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June 28, 2019

Chester Water Authority sues to stop city-Aqua deal

This article originally ran in the Delaware County Daily Times on June 28, 2019.

 

CHESTER — The Chester Water Authority has now taken legal action in the controversy surrounding the proposed sale of CWA assets by the City of Chester.

 

Attorneys from the Philadelphia-based Conrad O’Brien PC, representing CWA, filed a complaint in the Delaware County Common Pleas Court on Wednesday against the city of Chester and Aqua Pennsylvania Inc., alleging violations of the Pennsylvania Sunshine Act, among others, in the city’s issuing of a request for proposal to sell the authority’s assets. The attorneys also filed a request for preliminary injunction from any actions stemming from the RFP.

 

The Sunshine Act “requires agencies to deliberate and take official action on agency business in an open and public meeting,” according to a summary from the state Office of Open Records. The CWA complaint alleges a “corrupt bargain” between Chester City and Aqua and that “Chester’s supposedly public RFP is a sham, a front to give a veneer of legitimacy to Chester’s pre-arranged backroom deal with Aqua.”

 

“The entire argument presented by CWA, in yet another baseless lawsuit, is meritless and presented in bad faith,” wrote Chester lead counsel Kevin Greenberg of the Philadelphia-based firm Greenberg Traurig, LLP, in an email Thursday afternoon. “We look forward to the hearing before the judge.”

 

“We want the court to slow this down, so it can be reviewed. They’re talking about the daily supply of drinking water of 200,000 people every single day,” said CWA Solicitor Francis J. Catania by phone Thursday. “To have this done so quickly and without prior notice – the court needs to review it.”

 

Catania called the city’s issuance of the RFP “completely out of character” based on his involvement in two years of negotiations with city officials to resolve to the proposed sale.

Requests for comment from Aqua America, parent company of Aqua Pennsylvania and from its lead counsel, Joel L. Frank, of the West Chester-based firm Lamb McErlane, PC, did not get a response.

 

The complaint filed by CWA on June 26 states that “over the last two weeks, Chester and Aqua have taken drastic and illegal action to imminently force a sale of the Authority. The Court must put a stop to it.”

 

The referenced action stems from Chester City Council’s approval of a resolution on June 12 to issue a request for proposal to sell “substantially all of the Water System Assets, including real and personal property, which it acquires from the Authority upon termination of the Authority as a matter of law.” The RFP has a deadline of July 1, 2019.

 

Chester Mayor Thaddeus told the Times on June 13 that “conversations continue” between the city and CWA but that the city had “put (themselves) in exploratory mode.” Kirkland reiterated this point at council’s June 26 meeting in response to residents’ and CWA employees’ questions about a pending sale during the public comment period.

 

“The city wants to know if there is a better outcome than that proposed by the CWA management team. A better deal would return more money for the City, provide quality service, and avoid or limit the rate hike that the CWA Board is so eager to slip through,” said Greenberg.

“The entire purpose of the RFP is to see what the market says,” he said, and that Chester’s market exploration is to seek “understanding what is in the best interest for the City, its residents, and its neighbors.”

 

The background to CWA’s June 26 complaint states the agenda for the June 12 Chester City Council meeting makes no explicit reference to the authority, instead featuring “a cryptically worded pending resolution to ‘Authorize to approve Request for Proposals for Valuation of Assets.’ It also states there was “no prior opportunity for public discussion or debate” on the resolution and there was no public deliberation before council members’ unanimous vote to approve, with the latter “implying there was prior private deliberation.”

 

Greenberg responded that “the city complied with applicable law and has been completely transparent.”

 

“Mayor Kirkland specifically wrote to the CWA Chairwoman the day before the hearing – and copied the CWA counsel – and informed the CWA that an RFP exploring the value of the CWA assets would be considered at the City Council meeting on June 12,” he said, calling it “patently absurd” for CWA to argue that it was not notified.

 

The complaint’s background calls into question the 10-page length of the RFP and less than three weeks’ window to respond, stating a “normal RFP for the sale of a municipal water system is open for at least several months,” attaching Allentown’s 2012 RFP for the sale of its water and sewer system at a 27-page length and open from July to December of that year.

 

The complaint states “the only way a bidder can make a response on such an unreasonably short timeframe to such an unreasonably imprecise RFP as Chester’s is if the bidder had a head start and an inside track.” It goes on to quote a brief submitted by Chester City on June 19 in a trust petition filed by CWA in the Court Pleas Courts’ Orphan Court Division that reads “ (state law) “was designed to promote the very transaction that Chester and Aqua intend to consummate.”

 

“It is disingenuous for the CWA to take a citation to their own false statements in the complaint and now try to parrot them back as an admission. We would expect the Daily Times to be clear that the entire claim is a lie,” said Greenberg. “Because the nature and timing of preliminary objections in a lawsuit, the city was legally required to take as given the allegations made by the CWA, however ridiculous.”

 

“When you look at the actual preliminary objections instead of the truncated citation offered by the CWA, the preliminary objection expressly cites to the specific paragraph of the complaint filed by the CWA,” Greenberg said. “The city’s point was that even accepting the CWA’s false allegations in that earlier litigation, their claim was simply meritless.”

 

CWA also claims the city violated the Pennsylvania Third Class City Code, which “mandates that Chester can only sell real estate valued in excess of $1,500 through a competitive, public bidding process.” The complaint states “Chester had admitted that the RFP is a sham” through the above quote from the June 19 brief.

 

In its request for preliminary injunction, containing near identical arguments as the complaint, CWA requests from the court that “Chester is temporarily enjoined from taking any action to affect the ongoing operations and existence of the Plaintiff Chester Water Authority, including moving forward with the RFP to sell the Authority, which has a deadline of July 1, 2019; Chester is temporarily enjoined from selling the Authority to Aqua or to any other buyer; and, Expedited discovery will be conducted in this matter.”

 

The CWA’s June 26 filing joins two other cases before the Common Pleas Court related to the CWA sale controversy. Chester’s counsel filed the June 19 brief in response to a case to approve the creation of a trust for CWA assets. A hearing is scheduled for July 19 hearing is scheduled in the Delaware County Common Pleas Court Orphans’ Court Division before Judge Spiros Angelos to review the trust process and authorize the transfer of property into it.

 

The trust comes from a resolution passed by the CWA Board of Directors on Jan. 24 to enter a 40-year settlement with Chester to avoid litigating the city’s ability to initiate a sale. It approved a 10-percent rate hike to fund a one-time payment to the city of $60,285,000 through a bond issuance. CWA assets would then be placed into a trust for the 40-year term. The city has not signed onto the settlement.

 

Aqua, whose unsolicited offer to buy the CWA in May 2017 spurred the initial controversy, filed suit in the county Common Pleas Court against the city and CWA in early April to block the settlement. Aqua cited the approximately $750,000 it pays CWA annually for four interconnections in their system and the impact the 10 percent rate increase would have on Aqua customers. The case, also before Angelos, is set to begin trial Oct. 7.

 

CWA also issued a request for qualifications on June 19, with a July 15 deadline, for investigative services “into the attempted purchase and takeover of the authority’s customers and assets which began in 2017 and continues to the present.”

 

The RFQ outlines various communications, discovered “through certain requests issued under Pennsylvania’s Right-to-Know Law, and other sources,” between the state Department of Community and Economic Development and Chester’s state-appointed Act 47 coordinators Econsult Solutions with Aqua and consultants tied to investor-owned utilities. These communications occurred prior to and following the initial May 2017 offer. The concluding objective in the RFQ is to “prepare a final public report” on the investigation’s findings.

 

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