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SANITATION & RECYCLING INDUS. v. CITY OF NEW YORK

June 26, 1996

SANITATION AND RECYCLING INDUSTRY, INC., et al., Plaintiffs, against CITY OF NEW YORK, Defendant.


The opinion of the court was delivered by: POLLACK

 The police powers of local governments over the waste collection industry is by now an unexceptional element of municipal governance. Control over the regulation of garbage collection is a classic example of municipal police powers reserved to the state and local governments. Courts have upheld the authority of local governments to control local garbage collection in countless cases.

 This suit relates to the licensed business of carting companies who remove trade waste in the City of New York under private contracts with business establishments. The plaintiffs are licensed carters of trade waste and sue here for an injunction against the City which, on June 3, 1996, enacted a new licensing law which Plaintiffs allege contains certain facially unconstitutional provisions. *fn1" This Court denied an application for a temporary restraining order on the ground that Plaintiffs did not establish irreparable damage. A hearing for a preliminary injunction was set for June 25, 1996. The City has countered with a motion for summary judgment in its favor, returnable at the same time. The facts are substantially undisputed.

 Carters of trade waste, up until June 3, 1996, were licensed by the City's Department of Consumer Affairs ("DCA") to conduct such business and generally did so under private contracts with business establishments. Local Law 42 has turned over to a newly created agency, the New York City Trade Waste Commission ("the Commission"), the responsibility "for the licensing, registration of businesses that remove, collect or dispose of trade waste." (N.Y.C. Admin. Code § 16-503) ("Code.") The statute provides that "it shall be unlawful for any person to operate a business for the purpose of the collection of trade waste . . . without having first obtained a license therefor from the Commission," (Code § 16-505(a).), which license "shall be valid for a period of two years." (Code § 16-505(a).)

 The new statute authorizes the Commission "after notice and the opportunity to be heard," to "refuse to issue a license to an applicant who lacks good character, honesty and integrity." (Code § 16-509(a).) Likewise, "after due notice and opportunity to be heard," the Commission may revoke or suspend a license or registration." (Code § 16-513.)

 Local Law 42 provides that it "shall take effect immediately." (Local Law 42 § 14.) It also provides, however, that if a business required by the Local Law to possess a license issued by the Commission possessed a license issued under prior law by the DCA, such license shall "remain valid and upon payment of the renewal fee or fee therefor be deemed extended" pending further action or rule making by the commission." Id.

 The background for the creation of the new Commission and the need for reexamination of the fitness of the existing carter licensees is apparent from the history of the business and the City Council's legislative findings. Those findings state in relevant part:

 
The council hereby finds that the carting industry has been corruptly influenced by organized crime for more than four decades; that organized crime's corrupting influence over the industry has fostered and sustained a cartel in which carters do not compete for customers and in which customers are compelled to enter into long-term contracts with onerous terms, including "evergreen" clauses; that the anti-competitive effects of this cartel have resulted, with few exceptions in the maximum rates established by the department of consumer affairs effectively being the only rate available to businesses; that businesses often pay substantively higher amounts than allowed under the maximum rate because carters improperly charge or overcharge for more waste than they actually remove; that organized crime's corrupting influence has resulted in numerous crimes and wrongful acts, including physical violence, threats of violence, and property damage to both customers and competing carting firms; that a situation in which New York City businesses, both large and small, must pay a "mob tax" in order to provide for removal of trade waste is harmful to the growth and prosperity of the local economy.
 
The council further finds that recent indictments have disclosed the pervasive nature of the problem, the structure of the cartel, and the corruption it furthers through the activities of individual carters and trade associations, and that law enforcement must be coupled with new and expanded regulatory efforts on the city's part. The council further finds that despite the efforts of city agencies to regulate the industry under existing laws and regulations, private carting companies have continued to engage in various illegal and anti-competitive practices. The council further finds that unscrupulous businesses in the industry have taken advantage of the absence of an effective regulatory scheme to engage in fraudulent conduct, such as the creation of a lucrative illegal landfill, and to actively discourage new firms from entering the industry.
 
The council therefore finds and declares that in order to provide for the more efficient and lawful conduct of businesses in the carting industry and to protect the public interest, it is necessary to establish a New York City trade waste commission that shall be responsible for the licensing and regulation of businesses in the carting industry.
 
