City of Missoula v. Mountain Water Co.

IN THE SUPREME COURT OF THE STATE OF MONTANA
THE CITY OF MISSOULA, a Montana Municipal Corporation,
Plaintiff and Appellant,
-VS-
MOUNTAIN WATER CO, a Montana Corporation,
Defendant and Respondent,
WARREN A. BACHE, LaMARR BALDWIN, JACQUELINE D. BECK,LINDA D. DUNW,
DENNIS L. FALK, SHARON R. FRASER, GARY L. FREY, GEORGETTE GERLACK,
SHIRLEY S. GUY, BRADTJEY E . HAFAR, DIANE R. HAMILTON, ARVID M. HILLER,
M. SUSAN HUNT, JERRY E. KIRKPATRICK, GERALD L. LUKASIK, LOUIS F.
McCONAUGHEY, EDMOND L. MAGONE, GARY M. MITCHELL, RAY W. MITCHELL,
RICHARD A. MORSE, MICHAEL L . OGLE, SUSAN L. ORI, TIMOTHY J. SCHWENK,
JULIE K. STANLEY, ROBERT B. WARD and BONITA L . WILDER,
Intervenors and Respondents.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula,
The Honorable Douglas G. Harkin, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Dexter Delaney, MULRONEY, DELANEY & SCOTT; Missoula, MT
Jim Nugent, City Attorney, Missoula, MT
For p,espondent:
m
., 7) William EvanMissoula, MT; Defendant/Respondent
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& ROBINSON;
Jones and Sherman V. Lohn, GARLINGTON, LOHN
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rr i ~1 William H. Coldiron, Helena, MT; Intervenors/Respondents
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C- , , , Dan Caderherg, Missoula, MT; Amicus Curiae
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1.7 ) (-3 Decided: March 23, 1989
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1 Clerk
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.
The City of Flissoula appeals from a iudgment entered
January 19, 1988, against the City in which the District
Court, Fourth Judicial District, Missoula County, determined
that the City had failed to meet its burden of proving by the
preponderance of the evidence that it is necessary that the
City operate the water system now owned by Mountain Water
Company, and that "it is more necessary that the City take
over" the Mountain Water Companv operation. We affirm the
District Court.
The underlying action is an eminent domain proceeding
commenced by the City of Missoula to acquire by condemnation
the water distribution business conducted in the Missoula
area by Mountain Water Company.
This same cause was before us on appeal in City of
Missoula v. Mountain Water Co. (Mont. 1987), 743 P.2d 590, 44
St.Rep. 1633, where the City was also the appellant. In that
cause we affirmed in part, reversed in part, and remanded the
cause to the District Court for reconsideration of certain
pertinent factors.
Following the remand, the District Court determined that
to comply with the order of remand, in further hearings, it
would take up the following specific issues and no others:
1. Non-economic factors involved in whether public
ownership as compared to private ownership, is
necessary and, as a corollary, is more necessary.
2. What consideration must be given to out of
state ownership of Mountain Water as opposed to
local ownership.
3. The vote of the people and council of Missoula
and related questions raised thereby. Specific sub
questions:
A. The exact question which was submitted to the
voters.
R. How many of the people who voted are users of
Mountain Water.
C. Conversely, how many people who voted were not
users of Mountain Water.
D. Whether water users outside of Missoula support
the City or Mountain Water.
4. Whether ownership by City of Rattlesnake water
rights is necessary for future water use and to
protect the use of such rights.
Following the foregoing determination of specific issues
by the District Court, the City of Missoula petitioned this
Court for a writ of supervisory control, objecting to the
limitations. This Court denied the issuance of such a writ.
Thereafter, the matter came on for trial before the District
Court on December 9, 1987.
At the December 9, 1987 hearing, the District Court
received evidence from both parties and denied evidence
offered by the City which the City preserved by means of:
offers of proof. On January 19, 1988, the District Court
entered its "additional findings of fact, conclusions of law
and judgment, after remand" and entered a judgment thereon.
From that judgment the City has appealed.
