Atlantic Coast v. Bd Chosen Free , 48 F.3d 701 ( 1995 )

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
2-16-1995
Atlantic Coast v Bd Chosen Free
Precedential or Non-Precedential:
Docket 94-5173
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
N0. 94-5173
ATLANTIC COAST DEMOLITION & RECYCLING, INC.
Appellant
v.
BOARD OF CHOSEN FREEHOLDERS OF ATLANTIC COUNTY;
ATLANTIC COUNTY UTILITIES AUTHORITY;
BOARD OF CHOSEN FREEHOLDERS OF CAMDEN COUNTY;
POLLUTION CONTROL FINANCING AUTHORITY OF CAMDEN COUNTY;
SCOTT WEINER, individually and in his capacity as Commissioner
of New Jersey Department of Environmental Protection and Energy
On Appeal From the United States District Court
For the District of New Jersey
(D.C. Civil Action No. 93-cv-02669)
Argued September 13, 1994
BEFORE: STAPLETON, ALITO and LEWIS, Circuit Judges
(Opinion Filed February 16, 1995)
Mark R. Rosen (Argued) James J. Ciancia
Jodi Isenberg Acting Attorney General
Mesirov, Gelman, Jaffe, Cramer & of New Jersey
Jamieson Andrea M. Silkowitz
44 Tanner Street Ass't Attorney General
P.O. Box 183 Gail M. Lambert (Argued)
Haddonfield, NJ 08033-0141 Stefanie A. Brand
Attorneys for Appellant Deputy Attorneys General
124 Halsey Street
William J. Linton P. O. Box 45029
Atlantic County Utilities Newark, NJ 07101
Authority Attorneys for Appellee
6700 Delilah Road Scott Weiner
Pleasantville, NJ 08232
Attorney for Appellee
Atlantic County Utility Authority
Frederick J. Schuck
14th Floor
Office of Camden County Counsel
520 Market Street
Camden, NJ 08102
Attorney for Appellee
Board of Chosen Freeholders
of Camden County
Jonathan L. Williams
J.S. Lee Cohen (Argued)
Michael S. Caro
DeCotiis, Fitzpatrick & Gluck
401 Hackensack Avenue
Hackensack, NJ 07601
Attorneys for Amici Curiae
Hudson County Improvement Authority,
Passaic County Utilities Authority and
Essex County Utilities Authority
Mercer County Improvement Authority
Joseph J. Slachetka
John A. Mercer, Jr.
Higgins, Slachetka & Long
1027 Chews Landing Road
Laurel Springs, NJ 08021
Attorneys for Amicus Curiae
Cape May County Municipal Utilities
Authority
Gail B. Phelps, Assistant Counsel
Bureau of Regulatory Counsel
9th Floor, MSSOB
400 Market Street
Harrisburg, PA 17101-2301
Attorney for Amicus Curiae
Pennsylvania Department of
Environmental Resources
Betty Jo Christian
Paul J. Ondrasik, Jr.
William T. Hassler
Steptoe & Johnson
1330 Connecticut Ave., N.W.
Washington, D.C. 20036
and
Bruce J. Parker (Of Counsel)
Alan S. Ashkinaze (Of Counsel)
and
Michael F. Riccardelli
Ronald S. Bergamini
Riccardelli, Rose & Hoonhoudt
51 Park Street
Montclair, NJ 07042
Attorneys for Amici Curiae
City of Jersey City, Borough of
Northvale, C & A Carbone, Inc.,
National Solid Wastes Management
Association, and Waste Management
Association of New Jersey
OPINION OF THE COURT
STAPLETON, Circuit Judge:
This appeal concerns the constitutional validity of New
Jersey's solid waste regulatory scheme. Atlantic Coast
Demolition and Recycling, Inc. ("Atlantic Coast") sought to
enjoin enforcement of New Jersey's waste flow regulations on the
ground they violate the dormant Commerce Clause. The district
court entered judgment in favor of defendant New Jersey
Department of Environmental Protection and Energy ("the
Department"), finding that the flow control regulations did not
impose an unconstitutional burden on interstate commerce.
Atlantic Coast appealed. We will reverse.
Shortly after the district court entered final judgment
upholding the flow control regulations, the Supreme Court issued
its decision in C & A Carbone, Inc. v. Town of Clarkstown, 114 S.
Ct. 1677 (1994), in which the Court struck down a local flow
control ordinance of the Town of Clarkstown, New York, as
violative of the dormant Commerce Clause. In light of the
Supreme Court's recent teachings, we conclude that the district
court erred in holding that the regulations do not discriminate
against interstate commerce and in applying the balancing test
set forth in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970).
Because the district court did not consider whether the
regulations could pass muster under the stricter dormant Commerce
Clause test applicable to discriminatory measures, we will vacate
the district court's judgment and remand so that the district
court may determine whether the regulations can be upheld despite
their discriminatory effect.1
I.
The facts of this case are generally not in dispute.2
The necessary factual background concerns New Jersey's waste
management system and Atlantic Coast's activities.
1
. The district court had jurisdiction over this matter
pursuant to 28 U.S.C. § 1331 as the constitutionality of state
regulations was challenged and we have jurisdiction over this
appeal from the district court's final judgment pursuant to 28
U.S.C. § 1291.
2
. While the Department argues that some of the district
court's findings of fact were clearly erroneous, the "facts" it
takes issue with actually involve the district court's
application of the governing legal principles to the facts, which
we discuss infra. The factual background summarized by the
district court in its oral opinion of September 8, 1993, is
supported by the record and is therefore not clearly erroneous.
See Cox v. Keystone Carbon Co., 894 F.2d 647, 650 (3d Cir.) (the
reviewing court is not to substitute its own findings for that of
the district court, but "may only make an assessment of whether
A. New Jersey's Solid Waste Management System
New Jersey has an extensive statutory and regulatory
system governing the management and disposal of solid waste.
This highly regulated system grew out of a crisis that began in
the 1970s as a result of wide-spread illegal practices in the
then private, unregulated waste disposal market and the closing
of many landfills due to unsanitary conditions and noncompliance
with newly enacted federal regulations. This crisis has been
documented in the caselaw of both this court and the New Jersey
courts. See, e.g., J. Filiberto Sanitation v. Department of
Envtl. Protection, 857 F.2d 913, 918-19 (3d Cir. 1988); Trade
Waste Management Ass'n, Inc. v. Hughey, 780 F.2d 221, 223 (3d
Cir. 1985); A.A. Mastrangelo, Inc. v. Commissioner of Department
of Envtl. Protection, 449 A.2d 516, 518-19, 521 (N.J. 1982);
Hackensack Meadowlands Dev. Comm'n v. Municipal Sanitary Landfill
Auth., 348 A.2d 505 (N.J. 1975), rev'd sub nom. City of
Philadelphia v. New Jersey, 437 U.S. 617 (1977); Southern Ocean
Landfill, Inc. v. Mayor & Council of the Township of Ocean, 314
A.2d 65, 66-67 (N.J. 1974); In re Scioscia, 524 A.2d 855, 857
(N.J. Super. Ct. App. Div. 1987). As the Department has observed
in a recent update to its Statewide Solid Waste Management Plan:
By the early 1980s, the department had
closed, or was in the process of closing,
over 300 unsafe or unregulated landfills that
posed serious environmental hazards or had
(..continued)
there is enough evidence to support such findings"), cert.
denied, 498 U.S. 811 (1990).
exhausted capacity. However, the
department's persistent actions to implement
rigorous environmental standards on landfill
construction and operations, coupled with a
steady influx of millions of tons of waste
annually from neighboring states during the
1970s, resulted in a serious shortfall of
disposal capacity in the state. . . .
