Atlantic Coast v. Bd Chosen Free

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit

2-16-1995

Atlantic Coast v Bd Chosen Free
Precedential or Non-Precedential:

Docket 94-5173

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 UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

N0. 94-5173

ATLANTIC COAST DEMOLITION & RECYCLING, INC.

Appellant

v.

BOARD OF CHOSEN FREEHOLDERS OF ATLANTIC COUNTY;
ATLANTIC COUNTY UTILITIES AUTHORITY;
BOARD OF CHOSEN FREEHOLDERS OF CAMDEN COUNTY;
POLLUTION CONTROL FINANCING AUTHORITY OF CAMDEN COUNTY;
SCOTT WEINER, individually and in his capacity as Commissioner
of New Jersey Department of Environmental Protection and Energy

On Appeal From the United States District Court
For the District of New Jersey
(D.C. Civil Action No. 93-cv-02669)

Argued September 13, 1994

BEFORE: STAPLETON, ALITO and LEWIS, Circuit Judges

(Opinion Filed February 16, 1995)

Mark R. Rosen (Argued) James J. Ciancia
Jodi Isenberg Acting Attorney General
Mesirov, Gelman, Jaffe, Cramer & of New Jersey
Jamieson Andrea M. Silkowitz
44 Tanner Street Ass't Attorney General
P.O. Box 183 Gail M. Lambert (Argued)
Haddonfield, NJ 08033-0141 Stefanie A. Brand
Attorneys for Appellant Deputy Attorneys General
124 Halsey Street
William J. Linton P. O. Box 45029
Atlantic County Utilities Newark, NJ 07101
Authority Attorneys for Appellee
6700 Delilah Road Scott Weiner
Pleasantville, NJ 08232
Attorney for Appellee
Atlantic County Utility Authority
Frederick J. Schuck
14th Floor
Office of Camden County Counsel
520 Market Street
Camden, NJ 08102
Attorney for Appellee
Board of Chosen Freeholders
of Camden County

Jonathan L. Williams
J.S. Lee Cohen (Argued)
Michael S. Caro
DeCotiis, Fitzpatrick & Gluck
401 Hackensack Avenue
Hackensack, NJ 07601
Attorneys for Amici Curiae
Hudson County Improvement Authority,
Passaic County Utilities Authority and
Essex County Utilities Authority
Mercer County Improvement Authority

Joseph J. Slachetka
John A. Mercer, Jr.
Higgins, Slachetka & Long
1027 Chews Landing Road
Laurel Springs, NJ 08021
Attorneys for Amicus Curiae
Cape May County Municipal Utilities
Authority

Gail B. Phelps, Assistant Counsel
Bureau of Regulatory Counsel
9th Floor, MSSOB
400 Market Street
Harrisburg, PA 17101-2301
Attorney for Amicus Curiae
Pennsylvania Department of
Environmental Resources

Betty Jo Christian
Paul J. Ondrasik, Jr.
William T. Hassler
Steptoe & Johnson
1330 Connecticut Ave., N.W.
Washington, D.C. 20036
and
Bruce J. Parker (Of Counsel)
Alan S. Ashkinaze (Of Counsel)
and
Michael F. Riccardelli
Ronald S. Bergamini
Riccardelli, Rose & Hoonhoudt
51 Park Street
Montclair, NJ 07042
Attorneys for Amici Curiae
City of Jersey City, Borough of
Northvale, C & A Carbone, Inc.,
National Solid Wastes Management
Association, and Waste Management
Association of New Jersey

OPINION OF THE COURT

STAPLETON, Circuit Judge:

This appeal concerns the constitutional validity of New

Jersey's solid waste regulatory scheme. Atlantic Coast

Demolition and Recycling, Inc. ("Atlantic Coast") sought to

enjoin enforcement of New Jersey's waste flow regulations on the

ground they violate the dormant Commerce Clause. The district

court entered judgment in favor of defendant New Jersey

Department of Environmental Protection and Energy ("the

Department"), finding that the flow control regulations did not

impose an unconstitutional burden on interstate commerce.

Atlantic Coast appealed. We will reverse.

Shortly after the district court entered final judgment

upholding the flow control regulations, the Supreme Court issued

its decision in C & A Carbone, Inc. v. Town of Clarkstown, 114 S.

Ct. 1677 (1994), in which the Court struck down a local flow
control ordinance of the Town of Clarkstown, New York, as

violative of the dormant Commerce Clause. In light of the

Supreme Court's recent teachings, we conclude that the district

court erred in holding that the regulations do not discriminate

against interstate commerce and in applying the balancing test

set forth in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970).

Because the district court did not consider whether the

regulations could pass muster under the stricter dormant Commerce

Clause test applicable to discriminatory measures, we will vacate

the district court's judgment and remand so that the district

court may determine whether the regulations can be upheld despite

their discriminatory effect.1

I.

The facts of this case are generally not in dispute.2

The necessary factual background concerns New Jersey's waste

management system and Atlantic Coast's activities.

1
. The district court had jurisdiction over this matter
pursuant to 28 U.S.C. § 1331 as the constitutionality of state
regulations was challenged and we have jurisdiction over this
appeal from the district court's final judgment pursuant to 28
U.S.C. § 1291.
2
. While the Department argues that some of the district
court's findings of fact were clearly erroneous, the "facts" it
takes issue with actually involve the district court's
application of the governing legal principles to the facts, which
we discuss infra. The factual background summarized by the
district court in its oral opinion of September 8, 1993, is
supported by the record and is therefore not clearly erroneous.
See Cox v. Keystone Carbon Co., 894 F.2d 647, 650 (3d Cir.) (the
reviewing court is not to substitute its own findings for that of
the district court, but "may only make an assessment of whether
 A. New Jersey's Solid Waste Management System

New Jersey has an extensive statutory and regulatory

system governing the management and disposal of solid waste.

This highly regulated system grew out of a crisis that began in

the 1970s as a result of wide-spread illegal practices in the

then private, unregulated waste disposal market and the closing

of many landfills due to unsanitary conditions and noncompliance

with newly enacted federal regulations. This crisis has been

documented in the caselaw of both this court and the New Jersey

courts. See, e.g., J. Filiberto Sanitation v. Department of

Envtl. Protection, 857 F.2d 913, 918-19 (3d Cir. 1988); Trade

Waste Management Ass'n, Inc. v. Hughey, 780 F.2d 221, 223 (3d

Cir. 1985); A.A. Mastrangelo, Inc. v. Commissioner of Department

of Envtl. Protection, 449 A.2d 516, 518-19, 521 (N.J. 1982);

Hackensack Meadowlands Dev. Comm'n v. Municipal Sanitary Landfill

Auth., 348 A.2d 505 (N.J. 1975), rev'd sub nom. City of

Philadelphia v. New Jersey, 437 U.S. 617 (1977); Southern Ocean

Landfill, Inc. v. Mayor & Council of the Township of Ocean, 314

A.2d 65, 66-67 (N.J. 1974); In re Scioscia, 524 A.2d 855, 857
(N.J. Super. Ct. App. Div. 1987). As the Department has observed

in a recent update to its Statewide Solid Waste Management Plan:

By the early 1980s, the department had
closed, or was in the process of closing,
over 300 unsafe or unregulated landfills that
posed serious environmental hazards or had
(..continued)
there is enough evidence to support such findings"), cert.
denied, 498 U.S. 811 (1990).
 exhausted capacity. However, the
department's persistent actions to implement
rigorous environmental standards on landfill
construction and operations, coupled with a
steady influx of millions of tons of waste
annually from neighboring states during the
1970s, resulted in a serious shortfall of
disposal capacity in the state. . . .

