Tuesday, August 30, 2011

St. Charles County v. Laclede Gas Co.[1]

Opinion handed down August 30, 2011
Link to Mo. Sup. Ct. Opinion

St. Charles County (county) recorded on five subdivision plats that some of its public roads are “utility easements” specifically allowing for the installation and upkeep of gas lines. When the county later planned to widen one such road, Pitman Hill Road, Laclede Gas Company (Laclede) refused to pay for the relocation of its gas lines. The county filed a declaratory judgment action, seeking that the Circuit Court of St. Charles County order Laclede to pay for the cost. The circuit court entered a summary judgment in favor of the county. Laclede appealed to the Supreme Court of Missouri, which reversed the circuit court’s judgment and remanded the case. The court held that: 1) the county’s failure to compensate Laclede would constitute an unconstitutional taking; 2) compelling the county to repay Laclede would not curtail the county’s police power over public roads; 3) the doctrine of merger is inapplicable; 4) Laclede’s easement is a compensable property interest regardless of whether it was formed before or simultaneously with the establishment of the public right-of-way; 5) and even though the subdivision plat language creating the public road preceded that which created the utility easements, there was no priority of interest. 

I. Facts and Holding

The Supreme Court of Missouri explained that when a subdivision plat designates an easement in favor of a utility, that easement is formed upon “acceptance by the appropriate entity,” while “the interest acquired is held by the city, town, village, or county in trust for the public uses set forth.”[2] The court found that in this case the subdivision plats explicitly created a utility easement authorizing gas lines on Pitman Hill Road, and that the easement was established when Laclede accepted it by installing and maintaining the gas lines at issue.[3]

The court analogized this case to the facts in the U.S. Supreme Court case Panhandle E. Pipe Line Co. v. State Highway Comm’n, which stands for the general rule that although an easement does not vest title, it is nonetheless private property that cannot be constitutionally taken without fair compensation from the State.[4] In Panhandle, the Supreme Court specifically held that because a permanent easement is subject to the Takings Clause of the Fifth Amendment, when such an easement grants a utility the right to install its equipment, the utility does not bear the responsibility for later costs of relocation arising out of state interference.[5] Therefore, the Supreme Court of Missouri concluded that forcing Laclede to bear the cost of relocating its lines would constitute an unconstitutional taking of private property.[6]

The county raised four main defenses to Laclede’s action for relocation costs, which the court disposed of in turn.[7] First, the county claimed that its inherent police power over public roads permits it to develop Pitman Hill Road without compensating Laclede.[8] While the court agreed that any restriction on the government’s power to “devote the street to the wants and conveniences is void, as against public policy or as inconsistent with the grant,” it found that obligating the county to repay Laclede would not constrain the county’s police power over public roads.[9] The court explained that this is because Laclede’s claim does not dispute the city’s authority to regulate, but rather its authority to displace Laclede without reimbursement.[10]

The county next contended that pursuant to Revised Statutes of Missouri section 445.070.2 and the doctrine of merger,[11] the county was vested with the fee interest in the entire public roadway, including any utility easements, and that as such Laclede’s easement interest became absorbed by the county’s interest.[12] However, the court found that even if the county held the fee interest in Pitman Hill Road pursuant to section 445.070, because an easement involves the right to make specific use of real property owned by another, it did not necessarily follow that Laclede could not recover.[13] For the doctrine of merger to apply, the court explained that the county must demonstrate unity of title and unity of possession.[14] Though the county claimed unity of possession due to its inherent police power over the public roadway, the court ruled that the doctrine of merger was inapplicable because Laclede had a possessory interest over the gas lines within its utility easement.[15]

Third, the county asserted that even if Laclede possessed an easement, it should not recover costs because the county’s public road right-of-way predated Laclede’s easement.[16] The court observed that while in both Panhandle and Riverside-Quindaro the utilities did possess easements that predated the government’s attainment of a public right-of-way, both cases were based on the proposition that the utility could not be deprived of its easement without compensation.[17] Thus, the court found that an easement is a compensable property right regardless of whether it was obtained before or simultaneously with the formation of the public right-of-way.[18]

Lastly, the county claimed that because the language in the subdivision plats establishing the roadway preceded the language creating the utility easements, the main purpose of the plats was to designate the public road.[19] The county argued that when interpreting an easement or deed affecting land, courts are to “ascertain the intention of the grantor from the whole of the instrument . . . in line with the intent of their faces as gathered from the everyday good sense of their language.”[20] However, the court observed that the county did not cite any cases or principles of land or contract law supporting that paragraph order in a subdivision plat established priorities of interest.[21] Thus, the court ruled that the primary purpose of the subdivision plats was to create both a public roadway and the utility easements.[22] As such, the court reversed the judgment below and remanded the case.[23]