By the late 1980s, the "solid waste
crisis" had become a national issue, and New
Jersey, the most densely populated state in
the union, was at the forefront of both the
problem and the solution. Responding to the
need to develop safe, efficient systems, by
1990 the state/county planning process
produced 13 new major disposal facilities . .
. . Despite this remarkable progress,
however, a number of additional counties were
forced by the continuing capacity shortages
to make disposal arrangements with out-of-
state facilities, and New Jersey, once a net
importer of waste, became a net exporter with
peak exports of 28% of all solid waste
generated in the state in 1988. As national
attention focused on the environmental
concerns associated with solid waste
management practices, a number of states
moved to restrict the importation of waste.
On several occasions, New Jersey waste was
banned, without notice, from out-of-state
facilities, resulting in serious disruptions
of service and unhealthy conditions as waste
collected in the streets.
New Jersey Dep't of Envtl. Protection and Energy, Div. of Solid
Waste Management, Solid Waste Management State Plan Update: 1993-
2002, Executive Summary 1-2 (Draft Jan. 1993) (App. 511-12)
[hereinafter State Plan Update-Executive Summary].
New Jersey's existing statutory and regulatory waste
management system is the result of attempts to respond to this
crisis.3 The two major statutory provisions of New Jersey's
solid waste management system are the Solid Waste Management Act
("SWMA"), N.J. Stat. Ann. § 13:1E-1 to -207 (West 1991 & Supp.
1994), and the Solid Waste Utility Control Act ("SWUCA"), N.J.
Stat. Ann. § 48:13A-1 to -13 (West Supp. 1994). These acts were
passed in 1970 to establish a statutory framework to coordinate
"all solid waste collection, disposal, and utilization activity"
in the state, N.J. Stat. Ann. § 13:1E-2(b)(1) (West 1991), and to
regulate the rates at which these services are provided as a
means of providing safe, adequate, and proper waste management
services, N.J. Stat. Ann. § 48:13A-2 (West Supp. 1994).
The Department is vested with broad regulatory
authority,4 while direct management responsibility is delegated
to the twenty-two solid waste management districts that comprise
the state, one for each of New Jersey's counties plus the
Hackensack Meadowlands District. See N.J. Stat. Ann. § 13:1D-19
(West 1991). Each solid waste district is responsible for
developing a ten-year solid waste management plan that must be
approved by the Department before it is implemented. Id.
3
. An attempt to conserve landfill space by instituting a
qualified ban on the importation of solid waste was struck down
by the United States Supreme Court as violative of the dormant
Commerce Clause in City of Philadelphia v. New Jersey, 437 U.S.
617 (1977).
4
. Solid waste management functions delegated to the Board
of Public Utilities were transferred to the Department in 1991.
See Reorganization Plan No. 002-1991, set out as note under N.J.
Stat. Ann. § 13:1D-1 (West 1991).
§§ 13:1E-20, 13:1E-24 (West 1991). In each waste district, solid
waste disposal is managed either directly by the county
government or by municipal authorities created and designated by
the district for this purpose.5 Each district's waste plan must
provide for "sufficient [and] suitable" disposal facilities to
treat and accommodate all solid waste generated within the waste
district; the districts may meet this obligation by contracting
with public or private entities or by constructing and operating
the waste facilities themselves. Id. § 13:1E-21 to -22 (West
1991); §§ 40:14B-19 (West 1991), 40:37A-55 (West 1991), 40:37C-5
(West 1991). By the early 1980s the Department had approved
solid waste management plans for each of the twenty-two solid
waste districts. State Plan Update-Executive Summary, supra, at
1 (App. 511).
In addition to this system of local district
management, the disposal facilities6 themselves are subject to
state regulation by the Department. The private or public entity
5
. These local agencies may be municipal utilities
authorities, county improvement authorities, or pollution control
financing authorities. See N.J. Stat. Ann. §§ 40:14B-1, -22.1
(West 1991 & Supp. 1994); 40:37A-103 (West Supp. 1994); 40:37C-3
(West 1991). Five of the waste districts manage through county
control while eleven use the utilities authority model and the
remaining six use either county improvement or pollution control
financing authorities.
6
. Disposal facilities include transfer stations (at which
solid waste is transferred from collection vehicles to haulage
vehicles for transportation to an offsite disposal facility),
resource recovery centers (which engage in both recycling and
waste disposal), sanitary landfills, and incinerators. N.J.
Stat. Ann. § 48:13A-3 (West Supp. 1994).
performing the disposal service must register with and obtain
approval from the Department before providing disposal service,
N.J. Stat. Ann. § 13:1E-5 (West 1991), and must obtain a
certificate of public convenience and necessity from the Board of
Regulatory Commissioners, id. § 48:13A-6 (West Supp. 1994). To
register with the Department, a waste disposal facility must
obtain a solid waste permit which is granted only after review of
the appropriateness of the facility's location, its effect on the
surrounding community, and its consistency with the state and
district solid waste plans. N.J. Admin. Code tit. 7, §§ 26-2.3
to -2.4; 26-2.8 to -2.9. Waste disposal permits are also
conditioned on the facility's operator satisfying the "integrity"
requirements contained in N.J. Stat. Ann. § 13:1E-126 to -135
(West 1991 & Supp. 1994),7 and only disposal facilities included
in a district plan will receive operating permits, id. § 13:1E-4,
-26 (West 1991 & Supp. 1994).
Additionally, all disposal facilities are regulated on
the state level as public utilities. N.J. Stat. Ann. § 13:1E-27
(West Supp. 1994). Pursuant to traditional utility regulation,
the disposal facilities must therefore provide their services at
just and reasonable rates, id. § 48:13A-2 (West Supp. 1994), in a
nondiscriminatory manner, id. § 48:3-3, -4 (West Supp. 1994), and
may not abandon or discontinue service without authorization, id.
§ 48:2-24 (West 1969). Nor may the solid waste facilities adjust
7
. These requirements were enacted in response to the
illegal anti-competitive activities that previously existed
within the private waste industry.
their rates without regulatory approval. Id. § 48:2-21 (West
1969).
Like waste disposal, solid waste collection was originally
regulated under the utility structure as well, but pursuant to the
Solid Waste Collection Regulatory Reform Act, which became effective
in 1992, waste collection services will no longer be regulated as
public utilities, although they will continue to be under the
supervision of the Board of Regulatory Commissioners. See N.J. Stat.
Ann. §§ 48:13A-7.1 to 48:13A-7.23 (West Supp. 1994). Thus, although
waste collection rates will no longer be regulated, a company will
still be required to register and obtain a certificate of public
convenience before performing waste collection services in the state.
See id. § 13:1E-5(a) (West 1991); id. § 48:13A-6 (West Supp. 1994).
