ATLANTIC COAST DEMOLITION & RECYCLING, INC. Appellant, v. BOARD OF CHOSEN FREEHOLDERS OF ATLANTIC COUNTY; Atlantic County Utilities Authority; Board of Chosen Freeholders of Camden County; Pollution Control Financing Authority of Camden County; Scott Weiner, individually and in his capacity as Commissioner of New Jersey Department of Environmental Protection and Energy.
No. 94-5173.
United States Court of Appeals, Third Circuit.
Argued Sept. 13, 1994. Decided Feb. 16, 1995.
Sur Petition for Rehearing March 28, 1995.
48 F.3d 701
SLOVITER, Chief Judge, BECKER, STAPLETON, MANSMANN, GREENBERG, HUTCHINSON, SCIRICA, COWEN, NYGAARD, ALITO, ROTH, LEWIS, McKEE, SAROKIN and SEITZ, Circuit Judges.
The general view in the federal courts that have addressed the present issue is that an inactive corporation is a citizen of both the state where it is incorporated and the state where it had its last principal place of business. See, e.g., Harris v. Black Clawson Co., 961 F.2d 547 (5th Cir.1992); Wm. Passalacqua Builders, Inc. v. Resnick Developers South Inc., 933 F.2d 131 (2d Cir.1991).2 This rule seems to embrace Congress’ intent to deny a federal forum to “local” corporations in actions involving local citizens.
On the other hand, the majority‘s bright line test certainly has simplicity to recommend it, and it may reflect the reality that an inactive corporation has no business activities, let alone a principal place of business. However, the rule seems to run counter to the congressional purpose underlying the 1958 amendment to the diversity statute.
The issue here is one that Congress should address. After weighing the conflicting considerations, I remain doubtful as to the proper application of
SUR PETITION FOR REHEARING
Present: SLOVITER, Chief Judge, BECKER, STAPLETON, MANSMANN, GREENBERG, HUTCHINSON, SCIRICA, COWEN, NYGAARD, ALITO, ROTH, LEWIS, McKEE, SAROKIN and SEITZ,* Circuit Judges.
The petition for rehearing filed by the appellants in the above-entitled case having been submitted to the judges who participated in the decision of this court and to all other available circuit judges in regular active service, and no judge who concurred in the decision having asked for rehearing, and a majority of the circuit judges in regular active service not having voted for rehearing by the court in banc, the petition for rehearing is denied. Judge Hutchinson would have granted rehearing.
James J. Ciancia, Acting Atty. Gen., Andrea M. Silkowitz, Asst. Atty. Gen., Gail M. Lambert (argued), Stefanie A. Brand, Depu ty Attys. Gen., Newark, NJ, for appellee Scott Weiner.
William J. Linton, Atlantic County Utilities Authority, Pleasantville, NJ, for appellee Atlantic County Utility Authority.
Frederick J. Schuck, Camden, NJ, for appellee Bd. of Chosen Freeholders of Camden County.
Jonathan L. Williams, J.S. Lee Cohen (argued), Michael S. Caro, DeCotiis, Fitzpatrick & Gluck, Hackensack, NJ, for amici curiae Hudson County Improvement Authority, Passaic County Utilities Authority and Essex County Utilities Authority Mercer County Imp. Authority.
Joseph J. Slachetka, John A. Mercer, Jr., Higgins, Slachetka & Long, Laurel Springs, NJ, for amicus curiae Cape May County Mun. Utilities Authority.
Gail B. Phelps, Asst. Counsel, Bureau of Regulatory Counsel, Harrisburg, PA, for amicus curiae Pennsylvania Dept. of Environmental Resources.
Betty Jo Christian, Paul J. Ondrasik, Jr., William T. Hassler, Steptoe & Johnson, Washington, D.C. (Bruce J. Parker, Alan S. Ashkinaze, Of Counsel), and Michael F. Riccardelli, Ronald S. Bergamini, Riccardelli, Rose & Hoonhoudt, Montclair, NJ, for amici curiae City of Jersey City, Borough of Northvale, C & A Carbone, Inc., National Solid Wastes Management Ass‘n, and Waste Management Ass‘n of New Jersey.
Before: STAPLETON, ALITO and LEWIS, Circuit Judges.
OPINION OF THE COURT
STAPLETON, Circuit Judge:
This appeal concerns the constitutional validity of New Jersey‘s solid waste regulatory scheme. Atlantic Coast Demolition and Recycling, Inc. (“Atlantic Coast“) sought to enjoin enforcement of New Jersey‘s waste flow regulations on the ground they violate the dormant Commerce Clause. The district court entered judgment in favor of defendant New Jersey Department of Environmental Protection and Energy (“the Department“), finding that the flow control regulations did not impose an unconstitutional burden on interstate commerce. Atlantic Coast appealed. We will reverse.
