Did a multinational corporation based in Switzerland last year hoodwink a consortium of primarily American investors when it sold them its water assets valued at $4.3 billion by successfully hiding the questionable nature and perhaps even non-existence of the water-drafting rights of one of the more prominent companies acquired in that deal?
That question is a primary matter at issue, among others, in a hearing before the California State Water Resources Control Board that is to begin on Monday, January 10, in which questions about whether continued unbridled extraction of water from a canyon at the 5,200 foot elevation level in the San Bernardino Mountains can continue.
In March 2021, Nestlé S.A., a food and drink processing conglomerate corporation headquartered in Vevey, Vaud, Switzerland sold its Nestlé Waters North America division, with the exception of its bottling rights to Perrier, to One Rock Capital Partners, LLC, in partnership with Metropoulos & Company.
Nestlé Waters North America existed as Nestlé’s operations pertaining to bottling drinking water in the United States and Canada, including eight of the leading water bottling operations in the United States. Upon the sale being completed to One Rock Capital and Metropoulos, Nestlé Waters North America was redubbed BlueTriton Brands.
Among the most iconic of the brands now in the possession of BlueTriton is Arrowhead Mountain Spring Water.
Water originating in the San Bernardino Mountains and using the Arrowhead brand in one form or another had been marketed at least since 1909. Questions have long existed, however, as to whether the water rights originally claimed, attributed or granted to Arrowhead Puritas, the corporate predecessor to Arrowhead Spring Water, pertain to the current source of the water drawn at the 5,200-foot elevation level from Strawberry Creek in what is known as Strawberry Canyon.
There is evidence to suggest that Nestlé had come to recognize some time ago the dubious nature of its water rights claim in Strawberry Canyon.
Of significance is that BlueTriton Brand’s water withdrawals are taking place on San Bernardino National Forest lands where water has been reserved since the granting of national forest standing on February 25, 1893.
Federal reserve rights and overlaying landowner groundwater rights apply in this case. Appropriation through adverse possession, known as prescriptive rights, is not applicable to U.S. Forest lands.
There is no documentation that Nestlé, from which BlueTriton Brands maintains its water rights to the water bottled as Arrowhead Spring Water descend, or that its predecessors-in-interest had any valid water rights in the San Bernardino National Forest for Upper Strawberry Canyon or the “Indian Springs” tunnels located there prior to 1893, nor pre-1914 water rights, as Nestlé claimed and BlueTriton Brands is now asserting. The early water bottlers associated with the Arrowhead name drew their water from sources other than Strawberry Creek or Strawberry Canyon, ones located at the approximate 2,000 foot level in the San Bernardino Mountains near the historic Arrowhead Hotel property.
In 1929, the California Consolidated Waters Company was formed to merge three Los Angeles-based companies that bottled and distributed “Arrowhead Water,” “Puritas Water” and “Liquid Steam.” The property, bottling operations, water distribution and administration of Arrowhead Springs Company, Puritas of California Consumers Company and the water bottling division of Merchants Ice and Storage were all administered by California Consolidated Waters Company. Soon after, California Consolidated Waters, without having obtained any valid authorization or rights, put in place tunnels, boreholes and horizontal wells at the higher elevation of 5,200 feet at the headwaters to Strawberry Creek in Strawberry Canyon.
Charles Anthony, acting president of the Arrowhead Springs resort property and Arrowhead Springs Corporation, sold upper Strawberry Canyon water rights he did not own in the National Forest to California Consolidated Waters Company.
