City Assumes Collection Contracts Secure? crimiate

A city that undertakes municipal garbage collection and assesses its residents for the service is not required to compensate private haulers who lose business as a result, according to a ruling by the Utah Supreme Court.

John and Fae Bagford own a garbage collection and disposal business in Sanpete County, Utah. From 1984 to 1989, they and other haulers provided garbage collection services to residential and commercial customers in Ephraim City and other parts of the county.

The Bagfords had oral agreements with their customers for weekly collection throughout the year, but only charged them for actual pickups. Thus, customers who left town for a extended time period or, otherwise, did not require the Bagfords' services, were not obliged to pay.

In 1989, Ephraim City initiated its own municipal waste collection system. Officials created a citizens' ad hoc committee to study the issue, and eventually accepted the committee's recommendation to contract with a private service provider for residential garbage collection.

After soliciting proposals, officials awarded a city-wide residential service contract to the successful bidder. The Bagfords and several other hauling firms lost the job.

In October 1989, Ephraim City adopted an ordinance which provides: "All residences ..., who are charged residential electrical service rates, will have garbage collection as arranged by Ephraim City."

The city also adopted a monthly garbage assessment for each residence. The charges are added to the city's residential billing for municipal electric services, and must be paid even if the resident does not use the city-provided garbage collection.

When the new system began, the Bagfords had 176 residential customers in the city. To avoid paying twice for garbage collection, these customers terminated their arrangements with the Bagfords and began using the city's contractor. Unaffected by the plan, the Bagfords' commercial customers remained with the company.

The Bagfords filed suit against the city in state court charging that the ordinance and the new system amounted to an unconstitutional "taking of property" and seeking damages for their economic loss. Article I, section 22 of the Utah Constitution provides, "Private property shall not be taken or damaged for public use without just compensation."

The trial court ruled that the Bagfords' loss of business due to competition from the city was not the kind of property interest protected under the state constitution's "taking" clause.

Moreover, the court said, the city had not prevented the Bagfords from competing for the city residents' business.

On appeal, the Utah Supreme Court ruled that, under Article I, section 22, the Bagfords could recoup their losses only if government action had taken or damaged their "protectable interest" in property.

The court noted that the state constitution protects the same types of private property as are protected under the U.S. Constitution's Fifth Amendment.

Such property, said the justices, includes real property, as well as intangible and incorporeal property rights such as contracts and franchises.

However, not all contract rights are protectable. "[A] contract must establish rights more substantial in nature than a mere unilateral expectation of continued rights and benefits," said Associate Chief Justice Stewart, writing for a unanimous court.

"Absent an exclusive franchise or the equivalent ..., no vested, legally enforceable interest arises, and consequently, there is no property that can provide the basis for compensation....

"Thus, a contract that is terminable at the will of either party does not by itself give rise to a protectable property interest because the mere expectation of benefits under such a contract does not give the promisor a legally enforceable right against a promisee to provide future service and therefore does not by itself provide a basis for compensation for loss of future business."

As the Utah high court saw it, the Bagfords' agreements with their customers were simply garbage collection offers that the customers could accept or reject each week.

The city had not granted the Bagfords either exclusive or nonexclusive rights to collect garbage from city residents indefinitely.

The Bagfords had "only [an] expectation of being able to continue their business [in Ephraim City], not ... a legal right to do so," said the court. Thus, "their investment of money in [such] expectation ..., is not a protectable property interest."

Citing similar rulings by courts elsewhere, the court said that even where a municipal service puts a private business at a severe competitive disadvantage, the result does not amount to a compensable taking of the company's property.