City of Mount Clemens v. U.S. E.P.A.
| Decision Date | 25 October 1990 |
| Docket Number | No. 89-1801,89-1801 |
| Citation | 917 F.2d 908 |
| Parties | 21 Envtl. L. Rep. 20,351 CITY OF MOUNT CLEMENS, a Michigan municipal corporation, Plaintiff-Appellant, v. UNITED STATES ENVIRONMENTAL PROTECTION AGENCY; Lee Thomas, Administrator of the United States Environmental Protection Agency; Valdas V. Adamkus, Regional Administrator of the United States Environmental Protection Agency; and David F. Hales, Director of the Michigan Department of Natural Resources, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Noah Eliezer Yanich, Louis B. Reinwasser (argued), Miller, Canfield, Paddock & Stone, Lansing, Mich., for City of Mount Clemens.
Carl Strass, Michael P. Healy (argued), John A. Bryson, U.S. Dept. of Justice, Land & Natural Resources Div., Washington, D.C., for U.S. E.P.A., Lee M. Thomas and Valdas V. Adamkus.
Roland Hwang, Asst. Atty. Gen. (argued), Natural Resources Div., Lansing, Mich., for David F. Hales.
Before KEITH and MILBURN, Circuit Judges, and CONTIE, Senior Circuit Judge.
On November 7, 1988, plaintiff City of Mount Clemens ("the City") initiated this action to compel defendants: the United States Environmental Protection Agency ("EPA"); Lee M. Thomas, EPA Administrator; Valdas V. Adamkus, EPA Regional Administrator; and David F. Hales, the Director of the Michigan Department of Natural Resources ("MDNR") (collectively "defendants"), to certify the City's local wastewater treatment plant for a federal construction grant. The complaint alleged that defendants' refusal to certify the City's plant is arbitrary and capricious, in violation of the Federal Water Control Act Amendments of 1972 ("the Clean Water Act"), 33 U.S.C. Secs. 1281 et seq., and 40 C.F.R. Secs. 35.100 et seq., the federal regulations governing construction grants for local wastewater treatment plants. On May 1, 1989, the district court entered an order which affirmed the magistrate's March 10, 1989 order limiting discovery to the administrative record and to whether the administrative decision makers complied with federal statutes and regulations. On May 31, 1989, the district court issued a final judgment denying the City's motion for a preliminary injunction to sequester federal funds to satisfy the City's grant application. The district court also granted defendants' motions for summary judgment as the City failed to exhaust its state administrative remedies. For the reasons stated below, we AFFIRM the district court's order limiting the scope of discovery and that portion of its final judgment which denied the preliminary injunction. However, we REVERSE that portion of the district court's final judgment which granted defendants' motion for summary judgment and dismissed the City's case without prejudice.
In the early 1970s, MDNR, acting in conjunction with EPA, ordered the City to upgrade its wastewater treatment facility. At the time, the City's facility was discharging inadequately treated sewage water into the Clinton River. In 1973, the City entered into a contract to connect to the Detroit Wastewater Treatment Facility ("DWTF"), a large regional sewage treatment facility. In 1980, the City rescinded the contract for non-performance and prevailed against the City of Detroit in federal district court. 1 During the litigation, the district court ordered EPA and MDNR to determine whether the City's plan for a local wastewater treatment facility was eligible for federal funding. 2 Pursuant to federal statutory and regulatory directive, EPA and MDNR were required to determine whether the local plant or the regional plant was the most cost-effective alternative. 3 Under a delegation agreement with EPA, 4 MDNR retained the primary responsibility for reviewing the City's local facility cost-effectiveness analysis ("C/E analysis").
In September 1983, the City of Detroit provided a cost estimate and offered regional service to the City. In October 1983, the City submitted a revised facilities plan and C/E analysis to MDNR, concluding that the proposed local plant was more cost-effective than the regional plant. In a December 29, 1983 letter, MDNR responded to the City by stating that the absence of an acceptable C/E analysis was a major impediment to certifying the facilities plan and environmental assessment to EPA. Because the local project cost had escalated, MDNR explained that the City's previous plan had been rendered obsolete. MDNR advised the City that its C/E analysis must exclude "sunk costs" or those costs representing previous investments in the regional plant. MDNR concluded that the costs assessed to the regional plant could include only true operating and maintenance costs, in addition to the City's share of expected future capital costs required to improve water quality.