Full rate deregu- lation of the waste collection industry will occur
in April 1996.8
Additionally, the Board of Regulatory Commissioners may
designate a district as a solid waste disposal franchise area to
be served by one or more entities engaged in waste disposal.
N.J. Stat. Ann. § 48:13A-5 (West Supp. 1994). According to the
Department, such franchises have been awarded to most of the
districts and public authorities responsible for the waste
8
. Under the former rate regulation system, the regulated
rate for government-owned disposal facilities became, by
operation of law, a component of the tariff of all solid waste
collectors. N.J. Stat. Ann. § 48:13A-7.8 (West Supp. 1994).
This aspect of the system will continue until full deregulation
in 1996.
districts' solid waste management.9 A franchise grants a solid
waste disposal facility the "exclusive right to control and
provide for the disposal of solid waste, except for recyclable
material whenever markets for those materials are available,
within a district or districts" as long as the proposed franchise
is consistent with the district's solid waste plan. Id. The
district government or public authority, as franchisee, may
operate the disposal facility itself, or contract with another
district or with a private facility.
As an integral part of the district plan and utility
regulation system, the Department and waste districts are
authorized under the SWMA and SWUCA to direct the flow of waste
to designated facilities. N.J. Stat. Ann. § 48:13A-4(c) (West
Supp. 1994); Op. N.J. Att'y Gen. No. 3 (1980). It is the
resultant waste flow regulations that Atlantic Coast challenges
in this action. The waste flow requirements enable the waste
districts to control the processing and disposal of all solid
waste generated within the district. See Op. N.J. Att'y Gen.
No. 3 (1980). The district plans specify to which disposal
facility the waste from each of New Jersey's 567 municipalities
is directed, and these designations are codified as Department
regulations. N.J. Admin. Code tit. 7, § 26-6.5.
These waste flow measures do not apply to separated
recyclable materials. N.J. Admin. Code tit. 7, § 26-1.1(a)(1).
9
. Amici Hudson County Improvement Authority, Passaic
County Utilities Authority, and Essex County Utilities Authority
have all been awarded such franchises.
The separation of recyclables from other waste at the source of
the waste and the marketing of recyclables may be performed
competitively by private entities, and these activities are
subject to much less stringent overall regulation than waste
management services. See, e.g., N.J. Admin. Code tit.7, §§ 26A-
1.4(a)(2) (exemption of traditional recyclables from Department
approval process), 26A-3.1 (regulation of nontraditional
recyclables). Mixed waste, because it contains both waste and
recyclables and therefore presents environmental risks not
associated with separated recyclables, is subject to the waste
flow regulations. Under recently promulgated regulations that
memorialize the Department's previously informal "Pereira
policy," mixed-waste generated within a waste district may be
removed from the district for separation without initial
processing at the designated disposal facility, as long as the
nonrecyclable residue, or a similar kind and amount, is returned
to the designated disposal facility, or if, in lieu of returning
any residue waste, a payment equal to the tipping fees that would
otherwise be due for the nonrecyclable portion is paid to that
facility. N.J. Admin. Code tit. 7, §§ 26-6.9, 26-2B.9.
The disposal charges, or tipping fees10 charged by the
designated waste facilities are used for operating revenues.
See, e.g., N.J. Stat. Ann. § 40:14B-22.1 (West Supp. 1994).
10
. Tipping fees are the rates that a disposal facility or
transfer station charges the hauler who deposits waste at the
facility. J. Filiberto Sanitation v. Department of Envtl.
Protection, 857 F.2d 913, 916 (3d Cir. 1988).
Because the county governments and public authorities that manage
these facilities may raise funds for capital construction by
issuing revenue bonds, the tipping fees may also be pledged
toward repayment of the bonds. According to the Department,
approximately $1.6 billion in revenue debt has been issued by and
remains outstanding to the county governments and authorities.
The tipping fees are set by the Board of Regulatory Commissioners
at a rate that will enable the waste district to recover the
costs associated with its solid waste management plan, including
costs associated with disposal and recycling. See N.J. Stat.
Ann. § 48:13A-6.3 (West Supp. 1994). Because the districts are
engaged in aggressive disposal management and recycling programs,
the tipping fees are quite high. Thus, it is often less
expensive to dispose of solid waste generated in New Jersey at
facilities located in a neighboring state, even when
transportation costs to transport the waste to the out-of-state
facility are factored in.
The disposal facilities are designated through the
district planning process. N.J. Admin. Code tit. 7, § 26-6.6.
The designated facilities may be located within the waste
district, in another waste district pursuant to an interdistrict
plan, or out-of-state. Thus, a district plan can propose a
contract with an out-of-state disposal facility. However,
district plans must be approved by the Department and the
Department candidly acknowledges that the twin "goals of 60%
recycling and disposal self-sufficiency for the nonrecyclable
waste stream . . . form the core of New Jersey's current solid
waste management system and constitute the statewide solid waste
management objectives, criteria and standards with which the
[district] plans must be consistent." Appellee's Br. at 11.
Thus, as the district court found:
Although it is not the subject of a
clear legislative direction [sic], it is
equally clear that the D.E.P.E. administers
the law with the specific goal that all waste
generated in New Jersey be disposed of within
the borders of the state. The 1993 solid
waste management state plan update, which was
admitted into evidence and herein referred to
as the Update, provides: "As a key policy
objective, New Jersey will continue to move
toward achievement of self-sufficiency in
disposal capacity. The Department's
objective is to eliminate reliance on out-of-
state disposal within a seven-year period."
App. 1017.
Accordingly, a waste district that is unable to
identify sufficient existing waste facilities or suitable sites
within the district, or within another district pursuant to an
interdistrict agreement, to meet the district's waste needs must
certify to the Department the absence of suitable in-district
sites and the failure to reach an interdistrict agreement. See
N.J. Stat. Ann. § 13:1E-21 (West 1991). Only after such a
certification, can a waste district plan that designates an out-
of-state disposal site receive Department approval. In re Long-
Term Out-of-State Waste Disposal Agreement Between County of
Hunterdon & Glendon Energy Commission, 568 A.2d 547, 551-53 (N.J.
Super. Ct. App. Div.), certif. denied, 583 A.2d 337 (1990).11
Thus, the designation process is intended to favor operators that
have facilities already located within, or those that are willing
to construct a facility within, the state.
B. Atlantic Coast's Activities
Atlantic Coast is a Pennsylvania corporation that was
formed in 1989 to operate a transfer station and recycling center
for construction and demolition ("C & D") debris. This facility
11
. As quoted in In re Waste Disposal Agreement, the 1985
Update to the Statewide Solid Waste Management Plan contained the
following statement:
"The Department considers the use of
out-of-state disposal facilities to be
inappropriate as a long-range solid waste
management option. . . .
The uncertainty inherent in use of out-
of-state facilities conflicts with the
philosophy of the Solid Waste Management Act,
which is that districts should be able to
plan for and predict the availability of
disposal capacity to meet their needs. The
Department has allowed several districts to
rely upon out-of-state facilities, as a
short-term option, in cases where districts
have not been able to secure interdistrict
agreements for access to in-state capacity.
