Water Development Co. v. Board of Water Works

• Decision Date: 17 June 1992
• Docket Number: No. 91-554,91-554
• Citation: 488 N.W.2d 158
• Parties: 1992-2 Trade Cases P 69,945, Util. L. Rep. P 26,227 WATER DEVELOPMENT COMPANY, Appellant, v. BOARD OF WATER WORKS Trustees of the City of Des Moines, Iowa, and City of Des Moines, Appellees.
• Court: Iowa Supreme Court

Page 158

488 N.W.2d 158

1992-2 Trade Cases P 69,945, Util. L. Rep. P 26,227

WATER DEVELOPMENT COMPANY, Appellant, v. BOARD OF WATER WORKS Trustees of the City of Des Moines, Iowa, and City of Des Moines, Appellees.

No. 91-554.

Supreme Court of Iowa.

June 17, 1992.

Thomas T. Tarbox of Smith, Schneider, Stiles, Mumford, Schrage, Zurek, Wimer & Hudson, P.C., Des Moines, for appellant.

John R. Mackaman and Thomas W. Andrews of Dickinson, Throckmorton, Parker, Mannheimer & Raife, P.C., Des Moines, for appellee Bd. of Water Works Trustees of City of Des Moines.

Bruce E. Bergman, Des Moines, for appellee City of Des Moines.

Considered by McGIVERIN, C.J., and HARRIS, LARSON, SCHULTZ, and CARTER, JJ.

LARSON, Justice.

When the City of Des Moines annexed part of Polk County southwest of the city in 1988, the residents of the area were being served by the Water Development Company (WDC), a private corporation. Soon after the annexation, the Des Moines Water Works replaced WDC as sole supplier of water for the area. WDC sued the Board of Water Works Trustees and the City of Des Moines (the water works) on theories of inverse condemnation, intentional interference with contracts, and unfair trade practices. The district court granted summary judgment for the water works, and WDC appealed. ¹ We affirm.

WDC is a private corporation formed in 1960 to own and operate a water system in Polk County, generally outside the corporate limits of Des Moines. The water works is a utility board of the city organized under Iowa Code chapter 388. The water works manages and controls the water treatment plant and distribution system serving the residents of Des Moines and neighboring areas. At the time of the annexation, WDC served approximately forty-five customers in the annexed area. The water works now serves all of the customers in the annexed area, but presumably WDC continues to serve customers in the remainder of its territory.

After the annexation, the water works constructed its own water system in the annexed area, despite preannexation statements that it would possibly purchase WDC's system. The reasons for refusing to purchase the system were that WDC's concrete-asbestos lines did not meet the city's specifications, WDC lacked authority to operate its lines on public rights-of-way, and WDC asked too much money for its system.

The water works challenges WDC's standing to assert a claim against it under any theory because WDC had not obtained the permits necessary to operate its water system. Iowa Code section 320.4 (1989) provides:

The state department of transportation in case of primary roads, and the board of supervisors in case of secondary roads, on written application designating the particular highway and part of the highway, the use of which is desired, may grant permission:

....

4. To lay water mains in, under, or along highways.

With the exception of a 362-foot section of its waterline, as to which it had a permit, WDC did not have permission from the board of supervisors to construct its water mains on the rights-of-way in the annexed area. WDC contends that its lines were nevertheless legalized by Iowa Code section 589.29, enacted in 1982, which provides:

The provisions of section 320.4, relating to the laying of water mains apply to all permits or permissions granted by a county board of supervisors or the state department of transportation and its predecessors before July 1, 1979 and are retroactive to that extent.

Section 589.29 applies only to those "permits or permissions granted" by a board of supervisors prior to 1979; it does not legalize all water systems in place at that time as contended by WDC. Section 589.29 is therefore inapplicable to legalize WDC's installation and maintenance of its water distribution system.

Because of WDC's lack of necessary permits, the water works contends that WDC does not have a compensable interest in its water system. We tend to agree, but the issue is complicated by the fact that, as to the 362-foot section, WDC did have the necessary permits. We need not address this issue, however, because we conclude that WDC cannot prevail on the merits of its claims in any event.

I. Inverse Condemnation.

WDC alleged that the water works took valuable assets belonging to WDC and that it is entitled to damages under the theory of inverse condemnation.

The phrase "inverse condemnation" appears to be one that was coined simply as a shorthand description of the manner in which a landowner recovers just compensation for a taking of his property when condemnation proceedings have not been instituted.

