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City of Missoula v. Mountain Water Co.

Citations: 417 P.3d 321; 2018 MT 114; 391 Mont. 288Docket: DA 17-0674

Court: Montana Supreme Court; May 8, 2018; Montana; State Supreme Court

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Justice Ingrid Gustafson issued the Court's Opinion regarding Mountain Water Company's appeal of a November 9, 2017, order from the Fourth Judicial District Court in Missoula County, which denied Mountain Water's request for post-summons interest. The crux of the appeal is whether the District Court erred in ruling that Mountain Water was not entitled to interest as outlined in 70-30-302(2), MCA.

The factual background reveals that Mountain Water operated a water delivery system in Missoula. On May 5, 2014, the City of Missoula filed an amended complaint for condemnation of this system. Following a Preliminary Order of Condemnation issued by the District Court on June 15, 2015, which was affirmed by this Court in 2016, Mountain Water sought compensation for improvements made post-condemnation. A hearing in November 2015 determined the fair market value of the system, including improvements, to be $88.6 million.

Despite this valuation, the District Court denied Mountain Water's claim for interest accrued before the City took possession, citing that the City had not taken interlocutory possession as required under 70-30-302(2) and 70-30-311, MCA. The District Court later acknowledged Mountain Water and Carlyle as prevailing parties entitled to litigation expense recovery, awarding Mountain Water $2,800,745.57, although Carlyle's expenses remained in escrow pending appeal.

The City sought oversight for a smooth transition to ownership, receiving limited access to Mountain Water's data but without gaining possessory rights. A Settlement Agreement on June 5, 2017, stipulated that the City would take possession of the condemned property upon payment of approximately $84 million, which included compensation for improvements and attorney fees. The Final Judgment in Condemnation was entered on June 15, 2017, formalizing the payment and transfer of possession, which was finalized with the filing of the Final Order of Condemnation on June 22, 2017.

On July 18, 2017, Mountain Water requested post-summons interest and an evidentiary hearing, which led to the District Court denying its motion for statutory interest on November 9, 2017, citing the same reasons from its April 6, 2016 order. The court also rejected Mountain Water's claim for discretionary interest based on precedent from City of Billings v. Hunt. Mountain Water appealed the decision. 

The legal standard for review involves de novo analysis of the district court’s conclusions of law and mixed questions of law and fact. Mountain Water contends that the District Court erred in denying interest under 70-30-302(2), MCA, arguing the City took possession following 70-30-311, MCA, and asserting the court improperly applied federal law to Montana's condemnation statutes. The City countered that it was correct in denying interest, as it did not make a payment into court nor take interlocutory possession, and also contested Mountain Water's entitlement to discretionary interest.

Under both the Fifth Amendment and the Montana Constitution, property cannot be taken for public use without just compensation. A taking is defined by legal title vesting in the condemnor, actual possession, or constructive possession through damage or deprivation of use. Compensation rights accrue upon service of summons, with fair market value determined at that time. Section 70-30-302(2), MCA specifies that interest may accrue from the service date under certain conditions, particularly if an order allows the condemnor to take possession per 70-30-311, MCA. This section establishes that interest applies when the condemning party gains possession of the property, as confirmed in K&R P'ship v. City of Whitefish. Section 70-30-311(1), MCA details the process for a condemnor to obtain possession while retaining jurisdiction in ongoing proceedings.

Section 70-30-311, MCA, establishes that a condemnor must make a payment before a final judgment when seeking an interlocutory order to take possession of condemned property. The entitlement of Mountain Water to interest under sections 70-30-302(2) and 70-30-311(1), MCA, involves statutory interpretation guided by the plain language of the statutes. The District Court correctly interpreted these statutes as being read together. Section 70-30-302(2) requires the condemnor to take possession before interest can be awarded, which Mountain Water's argument fails to acknowledge.

Section 70-30-311(1) allows a condemnor to take possession before a final judgment if they make a payment into court equivalent to the condemnee's claim or as assessed by a jury or commissioners. However, the City did not take possession under 70-30-311, MCA, as it obtained possession based on the Settlement Agreement rather than a court order. The City directly paid Mountain Water an agreed amount, not into court, and this amount did not match the condemnee's statement of claim. Consequently, the City did not satisfy the payment requirement of 70-30-311(1)(a).

Furthermore, any order under 70-30-311 would have allowed the City to take possession during the ongoing proceedings, but the City only took possession after the conclusion of these proceedings. Mountain Water retained possession and ownership of the property until the final order of condemnation was entered, with the Final Judgment stipulating that transfer of possession would occur upon the City's full payment to Mountain Water.

On June 22, 2017, in open court, it was determined that the City did not take possession of the condemned property prior to the final judgment. Mountain Water argued that the Final Judgment in Condemnation was not a conclusive resolution due to unresolved ancillary issues. However, the court found that the Final Judgment clearly indicated it was a final determination regarding all issues in the City's Complaint, except as noted in the Settlement Agreement. The ancillary issues did not extend the conclusion of the proceedings since the Final Judgment was issued and accepted by both parties. Consequently, the court ruled that the City did not take interlocutory possession as it failed to make a court payment and did not gain actual possession until the conclusion of the proceedings. As a result, Mountain Water was not entitled to statutory interest under 70-30-302(2), MCA.

Mountain Water also sought discretionary interest based on a prior case, City of Billings, where property owners were entitled to interest after being deprived of economically viable use of their vacant land. The court distinguished this case from City of Billings, noting that the condemned property in question was a developed public utility, and Mountain Water retained the ability to generate revenue from it during the proceedings. Furthermore, Mountain Water was compensated for improvements made to the property, which undermined its claim of complete economic deprivation. Thus, the court affirmed the denial of Mountain Water's request for discretionary interest, concluding there was no error in the District Court’s decision regarding both statutory and discretionary interest.

Mountain Water reserves claims, specifically appealing for statutory interest, arguing that the District Court incorrectly relied on the precedent set by *Kirby Forest Industries, Inc. v. United States* to deny its entitlement to interest under Montana's condemnation law. The District Court’s November 9, 2017 order indicates that it thoroughly considered Montana's law before denying the claim for interest, rendering Mountain Water's argument unsubstantiated. Additionally, Mountain Water contends that the District Court's January 4, 2017 order permitted the City to take interlocutory possession of the condemned property under Section 70-30-311, MCA. However, it is noted that issues raised for the first time on appeal or changes in legal theory are typically not addressed. Mountain Water did not raise this argument in the District Court. The District Court's position is supported, asserting that allowing the City limited access to certain information did not equate to granting possessory rights to the water system, and Section 70-30-311, MCA, was not relevant to the case in *City of Billings*.