motion for enforcement of court's june 26, 2014 order; motion for court-

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO

WESTERN DIVISION (CINCINNATI)

UNITED STATES OF AMERICA, et al., : :

: Plaintiff, : Case No. 1:02CV107 : v. : Judge Michael R. Barrett : Magistrate Karen L. Litkovitz : BOARD OF COUNTY COMMISSIONERS OF HAMILTON COUNTY, OHIO, et al.

: : : :

Defendants. :

THE BOARD OF COUNTY COMMISSIONERS OF HAMILTON COUNT Y, OHIO’S MOTION FOR ENFORCEMENT OF THE COURT’S JUNE 26, 2014 ORDER AND

MOTION FOR COURT-ORDERED MEDIATION

SUMMARY OF ARGUMENT PURSUANT TO LOCAL RULE 7.2(a)(3)

Pursuant to Rule 7.2(a)(3) of the Local Rules of the United States District Court for the

Southern District of Ohio, the Board of County Commissioners of Hamilton County, Ohio

(“County”) submits this introductory summary to its motion for enforcement of the Court’s June

26, 2014 Order and its motion for Court-ordered mediation.

I. PRELIMINARY STATEMENT …………………………………………………………1 II. PROCEDURAL AND FACTUAL BACKGROUND ……...……………………………2 A. The Court’s June 26, 2014 Order …………………………………………………2 B. Recent City Admissions Regarding $680 Million in Failed City Oversight ……..4

C. The City Unilaterally Terminated a Ratepayer Protective Contract Authorized by

the County and Wasted Hundreds of Thousands of Dollars ……………………..5

Case: 1:02-cv-00107-MRB-KLL Doc #: 795 Filed: 02/22/16 Page: 1 of 35 PAGEID #: 13570

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D. The City is Adverse to the County in MSD-related Litigation …………………7

1. Permit Related Documents Require County Review and Approval ……7

2. Consent Decree Permits Issued Without County Input or Approval ……7

3. The City Opposed the County, its Principal, in the Permit Appeals ……8 E. The Agent is Dictating Policy and Spending Instructions to the Principal …….10 F. The City’s Independent Actions with the Regulators ……………………….…12 G. Memoranda of Understanding and Funding Agreements ………………………13 H. The City’s Refusal to Provide “Joint Utility” Cost Information Before Decoupling MSD and GCWW ………………………………………………………………17

I. The City Charges MSD Double the Rate it Charges Others for Work Performed

by GCWW ………………………………………………………………………20 J. The County Has Been Forced to Seek Information Through Public Records Requests, which Have Gone Unanswered for Nearly a Year …………………...21 K. The City’s Settling of Claims on Behalf of MSD Without Notice to, or Approval of, the County ……………………………………………………………………22

III. ARGUMENT ……………………………………………………………………………23

IV. THE COURT SHOULD ORDER THE PARTIES TO MEDIATION REGARDING THE IMPENDING TERMINATION OF THE 1968 OPERATING AGREEMENT ………..29 V. CONCLUSION …………………………………………………………………………30


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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO

WESTERN DIVISION (CINCINNATI)

UNITED STATES OF AMERICA, et al., : :

: Plaintiff, : Case No. 1:02CV107 : v. : Judge Michael R. Barrett : Magistrate Karen L. Litkovitz : BOARD OF COUNTY COMMISSIONERS OF HAMILTON COUNTY, OHIO, et al.

: : : :

Defendants. :

THE BOARD OF COUNTY COMMISSIONERS OF HAMILTON COUNT Y, OHIO’S MOTION FOR ENFORCEMENT OF THE COURT’S JUNE 26, 2014 ORDER AND

MOTION FOR COURT-ORDERED MEDIATION

I. The Board of County Commissioners of Hamilton County, Ohio (“County”) respectfully

requests that the Court clarify the extent, impact, and effect of the Court’s June 26, 2014 Order

(“Order”) directing the City of Cincinnati (“City) to follow County instructions and enjoining the

City from violating the Consent Decree. The Court held that the City is the County’s agent for

the operation and maintenance of the sewer system subject to the County’s “control and direction

. . . in all matters related to those functions.” The City continues to manage and operate the

County sewer district, known as the Metropolitan Sewer District of Greater Cincinnati (“MSD”)

as if that Order did not exist. Quite simply, the City is a “rogue agent”, opposing County

oversight and directives and MSD Rules. Ratepayer costs are soaring. The City’s actions cannot

continue unabated without increasing those costs and threatening timely and successful

completion of mandatory Consent Decree projects.


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II. In addition, the County moves the Court to order the County and City to mediation to

address the impending termination of the agreement by which the City serves as the operator for

the County Sewer District. A memorandum in support is attached.

Respectfully submitted, s/ Joseph T. Deters Joseph T. Deters, Esq. (0012084) James W. Harper. Esq. (0009872) Charles W. Anness, Esq. (0082194) Michael J. Friedmann, Esq. (0090999) Hamilton County Prosecuting Attorney 230 E. Ninth Street, Suite 4000 Cincinnati, OH 45202 Phone: (513) 946-3006 Fax: (513) 946-3018 Mark A. Vander Laan, Esq. (0013297) Andrew B. Barras, Esq. (0088600) DINSMORE & SHOHL LLP First Financial Center, Suite 1900 255 East Fifth Street Cincinnati, OH 45202 Phone: (513) 977-8200 Fax: (513) 977-8141

Mark A. Norman, Esq. (0012033) Anthony L. Osterlund, Esq. (0071086) Vorys, Sater, Seymour and Pease LLP Suite 2000, Atrium Two 221 East Fourth Street Cincinnati, Ohio 45202 Phone: (513) 723-4000 Fax: (513) 723-4056 Attorneys for Board of County Commissioners of Hamilton County, Ohio


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MEMORANDUM IN SUPPORT

I. PRELIMINARY STATEMENT

As the steward of the County sewer district, the County is forced to file this motion to

preserve ratepayer funds and to ensure compliance with this Court’s prior Order (Doc. 725)1 and

with the Consent Decree.2 Despite the Court’s detailed factual findings and holdings regarding

the consolidation of the City’s sewer district into MSD, the operating agreement by which the

City manages MSD on behalf of the County, the effect of and obligations under that operating

agreement, and the County’s rights as owner of MSD—which were not appealed by the City—

the City continues to disregard the Court’s Order and treats the County as a nuisance that must

be endured or ignored, not as its principal whose directives are to be followed.

The City has now publicly admitted that its oversight of MSD management was lacking

for nearly a decade. Hundreds of millions of dollars were improperly spent during this time

without oversight or appropriate checks or balances to protect ratepayers and Consent Decree

compliance. The County had hoped this type of behavior would cease once the Court clarified

the parties’ roles and obligations as principal and agent in its June 26, 2014 Order. Indeed, the

clarification of the parties’ respective roles seemed so evident that the City did not even seek

further review of the Order. But, as demonstrated herein, instead of adhering to the directives of

the Court, the City has routinely and intentionally ignored its fiduciary role.

1 When the Court previously addressed the County’s Petition to Enjoin Violation of the Consent Decree by the City

of Cincinnati, the Court handled the matter under the dispute resolution provisions of the Consent Decree. (Doc. 725, pp. 4-6). This is a continuation of the same dispute and should be treated in the same manner.

