Perla and Malvern attempt to solve water problem in Dec. hearing
Malvern and Perla city officials attended a two-day hearing Dec. 1-2 in the 7th Judicial Circuit Court at the Hot Spring County Courthouse as part of a lawsuit Malvern filed against Perla to recoup unpaid water fees. Malvern also sought to have Perla’s water service placed into receivership in an effort to restructure the failing service and secure the debt owed.
Judge Stephen Shirron ultimately ruled in favor of Malvern in the amount of $355,326.16 but said he didn’t have the authority to grant a receivership, which seems to pave the way for the signed agreement Perla has with Southwest Water Users Public Water Authority to take effect by the end of this month.
The fight in the courts began in 2018, when the city of Malvern decided to sue the city of Perla and the Perla Water Association for the past due amount of around $56,000. Perla filed for bankruptcy in 2019, but that didn’t relieve them of future water debt to Malvern.
The bankruptcy ruling stipulated that Perla needed to pay the current water bill in full and on time every month to stay in line with the bankruptcy requirements. Since that ruling, Perla has been unable to stay on top of the mounting debt, and the bankruptcy was subsequently dismissed. Now, both parties are back in court to determine what exactly is owed and who will oversee the management of the Perla water system.
At the hearing on Wednesday, Mayor Brenda Weldon took the stand first and voiced concerns about Perla’s mishandling of the water service, stating that Malvern wants a receivership because the situation has been ongoing since 2018 and is only getting worse.
Weldon first explained her relevance to the case and the normal operating procedure, saying that the city council legislates and appropriates funds for Malvern Water Works and that the management of the service ultimately falls on her, but she relies on her department head, David Coston, to oversee the daily operations.
Weldon stated that the management of Perla Water Association is inadequate, billing and service are inconsistent, and the sewer system is dysfunctional. She remarked that these issues have been steadily growing worse for several years and are so concerning at this point, not just for the residents of Perla, but for all the outlying customers of the system, that the Perla service needs to be placed into receivership.
When city attorney Cecelia Ashcraft asked Weldon what options the city had left, Weldon stated that if the court does not impose a receivership, Malvern’s only recourse would be to turn off water to the Perla system. She added, “I just don’t think cutting them off is right,” and also said that if Perla can’t even pay for their water usage, she doesn’t see how they can expect to fix the major issues with the sewer system.
Perla attorney Jonathan Huber then asked Weldon if she was aware that Perla had recently entered into a sales agreement with Southwest Water Users Public Water Authority, referred to as Southwest Water Association through most of the proceeding. Weldon conceded that she did know about the agreement, and Huber asked her why she has concerns, when she knows it’s being sold.
Weldon responded that the mismanagement has been going on for three years now. Huber mentioned that Southwest Water Association has placed $450,000 in escrow and can immediately pay the debt owed to Malvern. Weldon stated that her foremost concern is for the people themselves and for the future of the system.
Huber said Weldon’s assessment of the situation in Perla was hearsay and asked her if it was possible that Malvern was over-billing Perla for its water use, saying that they’re being billed for 9-10 million gallons a month but that estimates put the actual use closer to 3 or 4 million gallons.
Weldon explained that Malvern replaced the master meter that controls flow between the two cities, that the meter had documentation showing it functioned properly, and she felt sure that Perla was being billed solely dependent on how much water their system was using.
Weldon touched on wanting Central Arkansas Water to be the receiver, despite the recent agreement Perla reached with Southwest Water Association. She pointed to two other potential agreements that had fallen apart, indicating that the current agreement could possibly fall apart, as well. She said CAW has an excellent reputation and that she’s familiar with the company but knows very about Southwest Water Association.
Huber asked why the court should let Malvern say who gives Perla water, that there was no basis not to trust Southwest Water Association’s ability to manage and repair the system, and finished his questioning of Weldon by saying that “Malvern has no dog in this fight” other than the money Perla owed them.
Next on the stand was Malvern Water Works General Manager David Coston, who testified that Malvern sells water to Perla wholesale and treats their sewer, but that Malvern isn’t responsible for anything in the Perla system, itself.
When questioned about claims that Malvern may be over-billing Perla, Coston stated that with Perla’s 800 customers, usage should be closer to 5 or 6 million gallons instead of the 8-10 million gallons a month that are flowing through the meter, and that he estimates about a 50% water loss occurring somewhere in Perla’s lines.
Coston stated that Malvern has absorbed the past expenses and wants CAW appointed as receiver because they are trusted and capable, adding, “We’ve already survived the loss—we need to stop the bleeding.” Huber countered that CAW will fix Perla’s system with grants and loans, but that Southwest Water Association already has that money set aside and has $2 million “on hand” to tackle the problems right away.
