Exclusive Waste Hauling Contracts Are Within State-Action Exception
ACTIVE DISPOSAL v. DARIEN (March 14, 2011)
Many Illinois municipalities have exclusive contracts for waste removal. These contracts limit the choices that consumers of waste removal services have and prevent other waste removal providers from competing for their business. Groups of waste removal companies and businesses wanting more choices banded together and brought suit against these municipalities, alleging violations of federal antitrust laws. Judge Kennelly (N.D. Ill.) dismissed the suit, concluding that the municipalities' actions were protected by the state-action exception to federal antitrust law. The plaintiffs appeal.
In their opinion, Circuit Judges Manion and Williams and District Judge Clevert affirmed. The Court first had to determine the provenance of the municipalities' power to contract with waste haulers. In the Illinois statute governing municipalities’ powers, § 1 (titled "Contracts") grants the power to make contracts relating to the "disposition . . . of garbage." Section 5 (titled "Method Of Disposition") grants the power to dictate an exclusive method for the "disposition of garbage," and adds that items intended to be recycled are not garbage. Plaintiffs argued that the municipality's power to enter into exclusive waste hauling contracts arose from § 5 and that the recycling exclusion prevented an exclusive contract when the waste material included recyclables. The Court rejected that argument for several reasons: a) § 5 never mentions contracts, b) the term "exclusive" refers to disposal methods , not contracts, and c) the titles of the sections are inconsistent with plaintiffs' argument. The Court also rejected plaintiffs' argument that the recycling exclusion in § 5 limited the power granted in § 1. Applying standard rules of statutory construction, the Court concluded that plaintiffs' proposal would lead to confusion, create anomalies, and render certain statutory terms superfluous. Having decided that § 1 covered the municipalities' contracting power, the Court applied the state-action doctrine test. Under that test, the Court asks if the statute authorizes the conduct and whether the anti-competitive effects were foreseeable. Both questions must be answered affirmatively for the state-action exemption to apply. Here, the Court already answered the first question affirmatively -- § 1 authorizes the garbage collection contracts. The Court also answered the second question in the affirmative. The power to contract implies a power to exclusively contract. Garbage collection is a traditional municipal concern. When a legislature grants contract authority to a municipality, it is certainly foreseeable that a municipality will enter into an exclusive contract that will affect competition. The state-action doctrine therefore applies.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select