WATER WAR: VA Supreme Court Panel Denies City’s Appeal

By GEORGE BROMLEY
Falls Church Times Staff

September 2, 2010

A three judge panel of the Supreme Court of Virginia has turned down Falls Church’s appeal of a ruling of the Fairfax Circuit Court, which found the City’s practice of transferring water system profits to its general fund unconstitutional.

“The City is disappointed with this decision and will be filing a Petition for Rehearing for consideration by all members of the Supreme Court,” said Wyatt Shields, Falls Church City Manager.  While the City’s petition is pending, the stay of the Circuit Court’s ruling against the City will remain in effect until a final order is entered by the Supreme Court.  If the petition is rejected, Falls Church must return $2.2 million to the water fund in compliance with the decision of the Circuit Court.

On January 6, 2010, Judge R. Terrence Ney held that the City’s practice constituted an “extraterritorial” tax on Fairfax County ratepayers, who comprise 92% of the water system’s customers.  Falls Church filed an appeal on April 6 and presented its case to the Virginia Supreme Court’s writ panel in Salem in mid-July.  The  panel ruled on September 1that it found no reversible error in Judge Ney’s decision and so rejected the City’s appeal. 

Appellants generally do not prevail in civil cases.  An analysis conducted several years ago found that petitioners had less than a one in five chance of obtaining a writ (the odds in criminal cases are far worse).  However, Falls Church had little alternative than to appeal, given that it can ill afford the transfer of over $2 million from its general fund.  According to the study, the odds on obtaining a rehearing before the full, seven member Supreme Court are 1 in 23. 

Phil Allin, Chairman of the Board of Fairfax Water, said, “We are delighted to do our share to help bring tax relief to Fairfax County customers.  ‘No taxation without representation’ still means something in Virginia .  We are glad this litigation is behind us and look forward to restoring the cooperative relationship we enjoyed with the City before it sued us in February 2007.”

Falls Church sued and lost in U.S. District Court in Alexandria.  The City appealed the ruling, but the U.S. Court of Appeals in Richmond affirmed the decision in April 2008.     

Fairfax Water sued Falls Church on five counts in December 2008.  The City counter-sued Fairfax Water and the Board of Supervisors, but this suit was dismissed in August 2009.

One count of Fairfax Water’s complaint was thrown out and the remaining four were split and tried separately.  Count V, the subject of the City’s appeal to the Supreme Court, was tried Judge Ney in September 2009.  The remaining three counts were tried before Judge Ney in February 2010, but the parties reached a settlement before conclusion of the proceedings.

A copy of Fairfax Water’s April 26 response to the City’s appeal is available here.  Additional documents are available at the City’s and Farifax Water’s websites.

Snyder Voted for Criticized Water Litigation

By STAN FENDLEY
Falls Church Times Staff

May 3, 2010

Although he has been a vocal critic of Falls Church City’s lawsuit against Fairfax County over water services, Councilman David Snyder joined his colleagues in a unanimous vote to initiate the litigation in 2007, he told the Falls Church Times this morning.  Snyder justified his vote for the litigation on the grounds that to have done otherwise would have weakened the City’s litigation position.

Snyder’s vote for the “Water Wars” litigation was disclosed in an article in last week’s Falls Church News Press. The News Press went on to endorse Snyder for reelection.

“When the Council debated whether to sue Fairfax County, I advised heavily against it,” Snyder told the Falls Church Times this morning.  “However, once the majority of Council members decided to vote for it, I voted for it, too, because otherwise it would have weakened the City’s litigation position.”

Snyder says that he attempted to get the lawsuit dropped shortly afterward.

“Within two weeks of the time the City filed the lawsuit, I talked to a representative of Fairfax County who was very angry at the fact that there had been no real effort by the City to resolve the dispute through negotiation,”  Snyder said.  “I then came back to the Council and gave my strong advice that we withdraw the litigation.”

Snyder has publicly criticized the decision to sue Fairfax County.  In a 2009 interview with the Falls Church Times, Snyder said, “The City’s litigation against Fairfax County over the water system is an example of the ineffectiveness of the current leadership.  We used to work matters out with Fairfax, but this tradition was broken by the decision to resort to the lawsuit, which was approved by the Council majority over my objection.”

In the recent candidate debated sponsored by the League of Women Voters and Village Preservation and Improvement Society, Snyder also stated his intent to mend fences with Fairfax County if reelected to another term.

This morning, Snyder elaborated on his vote, saying, “It was extremely difficult to be put in a position where if I voted against the lawsuit, it would have weakened the City’s position,” Snyder said.  “It really would have undercut the effort.”

It is unclear if the City communicated the unanimous vote as way to strengthen its hand.

