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UNION COUNTY UTILS. AUTH. v. BERGEN COUNTY UTILS.

February 23, 1998

THE UNION COUNTY UTILITIES AUTHORITY, a Public Body Corporate and Politic of the State of New Jersey, and OGDEN MARTIN SYSTEMS OF UNION, INC. (Intervenor), Plaintiffs,
v.
THE BERGEN COUNTY UTILITIES AUTHORITY, a Public Body Corporate and Politic of the State of New Jersey, and THE COUNTY OF BERGEN, NEW JERSEY, a Municipal Corporation of the State of New Jersey, Defendants.



The opinion of the court was delivered by: IRENAS

 IRENAS, District Judge:

 In Atlantic Coast II, the Third Circuit held that New Jersey's flow control statutes governing the disposal of in-state solid waste violated the dormant Commerce Clause. BCUA and UCUA entered into their long term "put or pay" contract prior to the decision in Atlantic Coast II. This contract, like many others among waste management districts throughout the state, was negotiated, entered into and approved by the New Jersey Department of Environmental Protection ("NJDEP") under the now unconstitutional regulatory scheme which excluded out-of-state facilities from consideration as possible sites for disposal of locally-generated waste. Although entered into well before November 10, 1997, the effective date of the Atlantic Coast II injunction, the UCUA/BCUA contract, and others like it, contains provisions imposing waste delivery obligations into the future which, if bargained for today, would be unenforceable and in violation of the Atlantic Coast II injunction.

 In our Opinion of December 18, 1997, Atlantic Coast Demolition & Recycling, Inc. v. Board of Chosen Freeholders of Atlantic County, 1997 U.S. Dist. LEXIS 20129, 988 F. Supp. 486, 1997 WL 780909 (D.N.J. 1997), we found that a determination of a solid waste contract's validity required our interpretation of the scope of the Atlantic Coast II injunction and our consideration of its retroactive application to contractual rights and obligations bargained for before the injunction became effective. We now hold that the injunction prohibits the enforcement of executory waste delivery provisions of any contract entered into through a negotiation process that prohibited out-of-state competition. Whether or not (1) the remaining provisions of any contract are enforceable or (2) either party may be entitled to a monetary award of damages are determinations to be made by state courts on the basis of state law. Thus, we will refrain from making such a determination with regard to the UCUA/BCUA contract and will remand this case to the state court for resolution of the remaining state contract law issues.

 I. BACKGROUND1

 A. The Interdistrict Agreement

 In 1987, UCUA contracted with Ogden for the construction and long-term operation of the Union County Resource Recovery Facility ("UCRRF"). The Ogden construction and service agreement was amended and restated on April 11, 1990, and has been amended further from time to time. Under the agreement, Ogden agreed to construct and operate the UCRRF for twenty years and to be paid a service fee based upon net tonnage plus a percentage of the energy revenues generated by the Facility. UCUA agreed to deliver and/or pay for disposal of a certain guaranteed annual tonnage per year at the UCRRF.

 The UCRRF was to be located in Rahway, New Jersey. The proposed UCRRF had the capacity to process an amount of waste well in excess of the amount of processible waste currently generated within the boundaries of Union County. Thus, UCUA sought a regional partner to help in constructing and operating the facility and to commit to sending waste to the UCRRF to ensure its operation at capacity.

 On October 24, 1991, BCUA and UCUA entered into a Memorandum of Understanding ("MOU") which evidenced the intent of the parties to enter into an interdistrict agreement under which UCUA would provide certain services for the processing of solid waste generated within Bergen County and, in return, BCUA would join UCUA in its efforts to construct and operate the UCRRF.

 The MOU contained a "put or pay" provision which read:

 
The fees payable by the BCUA are an unconditional obligation and shall be payable by the BCUA whether or not the BCUA actually meets its delivery obligations of the minimum tonnage specified in Article 1.

 MOU, Exh. B to BCUA's Application for Removal Pursuant to All Writs Act and Anti-Injunction Act, Article 3.1, at 5.

 In April 1993, UCUA and BCUA entered into the Interdistrict Agreement which effectuated the terms of the MOU. The Interdistrict Agreement was amended on August 25, 1993. The Amended and Restated Interdistrict Agreement ("Agreement") superceded and replaced the MOU and the April agreement. See Agreement, Exh. C to BCUA's Application for Removal Pursuant to All Writs Act and Anti-Injunction Act.

 The Agreement also contains a "put or pay" provision, mirroring the one contained in the MOU, which requires BCUA to deliver 192,000 tons of Bergen County processible waste to the facility each service year, or to make a payment on a monthly basis. Payments are to be made in accordance with Section 5.07 of the Agreement, which provides:

 
The payment obligation of the BCUA . . . shall be an unconditional obligation to pay and shall continue and not be interrupted during any period that the UCUA's payment obligations continue to be payable and the BCUA shall not be relieved of such payment obligations for any reason, including, but not limited to, any Uncontrollable Circumstance, any failure of the Facility to operate or any failure of the BCUA to deliver Bergen Processible Waste to the Facility.

 Agreement at 28-29.

 The Agreement defines "Uncontrollable Circumstance" as

 
Any act, event or condition having a material adverse effect upon the rights or obligations of either party hereunder if such act, event, or condition is beyond the reasonable control of the parties to this Agreement and is relied upon thereon as justification for failure to perform any obligation set forth herein or to comply with any condition required of the respective parties pursuant to this agreement. Such acts, events or conditions shall include, but not be limited to the following: . . . any Change in Law . . . .

 Agreement at 8.

 Change in Law is defined as:

 
[A] change in any Applicable Law, including, but not limited to: (a) the adoption, promulgation, issuance, modification or change in administrative or judicial interpretation of any Applicable Law; (b) the order or judgment of any federal, state or local court, administrative agency or governmental officer or body; and (c) the denial of an application for, delay in review, issuance or renewal of, or suspension, termination, interruption, imposition of a new condition in connection with the renewal or failure of renewal of any governmental permit, license, consent, authorization or approval.

 Agreement at 6.

 Section 7.03 of the Agreement states:

 
The parties hereto acknowledge that notwithstanding any Uncontrollable Circumstance, all payment obligations shall continue to be performed, including but not limited to those payments which may be attributable to amounts due on Facility Bonds.

 Agreement at 35-36.

 B. The Atlantic Coast Decision

 On May 1, 1997, the Third Circuit affirmed our holding that New Jersey's policy of self-sufficiency violated the dormant Commerce Clause. Atlantic Coast II, 112 F.3d 652 (3d Cir. 1997). However, the Third Circuit reversed our two-year post-appeal stay, finding that we had erred in delaying the injunction of an unconstitutional law. Thus, the Court ordered that the injunction of the enforcement of New Jersey's waste flow directives, N.J.A.C. 7:26-6.5, would become effective upon the "denial of petitions for certiorari by the Supreme Court of the United States." Id. at 673. As a result of the Third Circuit's decision, we then modified our injunction on May 7, 1997. The Order we entered precisely mirrored that of the Third Circuit.

 The Order enjoins the NJDEP "from enforcing those provisions of New Jersey Administrative Code 7:26-6.5 which, by designating in-state facilities as the sole providers of disposal and processing services, discriminate against out-of-state operators of waste disposal." It orders that "insofar as the defendants must select and contract with waste disposal facilities pursuant to N.J.A.C. 7:26-6.6 and 6.7 in order to comply with the provisions of . . . [the Court's] injunction, they are permanently enjoined from implementing New Jersey's self-sufficiency policy as mandated under the State plan by ...


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