The Santa Clara Valley Water District has to refund more than
$4.6 million, a year’s worth of illegally collected groundwater
charges, to Great Oaks Water Co., according to a Santa Clara County
Superior Court ruling.
The Santa Clara Valley Water District has to refund more than $4.6 million, a year’s worth of illegally collected groundwater charges, to Great Oaks Water Co., according to a Santa Clara County Superior Court ruling.
The decision announced Monday also found that, based on violations of the state law which determines appropriate uses of groundwater charge revenues, Great Oaks was overcharged more than $1.3 million in 2005-2006.
The refund of fees paid to the water district that same year, plus interest, was ordered because the groundwater charges violated Proposition 218, a constitutional amendment that requires all taxes and property related fees to be approved by voters, according to an order filed by Judge Kevin Murphy Monday.
The total remedy due to Great Oaks is $4.6 million. The overcharges became a moot point, as Great Oaks claimed it was charged too much based on a different state law – the Santa Clara Valley Water District Act – as an alternate award if the judge disagreed with the company’s claim of Proposition 218 damages.
But the judge agreed that the water district failed to gain voter approval for groundwater charges, allowing a full refund under Proposition 218.
“In making this order the court rejects the defense argument that there is no monetary remedy for violating Proposition 218,” Murphy said in a tentative ruling which is expected to be finalized in the coming months.
Although Murphy’s determination of the amount of overcharges under the District Act was lower than Great Oaks’ claim of about $2 million, representatives from the San Jose water company were pleased with the ruling.
“For more than four years, we have said that the (water district) has been violating the California Constitution and the District Act, and this decision confirms that we have been right all along,” said Great Oaks CEO John Roeder in a statement. “Both Great Oaks and the water district received a fair hearing and the result should come as a surprise to no one.”
The ruling follows four days of testimony and argument last month in the remedy phase of Great Oaks’ lawsuit against the water district. In the first phase of the trial, Murphy found that the groundwater charges violated two state laws – Proposition 218 and the District Act – the latter of which created the local agency.
Violations of the District Act are based on the water district’s use of groundwater charge revenues for unauthorized purposes, such as funding vacant staff positions and subsidies for agricultural customers.
Further testimony in phase two indicated other overcharges included “double charging” for imported water contracts by collecting $15 million to pay for the expense twice – from property taxes and groundwater extraction fees, according to Great Oaks’ witness and forensic accountant Thomas O’Rourke.
The water district disagreed with Monday’s ruling.
“While we respect Judge Murphy, we are disappointed in his tentative decision and do not believe it is supported by the record,” water district counsel Debra Cauble said in a statement. “We will carefully review the tentative decision and then will consult with (water district CEO Beau Goldie) and the board of directors about the district’s options.”
Water district attorneys argued that Great Oaks was only damaged by about $730,000 in overcharges. They also cited previous case law to claim that Proposition 218 doesn’t allow for a refund, but Murphy said the case cited does not apply to the current case.
Shortly after the phase one decision in April, water district staff indicated they intend to appeal. That process could last up to two more years, and Great Oaks attorney Tim Guster noted it will cost “hundreds of thousands, if not millions more in taxpayer dollars.”
“The water district will even say that all this is being done in the public interest, when clearly that is not true,” Guster continued in a statement. “Denying the right to vote on taxes is never in the public interest.”
The decision could have a widespread impact on the county’s 4,000 well owners, who include the cities of Morgan Hill and Gilroy. Water district staff have said the agency has used the same process to set groundwater charges for all local well owners – not just Great Oaks – and for every year at least since 2005-2006.
“As long as the water district continues its repeated violations of the California Constitution and continues to fight to deny residents of Santa Clara County the right to vote on taxes, your water bills will remain too high,” Roeder said.
At least one residential well owner, Morgan Hill resident Jon Persing, decided to stop paying groundwater charges when Murphy announced his ruling in April. Persing’s bill for last year was about $100 and he has been threatened by the water district with further legal action if he doesn’t pay up, but he will continue to fight the charges “on principle.”
He greeted Monday’s decision as good news.
“I look forward to seeing 10 years’ worth of water charges in the mail soon,” said Persing, who is president of OPI Builders. “I’m hoping other well owners, including the city, will reconsider giving them money.”
The city of Morgan Hill paid the water district about $2.2 million in groundwater charges last year. While city officials have objected to the fees based on Proposition 218 for several years, the city has continued to pay the water district.
City Manager Ed Tewes declined to comment Monday because he had not yet read the decision. He has said previously that city officials are closely watching the Great Oaks case and will consider their options when the decision is final.
Great Oaks has four more lawsuits pending in local Superior Court that are almost identical to the one ruled on Monday – one requesting full refunds for each year since 2005-2006.
Furthermore, the company which serves about 100,000 customers has filed two reverse validation claims – one for each of the past two years – asking the court to declare the groundwater charges invalid. Those two lawsuits, which will not be heard until next year, could result in a refund of about $130 million to all well owners served by the water district.
Murphy denied Great Oaks’ request for an injunction ordering the water district to comply with Proposition 218 because “the illegal fee collection activity for fiscal year 2005-2006 has already occurred,” the judge wrote in his decision.
However, the decision offered declaratory relief by stating the charges were illegal under both state laws.
“To avoid future litigation and to clarify the law for all relevant parties this remedy is appropriate,” Murphy wrote in his decision.
