, Mountain
Water would be required to make similar payments for corporate personnel and oversight
to a home office in Canada. The District Court concluded that “[u]nder municipal
ownership, the home office expenses to a parent company would be eliminated” and
necessary administrative services could be performed by the City. The District Court
found this factor weighed in favor of condemnation.
¶92 The District Court also found the profit motive factor to weigh in favor of
condemnation. The City offered testimony, which Mountain Water did not dispute, that
46
Mountain Water will continue to earn a profit as long as it is privately owned. Currently,
the return on equity is 9.8%. The City also offered testimony that as a municipality, it
would not operate the water system on a for-profit basis. The District Court was
persuaded that “[u]nder City ownership, the water system would not have to generate
profits to meet investor expectations,” but rather would charge customers only the
amount necessary to operate and maintain the water system.
¶93 Regarding rate setting, the City offered testimony from Alec Hansen, the former
executive director of the Montana League of Cities and Towns, that municipalities all
over the state are able to set appropriate rates for their water systems using a system that
notifies consumers of proposed rate increases and allows public comment. A Missoula
City Council member then testified that the City’s rate setting process would involve
public informational meetings, public hearings, debate among the council members,
public meetings to address and adopt amendments, and a final vote. Mountain Water
then offered testimony from John Guastella, an engineer and utility rate and valuation
consultant, that the current oversight of Mountain Water by the Public Service
Commission (PSC) serves as a substitute for market competition. According to Mountain
Water, PSC regulation is preferable to municipal regulation because the PSC uses trained
professionals and an intensive fact investigation process to set rates. The District Court
determined that the rate setting process is a factor that weighs in favor of condemnation
because the protections offered by the PSC “against the potential for earning unfair
profits from a captive market are not necessary under municipal ownership,” and
47
municipal rate setting would be subject to transparency and public participation
requirements.
¶94 The final financial consideration addressed by the District Court was the effect on
rates due to the cost of acquisition and needed capital improvements. The City offered
evidence that with its AA+ credit rating from Standard and Poor’s, its eligibility for
tax-exempt, low-interest municipal bonds not available to private owners, and its
eligibility for state and federal grants not available to private owners, it can afford to
acquire and run the water system in a cost effective manner. Mountain Water countered
that the City’s evidence regarding its ability to manage the water system in a cost
effective manner is speculative because at the time of the necessity trial, the value of the
water system was undetermined. Mountain Water also offered evidence that rates would
increase under municipal ownership due to the cost of acquisition. The District Court
recognized that the City’s acquisition costs may indeed cause future rate increases, and
that under either owner, significant capital expenditures will be required to replace and
maintain key infrastructure. However, under private ownership, the cost of needed
capital improvements will be increased by a rate of equity (currently 9.8%), whereas no
such increase would be seen under municipal ownership. The District Court also looked
to Carlyle’s marketing materials for Park Water, which forecast a 13% growth in the rate
base compounded annually. The District Court concluded that although the value of the
water system was undetermined at this point, and the exact effect on rates due to
acquisition costs and capital improvements could not be precisely known, municipal
ownership was preferable because financial decisions could be made by locally elected
48
officials who would operate the water system to support public health, safety, and
welfare, and not to return a profit.
¶95 After weighing all the evidence and testimony about the financial considerations
relating to owning and operating the water system, including administrative expenses,
profit motive, rate setting, and the costs of acquisition and needed capital improvements,
the District Court found that municipal ownership was more necessary than private
ownership. Our review of the record satisfies us that this finding was based upon
substantial credible evidence.
¶96 The District Court next considered economic and public policy factors. The City
presented testimony from Dr. C. Kees Corrsmit, a water utility economist, that City
ownership of the water system would benefit the public in a number of ways. Public
ownership allows for long term studies and financial planning, which result in rates that
are predictable and steady over time. Public ownership also allows for improved
coordination of water services with other municipal services like wastewater services and
planning for urban growth. In addition, public ownership allows management of the
water system to reflect local values like conservation and environmental stewardship.
¶97 The City also presented testimony from Dr. Thomas Power, a professor of
economics who specializes in natural resources. Dr. Power testified that private
companies are not well suited to the promotion of public interest goals like urban
planning, environmental stewardship, and public health, because they must balance those
goals against the profit motive and the need to return value to stockholders. Furthermore,
frequent change in corporate ownership makes it difficult to engage in long term planning
49
or budgeting for capital improvements to the water system. Finally, Dr. Power testified
that City ownership would increase the potential for cost savings as a result of the City’s
ability to integrate management of the water system with management of the wastewater
system and other City services like street maintenance, urban planning, fire protection,
and environmental conservation.
¶98 Mountain Water responded by presenting testimony from Dr. Arthur Laffer, a
current economic consultant and former Chief Economist of the Office of Management
and Budget under President Reagan. Dr. Laffer testified that municipal management of a
water system is only more necessary when a private owner has failed to maintain the
water system, and that given Mountain Water’s exemplary record of service to the
Missoula community, there is no compelling reason for public ownership of the water
system. The District Court did not find Dr. Laffer’s testimony as persuasive as that of
Dr. Corrsmit or Dr. Power because Dr. Laffer did not address the “inextricable link”
between management of a water supply and public health, safety, and welfare. The
District Court also noted that under Montana law, acquisition of a water supply by a
municipality is certainly not limited to only those instances in which the current private
owner is failing to provide for the needs of the community. The District Court ultimately
found, based upon substantial credible evidence, that economics and public policy weigh
in favor of condemnation.
¶99 Next, the District Court looked at evidence regarding public health, safety, and
welfare. The District Court began this analysis by reviewing testimony from Carlyle’s
managing director, Robert Dove, that Carlyle invested in Mountain Water with the
50
intention of profiting from a subsequent sale. The District Court found this short term
profit motive to be “incompatible with the long term planning and investment needed to
ensure the reliable delivery of clean water” to Missoula residents. The District Court
then considered testimony from various City officials that municipal ownership of the
water system would help the City meet its public health, safety, and welfare
responsibilities, including wastewater treatment and disposal, transportation, management
of storm water run-off, urban planning, fire safety, and environmental protection. Mike
Haynes, the City’s Development Services Director, testified that Mountain Water has 50
fewer miles of water mains than the City has of sewer mains, and this lack of
coordination of water and sewer services is contrary to best practices for urban
development and has resulted in a hodgepodge of private wells. Peter Nielsen, the
Missoula Water Quality District supervisor, testified that Mountain Water’s failure to
extend the water system to cover certain areas of growth has resulted in areas of high
industrial and commercial activity that lack fire hydrants for fire suppression or
emergency response. This is detrimental to public health and safety. Jason Diehl, the
City’s Fire Chief, also testified that there are gaps in fire hydrant coverage throughout the
City because these areas are not adequately served by the water system. Firefighters
must transport water in tanker trucks to these areas, making the hydrant gaps a public
health and safety concern.
