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.

WATER WAR: Anti-trust Expert Testifies for Fairfax Water

By GEORGE BROMLEY
Falls Church Times Staff

February 3, 2010

The third day of trial in Fairfax Circuit Court saw the introduction of the plaintiff’s star witness, economist John W. Mayo.

In response to questions from Fairfax Water counsel Stuart Raphael, Dr. Mayo stated his opinion that Falls Church possesses monopoly power in the relevant market (i.e., eastern portions of Fairfax County) and has engaged in actions to maintain and prolong such power.  He characterized his finding as ”not a close call.” 

The witness termed the City’s maintaining an exclusive service area ”cheap exclusion”, both in that the tactic is inexpensive, as opposed to predatory pricing, which has substantial monetary costs, and in the sense that it has no redeeming features.  He saw no economic efficiency or utility-based (i.e., technical) resaon in Falls Church’s use of easements to force developers to connect to its system.        

Dr. Mayo then faced extensive and intensive cross-examination from defense counsel Sandy Thomas on the nature of Fairfax Water’s competition with Falls Church, which the witness defined as “nascent.”  Dr. Mayo took the positon that the market will become more competitive over time once the City’s monopoly ends and that benefits gradually will accrue.  However, counsel built an effective case that the utility is not in true competition with the City’s system. 

Mr. Thomas quoted a 30 year Fairfax Water employee as stating that he never had considered his utility as being competitive with Falls Church.  Counsel also pointed out that a senior manager had stated the company never takes into consideration what other utilities charge for various services.                

Dr. Mayo, a professor at the McDonough School of Business at Georgetown University, was still on the witness stand at the end of today’s session.  His expert report, which served as the basis for much of his testimony, is available here.

The trial will resume tomorrow at 10:00.   Court will be in recess Friday and convene again on Monday morning, weather permitting.

WATER WAR: City Manager Chief Witness on Second Day

By GEORGE BROMLEY
Falls Church Times Staff

February 2, 2010

City Manager Wyatt Shields appeared as the primary witness for the plaintiff in the second day of trial in the case of Fairfax County Water Authority (FCWA) vs. the City of Falls Church.

Mr. Shields, whose testimony was in the form of two videotaped depositions, endured extensive questioning from FCWA counsel Stuart Raphael on the issue of the exclusivity of the City’s right to offer water service in portions of Fairfax County.

Mr. Raphael strove to obtain a flat “yes” or “no” answer from Mr. Shields as to whether Falls Church continues to claim such authority, but counsel never succeeded.  The city manager stated that he considers the issue “still an unsettled point of law.”

During the course of the depositions, which were taped last April and June, Mr. Raphael referenced several letters to developers and accounts of meetings which suggested Falls Church was making such claim, both before and after a federal appeals court had affirmed an earlier ruling that the City had no exclusive rights in the disputed territory.

Mr. Shields, after opining that Fairfax Water “tries to ‘cherry pick’ from the City’s traditional service area”, stressed that Falls Church had made substantial investments in its infrastructure in the expectation of serving customers in locations where FCWA now is seeking to compete.  Mr. Shields stated that he had generally viewed “competition” more in terms of how effiectively the utilities managed their systems.  The city manager noted that it was “bad public policy to lose customers within the service area.”

Mr. Shields’ testimony was followed by the taped deposition of Philip L. Chabot, Jr., who served as the City’s outside counsel in its 2007 federal lawsuit against Fairfax Water.  Here Mr. Raphael posed many questions similar to those asked of Mr. Shields in an effort to show a general trend in City policy regarding exclusivity.

Jerry Emrich, the day’s only “live” witness, preceded Mr. Shields.  A developer’s attorney, Mr. Emrich testified that Mr. Chabot had maintained that the City’s exclusive rights resided in a Virginia law, the federal court rulings not withstanding.  However, Mr. Chabot would not reveal the source of his legal analysis.  Later Mr. Raphael was unsuccessful in securing an answer on this question from Mr. Chabot.

The day’s proceedings began with the conclusion of the the taped deposition of Bob Etris, Falls Church’s Director of Public Utilities.

The submission of taped depositions during trial in lieu of direct examination is no longer unusual.  During today’s sessions defense counsel objected for the record to most of Mr. Raphael’s questions, but in almost all instances allowed the witnesses to answer.

Whether Judge R. Terrence Ney was in any way swayed by the evidence and testimony remains unclear.   He observed near the end of the day that few facts are in dispute, as was the case in the September trial.

Court will convene again at 10 a.m. Wednesday.

WATER WAR: Trial Opens; Judge Questions Anti-Trust Claim

By GEORGE BROMLEY
Falls Church Times Staff

February 1, 2010

The second phase of the Fairfax County Water Authority’s lawsuit against the City of Falls Church began this morning with a startling statement from Circuit Court Judge R. Terrence Ney – “I just don’t think this is an anti-trust case or a monopoly case.  I don’t think it’s fair to Fairfax Water not to apprise you of my thinking on this.”