By the late 1980s, the "solid waste
crisis" had become a national issue, and New
Jersey, the most densely populated state in
the union, was at the forefront of both the
problem and the solution. Responding to the
need to develop safe, efficient systems, by
1990 the state/county planning process
produced 13 new major disposal facilities . .
. . Despite this remarkable progress,
however, a number of additional counties were
forced by the continuing capacity shortages
to make disposal arrangements with out-of-
state facilities, and New Jersey, once a net
importer of waste, became a net exporter with
peak exports of 28% of all solid waste
generated in the state in 1988. As national
attention focused on the environmental
concerns associated with solid waste
management practices, a number of states
moved to restrict the importation of waste.
On several occasions, New Jersey waste was
banned, without notice, from out-of-state
facilities, resulting in serious disruptions
of service and unhealthy conditions as waste
collected in the streets.

New Jersey Dep't of Envtl. Protection and Energy, Div. of Solid

Waste Management, Solid Waste Management State Plan Update: 1993-
2002, Executive Summary 1-2 (Draft Jan. 1993) (App. 511-12)

[hereinafter State Plan Update-Executive Summary].

New Jersey's existing statutory and regulatory waste

management system is the result of attempts to respond to this
crisis.3 The two major statutory provisions of New Jersey's

solid waste management system are the Solid Waste Management Act

("SWMA"), N.J. Stat. Ann. § 13:1E-1 to -207 (West 1991 & Supp.

1994), and the Solid Waste Utility Control Act ("SWUCA"), N.J.

Stat. Ann. § 48:13A-1 to -13 (West Supp. 1994). These acts were

passed in 1970 to establish a statutory framework to coordinate

"all solid waste collection, disposal, and utilization activity"

in the state, N.J. Stat. Ann. § 13:1E-2(b)(1) (West 1991), and to

regulate the rates at which these services are provided as a

means of providing safe, adequate, and proper waste management

services, N.J. Stat. Ann. § 48:13A-2 (West Supp. 1994).

The Department is vested with broad regulatory

authority,4 while direct management responsibility is delegated

to the twenty-two solid waste management districts that comprise

the state, one for each of New Jersey's counties plus the

Hackensack Meadowlands District. See N.J. Stat. Ann. § 13:1D-19

(West 1991). Each solid waste district is responsible for

developing a ten-year solid waste management plan that must be

approved by the Department before it is implemented. Id.

3
. An attempt to conserve landfill space by instituting a
qualified ban on the importation of solid waste was struck down
by the United States Supreme Court as violative of the dormant
Commerce Clause in City of Philadelphia v. New Jersey, 437 U.S.
617 (1977).
4
. Solid waste management functions delegated to the Board
of Public Utilities were transferred to the Department in 1991.
See Reorganization Plan No. 002-1991, set out as note under N.J.
Stat. Ann. § 13:1D-1 (West 1991).
§§ 13:1E-20, 13:1E-24 (West 1991). In each waste district, solid

waste disposal is managed either directly by the county

government or by municipal authorities created and designated by

the district for this purpose.5 Each district's waste plan must

provide for "sufficient [and] suitable" disposal facilities to

treat and accommodate all solid waste generated within the waste

district; the districts may meet this obligation by contracting

with public or private entities or by constructing and operating

the waste facilities themselves. Id. § 13:1E-21 to -22 (West

1991); §§ 40:14B-19 (West 1991), 40:37A-55 (West 1991), 40:37C-5

(West 1991). By the early 1980s the Department had approved

solid waste management plans for each of the twenty-two solid

waste districts. State Plan Update-Executive Summary, supra, at

1 (App. 511).

In addition to this system of local district

management, the disposal facilities6 themselves are subject to

state regulation by the Department. The private or public entity

5
. These local agencies may be municipal utilities
authorities, county improvement authorities, or pollution control
financing authorities. See N.J. Stat. Ann. §§ 40:14B-1, -22.1
(West 1991 & Supp. 1994); 40:37A-103 (West Supp. 1994); 40:37C-3
(West 1991). Five of the waste districts manage through county
control while eleven use the utilities authority model and the
remaining six use either county improvement or pollution control
financing authorities.
6
. Disposal facilities include transfer stations (at which
solid waste is transferred from collection vehicles to haulage
vehicles for transportation to an offsite disposal facility),
resource recovery centers (which engage in both recycling and
waste disposal), sanitary landfills, and incinerators. N.J.
Stat. Ann. § 48:13A-3 (West Supp. 1994).
performing the disposal service must register with and obtain

approval from the Department before providing disposal service,

N.J. Stat. Ann. § 13:1E-5 (West 1991), and must obtain a

certificate of public convenience and necessity from the Board of

Regulatory Commissioners, id. § 48:13A-6 (West Supp. 1994). To

register with the Department, a waste disposal facility must

obtain a solid waste permit which is granted only after review of

the appropriateness of the facility's location, its effect on the

surrounding community, and its consistency with the state and

district solid waste plans. N.J. Admin. Code tit. 7, §§ 26-2.3

to -2.4; 26-2.8 to -2.9. Waste disposal permits are also

conditioned on the facility's operator satisfying the "integrity"

requirements contained in N.J. Stat. Ann. § 13:1E-126 to -135

(West 1991 & Supp. 1994),7 and only disposal facilities included

in a district plan will receive operating permits, id. § 13:1E-4,

-26 (West 1991 & Supp. 1994).

Additionally, all disposal facilities are regulated on

the state level as public utilities. N.J. Stat. Ann. § 13:1E-27

(West Supp. 1994). Pursuant to traditional utility regulation,

the disposal facilities must therefore provide their services at

just and reasonable rates, id. § 48:13A-2 (West Supp. 1994), in a
nondiscriminatory manner, id. § 48:3-3, -4 (West Supp. 1994), and

may not abandon or discontinue service without authorization, id.

§ 48:2-24 (West 1969). Nor may the solid waste facilities adjust

7
. These requirements were enacted in response to the
illegal anti-competitive activities that previously existed
within the private waste industry.
their rates without regulatory approval. Id. § 48:2-21 (West

1969).

Like waste disposal, solid waste collection was originally

regulated under the utility structure as well, but pursuant to the

Solid Waste Collection Regulatory Reform Act, which became effective

in 1992, waste collection services will no longer be regulated as

public utilities, although they will continue to be under the

supervision of the Board of Regulatory Commissioners. See N.J. Stat.

Ann. §§ 48:13A-7.1 to 48:13A-7.23 (West Supp. 1994). Thus, although

waste collection rates will no longer be regulated, a company will

still be required to register and obtain a certificate of public

convenience before performing waste collection services in the state.

See id. § 13:1E-5(a) (West 1991); id. § 48:13A-6 (West Supp. 1994).