¶100 In response, Mountain Water offered testimony regarding its long history of
cooperating with the City. Mountain Water engages in advertising to educate the public
about environmental concerns, it provides meter data for wastewater billing, it meets
51
regularly with the fire department to coordinate operations, and it works with the City to
coordinate a project list of upcoming main replacements and expansions. The District
Court recognized that Mountain Water has shown itself to be a good corporate citizen and
has engaged in cooperative efforts with the City. However, the District Court was
persuaded by the “distinction between cooperation and coordination.” The District Court
found that while Mountain Water has been cooperative with the City, municipal
ownership would result in coordination of all public health, safety, and welfare functions,
which would be more beneficial to the public. The District Court’s finding in this regard
was based upon substantial credible evidence.
¶101 Finally, the District Court considered the effects of condemnation on the Mountain
Water Employees. These effects were addressed above and will not be repeated here,
except to say that the District Court’s finding that this factor did not weigh against
condemnation was supported by substantial credible evidence.
¶102 During oral argument, the Defendants complained that many of the District
Court’s broad generalized findings and conclusions touting City ownership of the water
system reflected an inherent judicial preference in favor of public as opposed to private
ownership. Justice Rice’s Dissent goes so far as to characterize the District Court’s
general findings in favor of municipal ownership as a “predispositional perspective” that
amounted to an unconstitutional burden shifting. Our view of these findings is not that
they established a judicial preference for municipal ownership, but rather that they
summarized general differences in the capacities and interests of municipalities compared
to those of corporations when it comes to how each would manage the water system from
52
an administrative, operational, and financial perspective. Given the context of this case,
the court’s findings with respect to how the City would manage the water system were
necessarily premised upon projection. This does not equate to a shift in the burden of
proof. Furthermore, our exhaustive review of the record confirms that the court’s
detailed factual findings summarized above are supported by substantial credible
evidence and are not the product of bias in favor of public ownership. We therefore are
satisfied that the District Court’s conclusion that the City carried its burden to prove by a
preponderance of the evidence that “its contemplated use of the Water System as a
municipally owned water system is more necessary than the current use as a privately
owned for-profit enterprise” is not clearly erroneous.
CONCLUSION
¶103 For the foregoing reasons, we affirm the District Court’s June 15, 2015 Findings
of Fact, Conclusions of Law, and Preliminary Order of Condemnation.
/S/ PATRICIA COTTER
We Concur:
/S/ MIKE McGRATH
/S/ JAMES JEREMIAH SHEA
/S/ BETH BAKER
/S/ MICHAEL E WHEAT
53
Justice Jim Rice, dissenting.
¶104 I believe the District Court permitted, and participated in, deprivations of
Mountain Water’s constitutional right to due process. I do not take this position lightly,
but have no hesitation in doing so, given the record. I would reverse.
¶105 The Fifth Amendment of the United States Constitution, applied to the States
through the Fourteenth Amendment, provides “No person shall be . . . deprived of life,
liberty, or property, without due process of law; nor shall private property be taken for
public use, without just compensation.” Cases brought under the Takings Clause
generally involve three issues: (1) whether a “taking” has occurred; (2) whether the
property taken is being put to “public use;” and (3) whether “just compensation” has been
paid. See Penn Cent. Transp. Co. v. New York City, 438 U.S. 104, 123 (1978); Kelo v.
City of New London, 545 U.S. 469, 477-78 (2005); First English Evangelical Lutheran
Church v. County of Los Angeles, 482 U.S. 304, 315 (1987). The Court’s analysis
follows this rubric, answering the merits question by affirming that the taking of
Mountain Water’s property is a “more necessary public use.”
¶106 However, the Court’s merits conclusions are premised upon its determination that
no due process violation occurred. The Court reaches this conclusion despite having to
acknowledge that the District Court imposed an “undoubtedly difficult” litigation
schedule upon Mountain Water, that the District Court overlooked the repeated findings
of the Standing Master that Missoula had engaged in extensive discovery abuses “to gain
a tactical advantage,” that the District Court erred, albeit not reversibly in the Court’s
view, by rejecting Mountain Water’s evidentiary positions, and that there is an essential
54
strength to Mountain Water’s assertion that the District Court exhibited a judicial
preference for condemnation. The Court chooses not to connect these dots, but I would
hold that these problems, along with additional problems discussed herein, clearly
demonstrate that Missoula’s taking of Mountain Water did not comport with due process.
¶107 As famously stated by Justice Bushrod Washington, sitting as Circuit Justice, the
right to acquire and possess property is a fundamental right that is included “of right, to
the citizens of all free governments; and which have, at all times, been enjoyed by the
citizens of the several states which compose this Union.” Corfield v. Coryell, 6 F. Cas.
546, 551-52 (C.C.E.D Pa. 1823). Along with life and liberty, it is one of the three pillars
of freedom present in virtually every charter and constitution since the colonial days and
Revolutionary Era. See Thomas J. Bourguignon, The Poacher, the Sovereign Citizen, the
Moonlighter, and the Denturists: a Practical Guide to Inalienable Rights in Montana, 77
Mont. L. Rev. 5, 11 (2016). In Montana, the right to possess property is considered so
fundamental that our Constitution deems it “inalienable.” City of Bozeman v. Vaniman,
264 Mont. 76, 79, 869 P.2d 790, 792 (1994) (citing Mont. Const. art. II, § 3). In Herlihy
v. Donohue, we stated:
The right of a person to acquire, hold and protect property . . . is, as among
English-speaking people, as old as the common law itself. Its origin
antedates by many years the guaranty contained in Magna Charta. The
right itself was the inheritance of our people who inhabited the territory
acquired from Great Britain at the close of the Revolution, and was adopted
by the people of the territory of Montana by its first legislative assembly,
and was continued in force thereafter. It is now embodied in the Bill of
Rights . . .
55
52 Mont. 601, 607, 161 P. 164, 165 (1916). It is “elementary” that this right goes beyond
mere possession; it consists of the free use, enjoyment, and disposal without control or
diminution “save by the law of the land.” Buchanan v. Warley, 245 U.S. 60, 74 (1917).
These property rights are “among the most revered in our law and traditions . . . integral
aspects of our theory of democracy and notions of liberty.” City of Norwood v. Horney,
853 N.E.2d 1115, 1128 (Ohio 2006) (citations omitted). As James Madison wrote, “that
alone is a just government which impartially secures to every man, whatever is his own.”
