APPEAL FROM: District Court of the Ninth Judicial District, In and For the County of Toole, Cause No. DV 08-072 Honorable Laurie McKinnon, Presiding Judge
The opinion of the court was delivered by: Justice Brian Morris
Submitted on Briefs: September 12, 2012
Decided: December 31, 2012
Justice Brian Morris delivered the Opinion of the Court.
¶1 MCR, LLC (MCR) filed an action for condemnation of a compressor station site on property owned by appellees David and Lenora McEwen (McEwens). McEwens counterclaimed against MCR for damage to McEwens' property. McEwens also claimed punitive damages. McEwens sought restoration costs as the measure of damages for their contract, trespass, and nuisance claims. The parties stipulated to the substitution of MCR Transmission, LLC (MCR-T) for MCR on the condemnation claim.
¶2 The District Court denied MCR-T's motion for a preliminary condemnation order. The District Court granted McEwens' summary judgment motion that allowed McEwens to seek restoration costs. The jury awarded restoration costs and punitive damages to McEwens. MCR and MCR-T appeal. We affirm in part, reverse in part, and remand.
¶3 MCR and MCR-T present the following issues on appeal:
¶4 Issue One. Whether the District Court properly denied MCR-T's motion to condemn McEwens' property for a compressor station.
¶5 Issue Two. Whether the District Court properly determined that McEwens were entitled to seek restoration costs as the measure of their damages.
¶6 Issue Three. Whether the District Court properly admitted evidence at trial that MCR had jumped McEwens' bid on state trust land leases.
PROCEDURAL AND FACTUAL BACKGROUND
¶7 McEwens purchased their ranch near the Sweet Grass Hills in Toole County, Montana, in 1992. McEwens took the ranch subject to a lease of two acres by Fulton Fuel Company (Fulton) on which sat a compressor station. MCR-T purchased Fulton's interest in the compressor station in 2004. MCR-T entered into a five-year lease with McEwens to continue to operate the compressor station.
¶8 MCR operated natural gas wells on McEwens' property pursuant to MCR's mineral rights. MCR needed a place to dump produced water from one of its wells. MCR and McEwens entered into a contract that allowed MCR to dump this produced water from one well into a pond on McEwens' property. The contract required MCR to provide McEwens with water tests of the produced water every six weeks. McEwens wanted the water test results due to the fact that McEwens believed that produced water from a different well had killed some of McEwens' sheep in 1996. McEwens wanted to ensure that the produced water did not contaminate their pond.
¶9 MCR failed to test the produced water every six weeks as required under the contract. In fact, McEwens alleged at trial that MCR had deposited produced water from two other wells into the pond, including produced water from the sour well that may have killed McEwens' sheep in 1996.
¶10 MCR also caused significant damage to McEwens' property over this same time period. MCR employees defecated and littered on McEwens' property. MCR disturbed McEwens' property for a variety of pits, tanks, and pipelines. MCR did not reclaim McEwens' property after it had completed these projects.
¶11 McEwens and their predecessors had leased four 40-acre parcels of state trust land as agricultural grazing for their livestock. McEwens paid $6.97 per animal unit month (AUM).
MCR bid on this leased land in 2009. MCR never had ranched or raised cattle or other livestock before it submitted the bid. MCR has not ranched or raised livestock since that time. McEwens alleged at trial that MCR had submitted this bid out of spite and that the bid represented another instance of MCR treating McEwens with malice. McEwens successfully matched MCR's bid and retained the lease on the state trust land. MCR's bid forced McEwens to pay $36.97 per AUM. The State ultimately refunded part of this money, but McEwens had to pay almost twice what they had been paying previously as a result of MCR's bid.
¶12 McEwens and MCR-T failed to reach an agreement to renew the lease for the two-acre parcel where the compressor station sits. MCR filed an action for condemnation of the compressor station site. McEwens counterclaimed against MCR for breach of contract, trespass, nuisance, and violations of the Surface Damages Act, and sought punitive damages.