Gifford resident Stacy Gibson, a Perla water customer since 2015, took the stand next and testified that her household loses water completely two or three times a year. He added that each occurrence lasts for several hours, followed by weeks of having to boil water to use it safely.
Gibson said the unexpected loss of water is not only unsanitary and inconvenient, but can also be a major expense, citing a time her family was pouring a concrete slab and the water went out. She shared that she reached out to “Seven On Your Side” a year before KATV decided to do a story on the issue, and that she had filed complaints with the Arkansas Attorney General’s Office and the Arkansas Municipal League, but nothing productive came from those filings.
Gibson noted that customers of the system never receive public notice about any boil order put into effect, and that she has to seek out that information herself. She also spoke about the irregularity of billing statements being sent out and the inconsistencies in the amount of her bill, stating that her family has been using at least 8,000 gallons a month for the last few months, but that she’s only being charged for about 2,500 gallons.
Gibson said it’s a guessing game as to when the bill will arrive and added that she will continue to have great concerns, until Perla is no longer in charge of the system. Upon questioning from Huber, Gibson intimated that she felt confident with the turnover to CAW but could not voice any objection to Southwest Water Association, as she did not know enough about the company to voice concerns yet.
Next on the stand for Malvern’s case was Central Arkansas Water CEO Tad Bohannon. CAW is the largest water utility in the state with around 475,000 customers, serving one in six Arkansans.
Bohannon testified to the competitive rates of the company and its ability to address the issues facing the Perla system. He stated that he contacted Perla’s attorney in 2019 about them possibly selling the system, but then he explained that selling the system was unfair to the ratepayers, who would essentially end up paying for the system twice. He said that a receivership made better sense because it allows for court oversight.
Bohannon said that the proposed agreement with Southwest would mean rates close to $ 45/ month for Perla customers, much higher than the average rate for CAW customers. Bohannon said that CAW had already invested time and effort into looking at the system, and he assessed that the Perla system was going to cost around $ 3.975 million to overhaul.
Bohannon got emotional on the stand as he talked about the state of Perla’s sewer system and his attempts to offer help. He stated concerns with the fact that the public did not receive notice about the Perla city council meeting where the deal with Southwest Water Association was inked.
Huber countered by asking Bohannon about the fiduciary stipulation, which gives control to CAW without the obvious benefit of surplus revenue from the sale of the system, which Perla could theoretically apply toward its other debts.
When Huber asked about the fact that the proposed deal with CAW hands Perla’s assets over to the water supplier, in essence giving the system away rather than selling it, Bohannon remarked that if Perla cared about the customers, it would willingly give the system away so that it could be successfully managed for the benefit of the community.
After Ashcraft called Operations Manager Doug Farler from CAW to provide photographic evidence of the problems with the sewer system, she had Perla Mayor Raymond Adams take the stand as the last witness for the day.
Adams stated that he’d been Perla’s mayor since 2007 and had not had issues with the water until the last person in charge of the service left the position a few years ago. He stated that Perla should be the ones to decide which company the city dealt with, not Malvern. He said he preferred to deal with Southwest Water Association because they’re closer, willing to take control, and as he stated, “We want out of the water business.”
Adams stated he believes that leaks are the main reason for the overwhelming debt and that the debt and maintenance situation was “too far gone” by April of this year. He stated that the previous deals that were in the works were quashed because those companies received pressure and threatening calls to back out of the agreements.
When asked about the fact that there was no public notice on a meeting regarding the deal with Southwest Water Association, Adams said most people knew they were moving forward with the proposed deal and pointed to, in part, difficulties notifying the customers in the small community.
Adams made mention that the language in the CAW deal was not acceptable and that he did not reach out to them because he was too emotional at the time. He reiterated that Perla should be the ones to decide who gets the contract, not be dictated to. He said Perla already has a signed agreement and wants to move forward with Southwest Water Association.
Adams couldn’t give a clear answer when Ashcraft asked what Perla Water Association planned to do about their other outstanding debts. When Huber took his turn questioning Adams, he generally countered that any other debt the Perla service owed was not Malvern’s concern.
After Adams’ testimony, Huber made a motion for a directed verdict, which would have dismissed the question of receivership. Court recessed for the day and commenced at 8: 30 a. m. the following Thursday, at which point Judge Shirron denied Huber’s motion.
On Thursday, Huber began the Perla arguments by calling Southwest Water Association CEO Jason Temple to the stand. He testified that his company was approached several years ago by the area JP at the time, at which point they drew up plans to bring water close to Perla. The company currently has two existing lines within a couple of miles of Perla.
Temple stated, “You always want redundant systems, you always want backup” and that his company can offer this, where CAW cannot, although he would recommend Malvern continue to provide the water, saying, “We would love to partner with Malvern.” He said they have multiple resources, including numerous employees who live close enough to respond immediately to any issues.