2 On June 9, 2004, the County and City entered into a Consent Decree with Plaintiffs United States of America, the State of Ohio, and the Ohio River Valley Water Sanitation Commission (collectively, the “Regulators”) entitled “Consent Decree on Combined Sewer Overflows, Wastewater Treatment Plants and Implementation of Capacity Assurance Program Plan for Sanitary Sewer Overflows” (“Global Decree”) (Doc. 131) and a Consent Decree entitled “Interim Partial Consent Decree on Sanitary Sewer Overflows” (“Interim Decree”) (Doc. 130) (collectively, “Consent Decree”).


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For the Court’s ease, the County will address only a limited number of post-Order

examples that highlight the City’s actions as an unfaithful, rogue agent that must be reined in to

protect ratepayers and to protect the County’s ability to achieve expeditious implementation of

all Consent Decree requirements.

Immediate relief is necessary to limit the wasting of ratepayer monies, to ensure checks

and balances are properly in place, and to ensure that Consent Decree projects are timely

completed in an efficient, business-like manner. The County requests that the Court instruct the

City that its Order applies to all MSD-related County Resolutions and directives and all MSD

Rules, not just to limited procurement issues, and instruct the City to comply with the County’s

directives, rules, and regulations pertaining to the City’s operation and maintenance of MSD.

While the Court examines the issues presented herein, the County also requests that the

Court also order the County and City to mediation to address the impending termination of the

operating agreement under which the City manages MSD on behalf of the County.

II. PROCEDURAL AND FACTUAL BACKGROUND

A. The Court’s June 26, 2014 Order. On May 5, 2014, the County filed a Petition to Enjoin Violation of the Consent Decree

(“Petition”) by the City (Doc. 708).3 The focus of the Petition was the City’s operation and

maintenance of MSD on behalf of the County, pursuant to the fifty year agreement the City and

County entered into on April 10, 1968 (the “1968 Operating Agreement”), which governs the

relationship between the County and the City with respect to the operation of MSD.4 The

3 The background for the Consent Decree, this Court’s continuing jurisdiction over this matter, MSD, the relevant

operating agreement (the “1968 Operating Agreement”), and the principal-agency relationship recognized by this Court and in the Complaint and Amended Complaint in this matter, the Consent Decree, and the 1968 Operating Agreement were previously set forth in the County’s Petition (Doc. 708, pp. 1-5) and the Court’s Order (Doc. 725, pp. 1-9) and are incorporated herein by reference.

4 Petition (Doc. 708, Exhibit 3).


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County requested that its Petition be granted, as the City’s practices in operating and maintaining

MSD were contrary to County policy and directives, resulting in delays in the implementation

and completion of Consent Decree projects.5 Such delays increased the cost of Consent Decree

projects and endangered the completion of those projects, resulting in possible violation of the

Consent Decree. The County’s Petition identified three City procurement-related ordinances that

the County believed violated State law and which the City continuously attempted to use despite

repeated County direction that it not do so. Despite the Petition’s focus on the procurement-

related ordinances, the overarching issue of concern clearly illustrated in the Petition was the

nature of the principal-agent relationship between the County and City.

On June 26, 2014, the Court issued its Order on the matter, enjoining the City from using

its ordinances in the procurement of contracts for Consent Decree sewer projects. (Doc. 708, at

28). The Court also ordered the City to follow MSD Rules and Regulations and County

Resolutions and directions. See id. at 29. In so doing, the Court noted that the terms of the 1968

Operating Agreement “[c]reated a contractual agency relationship pursuant to which the parties

agreed that the City would function as the County’s agent in the operation and maintenance of

MSD.” Id. at 17. Indeed, “the 1968 Agreement creates a principal-agency relationship pursuant

to which the City’s authority as agent is specifically limited and is subject to the direction and

control of the County as principal.” Id. at 19. Finally, the Court held that “[i]n accordance with

the plain terms of the 1968 Agreement, the City is the agent of the County for the operation

and maintenance of the sewer system and is subject to the control and direction of the

County in all matters related to those functions.” Id. at 18 (emphasis added).

5 By way of example, the Consent Decree projects at Eastern and Delta Avenue were delayed for 16 months by the

City’s illegal procurement practices, which were ultimately overturned by Court Order. The City continues to blame the County for this delay. See Declaration of Dave Meyer (“Meyer Declaration”), ¶ 2 (attached at Exhibit 1).


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B. Recent City Admissions Regarding $680 Million in Failed City Oversight.

As the Court may be aware, the Cincinnati Enquirer has recently run a series of stories

regarding the County’s requests for the City to follow County directions, over or underbuilt

(until corrected) Consent Decree projects, blown budgets, a reported FBI investigation of MSD,

an Auditor of State investigation of MSD, and the fact that the City allowed MSD to spend as

much as $680 Million in public money with little or no oversight. The recent news coverage

regarding the City’s mismanagement of MSD is illustrative of the issues and difficulties the

County has had with the City and its failure to properly operate and maintain MSD over a

number of years.

This lack of City oversight allowing MSD unfettered authority to enter contracts and

spend money appears to have begun in 2007, when the City Manager delegated authority to the

MSD Executive Director to “sign on behalf of the City of Cincinnati any documents, including

contracts, that pertain to the City’s operation of MSD. . . .”6 Per its own admission, the City

disbanded its oversight committee that is supposed to monitor government spending in 2008.7

While this lack of City oversight was ongoing, MSD personnel questioned contracts entered by

MSD, noting that the “scope of work and how it benefit(s) MSD” was not clear and that work

orders did “not provide any specifics or deliverables.”8 City Manager Harry Black has publicly

stated that the arrangement suffered from insufficient “command and control” and that the

6 Interdepartmental Correspondence Sheet from City Manager to MSD Executive Director, dated 11/15/07 (attached

at Exhibit 2).

7 See City Council Member Kevin Flynn, Chairman, Rules and Audit Committee letter to Ohio Auditor of State, dated 2/8/16 (attached at Exhibit 3); see also Cincinnati Enquirer, As MSD spent millions, audit committee vanished, dated 2/8/16 (attached at Exhibit 4).

8 Cincinnati Enquirer, SPECIAL REPORT: The $680M memo, dated 2/3/16, at p. 7, quoting MSD Deputy Director Ihab Tadros and MSD Enterprise Manager Leisha Pica (attached at Exhibit 5).


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“business rules were out of whack.”9 And, Mayor Cranley admitted that MSD practices did not

meet the standards for the projects MSD is managing and that MSD spending was not

“aboveboard and transparent….”10 The Ohio Auditor of State is now conducting an intensive,

“deep[] dive” audit of MSD.11

C. The City Unilaterally Terminated a Ratepayer Protective Contract Authorized by the County and Wasted Hundreds of Thousands of Dollars.

