Market Participation Or Market Regulation?

Cheryl L. Dunson

Two recent decisions by the Sec-ond Circuit Court of Appeals legally support non-regulatory methods of controlling the flow of municipal solid waste. SSC Corp. v. Town of Smithtown and USA Recycling Inc. v. Town of Babylon involved Long Island townships that "took over" the collection of waste and became market participants.

The rulings confirm that waste collection is a "police power" of mu-nicipalities, said Eric Petersen, an attorney who's worked with both townships. "The court also ruled that disposal should be within [the towns'] discretion," he said.

Eric Bock, a Washington, D.C. attorney, agreed. "These rulings accept the precedent that local government has a historic responsibility to manage solid waste," Bock said. "There was nothing in the Carbone ruling that prevents local government from undertaking solid waste services by themselves ... or from [purchasing] services in the marketplace." Local government also has the right to "shop around" for the best buy, Bock said. "The same holds true for selling services, as long as they don't force people to buy those services."

Smithtown used a competitive procurement process to solicit bids from private haulers to collect and dispose of waste at the town-sponsored incinerator. The bid documents and the contract specified that the successful bidder(s) would dispose of the town's waste at the incinerator. The town also passed a flow control ordinance reiterating the contractual provision.

SSC, the successful bidder in seven of the town's 10 residential districts, proposed an annual disposal cost to use the incinerator. That cost was incorporated into the town's household estimate for collection services. The annual fee was assessed on residents' property tax bills, which the town used to pay SSC, per its contract.

During its tenure as the town's contractor, SSC attempted to use a cheaper disposal facility even though it was being paid according to its fee to use the incinerator. SSC claimed Carbone invalidated the provisions of its contract with Smithtown. Although the Second Circuit agreed with the Carbone ruling and struck down Smith-town's flow control ordinance, it upheld the town's contract be-cause it constituted market participation by the town rather than market regulation, the court said. Since Smithtown was spending tax dollars to pay for SSC's services it was effectively the buyer of disposal services and, therefore, retains the right to choose where to buy those services.

"Anytime a municipality wants to take over waste collection and exercise police power, it can do it," Petersen said. "The entire waste hauling business exists at the sufferance of local governments and the exercise of police powers."

Petersen added that the Second Circuit drew some very clear analogies to other forms of police power, particularly in the Babylon case (see Legal Column, page 60). "[The court] is saying that there's no real difference between waste collection and fire and safety services."

The decisions stunned the waste hauling industry, Pe-tersen said, and he anticipates appeals to the Supreme Court. "The Carbone language was so broad that many private haulers thought they could bring a bunch of lawsuits [around the country] and automatically win," he said.

In other words, the flow control fight is far from over. How-ever, the court put on record a complete and full analysis of municipalities' police power control, Petersen said. That information can be referenced if the Supreme Court hears a similar case or appeal.

Despite the court rulings, Diane Shea, associate legislative director for the National As-sociation of Counties, insists that legislation still is needed. "[Other circuit courts] may in-terpret Carbone differently or the circumstances in other cases may not be identical [to those of Smithtown or Baby-lon]," Shea said.