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The City of Missoula v. Mountain Water Company

Supreme Court of Montana

June 4, 2018

THE CITY OF MISSOULA, a Montana municipal corporation, Plaintiff, Appellee, and Cross Appellant,
MOUNTAIN WATER COMPANY, a Montana corporation, and CARLYLE INFRASTRUCTURE PARTNERS, LP, a Delaware limited partnership, Defendants and Appellants. THE EMPLOYEES OF MOUNTAIN WATER COMPANY, (Shanna M. Adams, Heather M. Best, Dennis M. Bowman, Kathryn F. Datsopoulos, Wayne K. Davis, Valarie M. Dowell, Jerry E. Ellis, Greg A. Gullickson, Bradley E. Hafar, Michelle Halley, Douglas R. Harrison, Jack E. Heinz, Josiah M. Hodge, Clay T. Jensen, Kevin M. Johnson, Carla E. Jones, Micky A. Kammerer, John A. Kappes, Susan M. Lowery, Lee Macholz, Brenda K. Maes, Jason R. Martin, Logan M. McInnis, Ross D. Miller, Beate G. Newman, Maureen L. Nicholas, Michael L. Ogle, Travis Rice, Eric M. Richards, Gerald L. Schindler, Douglas J. Stephens, Sara S. Streeter, Joseph C. Thul, Denise T. Tribble, Patricia J. Wankier, Michael R. Wildey, Angela J. Yonce, and Craig M. Yonce), Intervenors and Appellants.

          Submitted on Briefs: January 31, 2018

          District Court of the Fourth Judicial District, In and For the County of Missoula, Cause No. DV-14-352 Honorable Karen Townsend, Presiding Judge

          For Appellants Mountain Water: William T. Wagner, Stephen R. Brown, Kathleen L. DeSoto, Garlington, Lohn & Robinson, PLLP, Missoula, Montana Michael Green, D. Wiley Barker, Crowley Fleck PLLP, Helena, Montana Joe Conner, Adam Sanders, Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., Chattanooga, Tennessee

          For Appellants Carlyle Infrastructure Partners, LP: William W. Mercer, Kyle Anne Gray, Brian Michael William Murphy, Holland & Hart LLP, Billings, Montana

          For Appellee: Scott M. Stearns, Natasha Prinzing Jones, Randy Tanner, Boone Karlberg P.C., Missoula, Montana William K. VanCanagan, Datsopoulos, MacDonald & Lind, P.C., Missoula, Montana Harry Schneider, Jr., Perkins Coie LLP, Seattle, Washington

          For Intervenor Montana Department of Transportation: David L. Ohler, Valerie D. Wilson, Special Assistant Attorneys General, Helena, Montana


         ¶1 This is another appeal concerning the proceeding initiated by the City of Missoula (City) to condemn the water system serving the City, previously owned by Mountain Water Company (Mountain Water) and its upstream holding company, Carlyle Infrastructure Partners, LP (Carlyle) (collectively, Property Owners). Property Owners appeal the District Court's orders resolving their claims for attorney and expert fees. The City cross appeals. We address the following issues:

1. Did the District Court err by denying the facial and as-applied constitutional challenges to the definition under § 70-30-306, MCA, of the "necessary expenses of litigation" a prevailing party is constitutionally authorized to obtain, as the "customary" rate for attorneys and experts "in the county in which the trial is held?"
2. Did the District Court err by determining that Carlyle is a prevailing party and thus entitled to recover litigation expenses?
3. Did the District Court err in awarding attorneys' fees for out-of-state attorneys?

         We affirm in part, reverse in part, and remand for further proceedings.


         ¶2 In January 2014, the City made a final written offer of $50 million to purchase the water system, which was rejected by Property Owners. In February 2014, the City's Mayor made a public presentation introducing the legal team that would handle the City's condemnation lawsuit, which included specialized legal counsel from Seattle, Portland, and Spokane, and experts from New York, Seattle, and Minneapolis. Two Missoula law firms were also added to the City's legal team. In the City's pro hac vice motion, it stated "the City and its Montana counsel require the assistance and resources of a larger firm to prosecute this action." Likewise, Carlyle stated its intention to hire "the most qualified lawyers, " and Property Owners ultimately retained attorneys from Denver, Chattanooga, Billings, and Missoula. The parties acknowledge that specialized, out-of-town legal counsel and experts charge higher rates than is customary in Missoula County.

         ¶3 In April 2014, the City initiated condemnation proceedings against Mountain Water and Carlyle. Carlyle filed a motion to dismiss, and later a motion for summary judgment, seeking dismissal as a party on the ground it was not the owner of the assets for which condemnation was sought. Carlyle argued the action should be prosecuted only against its subsidiary, Mountain Water. The City opposed the motion, arguing that Carlyle, as the ultimate owner who made the integral decisions regarding the water system and sale, was a proper party to the action. The District Court denied the motions, ruling the City had sufficiently alleged that Carlyle was an owner and thus a proper party to the action.

         ¶4 In August 2014, the District Court issued a scheduling order that gave the parties six months to complete their discovery and pre-trial filings, and scheduled a trial date shortly thereafter. The parties acknowledge that the litigation schedule was demanding, even for the large legal teams employed by both sides. The District Court recognized that the abbreviated time before trial was "undoubtedly demanding and difficult." Ultimately, nearly 450, 000 pages of discovery were exchanged, over 100 trial witnesses were identified, and 47 depositions were taken at locations across the country.

