SACRAMENTO REG. CTY. SANITATION DIST. v. Thomas

• Decision Date: 16 October 1987
• Docket Number: No. Civ. S-85-1802 LKK.,Civ. S-85-1802 LKK.
• Citation: 668 F. Supp. 1427
• Court: U.S. District Court — Eastern District of California
• Parties: SACRAMENTO REGIONAL COUNTY SANITATION DISTRICT, Plaintiff, v. Lee M. THOMAS, et al., Defendants. And related counterclaim.

668 F. Supp. 1427

SACRAMENTO REGIONAL COUNTY SANITATION DISTRICT, Plaintiff, v. Lee M. THOMAS, et al., Defendants And related counterclaim.

No. Civ. S-85-1802 LKK.

United States District Court, E.D. California.

September 17, 1987.

As Amended October 16, 1987.

L.B. Elam, County Counsel, Robert L. Pleines, Supervising Deputy County Counsel, Sacramento County, Sacramento, Cal., Henry L. Diamond, Richard S. Davis, Kenneth S. Kaufman, Beveridge & Diamond, Washington, D.C., for plaintiff.

David F. Levi, U.S. Atty., Joseph F. DePietro, Asst. U.S. Atty., Sacramento, Cal., Carl Strass, Environmental Defense Section, Land & Natural Resources Div., U.S. Dept. of Justice, Washington, D.C. (Anthony F. Guadagno, Atty. Advisor, Office of Gen. Counsel, U.S. Environmental Protection Agency, Washington, D.C., of Counsel), for defendants.

ORDER

KARLTON, Chief Judge.

This action came before the court on cross motions for summary judgment. After hearing the motions were taken under submission. This order disposes of the motions and the case.

I THE UNCONTESTED FACTS

In 1979, the Environmental Protection Agency ("EPA") awarded the Sacramento Regional County Sanitation District ("District") a grant under Title II of the Clean Water Act, 33 U.S.C. §§ 1281-1299, for the construction of a solids processing and disposal facility at the District's regional wastewater treatment plant. The construction of the facility required the filling of approximately 48 acres of wetlands at the project site. All federal and state agencies involved in the construction, including the EPA, the United States Fish and Wildlife Service, the California Department of Fish and Game, and the California State Water Resources Control Board, determined that the District would have to build artificial wetlands to compensate for the loss of the natural wetlands. Indeed, the EPA grant was conditioned on the construction of the compensating wetlands.

Between January and April of 1980, the District wrote a number of letters to the California State Water Resources Control Board ("State Board") requesting additional grant funds for the purchase of the mitigation wetlands. The State Board acts as the agent of the EPA for purposes of carrying out the Clean Water Act construction grant program in California. By letter dated April 29, 1980, the State Board authorized the District to purchase land for purposes of constructing the new wetlands. The letter explicitly noted that the land was only "potentially grant-eligible," and that "the authorization does not constitute a commitment to award a grant for reimbursement of the incurred costs." Immediately after receiving authorization from the State Board, the District purchased land upon which the mitigation wetlands were to be constructed.¹ The District applied to the EPA for a grant amendment to cover the cost of buying the land. On November 10, 1980, the EPA transmitted the approved grant amendment to the District.

Soon after approving the grant, the EPA began to have second thoughts about funding the purchase of mitigation wetlands. In a December 5, 1980 meeting between staff of the EPA and the State Board, the EPA expressed doubts that federal law permitted the EPA to provide construction grants for the acquisition of mitigation wetlands. In a follow-up letter to the State Board, dated February 6, 1981, the EPA made its position clear. That letter stated flatly that the EPA "staff had throughly reviewed the matter and it is our conclusion that the federal law governing the construction grants program does not allow as an eligible cost the acquisition of land as a mitigation measure." The letter urged the State Board to inform the District of the EPA's position. Neither the EPA nor the State Board notified the District that questions had been raised concerning the eligibility of mitigation wetlands for funding.²

During the summer of 1981, the District was still waiting for the check from the EPA which was to be issued pursuant to the approved grant amendment. On August 6, 1981, the State Board informed the District by letter that the District would shortly be receiving the approved funds. The District eventually received a check from the United States Treasury in the amount of $812,000, of which $438,202 represented the 75 percent federal share of the actual cost of acquiring the mitigation wetlands.

