Pud v. Naftzi

• Decision Date: 01 February 2007
• Docket Number: No. 76755-6.,76755-6.
• Court: Washington Supreme Court
• Parties: PUBLIC UTILITY DISTRICT NO. 2 OF GRANT COUNTY, Washington, a municipal corporation, Respondent, v. NORTH AMERICAN FOREIGN TRADE ZONE INDUSTRIES, LLC, a Washington limited liability company, Pacific Northwest Bank, a Washington banking corporation,<SMALL><SUP>†</SUP></SMALL> Petitioner.

151 P.3d 176

159 Wn.2d 555

PUBLIC UTILITY DISTRICT NO. 2 OF GRANT COUNTY, Washington, a municipal corporation, Respondent, v. NORTH AMERICAN FOREIGN TRADE ZONE INDUSTRIES, LLC, a Washington limited liability company, Pacific Northwest Bank, a Washington banking corporation,^† Petitioner.

No. 76755-6.

Supreme Court of Washington, En Banc.

Argued September 29, 2005.

Decided February 1, 2007.

Frank Raymond Siderius, Siderius Lonergan & Martin LLP, Seattle, WA, for Petitioner.

David E. Sonn, Kari D. Kube, Jeffers Danielson Sonn & Aylward PS, Wenatchee, WA, Ray Allen Foianini, Ephrata, WA, for Respondent.

FAIRHURST, J.

¶ 1 North American Foreign Trade Zone Industries, LLC (NAFTZI) seeks reversal of a published Court of Appeals decision holding that Public Utility District No. 2 of Grant County (PUD) satisfied notice requirements for initiation of an eminent domain action and that substantial evidence supported the trial court's determination of public use and necessity for the condemnation. We affirm the appellate court's ruling regarding notice on different grounds. We also affirm the holding that substantial evidence supports the trial court's public use and necessity determination.

I. FACTS

¶ 2 When wholesale prices of energy increased sharply in late 2000 and early 2001, Governor Gary Locke issued proclamations and energy supply alert orders stating that vital public services were at risk and the supply of energy could be disrupted. Citing an energy shortage in the region and concerns about being unable to meet the power needs of its consumers, PUD invoked statutory emergency exemptions under RCW 54.04.070 and RCW 39.04.280 to acquire 20 diesel generators on March 27, 2001 to ensure it could meet demand.

¶ 3 In April 2001, PUD entered into a lease with NAFTZI¹ for 20 acres of unimproved land located adjacent to property PUD owned in Grant County, and PUD placed the generators on the leased property. The lease called for an initial term expiring on July 31, 2002, with a 12 month renewal option.

¶ 4 Throughout the lease negotiation process, and during the term of the lease, correspondence between the parties shows that PUD consistently made clear its desire to acquire the property.² PUD was concerned, however, that NAFTZI had overvalued the property, and PUD had yet to obtain permits to operate the generators. Ultimately, a purchase option was not incorporated into the lease contract, and at some point the purchase negotiations broke down.³

¶ 5 One week prior to the regularly scheduled commission⁴ meeting in July 2003, PUD's executive secretary prepared and distributed the meeting agenda. Following the procedure she routinely used,⁵ the executive secretary faxed the agenda to local newspapers and radio stations, posted the agenda outside the commission's meeting room, sent electronic copies to all PUD employees and individuals who had so requested, and mailed a copy to each of the commissioners.

¶ 6 The meeting agenda referred to Resolution 7643,⁶ which was entitled "A Resolution Authorizing the Acquisition By Condemnation of Certain Real Property." Clerk's Papers (CP) at 665. Resolution 7643 identified the property to be condemned and the property owners, including NAFTZI. The resolution stated that PUD had offered the property owners an amount equal to the appraised value and that PUD had been unable to obtain the property through negotiation. It also identified the public use and necessity as "the operating of works, plants, and facilities for generating electric current and furnishing the District and the inhabitants of the District, and any persons including public and private corporations within or without the limit of the District with electric current and energy and to construct facilities for the transmission and distribution thereof." CP at 5. The commission passed the resolution.

II. PROCEDURAL HISTORY

¶ 7 Following the commission's approval of the condemnation action, PUD filed a petition in condemnation in Grant County Superior Court. NAFTZI filed a response, alleging that the proposed taking was not a public use and necessity but did not raise a defective notice argument. Several months later, NAFTZI moved for dismissal alleging for the first time that PUD failed to provide statutory notice under RCW 35.22.288, RCW 35.23.221, RCW 35.27.300, and RCW 35.30.010 of its intent to condemn NAFTZI's property because the notice did not adequately describe the property subject to condemnation.⁷ NAFTZI further asserted that such notice was a jurisdictional requirement. Replying to the motion, PUD argued that it was not subject to the statutes referenced by NAFTZI and the statutes that did govern public utilities did not require it to provide the detail cited by NAFTZI.

