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HomeMy Public PortalAboutExhibit MSD 18H4 Counterclaim 031008Exhibit MSD 18H4 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MISSOURI EASTERN DIVISION UNITED STATES OF AMERICA and THE STATE OF MISSOURI, Plaintiffs, and MISSOURI COALITION FOR THE ENVIRONMENT FOUNDATION, Plaintiff/Intervenor, v. METROPOLITAN ST. LOUIS SEWER DISTRICT, Defendant. Civil Action No. 4:07-CV-1120-CEJ DEFENDANT METROPOLITAN ST. LOUIS SEWER DISTRICT'S MEMORANDUM IN OPPOSITION TO PLAINTIFF STATE OF MISSOURI'S MOTION TO DISMISS COUNTERCLAIMS AND MOTIONS TO STRIKE AFFIRMATIVE DEFENSES Plaintiff State of Missouri's motions to dismiss Defendant Metropolitan St. Louis Sewer District's ("MSD's") Counterclaims and to strike certain affirmative defenses (Docket Nos. 26 and 47, collectively "Motion to Dismiss", and Docket No. 28, "Memorandum in Support") are premature and rely on mischaracterizations of the limitations placed on MSD by state law, and therefore should be denied. INTRODUCTION The United States and the State of Missouri jointly filed their Complaint againstMSD on June 11, 2007. (Docket No. 1, "Complaint"). In their Complaint, the co -plaintiffs assert nine separate counts against MSD under the Clean Water Act. The majority of the claims allege that MSD has failed to implement massive reconstruction and rehabilitation of its decades -old sewer system to eliminate hundreds of constructed outfall points where sewage might be released during overflows caused by heavy rains. See Complaint, Claims One, Two, Three, Six, Eight and Nine. The scope of relief sought by the Plaintiffs includes civil penalties that could potentially reach millions of dollars, and sewer upgrades that will cost several billions of dollars. If such relief were awarded, it would require what would certainly be the single largest infrastructure investment in St. Louis and Missouri history, and one of the largest in the United States. On September 21, 2007, MSD filed its Answer to the United States' and State of Missouri's joint Complaint. (Docket No. 13, "Answer"). In its Answer, MSD asserted two counterclaims against the State of Missouri, which the state has moved to dismiss. MSD also raised numerous affirmative defenses in its Answer, four of which are subject to the State's motion to strike. The State also moved to strike the same four affirmative defenses raised by MSD in its Answer to the Complaint in Intervention of the Missouri Coalition for the Environment ("MCE")(Docket No. 36).' MSD's counterclaims and four affirmative defenses at issue are all based on the historic and current limitations imposed by the Missouri Constitution on MSD's ability to pay for the extensive sewer reconstruction and rehabilitation work at issue in this case. MSD herein responds to both of the State's motions collectively. 2 The specific provisions of the Missouri Constitution that are raised in MSD's counterclaims and affirmative defenses are (1) the limitation on governmental indebtedness, under Article VI, § 26(b)("debt limit provision"); and (2) certain provisions of what is known as the "Hancock Amendment" to the Missouri Constitution, Miss. Const. Art. X, §§ 15-24, specifically: the "unfunded mandates" provision, Art. X, § 16, and Art. X, § 22(a), which requires a popular vote before MSD can increase taxes or fees of its ratepayers. See Answer, Affirmative Defenses Nos. 9-12 and Counterclaims I and II. The limitations of the Hancock Amendment have been the subject of extensive litigation between MSD and its ratepayers. See Beatty v. MSD, 731 S.W.2d 318 (Mo. App. E.D. banc 1987) ("Beatty I"); Beatty v. MSD, 700 S.W.2d 831 (Mo. banc 1985); Beatty v. Metropolitan St. Louis Sewer District, 867 S.W.2d 217 (Mo. banc 1993)("Beatty II"); Beatty v. Metropolitan St. Louis Sewer District, 914 S.W.2d 791 (Mo. banc. 1995)(`Beatty III"); Missouri Growth Ass'n v. Metropolitan St. Louis Sewer District, 941 S.W.2d 615 (Mo. App. 1997); Ring v. MSD 969 S.W.2d 716 (Mo. banc 1999); Ring v. MSD, 41 S.W.3d 487 (Mo. App. E.D. 2000), cert. denied, 534 U.S. 893 (2001). This historic litigation impaired MSD's ability to pay for the extensive sewer reconstruction and rehabilitation work during the 1980's and 1990's that is the subject of the current Complaint. Counterclaim I and Affirmative Defense 12 are brought pursuant to § 309(e) of the Clean Water Act, 33 U.S.0 § 1319(e). Section 309(e) provides that "whenever a municipality is a party to a civil action brought by the United States under this section, the State in which such municipality is located shall be joined as a party." 33 U.S.C. §1319(e). As MSD is a "municipality" as defined in the Clean Water Act, see 33 U.S.C. § 1362(4), and has been sued by 3 the United States under the Clean Water Act, the State is required to be joined as a party in this case pursuant to § 309(e). While the statute is silent as to which side the State should join, the State in this particular case "chose to be included as a plaintiff rather than a defendant." (Memorandum in Support at 3). Under § 309(e), the State is "liable for payment of any judgment, or any expenses incurred as a result of complying with any judgment, entered against the municipality in such action to the extent that the laws of that State prevent the municipality from raising revenues needed to comply with such judgment." 