West Ada

Eagle leaders lost track of a small water firm, then started a big fight over its fate

Years ago, Eagle Water Co. President Robert DeShazo told his friend Mark Waterman, “One day, water is going to become more valuable than a barrel of oil.”

What DeShazo couldn’t have predicted was just how valuable his small water company would become.

Eagle Water, a private utility that serves 4,200 customers and brought in just $800,000 in revenue in 2018, has been embroiled in a legal battle with the city of Eagle since 2018, when it announced it would be acquired by the multinational water utility company Suez.

The city claims it has a “right of first refusal” — a legally binding agreement that gives Eagle the right to derail an impending sale of Eagle Water by buying it first.

If the city wins its lawsuit and gets the right to buy Eagle Water, it would stop the private company from siphoning as many as 12 million gallons a day of water from Eagle to homes and businesses around the Treasure Valley, keeping the water in Eagle. If Suez wins, it plans to invest in improvements to the company’s crumbling infrastructure — and triple rates for Eagle Water’s customers.

As Election Day approaches, the circumstances of the city’s lawsuit have become political football in the campaigns for Eagle mayor and two City Council seats.

Challenger Jason Pierce has called out incumbent Mayor Stan Ridgeway, saying Ridgeway lacked the foresight to buy the company before Suez did. Ridgeway puts the blame on his predecessors. Supporters of both candidates have circulated allegations of wrongdoing by the city and its lawyers. In October, DeShazo sent a letter to Eagle Water customers encouraging them to support Pierce.

Through court documents, public records and interviews with individuals on both sides of the lawsuit, the Statesman has assembled a timeline that shows how, for more than a decade, the city has passed on opportunities to buy DeShazo’s company itself or in partnership with private firms, and why it decided to sue Eagle Water when it finally reached a deal with Suez.

Eagle first tries to buy Eagle Water Co.

In 2007, at the age of 68, DeShazo wanted to retire and sell the company that he started in 1974.

0729 local2 Eagle Golf.jpg
Robert DeShazo Robert DeShazo

Former Mayor Nancy Merrill signed a contract to buy DeShazo’s company for $6.4 million, according to a post by Ridgeway. To finance the purchase, the city planned to ask voters to approve the sale of bonds. But citizens pushed back, and the bond election was canceled.

In spring 2008, Eagle Water’s regulators filed complaints against the company. The Idaho Department of Environmental Quality ordered the company to connect to another public water system to ensure it would have a sufficient supply of water in the event of emergencies.

DeShazo turned to the city of Eagle for help. Under Mayor Phil Bandy, the city and Eagle Water agreed to an “inter-tie” agreement in July 2008.

The agreement laid out important provisions:

  • Eagle Water would pay the city a monthly $10,000 fee for the connection to the city’s storage tank, and for allowing the company to satisfy its regulatory issues. Additionally, if the inter-tie continued past 18 months, the payment would increase 5%, and again every 18 months thereafter.
  • Eagle Water gave the city a permanent right of first refusal to acquire its water system. That meant if Eagle Water received an offer, it would “give notice to City stating (its) desire to sell and the amount and terms of such offer in detail.”

With the agreement in place, the DEQ approved the changes and declared Eagle Water compliant. Starting in August 2008, Eagle Water started to make its monthly payments.

Nine months later, in May 2009, Eagle Water missed a payment.

“You would have thought somebody would have said, ‘Hey, what’s going on?’” said Bandy in a phone interview with the Statesman.

But the city was in a bigger battle then. In the midst of the Great Recession, the city had been forced to lay off nearly 40% of its staff. “There was a lot going on at the time,” Bandy said.

In April 2010, Bandy left the city to take another job. Mike Huffaker took over as acting mayor. A few months later, Jim Reynolds was appointed mayor. He won re-election in 2011.

The inter-tie agreement was largely forgotten. There were no more monthly payments, the city alleges.

Jim Reynolds’ negotiations

Around 2013, a Texas businessman named Norman Bangle began to work with the aging DeShazo to find a buyer for Eagle Water. Bangle, a 61-year-old former telecommunications executive, had also worked with Texas cities on updating their water infrastructure.

Bangle approached the city about a three-way deal involving himself and the city buying Eagle Water from DeShazo.

Email exchanges published on the city’s website show that Bangle began to communicate with Reynolds, city attorney Susan Buxton — who was on contract with the city via her Boise law firm MSBT — and city water manager Kellie Rekow about a possible deal. It involved Bangle buying the water rights from DeShazo, with the city buying the company’s assets, such as its water lines, meters, and its customers. In turn, Bangle would sell the water to the city, and the city would in turn charge the customers.

The emails from Bangle stop in September 2013, after a meeting among Buxton, Rekow and Reynolds on Sept. 16, 2013.

In an interview with the Statesman, Reynolds said he was “vaguely” aware of the 2008 inter-tie agreement during the negotiations.

