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The city of Missoula won its eminent domain case to buy Mountain Water Co. in a 5-2 decision Tuesday from the Montana Supreme Court.

In the majority’s opinion, Justice Patricia Cotter said the state high court gave the record an “exhaustive review” and found the lower court’s “detailed factual findings” supported public ownership.

The justices said Missoula County District Court correctly concluded the evidence showed ownership of the water system by the city was "more necessary" than its use by a for-profit enterprise.

Mayor John Engen took on one of the largest equity firms in the world when he took The Carlyle Group to court with support from the Missoula City Council. Tuesday, he said he wanted to let people know he appreciated their patience throughout the case.

“I know that it has felt risky and expensive and long, but I’ve been convinced from Day One that it was my responsibility to work with the community to figure this out and that the courts would help us get there,” Engen said. “We have placed our trust in the system, and my sense is that the system has worked.

“And long after people have forgotten any of our names, they won’t have to worry about who owns their water, and that has nothing to do with me. It has everything to do with this community and it has everything to do with what is right.”

Mountain Water president John Kappes could not be reached for comment; The Carlyle Group did not comment.

“We are reviewing the decision and decline further comment at this time,” said Carlyle spokesman Chris Ullman.

The ruling

The high court repeatedly noted that the justices were satisfied that Judge Karen Townsend's order after a spring 2015 trial “was based upon substantial credible evidence.” The following are among the issues it reviewed from the record:

• “The District Court first considered public opinion, and concluded that the Missoula public supports city ownership of the water system,” the opinion said. The court concluded that the city’s use of a poll, “even if it was not methodologically perfect,” was a reasonable measure of public opinion.     

• The District Court also looked at evidence about the condition of the water system and differences under public or private ownership. “Experts for the city also testified that 20 percent of the water system mains and 75 percent of the service lines have exceeded their useful life, but Mountain Water invested less than $1 million per year in replacing water distribution mains from 2004 to 2014.” The court concluded that “no matter who owns the water system, significant capital expenditures will be required, but that under municipal ownership, long term maintenance planning and capital expenditures can occur under the management of a stable, long term owner.”    

• The Supreme Court also evaluated real and projected administrative expenses in the decision. A witness for the city testified at the spring 2015 trial that the administrative costs paid by Mountain Water “exceed every other Montana water system by $2 million, and that Mountain Water’s administrative cost per customer is the highest in the state.” The opinion cited $48,000 that goes to "travel and entertainment," a $103,000 "board of directors fee, and $1.3 million for salaries of staff in California." The Carlyle Group has since sold the Missoula water system to Liberty Utilities, the subsidiary of a Canadian company. At the trial, Liberty’s president testified “Mountain Water would be required to make similar payments for corporate personnel and oversight to a home office in Canada,” read the opinion.

• “The District Court recognized that … under either owner, significant capital expenditures will be required to replace and maintain key infrastructure. However, under private ownership, the cost of needed capital improvements will be increased by a rate of equity (currently 9.8 percent), whereas no such increase would be seen under municipal ownership.”

Justices Jim Rice and Laurie McKinnon dissented.

At trial

At the District Court trial last spring, witnesses testified that Missoula was the only city in Montana that didn’t control its own water. Tuesday, the mayor said the city has been preparing to take over the utility and transition the operations, and it is ready to cut a check to buy the water company.

“We will begin working with attorneys first thing in the morning to finalize some work we’ve done around final order of condemnation, a motion to take possession, and we have to have a conversation with defendants about an orderly transition,” Engen said.

In a separate court proceeding, water commissioners set the value of the utility at $88.6 million. But the way the transfer will take place remains to be seen because Carlyle was named in the proceeding, and it has since sold the water system to Liberty Utilities.  

“There will be some complications there, but what we understand is that the value of the condemned property is $88.6 million,” Engen said.

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