El Dorado Irrigation District (EID) today announced that it has settled a dispute with Traylor Brothers, Inc. over construction of the District’s Mill-to-Bull tunnel. EID will pay Traylor Brothers an amount that is in line with the unpaid balance of the disputed contract. And the parties will drop all legal actions against each other.
“This is not the outcome we were seeking,” said EID Board Vice President George Wheeldon. “But we don’t believe that several more years of litigation are in the best interests of the District and our customers. Appeals courts seldom overturn jury verdicts, especially after a lengthy trial, and it would likely be two more years of lawyer fees before we find out. Then, if we won the appeal, we would almost certainly have to re-try the case to recover any damages. And if we lost, our liability could be as much as $16 million.”
EID has been seeking recourse for the troubled tunnel for more than five years, including court action initiated in 2003 against Traylor Brothers, the company that the District contracted with in 1999 to design and build it. Traylor Brothers countersued, seeking millions to cover its costs associated with a tunnel “fix” that the District never accepted. A federal jury in Sacramento found in favor of Traylor Brothers in late 2006 and awarded nearly $6.3 million to the company. The trial court later granted Traylor Brothers more than $3.4 million in attorney fees and costs, for a total of approximately $9.7 million. EID’s appeal of those rulings is pending in the Ninth Circuit Court of Appeals, as is an appeal by Traylor Brothers that seeks as much as $6 million in additional fees and interest. Meanwhile, interest has been accruing on the $9.7 million judgment at a rate of approximately 5 percent per year.
“This was very tough decision for us to make, but it’s the right one,” said Board member John Fraser. “The
Board was not at all satisfied with the trial result, but that result and Traylor Brothers’ cross-appeal posed
unacceptable financial risks, which this settlement avoids.”
According to the terms of the settlement agreement, EID will pay Traylor Brothers $4.45 million in full satisfaction of the trial court judgment. Approximately $1.1 million of that sum is in an escrow account, holding funds that would otherwise have been released to Traylor Brothers at the conclusion of the construction. The settlement also requires each side to bear its own attorneys’ fees and costs, and dismiss their respective appeals.
For comparison, the total unpaid balance of the disputed contract, plus interest, comes to approximately $4.1 million. The settlement amount is also about $7 million less than the District would have to pay if the appeals court ultimately upheld the jury’s findings and the lower court’s awards — not including up to $6 million Traylor Brothers was seeking through its cross-appeal. In early 2007, EID reserved funding in its capital improvement budget to pay the trial court judgment, if necessary, so this settlement will not affect the already-tight 2008 operating budget or customers’ water rates.
As background, the Mill-to-Bull Tunnel is part of EID’s Project 184 — a system of reservoirs, canals, flumes, and a powerhouse that delivers more than a third of the District’s water supplies and generates hydroelectric power. Designs called for the approximately two-mile-long tunnel to be bored through a mountain between Mill and Bull creeks near Riverton, south of highway 50 and east of Placerville. This isolated location is nearly 4,000 feet in elevation and experiences heavy snow and very cold temperatures during severe winter weather events.
As Traylor Brothers was completing its tunnel boring in the fall of 2002, EID learned that the tunnel Traylor
Brothers built dips 11 feet low in the middle, then runs uphill for about half of its total length, and emerges
from the ground 6 feet below and 12 feet off line from the flume located at the tunnel exit. This means that
contrary to the tunnel’s design, the water cannot flow by gravity directly from the tunnel into the flume and
then down through the rest of the District’s water delivery system.
Traylor Brothers’ remedy, which EID considers temporary, was to install a structure to lift the water up from the tunnel and into the flume, along with a pumping system to dewater the tunnel in emergencies and for routine maintenance. Operation and maintenance of the as-built tunnel and Traylor Brothers’ “fix” are expensive and can be dangerous, particularly in adverse weather.
In addition, EID presented evidence at trial that the tunnel tends to collect sediment and debris and accumulates ice in cold weather, creating safety hazards and environmental problems. The District and Traylor Brothers disagreed over the adequacy of the as-built tunnel, the “fix,” and who should pay. The court actions summarized above ensued. Although this settlement ends the litigation, EID is still examining alternatives for a permanent tunnel repair.
In a related action, the District obtained a settlement from MWH Americas, Inc. that ended a dispute over that company’s handling of its construction management responsibilities during construction of the Mill-to- Bull tunnel.