14 Papers of James Madison 266 (R. Rutland et al. eds. 1983). With this important
historical and legal backdrop in mind, I turn to the questions at hand: What process was
Mountain Water due before Missoula could take its property? And, did the District Court
“impartially secure” to Mountain Water its rights in that process?
¶108 As the Court states, due process “is not a technical conception with a fixed content
unrelated to time, place and circumstances.” Mathews v. Eldridge, 424 U.S. 319, 334
(1976) (quoting Cafeteria Workers v. McElroy, 367 U.S. 886, 895 (1961)). Rather, it is
“flexible and calls for such procedural protections as the particular situation demands.”
Mathews, 424 U.S. at 334 (quoting Morrissey v. Brewer, 408 U.S. 471, 481 (1972)). The
specific dictates of due process to a given situation generally requires consideration of
three factors: (1) the private interest that will be affected by the official action; (2) the
risk of an erroneous deprivation of such interest through the procedures used, and the
probable value, if any, of additional or substitute procedural safeguards; and (3) the
government’s interest, including the function involved and the fiscal and administrative
burdens that the additional or substitute procedural requirement would entail. Mathews,
56
424 U.S. at 334-35. Although the outer parameters of due process in this context have
yet to be defined, prior decisions and legislation have filled in some of the void.
¶109 Most basically, due process required Mountain Water receive notice and a
meaningful opportunity to be heard before Missoula deprived it of its property. U.S. v.
James Daniel Good Real Prop., 510 U.S. 43, 48 (1993) (citations omitted); see also Geil
v. Missoula Irrigation Dist., 2002 MT 269, ¶ 61, 312 Mont. 320, 59 P.3d 398 (“The
fundamental requirement of due process is the opportunity to be heard at a meaningful
time and in a meaningful manner.”) (internal quotations and citation omitted); Mathews,
424 U.S. at 333 (“[t]he right to be heard before being condemned to suffer grievous loss
of any kind, even though it may not involve the stigma and hardships of a criminal
conviction, is a principle basic to our society.”).
¶110 Due process also protected Mountain Water from an unconstitutional burden shift,
just as it does for criminal defendants. See Francis v. Franklin, 471 U.S. 307, 313 (State
prohibited from using evidentiary presumptions that have effect of relieving State of its
burden); see also Western & A.R. Co. v. Henderson, 279 U.S. 639, 644 (1929) (striking
down civil statute that unfairly shifted the burden of proof). It is within the State’s power
to regulate the burden of persuasion, “unless in so doing it offends some principle of
justice so rooted in the traditions and conscience of our people as to be ranked as
fundamental.” Speiser v. Randall, 357 U.S. 513, 523 (1958) (citing Snyder v.
Massachusetts, 291 U.S. 87, 105 (1934)). Thus, where a person has at stake an interest of
“transcending value,” due process requires the margin of error inherent in fact-finding to
be reduced as to that person by placing the burden of proof on the State. Speiser, 357
57
U.S. at 525-26. Due process therefore required the City of Missoula to bear the burden of
proving every element of its case because, under Article II, § 3, the right to possess
property is fundamental, i.e. a “transcending value.” The Montana Legislature codified
this Constitutional mandate in § 70-30-111, MCA, which provides the State must
establish every element of condemnation by a preponderance of the evidence.
¶111 Mountain Water also had constitutional and statutory discovery rights. We have
previously stated that when the State attempts to deprive a citizen of property, the citizen
is “entitled to procedural due process which includes, among other things, the ability to
discover information relevant to the case against them along with the identity of the
witnesses who are expected to testify and the substance of the expected testimony.”
Wilson v. Dep’t of Pub. Serv. Regulation, 260 Mont. 167, 172, 858 P.2d 368, 371 (1993).
Furthermore, given the similarity in the fundamental nature of the right to property and
the right to liberty, Mountain Water was due at least the limited discovery right that
criminal defendants have before the government takes their liberty from them. See Brady
v. Maryland, 373 U.S. 83, 87 (1963) (Due process requires prosecutors to avoid an
“unfair trial” by making available “upon request” evidence “favorable to an accused . . .
where the evidence is material to either guilt or to punishment.”). This right is provided
as part of the Constitution’s basic “fair trial” guarantee. See U.S. v. Ruiz, 536 U.S. 622,
628 (2002). At the same time, in contrast to the right to criminal discovery, which is
restricted, the scope of civil discovery is broad and requires nearly total mutual disclosure
of each party’s evidence prior to trial. Hickman v. Taylor, 329 U.S. 495, 507 (1947).
The Legislature imposed the broad scope of civil discovery on eminent domain
58
proceedings in § 70-30-201, MCA, which provides the Montana Rules of Civil Procedure
govern condemnation actions. Therefore, Mountain Water had a basic constitutional
right to discovery under due process, as well as a much broader statutory right to any
information sought if it appeared “reasonably calculated to lead to the discovery of
admissible evidence.” Degen v. U.S., 517 U.S. 820, 825-26 (1996) (quoting Fed. R. Civ.
P. 26(b)(1)).
A. Unconstitutional Burden Shift
¶112 The District Court unconstitutionally shifted the burden and relieved Missoula of
proving every element of condemnation.1 Under the Fifth Amendment, before Missoula
could take Mountain Water’s property, it was required to show its taking was for a
“public use.” Kelo, 545 U.S. at 477-78 (citing U.S. Const. amend. V). Article II, § 29 of
the Montana Constitution imposes a similar requirement. The Legislature further
codified the “public use” requirement in Montana’s condemnation statute, § 70-30-111,
MCA.
¶113 Citing Missoula’s Water Utility expert, the District Court supported its finding that
Missoula’s ownership was a “more necessary public use” with the following language:
Important public policy objectives are promoted by municipal ownership,
including predictability and stability in rates, ability to obtain low cost
financing not available in the private sector, lack of a profit motive,
coordination with City services, planning and development efficiencies,
greater transparency and accessibility to leadership and reflection of local
preferences including conservation and stewardship.
1
Mountain Water argues that its due process rights were violated and refers to the burden shift as
“an abstract policy preference for municipal ownership in and of itself.”
