POA asks court to answer lake lease questions

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“Default” appeared to be the one word that drew a standing-room-only crowd to the Holiday Bay Room last Thursday evening for a town hall meeting about the CLPOA vs. EVMWD lake lease dispute. Before the meeting was over, the consensus of those in attendance was loud and clear: “It’s okay to litigate, but pay the bill in the meantime.”

So the announcement by President David Eilers at the Tuesday, April 7 Board meeting was met with applause and relief that the Board had voted unanimously that afternoon to make the lease payment.

Prior to David’s announcement, Legal Counsel Scott Levine reported that EVMWD had contacted the CLPOA that afternoon and agreed to sit down for talks if the Association made its lease payment. He noted that the reason for withholding the lease payment in the first place was to get EVMWD to the table, and the strategy appeared to have worked; though he wouldn’t say for certain that’s what caused them to reach out to the CLPOA. “We hope we can end all this sooner rather than later,” he said.

In February, Canyon Lake’s Legal Counsel began warning members that “scare tactics” would be employed by the Elsinore Valley Municipal Water District in its dispute over the lake lease with the Canyon Lake Property Owners Association.

The most effective tactic leading up to last week’s town hall meeting was the first sentence of a letter to Canyon Lake residents, dated March 30, 2015, in which EVMWD Board of Directors President Phil Williams wrote, “You are no doubt aware of the recent legal issues that have arisen surrounding the use of Canyon Lake Reservoir as a recreational facility due to the Canyon Lake Property Owner’s Association’s default on its regular lease payment to EVMWD.”

Among other allegations, the letter further stated, “If we cannot compel the CLPOA to do the right thing and abide with the terms of the existing lease, our board will have no choice but to start taking the necessary steps to close the Canyon Lake Reservoir to surface recreational use, and move forward with a plan to increase the reservoir’s operational capacity to benefit the district as a whole . . .” The letter encouraged residents to attend the April 2 town hall meeting and ask the following questions:

  • If the lease is unfair as the CLPOA claims, then what is the lake’s true value?
  • How are property values affected if recreational access at Canyon Lake Reservoir ends?
  • Didn’t EVMWD repeatedly request a settlement proposal by the CLPOA?
  • Didn’t EVMWD make a reasonable offer to alter the lease terms as requested by the CLPOA?

Residents in attendance at the meeting were taking these threats seriously, including one real estate broker who said this was the most significant issue to face Canyon Lake in the almost 40 years she has been doing business here.

The first question Legal Counsel Scott Levine sought to answer at Thursday’s meeting was whether the Association is in default for not making its March lease payment and if members are in danger of losing recreational privileges on the lake.

Levine said members are not in danger of losing recreational privileges and the CLPOA is not the one in default, since it has actually overpaid what is owed to EVMWD. He reiterated what was explained in the Association’s recent press release:

“The Association has overpaid under the lease and has informed EVMWD of this fact. The California Constitution prohibits the charges that EVMWD has levied upon the Association. The Association is seeking a refund of over $6,000,000 in overpayments since 2010. If a court determines that the Association needs to pay more than it has paid, the money is available. The money for the quarterly payments is being placed into an escrow account for this exact purpose.”

He said EVMWD had put forth a settlement proposal that was unacceptable and asked, “How is it negotiation if they say ‘take it or leave it?’”He further explained how members of the CLPOA Board have tried to coordinate meetings with members of the EVMWD Board, but EVMWD’s legal counsel would not allow the meetings to take place.

Levine said a meeting between the general managers and attorneys of both sides was scheduled for September 2014, but was cancelled by the water district attorney after it was learned the CLPOA had hired water litigation expert Scott Slater. Levine did not describe Slater’s qualifications other than to say “he wrote the book” on water law. (See sidebar for Slater’s résumé.)

Levine said it has been a team effort between Scott Slater’s law firm and the Association’s law firm of Sildorf and Levine to develop a plan of action. “That plan of action is in play today,” Levine noted. “The Board decided to follow this. It was unanimous.”

He went on to explain the two lawsuits.

The lawsuit filed on March 20, 2015 is a Declaratory Relief lawsuit filed on behalf of the Association and all members who own waterfront property. Levine showed a map of Canyon Lake demonstrating the “shore zone” that belongs to EVMWD.

He pointed out that most backyards and a portion of some houses fall within the shore zone; and indeed, even the building where the meeting was being held, the Lodge and all improvements on the point of land where the Lodge stands, fall within the shore zone.

“The current lake lease expires on December 31, 2022. Given the inability of the Association and EVMWD to come to a long term agreement to extend the lease, the Association seeks a ruling from the court that tells both parties their respective rights and obligations at the end of the year,” Levine explained in the meeting and in the recent press release. “Without this information, EVMWD has taken the position that, without the lease, all of the improvements within the shore zone will have to be taken out. The Association disagrees.”

The factors that support the Association’s position can be read in the lawsuit on file in Riverside County Superior Court. It is not a class action lawsuit.

The second lawsuit, Levine explained, asks the court to declare that the current rate for the lease being charged by EVMWD is in violation of the California Constitution.

On February 18, the CLPOA notified EVMWD that it was making a claim for the return of $6,231,134 plus interest at the legal rate. In 2010, the voters of the State of California passed Proposition 26 which made the charges imposed by EVMWD an illegal tax. Proposition 26 amended the California Constitution to add Article 13C.

To understand why the Association believes EVMWD is charging an illegal tax, members can listen to Levine’s presentation at www.canyonlakepoa.com. The explanation is too complicated and lengthy to include here; however, in short, EVMWD has said their costs to operate the lake are only about $20,000 per year (plus extra during a handful of years when they had to buy water from MWD); yet they are charging the Association almost $1.5 million per year, with payments escalating annually. If the lease is left as is, the cost per year will exceed $3,000,000 in less than 10 years and over $6,700,000 in less than 20 years.

Finally, Levine reminded those in attendance at Thursday’s meeting that, “EVMWD wants you to be scared. Why? Because if you’re scared, you won’t look at their illegal activity. You’ll act irrationally. If you’re scared, you’ll pay what they demand. If you’re scared, they’ll win.”

Following the formal presentation, members of the audience were invited to make comments and ask questions. There was applause and cheers from the audience when several commented that they wanted the CLPOA to make its lake lease payments on time.

The argument was made that, even if the CLPOA has overpaid and isn’t technically in default, the mere fact that real estate agents must disclose to prospective buyers that EVMWD filed a Notice of Default and warned the CLPOA that the lease could be terminated and residents could lose recreational privileges has created havoc in the real estate market.

Others questioned how making contracted lake lease payments could be equated with a “tax” and challenged as such under the California Constitution.

President David Eilers wrapped up the meeting by reiterating the efforts the CLPOA has made to get EVMWD to negotiate a reasonable agreement. “This has been a topic of endless discussions,” he said. “It’s not something we’ve taken lightly. We’ve been after them . . . Right now $1.5 million is not big deal, but we have to look at the big picture. (With escalating costs) the lake lease isn’t sustainable. We have to get a lease that is reasonable for both parties.

 

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Sharon Rice