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Tempers flare over Missoula water condemnation costs

Old tensions rose like this week’s temperatures Wednesday after an update on five lawsuits surrounding Missoula’s takeover of the Mountain Water utility once again descended into pointed remarks over the cost of the litigation.

Scott Stearns is one of the private attorneys representing the city of Missoula in the lawsuits filed in connection with its condemnation of Mountain Water, which was owned by the Carlyle Group until 2015. It’s now called Missoula Water and is a city-owned utility.

In a rapid-fire presentation before Missoula’s Committee of the Whole, Stearns noted that a bad faith lawsuit first filed by the city against Carlyle in 2015 and resurrected in July 2018 has an arbitration hearing in May or June of 2020. That case could cost up to $500,000 in legal fees before it’s finished, and Stearns said that while Carlyle is trying to move the arbitration out of Missoula and close the hearings to the public, the company is prohibited from doing both under Montana statutes.

A spokesperson for Carlyle declined to comment on the status of the lawsuits.

Another dispute over a $5 million tax case involving the Carlyle Group and the city, Missoula County and the Montana Department of Revenue goes to mediation July 8, but isn’t expected to be resolved until heard by the state Supreme Court at a later date. Stearns said a lower court judge already has ruled in the case that the Carlyle Group would be “unjustly enriched” if it was paid back the taxes, since they already were paid by Missoula Water utility users’ fees.

It was a May 31 court filing by the Carlyle Group involving legal fees that sparked Councilor Jesse Ramos to once again question how Mayor John Engen initially said litigation would cost city residents $400,000 to $800,000; legal costs have ballooned into $13 million at last count.

In that recent court filing, Carlyle and Mountain Water claim that the city loaded its litigation team with top legal professionals and expert witnesses from across the country, so the two private companies were forced to follow suit. The city already has set aside $1.1 million for a portion of Carlyle’s legal fees, which it’s legally required to pay due to its condemnation of the private company for the public benefit.

Montana state law limited reimbursement of attorney and expert witness fees in this case to the “customary” rates in Missoula County, which is where the $1.1 million amount was derived. But Carlyle and Mountain Water now are seeking an additional $1.3 million in legal fees to cover all their costs, asking that the state law be ruled unconstitutional because the city also paid top dollar for experts across the country.

“To have the capacity to adequately parry, defendants needed law firms with specializations, experience, and resources — including scalability depending upon the city tactics — that were uniquely situated to defend against the taking of Mountain Water Company,” the groups wrote in their lawsuit.

The two companies noted that the city engaged two prominent Missoula firms — Boone Karlberg and Datsopoulos, McDonald and Lind — along with the national firm Perkins Coie as special counsel to lead the takeover of Mountain Water. In its court filings, Mountain Water and Carlyle said those attorneys spent at least 17,436 hours on the case with almost $4.7 million in total legal fees. That doesn’t include expert witness costs, or legal fees that haven’t been disclosed by the city.

“Considering the city’s litigation expenses … the court should hold that the defendants’ litigation expenses were necessary to defend this action,” attorney’s for Carlyle and Mountain Water wrote in the court filing.

Defendants in the eminent domain case Carlye and Mountain Water filed the majority of motions in court before the trial and also lost most of them.

Ramos has long called for the public release of invoices to reveal a detailed breakdown of exactly how much the city — using money from the water utility — paid for attorney fees and other costs involving the condemnation proceedings. News outlets including the Missoulian also have filed records requests for the information.

After Wednesday’s meeting, Ramos added that he’s concerned that the very attorneys who gave the mayor the initial $400,000 to $800,000 estimate were profiting from the litigation. He noted the initial estimate was about 1,500% higher than the actual costs.

Engen replied that he takes full responsibility for the higher costs, as he has said in the past, and that if the Carlyle Group had accepted the initial offer instead of filing lawsuits, the matter would have been resolved more quickly and less expensively.

Other councilors and staff voiced support for the process, noting that not only are the costs coming out of the Missoula Water operating fund, the city also has lowered water rates and is in the midst of undertaking upgrades and repairs that hadn’t been done in the past.

“We incurred costs of about $9 million, and we paid $3 million or so in defendants’ costs,” said Dale Bickell, the city’s chief administration officer. “But I like to point out is we were able to acquire a system, were able to pay all the attorneys’ fees and all of the defendants’ attorneys’ fees, triple our capital improvement investments, and rates are 6% lower than they were before the start of condemnation.”

Stearns told the committee that the city also managed to prevail in October 2018 in a lawsuit where Carlyle asked for $42,000 in a second battle for attorney fees, as well as $335,000 in legal fees sought by Mountain Water. In addition, the city beat back an effort in May 2018 in which Carlyle sought about $25 million in interest it says was paid during the condemnation process.

“It was definitely part of their defense to make this a trial by attrition. It wasn’t successful, yet they’re continuing to do that today, as we have learned through the litigation process,” Stearns said. “We don’t listen to Carlyle, but wait for a court ruling and that’s been beneficial for the city of Missoula.”

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