City of Phoenix v. Phoenix Civic Auditorium & Convention Center Ass'n, Inc.

• Decision Date: 13 December 1965
• Docket Number: No. 8394,8394
• Citation: 408 P.2d 818,99 Ariz. 270
• Parties: CITY OF PHOENIX, a municipal corporation, Appellant, v. PHOENIX CIVIC AUDITORIUM & CONVENTION CENTER ASSOCIATION, INC., an Arizona Corporation, Appellee.
• Court: Arizona Supreme Court

Page 818

408 P.2d 818

99 Ariz. 270

CITY OF PHOENIX, a municipal corporation, Appellant, v. PHOENIX CIVIC AUDITORIUM & CONVENTION CENTER ASSOCIATION, INC., an Arizona Corporation, Appellee.

No. 8394.

Supreme Court of Arizona, In Banc.

Dec. 13, 1965.

Merle L. Hanson, City Atty., Phoenix, by Robert J. Backstein, Asst. City Atty., Joseph A. Matter, Chapman & Cutler, Chicago, of counsel, for appellant.

Snell & Wilmer, by Burr Sutter, Phoenix, for appellee.

Calvin Webster, City Atty., Tucson, by Harrison G. Dickey, III, Asst. City Atty., for amicus curiae City of Tucson.

Kramer, Roche, Burch & Streich, by Frank Haze Burch and Richard R. Filler, Phoenix, for amicus curiae Hotel-Motel Industry.

McFARLAND, Justice:

This is an appeal from a declaratory judgment wherein the trial court held that an agreement entered into between the City of Phoenix, hereinafter called the city, and the Phoenix Civic Auditorium & Convention Center Association, Inc., a nonprofit organization, hereinafter called the Association, was violative of the Arizona budget laws as provided for in A.R.S. § 42-301 to 42-312, as amended, and was therefore an invalid and void agreement.

In December 1963 the City and the Association entered into an agreement whereby the Association or others would finance the construction of a civic center and related facilities which would be leased to the City. Subsequently, the Association refused to perform under the agreement, alleging that the City did not have authority to enter into the agreement for four separate and distinct reasons hereinafter set forth. The City brought suit for a declaratory judgment to have the validity of the agreement determined.

The financing arrangement, hereinafter called the 'agreement,' recited the following terms. The City, in its desire to lease an auditorium and convention center, would purchase or condemn land within the City of Phoenix. Thereafter, the City would call for competitive bids for the lease of this land under the terms of a 'ground lease,' whereby the successful bidder would lease the land from the City for a period of forty (40) years, and, in addition, the lessee would agree to build an auditorium thereon. The City and the Association thereafter would enter into a 'City Lease,' whereby the lessee of the land would lease back to the City the land and the auditorium for a period of thirty-five (35) years. The five years intervening between the 'ground lease' and the 'City lease' were to insure that the auditorium would be completed before the City became lessee of the Association. The 'City lease' provided that no bid could be accepted by the City unless a qualified appraiser determined that the monthly rental to be paid by the City under the terms of the 'City lease' was fair and reasonable. In addition, if requested by the City, the Association agrees to operate the auditorium and convention complex on behalf of the City, notwithstanding that the Association might not in fact be the successful bidder, and, if so requested, execute an 'operating agreement.'

Within 120 days after the City and the successful bidder enter into the 'ground lease' and 'City lease,' the lessee under the 'ground lease' agrees to pay to the City a rental under the 'ground lease,' in an amount equal to the City's cost incurred in purchasing or condemning the property. The 'ground lease' provides the lessee must bear all construction risks and the insurance coverage during the period of construction. The 'ground lease' also sets forth the provision that the lessee can mortgage only its leasehold interest to secure any obligations it may issue in conjunction with the cost of constructing the auditorium.

The 'City lease' is in the form of a 'net lease' whereby the lessee will pay to the lessor, the Association, the agreed monthly rental and all costs of operation, insurance, taxes, and other costs. Under the 'City lease' certain conditions ¹ are set forth in event the lease is breached by the City. The City lease expressly provides:

'The City agrees to pay to the Company, its successors or assigns, the sum of $_____ per month, payable in monthly installments in advance. Said monthly rental shall be paid for and in consideration of the use and occupancy of the demised premises (including the Auditorium Center) which the City receives and in consideration of the continued quiet use and enjoyment thereof as provided in Section 10.3 hereof, during each month for which said monthly rental is to be paid.'