Shortly after the district court entered final judgment upholding the flow control regulations, the Supreme Court issued its decision in C & A Carbone, Inc. v. Town of Clarkstown, —— U.S. ——, 114 S.Ct. 1677, 128 L.Ed.2d 399 (1994), in which the Court struck down a local flow control ordinance of the Town of Clarkstown, New York, as viola-
I.
The facts of this case are generally not in dispute.2 The necessary factual background concerns New Jersey‘s waste management system and Atlantic Coast‘s activities.
A. New Jersey‘s Solid Waste Management System
New Jersey has an extensive statutory and regulatory system governing the management and disposal of solid waste. This highly regulated system grew out of a crisis that began in the 1970s as a result of wide-spread illegal practices in the then private, unregulated waste disposal market and the closing of many landfills due to unsanitary conditions and noncompliance with newly enacted federal regulations. This crisis has been documented in the caselaw of both this court and the New Jersey courts. See, e.g., J. Filiberto Sanitation v. Department of Envtl. Protection, 857 F.2d 913, 918-19 (3d Cir.1988); Trade Waste Management Ass‘n, Inc. v. Hughey, 780 F.2d 221, 223 (3d Cir.1985); A.A. Mastrangelo, Inc. v. Commissioner of Department of Envtl. Protection, 90 N.J. 666, 449 A.2d 516, 518-19, 521 (1982); Hackensack Meadowlands Dev. Comm‘n v. Municipal Sanitary Landfill Auth., 68 N.J. 451, 348 A.2d 505 (1975), rev‘d sub nom. City of Philadelphia v. New Jersey, 437 U.S. 617, 98 S.Ct. 2531, 57 L.Ed.2d 475 (1978); Southern Ocean Landfill, Inc. v. Mayor & Council of the Township of Ocean, 64 N.J. 190, 314 A.2d 65, 66-67 (1974); In re Scioscia, 216 N.J.Super. 644, 524 A.2d 855, 857 (Ct.App.Div.1987). As the Department has observed in a recent update to its Statewide Solid Waste Management Plan:
By the early 1980s, the department had closed, or was in the process of closing, over 300 unsafe or unregulated landfills that posed serious environmental hazards or had exhausted capacity. However, the department‘s persistent actions to implement rigorous environmental standards on landfill construction and operations, coupled with a steady influx of millions of tons of waste annually from neighboring states during the 1970s, resulted in a serious shortfall of disposal capacity in the state....
By the late 1980s, the “solid waste crisis” had become a national issue, and New Jersey, the most densely populated state in the union, was at the forefront of both the problem and the solution. Responding to the need to develop safe, efficient systems, by 1990 the state/county planning process produced 13 new major disposal facilities.... Despite this remarkable progress, however, a number of additional counties were forced by the continuing capacity shortages to make disposal arrangements with out-of-state facilities, and New Jersey, once a net importer of waste, became a net exporter with peak exports of
New Jersey Dep‘t of Envtl. Protection and Energy, Div. of Solid Waste Management, Solid Waste Management State Plan Update: 1993-2002, Executive Summary 1-2 (Draft Jan. 1993) (App. 511-12) [hereinafter State Plan Update-Executive Summary ].
New Jersey‘s existing statutory and regulatory waste management system is the result of attempts to respond to this crisis.3 The two major statutory provisions of New Jersey‘s solid waste management system are the Solid Waste Management Act (“SWMA“),
The Department is vested with broad regulatory authority,4 while direct management responsibility is delegated to the twenty-two solid waste management districts that comprise the state, one for each of New Jersey‘s counties plus the Hackensack Meadowlands District. See
In addition to this system of local district management, the disposal facilities6 themselves are subject to state regulation by the Department. The private or public entity performing the disposal service must register with and obtain approval from the Department before providing disposal service,
Additionally, all disposal facilities are regulated on the state level as public utilities.
Like waste disposal, solid waste collection was originally regulated under the utility structure as well, but pursuant to the Solid Waste Collection Regulatory Reform Act, which became effective in 1992, waste collection services will no longer be regulated as public utilities, although they will continue to be under the supervision of the Board of Regulatory Commissioners. See
Additionally, the Board of Regulatory Commissioners may designate a district as a solid waste disposal franchise area to be served by one or more entities engaged in waste disposal.
As an integral part of the district plan and utility regulation system, the Department and waste districts are authorized under the SWMA and SWUCA to direct the flow of waste to designated facilities.
These waste flow measures do not apply to separated recyclable materials. N.J.Admin.Code tit. 7,
The disposal charges, or tipping fees10 charged by the designated waste facilities are used for operating revenues. See, e.g.,
The disposal facilities are designated through the district planning process. N.J.Admin.Code tit. 7,
Although it is not the subject of a clear legislative direction [sic], it is equally clear that the D.E.P.E. administers the law with the specific goal that all waste generated in New Jersey be disposed of within the borders of the state. The 1993 solid waste management state plan update, which was admitted into evidence and herein referred to as the Update, provides: “As a key policy objective, New Jersey will continue to move toward achievement of self-sufficiency in disposal capacity. The Department‘s objective is to eliminate reliance on out-of-state disposal within a seven-year period.”
