                                                                                                                           Opinions of the United
2002 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


9-16-2002

Welch Foods Inc v. North East
Precedential or Non-Precedential: Non-Precedential

Docket No. 01-3456




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                                                       NOT PRECEDENTIAL

                  UNITED STATES COURT OF APPEALS
                      FOR THE THIRD CIRCUIT


                           N0. 01-3456


                 WELCH FOODS, INC., A COOPERATIVE

                                v.

                      BOROUGH OF NORTH EAST
              (Erie PA D.C. Civil No. 98-cv-00246E)

                 WELCH FOODS, INC., A COOPERATIVE

                                v.

          UNITED STATES ENVIRONMENTAL PROTECTION AGENCY;
       PENNSYLVANIA DEPARTMENT OF ENVIRONMENTAL PROTECTION
              (Erie PA D.C. Civil No. 99-cv-00165E)

                         Welch Foods, Inc.,
                                   Appellant


         On Appeal From The United States District Court
             For the Western District of Pennsylvania
          (D.C. Civil Nos. 98-cv-00246 and 99-cv-00165E)
          District Judge: Honorable Sean J. McLaughlin


                        Argued May 3, 2002

BEFORE: ROTH and STAPLETON, Circuit Judges, and POLLAK,* District Judge

                    (Opinion filed:    September 13, 2002)
______________________________________________________________________
*Honorable Louis H. Pollak, United States District Judge for the Eastern District of
 Pennsylvania, sitting by designation.
                         Paul F. Burroughs (Argued)
                         Quinn, Buseck, Leemhuis, Toohey & Kroto
                         2222 West Grandview Boulevard
                         Erie, PA 16506
                          Attorney for Appellant

                         Russell S. Warner
                         Mark J. Shaw (Argued)
                         MacDonald, Illig, Jones & Britton
                         100 State Street - Suite 700
                         Erie, PA 16507
                          Attorneys for Appellee Borough of North East

                         John T. Stahr (Argued)
                         United States Department of Justice
                         Environment & Natural Resources Division
                         P.O. Box 23795
                         L’Enfant Plaza Station
                         Washington, D.C. 20026
                          and
                         Joyce A. Howell
                         United States Environmental Protection Agency
                         1650 Arch Street
                         Philadelphia, PA 19103
                          Attorneys for Appellee United States Environmental
                          Protection Agency

                            ___________

                       OPINION OF THE COURT



STAPLETON, Circuit Judge:


