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HomeMy Public PortalAboutExhibit MSD 18H6 Counterclaim 040308Exhibit MSD 18H6 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 SURREPLY TO PLAINTIFF STATE OF MISSOURI'S MOTIONS TO STRIKE AND/OR DISMISS COUNTERCLAIMS Defendant Metropolitan St. Louis Sewer District ("MSD") submits this Surreply to Plaintiff State of Missouri's ("State") Reply Memorandum in Support of Motion to Dismiss MSD's Counterclaim and to Strike Affiiiiiative Defenses (Docket No. 82) ("Reply Memorandum"), to address the State's mischaracterization of the historic impact that the Hancock Amendment has had on MSD's ability to finance operations, maintenance and improvements to its sewer system. In its Reply Memorandum, the State blithely argues that, "In all relevant respects, the Hancock Amendment has been unchanged since its passage in 1980, so the only thing that prevented MSD from raising revenue prior to 1997 was its chosen method of assessing service fees. Like Dorothy and the ruby slippers, MSD always had the means to solve its problem. MSD just had to discover for itself that it had the means." Reply Memorandum 2. This argument grossly mischaracterizes the hurdles of shifting judicial interpretations and lengthy and difficult litigation that Missouri municipalities and other local governments, including MSD, faced throughout the 1980's and 1990's in their attempts to finance their obligations in compliance with the Hancock Amendment. It was during this same time period that new federal Clean Water Act requirements, and Missouri Clean Water Law requirements involving the regulatory programs dealing with the Combined Sewer System overflows and Sanitary Sewer Overflows as well as additional water quality requirements were being promulgated and imposed on MSD-- precisely the issues which the Plaintiffs and Plaintiff -Intervenor are suing over. The evidence will show that compliance with these requirements by a municipal sewer agency takes decades, and that MSD was striving to meet these requirements. Prior to the adoption of the Hancock Amendment in 1980, MSD was successfully at raising sewer charges to fund major construction projects focused on combining the 73 plus systems and major rehabilitation of the system and providing necessary capacity to reduce overflows. Only after the adoption of the. Hancock Amendment did MSD and many other municipalities find themselves in litigation over and struggling to provide services given their inability to raise rates or issue revenue bonds. MSD will demonstrate that but for the passage of 2 the Hancock Amendment, major construction projects and water treatment technologies would have been constructed to meet the requirements of the Missouri Clean Water Law. Contrary to the State's implication that MSD chose not to comply with the Hancock Amendment, the reality is that MSD's repeated attempts to finance necessary improvements were defeated by the changing judicial interpretations ever since the Hancock Amendment was adopted in 1980. Missouri local governments and courts, including the Missouri Supreme Court, have struggled with application of Hancock since its adoption. A brief review of the milestone Missouri Supreme Court decisions interpreting the Hancock Amendment demonstrates that, until at least1997, MSD was prevented from raising its sewer charges to fund the projects required by regulatory requirements and maintenance obligations without seeking voter approval, which effectively limited MSD's ability to fund their obligations. In 1982, the Supreme Court ruled that a city can raise its water and sewer rates to pay for operation and maintenance of its waterworks and sewer system without a vote because such rates are not subject to the Hancock Amendment as long as they used to repay bonds that had been previously approved by voters. Oswald v. City of Blue Springs, 635 S.W.2d 332 (Mo. 1982). However, later that same year, in Roberts, the Supreme Court ruled that a county (St. Louis County) cannot raise fees for county services such as parks and building inspections without a vote, because such fees are subject to Hancock Amendment Section § 22. Roberts v. McNary, 636 S.W.2d 332 (Mo. 1982). The Roberts court described the words "taxes, license or fees" in Hancock Amendment § 22 to "present a sweeping list of the types of pecuniary charges a government makes." Id. at 336. The Roberts decision was interpreted by subsequent opinions as mandating a vote for any local government revenue increase, and was not addressed again by the 3 Missouri Supreme Court until 1992. Keller v. Marion Cry. Ambulance Dist., 820 S.W.2d 301 (Mo. 1992). In the 1980's, local governments seeking to raise water and sewer rates were faced with the conflicting decisions of Oswald and Roberts, in determining whether increasing their rates would need to be approved by voters. Contributing to the confusion, in 1985, the Missouri Attorney General issued an opinion that water districts can increase rates to fund sewer maintenance and operations without a vote because such fees were not subject to the Hancock Amendment, according to Oswald. Missouri Attorney General Opinion Letter No. 76-85 (May 14, 1985)(attached hereto as Exhibit A)("We are of the view that there is a reasonable