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The Rational Formula

In 1970 Oakland County and the municipalities determined that it was necessary to “extend, improve and enlarge” the sewage system operated by the Southeastern System to abate pollution in the Red Run Drain and Clinton River. This decision necessitated the acquisition and construction of a “pollution control facility.” The project involved the construction of an enclosed retention chamber in the Red Run Drain right-of-way which previously had been an open drain. A written contract was executed by Oakland County and the municipalities including Madison Heights, dated April 1, 1970. In this contract the parties approved the project and the purchase of additional flowage rights from the City of Detroit. The municipalities agreed to pay the net cost of the project, with the share of each allocated according to a schedule included in the agreement. Madison Heights was required to pay approximately seven percent of the cost of the project rather than the ten plus percent allocated to it under the 1962 contract. The 1970 contract contained no new agreement with respect to service charges, but adopted and specifically incorporated portions of the 1962 contract, including paragraphs 13 and 14.



11The action by the United States against the City of Detroit (No. 7-71100) was a wide-ranging suit which charged Detroit with all manner of pollution. Some 18 months after entry of the consent judgment in that case the district court found that Detroit was far from being in compliance with the requirements of the judgment. The court determined that the appointment of an “administrator of operations” for the City of Detroit Wastewater Treatment Plant was necessary. The court appointed the mayor of Detroit as administrator “empowered to exercise extraordinary remedies in the control, management and operation” of the plant. United States v. City of Detroit, 476 F.Supp. 512, 515 (E.D.Mich.1979). The appointment was based on the “broad range of equitable powers available to this court to enforce and effectuate its orders and judgments.” Id. at 520 (citations omitted). The administrator was granted “such powers as are traditionally exercised by receivers to manage and conduct such operations under the supervision of the court.” Id. at 521. There is no issue in this case with respect to the validity of the appointment or the powers of the court-appointed administrator or receiver.

12An additional order was entered in No. 7-71100 in October 1979 which provided in part:

13All customers, users or rate payers of the City of Detroit Wastewater Treatment System shall refrain from any and all litigation before any other court based upon the subject rate structure.

14This order has not been challenged in these proceedings. Oakland County was a customer, user and rate payer of the Detroit System and both Oakland County and Madison Heights were parties to No. 7-71100.


15In December 1980 the Oakland County Drain Commissioner adopted a new formula for calculating the quantity of storm water runoff which should be charged to each municipality within the Southeastern System. This action was taken because the previous practice of estimating runoff on the basis of water consumption was inaccurate. The new method, sometimes called the “rational formula,” was based on a standard engineering equation, Q = CIA (Q equals storm water flow; C equals runoff coefficient; I equals ten-year average rainfall and A equals area). The adoption of the new formula resulted in an increase in the monthly services charges for storm water disposal allocated to Madison Heights. The total increase did not appear on the billings to Madison Heights until June 1981 because the drain commissioner failed to include a 960-acre tract in Madison Heights in the area calculations for the first six months.

16Prior to the construction of the 1970 pollution control facility surface water from the 960-acre tract had flowed directly into the open Red Run Drain and was not included in the sewage transmitted to Detroit for disposal. With the construction of the enclosed retention chamber in the Red Run Drain the storm water from the 960-acre tract was fed into the new chamber and became part of the total sewage which wound up in the Detroit system. Madison Heights took the position that it never had paid service charges for the storm water from the 960 acres and that it was not required to pay merely because the Southeastern System had adopted a new formula.

When Madison Heights persisted in its refusal to pay the service charges Oakland County filed the present action seeking a declaratory judgment that Madison Heights is required to pay the “storm water disposal charges allocated to the 960 acres in Madison Heights which formerly discharged storm water through a system of separated storm sewers into the open Red Run Drain.” The district court immediately consolidated the present case with No. 7-71100. In its answer Madison Heights denied that the district court had jurisdiction, alleged that it had not paid service charges for storm water from the 960-acre tract since completion of the pollution control facility and that the “then Drain Commissioner … agreed to and did eliminate from any assessment of costs of contribution and future storm water charges said 960 acres.” The reason for this agreement, as alleged in the answer, was the fact that prior to construction of the pollution control facility the storm sewers serving the 960 acres were separated from the sanitary sewers. By an amended answer Madison Heights pled that the county was estopped from making service charges based on storm water disposal from the 960 acres because of the alleged agreement of the drain commissioner, Madison Heights’ reliance thereon and the failure to bill for such charges prior to June 1981.

18Oakland County filed a motion for summary judgment supported by copies of the October 1, 1962 contract, the subsequent agreement between the Southeastern System and the City of Detroit and the affidavit of the current drain commissioner. After referring to the language of the 1962 agreement which provided that where a municipality is served, in whole or in part, by combined storm and sanitary sewers an extra charge shall be made for costs of disposing of storm water, the affidavit stated:

19The City of Madison Heights, in part, is served by a combined storm and sanitary sewer system which delivers sewage to the Southeastern Oakland County Sewage Disposal District, which in turn delivers the sewage flow from the City of Madison Heights to the City of Detroit for treatment and disposal.

20The affidavit also traced the change from charging for storm water on the basis of inadequate estimates to adoption of the rational formula. Under the old method, according to the affidavit, the estimated volume of storm water from Madison Heights included the 960-acre tract after completion of the pollution control facility in 1973. The increased charges after December 1980 were based on the more accurate formula, not on the addition of an area that had not been included in the calculations under the old method. The affiant stated that he had been unable to find any agreement by a prior drain commissioner exempting the 960-acre tract from service charges for storm water and that he had made no such agreement or representation during his term of office.