App. 1017.
Accordingly, a waste district that is unable to identify sufficient existing waste facilities
B. Atlantic Coast‘s Activities
Atlantic Coast is a Pennsylvania corporation that was formed in 1989 to operate a transfer station and recycling center for construction and demolition (“C & D“) debris. This facility is located in Philadelphia. Atlantic Coast is licensed by the Commonwealth of Pennsylvania Department of Environmental Resources to accept for processing at its facility various types of construction and demolition debris, including uncontaminated rock, soil, ferrous metals, and wood; recyclables; and unmarketable construction and demolition materials. Atlantic Coast processes the C & D debris by separating the recyclable materials from the nonrecyclable. The nonrecyclable residue waste is then shipped to landfills for disposal. During periods relevant to this appeal, Atlantic Coast was transporting the nonrecyclable waste to a landfill in Ohio. The majority of the waste processed at the Atlantic Coast facility is not recyclable; by weight only approximately eight and one-half to twenty percent of the waste is recycled.12 Thus, most of the materials received by Atlantic Coast are shipped to a landfill for disposal.
Construction and demolition debris is generated when a building is constructed, demolished, or refurbished. It is not composed of a single material, but is rather a mixture of recyclable and nonrecyclable materials. As a practical matter, C & D waste is not source separated, that is, the generator of the debris does not separate out the recyclable materials at the construction site. Prior to separation the mixture of recyclable and nonrecyclable materials is considered waste, but once the recyclable portion is separated out, only the remaining nonrecyclable portion is considered waste. Thus, if Atlantic Coast collects C & D debris from a construction site in New Jersey and transports it to its facility for separation and processing, the waste it collects is subject to New Jersey waste flow regulations. This means that it is required by those regulations to return the nonrecyclable waste (or equivalent waste) to the source district‘s designated disposal facility or to pay to that facility an amount equal to the tipping fee it would pay if it returned that portion of the C & D debris to the designated facility.
Because of its proximity to New Jersey‘s southern counties, Atlantic Coast sought to gain access to the New Jersey‘s C & D
In its complaint, Atlantic Coast sought a declaration that the district waste plans identified in the flow control regulations violate the Commerce Clause and a permanent injunction barring the defendants from prohibiting or interfering with the transportation of construction and demolition debris from its generation or collection within New Jersey, or in Atlantic and Camden Counties in particular, to facilities outside the state. Although the scope of Atlantic Coast‘s attack on the New Jersey solid waste management system was somewhat unclear from the complaint, the district court concluded that Atlantic Coast‘s main contention centered on the waste flow regulations. At oral argument before this court, counsel for Atlantic Coast reiterated that its dormant Commerce Clause allegation and its claim for relief were limited to the waste flow regulations, and in particular the requirement that residual waste from mixed waste loads be returned to each district‘s designated facility unless the facility is compensated for the lost waste revenue.
C. The District Court Proceedings
Atlantic Coast moved for a preliminary injunction. Following a short period of intense discovery, an evidentiary hearing was held on Atlantic Coast‘s motion, at which a substantial amount of deposition and live testimony was admitted. The district court promptly issued an opinion declining to enter a preliminary injunction. After further discovery, the parties elected to submit the case on its merits based on the preliminary injunction record without supplementation. Ultimately, the district court entered final judgment in the Department‘s favor based on the findings and conclusions in its oral opinion of September 8, 1993. This appeal followed.14
II.
The fundamental issue presented by this appeal is whether the district court erred in concluding that the New Jersey regulatory waste flow scheme does not violate the dormant Commerce Clause. To determine this fundamental issue, three subsidiary issues must be decided: (1) whether the district court erred in applying the Pike balancing test, rather than what we have termed the
III.
The Commerce Clause grants to Congress the affirmative power “[t]o regulate Commerce ... among the several States.”
A.
The solid waste flow control ordinance before the court in C & A Carbone required that all waste within the town of Clarkstown, New York, be processed at a designated transfer station which the town had caused to be built to comply with a consent decree between the town and the New York State Department of Environmental Conservation. C & A Carbone, —— U.S. at ——, 114 S.Ct. at 1680. To finance the new facility, the town entered into an arrangement with a local private contractor under which the contractor would build the facility, operate it for five years, and then turn it over to the town for one dollar. In return, the town guaran-
To ensure that the contractor would receive the agreed upon sums, the town enacted its flow control ordinance. The town was thus assured of customers for the new transfer facility and could finance the facility through the mandated tipping fees. C & A Carbone, who operated a recycling center within the town, was found to be violating the ordinance by transporting waste from its facility to out-of-state locations for processing. C & A Carbone challenged the constitutionality of the ordinance based on the dormant Commerce Clause. The New York courts concluded that the town‘s ordinance did not discriminate against interstate commerce because it applied “evenhandedly to all solid waste processed within the Town.” Town of Clarkstown v. C & A Carbone, Inc., 182 A.D.2d 213, 587 N.Y.S.2d 681, 686 (1992). The Supreme Court reversed.