33 U.S.C. § 1319(e). Congress, in enacting § 309(e), recognized that state laws may limit the ability of public sewerage agencies from funding compliance measures, and sought to eliminate this excuse for non-compliance by holding the state liable to the United States in such event. United States v. Duracell Intern., Inc., 510 F.Supp. 154, 157 (E.D. Tenn. 1981). The State is potentially liable under 309(e) for any judgment that may be entered against MSD in this case because the limitations of the Missouri Constitution have impaired and may continue to impair MSD's ability to raise revenues necessary to comply with such a judgment. Counterclaim II and affirmative defenses 9, 10 and 11 are based on the specific provisions of the Missouri Constitution that have limited and may continue to limit MSD's ability to raise sufficient funding to comply with the provisions of the Clean Water Act raised in the Complaint. There has been no discovery taken in this case. This case is factually intensive, as it covers the implementation and programs of both the federal Clean Water Act and the Missouri Clean Water Law, which at times have been contradictory, as well as the historic litigation over 4 the methodology used by MSD to attempt to raise the financial resources required to implement many of the measures sought by Plaintiffs in the Complaint. ARGUMENT THE STATE'S MOTION TO DISMISS AND MOTIONS TO STRIKE SHOULD BE DENIED BECAUSE NO DISCOVERY HAS OCCURRED ON THE FACTUAL ISSUES PRESENTED BY MSD'S AFFIRMATIVE DEFENSES AND COUNTERCLAIMS. MSD alleges in its counterclaims and affirmative defenses that the Missouri Constitution has prevented it and will continue to prevent MSD from raising revenues needed to comply with any judgment in this case. When evaluating a motion to dismiss, "all factual allegations must be accepted as true and every reasonable interference must be granted in favor of the complainant." Stone Motor Co. v. GMC, 293 F.3d 456 (8t Cir. 2002). Similarly, with respect to the State's motions to strike MSD's affirmative defenses, courts uniformly recognize that striking a party's pleadings "is an extreme measure" that is "viewed with disfavor" and "infrequently granted." Lunsford v. U.S., 570 F.2d 221, 229 (8th Cir. 1977) (citing 5 Wright & Miller, Federal Practice and Procedure: Civil § 1380 at 783 (1969)); see also U.S. v. 416.81 Acres of Land, 514 F.2d 627, 629-32 (7th Cir. 1975) (motion to strike is "a drastic remedy"). A court should not grant a motion to strike "`unless it appears to a certainty that plaintiffs would succeed despite any state of the facts which could be proved in support of the defense."' Glenside West Corp. v. Exxon Co., 761 F. Supp. 1100, 1115 (D.N.J. 1991) (quoting Durham Indus. v. North River Ins. Co., 482 F. Supp. 910, 913 (S.D.N.Y. 1979)). Thus, motions to strike will not be granted "when the sufficiency of the defense depends upon disputed issues of fact or unclear questions of law." United States v. Marisol, Inc., 725 F. Supp. 833, 836 (M.D. Pa. 1989). As discussed below there are, at the very least, disputed issues of fact and unclear questions of law presented by MSD's affirmative defenses. 5 Given MSD's allegations, which must be accepted as true for the purposes of the State's motions, it would be inappropriate for the Court to dismiss MSD's counterclaims and strike its affirmative defenses and at this early stage of the litigation prior to discovery. See Branch v. FDIC, 825 F.Supp. 384, 397-98 (D. Mass. 1993) ("Novel theories of recovery are best tested for legal sufficiency in light of actual, rather than alleged facts."); see also Electrical Const. & Maintenance Co. v. Maeda Pacific Corp., 764 F.2d 619, 623 (9th Cir. 1985). II. THE STATE IS POTENTIALLY LIABLE FOR ANY JUDGMENT AGAINST MSD BECAUSE THE HANCOCK AMENDMENT AND THE DEBT LIMIT PROVISIONS OF THE MISSOURI CONSTITUTION ARE LAWS OF THE STATE THAT HAVE PREVENTED MSD FROM FUNDING THE REMEDIES SOUGHT IN THE COMPLAINT AND MAY PREVENT MSD FROM COMPLYING WITH ANY JUDGMENT ISSUED IN THIS CASE. A. The State Is Potentially Liable under the Clean Water Act for Any Judgment that MSD Cannot Comply with Due to the Funding Limitations in the Missouri Constitution. Under the Clean Water Act, § 309(e), the State could be held liable if (1) a judgment is issued against MSD, and (2) MSD is unable to comply with that judgment by operation of state law. To prevail on its motion to dismiss, the State must show that there is no set of facts which might exist to support MSD's claim that state law might prevent it from complying with the judgment. The State has failed to meet that burden. Unless and until there is a judgment against MSD, it is impossible to determine whether state law will prevent MSD from complying with the judgment. At that time, this court will determine whether the Hancock Amendment and the debt limit provision will prevent MSD from complying with any judgment, and to what extent. First, the Hancock Amendment, §22(a), requires a popular vote to approve any increase in fees or taxes subject to that amendment. Section 22(a) of the Hancock Amendment provides in pertinent part: Counties and other political subdivisions are hereby prohibited from levying any tax, license or fees, not authorized by law, 6 charter or self -enforcing provisions of the constitution when this section is adopted or from increasing the current levy of an existing tax, license or fees, above that current levy authorized by law or charter when this section is adopted without the approval of the required majority of the qualified voters of that county or other political subdivision voting thereon. Missouri Const. Art. X, §22(a)(emphasis added). Second, Missouri Constitution's debt limit provision, Article VI, § 26(b) requires a popular vote before a local government entity such