A.O. Smith Corporation, Appellant,
South Carolina Department of Health and Environmental Control and Town of McBee, Respondents. Appellate Case No. 2016-002108
March 14, 2019
From The Administrative Law Court Shirley C. Robinson,
Administrative Law Judge
Thomas Lavender, Jr. and Joan Wash Hartley, both of Nexsen
Pruet, LLC, of Columbia, for Appellant.
S. Driggers, Jr., of Sweeny Wingate & Barrow, PA, of
Hartsville; Richard Edward Mclawhorn, Jr., of Sweeny Wingate
& Barrow, PA, of Columbia; Kathryn Susan Mansfield, of
Womble Bond Dickinson (US) LLP, of Charleston; and Matthew
Todd Carroll and Belton Townsend Zeigler, both of Womble Bond
Dickinson (US) LLP, of Columbia, all for Respondent Town of
Stephen Philip Hightower, of Columbia, for Respondent South
Carolina Department of Health and Environmental Control.
Smith Corporation appeals the dismissal of its contested case
regarding the Town of McBee's (the Town) operation of the
Town's wells, arguing the administrative law court (ALC)
erred in finding final approvals are not staff decisions
subject to appeal under section 44-1-60 of the South Carolina
Code (2018 & Supp. 2018) because the South Carolina
Department of Health and Environmental Control (DHEC) had a
legal duty to issue the final approvals and the applicable
regulation does not provide for conditional approvals. We
Smith owns a water heater and boiler manufacturing facility
in Chesterfield County outside of the Town's city limits.
According to the facility's Director of Operations, Jeff
Barron, the facility needs an adequate and dependable water
supply to operate. In addition to the water used in the
manufacturing and testing process, the facility's
insurance carrier requires a minimum instant flow of water
for its fire protection system. In 1979, the Town and A.O.
Smith agreed the Town would provide A.O. Smith with "a
reasonable supply of water." A.O. Smith comprises about
sixty percent of the Town's water revenue.
Town's water system is made up of two wells (Well No. 1
and Well No. 2). From 1995 to 1999, the Town's water
system received three consecutive "unsatisfactory"
ratings results from DHEC sanitary surveys "due to a
lack of quantity to meet the system's customers'
needs, wellhead security issues[, ] and distribution system
shortcomings." In 1999, the Town and Alligator Rural
Water & Sewer Company, Inc. (Alligator Water) entered
into a forty-year agreement for Alligator Water to supply the
Town's water. The Town stopped operating both of its
wells at that time. According to the Town's engineer,
Alligator Water took over operation of the Town's entire
water system and had DHEC transfer the Town's operating
permits to it. DHEC discontinued the Town's operational
permit for its supply wells and entire water system and
transferred them to Alligator Water.
Town received a $4.5 million loan in 2005 from the United
States Department of Agriculture. According to the Town's
mayor, John Campolong, the Town used the loan to refurbish
its water system. Campolong also indicated the Town became
aware of information that led it to believe Alligator's
financial situation was precarious and decided it no longer
wished Alligator Water to be its sole source of water.
Alligator Water placed the Town's Well No. 1 offline in
2009 due to contaminants in routine water sampling.
December 7, 2010, the Town submitted a Preliminary
Engineering Report (PER) to DHEC. Alligator Water received a
copy of a draft operating permit for the Town and contacted
DHEC "to offer several comments," including that
its agreement with the Town is "for the operation and
maintenance of the system" and if the Town terminates
the agreement, "Alligator [Water] will no longer be
obligated to supply potable water to the Town." On June
13, 2011, DHEC Staff approved the Town's PER. On June 14,
2011, DHEC Staff issued a public water operating permit to
the Town. On January 10, 2012, the Town submitted an
application to DHEC to modify Well No. 2. On November 13,
2012, DHEC issued the Town a permit for modifications to Well
to Campolong, in the summer of 2013, the Town received a
letter from Alligator Water that it was increasing the water
wholesale rate by 56%.