The Supreme Court first concluded that the ordinance did regulate interstate commerce, rejecting the town‘s contention that its flow control did nothing more than delay the entry of garbage into the stream of interstate commerce until it was safe. The Court noted that Carbone received and processed solid waste from out of state, and the requirement that it route that waste through the town‘s transfer station increased the cost of processing for out-of-state waste generators. More importantly for present purposes, the Court pointed out that the relevant stream of interstate commerce was not the market for solid wastes, but rather the market for solid waste processing and disposal services. “[W]hat makes garbage a profitable business is not its own worth but the fact that its possessor must pay to get rid of it. In other words, the article of commerce is not so much the solid waste itself, but rather the service of processing and disposing of it.” C & A Carbone, —— U.S. at ——, 114 S.Ct. at 1682.
In addition to the effect on the cost to out-of-state possessors of garbage, the Court stressed that “even as to waste originant in Clarkstown, the ordinance prevents everyone except the favored local operator from performing the initial processing step” and thus “deprives out-of-state businesses of access to a local market.” Id. at ——, 114 .S.Ct. at 1681. The conclusion that the ordinance affected interstate commerce was, accordingly, inescapable.
Having concluded that the town‘s ordinance affected interstate commerce, the Court addressed whether its effect was a discriminatory one—whether it operated to favor local commercial interests or disfavor out-of-state ones. This was important because a local measure that discriminates against interstate commerce on its face or in effect can be upheld only if it falls within “a narrow class of cases in which the municipality can demonstrate, under rigorous scrutiny, that it has no other means to advance a legitimate local interest.” Id. at ——, 114 S.Ct. at 1683. Such protectionist measures are thus subjected to heightened scrutiny as compared with local measures that pursue a legitimate local interest evenhandedly and impose only an incidental burden on interstate commerce. Nondiscriminatory measures will be upheld unless the incidental “burden on interstate commerce ... is ‘clearly excessive in relation to the putative local benefits.‘” Id. at ——, 114 S.Ct. at 1682 (quoting Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970)). Because the Court found the “practical effect and design” of the Clarkstown ordinance discriminatory, it held that heightened scrutiny was required and that the Pike balancing test was inappropriate. See id., —— U.S. ——, 114 S.Ct. at 1684.
Clarkstown‘s flow control ordinance regulated the local market for solid waste processing services in a protectionist manner. It allowed only the favored operation to process waste located within the limits of the town and the Court found this “no less discriminatory because in-state or in-town processors are also covered by the prohibition.” Id. at ——, 114 S.Ct. at 1682. In support of these conclusions, the Court cited Dean Milk
The Clarkstown ordinance was found to be “just one more instance of local processing requirements that ... long have [been] held invalid.” Id. at ——, 114 S.Ct. at 1682. Citing a long line of cases in which local processing requirements had been stricken, the Court described the evil there addressed and the evil of Clarkstown‘s flow control ordinance as follows:
The essential vice in laws of this sort is that they bar the import of the processing service. Out-of-state meat inspectors, or shrimp hullers, or milk pasteurizers, are deprived of access to local demand for their services. Put another way, the offending local laws hoard a local resource—be it meat, shrimp, or milk—for the benefit of local businesses that treat it.
The flow control ordinance has the same design and effect. It hoards solid waste, and the demand to get rid of it, for the benefit of the preferred processing facility. The only conceivable distinction from the cases cited above is that the flow control ordinance favors a single local proprietor. But this difference just makes the protectionist effect of the ordinance more acute. In Dean Milk, the local processing requirement at least permitted pasteurizers within five miles of the city to compete. An out-of-state pasteurizer who wanted access to that market might have built a pasteurizing facility within the radius. The flow control ordinance at issue here squelches competition in the waste-pro-cessing service altogether, leaving no room for investment from outside.
—— U.S. at ——, 114 S.Ct. at 1683.
Having determined that heightened scrutiny rather than interest balancing was appropriate, the Court held that Clarkstown had any number of nondiscriminatory alternatives for addressing the health and environmental problems alleged to justify the ordinance in question.” Id. at ——, 114 S.Ct. at 1683. In the course of so holding, the Court recognized that the flow control ordinance was adopted by the town as a means of financing the construction of a needed processing facility. This did not aid the town case, however, because there was a nondiscriminatory alternative available:
Clarkstown maintains that special financing is necessary to ensure the long-term survival of the designated facility. If so, the town may subsidize the facility through general taxes or municipal bonds. But having elected to use the open market to earn revenues for its project, the town may not employ discriminatory regulation to give that project an advantage over rival businesses from out of State.