as MSD can exceed a certain level of indebtedness. Section 26(b) of Article VI of the Missouri Constitution provides in pertinent part: Any county, city, incorporated town or village or other political corporation or subdivision of the state, by vote of the qualified electors thereof voting thereon, may become indebted in an amount not to exceed five percent of the value of taxable tangible property therein as shown by the last completed assessment for state or county purposes, except that a school district by a vote of the qualified electors voting thereon may become indebted in an amount not to exceed fifteen percent of the value of such taxable tangible property. For elections referred to in this section the vote required shall be four -sevenths at the general municipal election day, primary or general elections and two-thirds at all other elections. Missouri Const. Art. VI, § 26(b). MSD will present facts showing that its only means of paying for any judgment will be through its fees or through incurring additional indebtedness, or more likely some combination of the two. Clearly, each of the above provisions may be potentially implicated in this case, depending on the extent of any judgment and MSD's financial capability to comply with such judgment at the time it is issued. These provisions have been a historical impediment for MSD as well. In its briefing, the State admits that MSD's original attempts to raise the funding necessary to meet the requirements of the federal Clean Water Act and the Missouri Clean Water Act were hampered 7 by litigation challenging the methodology used by MSD to raise capital for its sewer reconstruction process. Memorandum in Support at 6-7. MSD will show that without Missouri's legal restrictions, MSD would be further along in finalizing the consolidation of 79 separate public and private sewer collection systems and 35 overloaded and inadequate treatment systems into one regional collection system with eight treatment plants. In fact, MSD will factually show it is further along than many sewer entities in planning and implementation of new Clean Water Act requirements at issue in the Complaint. However, as MSD will demonstrate, its extensive area, lower customer base, and high number of low-income ratepayers all impact MSD's ultimate goal of reducing the potential for overflow through constructed outfalls during certain rain events. The State ignores the limitations of Article VI §26(b), and offers no explanation of its position that this law may not prevent MSD from complying with any judgment. As to the Hancock Amendment's limitations on taxes under §22(a), the State blithely argues that MSD can simply raise its user charges to pay for any judgment.' Memorandum in Support at 8 ("MSD was, and is, free to raise the rates to obtain revenue needed to operate the system"). MSD acknowledges that the decision in Missouri Growth Ass'n V. Metropolitan St. Louis Sewer Dist., 941 S.W. 2d 615 (Mo. App. E.D. 1997) held that MSD's current, water usage -based billing format does not constitute a "tax" subject to the Hancock Amendment, Art. X § 22(a). However, the fact that MSD's user rates have been held as of 1997 to not require a vote under the Hancock Amendment, does not mean that this provision did not limit MSD's funding ability prior to 1997. In fact, the opposite is true. Nor does it mean that MSD has unbridled capacity to raise those rates to comply with any future judgment. As a practical matter, MSD is limited by the extent to which its ratepayers can 8 afford increases in user charges. Should MSD be held liable under the Complaint and ordered to take remedial measures, MSD expects that this Court will necessarily have to consider the financial limitations of MSD's ratepayers in crafting any final judgment. If MSD cannot increase its charges sufficiently to pay for work required by any judgment, it would have to finance its obligations through additional indebtedness, in the form of bonds. This implicates the debt limit provision of Article VI, § 26(a). Because no judgment has been issued in this case, it is impossible at this point to foretell how these provisions of the Missouri Constitution will prevent MSD from complying with any judgment. B. The State's Argument that MSD Lacks Standing To Bring a Claim Under the Hancock Amendment Is Misplaced. The State contends that MSD "lacks the standing" to assert a claim or defense under the Hancock Amendment. Memorandum in Support at 9. The State misreads Missouri Constitution Article X, § 23, which provides standing to taxpayers to raise Hancock Amendment challenges, to mean that taxpayers are the only parties who can make a claim or defense under the Hancock Amendment. It is absurd to suggest that this provision limits standing to raise Hancock Amendment challenges only to taxpayers. The State cites one case in support of its position, but this case deals only with Hancock's so-called "unfunded mandates" provision.2 But the State improperly relies on a Missouri Court of Appeals opinion that has been vacated. Memorandum in Support, at 9-10 (citing Firemen's Retirement System v. City of St. Louis, No. ED86921 (Mo. App. E.D. Aug. 22, 2006), transferred 2 The "unfunded mandates" provision is contained in Sections 16 and 21 of the Hancock Amendment. Mo. Const. art. X, §§ 16 & 21. MSD's affirmative defense 11 lists only Section 16, but the defense should be interpreted to include Section 21 as well. The same is true as to MSD's Counterclaim. MSD's affirmative defense 11 to the MCE's Complaint -In -Intervention lists both sections. 