California Eminent Domain Report

Generally, if utilities with the right of eminent domain cause damage to private property during the operation of their facilities, they may face inverse condemnation liability. However, where the facility in question is not operating for the “public use” and instead was installed pursuant to a private contract, inverse condemnation may be inapplicable.

In the recent unpublished case of Foley Investments, LP v. Alisal Water Company dba Alco Water Service, Case No. D079045 (2021), the Court of Appeal for the Fourth Appellate District concluded that damage from water leaks did not amount to inverse condemnation liability because the water line at issue did not serve the “public use” and was installed only due to a private contract.

Background

When a water main underneath an apartment complex burst and caused damage to the complex, the property owner sued Alco Water Service (“Alco”) for inverse condemnation and tort claims. This case provides a nice application of the Fire Protection Immunity under Public Utilities Code section 774, but this blog will focus on the inverse condemnation claims.

Alco’s general water service practice involves running water mains under city streets and property owners are responsible for the service lines that connect at the property boundaries and run into the property. However, in this case, conditions of development for the apartment complex required internal fire hydrants, which necessitated the installation of a water main through the property. Alco and the property owner entered into a private contract where Alco would install the water main and the property owner granted the easements for such installation. This water main served the fire hydrants and additional service laterals that provided water to the residents of the apartment building. Alco only billed the property owner for the water service, not the individual tenants.

Trial Court

The trial court determined the water main did not serve a public purpose because (1) the main was installed pursuant to a private contract, (2) the evidence showed that while the water main had a valve, the water main was never intended to be a part of the overall water distribution system, and (3) the water main only served the apartment complex and was not designed to deliver water to a greater area.

Appeal

The Court of Appeal affirmed the finding of no inverse condemnation liability. First, the water main was installed pursuant to a private contract and Alco did not use its eminent domain authority. Second, this water line was intended to serve an individual need – meeting the flow requirements for the fire hydrants that only served this one property – and it did not provide service to the public at large. Further, while approximately 400 people lived at the property, that was only 81 units and there was actually only one water customer, the property owner. Finally, as this was an installation under private contract, the risk-spreading policy considerations underlying inverse condemnation were inapplicable. Therefore, the court concluded the water main served a private use and inverse condemnation liability was inapplicable.

Conclusion

This case serves as a reminder that inverse condemnation liability stems from damage caused in the course of providing a public use. Where the utility’s facility is installed specifically for a private purpose, inverse condemnation liability may not attach.

[Update: On December 9, 2021, this opinion was certified for publication and may now be cited.]

[Disclaimer: Nossaman LLP represents Alco in a related California Public Utilities Commission proceeding pertaining to this matter.]