Let’s say a city or county hires several contractors to perform comparable but potentially overlapping services within the locale. Easy enough. Going a step further, the local officials get all the companies to agree that when a dispute arises among them, the feuding parties must resolve their differences with no local government time, expense or other involvement. Wishful thinking? A recent federal appeals court decision illustrates that the concept is not farfetched.
In 2013, the city of San Angelo, Texas, issued Texas Disposal Systems (TDS) a solid waste permit allowing it to transport and dispose of garbage, trash and debris within city limits, and to render "any service that is allowed by state law or city ordinance that does not conflict with the City's contract with Republic [Waste Services] ... and the exclusive rights granted by that contract." Ordinarily, if a hauler enters a market where similar companies are already working, such wording would not be unusual. However, when TDS got its permit, the city had no contract with Republic, but apparently something was in the works.
Indeed, Republic and the city eventually entered into an agreement effective August 1, 2014. Under the contract, Republic received the exclusive right to collect, transport and dispose of all residential and non-residential solid waste, including construction and demolition waste. Notably, the contract also contained an unusual city-friendly provision: Republic, not the city, was responsible for enforcing its exclusivity in the event of legal proceedings.
This novel arrangement resembles a proceeding common in both state and federal courts. An individual or entity (stakeholder) can compel other parties to litigate against each other when these parties each claim property in the stakeholder’s possession. Take this example: an expert conservator restores a valuable painting, but then several individuals, each claiming to be the real owner, demand that the conservator hand over the finished work. If the conservator gives the painting to the wrong claimant, or fails to give the painting to anyone, he or she could be sued by the disappointed claimants. The conservator’s recourse is to file suit against all claimants and force them to litigate against each other, leaving a court to decide who is the true owner. Here, the city had an even better deal. It didn’t have to litigate; Republic agreed in advance keep its court battles with TDS strictly between the two of them.
Sometime after the contract between the city and Republic went into effect, TDS began to solicit and provide solid waste disposal services to various local construction projects. In response, Republic sent TDS a cease-and-desist letter stating that its own contract with the city precluded TDS from signing construction waste disposal contracts with city residents and businesses. For its part, TDS acknowledged the contract between Republic and the city but contended that its terms concerning solid waste management services for construction projects were unenforceable due to a conflict with state law.
Republic disagreed and sued TDS in federal district court alleging unlawful interference with an existing contract. Republic also sought: a declaratory judgment as to the validity of its exclusive contract with the city; an injunction against TDS’s continued service to construction projects; and money damages. TDS filed a motion to dismiss the lawsuit outright, again arguing that state law precluded the city from entering into exclusive contracts for the hauling and disposal of construction debris. With no key facts in dispute, Republic filed a motion for summary judgment on its declaratory judgment claim and as to liability on its tortious interference claim.
After conducting a hearing on both motions, the district judge granted TDS’s motion to dismiss and denied Republic's motion for partial summary judgment. In its order, the court reasoned that state law showed the legislature's "clear intent to take away the City's inherent authority to grant exclusive [contract rights] in the specific instance of 'contracts to provide temporary solid waste disposal services to a construction project.' "
On appeal, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit reversed the lower court rulings and remanded the case for further proceedings. The panel agreed with Republic’s argument that the district judge misread the state law in concluding that lawmakers clearly intended to annul a city’s authority to enter into an exclusive contract for solid waste disposal services to a construction project. The case now returns to the lower court for a hearing on Republic’s injunction request and its claim for damages.
“This is not to say that the legislature could not limit the City's home-rule authority to enter into an exclusive contract for the disposal of construction waste if it chose to do so with unmistakable clarity,” the appellate panel stated. “But if the legislature were to limit the City's authority in this respect, it would do so independently of any general grants of authority bestowed by [state law] since a home-rule city does not look to the [state law] or other legislative acts for grants of power, only for limitations on its power.”
Republic Waste Services of Texas, Ltd. v. Texas Disposal Systems, Inc., No. 15-11035 (5th Cir. Dec. 15, 2016)
Barry Shanoff is a Bethesda, Md., attorney and general counsel of the Solid Waste Association of North America.