Smithville Seeks Million Dollar Judgment Against DUD in Counter Claim

April 1, 2014
by: 
Dwayne Page
Kristen E. Berexa
Vester Parsley, Jr.

In the continuing legal battle between the City of Smithville and the DeKalb Utility District, attorneys for the municipality now claim that the DUD underpaid for water purchases from July 1, 2008 to December 31, 2013 and owes the city more than one million dollars.

(CLICK PDF LINK BELOW TO READ CITY'S ANSWER AND COUNTER CLAIM AGAINST DUD)

Answer of City of Smithville (FB280882).pdf (116.03 KB)

As a result, the city has filed a counter claim in Chancery Court seeking a judgment against the DUD to recover the amount of the undercharges.

Attorneys Kristen E. Berexa of Nashville and City Attorney Vester Parsley, Jr. filed the counter claim last Thursday, March 27 in DeKalb County Chancery Court along with an answer to the DUD's lawsuit against the city over the $5.00 per thousand gallon water rate.

Even though the city had a water purchase contract with the DUD from March 15, 2004 through December 31, 2013 establishing the amount the DUD would pay for water each year, city attorneys claim a 2013 water cost study found that the municipality had not charged the DUD enough to cover all of the actual costs of producing and distributing water to the DUD, and the City did not recover any of its capital costs from DUD during the period between July 1, 2008 and December 31, 2013.

Attorneys for the City assert that under state law, Smithville is entitled to recover from the DUD the amount by which DUD was undercharged in violation of Tennessee Code Annotated § 7-35-414 which states in part that...."Such rates and charges shall be adjusted so as to provide funds sufficient to pay all reasonable expenses of operation, repair, and maintenance, provide for a sinking fund for payment of principal and interest on bonds when due, and maintain an adequate depreciation account, and they may be readjusted as necessary from time to time by amendment to the ordinance establishing the rates then in force. Any upward adjustment of rates and charges for sewerage services shall not be granted solely on the basis of increases of rates and charges for water service, but shall be made only after a finding by the governing body that such an adjustment is reasonable and justified...."

According to the city's counter claim, "The provisions of Section 8 of the 2004 (water purchase) contract are void for the period beginning July 1, 2008 through the end of the 2004 contract because they violate Tennessee Code § 7-35-414(a) and the common law requiring DUD to pay just and equitable rates."

"The total amount DUD underpaid the City for potable water during the period from July 1, 2008 to December 31, 2013 is $1,099,323 plus the underpayment for the period between July 1, 2012 and December 31, 2012."

The counter claim states that "At its meeting on December 12, 2013, the Board of Aldermen of the City established a rate of $5.00 per one thousand gallons of water to be paid by DUD on and after January 1, 2014, the same rate that customers within the City are charged for water".

In the lawsuit against the City, the DUD contended that the $5.00 per thousand gallon rate was unreasonable and asked for a temporary injunction, which was granted by Chancellor Ron Thurman on February 28 forcing the municipality to immediately reduce its water rate to the DUD from $5.00 to $2.67 per thousand gallons, which was determined by the water study to be the city's actual cost to produce water. The temporary injunction will be enforced pending the outcome of the DUD's lawsuit against the City.

Attorneys for the City claim the $5.00 per thousand gallon rate is reasonable and is needed to help recover the DUD's undercharges.

"This rate is reasonable and necessary to cover the costs to produce and distribute water to DUD and to recover the amounts by which DUD was undercharged by the City during the period from July 1, 2008 to December 31, 2013, according to the counter claim. "At the rate of $2.33 per one thousand gallons (the difference between the $5.00 rate set by the board of aldermen and the City's cost of $2.67 to produce and distribute one thousand gallons of water), the City will have to sell 471,812,000 gallons of water to DUD to recoup the underpayment from DUD without factoring in the underpayment from July to December 2012. In the most recent calendar year, DUD purchased 307,087,000 gallons of water from the City. DUD has expressed an intention to build its own water production system in the next two years and will cease to be a major customer of the City after DUD's plant goes online."

In the counter claim, the city is asking that a judgment be entered in favor of the City and against the DUD in the amount of $1,099,323 plus the amount by which DUD was undercharged for water during the period from July 1, 2012 to December 31, 2012; that DUD be denied all relief on its complaint against the City and same be dismissed with prejudice; that the City be granted such other and further relief as is just and proper in the premises; and that the City be awarded its reasonable costs in this action.

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