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Public Entities, Take Note: The Hat You Wear May Determine the Cross You Bear

3/24/17

By: Paul H. Derrick

Public entities – cities, towns, counties, public service districts – often wear many hats. On the one hand, they are governmental bodies that engage in activities that are discretionary, political, legislative, or public in nature and performed for the public good. Conversely, they sometimes act as proprietors and engage in activities that are commercial or chiefly for the private advantage of a more compact and limited community.

Surprisingly often, for example, public entities acquire ownership of dilapidated buildings and other properties in order to lease them out to private tenants as part of a downtown revitalization project or similar effort. When someone is later injured because of the run-down condition of the property, the question of whether the public entity/owner is liable may hinge on whether its ownership and maintenance of the property was a governmental function or a proprietary one.

If the former, then the defense of governmental immunity might foreclose the public entity from being found liable. If the entity was acting as a private proprietor, however, that defense would be out the window and the case could likely proceed as it would against any other building owner. Often, whether a public entity is acting as a governmental body or a proprietor comes down to what the state’s legislature has said about the particular conduct at issue.

If the legislature has designated an activity as either governmental or proprietary, the courts generally defer to that designation. In cases where the legislature has been silent, however, activities are typically found to be governmental when they can only be provided by a governmental agency or instrumentality.  In the example of public entities acquiring ownership of dilapidated buildings and leasing them to private tenants, that often means that other factors will be examined, such as whether the service (i.e., leasing) is one traditionally provided by a governmental entity, whether a substantial fee is charged for the service, and whether that fee does more than simply cover the public entity’s operating costs. The more strongly those factors make it look like the public entity is acting as a private proprietor, the less likely it is that courts will allow it to take advantage of traditional governmental immunity and other related defenses.  It may then be answerable to an injured party for any negligent act that may have caused injury and damage.

Public entities should be vigilant and exercise caution when it comes to taking on roles that might make them look like just another private proprietor. Even the most altruistic intentions can lead to the loss or impairment of important legal protections. Absent clear legislative direction, courts will usually look to the economic realities of any given situation, especially when someone has been injured. Remember, if it looks like a duck, walks like a duck, and quacks like a duck ….

If you have any questions or would like more information, please contact Paul Derrick at [email protected].