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Borough of Princeton v. Board of Chosen Freeholders of the County of Mercer

July 23, 2001

BOROUGH OF PRINCETON, A MUNICIPAL CORPORATION, PLAINTIFF-RESPONDENT
v.
BOARD OF CHOSEN FREEHOLDERS OF THE COUNTY OF MERCER AND MERCER COUNTY IMPROVEMENT AUTHORITY, DEFENDANTS-APPELLANTS AND WASTE MANAGEMENT OF PENNSYLVANIA, INC., DEFENDANT-INTERVENOR-APPELLANT



The opinion of the court was delivered by: Stein, J.

Argued March 12, 2001

On certification to the Superior Court, Appellate Division, whose opinion is reported at 333 N.J. Super. 310 (2000).

The Local Public Contracts Law (LPCL), N.J.S.A. 40A:11-1 to -50, requires that certain contracts entered into by local public entities be procured through a public bidding process detailed in that statute. The LPCL exempts a number of transactions from the public bidding requirement, including contracts for "real property or any interest therein." N.J.S.A. 40A:11-2(4). In these consolidated appeals, defendants Mercer County (Mercer) and Morris County (Morris) argue that the LPCL did not require them to bid publicly contracts they entered into with defendant- intervenor Waste Management of Pennsylvania, Inc. (Waste Management) for disposal of the counties' solid waste, because the respective contracts granted, in part, easement rights on landfill space owned by Waste Management. The Appellate Division held that both contracts were subject to the LPCL bidding requirements, notwithstanding their purported grants of property rights, because the transactions also required Waste Management to perform services, and, taken as a whole, the "entire thrust" of the contracts were "that of a contract for solid waste disposal." Borough of Princeton v. Board of Chosen Freeholders of Mercer County, 333 N.J. Super. 310, 327 (App. Div. 2000). We granted certification, 165 N.J. 676 (2000), and now affirm.

I.

We begin with some brief background. In 1970, the Legislature enacted the Solid Waste Management Act (SWMA), N.J.S.A. 13:1E-1 to -207, and the Solid Waste Utility Control Act (SWUCA), N.J.S.A. 48:13A-1 to -13, in an effort to establish a comprehensive regulatory framework for the disposal of solid waste in New Jersey. See Atlantic Coast Demolition & Recycling, Inc. v. Board of Chosen Freeholders of Atlantic County, 48 F. 3d 701, 704-08 (3d Cir. 1995) (detailing solid waste disposal system created by SWMA and SWUCA). In accordance with those statutes, the State was divided into twenty-two solid waste management districts, including all twenty-one counties and a "Hackensack- Meadowlands" district. N.J.S.A. 13:1E-20. Each district was assigned the responsibility for developing and implementing a long-term solid waste management plan, subject to approval by the State Department of Environmental Protection (DEP). N.J.S.A. 13:1D-19; 13:1E-20, -24.

In 1997, the United States Court of Appeals for the Third Circuit held unconstitutional, under the dormant Commerce Clause doctrine, elements of the SWMA and SWUCA that imposed heightened requirements on districts that desired to contract with out-of- state operators of solid waste disposal facilities. Atlantic Coast Demolition & Recycling, Inc. v. Board of Chosen Freeholders of Atlantic County, 112 F. 3d 652, 667 (3d Cir.), cert. denied, 522 U.S. 966, 118 S. Ct. 413, 139 L. Ed. 2d 316 (1997), amended, 135 F. 3d 891 (3d Cir. 1998) (Atlantic Coast II).

In the wake of that decision, the DEP issued an order in August 1997 requiring all solid waste disposal districts to review their strategies in view of the Atlantic Coast II mandate and, if necessary, adopt plan amendments. Mercer and Morris had entered into contracts with Waste Management for long-term solid waste disposal prior to Atlantic Coast II, in 1988 and 1993, respectively.*fn1 In response to the DEP order, the counties both certified that they were in compliance with Atlantic Coast II, and the present suits were brought following those certifications.

A.

Mercer enacted its original solid waste management plan in 1979. The long-term objective of that plan was for the county to be "self-sufficient" in its treatment and disposal of solid waste. Accordingly, the plan proposed the development of both an in-county resource recovery facility for processible waste and a landfill to deposit ash residue and non-processible waste. In the late 1980's, however, Mercer abandoned its intention to develop an in-county landfill, and in 1987 the county entered into negotiations for long-term solid waste disposal services with four specific companies that it believed possessed the capabilities to store the county's waste outflow. Mercer ultimately selected Waste Management, a Pennsylvania corporation, after Waste Management obtained long-term disposal capacity from the Commonwealth of Pennsylvania. Mercer's efforts to develop a resource recovery facility also were abandoned in November 1996, after the county failed to pass a plan amendment that would have authorized a $67 million bond issue to finance the construction of a resource-recovery facility in Hamilton Township. At present, Mercer's solid waste is directed to Waste Management's landfills, apparently without resource-recovery processing, through a transfer station located in Ewing Township.

