Case Name: Therese M. SMITH, et al., Petitioners, Appellants, v. The CITY OF OWATONNA, Respondent
Court: Minnesota Supreme Court
Jurisdiction: Minnesota
Decision Date: 1990-01-19
Citations: 450 N.W.2d 309
Docket Number: No. C5-88-1789
Parties: Therese M. SMITH, et al., Petitioners, Appellants, v. The CITY OF OWATONNA, Respondent.
Judges: POPOVICH, Chief Justice (dissenting).
Reporter: North Western Reporter 2d
Volume: 450
Pages: 309–318

Head Matter:
Therese M. SMITH, et al., Petitioners, Appellants, v. The CITY OF OWATONNA, Respondent.
No. C5-88-1789.
Supreme Court of Minnesota.
Jan. 19, 1990.
Rehearing Denied March 26, 1990.
Stephen J. Smith, Tracy M. Smith, Smith & Tollefson, Owatonna, for appellants.
Corey J. Ayling, Minneapolis, for respondent.
Hubert H. Humphrey, III, Atty. Gen., Dennis D. Ahlers, Sp. Asst. Atty. Gen., St. Paul, for amicus curiae State of Minn.
Jocelyn F. Olson, Asst. Atty. Gen., St. Paul, for amicus curiae Dept, of Public Service.
Legal Aid Soc. of Minneapolis, Inc., Minneapolis, for amicus curiae Energy Sense Coalition.

Opinion:
SIMONETT, Justice.
Plaintiff property owners, in this appeal, raise constitutional challenges to the municipally-owned utility's actions in requiring them to pay the cost of installing service lines to connect to the city's new replacement gas mains.
Beginning in 1980 the City of Owatonna, by its Public Utilities Commission, began a program of upgrading only low pressure gas mains. On two streets the old mains were replaced with new low pressure gas mains. Next, in 1984, the old low pressure mains on Main Street were replaced with high pressure mains. The property owners on Main Street, including the plaintiffs here, received a letter from the city engineer advising them that they would be responsible, at their own expense, for hiring a plumber and installing the service line from their properties to the new high pressure main. Property owners on the previous projects had also been required to pay for their service lines, but the high pressure line involved the additional expense of installing a pressure reducing regulator and meter on the outside of the buildings. Pursuant to the city's directive, plaintiff Therese M. Smith installed the new service line and regulator at a cost of $948.07, and plaintiffs William and Norma Cawley did the same for their property at a cost of $1,400.
A year later, in 1985, the Commission installed new high pressure mains on School Street but the City, not the property owners, paid for the service lines and regulators. The Commission explained it was absorbing this expense because it was experimenting with plastic piping, and wanted to certify its own installers to use the new product.
In July 1985 plaintiffs commenced this lawsuit against the City claiming that its action in compelling them to abandon their old yet adequate low pressure service lines and to install a new high pressure service line at their own expense violated their constitutional rights under the federal and state constitutions. They claimed (a) a deprivation of property without due process; (b) a "taking" without just compensation; and (c) a denial of equal protection.
Prodded by the lawsuit and the foot-dragging of other complaining property owners, the City, in 1986, changed its policy. It elected thereafter to pay the cost of replacing all service lines. Later that year, the City paid the cost of service lines to a new high pressure main replacement on Grove Street.
The trial court found that the previously existing low pressure gas main on Main Street had been adequate to meet the needs of the properties involved. The court also found the new high pressure mains afforded certain operational advantages to the Commission and perhaps to the City as a whole, although they conferred no direct benefit to plaintiffs. The trial court ruled that plaintiffs had been denied procedural due process; that requiring plaintiffs to pay the cost of their service lines was arbitrary and capricious; and that plaintiffs had been deprived of a "property interest in their respective gas services" without just compensation. The trial court awarded Therese M. Smith $948.07 and the Caw-leys $1,400, plus attorney fees.
On appeal, the court of appeals (2-to-l) reversed, ruling that plaintiffs were not entitled to recover on any of the three theories they asserted. Smith v. City of Owatonna, 439 N.W.2d 36 (Minn.App.1989). We granted plaintiffs' petition for further review. We also granted the State of Minnesota and its Department of Public Service and the Energy Cents Coalition leave to file amicus briefs.
I.
The first issue is whether plaintiffs were deprived of a property interest without due process. We think not.
