Legal Lode: Attesting Your Metal

To thwart scrap metal thefts and help prosecute metal thieves, a city may lawfully require scrap dealers to separate and retain high-value metals for a number of days after purchase, according to a ruling by a federal appeals court.

These days, scrap metal prices are low and will likely remain so until the world economy rebounds — whenever that might be. Yet, less than a year ago, The New York Times reported: “It is a very good time for anyone involved in the scrap-metal business. People who collect scrap metal and take it to recycling facilities are getting higher rates for their deliveries. In turn, metal-recycling companies are selling more scrap metal, particularly to customers in China, India and other developing nations, who are paying record prices.”

When demand causes metal prices to soar, the risk/reward calculation lures potential thieves to the metal market. Like pawnshops and used jewelry stores, scrap metal dealers can serve as fences for stolen goods. Scrap handlers typically operate in a network where small dealers sort the incoming materials and bundle them for sale to large dealers who, in turn, sell up the chain of distribution to still larger dealers who bale and ship the metal to domestic and foreign processors. Prices being volatile, metal dealers strive to sort, bale and ship purchased scrap as quickly as possible.

Officials in Memphis, Tenn., reported an eight-fold increase in scrap metal thefts in the first half of 2007 compared to the same period a year earlier. Hit hardest were urban businesses, utilities and community organizations. Like other localities similarly affected, the city passed a comprehensive scrap dealer ordinance requiring increased record-keeping, deferred payments for often-stolen metals, and foremost, a 10-day “tag and hold” period giving theft victims and police a chance to inspect highly prized metals, including brass, copper and lead, as well as automobile accessories.

Local scrap dealers protested, arguing that the “tag and hold” requirement would kill their business by forcing them to buy more land or reduce inventory and by limiting their buying power. When the city refused to back down, the state industry trade association and two dealers — who, by themselves, account for nearly 40 percent of all scrap shipped from Tennessee — filed suit in federal district court. They argued that the “tag and hold” provisions unlawfully interfered with interstate commerce and amounted to a “taking” of their property without due process of law and just compensation.

After the district judge refused to issue an injunction because she found their legal arguments were flawed, the dealers appealed. A three-judge panel of the U.S. Circuit Court of Appeals for the Sixth Circuit affirmed the lower court ruling.

“This is local legislation that does not regulate parties outside of Memphis … and is plainly directed at … metal theft and resale … ,” the court said. “[I]f this law has any out-of-state effect at all, [it] is beneficial to out-of-state scrap dealers.” The dealers did not prove any harm to the national scrap market, the court added. As for the “taking” claims, the appeals court brushed them aside as lacking legal merit.

[Tennessee Scrap Recyclers Ass'n v. Bredesen, No. 08-5824, 6^th Cir., Feb. 13, 2009.]

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Barry Shanoff is a Rockville, Md., attorney and general counsel of the Solid Waste Association of North America.

The legal editor welcomes comments from readers. Contact Barry Shanoff via e-mail: [email protected].