Meeting Date:     September 15, 2003                                 Budgeted:   No

            Program/Line Item No.: N/A

Staff Contact:       Fran Farina or                                          Cost Estimate: $25,000

                              E. Clement Shute, Special Counsel


General Counsel Approval: N/A

Committee Recommendation: N/A

CEQA Compliance: N/A


SUMMARY:  On July 16, 2002 The District approved the transfer of 6.150 acre feet of water from Surf’n Suds to the City of Monterey.  Under District Rule 28, a water credit transfer shall be immediately revoked if money or other consideration in excess of the District’s connection fees is given for the water transfer.  It has come to the attention of staff that a substantial amount of money may have been paid for this transfer in violation of Rule 28. 


RECOMMENDATION: The District Board should determine whether or not to convene a hearing, take evidence and determine whether or not to revoke the Surf’n Suds water credit transfer.  If the determination is to hold a hearing, direct staff to set a hearing date and provide notice to all parties.  At the revocation hearing the Board would determine whether or not to revoke the Surf’n Suds water credit transfer.


BACKGROUND:  On January 3, 2001 Mr. Paul Davis submitted a Commercial-to-Public Transfers Application to transfer 7.400 acre-feet of water use credits from an existing commercial use at 1101 Del Monte Ave., Monterey to the City of Monterey’s public account.  This was the location of the Surf ‘n Suds laundromat owned by Mr. Fred Flately.  According to documents filed in Hollander v. Skyline Crest Enterprises, et al. Case No. M 59282, Superior Court of Monterey County, Mr. Davis was retained by Skyline Crest, a limited liability company, to aid in the development process for an assisted living facility on Cass Street in Monterey. 


From documents in the same litigation, it appears that Mr. Fred Flatley entered into an agreement with Skyline Crest to sell the laundromat for $400,000 on or around December of 2000.  The sale was contingent on approval of a water credit transfer from the laundromat to Skyline Crest’s property.  Without the water transfer, Skyline Crest’s plans for an assisted living facility would not be feasible.


Because the first application from Flatley came from a representative of Skyline Crest, which required the water transfer, and because $400,000 dollars (or some large portion thereof) was likely paid as consideration for purchase of the water credit transfer, it appears that the amount paid for the transfer could be in excess of the District’s connection fees.


This is relevant because Ordinance 97 provides that the District shall not approve any water credit transfer where money or other valuable consideration in excess of the District’s connection fees is paid for the transfer.  The same ordinance provides that violation of this provision shall result in immediate revocation of the transfer credit.  The ordinance enacted and amended District Rule 28 pertaining to water transfers.


Between the first application submitted on January 3, 2001 and July 16, 2002, when 6.150 acre-feet of water transfer was approved by the District for Monterey’s public account, there were many letters, meetings and additional applications for transfer of the water from Surf’n Suds to Monterey.  The evidence indicates that Flately, Skyline Crest and the City of Monterey were all involved and all understood that the water would be transferred from Monterey’s public account to Skyline Crest.  Thus, from the information presented to the Court in Hollander and the information compiled by the District it appears there could be a violation of Ordinance 97 prohibiting the sale of water credit transfers.


DUE PROCESS CONSIDERATIONS:       Due process principles require reasonable notice and opportunity to be heard before an adjudicative decision causing the deprivation of a significant property interest.  Horn v. County of Ventura, 24 Cal.3d 605, 612 (1979).  Any decision by the District to permanently revoke a water credit transfer would likely be an adjudicatory decision (rather than a legislative one) since it would be an “action affecting an individual determined by facts peculiar to the individual case” and not “the adoption of a broad, generally applicable rule of conduct on the basis of general public policy.”  Id. at 613 (internal citations and quotations omitted).  Nor does the case law appear to support an argument that a water credit worth up to $400,000 is not a “significant property interest.”  As a result, due process principles appear to require reasonable notice and opportunity to be heard before the District revokes the water credit transfer.


Should the Board determine to hold a hearing the following steps would be involved:


1.                  Notice of the time and place of the hearing should be given to Mr. Fred Flatley, Skyline Crest and the City of Monterey as the direct parties in interest.  The notice should be served personally on these parties.  The hearing should be treated as a special meeting of the Board and notice given to the general public in the same manner as for any special meeting.  Counsel has prepared a notice form which could be executed by the Chair if the Board determines to hold a revocation hearing.  A hearing date of October 23 or 24, 2003 at 9:00 AM at the District’s office is recommended.  This would allow several days to effect service and approximately 30 days thereafter for the parties to prepare.  This is a reasonable notice period. 


2.                  The hearing would be conducted by the Board with its Chair as the presiding officer.  The case for revocation would be presented by special counsel for the District.  The respondents would have the opportunity to present their case.  Parties presenting evidence would be sworn, cross examination would be allowed and the proceedings would be transcribed by a court reporter.  It can be expected that both documentary and live testimony would be presented.  Oral or written argument can be presented.  One day should be set aside for the hearing.  Additional time may be necessary.


3.                  After the presentation of evidence and any arguments by the parties, the Board should

deliberate and render a decision as to whether or not to revoke the Surf’n Suds water

credit transfer.                                                                                  


Prepared by E. Clement Shute, Special Counsel, 9/11/03