Full rate deregu- lation of the waste collection industry will occur

in April 1996.8

Additionally, the Board of Regulatory Commissioners may

designate a district as a solid waste disposal franchise area to

be served by one or more entities engaged in waste disposal.

N.J. Stat. Ann. § 48:13A-5 (West Supp. 1994). According to the

Department, such franchises have been awarded to most of the

districts and public authorities responsible for the waste

8
. Under the former rate regulation system, the regulated
rate for government-owned disposal facilities became, by
operation of law, a component of the tariff of all solid waste
collectors. N.J. Stat. Ann. § 48:13A-7.8 (West Supp. 1994).
This aspect of the system will continue until full deregulation
in 1996.
districts' solid waste management.9 A franchise grants a solid

waste disposal facility the "exclusive right to control and

provide for the disposal of solid waste, except for recyclable

material whenever markets for those materials are available,

within a district or districts" as long as the proposed franchise

is consistent with the district's solid waste plan. Id. The

district government or public authority, as franchisee, may

operate the disposal facility itself, or contract with another

district or with a private facility.

As an integral part of the district plan and utility

regulation system, the Department and waste districts are

authorized under the SWMA and SWUCA to direct the flow of waste

to designated facilities. N.J. Stat. Ann. § 48:13A-4(c) (West

Supp. 1994); Op. N.J. Att'y Gen. No. 3 (1980). It is the

resultant waste flow regulations that Atlantic Coast challenges

in this action. The waste flow requirements enable the waste

districts to control the processing and disposal of all solid

waste generated within the district. See Op. N.J. Att'y Gen.

No. 3 (1980). The district plans specify to which disposal

facility the waste from each of New Jersey's 567 municipalities

is directed, and these designations are codified as Department

regulations. N.J. Admin. Code tit. 7, § 26-6.5.

These waste flow measures do not apply to separated

recyclable materials. N.J. Admin. Code tit. 7, § 26-1.1(a)(1).

9
. Amici Hudson County Improvement Authority, Passaic
County Utilities Authority, and Essex County Utilities Authority
have all been awarded such franchises.
The separation of recyclables from other waste at the source of

the waste and the marketing of recyclables may be performed

competitively by private entities, and these activities are

subject to much less stringent overall regulation than waste

management services. See, e.g., N.J. Admin. Code tit.7, §§ 26A-

1.4(a)(2) (exemption of traditional recyclables from Department

approval process), 26A-3.1 (regulation of nontraditional

recyclables). Mixed waste, because it contains both waste and

recyclables and therefore presents environmental risks not

associated with separated recyclables, is subject to the waste

flow regulations. Under recently promulgated regulations that

memorialize the Department's previously informal "Pereira

policy," mixed-waste generated within a waste district may be

removed from the district for separation without initial

processing at the designated disposal facility, as long as the

nonrecyclable residue, or a similar kind and amount, is returned

to the designated disposal facility, or if, in lieu of returning

any residue waste, a payment equal to the tipping fees that would

otherwise be due for the nonrecyclable portion is paid to that

facility. N.J. Admin. Code tit. 7, §§ 26-6.9, 26-2B.9.

The disposal charges, or tipping fees10 charged by the

designated waste facilities are used for operating revenues.

See, e.g., N.J. Stat. Ann. § 40:14B-22.1 (West Supp. 1994).

10
. Tipping fees are the rates that a disposal facility or
transfer station charges the hauler who deposits waste at the
facility. J. Filiberto Sanitation v. Department of Envtl.
Protection, 857 F.2d 913, 916 (3d Cir. 1988).
Because the county governments and public authorities that manage

these facilities may raise funds for capital construction by

issuing revenue bonds, the tipping fees may also be pledged

toward repayment of the bonds. According to the Department,

approximately $1.6 billion in revenue debt has been issued by and

remains outstanding to the county governments and authorities.

The tipping fees are set by the Board of Regulatory Commissioners

at a rate that will enable the waste district to recover the

costs associated with its solid waste management plan, including

costs associated with disposal and recycling. See N.J. Stat.

Ann. § 48:13A-6.3 (West Supp. 1994). Because the districts are

engaged in aggressive disposal management and recycling programs,

the tipping fees are quite high. Thus, it is often less

expensive to dispose of solid waste generated in New Jersey at

facilities located in a neighboring state, even when

transportation costs to transport the waste to the out-of-state

facility are factored in.

The disposal facilities are designated through the

district planning process. N.J. Admin. Code tit. 7, § 26-6.6.

The designated facilities may be located within the waste

district, in another waste district pursuant to an interdistrict

plan, or out-of-state. Thus, a district plan can propose a

contract with an out-of-state disposal facility. However,

district plans must be approved by the Department and the

Department candidly acknowledges that the twin "goals of 60%

recycling and disposal self-sufficiency for the nonrecyclable

waste stream . . . form the core of New Jersey's current solid
waste management system and constitute the statewide solid waste

management objectives, criteria and standards with which the

[district] plans must be consistent." Appellee's Br. at 11.

Thus, as the district court found:
Although it is not the subject of a
clear legislative direction [sic], it is
equally clear that the D.E.P.E. administers
the law with the specific goal that all waste
generated in New Jersey be disposed of within
the borders of the state. The 1993 solid
waste management state plan update, which was
admitted into evidence and herein referred to
as the Update, provides: "As a key policy
objective, New Jersey will continue to move
toward achievement of self-sufficiency in
disposal capacity. The Department's
objective is to eliminate reliance on out-of-
state disposal within a seven-year period."

App. 1017.

Accordingly, a waste district that is unable to

identify sufficient existing waste facilities or suitable sites

within the district, or within another district pursuant to an

interdistrict agreement, to meet the district's waste needs must

certify to the Department the absence of suitable in-district

sites and the failure to reach an interdistrict agreement. See

N.J. Stat. Ann. § 13:1E-21 (West 1991). Only after such a

certification, can a waste district plan that designates an out-

of-state disposal site receive Department approval. In re Long-

Term Out-of-State Waste Disposal Agreement Between County of

Hunterdon & Glendon Energy Commission, 568 A.2d 547, 551-53 (N.J.
Super. Ct. App. Div.), certif. denied, 583 A.2d 337 (1990).11

Thus, the designation process is intended to favor operators that

have facilities already located within, or those that are willing

to construct a facility within, the state.

B. Atlantic Coast's Activities

Atlantic Coast is a Pennsylvania corporation that was

formed in 1989 to operate a transfer station and recycling center

for construction and demolition ("C & D") debris. This facility

11
. As quoted in In re Waste Disposal Agreement, the 1985
Update to the Statewide Solid Waste Management Plan contained the
following statement:

"The Department considers the use of
out-of-state disposal facilities to be
inappropriate as a long-range solid waste
management option. . . .

The uncertainty inherent in use of out-
of-state facilities conflicts with the
philosophy of the Solid Waste Management Act,
which is that districts should be able to
plan for and predict the availability of
disposal capacity to meet their needs. The
Department has allowed several districts to
rely upon out-of-state facilities, as a
short-term option, in cases where districts
have not been able to secure interdistrict
agreements for access to in-state capacity.
However, it is critical that districts which
do rely on out-of-state disposal capacity,
secure enforceable assurances from those
facilities in order to ensure continued use
until in-state facilities can be brought on
line. It is equally critical that those
districts develop an in-state solution as
quickly as practicable."

