Daniels Sharpsmart, Inc. v. Smith, 17-16424

• Decision Date: 02 May 2018
• Docket Number: No. 17-16424,17-16424
• Parties: DANIELS SHARPSMART, INC., a Delaware corporation, Plaintiff-Appellee, v. Karen SMITH, Director of the California Department of Public Health, in her official capacity; Richard Pilorin, Chief of the Emergency, Restoration and Waste Management Section of the California Department of Public Health, in his personal capacity; Alison Dabney, Chief Senior Environmental Scientist for the Medical Waste Management Program of the California Department of Public Health, in her personal capacity; Ginger Hilton, Environmental Scientist for the Medical Waste Management Program of the California Department of Public Health, in her personal capacity, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

889 F.3d 608

DANIELS SHARPSMART, INC., a Delaware corporation, Plaintiff-Appellee,

v.Karen SMITH, Director of the California Department of Public Health, in her official capacity; Richard Pilorin, Chief of the Emergency, Restoration and Waste Management Section of the California Department of Public Health, in his personal capacity; Alison Dabney, Chief Senior Environmental Scientist for the Medical Waste Management Program of the California Department of Public Health, in her personal capacity; Ginger Hilton, Environmental Scientist for the Medical Waste Management Program of the California Department of Public Health, in her personal capacity, Defendants-Appellants.

No. 17-16424

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 11, 2018, San Francisco, California

Filed May 2, 2018

Renu R. George (argued) and Karli Eisenberg, Deputy Attorneys General; Ismael A. Castro, Supervising Deputy Attorney General; Julie Weng-Guetierrez, Senior Assistant Attorney General; Xavier Becerra, Attorney General; Office of the Attorney General, Sacramento, California; for Defendants-Appellants.

Jason Levin (argued), Steptoe & Johnson LLP, Los Angeles, California; Douglas D. Janicik, Phoenix, Arizona; for Plaintiff-Appellee.

Before: Sidney R. Thomas, Chief Judge, Ferdinand F. Fernandez and Ronald M. Gould, Circuit Judges.

OPINION

FERNANDEZ, Circuit Judge:

California Department of Public Health¹ officials, Karen Smith,² Richard Pilorin,³ Alison Dabney,⁴ and Ginger Hilton⁵ (collectively "the Department officials") appeal the district court's grant of a preliminary injunction against them in favor of Daniels Sharpsmart, Inc. ("Daniels") and the denial of their motion to dismiss on the basis of qualified immunity.⁶ The preliminary injunction enjoined the Department officials from enforcing the California Medical Waste Management Act ("MWMA")⁷ against Daniels for the manner in which it disposed of medical waste at facilities outside of the State of California. In its action against the Department officials,⁸ Daniels alleged that they violated its constitutional rights under the dormant Commerce Clause⁹ when they engaged in extraterritorial enforcement of the MWMA. The Department officials also appeal the district court's denial of their motion to dismiss on the basis of qualified immunity. We affirm the grant of the preliminary injunction, but reverse the denial of qualified immunity.

BACKGROUND

Daniels is an Illinois based corporation that designs, develops, manufactures, markets, and sells reusable sharps container systems for the disposal of needle-inclusive biohazardous medical products. Those medical products include waste syringes, blood collection devices, and IVs. Daniels also handles the transport and treatment of the medical waste. In California, that waste is handled by Daniels' Medical Waste Treatment Facility and Transfer Station in Fresno. As a medical waste treatment facility in California, it is subject to regulation under California's MWMA. Therefore, when it received its medical waste treatment facility and transfer station permit from the Department, Daniels agreed to "comply with all applicable provisions of the Medical Waste Management Act." Daniels also agreed to operate its facility in conformance with the plans approved by the Department.

In general, under the MWMA, California-generated medical waste must be incinerated. See Cal. Health & Safety Code § 118215(a)(1)(A), (a)(3)(A). Furthermore, "[m]edical waste transported out of state shall be consigned to a permitted medical waste treatment facility in the receiving state." Id. § 118000(c).

As of 2014, there were no locations within the State of California that had incinerators to treat Daniels' biohazardous medical waste.¹⁰ Consequently, Daniels transported the waste from the Fresno facility to other states. For some time, Daniels had the waste incinerated at a facility in Baltimore, Maryland.