The Lick Run Valley Conveyance System Project (“VCS”) is the single largest project

($168,000,000+) within the Consent Decree’s Lower Mill Creek Partial Remedy, which itself is

the largest Consent Decree Phase 1 Project.12 In July 2014, MSD proposed the use of

Construction Manager at Risk (“CMAR”) services for the VCS, explaining that contrary to a

traditional design-bid-build procurement, CMAR would result in significant ratepayer savings

and would allow timely project completion (prior to 12/31/18).13 MSD advised that CMAR

procurement provided three primary benefits: (1) MSD could select best value rather than low

bid (ensuring the most qualified management team); (2) the CMAR could be engaged before

project design completion, contributing its construction and cost estimating expertise as final

project planning and design occurred; and (3) the CMAR would provide a guaranteed maximum

price, with the CMAR—and not the ratepayers—accepting the cost growth risk.14

9 Exhibit 5, SPECIAL REPORT Enquirer article, at pp. 1, 3.

10 Id. at pp. 4-5.

11 Ohio Auditor of State, Press Release, dated 2/4/16, p. 1 (attached at Exhibit 6).

12 See Exhibit 1, Meyer Declaration, ¶ 3.

13 See id. at ¶ 4.

14 See id. at ¶ 5.


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The City presented the Board with draft legislation to approve the use of a CMAR

procurement process for the VCS to secure “best value” construction and a guaranteed maximum

price on August 18, 2014.15 The Board passed a Resolution to utilize CMAR two days later.16

The City then issued a RFQ for the CMAR procurement.17

In September 2014, MSD management advised that the VCS would be at 100% design by

July 2015 and construction would start in the fourth quarter 2015.18 In October 2014, MSD

selected the best qualified CMAR.19 A CMAR contract was awarded and signed in

November. MSD advised the public of the selection and contract award on December 2, 2014.20

Three days later—after work began and without notice to or the consent of the County—

the City unilaterally terminated the CMAR procurement process.21 As City Manager Harry

Black informed City Council shortly afterward, “MSD has a long history of making procurement

decisions on sewer projects without County involvement. This project is no different.”22 In

making this decision, the City eliminated the procurement process recommended by MSD that

provided a guaranteed maximum price to ratepayers. And, per MSD, it wasted more than

15 See Exhibit 1, Meyer Declaration, ¶ 6, and its Ex. A.

16 See id. at ¶ 6, and its Ex. B.

17 See id.

18 See id. at ¶ 7.

19 See id. at ¶ 8.

20 See id. at ¶ 9.

21 See id. at ¶ 9. See also email between Christian Sigman (County) and Harry Black (City), dated 12/9/14 and email between Ali Bahar (City) and members of the CMAR Evaluation Committee, dated 12/8/14 (noting “complete surprise” about termination of the CMAR procurement)(attached at Exhibit 7).

22 See Exhibit 1, Meyer Declaration, ¶ 10, and its Ex. C.


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300,000 dollars that had already been spent as part of the CMAR process.23 Moreover, more

than a year later, the VCS is not yet at 100% design and construction has not begun.24

D. The City is Adverse to the County in MSD-related Litigation.

1. Permit Related Documents Require County Review and Approval.

Since at least January 2014, MSD is to obtain County approval for, among other things,

official documents due to regulator agencies. MSD Rule 2403-3, “Review Process for Consent

Decree Reports, Permit Applications and other official documents due to Government

Agencies,” provides in part that:

The County Administration must review and approve all Consent Decree and WWIP reports, WWIP project Permit to Install applications, and other official documents prepared by MSD which are due to government agencies, prior to submission of such reports, applications or documents to the relevant government agency.25

The City has consistently and repeatedly avoided obtaining such approval.

2. Consent Decree Permits Issued Without County Input or Approval.

On June 30, 2014, the Ohio Environmental Protection Agency (“Ohio EPA”) issued

NPDES Permit No. 1PM00001*MD, covering discharges from the Mill Creek Wastewater

Treatment Plant (the “WWTP Permit”), and NPDES Permit No. 1PX00022*CD (the “CSO

Permit”), covering discharges from combined sewer overflow outfalls. Both permits are

specifically identified in the Consent Decree. See Global Decree (Doc. 131), at 13.

The City provided comments to Ohio EPA by letters dated March 24, 2014, addressing

the CSO Permit, and June 20, 2014, addressing the WWTP Permit.26 Contrary to MSD Rule

23 See Exhibit 1, Meyer Declaration, ¶ 11, and its Ex. D.

24 See id. at ¶ 12.

25 MSD Rule, Section 2403-3 (attached at Exhibit 8).



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2403-3, neither the City nor MSD sought nor received County approval before submitting

comment letters to Ohio EPA.27

Ohio EPA responded to MSD’s comments regarding the permits via a June 27, 2014

letter to MSD.28 Ohio EPA did not send this letter to the County, and MSD did not provide a

copy of it the County.29

3. The City Opposed the County, its Principal, in the Permit Appeals.

The County, owner and principal, filed notices of appeals for the issued WWTP Permit

and CSO Permit with the Environmental Review Appeals Commission for the State of Ohio

(“ERAC”) on July 29, 2014.30 The County informed the City of the appeals and directed the

City as follows: “do not and do not have your staff intervene or participate in the Appeals or

otherwise communicate with Ohio EPA, with respect to the Permits or Appeals, except as

specifically requested by the County.”31

Just weeks later, on August 20, 2014, the County passed a Resolution “Providing New or

Repeated Instructions from the Principal to the Agent Regarding [MSD] Policy Issues.”

(attached at Exhibit 9). The Resolution affirmed the MSD Rule requiring County approval of

documents submitted to government agencies, and affirmed the County’s instruction to the City

that the City was not to intervene in the ERAC appeals. Id. Specifically, the County directed the

27 See Exhibit 1, Meyer Declaration, ¶ 15. Although Director of County Utility Oversight is listed as receiving

courtesy copies of the letters, he did not receive either letter. See id. at ¶ 14.

28 See id. at ¶ 16.

29 See id.

30 See id. at ¶ 17.

31 See id. at ¶ 18, and at its Ex. E.


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City “[n]ot to intervene in, appeal, interfere with, or otherwise become involved in the County’s

recent appeals of two Ohio EPA permits, except as specifically requested by the County.” Id.

Despite the County’s clear instructions, in an astounding act of defiance, the City filed

motions to intervene in the ERAC appeals for the WWTP Permit and CSO Permit on August 26,

2014.32 In each motion, the City moved to intervene as an Appellee in the matter against the

County, with the City stating that its position substantially supported that of Ohio EPA, contrary

to the County’s position.33 Such an act is the equivalent of an attorney standing up in court and

taking a position contrary to his or her client, and then seeking the right to participate as an

independent party adverse to the client.

The County opposed the City’s motions to intervene, noting the City was attempting to

do what its principal, the County, directed it not to do.34 ERAC granted the City’s motions to

intervene on September 23, 2014.35 The County filed motions for reconsideration in each

matter.36 ERAC granted the County’s motions for reconsideration, but also affirmed its earlier

32 See Motion to Intervene, ERAC 14-316821 (attached at Exhibit10) and ERAC 14-316822 (Exhibit 11). Only the

substantive motions are attached. Their exhibits are available upon request. See also Exhibit 1, Meyer Declaration, ¶ 19. In its motions to intervene, the City incorrectly stated that pursuant to the 1968 Operating Agreement, it “[r]etained title to its existing sewer assets, while granting an exclusive license to the County for the use of those assets subject to City management throughout the period of the Agreement.” Exhibit 10, ERAC 14-316821 Motion to Intervene at 2; Exhibit 11, ERAC 14-316822 Motion to Intervene at 2. The 1968 Operating Agreement and related County Ordinance No. 144-1968 merely provide that the City “[g]ranted to the [C]ounty the sole and exclusive use of all sanitary sewers and sewer disposal facilities of the City as part of the [C]ounty sewer system,” with no discussion regarding the City “retaining” those assets. See 1968 Operating Agreement (attached at Exhibit 12); see also Ordinance No. 144-1968 (attached at Exhibit 13).

33 See Exhibit 10, ERAC 14-316821 Motion to Intervene at 1; Exhibit 11, ERAC 14-316822 Motion to Intervene at 1. See also Exhibit 1, Meyer Declaration, ¶ 19.

