Municipal Law

CHERRY v. MAYOR OF BALTIMORE CITY, NO. 13-1007

Decided: August 6, 2014

The Fourth Circuit held that the City of Baltimore did not violate the Contract Clause of the U.S. Constitution when it changed the method for calculating pension benefit increases.

The City of Baltimore (City) instituted a public pension plan for public safety employees and, in 1983, instituted a variable benefit. The variable benefit entitled retirees to a benefit increase if the plan’s investments earned more than 7.5 percent in the preceding year. In 2008, in response to budget deficits, the City replaced the variable benefit plan with a cost of living allowance (COLA), which increased benefits by a maximum of two percent each year. Under the variable benefit method, retirees’ benefits increased an average of three percent. Appellants, retired police officers and firefighters, filed a class action suit averring that the ordinance establishing the COLA violated the retirees’ rights under the Contract Clause. The test of whether a sovereign has violated the Contract Clause is a three-part inquiry. The court considers (1) whether an impairment exists, (2) whether the state law in question substantially impairs a contractual relationship, and (3) if the impairment is substantial, whether the impairment is permissible. Balt. Teachers Union v. Mayor of Baltimore, 6 F.3d 1012, 1015, 1018 (4th Cir. 1993).

The Court concluded that no contract impairment existed because the ordinance did not preclude the appellants from pursuing a breach of contract claim under state law; did not protect the City from paying damages arising out of a breach of contract; and did not create a statutory defense to a breach of contract claim. Additionally, Maryland law allows appellants to challenge whether the change to pension benefits was a reasonable modification and entitles plaintiffs to relief if the modification is unreasonable. Therefore, the Court reasoned that state law provides plaintiffs the necessary protection for breach of contract and the ordinance did not violate the Contract Clause.

Full Opinion

Amanda K. Reasoner

Sandlands v. Horry County, No. 13-1134

Decided: December 3, 2013

The Fourth Circuit affirmed the district court’s grant of summary judgment in favor of Horry County, thereby validating its Flow Control Ordinance that prohibits disposal of waste generated in Horry County at any site other than a designated publicly owned landfill.

Horry County occupies the northernmost coast section of South Carolina and landfill waste disposal there has been expensive and difficult. Consequently, in 1990 the County Council established the Horry County Solid Waste Authority, Inc. (“SWA”), a nonprofit corporation, to manage the county’s solid waste. The SWA is a public entity, which owns and operates two landfills and a recycling facility in Horry County. The SWA charges haulers and others who use its landfills “tipping fees” based on the tonnage of trash deposited, which provides revenue to fund SWA operations. Haulers who recycle a specified percentage of the waste they collect pay a reduced tipping fee through an application-based recycling incentive program. On March 17, 2009, the Horry County Council enacted Ordinance 02-09 to create a county-wide plan for solid waste disposal. It has been largely successful in ensuring that waste generated in Horry County is deposited at an approved landfill within the county. The remaining 1,844 tons of waste were taken to four landfills outside of the county, most of which was not “acceptable waste” under the Flow Control Ordinance—in other words, it was waste that the SWA landfills could not process. The enactment of the Ordinance altered the local economy of waste management. For example, Sandlands, which operates a private landfill for C&D waste in neighboring Marion County, South Carolina saw a significant decrease in its business. As an alternate business strategy, Sandlands attempted to open a facility to process recovered materials at its Marion County site, where it would have sorted general C&D debris into recyclable materials and landfill-ready waste. When Sandlands requested permission from Horry County to remove mixed C&D debris for this purpose, a representative from the Horry County Attorney’s Office responded that debris containing non-separated materials is still solid waste subject to the requirements of the ordinance.

On appeal, appellants argued that the Flow Control Ordinance violates the Equal Protection Clauses of the United States and South Carolina Constitutions, the Commerce Clause of the United States Constitution, and the Contract Clauses of the United States and South Carolina Constitutions.

The appellants first argued that there was a Commerce Clause violation and a Dormant Commerce Clause violation. The Fourth Circuit explained that a Dormant Commerce Clause violation will exist where a restriction on commerce is discriminatory—that is, it benefits in-state economic interests while burdening out-of-state economic interests. In United Haulers, the Supreme Court upheld flow control ordinances remarkably similar to the one at issue here, requiring haulers to bring waste to facilities owned and operated by a state-created public benefit corporation. Under United Haulers, the court must first determine whether the Flow Control Ordinance discriminates against interstate commerce. In United Haulers, the Court determined that flow control ordinances favoring the government while treating in-state private business interests exactly the same as out-of-state ones do not discriminate against interstate commerce. Like the ordinances in United Haulers, the Horry County Flow Control Ordinance benefits a clearly public facility. Because trash disposal is a traditional function of local government, county waste-management ordinances can permissibly distinguish between private and public facilities. However, the ordinance must treat all private businesses alike. Therefore, contrary to Appellants’ argument, the question was whether Sandlands has been treated differently from other private businesses – not other public entities. In addition, because appellants had not been treated differently from other private businesses, Horry County had not discriminated against them by prohibiting them from processing and sorting mixtures of acceptable waste and recyclables at their facility in Marion County.