“I knew generally we had a tie-in agreement,” he said. When pressed further, he said, “It was awhile back,” and deferred questions to others involved at the time. Reynolds did not respond to later requests for comment.

Stan Ridgeway.jpg
The mayors of Eagle involved in Eagle Water Co.’s attempts to find a buyer. Kate Talerico

In March 2015, a new broker approached Eagle Water: Maurice Gallarda, of a Dallas firm called Pluris, owned by the Stockdale Investment Group, a private equity firm.

Gallarda pursued a deal with Reynolds similar to the one Bangle had pushed for. Under his agreement, Pluris would provide about $1 million in upgrades to Eagle Water’s underlying infrastructure and give it to the city. In turn, Pluris would sell the water to the city.

Buxton pushed back, arguing that the deal would fail to benefit the public. In October 2015, after half a year of back-and-forth, Gallarda threatened to pull from the deal if the city did not act.

In a last-ditch effort, Gallarda attempted to organize a meeting among himself, his lawyer John Marshall, Reynolds, and city attorneys Buxton and Cherese McLain. Reynolds also invited Ridgeway, who was then City Council president and running against Reynolds for mayor.

In an email, Ridgeway declined to join the meeting and said it was an issue best addressed in an executive session, which involves an official meeting of the City Council in which minutes are recorded but kept confidential.

The city did not provide any further records of communication past Ridgeway’s Oct. 28 message.

Bangle did not respond to multiple requests for comment.

Eagle-Water.jpg
Kate Talerico ktalerico@idahostatesman.com

Ridgeway’s negotiations

A few months later, in January 2016, Ridgeway became mayor. Weeks later, DeShazo stopped by the mayor’s office to ask whether the city would be interested in buying Eagle Water. Ridgeway requested more information. According to Ridgeway’s account, he didn’t hear from DeShazo again, and he didn’t think much of it.

“We have people come into the city all the time offering to sell us things,” Ridgeway said in a phone interview with the Statesman.

In fall 2017, Ridgeway received a call from Bangle, who told Ridgeway he had been working with former mayor Reynolds on a deal to buy Eagle Water. Ridgeway met with Bangle on Oct. 19, and Bangle, too, outlined a three-way deal to purchase Eagle Water, just as he had to Reynolds four years earlier.

Ridgeway and Bangle continued to talk that fall about a deal that would give the city control over Eagle Water’s infrastructure and Bangle control over water rights. Bangle would sell water to the city.

In January 2018, the City Council and Bangle met in an executive session to discuss details. The proposal was received by the City Council positively, Suez alleges.

Ridgeway said the City Council approved his signing a nondisclosure agreement with Bangle, which he did on Jan. 10, 2018. He sent a copy to Bangle that month, but Bangle did not sign it.

That month, Ridgeway and other city officials toured Eagle Water.’s facilities with Bangle. In February 2018, Ridgeway and Bangle met with the Idaho Public Utilities Commission.

Around that time, Bangle sent the city a memorandum of understanding outlining the terms of the deal. Suez alleges that the memo “explicitly recognized that H20 (Bangle’s company) intended to purchase the water system assets.”

However, the city never accepted the memo, and returned it to Bangle with changes that he was not willing to accept. He did not sign it.

1101suez03
Suez, which is looking to buy the Eagle Water Co., gets water from a canal, a screen and pipes under the Boise River to process in the Marden Water Treatment Plant, which can produce 17 millions gallons of water a day. If it buys Eagle Water Co., it will have water rights to several new wells. Katherine Jones kjones@idahostatesman.com

After that, the city’s communications with Bangle began to fade as he began to pursue other possible partners.

Dan Richter, managing partner of the planned community Avimor, said in an interview with the Statesman that Bangle approached him in 2018 to discuss buying Eagle Water together. Richter signed his own nondisclosure agreement with Bangle. Richter said he was not aware of the city’s dealings with Bangle until months later.

In May 2018, Eagle Water officially entered into an offer to sell its water system to Bangle, according to Ridgeway’s account on the city’s website. Eagle Water did not provide notice of its bona fide offer to the city — which would have listed the terms and amount that Bangle was paying for the company’s water rights and assets.

Then, around June, Bangle started discussing a possible deal with Suez.

In September 2018, Bangle, Eagle Water and Suez consummated a deal: Bangle would buy Eagle Water (the purchase price was redacted from court documents), then flip it to Suez for $10 million.

In November, the city learned about Bangle’s deal with Suez when it was announced in a Suez press release.

On Nov. 19, Ridgeway wrote an email to Bangle: “Why would you abandon our agreement is troubling, even more so that you would implore so much of time and commitment from the public utility (commission) while all the while negotiating elsewhere.”

Ridgeway instructed city staffers to look through city documents for records of any deals his predecessors had negotiated in connection with Eagle Water. On Dec. 28, according to Ridgeway, a Water Department employee found the 2008 inter-tie agreement that provided the right of first refusal document drafted by MSBT lawyers Buxton and Bruce Smith and signed by Bandy and DeShazo.

