City of Bisbee v. Arizona Water Co – 2/8/2007

February 14, 2007

Arizona Court of Appeals Division Two Affirms Courts Have Jurisdiction to Determine Whether a Utility Has a Right to Make Use of a City’s Public Streets and Rights-of-way Without a Proper Franchise and Affirms Grant of Summary Judgment in Favor of City.

The City of Bisbee filed a complaint alleging that AWC was operating in the City limits without an approved and ratified franchise from the City. The City subsequently moved for summary judgment claiming that AWC had no legal right to make use of the public streets and rights-of-way in Bisbee, AWC was legally responsible for the relocation costs associated with the City’s sewer improvements, and the broad reservation of rights in the subsurface of certain streets purportedly retained by AWC’s predecessor in interest was void as against public policy. AWC moved to dismiss, arguing that the Arizona Corporation Commission, not the superior court, had jurisdiction to hear the matter. The trial court rejected the jurisdiction argument, granted the City’s motion, and this appeal followed.

Judge Pelander, writing for a unanimous panel, found that the issues raised in the complaint did not fall within the exclusive jurisdiction of the Corporation Commission because AWC had not obtained a proper franchise from City at the time the action was filed. Moreover, the court found that the action did not involve the regulatory authority exclusive to the Commission, but instead concerned the rights and obligations of the parties regarding who should bear costs of relocating equipment. The court rejected AWC’s argument regarding its broad reservation of rights reserving “any land or ground lying below the surface,” finding it was void as against public policy. Additionally, the court found that A.R.S. § 40-283(A) “implies that a franchise from a municipality is necessary to operate in the municipality’s streets,” the City had demanded that AWC obtain the franchise by filing the action, and therefore affirmed that AWC needed to obtain a franchise to continue providing service to the City. Finally, relying on the City’s proper exercise of police power in protecting the public health and welfare, the court affirmed that AWC was obligated to pay relocation costs related to the City’s sewer improvements.