DALLAS - The Denver suburb of Aurora's $426 million Prairie Waters Project that reclaims wastewater from the South Platte River has won acclaim for easing the threat of chronic drought in the rapidly growing region.

But a company in Lakewood, a suburb on the other side of Denver, says Aurora stole the technology used in the project financed by Aurora's largest bond issue last year.

PS Systems Inc. is seeking up to $100 million for what it claims is a violation of its patents for tanks that filter water on the banks of the river before it is pumped back to the city's treatment plant.

"It's certainly our contention that the city infringed on the patents," said Peter Attila Gergely, an attorney for Merchant & Gould representing PS Systems.

At the time the bonds were issued in June 2007, no litigation had been filed, though the city disclosed the dispute in its official statement.

After attempts to resolve the matter failed, Aurora sought a declaratory judgment in U.S. District Court that the city had not infringed on the patents. PS Systems filed a motion to dismiss, and a ruling is pending.

The city "is pretty confident that they don't infringe the patent," said Ericka Houck Englert, a Brownstein Hyatt Farber Schreck attorney serving as outside counsel for Aurora.

The company claims that it met with Aurora Water officials in 2002 to discuss its system for reclaiming river water, filtering it through the sandy banks and storing it before it could be pumped back upstream to a water treatment plant for reuse.

In promoting the Prairie Waters Project, Aurora claimed the recycling would save 33% over the cost of acquiring new water from other sources. Gergely said that figure was used in coming up with the $100 million in royalties that PS Systems believes it is due.

"I think $100 million would be the high end," he said. "On the low end would be $12 million to $17 million."

Peter Binney, who was the head of Aurora Water in 2002 until he left for another job earlier this year, said in an affidavit that he did not know anything about a meeting with PS Systems, and said that he had seen the filtering process done in other places for years.

Gergely said that proving that a meeting between PS Systems and Aurora occurred in 2002 is not critical to the case.

Under the law, "their knowing about the patent isn't really relevant," he said.

Designed to provide adequate water through at least 2045, the Prairie Waters Project system is part of Aurora's $1.1 billion 2007-2011 capital improvements program.

The project was conceived during a severe drought as the city of 311,749 could find no available water rights to buy.

The project, still under construction, earned The Bond Buyer's Deal of the Year Award for the Southwest region in 2007, based on its environmental and financial innovation.

"It's still considered innovative and forward-looking in terms of water management and finance," Englert said.

Attorneys in the case said the litigation should not affect the outstanding debt.

Last year's bond deal was led by JPMorgan with Morgan Stanley as co-manager. Piper Jaffray & Co. served as financial adviser to the city, with Kutak Rock LLP as bond counsel.

The revenue bonds are serials maturing in years 2020 through 2027 and carry mandatory sinking fund provisions.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.