City reluctant to hand over $88.6M for Mountain Water without assurances from court

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Missoula City Attorney Jim Nugent, left, and CAO Dale Bickell, center, listen to the Mountain Water proceedings Thursday in Missoula District Court. (Photo by Martin Kidston/Missoula Current)

By Martin Kidston

The city of Missoula asked a District Court judge on Thursday to help simplify its acquisition of Mountain Water Co. by instructing the Canadian owner to share information needed to run the utility from Day One, including customer billing information and employee wages and benefits.

Until such information is provided, attorneys argued, the city is reluctant to transfer $88.6 million into the court’s registry, saying it has no guarantee that Liberty Utilities won’t just take the money and run to a foreign jurisdiction.

“The city is about to transfer $88.6 million into the court registry, and the city is obligated to conduct that transaction in a responsible manner,” said Natasha Jones, an attorney representing the city. “We have the very real worry that the money will be gone. That’s not something that’s responsible for the city to do.”

Thursday’s hearing before District Judge Karen Townsend continued the legal battle between the city, The Carlyle Group and Liberty – one that has been ongoing for the past few years. While the city won its condemnation hearing last year, it has yet to transfer the $88.6 million to buy Mountain Water.

Jones explained the city’s reluctance to transfer the funds without certain assurances, saying it doesn’t trust Liberty to provide all the assets associated with the utility, leaving the city in a pinch as it begins Day One operations.

But Joe Conner, the attorney representing Mountain Water, believes the city doesn’t have the underwriting to complete the transfer. The city denied the claim.

“The reason they want to do this and not have to pay the money yet – and try to get all this information that’s owned by someone else – is because I don’t think they even have underwriting,” Conner said. “They can’t get underwriting. That’s why they haven’t gone forward.”

Lack of Trust

The city’s mistrust of Liberty stems back to early January when the Canadian firm announced that it had purchased Missoula’s drinking water system without the knowledge or approval of the Montana Public Service Commission.

The PSC fined Liberty the statutory maximum of $150,000 for the unauthorized purchase in July, though that took months of hearings and additional legal wrangling. Jones said the “dark of night” sale should cause the court concern.

“Almost a year ago when the Carlyle Group secretly sold the water system to the Canadians without this court’s knowledge and without the approval of the PSC, the city and others were rightfully concerned about what impact that would have on our ability to have the system transferred to us upon this court’s order on condemnation,” Jones said. “We now know those concerns were valid, real and of import today, right on the eve of possession.”

Conner said the city’s “dark of night” allegations were nothing more than speculation.

“My clients and other people – Park Water, Liberty Utilities – the city basically wants to put them in a basket of deplorables, saying they’re doing things in the dark of night and making allegations that they’re trying to run roughshod over this community,” Conner said. “It’s baseless and I take offense to that.”

Several outstanding rulings in the case have also caused the city trepidation. A separate District Court is considering who will pay a group of local developers roughly $22 million for investments made to Mountain Water to extend service lines to reach new projects.

The city believes the money is included in the $88.6 million price tag, though Mountain Water contends that it’s in addition to the utility’s valuation. That ruling is expected next month.

“If we were to deposit all the money into the court now, we’re concerned that (Liberty) would ask you to release it to them immediately,” Jones told the court. “That would create hardships for the developers who are very afraid that once the Canadian folks get their hands on it, they’re just going to flip it up the corporate chain and out of the U.S. forever.”

Planning for Day One

As the city prepares to launch Day One service, it’s also looking to bring Mountain Water’s employees into city employment, though the city said it hasn’t been provided wages and benefits newer than 2014.

Without current figures, Jones said, the city can’t prepare for the transition.

“We have very real concerns related to the employees that could be transmitted to the city that will responsibly help with the transfer of an essential utility,” said Jones. “We need to be planning and be responsible so when the city takes over on Day One, there won’t be an interruption in service and the employees get paid for the work they intend to do.”

Jones said the employees aren’t opposed to providing the city with the information, which is needed to square away their wages and benefits under city employment. However, Jones added, Liberty has instructed its employees not to release the information.

“What has happened, they’ve been instructed by Liberty that they’re prohibited from doing that,” said Jones. “That’s the type of information that could be easily gathered and useful and productive with our conversations with employees so we’re prepared to pay them from Day One.”

Jones said the city also wants Mountain Water’s current billing information so it can upload the information. It has already purchased the software needed to run the system, though it lacks the information needed to populate the system.

While the city contends that such information is included as an asset of Mountain Water, Conner said the city wasn’t entitled to the information until it paid for the utility.

“For them tell to now say that you have the ability to force a company to provide anything before money is paid is unconstitutional,” Conner said. “It’s a deprivation of due to process. It’s taking something they haven’t paid for. Not only are they asking you to authorize it, they’re asking you to sanction it.”

Conner contends that the court has the ability to issue a clean order of possession. Once that’s made, he said, the information sought by the city would be provided.

As it stands, he argued, the city is making an unconstitutional request.

“They want this court to grant them access and rights to things that weren’t even included in their taking,” he said. “They’re asking this court to do something that’s not permitted under law, under the constitution of the state or the federal constitution.”

Townsend took the arguments into consideration.

 

Contact reporter Martin Kidston at info@missoulacurrent.com