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.

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.

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.

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.

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 the full Consent Decree here.

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.

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.

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.

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.

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.