The threshold (and dispositive) question is whether plaintiffs have a "property interest" entitled to due process protection. The United States Supreme Court has eliminated the distinction between property and privilege. The test whether a person has asserted a property right is whether the plaintiff has asserted a legitimate claim of entitlement to a government benefit. Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548 (1972). See Snyder v. City of Minneapolis, 441 N.W.2d 781, 791 (Minn.1989). The source of entitlements, i.e., property rights protected by due process standards, is state or federal law: "Property interests, of course, are not created by the Constitution. Rather, they are. created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law — -rules or understandings that secure certain benefits and that support claims of entitlement to those benefits." Roth, 408 U.S. at 577, 92 S.Ct. at 2709.
Thus in Memphis Light, Gas & Water Division v. Craft, 436 U.S. 1, 11-12, 98 S.Ct. 1554, 1561, 56 L.Ed.2d 30 (1978), because Tennessee's decisional law indicated that gas and electric services could only be terminated for just cause, the United States Supreme Court held that the plaintiffs had an entitlement interest protected by due process standards. Before service to a customer could be discontinued for nonpayment of a bill, due process required notice of how to challenge the bill and an opportunity for a predeprivation hearing on the past due charges. Id. at 14-15, 18, 98 S.Ct. at 1562-63, 1564.
Our state law, too, affords protection to utility customers to whom service is denied or threatened with disconnection. In Cascade Motor Hotel, Inc. v. City of Duluth, 348 N.W.2d 84, 85 (Minn.1984), we held unenforceable a Duluth ordinance requiring new applicants for utility services to pay the past due bills of the former owner of the premises. See also, e.g., Siegel v. Minneapolis Gas Co., 271 Minn. 127, 129, 135 N.W.2d 60, 62 (1965) (utility company may adopt regulations for terminating service to customers in default, implying services cannot be terminated without a reason). Thus, Judge Diana Murphy in Freeman v. Hayek, 635 F.Supp. 178, 182-83 (D.Minn.1986), construing our case law, held that Minnesota users of water and sewage utilities had "a legitimate claim of entitlement at least equivalent to that of the plaintiffs in [Craft ]." Accord Lamb v. Hamblin, 57 F.R.D. 58, 61 (D.Minn.1972) (Judge Edward Devitt). Our statutory law also, as well as rules promulgated by the Public Utilities Commission, reflect our state's concern that utility services, generally, may not be discontinued without good cause. Plainly this "entitlement" applies to municipally-owned utilities.
In this case plaintiffs have asserted a property right to "continued gas service." But their claim is not like the entitlement claim of the Tennessee customers in Craft. The City of Owatonna is not terminating gas service to plaintiffs' properties or refusing service. Rather it is implementing a change in the method of delivery of that service. "Whether a consumer has a protected interest in the intangible property of continued service," points out amicus Energy Cents Coalition, "is separate and distinct from whether the consumer has a vested property interest in the precise manner in which that service is delivered."
Plaintiffs argue they were given an impossible choice by the city: Either install a new service line or be without gas service. If they had not spent the money to install a new feeder line, plaintiffs argue, they would have been without service, a situation not unlike the customer threatened with discontinuance of service for an unpaid bill. To describe the consequences of the City's action, however, does not define nor identify the "property interest" that it is claimed to have caused these consequences.
What plaintiffs are claiming here is not an entitlement to the benefit of continued gas service. That right is not disputed. Nor is plaintiffs' right to connect to the City's mains questioned. Rather plaintiffs claim a right created by state law to continue to hook up to the old gas main on Main Street. They claim an entitlement to the benefit of the continued use of the existing low pressure main. We are aware of no state law that gives landowners such a right. Rather, the law has entrusted the City with the right and responsibility to decide when and in what manner its gas distribution system shall be repaired or upgraded. Minn.Stat. ch. 453A (1988); cf Johnson v. City of Plymouth, 263 N.W.2d 603, 606 (Minn.1978) ("the implementation of any improvement project on a public thoroughfare is undertaken in the interest of the public safety and welfare pursuant to inherent governmental police powers.") As the court of appeals observed, "to give an individual [a right to a particular manner of service] would indeed interfere with the government's ability to efficiently provide utility services for the general convenience, health and welfare of its citizens." Smith, 439 N.W.2d at 40.