Though Arrowhead Puritas’s right to draft the Strawberry Canyon water was never verified, it was not challenged for decades. The U.S. Forest Service, without verifying those rights, issued Arrowhead Puritas an annual water extraction permit for a standard fee of $524. By the 1980s, Arrowhead Puritas was bought out by Beatrice Foods and then morphed into the BCI-Arrowhead Drinking Water Company, which acquired the still-active permit. The BCI-Arrowhead Drinking Water Company applied to extend that permit when it expired. In 1987, while that application was still pending, Perrier purchased the BCI-Arrowhead Drinking Water Company. The then-pending water extraction permit renewal required a U.S. Forest Service review of the water drafting arrangement and its environmental/ecological impact, which at that point the U.S. Forest Service did not have the immediately available resources to carry out. In a gesture of compromise, Perrier was allowed, pending the eventual Forest Service review, to continue to operate in Strawberry Canyon by simply continuing to pay the $524-per year fee to perpetuate the water extraction under the terms of the expired permit. In 1992, when Nestlé acquired the Arrowhead brand from Perrier, it inherited the Strawberry Canyon operation and continued to pay the $524 annual fee without renewing the permit, which at that time existed under the name of the “Arrowhead Mountain Spring Water Co,” one that was never listed legally in corporate filings, but which operated under Nestlé Waters of North America, Inc. until it was acquired by BlueTriton Brands
Nestlé’s intensive water-drafting activity, which was long been decried by environmentalists, came under increasing fire as a statewide drought, which lasted for more than five years after it first manifested in 2011, advanced. In 2015 environmental groups were gearing up to file a lawsuit claiming the U.S. Forest Service had violated protocols and harmed the ecology of the mountain by allowing Nestlé Waters North America to continue its operations in Strawberry Canyon for 28 years after its permit expired. At that point, the Forest Service moved to make an environmental review. In the meantime, Nestlé continued its water extraction, pumping an average of 62.56 million gallons of water annually from the San Bernardino Mountains. Environmentalists lodged protests with the water rights division of the California Water Resources Control Board, alleging Nestlé was diverting water without rights, making unreasonable use of the water it was taking, failing to monitor the amount drawn or make an accurate accounting of the water it was taking, and wreaking environmental damage by its action.
Following a two-year investigation, state officials arrived at a tentative determination that Nestlé could continue to divert up to 26 acre-feet of water (8.47 million gallons) per year. Nestlé had gone far beyond the water drafting limit the company was entitled to, the State Water Resources Control Board said, and was actually drafting 192 acre-feet (62.56 million gallons), such that 166 acre-feet (54.09 million gallons) the company was taking was unauthorized, according to a report released on December 21, 2017.
The water rights division recommended that Nestlé immediately end its diversions beyond the 26-acre-foot threshold or otherwise marshal evidence supporting its level of diversion.
While Nestlé continued to maintain it had established rights to roughly 190 acre-feet of water per year in Strawberry Canyon, it was unable to produce any historical record of water rights approaching the volume of its diversion. Despite that, Nestlé refused to comply, continuing to take 144 acre-feet in 2017, 141 acre-feet in 2018 and 210 acre-feet in 2019. By 2020, Nestlé was in negotiations with One Rock Capital Partners, LLC, in partnership with Metropoulos & Company for the sale of Nestlé Waters North America. In late March 2021, in what was represented as a $4.3 billion transaction, that deal was closed. Acquired in the purchase were Poland Spring® Brand 100% Natural Spring Water, Deer Park® Brand 100% Natural Spring Water, Ozarka® Brand 100% Natural Spring Water, Ice Mountain® Brand 100% Natural Spring Water, Zephyrhills® Brand 100% Natural Spring Water, Arrowhead® Brand Mountain Spring Water, Pure Life® and Splash, consolidated under the name BlueTriton Brands.
On April 23, 2021, the State Water Resources Control Board issued a revised report of its investigation and a draft cease and desist order directing BlueTriton Brands, as the current owner of the Arrowhead Spring Water brand bottling company, to stop its unlawful activities, which was defined in the cease and desist order as taking any more than 7.26 acre-feet (2.342 million gallons) of water annually out of Strawberry Canyon.
BlueTriton Brands did not comply, and to enforce its order, the State Water Resources Control Board has scheduled a hearing before an administrative law judge begining on Monday at which it will marshal what it deems will be sufficient data, documentation and evidence in general to convince the judge to issue a binding order on BlueTriton Brands to cease its water extraction from Strawberry Canyon by anything more than 2.342 million gallons annually. BlueTriton Brands is contesting the State Water Resources Control Board‘s order, and is represented by Robert Donlan, Christopher Sanders and Shawnda Grady of the Sacramento-based law firm of Ellison Schneider Harris & Donlan.