Falls Church sued the Fairfax County Water Authority in federal court in March 2007, alleging that the City had the exclusive right to deliver water services in certain areas of Fairfax County.  A federal district court dismissed the City’s lawsuit two months later, followed by the City’s appeal, in which the lower court was upheld in spring 2008.

In a reversal of the roles, Fairfax County Water Authority (FCWA) sued Falls Church City in state court in December 2008, alleging that the City was engaging in anti-competitive behavior by blocking a Fairfax customer from hooking up to FCWA’s lines.  The two sides came to an initial settlement earlier this year but continue to squabble over some issues.

Snyder is the longest-serving member of the City Council, having been first elected in 1994.  He is seeking his fifth term in tomorrow’s election.

WATER WAR: Fairfax Files Rebuttal to City’s Appeal

By GEORGE BROMLEY
Falls Church Times Staff

April 26, 2010

Today the Fairfax County Water Authority filed a brief in response to Falls Church’s appeal of the decision of the Fairfax Circuit Court that the City’s water rates are designed to generate surplus revenues and pose an illegal tax on County residents.  Judge R. Terrence Ney’s January 6 ruling also struck down a sentence in the City’s charter which allowed it to transfer surpluses from its water fund to its general fund as a “return on equity.”   

In arguing that the City’s petition to the Virginia Supreme Court should be denied, Fairfax Water contends that there was no “reversible error” and maintains that the appeal “is riddled with procedural error.”   Citing over two dozen cases, the rebuttal defends Judge Ney’s ruling that the City’s water system practices were “plainly unconstitutional.” 

The brief concludes in part that “It is extremely unusual for a city water system to have a customer base that is overwhelmingly comprised of non-city residents (92%).  Falls Church capitalized on that imbalance – and on its one-of-a-kind charter provision (13.07) – by charging an inflated water rate to all its customers, reaping huge profits that allowed it to drastically reduce the local tax burden on its own citizens.”

Falls Church’s appeal argues that the claim of a Charter violation was not properly before the court, because it was never pleaded and was first raised in the middle of the trial.  The City’s appeal also contends that the operation of its water utility is a proprietary, not a governmental, function and that Falls Church is not imposing a “tax” on non-resident water customers, because it does not require them to connect to its system.

Fairfax Water filed its amended five count complaint against the City in January 2009.  One count was subsequently dropped.  The matter under appeal was tried last September.  Judge Ney handed down his ruling against Falls Church on January 6.   Trial on three other counts was suspended in February and the parties later reached a settlement on those issues.  The City filed its position to appeal to the Virginia Supreme Court on  April 6.

That Court likely will grant a hearing on the two petitions this summer.  If the City’s petition is accepted, the full Court will hear arguments later this year.  Falls Church’s petition is posted on the City’s website.  Fairfax Water’s rebuttal brief is posted on the Authority’s website.

WATER WAR:
Fairfax Requests Study of City’s Water Rates

By GEORGE BROMLEY
Falls Church Times Staff

April 14, 2010

In July 2008 Fairfax Supervisors Linda Smyth (D-Providence) and Catherine Hudgins (D-Hunter Mill) asked the County’s Consumer Protection Commission (CPC) to investigate water rates charged by Falls Church City and the Town of Vienna, both of which operate water systems that serve residents of Fairfax County.  During the Board of Supervisors meeting last week, Ms. Smyth advised that the Commission soon will report its findings to the Board.

The Board had directed the CPC to report its findings and possible recommendations regarding why certain County residents are paying different water rates from the various water systems that furnish water service to the County.  Supervisor Smyth noted that much had occurred since the Board first gave that direction to the CPC, including litigation between Falls Church City and Fairfax Water, during which the City sued the Board in an attempt to limit its power to accept proffers relating to the provision of water service within the County.  The Board was dismissed from the case when the Fairfax Circuit Court ruled that the Board alone has the power to determine which entities will provide water service within the County’s borders.

Supervisor Smyth added that on January 6, 2010, the Court ruled that Falls Church has been violating the Virginia Constitution and its own charter by charging water rates designed to generate profits to transfer to the City’s general fund.  The Court found that Falls Church set its current water rate, $3.03 per 1,000 gallons, in 2005 to generate millions of dollars a year in profits, and that the City’s water charges amounted to an unconstitutional, extraterritorial tax on County residents.

Ms. Smyth advised the Board that Falls Church has no plans to reduce its rates in its FY 2011 budget and is considering “modest” future increases (per Page 25 of the March 11  Falls Church Financial Update, on the City’s website).  Supervisor Smyth, jointly with Supervisor Hudgins, then moved that the Board direct the CPC to report its findings as to what Falls Church is doing to comply with the Court’s Order of January 6 so as to give relief from this unconstitutional tax to the 92 percent of its customers who reside in the County.

