Real Property – Eminent Domain – Municipal – Interlocal Agreement – Natural Gas Pipeline

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Town of Midland v. Morris. (Lawyers Weekly No. 11-07-0075, 32 pp.) (Linda Stephens, J.) Appealed from Cabarrus County Superior Court. (Lindsay R. Davis Jr., J.) N.C. App. Click here for the full text of the opinion.

Holding: Even though the plaintiff-town has no immediate plans to provide its citizens with low-cost natural gas from the pipeline that the town is helping to install through Cabarrus County, since the gas is available, installation of the pipeline is for a public purpose.

We affirm summary judgment for the town.

Mootness

Even though construction of the pipeline is complete, the defendant-property owners’ appeal is not moot. If this court finds in their favor, property owners will be entitled to relief both in the form of reimbursement for their costs in the action, as well as in the form of return of title to the land.

We are wholly unpersuaded by the town’s argument that, even where a city flagrantly violates the statutes governing eminent domain, that city can obtain permanent title to the land by fulfilling the purpose of a condemnation before final judgment on the validity of condemnation is rendered.

Validity of Condemnations

Under G.S. § 160A-240.1, a city may, by any method including condemnation, acquire any property “for use by the city.” G.S. § 160A-312 authorizes a city to establish a public enterprise – including a gas transmission and distribution system – to “furnish services to the city and its citizens.” G.S. §§ 160A-311(4), 160A-312(a). Further, a city may establish such an enterprise outside its corporate limits within reasonable limitations. G.S. § 160A-312.

In this case, the town is acquiring through condemnation property located in Cabarrus County, but beyond the town’s corporate limits, to establish a gas transmission and distribution system,  i.e., the pipeline. Under the terms of an interlocal agreement, the town controls a tap on the pipeline and is entitled to 5000 decatherms of natural gas per day at a discounted cost.

The property owners argue that, regardless of the town’s entitlement to discounted natural gas and a tap on the pipeline, the town’s lack of plans to ever furnish gas services to the town and its citizens shows that the town is not condemning the property for any actual use by the city and that the condemnations are therefore unlawful. The town counters that the mere potential to distribute low-cost natural gas to its citizens constitutes sufficient “use” by the city.

Accordingly, the determinative issue is whether something more than mere availability or potential is required by the statutes.

A narrow reading of § 160A-312 limits a city’s power to establish a public utility to only those situations where the city has a concrete plan to furnish services; a broad reading grants a city power to establish a public utility where the city has a plan to develop the infrastructure and capability, but no immediate plan to actually furnish the services.

Based on the following excerpt from G.S. § 160A-4, we must conclude that a broad interpretation of § 160A-312 is required: “It is the policy of the General Assembly that the cities of this State should have adequate authority to execute the powers, duties, privileges, and immunities conferred upon them by law.  To this end, the provisions of [Chapter 160A] and of city charters shall be broadly construed. …”

Furthermore, this court has previously interpreted § 160A-312 to grant cities extensive power to establish and operate public enterprises.

Consistent with the broad mandates of §§ 160A-4 and 160A-312, we find it manifest that the town may acquire property by condemnation to establish a gas transmission and distribution system, even in the absence of a concrete, immediate plan to furnish gas services to its citizens.

While we acknowledge the existence of the requirement that the public enterprise be established and conducted for the city and its citizens, we conclude that this requirement is satisfied by the town’s placement of a tap on the pipeline and by the town’s acquisition of the right to low-cost natural gas. In fact, the town’s contracted-for right to install a tap on the pipeline “from which to operate and supply its own natural gas distribution utility for the benefit of Midland’s utility customers” indicates just the opposite: that the town will, eventually, furnish natural gas services to its citizens.

We conclude that the town’s acquisition by condemnation of the property for the pipeline is for use by the city such that § 160A-240.1 is satisfied.

Public Use or Benefit

Establishing a gas transmission and distribution system is an appropriate purpose for the condemnation of property under G.S. § 40A-3(b). Accordingly, we must decide whether the town’s condemnations are “for the public use or benefit.”

Our courts determine the propriety of a condemnation under § 40A-3 based on the condemnation’s satisfaction of both a “public use test” and a “public benefit test.”

The public use test asks whether the public has a right to a definite use of the condemned property. The public benefit test asks whether some benefit accrues to the public as a result of the desired condemnation.

There is nothing to indicate that gas services — were they to be provided by the town — would be available to anything less than the entire population. Accordingly, there can be no doubt that the town’s condemnations would pass the public use test because the right to use is granted in common, not to particular individuals or estates.

The property owners’ assertion that the town may never tap into the pipeline is belied by the fact that the town contracted for control of a tap capable of servicing its citizens. Although the town’s citizens’ right to a definite use of the pipeline is contingent upon the town offering the services, that right is not barred by the fact that the current municipal administration has no plans to furnish services; the probability of the exercise of the right to use should not be conflated with the inability to exercise that right. Accordingly, we conclude that the citizens of the town do have a right to a definite use of the pipeline such that the condemnations satisfy the public use test.