34 See Exhibit 1, Meyer Declaration, ¶ 20. See also Oppositions to Motions to Intervene, without attachments, at Exhibit 14 (ERAC 14-316821) and Exhibit 15 (14-316823). The attachments are available upon request.


36 See id.


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granting of the City’s motions to intervene.37 Thus, the agent succeeded in flagrantly

disregarding its principal’s directives. City actions like this will inevitably lead to increased

expenses, confusion, and time delays in the implementation of the Consent Decree.

ERAC noted that it was not the appropriate forum for the County and City to resolve

governing or policy issues regarding the nature of principal-agent relationship between the

parties. See Exhibit 16, at 5; Exhibit 17, at 5. The matter is thus ripe for this Court to issue a

clarifying direction to ERAC and all parties to the Consent Decree.

E. The Agent Is Dictating Policy and Spending Instructions to the Principal.

By law, the incinerator at the Little Miami Wastewater Treatment Plant (“WWTP”) must

cease operating by March 21, 2016.38 The County may be interested in extending its operation,

with EPA permission, while alternatives are explored. On January 15, 2016, the City went

public with its own proposal regarding incinerator issues at the Little Miami WWTP via a press

release.39 The City did this before providing the proposal or any financial, environmental or

policy analyses from MSD to the County.40 Indeed, the County learned of the proposal through

the media.41

On February 8, 2016, the County contacted MSD noting that it continued to review the

matter and that it was seeking an update.42 The County stated that it was “critical that the

37 See Exhibit 1, Meyer Declaration, ¶ 21. See also Ruling on Motion for Reconsideration of Ruling on Motion to

Intervene, Case No. ERAC 14-316821 (attached at Exhibit 16); Ruling on Motion for Reconsideration of Ruling on Motion to Intervene, Case No. ERAC 14-316822 (attached at Exhibit 17).


39 See id. at ¶ 23; see also Memo: Findings of Little Miami Treatment Plant Feasibility Study, dated 1/15/16 (attached at Exhibit 18).


41 See id.

42 See id. at ¶ 24, and at its Ex. F.


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County . . . be involved in all discussions with the [R]egulators, and receive copies of anything

sent to or received from the [R]egulators on this issue.”43 This is consistent with MSD Rule

2403-2(B), and because the County would need to approve any related consent decree or

administrative order on consent.

In response, MSD Director Gerald Checco stated that “the City is leading the discussion

with the Regulators, that [it is] responding to specific inquiries from EPA Region 5 about [its]

proposed plans, and that [it] is pressing for a draft administrative agreement or roadmap to an

agreement as soon as possible.”44 Mr. Checco further advised that MSD would “share” a

proposal for a compliance plan or a draft of a specific legal agreement after it receives one from

the Regulators.45 Id. Per the City, Mr. Checco is improperly communicating by phone and email

with the Regulators. He is not including the County in these communications. Finally, Mr.

Checco outrageously advised the County who it could, or at least who it could not, rely upon for

advice and how the County could spend MSD funds as to incinerator options and discussions

with the Regulators:

[T]here is no need for the County’s outside lawyers to weigh in at this time. If the County wishes to engage outside legal counsel on this matter, and expects reimbursement via MSD funds, the City will need a proposal for such services.46

In summary, the agent is ignoring the directives of the principal, is violating MSD Rule

2403-2(B), is telling the principal how it can and cannot be advised, and is putting conditions on

how the principal spends the principal’s funds. The City is, quite literally, in the process of

43 See Exhibit 1, Meyer Declaration, ¶ 24 and its Ex. F.

44 Id. at ¶ 25, and at its Ex. G.

45 Id.

46 Id.


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agreeing to projects, enforcement, and/or penalties that can only be approved, and financed, by

the County. The City appears to be in the process of reaching an agreement, and then trying to

force the County to pay for it after it is announced as what the Regulators want or will accept.

This is no way for an agent to act. It is not the first time the City has acted independently with

the Regulators, however.

F. The City’s Independent Actions with the Regulators. After this Court’s Order clarifying the principal-agent relationship, on July 25, 2014, as

lead defendant in the Consent Decree, and in order to expedite implementation of the Consent

Decree and address the risk of its agent further opposing the County, the County informed the

City that the County would be “taking the lead” on discussions with the Consent Decree

plaintiffs (the “Regulators”).47 The County stated specifically that it would be the single point of

contact with the Regulators on substantive policy and matters related to Consent Decree

negotiations, and that “MSD should provide any policy idea recommendations related to the

consent decree, negotiations, District finances, NPDES compliance, etc. directly to the County

for consideration and should not take any independent action with the Regulators on those ideas

prior to receiving direction or authorization from the County.” Id.

The County’s Resolution “Providing New or Repeated Instructions from the Principal to

the Agent Regarding the Metropolitan Sewer District of Greater Cincinnati Policy Issues”

affirmed the County’s instructions to the City that the County would act as the lead party with

the Regulators, along with the County’s earlier directives to the City on July 25, 2014.48 The

47 Christian Sigman, County Administrator email to Scott Stiles, Interim City Manager, dated 7/25/14 (attached at

Exhibit 19).

48 See Resolution Providing New or Repeated Instructions from the Principal to the Agent Regarding the Metropolitan Sewer District of Greater Cincinnati Policy Issues, dated 7/25/14 (attached at Exhibit 9).


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County provided the Regulators with a copy of the aforementioned resolution. Despite the

County’s clear directives to the City, Interim City Manager Scot Stiles stated in a memorandum

to the City Mayor and Members of City Council, that the City would continue to collaborate and

communicate with the Regulators.49

The City’s defiant actions have placed the Regulators in the awkward and unfair position

of having to mediate the issues between the County and City, to the detriment of the Regulators’

valuable time and resources, as well as to the implementation of the Consent Decree. The City,

in disobeying the Court’s Order and the County’s instructions, is preventing the County from

acting as the principal and owner of the County Sewer District and as the lead defendant in this

litigation. As a result, a court order is necessary to clarify for all parties involved that the

defendants’ decisions made regarding the Consent Decree are that of the County, as the City is

merely operating and maintaining MSD as the County’s agent.

G. Memoranda of Understanding and Funding Agreements.

Under MSD Rule 2405-9, before entering into a memorandum of understanding

(“MOU”) on behalf of MSD for operating or capital needs, the City is to notify the County in

advance and obtain County’s approval on the MOU. Indeed, MSD Rule 2405-9, titled

“Memoranda of Understanding (MOU)/Grants; Transfers, Payments, Disbursements to City of

Cincinnati,” specifically provides that:

If MSD intends or is required to execute an MOU or grant application/agreement with an entity (including but not limited to departments of the City, other government entities, and utilities, or private organization) for either operating or capital needs, MSD shall present the terms of the MOU/Grant to the County for review and approval prior to executing any MOU/Grant. MSD will provide the County with a

49 See See Exhibit 1, Meyer Declaration, ¶ 10 and its Ex. C.


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minimum of 15 working days for review.50

On July 21, 2014, the City, on behalf of MSD, entered into a “Funding Agreement” with

the Cincinnati City School District (“CPS”). (attached at Exhibit 21). The Funding Agreement

called for MSD to pay CPS $141,275 for a “[f]ull-scale retrofit to the existing stormwater

detention basin located on the Roberts Academy campus.” Id. at Section 1, 3A. The City did not

provide the Funding Agreement to the County for review and approval before it was entered.