However, in 2014, Daniels decided to transport its medical waste to locations in Kentucky and Indiana, where the waste would be treated by means other than incineration which were consistent with those states' regulations. In Kentucky, the waste was treated by a method called autoclave, while in Indiana the waste was treated by a technique known as thermal deactivation. Treating the waste in Indiana and Kentucky was more cost effective for Daniels than having the waste incinerated in some other state. From September 11, 2014, to December 1, 2014, Daniels transported roughly 320,000 pounds of medical waste to facilities in Indiana and Kentucky. After a November 20, 2014, inspection of Daniels' facility in Fresno, California, the Department, through Hilton, told Daniels that all biohazardous medical waste originating in California must be treated by incineration, even if the law of another state permitted an alternative method. The Department further indicated that Daniels would be penalized if it did not incinerate all of its biohazardous medical waste. Daniels responded that the Department could not dictate the method by which Daniels treated the waste outside of California.

On April 10, 2015, the Department conducted another inspection of Daniels' facility, and Daniels received a letter from Hilton, which stated that California law governed Daniels' treatment of medical waste in other states. Then, on August 10, 2015, the Department issued a notice of violation to Daniels for using methods other than incineration to treat its biohazardous medical waste outside of California. The notice imposed a $618,000 penalty for the 618 violations of law it identified. In order to avoid further penalties, Daniels began transporting its medical waste to incinerators located in other states, at a significantly higher cost to Daniels.

In addition, Daniels filed a complaint in the district court, and alleged that the Department officials violated the dormant Commerce Clause by their extraterritorial application of the MWMA. Daniels then filed a motion for preliminary injunction, and the Department officials, claiming entitlement to qualified immunity, filed a motion to dismiss.

The district court granted Daniels' motion for a preliminary injunction and denied the Department officials' motion to dismiss. This appeal followed.

JURISDICTION AND STANDARDS OF REVIEW

"We have jurisdiction to review the district court's grant of a preliminary injunction." Meredith v. Oregon , 321 F.3d 807, 811 (9th Cir. 2003) ; see also 28 U.S.C. § 1292(a)(1). Furthermore, "an order denying qualified immunity is immediately appealable." Wilkinson v. Torres , 610 F.3d 546, 549–50 (9th Cir. 2010). "Our jurisdiction to review an interlocutory appeal of a denial of qualified immunity, however, is limited exclusively to questions of law." Id. at 550.

We review the district court's decision to grant a preliminary injunction for abuse of discretion. Associated Press v. Otter , 682 F.3d 821, 824 (9th Cir. 2012). Moreover:

In deciding whether the district court has abused its discretion, we employ a two-part test: first, we "determine de novo whether the trial court identified the correct legal rule to apply to the relief requested"; second, we determine "if the district court's application of the correct legal standard was ... illogical, ... implausible, or ... without support in inferences that may be drawn from the facts in the record."

Id. (citation omitted); see also United States v. Hinkson , 585 F.3d 1247, 1261–63 (9th Cir. 2009) (en banc). A district court abuses its discretion if it bases a decision "on an erroneous legal standard or a clearly erroneous finding of fact." Associated Press , 682 F.3d at 824 (citation omitted). "We review a denial of qualified immunity de novo." Wilkinson , 610 F.3d at 550.

DISCUSSION

Daniels asserts that the Department officials, not content with exercising their authority in California, have reached out in an attempt to control how other states handle and allow the disposal of medical waste within their borders. The district court agreed with that assessment, as do we. If permitted, that kind of action would attack the cement that holds this nation together. As the Supreme Court has said:

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." "This 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."

Or. Waste Sys., Inc. v. Dep't of Envtl. Quality of State of Or. , 511 U.S. 93, 98–99, 114 S.Ct. 1345, 1349, 128 L.Ed. 2d 13 (1994) (alterations in the original) (citations omitted).

The negative aspect—commonly known as the dormant Commerce Clause—has at least two emanations. The Court has pointed out that "[w]hen a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests, we have generally struck down the statute without further inquiry." Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth. , 476 U.S. 573, 579, 106 S.Ct. 2080, 2084, 90 L.Ed. 2d 552 (1986). While many cases deal with the discrimination emanation,¹¹ this case deals with the direct regulation emanation. "Direct regulation occurs when a state law directly affects transactions that take place across state lines or entirely outside of the state...