letter dated October 10, 2013, the Town informed A.O. Smith
"the Town . . . has over the period of [three] years
embarked on an evaluation of the existing water supply system
currently owned by the Town . . ., as well as other sources
of water for the Town's customers. These facilities were
in operation until just a couple of years ago." The
letter further provided:
Throughout the review process and the permitting required to
place the existing water supply system back into operation,
the Town . . . has worked closely with . . . DHEC. [DHEC has]
been aware of the study that was performed on the water
system and our efforts to provide a safe, reliable water
source for our customers. We have received all of the
necessary permits for the new construction and modifications
to the existing wells and are working together on a daily
basis with . . . DHEC in moving forward to place the system
back into operation. The water supply system will meet all of
the requirements of . . . DHEC from a water quality and
October 16, 2013, the Town increased the rate it charged
customers by 25%. The Town informed Alligator Water it would
not pay the increased wholesale rate to Alligator Water until
Alligator Water supplied it with certain financial data.
December 20, 2013, the Town submitted an application to DHEC
for the construction of two granulated activated carbon
contactors and associated appurtenances to be connected to
Well No. 1 and Well No. 2. On June 30, 2014, DHEC issued the
Town a permit for the construction of the contactors for Well
No. 1 and Well No. 2.
2014, according to Barron, A.O. Smith upgraded its fire
protection system and began discussing water service with
Alligator Water because A.O. Smith's engineer determined
"the Town's water storage capacity was not
sufficient to support the upgraded system." In May 2015,
Alligator Water began construction of a water line to connect
to the A.O. Smith facility.
meeting on September 3, 2015, A.O. Smith raised concerns to
the Town about fire protection and future water supply.
According to the Town's engineer, this was the first time
A.O. Smith raised those concerns to the Town. A.O. Smith also
raised concerns about the Town's ability to meet the
facility's fire flow requirements with its two wells as
well as other concerns about contaminants in the water.
January 12, 2016, after receiving a letter of certification
from Joseph McGougan, P.E, DHEC issued the Town two Final
Approvals to Place into Operation (Final Approvals)-one in
accordance with the 2012 permit and the other in accordance
with the 2014 permit. Both Final Approvals stated under the
heading "SPECIAL CONDITIONS," "This Final
Approval to Operate is being conditionally approved. The
Department has concerns about the water system's capacity
if only Well No. 1 and Well No. 2 are the sole sources for
water supply." The Final Approvals also stated,
"The Department recommends that the Town . . .
investigate this capacity issue to demonstrate that
sufficient capacity exists before utilizing Well No.[ ]1 and
Well No. 2 as the primary supply for water."
January 27, 2016, A.O. Smith requested a final review by the
DHEC Board of the Final Approvals. On February 17, 2016, DHEC
sent a letter to A.O. Smith's counsel regarding the Final
Approvals, stating "[t]he [DHEC Board] will not conduct
a Final Review Conference on the above-referenced
matter." The letter further provided the following
contested case guidance:
Section 44-1-60 provides that if the Board declines in
writing to schedule a final review conference, the staff
decision becomes the final agency decision, and an applicant,
permittee, licensee, or affected person may request a
contested case hearing before the [ALC] within thirty
calendar days after notice is mailed to the applicant,
permittee, licensee, and affected person that the Board
declined to hold a final review conference.
March 15, 2016, A.O. Smith filed with the ALC a request for a
contested case hearing for review of the Final Approvals. The
Town filed a motion to dismiss, arguing the ALC lacked
jurisdiction because the request was untimely as DHEC issued
the permits in question in 2011, 2012, and 2014 and A.O.
Smith made no request for final review of those
conducted a hearing on the motion to dismiss on April 28,
2016. The ALC asked A.O. Smith if it "knew the
construction was ongoing, why did [it] wait until it was
completed?" A.O. Smith responded it did not
"believe [it] had sufficient information on whether or
not these two wells [could] supply th[e] adequate capacity
until they were completed and [it had] seen the
records." According to an affidavit sworn by Barron on
April 5, 2016, the Town's water service to A.O. Smith had
in recent months become "interrupted and
5, 2016, the ALC granted the motion to dismiss. Following a
motion for reconsideration filed by the A.O. Smith, the ALC
vacated the order. Thereafter, the ALC issued a new order