After reviewing the City's revised C/E analysis, MDNR asked EPA for technical assistance in February 1984. The City maintained that it had reasonably relied upon DWTF's sewer service charges in calculating the operation, maintenance and replacement costs for the regional plant. EPA responded that DWTF's sewer service charges included "debt retirement," which was a "sunk cost" that could not be included in the City's cost comparisons of the regional plant and the proposed local plant.
In July 1984, the City submitted another C/E analysis to meet EPA's requirements. In the revised C/E analysis, the City stated that the regional plant had an estimated annual cost of $2,405,411 to be compared with the local plant's estimated annual cost of $2,301,578. After reviewing the City's calculations, EPA concluded that the City had used questionable baseline figures, erred in its present worth calculations, and inflated the estimated annual cost of the regional plant.
On July 11, 1985, MDNR officials telephoned EPA officials to state that as a result of threatened litigation by the City, MDNR would approve the City's C/E analysis for a local wastewater treatment plant. MDNR requested EPA's continued technical assistance in reviewing the City's facilities plans and emphasized the strong federal interest in resolution of the conflict. In a July 12, 1985 letter to EPA, MDNR stated:
In accordance with the 1982 delegation agreement between the U.S. Environmental Protection Agency and the Michigan Department of Natural Resources, we certify that the [City's Facilities] Plan complies with [40 C.F.R. Sec. 35.917]. The Facilities Plan consists of those necessary plans and studies which directly relate to treatment works needed to comply with enforceable requirements of the Act. The Facilities Plan contains a thorough evaluation of alternatives and the selected alternative is implementable and is cost effective.
On August 2, 1985, the City's engineers telephoned EPA and inquired as to the status of the City's application for federal funds to finance its proposed local plant. EPA explained that it could not complete the environmental review because it was uncertain as to whether the local plant or the regional plant would be more cost-effective. EPA contended that future capital improvements in the DWTF could not be added to the cost of the regional plant in the City's C/E analysis. In an August 8, 1985 memorandum, MDNR memorialized its opposition to EPA's approach to the City's C/E analysis. MDNR argued that when reviewing a previous project, EPA had allowed a local agency to prorate a portion of future improvements to a regional plant and add those costs to the regional plant cost estimates of its C/E analysis. On October 2, 1985, EPA responded that in the City's current C/E analysis, inclusion of future capital improvements in the DWTF as an additional cost of the regional plant would be appropriate only if the improvements would be required by the City's increased use of the regional plant, as opposed to the City's use of the proposed local plant. EPA also questioned the methodology used in the City's C/E analysis and concluded that the City's local plant total cost estimate was one-half the cost estimates historically submitted for similar facilities.
On February 11, 1986, MDNR adopted EPA's position and informed the City that its local plant was not eligible for grant funding because of deficiencies in its environmental assessment and facilities plan. MDNR specifically informed the City that its C/E analysis: (1) improperly included the costs of capital improvements to the regional plant; and (2) underestimated, based on MDNR and EPA experience, the operating, maintenance and repair costs of the local plant. On April 25, 1986, MDNR informed the City, in writing, that its local plant facilities plan had been rejected. MDNR also advised the City of its right to seek review.
After a December 3, 1986 meeting with the City and MDNR, EPA agreed to conduct another review of the City's local plant facilities plan. On December 19, 1986, the City requested that EPA formally respond to its C/E analysis. When EPA failed to respond, the City sought the assistance of United States Senator Donald W. Riegle, Jr. (D-Michigan) ("Senator Riegle"). In a February 20, 1987 letter, the EPA regional administrator explained to Senator Riegle that the City had failed to demonstrate that its proposed project met the cost-effectiveness provisions of the Clean Water Act. Thus, the City's proposed local wastewater treatment plant was deemed ineligible for federal grant assistance.
In an April 14, 1988 letter to MDNR, the City claimed a right to federal funding based on its MDNR-assigned priority ranking of nine for the local plant. The City also complained that it had never received adequate written notice of the deficiencies in its C/E analysis and formally protested the distribution of...
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