RANCHO MIRAGE SUPREME COURT RECYCLING CASE REVISITED
By John D. Moore, NCRA Vice President and Legal Counsel
28 years ago, the cities of Rancho Mirage and Palm Springs, and their franchise hauler, Waste Management of the Desert, sued to enjoin Palm Springs Recycling Center from collecting bottles, cans, and paper in those cities. The local court granted the injunction, the Court of Appeal reversed the trial court , and then in 1994 the California Supreme Court reversed the Court of Appeals in what became the landmark California case interpreting what materials may lawfully be within a public entity grant of an exclusive solid waste franchise. The industry knows this as the “Rancho Mirage case” establishing the “fee for service” test of whether material is solid waste or not. The validity of the Rancho Mirage ruling has been called into question by a case now pending before the United States Circuit Court of Appeals for the Ninth Circuit.
In 1989, the California legislature passed the landmark AB 939 (the Act) which reworked the regulatory structure of garbage collection and established the infrastructure for California’s recycling industry that exists today. This Act stated as a matter of policy that landfilling materials was environmentally harmful because of the toxicity of landfills and the exhaustion of finite virgin resources. The Act created an express hierarchy with the 3 Rs, stating that post-consumer material should be reduced, reused, and recycled so that only the residue should be considered solid waste, the gentrified term for garbage. The Act imposed a mandate for 50% diversion of materials from landfill by 2000 and authorized $10,000/day penalties for noncompliant public entities. The Act carried over from former law the right of public entities to comply with their health and safety mandates by entering into garbage collection franchises. The Act granted discretion to public entities to grant exclusive solid waste collection requirements only if “the public health and welfare so require.”
Although the Act contains a definition of “solid waste” that may (not shall as some cities argue) be part of an exclusive franchise, disputes immediately arose between the franchised haulers, like Waste Management of the Desert, that preferred a broad definition consistent with former law, and recyclable collectors like Palm Springs Recycling Center, that interpreted AB 939 to mean that materials that went through the 3R hierarchy and were recycled, never became solid waste. “It’s not waste until it’s wasted” was a clever way to describe this point of view. Recyclers at the time viewed the Act as critical to their ability to create an economically sustainable industry.
The Court of Appeal found that the position of the franchised haulers lead to an unconstitutional taking of property rights. The state Supreme Court agreed to hear the case. California’s recycling associations and major businesses at the time participated in this important case by submitting amicus briefs. The amicus briefs of NCRA, CRRA, and Urban Ore, among others, supported the recycler and argued that under AB 939, solid waste was a residual category of materials that were not recovered by the 3Rs- in other words, if it went to the landfill it was waste; if it was recovered and did not go to landfill, it was not solid waste. CRRC, supporting the franchised haulers argued that if someone paid to have post-consumer material taken away, it was solid waste. The cities of Rancho Mirage and Palm Springs, and WMD, did not make this fee for service argument.
The logic of the fee for service test, adopted by the Court, perplexed many in NCRA. Although seemingly absurd, a competing garbage hauler theoretically could pay $1 for anyone’s discards and undercut the franchise hauler. Metals, which had enough value to be purchased by collectors, immediately became immune from franchises, to the pleasure of ISRI, that also filed an amicus brief. On the other hand, materials like wood and cardboard, with fluctuating markets, would be recycled by the collector, but were not valuable enough to offset the collection cost of driver and vehicle. These so-called negative material materials, often in mixed C&D became the friction point of the last 25 years between franchised haulers and non-franchised mixed C&D collectors.
The state Supreme Court decision was not a model of jurisprudence. Although the Court was purporting to interpret a state statute defining “solid waste” which the litigating parties argued was ambiguous, it did not follow state law in its method to resolve statutory ambiguity. State law precedent requires that a court interpreting a statute first look at its “plain meaning”, and if that was ambiguous, to be guided by the legislative purpose. But the Court did not cite any of the stated legislative purposes of AB 939. The Court did not cite the public policy of landfill avoidance. The Court did not cite the mandated hierarchy of resource recovery that put landfilling last in line. The Court did not cite the legislative command to develop markets for recovered material. State law is also clear that if the plain meaning of the statute is ambiguous and the legislative intent does not clarify the meaning, only then may the court resort to dictionary definitions. The Court used dictionary definitions of “discard” and “dispose” to justify its reasoning, but it selected one of many definitions found in the dictionary for these terms that helped its argument, ignoring others, and the definitions used by the court can no longer be found in published dictionaries today. The Court cited a District of Columbia case to support its conclusion but that case actually held the opposite. The Court did not address the Court of Appeal finding that the position of the cities and WMD was unconstitutional.
So while some recyclers were glad that the Court recognized that exclusive franchises could not cover all material, the recyclers that had to charge a collection service fee were faced with seemingly insurmountable legal problems in jurisdictions where the broadest possible franchise was granted.
An aggrieved recycler could file a state court case, but a trial court and a Court of Appeal were required to respect the Supreme Court precedent. A recycler could file a case and be resigned to losing in the trial court and court of appeal, in an effort to reach the Supreme Court again and request reconsideration. But the state Supreme Court is not required to hear all cases and in fact accepts less than 4% of those state cases that it is asked to review. One recycler in San Marcos tried this route and the Court would not hear the case.