Upon learning of the Funding Agreement, James W. Harper (“Mr. Harper”), Chief Assistant with

the Hamilton County Prosecutor’s Office, sent a letter to Terrance Nestor (“Mr. Nestor), Acting

Cincinnati City Solicitor stating, among other things, that if MSD ratepayer funds were to be

used for the Funding Agreement, it must be terminated immediately.51 Mr. Nestor did not

respond, and the County does not know if the Funding Agreement was terminated.

On November 12, 2014, County employee Karen Ball (“Ms. Ball”) sought documents

from City employee Vanessa Smedley (“Ms. Smedley”) pertaining to MOUs the City entered

between MSD and other entities. (attached at Exhibit 23). Ms. Smedley would not provide the

MOUs, stating that they were “attorney client privileged.” Id. Mr. Harper again expressed

concern regarding the City’s actions to Mr. Nestor.52 Mr. Harper noted that the City had entered

into at least one MOU without County’s review and approval, and that the City appeared to be

entering additional MOUs and withholding the information from the County. See id. Mr. Harper

noted that it was unclear how the MOUs could be privileged, as they were entered on behalf of

50 MSD Rule 2405-9(A) (effective January 14, 2014 (Rule 2405-9(A)), amended August 6, 2014) (attached at

Exhibit 20).

51 See James Harper (County Prosecutor’s Office) letter to Terry Nestor (City Solicitor’s Office), dated 11/14/14 (attached at Exhibit 22).

52 See James Harper (County Prosecutor’s Office) letter to Terry Nestor (City Solicitor’s Office), dated 11/14/14, with Ball-Smedley correspondence attached thereto (attached at Exhibit 24).


15

the County. See id. Mr. Harper also reminded Mr. Nestor that any such MOUs agreed upon by

the City outside the parameters of MSD Rule 2405-9 were improper and must be terminated.

See id. The City still has not responded.

On January 13, 2015, Gina Marsh (“Ms. Marsh”), General Counsel for Municipal

Utilities, emailed Charles Anness (“Mr. Anness”), Assistant County Prosecutor, for County

approval of a City MOU:

As discussed, the City has agreed to forward for your review MOUs between City departments that involve the expenditure of MSD funds on consent decree projects. . . . Please let me know of any concerns [about the attached MOU] you have no later than this Friday, January 16. If I do not hear from you by that date, the City will complete its execution of the MOU.53

While sent under the guise of Rule compliance, Ms. Marsh’s email provided the County only

three days to review the MOU and stated that MSD would execute the MOU if the County did

not complete its review in that time. See id. The County did not approve the MOU, but Mr.

Anness did direct the City to MSD Rule 2405-9(A) (requiring at least 15 days for County review

and approval before MOU execution). See id. Since then, Ms. Marsh has provided 15 days for

review of multiple MOUs submitted at the same time, but still threatens to enter those MOUs if

the County does not respond.54 This, of course, is contrary to MSD Rule 2405-9(A), which

requires County approval before an MOU is entered.

On April 15, 2015, County Administrator Christian Sigman (“Mr. Sigman”) contacted

City Manager Harry Black (“Mr. Black”) regarding MOUs after the Ohio Auditor of State noted

that MSD’s “failure to implement controls over the interdepartmental billings increases the risk

53 Email string between Gina Marsh (General Counsel for Municipal Utilities) and Charles Anness (County

Prosecutor’s Office), dated 1/13/15 and 1/15/15 (attached at Exhibit 25).

54 See, e.g., Gina Marsh (General Counsel for Municipal Utilities) email to Charles Anness (County Prosecutor’s Office), dated 9/18/15 (without attachments) (attached at Exhibit 26).


16

that inaccurate billings, errors, theft, or fraud could occur and not be detected in a timely

manner.”55 Mr. Sigman noted:

. . . I spent two hours at MSD yesterday reviewing the systems and documents the monitor relies on to fulfill their role. . . . a cursory review of the information revealed numerous questions regarding the base data, methodologies and individual transactions. . . . For example, why was 7% of the Park Board Director’s 2014 salary paid from MSD ratepayer revenues? . . . . The City Solicitor’s Office response to my records request is just one more example of the type of rope-a-dope which the Monitor is experiencing on a daily basis. That response can only be viewed as…‘you have unfettered access to the hay field, but we will not tell you which haystack to look at or how many needles you will find in each.’ . . . Our collective interest in the MOUs and the business relationships between City departments is a direct result of Auditor of State comments and recommendations resulting from the 2013 annual audit. . . .

On April 22, 2015, Mr. Sigman again wrote Mr. Black regarding MOUs, noting that:

Since MSD or City will not respond to the County’s records request, the County Monitor will be focusing its near-term inquiries on the MOUs between MSD and the Park Board and Cincinnati Recreation Commission. . . . We will be seeking clarification and understanding as to the scope of services for these particular MOUs, the City management’s review and approval of these MOUs and the accuracy of the billings. Two immediate concerns, that we hope are unfounded, are that the MOUs seem to pertain to capital construction work that should have gone before the County Commission for approval and that the City is balancing its general fund budget with MSD ratepayer revenue. . . . The monitoring team will also be inquiring about the business relationship between MSD and the City Solicitor’s Office [and] . . . seeking to understand the reasoning and magnitude of inter-fund transfers for the expenses of the City Solicitor’s Office above and beyond the cost allocation plan. Again, is the City allocating general fund expenses onto MSD ratepayers? . . . . (Id.)

55 Email string between Christian Sigman (County Administrator) and Harry Black (City Manager), dated 4/15/15

and 4/22/15 (attached at Exhibit 27).


17

The Auditor of State has recently announced that a full investigation into MSD’s budget and

spending is commencing. (attached at Exhibit 6).

On September 18, 2015, Ms. Marsh made a request for County approval of 4 MOU’s to

Mr. Anness. (attached at Exhibit 26). Included in Ms. Marsh’s requests for the City was a

proposal for the County to transfer property to the City Parks Department. In light of this

request, Mr. Anness could only respond:

“For the Parks [consent decree] property issue (as no draft MOU exists), a meeting between the County and City will be necessary. I believe that the proposal to grant approximately $2.8 million in property to the City Parks Department for $1 requires more discussion than email can allow.”56

There is an inherent conflict when the City negotiates with itself. Only one side can get

the best deal, and here, neither side represents the ratepayers. Moreover, the failure of the City to

properly negotiate for property it owns that is required for the VCS project may lead to potential

Consent Decree delays. In short, there is a valid reason for County oversight and approval of

City to City MOUs.