—— U.S. at ——, 114 S.Ct. at 1684 (citation omitted).
B.
New Jersey‘s flow control regulations accomplish on a district level substantially what Clarkstown‘s flow control ordinance accomplished on a local level. They favor the district‘s designated facilities at the expense of out-of-state providers of processing and disposal services that would otherwise compete for the opportunity to service solid waste generated within the district. Here, as in C & A Carbone and Dean Milk, it is immaterial that the designated facilities are favored over other in-state facilities as well as over out-of-state ones. Similarly, it is irrelevant here, as in Dean Milk, that an out-of-state firm willing to build an in-district facility is entitled to compete to have that facility become a designated facility. Like the governmental entities in the other cases involving local processing requirements, New Jersey is regulating a market which the Commerce Clause intended to be open to
C.
It is true, as the Department stresses, that New Jersey has not placed an absolute bar on the utilization of out-of-state facilities as designated facilities. This, however, does not transform a fundamentally discriminatory scheme into a non-discriminatory one. While out-of-state facilities can compete to become designated facilities, the Department acknowledges that it approves district plans only if they are consistent with the “core” goal of having all of New Jersey‘s solid waste processed and disposed of in New Jersey within the next five years. This can be accomplished, and is being accomplished, only by selecting existing and proposed in-state facilities whenever possible. In short, out-of-state facilities do not compete on anything approaching a level playing field. Wyoming v. Oklahoma, 502 U.S. 437, 455, 112 S.Ct. 789, 801, 117 L.Ed.2d 1 (1992) (“The volume of commerce affected measures only the extent of the discrimination; it is of no relevance to the determination whether a State has discriminated against interstate commerce.“).
In reaching our conclusion that the appropriate Commerce Clause measuring rod is heightened scrutiny, we have not been unmindful of the Department‘s insistence that the public utility aspects of New Jersey‘s solid waste system distinguish the flow control regulations here from the Clarkstown ordinance. In substance, the Department urges that (1) Clarkstown‘s transfer station was not a regulated public utility; (2) New Jersey‘s designated facilities are regulated public utilities; (3) what Atlantic Coast finds objectionable in the waste flow regulations—the monopoly and resulting captive customer base of the designated facilities—is inherent in any public utility regulatory scheme; (4) Commerce Clause analysis in the context of state public utility regulation has consistently employed the balancing test of Pike; and (5) state public utility regulation is upheld where, as here, the burdens on commerce are not disproportionate to the local benefits.
While we agree with the Department‘s first three propositions, we do not read the dormant Commerce Clause jurisprudence to suggest that state utility regulation is to be judged by different standards than other state regulation. When state utility regulation is protectionist, the Supreme Court has employed heightened scrutiny; where it is not, a benefits and burdens analysis has been applied.
In New England Power Co. v. New Hampshire, 455 U.S. 331, 334-36, 102 S.Ct. 1096, 1098-99, 71 L.Ed.2d 188 (1982), the Supreme Court reviewed an order of the New Hampshire Public Utility Commission that required the New England Power Company, a consortium of Connecticut River hydroelectric power companies, to reserve for New Hampshire residents an amount of power equal to the amount generated by the consortium within that state. The Court found that the Commission‘s order was essentially an “exportation ban” that placed a direct and substantial burden on interstate commerce and therefore applied the heightened scruti-
Subsequently, in Arkansas Electric Cooperative Corp. v. Arkansas Public Service Commission, 461 U.S. 375, 103 S.Ct. 1905, 76 L.Ed.2d 1 (1983), in rejecting an outdated Commerce Clause utility test that focused on whether the state was regulating wholesale or retail sales of gas or electricity, the Supreme Court noted: “Our constitutional review of state utility regulation in related contexts has not treated it as a special province insulated from our general Commerce Clause jurisprudence.” Id. at 391, 103 S.Ct. at 1916 (citing New England Power Co., 455 U.S. 331, 102 S.Ct. 1096, 71 L.Ed.2d 188 (1982)). The Court then articulated the Pike balancing test as “[o]ne recent reformulation of the [Court‘s dormant Commerce Clause] test” and, after noting that the regulation at issue did not implicate economic protectionism and would involve only an incidental effect on interstate commerce, applied the balancing test to conclude that the regulation did not violate the Commerce Clause. Id. at 393-95, 102 S.Ct. at 1917-18.18 Although the Arkansas Electric Court did not expressly characterize the regulation before it as non-discriminatory, the Court‘s opinion can only be read as implicitly rejecting application of the heightened scrutiny test because it found no discrimination against interstate commerce.
