Water Board Attorney goes down Rabbit hole in Nevada water pricing case

Las Vegas, NV. Fourteen days after Virgin Valley Water Board attorney Jedediah (Bo) Bingham took Clark County District Court Judge Timothy Williams into Allice in Wonderland Territory, he led him down the Rabbit Hole.

Bingham’s Alice and Wonderland antics in this three-year five-month civil case both frustrate the Plaintiff’s attorneys and, more recently, the Judge.

In this civil action, the owners of Paradise Canyon (dba The Wolf Creek Golf Club) in Mesquite, NV, want a jury to decide if the covenant of good faith and fair dealing provision in contract law applies to the Virgin Valley Water Board’s decision to raise their irrigation rates by 500%.

On October 14, Bingham told Judge Williams that because former water board member Karl Olaf Gustaveson had Alzheimer’s disease when he died on February 29, 2020, his deposition taken by the plaintiffs’ attorney Jeffery Sylvester was void.

Sylvester pointed out that never in five previous motions had they relied on Gustaveson’s testimony. “Nor, Sylvester reminded the Judge, had you relied on Gustaveson’s testimony in your rulings.”

On October 25, Bingham presented new arguments. He claimed that Plaintiff’s appraiser’s conclusion that two markets existed for Virgin River water was inconsistent with real estate appraisal standards. Therefore, those findings should not go to a jury to evaluate, Bingham contends.

The two market concepts include a $1,115 rate for Virgin River water cleaned and converted to domestic use by the Southern Nevada Water Authority (SNWA) in the Las Vegas area and a second rate of $300 for highly polluted river water used for irrigation locally in the Mesquite area.

Bingham wants a jury only to consider the Water Districts appraiser who concluded that the $1,115 per share rate applies to irrigation water used in both areas.  Bingham, intentionally or not, confuses the two by claiming that paper transactions are the same as actual water use.

Virgin River water is not the actual water that the SNWA leases. SNWA leases paper water appropriated to Virgin River shareholders but takes natural water from the Colorado River in Lake Mead.

If and when SNWA decides to use the agreed-upon amount of paper water, they take an amount from the main Colorado River water stored in Lake Mead, miles from where the Virgin River, a tributary to the Colorado River, enters the lake.  That somewhat cleaner Colorado River water is run through SNWA’s cleaning process and delivered to their Las Vegas metropolitan community as domestic water.

Therefore, SNWA can process Colorado River water, as it typically does, and count it (on paper) as Virgin River shares. So, it is not the Virgin River water they value.  It is the mathematical ability to measure its withdrawal as Virgin River shares while taking more Colorado River water from Lake Mead than initially permitted, increasing its value.

This paper vs. real water issue may appear a distinction without a difference, but it is not.

Bingham points out incorrectly that holders of publicly owned river water appropriations fallow their land, which frees it to flow into Lake Mead for SNWA to count. He does not say that the ground allegedly fallowed recently for SNWA use was converted into golf courses or subdivisions decades ago.

It was an economic shift from a 19^th-early 20^th-century agricultural need for highly polluted river water for irrigation to late 20^th -21^st retirement and recreation need for cleaner underground water for domestic use that freed up river water to flow naturally to Lake Mead for SNWA to count. So to say, with minor exceptions, that water shareholders fallowed land specifically to send it to SNWA is, at best, a stretch of the imagination.

And by law, all water in Nevada above and below the ground belongs to the public. [i] And treating publicly owned river water as real property moved from one location to another as the appraisers have is problematic in many ways.

First, the idea that public water is personal property is a legal ambiguity not thoroughly tested under Nevada law. And those holding appropriations for publicly owned water do not have an actual title to that water. And recently, the Nevada Supreme court reaffirmed in the Walker water case that:[ii]

1. That the public trust doctrine applies to all waters in Nevada,
2. The State water engineer must consider the public interest when allocating and administering water and,
3.  The legislature has expressly prohibited reallocating adjudicated water rights.

During the Walker case, on September 18, 2018,  the Water Board made its position on the public trust doctrine clear.  During that meeting, Bingham told those attending that, “We [the water board] think prior appropriations should supersede the public trust doctrine.”