In some ways, plaintiffs are in a position similar to the plaintiffs in O'Bannon v. Town Court Nursing Center, 447 U.S. 773, 100 S.Ct. 2467, 65 L.Ed.2d 506 (1980). There it was held that nursing home residents entitled to Medicare and Medicaid benefits were not entitled to a hearing before the government could decertify their nursing home's certification as a Medicare and Medicaid qualified institution. While statutes and regulations gave the residents a right to continued medical benefits, they did not confer on the residents a right to continued residence in a particular institution, if that institution did not meet government standards. In O'Bannon, admittedly, the government's action was directed against a third party (the nursing home). Even so, plaintiffs' claim of entitlement here to the continued use of the existing gas distribution system seems little different from the nursing home residents in O'Bannon claiming entitlement to continued use of their old home.
In effect, plaintiffs argue the existing low pressure mains on Main Street were adequate and did not need replacement. Indeed, the trial court found that the old main was adequate. But the trial court also found that the new high pressure mains had operational advantages beneficial to the City as a whole, see Part III, infra, and there was testimony that the old main and service lines were reaching their useful life span. We believe the City's decision to upgrade its gas distribution system was a policy decision, predominantly legislative in character, which, at least in this instance, does not lend itself to judicial intrusion. Assuming arguendo plaintiffs should have had an opportunity to dispute the City's decision to upgrade its gas mains, due process would not require pre-deprivation hearings for each property owner. The opportunity of property owners to appear at the public meetings of the Commission to protest, or the post-deprivation remedy of a lawsuit (such as plaintiffs have done), suffices for the minimal due process considerations required for the legislative action involved in this instance. See, e.g., In re Christenson, 417 N.W.2d 607, 613 (Minn.1987).
We hold plaintiffs do not have an entitlement under state law to the continued use of a particular means of delivering gas service; and, therefore, the City's failure to afford plaintiffs a hearing before implementing changes in the delivery system is not a violation of due process standards under either the federal or state constitutions. This holding in no way detracts from our decisional and statutory law which establishes a legitimate entitlement to continued gas service; in other words, an individual has a valid due process claim if a municipally-owned utility would cut off service without notice first and an opportunity to be heard.
II.
Plaintiffs next contend the City's actions give rise to an inverse condemnation claim for a regulatory taking of property without just compensation. We disagree.
Plaintiffs must first prove their "property" has been taken, destroyed or damaged. The property interest involved in eminent domain is something more than the claim of entitlement to a government benefit, which is all the "property interest" needed for a procedural due process claim. For a condemnation claim, among other things, there must be "property" which suffers a measurable diminution in market value. Alevizos v. Metropolitan Airport Com'n, 298 Minn. 471, 487, 216 N.W.2d 651, 662 (1974). Here plaintiffs suggest that the property taken is either "the right to continued gas service, the effective condemnation of the old service, or the deprivation of the money expended to replace the service ."
As we have already seen, the right to "continued gas service" is not involved here. Neither, under the circumstances, do we think the resultant obsolescence of plaintiffs' old service line by reason of the City's installation of a new main constitutes a taking. Finally, the cost of installing a new service line is just that, the incurring of an expense, not a property loss or diminution in value in the eminent domain sense. Everyone seems to agree that plaintiffs' old service lines under Main Street are plaintiffs' property. The question, however, is whether the City has impaired a property interest of plaintiffs which is legally cognizable, such as an easement or contract with the City, which gives plaintiffs the right to use their pipes in a certain way, specifically, to be connected to certain mains which cannot be changed without the landowners' consent. Plaintiffs have shown no such property interest.
Somewhat analogous is Stillwater Water Co. v. City of Stillwater, 50 Minn. 498, 52 N.W. 893 (1892). There a private water company was given the right to place its water pipes in the public streets. Later the city re-established a lower grade on some of the streets necessitating the water company to lower and re-lay its pipes. We held that the plaintiff's right to lay pipes in the street was subordinate to the city's power to grade the streets, "and although the exercise of the power may at times cause plaintiff inconvenience and expense, that is nothing more than' it took the risk of in accepting the grant." 50 Minn, at 503, 52 N.W. at 894. See also New Orleans Gas Co. v. Drainage Comm'n, 197 U.S. 453, 461, 25 S.Ct. 471, 473, 49 L.Ed. 831 (1905) (if a gas company is required at its own expense to change the location of its pipes in the public street when the city installs a drainage system, "none of the property of the gas company has been taken").