However, it is critical that districts which
do rely on out-of-state disposal capacity,
secure enforceable assurances from those
facilities in order to ensure continued use
until in-state facilities can be brought on
line. It is equally critical that those
districts develop an in-state solution as
quickly as practicable."
In re Waste Disposal Agreement, 568 A.2d at 551.
is located in Philadelphia. Atlantic Coast is licensed by the
Commonwealth of Pennsylvania Department of Environmental
Resources to accept for processing at its facility various types
of construction and demolition debris, including uncontaminated
rock, soil, ferrous metals, and wood; recyclables; and
unmarketable construction and demolition materials. Atlantic
Coast processes the C & D debris by separating the recyclable
materials from the nonrecyclable. The nonrecyclable residue
waste is then shipped to landfills for disposal. During periods
relevant to this appeal, Atlantic Coast was transporting the
nonrecyclable waste to a landfill in Ohio. The majority of the
waste processed at the Atlantic Coast facility is not recyclable;
by weight only approximately eight and one-half to twenty percent
of the waste is recycled.12 Thus, most of the materials received
by Atlantic Coast are shipped to a landfill for disposal.
Construction and demolition debris is generated when a
building is constructed, demolished, or refurbished. It is not
composed of a single material, but is rather a mixture of
recyclable and nonrecyclable materials. As a practical matter,
C & D waste is not source separated, that is, the generator of
the debris does not separate out the recyclable materials at the
construction site. Prior to separation the mixture of recyclable
and nonrecyclable materials is considered waste, but once the
12
. This figure varies depending on whether wood is
included as a recyclable material. Atlantic Coast was at one
time stockpiling the wood at its facility for a particular
purchaser, but it appears that in the absence of that arrangement
the wood is disposed of as waste.
recyclable portion is separated out, only the remaining
nonrecyclable portion is considered waste. Thus, if Atlantic
Coast collects C & D debris from a construction site in New
Jersey and transports it to its facility for separation and
processing, the waste it collects is subject to New Jersey waste
flow regulations. This means that it is required by those
regulations to return the nonrecyclable waste (or equivalent
waste) to the source district's designated disposal facility or
to pay to that facility an amount equal to the tipping fee it
would pay if it returned that portion of the C & D debris to the
designated facility.
Because of its proximity to New Jersey's southern
counties, Atlantic Coast sought to gain access to the New
Jersey's C & D debris market, but its efforts to be included as a
designated facility in a district waste management plan were
unsuccessful. Atlantic Coast rejected the alternate means of
serving the New Jersey market, i.e., returning the residual waste
to the designated facilities for processing, or paying a
compensating fee, as too costly. Following its unsuccessful
efforts to serve the New Jersey market, Atlantic Coast filed an
action in the district court challenging the constitutionality of
New Jersey's solid waste flow control regulations.13
13
. In addition to the Commissioner of the New Jersey
Department of Environmental Protection and Energy, Atlantic Coast
named as defendants two county governments--the Board of Chosen
Freeholders of Atlantic County and the Board of Chosen
Freeholders of Camden County, and the solid waste authorities
within those counties--the Atlantic County Utilities Authority
and the Pollution Control Financing Authority of Camden County.
Atlantic Coast subsequently reached a settlement agreement with
In its complaint, Atlantic Coast sought a declaration
that the district waste plans identified in the flow control
regulations violate the Commerce Clause and a permanent
injunction barring the defendants from prohibiting or interfering
with the transportation of construction and demolition debris
from its generation or collection within New Jersey, or in
Atlantic and Camden Counties in particular, to facilities outside
the state. Although the scope of Atlantic Coast's attack on the
New Jersey solid waste management system was somewhat unclear
from the complaint, the district court concluded that Atlantic
Coast's main contention centered on the waste flow regulations.
At oral argument before this court, counsel for Atlantic Coast
reiterated that its dormant Commerce Clause allegation and its
claim for relief were limited to the waste flow regulations, and
in particular the requirement that residual waste from mixed
waste loads be returned to each district's designated facility
unless the facility is compensated for the lost waste revenue.
C. The District Court Proceedings
Atlantic Coast moved for a preliminary injunction.
Following a short period of intense discovery, an evidentiary
hearing was held on Atlantic Coast's motion, at which a
substantial amount of deposition and live testimony was admitted.
(..continued)
the county and authority defendants, pursuant to which those
defendants would not participate in the district court action or
in any appeals, but would be bound by the court's determination.
The Department therefore became the sole remaining defendant.
The district court promptly issued an opinion declining to enter
a preliminary injunction. After further discovery, the parties
elected to submit the case on its merits based on the preliminary
injunction record without supplementation. Ultimately, the
district court entered final judgment in the Department's favor
based on the findings and conclusions in its oral opinion of
September 8, 1993. This appeal followed.14
II.
The fundamental issue presented by this appeal is
whether the district court erred in concluding that the New
Jersey regulatory waste flow scheme does not violate the dormant
Commerce Clause. To determine this fundamental issue, three
subsidiary issues must be decided: (1) whether the district court
erred in applying the Pike balancing test, rather than what we
14
. This court granted a stay pending the Supreme Court's
disposition in C & A Carbone, Inc. v. Town of Clarkstown. After
the Supreme Court issued its opinion on May 16, 1994,
invalidating the Clarkstown waste flow ordinance, Atlantic Coast
filed a motion with this court for summary reversal of the
district court's final order or expedited disposition of the
appeal. We denied the motion for summary reversal but expedited
the appeal. Amicus curiae briefs were submitted in support of
the Department's position by Hudson County Improvement Authority,
Passaic County Utilities Authority, Essex County Utilities
Authority, and Mercer County Improvement Authority ("Hudson
County Amici"); by Cape May County Municipal Utilities Authority;
and by the Pennsylvania Department of Environmental Resources.
An amicus curiae brief in support of Atlantic Coast's position
was submitted by the City of Jersey City, the Borough of
Northvale, C & A Carbone, Inc., National Solid Wastes Management
Association, and Waste Management Association of New Jersey ("the
Municipal and Trade Association Amici"). Additionally, we
granted the Hudson County Amici leave to participate in oral
argument.
have termed the "heightened scrutiny" test,15 (2) whether the New
Jersey waste flow regulations are excepted from the strictures of
Commerce Clause scrutiny under the market participant doctrine,
and (3) if not, whether these regulations meet the applicable
Commerce Clause test in light of New Jersey's particular
circumstances. We conclude that New Jersey's waste flow
regulations, in effect and by design, discriminate against
interstate commerce and that heightened scrutiny under the
dormant Commerce Clause is required. We reject the Department's
argument that New Jersey's regulation of waste disposal through a
utility system requires application of the less stringent
balancing test, and likewise reject its argument that New Jersey
is entitled to the market participant exception. Because the
district court did not consider whether the waste flow
regulations can be upheld despite their discriminatory effect, we
will remand to the district court so that it may make this
determination in the first instance.
III.
The Commerce Clause grants to Congress the affirmative
power "[t]o regulate Commerce . . . among the several States."
