Sacramento Regional County Sanitation Dist. v. Reilly, 89-15621

• Citation: 905 F.2d 1262
• Decision Date: 08 June 1990
• Docket Number: No. 89-15621,89-15621
• Parties: , 58 USLW 2742, 20 Envtl. L. Rep. 21,113 SACRAMENTO REGIONAL COUNTY SANITATION DISTRICT, Plaintiff-Appellee, v. William K. REILLY, in his official capacity as Administrator of the United States Environmental Protection Agency; United States Environmental Protection Agency, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1262

905 F.2d 1262

31 ERC 1473, 58 USLW 2742, 20 Envtl.

L. Rep. 21,113

SACRAMENTO REGIONAL COUNTY SANITATION DISTRICT, Plaintiff-Appellee, v. William K. REILLY, in his official capacity as Administrator

of the United States Environmental Protection

Agency; United States Environmental

Protection Agency,

Defendants-Appellants.

No. 89-15621.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 17, 1990.

Decided June 8, 1990.

Richard B. Stewart, Asst. Atty. Gen., David F. Levi, U.S. Atty., and Andrea M. Miller, Asst. U.S. Atty., Sacramento, Cal J. Carol Williams, Carl Strass, Charles J. Sheehan, Attys., Dept. of Justice, Washington, D.C., for defendant-appellant E.P.A.

L.B. Elam, County Counsel, Robert L. Pleines, Supervising Deputy Counsel, Office of the County Counsel, Sacramento, Cal., Henry L. Diamond, Richard S. Davis, David M. Friedland, Beveridge & Diamond, P.C., Washington, D.C., for plaintiff-appellee Sacramento Regional County Sanitation Dist.

Appeal from the United States District Court for the Eastern District of California.

Before FLETCHER and REINHARDT, Circuit Judges, and LIVELY, Senior Circuit Judge. ^*

REINHARDT, Circuit Judge:

The Sacramento Regional County Sanitation District ("District") brought an action against the Environmental Protection Agency ("EPA") for declaratory and injunctive relief after the EPA disallowed a grant of funds to the District for the purchase of replacement wetlands. The purchase was required by federal and state agencies (including the EPA) with jurisdiction over the construction of the District's new solid wastewater treatment plant, as mitigation for the loss of the natural wetlands caused by the project. After initially approving the grant and disbursing the funds to the District, the EPA withdrew its approval and purported to disallow the grant on the ground that it did not have the statutory authority to grant funds for the purchase of mitigation wetlands. The District then filed this action, and the EPA filed a counterclaim seeking the return of the wetlands funds. Upholding the District's arguments, the district court held that the EPA did have the authority to make the grant in question--although it acknowledged that the agency would not have been required to do so--and enjoined the EPA from disallowing the grant.

On appeal, the EPA argues that: (1) Section 201 of the Clean Water Act, 33 U.S.C. section 1281, does not authorize federal funding of mitigation land purchases because any "site acquisition" must be an "integral part" of the treatment process and is not "construction" as defined in 33 U.S.C. section 1292(1), and (2) even if the EPA does have the authority to grant the District funds for the purchase of mitigation lands, the district court should have remanded the case to the EPA to allow it to exercise its discretion with respect to the District's request. In contrast, the District argues on appeal that: (1) the phrase "other necessary actions" in the definition of "construction" permits the EPA to authorize funding for replacement wetlands, and (2) since California's State Water Resources Control Board, the agent of the EPA, approved the funding and the EPA disbursed the grant, the EPA is now estopped from recovering the money. These questions--with the possible exception of the last, which we do not reach--are "pure issues of law" and subject to de novo review. United States v. Vogler, 859 F.2d 638 (9th Cir.1988), cert. denied, 488 U.S. 1006, 109 S.Ct. 787, 102 L.Ed.2d 779 (1989). We reverse the district court and hold that the language of section 1292(1) does not authorize federal funding for mitigation wetlands, but remand so that the district court may consider the estoppel question and any other issues that may properly be raised.

