Oct. 7, 2009 – Lower courts found that the Milwaukee Metropolitan Sewerage District executed a taking under article I, § 13 of the Wisconsin Constitution when it drained so much groundwater from a worksite that it reduced the water levels on nearby land owned by E-L Enterprises.

No longer saturated in water, the wood pilings supporting E-L’s building began to rot, leading to costly repairs.

In briefs filed with the Wisconsin Supreme Court, the district insists E-L has no more than a tort claim against which it enjoys immunity under Wis. Stat. § 893.80(4). If the justices decide otherwise, the district warns that public projects could be exposed to all kinds of new takings claims, threatening the public treasury. But E-L has responded that these additional costs do not outweigh a fundamental constitutional right.

A sewer project

In the 1980s, the district constructed a “deep tunnel” storage system to reduce the dumping of sewage into rivers and lakes. A series of collector sewers emptied into the tunnel. Part of the sewer network would be located in a roadway easement adjacent to E-L’s building on North 12^th Street in Milwaukee. To keep this work site dry for the protection of workers and to ensure proper installation of sewer pipes, the district’s contractors pumped out the surrounding groundwater.

In May 1998, E-L reported worsening cracks in its building’s foundation and it determined that a likely cause was the district’s sewer construction from 10 years earlier. E-L eventually filed suit in June 2004.

Shortly before trial, E-L settled its negligence and nuisance claims against the district’s contractors. The court dismissed E-L’s negligence and nuisance claims against the district, but allowed its takings claim to proceed.

A jury made factual findings that the foundation of E-L’s building had been sufficiently saturated before the district’s contractors removed the groundwater. In addition to characterizing the removal of water “unreasonable,” the jury found it to be deliberate and motivated by a public purpose. The jury declared the withdrawal to be permanent and calculated $309,388 as just compensation for the taking.

The court of appeals affirmed.

Consequential damages?

In its brief to the supreme court, the district argued E-L had suffered no more than consequential damages that belong in a torts action, not a constitutional takings claim.

“This Court has limited takings claims to two types: (1) physical invasions – the government’s physical occupation or appropriation of property, and (2) ‘regulatory takings’ – non-invasive government conduct that deprives a property owner of all or substantially all economically beneficial use of the property,” the district wrote.

The district argued that it never occupied E-L’s building or grounds when it drained the groundwater. The wood foundational piles’ decay upon exposure to air is, at most, consequential damages of its actions, the district said. “Governmental action which merely causes damage to private property is not the basis for compensation,” the district wrote, quoting Zinn v. State, 112 Wis. 2d 417 (1993).

Dicta in Wis. Power & Light Co. v. Columbia County, 3 Wis. 2d 1 (1958), suggests that government-caused consequential damages can be a taking if the damage renders the property worthless, the district acknowledged. But even under that standard, E-L cannot prove a taking because trial testimony established that E-L made continuous use of the building and lost no rental income due to the damaged pilings, the district argued. Without an economic loss, the district argued that E-L could not claim a noninvasive taking.

As evidence of the action’s “true nature” as a tort, the district noted that “E-L sued the contractor’s insurer for negligence and nuisance, recovering an undisclosed amount in settlement.”

E-L rejected the district’s portrayal of its action as a tort claim, explaining how the case amounts to a taking. First, it asserted the existence of a property right in groundwater and then it claimed the district invaded that right.

A right to groundwater?

The district disputed the existence of a private property right in groundwater, arguing that “[l]ike navigable waters and lakes, it belongs to the State in trust for the people as a whole.”

“Groundwater’s constant movement and flux frees it from being the ‘property’ of any landowner,” the district contended, citing State v. Michels Pipeline Construction, Inc., 63 Wis. 2d 278 (1974). The only way to have ownership of water is to actually use it within the limit of “reasonableness” set by Michels, the district said.

“[T]he State’s interest [in water] does not preclude a landowner from simultaneously having a property or ownership right (akin to a riparian right) in groundwater,” E-L explained. Indeed, Wisconsin has long recognized that a landowner’s right to use groundwater is a property right attached to ownership of the soil, E-L argued, citing Huber v. Merkel, 117 Wis. 355 (1903).

