The water utility serving the town of Apple Valley had asked the state high court to decide what makes a public takeover of a private utility truly necessary.
By Quinn Welsch, Courthouse News Service
The California Supreme Court dealt a blow to a local government’s ability to seize water utilities on Monday, ruling that courts get the final say on whether a public utility is necessary.
Apple Valley, located in San Bernardino County, California, will have to go back to the drawing board for its plans to take over the privately owned water utility, Apple Valley Ranchos Water Company.
In a unanimous decision sending the case back down to a California appeals court, the California Supreme Court sided with the utility company in the latest in a decade-long eminent domain dispute between Apple Valley and the utility company.
“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 grossly abused its discretion,” Supreme Court Justice Leondra Kruger wrote in the 7-0 decision. “The Court of Appeal accepted this argument. We do not.”
The case goes back to at least 2010 when investment firm Carlyle Infrastructure Partners bought Apple Valley Ranchos Water Company and raised the rates significantly. That’s when the town of Apple Valley began considering taking the utility, which serves about 65,000 people.
The town initially approved two resolutions in 2015 to acquire the water systems, and then filed an eminent domain complaint against the utility. But this required judicial review, Kruger wrote.
“The resolution is not the be-all and end-all of a condemnation proceeding,” Kruger continued. “As a general rule, public necessity is a matter for the public entity to decide, subject to limited judicial review.”
Shortly after the resolutions, the utility was sold again, from Carlyle to Liberty Utilities, which owns other private utilities across the United States. The company is a subsidiary of Algonquin Power & Utilities Corp,
Liberty argued in San Bernardino Superior Court that Apple Valley had not yet shown what the public necessity of the takeover was and that more necessary public use elements had not been met.
After a 67-day bench trial, a judge ultimately ruled that Liberty successfully disproved the town’s argument for public necessity. Liberty was awarded $13.2 million in attorney’s fees. But a court of appeal reversed the decision, finding that the lower court failed to give deference to the town’s decisions and findings.
The Supreme Court decision on Monday hinged on the gross abuse of discretion standard, a legal term that allows an eminent domain takeover to go through unless a judge finds it was in bad faith. However, that standard runs into trouble with a 1992 California law that allows public utilities to dispute the necessity of the takeover.
“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 is not authorized by the eminent domain law,” Kruger wrote.
Similar fights are playing out across the state, including in San Francisco, where lawmakers are also trying to use eminent domain to take over part of the Pacific Gas & Electric grid in an effort to lower costs.
Apple Valley and its attorneys did not respond to requests for comment. Liberty Utilities and its attorneys also did not respond to requests for comment.
