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Missoula’s bad faith claim against Carlyle Group “even better than before”

The city of Missoula’s legal team in a bad faith claim The Carlyle Group appeared in a virtual City Council meeting on Wednesday, saying the city’s case was “even stronger than before.” Pictured from left to right is Harry Schneider of Perkins Coie, and Tasha Jones and Scott Stearns from Boone Karlberg. (Martin Kidston/Missoula Current file photo)

The coronavirus pandemic has placed the city’s bad faith claim against The Carlyle Group on hold for now, though attorneys said Wednesday the added time has only served to strengthen the city’s case.

The city of Missoula acquired its drinking water system from Mountain Water Co. and its parent owner, Carlyle, in 2017. The following year, the city opted to move forward with a claim of bad faith against Carlyle, claiming it practiced deceit, profiteering and corporate bullying during the year’s long legal battle over the water system.

The hearings were expected to start this month in Missoula.

“We were in the tail end of the discovery phase with a number of depositions having been taken and other depositions imminent, when people were no longer able to travel,” said Harry Schneider, an attorney with Perkins Coie. “We had witnesses that went into quarantine. It was all headed toward a liability hearing that was going to start about now but was stricken as a result of the virus.”

Yet the delay has actually strengthened the city’s hand, attorneys told members of the City Council. They couldn’t say how, exactly, given that the documents acquired in the case are considered confidential and “for attorney’s eyes only.”

If revealed, Tasha Jones of Boone Karlberg said, the details would prove “very damaging” to Carlyle and its reputation. The key words will likely be “fraud and malice.”

“The documents overwhelmingly make our case even better than before,” she said. “The documents we’ve received through this process, and some of it on order by the (arbitration) panel, has been extremely beneficial and has strengthened our case. We’re as comfortable as we’ve been proceeding to January.”

The case goes back several years to when Carlyle sought to acquire two water systems in California. But it couldn’t acquire them without also taking on Mountain Water. According to the claim, Carlyle promised to sell Mountain Water to the city in exchange for the city supporting the company’s acquisition of the two California systems.

The city did as requested and Carlyle secured all three systems. The city waited nearly two years before making an offer on Mountain Water, fully expecting Carlyle would accept it, just as it had pledged to do. But Carlyle went back on its word, according to the claim, and forced the city to pursue condemnation.

In the end the city won its water system, though it paid far more than anticipated. The city was also left with tens of millions of dollars in legal fees – something Carlyle admitted was strategy in court.

The city is now seeking to recover those costs.

“The question was, was there any way we can assert a claim to try to get back some of the money we were forced to spend, not only in the increased purchase price that was the result of the condemnation and valuation proceeding, and was above and beyond what the city understood would be the transacted price, but also the attorney fees resulting from Carlyle’s work,” Schneider said.

The City Council initially authorized the bad faith lawsuit back in September 2015, though it opted to wait until the condemnation trial had closed before pursing its claim against Carlyle.

The cost of filing the claim and pursuing arbitration wasn’t immediately available, though Schneider said those costs continue to increase. He said Carlyle was again driving up the costs, just as it did during condemnation.

“Those have grown as the case has been litigated, primarily based on the amount of time the panel as been required to spend on motion practice, on hearings, on briefs they’ve had to read and other tasks we really have no control over preventing,” Schneider said. “It’s truly the case you can’t control how much the other side causes you to work.”