Daily Development for Tuesday, January 30, 2007
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

EMINENT DOMAIN;; JUST COMPENSATION; PUBLIC UTILITIES;  CONSTITUTIONAL LAW;:  A E2=80=9Ccontribution in aid of constructionE2=80=9D (CIAC) charge is used for the purpose of setting utility rates. It is not equivalent to the fair market value of property in a condemnation action, and if a school district later elects to condemn the facilities built with the CAIC, the school district may not deduct the charge from the condemnation award, as this will result in an unconstitutional taking of property without just compensation. 

Bd. of Educ., Moriarty Mun. Sch. Dist. v. Thunder Mountain Water Co., 2006-NMCA-135, 140 N.M. 612, 145 P.3d 92 (8/30/06; cert. granted, 8/19/06).

In 1999 the School District paid the Water Company a fee of $60,715 for the installation of a water line and related equipment to serve one of its schools. Under the applicable statute the fee was denominated as a E2=80=9Ccontribution in aid of construction=E2=80=9D (CIAC). In 2002 the School District became dissatisfied with the quality of the Water Company=E2=80=99s water and decided that it wanted to serve the school with water from its own well. It filed a condemnation action against the Water Company seeking to condemn the same water line and related equipment. It was stipulated that they had an actual value of $60,715. Note that this is the same amount that the School District paid the Water Company to install the same water line and related equipment three years earlier.  

The School District asserted it was entitled to deduct the CIAC charge from the compensation due to the Water Company, in order to keep from paying twice for the same property. The Water Company disagreed, arguing that the first payment was a E2=80=9CchargeE2=80=9D for purposes of setting rates for water, that had nothing to do with condemnation, and that allowing deduction of the charge would result in a taking for public use without payment of just compensation.  The district court granted summary judgment in favor of the Water Company.  The School District appealed to the New Mexico Court of Appeals, which affirmed the district court.

The Court of Appeals relied upon condemnation cases and principles, as opposed to rate-making cases and principles, to answer the question presented before it.  The Court of Appeals concluded that the School District exercised its right to acquire the water line extension belonging to the Water Company by eminent domain, and therefore, the Water Company was constitutionally entitled to E2=80=9Cjust compensationE2=80=9D for the taking.  =E2=80=9CJust compensation=E2=80=9D includes =E2=80=9Cthe fair market value of the property on the date of the taking.E2=80=9D  Id. =C2=B612 (citing N.M. Uniform Jury Instruction 13-703 NMRA).  The Court of Appeals also held that =E2=80=9C[c]ondemnation cases teach that property contributed to the utility by a CIAC is not excluded from just compensation.=E2=80=9D  Id.  The Court of Appeals continued its analysis by interpreting, and even relying upon, cases from other states, recognizing that the CIAC is a separate act from the condemnation.  Ultimately, the Court of Appeals concluded that deducting the CIAC payme

nt from the condemnation award would unconstitutionally deprive the Water Company of its property without just compensation.

Comment:Obviously these kinds of cases done=E2=80=99t come along all the time, but the attitude shown by the school district here is not surprising, and one would expect that if your utility clientE2=80=99s property is condemned under circumstances like those set forth here, the condemning public agency will take the same view as the school district did here.  So let=E2=80=99s hope you remember this case. 

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