Susan-Buxton-cropped by IBR.jpg
Susan Buxton

On Jan. 14, 2019, MSBT attorney Cherese McLain, acting as city attorney, sent a letter to Eagle Water notifying it of violation of the 2008 agreement. “We hereby demand that you give notice stating EWC’s desire to sell all or specified part(s) of the EWC Water System and the amount and terms of such offer(s) in detail,” McLain wrote.

Eagle Water attorney Molly O’Leary replied with a Jan. 29 letter denying that any “enforceable contract right of first refusal” exists.

O’Leary declined to comment for this story.

That same day, Suez attorney Thomas Dvorak sent a letter to city officials saying Suez would “take appropriate measure to investigate and clear up this delayed claim of an alleged right of first refusal.”

Ridgeway blamed MSBT for the mess. On Jan. 30, MSBT sent a letter to Ridgeway and the Eagle City Council Saying MSBT would no longer represent them, alleging that continuing with the city would “result in rules of professional conduct, and in which the client insists upon taking action with which the lawyer has a fundamental disagreement.”

In February, the city sued DeShazo for violating the 2008 intertie agreement.

1101suez02
The Marden Water Treatment Plant on Warm Springs Avenue, run by Suez, prepares millions of gallons of water for Treasure Valley residents. Katherine Jones kjones@idahostatesman.com

Allegations of wrongdoing thrown around

The muddle provided fodder to Ridgeway’s challengers.

MSBT’s letter of resignation was discovered by supporters of Ridgeway’s opponent, Jason Pierce. Those supporters, Kevin Zasio and former mayor Nancy Merrill, leaked it to local news media this spring, insinuating that wrongdoing by Ridgeway’s administration caused the firm to leave.

McLain, who wrote the Jan. 30 letter, declined to comment on why the firm ended its relationship with the city. The letter does not mention the Eagle Water lawsuit.

Ridgeway supporters have said it was the law firm that committed ethical breaches. On Thursday, Oct. 31, a group of Eagle Water customers, which includes some Ridgeway supporters, filed an ethics complaint with Idaho State Bar Association against the firm.

Their concern is that MSBT helped both Mayor Jim Reynolds and Ridgeway to negotiate a deal to buy Eagle Water with private entities without bringing up the right of first refusal agreement that MSBT attorneys Buxton and Smith wrote in 2008.

“Those meetings with those companies should have never happened, because we had a first right of refusal,” Ridgeway told the Statesman. “I went down the same road that my attorney and predecessor had gone down. The people that drafted (the right of first refusal) never brought it up to us, and they were our legal advisers.”

Susan-Buxton-cropped by IBR.jpg
Susan Buxton

MSBT sent a rotating cast of lawyers to work with the city over the last decade. Buxton left the firm in 2016 to take a job leading the Idaho Department of Human Resources. McLain was the city’s most recent lawyer, and records show her involvement as early as Reynolds’ negotiations with Maurice Gallarda of Pluris, the Dallas water firm.

“In a city where there’s elections, where engineers and attorneys remain constant, they should be advising you on what’s taken place in the past,” Ridgeway said.

In a phone interview with the Statesman, McLain said she was confused about the city’s “ignorance” of the 2008 inter-tie agreement.

“For city officials to claim they didn’t know about it is very interesting,” she said. “It was an approved agreement — it was signed by the city at that time.”

She declined to comment on Ridgeway’s allegations that MSBT attorneys did not bring up the inter-tie agreement. “Those conversations aren’t something I can disclose,” she said, citing attorney-client privilege.

The city is now working with law firm Holland and Hart on its lawsuit against Eagle Water.

1101suez04
“Dirty” water from filters is sent to the decant ponds at Suez’s Marden Water Treatment Plant, visible from the Greenbelt. Suez wants to buy Eagle Water Co., a private company with 4,200 customers. Katherine Jones kjones@idahostatesman.com

DeShazo sends a letter about the mayoral race

On Oct. 21, DeShazo sent a letter to Eagle Water customers, saying the city had “spent hundreds of thousands of dollars on legal expenses and against the advice of our city attorneys” and that the “mayor and council and refused their guidance and began action with another firm.”

In a statement released Oct. 29, Ridgeway denied that MSBT advised against suing Eagle Water.

Mark Waterman, DeShazo’s longtime friend, alleges that while he believes the content of the letter reflects DeShazo’s opinions on the lawsuit, he may not have written the letter himself.

“He wouldn’t speak like that,” Waterman said. “Somebody crafted that letter for him.”

DeShazo did not respond to multiple calls and voice messages.

Related stories from Idaho Statesman

Kate reports on West Ada and Canyon County for the Idaho Statesman. She previously wrote for the Louisville Courier-Journal, the Center for Investigative Reporting and the Providence Business News. She has been published in The Atlantic and BuzzFeed News. Kate graduated from Brown University with a degree in urban studies.
  Comments