H. The City’s Refusal to Provide “Joint Utility” C ost Information Before Decoupling MSD and GCWW.

In 2011, the City took steps to create a joint utility between MSD and GCWW. See

Exhibit 1 , Meyer Declaration, ¶ 27. An August 29, 2011 Feasibility Study noted that joint

management of the entities would result in saving between $68M - $105M over ten years. See

id. Upon approval by the City, MSD Director Tony Parrot was named as the Director, Joint

Utility. See id. In September 2013, Director Parrott reported that shared services had been

implemented, that cost savings were being achieved as predicted, that $5.6M had already been

56 See Correspondence between Mr. Anness and Ms. Marsh dated 10/9/15 (attached at Exhibit 28).


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saved, and that the program was on track for success.57

The County requested information on shared services costs multiple times, but it was

never provided. For example, in September 2013, the County sought: “For any costs included in

the shared services arena, provide detail calculations of how and what costs are allocated to

MSD. Likewise, if costs are recorded on MSD’s books, explain the method for allocating to

other utilities (i.e. salary for effort spend on GCWW (Public Relations, HR, GCWW Acting

Director, and other Administrative Personnel.” 58 And, when reviewing budget issues with MSD

in June 2014, the County asked MSD to “quantify the benefits achieved in the joint management

effort for incorporation in the Budget [and to] . . . provide information documenting the Joint

Utility savings to date, and projected for the next two years.”59 Neither MSD nor the City

provided the requested information.60

The Ohio Auditor of State, in August 2014, noted that the cost of these shared services

was billed using interdepartmental (“ID”) vouchers, but that there was no finalized Joint Utility

Organization agreement between the two organizations.61 The Auditor also noted that ID

vouchers were not processed timely, that there were no MOUs between MSD and various City

departments for services, and that there was no documentation of MSD review of the accuracy of

charges from some City departments.62

57 Tony Parrott Update to City Council on Joint Utility Management, dated 9/9/13 (attached at Exhibit 29).

58 See MSD Responses to County’s 2014 Operating Budget Review Criteria, dated 9/20/13, ¶ 8 (attached at Exhibit 30).

59 Dave Meyer (County) email to Tony Parrott (MSD), dated 6/13/14 (attached at Exhibit 31).

60 See Exhibit 1, Meyer Declaration, at ¶ 28.

61 Dave Yost, Auditor of State, Management Letter dated 8/14/14, at p. 3 (attached at Exhibit 32).

62 See id. at pp. 3-4.


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The County continued to seek financial information in an effort to protect the ratepayers

and ensure compliance with the Consent Decree. After reviewing MSD’s 2015 budget proposal,

the County, in September 2014, asked: “What were the 35 positions eliminated at MSD through

the Joint Utility effort that resulted in the $2.7M annual savings (pg 5)?” and “Why does the

County have to wait until 2016-2017 for formal policies and procedures related to reporting of

shared service tracking of expenses and reporting (pg 6)?”63 On November 4, 2014, the County

sought a “complete accounting of joint utility for 2014 and planned 2015.”64 Neither the City

nor MSD responded to either of these requests.65 On November 18, 2014, the Joint Utility

Director reported that $5.1M had been saved from staffing efficiencies and that cost savings

were being achieved as predicted.66

Just months later, the City Manager announced the decoupling of MSD and GCWW,

noting that while it “has likely resulted in some savings . . . there were no mechanisms in place to

capture the savings in a quantifiable manner.”67 The County does not know whether monies

were actually saved or lost, where and how MSD funds were being used, or if there has been a

proper accounting of all MSD funds. These are important public financial accountability issues,

particularly given that the recurring annual charge to MSD has averaged approximately $5

million per year over the last five years.

63 County Request for Supporting Information for MSD Proposed 2015 Budget, dated 9/2/14, p. 1, ¶¶ 3, 4.a

(attached at Exhibit 33).

64 Teresa Caprio (County Monitor) email to Beverly Engram (MSD) dated 11/4/14 following up on the County’s 8/15/14 and 9/2/14 requests (attached at Exhibit 34).

65 See Exhibit 1, Meyer Declaration, at ¶ 29.

66 Tony Parrot Update to City Council on Joint Utility Management, dated 11/18/14 (excerpt attached at Exhibit 35).

67 City Manager Water and Sewer Improvement Memorandum, dated 5/12/15 (attached at Exhibit 36).


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I. The City Charges MSD Double the Rate It Charges Others for Work Performed by GCWW.

GCWW charges and bills MSD monthly to read and service meters, print and mail bills,

process payments, respond to customer inquiries, and collect past due amounts and process

adjustments.68 As the Ohio Auditor of State has recognized, there is no written agreement

between the two City-staffed organizations.69 To the County’s knowledge, the City has not taken

steps to rectify this problem.

There is no U.S. study on a national average for the cost of water and wastewater

services. A 2013 Canadian benchmarking study, however, found the annual cost for such

services to be $12.18 per customer.70 After a freely and openly negotiated arms-length

transaction, GCWW charges the Lexington-Fayette Urban County Government (“Lexington”)

$13.44 per customer.71 At the same time, GCWW charges MSD approximately $24 per

customer.72 The County has requested, but not received, complete support from MSD for both

the allocation methodology used by, and customer service fees paid to, GCWW.73 As such, the

City has prevented the County from taking steps to ensure that the ratepayers are sufficiently

protected and ensure compliance with the Consent Decree.

68 GCWW Billing Services Review 2014, at p. 1 (attached at Exhibit 37).

69 Dave Yost, Auditor of State, Management Letter dated 8/14/14, at p. 3 (attached at Exhibit 32).

70 AECOM August 31, 2013 National Water & Wastewater Benchmarking Initiative, page 15, table 1 (excerpt attached at Exhibit 38). Adjusted for inflation, the $11.50 identified in the table for 2011 is $12.18 today.

71 Lexington RFP, dated 12/8/11, at p. 2 (excerpt attached at Exhibit 39) ($1.12 per bill x 12 bills per year).

72 Calculated as follows: $5.4M charge ÷ 226,000 customers = $23.89 per customer.

73 See MaryLynn Lodor (MSD) email to Dave Meyer (County) dated 9/20/13, attaching MSD comments to County allocation inquiries (attached at Exhibit 40); Dave Meyer email to MaryLynn Lodor dated 1/2/15 (attached at Exhibit 41); and Dave Meyer email to Ihab Tadros (MSD) dated 7/1/15 (noting that MSD had failed to produce the 2011-2014 reconciliation reports)(attached at Exhibit 42).


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J. The County Has Been Forced to Seek Information through Public Records Requests, which Have Gone Unanswered for Nearly a Year.

As evidenced above, there are numerous examples of the City, as agent, not providing

information—including vital financial information—requested by its principal, the County. The

lack of cooperation by the City has resulted in the County having to make public records requests

to the City to try and get the necessary information, generating unnecessary delay and expense,

jeopardizing the County’s ability to protect the ratepayers and ensure compliance with the

Consent Decree. For example, County Administrator Christian Sigman sent City Manager Harry

Black three requests pursuant to the Ohio Public Records Act in an effort to receive:

Documents prepared by the Metropolitan Sewer Department (or its agents) or any other City department related to the cost of utility relocation for sanitary, combined or stormwater sewer infrastructure associated with the second phase / extension of the City street car project . . . .74

. . . the amounts of all transfers of funds from MSD accounts to any non-MSD accounts within City government. Non-MSD accounts would include, but are not limited to, the general fund and internal service funds; and . . . items documenting /justifying the amount of the transfer and approved agreements / MOUs establishing the business relationship between MSD and any City department or agency.75

Documents related to expert services engaged by the Metropolitan Sewer District (MSD) during 2015 [including] . . . . purchase orders and statements of work for expert services with an annual spend in excess of $50,000.76

74 Letter from County Administrator Christian Sigman to City Manager Harry Black, dated 3/30/15 (attached at

Exhibit 43).

75 Letter from County Administrator Christian Sigman to City Manager Harry Black, dated 4/1/15 (attached at Exhibit 44).

76 Letter from County Administrator Christian Sigman to City Manager Harry Black, dated 4/3/15 (attached at Exhibit 45).


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Despite the passage of nearly 11 months, the City has not responded to any of these

requests and has not provided any of the requested information.77 Notably, these are some of the

same issues raised by the Cincinnati Enquirer in its investigative report of MSD.78 It is

preposterous that a principal would need to use public records requests to get its own financial

information from its agent. Moreover, when an agent will ignore codified law to keep its

financial information a secret – the Court must step in.

