September 20, 2002
Dear Madam:
You have the following question: Can the City by eminent domain take certain water
lines inside and outside the city, that belong to a private non-profit water company (not a utility
district!) and that serves water customers within the city? Under the facts you related to me, the
water company is in serious financial difficulty, and is considering the sale of its assets to another
water company. For reasons unknown to me, it does not want to sell its assets to the city. The
water lines inside the city are those lines in territory the city annexed; the lines outside the city
are in the city’s planned growth area.
In my opinion, the answer is yes.
The Franchise Issue
With respect to the lines inside the city, the water company probably does not have a
perpetual or a time-limited franchise to provide water service within the city. Tennessee Code
Annotated, ' 65-27-106 gives water and waterworks companies broad rights to install pipelines
within the streets and roads in municipalities and counties, “after first having obtained
permission from the governing authorities thereof....” Likewise, Tennessee Code Annotated, '654-109(3) conditions the provision of water service inside a municipality by “any corporation
chartered or authorized to supply or supplying any town or city or the inhabitants thereof with
water...” to obtain the written permission of the town or city.
However, the water company undoubtedly has a franchise to provide water in the county.
I do not know whether its franchise is perpetual or time-limited. In either case, apparently the
franchise is “property or property rights” within the meaning of Article I, ' 21 of the Tennessee
Constitution, and Tennessee Code Annotated, ' 29-17-810, the latter of which provides for the
manner of calculating damages for takings. In Duck River Electric Membership Corporation v.
City of Manchester, 529 S.W.2d 202 (Tenn. 1975), wherein it was held that the City of
Manchester had the right to condemn property of an electric cooperative, the Court first pointed
out that the electric cooperative’s franchise had expired. Presumably it made that point on the
ground that the remainder of a term of a franchise would have been a consideration in calculating
just compensation for the taking. I have not determined the measurement of damages for the
taking of water company franchises. I will attempt to do so if you wish.
The Effect of Annexation
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It does not appear that the annexation of property has any legal bearing on water lines
inside a municipality that belong to a private water company. Tennessee Code Annotated, ' 651-111 gives municipalities an “exclusive right” to provide utility services in annexed areas as
against “instrumentalities of the state.” While a water company is a quasi-public corporation and
a “public utility” (because it has the power of eminent domain and a franchise to lay lines in
public highways), it is probably not an instrumentality of the state within the meaning of
Tennessee Code Annotated, ' 6-51-111. [See Crumley v. Watauga Water Co., 41 S.W.1058
(1897); Nashville Water Co. v. Dunlap, 138 S.W.2d 414 (1940); Tennessee Code Annotated,
Title 66, Chapter 27.]
City’s Right to Condemn Property of a Water Company
Duck River, above, appears to further control your question. After pointing out that the
electric cooperative’s franchise had expired, the Court turned to the question of whether the city
had the authority to condemn the property of an electric cooperative. Apparently the city’s
electrical system was organized under the Electric Plant Law of 1935, now codified at Tennessee
Code Annotated, Title 7, Chapter 52. Analyzing the eminent domain provision of the Electric
Plant Law [Tennessee Code Annotated, ' 6-1505 (now ' 7-52-105) and the eminent domain
prevision of the Revenue Bond Law [Tennessee Code Annotated, ' 6-1304 (now ' 7-34-104(1)),
the Court concluded that while the former provision applied to real estate, the latter was not
limited to real estate, it declaring that municipalities had the power to acquire by “....eminent
domain....public works....” [Emphasis is mine.]
[I am not sure why the Revenue Bond Law was at issue in that case, which was held in
Nashville Electric Service v. Luna, 204 S.W.2d 529 (1947), to apply only to municipalities
operating utility systems under that law. There is no indication in Duck River that the City of
Manchester operated its utility system under that law, but apparently it did.]
On the question of whether the city has the authority to condemn the water lines of a
waterworks corporation, you told me that the city water system is organized under Tennessee
Code Annotated, ' 7-35-101 et seq. (which I suspected). There are two eminent domain
provisions of that statutory scheme, both of which make it clear that a municipality’s right of
eminent domain under that scheme are not limited to the acquisition of only real estate.
Tennessee Code Annotated, ' 7-35-102 [formerly ' 6-1401] provides that:
All municipal corporations are empowered to take and condemn
lands, property, property rights, privileges of others for the
purpose of constructing, laying, repairing or extending sewers,
water systems...both within and beyond the corporate limits.
