Superior Court of Massachusetts, Suffolk, Business Litigation Session
MEMORANDUM AND ORDER OF FINDINGS AND RULINGS
Christine M. Roach, J.
This case involves interpretation of an 1879 Charter for purposes of arriving at the proper purchase price for a water company. Defendant Aquarion Water Company of Massachusetts, Inc. (Aquarion Mass.) is the current entity that holds 100% of the stock of the original Hingham Water Company, as well as the water distribution system serving Plaintiff Town of Hingham (Hingham or the Town) and certain other towns. The second Defendant, Aquarion Water Capital of Massachusetts, Inc. (Aquarion Capital), owns the water treatment plan also in dispute in this litigation. In its 2012 Town Meeting, the Town voted to appropriate funds to investigate the feasibility of purchasing the water utility assets. The parties are unable to agree on an appropriate formula for calculating the purchase price the Town would be required to pay under the language of the Charter.
The court (Sanders, J.) previously ruled that issues of statutory construction surrounding the 1879 Charter could not be determined on summary judgment and required a trial. Docket, Papers 18-19. The matter was tried to the bench over five days February 23-26, and March 2, 2015. The court entertained post-trial arguments heard May 23, 2015, in addition to supplemental briefing completed May 5, 2015. Following full consideration of the evidence and all of the parties' post-trial briefing and argument, I find and rule as follows.
All of the below-enumerated Findings of Fact represent findings by the court, including but not limited to determination of the credibility, weight, and probative value of the evidence adduced at trial and reasonable inferences drawn from that evidence, as well as stipulations by the parties.
Findings of Fact
1. The Town filed this declaratory judgment action on July 3, 2013 requesting that the court " construe special legislation, St. 1879, c. 139, enacted March 21, 1879." Paper 2.
2. The Hingham Water Company was chartered/incorporated by the 1879 statute " for the purposes of furnishing the inhabitants of Hingham with pure water . . ." Trial Exhibit 1, p. 489 at section 1. The provisions of the statute control the rights and obligations of the parties before me. Id. ; Trial Exhibit 64 (Stipulated Facts), para. 6. The 1879 Charter language at issue is this:
The town of Hingham shall have the right at any time during the continuance of the charter hereby granted, to purchase the corporate property, and all the rights and privileges of said company at the actual cost of the same, together with interest thereon at a rate not exceeding ten per centum per annum, said cost to include all actual loss or damage paid or suffered by said company for injury to person or property, deducting from said cost any and all dividends which may have been paid by said corporation, or at such a price as may be mutually agreed upon between said corporation and the town of Hingham; and the said corporation is authorized to make sale of the same, and this authority to purchase said franchise and property is granted on condition that the same is assented to by said town by a two-thirds vote of the voters present and voting thereon at any annual meeting, or at a legal meeting called for that purpose.
Trial Exhibit 1 at p. 492 (Section 11) (emphasis supplied).
3. Through various historical acquisitions and mergers discussed below, Aquarion Mass. is the current entity that owns 100% of the stock of the original Hingham Water Company, and owns the water distribution system that serves both the residents of Hingham and certain other towns. Trial Exhibit 64 at para. 13.
4. The Town has the right to exercise its Section 11 purchase rights, but it has not done so to date. It has not voted by the required 2/3 vote at a Town Meeting or special meeting called for that purpose to proceed with a purchase under Section 11 of the Charter of the corporate property, rights and privileges of the Hingham Water System pursuant to the Charter's purchase price formula. Trial Exhibit 64 at para. 12.
5. Trial Exhibit 65 is a stipulation of the parties containing the historical financial information of Defendant Aquarion Mass. (Financial Stipulation). This Financial Stipulation was incorporated by all of the expert witnesses in this matter as part of the factual foundation at trial for purposes of their respective opinions. The Financial Stipulation sets forth the various potential inputs to be used in the calculation to be performed under the 1879 Charter. There is no dispute about the authenticity or reliability of this historical financial information. Dixon Trial Testimony.
6. The definition of the term of art " contributions in aid of construction" (CIAC), and the fact that this property is properly excluded from the calculation of the purchase price under the Charter, are not in dispute.