Although there is no basis shown in the record as to how a figure was arrived at, according to counsel who seem to be in absolute accord on the point, the minimum yearly rental would be $250,000, which when extended over the 35-year period of the City lease equals some $8,750,000. The City does not pledge any particular source of revenue to pay the monthly rentals. At the end of the City lease, providing the City has fully performed all the covenants thereunder, the ground lease would terminate, and the interests of the Association in the property would cease. ²

As previously stated, the agreement does not pledge any particular source of City revenue to pay the monthly rentals. The brief of Amicus Curiae filed on behalf of the hotel-motel industry in the City of Phoenix states that, under City Ordinance G-557, a hotel-motel room tax has been levied specifically to raise the needed revenues for the cost of financing the construction of the auditorium. Since the agreement shows no pledge of any specific source of revenue, the issue of the room tax is not before this court. Amicus curiae will not be permitted to create, extend, or enlarge the issues. Bristor v. Cheatham, 75 Ariz. 227, 230, 255 P.2d 173.

It has been noted that the Phoenix Civic Auditorium & Convention Center Association, Inc., is a non-profit organization. The 'agreement' provides:

'F. The Association has not made and does not intend to make any profit by reason of any business or venture in which it may engage or by reason of the erection or operation of the said Auditorium Center, and no part of the Association's net earnings, if any, will ever inure to the benefit of any person, firm or corporation excepting only the City.'

The City makes four assignments of error. In the first it is stated:

'The trial court erred in failing to determine that the City has authority under its charter and the statutes to enter into the 'City Lease' required by the agreement and that the agreement is valid.'

The answer to the first assignment depends upon the disposition of Assignments 3 and 4, so they will be treated together.

We shall first consider the second assignment of error, in which the City contends that the court should have determined that the use by the City of its power of eminent domain for the purpose of acquiring all or a part of the land to be required for the purpose of the ground lease was a valid exercise of its power of eminent domain.

A.R.S. § 12-1111 enumerates the following purposes for which eminent domain may be exercised by state, county, city, town, or village, or political sudivision, or by a person:

'Subject to the provisions of this title, the right of eminent domain may be exercised by the state, a county, city, town, village, or political subdivision, or by a person, for the following uses:

* * *

* * *

'3. Buildings and grounds for the use of a county, city, town or school district.'

Obviously, the buildings and grounds referred to in this section must be for a public use.

Article II, Section 17, of the Arizona Constitution, A.R.S., sets forth the conditions under which eminent domain may be exercised, and, in regard to the use of eminent domain for public use, states:

'* * * Whenever an attempt is made to take private property for a use alleged to be public, the question whether the contemplated use be really public shall be a judicial question, and determined as such without regard to any legislative assertion that the use is public.'

Since condemnation of private property is authorized by the legislature and under the constitution for public use, the question then turns upon whether the acquirement and use of the convention center, as described in the agreement, is a public use. The Arizona Territorial Court, in 1891, recognized the necessity of government's adapting itself to the existing conditions and the wants and needs of society. In Oury v. Goodwin, 3 Ariz. 255, 26 P. 376, the court said:

'All condemnation acts are predicated on the proposition that private ownership must yield to public necessity. 'Public necessity' often means, as illustrated in the above instances, public convenience and advantage. We have many other instances of what 'public necessity' means. Though telephones are of very recent invention, and reach the very limited few their use is held to be a public necessity; in other words, public convenience and advantage,--sufficiently so, at least, to justify the exercise of the sovereign power of eminent domain. Natural gas, though limited to localities small in area, is held also to be a public necessity, and therefore to justify the exercise of this extraordinary power. Laws relating to the telephone and natural gas are good illustrations of the adaption of the law to the existing conditions, and the necessity for the enforcement of the doctrine that private property must yield, on compensation being made, to the public welfare. But recently both the telephone and natural gas were unknown, now both are necessary to the public use; that is, we submit to the public convenience and advantage. 'Government must adapt itself to the existing condition and wants of society, or its efficiency is destroyed.' Swan v. Williams, 2 Mich. 438. 'This right of resumption [condemnation] may be exercised not only when the safety, but also when the interest, or even the expediency, of the state is concerned.' Beekman v. [Saratoga & S.] Railroad Co., 3 Paige 73, 22 Am.Dec. 679. ...