Sanitation and Recycling Industry, Inc. v. City of New York
| Decision Date | 28 February 1997 |
| Docket Number | No. 655,D,655 |
| Court | U.S. Court of Appeals — Second Circuit |
| Parties | SANITATION AND RECYCLING INDUSTRY, INC., Michael Dibenedetto, Multi-Carting, Inc., John A. Corrieri, Inc., John P. Corrieri, Inc., Victor Ferrante, Silver Star Carting Co., Inc., Michael Verrilli, Falso Carting Co., Inc., Constantino Isabella, Isabella City Carting Corp., Kenneth Occhiogrosso, Joe's Sanitary Haulage, Vincent Cinotii, Marangi Carting Corp., John A. Toscano, Mr. T Carting Corp., Carl Dell'Olio, Dellvena Carting Corp., John Florio, Pioneer Carting Corp., James Tesi, C.T. Carting Corp., Angela Buskirk, Frank Lomangino & Sons, Inc., Arnold Sirico, Midbronx Haulage Corp., Paul Panza, Bronx County Rubbish Removal, Inc., Jay Malave, Vincent Archina, Crown Waste, Inc., Gerald Antonacci, Plaintiffs-Appellants, v. CITY OF NEW YORK, Defendant-Appellee. ocket 96-7788. |
Gerald Walpin, New York City (Jeffrey L. Braun, Jane J. Ferrall, Jonathan J. Faust, Rosenman & Colin, LLP, New York City, of counsel), for Plaintiffs-Appellants.
Alan G. Krams, New York City (Paul A. Crotty, Kristin M. Helmers, Corporation Counsel of the City of New York, New York City, of counsel), for Defendant-Appellee.
Before: NEWMAN, Chief Judge, CARDAMONE, and CALABRESI, Circuit Judges.
This appeal challenges the constitutionality of Local Law 42, a newly-enacted law of the City of New York, that purports to promote the efficient and lawful conduct of the commercial carting business in the City. Finding that the carting industry has been corruptly influenced by an organized criminal cartel for many years, and that law enforcement and regulation of the industry under existing law has not succeeded in rooting out illegal and anticompetitive practices, the City passed the challenged law. This targeted criminal cartel is a "black hole" in New York City's economic life. Like those dense stars found in the firmament, the cartel can not be seen and its existence can only be shown by its effect on the conduct of those falling within its ambit. Because of its strong gravitational field, no light escapes very far from a "black hole" before it is dragged back, Stephen W. Hawking, A Brief History of Time--From the Big Bang to Black Holes, 81-82 (Bantam Books 1988); the record before us reveals that from the cartel's domination of the commercial waste industry, no carter escapes. Local Law 42 establishes a new commission and regulatory scheme to address this pervasive problem.
At least since the turn of the century, New York City has required commercial establishments to hire private carters to collect their refuse. However, the City once made an exception for commercial establishments in residential areas, allowing them to have their garbage picked up by the City free of charge. This exception was eliminated in 1956. For the past 40 years all commercial establishments in New York have been required to contract with private carting companies for the removal and disposal of their waste. Three hundred private carting companies service 250,000 commercial accounts, removing more than 12,000 tons of commercial waste and recyclable materials each day. Most of the carting companies are "mom and pop" businesses, owned by one individual or members of a single family for decades. After private haulers took over commercial carting in residential areas, however, racketeering and anticompetitive conduct commenced almost immediately, and has continued to the present day.
The 1987 Rand study of racketeering in legitimate industries, undertaken for the U.S. Department of Justice, described how carters sold each other the exclusive right to service particular customers, while racketeers mediated intercarter disputes. Peter Reuter, Rand Corporation, Racketeering in Legitimate Industries: A Study in the Economics of Intimidation (1987). Customers had no choice in who hauled their trash and were routinely victimized by having the amount of refuse falsely inflated. A 1986 report by the New York State Assembly's Environmental Conservation Committee concluded that organized crime's domination of the waste hauling industry in New York City had become such a functional part of the industry that eliminating it would require even more stringent regulations than the then-existing regulatory scheme. New York State Assembly Environmental Conservation Committee, Organized Crime's Involvement in the Waste Hauling Industry (1986).