Supervisor Penny Gross (D-Mason) and Supervisor Hudgins jointly seconded the motion.  Ms. Gross and Supervisor John Foust (D-Dranesville) asked to jointly co-sponsor the measure.  After brief discussion, the motion passed unanimously.

The Board’s discussion of the matter begins at 2:36:01 of the April 6 video.

WATER WAR: City Appeals Decision on Fund Transfer

By GEORGE BROMLEY
Falls Church Times Staff

April 6, 2010

Falls Church filed a Petition for Appeal today with the Supreme Court of Virginia regarding Judge R. Terrence Ney’s ruling that the City’s annual Return of Investment transfer is an unconstitutional tax.  Under the Supreme Court’s rules, the Fairfax County Water Authority must file its response to the appeal by April 28.   The hearing on the petition likely will be scheduled in mid-July and, if the petition is granted, a hearing before the full court on the merits will be held this fall.

The City contends that Judge Ney erred in ruling that Falls Church had violated its charter by transferring profits from its water system to its general fund and that he incorrectly held that it had violated the Virginia Constitution, despite his recognition that the General Assembly may delegate taxing power to any city.  The 35 page appeal, which references nearly 30 cases, cites five other instances in which the trial court was in error.

Falls Church argues that Fairfax Water’s claim of a Charter violation was not properly before the court, because it was never pleaded and first raised in the middle of the trial.  The appeal also contends that the operation of the City’s water utility is a proprietary, not a governmental, function and that Falls Church is not imposing a “tax” on its nonresident water customers, because the City does not require them to connect to its system.  

Trial was held on a single count last September in Fairfax Circuit Court.  Judge Ney handed down his ruling against the City on January 6.  The parties later agreed to a settlement on three other counts in the case after trial was suspended in February.

BREAKING NEWS: Falls Church and Fairfax Water Reach Settlement in Current Suit, but City Still Appealing Earlier Decree Prohibiting Transfer of Profits to General Fund

By FALLS CHURCH TIMES STAFF

February 25, 2010

Today the parties issued the following joint press release.

The City of Falls Church and Fairfax Water have successfully resolved the matters pending in Fairfax County Circuit Court.  The consent decree  is beneficial for all residents and businesses in the City of Falls Church and Fairfax County.  In the decree, neither party admits liability and both Fairfax Water and the City of Falls Church will have the opportunity to provide water service in the portions of Fairfax County currently served by the City.  In addition, the City has agreed to pay Fairfax Water $750,000 to settle claims, fees and damages, which will be covered by the City’s liability insurance.  Both entities welcome the conclusion of this case so that they can resume focus on the business of best serving the public.

The City will continue its appeal of Count V, the Fairfax County Circuit Court’s Final Decree of Jan. 6, 2010, which prohibited the City from transferring water fund surpluses to the City’s general fund. Read more

WATER WAR: City Will Make Revised Offer to Fairfax County

By GEORGE BROMLEY
Falls Church Times Staff

February 23, 2010

Last night the Falls Church City Council met in closed session for 40 minutes to discuss the ongoing litigation with the Fairfax County Water Authority.  After the session the Council unanimously approved a motion by Vice Mayor Lippman and seconded by Councilman Dave Snyder to instruct City Attorney John Foster, in consultation with the firm of Reed Smith, to respond to the counter-offer made by Fairfax Water and to make a revised offer to resolve the case.

The current trial, which involves three counts against the City, began on February 1.  Proceedings were recessed on February 4 to allow the parties to pursue settlement negotiations.  If accord is not reached, the trial will resume in Fairfax Circuit Court before Judge R. Terrence Ney on Monday, March 1.

Falls Church City is appealing the ruling on a fourth count in the case, which was handed down in January.

WATER WAR: City & Fairfax Water Looking to Settle

By GEORGE BROMLEY
Falls Church Times Staff

February 4, 2010

After meeting this morning in chambers with attorneys for the City of Falls Church and the Fairfax County Water Authority, Circuit Court Judge R. Terrence Ney issued an order continuing the trial until March 1 to permit the parties to pursue settlement discussions.

In his concluding remarks, Judge Ney expressed his hope that the parties can settle their differences and complemented both the plaintiff’s and the defendent’s legal teams on their skill and professionalism. 

Under the terms of the continuance, several witnesses who may be involved in settlement negotiations will be exempted from discussing aspects of the case.  They are Charles Murray, General Manager of Fairfax Water, his deputy Steven Edgemon, Falls Church Chief Financial Officer John Tuohy, and Robert Etris, the City’s Director of Public Utilities.  Other persons under subpoena remain subject to the rules on witnesses.

If the proceedings resume in March, defense attorney Sandy Thomas will complete his cross-examination of Dr. John Mayo, who was on the stand yesterday afternoon. 

A copy of Judge Ney’s order is available here.

A copy of Falls Church’s pre-trial bench brief is now available on the City website.

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