Tuesday, April 12, 2016 • Utility seeks dismissal of Kinross Gold lawsuit

Publisher’s note: This story originally appeared in the Tuesday, April 12, 2016 edition of the Lassen County Times.

United States District Court Judge Morrison C. England did not rule Thursday, April 7, on the Lassen Municipal Utility District’s motion to dismiss its five year old lawsuit against Kinross Gold with prejudice (meaning LMUD can never refile it).

England did not hear oral arguments in the case and took the written pleadings under submission.

Until England issues a ruling, no one knows how much Lassen Municipal Utility District’s ratepayers might have to pay to settle the lawsuit over the alleged improper purchase of a power line in northern Lassen County by Frank Cady, the district’s former general manager.

Cady has said the LMUD board approved the purchase during a closed session meeting once certain conditions had been met.

The ratepayers have already paid $65,000 for the power line and for more than five years of legal wrangling utilizing a Sacramento law firm. Kinross Gold asks the judge to order LMUD to pay its attorneys fees and court costs and require LMUD  to remove the power line — at an estimated cost of “several hundreds of thousands of dollars.”

The publicly owned utility district filed the lawsuit it now wants to dismiss against Kinross Gold Dec. 15, 2010, alleging that nearly three years earlier, on Dec. 17, 2007, Cady acquired the 69kv power transmission line from Kinross Gold through a Purchase and Sale Agreement (PSA) without the authority of the LMUD board of directors — despite their consideration of the purchase in closed session, the issuance of the $65,000 check to Kinross signed by Cady and treasurer Fred Nagel, the ratification of the check register including the $65,000 check at a subsequent board meeting and correspondence from two general managers, Cady and his successor Ray Luhring, confirming in writing the power line’s purchase by the district.

In its original filing, the district’s argued LMUD directors Nancy Cardenas and George Sargent resigned Oct. 26, 2007 and director Darrell Wood resigned Dec. 3, leaving the board without a quorum to approve the PSA.

The remaining board members included Nagel and then chair Wayne Langston. Nagel continues to serve on the LMUD board, but Langston lost a re-election bid.

LMUD asked the court to set aside the sale, return the $65,000 purchase price and make Kinross responsible for removing the transmission line built to serve the Hayden Hill Gold Mine.

“The document pretty much speaks for itself,” Eugene Chittock, LMUD’s general counsel, said upon the disclosure of the 2010 lawsuit. “The court’s going to make a decision, and we’ll move forward from there. We feel we’re in a pretty strong position … and I think it’s well supported by the record.”

According to a declaration by Stewart included in the court documents, “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.”

Both sides agree there has been little movement in the lawsuit over the past three years. In its motion to dismiss, LMUD’s attorneys acknowledge its case has been “essentially dormant” since the court denied its motion for summary judgment in March 2013. A trial in the case was scheduled to begin Monday, April 11.

The Kinross attorneys allege LMUD has chosen to “surrender in the face of losing at trial with nothing gained and only the attorneys enriched.”

According to LMUD’s motion, “The risks inherent in litigation and the inevitable additional and significant cost of taking a case to trial that has been dormant for so long are undeniable. Although LMUD remains convinced of the merit of its claim, LMUD believes the expense and uncertainty inherent in proceeding through trial outweighs the potential benefit that may result. As such, LMUD respectfully requests that this court enter an order dismissing the instant case with prejudice.”

Kinross’ attorneys oppose LMUD’s motion to dismiss unless the court imposes additional conditions, including an order that LMUD pay Kinross’ attorneys fees and court costs, affirm of the validity and enforceability of the PSA, that LMUD to reclaim the power line as set forth in the PSA, that LMUD to post an “adequate security” for its obligation to reclaim the power line (Kinross posted and still carries a $500,000 letter of credit for that purpose), that LMUD obtain a special use permit from the U.S. Forest Service and an order that any future disputes between LMUD and Kinross be determined by this court.

Kinross’ attorneys argue LMUD has forced Kinross to defend “this frivolous litigation for more than five years instead of simply recognizing the validity of the PSA, the weakness of the plaintiff’s case under the PSA and honoring its obligations.”

LMUD’s attorneys argue Kinross “seeks to impose improper conditions upon this dismissal, all of which must necessarily be rejected.”

Kinross is not entitled to recover attorneys fees and costs, LMUD’s attorneys argue, and it never filed a counterclaim to impose the conditions it seeks upon the dismissal.

“Kinross will not suffer any prejudice by way of voluntary dismissal of the complaint, and the conditions requested by Kinross in its opposition are unwarranted and precluded by law,” LMUD’s attorneys wrote.

The newspaper was unable to contact Chittock for comment for this story.