“The Huber court … noted that it was immaterial if the property right in groundwater arose from absolute ownership of the water itself, or from a mere right to use and divert the water while it percolates through the soil: ‘[i]n either event, it is a property right, arising out of his ownership of the land, and is protected by the common law as such,’” wrote E-L.

“These rights exist alongside the State’s right in water,” E-L wrote. “If the government takes riparian rights, a cause of action for taking exists.”

E-L also accused the district of misreading Michels, which “did not debate or refute the principle that a landowner has property rights in groundwater. Its decision, imposing a limitation on a landowner’s previously unfettered right to groundwater use, assumed the existence of a reasonable right in groundwater for all landowners.”

Returning to its contention that E-L’s claim is properly viewed as a tort action, the district responded that Michels had chosen to resolve competing groundwater uses by employing nuisance law, not shared ownership rights.

“Michels expressly rejected the correlative rights rule under which all landowners are treated as having coequal rights in groundwater,” the district wrote. “Michels instead adopted the then-proposed Restatement (Second) of Torts rule, which imposed on each landowner a tort duty not to withdraw groundwater that unreasonably damages other property.”

E-L said that the Michels court had specified no particular theory of liability.

A taking or a nuisance?

The district faulted the circuit court judge for asking the jury to find whether the district had removed an unreasonable amount of water and what amount of money would compensate E-L for the consequent harm. Those inquiries are “nuisance-type questions,” the district said.

Citing Hoene v. Milwaukee, 17 Wis. 2d 209 (1962), the district argued that nuisance claims against government entities can only be for consequential damages and are not actionable as takings. In Hoene, a tavern owner alleged a taking because the city’s failure to maintain the street had caused the tavern’s foundations, walls, and floors to crack, resulting in an unsalable building.

The Hoene court rejected the claim, holding that the city had not appropriated title or possession. Moreover, the Hoene court noted that the city did not need the tavern to operate the street and so there was no “taking for a public use,” as contemplated in the constitution.

“As in Hoene, EL does not claim that the District appropriated title or possession of its building, and the District did not need EL’s property to construct the sewer,” the district concluded.

But E-L referred approvingly to the circuit court judge’s observation that the real issue of this case is whether “foreseeable but unintended property damage accompanying a taking of private property should be considered a taking.”

Answering this question in the affirmative, E-L cited Zinn for the proposition that a taking is determined by the effect of a government action, not the government’s intent. Further, E-L said a taking can arise from unintended consequences of government action, citing Dahlman v. City of Milwaukee, 131 Wis. 427 (1907). In Dahlman, the government lowered the street grade adjoining Dahlman’s property and inadvertently removed a lateral support.

“It did not intend to take the property that was supported by the grade,” E-L said. “But although unintended, the government’s actions resulted in a taking of Dahlman’s land.”

Bolstering its analogy to this case, E-L added that the damage to Dahlman’s land was unintended, but foreseeable.

“Like the government’s action in Dahlman, the District took E-L’s groundwater,” E-L argued. “The District intentionally took E-L’s groundwater knowing full well that the foreseeable consequence would be the rotting of E-L’s wood piles and loss in value of E-L’s building.”

The district pointed out that E-L’s reliance on concepts such as foreseeability “only underscores the tort-like nature of the real claim at issue here.”

Fiscal impact

The district warned that recognizing E-L’s claim as a taking invites similar costly litigation, potentially discouraging further public works projects.

“This threat is real and significant,” the district wrote. For example, owners of the 19^th century Boston Store building are seeking to recover $12 million based on allegations that the Deep Tunnel sewer project also damaged their store’s foundational piles. That case is pending in the court of appeals, awaiting a decision in this case, the district reported.

In response, E-L argued that the district could have taken simple engineering steps to prevent the damage to its building, but it chose not to. Accordingly, E-L disputed the district’s warnings of costly litigation if more care is taken in planning public projects.

Further, E-L argued that a decision in its favor “may lead to similar takings claims where the government acted deliberately, knowing the consequences of its action, [but] additional cost to the District does not outweigh a fundamental Constitutional right.”

The district argued that State regulation – not litigation – is the proper means to accomplish construction and protect affected landowners’ property rights. But E-L argued that idea is insufficient. The inclusion of a takings clause in the state and federal constitution is to “ensure that private property owners are not at the State’s mercy in these cases,” E-L argued.

Oral arguments are scheduled for Oct. 21.