K. The City’s Settling of Claims on Behalf of MSD Without Notice to, or approval of, the County.

Under MSD Rule 2403-2, MSD is to obtain County approval in advance of settling

claims involving MSD. (attached at Exhibit 46). Specifically, MSD Rule 2403-2(B)(2)

provides that “MSD is prohibited from entering into any settlement agreement or resolution of

any claim or threat of claim, whether initiated by MSD or another person, without the prior

approval of the Board, except for matters which involve in the aggregate a payment of no more

than $25,000 to MSD, or the other persons, and do not involve the transfer of other consideration

of equitable relief” (the “Settlement Approval Rule”). Id. at 2403-2(B)(2). The Settlement

Approval Rule was created by the County as a result of MSD’s prior settlement of claims using

MSD funds without first receiving approval by the County.

Furthermore, MSD is required to “[i]mmediately, upon MSD’s receipt of any form of

notice of same, provide to the Board notice and copies of all claims, complaints, threats thereof,

appeals, notices of violation from any regulatory agency, . . . whether against MSD itself, the

City in its role as operator of MSD, and/or the Board in its role as owner of MSD” (“Claims


78 See Cincinnati Enquirer, SPECIAL REPORT: The $680M memo, dated 2/3/16 (attached at Exhibit 5).


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Notice Rule”). MSD Rule 2403-2(B)(1). The Claims Notice Rule was created by the County

due to MSD’s prior failure to notify the County of multiple claims against MSD.

On July 11, 2014, the Ohio Bureau of Workers’ Compensation, Public Employment Risk

Reduction Program (“PERRP”) issued a Violation Notice to MSD regarding the Mill Creek

Wastewater Treatment Plant Incinerator. (attached at Exhibit 47). The Violation Notice

contained five alleged safety citations, as it claimed that the plant incinerator was not in

compliance with PERRP and Occupational Safety and Health Administration standards, and it

required the violations be abated by certain dates. See id. The City, without informing the

County or receiving the requisite County approval, entered into a “Stipulation and Settlement

Agreement” dated August 8, 2014, where two citations were withdrawn and three citations were

resolved. (attached at Exhibit 48).79 As part of this settlement agreement, the City also agreed

to perform significant actions affecting the County’s facility and its budget for the facility. See

id. at pp. 1-4. The City’s entering of the settlement agreement, without first notifying the County

of the pending claims, was a clear violation of MSD Rule 2403-2(B)(2).

III. ARGUMENT

In its prior review of the relationship between the County and City, the Court focused its

attention on the language of the 1968 Operating Agreement. The Court found that “the 1968

Agreement creates a principal-agency relationship pursuant to which the City’s authority as

agent is specifically limited and is subject to the direction and control of the County as

principal.” (Doc. 725, at 8-19).

79 See also Exhibit 1, Meyer Declaration, ¶ 31.


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The Court further found that the terms of the 1968 Operating Agreement “created a

contractual agency relationship pursuant to which the parties agreed that the City would function

as the County’s agent in the operation and maintenance of the MSD” “subject to the exclusive

control and direction of the Commissioners . . . . ’” (Doc. 725, at 17)(emphasis added). Thus,

the Court concluded that “the City is the agent of the County for the operation and maintenance

of the sewer system and is subject to the control and direction of the County in all matters related

to those functions.” (Doc. 725, at 18) (emphasis added).

Despite the unambiguous principal-agent relationship created by the 1968 Operating

Agreement and prior Court Order, the City continues to disregard the County’s directives

regarding MSD. The City’s actions following the Court’s Order—disregarding County

directives and MSD Rules—underscore its refusal to recognize the principal-agent relationship

between the County and City, which the Court found so readily apparent.

The City’s disloyal agent position has: (1) created confusion over decision-making

authority in the County’s dealings with the Regulators; (2) lessened County oversight over MSD;

(3) resulted in wasting taxpayer dollars; and (4) created delays and misunderstandings regarding

implementation of the Consent Decree. The City is actually opposite the County in MSD-

related litigation! A loyal agent cannot act this way.

More specifically, the City has: (1) permitted MSD unlimited contractual authority with

no oversight; (2) terminated County-approved CMAR procurement that would have provided

ratepayer cost protections; (3) threatened to withhold funding if the County used individuals to

vet or monitor MSD planes contrary to MSD wishes; (4) filed motions to intervene against the

County in the County’s ERAC appeals of the WWTP and CSO permits, despite specific County

instructions to the contrary; (5) acted independently of the County in its dealings with the


25

Regulators, including submitting plans without the County’s consent or approval, despite

specific County instructions to the contrary; (6) entered into MOUs and funding agreements

without notifying or receiving the County’s consent, despite specific MSD Rules and

Regulations to the contrary; (7) settled claims without notifying the County or receiving the

County’s consent, despite specific MSD Rules and Regulations to the contrary; and (8)

repeatedly failed to provide the County with financial-related information.

The City cannot be allowed to negotiate with itself with no oversight or control. Two-

thirds of the ratepayers are outside the City and they do not benefit when the City acts solely in

the City’s interest. These actions are detrimental to all ratepayers and to the County’s ability to

comply with the Consent Decree. The City’s unilateral termination of the CMAR procurement

method alone has resulted in a minimum of a 5 month project delay and, according to MSD,

hundreds of thousands of dollars in added procurement costs. All this, while the City negotiates

with itself for property and with no maximum price guarantee or cost protections provided to the

ratepayers.

The City has also directly ignored instructions regarding communications with

Regulators over the Little Miami WWTP incinerator issue. In so doing, the City essentially told

the County to stay out of it, that it was communicating with the Regulators, and that it would

provide an agreement after negotiated with the Regulators. To top it off, the City told the

County that the County could not use its own attorneys to review the matter or its legal

ramifications and that if it did, the City could prevent County funds from being used. For a

principal to have to fight its agent over these matters is inexcusable and is an incredible waste of

ratepayer dollars.


26

Every wasted dollar is a detriment to the Consent Decree and a potential to slow down

Consent Decree implementation. The City’s refusal to follow rules meant to preserve funds and

refusal to provide the County, its principal, with financial information is deeply troubling. This

is particularly true given the City’s public admissions that it allowed MSD to independently

spend $680,000,000 with little to no oversight and its admissions that this money was not well

spent. The City Manager acknowledged that the “business rules were out of whack” and the City

Mayor acknowledged that the City’s MSD practices did not meet appropriate standards.80 Rather

than accept responsibility as a loyal agent—and essentially challenging this Court’s prior

Order—the City actually blamed the County, as the “alleged owner”, for not catching the City’s

lack of oversight earlier.81 Clarification and enforcement of this Court’s Order is necessary to

ensure the County’s agent acts appropriately, follows instructions, and adheres to this Court’s

Order. Failing to do so following a clarification would open the City’s general fund up for any

damages caused to the Consent Decree by the City’s rogue, disloyal actions. It would protect

ratepayers.

As a result of the City’s clear disobedience of its principal’s directives in its operation

and maintenance of MSD, the County asks that the Court clarify and enforce its Order, and

emphasize to the City—as well as the Regulators—that pursuant to the 1968 Operating

Agreement, the City is not a “free agent” and must follow the County’s Rules and Regulations,

as well as other directives, in the City’s operation and maintenance of MSD.

