WASHINGTON – A federal appeals court Tuesday said Prescott breached its contract to treat wastewater from the Pure Wafer plant when it tried to get the plant to pay for the cost of meeting tougher state environmental regulations.
A divided three-judge panel of the 9th U.S. Circuit Court of Appeals rejected a lower court’s reasoning, but upheld its finding against a city law requiring the plant to pretreat its wastewater. The appeals court said the law could not be enforced because it breached a contract between the city and plant.
In a partial dissent, Judge N.R. Smith agreed that lower court’s reasoning was flawed but said the circuit court was wrong to rule that the contract was breached, saying that should be a decision for the lower court to make.
An attorney for the city of Prescott declined comment, saying he had not been able to discuss the ruling with city officials. A request for comment from Pure Wafer’s attorneys was not immediately returned Tuesday.
The case centers on the amount of fluoride that Pure Wafer sends to the city’s wastewater treatment plant as a result of its process of cleaning silicon wafers for reuse by companies like IBM, Intel and Motorola, according to the court opinion.
The plant “does a large volume of business,” said Judge Diarmuid O’Scannlain in the majority opinion, running 24 hours a day, seven days a week “at around 95 percent capacity.”
The plant was owned by a company called Exsil when it opened in Prescott in 1997, after the two sides reached agreement on a deal for the city to treat up to 195,000 gallons of the plant’s wastewater a day. Under the agreement, the plant’s waste could not exceed 100 milligrams of fluoride per liter of water.
The plant, owned since 2007 by Pure Wafer, has never exceeded the limits for amount of wastewater or concentrations of fluoride set in the agreement.
But in 1999, the Arizona Department of Environmental Quality changed the way the city measured fluoride levels as part of an Aquifer Protection Permit. It made the city take fluoride measurements at the point of discharge from the wastewater treatment plant instead of from recharge basins in the aquifer, and capped those levels at 4 milligrams per liter.
“That was a big change,” O’Scannlain wrote, noting that the effluent was much more concentrated at the discharge pipe.
The state reprimanded the city in 2007 and again in 2012 for high fluoride levels and ordered it to fix the problem.
But the city said it would cost it $2.7 million in upgrades and $8.5 million a year to pretreat Pure Wafer’s wastewater to bring it within the new fluoride guidelines. The city passed an ordinance requiring industrial users to pretreat their water – or it would refuse to accept the water.
Pure Wafer sued, saying that the city was in violation of both the federal and state constitutions on contract obligations, and threatened to close the plant if it was forced to comply. The ordinance has been on hold while the suit is pending.
A federal district court agreed with Pure Wafer that the ordinance violated the Contract Clause of the Arizona Constitution by making the contract unenforceable. It issued a permanent injunction in favor of the plant.
The circuit court disagreed, saying that the ordinance did not make the contract unenforceable, it merely meant the city would not meet one its obligations under the deal. The city never claimed that the ordinance would “relieve the city of its obligation … to pay damages or some other remedy as a consequence of its nonperformance.”
But the appeals court went on to say that the district court had established enough of a record to determine that the city had, in fact, breached the contract with the plant. It sent the case back to the lower court “to decide on the appropriate remedy.”