U.S. Const. art. I, § 8, cl. 3. "Although the Clause thus speaks
in terms of powers bestowed upon Congress, the [Supreme] Court
long has recognized that it also limits the power of the States
15
. See Norfolk Southern Corp. v. Oberly, 822 F.2d 388 (3d
Cir. 1987).
to erect barriers against interstate trade." Lewis v. BT
Investment Managers, Inc., 447 U.S. 27, 35 (1980). The negative
or dormant aspects of the Commerce Clause that limit state
authority apply to subject areas in which "Congress has not
affirmatively acted to either authorize or forbid the challenged
state activity." Norfolk Southern Corp. v. Oberly, 822 F.2d 388,
392 (3d Cir. 1987). Thus, any state regulation of interstate
commerce is subject to scrutiny under the dormant Commerce Clause
unless such regulation has been preempted or expressly authorized
by Congress. The district court held that Congress has
legislated in the area of solid waste disposal but "expressly
left to the states the primary role in the collection and
disposal of solid waste." App. 1015-16 (citing the Waste
Disposal Act, codified at 42 U.S.C. § 6901(A)(4)). The parties
have not advanced either a preemption or authorization argument
before this court, and we decline to examine the issue further.16
We therefore turn to the issues of whether and how New Jersey's
16
. We note, however, that Justice O'Connor, concurring in
the result reached by the C & A Carbone Court, recently rejected
the argument that the federal Waste Disposal Act authorizes
discriminatory solid waste measures. C & A Carbone, Inc. v. Town
of Clarkstown, 114 S. Ct. 1677, 1691 (1994) (O'Connor, J.,
concurring in the judgment). The district court's determination
that Congress has authorized concurrent state legislation in the
area of solid waste management is not inconsistent with Justice
O'Connor's conclusion that discriminatory measures are not
authorized. We note further that several competing federal
measures that expressly authorized local waste flow restrictions,
as well as waste importation and exportation bans, were
introduced during the 103d Congress, but were not enacted into
law. At least one of these measures has been introduced for
consideration by the current Congress as well.
waste flow regulations affect interstate commerce. The Supreme
Court's recent decision in C & A Carbone, Inc. v. Town of
Clarkstown, 114 S. Ct. 1677 (1994), provides significant guidance
with respect to these issues, and we begin with a review of the
opinion of the Court in that case.
A.
The solid waste flow control ordinance before the court
in C & A Carbone required that all waste within the town of
Clarkstown, New York, be processed at a designated transfer
station which the town had caused to be built to comply with a
consent decree between the town and the New York State Department
of Environmental Conservation. C & A Carbone, 114 S. Ct. at
1680. To finance the new facility, the town entered into an
arrangement with a local private contractor under which the
contractor would build the facility, operate it for five years,
and then turn it over to the town for one dollar. In return, the
town guaranteed the contractor a tipping fee of $81.00 per ton
and guaranteed that a minimum of 120,000 tons of waste would be
deposited at the transfer station for processing each year. If
the total waste brought to the facility was less than 120,000
tons in any year, the town would make up the difference in the
lost fees. Id.
To ensure that the contractor would receive the agreed
upon sums, the town enacted its flow control ordinance. The town
was thus assured of customers for the new transfer facility and
could finance the facility through the mandated tipping fees.
C & A Carbone, who operated a recycling center within the town,
was found to be violating the ordinance by transporting waste
from its facility to out-of-state locations for processing.
C & A Carbone challenged the constitutionality of the ordinance
based on the dormant Commerce Clause. The New York courts
concluded that the town's ordinance did not discriminate against
interstate commerce because it applied "evenhandedly to all solid
waste processed within the Town." 587 N.Y.S.2d 681, 686 (N.Y.
App. Div. 1992). The Supreme Court reversed.
The Supreme Court first concluded that the ordinance
did regulate interstate commerce, rejecting the town's contention
that its flow control did nothing more than delay the entry of
garbage into the stream of interstate commerce until it was safe.
The Court noted that Carbone received and processed solid waste
from out of state, and the requirement that it route that waste
through the town's transfer station increased the cost of
processing for out-of-state waste generators. More importantly
for present purposes, the Court pointed out that the relevant
stream of interstate commerce was not the market for solid
wastes, but rather the market for solid waste processing and
disposal services. "[W]hat makes garbage a profitable business
is not its own worth but the fact that its possessor must pay to
get rid of it. In other words, the article of commerce is not so
much the solid waste itself, but rather the service of processing
and disposing of it." C & A Carbone, 114 S. Ct. at 1682.
In addition to the effect on the cost to out-of-state
possessors of garbage, the Court stressed that "even as to waste
originant in Clarkstown, the ordinance prevents everyone except
the favored local operator from performing the initial processing
step" and thus "deprives out-of-state businesses of access to a
local market." Id. at 1681. The conclusion that the ordinance
affected interstate commerce was, accordingly, inescapable.
Having concluded that the town's ordinance affected
interstate commerce, the Court addressed whether its effect was a
discriminatory one -- whether it operated to favor local
commercial interests or disfavor out-of-state ones. This was
important because a local measure that discriminates against
interstate commerce on its face or in effect can be upheld only
if it falls within "a narrow class of cases in which the
municipality can demonstrate, under rigorous scrutiny, that it
has no other means to advance a legitimate local interest." Id.
at 1683. Such protectionist measures are thus subjected to
heightened scrutiny as compared with local measures that pursue a
legitimate local interest evenhandedly and impose only an
incidental burden on interstate commerce. Nondiscriminatory
measures will be upheld unless the incidental "burden on
interstate commerce . . . is 'clearly excessive in relation to
the putative local benefits.'" Id. at 1682 (quoting Pike v.
Bruce Church, Inc., 397 U.S. 137, 142 (1970)). Because the Court
found the "practical effect and design" of the Clarkstown
ordinance discriminatory, it held that heightened scrutiny was
required and that the Pike balancing test was inappropriate. See
id. at 1684.
Clarkstown's flow control ordinance regulated the local
market for solid waste processing services in a protectionist
manner. It allowed only the favored operation to process waste
located within the limits of the town and the Court found this
"no less discriminatory because in-state or in-town processors
are also covered by the prohibition." Id. at 1682. In support
of these conclusions, the Court cited Dean Milk Co. v. Madison,
340 U.S. 349 (1951), which involved a dormant Commerce Clause
challenge to a city ordinance requiring that all milk sold in the
city be pasteurized within five miles of the city limits. The
ordinance was held to be an unjustifiable protectionist measure
because it favored milk processors located within a five-mile
radius. The Dean Milk court found "immaterial [the fact] that
Wisconsin milk from outside the [local] area [was] subjected to
the same proscription as that moving in interstate commerce."
Dean Milk, 340 U.S. at 354 n.4, quoted in, C & A Carbone, 114
S. Ct. at 1682.
The Clarkstown ordinance was found to be "just one more
instance of local processing requirements that . . . long have
[been] held invalid." Id. at 1682. Citing a long line of cases
in which local processing requirements had been stricken, the
Court described the evil there addressed and the evil of
Clarkstown's flow control ordinance as follows:
The essential vice in laws of this sort is
that they bar the import of the processing
service. Out-of-state meat inspectors, or
shrimp hullers, or milk pasteurizers, are
deprived of access to local demand for their
services. Put another way, the offending
local laws hoard a local resource -- be it
meat, shrimp, or milk -- for the benefit of
local businesses that treat it.
