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

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION (CINCINNATI)
UNITED STATES OF AMERICA, et al.,

Plaintiff,
v.

BOARD OF COUNTY
COMMISSIONERS OF HAMILTON
COUNTY, OHIO, et al.
Defendants.

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Case No. 1:02CV107
Judge Michael R. Barrett
Magistrate Karen L. Litkovitz

THE BOARD OF COUNTY COMMISSIONERS OF HAMILTON COUNTY, 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
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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,
v.

BOARD OF COUNTY
COMMISSIONERS OF HAMILTON
COUNTY, OHIO, et al.
Defendants.

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Case No. 1:02CV107
Judge Michael R. Barrett
Magistrate Karen L. Litkovitz

THE BOARD OF COUNTY COMMISSIONERS OF HAMILTON COUNTY, 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 procurementrelated 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

13

14

See Exhibit 1, Meyer Declaration, ¶ 3.
See id. at ¶ 4.
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).

26

See Exhibit 1, Meyer Declaration, ¶ 14.

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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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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” Cost 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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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).

38

See Exhibit 1, Meyer Declaration, ¶ 22.

39

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

40

See Exhibit 1, Meyer Declaration, ¶ 23.

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).

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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).

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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).

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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” Cost 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

58

Tony Parrott Update to City Council on Joint Utility Management, dated 9/9/13 (attached at Exhibit 29).
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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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION (CINCINNATI)
UNITED STATES OF AMERICA, et al.,

Plaintiff,
v.

BOARD OF COUNTY
COMMISSIONERS OF HAMILTON
COUNTY, OHIO, et al.
Defendants.

:
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:
:
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:
:
:

Case No. 1:02CV107
Judge Michael R. Barrett
Magistrate Karen L. Litkovitz

THE BOARD OF COUNTY COMMISSIONERS OF HAMILTON COUNTY, 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
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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

77

See Exhibit 1, Meyer Declaration, ¶ 30.

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

24

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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. Twothirds 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.

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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).

26

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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).

27

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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

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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 REGARDING
THE IMPENDING TERMINATION OF THE 1968 OPERATING AGREEMENT.
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.

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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

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