Attorneys for Virgin Valley Water District (VVWD) and Wolf Creek Golf Club faced off in a Las Vegas courtroom… Then squared off in a hallway outside the courtroom for nearly two hours after the hearing. It remains to be seen whether the parties can reach a settlement and avoid a trial next year, but we may be getting a better sense of where this case is heading.
Ultimately, it may come down to this: Should an outside entity influence how much local customers pay for their water?
What happened in court today, which questions will the court handle, and how will the court tackle them?
There were primarily two key issues that were addressed during today’s hearing: one of VVWD’s new water pricing regime, and one of the City of Mesquite’s offer to provide recycled effluent (or waste) water to Wolf Creek. Ultimately Judge Timothy Williams agreed to sever the two issues, meaning the City of Mesquite’s claim regarding effluent water will be decided separately from the issue of whether the district can require golf courses to pay the same price for public water resources that Southern Nevada Water Authority (SNWA) is willing to pay to meet its quota for Lake Mead reserve water.
During today’s court date, Judge Williams and both parties agreed to call expert witnesses in future court dates to provide more insight on the perceived market value of irrigation water. However, there was a dispute over whether the court will allow for discovery (or the court sanctioned gathering of evidence during a lawsuit) and allow the plaintiff (Wolf Creek) to depose Mesquite City Attorney Robert Sweeten and VVWD legal counsel Bo Bingham to answer questions on the actual feasibility of Mesquite’s effluent water proposal (for Sweeten) and VVWD’s past efforts to settle the case (for Bingham).
In addition to Sweeten and Bingham, Wolf Creek legal counsel Jeff Sylvester indicated that he’s interested in deposing additional witnesses, possibly including Mesquite area political power player Kraig Hafen. During our conversation with former VVWD board member Sandra Ramaker last month, she identified Hafen as someone “who had influence with the board” and someone who played a major role in VVWD changing its policy on water leases to have local businesses pay rates closer to the significantly more expensive rate SNWA pays (about $174 per acre-foot, or $1,246 per share).
“Just because SNWA comes into the market in 2014 and [leased water] shares at a rate never paid before, that doesn’t change the expectations of the parties that were set upon the formation of the contract.”
– Jeff Sylvester, Wolf Creek legal counsel
After the hearing, we spoke with Jeff Sylvester about the case, which he summarized as “a fundamental disagreement over the market rate, and how to determine a fair market rate.” So what’s a fair market rate? Sylvester then pointed out the disparity between Wolf Creek’s current water rate and how much VVWD wants local golf courses to pay: “Our rate is $250. They’ve indicated they want to go to $1,246, which is what SNWA is paying shareholders of the Mesquite Irrigation District.”
When we spoke with VVWD General Manager Kevin Brown last month, he castigated Wolf Creek for demanding to “pay a subprime amount of lease” for area water. Sylvester disagreed with that assessment, instead pointing to what was generally considered the fair market rate before VVWD entered into its lease agreement with SNWA: “The difference is that [Wolf Creek] entered into an agreement in 2011 with an understanding that SNWA was not going to set the market rate on an ongoing basis.”
Last month, Sandra Ramaker told us the board majority never intended for SNWA to determine the market rate when they first established the water lease program in 2011. Sylvester concurred with Ramaker’s take, then added, “You have two of the three board members who approved the agreement in 2011 saying, ‘These are the expectations we set. These are the representations we made. This is what we understood the market to be.’” He continued, “Just because SNWA comes into the market in 2014 and [leased water] shares at a rate never paid before, that doesn’t change the expectations of the parties that were set upon the formation of the contract.”
“You have to look at fairness in the context of what the parties understood and agreed upon.”
– Jeff Sylvester
After the hearing Sylvester, Sweeten, and Bingham huddled in the hallway to discuss the case further. At times, the conversation vacillated between threats of discovery and talk of settlement. Even after Sweeten had to leave, Sylvester and Bingham continued to talk. In total, the outside conversation lasted almost two hours, longer than the official hearing.
Despite the occasional heated verbal exchanges, Sylvester noted that all parties have expressed willingness to enter into a settlement conference that will be presided by a business court judge. As Sylvester put it, “Both parties have expressed a willingness to reach a resolution.”
So what might that resolution look like? Again, it comes back to the central question of whether the SNWA rate is truly a “fair market rate” for Virgin Valley water that was originally meant to be used by local businesses. When asked how much more Wolf Creek is willing to pay VVWD, Sylvester wouldn’t give a monetary estimate, but he did signal that Wolf Creek is not willing to throw out the 2011 agreement and pay what they consider an overly inflated price: “You have to look at fairness in the context of what the parties understood and agreed upon.”
Wolf Creek and VVWD are scheduled to return to court on November 20, and it’s to be determined whether this case will go to trial or surprise us all with a settlement.