Temple reiterated that his company has $ 450,000 in escrow and can pay malvern “today,” but that there’s more due diligence to be done to tackle the Perla problem. He said they’re familiar with loan processes and applying for grants, stating they will pursue those avenues to expedite Perla’s financial recovery.
When Ashcraft asked Temple whether his company operates sewer collection systems, he said they currently do not but have employees who are capable of doing so. When Ashcraft asked him how he felt about the signed agreement with Perla perhaps not being valid, Temple said if the contract needs to be ratified, Southwest Water Association is happy to accommodate.
When Ashcraft asked him to specify what the anticipated bill for customers might be under the agreement, Temple stated that the rate would be based to meet the expenses of a properly managed system but couldn’t say whether the $ 45/ month estimate Bohannon cited would be close to the actual rate.
Temple said the $ 450,000 was meant to address some of the loan debt Perla still owes. He added, “CAW is an excellent company, but so are we.” He commended CAW for stepping up, adding, “But we’re right here, we can reach out and help our neighbor.”
Next on the stand was Clarissa Harris, manager of Water Users, LLC, the billing and maintenance provider for Southwest Water Association. Harris stated that the company was in great shape financially, citing a stable board and minimal expenses. She stated that she has several houses and gets bills from both companies, and that her bill from CAW for her house in Perrin is higher because of numerous added fees.
Ashcraft countered that the Perrin CAW consolidation involves a lot more issues than a regular case and that “there’s a lot more to it” to justify the added fees. Ashcroft finished by asking if the company has any experience with receiverships, and Harris replied that they do not.
Ashcraft had Weldon take the stand one more time in rebuttal to address the proper procedure a mayor should use when considering a contract. Weldon said the proper steps would be to send it to her attorney and then present it to the city council, and that any special meeting required at least two hours’ notice to the public, saying that neglecting to do so is a violation of the Freedom of Information Act.
When Huber took his turn questioning Weldon, he asked if she was attempting to invalidate the sales contract Perla has with Southwest Water. She replied that no, she was just stating what the law is. Huber replied that Weldon was the one to imply that the situation was, indeed, an emergency, and that if the contract can be ratified after the fact, the point was essentially moot.
In strong closing arguments for both side, Ashcraft began by saying Perla rushed into contract to avoid receivership and that the terms of the agreement do not cover all of Perla’s debt. She stated Malvern cares about the people of Perla and all the outlying customers in the county, and that there’s a dividing line, but not really— they and Malvern are all part of the same community.
Ashcroft said things have only worsened after the bankruptcy filing and that it was dismissed because Perla did not keep up their end of the deal. She said CAW is the most qualified and could start immediately. She begged the court to grant receivership because Perla deserves water they can pay for and be proud of, and that there’s no other remedy.
Huber focused on the point that the case is ultimately debtor versus creditor and that Malvern tried to shift the case to make it a judgement on how Perla runs things. He said Malvern does not have a right to dictate how Perla oper...
ates or who they sell their assets to, that they merely have the right to collect a debt.
Huber stated that there is a counterclaim still pending and that a judgement for in favor of Malvern would be premature. He noted that the existing contract with Southwest Water would quickly remedy the situation and that the receivership is not necessary. He said that the court should give deference to Perla, especially since Malvern has stated that they’re willing to wait up to 20 years to collect the debt owed to them, which would be the case if CAW gained control of the Perla system.
Ashcraft rebutted by noting that the city of Malvern is entitled because Perla had failed to respond to the previous judgement and that Perla can’t manage a system that is essentially defunct, at this point.
After about an hour’s recess, Judge Shirron returned to the bench and stated, “For starters, I find this to be very sad.” He said that it was very disturbing that Perla was not willing to accept help when they needed it, that it was shameful and counterproductive, but that he did not believe he had the authority to grant a receivership.
Judge Shirron reiterated the defense’s argument that ultimately, this was a case of debtor and creditor. He said that no Perla customers had yet filed suit, and that Perla has no history of regulatory violations.
Judge Shirron voiced concerns over the eventual transfer of assets to Central Arkansas Water in the proposed agreement. He stated he would refrain from speaking on the matter further, entering a summary judgement that Malvern is entitled to $355,326.16 and declining to place Perla into receivership.
After the court proceeding, some in the courtroom felt the judgement left too much ambiguity in regards to the fate of the system. Adams said he was happy with the ruling, but Perla Water Association customer Sheila Gregory said she is not satisfied and is working on future litigation in this case. Temple spoke with reporters at the hearing and said his company is capable of the task and ready to serve the Perla Water community. “Their concerns are our concerns,” he said of the Perla Water Association customers. “Southwest Water runs a very good water district, and our customers are very satisfied, so Perla Water customers have every reason to expect to be completely satisfied in a reasonable amount of time.”