Modesto, MID legal costs in their dispute top $4.5 million and growing

The Modesto Irrigation District and the city of Modesto remain locked in a dispute over which one has to pay $9 million in extra costs for the botched expansion of the Modesto Regional Water Treatment Plant. And they are on track to spend more for lawyers, experts and consultants than the amount of money they are fighting over.

MID has spent $2 million in fees and expects to spend an additional $4 million, according to MID spokeswoman Melissa Williams. Modesto has spent nearly $2.5 million and its costs continue to mount. “We are entering a very intense phase of litigation,” City Attorney Adam Lindgren said, “and the monthly costs will be very high.”

The dispute is heading to a November trial.

Councilman Bill Zoslocki hopes Modesto and the MID can resolve their differences sooner and avoid additional costs.

“The only ones who win are the lawyers,” he said. “That’s all the more reason to sit down with the intention of how do we solve this thing. That’s my premise. Whoever wins (in court) is still going to lose” because of what they spent on lawyers, consultants and experts. Lindgren said each side is responsible for its own costs, and the loser does not pay the winner’s.

MID and Modesto officials say they are pursuing the litigation to protect their ratepayers from having to pay the $9 million. But as Zoslocki points out, the irrigation district and city in many instances are protecting the same ratepayer, who relies on the MID for electric power and the city for drinking water. So in a drawn-out, expensive legal fight, Zoslocki said, these ratepayers lose no matter which side prevails.

MID and Modesto entered into an agreement in 2005 for the irrigation district to double the capacity of its Regional Water Treatment Plant at Modesto Reservoir. The city is paying for the expansion, while the MID would continue to own and operate the plant.

The plant provides Modesto with much of its drinking water. The expansion was expected to be completed in 2009 at a cost of about $62.9 million. But the project has taken more time and money, with the completion date expected in fall or winter at a cost of about $107.5 million.

MID fired project designer and construction manager Black & Veatch in 2010 after finding more than 100 deficiencies in the work. The district and Modesto eventually recovered $14.9 million and other concessions from Black & Veatch and other firms involved in the project for the additional costs to finish the work.

That left a $9 million shortfall to complete the project and led to a dispute between MID and Modesto over which one would pay the shortfall. In August 2013, MID sued Modesto over the issue. In December 2013, Modesto and MID agreed the city would front the $9 million and came up with a strategy to resolve their differences, including which one ultimately would be responsible for the $9 million.

The strategy involves using what is called a reference judge, who is a retired judge or neutral attorney picked by the parties to hear their dispute. The process is expected to be faster and cheaper than resolving the lawsuit through the courts.

MID and Modesto recently concluded a trial in which the reference judge ruled MID does not automatically owe Modesto the $9 million according to the terms of the contract, but Modesto can pursue a breach of contract claim against MID over the money. The judge is scheduled to hear the claim at the November trial. Lindgren and outside counsel updated the City Council this week on the litigation.

A resolution before trial may be difficult based on how each side characterizes the recent trial results and the dispute.

MID General Manager Roger VanHoy said the trial was a “nearly total victory” for MID and Silver’s decision will make it difficult for Modesto to prevail in its breach of contract claim.

He said MID is pursuing this case to ensure that the farmers who rely upon it for irrigation water and the homes and businesses that rely upon it for electric power don’t subsidize Modesto for the treatment plant expansion. He said since the plant opened more than 20 years ago, MID has provided the city with drinking water at the cost to produce it, taking neither a profit nor a loss. He said paying the $9 million violates that principle, sets a bad precedent, and harms MID customers, who would bear the cost.

Lindgren called the recent trial decision a “mixed result” and said Modesto is “continuing to aggressively fight this case.” He raised the principle of the city protecting its ratepayers and not having them pay for MID’s mistakes.

This story was originally published July 18, 2015 at 5:49 PM with the headline "Modesto, MID legal costs in their dispute top $4.5 million and growing."