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Carolina Water Service, Inc. v. McCarthy

United States District Court, D. South Carolina, Columbia Division

September 29, 2016

CAROLINA WATER SERVICE, INC., Plaintiff,
v.
REGINA MCCARTHY, ADMINISTRATOR, UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, in her official capacity, UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, and TOWN OF LEXINGTON, SOUTH CAROLINA, Defendants.

          Carolina Water Service Inc, Plaintiff, represented by Chad Nicholas Johnston, Willoughby and Hoefer.

          Carolina Water Service Inc, Plaintiff, represented by John Marion S. Hoefer, Willoughby and Hoefer & Randy Lowell, Willoughby and Hoefer.

          Administrator Regina McCarthy, Defendant, represented by Beth Drake, U.S. Attorneys Office & Michael C. Augustini, U.S. Department of Justice, pro hac vice.

          United States Environmental Protection Agency, Defendant, represented by Beth Drake, U.S. Attorneys Office & Michael C. Augustini, U.S. Department of Justice, pro hac vice.

          Town of Lexington South Carolina, Defendant, represented by J. David Black, Nexsen Pruet Jacobs and Pollard, Joan Wash Hartley, Nexsen Pruet, William Thomas Lavender, Jr., Nexsen Pruet Jacobs and Pollard, J. David Black, Nexsen Pruet Jacobs and Pollard, Joan Wash Hartley, Nexsen Pruet & William Thomas Lavender, Jr., Nexsen Pruet Jacobs and Pollard.

          Carolina Water Service Inc, Counter Defendant, represented by Chad Nicholas Johnston, Willoughby and Hoefer, John Marion S. Hoefer, Willoughby and Hoefer & Randy Lowell, Willoughby and Hoefer.

          OPINION AND ORDER

          MARGARET B. SEYMOUR, Senior District Judge.

         This matter is currently before the court for three motions: (1) a motion to dismiss filed by Defendant United States Environmental Protection Agency and Regina McCarthy, in her capacity as Administrator of the United States Environmental Protection Agency (collectively hereinafter "EPA") (ECF No. 24); (2) a motion to dismiss the counterclaim filed by Carolina Water Service, Inc. ("Plaintiff" or "CWS") (ECF No. 32); and (3) a motion for summary judgment filed by the Defendant Town of Lexington, South Carolina ("Town") (ECF No. 40). As explained below, the court dismisses CWS's action against the EPA for failure to state a claim upon which relief may be granted, and dismisses CWS's action against the Town and the Town's counterclaim for lack of subject matter jurisdiction.

         I. FACTUAL BACKGROUND

         The claims in this case arise out of an ongoing dispute concerning the continued discharge of wastewater into South Carolina's Lower Saluda River from a CWS-owned regional wastewater treatment plant ("I-20 Plant"). CWS is a privately-owned company that is a "public utility, as defined by S.C. Code Ann. §§ 58-3-5(6) and 58-5-10(4), and is authorized by a certificate of public convenience and necessity issued by the Public Service Commission of South Carolina (PSC') to provide wastewater collection and treatment services to customers in various areas in the State of South Carolina, including portions of Lexington County, South Carolina." ECF No. 1 at ¶ 1. The Central Midlands Council of Governments ("CMCOG"), a board consisting of elected officials, administrators, and appointees from local counties, towns, and cities, is tasked with conducting water quality planning and management for the Midlands region of South Carolina. ECF No. 24-1 at 12. CWS's I-20 Plant is located in the Town and is within CMCOG's region. Id.

         In 1979, pursuant to Section 208 of the Clean Water Act ("CWA"), [1] 33 U.S.C. § 1288, CMCOG drafted its original "208 Plan, " a waste treatment and water quality plan for the Midlands area. Since then, the 208 Plan has been regularly amended. Under the current plan, the Town is the "Designated Management Agency (hereinafter DMA') and also the regional provider of wastewater collection and transportation services in a portion of the Midland's South Carolina region." ECF No. 1 at ¶ 4. The 208 Plan is subject to the review and approval of the South Carolina Department of Health and Environmental Control (DHEC), which the EPA authorized South Carolina to create in 1975. ECF No. 24-1 at 13. DHEC is the permitting agency for National Pollutant Discharge Elimination System (NPDES) permits in South Carolina. Id. The NPDES program helps "regulate[] wastewater discharges from, among other things, sewage treatment plants in the State." Id.

