Case Name: Steven F. AUNE and Karen A. Aune, husband and wife, Plaintiffs and Appellees, v. B-Y WATER DISTRICT, Defendant and Appellant
Court: South Dakota Supreme Court
Jurisdiction: South Dakota
Decision Date: 1990-12-05
Citations: 464 N.W.2d 1
Docket Number: No. 16707
Parties: Steven F. AUNE and Karen A. Aune, husband and wife, Plaintiffs and Appellees, v. B-Y WATER DISTRICT, Defendant and Appellant.
Judges: MILLER, C.J., and MORGAN, J., concur.
Reporter: North Western Reporter 2d
Volume: 464
Pages: 1–9

Head Matter:
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.
Considered on Briefs Feb. 12, 1990.
Decided Dec. 5, 1990.
Larry F. Hosmer, Yankton, for plaintiffs and appellees.
Thomas E. Alberts, Avon, for defendant and appellant.

Opinion:
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 státe.
Facts
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 (BY) 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 SDCL 46A-9-48.
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:
1. SDCL 46A-9-3 permits a cause of action against a water user district.
2. A water user district is a business enterprise with a commercial purpose and is not entitled to sovereign immunity.
3. 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.
Article III, § 27 of the South Dakota Constitution provides that "[t]he Legislature shall direct by law in what manner and in what courts suits may be brought against the state." SDCL 46A-9-3 provides in part: "A water user district may be organized as provided in this chapter, and may sue and be sued in its corporate name."
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. Not only is notice to be given to the public entity but also to the attorney general. SDCL 3-21-3.
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, because established and controlled by the state for public purposes, it does not follow that such corporation is in effect the state and that the same immunity from liability attaches." In L.R. Foy Constr. Co., Inc. v. South Dakota State Cement Plant Comm'n, 399 N.W.2d 340, 347 (S.D.1987), we reaffirmed this position and explained that a corporation's status as an agency of the state does not automatically shield the corporation from suit: "[W]here a state creates or organizes a corporation and operates [the] same for'a commercial purpose, it is ordinarily held subject to suit, the same as any public [sic: private] corporation organized for the same purpose" (quoting 72 Am.Jur.2d States, Territories, and Dependencies § 106 (1974)). Many other states also recognize that sovereign immunity does not extend to a state's commercial or non-governmental activity. See, e.g., Sterling v. Bloom, 111 Idaho 211, 723 P.2d 755 (1986); Graney v. Board of Regents of University, 92 Wis.2d 745, 286 N.W.2d 138 (Ct.App.1979); Perkins v. State, 252 Ind. 549, 251 N.E.2d 30 (1969); Schippa v. West Virginia Liquor Control Comm'n, 132 W.Va. 51, 53 S.E.2d 609 (1948); Platte Valley Public Power and Irrigation Disk v. Lincoln County, 144 Neb. 584, 14 N.W.2d 202 (1944).
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. 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[.]" SDCL 46A-9-47. Even the commercial profits that are generated by the water user district are not shared with the state. The water user district is self-supporting the same as any other commercial business.
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, SDCL 46A-9-40; it may disburse funds upon the approval of the district's board of directors, SDCL 46A-9-67; it may borrow money and incur indebtedness for any corporate purpose, SDCL 46A-9-56; it may pay any indebtedness or liability only from its operation revenues or issuance of bonds, id.) it has the power of eminent domain, SDCL 46A-9-46, but it has no power of taxation, SDCL 46A-9-47. These extensive, independent powers compel the conclusion that a water user district is like a private enterprise and distinct from the .state, and, consequently, is outside the state's sovereign immunity shield.
In shorty 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 SDCL 21-32A-3 to attempt to shield functions of a business enterprise with a commercial purpose by defining it as a "public entity" under SDCL 3-22-2.
It is important to note that the state's sovereign immunity is limited to the state itself and its governmental subdivisions such as counties, school districts, townships and, to a lesser extent, municipalities. It is not proper to expand it to every conceivable collective enterprise that comes along. We must remind ourselves (and the Legislature) that the state's sovereign immunity is the state's sovereign immunity and nothing more. It belongs to the state and to no one else.
Therefore, the attempted extension of governmental immunity under SDCL 21-32A-3 to B-Y Water District as a so-called "public entity" under SDCL 3-22-2(1) is unconstitutional. See Oien, supra, and Foy Constr., 399 N.W.2d 340. Consistent with the holdings of Oien and Foy, we affirm. .
MILLER, C.J., and MORGAN, J., concur.
HENDERSON and WUEST, JJ" dissent.
. SDCL 46A-9-48 provides in part: "No person . shall be liable for the payment of any rent or charge for water storage, water supply, or for any of the costs of operation of such district, unless a contract therefor has been entered into between such person . and the water user district furnishing such water storage or water supply."
. SDCL 3-21-2. Notice prerequisite to action for damages — Time limit. No action for the recovery of damages for personal injury, property damage, error or omission or death caused by a public entity or its employees may be maintained against the public entity or its employees unless written notice of the time, place and cause of the injury is given to the public entity as provided by this chapter within one hundred eighty days after the injury.
. SDCL 3-21-3. Persons to whom notice must be given. Notice shall be given to the attorney general and the following officers as applicable:
(1) In the case of the state of South Dakota, to the commissioner of administration;
(2) In the case of a county, to the county auditor;
(3) In the case of a municipality, to the mayor or city finance officer;
(4) In the case of a school district, to the superintendent of schools;
(5) In the case of other public entities, to the chief executive officer or secretary of the governing board.
. A water user district's governing body is not publicly elected. Only those who own land in the district or contract for services may vote for directors, and that includes corporations. SDCL 46A-9-26. Someone who owns land and contracts for services is entitled to two votes. Id. Furthermore, only a landowner in the district is eligible to be a director. SDCL 46A-9-30.
. SDCL 21-32A-3. Immunity of public entitles — Affirmative defense. 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 whether the function in which it is involved is governmental or proprietary. The immunity recognized herein may be raised by way of affirmative defense.
. SDCL 3-22-2(1) defines the term "public entities" as:
"... the state of South Dakota, all of its branches and agencies, boards and commissions. The term also includes all public entities established by law exercising any part of the sovereign power of the state, including, but not limited to municipalities, counties, school districts, townships, water districts established pursuant to Title 46A, sewer, sanitary, and conservation districts, and all other legal entities that public entities are authorized by law to establish).]" (Emphasis added.)
. It is worth noting that the author of the dissent joined the Oien majority in voiding a similar legislative attempt to impermissibly expand the scope of sovereign immunity, and that he concurred specially in the Foy decision to express "total" support for the sovereign immunity aspect of its holding which found that the State Cement Plant was not immune to suit in either contract or tort. Foy Constr., 399 N.W.2d at 351 (Henderson, J., concurring in part).