The findings and conclusions of January 19, 1988,
include matters taken in evidence at the December 9, 1987
hearing, and also from the first trial of this cause in the
District Court. A resume of the facts from the first trial
are found in the first Opinion of this Court, 743 P.2d at
591-592. For the purposes of the reader here, it is enough
to say that Mountain Water Company is a Montana corporation
operating a water distribution system serving 11,720
customers within the Missoula city limits and 4,481 outside
of the city limits. Mountain Water Company acquired the
Missoula water system from Montana Power Company in 1979. On
August 6, 1979, the City passed a resolution declaring its
intent to acquire the water system. Five years later, in
!984, the City adopted a further resolution affirming its
1979 resolution and its interest in acquiring the water
system. In late 1984, the City brought this condemnation
proceeding against Mountain Water. In September, 1985, the
question of co-ownership of the water system was approved by
the citizens of Missoula as a ballot initiative.
We will state other facts where necessary in connection
with the issues discussed hereafter.
DID THE DISTRICT COURT ERR AS TO THE RELEVANCE
AND ADMISSIBILITY OF EVIDENCE ON REMAND?
When, as in this case, this Court on appeal affirms in
part the judgment of the District Court, and remands for
reconsideration other parts of the appeal, those parts of the
judgment which are affirmed become the law of the case and
are binding upon the trial court and the parties in
subsequent proceedings on remand. In Re Stoian's Estate
(1960), 138 Mont. 384, 357 P.2d 41; Ivins v. Hardy (1950),
123 Mont. 513, 217 P.2d 204; Lake v. Emigh (1948), 121 Mont.
87, 190 P.2d 550. In our first Opinion in this cause, this
Court found that certain findings were supported by the
evidence and included "findings on public savings, on rates
and charges, on cooperation between Mountain Water and the
City, and on the effect of having Mountain Water's home
office in Missoula." 743 P.2d at 596. Pith respect to the
Mountain Water employees, this Court said:
... The undisputed record shows that the City
would make reductj-ons in the number of personnel
and also reductions in the pay scale of the
remaining employees in order that the employees
would be paid salaries comparable to other City
employees. We do not agree with the District Court
conclusion that the "City's calloused plan for
Mountain Water's twenty-six employees, standing
alone, is enough to defeat a finding of public
necessity." We hold that the effect on Mountain
Water employees is one factor to be considered in
determining whether the acquisition is necessary,
hut that factor alone is not dispositive.
743 P.2d at 595.
On remand, the District Court denied the City's offer of
resolution no. 4737, from the city council of Missoula, which
stated "it is desirous of retaining the current Mountain
Water Company employees living in Missoula County and
employed in Missoula as city employees at their current wage
or salary compensation with equivalent fringe benefits as
established pursuant to Montana state law." (Emphasis
added. )
The offered resolution represents a change in direction
of 180 degrees from the evidence offered in the trial
preceding our Opinion as to the effect on the Mountain Water
Company employees. In that trial, part of the savings
claimed by the City, if it were allowed to condemn the water
company, came from specified cuts in the wages of each
position held at the Mountain Water Company. The City
contended that the City could reduce the pay of 20 people
employed by Mountain Water by $1-17,656.00, and replace six
Mountain Water employees at a savings of $162,983.00. It was
this evidence that this Court held was "undisputed" as to
reductions in the number of personnel and reductions in the
pay scale. The directive of this Court on remand was that
the District Court should consider the effect on Mountain
Water employees as one factor to be considered. The District
Court was correct in denying the admission of the offered
resolution, for its admission would change in part the 1-aw of
the case established in the Opinion of this Court where we
found that the evidence supported the findings on public
savings on rates and charges and recognized the effect of
having Mountain Water's home office in Missoula.
On remand, the District Court did, in fact, as directed
by us, weigh the effect on employees as one factor in
determining public interests. The court found:
City claims there will be substantial savings to
the City resulting in the reduction in the
employees' salaries and the termination of certain
other employees. The Court finds City has made
assumptions in arriving at these alleged savings
which are unrealistic. Nor has the City proved
that there will be any savings of any consequence
to the City by the proposed reduction in the number
of employees and the salaries of the employees
remaining at Mountain Water. On the other hand,
these proposals would work substantial and severe
hardships upon the employees for no real gains.
The employees are loyal to Mountain Water and their
morale is high. They provide water to the
consumers in an exemplary and economical fashion.
Rather 'than being overpaid, the salaries that the
employees now receive provide them with a
reasonable standard of living. The public interest
would not be served by such a detrimental impact
upon these employees.