9 to Mo. Sup. Ct.).3 On transfer, however, the Missouri Supreme Court addressed the city's unfunded mandates Hancock challenge on the merits. Neske v. City of St. Louis, 218 S.W.3d 417, 421-23 (Mo. banc 2007).` It is well -settled that a court should not address the merits of an issue if it had any concerns over standing. See, e.g., Farmer v. Kinder, 89 S.W.3d 447, 451 (Mo. banc 2002) ("courts have a duty to determine the question of [standing] before reaching substantive issues"). The Missouri Supreme Court obviously did not have any such concerns in Neske, recognizing that cities and municipalities therefore have standing to assert unfunded mandates claims and defenses. Moreover, the other cases referenced by the State are both older than Neske and distinguishable. In Fort Zumwalt School Dist. v. State of Missouri, 896 S.W.2d 918 (Mo. banc 1995), the school district was a plaintiff seeking a money judgment from the State. Here, by contrast, MSD is a defendant seeking to prevent (or reasonably limit) enforcement of the mandate. To the extent the State may become liable for a money judgment, it will be liable ultimately to the United States and not to MSD. See United States v. Duracell Intern., inc., 510 F.Supp. 154 at 157 (E.D. Tenn. 1981). The State's reliance on State ex rel. Bd. of Health Center Trustees v. County Comm'n of Clay County, 896 S.W.2d 627 (Mo. banc 1995) is also misplaced. In that case, the court's holding was not that the county commission did not have standing to assert the Hancock Amendment, but that the county commission was not an interested party in the underlying tax increase in the first place. The county commission's involvement was merely a ministerial one s See Missouri Rule 83.09 (case transferred to Supreme Court is "finally determined the same as on original appeal"); Gerlach v. Mo. Comm'n on Human Rights, 980 S.W.2d 589, 594 (Mo. App. E.D. 1998) (court of appeals decision in case subsequently transferred "is of no precedential effect"). 4 The Missouri Supreme Court addressed the city's appeals in the related Firemen's Retirement System and Neske cases in a single opinion. See Neske, 218 S.W.3d at 420. 10 to certify other taxing district's tax levies for tax bills. The mention in one single sentence of so- called "taxpayer standing" under the Hancock Amendment was clearly dicta. See Clay County, 896 S.W.2d at 631. Here, MSD, as the defendant, obviously is a directly interested party regarding Plaintiffs' enforcement of the environmental laws. That MSD has standing to assert an unfunded mandates defense only makes sense here. The State, the United States, and MCE have sued MSD, not the taxpayers within MSD. It would be an absurd result were MSD not permitted to defend itself under the unfunded mandates provision solely because plaintiffs did not sue additional defendants.5 MSD has the requisite standing to allege that the laws of Missouri have prevented compliance with Clean Water Act requirements and that they may continue to prevent compliance with any future judgment. As to the counterclaim and affirmative defenses under § 309(e) of the Clean Water Act, the State similarly misses the mark. MSD is not making a claim against the State under the Hancock Amendment, but under § 309(e). See MSD's Aff. Def. 9, 10 & 12; Counterclaim I. Section 309(e) makes the State liable for payment of any judgment "to the extent that the laws of [the] State prevent" MSD from complying with any such judgment. CWA § 309(e). Here, MSD contends only that § 22(a) of the Hancock Amendment (as well as Article VI, § 26(b)) are "laws of [the] State" that will make the State liable under § 309(e). C. The "Exhaustion of Administrative Remedies" Rule Does Not Apply. The State argues that MSD cannot raise financial incapability issues as defenses to compliance with its NPDES permits because MSD did not challenge the permit terms on that 5 It is hard to imagine what claim plaintiffs could assert against the taxpayers within MSD, further illustrating the absurdity of a rule that MSD does not have standing to assert an unfunded mandates defense. However, if the Court deems it necessary, MSD should be permitted to have some of the taxpayers within the District join as defendants in order to assert any Hancock claims and defenses. 11 basis when the permits were issued. As with its standing argument, the State is attempting to fit the facts of this case into a legal theory that does not apply here. First, to the extent the doctrine of "exhaustion of administrative remedies" could apply at all in this case, it would be limited to the issues related to NPDES permit compliance. The exhaustion of administrative remedies doctrine applies to challenges to the administrative proceedings of governmental agencies. "The exhaustion doctrine ordinarily requires a plaintiff to pursue relief, when available, from an administrative agency before proceeding to the courts." Jackson v. Swift Eckrich, 53 F.3d 1452, 1455 (8W Cir. 1995). However, in this case, the Complaint alleges claims for non-compliance with Clean Water Act requirements that have nothing to do with the administrative proceedings of any government agency. Claim One seeks an injunction and civil penalties for alleged discharges of sewage from sanitary sewer overflows. Claim Two seeks an injunction and civil penalties for "unpermitted discharges" from combined sewer overflows. Claim Three seeks an injunction for discharges of sewage. See Memorandum in Support, at 1-2 (summarizing Complaint claims). These claims are not related to any permit or other administrative proceeding. To the