Arkansas State Highway Commission v. Sub-District No. 3 of Grassy Lake

• Decision Date: 03 February 1964
• Docket Number: No. 5-3117,No. 9,SUB-DISTRICT,9,5-3117
• Citation: 237 Ark. 614,376 S.W.2d 259
• Parties: ARKANSAS STATE HIGHWAY COMMISSION, Appellant, v.NO. 3 OF GRASSY LAKE and Tyronza Drainage Districtet al., Appellees.
• Court: Arkansas Supreme Court

Page 259

376 S.W.2d 259

237 Ark. 614

ARKANSAS STATE HIGHWAY COMMISSION, Appellant, v. SUB-DISTRICT NO. 3 OF GRASSY LAKE and Tyronza Drainage District No. 9 et al., Appellees.

No. 5-3117.

Supreme Court of Arkansas.

Feb. 3, 1964.

Rehearing Denied March 30, 1964.

Dowell Anders and Don Gillaspie, Little Rock, for appellant.

C. M. Buck, Blytheville, Bruce Ivy, James E. Hyatt, Jr., Osceola, for appellees.

GEORGE ROSE SMITH, Justice.

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 own 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 the 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. Here 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 lien 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 district 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 of Jackson County, Mo. v. United States, 135 F.Supp. 887, 133 Ct.Cl. 348.) 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.

McFADDIN, Justice (dissenting).

The appellant, Arkansas State Highway Commission (an agency of the State), will sometimes be referred to as 'Highway Commission'; and appellee, Sub-District No. 3 of Grassy Lake and Tyronza Drainage District (duly created pursuant to law) will sometimes be referred to as 'District.' The brief of the appellant begins with the following clear statement:

'This case involves the determination of an important question of law, which has never before reached this Court.

The outcome will directly affect the acquisition of a majority of the right of way for State highways in the future. Interstate Highway No. 55 traverses Mississippi County. The lands acquired for its construction were subject to benefits assessed by five drainage districts. Some of the property was purchased by warranty deed from the record holders of title to which deed the districts were not a party. In this situation, a separate lawsuit was filed against the districts in order to determine whether they had any compensable interest. The remaining property was condemned (the districts were parties defendant in the action), but the cases proceeded to judgment with the understanding between the Commission and the districts that their interests would be reserved and determined separately.'

Directly involved are two tracts of land herein referred to as Tract No. 5 and Tract No. 11. The Highway Commission acquired title to Tract No. 5 by eminent domain proceedings, and acquired title to Tract No. 11 by direct warranty deed from the owner. This case was tried before the Circuit Judge without a jury on an agreed statement, from which we copy the following pertinent experpts:

'1. This hearing shall adjudicate the interests of Sub-District No. 3 * * * in the property designated as Tract No. 5 * * * and Tract No. 11 * * *

'2. That Tract No. 5, consisting of 50.058 acres, was condemned by the Arkansas State Highway Commission (hereinafter referred to as the Commission) on the 15th day of April, 1959, for State highway purposes; that the interest condemned and taken by the Commission was a fee simple absolute interest of the landowner; that...