803 F.2d 1411 (6th Cir. 1986), 85-1030, City of Detroit, By and Through Detroit Water and Sewerage Dept. v. State of Mich., Michigan Dept. of Transp., Wayne County

Docket Nº:85-1030.
Citation:803 F.2d 1411
Party Name:CITY OF DETROIT, a Michigan municipal corporation, By and Through DETROIT WATER AND SEWERAGE DEPARTMENT, Plaintiff-Appellant, v. STATE OF MICHIGAN, MICHIGAN DEPARTMENT of TRANSPORTATION, COUNTY of WAYNE, Defendant, Wayne County Road Commission, Defendant-Appellee.
Case Date:October 21, 1986
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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803 F.2d 1411 (6th Cir. 1986)

CITY OF DETROIT, a Michigan municipal corporation, By and

Through DETROIT WATER AND SEWERAGE DEPARTMENT,

Plaintiff-Appellant,

v.

STATE OF MICHIGAN, MICHIGAN DEPARTMENT of TRANSPORTATION,

COUNTY of WAYNE, Defendant,

Wayne County Road Commission, Defendant-Appellee.

No. 85-1030.

United States Court of Appeals, Sixth Circuit

October 21, 1986

Argued March 13, 1986.

James A. Hourihan (argued), David F. Grady, Hogan & Hartson, Washington, D.C., for defendant-appellee.

Lynn Ferris, Detroit, Mich., Robert Walter (argued), for plaintiff-appellant.

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Before ENGEL and MILBURN, Circuit Judges, and CONTIE, [*] Senior Circuit Judge.

ENGEL, Circuit Judge.

The principal issue here is whether the City of Detroit, through the Detroit Water and Sewerage Department, may charge Wayne County Road Commission for a portion of the cost associated with storm water that runs off Wayne County Road Commission roads in the City of Detroit and flows into the City's treatment system. On cross-motions for summary judgment, the district court rejected several theories advanced by the City to support such charges and therefore granted judgment in favor of the Wayne County Road Commission. See City of Detroit v. Michigan, 594 F.Supp. 574 (E.D.Mich.1984). Because we conclude that the City of Detroit has a right to levy such charges under Michigan's Revenue Bond Act of 1933, Mich.Comp.Laws Ann. Secs. 141.101-.139, we reverse.

I.

The material facts in this case are largely undisputed. The City of Detroit, through the Detroit Water and Sewerage Department (DWSD), owns and operates a combined wastewater treatment system located within the City of Detroit. This combined system, which serves much of southeastern Michigan, funnels storm water runoff and sewage through a common system.

The Wayne County Road Commission (WCRC) has established roads under its jurisdiction which are located within the corporate boundaries of the City of Detroit. WCRC assumed jurisdiction over the first of these Detroit roads in 1912, and last assumed jurisdiction over a road in Detroit in December of 1965. WCRC presently maintains over 83.28 linear miles of roads located within the City of Detroit. All parties agree that WCRC has a statutory duty to keep the roads that it maintains "in reasonable repair, so that they shall be reasonably safe and convenient for public travel...." Mich.Comp.Laws Ann. Sec. 224.21. Both parties also agree that this duty requires WCRC to provide adequate and appropriate drainage for roads under its jurisdiction. WCRC further states, although it has provided drainage by differing methods, drainage for at least some of its roads has been obtained by tapping into the DWSD sewer system.

Prior to 1940, the City of Detroit's sewage system was fairly primitive: sewage, industrial waste, and storm water were transported directly through the sewer system into the Detroit River without receiving any treatment. In May of 1940, however, Detroit began operating its first wastewater treatment plant which provided for the primary treatment of flows received at that plant. At that time, the rates that were charged to users were assessed on the basis of water usage. This rate system amounted to an across-the-board flat rate for all users based upon water consumption. There were no subclasses or differentials between residential and nonresidential users within the City of Detroit. In addition, no charges were assessed to any user of the Detroit sewerage system for storm water flows. As a result, WCRC was not charged for such runoff at any time prior to January 1, 1980. Nor has the City of Detroit paid DWSD for the treatment of storm water runoff from City streets.

In 1977, the Environmental Protection Agency (EPA) sued the City of Detroit, DWSD, and the State of Michigan, alleging that Detroit's sewage system did not satisfy the requirements of the Federal Water Pollution Control Act (FWPCA), 33 U.S.C. Sec. 1251 et seq. 1 See United States v. City

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of Detroit, No. 77-71100 (E.D.Mich.) (pending). Following negotiations among the parties, a consent judgment was entered by the district court, requiring the City to adopt a user charge system and have it fully implemented and effective on all bills after January 1, 1980.

