Neighbors for Better Water Files Suit Against Palo Alto Park Mutual Water Company
Neighborhood group seeks to replace the board of directors of East Palo Alto water company
East Palo Alto, California – March 14, 2018 – A coalition of home-owners have filed suit against the Palo Alto Park Mutual Water Company (Palo Alto Park), which provides water to over 600 homes in East Palo Alto. The group, known as Neighbors for Better Water, is seeking to recall the board of directors and elect a new board. The challengers from Neighbors for Better Water claim that the water company has selected particular residents for unfair treatment and have mismanaged the company.
The suit states that at the annual shareholder meeting in September of 2017, the Palo Alto Park board members would only allow shareholders to vote on two of the five open seats on the board, even though the terms for all five members were expiring. Neighbors for Better Water attempted to amend the agenda to elect five board members, but the president of the board would not allow the change and eventually adjourned the meeting without holding an election.
Palo Alto Park is one of over 2000 mutual water companies in the state of California. These companies are private corporations, whose shareholders are the property owners in the district. As private corporations, they do not have the government oversight that most utilities have. Only the State Water Resources Control Board (SWRCB) has the ability to inspect the operations and safety of the water these companies produce, but the SWRCB has limited enforcement powers.
Palo Alto Park was started in the 1920’s to serve some of the poultry farms of the Ravenswood area that would later become a part of East Palo Alto. Its water comes from wells that tap deep aquifers underground. Since the founding of Palo Alto Park, the 101 freeway was built, passing through the water district, and the farms have become subdivisions serving many more homes and residents than had been originally intended. After a number of recent pump failures and water quality citations from the SWRCB, many local residents have become concerned that the current management, which has been in place over 20 years, is unable to keep up with the demand created by the growth in the area.
“Our rough estimate is that 90% of area residents do not drink the water”, said Norm Picker, one of the challengers for the board of directors. “The water appears to be very hard and is high in iron and manganese, and while these do not necessarily make the water unsafe, it makes residents nervous”. In fact, since January of 2014, the SWRCB has cited Palo Alto Park for elevated levels of iron, manganese and coliform in the water.
In response to these concerns, area residents banded together and began collecting shareholder proxies in an attempt to unseat the current board or directors. Shannon Pekary, a representative of Neighbors for Better Water, explains, “City, county and state officials have all told us the same thing, that only the shareholders can fix this. Well, we tried, but we were denied a fair vote.”
The suit states that shareholder Irene Laudeman, a proxy holder for over 43% of the shares in Palo Alto Park, ordered the company to hold a special shareholder meeting to complete the vote that was supposed to happen in September of 2017. The company did not respond. The suit is asking the court to force the company to have a shareholder meeting to recall the board and complete the vote. The Palo Alto law firm of Mayer-Brown is providing pro-bono legal assistance to the group. A hearing is scheduled for March 28.
- 2018-03-13 [Proposed] Order Dir Notice of Special Shareholders’ Meeting
- 2018-03-13 App for Order Directing the Giving of Notice of Special Shareholders’ Meeting
- 2018-03-13 Laudeman Affidavit ISO Order Directing Special Shareholders Meeting
- 2018-03-13 Memo of P’s and A’s ISO App for Order Directing the Giving of Notice of Special Shareholders’ Meeting
- 2018-03-13 Notice of Application for Special Shareholders’ Meeting
- 2018-03-13 Pekary Affidavit ISO App for Order Directing the Granting Special Shareholder Meeting
March 15, 2018. Shareholders Shannon and April Pekary have won their case in Small Claims Court against Palo Alto Park (case 18-SCS-00088). Shannon and April claimed the company over-charged them for over 9 years. The court agreed and issued a judgment in their favor for $6,978.83 plus costs.
This happened back in 2016, but it wasn’t mentioned at the last shareholder meeting.
According to court documents, Palo Alto Park sued the State of California for damage done to the pipes that run under 101 and that serve water to the group of customers on the west side of 101. Palo Alto Park lost and was ordered to pay the state’s court costs. The State’s arguments included a number of things, but basically they said that damage happened so long ago that its unclear what the cause was. It could have been weather, earthquake, lack of oversight by the water company, 3rd party error, etc., none of which the State claims they are liable for.
In response to recent demands from the State Water Resource Board after their recent inspections, the water company issued 2 letters to describe short term repairs, and their plans to fix the iron and manganese problems.
Some concerns highlighted in these reports:
- The company lists over 2 million dollars worth of immediate repairs and upgrades needed.
- The upgrades do NOT include building a plant to remove the iron and manganese, but rather to do a lower-cost, less effective treatment that involves over-chlorinating the water. The Water Resources Board has said in previous letters to the Company that over-chlorination can cause other problems.
Here is a summary of the repair estimates:
|Iron and Manganese for Well 7 only||$314,640|
|Well 3 replacement||$166,980|
|Repair pipes under Highway 101||$122,820|
|Well 2 replacement||$166,980|
|Install Water Meters for All Properties||$408,480|
|Replace Green Street Main||$289,800|
|Replace Glen Way Main||$335,340|
|Replace Bell Street Main||$289,800|
|Build a Second Storage Tank||$747,960|
The actual letters from the Company are below.