Adaman Mutual Water Company v. United States

• Decision Date: 26 May 1960
• Docket Number: No. 16583.,16583.
• Citation: Adaman Mutual Water Company v. United States, 278 F.2d 842 (9th Cir. 1960)
• Parties: ADAMAN MUTUAL WATER COMPANY, a corporation, Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

278 F.2d 842 (1960)

ADAMAN MUTUAL WATER COMPANY, a corporation, Appellant, v. UNITED STATES of America, Appellee.

No. 16583.

United States Court of Appeals Ninth Circuit.

May 26, 1960.

Snell & Wilmer, Phoenix, Ariz., for appellant.

Perry W. Morton, Asst. Atty. Gen., Jack D. H. Hays, Phoenix, Ariz., for appellee.

Before BONE, POPE and HAMLIN, Circuit Judges.

BONE, Circuit Judge.

Appellant, Adaman Mutual Water Co., is the crux of a land utilization program of some complexity. In 1943 Goodyear Farms, a corporation, formed from lands which it owned in Maricopa County, Arizona, a Reclamation Project designed to demonstrate the feasibility of dividing large land holdings into traditional family sized farms. The area encompassed by this Project was exceedingly dry, and surface water for irrigation was unobtainable. Underground water had to be pumped and distributed, and to provide this service to the small farms envisioned in the Project, at minimum cost, appellant, a mutual, non-profit corporation, was organized.

Appellant's articles of incorporation prohibit anyone from holding company stock who neither owns land within the Project outright nor under agreement of sale. The owners of Project land, on the other hand, may subscribe for that number of shares equal to the number of acres owned.¹ Each share of stock entitles its holder to a prorata share of water, and both water rights and stock are made appurtenant to the land upon which the water is to be used. In addition, the stock and the land to which it is appurtenant are subject to prorata assessments to be made from time to time by appellant to pay both for the capital investment in the irrigation facilities and for the operation and maintenance of the irrigation system. The assessments, once made, become a lien on the land and on the stock and water rights appurtenant thereto. If an assessment is not paid on time, appellant may foreclose upon the debtor's land and stock. No assessment can be made, however, upon stock appurtenant to land that has never been cultivated, that is, until cultivation begins.

The stock subscription agreement, which must be signed by each landowner receiving appellant's stock, stipulates that the stock and the right to receive water are to be forever inseparable from the land, that the transfer of the land automatically transfers the stock and the rights to water, and that the transfer of land without stock or stock without land is of no effect. If, however, it becomes impracticable to irrigate a segment of Project land the water rights appurtenant thereto may be severed from the land upon the owner's request. In addition, water rights may be forfeited by voluntary abandonment, by non-use for the term prescribed by law, or by failure of the owner of the land to which the rights are appurtenant to pay assessments levied by the company. By subscribing for stock, the landowner agrees to abide by the articles of incorporation, by-laws and regulations of appellant.

No provision is made for termination of the duty to pay assessments once the landowner accepts that burden by subscribing for appellant's stock and commencing to cultivate his land. The duty to pay assessments apparently is to continue even in the event that the right to water for the assessed land is forfeited. By not gearing the duty to pay assessments to the use of appellant's irrigation facilities, the backers of the Project avoided possible catastrophe. For if the duty to pay assessments were to terminate with the cessation of water use, the cost of irrigation to those continuing to work the land could become increasingly intolerable as their more easily discouraged neighbors discarded desert farming for some other occupation.

In 1953 the United States entered the picture by bringing condemnation proceedings against 233 acres or 8.3% of the land area within the Project. Most, but not all, of this segment had been transferred by Goodyear through warranty deed or agreement of sale. Only a small fraction of the condemned land was held under lease from the original owner. The compensation claims of those in possession have all been settled. In addition, appellant has been paid for ditches and other physical facilities located upon the condemned area of land.

The only question presently raised is whether or not appellant is entitled to be compensated for the loss of a portion of Project land since the remaining area will be subject to increased assessments in the future to pay for the maintenance, replacement and operation of the communal irrigation system, the cost of which has not been appreciably lessened by the condemnation. In other words, does the diminution of appellant's assessment base constitute the taking of a compensable interest under the Fifth Amendment?

