Montana Supreme Court justices quiz lawyers on eminent domain, finances (April 22, 2016)

Private ownership is unlikely to provide stability — so said the district court judge in her order giving the city of Missoula the right to buy Mountain Water Co.

The order made multiple statements that could be deemed adverse to any private company, said Montana Supreme Court Justice James Rice. However, he said the law should not predispose condemnation as necessary in every case.

So how can we deal with those very, very broad statements? … Can we excise them? Are they harmless error or are they so riddled through the opinion that it creates reversible error? Rice said.

In response, lawyer Harry Schneider said the broad statements were linked to specific evidence presented in 11 days of trial in Missoula County District Court in the city’s eminent domain case against Mountain Water Co. Schneider represented the city of Missoula.

They’re based on the evidence that was before Judge (Karen) Townsend, said Schneider, of Perkins Coie. And it was based on hard evidence.

Friday, the Montana Supreme Court justices heard oral arguments in City of Missoula v. Mountain Water Co. and The Carlyle Group. The Alexander Blewett III School of Law at the University of Montana hosted the hearing, and assistant professor Martha Williams introduced the case as well as the reason for holding arguments in Missoula.

The Montana Constitution ensures people get the chance to participate in government, and it protects the public’s right to know, she said. The room posted with a capacity for 1,000 was mostly full.

So it’s in the spirit of accessibility that the Montana Supreme Court takes the time to hold an oral argument here in Missoula, where those affected by its decision get to attend, Williams said.

She estimated the court would issue an order by this summer; it usually releases decisions two to eight months after hearing arguments, and eminent domain cases are supposed to be treated expeditiously.

In his argument for the defense, lawyer Brad Luck of Garlington, Lohn and Robinson, said the judge’s order showed a predisposition for the philosophy of public ownership, and he alleged the outcome in favor of the city was political.

There is no basis in the constitution or the laws of the state of Montana to create a preference for municipalization, Luck said.

But he said the city set a low bar for the frightening power of condemnation, a quote from the 1980s he referenced multiple times. Then, the city lost in the state high court, and Justice John Sheehy said statutes do not grant to a city council or commission the frightening power to take by itself conclusive action in condemning the property of another, as quoted in a defendant’s brief.

However, at the end of the arguments, Chief Justice Mike McGrath replied: That was part of a dissent, right?

Despite some laughs, McGrath said he asked the question seriously, and Luck agreed and responded: Wisdom is ageless.

Both Justices Patricia Cotter and Beth Baker asked questions about private property protections versus the power of eminent domain. In another state Supreme Court order the parties cited, justices said the court guarantees property protection, but it doesn’t ignore another right.

We have to be equally impressed … that the good of the whole is the very foundation of the constitution, Baker said.

So she asked if the constitution favored one right over the other.

Luck said he didn’t believe it could, but in the context of this case as well as the court’s previous decisions, he argued the justices should reverse the district court’s order.

Justice Laurie McKinnon quizzed Schneider on a variety of issues, including the city’s lack of complaints about the water system before it sought condemnation. She said no one from the city had alerted Mountain Water or the Montana Public Service Commission to problems.

Schneider, though, said state statute requires certain steps before seeking to condemn property, and the city satisfied each requirement.

Justice Baker asked him if the public would have the same recourse against the municipality as it does against a private company — with Montana Public Service Commission oversight — if the utility makes a serious mistake.

Schneider said it has at least the equivalent — and possibly better. He again mentioned that Missoula is the only city in Montana that doesn’t control its own water, which raised another question from Baker.

But the fact that it’s more common among the cities in Montana does not mean it’s more necessary, does it? Baker said.

To condemn private property, governments in Montana have to show their use is more necessary than the current use.

Baker wanted to know the people’s recourse if something goes awry.

In response, Schneider said if something goes wrong, the owner must fix it, whether it’s a private owner or the city. If the private owner fixes it, the ratepayer pays the cost plus the 9.8 percent return the PSC allows, he said; the city pays only cost.

In court, he said, even defense witness Arthur Laffer, an economist and Reaganomics architect, agreed the most rational economic decision is to replace at cost.

And that is how any problems will be fixed under city ownership, Schneider said.

The justices and lawyers also discussed the cost of the system at length, and how it should play into the first phase of the eminent domain hearing. In the first phase, the court determines if the taking is necessary, and if the answer is yes, a second phase determines the value.

But Luck said much of the city’s argument was based on its purported ability to operate the system at a cheaper cost. Yet he said the judge admitted a possible error in allowing financial evidence at trial, and the city’s cost assumptions were wrong.

The minimal profit allowed is going to be dwarfed by the interest and principle the city pays, Luck said.

In fact, he said, the city’s assumption it could hold down rates for five years is out the window given other costs linked to the case, which he estimated could push the total up to $125 million.

Justice Baker wanted to know how the court could determine whether municipal ownership would bring a savings if the debt service wasn’t on the table yet.

Schneider said the city doesn’t have the amount pegged in dollars and cents, but the bonding capacity exists. In response to another question from Baker, he said at the purchase price of $88.6 million, set in the valuation court proceeding, the city would not have to pay bondholders more than the return the PSC allows.

Those assumptions were tested in this trial, Schneider said.

Source: Keila Szpaller, The Missoulian