extent that other claims in the Complaint address compliance with its NPDES permits, MSD is not challenging the permit terms themselves. Instead, MSD contests the enforcement of those terms based on the limitations imposed by the Missouri Constitution and the effect of these limitations on MSD's ability to comply. The State cites to City of St. Peters v. Department of Natural Resources of State of Mo., 797 S.W.2d 514 (Mo. App. W.D. 1990) for the proposition that "failure to exhaust administrative remedy deprives courts of jurisdiction to hear any challenge to the administrative decision regarding that permit." In that case, a city challenged an agency's denial of an application for a 12 permit to operate a landfill. The court held that the plaintiff city should have appealed denial of the permit application through administrative process, rather than seek judicial review, since state statute provided that denial of permit was grounds for administrative hearing. Here, unlike the plaintiff in City of St. Peters, MSD is not challenging any agency decision regarding the permit. Similarly, the State's reliance on Tate v. Department of Social Services, 18 S.W.3d 3 (Mo. App. E.D. 2000), for the proposition that "constitutional issues attacking the validity of an administrative action must be raised within that administrative appeal process" is also misplaced. (Memorandum in Support at 10). In Tate, the plaintiff challenged the Department of Social Service's administrative finding that she abused a senior citizen. The plaintiff exhausted her administrative remedies, and raised two constitutional claims in her judicial appeal of the decision that were not raised during the administrative action. The court held that constitutional issues were waived. Unlike the plaintiff in Tate, MSD is not challenging any particular agency action on constitutional grounds, but rather is alleging that constitutional provisions may have limited MSD's ability to comply with the requirements of the federal Clean Water Act, including certain permit conditions. Even assuming the* validity of the State's assertion that MSD should have raised a Hancock Amendment challenge for the provisions at issue in Complaint Claims Four through Nine during the NPDES permit issuance process, judicial review by this Court would not be barred by the exhaustion of administrative remedies doctrine. The purpose of the common law exhaustion rule is to prevent impairment of agency operation and to preserve respect for administrative proceedings. Frango v. Gonzales, 437 F.3d 726, 729 (8`h Cir. 2006). No equitable 13 goal of preventing impairment of agency operations would be served by barring review of MSD's counterclaims and affirmative defenses. Furthermore, there are exceptions to the exhaustion rule. Courts may excuse a party's failure to exhaust administrative remedies for several reasons: (1) where pursuing the available administrative remedies would have been futile, Frango, 437 F.3d at 726, 728; Gunter v. Morrison, 2007 WL 4290496 (E.D. Mo. Dec. 4, 2007)(slip copy); Sabhari v. Frazier, 2007 WL 295261 (D. Minn. 2007)(slip copy); (2) where injustice might otherwise result, Frango, 437 F.3d at 728-729, citing, Hormel v. Helvering, 312 U.S. 552, 557 (1941); and (3) where the agency considered, or should have considered, the issue, despite the party's failure to raise it. Frango, 437 F.3d at 729; Natural Resources Defense Council, Inc. v. U.S. EPA, 824 F.2d 1146, 1150 (D.C. Cir. 1.987). All three exceptions apply in this case. If MSD had sought redress through the administrative process, its efforts would have been futile. The exhaustion rule enables an agency "to act within the sphere of its special competence, to apply its expertise, and to correct its own errors...." Ohio Valley Environmental Coalition, Inc. v. Apogee Coal Company, L.L.C., _F.Supp.2d , 2008 WL 194387 (S.D.W.Va. Jan. 24, 2008). The issue of whether the Hancock Amendment prevented MSD from raising adequate funds, and whether § 309(e) of the Clean Water Act holds the State accountable for the payment of any judgment against MSD, is clearly outside the purview of the administrative agency. Furthermore, MSD was embroiled in litigation from at least 1984 until 1999 regarding the Hancock Amendment's application to MSD's fund-raising attempts.6 MSD thus had no 6 See Beatty v. MSD, 731 S.W.2d 318 (Mo. App. E.D. banc 1987) ("Beatty I"); Beatty v. MSD, 700 S.W.2d 831 (Mo. bane 1985); Beatty v. Metropolitan St. Louis Sewer District, 867 S.W.2d 217 (Mo. banc 1993)("Beatty II"); Beatty v. Metropolitan St. Louis Sewer District, 914 S.W.2d 791 (Mo. bane. 1995)("Beatty III"); Missouri Growth Ass'n v. Metropolitan St. Louis Sewer 14 reason to challenge the permit conditions on the basis of the Hancock Amendment through an administrative appeal process before the permitting agency, the Missouri Department of Natural Resources ("MDNR") or the Missouri Clean Water Commission. Raising these claims before these agencies would have been futile. See, Gunter v. Morrison, id. at 2 (exhaustion rule does not apply because plaintiff was not required to take "futile" measures through city council when city council lacked authority to overturn decision of utilities board). D. The Remedies Sought By the State's Complaint Are Potentially Subject to the "Unfunded Mandates" Provision of the Hancock Amendment. The State argues that the Hancock Amendment imposes limitations only on funding for activities required by state law, and that because the Complaint is brought under federal law, the "unfunded mandates" provision of the Hancock