Smith v. City of Owatonna, C5-88-1789

• Decision Date: 19 January 1990
• Docket Number: No. C5-88-1789,C5-88-1789
• Citation: 450 N.W.2d 309
• Parties: Therese M. SMITH, et al., Petitioners, Appellants, v. The CITY OF OWATONNA, Respondent.
• Court: Minnesota Supreme Court

Page 309

450 N.W.2d 309

113 P.U.R.4th 85

Therese M. SMITH, et al., Petitioners, Appellants, v. The CITY OF OWATONNA, Respondent.

No. C5-88-1789.

Supreme Court of Minnesota.

Jan. 19, 1990.

Rehearing Denied March 26, 1990.

Syllabus by the Court

The City's actions in requiring plaintiffs to pay for their service lines to the City's new, upgraded gas distribution system do not violate constitutional due process, nor constitute a "taking," nor are they a denial of equal protection of the law.

Stephen J. Smith, Tracy M. Smith, Smith & Tollefson, Owatonna, for appellants.

Corey J. Ayling, Minneapolis, for respondent.

Hubert H. Humphrey, III, Atty. Gen., Dennis D. Ahlers, Sp. Asst. Atty. Gen., St. Paul, for amicus curiae State of Minn.

Jocelyn F. Olson, Asst. Atty. Gen., St. Paul, for amicus curiae Dept. of Public Service.

Legal Aid Soc. of Minneapolis, Inc., Minneapolis, for amicus curiae Energy Sense Coalition.

Heard, considered, and decided by the court en banc.

SIMONETT, Justice.

Plaintiff property owners, in this appeal, raise constitutional challenges to the municipally-owned utility's actions in requiring them to pay the cost of installing service lines to connect to the city's new replacement gas mains.

Beginning in 1980 the City of Owatonna, by its Public Utilities Commission, began a program of upgrading only low pressure gas mains. On two streets the old mains were replaced with new low pressure gas mains. Next, in 1984, the old low pressure mains on Main Street were replaced with high pressure mains. The property owners on Main Street, including the plaintiffs here, received a letter from the city engineer advising them that they would be responsible, at their own expense, for hiring a plumber and installing the service line from their properties to the new high pressure main. Property owners on the previous projects had also been required to pay for their service lines, but the high pressure line involved the additional expense of installing a pressure reducing regulator and meter on the outside of the buildings. Pursuant to the city's directive, plaintiff Therese M. Smith installed the new service line and regulator at a cost of $948.07, and plaintiffs William and Norma Cawley did the same for their property at a cost of $1,400.

A year later, in 1985, the Commission installed new high pressure mains on School Street but the City, not the property owners, paid for the service lines and regulators. The Commission explained it was absorbing this expense because it was experimenting with plastic piping and wanted to certify its own installers to use the new product.

In July 1985 plaintiffs commenced this lawsuit against the City claiming that its action in compelling them to abandon their old yet adequate low pressure service lines and to install a new high pressure service line at their own expense violated their constitutional rights under the federal and state constitutions. They claimed (a) a deprivation of property without due process; (b) a "taking" without just compensation; and (c) a denial of equal protection.

Prodded by the lawsuit and the foot-dragging of other complaining property owners, the City, in 1986, changed its policy. It elected thereafter to pay the cost of replacing all service lines. Later that year, the City paid the cost of service lines to a new high pressure main replacement on Grove Street.

The trial court found that the previously existing low pressure gas main on Main Street had been adequate to meet the needs of the properties involved. The court also found the new high pressure mains afforded certain operational advantages to the Commission and perhaps to the City as a whole, although they conferred no direct benefit to plaintiffs. The trial court ruled that plaintiffs had been denied procedural due process; that requiring plaintiffs to pay the cost of their service lines was arbitrary and capricious; and that plaintiffs had been deprived of a "property interest in their respective gas services" without just compensation. The trial court awarded Therese M. Smith $948.07 and the Cawleys $1,400, plus attorney fees.

On appeal, the court of appeals (2-to-1) reversed, ruling that plaintiffs were not entitled to recover on any of the three theories they asserted. Smith v. City of Owatonna, 439 N.W.2d 36 (Minn.App.1989). We granted plaintiffs' petition for further review. We also granted the State of Minnesota and its Department of Public Service and the Energy Cents Coalition leave to file amicus briefs.

I.

The first issue is whether plaintiffs were deprived of a property interest without due process. We think not.

