CLEARLAKE >> Ongoing acrimonious litigation has reignited between the city of Clearlake and Highlands Mutual Water Company, the city’s water provider, which dates back to last spring.
Representing Clearlake, Downey Brand LLP, previously filed a lawsuit, June 10, 2024, against the Highlands Mutual Water Company. Per a press release dated from June 11, the city was trying to obtain records and secure a new legal election for board members for last spring and is being represented by Brian Hamilton of Downey Brand LLP.
The city’s complaint stems from a demand made via letter on April 10, 2024, which contended “(1) Highlands Water must hold a new shareholder meeting and board election; inspect certain records under Corporations Code sections 213, 1501, among others; and (3) to advise the company of potential improper conduct by certain directors.” The entreaty went on to note how Clearlake disputes their voting policy, hinging on the necessity of having a water connection and had discovered “that 147 proxy ballots were returned undelivered to the company, according to company staff, noting, “ballots were sent ents including the company’s annual reports for the last five years; annual budgets for the last five years, and also the “Share Register” and list of shareholder names and addresses. The demand gave Highlands 30 days to respond.
On Jan. 29, 2025, Highlands’ Board of Directors provided an update on the status of the lawsuit. In a memo provided by Highlands’ Office Manager Magen Estep, it said, in June of 2024 the City of Clearlake sued Highlands Water Company challenging Highland’s election process. As directed by court order, a special election was held on Sept. 30, 2024, that required all individuals that owned property within Highland’s geographic area to be considered shareholders. It contended, this included properties that do not have a connection, or in numerous cases, properties that are not serviced by Highlands Water Company, yet be given the power to vote.
It continued, since the September election, it was brought to attention that by law (Corporations Code section 14300) Highlands Mutual Water Company is required to cancel the shares for any land purchased by the State of California, any department of the State, any state agency, school district, or other public agency, which held said shares. Meanwhile, many of the properties owned by the city are residential properties that have been acquired through foreclosure. If in the future a private entity acquires these properties; Highlands is required to reinstate the shares. The dispatch went on that throughout the process of litigation, the city has continuously stated that Highlands has not provided the required documents as requested. Highlands contends: all documents required by Corporations Code section 14307 were provided to the City’s legal counsel as required by code section 14307, on May 15, 2024, and again on Jan. 13, 2025.
As previously reported by the Record-Bee, challenges posed by city of Clearlake’s water provider Highlands Mutual Water were addressed by then Mayor David Claffey on October 1. “While the reform slate did not succeed, (Sept. 30 shareholder election) what the community has learned about Highlands’ water system–rates, fire system, grant funding, and expansion policies–has been valuable,” then Mayor David Claffey said in an email. “The Highlands’ board are stewards of essential services, to meet the wants and needs of Clearlake residents, it’s critical to have safe and reliable water infrastructure.”
In response, Highlands’ attorney Tina Wallis said the following in an email, “Highlands looks forward to a collaborative and constructive relationship with the city. Highlands supports growth in our community, which the Highlands team recently explained to city staff members during a meeting about the Airport Area Redevelopment.”
Wallis added, “Upon receipt of the legally required technical report, Highlands will analyze its ability to supply water to any proposed development. Unfortunately, without this technical report, it is impossible for Highlands to determine if it can supply water to any proposed development.
Wallis responded to Clearlake’s standing grievances on September 30, and pointed out it was a landslide win for the Highlands Water Company’s board of directors’ shareholder vote. The final vote count was 1,083 votes supporting Highlands existing board of directors to 203 votes supporting the city supported candidates.
However, posted on the city of Clearlake’s website, under Clearlake Rising, Progress & Promise, a post explained, Highlands, along with Konocti County Water and Golden State Water Company imposes high rates on a disadvantaged community.
Wallis added, “General Plans must identify the infrastructure required to support the development projected in the General Plan, The city must then conduct a study and establish a fee to offset the cost of new or additional infrastructure, such as roads, water supply, and wastewater, necessary to support the growth projected in the city’s General Plan.”
Meanwhile, Clearlake City Manager Alan Flora forwarded a response via email regarding the city’s stance on the lawsuit.
According to Brian Hamilton of Downey Brand, city of Clearlake’s legal counsel, shareholders of Highlands Mutual Water Company, including the City of Clearlake, have the right to transparency and accountability from Highlands. “While the City has concerns about unreleased documents, the concerns have heightened since the devastation of the Boyles Fire last fall.,” he said. “Besides the 35 destroyed structures, the fire came dangerously close to key medical, educational, and commercial properties being served by non-functioning fire hydrants or hydrants with flow far below common standards,” maintained Hamilton.
The city owns 60 properties in their service area, the largest single shareholder. There are thousands of other customers and shareholders in Highlands’ area. To date, Highlands will not provide critical records, instead leaving customers in the dark about their own safety, according to Hamilton’s text.
“While we have other concerns like Highlands limiting growth and development, public safety and wildfire protection are the highest priorities to better understand. We expect Highlands to be transparent and accountable- the community deserves it,” he added.
This case will go before Judge Markham in a forthcoming hearing.
