Here’s how the city of Missoula ended up in court fighting for its water (March 15, 2015)
Water was named the No. 1 investment in a survey by private equity firms in 2011.
That same year, a world bank expert warned the wars of the 21st century will be fought over water.
One of those fights has been taking place here in Missoula since 2011, when the Carlyle Group bought Mountain Water Co.
At the time, Mayor John Engen announced his intention to place the water under municipal control.
Beginning on Wednesday, barring an unlikely last-minute settlement, the city of Missoula will meet Mountain Water and Carlyle in court in the largest civil trial involving the city in decades.
At stake is control of Missoula’s water system, the pipes underground, and rights to the aquifer and Rattlesnake Creek.
The condemnation case pits a small Western city against a global equity firm, with local employees caught in the middle, and it tests a municipality’s power of eminent domain against a private company’s right to its property.
In the 1980s, the city lost a similar case.
Since then, though, the backdrop has changed when it comes to both water and company ownership. Water has become the new gold, the 21st century’s oil, drought is seizing the West, and the water company is no longer in the hands of a family.
One of the largest equity firms in the world controls the utility, and it has proposed to sell it to the subsidiary of a Canadian company. Mountain Water’s employees are backing the sale.
In court, the city of Missoula is expected to argue changes in the geopolitical landscape and financial markets prove it is more necessary
the water company be under public control than in private ownership.
Mayor Engen has said water, a resource that’s necessary for life, should be in the hands of the local public, not subject to the whims of faraway investors.
Carlyle and Mountain Water, though, will likely point to the city’s loss in the earlier case, which went to the Montana Supreme Court. They will argue the utility has long delivered reliable service to the community, and the government has no justification to seize control of the company.
They also argue the city cannot afford the price.
The city disagrees.
This trial isn’t about affordability, though. It’s about whether city ownership is necessary
by Montana law.
The community largely supports public ownership, and some citizens argue Missoula can’t afford not to pursue control of its water.
Even so, the city’s path to that end has run into political and financial bumps. For one, the legal costs associated with an acquisition by eminent domain have far surpassed the early estimates.
At first, both the city and Carlyle said the city would pick up the tab for all parties, and the city estimated a worst-case scenario would be $800,000 total. Later, when the legal bills grew, the city argued it might not be responsible for all the defense costs.
According to statute, the city will pay the necessary expenses of litigation
the court awards to defendants, and the city believes some of the legal activity by the defense is far from necessary.
Either way, the city will pay its own bill, some $1.9 million as of last week. A recent estimate of the total for all parties hit $5 million.
At a City Club forum in January about the water acquisition, many of the questions community members asked were about cost. Both council members at the mics could not say at what point the endeavor would become unaffordable.
As the case has progressed, though, most council members have grown even more convinced the city is on the right path in its quest for public ownership.
The more I … really delve into the facts, the more I realize that this is the right path. It is the moral path,
said Councilwoman Emily Bentley at a meeting last fall. Owning our drinking water is a human rights issue.
The mayor’s navigation of a relationship with Carlyle has been equally rocky. The community that had a peace sign as an icon over public land for years and backs buy local
campaigns isn’t as friendly toward a multinational firm that profits from war.
In 2011, members of the public decried the possibility of ownership by Carlyle, one going so far as to call its officers corporate crooks
at a meeting about the proposed sale. At the time, Engen threw his support behind Carlyle and managing director Robert Dove, and he urged the public to follow suit.
The mayor had agreed to back the sale in exchange for Carlyle later selling the water company to the city, according to court documents.
In a letter, Carlyle had pledged to consider offers by the city in good faith,
and in testimony Dove pledged Carlyle wanted a long-term
partnership with the Missoula community and the water company.
At the time, the mayor believed a sale to Carlyle was one step toward municipal control.
This is difficult for a number of my constituents to believe. I trust Robert Dove in this matter,
Engen said to the Montana Public Service Commission in 2011. I trust that what we have is an agreement he will honor, that Carlyle will honor.
Later on, Carlyle rebuffed the city’s offers, and last April, the city took Carlyle to court, alleging a bait and switch.
Last September, less than three years after it bought Mountain Water, Carlyle inked a deal to sell the company to Liberty Utilities, whose parent is a Canadian corporation.
The proposed sale is pending.
The city has fared far better in the legal arena up to this point.
The mayor’s decision to take Carlyle to court when he did allowed the city of Missoula to put a hold on the water company and prevent Carlyle from selling it as easily to a third party, as the equity firm announced it planned to do in the fall.
So far, the city has all but trounced Carlyle and Mountain Water in pretrial hearings before District Judge Karen Townsend.
As of Friday, the city of Missoula had won the vast majority of motions on which Townsend had ruled, and both defendants had lost bids to postpone or toss the case, if not in its entirety, in part.
In one especially searing order against Carlyle, Judge Townsend noted the firm lost because of legal arguments with scant support
and contradictory assertions.
The Court finds that Carlyle Infrastructure’s arguments fail because they require this Court to … adopt novel and creative legal arguments with scant support,
the judge wrote in the order.
Last week, a lawyer for Mountain Water admitted he was in the midst of a losing streak in court. Joe Conner, of Baker Donelson, said so at one of the final hearings before trial.
I don’t have a real good track record right now on motions,
Conner said.
He pledged to come prepared for trial.
Source: Keila Szpaller, The Missoulian