May 29th. The Kansas Supreme Court has issued its decision in Rural Water District #2 of Miami County v. City of Louisburg (No.100,332), a property annexation dispute. In a unanimous opinion, written by Justice Carol Beier, the Court held that the statute governing compensation to Rural Water Districts following annexations by cities requires a de novo review in the District Court should the Water District contest the result of the appraisal process. Note: Judge Edward Bouker served on the Court for this case, due to the vacancy created by the retirement of Chief Justice Kay McFarland.
Rural Water District #2, Miami County (a quasi-municipal corporation) operates water utilities for much of Miami County outside of the city of Louisburg. Louisburg has annexed several pieces of property and as a result utility responsibility passes from the water district to the city, along with ownership of facilities serving the annexed areas. The Water District initiated this action to get compensation as a result of this.
The statutory procedure invoked in this (rare) situation is that when an agreement is not reached between the City and the Water District, a team of appraisers is appointed (one by the City, one by the Water District, and one by the first two appraisers, though in this instance the third was appointed by the District Court). The appraisers identify the value of the property transferred and thus recommend the compensation. If dissatisfied, the Water District can “institute an action” in the District Court. This case turns upon two major issues – whether the valuation should include going concern value, and whether the Water District was entitled to a de novo trial of the valuation in the District Court versus an appeal analogous to a challenge to an administrative agency decision. The District Court had created a procedural framework for the case which did not allow for a de novo valuation at trial, but which comprehensively directed the appraisers’ method for performing it. The District Court ultimately awarded approximately $133,000. The City had argued for $60,000 and the Water District for at least $8m. The Water District appealed.
The Water District prevailed upon both its arguments. After examining the legislative history of the statute in question the Kansas Supreme Court held that going concern value can indeed be considered in these type of appraisals. However, it found that this decision did not benefit the Water District since the Judge had already directed the appraisers to do so. The actual import the appraisers assigned to this component is left to them under the very loose wording of the statute which provides no formula for evaluation.
Turning to the trial process, in some places in the statutes the Legislature has used the wording ‘de novo’, in others it has not, but not all of those where it has not used ‘de novo’ follow a review on appeal procedure. The Court ruled that the statute does require a de novo trial of the facts, which had not happened in this case. The Court was evidently dissatisfied at this result, with Justice Beier casting the decision as one where the legislative intent was hard to ascertain, other statutes using the same terminology were not analogous, and inviting the Legislature to overrule the decision if it wished to do so. She also noted that there was practically no guiding caselaw from other states on this obscure scenario. Caselaw on eminent domain was not much use since the statutory framework is quite different.
The Court therefore reversed the District Court and remanded for a new trial. All sides agree that the onus is upon the Water District to disprove the appraisal’s reasonableness. However, the Court made it clear that the standard the Water District must meet is a preponderance of the evidence standard.