II. Legal Background

The Supreme Court of Missouri and the circuit court disagreed as to which U.S. Supreme Court precedent should apply in this case, franchise law or easement law, which resulted in disparate outcomes. Laclede argued that franchise law has no application because the county never granted Laclede a franchise to install the gas lines in public right-of-way; instead, Laclede’s right stemmed from a specific grant of utility easements in subdivision plats by a private, non-governmental third-party landowner.[24] Laclede claimed a franchise is conferred by a governmental body and is not a property right, whereas a private easement such as the one in this case is a compensable property right.[25] However, the circuit court relied on New Orleans Gaslight Co. v. Drainage Comm’n of New Orleans and its progeny in its analysis, while the Supreme Court of Missouri relied instead on Panhandle.

In New Orleans Gaslight Co.,[26] the U.S. Supreme Court adopted the common law rule regarding whether “a utility forced to relocate from a public right-of-way must do so at its own expense.”[27] In that case, the gas company claimed that it obtained a franchise granting it a property right to install its lines under the city streets, which could not be taken without compensation.[28] The court held that the gas company’s franchise did not grant any specific location under the streets for its lines, and so it had installed them “at the risk that they might be, at some future time, disturbed, when the state might require for a necessary public use that changes in location be made.”[29] The court explained it would be unreasonable for the company’s right to use the streets to impede public interests in health and welfare.[30] Thus, the court concluded that none of the gas company’s property had been unconstitutionally taken, and that the franchise at issue was not compensable.[31]

The court later upheld this common-law rule in Norfolk Redevelopment & Housing Auth.: “Under the traditional common law rule, utilities have been required to bear the entire cost of relocating from a public right-of-way whenever requested to do so by state or local authorities.”[32] The Supreme Court of Missouri has applied this common-law rule in cases regarding franchises, stating “[t]he fundamental common-law right applicable to franchises in streets is that the utility company must relocate its facilities in public streets when changes are required by public necessity, or public convenience and security require it, at its own expense.”[33]

In Panhandle, a private Delaware corporation purchased “rights-of-way for pipes, telephone lines, etc.” from private owners in 1930.[34] Three years after the equipment was installed, the Kansas Highway Commission adopted plans to construct highways across the company’s right-of-way.[35] This required relocation of the pipes, and the parties disputed who should pay for the cost.[36] The U.S. Supreme Court held that the Commission’s plan “would result in taking private property for public use.”[37] The Supreme Court of Missouri later applied this reasoning in Riverside–Quindaro, when a water company purchased a ten-foot wide “Private Easement” for the purpose of constructing and maintaining water lines and the levee district planned to construct a levy requiring the company to relocate its lines within its easement.[38] The court held that the water company could not be forced to relocate without compensation from the levee district.[39]

III. Comment

The import of the Supreme Court of Missouri’s ruling in this case is that a utility’s easement is a compensable property right – not just if it antedated the formation of a public right-of-way, but also if both interests were created simultaneously.

The circuit court reasoned that the “critical distinction” between Panhandle and the present case was that Laclede’s property interest was not obtained prior to the county’s rights, and that no case law stands for the proposition that Panhandle mandates compensation to a utility for a taking if the utility’s easement was acquired after or simultaneously with the public right-of-way.[40] That court further relied on the analysis in The Law of Easements & Licenses in Land, which states: “If the utility easement predated the public right-of-way, the relocation order constitutes a taking for which just compensation must be paid. On the other hand, if the utility easement was created within an existing public right-of-way, the relocation order does not amount to a taking of a property right of the easement holder.”[41] The Supreme Court’s ruling in the instant case has clearly established that an easement acquired prior to or simultaneously with a public right-of-way cannot be constitutionally taken without compensation.

Further, although the court did not directly address the issue, this holding strongly implies that the Panhandle rule only applies to utilities possessing easements, reserving the New Orleans Gaslight Co. analysis for utilities possessing franchises.[42] This is a sound result because a franchise in this context is “[t]he government-conferred right to engage in a specific business or to exercise corporate powers . . . the rights necessary for public utility companies to carry on their operations are generally designated as franchise rights.”[43] Similarly, a special franchise is “[a] right conferred by the government, esp. one given to a public utility, to use property for a public use but for private profit.”[44] In contrast, an easement is “[a]n interest in land owned by another person, consisting in the right to use or control the land, or an area above or below it, for a specific limited purpose . . .[t]he primary recognized easements are (1) a right-of-way . . . and (7) a right to place or keep something on the servient estate . . . [a]lso termed private right-of-way.”[45] Thus, an easement is a compensable property right, while a franchise is not. This decision should resolve confusion in future such litigation invoking these similar yet distinct U.S. Supreme Court cases.

