The opinion of the court was delivered by: TRAGER
This case arises out of New York City's effort to rid the City's commercial carting industry of "organized crime's corrupting influence." Local Law 42 of 1996, Section 1. To effectuate this aim, Local Law 42 created a new regulatory agency, the New York Trade Waste Commission ("Commission")
and established a new structure for licensing and overseeing commercial carters in order to loosen the mob-run cartel's grip on the industry. As an immediate remedy to years of anti-competitive contracting practices, Local Law 42 rendered all current contracts terminable at will by either the customer or the carter upon thirty days notice, unless the carter requested and the Commission granted a waiver of this thirty day termination requirement. See Local Law 42 § 11(iii). It should be noted that even if a carter receives such a waiver, no contract that was in effect prior to the effective date of the law (June 3, 1996) can extend beyond two years after the effective date of the law (June 3, 1998). See Local Law 42 § 11(I). This waiver provision expressly empowers the Commission to determine "in its discretion whether a waiver of the termination requirement would be consistent with the purposes of this act." Local Law 42 § 11(iii).
In order for the Commission to make such a determination, the waiver application requires, inter alia, information about a company's and its principals' histories of criminal and administrative violations, as well as a statement explaining why granting a "waiver would not be inconsistent with the purposes of Local Law 42." Documentary Record Vol. II, Exh. G., Application for Waiver. In making its decisions, the Commission may "'consider background information' concerning the business, its principals and the full circumstances surrounding the contract's negotiation." Sanitation and Recycling Indus., Inc., v. City of New York, 107 F.3d 985, 991-92 (2d Cir. 1997) (hereinafter SRI) (quoting Local Law 42 § 11(iii)) (upholding Local Law 42 on a facial challenge to its constitutionality).
At a public meeting on January 17, 1997, the Commission announced the granting of waivers to fifty-five carting companies. Three of these companies are "nationals," new to the New York City market, and the remaining 52 are local carting companies. See Documentary Record Vol. II, Exh. J, Tr. of Commission Mtg. dated 1/17/96 [sic] at 50-52.
At the meeting, Chair Randy Mastro articulated the bases for denying waivers to other carters. According to Mastro, the Commission denied waivers where the applicant had a criminal history or pending criminal charges; a prominent role in an indicted trade association; a civil enforcement history for violations that resulted in findings, fines, sanctions or other remediation; customer complaints; evidence of direct participation in the cartel such as payoffs and route purchases; evidence that the carter submitted false or misleading information to the Commission; or a past history of administrative violations. See id. at 25-35.
History of this Litigation
Plaintiffs here are seven commercial carters whose waiver applications were denied by the Commission. They moved by order to show cause for a temporary restraining order and preliminary injunction to prevent defendants from notifying their customers that their contracts would be terminable on thirty days written notice. Plaintiffs claimed that by denying their waivers the Commission violated the Equal Protection Clause, the Due Process Clause, the Contracts Clause, the Takings Clause, their associational rights under the First Amendment, and Article 78 of New York Civil Practice Law. Defendants moved for summary judgment. Relying on the SRI decision by the Court of Appeals for the Second Circuit, summary judgment was granted against all plaintiffs on their federal constitutional claims, although not on the state law Article 78 claim.
The Article 78 claim rested on plaintiffs' allegations that plaintiffs' applications had been denied, while similarly-situated applicants had received waivers. In order to determine whether there was any substance to this claim, in this court's view plaintiffs needed to have access to the files of those carters to whom waivers had been granted. This would have been an enormous burden on both the court and the Commission. Accordingly, with the approval of all parties, an experimental method was suggested by the court that would permit plaintiffs to view the applications of ten carters to whom waivers were granted. The names of the fifty-two local carters who had been granted waivers at the public hearing of the Commission were selected by lot to become a comparison group for purposes of the Article 78 review. After ensuring that none of the information contained in the files of the chosen ten carters jeopardized any pending criminal investigations against cartel members, these waiver submissions were furnished to plaintiffs.
The ten carters first selected to become part of the comparison group were: Amro Carting Corp. ("Amro"), Argento Rubbish Removal Corp. ("Argento"), Boro-wide Recycling Corp. ("Boro-wide"), Brown Waste Co. Inc. ("Brown"), Executive Carting Corp. ("Executive"), Meeker Avenue Space Carting Corp. ("Meeker"), Midland Carting Corp. ("Midland"), Mr. T Carting Corp. ("Mr. T"), United Sanitation Inc. ("United") and William Tedesco ("Tedesco"). See Ltr. to Ct. from Chad Vignola, Deputy Commissioner of the Trade Waste Commission dated 4/16/97. However, a series of vitriolic debates about the efficacy of the comparison group soon erupted.
Because Meeker had not received a waiver, a new carting company, Hollywood Carting Corp., was selected to be the substitute tenth carter in the comparison group. However, on May 15, 1997 Mr. Vignola wrote that "in light of recent allegations made by Mr. Walpin concerning Hollywood and its truthfulness on its waiver application and other information obtained by the Commission's staff, the waiver application of Hollywood (and its affiliated company, Silver Star Carting Corporation) is under reexamination." Ltr. to Ct. from Vignola dated 5/15/97. Thereafter, another substitute tenth carter was selected, Rotuno Bros. Inc. See id. Plaintiffs again took issue with this substitution, arguing that "essentially, what the Commission is doing is ejecting carters from the Comparison Group whenever we point out facts which make their continued presence in the Comparison Group probative of disparate treatment." Ltr. to Ct. from Walpin dated 5/19/97 at 2.
Nonetheless, the comparison group experiment continued in spite of these criticisms, and on July 16, 1997 oral argument was heard on plaintiffs' Article 78 claims. Summary judgment was granted against plaintiffs Lomangino, Chelsea, East End, M & M, and C.T. Carting Corp. because the record revealed that the waiver applications of these carters showed significantly more serious infractions, both in number and in kind, than those carters ...