Enactment of this chapter is intended to enhance the city's ability to address organized crime corruption, to protect businesses who utilize private carting industry with the aim of reducing consumer prices.

 (Local Law 42 § 1).

 Plaintiffs' Amended Complaint ("Amend. Compl."), filed on June 11, 1996, challenges numerous provisions of the new legislation, and seeks relief on nine claims. Plaintiffs' claims fall generally into three categories. The first category addresses four provisions of the law enacted to cure the past effects of anti-competitive practices, and eliminate those practices in the future by incorporating term limitations into all contracts between carters and their customers. Such provisions include: a limitation on all trade waste collection contracts to a maximum term of two years (Local Law 42, §§ 11(i) & (ii)); a termination provision effective 30 days after the law's effective date, permitting either party to terminate a contract upon 30 days written notice unless the carter has either received a new license from the Commission or applied to the Commission for a waiver (Local Law 42 § 11(iii)) *fn2" ; a provision allowing a customer to terminate any carting contracts which have been assigned to another carter on 30 days notice (Code § 16-520(e)(ii)); and a provision authorizing the termination of existing carting contracts in special pilot districts to be established in the future (Code § § 16-504(h), 16-523, 16-524). Plaintiffs allege that these provisions violate the Contract, Takings and Due Process clauses of the Federal Constitution. (Amend. Compl. Claims 14.)

 The second group of challenges address those provisions of the law which grant the Commission the discretionary authority to: (1) require that a licensee enter into a contract with an independent auditor (Code § 16-511) and, (2) waive that provision of the law that renders existing contracts with carters who have not received a new license from the Commission, terminable upon thirty days notice. (Local Law 42; 11(iii).) Plaintiffs allege that these provisions violate the Due Process clauses of the United States Constitution because they do not provide for notice and an opportunity to be heard before the Commission takes action, and are impermissibly vague. (Amend. Compl. Claims 2, 7).

 The final group of challenges address those provisions of the law that specify the type of information that the Commission may consider when making licensing determinations. Such provisions include certain business and financial disclosure requirements, and allow for consideration of a license applicant's membership in an indicted trade association or knowing association with criminals or members of organized crime. (Code §§ 16-508, 16-509, 16-520.) Plaintiffs claim that these provisions violate their constitutional right to association and the right to privacy. (Amend. Compl. Claims 5, 6, 8, 9).

 Discussion

 A few preliminary points are in order. As regulation of the garbage collection industry is one of the traditional police powers, the Court is required to "respect the wide discretion on the part of the legislature in determining what is and what is not necessary." El Paso v. Simmons, 379 U.S. 497, 508-9, 13 L. Ed. 2d 446, 85 S. Ct. 577 (1964), reh. denied, 380 U.S. 929 (1965) (citations omitted.) Accordingly, "there is a strong presumption of validity of a statute passed under a state or local government's police power," Richmond Boro Gun Club, Inc. v. City of New York, 896 F. Supp. 276, 1995 WL 422014 at *2 (E.D.N.Y.), and parties attacking such statutes on constitutional grounds carry a heavy burden. In the present case, the Court notes that Local Law 42 is geared towards enabling the City to inquire into the fitness of license applicants to participate in the waste collection industry. As such, it is entitled to the deference traditionally given to exercises of a local government's police power.

 In order to obtain a preliminary injunction, the moving party has the burden of showing: (1) irreparable harm, and (2) either a) a likelihood of success on the merits or b) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting preliminary relief. Tough Traveler, Ltd. v. Outbound Products, 60 F.3d 964, 967 (2d Cir. 1995). Where a party seeks to stay governmental action taken in the public interest pursuant to a statutory or regulatory scheme on the ground that it is unconstitutional, the two prongs of the threshold showing required for injunctive relief merge so that, in order to show irreparable injury, Plaintiffs must show a likelihood of success on the merits. Turley v. New York City Police Dep't., 1996 U.S. Dist. LEXIS 2582, 93 Civ. 8748, 1996 WL 93726 at *3 (S.D.N.Y.). Since Defendant has moved for summary judgment to dismiss the Amended Complaint and there are no genuine issues of fact in dispute, the Court will address the merits of Plaintiffs claims directly.