Undeterred, Fairfax Water chief counsel Stuart Raphael politely disagreed and then proceeded with a 75 minute opening statement in which he traced the lengthy history of the dispute.   In Mr. Raphael’s view, Falls Church has continued to unjustly claim exclusive rights to water service in the eastern portion of Fairfax County and impeded developers from linking water lines to Fairfax Water’s mains.  Mr. Raphael stated that an expert economist will testify for the plaintiff that the City is guilty of “willful abuse and maintenance of monopoly power.”

Defense counsel Sandy Thomas disputed these claims in his opening remarks, stating that Falls Church had valid business reasons not to move water lines.   Mr. Thomas pointed out that the City had made a major infrastructure investment in recent years in the anticipation of retaining its long established service area.  He further stated that an economist who specializes in anti-trust issues will testify that Fairfax Water favors the “sharp elbows” approach to competition.

During the afternoon session Mr. Raphael introduced many exhibits into evidence, primarily letters and memoranda to and from City officials.  This met with occasional objections from the defense, generally on hearsay grounds, but Judge Ney fully sustained only one.  As in the previous trial, he seemed inclined to include most documents for the record, lest those excluded become the basis for an appeal.

The day concluded with part of the taped deposition of Robert Etris, current director of the City’s water system.  Mr. Raphael did his best to elicit answers that would bolster his case, but Mr. Etris was extremely cautious in his responses.

Fairfax Water’s current claim against the City consists of three counts.  Counts I and II, which specifically reference the Virginia Antitrust Act, respectively accuse Falls Church of monopolization and attempted monopolization.  Count IV alleges that the City interfered with Fairfax Water’s business expectancy, primarily by forcing a developer to cancel a proffer.  Judge Ney ruled against Falls Church on Count V last month.  Count III was dropped in 2009.

Much of the dispute concerns  the interpretation of what actually constitutes a market for water service.  Fairfax Water contends that Falls Church has unfairly restricted its access to customers.  Falls Church believes that Fairfax Water regards the market as “wherever customers are” and is free to seek them, irrespective of their location.

Falls Church City Attorney John Foster advised the Times that the defense team will vigorously defend the City’s interests.   City Manager Wyatt Shields, a likely witness, joined Mr. Foster at the defense table today.

Trial will begin tomorrow at 9 a.m. with the conclusion of the taped deposition.

WATER WAR: Second Trial Begins Monday Morning

By GEORGE BROMLEY
Falls Church Times Staff

January 31, 2010

Trial begins tomorrow in Fairfax Circuit Court on three additional counts in the Fairfax County Water Authority’s (FCWA) ongoing lawsuit against the City of Falls Church.  Judge R. Terrence Ney, who ruled against the City on a single count on January 6, will again preside.

Fairfax Water contends that Falls Church has a monopoly on water service in the eastern portion of the County and has attempted to exclude FCWA from the market, blocking at least one developer from connecting to its system by refusing permission to relocate existing water lines unless the developer promised to connect only to the City’s system.

The plaintiff also maintains that Falls Church has continued to claim an “exclusive” service area, even after a federal court held otherwise, and that the City has advised developers they will be embroiled in litigation if they connect lines to Fairfax Water.

Both sides have retained the lead counsels who faced off in the September trial.  Stuart Raphael of Hunton and Williams will argue for the plaintiff.  Alexander “Sandy” Thomas of Reed Smith will represent the City.

During the course of a preliminary hearing last Wednesday, Mr. Raphael moved to prevent several Falls Church witnesses from testifying.  He also sought to exclude the introduction of an internal FCWA memo into evidence.  Judge Ney did not immediately rule on either motion, but seemed more inclined to hear both the City’s witnesses and its evidence.

A copy of Fairfax Water’s pre-trial brief, which summarizes the plaintiff’s case, is available here.  A short history of the dispute and a map showing the areas serviced by Falls Church and FCWA is included in this article.

The trial will be held in Court Room 5E of the Fairfax County Court House.  Proceedings are scheduled to begin Monday at 10:00 am and are expected to continue into the following week.

City Allowed to Retain Water Fund Transfers During Appeal

By GEORGE BROMLEY
Falls Church Times Staff

January 27, 2010

The City of Falls Church will not have to return its FY 2009 transfer of  water fund profits immediately, as originally decreed.

At a hearing this morning Fairfax Circuit Court Judge R. Terrence Ney issued a consent order suspending Paragraph 2 of his injunction of January 6, thus allowing the City to retain its transfers to the general fund for the past and any subsequent fiscal year.  However, if its appeal fails, Falls Church will have to return such transferred monies to the water fund, plus 6% interest.

The order, which affirms an agreement between the City and Fairfax Water, resolves the post-judgment motions filed by Falls Church.  Under the agreement, the City will withdraw its emergency appeal to the Virginia Supreme Court and pursue its appeal through ordinary course.  The City also has withdrawn its request that Fairfax Water post a bond of $4.4 million in the event the injunction was not stayed. Read more

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