Amendment is not implicated in any fashion. This argument fails for several reasons. The unfunded mandates provision of the Hancock Amendment provides: Property taxes and other local taxes and state taxation and spending may not be increased above the limitations specified herein without direct voter approval as provided by this constitution. The state is prohibited from requiring any new or expanded activities by counties and other political subdivisions without full state financing, or from shifting the tax burden to counties and other political subdivisions. A provision for emergency conditions is established and the repayment of voter approved bonded indebtedness is guaranteed. Implementation of this section is specified in sections 17 through 24, inclusive, of this article. Missouri Const., Art. X, § 16. District, 941 S.W.2d 615 (Mo. App. 1997); Ring v. MSD 969 S.W.2d 716 (Mo. banc 1999); Ring v. MSD, 41 S.W.3d 487 (Mo. App. E.D. 2000), cert. denied, 534 U.S. 893 (2001). In fact, MSD's Bissell Point, Lemay, and Missouri River WWTF permits —referenced in the Complaint at Claims Four through Nine, were all issued prior to the issuance of the Court's opinion in Missouri Growth Ass'n v. Metropolitan St. Louis Sewer Dist., 941 S.W.2d 615 (Mo.App. E.D. 1997), which clarified how wastewater charges can be levied so as not to violate the Hancock Amendment. 15 To the extent that the State is arguing that the unfunded mandates provision cannot be used by MSD as an affirmative defense to liability or to equitable relief, the State's argument ignores the fact that state requirements are at issue in this case. The State is a plaintiff in this case, and is clearly seeking to impose requirements on MSD through its Complaint. While the Complaint cites only federal law the Clean Water Act —the State is duly authorized under the Clean Water Act to implement and enforce certain of its provisions. 33 U.S.C. § 1342(b); see also Complaint, at para. 17. The State issued MSD's operating permits for its wastewater treatment facilities, and these operating permits are now being jointly enforced by the State and United States. The State even acknowledges in its Motion to Dismiss that MSD is subject to a "joint state -federal permitting and enforcement scheme." Memorandum in Support, at 16. Thus, MSD must comply with both the federal Clean Water Act and the state statute and regulations implementing the Act in Missouri, which, as MSD will show, are not entirely consistent or consistently implemented. Regardless of whether the State chose to cite state law or regulations in its Complaint, as a practical matter, MSD must also comply with state requirements in order to comply with the provisions of the Clean Water Act cited in the Complaint. Whether the requirements that the State along with the United States seeks to impose on MSD are "new" or "expanded" for purposes of the unfunded mandates provision of Hancock Amendment § 16, is a disputed question of fact that cannot be addressed at this stage in a motion for dismissal. MSD submits that, in fact, a number of the requirements that the State seeks to impose through the Complaint are based on interpretations and policies that presented new and expanded requirements for compliance over the course of MSD's operations. MSD will show that the State's oversight of these programs has and will continue to impose "new" and "expanded" requirements on MSD. 16 III. SOVEREIGN IMMUNITY DOES NOT BAR MSD'S HANCOCK AMENDMENT COUNTERCLAIMS AGAINST THE STATE. A. The State Does Not Have Immunity Under the Eleventh Amendment Because the State Has Consented to Suit. As to MSD's Counterclaims, the State does not have immunity under the Eleventh Amendment because (1) as to Counterclaim I, brought under Section 309(e), Congress has clearly abrogated state immunity in federal court, and (2) as to both Counterclaims I and II, the State has waived any immunity by consenting to suit by joining as a plaintiff in this lawsuit against MSD. With respect to Counterclaim I, Congress has unequivocally waived state immunity for state liability when a municipality is unable, due to state law, to comply with a judgment of the court. The Eleventh Amendment does not protect the State from potential liability to the United States under § 309 if it should be found that state law prevents MSD's compliance with any judgment. United States v. Mississippi, 328 U.S. 128, 140 (1965) (nothing in Eleventh Amendment has ever been read to prevent a suit of a state by the U.S.); Employees of Dept. of Public Health and Welfare, Missouri v. Department, 411 U.S. 279, 286 (1973) (suits by the US against a state are not barred by the Constitution); Tennessee Dept. of Human Services v. U.S. Dept. of Education, 979 F.2d 1162 (6th Cir. 1992) (Eleventh Amendment does not prohibit action by federal government against state, even if money collected by the federal government ultimately will pass to private person; state implicitly surrenders its immunity to such suits when it joins the union); Brennan v. State of Iowa, 494 F.2d 100 (8th Cir. 1974) (suits by the U.S. to enforce the Fair Labor Standards Act are not barred by the Eleventh Amendment). Second, the State has waived any immunity as to both Counterclaims I (§ 309(e)) and II (Indemnity), because the State has consented to suit in federal court. College Say. Bank v. Florida Prepaid Postsecondary Educ. Expense Bd., 527 U.S. 666, 670 (1999). "Eleventh 17 Amendment immunity may be waived if a state actor with the power to bring suit in federal court invokes federal jurisdiction in a clear and