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Town of Hingham v. Aquarion Water Company of Massachusetts, Inc.

Appeals Court of Massachusetts, Suffolk

November 2, 2017

TOWN OF HINGHAM
v.
AQUARION WATER COMPANY OF MASSACHUSETTS, INC., & another.[1]

          Heard: September 7, 2017.

         Water Company. Municipal Corporations, Water supply. Statute, Construction. Value. Words, "Actual cost." Civil action commenced in the Supreme Judicial Court for the county of Suffolk on July 3, 2013.

         After transfer to the Superior Court Department, the case was heard by Christine M. Roach, J.

          Kerry T. Ryan (Thomas J. Carey, Jr., also present) for the plaintiff.

          Joe A. Conner, of Tennessee (Fred A. Kelly, Jr., also present) for the defendants.

          Present: Vuono, Blake, & Singh, JJ.

          BLAKE, J.

         The plaintiff town of Hingham (town) filed an action for declaratory relief in Superior Court in relation to its statutory right to purchase the defendant water companies, Aquarion Water Company of Massachusetts, Inc. (Aquarion Mass), and Aquarion Water Capital of Massachusetts, Inc. (Aquarion Capital) (collectively, Aquarion).[2]

         The 1879 statute that chartered the original Hingham Water Company, Aquarion Mass's predecessor, provides in part: "The town . . . shall have the right ... to purchase the corporate property [of the company] ... at the actual cost of the same, together with interest thereon at a rate not exceeding ten per centum per annum, . . . deducting from said cost any and all dividends which may have been paid." St. 1879, c. 139, § 11 (hereinafter, charter or statute). The town seeks a declaration (1) as to the purchase price if it were to exercise its right, and (2) whether a water treatment plant (WTP) owned by Aquarion Capital would be included in the corporate property under the statute.

         Following a five-day jury-waived trial, the judge ruled in a written decision that the WTP was to be included in any future purchase, provided the parties a formula for calculating the purchase price, and instructed them to cooperate to submit a proposed final judgment. When the parties could not reach agreement, however, the judge, having reviewed additional posttrial submissions, ordered in her second decision that final judgment enter on a price of $88, 585, 821 as of December 31, 2013. Both parties now appeal, challenging the judge's interpretation of the term "actual cost." Aquarion also challenges the judge's ruling as to the sale of the WTP. We affirm.

         Background.

         The facts of the case are undisputed. The statute chartering the Hingham Water Company was enacted in 1879; Aquarion Mass. currently owns all of the stock of the company. In 1994, construction of the WTP began.[3] In 1995, a separate company was formed for the sole purpose of acquiring, developing, financing, and leasing the WTP; after several corporate transactions, that company is now Aquarion Capital. Because the WTP was financed primarily through debt (in the form of bonds), a separate corporate structure was required to avoid violations of Aquarion Mass's[4] mortgage indenture obligations. After completion of the WTP, Aquarion Mass. and Aquarion Capital entered into a lease agreement that gives the town the express right to assume the lease if the town acquires the water system. The WTP is an integral part of the Hingham water system, treating practically all of the water that is distributed through the system.

         At trial, Carl Jenkins, an expert for the town, offered three alternative opinions as to the meaning of "actual cost" --with three corresponding price calculations. Two of the opinions based the formula on the calculated investor equity in Aquarion over different periods of time, and then added ten percent interest. The third calculated the net plant, which is the gross plant (the accumulated cost of all of the tangible corporate property) minus depreciation. In his third opinion, however, Jenkins calculated the ten percent interest on only the contributed equity figure from his second opinion, rather than on the actual cost of the corporate property as purchased through both equity and debt.

         Three experts testified for Aquarion. John Guastella offered a rebuttal of Jenkins's testimony, but no calculations of his own; Michael Lee Altland provided an analysis of fair market value of only the WTP;[5] and Robert Reilly performed independent calculations for a purchase price formula based on components defined and provided to him by counsel. Relevant here, Guastella critiqued Jenkins's use of equity only in the interest calculation[6] and opined ...


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