The flow control ordinance has the same
design and effect. It hoards solid waste,
and the demand to get rid of it, for the
benefit of the preferred processing facility.
The only conceivable distinction from the
cases cited above is that the flow control
ordinance favors a single local proprietor.
But this difference just makes the
protectionist effect of the ordinance more
acute. In Dean Milk, the local processing
requirement at least permitted pasteurizers
within five miles of the city to compete. An
out-of-state pasteurizer who wanted access to
that market might have built a pasteurizing
facility within the radius. The flow control
ordinance at issue here squelches competition
in the waste-processing service altogether,
leaving no room for investment from outside.
114 S. Ct. at 1683.
Having determined that heightened scrutiny rather than
interest balancing was appropriate, the Court held that
Clarkstown had "any number of nondiscriminatory alternatives for
addressing the health and environmental problems alleged to
justify the ordinance in question." Id. at 1683. In the course
of so holding, the Court recognized that the flow control
ordinance was adopted by the town as a means of financing the
construction of a needed processing facility. This did not aid
the town case, however, because there was a non-discriminatory
alternative available:
Clarkstown maintains that special
financing is necessary to ensure the long-
term survival of the designated facility. If
so, the town may subsidize the facility
through general taxes or municipal bonds.
But having elected to use the open market to
earn revenues for its project, the town may
not employ discriminatory regulation to give
that project an advantage over rival
businesses from out of State.
114 S. Ct. at 1684 (citation omitted).
B.
New Jersey's flow control regulations accomplish on a
district level substantially what Clarkstown's flow control
ordinance accomplished on a local level. They favor the
district's designated facilities at the expense of out-of-state
providers of processing and disposal services that would
otherwise compete for the opportunity to service solid waste
generated within the district. Here, as in C & A Carbone and
Dean Milk, it is immaterial that the designated facilities are
favored over other in-state facilities as well as over out-of-
state ones. Similarly, it is irrelevant here, as in Dean Milk,
that an out-of-state firm willing to build an in-district
facility is entitled to compete to have that facility become a
designated facility. Like the governmental entities in the other
cases involving local processing requirements, New Jersey is
regulating a market which the Commerce Clause intended to be open
to non-local competitors. More specifically, New Jersey is
regulating the market for solid waste processing and disposal
services in each of the districts by directing district consumers
of those services to utilize a favored service provider who, in
the absence of exceptional circumstances, operates a local
facility. It necessarily follows, we conclude, that any Commerce
Clause analysis of New Jersey's flow control regulations must
employ the heightened scrutiny test and that the district court
erred by subjecting them only to the balancing test of Pike.17
17
. In applying the Pike test, the district court relied on
J. Filiberto Sanitation v. Department of Envtl. Protection, 857
F.2d 913 (3d Cir. 1988). We there found that a requirement that
all waste generated in a county be processed at the county's
C.
It is true, as the Department stresses, that New Jersey
has not placed an absolute bar on the utilization of out-of-state
facilities as designated facilities. This, however, does not
transform a fundamentally discriminatory scheme into a non-
discriminatory one. While out-of-state facilities can compete to
become designated facilities, the Department acknowledges that it
approves district plans only if they are consistent with the
"core" goal of having all of New Jersey's solid waste processed
and disposed of in New Jersey within the next five years. This
can be accomplished, and is being accomplished, only by selecting
existing and proposed in-state facilities whenever possible. In
short, out-of-state facilities do not compete on anything
approaching a level playing field. Wyoming v. Oklahoma, 112 S.
Ct. 789, 801 (1992) ("The volume of commerce affected measures
only the extent of the discrimination; it is of no relevance to
the determination whether a State has discriminated against
interstate commerce.").
In reaching our conclusion that the appropriate
Commerce Clause measuring rod is heightened scrutiny, we have not
(..continued)
transfer station did not have any effect on interstate commerce
because the waste entered the interstate market after processing,
and then noted that the rule would have met the Pike test as
well. Our holding that the waste flow restriction did not affect
interstate commerce is inconsistent with C & A Carbone and is
therefore overruled. To the extent Filiberto can be read to
authorize the application of the Pike balancing test to New
Jersey's waste flow regulations it is also inconsistent with
C & A Carbone and is overruled.
been unmindful of the Department's insistence that the public
utility aspects of New Jersey's solid waste system distinguish
the flow control regulations here from the Clarkstown ordinance.
In substance, the Department urges that (1) Clarkstown's transfer
station was not a regulated public utility; (2) New Jersey's
designated facilities are regulated public utilities; (3) what
Atlantic Coast finds objectionable in the waste flow regulations
-- the monopoly and resulting captive customer base of the
designated facilities -- is inherent in any public utility
regulatory scheme; (4) Commerce Clause analysis in the context of
state public utility regulation has consistently employed the
balancing test of Pike; and (5) state public utility regulation
is upheld where, as here, the burdens on commerce are not
disproportionate to the local benefits.
While we agree with the Department's first three
propositions, we do not read the dormant Commerce Clause
jurisprudence to suggest that state utility regulation is to be
judged by different standards than other state regulation. When
state utility regulation is protectionist, the Supreme Court has
employed heightened scrutiny; where it is not, a benefits and
burdens analysis has been applied.
In New England Power Co. v. New Hampshire, 455 U.S.
331, 334-36 (1982), the Supreme Court reviewed an order of the
New Hampshire Public Utility Commission that required the New
England Power Company, a consortium of Connecticut River
hydroelectric power companies, to reserve for New Hampshire
residents an amount of power equal to the amount generated by the
consortium within that state. The Court found that the
Commission's order was essentially an "exportation ban" that
placed a direct and substantial burden on interstate commerce and
therefore applied the heightened scrutiny test to the
discriminatory order. Id. at 339.
Subsequently, in Arkansas Electric Cooperative Corp. v.
Arkansas Public Service Commission, 461 U.S. 375 (1983), in
rejecting an outdated Commerce Clause utility test that focused
on whether the state was regulating wholesale or retail sales of
gas or electricity, the Supreme Court noted: "Our constitutional
review of state utility regulation in related contexts has not
treated it as a special province insulated from our general
Commerce Clause jurisprudence." Id. at 391 (citing New England
Power Co., 455 U.S. 331 (1982)). The Court then articulated the
Pike balancing test as "[o]ne recent reformulation of the
[Court's dormant Commerce Clause] test" and, after noting that
the regulation at issue did not implicate economic protectionism
and would involve only an incidental effect on interstate
commerce, applied the balancing test to conclude that the
regulation did not violate the Commerce Clause. Id. at 393-95.18
Although the Arkansas Electric Court did not expressly
18
. The issue in Arkansas Electric Cooperative Corp. was
whether the Arkansas Public Service Commission had violated the
Supremacy or Commerce Clauses by asserting regulatory
jurisdiction over the wholesale rates that the cooperative
charged to its retail members, all of whom were located within
the state. Wholesale rates charged by cooperatives was one area
of wholesale electricity sales that the federal legislation and
rules did not govern. See 461 U.S. at 377, 381-82.
characterize the regulation before it as non-discriminatory, the
Court's opinion can only be read as implicitly rejecting
application of the heightened scrutiny test because it found no
discrimination against interstate commerce.