         In November 1994, "DHEC issued to CWS NPDES Permit SC0035564, which authorizes CWS to operate and discharge wastewater from the I-20 Plant into the Lower Saluda River subject to the terms and conditions of the permit." ECF No. 1. In accordance with the 208 Plan's requisite to eliminate discharges from small treatment facilities, the NPDES permit required the I-20 system to be connected to a regional facility when one became operational. An update to the 208 Plan in 1997 continued to require the I-20 Plant to connect with a regional wastewater facility when available. ECF No. 1 at ¶ 31. In 1999, the "Town finished construction on the regional sewer line and received a Permit to Operate from DHEC." Id. at ¶ 30. CWS alleges that since the completion of this facility in 1999, CWS has "proactively sought to address the discharge elimination requirement" but "each of those attempts have been rejected and interconnection remains unavailable to CWS." Id. at ¶ 31.

         Without an interconnection agreement, discharge of wastewater into the Lower Saluda River continues. As a result, on January 14, 2015, Congaree Riverkeeper, Inc. ("CRK"), a South Carolina environmental advocacy group, brought a citizen suit pursuant to the CWA § 505, 33 U.S.C. § 1365, against CWS for (1) a violation of CWS's NPDES permit condition requiring connection of the facility to the regional system; (2) a violation of the relevant 208 Plan, issued pursuant to CWA § 208, 33 U.S.C. § 1288, which also requires connection of the facility to the regional system; and (3) a violation of the NPDES permit conditions regarding effluent limitations and other standards.[2] See Congaree Riverkeeper, Inc. v. Carolina Water Service, Inc. (Case No. 3:15-CV-194-MBS).

         CWS contends that it is unable to reach an agreement because there is a regional treatment facility, located in Cayce, South Carolina, that is subject to a contractual Water Services Agreement ("Agreement") between the City of Cayce, the Town, and the Lexington County Joint Municipal Water and Sewer Commission. CWS alleges that as part of the Town's purchase of part of this regional treatment facility, the Town covenanted to not enter into any contract or agreement (including an interconnection agreement) to treat wastewater generated by private wastewater utility entities, such as CWS. Furthermore, CWS alleges that the "bonds issued by the Town to finance its investment in the available allocated treatment and discharge capacity of the City of Cayce's [regional treatment facility] restrict the receipt and/or quantity of wastewater generated by privately-owned... utilities, " such as CWS. ECF No. 25 at ¶ 45(a).

         On August 1, 2016, DHEC denied renewal of CWS's I-20 Plant NPDES permit, with orders that give "the Town of Lexington and CWS 60 days to submit a coordinated plan to DHEC detailing how CWS will interconnect the wastewater discharge from the I-20 plant to Lexington's sewer system. Within 12 months, CWS must complete the tie into the Lexington sewer system, shut down the I-20 facility and eliminate discharge into the Saluda River." DHEC Denies CWS I-20 Plant Permit and Orders Town of Lexington and CWS to Eliminate Discharge into Saluda River, South Carolina Department of Health and Environmental Control (August 1, 2016), http://www.scdhec.gov/Agency/NewsReleases/2016/nr20160801-01/. DHEC had previously announced its intention to deny CWS a new NPDES permit. ECF No. 24-1. DHEC reasoned that CWS is ineligible for a permit because "the regional system is operational and CWS therefore must connect to a regional sewer system or other treatment facility." Id. at 15 (citation omitted).

         II. PROCEDURAL HISTORY

         On December 11, 2015, CWS filed a complaint against EPA and the Town alleging violations of the CWA, and seeking declaratory judgment or in the alternative, injunctive relief. ECF No. 1. Specifically, inter alia, CWS seeks the following.

(1) Declaratory judgment against EPA finding that "EPA's approval of the annual certifications of the 1997 208 Plan is in violation of Section 208 and is therefore no longer valid to the extent that it recognizes as a DMA an entity lacking the requisite authority to act as such ( i.e., the Town)." Id. at ¶ 54(A).
(2) Declaratory judgment against the Town for allegedly entering into the Agreement, which restricts the Town's ability to fulfill its duties under the CWA and the 1997 208 Plan. Additionally, CWS wants the court to find that the Town is in violation of the CWA and the 1997 208 Plan because it has refused to offer interconnection to CWS's I-20 system to allow compliance with the 1997 208 Plan.
(3) Injunction of the 1997 208 Plan to the extent that the Town serves as DMA for the region or for an order enjoining the Town to offer interconnection to the I-20 system under the terms advanced by CWS and currently pending before the PSC.