                               I.
     Welch Foods, Inc. ("Welch") manufactures fruit-based products at a production
plant in the Borough of North East, Pennsylvania ("the Borough"). Through this
manufacturing process, Welch produces industrial wastewater, which it discharges into
the Borough’s Publicly Owned Treatment Works ("POTW"). The POTW in turn
discharges the treated effluent into Sixteen Mile Creek, a tributary of Lake Erie.
     The Borough’s POTW consists of two separately located treatment plants which
receive both sewage and industrial waste. The POTW holds a National Pollutant
Discharge Elimination System ("NPDES") permit to discharge treated sewage effluent
into Sixteen Mile Creek.
     One of the POTW’s major sources of influent is from fruit processing plants
located in the Borough, primarily those of Welch. The "volume and strength of the fruit
processing plants’ discharge into the POTW varies over the course of the year, such as
during harvest season." App. at 1150. This discharge creates a large amount of solid
waste and sludge due to the high volume of dissolved organic matter in the wastewater.
     The POTW has had a history of problems. In 1995, the Borough was notified by
one of its land-application site owners that it would no longer take solid or liquid sludge,
and as a result, sludge began to build up at the Borough’s treatment facilities. To
alleviate this problem, the Borough hired a contractor to help de-water the sludge. In
September of 1995, the Borough’s Discharge Monitoring Report revealed multiple
violations of its NPDES permit, including violations of dissolved oxygen, total
suspended solids, carbonaceous biochemical oxygen demand, and fecal coliform.
     In March of 1996, the Pennsylvania Department of Environmental Protection
("PADEP") inspected one of the treatment plants in response to complaints about
malodor. The PADEP found that stockpiled sludge had entered into a storm-water basin
that discharged into Sixteen Mile Creek. PADEP then conducted further inspection of
the other treatment plant and found similar violations related to stockpiled sludge.
Further, the Borough was cited for a break in one of the treatment plants which allowed
untreated waste to enter Sixteen Mile Creek.
     In May of 1996, the PADEP instituted an action in equity against the Borough for
its violations. Throughout 1996, the Borough undertook a number of corrective
measures aimed at eliminating these violations and improving the operation and
maintenance of the treatment plants. On September 6, 1996, the PADEP and the
Borough entered into an agreement by which the Borough would continue to maintain its
treatment plants and reduce the build up of solid wastes. Despite undertaking a number
of tasks aimed at improving and maintaining of the operation of the POTW, the Borough
could not maintain compliance with its NPDES permit throughout 1997.
     To determine the cause of the Borough’s noncompliance, the Erie County
Department of Health and the PADEP conducted an investigation of the POTW, which
focused on the quantity and quality of the influent entering the treatment plants. That
investigation revealed that the treatment plants were "routinely organically overloaded
and occasionally hydraulically overloaded." App. at 1172.
     On June 11, 1997, the PADEP held a meeting with the Erie County Department of
Health, the EPA, the Borough, Welch, and another industrial user of the POTW. At that
time, the EPA and the PADEP informed the Borough that it would be required to
undertake a federally-approved pretreatment plan. By letter dated June 26, 1997, the
Borough was formally advised that it must undertake a pretreatment program.
     On June 22, 1998, the Borough enacted the North East Pretreatment Ordinance,
Ordinance No. 785. The Ordinance incorporates federal and state pretreatment standards
for discharges of industrial wastes into POTWs.
     On August 20, 1998, the PADEP issued a revised NPDES permit, which added a
condition that the Borough shall "develop, operate, and implement an industrial
pretreatment program." App. at 1283. On that same day, the PADEP and the Borough
entered into a consent decree which was lodged in the Commonwealth Court. The court
approved the consent decree by order dated September 8, 1998.
     On October 20, 1998, the EPA issued for public comment a notice of intention to
approve the Borough’s pretreatment program. EPA received no comments on the
proposed action. By letter dated December 1, 1998, EPA advised the Borough that it had
approved the pretreatment program.
     Welch filed two lawsuits in an attempt to stop the Borough and the EPA from
implementing the Borough’s plan. In the first case, brought in the Court of Common
Pleas of Erie County, Welch claimed that the pretreatment program mandated by the
EPA and the Pretreatment Ordinance enacted by the Borough violated Welch’s federal
and state constitutional rights. Welch amended the complaint in this state suit to add a
count against the EPA and a count against the PADEP. In Count II, Welch alleged that
the EPA erred in requiring the Borough to develop and implement a pretreatment
program, and in approving the Borough’s pretreatment program. In Count III, Welch
claimed that the PADEP erred in also requiring the Borough to develop and implement a
pretreatment program. The Borough removed this case to federal court pursuant to 28
U.S.C. 1441(c).
     Welch originally filed the second case in this Court as a Petition to Review under
the Administrative Procedure Act ("APA"). In this petition, Welch sought review of the
EPA’s decisions requiring and approving the Borough’s pretreatment program. The
claim in this case mirrored Count II against the EPA in the first case. We transferred the
petition to the Western District of Pennsylvania, where the District Court subsequently
consolidated the two cases.
     The District Court granted PADEP’s motion to dismiss on the grounds of
sovereign immunity. Welch thereafter sought leave to file a Revised Second Amended
