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Northeast Public Water Authority of State of Arkansas v. City of Mountain Home

Court of Appeals of Arkansas, Division IV

May 23, 2018

NORTHEAST PUBLIC WATER AUTHORITY OF THE STATE OF ARKANSAS APPELLANT
v.
CITY OF MOUNTAIN HOME, ARKANSAS APPELLEE

          APPEAL FROM THE BAXTER COUNTY CIRCUIT COURT [NO. 03CV-15-329] HONORABLE GORDON WEBB, JUDGE

          Bequette & Billingsley, P.A., by: Keith Il Billingsley, for appellant.

          Friday, Eldredge & Clark, LLP, by: William A. Waddell, Jr., for appellee.

          DAVID M. GLOVER, Judge

         Appellee City of Mountain Home, Arkansas ("Mountain Home" or "City"), provides water to appellant Northeast Public Water Authority of the State of Arkansas ("NPWA" or "Buyer") pursuant to a 2012 wholesale water purchase agreement ("contract"). This 2012 contract replaced the thirty-year contract that had been in effect since 1982. On November 4, 2015, NPWA filed a complaint in the Baxter County Circuit Court against Mountain Home, alleging Mountain Home breached the 2012 contract by improperly calculating the rates charged to NPWA. Mountain Home denied breaching the contract, asserting the contract spoke for itself and contending the parties had established through both the previous contract and the present contract a price calculation that had become established and agreed to by the parties.

          At issue is paragraph 2 of the contract, which sets the purchase price for the water NPWA buys from Mountain Home and provides as follows:

2. Water Purchase Price. City shall sell all potable water purchased by Buyer hereunder at a price per thousand gallons that is equal to Buyer's share of City's actual expenses incurred in connection with the City's production and delivery of the water to the Buyer which expenses include, without limitation, costs associated with the City's water supply source, plant, transmission and telemetry cost and expenses, treatment costs, distribution line costs, pumping and related electrical expenses, general and administrative expenses and general and administrative expenses associated with the production of water, plus, a sum which equals 10% of the foregoing expenses (collectively the "Water Purchase Price"). City agrees to provide Buyer with access to its books and records in order to quantify the Water Purchase Price.

(Emphasis in original.)

         In a February 21, 2017 pretrial conference, NPWA and Mountain Home both asserted paragraph 2 was not ambiguous, and both parties submitted proposed findings of fact and conclusions of law, which the circuit court treated as pretrial briefs.

         Hearing

         A hearing was held on March 2, 2017. NPWA contended it was only obligated to pay its share of Mountain Home's actual expenses incurred in connection with the production and delivery of water to NPWA, and instead, Mountain Home was charging NPWA a percentage of all the tanks, all the distribution lines, all the bond costs, and all other associated costs that were not related to NPWA's pumping station and the water-treatment plant. Mountain Home argued the contract provided two components of permissible general administrative expenses-general administrative expenses and general administrative expenses associated with the production of water. Mountain Home pointed out that although the 2012 contract was a new contract, it was, in essence, a continuation of the previous water-supply contract entered into in 1982; there had been previous disputes about the price of the water, but the contract formula had been the same for many years; and NPWA's attorney had drafted the contract.

         Gerry Lance, NPWA manager, testified he was familiar with the contract and agreed there had been a previous contract between the two parties. He explained NPWA purchases all its water from Mountain Home, which bills NPWA each month. He said Mountain Home typically raised rates annually, although he admitted there was "a year or two" when there was not a rate increase, and NPWA is currently paying $3.91 per 1, 000 gallons of water. Lance testified NPWA obtained 100% of its water from Mountain Home's water-treatment plant, using a line that comes directly from the treatment plant and ties straight into NPWA's pump station, which is approximately 100 feet from Mountain Home's treatment plant. Lance testified that if expenses unrelated to the water-treatment-plant expenses were taken out, the cost of NPWA's water would be drastically reduced, and it was apparent Mountain Home was charging NPWA not just expenses and operating costs related to the treatment plant but rather to its entire system. Lance conceded NPWA was responsible for its pro rata share of the maintenance of the Wallace Knob tank, the storage tank closest to its meter and to the water-treatment plant. Lance also complained that while NPWA received a rate increase in the current year, to his knowledge Mountain Home had not increased the rates of its own customers.

          On cross-examination, Lance further conceded the contract stated both "general and administrative expenses" and "general and administrative expenses associated with the production of water, " although, as he testified, he believed that wording was a typographical error. Lance agreed the contract was prepared by Heartsill Ragon, NPWA's attorney, and he (Lance) had reviewed the contract before it was signed. Lance acknowledged the water-treatment plant did not operate twenty-four hours a day, and when it was not operating, NPWA drew water from the system; however, he believed NPWA drew from the Wallace Knob tank, the water-storage tank closest to its meter, not the Southwest tank, another of Mountain Home's water-storage tanks. Lance believed if NPWA was using the system that it should pay its percentage share (estimated by Lance to be 1.4% of the total cost) for that use up to the Wallace Knob tank. Lance admitted Mountain Home was obligated under the contract to maintain what was known as the Days Inn tank, but that tank could not be used as part of NPWA's system.

         On redirect examination, Lance reiterated his belief that when NPWA was not receiving water from the treatment plant, it was coming from the Wallace Knob tank, not from the other two tanks in Mountain Home's water system. He explained NPWA could not use the Days Inn storage tank ...


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