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Atlantic Coast Demolition & Recycling, Inc. v. Board of Chosen Freeholders of Atlantic County

filed: February 16, 1995.

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).

Before: Stapleton, Alito and Lewis, Circuit Judges.

Author: Stapleton

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, 128 L. Ed. 2d 399, 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, 25 L. Ed. 2d 174, 90 S. Ct. 844 (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.*fn1

I.

The facts of this case are generally not in dispute.*fn2 The necessary factual background concerns New Jersey's waste management system and Atlantic Coast's activities.

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, 90 N.J. 666, 449 A.2d 516, 518-19, 521 (N.J. 1982); Hackensack Meadowlands Dev. Comm'n v. Municipal Sanitary Landfill Auth., 68 N.J. 451, 348 A.2d 505 (N.J. 1975), rev'd sub nom. City of Philadelphia v. New Jersey, 437 U.S. 617, 57 L. Ed. 2d 475, 98 S. Ct. 2531 (1977); Southern Ocean Landfill, Inc. v. Mayor & Council of the Township of Ocean, 64 N.J. 190, 314 A.2d 65, 66-67 (N.J. 1974); In re Scioscia, 216 N.J. Super. 644, 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 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.*fn3 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,*fn4 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.

§§ 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.*fn5 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 facilities*fn6 themselves are subject to state regulation by the Department. The private or public entity 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),*fn7 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 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 deregulation of the waste collection industry will occur in April 1996.*fn8

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 districts' solid waste management.*fn9 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). 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 fees*fn10 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). 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 ...


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