McEwens sought restoration costs as the measure of damages for their contract, trespass, and nuisance claims. The parties stipulated to substitution of MCR-T for MCR on the condemnation claim.
¶13 The District Court dismissed MCR-T's condemnation claim. The court relied on the holding in McCabe Petroleum Corp. v. Easement & Right of Way Across Township 12 N., 2004 MT 73, 320 Mont. 384, 87 P.3d 479, that eminent domain power cannot be implied or inferred from vague language, and that it must not exist merely by implication. McCabe,
¶ 12. The District Court determined that the legislature's failure to enumerate compressor stations in the list of public uses in § 70-30-102, MCA, excluded a compressor station as a public use. This determination left MCR-T unable to pursue its condemnation action.
¶14 The District Court issued an order on summary judgment that McEwens could seek restoration damages for their breach of contract, trespass, and nuisance claims. The District Court instructed the jury at the close of trial that it could award McEwens' costs necessary to restore McEwens' property to the condition in which it existed before MCR dumped the produced water. The District Court allowed McEwens to introduce evidence that MCR had jumped McEwens' bid on state trust land. The jury awarded restoration costs and punitive damages to McEwens. MCR and MCR-T appeal.
¶15 We review for correctness a district court's conclusion of law. Varano v. Hicks, 2012 MT 195, ¶ 7, 366 Mont. 171, 285 P.3d 592. We review de novo a district court's grant of summary judgment. Lampi v. Speed, 2011 MT 231, ¶ 10, 362 Mont. 122, 261 P.3d 1000. Summary judgment may be granted only when no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. Lampi, ¶ 11.
¶16 A district court possesses broad discretion when it determines the admissibility of evidence. McCormack v. Andres, 2008 MT 182, ¶ 22, 343 Mont. 424, 185 P.3d 973. We review for abuse of discretion a district court's evidentiary rulings. McCormack, ¶ 22. A district court abuses its discretion when it acts arbitrarily without employment of conscientious judgment or so exceeds the bounds of reason as to work a substantial injustice. McCormack, ¶ 22.
¶17 Issue One. Whether the District Court properly denied MCR-T's motion to condemn McEwens' property for a compressor station.
¶18 Eminent domain involves the State's inherent right to take private property for public use. Section 70-30-101, MCA. The Montana legislature further has endowed private individuals with eminent domain power for specific activities that the legislature has deemed public uses. Section 70-1-205, MCA.
¶19 Section 70-30-111(1), MCA, first requires MCR-T to demonstrate that its proposed use of McEwens' property qualifies as a public use under § 70-30-102, MCA. MCR-T then must demonstrate that it needs McEwens' land for the proposed public use. Section 70-30-111(2), MCA. MCR must demonstrate both of these factors by a preponderance of the evidence. Section 70-30-111, MCA.
¶20 The legislature has declared gas pipelines to constitute a public use. Section 70-30-102(4), MCA. MCR-T argues that natural gas compressor stations represent an essential component to distribute natural gas through a pipeline. MCR-T alleges that the natural gas that it seeks to transport remains static in the pipelines at a pressure of approximately 20 pounds per square inch. The compressor station raises the pressure on the gas from 20 pounds per square inch to above 600 pounds per square inch to move the natural gas in the pipeline. MCR-T claims that it would be unable to deliver natural gas through the pipeline without a compressor station.
¶21 We strictly construe the legislature's grant of eminent domain power. McCabe, ¶ 14. We look to the plain language set forth by the legislature and do not imply a more extensive grant of power. McCabe, ¶ 14. We also interpret the statute to avoid absurd results. Mont. Power Co. v. Cremer, 182 Mont. 277, 280, 596 P.2d 483, 485 (1979).