A year later, during the summer of 1982, state auditors under contract with the EPA conducted a final audit of the construction project. During the exit conference on August 4, 1982, the auditors questioned whether the land the District had acquired to build the new wetlands was eligible for a construction grant. This was the first time the District learned that the there was a question as to the grant-eligibility of mitigation wetlands. In its final report, the auditors concluded that the cost incurred by the District in acquiring the mitigation wetlands was not an allowable project cost, and disallowed it. The District strenuously objected to the disallowance, and initiated administrative proceedings.

II THE EPA ADMINISTRATIVE DECISION

On July 6, 1984, the Regional Disputes Decision Official of EPA Region 9 issued a decision which confirmed the disallowance. The District requested that the EPA Regional Administrator review the decision of the Regional Disputes Decision Official. On June 6, 1985, the Regional Administrator affirmed the decision of the Regional Disputes Decision Official.

The Regional Administrator concluded that the grant funding for the District's purchase of mitigation wetlands should be disallowed. The first basis for the decision was that, according to the Regional Administrator, the Clean Water Act does not permit construction grant funding to be used for the purchase of land unless the land is an integral part of the waste treatment process or is to be used for the ultimate disposal of residues resulting from the treatment process. Since land purchased to replace natural wetlands is neither an integral part of the treatment process nor used for the ultimate disposal of waste residue, the Regional Administrator reasoned, the Clear Water Act does not authorize, and in fact prohibits, EPA funding of the purchase of such land.

Second, the Regional Administrator concluded that the acquisition of replacement wetlands is not permitted by 40 C.F.R. § 35.940-1(h), which expressly permits funding for the "costs of complying with the National Environmental Policy Act ("NEPA"), including costs of public notices and hearings." The Regional Administrator found that the section applies only to the costs of complying with NEPA procedures, and does not authorize the reimbursement of costs which are incurred in the course of taking substantive steps to mitigate adverse environmental effects.

Finally, the Regional Administrator held that the EPA was not estopped from recovering the grant funds simply because the funds had already been dispersed. The Regional Administrator premised this conclusion on her belief that the Clean Water Act does not authorize the EPA to fund the acquisition of compensating wetlands. She determined that even if the District relied on the initial grant of funds, the federal government is never obligated to honor unauthorized financial commitments. In addition, the Administrator noted that by regulation the EPA has the right to recover all unallowable costs at the time of final audit. See 40 C.F.R. §§ 30.615, 30.815, 30.820.

The District sought discretionary review by the EPA Assistant Administrator for Water. The request was denied.

III THE LAWSUIT

The District filed this action for declaratory and injunctive relief against the EPA and Lee Thomas, the EPA Administrator. The first cause of action, brought under the Administrative Procedure Act ("APA"), 5 U.S.C. § 702, alleges that the EPA's final decision is arbitrary, capricious, and erroneous as a matter of law. The second cause of action alleges that any EPA action would constitute an unlawful attempt "to modify the binding contractual obligation of the United States" created under the Clean Water Act, 33 U.S.C. § 1283(a). The final cause of action alleges that the EPA is estopped from attempting to recoup the money.

IV THE MOTIONS FOR SUMMARY JUDGMENT

The District moves for summary judgment on the first and second counts of the complaint. The EPA moves for summary judgment on all counts. Since the District by this action seeks review of a final agency decision under the APA, I will begin by summarizing the standards that I must apply in reviewing that decision.

A. Standard of Review

When a motion for summary judgment is before the court, the court is ordinarily guided by the standards articulated in Federal Rule of Civil Procedure 56(c), which provides that summary judgment is appropriate when there exists "no genuine issue of material fact and the moving party should prevail as a matter of law." Jung v. FMC Corp., 755 F.2d 708, 710 (9th Cir. 1985). When the court is called upon to review an agency decision, however, the standards for summary judgment are modified by 5 U.S.C. § 706(2), at least with respect to factual disputes. The question is not whether there is a genuine issue of material fact, but "rather whether the agency action was arbitrary, capricious, an abuse of discretion, not in accordance with law, or unsupported by substantial evidence on the record taken as a whole." Good Samaritan Hospital, Corvallis v. Mathews, 609 F.2d 949, 951 (9th Cir.1979). This standard is derived from the APA, 5 U.S.C. § 706(2), which provides in part that the reviewing court shall

hold unlawful and set aside agency action, findings, and conclusions found to be — (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law ... or (E) unsupported by substantial evidence in a case subject to sections 556 and 557 of this title or otherwise reviewed on the record of an agency hearing provided

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