Utility seeks to overturn Cady’s ‘worthless’ purchase
The district asks the court for a summary judgment to set aside the sale, return the $65,000 purchase price and make the original owner responsible for removing the transmission line.
According to the court documents, Cady executed a Purchase and Sale Agreement (PSA) with Lassen Gold effective Dec. 17, 2007 — paying the company $65,000 for the Hayden Hill transmission line. LMUD’s check for the purchase was executed within a day or two of Dec. 13.
As part of the agreement, LMUD would assume all the obligations and duties associated with the ownership of the line, including its removal pursuant to Lassen County’s reclamation plan.
The LMUD board alleges Cady entered into the PSA without the authority to do so, and the board did not ratify Cady’s execution of the document.
According to court pleadings filed by the Downy Brand law firm, of Sacramento, May 31, “California law provides that a contract entered into by a general manager of a public entity without proper authority having been conveyed by its governing body in advance of the transaction is void as a matter of law. And, such a fatal defect generally cannot be cured by ratification nor can it be saved by equitable defenses such as estoppel or laches (unreasonable delay pursuing a right or claim) … while defendants Kinross Gold, U.S.A., Inc. and Lassen Gold Mining, Inc. maintain the document comprising the PSA are enforceable, the undisputed material facts establish that Cady had no authority to enter into them or bind LMUD to the obligations contained therein.Thus, the PSA should be declared void and the parties returned to the positions they were in prior to its execution.”
“The document pretty much speaks for itself,” said Eugene Chittock, LMUD’s legal counsel. “The court’s going to make a decision, and we’ll move forward from there. We feel we’re in a pretty strong position. That is our position, and I think it’s well supported by the record.”
According to the district’s pleading, LMUD directors Nancy Cardenas and George Sargent resigned Oct. 26, 2007. Director Darrell Wood resigned Dec. 3, leaving the board without a quorum to approve the PSA.
The remaining board members included directors Fred Nagel and Wayne Langston.
According to a declaration by General Manager Bill Stewart, “LMUD cannot use the Hayden Hill line to access low-cost power, making the purchase worthless to LMUD and its ratepayers. LMUD has also learned removal of the Hayden Hill line, as required by the county’s reclamation plan, will be extremely costly — upwards of several hundreds of thousands of dollars. The line is not even within LMUD’s jurisdiction.”
According to court documents filed by Kinross Gold June 7 in opposition to the LMUD filing, the cases arises out of a “bad faith and belated attempt to set aside a sale and purchase agreement” between the two parties.
Kinross’ attorneys argue, “The PSA … entered into by LMUD and Kinross is a binding and valid contract. The terms of the contract were fully performed by both parties.”
According to the court documents, LMUD claims Cady “is lying about his authority to sign the PSA. This lack of authority was allegedly not noticed by LMUD’s board of directors, general counsel and controller for two years after execution. LMUD now asserts since it has changed its mind about the value of the agreement, and the cost of remediation has drastically increased, it can just renege on the agreement and give the transmission line and costly reclamation obligation back to Kinross to save its ratepayers money. Perhaps it is simply that the board and other LMUD officials who helped make this agreement do not want to ‘face the music’ when ratepayers learn of the reclamation cost.”
According to the court documents, Cady testified, “the board was fully advised of the PSA, and the board gave Cady, during a closed session, authorization to enter into and execute the PSA on behalf of LUMD.”
Kinross alleges the two parties negotiated the issue for two years, and at one point Cady even threatened to take the transmission line through eminent domain if an agreement could not be reached.
Nagel testified Cady kept the board informed of the Hayden Hill negotiations at nearly every board meeting, but “Nagel testified the board did not give authority to Cady to enter into a contract with Kinross, but he testified he did not recall if the board members expressed approval by consensus without formal motion … Cady testified the conditions precedent were met in the final draft of the PSA, so he was authorized to sign the contract. He further said it was not reported out as an action taken during closed session because the final action, execution of a finalized contract, occurred well after the meeting in which authority was given.”
The $65,000 check for the purchase was signed by both Cady and Nagel, who served as the district’s treasurer at the time. Stewart, then the district’s controller, stamped the check, certify that it was “a certified, authorized demand.”
The check was included in the check register reviewed by the board at its Jan. 28, 2008 meeting.
“The check for the purchase of the Hayden Hill line must have been presented and elicited no comments that were noted in the minutes,” the Kinross attorneys wrote. “The minutes indicate the acquisition of the Hayden Hill line was discussed in closed session with no reportable action. A jury can infer that if the holdover directors believed they had not approved the purchase, and had not approved paying the purchase price, there would be some indication. Instead … the board acted for two years as though they had a board approved contract in place.”
According to the Kinross attorneys, LMUD “was still trying to make use of the Hayden Hill line” as late as October 2009.
In closed session Dec. 29, 2009, the LMUD approved Resolution 2009-17 claiming it did not authorize Cady to sign the agreement and the board did not ratify it.
“The most that can be said is that the board passed a self-serving resolution claiming it did not authorize Cady to sign the PSA and did not ratify it,” the Kinross attorneys wrote.
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