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April 11th, 2014 — By — In News & Events

Missoula Files Condemnation Suit to Take Privately-held Mountain Water Hoping the Second Time Will be the Charm

Mountain Water's "Water Wagon" pictured at the Big Sky Science Circus. Picture from Mountain Water's website: www.mtnwater.com.

Mountain Water’s “Water Wagon” pictured at the Big Sky Science Circus.
Picture from Mountain Water’s website: www.mtnwater.com.

Last week the City of Missoula, Montana filed suit in District Court seeking “a judicial determination entitling it to acquire by eminent domain Missoula’s privately-owned water supply and distribution system” – Mountain Water Company. The City has sought to purchase the utility from its parent company, the Carlyle Group for some time, however, the City’s most recent offer of $50 million and previous offer of $65 million were both rejected.  Unable to coax Carlyle into to becoming a willing seller, Missoula filed a condemnation action to take the utility by eminent domain.

Missoula has ventured down this path once before and came up short.  In 1984, Missoula sought to acquire Mountain Water from its owner via condemnation.  After a 5 year legal battle, the Montana Supreme Court ruled against Missoula opining that the taking was not necessary to the public interest.

“Since this property is already a public utility, and hence to some degree dedicated already to a public use, it is not more necessary the city take over its operation. The public interest will be best served by the city not being permitted to condemn Mountain Water.”

City of Missoula v. Mountain Water Co., 88-148 (Mont. 1989).

Montana law requires that public entities show “by a preponderance of the evidence that the public interest requires the taking” in order for the power of eminent domain to be used.  Additionally, the public body must demonstrate that:

  • The property’s use will be a public use.
  • The taking is necessary to the public use.
  • If already used for a public purpose, the public use proposed is more necessary.
  • A written offer for the property was submitted and rejected.

Missoula Mayor John Engen has been quoted as saying that the benefits of the City owning the water system are worth the risk of a long and expensive legal battle with the Carlyle Group, which has vowed to vigorously defend its rights.  However, the question remains – Can Missoula convince the District Court that the public interest will best be served by the City owning and running the utility?

Michigan eminent domain attorney Alan Ackerman pointed out in his blog here that the allegations in Missoula’s Complaint seem to suggest that the basis for acquiring the privately-owned utility is premised more upon the fact that the current owner is a private equity firm rather than the necessity of the taking. Ackerman explained to the Missoula Independent: “I’m not so sure they can justify a real reason other than the fact they want it and the other guy’s got it.”

Another interesting point Ackerman makes: “If investors and privately-owned public utilities read the Complaint, Montana communities may find themselves with no private investors who will fund infrastructure improvements in the State.”  Should investors respond to Missoula’s actions as they have to the actions of Richmond, California which seeks to condemn underwater mortgages, Missoula may have a difficult time raising the funds needed to acquire Mountain Water through the issuance of tax-exempt municipal bonds.

Stay tuned, only time will tell…

The City of Missoula v. Mountain Water Company, Complaint for Order of Condemnation