The Arizona Corporations Commission has authority to regulate the sale, lease, assigning, mortgage of a public utility's assets, including when those assets are "otherwise dispose[d] of." These transactions need the Commission's approval.
The city intended to exercise eminent domain to take the assets of a water utility. This sure looked like a "friendly" condemnation: the city and the utility entered into a letter of intent "documenting the City's intent to condemn substantially all the assets" of the utility, and "negotiations between the City and [the utility] were intended to result in condemnation, not a sale."
But the city and the utility did not seek Commission approval. A developer objected, asserting the municipality's condemnation of the utility was covered by the "otherwise dispose of" language. The Commission agreed, concluding that it could regulate the condemnation, and ordered it to be halted until the Commission approved it.
In City of Surprise v. Arizona Corp. Comm'n, No. CV-18-0137-SA (Mar. 28, 2019), the Arizona Supreme Court agreed that the Commission's jurisdictional statute does not authorize it to regulate a condemnation action. An exercise of eminent domain -- even one where it appears the parties don't have much disagreement -- is not a voluntary transaction. Slip op. at 6. The court concluded that all of the actions which are expressly covered by the statute (sell, lease, assign, and mortgage) are voluntary transactions. Consequently, it read the "otherwise dispose of " language in the statute the same way, holding that "[e]ven a so-called 'friendly' condemnation is ultimately not voluntary because [the utility] has no choice but to acced to the taking of its assets pursuant to court order." Slip op. at 6. "Agreeing on just compensation rather than litigating it makes the condemnation no less coercive." Id.
Justice Clint Bolick concurred in the reasoning that the Commission has no authority under the statute, but argued that this wasn't really an involuntary taking, but rather "a voluntary transaction dressed up as an exercise of eminent domain."
If the City and Circle City voluntarily entered into eminent domain proceedings in order to divest the developer of valuable water rights, there could be a collision between the City’s eminent domain powers, which are beyond the Commission’s jurisdiction, and the Commission’s broad authority under § 40-285(A) that ensures that customers’ service rights are protected in a voluntary transfer of assets. In such circumstances, the remedy of approving a new CC&N under § 9-516(D) may prove illusory because no other provider might exist to provide such services; only the remedy of disapproval would preserve the customers’ rights. See Babe Invs., 189 Ariz. at 151 (noting § 40-285 “prevent[s] . . . impairment of service to the public”). And the “public use” requirement of eminent domain, Bailey v. Myers, 206 Ariz. 224, 230 ¶ 23 (App. 2003), is not a substitute for the public-interest objectives served by § 40-285(A). Reading the statutes to permit a municipality and a water company to extinguish contracted water services by agreeing to proceed through eminent domain rather than a sale of assets would defeat the important consumer protection purpose of § 40-285(A).
Slip op. at 15 (Bolick, J., concurring in part and dissenting in part). Justice Bolick also concluded that this wasn't simply a situation where the parties agreed on the condemnation's terms, but is the "far more troubling situation where the parties agree to invoke eminent domain to divest the Commission of its duty and authority to protect utility consumers’ water rights." Id. at 16.
The majority, not surprisingly (did you think we were going to get through this post without a pun on the city's name?) did not agree, concluding instead that "the dissent would give the Commission power over the condemnation proceeding itself." Slip op. at 10.
But by drawing a line between contested and uncontested condemnations, giving the Commission authority over the latter but not the former, the dissent misconstrues the power of eminent domain. The government has the right to condemn property for public use irrespective of the condemnee’s mindset. And this makes sense: why should a condemnee’s willingness to sell his property limit the government’s inherent power (and here, the City’s express statutory right, see § 9-516(B)) to condemn it? Such a rule would “turn on serendipity,” Saban v. Ariz. Dep’t of Trans., No. CV-18-0080, 2019 WL 905192, at *3 ¶ 15 (Ariz. Feb. 25, 2019), not on law.
Slip op. at 10.
City of Surprise v. Arizona Corp. Comm'n, No. CV-18-0137-SA (Mar. 28, 2019)