More recently, the Supreme Court applied the heightened scrutiny test to protectionist state public utility regulation in Wyoming v. Oklahoma, 502 U.S. 437, 112 S.Ct. 789, 117 L.Ed.2d 1 (1992). The state statute there under attack required that all coal-fired electricity plants located within the state of Oklahoma burn at least ten percent Oklahoma mined coal. The Court concluded that the statute discriminated against interstate commerce and struck it down under the dormant Commerce Clause, noting that the question of which level of scrutiny to apply to the protectionist measure was “not a close call.” Id. at 800 n. 12, 112 S.Ct. at 455 n. 12.
Based on this Supreme Court case law, we reject the Department‘s contention that because the waste flow regulations are part of a larger utility regulation system, they are not subject to the heightened scrutiny test despite any discriminatory effect.
We have found only one Supreme Court case in which a Commerce Clause challenge was made based on the exclusionary effects of a monopoly created by a state public utility regulatory scheme. In that case, Panhandle Eastern Pipe Line Co. v. Michigan Public Service Commission, 341 U.S. 329, 71 S.Ct. 777, 95 L.Ed. 993 (1951), the Court sustained the state utility commission‘s refusal to allow an out-of-state natural gas supplier to sell natural gas to industrial consumers in an area where a Michigan public utility had been granted an exclusive certificate of public convenience and necessity. Panhandle is not helpful here, however, because it was decided before Arkansas Electric. As we have noted, the Court there rejected the bright line test of cases like Public Utilities Commission v. Attleboro Steam & Electric Co., 273 U.S. 83, 47 S.Ct. 294, 71 L.Ed. 54 (1927), and Cities Service Gas Co. v. Peerless Oil & Gas Co., 340 U.S. 179, 71 S.Ct. 215, 95 L.Ed. 190 (1950), that regarded state regulation of wholesale utility markets as a direct burden on interstate commerce and state regulation of retail utility markets as “essentially local” in nature and as having only an incidental effect on interstate commerce. The Court in Panhandle Eastern sustained the local gas company‘s monopoly on the authority of Cities Service and the wholesale/retail distinction there reflected.
Now that the Supreme Court has rejected this distinction and made it clear in Arkansas Electric that public utilities regulation is not a special category for Commerce Clause purposes, it well may be that the heightened scrutiny test would be applied to a situation like that presented in Panhandle Eastern
We note that there is a discriminatory aspect to the waste flow control regulations in the context of New Jersey‘s scheme that is not present in a situation like that presented in Panhandle Eastern. A gas or electric utility granted a franchise to serve the needs of all residents within a local area is not ordinarily required to commit to producing its electricity or securing its natural gas supply within that area as well. Normally, both in-state and out-of-state interests may, therefore, compete equally for the franchise award and the creation of a captive consumer base does not, under these circumstances, discriminate against electricity and gas generated or produced out of state.
Under New Jersey‘s system, collectors of waste—those who supply disposal services at the retail level—are required to secure processing and disposal services from the designated, franchised facility and out-of-state disposal firms are thus excluded not only from the market for such services during the franchise period but also from competing for the franchise. The burden on the flow of services from out of state in the situation now before us is thus far greater than the burden on the flow of electricity and gas from out-of-state in the traditional public utility regulation situation.
We thus conclude that the public utility aspects of New Jersey‘s solid waste disposal scheme do not require application of the Pike balancing test.
IV.
As an alternative to its argument that the nature of the New Jersey waste disposal scheme distinguishes it from the ordinance in C & A Carbone and requires that its waste flow regulations be subject to a more lenient level of scrutiny, the Department contends that the nature of the system earns the regulations the protection of the market participant doctrine. The Supreme Court has recognized what amounts to an exception from the restraints of the dormant Commerce Clause for otherwise discriminatory action taken by a governmental entity in its role as a market participant, rather than as a market regulator. The market participant doctrine “differentiates between a State‘s acting in its distinctive governmental capacity, and a State‘s acting in the more general capacity of a market participant.” New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 277, 108 S.Ct. 1803, 1809, 100 L.Ed.2d 302 (1988). When a governmental entity enters the market place in a capacity analogous to that of private market participants and makes decisions analogous to those made by private market participants, its decisions are not subject to dormant Commerce Clause scrutiny. Thus, “‘[t]he Commerce Clause does not prohibit all state action designed to give its residents an advantage in the marketplace, but only action of that description in connection with the State‘s regulation of interstate commerce.‘” Oregon Waste Systems v. Department of Environmental Quality, —— U.S. ——, —— n. 9, 114 S.Ct. 1345, 1354 n. 9, 128 L.Ed.2d 13 (1994) (quoting New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 278, 108 S.Ct. 1803, 1810, 100 L.Ed.2d 302 (1988)).