The public trust doctrine is one thing; managing financial stocks is another animal entirely. Bingham confirmed that Virgin River water share appropriations operated by the Mesquite Irrigation Company (MIC) and the Bunkerville Irrigation Company (BIC) but allocated to the Water Board and SNWA during the appraisal motion hearing are stocks.

The Securities and Exchange Commission (SEC) oversees all stock exchanges and organizations connected with selling securities. It also has a robust anti-fraud unit that monitors advertising and marketing to ensure companies comply with strict securities sales rules.

And The Attorney General’s Bureau of Consumer Protection, under the direction of Nevada’s Consumer Advocate, has the statutory authority under Nevada’s consumer protection laws to prosecute criminal and civil cases. At some moment, this stock water issue requires SEC scrutiny if for no other reason than to determine if water shareholders and members of the Water Board and the VVWB are manipulating stock prices unfairly to the public.

And Article 8, Section 9 (the Gift Clause “of the Nevada Constitution reinforces stock manipulating concerns. That section prohibits the use of public funds to acquire stocks. And both the Virgin Valley Water Board and SNWA use public funds to pay for river water stock shares.

Further, The Nevada Supreme Court shows interest in water adjudication cases by taking up the Walker water case and forming a Commission to Study the Adjudication of Water Law Cases.

According to Chief Justice James W. Hardesty, the Commission’s primary purpose is to consider processes by which we (The Courts) adjudicate water rights effectively, timely, and efficiently.  However, he added an issue might go to the courts if necessary.

When debating irrigation share (stock) rates during the appraisal motion, Judge Williams addressed government funding. He referenced apartment renting, where some residents pay with private funds while others receive government subsidies. He asked Bingham if it was appropriate to make a distinction between the two rates. In an extended meandering response, Bingham said not in this situation. It is all one rate.

Appraisal arguments also focused in part on whether renting water shares were arm’s length transitions. When it comes to buying and selling real estate, an arm’s length transaction is one where the parties involved in the contract have no relationship that would otherwise influence their decisions during the purchase and sale negotiations.

Somewhat frustrated at Bingham’s meandering here and there about this transaction detail, Judge Williams finally told Bingham that he understands arm’s length transitions. This detail is a simple issue, and we keep going on and on; I am trying to know where you are going, the Judge said.

The Judge also questioned Bingham on his attempt to apply a particular statute to the issue at hand. The Judge said: “How can you do that with water shares?” I am trying to push you along; you are going down rabbit holes that you don’t need to go down. I understand your position. I do.”

It appears that Bingham feels that his appraiser’s use of water share purchases by water shareholders (which include the SNWA) were arms-length transactions. He seems to say that Plaintiff’s appraisal failed to perform arms-length appraisals because they did not talk to everyone involved. And Bingham contends that non-arms length appraisals are unauthorized under real estate standards (USPAC). Therefore he argues that Judge Williams should disallow non-arms-length appraisals from trial testimony.

Of course, Sylvester disagreed and suggested to the Judge that such issues are for cross-examination at trial.

Here is the problem with Bingham’s apparent claim of arms-length transactions. To a non-lawyer, it appears that virtually all transactions involving water shareholders included in the Water Districts appraisals are non-arm’s-length transactions. Almost all those included in the Water District appraisals involved buyers and sellers who share the same desire to profit by driving the price of public water held by shareholders and no longer needed for its original purposes to the maximum possible.

The only actual arm’s-length transaction is between the Water Board and local firms like the Wolf Creek Golf Course owners but not transactions between the Board and profiteering shareholders.

Using Bingham’s argument, it was the Districts appraiser who, by using water shareholder transactions, violated the USPAC standard. Whereas Plaintiff’s appraiser, arms-length sub-market transactions, complied with USPAC standards.

Bingham’s single rate claim is untrue if one accepts the sub-market assertion by the Plaintiffs’ Appraiser. However, the single market claim is potentially valid if one considers profiteering from the price-setting as legitimate. Bingham says the SNWA set the rate. But it was local Virgin River water shareholders sitting on the water board who started rate setting. In 1993, they began using public funds to purchase public river water stock shares no longer needed by shareholders for irrigation and stock watering.

