Steven F. AUNE and Karen A. Aune, husband and wife, Plaintiffs and Appellees, v. B-Y WATER DISTRICT, Defendant and Appellant.
No. 16707.
Supreme Court of South Dakota.
Decided Dec. 5, 1990.
Thomas E. Alberts, Avon, for defendant and appellant.
SABERS, Justice (On reassignment).
B-Y appeals from a $12,000 jury verdict in favor of Aune claiming sovereign immunity applies because it is an agency or subdivision of the state.
Steven and Karen Aune (Aune) purchased land in rural Yankton County in 1984. Two years before Aune bought his land, his predecessor discontinued her membership in the B-Y Water District (B-Y) which supplied water to the property. When Aune attempted to get the water turned back on, B-Y refused unless Aune paid the accrued monthly minimum charges of $1400 for the two years the water had been off. After several attempts to resolve the dispute, Aune sued. In 1989, a jury found B-Y‘s refusal to deliver water both tortious and a violation of
B-Y appeals claiming the trial court erred in not granting summary judgment and judgment notwithstanding the verdict based on the defense of sovereign immunity. We reject this argument and hold that:
SDCL 46A-9-3 permits a cause of action against a water user district.- A water user district is a business enterprise with a commercial purpose and is not entitled to sovereign immunity.
SDCL 3-22-2(1) is unconstitutional to the extent that it purports to extend sovereign immunity to a water user district.
1. A cause of action is permitted.
Although, as argued by B-Y, the “sue and be sued” clause based on Kringen v. Shea, 333 N.W.2d 445 (S.D. 1983), does not create a cause of action in tort, it certainly permits a cause of action in tort if one exists. To read the “sue and be sued” clause any other way is contrary to the “plain meaning and intent of the Legislature” by giving effect to only one-half of the clause. Such an interpretation permits a water user district to sue, but prohibits a person wrongfully injured by the water user district from suing. Therefore, even though the “sue and be sued” clause does not create a cause of action in tort, it permits one. Cf. Federal Land Bank of St. Louis v. Priddy, 295 U.S. 229, 55 S.Ct. 705, 79 L.Ed. 1408 (1935) (Statute providing that federal land banks could sue and be sued as fully as natural persons demonstrates Congressional intent that federal land banks not be immune from suit).
In fact, the Legislature has provided a procedure in the statutes in order to bring suit.2 Not only is notice to be given to the public entity but also to the attorney general.
2. B-Y is a business enterprise with a commercial purpose.
In Jensen v. Juul, 66 S.D. 1, 5, 278 N.W. 6, 8 (1938), we stated: “Although a corporation may be public, and not private, be-
The important question is how to distinguish between governmental and commercial activity. The test is not whether B-Y was organized or operated for profit. By its very nature a public corporation will seldom, if ever, be established for the purpose of generating profits. The better approach is to assess whether the activity is something only the state can accomplish or whether it could be effectively accomplished by a private enterprise. As the Michigan Court of Appeals has stated:
“[A]s a basic guideline, the crux of the governmental essence test should be founded upon the inquiry whether the purpose, planning and carrying out of the activity, due to its unique character or governmental mandate, can be effectively accomplished only by the government. Unless liability would be an unacceptable interference with government‘s ability to govern, activities that fall outside this perimeter, although performed by a government agency, are not governmental functions and therefore not immune.”
Everett v. County of Saginaw, 123 Mich.App. 411, 333 N.W.2d 301, 302 (1983) (quoting Parker v. City of Highland Park, 404 Mich. 183, 200, 273 N.W.2d 413, 419 (1978) (Moody, J., concurring)); cf. Eagle Ins. Co. v. State, 131 Misc.2d 357, 500 N.Y.S.2d 478 (Ct.Cl. 1986).
