Summary
In Detroit Edison Co v. Detroit, 180 Mich App 145; 446 NW2d 615 (1989), this Court ruled that the expansion of Cobo Hall constituted a governmental function, and, as a result, the utility had to bear the cost of relocating its facilities.
Summary of this case from City of Taylor v. Detroit EdisonOpinion
Docket No. 107727.
Decided September 6, 1989.
Solomon Bienenfeld, Thomas P. Beagen and Laura Reyes Kopack, for plaintiff.
Lewis, White Clay, P.C. (by Ulysses W. Boykin), for defendant.
Before: GRIBBS, P.J., and MURPHY and NEFF, JJ.
This suit was brought by The Detroit Edison Company against the City of Detroit to recover Edison's cost of relocating certain equipment and steam conduits as a result of the city's expansion of Cobo Hall, a convention center owned and operated by the city.
The trial court, in a thoroughly researched and well-written opinion, granted the city's motion for summary disposition on the basis that the expansion of Cobo Hall represented the exercise by the city of a governmental function, and not the exercise of a proprietary function. Edison now appeals as of right from the circuit court order granting the city's motion for summary disposition and denying Edison's motion for summary disposition pursuant to MCR 2.116(C)(10). We affirm the trial court's grant of summary disposition in favor of the City of Detroit.
I
The uses of Cobo Hall include privately and publicly sponsored trade shows, conventions, dinners, bridge tournaments, receptions, dances, ballot counting, classes, religious meetings, and the like. Cobo Hall has a cocktail lounge, a restaurant, ticket booths, and commercial displays. To use any of the various halls, rooms, or other facilities at Cobo Hall, customers must pay a rental fee according to a schedule. Both private and public organizations, including the City of Detroit, pay these rental charges when they use Cobo Hall's facilities.
The operation of Cobo Hall is within the city's Civic Center Department, whose head is appointed by the mayor. A general manager of Cobo Hall is responsible for day-to-day operations of the facility, and he reports to the head of the department. The furnishing of food, janitorial, and electrical services is contracted out, with a percentage of revenue paid to Cobo Hall. Cobo Hall has its own sales and marketing division, which actively seeks bookings of events through advertising, public relations, and direct sales. The 1987-88 budget for marketing was $500,000, not including in-house salaries.
Cobo Hall's budget is part of the city's annual budget. The appropriation for the operations of Cobo Hall during fiscal year 1987-88 was $9,786,034. The revenue from the actual operations of Cobo Hall was $2,414,034. The State of Michigan provided economic development reimbursement funds for Cobo Hall of $5,350,000 during that period, leaving the city to make up a deficit of $2,022,000 from other sources. One source of revenue for the city is from "building rentals" in the amount of $1,339,500.
In 1983, Cobo Hall customers expressed dissatisfaction with the limited size of that facility. After feasibility studies were completed, the city council made the decision to expand Cobo Hall. Under the Cobo Hall expansion project, the exhibit area was doubled, the number of meeting rooms increased, and the square footage of Cobo Hall was expanded from one million to 2.4 million square feet.
The expansion of Cobo Hall necessitated vacating certain adjoining public streets. By resolution dated March 5, 1986, the city council approved a vacation of those public streets. This resolution stated in pertinent part:
Resolved, That because the vacations are the result of a necessary Public Improvement, all private utility companies are hereby directed to relocate their facilities from the vacated streets and alleys at no expense to the City and be it further
Resolved, That the City Engineering Department, upon proper application and cash deposit, shall issue permits to the private utility companies for relocation of their facilities from the vacated streets and alleys to public streets and alleys consistent with the public health, safety, convenience and general welfare.
In a relocation agreement executed by the city and Edison, it was agreed that Edison's relocation of its equipment would be "without prejudice to or waiver of Utility's rights or claims." Thereafter, as necessitated by the expansion of Cobo Hall, Edison relocated its equipment at a cost of approximately $800,000.
II
In Pontiac v Consumers Power Co, 101 Mich. App. 450, 453; 300 N.W.2d 594 (1980), lv den 410 Mich. 908 (1981), this Court stated the general principle in utility relocation cases as follows:
Relocation costs must be borne by the utility if necessitated by the city's discharge of a governmental function, whereas the expenses must be borne by the city if necessitated by its discharge of a proprietary function. Whether the utility has located its transmission facilities by virtue of an easement, franchise, plat, or other grant is irrelevant; all are treated identically. [See also The Detroit Edison Co v Southeastern Michigan Transportation Authority, 161 Mich. App. 28, 30; 410 N.W.2d 295 (1987), lv den 430 Mich. 868 (1988).]
In Pontiac, the City of Pontiac requested that Consumers Power Company remove and relocate two electric power lines to facilitate the construction and renovation of Pontiac General Hospital. This Court in Pontiac, supra, p 454, held that it was the City of Pontiac's construction activities, pursuant to its proprietary function of operating the Pontiac General Hospital, that made the relocation of the utility lines necessary. The Court found that it was equitable that the governmental entity that was engaged in a proprietary function should be required to bear the cost of utility service relocation which was made necessary because of its activities. Pontiac, supra, pp 454-455.