¶22 The legislature has provided that pipelines that transport gas constitute a public use. Section 70-30-102(4), MCA. Compressor stations sometimes prove necessary to force natural gas through a pipeline. We agree with MCR-T that an absurd result would ensue if we allowed a private party to exercise eminent domain power to construct and operate a pipeline, but did not allow the same private party to exercise eminent domain power to construct and operate a compressor station necessary to make the pipeline work properly. Mont. Power Co., 182 Mont. at 280, 596 P.2d at 485. The legislature intended to allow a private party to exercise eminent domain power both for a gas pipeline and also for a compressor station required for the gas pipeline to transport natural gas.
¶23 This determination does not end the inquiry. Section 70-30-111(2), MCA, further requires MCR-T to show, by a preponderance of the evidence, that the taking of McEwens' property "is necessary" to MCR-T's proposed public use. McEwens do not seem to dispute that MCR-T needs a compressor station somewhere in the vicinity to pressurize natural gas that otherwise would remain static in the pipeline. MCR-T seeks a summary judgment order that McEwens' property proves necessary as the location for the compressor station. McEwens also presented evidence, however, that other similarly situated land, not owned by McEwens, may be available for MCR-T to locate a compressor station. McEwens' evidence raises a genuine an issue of material fact as to whether McEwens' property proves necessary for the compressor station. Section 70-30-111(2), MCA. The existence of this genuine issue of material fact precludes summary judgment.
¶24 We reverse and remand for further proceedings to resolve whether MCR-T can meet all of the criteria contained in § 70-30-111, MCA. MCR-T must meet all of the criteria before § 70-30-111, MCA, would allow MCR-T to exercise eminent domain authority. These criteria include whether the placement of the compressor station on McEwens' private property proves necessary to MCR-T's operation of its natural gas pipeline. Section 70-30- 111(2), MCA. The parties can present evidence regarding all issues related to the necessity of McEwens' property as the site of MCR-T's compressor station before the District Court.
¶25 The District Court also may address on remand McEwens' claim that MCR-T seeks to use the land on which the compressor station sits for purposes not delineated under § 70-30-102, MCA. These alleged uses include holding field meetings, parking contractor equipment, and storing an aboveground diesel tank and an aboveground gas tank. The court can assess in the first instance McEwens' arguments that these ancillary uses exceed the scope of § 70-30-102, MCA.
¶26 Issue Two. Whether the District Court properly determined that McEwens were entitled to seek restoration costs as the measure of their damages.
¶27 On the third day of trial, the District Court granted McEwens' motion on whether they were entitled as a matter of law to seek the costs of restoring their property as the measure of damages. The court's decision allowed McEwens to present evidence to the jury about the cost of restoring their property.
¶28 This case follows our decisions in Sunburst Sch. Dist. No. 2 v. Texaco, Inc., 2007 MT 183, 338 Mont. 259, 165 P.3d 1079, and Lampi. We take this opportunity to clarify our approach to a party's claim for damages to property. Diminution in property value has long been recognized as a measure of damages for injury to property. Sunburst, ¶ 30; Burk Ranches v. State, 242 Mont. 300, 305, 790 P.2d 443, 445-46 (1990). An award of damages equivalent to diminution in property value places the plaintiff in the position that he would have been but for the injury where the costs to restore the property correspond with the diminution in property value. By contrast, where the costs of restoring the property to the condition in which it existed before the injury exceeds the diminution in property value, a party will not be made whole by an award of diminution in property value. Sunburst, ¶ 37; Lampi, ¶ 21.
¶29 We rejected a strict cap on property damage in Sunburst. This Court instead adopted the Restatement (Second) of Torts § 929 cmt. b, to allow a party to elect restoration costs as his measure of damages in appropriate cases. Sunburst, ¶ 38; Lampi, ¶¶ 22-23. We use the term "restoration damages" as shorthand to refer to an award of damages that disproportionately exceeds the diminution in value of the property and reflects the amount that the party will be forced to spend to restore his property to its ...