59
The District Court’s broad statement is a mandatory presumption that municipal
ownership of a water system is always a “more necessary public use.” The District Court
did not state that public policy objectives will be promoted by Missoula’s ownership;
rather, it held unequivocally that public policy objectives are promoted by any municipal
ownership. In essence, according to the District Court’s analysis, because Missoula is a
city, and because this is a water supply, there is no further need to establish by evidence
the “public use” requirement of the Fifth Amendment of the U.S. Constitution, Article II,
§ 29 of the Montana Constitution, or § 70-30-111, MCA. Instead, and in complete
contradiction to two constitutions and a state statute, the District Court made it incumbent
upon Mountain Water to rebut that presumption—to the extent that such a task would
even have been possible, given the breadth of the District Court’s statement and its
predisposition. However, due process required Missoula, not Mountain Water, to carry
that burden because the right to possess property is a fundamental right. Speiser, 357
U.S. at 525-26; Mont. Const. art. II, § 3. The District Court violated Mountain Water’s
due process rights when it relieved Missoula of its burden to prove the “public use”
element of eminent domain.
¶114 This solitary holding by the District Court was just the proverbial tip of the iceberg
of its improper analysis. The District Court’s reasoning in this mode was lengthy,
waxing broadly about the many virtues it saw in public ownership, and contrasting the
many vices it saw in private ownership. For example: “Local government ownership
and management of water systems allows the stable pursuit of [] important public
purposes,” whereas “Private companies are not well suited to the promotion of public
60
interest goals”; “Under municipal ownership, important financial decisions regarding the
Water System can be based on promoting public health, safety and welfare rather than on
decisions regarding returns on investments for a large and growing utility conglomerate”;
“Revenue requirements for municipally owned water systems are less than privately
owned systems because there is no need for profit”; “Protection and promotion of the
public health, safety and welfare is the fundamental duty of a municipality. Private
corporations have no duty to protect and promote the public health, safety and welfare.”
These statements, and many more like them in the District Court’s order, further
demonstrate that the District Court held a predispositional perspective that led it to
relieve Missoula of the constitutional burden to prove that ownership by, specifically for
this case, the City of Missoula, was a more necessary public use.
¶115 This unconstitutional presumption was not harmless. In the context of a jury
verdict in a criminal case, the Supreme Court has stated “it has long been settled that
when a case is submitted to the jury on alternative theories the unconstitutionality of any
of the theories requires that the conviction be set aside.” Sandstrom v. Montana, 442
U.S. 510, 526 (1979) (internal quotations and citation omitted). This is because courts
have no way of knowing whether the verdict was based on the unconstitutional
presumption or not. Sandstrom, 442 U.S. at 526. What we have here is far more
damning: the District Court explicitly told us it relied on the unconstitutional
presumption.
B. Due Process Right to Discovery and Meaningful Opportunity
61
¶116 Missoula’s flagrant discovery abuses denied Mountain Water its due process right
to “discover information relevant to the case against them along with the identity of the
witnesses who are expected to testify and the substance of the expected testimony.”
Wilson, 260 Mont. at 172, 858 P.2d at 371. The District Court likewise denied Mountain
Water its due process right to a “meaningful opportunity to be heard,” James Daniel, 510
U.S. at 48, when it refused to continue the trial to remedy Missoula’s discovery abuses.
¶117 As noted above, Mountain Water was due at least the minimal discovery rights
afforded criminal defendants. That right includes a protection against a series of abuses
which, taken as a whole, have the cumulative effect of a due process violation. City of
Billings v. Peterson, 2004 MT 232, ¶ 47, 322 Mont. 444, 97 P.3d 532 (citing Kyles v.
Whitley, 514 U.S. 419, 432-54 (1995)). A due process violation exists if the State’s
discovery abuse amounted to a deprivation of a fair trial. Kyles, 514 U.S. at 433-34
(citation omitted).
¶118 Missoula’s discovery tactics were Machiavellian, to put it politely. If I condoned
winning at all costs, and was not concerned about the rule of law, I might even be
impressed.
¶119 First, Missoula—a government actor, it should be emphasized—converted its
electronic files from native format into unusable PDF portfolios when it produced the
files to Mountain Water. When Mountain Water notified Missoula of the problem,
Missoula refused to produce the documents in a usable form, making three further sets of
production, consisting of over 17,000 documents, in the unusable PDF format. The
Special Master ruled against Missoula, ordering it to produce the documents in a usable
62
format, and noting it had a multitude of options to do so, including utilizing e-discovery
software already in its counsel’s possession or simply producing the documents in native
form. After extensive delay, Missoula finally complied with the Special Master’s order
three weeks before trial and delivered 26,581 documents to Mountain Water for its
review.
¶120 Next, Missoula refused to produce communications between it and the town of
Apple Valley, California, on its mistaken claim of privilege. The Special Master again
ruled against Missoula, concluding it wrongfully withheld the documents and ordering
Missoula to produce them. However, by the time Missoula produced the documents,
depositions had already been taken and discovery had closed. Then, Missoula refused to
produce internal emails regarding the assignments and interactions between it and one of
its experts. Once again, the Special Master ruled against Missoula and ordered it to
produce the documents, admonishing that the emails were “clearly discoverable.”
Missoula’s foot-dragging kept these documents from Mountain Water until twelve days
before trial.
¶121 Missoula then engaged in similar games with other experts, producing nine
supplements to its expert disclosures after discovery closed and continuing to supplement
its expert disclosures even during trial, including by supplementation of new documents
that its experts used on the witness stand. Supplementation is required and generally
appropriate, of course, but here Missoula used the process—abused it, that is—to delay
its obligation to disclose and hide information from Mountain Water as long as it could.
Several of Missoula’s experts testified under oath that Missoula had not asked them for
63
copies of documents supporting their opinions, despite outstanding discovery requests
from Mountain Water for those very documents, demonstrating that Missoula never
attempted to gather responsive documents and had no intention of complying with
disclosure requirements.
¶122 The cumulative effect of these discovery abuses goes far beyond sharp litigation
practices and constitutes a clear due process violation. Peterson, ¶ 47. Far from owning
up to its actions, Missoula repeatedly asserts Mountain Water cannot point to one piece
of prejudicial evidence and thus no prejudice occurred, a position that the Court adopts.
However, first, it is incorrect to state that there was no prejudice. Missoula repeatedly
stated throughout discovery it had no plan for capital expenditures, managing the system,
or fixing leaks. Then, a few days before trial, the City surprised Mountain Water with an
expert disclosure that included a 5-year capital expenditure plan with figures in the
millions and an organizational chart detailing a plan to integrate Mountain Water
employees into the City’s employment structure. Second, on the eve of trial, the City
supplemented an expert disclosure to provide a new administrative cost analysis, which
played a critical role in the District Court’s findings. These are just two examples, and
they are prejudice enough.