The Supreme Court has found the market participant doctrine to be applicable in only three cases: Hughes v. Alexandria Scrap, 426 U.S. 794, 808-09, 810, 96 S.Ct. 2488, 2497, 2498, 49 L.Ed.2d 220 (1976) (upholding a program involving payments by a state for auto scrap where the payments were restricted to in-state processors for state-titled vehicles); Reeves, Inc. v. Stake, 447 U.S. 429, 100 S.Ct. 2271, 65 L.Ed.2d 244 (1980) (sustaining a restriction on the sale of government-produced cement to state residents); and White v. Massachusetts Council of Construction Workers, Inc., 460 U.S. 204, 103 S.Ct. 1042, 75 L.Ed.2d 1 (1983) (upholding an executive order requiring that city residents comprise at least one-half the staff of all public works construction projects funded in whole or part by city funds or city-administered federal funds). Two important characteristics tie these three cases together. In each situation the government was participating directly in some aspect of the market as a purchaser, seller, or producer, and the alleged discriminatory effects on the interstate market flowed from these market actions.
In the solid waste arena, the Supreme Court has not yet reviewed a case involving a government-owned waste facility and the Court has consequently left unanswered the question as to what effect government ownership of a waste facility would have on otherwise discriminatory waste measures. See City of Philadelphia v. New Jersey, 437 U.S. at 627 n. 6, 98 S.Ct. at 2537 n. 6 (reserving the question whether a governmental unit who operates a landfill is a market participant); Oregon Waste Systems, —— U.S. at —— n. 9, 114 S.Ct. at 1354 n. 9 (finding impermissibly discriminatory a state statute directing private landfills to pass on a mandated surcharge on out-of-state generated waste and declining to address the issue whether Oregon could accomplish its “cost-spreading” through market participation). This court, however, has applied the market participant doctrine in the context of a publicly owned waste disposal facility. In Swin Resource Systems, Inc. v. Lycoming County, 883 F.2d 245, 250 (3d Cir.1989), cert. denied, 493 U.S. 1077, 110 S.Ct. 1127, 107 L.Ed.2d 1033 (1990), we held that the local government did not violate the dormant Commerce Clause by charging at the county-operated landfill a higher disposal fee for waste generated outside a local area than for locally-generated waste, stating:
If Maryland may decree that only those with Maryland auto hulks will receive state bounties, it would seem that Lycoming can similarly decree that only local trash will be disposed of in its landfill on favorable terms. If South Dakota may give preference to local concrete buyers when a severe shortage makes that resource scarce, it would seem that Lycoming may similarly give preference to local garbage (and hence local garbage-producing residents) when a shortage of disposal sites makes landfills scarce. And if Boston may limit jobs to local residents, we see no reason why Lycoming may not limit preferential use of its landfill to local garbage (and hence local garbage-producing residents).
Swin Resource Systems, 883 F.2d at 250 (footnote omitted). We held that the county, rather than regulating the waste disposal market, was “deciding the conditions under which [a private waste processor] could use [the public] landfill.” Id. at 249. The county was simply operating a government facility in a manner that favored its own citizens over others, and its activities did not have “downstream” effects.19
The Department argues that the market participant doctrine is applicable here because New Jersey participates (or directs local government entities to participate) in the waste disposal market as sellers and purchasers of waste disposal services and disposal capacity. The districts “sell” waste disposal services, according to the Department, through the designated disposal facilities. Where a district has opted not to own or operate the designated facilities directly, it “purchases” these services for “resale” by contracting with private facilities for the provision of waste disposal services. Thus, the Department maintains, the waste flow regulations simply represent a means by which the state manages the districts’ market par-
While we do not quarrel with the Department‘s characterization of the districts’ activities as involving purchases and sales of disposal service and capacity, we cannot agree with its conclusion that the waste flow regulations, therefore, cannot be violative of the dormant Commerce Clause. When a public entity participates in a market, it may sell and buy what it chooses, to or from whom it chooses, on terms of its choice; its market participation does not, however, confer upon it the right to use its regulatory power to control the actions of others in that market. In Wyoming v. Oklahoma, 502 U.S. 437, 112 S.Ct. 789, 117 L.Ed.2d 1 (1992), for example, an Oklahoma statute required all electrical utilities in the state, including state-owned utilities, to burn a mixture of coal containing at least ten percent Oklahoma-mined coal. The Court recognized that Oklahoma could legitimately impose this restriction on state-owned utilities because, as a market participant, it was entitled to make its own decisions regarding energy source purchases. That fact did not, however, immunize from dormant Commerce Clause review its attempt to regulate the behavior of others in the market. As we have earlier noted, the Court applied heightened scrutiny and found the statute invalid.20 Oklahoma‘s participation in the market as an electricity producer did not permit it to regulate in a discriminatory manner privately owned utilities in the same market.