An aggrieved recycler could try to file a federal law claim in federal court, but federal courts are required to defer to precedent established by a state Supreme Court deciding an issue of state law.
An aggrieved recycler could try to ask the state Legislature to change the statute to undo the state Supreme Court holding. Right after the Rancho Mirage case was decided, a waste hauler sponsored bill, SB 450, was introduced that would have allowed for exclusive franchising of all materials. NCRA and others mobilized to fight this bill and narrowly succeeded to defeat it. It was out of the question to think the Legislature would pass a recycler-supported bill to undo the Rancho Mirage case.
So mixed C&D recyclers were stuck. They could lobby local government politically to grant non-exclusive franchises that included C&D, like cities such as Oakland had. Local waste haulers often wielded a lot of local political clout. Political efforts to keep mixed C&D collection nonexclusive in Sonoma, San Mateo, and Contra Costa Counties failed.
Creative litigation strategies were tried. Since the legislature had declared landfilling harmful to the environment, the grant of a franchise inclusive of mixed C&D could be said to result in more landfilling and therefore environmental review under CEQA was required. This approach worked in Mendocino County. The threat of it worked in Napa County.
A Portland, Oregon, attorney specializing in transportation law argued successfully in the local federal court that a federal transportation statute, the FAAAA, preempted local exclusive franchises that included C&D (asbestos shingles in that case). But the Ninth Circuit reversed that case on procedural grounds. A California court of appeal case considered the same issue but the Court found that there was no preemption. The recycler in that case testified at deposition under oath with minimal preparation that what he hauled was “solid waste”, not recyclables, and that was enough for the Court.
An Alameda County fee for service paper collector defeated a challenge by a franchised hauler on the basis that the paper collector provided service – shredding- in addition to collection. Other C&D haulers looked at this possible way around the Rancho Mirage decision and found that the litigation cost and the uncertainty of success was not worth the fight. Deconstruction companies were not challenged to the best of the author’s knowledge. 1-800-Got-Junk franchises did not get targeted. The bait to get targeted by an exclusive franchisee was a roll off or debris box with signage listing the owner.
And so hope dimmed for C&D recyclers. Then, in 2010, the United States Supreme Court opened a door. In a plurality decision where there was a majority vote for the outcome but less than a majority approved any of the several grounds for the outcome, stated that a state Supreme Court, like any other government entity, could be found to act unconstitutionally where it impinged established property rights. This part of the decision was written by the late Justice Antonin Scalia, respected as a scholar even by his political opponents, and was joined by 3 other justices. If this was theoretically possible, then a federal court might be able to judge the constitutionality of a state Supreme Court action without being required to defer to it, if the decision impaired property rights that had been established previously. However no federal court so far has ever found that a state Supreme Court acted unconstitutionally in this manner.
Premier Recycling is a mixed C&D collector that has a fully permitted C&D recycling facility in San Jose. San Jose allows open competition for C&D while many of the smaller surrounding cities like Sunnyvale and Mountain View have exclusive franchises that cover C&D. It is difficult for a business to grow where it is limited geographically. It is like a plant in a planter box. Sonrise Consolidated was an early C&D collector in Alameda County that helped promote the mandatory C&D recycling laws passed in that County only to be forced out of business by a checkerboard of cities within the County where it was blocked from doing business by an exclusive franchise. Licensed contractors required by their building permit to document diversion could be tempted by a service provider that understood diversion to document it. Franchised haulers were not always as flexible about box delivery and pickup times as desired by the contractors.
Premier began to be targeted by cities within Santa Clara County for administrative fines where the city, acting for the franchised hauler, presented its case to a hearing officer employed by the City. Sunnyvale, whose SMART recovery center is a direct competitor of Premier’s C&D facility in San Jose, brought some of these actions.
Sunnyvale’s ordinance requires a permit to collect certain materials, C&D probably, but not clearly, among them. The ordinance speaks in terms of multiple licensees. Premier applied for a permit and was denied on the basis that Sunnyvale has an exclusive permitee. AB 939 allows exclusivity only where public health and welfare so require. The Sunnyvale City Council never made a public decision that the public health and welfare in Sunnyvale require exclusivity.
Premier filed suit in federal court asserting that its constitutional rights were deprived by Sunnyvale’s refusal to issue it a permit. Premier argued that Sunnyvale never made the finding required by law to grant exclusivity and that any action to grant exclusivity was void in light of the unconstitutionality of the Rancho Mirage decision as applied to a C&D fee for service collector in 2017. The District Court dismissed the case finding that Premier had not properly alleged a cognizable claim. Premier appealed. Squarely before the Ninth Circuit is whether or not the Court in Rancho Mirage ignored clearly established law and impinged on established property rights. While it is hard to predict that the Ninth Circuit will void a 25 year old state Supreme Court decision, Premier, never a party in the original Rancho Mirage case, at least will get its say about the jurisprudence of the case. Premier could also prevail on the issue that Sunnyvale never made the required finding before it granted an exclusive. Review of documents as part of a Public Records Act request makes clear that the exclusivity decision was made by staff working with the local hauler, not made by the City Council as required by the Brown Act.