In re Waste Disposal Agreement, 568 A.2d at 551.
is located in Philadelphia. Atlantic Coast is licensed by the

Commonwealth of Pennsylvania Department of Environmental

Resources to accept for processing at its facility various types

of construction and demolition debris, including uncontaminated

rock, soil, ferrous metals, and wood; recyclables; and

unmarketable construction and demolition materials. Atlantic

Coast processes the C & D debris by separating the recyclable

materials from the nonrecyclable. The nonrecyclable residue

waste is then shipped to landfills for disposal. During periods

relevant to this appeal, Atlantic Coast was transporting the

nonrecyclable waste to a landfill in Ohio. The majority of the

waste processed at the Atlantic Coast facility is not recyclable;

by weight only approximately eight and one-half to twenty percent

of the waste is recycled.12 Thus, most of the materials received

by Atlantic Coast are shipped to a landfill for disposal.

Construction and demolition debris is generated when a

building is constructed, demolished, or refurbished. It is not

composed of a single material, but is rather a mixture of

recyclable and nonrecyclable materials. As a practical matter,

C & D waste is not source separated, that is, the generator of

the debris does not separate out the recyclable materials at the

construction site. Prior to separation the mixture of recyclable

and nonrecyclable materials is considered waste, but once the

12
. This figure varies depending on whether wood is
included as a recyclable material. Atlantic Coast was at one
time stockpiling the wood at its facility for a particular
purchaser, but it appears that in the absence of that arrangement
the wood is disposed of as waste.
recyclable portion is separated out, only the remaining

nonrecyclable portion is considered waste. Thus, if Atlantic

Coast collects C & D debris from a construction site in New

Jersey and transports it to its facility for separation and

processing, the waste it collects is subject to New Jersey waste

flow regulations. This means that it is required by those

regulations to return the nonrecyclable waste (or equivalent

waste) to the source district's designated disposal facility or

to pay to that facility an amount equal to the tipping fee it

would pay if it returned that portion of the C & D debris to the

designated facility.

Because of its proximity to New Jersey's southern

counties, Atlantic Coast sought to gain access to the New

Jersey's C & D debris market, but its efforts to be included as a

designated facility in a district waste management plan were

unsuccessful. Atlantic Coast rejected the alternate means of

serving the New Jersey market, i.e., returning the residual waste

to the designated facilities for processing, or paying a

compensating fee, as too costly. Following its unsuccessful

efforts to serve the New Jersey market, Atlantic Coast filed an

action in the district court challenging the constitutionality of

New Jersey's solid waste flow control regulations.13

13
. In addition to the Commissioner of the New Jersey
Department of Environmental Protection and Energy, Atlantic Coast
named as defendants two county governments--the Board of Chosen
Freeholders of Atlantic County and the Board of Chosen
Freeholders of Camden County, and the solid waste authorities
within those counties--the Atlantic County Utilities Authority
and the Pollution Control Financing Authority of Camden County.
Atlantic Coast subsequently reached a settlement agreement with
 In its complaint, Atlantic Coast sought a declaration

that the district waste plans identified in the flow control

regulations violate the Commerce Clause and a permanent

injunction barring the defendants from prohibiting or interfering

with the transportation of construction and demolition debris

from its generation or collection within New Jersey, or in

Atlantic and Camden Counties in particular, to facilities outside

the state. Although the scope of Atlantic Coast's attack on the

New Jersey solid waste management system was somewhat unclear

from the complaint, the district court concluded that Atlantic

Coast's main contention centered on the waste flow regulations.

At oral argument before this court, counsel for Atlantic Coast

reiterated that its dormant Commerce Clause allegation and its

claim for relief were limited to the waste flow regulations, and

in particular the requirement that residual waste from mixed

waste loads be returned to each district's designated facility

unless the facility is compensated for the lost waste revenue.

C. The District Court Proceedings

Atlantic Coast moved for a preliminary injunction.

Following a short period of intense discovery, an evidentiary

hearing was held on Atlantic Coast's motion, at which a

substantial amount of deposition and live testimony was admitted.

(..continued)
the county and authority defendants, pursuant to which those
defendants would not participate in the district court action or
in any appeals, but would be bound by the court's determination.
The Department therefore became the sole remaining defendant.
The district court promptly issued an opinion declining to enter

a preliminary injunction. After further discovery, the parties

elected to submit the case on its merits based on the preliminary

injunction record without supplementation. Ultimately, the

district court entered final judgment in the Department's favor

based on the findings and conclusions in its oral opinion of

September 8, 1993. This appeal followed.14

II.

The fundamental issue presented by this appeal is

whether the district court erred in concluding that the New

Jersey regulatory waste flow scheme does not violate the dormant

Commerce Clause. To determine this fundamental issue, three

subsidiary issues must be decided: (1) whether the district court

erred in applying the Pike balancing test, rather than what we

14
. This court granted a stay pending the Supreme Court's
disposition in C & A Carbone, Inc. v. Town of Clarkstown. After
the Supreme Court issued its opinion on May 16, 1994,
invalidating the Clarkstown waste flow ordinance, Atlantic Coast
filed a motion with this court for summary reversal of the
district court's final order or expedited disposition of the
appeal. We denied the motion for summary reversal but expedited
the appeal. Amicus curiae briefs were submitted in support of
the Department's position by Hudson County Improvement Authority,
Passaic County Utilities Authority, Essex County Utilities
Authority, and Mercer County Improvement Authority ("Hudson
County Amici"); by Cape May County Municipal Utilities Authority;
and by the Pennsylvania Department of Environmental Resources.
An amicus curiae brief in support of Atlantic Coast's position
was submitted by the City of Jersey City, the Borough of
Northvale, C & A Carbone, Inc., National Solid Wastes Management
Association, and Waste Management Association of New Jersey ("the
Municipal and Trade Association Amici"). Additionally, we
granted the Hudson County Amici leave to participate in oral
argument.
have termed the "heightened scrutiny" test,15 (2) whether the New

Jersey waste flow regulations are excepted from the strictures of

Commerce Clause scrutiny under the market participant doctrine,

and (3) if not, whether these regulations meet the applicable

Commerce Clause test in light of New Jersey's particular

circumstances. We conclude that New Jersey's waste flow

regulations, in effect and by design, discriminate against

interstate commerce and that heightened scrutiny under the

dormant Commerce Clause is required. We reject the Department's

argument that New Jersey's regulation of waste disposal through a

utility system requires application of the less stringent

balancing test, and likewise reject its argument that New Jersey

is entitled to the market participant exception. Because the

district court did not consider whether the waste flow

regulations can be upheld despite their discriminatory effect, we

will remand to the district court so that it may make this

determination in the first instance.

III.

The Commerce Clause grants to Congress the affirmative

power "[t]o regulate Commerce . . . among the several States."