The City of Missoula does not attack the foregoing
finding of fact on this appeal from the judgment on remand.
Findings of fact may not be set aside by us unless clearly
erroneous. Rule 5 2 ( a ) , M.R.Civ.P.
The City, however, points to two other paragraphs in
this Court's Opinion before remand. on which the City relies
to open, in effect, the remand to a full blown new trial:
We also do not agree with the conclusion of the
District Court that the "prejudicial issues" of
profit and out-of-state ownership "demeans the
whole process." We do not find any legal basis for
excluding these facts from consideration on the
issue of necessity. We conclude these issues are
pertinent to the determination of whether the
public interest requires the taking under §
70-30-111, MCA, as it has been broadly drafted and
defined. In 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, these issues must be considered
and weighed by the trial court on remand.
We reverse the judgment of the District Court and
remand for reconsideration of all relevant factors,
including the vote by the people and the City's
resolution and ordinance.
Purporting to act in accordance with the foregoing
paragraphs, the City of Missoula offered to prove, and the
District Court denied, on remand, that Mountain Water had
recei~red a rate increase from the Public Service Commission
following the first trial; that Mountain Water was engaged in
litigation with the Public Service Commission for further
rate increases; that under City ownership 91,737,951.00 in
rate increases by Mountain Water would have been avoided;
that under City ownership the City would have realized
$1,896,621.00 in surplus over a six year study without
Mountain Water's increases; that if Mountain Water prevails
in its pending Lewis and Clark County litigation, the cost to
Missoula ratepayers would be an additional $350,000.00 per
year; and, that testimony from its experts Howell and Young
that the District Court in the first trial "incorrectly and
erroneously misunderstood the City's economic proof" in
certain particulars. At an oral hearing before the Court's
order determining the specific issues, the City also proposed
to have its witness testify as to the effect of the 1986
Federal Tax Reform Act on the ratepayers in the system.
Once again the proposed offers of proof from the City
would expand the hearing on remand to a new trial and ignore
the law of the case as announced in the Opinion of this Court
where we sustained the Court's findings on public savings, on
rates and charges, and like material. 743 P.2d at 5 9 6 .
We uphold the court's decisions on the admissibility of
these tvpes of evidence.
DID THE DISTRICT COURT ERR IN ITS APPRECIATION OF THE
NATURE OF A CONDEMNATION PROCEEDING AT THE NECESSITY STAGE?
City of Missoula contends under this caption that the
District Court did not appreciate that this cause involved an
"evolving economic factual. situation" which must he viewed in
light of all circumstances which transpired from the original
economic analysis of the City which culminated in their
expert's report of October, 1 9 8 5 , and facts which occurred up
to the time of remand.
It is on this basis that the City contends that it had
the right to prove the elements of evidence to which we have
already averred. The argument, however, does not take into
account what we have already stated in this matter: those
findings of the District Court from the original trial which
we found to be supported by the evidence have become the law
of the case and need only be considered as factors in
connection with the other factors which this Court outlined
in its 1 9 8 7 Opinion.
The question is novel, and we find no direct authority;
hut we are guided by the statutory language involving eminent
domain proceedings. If the Court in this case had found that
the public interest had required the taking of the interest
of Mountain Water and its real property, then a preliminary
condemnation order, that the condemnation may proceed, would
be proper. Section 70-30-206, MCA. For the purposes of
assessing just compensation thereafter, the right of the City
to take the property would be deemed to have accrued at the
date of the service of the summons, and its current fair
market value as of that date is the measure of compensation
for all property to be actually taken and the basis for
depreciation in the current fair market value of property not
actually taken but injuriously affected. Section 70-30-302,
MCA. Thus, if a condemnation order had issued in this case,
Mountain Water would not be allowed to utilize its rate
increases subsequent to the date of the service of summons in
computing its market value. The factors, therefore, that
affect the issue of necessity should, in fairness, be
determined as of the same date. Principally, however, we
hold here that the effort of the City to reopen the cause
ignores the law of the case as established by the prior
Opinion of this Court, and was properly denied.
In another instance the City offered evidence that the
City claims demonstrated a lack of cooperation between the
City and Mountain Water. That, too, was properly denied by
the District Court because the first Opinion of this Court
found the evidence supported cooperation between Mountain
Water and the City. 743 P.2d at 596.
