Water War Part 4: The Authority Strikes Back

By the summer of 2008 Falls Church clearly had lost the initiative in the Water War.  Twice defeated in federal courts, the City had declined to appeal its case against the Fairfax County Water Authority to the Supreme Court.  No longer on the offensive, its options now were limited.  Would Falls Church decide to seek an accommodation with its adversary or continue to claim exclusive water rights in certain areas of the County?

Defeated But Defiant

In spite of the rulings against it, the City still believed that Fairfax Water could not, in the words of City Manager Wyatt Shields, “force our customers, including developers, to hook up to its system.”  Whether FCWA actually forced or attempted to “force” Falls Church service area customers to switch is not clear.  What is clear is that the Authority filed suit against the City in Fairfax Circuit Court in December 2008 claiming, among other things, that Falls Church had threatened legal action against a developer who had planned to switch to Fairfax Water.

The site in question, known as the Halstead Project, involves the construction of approximately 1,000 residential units near the Dunn Loring Metro station.  In its complaint the Fairfax Authority states that the City’s March 12, 2008, letter to the developer “implied criminal sanctions against [it] if it moved the [water] lines without the City’s permission,” and that Falls Church had claimed the “right to object to any interference with its service territory and the existing water mains on the property.”  Because the letter was sent before the City’s 2007 case against FCWA had been rejected by the appellate court, Falls Church theoretically could still maintain that it held exclusive water rights.

However, Falls Church continued to press the developer even after the appeal had been turned down.  On July 15, the City informed the developer that “the plans must show the buildings connected only to the City of Falls Church water system,” and that “[u]nless the plans show the buildings connected only to the City of Falls Church water system, the relocation of the existing water line is not acceptable.”

Terming the City’s actions “willful and flagrant,” Fairfax Water’s lawsuit alleges that Falls Church had obstructed the developer’s ability to fulfill its proffer commitment and that its policies were designed to monopolize water service.  Stating that the utility will suffer $7 million in damages from the loss of the connection fees and future charges, the complaint asks for treble damages ($21 million) and punitive damages against the City not to exceed $350,000.

In a recent letter to the News-Press, Fairfax Water Chairman Philip Allin maintained that the Authority had asked Falls Church to stop blocking what he termed “competition” but that the City declined, leaving FCWA no alternative to litigation.

Most lawsuits do not result in a retaliatory claim.  However, the City may have invited one by continuing to claim exclusivity after its defeat in federal court.

Defeated on Demurrer

Now in the role of the defendant, Falls Church asked for dismissal via a demurrer on February 13, 2009, essentially asserting that the Authority’s complaint did not constitute a legally valid claim, even if its factual allegations were accurate.  Circuit Judge Jonathan C. Thacher overruled the City on all counts on March 13 and ordered the case to proceed.

In reference to Fairfax Water’s claim of monopolization of water services and request for relief under the Virginia Antitrust Act, the judge noted, “The Court finds the Water Authority’s construction to be the reasonable one.  It recognizes and respects each local government’s right to exercise the authority granted them by the statute within their own geographic limits.  It also strives to avoid wasteful and costly legal conflicts between local governments . . . . If the code sections the City cites authorize the City to monopolize water service in neighboring Fairfax County, what precludes the City from monopolizing water service in Norfolk, or Richmond, or Bristol?”

In one particularly scathing passage concerning the City’s denial that it interfered with a business expectancy (i.e., obstructed the developer), Judge Thacher wrote, “This argument appears to be entirely without merit because the City’s alleged means [to protect its water service boundaries] include improper means [emphases added], such as falsely threatening with criminal and civil sanctions those residents who wish to connect to the Water Authority’s service; and misrepresenting to residents that the City has the exclusive right to provide water service.”

The Charter Challenged

The City’s Charter, as approved in 1988, authorizes it to maintain and operate a “water works” system both “within and without the City.”  Under a 2003 revision it grants it the power to set rates and charges for water as the City sees fit.  Although Falls Church currently charges customers the same rate regardless of their location, it has charged County residents a higher rate in the past and could do so in the future.

Among the grievances set forth in the Authority’s lawsuit is a request that the Charter be declared unconstitutional to the extent it allows the City to use its water fund surpluses to subsidize its general governmental operations.  The complaint alleges that this practice allows Falls Church to lower the property tax rate for its own citizens and constitutes an illegal, extraterritorial tax on those in Fairfax.

This may be the most significant charge in the entire filing.  Such a challenge is a serious matter for a small independent city since, if upheld in court, it might well encourage similar challenges on matters related to water rights and possibly on unrelated matters as well.

But Will it Go to Trial?

The case currently is scheduled for trial in September.  Fairfax Water’s complaint requests that it be heard by a jury.

Assuming such a request were granted, Falls Church likely would ask for a change of venue, since a jury drawn from the County probably would not be impartial, given the Authority’s claim that the City’s water rates constitute an illegal tax on Fairfax residents.

However, many a civil case is settled “on the court house steps,” as it frequently is in neither party’s interests to proceed to an actual trial where one might lose and the other achieve only a pyrrhic victory.

Certainly Falls Church would suffer a heavy defeat if held liable on all counts.  Fairfax Water’s demand for monetary damages is equal to nearly one-third of the City’s operating budget.  Given the current financial crisis, it is in no position to incur such a loss, even if spread over several years.

City Council members have been hesitant to discuss a pending litigation, but Mr Shields’ statements to the News-Press would seem to indicate at least some willingness to negotiate.

When asked what a mutually agreeable resolution would look like, he responded, “The City of Falls Church and Fairfax County should be sitting down to discuss what the County’s long-term objectives are and, through dialogue, determine what is feasible.”

Unfortunately, the City now would enter such negotiations in a weaker position than two years ago, and Fairfax Water may no longer be willing to compromise.

Of Beginnings and Endings

Historians often dispute the date wars actually started.  Some argue World War Two began, not in 1939 when Germany invaded Poland, but eight years earlier when Japan invaded Manchuria.

Such is the case with the Water War.  A Falls Church historian would argue it began when Fairfax first served notice in July 2005 that it would compete for water rights.  A Fairfax historian would say it began in February 2007, when the City filed against the Authority.

Regardless of when it started, this war will end and one side will emerge the victor.  When and how it will end are still very much open questions. Hopefully we are near the beginning of the end and not, as Churchill speculated after El Alamein, at the end of the beginning.

This concludes the Falls Church Times’ 4-part Water War series.

Part 1: A Tale of Two Lawsuits

Part 2: How City Lost Suit Against Fairfax County

Part 3: An Appeal Denied