The Orange County Transportation Authority (OCTA) began building a new 4.5-mile streetcar line to connect downtown Santa Ana with two transportation hubs. The construction required two public utility companies, Southern California Edison Company (SCE) and Southern California Gas Company (SCG) to relocate their equipment that was in the way of the new construction. The utilities did not want to bear the cost of moving their pipes, transmission lines and other infrastructure materials, but OCTA argued they had to do so under common law. The U.S. District Court for the Central District of California Circuit agreed with OCTA, and now the Ninth Circuit has affirmed.

Presiding District Judge David O. Carter granted summary judgment to OCTA because of the “traditional common law rule” that requires utilities to bear their relocation costs if requested to do so by state or local authorities. The utilities claimed that these costs would be just over $15 million, and they claimed that the common law rule does not apply to them because the streetcar line is being constructed for a private purpose, not a “governmental one.” At the time construction was announced, OCTA agreed to advance the public utility companies their relocation costs.

SCE and SCG did not wish to reimburse OCTA for its advance, so it sued the utilities in November 2020 under 42 U.S.C. § 1983. The Authority also “cross-moved” for summary judgment. After reviewing precedents, Judge Carter ruled that under all relevant tests, OCTA’s streetcar project was governmental, not private or proprietary, partly because the California legislature had granted it authority to administer the light rail system. A unanimous three-judge panel affirmed his district court ruling on March 13.

In an opinion authored by Ninth Circuit Judge Eric D. Miller, with concurrences by Circuit Judge Salvador Mendoza, Jr. and District Judge Barry Ted Moskowitz, sitting by designation, the Ninth Circuit said that neither the “Takings Clause” nor state law entitles the utilities to compensation. The Takings Clause of the Fifth Amendment also applies to the states by the Fourteenth Amendment. It says that “private property shall not be taken for public use without (just) compensation.” In addition, 42 U.S.C. § 1983, says that relocation constitutes a taking of private property that requires just compensation.

Miller began the Ninth Circuit’s opinion with a review of the District Court’s ruling. He explained that the public utilities are investor-owned and have been in the location where the streetcar would be located since 1937. Also, at the time construction was announced, OCTA agreed to advance SCE and SCG their relocation costs.

The opinion then turned to the question of whether California’s property laws give the public utility companies the “property interest” they claim to have. It quotes the 1958 State Supreme Court case Southern California Gas Co. v. City of Los Angeles which held that a public utility “accepts franchise rights in public streets subject to an implied obligation to relocate its facilities therein at its own expense when necessary to make way for a proper governmental use of the streets.”

He said that OCTA’s streetcar project was a proper governmental use of the streets because it would help satisfy the “demand for an efficient public transportation system in the southern California region,” “reduce the levels of automobile-related air pollution,” and “offer adequate public transportation to all citizens, including those immobilized by poverty, age, physical handicaps, or other reasons.” All these outcomes are in line with California Public Utility Code § 130001(a), (b), and (e). The public utilities did not dispute these goals but continued to argue that streetcars are proprietary, not governmental. He concluded that OCTA had applied the public’s right to use the streets for public benefit.

Carter and Miller also relied on California’s 1937 Franchise Act that requires utilities to “remove or relocate without expense to the municipality any facilities…made necessary (by changes) in public streets, including the construction of any subway…” Miller wrote, “The Utilities do not offer, and we do not see, any reason why above-ground rail lines should be treated differently.” He gave several additional examples of cases that support the proposition “that neither current nor historical California law has embraced the proposition that the construction of rail lines is per se non-governmental.”

Miller cited U.S. Supreme Court precedents that prove that OCTA’s streetcar project “fits comfortably within a long tradition of relocations for which franchisees must foot the bill.” Next, he looked to California’s Public Utilities Code §40162, which SCE and SGE cited to show that OCTA must bear relocation costs. These arguments were not persuasive as well. Miller said that all the provisions of the Orange County Transit District, which is clearly a governmental agency, also apply to OCTA.

Similarly, he rejected all arguments in favor of ruling for the public utilities due to the Takings Clause. He cited several cases that ruled that historically, since over a hundred years ago, “utilities have been required to relocate to make way for a government that seeks to vindicate its right to use the streets and enact “proper regulations in the interest of the public health, morals, and safety.” Miller also discounted the utilities’ contentions that “OCTA has failed to show that its streetcar satisfies any public necessity.”

The opinion ended with a bit of good news for the public utilities when the Ninth Circuit declined to award OCTA pre-judgment interest, partly because it did not ask for it in its motion for summary judgment. Post-judgment interest, however, was granted by the district court and is thus “automatically available.”