By 2010 the Water Board had acquired 551 shares for $12,159,670.86 or $17,895.41 per share. Water stock share prices varied from a low of $900 when the board formed to a high of $80,056.23 per share to Cresent Hardy dba as Bunk Compound LLC. Because of the wide variation in prices paid, the mean value of $8,171.00 is a better indicator of the per-stock-share price set by the Water Board. (See attachment A)

The Water Board argues that they will convert those river water shares to domestic use in the future. But that water was not going anywhere, and if and when needed, it could be acquired if affordable. Unfortunately, for the public, price manipulation and the high cost of cleaning polluted water make converting river water to domestic use questionable.

A mean price per stock-share of  $8,171 was too high even for SNWA to pay. So the VVWB leased shares to them at between $1,203 and $1,512 per share. In 2009, SNWA did pay $1,687.95 per stock share. Eventually, they settled on a stock share price of $1,115.00 for Water Board held stock shares.

With a price establishment starting in 2005, shareholders of publically owned river water earned $57,998,817.99 of public funds from SNWA for Virgin River Water stock-shares. (See attachment B)

In total, using public funds either from the Water Board or SNWA to manipulate the publicly-owned river water price put $70,158,488.85 into shareholders’ pockets. (Total  $12,159,670.86 + 57,998,817.99 = $70, 158,488.85).

And they were not, with a few minor exceptions working the land or watering livestock; therefore, the water flowed into Lake Mead for SNWA count on paper.  Theoretically, and under some circumstances, SNWA could appropriate an amount from that flow at no cost.  Doing so may have required litigation, but $57 million-plus goes a long way in court litigation when the public trust and use of public funds are at stake.

During a deposition, in this case, Ms. Colby Nicole Pellegrino, SNWA Director of Water Resources, addressed river water pricing. Sylvester asked about a contract provision with the water district that gave SNWA the right of first refusal if some third party wished to use the water. She said:

“My opinion that means that water shareowners can jack the price of their virtually useless shares [of river water] up for SNWA to match a higher bid price because they need to [someday] convert the water to underground use.”

Even more astonishing, Bingham himself confirmed price profiteering practices during the appraisal motion hearing. He pointed to a pending deal, where Bunker Farms agrees to pay the SNWA rate of $1,115 as a single market example.

What Bingham did not tell the Judge is that the owners of Bunker Farm Inc. Brian and Robert M. Bunker  (not to be confused with Arron Bunker, the Water Board hydrologist) profited from River Water price manipulations.

They leased River water for $250 per stock share from the Water Board, and in 2009 they earned $1,157,516. 12 from SNWA, who, on paper, counted the water as a credit for the use of Lake Mead water.

Only a lawyer taking a Judge down the Rabbit hole can tell him in many words that using public funds to pay for public water in a non-arms-length transaction complies with Nevada’s “gift clause” and the public trust doctrine.

The public owes a lot to the owners of Paradise Canyon for pursuing this issue in court. They want a Jury to determine if the Water Board acted in bad faith by applying the SNWA rate on their domestic water deal to less valuable water used locally for irrigation.

But in bringing that case, the Virgin Valley Water Board entrusted Bingham to argue against that position. They either ignored or forgot that when the Water Board hired Bingham, he admitted that he had no experience in water law, nor does it appear that he understood beneficial use or real estate transactions, among other issues.

 

Bingham’s ill-considered motions and his argumentative behavior has consequences. For example, the legal debate on treating water appropriations and pricing as real-estate transactions highlights the need to reconsider that fiction in the public’s interest.

Fortunately, the Nevada Supreme Court is considering water adjudication by establishing a Commission to Study the Adjudication of Water Law Cases.

Regardless of the outcome, in this case, Nevada-Today.com and the MesquiteWaterAlliance.com published record will go to the Commission and members of the Nevada legislature. With that publication will go a recommendation to adjudicate water appropriations in line with 21^st century public beneficial needs.

The adjudication of water appropriations for the 21^st century beneficial use by the public allows for a redistribution of public funds away from profiteers and back into the public coffers.  But make no mistake, some of those individuals appointed to the Commission and others who individually profit or have an affinity for someone who benefits from the current situation will resist with a vengeance.

Attachment A (go to bottom of page to scroll through pages)

Attachment A (go to bottom of page to scroll through pages)