The delivery of water is not an inherently governmental activity that only the state can effectively accomplish. Indeed, a water district functions more like a cooperative than a state agency since it is controlled by the landowners and subscribers in the district.4 Moreover, subjecting B-Y to liability would not interfere with the state‘s ability to govern, primarily because the state treasury cannot be used to pay any liability. The water user district has “no power of taxation, or of levying assessments for special benefits; and no governmental authority shall have power to levy or collect taxes or assessments for the purpose of paying, in whole or in part, any indebtedness or obligation of or incurred by the district[.]”
The Wisconsin Supreme Court has held that a state entity with characteristics similar to a water user district is outside the scope of sovereign immunity. Majerus v. Milwaukee County, 39 Wis.2d 311, 159 N.W.2d 86 (1968). The court described the entity‘s characteristics as follows:
The Armory Board has power to convey real estate and dispose of personal
property without express authority from the state. It has the power to hold and disburse its own funds independent of state warrants. It is given no appropriation but has the power to borrow money and issue and sell bonds and other evidences of indebtedness to accomplish its purposes. The debts thus created are satisfied out of rents and interest the Armory Board receives from the property it acquires.
Id., 39 Wis.2d at 314-315, 159 N.W.2d at 87. These characteristics were found to be “independent proprietary functions” of the Wisconsin State Armory Board which sufficiently distinguished it from the sovereign state as such—even though the board lacked the power to tax and was ultimately dependent on the state in certain other respects. A water user district has similar “independent propriety functions“: it may acquire and dispose of real or personal property,
In short, the function of a water user district is commercial and it should be treated the same as any other commercial enterprise. We abide by our statement in Foy Constr., supra at 346: “Where the State elects to operate a business enterprise solely for commercial purposes, it ought not be permitted to avoid its legal responsibility by invoking the doctrine of governmental immunity.” As a business enterprise with a commercial purpose, B-Y ought not be permitted to hide behind the state‘s sovereign immunity.
3. Sovereign immunity does not extend to business enterprises with a commercial purpose.
Having concluded that B-Y is a business enterprise with a commercial purpose, it follows that the legislature cannot extend the state‘s sovereign immunity to shield B-Y from damages arising in contract or tort.
In Oien v. City of Sioux Falls, 393 N.W.2d 286 (S.D. 1986), we held that the extension of sovereign immunity beyond traditional bounds was unconstitutional under the “open courts” provision of the South Dakota Constitution. In Oien, we interpreted the “open courts” provision as a guarantee that “for such wrongs as are recognized by the law of the land the courts shall be open and afford a remedy.” Id., at 290 (citing Simons v. Kidd, 73 S.D. 41, 46, 38 N.W.2d 883, 886 (1949) and Mattson v. Astoria, 39 Or. 577, 65 P. 1066, 1067 (1901)). While Oien dealt with an improper extension of the state‘s sovereign immunity to attempt to shield functions of a municipality, the principle remains the same. Here, we deal with an improper extension of the state‘s sovereign immunity under
Therefore, the attempted extension of governmental immunity under
MILLER, C.J., and MORGAN, J., concur.
HENDERSON and WUEST, JJ., dissent.
HENDERSON, Justice (dissenting).
Trends have recently developed concerning the abolition of certain sovereign immunities. See generally Prosser and Keeton on Torts § 131 (1988) (Prosser) and Speiser, Krause and Gans, The American Law of Torts § 6 (1985) (Speiser). Although one or two states seem to have retained something similar to total sovereign immunity,1 the great majority have now consented to at least some liability for torts (including South Dakota) “in all cases retaining the immunity at least to the extent of basic policy or discretionary decisions.” Prosser at 1044. This writer believes that “basic policy” means the basic policy as expressed by the legislature of each state digesting these reforms. Each individual state‘s immunity continues to shift rapidly as courts and legislatures have adjusted to each branch‘s reforms. As such, the states can be grouped roughly as follows:
First, about seven or eight states, though technically retaining immunity from suit in the law courts, have established administrative agencies to hear and determine claims against the state.2 Prosser at 1044. In most cases it appears to be contemplated that the agency‘s award will be routinely paid or that appropriations will be made to fund it. Usually the agency is directed either to make awards where a judgment would be given against a private person at law, or to do justice and equity. Prosser at 1044. In most instances nearly complete relief appears available, subject only to any dollar limit on the state‘s liability which may be imposed.3 Prosser at 1044.