The threshold (and dispositive) question is whether plaintiffs have a "property interest" entitled to due process protection. The United States Supreme Court has eliminated the distinction between property and privilege. The test whether a person has asserted a property right is whether the plaintiff has asserted a legitimate claim of entitlement to a government benefit. Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548 (1972). See Snyder v. City of Minneapolis, 441 N.W.2d 781, 791 (Minn.1989). The source of entitlements, i.e., property rights protected by due process standards, is state or federal law: "Property interests, of course, are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law--rules or understandings that secure certain benefits and that support claims of entitlement to those benefits." Roth, 408 U.S. at 577, 92 S.Ct. at 2709.

Thus in Memphis Light, Gas & Water Division v. Craft, 436 U.S. 1, 11-12, 98 S.Ct. 1554, 1561, 56 L.Ed.2d 30 (1978), because Tennessee's decisional law indicated that gas and electric services could only be terminated for just cause, the United States Supreme Court held that the plaintiffs had an entitlement interest protected by due process standards. Before service to a customer could be discontinued for nonpayment of a bill, due process required notice of how to challenge the bill and an opportunity for a predeprivation hearing on the past due charges. Id. at 14-15, 18, 98 S.Ct. at 1562-63, 1564.

Our state law, too, affords protection to utility customers to whom service is denied or threatened with disconnection. In Cascade Motor Hotel, Inc. v. City of Duluth, 348 N.W.2d 84, 85 (Minn.1984), we held unenforceable a Duluth ordinance requiring new applicants for utility services to pay the past due bills of the former owner of the premises. See also, e.g., Siegel v. Minneapolis Gas Co., 271 Minn. 127, 129, 135 N.W.2d 60, 62 (1965) (utility company may adopt regulations for terminating service to customers in default, implying services cannot be terminated without a reason). Thus, Judge Diana Murphy in Freeman v. Hayek, 635 F.Supp. 178, 182-83 (D.Minn.1986), construing our case law, held that Minnesota users of water and sewage utilities had "a legitimate claim of entitlement at least equivalent to that of the plaintiffs in [Craft ]." Accord Lamb v. Hamblin, 57 F.R.D. 58, 61 (D.Minn.1972) (Judge Edward Devitt). Our statutory law also, ¹ as well as rules promulgated by the Public Utilities Commission, ² reflect our state's concern that utility services, generally, may not be discontinued without good cause. Plainly this "entitlement" applies to municipally-owned utilities.

In this case plaintiffs have asserted a property right to "continued gas service." But their claim is not like the entitlement claim of the Tennessee customers in Craft. The City of Owatonna is not terminating gas service to plaintiffs' properties or refusing service. ³ Rather it is implementing a change in the method of delivery of that service. "Whether a consumer has a protected interest in the intangible property of continued service," points out amicus Energy Cents Coalition, "is separate and distinct from whether the consumer has a vested property interest in the precise manner in which that service is delivered."

Plaintiffs argue they were given an impossible choice by the city: Either install a new service line or be without gas service. If they had not spent the money to install a new feeder line, plaintiffs argue, they would have been without service, a situation not unlike the customer threatened with discontinuance of service for an unpaid bill. To describe the consequences of the City's action, however, does not define nor identify the "property interest" that it is claimed to have caused these consequences.

What plaintiffs are claiming here is not an entitlement to the benefit of continued gas service. That right is not disputed. Nor is plaintiffs' right to connect to the City's mains questioned. Rather plaintiffs claim a right created by state law to continue to hook up to the old gas main on Main Street. They claim an entitlement to the benefit of the continued use of the existing low pressure main. We are aware of no state law that gives landowners such a right. Rather, the law has entrusted the City with the right and responsibility to decide when and in what manner its gas distribution system shall be repaired or upgraded. Minn.Stat. ch. 453A (1988); cf. Johnson v. City of Plymouth, 263 N.W.2d 603, 606 (Minn.1978) ("the implementation of any improvement project on a public thoroughfare is undertaken in the interest of the public safety and welfare pursuant to inherent governmental police powers.") As the court of appeals observed, "to give an individual [a right to a particular manner of service] would indeed interfere with the government's ability to efficiently provide utility services for the general convenience, health and welfare of its citizens." Smith, 439 N.W.2d at 40. ⁴

In some ways, plaintiffs are in a position similar to the plaintiffs in O'Bannon v. Town Court Nursing Center, 447 U.S. 773, 100 S.Ct. 2467, 65 L.Ed.2d 506 (1980). There it was held...