Likewise, the town’s tap on the pipeline, and its potential to provide natural gas service, likely will spur growth, as well as provide the town with an advantage in industrial recruitment. These opportunities must be seen as public benefits accruing to the town’s citizens, such that the town’s condemnations are for the public benefit.

According to G.S. § 62-2(a)(9), as a matter of N.C. policy, facilitation of the extension of natural gas service to unserved areas — and not simply the extension itself — promotes the public welfare. A tap on the pipeline that is controlled by the town facilitates extension of natural gas service to the unserved the town’s citizens.

We conclude that the condemnations by the town were for the public benefit or use such that the condemnations do not violate § 40A-3(b).

The property owners next argue that because the town has agreed to assign to Public Service Company of North Carolina (PSNC) “a non-exclusive right, title and interest in and to” all pipeline easements, and because, pursuant to a joint venture agreement, PSNC is a 25 percent owner of the pipeline, the condemnations are for a private purpose and, consequently, they are unlawful under N.C. law.

However, an amendment to the joint venture agreement eliminates PSNC’s ownership interest in the pipeline and will provide that the pipeline will be a purely municipal enterprise. Accordingly, the property owners’ argument with respect to PSNC’s ownership is overruled.

Where the taking benefits both public and private interests, the controlling question is whether the paramount reason for the taking of land to which objection is made is the public interest, to which benefits to private interests are merely incidental, or whether, on the other hand, the private interests are paramount and controlling and the public interests merely incidental.

In this case, the condemnations were undertaken to facilitate the extension of natural gas services to all of the town’s citizens, and there is nothing to indicate that the condemnations were undertaken solely to accommodate PSNC’s efforts to serve its current or future customers.

Furthermore, this extension of services to the town’s citizens carries with it the corresponding public benefits of growth and industrial recruitment. The fact that PSNC, along with the town, is granted an easement on the pipeline cannot overshadow the public benefits accruing to the town’s citizens.

Accordingly, PSNC’s “non-exclusive right, title, and interest in and to all easements” for the pipeline in Cabarrus County must be seen as incidental to the paramount public interest served by the establishment of a gas transmission and distribution system.

We further note that the existence of PSNC’s right of first refusal to serve the town’s citizens does not affect our conclusion that the condemnation is lawful.

Firstly, § 160A-312(a) grants the town the authority to “contract for the operation of any or all of the public enterprises. …” As such, the town is not required to operate the gas distribution system itself and may lawfully contract with PSNC to provide services to its citizens.

Secondly, the town’s control of the tap on the pipeline will allow the town to provide natural gas services to its citizens regardless of whether PSNC exercises its right of first refusal, effectively guaranteeing that natural gas service will be available to the town’s citizens.

Accordingly, we conclude that the town’s condemnations were not undertaken to provide a solely private benefit.

County Approval

G.S. 153A-15 provides, inter alia, that a city seeking to acquire — whether by condemnation, exchange, purchase, or lease — property located in a county other than the county in which the city is located must obtain the consent or approval of the board of commissioners of the county where the land is located. As violations of § 153A-15, the property owners assert that (1) the town is just a “token title-holder” and Monroe is the actual condemnor and therefore Monroe is acquiring property located in Cabarrus County without the consent of the Cabarrus County Board of Commissioners, and (2) by operation of the interlocal agreement, Monroe is acquiring real property located in Cabarrus County without the approval of the Cabarrus County Board of Commissioners.

The power to exercise this substantive right granted to a county is vested solely in the board of commissioners. G.S. § 153A-12. Accordingly, the real party in interest who by substantive law has the legal right to enforce a claim arising under § 153A-15 is the county affected by a potential § 153A-15 violation and not an individual property owner.

In the only cases brought before this court in which § 153A-15 rights are at issue, the party asserting those rights has been a county.

Because § 153A-15 grants substantive rights to an affected county, and not to an individual property owner, the appropriate party to assert the statutory rights granted by § 153A-15 must be an affected county, and not an individual property owner. Therefore, we conclude that the property owners do not have standing to assert § 153A-15 as a defense to the town’s condemnations. As such, this court does not have subject matter jurisdiction to hear the argument.

VAD

Even though G.S. § 106-740 permits a voluntary agricultural district (VAD) ordinance to provide that no condemnation may be initiated until a request for hearing has been made, the Cabarrus County VAD ordinance does not so provide.

Limited Use

While a condemnor must state the fundamental purpose of the condemnation in the notice, a condemnor need not specifically state each and every intended “use” of the property in the notice. The portion of the pipeline running through the property condemned by the town may be used to transport natural gas to other persons, as well as to the town’s citizens.

The town lawfully exercised its eminent domain power.

Affirmed.