How many of us knew that our Mayor and Council consciously and intentionally decided to refuse to honor our contract with the Town of Carefree?
In 2005 Cave Creek sought to purchase the water company servicing the Town of Cave Creek which included part of Carefree, 20% of the overall system (500+customers). However, Cave Creek could not purchase the water assets located in Carefree without the express written permission of Carefree. In order to allow Cave Creek to proceed with its purchase of the water company, Cave Creek and Carefree entered into an Intergovernmental Agreement (IGA) on August 2, 2005 which provided that Carefree could invoke a “friendly condemnation” to acquire the Carefree service area at any time in the future. Ernie Bunch and Tom McGuire were on the Council and voted to approve the IGA. In 2007 Cave Creek purchased the Water Company but paid an unrivaled, extraordinarily high price of $19.5M, way above appraisal. WHY?
The disappearing quid pro quo
In January of 2019, Carefree filed its “friendly condemnation” to purchase the Carefree service area as agreed to in the 2005 IGA with Cave Creek. BUT, Cave Creek’s Mayor and Council refused to honor the Agreement with Carefree and vigorously opposed the purchase.
In its opposition to the Carefree “friendly condemnation” Cave Creek took several unethical steps solely designed to stop or interfere with the legal rights of Carefree in the IGA. For instance, Cave Creek responded to the Carefree friendly condemnation with a press release, a video and an opinion poll, all of which contained misinformation.
Under the terms of the IGA, if the parties could not agree on the value of the Carefree service area and other issues, then the dispute had to be resolved by AAA Arbitration. The Arbitration, with a panel of three arbitrators mutually selected and approved by both towns, began on June 3, 2019. Both towns were required to incur substantial legal and expert witness fees and costs in excess of $1 million.
Each town exchanged their respective appraisal reports from their experts with Cave Creek claiming a total value of the Carefree service area of just under $17 million. But, Carefree claimed a total value of $1,464,593. The Arbitration Panel’s “Decision On The Merits” and “Partial Final Award” have now been made public. We urge each Cave Creek resident to review these documents to learn about the pathetic leadership of our Mayor and Council.
The Arbitrators found as follows:
•The total value of the Carefree service area is $1,464,593. The exact amount claimed by Carefree in its expert’s opinion. Not the $17 million claimed by Mayor Bunch and Council
•Cave Creek is not entitled to further compensation
•Cave Creek breached the IGA
•Cave Creek breached the covenant of good faith and fair dealing and Carefree was awarded $1,000 in damages
•Cave Creek cannot be trusted
•Cave Creek must reimburse Carefree for its legal and expert witness fees and costs in the sum of $1,477,622.63. (Note-offsetting this amount from the $1,464,593 awarded to Cave Creek requires Cave Creek to pay Carefree $13,029.63
•Cave Creek must transfer 377.83 acre feet of water per year to Carefree
•Carefree, at its sole cost and expense, on its own schedule, has the right to separate the Carefree service area
A Disastrous result For Cave Creek
Cave Creek had a duty to act fairly and in good faith. It did not do that. Cave Creek could not do anything that prevented Carefree from receiving the benefits of the IGA.
The Panel found the following:
•“Particularly disturbing to the Panel were Cave Creek’s opinion poll, press release, and a video.” In the video Cave Creek stated “We oppose the condemnation.” The Panel determined that the obvious purpose of the opinion poll, video and press release were “…to politically undermine Carefree’s exercise of its bargained for legal rights in the IGA.”
•“Frankly, given Cave Creek’s obvious, admitted motives, intentions and desires to prevent Carefree from receiving its benefits under the IGA, the Panel does not believe that Cave Creek can be trusted to perform any disconnect work on its own…”
Our Mayor and Council should be ashamed of their tactics resulting in a total loss of millions of dollars for our Town.
The Settlement Agreement
Notwithstanding the findings of the Arbitrators, Cave Creek and Carefree entered into a Settlement Agreement which is now a public document. Carefree agreed to pay Cave Creek a total of $1,000,000 for the Carefree service area. Cave Creek agreed not to challenge the findings of the Arbitrators.
The economic impact of this disastrous decision to fight with Carefree instead of honoring our promises is:
•Cave Creek failed in its efforts to require Carefree to pay approximately $17 million for the Carefree area and instead will now only receive $1 million based on the settlement;
•Cave Creek will lose $900,000+ per year in revenue from the Carefree customers in the Carefree area (544 accounts);
•Cave Creek must transfer 377.83 acre feet per year of its CAP water allocation to Carefree;
•Cave Creek will never recover its legal and expert fees and costs estimated to be more than $1 million.
Who is responsible?
Obviously our Mayor, Ernie Bunch! He pushed our Town in a direction that has backfired and the residents must now shoulder the loss of millions of dollars due to his lack of leadership. Mayor Bunch and others on our Council were repeatedly heard claiming Cave Creek would receive $17 million+ from Carefree for the Carefree area.
Anytime you decide to willfully and blatantly breach contractual commitments, severe consequences will follow. That has now occurred with the Awards from the Panel of Arbitrators. An overwhelming failure of leadership!
Why were we kept in the dark concerning the Mayor and Council decision to engage Carefree in an expensive and time consuming legal battle instead of honoring our promises to Carefree in the IGA? There was never any transparency to inform us of the status of the entire litigation/arbitration proceedings. From the date Carefree filed its “friendly condemnation” to the present our Mayor and Council have engaged in numerous executive sessions. We never had a clue as to the disastrous decisions that were being made behind closed doors by our Mayor and Council.
Our Mayor and Council wrongfully assumed that they had no duty or obligation to be fully transparent in providing us with well prepared, easily understood, clearly written, authoritative documentation explaining the litigation/arbitration and providing the technical, financial, factual and legal basis for its decisions culminating in an ever deepening financial hole for our Town.
In conclusion, the residents of our Town should be outraged at what Mayor Bunch and the Council did in this matter. They have done a grave disservice to our Town and have failed the people who put them in office. They have betrayed our trust. We must hold our elected officials accountable for their actions. No more broken promises! Our Town has been irrevocably damaged.
The Cave Creek Posse