On Dec. 5, 6th Judicial District Court Judge Justin Fay issued an order providing summary judgment on several key issues in the ongoing litigation between the San Juan Water Conservancy District (SJWCD) and the Pagosa Area Water and Sanitation District (PAWSD) over PAWSD’s efforts to sell the Running Iron Ranch.
The districts are joint owners of the property, which is the proposed site for a reservoir that the SJWCD is trying to construct.
Each district’s responsibilities and rights concerning the property are laid out in a 2015 agreement between PAWSD, the SJWCD and the Colorado Water Conservation Board (CWCB), which governs the terms of the loans for the property that the CWCB holds and PAWSD is paying, each district’s responsibilities in the reservoir project, and the conditions for selling the ranch.
The litigation centers on a dispute between the districts about if and under what conditions PAWSD can sell the property without the consent of the SJWCD, which the PAWSD board has expressed a desire to do to reduce its debt. The SJWCD has consistently opposed a sale.
In December 2024, PAWSD filed a lawsuit in an attempt to clarify the contract. As part of its response, the SJWCD filed counterclaims against PAWSD, including alleging breach of contract and a variety of damages.
The order was in response to a motion for summary judgment by the SJWCD on several facets of the case, focused on PAWSD’s rights to sell the property.
Fay opens his order by explaining that summary judgment, which resolves a case or aspect of it, is appropriate when there is no debate about the material facts of the case.
He also notes that, according to previous case law, contract interpretation should focus on determining the intent of both parties through the “plain and generally accepted meaning of the contractual language.”
Fay adds that other case law indicates that a contract should be interpreted broadly with a goal of harmonizing a contract’s various provisions and not rendering any of them meaningless.
He states that contractual ambiguity is also defined in case law and exists only when the meaning of a contract could reasonably be interpreted in multiple ways, not merely when the parties dispute how a contract should be interpreted.
He indicates that an issue of ambiguous interpretation is an “issue of fact” that should generally be determined in the same way as other factual issues.
Fay’s order then analyzes the various requests for summary judgment in order, beginning with a dispute over a term in the three way agreement between PAWSD, the SJWCD and CWCB governing the right to sell the Running Iron Ranch during the planning period for reservoir project, which Fay determines to be between Sept. 27, 2016, and Sept. 27, 2036.
The clause in question, as quoted in the order, states, “PAWSD agrees to make every effort to retain the Running Iron Ranch during the Planning Period made possible by this Agreement. In the event that PAWSD, in its sole discretion but after consultation with SJWCD and CWCB, does sell the Running Iron Ranch during the Planning Period, the following terms [addressing loan repayment] shall take effect:”
Fay notes that the SJWCD argues that the “every effort” clause in the first sentence requires PAWSD to do everything possible to retain the ranch during the planning period and only allows its sale if there is no other alternative, such as if the district becomes insolvent.
He adds that the SJWCD emphasizes that PAWSD wants to sell the ranch for reasons for which alternatives exist.
He notes that PAWSD argues that the second sentence, which gives PAWSD the right to sell the property in its “sole discretion” overrides the “every effort” clause and allows the district to sell the property if it is in its best interests.
After further discussion of the arguments and their interpretations, Fay interprets that, to ensure that all terms of the contract have meaning, it must be interpreted that PAWSD must make every effort to retain the property before acting in its sole discretion, after consulting with the SJWCD and the CWCB, to sell it.
However, he states that significant ambiguities exist about what “every effort” might mean and that this issue means that summary judgment cannot be made on if PAWSD has made every effort to retain the property or if PAWSD has the right to sell it.
Fay then moves on to the related issue of if PAWSD has the right to abandon the reservoir project during its planning period.
Following a discussion of the terms of the contract, Fay rules that an implied right to abandon the project before the end of the planning period is not incorporated into the terms of the agreement concerning the sale of the ranch since the broader agreement discusses abandonment of the project in a different section and does not spell out PAWSD having the right to abandon it during the planning period.
However, he adds that sale of the ranch would not necessarily constitute an abandonment of the project, although it might represent such an abandonment as a practical matter.
Finally, Fay discusses the issue of if PAWSD waived its right to partition the ranch by entering into the three-way agreement.
Partition is an action by a court or through another legal means to divide up property which has multiple owners.
Fay notes that, although the three-way agreement includes a section stating that the parties recognize that partitioning the property would damage the reservoir project, a recital like this in a contract is not enforceable and that, since the agreement gives PAWSD the ability to sell the property in its sole discretion while adhering to certain conditions, it would be “nonsensical” if the district could not partition it and sell its part.
Fay adds that the recital indicates that partition would hamper the project, not make it impossible.
For these reasons, he rules that PAWSD did not waive its right to partition the ranch.
Statement and executive sessions
At a Dec. 10 meeting, the SJWCD Board of Directors held an executive session to discuss the litigation and subsequently approved a statement commenting on Fay’s order.
The statement summarizes his ruling and notes that further issues will have to be resolved at a trial unless the districts reach a settlement.
It also highlights a financial analysis of the costs and benefits of selling the property by Adam Jokerst of WestWater Research, who the SJWCD retained to provide expert testimony on the case.
Jokerst’s analysis indicates that the debt from the reservoir is not currently a “significant burden” on PAWSD’s capacity to take on debt and would not be expected to become one over the remainder of the reservoir planning period.
The analysis also highlights that PAWSD would likely see increased profits from selling the property at the end of the planning period as opposed to at the present since the value of the property is likely increasing faster than the interest accumulation for the loans on it, and the amount of money PAWSD would have to pay off to the CWCB upon a sale would be less at the end of this period.
The statement then highlights that water storage projects require “patient and persistent” efforts to be completed and that the SJWCD has made significant recent progress on the project through retaining RJH Consultants to assist with design and obtaining grants for the project.
It also notes that the district has spent about $90,000 on legal costs so far and that this will increase significantly if a trial occurs.
It adds that PAWSD is also spending ratepayer funds to finance the litigation.
“The Conservancy believes the Court’s Order and the WestWater Research financial analysis answer fundamental questions that have divided the Districts, and it hopes PAWSD is willing to engage with the Conservancy District in good faith discussions to end the costly litigation. Settlement would better serve the constituents of both Districts,” the statement concludes.
The PAWSD Board of Directors also met in executive session at a Dec. 11 meeting to discuss the litigation, although the board did not issue a statement or make comments following the session.
The SJWCD board will hold a work session at 3 p.m. today, Dec. 18, to hold an executive session to allow its directors to discuss the litigation and receive legal advice from their attorney.
josh@pagosasun.com
>