U.S. Const. art. I, § 8, cl. 3. "Although the Clause thus speaks

in terms of powers bestowed upon Congress, the [Supreme] Court

long has recognized that it also limits the power of the States

15
. See Norfolk Southern Corp. v. Oberly, 822 F.2d 388 (3d
Cir. 1987).
to erect barriers against interstate trade." Lewis v. BT

Investment Managers, Inc., 447 U.S. 27, 35 (1980). The negative

or dormant aspects of the Commerce Clause that limit state

authority apply to subject areas in which "Congress has not

affirmatively acted to either authorize or forbid the challenged

state activity." Norfolk Southern Corp. v. Oberly, 822 F.2d 388,

392 (3d Cir. 1987). Thus, any state regulation of interstate

commerce is subject to scrutiny under the dormant Commerce Clause

unless such regulation has been preempted or expressly authorized

by Congress. The district court held that Congress has

legislated in the area of solid waste disposal but "expressly

left to the states the primary role in the collection and

disposal of solid waste." App. 1015-16 (citing the Waste

Disposal Act, codified at 42 U.S.C. § 6901(A)(4)). The parties

have not advanced either a preemption or authorization argument

before this court, and we decline to examine the issue further.16

We therefore turn to the issues of whether and how New Jersey's

16
. We note, however, that Justice O'Connor, concurring in
the result reached by the C & A Carbone Court, recently rejected
the argument that the federal Waste Disposal Act authorizes
discriminatory solid waste measures. C & A Carbone, Inc. v. Town
of Clarkstown, 114 S. Ct. 1677, 1691 (1994) (O'Connor, J.,
concurring in the judgment). The district court's determination
that Congress has authorized concurrent state legislation in the
area of solid waste management is not inconsistent with Justice
O'Connor's conclusion that discriminatory measures are not
authorized. We note further that several competing federal
measures that expressly authorized local waste flow restrictions,
as well as waste importation and exportation bans, were
introduced during the 103d Congress, but were not enacted into
law. At least one of these measures has been introduced for
consideration by the current Congress as well.
waste flow regulations affect interstate commerce. The Supreme

Court's recent decision in C & A Carbone, Inc. v. Town of

Clarkstown, 114 S. Ct. 1677 (1994), provides significant guidance

with respect to these issues, and we begin with a review of the

opinion of the Court in that case.
 A.

The solid waste flow control ordinance before the court

in C & A Carbone required that all waste within the town of

Clarkstown, New York, be processed at a designated transfer

station which the town had caused to be built to comply with a

consent decree between the town and the New York State Department

of Environmental Conservation. C & A Carbone, 114 S. Ct. at

1680. To finance the new facility, the town entered into an

arrangement with a local private contractor under which the

contractor would build the facility, operate it for five years,

and then turn it over to the town for one dollar. In return, the

town guaranteed the contractor a tipping fee of $81.00 per ton

and guaranteed that a minimum of 120,000 tons of waste would be

deposited at the transfer station for processing each year. If

the total waste brought to the facility was less than 120,000

tons in any year, the town would make up the difference in the

lost fees. Id.

To ensure that the contractor would receive the agreed

upon sums, the town enacted its flow control ordinance. The town

was thus assured of customers for the new transfer facility and

could finance the facility through the mandated tipping fees.

C & A Carbone, who operated a recycling center within the town,

was found to be violating the ordinance by transporting waste

from its facility to out-of-state locations for processing.

C & A Carbone challenged the constitutionality of the ordinance

based on the dormant Commerce Clause. The New York courts

concluded that the town's ordinance did not discriminate against
interstate commerce because it applied "evenhandedly to all solid

waste processed within the Town." 587 N.Y.S. 2d 681, 686 (N.Y.

App. Div. 1992). The Supreme Court reversed.

The Supreme Court first concluded that the ordinance

did regulate interstate commerce, rejecting the town's contention

that its flow control did nothing more than delay the entry of

garbage into the stream of interstate commerce until it was safe.

The Court noted that Carbone received and processed solid waste

from out of state, and the requirement that it route that waste

through the town's transfer station increased the cost of

processing for out-of-state waste generators. More importantly

for present purposes, the Court pointed out that the relevant

stream of interstate commerce was not the market for solid

wastes, but rather the market for solid waste processing and

disposal services. "[W]hat makes garbage a profitable business

is not its own worth but the fact that its possessor must pay to

get rid of it. In other words, the article of commerce is not so

much the solid waste itself, but rather the service of processing

and disposing of it." C & A Carbone, 114 S.Ct. at 1682.

In addition to the effect on the cost to out-of-state

possessors of garbage, the Court stressed that "even as to waste

originant in Clarkstown, the ordinance prevents everyone except

the favored local operator from performing the initial processing

step" and thus "deprives out-of-state businesses of access to a

local market." Id. at 1681. The conclusion that the ordinance

affected interstate commerce was, accordingly, inescapable.
 Having concluded that the town's ordinance affected

interstate commerce, the Court addressed whether its effect was a

discriminatory one -- whether it operated to favor local

commercial interests or disfavor out-of-state ones. This was

important because a local measure that discriminates against

interstate commerce on its face or in effect can be upheld only

if it falls within "a narrow class of cases in which the

municipality can demonstrate, under rigorous scrutiny, that it

has no other means to advance a legitimate local interest." Id.

at 1683. Such protectionist measures are thus subjected to

heightened scrutiny as compared with local measures that pursue a

legitimate local interest evenhandedly and impose only an

incidental burden on interstate commerce. Nondiscriminatory

measures will be upheld unless the incidental "burden on

interstate commerce . . . is 'clearly excessive in relation to

the putative local benefits.'" Id. at 1682 (quoting Pike v.

Bruce Church, Inc., 397 U.S. 137, 142 (1970)). Because the Court

found the "practical effect and design" of the Clarkstown

ordinance discriminatory, it held that heightened scrutiny was

required and that the Pike balancing test was inappropriate. See

id. at 1684.

Clarkstown's flow control ordinance regulated the local

market for solid waste processing services in a protectionist

manner. It allowed only the favored operation to process waste

located within the limits of the town and the Court found this

"no less discriminatory because in-state or in-town processors

are also covered by the prohibition." Id. at 1682. In support
of these conclusions, the Court cited Dean Milk Co. v. Madison,

340 U.S. 349 (1951), which involved a dormant Commerce Clause

challenge to a city ordinance requiring that all milk sold in the

city be pasteurized within five miles of the city limits. The

ordinance was held to be an unjustifiable protectionist measure

because it favored milk processors located within a five-mile

radius. The Dean Milk court found "immaterial [the fact] that

Wisconsin milk from outside the [local] area [was] subjected to

the same proscription as that moving in interstate commerce."

Dean Milk, 340 U.S. at 354 n.4, quoted in, C & A Carbone, 114

S. Ct. at 1682.

The Clarkstown ordinance was found to be "just one more

instance of local processing requirements that . . . long have

[been] held invalid." Id. at 1682. Citing a long line of cases

in which local processing requirements had been stricken, the

Court described the evil there addressed and the evil of

Clarkstown's flow control ordinance as follows:
The essential vice in laws of this sort is
that they bar the import of the processing
service. Out-of-state meat inspectors, or
shrimp hullers, or milk pasteurizers, are
deprived of access to local demand for their
services. Put another way, the offending
local laws hoard a local resource -- be it
meat, shrimp, or milk -- for the benefit of
local businesses that treat it.