A joint investigation by the New York City Police Department and the Manhattan District Attorney led to the June 1995 indictment of 17 individuals, 23 carting companies, and four trade associations for their roles in an allegedly broad cartel to restrain competition and artificially inflate carters' prices and profits. According to the indictment, this cartel restrains competition by acts of violence including attempted murder, assault and arson; allocates customers to particular carters and directs substantial compensation in instances when one carter loses a customer to another; and treats carters operating outside the existing trade associations as outlaws, subjecting them to violence and threats if they compete for an established customer of a trade association member.
Against this backdrop Local Law 42 was submitted to the City Council, which held three hearings between December 1995 and May 1996 to consider it. The hearing record confirmed a pattern of racketeering and corruption in the New York City carting industry. The Manhattan District Attorney explained to the Council that the private carting industry is "dominated by an organized crime-controlled cartel" that has "reaped staggering economic rewards by preventing any meaningful competition for customers." He estimated that $500 million of the revenue generated in the $1.5 billion-per-year carting industry is cartel-created overcharges. A former director of the New York State Organized Crime Task Force told the City legislators that organized crime controlled the industry by manipulating the companies through the trade waste associations.
Local Law 42 was signed into law on June 3, 1996 and took effect immediately. Local Law 42 § 14. It creates a new agency, the New York City Trade Waste Commission (Commission), responsible for the licensing and regulation of the carting business. Administrative Code of the City of New York (Admin.Code) §§ 16-502 & 16-503. 1 The ordinance The Commission may refuse a license "to an applicant who lacks good character, honesty and integrity," although it must state the reasons for a refusal and provide an opportunity to be heard. § 16-509(a). The law provides an illustrative list of relevant factors for the Commission to consider in making a licensing decision, such as pending criminal actions; prior convictions; "knowing association" with convicted racketeers, § 16-509(a)(v), or members of "an organized crime group," § 16-509(a)(vi); and membership in trade associations that have been convicted of specific crimes or where a person holding a position in such trade association is a member of an organized crime group, §§ 16-509(a)(viii), 16-520(j)(i).
makes it unlawful for any person to collect trade waste "without a license therefor from the commission," § 16-505(a). Licenses in effect when Local Law 42 was enacted are continued until an unspecified date to be set by Commission rulemaking. Local Law 42 § 14(iii)(a)(2). If a licensee applies for a license renewal within that time, the prior license is valid until a decision is made on the new application. Local Law 42 § 14(iii)(a)(1). A license application must provide information about all of the applicant's principals, § 16-508(a)(i), which include officers, directors, holders of over ten percent of equity, and the relatives of such shareholders in cases where the owner of record is acting on a relative's behalf, § 16-501(d).
If warranted by "adverse information" developed in the background investigation, the Commission may condition a license on the carter's retention of an independent auditor or monitor, who would scrutinize the applicant's finances and activities and periodically report them to the Commission. § 16-511. After giving notice and an opportunity to be heard, the Commission is authorized to "revoke or suspend a license" upon certain events, § 16-513, and, under certain circumstances, to suspend a license immediately, subject to "an immediate appeal" and an opportunity for a hearing on an expedited basis, § 16-514.
Detailed rules regarding the conduct of the trade waste removal licensees are also established. § 16-520. Licensees must, for example, maintain audited financial statements, records and such other written records as the Commission determines are necessary or useful, § 16-520(c); contracts shall be in a form approved by the Commission, § 16-520(e)(i); and licensees must bill their customers in a form prescribed by the Commission, § 16-520(f). Local Law 42 authorizes the creation of two special trade waste districts if the Commission concludes that improved service and lower prices will result. § 16-523(a), (c). If such districts are created and specific carters are designated to service them, existing carting contracts in those districts are terminated. § 16-524(a).
Local Law 42 also regulates hauling contracts, limiting the terms of all private carting contracts to two years, § 16-520(e)(i), and provides that customers whose contracts are assigned by one hauler to another must have an opportunity to terminate the contract within three months after the assignment, § 16-520(e)(i)(i). Transition provisions for existing contracts limit their duration to the date originally provided in the contract or two years from the enactment of Local Law 42, whichever is earlier. Local Law 42 § 11(i).
Current contracts are made terminable at will by the...
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