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Judge denies Malvern's request to put Perla water system into receivership, orders insolvent system to pay

by Joseph Flaherty | December 3, 2021 at 7:04 a.m.
A map showing the location of Perla.

Circuit Court Judge Stephen Shirron on Thursday denied the request of the city of Malvern to place the dysfunctional and financially insolvent water system in the neighboring community of Perla into the hands of Central Arkansas Water, but the judge ordered Perla to pay Malvern for a water debt that has accumulated for more than three years.

Perla's municipal water system, the Perla Water Association, buys water on a wholesale basis from Malvern, the county seat of around 11,000 residents located just a short distance to the west. Although the city of Perla only has around 250 residents, the Perla water system serves some 800 customers in the surrounding area.

In February 2018, Malvern sued Perla as well as its water system over the unpaid bill in the 7th Judicial Circuit, which covers Grant and Hot Spring counties.

In testimony Wednesday, Malvern Mayor Brenda Weldon told the court the bill had increased to approximately $355,000, though to date Malvern has not stopped supplying Perla with water. On the witness stand the same day, Perla Mayor Raymond Adams struggled to explain how the city had fallen into such debt over the water bill, and speculated as to system leaks. He said Perla wanted to get out of the water business.

Additionally, a Central Arkansas Water official showed the court photos of raw sewage that had spilled onto the ground in Perla, and those images were entered as evidence.

In remarks announcing his ruling Thursday, Shirron at the outset said he found the situation to be very sad. However, he went on to say he did not believe the court had the authority to grant a receivership. Shirron noted the citizens had not filed a suit over water issues, and likewise referred to the absence of environmental regulators in the Perla case.

The fact that Perla had allowed raw sewage to overflow was disturbing, Shirron said. He also pointed out that an offer from Central Arkansas Water to help Perla had not been accepted, describing it as shameful and counterproductive. Nevertheless, the case at its core was about a debtor and creditor, Shirron explained.

He indicated he found it troubling the receivership proposal would ultimately transfer the Perla water system's assets to Central Arkansas Water.

Although he denied the motion for the Perla system to be placed into receivership, Shirron granted a Malvern attorney's motion for summary judgment and ordered payment of the amount Perla owed.

At the start of Thursday's proceedings, Shirron denied a motion for a directed verdict that had been made the day before by Jonathan Huber, an attorney for Perla.

Huber on Thursday sought to continue the theme he had laid out in questioning the previous day, namely that the Perla water system was on the verge of being sold to another water utility. A sum of money was being held specifically for that purpose, Huber argued, thereby negating Malvern's receivership request intended to eventually recoup the money owed.

He called to the witness stand on Thursday two officials affiliated with the the Southwest Water Users Public Water Authority, the utility seeking to purchase the Perla water system. One of them was Jason Temple, who serves as the utility's board president as well as the public works director for Hot Springs Village.

Temple testified that the contract with the city of Perla has been ratified and that officials just need the freedom to go ahead and pay Malvern's outstanding water bill. He also said officials were on standby to meet with Perla's administration and begin the process of making residents Southwest Water customers.

Temple confirmed the contract's closing date of Dec. 31 but said officials were ready to close that day.

On cross-examination, Temple said the Perla system needs maintenance but suggested once officials fix it and operate it correctly, it should work fine.

Weldon took the witness stand one more time after she was called by an attorney for Malvern, Cecilia Ashcraft, for additional testimony, and then Ashcraft and Huber delivered their final arguments to the judge.

Ashcraft said the court had heard about how Perla has a defunct water system. The Perla system's financial struggles have been continuous for years and have included a bankruptcy and increasing debt, she said. Ashcraft noted the customers were not all Perla citizens. She suggested there was no remedy left.

In his response, Huber said the case boils down to the law, standing and what has been pled. Ashcraft and Malvern had tried to shift and make it a referendum about Perla and how they run their water system and affairs as opposed to the legal complaint, he argued, describing the case as creditor and debtor. All Malvern had a right to was its bill in the case, he said.

Even if the court determined that appointing a receiver was proper, Huber said it would seem to make more sense to appoint Southwest Water in anticipation of the utility concluding the sale, therefore creating less confusion.

In a separate but related matter, attorney Chris Burks on Thursday filed an Arkansas Freedom of Information Act complaint in circuit court on behalf of Shelia Gregory, a Perla water system customer and Hot Spring County resident. The complaint names the city of Perla as well as Adams and members of the Perla City Council.

Perla voters and customers of its water system were given no notice of the Nov. 24 sale to Southwest Water, the complaint says, after Gregory was unlawfully denied access to relevant public records. The complaint argues the sale constituted an illegal contract and is void.

In an interview after the judge's ruling, when asked if she thinks the proposed sale to Southwest Water will solve the local water issues residents are experiencing, Gregory said, "Absolutely not."

Gregory cited Southwest Water's rates, explaining that most of the people in Perla were on a limited income.

"If these Southwest Water bills go up, they're going to have to decide between water, medicine and food. What are they going to do?" she said. "It's serious stuff, people don't understand that."

Asked about the possibility of a citizen-led lawsuit against Perla in light of the judge's comments, Gregory said it was her next step and suggested she would explore it with Burks.

In brief remarks to a reporter outside the courthouse after the ruling, Adams indicated he thought the judge made the right decision.

In an interview after the decision, Temple said the judge's order was what they had asked for and suggested the outcome will be good for Perla customers.

"They're going to get a great company that's going to come in there and fix their water system," he said. "And they're going to get great service, good billing; everyone's going to participate and it's going to be just like a normal water system should operate in a reasonable amount of time."

He suggested that addressing the sewer and wastewater issues experienced by Perla would not present a problem and promised a rapid fix. "That issue will be gone fairly quickly," Temple said.

Central Arkansas Water Chief Executive Officer Tad Bohannon testified Wednesday about his dialogue with Perla's attorney on the water problems after a 2019 news story. He said Central Arkansas Water later approached Malvern to discuss the receivership after two proposed acquisition deals by other utilities to buy the Perla system never came through.

In a statement after the judge's order Thursday, Bohannon said, "Central Arkansas Water's interest has always been that Arkansans have access to safe water and wastewater services and that public trust in the state's drinking water systems is not tarnished through examples of poor stewardship.

"As the judge said from the bench, the condition of the Perla system is sad and unacceptable," Bohannon said in the statement, which was provided by a spokeswoman via email. "Perla water and wastewater customers deserve safe, well-maintained systems. CAW's hope is that should the contract between Perla and Southwest Water move forward, that Southwest Water is able to quickly remedy the major public health issues in Perla and that the water and sewer customers will be better served."

Print Headline: Perla told to pay Malvern for water


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