The flow control ordinance has the same
design and effect. It hoards solid waste,
and the demand to get rid of it, for the
benefit of the preferred processing facility.
The only conceivable distinction from the
cases cited above is that the flow control
ordinance favors a single local proprietor.
But this difference just makes the
 protectionist effect of the ordinance more
acute. In Dean Milk, the local processing
requirement at least permitted pasteurizers
within five miles of the city to compete. An
out-of-state pasteurizer who wanted access to
that market might have built a pasteurizing
facility within the radius. The flow control
ordinance at issue here squelches competition
in the waste-processing service altogether,
leaving no room for investment from outside.

114 S. Ct. at 1683.

Having determined that heightened scrutiny rather than

interest balancing was appropriate, the Court held that

Clarkstown had "any number of nondiscriminatory alternatives for

addressing the health and environmental problems alleged to

justify the ordinance in question." Id. at 1683. In the course

of so holding, the Court recognized that the flow control

ordinance was adopted by the town as a means of financing the

construction of a needed processing facility. This did not aid

the town case, however, because there was a non-discriminatory

alternative available:
Clarkstown maintains that special
financing is necessary to ensure the long-
term survival of the designated facility. If
so, the town may subsidize the facility
through general taxes or municipal bonds.
But having elected to use the open market to
earn revenues for its project, the town may
not employ discriminatory regulation to give
that project an advantage over rival
businesses from out of State.

114 S. Ct. at 1684 (citation omitted).

B.
 New Jersey's flow control regulations accomplish on a

district level substantially what Clarkstown's flow control

ordinance accomplished on a local level. They favor the

district's designated facilities at the expense of out-of-state

providers of processing and disposal services that would

otherwise compete for the opportunity to service solid waste

generated within the district. Here, as in C & A Carbone and

Dean Milk, it is immaterial that the designated facilities are

favored over other in-state facilities as well as over out-of-

state ones. Similarly, it is irrelevant here, as in Dean Milk,

that an out-of-state firm willing to build an in-district

facility is entitled to compete to have that facility become a

designated facility. Like the governmental entities in the other

cases involving local processing requirements, New Jersey is

regulating a market which the Commerce Clause intended to be open

to non-local competitors. More specifically, New Jersey is

regulating the market for solid waste processing and disposal

services in each of the districts by directing district consumers

of those services to utilize a favored service provider who, in

the absence of exceptional circumstances, operates a local

facility. It necessarily follows, we conclude, that any Commerce

Clause analysis of New Jersey's flow control regulations must

employ the heightened scrutiny test and that the district court

erred by subjecting them only to the balancing test of Pike.17

17
. In applying the Pike test, the district court relied on
J. Filiberto Sanitation v. Department of Envtl. Protection, 857
F.2d 913 (3d Cir. 1988). We there found that a requirement that
all waste generated in a county be processed at the county's
 C.

It is true, as the Department stresses, that New Jersey

has not placed an absolute bar on the utilization of out-of-state

facilities as designated facilities. This, however, does not

transform a fundamentally discriminatory scheme into a non-

discriminatory one. While out-of-state facilities can compete to

become designated facilities, the Department acknowledges that it

approves district plans only if they are consistent with the

"core" goal of having all of New Jersey's solid waste processed

and disposed of in New Jersey within the next five years. This

can be accomplished, and is being accomplished, only by selecting

existing and proposed in-state facilities whenever possible. In

short, out-of-state facilities do not compete on anything

approaching a level playing field. Wyoming v. Oklahoma, 112 S.

Ct. 789, 801 (1992) ("The volume of commerce affected measures

only the extent of the discrimination; it is of no relevance to

the determination whether a State has discriminated against

interstate commerce.").

In reaching our conclusion that the appropriate

Commerce Clause measuring rod is heightened scrutiny, we have not
(..continued)
transfer station did not have any effect on interstate commerce
because the waste entered the interstate market after processing,
and then noted that the rule would have met the Pike test as
well. Our holding that the waste flow restriction did not affect
interstate commerce is inconsistent with C & A Carbone and is
therefore overruled. To the extent Filiberto can be read to
authorize the application of the Pike balancing test to New
Jersey's waste flow regulations it is also inconsistent with
C & A Carbone and is overruled.
been unmindful of the Department's insistence that the public

utility aspects of New Jersey's solid waste system distinguish

the flow control regulations here from the Clarkstown ordinance.

In substance, the Department urges that (1) Clarkstown's transfer

station was not a regulated public utility; (2) New Jersey's

designated facilities are regulated public utilities; (3) what

Atlantic Coast finds objectionable in the waste flow regulations

-- the monopoly and resulting captive customer base of the

designated facilities -- is inherent in any public utility

regulatory scheme; (4) Commerce Clause analysis in the context of

state public utility regulation has consistently employed the

balancing test of Pike; and (5) state public utility regulation

is upheld where, as here, the burdens on commerce are not

disproportionate to the local benefits.

While we agree with the Department's first three

propositions, we do not read the dormant Commerce Clause

jurisprudence to suggest that state utility regulation is to be

judged by different standards than other state regulation. When

state utility regulation is protectionist, the Supreme Court has

employed heightened scrutiny; where it is not, a benefits and

burdens analysis has been applied.

In New England Power Co. v. New Hampshire, 455 U.S.
331, 334-36 (1982), the Supreme Court reviewed an order of the

New Hampshire Public Utility Commission that required the New

England Power Company, a consortium of Connecticut River

hydroelectric power companies, to reserve for New Hampshire

residents an amount of power equal to the amount generated by the
consortium within that state. The Court found that the

Commission's order was essentially an "exportation ban" that

placed a direct and substantial burden on interstate commerce and

therefore applied the heightened scrutiny test to the

discriminatory order. Id. at 339.

Subsequently, in Arkansas Electric Cooperative Corp. v.

Arkansas Public Service Commission, 461 U.S. 375 (1983), in

rejecting an outdated Commerce Clause utility test that focused

on whether the state was regulating wholesale or retail sales of

gas or electricity, the Supreme Court noted: "Our constitutional

review of state utility regulation in related contexts has not

treated it as a special province insulated from our general

Commerce Clause jurisprudence." Id. at 391 (citing New England

Power Co., 455 U.S. 331 (1982)). The Court then articulated the

Pike balancing test as "[o]ne recent reformulation of the

[Court's dormant Commerce Clause] test" and, after noting that

the regulation at issue did not implicate economic protectionism

and would involve only an incidental effect on interstate

commerce, applied the balancing test to conclude that the

regulation did not violate the Commerce Clause. Id. at 393-95.18
Although the Arkansas Electric Court did not expressly

18
. The issue in Arkansas Electric Cooperative Corp. was
whether the Arkansas Public Service Commission had violated the
Supremacy or Commerce Clauses by asserting regulatory
jurisdiction over the wholesale rates that the cooperative
charged to its retail members, all of whom were located within
the state. Wholesale rates charged by cooperatives was one area
of wholesale electricity sales that the federal legislation and
rules did not govern. See 461 U.S. at 377, 381-82.
characterize the regulation before it as non-discriminatory, the

Court's opinion can only be read as implicitly rejecting

application of the heightened scrutiny test because it found no

discrimination against interstate commerce.