Complaint in order to add claims against the Borough and EPA arising out of the POTW
rate structure the Borough has employed since at least 1978. The District Court denied
this motion as futile. The District Court subsequently affirmed the EPA’s final
determination approving the need for and content of the Borough’s pretreatment
program. This decision resolved Count II of the first case as well as the virtually
identical APA Petition to Review claim in the second.
     The Borough filed a motion for summary judgment on the remaining count of the
consolidated cases, the constitutional claims. After the District Court granted the
Borough’s motion and closed the case, Welch timely appealed these decisions.
                              II.
     In its motion to file a Revised Second Amended Complaint, Welch sought to add
claims against the Borough and EPA regarding the formula the Borough has employed to
calculate users’ POTW charges since 1978. Plaintiff initially claimed that the formula
used by the Borough to calculate the charges violated the Clean Water Act ("CWA"), 33
U.S.C. 1251 et seq., because the formula failed to proportionately allocate operation
and maintenance costs according to the users’ total contributions of wastewater. At a
hearing on the motion, the District Court allowed Welch to add breach of contract claims
based on 1972 and 1975 contracts between Welch and the Borough to the proposed
Revised Second Amended Complaint. According to Welch, the Borough violated the
terms of these agreements by enacting Ordinance 643, thereby changing the formula
upon which the Borough based charges for use of the POTW.
     The District Court denied Welch’s motion to amend holding that the CWA claims
were substantively futile and that the contract claims were futile because Welch was
barred by the statute of limitations. On appeal, Welch challenges only the District
Court’s ruling with respect to the contract claims.
     In 1972, Welch and the Borough entered into a contract which established a sewer
use rate formula by which the Borough would charge Welch for the disposal of industrial
waste. On January 25, 1975, Welch and the Borough amended this agreement so that,
rather than paying based solely on the amount of waste Welch produced, Welch would
pay a pro rata share of the total waste processed by the POTW.
     According to the proposed Second Amended Complaint, the Borough initially
breached this contract on May 11, 1978, when it enacted Ordinance 643. According to
Welch, under Ordinance 643, the Borough charged Welch substantially greater fees than
it would have under the 1975 agreement. Welch further alleged that since May 11, 1978,
the Borough has breached the contract each and every time it billed Welch according to
the rate structure set forth in the Ordinance.
     Welch claims that the statute of limitations has not run because the 1975
agreement is a continuing contract, and each successive failure by the Borough to
properly bill Welch creates a new cause of action. The District Court rejected this claim.
     A continuing contract is one which requires, "continuing (or continuous)
performance for some specified period of time, a period that may be definite or indefinite
when the contract is made." Arthur Linton Corbin, Corbin on Contracts 956 (1951).
Even if we assume that the 1975 agreement was a continuing contract, however, Welch’s
claim is nevertheless barred by the statute of limitations. In analyzing when the statute of
limitations begins to run on a continuing contract, we must focus on the type of breach.
"[W]here there was an outright repudiation [of the contract], . . . the statute of limitations
[begins] to run at that point." Henglein v. Colt Indus. Operating Corp., 260 F.3d 201,
214 (3d Cir. 2001).
     Ordinance 643 mandates that all industries shall pay an industrial waste fee
according to a particular formula. This formula changed the formula established in both
the 1972 Agreement and the subsequent 1975 amendment, and it was clear from the face
of this ordinance and the Borough’s subsequent billing of Welch that the Borough no
longer recognized the 1972/1975 agreements as governing the relationship between the
parties. Accordingly, any cause of action arising out of this repudiation accrued on the
date of passage of this Ordinance. The District Court thus properly found that the
proposed amendment would be futile because the claim would be barred by the statute of
limitations.
                              III.
     Welch argues that the EPA’s decision to require the Borough to implement a
pretreatment program for industrial wastewater was arbitrary and capricious. Welch
contends that the EPA did not apply the proper standard in determining the need for
pretreatment because there was no finding that "the nature of Welch’s waste or any other
industrial waste, poses a threat of Pass Through or Interference which would justify a
pretreatment program." Appellant’s Br. at 42-43. Welch further argues that the POTW’s
record of NPDES violations resulted from operation and maintenance problems with
respect to sludge, and that industrial wastewater played no role in those violations. The
District Court properly rejected both of these arguments.
     In reviewing the substance of informal agency action, we are to hold unlawful and
set aside "actions, findings, and conclusions found to be arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law." 5 U.S.C. 706(2)(A).
          The scope of review under the "arbitrary and capricious" standard is
     narrow and a court is not to substitute its judgment for that of the agency.
     Nevertheless, the agency must examine the relevant data and articulate a
     satisfactory explanation for its action including a rational connection
     between the facts found and the choice made. . . . In reviewing that
     explanation, we must consider whether the decision was based on a
     consideration of the relevant factors and whether there has been a clear
     error of judgment.

