The morning after the Missoula City Council voted to pursue the acquisition of Mountain Water Co., Mayor John Engen received an email from The Carlyle Group's Robert Dove.

"I had heard the results of the vote!" read the Oct. 22, 2013, note from Dove, managing director of infrastructure at Carlyle. "Have Roger call me and we will honor the commitment we made."

The email was signed "RD."

"Roger" referred to Roger Wood of Moelis and Co., an investment banker on the mayor's acquisition team who already had held conversations with Dove. Copied on the message were various members of the mayor's team, including his chief administrative officer, the city attorney and the Missoula City Council president.

The reason a deal was never put together remained a mystery Wednesday, the first day of the city of Missoula's condemnation trial against Carlyle and Mountain Water Co. in the mayor's pursuit of a public water utility.

In the courtroom of Missoula County District Judge Karen Townsend, the lawyers for the city of Missoula, Carlyle, Mountain and Mountain employees each offered opening statements, with both old and new themes in the eminent domain case.


Harry Schneider, who represents the city, said Missoula's quest for public ownership is markedly different than the classic condemnation case. In a traditional eminent domain proceeding, a family is trying to hold onto its farm, but here, that's not true.

"Instead, the evidence in this case will show that the owners of Missoula's water system and the owners of Mountain Water Co. can't wait to unload it," said Schneider, of Perkins Coie.

He said testimony would show municipal ownership is preferable for a number of reasons, including stability and local accountability. The case, he said, would boil down to dollars, such as the $2 million a year Missoula ratepayers send to the parent company in California.

"What Mountain gets in return, the evidence will show, is not all that clear," Schneider said.

The defense team continued to argue a private owner has the right to defend its property, but its arguments took some new directions, too.

In opening remarks on behalf of Carlyle, Bill Mercer said the city of Missoula has raised concerns about leaks, but it hasn't put its money where its mouth is. The city could have adopted an ordinance that requires leak fixes, similar to the way another city regulation compels sewer hookups, the defense said.

The city hasn't done so, though, Mercer said. It also hasn't complained to Mountain about problems, or about rates, or capital or expenditures, or metering, or anything at all.

"They don't ever come and say to the people who run the company, those changes need to be made," said Mercer, of Holland and Hart.

On the other hand, he said, the city has presented a false narrative, a story that it somehow was entitled to buy Mountain Water Co. from Carlyle.

"It will be undercut by the facts," Mercer said.

Rather, he said, the city had only the right to make an offer that Carlyle would consider "in good faith."


This condemnation trial is unusual in at least one way, said Joe Conner, who gave opening statements on behalf of Mountain Water Co. He said the city has named 29 witnesses, and it's a long list of people.

"I've tried several right-to-take cases, your honor. I've never seen as many witnesses," Connor said.

To win, the city of Missoula must prove public use of the asset by the municipality is "more necessary" than use by the private company, he said. He said the bar is high because the water company already serves a public use.

"With every witness, ask this question: Is it really more necessary for the city to own the system ... ?" said Conner, of Baker Donelson. "... The city has that burden, your honor. It's not our burden."

Conner also said he planned to discuss the actual water distribution system, an area that hasn't been given much air time so far. It includes 327 miles of main, 5,700 system valves, 21 booster stations and 23,500 customers, including 1,500 outside city limits.

"It's a huge bundle of rocks that we're going to be talking about," Conner said.

Gary Zadick, on behalf of Mountain employees, said the city of Missoula needed to promise it would make employees whole in any transfer. He said in order to do so, the city would need to account for merit raises, cost-of-living increases, retirement, years of service and benefits.

"The city admits it can't match all the benefits, and so my folks will be harmed," said Zadick, of Ugrin Alexander Zadick.


Mayor Engen was the first to take the stand after opening statements.

In questioning, Schneider led the mayor through the way he and Carlyle's Dove forged a relationship, and then how it seemed to disappear. After one meeting, Engen even had the investment banker on his team draft a "term sheet," a precursor to a sale agreement.

Dove wouldn't sign it, though. The meeting took place before the sale to Carlyle was approved, and the mayor said Dove feared the seller, who did not want the city of Missoula to own Mountain, would be concerned if he found out about it.

Schneider asked the mayor if he believed, now, that the Carlyle director was being honest with him at the time, and Engen said yes.

"I think he was being forthright with me," Engen said.

The trial reconvenes at 9 a.m. Thursday.

Get the latest local news delivered daily directly to your inbox!

* I understand and agree that registration on or use of this site constitutes agreement to its user agreement and privacy policy.
You must be logged in to react.
Click any reaction to login.