More recently, the Supreme Court applied the heightened

scrutiny test to protectionist state public utility regulation in

Wyoming v. Oklahoma, 112 S. Ct. 789 (1992). The state statute

there under attack required that all coal-fired electricity

plants located within the state of Oklahoma burn at least ten

percent Oklahoma mined coal. The Court concluded that the

statute discriminated against interstate commerce and struck it

down under the dormant Commerce Clause, noting that the question

of which level of scrutiny to apply to the protectionist measure

was "not a close call." Id. at 800 n.12.

Based on this Supreme Court case law, we reject the

Department's contention that because the waste flow regulations

are part of a larger utility regulation system, they are not

subject to the heightened scrutiny test despite any

discriminatory effect.

We have found only one Supreme Court case in which a

Commerce Clause challenge was made based on the exclusionary

effects of a monopoly created by a state public utility

regulatory scheme. In that case, Panhandle Eastern Pipe Line Co.
v. Michigan Public Service Commission, 341 U.S. 329 (1951), the

Court sustained the state utility commission's refusal to allow

an out-of-state natural gas supplier to sell natural gas to

industrial consumers in an area where a Michigan public utility
had been granted an exclusive certificate of public convenience

and necessity. Panhandle is not helpful here, however, because

it was decided before Arkansas Electric. As we have noted, the

Court there rejected the bright line test of cases like Public

Utilities Commission v. Attleboro Steam & Electric Co., 273 U.S.

83 (1927), and Cities Service Gas Co. v. Peerless Oil & Gas Co.,

340 U.S. 179 (1950), that regarded state regulation of wholesale

utility markets as a direct burden on interstate commerce and

state regulation of retail utility markets as "essentially local"

in nature and as having only an incidental effect on interstate

commerce. The Court in Panhandle Eastern sustained the local gas

company's monopoly on the authority of Cities Service and the

wholesale/retail distinction there reflected.

Now that the Supreme Court has rejected this

distinction and made it clear in Arkansas Electric that public

utilities regulation is not a special category for Commerce

Clause purposes, it well may be that the heightened scrutiny test

would be applied to a situation like that presented in Panhandle

Eastern where an out-of-state firm challenges its exclusion from

the local franchise market. A strong argument can be made that

the rationale in C & A Carbone would require use of this test.
See 114 S. Ct. at 1682 (finding the ordinance discriminatory

because "it allows only the favored operator to process waste

that is within the limits of the town" and "no less

discriminatory because in-state or in-town processors are also

covered by the prohibition"). We do not suggest, however, that

traditional public utilities regulation of retail sales would be
invalidated by heightened scrutiny. Where the regulation is

addressed to a utility, like a local gas utility and unlike

Atlantic Coast, whose service requires a tangible distribution

system, a franchise monopoly may be the only economically

feasible alternative.

We note that there is a discriminatory aspect to the

waste flow control regulations in the context of New Jersey's

scheme that is not present in a situation like that presented in

Panhandle Eastern. A gas or electric utility granted a franchise

to serve the needs of all residents within a local area is not

ordinarily required to commit to producing its electricity or

securing its natural gas supply within that area as well.

Normally, both in-state and out-of-state interests may,

therefore, compete equally for the franchise award and the

creation of a captive consumer base does not, under these

circumstances, discriminate against electricity and gas generated

or produced out of state.

Under New Jersey's system, collectors of waste -- those

who supply disposal services at the retail level -- are required

to secure processing and disposal services from the designated,

franchised facility and out-of-state disposal firms are thus

excluded not only from the market for such services during the

franchise period but also from competing for the franchise. The

burden on the flow of services from out of state in the situation

now before us is thus far greater than the burden on the flow of

electricity and gas from out-of-state in the traditional public

utility regulation situation.
 We thus conclude that the public utility aspects of New

Jersey's solid waste disposal scheme do not require application

of the Pike balancing test.

IV.

As an alternative to its argument that the nature of

the New Jersey waste disposal scheme distinguishes it from the

ordinance in C & A Carbone and requires that its waste flow

regulations be subject to a more lenient level of scrutiny, the

Department contends that the nature of the system earns the

regulations the protection of the market participant doctrine.

The Supreme Court has recognized what amounts to an exception

from the restraints of the dormant Commerce Clause for otherwise

discriminatory action taken by a governmental entity in its role

as a market participant, rather than as a market regulator. The

market participant doctrine "differentiates between a State's

acting in its distinctive governmental capacity, and a State's

acting in the more general capacity of a market participant."

New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 277 (1988).

When a governmental entity enters the market place in a capacity

analogous to that of private market participants and makes

decisions analogous to those made by private market participants,

its decisions are not subject to dormant Commerce Clause

scrutiny. Thus, "'[t]he Commerce Clause does not prohibit all

state action designed to give its residents an advantage in the

marketplace, but only action of that description in connection
with the State's regulation of interstate commerce.'" Oregon
Waste Systems v. Department of Environmental Quality, 114 S. Ct.

1345, 1354 n.9 (1994) (quoting New Energy Co. of Indiana v.

Limbach, 486 U.S. 269, 278 (1988)).

The Supreme Court has found the market participant

doctrine to be applicable in only three cases: Hughes v.

Alexandria Scrap, 426 U.S. 794, 808-09, 810 (1976) (upholding a

program involving payments by a state for auto scrap where the

payments were restricted to in-state processors for state-titled

vehicles); Reeves, Inc. v. Stake, 447 U.S. 429 (1980) (sustaining

a restriction on the sale of government-produced cement to state

residents); and White v. Massachusetts Council of Construction

Workers, Inc., 460 U.S. 204 (1983) (upholding an executive order

requiring that city residents comprise at least one-half the

staff of all public works construction projects funded in whole

or part by city funds or city-administered federal funds). Two

important characteristics tie these three cases together. In

each situation the government was participating directly in some

aspect of the market as a purchaser, seller, or producer, and the

alleged discriminatory effects on the interstate market flowed

from these market actions.

In the solid waste arena, the Supreme Court has not yet

reviewed a case involving a government-owned waste facility and

the Court has consequently left unanswered the question as to

what effect government ownership of a waste facility would have

on otherwise discriminatory waste measures. See City of
Philadelphia v. New Jersey, 437 U.S. at 627 n.6 (reserving the

question whether a governmental unit who operates a landfill is a
market participant); Oregon Waste Systems, 114 S. Ct. at 1354 n.9

(finding impermissibly discriminatory a state statute directing

private landfills to pass on a mandated surcharge on out-of-state

generated waste and declining to address the issue whether Oregon

could accomplish its "cost-spreading" through market

participation). This court, however, has applied the market

participant doctrine in the context of a publicly owned waste

disposal facility. In Swin Resource Systems, Inc. v. Lycoming

County, 883 F.2d 245, 250 (3d Cir. 1989), cert. denied, 493 U.S.

1077 (1990), we held that the local government did not violate

the dormant Commerce Clause by charging at the county-operated

landfill a higher disposal fee for waste generated outside a

local area than for locally-generated waste, stating:
 If Maryland may decree that only those
with Maryland auto hulks will receive state
bounties, it would seem that Lycoming can
similarly decree that only local trash will
be disposed of in its landfill on favorable
terms. If South Dakota may give preference
to local concrete buyers when a severe
shortage makes that resource scarce, it would
seem that Lycoming may similarly give
preference to local garbage (and hence local
garbage-producing residents) when a shortage
of disposal sites makes landfills scarce.
And if Boston may limit jobs to local
residents, we see no reason why Lycoming may
not limit preferential use of its landfill to
local garbage (and hence local garbage-
producing residents).

