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Missoula negotiates $4.13M settlement with Carlyle – Daily Montanan

['Keila Szpaller', 'More From Author', '- February']

Date: 2022-02-23 00:00:00

The City of Missoula and The Carlyle Group have negotiated a $4.13 million settlement on the final bill owed to the private equity firm following eight years of litigation stemming from the city’s eminent domain takeover of the water utility, according to the City of Missoula.

“It settles all of the litigation that’s pending,” Mayor John Engen said Wednesday at a public meeting. “It settles the arbitration case. We write a check for $4.13 million, and we’re all done. Carlyle has no claims against us, nor do we have claims against Carlyle.”

On Wednesday, all 12 Missoula City Council members unanimously greenlighted the deal in committee, and the matter will appear for a final vote at Monday’s regular council meeting. A member of the city’s legal team estimated the city’s exposure would have been $12 million to $15 million outside of a negotiation.

The mayor stressed that the settlement will not come from an increase in property taxes, but that it will come out of water rates, and it represents a $318,000 annual decrease in capital investments Missoula will be able to make in the water system for 20 years. However, Councilor Jordan Hess said the payment is a “drop in the bucket, so to speak,” in part compared to the millions the city is putting into improvements.

“In 100 years, the only thing that’s going to matter is that we own this water utility,” Hess said. “Hell, in 50 years, in 20 years, tomorrow, the only thing that is going to matter is that we own this water utility in perpetuity.”

Missoula had been the only city in Montana that didn’t control its own water, according to court documents. In 2015, the city of Missoula won the right to use its power of eminent domain to make a fair market purchase of Mountain Water Co. in a deal the city estimated cost roughly $99 million in all including fees to lawyers and developers.

In separate litigation, however, the city sued Carlyle Infrastructure Partners of The Carlyle Group alleging the equity firm dealt with the city “in bad faith” when it failed to make good on a promise to sell to the city. In December, an arbitration panel of three unanimously ruled in favor of Carlyle and dismissed all eight of the city’s claims.

The arbiters found Engen exhausted the avenues at his disposal to buy the utility, but he never had a promise from Carlyle to sell, as the city argued. In the decision, the arbiters said Carlyle considered the city’s offers, but they weren’t nearly high enough.

“It was likely that the city could not afford to finance the acquisition of Mountain Water at anything approaching market value,” the panel wrote. “As a result of the City’s decision to pursue condemnation and its successful conclusion, it avoided those challenges.”

Council President Gwen Jones said the vote she took to acquire the utility and the one she’s taking to approve the settlement in the final phase of the effort to pursue public ownership are the two most important votes she’ll cast in her time on the council. She recalled being in 7th grade when Mayor Bill Cregg talked to her class about the importance of placing the utility under municipal control, and now, her daughter who is a college senior in Michigan is hearing about the Missoula case from a professor talking about sustainable cities.

“We finally had a mayor and a council and a legal team that got it done,” Jones said.

She, other councilors including one who opposed the city’s purchase, and Engen also praised the lawyers, Harry Schneider of Seattle from Perkins Coie, and Scott Stearns and Natasha P. Jones of Boone Karlberg in Missoula. Engen said they invested millions of dollars of their time because they believed in the work, but they will not be paid because they took the “bad faith” case on contingency.

“The attorneys joining me today are remarkable professionals, tremendous advocates for the City of Missoula,” Engen said.

Engen said he would rather not have to write the check for $4.13 million, but he also believes the deal is the most predictable and manageable one the city will get. He also said he continues to believe the city was right in pursuing the “bad faith” against Carlyle for its “ill gotten gains.”

After the panel’s decision, Engen said Carlyle reached out to negotiate and suggested $5 million. One of the city’s lawyers, Schneider, said the $4.13 million settlement is lower than he expected it to be, and he believes that’s because Carlyle was worried about how it would fare in court proceedings on remaining claims.

“I think that that probably is based on their lack of enthusiasm for a public proceeding where conduct would be discussed, and I think it’s also in recognition of some exposure on their part in the underlying case if it goes forward in court,” Schneider said.

In the meantime, Dale Bickell, chief administrative officer for Missoula, noted that water rates are still lower than they were when the city first went to court in 2014, and the rates cover buying the system, paying the lawyers, and investing in fixes. He said the city is still investing more than three times the dollars in maintenance compared to previous private owners.

Once approved, Engen said the settlement closes the book an expensive but necessary chapter in Missoula’s bid to control its water: “Our ultimate goal has been achieved. I guarantee you that … our purchase of the system will have saved ratepayers in Missoula millions and millions and millions of dollars over the course of our ownership while improving the system, which desperately needed it as a function of deferred maintenance, and we continue to control the most precious resource that I think is available to make life in the city of Missoula happy, and that is our water supply and distribution system.”

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