Desalination Contracts Voided by Corruption

     SAN FRANCISCO (CN) — A California appeals court handed a significant defeat to a public water agency this week, punctuating a lengthy and expensive legal fight involving corruption and the construction of a desalination plant.
     The three-judge panel of the First Appellate District upheld a state court judge’s decision finding that the corrupt behavior of Steve Collins, a member of the Monterey County Water Resources Board, was a legitimate reason to cancel four contracts between three entities involved in the proposed construction of the desalination plant.
     The Monterey water board, the Marina Coast Water District and California American Water Company (Cal-Am) entered into negotiations and agreed upon five contracts between March 2010 and January 2011 relating the construction of desal plant along the Central Coast.
     There is a significant water scarcity on the Monterey Peninsula, to the point where the State Water Resources Control Board ordered Cal-Am to find a source for 2/3 of the water it pumped to its customers. Cal-Am gets the majority of its water from the Carmel River, but concerns over fish habitat and the recovery of endangered species led the state to demand it find alternative sources.
     Cal-Am, a private water utility, provides the peninsula with most of its water.
     The utility, in collaboration with the Monterey water board and the Marina water district, landed upon the solution of a desalination plant. Desal plants removes minerals and salt from saline water, rendering it potable, and can change ocean water into drinkable water.
     The contracts reached between the three entities allowed the water districts to borrow money from Cal-Am to begin certain aspects of the project, which was approved by the California Public Utilities Commission in 2011.
     However, during a February vote at a Monterey water board, chairman Steve Collins recused himself from a vote involving the enlistment of a company called RMC Water Environment to be project manager for the construction project.
     Local media reports prompted an investigation which revealed that Collins was paid nearly $160,000 by RMC for consulting work. During the period he was being paid by RMC, RMC was also affiliated with the Marina water district — so Collins negotiated contracts on behalf of the Monterey water board while also on the payroll of a company affiliated with the other side in negotiations, a financial conflict of interest.
     The appearance of divided loyalties led Collins to his resign from the Monterey water board in April 2011. By July 2011, the water board took the position that the contracts were void — a position seconded by Cal-Am, which asked a court for declaratory relief.
     However, the Marina water district maintained that since interested parties only have 60 days after contracts are signed to challenge an agency action the statute of limitations is also 60 days, and the Monterey water board and Cal-Am are bound by the contract provisions.
     The case was tried in San Francisco County Superior Court after being transferred from Monterey County. The judge there found that four of the five contracts were void, and the Marina water district appealed to the First Appellate District.
     On Thursday, a three-judge panel found that public agencies are not bound by the 60-day limitation when they seek judicial determination of a contract.
     “Even if we set aside our skepticism and accept for the sake of argument Marina’s assertion that the validation statutes’ 60-day limitation period applies generally to claims brought under Government Code section 1090 where a contract implicates the validation statutes, we must still conclude that that limitation period does not control here because Monterey, as a public agency, is exempt from it,” Presiding Judge Jim Humes wrote for the panel. “Thus, we agree with the trial court’s rulings that the 60-day limitation period did not preclude Monterey’s challenge.”
     The decision is particularly detrimental to the Marina water district, since it owes Cal-Am $6 million for money it borrowed in 2010 and 2011. Furthermore, a lower court awarded attorney’s fees to Monterey water district and Cal-Am, meaning there is an additional $2.3 million at stake, according to Monterey County Counsel Charles McKee.
     Marina water district did not return emails and phone calls seeking comment for the story.
     Meanwhile, Cal-Am has moved forward with a separate desal plant project called the Monterey Peninsula Water Supply Project, which will use slant wells placed underneath the beach at the Cemex sand plant.
     While the California Public Utilities Commission withdrew its 2011 approval of the project at issue, it has approved Cal-Am’s new project. It must be cleared by the California Coastal Commission before it can move forward.
     “The appellate decision puts an end to at least a piece of opposition to the new project,” McKee said. While the Monterey water board has no financial stake in the new project, it acknowledges the need for alternative means of supplying the community with water.
     There are also preliminary plans for the installation of two desalination plants at Moss Landing, approximately 15 miles north of Monterey.
     “In this situation, the court was cognizant of the idea that you can’t allow public corruption to go unchecked,” McKee said, adding that if the court had decided otherwise then “all a corrupt public official would have to do is hide their behavior for 60 days.”

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