¶123 But further, Missoula fails to recognize one of the true costs of discovery delay
and abuse is the time expended by the other side to respond to that mischief. Whether the
26,581 documents Missoula dumped on Mountain Water three weeks before trial
contained a smoking gun can only be ascertained after the 26,581 documents are
reviewed by Mountain Water. Missoula intentionally and strategically put Mountain
64
Water in a time bind shortly before trial as other trial preparations were occurring,
forcing the company to spend precious time reviewing the documents to determine
whether there was information useful to its case. If there wasn’t, Missoula had
nonetheless successfully wasted Mountain Water’s critical trial-preparation time. If there
was, Missoula had disclosed the evidence before trial to give it plausible deniability to a
contention it had withheld evidence. Missoula’s diabolical tactics hardly demonstrate
that Mountain Water received a fair trial, one “worthy of confidence.” Kyles, 514 U.S. at
434. I sincerely hope this kind of gamesmanship with experts and a 26,581 page
“document dump” three weeks before trial—repeated violations found by the Standing
Master—would preclude the government from taking someone’s liberty. Likewise,
because property is also a fundamental right, it should be no different when the
government is taking someone’s property. The cumulative effect of Missoula’s discovery
abuse was to deprive Mountain Water of its procedural due process right to a fair trial as
guaranteed by the Constitutions of Montana and the United States.
¶124 The deprivation of a fair trial is particularly stark when contrasted with the very
reasonable alternative that Mountain Water repeatedly requested: a continuance of a few
months. Although due process does not require the best opportunity to be heard, it does
require a meaningful opportunity to be heard. James Daniel, 510 U.S. at 48; Geil, ¶ 61.
Granting a continuance of a few months, which would have allowed Mountain Water to
review all of Missoula’s delayed discovery materials, would have ensured Mountain
65
Water’s opportunity to be heard was meaningful. Denying the continuation ensured it
was not. The District Court therefore violated Mountain Water’s due process rights.2
C. Statutory Right to Discovery
¶125 Even if the District Court’s refusal to continue the trial would not have constituted
a due process violation, it abused its discretion by not continuing the trial in light of
§ 70-30-206, MCA, which requires the District Court to set a trial schedule that will not
prejudice any party’s position.
¶126 Mutual knowledge of all relevant facts gathered by both parties is essential to
proper litigation. Hickman, 329 U.S. at 507. “Modern instruments of discovery, together
with pretrial procedures, ‘make a trial less a game of blindman’s bluff and more a fair
contest with the basic issues and facts disclosed to the fullest practicable extent.’”
Richardson v. State, 2006 MT 43, ¶ 22, 331 Mont. 231, 130 P.3d 634 (quoting U.S. v.
Procter & Gamble Co., 356 U.S. 677, 682 (1958)). Without an adequate opportunity to
obtain discoverable information, a party is “at a significant disadvantage in litigating the
merits of the case.” Preston v. Montana Eighteenth Judicial Dist. Ct., 282 Mont. 200,
206, 936 P.2d 814, 817 (1997). Achieving a just result—the foundational goal of our
courts and legal system—is “contingent upon full disclosure.” Richardson, ¶ 63.
Litigants who purposely halt the discovery process therefore “act in opposition to the
2
This Court could likewise have remedied this violation by granting Mountain Water’s
meritorious petition for supervisory control, where we originally stated we were “troubled by
what appears to be the City’s obstruction of discovery to gain a tactical advantage.” The Court
denied Mountain Water’s request over my dissent.
66
authority of the court and cause impermissible prejudice to their opponents.” First Bank
(N.A.)-Billings v. Heidema, 219 Mont. 373, 376, 711 P.2d 1384, 1386 (1986).
¶127 This Court strictly adheres to the policy that dilatory discovery actions shall not be
dealt with leniently. Richardson, ¶ 56 (citation omitted). As we have said, the trial
courts, and this Court on review, must remain intent upon punishing transgressors rather
than patiently encouraging their cooperation. Richardson, ¶ 56 (citation omitted). It is “a
maxim of our rules of discovery that the price for dishonesty must be made unbearable to
thwart the inevitable temptation that zealous advocacy inspires.” Richardson, ¶ 56
(citation omitted).
¶128 Under § 70-30-202, MCA, six months is the default time period between service
of summons and trial in a condemnation case. However, the guideline is flexible, and the
court may “shorten[] or lengthen[] that time for good cause.” Section 70-30-202, MCA.
Discovery and trial is required to proceed as expeditiously as possible, unless doing so
will “prejudic[e] any party’s position . . . .” Section 70-30-206(5), MCA. District courts
are required to give the proceedings “priority consideration.” Section 70-30-206(5),
MCA.
¶129 In its order denying Mountain Water’s motion to continue, the District Court
explicitly stated it would not continue the trial, regardless of prejudice. The District
Court’s reason for its blanket denial of a new trial date regardless of prejudice was that it
would have difficulty calendaring a new trial. Such a rigid stance is in violation of
§ 70-30-206(5), MCA, which required the District Court to not proceed as expeditiously
as possible if doing so prejudiced either party. Further, given § 70-30-206(5)’s
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requirement that the District Court give the proceeding “priority consideration,” a full
calendar is not a satisfactory excuse to deny a meritorious request for a new trial date. I
am hard pressed to conceive of a better showing of “just cause” for a continuance than
blatant discovery abuse, or what would be more prejudicial than insisting on a rigid trial
schedule regardless of discovery abuse. I would hold the District Court abused its
discretion in denying Mountain Water’s request for a continuance.
A Word for the Legislature
¶130 What should be taken from this case is that condemnation of private property in
Montana is subject to a long procedural process, but that ultimately the merits of the case
are decided under a lenient, subjective legal standard. What is a “more necessary” use?
First, the statutory standard of “more necessary” itself is vague and amorphous, leaving
the determination largely to the subjective views of the trial judge. Then, the Supreme
Court has here determined to review the trial court’s determination of “more necessary”
as a finding of fact, which is a very narrow and deferential standard of review, meaning
that such findings are usually affirmed and are difficult to reverse by an appellate court.
If the Legislature would prefer that the law provide a higher substantive bar to be reached
before private property can be condemned, the statute will need to be revisited.
Conclusion
¶131 Here, however, there is something an appellate court could and should do; errors
of constitutional magnitude were made in the procedural process, and they should be
remedied. Apparently hell-bent on condemnation, the District Court adopted an
unconstitutional presumption in favor of condemnation, violating Mountain Water’s due
68
process right to have Missoula bear the burden of proving every element of its case, as
required by the Fifth Amendment of the United States Constitution, Article II, § 29 of the
Montana Constitution, and § 70-30-111, MCA. The District Court further violated
Mountain Water’s due process right to a meaningful opportunity to be heard when it
denied Mountain Water’s several motions for a continuance, on constitutional and
statutory grounds. The District Court also violated Mountain Water’s due process right
by permitting Missoula to engage in abusive and prejudicial discovery tactics that
deprived Mountain Water of a fair trial. Missoula knew what it was doing, and the
District Court should have stopped it; instead, it played along. The District Court thus
failed to “impartially secure” the constitutional rights of Mountain Water. Missoula may
well have proved its case in a fair trial, but here, there wasn’t one.
