Magdalena businesses seek compensation for water woes from village


Four Magdalena businesses have retained an attorney to pursue damages from the village of Magdalena related to financial woes they claim are due to the water crisis that ensued in the town this past summer.

The Magdalena Area Community Development Corporation, a non-profit corporation which owns the High Country Lodge among other business ventures, has banded with four other local businesses to seek compensation from the village of Magdalena for the financial loss the businesses experienced this past summer due to the village running out of water in early June. The Magdalena Merchantile and Laundry, Winston's service station and the M and M Grill are also involved in the actions. The fifth business prefers not to be identified at this time.

The Albuquerque Business Law Office has been retained by the MACDC and four other businesses to pursue insurance or other compensation for their losses as of late July. Jeremy Theoret, representing the law firm on this case, said the firm has been in discovery for the case since early August, including holding town hall meetings and gathering information for their clients.

On June 5 the village of Magdalena posted notices throughout town that the village water supply would be cut off as of 1 p.m. that day. Officials reported that their only functioning well had run dry — it was no longer pumping water, and there was about 14 cubic feet of water remaining in storage. Businesses and residents were asked to conserve water, and an emergency ordinance was passed by the village council requiring severe water use restrictions and requesting extreme conservation measures. The New Mexico State Engineer's office was called in and took over emergency and short-term planning efforts, as well as further analysis of the problem.

Emergency restrictions and water use limitations for the village were gradually relaxed beginning within about a month of the initial notice. However, full water availability with normal conservation restrictions were not reinstated until sometime in August.

It was a critical two months for small business owners in Magdalena. The community's largest single economic event, the Old Timers Reunion, which brought local residents as well as visitors from all around the state and region to Magdalena for the weekend following July 4, was canceled due to the water outage. It would have been the 44th annual event in the community. Many businesses counted on the sales and business from that weekend as an essential part of their annual revenue. Publicity about the wells running dry made the news statewide and even nationally, which local businesses claim also hurt their revenues from late summer and fall hunting and tourism traffic.

Initially, MACDC filed a claim against their own insurance policy for the lost revenue. Their insurance company denied the claim, stating that the reason for the loss was due to natural circumstances, or circumstances beyond the policy's coverage.

MACDC felt that the water outage was as much a result of negligence on the part of the village personnel and administration as it was of the drought and water shortage, so they persisted and filed a claim against the village's insurance policy, which is through the New Mexico Municipal League's New Mexico Self-Insurer's Fund.

MACDC received a response from the insurer denying the claim based on sovereign immunity. Mayor Sandy Julian re-iterated that position to El Defensor Chieftain staff.

According to The Free Dictionary, at, sovereign immunity is a judicial doctrine that prevents the government or its political subdivisions, departments, and agencies from being sued without its consent.

The village of Magdalena has denied comment on this matter, on the advice of its attorney, and has been reticent to provide information or documentation to El Defensor Chieftain, citing New Mexico Statutes, Section 15-7-9, confidentiality of records and concern of penalty for breaching this confidentiality.

Theoret indicated that the village has responded to the law office's document requests in a timely manner, although some important documentation is still missing.

"I can't say how they will respond when we request the missing information," Theoret said.

According to the general policy information from the New Mexico Self-Insurer's Fund there is no indication the village's policy covers fiscal or other damages to businesses or individuals not in the employ of the insured.

Jeanie Johnson, Magdalena village clerk and treasurer, said the village has another policy covering general liability for the municipality, similar to policies held by other municipalities. The village was unable to produce a copy of that policy before press time.

Once the insurance claims were denied, MACDC engaged Albuquerque Business Law to assist them in finding resolution. The Magdalena Mercantile and Laundry, which had to close its doors this fall, initially contacted Albuquerque Business Law Office to enlist help on what they could do to seek compensation for their losses. Once MACDC was denied a claim, they also contacted the law office, as did three other businesses in the community, eventually.

The attorneys have been engaged to comb through all of the State Engineer's reports, historical reports and documents, and village records to determine what truly led to the well's drying up, to document their findings, and to help the businesses find resolution that will help them remain in business and recover. The Albuquerque Business Office has taken the case without retainer, and hopes to use the research as an opportunity for setting precedent for small communities facing similar issues. Theoret and his staff have spent the last three months in discovery, poring over documents and research to establish the best approach.

At this time, no lawsuit has been filed. According to Lee Scholes, spokesperson for MACDC, filing suit is not their intent.

"We are just trying stay alive," Scholes said of the businesses involved in the action. "I'm confident that there will never be a suit filed."

Scholes, along with Theoret, intend to prove the village was negligent in its charge to provide water to it's residents and businesses. They claim that the village is liable because a village employee did not administer proper maintenance on the village's well, the only active water supply, and that the village should have had more than one well in operation at all times. As a result, they believe the sovereign immunity ruling does not exempt the insurance policy from payment of damages.

Scholes said the businesses felt the village officials held off addressing the water supply issue, and "played up the crisis."

The village's requests for emergency assistance through Community Development Block Grant funds, made in July following the well running dry, were denied because it was determined that the village had sufficient funds in reserves to address their initial problems. Once those grants were denied, the village council approved a $20,000 plan to rehabilitate two of their three wells and make them operational. The plan has been mostly followed, and water has been restored to the community.

"It seemed like gaming to us," Scholes said of the village's actions.

"There is potential of trying to settle this out of court," Theoret said of the case. "We hope that this case will do more than result in damages for the clients, but will set precedent for the importance of proactive solutions (to these kinds of issues)."

Theoret said the firm intends to make formal demands on behalf of the claimants prior to Thanksgiving, and hopes for an expedient response.

"We won't wait long for a response," Theoret said. "It's hard to say when, exactly, we will take our next steps, but we hope to hear from them (the insurer) by early December."