Early History of the Water Company
7. Hingham was founded in 1635. The History of the Town of Hingham, Massachusetts was published by the Town in 1893, and devoted a chapter to the history of the Hingham Water Company, entitled " Water-Works" by Charles W.S. Seymour. Trial Exhibit Ex. 64 at para. 1; Trial Exhibit 6. According to trial witness Ms. McCraken, the " first mention of a town water company" was in 1871. McCraken Trial Testimony.
8. As noted in the History: " At this time Plymouth was the only town in the county that had introduced water . . ." Trial Exhibit 6 at p. 261. Further, " [i]t was doubted if the water could be made to flow over Liberty Pole Hill, or if there was water enough to fill the main pipes, if they should ever be laid: the water was full of snakes and all kinds of impurities, and the pond was so shallow that a two-inch pipe would drain it in a very short time if allowed to run continually." Trial Exhibit 6 at p. 264. In 1871, as reflected in the Town records, it was voted: " That a committee of five be chosen to cause survey of Accord pond to . . . ascertain its capacity for supplying the inhabitants with water, also to cause estimates to be as to probable cost for pond laying pipes, and report thereon at some further meeting . . ." McCracken Trial Testimony; Trial Exhibit 119.
9. The Hon. John D. Long (Long) served as Town of Hingham Moderator from March 1873 through March 1881. Long was elected Governor of Massachusetts in 1880. Long appointed a committee that procured the passage of legislation that would allow the Town to use Accord Pond for the supply of a water system and served on the 1875-1876 Town committee concerning the water supply. Trial Exhibit 64, paras. 3 and 4; Trial Exhibit 6, p. 264.
10. The Town's voters rejected, on five separate occasions, warrant articles to build the Town water distribution system: (1) on September 12, 1876 it was defeated 141 to 130; (2) on October 3, 1876, it was defeated 166 to 143; (3) on March 5, 1877, it was " indefinitely postponed; " (4) on August 19, 1878, it was defeated 286 to 249; and (5) on September 2, 1878, it was defeated 323 to 182. McCracken Trial Testimony; Trial Exhibit 64 at para. 5; Trial Exhibit 6 at pp. 265. These votes were taken at Town Meeting, which is " when all the voters of the town come together to do the town's business." McCracken Trial Testimony; Trial Exhibit 1 at p. 492. The 1879 Charter also gave the Town one final opportunity to construct the works. Under Section 14 of the Act, if the Town voted to build the works within a specified time, then the overall 1879 Charter would be voided. McCracken Trial Testimony; Trial Exhibit 3 at p. 493. The Town did not do so. McCracken Trial Testimony.
11. Long was the petitioner for the 1879 Charter, as well as an original incorporator under the Charter of the Hingham Water Company. Trial Exhibit 2, page 1; Trial Exhibit 64, para. 7. After incorporation, the Town's public water distribution system was built, with the ownership and governance consisting largely of Town residents. Trial Exhibit 64, para. 9. Legislative History of Section 11.
12. During the progression of the 1879 statute through the legislature, the interest rate was changed from " a rate of 8%" to " a rate not exceeding 10%." Trial Exhibit 64 at para. 8; Trial Exhibit 2 at p. 9.
13. In 1938, the Senate of the Commonwealth proposed a material revision to Section II in Senate Bill 406. The new language provided that in the case of purchase, " the town shall assume and agree to pay, and to indemnify and hold said corporation harmless from liability on, any indebtedness of the said corporation incurred . . ." It was also proposed that the purchase price be computed by taking the actual cost of the corporate property and " comput[ing] interest at the rate of five percent . . ." (Tr. Ex. 4 at pp. 2-5 (Senate Bill 406). The Senate sought an opinion from the SJC regarding the constitutionality of these proposed changes to Section 11, by asking whether the changes were constitutional, in " authorizing a taking of private property without providing reasonable compensation therefore, " and whether the Charter " set forth the terms of a contract between the town of Hingham and said company, " such that amendment could be unconstitutional in " impairing the obligation of contracts." Trial Exhibit 5 at pp. 3-4.
