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Judge rules against city in Pure Wafer lawsuit; will cost Prescott hundreds of thousands of dollars

Les Stukenberg/The Daily Courier

Les Stukenberg/The Daily Courier

PRESCOTT - A development agreement that helped to attract a major employer to the community 17 years ago could end up costing the City of Prescott hundreds of thousands of dollars in the future.

On April 17, U.S. Senior District Court Judge James Teilborg granted a permanent injunction against the city in the lawsuit that local industry Pure Wafer, Inc. brought regarding the company's fluoride discharges into the city's wastewater treatment system.

Pure Wafer - a silicon wafer reclamation facility near the Prescott Airport - sued the city in September 2013 over a difference of interpretation of a 1997 development agreement between the company and city.

Earlier in 2013, the city had approved a consent order from the Arizona Department of Environmental Quality (ADEQ), agreeing to deal with the high levels of fluoride that had been detected in Prescott's treated sewage. The city attributed the problem to Pure Wafer, which uses hydrofluoric acid to scrub wafers for recycling.

At about the same time, the city also approved an ordinance imposing a wastewater pre-treatment program that requires stricter standards on wastewater emissions.

Pure Wafer's lawsuit sought an injunction against the pre-treatment ordinance, maintaining that the design and construction of the improvements required under the new rules would cost $1 million or more, and that the cost of operating the new facilities would exceed $325,000 per year.

In the court's 33-page ruling, Teilborg wrote: "The issue presented is whether the municipality may unilaterally obtain additional, not-bargained-for contractual benefits under the guise of environmental regulation."

The ruling added that the court concluded that "such action violates the United States Constitution and Arizona Constitution's prohibitions on impairment of contract rights."

Teilborg granted the injunction, preventing the city from enforcing the ordinance against Pure Wafer regarding any fluoride concentration limit established in the ordinance and any wastewater pretreatment requirement relating to fluoride concentration.

Pure Wafer Managing Director Jerry Winters said Tuesday that the company is "pleased with the results, but it's regrettable we had to go to court."

Winters maintains that the development agreement that the city and Pure Wafer (formerly Exsil, Inc.) entered required the company to become the "anchor" for the city's industrial park near the airport. To that end, he said, the company invested about $45 million in its facility. The agreement also called for Exsil to employ at least 68 people - a number that Winters said now stands at about 105.

"In turn, the city agreed to accept our effluent...and provide water," Winters said.

While noting that the company fulfilled and exceeded its side of the agreement, Winters maintained that the city balked "when it came time to make some infrastructure improvements."

While the two sides initially tried to work out their differences through negotiations, Winters said, "We felt that they really didn't want to make these improvements," and the company ultimately sued.

Prescott City Attorney Jon Paladini declined to comment on the court's ruling on Tuesday, but said, "We're dealing with an agreement that was entered into in 1997. We attempted to negotiate (with Pure Wafer), and in the midst of that, they filed a lawsuit."

Paladini also declined to comment on whether the city will appeal, noting that the matter would be a topic of discussion by the City Council at an executive session at 10 a.m. today.

Along with granting the permanent injunction, the judge awarded attorneys' fees to Pure Wafer. Winters said Pure Wafer's attorneys' costs currently stand at "upwards of $200,000."

That is in addition to about $106,000 that the city has spent on the case so far with its outside legal counsel, Phoenix-based law firm Dickinson Wright Mariscal Weeks.

Follow Cindy Barks on Twitter @Cindy_Barks.