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
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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
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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.
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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
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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
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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
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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