Motor Vehicle Mfrs Assn. of the United States, Inc. v. State Farm Mut. Auto. Ins. Co.,
463 U.S. 29, 43 (1983) (citations omitted).
     As a general matter, POTWs like the Borough’s that have design flows less than
five million gallons per day are not required to implement pretreatment programs;
however, they may be required to do so if the EPA determines that a program is
warranted in order to prevent "pass through" or "interference." The regulations provide:
          The Regional Administrator or Director may require that a POTW with a
     design flow of 5 mgd or less develop a POTW Pretreatment Program if he
     or she finds that the nature or volume of the industrial influent, treatment
     process upsets, violations of POTW effluent limitations, contamination of
     municipal sludge, or other circumstances warrant in order to prevent
     Interference with the POTW or Pass Through.

403 C.F.R. part 403.8(a).
     "Pass Through" means "a Discharge which exits the POTW into waters of the
United States in quantities or concentrations which, alone or in conjunction with a
discharge or discharges from other sources, is a cause of a violation of any requirement
of the POTW’s NPDES permit (including an increase in the magnitude or duration of a
violation)." 40 C.F.R. part 403.3(n).
     "Interference" is defined as "Discharge which, alone or in conjunction with a
discharge or discharges from other sources . . . (1) Inhibits or disrupts the POTW, its
treatment processes or operations, or its sludge processes, use or disposal; and (2)
Therefore is a cause of a violation of any requirement of the POTW’s NPDES permit
(including an increase in the magnitude or duration of a violation). . . ." 40 C.F.R. part
403.3(i).
     As the Environmental Appeals Board ("EAB") has observed, the plain language
of the regulations can be broken into two distinct inquiries. First, the EPA needs to
determine "whether any of the ’circumstances’ . . . present a real possibility of
interference or pass through." City of Yankton, 5 E.A.D. 376, 1994 WL 372201, Docket
No. NPDES-SD---23396 (EPA July 1, 1994). If one or more circumstances suggest "the
possibility of interference or pass through" then the inquiry must turn to "whether there is
some nexus between the pretreatment program and the possibility of interference or pass
through." Id. The EPA need not find that the pass through or interference is caused
solely by the industrial wastewater that will be pretreated, but rather only that there are
circumstances creating a potential for pass through or interference and that pretreatment
of the influent will help alleviate the problem. We agree with that analysis and hold that
the District Court applied that standard in reviewing the EPA’s decision.
     Welch’s second argument is equally without merit. While it is true that the
administrative record is replete with evidence of problems at the Borough’s treatment
plants, the record also indicates that under the supervision of PADEP, the Borough took
careful steps to correct those problems. These steps, however, did not eliminate the pass
through and interference experienced at the POTW. Although there was a period of time
in which the POTW maintained compliance after taking the remedial steps, as the
District Court found, the study conducted in the Fall of 1997 indicates that the
improvements were not the reason for the compliance. Rather, the period of compliance
was due in part to lower influent flows, lower rainfall, lower total flow from Welch and
lower organic loading from Welch. Further, the study concluded that Welch’s
contribution of wastewater is highly relevant to the ability of the POTW to maintain
NPDES compliance. As noted above, the EPA may base its decision on the potential for
pass through or interference. Here there is sufficient evidence to show that the potential
existed. Further, there must be reason to believe that the pretreatment plan will help
alleviate the identified problem. The Erie County Department of Health report listed
fruit processors (of which Welch is the primary one) and other industrial users as a major
factor in the POTW maintaining compliance.
     We conclude that the EPA’s decision was not arbitrary or capricious.
                               IV.
     In the remaining count of its complaint, Count I, Welch alleges in four subparts
that the Borough abused its authority under Pennsylvania’s statutory law and violated
Welch’s state and federal constitutional rights by enacting the pretreatment ordinance.
We have considered each of these arguments (including its substantive due process,
equal protection, procedural due process, and taking claims) and, essentially for the
reasons given by the District Court in its careful opinions, conclude that summary
judgment for the Borough was appropriate.
                                V.
     The judgment of the District Court will be affirmed.
TO THE CLERK:


     Please file the foregoing Not Precedential Opinion.



                                      /s/ Walter K. Stapleton
                                                             Circuit Judg
