On May 2, the U.S. Court of Appeals for the Ninth Circuit decided the case of Daniels Sharpsmart, Inc. v. Smith, Director of the California Department of Public Health. The Ninth Circuit affirmed the decision of the U.S. District Court for the Eastern District to issue a preliminary injunction enjoining state health officials from enforcing, on an extraterritorial basis, provisions of the California Medical Waste Management Act (MWMA) against Daniels Sharpsmart, Inc., an Illinois-based corporation that “designs, develops, manufactures, markets and sells reusable sharps container systems for the disposal of needle-inclusive biohazardous medical products” (Daniels).
Daniels sells these items in California, and also handles the transport and treatment of the resulting medical waste. In California, this waste is handled by Daniels’ waste management and transfer facility in Fresno, CA, which is subject to the MWMA, and has received an operating permit from the California Department of Public Health (Department). This permit requires this facility to comply with all applicable provisions of the MWMA.
The MWMA generally requires that all medical waste be disposed of by incineration. However, in 2014, there were no incinerators available to treat Daniels’ biohazardous medical waste, and Daniels transported this waste to other states for disposal. Daniels agreed to adhere to the waste management provisions of Kentucky and Indiana, which did not require incineration. In a three month period in 2014, Daniels transported 320,000 pounds of medical waste to facilities in Kentucky and Indiana, which was a cost-effective option for Daniels.
Following two inspections of its Fresno facility, the Department advised Daniels that any waste originating in California must be incinerated even if the law of another state allowed an alternative method of disposal. Daniels protested, but the Department issued a notice of violation and imposed a fine of $618,000 for 618 violation of the MWMA.
To avoid further penalties, Daniels transported its waste to out-of-state incinerators, but at a significantly higher cost. Daniels then filed a complaint in federal court, alleging that the Department’s policies and its officials violated the dormant Commerce Clause’s prohibition against the extraterritorial application of California law, which had the effect, as the Supreme Court remarked in Healy v. Beer Inst., of controlling conduct beyond the boundaries of the state. The District Court granted a preliminary injunction, but denied the Department’s motion to dismiss on the basis of qualified immunity.
Concluding that “we are faced with an attempt to reach beyond the borders of California and control transactions that occur wholly outside of the State,” the Ninth Circuit affirmed the grant of a preliminary injunction. The Ninth Circuit notes the U.S. Supreme Court’s admonition that, “If permitted, that kind of action would attack the cement that holds this nation together,” citing Oregon Waste Sys., Inc. v. Dep’t of Envtl. Quality of the State of Oregon and Healy. It quoted the Oregon Waste Court:
“The Commerce Clause provides that ‘[t]he Congress shall have Power … [t]o regulate Commerce … among the several States.’ Though phrased as a grant of regulatory power to Congress, the Clause has long been understood to have a ‘negative’ aspect that denies the States the power unjustifiably to discriminate against or burden the interstate flow of articles of commerce. The Framers granted Congress plenary authority over interstate commerce in ‘the conviction that in order to succeed, the new Union would have to avoid the tendencies toward economic Balkanization that had plagued relations among the Colonies and later among the States under the Articles of Confederation.’ ‘his principle that our economic unit is the Nation, which alone has the gamut of powers necessary to control of the economy, … has as its corollary that the states are not separable economic units.'”
However, the Ninth Circuit reversed the District Court’s refusal to dismiss the claims against the Department officials, since Daniels’ constitutional rights in this “murky area” under the dormant Commerce Clause were not clearly established.