United States v. Clarke, 445 U.S. 253, 257, 100 S.Ct. 1127, 1130, 63 L.Ed.2d 373, 377 (1980). See also Scott v. City of Sioux City, 432 N.W.2d 144, 145 n. 1 (Iowa 1988).

One of the elements of inverse condemnation, of course, is that there be a "taking" of the property. Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104, 122, 98 S.Ct. 2646, 2658, 57 L.Ed.2d 631, 647 (1978); Bakken v. City of Council Bluffs, 470 N.W.2d 34 (Iowa 1991). Such a taking need not amount to a transfer of physical control over the plaintiff's assets, Penn Cent., 438 U.S. at 122 n. 25, 98 S.Ct. at 2658 n. 25, 57 L.Ed.2d at 647 n. 25, but the plaintiff must show the loss of some compensable interest. See Grove & Burke, Inc. v. City of Fort Dodge, 469 N.W.2d 703, 705-06 (Iowa 1991) (continued flow of traffic past plaintiff's business, interrupted by city's change of street system, not compensable interest).

In this case, none of WDC's pipelines or other fixed assets have been seized or physically impaired, nor have there been any regulations imposed by the water works limiting WDC's use of the system. What has been lost to WDC is its status as the sole supplier of water to the residents of the area. In this respect, this case is analogous to Alabama Power Co. v. Ickes, 302 U.S. 464, 58 S.Ct. 300, 82 L.Ed. 374 (1938). In Alabama Power, a utility company challenged government loans to municipalities that were in competition with the plaintiff. The Supreme Court rejected the claim, on standing grounds, because the plaintiff had no compensable right to be protected. The case involved "loan-and-grant agreements" made by the Federal Emergency Administrator of Public Works with the four municipal corporations competing with the plaintiff, a private corporation. The plaintiff attempted to enjoin the execution of these agreements on the ground that they were illegal. The Court noted:

The injury which [the plaintiff] will suffer it is contended, is the loss of its business as the result of the use of the loans and grants by the municipalities in setting up and maintaining rival and competing plants; a result, it is further contended, which will be directly caused by the unlawful act of the administrator in making and consummating the loan-and-grant agreements.

Alabama Power, 302 U.S. at 475, 58 S.Ct. at 302, 82 L.Ed. at 376.

The Court noted that each of the municipalities, which were beneficiaries of the loan and grant agreements has authority to construct and operate its proposed plant and distribution system in competition with [the plaintiff] ... [and] that neither the United States nor any of the respondents has reserved any right or power to require an elimination of competition or designate any agency from which the municipality must purchase its power. Each municipality is left entirely free from Federal control or direction in respect of the management and control of its plant and business. In short, the case for [the plaintiff] comes down to the contention that consummation of the loan-and-grant agreements should be enjoined on the sole and detached ground that the administrator lacks constitutional and statutory authority to make them, and that the resulting moneys, which the municipalities have clear authority to take, will be used by the municipalities in lawful, albeit destructive, competition with [the plaintiff].

Id. at 478, 58 S.Ct. at 303, 82 L.Ed. at 377. The Court continued:

The claim that [the plaintiff] will be injured, perhaps ruined, by the competition of the municipalities brought about by the use of the moneys, therefore, presents a clear case of damnum absque injuria. Stated in other words, these municipalities have the right under the state law to engage in the business in competition with [the plaintiff], since it has been given no exclusive franchise. If its business be curtailed or destroyed by the operations of the municipalities, it will be by lawful competition from which no legal wrong results.

What [the plaintiff] anticipates, we emphasize, is damage to something it does not possess--namely, a right to be immune from lawful municipal competition.

Id. at 479-80, 58 S.Ct. at 304, 82 L.Ed. at 378.

Grove & Burke, Inc. is also analogous. In that case, a business owner sought damages against the city for loss to its business through the rerouting of traffic on the city's streets. We held that a landowner has no vested right to maintain a certain level of traffic flow, and the construction of roads and bridges interfering with that flow cannot be the subject of a taking claim. 469 N.W.2d at 705-06.

Here, WDC had no exclusive right to furnish water to the annexed area, nor did it have a right to be free from competition. Any "taking" of its business through lawful competition was not compensable as an inverse condemnation.

II. Intentional Interference With a Contract.

The Restatement rule is that...