¶132 I have no sympathies for the corporate entities involved in this case; my
sympathies are for all Montanans who expect that their judicial system will not fail to
enforce constitutional guarantees.
¶133 I dissent.
/S/ JIM RICE
Justice Laurie McKinnon, dissenting.
¶134 The Court errs in applying the “more necessary” requirement of
§ 70-30-111(1)(c), MCA, in a condemnation proceeding where the public use for public
or private ownership is the same. The confusion in the trial proceedings and this Court
69
appears to have originated with our incorrect analysis in Mountain Water I and our
departure from well-established precedent holding that subsection (c) does not apply
when the proposed second appropriation does not contemplate a change in public use.
See Montana Power Co. v. Burlington Northern, 272 Mont. 224, 900 P.2d 888 (1995);
Mont. Talc Co., v. Cyprus Mines Corp., 229 Mont. 491, 748 P.2d 444 (1987);
Cocanougher v. Zeigler, 112 Mont. 76, 112 P.2d 1058 (1941); State ex rel. Butte-Los
Angeles Mining Co., Relator v. District Court, 103 Mont. 30, 60 P.2d 380 (1936); and
Butte, Anaconda & Pac. Ry. v. Mont. Union Ry., 16 Mont. 504, 41 P. 232 (1895).
Pursuant to subsection (c), “the real question is: Will the taking of this private property,
already dedicated to one public use, destroy the prior public use?” Cocanougher, 112
Mont. at 81, 112 P.2d at 1060. When the existing public use and the proposed public use
are the same, as here, subsection (c)––whether public ownership of Mountain Water is
“more necessary” than private ownership––is an incorrect legal standard upon which to
determine whether condemnation is warranted.
¶135 Consistent with many jurisdictions across the country, Montana’s “more
necessary” requirement contained in subsection (c) addresses public use conflicts that
arise when a property is already dedicated to a public use, there is a proposed second
appropriation for an incompatible public use, and statutes have conferred the power of
eminent domain upon the entities at issue—regardless of whether the entities may be
characterized as public or private. The “more necessary” requirement is an exception to
the prior public use doctrine, which is well recognized in the law of eminent domain:
70
Property of a private corporation devoted to a public use, although not
clothed with a specific exemption from subsequent condemnation, cannot
be taken to be used in the same manner for the same purpose by a different
corporation, even by express enactment of the legislature.
1 J. Sackman, Nichols’ Law of Eminent Domain, § 2.2(9) n.3 (rev. 3d. ed. 1981). The
doctrine provides that when property is already subject to a public use and the proposed
use would either destroy the existing use or interfere with it to such a degree that it is
equivalent to destruction, a proposed condemnation of such property will be denied
unless the legislature has authorized the acquisition either expressly or by necessary
implication. See Nichols’ Law of Eminent Domain, § 2.2. See also 29A C.J.S. Eminent
Domain § 58 (1992) (“As a general rule, property already devoted to a public use cannot
be taken for another public use which will totally destroy or materially impair or interfere
with the former use, unless the intention of the legislature that it should be so taken has
been manifested in express terms or by necessary implication, mere general authority to
exercise the power of eminent domain being in each case insufficient.”). The statutory
exception providing for the “more necessary” test allows a court flexibility in applying
the rule’s prohibition against condemnation when the proposed use will serve a more
necessary or “higher” use than the public use to which the property is already
appropriated. 26 Am. Jur. 2d Eminent Domain § 106 (2014).
¶136 Consistent with these principles, § 70-30-111(1)(c), MCA, provides that before
property can be taken, the condemnor shall show the property is “already being used for a
public use, that the public use for which the property is proposed to be used is a more
necessary public use.” Early in our history, this Court recognized that “our legislature
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has imposed upon the court the additional responsibility of judicially determining
whether the use to which the [proposed condemnor] did or would put the particular lands
is a more necessary one to the public than that to which they have already been
appropriated . . . .” Butte, Anaconda & Pac., 16 Mont. at 538, 41 P. at 243. Equally
well-established by this Court is the rule that “[i]n interpreting the ‘more necessary’
requirement of § 70-30-111[(1)(c)], MCA, we have held that this determination affects
condemnation proceedings only when we have two public uses that are not compatible
uses.” Montana Power, 272 Mont. at 233, 900 P.2d at 894 (emphasis added). See also
Cocanougher, 112 Mont. at 84, 112 P.2d at 1061 (“This distinction must be clearly kept
in mind, and, if it is, no confusion can arise.”); Butte, Anaconda & Pac., 16 Mont. at 538,
41 P. at 243 (“If the question were limited merely to this single inquiry . . . doubtless,
under rules of construction, we should hold that the respondent could not invade the right
of way of the appellants.”); Montana Talc, 229 Mont. at 504, 748 P.2d at 452 (“It is
necessary, therefore, that this case be remanded for the purpose of a determination by the
District Court of a consideration of all factors involving the public use of the subject
property by Cyprus, and as proposed by Montana Talc.”). In Montana Power, we
specifically held that when the uses are compatible or the same, the court errs in
conducting an analysis pursuant to subsection (c). Montana Power, 272 Mont at 234,
900 P.2d at 895 (“The District Court made a ‘more necessary’ determination under the
erroneous assumption that such determination was required under the statute. The court
was not required to make that determination because MPC’s use would not destroy nor
materially injure BN’s prior use.”).
72
¶137 Furthermore, our precedent establishes the rationale and factors to consider in
applying the “more necessary” test which likewise demonstrate the inapplicability of
subsection (c) to a use which is the same or identical. In Butte, Anaconda & Pacific
Railway, we explained:
Now, however, having advanced to this point of the case, we are met with
this argument by the appellants’ counsel, namely, that this right of way was
already appropriated, and that there was no delegation of power to any
corporation under the eminent domain laws of the state to take property
already appropriated to a public use, unless, as provided by the last clause
of the third subdivision of section 601, Code of Civil Procedure 1887, “the
public use to which it is to be applied is a more necessary public use.” We
have already concluded that this land was necessary to respondent’s use,
and the question therefore is, is respondent precluded from condemning
these necessary lands because they have already been condemned for public
use by the appellants? If the question were limited merely to this single
inquiry (unless some other statute authorized a taking), doubtless, under
rules of construction, we should hold that the respondent could not invade
the right of way of the appellants. But our legislature has imposed upon the
court the additional responsibility of judicially determining whether the use
to which the appellants did or would put the particular lands is a more
necessary one to the public than that to which they have already been
appropriated by the Montana Union Railway. We therefore find the whole
proposition resolves itself under the facts to this: A part of the right of way
of the Montana Union Railway Company has never been used by it for
railroad purposes for the several years during which the road has been
constructed and in operation, and is not reasonably requisite for future uses.
