Back to the Future? Federal Appeals Court Upholds Flow Control

David Biderman
National Solid Wastes
Management Association
Washington, D.C.

In a recent decision, The Second Circuit Court of Appeals ruled that two upstate New York flow control ordinances do not violate the Commerce Clause of the U.S. Constitution. United Haulers Association, Inc. v. Oneida-Herkimer Solid Waste Management Authority, 261 F. 3d 245 (2d. Cir. 2001). The Appeals Court distinguished the U.S. Supreme Court's 1994 decision in Carbone, which invalidated a similar scheme, by ruling that the Carbone analysis only applies to flow control involving private sector waste facilities. Because the Second Circuit's decision could lead to the reestablishment of flow control, the Supreme Court was petitioned to review the decision, however, certiorari was recently denied.

Background

In the late 1980's Oneida and Herkimer Counties, in central New York, created the Oneida-Herkimer Solid Waste Management Authority (Authority) to manage the solid waste generated in the two counties. Each county also enacted a flow control law directing that all solid waste be disposed of at designated facilities. In the early 1990's, the Authority issued over $51 million in bonds to finance the designated facilities. Solid waste processed at the Authority's Utica Transfer Station during the 1990's was disposed at both New York and Pennsylvania landfills.

In April 1995, after the U.S. Supreme Court's decision declaring Clarkstown, New York's flow control law unconstitutional in C&A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383 (1994), a local association of haulers filed a complaint in federal district court challenging the Oneida and Herkimer counties' flow control scheme. The haulers alleged the counties' flow control laws prevented them from utilizing cheaper, out-of-state disposal facilities. According to the haulers the law forced them to pay the Authority's $86 per ton tip fee when other facilities charged less than $30 per ton.

After issuing an order suspending discovery, the U.S. District Court for the Northern District of New York heard oral argument in October 1995. More than four years went by before the District Court issued a ruling declaring that the counties' flow control laws violate the Commerce Clause of the U.S. Constitution. According to one of the lawyers involved in the case, the District Court judge refused to rule, despite repeated requests, and even after she was promoted to an appellate judge position. Upon the District Court's decision, the Authority and the counties appealed. Following oral argument before the Second Circuit Court of Appeals in December 2000, the Court of Appeals asked the parties for supplemental briefing on several issues, including whether the Supreme Court's Carbone decision applies only to public sector waste facilities.

The Second Circuit's Decision

After a lengthy exposition on the history of the dormant Commerce Clause and the factual history in Carbone, the essence of the Second Circuit's lengthy decision can be found on page 257:

[A] municipal flow control law does not discriminate against out-of-state interests in violation of the Commerce Clause when it directs all waste to publicly owned facilities. As such, the district court should have analyzed the Counties' flow control laws under the Pike [balancing] test to determine whether the laws' effects on interstate commerce substantially outweigh the local benefits.

The Court of Appeals found that the District Court "erroneously attributed to the Supreme Court a per se prohibition against flow control laws," citing various cases that have carved out exceptions to the Carbone prohibition against flow control. The Court of Appeals ruled that the District Court needs to determine whether the ordinances impose burdens on interstate commerce that are clearly excessive when compared to local benefits as set forth under the test in Pike v. Bruce Church, 397 U.S. 137 (1970).

The Court of Appeals concluded that the Carbone prohibition against flow control only applies to privately owned facilities. It noted that the decision in Carbone "repeatedly referenced the private nature of the favored facility and repeatedly alluded to the dangers of allowing local government to favor local industry or a single local business over out-of-state competition." Purporting to have carefully reviewed the factual history in Carbone and the specific words used in the majority, concurring and dissenting Carbone opinions, where the designated disposal facility was privately owned, the Court of Appeals found is significant that, in this case, the Authority owns the designated facility. To support its position, Court of Appeals, ironically, endorses and cites at length the position taken in Justice Souter's dissenting opinion in Carbone. Further, although the Court of Appeals found the public/private distinction "significant" but not "dispositive," it failed to recognize that the Carbone flow control law applied to all solid waste generated in or that passed through Clarkstown, while the counties' flow control applied only to solid waste generated in the two counties.

The Court of Appeals observed that flow control laws that favor a public facility over private facilities have a "political" check because local lawmakers are accountable to voters. The Court of Appeals stated that when such laws favor local industry to the detriment of competitors, this political factor is inadequate.

Finally, in remanding the case to the District Court for review under the Pike balancing test, the Court of Appeals articulated some principles that are certain to be influential, both in this case and future cases applying Pike. Noting that "waste disposal is a traditional local government function," the Court of Appeals observed that local governments have compelling interests in waste management that, under prior cases, "would outweigh any arguable burdens placed on interstate commerce." (emphasis added). Of course, under this "test," any flow control law would survive Pike scrutiny.

Impact of the Second Circuit's Decision

The Court of Appeals decision limits the Supreme Court's Carbone decision in a new and disturbing way. If endorsed by other courts, flow control can be reestablished as long as the local government owns the favored disposal facility. The lawyer for the national association that represents municipal solid waste interests has declared that this decision "changes the rules of engagement" between the public and private sectors.

Others take a narrower view of the decision. In some states, local governments have successfully avoided the restrictions imposed by Carbone by establishing regulatory frameworks or contractual arrangements that (arguably) do not violate the Commerce Clause. Since Carbone was issued in May 1994, federal courts have upheld several distinct exceptions, although "many questions remain unanswered with respect to the constitutionality of municipal flow control laws." These exceptions have reduced the importance of Carbone's general prohibition against flow control, though not to the extent of the principles articulated in the Oneida-Herkimer decision.

Over the past year, there has been an increase in the number of reported decisions involving flow control and the exceptions thereto, as local governments test the limits of the exceptions and the continued vitality of Carbone. See e.g., Maharg, Inc. v. Van Wert Solid Waste Mgmt. Dist., 249 F.3d 544 (6th Cir. 2001) (upholding a district's ordinance requiring waste to be disposed at seven designated in-state and out-of-state facilities); On the Green Apartments LLC v. City of Tacoma, 241 F.3d 1235 (9th Cir. 2001) (upholding municipal ordinance requiring self-haulers to bring waste to Tacoma's disposal facility). By creating a broad new exception to Carbone's general prohibition against flow control, the Oneida-Herkimer decision poses a potential threat to customers, waste haulers and private sector disposal facilities that have benefited from the lower tip fees brought about by free market competition. For example, New Jersey disposal rates dramatically declined after flow control ended there in 1997.

The Future

Although the local association that initiated this litigation is basically defunct, a petition for certiorari was filed with the U.S. Supreme Court. On Jan. 7, 2002 the Supreme Court denied certiorari even though the Second Circuit's decision appears to contradict Carbone and arguably conflicts with other recent federal court flow control decisions. The Supreme Court's decision not to hear the appeal has been the catalyst for several local governments, especially in upstate New York, to consider reestablishing flow control regimes. By early March, five New York counties were considering or had passed flow control laws. Local governments in other states, including Texas and North Carolina have also begun to assess restoring flow control. Meanwhile, the National Solid Wastes Management Association (NSWMA) has moved to intervene in the remanded United Haulers case and intends to demonstrate to the District Court that Oneida and Herkimer Counties' flow control laws are unconstitutional under the Pike test. It will be interesting to see whether other courts follow the Second Circuit's lead, but either way, this issue may yet be heard by the Supreme Court.