probability that a court would hold that water district rates are of a contractual nature and, therefore, that Hancock does not apply"). However, MSD's own attempts to raise rates to meet additional regulatory pressures and maintenance costs were invalidated by the Missouri Court of Appeals in 1987. Beatty v. Metropolitan St. Louis Sewer Dist., 731 S.W.2d 318 (Mo. App. 1987)("Beatty P). In 1985, MSD adopted an ordinance authorizing the repayment of revenue bonds to fund construction of eight pollution control projects, from revenues of all sewer facilities in the district. Id. at 319. As described later by the Missouri Supreme Court, the Court of Appeals held that MSD did not have authority to issue the revenue bonds,,and that therefore the user fees imposed in conjunction with the bond issue without voter approval violated the Hancock Amendment § 22. Id.; see also Beatty v. Metropolitan St. Louis Sewer Dist., 867 S.W.2d 217, 219 (Mo. 1993)(`Beatty II"). Subsequent to Beatty I, MSD sought and received voter approval to increase its sewer charges in 1988. Beatty II, at 219. But when MSD sought to increase sewer charges again in 1990, voters rejected the increase. Id. 4 After MSD was prevented from raising rates in 1990 by operation of the Hancock Amendment, the Missouri Supreme Court issued its decision in Keller v. Marion County Ambulance District, 820 S.W.2d 301 (Mo. bane 1992), which recognized that Roberts had been interpreted as requiring that all "fees" were subject to the Hancock Amendment requiring a vote. Id. In Keller, a divided Court held that a local ambulance district's increased charges for ambulance service were not fees under the Hancock Amendment. Id. In ruling that the increased fees were not subject to Hancock, Keller expressly overruled Roberts and declared that courts must examine the substance of a charge to determine if it is subject to Hancock, without regard tot eh label of the charge. Id. at 306. Keller set out in a footnote a five -factor test for determining whether a revenue increase by a local government is an increase in a "tax, license or fees" that requires voter approval under the Hancock Amendment. Keller at 304, n. 10. Thus Keller did not, contrary to the State's assertion, declare that any one particular type of fee or charge would or would not be subject to Hancock. Thus, after Keller, MSD had no clearer indication of whether its sewer charges were subject to Hancock than before Keller; all MSD had after Keller was a list of factors that a court might weigh to evaluate its charges. In reliance on Keller, in 1992 MSD increased its wastewater charges without voter approval, believing that its wastewater charges system would pass the five -factor test in Keller. Beatty II, at 219. These charges were challenged, and the trial court upheld the charges after applying the five -factor Keller test. Id. But on appeal, the Missouri Supreme Court, in the Beatty II case, applied the five -factor test and found that it was inconclusive. Id. The court reasoned that where genuine doubt exists as to the nature of the charge imposed by local government, the uncertainty is resolved in favor of the voters' right to exercise the guarantees 5 they provided for themselves in the constitution. Id. Consequently, MSD violated the Hancock Amendment by failing to obtain voter approval before implementing the charge increase. Id. After Beatty II, in 1993 MSD attempted again to raise its sewer charges, by basing the charges in part on a volume of usage by each customer. Missouri Growth Ass'n v. Metropolitan St. Louis Sewer Dist., 941 S.W.2d 615, 618. (Mo. App. 1997). These charge increases were challenged under the Hancock Amendment, in 1994. Id. The trial court held that the increased charges were not subject to Hancock and did not require a vote, and after three years of litigation the Court of Appeals affirmed the trial court, finding that the increased charges satisfied four of the five Keller factors. The history of Hancock litigation demonstrates that after Roberts in 1982, local governments including MSD were prevented from raising fees and charges to fund their obligations, without first obtaining voter approval, by operation of the Hancock Amendment. If voter approval was not obtained, the local government was left without means of raising revenues. This was the law in Missouri at least until Roberts was overturned ten years later in 1992 by Keller. And even after Keller there remained significant uncertainty as to how the five Keller factors might be applied in any given circumstance by any court reviewing a challenge to a fee increase. It was not until its volume -based methodology was approved by the Missouri Court of Appeals in 1997, in Missouri Growth Ass'n, did MSD have any level of certainty as to how to raise sewer charges without triggering the voter requirements of the Hancock Amendment. MSD submits that it will produce evidence showing that its inability to raise rates during the 1980s and much of the 1990's, to fund improvements which are at the heart of this lawsuit, was based on the impact of Hancock Amendment, as determined by the courts of Missouri 6 during that period. It will further provide evidence that its current water usage -based fees may not, as the State suggests, provide