The Butte, Anaconda & Pacific Railway Company, in the location of its
only really practicable route, desires to take parts of such unused portions
of the Montana Union right of way; such portions being necessary for their
actual use, and unnecessary for the actual use of the appellants.
Butte, Anaconda & Pac., 16 Mont. at 537-38, 41 P. at 243-44.
¶138 In Montana Power, the power company’s need for an easement across the
railroad’s property in order to provide power could be coordinated with the railroad’s
public use of providing transportation “to achieve the greatest public benefit and the least
73
private injury.” Montana Power, 272 Mont. at 239, 900 P.2d at 898. However, if one
public use defeated the other’s public use, then a determination would have to be made as
to which use achieved the greatest public benefit and the least private injury. We
explained that the company’s attempt to condemn an easement through private property
belonging to the railway was not incompatible with the railway’s different public use of
the property, holding that a more necessary use can also be a compatible use. Montana
Power, 272 Mont. at 239, 900 P.2d at 898.
¶139 The Court mistakenly confuses a change in the owner of the property facilitating
the public use with a change in the property’s public use when it states “because the
City’s acquisition of the water system would ‘inhibit’ Mountain Water’s use of its
property by wholly depriving it of the use of the water system, the uses are not
compatible, thus requiring the ‘more necessary’ analysis to be conducted.” Opinion,
¶ 84. While a taking of Mountain Water’s property will destroy its ownership, the public
use and consumption of water will continue and remain the same regardless of whether
the property is owned by Mountain Water or the City. The discussion is necessarily
reduced therefore to the virtues of private and public ownership. However, the statute is
specific as to a requirement that there be a change in the public’s use—“that the public
use for which the property is proposed to be used is a more necessary public use . . . .”
Section 70-30-111(1)(c), MCA. The inquiry under subsection (c) is not whether a taking
of Mountain Water’s property prevents Mountain Water from realizing the benefits of its
ownership, but whether the second appropriation is for a public use which is more
necessary. Aside from Mountain Water I, we have never addressed whether
74
condemnation of a privately owned utility dedicated to a public use may be condemned
by a municipality for the same proposed public use. Although we have stated that
§ 70-30-111(1)(c), MCA, does not require that, for lands to be appropriated as a more
necessary use that they be for a different public use in all cases, “different,”
“compatible,” and “joint” public use may be distinguished from “same” based upon
distinctions in our precedent and the facts in any given case. Indeed, we must endeavor
to draw out the distinction, as we should here, in order to remain consistent with long
established precedent in Montana that “neither party . . . could, by any proceeding under
the provisions of the statutes relating to eminent domain, acquire, in our opinion, the
exclusive right to the use of that part of the [property] located on the ground of the other,
for the very simple reason that both parties contend they are using, or intend to use, the
[property] for the same purpose; consequently, neither can say his purpose is more useful
than the other.” Butte-Los Angeles Mining Co., 103 Mont. at 41, 60 P.2d at 385
(emphasis added). In Cocanougher, this Court, relying on the reasoning of Marsh
Mining Company v. Inland Empire Mining & Milling Company, 30 Idaho 1, 8, 165 P.
1128, 1129 (1916), stated:
Property devoted to, or held for, a public use is subject to the power of
eminent domain if the right to so take it is given by constitutional provision
or legislative enactment, in express terms or by clear implication, but it
cannot be taken to be used in the same manner and for the same purpose to
which it is already being applied, or for which it is, in good faith, being
held, if by so doing that purpose will be defeated. The purposes having
been specified in sections 3223 and 3224, supra, for which property
dedicated to mining may be appropriated, it follows that, unless it is being
applied by its owner to, or in good faith held for, the same or a more
necessary public use, which will be defeated or seriously interfered with
75
thereby, it may be taken in aid of that industry under the power of eminent
domain.
Cocanougher, 112 Mont. at 84, 112 P.2d at 1061 (emphasis in original). The rule is thus
stated that “it is a statutory requirement that the second appropriation shall be for a ‘more
necessary public use.’ But such requirement refers to a proceeding to dispossess the
owner of his property and deprive him of its use altogether, and does not preclude
condemnation for a joint use which will not interfere with the use thereof by the owner.”
Cocanougher, 112 Mont. at 84, 112 P.2d at 1061. Therefore, the “more necessary”
requirement is always subject to the limitation that “property devoted to public use
cannot be taken to be used for the same purpose in the same manner, as this would
amount simply to the taking of property from one and giving it to another without any
benefit or advantage whatever to the public.” Cocanougher, 112 Mont. at 92, 112 P.2d at
1065. See also NL Indus. v. Eisenman Chem. Co., 98 Nev. 253, 645 P.2d 976 (1982);
Lake Shore Ry Co. v. Chicago Ry. Co., 97 Ill. 506 (1881); State ex rel. Harbor Broom
Co. v. Superior Court, Pac. Cty., 65 Wash. 129, 117 P. 755 (1911); State ex rel. Missouri
Cities Water Co. v. Hodge, 878 S.W.2d 819 (Mo. 1994); Beaumont v. Beaumont
Irrigation Dist., 63 Cal. 2d 291, 405 P.2d 377 (1965). Indeed, if the property is already
subject to a public use, a condemnation for the same public use is inconsistent with a
determination or finding that there is a necessity for the taking.
¶140 In contrast to the different but joint or compatible public uses at issue in Montana
Power, Montana Talc, Cocanougher, Butte-Los Angeles Mining, and Butte, Anaconda &
Pacific, the public use which the City proposes for the condemned property is identical
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and indistinguishable from the public use to which Mountain Water currently has
dedicated the property and proposes it will continue to use the property. Property already
appropriated to a public use may not be afterwards taken by a municipality for the same
use unless the intention of the Legislature that it be taken has been manifested in express
terms or by necessary implication. The enactment of laws which enable a municipality to
exercise the powers of eminent domain is within the legislative power of the State. The
fundamental power to exercise the right to acquire property by eminent domain lies
dormant with the State until the Legislature, through specific enactment, designates the
manner and means by which the power may be exercised. In the absence of such
authority, municipalities may not exercise such power. “There is . . . a rule of
construction, sustained by the great weight of well-considered authority, to the effect that
this power to take the property of private citizens or other corporations for public use
must be exercised and can be exercised only so far as the authority extends, either in
terms expressed by the law itself, or by implication clear and satisfactory.” Butte,
Anaconda & Pac., 16 Mont. at 537, 41 P. at 243 (citing Matter of City of Buffalo, 68 N.Y.
