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