Because the Flow Control Ordinance was not discriminatory, the Fourth Circuit then considered its burdens and benefits under Pike. In Pike, the Supreme Court held that if a “statute regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.” Again pointing United Haulers, the Court there held that flow control ordinances do address a legitimate local public interest. It did not decide whether the ordinances imposed any incidental burden on interstate commerce because it found that any arguable burden does not exceed the public benefits of the ordinances. The same analysis was applicable to the Horry County Flow Ordinance because it clearly conferred public benefits that outweigh any conceivable burden on interstate commerce. To begin, the Ordinance had only an arguable effect on interstate commerce, even if it did affect intrastate commerce to some degree. In addition, it produces the same benefits that the Supreme Court recognized in United Haulers. Moreover, the Ordinance’s waste-management program was a quintessential exercise of local police power. And finally, the ordinance created a revenue stream through which the county supports waste management, recycling programs, and its 911 calling system.

The Fourth Circuit also rejected appellants’ argument that summary judgment was not appropriate because a factual dispute existed about whether the Ordinance discriminated against interstate commerce. The record revealed no disputes of material fact.

Finally, the Fourth Circuit rejected Appellants’ Equal Protection Clause claim. To succeed on such claims, the Appellants had to first demonstrate that it had been treated differently from others similarly situated and that the unequal treatment was the result of intentional or purposeful discrimination. If a party can make that initial showing, the court analyzes the disparity under an appropriate level of scrutiny. However, the Fourth Circuit did not reach that level of analysis because Sandlands and EDS failed to show that they were intentionally treated differently from other similarly situated companies.

Full Opinion

– Sarah Bishop

Greater Baltimore Center for Pregnancy Concerns, Inc. v. Mayor and City Council of Baltimore, Nos. 11-1111, 11-1185 (en banc)

Decided: July 3, 2013

A majority of the Fourth Circuit, sitting en banc, vacated the judgment of the district court, which granted summary judgment to Plaintiffs Greater Baltimore Center for Pregnancy Concerns, Inc., St. Bridgid’s Roman Catholic Congregation and its Archbishop and permanently enjoined the enforcement of a City of Baltimore Ordinance.   The Ordinance at issued required limited-service pregnancy centers to post disclaimers that the center does not provide or make referrals for abortions or certain birth-control services.  The Plaintiffs argued that the Ordinance was facially invalid under the Free Speech Clause of the First Amendment.  The decision, according to the majority, was based on what it deemed was a summary judgment decision “laden with error, in that the court denied the defendants essential discovery and otherwise disregarded basic rules of civil procedure.”  In addition, the majority affirmed the district court’s ruling that the St. Bridgid’s Roman Catholic Congregation, Inc. lacked standing to be co-plaintiffs with the Greater Baltimore Center for Pregnancy Concerns.

The Ordinance at issue was passed by the City of Baltimore City Council (“the City”) in November 2009 and required pregnancy centers that did not offer abortions or birth control to display signs that indicated as such and post them in a conspicuous place in the center’s waiting room or other waiting area. The City offered a rationale that such centers had provided misleading information and the City had a vested interest in protecting the public health by ensuring honest advertising of services and that the limited-service pregnancy centers pose a threat to the public health.  The Ordinance vests enforcement power with the City Health Commissioner who can issue violation notices and if the center fails to comply with the notice, the Commissioner can issue a civil citation.  The Commissioner is also given the authority to pursue criminal or civil remedies against the violating center.  The constitutionality of the Ordinance was challenged by the Greater Baltimore Center for Pregnancy Concerns (the “Center”), which qualifies under the Ordinance as a limited-service pregnancy center, and the St. Bridgid’s Roman Catholic Congregation and its Archbishop.  The plaintiffs shared religious beliefs that caused them to oppose abortion and certain forms of birth control and their Complaint alleged that the Ordinance violated their First Amendment rights of free speech, free assembly, and the free exercise of religion, plus the Fourteenth Amendment’s guarantee of equal protection and Maryland’s statutory “conscience clause.”