14. On April 5, 1938 the SJC issued the Opinion of the Justices, and noted that the " proposed statute [Senate Bill 406] strikes out [Section 11's] provisions and establishes a new basis for payment in case the town of Hingham exercises its option to purchase the corporate property of the water company. The basis thus established is a long and complicated computation . . ." Trial Exhibit 5 at pp. 4-5. In this context, the SJC found:
The proposed statute provides a method whereby the property of the water company can be taken by the town . . . The water company, by acceptance of its charter, entered into a contract with the Commonwealth . . . By virtue of the reserved right to amend and repeal charters of corporations, the General Court may change the terms of such a charter provided there is no violation of other constitutional guaranties . . .
It does not appear that the town was a party to the contract between the water company and the commonwealth created by St. 1879, c. 139, and its amendments. The town merely has the right to purchase the property of the water company . . . In these circumstances, the provision in the Constitution of the United States that no state shall pass any law impairing the obligation of contracts affords no protection to the water company independent of prohibitions against the taking of property without due process of law and without full compensation. Property and rights acquired upon the faith of the charter cannot be taken away under the guise of repeal or amendment without full compensation.
In Re Opinion of the Justices, 300 Mass. 607, 612-13, 14 N.E.2d 468 (1938). Further, as to debt assumption, the SJC noted that " [t]he assumption by the town of the indebtedness of the water company secured by mortgage placed on its property is payment in quite different form from that specified in the charter." 300 Mass. at 614.
Recent Corporate History of the Water Company
15. In 1989 the Hingham Water Company merged with the water systems located in the towns of Oxford and Millbury. Under the 1989 merger, the Hingham Water Company assumed all of the assets and liabilities of the Oxford and Millbury systems, and exchanged their respective shares of stock for an equal number of shares in the surviving corporation, the Massachusetts-American Water Company (Mass-American). Dixon Trial Testimony; Trial Exhibit 32.
16. Massachusetts Capital Resources Company (Mass Capital) was formed in 1995 for the sole purpose of acquiring, developing, financing, and leasing the Water Treatment Plant (WTP) which would service the Hingham water system. Trial Exhibit 64 at para. 14.
17. In April 2002, 100% of the stock of both Mass-American and Mass. Capital was transferred to an entity known as Aquarion Company, a subsidiary of Kelda Group, Inc. (Kelda). Trial Exhibit 64, at paras. 20, 21.
18. In 2007, Kelda as owner of the Hingham water system sold 100% of the stock of Mass-American (now, Aquarion Mass.) to Macquarie Utilities, Inc. (MUI). Trial Exhibit 64 at para. 25; Trial Exhibit 109.
19. In that same year, MDI transferred 100% of the stock of Aquarion Company into Aquarion Holdings, LLC. Trial Exhibit 64, at para. 25; Dixon Trial Testimony.
20. After this transaction, Mass-American changed its name to Aquarion Mass. and Mass. Capital changed its name to Aquarion Capital, Trial Exhibit 64 at para. 22.
21. As a result: MUI owns 100% of the stock of Aquarion Holdings, LLC; Aquarion Holdings, LLC owns 100% of Aquarion Company; Aquarion Company owns 100% of the stock of Aquarion Water Company; and Aquarion Water Company owns 100% of the stock of Aquarion Mass, and Aquarion Capital. Aquarion Mass. is the undisputed owner and successor to the former Hingham Water Company. Aquarion Capital is a single asset entity (owning the WTP), and has no employees. All of Aquarion Capital's officers and directors are identical to those of Aquarion Mass. Trial Exhibit 10; Trial Exhibit 64 at paras. 14-16, 23-24, 30, 42-43 Trial Exhibit 144, pp. 42-44; Walsh Trial Testimony.
The Water Treatment Plant
22. Mass. Capital was set up primarily with debt, keeping the overall cost of the WTP lower than if it had been incorporated into the Massachusetts utility. Dixon Trial Testimony.
23. John Young is an experienced engineer who spent 33 years working for one of the predecessor companies of American Water. Young was involved with the design, construction and approvals associated with the WTP and the creation of Mass. Capital. The WTP was constructed for several reasons; (a) water quality; (b) the need to use surface water to meet demand; and (c) " a consent order from the Massachusetts Department of Environment[al] Protection [MDEP] requiring them to build a plant to treat the surface waters supplying the Hingham System for ...