A Ninth Circuit panel on Thursday expressed doubt that an Arizona city has the authority to impose environmental regulations on a company it claims is in violation.

Pure Wafer sued the city of Prescott in 2013, claiming the city’s then-newly adopted fluoride limit threatened to kill their development agreement. Pure Wafer reclaims silicon wafers for the semiconductor industry.

In 1998, the company opened a $45 million silicon wafer reclamation facility in Prescott based on an agreement that the city would “accept each day up to 195,000 gallons of effluent which could contain fluoride of up to 100 mg/L,” the lawsuit claimed.

Under the new fluoride limit, Pure Wafer said it would have to reduce its fluoride effluent by 84 percent, to 16.3 mg/L or less, and could face fines of up to $25,000 per day for violations.

U.S. District Court Judge James A. Teilborg found for Pure Wafer in April 2014, ruling that Prescott violated the company’s constitutional rights under the Contract Clause because what it “is attempting to do and what it cannot do, is force Pure Wafer to pay for pretreatment when the city has contractually agreed to not pass along such costs.”

Teilborg said the violation is not a breach of contract because Pure Wafer agreed not to discharge effluent in violation of environmental regulations.

“But Pure Wafer neither anticipated nor agreed that it would comply with cost-shifting regulations cloaked as environmental regulations,” Teilborg wrote.

Members of a three-judge panel of the Ninth Circuit said in a hearing Thursday that they don’t see why Teilborg’s ruling was wrong.

“I’m having a tough time understanding why the district court was wrong,” Circuit Judge N. Randy Smith told Robert Shull, an attorney for Prescott.

“Is there something in the Arizona constitution that conveys to the city of Prescott the power to impose environmental regulations?” Circuit Judge Richard R. Clifton asked.

Shull said Prescott must operate its wastewater treatment plant based on standards set by the Arizona Department of Environmental Quality.

“It doesn’t say you have the right to put together an environmental ordinance,” Smith responded.

“I found no authority for the city to do that. The environmental regulation, I think, is questionable.”

The judges’ questioning took a different turn with Pure Wafer attorney Jeffrey Gross, focusing on Teilborg’s finding that the company’s constitutional rights were violated.

“Why did Judge Teilborg go straight to the constitutional issue without dealing with the breach of contract issue?” Circuit Judge Diarmuid O’Scannlain asked. “Our general concern is we don’t get to constitutional issues except as a last resort.”

Gross told the panel he thought the constitutional issue could be reached without taking on a breach-of-contract analysis.

“I understand the theoretical concerns, but this just strikes me as a breach of contract case,” Clifton said.

“That was not something I reached in very great detail,” Gross responded. “I appreciate that that is a concern of the court.”

Clifton apologized for the questioning seeming like an “ambush.”

“I don’t want to keep you from talking about the underlying issues,” Clifton said.

Gross said Prescott has no authority to enact the regulation.

“Whatever is going to go into the aquifer and coming out of the city’s wastewater treatment plant is going to be treated to the proper standards,” Gross said.

The panel did not indicate when it expects to rule.

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See also:

• Jan 10, 2016: Prescott vs. Pure Wafer Inc.

• Nov 18, 2014: Pure Wafer vs. City of Prescott lawsuit may require outside counsel

• April 23, 2014: Judge rules against city in Pure Wafer lawsuit; will cost Prescott hundreds of thousands of dollars

• April 17, 2014: Pure Wafer, Inc., Plaintiff v. City of Prescott et al., Defendants. Findings of Fact and Conclusions of Law and Permanent Injunction.

• Nov 28, 2013: Prescott hires outside law firm to fight Pure Wafer lawsuit

• Nov 22, 2013: Pure Wafer fluoride lawsuit

• Oct 2, 2013: Fluoride Rule in Prescott, Ariz., Spurs Lawsuit

• July 20, 2013: ADEQ fines Pure Wafer $120,000 for not having air quality permit

• July 19, 2013: Press release from Arizona Department of Environmental Quality

• May 28, 2013: ADEQ consent order requires Prescott to clear up water fluoride issue