More recently, the Supreme Court applied the heightened
scrutiny test to protectionist state public utility regulation in
Wyoming v. Oklahoma, 112 S. Ct. 789 (1992). The state statute
there under attack required that all coal-fired electricity
plants located within the state of Oklahoma burn at least ten
percent Oklahoma mined coal. The Court concluded that the
statute discriminated against interstate commerce and struck it
down under the dormant Commerce Clause, noting that the question
of which level of scrutiny to apply to the protectionist measure
was "not a close call." Id. at 800 n.12.
Based on this Supreme Court case law, we reject the
Department's contention that because the waste flow regulations
are part of a larger utility regulation system, they are not
subject to the heightened scrutiny test despite any
discriminatory effect.
We have found only one Supreme Court case in which a
Commerce Clause challenge was made based on the exclusionary
effects of a monopoly created by a state public utility
regulatory scheme. In that case, Panhandle Eastern Pipe Line Co.
v. Michigan Public Service Commission, 341 U.S. 329 (1951), the
Court sustained the state utility commission's refusal to allow
an out-of-state natural gas supplier to sell natural gas to
industrial consumers in an area where a Michigan public utility
had been granted an exclusive certificate of public convenience
and necessity. Panhandle is not helpful here, however, because
it was decided before Arkansas Electric. As we have noted, the
Court there rejected the bright line test of cases like Public
Utilities Commission v. Attleboro Steam & Electric Co., 273 U.S.
83 (1927), and Cities Service Gas Co. v. Peerless Oil & Gas Co.,
340 U.S. 179 (1950), that regarded state regulation of wholesale
utility markets as a direct burden on interstate commerce and
state regulation of retail utility markets as "essentially local"
in nature and as having only an incidental effect on interstate
commerce. The Court in Panhandle Eastern sustained the local gas
company's monopoly on the authority of Cities Service and the
wholesale/retail distinction there reflected.
Now that the Supreme Court has rejected this
distinction and made it clear in Arkansas Electric that public
utilities regulation is not a special category for Commerce
Clause purposes, it well may be that the heightened scrutiny test
would be applied to a situation like that presented in Panhandle
Eastern where an out-of-state firm challenges its exclusion from
the local franchise market. A strong argument can be made that
the rationale in C & A Carbone would require use of this test.
See 114 S. Ct. at 1682 (finding the ordinance discriminatory
because "it allows only the favored operator to process waste
that is within the limits of the town" and "no less
discriminatory because in-state or in-town processors are also
covered by the prohibition"). We do not suggest, however, that
traditional public utilities regulation of retail sales would be
invalidated by heightened scrutiny. Where the regulation is
addressed to a utility, like a local gas utility and unlike
Atlantic Coast, whose service requires a tangible distribution
system, a franchise monopoly may be the only economically
feasible alternative.
We note that there is a discriminatory aspect to the
waste flow control regulations in the context of New Jersey's
scheme that is not present in a situation like that presented in
Panhandle Eastern. A gas or electric utility granted a franchise
to serve the needs of all residents within a local area is not
ordinarily required to commit to producing its electricity or
securing its natural gas supply within that area as well.
Normally, both in-state and out-of-state interests may,
therefore, compete equally for the franchise award and the
creation of a captive consumer base does not, under these
circumstances, discriminate against electricity and gas generated
or produced out of state.
Under New Jersey's system, collectors of waste -- those
who supply disposal services at the retail level -- are required
to secure processing and disposal services from the designated,
franchised facility and out-of-state disposal firms are thus
excluded not only from the market for such services during the
franchise period but also from competing for the franchise. The
burden on the flow of services from out of state in the situation
now before us is thus far greater than the burden on the flow of
electricity and gas from out-of-state in the traditional public
utility regulation situation.
We thus conclude that the public utility aspects of New
Jersey's solid waste disposal scheme do not require application
of the Pike balancing test.
IV.
As an alternative to its argument that the nature of
the New Jersey waste disposal scheme distinguishes it from the
ordinance in C & A Carbone and requires that its waste flow
regulations be subject to a more lenient level of scrutiny, the
Department contends that the nature of the system earns the
regulations the protection of the market participant doctrine.
The Supreme Court has recognized what amounts to an exception
from the restraints of the dormant Commerce Clause for otherwise
discriminatory action taken by a governmental entity in its role
as a market participant, rather than as a market regulator. The
market participant doctrine "differentiates between a State's
acting in its distinctive governmental capacity, and a State's
acting in the more general capacity of a market participant."
New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 277 (1988).
When a governmental entity enters the market place in a capacity
analogous to that of private market participants and makes
decisions analogous to those made by private market participants,
its decisions are not subject to dormant Commerce Clause
scrutiny. Thus, "'[t]he Commerce Clause does not prohibit all
state action designed to give its residents an advantage in the
marketplace, but only action of that description in connection
with the State's regulation of interstate commerce.'" Oregon
Waste Systems v. Department of Environmental Quality, 114 S. Ct.
1345, 1354 n.9 (1994) (quoting New Energy Co. of Indiana v.
Limbach, 486 U.S. 269, 278 (1988)).
The Supreme Court has found the market participant
doctrine to be applicable in only three cases: Hughes v.
Alexandria Scrap, 426 U.S. 794, 808-09, 810 (1976) (upholding a
program involving payments by a state for auto scrap where the
payments were restricted to in-state processors for state-titled
vehicles); Reeves, Inc. v. Stake, 447 U.S. 429 (1980) (sustaining
a restriction on the sale of government-produced cement to state
residents); and White v. Massachusetts Council of Construction
Workers, Inc., 460 U.S. 204 (1983) (upholding an executive order
requiring that city residents comprise at least one-half the
staff of all public works construction projects funded in whole
or part by city funds or city-administered federal funds). Two
important characteristics tie these three cases together. In
each situation the government was participating directly in some
aspect of the market as a purchaser, seller, or producer, and the
alleged discriminatory effects on the interstate market flowed
from these market actions.
In the solid waste arena, the Supreme Court has not yet
reviewed a case involving a government-owned waste facility and
the Court has consequently left unanswered the question as to
what effect government ownership of a waste facility would have
on otherwise discriminatory waste measures. See City of
Philadelphia v. New Jersey, 437 U.S. at 627 n.6 (reserving the
question whether a governmental unit who operates a landfill is a
market participant); Oregon Waste Systems, 114 S. Ct. at 1354 n.9
(finding impermissibly discriminatory a state statute directing
private landfills to pass on a mandated surcharge on out-of-state
generated waste and declining to address the issue whether Oregon
could accomplish its "cost-spreading" through market
participation). This court, however, has applied the market
participant doctrine in the context of a publicly owned waste
disposal facility. In Swin Resource Systems, Inc. v. Lycoming
County, 883 F.2d 245, 250 (3d Cir. 1989), cert. denied, 493 U.S.
1077 (1990), we held that the local government did not violate
the dormant Commerce Clause by charging at the county-operated
landfill a higher disposal fee for waste generated outside a
local area than for locally-generated waste, stating:
If Maryland may decree that only those
with Maryland auto hulks will receive state
bounties, it would seem that Lycoming can
similarly decree that only local trash will
be disposed of in its landfill on favorable
terms. If South Dakota may give preference
to local concrete buyers when a severe
shortage makes that resource scarce, it would
seem that Lycoming may similarly give
preference to local garbage (and hence local
garbage-producing residents) when a shortage
of disposal sites makes landfills scarce.