THE DISTRICT COURT OBEYED THE MANDATE OF THIS COURT
IN CONSIDERING OTHER FACTORS RELATING TO THE
NECESSITY OF THE ACQUISITION
We have already set forth above the weighing by the
District Court of the effect on the employees of M.ountain
Water. The District Court considered that effect as one of
the factors, but not as the sole dispositive fact.
Another factor that this Court remanded for
reconsideration by the District Court was the effect of the
adoption of the resolution by the Missoula City Council, and
the vote of the electorate in connection with the
condemnation. This Court said:
. .. However, we hold that upon remand the public
interest as expressed in these votes must be
considered and weighed with the other factors in
determining whether City acquisition of the water
system is necessary. In considering the weight to
be given to the votes, the court properly may
consider that users outside the City could not vote
or express their opinion, if those are the facts.
The court may also compare the number and identity
of voters with the numher and identity of the water
users.
On remand, the District Court made extensive findings
respecting the actions of the city council and of the ballot
issue.
In tracing the history of the condemnation, the Court
found that when the Montana Power Company, in 1979, decided
to dispose of its water system, a power company
representative and a representative of the holding company of
Mountain Water, and the Mayor of Missoula, and members of his
staff, met. The purpose was to determine if the City was
interested in purchasing the company. The Court found that
the City then did not express any interest in purchasing the
system and eventually the other buyer acquired the system.
On August 6, 1979, the City passed a resolution declaring its
intent to acquire the system. No further official action was
taken on the resolution until October, 1984. The evidence
clearly showed knowledge by the city commission of the
acquisition of the water system by Mountain Water. During
the period to 1984, Mountain Water engaged in long deferred
maintenance of the system. In 1981, the city council
reaffirmed by resolution its intention to acquire the system
and commence condemnation proceedings.
In September, 1985, a ballot initiative to stop the
condemnation proceedj-ngs was put to a public vote. The
question presented on the ballot was whether the City voters
would prohibit the City from purchasing Mountain Water. The
District Court, on remand, found that the ballot was not
accurate because it stated the wrong owner of the water
system. Only 42 percent of all the persons registered to
vote voted at the election. A total of 4,006 voted to
support the City and 3,474 voted against the City. In 23
precincts within the City of Missoula which exclusively used
Mountain Water, 3,339 supported the City and 2,744 voted
against the City's efforts. In the 9 precincts within the
City only partially served by Mountain Water, 626 supported
the City and 704 supported Mountain Water. Considerable
funds were spent on each sj-de respecting the ballot issue.
The District Court concluded that a turnout of 42 percent of
eligible voters demonstrated that the ownership hy the public
was not an important issue in the minds of most city
residents.
The District Court further found that it could not
determine the positions of persons outside the City with
certainty. It did point to a loss of substantial tax revenue
to the county and the school districts as a result of the
condemnation. It pointed to evidence at the first trial of a
concern that the City would use the water to force annexation
of areas outside the city.
Another factor which this Court directed the District
Court to consider on remand was the importance of the City
obtaining ownership of water rights itself, in order that the
City may insure its inhabitants of long-range access to
water. The District Court, in its findings on remand, found
that the water from the Rattlesnake is not necessary to the
system and that a more than adequate supply of water is
available from existing wells. The District Court pointed to
an incident in 1949 when the whole city of Missoula was
without water for 11 days because the entire water system was
frozen. The cause of the freezing was that the surface water
from Rattlesnake Creek, which entered the water system at
temperatures as low as 31 degrees fahrenheit, had the effect
of freezing the entire system. Whereas, well water, pumped
from a greater depth, has a higher temperature and is more
desirable because it poses less danger of freezing the whole
system.
With respect to public versus private ownership of the
system, the District Court found that Mountain Water would
spend $1.5 million on capital improvements to the system over
the next five years. The City maintained that it could
operate the system with less than $0.5 million each year in
capital improvements. The District Court found that
projection unrealistic. If the City limited itself to $0.5
million, the result would be a steadily declining water
system with problems occurring more and more frequently. The
Court also found that the profit realized by Mountain Water
was regulated by Montana Public Service Commission which
assures that utilities will not make excessive profits at the
expense of the service provided to the consumer. The profit
incentive is one of the reasons for the continuing efficiency
of the system of Mountain Water, its annual improvements, and
the overall exemplary services provided to the consumers.