sufficient funding for the multi -billion dollar remedies sought by the State and United States in their Complaint. The Federal Clean Water Act section 309(e) states: (e) State liability for judgments and expenses 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. Such State shall be 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. This provision was written clearly for the situation that MSD finds itself in today. A state law, the Hancock Amendment, has prevented and may continue to prevent MSD's ability to raise the necessary funds to comply with the requirements of the Clean Water Act and the delegated requirements of the Missouri Clean Water Law. Accordingly, MSD's affiiniative defenses and counterclaims based on the Hancock Amendment should be not be dismissed or stricken. Respectfully submitted, Dated: April 3, 2008 SHOOK, HARDY & BACON L.L.P. 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 7 tsatterlee @ shb.com tgrever@shb.com derickson@shb.com Attorneys for Defendant/ Counterplaintiff Metropolitan St. Louis Sewer District AND KOHN, SHANDS, ELBERT, GIANOULAKIS & G1T JUM, LLP By: /s/ Robert F. Murray Robert F. Murray #36547 John Gianoulakis #3207 One US Bank Plaza, 24th Floor St. Louis, Missouri 63101 Telephone: (314) 241-3963 Telecopier: (314) 241-2509 [gianoulakis@kseag.com rmurray@ksegg.com Co -Counsel for Defendant/Counterplaintiff Metropolitan St. Louis Sewer District 8 CERTIFICATE OF SERVICE I hereby certify that on April 3, 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 kathryn.macdonald@usdoj.gov sara.wyche@usdoj.gov 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, 8th Floor P.O. Box 899 Jefferson City, Missouri 65102 Telephone: (573) 751-8805 Facsimile: (573) 751-8796 Joe.Bindbeutel@ago.mo.gov Matthew.briesacher@acro.mo.gov Jack.mcmanus@ago.mo.gov Attorneys for Plaintiff/Counterdefendant The State of Missouri: Jeremiah W. (Jay Nixon), Attorney General 9 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 milipe@wulaw.wustl.edu ejhubertz@wulaw.wustl.edu Attorneys for Intervening Plaintiff Missouri Coalition for the Environment Foundation /s/ Terry J. Satterlee Attorney for Defendant Attorney General` OpinionI e+t No , 6-85 , . "<<ge of 2 :sso At e���a� Opinion Letter No. 76-85 Contents of letter May 14, 1985 The Honorable Wesley A. Miller Representative District 108 House Post Office State Capitol Building Jefferson City, Missouri 65101 Dear Representative Miller: This letter is in response to your request for an opinion of this office asking as follows: 1. Does a public water district organized under Chapter 247 have to comply with the Hancock Amendment in increasing monthly water rates? 2. Assuming a public water district has issued bonds, what, if any, limits are placed on the water district in raising monthly rates under the Hancock Amendment? The answer to your first question, we believe, essentially depends upon whether or not the charges constitute taxes, licenses or fees within the meaning of Article X, Section 22(a) of the Missouri Constitution. If they are such, the case of Roberts v. McNary,;636 S.W.2d 332 (Mo. banc 1982) applies and increases in such charges must be approved by the voters under Hancock. If such charges are contractual in nature, it is doubtful that they would be subject to such a vote. See our Opinion No. 122-1982, copy enclosed. And, see Pace v. City of Hannibal, 680 S.W.2d 944 (Mo. banc) at 1.c. 948, in which the Court stated that payments which were not imposed by statute, charter or ordinance, but represented voluntary payments by the city board of public works into the city's general revenue fund did not come within Hancock. We are of the view that there is a reasonable probability that a court would hold that water district rates are of a contractual nature and, therefore, that Hancock does not apply. If the public water supply district has issued revenue bonds, the Missouri Supreme Court holding in the case of Oswald v. City of Blue Springs, 635 http://ago.mo.gov/opinions/1985/76-85.htm 4/3/2008 Attorney General f.; opinion Le Ler o 76 R5., age 2 of 2 S.W.2d 332 (Mo. bane 1982) is authority for the raising of the rates, without voter approval, to pay principal and interest on revenue bonds issued for the purpose of construction of the facilities and to meet costs of maintenance and operation of a plant. In this respect, the Court stated at 1.c. 334: Lastly, and most persuasively, logic demands the conclusion that the voters, by authorizing the Mayor and Board of Aldermen to increase rates to repay principal and interest, also authorized concomitant increases to pay for the costs of maintenance and operation. It cannot be argued seriously that a majority of the voters of the City approved the issuance of 19.1 million dollars of revenue bonds and authorized the City to increase the rates charged to users to repay the principal and interest on the bonds, yet did not authorize effectually an increase in those rates to keep the physical plant maintained and in working order. The promise to repay the bonded indebtedness would be illusory without the promise to keep the facilities running.... We trust this answers your questions. Very truly yours, William L. Webster Attorney General http://ago.mo.gov/opinions/1985/76-85.htm 4/3/2008