$4.6M Groundwater Fee Refund Clawed Back

SAN JOSE, Calif. (CN) - A Northern California water district legally charged a smaller competitor millions in extraction fees for drawing water from wells on its own property, a state appeals court ruled Tuesday.

The Sixth Appellate District reversed a trial court's 2010 decision awarding plaintiff Great Oaks Water Company a $4.6 million refund, and found that defendant Santa Clara Valley Water District correctly billed the water retailer and did not need voter approval for the "groundwater extraction fee."

The three-judge appellate panel ruled that one of the water district's main responsibilities is preventing the depletion of groundwater supplies in Santa Clara County, and that the extraction fee is a constitutional property-related charge.

Great Oaks argued it was wrongly charged the extraction fee because it is "not based at all on the delivery of water." The panel disagreed, ruling that proceeds from the charge - which are accumulated and measured by the amount of groundwater pumped by the customer - are used by the water district for "importing, treating and distributing water as well as replenishing the groundwater basin."

According to its website, the Santa Clara Valley Water District manages the water resources for the county's 1.8 million residents, including the cities of San Jose and Santa Clara. Great Oaks meanwhile, says it serves just 20,000 customers and has 17 employees.

In the 81-page ruling, the panel criticized the trial court for being influenced by Great Oaks' expert witness who testified that the water district greatly overcharged the utility.

"He was an accountant, not an attorney, and he gave no testimony of a type that an accountant might give bearing on the meaning of a statute - such as how similar statutes, if any, were understood or applied in contexts with which he was familiar," Presiding Judge Conrad Rushing wrote. "So far as the record shows, he simply took it upon himself - or had it given to him by Great Oaks - to give an interpretation of section 26.3 and to base much of his own opinion on that interpretation which in turn furnished a foundation for many if not most of the challenges sustained by the court."

The appeals court also disagreed with the lower court that the district misappropriated funds from the extraction fees.

"But apart from the bald conclusions of an expert witness, nothing before us supplies any foundation on which to make such a declaration," Rushing wrote.

Timothy Guster, Great Oaks vice president and general counsel, said in a statement to Courthouse News the utility is "not surprised by the decision at all and will be seeking review by the California Supreme Court."

The appeals court also rendered moot Great Oaks' companion appeal challenging the trial court's denial of its motion for attorney fees.

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