21Madison Heights filed “objections” to the motion for summary judgment supported by four affidavits. The affidavit of the former city engineer and city manager of Madison Heights stated that it was agreed at the time of the construction of the enclosure in the Red Run Drain that “the City of Madison Heights was not to be required to pay for the storm water which flowed from an area in proximity to the Red Run Drain for which there were separate sewerage outlets and which consisted of an area of approximately one thousand (1,000) acres.” Another affidavit by the project engineer for the pollution control facility project stated that the affiant had personal knowledge of written documentation establishing an agreement that Madison Heights was to receive special consideration for storm waters from the area which ran into the open Red Run Drain, and that based on this agreement Madison Heights was not to be billed for these storm waters. This affiant further stated that in return for this special consideration Madison Heights gave up its right to have an enclosed storm water drain constructed alongside the enclosure of the pollution control facility to extend beyond that enclosure and take its storm water downstream rather than emptying it into Detroit’s disposal system.

22Daniel Barry who had been Oakland County Drain Commissioner from 1957 through 1971 filed two affidavits. In the first affidavit Barry stated that Madison Heights received special consideration in a reduction of the capitalization costs of the enclosed pollution control facility and that in lieu of having a separate enclosed drain built alongside the enclosed facility “it was agreed and understood that the City of Madison Heights would not be charged for storm waters which formerly went into the open Red Run Drain.” In his second affidavit Barry stated that the 960-acre tract was part of the Red Run Drain, that the pollution control facility involved combined sanitary sewer and storm waters from the “Twelve Towns” and that the Oakland County Drain Commissioner did not have jurisdiction over the 960 acres. This last claim appears to have been abandoned by Madison Heights.

23No written documentation was filed with the affidavits and the district judge found the affidavits “deliciously vague.” The court ordered a hearing at which it would receive testimony to test the affidavits. At the several hearings which followed it became clear that none of the agreements referred to in the affidavits filed by Madison Heights was in writing. No witness produced or claimed to know of a writing which modified the provisions of paragraphs 13 and 14 of the October 1, 1962 contract. It was clear that Madison Heights had been required to bear a smaller share of the cost of the 1970 construction of the enclosed pollution control facility than it had borne of the facilities constructed pursuant to the 1962 agreement. Oakland County did not dispute that this reduction was made in recognition of the fact that Madison Heights had previously discharged separated storm water from the area adjacent to the Red Run Drain, including the 960-acre tract, directly into the open drain. However, this concession in the 1970 agreement related to capital construction costs only. There was no parallel provision in the 1970 agreement relieving Madison Heights of future service charges for disposal of the storm water. Rather, the 1970 agreement specifically incorporated the service charge provisions contained in the 1962 contract.


24The district court granted summary judgment in favor of Oakland County after first finding that it had pendent jurisdiction over the action. In holding that Madison Heights had failed to demonstrate the existence of a genuine issue as to any material fact the district court reviewed the record, including the testimony taken at the hearings. The court concluded that Madison Heights was relying on an oral agreement and that such an agreement would be unenforceable under the Michigan statute of frauds, Mich.Comp.Laws Ann. Sec. 566.132 (West Supp.1984). The court pointed out that the 1962 and 1970 contracts ran until the year 2002, and obviously the agreement relied upon by Madison Heights could not be performed within one year. The court further found that the alleged agreement was not taken out of the statute of frauds by reason of part performance and that Madison Heights’ affirmative claim of estoppel had not been established. On the basis of the entire record the district court concluded that Oakland County was entitled to judgment as a matter of law. Rule 56(c), Fed.R.Civ.P.


25Madison Heights raises two issues on appeal: the district court’s jurisdiction and Oakland County’s right to summary judgment.


26Madison Heights makes two distinct arguments concerning jurisdiction. In the first place, it contends that this action presented the single issue of rights under a contract between political subdivisions of the State of Michigan and that the district court’s decision stretches the scope of pendent jurisdiction “beyond the wildest imagination and intent” of the Supreme Court. The second argument is that the dispute should have been submitted to Oakland County’s Board of Review pursuant to Mich.Comp.Laws Ann. Sec. 46.176 (1967). The second argument was the only one made to the district court and it was answered in the district court’s unpublished opinion accompanying its summary judgment order. Briefly, M.C.L.A. Sec. 46.176 provides for review by a county board of review “[a]t the request of any unit of government … charged for services ….” Madison Heights never requested review and the party which did request review in the district court was the charging, not the charged, party. The short answer to this argument is that Madison Heights did not take the steps required to bring its dispute with the drain commissioner before the board of review.

27The argument raised for the first time in this court with respect to pendent jurisdiction is more substantial and requires our careful consideration. The issue of subject matter jurisdiction is always before a federal court and Madison Heights did not waive its right to contest the finding of pendent jurisdiction by failing to address it in the district court. Detroit, Toledo & Ironton R.R. v. Consolidated Rail Corp., 727 F.2d 1391, 1393 (6th Cir.1984).


28Oakland County’s complaint sought a declaratory judgment to settle a dispute between two political subdivisions of the State of Michigan arising out of a series of contracts. There was no independent basis of federal jurisdiction over this action; it dealt with a question controlled by state law and there was no diversity of citizenship between the parties. The district court found that it was substantially related to No. 7-71100 and that it was properly consolidated with that case and considered under principles of pendent jurisdiction.


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