We take as a point of departure what the Supreme Court said in United States v. General Motors Corp., 1945, 323 U.S. 373, at pages 377-380, 65 S.Ct. 357, at pages 359-360, 89 L.Ed. 311:

"The critical terms are `property,\' `taken\' and `just compensation.\' It is conceivable that the first was used in its vulgar and untechnical sense of the physical thing with respect to which the citizen exercises rights recognized by law. On the other hand, it may have been employed in a more accurate sense to denote the group of rights inhering in the citizen\'s relation to the physical thing, as the right to possess, use and dispose of it. In point of fact, the construction given the phrase has been the latter. When the sovereign exercises the power of eminent domain it substitutes itself in relation to the physical thing in question in place of him who formerly bore the relation to that thing, which we denominate ownership. In other words, it deals with what lawyers term the individual\'s `interest\' in the thing in question. That interest may comprise the group of rights for which the shorthand term is `a fee simple\' or it may be the interest known as an `estate or tenancy for years\', as in the present instance. The constitutional provision is addressed to every sort of interest the citizen may possess.

"In its primary meaning, the term `taken\' would seem to signify something more than destruction, for it might well be claimed that one does not take what he destroys. But the construction of the phrase has not been so narrow. The courts have held that the deprivation of the former owner rather than the accretion of a right or interest to the sovereign constitutes the taking. Governmental action short of acquisition of title or occupancy has been held, if its effects are so complete as to deprive the owner of all or most of his interest in the subject matter, to amount to a taking.

"But it is to be observed that whether the sovereign substitutes itself as occupant in place of the former owner, or destroys all his existing rights in the subject matter, the Fifth Amendment concerns itself solely with the `property\' i. e., with the owner\'s relation as such to the physical thing and not with other collateral interests which may be incident to his ownership.

* * * * * *

"The sovereign ordinarily takes the fee. The rule in such a case is that compensation for that interest does not include future loss of profits, the expense of moving removable fixtures and personal property from the premises, the loss of good-will which inheres in the location of the land, or other like consequential losses which would ensue the sale of the property to someone other than the sovereign. No doubt all these elements would be considered by an owner in determining whether, and at what price, to sell. No doubt, therefore, if the owner is to be made whole for the loss consequent on the sovereign\'s seizure of his property, these elements should properly be considered. But the courts have generally held that they are not to be reckoned as part of the compensation for the fee taken by the Government. We are not to be taken as departing from the rule they have laid down, which we think sound. Even where state constitutions command that compensation be made for property `taken or damaged\' for public use, as many do, it has generally been held that that which is taken or damaged is the group of rights which the so-called owner exercises in his dominion of the physical thing, and that damage to those rights of ownership does not include losses to his business or other consequential damage." (Footnotes are omitted in the above quotation.)

Stated more succinctly, the Government must pay for all tangible interests actually condemned and for intangible interests directly connected with the physical substance of the thing taken. Comment, 18 U.Chi.L.Rev. 349 (1951).² The consequential loss rule, much maligned, ibid; Comment, 67 Yale L.J. 61 (1957); and somewhat dented, United States v. General Motors Corp., supra; Kimball Laundry Co. v. United States, 1949, 338 U.S. 1, 69 S.Ct. 1434, 93 L.Ed. 1765, is with us still. It cannot be ignored.

When a parcel of land is condemned, the courts have tended to identify direct, compensable losses with interests includible in the bundle of rights which form conceptually the fee itself, rights which are said to be interests or estates in the land. See United States v. Welch, 1910, 217 U.S. 333, 30 S.Ct. 527, 54 L.Ed. 787 (easement); Brooklyn Eastern District Terminal v. City of New York, 2 Cir., 1944, 139 F.2d 1007, 152 A.L.R. 296 (same); Creasy v. Stevens, D.C.W.D.Pa.1958, 160 F.Supp. 404, 411 (right of access); Tucker v. United States, D.C.D.R.I.1922, 283 F. 428 (profit a prendre). Since this distinction is apparently designed to accord some degree of predictability to the classification of remote and direct losses, it need not be applied as an unwavering principle. See Caltex (Philippines), Inc. v. United States, 1951, 100 F.Supp. 970, 974, 120 Ct.Cl. 518, reversed on other grounds, 1952, 344 U.S. 149, 73 S.Ct. 200, 97 L. Ed. 157. Nonetheless, if an interest in land is lost as a result of the taking of...