The County’s directives to the City, particularly with respect to policy guidance and

spending and accountability issues, are neither ministerial nor trifling. For example, the City has

80 Cincinnati Enquirer, SPECIAL REPORT: The $680M memo, dated 2/3/16, pp. 1, 4 (Exhibit 5).

81 Cincinnati Enquirer, Cranley, County call for audit at MSD, but blame each other, dated 2/3/16, p. 1 (Exhibit 49).


27

refused to provide information on purported joint utility savings. And, the City has

acknowledged that “there were no mechanisms in place to capture the savings in a quantifiable

manner.”82 To date, the County does not know whether monies were actually saved or lost,

where and how MSD funds were being used, or if there has been a proper accounting of all MSD

funds. These are important public financial accountability issues, particularly given that the

recurring annual charge from GCWW to MSD has averaged approximately $5 million per year

over the last five years. The City’s shell game regarding MSD spending and finances must end

immediately if the County is to ensure compliance with the Consent Decree and protect the

ratepayers.

The Auditor of State has already recognized the danger caused by the lack of MOU

between GCWW and MSD for the services GCWW is providing. Until the City provides the

requested information, the County cannot be sure whether costs included by the City are

appropriate, whether costs are being allocated properly between the GCWW and MSD, or

whether the rate charged per customer or bill is appropriate within the marketplace. It is unclear

whether MSD, acting as an agent for the County, has fulfilled its fiduciary obligation to consider

these issues. Again, given the $5 million average yearly transfers from MSD to GCWW, this is a

significant public financial accountability issue.

While the principal-agent relationship came before this Court initially as a result of the

City’s actions pertaining to the procurement-related provisions previously discussed, the Court’s

analysis and ruling properly goes beyond that singular issue. The principal-agent relationship,

which served as the basis for the Court’s finding that the City may not use procurement practices

in violation of MSD Rules and Regulations, or County Resolutions and directions, exists

82 City Manager Water and Sewer Improvement Memorandum, dated 5/12/15 (attached at Exhibit 36).


28

between the parties regardless of the issue in dispute. As the Court noted, “[a]s the County’s

agent, the authority of the City is defined and limited by the agreement giving rise to the parties’

principal-agent relationship,” so that “[t]he City’s authority as agent is specifically limited and is

subject to the direction and control of the County as principal.” Order at 18-19.

The City’s continual and brazen misinterpretation of the 1968 Agreement and the Court’s

Order, as well as its disorderly behavior regarding the County’s directives on a myriad of issues,

have and will inevitably lead to delays in the completion of Consent Decree related projects, as

well as increased costs to the ratepayers. Such delays and increased costs will inevitably threaten

the completion of necessary and required Consent Decree projects. Indeed, if the current

dynamic is allowed to continue, and the City is allowed to continue overspending and

overbuilding in Phase 1 of the Consent Decree, the projects set forth in Phase 2 will be placed in

jeopardy and inevitably suffer.

As it is the County’s over-arching goal to ensure that the conditions of the Consent

Decree are met, the County asks for clarification and enforcement of the Court’s Order and the

nature of the principal-agent relationship between the County and City. The issues outlined

above are not exhaustive of the totality of dysfunction occasioned by the behavior of the City;

they are merely illustrative. The problem has only been amplified by the confusion at ERAC and

with the Regulators regarding the role of the County as lead defendant. The County sees no

ambiguity or arbitrary limitation in the Court’s prior ruling, but given the ongoing intransigence,

feels compelled to seek this relief now. As such, the County asks that the Court direct that: (1)

the County is the principal and the City is the agent in all matters relating to MSD; (2) the

Court’s Order pertains to all MSD-related matters between the County and City, not only


29

procurement; (3) the City must adhere to the County’s Resolutions and directives in all matters

related to MSD; (4) and the City must adhere to all MSD Rules and Regulations.

IV. THE COURT SHOULD ORDER THE PARTIES TO MEDIATION REG ARDING THE IMPENDING TERMINATION OF THE 1968 OPERATING AGR EEMENT.

The Court’s resolution of the request and issues presented above should help to ensure

immediate improvement of relations between the County and City, assist in saving ratepayer

dollars, eliminate confusing with Regulator interaction, and assist in ensuring that Consent

Decree projects are completed on time, on or under budget, and in an efficient, business-like

manner so that the County can achieve expeditious implementation of all Consent Decree

requirements.

The near future, however, must still be addressed. The 1968 Operating Agreement,

pursuant to which the City operates and maintains MSD on behalf, and under the exclusive

direction and control, of the County expires in early 2018. While MSD assets, including those

consolidated into MSD by the City, are subject to the Consent Decree and cannot be withdrawn

from MSD, if at all, until conclusion of the Consent Decree, the MSD operator can change or the

1968 Operating Agreement can be amended. The County and City have both publicly stated that

the current arrangement cannot proceed.

The County and City cannot wait until 2018 to deal with the expiration of the 1968

Operating Agreement. Thus, the County respectfully requests that in addition to resolving the

request and issues above, the Court also direct the County and City to mediation to address the

impending termination of the 1968 Operating Agreement under which the City manages MSD on

behalf of the County.


30

The County has proposed that it and the City utilize the services of a professional

mediator to help each of them address this situation.83 Unfortunately, the City has refused to use

the services of an independent, professional, competent mediator. Doing so, however, would

preserve judicial resources and would likely save ratepayer dollars as a termination or

amendment of the 1968 Operating Agreement would serve to clarify future party roles and

should reduce wasteful and needless squabbling.

While the County would like to use the services of a professional mediator, it would, if

the Court preferred, use the services of another of the federal judges, if available.

V. CONCLUSION

For all the foregoing reasons, the County respectfully requests enforcement of the Court’s

Order of June 26, 2014, specifically as to the principal-agent relationship between the County

and City, in the City’s operation and maintenance of MSD.

The County also respectfully requests that the Court order the County and City to

mediation to discuss the impending termination of the 1968 Operating Agreement.

83 See Commissioner correspondence to City Mayor and City Manager, dated 12/17/15 (attached at Exhibit 50).


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Respectfully submitted, s/ Joseph T. Deters Joseph T. Deters, Esq. (0012084) James W. Harper. Esq. (0009872) Charles W. Anness, Esq. (0082194) Michael J. Friedmann, Esq. (0090999) Hamilton County Prosecuting Attorney 230 E. Ninth Street, Suite 4000 Cincinnati, OH 45202 Phone: (513) 946-3006 Fax: (513) 946-3018 Mark A. Vander Laan, Esq. (0013297) Andrew B. Barras, Esq. (0088600) DINSMORE & SHOHL LLP First Financial Center, Suite 1900 255 East Fifth Street Cincinnati, OH 45202 Phone: (513) 977-8200 Fax: (513) 977-8141

Mark A. Norman, Esq. (0012033) Anthony L. Osterlund, Esq. (0071086) Vorys, Sater, Seymour and Pease LLP 301 East Fourth Street, Suite 3500 Cincinnati, Ohio 45202 Phone: (513) 723-4006 Fax: (513) 723-7881 Attorneys for Board of County Commissioners of Hamilton County, Ohio

CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing has been duly served upon All Counsel of Record by the Court’s CM/ECF Electronic Filing System and by regular U.S. mail upon all others, as noted on the Electronic Filing Notice, this 22nd day of February, 2016.

s/ Joseph T. Deters Joseph T. Deters
