Ark. State Hwy. Comm. v. Sub-Dist. No. 3

George Rose Smith, J.

These two condemnation suits, consolidated below, are actually test cases by which the parties seek a determination of this question: Does a drainage district, by reason of its uncollected assessment of benefits, have a property interest in lands within the district for which it is entitled to compensation, in a condemnation proceeding, in addition to the award made to the landowner? The trial court answered this question in the affirmative, holding that the district was entitled to recover a sum equal to the total amount of all the unpaid future drainage district assessments that had been levied by the district against the land being condemned. By direct appeal the Commission contends that it does not owe the district anything. By cross appeal, which we do not reach, the district contends that it should recover a sum equal to the uncollected portion of the benefits assessed against the land being condemned.

The lands in question, which the Commission is taking in fee simple, lie within several overlapping drainage districts. This appellee, a typical drainage district, was organized in 1924 under the Alternative Drainage District Law. Ark. Stat. Ann. §§ 21-501 et seq. (Repl. 1956). Benefits from the proposed improvement were assessed against lands within the district. § 21-513. Funds for the construction of the drainage system were raised by the issuance and sale of bonds, secured by a pledge of the assessed benefits. § 21-553. For the payment of the bonds taxes are levied in annual installments against the assessment of benefits. § 21-554. This particular district now has an outstanding bonded debt with annual maturities running until 1980. The trustee for the bondholders was made a party to this litigation.

In these test cases the parties selected two fact situations for the presentation of their problem to the courts. In the first case the Highway Commission, without notice to the drainage district, acquired a tract within tin? district by purchasing the fee simple title from the landowner. The Commission then brought this condemnation action against the district, alleging, however, that the district had no compensable property interest apart from that already acquired by the Commission from the landowner.

In the second case, involving another tract, the Commission joined the landowner and the district as defendants in a condemnation suit. The case was first tried with respect to the landowner’s interest alone. He received an award for the fee simple estate. It was stipulated that whatever rights the drainage district might have would be determined at a later date.

The trial court, as we have said, held in both cases that the district had a separate compensable property right in the lands. This was error. There is no tenable theory upon which it can be said that the Commission is taking from the district an independent property right that is separable from the landowner’s fee simple estate.

Two possible theories come to mind. First, the district has a lien against the assessment of benefits—a lien which, upon the landowner’s failure to pay his taxes, may be enforced against the land itself by means of a foreclosure suit. Ark. Stat. Ann. § 21-546 (Repl. 1956). Thus the district has a remedial right against the land that is, if not actually a lien, at least in the nature of a lien.

Such a remedial right is not an estate in the land. With respect to true liens, such as mortgages, the condemnation award takes the place of the land, so that the lienholder’s remedy is to proceed against the award. Nichols, Eminent Domain (Rev. 3d Ed.), § 5.74. Hero the district chose to forego any claim against the landowner’s award and to insist instead that it has a distinct cause of action against the condemnor. It is clear, however, that if the district’s claim is in the nature of a lion its sole remedy is against the award.

Secondly, in addition to its remedy in the event of a delinquency the district also has a substantive right to levy taxes in the future against the assessed benefits. It might be argued that the destruction of this power of taxation is a taking of property for which compensation must be made.

We think it plain that the district’s potential ability to collect the assessed benefits must necessarily be regarded as an element in the landowner’s fee simple estate, for which payment has admittedly been made. To illustrate: We were told in the oral argument that many years ago Mississippi county, where this litigation arose, contained extensive swamp areas of little value. By the creation of levee and drainage districts those swamps have been converted into valuable farm lands. That transformation has been financed by the assessment of benefits against the lands. It is perfectly clear that the physical benefits conferred by the various improvement districts are reflected in the increased market value of the farm land. When the condemnor pays that increased market value, as it has done in these cases, it also pays for the benefits conferred by the districts. If the condemnor were compelled also to pay the districts for their potential power of taxation, the condemnor would be paying twice for the same enhancement of value. If by any chance—and we express no opinion on this point—• the district has some sort of equitable claim arising from the fact that the assessment of benefits has not been paid in full, that controversy is between the district and the landowner and can be of no concern to the condemnor.

This drainage district earnestly argues that, as a matter of equity, if the potential tax liability of the condemned land should be extinguished without compensation to the district the result will be to increase the payments that will eventually have to be made by the other landowners in the district. No doubt this is. true, but the situation is simply an unavoidable consequence of the State’s sovereign immunity from taxation. In fact, this situation is commonplace. Almost every tract of land taken by eminent domain is subject to future taxation for public improvements already made, such as a levee, a drainage system, a courthouse, a municipal auditorium, a schoolhouse, and so on. There can, as a practical matter, obviously be no requirement that the sovereign satisfy all these nebulous obligations as a condition to the acquisition of the land. (See Public Water Supply Dist. No. 3 v. U.S., 135 F. Supp. 887.) That some shift in the burden of taxation may take place is merely one of the risks that every taxpayer incurs.

A somewhat similar argument is that the value of the district’s outstanding bonds might be destroyed if the State should elect to condemn all the land in a particular improvement district. Whether equity might provide a remedy in that situation is a question that we prefer to leave unexplored until it arises. In the case at bar the lands being taken represent such a tiny part of the total taxable property in the district that there is not even a hint that the security of the outstanding bonds has been impaired. We do not feel called upon to adopt an unsound rule of law, by affirming this decree, merely to hedge against a contingency so remote that it does not seem ever to have arisen or to be likely ever to arise in the future.

Reversed.

Harris, C.J., and McFaddin and Holt, JJ., dissent.