Missoula won its legal fight to take ownership of Mountain Water Co. and the city’s drinking water system Monday.
In a 68-page decision, Missoula District Court Judge Karen Townsend said the city "carried its burden of proof" and showed that "its contemplated use of the water system as a municipally owned water system is more necessary than the current use as a privately owned for-profit enterprise."
"Based on credible evidence at trial, the Court concludes that the object of this condemnation proceeding, the use of the water system, is a public use for which the right of eminent domain may properly be exercised" under Montana law, Townsend said.
The judge said she “considered the broad range of circumstances,” and weighed “the benefits to be derived from the proposed public use against the impairments to the existing use.”
Her conclusion: “The proposed public use is more reasonable” and “proper.”
The city made its case, she continued, and proved that “the taking is a more necessary public use.”
The city did try to purchase Mountain Water Co. from its owner, global equity firm The Carlyle Group, Townsend said, “and the final written offer was rejected.” It is now, she said, Missoula’s “right to acquire” the water system by exercising its power of eminent domain.
Ginny Merriam, the city’s communications director, said city officials learned of Townsend’s ruling late Monday evening. She said the city would withhold comment until Tuesday morning, after its attorneys have a chance to read the findings of fact.
“We just received the judge’s order tonight before the council meeting,” said Merriam. “It was stunning.”
John Kappes, president of Mountain Water, said his company disagreed with Townsend’s ruling.
“We will review the decision and then proceed to take the next steps to exercise our constitutional rights as private property owners in Montana,” Kappes said Monday night. “In the meantime, we will continue to provide our customers with high-quality water service as we have for over 130 years.”
Ward 2 City Council member Adam Hertz opposed the city’s attempt to take ownership of Mountain Water from the beginning. At each week’s council meeting, Hertz cast a dissenting vote when it came to paying the latest invoices from attorneys representing the city.
(As of two weeks ago, the city’s legal bills totaled about $2.7 million.)
After the announcement Monday night, Hertz said the ruling came as welcome news to the council, which otherwise supported the city’s efforts to take ownership of the utility.
“I haven’t had a chance to see the ruling,” said Hertz. “I’ve been against the condemnation effort for many reasons. I did expect the city to prevail in District Court, so I’m not surprised. But the game isn’t over. We’re probably at halftime and we’ve got a lead.”
Ward 4 council member Jon Wilkins supported the city’s efforts. Like the rest of the council, he also received word of the judge’s ruling during Monday night’s meeting, when Mayor John Engen announced the news.
He said the costs associated with the takeover will surface as the legal proceedings move to the next phase.
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“It’s the beginning of the end,” said Wilkins. “I’m sure there will be appeals. I suspect this will drag on for another year or so. The only words I can say, it’s the beginning of the end.”
Townsend took the case under advisement on April 6, following 11 days of testimony and months of pretrial wrangling by a team of attorneys.
The city’s task was to prove that public ownership of the water utility is "more necessary" than private ownership.
The defendants, on the other hand, argued that the city cannot afford to own the company. They also pointed to the city of Missoula's failed attempt to condemn the water company in the 1980s in a case that went to the Montana Supreme Court.
Townsend’s role, then, was to determine if public ownership is more necessary than private ownership, irrespective of any supposed value of the company. Now that she has ruled in favor of the city, the parties will argue over "just compensation" in a separate court proceeding before a panel of appointed condemnation commissioners.
The city’s most recent takeover bid dates to December 2010, when The Carlyle Group announced plans to buy California-based Park Water Co., the parent company of Mountain Water Co., from the Wheeler family.
Henry “Sam” Wheeler bought the city’s water system in 1979 from Montana Power Co. for $8 million. Because of what was reported to be “bad blood,” Wheeler refused every offer from the city of Missoula to purchase the water system.
Mayor Engen immediately asked the Montana Public Service Commission to place conditions on the proposed sale to Carlyle. The city, he said, should have first rights to any subsequent sale of Mountain Water Co. by Carlyle.
The ultimate agreement gave Missoula a chance to buy the water system in the future. In exchange, the city agreed to support Carlyle’s purchase of Park Water, and with it Missoula’s public drinking water system.
Carlyle did not, however, hold true to its word.
After the Missoula City Council voted in October 2013 to pursue Mountain Water Co.’s acquisition through negotiation or condemnation, Carlyle managing director Robert Dove initially emailed Engen and said the firm planned to make good on its commitment.
However, in an email earlier that year, another executive at Carlyle had warned Dove that Mountain Water's parent water company in California would lose $2.1 million in annual revenue if it sold the Missoula company.
On the stand, the Carlyle director admitted he never made a counteroffer to the city of Missoula’s $65 million proposal. By Jan. 17, 2014, Dove had told Mountain Water’s president that Carlyle would not negotiate with Engen, according to court testimony.
In April 2014, the city took Mountain Water Co. and The Carlyle Group to court to try to force a sale under Montana's eminent domain law. In May, the city filed an amended complaint and served the defendants.
Carlyle added yet another twist in September, when it announced an agreement to sell Mountain Water Co. and two California utilities – together called Western Water Holdings – to a Canadian company, Algonquin Power and Utilities Corp., for $327 million, including $77 million in debt.
The plan would have placed Mountain Water Co. under the management of Algonquin’s subsidiary, Liberty Utilities.