¶ 8 While the motion to dismiss was pending, PUD placed two alternative resolutions on the agenda for the commission's December 15, 2003, meeting, one ratifying and one repealing Resolution 7643.⁸ In addition to the standard notices normally prepared by the executive secretary, PUD also specifically notified NAFTZI's counsel and published the text of the two proposed resolutions, which identified the land at issue, in two local newspapers. The commission approved the resolution ratifying Resolution 7643 and adopted it as Resolution 7680.

¶ 9 The trial court granted NAFTZI's motion to dismiss, finding that the "July resolution did not notify the public of the property or site in question." Verbatim Report of Proceedings (RP) (Jan. 15, 2004) at 28. The court declined to rule on the effects of the resolution passed in December 2003. After PUD filed a motion for reconsideration,⁹ the trial court vacated the earlier ruling and ordered the condemnation action to proceed, citing the civil rule for amendment of pleadings and "ratification case law" as the basis.¹⁰ CP at 93.

¶ 10 At the hearing on PUD's motion for determination of public use and necessity, the trial court noted that PUD had performed a cost analysis of the project and recognized the possibility of a need for reserve power capacity. The court also expressed concern that disallowing the condemnation would, in effect, require PUD to incur the cost to remove or sell the generators. Applying the "arbitrary and capricious" standard, the court found a "reasonable basis" for PUD's determination of necessity and ordered the condemnation to proceed to trial. RP (Apr. 1, 2004) at 94-95.

¶ 11 The Court of Appeals, Division Three, affirmed the trial court. Grant County Pub. Util. Dist. No. 2 v. N. Am. Foreign Trade Zone Indus., L.L.C., 125 Wash.App. 622, 634, 105 P.3d 441 (2005). The court concluded that (1) PUD followed statutory requirements in adopting both Resolution 7643 and Resolution 7680, and (2) substantial evidence supported the trial court's determination of public use and necessity. Id. With regard to Resolution 7680, the court concluded that because Resolution 7680 passed before the trial court ruled on the motion to dismiss, there was no purpose to be served by beginning the condemnation process anew. Id. at 631, 105 P.3d 441. It also concluded that any defect in the notice for Resolution 7643 was corrected by the passage of Resolution 7680. Id.

¶ 12 The court also expressly declined to apply an earlier ruling by Division One of the Court of Appeals, Port of Edmonds v. Northwest Fur Breeders Cooperative, Inc., 63 Wash.App. 159, 169, 816 P.2d 1268 (1991), which held that the notice requirements of RCW 35.22.288 applied to condemnations by port districts. The court concluded that the notice requirements of RCW 35.22.288 did not apply to public utility districts because they are subject to a different statutory scheme than port districts. Pub. Util. Dist. No. 2, 125 Wash.App. at 630, 105 P.3d 441.

¶ 13 NAFTZI petitioned for review, which we granted. Pub. Util. Dist. No. 2 of Grant County v. N. Am. Foreign Trade Zone Indus., L.L.C., noted at 154 Wash.2d 1021, 116 P.3d 398 (2005).

III. ISSUES

A. Did PUD fulfill the statutory notice requirements for initiation of an eminent domain action?

B. Did substantial evidence support the trial court's determination of public use and necessity?

IV. ANALYSIS

¶ 14 The power of eminent domain is an inherent attribute of sovereignty. State v. King County, 74 Wash.2d 673, 675, 446 P.2d 193 (1968) (citing Miller v. City of Tacoma, 61 Wash.2d 374, 378 P.2d 464 (1963)). It is limited by the constitution and must be exercised under lawful procedures. Id. Statutes that delegate the State's sovereign power of eminent domain to its political subdivisions, like a municipal corporation, are to be strictly construed. See, e.g., City of Des Moines v. Hemenway, 73 Wash.2d 130, 137, 437 P.2d 171 (1968).

¶ 15 Before the judicial process for condemnation may begin, a city must adopt an ordinance authorizing the condemnation. RCW 8.12.040. A public utility district authorizes a condemnation action pursuant to a resolution of the commission. RCW 54.16.020. Once an entity with the power of eminent domain makes its initial determination to authorize a condemnation action of private property, the matter moves to the superior court for the condemnation, which involves the court determining public use and necessity, fixing the amount of just compensation, and transferring title. In re Petition of Seattle Popular Monorail Auth., 155 Wash.2d 612, 629, 121 P.3d 1166 (2005); see also WASH. CONST. art. I, § 16. This case presents only issues related to PUD's authorization and the public use and necessity stage of the judicial proceeding.

A. Statutory Notice

¶ 16 Procedural errors, such as lack of proper notice, are questions of law reviewed de novo. State v. Harris, 114 Wash.2d 419, 441, 789 P.2d 60 (1990). Although a state entity bears the burden of proving public use and necessity in the judicial condemnation process, the challenger bears the burden of proof that the notice of a public hearing to authorize condemnation was defective.¹¹ We must decide...