I. FACTS

To further the "development and implementation of waste treatment management plans and practices," Title II of the Clean Water Act ("the Act") authorizes the EPA to make grants to states, municipalities, or other local governmental agencies for the "construction of publicly owned treatment works." 33 U.S.C. Sec. 1281(g)(1). These construction grants are part of a broad effort by the federal government to restore the quality of the nation's waters. See generally 33 U.S.C. Sec. 1251(a). In order to obtain federal funds for the construction of a treatment plant, the local applicant must submit plans, specifications, and cost estimates for each proposed project. 33 U.S.C. Sec. 1283(a). The EPA's approval of the application creates a grant agreement which is defined by Congress as a federal contractual obligation. ¹

In 1979, the EPA, through its state agent, California's State Water Resources Control Board ("State Board"), awarded the District a grant for the construction of a solids processing and wastewater treatment plant. ² The initial grant did not provide funds for the acquisition of mitigation wetlands because the reviews required for this phase of the project had not yet been completed. However, between December 1979 and April 1980, the District sent at least five letters to the State Board requesting additional federal funds to acquire land on which to create artificial wetlands that would compensate for the loss of the natural wetlands to be filled by the project. ³ The federal and state agencies involved in the construction, including the EPA, the Army Corps of Engineers, the United States Fish and Wildlife Service, the California Department of Fish and Game, and the State Board, had approved the project on the condition that the District mitigate the wetlands loss by creating at least the same amount of acreage (approximately 48 acres) of compensating wetlands elsewhere. Sacramento Regional County Sanitation District v. Thomas, 668 F.Supp. 1427, 1428 (E.D.Ca.1987). On April 29, 1980, the State Board sent a letter to the District authorizing it to purchase land to serve as the site for 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, but will allow payment for the above authorized costs [including ... the costs of the wetlands compensation area] upon the subsequent award of a grant for this purpose." The State Board explained that the original grant could not, at that time, be increased to include the costs of the wetlands acreage because the EPA had deferred its obligation of fiscal year 1980 funds. Some time after receipt of this letter, the District commenced to purchase the land. ⁴ In November 1980, having made its fiscal year 1980 grant funds available for obligation, the EPA approved a grant amendment filed by the District for several land purchases including the mitigation land. ⁵

In a December 5, 1980 meeting with members of the State Board, EPA representatives for the first time expressed their doubts concerning whether federal law permits the EPA to provide construction grants for the acquisition of mitigation wetlands. They said they doubted whether section 1281 grants could be used for that purpose. The EPA asserted its position unequivocally in a follow-up letter to the State Board on February 6, 1981, in which it concluded that mitigation land costs were not grant-eligible. ⁶ The letter urged the State Board to inform the District of the EPA's position, but neither the EPA nor the State Board did so. ⁷ Furthermore, on August 6, 1981, the State Board informed the District by letter that the District would shortly be receiving the "approved funds" although the final funding decision hinged on the results of the final audit. The State Board attached a form to the letter setting forth EPA approval of the request and listing the costs for land purchases approved for grant payment. Among the costs listed was that for the mitigation wetlands. On August 13, 1981, the EPA issued a United States Treasury draft to the District in the amount of $812,000, of which $438,202 represented the 75 percent federal share of the $584,270 actual cost of acquiring the land in question.

In 1982, state auditors under contract with the EPA conducted a final audit of the construction project. ⁸ For the first time, the District learned that the wetlands portion of the grant was being questioned. The auditors, in their final report, concluded that the costs of acquiring the wetlands were purely land costs and because they "were not an integral part of the treatment process," they were not allowable project costs. They disallowed them. The District strenuously objected to the disallowance, and thereafter, commenced the proceedings below.

II. DISTRICT COURT PROCEEDINGS

After exhausting the administrative appeals process, the District filed an action in the district court, seeking declaratory and injunctive relief against the EPA. The EPA counter-claimed for the return of the wetlands acquisition grant funds. The court granted the District's motion for summary judgment, and enjoined the EPA from seeking to recover the funds. 668 F.Supp. at 1439. Although the court found that the "lengthy definition of treatment works" in 33 U.S.C. section 1292(2)(A) ⁹ left "no room for mitigation wetlands," it held that the EPA had authority to grant funds for the purchase of mitigation lands under the Act's definition of the term "construction." ¹⁰ Id. at 1433-34. According to the district court, the phrase "or any other necessary actions" indicated that "Congress intended to give the term 'construction' an exceedingly broad reach. In addition to the actual building of a treatment works, the definition encompasses virtually every act related to the process of building a treatment works." Id. at 1434. The district court concluded that since the acquisition of mitigation wetlands is essential to the building of the treatment works, it qualifies as one of the "other necessary actions" and can be funded under the definition of...