         A. Procedural History-CWS and EPA

         On February 11, 2016, EPA filed a motion to dismiss, arguing that the lawsuit is barred as to EPA by sovereign immunity, and that CWS failed to provide adequate notice to the EPA prior to filing suit. ECF No. 24. On February 15, 2016, CWS filed an amended complaint adding the Administrative Procedure Act, 5 U.S.C. §§ 701 et seq. ("APA"), as a basis for the court's jurisdiction. ECF No. 25.

         On March 10, 2016, pursuant to a court order establishing a revised briefing schedule (ECF No. 27), EPA filed a supplement to its motion to dismiss. ECF No. 30. EPA's supplement counters, among other things, that CWS's APA argument is a "bare reference to the APA"; and is otherwise inapplicable because the challenged actions are committed to agency discretion. ECF No. 30 at 9. The EPA asserts that it does not have a mandatory duty to monitor or de-designate the Town. Id. at 14. On March 17, 2016, EPA filed an additional supplemental memorandum in support of its motion. ECF No. 31. This memorandum was brief, simply alerting the court that CWS mailed to EPA a letter dated February 29, 2016, purporting to serve as notice of suit under the CWA. Id. On April 15, 2016, CWS filed a response in opposition to the motion to dismiss, arguing that a reading of section 208 of the CWA and EPA's implementing regulations prove that CWS has asserted a viable claim under the APA. ECF No. 38. CWS also attempted to raise a claim that EPA failed to perform annual reviews of funds issued to South Carolina's State Revolving Fund ("SRF") program. ECF No. 38 at 13. On May 3, 2016, EPA filed a reply brief rejecting CWS's arguments and reasserting that the EPA does not have a mandatory duty to de-designate a state's selected DMAs. ECF No. 43 at 3-6. Further, the EPA argued that CWS cannot assert the SRF claim for the first time in its reply. ECF No. 43 at 9-10.

         B. Procedural History-CWS and the Town

         On January 4, 2016, the Town filed an answer to CWS's complaint. ECF No. 13. As stated above, on February 15, 2016, CWS filed an amended complaint adding the APA claims as an additional basis for the court's jurisdiction against EPA. ECF No. 25. CWS's amended complaint did not allege new claims against the Town. See id. On February 29, 2016, the Town filed an answer to CWS's amended complaint and filed a counterclaim against CWS seeking actual and punitive damages, costs and expenses, and further relief as a result of CWS's alleged misuse of the declaratory judgment remedy. ECF No. 29. The Town alleges that CWS and the Town were actively negotiating, but now CWS brings this action "for an ulterior purpose and willfully misuses the declaratory judgment remedy in an attempt to gain advantage and to accomplish purposes not warranted by the process." ECF No. 29 at 8.

         On March 21, 2016, CWS filed a motion to dismiss the counterclaim, arguing that the Town's counterclaim is untimely because it is a compulsory counterclaim that the Town failed to ask the court for leave to bring, and that the counterclaim fails to allege sufficient facts. ECF No. 32. On April 21, 2016, the Town filed a response to CWS's motion to dismiss, detailing facts about the negotiations between the parties to support the counterclaim's timeliness and its allegations. ECF No. 39. On May 13, 2016, CWS filed a reply to the Town's response, arguing again for dismissal of the counterclaim because of the Town's failure to assert the counterclaim in its first answer and failure to state a cognizable claim. ECF No. 44.

         At the same time, the Town moved the court to address CWS's allegations in the amended complaint. On April 21, 2016, the Town filed a motion for summary judgment, arguing that CWS's declaratory claims are actually requests for injunctive relief and that the only private cause of action under the CWA is a citizen suit enforcement proceeding. Therefore, the Town argues that the court cannot grant relief to CWS because this action is not a citizen suit. ECF No. 40; ECF No. 40-1 at 4-8. On May 27, 2016, CWS filed a response, arguing that the Town misconstrues the structure of the action, and nevertheless, injunctive relief is proper since the court has general equitable powers and jurisdiction. ECF No. 46. On June 6, 2016, the Town filed a reply brief rejecting CWS's counterarguments and reasserting the Town's request for summary judgment. ECF No. 47. In these motions, the parties also debated the court's subject matter jurisdiction over a declaratory judgment request on the restrictive covenants in the Town's bonds and the Agreement.

         On June 27, 2016, the parties appeared before the court for a hearing on EPA's motion to dismiss and CWS's motion to dismiss.[3] ECF No. 48. After hearing the arguments of the parties, the court took the motions under advisement and announced that it would issue a written order. Id. This is the court's written order addressing EPA's motion to dismiss and ...


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