Mercer and Waste Management executed a "License Agreement" on February 17, 1988. The agreement grants to Mercer "all rights, title and interest in an irrevocable, non-exclusive license which shall run with the land," and an attachment to the agreement provides a metes and bounds description of the landfill area, located in Bucks County, Pennsylvania. The agreement requires Waste Management to accept a maximum of 4,500,000 tons of solid municipal waste, and to provide "all necessary services at the Landfill Facilities to receive such Acceptable Waste," including taking all measures required by law to bury, cover or otherwise process the waste. The agreement defines "Landfill Facilities" as the Landfill and all other facilities related thereto, including, without limitation, liners, protective covers, leachate collection and treatment facilities, storm water collection and treatment facilities, erosion and sedimentation control facilities, gas vents, gas collection systems, borrow areas, offices, haul roads, equipment, gear and other tangible property used in connection with the operation of the Landfill.

The agreement provides further that if the "rate of depletion of the remaining capacity" of the landfill could cause Waste Management to default on any of its contractual obligations, Waste Management is required to "mak[e] available to [Mercer] additional landfills to which [Mercer] is granted by [Waste Management] license rights identical to such rights granted pursuant to this Agreement in the Landfill, except as to location."

In return, Mercer made an initial payment to Waste Management of $30 million, and agreed to make monthly "service fee purchase payments" equal to $47 per ton of accepted waste plus certain operating costs. The per-ton purchase payments increase for specific types of waste, such as "Baled Waste" and "Special Waste," that are defined in the agreement. The original agreement extended for a period of twenty-five years from the date of the first service fee purchase payment, or until Mercer exhausted its maximum deposit amount of 4,500,000 tons of waste, whichever occurred first.

The agreement was not affected adversely by Atlantic Coast II because Waste Management, as an out-of-state company, had not been disadvantaged by the regulatory scheme invalidated by that decision. Nevertheless, in August 1997 Mercer adopted a resolution recommending certain amendments to its solid waste management plan, including modifications to the Waste Management contract. The proposed amendment, agreed to by Waste Management, authorized modification of the license agreement by reducing its term from twenty-five to nineteen years and reducing Mercer's monthly per-ton service fee purchase payments. Mercer adopted the plan amendment after holding public hearings, and in November 1997 the DEP approved the aspects of the plan amendment that are relevant to this review. The amended license agreement went into effect on November 10, 1997.

In September 1997, plaintiff Borough of Princeton (Princeton) filed a complaint in lieu of prerogative writs in the Law Division against Mercer. Princeton's original complaint alleged that the process undertaken to promulgate the 1997 plan amendment violated procedural requirements set forth in the SWMA. The Law Division granted Waste Management's motion to intervene. After hearing arguments on the defendants' motions to dismiss, but without issuing any dispositive order, the Law Division transferred the entire case to the Appellate Division. Simultaneous with that order, the Law Division granted Princeton's motion to amend its complaint to include an allegation that the original 1988 license agreement, and the 1997 amendment, were invalid because they were not bid publicly pursuant to the LPCL. In December 1997, Princeton filed a separate action in the Appellate Division challenging the DEP administrative order approving the Mercer plan amendment.

B.

The events leading to the Morris agreement with Waste Management began in October 1992, when Morris published a "Request for Proposals" seeking a solid waste disposal contract with an out-of-state landfill for 4.5 million tons of waste. Morris issued a public notice advertising the request. After receiving responses, Morris published an addendum addressing various clarification questions posed by interested companies. Among the questions received was "[w]hat is the legal basis for acquiring the Easement without compliance with the provisions of the Local Public Contracts Law (N.J.S.A. 40A:11-1 et seq.)?" Morris replied that the proposed transaction "has been structured as an acquisition of an interest in real property," and that "acquisition of the Easement does not constitute the performance of work or the furnishing or hiring of any materials or supplies. As such, the provisions of the Local Public Contracts Law are not applicable to this process."