Swin Resource Systems, 883 F.2d at 250 (footnote omitted). We

held that the county, rather than regulating the waste disposal

market, was "deciding the conditions under which [a private waste

processor] could use [the public] landfill." Id. at 249. The

county was simply operating a government facility in a manner

that favored its own citizens over others, and its activities did

not have "downstream" effects.19

The Department argues that the market participant
doctrine is applicable here because New Jersey participates (or

directs local government entities to participate) in the waste

disposal market as sellers and purchasers of waste disposal

19
. In South-Central Timber Dev. v. Wunnicke, 467 U.S. 82
(1984), a four-justice plurality held that the market participant
doctrine did not apply to an Alaska regulation requiring in-state
processing of timber obtained by private companies from state
forest land because it had the effect of controlling aspects of
the timber market in which the government, acting as a timber
seller, did not participant. 467 U.S. at 97-99 (opinion of
White, J.). The regulation was thus seen as having impermissible
"downstream" effects.
services and disposal capacity. The districts "sell" waste

disposal services, according to the Department, through the

designated disposal facilities. Where a district has opted not

to own or operate the designated facilities directly, it

"purchases" these services for "resale" by contracting with

private facilities for the provision of waste disposal services.

Thus, the Department maintains, the waste flow regulations simply

represent a means by which the state manages the districts'

market participation and the regulations are therefore protected

from Commerce Clause scrutiny under the market participant

doctrine.

While we do not quarrel with the Department's

characterization of the districts' activities as involving

purchases and sales of disposal service and capacity, we cannot

agree with its conclusion that the waste flow regulations,

therefore, cannot be violative of the dormant Commerce Clause.

When a public entity participates in a market, it may sell and

buy what it chooses, to or from whom it chooses, on terms of its

choice; its market participation does not, however, confer upon

it the right to use its regulatory power to control the actions

of others in that market. In Wyoming v. Oklahoma, 502 U.S. 437

(1992), for example, an Oklahoma statute required all electrical

utilities in the state, including state-owned utilities, to burn

a mixture of coal containing at least ten percent Oklahoma-mined

coal. The Court recognized that Oklahoma could legitimately

impose this restriction on state-owned utilities because, as a

market participant, it was entitled to make its own decisions
regarding energy source purchases. That fact did not, however,

immunize from dormant Commerce Clause review its attempt to

regulate the behavior of others in the market. As we have

earlier noted, the Court applied heightened scrutiny and found

the statute invalid.20 Oklahoma's participation in the market as

an electricity producer did not permit it to regulate in a

discriminatory manner privately owned utilities in the same

market.

Under New Jersey's solid waste disposal program, the

districts are doing more than making choices about what waste

they will accept even in those instances where the district owns

the designated facility. The waste flow regulations purport to

control the market activities of private market participants.

Those regulations do not concern only the manner of operation of

the government-owned or government-managed designated disposal

facilities; they require everyone involved in waste collection

and transportation to bring all waste collected in the district

to the designated facilities for processing and disposal. They

do not merely determine the manner or conditions under which the

government will provide a service, they require all participants

in the market to purchase the government service--even when a

20
. The Court refused to uphold that portion of the statute
that applied specifically to the state-owned utility after
determining that it could not be severed from the remaining
provisions. Wyoming, 112 S. Ct. at 802-04. In so doing, the
Court stated: "We leave to the Oklahoma Legislature to decide
whether it wishes to burden this state-owned utility when private
utilities will otherwise be free of the Act's restrictions." Id.
at 804.
better price can be obtained on the open market. New Jersey's

waste flow control regulations were thus promulgated by it in its

role as a market regulator, not in its capacity as a market

participant. As a result, those regulations are not immune from

review under the Commerce Clause.

V.

Because we conclude that the waste flow regulations

discriminate against interstate commerce on their face or in

effect, and that they are not protected from dormant Commerce

Clause scrutiny under the market participant exception, the only

remaining question is whether the regulations can survive the

heightened scrutiny test. "[O]nce a state law is shown to

discriminate against interstate commerce either on its face or in

practical effect, the burden falls on the State to demonstrate

both that the statute serves a legitimate local purpose, and that

this purpose could not be served as well by available

nondiscriminatory means." Maine v. Taylor, 477 U.S. 121, 138

(1986) (internal quotations and citation omitted). While

Atlantic Coast urges us to decide whether the Department has so

demonstrated, we decline to do so.

When the district court decided this case, C & A
Carbone had not been decided and J. Filiberto Sanitation v.

Department of Environmental Protection, 857 F.2d 913 (3d Cir.

1988), was the law of this circuit. Understandably relying on

Filiberto, the district court balanced the benefits to New Jersey
against the burden on interstate commerce under Pike. It
therefore had no occasion to consider whether the Department had

accomplished the much more onerous task of demonstrating that

there is no alternative to its waste flow control regulations

that would accomplish its legitimate objectives.

The parties compiled a very substantial record in the

district court, much of which consisted of live testimony the

district court had the benefit of hearing. Based on that record,

it is not difficult to believe the Department and the amici when

they insist that New Jersey has one of the most serious and

complex solid waste problems in the country. At the same time,

it is apparent from the record that the feasibility and

effectiveness of alternative measures pose technologically and

economically complex issues. While these issues have been

touched upon in the briefing before us, it is fair to say that

they have not been the focus of the parties' efforts on this

appeal.21 In this context, we believe that this court, the

parties, and the public deserve the benefit of the district

court's views before this controversy is finally resolved.

We are mindful of the fact that New Jersey has vowed

not to abandon its present system until compelled to do so and of

Atlantic Coast's contention that it suffers more irreparable

21
. The district court is in a far better position than we
to evaluate whether the focus of the efforts of the parties
before it would have been substantially the same had C & A
Carbone been earlier decided. Accordingly, we leave it to the
discretion of the district court in the first instance whether to
resolve the remaining issues, including the issue of the
appropriate form of relief if relief is to be granted, on the
basis of the current record or to reopen the record for
supplementary evidence.
injury with each passing month. We note, however, that Atlantic

Coast is free at any time to apply again for pendente lite

relief. The district court's prior decision to deny such relief

was based primarily on its conclusion that Atlantic Coast had

failed to demonstrate a likelihood of success on the merits of

its challenge. This conclusion was based in turn on its view

that the more lenient Pike test was the applicable one. After

C & A Carbone, the likelihood of success issue is a materially

different one from that which the district court previously

addressed.

VI.

Because the waste flow regulations discriminate against

interstate commerce by restricting the access of out-of-state

facilities to waste processing and disposal service markets, they

can be upheld only if they can survive the heightened scrutiny

required by C & A Carbone. Because the district court analyzed

the waste flow regulations under the more lenient Pike balancing

test, we will remand for application of the appropriate test.

For the foregoing reasons, the district court's judgment in favor

of the Department will be reversed and this case will be remanded

for further proceeding consistent with this opinion.