voluntary manner." Union Electric Co. v. Missouri Department of Conservation, 366 F.3d 655, 659-660 (8th Cir. 2004); Lapides v. Bd. of Regents of the Univ. System of Georgia, 535 U.S. 613 (2002)(state defendant's removal of federal and state claims to federal court waived Eleventh Amendment immunity for plaintiff's state law -based claims against state). Because the State has clearly and unambiguously invoked the jurisdiction of this Court, MSD's counterclaims against the State and affirmative defenses to the Plaintiffs' claims are not foreclosed by sovereign immunity. The State's claim that it has not consented to suit is belied by its actions. Section 309(e) does not specify that when a state is joined as a party, it must be joined as a plaintiff. Indeed, § 309(e), when read in full, seems to contemplate that a state would be joined as a defendant, because the state could be liable to the United States for the payment of any judgment against the municipality. See United States v. Duracell Intern., Inc., 510 F.Supp. 154 at 157 (E.D. Tenn. 1981)(state named as defendant in federal Clean Water Act enforcement action against municipality). Despite its attempted explanation to the contrary, the State has done much more than simply allow itself to be joined as a party in this case. The State could have waited for either the United States or MSD to invoke § 309(e) to compel the State's joinder. Indeed, the language in the plaintiffs' Complaint diverges from the language in § 309(e) and strongly suggests that the State is an unwilling participant in this case. According to the Complaint, "The State of Missouri has joined this action as a plaintiff pursuant to § 309(e) of the CWA, 33 U.S.C. § 1319(e)." Complaint, ¶ 2 (emphasis added). Similarly, the Complaint notes that "the State of Missouri... has joined as a party plaintiff pursuant to § 309(e) of the CWA, 33 U.S.C. § 1319(e)." 18 What is notable about these descriptions in the Complaint is that § 309(e) does not require that the State join the action as a party plaintiff, as stated in the Complaint. Section 309(e) requires that "the state... shall be joined as a party." 33 U.S.C. § 1319(e). If the State were truly a passive participant in this case, then it would have specified such in the Complaint simply by using the language of § 309(e) itself. Instead, the State took the active, voluntary step of joining the lawsuit as a plaintiff, regardless of how the State now attempts to frame its motivations. The State has, since the initiation of this case, taken active steps as a plaintiff participating in this litigation.8 As the Supreme Court has stated, "A benign motive... cannot make the critical difference.... Motives are difficult to evaluate, while jurisdictional rules should be clear." Lapides, at 621. The reality is that the State voluntarily joined with the United States as a plaintiff in this action and affirmatively asserted claims against MSD under §§ 309(b), 309(d), and § 504(a) of the Clean Water Act. The State acknowledges in its Motion to Dismiss that it was the State's choice to join this lawsuit as a plaintiff, rather than to be joined as a defendant. (Memorandum in Support at 3). The claims in which the State joins as a plaintiff include demands for relief in the form of civil penalties and substantial injunctive relief. By asserting claims against and seeking relief from MSD, the State has moved far beyond simply being a "joined party" under § 309(e). Yet the State now wants to have it both ways: on the one hand it wants to act as a co - plaintiff with Plaintiff United States to enforce the Clean Water Act, yet on the other hand it s For example, the parties have filed a joint scheduling pla❑ as required by Rules 16 and 26. In that proposed plan, which the State actively negotiated, the State has aligned itself with the Plaintiff United States and Plaintiff -Intervenor MCE for purposes of seeking discovery against MSD, and seeks its own allotment of depositions interrogatories, ostensibly for the purpose of developing its own case of MSD's liability. It certainly did not limit the purposes of its intended discovery against MSD. 19 wants to enjoy full immunity under the Eleventh Amendment. This is exactly the type of unfair igation advantage that the Supreme Court has recognized and prohibited: In large part the rule governing voluntary invocation of federal jurisdiction has rested upon the problems of inconsistency and unfairness that a contrary rule of law would create. ... A rule of federal law that finds waiver through a state attorney general's invocation of federal court jurisdiction avoids inconsistency and unfairness. A rule of federal law that... denies waiver despite the state attorney general's state -authorized litigating decision, does the opposite. Lapides, at 622-23 (emphasis added). In this case, the State's decision to enter this case as a plaintiff is a litigation decision of the State which results in abrogation of its Eleventh Amendment immunity. Here, the State made the affirmative choice to join in the United States' claims against MSD and seek relief. In so doing, the State has clearly and unambiguously invoked this Court's jurisdiction. It would be fundamentally unfair to permit the State to make affirmative claims against MSD but then allow the State to use the Eleventh Amendment to insulate itself from counterclaims arising out of the same underlying circumstances. In order to avoid an unjust result and to carry out the purposes of § 309(e), the Court should find that the State has waived its immunity with respect to counterclaims. In