The Virgin Valley Water District Board of Directors heard an update from its legal counsel Bo Bingham at its June 19 meeting regarding a lawsuit filed against the district by Paradise Canyon, LLC, who owns the Wolf Creek golf course in Mesquite.
The lawsuit was filed on May 16 in civil court over a 2011 lease agreement that provides the golf course with irrigation water.
While the lawsuit does not seek direct monetary payment from the district should the golf course win, it does ask the court to place restrictions on future water payments and leases the district could ask for when the current lease expires in 2019. It also asks for attorney’s fees and costs incurred in having to prosecute the action.
“The lawsuit is unfortunate and it’s a misguided effort to try to strap the hands of the board to set the rate it feels is in the best interest of the valley as a whole. The district is going to defend the lawsuit. I think the district will be successful in that defense,” Bingham said.
He also said, “I see it as a request to displace our elected officials and try to limit your ability to do what you think is in the best interest of the district as a whole.”
The district and Paradise Canyon signed a lease in 2011 in which Wolf Creek received 155 shares of non-potable irrigation water at $250 a piece for a total annual payment of $38,750. VVWD currently leases 18 water shares to Southern Nevada Water Authority (SNWA) for $1,246 a share.
At the June 19 meeting, Bingham pointed out to the board that “essentially Wolf Creek is paying the district five times less than what the district could lease these same shares to SNWA for. The 2011 agreement set the rate for eight years. Come January 1, 2020, the district has the right under the lease agreement to set the rate at whatever it feels is appropriate in its sole and absolute discretion.”
Bingham went on to point out that the district “incurred significant debt to purchase these shares. Millions of dollars were spent by the district to purchase these shares.” He reminded the board that ratepayers continue to pay a $10 debt surcharge each month to help pay the bonds used to obtain the water. He added that had the district leased the 155 shares to SNWA rather than Wolf Creek, the district would have received approximately $1.2 million more in income over the last eight years.
“Every dollar that we forego from leasing those shares [to SNWA] is a dollar that has to be borne by all the ratepayers as a whole,” Bingham said.
The Wolf Creek lease also provided “for the right of Paradise Canyon to lease the Leased Shares on a perpetual basis” according to the court document. In 2011, the golf course paid the district a one-time fee of $25,575 for a “Right of First Refusal” to lease water in the future. Paradise Canyon alleges in its court document that “as a result, [it] has the right to lease the Leased Shares – and the use of the allocated water – in perpetuity.”
The civil complaint says that “The continued and perpetual use of water is critical to the operations of the golf course. During the lease negotiations, the District was aware that the number of leased shares – and the water allocated for those shares – may exceed, on an annual basis, the actual water use. The number of leased shares was necessary to provide adequate assurance that there would always be sufficient water available to the golf course.”
At Tuesday’s meeting, board President Nephi Julian asked how the perpetuity clause was included in the lease and asked who was serving on the board at the time. While Bingham couldn’t remember the board members, minutes from the June 7, 2011 meeting during which the lease was approved show that Karl Gustaveson, Sandra Ramaker, Mark McEwen and Kenyon Leavitt approved the lease while Ted Miller voted no.
The minutes also show that the perpetuity clause was not included in the original lease presented to the board at the 2011 meeting. After Wolf Creek representatives questioned the absence of the clause, the board asked Bingham to add language which says “After January 1, 2020, if Lessee continues to hold a right of first refusal as provided for above as to any of the Irrigation Shares, Lessee shall have the right to continue to lease the same Irrigation Shares on a perpetual basis provided Lessee is not in breach of this Lease; however, the rent amount for the Irrigation Shares shall be determined in the sole and absolute discretion of VVWD.”
Bingham told the board Tuesday night that the perpetuity clause “will be the primary question in my view to ask the court.”
Meter readings have established that Wolf Creek only uses about 110 shares of the 155 it leases. Any unused portion of the water flows downstream to Lake Mead without additional remuneration to the district. VVWD has asked the golf course to return the unused shares so they too can be leased to SNWA at a higher rate to no avail.
Bingham said the district’s response is due to the court by the first week in July.