In this case, plaintiffs had a license (or, arguably, even an implied easement) from the City to lay their service line in Main Street. J. Sackman, 2 Nichols' The Law of Eminent Domain, § 5.49 (3d ed.1989). There is no claim this license gives plaintiffs the right to dictate the gas main that the City must use. The tail cannot wag the dog. The property owners install their service lines subject to the condition that they may have to be changed when the gas mains are changed. This arrangement not only does not create a property right for eminent domain purposes, but defeats it.
III.
"The equal protection clauses of the federal and state constitutions require that all persons similarly situated be treated alike under the law." In re Harhut, 385 N.W.2d 305, 310 (Minn.1986). Plaintiffs claim this did not happen here.
' Plaintiffs point out: (1) only some gas mains were replaced with high pressure systems; (2) some part of Main Street remained on low pressure; (3) the property owners on School Street did not have to pay for the installation of their high pressure service lines or meters; and (4) neither did the property owners on Grove Street have to pay for their service line installations, which were installed after the City changed its policy.
In general, economic legislation involving classification of similarly situated individuals will be upheld under the equal protection clause if it is rationally related to a legitimate state purpose. Id. Unconstitutionality must be proven beyond a reasonable doubt. Id. at 311.
Owatonna takes control of its gas at two border stations, reducing the gas from 250-300 pounds pressure per square inch to 50 pounds. At certain points along the mains, the gas had been further reduced to under 1 pound per square inch. Under this low pressure system, individual properties acquire gas through service lines, one regulator reducing the pressure for a number of properties. On the other hand, a high pressure system requires a regulator at each point of service. A high pressure system is safer than a low pressure system because it is easier to regulate the pressure in the lines as each customer receives gas. In a low pressure system, property closest to the regulator may have too much pressure and those further away may have too little. Either condition is dangerous. Modern high efficiency appliances function better on a high pressure system which distributes the gas evenly.
The differences in installation on the different streets was shown to have a rational basis. Some mains were "too far from a high pressure system" to justify using new high pressure mains. Only the high pressure system required individual regulators. As to the School Street project, the City was experimenting with a new type of plastic pipe which accounted for the City absorbing the service installation expense. As to the installation of the high pressure mains on the Grove Street project after the lawsuit was started, the Commission by then had changed its policy.
As the court of appeals noted, the fact that the policy change was not applied retroactively does not give rise to an equal protection claim. "Merely because the legislature sees fit to change the law does not give rise to an equal protection attack on those who, at some previous time, did not have the benefit of the new statute." Lee v. Pavkovic, 119 Ill.App.3d 439, 447, 74 Ill.Dec. 900, 906, 456 N.E.2d 621, 627 (1983). If this were not so, then, as the court of appeals in this case observed, "anytime a governmental body provided new services to its citizens it would be subject to equal protection claims from citizens who paid for those services prior to the change." Smith, 439 N.W.2d at 42.
We can appreciate plaintiffs' frustration. Plaintiffs concede they can be required to pay the cost of new service lines if new service lines are needed and if the cost is fairly assigned. They question the need and they question the manner in which the costs were assigned. While the manner in which the City and its Commission went about its business may show a lack of political astuteness, the City's actions do not rise to the level of a constitutional violation.
Affirmed.
. See, e.g., Minn.Stat. § 504.185 (1988) (tenant can have utility service reconnected if discontinued due to landlord's failure to pay); Minn.Stat. § 325E.025 (1988) (utility cannot condition service on payment of previous customer's bill).
. Minn.R. § 7820.1000-3000 (1989) (prohibiting, with limited exceptions, termination of utility services by private utilities without notice and cause). These rules, however, do not apply to municipally-owned utilities. Minn.Stat. § 216B.02, subd. 4 (1988).
.Granted gas service is cut off briefly, for a few hours, while the change-over from the old low pressure to the new high pressure mains is made. While this minor interruption may require notice to the property owners, this notice was given. Indeed, plaintiffs helped coordinate the change to the new system.
. Amici have expressed concern that some language in the court of appeals' opinion might be construed to suggest a utility customer had no right to "continued service." We do not think the appeals panel said this nor intended to say it. Indeed, the panel made clear it was stating only that a customer had no right to "any manner of service." Smith, 439 N.W.2d at 40 (emphasis added).