The opinion of the court was delivered by: DEBEVOISE
This case presents a challenge to the Environmental Protection Agency's (EPA) decision to withhold part of its grant funds from the Middlesex County Utilities Authority (MCUA) because the Borough of Milltown, whose waste water is treated by the MCUA, had failed to adopt a system of user charges to pay for its proportionate share of the MCUA facility as mandated by section 204(b)(1) of the Clean Water Act, 33 U.S.C. § 1284(b)(1). The legal challenge began in August, 1980 when the City of New Brunswick instituted suit in the Superior Court of New Jersey, Chancery Division, Middlesex County, against Milltown and the MCUA, seeking an injunction and declaration that a 1914 contract between itself and Milltown, which obligates New Brunswick to receive and dispose of Milltown's sewage without cost, was void on several grounds, including allegations based on EPA regulations:
Federal Rules and Regulations governing the Middlesex County Sewerage Authority must be made applicable to all users of the system, including the Defendant, Borough of Milltown, regardless of whether or not the user has a direct contract with the Sewerage Authority.
Complaint, P 4, Third Count.
New Brunswick further alleged:
(Under) such Rules and Regulations such users of the Sewerage Authority's facilities must pay their fair share of the cost of operating and maintaining the Sewerage Authority's treatment works.
Complaint, P 5, Third Count.
In November, 1980, MCUA brought the Environmental Protection Agency into the state court litigation by naming it as a third-party defendant. In its cross-complaint, MCUA alleged that neither the Clean Water Act nor its implementing regulations requires that Milltown adopt a system of user charges and that, even if they did, such a requirement would constitute an unconstitutional abrogation of the 1914 contract. EPA removed this action to the Federal District Court under 28 U.S.C. § 1442(a)(1)
in December, 1980, and has answered and counterclaimed against all other parties, seeking a declaration that section 204 authorizes EPA to withhold grant funds from MCUA pending adoption of the user charges by Milltown and an injunction requiring Milltown to adopt such user charges or, alternatively, to cease sending its sewage through MCUA's facility for treatment.
All parties now move for partial summary judgment with respect to the federal issues presented in this litigation: Whether section 204(b)(1) of the Clean Water Act, 33 U.S.C. § 1284(b)(1), and its implementing regulations, 40 C.F.R. § 35.900, et seq., authorize EPA to withhold grant funds from MCUA prior to the adoption of sewer user charges by Milltown, and whether the enforcement of a user charge system would cause an unconstitutional impairment of Milltown's contract with New Brunswick in violation of the Fifth Amendment?
There is no dispute concerning the material facts in this case. As already mentioned, in 1914 the City of New Brunswick entered into a contract with the Borough of Milltown under which New Brunswick agreed to receive and dispose of Milltown's sewage without charge in exchange for Milltown's promise to discontinue its practice of discharging sewage into the Lawrence Brook, a source of drinking water for New Brunswick. On two separate occasions, New Jersey courts have upheld the validity of this contract. City of New Brunswick v. Borough of Milltown, 3 N.J.Super. 113, 65 A.2d 621 (App.Div.1949); City of New Brunswick v. Borough of Milltown, 135 N.J.Eq. 310, 38 A.2d 288 (Ch.1944).
As a result of this contract, the sewage from Milltown flows free of charge from Milltown to New Brunswick, and the combined flows from the two municipalities are treated at the MCUA plant. New Brunswick pays MCUA for its own and for Milltown's sewage at a rate set by the MCUA. Milltown pays nothing to New Brunswick or to MCUA and has not, to date, adopted a system of sewer user charges to pay for its proportionate share of waste treatment.
MCUA is currently expanding its Sayreville plant and is planning to build a sludge dewatering facility to aid its disposal of solid wastes on land which is mandated after December 31, 1981 by the Marine Protection, Research and Sanctuaries Act of 1972, 33 U.S.C. § 1401, et seq. To help defray the costs of its projects, the MCUA has applied for and been awarded various grants from the EPA. At present, payments under one outstanding grant agreement have been withheld because of MCUA's failure to meet the User Charge requirements.
This grant agreement, adopted on August 30, 1976, contains an express condition notifying MCUA that payments under the grant may be subject to withholdings in excess of 50% and/or 80% of the grant amount "for failure to comply with the requirements as to industrial cost recovery and user charge systems ...". (See Exhibit B attached to the Supplemental Affidavit of Sol Seid.) For the same reason, the EPA has also refused to approve applications by the MCUA for new grants.
Defendants MCUA and Milltown both contend that section 204 should not apply to Milltown on the theory that Milltown is not a "recipient" of waste treatment services from the MCUA. According to the defendants' reading of the statute and its implementing regulations, Milltown is not a recipient for two reasons: (i) Milltown does not discharge waste water into the MCUA system directly; rather, it disposes of its waste water by transmitting it to New Brunswick in accordance with the contractual relationship between those two municipalities; and (ii) Milltown is not a "subscriber" to services provided by MCUA. If section 204 is found to apply to Milltown, defendants argue, in the alternative, that section 204 is unconstitutional since it would abrogate an existing contract between Milltown and New Brunswick, and that the EPA's decision "to force the MCUA to exact user charges from Milltown" is wholly irrational and contrary to public policy. EPA, on the other hand, interprets both section 204 and the regulations, particularly 40 C.F.R. § 35.929-2(e), as applying to the situation here and as requiring Milltown to pay user charges before full grant funds may be transferred to the MCUA. EPA further maintains that the section is fully constitutional and that the decision to enforce the user charge requirement is rational.
Under section 204(b)(1) of the Clean Water Act, 33 U.S.C. § 1284(b)(1), the EPA Administrator may not approve any grant for sewage treatment facilities
unless he shall first have determined that the applicant (A) has adopted or will adopt a system of charges to assure that each recipient of waste treatment services within the applicant's jurisdiction, as determined by the Administrator, will pay its proportionate share ... of the costs of operation and maintenance (including replacement) of any waste treatment services provided by the applicant ... (emphasis added).
Neither the Act nor the regulations define who is a "recipient" of waste treatment services from the grantee, 33 U.S.C. § 1292; 40 C.F.R. § 35.905. Recipient is defined in Webster's New Collegiate Dictionary (1975) as "one that receives". To ...