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Missoula Water Co.

The parent company of the business that previously owned Missoula’s water system before it was condemned by the city is owed the legal fees it incurred while fighting condemnation in court, the Montana Supreme Court ruled Tuesday.

Now the only question is how much that will be.

Because the eventual value set for the water system was higher than the final offer the city made to buy it before starting the condemnation, the former owners — Mountain Water and its then-parent company The Carlyle Group — were allowed to recover legal expenses from the condemnation lawsuit.

The city formally took ownership of the water system, now called Missoula Water, last summer.

Around $1.1 million for legal fees for Carlyle has been sitting in an escrow account since last year when Missoula County District Court Judge Karen Townsend awarded a total of just over $3.9 million in total legal fees from the case. The remaining $2.8 million was paid to Mountain Water.

Carlyle and the city appealed different parts of Townsend’s decision on legal fees, with Carlyle challenging limits that meant it got millions less than it actually spent on legal expenses and the city saying only Mountain Water, not Carlyle, should get any money at all.

The Supreme Court made quick work of the city’s appeal in its decision, saying the parent company was clearly a party in the lawsuit, had been the recipient of the city’s previous offers to buy the water system and therefore was allowed to recover legal fees. The court also dismissed claims that no fees from out-of-state lawyers should have been reimbursed, pointing to a previous ruling that allowed it.

The majority of the court’s opinion dealt with Carlyle’s appeal, in which the company argued that statutory caps on how much it could recover in legal expenses were against the Montana Constitution.

While the state constitution allows a property owner to recover “necessary expenses of litigation” when a condemnation goes to court, a law later passed by the Montana Legislature added more definition to the idea of “necessary” as applied to attorney fees. The law said fees must be the “customary hourly the county in which the trial is held.”

The clarification essentially means that even though Mountain Water and Carlyle used out-of-state attorneys who charged much higher rates than Missoula lawyers would have, they could only recover attorney fees at lower rates, as though they had hired locals.

In its appeal, Carlyle claimed that the cap put in by the Legislature conflicted with the guarantee in the Montana Constitution, and called them “artificial limitations.”

The Supreme Court didn’t directly address that contention, but did rule partly in the company’s favor, allowing Carlyle to see the city’s legal fees to more fully develop its argument on what seems to be an all-but-guaranteed return to the high court at a later date.

Carlyle’s appeal contended that it needed to hire out-of-state attorneys because the city had already done so to push for the condemnation and the judge had set a tight timetable for the case.

“Thus, the critical question is whether it was ‘necessary’ for (Carlyle and Mountain Water) to incur attorney and expert fees above the customary rate within the county,” Montana Justice Jim Rice wrote in Tuesday’s opinion.

When the decision of legal fees came before Townsend, Carlyle had tried to get access to what the city had paid its non-Montana lawyers as part of a bid to argue why its own full attorney fees were necessary. But Townsend said no.

In its Tuesday order, the Montana Supreme Court said Townsend had incorrectly denied that request, and sent the case back to Missoula court with an instruction that Carlyle be given access to records of how much Missoula had paid so it could make further argument on why its own costs were justified.

“(W)e think (Carlyle and Mountain Water) were entitled to limited discovery about...the approach taken by the city…” Rice wrote, adding that this would include the “rates and cost of representation” those outside firms charged the city.

The justice added that this doesn’t mean Carlyle will be allowed to conduct a “fishing expedition” of Missoula’s legal costs from the condemnation, but will be granted “basic information.”

In an opinion dissenting in part from the majority, Justice Laurie McKinnon, as well as Justice Beth Baker and Chief Justice Mike McGrath, criticized the court’s decision not to directly rule on Carlyle’s claims that the statutory caps on legal expenses are unconstitutional, saying the high court had more than enough information to find that the caps are allowable.

“The District Court essentially concluded that ‘choice and preference’ do not amount to ‘necessary’,” McKinnon wrote.

Carlyle also included in its appeal a challenge to a decision Townsend made last year, when she reduced the expense claims for Mountain Water and Carlyle by 25 and 35 percent respectively due to attorney’s fees, overstaffing and duplication of work that she found were “not reasonable and necessary.” The Supreme Court upheld those reductions.

Last month, the Montana Supreme Court issued an opinion regarding a separate appeal in the Mountain Water case, finding that the city was not responsible for paying tens of millions in interest that the water system’s owner said was accrued during the condemnation process.

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Law and Justice Reporter

Crime reporter for the Missoulian.