In 2014, Cascade, CO water customers were serviced by a metropolitan district controlled by a lawyer/developer who was the sole resident of the district and who handpicked the members of the district’s board of directors. District infrastructure was badly in need of repair and had a water loss rate estimated to be up to 45 percent. Moreover, customers discovered the district manager had embezzled more than $800,000 from the district. The embezzlement left the district owing Colorado Springs Utilities (“CSU”), the entity that sold treated water to the district, more than $500,000 for past water purchases. Finally, the developer, his lender and the district were suing CSU to terminate the agreement under which the district purchased water from CSU so that they could sell the underlying water rights. The potential sale of the water rights threatened customers’ ability to get affordable water service.
Eight of the customers ultimately sought help from Polsinelli to insure they would continue to receive water service if the developer and his lender were successful in their lawsuit against CSU. Despite the customers’ difficult legal position, the Polsinelli team convinced the developer, the lender, the district and CSU to allow the customers to intervene in the lawsuit between the developer, the district and CSU so the customers could participate in settlement negotiations between the parties.
After two days of mediation, the customers secured their right to purchase water from CSU for the next 100 years. As a result, the customers control the district, and will receive water through an improved system and ultimately will be customers of CSU rather than the district. In addition,
• The developer and his lender agreed to turn over control of the district to the customers by holding an election to expand the boundaries of the district from one property to include all 350 customers of the district.
• The district agreed to appoint one of the interveners to the board of directors pending the inclusion election.
• The district also agreed to investigate potential sources of recovery for the embezzled funds, which had not previously been considered by the district.
• Finally, the district agreed to raise money through a bond offering to pay off the debt to CSU and make improvements and repairs to the district infrastructure with the goal of transferring ownership of the infrastructure to CSU after the repairs are complete.