A rate plan was adopted by the Detroit City Council on September 19, 1979, and was later approved by the EPA. On October 4, 1979, the district court took jurisdiction over all challenges to this plan and ordered that "all users, customers and rate payers of the system" would be bound by the results of any challenges unless they notified the court of their desire to opt out. Order Re: Rate Challenges, United States v. City of Detroit, No. 77-71100 (E.D.Mich. Oct. 4, 1979). Prior to a hearing on these challenges, the parties reached a settlement agreement, which was filed with the district court on June 30, 1980. On August 26, 1980, the district court ordered that "all users, customers and rate payers of DWSD's sewage system shall be bound by the Settlement Agreement." Order of Dismissal Re: Rate Challenges, United States v. City of Detroit, No. 77-71100 (E.D.Mich. Aug. 26, 1980).

On March 9, 1981, the district court assumed ancillary jurisdiction over challenges to treatment rates that were to become effective on July 1, 1981, again ordering that "users, customers and rate payers of the system" would be bound by the proceedings unless they opted out. Order Re: Rate Challenges, United States v. City of Detroit, No. 77-71100 (E.D.Mich. March 9, 1981). After challenges were filed, the parties reached an amicable settlement agreement. Users, customers, and rate payers of the system were afforded an opportunity to object to this agreement, and an order was later issued providing that the terms of the agreement were "binding upon the DWSD and all customers, users, and rate payers." Order of Dismissal Re: Rate Challenges, United States v. City of Detroit, No. 77-71100 (E.D.Mich. July 21, 1982).

On January 1, 1980, DWSD began charging WCRC the cost for storm water treatment for runoff from its roads. To compute this charge for 1980-81 and subsequent years DWSD first estimated the system's total cost that was attributable to storm water runoff within the City of Detroit. This cost was then allocated between three classes: residential water users, nonresidential users, and state and county roads, based on their relative impervious acreage. 2 WCRC, however, has refused to pay any storm water runoff charge, claiming that storm water that runs off its roads is not attributable to WCRC and that WCRC should not be considered a "user" of Detroit's treatment facility.

Thereafter, the City of Detroit and DWSD commenced this action in the United States District Court for the Eastern District of Michigan seeking recovery of storm water treatment charges from WCRC. The City claimed that it was entitled to have a contract implied as a matter of law for payment of these charges and, alternatively,

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that the Revenue Bond Act of 1933, Mich.Comp.Laws Ann. Sec. 141.118 (1979), created an obligation upon WCRC to pay the charges properly assessed. 3 By way of counterclaim, WCRC contended that, if it was deemed a "user" of the Detroit Wastewater Treatment System, the storm water treatment rates should be deemed arbitrary and capricious and violative of the proportionality requirement of section 204 of the FWPCA, 33 U.S.C. Sec. 1284(b)(1)(A). The City in turn asserted that WCRC was collaterally estopped from challenging rates settled by two prior rate settlement agreements entered by the district court in United States v. City of Detroit, No. 77-71100. The district court's ancillary jurisdiction was properly invoked over the City's state law claims against WCRC. 4 The case was then submitted to the district court on cross-motions for summary judgment. Upon reviewing the papers, depositions, and interrogatories filed by the parties, the district court concluded that "even if the record is viewed in the light most favorable to Plaintiffs, Plaintiffs clearly have not raised a genuine issue with respect to any material fact." City of Detroit v. Michigan, 594 F.Supp. at 575. The court therefore granted WCRC's motion for summary judgment and dismissed the City's complaint. Thereafter, on November 19, 1984, the City filed a motion for reconsideration which was denied in a written memorandum and order on December 11, 1984. The City then filed a timely notice of appeal on December 31, 1984.

II.

Although the City has raised a number of arguments on appeal in support of its contention that the district court erred in dismissing its claims on the ground that the City had raised no genuine issue of fact, we address the narrow issue of whether the Revenue Bond Act of 1933, Mich.Comp.Laws Sec. 141.118, permits the City to charge WCRC the cost of treating WCRC's storm water runoff and also requires WCRC to pay these costs. In addressing this issue, we are, of course, bound by Michigan law.

A.

"Michigan's Revenue Bond Act of 1933 "authorize[s] public corporations to purchase, acquire, construct, improve, enlarge, extend, or repair public improvements ... [and] to provide for the imposition and collection of charges, fees, rentals, or rates for the services, facilities, and commodities furnished by such public improvements...." The Act defines "public improvements" as including: "sewage disposal systems (including all sanitary sewers, combined sanitary and storm sewers, plants, works, instrumentalities and properties used or useful in connection with the collection, treatment and/or disposal of

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sewage and/or industrial wastes)...." Mich.Comp.Laws Ann. Sec. 141.103(b). The Act also governs the rates for services...

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