-Jackie Whipple

[1] No. SC91539 (Mo. June 30, 2011) (en banc), available at http://www.courts.mo.gov/file.jsp?id=48930. The West reporter citation is St. Charles County v. Laclede Gas Co., 356 S.W.3d 137 (Mo. 2011) (en banc).
[2] Id. at 3 (quoting State ex rel. Mo. Highway and Transp. Comm’n v. London, 824 S.W.2d 55, 60 (Mo. App. E.D. 1991)).
[3] Id. at 2-3.
[4] Id. (citing Panhandle E. Pipe Line Co. v. State Highway Comm’n, 294 U.S. 613, 617-18 (1935); State ex rel. Britton v. Mulloy, 61 S.W.2d 741, 743 (Mo. 1933)).
[5] Id. at 3-4 (citing Panhandle, 294 U.S. at 617-18; Riverside-Quindaro Bend Levee Dist., Platte County v. Missouri Am. Water Co., 117 S.W.3d 140, 156 (Mo. App. W.D. 2003)).
[6] Id at 4.
[7] Id.
[8] Id.
[9] Id. (quoting City of Camdenton v. Sho-Me Power Corp., 237 S.W.2d 94, 98 (Mo. 1951)).
[10] Id.
[11] Id. at 5. Section 445.070 provides:
“1. If any person shall sell or offer for sale any lot within any city, town or village, or any addition thereto, before the plat thereof be made out, acknowledged and recorded, as aforesaid, such person shall forfeit a sum not exceeding three hundred dollars for every lot which he shall sell or offer to sell.
2. Such maps or plats of such cities, towns, villages and additions made, acknowledged, certified and recorded, shall be a sufficient conveyance to vest the fee of such parcels of land as are therein named, described or intended for public uses in such city, town or village, when incorporated, in trust and for the uses therein named, expressed or intended, and for no other use or purpose.
3. If such city, town or village shall not be incorporated, then the fee of such lands conveyed as aforesaid shall be vested in the proper county in like trust, and for the uses and purposes aforesaid, and none other.” Mo. Rev. Stat. § 445.070 (Supp. 2009).
[12] No. SC91539 at 5-6 (Mo. June 30, 2011) (en banc).
[13] Id. at 6.
[14] Id. (citing Morgan v. York, 91 S.W.2d 244, 248 (Mo. App. S.D. 1936)).
[15] Id. at 6-7.
[16] Id. at 7.
[17] Id.
[18] Id.
[19] Id.
[20] Id. (citing Blackburn v. Habitat Dev. Co., 57 S.W.3d 378, 386 (Mo. App. S.D. 2001)).
[21] Id. at 8.
[22] Id.
[23] Id.
[24] Brief of Defendant-Appellant at *9-*10, St. Charles County v. Laclede Gas Co., No. SC91539 (Mo. Aug. 30, 2011).
[25] Id. at *10.
[26] 197 U.S. 453 (1905).
[27] St. Charles County v. Laclede Gas Co., No. ED 93983, 2011 WL 396404 at *3 (Mo. App. E.D. Feb. 8, 2011) (quoting Norfolk Redev. & Housing Auth. v. Chesapeake & Potomac Tel. Co., 464 U.S. 30, 34 (1983)).
[28] Id.
[29] Id. (quoting New Orleans Gaslight Co., 197 U.S. at 461).
[30] Id.
[31] Id.
[32] Id. at *4 (quoting Norfolk, 464 U.S. at 35).
[33] Id. (quoting City of Bridgeton v. Mo. Am. Water Co., 219 S.W.3d 226, 232 (Mo. 2007) (en banc)).
[34] Id. at *5. (quoting Panhandle, 294 U.S. at 615).
[35] Id.
[36] Id.
[37] Id. (quoting Panhandle, 294 U.S. at 618).
[38] Id. (quoting Riverside-Quindaro, 117 S.W.3d at 156).
[39] Id.
[40] Id.
[41] Id. at *6-7. (citing James W. Ely, Jr. & Jon W. Bruce, The Law of Easements & Licenses in Land, § 7:16 (2010)).
[42] The court states in a footnote: “The county cites to a number of cases involving franchise agreements in which the utility has permission to use a public right of way but has no easement . . . In both of these cases, the Court held that the utility had to pay the costs of relocation when it maintained utilities pursuant to a franchise agreement rather than an easement.” No. SC91539 at n.2 (Mo. June 30, 2011) (en banc).
[43] 1 Eckstrom’s Licensing in Foreign and Domestic Operations § 1.02[3], at 1-10 to 1-11 (David M. Epstein ed., 1998).
[44] Black’s Law Dictionary (9th ed. 2009).
[45] Id.