Second, a group of nine states have waived the tort immunity in some limited class of cases,4 including South Dakota, which typically seem to be a specie of cases in which the state or its agency has procured liability insurance that will pay any judgment. South Dakota has such a statute. It expresses:
SDCL 21-32A-3 . Except insofar as a public entity participates in a risk sharing pool or insurance is purchased pursuant to§ 21-32A-1 , any public entity is immune from liability for damages
Third, a group of approximately 30 states, the largest single group, have abrogated immunity in a substantial or general way.7 In this group of 30 states, as well as some other states, liability may be present for nonfeasance as well as misfeasance, even though the discretionary immunity is retained, usually joined by specifically enumerated immunities as well. On the whole, however, the liability of states in this group is approximately as broad as, or broader than, the liability of the federal government under the tort claims act. By judicial decision of this Court, we have painted a mosaic with the lawyers and trial judges in this state; thus, there has been, seemingly, a certain groping-searching or attempt to reconcile and distinguish various sovereign immunity decisions.
This entire tort scenario, as I view it, portrays a large expansion of responsibility for torts throughout the United States. It appears that the majority opinion is again, by judicial fiat, broadening tort liability in this state. This Court is holding that the Aunes may recover in tort, for the breach of B-Y‘s statutory duty to provide water service to them, in that B-Y had no authority to refuse water service to them.
We are posed with the question:
Did the trial court err in determining that B-Y, a political subdivision of South Dakota and a public entity, is not entitled to the defense of sovereign immunity?
I believe that it did and I would accordingly reverse.
In my discussion, I agree that the Legislature went too far in passing a statute which provides immunity from suit for any public entity whether its function is proprietary or governmental. In my research, I am unable to find any statute like
In Daugaard v. Baltic Co-op. Bldg. Supply Ass‘n., 349 N.W.2d 419 (S.D. 1984) writing for this Court over one tough dissent, I was ridiculed for extolling the open court‘s provision of our state constitution. I withstood the literary gaffe and lived long enough to see that writing cited with approval in the following cases: Numerous foreign jurisdictions have cited Daugaard for our interpretation of the open court‘s doctrine including State ex rel. Wyoming Workers’ Compensation Div. v. Halstead, 795 P.2d 760 (Wyo. 1990); Hayes v. Mercy Hosp. and Medical Center, 557 N.E.2d 873, 136 Ill.2d 450, 145 Ill.Dec. 894 (1990); Hess v. Snyder Hunt Corp., 392 S.E.2d 817, 240 Va. 49 (1990); White v. State, 784 P.2d 1313 (Wyo. 1989); St. Paul Fire & Marine Ins. Co. v. Getty Oil Co., 782 P.2d 915 (Okla. 1989); Horton v. Goldminer‘s Daughter, 785 P.2d 1087 (Utah 1989); Sandoe v. Lefta Associates, 551 A.2d 76 (D.C.App. 1988); Sandoe v. Lefta Associates, 559 A.2d 732 (D.C.App. 1988); Reich v. Jesco, Inc., 526 So.2d 550 (Miss. 1988); Zapata v. Burns, 542 A.2d 700, 207 Conn. 496 (1988); Lucas v. U.S., 757 S.W.2d 687, (Tex. 1988); Hardy v. VerMeulen, 512 N.E.2d 626, 32 Ohio St.3d 45 (1987); Mominee v. Scherbarth, 503 N.E.2d 717, 28 Ohio St.3d 270, 28 O.B.R. 346 (1986); Hanson v. Williams County, 389 N.W.2d 319 (N.D. 1986); Mega v. Holy Cross Hosp., 490 N.E.2d 665, 111 Ill.2d 416, 95 Ill.Dec. 812 (1986); Berry By and Through Berry v. Beech Aircraft Corp., 717 P.2d 670 (Utah 1985); Whiting-Turner Contracting Co. v. Coupard, 499 A.2d 178, 304 Md. 340 (1985); Theriault v. A.H. Robins Co., Inc., 698 P.2d 365, 108 Idaho 303 (1985); Kenyon v. Hammer, 688 P.2d 961, 142 Ariz. 69 (1984); Square D. Co. v. C.J. Kern Contractors, Inc., 318 S.E.2d 527, 70 N.C.App. 30 (1984).
