A lawsuit challenging the City of Stockton's decision to privatize its water, wastewater and storm drain systems is headed back to trial court, where a judge will reconsider whether the city's contract with a private company is exempt from environmental review.

Nearly two years ago, San Joaquin County Superior Court Judge Bob McNatt ruled that the contract was not categorically exempt from the California Environmental Quality Act (CEQA). The decision was a victory for groups who opposed a privatization agreement. However, in March 2004, Judge McNatt vacated that decision because the city had recently pointed to a Government Code section that might provide an exemption.

The opponents appealed McNatt's order. A three-judge panel of the Third District Court of Appeal, however, determined that McNatt's order was not appealable. The Third District ruling placed the case back in front of McNatt.

In February 2003, the Stockton City Council voted 4-3 to approve a 20-year contract worth $600 million with OMI, Inc., of Colorado and Thames Water, a British subsidiary of the German company RWE. City officials and OMI-Thames contended that the contract would save the city's utility customers $100 million over 20 years. City officials further said the agreement provided the only way for the city to afford to improve the treatment of wastewater.

The city's decision came despite vociferous opposition from people who were skeptical of handing over essential infrastructure to a private company. The decision also came only two weeks before Stockton voters approved an initiative requiring voters to decide on any utility privatization worth more than $5 million.

Three groups - Concerned Citizens Coalition of Stockton, the League of Women Voters of San Joaquin County, and the Sierra Club - sued the city. They argued that the city should have completed an environmental review before signing the contract, which city officials said was categorically exempt from review. Judge McNatt initially agreed with the privatization opponents. But then the city and OMI-Thames pointed the judge to Government Code § 5956.6, subdivision (b)(1). It states that an agreement between a local government and a private entity for the design, construction, reconstruction or lease of certain fee-producing infrastructure does not require CEQA compliance. Rather, CEQA applies to project development.

McNatt then decided that his original ruling “may have been premised on an error of law” and he granted the city and OMI-Thames a new trial. Opponents appealed and even gained the support of the state attorney general's office. But the Third District determined that, despite the wording of McNatt's order, the judge had not granted a new trial. Instead, the court ruled that McNatt had granted “alternative relief” under Code of Civil Procedure § 662.

“[I]t is apparent the trial court did not intend to 'grant a new trial as to any issue in the sense of granting a “reexamination of an issue of fact” as though no trail had been previously had,'” Justice Ronald Robie wrote for the court, citing Bureau of Welfare v. Drapeau, (1937) 21 Cal.App.2d, 138, 150. “Instead, what the trial court intended to do was reopen the case to determine the effect on the case, if any, of Government Code § 5956.6(b)(1).”
Reopening the case in this fashion is not subject to appeal, the court held. McNatt “merely determined that the statute might apply,” Robie wrote. Once McNatt decides whether the statue does apply, either party may then appeal that decision, the court ruled.

The Case:
Concerned Citizens Coalition of Stockton v. City of Stockton, No. C046524, 05 C.D.O.S. 2956, 2005 DJDAR 3947. Filed April 4, 2005.
The Lawyers:
For Concerned Citizens: Brian Johnson, Shute, Mihaly & Weinberger, (415) 552-7272.
For the city: John Briscoe, Stoel Rives, (415) 617-8900.
For OMI-Thames Water Stockton: James Meeder, Allen, Matkins, Leck, Gamble & Mallory, (415) 837-1515.