For nearly a decade, a California town fought to seize its privately owned water utility; now the state Supreme Court has ruled 7-0 against its takeover argument
California’s highest court has rejected a key legal argument in a decade-long effort by a Southern California town to take control of its local water system. The California Supreme Court ruled 7-0, August 24, against the Town of Apple Valley, finding that judges do not have to automatically defer to local governments seeking to take private utilities through eminent domain. Writing for the unanimous court, Associate Justice Leondra Kruger rejected Apple Valley’s argument that its declaration of public necessity should receive only limited judicial review. “The town of Apple Valley, which seeks to take over a privately owned water utility, argues that its decision to take the utility is subject to the usual standard governing judicial review of a resolution of necessity — meaning, in effect, that the court can disallow the taking only if it concludes that the town has committed a gross abuse of discretion,” Kruger wrote in the court’s opinion. “The Court of Appeal accepted this argument. We do not.”Reporting by Courthouse News Service, republished by Maven’s Notebook, said the ruling changes how courts review municipal attempts to take over private utilities in California. The decision could make it easier for private water, gas and electricity companies to challenge government seizures.
Roots of a decade-long legal battle
The dispute in San Bernardino County began in 2010, when private equity firm Carlyle Infrastructure Partners bought the Apple Valley Ranchos Water Company, which served about 65,000 people. Large rate increases after the sale led to public anger and pushed town officials to consider taking over the system. In 2015, the Apple Valley Town Council approved formal resolutions of necessity to condemn the water system and take control of its infrastructure. During the early stages of the case, the utility was sold again to Liberty Utilities, a subsidiary of Canada-based Algonquin Power & Utilities Corp. Liberty Utilities strongly opposed the forced takeover in San Bernardino County Superior Court. The company argued that public ownership was neither necessary nor a better public use. After a 67-day bench trial, a Superior Court judge ruled for Liberty Utilities. The judge found that the company had successfully challenged the town’s claims that the takeover was necessary. The trial court also ordered the town to pay Liberty Utilities 13.2 million dollars in legal fees. That ruling was later overturned by a state appeals court. The appeals court said judges must use a highly deferential “gross abuse of discretion” standard when reviewing local government resolutions of necessity.
Setting limits on municipal power
The Supreme Court’s decision addresses the conflict between local governments’ broad eminent domain powers and a 1992 California law that gives private utility companies additional protection. The court said the 1992 law was designed to provide stronger protection for privately owned utilities. Under the law, trial judges must independently examine the facts instead of simply accepting a local government’s declaration. Kruger wrote that a municipal resolution cannot automatically approve a property seizure. “The resolution is not the be-all and end-all of a condemnation proceeding,” Kruger wrote. “As a general rule, public necessity is a matter for the public entity to decide, subject to limited judicial review.” However, the court said that when privately owned utility property is involved, judges must independently examine the evidence to determine whether the legal requirements for condemnation have actually been met. “To evaluate a challenge to the taking of privately owned public utility property, the trial court, sitting as trier of fact, must exercise its independent judgment to determine whether the utility owner challenging the taking has rebutted the relevant presumptions and has thus established by a preponderance of the evidence that the taking does not satisfy the statutory requirements,” the ruling stated.
Case sent back for review
The Supreme Court rejected Apple Valley’s main legal argument but did not decide whether the town can ultimately take control of the water system. Instead, the unanimous ruling sends the case back to the California Court of Appeal for further proceedings under the new legal standard. The appeals court must reconsider the trial court’s original findings. It will also examine separate procedural questions, including whether evidence collected after the 2015 resolutions were approved should have been allowed during the original trial. The ruling could affect other California communities pursuing similar utility takeovers. In San Francisco, city officials have spent years exploring the use of eminent domain to acquire Pacific Gas & Electric’s local power grid and create a publicly owned electric utility. By requiring trial judges to independently examine the evidence rather than largely deferring to local officials, the California Supreme Court has raised the legal hurdle for municipalities seeking to take privately owned utility systems.