         ¶5 After a three-week bench trial, the District Court entered a preliminary condemnation order in favor of the City, which this Court affirmed. City of Missoula v. Mountain Water Co., 2016 MT 183, ¶ 103, 384 Mont. 193, 378 P.3d 1113. In the proceeding before the Condemnation Commissioners, Mountain Water sought compensation for the value of the water system, and Carlyle sought severance damages for unfunded pension liabilities. In November 2015, the Condemnation Commissioners determined the value of the water system was $88.6 million, awarding the entire amount to Mountain Water, and awarded no damages to Carlyle.

         ¶6 Because the value determined by the Commissioners was higher than the City's final offer of $50 million, Property Owners moved for reimbursement of their litigation expenses, arguing they were prevailing parties. Property Owners argued § 70-30-306(2) and (3), MCA, which cap reimbursement for attorney and expert fees to the customary rate in the county where the case is tried, is unconstitutional, both facially and as-applied. The City argued that Carlyle was not a prevailing party because it had received no damages from the Commissioners, that the statute is constitutional, and that Property Owners' expenses were largely unnecessary and poorly documented. In order to establish the necessity and reasonableness of their expenses, Property Owners sought to discover the City's legal bills for purposes of context and comparison.

         ¶7 The District Court held Mountain Water and Carlyle were both prevailing parties with a right to be reimbursed for their necessary litigation expenses. The District Court precluded discovery of the City's litigation costs, finding them irrelevant to whether Property Owners met the requirements under §§ 70-30-305 and -306, MCA, for compensation of their own litigation expenses, but received testimonial evidence of the rates charged by the City's Missoula counsel in determining the statutory cap to be set for Property Owners' fees. The District Court found the statute constitutional facially and as-applied, and imposed a Missoula County customary rate on all hours billed by Property Owners' attorneys and experts.[1] The District Court further reduced the expense claim by 25% for Mountain Water and 35% for Carlyle, citing deficiencies in their billing records and concluding that "use of out of state counsel, overstaffing and duplication of effort result[ed] in attorney's fees that are not reasonable and necessary."[2] Consequently, the District Court reduced the approximately $7 million claimed by Mountain Water and Carlyle for attorney and expert fees to just over $3.9 million. Mountain Water was awarded approximately $1.8 million in attorney fees and $1 million in expenses, and Carlyle was awarded approximately $900, 000 in attorney fees and $223, 000 in expenses.

         ¶8 Property Owners appeal, raising the District Court's denial of their constitutional challenges to the statute. In response to their filing of a notice of constitutional challenge, the Montana Department of Transportation intervened on behalf of the Attorney General. The City cross appeals.


         ¶9 This Court exercises plenary review of constitutional issues. Mont. Cannabis Indus. Ass'n v. State, 2016 MT 44, ¶ 12, 382 Mont. 256, 368 P.3d 1131 (citations omitted). We review a district court's rulings on discovery matters for an abuse of discretion. Draggin' Y Cattle Co. v. Addink, 2013 MT 319, ¶ 17, 372 Mont. 334, 312 P.3d 451 (citations omitted). We review a district court's determination of whether a property owner prevailed in a condemnation action for abuse of discretion. Wohl v. City of Missoula, 2014 MT 310, ¶ 12, 377 Mont. 148, 339 P.3d 58 (Wohl II) (citations omitted). If legal authority exists to award attorneys' fees, we review a district court's grant or denial of fees for abuse of discretion. Sullivan v. Cherewick, 2017 MT 38, ¶ 10, 386 Mont. 350, 391 P.3d 62 (citations omitted). A district court abuses its discretion when it acts arbitrarily, without employment of conscientious judgment, or in excess of the bounds of reason, resulting in substantial injustice. Wohl II, ¶ 12 (citations omitted).


         ¶10 1. Did the District Court err by denying the facial and as-applied constitutional challenges to the definition under § 70-30-306, MCA, of the "necessary expenses of litigation" a prevailing party is constitutionally authorized to obtain, as the "customary" rate for attorneys and experts "in the county in which the trial is held?"

         ¶11 The parties' arguments over the validity of the statute begin with whether Article II, Section 29 of the Montana Constitution is self-executing, or whether it requires legislative implementation. Article II, Section 29 provides:

Eminent Domain. Private property shall not be taken or damaged for public use without just compensation to the full extent of the loss having been first made to or paid into court for the owner. In the event of litigation, just compensation shall include necessary expenses of litigation to be awarded by the court when the private property owner prevails.

         "To determine whether the provision is self-executing, we ask whether the Constitution addresses the language to the courts or to the Legislature . . . . If addressed to the Legislature, the provision is non-self-executing; if addressed to the courts, it is self-executing." Columbia Falls Elem. Sch. Dist. No. 6 v. State, 2005 MT 69, ¶ 16, 326 Mont. 304, 109 P.3d 257 (citing State ex rel. Stafford v. Fox-Great Falls Theatre Corp., 114 Mont. 52, 73, 132 P.2d 689, 700 (1942) ("A provision is self-executing when it can be given effect without the aid of legislation and there is nothing to indicate that legislation is contemplated in order to render it operative.") (citations omitted)). Property Owners argue the provision is self-executing, while the City argues it is not, "because, while it allows a condemnee to recovery 'necessary' expenses, it provides no guidance or measure as to what constitutes 'necessary.'"

         ¶12 Article II, Section 29 is addressed to the courts. "Just compensation" for property taken for public use must be "made to or paid into court for the owner." The right to just compensation to a prevailing property owner includes "necessary expenses of litigation to be awarded by the court." It is the task of the courts to determine just compensation when disputed, including the necessary expenses of litigation. While Article II, Section 29, does not define "necessary, " legislative action is not required to understand and implement the term. Courts routinely apply terms such as ...

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