This Court affirmed the trial court's finding in Detroit Edison that the construction of a public transit system by SEMTA was not a proprietary activity but was, rather, in the nature of a discharge of a governmental function. Accordingly, this Court also affirmed the trial court's conclusion that SEMTA was not liable to pay Detroit Edison's relocation expenses which were necessitated by the construction of the Downtown Detroit People Mover. Detroit Edison, supra, pp 36-37.
Likewise, in Michigan Bell Telephone Co v Detroit, 106 Mich. App. 690, 696; 308 N.W.2d 608 (1981), this Court stated that the construction of a sewer facility is clearly a governmental function, that the common-law rule requiring a utility to remove its facilities at its own expense where necessary to protect the public health or general welfare was applicable, and that, accordingly, the trial court erred in holding that the City of Detroit was required to reimburse the utility for the relocation expenses necessitated by the construction of a sewage treatment facility.
III
We now turn to the dispositive question: Was the expansion of Cobo Hall an exercise of a governmental or proprietary function of the City of Detroit? To help answer this question we look to the governmental tort liability act, MCL 691.1401 et seq.; MSA 3.996(101) et seq., and cases that construe the act.
Strictly speaking, the act and the cases which construe it do not apply in the context of this case. However, the concepts of governmental function and proprietary function in a tort context are, at least to some extent, comparable to those concepts in a nontort context such as the present case. We are confident that we can look to that body of law for guidance.
In Ross v Consumers Power Co (On Rehearing), 420 Mich. 567, 620; 363 N.W.2d 641 (1984), our Supreme Court defined the term "governmental function" as "an activity which is expressly or impliedly mandated or authorized by constitution, statute, or other law."
Section 1 of the governmental tort liability act, MCL 691.1401(f); MSA 3.996(101)(f), defines "governmental function" as follows: "`Governmental function' is an activity which is expressly or impliedly mandated or authorized by constitution, statute, local charter or ordinance, or other law."
Under the definition of governmental function found in Ross, and § 1 of the governmental tort liability act, and within the reasoning of previous cases which have discussed relocation costs necessitated by other kinds of projects, we hold that the expansion of Cobo Hall constituted a governmental function.
IV
The expansion of Cobo Hall was financed through funds obtained through the State Convention Facility Development Act, MCL 207.621 et seq.; MSA 7.559(21) et seq. As the trial court noted, the purpose of the development act was to provide a source of funding for, inter alia, the enlargement of convention facilities owned by local units of government. MCL 207.622; MSA 7.559(22).
To qualify for funding under the development act, a municipality must submit the plans for the proposed project and financing to the state treasurer for approval. After approval by the state treasurer, funds will be made available for distribution for the proposed project. MCL 207.631; MSA 7.559(31); MCL 207.629; MSA 7.559(29).
We agree with the trial court that the expansion of Cobo Hall is authorized by a state statute, i.e., the development act. Thus, the expansion of Cobo Hall would fall within the definition of a governmental function under both the common-law and the statutory definition found under the governmental tort liability act.
Under the governmental immunity analysis employed in tort cases, a governmental agency is immune from tort liability unless the activity engaged in is proprietary in nature or falls within one of the other statutory exceptions to the governmental immunity act. Ross, supra, p 620. We believe, as did the trial court, that the expansion of Cobo Hall constitutes a governmental function that is not proprietary in nature.
Section 13 of the governmental tort liability act, MCL 691.413; MSA 3.996(113), states in pertinent part:
Proprietary function shall mean any activity which is conducted primarily for the purpose of producing a pecuniary profit for the governmental agency, excluding, however, any activity normally supported by taxes or fees.
In Hyde v University of Michigan Board of Regents, 426 Mich. 223, 257-259; 393 N.W.2d 847 (1986), our Supreme Court stated:
Before an activity is deemed a proprietary function, it must satisfy two tests:
1) The activity must be conducted primarily for the purpose of producing a pecuniary profit, and
2) The activity cannot normally be supported by taxes or fees.
There is nothing in § 13 which requires that the activity actually generate a profit before it can be deemed a proprietary function.
* * *
The existence of a profit is not an irrelevant consideration, however. The fact that a governmental agency pursues an activity despite consistent losses may be evidence that the primary purpose is not to make a pecuniary profit, but it is not conclusive evidence. Conversely, the fact that the activity consistently generates a profit may evidence an intent to produce a profit. However, § 13 permits imposition of tort liability only where the primary purpose is to produce a pecuniary profit. [Emphasis in original.]
As noted above, § 13 of the governmental tort liability act provides that a proprietary function is any activity that is conducted primarily for the purpose of producing a pecuniary profit for the governmental agency, but excluding any activity normally supported by taxes or fees. The fact that a governmental agency engages in an activity despite consistent losses may be evidence that the primary purpose of the activity is not to make a pecuniary profit. Hyde, supra.
It is undisputed that Cobo Hall has never operated at a profit, and that, even with $5,350,000 per year in development reimbursement funds from the State of Michigan during fiscal 1987-88, the city must still make up a deficit of $2,022,000 for the operating budget of Cobo Hall.
Because the expansion of Cobo Hall was an exercise of a governmental, rather than a proprietary, function, we believe that the trial court did not err in granting the city's motion for summary disposition and requiring Detroit Edison to bear the cost of relocating its equipment necessitated by Cobo Hall's expansion.
Because we find the governmental versus proprietary function issue to be dispositive, we need not address Edison's remaining issues.
Affirmed.
MURPHY, J., concurred in result only.