I believed in the open court‘s provision then and I believe in it now. But there has to be a limit. Not every set of facts can be fit into the same suit of clothes. The open court‘s provision simply cannot be used in every factual scenario. Witness, the water districts of this state. I take judicial notice of the water user districts in South Dakota, via the Department of Water & Natural Resources hierarchial history on file: (1) Rapid Valley Water User District; (2) North Grand Water User District; (3) Randall Water User District; (4) Tripp County Water User District; (5) Lakeside Water User District; (6) B-Y Water User District; (7) T-M Water User District; and (8) Howes Water User District. These water districts in South Dakota are not commercial enterprises as the majority decision would have you believe. These districts, serving tens of thousands of South Dakotans, are trying to serve rural South Dakota by distributing water which is fit to drink and clean to wash with; these water user districts can only exist as a creature of statute and a creature of government. They are also trying to conserve the water resources of South Dakota and, in so doing, act for the welfare and benefit of the people of this State.
The majority decision is, conceivably and conceptually, an economic disaster for it opens the floodgates of litigation against regarding the allusion to my vote in Oien, in this dissent I have not argued in favor of the constitutionality of
- B-Y can only be dissolved on the conditions and in accordance with
SDCL 46A-9-69 through46A-9-75 ; - No individual or private entity of any type can benefit from B-Y‘s assets;
- B-Y functions like any other governmental body because its governing body is publicly elected.
SDCL 46A-9-26 provides for persons entitled to vote. The district‘s elections are just like a state, school, county or other governmental election. The requirement is that a voter must be a landowner or entryman residing within the district. Residency for voting is required by all governmental units; - B-Y cannot dissolve without a vote of the persons within the district entitled to vote per
SDCL 46A-9-73 ; - B-Y‘s operation is not commercial for profit. Revenues are used for operation, repayment of debt, and to provide water to the district‘s users.
SDCL 46A-9-65 ;9 - No corporate dividends are declared as one would envision in a private enterprise or commercial setting; the elected officials are not paid salaries such as is seen in commercial enterprises. By and large, they are ordinary folks who are simply serving their neighbors and community.
The majority decision further argues that an exception to immunity applies in this case because the Legislature waived B-Y‘s immunity from suit by including in the statutes
Statute permitting board of regents to “sue and be sued” did not, in absence of statutory authority expressly waiving sovereign immunity, create a cause of action in tort against the state college board.
SDCL 13-49-11 .
Before Kringen, we held in Guillaume v. Staum, 328 N.W.2d 259 (S.D. 1982):
In absence of a statute waiving sovereign immunity from tort liability, a statute authorizing a school district to sue and be sued did not create a cause of action in tort.
SDCL 13-5-1 .
In the present case, we also find that in the absence of a statute waiving sovereign immunity from tort liability, the “can sue and be sued” provision of
Inasmuch as B-Y‘s activities are governmental by nature and not commercial, it is entitled to the defense of sovereign immunity. This is the precedent of this Court and, thus, this state. Schaub v. Moerke, 338 N.W.2d 109 (S.D. 1983); Conway v. Humbert, 82 S.D. 317, 145 N.W.2d 524 (1966).
WUEST, J., joins this dissent.