Of note is that there appears to be a discrepancy between the representations BlueTriton Brands made and has continued to make in its public statements as well as to investors in One Rock Capital Partners, LLC and Metropoulos & Company as contrasted with the representations being made by its legal representatives in the legal jousting over water rights with the State Water Resources Control Board. Specifically, BlueTriton Brands outside the context of the hearing maintains its ownership, administration and management had fully assessed the extent and validity of the claimed water rights of the various companies it had acquired in the March 2021 deal with Nestlé. Today, however, attorney Robert Donlan of the Ellison Schneider Harris & Donlan law firm filed on BlueTriton Brand’s behalf a motion in limine which seeks to exclude several individuals to be called as witnesses by the State Water Resources Control Board, including those who are anticipated to weigh in with regard the limitation, or non-existence, of the water rights in Strawberry Canyon which Nestlé had formerly and which BlueTriton Brands is currently claiming. Those witnesses have testimony to offer indicating that well before BlueTrion Brands acquired Arrowhead Spring Water from Nestlé there was information available to indicate that Nestlé did not lawfully possess water rights in Strawberry Canyon.
A motion in limine is a request made of the judge by a party in a trial, hearing or official proceeding requesting that certain evidence or testimony be excluded.
Among the witness that the State Water Resources Control Board has arrayed against BlueTriton Brands are Victor Vasquez, Rachel Doughty, Steve Loe, Amanda Frye, Thomas Eggers and Hugh Bialecki, all of whom were active in either historical research or documenting hydrological, hydrogeological, or biological impacts of the water use patterns in Strawberry Creek in the years before Nestlé divested itself of its Arrowhead® Brand Mountain Spring Water holding.
Vasquez, Doughty, Loe, Frye, Eggers and Bialecki do not qualify as expert witnesses, Donlan maintains.
Furthermore, Donlan maintains that the State Water Resources Control Board should not be permitted to utilize any testimony, comment, data, documentation or evidence relating to the water use patterns in Strawberry Canyon submitted after the designated public comment period that originally ran from December 20, 2017 to January 20, 2018 and which was ultimately extended to February 9, 2018 during the State Water Resources Control Board’s preparation of its study, titled Nestlé Spring Water Extractions in San Bernardino National Forest Report of Investigation, upon which the board’s restriction of BlueTriton Brand’s Strawberry Canyon water extraction is based.
Despite Vasquez, Doughty, Loe, Frye, Eggers and Bialecki having participated in research into the extent, impact and legality of Nestlé’s extraction of water from Strawberry Canyon prior to the BlueTriton Brands buyout, Donlan characterized the information they had provided to the public discussion as being “irrelevant” and outside the provided-for timeline for the provision of that information to the discussion between the State Water Resources Control Board and BlueTriton Brands over the use of water from Strawberry Canyon.
“Any public comments, including documents and information, that were not submitted by the February 9, 2018 public comment deadline should not have been considered by the State Water Board in its investigation and preparation of the 2021 Report of Investigation and Draft Cease and Desist Order,” Donlan wrote in his motion in limine submitted today. “Due process and fundamental fairness also require exclusion of any such documents and information. This is a matter in which the State Water Board seeks to substantially terminate certain of BlueTriton Brands’ water rights. As such, BlueTriton Brands is entitled to a full and fair hearing, including an opportunity to defend its rights. BlueTriton Brands cannot be required to defend against new information and that which was not at issue in the State Water Board’s investigation and issuance of the 2021 Report of Investigation and Draft Cease and Desist Order.”
Just before press time, a spokesman for BlueTriton Brands told the Sentinel, “BlueTriton Brands did comprehensive due diligence before the purchase of Nestlé Waters North America. We look forward to continuing sustainable operations in accordance with all government regulations.”
-Mark Gutglueck