SAN FRANCISCO — A California appeals court recently reversed a lower court's ruling that the Metropolitan Water District of Southern California overcharged the San Diego County Water Authority for water transport charges.
On June 21, the California First District Court of Appeal remanded the 2015 decision to the trial court for adjustment of damages, declaratory relief on the rate structure integrity clause and the reconsideration of the winning party in its ruling that Metropolitan committed a breach in a water-exchange agreement with the authority for the use of an aqueduct to wheel water from Colorado to California.
The feud between the two water agencies began to boil in 1998 when Metropolitan, which imports some of the San Diego water supply from Colorado to California, "began a lengthy process to replace the single rate with a new rate structure allocating charges to separate cost components, including water supply and transportation,” according to the opinion.
Twelve years later, the Water Authority challenged the water rates Metropolitan adopted in court. In June 2012, it filed a second action challenging the 2013-14 rates, to which "Metropolitan claims the trial court erred in failing to dismiss the Water Authority’s rate challenges as untimely,” according to the opinion.
“Tt is not the court’s function to set water rates, but only to determine if substantial evidence supports the fair compensation determination made by the water agency,” the appeals court said in its decision.
If the trial court’s ruling would have been upheld in 2015, the authority would have been due $188.2 million and interest, which would be higher now.
Along with water rates, the court of appeals was asked to consider the $9 million dollar in attorney fees the Authority was awarded by the trial court as the prevailing party.
“The Water Authority asserts the trial court misconstrued the scope of the agreement’s attorney fee provision in denying it an additional $2.6 million for prosecuting the second phase of trial,” according to the appeals court decision.
The appeals court reversed the lower court’s decision.
Though the winning party may change, the contractual fee provision is still relevant, according to the appeals court.
“We see no basis for denying fees incurred in the second phase of trial on the breach of contract claim,” the appeals court said in its decision, adding that it agrees “with the trial court that the fee clause does not broadly cover all contract actions but is narrowly drafted to cover only claims challenging the rates charged by Metropolitan.”