And if Boston may limit jobs to local
residents, we see no reason why Lycoming may
not limit preferential use of its landfill to
local garbage (and hence local garbage-
producing residents).
Swin Resource Systems, 883 F.2d at 250 (footnote omitted). We
held that the county, rather than regulating the waste disposal
market, was "deciding the conditions under which [a private waste
processor] could use [the public] landfill." Id. at 249. The
county was simply operating a government facility in a manner
that favored its own citizens over others, and its activities did
not have "downstream" effects.19
The Department argues that the market participant
doctrine is applicable here because New Jersey participates (or
directs local government entities to participate) in the waste
disposal market as sellers and purchasers of waste disposal
19
. In South-Central Timber Dev. v. Wunnicke, 467 U.S. 82
(1984), a four-justice plurality held that the market participant
doctrine did not apply to an Alaska regulation requiring in-state
processing of timber obtained by private companies from state
forest land because it had the effect of controlling aspects of
the timber market in which the government, acting as a timber
seller, did not participant. 467 U.S. at 97-99 (opinion of
White, J.). The regulation was thus seen as having impermissible
"downstream" effects.
services and disposal capacity. The districts "sell" waste
disposal services, according to the Department, through the
designated disposal facilities. Where a district has opted not
to own or operate the designated facilities directly, it
"purchases" these services for "resale" by contracting with
private facilities for the provision of waste disposal services.
Thus, the Department maintains, the waste flow regulations simply
represent a means by which the state manages the districts'
market participation and the regulations are therefore protected
from Commerce Clause scrutiny under the market participant
doctrine.
While we do not quarrel with the Department's
characterization of the districts' activities as involving
purchases and sales of disposal service and capacity, we cannot
agree with its conclusion that the waste flow regulations,
therefore, cannot be violative of the dormant Commerce Clause.
When a public entity participates in a market, it may sell and
buy what it chooses, to or from whom it chooses, on terms of its
choice; its market participation does not, however, confer upon
it the right to use its regulatory power to control the actions
of others in that market. In Wyoming v. Oklahoma, 502 U.S. 437
(1992), for example, an Oklahoma statute required all electrical
utilities in the state, including state-owned utilities, to burn
a mixture of coal containing at least ten percent Oklahoma-mined
coal. The Court recognized that Oklahoma could legitimately
impose this restriction on state-owned utilities because, as a
market participant, it was entitled to make its own decisions
regarding energy source purchases. That fact did not, however,
immunize from dormant Commerce Clause review its attempt to
regulate the behavior of others in the market. As we have
earlier noted, the Court applied heightened scrutiny and found
the statute invalid.20 Oklahoma's participation in the market as
an electricity producer did not permit it to regulate in a
discriminatory manner privately owned utilities in the same
market.
Under New Jersey's solid waste disposal program, the
districts are doing more than making choices about what waste
they will accept even in those instances where the district owns
the designated facility. The waste flow regulations purport to
control the market activities of private market participants.
Those regulations do not concern only the manner of operation of
the government-owned or government-managed designated disposal
facilities; they require everyone involved in waste collection
and transportation to bring all waste collected in the district
to the designated facilities for processing and disposal. They
do not merely determine the manner or conditions under which the
government will provide a service, they require all participants
in the market to purchase the government service--even when a
20
. The Court refused to uphold that portion of the statute
that applied specifically to the state-owned utility after
determining that it could not be severed from the remaining
provisions. Wyoming, 112 S. Ct. at 802-04. In so doing, the
Court stated: "We leave to the Oklahoma Legislature to decide
whether it wishes to burden this state-owned utility when private
utilities will otherwise be free of the Act's restrictions." Id.
at 804.
better price can be obtained on the open market. New Jersey's
waste flow control regulations were thus promulgated by it in its
role as a market regulator, not in its capacity as a market
participant. As a result, those regulations are not immune from
review under the Commerce Clause.
V.
Because we conclude that the waste flow regulations
discriminate against interstate commerce on their face or in
effect, and that they are not protected from dormant Commerce
Clause scrutiny under the market participant exception, the only
remaining question is whether the regulations can survive the
heightened scrutiny test. "[O]nce a state law is shown to
discriminate against interstate commerce either on its face or in
practical effect, the burden falls on the State to demonstrate
both that the statute serves a legitimate local purpose, and that
this purpose could not be served as well by available
nondiscriminatory means." Maine v. Taylor, 477 U.S. 121, 138
(1986) (internal quotations and citation omitted). While
Atlantic Coast urges us to decide whether the Department has so
demonstrated, we decline to do so.
When the district court decided this case, C & A
Carbone had not been decided and J. Filiberto Sanitation v.
Department of Environmental Protection, 857 F.2d 913 (3d Cir.
1988), was the law of this circuit. Understandably relying on
Filiberto, the district court balanced the benefits to New Jersey
against the burden on interstate commerce under Pike. It
therefore had no occasion to consider whether the Department had
accomplished the much more onerous task of demonstrating that
there is no alternative to its waste flow control regulations
that would accomplish its legitimate objectives.
The parties compiled a very substantial record in the
district court, much of which consisted of live testimony the
district court had the benefit of hearing. Based on that record,
it is not difficult to believe the Department and the amici when
they insist that New Jersey has one of the most serious and
complex solid waste problems in the country. At the same time,
it is apparent from the record that the feasibility and
effectiveness of alternative measures pose technologically and
economically complex issues. While these issues have been
touched upon in the briefing before us, it is fair to say that
they have not been the focus of the parties' efforts on this
appeal.21 In this context, we believe that this court, the
parties, and the public deserve the benefit of the district
court's views before this controversy is finally resolved.
We are mindful of the fact that New Jersey has vowed
not to abandon its present system until compelled to do so and of
Atlantic Coast's contention that it suffers more irreparable
21
. The district court is in a far better position than we
to evaluate whether the focus of the efforts of the parties
before it would have been substantially the same had C & A
Carbone been earlier decided. Accordingly, we leave it to the
discretion of the district court in the first instance whether to
resolve the remaining issues, including the issue of the
appropriate form of relief if relief is to be granted, on the
basis of the current record or to reopen the record for
supplementary evidence.
injury with each passing month. We note, however, that Atlantic
Coast is free at any time to apply again for pendente lite
relief. The district court's prior decision to deny such relief
was based primarily on its conclusion that Atlantic Coast had
failed to demonstrate a likelihood of success on the merits of
its challenge. This conclusion was based in turn on its view
that the more lenient Pike test was the applicable one. After
C & A Carbone, the likelihood of success issue is a materially
different one from that which the district court previously
addressed.
VI.
Because the waste flow regulations discriminate against
interstate commerce by restricting the access of out-of-state
facilities to waste processing and disposal service markets, they
can be upheld only if they can survive the heightened scrutiny
required by C & A Carbone. Because the district court analyzed
the waste flow regulations under the more lenient Pike balancing
test, we will remand for application of the appropriate test.
For the foregoing reasons, the district court's judgment in favor
of the Department will be reversed and this case will be remanded
for further proceeding consistent with this opinion.