By Kenneth T. Kristl

Franchise agreements - the exclusive contract or ordinance granted by governmental entities to haul or process waste within a designated territory - have long been the targets of legal challenges based on many grounds, including the Commerce Clause of the United States Constitution. The US Court of Appeals for the Ninth Circuit is currently considering an appeal of a ruling in A.G.G. Enterprises, Inc. v. Washington County, Oregon that invalidated a franchise agreement on the basis of the Federal Aviation Administration Authorization (FAAA) Act of 1994. How the act could impact the solid waste industry is the subject of this Legal Briefs column.

The FAAA Act was originally designed to provide funding for the Federal Aviation Administration. However, Congress also used it to deregulate the trucking industry by amending the Interstate Commerce Act. To prevent nonfederal interference with deregulation, the FAAA Act included language that prevents state and local governments from enacting or enforcing any "law, regulation, or other provision having the force or effect of law related to the price, route or service of any motor carrier . . . with respect to the transportation of property." In other words, the act preempts local attempts at regulating the transport of "property" so that any such local law cannot be enforced. Because the exclusivity feature of any franchise agreement regulates the transportation of waste within the designated territory, if waste is "property," then the franchise agreement is likely unenforceable under the FAAA Act.

Because "property" is not defined in the act, a court confronting a preemption challenge is required to determine and give effect to the intent of Congress. At the time it passed the FAAA Act, Congress actually expressed its intent on whether waste is property. A House conference report provides two significant clues. First, it cites Joray Trucking Corp., a 1965 Interstate Commerce Commission (ICC) case that found that rock and debris from excavations and building demolitions used as fill for wasteland was not property because it had a negative economic value as a commodity. Second, the report states that the conferees further clarify that the motor carrier preemption provision does not preempt state regulation of garbage and refuse collectors. The managers have been informed by the Department of Transportation that under ICC case law, garbage and refuse are not considered property. Thus, garbage collectors are not considered "motor carriers of property" and thus are unaffected by this provision.

After enactment of the FAAA Act, Rep. Norman Mineta from California stressed that the FAAA was not meant to preempt state curbside recycling efforts but that it did apply to industrial recycling:

"A question has been raised about whether the [FAAA Act] has the effect of preempting State economic regulation of curbside recyclables. It clearly does not ... [but] the meaning of the term ["property"] as refined by precedent is broad enough to cover, for example, recyclables being transported as part of a commercial transaction to a major manufacturing concern."

A.G.G. Enterprises involved a challenge to an ordinance that prohibited the collection, storage, transportation, and disposal of solid waste without a permit. The ordinance had acted as a kind of de facto franchise agreement in the sense that no new permits had been issued since 1969. A.G.G. provided drop boxes to its commercial customers and hauled mixed solid waste and source-separated recyclable materials to a materials recovery facility that sorted the waste into recyclables and "garbage," the latter being sent to landfills. A.G.G. sought but was denied a permit under the ordinance. A.G.G. sued to have the ordinance declared preempted by the FAAA Act, and the Oregon federal district court agreed.

In looking for congressional intent, the A.G.G. Enterprises court noted the language of the House conference report and Rep. Mineta's remarks but found that the garbage, refuse, and recyclables hauled by A.G.G. were property under a "broader definition," which it gleaned from Nuclear Diagnostic Laboratories, Inc., a 1979 ICC case. In Nuclear Diagnostic, the ICC determined that radioactive waste materials destined for burial were property under the Interstate Commerce Act because the materials could be "owned" even though they lack economic value. The court interpreted this decision as overturning Joray decided 14 years earlier. Because garbage, refuse, or recyclable materials could be owned by someone, they would satisfy the Nuclear Diagnostic definition of "property," and thus the ordinance regulating the transportation of such property fell under the FAAA Act's preemption provision.

The fundamental flaw of the district court's analysis was the failure to discover or consider that in 1982 the ICC issued a Declaratory Order on the Transportation of Hazardous Wastes that specifically limited Nuclear Diagnostic to radioactive waste materials. The ICC stated that the decision in Nuclear Diagnostic was specifically driven by a desire to ensure that adequate transportation services be available because many carriers had balked at transporting radioactive waste materials. The ICC saw "no compelling reason to conclude that other hazardous wastes require similar treatment" and thus specifically stated that nonradioactive hazardous waste was not property under the general rule set forth in Joray. In other words, the ICC made clear that the "waste is not property" conclusion of Joray was the general rule even in light of Nuclear Diagnostic. Congressional citation to Joray 12 years later was a statement that Congress wanted the general rule continued under the FAAA Act. As to garbage and refuse, the A.G.G. Enterprises lower court appears to have mistakenly applied the controlling law and congressional intent.

The issue as to recyclables, however, is arguably less clear. The problem arises from two sources: (1) the Joray concept that the "economic value" of the material being hauled plays some role in the definition of "property" and (2) the ICC's desire to regulate large shipments of recyclable materials such as scrap metal. Rep. Mineta, in his post­FAAA Act comments on recycling, cited a letter from ICC General Counsel Henri Rush that stated:

"Recyclables segregated from trash should not be deemed to be property under I.C.C. precedent . . . . A distinction must be drawn between recyclables transportation that is part of the curbside collection process and over the road shipments of recyclables in commercial quantities such as the movement of metal scrap from or to a foundry . . . . Recyclables that have value in use of a manufacturing process have been viewed as property under Commission case law."

This smacks of wanting to have it both ways. A single aluminum soda can has some at least minimal "value in use of a manufacturing process" that recycles aluminum, more so if it is transported in a collection truck full of aluminum cans, but the ICC says it is not property if picked up in a curbside process. The notions of "economic value" and "commercial quantities" are so nebulous that it is impossible to predict where the line should be drawn using those concepts. The program at issue in A.G.G. Enterprises, for example, is a typical plan to collect, separate, and dispose of waste and recyclables in a given area that is comparable to a curbside collection program. The fact that A.G.G. cherry-picked certain commercial accounts does not alter the nature of the challenged program. In fact, all A.G.G. did was service one part of the generator base that the larger program was designed to address. Yet the A.G.G. Enterprises court used Rush's letter to argue that A.G.G.'s transportation of the source-separated loads of recyclables and the mixed solid waste loads containing some recyclables was similar to the transportation of commercial quantities of recyclables from generators to recycling plants that falls within the act.

The solution might lie in the much simpler task of following express congressional intent about the limits of the FAAA Act. As the House conference report makes clear, garbage and refuse should not be considered property under the act because Congress said so. Recyclables picked up as part of a curbside collection process have likewise been designated as outside the meaning of property. Thus, local franchise agreements governing the collection of garbage, refuse, and curbside recyclables should not be trumped by the FAAA Act. Such an approach draws clear lines and avoids troubling questions about the economic value of items in the shipments and whether truckloads are large enough to be commercial quantities.

Will the FAAA Act force franchise agreements to make crash landings in the future? The Ninth Circuit might soon let us know.

Kenneth T. Kristl practices environmental law at Winston & Strawn in Chicago, IL. This article is derived from a larger article presented to the Illinois Chapter of SWANA in September 1999.

MSW
March/April, 2001