Morris received five proposals. In December 1992, a team of experts hired by Morris to evaluate the competing proposals recommended that the County accept the proposal submitted by Waste Management. Following that recommendation, the county executed an agreement with Waste Management on January 6, 1993 for the "Acquisition of an Undivided Interest in Real Property, Consisting of the Acquisition of Certain Easement Rights Relating Thereto.*fn2

The agreement grants to Morris "all rights, title and interest to an undivided interest in the Premises owned by the Grantor, consisting of the acquisition of certain easement rights relating thereto, which shall run with the land." The agreement describes the landfill area subject to the easement in metes and bounds, and provides for the recording of the easement with "the appropriate county, municipal or state office responsible for recording transfers of real property." The agreement authorizes Morris to deposit a maximum of 4.5 million tons of solid waste on the landfill area over a ten-year period beginning January 1, 1995, with an option to extend the term of the easement for another five years with a corresponding increase in the maximum waste load. In return, Morris made an initial payment to Waste Management of $1,000,000, and is responsible for a monthly "deferred purchase payment," which includes primarily a "Unit Charge" based on tonnage of waste disposed at the landfill facilities. The agreement, like the Mercer agreement, assigns different per-ton dollar amounts based on the composition of the waste to be disposed of, with a per-ton charge of $33.00 for "Municipal Waste and Non-Municipal Waste" and higher charges, ranging from $47.05 to $49.00 per-ton, for "Bulky Waste," "Baled Waste," and "Residue."

The agreement obligates Waste Management to maintain all permits necessary to provide for the disposal of Morris's waste, and to take "all steps required by Applicable Law to bury, grade, cover and otherwise process all Acceptable Waste deposited in the Landfill." Waste Management has the sole responsibility under the contract to operate the "Landfill Facilities," which the contract defines - in language nearly identical to the Mercer agreement - to include the Landfill and all other facilities related thereto, including, without limitation, liners, protective covers, leachate collection and treatment facilities, stormwater collection and treatment facilities, erosion and sedimentation control facilities, gas vents, gas collection systems, borrow areas, offices, haul roads, truck weigh scale, equipment, gear and other tangible property used in connection with the operation of the Landfill.

The agreement states that Morris "shall have no duties, obligations, responsibilities or rights of any nature with respect to the operation, maintenance, design, construction or management of the Landfill or Landfill Facilities."

In addition to the metes and bounds description of the easement area, the agreement requires Waste Management to "continue to construct and add to the Landfill and Landfill Facilities, as and when necessary, in order to enable [Waste Management] to accept the unused portion of the Maximum Waste Amount." The contract specifies further that if "as a result of issuance of a Governmental Order . . . [Waste Management] is prohibited from accepting any Acceptable Waste for deposit in the Premises, [Waste Management] shall . . . make additional landfill sites available to [Morris] for the disposal of . . . Acceptable Waste." The contract specifies that "all terms and conditions contained in this Agreement" would apply to the additional landfill space with the single exception of "the provisions . . . relating to the acquisition of a[n] Easement."

The agreement was recorded shortly after it was signed, and in March 1993 Morris enacted a plan amendment incorporating the agreement into its waste management plan. The DEP approved the amendment in December 1994, subject to the condition that Morris amend its plan to provide for long-term use of in-state waste disposal facilities. After Atlantic Coast II was decided, however, the DEP withdrew that condition.

Morris, like Mercer, originally had planned to build a resource-recovery facility within the county but ultimately abandoned that plan. Accordingly, in 1994 Morris entered into a contract with Essex County for use of a resource recovery facility that is located in Newark and operated by plaintiff American Ref-Fuel Company of Essex County (American Ref-Fuel). The contract provided that Morris would deliver all of its solid waste, up to a maximum of 225,000 tons, to the Essex County facility. After that contract was incorporated into Morris's plan amendment, Waste Management filed suit in the Law Division alleging that under its 1993 contract with Morris the county was required to dispose of all of its solid waste at the Waste Management landfills, and could not rely on another out-of-county provider for resource recovery services. The Law Division rejected that claim, holding that Morris was free to use the Essex facility as long as a proportional share of non-processible waste and ash was transferred to the Waste Management landfills.

In the wake of Atlantic Coast II, Morris determined that its contract with Waste Management was in compliance with the Atlantic Coast II mandate. Accordingly, in December 1997 Morris submitted a request for administrative action, N.J.A.C. 7:26- 6.11(b)(9), petitioning the DEP to reaffirm Morris's reliance on the 1993 Waste Management contract. The following month, the DEP issued an administrative action confirming that the 1993 agreement complied with Atlantic Coast II and reaffirming the agreement as an element of Morris's solid waste management plan.

In February 1998, American Ref-Fuel filed a direct appeal in the Appellate Division challenging the DEP administrative action. Two months later, American Ref-Fuel filed a complaint in lieu of prerogative writs in the Law Division challenging the 1993 agreement between Morris and Waste Management as being in violation of the LPCL public bidding requirement. The Law Division granted Waste Management's motion to intervene, and then granted summary judgment to defendants on all counts. The court did not resolve the ...


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