As to the City's contention that it would act in the
best interests of Missoula consumers, which would not be true
of an out-of-state owner of the system, the District Court
pointed out that there was no evidence that Mountain Water
service is less than that rendered by any other water company
or that the City could give better service and that Mountain
Water's quick response to the giardia infestation
demonstrates a concern for the health of the citizens of
Missoula who use this water.
As to whether a privately-owned company should own the
water supply for the City of Missoula and whether those
rights should be controlled by the citizens themselves and
their elective government, the Court found no evidence which
showed that the citizens' long-range access to supplies of
water would be endangered by the continued ownership by
Mountain Water. The District Court pointed to the history of
the ownership after Mountain Water took over from the Montana
Power Company. It rebuilt and re-equipped the water system
to infuse capital into the Missoula economy. The District
Court catalogued this history for the years 1979 through
1985. The Court found that the citizens long-range access to
water was assured through the continued ownership by Mountain
Water and that there was no substantial proof to the
contrary.
None of the foregoing findings is attacked by the City
as being unsupported by evidence, or clearly erroneous under
Rule 52(a) , M. R. Civ.P. The findings are, therefore, binding
upon us.
THE CITY'S AIJTHORITY TO CONDEMN IS THE SOVEREIGN'S
RIGHT OF EMINENT DOMAIN
The City raises two additional issues of law respecting
the City's authority to condemn and the right of the
sovereign to eminent domain. The issues are precluded,
however, because they were determined by this Court in its
first Opinion.
In stating the effect of the Montana statutes relating
to eminent domain, this Court said:
The District Court must determine, under part (2) ,
whether it is "necessary" that the water system be
taken by the City. This Court has defined
"necessary" under this statute as reasonable,
requisite, and proper means to accomplish the
improvement. (Citing authority.) We recognize
that two questions are involved: 1) Is it
necessary that the City have its own water system?
and, 2) Must the City take Mountain Water's
property in order to have its own system? Unlike
the typical case involving condemnation of land for
a highway, the first question here is not whether
it is necessary to have the improvement, but
whether it is necessary to have the improvement
operated by the City instead of by private
industry.
Under part (3), the District Court must determine
whether the proposed use is "more necessary" than
the present use. That the water already has been
appropriated to a public use cannot be disputed
given the broad interpretation of "appropriation to
a public use" in the eminent domain statutes. See
70-30-102 and 203, MCA. (Citing authority.)
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On remand, the District Court followed our mandate, and
based on its findings, concluded:
1. Section 7-13-4404, M.C.A., provides:
Before property can he taken, City must show by a
preponderance of evidence that the public interest
requires the taking based on the following
findings :
(1) that the use to which it is to be applied is a
use authorized by law;
(2) that the taking is necessary to such use;
( 3 ) if already appropriated to some public use,
that the public use to which it is to be applied is
a more necessary public use.
Considering relevant factors set out in the
original findings, and these findings, including
the City resolution and the public vote, the Court
concludes that the City has failed to meet its
burden of proving by a preponderance of the
evidence that it is necessary that the City operate
the Mountain Water system. Since this property is
already a public utility, and hence to some degree
dedicated already to a public use, it is not more
necessary the City take over its operation. The
public interest will be best seryrec? hy the City not
being permitted to condemn Mountain Water.
2. Having failed to carry its burden of proof, the
Court now denies the City relief in this
proceeding.
The decision of this Court on a former appeal, whether
right or wrong, is binding alike on parties and courts in the
same action. Little v. Little (1953), 127 Mont. 152, 259
P.2d 343; State ex rel. Great Northern Railway Company v.
State Board of Equalization (1952), 126 Mont. 187, 246 P.2d
220; Apple v. Edwards (1949), 123 Mont. 135, 211 P.2d 138.
We hold, therefore, that the District Court properly
considered the issues referred to on remand by this Court and
considered those factors in determining that the City of
Missoula had not established a right to condemnation of the
property of Mountaj-n Water Company. We, therefore, affirm
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the judgment of the District Cour
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Justice
We Concur:
Justices
Mr. Justice William E. Hunt, Sr., did not participate.