light of the State's voluntary and active pursuit of claims against MSD, College Say. Bank v. Florida Prepaid Postsecondary Educ. Expense Bd. , 527 U.S. 666 (1999), relied on by the State, is not applicable. In Florida Prepaid, the Supreme Court was asked to determine whether the State of Florida had constructively waived its sovereign immunity by engaging in an activity that subjected the state to suit under the federal Trademark Remedies Clarification Act (TCRA). The Court held that the state had not impliedly waived its sovereign immunity simply by participating in a federal program. Id. at 670. In this case, however, there is nothing "implied" or "constructive" about the State's invocation of federal jurisdiction. The State's 20 decision to actively and affirmatively pursue claims against MSD, rather than choosing a more passive option under Section 309(e), constitutes a clear and unambiguous invocation of this Court's jurisdiction. See Hankins v. Finnel, 964 F.2d 853 (8th Cir. 1992) (appearance by state attorney general may constitute waiver when attorney general seeks to take advantage of suit for the benefit of the state). B. State Sovereign Immunity Does Not Bar MSD's Counterclaims. The state common law doctrine of sovereign immunity also does not bar MSD's claims. MSD's first counterclaim seeks recovery under § 309(e) of the Clean Water Act. Under the Supremacy Clause of the United States Constitution, this federal claim cannot be defeated through assertions of state law sovereign immunity. The Supreme Court has expressly repudiated the use of common law sovereign immunity to defeat federal claims. Howlett v. Rose, 496 U.S. 356, 383 (1990) ("as to persons that Congress subjected to liability, individual Sates may not exempt such persons from federal liability by relying on their own common-law heritage . . . States would then be free to nullify for their own people the legislative decisions that Congress has made on behalf of all People."). In Congress' judgment, states are necessary parties to Clean Water Act lawsuits against municipalities, to ensure that any judgments rendered against municipalities could be satisfied. Duracell, 510 F.Supp. 154. The State is attempting to use state common law sovereign immunity to override and nullify Congress' intent as expressed in § 309(e) of the Clean Water Act. The Supremacy Clause forbids states "from dissociating themselves from federal law because of disagreement with its content or a refusal to recognize the superior authority of its source. Id. at 371. 21 As to MSD's claim for indemnification from the State under Counterclaim II, due to operation of the Hancock Amendment and the debt limit provision, MSD's claim is not barred by sovereign immunity. "Where a state invokes the jurisdiction of the federal courts, it waives sovereign immunity not only as to the state's claims, but also as to counterclaims that arise out of the same transaction or occurrence, ...." In re Lazar, 237 F.3d 967, 978 (9th Cir. 2001). In addition, in the Missouri Constitution, the State has waived its sovereign immunity for claims related to the Hancock Amendment. Missouri Const. Art. X, § 23. Counterclaim II arises out of the very claims made by the Plaintiffs and is contingent upon a finding of liability of MSD for these claims. Accordingly, Counterclaim II is not barred by the State's sovereign immunity doctrine, because the State has waived its immunity for those claims. 22 CONCLUSION WHEREFORE, MSD respectfully requests that the Court deny Plaintiff the State of Missouri's motions to dismiss and to strike MSD's counterclaims and affirmative defenses. Respectfully submitted, Dated: March 10, 2008 SHOOK, HARDY & BACON L.L.P. ` t �c� e vt c r y By: /s/ Terry J. Satterlee Terry J. Satterlee #550047 Thomas J. Greyer #550046 David R. Erickson 2555 Grand Boulevard Kansas City, Missouri 64108-2613 Telephone: (816) 474-6550 Telecopier: (816) 421-5547 Attorneys for Defendant/ Counterplaintiff Metropolitan St. Louis Sewer District AND KOHN, SHANDS, ELBERT, GIANOULAKIS & GILJUM, LLP By: /s/ Robert F. Murray Robert F. Murray #36547 John Gianoulakis #3207 One US Bank Plaza, 24`" Floor St. Louis, Missouri 63101 Telephone: (314) 241-3963 Telecopier: (314) 241-2509 Co -Counsel for Defendant/Countefplaintiff Metropolitan St. Louis Sewer District 23 CERTIFICATE OF SERVICE I hereby certify that on March 10, 2008, I electronically filed the foregoing with the Clerk of the Court using the CM/ECF system which sent notification of such filing to the following: Kathryn C. MacDonald Sara Colangelo Wyche Environmental Enforcement Section Environment and Natural Resources Division United States Department of Justice P.O. Box 7611, Ben Franklin Station Washington, D.C. 20044-7611 Telephone: (202) 353-7397 Facsimile: (202) 514-4180 Attorneys for Plaintiff The United States of America Joseph P. Bindbeutel, Senior Chief Counsel and Matthew Briesacher and John K. McManus, Assistant Attorneys General Agriculture and Environment Division Broadway Building, 8`h Floor P.O. Box 899 Jefferson City, Missouri 65102 Telephone: (573) 751-8805 Facsimile: (573) 751-8796 Attorneys for Plaintiff/Counterdefendant The State of Missouri: Jeremiah W. (Jay Nixon), Attorney General 24 Maxine I. Lipeles Elizabeth J. Hubertz Interdisciplinary Environmental Clinic Washington University School of Law One Brookings Drive Campus Box 1120 St. Louis, MO 63130 Telephone: (314) 935-5837 Facsimile: (314) 935-5171 Attorneys for Intervening Plaintiff Missouri Coalition for the Environment Foundation /s/ Terry J. Satterlee Attorney for Defendant