Tennessee Code Annotated, ' 7-35-403 also provides that:
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Any city or town proceeding under the provisions of this part is
authorized and empowered to condemn property for any and all
purposes necessary for the proper completion of the works and the
proper operation of the same. Where condemnation proceedings
are employed, they shall be in accordance with the established laws
of the state of Tennessee in title 29, chapter 16. [Emphasis is
mine.]
The condemnation of sewer and water lines by a city under Tennessee Code Annotated, '
6-1401 (now ' 7-35-102) was upheld in Zirkle v. City of Kingston, 396 S.W.2d 356 (Tenn.
1965). There the Court also declared that it was not necessary for the Court to determine whether
water and sewer lines were real or personal property, because their owners [private subdivision
developers] were entitled to compensation for their taking in either case.
Finally, the City is a home rule municipality that operates under the general law managercommission charter as it stood in 1958. Under ' 6-1901(9) of that charter, the City has the
authority:
To condemn property, real or personal for any easement, interest,
or estate or use therein, either within or without the city, for
present or future public use; such condemnation to be made
andeffected in accordance with the terms and provisions of chapter
14, of title 23 [now chapter 16, title 29], or in such other manner as
may be provided by law.
The Duck River Court next turned to the question of whether the City of Manchester had
the authority to condemn the property of an electrical cooperative. The Court agreed with the
general proposition that property devoted to public use by one government cannot be condemned
by another government. However, that general rule, continued the Court, does not apply where
legislation authorizes such a condemnation. At this point it is difficult to exactly determine the
basis upon which the Court declared that the City of Manchester had the authority to condemn
the electrical cooperative’s property. The Court compared a municipality and an electrical
cooperative, and reasoned that the former was more stable, had a greater duty to provide utility
service without discrimination, and that “In short, as between a Tennessee municipality and an
electrical membership cooperative, the city is sovereign and supreme.” [At 206] Furthermore,
declared the Court, “there can be no legitimate contention but that the city distribution of electric
current will be a higher public use.” [At 206]
However, it appears that the Duck River Court really meant that although an electric
membership cooperative provided a public service, it was not a government. Indeed, that is what
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the Tennessee Court of Appeals concluded in Town of Dandridge v. Patterson, 827 S.W.2d 797
(Tenn. App. 1991). There the City of Dandridge sought to condemn land upon which the county
had an option to buy, citing for support Duck River Electrical Membership Corporation for the
rule that the doctrine that one government could not condemn the property of another
government absent statutory authority did not apply when the land would be put to a “higher
public use.” The Court reasoned that:
The Duck River Court premised its decision on the fact that public
service corporations are not government entities, rather than an
exception to the doctrine of intergovernmental immunity. After
noting electric systems are seldom privately owned, the Court
characterized such electric membership cooperatives as
“manifestly low-grade, volunteer, public service type corporations,
inferior in all respects to municipalities.” Duck river, supra.
Through enacting T.C.A. 7-34-104, the Tennessee Legislature
knew that it was authorizing the condemnation by municipalities of
such low-grade public service type utility operations engaged in
supplying electric current to the public. Id. As such, the
Legislature conferred such power upon the City of Manchester.
The opinion contains no reference to an exception to the general
rule of governmental immunity. The language regarding higher
use is merely dicta. This Court is not bound to follow Dandridge’s
tortured reasoning which would elevate the Duck River dicta to an
exception to the general rule of law....Likewise, this Court will not
begin to carve out exceptions to the general rule of
intergovernmental immunity premised upon the speculative
priority of beneficial uses to the public....Furthermore, the [At 80102]
Town of Dandridge v. Patterson appears to be well-taken on those points. If the
condemning entity is a government, and the property it seeks to condemn is owned by another
government entity, under the doctrine of intergovernmental immunity, the property cannot be
condemned, unless a statute provides otherwise. Duck River Electrical Cooperative was not a
government and its property was subject to condemnation by the City of Manchester, and the
city’s taking of the property was supported by a statute that contemplated such a taking (although
it was not a statute that carved out an exception to the doctrine of intergovernmental immunity
because that doctrine did not even apply).
The City appears to stand in the same position as did the City of Manchester relative to
Duck River Electrical Cooperative. Although a waterworks corporation is a public service entity,
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it is not a governmental entity and is not the beneficiary of protection under the
intergovernmental immunity doctrine. In addition, the city has ample authority to condemn the
water lines both inside and outside the city. But as I said above, I do not know what is the
measure of damages for the taking of a franchise.
Sincerely,
Sidney D. Hemsley
Senior Law Consultant
SDH/