Ninth Circuit Splits Decision on City v. Business Fight

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PRESCOTT, Ariz. (CN) – The Ninth Circuit ruled Tuesday that, though Prescott, Arizona, may have breached its contract with a company over the amount of fluoride effluent it may release, it did not violate the company’s constitutional rights.

The decision came just over three years after Pure Wafer, which reclaims silicon wafers for the semiconductor industry, sued Prescott over the city’s newly adopted fluoride limit.

Prescott, pop. 40,000, is in the mountains of Central Arizona.

Pure Wafer opened a $45 million silicon wafer reclamation facility there in 1998 after the city agreed to accept up to 100 mg/L per day of fluoride effluent. Under the new ordinance, Pure Wafer would have to reduce its effluent to 16.3 mg/L or less, or face up to $25,000 per day in fines.

In 2014, U.S. District Judge James Teilborg found Prescott violated Pure Wafer’s constitutional rights under the contract clause because it was trying to “force Pure Wafer to pay for pretreatment when the city has contractually agreed to not pass along such costs.”

Teilborg found the city’s actions did not amount to breach of contract, however, since Pure Wafer agreed not to violate environmental regulations.

A three-judge panel of the Ninth Circuit indicated in an April 2016 hearing that Prescott’s actions did not amount to a violation of Pure Wafer’s constitutional rights, and ruled similarly Tuesday.

“This case has all the hallmarks of a quintessential contract dispute, and insofar as the City has attempted to refute Pure Wafer’s claimed rights under the Agreement — but has not attempted to render such rights legally unenforceable — it should be treated as a contract dispute,” U.S. Circuit Judge Diarmuid O’Scannlain wrote for the panel.

While Teilborg did not rule on Pure Wafer’s breach of contract claim, the Ninth Circuit found there was enough testimony to resolve the scope of the parties’ rights, and sustained judgment for Pure Wafer on the claim.

“The city agreed to accept such effluent as the parties knew Pure Wafer would need to discharge in order to maintain a viable business, and that the city agreed to bear the financial risk that State initiated regulatory changes would make complying with such promise more costly than it was when the parties entered into the agreement,” O’Scannlain wrote.

He continued: “Enforcing the ordinance against Pure Wafer would eviscerate the benefit of Pure Wafer’s bargain; the city cannot do so without putting itself in breach of the agreement.”

O’Scannlain was joined by U.S. Circuit Judge Richard Clifton.

In a partial dissent, U.S. Circuit Judge N. Randy said the case should be remanded to Judge Teilborg on the breach of contract claim to allow Teilborg to address the matter.

Attorneys did not immediately respond to requests for comment on Tuesday.