167, 170 (1877)).
¶141 Legislatures have struggled with regulatory reforms and reexamination of public
ownership, requiring policy makers to decide whether to continue with deregulation of
utilities or return to public ownership with government controlled regulatory safeguards.
Municipalities have and continue to form public utility districts and are attempting to
negotiate purchases of privately owned utilities. It is not the role of the judiciary and
courts to interfere with this policy debate. Montana’s statutes focus on the character of
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the public use and whether it is necessary. Absent a statute that addresses the nature and
characteristics of the condemnor—that is, whether they are a municipality, government
agency, or private owned—we are not free to inject our personal predispositions toward
or against public ownership into any condemnation proceeding. Judicial decisions that
appear to rest on a “more necessary” rationale when the taking is by a municipality of a
privately owned utility do not offer a reasoned analysis, but rather are undermined with
the predisposition “municipal, ergo more necessary.” In addition to this Court’s opinion
and the District Court’s order such a strained “legal” analysis has been applied in only a
few situations:
While we cast no aspersions upon these corporations . . . the fact remains
that they are manifestly low-grade, volunteer, public service type
corporations, inferior in all respects, to municipalities which exist for the
purpose of general government. Cities enjoy perpetual succession . . . .
They enjoy a higher degree of permanency and a greater degree of stability.
Duck River Electric Membership Corp. v. City of Manchester, 529 S.W.2d 202, 206
(Tenn. 1975). This is exactly the rationale followed by the District Court and is premised
upon an incorrect application of subsection (c).
¶142 The Montana Legislature attempted to address this issue concerning the
characteristics of the condemnor and the condemnee when it specifically delegated to
cities and towns, through § 7-5-4106, MCA, a conclusive presumption of necessity when
the municipality exercises its power to condemn private property for any public use listed
in § 70-30-102, MCA. Section 70-30-102(6), MCA, establishes that “water and water
supply systems as provided in Title 7, chapter 13, part 44” are public uses for which the
right of eminent domain may be exercised. Section 7-13-4405, MCA, further authorizes
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a city or town to use their powers of eminent domain to procure “water rights and the
necessary real and personal property to make an adequate water supply available.”
Section 7-13-4403, MCA, is a statute which specifically addresses under what
circumstances a city or town may acquire a privately owned water supply system such as
Mountain Water. However, this Court in Mountain Water I, in my view, incorrectly
determined that § 7-5-4106, MCA, did not apply to condemnation proceedings of private
water supply because its provisions were not contained within part 44 of Title 7 of the
MCA. In my opinion, it was for the Legislature to decide whether a municipality should
be able to condemn a private utility when the public use would remain unchanged and not
for this Court to invalidate the Legislature’s efforts, absent a constitutional challenge. It
is clear that the Legislature was aware that the general powers of eminent domain
pursuant to § 70-30-111, MCA, were not sufficiently broad to permit condemnation of
property of a pre-existing private utility already devoted to the same public use as
contemplated by the municipality seeking to condemn it.
¶143 The ultimate question presented by these proceedings is whether condemnation of
a privately owned utility dedicated to public use may be condemned by a municipality for
the same proposed public use. As previously explained, subsection (c) is inapplicable as
an exception to the general rule that property already legally appropriated to a public use
is not to be afterwards taken by a municipality for the same use unless the intention of the
Legislature that it be so taken is manifested in express terms or by clear implication. In
my opinion, the Montana Legislature manifested such an intent through its enactment of
§ 7-5-4106, MCA, establishing a conclusive presumption of necessity for the benefit of a
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municipality where the municipality seeks to condemn property. The Legislature
obviously realized, consistent with many other states, that necessity for the taking of
property already committed to a public use was near impossible for a municipality unless
the characteristics of the condemnor—a representative body of the municipality’s
residents—were considered and factored into the necessity analysis. Such presumptions
are premised on the notion that a municipality will not seek to take property already
committed to a public purpose unless it believes it can serve its residents better by taking
ownership of the property committed to a public use. Absent this statutory provision and
given our precedent and the limitations of § 70-30-111(1)(c), MCA, the only conclusion
that can be reached is that the City has failed to meet its burden of proving necessity. It is
undisputed that the City would dedicate the property to the same, identical public use as
Mountain Water’s current use of the property—the supply of potable water to residents of
Missoula and the surrounding area.
¶144 Based upon the foregoing analysis, it is my opinion that the District Court was
incorrect in its legal interpretation of § 70-30-111(1)(c), MCA, and its application to
these proceedings. The parties do not dispute that the public use for which the property
was dedicated and would continue to be dedicated, either under public or private
ownership, was the same and indistinguishable. Pursuant to the foregoing authority, the
order of condemnation amounted to a taking of property from one and giving it to another
without any change in public purpose. Absent a presumption of necessity based upon the
character of the condemnor as a municipality, the City could not meet its burden of proof
by a preponderance of the evidence that the taking of private property was necessary for
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the dedicated public purpose. I would reverse the order of condemnation and dismiss
these proceedings on this basis alone.
¶145 As a final note, I do not agree that it is appropriate for this Court to acquiesce in
the incorrect application of a statute, especially when a fundamental right is at stake. At
the heart of these proceedings was the correct interpretation, as a matter of law, of
subsection (c). Our faulty analysis in Mountain Water I provides no excuse for this Court
to continue in the incorrect application of a statute. Opinion, ¶ 83. Our review of
whether the statute was correctly applied is plenary, and not dependent upon whether the
“theory” was raised by the parties. Opinion, ¶ 83. We have an obligation to litigants, the
trial courts, and the citizens of Montana to “get it right” and make sure a statute has been
correctly applied. When we have been wrong in a previous statutory interpretation, we
have a similar obligation to own our mistake and provide guidance and leadership. The
litigants and the District Court were misled by our decision in Mountain Water I and our
decision today reflects a strained and distorted analysis premised upon the virtues of
private and public ownership when the public use will not change. We should not
perpetuate and magnify the problem we created in Mountain Water I. The trial
proceedings here were complicated and undermined by policy issues surrounding private
and public ownership, which have no place in a judicial proceeding. It is for this Court to
correctly interpret and apply the law, even if it means in doing so that we must admit we
were incorrect previously.
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¶146 I also join Justice Rice as to his assessment and evaluation of the discovery
abuses. I believe the cumulative effects of these abuses denied Mountain Water a fair
trial.
/S/ LAURIE McKINNON
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