According to the majority, before the City had answered the Complaint, while still having four days left to do so, the plaintiffs filed a motion for partial summary judgment under FRCP 56.  The plaintiffs asserted that the strict scrutiny standard applies and cannot be satisfied because the Ordinance fosters “viewpoint discrimination” against “pro-life pregnancy centers” and compels those centers to engage in government-mandated speech.  A few days later, the City filed a motion to dismiss the Complaint pursuant to FRCP 12(b)(6) or, in the alternative, to dismiss the claims of St. Brigid’s and the Archbishop for lack of standing.   After the district court issued a Scheduling Order, the plaintiffs filed a response to the City’s motion to dismiss and the City submitted a reply concerning its dismissal motion, combined with a response of plaintiffs’ motion for summary judgment.  The City asserted in its response to plaintiffs’ motion for summary judgment that the summary judgment request was premature and that it needed more time to engage in further discovery to fully develop its claims and rebut the plaintiffs’ assertions.

At a motions hearing, the plaintiffs argued that there challenge to the Ordinance was a “facial challenge” and, as such, no further discovery was needed.  The district court agreed that further discovery was unnecessary for a facial review of the Ordinance, though it allowed the City to enter the Ordinance’s entire legislative record into evidence.  The district court promised the City that discovery would be authorized before the court engaged in any “as-applied” analysis of the Ordinance.  After review of the record, the court issued its summary judgment decision and permanent injunction without allowing the City any further discovery.  In its decision, the district court determined that because the City had submitted materials beyond the plaintiffs’ Complaint – i.e., the legislative record – it was correct to treat the City’s motion to dismiss as a cross motion for summary judgment and it rejected the City’s arguments that rational basis scrutiny should apply because the Ordinance was directed at misleading commercial speech.  In applying the strict scrutiny standard, the district court had no issue striking down the Ordinance as unconstitutional on First Amendment grounds.  Notably, the district court also ruled early in its decision that St. Brigid’s and the Archbishop lacked standing to be co-plaintiffs in the case because they could not make the required showing of “the existence of concrete and particularized injury in fact.”

First, the Fourth Circuit summarily agreed with the district court that St. Bridgid’s and the Archbishop lacked standing to be co-plaintiffs.  Next, and more importantly, a majority of the Fourth Circuit vacated the district court’s decision on largely procedural grounds.  The court pointed to several procedural mistakes made by the district court as the court, in the words of the majority, “rushed to summary judgment.”  The court found serious errors with the district court’s denial to the City of necessary discovery, its refusal to view in the City’s favor the evidence presented, and its “verboten factual findings, many premised on nothing more than its own supposition.”  The majority of its decision was focused on the district court’s refusal to afford adequate discovery to the City and rejected the district court’s theory that because it was ruling on a facial challenge to the Ordinance, then greater discovery was not warranted.  The majority also held that the district court “flouted the well-known and time-tested summary judgment standard” when it did not afford all justifiable inferences in the City’s favor, especially with respect to the City’s commercial speech and rational basis theory and that the court engaged in findings based on its own assumptions about the facts.  As a result, the Fourth Circuit vacated the district court’s grant of summary judgment and the permanent injunction against enforcement of the Ordinance and remanded the case back to the district court for further proceedings in line with the Federal Rules of Civil Procedure.

Full Opinion

– John G. Tamasitis

Municipal Association v. USAA General Indemnity, Nos. 11-2220, 2221, 222, and 2223

Decided: March 1, 2013

The Municipal Association of South Carolina (the “MASC”) sought a declaration in district court that South Carolina municipalities are entitled to assess “municipal business taxes” against insurance companies. The taxes are measured by the total flood insurance premiums collected in the particular municipality by insurance companies under an arrangement with the Federal Emergency Management Agency (“FEMA”). Various insurance companies filed motions for summary judgment challenging the declaratory judgment. The district court denied the motions. On appeal, the Fourth Circuit Court of Appeals held that the taxes violated principles of sovereign immunity.  Therefore, the court reversed the district’s court’s decision.

The MASC consists of almost all of the municipalities in South Carolina, and one of its primary duties is to collects business license taxes from insurance companies that conduct business within the participating municipalities. The business license tax imposed on each insurance company is two percent of the gross premiums received by the insurance company in the prior calendar year in a particular municipality. The party-insurance companies write and sell policies in South Carolina, and they offer and collect premiums on Standard Flood Insurance Policies (“SFIPs”) pursuant to the FEMA National Flood Insurance Program (the “NFIP”).  At the district court proceedings, the insurance companies argued that the municipal business taxes would violate principles of sovereign immunity and preemption because the flood insurance premiums were federal property. The district court disagreed, and the insurance companies appealed.

On appeal, the Fourth Circuit held that the flood insurance premiums collected by the insurance companies were federal property and therefore could not be taxed by the state of South Carolina. The court also held that since the insurance companies participated in the NFIP, they are federal instrumentalities are therefore immune from taxation. Therefore, the court reversed the district court’s denial of the insurance companies’ summary judgment motions.

Full Opinion

-Graham Mitchell