 Plaintiffs have brought a facial challenge to the statute. Outside of the First Amendment context, "facial challenges to legislation are generally disfavored." FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 223, 107 L. Ed. 2d 603, 110 S. Ct. 596 (1990). There are only two ways that a party making a facial challenge to a statute can succeed:

 
To prevail on a facial attack the plaintiff must demonstrate that the challenged law either could never be applied in a valid manner or that even though it may be validly applied to the plaintiff and others, it nevertheless is so broad that it may inhibit the constitutionally protected speech of third parties.

 New York State Club Ass'n v. City of New York, 487 U.S. 1, 11, 101 L. Ed. 2d 1, 108 S. Ct. 2225 (1988) (citations omitted).

 With these principles in mind, the Court will address each of Plaintiffs' contentions in turn.

 I. Contract Clause

 Plaintiffs challenge four provisions of Local Law 42 as violations of the Contract Clause of the United States Constitution: (1) the limitation of all carting contracts, including existing contracts, to a maximum term of two years, (2) the authorization of either party to a carting contract to terminate that contract upon 30 days written notice if, by 30 days after the effective date of the law, the carter has neither received a new license from the Commission or applied to the Commission for a waiver, (3) the authorization of customers to terminate, upon 30 days notice, a carting contract which has been assigned to another carter, and (4) the authorization for termination, in special pilot districts, of carting contracts with licensees other than those licensees selected by the Commission to provide service in those districts. *fn3"

 Plaintiffs argue that these provisions violate the Contract Clause because they "either severely impair or eradicate plaintiffs' vested rights in existing contracts." Defendant responds that New York City's interest in remedying organized crime's "corrupt influence" over the private carting industry justifies the impairment, if any, that the new statute may cause to Plaintiffs' contractual relationships.

 The Contract Clause provides that "no State shall . . . pass any . . . law impairing the Obligation of Contracts. . . ." U.S. Const., Art. I, 10, cl. 1. Although the language of the Contract Clause is facially absolute, this prohibition must be accommodated to the inherent police power of the State "to safeguard the vital interests of its people." Home Building & Loan Ass'n v. Blaisdell, 290 U.S. 398, 434, 78 L. Ed. 413, 54 S. Ct. 231 (1934). The Supreme Court "has long recognized that a statute does not violate the Contract Clause simply because it has the effect of restricting, or even barring altogether, the performance of duties created by contracts entered into prior to its enactment. . . . The Contract Clause does not deprive the States of their 'broad power to adopt general regulatory measures without being concerned that private contracts will be impaired, or even destroyed, as a result.'" Exxon Corporation v. Eagerton, 462 U.S. 176, 190, 76 L. Ed. 2d 497, 103 S. Ct. 2296 (1983) (citations omitted).

 In Energy Reserves Group, Inc. v. Kansas Power and Light Company, 459 U.S. 400, 411-412, 74 L. Ed. 2d 569, 103 S. Ct. 697 (1983), the Supreme Court established the modern standard for determining if a statute unconstitutionally impairs existing contracts:

 Id. (citations omitted).

 Under the Energy Reserves Group test, the first question is thus whether there is a substantial impairment of plaintiffs contractual relationships. After analyzing this first question, the Court cannot discount the possibility that the new law will cause substantial changes in contractual relationships. Contract duration will certainly be shortened in many cases and, in other cases, customers may be provided with the right to terminate early. However, this conclusion is tempered by the Supreme Court's sliding scale, which provides that although the level of scrutiny given the law varies directly with the severity of the impairment of existing contracts, it varies inversely with the degree of prior regulation in a particular industry. See Chicago Board of Realtors, Inc. v. City of Chicago, 819 F.2d 732, 736 (7th Cir. 1987).

 As discussed above, the carter-customer relationship is conditioned by the heavily-regulated nature of the industry. See Presidents' Council of Trade Waste Associations, Inc. v. City of New York, 142 Misc. 2d 135, 536 N.Y.S.2d 656, 660 (Supp. Ct. 1988) ("The waste disposal industry is a regulated industry, subject to governmental regulations and licensing provisions"); USA Recycling, Inc. v. Town of Babylon, 66 F.3d 1272, 1275 (2d Cir. 1995), cert. denied, 134 L. Ed. 2d 544, 116 S. Ct. 1419 (1996) ("For ninety years, it has been settled law that garbage collection and disposal is a core function of local government in the United States. At ...


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