Under New Jersey‘s solid waste disposal program, the districts are doing more than making choices about what waste they will accept even in those instances where the district owns the designated facility. The waste flow regulations purport to control the market activities of private market participants. Those regulations do not concern only the manner of operation of the government-owned or government-managed designated disposal facilities; they require everyone involved in waste collection and transportation to bring all waste collected in the district to the designated facilities for processing and disposal. They do not merely determine the manner or conditions under which the government will provide a service, they require all participants in the market to purchase the government service—even when a better price can be obtained on the open market. New Jersey‘s waste flow control regulations were thus promulgated by it in its role as a market regulator, not in its capacity as a market participant. As a result, those regulations are not immune from review under the Commerce Clause.
V.
Because we conclude that the waste flow regulations discriminate against interstate commerce on their face or in effect, and that they are not protected from dormant Commerce Clause scrutiny under the market participant exception, the only remaining question is whether the regulations can survive the heightened scrutiny test. “[O]nce a state law is shown to discriminate against interstate commerce either on its face or in practical effect, the burden falls on the State to demonstrate both that the statute serves a legitimate local purpose, and that this purpose could not be served as well by available nondiscriminatory means.” Maine v. Taylor, 477 U.S. 131, 138, 106 S.Ct. 2440, 2447, 91 L.Ed.2d 110 (1986) (internal quotations and citation omitted). While Atlantic Coast urges us to decide whether the Department has so demonstrated, we decline to do so.
When the district court decided this case, C & A Carbone had not been decided and J. Filiberto Sanitation v. Department of Environmental Protection, 857 F.2d 913 (3d Cir.1988), was the law of this circuit. Understandably relying on Filiberto, the district court balanced the benefits to New Jersey against the burden on interstate commerce under Pike. It therefore had no occasion to consider whether the Department had ac-
The parties compiled a very substantial record in the district court, much of which consisted of live testimony the district court had the benefit of hearing. Based on that record, it is not difficult to believe the Department and the amici when they insist that New Jersey has one of the most serious and complex solid waste problems in the country. At the same time, it is apparent from the record that the feasibility and effectiveness of alternative measures pose technologically and economically complex issues. While these issues have been touched upon in the briefing before us, it is fair to say that they have not been the focus of the parties’ efforts on this appeal.21 In this context, we believe that this court, the parties, and the public deserve the benefit of the district court‘s views before this controversy is finally resolved.
We are mindful of the fact that New Jersey has vowed not to abandon its present system until compelled to do so and of Atlantic Coast‘s contention that it suffers more irreparable injury with each passing month. We note, however, that Atlantic Coast is free at any time to apply again for pendente lite relief. The district court‘s prior decision to deny such relief was based primarily on its conclusion that Atlantic Coast had failed to demonstrate a likelihood of success on the merits of its challenge. This conclusion was based in turn on its view that the more lenient Pike test was the applicable one. After C & A Carbone, the likelihood of success issue is a materially different one from that which the district court previously addressed.
VI.
Because the waste flow regulations discriminate against interstate commerce by restricting the access of out-of-state facilities to waste processing and disposal service markets, they can be upheld only if they can survive the heightened scrutiny required by C & A Carbone. Because the district court analyzed the waste flow regulations under the more lenient Pike balancing test, we will remand for application of the appropriate test. For the foregoing reasons, the district court‘s judgment in favor of the Department will be reversed and this case will be remanded for further proceeding consistent with this opinion.
Before: SLOVITER, Chief Judge, BECKER, STAPLETON, MANSMANN, HUTCHINSON, SCIRICA, COWEN, NYGAARD, ALITO, ROTH, LEWIS, McKEE, and SAROKIN, Circuit Judges.
SUR PETITION FOR REHEARING
March 28, 1995
The petition for rehearing filed by appellee, Commissioner, NJ Dept. of Env. Protection having been submitted to the judges who participated in the decision of this Court and to all the other available circuit judges of the circuit in regular active service, and no judge who concurred in the decision having asked for rehearing, and a majority of the circuit judges in regular active service not having voted for rehearing by the court in banc, the petition for rehearing is denied.
Notes
“The Department considers the use of out-of-state disposal facilities to be inappropriate as a long-range solid waste management option.... The uncertainty inherent in use of out-of-state facilities conflicts with the philosophy of the Solid Waste Management Act, which is that districts should be able to plan for and predict the availability of disposal capacity to meet their needs. The Department has allowed several districts to rely upon out-of-state facilities, as a short-term option, in cases where districts have not been able to secure interdistrict agreements for access to in-state capacity. However, it is critical that districts which do rely on out-of-state disposal capacity, secure enforceable assurances from those facilities in order to ensure continued use until in-state facilities can be brought on line. It is equally critical that those districts develop an in-state solution as quickly as practicable.”